Last week Fred wrote a post wrestling with what to call a certain kind of business. In it he sketches out 3 types of companies:
Lifestyle – too small for VC, but will generate enough annual cashflow to be a great business to own and operate
Indie – might be large enough to justify and provide a return on a VC investment, but the desire to retain control and remain independent makes VC untenable for the entrepreneur
VC Fundable – large enough to justify and provide a return on a VC investment and the founder is willing to exit at some point and provide a capital gain to the investors
I love that Fred is wrestling with how to define this “other” type of business that doesn’t fit perfectly into the bootstrapping or traditional venture models. The conversation is in the air, and it’s one we’re trying to help facilitate through .vc.
That said, it feels like his post and the comment thread anchor on only a very narrow view of what makes for an Independent business; namely, whether or not they have taken, or are able to take, VC funding.
When we started talking about Indie.vc the first question many founders asked was- what is an Independent company and how are they different from any other type of business?
With that question in mind, let’s try and explore together what the ideals and characteristics of an Independent business might look like?
A few thoughts:
- Independent businesses are majority owned by their Founders.
- Founders should maintain full voting control of their board of directors.
- Independent businesses should provide equity or equity-like profit sharing to all employees that should be reported in percentage of company/profits vs. number of shares.
- Independent businesses provide a real time view into companies financials and make that available to all employees.
- Independent businesses should provide the same level of benefits for all employees as they do for their Founders.
- Independent businesses respect their users by not selling their data to 3rd parties or opting them into spammy offers.
- Independent businesses, who’ve raised outside capital, put in place a distribution plan for their investors to share profits and relieve pressure to go public or sell out.
I’m sure there are many other attributes not outlined here. That’s intentional, as being too prescriptive seems to fly in the face of independence.
So, why bother?
If you believe, as we do, that there will come a time when not having taken loads of VC funding, not selling out your users and not being forced to maximize shareholder value will be a competitive advantage then this type of designation might matter. Customers and users burned by VC backed startup after VC backed startup may start looking around for independent alternatives who aren’t looking to sell them out, or sell out themselves, only to have the products they love and rely on killed by acquiring companies.
If these ideals ring true, perhaps there could be a way to codify them. Just as some companies can designate themselves as B Corps or some buildings can be designated as LEED, perhaps we should consider a similar designation for Independent businesses.
A “Declaration of Independents” if you will.
No governing body, no membership fees, no expensive audits required. Just a simple set of values and an executable document to let customers and investors know what they’re signing up for when they write the company a check for products or equity.
Maybe this is even too heavy handed. Maybe it’s not necessary. It might even be a bad idea.
But, if you think we’re onto something we’d love to hear your thoughts on how to tweak or improve the suggested ideals above in the comments below.