Season 1, episode 21: "Symbiosis"
Lesson: beware of single points of failure
This post is part of my ongoing quest to watch every episode of Star Trek: The Next Generation and pull one startup, entrepreneurship, tech, or investing lesson from each.
The Enterprise responds to a distress call and finds itself mediating between two pairs of people from different planets arguing over cargo. The Brekkans, well dressed and put together, refuse to hand over the cargo to the Ornarans, who look more like a worker class and seem to get more distressed by the minute. What appears to be a straightforward trade dispute ends up more complicated: the cargo is a substance called Felicium, which the Ornarans believe is a medication for their planet-wide plague but is actually an addictive drug giving them withdrawal symptoms and keeping them high. The Brekkans know this weakness and have been profiting off it for centuries, trading Felicium for Ornaran technology.
Picard and Dr. Crusher struggle with the implications and application of the Prime Directive in this episode. Dr. Crusher wants to tell the Ornarans that they aren't sick and need to tough out the withdrawal period to break their dependency on both Felicium and the Brekkans. Picard feels that he can't do that without breaking the Prime Directive. Instead, he refuses to provide replacement parts for the two races' ships, which has the effect of preventing them from continuing to trade and thus forcing the Ornarans to wean themselves off the drug. His inaction creates the same outcome that Dr. Crusher wanted.
The takeaway from this episode for startups? Don't be dependent on one source for something the company needs to survive. Single-sourcing anything makes you vulnerable. What happens when that thing gets taken away, priced higher, leaves the company, etc.?
Here are a few examples where a single point of failure can screw over a startup:
Going all in on a huge customer when you don't have the resources to service any others. E.g., you're a tiny hardware startup and Apple approaches you to potentially provide a component for their new device. Sounds amazing, right? But imagine servicing the machine that is Apple for 9+ months--likely years--to check all their quality assurance and legal and other boxes, throwing your entire team on the job, and then having Apple tell you a month before the device launch that they ended up not designing in your part. I've seen it happen.
Having a single person housing unique, irreplaceable knowledge or know-how. E.g., You're building a mental health app and trying to partner with health insurance providers and clinicians, and five of your team of six are on the business and operations side with only one developer actually building the app. If that person leaves, no one's building product. The fact that a tech startup only has one developer/product person sounds absurd, but I've seen this too.
Relying on one manufacturer for a critical part in your supply chain. Guess what inevitably happens? They mess up the part when you have a big order. They charge you increasingly more for it because they know they're your only option. The list goes on.
Your company is addicted to a particular piece of software or workflow. Same issues as above with hardware, plus servers could go down, Internet could go out, there could be a data breach, they could shut down and discontinue support for the product, etc.
You've got one investor with a ton of ownership and thus control in your company. Founders often need to keep raising money--that's their primary job--but they can get into situations where they're dependent on one existing investor to continue funding them. It may seem easier to just take another check from an existing investor who knows you and who's offering. But if that continues for too long and the investor aggregates a significant ownership position, and perhaps tacks on various control rights and preferences on top of it, it could backfire. If you've got a cap table with a lone investor owning upwards of ~40%, their word and their continued participation are extremely critical in any financing you try to raise next. If for whatever reason they don't want to back you anymore, any new investors may think, "If the existing VCs aren't coming back in and they certainly know more than I do, then something must be wrong." That's why it can be smart for founders to leverage two co-leading VCs in a round.
Diversify--in people, in products, in investors, in supply chains, in customers, in partners, in everything where you reasonably can--so one failure doesn't put the whole company at risk.