VC Cliché of the Week

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VC Cliché of the Week

You often hear that a CEO is “betting the company” on some new product or some acquisition. It’s generally a negative connotation. And if you are running a Fortune 500 company, betting the company is probably not something you want to be doing.

But in a venture stage company, you should be betting the company every day. There isn’t much point to managing to the downside because to be honest most venture stage companies don’t have a business that’s worth protecting on the downside.

It’s all about the upside in the startup business. It’s about taking risks and getting somewhere – value creation.

I think this is why many (most?) big company managers fail as venture stage CEOs. They are taught to mitigate risks, to plan, to protect. They don’t want to fail and so they do.

Entrepreneurs are risk takers by definition. They enjoy betting the company and do it regularly. It’s not that they are cavalier or reckless about it. They understand the risks they are taking, they know how to assess probabilities, they know what they are doing. But at the end of the day, they pull the trigger, put it all on the line, and come up winners more often than not.

So if you are working in a startup, make sure you are betting the company on a regular basis. If you aren’t, you are more likely to fail.

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» You Always Bet the Company from Fractals of Change
Fred Wilson blogged about “betting the company.” Great post but, I think, he was only two-thirds right. “…in a venture stage business,” says Fred, “you should be betting the company every day.” Certainly right. Fred also says “I think this is why many ... [Read More]

Tracked on May 15, 2006 10:01:15 AM

» When and When Not To Bet The Company from Fractals of Change
You DON’T bet your company on tactics. You don’t (or shouldn’t) bet your company on every decision you make. This discussion started with a great post by Fred Wilson correctly saying that CEOs of venture-stage companies have to bet the company every da... [Read More]

Tracked on May 17, 2006 7:12:09 AM

Posted May 10, 2006 in Venture Capital and Technology

Comments

Fred, sorry for offtopic, but I hope we can be of service to each other.

I represent Russian startup "Blogus", a part of the internet-holding that is building a set of services around russian-language blogospere. There is significant business opportunity to address with Feedburner, which we are looking to partner with. I have sent several emails to them but didn't get any answer; since you are one of the investors i thought you could help..

Could you please drop a short email to me and I would send you in reply a summary of what we are planning and who we are so that you can make an informed decision?

Thanks a lot!

Best regards,

Anton

Posted by: Anton Antich | May 10, 2006 10:05:18 AM

I agree.

Working on both sides of the coin in my career, I think your point is quite right, that small companies with odds stacked against them need to have management prepared to be in that setting. Otherwise, they don't do what's needed because they are too busy worrying about the risks.

Management has to be able to assess the real risks, the real stakes and the path required to make it work.

This is something I've toyed with quite a bit. In fact, my definitions of "private equity investing" includes two sub groups: "control capital" and "venture capital." My definition of venture capital includes this: investing in plans with probabilities of success of 15-45%, with stakes high enough that even on a probabilty adjusted basis the expected value can create adequate value and return.

Investing (or allocating resources as management) on the wrong side of the odds - in a deal with less than a 50% chance of winning - is not necessarily a bad thing - you just have to have stakes that justify the investment or allocation.

Posted by: Craig | May 10, 2006 10:09:06 AM

I agree that entrepreneurs should be able to take calculated risks, but I'll have to disagree with the "frequently bet the company" model.

Though this is certainly true from an investor's perspective (i.e. VCs are looking for the "big hit" that requires taking big risks), it is not always the best path for the entrepreneur.

Most starups will face "bet the company" decisions several times in their lifetime (major shifts in model, response to competition, etc.). However, if a startup CEO is betting the company "regularly" (as in several times a year), there's likely a problem.

If these kinds of massive bets are being made on a regular basis, I would see it as a signal that there's a lack of focus on the management team can't decide what they're trying to do.

Obviously, there are tradeoffs, and there's a balance in there somewhere.

Posted by: Dharmesh Shah | May 10, 2006 11:51:08 AM

I love betting the company. And me. I've bet me all over the place with this company. And it's worked time and time again. It's hard, yeah, and I give up a lot along the way, but there's nothing like making it work.

Right on.

Posted by: charlie crystle | May 10, 2006 10:35:28 PM

I agree that big company managers do not have the temperament and the DNA for taking risks. I suggest a simple test, it has worked for me time and time again. If a person starts more than 4 sentences in 1 hour with "the problem is ....." they are not cut out to be an entrepreneur or work in a startup. I would also say that this would extend to selecting a VC. It is a simple point of view.

Yes there are always problems and they need to be solved. In a startup you are faced with nothing but problems. It is easy to get discouraged. It is also easy to take a safe course because it reduces problems. I view problems as feedback. Feedback from your customers, lawyers, your accountants, board members, etc.. So if you hear things like the "opportunity is" instead of "the problem is" than you can be certain that person has the "right" DNA.

Posted by: Dan Cornish | May 11, 2006 8:23:06 AM

I totally agree w/ Fred: betting the company is one of the true differentiators and advantages you have as a startup company. Make a decision, turn on a dime, test the waters, find the sweet spot, repeat.

chase norlin
ceo, pixsy

Posted by: Chase Norlin | May 16, 2006 9:11:55 PM

Come up winners more often than not? Not even close. As you know, of course, the vast majority of entrepreneurial ventures and ideas fail. And this makes your point: so what? It fails, and the entrepreneur moves on to the next idea. That's partly why the young are so often bolder than those of us in our "middle years": they have little to lose personally.

Posted by: Steve Crozier | Jun 21, 2006 12:26:15 PM

A VC

Musings of a VC in NYC