The venture industrial complex is not here to help you
This post originally appeared on Built In Chicago
Build a business the old-fashioned way and ignore the noise coming from the west
“We must guard against the acquisition of unwarranted influence, whether sought or unsought, by the [Venture Industrial Complex].” Dwight Eisenhower, 1961
President Eisenhower didn’t exactly finish the quote that way but he did make a great point about people acquiring unwarranted influence of any kind. Over the last twenty years of working with technology entrepreneurs, I have seen a dramatic increase in the influence of the Venture Industrial Complex (VIC) – that loosely (not so much?) knit group of venture capitalists, bloggers, mentors, advisors, seed funds, accelerators and conferences that feed the American fascination with entrepreneurship for their own gain.
If you regularly consume technology blogs and, increasingly what used to be actual journalism, you would think the only path to building a successful company is:
Drop your accent
Go to summer camp to you learn how to be a billionaire in just 10 weeks
Prepare a pitch and a demo
Pivot when you realize the pitch and demo are not actually a product anyone wants
Prepare another pitch and another demo
Nail the PowerPoint presentation of your life in front of a theater full of kite surfing VCs
Wait for the term sheets to roll in and then Google: “Convertible Debt vs Equity,” because you really have no idea which one is worse for your company
Raise $50 million over the next eighteen months so you can “go big or go home”
Save yourself a heap of time by going big or going home in just eighteen months!
Across many high profile business and technology publications, this path currently consumes all the oxygen about entrepreneurship. And it is the path that the VIC needs to push to keep feeding its own interests and operations. I would venture a guess that this meta-industry generates more profits from endorsing and encouraging entrepreneurs to get on this path than the combined profits of all the start-up companies following this path.
Now I can hear you thinking, “but you’re forgetting about the lean startup model everyone now follows.” My response is: just look around at those who are promoting the new era of lean. It’s the same VIC crew with a new spin – start lean until it’s time to raise that big round from an institutional VC who can really show you how to scale. While starting lean usually means raising as little outside capital as possible, the truth is you shouldn’t raise ANY outside capital to start something if you have deep relationships in an industry and really know what customers want.
Only 14 percent of the companies on the most recent Inc. magazine list of the 5,000 fastest growing companies in the United States started their business with either angel or venture capital funding. Instead, more than 70 percent tapped personal savings – a not so novel (but wildly under-covered) concept of investing in yourself with the added benefit of keeping all the equity in your control.
But unfortunately for the VIC, Inc.’s rankings don’t count growth in downloads or click-through rates, “engagement,” or Klout scores; they use that pesky, old-fashioned measure of business success: revenue. So for all you future company-starters out there, maybe it’s time to find your inspiration on the Inc. 5,000 list and not on TechCrunch.
Please don’t take my cynicism for the VIC as disrespect for the entrepreneurs caught up in the euphoria. Most of them don’t know any better; the advisors surrounding them, the business schools teaching them, and the bloggers targeting them are built to feed this notion that theirs is the one true way. For many others, they just want to feel the heat of the bright lights on Demo Day and get rich like that one not-so-smart guy they went to college with who was employee number eighty at Facebook (lucky!).
But if you are deaf to the VIC bullhorn (or live outside the driving radius of a VC’s Tesla), you’ve potentially got a leg up. In the past twenty years, I have met thousands of successful technology entrepreneurs running large and very profitable businesses without the aid of the VIC, instead building success out of their own money, customer relationships and a healthy dose of well-timed luck. There are common themes in every story. Among them: they founded their company out of frustration in an industry in which they had worked for over a decade, they spent years building their company one customer at a time, they owned all the equity themselves, they had profit discipline from day one. As the saying goes, revenue is for vanity and profit is for sanity.
Sure, this way doesn’t get nearly the amount of press from the VIC – probably because it doesn’t come with roof party access – but it can lead to tremendous personal satisfaction and wealth creation. It also comes with control over how fast you climb, where you place your bets and who and when you add to your team.
But knowing the path and being suited for the path are two very different things. You should give it a try if you are:
Deep inside your potential customers’ heads to drive a long-term product vision
Are crazy enough to slog through years of uncertainty
Prepared to fund your business one customer at a time
Ready to pursue the “get rich slow” style of entrepreneurship
Comfortable being alone in your thoughts. Entrepreneurship is often a lonely job.
Pretty radical stuff, huh? The VIC can make it seem that way, but entrepreneurs have always built businesses this way. You just don’t hear about it anymore, but I’m doing my little part to change that.