Seth Godin reminds us today of the lesson explored in this previous post and another by Ed Sim at BeyondVC: First, money is a challenging motivator for innovation and success; it is a prize worth fighting for. Second, the lack of money is a constraint or challenge that forces further innovation and improvement. Third, too much money or resources on hand can sour the positive forces of challenge and lead to failure. To build on Seth's lesson, I'd like to provide some examples here:
Dot-coms in the late 90s went bust because they were given gobs of VC and IPO money. The game was about spending money the fastest, rather than wisely. Success was defined as an IPO, rather than building a long-term success.
Meanwhile, post-bubble startups like 37signals learned that less people, less resources, and less time are actually a competitive advantage.
Natural resource-rich nations from Nigeria to Venezuela, have failed to build strong governments or economies because they are spoiled by "unearned" riches.
Microsoft has rested on billions in guaranteed profit while hungry competitors like Google, Firefox and Linux struggled to merely exist and earned success through great innovation.
Mitsubishi failed to turn around because it was propped up by Japanese banks and Daimler-Chrysler. Nissan successfully turned around because it had little support from the government or other partners; it was forced to take dramatic action like bringing in a foreign CEO, Carlos Goshn.
Government wastes its citizens' money because it has too many resources and little pressure to show results. Tax cuts are smart because they limit the funds available to spend (usually...).
The original Star Wars movies were better because Lucas had fewer resources and had to earn his success. For the recent three, he had an unlimited budget and guaranteed fan base.
I could go on and on, but I think this helps prove the point!
OK. OK. But that's a distorted mirror even though there are truths reflected. The other half of the truth is lack of money or ability to raise some quickly enough is also the death kiss for small enterprises. And I'm not talking about small enterprises on the scale of a but a few million in annual revenues. There are thousands of entrepreneurs with great ideas, solid business plans, customers and expansion potential that bootstrapping alone cannot fund. The cost of entry of bringing any product into the marketplace is exponentially higher today than it was even 20 years ago. It still takes (some) money to make (more) money and bootstrapping entrepreneurs often deplete personal and family capital resources getting the enterprise to the starting line. Lucas may have had few resources relative to what Sony could have thrown at the project but he still invested several tens of millions, while scores of smart investors stood by waiting for him to prove the concept and reduce the risk enough to want to ante in. And let's not forget, by the time they did come crawling out of the woodwork for a piece of the billion plus action, the door was closed.
Posted by: danl | July 28, 2006 at 02:12 PM
Good point, Danl.
I certainly don't mean to suggest that it is easy for bootstrapers to make it. Certainly more fail than succeed. But the elusive nature, and huge potential payoff of success spawns the sacrifice and "digging" that will lead to innovative, risk taking thinking. Maybe only 1 out of 10 "make it", but the result is that someone take the prize and the rest of us (consumers) benefit from the better product or lower price.
I'd also argue against your point that "the cost of bringing a product to market is exponentially higher today than it was 20 years ago." Today, the supply chain is much more efficient and "anyone" can outsource product development and supply and sell directly to a market online, for example. Again, this is a generalization, but in the "old days" only a small number of companies had the resources and access to get a product or service to market.
Posted by: Bob G | July 28, 2006 at 07:43 PM