One of my all time favorite movies is Rounders.
Rounders is the story of two broke card sharks—played by Matt Damon and Ed Norton—faced with the daunting task of paying off a large debt to some Russian gangsters in just 5 days. If they fail, the gangsters will (of course) kill them.
It’s a fun 90s classic that still holds up well 20 years later.
But it’s also a fantastic metaphor for what’s happening in the world of tech startups today.
The opening monologue captures it perfectly:
Listen, here’s the thing. If you can’t spot the sucker in your first half hour at the table, then you are the sucker. Guys around here will tell ya, you play for a living, it’s like any other job. You don’t gamble, you grind it out.
Your goal is to win one big bet an hour, that’s it. Get your money in when you have the best of it. Protect it when you don’t. Don’t give anything away. That’s how I paid my way through half of law school. A true grinder.
You see, I learned how to win a little at a time. But finally I’ve learned this: if you’re too careful, your whole life can become a fuckin’ grind.
The monologue sets the stage for the entire movie. Matt Damon’s character—Mike—responds to the gangsters’ threats the way he always does: he grinds it out.
Ed Norton’s character—aptly named Worm—is newly released from prison and seemingly savvy in the ways of the world. And he knows grinding it out won’t earn them the money fast enough. After all, they only have 5 days.
So he takes shortcuts. Counting cards, dealing off the bottom of the deck, and every other trick in the book he can think of.
Spoiler alert: Worm’s shenanigans turn out painfully for both him and Mike, upsetting some rather angry cops who beat them within an inch of their lives.
Bootstrappers as Grinders
So how does this relate to tech startups?
The parallel between Mike’s strategy of grinding it out and modern day bootstrapping is obvious. Get your money in when you have the best of it. Protect it when you don’t. Bootstrappers build their businesses slowly, even arduously, but surely. Eventually $1 becomes $100, $100 becomes $1000, and so on.
It takes time and the payoffs are modest.
VCs as… You Decide.
I’ll leave it do you to decide whether venture capital firms, the people who invest in their funds, and the startups those funds back are the Worms or the suckers at the table in this metaphor.
With dismal success rates for VC-backed companies, and the horrible track records of the funds themselves, as well as plenty of unscrupulous VCs, unethical behavior, and downright scams, a case can be made either way.
Don’t get me wrong. There are some fantastic VCs out there, too. But it’s obvious that the game in venture capital is to bet big, move fast, and demand increasingly large returns quickly.
Often, these expectations are entirely ridiculous.
Picture going up to a local pizza shop and saying, “How will you ever do well if you have no plans to scale to be a national chain?!”
That’s a lot of tech’s attitude toward starting a business, and it’s really quite silly when you compare it to other industries
— Stephanie Hurlburt (@sehurlburt) December 14, 2017
The Middle Path
So if bootstrapping takes too long, and VC money is akin to something between a con and a huge gamble, what’s a growth-minded entrepreneur to do?
I’m increasingly excited about a third path. One that relies on a steady, but modest, stream of revenue to fund larger moonshots.
37signals successfully leveraged this strategy over a decade ago, using funds from their web design shop to fund and build BaseCamp.
Since then, their story has gotten plenty of attention, but the idea itself has been misinterpreted repeatedly. Design shops owners have called it a myth after failing themselves on their first try, and countless others have taken the plunge full-time into developing products while abandoning the steady stream of revenue they built in the first place.
Talk about missing the point!
The 37signals approach works because it’s about reinvestment, diversification into other businesses, and making reasonable bets safely. Instead of being the startup, you get to be the VC yourself—without any of Worm’s shenanigans.
If making calculated bets worked for Warren Buffet, surely it’s good enough for the rest of us.
This idea may be an old one, but I think it deserves a revival in 2018. After all, if you’re too careful, your whole life can become a fuckin’ grind.