Building a business at the speed of light may have a downside.
Mel Lay started her business, SandiLake Clothing, five years ago the same way many of you did: She wanted something, discovered it didn’t exist, and decided to make it herself. In her case, she was looking for decorated clothes for her two young daughters that weren’t based on gender stereotypes (think sparkly unicorns on pink garments). So she bought some startup gear, began screen printing in her Portland, Oregon, garage, and connected with a lot of mothers on Instagram who shared her aesthetic and liked her unisex designs.
She had reached the moment when small business owners historically turn to family members or financial institutions in search of cash to help scale up their businesses. Because she had discovered not only a unique niche but also a knack for publicity, Lay decided on a whim to submit an application for ABC’s “Shark Tank.” And she was accepted, bringing her face to face with the source of funding coveted by many entrepreneurs today – the venture capitalist.
We’ve been told that in the digital economy, the old bootstrapping model of building a business is obsolete. Success today is said to require ramping up a business faster than competitors, capturing market share as quickly as possible. If you aspire to be the next Uber, Amazon, or (closer to home) Custom Ink, then you have to be willing to commit to growing the business no matter the cost. And that requires vast capital support. Last year, nearly $100 billion of venture capital was invested in US startups, according to the New York Times, some of it in markets of interest to our audience.
Concurrent with the rise of venture capital has been the emergence of the business model known as the platform. The term suggests laying a foundation upon which things can be built, and at the heart of every platform’s sales pitch is the promise of connecting people and businesses in exciting new ways. But we’re beginning to glimpse the dark underside. Investors encourage the startup to disrupt everything in its path in pursuit of unrealistic growth targets – not revenue, but customer acquisition – in order to eliminate rivals. The ultimate prize, in VC-speak, is a unicorn – a company that can either be sold or taken public, despite its unprofitability, because of its perceived market dominance. The investor’s game is over; the rest of us are left contemplating what to do with ruined industries controlled by unprofitable monopolies. Platforms may be conceived to build, but in practice, they seem destined to destroy.
As the societal costs of VCs – and the companies they helped spawn – become more palpable, enthusiasm for them has begun to wane. In our market, CafePress, one of the originators of online decorated goods, was sold privately to its original owners for just $1.48 per share. TeeSpring, as reported in The Wall Street Journal, experienced a brutal re-evaluation in mid-2017 from $650 million all the way to $11 million.
And SandiLake? Turns out Lay did get an offer on the show, but turned it down because it involved giving up 40 percent of her business and merging with another company. And one of her most popular designs today (for adults)? “Unicorns and Mermaids Are My Favorites.”