I used to be a VC. Now I’ve found a better way to build a company
These days, many founders feel pressure to raise tremendous amounts of venture capital. But it wasn’t always like this. Most people are surprised to learn that four of the most valuable companies in the world barely raised any VC funding at all by today’s standards.
Apple is believed to have raised less than $1 million before its IPO. Amazon raised about $8 million. Microsoft raised about $1 million. Google raised $25 million. Add it all up, and it’s less than $35 million in total VC funding. Granted, that’s about $74 million in today’s dollars, but it’s still a relatively small investment that led to four companies that are worth around $14 trillion today.
Before billion-dollar VC rounds became common, there was a way of building companies that was capital efficient. I was there when it all changed, and I, too, came to believe that a growing company needed a massive VC war chest to succeed. Now I don’t, and you shouldn’t either.
The rise of “get big fast”
Our story begins when I was recruited to Kleiner Perkins by its legendary partner John Doerr in 1997. Amazon had just gone public. John was a proponent of “get big fast” (or “growth at all costs,” as it was later called). That playbook still exists.
I had gone to business school at Stanford with the idea that I wanted to start my own company, but I got very caught up in this world of venture capital and the get-big-fast model. There couldn’t have been a more exciting time than the three years I spent at Kleiner Perkins. The last major project I worked on was Google. John was the lead investor, and I was his right-hand guy. I was the one reviewing the term sheet with Larry and Sergey.
It wasn’t until a few years later, when I was running my own company, Good Technology, which was backed by Kleiner Perkins and Benchmark, that I started seeing the negative side of the get-big-fast model. As an entrepreneur trying to build something, the expectation for me was that the company would be worth $20 billion. That was a massive number in the early 2000s, and I felt a lot of pressure.
Instead of building something to serve the customer base I was passionate about, I was looking for a big idea in a big market that could create a really big company quickly. The market we identified was the personal digital assistant space. At the time, Handspring was competing with Palm. We started with an MP3 player that plugged into the back of the Handspring Visor. Soon it became apparent that the even bigger opportunity was in wireless messaging and the ability to get your email, contacts, and calendar onto your device so they’re up to date all the time. So we started working on that, too, in our first year.
That was a really stressful time for me. I was working extremely long hours. In the first 180 days, we hired about 45 employees. We launched the MP3 player in six months. In the early days of the company, my son was born and my father had an accident that left him hospitalized, so I was up at the hospital trying to be there for my family while also trying to get the company off the ground.
And looking back, I had a serious problem: The company didn’t really have a purpose outside of “I need to make this really big and valuable.” I eventually hired a CEO to replace me who ended up effectively pushing me out of the firm. Motorola bought the company in 2006 for over $500 million, but I was burned out. I didn’t want to do another startup.
I went back to VC, and was working on launching my own firm when I had a conversation with a founder that stuck with me. We had first met when I was at Kleiner Perkins. Her name was Jessica Herrin, and she had co-founded WeddingChannel.com, a pioneer in bringing registries online. Now she was launching a new company, and was looking for a modest amount of funding.
She told me she liked me and my partners at Kleiner Perkins but hated our model. I couldn’t understand what she was saying. This is a great model, I thought. We’re building incredibly valuable companies. People were making a lot of money. She said she wanted to build something she could run for the rest of her life. To me, that sounded like a lifestyle business. She took that as an insult.
“It absolutely is not a lifestyle business,” she told me. She wanted to build a big, international company. I said it wasn’t possible without major funding. According to the get-big-fast playbook, building a brand like that would take about a quarter-billion dollars of outside funding. She said I wasn’t looking at the right time frame. She was focused on building this brand over 20 or more years.
I ended up giving her a bit of money, but I was skeptical. Five years later, her company Stella & Dot had passed $100 million in annual revenue and hit No. 67 on the Inc. 5000 list—all without raising a big VC growth round.
An alternative funding path
While Jessica was launching her company, I started my own early-stage venture capital firm in 2006. My goal was helping companies stay capital efficient and get to early profitability, an approach that looked more like the traditional venture playbook before the get-big-fast model. It took me very little time to figure out that I was swimming against an incredibly strong current. When any business I invested in got traction and needed to raise more money, the first question from other investors was, “Why aren’t you raising significantly more capital to grow faster?” We couldn’t write big follow-on checks, so founders would go back to the get-big-fast model. It just wasn’t working.
I still wanted to help entrepreneurs build growing companies. So I decided to go on a learning journey. I wanted to talk to more founders who were ambitious and wanted to build a business of scale but had chosen not to raise venture capital or private equity.
I met people like Mac Harman at Balsam Hill, a bootstrapped company that’s a leading designer and distributor of artificial Christmas trees. I also met with companies like Cargill, which is the largest private, family-owned company in the U.S. I started seeing some patterns in these interviews I was having with people who run the kinds of lasting businesses that I call (and have trademarked as) Evergreen companies. Evergreens are noble trees that grow every year. They are highly resilient and live to be hundreds of years old.
I ended up inviting a group of these founders to come up to Sun Valley, Idaho, in 2013 to talk about what it’s like to scale a company without major funding. They seemed to appreciate being able to gather with others who were like-minded, because they had so few peers who were thinking this way. They were extremely generous in sharing their ideas, experiences, and mistakes.
That gathering led to the founding of the Tugboat Institute, a community for CEOs of Evergreen companies. We now have more than 300 members, and hundreds of other CEOs have decided to use this model, which Bo Burlingham and I detail in our book, Another Way.
Get-big-fast has endured and evolved in the modern era, and is now referred to as blitzscaling. But the vast majority of VC-backed companies fail, and the playbook is suited for a small few.
Evergreen companies are refining an alternative model—one that proves you can grow without taking outside capital and with little debt. These companies design their business models to generate cash early and grow from their own fuel without significant capital expenditures. Many also focus on a single product for a long time. For instance, Andy Taylor, executive chairman of Enterprise Holdings, told me he credits the 69-year-old family business’s relentless focus on the rental car market for its longevity.
It may seem novel, but almost all the great American companies were built like this before the venture industry exploded. I believe it’s time to bring back this rich tradition that created amazing companies like Google, Apple, Microsoft, and Amazon—one that lets founders grow a business that will withstand the test of time.
—Dave Whorton
This article originally appeared on Fast Company’s sister website, Inc.com.
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