The Billion Dollar Corporation: Is it something all companies should strive for?

Posted on January 15, 2008
Filed Under Technology, Business | 4 Comments

Reading time: 3 minutes (I know it looks long but it only took me 3 minutes to run through it which is why I added this helpful “reading time” guide.)

I think that may be the longest headline I have ever written and it is an equally big question. Through my teenage years when I spent a lot of my free time researching companies, new technologies and stocks (Don’t get the wrong idea. I did get outside, had my own rock band (we had an EP - oh yes, we did) and even dated my share of girls, I swear!) and then subsequently through my college years studying business, finance and technology at Bentley College I came to believe that the corporation was where it’s at.

By “it” I mean wealth, prestige, challenges, fulfillment, big problems to solve, the ability to be creative, you know, everything one wants out of business. Now I don’t doubt that there are people that find a lot of these things, if not all of them, in large corporations. I am not saying that you can’t find fulfillment there but what I am wondering is whether every company should strive to attain “giant multi-national corporation” status.

I began to really think about this question more as I delved into the world of web start-ups. Web start-ups in particular are a place in which you can do very well with a small team of people and a good idea. There are a lot of examples of this. Business that throw off lots of cash for minimal work from a small team. Sure, they aren’t Google but they provide their founders and their employees a great life and, if the founders are smart, a great work environment.

A lot of these “lifestyle” businesses or what used to simply be called small businesses have another characteristic in common as well. If the founders wanted to try and make them huge corporations they may not work as well anymore.

I have to say that even I thought I was a little crazy for picking this up. I mean, this is anti-capitalist talk. Right? I don’t think it is. I am simply just not convinced that the modern corporation is the be all and end all pinnacle of business.

At the same time I was coming to these conclusions I happened to catch a piece by Saul Hansell on Bits (the New York Times’ tech blog). Hansell ws inspired by the talk about Twitter’s business model that was a hot topic a few weeks ago and the topic of Mozilla perhaps going public.

I think Hansell sums up my thoughts in the second paragraph of his piece which I will quote here:

Behind both of these [Twitter and Mozilla] is the presumption that the highest form of organization is a company valued at billions of dollars. The Internet now creates so much leverage for certain activities, that it is possible to create services that are incredibly useful, widespread and economically self-sustaining, yet involve very few people and not many dollars. This can sometimes be better for customers, business partners, and even founders, than trying to turn every good idea into a giant company.

The Internet does create a lot of opportunities for companies to form with small teams that, while running on small dollars (as Hansell says above), still take in big dollars. Look at the latest example that is the buzz of the blogosphere, PlentyOfFish.com. That site is by all accounts ugly and hard to use but it was built by one guy and it hit a niche. He works on it 10 hours a week and, wait for it….., takes in $10mm a year in revenues. Now that’s the power of the web. (Of course there are more examples - like 37signals - but if I listed them all this post would be way too long. Heck, it probably is too long as it is!)

I also feel like the web is a place where you can build a business that is geared toward a niche which is simultaneously a passion. This niche may have not supported in a business in one particular town or in a handful of towns but when exposed to the world on the web it can garner enough mass to make things work.

The web is to the virtual world like New York City is to the real world in that there are so many NYC businesses that couldn’t exist anywhere else but due to NYC dense and diverse population niche businesses can work (case in point: the shop near my office that sells only rice pudding - over 30 flavors of it - and always seems to have a line around the block). I hope that analogy makes sense.

Hmmmmm I don’t really have a good segue here and I am too tired to really think of one so I will just jump into it (Mind blowing moment: Is that non-segue I wrote in fact really a segue? You decide…). The other thing I love about building a smaller or niche business and not trying to make it a huge corporation (if it isn’t meant to be one) is that you can keep your culture in tact.

You can now truly build the environment that you, your founders, your employees and your future employees always wanted to work in and you can also make sure that it stays that way. You don’t answer to shareholders you only answer to your customers, partners and employees and that creates a good situation for all stakeholders.

This is the place where building a business really starts to meet zen for me. Ok, that was a little new age… My apologies. However, I think its true. I know the reason I always wanted to build a company was to create an entity that embodied me. My beliefs, my thoughts about work, etc. Create my perfect workplace and the perfect workplace for people like me (it’s scary I know but I believe there are actually others like me out there).

After all, a person spends most of their waking hours at work so trying to make work a better and more enriching experience should be something we all strive for. Sadly, I feel those ideals get lost in the shuffle of shareholder issues, quarterly analyst calls, profits and the like once big corporation status comes into play.

I’ll leave you with a link to an article Yvon Chouinard penned for Outside Magazine (thanks JZ) which outlines his thoughts on company building which he expands on further in his new book Let My People Go Surfing. For those that don’t know Chouinard is the founder of Patagonia. Patagonia did $241mm in sales last year, is still private, still allows their employees to check out early if the waves are good, donates 1% of gross sales to eco/conservation based charities (even if they are losing money that year) and a host of other good things. He has to be one of the poster children for doing good by doing good.

Here’s one of my favorite lines from the Chouinard’s piece that I had to put in this post:

This kind of independent thinking applies to our management philosophy as well. In fact, our employees are so independent, we’ve been told by psychologists, that they would be considered unemployable in a typical company [emphasis is mine]. We don’t want drones who will simply follow directions. We want the kind of employees who will question the wisdom of something they regard as a bad decision but, once they buy into something, will work like demons to produce something of the highest possible quality—whether a shirt, a catalog, a store display, or a computer program.

Who wouldn’t want to work hard for a guy like that? This guy really cares about and trusts his employees to do right by him and the company. How about that? There is clearly a reason why Patagonia does so well and I have to figure that the paragraph above is a big piece of it.

In my mind at least Chouinard proves you can build a company that is a platform for a rich life for not only you but also for your employees while also making lots of money. I am not sure if this is as possible if you are a publicly traded company or if you strive to be a big corporation when you are building a company that shouldn’t go that route.

Next time you have a chance to think about things you should ask yourself what kind of business you are building (or want to build), listen to the answer and then move forward with the new information in hand. Remember, we all don’t have to strive to build the next big corporation to do well in business especially with the advent of the Internet.


Word of Mouth: The New Scalability?

Posted on January 3, 2008
Filed Under Business | Leave a Comment

As long time readers of this site know, I am a very big fan of person to person interaction in business. It worries me that it is so hard to talk to a person these days as a customer. I feel as if that can’t be good for the world. Humans generally like to be able to interact with other humans so why have we gone and stripped out this communication from business (i.e. customer service, customer relations and even sales to a certain extent)?

One word: scalability.

We did it to make companies more scalable. People don’t scale. The more customers you have the more you need to spend on people to manage and help those customers. At least that was the case until you could automate customer service with computers, FAQs and a host of other things. Yay! No more scaling issues. Or so we thought.

Now, after years and years of this scalable method of working with people (i.e. not having people work with other people), people are fed up. They want to talk to humans again (hell, someone even felt compelled to start a website that tells you how to get to a human the fastest on a number of corporate phone trees) but corporations are resisting because, you got it, it doesn’t scale.

I have to wonder if this is a bit off the mark. If you look at the problem head on you can see that people don’t necessarily scale but what about the after effects of providing scalable (read: very poor) customer service and sales?  Yup, you guessed right, poor word-of-mouth which could be one of the biggest business killers.

Word-of-mouth drives a lot of business and yet businesses haven’t taken a lot of time to look at and understand it. If they did they would want to provide better customer service and by better I mean get good people to actually be there for the customers and empower those people to help customers.

Better customer service and support will bring along with it positive word-of-mouth which could actually make having people around to talk to customers a scalable proposition.

Think of it this way: if a customer gets to talk to a great human being who helps them through an issue or to find the right product they will feel loyalty toward the company providing such great service. This loyalty will not only translate in more revenue coming in from the person who was positively effected it will also translate into that person telling their friends about the company and then those friends telling their friends and so on. Now that’s scalable.

I need to see if I can get more data to back this up but I will say this: there are companies that have realized this idea already and it is a big differentiator for those companies.

One of the companies who figured this out early on was FeedBurner. OK, I may be a bit biased but hear me out. At FeedBurner we worked really hard to provide a great experience for our users. Everything from our interface down to the fact that, if you needed to, you could talk to a human being - a real live FeedBurner employee - whenever you needed to.

The fact that humans were available to talk to and help users showed users that we were really there for them and that we really cared about their experience. This in turn generated a lot of great blog posts and other word-of-mouth for FeedBurner which drew in more users (without us having to reach out) and contributed a lot to the success the company ultimately realized.

That is how you leverage human to human interaction to generate word-of-mouth which makes human to human interaction scalable.

Other companies can, and are, doing this as well and I think that it’ll change business for the better. At the end of the day it’s all about people and we shouldn’t ever forget that. It’s always about people.


Sales and Business Development: Are they the same?

Posted on January 2, 2008
Filed Under Business | 2 Comments

This post has been in the works for a while but Micah Baldwin - the new BD guy over at Lijit - really got me to want to sit down and finish it. I had the chance to meet Micah about a few weeks ago when he was in NYC. We headed over to the Lombardi’s Pizza after the Bug Labs meetup (which was a lot of fun) and, as fellow BD guys tend to do, started talking shop.

One of the questions which we spent a bit of time talking about (and one we both get a lot) is: Is business development the same as sales?

Honestly, it is hard to say what business development is and isn’t whereas sales is much more of a process and a science and, therefore, much easier to describe. Thats said, I would say that the question about what it is BD guys do and whether or not BD is simply a fancy title for sales is justified and one that should be explored.

While there are a lot of things in sales and business development have in common they do differ on a couple points and Micah posted about one of the major differences soon after our dinner at Lombardi’s.

Micah’s main thought is that the big difference between sales and business development is the allotment of risk.

Sales typically involves a B2C type transaction where a product is sold to a consumer who pays a set (or relatively set) price for that product. The product presumably relieves some pain for the consumer and the salesman is able to bring in revenue for the company. It is a win-win situation with low risk on both sides (but I would argue most of the risk really lies with the consumer since the risk for the salesman can be - at least somewhat - mitigated through process).

Business Development on the other hand requires shared risk. In other words, business development is more about long term partnerships where driving revenue for both sides is the main concern.

BD is all about funding a way for two companies to work together in order to achieve mutual success via increasing revenue and/or finding new sources of revenue.

Micah said it best when he said:

Remember, with a Sales person, money is exchanging hands, while the Business Development person only has a contract with expectations for success.

Of course the less systematic approach of business development makes BD really hard to track. With sales you can simply track how many widgets were sold but with business development you need to track the results of the deals that were closed which may not be immediately evident.

Good business development is all about planting a lot of seeds and cultivating them so that deals will blossom and improve not only the company the BD person works for but also the companies that are on the other side of the table.


Happy Thanksgiving! Some Food for Thought

Posted on November 21, 2007
Filed Under Technology, Business, Web, Web 2.0 | 2 Comments

Happy Thanksgiving everyone! I for one am looking forward to a relaxing day of eating, eating and more eating (why hasn’t someone created a web app for that yet?). I thought I would pass along a couple posts I caught today that I think are worth your time during the holiday. Here it goes!

Todd Vernon on Scaling Your Web App

Todd wrote a great post on scaling your web app today. Most of the points he makes are common sense and yet so many startups don’t do any of the things he talks about. If you run a startup and your product is a web app then you should give Todd’s post a read and make sure you are doing everything he says. Don’t be a green bean. While they are good vegetables you shouldn’t aspire to be one.

Don Loeb & KommonKraft’s New Media DoucheBags Video

I am so happy Don posted this video as I had yet to see it. Check this one out while you’re in you tryptophyan stuper because then it will be even funnier. Also, as Don points out, this could be a fun video to show when someone at the dinner table asks you what you do for a living.


Automattic and Partial Founder Buyout

Posted on November 14, 2007
Filed Under VC, Technology, Business | Leave a Comment

I was as surprised as most when I heard that Automattic - the guys behind WordPress - turned down a $200mm buyout offer but it looks like Mr. Arrington may have uncovered the reason why. It looks like Automattic’s investors aren’t ready to cash out quite yet and would like to do another investing round.

Ho hum you say? So what? Well, there is a twist to this new round of funding. Apparently “most” of the money will go straight into the founders bank accounts. Yup, that’s right, it looks like the founders are going to be partially bought out by their investors.

This new round of funding will be lead by existing investor Polaris Venture Partners and is rumored to be somewhere around $50mm.

It seems as if the investors think the company can surge past the $200mm offer and head toward a bigger sale but, with only $1.1mm put into the company meaning the founders still own a lot of it, the founders thought the $200mm was a good price. To keep the deal on the table the investors have agreed to simply buy some of the founders shares in the form of another round of funding.

Of course a lot of folks, including myself, have talked about this type of situation but this may be one of the bigger instances it actually happening should the deal prove to be true.

I will be eagerly watching this as it plays out to see if:

a) The partial founder buyout pays off for the VCs in the form of a bigger sale price.

b) The founders stay as committed to the business even though they have a lot of cash in hand.

I am not sure Automattic is worth more than $200mm but we’ll see they may have something up their sleeves. As for the founders still remaining engaged - I have always argued that they would out of passion for their idea/product but this was in the context of much smaller amounts of money ($1mm - $3mm or so). However, I want to believe that, in this case, the founders still feel that Automattic is their baby and they will want to see it reach its potential. We’ll see…

This could prove be a big data point for the idea of partial founder buyout.


Creating a Valley Outside the Valley

Posted on November 12, 2007
Filed Under VC, Technology, Business | 3 Comments

As promised, here is the follow up to my post that covered the issue of whether or not you need to be in the Valley to really make a run at starting an internet company (thanks for all the comments guys). As I mentioned in the post I don’t believe that you have to be in the Valley to make things happen but it is undeniable that there is more funding in the Valley and a lot of great companies, even some of the biggest and best of all time, have been started there. That said, it seems that the question we really need to ask is:

How did the Valley become the Valley?

Once we nail that down we can start to look at the situations in other cities across the country, and the world, and start to move things forward.

In talking with a wise man a few months ago I think I have learned how the Valley came to be.

It seems that some of the big VCs today (who were small upstarts back when) took a look around the Valley and saw a lot of top talent slaving away inside big companies. They found it strange that none of these really smart folks would spin out and start their own companies. Then they realized why this was the case.

They had yet to see anyone else spin out of a big company and be successful.

After the VCs figured this out they knew what they had to do. They had to rip these smart people out of the big companies kicking and screaming, set them up with office space and cash and then get them to build the next big thing.

After doing this successfully for a number of years others began to see that starting a business was a viable things and the Valley was born.

That’s not the end of the story though. If all that happened were that certain folks started companies, built them up, sold them and then either retired or started another company the Valley wouldn’t have continued to grow. What needed to happen was the lieutenants from the original crop of startups needed to head off on their own and start their own companies and so on and so forth.

The effects of the people second in line eventually starting their own things and then their lieutenants starting their own things created an entrepreneurial culture that caught fire. Even people outside of the company building ecosystem then started thinking to themselves - “Hey, I know that guy and he’s no smarter than me. I can do this too.” - and then started to start new companies.

So it looks like what we need to do is encourage the lieutenants of companies like FeedBurner, IAC, Monster.com, AOL, Orbitz, Tacoda, etc. to start something on their own and keep it in their respective cities. Of course the local VC scenes need to take some risk to back these new entrepreneurs but if the risk is taken it seems like we can create big successes outside the Valley and, as can be seen in the Valley, success breeds success.

Of course this is an oversimplification and a lot of work needs to be done on the funding infrastructure in places like Chicago and D.C. and even places like NYC and Boston (although to a lesser extent since there are a lot of firms around those cities). Work also needs to be done on entrepreneurial education and there need to be things (that’s a technical term) around that encourage entrepreneurship as well. That is all buildable though. It will just take time.

Let’s start encouraging and helping some of the lieutenants from successful startups to start thinking about, and starting, their own things. Once that starts to happen, and if we can keep in rolling, we can start to build Valleys in other locations.


Technology Outside the Valley: The Debate Rages On

Posted on October 31, 2007
Filed Under Technology, Business | 8 Comments

After reading Paul Graham’s essay suggesting that to really make an internet company work you need to move to a start-up hub (i.e. the Valley) I was immediately compelled to write something on the issue. I thought better of it though and continued to think it over.

On the one hand I was part of a successful start-up in Chicago (FeedBurner of course) so I know great companies can be built outside the Valley but on the other hand it is undeniable that the Valley has an order of magnitude more companies (and VC money) and has been home to perhaps some of the most successful companies of all time including Google.

What is it about the Valley that seems to produce start-up talent? Is the ratio of success to failure the same as in other areas of the country (and the world - need some data here)? Is there simply easier access to capital in the Valley? Do Valley companies get more publicity?

These are all questions I have pondered over and over again in my couple years in Chicago. In fact, these questions were partly involved in the forming of TECH cocktail. Frank and I just couldn’t accept that there weren’t interesting technology companies forming in Chicago. We believed that there were a lot of interesting ideas and that they simply weren’t getting the publicity that the Valley companies do.

Through running TECH cocktail in Chicago I have seen that there are, in fact, a lot of great ideas and entrepreneurs in the area. The issue I do see people running into though is funding. While there are a handful of great VCs in the Chicagoland area it seems that capital is still hard to come by (look at Mosaic/Netscape, PayPal, etc. - developed at the University of Illinois/by U of I alums but took funding from west coast VCs and, thus, had to relocate).

However, I wonder if that is completely a bad thing. Perhaps in areas like Chicago, New York, Boston and Washington D.C. only the very best of new companies get funded. This could lead to a higher success to failure ratio over time which may be more important than the sheer number of start-ups started (which the Valley wins hands down).

While being agile and not forcing the original game plan when the market tells you otherwise is important in a start-up there are simply a lot of companies that startup simply because they have an idea for a cool product. They may not be sure if anyone will use it, if they can even make money, how they will make money, etc. but they are able to get VC and start-up anyhow since the Valley is more apt to make those kinds of bets.

The way I just framed that makes it sound like a bad thing but is it? Some of the most interesting companies ever to emerge in the technology/internet space were started by simply trying to improve something or by creating a great product. The making money part was figured out along the way. Google is, of course, one of the best examples of this. Perhaps Google may not have been able to get off the ground in another city where investors are looking for solid companies and not R&D projects that may turn into companies at some point.

This is an interesting debate for sure and the only conclusion that I can come up with so far is essentially what Scott Heiferman says in his response to a recent piece in NY Mag about the issue (originally found via Andrew Parker).

Silicon Valley Companies succeed because of who they are, how they are, why they are… not where they are. It’s just been a coincidence. The non-SV companies haven’t had the right who/how/why. A company that NEEDS to exist — a company with a vital purpose to serve millions of people’s real needs — will attract the people to bring it to life — and it can exist anywhere.

I have seen this to be the case. FeedBurner was needed and thus succeeded (wow, that was a cheesy rhyme) even though it was based in Chicago. Even though it was based in Chicago… Why should I even feel the need to say it that way? There were a lot of great things about Chicago that made FeedBurner what it was/is.

One of my favorite things about Chicago (and NYC, Boston and any place outside the Valley) is that it is outside the hype which allows entrepreneurs to focus on building a solid company and not on the blog, parties, etc. In Chicago no one really cared about FeedBurner (I could wear my shirt around town and no one even noticed) whereas in the Valley people would have known who we were from the logo right away. That may seem bad but it was actually good. It always kept things in perspective for me (i.e. not everyone knows about RSS or even cares about what it is).

Keeping that perspective by living and working outside the echo chamber helped me to do my job much better and, I would argue, helped to make the company stronger.

Of course the drawback to that is that there aren’t a huge amount of parties, networking events and other meetups where you get to chat face to face with other entrepreneurs and potential partners and customers. Those interactions are extremely helpful and the Valley has a lot of them. Again, this is why we started TECH cocktail in Chicago and now more and more events are popping up there. The ecosystem is on the rise.

In the end of the day I do believe you can build a great company anywhere. The key is simply that you a) have a great company and b) that you know the right people. Charlie O’Donnell recently posted his thoughts on that from the NYC perspective and I would say that, while at times his thoughts are a little harsh, they do make a lot of sense for NYC and for other cities like Chicago. A top notch entrepreneur will find a way to get things done and, while it may be a little harder than building a company in the Valley, there are a lot of benefits to starting companies outside the Valley.

Who knows, perhaps the harder the ramp up is the better thought out your company will be before you really push things post funding.

Additional side note: One of the biggest complaints in areas outside the Valley, second only to money, is the lack of top notch engineering talent. The first thing to note here is that there is a shortage of engineers everywhere, including the Valley (they have a lot more engineers but they also have a lot more companies). The difference between the Valley and elsewhere is this:

In the Valley there are so many new companies starting that it is hard to retain top engineering talent. There is always someone trying to steal them away. In places like Chicago, however, there aren’t a ton of start-ups so if there are engineers who want to work at start-ups they are likely to join your company and stick around (of course in the latter situation your biggest threat will be larger companies who can pay more but don’t have the upside you do and, perhaps, the engineers may not value the options you give them highly enough and simply opt for more cash from a larger company).

In the end of the day you will probably spend less time hiring since you have far more retention.


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