C.S. Hsia's Blog

A few weeks ago, I was reading a special article on AM NY (the free daily newspaper) on the 10 best technology start-ups in NYC. As someone who lives in New York, and operate a profitable tech start-up, I eagerly finished the article. Near the end of the page, I saw this:

“The 10 start-up companies were selected based on the amount of venture capital raised, and presented in alphabetical order.” I felt I have just wasted my time.

It fells like the last time the general media followed this thought process was during the late 90s dot com bubble, when every company with the .com suffix followed a systematic road-map. Angel investors, venture capital, investment bankers, fortune. Yet somewhere missing in the process was the keyword that defines success, in the traditional sense: Profit.

Many of these start-ups speak about creating the next twitter, and how after burning millions of dollars in VC money, they are trying to come up with ways to “monetize their current success”. This is mind boggling to me. If they don’t even have a concrete plan to monetize when they took on the venture capital, then what have they been doing?

I believe the root problem is in how people perceive the venture capitalists. Some people like to think of VC as the definition of success, but that’s not entirely accurate. VCs don’t go for base hits, they swing for the fences. Which means, for those less well versed in baseball, VC will make big money on a few deals, but fail on many other deals at the same time. Ultimately, they count on the successful exits to be a larger dollar figure than the failures.

Some research states that a third of start-ups going through the VC stage fails, so 3 of the start-ups mentioned in the papers shall be gone in a few years or so.

VCs can be described as legalized loan sharks, tempting you with capital (be it necessary or not), and taking controlling stakes in your company. In fact I would say that perhaps many of the third died because the founders lost control, and the passion of working to break even. It’s difficult to maintain that level of focus when you have just picked up a few million dollars and can now afford to pay yourself a nice salary.

Which leads us to another issue, is what to do with all that money? Hiring outside talent blindly disrupts the start-up atmosphere, and having all the advertising dollars makes it less necessary to come up with marketing that will set your company apart. Then there are the Herman Miller chairs that all of these companies end up getting….

It so happens that my day job and my start-up are both profitable, and without any assistance from Venture Capitalists. The drive to break even, without a hefty padding in the bank account, has forced these companies to thrive and excel in tough conditions.

For aspiring entrepreneurs hoping to follow the traditional road-map, make sure to add “profit” on your way to success.