A big company or a healthy one?

Many start-ups I know (including my first one), and mainly the ones who need to raise capital from VCs are saying something like:

• Our optimistic scenario - we are the next Google
• Our pessimistic scenario - the revenues are at least 100M USD
• Our realistic scenario - we make several hundreds of millions

The funny thing is that if they don't say it, they will never get the required capital. VCs are looking for the next big thing (one of their gravest mistake in my opinion but this is an issue for another post).

It is obvious that this message is a pure crap (pardon my language). No one know what the next big thing is. In most cases, it is more a matter of luck rather than anything else.

I attended a conference several months ago and I heard a lecture from Mr. Aaron Mankovski (chairman of the Israeli VCs) where he mentioned some interesting statistics. Aaron said that in the last couple of years, in order to have an IPO, a company needed to demonstrate revenues of about 150 million dollars. Aaron said that he checked how many Israeli companies succeeded reaching this goad during the last 30 years and the answer was merely 28 companies.

Once a company broadcasts such a message (internally and externally), it needs to try to deliver. This means that a company is likely to build a solution which is not geared for a specific vertical market (hey, the vertical is too narrow for us) or lie to itself and claim that it builds a generic platform that can serve many verticals, but it will start with only one. As logical as it sounds (I assume many know by heart the "crossing the chasm") it is very difficult to plan a platform rather than a specific solution.

I am not saying, that there are no big companies that had a huge goal to begin with and made it through. I simply claim that this is not the typical case. In most cases, start-up ideas are nice and cool. These ideas have a pretty nice market of few to tens of million of dollars. The team should not be so big, and the marketing budget can be modest. Therefore, the capital raised can be significantly smaller. The company will be focused on a single market and the company is much more likely to MAKE money and grows in an evolutionary natural manner.

This is a healthy company which is a good thing for the founders, the shareholders and the employees.

This also means that the odds to success are much higher. Sadly, many companies that had a potential aimed much higher and failed.