Farhad Manjoo reported in today’s New York Times that, “The typical start-up fairy tale goes something like this: You begin with young entrepreneurs from Stanford or Harvard who have come up with some novel idea for disrupting restaurants or dog walking or whatever else.
“After creating a prototype, the guys (they are almost always men) enter start-up boot camps like Y Combinator, recruit a group of early investors, and perhaps launch a Kickstarter with a slick video. If the initial plan succeeds, the founders go into heedless expansion mode, which usually means selling off huge chunks of their company in exchange for gobs of money from venture capitalists. Then, after a few years, if all goes according to plan, they hit the big time — an initial public offering and a chance to be the next face of the future.”
The Times article noted that, “Well, sometimes. What’s often left out of the start-up dream story is any mention that there’s another way.
“In fact, it’s possible to create a huge tech company without taking venture capital, and without spending far beyond your means. It’s possible, in other words, to start a tech company that runs more like a normal business than a debt-fueled rocket ship careening out of control. Believe it or not, start-ups don’t even have to be headquartered in San Francisco or Silicon Valley.”
Mr. Manjoo explained that, “There is perhaps no better example of this other way than MailChimp, a 16-year-old Atlanta-based company that makes marketing software for small businesses. If you’ve heard of MailChimp, it’s either because you are one of its 12 million customers or because you were hooked on ‘Serial,’ the blockbuster true-crime podcast that MailChimp sponsored.
“Under the radar, slowly and steadily, and without ever taking a dime in outside funding or spending more than it earned, MailChimp has been building a behemoth. According to Ben Chestnut, MailChimp’s co-founder and chief executive, the company recorded $280 million in revenue in 2015 and is on track to top $400 million in 2016. MailChimp has always been profitable, Mr. Chestnut said, though he declined to divulge exact margins. The company — which has repeatedly turned down overtures from venture capitalists and is wholly owned by Mr. Chestnut and his co-founder, Dan Kurzius — now employs about 550 people, and by next year it will be close to 700.”
Today’s article pointed out that, “As a private company, MailChimp has long kept its business metrics secret, but Mr. Chestnut wants to publicize its numbers now to show the road less traveled: If you want to run a successful tech company, you don’t have to follow the path of ‘Silicon Valley.’ You can simply start a business, run it to serve your customers, and forget about outside investors and growth at any cost.”
Mr. Manjoo pointed out that, “But if companies are forced to generate revenue from the beginning, ‘what you get really good at is making money,’ [Jason Fried, the co-founder of the software company Basecamp] said. ‘And that’s a much better habit for a business to work on early on, to survive on their own rather than be dependent on money people.'”
The Times article added that, ‘”Every time we sat down with potential investors, they never seemed to understand small business,’ Mr. Chestnut said. Venture capitalists always wanted MailChimp to serve ‘enterprise companies,’ large businesses with thousands of employees and, potentially, thousands to spend.
“‘Everybody we talked to said, ‘You’re sitting on a gold mine, and if you pivot to enterprise, you could be huge,’’ Mr. Chestnut said. ‘But something in our gut always said that didn’t feel right.'”
