Rude VC: Unless you’re publicly-listed, don’t throttle back

Feb 28, 2012
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You may have read about how Lance Armstrong raced the half-Ironman triathlon in Panama two weeks ago. His runner-up finish at the inaugural event confirmed that Armstrong has set his sights on the triathlon world as his next competitive battleground.

Rumors have swirled periodically since Armstrong’s retirement from the Tour de France that he would transition his skills into triathlon racing, a sport in which he actually had already dabbled before becoming a professional cyclist.

When these rumors first surfaced, Ironman columnist Lee Gruenfeld offered some coaching advice for Lance. [As a personal aside, Lee Gruenfeld is a writer, philosopher, and satirist that also happens to be the husband and cheerleader of Cherie Gruenfeld, a.k.a. the « TriBeast », a dominant triathlete in my own mother’s age group who consistently thrashes my mom in every Ironman race that matters, thus keeping « KonaKarin » Bivens’ ego in check and earning my gratitude.]

Gruenfeld’s counsel to Lance comprises a tongue-in-cheek list of tips from an avowed non-athlete to one of the world’s greatest. My favorite piece of advice was this one:

Don’t save anything for the run. Everyone else is going to tell you otherwise. Ignore them. If Michael Phelps were doing Ironman, those guys would tell him to hang back on the swim. You’re the most relentlessly competitive human being since Eleanor of Aquitaine. Telling you to take it easy on the bike would be like telling Al Capone to forgive a few debts. Hammer that sucker! It’s simple arithmetic: The better the lead you have at the end of the bike, the farther ahead you’re going to be when the run starts.

So what does this have to do with startups ?

Lee’s advice for Lance stikes me as equally relevant in the context of venture-funded technology startups. In case you’re not familiar, an Ironman is the mama of all triathlons, consisting of a 3.8km swim segment, followed by a 180km bike segment, and concluding with a marathon run (and yes, that’s all in the same day !). In all likelihood, Lance’s participation in Panama’s “mere” half-distance was a dress-rehearsal for the big dance, quite possibly even the Ironman World Championship in Hawaii in October.

The conventional wisdom for champion cyclist Lance Armstrong when competing in long-distance triathlons dictates that Lance economize some energy during his undisputed leadership in the bike segment so that he can perform strongly in the final run segment. This is considered conventional and wise because for most athletes, balancing physical effort across the three race segments can make the difference between crossing the finish line successfully or finishing in the medical tent. Yet Lance is not your typical athlete, and Gruenfeld dismisses the conventional wisdom in his case.

High-growth technology companies often face a similar dilemma. Should they save something for later, or rather shatter their quarterly financial forecast with the risk of experiencing a dip in performance in the following quarter ? I say shatter.

Sure, there is something to be said for the argument of showing a consistent upward trend, building a nice story with pretty graphs to present to potential acquirers. But I don’t want my portfolio company to « throttle back ». This is the volatile high-tech startup world, not the world of the highly-liquid publicly-traded conglomerate like GE in a market that rewarded Jack Welch for smoothing growth and earnings. Volatility is expected. A temporary dip can be explained and overcome. More difficult to overcome, however, is a loss of momentum.

When a CEO tries to trivialize an underwhelming quarter by pointing to the likely uptick in the subsequent quarter, my stomach tightens. Empirical evidence suggests that the subsequent quarter in question will barely exceed the forecast, and often even fall just shy of it, beginning a pattern of chronic underperformance.

Rather, I would argue that going all out, and not saving anything for later, is a healthy atmosphere in a high-tech startup. It raises the performance bar for everybody inside the organization. Externally, it creates a buzz in the startup’s market segment and can even spur a virtuous upward spiral resulting in more record quarters.

As Lee says, hammer that sucker !