A VC in Vacationland

Otto Eckstein, founder of Data Resources, Inc, one of the first econometric forecasting companies, used to shout "grow or die!" at executive meetings when we all complained about the aggressive revenue targets set for our divisions.  I founded and ran the Transportation & Logistics Forecasting Group for DRI for many years. Otto was one of my early and best mentors in the start up world.

And you know, he was right.  Start ups can be nice little niche businesses that support a few partners, have a few clients, but may have minimal exit opportunities.  Or they can continue to add good people and customers and create value for everyone, including the investors. It is really your choice.

But do not think that you can build that nice little business and then expect to sell it for any reasonable profit in a few years.  I get at least a call a week from entrepreneurs who have "hit the growth wall", decided it is too tough to climb over the wall and now want to sell, or worst yet raise capital to jump over the wall.  Not.

Any good venture guy wants to buy into a growth story that YOU have devised, not devise one for you. First, they personally do not have the time, no matter how good the underlying idea may be, and they may send you away. This is called the "too hard" theory of venture capital, implying that if they wait a while an equally good, but easier to do, idea will come along in your space. Or they may fund the idea and then replace you with a CEO who can devise the growth story. In either circumstance, you will be left out of the industry because you did not have the right growth story.

So, if you run a start up and want a fair payoff at exit, grow or die!

Did it work for Otto, Dave and the other founders?  It sure did.  We sold DRI to McGraw Hill for thirty-three times earnings in 1979.  Not a bad payoff for following the grow or die advice.

It also makes a nice Post-it Note strategy for a start up(see my previous post on this subject).