London needs fewer start-ups, not more

By Milo Yiannopoulos on December 3rd, 2012

Depending on whose figures you believe, there’s somewhere between 200 and 4,500 technology and media start-up businesses in east London. That doesn’t include the businesses excluded from media attention and Government praise because they have escaped the ignominy of an E-postcode.

But, if that 4,500 figure is accurate even to within an order of magnitude, I think we have a problem. I believe we’ve reached a point of critical mass, where the signal-to-noise ratio has become unbearable and corrective measures must soon be applied to the ecosystem. Let me explain why.

In Estonia, in the mid-2000s, there was only really one company to work for, if you were young, entrepreneurially-minded or a gifted developer: Skype. As a consequence of its local hegemony, Skype scooped up practically every ounce of talent in Tallinn.

The result? A billion-dollar company: one of Europe’s very few internet success stories. A venture capitalist I had lunch with in Berlin last week was adamant that the concentration of talent in that one organisation was what made the difference.

Of course there were other facts in play. Merely boasting a strong, highly talented workforce is hardly a sufficient condition for success. But it is likely that if Estonia in 2004 had enjoyed the patronage of a boastful Government, Skype would not have flourished.

Because, you see, business smarts and coding skills are a finite resource. The reality is sad, but undeniable: in Silicon Valley, talented coders command gargantuan salaries, while even in Europe anyone with a vague bit of PHP nous can find a job in a very short space of time.

So when you flood a market with former user experience consultants and professional “strategists”, each of whom has their own uniquely dreadful idea for a technology start-up (normally something that failed in San Francisco half a decade ago), then throw money at them, proper developers suddenly become hot property.

“Soft skills” are all very well – and there are plenty of them about. There’s no shortage of marketing, public relations and even business development enthusiasts angling for a slice of the Old Street pie. But the sort of hard skills necessary to build digital products aren’t that easy to come by.

That’s because they’re simply not taught widely enough in schools or in universities. Needless to say, governments tend not to invest in higher education and research and development, because it’s a thankless, multi-decade endeavour that obstinately refuses to concord with the electoral cycle.

Instead, governments tend to pootle around with easy wins they can point to in the run-up to polling day. Investment into early stage venture capital and sponsoring drinks parties for luvvies in Shoreditch is an easy, cheap and measurable way to make it look like you’re supporting enterprise.

I wrote last week about how the British Government’s obsession with marketing itself was leading into short-term economic thinking and a preference for cosmetic support measures like the Tech City Investment Organisation and pointless tinkering with little-used legislation.

Now consider that glut of start-ups in east London, aided and abetted by that noisy, hyperactive, undoubtedly well-meaning but ultimately insignificant Government department anxious to locate simple, measurable metrics of success – like the number of companies founded, or people employed.

There are aspirational, wannabe entrepreneurs, who foolishly view a tech start-up as a route to easy riches, everywhere. They will always be happy to show up to a sponsored booze-up, to nab subsidised office space and to cling greedily to taxpayer-funded investment.

They represent little more than the middle-class branch of the welfare state, funding themselves and their marketing departments with money from daft angels, a dafter public or, yes, the public purse.

But real coding genius of the type possessed by the troops who get most of the work done in technology businesses is thinner on the ground. What talent there is finds itself spread thinly across dozens and even hundreds of start-ups, most of which are – how does one put it delicately? – going nowhere.

How much more effective would east London as a start-up cluster be, if the top talent from every start-up that has raised, say, a seed round were picked off and put in one building together, paired with visionary product leads and canny investors?

We’re unlikely ever to discover the answer to that question – and, as a consequence, ever to see a truly impressive internet business emerge from the capital – because there are, and there is no kind way to put this, far too many absolutely terrible internet start-ups nicking the talent.

The fact that most start-ups fail is not, in and of itself, a good reason to want more start-ups. Driving the failure rate up from one in ten to one in fifty is not an intrinsic moral or economic good. In fact, it reduces the amount of capital available to better companies.

That last point is an especially important consideration when you look at the impending Series A crunch in Silicon Valley, a situation serious enough to be called a “looming apocalypse” by one Kernel contributor earlier in the year. Imagine how much worse that crunch will be in Europe.

The truth is that not everyone is cut out to be an entrepreneur. Not everyone has what it takes to start a successful business, let alone in the saturated internet sector. Not everyone should be persuaded to give up their banking or management consulting or design job to “make an app”.

With the exception of the gaming industry, the technology Europe is best at building is embarrassingly unsexy: it’s Sage, it’s SAP and it’s Autonomy. It is not, on the whole, social networks or mobile apps – and definitely not anything that competes directly with a well-funded, well-connected Californian start-up.

We need fewer entrepreneurs running fewer companies comprised of better quality teams. We need fewer people working on better ideas. We need less noise, less bluster and bullshit, less hot air and nonsense. It’s time to stop building social voting apps and Twitter mash-ups and to get real.

It’s counter-intuitive, for sure. But one of the most celebrated effects of the growth of “Silicon Roundabout” is, in fact, what’s holding it back more than anything else. Because I don’t care to cheerlead for (increasingly publicly-funded) make-work businesses. I want to see the next Google built here.

My friend Fred Destin, a partner at Atlas Venture, is often heard saying that a contraction in the European venture capital market would be no bad thing. Today I’m wondering, as odd as it may sound, whether we shouldn’t be hoping for the same sort of reduction in the number of start-ups.