Published in the San Diego Union-Tribune, January 9, 2024
by Neil Senturia
A few years ago, I was one of the leaders in bringing the Defy Ventures program to Donovan state prison in San Diego. The rigorous program was designed to bring entrepreneurship into the lives of the inmates. There were deliverables over the six-month period, which ended in a business plan competition presented to a group of outside judges.
The key element in the business plan is that the inmate’s idea has to be able to become cash flow positive within 90-150 days. These ideas are not designed to be where you need to go raise $300 million, rather these are entrepreneurial adventures that can be self-sustaining with a modest initial investment of less than $25,000.
I like this limitation. Control your own destiny. I am going to suggest to the entrepreneurial class of 2024 that hope is not a strategy and that the venture spigot of millions and billions has either turned off completely or is severely constrained at this time.
In other words, if you want to wade into new water, you need to start companies that can find traction and cash flow without depending on an unending supply of financial fantasy. Herewith some stats to back up my position courtesy of the reporting of Erin Griffith of The New York Times:
“WeWork raised more than $11 billion. Olive AI, a health care start-up, gathered in $852 million, Convoy, a freight start-up, raised $900 million and Veev, a home construction start-up, amassed $647 million. In the last six weeks, they all filed for bankruptcy or shut down,” Griffith writes.
Griffith goes on to detail the cash bonfire. “Hopin, another start-up, raised more than $1.6 billion, was once valued at $7.6 billion and just sold its main business for $15 million.” Add Plastiq and Bird to the landscape of the dead and buried in Potter’s field.
Schadenfreude. It couldn’t happen to a nicer group of arrogant, entitled founders, (and yes, I am jealous that I could never raise that kind of money).
The media highlights company XYZ and its billion-dollar raise at a gazillion-dollar valuation, and in the darkness, we all get that twinge. Why not me?
According to Pitchbook, “approximately 3,200 venture-backed U.S. companies that have collectively raised $27.2 billion have gone out of business in 2023.” What ever happened to starting a business that could be self-sustaining without eye-popping amounts of investment?
The entrepreneur reads about the unicorns and feels that he/she too has to shoot for the stars. Then what follows is the founder statement of regret.
Ishita Arora, founder of Dayslice, wrote that “she had to confront reality.” She gave back some of the money. Gabor Cselle, founder of Pebble, wrote “that despite feeling he had let the community down, trying and failing was worth it.” Sure, with someone else’s money.
Amanda Peyton, founder of Braid, wrote about “dread and loneliness.” She went on to say that she thought the potential for growth in software was infinite. “It has become clear to me that’s not true.” Perpetual motion also is not real. Same with UFOs.
Don’t forget our favorite Sam Bankman-Fried who offered us “effective altruism” from his penthouse with the Lambo parked in front. Gimme a break.
Thus my story about Defy. Grounded in reality, the inmates are trained to match their skills and abilities with the realities of financing. My favorite felons are thinking barber shop, car repair, office janitorial service. Businesses that produce revenue quickly.
What I am suggesting as a mantra for 2024 as is to consider the famous line from “Cool Hand Luke,” when he is told, “You gonna get your mind right.” Unicorns might be real from time to time, but not always and not forever.
When they die, they make a loud noise and they leave a large dent in the landscape as well as in the lives of the people who rode on them.
Jealousy and greed are a heady mix. My felons do not have any of that. They want to do their time, get out, build a life and start a business that can produce a livelihood. I honor the food truck, I applaud the simple successes. Positive cash flow, what an amazing concept.
Do not count on losing a nickel on every widget and making it up on volume. Those days are over.
Rule No. 790:
2024 is a blank slate, but not a blank check.