VC weighs in on bootstrapping leanness
And lest I be accused after the past two posts of being too stridently anti-investment, consider what one Venture Capital advisor had to say about the importance of leanness to investors while commenting on a previous post.
James Chen, senior advisor for CXO Ventures, Sacramento, CA, and a director of CXO Private Equity and American River Capital Group pointed out:
Most people starting a new business tend to think that they should "appear" larger than they are – renting an office space, getting a mailbox address, hiring someone to answer the phone, having a jazzy website.
I tell all entrepreneurs the same thing – do not waste your time and money appearing larger than you are. We will find out what is behind the smoke and mirrors no matter what.
When choosing entrepreneurs to invest in, Chen says:
We actually favor entrepreneurs who don't have an office, only use their cell phone, and outsource or hire sparingly.
Why?
… a good entrepreneur knows that what matters the most is the real business, not the appearance of the business. If you look at Ebay as an example, you will see one of the most well run and profitable web companies with perhaps the ugliest and most horrible looking website! Functionality is sufficient and they are smart not to mess with a good thing.
This can even be important when it comes time to sell your business, Chen says, adding:
…when it comes to selling your business, your acquirer will take a close look at your debts and future obligations. No lease? No full time employees? No contracts? All great things that will make the transaction occur very quickly.
Chen also has a blog called "PureVC: A blog about venture capital, private equity, technology and the markets…"
Thanks for the comment!
October 24th, 2006 at 12:16 am
There’s a wealth of info here, glad I found your site.
February 5th, 2007 at 9:41 am
The purpose of starting and running a business is to make a profit. When entrepreneurs spend money on anything that will not directly increase bottom line profits, then it will be wasted money. Spending money for show is not beneficial. Yet, our famous media, many supposed business pundits, and even VC’s are only impressed with the show of size and success. They encourage the thinking that if the owner is driving a new, very expensive car, this can only mean the owner and business is profitable. Another popular “show” measurement is the famous revenue benchmark. Businesses are regularly rated by the size of their revenues. When in truth, only the amount of the profits counts.
Smart entrepreneurs focus on the profits and only reveal their successes when they have to. In fact, when you read the “Millionaire’s Mind” you will learn that the successful business owners actively disguise their wealth. Being lean is not only smart, but also necessary to profitable successes by entrepreneurs.
Keep emphasizing leanness. You are helping any entrepreneur who will listen
March 11th, 2007 at 1:38 am
“Most people starting a new business tend to think that they should “appear” larger than they are – renting an office space, getting a mailbox address, hiring someone to answer the phone, having a jazzy website.” I like this most. Show off is useless.
December 3rd, 2009 at 9:43 am
Smart entrepreneurs focus on the profits and only reveal their successes when they have to. In fact, when you read the Millionaires Mind you will learn that the successful business owners actively disguise their wealth. Being lean is not only smart, but also necessary to profitable successes by entrepreneurs.
December 22nd, 2010 at 8:51 am
jo