Recently, two very different events occurred within the orbit of Northeast Ohio startups. While one founder was reviled publicly for failing, another company’s founders were celebrated for achieving dramatic success, but framed with an asterisk for moving their business out of the region.
This dichotomy is itself a metaphor for what many startup founders experience on a near-daily basis. The ups and downs of attempting to start and run a business come hard and fast, often bringing a level of mental violence and a sense of isolation that most people never experience.
That unseen consternation is why both these occurrences are learning opportunities. Their lessons are essential for everyone in Northeast Ohio who yearns for a more robust startup ecosystem and the economic prosperity that comes with it.
We must learn to respect failure
The most successful startup ecosystems welcome failure. We cannot continue the cognitive dissonance of hoping for entrepreneur-led economic recovery and yet expect perfection and universal success from those who have the potential to spur it.
Because founders are people, too, our community must embrace them and lift them up rather than kick them while they’re down. That means not writing hit pieces about a business owner who has just had to lay off his or her entire team or mocking those who default on a business loan they personally guaranteed. It may be hard not to ogle as you drive past a car crash, but maybe hold off on cheering for the victims to be maimed when doing so.
We must expect founders to do what is necessary to be successful
Often the best way for a founder to maximize the chance for success with a business is to move it away from Northeast Ohio. This fact presents another conundrum for those of us who act as ecosystem boosters. Do we wish them the best and continue to support them from afar? Or do we write them off as another example of brain drain and go back to lamenting our poor luck?
While our region has extensive talent for a startup to tap, it’s common for those workers to be risk-averse and unwilling to join an uncertain new endeavor. Early stage companies are often short on cash and usually turn to equity compensation for a portion of employee comp. Our talent pool is sometimes inexperienced in how to navigate that dynamic, which can make hiring even more difficult. That means that some companies need to move to be able to grow their team.
When high-risk capital isn’t available, founders have to turn to less-friendly means of funding their businesses. Instead of raising money that buys equity and shares the risk, one might use credit cards or take on personally guaranteed loans to keep the lights on or grow. In the case of a venture-backed startup shutting down, the result is usually a sad but amicable loss of investor risk capital. But a founder who had to take out a loan and personally guarantee it is on the hook to pay it back. Oh, and they just lost their job and only income when they shut their business down.
We must embrace those who are trying to start and grow
If we want to encourage startups to call Cleveland home, there are three primary metrics to focus on:
- Have more competitive and risk-friendly capital available. The lack of competition that results from having only a few early stage investors in Northeast Ohio is often cited as a critical challenge. Logically, if there are limited sources of capital, that means the remaining investors can be more selective and invest with lower valuations. Low valuations mean small deal sizes. Small deal sizes mean even funded startups in our region don’t have the capital to compete in a global market. They can’t afford talent. They can’t advertise. They can’t win.
- Buy from local startups. Investors aren’t the only ones who need to open their wallets wider. We all, from individuals to corporate leaders, need to focus on engaging with and buying from local startups. For an early stage business, revenue cures all ills. When trying to retain and attract top companies, actual customers go a long way.
- Make founders feel welcome and supported. Starting a company is valuable to our economy, but that process is psychologically draining and damaging for the majority of founders. We must expand our dialog about economic development to include helping founders feel wanted, appreciated and connected.
That is why we created StartInCLE. Our organization brings founders together, gives them events and platforms to network and build relationships, and fights for them and their needs every day. We do it without asking them to commit to staying here, without paying money and without wasting their time.
The common denominator here is that happy, supported and connected founders are the key to outsized returns and gains for our economy. We must learn to support them when they fail, accept it when they have to make hard choices and always make sure that they know we are on their side.
Ed Buchholz is founder and managing director of StartInCLE, a grassroots organization of Northeast Ohio startup founders working together to advance the startup culture, concentrate density of founders and connect talent to early stage businesses in the region. Reach him at @ebuchholz or firstname.lastname@example.org.