Business Builders, Venture Builders, and Venture Flippers.

By Forbes, Oct 2014

Business builders want to build a business and stay in control. Venture builders want to build a business and do not need (or want) to be in control. Venture flippers want to develop a venture (product) and exit quickly for a potential profit. Which is the right strategy for you?

Venture flipping has been a phenomenon in Silicon Valley for a long time, but on a recent visit to Santa Monica, I noticed that it has taken root there also. Since California is now a believer, I can only assume that the rest of the country is not far behind. In this method of developing high-potential ventures, entrepreneurs spend a lot of time “hunched over their computers” developing a product or service, such as an app or game, and then make it available to gamers or users. The hope is to get a sufficient number of users and then sell the venture for hundreds of millions or billions. Recent examples of this phenomenon include Instagram and Ocular Rift.

The key to successful venture flipping is to get millions of users instead of worrying about a business model with paying customers and about satisfying them. Venture flipping is worrying about short-term valuation and an exit strategy. It is not about building a successful business and long-term growth. It is worrying about users, and not about revenues. It is worrying about an attractive exit and not about business infrastructure. It is worrying about valuation that can be promptly reported to the press, and not about boring things like cash flow. It is about coding skills and not about business-building skills. It is about product development and not about business development. It is about building the buzz and courting the press and not about focusing on the product and the business.

Venture Builders’ goal is not just to create an app or a web site, but to actually build a business. Under this scenario, entrepreneurs find a business need, which may include an app or web site, get users and customers, develop a management team if needed, recruit employees, and build the business. As the business grows, the entrepreneur gets venture capital, and the VCs recruit management to run the company. This strategy is similar to hunting for more money to extend the runway while the plane is in motion. The original entrepreneurs stay in a smaller role or leave. Steve Jobs followed this strategy.

Business builders start and build the company, and grow with the venture. A few, especially if they are in Silicon Valley or in emerging industries, get VC as the venture grows and the potential becomes more obvious. Others learn to become capital efficient and fund their growth without VC. The entrepreneur stays on as CEO and keeps the bulk of the fortune created. This was the strategy followed by Bill Gates and Mark Zuckerberg.

So what’s right for you?

Venture flipping works well after the industry has already taken off and the leaders are riding high. They are looking for new ways to boost their growth and are willing to pay huge amounts for sexy products that seem to have potential. To profit from this, you need to know who the potential buyers are likely to be before you start. And then you hope that your product catches on before the industry moves on or someone else beats you to the punch.

Venture building has worked well in Silicon Valley when new industries are emerging. It has created some of the iconic names of American business, such as Google GOOGL +0.00%and Facebook.

Business building is for entrepreneurs who are passionate and dedicated to building a business and are not looking at it as a short-term opportunity. Most of them are unlikely to qualify for VC at the start, and are unlikely to want VC when they start to grow. They want to control their business and build their fortune. And they want to rely on themselves.

Where do you fit?

MY TAKE: I think that venture flipping manifests itself at the speculative end of a growth cycle. Venture building is more successful at the start of an emerging industry. Business building works all the time. Find the one that is right for you, for your opportunity, and for the times. This means that you need to be aware of your industry, your markets, your competitive advantages and the trends. Most importantly – you need to know “you.”

MY TAKE: I think that venture flipping manifests itself at the speculative end of a growth cycle. Venture building is more successful at the start of an emerging industry. Business building works all the time. Find the one that is right for you, for your opportunity, and for the times. This means that you need to be aware of your industry, your markets, your competitive advantages and the trends. Most importantly – you need to know “you.”

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