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Back in April, Facebook acquired Instagram for about $1 Billion. Of course what was most striking was that the company had 13 [...]
Back in April, Facebook acquired Instagram for about $1 Billion. Of course what was most striking was that the company had 13 employees and was less than 2 years old – with zero revenues and no business model. We’ll let all the other analysis surrounding the acquisition speak for itself, and we”ll see how this plays out before judging. But let’s not forget that Google’s acquisition of Youtube in 2006 was a nearly identical deal at $1.65 Billion, 18 months old with no significant revenue and only a handful of employees. Many were stunned and ridiculed Google for the acquisition. No one is laughing now.
Today, in the era of The Lean Startup, investors and venture capitals are strongly favoring the approach of finding a customer quickly, finding a business model and generating revenues soon out of the gate. It’s a pragmatic approach that makes a lot of sense. In fact, it’s hard to argue with the strategy of “talk to to customer, develop the product and make money asap.” But is that always the formula for great ventures?
What interested me about the articles I read about the IPO was how long it took Facebook to become profitable.
Wrong, wrong, and wrong again.
It took five years for Facebook to make a dime. Five years.
How does a company stay afloat while they wait five years before a customer pays them a dime? Investors of course – Angels and Venture capitalists. In Facebook’s case they raised nearly $2 Billion in capital before they went public – and over a half Billion dollars before they ever saw their first revenues. Clearly Facebook is not in the Instagram Generation they created.
For any criticisms tossed at Mark Zuckerberg, one thing cannot be disputed: He built that juggernaut with vision, persistence … and patience. He had many opportunities to sell the company – getting a $10 Million offer from Friendster just a few months after Facebook was formed. And during the same era, there were a host of pioneering ventures that started and were acquired by Google and Yahoo, within months of their founding, for $millions – but few remain, and even fewer are remembered.
The moral here is not that quick flips are bad, or that focusing on short term revenues is the right formula or not, but to reinforce one enduring entrepreneurial truism: Legendary, lasting entrepreneurial successes take vision, persistence and patience – and for those entrepreneurs who don’t have access to unlimited resources – success is a matter of perseverance, above all else.
Written by CJ Cornell
Serial Entrepreneur. University Professor. Software Engineer. Media Executive. Venture Capitalist. Researcher. Marketer. Advisor. Mentor. Author and Speaker. Founded or co-founded nearly a dozen companies in software, digital media and television.
For the past few years I’ve been Co-Director of the Knight Center for Digital Media Entrepreneurship and Professor of Digital Media & Entrepreneurship at Arizona State University, and the university’s first full time Entrepreneur-in-Residence. Currently Visiting Professor of Entrepreneurship & Innovation at New York Institute of Technology and Managing Director at Propel Ventures LLC.
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