It all started with a heated discussion I was having with one of my WordPress agency partners. Anyone who knows me knows that I’ve been heavily involved in the WordPress ecosystem for a long time, and it’s a fairly different world than my other world –– the high growth tech startup ecosystem, so I get to see both of them side by side often.
This article is about the latter, the high growth tech startup ecosystem.
Among my WordPress friends and other people on the technical end of my social spectrum, there’s often a negative connotation to the term “scaling a business”. It’s kind of like the word “ambition”, which is a negative when pushed to an excess.
Everyone welcomes growth, right? It means more revenue, more income. Yeah but it also means more problems, bigger staffing, higher risk. So no, many people today are just looking to make a good, steady living, be able to pay their expenses, have study income without having a boss.
That’s why a lot of them turn to the agency or freelance model.
Also, web development agencies aren’t really inherently scalable. They are a linear model –– the more hours you work the more you make. You provide a service, get paid for labor. Many of them do scale to a certain size, but it’s linear, based on more labor, reselling other peoples labor.
“Why do you want to Scale?”
A developer and good friend of mine recently learned that I did a lecture series for several years called THE SCALABLE STARTUP. It is a topic I’ve discussed for almost my entire career and very central to my business philosophies. To some people its magic, to others it is confusing or frustrating. People react one way or the other.
My friend Amit asked me “Why do you want to Scale?” As if it was a bad thing. He equated “scalability” to big corporations, growth at any cost, greed, etc., was very negative on the word and concept.
Amit also felt that it ruined the collegial vibe that a tiny company has. “If you mess with a good thing, you can ruin it.” he said.
Now before I continue, let me state that I have a great amount of respect for this person, we were co-founders in a past company, and I’m part-time developer myself so I understand the comfort of a small team that has jelled and works together well. Simple, clean, manageable.
I get it, the dream life of the digital nomad, laptop on the beach in some exotic country or up in the mountains in a cabin. The lone wolf. I love it. I’ve done it! It’s a very romantic notion, and the right thing for many, for some period of time.
But I also don’t think it’s realistic in the long term for most. Grow or die is my motto for tech companies or even a small agency.
My opinion on this frustrates some people.
I never have been against “engineered’ growth –– the practice of trying to purposely, exponentially scale a business. In fact, I prefer it.
Why? Because no company can make their revenue stay exactly the same month after month, year after year. Also exponential growth usually includes some type of unique technology, which provides higher margins, escape from linearity, and protection of the hundreds of competitors all agencies and freelancers face.
The Magic Ingredient
Scaling is the magic ingredient for startups to actually persevere as a business. Anyone who’s felt the power of stable reliable growth knows what I mean.
Continuous growth, at least a little, and a growth mindset together create a positive pressure on a business, force them to expand and continuously improve. It’s more difficult –– adding people, scaling infrastructure, fighting with bigger competitors, but I believe it’s worth it. For any business.
It’s also an incessant challenge –– “We must keep growing!” To me that’s a good thing.
Often when a growth company stalls, they start looking to sell or merge their company, to prevent the slide back down the revenue curve and all the painful things that come with that. That’s O.K., and often provides some wonderful outcomes that wouldn’t have arisen if they weren’t set up as a scalable business.
Growth, scaling, growth, pizza…
One wonderful model for me is my friend Jace, whom I am helping to create a new food ordering startup. There are hundreds of food ordering startups already, so why would anyone do this in 2019, right?. Most will fail.
But we’re approaching it in a very different way, looking beyond the present. We’re designing the platform and pricing so that growth is very slow at the beginning then increases over time. We’re building proprietary technologies that we will use ourselves then expose to the world. Etc., etc.
We’re building scalability into everything.
Excitement
Growth businesses are also more exciting for a company’s team and friends and family and customers. As you build long term relationships with customers, investors, employees, they thrive on your continuous growth and actually help you to continue to grow.
I understand and respect the linear businesses, and I love the simplicity of the agency model, but they are vulnerable to change and competition in the long run.
So consider the scalable model for anything you do.
Pinterest as we know it could be a thing of the past. Beginning January 1, 2015, Pinterest will start putting ads on its site. Real ads in the form of promoted pins. I have mixed feelings about this – I respect their right to do this and I’m happy for them to be able to get a piece of the enormous revenue stream that Google and Facebook dominate, but it will also take away the purity of Pinterest and lessen the experience a bit.
Overall, I say congratulations, you’ve earned it, Pinterest! They will now move up the food chain significantly as Fortune 500 companies can develop more formal relationships with them and build “serious” ad campaigns. All other ad industry professionals and component niches will also take a big step closer to Pinterest. This is like opening up a whole new giant beautiful piece of the web to advertisers.
But there is a cost to this for users. Pinterest is one of my favorite places to go on the Internet, one of my favorite apps. It’s an oasis in the ad strewn desert of social media. There are many indirect ads there already, especially clothing sold by affiliates, but not very intrusive to the experience.
Pinterest is a constant river of pictures, and mostly very high quality pictures, undistracted by ad text or flashing lights. It’s a respite from the rest of the web, with its rectangular boxes of advertising or the sidebar of Google ads – the high value real estate of the web that is rented to the highest bidder.
As a major fan of photography and imagery I like to go over to Pinterest to get away from all that. It’s almost like a relaxation lounge on the web. I’ve slowly built and curated my collection of pins over the past 3 years, with a bit of an eye towards social validation, but mostly to see cool photos. I’ve been pleasantly surprised thousands of times by images I’ve seen. How many products can claim that?
One of the best parts of Pinterest is that it’s participatory, a gamification of looking at photos (and memes and infographics). As you browse build and organize your collection and it shows running totals of several statistics. And there’s minimal social interaction, almost like a library where people tend to be quiet and leave each other alone. A relaxing experience. I even have a board called zen relaxation that I can go to for quiet inspiration.
Pinterest no doubt developed one of the most fascinating products of the last decade, almost as powerful as Google, facebook, and Twitter. It’s addictive, stimulating and makes you smile. Hopefully that won’t change but it could.
The best part of the product is its design. Pinterest pioneered a new type of web page, now referred by everyone as a “Pinterest style”. It’s hard to remember now, but 3 years ago it was revolutionary. That single innovation was more influential than almost anything prior on the web.
Pinterest will do this with a lot of style – use a native ad approach with the Promoted Pin, but it could change them if they’re not careful. They are playing with the big boys now. Giants corporations will have a more formal dedicated part of their ad budget and marketing team focused on Pinterest, like they do now with Google ads and Facebook. Giant corporations will want to “help” Pinterest figure out how to change. Giant corporations will want to acquire Pinterest. Let’s hope they keep their independence as long as possible.
Billions of dollars will be diverted from other ad channels to Pinterest. It could easily tarnish the brand. The fact that they have waited this long to monetize in this way and have built such great brand equity is quite encouraging.
It will also be a great opportunity for advertisers of all sizes, even the little guys. Buying real estate on Pinterest? Awesome!
No matter what happens, I’ll always be a big Pinterest supporter (is there a name for that? Pinterevist?) I hope they don’t hire a thousand lawyers or get acquired, but I trust them to handle this change with the same style they apply to everything.
I’ve been spending a lot of time in the WordPress as a development platform world lately, kind of a new thing for me.
I’m finding many unexpected business advantages in this world for a group of websites I am building to bootstrap a few “baby startups”.
What this has done for me is vastly increase my interest in tactical data-driven marketing on the web –– growth hacking, content management, agile iterative web development and marketing, and yes, even SEO.
The ecosystem of WordPress is actually fascinating and lots of fun, full of solo-prenuers, bootstrapers, hackers, marketers and doers. It’s a somewhat different world than the VC funded startup world that is my day job.
The link below is one of the best interviews I’ve seen, from Collis Ta’eed, a very humble and honest guy who started Envato, a marketplace for web dev themes and many other creative resources.
In a very short time he covers to first 6 months of his company, unafraid to discuss failures, missteps and instances of pure luck. This is the opposite of many startup interviews where the founder claims brilliance and a smooth path and takes credit for everything.
How is it that so many people associated with startups reap the financial benefits, yet others just as close get no financial upside This is a source of frustration among many people in the startup sphere. Imagine if you’re in Silicon Valley right now with no equity in a tech startup, but associated with several people getting six figure “bonuses” because they somehow wound up with some stock in one.
The free parties (or not free) and swag and great stories and boat rides in the bay are nice. Sometimes you’ll even score an iPad or Apple TV, but it’s not the same as being one of the insiders.
Often as startups grow and maneuver their way through the jungle of success or failure, they have a lot of help from those around them.
Often many these people don’t have any equity or upside from their advise or moral support or money lending, or even the spare couch they let you sleep on when you were in their town.
If the startup actually makes it to an IPO, there is actually something you can do.
It’s called the “Greenshoe”. You have to be very careful about this, you can’t imply or promise anything in advance, and it only works when the company goes public, but the Greenshoe is an amazing award for those involved that don’t have equity.
The Greenshoe is an over-allotment of stock options, up to 15% of the total offering at time of IPO. You can offer these options to virtually anyone, friends, family, people who helped your company. Since they’re options, acquirers only exercise if the stock goes up, and have no downside risk or capital outlay.
Upon the IPO event, the option owner can gain the upside if the stock goes up over the initial offering price and essentially collect that difference.
I’ve used it a few times when I was lucky enough to be able to offer it to friends and family. Strangely enough, some people have declined, because they’re not sure it’s legal; they’ve never heard of it. Others have bought themselves a new Lexus with it.
The Greenshoe should provide motivation for all of us in the startup world to try to continuously build our company steadily, continuously and profitably and to know that you can make many peoples lives a little bit better by sharing the wealth. The rewards are pretty amazing.
As further market proof of the power of Drupal in the enterprise, Acquia has received about $100 million in funding in the past 3 months, which puts its valuation at over $1 billion.
There’s a lot of buzz about the Amazon acquisition of TWITCH this week. As a personal friend of the original investor, I’m very happy for this transaction – after 7 years of work, repositioning, and sticking to it their vision has paid off. But that’s a different article…
Less prominent in the news, but possibly more important, is Amazon’s investment in ACQUIA. Acquia, Inc. is the for-profit company founded by Dries Buytaert, the inventor of Drupal, to support his open source project. Drupal was launched in 2001, and Acquia started in 2007. When Open Source software projects are launched, the progenitors often start a for-profit sister company to garner some income from training, support and consulting. Because they are open source. the original products can’t generate revenue, so when these OS projects occassionally blow up into phenomenons like Drupal and WordPress have over the past few years, it’s gratifying but also quite frustrating to watch others derive so much value from your baby while you toil away to lead its growth with no financial return. Plus, there are tons of expenses like servers, bandwidth, office space, travel and the time of many professionals.
Red Hat was one of the first of these types of companies bridging open source with big finance, leveraging Linux support into a profitable business, also leveraging the enterprise. They kind of invented this business model. Sun Microsystems and others almost made it happen, but they were only semi-free. Google has optimized this open source to freemium model in almost all of its products.
But Drupal has succeeded way beyond it’s original expectations. It was originally started as a college dorm project, where many of the best products on the web seem to hatch. It gained recognition during the 2004 presidential campaign when Howard Dean’s IT director decided to use it as a platform for community and campaigning. After that it quickly gained credibility and spread throughout government, and corporate America.
Drupal is now driving some of the largest and most critical websites in the world, including The White House, The Oscars, Twitter, Mercedes Benz, Warner Music Group, The Louvre Museum, The City of Los Angeles and Stanford University. Over its 13 year life the web has vastly changed from primarily static pages to dynamic database driven automated (“rendered”) web page serving, which Drupal excels at. The average website size has also greatly increased, aided by automated rendering systems like Drupal and others. The term Content Management System has become mainstream in everything from the Fortune 500 to small businesses.
Some of Drupal’s success has come from luck, but most of it has been because of strategy and excellent timing. Dries has carefully pushed the technology not to the bleeding edge, but towards the modern edge where enterprises are comfortable. He and his team have avoided many temptations to try new fads, make big changes and try to grow faster. Currently they face enormous pressure to innovate faster, and are responding with Drupal 8, which will incorporate many new modern web architectures previously not part of the Drupal platform.
Acquia has been critical in supporting, guiding, enhancing and positioning Drupal for the past 7 years. It was a startup that launched with funding from day one and has never looked back.
Amazon’s motivation in buying into Acquia is a bit more self serving. Acuia provides premium, high security, supported hosting to it’s customers, which all runs on top of Amazon AWS. Amazon can see that some of AWS most robust and challenging work comes from Acquia with Drupal. For example, Acquia runs its Drupal infrastructure on more than 8,000 AWS instances and serves more than 27 billion hits a month (or 333TB of bandwidth). Amazon has a strategic value beyond many other companies or VCs in their investment.
What will come next? Will Amazon try to acquire all of Acquia before the inevitable IPO? I think we can bet on that.
This is a very contemplative time for Buytaert – he has fierily protected Drupal’s independence and strategic positioning, taking risks but protecting his large customers from drama, can he keep Amazon and Bezos at bay? I have no doubt he will, for he is a true “Startup CEO”, even though his title is CTO at Acquia.
This is one of my favorite quotes about innovation, by an innovator who is still revered 100 years later; it’s the first thing you’ll see if you go to my personal website http://tomnora.com/ . Matisse was an amazing innovator, and his innovation and originality
Innovation, Originality, Creativity – why are these things so important in the tech startup world? And what do they have to do with art or painting?
I have the opportunity to visit many secondary and tertiary startup markets in my travels, meaning not Silicon Valley or New York, and one of the things that always strikes me is the lack of originality in almost every company pitch I see or hear.
I can see that the entrepreneurs I meet are sincere, have usually put a ton of work and pride ion their invention or product. Often they have put a fair amount of personal or family capital into the venture (these days that’s usually their parents money).
The major flaws in their planning process are denial and ego fortification – they don’t do enough homework to see how many are already doing something similar because they don’t really want to know; and they highly overrate themselves as amazing entrepreneurs. This is a bad combination for success, but I see it daily.
I get it; I know it’s more difficult than ever to build a real career and easier than ever to start a company. But the very core of creating an interesting and new business should be the concept of originality. Some originality, enough to be different, unique, without being too weird.
Real originality comes from within, because it is inspired, comes from adrenaline and emotion, not from a spreadsheet or desire to merely make money. Finding the mid point between originality and capitalism is what I define as business innovation.
There’s nothing new under the sun, so you must critically modify, hack, or turn sideways existing systems with a truly new vision. Instead of just copying or slightly modifying something you see, try to take it a few steps further.
One of the quite innovative methods Matisse and his peers used was finding inspiration from other skills they already knew, leveraging their expertise as craftsmen. Matisse was a draftsman, a printmaker and a sculptor, and you can see these influences in his paintings.
Part of the magic of great business innovations is knowing which rules to break. Matisse broke some of the rules, but kept many intact. The rules about the way business processes flow are too often just accepted, but if you can analyze them, find an achilles heel, then innovate a better answer. Get rid of the obsolete rules without breaking the good ones, and great things will happen. It’s about where to hack and where not to.
I went to a pitch fest in one of those secondary markets the other day. Most of the presentations were weak delivery, boring, been done before and uninspiring. But there was one that was pretty amazing, by an 18 year old who had become deaf at 12. He has developed an exercise system for handicapped people; you tell by his excitement and thought process that he was inspired, and created true innovation. He wasn’t polluted by how corporations work or the rules of business – he was still in high school.
Another Matisse quote is “There are always flowers for those who want to see them.” Look carefully, take the extra time and find the uniqueness in any idea you want to realize – it’s there. Find me on twitter at @tomnora
