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"A friend of mine led his company from nothing to over $1 billion in revenue / This worked brilliantly up to about 500 employees." I'm often confused by the ap

"A friend of mine led his company from nothing to over $1 billion in revenue / This worked brilliantly up to about 500 employees." I'm often confused by the apparent VC assumption with excessive growth and not building right-sized companies sometimes. Is this failure? To me, this is a great time to say "I'm making lots of money, my employees are making lots of money, and it's ok to be at this size and there's nothing wrong" It might have been a great time to stop at 100, or even 25, and you could have had a fantastic time, doing one thing supremely well, too. There's honor in that. I think the pressure to grow to unicorn sizes inherrent in VC things could often result in weird business choices. It's important to remember the VC is motivated by the final selling price, and big companies sell more -- but that's totally not failure.

AceJohnny2 11y ago
Yes, you've come across the core criticism of the VC business model. They fund 500 startups in the hopes that one of them goes big. Not big, gigantic! Humonguous! The next Google! Facebook! Dropbox! They need such a huge return for their business model to work (do you know how expensive it is to fund 500 pie-in-the-sky startups?) With that in mind, if as a founder you're happy to settle for mid-size, you're going to get into headlong conflict with VCs who've funded you (and thus own majority shares of the company), because you're failing them according to their model. You may be interested in jwz's and idlewords's comments, who frequently decry this model.
- aaronbrethorst 11y ago
  With that in mind, if as a founder you're happy to settle for mid-size, you're going to get fired by your board. FTFY.
  - AceJohnny2 11y ago
    I wanted to avoid sounding too alarmist, but yeah :)
  - InclinedPlane 11y ago
    Yeah, so don't go public. Problem solved. Or, game the system. Zuck owns a majority stake in FB despite it being a "public" company, he can't get fired.
    - leereeves 11y ago
      Most startup founders don't have as much negotiating power as Zuck did with Facebook.
      - Redoubts 11y ago
        What was unique about his case? How did he get away with keeping a majority share?
        aaronbrethorst 11y ago
        He had an incredible amount of early traction. For every startup/VC dyad, there's going to be a power imbalance. Either the founder(s) and their company are in high demand (rare), or the VC is (typical). The side that has the leverage is going to get the best terms. Normally that's the VC. (Liquidation preference, your first born, board seats, etc.)
        choppaface 11y ago
        Zuck also had attracted a talented initial team, so he was able to ride the growth and curtail competition along the way.
      - ThomPete 11y ago
        The size at the speed it did.
      - choppaface 11y ago
        Don't have the leverage or don't have the luck? Should founders just take less investment if their initial product isn't wildly popular? Tho burning VC money to do market exploration (and failing) doesn't sound too bad (isn't that what it's for? :)
- interesting_att 11y ago
  I understand the antagonism towards VCs, but they have financial reasons why they push for only unicorns. Best reasons I have heard so far are: 1) The only way VCs can make large amount of money for their investors is via a liquidity event. Investors would much rather prefer .25% of a 1B dollar public company than 25% 10M dollar private company, because you can liquidate the former far more easily. 2) Overhead costs are significantly less when you focus on fewer companies, which is what happens when you push all companies to be a unicorn. A VC would much rather care about 5 companies with significant promise than 500 small companies. In the latter situation, you would need way more employees to make sure your investments are safe. 3) Funding a few unicorns is better for marketing purposes. VCs need to raise money from institutional investors, hence need to "wow" them.
andrewliebchen 11y ago
Yeah, except that the VC wants to continue to squeeze more milk from the cow. "More pasture land!" he demands. "Add growth hormones!" he suggests. The cow dies, then he gets to write posts about how the cow's desiccated udders were the bottleneck for his sweet milk.
aaronbrethorst 11y ago
I think the pressure to grow to unicorn sizes inherrent in VC things could often result in weird business choices. Yes. It's important to remember the VC is motivated by the final selling price, and big companies sell more -- but that's totally not failure. Maybe not to you, but it would be to the VC. This is a fantastic reason to possibly, just maybe set your startup sights somewhere other than landing funding. Do you want to be beholden to someone who is—ultimately—trying to flip you for a 9 or 10 figure win, or do you want autonomy and the opportunity to pursue a 'modest' success?
deleted 11y ago
[deleted]
hyperpallium 11y ago
The problem with leaving oxygen in the room is that someone else will grab it - and burn you alive. The only natural resting place is "right-size": when you've dominated your market/niche. Choose it wisely.
- Retric 11y ago
  Niche are ill defined. https://xkcd.com/1095/ https://xkcd.com/1095/ We are not in the food business, the drink business, the ... We sell organic locally sourced non fat _ between 6th and ninth street.
shostack 11y ago
The only challenge with saying "eh, this is big enough, I'm satisfied as are my employees" is that the business world is not static. Your competitors are nipping at your heels, markets change, technology changes, and if you get complacent and say "this is good enough" your business can be swept out from under your feet and suddenly you are struggling or dead. Like it or not business is a treadmill. You can never stand still or you risk falling off.

AceJohnny2 11y ago

Yes, you've come across the core criticism of the VC business model. They fund 500 startups in the hopes that one of them goes big. Not big, gigantic! Humonguous! The next Google! Facebook! Dropbox! They need such a huge return for their business model to work (do you know how expensive it is to fund 500 pie-in-the-sky startups?) With that in mind, if as a founder you're happy to settle for mid-size, you're going to get into headlong conflict with VCs who've funded you (and thus own majority shares of the company), because you're failing them according to their model. You may be interested in jwz's and idlewords's comments, who frequently decry this model.

aaronbrethorst 11y ago
With that in mind, if as a founder you're happy to settle for mid-size, you're going to get fired by your board. FTFY.
- AceJohnny2 11y ago
  I wanted to avoid sounding too alarmist, but yeah :)
- InclinedPlane 11y ago
  Yeah, so don't go public. Problem solved. Or, game the system. Zuck owns a majority stake in FB despite it being a "public" company, he can't get fired.
  - leereeves 11y ago
    Most startup founders don't have as much negotiating power as Zuck did with Facebook.
    - Redoubts 11y ago
      What was unique about his case? How did he get away with keeping a majority share?
      - aaronbrethorst 11y ago
        He had an incredible amount of early traction. For every startup/VC dyad, there's going to be a power imbalance. Either the founder(s) and their company are in high demand (rare), or the VC is (typical). The side that has the leverage is going to get the best terms. Normally that's the VC. (Liquidation preference, your first born, board seats, etc.)
      - choppaface 11y ago
        Zuck also had attracted a talented initial team, so he was able to ride the growth and curtail competition along the way.
    - ThomPete 11y ago
      The size at the speed it did.
    - choppaface 11y ago
      Don't have the leverage or don't have the luck? Should founders just take less investment if their initial product isn't wildly popular? Tho burning VC money to do market exploration (and failing) doesn't sound too bad (isn't that what it's for? :)
interesting_att 11y ago
I understand the antagonism towards VCs, but they have financial reasons why they push for only unicorns. Best reasons I have heard so far are: 1) The only way VCs can make large amount of money for their investors is via a liquidity event. Investors would much rather prefer .25% of a 1B dollar public company than 25% 10M dollar private company, because you can liquidate the former far more easily. 2) Overhead costs are significantly less when you focus on fewer companies, which is what happens when you push all companies to be a unicorn. A VC would much rather care about 5 companies with significant promise than 500 small companies. In the latter situation, you would need way more employees to make sure your investments are safe. 3) Funding a few unicorns is better for marketing purposes. VCs need to raise money from institutional investors, hence need to "wow" them.

andrewliebchen 11y ago

Yeah, except that the VC wants to continue to squeeze more milk from the cow. "More pasture land!" he demands. "Add growth hormones!" he suggests. The cow dies, then he gets to write posts about how the cow's desiccated udders were the bottleneck for his sweet milk.

aaronbrethorst 11y ago

I think the pressure to grow to unicorn sizes inherrent in VC things could often result in weird business choices. Yes. It's important to remember the VC is motivated by the final selling price, and big companies sell more -- but that's totally not failure. Maybe not to you, but it would be to the VC. This is a fantastic reason to possibly, just maybe set your startup sights somewhere other than landing funding. Do you want to be beholden to someone who is—ultimately—trying to flip you for a 9 or 10 figure win, or do you want autonomy and the opportunity to pursue a 'modest' success?

deleted 11y ago

[deleted]

hyperpallium 11y ago

The problem with leaving oxygen in the room is that someone else will grab it - and burn you alive. The only natural resting place is "right-size": when you've dominated your market/niche. Choose it wisely.

Retric 11y ago
Niche are ill defined. https://xkcd.com/1095/ https://xkcd.com/1095/ We are not in the food business, the drink business, the ... We sell organic locally sourced non fat _ between 6th and ninth street.

shostack 11y ago

The only challenge with saying "eh, this is big enough, I'm satisfied as are my employees" is that the business world is not static. Your competitors are nipping at your heels, markets change, technology changes, and if you get complacent and say "this is good enough" your business can be swept out from under your feet and suddenly you are struggling or dead. Like it or not business is a treadmill. You can never stand still or you risk falling off.