Later today we'll be meeting with administration representatives from the White House, State Dept, Commerce Dept, as well as DHS, SBA, and several other federal organizations with impressive TLAs.
So far, it's been an incredible experience for many of us who are political n00bs -- we've actually been pleasantly surprised by the level of encouragement and support from folks here in Washington, and in turn they've been pleasantly surprised at how much progress we've made on the issue since our GeeksOnaPlane trip to DC last September, where we first cooked up our plans and created the StartupVisa.com site.
Yesterday, while we were mid-air from SFO to DC -- with online access courtesy of GoGo Wireless and Virgin America -- we conducted a StartupVisa TweetHall, which was a live twitter meetup of over 5,000 people who used the #StartupVisa hashtag in their tweets. Prominent twitterers who showed their support included Tim O'Reilly, Chris Sacca, Matt Cutts, Craig Newmark (of Craigslist.org), Padmasree Warrior (CTO of Cisco), as well as many other geeks & non-geeks in the US and around the world.
We hope you'll continue to help with our efforts, and if you're a registered US voter, please take just 30 seconds to tweet your support and we'll automatically send a message to your local representative (using your zip code), courtesy of 2gov.org.
I'm on a redeye to NYC, supposed to be working on a presentation i'm giving in a few hours... but fuck it, i can't get this outta my head, so here we go.
ASSERTION #1: The default startup business model from 2000-2009 was based on growth (aka acquisition) and CPM- or CPC-advertising
Over the past 10 years, we have seen a massive shift in advertising from CPM to CPC-based advertising. This basically started happening when the 2000-2001 dotcom implosion blew the market cap of Yahoo to smithereens, and display advertising went into the shitter. Altho CPM subsequently recovered, Google's IPO and the gradual emergence of CPC as a higher-quality advertising medium has been the dominant story of the first half of the last decade. There's still a lot of page views and CPM advertising out there -- and YouTube & Facebook are making sure that doesn't change -- but as we VCs like to say: "at the end of the day, Yahoo is now Google's bitch".
Let me say that again with emphasis so you don't miss it.
Google's ABSOLUTE FRIGGIN' SEARCH DOMINANCE has made CPC advertising the defacto monetization standard for the web.
But what has all this Don't-Be-Evil-AdWords-Click-Happiness done to the internet & startup ecosystem?
It's made us a bunch of lazy, ad-happy, Web-Tards with crappy ROI.
So crappy in fact, we should be ashamed to call ourselves entrepreneurs & venture "capitalists". Why, Schumpeter is probably rolling over in his grave at how little Creative Destruction we have rained down upon crotchety incumbents. It's a goddamn travesty that some aspiring startup or greedy hedge fund hasn't pummelled Yahoo and eBay into a hostile takeover by now, and Microsoft has made itself almost irrelevant in the consumer internet space -- helloooo Mr. Ballmer? please tell me how you own hundreds of millions of users and more than half the browser market and you HAVE NO VISIBLE 3rd-party distribution or monetization strategy? -- Srsly, we have monkeys driving some of the biggest trains on the Internet at the moment.
Lead, Follow, or Get Out of the Fucking Way.
And while there's been something of a Startup Renaissance going on since around 2004, all these little web 2.0 wannabees have spent an inordinate amount of our attention on ad-driven business models resulting in a big steaming 2-Founders-1-Cup of FAIL. Everyone seems to have assumed that since Yahoo and Google were giants in internet advertising, therefore all internet startups should be using some form of CPM or CPC ad-monetization.
THIS IS A VERY LARGE LEMMING-LIKE ERROR IN LOGIC THAT MUST BE CORRECTED IMMEDIATELY.
We have largely WASTED an entire web decade of time, energy & venture capital on extremely inefficient revenue models. There have been a few interesting examples of startups acquired in the 00's for large amounts due to amazing growth (eGroups, MySpace, Skype, YouTube) or advertising potential (aQuantive, DoubleClick, AdMob, RightMedia). However, mostly the decade has been an uninterrupted string of uninspiring business models and small-time acquisitions of Web 2.0 startups filled with rainbows & unicorns, rather than those based on simple, transactional revenue models.
ATTENTION u ASSHATs on Sand Hill Road & u HIPPY-DIPPY Startups in SOMA -- This Shit Stops NOW.
ASSERTION #2: The default startup business model for 2010 & beyond will be subscriptions and transactions (e-commerce, digital goods).
Newsflash folks: The Internet does NOT want to be FREE... It wants to GET PAID on Fucking Friday, just like everybody else on the damn planet.
Yes there is a role for Freemium, but unless you missed the TPS report the FREE part is only a loss-leader for the MEE-YUM part -- it's a test-drive before you buy something. If your users are just kicking the tires then you need to kick them to the curb eventually (unless of course they are your viral bee-yotches, in which case it's ok to have a few invitation whores as freeriders).
Free is not Forever, unless you never want to be in control of your own fate.
Gradually we are discovering that the default revenue model on the internet should probably be the simplest one -- that is: basic transactions for physical or digital goods, and recurring transactions (aka subscriptions) for repeat usage.
Let me say that one more time so you don't miss it.
Get Dem Bitches to *PAY* You, G.
Ok, so there's only one problem with this. It's called the Penny Gap.
Surprise, surprise... most people don't like to pay you squat unless they have no other choice. And aside from the user's disinclination to pull out their wallet, there's also the problem of wallet friction itself -- payment conversion is shitty for many reasons other than just price. Mainly it's because we can't remember our password. I'll repeat that about a million times in this post so you don't forget.
WE. CAN'T. REMEMBER. PASSWORDS.
This is incredibly important, and i'll explain why in just a little bit... but now, let's talk a brief walk down Memory Lane past my old workplace, PayPal.
Here's one of the not-so-flattering secrets of the PayPal Mafia you've probably never heard: The far-and-away #1 customer service problem -- and cost -- at PayPal was something called "forgotten password recovery". That's a nice way to say that people can't remember their fucking password.
It's the biggest goddamn problem on the Internet, but at PayPal we made it even worse by tying a payment instrument to the process, and then locking out the payment instrument if they couldn't remember their password. What a Brilliant idea! Let's see.... why don't we fuck over all of our n00b, first-use customers by forcing them to create an account they have no significant motivation to maintain yet, and then hope they don't give us a fake email address or fail to remember that password the next time they drop by... which might be 1, 3 or 6 months later. Bingo, way to create the biggest HateStorm in Internet History: make it super simple for people to make their payment method unusable by simply forgetting their password. Oh and i forgot to tell you we occasionally froze their account so they couldn't get access to their money. That was a real winner too.
PayPal was one of the classic stories of viral growth, however in this instance we also experienced viral growth in customer service: at one point more than 2 in 3 employees worked in customer service. And i'm guessing somewhere between 10-20% of first-time customers never used the service again, primarily because they forgot their password.
Look, no online service is perfect and there are often good reasons why account recovery shouldn't be too easy -- sometimes it's not YOU who wants to get access. But Password Friction at PayPal led to an unfortunate series of events which caused some signicant percentage of our users to HATE us with a PASSION that is usually reserved for politicians and lawyers. Since i was often on the front-lines running our PayPal Developer Network, i got to hear first-hand from Merchants and Developers about how this password friction caused problems with payment, and with user frustration. I got to know the folks in customer service pretty well, and i used to do my best to resolve some of our users pain.
So why am i bringing up all this bullshit now?
Well because as we transition to a Startup Ecosystem driven by direct payment & subscription business models, i want to make it clear how IMPORTANT it is to make sure users don't forget their passwords. If they forget their password, and/or can't recover it, then guess what MoFo -- YOU DON'T GET PAID.
Which means you don't get Laid, you don't get Acquired, and you sure as friggin' hell don't get to Go IPO.
So listen up & i'll share a little secret with you -- there is one very simple way to avoid forgotten passwords. Basically, it's this:
Make a Frequent-Use Product.
That's it, you say?
Yeah, that's it Sherlock. Make a brain-dead simple, frequent-use product. If users login a lot, then they don't forget their password.
Now think about that for a second...what services have users login a lot?
1) Social Networks
2) Email & IM
3) Games, Music, & Entertainment sites
Which leads me to my 3rd & final observation.
ASSERTION #3: In 2015 the default login & payment method(s) on the web will be Facebook Connect, Google Gmail, or Apple iTunes.
Now i'm not suggesting PayPal and Amazon are going to disappear overnight -- both probably have hundreds of millions of users (well, at least double-digit million *active* users anyway). And in fact, they will likely still have dominant positions in the market. But i will say this: if they rely *purely* on purchase behavior, they are fighting a losing battle against other services with more frequent usage, whose users will be more likely to remember their passwords. Like a Darwinian evolutionary experiment, only the fittest passwords survive -- and in this case, the fittest passwords will be the ones used most often. That is, the ones we use for core services like email, IM, games, music, videos. And guess what? Most of those services happen on social networks like Facebook, which currently has over 400M users and is growing like crazy internationally.
Well at this point i hope you've pieced it all together. The key to success -- one might even say DOMINANCE -- in payment systems is to begin with the foundation of frequent-use products, so that users won't forget their passwords. Whether intentional or not, Facebook has played this game to perfection. Not too far behind is Apple with iTunes, iPhone, and other related frequent-use media & entertainment products, and an App Store that people use regularly. And even Google has a shot here, with both Gmail and YouTube as two very large, frequent-use products, along with the upcoming Android platform. Twitter is probably a dark-horse here, but if user #'s continue to improve they could also have a shot. And i'd also keep an eye on Skype too, which still has a lot of frequent users and value.
Bringing up the rear pathetically here are Yahoo, Microsoft, and AOL. All 3 of these services have hundreds of millions of users (via email & IM alone, not to mention other services), and yet they haven't figured it out. Yahoo had previously developed a payment product called PayDirect, but shut it down in 2004. FAIL. Microsoft had the right vision with HailStorm, but their UX was absolutely friggin' terrible (see Password Friction again), and they didn't stick with it. AOL similarly has been shedding users for a decade, and never realized how valuable their original email user base could be. It's unbelievable to me none of these Internet Giants has figured out what is going on. They have neither acquired nor merged in a payment service (Amazon, eBay) nor have they acquired a large social network. Unless MSFT develops Xbox into a widespread payment system, or acquires eBay (for PayPal), Amazon, or Facebook i just don't see them climbing back into the ring. All of those deals would be very difficult and unlikely, even for MSFT.
So that's it folks, i'm spent. This has been a complete ramble and i don't have time to edit this shit, so i'm leaving it as it is. Sorry for all the swearing and uneven pace, but hopefully some of you will take away something useful.
Haven't really gotten on a rant in awhile... guess i've been doing a lot of travel lately, but now that i'm back in California for awhile, there's something i've been meaning to bring up that bothers me. It's kind of a dirty little secret of the startup industry, but there are very few good product, design, and marketing people in tech. And hardly any of them that are good seem to make it into the venture capital profession.
Now i say this knowing full well that i'm certainly not a genius on any of the items above. Anyone who has ever read my blog knows what a god-awful mess of turd droppings it is visually, and my font selection and layout are so bad that only a mother could love my pictures & posts. That said, i've spent at least 10-15 years doing coding, database dev & admin, basic front-end visual development (ages 15-30), and another 10-12 doing technology & consumer marketing (age 30-42), mostly using email, blog, search, & social strategies. Throughout both, i spent another 10-15 years managing projects, products, & teams, some of which might be called product management. I don't claim any formal visual design training, but i've done my fair share of mockups and learned the hard way what kind of UX doesn't work.
None of this means anything more than perhaps i'm competent in a few operational areas related to consumer internet startups, or at the very least hopefully i'm aware of & acknowledge my limitations.
However, over the past 5 years i've consulted with and/or invested in about ~50 startups. I've gotten to know a lot of entrepreneurs, and a fair amount of the venture capital and angel investors who are backing these companies, most of which are consumer internet startups. And guess what? Probably more than half of the startups, and more than 90% of the investors have no goddamn clue what the hell they are doing re: user experience and online marketing.
Let me say that again.
More than half of all startups, and easily 9 out of 10 investors HAVE NO F**KING CLUE regarding 1) user experience or 2) internet marketing.
Now many of you might say: aw c'mon dave, you're overstating that a bit don't you think? there are a lot of startups out there with a ton of engineering talent... and design & marketing aren't THAT important, are they? And seriously: investors don't have to be experts in every field, they just have to know how to assess talent & manage money... i mean, you don't expect every football coach to be an ex-football player, right?
Well, actually yes i do.
Or at least, i expect them to be dedicated, lifelong students of their profession.
And to be honest, design and marketing aren't just EQUALLY important as engineering... designers, product managers & [technical, analytical] marketers are usually WAY MORE IMPORTANT than coders. (believe me, i say this with a lot of humility, since my primary area of academic training was software development & applied mathematics & engineering... we just ain't all that.)
What's become appallingly obvious to me, is that in the HEART of Silicon Valley, amongst the ELITE of the elite, we are mind-bottlingly [sic] STUPID about how we build startups... about how we staff startup teams... and about how we structure and select the professionals in the investor community who fund consumer internet startups.
Addictive User Experience (aka Design) & Scalable Distribution Methods (aka Marketing) are the most critical for success in consumer internet startups, not pure Engineering talent.
This seems counter-intuitive, right?
We have this image of space-age whiz kids who are the stuff of legend for most technology startups -- The Woz, Bill Gates, Bill Joy, all those programmer types who could disassemble and re-assemble a transistor radio, a toaster oven, or a mainframe computer, and who grew up writing symphonies of code and wondrous applications before they even lost their virginity. Well i was one of those... or at least i aspired to be. I got paid for writing code when i was only 15, but i was still only a 2nd-class geek compared to the true code jockeys who were writing programs before they even went to grade school. Gates, Woz, Joy, Levchin, Zuck -- these guys were STUDs. they were god-like, and for their businesses -- building computers or advanced software / OS -- that kind of horsepower MATTERS.
And that kind of makes sense when you're building hard drives, or PC motherboards, or consumer electronic devices that require serious engineering talent... big-code cojones. Same perhaps for Google, or PayPal, or Facebook, or Mozilla. If you're building search engines or web browsers or fraud systems or serious CAD software or the movies that Pixar puts together.
But seriously, do you need that much geek when designing most basic input-output forms for consumer internet software? How much tech does it take to collect data & present data, when so much of the underlying infrastructure has been built into the OS & browser platform? We stand on the shoulders of these giants, but do we actually require them in every startup? well, it certainly doesn't hurt to have code jedis at the helm of your starship, but there are other areas that deserve at least equal attention... if you're building consumer internet sites & services.
Because while it's actually pretty easy to write a web 2.0 friendly front-end app or website these days, it's still MOTHERF**KING difficult to create visually-appealing interfaces, and beyond that to design them in ways that are compelling, engaging, drive calls-to-action, and are MEASURABLY beneficial to getting more customers using your products. figuring out game mechanics and activation, designing reinforcement schedules, visual imagery, copy writing, and landing page tests -- all of this is not trivial, and only recently are there starting to be good resources for learning how to do it well.
And if -- IF! -- you cross that hurtling Engineering chasm of Minimum Viable Product, and get to the promised land of appealing, useful Design, then you still have to chase the scalable, predictable, profitable channels of customer acquisition... otherwise known as MARKETING. and these days, most marketing isn't traditional PR & product placement, it's actually a very technically-intensive discipline filled with SEO, SEM, Social Platforms, email, widgets, social media, viral marketing, blogging, video, user-generated content, etc, etc, etc. it's a traditional marketing person's worst nightmare... tens if not hundreds of potential marketing channels & campaigns with unknown costs, techniques, and payoff.
Yet, these days marketing has become very MEASURABLE and very integrated with user experience & product development ... and for folks who know what they are doing, they can build amazing services with awesome native product marketing features that cost little or nothing to drive massive adoption.
In summary: i suggest to you that Engineering for consumer internet startups need only be competent, and that the real challenge is in finding designers & product managers who can build an awesome product experience, and marketers who can figure out effective scalable, integrated distribution strategies (whether organic or paid, whether technical or creative).
* Assertion #2:
If investors don't have operational backgrounds in design, development, or marketing from proven consumer internet companies, you probably don't want their money (or it better be the best damn termsheet on the table)
this one is a bit more controversial than the earlier assertion. and i'm probably pissing off most of the other VCs and angel investors in the valley by saying so, except that i'm not really that worried because most of the folks i do deals with DO have backgrounds in these areas.
now if you already have money from clueless investors, or you know that you've got a good clean termsheet from someone who is just offering you a check to get rolling, maybe this isn't that big a a deal. but honestly, if you're taking money from investors, why not try and get the best experience you can along with the 20-40% equity you're giving up? why not find people who actually have a shred of intelligence about consumer products and relevant skills, when you're going to be sitting in board meetings with them every month for the next 3-5 years of your godforsaken sleepless, work-like-a-dog excuse for a life listening to their mindless opinionated VC bullshit when they have no real clue?
do you REALLY want to be taking product and marketing advice from someone who has spent most of their life without ever having designed a web page, coded a simple program, written a blog post or email, or hell even have a f**king facebook or twitter account they know how to use with any amount of intelligence whatsoever?
When you do background research on your investors, see if you can find them online. Do they have recognizable web presence? do they blog, do they tweet? do they have a profile on LinkedIn, Facebook, Flickr, or YouTube? do they rank first for their own name? do they appear to have experience in the internet industry, or do they just have an MBA some big-name school, and no relevant operating roles?
Seriously, life is too short. Your startup too important. And your chances at the next Google, PayPal, or Mint are already tough enough.
Hire people smarter than you. Find a decent designer who understands human psychology & sexuality, game mechanics, SEO, and conversion analytics. Find someone in marketing who understands how to send an email, write a blog post, use search engines, social platforms, social media, and has done landing page A/B tests. Find investors who have a clue about the products and services they invest in, who use the products, and maybe even write/speak about them frequently. Find people as advisors, mentors, and investors, who have the same operational experience you'd hope to hire into your startup.
If we all take this to heart, we might just build a few more useful consumer internet products.
thanks to KDDI, Jonny Li, & everyone involved with this past wknd's most awesome Startup Weekend Tokyo. & props to Mona & Chris McCann for helping me slap together a last-minute mini-GoaP Japan trip... no way could have done it w/o you guys.
big OMEDETOO! & congrats to Startup Weekend winnersWubble and Wishcovery for putting together some terrific ideas & apps!
if you can read Japanese, you can also see Serkan Toto's preview of the event on TechCrunch Japan here... you can also read Fumi's awesome summary post here.
Come join us Nov 1-5 in Oahu for tech, green, clean, and mean social media... register now using codeREDPILL, and save over $600 off the normal conference fee.
[clarification: i was a private angel investor in Mint's A round back in early 2007, when i was also doing some marketing consulting for the company. i was not directly involved in the Founders Fund investment in Mint's C round a few months ago. the comments below are primarily drawn from my personal experience with the company before i joined Founders Fund]
[disclosure: the views expressed below are my own, and do not in any way represent the official position or perspective of either Mint.com or Founders Fund.]
Dear Jason Fried:
Sorry, You're Fucking Wrong.
Flipping is GOOD.
Let me explain...
In a poorly-researched post titled "The Next Generation Bends Over" (cute) penned a few weeks ago by Jason Fried, founder/CEO of 37 Signals, the author attempts to make the case that:
2) it's a growing trend "indicative of VC-induced cancer that’s infecting our industry and killing off the next generation"
3) young entrepreneurs should be more bold, audacious, go all-in on their vision, in order to "kick the ass" of the collective incumbents / dominant players
In order, these assertions are:
1) Fucking Wrong, and Irresponsible Conjecture & Hyperbole
2) Completely Wrong, and in fact Exactly the Opposite trend is going on, and finally
3) Wrong in most cases & crap advice for young entrepreneurs.
I'll now address each point specifically, and explain why Jason Fried -- although in his own right, an accomplished entrepreneur, whose products i use and respect -- is full of shit in this particular instance.
The VCs behind Mint.com Did NOT Force a Sale. Do Your Damn Homework Before You Speak.
First & foremost, while i respect Jason's opinion and right to post whatever the fuck he feels like, his article was -- by his own admission -- not based on any fact-checking. At the beginning of his post, Jason states "i don't know the full back story, but i bet this sale was encouraged by a Mint investor." IMHO, this is just incredibly irresponsible: you're a *very* visible figure ripping other folks on mere conjecture.
Perhaps you might want to contact one of these investors -- who, like me, are all publicly listed in Mint's entry on Crunchbase -- and ASK one of them, before you blow such a wild assertion out of your ass? You probably know several of them, and certainly through your connections it would be fairly easy to reach one of them to confirm or deny your suspicion. While i don't expect folks who aren't breaking-news bloggers to follow basic journalistic principles, making such an accusation without the tiniest shred of evidence is lazy at best, and borderline slanderous at worst.
Or, if you're simply too damn lazy to do some basic research, maybe you could just ask any experienced entrepreneur or venture investor why in the hell would it make any fucking sense for Series B investor Benchmark to encourage a sale that's likely only 4-5x its investment, or Series C investors who just put money in 30 days ago? or do you somehow think the seed or A round investors were controlling Aaron's actions with a car battery attached to his balls? if you had any knowledge of Aaron whatsoever, you would know that he is one confident sonuvabitch who RARELY lets anyone force him into doing anything.
In short, your logic here is not only faulty, it's piss-poor and reveals your absolute ignorance of what goes on in the venture world. Sure, you're absolutely correct there are some VCs that might force an entrepreneur's hand -- however, in most cases IT'S IN EXACTLY THE OPPOSITE SCENARIO of what you suggest. They usually want the entrepreneur to stay in the game, NOT sell, and aim for a larger / later win -- typically by FORGOING an acquisition and instead taking a round of capital -- which, in fact, was exactly what Twitter did when you were hypocritically whining about them last week.
Although there may indeed be examples of VCs forcing an entrepreneur to sell to get liquidity to investors, it's not at all typical and usually the opposite of institutional investor motivations.
The "Growing Trend" in Internet deals is towards More & Smaller Acquisitions. But it's not because of VCs, or the Financial Crisis, or Sarbanes-Oxley. It's because the Web is Maturing, and Internet Platform Giants are outsourcing / buying Innovation.
The second point that Fried asserts is that this is somehow a growing trend, and that VCs are changing the industry, "killing off the next generation" of entrepreneurs by forcing premature acquisitions. Again, nothing could be further from the truth... and in fact, the EXACT opposite is the notable trend going on in the industry right now.
First it should be noted that M&A have always outnumbered IPOs, but regardless IPOs basically shut down in tech after 2001 due to the dot-com blowup. Subsequently, many armchair analysts have stated that Sarbanes-Oxley legislation has made it more expensive to go public. Others have noted the financial crisis ending as a reason for more acquisitions. Still other conspiracy-theorists like Jason think VCs seeking liquidity for investments are at fault.
While any of these may be contributing factors, the more basic trend is this: there are now tens, if not hundreds, of large online platform companies with millions of users and positive cashflow. In addition to Google, Yahoo, & Microsoft, there are also eBay, Apple, Amazon, News Corp, Facebook, AOL, CBS Interactive, ComCast, IAC, etc, etc, etc. There are tens of companies that can pull the trigger on a <$500M deal, and 100s that can do a <$100M deal.
What's fundamentally different in the last ten years is that most big companies didn't have a need or facility for acquiring web startups. They didn't understand them, and couldn't figure out how to integrate them into their business. However, as the Internet has matured, ALMOST EVERY company is now a web company, and the Internet is both a primary and low-cost distribution channel. It is now very easy to integrate a web-based acquisition [at least from a technical standpoint... might be more challenging re: politics & fiefdoms]. And since most innovation doesn't happen at big companies, it's almost guaranteed that we'll see more acquisitions of small startups to help grow larger company platform strategies.
In fact, as more platform companies compete for deals, you'll likely see deal size go down as they try and acquire products & talent ever earlier in the startup lifecycle. There's no need to wait for companies to become $1billion-dollar powerhouses -- it's much more capital efficient to acquire them after they've proven out basic technology & gotten a little elbow in their customer adoption. Why buy it for $500M a few years later, if you can buy it for $50M now? I'm sure this was part of Intuit's thinking about Mint... as soon as they saw the Series C deal go down, they realized if they waited another 2-3 years, the pricetag might go up even further. So they cut a deal now.
While this trend may negatively affect some VCs, it's actually a very positive trend for angel investors and smaller VC funds, and it's an especially GOOD trend for entrepreneurs. This creates a great market environment for small investment / small exit deals that are exactly what Web 2.0 entrepreneurs are serving up. In other words: the Future is Bright, Time to Buy Sunglasses.
Why Flipping is GOOD, & Why Young Entrepreneurs Should Probably Sell Their Startup Sooner than Later.
Finally, i'll make an intentionally controversial stmt:
Young Entrepreneurs Should Sell Out Early(and not Late or Never)
Why? For the same reason Why Dogs Lick Their Balls -- BECAUSE THEY CAN.
Look, i'm not trying to get anyone to sell their grand vision short. If you've got a great business to build, by all means give it your all and run it forever. However, for most entrepreneurs it's not going to be the only business they do in their lives. And for the young entrepreneur -- particularly those under 30 who've never done it before -- the single best thing you can do to ensure your future success is TO GET A DEAL DONE. It's heroic and glamorous to "go all in", but realize that many times that means you may come away with NOTHING. Playing well sometimes means you take a single or a double instead of getting thrown out trying to steal home. And sometimes it means just taking 4 balls and getting on base. However you play the game, swinging for the fences every damn time may work for Babe Ruth and Albert Pujols, but i'm personally more a fan of Ichiro Suzuki and Billy Beane. Small-ball and MoneyBall can be just as beautiful as a homerun.
it almost doesn't matter how large or small it is (altho firesale acquisitions don't count), the ability for an entrepreneur to have future success is typically judged by historical metrics. and since most startups FAIL, the fact that you can take a startup to ANY size exit proves you can beat the odds, and that you may have the ability to do it again. Once you have a deal under your belt -- whether it's a $3M deal, a $30M deal, or a $300M deal, you are bankable. People will bet on you again. Investors, Partners, Employees, Reporters, etc will all believe you can do it (sometimes to their detriment, because again the odds are most startups fail -- even those by previously-successful entrepreneurs).
In addition, contrary to all these haterz who paint acquisitions as a bad deal or a sell-out, i actually think it's a great thing -- imagine being able to take 3-5 years to build a product, develop it to some level of usefulness, grow customers, build revenue, and then sell to a larger organization that decides it could use that innovation to help their business where it sees new opportunities. Isn't that awesome? Isn't that a vision fulfilled? How about the fact that you can perhaps after a few years go back out & do that again? Why is it that no one seems to think switching jobs every 3-5 years is a bad thing, but somehow think that selling your business to someone who really wants it and will grow it isn't terrific?
More Transactions Grow The Market. Startup Ecosystem Efficiency Raises All Boats.
Lastly, here's the thing i really want to stress, more than peeing all over Jason's post: more transactions of any kind or size help improve overall startup ecosystem health.
Fact is, startups operate in a financial system that is inefficient, illiquid, and challenging to manage.
Venture Capital exists because startups are generally deemed too risky for debt capital, or for traditional financing. This item is often overlooked by entrepreneurs (and investors) who view the VC field as glamorous and confident, when it fact it is mostly ignorant and risk-averse. VCs like to maintain asymmetric information advantages over their competitors, and sometimes even over entrepreneurs. Keeping competing VCs, and even sometimes their own LPs & entrepreneurs in the dark about value and pricing is sometimes in their best interest -- it KEEPS PRICES DOWN. However, infrequent financing round / transactions and lack of objective pricing actually don't serve the interests of entrepreneurs. As with most markets, liquidity and transparency provide the enabling mechanisms to grow the market larger and to reward market participants more richly.
This is a non-obvious point.
More & smaller transactions in the market actually improve ecosystem efficiency, and provide better pricing transparency. In the long-run, it benefits all system participants for small transactions to occur, because it makes the overall market more knowledgeable -- this in turn, reduces risk and encourages greater investment... which also encourages greater [overall] returns.
In summary, the benefits of selling startups early -- or simply when a transaction is available -- may be a smart strategy for both entrepreneurs and VCs to help improve the market, and reward themselves at the same time. It may not be the best strategy for Bill Gates, Steve Jobs, Mark Zuckerberg, or other titans of industry, but it might be a reasonable strategy for 1st-time entrepreneurs under 30 looking to establish their careers & ensure that future endeavors are more likely.
And Jason: now that i've ripped you a new one, i'd like to apologize for all the harsh commentary and say that altho i disagree with you on this issue, i still think you're an amazing entrepreneur, and i still use your products. Happy to buy you a beer and shoot the shit anytime.
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