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Back To The Garage
from the Silicon-Valley-with-humility dept
Yesterday I had lunch with a friend of mine who started his own company a few years ago. We were laughing about how far off the mark venture capitalists seem to be, and how many people we know who have started companies that are building real businesses the old fashioned way: bootstrap a product with extremely low costs, and then make money by actually selling that product to real customers. That's the new Silicon Valley plan, it seems. Many entrepreneurs around these parts are still excited about starting companies, they're just doing it in a different way than they were done a few years ago. Companies are being started inside people's homes. Everything is cheap these days, including labor. The get-rich-quick tourists have all gone home. The excitement among startups is how little they spend on expenses, not how much money they've raised. In the end this means counting "honest revenue" - which is real money from real customers paying for real products. It seems like such an obvious concept, and it's happening all over the valley. The venture capitalists, of course, still haven't noticed. That's okay. With this method of building a company, venture capitalists aren't needed.
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Growing pains
It will work until they need to grow into a real office building with salaried employees, employment law, safety practices, and all the other overhead. Then they will need to get a loan.
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Re: Growing pains
Not if they're making enough revenue from customers..
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Re: Growing pains
That might work for a cottage industry like kite-making or juggling equipment, where it is possible to grow incrementally, adding just a few customers at a time. But in the high-tech world, anytime the word spreads online, or a big company wants the product, then there are situations where the entrepreneur suddenly needs a million-dollar loan.
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Re: Growing pains
That might work for a cottage industry like kite-making or juggling equipment, where it is possible to grow incrementally, adding just a few customers at a time. But in the high-tech world, anytime the word spreads online, or a big company wants the product, then there are situations where the entrepreneur suddenly needs a million-dollar loan.
It's nice that you feel that way, but I know plenty of high tech entrepreneurs who are doing just fine without the million-dollar loan and growing based on revenue, which kind of disproves your point.
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Re: Growing pains
I miss California, and 1997. -- get rich tourist.
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Depends on your goals...
I'm working with a company now that has bootstrapped for two years, doing all the "real" things talked about in the article. The company could still eek out a good living for a bit longer, but being able to compete on a broader level is going to require capital- or the company will watch bigger marketing/well-funded competitors eat it's lunch. If you are interested in building a small business, and you believe the niche is either small enough or the company's position is defensible enough to go without capital DON'T RAISE MONEY. If the business you are in requires capital and you are already making respectable revenue, I wouldn't be afraid of looking for cash. Like the article asks, are some of these companies going a bit too far the other way on cutting corners and not embracing growth strategies?
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Re: Depends on your goals...
I'm not saying that there aren't times it is appropriate to raise money. I'm just saying there's this viewpoint among some that all companies need to raise money, when that's clearly not the case. I don't think that not raising money condemns you to being a small, niche player either. Certainly one growth strategy is raising money from VCs, but that has some costs, as well. There are other strategies that I think can work as well.
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start-ups survive their VCs
I spent most of last year trying to raise money from VCs for a company which was supposed to run out of cash last July.
The company did not run out of cash, not yet, might have a good chance to survive, but a couple of the VCs I talked to have gone out of business.
That s ironic, people sit by the river awaiting our corpse go by, just to say how stupid is being in the new economy, how we should get real jobs and quit the silly start-up biz etc, and all goes by is VC corpses which they do not notice at all.
the worst part of the whole VC story is that VCs are still around like ghosts in the castle, doing ordinary things as they were alive still. So I spent most of 2002 writing a bizplan after another for them, mostly taking time away from marketing. But they were dead already
That s why I very much like this quotation: "in these highly turbulent markets, the cost of doing the analysis or writing a business plan exceeds the benefits. -The Origin and Evolution of New Business (Oxford University Press 2000) by Amar V. Bhide-
I ve stopped completely dealing with VCs and have discovered that I have plenty of time to relax. Business run almost on its own (the beatiful of the Internet) on extremely low costs, might not become a blockbuster soon, but it s still fun and a good growth option on the future.
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Re: Depends on your goals...
Good points, and after I posted I thought I should have qualified that there are several growth strategies that don't include VC's- including organic revenue growth. However, if a market has significant revenue potential, bigger companies come in and make it difficult for the smaller companies with less resouces to compete (i.e. marketing, price points, etc). Let me also make a point we can all agree on- it's always going to be painful to take capital whether it's from private or public markets. Having someone look over your shoulder about quarterly revenues can sometimes derail even the biggest business (see Coca-Cola). ;-)
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