For Startups, Is Friction Always Bad?

12/17/10Follow @wroush

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when a bubble mentality takes over—which seems to happen here every decade or two—a lot of these ideas will start to look like they have legs. Pretty soon, investors will start handing over small fortunes to overconfident founders who, most often, will turn them into smaller fortunes.

When there are more funded entrepreneurs in circulation than good ideas, you start to hear some weirdly self-reinforcing logic, such as the idea that almost every startup will have to abandon its original product at least once before it finds a market, and that the best entrepreneurs are those who can “pivot” gracefully from one idea to the next. This thinking is enabled, in part, by the Bay Area’s sheer abundance—if your company needs a little more capital to test its second or third product idea, or if you decide your website should probably run on Ruby instead of Python or HTML5 instead of Flash, the money and talent will probably be there. It’s also fueled by the mythology that has grown up around foundational Silicon Valley companies like PayPal, which changed course twice before finding a market as eBay’s default payment processing system. But to my ears, “pivot” is often just a euphemism for “trying something else before we have to ask for more money.”

You can probably define a bubble as a shortage of friction. If the spreadsheet-obsessed venture partners in New England had been in charge of screening all Internet investments between 1995 and 2001, there probably wouldn’t have been a dot-com bust. But then, there wouldn’t have been a boom, either.

My point is just that zero friction isn’t really the goal to shoot for. Investors have to impose a moderate amount of it. If they set the level too high, entrepreneurs will probably go elsewhere—and that’s what seems to be happening in Boston. If they set it too low, things get out of hand, which may be what’s happening in the Bay Area. But perhaps it’s all good in the end. Maybe there’s just a big geographical sorting algorithm at work—with entrepreneurs and investors heading to the places that best suit their personalities.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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  • http://www.startup-book.com herve

    As someone helping entrepreneurs in a European university, I could not agree more! In Europe the friction is huge, probably the difference you observe between Silicon Valley and New England is the same but between Europe and New England. However one of the (American) entrepreneur I help here is very skeptikal about too little friction (or too much support). Let me quote him:

    “I think that there is too much talk about “help” for entrepreneurs, and access to structured aide that will not be beneficial to the entrepreneurs and their projects. [...] The entrepreneurs need to learn how to stand on their own two feet, and when lacking a certain skill they should be able to attract someone to complement them if the project is interesting enough. Too many aides, organized events, etc. will not create independent serial entrepreneurs. It just creates people that complain about not having enough help… Also, the networking and isolation aspect is entirely the fault of the entrepreneurs, and not the system nor European culture. If you want to meet someone in this country it rarely takes more than two weeks to set something up. Furthermore, hanging out at every single entrepreneurial/Venture/innovation event like I did for five years gives you a chance to meet anyone you want (even billionaries, even managers of family offices).”

    This may not be exactly what you talk about, your friction was more about the frictionless web, but still I think it is related. Too little friction is not good at all, I agree with you!

  • http://www.xconomy.com/author/wroush/ Wade Roush

    @Herve, thanks for your comment. The American entrepreneur you quote sounds to me like a classic conservative/libertarian — the same sort of person who would say that governments shouldn’t provide poor people with food assistance. I agree with him that there’s only so much that agencies can do in the way of structured aid to startups; if teams aren’t truly entrepreneurial, all the aid in the world isn’t going to help. But my impression is that in Europe, the cultural barriers that entrepreneurs have to overcome are so high that the aid that does exist is useful and necessary.

  • http://traackr.com/ Pierre-Loic Assayag

    Great article, Wade!
    Though Traackr is at a stage where a relocation to the Valley seems very likely, starting in Boston in 2008 (worst possible time to raise) was the best thing that happened to us as it forged our identity, tested our resiliency, and forced us towards a stronger product vision and revenue. So I would absolutely agree with you that friction is essential to building strong businesses.
    Our location has started to become a liability rather than an asset very recently: once we found our path and needed more financial resources to fuel the business. Boston’s rather conservative investment community* makes great decisions when it comes to funding continuous innovation, tapping into existing markets where data is available to predict success; the same analytical methodology leads to terrible decisions when it comes to funding disruptive, market defining, ventures as very limited data is available.

    (*) Note that there are exceptions to the rule of course (Spark, one of Twitter’s early investors is afterall based in Boston) and several early stage funds have gotten started recently in New England.

  • http://www.masschallenge.org John Harthorne

    Very interesting and thoughtful article, Wade. We miss you out East.

    I would like to reinforce a point you make early in your article: that friction has been decreasing steadily in the Boston startup scene over the last few years. I would also note that it seems poised to decrease further still.

    Local angels are actually talking “bubble” and I can’t say I disagree entirely. Early stage funding isn’t yet “frothy”, but it is very active and appears to be accelerating quite steadily.

    Take this as one data point: in the last 2 months alone, ~10 MassChallenge startups have raised a total of over $4M in private funding (on top of the $1M we distributed). The vast majority of that funding came from within Massachusetts. RelayRides is actually the only exception of which I am aware — and we’re very proud of them and ecstatic that they received such great support, regardless of it’s geographic origin.

    At the end of the day, there is no denying that Massachusetts will remain at the forefront of innovation and entrepreneurship in the years to come. Based on the data I have seen from the 100+ startups we’ve been accelerating at MassChallenge, friction is decreasing rapidly and MA is actually well positioned to expand it’s dominance in entrepreneurship.

    If anyone out there wants to connect with funding or other startup resources in MA (or elsewhere), please email us via contact@masschallenge.org

    We are an independent non-profit, and there are no strings attached to our support or award money. We just help entrepreneurs win!

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