Recently, I read two stories that caught my eye: the chronology of MailChimp's long, self-funded rise into a behemoth, and Twitter's increasingly dire potential implosion.

MailChimp has taken over a dozen years to grow to a point, from a size perspective, that Twitter reached in its third year of existence. Yet, that is where the comparison ends. MailChimp has always been profitable and built itself without venture funding, relying purely on self-financed capital and growing through its own profits. Twitter took venture capital from the get-go and has raised billions upon billions of dollars in financing without ever running a profitable business.

However, Twitter's woes, and what it shows about its style of growth's weaknesses, run deeper. It's not simply that Twitter has never turned a real and sustainable profit, it is that the company has never even developed - despite its untold billions - a workable long-term business model. It's fast-paced user growth began to slow as far back as 2012 and, despite multiple CEOs and fundraising rounds, the company never actually thought through a way to develop a significantly profitable business with its still-massive user base.

Yet, MailChimp's model presents its own problems as a paradigm for the startup world. For one, its growth has been too slow for most growth capital: to take over a dozen years to build a business doing over $100m in revenue, but nowhere close to a billion, is impressive but it's not a way to build "change the world" companies. The company also built that growth by focusing on a known industry and solving known problems; its chief innovation is in providing better customer service and customization to small businesses, not in rewiring an industry.

Moreover, from a venture investor perspective, it doesn't represent a model for how to build a portfolio that rapidly adds massive value for investors, and for the world. Slow, old-school growth through better customer management, while impressive and a fit for many companies, doesn't fit the startup world's aspiration for rapid and game-changing industry transformation.

The key, if the startup world is to continue to thrive in the long-term, is to find the balance between throwing billions of dollars at companies that often are just focused on growing to be bought rather than creating real, sustainable businesses - Twitter, Living Social, Zenefits, Fab to name a few - and relying on organic slow growth companies that may end up being successful but almost never build transformative unicorns.

Interestingly, I think many investors are seeing this need and taking it to heart when investing. Looking at my own portfolio, I see companies like Mycotechnology and ThinkCerca that thread this needle: they followed the venture path and raised multiple rounds from early-stage investors, yet they have also focused on building businesses that immediately generate notable revenue with products capable of radically transforming key industries.

If venture capitalists and angels can invest in more companies like that, that are "radically sustainable," the startup world will be the better for it.

Published on: Oct 28, 2016
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