Successful web-based small businesses that generate profits are precious. If you are one of these, stay one of these. There is no requirement that web start-ups, when successful, have to be sold to publicly-traded [large] companies. The reason your small web company is successful and profitable is you; your awesome products/services and customer support exist because of you. Losing you would be destructive to your what your company does and is known for.
Slicehost is an awesome VPS hosting company; they’re a small web business offering support which is second to none. I use Slicehost and they’re the only hosting company I would recommend (I’ve used my fair share of hosting companies over the years).
Guess what just happened; Rackspace, a publicly-traded hosting company, has acquired Slicehost. Now I’m a little worried…
Small Giants
The term small giants (in the context of businesses) is coined by Bo Burlingham in his book, Small Giants: Companies That Choose to Be Great Instead of Big. Bo defines small giants by saying this:
“The shareholders who own the businesses in this book have other, nonfinancial priorities in addition to their financial objectives. Not that they don’t want to earn a good return on their investment, but it’s not their only goal, or even necessarily their paramount goal. They’re also interested in being great at what they do, creating a great place to work, providing great service to their customers, having great relationships with suppliers, making great contributions to the communities they live and work in, and finding great ways to lead their lives. They’ve learned, moverover, that to excel in all those things, they have to keep ownership and control inside the company and, in many cases, place significant limits on how much and how fast they grow. The wealth they’ve created, though substantial, has been a byproduct of success in these other areas.
I call them small giants.”
- Bo Burlingham (2005). Small Giants: Companies That Choose to Be Great Instead of Big
Slicehost is a Small Giant
Slicehost fits Bo’s definition of small giant pretty well. They care about offering superior hosting service to a group of people who care about quality hosting, developers.
“Built for developers.
We’re just like you. Sick of oversold, underperforming, ancient hosting companies. We took matters into our own hands. We built a hosting company for people who know their stuff.”
- Slicehost (2008). http://www.slicehost.com
I doubt that Slicehost was started with the intention to be sold-off to a bigger-publicly-traded company. It was started for the reason stated above, which appears on the top of the main page of their website. They have met their mission and created the type of company they set out to build, this is unique and precious.
According to a related blog post on Sitepoint; Slicehost has somewhere in the neighborhood of 15,000 active slices. With the cheapest Slice being $20 per month, I would estimate that they’re bringing in around $500,000 in revenue per month. A small company like Slicehost is profitable at that level of income. Don’t they have less than 10 people working there? Not only has Slicehost met their mission, but they are also meeting their financial goals too (or I would assume they are).
Rackspace’s Acquisition
I’m curious what Rackspace’s motivation was behind wanting to buy Slicehost (and JungleDisk). It’s also interesting that a company like Slicehost, given their current healthy situation, would have a desire to sell-out.
The part that worries me the most is the specifics of the deal (or lack of knowing what the specifics are). I would bet that Rackspace is smart enough the make their buy-out of Slicehost be contingent on the employees sticking around for some period of time; if not contingent then desirable for them to (i.e. they have options that start vesting in one year). If this period of time is something short, like one year, it’s possible that the employees, now with cash in their pockets, might not like the large company atmosphere; they might feel the pressures to increase net income and growth rates. This is very possible and could lead to decisions of “take the money and run” for Slicehost’s original employees. That outcome isn’t a good one from the perspective of two major stakeholders, the customers (me/developers) and the owners (Rackspace). I’m hoping that Rackspace let’s Slicehost be the small giant they are and accepts the characteristics and ideals they have infused within their company.
Slicehost’s customers have some mixed feelings about the deal, people seems to by saying “congratulations” or, “I’m worried and here’s why…”. It’s an interesting discussion to follow and some good points are made by both Slicehost customers and employees.
To Sell or Not To Sell
Being a small giant like Slicehost is desirable, especially in the web/tech space, which is probably the easiest space to create a small giant company in. Technology is enabling small numbers of people to do big things without much capital expenditures. Entrepreneurs who are successful are faced with this decision to sell-out or not; this decision is extremely important and a difficult one to make. There is power, money, and control all sitting on the table and you must make the right decision as it determines the faith of the organization you’ve created out of nothing.
“But the small giants also know those relationships are fragile. They depend on a level of trust and intimacy that’s easily lost. All it takes is a little neglect. If you allow yourself to get distracted, if you stop working on whatever it is that ties you to the people you do business with, the intimacy will vanish, the trust will dissipate, and the bonds will erode. That can happen for many reasons. It usually happens, however, when a company’s leaders begin focusing on growth or financial return, not as by-products of a well-run business, but as goals to pursue for their own sake. And if you sell equity to people outside the company, you will probably have to start viewing them as goals to pursue for their own sake—because you sill owe those people a good return on their investment. Hence, the small giants’ commitment to remaining private and closely held.”
- Bo Burlingham (2005). Small Giants: Companies That Choose to Be Great Instead of Big
Very interesting post. I’ve always wondered why growth is the first imperative. There are some great companies that have a natural limit to growth and it would be better for all involved to focus on quality. It’s a delicate balance but certainly we could balance the debate with more emphasis on quality and sustainability.
I’m hopeful that this economic downturn will result in more companies which fit the definition of small giant.
The scarcity of capital and credit will force companies to differentiate on something other than becoming bigger or just attractive to a buyer and make them focus on their quality to customers, employees, owners, and suppliers.