Silicon Valley these days is made up of two kinds of entrepreneurs (I’m painting with broad strokes, bear with me). The first group is the old guard. These are people who started companies during the late nineties and up until the 2000 stock market crash. The second group was either in school during that period, or doing something other that working in the tech world, and have started companies after the fallout from the crash.
Generally speaking, experience counts for something. So you’d expect entrepreneurs who’ve been through the ups and downs of a tech startup to have an advantage over the newcomers. Or at least have an equal chance at success. But in fact the opposite may be true. A number of venture capitalists I’ve spoken with have said that too many “old guard” entrepreneurs are not being bold enough in their business decisions, and it’s hurting their startups.
The first VC to bring this up to me was CRV’s Saar Gur at a recent conference. Since then I’ve brought it up with a number of other VCs. Across the board they agree - many entrepreneurs from the first bubble are overly cautious, and hurting their businesses.
The Old Days: Rock and Roll
Life was good in the “old days.” Venture capitalists, flush with cash and a little unsure how long the good times would last, encouraged entrepreneurs to raise money and spend it as fast as possible. Literally. The goal was to get revenues up to a million dollars a quarter and start the IPO process. By the time they got out the door, valued by the market on forward revenue estimates, they’d be a billion dollar company.
That meant raising money, hiring everyone in sight and paying for business development deals that could bring in revenue. Those deals were usually not profitable. You’d pay AOL $10 million per year, for example, to get access to their users in some form. That deal may only spreadsheet out to a million or two a year in revenue. But the board would approve it anyway - and write the $8 - $9 million loss off as a marketing expense. Since the market was only valuing based on revenue, it didn’t matter anyway. Capital was cheap. Only revenue was valued. Even if you paid $10 to get $2.
I personally sat through countless board meetings as a corporate attorney and watched these decisions be made. In general, the venture capitalists were the ones demanding growth at any cost. And the entrepreneurs did exactly what those venture capitalists asked.
The intense pressure entrepreneurs were under to get revenue at any cost led them to make decisions that, with hindsight, were blatantly foolish. And when the market crashed on April 14, 2000, those same entrepreneurs had to lay off most or all of their employees after making those decisions. And face outright humiliation on FuckedCompany, the site that chronicled the downfall of the Internet bubble.
It left a bit of a scar.
The New Guard
Entrepreneurs who didn’t go through the crash don’t carry that burden. They don’t have memories of looking their employees in the eye as the laid them off. They were never trashed on FuckedCompany for making ridiculously stupid decisions. Basically, they’re optimists, as any entrepreneur should be. They have no baggage.
And as a result they do exactly what they should do - they take big risks and hope for a big payoff. For the venture capitalists it’s even more important. They need one or two big wins in every fund to generate enough profits to keep their limited partners happy. A gun shy entrepreneur may not take appropriate risks at appropriate times, and the chances for success plummet.
I’m definitely a bit tainted myself. What I saw happen to startups in the first bubble makes me hesitant to raise money (we never have), hire too many people, or generally spend money (our offices are still in my house). I think less about growing the business sometimes than I do about losing what we’ve built so far. That’s part of the reason why I hired Heather as CEO to take over the business side of things. She’s conservative, but knows when its time to take risk and grow the business.
My interactions with Edgeio, a company I co-founded and which went into the deadpool last week, were similar. It seemed like every board meeting I was saying the same thing - stop spending money, stop hiring, stop. I was out voted, and the company followed its own path. The fact that they ultimately failed, though, doesn’t mean I was right. The investors felt that the time to spend and try to grow was now. It doesn’t matter that Edgeio failed, what matters is that it is the right approach if you are trying to make something big. If you want to be conservative, don’t be a silicon valley entrepreneur.
Taking risks doesn’t mean raising more money than you realistically need. It doesn’t mean hiring 20 people to do what 4 can do just fine. And it certainly doesn’t mean taking massive losses in exchange for a small amount of revenue.
But it does mean that you should raise money when it makes sense, hire people when you need them, and grow the business with a bold, take no prisoners attitude. Those are the entrepreneurs that change the world and ensure that their great grandchildren have massive trust funds. They are the ones that make Silicon Valley such an exceptional place. Don’t forget what happened in 2000 - but also don’t forget that you are here to take risk, and go for it all.
I just wanted to clarify, the only previous post made by me was the Original #38. I hate immitators, and the atmosphere they create. I’m sure the editors already know this, my email address will verify.
Funny, I have a cold and my name’s aaron, but the prior post wasn’t me.
Anyway, the old mindset of trying to pick one business and force it to succeed may work for VCs, but isn’t the way for individuals to be hyper-productive over time. You can’t coerce things into success today. More efficient to plant a few seeds, let them simmer, then see what takes off over the course of a year or two before committing greater amounts of time, money and focus to any one or more of them.
Before the internet, you had to use a business model based on force, since nothing happened without a phone call or visit. You had to go get the universe. With the internet, now you can focus on ways to help the universe find you…if you’re authentic and patient.
Over 20 years, would you rather have 100 at-bats over (5 business mashups per year) or 7 at-bats (one new company every two years)?
This line of thinking gets the “Church of Focus” people all riled up…but there is focus. The focus is on experimenting until you find something that takes off on its own, rather than sort-of-taking off only because of long work weeks and too much $$$. http://www.pebblestorm.pbwiki.com
@Chris R,
I’m not sure but Canada is not a third world country, so your chances to succeed are better here. Internet companies can be based anywhere: tinyurl.com/2×4j3a
Good article: tinyurl.com/2wrmld
Book for you: tinyurl.com/ytgla8
Best of luck with your search engine!
so what’s the bottom line to all of this?
great post!
Entrepreneurs are like generals and Tuchman’s book, “Guns of August”, case studies of generals, who were majors two wars ago, were still trying to win the last war.
“I’m not sure but Canada is not a third world country, so your chances to succeed are better here.”
Compared to China maybe. Any sharp success is blunted by the fact that we have to support failure collectively under a communist leaning socialist govt with a splash of imperialism.
No, I don’t like the govt here. I’ve voted in 5 straight elections where the only thing on the ballot was 2-3 candidates and a circle you would have to pencil an X in where you would openly submit it to people that could easily erase your x and put it in the box.
The MPs and parliament is a joke. The Queen is the head of state, and they have us pay for the worst subsidies. I blogged about this. WE PAY FOR VICTOR LUCAS’s show where he plays video games all day long and reviews them on cable (G4 Canada). We pay for the BDC’s failed ventures for their friends while we could never get any help from them. 3rd world is this world. As a kid, I grew up in a place where everybody had a fair shot.
At least I can stop crying about it soon. Bottom line. Why don’t we see a lot of Canadian reviews here on TC. This is a super hostile and corrupt environment. Not nice at all.
#98 / aaron ross
There are a few Aarons who post here. Our url’s are different, though - I think people are smart enough to know the difference
BTW Zicam worked pretty well for me to get over the cold.
@77 Eric, thanks for the link to the blog. Am going to grab Guy Kawasaki’s ‘The Art of the Startup in a few.
I love this community…
Michael:
Just a reminder that the high-tech world didn’t start in the late 1990’s. Some of us have been working on startups for much longer. My first company was one of the first 100 dotcoms (http://www.whoisd.com/oldestcom.php), founded in 1983 and funded in 1988.
To me, the only thing that VC’s have in common is that they want to make a very substantial return on their investments. There are some who place their bets on early stage companies and first-time entrepreneurs and others who favor people with a demonstrable track record.
If you are looking for VC funding, remember that you have to look beyond the term sheet, since your VC partner will often be in a position to control your company and your life. You should think of that relationship as you would a marriage: here’s someone you are committing to live with for several years and who can make your life very happy (best case) or extremely unpleasant (more often than you might think). It’s not about whether or not you have previously been an entrepreneur, but whether your investor(s) share your vision and goals and will provide the backing and support that you need.
Chris R.: Just saw your picture on your website… You’re kinda creepy. You should get outside a little bit and stop commenting
Good article, I read TC on a daily basis to mine this sort of information from the individual posts, reviews etc. Really good to see someone with experience share. If only more information like this was available.
http://www.flickr.com/photos/8.....086641508/
@OLL, no, I’m not pretty, but here’s one from my flickr stream. I took it with the iMac.
I’m just sick and tired of this. A socialized VC system in the BDC is nothing more than pure communism, and just as in the USSR, the few elite ruled all the resources of the people and they had to pay for it. It’s no different here in Canada.
What’ll happen if I go to Vancouver tell Victor Lucas I want my contributions back from his crappy video game show? What if I try to reclaim? There are a few people that rule this place, and they won’t play fair. As unfair as the bay area can be, it’s still way better than Canada.
In the USA, if you have the tech, then you can get the cash.
Definitely … CALCULATED risk, not uneducated, blind, wasteful risk.
I have founded three companies since 1996, all self-funded, with a combined total of $225,000 in angel money. My first company, with $50,000, built (at the time) a pretty innovative online store for telecom products and accessories. We were bought by Hello Direct in 1999 for about $2,000,000 in cash and stock. I was 28 at the time, and my peers were all pressuring me to take VC and go big. We had a term sheet from one VC, and I went with the saying “when someone puts a million dollars in your hand, close your hand”. I don’t have a private jet, but I was able to buy a house in SF, and a Cessna 172. I am very very glad I did not heed the advice to go with VC funding. I am certain they would have tried to grow it past its natural size and I would have ended up with nothing.
I sold my second company Trekmail to Visto, a VC backed mobile email company that has since gone through about $300,000,000 building an email client for cell phones. Great idea, but they got killed by the bad economics and distribution bottlenecks in the mobile industry (e.g. the carriers). I got a large block of now worthless shares, lost pretty much all of the money I put into Trekmail. Lesson learned: VC funding often leads to over-hiring and over-engineering. Being poor forces you to triage and look for revenue. When you have $50M in VC, your VP of Engineer can whack off to lofty visions of a grand architecture, or whatever.
I sold my third company, Open Communication Systems, to a small outfit in San Jose, again in a mostly earnout deal. I did not get along with the CEO, and got more or less completely hosed in that deal when they laid me off “due to business reasons”. Fortunately this unwound quickly, and it became clear it wasn’t going to work out. Lesson learned: the only stock I am interested in from now on has a picture of Ben Franklin on it (or Euros).
I am now on company 4 (www.worldwidelexicon.org). We built all of this without outside funding, and are working from SF, Argentina and Russia. We’ll raise some money, but probably in the form of convertible debt, or strategic partnerships with publishers who want to translate their content in near real-time. We’d consider VC, but only under very specific conditions that do not endanger the project (I have been researching this area for nearly ten years and am not interested in losing ownership of this intellectual property because of board room machinations).
My basic advice to entrepreneurs is to stay lean, and raise money only from trusted sources until you have a live product. If you are chasing a mass market opportunity, then you might need more money sooner, but I’ve always preferred to go after underserved niches. One thing you can always do is organize a fundraiser. You can’t sell stock publicly, but you can ask your friends and colleagues to help you out by pledging to wire you 50-100 bucks a month to help out. That can work really well if you just need a few grand a month to get by.
The other advice, any time you can take some money off the table, you should. You are assuming all of the risk of getting something started. Your investors are already wealthy and can afford to lose, while you are investing years of time and probably your own money. I don’t like the way many VCs push that risk off on entrepreneurs with vesting clauses, etc, so if you can be sure to negotiate a deal so if the company does fail, which it might, you don’t lose your shirt.
Well thats my two cents….
Mike,
Incredible post… and timely. As a “old guard” pre 2000 Internet entrepreneur (I founded ImageCafe.com in 1998, it was acquired in Nov. 1999 just before the 2000 bubble burst) I have the benefit of feeling exactly where you are coming from - with one exception. I was never based in Silicon Valley and never had more money then I could wisely spend.
Since founding my latest startup (http://www.CollectiveX.com) in 2006, I have taken a similar approach to the one that you describe for Techcrunch by keeping the team small and not raising VC — despite the fact that other companies in our space (i.e., Ning & KickApps) have raised massive amounts of money. In many ways, I feel that I haven’t been bold enough.
It’s been 18 months since CollectiveX first launched and I feel that we are getting closer to the point where it makes sense to be bold. We are doubling our user-base every 4 months and our revenue model has been proven. Consequently, I am happy that we’ve done it the way we have… however, I can’t say that I would have done it any different than Keith at Edgeio had the funding been available from day one.
So the moral of this rant is… I now see that there is a positive side to being based in the mid Atlantic where early-stage pre $1M run-rate funding is virtually non-existent. However, I would never admit it to any local mid-Atlantic based VC.
Great article! Another example of how inexperience can sometimes be the greatest asset for a young entrepreneur. It’s that lack of experience that results in young guys not having any fear, and not knowing any better!
Who’s got a better chance of coming up with the next breakthrough product/service/technology? The guy with 35yrs industry experience? Or the young kid who doesn’t know the rules? Some might find it debatable, but I’ll go with the young guy!
‘Jodhaa Akbar’ edited again
http://www.jodhaa-akbar.com
Ashutosh Gowarikar ’s Jodhaa Akbar , that stars the gorgeous Aishwarya Rai Bachchan and the dashing Hrithik Roshan in the title roles, went under the knife, again, because the movie is just too long.
At present, the new version has two songs edited out, one of which was a qawwali sung by A R Rahman , the music director for the movie.
According to a source, every scene in the movie is important, and Gowarikar did not want the flow to suffer. Therefore, the lavishly shot songs had to go.
“It was a very good idea to have a qawwali, as it was a traditional aspect in the lives of kings. It was difficult for Ashutosh, but he also asked for Rahman’s take on the decision, and chopped the songs off only when Rahman agreed,” the source adds.
The songs will be added in the DVD of the movie. Apparently, Ash wanted to use it in one of her upcoming movies, but Gowarikar may not agree.
Gowarikar has a reputation for making long movies.
The Aamir Khan starrer Lagaan was almost four hours long, and the Shah Rukh Khan starrer Swades was three and a half hours long.
In more recent times, there is a lot of criticism for the way a movie is presented, and the director did not want any of that.
According to the source, the final cut, so far, is three and a half hours. The movie is slated for a January 25 release, and the promos are already on air.
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Interesting article, what I took away from it is that Arrington was the only voice of reason on the Edgeio board. If they had listened to Arrington, perhaps the company would not only still be in business, but be thriving as it finds its place in the market. If only they had listened to Arrington, it would not have been a failure!
I agree, the old guard is too cautious, and prevent us to enjoy another crazy bubble… Let’s play with the youngsters ! And let’s sell them the rope that will hang them…
Seriously, I understand that we have to avoid to be over cautious in this fast moving industry. But, just because few young and inexperienced guys succeeded does not mean you have to be young and inexperienced to succeed. I guess a mix of fearless and experience is better, but that’s why it is so interesting to run a business, it is because there is no single solution to this complex equation.
“We will either find a way, or make one!” Hannibal
Loic, écrit le en français plutôt. Ce serait plus facile a comprendre. Les jeunes sont cons, même avec beaucoup d’argent. Ce fait des jeunes cons avec du cash?
I hope next year is internet gold rush will be “.info” domain name. *.
dot com is getting too old. I hope people rush to buy info for second generation internet.
http://www.*.info
Beercosoftware sucks. Chris R - take a step back and realise you’re bringing misery to the readers of this blog. Every thread has to be domineered by your thoughtless witterings, an attention whore in every way, and more to the point, impeding real debate.
Look, we know you’re just trying to push up visitors to your site, and you may well get a quick hike in numbers as people check out what exactly what you do… but they’re not returning my friend.
Instead, why not do something more constructive and concentrate on getting a product out, or playing in traffic, whatever.
Arrington, please get some digg style voting in these comments so we can drown out this incessant background chatter.
I’M wItH BRadC. He’S My FrIeNd.
Check out my video: http://www.youtube.com/watch?v=_xKHz-UsMVQ
In our circle, we divide this by ‘those who have made money’ (old guard) and those ‘who have not’ (new guard). I don’t believe the past and present can be really be fairly compared, nor can you compare the enterpreneurs. It was a very different period in technology development. There was far more hardware, infrastructure, etc., with a far greater barrier of entry. Today, you can start a ‘web 2.0 business’ with a free Blogger account and monetize it nearly instantly with an ad network. In 1998, you would have had to invest the development time and money to have it built for you, and then hustle to get advertisers yourself. I believe the conservative enterpreneurs of that era were those who sold before the cookie crumbled, sans for a few lucky new ones. Beyond this, it was widely the “new guard” at that time that spent VC money like water, hosting elaborate parties that cost thousands and hiring expensive staff before actually bringing in revenue, taking huge risks with money before all the VC dried up and many start ups shut their doors.
Maybe the “old guard” of Web 2.0 are actually the “new guard” of Web 1.0 and they don’t want to make the mistake anymore
Agreed with BRADC(#123) and others.
Mike, as someone who also experienced the Bubble`s highs and lows in the 1990s albeit working for others, I would say that I am firmly in the “twice shy” camp.
That said, the lesson that I took away from the 1990s was that you should experiment with Angel/seed/incubation/founder money prove the model and then scale and build out infrastructure with VC/insitutional money.
I really beleive that Edgeio had a great idea but it needed a patient approach to discovering the right business model nuance…or even the right convergence of inflexion point to occur where your vision where distributed/edge/long tail approach to listings relaced the centralized model. A little more time spent proving the model, not spending lots of money would I beleive have been well spent. Judging from your comments on your previous post I think that we are on the same page here.
So am I
I am also in agreement with Boris
I just want to post to say that I think Boris rules. I think he’s hot.
@107 Aaron
I’m a day-and-a-half into the cold, will just stubbornly ride it out at this point
I read some of your startupism page. Good energy. You should skim my site - I think you’d find some good brain food.
Chris R is the devil - feel free to hack his site.
Chris is the real Devil
Yeap, Chris got devil inside.
I think Chris need to drop Linux and switch to Windows. I don’t know how many candians use linux.
“Chris is the real Devil” TM
I’m going to go give a squigy winshielding homeless dude with pink hair $10 now so he can give me $2 back and write it off as a marketing expense, but only if he promises to use our search only. I learned something today. I like Silicon Valley.
@Amy
I hope you are right, and I can be completely wrong. I have very little experience with VCs (we have never even pitched to one, although they do call regularly), but perhaps the media makes them out to be a little too cold-blooded.
I know that if I had $100mm in the bank, with money to throw away, it would not seem that bad to invest a couple million into a company for 30-50% ownership. After all, at even 7% interest on $100mm, $2mm is pocket change, (you would make that up in a few months).
However, the CEO running this new company is probably working 18 hour days, eating lots of ramen noodles and cereal, and busting their butt for what, 25% ownership or less? (Mark Zuckerberg has less than 25% of Facebook from what I understand.)
It makes sense that older entrepeneurs take less risk, there is way more at stake than what a VC has to worry about. Most young entrepeneurs are too ignorant to know any better. But once you have that loss on your record, it never goes away.
I think I understand Mike. Actually, it is more complicated than it seems, or than what Mike wrote (I am sure he knows it is hard to express in writing). People who have started a company know it is a difficult subject.
As I also commented in Mike’s post about Loic Le Meur(http://www.techcrunch.com/2007/12/05/loic-le-meurs-ten-rules-for-startup-success/ ), I believe in only two factors for success: idea and passion. And ultimately, idea comes from a person and so does passion. And who can tell a good idea from bad when you begin? Who can tell you are too cautious or too bold? No one. So, in the end, it is all up to you. It is a lonely journey.
That is my conclusion, having turned to an entrepreneur in startup-starved Korea at the peak of my strategy consultant career.
Entrepreneurship for entrepreneurship’s sake is a waste of time and resources. Aim to create something of value. Focus on execution (Silicon Valley is littered with ’strategy’). Execution and focus are what win. I’ve learned this the hard way, and I continue to learn.
Last time I checked, you live once so if you’re dependants give you the all clear and you like to hear the sound of your heart beating…burn the boats.
Ian, probably, and a lot of it has to do with timing, luck, and who you know… it’s not always the best ideas that make it big and sometimes the best ideas don’t make it at all.
Great article!
I see the headlines, young entrepreneurs are the ‘in’ thing these days.
Maybe it’s nothing much more than boy bands advertising an 13 year old singer meaning that musicians over 30 are not as good.
Most entrepreneurs I know are like me, and they’ve been involved with startups for the majority of their professional career - so, in my view, most start young by definition.
I can see value in a young person’s lack of baggage, but that might just be another way of saying “lack of experience” and that’s not really an asset any more today than it was a few decades ago.
What I see around is a lot of heavily invested companies touting their “17 year old CEO” but if you look, these companies are being run by “experienced” entrepreneurs and they are driving the strategy and handling the key negotiations.
They promote a sort of “spokes-model CEO” as marketing and brand positioning but this is not necessarily a trend toward entrepreneurs who were too young to lead an extraordinary crashing and burning dot-bomb to its final layoff.
Entrepreneurs are sort of like musicians, there are trends about who’s on top of the pop charts and when in their life or career, but in the end, most of us are just working on one gig or another all our lives.
Nice post Mike. Entrepreneurs need to be optimists. Starting companies is risky, and entrepreneurs need to be willing to embrace that risk. And as I’ve noted before, failure IS an option:
http://lsvp.wordpress.com/2007.....an-option/
This was the best post in a long time.
An entrepreneur must be optimistic but must also have an idea on how to make money as soon as possible. Many start-ups these days have no clue on how to make money ever and they still get funding which will mainly result in failure, lost VC money making it harder for the next “generation” of entrepreneurs to get finding.
Risk is good but you need a balance between risk, reality and possibility.
This was a great read. It certainly seems like the old MA is back!
Excellent post, thank you!
Mike Great Read, thanks
Although no need to start the post with “Silicon Valley”…. or maybe there is!!
Hmmm, older people are more conservative than younger people - who knew?
Do you read comments this far down? Does anybody?
In any case:
“My interactions with Edgeio, a company I co-founded and which went into the deadpool last week, were similar. It seemed like every board meeting I was saying the same thing - stop spending money, stop hiring, stop. I was out voted, and the company followed its own path”
My condolences regarding Edgeio. I was an early adopter on that one but had to drop the service cause they didn’t give me control over the ads. Anybody could sign up and they would only remove them if the ad violated their terms of service, i.e., I had no real control over who would advertise on my site.
I pointed this out and whoever I was in contact with was polite, could see my point but didn’t think that option was coming anytime soon. Maybe that worked when you’re charging $200 for an ad but that pricing wasn’t going to be my reality and not everybody plays nice enough in my world to give them direct access to space on my site that I can’t veto.
Screening advertisers is ultimately on the publisher, not the ad service, and I couldn’t do that so I dropped it.
R.I.P.
the number of comments proves you hit a sore spot. ouch.
maybe a reunion of the old school and new graduates is required for a constructive debate…