Funding Independent Alternatives
A few weeks back, I was sitting at the counter of a local coffee shop waiting for my meeting to show up. As I sat, I overheard a conversation between the owner and a prospective vendor.
The meeting ended with the vendor going in for the close. And their tactic struck me.
“We’re a small family owned business. We only work with a small number of customers so we can provide them the absolute highest level of service and best possible products.”
With that they shook hands and walked out.
I have no idea if they closed the deal or not. My meeting arrived and my day went on, but I couldn’t shake that pitch.
In a tech world that touts growth hacking and new features and scale, it was kind of refreshing to hear someone sell smallness and independence and a personal touch.
But, if you read the tech press you’d think that type of culture or relationship with customers wasn’t possible online. You’d think that the only way to grow and defend your business was to weaponize your balance sheet.
Pando recently wrote:
Pattern matching is in; gut feelings are out. And Facebook, Google, and Apple are just too powerful to go around.
What works now? Cash. Sh*t loads of cash. Paying to acquire users. If you are like me, you see more ads for meal kit services, startup mattress companies, upstart apparel companies, Pelotons, and the like than anything else on Facebook. That’s because those kinds of ads are one of the only way startups are growing right now.
It’s a playbook people have been terrified to return to after the dot com bust.
The result? VCs are the kingmakers again in a way they haven’t been for the last decade.
So, according to people whose business it is to invest money the only way to truly compete is to raise more money.
David Packard, of Hewlett Packard, was known to share a quote from an early customer of theirs which goes something like this:
More organizations die of indigestion than starvation.
Apt in a world of software that is trying to eat everything as quickly as possible.
But, what if sh*t loads of cash wasn’t the answer? The problems is, sh*t loads of cash means you have to do sh*t loads more things. Hire sh*t loads more people. Build sh*t loads more features. Enter sh*t loads more markets. Take on sh*t loads of bigger leases. And take on sh*t loads more expectations and accelerated timelines of what success needs to look like.
What if there were something tech could learn from that vendor in that coffee shop?
Nearly two years ago we wrote a post suggesting that there may be an opportunity for independent businesses to outmaneuver their ravenous Unicorn competition by staying smaller, profitable and personal longer:
If you believe, as we do, that there will come a time when not having taken loads of funding, not selling out your users and not being forced to maximize shareholder value will be a competitive advantage then this type of designation might matter. Customers and users burned by cash burning startup after cash burning startup may start looking around for independent alternatives who aren’t looking to sell them out, or sell out themselves, only to have the products they love and rely on killed by acquiring companies.
Tho, that sentiment flies in the face of today’s conventional wisdom maybe, just maybe, weaponized balance sheets will backfire.
While these mystical creatures grapple with digesting 10s, and often hundreds of millions, of investment we think there are opportunities for thoughtful, focused, slow followers building profitable independent alternatives.
If you’re one of them, get in touch.