Jim Collins, coauthor of “Good to Great” and “Built to Last: Successful Habits of Visionary Companies” (two of our favorite books in the Library in St. Pete), wrote in Fast Company of a former student’s experience with a venture capital firm. This former student was told to “come back with an idea that you can do quickly and that you can take public or get acquired within 12-18 months.”
This was in December of 2007 – what seems like eons ago – but hasn’t lost its ability to shock. Mr. Collins doesn’t mention the firm by name (we wonder if they’re still in business…) but he compares this ‘built-to-flip’ mindset with amusing alternate histories of a well-known pioneers:
The built-to-flip mind-set views entrepreneurs like Bill Hewlett and Dave Packard, cofounders of Hewlett-Packard, and Sam Walton, founder of Wal-Mart, as if they were ancient history, artifacts of a bygone era: They were well-meaning and right for their times, but today they look like total anachronisms. Imagine Hewlett and Packard sitting in their garage, sipping lattes, and saying to each other, “If we do this right, we can sell this thing off and cash out in 12 months.” Now that’s an altogether different version of the HP Way! Or picture Walton collecting a wheelbarrow full of cash from flipping his first store after 18 months, rather than building a company whose annual revenues now exceed $130 billion. These entrepreneurs and others like them — Walt Disney, Henry Ford, George Merck, William Boeing, Paul Galvin of Motorola, Gordon Moore of Intel — were pedestrian plodders by today’s built-to-flip standards. They worked hard to create a superb management team, to develop a sustainable economic engine, to cultivate a culture that could withstand adversity and change, and to be the best in the world at what they did. But not to worry! In the built-to-flip economy, you can get rich without any of those mundane fundamentals.
That’s a stark contrast and a clever use of humor. It turns an old saying on its head: it’s funny because it couldn’t possibly be true. Even after discounting for the warm nostalgia felt for that list of names and that bygone era, we all know the type, and it’s impossible to imagine them leaving their ‘garage’ for any but the most important of reasons. BPV works with (and partners with) that type, today. But we encounter our share of another type. Collins, again:
We have arrived at a unique moment in history: the intersection of an unprecedented abundance of capital and an explosion of Internet-related business ideas. But, for all of the incredible opportunities unleashed by this combination, there is one monumental problem: The entrepreneurial mind-set has degenerated from one of risk, contribution, and reward to one of wealth entitlement. We all have friends and colleagues — often mediocre friends and colleagues at that — who have struck gold after 18 or 12 or 6 months of work in a built-to-flip company. And we have all entertained the thought “I deserve that too.”
Just about every venture capitalist will tell you he prefers to back proven entrepreneurs who have successfully built companies in a prior life. Most will even admit that of course they look for an exit at some point – their Limited Partners legitimately expect a return on their investments.
The problem Mr. Collin’s student encountered is actually two problems: the first is the reduced chance at success of the short-term approach; the second is the mismatch of goals and vision between entrepreneur and investor. If these partnerships are like marriages, some are better to end after a couple of dates instead of after an exchange of vows.