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Are Startups Thinking Too Small?

At Disrupt conference, investors and entrepreneurs fret

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Defying the broader economic doom-and-gloom, startup CEOs, marketers, and investors packed the halls at the TechCrunch Disrupt conference on Monday. But some of the event's speakers weren't entirely optimistic about where the industry is going.

The big complaint? Too many startups with too few ideas.

For example, Facebook co-founder Dustin Moskovitz said that he's seen "a fundamental shift in the culture" of the startup world. When Facebook first started in 2004, the Valley had "a handful of good companies that were able to attract a number of really great engineers." Now, he sees "many more smaller ideas being funded," many of those startups led by someone who could be a great engineer at another company.

"The talent has become really diluted," said Moskovitz, who now runs an enterprise software startup called Asana. "If a company like Facebook was starting today, would they be able to build a team as quickly, and that was really as talented? From my perspective, it's really unclear." 

Meanwhile, Douglas Leone of Sequoia Capital wasn't complaining about startups, but he seemed to be looking at some of the same trends from a venture capitalist's perspective. As it becomes cheaper to create a startup, the industry has seen the proliferation of angel investors who usually make smaller and earlier investments. Leone sounded ambivalent about this change, saying that if there's a big, ambitious company, Sequoia wants to be the first investor, rather than waiting in line behind a pack of angels.

"I'm incredibly OK with co-investing with angels," Leone said. However, he said entrepreneurs need to ask, "What differentiated knowledge does the angel bring? . . . Don't just do an angel round with people whose money is thrown your way."

Of course, both Moskovitz (who needs to recruit talented engineers for his own startup) and Leone are making arguments that line up with their own interests. But PayPal co-founders Peter Thiel and Max Levchin incorporated similar complaints into a broader, bleaker picture, which they're addressing in a forthcoming book called The Blueprint.

To a certain extent, Thiel (one of the early investors in Facebook, and now a partner at the Founders Fund) cited Silicon Valley as an exception to what he diagnosed as a larger malaise in the United States, where most industries outside of computers and the Internet have seen "40 years of stagnation." But even in the startup world, Thiel said it's important to distinguish between companies that create "genuine progress" and "ones that merely represent frantic change of going from one fashion to another."

Levchin also included startups in his main prescription: take big risks again. Because it's so easy to start a company, too many entrepreneurs believe that tackling a difficult problem is "just a really dumb idea," he said.

"Innovation ultimately ends up being about solving really, really hard problems," Levchin said. "If you're trying to build one more wrinkle on the Angry Birds idea, with pigs versus gerbils instead of chickens, you're not solving a hard problem in innovation."

Complaints about unambitious startups are nothing new. At the Disrupt conference two years ago, TechCrunch writer Sarah Lacy said that among the companies at the event, there was "not enough trying to change the world." TechCrunch's departing founder Michael Arrington has also worried that angel investors may be backing too many "dipshit companies." Today, however, the complaints came not just from journalists or investors, but from some of the heroes of the startup world.

In fact, Moskovitz said that he takes some of the blame himself. The "idolization of entrepreneurship" may be "sort of the most negative thing I've created in the Valley," he said. In contrast to entrepreneurs who see creating a startup as their next career path, whether or not they have a good idea, Moskovitz said he didn't leave Facebook until he had the idea for Asana. And even then, he said he hesitated because "I hated the idea of starting my own company."