You Have to Be A Fool to Start a Company(babblingvc.typepad.com)
babblingvc.typepad.com
You Have to Be A Fool to Start a Company
http://babblingvc.typepad.com/pjozefak/2010/04/you-have-to-be-a-fool-to-start-a-company.html
6 comments
Who are you to say that a year spent working on a startup is a lost year? Why is it foolish spend 3 to 5 years on something that might just change the world, especially if you enjoy the ride?
I bet that 20 teams shooting for a 7 figure exit will be on average much more successful than 20 teams building a cautious/lifestyle business.
You could even argue that shooting for a 7 figure exit is the selfless thing to do, because you're less likely to make a good living that way compared to a lifestyle business, but you are more likely to make a significant contribution to the economy (+ job creation).
I bet that 20 teams shooting for a 7 figure exit will be on average much more successful than 20 teams building a cautious/lifestyle business.
You could even argue that shooting for a 7 figure exit is the selfless thing to do, because you're less likely to make a good living that way compared to a lifestyle business, but you are more likely to make a significant contribution to the economy (+ job creation).
First, stop kidding yourself. The year everyone loses trying to get funded doesn't teach them anything other than "getting funded is harder than all the blog posts make it sound". The 3-5 years the "lucky" few lose on ultimately unsuccessful shoot-the-moon startups don't teach them anything other than "it is possible to waste a spectacular amount of money without much revenue in return for it, and that's a great way to spend 60% of your work day in meetings".
Let me save 5 years of your life for you:
* Getting funded is harder than everything on Hacker News makes it sound.
* You can waste truly spectacular amounts of money without earning anything from customers in return from it, and when you do that, you wind up in meetings with salespeople, meetings with marketing people, meetings with PR people, meetings with engineers about the marketing people, meetings with the CEO, and, oops! Now it's time to go home.
Second: No. Shooting for a 7 figure exit is not a "selfless" thing to do. We didn't do that and we've created more jobs than a lot of funded YC companies have. The difference between companies that exit and companies that don't isn't headcount.
Let me save 5 years of your life for you:
* Getting funded is harder than everything on Hacker News makes it sound.
* You can waste truly spectacular amounts of money without earning anything from customers in return from it, and when you do that, you wind up in meetings with salespeople, meetings with marketing people, meetings with PR people, meetings with engineers about the marketing people, meetings with the CEO, and, oops! Now it's time to go home.
Second: No. Shooting for a 7 figure exit is not a "selfless" thing to do. We didn't do that and we've created more jobs than a lot of funded YC companies have. The difference between companies that exit and companies that don't isn't headcount.
You're arguing against a straw-man version of my argument and you're making absurd claims in the process ("you don't learn anything from a startup" / "you spend 60% of your day in meetings"). When you write nonsense like this you can't possibly expect a constructive responsive.
See, you think I'm exaggerating or being hyperbolic, and I'm not. I might be wrong. But I'm not just making things up.
I am telling you that you probably don't learn more from failing in a startup than you could have in 3-5 years doing something else, and that yes, in fact, if you have the misfortune of getting funded, you can wind up in a job that you're handcuffed to that involves you spending most of your time in meetings.
It worries me a little that people think this claim is so outlandish that anyone making it must be trolling. I'm really not.
I am telling you that you probably don't learn more from failing in a startup than you could have in 3-5 years doing something else, and that yes, in fact, if you have the misfortune of getting funded, you can wind up in a job that you're handcuffed to that involves you spending most of your time in meetings.
It worries me a little that people think this claim is so outlandish that anyone making it must be trolling. I'm really not.
When you do a startup you have to learn about building a product, finding customers, managing a team efficiently, hiring the right people, building a brand for your company, determine a revenue model, basic bookkeeping, and so on. I'm just listing a couple of the many things you have to learn when doing a startup. None of these things you have to do when you're a software engineer in an established company. You can only spend a few hours a day on software, if you're lucky. The rest of the time you're building different skills. So that's why I can't take the claim "you don't learn anything" seriously.
If you're in meetings all day you're either not delegating enough or you like being in meetings all day. Either way nobody is forcing you to have meetings all day every day.
If you're in meetings all day you're either not delegating enough or you like being in meetings all day. Either way nobody is forcing you to have meetings all day every day.
Don't feel bad. What really made it sink in for me was when someone referred to "the myth" that most startups fail!
pg immediately corrected him, but sometimes I still wonder how pervasive the idea is that most startups will make it big.
pg immediately corrected him, but sometimes I still wonder how pervasive the idea is that most startups will make it big.
indeed.
this "significant contribution to the economy (+ job creation)" part is especially delusional.
most of the jobs are still created by small businesses.
this "significant contribution to the economy (+ job creation)" part is especially delusional.
most of the jobs are still created by small businesses.
Not the interesting ones. There's a reason people so many want to work for Microsoft / Google / Apple / Sun, etc. Small companies have the hardest time attracting really talented and ambitious people. And they usually can't afford them either.
A startup often works on interesting problems from day one, and if (!) it becomes profitable the jobs become permanent.
Since larger companies mostly grow by buying startups, a large part of all "interesting" jobs are created by startups/spinoffs.
A startup often works on interesting problems from day one, and if (!) it becomes profitable the jobs become permanent.
Since larger companies mostly grow by buying startups, a large part of all "interesting" jobs are created by startups/spinoffs.
Most of PG's writing on the subject implies the same 'all in' mindset. He himself said that he's hesitant to start another company because he doesn't want to schlep away another 5 years.
I'm a fan of the slow organic approach myself. But I also realize that there is a LOT of work that has to be done over the live of an idea, and the slower you work now the longer the whole thing will take.
I'm a fan of the slow organic approach myself. But I also realize that there is a LOT of work that has to be done over the live of an idea, and the slower you work now the longer the whole thing will take.
IIRC, PG does point out a few times that you really do have to be a fool to start a business this way... if you're doing it for the money or other consequences of success, because success is unlikely even for the best. There are other reasons to try starting an all-in style business; reasons that don't appeal to me, but they do appeal to other people.
I really disagree with that hedge you're making there. I'm not a great scholar of Graham's work or anything, but my perception is that he's pretty much saying: "It is a good idea to work your ass off for 5-10 years so that you can work much less hard later on", with the modifier being "Do that when you're young so that if you fail the first time you can pick yourself up and do it again".
I don't recall him writing that it was a foolish thing to do. He acknowledges the risk of failure but doesn't ever seem to come to terms with the consequences of failure. Again, with the caveat that losing 5 years of your 20's isn't the worst thing in the world.
Until you're in your 30's and start thinking about what else you could have done with the time, I guess.
I don't recall him writing that it was a foolish thing to do. He acknowledges the risk of failure but doesn't ever seem to come to terms with the consequences of failure. Again, with the caveat that losing 5 years of your 20's isn't the worst thing in the world.
Until you're in your 30's and start thinking about what else you could have done with the time, I guess.
Working on a startup is probably not the most interesting way you could spend your time, but it will be at least as interesting as getting a job as a developer at an existing company in the same field. So if that is the alternative and you're young enough to bear the financial risk, it makes sense to try.
You're right.
But you can't look at each bite at the apple independently, either.
A failed startup might very well be a better experience than three years at a great company.
But two consecutive failed startups is probably not better than six years at a great company, if you take the company job as seriously as startup founders supposedly do. After a couple years at a great company, an A-player is going to get much more interesting work.
I'm also not trying to argue against starting companies. Starting a company is a great idea. I just think you should be making money from day one, get yourself to a place where you can live comfortably with your startup, and not bank your time on a tiny chance of getting acquired. Time is precious, and 20-year-olds suck at accounting for it.
But you can't look at each bite at the apple independently, either.
A failed startup might very well be a better experience than three years at a great company.
But two consecutive failed startups is probably not better than six years at a great company, if you take the company job as seriously as startup founders supposedly do. After a couple years at a great company, an A-player is going to get much more interesting work.
I'm also not trying to argue against starting companies. Starting a company is a great idea. I just think you should be making money from day one, get yourself to a place where you can live comfortably with your startup, and not bank your time on a tiny chance of getting acquired. Time is precious, and 20-year-olds suck at accounting for it.
> But two consecutive failed startups is probably not better than six years at a great company...
Only if you're talking about the quality of the experience, and even that's entirely subjective.
If the goal is financial independence there's no comparison. Your shot at making FU money working for someone else is essentially zero. As a founder your shot at achieving financial independence is considerable, and making FU money is at least a possibility.
Only if you're talking about the quality of the experience, and even that's entirely subjective.
If the goal is financial independence there's no comparison. Your shot at making FU money working for someone else is essentially zero. As a founder your shot at achieving financial independence is considerable, and making FU money is at least a possibility.
This has been disproven time and time again. It's flat out wrong. You have a far better chance of becoming a millionare by careful career and money management than you do in entrepreneurship.
Your odds of making "FU money" are so remote that it is irrational to bank your career on it. Remember, during all the time that you're chasing the "FU money" (that you again are never going to see), you are also not contributing significantly to your retirement.
There are plenty of reasons to start companies, but money isn't a great one.
Your odds of making "FU money" are so remote that it is irrational to bank your career on it. Remember, during all the time that you're chasing the "FU money" (that you again are never going to see), you are also not contributing significantly to your retirement.
There are plenty of reasons to start companies, but money isn't a great one.
If you phrased it "the average person has a far better chance of becoming a millionare by careful career and money management" I'd have agreed with you. The average person is not suited to starting a startup. But for the 1% of people who are suited to it-- the ones sufficiently smart and determined-- the odds are actually reasonably good.
I'm not sure what you mean about it having been disproven that starting a startup is a bad way to make money. Presumably the same sort of statistical evidence that would prove that randomly selected people can't do anything hard. But what matters to someone asking this question is not whether random people could do it, but whether they could, and if the right sort of person is asking the question, the answer becomes very different. If the young Bill Gates is asking the question, the odds of making FU money are close to 100%.
(Microsoft was already doing well before they got lucky with the DOS deal.)
I'm not sure what you mean about it having been disproven that starting a startup is a bad way to make money. Presumably the same sort of statistical evidence that would prove that randomly selected people can't do anything hard. But what matters to someone asking this question is not whether random people could do it, but whether they could, and if the right sort of person is asking the question, the answer becomes very different. If the young Bill Gates is asking the question, the odds of making FU money are close to 100%.
(Microsoft was already doing well before they got lucky with the DOS deal.)
Well, I could be recalling incorrectly for the first part of the hedge. It seems clear, though, that you and PG disagree on what the consequences of failure are, in that he would not characterize 5 years spent working on a failed startup as "lost". Anyway, I'm not really big on the all-in startup model, but I don't think it's strictly worse.
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This is an article about how it's risky to start a business and all those percentages and chances at success. again.
Personally, when I had a J.O.B. 8 years ago, I felt it was far more risky. At any point, of any day, with or without notice, my boss could walk in and lay me off.
Done. No more money. No more job.
Being at the mercy of someone else has never felt safe or less risky to me. I was constantly stressed.
Working for myself means that if I need to get paid, I go out and get paid. I make it happen. I don't see how being in control of your OWN destiny is MORE risky. I rely on MYSELF, the person I trust and believe in most.
Sometimes I have to rely on others for contracts, but I'm in control of that relationship too.
I think the problem is that there are entrepreneurs and employees. I don't understand the employee mind-set, but it takes all kinds to make the world go around.
Maybe I'll write the article, "Entrepreneurship is for control freaks. Because I said so."
Personally, when I had a J.O.B. 8 years ago, I felt it was far more risky. At any point, of any day, with or without notice, my boss could walk in and lay me off.
Done. No more money. No more job.
Being at the mercy of someone else has never felt safe or less risky to me. I was constantly stressed.
Working for myself means that if I need to get paid, I go out and get paid. I make it happen. I don't see how being in control of your OWN destiny is MORE risky. I rely on MYSELF, the person I trust and believe in most.
Sometimes I have to rely on others for contracts, but I'm in control of that relationship too.
I think the problem is that there are entrepreneurs and employees. I don't understand the employee mind-set, but it takes all kinds to make the world go around.
Maybe I'll write the article, "Entrepreneurship is for control freaks. Because I said so."
You replaced your boss with a customer. No real change there; You're still at the mercy of someone. I'd say you're a dumbass for not realizing this, but I'll decline to as we're supposed to keep a higher standard here on HN.
A boss can fire you even if you are bringing in a profit. All it takes is 1 bad day, or a mistaken belief that someone from India can do the same job for half the price.
If you are the owner, it doesn't matter if one or two customers are hard to deal with. All you do is stop selling to them, and you will most likely still be in business.
If you are the owner, it doesn't matter if one or two customers are hard to deal with. All you do is stop selling to them, and you will most likely still be in business.
A board can fire you and your whole team even if you're profitable. All it takes is 1 bad day, or a mistaken belief that outsourcing to a team in India can solve the same problem for half the price.
If your company is happens to have a board that doesn't include you, you either
1. Already sold your company.
2. Didn't really contribute to its founding.
1. Already sold your company.
2. Didn't really contribute to its founding.
"Not worth more than being laid-off" would be hyperbolic, but I'd guess that your private company non-preferred shares are worth a lot less than you think they are. I have stories from real, "successful" companies that screwed over everyone not currently on staff on exit. It's not hard to do.
If shares of your company were undersold and you lose controlling interest in the process, that is your own fault. Founders usually have a different class of stock which has more voting rights per value.
This is like an employee accepting a $10/hour contract, and then complaining later that it was too low.
This is like an employee accepting a $10/hour contract, and then complaining later that it was too low.
I disagree on many counts.
If you asked my wife and me on our wedding day what our chances of success were, we would have probably said something like "Well, about half of all marriages end in divorce, but we're a little older and hopefully more mature than the average couple of newly-weds, and we talk pretty openly about difficult things. There are no guarantees, but we think we have a decent chance and we're going to do our best".
I have a similar approach to business - as Richard Branson is fond of saying, "Take big risks, but always think about the potential downside".
If you asked my wife and me on our wedding day what our chances of success were, we would have probably said something like "Well, about half of all marriages end in divorce, but we're a little older and hopefully more mature than the average couple of newly-weds, and we talk pretty openly about difficult things. There are no guarantees, but we think we have a decent chance and we're going to do our best".
I have a similar approach to business - as Richard Branson is fond of saying, "Take big risks, but always think about the potential downside".
It's really not that risky if you're willing to fight to the death, so to speak. Many 'failures' are really just cases where people gave up.
Failure rate at 5 years is about 50%. How many jobs are there where it's worth coming in to work after 5 years? A lot of people get pigeonholed or stagnate, if not laid off, before then.
On the divorce rate, that's across all marriages, and it's closer to 40%. If you marry after 20, both are college-educated, and have known each other for 18 months before getting engaged, your odds are a lot better.
On the divorce rate, that's across all marriages, and it's closer to 40%. If you marry after 20, both are college-educated, and have known each other for 18 months before getting engaged, your odds are a lot better.
That must make this Paul Graham guy an idiot and this whole YCombinator thing must be idiocy in action.
While I don't agree with the Article's points, I invite you to read:
http://en.wikipedia.org/wiki/Argument_from_authority
http://en.wikipedia.org/wiki/Argument_from_authority
You don't. Plenty of businesses start cautiously and grow organically.
What you have to be a fool to do is to bank 3-5 years of your life on a 1/20 shot at a 7 figure acquisition. Fortunately, only a tiny fraction of the people who try to do this get funded and shot out of that particular cannon, and they only lose ~1 year of their life to the idea.