Think Twice Before Starting A Company(robgo.org)
robgo.org
Think Twice Before Starting A Company
http://robgo.org/2012/05/14/think-twice-before-starting-a-company/
10 comments
I agree with that VCs give "thin-value" advice that don't actually propel you to success.
But this post was different. He gave a couple of good points: there's a lot of competition: competition for users, competition for press, competition for attention. And it's emotionally draining as well.
But this post was different. He gave a couple of good points: there's a lot of competition: competition for users, competition for press, competition for attention. And it's emotionally draining as well.
there is always a lot of competition if you in an established market. Either your product/service is obviously better than the competition or you should be in a new market without a lot of competition...
This doesn't change with what stage we are in of the boom/bust VC flow...
This doesn't change with what stage we are in of the boom/bust VC flow...
Note his core concerns:
* It's harder to "stand out" amidst the crowd of startups that easy capital has created.
* It's ridiculously hard to hire.
* Seed funding is slowing down.
* Something about the "innovation cycle".
These might be very good reasons to defer the dream of financing a startup with venture funding, but they're also advantages for bootstrapped companies, which:
* Lock in viable business models early out of necessity and can outlast most of the built-to-flip companies in the current VC cohort.
* Are founded by people who can actually execute on technology.
* Don't require outside financing at all, and can thus look at "increasing difficulty" of capital raises and grin.
I don't know what to say about the "innovation cycle" though. That might be a killer.
* It's harder to "stand out" amidst the crowd of startups that easy capital has created.
* It's ridiculously hard to hire.
* Seed funding is slowing down.
* Something about the "innovation cycle".
These might be very good reasons to defer the dream of financing a startup with venture funding, but they're also advantages for bootstrapped companies, which:
* Lock in viable business models early out of necessity and can outlast most of the built-to-flip companies in the current VC cohort.
* Are founded by people who can actually execute on technology.
* Don't require outside financing at all, and can thus look at "increasing difficulty" of capital raises and grin.
I don't know what to say about the "innovation cycle" though. That might be a killer.
It reminds me of something Caterina Fake (Flickr) said some years ago. The problem is, both these things come off like "I got mine, but it's too late for you."
I think a budding entrepreneur should think a lot more than twice about starting a company, but at the end of the day this post sounds like trying to "time the market" which just isn't possible. If you want to be an entrepreneur, then you have to be willing to start almost any business that has a chance to be profitable.
I'm very scared that this is something I have to learn. I have been jumping around between ideas for the last 6 months now. I want to do something in health or education that moves forward mankind ... but its hard to find a problem that has these constraints.
It's no more dangerous to "do a startup" now than it's ever been, it only seems like it's harder because everybody is doing the same stupid fashion/flash sale/monthly curated box of shit startup ideas.
A successful business finds a need or desire in the market place, solves the need or fulfills the desire, and people pay for its products or services. The principles haven't changed, nor has the percentage of the population capable of creating sustainable businesses. I think the author is confusing causality. He is speaking as if the number of startups coming online somehow affects the viability of other startups. That isn't really so. If you can create something people will pay for and are able to scale it sustainably, you will succeed.
What has changed is people's expectations. Whereas it used to be that people understood that building a successful business was a process of years of hard work without a reliance on investment money, nowadays it is assumed that if you aren't a millionaire after six months you've failed. I think Jeff Bezos said that just by taking a long-term approach to your business you instantly make the vast majority of the competition irrelevant.
A successful business finds a need or desire in the market place, solves the need or fulfills the desire, and people pay for its products or services. The principles haven't changed, nor has the percentage of the population capable of creating sustainable businesses. I think the author is confusing causality. He is speaking as if the number of startups coming online somehow affects the viability of other startups. That isn't really so. If you can create something people will pay for and are able to scale it sustainably, you will succeed.
What has changed is people's expectations. Whereas it used to be that people understood that building a successful business was a process of years of hard work without a reliance on investment money, nowadays it is assumed that if you aren't a millionaire after six months you've failed. I think Jeff Bezos said that just by taking a long-term approach to your business you instantly make the vast majority of the competition irrelevant.
We're doing the platform approach. I don't think this was part of any grand calculation of where the technology wave is, just that it is the idea we have and it meshes w/our skillset.
The field does seem awfully crowded with social/mobile lightweight apps.
People prosper all over different parts of economic/tech cycles. My father was a developer (real estate kind, a regular "A Man In Full") in Atlanta, he used to always make all his bank during recessions when all the other developers were going broke. Conversely, during the fat times, he never did very well.
We (including Dad) were all aware of this pattern, but never could really figure out why things worked out that way.
The field does seem awfully crowded with social/mobile lightweight apps.
People prosper all over different parts of economic/tech cycles. My father was a developer (real estate kind, a regular "A Man In Full") in Atlanta, he used to always make all his bank during recessions when all the other developers were going broke. Conversely, during the fat times, he never did very well.
We (including Dad) were all aware of this pattern, but never could really figure out why things worked out that way.
He's probably too honest, ethical and has a good understanding of risk.
I don't mean to say that everyone else is dishonest and unethical, or that they all have the risk ratio upside down.
But in times of boom, people can sail a lot closer to the wind which can have a big upside on the results. However, in down times people like to deal with those that they can trust.
I don't mean to say that everyone else is dishonest and unethical, or that they all have the risk ratio upside down.
But in times of boom, people can sail a lot closer to the wind which can have a big upside on the results. However, in down times people like to deal with those that they can trust.
When the tide goes out, we discover who wasn't wearing their bathing suit, the old saw goes.
Timing and picking your battles will make you or break you.
Starting a company just because everyone else seems to be doing it and because it's the hot new trend are the worst reasons. Good reasons to do a startup though, what counts as being in the right place at the right time, I think are: (a) having a great product in a strong market, (b) meeting exceptionally talented co-founders with good chemistry, and (c) being in a good position to take risk in life (minimal debt, decent finances, good confidence in being able to rebound and get a job amidst this recession, just in case the venture completely fails)
Starting a company just because everyone else seems to be doing it and because it's the hot new trend are the worst reasons. Good reasons to do a startup though, what counts as being in the right place at the right time, I think are: (a) having a great product in a strong market, (b) meeting exceptionally talented co-founders with good chemistry, and (c) being in a good position to take risk in life (minimal debt, decent finances, good confidence in being able to rebound and get a job amidst this recession, just in case the venture completely fails)
Industries often have sayings that turn out to be relevant only in the short-term. It used to be that you needed to tackle a "technically difficult problem"; but many startups have succeeded by building something that people want without creating new technology but "executing" well. He's suggesting we cycle between technology and applications of it.
Obviously we need both tech and apps, but is there evidence in the past of them occurring in cycles?
That said, it's true that everyone is complaining that there's nothing really new, that most apps are trivial. And of course, in the last few years bandwidth/browser/cloud has gotten good enough for web-apps to go mainstream and cause modernization across many industries, which requires domain knowledge and "execution".
I'd love opportunity to be in "enabling technologies and platforms" - but it seems innovators in software infrastructure (libraries, languages, middleware) today often get nothing. Exceptions from the past: databases, postscript. Please prove me wrong!
Obviously we need both tech and apps, but is there evidence in the past of them occurring in cycles?
That said, it's true that everyone is complaining that there's nothing really new, that most apps are trivial. And of course, in the last few years bandwidth/browser/cloud has gotten good enough for web-apps to go mainstream and cause modernization across many industries, which requires domain knowledge and "execution".
I'd love opportunity to be in "enabling technologies and platforms" - but it seems innovators in software infrastructure (libraries, languages, middleware) today often get nothing. Exceptions from the past: databases, postscript. Please prove me wrong!
Concur. I think this is a very volatile and potentially dangerous time to "do a startup" if you don't have a very focused and somewhat proven plan. I think it's time to ignore what the Cool Kids are doing (in 2-4 years, they won't be cool) and go away from where they are so as to avoid following them into idiocy.
This sounds easier than it actually is. The advice of "focus on real work and ignore the idiotic social climbing" or "build something useful" seems obvious and easy to follow, but when complete jackasses are getting funded and acq-hired for millions, it's easy to be swayed, embittered, confused, or otherwise influenced by the distractions. It's really hard for a 2x-year-old first-time founder not to find himself doing stupid stuff amid all the insanity.
Winter is coming. That doesn't mean that "the crash" is here. It might be 4 years out, or 4 weeks away. It might be a sudden drop or a slow deflation. I have no idea when or how it will come, and I don't think anyone does. Still, there are some conclusions to take away from it. First, those of us who aren't ready to be Founders properly (that means, having enough VC connections that VCs consider you a social equal and will take the time to mentor you if they don't fund you) should probably sit this bubble out. Sure, being a founder provides a unique and immensely educational "startup experience", but taking a subordinate role as employee #37 at a VC darling is not much different and rarely any better than taking a regular job. Actually, I'd argue that it's often worse for subordinate employees, because VC-istan tends to have crappy health benefits, inexperienced and unstable management, and a lack of long-term focus on peoples' careers (because the company may not exist in 5 years). If your ambition is to be a Real Founder (again that's not some guy whittling at his trust fund, but someone who VCs are actively interested in, and who could get an EIR job with a phone call) and you're not there yet, there's probably not enough gas in this bubble left to get there before the end of it. People who are out of school now have a decent shot at being Real Founder material by the start of the next startup boom, if they really crack the books and work hard starting now and right through the bust... during which the wantrepreneurs and social climbers will get discouraged and leave, making the field less congested and giving the real players a chance to shine.
Which means... it's time to take the focus away from what TechCrunch and Sequoia are doing, and back to the difficult and often obscure (if intrinsically rewarding, and often lucrative in the long term) campaign to improve one's technical skills through practice and hard work. This doesn't have to occur at a startup, although it can. But now is also a good time to go back to school, to work in a more established organization, to try out Real Technology instead of these silly social apps, and to start networking.
This sounds easier than it actually is. The advice of "focus on real work and ignore the idiotic social climbing" or "build something useful" seems obvious and easy to follow, but when complete jackasses are getting funded and acq-hired for millions, it's easy to be swayed, embittered, confused, or otherwise influenced by the distractions. It's really hard for a 2x-year-old first-time founder not to find himself doing stupid stuff amid all the insanity.
Winter is coming. That doesn't mean that "the crash" is here. It might be 4 years out, or 4 weeks away. It might be a sudden drop or a slow deflation. I have no idea when or how it will come, and I don't think anyone does. Still, there are some conclusions to take away from it. First, those of us who aren't ready to be Founders properly (that means, having enough VC connections that VCs consider you a social equal and will take the time to mentor you if they don't fund you) should probably sit this bubble out. Sure, being a founder provides a unique and immensely educational "startup experience", but taking a subordinate role as employee #37 at a VC darling is not much different and rarely any better than taking a regular job. Actually, I'd argue that it's often worse for subordinate employees, because VC-istan tends to have crappy health benefits, inexperienced and unstable management, and a lack of long-term focus on peoples' careers (because the company may not exist in 5 years). If your ambition is to be a Real Founder (again that's not some guy whittling at his trust fund, but someone who VCs are actively interested in, and who could get an EIR job with a phone call) and you're not there yet, there's probably not enough gas in this bubble left to get there before the end of it. People who are out of school now have a decent shot at being Real Founder material by the start of the next startup boom, if they really crack the books and work hard starting now and right through the bust... during which the wantrepreneurs and social climbers will get discouraged and leave, making the field less congested and giving the real players a chance to shine.
Which means... it's time to take the focus away from what TechCrunch and Sequoia are doing, and back to the difficult and often obscure (if intrinsically rewarding, and often lucrative in the long term) campaign to improve one's technical skills through practice and hard work. This doesn't have to occur at a startup, although it can. But now is also a good time to go back to school, to work in a more established organization, to try out Real Technology instead of these silly social apps, and to start networking.
I don't think this is good advice. If you have the burning desire to start a company, you should start the company and not worry about timing the market to ride the bubble. People start startups because they have a solution to a major problem inside their head that's dying to get out, and because the alternative(getting a stable job) is out of the question, not because they think economic conditions are more favorable.
You can also build the initial version while still going to your regular job. So you don't have to give up on your safe salary.
If you can't do that because of a lack of focus, then maybe you are not ready to start a company. If a lack of time is what gets in the way, then maybe you need to be smarter about it and build less. If you can't do that, then maybe you don't have the discipline required to start a company.
IMHO, it's a bad investment to start a company without having real proof that the product is wanted by people. And ideally you must also have a couple of paying clients.
If you can't do that because of a lack of focus, then maybe you are not ready to start a company. If a lack of time is what gets in the way, then maybe you need to be smarter about it and build less. If you can't do that, then maybe you don't have the discipline required to start a company.
IMHO, it's a bad investment to start a company without having real proof that the product is wanted by people. And ideally you must also have a couple of paying clients.
Solving a technical problem and starting a company are two different processes. I would say that it's better for most people to focus on the first, and then if there seems to be demand for the solution, consider the second.
If there's established demand for a product, then it might be time to start a company. If you already have clients or people dying to fund you (they asked you, not vice versa) then go. That's more acyclical than trying to become a VC darling.
Also, getting a stable job isn't out of the question for most people. This isn't 2008.
If there's established demand for a product, then it might be time to start a company. If you already have clients or people dying to fund you (they asked you, not vice versa) then go. That's more acyclical than trying to become a VC darling.
Also, getting a stable job isn't out of the question for most people. This isn't 2008.
Which means... it's time to take the focus away from what TechCrunch and Sequoia are doing, and back to the difficult and often obscure (if intrinsically rewarding, and often lucrative in the long term) campaign to improve one's technical skills through practice and hard work.
Ignore TechCrunch and Sequoia - yes please :-) However, I'm unsure about the rest of the advice.
This maybe just me - but most of the problems I've had when I started a company for the first time (and second, and ...) are with the business skills not the technical ones. Being better technically doesn't make me better at running a business, finding markets and channels, etc.
I see just as many businesses fail through lack of business chops as I do lack of technical chops.
The most effective learning I've got in that arena was from starting a business and failing miserably. There may be better ways to learn now - who knows. But I'm pretty certain just focusing on sharpening your technical saw isn't going to make you more likely to succeed.
Maybe starting a new business now, in the face of almost certain total and abject failure, is just what the doctor ordered :-)
Ignore TechCrunch and Sequoia - yes please :-) However, I'm unsure about the rest of the advice.
This maybe just me - but most of the problems I've had when I started a company for the first time (and second, and ...) are with the business skills not the technical ones. Being better technically doesn't make me better at running a business, finding markets and channels, etc.
I see just as many businesses fail through lack of business chops as I do lack of technical chops.
The most effective learning I've got in that arena was from starting a business and failing miserably. There may be better ways to learn now - who knows. But I'm pretty certain just focusing on sharpening your technical saw isn't going to make you more likely to succeed.
Maybe starting a new business now, in the face of almost certain total and abject failure, is just what the doctor ordered :-)
This maybe just me - but most of the problems I've had when I started a company for the first time (and second, and ...) are with the business skills not the technical ones.
Fair point, but right now the business world (in VC-istan) is loopy and you might learn the wrong things-- things that are only true at the peak of a bubble.
I know someone who had a startup in the late '90s. He didn't know what he was doing and never should have been funded. He ended up raising about $50 million. Being CEO of a transiently important company went to his head, the tide went out, and he crashed and burned. It's 13 years later and he still hasn't emotionally recovered. All of his subsequent effort has failed because he wants his late-90s startup back. This sort of emotional pollution can be obvious or it can be subtle. I think most people get affected by some amount of it over their careers-- usually the more subtle kind. Loopy, style-over-substance business environments where clowns are made kings are ripe grounds to take in emotional pollution, and it's harder to resist that than people think.
Maybe starting a new business now, in the face of almost certain total and abject failure, is just what the doctor ordered
Right now, the issue isn't that there isn't money to be made in startups. There is. But the environment is congested and therefore noisy rather than meritocratic and that tends to teach people the wrong lessons.
In times of congestion, social connections win. What this means is that 90% of what is being funded is raising money because of who the founders know, not what their ideas are. If you try to imitiate their ideas, you're learning the wrong lessons. If you want to be a startup founder, you're better off figuring out what you need to do to have more VC connections in 5 years, and that may or may not be starting your own company.
As I said, learning the wrong thing is more dangerous than sitting a bubble out and doing something else, and emotional pollution is a cause of the former experience. The late-bubble danger isn't an "everyone loses" abject failure; it's that you might watch unqualified people win, while losing, and start (possibly subconsciously) picking up the attitudes and approaches of those winners, which might not suit you later when substance becomes king again.
Fair point, but right now the business world (in VC-istan) is loopy and you might learn the wrong things-- things that are only true at the peak of a bubble.
I know someone who had a startup in the late '90s. He didn't know what he was doing and never should have been funded. He ended up raising about $50 million. Being CEO of a transiently important company went to his head, the tide went out, and he crashed and burned. It's 13 years later and he still hasn't emotionally recovered. All of his subsequent effort has failed because he wants his late-90s startup back. This sort of emotional pollution can be obvious or it can be subtle. I think most people get affected by some amount of it over their careers-- usually the more subtle kind. Loopy, style-over-substance business environments where clowns are made kings are ripe grounds to take in emotional pollution, and it's harder to resist that than people think.
Maybe starting a new business now, in the face of almost certain total and abject failure, is just what the doctor ordered
Right now, the issue isn't that there isn't money to be made in startups. There is. But the environment is congested and therefore noisy rather than meritocratic and that tends to teach people the wrong lessons.
In times of congestion, social connections win. What this means is that 90% of what is being funded is raising money because of who the founders know, not what their ideas are. If you try to imitiate their ideas, you're learning the wrong lessons. If you want to be a startup founder, you're better off figuring out what you need to do to have more VC connections in 5 years, and that may or may not be starting your own company.
As I said, learning the wrong thing is more dangerous than sitting a bubble out and doing something else, and emotional pollution is a cause of the former experience. The late-bubble danger isn't an "everyone loses" abject failure; it's that you might watch unqualified people win, while losing, and start (possibly subconsciously) picking up the attitudes and approaches of those winners, which might not suit you later when substance becomes king again.
Maybe looking at what's VC funded is a mistake - but that seems an fairly small chunk of the startup community. Even in this effervescent time. Where most of the noise is, of course, but there are a stack of people bootstrapping products, or starting small dev or design agencies, or consulting. Lots of other ways to start and build businesses, and many lessons to learn outside of the VC funding bun-fight.
(I also question anybody who has a generic career goal of "startup founder" - they're probably heading for trouble anyway :-)
(I also question anybody who has a generic career goal of "startup founder" - they're probably heading for trouble anyway :-)
"three years ago, I was telling everyone I met to start companies."
"First, part of my perspective is just driven by my natural instincts to be counter-cultural. When there seems to be a lot of hype around an area or activity, I find myself pretty un-attracted to it. "
So... create/contribute to the culture of 'start a company' ("bias towards action") and then claim "counter culture" thinking against "hype" (which you helped foment).
Interesting angle...
"First, part of my perspective is just driven by my natural instincts to be counter-cultural. When there seems to be a lot of hype around an area or activity, I find myself pretty un-attracted to it. "
So... create/contribute to the culture of 'start a company' ("bias towards action") and then claim "counter culture" thinking against "hype" (which you helped foment).
Interesting angle...
It's never a bad time to start a consulting webdev shop where you get paid to implement other people's products for a nice fee.
At the very least, I'd appreciate the article more if he specified "Think twice before starting a company that might seek venture capital funding." Most entrepreneurs I know never approach VCs. Did he forget few companies involve technology at all? His advice doesn't apply to them. Well, except that thinking twice is obviously good advice to anyone, but his reasons for it.
Entrepreneurship is far greater than starting tech companies looking for VC. I'd be wary of an investor who didn't realize he put himself in such a bubble. With all that name-dropping, you can see how social bubbles can contribute to investment bubbles.
If you love starting companies and you have an idea whose time is now, you'll find a way to start your company. If you don't need venture capital, hopefully you won't hear his advice in the first place, or will realize it doesn't apply to you. Even if you do want VC, if your firm eventually dies but you loved doing it and it helps you do better on your next one, it seems to me you've succeeded.
EDIT: I fleshed out a few more ideas to this post afterward if anyone wants to read past what I wrote here -- http://joshuaspodek.com/entrepreneurs-advice-venture-capital...