5 ms·

Right, I think we're in agreement. VC backed companies are usually shooting for fast growth. If you hitch your wagon to a VC backed company, you might be gettin

by emmett 15y ago

Right, I think we're in agreement. VC backed companies are usually shooting for fast growth. If you hitch your wagon to a VC backed company, you might be getting in early on the very first Google ad buys when they were underpriced. Then again, it might fail. But "Keep in mind that VC companies tend to go big or bust, with large rewards in success and none in failure" wouldn't make such an eye-catching headline.

tptacek 15y ago
They're virtually always shooting for fast growth, and have to, to work with VC economics. There are exceptions, but they seem to fit a pattern of "person we believe can hit the moon repeatedly has developed a weird fetish for counter service peanut butter & jelly sandwich shops". Actuarially speaking, you are not getting in early on the next big thing. You're one of a cohort of 10 in which 9 are expected to fail; indeed, in which all 10 are being pressured to make longshot bets that hasten failure, because the worst case for the VC actually isn't "company goes out of business".
- Alex3917 15y ago
  "All 10 are being pressured to make longshot bets that hasten failure" Failing fast isn't necessarily a bad thing. I'm sure there are many companies that have gone out of business because they took VC and tried to grow too fast, but what percentage is that really? When bootsrapping you often don't even know if the business will be viable for a couple years, which IMHO is a vastly worse situation to be in.
  - tptacek 15y ago
    Careful. We're not talking about failing fast. We're talking about being presented with the choice of a medium-risk medium-growth model, and a high-risk fast-growrth model, and invariably selecting the high-risk model. That's what VC means. At the strategic level, it means invariably selecting the higher risk business model. Again: "company going out of business" is actually not the worst case for the VC.
    - wtvanhest 15y ago
      The assumption that growing slow is less risky is not necessarily a good one. Different types of businesses need different growth rates to be successful. People taking VC money take it because they need to grow fast or it won't work. Examples outside of tech: Green Mountain Rosters: They make K-Cups. They have to get as many Americans to buy K-Cup machines as possible so that they don't buy a potential competitor's product. If they went slow a competitor would go fast and destroy them. So they sell the machines near cost or less and try to get market penetration. Once everyone has those machines they sell the K-cups which is where the money is. That business would be ridiculously stupid to go slow in. Same thing with something like Twitter. If that started catching on but they didn't put any money in it for marketing and growth some other Twitter replacement would have come along and taken their market by being aggressive. If your goal is to have control over your world and not have a boss, don't take VC money. Build a slow growth business in a saturated market and deliver top quality products. You will be happy and that is OK. But don't look at what other people are doing with disbelief and frustration that they are "shooting for the moon" and "ruining customer's lives" (not really your words) because they are trying to win in a hard to win place and trying to represent their investors as true fiduciaries.
      - tptacek 15y ago
        The country is chock full of successful independent coffee roasters. Some of them have in the past 5 years gone national in scope. Yes, it takes outside financing to replace real coffee with pasteurized process coffee cups. So, don't do that. And coffee is a good example. Because among those indies, there are coffee roasters that have taken outside funding and suffered as a result.
        deleted 15y ago
        [deleted]
        wtvanhest 15y ago
        GMCR isn't a coffee shop, it is a company which makes coffee machines and K-cups that go in those machines. # of coffee shops that went national with no financing = zero. You can argue about the type of financing, but any type Starbucks had after the first investors expected big growth. Even today their stock price is at a P/E of 30 which means the market thinks they will growth at double digits every year. I'm not saying going VC is good, or not going VC is good. Rather I am saying that each strategy has its own ups and downs depending on the type of business. Some businesses need VC funding to beat competitors, some can grow slow.

by emmett 15y ago

tptacek 15y ago

They're virtually always shooting for fast growth, and have to, to work with VC economics. There are exceptions, but they seem to fit a pattern of "person we believe can hit the moon repeatedly has developed a weird fetish for counter service peanut butter & jelly sandwich shops". Actuarially speaking, you are not getting in early on the next big thing. You're one of a cohort of 10 in which 9 are expected to fail; indeed, in which all 10 are being pressured to make longshot bets that hasten failure, because the worst case for the VC actually isn't "company goes out of business".

Alex3917 15y ago
"All 10 are being pressured to make longshot bets that hasten failure" Failing fast isn't necessarily a bad thing. I'm sure there are many companies that have gone out of business because they took VC and tried to grow too fast, but what percentage is that really? When bootsrapping you often don't even know if the business will be viable for a couple years, which IMHO is a vastly worse situation to be in.
- tptacek 15y ago
  Careful. We're not talking about failing fast. We're talking about being presented with the choice of a medium-risk medium-growth model, and a high-risk fast-growrth model, and invariably selecting the high-risk model. That's what VC means. At the strategic level, it means invariably selecting the higher risk business model. Again: "company going out of business" is actually not the worst case for the VC.
  - wtvanhest 15y ago
    The assumption that growing slow is less risky is not necessarily a good one. Different types of businesses need different growth rates to be successful. People taking VC money take it because they need to grow fast or it won't work. Examples outside of tech: Green Mountain Rosters: They make K-Cups. They have to get as many Americans to buy K-Cup machines as possible so that they don't buy a potential competitor's product. If they went slow a competitor would go fast and destroy them. So they sell the machines near cost or less and try to get market penetration. Once everyone has those machines they sell the K-cups which is where the money is. That business would be ridiculously stupid to go slow in. Same thing with something like Twitter. If that started catching on but they didn't put any money in it for marketing and growth some other Twitter replacement would have come along and taken their market by being aggressive. If your goal is to have control over your world and not have a boss, don't take VC money. Build a slow growth business in a saturated market and deliver top quality products. You will be happy and that is OK. But don't look at what other people are doing with disbelief and frustration that they are "shooting for the moon" and "ruining customer's lives" (not really your words) because they are trying to win in a hard to win place and trying to represent their investors as true fiduciaries.
    - tptacek 15y ago
      The country is chock full of successful independent coffee roasters. Some of them have in the past 5 years gone national in scope. Yes, it takes outside financing to replace real coffee with pasteurized process coffee cups. So, don't do that. And coffee is a good example. Because among those indies, there are coffee roasters that have taken outside funding and suffered as a result.
      - deleted 15y ago
        [deleted]
      - wtvanhest 15y ago
        GMCR isn't a coffee shop, it is a company which makes coffee machines and K-cups that go in those machines. # of coffee shops that went national with no financing = zero. You can argue about the type of financing, but any type Starbucks had after the first investors expected big growth. Even today their stock price is at a P/E of 30 which means the market thinks they will growth at double digits every year. I'm not saying going VC is good, or not going VC is good. Rather I am saying that each strategy has its own ups and downs depending on the type of business. Some businesses need VC funding to beat competitors, some can grow slow.