I don't follow it. He seems folksy, but if "Not taking outside money, and serving customers based out of a low cost area" were the path to $912 million in Sales, wouldn't a lot more people be doing that?
While I follow your logic, there are a lot of companies out there like this. They're called "hidden champions" and modern industry has plenty of hidden stories like these. http://en.m.wikipedia.org/wiki/Hidden_champions
The main point here is that companies like this might not be as sexy as the short term vc-funded explosive growth companies that are always in the news, but like small stars, they burn for a much longer time and are much more stable than the massive stars that quickly run out of fuel and turn into dwarfs and black holes later on.
Source: our company was bought by Esri last year, and before then I didn't really know the company existed. I was looking for a way to grow our technology in the long term, not evaporate like so many other companies had before.
I'm not negative on the company, and am not taking a general stand for or against VC. (It's useful in some situations, but not all) It's just that what he presents as their secret sauce is also the formula for a lot of companies that never grow.
I'm intrigued by Esri, I just wish he'd give more detail on how they were truly different from those left behind.
Companies that want money talk a lot. Companies that don't... don't. This means you have probably heard more of companies raising money.
I know one giant company that does not have a website, or even an official logo. They don't need them, or the attention. They are an industry leader in one of the biggest economies.
Or perhaps more precisely, "Companies that want money from VCs talk a lot to the press. Companies that want money from customers talk a lot to their customers."
Very wrong comparison. Even if you get easily VC money, there still some liability with it. I don't expect anyone to ask me or advice where and how to spend the $100 bill.
Yes, but I'm not sure what the connection to this is. My point is that what he attributes his success to is also true of most companies that never grow.
You suggested (paraphrasing) that if it was such a good model, surely others would be doing the same thing and making a killing doing it. What you effectively said there, is that you believe that the market for company management is an efficient market.
There is a joke that says an efficient market economist is walking down the street, sees a $100 bill on the sidewalk and doesn't stoop to pick it up. If it were real, he says to himself, someone would have picked it up already.
I don't believe that there is necessarily an efficient market in management. Nor do I believe that VCs, press coverage, parties, etc have no effect on many company's strategies. The VC business model relies entirely on their ability to purchase a certain distribution of company outcomes, what some might call a "go big or go home" type of management. That's fine, I have no problem with it.
But that doesn't mean it's the only way to run a company successfully. And the author is trying to point that out.
I was taking a statistics approach actually, rather than the efficient market hypothesis.
For example:
20 people have a choice between X & Y.
- 10 people choose X, 1 succeed.
- 10 people choose Y, 1 succeed.
The first person who succeeds says, "It's because I chose X" Based on the data, you can't say that this choice is what mattered, because many others made the same choice and it didn't help them.
Perhaps I'm being pedantic about the title, but this is where I'm coming from.
And when I heard the joke it was $20, but perhaps it's the monetary phenomenon called inflation. :-)
I wonder what the numbers are between "tried not to take money" and "tried to take money" are. On the one hand trying to take money gives you a lot of focus and a short-term goal; getting enough traction to get investment. VC money probably makes a lot of companies succeed short-term that might not otherwise. Then on the other side of investment, VC money encourages a "go big" approach where you need to grow gangbusters which most people interpret as hire, spend, etc. Seems like that might actually kill some companies that might otherwise be viable as they get over-extended and don't pare back fast enough, then go broke.
My intuition is that money is better when:
- There is some competitive advantage to being first.
- That the advantage is enduring.
- There are lots of competitors.
- It is important to fail faster.
For example, if you're trying to scale Google or a SaaS, and there is some kind of "Winner take all" then you need funding.
Funding makes less sense when:
- You're selling a service directly linked to people's time. (Consulting firms)
- You have other sources of money to carry you through.
- The market is less competitive.
- People will take significantly less money to get equity.
I kind of view funding like, "Do you need it bad enough to justify letting someone expect 30+% returns?" If it's the only way to get great growth for that individual company, great. If it's not needed, that's ok too.
In terms of measurement, there are two measures. "What % succeeded with and without?" and "What was the median and mean with and without?" The funders are more likely to be stacked in the huge winners and huge losers, because funding (to use financial terms) increases the volatility.
Microsoft hit a billion in sales in roughly 12 years (inflation adjusted). They took no outside money, and ran Microsoft out of low cost areas for the first four years.
Gateway 2000 was founded on a farm in Iowa. They hit a billion in sales in 7 years (in 1992 dollars). Their outside money consisted of a $10,000 loan from Ted Waitt's grandma.
I believe Microsoft took one round of venture financing, and that VC (Dave Marquardt) is both still quite an active investor (as founder of August Capital) and is also still on Microsoft's Board. See http://en.wikipedia.org/wiki/David_Marquardt for details.
