Jim Louderback

November 3, 2008

Startup Lessons: Kenny Rogers meets Gary Vaynerchuk

Filed under: Commentary — Jim @ 8:07 pm

image My friend Gary Vaynerchuk put up a video post recently that riffed off of some of the changes we made at Revision3 last week, which included stopping the distribution of his show Wine Library TV. In his post he takes me to task (gently) for waiting for an economic downturn to make tough business decisions.

I could disagree with him, and point out the tough decisions we made over the past year – including taking a chance by releasing an edited version of his show – but there’s definitely a germ of truth in what he says.

However, he’s missing an interesting, and I think vital ingredient that makes venture-backed startups behave differently than many other organizations, and one that makes it harder to make tough decisions while times are good.

As a first time CEO, I’ve learned a lot of lessons, but this was one of the more insidious, because it’s like moving into a tony neighborhood and layering on expenses to keep up with the neighbors. Continuing to invest in less than blue-chip products is similar to adding a gardener, housekeeper, fancy public schools and expensive redecorations to your monthly budget. It just goes with the territory. Here’s what I think I’ve learned and what it means.

Accepting venture financing, at least over the last few years, and definitely in the years leading up to 2001, meant agreeing to hyper growth. You took the money, and made an explicit agreement that you’d double, triple or quadruple growth year over year – revenue, web traffic, viewers, whatever. And for the most part, like taking out a second mortgage to pay for plastic surgery, that seemed rational, intelligent and, well, normal.

But accepting that outsized growth turns you into a gambler. Even relatively prudent folks – like me, who doesn’t even play slot machines in Vegas – can be transformed into the startup version of a riverboat rake, betting some or all of the newfound riches (ie venture investments) on the come line – or even worse, on roulette’s 00.

When the money flows, and times are good, those outsized bets seem, well, prudent. As a CEO who has to live up to those targets, you continue to fund on the come, hoping against hope that your bets will pay off in time for the next board meeting. At a macro-level those bets, apparently, end up paying off once or twice for every 10 investments. That’s better than Roulette and Craps, but just barely. At a micro-level, it can be much worse.

In economic turmoil like today it all changes in an instant. Outsized growth mode morphs into scorched-earth survival, often in a matter of days. Just as today’s households are cutting back on discretionary purchases – borrowing to redecorate, or paying the pool boy out of the pension fund – startups all over, including Revision3, are coring down to the smart parts.

But something interesting happens when you move from growth at all costs, to survival or die. The Riverboat Gambler gets replaced by Ma and Pa Kettle. A husky appetite for risk gets replaced by the VC equivalent of burying your cash in the backyard.

Both extremes are hazardous. Betting on the come keeps you from making those painful decisions at the right time. But backyard burial blinds you to opportunities that could help you bounce back. In retrospect, doing an edited version of Gary’s show wasn’t the right thing to do. But I’m proud of the fact that we tried – for four months. Startups focused on emerging markets have no guideposts – everything could be different tomorrow, so you have to experiment.

Running a venture-backed startup? Beware of becoming a riverboat gambler. Keep trying things and making intelligent bets – but make sure you have the discipline to know when to hold ‘em and know when to fold ‘em – even when times are good.

23 Comments »

  1. I just wish both WineLibrary and Revision3 the best of luck. Both are great companies.

    Comment by Daniel Brusilovsky — November 3, 2008 @ 8:58 pm

  2. I fully understand why Jim and the Rev3 folks had to make the decisions that they did, but it obviously wont feel the same for a while. I’ll miss some of those shows, but I am hoping to see even better and brighter futures for those involved who had to leave.

    Comment by Jeremy Landon — November 3, 2008 @ 9:10 pm

  3. I think this could have been summed up more succinctly. Gary V. is sad that he got cancelled and wanted to blame someone. Wine? Huh? On a tech and geek network? That’s like Heroes on the Food Network. Gary V. is being a poor sport. I think you should cancel more shows… and get rid of those awful viewer questions on Tekzilla.

    Comment by Claudia — November 3, 2008 @ 9:15 pm

  4. Don’t think a response or explanation was really needed. Running a business is rarely ever an easy thing, especially when times start getting tough.
    I think it’s hard for people to understand or appreciate this unless they’ve had a business of their own. (Unless, of course, you’re a complete douche who owns a bunch of expensive toys and is unwilling to take a pay cut to help take one for the team…lol) Personally I think Rev3 will continue to kick ass and chew bubble gum, eventually growing bigger and better. On a side note, Gary V reminds me of Jim Cramer from Mad Money…. I don’t know why… hmm

    Comment by Rafael Nieves — November 3, 2008 @ 9:26 pm

  5. Way back in my corporate days (65,000 employee global mining megacorp), our CEOs were cyclical.

    One would come in and expand, buy up competitors, open new plants, speculate on new mining leases, invest in new technology (my area), and generally push things to the limit. This is the riverboat gambler, and a very necessary part of business.

    The next CEO would come in and be a contractionist. they would look at all that the previous CEO had done, figure out which aspects were profitable, and core to the business. He would then divest the company of the unprofitable units, sell off under performing assets, and consolidate holdings. This is the Ma and Pa Kettle, looking after the farm. Again its a very necessary part of business.

    But thats it – its a cyclic model. In many ways it is a regression model where the swings one way and the other will eventually normalise, and a steady growth pattern is revealed (or the inverse … at which point it is time to bail). Surviving those swings is a challenge. I have been through a startup that didn’t make it – but if it had survived would be booming now.

    I imagine its a thankless job being CEO.

    FWIW – I am a moderator at the Revision3 forums. The backlash from forum users was incredible, but understandable. They are for the most part young, and haven’t experienced the “real world” of corporate life. Its a pity, there are so many lessons to learn.

    Comment by Craig — November 4, 2008 @ 6:57 am

  6. Cluds Jimmy is right I am not mad at all, in fact I think Rev3 did the right thing, I love those guys and with them nothing but awesomeness!

    Comment by Gary Vaynerchuk — November 4, 2008 @ 12:44 pm

  7. A post from the heart, I empathize with tough choices you’ve had to make. Being the cynical monkey that I am, I’d probably have dismissed this post as some kind of spin if it were not for the time I spent listening to What’s new now.

    You revealed yourself as a particularly decent guy on that show and while I won’t really miss any of the shows let go on Rev3, I do miss what’s new now with you on it. Your personality and energy carried that show up to the top of my RSS feeds.

    Another little point I’d like to make. It’s refreshing to see positivity in blog comments.

    Comment by techpops — November 9, 2008 @ 1:05 am

  8. In making programming decisions, it’s common sense the people you’re picking up/keeping are like COOL while the one’s you’re dropping are like HEY!

    Whine with your wine? Yes, please.

    Comment by Vincent Navarino — January 17, 2009 @ 7:36 pm

  9. Eat a dick Lowderback!

    Comment by Bill Nancy — January 24, 2009 @ 1:53 am

  10. Eat a dick Louderback!

    Comment by Bill Nancy — January 24, 2009 @ 1:54 am

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