The “Pre” Startup is adding air to the bubble

There seems to be a lot of this going around these days – the “I’m just about to start a startup” category of entrepreneurs, or “I just started a startup” when they haven’t. It’s also become the new euphemism for unemployed.

Here are the justifications and logic process for so many claiming they have a startup before they really do, and in many cases actually getting some funding:

• people feel like they might as well start their own business since nobody is hiring
• funding is more prevalent than ever for early early  (read “ideas”) stage companies
• the barriers are now very low for actually forming a business, as is the cost
• micro funding ($25K)
• no formal certification or education required
• many new angels spawning from Google, Facebook, etc. millionaires
• angel investors are supporting these early unqualified launches; many are F&F/parents who believe in the dream
• amazing shining examples of success and IPOs, even though they a 1 in a thousand
• it sounds cool, or used to before everyone started doing it
• many people never before involved in startups want in

There will be significant fallout from this no doubt, but no one knows when.

Not that there’s anything wrong with many new businesses per say – here are some good results of such a rush

• some of these will be the next homeruns (and base hits) in the startup world
• lots of jobs being created, even if short term
• first time startupers will get invaluable experience, whether they succeed or fail
• many more people are learning software development

However, the fallout from all this will set us back a few years again …

• many misled, unsophisticated angels will get burned and sour to good investments (not sophisticated angels, they know the risk)
• whenever investors jump in late (now) many bad things happen
• innovation is heavily suffering right now – almost anything is a business model
• when many vaporware and vapor-businesses crash or fade away they leave damage, possibly fueling the recession (remember 1999-2000? 2008?)

…but will take us back to a more solid footing.

The American Dream of entrepreneurship is one I hold dear, but to apply it to a technology based startup requires a few basic principles – a real business model, hard work, technical excellence, outside expertise, sustainability, market focus, strategy, and more hard work. Eventually it also needs revenue growth and profits.

Hang on tight the roller coaster is taking a dip soon, I predict by mid 2012. It will shake out many people into the streets wondering what the hell happened.  @tomnora