In a startup environment favoring fast, relatively cheap exits instead of building sizeable companies, it is always interesting to look at the choices startup founders and CEOs make when they have the option to sell the company or build it forward. It is a bit of a Rorschach test–telling much more about the individuals than about the situation.
As the entrepreneurs who I’ve talked to on the subject will attest, I’m hardly a person who’d talk against a business model that generates, say, $5-10M of value/year. If you keep your team small, manage your burn and take small investments (if any), selling a company for $15M after three years is not a bad deal if you and a co-founder have 30+% of equity in the business. Then, you can do it again. It’s fun. You have control of your destiny inside the company. You get to work with your friends. It’s good money if you set your aim right. I have friends who are on their third startup using this model and loving it. I have advised many founders to bootstrap and go with this model as opposed to seek VC or sometimes even angel funding.
At the same time, founders sometimes wish their good ideas had more impact, that their innovation touched and delighted more customers. They also acknowledge that being small means you often have little to no influence over the market you are in. You have little leverage. You go where the current takes you. You sink or swim based on your tenacity and agility.
Balancing control/ownership/agility with growth/leverage/impact is one of the hardest tasks of an entrepreneur. There may be a right or wrong answer for a company but there is no right or wrong answer for a person. We should not judge those who decide to stay small, even though they may have a big opportunity in front of them. Personally, I wish them the best of luck and hope that they will be successful and will want to build a bigger company the next time around. On the flip side, it is important to recognize that choosing the longer, harder path in an environment where quick exits are possible is a gutsy move worth raising a glass to.
My dear friend Brian Shin, founder/CEO of Visible Measures recently had to make this choice. I’ve known Brian for more than a decade. We worked together at Allaire and I’ve been an advisor to several of his companies. Visible Measures is an online video analytics company, the only one of its kind. VMC was doing well and, according to the rumor mill, it had suitors willing to pay a price that would have put many millions in Brian’s bank account. Since this is Brian’s third startup, it would have been easy for him to take the deal and go work on his fourth one. Instead, he chose to build a big company. This was a smart move because VMC’s business model enables network effects (how many different Nielsen-type services does one need for video?). Yesterday, at DEMO the company announced the release of its next-generation platform, the acquisition of Vidmeter and a sizeable financing. So, cheers, my friend, and best of luck as you build out this business.
Tangent: Coming full circle to the subject of Rorschach tests, my wife found a fantastic book called My Last Supper. Famous chefs are interviewed about what meal they would like to have before they die. This is the ultimate psychology test for a chef.
