I like this post by Max Levchin entitled “On ambition.” He discusses the tradeoff between thinking big with your web startup or accepting a smaller exit and return. He is for “going big.”
I guess my thoughts go a little against his position – I believe it is OK to accept a quick, smaller exit if you’ve more modestly financed your company.
I hear his arguments – they are really well articulated. However, I think it can be honorable to sell your startup for a good but not enormous price to a larger company if that company will legitimately help you achiever your vision.
Starting a company – and especially starting a technology company – is about more than making money. I believe that every founder has visions of their target customers massively adopting their technology and using it to change how they do their business or live their lives. Nobody creates a new technology and says, “Wow, I hope barely anyone uses this!” If being part of a big company can help you get there then I don’t think getting acquired when you are small is bad.
I understand the investors may be more money focused. And founders should be thinking about that too, since many of them have the opportunity to make good money doing something less risky (i.e. just having a regular job at a good company for a salary.) And Max correctly points out that a small exit for a correctly capitalized company can really generate a lot of money founder. So that’s not all bad!
My gut is that this burst of angel financing will result in a crop of startup executives who 1) start something cool, 2) sell the company to a larger company, making a little $, 3) work at the acquiror* for a while and learn a lot about scaling a business and running a clean operation and 4) will then go off and found another set of companies, some of which will be very, very “big” ideas that need big venture capital financing.
*I like to spell it this way. But I also think pumpkin should be spelled punpkin, so…
I’ll be speaking at a very cool event next week in Cambridge on the 5th in the evening. The event is called “Customer Development: The Second Decade — with Steve Blank’s co-author Bob Dorf.” Come out and hear some pretty interesting folks talk about startup marketing. The main speaker will be Bob Dorf, and the event is moderated by Simeon Simeonov. Other speakers include:
- David Cancel, serial entrepreneur and founder of Compete, Lookery, Ghostery and Performable.
- Andy Moss, founder and CEO of ESMZone.
- Andy Greenawalt, founder and CEO of Perimeter eSecurity and Continuity.net.
- Healy Jones, founder of Startable and VP Marketing at OfficeDrop.
- Rob May, founder and CEO of Backupify.
The event is free (sponsored by General Catalyst, a local venture capital firm.) To register for the customer development event click here. The event will start at 6 PM and will be hosted at Microsoft’s NERD Center, One Memorial Drive in Cambridge, MA. Everyone should come!!
The conference is organized by General Catalyst Partners and FastIgnite. Bob Dorf will provide an exclusive peek “under the covers” at some of the many new rules and advancements that Steve Blank, Bob and the ecosystem of thousands of entrepreneur, marketer and investor practitioners have developed over the past several years. The event will feature a keynote by Bob, guest appearances by entrepreneurs and executives who have successfully applied customer development in their businesses and a discussion led by General Catalyst Executive in Residence and FastIgnite CEO Simeon Simeonov.
I just read a piece on Newsweek that is a reaction to the new Facebook movie. The author’s basic premise is that innovation in the US is dead because the only problems Silicon Valley is trying to target are silly ones. Daniel Lyons (the author) is pretty clear in his dislike of the current crop of VC darlings:
The Valley used to be a place run by scientists and engineers, people like Robert Noyce, the Ph.D. physicist who helped invent the integrated circuit and cofounded Intel. The Valley, in those days, was focused on hard science and making things. At first there were semiconductors, which is how Silicon Valley got its name; then came computers and software. But now the Valley has become a casino, a place where smart kids arrive hoping to make an easy fortune building companies that seem, if not pointless, at least not as serious as, say, old-guard companies like HP, Intel, Cisco, and Apple.
The three hottest tech companies today are Facebook, Twitter, and Zynga. What, exactly, do they do? Facebook lets you keep in touch with your friends; for this profound service to mankind it will generate about $1.5 billion in revenue this year by bombarding its 500 million members with ads. Twitter is a noisy circus of spats and celebrity watching, and its hapless founders still can’t figure out how to make money.
I agree that the major use for these services, for most of the population, seems to be amusement.
However, I totally disagree with the idea that Facebook and Twitter are not important, innovative and world-changing services.
I left the following comment on the article:
I disagree with the author’s premise that Twitter and Facebook have no serious value. As communication tools these two companies are in the process of doing something very amazing. Wasn’t easy, fast, free, global communication one of the dreams of the internet? I think these two companies have really lowered the barriers of sharing information across the world. For example, Twitter was used extensively in Iran during the recent protests over the election results. It is highly unlikely that the Western world would have such hard-hitting pictures, videos, etc were it not for Twitter. This is a direct quote from a Newsweek article: “A Twitter Timeline of the Iran Election In some ways, social media defined the protests surrounding Iran’s election. Here are the most noteworthy events, as told through tweets.” Remember that the US State Department asked Twitter to hold off on taking the service down for a scheduled maintenance because it was providing such valuable information about the situation there.
The author is missing the beautiful thing about innovation in America – when something is created here the consumers of the product are free to use it as they see fit. I’m sure the Twitter founders didn’t think that they were creating a tool for spreading democracy. But because it is built in the way that embodies the current version of US innovation – i.e., open, flexible and extensible – it can become anything its users need. I would take the birth and death of 100 silly imitators to get another service as important as Twitter going. Thankfully, I’m pretty sure there will be at least that many silly ideas coming out of Silicon Valley in the next few years!
I did not add the following, but maybe I should have:
Facebook, while it can be silly at times, is not useless. I believe that a tremendous number of people find real value in sharing things like baby pictures, important family events, etc. Didn’t someone somewhere once claim that human connections are the most important things? Liking the photo of my friends newborn on Facebook is not the same as actually seeing the kid in person, but when he’s on the other side of the country it sure beats hearing from someone else that his wife just birth a few weeks ago. Let’s not discount the positive impact of human connections.
*here is a link to the Newsweek Twitter timeline of the Iranian elections – it’s pretty cool.
I have very solid evidence that most of the major venture capital firms are going to gather in a smoke filled room to collude to set standard VC legal terms and valuations and engage in other collusive activities! I’m pretty sure that the following items will be on this evil meeting’s unofficial agenda:
- Complaints/concerns about angel investors growing influence
- Complaints about rising deal valuations and about “all those other firms” that are driving up valuations
- How the group can act together to keep organizations like the Internal Revenue Service from ruining the VC industry
- More mundane things like which are the best standard terms for venture capital investments
I even know when and where this evil event will be held – April 6th to 7th, 2011 in Boston. The events name? The 2011 NVCA Annual Meeting.
Someone call the FBI.
Ash Maurya has a great post on how to document your business model – and it sure beats a business plan! This is a handy framework for anyone thinking about internet startups. These types of frameworks are much more time effective for internet entrepreneurs vs. the traditional business plan.
Note that the “Unfair Advantage” is on the Market side of his framework, not the Product side.