The last few weeks have brought some unhappy news to young tech public companies. Just last week, tech publisher Gigaom was shut down by its investors. The company ran out of cash and no one was ponying up more. It had taken some heavy (for online media companies) investments so it could grow quickly. Cash burn outpaced increasing revenue streams
Also last week, Box shares took a tumble when the quarter ending in January saw a 74 percent jump in revenue year over year but a loss of $52.9 million was almost 22 percent larger than the same period the previous year. Although part of the stock drop was due to an incorrect average of analyst estimates, making the company look as though it missed expectations rather than handily beating them, the explanation has done little as shares haven't recovered. According to VentureBeat, the company's year-to-year growth rate has rapidly dropped, even with all the money it's invested in growth.
In late February, LendingClub reported a $32.8 million loss for 2014, even as revenue was up by 167 percent year over year. The stock dropped 13 percent and hasn't recovered. As the Wall Street Journal wrote, "There is little sign that, so far, LendingClub's investment in growth is producing positive operating leverage." Spending more to grow bigger wasn't having the desired positive effect.
If previous tech bubbles taught anything, it should have been that growth is great, but there can be a major risk in betting on it. You take the money you have today, borrow gobs, and tell yourself that by the time the bill comes due, you'll be able to pay it and keep things rolling. You'll have built your successful business. And there are times it happens. Amazon, Google, Facebook--all started by borrowing money, growing quickly, and then successfully going public.
But like in a casino, for all the good bets, there are the many you never hear of, where the company collapses because the trade-off was like buying a car or house at a loan rate you really can't afford. For all your efforts, one day the money you expected to be there isn't. Some companies can recover: LendingClub and Box might still. Gigaom didn't.
I've run into many entrepreneurs who worship at the altar of growth. They want to be big--really big. It's not worth trying unless you can become a billion dollar company. If they opportunity is there, then it might make sense. But for many it won't be. Before signing on the dotted line, ask yourself how big you expect the business to become and why you want it that size. Is there something grand you really think you can make happen, along with creating jobs, supporting communities, and making a positive change in the world? Or do you just want the glory and fame? If the latter, then realize that the day will likely come when you have to choose. Does the company become sustainable, or do you roll the dice for ego?
That's where you see the real difference in entrepreneurs: the ones who continue to build their ventures and those that sacrifice everything for a fleeting dream. Real entrepreneurs know how to put the company first and make it work (and when to know it's a losing venture that should fold).