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Build a Billion-Dollar Company | Startup Myths and Models

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In snappy prose with savvy pop-culture and real-world examples, Rizwan Virk recasts entrepreneurship as a grand adventure in his book Startup Myths and Models. He points out the pitfalls that appear along the way and offers insights into how to avoid them, sharing the secrets of founding a startup, raising money, hiring and firing, when to enter a market and when to exit, and how to value a company.

Somewhere along the line, entrepreneurs in Startup Land (not to mention tech reporters and investors) got obsessed with the word “billion.”

I don’t know when this happened exactly, but I believe it was at some point after the dot-com boom of the late 1990s. Before that, the rule of thumb was that to raise VC financing you had to show a plan that got “50 in 5,” meaning VCs wanted to invest in companies that could get to $50 million in revenue within 5 years. At some point, VCs insisted they wanted to invest in entrepreneurs building the next billion-dollar company, and they would invest only if you were attacking an appropriately sized multibillion-dollar market!

I blame this in part on Justin Timberlake, who portrayed a fictionalized version of Napster cofounder Sean Parker in the 2010 movie The Social Network , about the founding of Facebook. In the movie, he gives a famous line about one million  no longer being cool; one billion  was cool!

This trend was accelerated by the focus in the tech press on “unicorns,” a term that many attribute to my MIT classmate Aileen Lee, who had been a partner at Kleiner Perkins Caufield & Byers, one of the top VC firms in Silicon Valley, and left to start Cowboy Ventures. She defined a unicorn as a startup or private company that has rapidly grown to have a valuation that is over one billion dollars  and was less than 10 years old. She observed that such companies were “rare creatures” and came up with the term. In fact, historically, most private companies would have gone public well before they reached a billion-dollar valuation.

However, after the financial crisis of 2008 and its accompanying regulations, private valuations of startups began to balloon as companies chose to stay private longer and longer.

As many of these private companies became valued in the billions, everyone suddenly became obsessed with building the next “unicorn.” In fact, today, unicorns seem anything but rare in Startup Land—you can read about a new one in the trade rags every week! It became the prevailing wisdom that if you were pitching to venture capitalists anything less than the next billion-dollar company in anything less than a multibillion-dollar market, they would send you home because you weren’t “ambitious” enough!

The reality is that most successful  companies in Silicon Valley never reach the billion-dollar threshold (either in revenues or in valuation), and many “hot” markets never evolve to be as big as their outlandish projections. Even though there are more unicorns than before, the total percentage of all startups that achieve this valuation is still relatively small. Moreover, by focusing too much on big numbers like this, it’s possible that you’ll miss out on the most fulfilling part of the startup adventure: that of building a company with a product or service that people want and are willing to pay for. Most startups never even get to a valuation of more than $100 million, but that doesn’t mean you can’t build a great company with happy customers with a much smaller market cap. The most money that I and many of my entrepreneur friends made from a startup happened from a company that sold for way less than $1 billion, but we were all very happy with the outcome!

Like most myths, this one does have some  truth in it. Venture capitalists do want to see a significant market opportunity for your startup. But for some investors (myself included), you can actually hurt your chances of raising money by taking this myth at face value and spending all your time focused on the b word.

I remember a few years ago, an entrepreneur pitched me his idea for a billion-dollar opportunity in mobile local payments (this is when “local mobile” companies were suddenly becoming hot). Every other word out of his mouth was “billion”—as in why Andreessen-Horowitz (a well-known VC firm) thought it was a billion-dollar idea and how big the market was going to be.

I wasn’t impressed.

It isn’t that mobile companies couldn’t be worth billions (I believed they could be, eventually), it was just that this guy was too focused on the b  word, and not enough on the winding path that a startup usually takes to get from here to there.

That’s when I came up with the b  rule: The quickest way to recognize a b ullshit artist in Startup Land is when they are too focused on the b  word—billion —whether it’s a multibillion-dollar market or how their company is going to be worth a billion dollars (or more) just a few years down the road.

Now, I’m not saying that you don’t want to attack a big market opportunity or that you don’t want your company to be worth a billion dollars or more—of course we all do! It’s just that the path to get there is in some ways more important than the end point.

Startup Myths And Models
About the Book - Startup Myths And Models

Budding entrepreneurs face a challenging road. The path is not made any easier by all the cliches they hear about how to make a startup succeed?from platitudes and conventional wisdom to downright contradictions.This witty and wise guide to the dilemmas…

About the Author - Rizwan Virk

To read more, order your copy of Startup Myths And Models, by Rizwan Virk today!

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