Venture Way vs. Visionary Way
The Road Less Traveled
The business building road you choose is critical. To date, venture capital and angels insist entrepreneurs take one road and only one road – the Venture Way. According to the research, driving the start-up down this road has been a disastrous journey 8 out of 10 times – that’s the bad news. The good news is there is another highway to take – the Visionary Way.
Venture Way Businesses
There is no shortage of books and curriculum about how to access angel and modern venture capital financing. Our task is not to repeat the fine material on the subject. Sometimes these policies and practices are explicitly published by angels and VCs. More often the following policies and practices are implicit and unpublished. Regardless, these policies and practices shape the way any new venture launches if its investors are angels or modern VCs. Figure 1 shows the eight policies and practices that make up the philosophy of the Venture Way model. These eight policies and practices suggest that the Venture Way is very much a project- or one-product-based business-building experience. Venture Way businesses are short term and have to take advantage of immediate opportunities. They are deliberate planning and execution-based attempts to start, finance, and exit quickly after exploiting one idea. The entire justification for the business rests on financial success (this is neither right nor wrong—it just is). Predicting success is largely done by assessing current category circumstances. Most assumptions about the future have to be verifiable up front. Patience by investors is in short supply. Jim O’Connor, former Director of Motorola’s Intellectual Property Incubation and Commercialization and former head of Motorola’s venture fund, describes the philosophy underlying Venture Way businesses the best: “if an idea is not working, kill it.”
Modern Venture Capital Policies and Practices
- Charismatic leaders with great track records 1
- Big and fast-moving market 2
- Blockbuster first product 3
- Growth-stock not value-stock-based companies Deliberate execution to plan Fast to IPO or sale 4
- Replace key executives quickly if benchmarks are missed If the idea is not working, kill the company quickly
1 Older or newer VCs expect a technology founder and a business or marketing founder.
2 Older larger VC firms want market size to be 500 million plus. Newer smaller VC firms accept market size to be 200 million plus.
3 Any VC wants market share to be at least 25%.
4 Older larger VC firms want $100 to $300 million revenue stream within five years and IPO exit. Newer smaller VC firms accept $60 to $80 million revenue stream within five years and sale or IPO exit.
In sharp contrast with the Venture Way framework is a second philosophical business model—the Visionary Way.In sharp contrast with the Venture Way framework is a second philosophical business model—the Visionary Way.
Visionary Way Businesses
Visionary Way businesses get their name and traits compliments of the research undertaken by the following academicians:
|Jerry Porras and Jim Collins||Built to Last|
|Amar Bhidé||The Origin and Evolution of New Businesses|
|Jim Collins||Good to Great|
These three studies have the following similarities:
- University centered—Stanford, Harvard, Colorado
- Led by professors widely respected in business researchSupported by research staffs
- Took over five years to complete
- Resulted in best-selling business books
- Appeared on the covers of popular business magazines
Two of these studies, Built to Last and Good to Great, examined the success traits of public companies that have persevered and profited over many years and through many industry cycles. The third study, The Origin and Evolution of New Businesses, put 100 of America’s fastest growing private companies under the microscope, from their launch through their tenth year. Over 50 percent 50% of these companies were in the teleco, computer, and medical industries—typical venture capital sectors. The average company on the Inc. Fast 500 list had revenues of $15 million, 135 employees, and a five-year sales growth of 1,407% or 281% per year. The companies researched were not all technology companies. However, enough of them were. Figure 2 identifies the five disciplines of the Visionary Way.
Visionary Way Disciplines
- Tier 2 leadership
- Authentic core drivers
- Build organization first and products second
- Hold two opposed ideas at once and remain functional
- Systematically innovate and transform
Rates of Returns and Other Key Findings
When aggregated as a group, the eleven companies that finally made the study group in the Good to Great research (starting with 1,435 companies) achieved a 6.8x greater annual return than the venture capital industry or general market as a whole during the same time period.
When aggregated as a group, the eighteen companies that became the top half of the total thirty-six companies studied in the Built to Last research achieved a 15x greater annual return than the venture capital industry and general market as a whole during the same time period.
Since all 100 companies selected in Harvard’s Inc. Fast 500 study were private companies, available rates of return on investor equity were not available. However, these interesting facts were discovered:
- Average sales growth over ten years was 281% per year.
- Only 4% of the 100 companies were venture capital backed.
- Only 3% of the 100 companies were angel backed.
- Only 10% of the 100 companies had a unique first product.
- The founders were not industry luminaries.
- All 100 companies were profitable in the first twelve months.
- Founders were still on board after ten years.
Shattering the Myths
The research suggests that Venture Way and Visionary Way business building share little in common. Table 1 makes this clear.
|Venture Way||Visionary Way||Study|
|Charismatic leaders with great track records||Average people with very little track records||Built to Last Good to Great Inc. Fast 500*|
|Big and fast-moving market||Big market—not fast moving but turbulent||Built to Last Good to Great Inc. Fast 500*|
|Blockbuster first product||90% started with mundane service||Built to Last Good to Great Inc. Fast 500*|
|Growth stocks (5X–10X returns expected but rarely attained. Industry averages about 15% annual returns.)||Growth stocks and value stocks (Companies studied averaged 6X–15X greater annual return than the VC industry achieves.)||Built to Last Good to Great|
|Deliberate execution to plan||Emergent execution for discovery and learning||Built to Last Good to Great Inc. Fast 500*|
|Fast to IPO or sale||Slow to IPO and no sale||Built to Last Good to Great Inc. Fast 500*|
|Replace key executives quickly if benchmarks are missed.||90% of founders still with company after ten, twenty, thirty years.||Built to Last Good to Great Inc. Fast 500*|
|If the idea is not working, kill the company quickly.||If first idea not working, try another idea.||Built to Last Good to Great Inc. Fast 500*|
*67% of the companies started with less than $50,000 in capital.
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