Growth, expansion, funding, raising, scaling up. It’s what everyone in the startup ecosystem just loves talking about. A quick glance at this very site will reveal those are the main themes in the news. Not all good news, if you ask Dr. Melanie Rieback. She is the CEO and co-founder of Amsterdam-based Radically Open Security and hosts the incubator Nonprofit Ventures. She thinks the startup ecosystem should change its course for the better: “The Netherlands doesn’t need to become a country of unicorns.”
The case for post-growth entrepreneurship
The current economic model for growing startups is not sustainable, is what Rieback says. As long as the economy grows, it might work. But once it stalls, which it will likely do at some point, companies burning through other people’s capital will find themselves in trouble.
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That’s why Rieback advocates post-growth entrepreneurship: business models in which not growth, but impact are the key metric for success. Her own IT-security business, Radically Open Security, is bootstrapped from the start and donates 90 per cent of their proceedings to NLnet, the Dutch foundation striving for an open, inclusive internet.
‘Make bootstrapping sexy again’
To build the post-growth community, Rieback has founded Nonprofit Ventures, which has an incubator that ‘makes bootstrapping sexy again’. It helps young companies adopt a business model that embraces flat growth curves and rejects the need for investors, scaling, and exits.
“We always assume economic growth is the right direction in which to go”, says Rieback. “Startups are constantly being told they need to grow exponentially, so you can get to an exit. The hockey stick-curve is always there, but we’re basically grooming our startups to be sold. We’re pushing them so quickly to investors.”
‘The whole thing is wrong’
Once the funding is in, a startup is considered to have somewhat of a success. Rieback sees differently: “Their initial capital allows them to start in the red. They have money and are comfortable hiring people. They can afford a nice office. So externally they are looking successful. But they are running large red numbers by subsidising customer acquisition and burning through cash by hiring.”
“We have to realise the whole thing is wrong”, continues Rieback. “We pump companies up as fast as we can so they can become acquisitions by larger companies. Or just to make them look as big and juicy as possible for an IPO. But that is not going to make them financially sound. When the economy is going up, it works fine. But once it stalls, the last investor is being left with the burden.”
Aiming for a flat growth curve
The problem lies not just with startups and VCs. According to Rieback the entire economic system is due for an overhaul. “The economy did stall. In March 2020, at the height of the pandemic. But federal reserves jumped in to save the day by printing money. They were buying bad debts, junk bonds. This bolstered the economy and stopped the slide, but essentially proved the system is a giant casino, based on speculation. If we keep going with the Silicon Valley model, things are not going to get better. Now is the time if ever to revitalise our local economies.”
That’s why Rieback advocates for a startup ecosystem that is not hyper-focused on growth. Post-growth entrepreneurship aims for a flat growth curve and local impact. Back to the basics, pointing back to the days of the very first business incubator, the Batavia Industrial Center.
Back to the original incubator
Founded in 1956, it aimed to revitalise the local economy of the town of Batavia after its largest industry left. The massive building that became vacant was turned into a hub for businesses. One of them, a chicken hatchery, was literally incubating chickens, giving rise to the name incubator.
Fast forward to the incubators we know. Rieback: “There is now a system of incubators who all follow the model of Y-combinator.” The goal is no longer local impact, but global reach, she says. “It’s been building the economy that has been helping the economy. Even Paul Graham, one of the co-founders of Y-combinator, wrote in a blogpost that it’s been a manufacturer of income inequality.”
Nonprofit Venture’s business incubator
The message from Rieback’s incubator is different: if you want to build your business, avoid investors, dividends and exits. Instead, bootstrap. Growing your company with a couple of million of someone else’s money in the bank will force you to keep growing no matter what. By bootstrapping instead, you force yourself to get creative, ensure a solid value proposition and build a strong foundation.
Case in point for Rieback: her own Radically Open Security, the consultancy she co-founded. It’s the first non-profit cybersecurity company in the world. “Nobody will get insanely wealthy from this, what’s important is the impact we’re making”, says Rieback.
‘Revenue is strongest form of funding’
The company is operating on its own terms and manages to pull in over a hundred major clients in fields ranging from law enforcement and governments to finance and NGOs. Donations to the NLnet Foundation are built into the core of the business model.
“Rieback: “It’s easier to bootstrap a service company than a product company. But Radically Open Security has products, such as our intellectual property, pen-testing tools. We crowdfunded those by selling commercial services. Revenue is the most powerful form of funding. If you raise any form of capital, you only have one shot. If it doesn’t work, you may end up losing control over your company.”
Not worried about competition
According to Rieback, Radically Open Security is a growing company. But in a healthy way. She isn’t worried that a rapidly scaling security company, backed by investor millions and focused on scaling up, will swoop in and take a large piece of the pie, maybe even the whole pie.
Rieback sees enough pie for everyone. “The existence of competitors doesn’t bother me. I don’t care. Customers that work with me appreciate having a slightly less commercial vendor. It makes us trustworthy, there’s room enough for all these companies.”
New cohort at Nonprofit Ventures
With Nonprofit Ventures, Rieback is looking to expand the post-growth entrepreneurial spirit to other businesses than computer security. They offer bootcamps, brainstorming sessions, training and online resources on the subject. Alumni of their incubator include a wide variety of companies, ranging from a network for female entrepreneurs in Africa to a supplier of green energy in Romania. A new cohort is planned to start soon, with registrations opening in September 2021.
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