Organic growth vs the brass ring approach

Most people know that there was a tech bubble and that it burst. People in the industry have actually marked and named the periods before and after the bubble as pre/post bubble.

Pre-bubble all a person needed was a bit of a track record and a good idea and money was made available. Post bubble money has all but dried up. In order to start a new tech company post-bubble you need a good idea, a solid business plan, and you will have to negotiate with an angel or bank that will impose terms that could be described as “less than optimal”.

There are some organizations that are truly trying to promote tech growth, but they are few and far between. There is a valid argument that says a good business plan is essential and that pre-bubble investors were just plain insane. Before we go down that road however, let us ask the question “What was the process before technology changed the investment world?”

In the beginning, companies established themselves using something called “Organic Growth”. “Organic Growth” means that an individual has an idea that he/she turns into a business. This may involve a small personal investment or he/she may pull together a business plan that attracts a small outside investment. The seed capital is used to get the company started and the product sales or services allow the company to quickly turn a profit (usually within the first year). Growth happens at a much slower rate, but the company builds on a solid foundation and expands as markets and profits allow.

Post-bubble we have seen a return to more cautious investment, but it is still rare to see a new start-up that approaches an opportunity with a business plan that promotes organic growth. This could be because investors are still looking for a faster return on their investment, or it could be because better funded competitors are waiting in the wings to steal your idea and beat you to market.

Many new start-ups will go through a period called “Stealth Mode” where they quietly flesh out their idea and solidify their business plan. “Stealth Mode” means information about what the company is doing is very closely guarded allowing the company time to build an initial product or prototype. Once everything is in place, the company emerges looking for investment that will allow them to productize their idea and stay ahead of the competition.

Patents and copyrights offer other forms of protection, but they require time and money to complete which is not always available during the stealth mode period.

A “road map” is something that investors generally look for to determine the companies longer term potential. The road map details the companies product roll-out allowing investors to forecast potential growth. An organic road map would show slower but steady growth where traditional tech company road map would have the proverbial hockey stick showing exponential growth.

What makes more sense? That is a difficult question to answer. I suspect that as in most things a hybrid approach will deliver the best results.

 

 

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