Big Startups vs Little Startups(ezliu.com)
ezliu.com
Big Startups vs Little Startups
http://ezliu.com/1-startup-2-startups-big-startups-little-startup/
12 comments
Hi there, thanks for the feedback. I don't claim I'm right, this is just how I view opportunities. i DO think of every opportunity as a distribution of payouts with varying probabilities. Before going into the venture (and even after it... only once measurement), you can't actually _know_ what that probability distribution looks like.
That said, I don't really believe small is _safer_ -- I'm just saying small costs less and generally has smaller upsides and smaller return variance.
If you read to the end, you'll notice that I don't actually make a value judgement on which path is "safer" or "better" in any way. I think it's just a question of personal preference, influenced by your individual station in life.
I think this has more to do with outcome utility. I personally will probably never spend more than 1mm a year, so building a startup that has a significant tail above 1mm/year in recurring revenue would be great -- but the utility of that tail is very low to me, so its not worth sacrificing success probability.
And yep, just totally guessing what that return distribution looks like.
For me it's not that small is safer, its that there are a lot more resources to fall back on for small. I personally don't have the chops to build twitter scalability. But if I wanted to open a restaurant, there are tons of resources and many people have blazed that path for me, and I can look to them for advice. It's not "easier" it's just that the path to "success" is more well documented, and I consider that a valuable tool that increases the odds of "success".
That said, I don't really believe small is _safer_ -- I'm just saying small costs less and generally has smaller upsides and smaller return variance.
If you read to the end, you'll notice that I don't actually make a value judgement on which path is "safer" or "better" in any way. I think it's just a question of personal preference, influenced by your individual station in life.
I think this has more to do with outcome utility. I personally will probably never spend more than 1mm a year, so building a startup that has a significant tail above 1mm/year in recurring revenue would be great -- but the utility of that tail is very low to me, so its not worth sacrificing success probability.
And yep, just totally guessing what that return distribution looks like.
For me it's not that small is safer, its that there are a lot more resources to fall back on for small. I personally don't have the chops to build twitter scalability. But if I wanted to open a restaurant, there are tons of resources and many people have blazed that path for me, and I can look to them for advice. It's not "easier" it's just that the path to "success" is more well documented, and I consider that a valuable tool that increases the odds of "success".
I definitely agree that entering an established market with a product that is just going to take a bite out of it is easier due to the prescribed path.
And like i said, maybe it makes you some cash and allows you to build more stuff on top.
I'm coming from some experience in that I've built some small businesses that just didn't make enough and didn't have enough potential to be worth the stress.
And like i said, maybe it makes you some cash and allows you to build more stuff on top.
I'm coming from some experience in that I've built some small businesses that just didn't make enough and didn't have enough potential to be worth the stress.
I landlord 3 properties and I REALLY need your little startup. Spread the word! The pain landlords feel, and the crap we sometimes put tenants through because of crappy tools/laws should be solved.
Can you expand on that? I've been interested in that market but don't know where to get involved. I'd love to hear your thoughts - even if in an email.
On the whole, I agree with you. However -
1) Unless you're Instagram - a big startup will cost you much more than 2 years of life. The monetary price probably doesn't matter much as you will have acquired funding.
2) I also think the expected value of any given random point on the "startup dartboard" is smaller than the values you threw out there.
That all said...my interests align with yours. Hitting singles is more attractive than swinging for the fences. Goals change though...Rocket Lease may be a safe bet on your part. If traction picks up and it becomes an undeniable juggernaut...I don't think you or anybody else wouldn't take the "big startup" ride.
1) Unless you're Instagram - a big startup will cost you much more than 2 years of life. The monetary price probably doesn't matter much as you will have acquired funding.
2) I also think the expected value of any given random point on the "startup dartboard" is smaller than the values you threw out there.
That all said...my interests align with yours. Hitting singles is more attractive than swinging for the fences. Goals change though...Rocket Lease may be a safe bet on your part. If traction picks up and it becomes an undeniable juggernaut...I don't think you or anybody else wouldn't take the "big startup" ride.
Given the headline, I was expecting a comparison of large teams versus smaller nimble (Instagram, Path) ones. There's a whole lot to be written about group dynamics in terms of headcount.
But in terms of this discussion. I have to take issue with choice of market opportunity based on personal financial situation.
"Where are you now? There’s no right answer to this. If you’re 30 and broke and wondering how you’re going to pay the rent in 6 months, its harder to swing for the fences. If you sold your last startup so you’ll never have to worry about food and rent again, big startup board."
Not only does this lead to rather arbitrary founder-market fit, is the success rate curve of the smaller startup really that more evenly distributed than the larger ones? I doubt it.
That said, it sounds like you may have been a landlord yourself, saw the pain point in vetting tenants, and went for it. Niche, but already a service that 1) is arguably underserved and 2) your customers are used to paying for.
Best of luck and it sounds like you might have some takers here on HN already.
But in terms of this discussion. I have to take issue with choice of market opportunity based on personal financial situation.
"Where are you now? There’s no right answer to this. If you’re 30 and broke and wondering how you’re going to pay the rent in 6 months, its harder to swing for the fences. If you sold your last startup so you’ll never have to worry about food and rent again, big startup board."
Not only does this lead to rather arbitrary founder-market fit, is the success rate curve of the smaller startup really that more evenly distributed than the larger ones? I doubt it.
That said, it sounds like you may have been a landlord yourself, saw the pain point in vetting tenants, and went for it. Niche, but already a service that 1) is arguably underserved and 2) your customers are used to paying for.
Best of luck and it sounds like you might have some takers here on HN already.
I think startups are too plastic to be characterized this way. Well, software startups anyway—hardware, durable goods, science, or other capital intensive startups are a different story.
I suppose there are small markets to go after and big markets, but there are also unknown markets, and to go truly huge and be the VC darling of the decade you might need to create your own market. But the kicker is that the market you are targeting is not fixed. Software is sufficiently abstract, and it's reasonable to run lean enough that you can literally change your target market overnight. And in the case of the really huge startups, they all get there through a series of pivots to scale progressively. None of them start with the vision of what they ultimately become. The people who think Facebook/Google/Apple scale at the beginning are probably more dreamers than doers. The trick is to grow your ambitions as you grow your business. So I don't disagree with the advice, other than to caution against letting your bootstrapping thought process color your future ambition.
I suppose there are small markets to go after and big markets, but there are also unknown markets, and to go truly huge and be the VC darling of the decade you might need to create your own market. But the kicker is that the market you are targeting is not fixed. Software is sufficiently abstract, and it's reasonable to run lean enough that you can literally change your target market overnight. And in the case of the really huge startups, they all get there through a series of pivots to scale progressively. None of them start with the vision of what they ultimately become. The people who think Facebook/Google/Apple scale at the beginning are probably more dreamers than doers. The trick is to grow your ambitions as you grow your business. So I don't disagree with the advice, other than to caution against letting your bootstrapping thought process color your future ambition.
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I used to be a trader, too.
What is interesting to me is that the ethics I encountered in finance (n.b. I was in statistical arbitrage, and I'm pretty sure I'd have a different perspective if I'd worked on mortgage-backed securities) were a lot better than what I've seen in these VC-funded (or VC-hungry) startups. We tend to have this reflexive attitude in technology that people in finance are scummy, when the reality is that they're just more honest about their greed than VC-istan types.
The engineers in these companies are great. Really ambitious, really talented, and often fully believing in whatever marketing-copy "vision" the VC darling comes up with so people will be glad to work for 0.01%, vested over four years, of a company that will probably be flipped for 100-500M. I've never disliked the engineers anywhere. At least 85% of the VPs and above are fucking slime, though.
I think the "little startups" point you make has sense, but I think the ideal is a small, stable startup that also has a chance of becoming larger. I think the objective should be to build a stable and small business doing work of very high quality, and later growing-- a "get rich slowly" strategy of solving interesting and hard problems on the small scale first and eventually developing the tools and expertise to solve major ones. Maybe I'm naive, but this is what I'd like to see in my next company. A "change the world in 20 years" approach, rather than an all-out effort to bank it in 48 months that (a) leaves everyone burned out from working too hard, and (b) almost always involves ethical compromise.
What's behind the VC/build-to-flip mentality is competitive paranoia and the attempt to exploit social trends to get a first-entrant effect. Many of these social networks are winner-take-all, sure. But there are a lot of creative and technological ventures that don't have to be like that. If you're a game studio, for example, of course there is competition... but if you make a great game and another studio does so in the same year, the result is that you both win and it's a great year for games. I wish people focused more on that, and less on "destroying" other companies. Every time I interact with a company that says their business model is to "destroy <tech company X>" I always find them to be really unethical.
What is interesting to me is that the ethics I encountered in finance (n.b. I was in statistical arbitrage, and I'm pretty sure I'd have a different perspective if I'd worked on mortgage-backed securities) were a lot better than what I've seen in these VC-funded (or VC-hungry) startups. We tend to have this reflexive attitude in technology that people in finance are scummy, when the reality is that they're just more honest about their greed than VC-istan types.
The engineers in these companies are great. Really ambitious, really talented, and often fully believing in whatever marketing-copy "vision" the VC darling comes up with so people will be glad to work for 0.01%, vested over four years, of a company that will probably be flipped for 100-500M. I've never disliked the engineers anywhere. At least 85% of the VPs and above are fucking slime, though.
I think the "little startups" point you make has sense, but I think the ideal is a small, stable startup that also has a chance of becoming larger. I think the objective should be to build a stable and small business doing work of very high quality, and later growing-- a "get rich slowly" strategy of solving interesting and hard problems on the small scale first and eventually developing the tools and expertise to solve major ones. Maybe I'm naive, but this is what I'd like to see in my next company. A "change the world in 20 years" approach, rather than an all-out effort to bank it in 48 months that (a) leaves everyone burned out from working too hard, and (b) almost always involves ethical compromise.
What's behind the VC/build-to-flip mentality is competitive paranoia and the attempt to exploit social trends to get a first-entrant effect. Many of these social networks are winner-take-all, sure. But there are a lot of creative and technological ventures that don't have to be like that. If you're a game studio, for example, of course there is competition... but if you make a great game and another studio does so in the same year, the result is that you both win and it's a great year for games. I wish people focused more on that, and less on "destroying" other companies. Every time I interact with a company that says their business model is to "destroy <tech company X>" I always find them to be really unethical.
I'm not sure I can agree that small vs big is so black and white.
Why is the small board dotted with different values and the big board a vast wasteland with only a few potential outcomes? Is it VC pressure? That could definitely eliminate some options - however, if you intelligently take on capital and have the ability to hire better and brighter people - you should have more positive outcome possibilities.
I think the general idea is pretty sound, but definitely not so black and white. I believe most "big" startups were small startups initially.
Why is the small board dotted with different values and the big board a vast wasteland with only a few potential outcomes? Is it VC pressure? That could definitely eliminate some options - however, if you intelligently take on capital and have the ability to hire better and brighter people - you should have more positive outcome possibilities.
I think the general idea is pretty sound, but definitely not so black and white. I believe most "big" startups were small startups initially.
It's definitely not black and white.
I think of every opportunity as being a different dartboard with different values. These were just examples of _A_ small startup and _A_ big startup.
It's our responsibility as an entrepreneurs to pick the board that best fits our risk profiles for the best cost.
Not all boards have a positive EV.
The "use dad's connections to buy my product" startup board is just 1 big fat positive number (imagine some nearly "risk free" opportunity)
The "punch people in the nuts for a dollar" startup looks like a board of all zeros (as far as I know, most guys aren't interested in this service)
I think of every opportunity as being a different dartboard with different values. These were just examples of _A_ small startup and _A_ big startup.
It's our responsibility as an entrepreneurs to pick the board that best fits our risk profiles for the best cost.
Not all boards have a positive EV.
The "use dad's connections to buy my product" startup board is just 1 big fat positive number (imagine some nearly "risk free" opportunity)
The "punch people in the nuts for a dollar" startup looks like a board of all zeros (as far as I know, most guys aren't interested in this service)
As someone who is currently struggling with finding an apartment to live in, I hope to God your startup becomes popular. Awful, incompetent real estate agents, terrible PDF forms that don't work properly on a computer, and an overall terrible process has stressed me out these past few weeks.
'Rocket Lease is me saying that 40k a year would be life changing for me'
I really don't get this line of thinking. I'm assuming the author isn't a programmer as otherwise I don't see how 40k a year would be an acceptable or life changing amount of money, and, if he isn't, then why not learn to code? Or maybe I'm just missing something and the intent is this is only a part-time project that doesn't take up much time so any money it makes is just extra (and 40k extra per year would be welcome by most people I'm sure).. honestly I'm curious, as while I have an interest in entrepreneurship, the potential payoff would have to be fairly high as being able to simply work as a programmer for others already provides a fairly decent quality of life.
I really don't get this line of thinking. I'm assuming the author isn't a programmer as otherwise I don't see how 40k a year would be an acceptable or life changing amount of money, and, if he isn't, then why not learn to code? Or maybe I'm just missing something and the intent is this is only a part-time project that doesn't take up much time so any money it makes is just extra (and 40k extra per year would be welcome by most people I'm sure).. honestly I'm curious, as while I have an interest in entrepreneurship, the potential payoff would have to be fairly high as being able to simply work as a programmer for others already provides a fairly decent quality of life.
I am guessing he means that $40k would enable him to work on his own stuff for a year instead of having to get a job.
I've been self employed for a bit over a year, and I'm paying the bills but make maybe 1/3-1/2 of what I used to when I was working as a programmer for someone else - working on my own things in my own time is a premium that's worth the lower "salary" for me.
Additionally, going into business yourself gives you a chance for a much higher payback in the long run (you're probably not going to make more than $200k/year inflation-adjusted as a programmer, but you could still make millions in a few years as a small business owner).
I've been self employed for a bit over a year, and I'm paying the bills but make maybe 1/3-1/2 of what I used to when I was working as a programmer for someone else - working on my own things in my own time is a premium that's worth the lower "salary" for me.
Additionally, going into business yourself gives you a chance for a much higher payback in the long run (you're probably not going to make more than $200k/year inflation-adjusted as a programmer, but you could still make millions in a few years as a small business owner).
I like this - and just because you start small doesn't mean you can't think big in the long term. Small but steady growth goes a long way towards building a lasting business too.
Thank you.
The danger scenario of a grow-slowly business is that you usually rely on clients, and sometimes they can become so demanding that you never escape the mediocrity of ad-hoc client demands. You want to avoid providing "custom" services that usually end up with you doing their grunt work without being able to automate it. You also need to constantly be looking out for better clients. Good clients aren't always the ones who pay the best. They're the ones who will let you do things right and who give you the freedom to actually grow, rather than living in a maintenance slog.
There's always a boss. The appeal of a VC startup is that your boss wants your company to grow at 100+ percent per year. He wants you to play the anti-martingale strategy.
I think the problem, both for a person and a company, is that it's hard to find a "boss" who is looking for serious but not ridiculous growth. A corporate boss won't let you rise faster than him, and large companies get sluggish and stupid. So the typical job results in a boss who won't let you grow (personally) more than 3 or 4 percent per year. A VC wants you to triple your valuation every year. It's best to work for people who are on board with "get rich slowly": a 15 to 20 percent increase in the value of your knowledge base and skill set (and 15-40% growth in the business imprint) year after year.
The danger scenario of a grow-slowly business is that you usually rely on clients, and sometimes they can become so demanding that you never escape the mediocrity of ad-hoc client demands. You want to avoid providing "custom" services that usually end up with you doing their grunt work without being able to automate it. You also need to constantly be looking out for better clients. Good clients aren't always the ones who pay the best. They're the ones who will let you do things right and who give you the freedom to actually grow, rather than living in a maintenance slog.
There's always a boss. The appeal of a VC startup is that your boss wants your company to grow at 100+ percent per year. He wants you to play the anti-martingale strategy.
I think the problem, both for a person and a company, is that it's hard to find a "boss" who is looking for serious but not ridiculous growth. A corporate boss won't let you rise faster than him, and large companies get sluggish and stupid. So the typical job results in a boss who won't let you grow (personally) more than 3 or 4 percent per year. A VC wants you to triple your valuation every year. It's best to work for people who are on board with "get rich slowly": a 15 to 20 percent increase in the value of your knowledge base and skill set (and 15-40% growth in the business imprint) year after year.
Really, I guess this is my really old response to the "ambitious startups" threads from a while back...
Some niche markets may be great, but you didn't find one. It is dominated by fairly large players with cost advantages.
What happens if you do this for a while and add a product? Maybe that becomes a big business? I just have never ever seen evidence that going small anywhere in life works out better than always going big.