A recent article on companies that eschew venture capital got my attention, both because of the topic and the photos accompanying it. There on the page was a U.S. mattress factory in all its foam- and fiber-filled glory, like the ones I'd been in many times, where there's no real production line, just cluttered workstations, huge rolls of batting and fabric piled high.
I love it--though it looks like they could use some better fans. The factory's owner was singled out as an example of a rare breed of entrepreneur, according to New York Times writer Janet Morrissey, who'd gone against the grain and achieved success without big, outside investors. "A huge anomaly," some guy at the Small Business Administration calls it. Oh really? I'd like to know what businesses he hangs with.
From my experience, an entrepreneur has a hell of a lot better chance of success without that kind of "help." I'm pretty sure if some VC had loaned me a fat wad of money at the beginning, we wouldn't be anywhere near a $300 million annual revenue venture today; certainly a quarter of the company wouldn't be set aside for our employees. In fact, we might not be in business at all.
I launched Big Ass Fans in 1999--not that long ago, but very "last century" when compared to the current startup environment. In 1999, venture capitalists didn't yet dominate the A-list of of financial celebrities. Crowdfunding didn't exist. And while there was no shortage of in-laws, their support was more in the form of verbal versus financial encouragement.
But I had tremendous confidence in lieu of up front capital. So I took the product and the pitch directly to the customers who are, of course, the most important investors of all. And they invested one by one, dairy farmer by maintenance supervisor by warehouse manager, in the "disruptive" technology of a large-diameter ceiling fan. A handful of employees and I made the deals, often over the phone because travel was expensive. "Try it, and if you don't like it, send it back." Our "investors" didn't demand a percentage of the business, anti-dilution protection, claims to future returns or any other abstruse provisions. Our agreement was a simple one: we agreed to sell them a great product, and they agreed to pay for it.
As the mattress manufacturer pointed out, not having a lot of resources makes you very careful with what you do have; when it's your own money, that's especially true. We didn't buy advertising early on, first of all because we couldn't afford it but also because the concept of a "big ass" ceiling fan that moves lots of air on low speed for pennies a day needed explaining, and YouTube was still years away. We believed in our product and figured we just had to be patient until the customers caught on.
It's great that the entrepreneurs in the article, including a tech firm that investors rejected, have been able to make it without VC money. It's unfortunate that so many still assume they need it. What they really need is to understand that a vast number of VCs are nothing more than glorified payday lenders who could easily end up owning most of their idea and their company, and very often do.
The way I see it, they need that like they need a hole in the head.