Idea of the Day #3
Thoughts on 100 year companies after a talk by Dave Whorton
The first three Ps — Purpose, Perseverance, and People First — define the character of the leaders and team. The last four Ps — Private, Profit, Paced Growth, and Pragmatic Innovation — reflect the long-term strategy tenets of an Evergreen business.
What I found most fascinating about Evergreen companies is their embrace of compounding growth and their rejection of the Venture Capital world. The theory goes that by growing slowly, but more sustainably, you not only increase your chances of success (9 of every 10 VC backed companies fail), you increase the enjoyment for yourself, your employees, and your community.
Further, in an interesting twist, Dave pointed out that by growing more slowly and refusing to fund via raising capital, Evergreen Companies are more agile and less beholden to outside interests. The second point is more clear. If you take VC money, you are beholden to VC interests, which rarely coincide with your timeline, your customers, and your employees. The first point, is more opaque. In a subtle move, Dave pointed out that two facets of Evergreens lend themselves to greater agility. First, you aren’t beholden to other people. You can change your mind rapidly, without negotiation. Second, you are constrained by funds. This second facet means exploits the well known fact that (reasonable) constraints breed creativity.
So, the theory goes that by operating via a defined purpose which puts people first, staying private, quickly becoming profitable, and growing slowly, you can avoid being tied down and boost your companies creativity (and likely it’s morale). There is one caveat I found fascinating. If your company is already venture backed, there is very little chance of going back now. The reason? Most VC firms look for at least a 5–10X return. The only way out of their clutches is to buy back your shares at a 5–10X rate, which is hard unless you happen to have great personal wealth (or a generous VC).