“Michael, what you have here is unique, isn’t it?”
Swinging by our Midtown Manhattan office not long ago was a brilliant and remarkably successful entrepreneur, Jonathan Klein. Jonathan and Mark Getty, were founders of the eponymous Getty Images. All that company did was revolutionize the stock photo, editorial photo and film business. With his work largely done – Getty was sold years back to Carlyle for $3 billion-plus – Jonathan serves as Getty Images Chairman, has sat on the boards of two other unicorns since their relatively early days (Etsy and Squarespace), works with various non-profits and advises multiple VC businesses, all while traveling the world to seek out great companies and investments. To be sure, Jonathan has seen a thing or two … but not our model, not once.
“Michael, what you have here is unique, isn’t it?” Jonathan is South African but has lived in England for 20 plus years, so he can be British in tone. So, the quizzical “isn’t it” is at once charming, colloquial, rhetorical, and by turns confounding.
His words were high praise. Our model – a self-funded company factory – is, I suspect, accurately referred to as unique. It’s what my partner, Rich Vogel, and I envisioned a decade ago when we concluded that for us Synapse was not the last chapter but the opportunity for a bold new one. What was then a germ of an idea is now burgeoning into into full flower.
Why we rejected the incubator model…
When described, our factory model sometimes draws comparisons to an Incubator, or its cousin the Accelerator. I describe these as ‘pieces in the middle’: desk space where cohorts of start-ups or young companies, filtered in by type (adtech, health-tech, fintech, whatthehecktech) are paying tenants for 3 to 12 months, and enjoy, ostensibly, the benefits of sage advice from some grey hairs and community.
What a traditional Incubator is not, is the pieces in the beginning – the ideas, capital or talent. Nor is it the pieces in the end – more and more capital and the exit. For its trouble ‘the house’ gets a sliver of equity and may or may not write a check for a modest $50k or thereabouts. The true value of the incubator model for the entrepreneur? Connections to capital. Famously, Y-Combinator, la creme de la creme, has a queue of VCs – the likes of Andreessen, Sequoia, Greylock – lap up its graduates like Skittles at a Halloween bash.
Add to this the disadvantages for this common start-up model. They don’t tell you this in entrepreneur’s school, but founders spend half of their time raising round after round of money, and then more time keeping the money happy. Other hours are spent coding bills, planning payments, nudging receivables, pouring over leases, contracts, and the like. Alas, what about the business building? Um, well, not so much.
Another thing they don’t tell the newbies: the game is kinda-sorta rigged. VCs know that the universal rules of construction apply: the business of building a business takes longer, and costs more than the business builders presuppose. Starter-uppers are optimists who ask for too little at first, and upon the re-ask VCs often invoke the ‘down round’ edict; that is, more equity for less. Ever hear of Waze? Friend and founder Uri Levine told me he owned just 3% of his company when it was it was sold to Google after the VCs had their waze with him.
Greedy? Attribute more to odds and probability. Most VC’s will candidly tell you that only 2 start-ups in 10 have an appreciable return. A little verity from a shot of Casamigos and they will confess to less. Moreover, they are counting – banking actually – on the performance of a rare winner (the most profound of which are fancifully referred to as Unicorns) to pay for all the losers … and their wood paneled offices, partner mortgages and a long list of green fees.
Our unique ‘Company Factory’ model…
By contrast, our model spans the business lifecycle from ideas-to-execution-to-exit. We are self-funded, so our starter-uppers spend not their precious time soliciting investors, but rather soliciting results. Our shared services; world-class talent in tech, digital business development, accounting, finance, analytics, data science, promotional design, manufacture and a dozen direct-to-consumer marketing sources, allows small teams to punch way above their weight and have access to capabilities other companies can only dream of.
We think our model is also a magnet for talent. With so many companies in the factory, the odds of collective failure are markedly reduced, and the work is more varied and interesting. The net effect: the chances of success for each company and its rate of growth is markedly increased. The #1 cause of death for a start-up is not the lack of a good idea, it is the lack of capital. But not at our shop. #2 cause of death is dismal execution. But all the less likely with our accomplished and experienced practitioners. I say of us today that once every 5 years we start 10 companies. In truth, it could be twice that number at this very moment, depending on how you count ’em.
Another promise of an incubator is community. But inasmuch as all start-ups in a conventional incubator are more than a little bit competitive – they share the same physical and metaphysical space after all – not much is collaborative. And that is also part of the dream that Rich and I had: the making of a bonafide entrepreneurial community. A band of start-up pirates, all sharing best practices and best resources, all participating in the spoils.
We still have much to do. Unique is hard; unique takes time. But we are getting there one groundbreaking start-up at a time. And for that, I thank you – our community, our merry, exceptional band – all.
Michael Loeb CEO and Founder
Michael Loeb, a serial entrepreneur, is currently the President and CEO of both Loeb Enterprises (LE) and Loeb.NYC. He knows success, past and present. Loeb.NYC, Michael Loeb’s privately funded venture lab leverages his expertise and vision to build prosperous companies from the ground up. World-class analytics, design, marketing, and tech-development pave the way to rapid growth and significant scale.