Entrepreneurs: Go as long as possible without taking venture capital

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Often I get asked the question: when is the right time to take venture capital? My answer is: Never. Unless you absolutely need to take a round, the best way to start a company is by bootstrapping it yourself.

When I founded Shutterstock in 2003, I decided to take a different route than most entrepreneurs. Way too typically, one would put together a business plan and find funding. What most people don’t realize, is that there are plenty of tools out there to start your own company with just a few thousand dollars. If you can figure out how to avoid an angel or venture round, you will have much more control in the long run. This isn’t always possible – but I would recommend trying everything you can to remain independent.

Eventually Shutterstock did a growth private equity round five years in. At this point in the company’s lifecycle, we had much more control than we would have in the venture phase.

What are the advantages to bankrolling and not taking venture capital?

  • You will fail faster. It took me 10 tries to get to Shutterstock. Most of my startups never made it off the ground. Being an entrepreneur means being able to pivot quickly, shut down a business that isn’t performing and move on. If you use somebody elses cash, you may be forced to continue even though you know it’s time to move on.
  • Every dollar counts. I was hyper-focused on ROI from the start when I was buying Adwords keywords. Since I could feel the money moving out of my own bank account, I was very sensitive to my return on investment. There was no room for error. This efficiency later translated into a complex lifetime value calculation that drove our acquisition model to this day.
  • You will concentrate on profitability from the start. All businesses need to create value at some point to survive. While some companies have had successful exits without profits, they are few and far between. By building profitability into your model from the start, you will be able to start scaling. Self-funding will force profitability thinking at every stage.
  • You will own more of the company later. The earlier you are subjected to dilution, the less of the company you will own in the future. Venture capital rounds often involve loss of control, and a majority of the company to be sold.

What are the advantages to taking venture capital?

  • I recognize that self funding isn’t an option for everyone. If a large amount of capital is required and not taking on a venture round will be truly detrimental to getting your company off the ground, then by all means do whatever you need to do.
  • Often venture partners provide support with areas that the company is weak in. If you need help hiring, scaling, or operating, often a venture partner can provide this help as part of the deal. If you don’t take capital, you’re on your own.

How do I make sure that my startup uses as little capital as possible?

  • Use as much open source software as you can. Use MySQL instead of MS-SQL/Oracle. use Linux (and specifically free versions like CentOS instead of Redhat). CPAN alone has over 120,000 perl modules that are already written – so why re-create the wheel?
  • Learn how to code. There are great affordable online learning platforms that can help you learn how to code, create html pages, link up databases, etc. Learn as much as you can because the more you can do yourself, the less you will have to hire.
  • Be every job. It may seem overwhelming, but it’s possible. When I started Shutterstock I was the customer service rep, the website developer, the first photographer. By making sure I gave each role a shot, I knew exactly how what I needed so I didn’t over-hire  I wasn’t necessarily good at each job, nor was my expertise even close to each job, but I learned a ton and got to delay some hiring. This culture of lean innovation is still very much alive at Shutterstock and has contributed to much of our growth.
  • Use your product as if you were the customer. Not only will you get to know your own product better, but you’ll be doing quality assurance work and testing throughout the process.

Bottom line is that it isn’t always possible or practical, but the longer you wait to raise money, the better off you and your business will be.

Businessman Sitting at Desk Image from Shutterstock / ollyy

Why going exclusive as a microstock photographer doesn’t work.

Shutterstock has gone through many iterations to become what it is today. I started with 30,000 of my own images – and today we have a dynamic marketplace with over 20 million assets, 35,000 active contributors, and more than 550,000 customers. Today Shutterstock is the volume leader in the stock photography space, selling more than 2 images per second.

The marketplace for imagery that we’ve created could have gone in several directions, but we’ve learned a lot about both image buyers and image sellers over the past 9 years. I often get the question from buyers, sellers, investors, and press: “why don’t you encourage contributors to become exclusive at Shutterstock?” All of our competitors that are close to our scale offer exclusivity, but we do not. The answer seems simple to us, but it’s complex if you aren’t as close as we are to the business. The bottom line is that as a microstock photographer it just doesn’t make sense to be exclusive to any one agency. Here are the reasons why:

1) No longer is content the only competitive advantage, data is also a large component. To some this may not seem intuitive. We sell creative assets and at first glance one would think that having exclusive assets would be an advantage. We add over 10,000 images each day to our library of over 20 million images. We’ve sold over a quarter of a billion assets over the past 9 years. We have an incredible amount of data on these downloads. We know what search leads to what image, and at this point we can practically read the user’s mind in 14 different languages. Shutterstock is the volume leader, and therefore we are the data leader. In several languages we use the data we have to display the best search results for any given query. We obsess over search success – and if we can reduce the time it takes to get from search to download by a tenth of a second, we win that day. We iterate over and over and use whatever data we have to continuously find the best image for the customer. The best image for a given search isn’t one that another agency doesn’t have, it’s the one that will get chosen and downloaded. Out of over 20 million images, with 10,000 more each day, we’re likely to have the image you need. We believe that if we can get the right product to the buyer the buyer the quickest, we win in the end. Having exclusive royalty free content is of no advantage when a buyer is going to choose where to buy a photo – it’s getting a relevant photo the quickest. To see the user of this data in action, go ahead and try a search on Shutterstock – and compare it the same search on our competitors sites.

2) As a democratized marketplace, we believe in fairness. From the start I have believed that fighting for business will make Shutterstock the best product. By selling more of a contributors work, we build lasting relationships that are built on sales – not contracts that tie you to your distributor. If a contributor can make more with a certain image at another agency, then they should sell that image at another agency. This attitude makes the Shutterstock marketplace stronger in the long run because we have to continuously fight for both sides of the marketplace. At Shutterstock we take nothing for granted, and we like it this way.

3) As a marketplace, in order to guarantee that the buyer gets the right photo every time they search, no photo can be more special than another. Every single image at Shutterstock will cost the same once you have bought a subscription or image pack. This is unlike any other photo marketplace. Image marketplaces that offer exclusivity to contributors must favor certain images. The sort order of each search has to favor exclusives in order to keep the exclusive relationship. If you aren’t selling more images at a higher price, why will they continue to stay exclusive? Are images that are held exclusively of better quality or more relevant to the search? This isn’t the metric to measure a specific search on. Are images that make the most money for the contributor or the agency the best image for a specific query? No. At Shutterstock we get to concentrate on one metric – search success. While other agencies sort their search results based on maximizing revenue, we maximize on search success.

4) Since all images are royalty free, exclusivity isn’t an advantage to the buyer. An exclusive image doesn’t mean that the image was used less than a non-exclusive image.

At Shutterstock we have a long term view. We believe that the image the customer wants is the best search result. By keeping things simple, not favoring exclusive images, and iterating on metrics like search success, we feel like we will be more and more successful for both our buyers and our sellers over the long term.

Jon

Helicopter Trip Time Lapse – GoPro

Mounted the GoPro on the ceiling window of the helicopter and took it for a spin up and down the hudson river. Headed out of Kearny heliport, spun around the statue of liberty a couple of times, went straight up the hudson river to the GW bridge, turned around and came back down the VZ bridge.

About 30 minutes of flying compressed into a minute