If you are an aspiring entrepreneur who has made a habit of reading online technology blogs and/or Twitter feeds of Silicon Valley venture capitalists (VCs), you might get the idea that the only “real” way to start a business is to formulate a “home run” idea, get deep-pocketed investors to provide the capital, then grind out a world-changing organization that puts a dent in the universe while making everyone involved ridiculously rich. It’s a very intoxicating idea, and each time you read about a startup being acquired for hundreds of million of dollars, it feeds the narrative that this is the only path any legitimate entrepreneur should follow.
However, the potential pitfalls of swinging for the fences with other people’s money is rarely addressed. That’s why Rand Fishkin’s new book Lost and Founder is so welcome. Not only does Fishkin pull back the covers on the pressures and conflicting goals of startups and their backers, but he does so in such a regular-guy way that you can easily put yourself in his shoes and understand the extreme highs and lows that come with being in charge of such a venture.
Fishkin was the founder and long-time CEO of Moz, a company that makes software to help market websites more effectively via search engines, social media, etc. As the company grew from a small consultancy to producing software that was a hit with its customer base, Fishkin sought investment dollars to help improve the company’s products while also pursuing related, high-potential opportunities — and to get there before competitors who could see the same opportunities.
Problem is, once you get other people’s money involved, their goals and expectations may not match your own. They might want you to grow even faster than you think is wise, putting pressure on you to make questionable strategy decisions in a timeframe that is too demanding.
More important, they get the power to overrule certain decisions, especially when it comes to the company’s “exit” — what might seem like a great acquisition offer to a founder might not be nearly enough for a venture capitalist who needs huge returns on a small number of investments to make up for the many startups that crash and burn. Fishkin’s story of an acquisition offer that would have been great for him personally but was rejected by the VCs is heartbreaking, and will definitely give you pause if you are considering scaling a business with investor money. (Though he’s left the company, Fishkin still owns a large stake in Moz, but has no idea when or if he will ever do as well from it as he would have from that long-ago acquisition offer.)
If you’ve been drinking the Silicon Valley Kool-Aid and believe that “go big or go home” is the only route to business success, Lost and Founder might be the antidote you need. While Fishkin may not dissuade you from that path (and doesn’t necessarily want to), his personal story of living the dream/nightmare will help you go in with your eyes wide open. That way, you won’t be surprised by things that never seem to be included in the breathless stories of big fundraising rounds and even bigger exits.