Scale…It’s the Hard Thing

I just read Ben Horowitz’s excellent book, The Hard Thing About Hard Things. It reminded me how hard it is to scale a high-tech growth company. I’ve been involved in four ventures that made the leap to scale. When it is done in short period of time – inception to $100 mil in revenue in 5 years – it’s a bit like a jump to hyperspace…Hollywood can only describe it as streaks of light. Ben does an excellent job of analyzing and articulating all the elements of scaling a business. It’s really hard, but as last years Unicorn Club discussion highlights, it’s really rewarding.

Building high growth Tech companies to scale is the Portland’s next big economic challenge. The acquisition of Simple by Spain’s BBVA is the latest example of Portland’s ability to build successful tech companies. But even Simple is an order of magnitude from the bench mark of high tech scale – $1B in valuation.

Five years ago Portland undertook a concerted effort to build a vibrant tech startup ecosystem. Resources, public  and private, rallied around multiple efforts, formal  and informal. The results have been impressive. Startup tech jobs are indeed leading Oregon out of the recession. Over a dozen active incubators are helping to mint dozens of viable Portland companies each year.

Can Portland companies now make the jump to scale? It’s going to be harder than sparking the initial startup ecosystem. Portland benefited from the fortunate confluence of several factors that provided a fertile environment for startups. Portland has been a desired destination for collage educated young people  for more than a decade. The recession set the stage for individuals and institutions to take risks on new ventures and local capital was willing to provide modest seed funding required to fuel fledgling ventures.

But the primordial stew to spark the creation of scale companies is a different matter. Starting with the talent; the smart young people migrating to Portland may be able to move up an incubator fueled learning curve to succeed in a Startup, but As Ben points out, expertise and experience required for scale is a much higher standard. It’s much harder to grow organically. And, unlike the SF Bay Area, Portland doesn’t have a pool of successful scale companies to draw upon.

To date Portland has shown little appetite to take the risk required to scale a company. Like my own venture, SweetSpot, many Portland companies are finding early exits rather than driving to scale. The list is long – GetListed, Geoloqi, RNA Networks, CroudCompass, SmallSociety, SecondPorch, StepChange, Instantiations, Giftango, Meridian, Preka, Rumblefish, Simple, Vizify. While these demonstrate great success in Portland’s ability to mint Startups, they also show our lack of ability to grow companies to scale.

A viable growth company can always find capital. But, as I’ve written about earlier, it’s more expensive in Portland than areas. Portland has a number of growth companies that have accessed expansion capital – Elemental, Urban Airship, Puppet Labs, Janrain, Act-On Software, Jama. We’ll see which are successful at jumping to scale.

Expertise, talent, appetite for risk, and access to capital are just the table stakes to execute at scale. They just get a company to the table of contents of Ben’s book. Then the hard things begin.

I think more than anything, Portland needs to find the desire to scale. My first experience with Portland’s Startup ecosystem is indicative of the old attitude that is still too prevalent. I left my last Bay Area job in ’07, ending a weekly commute to Palo Alto. In my last year, the company doubled revenue with a top line above $100 mil. In Portland I started working on a business plan for mobile application venture. When I pitched one of Portland’s most active Angel groups, a fund partner told me the plan had no credibility because I showed a revenue curve that went from zero to $100 mil in 5 years. I was told to be taken seriously, I should instead show a 5 year pro forma to $20 mil, for none of their investments had ever gotten anywhere close to $100 mil in 5 years.

I find it refreshing every time I talk with Luke Kanies at Puppet Labs. Puppet is in a multi-billion dollar market place and to Luke success is nothing short of leadership in that market. That’s a standard for scale. A few more Lukes and a perhaps an IPO could turn the tide for Portland.