The VC quandary (maybe don't even try out for the NBA)


Glenn Fleishman:

Getting big slow has its advantages. You retain control. You disappoint fewer people. You can pay yourself. If you’re lucky, you have money you can use to buy a house or pay off a mortgage, get a nice car or start a charity. When and if it gets too big for your scale of comfort — for Marco, that was “beyond his ability to manage himself” — and you’re profitable with happy users, you can find someone to buy it, often with the same set of beliefs.

We need to move beyond the NBA as a model of starting businesses. We need to move beyond users and revenue as a measure of success. And a business that accepts investment without revenue nor a clear plan to profit hasn’t beaten anything — not even the odds.

I’d just finished listening to the latest episode of CMD+Space with Marco Arment when I read this article by Glenn Fleishman, editor of The Magazine. They both made the same point in very similar terms: there’s really nothing wrong with getting paid up front for something you do, even if it hinders you from making quite as much long-term profit as you could have.

It struck me that there’s a definite parallel between the paid-service/venture capital dilemma and the quandary that faces a lot of starting freelancers. Work for free to build up a portfolio, or charge something right off the bat? If you build up a great portfolio of free work, you might just land that monster client and strike it rich. That’s the thinking, anyway. This was a question that I answered the hard way. Really, in all my time as a freelancer I never quite managed to internalize the following wisdom:

The more you charge for what you do, the more value it’ll be perceived as having.

Within reason, of course, and within the scope of your own ability to provide good service to your clients. You do need some kind of portfolio, in order to prove to people that you’re worth hiring. You might do the occasional piece of work on spec, or for extremely low prices, to help out a friend or build goodwill.

Just don’t get stuck in a penniless rut of portfolio building. Value yourself first and foremost, and others will take the hint. If you do something for free, make sure that the person you’re doing it for knows what it should have cost. There’s a lot of people out there peddling advice for freelancers, so I won’t overdo it. You get the point.

I know these things to be true precisely because I’ve failed at them so often. I learned a lot about business when I was a freelancer, mostly though being burned by my own bad business sense. Hindsight is 20/20, etc.

Sure, if you won’t work for free you are going to narrow your viable market down significantly. The parallel holds true here as well. But would you rather have hundreds of clients that never give you a cent, or a few that pay the bills?

Because, you know, it’s all about the Benjamins.