Unicorns vs. Horses

Why I want to be In-N-Out Burger, not McDonalds

“That’s stupid —you’re building a lifestyle business” spat the investor across the table, flashing me a death glare. It was 2011 and I was at a roundtable event at Grow Conference, an annual gathering of investors, entrepreneurs, and wantrepreneurs alike. I’d just finished telling my table that I didn’t want to raise venture money and had decided to bootstrap our project management app, Flow, which we had launched a couple months earlier.

I’ve had a lot of people say similar things when I share the fact that we haven’t raised any money. Or that we don’t have a sales team. Or that we aren’t based in Silicon Valley. These comments used to keep me up at night, and over the past few years I’ve thought about raising money many times. I’ve spoken to everyone from angel investors to the big guys on Sand Hill Road, but this past year I realized that I just flat out don’t fit the mold. I don’t want to be McDonalds — I want to be In-N-Out Burger.

Started in 1948 by Harry and Esther Snyder, In-N-Out pioneered the drive-in fast food concept and quickly grew in popularity. Unlike some of their competitors, the Snyders focused on paying their employees well, serving high quality food, and growing slowly to maintain that high level of quality. Despite growing to over 300 stores over the past 67 years, In-N-Out hasn’t expanded much outside of the western United States, and their food, service, and values remain largely unchanged. Nothing is frozen, their fries are still hand-diced, and they never went public or took outside money. Today, it’s valued at over half a billion dollars, and the company is still privately held by the Snyder family.

My pal from Grow Conference wouldn’t like this one bit. It’s a lifestyle business, and instead of rapidly scaling up to compete with McDonalds, In-N-Out stuck to their values and today is ranked number 15, to McDonalds’ number 1. They grew their revenue slowly over 67 years, and even now, after decades it’s only worth a measly $625MM.

The siren call for many entrepreneurs isn’t money, it’s freedom. The freedom to chart your own path, the freedom to build what you want with the people you love. Taking money, building a board, and raising rounds takes away that freedom little by little. When you take venture money, you work for your investors, not yourself. You’re committing to grow fast to dominate your market and get your investors their cash back in the form of an exit or going public as soon as possible.

Venture funds know that the majority of start-ups will fail, so they need to structure their deals like this in order to make a return. If you aren’t McDonalds, you better damn well be Burger King, or die trying. There’s nothing wrong with this, but this way of thinking — all or nothing moonshots to maximize shareholder value — has become pervasive dogma in tech. It’s become the only respectable path. Either you’re running a lowly lifestyle business, making ends meet so you can surf all afternoon, or you’re working 17-hour days goring competitors with your $48MM Series C unicorn horn on your way to billionaire mountain.

Meanwhile, there are thousands of internet businesses out there, quietly making tens, and even hundreds of millions of dollars, who have taken the same path as In-N-Out. They don’t need to be first, second, or even tenth, in their space, and have instead chosen to focus on a small percent of a massive market. They answer to customers, not investors, and focus on making their employees, customers, and themselves happy. They’re thoroughbred horses, not unicorns, and it’s time we start paying attention to them.

I know some of these people. They drive nice cars and live in nice houses. Some of them even fly around on private jets. But you’ve probably never heard of them. They aren’t getting written up on TechCrunch, they’re just quietly building great businesses and cashing dividends in their little corner of the internet.

Maybe this slow and steady thing isn’t for you. Maybe you’re going to be the next Jeff Bezos or Elon Musk and fit the profile. This isn’t to say that you shouldn’t raise money, or that venture capital is inherently bad, just that there’s a big grey area between a lifestyle business and a venture backed moonshot. Raising venture money is a high risk commitment to go big or go home, and it isn’t for everyone. It certainly isn’t right for me, but neither is the surfer lifestyle business. I’m somewhere in the middle, with the Snyders of the world. I’m not a unicorn, I’m a horse.