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In previous posts I wrote about visionary entrepreneurs, and how to constantly ask how you can 10X your business.  However, many startups fail because the founding team thinks *too big* from day one, and doesn't take the time to really define the short term, immediate value their product or business provides.

Now, while it is crucial to think small and to build something that does not scale, you should always keep in mind the long term path for your business or product.   This path (and the end goal the path itself leads too) may continuously change as you learn more and as circumstances dictate.  However, you should constantly be thinking how to make what you have even bigger than what it is.

Implications: Why The YC Model WorksThis post was originally inspired by a question on Quora about whether the YC model can generate big successes, despite its emphasis on "small markets" and "low risk" products.  As I point out above, thinking small if often the key to building something truly huge.

A common VC question is "how does this scale?".  Ultimately, to build a large, long-term business you need to be able to take an approach and scale it.  However, it is OK to start with something that is manual and hands on.  The key is to have something that can be systematized and replicated over and over eventually.

b. Few companies do anything sufficiently valuable.  Most companies serve a niche, or don't monetize very well.  Business that can truly scale to the revenue that justifies a $5 billion+ market cap are rare (indeed, across *ALL* industries, there are only <800 companies with market caps >$5 billion).

Many of the best founders are good at 1 & 2 (Sell & Build) but not great at 3 (Scale). This is often a mix of experience (if you are a founder you are unlikely to have run a multi-thousand person organization in the past) and personality (impatience or raw cussedness or other traits that may help with early success may not always lend themselves well to every managerial situation). Some founders do well out of raw product/market fit and may not actually be great at any of the archetypes - although often these companies never quite reach their real potential

Founders tend to appreciate people who are complementary to them and can help scale their company. The first time a capable, experienced executive is hired is a magical moment for a founder. It turns out you can delegate all sorts of things to people who are better at it then you!

If you start by making something people actually want, focus on making users happy, make sure you have a good growth rate and don’t overhire, you’ll be in a very happy position. You will be master of your own fate in a way that very few people ever get to be.

An underrated element of venture capital is that VCs manage other people’s money. VCs raise capital from investors called “Limited Partners” who are typically high-net-worth individuals, family offices, corporations, or institutions such as endowments, foundations, and pensions. These LPs invest in VCs for various reasons, but generally, LPs are targeting 3x+ returns on early stage funds over a ~10-year time period.

In making investment decisions, VCs often evaluate whether a given investment has the potential to “return the fund”. Here’s a quick example. If a $50M seed fund owns, on average, 10% of each portfolio company at exit, the company will have to sell for $500M for the investment to “return the fund”. In order for the investment to 3x the fund, it would have to sell for $1.5B, and so on. The actual analysis regarding portfolio “survival rate”, dilution, follow-on investments, exit magnitude, and time period will vary from firm to firm, but this simplification illustrates why VCs generally shy away from sub-$1B potential outcomes, let alone sub-$100M ones.

Even more important than whether VC is a good fit for the business is whether VC is a good fit for the founder.

Peace of mind: While the additional accountability may be a net positive, let’s be honest, having investors can be a pain in the neck. If you became an entrepreneur because you cannot stand to work for anyone else, having VCs may not be your cup of tea, either!