Successful businesspeople may not be risk-averse; they're happy to start electric car companies for the joy of it. Successful businesses, on the other hand, don't think like that.
Ah, but this reminds me. I know three people who have made $500M or more on their earlier businesss who have cashed out and gone on to found new startups. Only one of the three funded the startup entirely out of his own holdings; the other two have other investors involved. I imagine the latter two think that they get more value (advice, connections, etc.) from these other investors (who I think include VC firms) than they give up in equity.
FWIW, the business funded entirely by the one founder eventually failed (I worked there for several years). Arguably, this was a failure of marketing, as we had a small number of wildly enthusiastic customers that never became a large number. Also arguably, had experienced VC firms been in on the deal, they would have made sure that the marketing was done competently.
So I'm suggesting that if you want to start something that you hope will get large, you may be well advised to involve professional VC even if you don't need the money.
I see myself doing this eventually.
So when you say something resembling "you'd expect to see companies like 37signals trying to roll the snowball into something like Twitter but that rarely ever seems to happen", I'm inclined to point out how that misreads the dynamics of companies like 37signals.
† (won't bore you with details, but I have many of them)
Fried and DHH make enough money from 37signals. They are shooting for the moon by contributing to open source and writing bestselling business books.
Because you might have fallen in love with the idea of creating the next big thing? The thrill, the excitement, the challenge of taking a shot at the next big thing?
Joel Spolsky is a great example.
cashing out to who? another lifestyle business?
Large businesses don't necessarily come from small businesses, but many people who build large businesses were once people who built smaller businesses.
This is why successful serial entrepreneurs are so revered. It usually takes extraordinary ambition to succeed more than once.
Tons of companies build big pimped out office and justify it to themselves as being necessary for their future plans. It's one of the signs that you have "arrived".
that is the difference between entrepreneurial pioneers and businessmen. for the former, it is never the money (see gates, zuck, sergey + larry, etc. etc.)
It'd be an odd result, because there are big companies in other fields that grew by bootstrapping and then reinvesting profits. For example, as far as I can find, Wal-Mart took little to no investment before the IPO. I wonder what makes tech different? Is it somehow more capital-intensive, contrary to the usual assumptions? Or is it that it's a lot easier to get investors in tech, so people aren't forced to bootstrap? Or that alternative financing options are harder to use in tech (no equivalent to Wal-Mart's strategy of opening new stores by taking out loans with existing stores as collateral)?
Some interesting data to see would be: what's the biggest tech company that has never taken outside investment? Are there any significantly bigger than 37 Signals?
Edit: Wikipedia says Wal-Mart was doing $340.3 million after 13 years.
http://news.ycombinator.com/item?id=2339287
raised VC in '81, IPO in '86
why isn't an IPO considered an outside investment in this argument anyway? it is, afterall, raising money
the argument should be what is the largest software company that never raised external funding and is still private
That's an interesting question. I'd be curious if anyone knows if,when, and how much venture capital companies like Intel, HP, Microsoft, IBM, AT&T, Motorola, and Tektronix took.
Because many companies work as "media" companies which rely on attracting eyeballs for ads, people get used to not paying for things online which perpetuates the need for VC.
You also don't see very many bootstrapped TV stations.
Also Starbucks: http://en.wikipedia.org/wiki/Starbucks#History
I don't claim to know whether that model extends to tech companies, but with enough time, I'd be willing to take the long side of that bet.
That kind of growth takes money. It's nearly impossible to scale from 3-4 people to 3000 in a couple years if you're self-funded. Now, the article was arguing that that kind of growth is unnecessary; that it's perfectly acceptable to have a business making 100-200k/year. That't true, but it in no way negates the need for VCs and angels.
The "real" beginning of Starbucks was an entrepreneur buying Starbucks and merging it with another couple of coffee shops then expanding immediately at serious pace. It went public 5 years after the purchase.
Mcdonalds is a similar story. Bought and expanded.
It's hard to measure the exact beginning of these businesses, they weren't founded with the intention of raising capital and going big. They did however join that trajectory at some point. The interesting thing is that they joined it very close to the launch point - these weren't small companies that slowly became medium then big, these were tiny companies that stayed small for decades, then they became giants very quickly, almost instantly.
edit: BTW, it is definitely possible of finding companies that grew slowly over decades. But in those cases you probably won't find that they were small businesses for a long time. They spent roughly equal amounts of time as 5 person companies, 10, 100, 1,000 - so you don't here so much about their heritage as a small business. They might have only spent a few years that way.
Something I noticed after I read your comment: The funny thing about both Starbucks and McDonalds is that, in both cases, it took an outsider who became an employee, _not a founder_, to grow the company. Two companies don't a pattern make, but it does make you wonder...
If you looked at a graph of Starbucks and another startup going public at the same time the would look like this
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founding----------------acquisition/
Take Mathematica. You don't think Stephen Wolfram is very happy with his "lifestyle business"?
Is 37 signals artificially limiting their size or are they growing organically?
We don't have much of a history to work from, and the majority of the enabling tools available to us simple did not exist prior to or during the emergence of the current economic and business environment.
I think developments such as Kickstarter provide a glimmer of where things are headed.
Also, I wasn't suggesting that bootstrapping Amazons and Googles would become the norm. Just that you're in a much better starting position when you already have a successful business paying the bills. Especially when it comes time to negotiate terms.