Honey, I Shrunk the Startups, Part II

Redfin and Our CEO

Honey, I Shrunk the Startups, Part II

A few comments about Dave McClure’s Sunday post encouraging entrepreneurs under 30 to sell at the earliest opportunity, from someone who was a founder under 30. I won’t go into the full rant, since I already wrote that last year, but can’t help but comment on a few of Dave’s claims. (Dave already knows I adore his writing style — Dave, I was just telling my twin brother this morning that I wished I had your voice — even if we disagree here.)

1. “Once you have a deal under your belt — whether it’s a $3M deal, a $30M deal, or a $300M deal, you are bankable.  People will bet on you again.” Ideas, not capital, are scarce. Selling a good company so that one you haven’t even thought of yet will be bankable — that is madness. Aaron Patzer — and anyone else in his position — was bankable well before he sold his company.

2. “And for the young entrepreneur — particularly those under 30 who’ve never done it before — the single best thing you can do to ensure your future success is TO GET A DEAL DONE.” Saying it is especially good for young entrepreneurs to sell their company is especially wrong. Entrepreneurs “who’ve never done it before” don’t need a farm system, or training wheels, or a practice run. Almost every great company (Amazon, Apple, Dell, Ebay, Google, Microsoft, Oracle, Yahoo!, PayPal, Facebook) was started by someone 30 or under. Your best idea usually comes before you’re 30.  Your ability to take risks is highest before you’re 30. In my experience, second-timers have a higher success rate because they are pragmatic and savvy about building a company for an exit, but the magnitude of success is highest among first-timers. If first-timers don’t create public companies, nobody will.

3. “Playing well sometimes means you take a single or a double instead of getting thrown out trying to steal home.” This talk of “swinging for the fences” and “striking out” or “getting thrown out at home” seems like a scare tactic. The difference between software and baseball is that you can swing for the fences and miss, and then just go back to second base. With the exception of Pointcast in 1997, which startup has gotten to the point where a lucrative acquisition is possible, decided to try building the business further, only to discover that there is no longer an exit at all? The company I co-founded, Plumtree Software, turned down seven acquisition offers before going public and accepting our eighth offer. What once made it hard for young people to hold out was their need for cash, but now most successful companies give the founders an opportunity to sell part of their stake early.

4. “Why is it that no one seems to think switching jobs every 3-5 years is a bad thing, but somehow think that selling your business to someone who really wants it and will grow it isn’t terrific?” Selling your business and switching jobs are totally different; anyone who has started a company knows that; you know that.  The idea that every entrepreneur is a serial entrepreneur, who can think of a new startup as easily as getting a gallon of milk from the store or finding a job at Kinkos, is a fiction we use to persuade ourselves that we’ll easily get another shot at greatness. It isn’t that simple. Ask Max Levchin, who seems to have gone through a Great Night of the Soul before founding a maker of Facebook applications, Slide. Just ask Aaron Patzer in five years. I don’t know Aaron and certainly wouldn’t want to bet against him, but if he makes as much money or has as much fun building his next startup as he did this one, he will have beaten some major odds. If I had been his adviser, I’d have helped him do whatever he wants — just as you did — but I also would have told him to keep having fun if he still believed in Mint. I think entrepreneurs need to hear that, too (for the record, I love Redfin as much as Plumtree, and Redfin may get bigger than Plumtree too, but this was a lucky break).

5. “More transactions of any kind or size help improve overall startup ecosystem health.” It is an interesting argument that small-scale transactions create liquidity and transparency, but surely public companies do that best. More to the point, Google, Microsoft and Amazon can’t buy every startup, particularly since many of their recent acquisitions haven’t been accretive. Without new venture-backed companies maturing into public companies, the total amount of capital available to fund innovation will decrease.

And the rest I agree with. It is outrageous baloney that anyone pressured Aaron Patzer to sell Mint. And there are plenty of startups that should sell when they can, for reasons both rational and admirable. But telling young entrepreneurs that they’re not ready to be a Jedi yet, just because they’re young — that just isn’t the Dave I know and love…

Update: a comment notes that the original Jason Fried essay never said that Aaron Patzer was pressured or forced into selling Mint. Jason just said that there’s an environment that made it easier for Aaron Patzer to sell, a point to which I am at least sympathetic. Jason, I just read your essay more carefully, and see that this comment is correct.  If you read what we’ve written earlier on the topic, you’ll see that we agree even more than I had originally realized.

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