When it comes to starting a business, it’s important for us online entrepreneurs to know what our end goal is. Is the end goal to get a big exit, like getting acquired or going public? Or is it creating a business that can fund itself, that can remain in our hands forever? Picking a path early on will help make lots of decisions later on.
Big Exits are Expensive.
According to research by Bessemer Venture Partners, it took $126m in venture funding for NetSuite to go public, $66m for DemandTec, $61m for Salesforce and $45m for SuccessFactors. Getting acquired requires lots of funding too. Rypple was recently acquired after raising $13m in just three years. The reason companies need to raise so much is because they’re hiring and and paying for sales and marketing at a rate far greater than their ability to generate revenue. They don’t care that their businesses are operating in the red because their ultimate goal is to flip the house… not live in it.
The Big-Exit CEO Is Different.
The big-exit CEO should spend lots of time networking, hiring, honing the pitch, and constantly raising capital. It’s not uncommon to see these CEOs spending time in San Francisco even if their company is elsewhere. The big-exit CEO has investors to answer to and milestones to hit, so they sometimes make hard decisions to meet quarterly and annual goals. The best marker of a big-exit CEO is the fact that they’ve experienced an exit once before.
Growing Organically Is Slow But Can Pay Off Too.
Spanx founder Sara Blakely never raised money, owns 100% of her company, and is now a billionaire. She stuck with her business for 14 years and, even today, resists the idea of going public. Avoiding VC money doesn’t mean we’re thinking small and doesn’t doom anyone to a middle-class existence.
Sometimes You Have No Choice.
While we may have preferences for the kind of businesses we plan to run, we have to remain open minded and flexible. If, for example, a viral video-sharing site takes off, hosting expenses will skyrocket and the only way to succeed is to bring in outside money. YouTube is a classic example of a company that was growing fast, running up big bills, and needed to both raise outside money and partner up with a huge company to survive.
Conversely, if a business that started off as a promising VC investment and eventual acquisition target proves to be a slow growing but potentially profitable business, then we should consider foregoing aggressive venture capital.