The Starving Startup

August 17, 2012 by Heather McIlvaine 0

(Photo: istockphoto.com)

“It’s really not such a bad thing to not have much money,” said one SAP executive at the SAP Startup Forum in Berlin on August 15. “It makes you more creative and customer-focused – and that’s what leads to innovative solutions.” This statement, from an employee of a company that earned €4 billion in 2011, could have come across as rather condescending, if it weren’t for the fact that so many people believe it to be true.

Myth or fact?

The tale of the scrappy startup that operated out of a garage/basement/car for months before making it big is practically doctrine in places like Silicon Valley, London, Berlin, Tel Aviv, and Singapore. And almost always, that early period of hardship is seen as an important – if not deciding – factor in later success. But is this just the same romantic thinking that says a great painter, writer, or actor must suffer for his art? Live in a freezing garret and survive on bread and water? Is being financially secure really a disadvantage when it comes to creativity?

“Money doesn’t necessarily stop people from being creative,” writes Teresa M. Amabile, professor of Business Administration at Harvard Business School, in the article, How to Kill Creativity. “But in many situations, it doesn’t help either, especially when it leads people to feel that they are being bribed or controlled.”

Next page: When you can’t buy your way out

Steven Bradley, assistant professor of Management and Entrepreneurship at Baylor University, takes a less middle-of-the-road position: “If you run into problems and you have money, you bring in a consultant. If not, you start working out creative solutions: what can I do to ‘duct tape’ this problem using the resources I already have? Instead of buying your way out, you have to be creative with your resources, and that is what brings inventiveness, ingenuity and – ultimately – success to a company.”

His research backs this up. In a study of how startups performed during the financial crisis, he found that independent companies had a better chance of survival than startup companies that were subsidiaries, and protected by their parent firm during the economic downturn. “They were able to find creative ways to face challenges,” he says of the independent startups. “Those companies that have to figure out how to survive, do the best.”

What’s the catch?

This presents an interesting paradox for startups. Because isn’t the whole point to find funding and grow the business? Will the companies operating out of their garages today look back in twenty years and think, “If only we didn’t have all this money…”?

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