Building the Company you Wouldn’t Sell


Zach Klein Do Lecture

Zach Klein started and then sold his company Vimeo when he was 23. He starts his story by outlining a plan to make something cool to solve all his upcoming (financial) problems in one summer. He was 17. So he locked himself in his room for a whole summer to come up with the biggest idea he could.

With a first attempt at an improbable business behind him, Zach joined some friends in a startup. They moved to California, and swept in the spirit of possibility of the age came up with an idea of a video sharing site. The team grew to 70 people without getting any funding.

After two short years, Klein and his partners sold the company. He says that is exactly what they built the company for. This became a way of thinking circa 2000-2001. As Collins wrote in his seminal article at Fast Company:

Built to Flip. An intriguing idea: No need to build a company, much less one with enduring value. Today, it's enough to pull together a good story, to implement the rough draft of an idea, and — presto! — instant wealth.

No need to bother with the time-honored method of most self-made millionaires: to create substantial value by working diligently over an extended period. In the built-to-flip world, the notion of investing persistent effort in order to build a great company seems, well, quaint, unnecessary — even stupid.

Built to Flip was a juxtaposition to Collin's research documented in the book he co-authored, Built to Last. Klein's experience was consistent with the idea that starting a company includes having an exit strategy. The hook in Collin's article is the experience of a young entrepreneur in Silicon Valley:

“I developed our business model on the idea of creating an enduring, great company — just as you taught us to do at Stanford — and the VCs looked at me as if I were crazy. Then one of them pointed his finger at me and said, 'We're not interested in enduring, great companies. Come back with an idea that you can do quickly and that you can take public or get acquired within 12 to 18 months.'”

The core concept of the article was that companies, or rather barely products in the making, were being built for the sole purpose of being sold. A lesson a whole generation of tech founders took to heart.

The date in Collin's article was February 2000. There were some unflattering words about the entrepreneurial mindset. Yet it seems to me that was cultivated, encouraged (and rewarded) at the time.

The entrepreneurial mind-set has degenerated from one of risk, contribution, and reward to one of wealth entitlement. We all have friends and colleagues — often mediocre friends and colleagues at that — who have struck gold after 18 or 12 or 6 months of work in a built-to-flip company. And we have all entertained the thought "I deserve that too." Here's another thought: When I and a lot of other people began talking and writing about the new economy in the early 1980s, little did we know that it would engender what we most despised about the old economy — an entitlement culture in which the mediocre flourish.

Zach's company, Vimeo — an anagram of the word movie — was founded in November 2004 and was sold in August 2006 to IAC as part of its acquisition of Connected Ventures [source: wikipedia].

As he says in the talk, as soon as he sold his company, Zach wanted nothing more than to have those wings again. He missed it. He realized he wanted to keep flying.

One of the many conversations Zach had in the months following the sale was with Scott Heiferman, founder & CEO of Meetup, the company. Heiferman's personal revelation was that Meetup.com was the first permutation of likely many more of a vision to create experiences and tools to help get people together along common interests. He was in it for the long haul.

Zach cites Henry Ford, Steve Jobs, and Elon Musk, all entrepreneurs who has dedicated their lives to building on one main idea, in some cases to the point of obsession. See for example this Quora answer by Elon Musk's ex-wife on what it takes [h/t Shane Parrish]:

“Extreme success is different from what I suppose you could just consider ‘success.’ These people tend to be freaks and misfits who were forced to experience the world in an unusually challenging way,” she added, noting, “Other people consider them to be somewhat insane.”

He became intrigued by one less known entrepreneur.

Before being the founder of Patagonia, Yvon Chouinard was the founder of the Chouinard equipment company. A rock climber himself, he cruised along California with his friends — they called themselves dirt bags, hence the name of the Patagonia blog series the dirt bag diaries. They would forge equipment to modernize rock climbing and an unfortunate accident led to Chouinard divesting the business with the exception of rugged shirts. 

Patagonia was born. The company's growth story is fascinating, and it was a source of inspiration for Zach.

That inspiration led to a desire to start building things with his hands. He and a group of friends tried their hand on putting together cabins. Zach says he felt like a beginner again, his creativity soared. He was:

Amongst people where there was no hierarchy. All of us were so grateful to be making something together.

Coming across a picture of children digging together for earthworms led to the realization that collaboration is a natural instinct we have as children. He says:

“We need to look backwards in ourselves, because I think it comes naturally, and over the years it gets beaten out of us. That what we should be doing is pursuing companies that allow us to play, that allow us to be beginners, that allow us to be learners.

Naturally, we are mesmerized by the world. Naturally, we learn effortlessly through observation… naturally we are scientists and explorers, and we are quick to prototype and make with what we have, without any excuse.”

This personal realization led Zach to his current work with DIY.org. His lessons (paraphrased):

  • we should make work feel like play — a human superpower we don't talk enough about

It reminds me of Plato's:

You can discover more about a person in an hour of play than in a year of conversation.
  • it starts with you — you need to lead with a beginner's mind, to create the conditions in which everyone can be a learner
  • if you're looking for co-founders, you probably already met them — we make thousands of decisions that lead us to a particular time and place; the people around you have made similar decisions. Zach says if you are not around people you trust, then likely you need to make some decisions, go places where you can meet those people who help you feel creative and comfortable
  • with investors choose wisely — for most of us, we are lucky if we can get investors at all. Zach's advice, don't be hasty in accepting just anyone's money. Find investors who understand that the bottom line isn't your only priority — being around for twenty years, creating an enduring culture… these should be baked into your business plan, and you should make sure investors buy into it
  • not all jobs are created equal — most jobs are crap, because most companies are founded to be profitable… and because of that reason, we ask way too much of our employees, and don't give much back. One of the greatest joys of an entrepreneur is to create jobs that are meaningful and lead to interesting lives
  • treat the people who use the things that you make as a community

Build the company you wouldn't sell

In other words, have an exist strategy.

More than ten years after Jim Collin's article, we still see plenty of companies built to flip. An idea snatched before it's had a chance to hatch — when the idea at the root of the business has not had enough time to breathe, to face (or change and disrupt) market realities, and evolve into a strong (new) business.

Especially where it comes to technology products, even with a few thousand early users, ideas could still develop into something grander yet, given enough time. In some cases, the idea could also be a flop. So time is a luxury both the startup, and the potential suitor, would want to have.

Smart people should build things… to last.

 


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