Altos Ventures Musings

Questions, thoughts and observations about venture capital, entrepreneurship, investing and business.

No Substitute for Time

“People say sometimes, ‘You work in the fastest-moving industry in the world.’ I don’t feel that way. I think I work in one of the slowest. It seems to take forever to get anything done.”
Steve Jobs, Rolling Stone Magazine, 1994

No Substitute for TimeLike many things in life, there is no substitute for time. A solid enduring company takes time to build for a number of reasons.

Markets take time to develop. How many times have you encountered venture-backed companies that reminds you of startups that failed years ago? These companies were too early to market. The infrastructure wasn’t there the first time around. The experience wasn’t right the first time around. The customers weren’t ready the first time around. Startups, by their nature, are early to the market and they have to wait for the market to catch up. Many startups try to push markets to develop faster with evangelical selling and marketing, essentially substituting time for money. But, success is rare and certainly expensive. More often than not, they pave the road to riches for companies that follow them.

Companies take time to develop. Look at the history of “overnight successes” and you’ll find that they actually took many years. That’s certainly true of many of the larger and enduring companies in Silicon Valley. On average, venture-backed startups take seven to eight years before an exit of any kind. Looking at IPO’s over the past several years (post-bubble), companies take an average of eight to nine years to exit. Products take more time to perfect, business models require more experimentation and sales take more time to ramp than expected. Some of the best companies we have backed have taken several years and several course corrections before finding success.

Managers take time to develop. Nothing beats learning from experience, but this takes time. You can try to learn from others, but nothing leaves as strong an impression as personal experience. Over the years and over the dozens of companies we have backed, we’ve come to recognize that certain pitfalls develop time and time again. We’ve found that no amount of cajoling or arguing can keep management from avoiding certain types of mistakes and that in some cases we shouldn’t try.

There’s no better teacher than reality. We try to minimize the impact of mistakes and help avoid repeating them. Many companies seek to circumvent the need for time by throwing out the founders or current management and parachuting in “proven” people with built-in experience who have “done it before.” Unfortunately, they’ve done it before elsewhere. Each company, especially at startup, is unique and offers different lessons to learn. And by jettisoning existing management, the company can lose valuable experience and learning that has already been acquired.

That solid businesses take time to build seems obvious. Yet again and again, we see entrepreneurs who present business plans that show growth from zero to $100 million in five years or less. Again and again, we see investors who want or expect such growth and dismiss companies with smaller numbers as unsexy, unambitious, niche opportunities.

All of this is not to say that a startup need not move fast or that we’ll wait around forever for people to learn from mistakes. Let’s not confuse the fact that some things take time with a low sense of urgency, moving slowly, or tolerating inept management. A startup should always move as quickly as it is able. It is the ability to move quickly and nimbly that gives a small company an advantage. But if a startup is moving so quickly that it is years ahead of the market, or never has a chance to develop a sustainable business, or allow its people to develop the skills to run the business, it will not develop into a solid enduring company.

All of this is to say that entrepreneurs and their businesses should be pragmatic even as they keep pushing harder and harder, trying to do what may seem impossible to those with less faith. Decisions should be made understanding that some things just take time. A startup should be capital-efficient. The cash burn should be low so that you can wait out immature markets, so that you can experiment with the business model, so that you can change course when necessary, so that you can learn from experience, so that missteps are less costly. Managers should question the rate of growth, especially in the early years. How ready is the market in reality? Do plans account for the time necessary to tinker with the business, the fact that people need time to learn, the reality that many of the new hires won’t work out?

As they say, you can’t put nine women in a room and deliver a baby in a month. The process can’t be rushed. The same is true of a truly good company. We back entrepreneurs who appreciate this and plan for it.