The Underlying Impact of the “Apps” Phenomenon on VC-Backed Software Startups
New smartphone applications (“apps”) are being developed at a rate of nearly 1,000 new titles a day. While Apple’s brilliance in cultivating the developer community receives much of the credit for this incredible phenomenon, it has also ridden the back of the global economic meltdown coinciding with the rise of the iPhone.
“Huh, come again,” you say? That’s right, the storm that wiped out so many budding software companies was so immensely beneficial to the growth in iPhone sales that even Steve Jobs probably never imagined its true transformative power and the permanent changes it would cast upon the software industry landscape.
Who among us doesn’t know someone who joined a software company in the past five years only to see their stock options plunge under water as a result of a cram-down financing, layoff, or outright bankruptcy? Or to put it a little more bluntly, who among us knows anyone left standing whose equity value wasn’t substantially wiped out? When something like 99 percent of developers who were being extrinsically motivated by stock options have seen their paper wealth get crushed, many have begun to question whether they’d been sold on a phantasmagorical dream like so many Klondike prospectors 150 years ago. Some of the walking wounded began searching for—and many have already found—a compelling alternative to the conventional startup company. Tens of thousands have launched their own app development and publishing businesses.
On the one hand, the consequences of this blight upon common stock value has caused many developers to seek higher ground in the form of competitive salaries and benefits, and to be less charmed by the allure of stock option certificates that may yet again turn out to be useful only as wallpaper. Even in the best economic times, the odds against stock options turning into real worth were already long. After a meltdown like the last one some are willing to bet on Dante’s lounge offering frozen drinks before they’ll bet on stock options again. The older dogs also remember that an economic downturn hits the entrepreneurial economy with tectonic force about every six to 10 years, taking out entire ecosystems of startups with them.
This may be good news for the Microsofts and Oracles of the world who can afford to offer higher salaries and attract software talent that previously would have opted for the upstart venture where they could play a more significant role, potentially create greater wealth for themselves, and not just be a “cog in the machine” of a giant enterprise. Indeed, finding developers to join a startup that has an insignificant war chest, no 401K, and a health care plan that relies on employees obtaining their own coverage is just about as hard as I can remember it ever being in the over two decades that I’ve been working in, leading, and investing in technology startups.
But there is another, perhaps more significant factor at work. If you know something about the psyche of software developers, then you should know that it is rarely about the money for them. Developers are “creatives” who thrive on knowing that the product they are building with their blood, sweat, and tears is going to be appreciated, if not loved by its users. The best way to kill a developer’s … Next Page »