Should every startup aim for mega-hugeness, or is it better to match your company's size to the magnitude of the opportunity in front of it? On Wednesday, LinkedIn co-founder, Greylock partner, and Microsoft board member Reid Hoffman and O'Reilly Media founder Tim O'Reilly debated the pros and cons of shooting for unicorn status. Jon Fortt of CNBC's Squawk Alley moderated the chat, a sort of offshoot of Hoffman's Masters of Scale podcast series.

Hoffman, who stewarded a $26.2 billion acquisition for LinkedIn a little over a year ago, took the bigger-is-better side. "I tend to focus on what are the next platforms," Hoffman explained, because ascendant tech giants like Google and Facebook set the market for everyone downstream. Compared to their smaller counterparts, "The policies of these platform companies, the shape of them and what they are doing, matters a lot more."

Meanwhile, O'Reilly said, "I agree with Reid that there are opportunities that require internet scale. But look around: How many internet-scale companies are around that are really successful?" He also asked how many of those huge companies a country really needs, pointing out that most of the economy consists of more normal businesses. "One of the problems with the dominant Silicon Valley narrative is that every entrepreneur should be going for the brass ring."

The debate over scale-for-scale's-sake has a cousin in the one over whether it's better for entrepreneurs to bootstrap independently or to raise money from investors. Basecamp co-founder David Heinemeier Hansson is a dedicated critic of the Silicon Valley rat race. He wrote in 2015, scornfully commenting on the venture capital scene, "If you're capable of stringing enough buzzwords about disruption and sufficient admiration for its holy verses, like software eating the world, and an appropriate yearning for the San Franciscan Mecca, you too can get to advance in this multilevel investment scheme."

In 2009, Y Combinator founder Paul Graham wrote about the concept of "ramen profitable" and defended venture capital's track record: "Few startups succeed without taking investment. Maybe as startups get cheaper it will become more common. On the other hand, the money is there, waiting to be invested. If startups need it less, they'll be able to get it on better terms, which will make them more inclined to take it. That will tend to produce an equilibrium."

There is also an in-between path. For example, Sean Broihier of the print-on-demand platforms Pixels and Fine Art America has neither raised money from investors nor decided that he'd rather run a lifestyle business than grow his revenues indefinitely. Broihier's sites are run by eight full-time workers and the company is extremely profitable, producing revenue in the double-digit millions.

So, is it better to strive for a big company or a modest one? The answer is a matter of preference more than anything else. People get rich either way, it's just that plenty of millionaires are mixed in with the billionaires.

Published on: Aug 24, 2017