The startup choice: Get big or get bought
There’s essentially three options for a tech venture outgrowing its startup days: Get big, get bought or go broke.
Pathetic.
There’s a fourth option: Start a company, build a great product, sell your product to your customers, generate revenue, keep overhead low, grow slowly and carefully, take in more money than you spend, generate a profit, and decide your own fate on your own schedule.
Kelly Sutton
on 05 Dec 11Couldn’t agree more. I just put in my two weeks to go full-time on our startup. I guess in Valley jargon, we would be considered “post-revenue.”
Trip Leonard
on 05 Dec 11I know there are many, but one of my favorite examples of this is http://geocaching.com.
Dan P
on 05 Dec 11@37signals
Are you trying to suggest that 37signals, with now something like 30+ employees – is still “keeping overhead low”?
Dave C
on 05 Dec 11@Dan P
I think the rest of Jason’s quote is the point: “decide your own fate on your own schedule”.
It’s not about being big or being small, it’s about being able to choose your own size, based on your own vision, while still being responsible by letting profits guide new spending.
Instead of letting growth for it’s own sake drive all other decisions.
Berserk
on 05 Dec 11@Dan P: If overhead is low is a relative question, not absolute. Of course their overhead is much bigger now than five years ago.
Michael
on 05 Dec 11I agree, Jason. Sadly, VCs force their investments to hit a home run or strike out. They’re not given the option to reach profitability before huge numbers even though the expected value of that strategy is better. I think it’s partly that they’ve been sold a dream and partly that the public bias that only remembers success the VCs look good with just one hit no matter how many failures they also produce.
Mana
on 05 Dec 11I’m noticing a clear distinction between what they said (and their bad grammar) and what you said, in the use of pronouns. They talk about “the venture” you talk about “your product,” “your schedule.” So what I’d ask the wannabe entrepreneur is, “are you ready to make it yours?” or do you want to make it “theirs.” And if you make it theirs, be prepared to make the gains “theirs” too. And btw Jason, I think your option is not #4 it’s #1.
David Andersen
on 06 Dec 11You guys are so old fashioned.
mga
on 06 Dec 11unfortunately that fourth option is considered boring so it doesn’t provide linkbait and therefore doesn’t sell any ads
Anonymous Coward
on 06 Dec 11I rather give the advice “of you’re not growing, you’re dying” over the advice given above.
Marco
on 06 Dec 11The problem with the 4th solution: it is unsexy and doesn’t sound like a rockstar’s life. It’ sound more like jazz: hard work and decent results.
Stacy
on 06 Dec 11Make your money first! Sellout, generate lucrative cash for yourself FAST before you take on investors, pocket millions upfront from a VC round if your biz is that damn hot, etc.
Everyday you’re in business, you’re incurring risks that you probably don’t even know about. When that event happens, you don’t want to end up broke.
All businesses have a lifecycle and the best time to sell is when someone wants to buy your company for a price that will allow you to never have to personally worry about money ever again.
If you have already made your money, then of course you have the freedom to do what you want, whenever, change the world, etc. Otherwise, this blog post fourth option is VERY poor advice.
Romain
on 06 Dec 11“and decide your own fate on your own schedule”
What fate? to get big, to get bought, or to go broke? These three outcomes are the ones every single company faces, though obviously they can get bought or go broke after they got big.
Thomas
on 06 Dec 11well I know some companies that are not big, did not get bought and that are not broke, they live happily at their own pace. and I know other companies that go broke, some other are big, bought etc … it’s happening everyday, it has happened before and will happen …
just do what you want, just fucking do it !
Zingus
on 06 Dec 11I love how in all of this no one takes the time to state clearly: “Pay your debts”.
Siliconomics suck. Big time.
Deltaplan
on 06 Dec 11You don’t always have the choice…
My main customer for the last few years has been a very small company of only 5 to 6 people. Their goal had never been to grow much larger than this, all they wanted was to sustain their business with a few good customers that would be happy with what they do for them.
Alas, their major customer (a very large company), which has always been accounting for more than 50% of their income, suddenly decided that if their company doesn’t quickly grow to several orders of magnitude, they will no longer buy anything from them. New company-wide procurement policy, no discussions whatsoever.
So now, they’re left with that exact choice : either grow to at least some hundreds of employees (and in a very limited time, at most a few months) or lose the customer without which they simply have no way to avoid closing the company.
Anonymous Coward
on 06 Dec 11Delta: That’s why you should never hitch your ride to a single customer, regardless of how big or small you are. Diversify so no one can call the shots over you.
Deltaplan
on 06 Dec 11(Continued)
So they are currently trying to follow the “Starbucks” growing model : create similarly sized subsidiaries in a few other cities/countries, hoping this will be enough to please their big customer.
The drawback is : they don’t have time to do the “real” work any more. All they think about, all they do, is try to find way to get fresh money to fund the subsidiaries creation, travel the world (literally) to look for always more new customers, interview future employees (even during the weekends !)
Deltaplan
on 06 Dec 11@Anonymous Coward : there are businesses where you just can’t diversify if your goal is to stay small. The smallest possible project is already so big that you just can’t have many different customers, of they will simply ditch you very quickly when they’ll see that you just can’t find enough time to finish their project quickly enough.
Deltaplan
on 06 Dec 11(Continued)
Indeed, I do myself have kinda the same problem. I work mostly alone, as a freelancer. A few years ago, I used to have 3 or 4 customers simultaneously. But it was just too much to be able to do actual work. All I was doing was spending always more time moving from a place to another, endless bargaining discussions…
Therefore, I drastically reduced my customers to (mostly) one, the one that was the least likely to put me in bad position by refusing to pay me.
But my business is not at risk. I know that if that customer begins putting hash conditions on me, I can simply move on and look for another one. Even if it means a few months or years without money, it’s not that severe. Because there are no consequences outside my own pay : I have no professional debt to pay, no employees, no rented office, nothing that could possibly crash my business in a short time.
Anonymous Coward
on 06 Dec 11Delta, then maybe that’s a bad business to be in. That’s not the fault of being a small business, it’s the fault of the actual business choices.
EH
on 06 Dec 11Ha ha, AC, “business choices” are never to blame. It’s always a failure of the market!
David Andersen
on 07 Dec 11@Delta -
I’ve faced the same thing from big companies when they get into supplier pruning mode. A lot of them do this; over time it becomes expensive to maintain so many suppliers and as we humans are prone to do, they overshoot and overprune. In my line of business I can often find a middle man (larger and already on their preferred supplier list) who will represent me to the large firm for a trivial cut of the billable rate. It’s not perfect but better than the alternative.
That aside, I think your customer’s long term risk outweighs the long-term benefits of the preferred size. If they were 2x-3x bigger they could probably diversify to 2-3 clients and avoid the risk of going out of business. It’s nuts to be 20x bigger. Sounds like something else is going on at their customer.
Saeed Neamati
on 07 Dec 11Man, I love the idea. Yeah, there is a fourth option. Look at my website. I started it all dirty and unprofessional. But I’m going through it bit by bit. There is no need to stop doing something, because of fear of being eaten by a larger one.
Thanks guys, you are inspirational.
Deltaplan
on 07 Dec 11@David Andersen
In face, my customer was already diversified to 2-3 clients when their biggest customer required them to grow much larger to continue getting new contracts. And they are already using such “middle men” to get their customers, but in that business (they are expert contractors), the final customer deeply cares about who does the actual work, and they put that kind of company size requirements on them regardless of them using an intermediary company or not.
I think that the major reason why that customer has decided to stop working with small companies is mostly to avoid ending up in a situation where – if something wrong happens – they can’t even sue them to get their money back, because if they sue them they will simply be put out of business without any money to pay back the angry customers.
Karl
on 09 Dec 11I can only agree with Jason. In 1999 I founded a start up with lots of VC money. They told us to grow as fast as we could – in terms of people employed! Revenue was not as important, let alone profit. I was stupid enough to take the money – and spend it. For a while it worked – we were hyped, even became “start up of the year” in Germany, got even more money, but at some time I realized that our “projections” were in fact “fantasies”. From then on we were “backpaddling”, trying to get rid of all the costs we had built up. 5 years later, we had made it to profitability (barely), but the company didn’t belong to me anymore. I left it and became an employee at a consulting firm for a few years.
I’m about to start a new company, without any venture capital. It won’t be easy to survice, but at least I’ll be able to change course whenever I see fit, without having to stick to some stupid business plan. I’ll sure as hell follow Jason’s advice this time.
Kris
on 09 Dec 11I remember when, “take in more money than you spend, generate a profit,” was the very definition of a business. :-D
Steve R.
on 11 Dec 11@AC: “If you’re not growing your dying” sounds like a great definition of Cancer. Any business has an optimum size. Get too big and you cant run it well. Stay too small and you underperform. We don’t need lots of General Electrics. We do need lots of 37signals, if for no other reason than having hundreds of thousands of small companies is better than having a few hundred large firms, as there are fewer single points of failure, fewer monopolistic competitors, moe liquid markets. Plus, large firms are more likely to suck in every possible sense than a small firm – and screw more people over while sucking.
This discussion is closed.