This is something I wrote for the founders of LeeYong Partners (Link) when "Lee" asked me "what do you think are the common features of successful VC-funded companies in the US?". I was a little dumbfounded that I've not asked this question myself. I have seen numerous companies that were going down the drain, some that were acquired, or others that were getting ready for IPOs. I have seen those across various industries, but it was hard to pinpoint what were the similarities of successful companies that were in different industries.
I know these are very common ideas (for especially those with business backgrounds), but I have absolutely no business background and my business background is as limited as those in the CFA reviewers. But I came up with these somehow.
Both Jungdo and Hyunsuk were very jolly and interesting people, I was instantly hooked on to their intention to travel across Americas and interview various company founders. I asked them if they had any free time to have a meal on Twitter, and they were kind enough to ride up to SF (as they were bike riders) to spend some time with me. Too bad our meeting didn't last long and they are scheduled to leave the Bay Area soon, but at least we ran into each other.
I just wanted to meet these interesting guys and give some cheers in their trip and in their youth (although I am only 2 years older). Also, I was thinking maybe if I could talk well, I could be interesting because I can give them a non-engineer's point of view although I came close with my math background and as a self-proclaimed tech junkie.
I doubt I did any help though because I was not a proficient talker that night - I think I was nervous?! LoL.
Man, I really should try to improve my Korean. I was pathetic, losing my focus in topics and not knowing some vocabularies. But I knew they didn't have issues with English, so that was helpful. My heart goes out to these two fellas. I envy their gusto and their travel.
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The Similarities Among Successful VC-Funded Companies:
The similarities listed may not be something very exclusive, because it’s an overview of companies in different industries. Also, all these are based on the third-person view, an outsider, instead of the view of the company or their customer(s).
The list is not of any particular order. It’s more of a brainstormed list.
1) Massive marketing efforts come in after the product proven to be attractive or the business model was proven to be effective: Business model here is in terms of revenue generation only, rather than profits. It seemed like they trust in economies of scale when it comes to profit generation.
2) People: Can’t stress more on this. Whether it would be their background/network, their expertise in their respective fields, their assets as a person in the position/function is the core of everything. Your partners and people you hire one after another, it matters a lot.
3) Services/Products must be attractive: It must be attractive as a service or technologically effective as a product. It doesn’t have to be perfect. For example, Facebook and Twitter are full of bugs. It looks like they are upgrading like how Windows developed from 3.0 to XP, piling on old codes.
4) Luck: Whether it’s something you create or not, it plays its part no matter what.
5) Must be responsive to customers: You may create a service or product with a certain intention, say A. But customers may use/buy your service/product to use it as B, instead of your original focus on A. If you realize that, make changes accordingly. Twitter was originally meant to be based on SMS messages, not smartphones or real-time information thread.
6) Niche markets must be respected: Niche markets can be successful, but often moderately. Niche market participants don’t seem to be aiming for IPOs. They seemed to be aiming for M&A or being profitable on its own, understandable given the limited market size. But to attack the niche market, you should be an expert of that industry, know well enough what’s the gap that your company can fill in. The size should not be a reason to give up because the niche market can grow to overtake the industry in general. For example, e-discovery softwares or Mac OS X-based virtualization software.
* Although there are many interesting successful companies (among all the companies burning cash with gasoline), Pandora is very interesting. In case of Pandora, it’s a great product created by a musician or a group of musicians. It was a popular product but unsuccessful business for nearly a decade. Business models (they tried numerous things) were not successful until smartphones became popular. With smartphones, business model was proven to be effective on top of the great product. Until then, Pandora had a tough time even to stay in operation with VC investors not willing to invest. With a sound business model, it then attracted industry veterans who were willing to join the operation (for example, Steve Cakebread joined the company as CFO. Cakebread was the Salesforce CFO when Salesforce went public) and more VCs who were willing to invest voluntarily. I think Pandora portrays what we already know: a great product alone is not enough, eventually. It took a long time for it to find a successful business model and until then bankruptcy were just around the corner.
* Even without a successful business model, if the company has a technological niche focus or a respectable market share, it often gets acquired with some enormous premium. The synergistic premium priced by the acquirer is usually enormously larger than any new/existing VC investors are willing to pay to gain some share of the company.
The similarities listed may not be something very exclusive, because it’s an overview of companies in different industries. Also, all these are based on the third-person view, an outsider, instead of the view of the company or their customer(s).
The list is not of any particular order. It’s more of a brainstormed list.
1) Massive marketing efforts come in after the product proven to be attractive or the business model was proven to be effective: Business model here is in terms of revenue generation only, rather than profits. It seemed like they trust in economies of scale when it comes to profit generation.
2) People: Can’t stress more on this. Whether it would be their background/network, their expertise in their respective fields, their assets as a person in the position/function is the core of everything. Your partners and people you hire one after another, it matters a lot.
3) Services/Products must be attractive: It must be attractive as a service or technologically effective as a product. It doesn’t have to be perfect. For example, Facebook and Twitter are full of bugs. It looks like they are upgrading like how Windows developed from 3.0 to XP, piling on old codes.
4) Luck: Whether it’s something you create or not, it plays its part no matter what.
5) Must be responsive to customers: You may create a service or product with a certain intention, say A. But customers may use/buy your service/product to use it as B, instead of your original focus on A. If you realize that, make changes accordingly. Twitter was originally meant to be based on SMS messages, not smartphones or real-time information thread.
6) Niche markets must be respected: Niche markets can be successful, but often moderately. Niche market participants don’t seem to be aiming for IPOs. They seemed to be aiming for M&A or being profitable on its own, understandable given the limited market size. But to attack the niche market, you should be an expert of that industry, know well enough what’s the gap that your company can fill in. The size should not be a reason to give up because the niche market can grow to overtake the industry in general. For example, e-discovery softwares or Mac OS X-based virtualization software.
* Although there are many interesting successful companies (among all the companies burning cash with gasoline), Pandora is very interesting. In case of Pandora, it’s a great product created by a musician or a group of musicians. It was a popular product but unsuccessful business for nearly a decade. Business models (they tried numerous things) were not successful until smartphones became popular. With smartphones, business model was proven to be effective on top of the great product. Until then, Pandora had a tough time even to stay in operation with VC investors not willing to invest. With a sound business model, it then attracted industry veterans who were willing to join the operation (for example, Steve Cakebread joined the company as CFO. Cakebread was the Salesforce CFO when Salesforce went public) and more VCs who were willing to invest voluntarily. I think Pandora portrays what we already know: a great product alone is not enough, eventually. It took a long time for it to find a successful business model and until then bankruptcy were just around the corner.
* Even without a successful business model, if the company has a technological niche focus or a respectable market share, it often gets acquired with some enormous premium. The synergistic premium priced by the acquirer is usually enormously larger than any new/existing VC investors are willing to pay to gain some share of the company.
