Small is Beautiful, Too

Redfin and Our CEO

Small is Beautiful, Too

Over the past few months, Twitterers and TechFlash readers have invented a war between big and small startups, and somehow Redfin has landed on the wrong side of it. I only noticed it last night. The great Josh Petersen of 43 Things compared Adam Doppelt’s fantastic essay on boot-strapping Urbanspoon to a talk Marcelo Calbucci had asked me to give at the Seattle 2.0 awards:

For any aspiring entrepreneur, Urban Spoon’s advice is a lot more actionable and realistic than the recently celebrated keynote at the Seattle 2.0 awards. Glen Kelman’s talk should come with a warning label: if you are listening to an entrepreneur give advice for 20 minutes and he’s talked about raising money and valuations but never mentioned making a profit, look out! In his talk, Glen assumes “sooner or later you are going to have to raise money” because, unlike Urban Spoon, he’s not thinking about living off the money his product makes or holding his spending as low as it can go the way Urban Spoon did.

I agree that Urbanspoon’s advice is more actionable and realistic; I wasn’t trying in the keynote to tell people what to do so much as express how we’ve all felt from time to time. Folks in the audience like Jonathan Sposato and Kelly Smith don’t want to hear from me how to run their businesses, especially not at an awards dinner.

The truth is that neither Adam nor I wrote or spoke much explicitly about how to turn a profit. But I did try to talk about profits from the start, saying that all our anxieties as entrepreneurs turn on whether we can make money. Later, I  encouraged entrepreneurs to build a product good enough that customers would pay for it and to focus on a meaningful problem as a means to profits rather than the other way around. Both Adam and I described working 18 hours a day in a crumby office for no or low pay as being the essential characteristic of life at a startup.
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Adding on to Josh’s critique, Brad Hefta-Gaub wrote that he agreed with Josh that too much attention has been paid to my (see comment from Brad) a “go big or go home” approach.

Here’s where I want to set the record straight. I have nothing but the highest respect for boot-strapped startups. They’ve done what Redfin tried but failed to do, which is get to profits without spending other people’s money. 

So why do folks think I feel otherwise? I can only assume that this beef began with a blog post I wrote last September, called Honey, I Shrunk the Startups. That essay took issue with two venture capitalists, Fred Wilson and Rob Monster, for arguing that the same big ideas we funded ten years ago for millions could now be launched for $100,000 or even $25,000, because of lower hardware costs and reusable software components.

I just didn’t see how $500-million venture funds can generate meaningful returns from 30 or 40 companies with $5 million exits, a problem which Fred himself has recently written extensively about. And I still worry that some big ideas — which will always take talent and time — have been cut down to size for lack of funds.

But the venture capital industry’s problems aren’t Urbanspoon’s problems. What I said about VCs’ need to get a big return on a few of their deals doesn’t apply to Urbanspoon.

And my preference for big ideas isn’t the same as a preference for big companies. Picnik, in my view is a big idea; can you imagine how hard it is to build Photoshop on the Web? Urbanspoon is a big idea, competing against entrenched competitors like Yelp and CitySearch. Both companies are small.

Given a choice, we would all prefer a startup with a big idea rather than a small idea. We would also all prefer one that spends less rather than more money to develop that idea. But a big idea that can be built for very little money isn’t always easy to come by.

So some of us pick  narrowly focused startups we can build on a dime, while others focus on big ideas that also take a lot of money. My argument has always been that there should be room for both, not just the small idea. As I said in the original post:

Trading college-girl gossip or graphing rock-band popularity is cool but we also need entrepreneurs willing to spend the time and money to f*** with the order of things.

And again a paragraph down:

Of course, some businesses don’t need a lot of money to get big. Others are happy to remain small. But there are big ideas that take time and money…

And a third time at the end:

The (TechCrunch50)  judges may argue over which contestant is the most clever or polished, but for those of you scoring at home, there’s room on the card for another column. Which startup is most likely to f*** with the order of things? We need a few of those too.

So I am not arguing that all startups should be big, or that big startups are better, only that we need startups with ideas large and small. The same Procrustean bed that stretched every startup in the ’90’s to be bigger is now scrunching some ambitious startups down. Big isn’t always better. But smaller isn’t always better either. VC-backed deals are best for some companies; boot-strapped companies are best for others. Arguing for one or the other is just silly.

The only startup I am arguing against is the venture-funded company built to self-destruct in 18 months, which never seeks to generate a profit because its only hope is to get bought before it has to. As I said in the original essay, these days, “most entrepreneurs don’t even aspire to build a self-sustaining business.” Given this emphasis, I’m not sure why Josh says I’m “not thinking about living off the money [my] product makes or holding [my] spending as low as it can go.”

Redfin is not a venture-bloated bully looking down its nose at other little startups. We aren’t looking down our nose at anybody. We’re fighting to get profitable and serve our customers well. We look at all the great startups in Seattle and we try to learn from everyone. Already this morning here at Redfin, we were all abuzz about what we could learn from Adam’s essay.

Of all the venture-funded companies to characterize as a goliath, Redfin must be the last choice. We started as a bootstrapped company with the first map-based real estate search and no money when we suddenly found ourselves staring down the barrel of two new map-based search companies run by terrifyingly brilliant people that would ultimately raise $120 million from Accel, Benchmark, Sequoia and a handful of hedge funds.

We’ve raised a sixth of that, even though our model is less capital-efficient: only Redfin has to hire actual customer service personnel in every city we serve. Maybe others think it was dumb for us to have chosen this, or just plain too expensive, but it was the only way we thought we could really change the game.

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Who knows whether Redfin will succeed. I think everyone would agree though that there’s a need to make big bets and small bets, and that Seattle will be better off when a decade from now one of today’s startups becomes a company like Microsoft, Real or Amazon, one that can buy other startup companies too. That’s still worth shooting for.

Many thanks to all the folks who showered kind words on the keynote. And thanks to Josh Petersen for giving us a reason to set the record straight.

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