Time Is On Your Side, Yes It Is
Several weeks ago I offered belated congratulations to Marc Andreessen on the sale of Opsware. In my note, I said to Marc:
It shows once again that all good things take time.
Opsware was started in September 1999 and it took eight years to create a business that will have $150mm of revenue this year. It was sold to HP for $1.6bn.
Compare that to YouTube, which in less than two years went from startup to a sale for $1.6bn (of which $500mm was escrowed for copyright settlements), without bothering to create revenues and EBITDA. This is not a criticism of YouTube, longtime readers of this blog know what a fan I am of that service and the team that created and sold it.
Marc responded and in his email back he said:
Time is (in my opinion) the hugely unappreciated and unanalyzed part of the whole startup experience.
In this post, I hope to add some appreciation and analysis of Time to the ongoing discussion of the startup experience, which is one of the many things this blog is about.
This summer I have had the pleasure of watching three companies go through processes which unlocked the value that has been building for a long time. comScore was formed in 1999 and went public (SCOR) in early July. TACODA was started in 2001 and was sold to Time Warner/AOL in late July. And Mercado Libre was formed in 1999 and went public (MELI) in this past week.
I was there at the start of comScore and Mercado Libre and showed up a year after TACODA was formed so I’ve had the benefit of watching these companies develop.
comScore started out with a big idea, to build a “megapanel” the first market research panel of over a million panelists using the web. And comScore planned to use this megapanel to measure not only raw audience on the web, but also what the audience was doing, including commerce. It took the team a bit over a year to build the technology to do this and in the summer of 2000, the service launched. The next three years were hell. Nobody cared about the Internet from the summer of 2000 until the fall of 2003. But comScore kept slogging away. And bit by bit, customer by customer, product by product, line of business by line of business, they built a company that is quite large, growing rapidly, and is dominant in all of its lines of business, and getting more so. And now comScore, instead of resting on its laurels is drawing up big plans for new products, new lines of business, and new markets. It’s a pleasure to watch. When you build a platform with ground warfare, in the trenches, slogging out, year after year, you often end up with something much stronger, that can be extended into new markets easily.
MercadoLibre started out with an obvious idea, to build an eBay like marketplace in the Spanish and Portugese speaking world where eBay had yet to enter with its own service. The team was comprised latin americans, fresh out of Stanford business school and eager to bring the revolution they were witnessing first hand in silicon valley to their home in latin america. But they were not alone. In the first year of Mercado Libre’s operation, we must have seen a dozen “eBay for latin america” business plans. Many got funded and a few developed significant traction, most notably a service called Deremate. That led to a number of years of direct competition to build latin america’s leading online marketplace. Mercado Libre ended up buying Deremate in late 2005 and finally was able to consolidate a leadership position in all of latin america. In fact, comScore’s latin America numbers released several weeks ago show that Mercado Libre’s network is the fifth most visited network in latin america and the number one native latin network (after Microsoft, Google, Yahoo, and Terra) with almost 25 million monthly unique visitors. That’s quite an accomplishment for the team that started Mercado Libre in 1999 and still runs the business today. Again, it took time, a long time, and a dedicated focus on a single goal to make it a reality.
Although I was not there at the formation of TACODA in 2001, my partner Brad was, and I know the story well. After leaving Real Media, the company he formed in 1995, following the post bubble fire sale to 24/7, Dave Morgan started planning his next move. This time was going to be different. He figured it was a good opportunity to start targeting online advertising to people not pages. At the start, that meant building a sophisticated software targeting engine that was sold to leading online publishers. Three years later, after selling about 15 of such systems, TACODA was at a crossroads. It wasn’t making any money, the sales cycles were long, and many of its customers weren’t investing enough to get a return on TACODA’s technology. The management and investors decided to redirect the Company toward an ad network, where the technology was going to be free, the publishers were going to get paid, and TACODA was going to sell the behavioral campaigns. It took eighteen months to complete the redirection of the Company, but once it started pulling in a new direction, the wind was at its back and the business took off. Earlier this month, TACODA announced it was selling to Time Warner/AOL for $275mm, six years after it was formed in the summer of 2001.
What do these stories have in common? Time.
Time works for you if you have the patience to stay focused on the opportunity in front of you, if you have the tenacity to work through the inevitable hurdles you’ll face, and if you have the right kind of financial backers. Time allows you to recover from misteps, to build a team, to generate revenues, and even earnings. And when you’ve done all that, you’ll have the wearwithal to choose when and how you want to exit from the business because you’ll be selling a business instead of a team or a product or a feature.
So, if you are starting a company, prepare for a marathon, not a sprint. Take a deep breath. Commit yourself to the long haul. Let time work for you.
Comments (Archived):
Fred,The story of Sir Ernst Shackleton comes to mind. Persistence, is the key to survival as well as not making a fatal mistake. The horror stories of financial backers pulling the trigger too quickly has caused the death of many potentially great companies. The three case studies you mention here should be required reading for investors.Only certain type of individuals have the stomach for the ups and downs of building a business. The patience as an investor you have demonstrated with these companies, even when things did not go as planned and the successful exits demonstrate why you should be on the top of the list for any founder seeking funding.
… if you’re cash flow positive.reminds me of the Stockdale effect, named after the admiral and Perot VP candidate and former POW. Just substitute IPO for release:Stockdale told him that the end result was never in question, he was going to get out and see his family again. Then the author asked him why some people didn’t make it out of the camp and Stockdale told him it was because they were optimists.He explained that the optimists began by telling themselves and everyone else that they would be out by Christmas and Christmas came and went. Then they would be out by Easter and Easter came and went and eventually Christmas was back again and the optimists had become so demoralized by that point that they literally gave up. Stockdale rather focused on the stark reality of each day and met the challenges of each minute with brutal honesty with the understanding of what the final outcome will be, seizing daily opportunities to advance toward that goal as they presented themselves.
Druce – well said. I often think of myself as an ‘optimistic pessimist’ or is it ‘pessimistic optimist.’ Hmmm.While intervieing one of the long-time execs at National Instruments for a series of articles I co-write on success, he said often “it’s the one left standing who wins.” He said in several cases, they might have been obliterated, but they stood their ground and used time and ingenuity to their advantage.
Most businesses do take time to figure out or to season. In my business, which is an online database, I’ve figured out that databases are like fine wine – they take time to mature and round out.
Great post. What I’ve learned is that the only reason we’re raising money is related to time. With capital you can compress some the time needed to get a company off the ground, at least in the early stages because you can acquire additional resources to help you move faster. So there is a close relationship between time and money.I’d also note that all three of your examples, and Marc’s company, were held up by the 2000-2003 Internet freeze. Take that out and their stories get even more remarkable. Of course they all made critical changes during that period that eventually made the businesses what they are so you can’t discount the value of the years. Makes you think.
In what way the story even more remarkable? What is remarkable is that they were able to raise so much money and spend years trying to figure out what they were doing. They started as LoudCloud and ended up as Opsware and I don’t think the two forms of this company had any similarities or few at best. Again, if you try to raise money you will be laughed at in almost every case if you were to take the money and do the business equivalent of ‘trying to find yourself’ which is what so many of these business do. Moreover, the true bootstrapped, organically-driven entrepreneurs that get and can do it right or mostly right the first time normally aren’t the ones connected to the funds nor do they have the ability to raise funds (in our overregulated society). And the frame of the VC s is often fun to look at. You see if company A who has big heavy hitters comes in and says they need $50 million to do it ‘right’, even though they haven’t a clue, well, the guy who comes in and does it for $1 million or can do it for a million or has done it for $1 million is not seen as incredibly good or smart. No, the VC frame doesn’t allow for that. Instead that entrepreneur is either seen as an idiot OR most likely the VCs just assume that if this fresh-faced entrepreneur can build XYZ for $1 million, then anyone can. The VC frame will never allow in 99.9995 of the cases that the fresh-faced entrepreneur was an Out of Box Thinker that could actually execute.
Time is the proof of value. Amen.
hallelujah!
I think this is one of the best posts of the year. Well done. My company has learned this lesson in a huge way. I blogged a response over at the Triggit blog
Time is on my side…OrTime waits for no one….
I think it’s more important to have a properly constructed deal so that everyone understands ahead of time that ‘TIME’ is good.otherwise, Time is a pain in the ass and creates bad feelings.many VC’s angels and entrepreneurs have no idea about setting expectations and proper deal structure to put TIME at he forefront
sorry for the post – trying to test out Disqus…
I think it is quite easy to say it takes time, perserverance, tenacity or being prepared to run a marathon but unless your business is cashflow positive and you have enough capital or draw to put a roof over your head and food on the table, well, it just doesn’t fly. This is why I say that capital is often like altitude to an airplane. Better to run into a problem in an airplane at 10,000 feet than at 1000 feet. So on the one hand while it is great that companies that are funded stick it out, the fact is, when it isn’t your capital at risk, you are receiving market rate compensation or even near to market rate salaries, benefits, have an office that isn’t rat-infested, etc., well, I frankly could stick that out indefinitely. It really isn’t any suffering at all.
VC funds themselves tell their investors (LPs) they need to wait 5-10 years to understand the value of the VC fund — why would portfolio companies be much different?Except — VC funds get 100% funding commitments and pre-negotiated exit allocations up front, while portfolio companies have to renegotiate both funding and exit allocations every 12-18 months.How did the founders and original entrepreneurs make out financially in these cases?
Too bad you can’t utilize a Black Scholes type model to value the time component for a startup.