Dragons Before Unicorns

Not enough entrepreneurs are starting small, profitable, bootstrapped internet companies.

The internet is full of opportunity. We’re really still at Day 0. Decades from now, we’ll sit back and wonder why we weren’t more invested in this tsunami of value creation.

A lot of smart people recognize this opportunity. Many of them work in venture capital. Because many VC firms have taken institutional money, their investment cycles are short—often no more than eight years. They need fast growth and fast exits. This forces VCs to invest exclusively in unique, high-growth companies that rely heavily on the monopolistic, winner-take-all effects of the internet.

Young entrepreneurs, inspired by glorious tales of 22-year-olds starting billion-dollar companies, chase venture capital funding. And since VCs only invest in moonshot ideas, they wait for their eureka moment, when their idea will crystallize.

They wait. They lament, “I still don’t have an idea.”

That’s not true. We all have ideas. Lots of them. None of these ideas, though, are “unicorn ideas.” Or perhaps we don’t believe them to be unicorn ideas. [1] And so we get stuck in the idea stage, not taking that first small step that could change our lives.

It’s OK to start a small company. But that thought almost never enters our minds.

Starting a small company gives you time to learn the ropes and gradually scale up to larger businesses. 37signals started as a web design company. Matt Mickiewicz did the same before starting SitePoint and, now, Hired.com.

Why don’t we start? I blame the media and our education system.

The media propagates stories of billionaire founders who raised a truckload of VC money and then went public at a nosebleed valuation. To an outsider, it seems like the VC way is the only way.

In schools, our professors [2] teach us about economies of scale and efficient market dynamics. We’re schooled to respect these big institutions and fear them. We naively assume that we can’t be better than Big Blue.

But here’s the truth: 65% of American businesses don’t have a website. What does that say about their back-end order management systems?

Look at this another way: 65% of American businesses are stuck in the Dark Ages and are likely very inefficient. They’re waiting to get slaughtered.

There are thousands of dragons waiting to be created. Still not convinced? Here’s an idea.

Pick a B2B or B2C commodity service. Let’s say office cleaning. Start a company offering office cleaning services. Set up a great-looking website. Market it cleverly to a niche audience. Get your first 20 customers. Negotiate a bulk contract with a large cleaning company. Outsource the cleaning to them. Add a small profit margin to your costs. Now you’re profitable. Invest in getting more customers. Grow to 50 customers. Suddenly, it makes sense to hire your own cleaning crew. So you hire an operations manager from the cleaning industry, put out some job ads, hire some talent, organize everything in Google Sheets, and boom—now you’ve got your own vertically integrated cleaning company with decent margins.

That wasn’t very hard, now, was it?

Learn to slay the dragon first. Then start chasing the unicorn.

Further Reading

You Are Not A Lottery Ticket by Peter Thiel

Notes
[1] Most unicorn founders never fully saw how big their companies could be. Google tried to sell itself for $1 million. Zuck initially planned to use Facebook to funnel users to WireHog, a P2P file-sharing network. There’s an entire book about this titled “Accidental Empires” by Robert Cringely.

[2] I find it hilarious that academics who’ve never spent a day of their lives outside the warm embrace of an educational institution teach young minds about “the real world.”