Originally posted on Mike Goodrich’s LinkedIn page

The Mercedes Marathon was this weekend. Patrick Koech won with a time of 2:25:40 or 5:34 a per mile.  Running slightly over five-and-a-half minutes per mile for one mile is phenomenal, much less 26. Those of you who follow me on Strava know that this pace is one of particular amazement for me. Every year, I engage in a unique ritual of thinking sometime in November that I want to run the Mercedes Half-Marathon and then sometime during the weekend of the actual event, I realize how far my running needs to go to be able to participate. So with that, I salute not only the winners, but all the participants.

Making an analogy between marathons and start-ups is not a big stretch. It’s a marathon, not a sprint is an oft-used expression, and anyone who has ever worked in start-ups knows there’s truth to that. The sprinters fade back; persistence and toil over time is a much better formula for success. Jonathan Sides, CFO of Fleetio, says that it takes a decade to build a valuable business. I agree. Overnight success is rare and even more rarely replicated.

But the analogy between marathon-running and business-building does not end there. If each participant is viewed as a business, I think we can find a parallel to the financing of small start-up businesses: all of the capital goes to the elite 1%. Only the elite get funding and only the top few can make a living off of marathon running. Nike spends millions to get a shoe that goes faster for the elite runners; their strategy is to spend money just at the top.

Similarly, the venture capital model is focused on the top performers. Just as a sponsor searches for prospective elite performers, venture capitalists try to find the next big thing: the next Google, Netflix, or Amazon. They pour capital into young entrepreneurs who have the next flashy idea with little regard as to whether they can go the distance and with an arrogance built on the premise that money and over-capitalization hides all ills. 

With all due respect to Ricky Bobby, this is a misguided theory. Yes, backing the winners is key. But a huge amount of value creation is added by the other 99% of the runners. By merely enduring, each of those is a winner, each has value, and each has done more than most. 

If we think of companies like a pack of marathon runners, each creating value in terms of employment and wealth creation, we will find more value in the back of the pack. Whenever a stock is trendy, people tend to over-price it. I would argue that unicorns are over-priced and that start-up stock prices value the sensational over the realistic. Conversely, if we can focus our efforts on more traditional entrepreneurial endeavors, investors can find better value. If you take a two-million-dollar company to a twenty-million-dollar company, that is a tenfold increase in value.

The analogy, of course, breaks down eventually. Regardless, we need better ways to finance the growth of businesses. Small businesses generate approximately 45% of the US GDP and 48% of employment. However, that percentage is down from 50% and 52%, respectively, and while I cannot prove it, I think a correlation exists between VC unicorn funding and these declining trends. Reconciling articles on the decline of entrepreneurship with the cultural hype is difficult until you consider the unwarranted effects of the 10X VC funding model. Care for the entire pack of businesses is key.

Besides, isn’t a marathon more valuable because of the people who run it than the people who win it?