The last company from Silicon Valley that reached a billion dollar revenue and was profitable, was Twitter, founded in 2006. Since then all the other companies like Uber, Airbnb or Snap haven’t made any profit. Yes, you read that right. None. How is that even possible? Dan Lyons, the author of the New York Times bestseller Disrupted: My Misadventure in the Startup Bubble, explains.
Why is the whole world so crazy about startups and its Mecca, Silicon Valley?
From the outside, the startup world is alluring. You see these very young successful people who are making a tremendous amount of money in a short period of time. The whole idea is so romantic that even Hollywood is fascinated by stories of these entrepreneurs. They have become celebrities in our culture.
Can you explain why?
Back in the 1980s, founders of companies like Cisco or Microsoft were mostly geeks who didn’t seek out attention, whereas, nowadays, it’s just the opposite. Take Travis Kalanick, the former CEO of Uber, for example. He is kind of a monster, but he is good-looking, brash and a bit obnoxious. It somehow appeals to people.
Or, Mark Zuckerberg. He seems to me a sociopath, but there are people who love him. When the movie about Facebook came out, the PR were afraid that it will hurt them but it was the best thing that has ever happened to them. Young guys went out of the movie and said: “He’s disloyal but smarter than everyone else. I wanna be just like him.”
What else draws people to work in startups?
They think that it’s going to be really fun. You walk in a nice office and you are like “Oh, look at this place. Bean bag chairs, dogs running around, ping pong, fuss ball, electric guitars…” People feel they are super cool to be selected to work there. On top of that, there is this myth that it’s a meritocracy — we don’t care who you are, you just need to be best. But it doesn’t work that way — if you are a woman, an old person or a person of color, you’ll not get hired or get promoted.
Is it what bugs you the most about startups?
Yes, this exclusionary aspect bothers me for a variety of reasons. It is mean and dumb because you miss out on many talents. This whole new industry is only meant for a tiny part of population.
Photo: Gretchen Ertl
What else do you dislike about startups?
The fact that you can create a company that never makes any profit, yet a bunch of people around get a lot of money and run away. It defies logic, but it’s entirely possible to do.
It’s an alchemy that Silicon Valley has invented. Did you know that the last company that came out of Silicon Valley that reached billion dollar revenue and makes a profit is Facebook? For the past 15 years companies have been growing really fast but haven’t made profit. Microsoft has a much better business than any of these startups, but it’s boring, right? It’s a mature business.
Who makes money on companies that ultimately lose money?
The winners are venture capitalists who don’t do any work and get a lot of money and early employees whose options can be worth hundred million dollars. These people don’t care for earnings, they just hope to sell worthless stock to the public. It’s pure speculation, gambling.
How long do you think this startup obsession will last?
I really don’t know. I used to take guesses and say this year but that was 5 years ago. I think that people need to get badly burnt to lose the appetite.
What will happen when the bubble blasts?
We’ll have a big crash which will wash away all the useless companies. It will be similar to the dotcom crash, due to which companies’ stock price dropped drastically. For example, Infospace’s stock price went from 1300 USD to 2 USD. I think we can expect the same thing happening to today’s overvalued companies.
How will the crash impact the people who currently work in startups?
They will be ultimate victims. Many people who work in startups get options as part of the compensation, but these will be just worthless. It will mean you did your work for nothing.
Photo: archiv Dana Lyonse
In your book Disrupted, you describe how the startup world is dysfunctional. What impact did the book have?
None (laughs). Venture capitalists are still convinced that they are right and they are impervious to criticism. Companies continue doing business as usual, despite all the scandals that we could hear about (like Snap, Uber, Lyft or WeWork). I believe the book had some impact at an individual level because I hear a lot from employees whom it reminds them of an old job.
Has any of your views about startups changed since you have written the book?
I am much less cynical about Hubspot than I used to be when I worked there. They have found a way to automate marketing and do things more easily. Uber is almost entirely bad, the way they exploit drivers and office workers, but for customers it’s really great. If you could turn these companies into profitable and sustainable businesses that would treat people well, you could be onto something.
Do you believe the catchphrase that startups make the world better?
Oh, yeah. Uber changed the world and so did Facebook, Lyft, Hulu or Netflix. There are also plenty of startups which don’t make consumer stuff but sell to companies and they make great products like wi-fi, high speed Ethernet or memos. The world has been driven by startups. In a way I will contradict myself badly, but you could say that even though you have these venture capitalists who throw billions of dollars at the wall, maybe it’s worth it. Even though it’s inefficient, it does create progress.
Would you recommend people who are searching for a job to work in a startup?
I would advise everyone to look for company that invests in you. A lot of companies are one way street, they want you to be loyal and want to get as much work done, but they don’t offer promotion or development. Good companies offer stability and a chance to learn and grow. When you are considering to work for a certain company, ask them: “What will I learn here”, “How will I grow here,” and “What are my chances of promotion”.
Dan Lyons (*1960) is an American humorist, journalist, and screenwriter, known for the New York Times bestseller Disrupted: My Misadventure in the Startup Bubble. He has written for the New York Times, Fortune, Forbes, Newsweek, and wrote for HBO’s hit series Silicon Valley.