Why Not To Do A Startup(mattmaroon.com)
mattmaroon.com
Why Not To Do A Startup
http://mattmaroon.com/?p=340
37 comments
While this is mostly true, it's really the case against doing anything especially ambitious, not just starting startups. You could make an almost identical case against trying to write a great novel. The novelists you hear about in the press are the successful ones. Most people who try fail. It sucks up huge amounts of time regardless. The community is littered with sad, failed novelists. And are the ones who succeed satisfied? No; they just start another novel.
I don't think it is "mostly" true. This is a romanticized view of both startup failure and what your non-startup peers may or may not be doing by choosing the "safe" employee path.
- startup founders and employees are often complete freaks. they wouldn't get hired at Google in the first place, and are definitely not interested in pee-wee softball and 2.2 Volvos in the garage. Statistically, the type-A Ivy League wunderkinds are taking those stable jobs. The bulk of startup founders I meet dropped out of no-name schools or even high school.
- if you are an early employee at a VC funded startup you make close to market rate salary... that's the whole point of the VC funding... to hire key employees.
- the most successful startups I know of were founded by people who still had jobs, were in graduate school, or saved up a bunch of money at a previous job.
- Another unspoken story about startup founders is that a significant percentage of them come from wealthy families or have parents with serious connections in the industry. It is easier to take "risks" when you have a trust fund.
- The valley is filled with MORE sad, "failed" people who toiled as an employee at Yahoo or Apple or Adobe for 7 years, then freaked out or got laid off.
I'm also not sure the novelist community is littered with sad failures, either. Most novelists have day jobs. It is unlikely many failed or successful novelists passed over a lucrative corporate marketing career to suffer for their craft.
- startup founders and employees are often complete freaks. they wouldn't get hired at Google in the first place, and are definitely not interested in pee-wee softball and 2.2 Volvos in the garage. Statistically, the type-A Ivy League wunderkinds are taking those stable jobs. The bulk of startup founders I meet dropped out of no-name schools or even high school.
- if you are an early employee at a VC funded startup you make close to market rate salary... that's the whole point of the VC funding... to hire key employees.
- the most successful startups I know of were founded by people who still had jobs, were in graduate school, or saved up a bunch of money at a previous job.
- Another unspoken story about startup founders is that a significant percentage of them come from wealthy families or have parents with serious connections in the industry. It is easier to take "risks" when you have a trust fund.
- The valley is filled with MORE sad, "failed" people who toiled as an employee at Yahoo or Apple or Adobe for 7 years, then freaked out or got laid off.
I'm also not sure the novelist community is littered with sad failures, either. Most novelists have day jobs. It is unlikely many failed or successful novelists passed over a lucrative corporate marketing career to suffer for their craft.
Sounds like "Extremistan" and "Mediocristan" from the Black Swan - as do most fields where there are a few people who win really, really big, and lots of failures.
ever been to LA? a few big stars and producers up in the hills, every other person in the "biz" scattered across miles and miles of flatlands.
There are plenty of middle class folks in the "biz". These are the makeup artists, sound designers, animators, model makers and so on. They all make a good living pursuing their dream.
The point he's making is that not that many actors make their living through acting. Also, not many people go to Hollywood with a dream of being a gaffer. When you get a union job, you usually live month-to-month since living in Cali can be expensive.
Like with many other "scalable jobs", you have few winners and many, many losers. Acting, singing, startups, CEOs, traders... they all fall into this category.
Like with many other "scalable jobs", you have few winners and many, many losers. Acting, singing, startups, CEOs, traders... they all fall into this category.
Startups tend to be fairly binary, with you making either a very large amount off of them or nothing at all.
Recently re-reading pg's How To Make Wealth [1] made me wonder if this will soon become an outdated view of startups. The factors leading to the current and predicted rise in the number of startups (free software, cheap hardware, less personnel) should also lead to a large broading of the spectrum of failure <-> success.
The startup world has until recently been determined by its capital-intensive, high-risk nature - big money chasing big rewards. But the new dynamics may leave room for a lot of diversity in between, and consequently a lot more working on some kind of startup. 37 signals can be seen as exemplary of the other extreme to a go-big-or-die startup: founders and employees accept less risk, less pressure and more life for a higher chance of reward, though a lower expected reward. I think there will be a lot of middle ground: a lot of investors willing to accept less risk for lower return, and a whole lot more people will choose lower rewards for a more comfortable life, and better chance of success.
[1] [http://www.paulgraham.com/wealth.html] "The all-or-nothing aspect of startups was not something we wanted. Viaweb's hackers were all extremely risk-averse. If there had been some way just to work super hard and get paid for it, without having a lottery mixed in, we would have been delighted. We would have much preferred a 100% chance of $1 million to a 20% chance of $10 million, even though theoretically the second is worth twice as much. Unfortunately, there is not currently any space in the business world where you can get the first deal."
Recently re-reading pg's How To Make Wealth [1] made me wonder if this will soon become an outdated view of startups. The factors leading to the current and predicted rise in the number of startups (free software, cheap hardware, less personnel) should also lead to a large broading of the spectrum of failure <-> success.
The startup world has until recently been determined by its capital-intensive, high-risk nature - big money chasing big rewards. But the new dynamics may leave room for a lot of diversity in between, and consequently a lot more working on some kind of startup. 37 signals can be seen as exemplary of the other extreme to a go-big-or-die startup: founders and employees accept less risk, less pressure and more life for a higher chance of reward, though a lower expected reward. I think there will be a lot of middle ground: a lot of investors willing to accept less risk for lower return, and a whole lot more people will choose lower rewards for a more comfortable life, and better chance of success.
[1] [http://www.paulgraham.com/wealth.html] "The all-or-nothing aspect of startups was not something we wanted. Viaweb's hackers were all extremely risk-averse. If there had been some way just to work super hard and get paid for it, without having a lottery mixed in, we would have been delighted. We would have much preferred a 100% chance of $1 million to a 20% chance of $10 million, even though theoretically the second is worth twice as much. Unfortunately, there is not currently any space in the business world where you can get the first deal."
I think this is already happening somewhat thanks to Google's penchant for making a lot of small acquisitions, and other companies following their lead.
The problem still largely remains though. A venture backed company still has a lot more money than a bootstrapped one, and that still translates into a big advantage, even though database software is now free rather than $100k.
The problem still largely remains though. A venture backed company still has a lot more money than a bootstrapped one, and that still translates into a big advantage, even though database software is now free rather than $100k.
I suspect there is a massive, unexploited gap in the current venture model (with YC and Google leading the way in exploiting it), which will soon start to rapidly close as the opportunities become clear, and a new set of investment skills is developed.
The current economic turmoil may even help speed the process up somewhat, as investors seek to minimize risk.
The current economic turmoil may even help speed the process up somewhat, as investors seek to minimize risk.
"Startups tend to be fairly binary, with you making either a very large amount off of them or nothing at all."
Like a lot of thing in life: The most popular movie/book sells 10 times more than the #2. MS Word vs WordPerfect. Harrison Ford vs Mark Hamill... People like stars.
Like a lot of thing in life: The most popular movie/book sells 10 times more than the #2. MS Word vs WordPerfect. Harrison Ford vs Mark Hamill... People like stars.
People like choices they don't have to think about.
I'm a little confused why there's so much focus specifically on startups, where "startup" means a liquidity event focused venture. I thought the goal was just to make a lot of money, not do it in a specific way.
I think the highest EV is from founding a private going concern and pocketing profits over the course of ten years. Statistically the majority of millionaires are entrepreneurial sole proprietorships or partnerships. We're talking about people who bought or built a few car washes and ran a tight ship, or built a reputable private accounting practice.
I don't know this for a fact, but I bet a lot more people have got wealthy (by my standards) from software contracting and ISV work than from startups.
I think the highest EV is from founding a private going concern and pocketing profits over the course of ten years. Statistically the majority of millionaires are entrepreneurial sole proprietorships or partnerships. We're talking about people who bought or built a few car washes and ran a tight ship, or built a reputable private accounting practice.
I don't know this for a fact, but I bet a lot more people have got wealthy (by my standards) from software contracting and ISV work than from startups.
That was my impression, too--the article seemed to focus more on the VC path to success, which is like making it big as a professional athlete or entertainer.
For contractors and ISVs, I suppose you have to find a profitable niche.
For contractors and ISVs, I suppose you have to find a profitable niche.
While I was reading this, I kept making a mental translation of the word "startup" into "grad school" (especially the bit about being 30 and single, due to the seven previous years of 80-hour weeks). It held together just as well.
I'm no defender of the blind optimism that goes along with the startup universe, but there are certainly less lucrative ways to waste the best years of your life.
I'm no defender of the blind optimism that goes along with the startup universe, but there are certainly less lucrative ways to waste the best years of your life.
My perception was that it's much harder to fail at grad school.
It depends on your major... it's really tough to make it as a Biology PhD. There are just so many of them.
It depends on what you mean by "fail". If it means "drop out before getting a PhD", then you are surely right. But that's not how most people who enter PhD programs in sciences define success. They want a tenure track position afterwards (possibly with a few years of posdoc positions in between), and eventually they want to become tenured professors. And I suspect--I can't back it with any numbers though--the failure rate for them is of the same order of magnitude as for startups.
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Mine is that it's spectacularly easy to fail at grad school...tons of my classmates left college figuring they'd get a Ph.D and are now dropping out after (or sometimes just before) getting their masters.
You don't so much fail at grad school as fail at finding lucrative work afterwards.
Good article, Matt. Thanks. I like the way you think.
I think that part of the confusion of people when they get into the startup scene, is that they loose sight of what a successful exit does for you: solves the money problem. That's it. Nothing else. Nada.
A successful exit will not buy you love. It will not make you instantly happy. An exit will not provide you with meaning and purpose in life. It will not make you immortal. It will not fix all the other problems in your life. It solves one and only one problem: the money problem.
If you talk to people in the valley who were sudden millionaires in the first dot.com gold rush, I think that you'll find that sudden wealth brings its own set of problems which you touched on in your article. I actually remember reading a number of articles about the struggles of the nouveau-rich after their dot com went public.
These things are worth keeping in mind when you're thinking about that startup, or in dealing with relationships while you're in a startup. Be careful burning bridges with family and friends when you're working 100 hours a week with your startup. They might not be there when you find your exit.
I think that part of the confusion of people when they get into the startup scene, is that they loose sight of what a successful exit does for you: solves the money problem. That's it. Nothing else. Nada.
A successful exit will not buy you love. It will not make you instantly happy. An exit will not provide you with meaning and purpose in life. It will not make you immortal. It will not fix all the other problems in your life. It solves one and only one problem: the money problem.
If you talk to people in the valley who were sudden millionaires in the first dot.com gold rush, I think that you'll find that sudden wealth brings its own set of problems which you touched on in your article. I actually remember reading a number of articles about the struggles of the nouveau-rich after their dot com went public.
These things are worth keeping in mind when you're thinking about that startup, or in dealing with relationships while you're in a startup. Be careful burning bridges with family and friends when you're working 100 hours a week with your startup. They might not be there when you find your exit.
Matt Maroon : Hacker News 2008 :: Aaron Swartz : Hacker News 2007
Don't get me wrong, though -- they're both good writers, so the above isn't a swipe at either guy or Hacker News.
However: "trailer-dweller" seems a little mean-spirited (and inaccurate) when it's clear who you are referring to with that example.
Don't get me wrong, though -- they're both good writers, so the above isn't a swipe at either guy or Hacker News.
However: "trailer-dweller" seems a little mean-spirited (and inaccurate) when it's clear who you are referring to with that example.
Can someone kindly provide some history of this to those of us that weren't here in 2007?
To spell out the analogy, they both:
1) Are young and have started or been part of successful startups
2) Have blogs where they exhibit a strong personality through their writings, which are sometimes controversial but always tinged with elitism.*
3) Were/are darlings of Hacker News, with a high percentage of their blog posts making it high on the front page
*Not that there's anything wrong with that
1) Are young and have started or been part of successful startups
2) Have blogs where they exhibit a strong personality through their writings, which are sometimes controversial but always tinged with elitism.*
3) Were/are darlings of Hacker News, with a high percentage of their blog posts making it high on the front page
*Not that there's anything wrong with that
There are some really good points in his article. It doesn't deter me from continuing to work on my startup but a lot of it hit pretty close to home.
I had a high paying job, which I hated, and quit to do a startup last year. The problem was that while I was motivated and working night and day, the other 'founders' weren't nearly as devoted to it. As I went months and months without a paycheck, living off credit cards mostly, my new wife and I got further and further into debt (I quit my job 2 weeks before our wedding, that went over REAL well with the in-laws). After about 6 months I realized I was working all hours of the day for no money on a project that had a single digit chance of working out. At that point even if we did get the funding we were looking for I was still going to be paying off my credit card debt for years just to get back to the place I was before I started. So what could I do?
I got a real job, high paying enough that money isn't a problem anymore. We are still paying on the credit cards but we should have them taken care of in about 6 more months. The failure didn't stop me from working on startups though, I've seen what I'm capable of when I work for myself and after that I can't stand to spend my days working for someone else. In fact I'm already deep into a new startup, something that I'll hopefully be able to share with all of you in the next month or so.
Hopefully this time will turn out better than the last.
I had a high paying job, which I hated, and quit to do a startup last year. The problem was that while I was motivated and working night and day, the other 'founders' weren't nearly as devoted to it. As I went months and months without a paycheck, living off credit cards mostly, my new wife and I got further and further into debt (I quit my job 2 weeks before our wedding, that went over REAL well with the in-laws). After about 6 months I realized I was working all hours of the day for no money on a project that had a single digit chance of working out. At that point even if we did get the funding we were looking for I was still going to be paying off my credit card debt for years just to get back to the place I was before I started. So what could I do?
I got a real job, high paying enough that money isn't a problem anymore. We are still paying on the credit cards but we should have them taken care of in about 6 more months. The failure didn't stop me from working on startups though, I've seen what I'm capable of when I work for myself and after that I can't stand to spend my days working for someone else. In fact I'm already deep into a new startup, something that I'll hopefully be able to share with all of you in the next month or so.
Hopefully this time will turn out better than the last.
Wow. Life sucks and then you die.
Now that we’ve identified the worst case scenario, let's try to improve on it.
Now that we’ve identified the worst case scenario, let's try to improve on it.
Those happen, and your odds of that are probably far better than winning the lottery, but it’s still highly unlikely [...] and just like the lottery, everyone thinks their chances are better than they really are.
I hate this comparison - building a successful startup may have some element of luck, but like with everything in life, the amount of luck your success is based on is inversely proportional to the amount of understanding you have of your environment.
If you don't know the currents, getting to the other side does seems to take a lot of luck.
The 37signals folks could write a scathing counter-example to your post. Sure, they might be a rare exceptions, but I never understood why people feel there is fate in statistics... it's possible! It doesn't matter what "the most common startup life" is like, because again, the way your life works out isn't decided by pigeonholing you into fated roles, but by your own choosing.
I hate this comparison - building a successful startup may have some element of luck, but like with everything in life, the amount of luck your success is based on is inversely proportional to the amount of understanding you have of your environment.
If you don't know the currents, getting to the other side does seems to take a lot of luck.
The 37signals folks could write a scathing counter-example to your post. Sure, they might be a rare exceptions, but I never understood why people feel there is fate in statistics... it's possible! It doesn't matter what "the most common startup life" is like, because again, the way your life works out isn't decided by pigeonholing you into fated roles, but by your own choosing.
In poker world there's a famous aphorism that says tournaments are a lottery, but the good players get more tickets. (If you want to be technical, the average player gets 1 ticket, the best players get 5-10, the worst get some tiny fraction approaching 0).
Startups work much the same way. Those who win at anything (startups, lottery, poker) always underestimate the amount of luck involved, so if you ask them, they will of course denigrate its role.
Startups work much the same way. Those who win at anything (startups, lottery, poker) always underestimate the amount of luck involved, so if you ask them, they will of course denigrate its role.
I enjoyed the article.
I have to say, though, and this is totally unrelated to the article itself, that this is one of those pieces where I've thought--hey, I'd like to get in touch with this guy--and yet there's no way to do it directly. I may be the only one who still prefers to communicate specifically with one person directly from time to time, rather than via public comments, blog posts, walls, and the like, but I do. And there's no e-mail address or general contact information I could find on the site, no WHOIS information, no information in the Y Combinator profile on this board, etc. There's probably information somewhere on Facebook, but I can't access Facebook, and even if I could, I'm probably not in the right network to see it.
Oh, well! Still a good article.
I have to say, though, and this is totally unrelated to the article itself, that this is one of those pieces where I've thought--hey, I'd like to get in touch with this guy--and yet there's no way to do it directly. I may be the only one who still prefers to communicate specifically with one person directly from time to time, rather than via public comments, blog posts, walls, and the like, but I do. And there's no e-mail address or general contact information I could find on the site, no WHOIS information, no information in the Y Combinator profile on this board, etc. There's probably information somewhere on Facebook, but I can't access Facebook, and even if I could, I'm probably not in the right network to see it.
Oh, well! Still a good article.
oh sorry. just send it to matt@.
Matt,
Good post. Having both done a startup that didn't go big and now one that looks like it will turn into something big I thing your points are very well made.
As you say, history is written by the winners and about the outliers and totally glosses over the truth for the average majority (and the destructive lows of the minority).
As all of us know who've done it though, doing a business is something that's just in your blood. Most of us who do it didn't do it because we chose to, only because we had to.
I once asked Marc Hedlund a little about the failure of the startup he did before Wesabe. He said it was bad but on balance he didn't feel he came out too badly since he didn't lose his wife or go bankrupt. Enough said.
The highs are insanely high but it's worth writing about the lows too because there's a whole lot of cult around the startup scene that lures people into decisions that can be destructive.
Good post. Having both done a startup that didn't go big and now one that looks like it will turn into something big I thing your points are very well made.
As you say, history is written by the winners and about the outliers and totally glosses over the truth for the average majority (and the destructive lows of the minority).
As all of us know who've done it though, doing a business is something that's just in your blood. Most of us who do it didn't do it because we chose to, only because we had to.
I once asked Marc Hedlund a little about the failure of the startup he did before Wesabe. He said it was bad but on balance he didn't feel he came out too badly since he didn't lose his wife or go bankrupt. Enough said.
The highs are insanely high but it's worth writing about the lows too because there's a whole lot of cult around the startup scene that lures people into decisions that can be destructive.
I agree. I don't think I've really experienced the lows enough to comment on them. My past startup still returns passive income to this day, and my current one is still running and doesn't seem to be in danger of stopping any time soon.
It takes really long to make 2 millions as a regular employee, though. Even freelancing, making much more than my employed friends, it would probably take me >= 15 years to make one million EUR (bloody taxes get in the way). And that estimate is without a family. One million really is not a lot of money, if I consider having to live off savings for maybe 30 years or more, in a future time by which money will probably have been devaluated a lot, too (though now I can't imagine life without work, maybe eventually due to aging one has no other choice?).
OK, so maybe betting on a startup to succeed is a dumb plan, some hedging might be in order (occasional consulting gigs to ensure a minimum income - any other ideas?).
Btw., I wonder what is the average savings rate for employees? I am 35 now, and I recently realised that I am probably way behind on my savings compared to my peers... I think maybe to save about 10000€ per year is realistic?
Still, in my first year of work after getting my degree, according to some statistics I was already in the top 10% of earners of my country. Nevertheless I felt that without inheriting some money from parents (which I won't), I would never have been able to even afford to buy a flat. That is kind of sick, I think. Maybe life as an employee is not so easy, after all. A friend of mine is also an I worker in the top 10% range, and he said he couldn't support his family without help from his parents.
OK, so maybe betting on a startup to succeed is a dumb plan, some hedging might be in order (occasional consulting gigs to ensure a minimum income - any other ideas?).
Btw., I wonder what is the average savings rate for employees? I am 35 now, and I recently realised that I am probably way behind on my savings compared to my peers... I think maybe to save about 10000€ per year is realistic?
Still, in my first year of work after getting my degree, according to some statistics I was already in the top 10% of earners of my country. Nevertheless I felt that without inheriting some money from parents (which I won't), I would never have been able to even afford to buy a flat. That is kind of sick, I think. Maybe life as an employee is not so easy, after all. A friend of mine is also an I worker in the top 10% range, and he said he couldn't support his family without help from his parents.
The price of houses in the UK for one has gotten ridiculous in the last couple of years - I was lucky and got a place a few years back, but if I hadn't, I wouldn't be able to afford it now - I think its becoming more and more common. The only way around it is to:
* buy a place with one of your mates and share it * Meet a girlfriend/wife that earns a similar amount to yourself
The important thing seems to be to get onto the property ladder as quickly as possible.
As for savings, save as much as you can afford - I probably save 10 - 15% of my salary at the moment (no family to worry about) and it leaves me with enough beer money too!
* buy a place with one of your mates and share it * Meet a girlfriend/wife that earns a similar amount to yourself
The important thing seems to be to get onto the property ladder as quickly as possible.
As for savings, save as much as you can afford - I probably save 10 - 15% of my salary at the moment (no family to worry about) and it leaves me with enough beer money too!
The UK situation is extreme, particularly in London. My girlfriend and I got jobs straight out of university, and we could forget buying a place, and even renting was using up so much of our income that it was just a treadmill.
We left, basically. We've moved to Vienna (Austria) and living relatively cheaply in my late grandmother's place. I'm trying to get a startup off the ground, she's slowly figuring out what she wants to do.
And yeah, we're super-lucky to even have that opportunity.
I honestly don't know how London is staying as populous as it is. As far as I can see you're completely stuck with graduate salaries. (except in banking)
We left, basically. We've moved to Vienna (Austria) and living relatively cheaply in my late grandmother's place. I'm trying to get a startup off the ground, she's slowly figuring out what she wants to do.
And yeah, we're super-lucky to even have that opportunity.
I honestly don't know how London is staying as populous as it is. As far as I can see you're completely stuck with graduate salaries. (except in banking)
Yea, London is a total joke, as is Dublin - I have a few friends who rent in Dublin, and they live in a shoe box for a lot of rent (don't really know anyone in London)!
I am in Belfast, where the property prices only ballooned about 2 years ago, so I got lucky. Only a year or so after I got my house, friends were buying similar sized places that are less central for twice what I paid, not good!
I am in Belfast, where the property prices only ballooned about 2 years ago, so I got lucky. Only a year or so after I got my house, friends were buying similar sized places that are less central for twice what I paid, not good!
Good one. Being the pessimist I am, I enjoy thinking about the flip side of things.
Really good programmers also need to consider other opportunity costs. Linus and the world are better off because he has pretty much stuck with Linux through thick and thin, and never got heavily involved in running a startup. Tcl started going downhill when Ousterhout did Scriptics (although he did make lots of money). Some people are better off focusing 100% on tech, in other words.
Really good programmers also need to consider other opportunity costs. Linus and the world are better off because he has pretty much stuck with Linux through thick and thin, and never got heavily involved in running a startup. Tcl started going downhill when Ousterhout did Scriptics (although he did make lots of money). Some people are better off focusing 100% on tech, in other words.
Definitely a lot of truth in this article, but Matt barely acknowledges the advantages to doing startups. I also think that he's way too pessimistic about things like maintaining friendships and finding things to do after cashing out -- both of those are probably a lot easier than he describes.
That was the point of my article. The advantages are well-covered. The disadvantages aren't.
It seems to me that a startup can reduce its risk by swapping stock with another startup. That way, if either startup has a liquidity event, then the founders of both startups get approximately half as rich as they would have without the swap. Of course, more than just two startups can participate in a stock-pooling arrangement, reducing the participant's risk further.
Of course a startup does not want to swap stock share-for-share with just any other startup, and there are startups whose prospects are so dim that even if they offer 5 or 10 shares for every share of yours, you would not want to swap stock with them. And learning enough about another startup to judge their expected earnings is a lot of work. But sometimes the work has already been done for you, by YC for example.
There exists what economists call a "moral hazard" here: namely, once a startup has swapped stock with more than one or two other startups, its optimal strategy is for its founders not to put themselves out (that is, to coast, to relax) and rely on the possibility that one of the other startups will make a lot of money. But this is the same concern any individual founder has when he takes on any co-founder, and the solution is the same: you have (or someone you can trust has) to watch the other startups with whom you have swapped stock closely enough to verify that they are working as hard as you are. (YC's requirement that the startups it invests in must all move to the same city makes it easier for YC startups to watch each other in this way.) Along with that you will want to give yourself a time frame (1 year seems about right) during which time you can back out of the stock swap deal if you believe the startup you are swapping stock with is not putting themselves out (or has misrepresented themselves in negotiations with you).
I can think of several way to refine this strategy to deal fairly for example with the situation in which one startup gives up after 18 months while another works hard for four years, but I will stop here for now.
Of course a startup does not want to swap stock share-for-share with just any other startup, and there are startups whose prospects are so dim that even if they offer 5 or 10 shares for every share of yours, you would not want to swap stock with them. And learning enough about another startup to judge their expected earnings is a lot of work. But sometimes the work has already been done for you, by YC for example.
There exists what economists call a "moral hazard" here: namely, once a startup has swapped stock with more than one or two other startups, its optimal strategy is for its founders not to put themselves out (that is, to coast, to relax) and rely on the possibility that one of the other startups will make a lot of money. But this is the same concern any individual founder has when he takes on any co-founder, and the solution is the same: you have (or someone you can trust has) to watch the other startups with whom you have swapped stock closely enough to verify that they are working as hard as you are. (YC's requirement that the startups it invests in must all move to the same city makes it easier for YC startups to watch each other in this way.) Along with that you will want to give yourself a time frame (1 year seems about right) during which time you can back out of the stock swap deal if you believe the startup you are swapping stock with is not putting themselves out (or has misrepresented themselves in negotiations with you).
I can think of several way to refine this strategy to deal fairly for example with the situation in which one startup gives up after 18 months while another works hard for four years, but I will stop here for now.
That's a very interesting idea! This sounds like something that could be brokered more efficiently by YC or something similar - create an option pool for all the companies in a season (maybe 1% or 0.5% of each). 1% split 6 (8? how many companies per season?) ways isn't a ton, even in a big liquidity event, but's a nice hedge that would reduce risk for all the founders and make YC even more attractive.
For instance, 1% of a $10 mil acquisition would be $100K. If there are 8 companies that round, each would get $12.5K, which for 2-3 founders is like another infusion of YC cash and a few more months of runway.
Hardly enough to cause a moral hazard but still a significant benefit.
For instance, 1% of a $10 mil acquisition would be $100K. If there are 8 companies that round, each would get $12.5K, which for 2-3 founders is like another infusion of YC cash and a few more months of runway.
Hardly enough to cause a moral hazard but still a significant benefit.
This article can also be used to support Y Combinator's policy of preferring startups that aren't one person operations.
The problem of being lonely at the top is pretty much eliminated if you found your startup with some buddies who are also smart, creative, and motivated. If your startup is successful, you'll have some good friends who are in the same position as you and who have just gone through the entire startup experience with you.
The problem of being lonely at the top is pretty much eliminated if you found your startup with some buddies who are also smart, creative, and motivated. If your startup is successful, you'll have some good friends who are in the same position as you and who have just gone through the entire startup experience with you.
@Matt, You might enjoy Status Anxiety by Alain de Botton. A lot of the criticisms you attribute to startups could just as well be directed toward the entire system that ties social status to money and success. If startups are more blameworthy than other things, I suspect it's mostly because they move the locus of responsibility for success/failure closer to oneself, thus having a multiplier effect on social status.
s/multiplier effect on social status/multiplier effect on your anxiety over your social status/
It is good to see a contradicting post here from time to time, as there are a lot of downsides to starting a company.
I found myself at the age of 30 many years into a company I started at 23, and it consumed my entire 20's. Every aspect of my life suffered.
Are people aware of the strange things stress can do to one's body? Look up 'IBS' in google. Try not eating for a year. That's just the stuff I can post.
I missed weddings and funerals. I did things I'm so extremely proud of, and things I'm ashamed of.
Here is the real rub: Once you hire employees, you have an obligation to give them a consistent paycheck. It just happens. This increases 10x when the employees aren't kids in their early twenties working for stock options making peanuts who get 10 job offers a week.
When you have employees who have families that depend on your company, depend on your health plan, your dental plan, your 401k matching funds, the pressure to maintain even when times are tough is huge.
The game can change quickly. Having employees will make it harder to throw up your arms when things get tough and say 'perhaps I don't have a winner here'. You will dig in, and continue the battle, and you are committed until it can survive on it's own. And sometimes that takes a couple years.
Or five.
Or ten.
So a word of caution. Keeping a company alive is tough. Closing down a company is tougher. A fairy tale ending is a pipe dream. Last time I checked, there are a very small number of Mark Cuban's, and this sure ain't 1998. And guess what Jerry Yang is doing: working his ass off to save the soul of his baby. His hugely successful baby.
He doesn't have to be there.
He made his billions. But things aren't right, and he can't sleep at night.
Success is hitting payroll every month. Never ever miss payroll. Any goodness above that is gravy. Anything worse than that is hell.
Would I change it all, and to have just gotten a job out of college, reporting to someone every day of my life? Hell no!! I love it. I could think of no better way to live my life. :)
I found myself at the age of 30 many years into a company I started at 23, and it consumed my entire 20's. Every aspect of my life suffered.
Are people aware of the strange things stress can do to one's body? Look up 'IBS' in google. Try not eating for a year. That's just the stuff I can post.
I missed weddings and funerals. I did things I'm so extremely proud of, and things I'm ashamed of.
Here is the real rub: Once you hire employees, you have an obligation to give them a consistent paycheck. It just happens. This increases 10x when the employees aren't kids in their early twenties working for stock options making peanuts who get 10 job offers a week.
When you have employees who have families that depend on your company, depend on your health plan, your dental plan, your 401k matching funds, the pressure to maintain even when times are tough is huge.
The game can change quickly. Having employees will make it harder to throw up your arms when things get tough and say 'perhaps I don't have a winner here'. You will dig in, and continue the battle, and you are committed until it can survive on it's own. And sometimes that takes a couple years.
Or five.
Or ten.
So a word of caution. Keeping a company alive is tough. Closing down a company is tougher. A fairy tale ending is a pipe dream. Last time I checked, there are a very small number of Mark Cuban's, and this sure ain't 1998. And guess what Jerry Yang is doing: working his ass off to save the soul of his baby. His hugely successful baby.
He doesn't have to be there.
He made his billions. But things aren't right, and he can't sleep at night.
Success is hitting payroll every month. Never ever miss payroll. Any goodness above that is gravy. Anything worse than that is hell.
Would I change it all, and to have just gotten a job out of college, reporting to someone every day of my life? Hell no!! I love it. I could think of no better way to live my life. :)
I think this article is a great read... but just as he calls success in startups binary, so is the definition of what a startup actually is. Some aren't looking for that payoff in the end, and the lear jet. Some people simply just want to work for themselves, and can lead a simple lifestyle.
The idea that you have to 'go big or go home' in tech is getting more outdated I'd say. If I have to choose between being a corporate toad or a work-enslaved zombie, I choose neither. We live in a free-market economy, which gives us the flexiblity to make what we want with it. Isn't that what entrepreneurism is all about?
The idea that you have to 'go big or go home' in tech is getting more outdated I'd say. If I have to choose between being a corporate toad or a work-enslaved zombie, I choose neither. We live in a free-market economy, which gives us the flexiblity to make what we want with it. Isn't that what entrepreneurism is all about?
Staying employed and slowly building your wealth is not a riskless proposition. Past 20 years have been very nice to the tech sector and to equities in general. What are you going to say when your employer suddenly collapses and takes your pension/stock wealth with it (Enron, Bear Stearns etc)?
Even more extreme -- what if the whole economic cycle reverses, the currency devalues and inflation eats up your savings? Hard to imagine, but economic systems have this capacity for extreme events. I know the whole generation of honest engineers in Soviet Union who have not built a capital to retire on (obviously) and who were left desolate in their 50s-60s without pensions or jobs when their state companies/research labs collapsed.
Startup offers an option to strike it rich. If you hit the sweet spot of some business 'fitness function' - then you're set for life. If not, the most obvious strategy is to try as many startups as possible in your lifetime. This is like having a venture fund spread in time. One of your holdings should make it, the rest of them you expect to fail. It's nice if the winner comes when you're in your 20s :) But not necessary.
However, focusing on a single make-or-brake business idea and betting your farm (life) on it is a stupid idea. It is sad that many engineers are actually one-idea phenomena simply because of their specialization. Venture capitalists are in the best position, as they sit on the portfolio of options (startups).
Even more extreme -- what if the whole economic cycle reverses, the currency devalues and inflation eats up your savings? Hard to imagine, but economic systems have this capacity for extreme events. I know the whole generation of honest engineers in Soviet Union who have not built a capital to retire on (obviously) and who were left desolate in their 50s-60s without pensions or jobs when their state companies/research labs collapsed.
Startup offers an option to strike it rich. If you hit the sweet spot of some business 'fitness function' - then you're set for life. If not, the most obvious strategy is to try as many startups as possible in your lifetime. This is like having a venture fund spread in time. One of your holdings should make it, the rest of them you expect to fail. It's nice if the winner comes when you're in your 20s :) But not necessary.
However, focusing on a single make-or-brake business idea and betting your farm (life) on it is a stupid idea. It is sad that many engineers are actually one-idea phenomena simply because of their specialization. Venture capitalists are in the best position, as they sit on the portfolio of options (startups).
Of course nothing is riskless, but it's pretty close if done properly. Plowing all of your retirement savings into the stock of your employer is something that anyone who spends ten minutes Googling "how to manage my money" knows is retarded.
I'm sure it's possible to instead put your 401k and IRA money into a diversified collection of ETFs and bonds and such and still end up broke, but it hasn't happened yet, and if it does, our entire country is in a very bad place.
I'm sure it's possible to instead put your 401k and IRA money into a diversified collection of ETFs and bonds and such and still end up broke, but it hasn't happened yet, and if it does, our entire country is in a very bad place.
Nice article.
If you can answer the question "What you would like to do with your life?", the macro decisions, then decisions such as doing a startup or not, where to buy a house, etc. seem pale in comparison.
If you can answer the question "What you would like to do with your life?", the macro decisions, then decisions such as doing a startup or not, where to buy a house, etc. seem pale in comparison.
This is like saying living is dangerous because you might die.
Maybe I missed the scary part of the article. It made me want to succeed even more.
this is a more articulate version of what i've been saying.
do a startup if it will make you happy. Some people are only truly happy when they're challenged as thoroughly as only running your own business can be. But don't just assume it's for you based on how cool it seems.
A finely written article, and he almost had me going there for a while. The most frustrating thing for me, though, is how he implies that a default life of "ballgames," "ballet recitals," and working for someone else is superior by its very nature. Not everyone wants to not live up to their full potential and trade freedom for some veneer of security. Ultimately, this kind of thing is just more inspiring because it makes me want to prove him wrong (no offense to the author, of course).
None taken, you just didn't understand it. I'm not saying it is superior, just that a lot of people would find it to be, and those people may not belong in startups.
Ah, I do see your point. Basically, you were saying people should make sure they really know what they want out of life before blowing their best years, yeah?
My apologies to JRM's karma. I'd give you some points if I could.
bahaha. If I could somehow give you +10 for that comment I would.
You could mod up 10 of my other comments, but Paul Graham would have to remove your voting rights for abusing the system.
I think allowing arbitrary karma transfer on here would be an interesting experiment in reputational economies.
I think allowing arbitrary karma transfer on here would be an interesting experiment in reputational economies.
give each player a "karma budget" and have them earn more if other people give karma similarly, and you've basically made a news.yc futures market.
This article is very well written - might not reflect the truth of how everything HAS to be in a startup but definitely reflects how most startups end up being. Also, and as I have been lately figuring out, the reason most startups end up being like this is because most startups have a misplaced understanding on how things are supposed to work.
A lot of them try to do too much or try to compete when they should be ideally figuring out the business.
Good mentorship goes a long way of making the startup work the right way.Getting good mentors who have done startups is really the harder part.
Startups are good for society and hopefully good for the individuals who do them - but they need to be done the right way. Matts article serves as a cautionary tale to every startup entrepreneur. If he describes your startup really well, you are probably doing it the wrong way.
A lot of them try to do too much or try to compete when they should be ideally figuring out the business.
Good mentorship goes a long way of making the startup work the right way.Getting good mentors who have done startups is really the harder part.
Startups are good for society and hopefully good for the individuals who do them - but they need to be done the right way. Matts article serves as a cautionary tale to every startup entrepreneur. If he describes your startup really well, you are probably doing it the wrong way.
While it's good to mentally prepare one's self with the knowledge that startups are (usually) a long hard road, and success is far from guaranteed, this article seemed a bit too negative for negativity's own sake. For my tastes anyway.
It's important to try to do great things, and it's noble to encourage others to do the same. ("Yay YC," you know?)
Seth Godin has an old post on this that I think serves as a good reminder, and still rings very true to me. A key quote:
"The thing is, we still live in a world that's filled with opportunity. In fact, we have more than an opportunity -- we have an obligation. An obligation to spend our time doing great things. To find ideas that matter and to share them."
--http://sethgodin.typepad.com/seths_blog/2007/12/only-two-yea...
It's important to try to do great things, and it's noble to encourage others to do the same. ("Yay YC," you know?)
Seth Godin has an old post on this that I think serves as a good reminder, and still rings very true to me. A key quote:
"The thing is, we still live in a world that's filled with opportunity. In fact, we have more than an opportunity -- we have an obligation. An obligation to spend our time doing great things. To find ideas that matter and to share them."
--http://sethgodin.typepad.com/seths_blog/2007/12/only-two-yea...
I totally disagree with the assertion that it's important to try to do great things, or at all noble to encourage others to do so. For some of us it is, for some of us it is not, and it isn't universal. I don't think it's safe to assume that it's what is is best for everyone and try to encourage them to do it. It clearly is not the best course through life for most people.
It's incredibly selfish to try to convince others to sacrifice their own happiness to make the world a better place for you and to do what you think is important. If someone is happier working at Wal-Mart, and it means they won't author the next web-based [insert MS Office product here] why try to convince them otherwise? Because you want that social network for [insert hobbyist or demographic here]?
It's incredibly selfish to try to convince others to sacrifice their own happiness to make the world a better place for you and to do what you think is important. If someone is happier working at Wal-Mart, and it means they won't author the next web-based [insert MS Office product here] why try to convince them otherwise? Because you want that social network for [insert hobbyist or demographic here]?
"I totally disagree with the assertion that it's important to try to do great things (...)"
I must admit, I respect your difference of opinion, but I find it very hard to relate to your point of view. Your statement seems to be contrary to a basic aspect of the human condition; that is, the desire to improve our lots in life.
Greatness does not mean "startups for everyone". Perhaps the use of "our obligation" in my quote from Seth Godin meant "completely everyone's obligation" in your interpretation? For me, it meant the obligation of Seth's audience; that is, many of the same types with dreams of entrepreneurship who read YC news. In any case, my belief, which I believe to be the common one, is that greatness has a definition in many different situations.
Personal experience and my readings on the science of happiness (see "Flow: the Psychology of Optimal Experience" by Mihály Csíkszentmihályi) lead me to believe that the happy Wal-Mart employee is probably happy because they are able to regularly accomplish things that are meaningful to them in an environment they find suitably challenging. To say it simply, the happiness the employee finds in their work means they are likely a great Wal-Mart employee!
I think your interpretation of my statement on the nobility of encouragement alters the meaning very dramatically from the plain contextual meanings of my words. Perhaps I am not cynical enough, but to me, 'encouraging' another implies having their best interests at heart, not one's own.
For some of the readers here at YC News, we find ourselves with a startup dream inside of us that we are nearly dying to express externally. Indeed, I agree with you that those who plan to undertake a startup should take pause and not do so lightly. I believe that most of the startup bloggers you speak of at least suggest this. Encouraging people who have taken this look at the strength of their desire and their capability -- that is, freely helping this self-prepared group to reach the happiness they seek -- seems quite noble to me.
I feel I also ought to say something about the strength of your apparent disillusionment with the concept of startups. Life as a entrepreneurial success doesn't have to mean that all of one's old friends and new acquaintances turn manipulative. If it is a fear, one could simply give money beyond living allowance away to worthy causes and step back from the power game (see Woz). It's true there are relationship strengthening opportunities to be missed in starting a company, but there are also some to be gained. Co-founders may become best friends. Compatible significant others may be easier to attract when one is doing what one is passionate about.
I must admit, I respect your difference of opinion, but I find it very hard to relate to your point of view. Your statement seems to be contrary to a basic aspect of the human condition; that is, the desire to improve our lots in life.
Greatness does not mean "startups for everyone". Perhaps the use of "our obligation" in my quote from Seth Godin meant "completely everyone's obligation" in your interpretation? For me, it meant the obligation of Seth's audience; that is, many of the same types with dreams of entrepreneurship who read YC news. In any case, my belief, which I believe to be the common one, is that greatness has a definition in many different situations.
Personal experience and my readings on the science of happiness (see "Flow: the Psychology of Optimal Experience" by Mihály Csíkszentmihályi) lead me to believe that the happy Wal-Mart employee is probably happy because they are able to regularly accomplish things that are meaningful to them in an environment they find suitably challenging. To say it simply, the happiness the employee finds in their work means they are likely a great Wal-Mart employee!
I think your interpretation of my statement on the nobility of encouragement alters the meaning very dramatically from the plain contextual meanings of my words. Perhaps I am not cynical enough, but to me, 'encouraging' another implies having their best interests at heart, not one's own.
For some of the readers here at YC News, we find ourselves with a startup dream inside of us that we are nearly dying to express externally. Indeed, I agree with you that those who plan to undertake a startup should take pause and not do so lightly. I believe that most of the startup bloggers you speak of at least suggest this. Encouraging people who have taken this look at the strength of their desire and their capability -- that is, freely helping this self-prepared group to reach the happiness they seek -- seems quite noble to me.
I feel I also ought to say something about the strength of your apparent disillusionment with the concept of startups. Life as a entrepreneurial success doesn't have to mean that all of one's old friends and new acquaintances turn manipulative. If it is a fear, one could simply give money beyond living allowance away to worthy causes and step back from the power game (see Woz). It's true there are relationship strengthening opportunities to be missed in starting a company, but there are also some to be gained. Co-founders may become best friends. Compatible significant others may be easier to attract when one is doing what one is passionate about.
What a downer of an article.
What is the percentage of success for YC startups?
It's too early to tell, because it takes 4-5 years to say for sure if a startup has succeeded, and YC is only 3 years old.
I'd be happy if it was a third, and delighted if it was as high as 50%.
I'd be happy if it was a third, and delighted if it was as high as 50%.
What I'd like to know is, what % need to succeed for you guys to turn a profit. I'm sure it's too early to tell that too, but do you have any guesses?
Depends on the definition of succeed. IPO or HR acquisition? If the former, 1%. If the latter, more like 20-30%.
Right, I'd be interested to see 10 years down the line how many successes fit into each category (and in between). Still, if you can remain in the black with just 30% ending in an HR acquisition that's pretty strong. Seems like you should easily accomplish profitablity.
Honestly, I'm not sure what was the point. How powerful this statement by a smoker is "Please, quite smoking" or something like
"Don't try climbing mountains. It's dangerous." by Sir Everest.
Bad example, may be. But then may be I'm not the target audience.
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a decent article that sparked great comments makes this an excellent article. startups for me = an opportunity to pursue
things you are passionate about - an opportunity to make a name for oneself - and most importantly an overcome great odds and obstacles, which unlike the lottery you actually have some control over. that is why startups are great.
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I would have entitled this article, "Don't Let This Happen to You, Now Get Back to Work."
Gotta say: Bullshit point of view.
He should have started the article by defining what he means by "success".
Me, I don't need plentyoffish money to be successful. Just give me some hope and some extra cash and I'll call it a small win.
Me, I don't need plentyoffish money to be successful. Just give me some hope and some extra cash and I'll call it a small win.
startup (a) do, to not (ask)why (did not)!
?
by changing the order of the words from the title, and creating a new phrase to remind you that you should do a startup because you may regret of not doing so.
this also shows that the startup world is so fluid as much a title can be. everything has a different intepretation by different people.
a startup is a personal experience and the reasons for someone who choses not to pursue a startup should not be the excuse or affect anyone's choice to make their attempt.
this also shows that the startup world is so fluid as much a title can be. everything has a different intepretation by different people.
a startup is a personal experience and the reasons for someone who choses not to pursue a startup should not be the excuse or affect anyone's choice to make their attempt.