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Hucksters, Suckers, and the Cue:Cat
Someone in the Know writes: "Now that it's almost completely over for Digital:Convergence, D Magazine (Dallas) unveiled the investments and the suckers surrounding the Cue:Cat and its creator J. Jovan Philyaw. I especially liked the Coca-Cola executive's observation: "... said listening to Philyaw made him feel like his hair was on fire". This was passed around ex-employees and we all got a kick out of it. The company is still alive, apparently, but not doing much anymore."
I, personally, am happy to have had the chance to see one of my _life's ambitions_ filled... Thanks to Mr. Philyaw, I now own a bar code scanner to catalog my music with.
I spent months trying to find a reasonably priced scanner, and eventually I gave up. But shortly there after, a trip to the local Radio Shack fixed that problem. I consider it a fair deal after all the times I've overpaid for items at that place, that I get a little something back.
One of the problems that a lot of the 'dot-bombs' have seen is that their product is just fine, but occupies a niche that just isn't a large market. I worked for a company that had a half-way decent product, and the revenue of this product could have supported a dozen people, or even twenty or so. But our CEO (who couldn't add 13 and 7 correctly) was hyped, and thought we needed a 100+ employee company, and millions of dollars in investment, and that we could make billions of dollars. NO. Not every product is a revolution. Not every product needs to have a "225-person workforce" Advice to executives: Don't hire unless you need some work done that your current employees can't handle.
This is right on the money, but remember why the phenomenon has come about. Many, if not most, of the dot bombs were funded by venture capitalists. VCs gamble large sums of money on young comapnies, knowing that only 1 in 10 of them will ever make it to a "liquidity event" (i.e. an IPO or sellout to Microsoft). So those 10% of comapnies that make it have to be worth enough to cover the investments in the other 90% of companies, plus make a big return on the total investment. That, like it or not, is how VCs work.
The upshot is that VCs are not interested in, and won't invest in, companies that aren't going to rapidly (within 5 years) grow to a large size (at least $250 million a year in revenues). The only way to get VC money is to pitch your company as that kind of opportunity. If you go to a VC with a plan to build a small but profitable company, they will politely show you the door.
This is a major cause of ridiculous business plans that have no basis in reality.
If you want to build a small, niche business you can, just don't expect to get VC money to do it - you have to find your seed capital elsewhere; rich friends or parents, huge credit card bills or another mortgage on your house.
Sailing over the event horizon
A friend of mine was showing me his new quecat, it was sent to him with a Wired subscription. I had asked him what it was good for. he told me me that at the moment not a whole lot, but then mentioned, "ever open up some ancient pentium system and see some old Seagate or Western Digital that has no model number or jumper settings, but it has a little bar code sticker? Wouldn't it be cool to just scan it and have the device page up in seconds?"
"Heh." I remember thinking, I thought that might be a cool little technology stunt.
but that never happened, what happened was they tried to re-educate me on how to watch TV and read a Magazine... hahahahahaha. No, thank you.
G'bye Que...
A lot of the scaling of companies was fed by the desire to obtain venture capital funds, and hence, on the way that venture capitalists operate. A large VC firm might receive say, $500M in funds to partition off to individual investors. They simply cannot manage 5,000 different investments of $100,000 apiece -- once you add up their overheads, and the typical failure rate of a startup, there is no way they could be profitable on such a small scale. So they typically fund a few tens of companies from anywhere from a few million to tens of millions of dollars apiece. The bigger, the better.
Of course, a lot of this had to do with the notion that one had to rush to market to get the most market share, which is an idea that has come to be closely scrutinized today.
Bob
Science, like Nature, must also be tamed, with a view turned towards its preservation.
All true, but, surely there is a way to start a company without VC money.
Absolutely there are, and I was trying to mention some at the end of my comment. A good way is to borrow enough money to start your company. Good if you have great credit or rich parents or friends. There are also government and bank small business loans you can apply for. Or you can simply try to live off any savings you have while you try to bootstrap your business. Or any combination of these and other methods.
It seems to me that the CEOs are just as culpable as the VCs. Both are looking to get rich quick. If the original posters CEO was willing to start small and build gradually, they might have survived.
Certainly some CEOs are guilty of this. Many others are genuinely trying to build a business but don't realise just what pressure they will come under from the VCs. And this isn't just about greed and trying to "get rich quick". Most of the CEOs and VCs I've met and worked with are genuinely interested in building strong, successful, viable businesses. But you have to understand the economics of this.
VCs are usually funded by limited partners - typically large institutional investors like pension funds and banks. These limited partners want at least a 100% return on their money, otherwise why not invest in stocks or bonds which have much less risk attached? If VCs invest $10 million in each company, then the 1 company in 10 that succeeds has to make the VCs at least $200 million when it is sold before the VCs get any money back at all. Not many companies command a $300 - $400 million valuation required to generate that return within a few years of being founded.
Only companies that have a real shot at growing that fast that quickly should go the VC funding route. Otherwise, find another way to get your business started.
Sailing over the event horizon