Slow Down in Startup Innovation

Looking back at the last 10 years, two specific trends are very clear to me, here they are highlighted by Fred Wilson:

“The massive experiment in using capital as a moat to build startups into sustainable businesses has now played out and we can call it a failure for the most part.”

“The big four tech companies own monopolies or duopolies in their core markets and are using the power of those market positions to extend their reach into tangential markets and beyond.”

Startups are now focusing on becoming sustainable and big tech companies are focusing on consolidation via acquisitions or by taking over smaller markets by using their market positions. This leaves very little room for creative and innovative thinking. At the very least, we will see less resources and time dedicated to experimenting with new approaches. Revenue and more importantly net revenue is back to being the primary driver. While this is a healthy economical correction, it also means that we will see very small companies fight for their survival relying on differentiating themselves from big companies (strong values such as ethics, privacy, different business models, better support…) while big companies will spend money to grow as big as possible so they can’t fail.

This environment is unfortunately not conductive to crazy new ideas. Everything must be weighed against OKRs or KPIs which themselves are directly correlated to net revenue. It will be hard for independent entrepreneurs to innovate unless they already have a solid economical engine.

On the other hand, while the open-source movement was promising, the experience somewhat failed when big tech companies started taking over and used FOSS as a way to dominate or extend their market reach. Open-source turned into more of a marketing and recruiting strategy than a way to drive new ideas. Very few open-source maintainers can sustain that lifestyle developing new ideas while big companies make millions off of the work that the open source community has done over the last decades. Fascinating turn of event.

I might sound pessimistic but I believe defining a clear baseline of where we are at now, is the best way to find medium to long term opportunities. Things are changing, non revenue driven innovation might be negatively affected in the short term but new models are about to be revealed and put to the test. That’s something I am excited to see.

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