July 26, 2011 11:21 pm
Zuckerberg wannabes squander careers
By Luke Johnson
I used to think Mark Zuckerberg’s achievement with Facebook was a fabulous inspiration to entrepreneurs everywhere. Now I’m not so sure.
I’m not referring to his alleged ethical failings, as highlighted in The Social Network. Rather, I am concerned that he sets an example of meteoric success that virtually no one else will ever be able to repeat. But wannabes are trying to copy him, and consequently squandering their careers on false hopes.
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I have lost count of the number of business plans I’ve seen from “digital pioneers” who want to build the next Facebook or suchlike. They are full of extraordinary upward projections of income, mind-boggling growth assumptions, spectacular valuations and heroic demands from backers. I put them all in the shredder. As Samuel Johnson put it: Almost every man wastes part of his life in attempts to display qualities which he does not possess, and to gain applause which he cannot keep.”
The truth is that no other company has ever expanded like Facebook . The vast majority of start-ups do not raise formal venture capital – they fund their operations via family and friends, bank debt, savings, angel investors and supplier credit.
This is the real world of new business, rather than the near-fantasy land of Silicon Valley. Moreover, every VC portfolio is littered with dozens of flops and write-offs – the clones of Twitter, LinkedIn and Zynga that no one talks about.
Besides, while I encourage youngsters to become their own boss, most winners are actually in their 30s or 40s by the time they make it. Experience counts when it comes to management – even VCs know this. To expect to hit the big time just out of university is to court disappointment.
This illusion of instant technology wealth is relatively new. Thomas Edison and other inventors took years to establish fortunes – and many, like John Logie Baird and Charles Goodyear, never did. But for virtually the first time in the history of capitalism, the internet bubble permitted early-stage companies with no tangible assets to raise significant capital based on a plan – but without property, franchises, revenues, patents and certainly no profits.
Astonishing winners such as Google and Amazon distorted the financial world, by demonstrating that enormous amounts of money could be made even though there appeared to be no proven business model. But they did not really change the rules: they were the exceptions.
My experience is that companies generally take from five to 10 years to break through. Those enterprises that are doomed will fall by the wayside in this period – only the viable ones remain. These are the enduring undertakings that are self-sustaining and have potential. They are led by determined founders who are persistent and who have invariably matured over the life of their creation.
The best businesses are not built to sell in a hurry. I am innately suspicious of proprietors who focus from the beginning on an indecently swift exit. I like projects that will last, that can generate cash to pay dividends as a form of financial return, and where the owners are not obsessed exclusively about making a quick capital gain for the financiers. I prefer managers who concentrate on customers, competitors and beating this year’s budget. These are the underpinnings of a genuine commercial venture.
The romantic mythology of a student starting a business on a laptop needs adjusting. Most companies service mundane requirements, quite possibly business applications rather than sexy consumer projects like Facebook. And many companies will be lifestyle businesses, while hardly any will be record-busters. But that doesn’t make them any less valid or worthwhile to the founder.
Warp speed businesses that rise in vertiginous fashion usually decline in a similar manner. The web encourages many entrants, but also seemingly unassailable monopolies – until they are not. For online users are fickle: look at the collapse of social networks MySpace and Bebo.
But at least Mr Zuckerberg is more inspirational than the bombastic television gurus, Lord Sugar or Donald Trump.
Copyright The Financial Times Limited 2011.