In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.
Here at Zyme, I’m having my third run as an entrepreneur and CEO. My background is building businesses and creating something out of nothing. I’ve always been fascinated by this kind of thing, whether it was starting a school newspaper or starting a club.
In the early 1990s, I established a startup. I worked on it for three years, but it never got off the ground. The company was attempting to solve a problem that then was an idea whose time had not yet come.
It started with a small team and I had not raised external money. I had tried to get the company off the ground with just sweat and passion, but it never succeeded.
I started another company, during the dot-com bubble era. There was a lot of venture capital available, and I found out that I was good at raising money.
With the company I started in 1999, I raised $25 million in a two-and-a-half-year time span. In 2000, soon after we introduced a product to the market, the market burst. No one was buying software at the time.
Because we raised as much money as we did, we hired large numbers of people. Within 24 months, I had to lay off 75 percent of the company. Nothing teaches a lesson more than bringing a lot of talented people into a company—and then looking them in the eyes and saying,
"I got it wrong."
So, I’ve seen both ends—raising too little money and raising too much money. I feel like Goldilocks at Zyme; I got it just right.
It’s a question of how not to raise too much money. It’s a tricky question that’s often gotten wrong by many people.
The amazing thing about venture capital firms is that they give you the runway to go test an idea in the marketplace and you can see if your vision can be actualized as a commercial venture. But the danger is that it allows you to build a business and and hire super talented people without knowing if customers are really buying the product.
So, there’s a pitfall of building a business too long without a real market test. Your company can survive without customers and without actually making revenue.
Another pitfall is you’re not as focused. You don’t know if you’re building too much product, as opposed to building just enough to deliver the product customers want. By keeping in touch with customer demand, you can find out whether the market is having a downturn.
We’ve seen in the Valley there’s been a small correction involving companies that haven’t learned how to build profitable business models because they’ve raised too much money.
These companies don’t get that they are not in an insulated cocoon. They are not learning about running a profitable business, about having customers and making money.
When there’s too much venture capital funding, the fundamentals of business get distorted. Companies need to return to the fundamentals of their businesses.