I Hate VC Firms
On what follows the influx of cash from a VC deal.
As it was reported by FOLIO: on March 29th, our long-time competitor, Texterity, has been acquired by Godengo. That same day, actually hours later, a venture capital firm contacted me and asked if I had heard the news. They then wondered if they could help me "keep up with the great things that Texterity and Godengo were going to do together." The question made me pause and take stock in what indeed had happened. Then it brought a smile to my face.
In my opinion, venture capital is definitely one direction a company can go when you need money and are growing a company. Many great companies have started that way and went on to do great things. However, I also believe this same strategy is a reason many companies have failed over the years. What follows the influx of cash from VC firms is generally a call to grow the company via customer acquisition, with little regard to making a profit. The model dictates that if you only get more customers, the rest will take care of itself.
Unfortunately, it doesn’t work that way. Profits are really what allow that company to pay back investors or make the company so profitable that the venture capital people will get the payday they so desperately seek. If and when that doesn’t happen, then you are expendable and subject to a merger, with the goal of the repackaged asset looking more valuable than it was before.
My partners and I determined long ago we were going to grow our business organically; taking anything we made and pouring it back into the company to grow Nxtbook into what we know it could be. It’s not always easy to do that, given the promises of easy cash that can be achieved now through VC funding.
Since 2003, I have received calls or emails from 27 different VC firms, most of them multiple times over the years. These calls hit a frenzy in 2008 when we were named 303 on the Inc 500 list of fastest growing companies in America. Calls ranging from, "I just wanted check in and see if Nxtbook was ready for an investment yet," to "We will stay out of your way and let your team run the business" and my favorite, "You won’t even know we are around." Each time we turned them down because we knew what the investment would ultimately mean; we would lose control over our own business.
Like any industry, but especially prevalent in our industry, most of our competitors are funded by venture capitalists and seem to work hard at customer acquisition while not working at all to generate a profit. I draw this conclusion based on how many are providing software almost for free or charging very little for their product. Obviously customer acquisition is paramount to their play, since they long ago abandoned profit as a core to their business.
This lack of profit translates directly into a lack of customer service. How can you have any customer service, much less good customer service when you aren’t making money to pay the people who provide it? Over time, this results in the changing of what was once a feared competitor. That change begins when the people who were the core of the company leave or are asked to leave because the company can no longer afford their talents. These people leave and the knowledge they have about the company and the industry is lost forever. Who sees it most are the customers who expected certain service levels to be maintained, yet those levels certainly erode over time.
I strongly believe that as a company your business life is made of choices, what you do and how you grow is all part of your business, your core fundamental belief in where you will travel as an organization. We as a company are here to make a profit. Not a crazy rich profit but one that provides an ability to grow as a company and keep up with the demands of the rapidly changing technology sector. We make that profit simply because that profit allows all things to be. Without it, we would be just another failed digital supplier being combined with another company with the hopes of something relevant coming out the other side.
We know that we are relevant right here and right now. Our customers depend on us to have a great product backed up by service that is second to none. I’m not saying we always hit the target exactly in either area but I assure you we have and will continue to do our best in both regards. That is what makes us a great company, always striving to be the best partner to our very valuable clients.
Our employees depend on us to be around a long time and provide great benefits and good solid living potential for each and every one. This is a responsibility that we don’t take lightly. They commit to give us with their best and they certainly deserve the same consideration in return.
Lastly, our community depends on us to be a light or shining example of a technology company right here in Lancaster, PA. We have no intention of shying away from that responsibility. We work in the community to show young people what is possible in technology without having to move away from home. We provide students job-shadowing opportunities, fund classrooms, and provide speakers to classes or invite teachers to Nxtbook to see us for themselves.
We feel all of these things are important to us as an organization but most important to us are you, our customers. We want you to know that we will continue providing strong product offerings backed up with customer service that is the best in the business. We are built for the long haul and I want to personally assure you that we will be here for you as our industry continues to move and shift. We won’t let you down.
Michael Biggerstaff is the chief inspiration officer at Nxtbook Media.