Can Innovation Survive in a Start-Up Economy?

apeman

Lynda.com took the tech world by storm when the company recently accepted a $103 million funding round. That marked a record as the largest series A round to ever hit the tech ed space. The money will be used expand the company’s international operations, grow the delivery platform and features, and add to the content it currently offers. The company offers online courses in new technology and business skills, and eschews accreditation in favor of a model that affirms flexible, skills-focused, student-driven learning.

The Lynda.com story doesn’t fit the typical tech start-up narrative. The eighteen year old company was bootstrapped and funded all its own growth, growing into a successful company without any initial investment. Lynda.com originally grew out of a passion for innovation and teaching.

Lynda Weinmen, the Lynda.com co-founder with her husband Bruce Heavin, said that venture capitalists began aggressively pursuing the profitable company about seven or eight years ago but “but from our perspective, we just weren’t ready,” she said in an interview with PandoDailey’s Sarah Lacey, “we didn’t even know what we would do with the extra money. And also, we really valued our independence and the fact that we weren’t beholden to anybody. We own our own company, we’re our own boss. We get to chart our own course. That freedom is really valuable.”

Small businesses have had a tough lot this past decade. Along with facing a contracting economy, small business owners have had to cope with perpetual inflation, increasingly unreliable supply chains, barred access to bank loans, and the ongoing struggle to compete with industries of scale. The failure rate of new businesses is staggering, and in some estimates is as high as 85% in the first year. Growing and building a business has never been tougher, or more important. Small businesses bring choice, new ideas, and innovation to market. They are essential in growing an economy sustainably: they reach out to new niches and markets that industry passed by.

While business owners might have once looked to a bank loan to fund its growth or to launch a new product or service, increasingly, many have to attract investment dollars to order to stay viable. For tech entrepreneurs, this is especially true. The dot.com meltdown made many investment firms and banks permanently wary of the sector, and the 2008 financial meltdown has made the traditional small business loan nearly obsolete.

At the same time, budgetary restraints and austere governments are pushing more scientists, artists, inventors and scholars to represent them directly in the market. Infusing the arts and sciences with the entrepreneurial spirit isn’t necessarily a bad thing. In fact, when you add in the potential of technology to the mix, the potential is virtually unlimited.

The danger is in an overly aggressive start-up culture that doesn’t favor innovation but instead seeks out safe investments for quick returns. The company is driven to maximize short term profits at the cost of sustained growth. Technology does not get developed to its full potential; its promise is cut brutally short by investor’s timetables. When the round occurs in the early stage, as is common in a tech start-up, a long term vision may never develop.

Investors in an uncertain economic climate are even less likely to take a gamble on innovation and depart from the status quo or make risky investments that take time to pay out. They are also less likely to do the work to cultivate and develop new niches. The resulting homogeneity can leave both culture and the market mired in stagnation, and the great potential of new and emerging technologies left unrealized due to tragically short-sighted business thinking– which in many cases is compounded by just plain bad business.

If Lynda.com had accepted venture capital when they were first approached, would it have continued to value innovation? Would it have grown into the kind of successful company that could command a $103 million round nearly ten years later? We can only speculate on that, but going forward it will be very interesting to follow the company and see if the model can work under the best of circumstances.

Weinman described a five year relationship with the investment firm that led the round, Accel Partners. “They knew our fears,” she said. “They gave us a lot of confidence that they weren’t going to interfere, that they were going to contribute.”

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