ailon's DevBlog: Development related stuff in my life

Is Silicon Valley Thinking Too Big?

7/5/2012 5:12:50 PM

Disclaimer: this is going to be ranty and might bite me in the ass in the future or I may change my opinion, but it’s my personal blog and I felt like venting this out :)

Photo by Benh LIEU SONG

One of the main shortcomings identified in European and especially Eastern European startups is that we are thinking too small. I’m not arguing with that. It’s probably as true as any generalization could be. That said, I would argue that Silicon Valley is thinking too big. Again, a generalization, but since I’m not arguing about the former one, I guess I’m allowed to make the latter.

On our trip to Silicon Valley with Startup Sauna I’ve met quite a few entrepreneurs and the reason for a pivot for their startup most often sounded something like this: “we figured out that this can’t be a billion dollar business (even in theory), therefore we dumped the idea and moved to the next one”.

And most of the time their initial idea was pretty good and potentially a multi-million dollar business (with “multi” in 2-50 range), but the new idea is crazy enough that no one can identify if this is a total nonsense or a billion dollar idea. Sometimes this turns into an awesome thing (e.g. Twitter) but I’m pretty sure most of the times it just goes nowhere.

Another phrase I’ve heard multiple times is “it takes as much effort to build a billion dollar company as it takes to build a million dollar company, so why not go for a billion?” [I’m pretty sure some real (and smart) person said that first, but I don’t know who that was so I can’t attribute it]. This could be true, but it’s as true as “it takes as much effort to place a chip on a number as it takes to place it on red”. Except chances of winning are totally different.

VCs to blame?

I understand that this whole mentality comes from the nature of venture capital and the fact that if an average fund plans to invest around $10m into your company (over several rounds) they will only be happy with $100m+ exit. And angel investors are considering early stage investments mostly through the prism of “will this company be able to attract the next round from VCs?”.

So this makes a 5 person company making $5m a year a bad business? I know, they don’t call it a bad business. They call it a “lifestyle business”. Which is a Silicon Valley way of saying you are a boring loser.

I think this mentality turns really smart people with good ideas away from being successful “lifestyle entrepreneurs” into being real losers. Because their billion dollar ideas most of the time are not worth a $100 and they’ve scrapped really good ideas just because they were too modest.

The VC model is fine-tuned to tolerate 20 losses for 1 big win, but can you say the same about your life?


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