Too Big to Succeed


Blogging is just one more example of the key lesson I teach entrepreneurs, that it takes multiple iterations to find something that works. That is true not only for products, but also for sales, marketing, and messaging.

The words I’ve failed to find in the story of WeWork and its lead investor Softbank I found buried in a CNBC article:

Too big to succeed

The problem with Softbank’s Vision Fund is that it is enormous. $100 BILLION. Large venture capital funds are $2 billion. Large private equity funds, similar, with the largest leveraging up to tens of billions only once a deal is being made.

Berkshire Hathaway, the biggest of all holding companies has $122 billion in cash at the moment, but that money is waiting to pick up public company bargains in the next recession, not looking to speculate on innovation in unproven markets.

That’s the area I’ve spent my whole career in. Startups. And what’s clear in innovative startups is that money helps prove a market, and a bit more money helps speed up adoption, but yet more money doesn’t guarantee that the innovation works. If that were true, we’d be all sitting in self-driving, Mr. Fusion powered, flying cars.

We had that vision handed to us in 1985, along with hover boards and one-button lives, all repeated visions from 1968 in The Jenson’s. And yet here in 2019 those are still all sci-fi.

Add to that the fact that no amount of billions can overcome a business model with negative margins.

The more seats WeWork built out, the more money they lost. The same apparently with Sprint, once Softbank took that company over too. How did they not notice the lessons from back in the dot com bubble?

The fundamental flaw here is that venture capital funds by definition invest in unproven business models. Proving those models takes time. If Softbank stuck to capitalizing only those which showed a path to profits based on earlier, smaller rounds of capital, the Vision fund would be all winners.

Slack and Zoom both showed that model possible. But the big dollars instead went to WeWork and with that failure we have a proof point that it is possible to be too big to succeed, both from WeWork’s own path as well as the Vision Fund that threw away billions in the pursuit of “go big or go home.”

By "Luni"


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