2022 has barely begun and it has already proven to be a chaotic one. Markets are gyrating wildly thanks to a number of events including rapidly increasing inflation and the conflict in the Ukraine. These events are dramatically upending the market and social norms that startups are attempting to grow and thrive in. How do these recent changes impact startups? While the overall contours are still being shaped, startups are increasingly facing a more volatile environment that is not temporary but permanent. There are a number of reasons for this long term environmental change with the majority of it due to the technological advancements that have been made in the past fifty years. From the globalized connectivity provided by the Internet to just-in-time distribution of raw information thanks to social media, the landscape that startups find themselves in has dramatically changed. Not only is it moving faster but it has been easier for startups to set themselves up for growth.
Indeed, in many respects, startups today are dealing less with technological changes but the social ones. As such, the environment that startups are facing is one that is much more ambiguous and prone to human whim than what they have experienced in the past. One only has to look at blockchain technology as a prime example.
As blockchain technology continues to evolve and address numerous different use cases, scrutiny has intensified from societal and political levels. Whether it is the use of blockchain technology in financial services or its use in new organizational structures such as decentralized autonomous organizations (DAOs), the general public and non-technical organizations such as the United States Congress are increasingly looking at the consequences of blockchain technology.
The reason for this increasing attention to technology is we’re ultimately in a period of instability on a civilizational scale. Whatever term you use, norm or average, those increasingly no longer exist.
What we are seeing is a period of rapid foundational change that is causing dramatic upheaval. The question becomes how will this impact startups and how will startups cope?
While there will be a number of different impacts there are three specific ones that startups will definitely have to plan for. These three impacts are a/increasing costs on both human and non-human capital, b/social, political and regulatory instability and c/unprecedented rapid change across all levels.
For many startups, the fact that both human and non-human capital costs have been rising isn’t surprising. They were rising even before the pandemic. The pandemic merely exacerbated the issue.
Qualified human capital was already in short supply prior to the pandemic but post-pandemic it has further worsened. This is in part thanks to the Great Resignation that is not only driven by individual re-evaluation of personal goals but technology that has enabled individuals to pursue those goals.
No longer do individuals have to be content merely working for a large faceless corporation. Thanks to technologies such as the Internet and various Software as a Service (SaaS) platforms, individuals now have the ability to create and grow their own startups overnight. While individuals can now form their startups easier than ever, they are increasingly running into instability when it comes to overall societal, political and regulatory attributes. The very same technology that has enabled individuals to exit the corporate world is the very same technology that has created instability at the very foundations of society.
Society and all its constructs such as the political and regulatory ones are increasingly playing catch up concerning the effects of technology. Whether it is addressing the impacts of social media or adapting to the entry of new players in highly regulated industries such as financial services, governments and their related organizations are not only struggling to adapt but failing to keep up.
Indeed, the pace of technological change has reached unprecedented levels. From cloud computing to blockchain technology, the impact and pace of technological change has never been greater. There are many individuals and organizations who are arguing that this pace of change is unsustainable and, as such, bound to lead to resistance on both an individual and a societal level.
So what does this mean for startups? In many respects, it adds an additional layer of complexity to startups and their ability to execute on ideas. While many startups are used to instability whether it is in regard to funding or strategic partnerships, this new layer of instability may exceed the capacity of some startups, particularly those on the bleeding edge.
It is true that startups have to move fast and be flexible to succeed but there are limits to what speed and flexibility can achieve. Speed and flexibility can only work for a limited time versus a massive obstacle. Eventually, the massive obstacle wins. One only needs to look at the ban on crypto mining in China as an example. Yes, it is true that crypto miners managed to quickly reassemble their operations outside of China but it was at great cost and disruption to their operations. Not to mention, the crypto mining ban may have permanently disrupted innovation in China, at least in the crypto space.
Fundamentally, startups face an increasingly unstable environment that is less about the advancement of technology and more about addressing the whims of individuals and ultimately society in order to succeed. While there is no doubt that startups do have some advantages such as speed and flexibility, they will still be challenged in this environment. In other words, startups should be in for a very bumpy ride.
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