Sweet Spots and Flying Under Radars

July 5th, 2011
[ Software Development ]

If you haven’t read it already, I highly recommend Rob Walling‘s book Start Small, Stay Small. I’m going to ramble around a few background thoughts here so allow me some slack here…

In the book Growing A Business, Paul talks about the almost symbiotic relationship large corporations have with entrepreneurs. Rather than being a battle between the two or mutually exclusive, his thesis is that one can’t exist without the other.

“Entrepreneurial change depends on static situations, and these are provided in abundance by government, large corporations, and other institutions, including educational ones. We need both entrepreneurial and institutional behavior. Each feeds on the other. The role of the former is to foment change. The role of the latter is to test that change.”

I’m in the early stages of a new project. Ideally I’d like to fully bootstrap it myself, however, it’s likely I will raise a very small seed round to bridge the gap to revenue. What’s been interesting in that process is how people who deal in financing circles view that. When you talk about building a $1M, $5M or even $30M company, you’ll hear things like “I like the idea but it’s not a billion dollar idea”.

There was a recent VC panel in Montreal that argued this point around as well. One VC suggested you shouldn’t even come through his door unless you want to build a billion dollar company. He truly meant that to be inspirational, let’s aim high, we need more billion dollar companies.

A European based VC on that panel disputed that, taking the approach that if you want to climb Everest, your first goal should be to climb Rainier. From where I sit, there are far more examples of companies built taking the latter path.

Apple didn’t start out trying to redefine mobile computing. Patagonia started out making better pitons not an outdoor lifestyle behemoth. As well, this approach represents a more actionable first step for an entrepreneur. The idea of conceiving of a billion dollar company from scratch seems absurd to me. Does it mean I’m going to leave the door open to climbing Everest or K2 someday? Well shit ya but today I can’t even make it up the hill to the big church without losing feeling in my left arm.

So here’s the other subtlety in play here. If you’re building a $30M or less company today, you’re well under the radar of any of those large institutions. If you believe any of the above then you need to understand that the sweet spot for entrepreneurs is building these small to medium sized products and companies that the big boys are unable to downsize into. They won’t even know you exist as you work away in their blind spot.

This means you can talk with them, you can share your ideas with them and others. They are literally incapable of competing with you. Now the question is, if you start from day 1 going after a billion dollar idea, are you already setting yourself up from failure as you’re picking a fight you may not need to? Are you starting in a space that requires a large corporation instead of an entrepreneur?