In this world of GFC hell (is it over yet?) the biz buzz is "Organic Growth". That is to say business owners who are looking forward to the challenge of entrepreneurship in a downturn are standing as proud adovocates for a refreshing change to the mentality of the bubble and the zero profit, high valuation world of two point oh dot coms.
It's refreshing because the business press is usually obsessed with the crazy valuations. A sale price with more zeros means more heroes. Examples abound. Twitter's recent funding round reportedly topped $100,000,000. That would be nine zeros. Profit is currently just zero. You'd think by now they could afford to give us more than 140 characters.
Clearly people building businesses the traditional way, you know, charging a price (stay with me) for a product or service and growing revenues slowly over years, those people feel some justification in presenting themselves as a sane alternative to a world gone mad. Atlassian CEO Mike Cannon-Brookes has ranted exactly this in the past.
With financial systems in the toilet due to excessive valuation of flaky assets, this can seem justified as much as ever. Indeed my own aspirations for a new business incorporate this sane model of organic growth. I know it could take longer.
It seems that the venture capital (VC) funded model of startups popular in silicon valley are stuck in railway thinking. VCs think that if it isn't something they can put many millions in and get hundreds of millions out, it's "not interesting". And of course more is always more.
As a tech guy, I think the prospect of growing a business up from nothing seems plenty interesting. But if I had taken millions of someone else's money to start the company, well the reality is I'd have already sold the company. A chunk of it. I'd have borrowed money and would need to pay it back. How would I pay back the millions with extra zeroes on the end? I would have to sell out big. This is the railway. Once you get on it you don't get to choose where to go. You only get to choose when to get off, assuming you don't run out of steam. And VCs don't want you crawling down the track. They are looking ahead to their exit impatiently. They want their money to fuel the train as fast as possible. Destination "liquidity event".
On the other hand, is it really a problem if people want to start a business with someone else's money and sell it in a couple of years? What's wrong with build to flip?
I think the real problem here is cultural. If kids these days aspire to be like Kevin Rose, founder of Digg, or want to build the next Facebook or Twitter or even Mint (just bought by competitor Quicken for $170M), they may well be building with a mind to sell out in the short term. I don't think this short term thinking will build the next generation of great companies. It wasn't the kind of thinking that built Apple or Microsoft or even Google. These companies have really made their mark and changed the world, hopefully for better, but they're clearly more than an expensive flash in the pan. Even Bill Gates has become quite the philanthropist.
The parallels of build to flip with the the Underpants Gnomes are too stark to ignore. Can't remember step two.. never you mind about step two. Step three is profit. I suspect it's only this pesky string of recent bank collapses that has put a dampener on the craze of Underpants Gnomes business models. If the GFC hadn't happened first I think the startup upstarts might well all have bubble gum on their faces by now.