Harvard Business Review has another rah-rah piece for Silicon Valley. While on the surface it looks like a well-researched article, its error lies not in methodology but in definition. In the minds of the author, the definition for startup success is confined to this:
If you judge entrepreneurial success as surviving or selling (including raising follow-on funding, being bought, or successfully IPO’ing) as no doubt your investors do, then your odds of success are lower outside of the superhubs.
What a shitty definition of success! The world outside of Silicon Valley is rightfully not succeeding by the narrow definition of success espoused by proponents of the Valley VC model. DUH.
But there are many other definitions of success to measure yourself against. We’ve long been campaigning for the success of bootstrapped, proud, and profitable. Businesses, who like 37signals didn’t get off the ground by a Series A round of funding, and who do not see IPO, acquihire, or any other form of acquisition as a successful outcome.
This is how most of the world’s businesses work! And not only work, but prosper, and sustain themselves in the long run. But that’s the boring path of turning great products and services into profitable outfits in less than the average 10+ years it seems to take most Silicon Valley startups.
Do not let the VC merchants and their stooges tell you what success looks like. Do not accept that this path has to go through their 10:1, or 100:1, lottery funnel. You do not have to pick up their shovel and dig gold only where they have marked the X.
The best ideas and the best talent in the world is not confined to these tiny geographical areas, except in the minds of those who live there. Start your business wherever you want to live with pride. Recruit the best remote workers where they want to live with vigor. Success on your terms will come soon enough.
Seth
on 24 Oct 13As someone living in Silicon Valley for the past decade or so I couldn’t agree with you more David. Sometimes I feel like I’m in Bizarro World being surrounded by this culture – but it is a beautiful place to call home.
It’s impossible to count the number of puzzled looks I’ve been given when telling people that I don’t want VC, and don’t have an “exit plan” for my time tracking software business.
37signals philosophy has been a guiding light for my path since day one and I can’t thank you guys enough.
David Spotts
on 24 Oct 13Right on DHH. Slow and incremental growth isn’t sexy but it’s sustainable.
Silas J. Matson
on 24 Oct 13Exactly. To build a product with the intention to sell out and abandon loyal customers is disingenuous.
David Andersen
on 24 Oct 13“To build a product with the intention to sell out and abandon loyal customers is disingenuous.”
Right, because companies that sell me products and services that I voluntarily acquire owe me their lifelong commitment. It’s not enough to get something that works well and does what you need; now we need the company’s intentions to be pure with respect to our sincerity-fetish. Authenticity! Show me your heart is free-range and burning with the passion found only in those determined to set loose man’s soul from the chains of banal free enterprise!
It’s none of my damn business what they do with their company and their future. They don’t owe you anything more than what you voluntarily traded for.
Lalo Martins
on 24 Oct 13I agree with the feeling (as a Berlin entrepreneur), but I feel compelled to observe the article, and even the part you quoted, says “surviving or selling”. Surviving. That includes bootstrapping.
JC
on 24 Oct 13Wonderful and inspirational post David! Really refreshing to read. As always cutting through the bullshit out there.
Nate
on 24 Oct 13@David Anderson, I understand where you’re coming from – that to a company’s consumers it doesn’t usually matter whether that company’s been acquired, gone public, etc. – but I think it needs to be looked at from another perspective.
You’ve voiced the point of view of the company’s customers, but to me, the view that an entrepreneur building something with the end goal of selling/being acquired is more relevant within the entrepreneurial community itself. I.e. it’s one of those “principles” that other entrepreneurs recognize – entrepreneurial integrity, perhaps. Whether it’s right to judge entrepreneurs for trying to make a quick buck by building something (unsustainable, often) as fast as possible, or not, is the issue you’re getting at.
Sidenote: many consumersdo command authenticity from the brands they choose. There’s a stigma connected to food brands whenever consumers think McDonald’s owns them – Chipotle and Pret a Manger, for instance. There are a myriad of examples like this.
Teresa O'Keefe
on 24 Oct 13I’ve called it the San Francisco Bubble for years. By the simple definition that what works in SF doesn’t necessarily work outside the bubble. In my virtual development shop (Baltimore, Virginia Beach, Atlanta), we’re designing awesome UX for Joe the Plumber, not Chip, the Hipster. Doesn’t Joe deserve a great UX too? Keep on keepin’ on guys!
David Andersen
on 24 Oct 13Nate -
I’m not arguing that to some consumers the choice made by entrepreneurs to sell their business doesn’t matter; I’m arguing that it’s irrelevant. I’m arguing that it’s no one’s business but the people with an actual stake in the business. And if someone builds something ‘unsustainable’ (whatever that means exactly) then at least you might have something worthy of discussion, but it’s still no one’s business that they sell, especially on the grounds of ‘authenticity’. Value is relative. People spend a hell of a lot of time being offended in this world about things that matter not one bit to the quality of their life.
Finally, yeah, some consumers have authenticity-fetishes. Show me that person and I’ll show you someone with too much idle time on her hands and likely a poor grip on her mental faculties. To the extent that people get caught up in brand identity beyond the signal it (hopefully) provides about the quality of the product and company, they are being foolish and self-indulgent.
Derek Scruggs
on 24 Oct 13Ha, I just heard Brad Feld talking about this. He called bullshit on the data set, which consists only of Crunchbase. Selection bias to the hilt.
GeeIWonder
on 24 Oct 13DHH argues investors don’t want exits and JF argues—what? That programmers don’t like to build stuff?
Matthew
on 24 Oct 13I’ve been running my bootstrapped web-based software company for almost 5 years now - working from home in the MN suburbs. Driving up our street - my house looks like all of the other cookie cutter houses in the neighborhood and never in a million years would you know how many people from all over the world in the music industry we impact.
We service some of the biggest rock stars and pop acts in the world and we aren’t located on the east or west coasts. I kind of like the fact that no VC has approached us or that the TechCrunchers out there don’t write about us. We’re profitable, our customers love us and I feel like I’m living the dream!
Michael
on 24 Oct 13The thing about exits is that they’re only good if they’re overvalued. For example, you want to sell a company for $30MM today if at best they can make $1MM per year.
However, sustainable, quality companies like 37S might be good for, say, $50MM per year. Yet, the exit market that will pay 30x potential revenue will never pay 30x real, significant revenue. Such a company is undervalued.
This means that an investor in such a company gets a discount on that income stream. It’s like getting an exit every year and they don’t have to keep re-investing to keep it happening.
Yes, it requires more patience, and no, it’s not as sexy as a speculative investment in the bullish phase of a bubble, but if investors are willing to make guaranteed money every year, they should like companies that, you know, make money.
D
on 24 Oct 13“If you judge entrepreneurial success as surviving or selling…”
In fairness, you seem to have glossed over the first part of the definition of success: survival. Seems like a very good, standard definition to me when you take that into account.
John
on 24 Oct 13Thanks David this article struck a chord with me after travailing the VC landzcape we were astonished how much VC’ didn’t know.. We actually had one firm tell us our technology engine built on Ruby on Rails with Mongo and AWS was old technology. I had to kick my CEO from expressing his disgust.
George Seybold
on 24 Oct 13@John what did they feel “is” cutting edge? I hope they say revenue and profit.
Chris Desrochers
on 25 Oct 13100% agree.
Lili Balfour
on 26 Oct 13Great read! Startups are not one size fits all. Too many entrepreneurs are brain washed into believing that their end goal is to raise lots of capital and get to liquidity. There is nothing wrong with building sustainable companies that solve real problems.
This discussion is closed.