Dragons Before Unicorns

May 31st 2016

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 wave of value creation.

A lot of smart people recognise this opportunity. Many of them work in venture capital. Because such VC firms have taken institutional money, their investment cycles are short. Often no more than 8 years. They need fast growth and fast exits. This forces VCs to exclusively invest in unique companies which are high growth and rely heavily on the monopolising, 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 until their eureka moment where their idea will crystalise.

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 increasingly larger businesses. 37Signals started as a web design company. Matt Mickiewicz did the same prior to starting SitePoint, and now Hired.com

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

The media propagate stories of billionaire founders who raised a truckload of VC money and then IPO-ed 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 backend 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 cost price. 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 a operations manager from the cleaning industry, put out some job ads, hire some talent, organise everything in a Google Docs Spreadsheets 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

[1] Most unicorn founders never fully saw how big their companies could be. Google tried to sell itself for 1 million USD. Zuck initially planned to use Facebook to funnel users to WireHog, a P2P filesharing 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 of the warm embrace of a educational institute, teach young minds about “the real world.”