Death by Indigestion

More companies die of indigestion than starvation.

That quote, oft repeated, is attributed to one of the godfathers of silicon valley startup culture- Bill Hewlett, co-founder of Hewlett Packard. The statement was made as a word of warning as HP was scaling, flush with cash, and ambitiously biting off new product line after new product line.

In the minds of many, the answer to what ails them defaults to more.

We see this in startups all the time. More money to hire more people to build more product to drive more growth. A simple formula, a soothing siren song but, as Bill highlights above, dead wrong.

In his book, Stretch, Scott Sonenshein dives deep into examples of organizations with constrained and abundant resources and finds that starvation, or orgs with limited resources, are a petri dish for real innovation.

With abundance, people treat resources as what they appear on the surface, utilizing them in traditional ways. But when people face scarcity, they give themselves freedom to use resources in less conventional ways.

Without constraints, research finds that our tendency to retrieve from memory exemplary uses of resources. We follow a “path of least resistance” model, which allows us to conserve mental energy by instinctively turning to commonplace ways of thinking.

With constraints, things unfold MUCH differently.

Many startups focus on cash as the answer to the problems they face. If they just had more money they could hire more and move faster to win a market.

But, as Scott highlights above, when they close that round they tend to fall back into very traditional ways of using the cash.

Despite how ego enticing the headlines, valuations and status a freshly minted round may be, research and experience show otherwise.

As Fred recently wrote:

I believe that excess capital makes companies weak and unfocused.

I believe limited capital makes companies strong and focused.

And I don’t believe capital has ever helped a company win a market. Many have tried that approach and it always ends badly.

I don’t believe big companies are getting better at competing, I believe startups are getting worse at it.

They are dying from indigestion as they try to consume and deploy resources at the same rate as their large competitors. Instead of embracing the innovation advantages that come with being small and resourceful, most are in a race to get as big as possible as fast as possible. Playing someone else’s game instead of their own.

In a startup world awash in cash, the next wave of great companies will be those who’s founders and teams buck the conventional startup wisdom and embrace the ideals of doing more with less. Who celebrate their resourcefulness.

Despite the temptation to do otherwise.