We need a middle class for startups(neilthanedar.com)
neilthanedar.com
We need a middle class for startups
https://neilthanedar.com/we-need-a-middle-class-for-startups/
319 comments
This size of company and mindset seems pretty well served by MicroConf [0], which tends somewhat to the bootstrapping crowd but is very much not the "4 hour work week" crowd.
... Is that what you mean by "optimize for lifetyle"? "lifestyle business" is used as kind of epithet in some circles, as an "othering" term to identify people who don't work as hard as they do, but the MicroConf audience has a lot of people who want to grow their companies as much as is reasonably possible, but with non-negotiable ideas about family time, taking actual vacations instead of working vacations, etc.
One of the creators of MicroConf also is one of the hosts of the podcast "Startups for the Rest of Us" [1], which I don't see talked about very much on HN but which is very much my jam.
[0] https://microconf.com/
[1] https://www.startupsfortherestofus.com/
... Is that what you mean by "optimize for lifetyle"? "lifestyle business" is used as kind of epithet in some circles, as an "othering" term to identify people who don't work as hard as they do, but the MicroConf audience has a lot of people who want to grow their companies as much as is reasonably possible, but with non-negotiable ideas about family time, taking actual vacations instead of working vacations, etc.
One of the creators of MicroConf also is one of the hosts of the podcast "Startups for the Rest of Us" [1], which I don't see talked about very much on HN but which is very much my jam.
[0] https://microconf.com/
[1] https://www.startupsfortherestofus.com/
Microconf is definitely more oriented towards smaller businesses than the previous commenter seems to be.
It depends on what you mean by "small." MicroConf focuses on SaaS founders who are, or aspire to run, 7- or 8-figure companies. We do also provide early stage education, but with the idea of folks building ambitious startups, though no in the traditional Silicon Valley Unicorn sense.
Yeah for sure. Going from 0 to 7-8 figures is the aspiration for people who attend, and what you've built is a great resource for that growth.
But the person we're responding to has already achieved that aspiration. What's out there to serve the incremental growth of people who are looking to go from 7-8 to 9-10 figures?
The feedback I've heard from people who've attended MicroConf multiple times tends to be that its invaluable content until you're above a certain size, and then the content becomes less impactful.
But the person we're responding to has already achieved that aspiration. What's out there to serve the incremental growth of people who are looking to go from 7-8 to 9-10 figures?
The feedback I've heard from people who've attended MicroConf multiple times tends to be that its invaluable content until you're above a certain size, and then the content becomes less impactful.
Do you know of any alternatives that are similar but not so focused on SaaS?
The almost exclusive focus on exit strategies makes VC advice mostly useless for many concepts, particularly those based around community or specializations. To even have a built-in exit strategy feels like the business plan equivalent of fast fashion, and that mindset is harmful to everyone except founders and investors. It really is absurd that there are so few resources available to startups with modest or long term plans, or those lacking the desire to minmax profit schemes at the expense of their customers.
> Promote employee stock ownership for American Mittelstands
This is crucial. Many bootstrapped companies don't offer much stock ownership from employees. Yes, they can pay a good salary, but these employees are laying down the business brick by brick, but never see a dime of the upside. Mailchimp comes to mind. I'm sure there are others.
This basically leaves stock ownership in VC-backed startups as a way to get rich quick (albeit with low odds): https://topstartups.io/startup-salary-equity-database/
In fact, Mittelstands will probably perform even better if they can figure out how to attract the kinds of talent well-funded startups do. And from there, it'll be a virtuous cycle.
This is crucial. Many bootstrapped companies don't offer much stock ownership from employees. Yes, they can pay a good salary, but these employees are laying down the business brick by brick, but never see a dime of the upside. Mailchimp comes to mind. I'm sure there are others.
This basically leaves stock ownership in VC-backed startups as a way to get rich quick (albeit with low odds): https://topstartups.io/startup-salary-equity-database/
In fact, Mittelstands will probably perform even better if they can figure out how to attract the kinds of talent well-funded startups do. And from there, it'll be a virtuous cycle.
Agree. In Germany, some Mittelstand companies do offer employee stock options which allow you to buy a certain quota of stocks per month at a pre-negotiated price which is typically much lower than market value. The idea is that over time, employees can choose to reinvest their salary into the company, thereby becoming partial owners.
Personally I do not think employees should pay money to invest in the company where they work.
Because if they do, then if the company goes bust they lose their job and their savings on the same day. See Enron as an example where employees were heavily invested in Enron.
And the company doesn't even need to go bust - a downturn in the stock price leads to some cutbacks and redundancies, and you're the unlucky one...
The first rule of investment is diversification, and keeping your salary separate to your savings seems like a good start.
By all means buy options, and sell for a quick bonus, then take the money elsewhere. If you can't sell the stock (company not yet IPO) then treat money spent on options as "lost"... In 99% of cases it will be.
Because if they do, then if the company goes bust they lose their job and their savings on the same day. See Enron as an example where employees were heavily invested in Enron.
And the company doesn't even need to go bust - a downturn in the stock price leads to some cutbacks and redundancies, and you're the unlucky one...
The first rule of investment is diversification, and keeping your salary separate to your savings seems like a good start.
By all means buy options, and sell for a quick bonus, then take the money elsewhere. If you can't sell the stock (company not yet IPO) then treat money spent on options as "lost"... In 99% of cases it will be.
I believe you're seeing things through a US lens there. Many of these small Mittelstand companies are incredibly durable because they don't have high loans and they don't have investors.
Also, the idea here is not that it's a great investment (although it usually is), but that it transfers power to experienced employees. Imagine if you and your coworkers owned enough company shares so that you could veto the CEO together.
Also, the idea here is not that it's a great investment (although it usually is), but that it transfers power to experienced employees. Imagine if you and your coworkers owned enough company shares so that you could veto the CEO together.
Sure, if employees owned more than 50% of the company then they'd have more "seats at the table". In my experience the employee poll is negligible though from a "power" point of view.
My point I guess is that there's no materially different upside to owning shares where you work, or just shares outside. And shares outside diversify your income stream.
If there is a material difference in terms of power, well then I guess that's different.
My point I guess is that there's no materially different upside to owning shares where you work, or just shares outside. And shares outside diversify your income stream.
If there is a material difference in terms of power, well then I guess that's different.
Employee stocks are a suboptimal investment strategy. It is putting all one's eggs in one basket. If the company runs into difficulties, one's job is at risk and at the same time one's investments.
Sincere question: What benefit is there to owning equity in such a company in employee sized quantities?
Employee sized quantities should be much bigger at a Mittelstand company vs. VC-funded. You don't need thousands of people when you're going after 7-8 figure outcomes, which means each employee should be able to get better profit-sharing. You also are not diluted big-time by investors that can bully the cap table
Presumably dividends if the owner doesn’t just capture profits via inflated salary.
Maybe dividends, maybe cash-out if there is a change in ownership
Dividends?
Yes, I think this is one of the most important pieces to solve! There have been some approaches (profit sharing, etc) but I think there's room for a lot of improvement & innovation here.
> In fact, Mittelstands will probably perform even better if they can figure out how to attract the kinds of talent well-funded startups do. And from there, it'll be a virtuous cycle.
Perform better towards what end?
Perform better towards what end?
I'll second the lack of information about playbooks/ running a middle-class company. It's a bit frustrating that everybody assumes you want to follow the VC model. Probably the most common question I get is when I'm going to sell the company - not realizing that we're a profitable company that doesn't need an exit. I also think middle-class companies are under-reported on. I have to assume that there are a lot of companies like us but it's not as sexy of a story: slowly and steadily building a successful business.
Your story with IPinfo.io is profoundly compelling; have you written anything about your journey?
> "let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome"
This sounds so great.
> "let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome"
This sounds so great.
Thanks! Yeah I have talked about it a bit - I should probably talk about it more :)
https://saasclub.io/podcast/ipinfo-ben-dowling/
https://codestory.co/podcast/bonus-ben-dowling-ipinfo/
https://www.youtube.com/watch?v=r79AuXgTy-4
https://saasclub.io/podcast/ipinfo-ben-dowling/
https://codestory.co/podcast/bonus-ben-dowling-ipinfo/
https://www.youtube.com/watch?v=r79AuXgTy-4
Probably a stupid question, but how does this work technically, how does one correlate IP addresses to geolocation?
Data sources that provide geo coordinates and ip addresses. E.g. an app that sells its analytics data and you have geo access turned on.
How is this legal? IP + location is public info like looking up property ownership in Cali? Can we opt out if our data was sold under our noses without consent?
Congrats on winning in this space btw, site is super slick!
Congrats on winning in this space btw, site is super slick!
> have you written anything about your journey?
Well, he can't yet, since it's still a going concern!
Well, he can't yet, since it's still a going concern!
Isn't what you're describing just running a regular company?
No, I actually think it's much more closely aligned with a VC business than a regular business. It's just a more "regular business" approach towards it. That is, it's still serving a large market, creating a competative advantage (which "regular businesses" rarely have), has compounding growth - it just doesn't need to rush to make it all happen in a few years in a very high risk way.
"That is, it's still serving a large market, creating a competative advantage (which "regular businesses" rarely have), has compounding growth - it just doesn't need to rush to make it all happen in a few years in a very high risk way."
You've just described a number of regular business I know. The idea that they're not trying to create competitive advantages is...flawed.
You've just described a number of regular business I know. The idea that they're not trying to create competitive advantages is...flawed.
Happy to have my flawed thinking corrected - can you share the examples?
I likely am thinking of a narrow set of "regular businesses" - what came to mind were corner shops, hairdresses, bars or restaurants etc. Even in those cases there are obviously large successful busniesses that do have competitive advantages - but I suspect they mostly get erroded away by competition rather than the business being able to sustain them, and high margins. I would love some counter examples though!
I likely am thinking of a narrow set of "regular businesses" - what came to mind were corner shops, hairdresses, bars or restaurants etc. Even in those cases there are obviously large successful busniesses that do have competitive advantages - but I suspect they mostly get erroded away by competition rather than the business being able to sustain them, and high margins. I would love some counter examples though!
As an example, I would say Microsoft is a regular business. Sure, at this point they're one of the largest companies in the world, but the way they operate is still largely the same as it has been. It ticks all the boxes you described as well.
what is the competitive advantage of ipinfo.io?
Data.
This is a really incredible article about the economics of data businesses, if you haven't seen it: https://pivotal.substack.com/p/economics-of-data-biz?s=r
This is a really incredible article about the economics of data businesses, if you haven't seen it: https://pivotal.substack.com/p/economics-of-data-biz?s=r
Same! I think the middle ground is somewhere between paying dividends or distributions from the revenue and most importantly, becoming comfortable with the idea and ignoring the “growth at all costs” mentality that people (and press) are so attracted to.
Where does this community exist?
Where does this community exist?
> paying dividends or distributions from the revenue
Traditionally, isn’t this what a bonus was, back in the day?
Traditionally, isn’t this what a bonus was, back in the day?
this community simply does not exist yet in significant form. if you build it, they will come
by "it" I mean a sustainable company that pays dividends and isn't focused on constant growth
by "it" I mean a sustainable company that pays dividends and isn't focused on constant growth
How about optmising for the customer. Where profits were required, and where there was legitimate competition, this generally used to be a necessity. The "VC backed advice" cannot be to optimise for the customer because it must optimised for the client investor first. This often relies on giving away work for free to non-customers and operating at a loss in order to achieve anti-competitive "growth" and "scale" (according to the "playbook"). The non-customers are the "product", marketed as advertising targets for customers. The race ("sprint") is to acquire unfettered access to the majority of non-customers by getting them to sign in to or otherwise visit cookie-setting websites, install mobile apps, and/or purchase always online computers with pre-installed apps and other surveillance built-in.
A sad casuality of "tech" VC mania is that small scale online businesses are passed over. Apparently internet-reliant startups must all subscribe to VC ideals because that is the only way they can be funded. Selling products and services for profit to non-advertisers is largely ignored as a viable option due the incessant focus on the www's feudual robber barons and the army of robot-like "tech" workers who ignore the lack of ethics and absence of long-term sustainability ("best practices") and want to be just like them. Few are interested in independently-owned, "Mom-and-Pop" online businesses, except for the opportunity to turn them into sharecroppers.
A sad casuality of "tech" VC mania is that small scale online businesses are passed over. Apparently internet-reliant startups must all subscribe to VC ideals because that is the only way they can be funded. Selling products and services for profit to non-advertisers is largely ignored as a viable option due the incessant focus on the www's feudual robber barons and the army of robot-like "tech" workers who ignore the lack of ethics and absence of long-term sustainability ("best practices") and want to be just like them. Few are interested in independently-owned, "Mom-and-Pop" online businesses, except for the opportunity to turn them into sharecroppers.
Serious question how exactly did you come up with the idea for selling what is essentially public available info then convincing people to buy it? Is it just rate limit removal. Why do people pay for what is essentially public info. I see john deer on customers list again just blows my mind. Out of all the companies in the world you guys were like yeah lets call john deer and see if they need better ip reg info LOL? I've used a lot of data broker services in my life and 9/10 times the area we were hoping they could provide better data is the exact thing we couldn't figure out and they are also missing it.
This comes from a place of amazement not some sort of passive aggressive thing It really astounds me just how bad a I am at judging potential markets. Maybe you could give hope to some of us soul sucked 9-5ers looking to escape. I'm really glad you figured something out.
This comes from a place of amazement not some sort of passive aggressive thing It really astounds me just how bad a I am at judging potential markets. Maybe you could give hope to some of us soul sucked 9-5ers looking to escape. I'm really glad you figured something out.
We build our data sets on top of publicly available information (whois, BGP, rdns etc), but also combine it with lots of data we collect ourselves (ping & traceroute data from our probe network of over 100 locations). And then we do a whole lot of work with that data to produce our actual data sets. And there's a whole lot of work that goes into continuing to improve them, evaluate them, and ensure they're consistent etc. It's not easy!
And that's just producing the data. Making it available via a low latency and highly available API that handles over 100 billion requests per month requires some work, along with supporting data downloads in various file formats, and integrations into all of the various platforms that our customers want to use our data with.
And that's just on the engineering side of things!
But I'd say that even if our data was publicly availble (and to be fair some geolocation data is available for free - although it's generally not very accurate, and we also have other data sets beyond just geolocation) - there's still lots of value is making that accessible, easy to use and understand, and helping your customers get back to solving thier own problems while you worry about solving that piece for them.
And that's just producing the data. Making it available via a low latency and highly available API that handles over 100 billion requests per month requires some work, along with supporting data downloads in various file formats, and integrations into all of the various platforms that our customers want to use our data with.
And that's just on the engineering side of things!
But I'd say that even if our data was publicly availble (and to be fair some geolocation data is available for free - although it's generally not very accurate, and we also have other data sets beyond just geolocation) - there's still lots of value is making that accessible, easy to use and understand, and helping your customers get back to solving thier own problems while you worry about solving that piece for them.
We used ipinfo for a while because we didn't know much about the space, they had good SEO, the data appeared to be high quality, and it was easy to use. We were pretty happy with it!
We ran into some minor problems along the way, mostly around cost, and eventually had to switch to something else. We still don't know much about the space and the main thing that stood out about our new provider is that it is cheaper but the data seems to be of lower quality.
We ran into some minor problems along the way, mostly around cost, and eventually had to switch to something else. We still don't know much about the space and the main thing that stood out about our new provider is that it is cheaper but the data seems to be of lower quality.
I can’t speak for ipinfo, but in comparing free vs commercial data only very basic geolocation by IP is public. This might be due to the IP block allocation (country/region/city) or handy things like ISPs that use geo names in the host name. Many other ranges are opaque blocks or allocated to something like a reseller, etc.
Getting finer grained data down to smaller groups blocks is harder and not public.
Packaging it up into easy to consume (normalized) is yet another layer of work.
Getting finer grained data down to smaller groups blocks is harder and not public.
Packaging it up into easy to consume (normalized) is yet another layer of work.
That is why I love SmugMug.
>let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome
I like that. But is it doable or viable?
I like that. But is it doable or viable?
>> Totally agree with this article. It's not just about funding methods, but also playbooks for these types of businesses, and best practices.
I think the word you are looking for is called "business". There are tons of books for these types of businesses.
On the shelf behind me is E-Myth Mastery, 22 Immutable Laws of Branding, Traction by Gino Wickman. You just have to look outside of tech. All of these books and practices apply to software businesses.
I think the word you are looking for is called "business". There are tons of books for these types of businesses.
On the shelf behind me is E-Myth Mastery, 22 Immutable Laws of Branding, Traction by Gino Wickman. You just have to look outside of tech. All of these books and practices apply to software businesses.
Yep, I have all those books behind me too :)
I do think there is space for a new category, or way of thinking about these businesses though. There's lots of great "regular / non-tech business" advice and books etc on how to operate in a non-VC way. But we're still talking about startups / tech companies here. So it's how do you marry the advice on operating a regular business with many of the dynamics of a VC backed business (that is, competative advantage, compounding growth, large market, high margins, attracting talent etc).
I do think there is space for a new category, or way of thinking about these businesses though. There's lots of great "regular / non-tech business" advice and books etc on how to operate in a non-VC way. But we're still talking about startups / tech companies here. So it's how do you marry the advice on operating a regular business with many of the dynamics of a VC backed business (that is, competative advantage, compounding growth, large market, high margins, attracting talent etc).
"millions in revenue and a team of over 20" are not "Middle class"...
That’s about the scale of a single Jimmy John’s franchise location.
Yeah, this whole idea is ridiculous and wildly biased by the incredible over-valuations of some of these startups.
This article is about re-branding the middle market, which is typically defined as $10mm to $1bm in revenue, as this middle class. (Less than $10mm steady-state revenues is typically a small or medium-sized business.)
what is it then? $ raised and trajectory are also part of the story.
Businesses that are shooting for the "middle class" (say, less than $50M in earnings at their peak) are of course possible and healthy and good for the economy. What's missing in this analysis is that those businesses are not going to be "founder-friendly" the way that the prototypical YC-seed-stage startup is. To use the article's definitions:
* "Bootstrapped from zero" is, of course, founder-friendly - no investors and no board means you get to do what you want!
* "Raised $100M+ from VCs" is also pretty founder-friendly, at least in the early days, because you're selling those VCs on the lottery-ticket dream that they could earn 3-5 orders of magnitude ROI. With such an incredibly high upside, VCs and angels are willing to take risks with zero due diligence on unproven founders and small dilution.
If you remove the long tail of upside from the possible outcomes and tell your early investors "the best case for you is 100x return, but zero is still just as possible" then the market will compensate in these ways:
* Less availability of capital
* More dilution
* Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
* Long and protracted due diligence processes before the check even lands
All of that is fine! There's nothing wrong with building a business this way. But there's no free lunch here - companies that don't chase astronomical outcomes will have a harder path to getting those first few dollars in funding.
* "Bootstrapped from zero" is, of course, founder-friendly - no investors and no board means you get to do what you want!
* "Raised $100M+ from VCs" is also pretty founder-friendly, at least in the early days, because you're selling those VCs on the lottery-ticket dream that they could earn 3-5 orders of magnitude ROI. With such an incredibly high upside, VCs and angels are willing to take risks with zero due diligence on unproven founders and small dilution.
If you remove the long tail of upside from the possible outcomes and tell your early investors "the best case for you is 100x return, but zero is still just as possible" then the market will compensate in these ways:
* Less availability of capital
* More dilution
* Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
* Long and protracted due diligence processes before the check even lands
All of that is fine! There's nothing wrong with building a business this way. But there's no free lunch here - companies that don't chase astronomical outcomes will have a harder path to getting those first few dollars in funding.
The key is that Mittelstand businesses are much less likely to fail. (This is why PEs on average outperform VCs. I go into these economics in my post.)
This can be the Goldilocks deal for founders where you raise <$5M from angels or PEs who are happy with consistent 5x returns and get to $10M+ revenue and $50M+ value with majority ownership. And there are orders of magnitude more of these opportunities available vs. VC-backed unicorns.
And being VC-backed is only great if you're one of the winners. If you're one of the >90% that's written off, you're back to zero.
I hit the wall at Series B with my startup Labdoor. We pivoted to profitability and are now headed to Mittelstand land, but this all would've been way easier if we just headed straight to middle class.
This can be the Goldilocks deal for founders where you raise <$5M from angels or PEs who are happy with consistent 5x returns and get to $10M+ revenue and $50M+ value with majority ownership. And there are orders of magnitude more of these opportunities available vs. VC-backed unicorns.
And being VC-backed is only great if you're one of the winners. If you're one of the >90% that's written off, you're back to zero.
I hit the wall at Series B with my startup Labdoor. We pivoted to profitability and are now headed to Mittelstand land, but this all would've been way easier if we just headed straight to middle class.
> The key is that Mittelstand businesses are much less likely to fail
I think you're getting at the crux of it here. The question is, how does one of these businesses "prove" to investors that they are less likely to fail? The failure rate for new business starts is famously high, whether that business is a tech startup chasing unicorn status or the corner deli. I think this will manifest itself in the due diligence phase, bringing back a bunch of things that tech founders have eschewed: detailed business plans, fundraising towards specific initiatives (as you point out in your post), and harsh measurement of progress towards those goals in board meetings with rapid consequences if goals are missed.
I think you're getting at the crux of it here. The question is, how does one of these businesses "prove" to investors that they are less likely to fail? The failure rate for new business starts is famously high, whether that business is a tech startup chasing unicorn status or the corner deli. I think this will manifest itself in the due diligence phase, bringing back a bunch of things that tech founders have eschewed: detailed business plans, fundraising towards specific initiatives (as you point out in your post), and harsh measurement of progress towards those goals in board meetings with rapid consequences if goals are missed.
> I think you're getting at the crux of it here. The question is, how does one of these businesses "prove" to investors that they are less likely to fail?
By having a business plan. That's why banks (at least over here in Germany) ask for one when you ask for a loan. You present a plan, someone reads it, you talk it through, clarify a few things and if everyone is happy they give you a loan and you start (or grow) your business with it.
By having a business plan. That's why banks (at least over here in Germany) ask for one when you ask for a loan. You present a plan, someone reads it, you talk it through, clarify a few things and if everyone is happy they give you a loan and you start (or grow) your business with it.
> You present a plan, someone reads it, you talk it through, clarify a few things and if everyone is happy they give you a loan and you start (or grow) your business with it.
In the US, unless you can put up property like a house or land as collateral, or plan to use the loan to purchase recoverable assets like industrial equipment (I suppose a data center would qualify, but actual computer hardware depreciates faster than banks like), you won't get the loan, even if it's a local bank you're approaching.
In theory a software business could use IP assets as collateral, but that usually doesn't apply to new software businesses.
Getting to the point where a software business could get a business loan from a bank more or less requires bootstrapping.
In the US, unless you can put up property like a house or land as collateral, or plan to use the loan to purchase recoverable assets like industrial equipment (I suppose a data center would qualify, but actual computer hardware depreciates faster than banks like), you won't get the loan, even if it's a local bank you're approaching.
In theory a software business could use IP assets as collateral, but that usually doesn't apply to new software businesses.
Getting to the point where a software business could get a business loan from a bank more or less requires bootstrapping.
> they give you a loan
Yes, they do, if you can provide a security for the loan. More often than not, the founder is the guarantor, which sucks for them if the business fails. This is moderately founder friendly, to say the least.
Yes, they do, if you can provide a security for the loan. More often than not, the founder is the guarantor, which sucks for them if the business fails. This is moderately founder friendly, to say the least.
In Germany, there's the option to have the government secure your loan towards the investment bank. For the founder, that means you get capital into your new company and only the company is legally liable for it, but not you personally.
This seems to be why Germany has a lot of healthy middle / medium sized businesses, if indeed true on face value.
This is what the US should really subsidize, the ability to bootstrap and start a new business, especially first time business owners. I know the SBA does some things around this but it is very much focused on "mom & pop" type stores, I don't know of any software businesses started with an SBA loan (though I imagine due to time and volume, there probably is one).
I think taking the risk out of it in this way would be a huge economic win, but it would definitely not be popular with the incumbent businesses that have the dominate lobby voice in US politics.
This is what the US should really subsidize, the ability to bootstrap and start a new business, especially first time business owners. I know the SBA does some things around this but it is very much focused on "mom & pop" type stores, I don't know of any software businesses started with an SBA loan (though I imagine due to time and volume, there probably is one).
I think taking the risk out of it in this way would be a huge economic win, but it would definitely not be popular with the incumbent businesses that have the dominate lobby voice in US politics.
That's what I did, and that's not how it works. The Bürgschaftsbank guarantees the loan in case the founder fails to repay. I'm going through that right now.
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I don't have a definitive answer, but I'd venture that that's is something that can be addressed by your pitch, how high you are aiming, etc...
Someone who wants to build niche business software vs "the next Facebook" is a good example. The first case has clients outlined, a good estimation of revenue, competition, etc... The second is more abstract but aims higher. Success (albeit highly unlikely) means billions in revenues.
Someone who wants to build niche business software vs "the next Facebook" is a good example. The first case has clients outlined, a good estimation of revenue, competition, etc... The second is more abstract but aims higher. Success (albeit highly unlikely) means billions in revenues.
>The first case has clients outlined, a good estimation of revenue, competition, etc... The second is more abstract but aims higher. Success (albeit highly unlikely) means billions in revenues.
It's a stereotype that startups don't have things like estimates of revenue, a clear business plan, clients, etc... A few crazy outliers get all the attention but the vast majority that get funding have a clear and convincing plan to get to profitability, and often clients or at least partner businesses (in other words clients that aren't paying yet, but are willing to spend their own resources working with you).
The problem is that most new businesses fail, so if you're investing in new businesses the winners can't just make you a little money, they have to pay for multiple losers too.
You also need to convince investors that it's worth putting their money into these risky businesses instead of say Microsoft/Apple/Google/Amazon/etc... which will not go out of businesses anytime soon and produce respectable returns.
It's a stereotype that startups don't have things like estimates of revenue, a clear business plan, clients, etc... A few crazy outliers get all the attention but the vast majority that get funding have a clear and convincing plan to get to profitability, and often clients or at least partner businesses (in other words clients that aren't paying yet, but are willing to spend their own resources working with you).
The problem is that most new businesses fail, so if you're investing in new businesses the winners can't just make you a little money, they have to pay for multiple losers too.
You also need to convince investors that it's worth putting their money into these risky businesses instead of say Microsoft/Apple/Google/Amazon/etc... which will not go out of businesses anytime soon and produce respectable returns.
Even startups not aiming to be the next FAANG company have trouble estimating revenue, product development time, etc. It's just extremely hard to know all the unknowns when you are starting a new business, especially since it is likely that you are only an expert in one of the required fields (eng, product, marketing, sales) to bring your product to market and will have to learn everything else on the fly. Most business plans for startups are useless.
most new businesses in the US are still bootstrapped, usually through a combination of family (non-)wealth, non-professional investment, (small) bank loans, supplier credit, and plain ol' hard labor. most of those will be small businesses, but many will grow to mid-sized businesses. most will not be software businesses.
software doesn't have an investment problem. in fact, it's a maturing industry where all the big money that investors can squeeze out has mostly been squeezed out. that's where the lack of interest in the sector lies, not some missing middle investment. investors are looking for bigger opportunities because the risks have risen, but there's such a glut of money looking for return that we have risky sideshows like crypto/nft's seeing billions pouring into it irrationally just because it could be big.
what is actually happening in relation to the middle is the hollowing out of the real middle class, where family wealth and non-professional investment is going to zero and becoming untenable for starting a new business, and economic rents overwhelm even those where it's available. the problem is that we're becoming feudal, and fewer people managing bigger pots of money is less efficient and less dynamic.
software doesn't have an investment problem. in fact, it's a maturing industry where all the big money that investors can squeeze out has mostly been squeezed out. that's where the lack of interest in the sector lies, not some missing middle investment. investors are looking for bigger opportunities because the risks have risen, but there's such a glut of money looking for return that we have risky sideshows like crypto/nft's seeing billions pouring into it irrationally just because it could be big.
what is actually happening in relation to the middle is the hollowing out of the real middle class, where family wealth and non-professional investment is going to zero and becoming untenable for starting a new business, and economic rents overwhelm even those where it's available. the problem is that we're becoming feudal, and fewer people managing bigger pots of money is less efficient and less dynamic.
I had not considered the way crypto/nfts have been commandeered to be a side effect of wealth not being able to be allocated fully anymore. That's an interesting take. I wish there were a way for that kind of wayward money to do some real work improving our communities while it waits for something more profitable to do.
I don't necessarily mind that people are trying to make money with their money, but it is a shame that so much capital is caught up in financial instruments that don't do any real work while it's holding onto it.
I don't necessarily mind that people are trying to make money with their money, but it is a shame that so much capital is caught up in financial instruments that don't do any real work while it's holding onto it.
that's exactly the crux of the problem: a misallocation of resources due to the increasing distortions caused by increased wealth concentration. it's directly observable in investment markets like software startups or crypto, but it's effects are felt all over the economy.
like most systems, balance is critical to optimality. greed in moderation drives the economy, while greed in excess grinds it to a halt (as does a dearth of greed, à la communistic economies).
at least 50 years of poor financial policy fostered by laissez-faire economic dogma led us to these distortions, so it's no better time than now to start realizing this and digging ourselves out of it, rather than being distracted by outrage du jour.
like most systems, balance is critical to optimality. greed in moderation drives the economy, while greed in excess grinds it to a halt (as does a dearth of greed, à la communistic economies).
at least 50 years of poor financial policy fostered by laissez-faire economic dogma led us to these distortions, so it's no better time than now to start realizing this and digging ourselves out of it, rather than being distracted by outrage du jour.
> I had not considered the way crypto/nfts have been commandeered to be a side effect of wealth not being able to be allocated fully anymore.
If I point out that Marxist economic theory talks about a "crisis of capital accumulation" where capitalists (meaning those with capital to invest) don't have enough places to invest their capital succesfully, and that this is related to "financialization" as a method of opening new places to put capital (also in some circumstances "imperialism"), and that in different periods this can go up and down... in the past I usually get down-voted.
If I point out that Marxist economic theory talks about a "crisis of capital accumulation" where capitalists (meaning those with capital to invest) don't have enough places to invest their capital succesfully, and that this is related to "financialization" as a method of opening new places to put capital (also in some circumstances "imperialism"), and that in different periods this can go up and down... in the past I usually get down-voted.
That used to happen periodically at Marx's time. One such crisis was one of the factors that led to the first World War (but then, what wasn't?)
> The key is that Mittelstand businesses are much less likely to fail.
Citation needed.
Around half of new businesses in the US fail after five years[0], and it is reasonable to assume the vast majority are small.
Mom and pop businesses fail all the time, we just don't hear about it very often.
Also, one of the key properties of Mittelstand, as I understand it, is that you don't need, or indeed want, an exit. It's (ideally) a cosy, lifestyle business.
I agree that this is a healthy approach and more people should be aware this is a viable option, but I'm not so sure it can be mixed with PE or VC (for the reasons I mentioned).
[0] https://www.lendingtree.com/business/small/failure-rate/
Citation needed.
Around half of new businesses in the US fail after five years[0], and it is reasonable to assume the vast majority are small.
Mom and pop businesses fail all the time, we just don't hear about it very often.
Also, one of the key properties of Mittelstand, as I understand it, is that you don't need, or indeed want, an exit. It's (ideally) a cosy, lifestyle business.
I agree that this is a healthy approach and more people should be aware this is a viable option, but I'm not so sure it can be mixed with PE or VC (for the reasons I mentioned).
[0] https://www.lendingtree.com/business/small/failure-rate/
I think this would be much more healthy than the multi-phase aim-for-the-moon approach everybody takes today. And quite likely brings better results for both the investor and the founders.
If the business is already on the path to a small profitability, it is much more likely to get into large profitability than something that wasn't even started. And much less likely to get into a total loss.
Your points also seem a bit odd:
> Less availability of capital
There's no reason for that. If the investments are less risky, there should be more capital, not less.
> More dilution
Yep, at least more dilution per round. Companies doing that shouldn't do multi-round or have a very small first round followed by a second one.
> Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
Hum... Bringing management is a VC only thing. Their desire to bring management is clearly one of the forces stopping them form investing on less risky ventures. It's a non-performing choice for risky startups, and it's a non-performing choice for less risky ones. I'll just not call it stupid because there are handful of contexts where it's not, but doing it by default is clearly stupid. The good thing is that it's not viable for less risky bets.
> Long and protracted due diligence processes before the check even lands
Hell yes. That's the largest difference.
If the business is already on the path to a small profitability, it is much more likely to get into large profitability than something that wasn't even started. And much less likely to get into a total loss.
Your points also seem a bit odd:
> Less availability of capital
There's no reason for that. If the investments are less risky, there should be more capital, not less.
> More dilution
Yep, at least more dilution per round. Companies doing that shouldn't do multi-round or have a very small first round followed by a second one.
> Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
Hum... Bringing management is a VC only thing. Their desire to bring management is clearly one of the forces stopping them form investing on less risky ventures. It's a non-performing choice for risky startups, and it's a non-performing choice for less risky ones. I'll just not call it stupid because there are handful of contexts where it's not, but doing it by default is clearly stupid. The good thing is that it's not viable for less risky bets.
> Long and protracted due diligence processes before the check even lands
Hell yes. That's the largest difference.
>If the investments are less risky, there should be more capital, not less.
That's not the right metric. An investment balances risk and reward. If the reward of the less risky business is too low, then there will be less capital. If I guarantee your money back, and also zero growth (I'll just hold the money then return it), no one would invest - not enough reward.
Next, you have to outperform other risk/reward outcomes, such as bond or stocks or real estate, etc. Otherwise investors should (and likely will) put their money elsewhere.
For some market to get significant investment, it has to do well on the risk/reward frontier compared to alternatives.
Those reasons are why there is not massive VC type funds investing in companies like these. It's not that VCs are stupid, or investors are stupid. It's that the risk/reward for such companies has to compete against all other options for that capital.
That's not the right metric. An investment balances risk and reward. If the reward of the less risky business is too low, then there will be less capital. If I guarantee your money back, and also zero growth (I'll just hold the money then return it), no one would invest - not enough reward.
Next, you have to outperform other risk/reward outcomes, such as bond or stocks or real estate, etc. Otherwise investors should (and likely will) put their money elsewhere.
For some market to get significant investment, it has to do well on the risk/reward frontier compared to alternatives.
Those reasons are why there is not massive VC type funds investing in companies like these. It's not that VCs are stupid, or investors are stupid. It's that the risk/reward for such companies has to compete against all other options for that capital.
> I think this would be much more healthy than the multi-phase aim-for-the-moon approach everybody takes today.
Healthy for whom?
- startups founders?
- angel investors?
- VCs?
- national economy?
- financial markets?
- ...
Healthy for whom?
- startups founders?
- angel investors?
- VCs?
- national economy?
- financial markets?
- ...
Hum... I answered that just on the next phrase.
But now that you enumerated more, you can add "national economy" too.
But now that you enumerated more, you can add "national economy" too.
> Hum... I answered that just on the next phrase.
Concerning "And quite likely brings better results for both the investor and the founders.":
That "[it] brings better results" for some groups does not imply that it more healthy for this group. Also the other way round: "more healthy for some group" does not necessarily imply "better results for this group".
In this sense I did not think that this phrase was to be considered an answer to my point.
Concerning "And quite likely brings better results for both the investor and the founders.":
That "[it] brings better results" for some groups does not imply that it more healthy for this group. Also the other way round: "more healthy for some group" does not necessarily imply "better results for this group".
In this sense I did not think that this phrase was to be considered an answer to my point.
Hum, ok. You are interpreting "better results" in a strict monetary sense, without accounting for second-order problems from bad deals.
It looks more healthy for both groups. I do expect it to bring better both first-order and second-order results. (Those two are always correlated, and on investment relationships they are very strongly correlated.)
It looks more healthy for both groups. I do expect it to bring better both first-order and second-order results. (Those two are always correlated, and on investment relationships they are very strongly correlated.)
FWIW the German "Institute for Mittelstand Research" defines Mittelstand companies as being fully owned by a family who is able to operate economically independently. This by definition excludes most forms of VC funding (having a board with seats held by people outside the family would defy that definition).
Even without this restriction the common definition in Germany is the equivalent of SME, i.e. less than 500 employees and less than €50M annual revenue. This includes some 95% of companies in Germany.
So unless he's asking VCs to invest without demanding equity or any amount of control that would interfere with the will of the family owners of the business and for the goal to be capped at €50M annual revenue, I don't see how "Mittelstand" is the right concept to use.
FWIW the resilience of (traditional, i.e. older) Mittelstand companies is likely more related to the same factors as the resilience of worker co-ops (which likewise tend to be growth-limited but stable across economical crises): the owners have a personal (often generational) stake in the company and the workers are assumed to be in it for the long run rather than being laid off at the next opportunity. Plus of course the owners' fortunes being so tightly coupled to the well-being of the company means that they're able and willing to inject their own capital as necessary to weather crises.
Even without this restriction the common definition in Germany is the equivalent of SME, i.e. less than 500 employees and less than €50M annual revenue. This includes some 95% of companies in Germany.
So unless he's asking VCs to invest without demanding equity or any amount of control that would interfere with the will of the family owners of the business and for the goal to be capped at €50M annual revenue, I don't see how "Mittelstand" is the right concept to use.
FWIW the resilience of (traditional, i.e. older) Mittelstand companies is likely more related to the same factors as the resilience of worker co-ops (which likewise tend to be growth-limited but stable across economical crises): the owners have a personal (often generational) stake in the company and the workers are assumed to be in it for the long run rather than being laid off at the next opportunity. Plus of course the owners' fortunes being so tightly coupled to the well-being of the company means that they're able and willing to inject their own capital as necessary to weather crises.
These deals work for smaller funds with fewer staff. The current situation stems from the giant funds. Not so long ago most A rounds were a couple of million or less.
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> What's missing in this analysis is that those businesses are not going to be "founder-friendly" the way that the prototypical YC-seed-stage startup is.
I don't understand your definition of "founder-friendly." I want to build a business that delivers real value to customer and I want to do that from day one. I don't mind working harder or working on boring problems (if necessary) to do that.
I don't understand your definition of "founder-friendly." I want to build a business that delivers real value to customer and I want to do that from day one. I don't mind working harder or working on boring problems (if necessary) to do that.
This post is describing a structural issue on the funding side of new ventures: -
- bootstrapping is very hard
- traditional credit/loans aren't structured well for the "mid" type risks of starting software businesses (not much collateral)
- and on the VC side there is much less opportunity for the Unicorn 1 in 10 exits.
Tackling this problem are two funds that I didn't see mentioned in either the article or the comments so far: TinySeed and Calm Fund.
https://tinyseed.com/thesis
https://calmfund.com/shared-earnings-agreement
Broadly both invest much less than a traditional VC would and are compensated differently. The details are different (and matter) between the two but it's more along the lines of profit sharing than looking for big exits.
- bootstrapping is very hard
- traditional credit/loans aren't structured well for the "mid" type risks of starting software businesses (not much collateral)
- and on the VC side there is much less opportunity for the Unicorn 1 in 10 exits.
Tackling this problem are two funds that I didn't see mentioned in either the article or the comments so far: TinySeed and Calm Fund.
https://tinyseed.com/thesis
https://calmfund.com/shared-earnings-agreement
Broadly both invest much less than a traditional VC would and are compensated differently. The details are different (and matter) between the two but it's more along the lines of profit sharing than looking for big exits.
Tracy here from TinySeed, thanks for linking to our thesis!
Point of clarification: we don't do profit-sharing. Instead, we are equity owners. So when a company gets to the point of success where they want to take money off the table, they can issue dividends (and TinySeed get's a pro-rata amount of those dividends). I find this is one of our most unique points and aligns the incentives of the founder with TinySeed.
As mentioned in that page, by investing broadly into B2B SaaS, we can succeed as a venture firm without needing to count on unicorn exits. We're about to back our 80th company, and our founders tend to be older, more likely to have families, and tend to be "unsexy" businesses. We're only a few years old, but we've had very promising results (as a VC firm) so far.
Point of clarification: we don't do profit-sharing. Instead, we are equity owners. So when a company gets to the point of success where they want to take money off the table, they can issue dividends (and TinySeed get's a pro-rata amount of those dividends). I find this is one of our most unique points and aligns the incentives of the founder with TinySeed.
As mentioned in that page, by investing broadly into B2B SaaS, we can succeed as a venture firm without needing to count on unicorn exits. We're about to back our 80th company, and our founders tend to be older, more likely to have families, and tend to be "unsexy" businesses. We're only a few years old, but we've had very promising results (as a VC firm) so far.
You should add that you cap founder salaries at $250-$300k/year (if I remember your terms correctly)
If you’re a founder looking at TinySeed, what this means is that if your business reaches a level of success you can pay yourself over $250k-$300k through your W-2, you’ll either have to cap it there or pay the rest through dividends.
That said, this isn’t really a terrible setup if you plan to go down this route. The IRS takes issue when tightly held C-corps pay themselves large amounts via W-2’s because they would want to reclassify those as dividends. They won’t say what the “large amount” is, but I’ve been advised that its around $250k-$300k if you don’t have disinterested stockholders or board members voting on your comp.
As always, consulting with your accountant before making tax and/or fundraising decisions.
If you’re a founder looking at TinySeed, what this means is that if your business reaches a level of success you can pay yourself over $250k-$300k through your W-2, you’ll either have to cap it there or pay the rest through dividends.
That said, this isn’t really a terrible setup if you plan to go down this route. The IRS takes issue when tightly held C-corps pay themselves large amounts via W-2’s because they would want to reclassify those as dividends. They won’t say what the “large amount” is, but I’ve been advised that its around $250k-$300k if you don’t have disinterested stockholders or board members voting on your comp.
As always, consulting with your accountant before making tax and/or fundraising decisions.
Salaries and benefits need to be capped, otherwise founders can choose to pay themselves instead of paying dividends.
Honest founders often love the status that comes with big salaries and expensive perks, so investors need some way to cap that behaviour or otherwise investors get shafted.
It is perfectly fair: dividends do not overly cause taxation imbalance.
Micro-optimising for success before you are successful is a loser’s game. It is, of course, critical to configure your business so that you do indeed reap your rewards if you are successful (watch out for VC’s who have asymmetric information about the end-game and they can optimise for that against you).
If you are successful, then don’t sweat the micro-optimisations you missed out on. When founding, it is often easier to make the business 5% more profitable, rather than lose time pre-optimising for potential 5% gains.
Honest founders often love the status that comes with big salaries and expensive perks, so investors need some way to cap that behaviour or otherwise investors get shafted.
It is perfectly fair: dividends do not overly cause taxation imbalance.
Micro-optimising for success before you are successful is a loser’s game. It is, of course, critical to configure your business so that you do indeed reap your rewards if you are successful (watch out for VC’s who have asymmetric information about the end-game and they can optimise for that against you).
If you are successful, then don’t sweat the micro-optimisations you missed out on. When founding, it is often easier to make the business 5% more profitable, rather than lose time pre-optimising for potential 5% gains.
bradgessler, you have that completely backwards (might want to edit your post so others don't get confused). Dividend income is almost always taxed lower than w-2 income on several levels. The IRS goes after C corps for distributing dividends without a fair-wage w-2-- it triggers an automatic inquiry which, if you're not paying a fair wage, leads to an audit.
> IRS takes issue when tightly held C-corps pay themselves large amounts via W-2’s because they would want to reclassify those as dividends
Isn’t dividend income taxed less than W-2 income?
Isn’t dividend income taxed less than W-2 income?
Yes and no. It depends on what bracket you’re at on your income tax. It also depends on whether or not you’re factoring in corporate income tax too, which is paid before dividend distributions are made. For tightly held C-corps, you’d probably factor in the corp income tax since the concern would be about tax efficiency from revenue to dollars in your pocket.
That's correct. More info here on the full TinySeed terms can be found here: https://tinyseed.com/faq
On the thesis page it makes it sound like only B2B are considered, but here you stated primarily. Is this just a mis-wording here, or is it more that the focus is B2B but you won't outright deny a B2C company, if you think they have a good idea?
> the focus is B2B but you won't outright deny a B2C company, if you think they have a good idea?
Correct — also, most B2C companies have, or will build, a B2B component due to the higher contract prices they allow.
Correct — also, most B2C companies have, or will build, a B2B component due to the higher contract prices they allow.
I really appreciate these suggestions. We're a fully bootstrapped ~20 person, $5M+ ARR company in the DevOps space. We're growing quickly and often wonder what an extra $1.5 - $3M could mean for us, but don't want the overhead associated with a traditional investor, nor to invest the time in raising. We get emails from 3 - 4 VCs per week, but never any alternative funding options like the ones you listed. CalmFund in particular could be worth exploring. I wish this space ("Tech Mittelstands"?) were better established.
You might be interested in TinySeed's Syndicate offering — we started this for companies who are beyond the needs of the accelerator but would benefit from raising money (for instance, to deploy on new initiatives, or to take money off the table as a founder, or to buy another business, etc.): https://tinyseed.com/syndicate-founders
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I feel like this is just trying to rebrand “lifestyle businesses” or small businesses in general. Where I grew up it wasn’t uncommon for people to have businesses that did a few million in sales and the whole family worked at. While not as sexy as getting angel investment, it sustained a quality of life that met their needs. In order to run a successful business you don’t NEED mass profits or VC dollars.
There's somewhere between a "lifestyle business" and a unicorn though. You can be a contractor with a focus on re-doing roofs and pull in $1m/year without too much work once you have things running. You will be wealthy, but you won't ever pull in $20m/year. I think it's fair to call that a "lifestyle business".
I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipment to ISPs in the region. It's owned by one person. I don't know their margins, but that person might be making $20M/year. They might be able to grow that business and sell it for $500M dollars if they play their cards right. I wouldn't call that a "lifestyle" or "small" business. It's somewhere in the middle.
I think it's the latter type that the article is referring to.
I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipment to ISPs in the region. It's owned by one person. I don't know their margins, but that person might be making $20M/year. They might be able to grow that business and sell it for $500M dollars if they play their cards right. I wouldn't call that a "lifestyle" or "small" business. It's somewhere in the middle.
I think it's the latter type that the article is referring to.
I think what you just described is called "A Business"
Seems more like a lucrative "job" than a "business"
How do you define a “business” then?
Oh, come on. You are putting one third of the economy as "lifestyle businesses"? How many fast food franchises make less than that per year, are they "lifestyle businesses"?
Seriously, please get out of the SV bubble.
Seriously, please get out of the SV bubble.
Lifestyle business doesn't mean what you think it means. Supports a persons or family lifestyle (i.e. you need a place to live, food, essentials, and could be more than just that...), rather than being for investors to make equity growth.
That definition is still horrible. Plenty of investors interested in buying equity in a franchise or retail shops. What that has to do with "lifestyle"?
"franchise or retail shops" is a pretty broad definition. Some of those shops will be lifestyle, and others could be investments.
No. The definitions of these are clear. It's pretty easy to define what is a franchise and what is a retail shop.
The problem is with this definition of "lifestyle business". What is the cutoff? What does it mean to "support a lifestyle?" If a company makes 10M/year and it is growing at a healthy pace without VC capital, is it "lifestyle"?
If someone makes a living of investing in fast food franchises, each shop by itself taking 500k of initial investment and then returning $100k/year in profit, do you count each individual franchise as a "lifestyle" business or the whole thing as an "equity investment"?
Like others said already (and maybe that is the point of TFA), this definition of "lifestyle business" seems to serve only as a way for VCs to downplay the significance and importance of so many businesses that exist in every sector.
The problem is with this definition of "lifestyle business". What is the cutoff? What does it mean to "support a lifestyle?" If a company makes 10M/year and it is growing at a healthy pace without VC capital, is it "lifestyle"?
If someone makes a living of investing in fast food franchises, each shop by itself taking 500k of initial investment and then returning $100k/year in profit, do you count each individual franchise as a "lifestyle" business or the whole thing as an "equity investment"?
Like others said already (and maybe that is the point of TFA), this definition of "lifestyle business" seems to serve only as a way for VCs to downplay the significance and importance of so many businesses that exist in every sector.
Clear and broad at the same time. A Times Square McDonalds store and a country town uniform shop fall under this umbrella.
Cut off is “would an investor buy equity for growth”.
Some people own say 5 mcdonalds franchises: the owning business might be a growth one if they are planning to expand. Might be lifestyle if they don’t. Dynamics matter as much as a static snapshot view.
Might be a middle ground but I think it is small. Coops for example.
Cut off is “would an investor buy equity for growth”.
Some people own say 5 mcdonalds franchises: the owning business might be a growth one if they are planning to expand. Might be lifestyle if they don’t. Dynamics matter as much as a static snapshot view.
Might be a middle ground but I think it is small. Coops for example.
These are the businesses all up and down I-880 on the bay side from Fremont to Oakland. They’re just businesses.
Also there was a time when "lifestyle business" was getting shade as if it an inferior product for inferior people. I think that was probably just VC shade being thrown at it because they couldn't do anything with the kind of business. That and platforms probably ate away at their core offerings...
As someone who owns a lifestyle business, I think the domain of lifestyle businesses is almost entirely distinct from that of startups. Something that has the potential to be a startup (massive growth), could not be "held back" to remain a lifestyle business. And things that are lifestyle business generally cannot be grown at the pace of a startup.
Almost by definition, a lifestyle business lacks the potential for massive growth. If it has it, and the owner tries to 'hold it back' someone else will come along and capture the rest of the market. The incentive to do so is large.
Occasionally, you will see privately held businesses that have the potential of startups, but they are not lifestyle businesses (maybe mailchimp). They grow into full fledged businesses that just happen to be privately held. They will often find ways of funding their growth (and have options for doing so), even if that isn't VC.
That said, lifestyle businesses are awesome for your lifestyle. I didn't think I wanted one until I ended up with one, and it turns out high-ish income, total control of your time, and direct positive relationships with customers are a great lifestyle for me.
Almost by definition, a lifestyle business lacks the potential for massive growth. If it has it, and the owner tries to 'hold it back' someone else will come along and capture the rest of the market. The incentive to do so is large.
Occasionally, you will see privately held businesses that have the potential of startups, but they are not lifestyle businesses (maybe mailchimp). They grow into full fledged businesses that just happen to be privately held. They will often find ways of funding their growth (and have options for doing so), even if that isn't VC.
That said, lifestyle businesses are awesome for your lifestyle. I didn't think I wanted one until I ended up with one, and it turns out high-ish income, total control of your time, and direct positive relationships with customers are a great lifestyle for me.
This framing assumes that venture capital is both efficient and perfect at identifying potential for massive growth. In reality, there are many technology companies with potential for massive growth that are under-appreciated by the venture community - they don't fit into the right boxes, and if they were to get on the "fundraising treadmill" as the OP describes it, they'd be stuck in a situation where they're forced to spend aggressively without being able to rely on future fundraising making that burn sustainable. The good news is that would-be competitors would be in the same situation. So it's very possible for such a company to think like a startup in terms of its goals, but move at a more sustainable pace than if it were given hundreds of millions to burn. And those startups can still raise from VC when they've proven out their model, if they choose to do so - but it's important that they have a path to success as a startup that doesn't require those levels of cash injections.
Might be an effort by VCs to sell their own lifestyle. "Start a company in your dorm and become a billionaire by 25." Is possibly more compelling than "Start a business that might make 5M a year in 10 years and then live a relaxing well funded life."
Of course, they are on the back foot. If you have a successful indie business, make good money why would you accept VC investment? If you do it's on your terms and that often means worse deals for VC's. I can't blame VC's because their business modal is really different, they need to make a 100x not a value investment.
Local banks can provide the capital, often collateralized by your house. Also small business loans from the government and accelerator awards can provide 6 figure amounts. I know some "generic" business people who are fairly wealthy and they own things like food franchises and apartment complexes.
There are many paths to becoming rich that don't involve VCs and billion dollar exits. 99% of entrepreneurs don't talk to or know anything about the VC system. But if you are in tech and want to hire the best possible team to create something new, you need a lot of capital because those people are super expensive labor. And VCs don't want to give you $XX millions of dollars if the potential return is 2x. So that's the system we have in tech.
There are many paths to becoming rich that don't involve VCs and billion dollar exits. 99% of entrepreneurs don't talk to or know anything about the VC system. But if you are in tech and want to hire the best possible team to create something new, you need a lot of capital because those people are super expensive labor. And VCs don't want to give you $XX millions of dollars if the potential return is 2x. So that's the system we have in tech.
My question is why does everyone with the next CRUD SaaS app think they need to hire the “best people”?
I’ve seen plenty of job openings where companies want “ninja rockstar 10x developers” to write what ends up being something that anyone who knows the latest MVC framework with three years of experience can do competently.
And most “entrepreneurs” who own franchising are barely middle class and “bought a job”. The average fast food franchise, convenient store averages about $70K a year and that’s with the owner working insane hours and putting their family to work as free labor.
I’ve seen plenty of job openings where companies want “ninja rockstar 10x developers” to write what ends up being something that anyone who knows the latest MVC framework with three years of experience can do competently.
And most “entrepreneurs” who own franchising are barely middle class and “bought a job”. The average fast food franchise, convenient store averages about $70K a year and that’s with the owner working insane hours and putting their family to work as free labor.
> The average fast food franchise, convenient store averages about $70K a year.
Where can I find industry stats to explore this assertion?
Where can I find industry stats to explore this assertion?
McDonalds is $150K in net profit after investing 2.7 million
https://www.mashed.com/178309/how-much-mcdonalds-franchise-o...
7-11 is between $50-$75K.
https://mobile-cuisine.com/franchise/7-eleven-cost/
Subway is about $40K a year
https://www.eposnow.com/us/resources/how-much-do-franchise-o...
https://www.mashed.com/178309/how-much-mcdonalds-franchise-o...
7-11 is between $50-$75K.
https://mobile-cuisine.com/franchise/7-eleven-cost/
Subway is about $40K a year
https://www.eposnow.com/us/resources/how-much-do-franchise-o...
A 10x programmer can get things off the ground very fast.
Back at my peak. Me and another guy got a new startup to 1,000 paying clients in b2b space in 2 years. We had a few “regular” guys that helped out, but they would have taken 20 years to do what we did.
Back at my peak. Me and another guy got a new startup to 1,000 paying clients in b2b space in 2 years. We had a few “regular” guys that helped out, but they would have taken 20 years to do what we did.
I consider myself a “regular guy” (and 80% of drivers think they are above average). But I believe I can go through my LinkedIn profile and find a bunch of “regular guys” that I’ve worked with through the years that if you combine us with a “product guy”, an empty AWS account and a budget. We could put together a standard SaaS app.
With the recent emphasis on remote work, you can hire from the global talent pool. The US labor market is indeed very expensive.
at the risk of stating the obvious, our labor is only so expensive because of that VC money, and the money-printing machines they've funded
This is where the term "Mittelstand" gets lost in translation, and speaks to the Author's point that the Americanized definition of start-up has become too polarized and absolute.
It is neither a lifestyle business nor a shareholder-driven business.
It is neither a lifestyle business nor a shareholder-driven business.
Mittelstand doesnt even have agreed upon definition here in Germany. I've heard people call everything and anything that lies between your local mom and pop show and Volkswagen "mittelständisch".
My (very wrong) opinion on what Mittelstand is: I think of a small-to-medium sized company that manufactures (I've never thought of service providing companies as Mittelstand) one group of things at a very high and competitive level. I think of companies that are pretty much strictly B2B. These are mostly family-owned businesses, but for me that doesnt need to be true. Companies that you only know of, when you need to know. And when you do need to know about them, you most definitely will know about them.
Again, this definitely isnt what most people consider to be Mittelstand. Just my view on it.
My (very wrong) opinion on what Mittelstand is: I think of a small-to-medium sized company that manufactures (I've never thought of service providing companies as Mittelstand) one group of things at a very high and competitive level. I think of companies that are pretty much strictly B2B. These are mostly family-owned businesses, but for me that doesnt need to be true. Companies that you only know of, when you need to know. And when you do need to know about them, you most definitely will know about them.
Again, this definitely isnt what most people consider to be Mittelstand. Just my view on it.
Indeed, the majority of businesses don’t have Angel or VC funding. The majority are built on sweat equity.
and you can always just be an investor in a business with simple % ownership and splitting net revenues at any interval you want. no multiple share classes, no liquidity preferences, no need for infinite growth or growth at all
all this is still around ya know
people act like they just forgot
all this is still around ya know
people act like they just forgot
[deleted]
I'm trying to split SMB into two categories.
Lifestyle small businesses are great too, but I'm really talking about companies with $10M+ revenue potential.
You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).
Lifestyle small businesses are great too, but I'm really talking about companies with $10M+ revenue potential.
You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).
> I'm trying to split SMB into two categories.
The fact that SMB is literally two categories (Small and Medium Business) but effectively one category is a great way to capture the frustration here.
The fact that SMB is literally two categories (Small and Medium Business) but effectively one category is a great way to capture the frustration here.
> top-tier VC returns by building a portfolio of Mittelstand businesses
I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M.
Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return.
You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M)
What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.
I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M.
Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return.
You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M)
What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.
Hey, I'm the co-founder of TinySeed (and also a YC alumn), would be happy to connect: [email protected]
> You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).
Constellation software does exactly that. They've quietly been the Warren Buffet of SaaS business for like 20+ years now.
Constellation software does exactly that. They've quietly been the Warren Buffet of SaaS business for like 20+ years now.
Is Berkshire Hathaway a lifestyle business? Because it started out as one.
That’s his point. Small businesses can become unicorns - but they need space and time to grow. We need a better environment, and a more nuanced understanding, of them.
That’s his point. Small businesses can become unicorns - but they need space and time to grow. We need a better environment, and a more nuanced understanding, of them.
> Is Berkshire Hathaway a lifestyle business? Because it started out as one.
My skept-o-meter went off-scale upon reading this. Can you point to exactly when BH was a lifestyle business and what they were doing at that point that would classify them as a lifestyle business?
My skept-o-meter went off-scale upon reading this. Can you point to exactly when BH was a lifestyle business and what they were doing at that point that would classify them as a lifestyle business?
He raised $105,000 from friends and family and started a hedge fund which became BH.
Yes, but why would you say that it was a lifestyle business? I mean, it's not about size or being family-funded, I'd argue that this hedge fund was something entirely different from a lifestyle business since day 1.
It's about financing, not about branding. It's just yelling "hey, people stop ignoring 80% of the market!"
As someone that has been working hard in this domain, there is one major problem to this in software.
Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago when said younguns moved to uni degrees as a path in.
There is a lot of money idling out there to do that, but as Indie.vc showed, the usual LP are super frigid to it.
I do not have a good answer to this. The current young people simply are too unstable and too close to poverty to take the risks. And there is noone taking a risk on them either.
There is a looooot of value to make though. These markets are ripe for productivity enhancement through good software by small teams.
But the people that have the domain knowledge and the tech skills do not have the risk taking capability to execute.
Whoever find out how to provide them this will unleash massive growth on the world.
I advice to look at what calm fund is doing. https://calmfund.com/
The solution may end up being some kind of crowdfunding from other tech specialists with high income. Like FAANG devs.
Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago when said younguns moved to uni degrees as a path in.
There is a lot of money idling out there to do that, but as Indie.vc showed, the usual LP are super frigid to it.
I do not have a good answer to this. The current young people simply are too unstable and too close to poverty to take the risks. And there is noone taking a risk on them either.
There is a looooot of value to make though. These markets are ripe for productivity enhancement through good software by small teams.
But the people that have the domain knowledge and the tech skills do not have the risk taking capability to execute.
Whoever find out how to provide them this will unleash massive growth on the world.
I advice to look at what calm fund is doing. https://calmfund.com/
The solution may end up being some kind of crowdfunding from other tech specialists with high income. Like FAANG devs.
> The current young people simply are too unstable and too close to poverty to take the risks.
One piece of the solution that is very clear to me and contains many other upsides is better access to healthcare. The fact that Americans mostly get healthcare through large corporate jobs significantly ratchets up the risk of entrepreneurialism. A better healthcare safety net would make it safer to leave the safe confines of a corporate job that provides health insurance.
One piece of the solution that is very clear to me and contains many other upsides is better access to healthcare. The fact that Americans mostly get healthcare through large corporate jobs significantly ratchets up the risk of entrepreneurialism. A better healthcare safety net would make it safer to leave the safe confines of a corporate job that provides health insurance.
> better access to healthcare
If you are an entrepreneur under say 40, can’t you just roll a D10 and hope you don’t get a 1? Surely most people before middle-age won’t need expensive healthcare?
If you are an entrepreneur under say 40, can’t you just roll a D10 and hope you don’t get a 1? Surely most people before middle-age won’t need expensive healthcare?
Break a leg. Catch covid.
In my case have a cognitive trouble. Allergy. All kind of disease you can catch. Breaking a tooth while tripping over something.
Being young does not isolate you. And the trip to poverty is far faster than getting out of it.
In my case have a cognitive trouble. Allergy. All kind of disease you can catch. Breaking a tooth while tripping over something.
Being young does not isolate you. And the trip to poverty is far faster than getting out of it.
A 10% chance of a million-dollar healthcare bill you can't pay and will spend the rest of your life dealing with is still shitty odds on top of all of the other risks involved in starting a business.
Also: parents. Childbirth is expensive and most parents want some reasonable level of certainty that they can afford good healthcare for their kids. Or, to put a finer point on it, when forced to choose between health stability for their children and starting a business, most will sacrifice the latter to get the former.
Also: parents. Childbirth is expensive and most parents want some reasonable level of certainty that they can afford good healthcare for their kids. Or, to put a finer point on it, when forced to choose between health stability for their children and starting a business, most will sacrifice the latter to get the former.
There is a simple solution. It also give middle class an actual shot at an exit even without hitting a unicorn. This is for the groups that went to state schools not the Ivys.
Take a group of 4-6 CS grads and maybe a business major. The parents of these kids form a company and bootstrap the kids by having them work from home and just covering legal costs and cloud costs with a focus on keeping costs low. They go find a problem and start finding customers. No salaries are needed as each parent takes care of their own kids. This gets rid of the problem of just giving 22 year olds $10M and hoping they figure it out. The middle class doesn't have that kind of money, they have to be smarter but it is possible. Someone who has the knowledge could make a template that others could just use even without the know how. I wish my parents would have done something like this. I didn't have the chance to mess with a start-up after graduation. I worked 40 hours/week while in college. Graduation was about getting money asap to start digging out. This is the thing that the 1% have over others, a huge backstop and support self in case they fail.
Take a group of 4-6 CS grads and maybe a business major. The parents of these kids form a company and bootstrap the kids by having them work from home and just covering legal costs and cloud costs with a focus on keeping costs low. They go find a problem and start finding customers. No salaries are needed as each parent takes care of their own kids. This gets rid of the problem of just giving 22 year olds $10M and hoping they figure it out. The middle class doesn't have that kind of money, they have to be smarter but it is possible. Someone who has the knowledge could make a template that others could just use even without the know how. I wish my parents would have done something like this. I didn't have the chance to mess with a start-up after graduation. I worked 40 hours/week while in college. Graduation was about getting money asap to start digging out. This is the thing that the 1% have over others, a huge backstop and support self in case they fail.
The assumption that locking a few fresh CS grads and a business major in room will produce a successful company is pretty wild.
> but the first 500k are near impossible to get without a network in old money
Four hundred* golden tickets per year winning $500k available here for the low price of $0, although an application is required, and some light strings are attached: https://www.ycombinator.com/deal
* https://www.ycombinator.com/companies
Four hundred* golden tickets per year winning $500k available here for the low price of $0, although an application is required, and some light strings are attached: https://www.ycombinator.com/deal
* https://www.ycombinator.com/companies
A lot of strings attached among other being able to give up your life for 3 months. And a expectation and push to 100x. And a lot of others.
YC is simply not shaped for the Mittelstands and honestly really not compelling. At all.
YC is simply not shaped for the Mittelstands and honestly really not compelling. At all.
You sound like you are making a lot of excuses, but I actually deeply agree with every negative point that you make.
As you are pointing out, the risk of being a founder is just not worth it for you or most people, financially or socially or personally. It rarely makes sense even if you are already wealthy or privileged: even given the advantages you have correctly identified, the expected outcome is failure. Without those advantages the rewards for the risks are even worse. Calculate the median return[1][2][3] implied for the majority of ycombinator founders and it is approximately zero.
Selection bias is a bitch.
[1] https://jaredheyman.medium.com/on-600b-of-y-combinator-start... [2] https://techcrunch.com/2017/06/01/the-meeting-that-showed-me... [3] https://80000hours.org/2014/05/how-much-do-y-combinator-foun...
As you are pointing out, the risk of being a founder is just not worth it for you or most people, financially or socially or personally. It rarely makes sense even if you are already wealthy or privileged: even given the advantages you have correctly identified, the expected outcome is failure. Without those advantages the rewards for the risks are even worse. Calculate the median return[1][2][3] implied for the majority of ycombinator founders and it is approximately zero.
Selection bias is a bitch.
[1] https://jaredheyman.medium.com/on-600b-of-y-combinator-start... [2] https://techcrunch.com/2017/06/01/the-meeting-that-showed-me... [3] https://80000hours.org/2014/05/how-much-do-y-combinator-foun...
I dunno. I feel like the first 500K aren’t really the big problem, since growing to, say, a 500M valuation as an upper limit is still quite the upside. Also, non traditional funding options are on the table at that level (some cash from you and family, some equity in your home, perhaps some state funding or loans).
I feel like the next rounds may become much more difficult. How can I raise the next 10M, …, 200M if the company is unlikely to grow beyond 500M?
I feel like the next rounds may become much more difficult. How can I raise the next 10M, …, 200M if the company is unlikely to grow beyond 500M?
You don't need it as much or have that much problems if you make a profit.
And sorry but as upper middle class, my family cannot fund 500k. 100k max. And young people do not have a home.
Welcome to the real world.
And sorry but as upper middle class, my family cannot fund 500k. 100k max. And young people do not have a home.
Welcome to the real world.
This resonates with me. I have close friends who would be great co-founders, 3 out of 4 have moved in to camper trucks or vans. They work easy remote jobs and just enjoy life. We are mostly in our early 30s, worked in startups together over the years as engineers, sometimes as first or second hire. It's going to be quite hard to talk one of them in to being a principal co-founder at this point.
This is an English-speaking board where people have individualistic preferences so it isn't surprising that people default to an answer from private capital, but in Europe the government does this, and it works. Starting a company in the Netherlands was a breeze, and the tax breaks are very generous in the first few years.
I am in France, and i can tell you, the government only really support "want to be a unicorn" or companies that are already established or company that generate a ton of local jobs.
I went to talk to our local chamber of commerce and industry, which handle navigating the subsidies, and their answer was "how many local jobs are you creating ? Just you for now ? Then we cannot help you, come back when you create a dozen in the region"
I went to talk to our local chamber of commerce and industry, which handle navigating the subsidies, and their answer was "how many local jobs are you creating ? Just you for now ? Then we cannot help you, come back when you create a dozen in the region"
Disagree. This is like complaining rent in the big city is $4k/mo and impossible. No, spend a week on craigslist and get a great place with a roommate for $1.8k/mo.
The same is true for a medium sized business. Nothing is stopping you from doing it, its just stopping you from doing it from a hammock in the Caribbean.
The same is true for a medium sized business. Nothing is stopping you from doing it, its just stopping you from doing it from a hammock in the Caribbean.
I have a total free time to do non essential things per week of 3h. And i already have insomnia which is the only reason this time is not in the negative.
Thank you but no.
Thank you but no.
I think we're mixing two points.
"Medium scale/growth/etc startups should be feasible.
And
"Middle class startups should be feasible for people of all time/energy/financial constraints"
---
My point is that medium sized businesses (including startups) have always been feasible. Yeah it takes more effort then coasting on huge financing but thats the price you pay.
"Medium scale/growth/etc startups should be feasible.
And
"Middle class startups should be feasible for people of all time/energy/financial constraints"
---
My point is that medium sized businesses (including startups) have always been feasible. Yeah it takes more effort then coasting on huge financing but thats the price you pay.
>> Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
For two tech founders, the first 500k is literally a year of salary for the two founders. One option here is to bootstrap without outside capital, de-risk, and raise a better round once you've de-risked. For tech founders, the best form of capital can be their own minds and time. (Doesnt work as well if you have a family and if you're a single earner with dependents of course!)
For two tech founders, the first 500k is literally a year of salary for the two founders. One option here is to bootstrap without outside capital, de-risk, and raise a better round once you've de-risked. For tech founders, the best form of capital can be their own minds and time. (Doesnt work as well if you have a family and if you're a single earner with dependents of course!)
As a tech person at a big tech company making 98k per year as a senior with a rent to pay.
Maybe reconsider what i said and why.
In particular consider that what you said highly limit who can do this and how that limit heavily the kind of company that could grow from this.
Maybe reconsider what i said and why.
In particular consider that what you said highly limit who can do this and how that limit heavily the kind of company that could grow from this.
Totally considered. I did my bootstrapped startup while working a day job for the first year. The point is the value of your free time is 250k/yr. If you are smart and motivated, your time is incredibly valuable regardless of what your employer is paying you -- because you cannot easily hire that skillset with VC money.
In my case, when I was raising in 2012, the typical VC line was "go move to SF/SV and work for ramen-pay", which is ridiculous and only something rich people can do (things have changed now.) So I bootstrapped and built it myself on my spare hours (note, of course the start up should not be competing in the same market with your dayjob which would be a conflict of interest.)
Once you have a prototype and de-risking, the tables turn and VCs chase you
I mean, what is the alternative? See the GP comment I was replying to:
>> There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
If you're not in the circle where VCs are throwing money at you for some juice squeezing appliance, then you just have the option i've presented...or the option of not playing at all. But i'm very interested in the topic, i'd love to hear what your proposal is...because I think "poor people cant found tech startups" is not the world I would want to live in.
In my case, when I was raising in 2012, the typical VC line was "go move to SF/SV and work for ramen-pay", which is ridiculous and only something rich people can do (things have changed now.) So I bootstrapped and built it myself on my spare hours (note, of course the start up should not be competing in the same market with your dayjob which would be a conflict of interest.)
Once you have a prototype and de-risking, the tables turn and VCs chase you
I mean, what is the alternative? See the GP comment I was replying to:
>> There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
If you're not in the circle where VCs are throwing money at you for some juice squeezing appliance, then you just have the option i've presented...or the option of not playing at all. But i'm very interested in the topic, i'd love to hear what your proposal is...because I think "poor people cant found tech startups" is not the world I would want to live in.
I mean the problem is not only poor people. It is that access start at 250k a year which is really hard to get even in tech.
The reason it is harder in tech to get funding for these good ideas that could be profitable has multiple factors
1. As pointed, decoupling of relationship between entrepreneurs and "old money". This could be rebuilt even a the local government level with reach out actions
2. The untangibility of tech assets make banks loans near impossible to get
3. People cannot afford the risk. Better safety net would help. Obamacare was a good first step. Far more are needed.
4. The winner take all model has failed to generate profit. It generated capital returns but as pointed out by OP, pretty bad one. But it needed a lot of capital and LPs had a lot of money to throw around. The current inflation and folding back to Value investment will help. But we need to make the point.
5. The rise of passive investing has reduced the amount of money available to these kind of "semi anateur small rounds". The return to a less bullish market may help.
6. Housing. A lot of money and security rn for young people is sinked in rent
7. O'Reilly had amazing result with Indie.vc. The LPs refused to invest. There is a story that need to be told more. We need dozens of people banging the drum on this.
In the end... i don't have a solution sadly. We need a return to fundamentals to make the story of these models work. Focus on real possible profit and not some "we will control the world". FAANG are the exception. Not the rule. LP need to realise that.
The reason it is harder in tech to get funding for these good ideas that could be profitable has multiple factors
1. As pointed, decoupling of relationship between entrepreneurs and "old money". This could be rebuilt even a the local government level with reach out actions
2. The untangibility of tech assets make banks loans near impossible to get
3. People cannot afford the risk. Better safety net would help. Obamacare was a good first step. Far more are needed.
4. The winner take all model has failed to generate profit. It generated capital returns but as pointed out by OP, pretty bad one. But it needed a lot of capital and LPs had a lot of money to throw around. The current inflation and folding back to Value investment will help. But we need to make the point.
5. The rise of passive investing has reduced the amount of money available to these kind of "semi anateur small rounds". The return to a less bullish market may help.
6. Housing. A lot of money and security rn for young people is sinked in rent
7. O'Reilly had amazing result with Indie.vc. The LPs refused to invest. There is a story that need to be told more. We need dozens of people banging the drum on this.
In the end... i don't have a solution sadly. We need a return to fundamentals to make the story of these models work. Focus on real possible profit and not some "we will control the world". FAANG are the exception. Not the rule. LP need to realise that.
Agreed on most points. A couple of things:
>> 2. The untangibility of tech assets make banks loans near impossible to get
Avoid bankloans and explore PIPE financing or similar non-dilutive financing
>> It is that access start at 250k a year which is really hard to get even in tech.
Not really. If you aren't VC funded, you can hire anywhere and anyone. You make the rules. At that point, you can hire in India, Indiana, Ukraine, Pakistan, or Pennsylvania. You get a lot for your money. We hired entirely outside major markets and saved a lot. Unfortunately once you go the VC route you get forced into hiring expensive talent and end up burning money.
Id love to reach out offline, we should chat!
>> 2. The untangibility of tech assets make banks loans near impossible to get
Avoid bankloans and explore PIPE financing or similar non-dilutive financing
>> It is that access start at 250k a year which is really hard to get even in tech.
Not really. If you aren't VC funded, you can hire anywhere and anyone. You make the rules. At that point, you can hire in India, Indiana, Ukraine, Pakistan, or Pennsylvania. You get a lot for your money. We hired entirely outside major markets and saved a lot. Unfortunately once you go the VC route you get forced into hiring expensive talent and end up burning money.
Id love to reach out offline, we should chat!
No founders are paying themselves $250k/each/yr until MANY rounds of funding in. If you get seed/angel funding, you'd be paying yourself like $40k in the U.S. if at all. Founders take a lot of risk too, not just "play with funding money earning a job salary"
My post noted that founders working for themselves are essentially contributing the equivalent to hiring someone at $250k/yr.
I like your concept - few come to the realization that you do. I come to a different conclusion. I believe founders can make good progress using their income to replace themselves the first months (eg: outsource as much as they can) rather than to initially work full time..
Sounds to me like those founders don't really have the work ethic required to start a company if they immediately set out a red line that they won't work for less than $250k/yr. Who the hell makes that kind of money anyway? Only a very very few do.
Am I the only one not interested in taking advice from someone who has largely been massively successful? I always feel like these are the people who generally have nothing of real value to say, they just think they do because of their bias from their success.
I'm not 100% sure I agree, but I do think that people who have hit wild levels of success generally don't have advice that tangibly applies to most people.
Ironically, I'm going to mention Alex Hormozi (who is very successful), but he said in an interview once that he spent something like $150k to talk to Grant Cardone and thought "I'm easily getting my ROI on that now because Grant's advice applies to someone in my position, where I have $100 MM. 10 years ago, when I was broke, the advice he's giving me now would have just put me further in insurmountable debt."
Most ultra-successful people somewhat forget the baseline that most people live in. For example, if they were to "restart with nothing", they usually assume that "nothing" still implies a good credit score, housing, food, healthcare, etc. which most of America is really spending all of their time trying to fight to secure. This translates to the out-of-touch and generally vague advice they give.
Ironically, I'm going to mention Alex Hormozi (who is very successful), but he said in an interview once that he spent something like $150k to talk to Grant Cardone and thought "I'm easily getting my ROI on that now because Grant's advice applies to someone in my position, where I have $100 MM. 10 years ago, when I was broke, the advice he's giving me now would have just put me further in insurmountable debt."
Most ultra-successful people somewhat forget the baseline that most people live in. For example, if they were to "restart with nothing", they usually assume that "nothing" still implies a good credit score, housing, food, healthcare, etc. which most of America is really spending all of their time trying to fight to secure. This translates to the out-of-touch and generally vague advice they give.
Yes absolutely. It would be a great experiment to see what any ultra-successful person would do with even that massive leg up - which puts you in the top 10% of the US, if not the top 5%. And no, they aren't allowed to use any of their connections ;)
The ultra-successful, in my experience, are there because yes, they do have some strong, quantifiable qualities, but they also have massive, massive advantages. Not just being born into a home that gave them quality food, the best education, and all of the other things needed to be healthy in their developing years - but also the experience of their successful parents, the connections their family has, and many other things that I probably do not even know exist.
Some of these families that I know personally have it ridiculously well. Not only were they born with amazing portfolios, but they have great family jobs where they make $8k+ (after tax) every 2 weeks. And they get as much time off as they want - and you better believe they generally use it :)
Of course, they still find things to complain about - as do I.
There are a lot of brilliant and driven poor people. If they are lucky, they will get into the 10% or the 5%. If they win the lottery they make it into the .1%.
The ultra-successful, in my experience, are there because yes, they do have some strong, quantifiable qualities, but they also have massive, massive advantages. Not just being born into a home that gave them quality food, the best education, and all of the other things needed to be healthy in their developing years - but also the experience of their successful parents, the connections their family has, and many other things that I probably do not even know exist.
Some of these families that I know personally have it ridiculously well. Not only were they born with amazing portfolios, but they have great family jobs where they make $8k+ (after tax) every 2 weeks. And they get as much time off as they want - and you better believe they generally use it :)
Of course, they still find things to complain about - as do I.
There are a lot of brilliant and driven poor people. If they are lucky, they will get into the 10% or the 5%. If they win the lottery they make it into the .1%.
I think I actually learned this lesson from my failure to build a billion dollar startup with Labdoor (this story is in the post). We would've been better off raising less money and going for profitability earlier. Labdoor made it to the middle class the hard way, and I'm trying to help others avoid some of my pain.
Thanks Neil - I certainly do not mean to disparage your success or work done with your writing. I think part of my comment is driven by the need for someone on HN to post something cynical.
I think there is just some mental fatigue that happens when you read about other's success - maybe this is an unhealthy reaction, I do not know.
I think there is just some mental fatigue that happens when you read about other's success - maybe this is an unhealthy reaction, I do not know.
> I think I actually learned this lesson from my failure to build a billion dollar startup with Labdoor
Failing to build a billion dollar startup does not exactly disprove the “massively succesful” point that GP made. Unless your criteria for “failure” is completely ridiculous.
Failing to build a billion dollar startup does not exactly disprove the “massively succesful” point that GP made. Unless your criteria for “failure” is completely ridiculous.
> Am I the only one not interested in taking advice from someone who has largely been massively successful?
I think of Kevin Systrom selling Instagram to Mark Zuckerberg at Facebook. Both success stories. Systrom went to high school at Middlesex, Zuckerberg to Phillips Exeter. I can think of many examples like this. Phillips Exeter high school starts at $47,000 a year, Middlesex high school starts at $54,000 a year.
So my best advice is have your parents give you $200,000 before you start high school so you can be off to a good start.
I think of Kevin Systrom selling Instagram to Mark Zuckerberg at Facebook. Both success stories. Systrom went to high school at Middlesex, Zuckerberg to Phillips Exeter. I can think of many examples like this. Phillips Exeter high school starts at $47,000 a year, Middlesex high school starts at $54,000 a year.
So my best advice is have your parents give you $200,000 before you start high school so you can be off to a good start.
Or just, good food, decent connections, a good education, and general support during your most important developing years. That goes a huge way and almost no one has these things.
If someone has been massively successful, that means they know how to be successful. It must be the case they have something of value to say. How can you make the argument they have nothing of value to say?
First, I would argue that your statement is not true that successful people always or even generally or on the average know how to be successful. But even if it is true, because they are good at one thing (starting businesses) does not mean they have anything valuable to say, or that they can say it in a way that transfers value to others, or that they are good at anything else, really.
Anyway, you're attacking a premise I didn't put forward - I didn't say his advice was not valuable, I said I feel that way when presented with articles like these by wildly successful people.
Anyway, you're attacking a premise I didn't put forward - I didn't say his advice was not valuable, I said I feel that way when presented with articles like these by wildly successful people.
Simple. Survivorship bias. HBS and other business journals have done many studies where they look at the key attributes of a successful entrepreneur and it's always the usual stuff like: hard work, persistence, willingness to take risks, etc. The problem is that if you surveyed the key attributes of UNsuccessful entrepreneurs you'd find the exact same attributes.
If somebody has been massively successful from nothing multiple times, it means they probably know how to be successful. If somebody has been massively successful once, it means there is a definite possibility that they know how to be successful, and also a definite possibility that they had connections and/or luck.
Or they had family with money and connections.
You’re getting downvoted because it’s almost always parents and their friends.
Pull like any tech big shot at random, their parents are rich and bought some part of their success. Gates’ folks had an IBM mainframe installed in his fucking high school.
Oh myGod, this kid Bill Gates is way ahead of the curve on computers.
Pull like any tech big shot at random, their parents are rich and bought some part of their success. Gates’ folks had an IBM mainframe installed in his fucking high school.
Oh myGod, this kid Bill Gates is way ahead of the curve on computers.
Nearly every billionaire was born a millionaire.
IMO it's good to take the advice of consistently successful investors who seem to prioritize honesty. Warren Buffet, Charlie Munger, and Chamath Palihapitiya are my favorites. My reasoning is that you can't make consistently good investment decisions without having a reliable mental framework for how to look at the world.
For other classes of successful people it makes more sense to read a biography (or autobiography if you feel the subject is intellectually honest) of successful people to understand how they think and operate. Many of these people won't be looking to give advice, but it is worthwhile to learn from them. For instance you can read the biography of Rockefeller, Carnegie, Franklin, and listen to "How I made this" featuring Michael Dell, and see the threads that are common amongst them. You may then compare that to yourself and understand the differences.
IMO there's plenty of value in the article, but it's an example of something you should critically analyze and verify against other sources before acting on.
For other classes of successful people it makes more sense to read a biography (or autobiography if you feel the subject is intellectually honest) of successful people to understand how they think and operate. Many of these people won't be looking to give advice, but it is worthwhile to learn from them. For instance you can read the biography of Rockefeller, Carnegie, Franklin, and listen to "How I made this" featuring Michael Dell, and see the threads that are common amongst them. You may then compare that to yourself and understand the differences.
IMO there's plenty of value in the article, but it's an example of something you should critically analyze and verify against other sources before acting on.
Someone once asked the Duke of Westminster for career advice: “Make sure they have an ancestor who was a very close friend of William the Conqueror.” At least he was honest.
Understand your motivations. There are plenty of detestable successful people that still have plenty one can learn from.
It is up to you to be able to filter good information from bad. Wealthy founders do share some opinions that will help you be wealthy. However you need to learn to discriminate between good advice and bad advice. Your blanket ban seems poorly thought out to me.
Bonus unwelcome advice: you appear to be using the word successful to mean wealthy. Perhaps deconstruct your worldview a bit.
It is up to you to be able to filter good information from bad. Wealthy founders do share some opinions that will help you be wealthy. However you need to learn to discriminate between good advice and bad advice. Your blanket ban seems poorly thought out to me.
Bonus unwelcome advice: you appear to be using the word successful to mean wealthy. Perhaps deconstruct your worldview a bit.
I think it's important to take advice from a lot of people. It's up to you how to frame what to do with it or how much you think it applies to your current situation.
I guess my point is I always feel like such advice is really just a bunch of hot air (so little or no substance) and not really advice at all.
I'd just recommend not painting with too broad of a brush.
One of my favorite stories about Dabo Swinney, Clemson's football coach, came when he had just gotten the job and very few people had any confidence in him. ESPN rated him as a D+ hire at the time. He sat down at a coaches dinner event and a much older retired coach named Bill Curry was at his table. They struck up a conversation and Bill said, "Dabo, congratulations on the job! Can I give you 3 pieces of advice?"
And Dabo took out a pad and pencil from his pocket.
The advice was good, but the fact that Dabo was humble enough to actually take notes. Think about how much advice we just let go in one ear and out the other.
Now he's the best coach we've ever had and won 2 national titles.
One of my favorite stories about Dabo Swinney, Clemson's football coach, came when he had just gotten the job and very few people had any confidence in him. ESPN rated him as a D+ hire at the time. He sat down at a coaches dinner event and a much older retired coach named Bill Curry was at his table. They struck up a conversation and Bill said, "Dabo, congratulations on the job! Can I give you 3 pieces of advice?"
And Dabo took out a pad and pencil from his pocket.
The advice was good, but the fact that Dabo was humble enough to actually take notes. Think about how much advice we just let go in one ear and out the other.
Now he's the best coach we've ever had and won 2 national titles.
I agree, I don't mean to suggest you should discount advice just because someone is successful.
Do you believe that all successful people were simply lucky?
Depends on your definition of all, successful, and lucky.
If you change successful to be defined as people like OP, I believe a large majority of successful people are extremely lucky. Probably over 99.9%. They owe their success to being extremely fortunate in a combination of many factors, not limited to:
- Where they were born
- Who their parents were
- What food their parents gave them when they were kids
- What other types of nurture they received
- Where they went to school
- When they went to school
- Who they met at school
- Who their parents knew
- The time they were born
- The time they ...
You can go on and on here ...
If you change successful to be defined as people like OP, I believe a large majority of successful people are extremely lucky. Probably over 99.9%. They owe their success to being extremely fortunate in a combination of many factors, not limited to:
- Where they were born
- Who their parents were
- What food their parents gave them when they were kids
- What other types of nurture they received
- Where they went to school
- When they went to school
- Who they met at school
- Who their parents knew
- The time they were born
- The time they ...
You can go on and on here ...
seems like a not useful definition. If we go with this what is not from luck? Someone works hard? That's because they got lucky with the right genes and upbringing. They're smart, born to the right parents. If we go with this then everything in life is a matter of luck.
They can work hard, but it is really rare, extremely rare, that someone who was born to unfortunate circumstances will be very successful.
My key takeaways:
1. Remote work, no code, social media, and ecommerce platforms all make it easier to bootstrap new businesses from zero to revenue
2. (From Wikipedia) Mittelstand commonly refers to a group of stable business enterprises in Germany, Austria and Switzerland that have proved successful in enduring economic change and turbulence. The term is difficult to translate and may cause confusion for non-Germans. It is usually defined as a statistical category of small and medium-sized enterprises with annual revenues up to 50 million Euro and a maximum of 500 employees
3. There are hundreds of YC-backed startups stuck at ~$1M revenue that can predictably grow to $10M+ revenue with the right team and funding structure
4. Many VC-backed startups would be better as Mittelstands
5. My first business, Avomeen, is a classic Mittelstand
6. Mittelstands are already about one-third of our whole economy
7. Mittelstands can launch and get profitable for <$1M
1. Remote work, no code, social media, and ecommerce platforms all make it easier to bootstrap new businesses from zero to revenue
2. (From Wikipedia) Mittelstand commonly refers to a group of stable business enterprises in Germany, Austria and Switzerland that have proved successful in enduring economic change and turbulence. The term is difficult to translate and may cause confusion for non-Germans. It is usually defined as a statistical category of small and medium-sized enterprises with annual revenues up to 50 million Euro and a maximum of 500 employees
3. There are hundreds of YC-backed startups stuck at ~$1M revenue that can predictably grow to $10M+ revenue with the right team and funding structure
4. Many VC-backed startups would be better as Mittelstands
5. My first business, Avomeen, is a classic Mittelstand
6. Mittelstands are already about one-third of our whole economy
7. Mittelstands can launch and get profitable for <$1M
The original article uses the plural too, Mittelstands, but it sounds really weird in German since it's more of mass noun (it's as if you referred to various pots of sugar as 'the sugars'). I believe the correct word would be Mittelständler, but if you're going to anglicize it, Mittelstanders would much better than Mittelstands in my opinion. Then again, I'm not a native speaker of either German or English...
the "-stand" comes from the German word for "estate" in the medieval sense [1]. It's typically translated with small- and medium-sized enterprises, which is also the lingo used at EU level. As you said, it's a mass noun, so if you want to refer to an individual enterprise belonging to the "Mittelstand," you'd effectively use it as an adjective and speak of e.g. a Mittlestand firm.
[1]: https://en.wikipedia.org/wiki/Estates_of_the_realm
[1]: https://en.wikipedia.org/wiki/Estates_of_the_realm
How would you call a person belonging to the Mittelstand in German? In another Germanic language, Dutch, you would say "middenstander" (or plural"middenstanders"), derived from "middenstand".
My sense is that in general, and especially in software, the world is becoming more of a winner take all place. This is not a good thing.
Yes, but there will always be niches where you can make good money, but not enough for the big fish to be interested. For example, my wife uses some statistical software that is apparently pretty popular in her field, but it's still only used within a niche of academia. You might be able to find a niche that brings you $10M/year in profit which is enough to live a lavish lifestyle, but not enough for VCs to fund you or for Amazon to bother competing with you.
Man I'd settle for 200K/year
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With near zero marginal costs associated with software, it makes sense for a winner take all outcome to be the equillibrium.
...which is why you need strong regulatory oversight if you want the software market to have any functioning level of efficiency.
The economies of scale are enormous in software (and data-oriented businesses in general). That's good for the efficiency of any given enterprise, but it pushes very heavily towards monopolization and zero competition without regulatory force to counterbalance.
The economies of scale are enormous in software (and data-oriented businesses in general). That's good for the efficiency of any given enterprise, but it pushes very heavily towards monopolization and zero competition without regulatory force to counterbalance.
That doesn’t hold at all unless there is significant lock-in that raises switching cost. If there is a company sitting there with no overhead collecting $10m/year for software all of its customers hate, it’s ripe for competition to take it overnight.
I think about this quite a bit as my parents likely fit this category in the early 90s in Silicon Valley. At peak, they were bootstrapped a company from nothing to eventually at peak with ~40 employees at 100M USD annual revenue, no idea on income as it was a fairly large operation (distribution, warehousing, engineering team, sales team, operations, etc) They exited out of business within 6 years and retired in their 40s.
My family grew up relatively poor and extremely frugal. My dad was formerly a professor in machine learning, but decided to enter the private sector. He didn’t speak much English if at all, and entered the field when it was still immature.
After he was laid off, and with little options left, they decided to use their remaining savings and likely a loan from family & friends to bootstrap a company. My parents never wanted a business, but they had to out of survival. They never discussed the business with us, so I don’t fully understand the operating model behind their company, but it involved with semiconductors/hardware, etc.
What I think about is was this simply a business or during that time a “startup”. It was in a hyper growth period on relatively emerging technology, they were learning as they went, and exited quickly.
Recently, though my dad unretired in his 70s working at a FANG… Amazon warehouse worker. He says he does it for the exercise and $20/hour.
My family grew up relatively poor and extremely frugal. My dad was formerly a professor in machine learning, but decided to enter the private sector. He didn’t speak much English if at all, and entered the field when it was still immature.
After he was laid off, and with little options left, they decided to use their remaining savings and likely a loan from family & friends to bootstrap a company. My parents never wanted a business, but they had to out of survival. They never discussed the business with us, so I don’t fully understand the operating model behind their company, but it involved with semiconductors/hardware, etc.
What I think about is was this simply a business or during that time a “startup”. It was in a hyper growth period on relatively emerging technology, they were learning as they went, and exited quickly.
Recently, though my dad unretired in his 70s working at a FANG… Amazon warehouse worker. He says he does it for the exercise and $20/hour.
I'm having a hard time understanding how you could do a funding mechanism for "mid-market" startups.
Contra the subtext of this post, it is not in fact low-risk to take a company from 0 to $5-10MM annual revenue. Companies that do this quickly tend do it with substantial funding, which is predicated on them aiming for much, much higher revenue and valuation numbers. Companies that don't take funding that eventually hit those numbers run for a long time before they get there. And those kinds of companies fail all the time; failure is their default mode.
As I understand it, a basic fact of life for venture funding is that the winners have to pay for the winners. Do the math with a portfolio of 10 companies taking $1 each to see what the winners have to make just to break even at various hit rates.
Further, targeting "mid-market" startups with growth targets low enough to somehow derisk them would also drastically reduce the amount of funding you could provide. You can't give $10MM to a company that's going to grow slowly and organically from low-7-figures; that company has such a low valuation that $10MM would buy too much of it. My first impression is that you'd be able to do something early-stage-YC-ish, giving a single founder ramen wages for a year or two, and not much more than that. But you'd have to take a huge chunk of equity to do that, so it'd be a terrible deal for the founder.
This model would make sense if there was a reliable path to get to $5MM/yr, such that you could build a portfolio of a bunch of companies taking that path with a very high hit rate. But there isn't? You are very likely to fail trying to start a company like that. Worse: the resources you'll need to operate a company doing $5MM/yr will rapidly outstrip any amount of funding a VC could provide. The VC-funded companies doing $5MM/yr got that money because they promised they'd soon be doing $500MM/yr.
What am I missing? Obviously, I'm not a golfer.
Contra the subtext of this post, it is not in fact low-risk to take a company from 0 to $5-10MM annual revenue. Companies that do this quickly tend do it with substantial funding, which is predicated on them aiming for much, much higher revenue and valuation numbers. Companies that don't take funding that eventually hit those numbers run for a long time before they get there. And those kinds of companies fail all the time; failure is their default mode.
As I understand it, a basic fact of life for venture funding is that the winners have to pay for the winners. Do the math with a portfolio of 10 companies taking $1 each to see what the winners have to make just to break even at various hit rates.
Further, targeting "mid-market" startups with growth targets low enough to somehow derisk them would also drastically reduce the amount of funding you could provide. You can't give $10MM to a company that's going to grow slowly and organically from low-7-figures; that company has such a low valuation that $10MM would buy too much of it. My first impression is that you'd be able to do something early-stage-YC-ish, giving a single founder ramen wages for a year or two, and not much more than that. But you'd have to take a huge chunk of equity to do that, so it'd be a terrible deal for the founder.
This model would make sense if there was a reliable path to get to $5MM/yr, such that you could build a portfolio of a bunch of companies taking that path with a very high hit rate. But there isn't? You are very likely to fail trying to start a company like that. Worse: the resources you'll need to operate a company doing $5MM/yr will rapidly outstrip any amount of funding a VC could provide. The VC-funded companies doing $5MM/yr got that money because they promised they'd soon be doing $500MM/yr.
What am I missing? Obviously, I'm not a golfer.
There a couple of subtle things going on from my reading, both potentially but not necessarily fatal:
1) Author is success biased because his dad handed him a playbook that worked on company #1 and then they were able to pivot the second time, so a reasonable outcome appears guaranteed (pro tip: if you founded a company with your dad and you were under 30, he gifted you, and you are both rare, even among founders)
2) acting like a VC with companies that are not VC suited is prone to failure because of something like the observer effect: you cannot just add funds and get a better outcome, adding funds can create worse outcomes by changing the way the company is run: priorities, timeframes and metrics, etc.
Maybe it would work if you could add funds without the company knowing they had them until they were at the moment of failure?
It is always possible that what we are apparently calling the Mittelstands market is somewhat underfished or modified since previous efforts (less overhead is required for many opportunities) and the new fund will find success there. A diversity of approaches is a good thing.
2) acting like a VC with companies that are not VC suited is prone to failure because of something like the observer effect: you cannot just add funds and get a better outcome, adding funds can create worse outcomes by changing the way the company is run: priorities, timeframes and metrics, etc.
Maybe it would work if you could add funds without the company knowing they had them until they were at the moment of failure?
It is always possible that what we are apparently calling the Mittelstands market is somewhat underfished or modified since previous efforts (less overhead is required for many opportunities) and the new fund will find success there. A diversity of approaches is a good thing.
I'm trying to put some numbers on it
Let's imagine the bottom level of the mittlestand as 2.4M pa revenue - call that 200k pmth, 40/400 licenses at 500/5k. I think that is the barest level.
Now there is very little technology risk in most B2B saas. (Inam not talking about fusion startups here. That's what VC/gov is truly useful).
But a team of 2-5 people at 100k pa is feasible here.
This is not VC shoot for the moon, but it is also not worth putting in 2 years of runway (400k-1M) for equity. But it is worthwhile as a loan.
So IMO VC money could start handing out ridiculously low interest rate loans with big forgiveness clauses (dies with the bankruptcy of company?). The founder takes the equity swap or the loan depending on their vision of future. Add in some conversion later on and it seems one way to divide the market
I suppose the point is, if you have 100M to invest, which is riskier - 100 1M investments or 1 100M investment? And if you wait till later stages before deciding you probably miss out.
Let's imagine the bottom level of the mittlestand as 2.4M pa revenue - call that 200k pmth, 40/400 licenses at 500/5k. I think that is the barest level.
Now there is very little technology risk in most B2B saas. (Inam not talking about fusion startups here. That's what VC/gov is truly useful).
But a team of 2-5 people at 100k pa is feasible here.
This is not VC shoot for the moon, but it is also not worth putting in 2 years of runway (400k-1M) for equity. But it is worthwhile as a loan.
So IMO VC money could start handing out ridiculously low interest rate loans with big forgiveness clauses (dies with the bankruptcy of company?). The founder takes the equity swap or the loan depending on their vision of future. Add in some conversion later on and it seems one way to divide the market
I suppose the point is, if you have 100M to invest, which is riskier - 100 1M investments or 1 100M investment? And if you wait till later stages before deciding you probably miss out.
I believe your last paragraph illuminates the answer: how does a fund with $100M to invest come up with the sales funnel to generate 100 $1M quality deals? You arguably have to do the same amount of work per deal (let’s be generous and say somehow it is 1/2) and your profit is 1/100. So your costs/workload are 50 times higher.
(edit: looking back at this I believe I’m not even being pessimistic enough, but I’m too lazy to do the math. We’ve got 5% of 5% sorts of things going on here. So using these numbers to fill your funnel you need 400 initial meetings for one big deal, or 40,000 initial meetings for 100 small deals. That’s one person vs 100 people on payroll. But with small deals you have higher people noise and so you probably need more stages in your funnel and specialization. So it’s probably much worse.)
Then you have to engage with the company, take a board seat, etc. Only way it pans out operationally is if you can still succeed while being really passive (hasn’t worked yet) or automate it. But if you automate it people will know it is automated and game it.
Then you have to engage with the company, take a board seat, etc. Only way it pans out operationally is if you can still succeed while being really passive (hasn’t worked yet) or automate it. But if you automate it people will know it is automated and game it.
I have seriously suggested that there should be a "million startups" fund - I think it was when softbank lost X billions and I reckoned it was feasible to fund a million YC style / cost companies globally. Yeah it's not viable in SV but there are a lot of cities outside USA.
Do all of the problems you allude to there exist - yes absolutely. But we need something to spin the flywheel.
There is a story that inspires me is https://en.m.wikipedia.org/wiki/Arunachalam_Muruganantham - he invented a low cost tampon making machine - it was not the technology but the marrying of tech, social entrepreneur and local cultural knowledge that increased wealth - and that's the next stage - we don't need another social media giant - we need thousands of locally useful social media (for definitions of local, social, useful etc)
And finally to be brutal - if some fund has 100M to invest and it's too tough to build out their deal funnel, no one is going to sympathise :-(
Do all of the problems you allude to there exist - yes absolutely. But we need something to spin the flywheel.
There is a story that inspires me is https://en.m.wikipedia.org/wiki/Arunachalam_Muruganantham - he invented a low cost tampon making machine - it was not the technology but the marrying of tech, social entrepreneur and local cultural knowledge that increased wealth - and that's the next stage - we don't need another social media giant - we need thousands of locally useful social media (for definitions of local, social, useful etc)
And finally to be brutal - if some fund has 100M to invest and it's too tough to build out their deal funnel, no one is going to sympathise :-(
Wow that is a great story. I learned about social enterprises a few years ago and since have been collecting related resources and putting them here https://github.com/RayBB/awesome-social-enterprise
There's very little technology risk, but there's absolutely enormous business risk in any technology venture. There's a reason no bank will loan 250k-650k to a 2-5 person tech startup with no revenue.
There is a "super" risk issue I am trying to put into words.
Somewhere there is a different approach to capital structure and corporation structure. The one we have ... it works yes. But it's not the only one and we can see problems. And we should try to encourage some experimentation- Mittelstand is one divergence from the UK Limited company model that kind of came packaged with the industrial revolution. (That it came from the UKs big rival in the revolution says a lot)
Why should Bezos or Musk or any early founder get so much of the upside ? Is having a hierarchical command structure stable ? As the oil / Electric / Silicon revolutions start to come to an end, will we need different corporate and capital structures to handle a more sustainable model?
Why should public markets demand quarter on quarter growth as if that was a natural state of affairs (which tends to force every PLC to be a conglomerate whether it wants to or not (tech giants not withstanding). Should companies not be like Unix commands and just do one thing well?
All these are choices - we could have smaller companies, democratic companies, different companies. But we choose not to. (Don't say they are competed away in the market - how many co-operatives exist to be competed away?)
Maybe we can continue the kind of tech-social change we have been seeing for past 200 years. If so keep the scaffolding up. But otherwise maybe we should experiment with new forms of organisation. Because that's what has helped humans rise out of the mud - how we worked together to build something ... less muddy.
And choosing the right kind of organisation for the job at hand is crucial. And an equity corporation controlled by one or two people employing millions who have no say in its direction, might not be the right choice.
So fund a few wild cat companies - we might surprise ourselves.
Edit: literally just ran over this comment : https://news.ycombinator.com/item?id=31346487 (ignore my dumb sarcasm after). But the point is that a congress with 5,000 congressmen is a wildly different beast to the current one. And potentially better (very arguable). But that it's such a crazy, reject it without thinking idea is the whole point - there are alternatives to our current system (and yes that does include fucking it all up and crashing the economy - but we are risking that anyway).
Somewhere there is a different approach to capital structure and corporation structure. The one we have ... it works yes. But it's not the only one and we can see problems. And we should try to encourage some experimentation- Mittelstand is one divergence from the UK Limited company model that kind of came packaged with the industrial revolution. (That it came from the UKs big rival in the revolution says a lot)
Why should Bezos or Musk or any early founder get so much of the upside ? Is having a hierarchical command structure stable ? As the oil / Electric / Silicon revolutions start to come to an end, will we need different corporate and capital structures to handle a more sustainable model?
Why should public markets demand quarter on quarter growth as if that was a natural state of affairs (which tends to force every PLC to be a conglomerate whether it wants to or not (tech giants not withstanding). Should companies not be like Unix commands and just do one thing well?
All these are choices - we could have smaller companies, democratic companies, different companies. But we choose not to. (Don't say they are competed away in the market - how many co-operatives exist to be competed away?)
Maybe we can continue the kind of tech-social change we have been seeing for past 200 years. If so keep the scaffolding up. But otherwise maybe we should experiment with new forms of organisation. Because that's what has helped humans rise out of the mud - how we worked together to build something ... less muddy.
And choosing the right kind of organisation for the job at hand is crucial. And an equity corporation controlled by one or two people employing millions who have no say in its direction, might not be the right choice.
So fund a few wild cat companies - we might surprise ourselves.
Edit: literally just ran over this comment : https://news.ycombinator.com/item?id=31346487 (ignore my dumb sarcasm after). But the point is that a congress with 5,000 congressmen is a wildly different beast to the current one. And potentially better (very arguable). But that it's such a crazy, reject it without thinking idea is the whole point - there are alternatives to our current system (and yes that does include fucking it all up and crashing the economy - but we are risking that anyway).
I think one myth that exists in both American culture and startups in particular is that you can "make it" if you just have the skills and the chutzpah.
Without some system that isn't inherently about 'move fast, big returns, oh and also it really helps if you're a young man with a Stanford connection and a way to get through the period of time where you have no income' then we get the technology that results from that. And the 'system' reflects a funding situation where big investors, often having 'good' missions (the LPs I mean) look to folks from SV VC to pattern-match their way into high returns.
If you are building a business and it's a "good business" that can be profitable early then great, but you will be stuck at scale (or in almost anything consumer-facing in tech) with only the companies willing to maximally exploit the systems that I think we know are extractive and unsustainable.
Like with most systems problems, it's hard to know what the 'answer' is- if you buy into this line of thinking- but I hope we'll start trying new ways to approach the problem, whether it's by putting some pressure on the LPs or by making it easier to crowdfund or by some more radical means...
Without some system that isn't inherently about 'move fast, big returns, oh and also it really helps if you're a young man with a Stanford connection and a way to get through the period of time where you have no income' then we get the technology that results from that. And the 'system' reflects a funding situation where big investors, often having 'good' missions (the LPs I mean) look to folks from SV VC to pattern-match their way into high returns.
If you are building a business and it's a "good business" that can be profitable early then great, but you will be stuck at scale (or in almost anything consumer-facing in tech) with only the companies willing to maximally exploit the systems that I think we know are extractive and unsustainable.
Like with most systems problems, it's hard to know what the 'answer' is- if you buy into this line of thinking- but I hope we'll start trying new ways to approach the problem, whether it's by putting some pressure on the LPs or by making it easier to crowdfund or by some more radical means...
Unpopular opinion: Paul Graham and a generation of startups with Silicon Valley magical thinking has inculcated this belief that startups are the solution to everything. Don't get me wrong: startups have their place, but they're no panacea. Most of our problems are political and, more and more often now and moving forward, environmental.
But, yes, opening up funding to people of different socioeconomic backgrounds at different "risk" levels might lead to more innovation and entrepeneurship. So would a population of citizens who don't have healthcare tied to their job, childcare tied to their location or reliant upon wealth, and so forth. People who don't have to worry about bankruptcy due to an accident or disease, and people who can have their children taken care of during the day while they're off starting a company can focus more on a company and less on the risk of failing in everything else.
But, yes, opening up funding to people of different socioeconomic backgrounds at different "risk" levels might lead to more innovation and entrepeneurship. So would a population of citizens who don't have healthcare tied to their job, childcare tied to their location or reliant upon wealth, and so forth. People who don't have to worry about bankruptcy due to an accident or disease, and people who can have their children taken care of during the day while they're off starting a company can focus more on a company and less on the risk of failing in everything else.
I'm a fan of bootstrapped companies and have started and operated a couple of them, sometimes quite successfully. But I don't understand how the economics of funding them are supposed to work. VC is a star-search business. Most businesses fail, and that includes businesses run conservatively with organic growth. In a portfolio like that, the winners have to pay for the losers, or the math just doesn't work.
I think one thing that can help is many businesses (we read about them on HN all the time) are "successful" and could be $1m, $10m, even $100m/yr - but they have to be pushed to $1b/year or more to satisfy the ICs.
Somehow to allow them to "exit" at 1/10/100 instead of trying for 1b or crash would be nice. But it would need a different type of "VC" partner.
One funding mechanism could be something akin to "guilds" - once you have a group of ten or so of these businesses "together" they could help fund additional ones. A "guild-like" setup (think Union of workers that owns a percentage of the companies, perhaps) could be used to fund new ones starting out.
Somehow to allow them to "exit" at 1/10/100 instead of trying for 1b or crash would be nice. But it would need a different type of "VC" partner.
One funding mechanism could be something akin to "guilds" - once you have a group of ten or so of these businesses "together" they could help fund additional ones. A "guild-like" setup (think Union of workers that owns a percentage of the companies, perhaps) could be used to fund new ones starting out.
Again: the winners have to pay for the losers. The unusually large successes are what makes the model work. I'm sure they're pushed past the point where they need to go to be economically viable, but by the time you've reached that scale, you're already out of the "mid-market" bracket.
Sure, but if you're 9/10 on successes it's a lot easier than if you have to deal with 1/100.
Right, where I think you're seeing pushback is on the idea that you can reasonably get anything resembling 9/10. Think about what that's saying: we're talking about businesses doing 8 figures of annual revenue. If there's a playbook for reliably creating those --- "reliably" meaning "you can build a portfolio of them run by different people serving different markets, and make money" --- what is that playbook? Getting a 10MM/yr company off the ground is not a small achievement.
Bear in mind also that as you scope down the size of the companies you're starting, you necessarily also have to scope down the investment (these companies have, obviously, much smaller valuations, meaning $1MM of equity buys a much bigger chunk of the company). But companies today take A-B-round-scale investments to get to 8 figures ARR. You get those investments by targeting a much, much higher ARR.
This thesis doesn't hold up for me, I feel like I have to be missing something.
Bear in mind also that as you scope down the size of the companies you're starting, you necessarily also have to scope down the investment (these companies have, obviously, much smaller valuations, meaning $1MM of equity buys a much bigger chunk of the company). But companies today take A-B-round-scale investments to get to 8 figures ARR. You get those investments by targeting a much, much higher ARR.
This thesis doesn't hold up for me, I feel like I have to be missing something.
Choosing safer paths does not bring you from 1/100 of success to 9/10 - perhaps it brings you to 3/100 or 1/10, but at that level you still have to have the winners making it very big to pay for the losers.
If you’re able to pick successes with 90% accuracy at the stage where they’d benefit from this level of investment, I’d like to borrow your crystal ball.
I dig into the economics in the post. The data shows the median VC would get better net IRR returns with a Mittelstand PE strategy.
It works because Mittelstand revenue and profitability is much more predictable.
If you're on the Midas List, VC is still a better business. But many investors, especially solo GPs, should consider building a portfolio of middle class startups.
It works because Mittelstand revenue and profitability is much more predictable.
If you're on the Midas List, VC is still a better business. But many investors, especially solo GPs, should consider building a portfolio of middle class startups.
I wonder if the numbers you're giving are tripping up a mismatch between what you mean by "Mittelstand" or "mid-market startup" and what HN generally thinks of. You're saying the numbers are attractive given a "mid-market" definition that spans all the way to 9 figures of annual revenue. It's true that there's much less risk in quickly getting a company to 6 figures of annual revenue and growing organically from there. But there's a lot of risk --- risk equivalent I think to the typical VC-funded startup --- trying to get it to 10MM/yr within the time horizon of a typical VC investment.
Another sticking point with me is that claim that even services companies can get to this level of profitability with good management. Well, yeah, they can. But they don't exit at the same valuation as product companies, because they tend to fall apart when their founders leave.
Another sticking point with me is that claim that even services companies can get to this level of profitability with good management. Well, yeah, they can. But they don't exit at the same valuation as product companies, because they tend to fall apart when their founders leave.
but how will the LPs brag to their friends about their brilliant investments?
sure 13% IRR is amazing, but it is not going to make my neighbor jealous
sure 13% IRR is amazing, but it is not going to make my neighbor jealous
I like some of what the article proposes, but some parts leave me skeptical. The author sketches out an industry of funds to buy and scale small businesses to Middelstand level. I think one of the reasons for Germany's strong Mittelstand is that many of these are privately owned, sometimes even family-owned, and can take a long-term view on business and innovation. I lack the imagination to see how the proposed kinds of funds could be content with dividends year after year rather than the exits I suspect they'd prefer.
I wish there were more dividends-only VCs...
I wish there were more dividends-only VCs...
I've made this comment verbally to a lot of people who seem to agree, but now that we seem to be in a firm correction maybe it's safe to say it here on HN:
The clearest, most obvious sign that the End of the Bubble was imminent was that the discussion about "startups" you'd seen in public was completely dominated by discussion of fundraising and not products. And this blog post, even though it argues against extravagant fundraising, is no different.
It's not about funding, it just isn't. Basically zero historical Unicorns needed billions of dollars in cash to bootstrap. Software companies all did it for almost free, but even Tesla (a heavy industry player competing directly with established outfits with hundreds of billion dollars in revenue!) did it on a few tens of million dollars and one too-visionary-for-his-own-damn-good angel.
The obsession with fundraising reflects the investor dollars looking for a home. It's an inherently inflationary conceit. And even now that the gravy train turned over, it's frustrating that people don't see that.
The clearest, most obvious sign that the End of the Bubble was imminent was that the discussion about "startups" you'd seen in public was completely dominated by discussion of fundraising and not products. And this blog post, even though it argues against extravagant fundraising, is no different.
It's not about funding, it just isn't. Basically zero historical Unicorns needed billions of dollars in cash to bootstrap. Software companies all did it for almost free, but even Tesla (a heavy industry player competing directly with established outfits with hundreds of billion dollars in revenue!) did it on a few tens of million dollars and one too-visionary-for-his-own-damn-good angel.
The obsession with fundraising reflects the investor dollars looking for a home. It's an inherently inflationary conceit. And even now that the gravy train turned over, it's frustrating that people don't see that.
Yes.100% with that this guy said. I have a 1 man shop marketplace startup. I been at it since 2016. I have to literally figure shit out on the fly. I can't afford a full time engineering time ( i have a pay for play engineer). I pay for the platform from the sales i make. I have no goals to raise VC. I am under no illusion of raising series ABCDFU. My goal is to make sales and put food on the table for me and my family. For me, as a 1 man shop. Surviving IS Succeeding. I am very happy being a thousandaire. techCrunch will never write about me or my start up. So if you have an idea, build it and start testing. your #1 goal should be making sales / money ASAP. Thats it. Do not fall in to the trap of I have an idea i will raise funding and i will exit making billions. That is NOT reality / real world. What you read on techcrunch is not reality, those unicorns are very rare. Good lucky out there. Make sales. Charge money.
I once pitched a fairly well-known Bay Area VC in 2015. We were looking to raise a $2.5M Seed round. The VC looked at me through his steepled fingers and said: "This is great. I'm just trying to figure out if you're a $100M business or a $1B business..."
And while it was flattering to be considered either, there was only one business they were going to invest in.
I understand the mechanics involved in some of these funds and the myriad of considerations that go into their investment theses, but it was also sad and frustrating that a lowly "$100M business" (with 4.5M registered users, mind you) couldn't get funded.
Don't hear me bemoaning the fact that we didn't get funded or that we somehow didn't receive our due. I'm just adding my experience with the gap that Neil is citing. And just like in broader societal terms, I think a healthy startup "Middle Class" would make for a healthier overall economy.
And while it was flattering to be considered either, there was only one business they were going to invest in.
I understand the mechanics involved in some of these funds and the myriad of considerations that go into their investment theses, but it was also sad and frustrating that a lowly "$100M business" (with 4.5M registered users, mind you) couldn't get funded.
Don't hear me bemoaning the fact that we didn't get funded or that we somehow didn't receive our due. I'm just adding my experience with the gap that Neil is citing. And just like in broader societal terms, I think a healthy startup "Middle Class" would make for a healthier overall economy.
Sounds like you're describing calm companies: https://calmfund.com/thesis
Good article from a few years ago, but it still stands up.
https://nothingventured.rocks/what-startups-can-learn-from-t...
https://nothingventured.rocks/what-startups-can-learn-from-t...
While some comments here are criticizing the author, I'd like to add that what the author says matches with my (extremely) limited experience. The most "glamorous" are YC-type funds, while others seem to be built with money more locally pooled from friends/family/banks. There are a few <X City> entrepreneurship centres and startups, but these unsurprisingly aren't as famous as funds with billions of dollars. I wonder if there's a way to increase the visibility of the middle kind of organized-but-not-10s of millions of $ funds - both as a social experiment but also as an aspiring entrepreneur.
I get the sentiment but how exactly is raising literal millions in funds 'middle class' in startups? If I had a million dollars I could put together a team of founders who needed about 20k per year each to survive and we wouldn't need to raise until shit was actually finished with substantial revenue. Granted, this assumes you're not in Le Bay (I know) and your expenses are very low (like owning your house) but in my mind this is how startups should be done.
Get a bunch of people to move into one of the founders houses. Sleep on the floor if you have to. Have a coffee pot making bulk coffee for the whole house day-over. Live on nice healthy foods that require no cooking so you can code more. No take away obviously because its horribly over-priced. Plenty of cash for hosting services. Obviously no meme shit like cloud hosting. Use real servers for everything. There are even enough services that provide free resources to startups that you may not need to pay for this. You want to avoid the trap though: becoming dependent on services designed to screw your time and wallet later on.
Anyway, it seems like investors in startups only care about companies with million or billion dollar potential. You hear much less about people who build smaller profitable businesses, period. I'm guessing if it's a small business with limited growth potential you just have to bootstrap it with your own money.
Get a bunch of people to move into one of the founders houses. Sleep on the floor if you have to. Have a coffee pot making bulk coffee for the whole house day-over. Live on nice healthy foods that require no cooking so you can code more. No take away obviously because its horribly over-priced. Plenty of cash for hosting services. Obviously no meme shit like cloud hosting. Use real servers for everything. There are even enough services that provide free resources to startups that you may not need to pay for this. You want to avoid the trap though: becoming dependent on services designed to screw your time and wallet later on.
Anyway, it seems like investors in startups only care about companies with million or billion dollar potential. You hear much less about people who build smaller profitable businesses, period. I'm guessing if it's a small business with limited growth potential you just have to bootstrap it with your own money.
Just a bit more info on free services - when we were starting out AWS were offering $10k credits a year for 2 years or $100k credits for one year. I believe we got access to this through one of our investors, but most VCs and incubator programs will be able to do this.
Stripe Atlas cost me US$500.
For that I got a Delaware C-Corp, an SVB bank account, and $5k of AWS credits that expired after 12 months. Our AWS bill in that first 12 months was roughly $5k.
Money well spent.
For that I got a Delaware C-Corp, an SVB bank account, and $5k of AWS credits that expired after 12 months. Our AWS bill in that first 12 months was roughly $5k.
Money well spent.
> If I had a million dollars
Did you know you can get $500k by applying to this fund: https://www.ycombinator.com/deal
Did you know you can get $500k by applying to this fund: https://www.ycombinator.com/deal
I think most businesses fall into this so called middle class already. Perhaps this group could be labeled The Silent Majority of businesses given how these folks get up and do their work everyday without particularly expecting to escape the grind or becoming billionaires.
I see this in my extended family where almost everyone runs this kind of business and is so for several decades. They make much more money than if they worked for someone else, but none of them are going to break the $100M mark
I see this in my extended family where almost everyone runs this kind of business and is so for several decades. They make much more money than if they worked for someone else, but none of them are going to break the $100M mark
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> Vision: Promote employee stock ownership for American Mittelstands.
I'm especially interested in this last bit and I'm wondering if anyone has any recommendations for learning about the different models people have tried for this.
I have what I can only really describe as a hunch or an instinct (not even a theory at this point) that there's something good for people about owning what they help create.
But I keep getting caught in the brass tacks of it. When I've earned small ownership stakes in companies, the only real way that had any direct monetary value to me was if the company had an exit and I stopped being an owner.
Would some sort of dividend or profit-sharing agreement solve this? Are there long-established means of allowing small-scale owners to profit from their ownership that I've just failed to come across?
The accredited investor laws in the U.S. make it such that most working class people can't buy ownership in private companies, but if they could earn it and profit from that ownership, that seems like a much stronger way of "investing in what they know" and potentially seeing outsized returns rather than just investing broadly in the stock market as it goes up.
I'm especially interested in this last bit and I'm wondering if anyone has any recommendations for learning about the different models people have tried for this.
I have what I can only really describe as a hunch or an instinct (not even a theory at this point) that there's something good for people about owning what they help create.
But I keep getting caught in the brass tacks of it. When I've earned small ownership stakes in companies, the only real way that had any direct monetary value to me was if the company had an exit and I stopped being an owner.
Would some sort of dividend or profit-sharing agreement solve this? Are there long-established means of allowing small-scale owners to profit from their ownership that I've just failed to come across?
The accredited investor laws in the U.S. make it such that most working class people can't buy ownership in private companies, but if they could earn it and profit from that ownership, that seems like a much stronger way of "investing in what they know" and potentially seeing outsized returns rather than just investing broadly in the stock market as it goes up.
Middle-sized companies usually pay dividends because that’s how the profit is moved from the business to the owners. Unlike many public companies that focus on stock growth as the main driver behind of providing shareholder value.
Didn't the 21st century establish that if something is valuable, it'll be way more valuable if you throw millions of dollars it and run all of the other penny-ante competitors out of business? If you do manage to find some niche, you'll have to either become the one to get VC funding, or watch as someone gets VC funding and eats your lunch. Very few remain under the radar long enough to grow too large to leapfrog.
Rob Walling's TinySeed looks relevant: https://tinyseed.com/
These are the two businesses you see on social media. It does not mean the middle class doesn't exist. Perhaps they are busy delivering value to their customers to brag about it on social media and/or source their revenue from "building in public"?
I don't see how this is any different than social media itself. You only see the "bootstrapped from zero" or the "industry plants". The middle class of social media however? They are there, they make a decent living, and they still create. They may not be recommended on the front page of feeds, but they still exist and are arguably how the platforms became big in the first place.
I'll be honest and say I hate articles that only talk about raising money or valuations. That's like half of twitter and it's annoying. Startups are more accessible than ever today and can happen organically from like a HN, Reddit, or Twitter post. People find pain in their daily lives, and they create a painkiller. You don't need millions to create a v1.0 to assess product-market fit.
I don't see how this is any different than social media itself. You only see the "bootstrapped from zero" or the "industry plants". The middle class of social media however? They are there, they make a decent living, and they still create. They may not be recommended on the front page of feeds, but they still exist and are arguably how the platforms became big in the first place.
I'll be honest and say I hate articles that only talk about raising money or valuations. That's like half of twitter and it's annoying. Startups are more accessible than ever today and can happen organically from like a HN, Reddit, or Twitter post. People find pain in their daily lives, and they create a painkiller. You don't need millions to create a v1.0 to assess product-market fit.
Bootstrapped our way to a B2B Hardware and Software product company. On target to hit about $10M in revenue this year, 35 employees.
This take really speaks to me and does a great job conveying frustrations that I have felt with the startup world for years.
I could go on and on about the downsides of the different funding models and how none of them have ever really worked for us.
This take really speaks to me and does a great job conveying frustrations that I have felt with the startup world for years.
I could go on and on about the downsides of the different funding models and how none of them have ever really worked for us.
Congrats on the growth! What raising modal worked for your startup?
When I left SF (circa 2014) I had this general unease about what a bunch of my friends, who were now founders, had done to themselves. Quite a few that had what were perfectly great businesses, doing good things, giving people an enjoyable place to work, solving valuable problems for other companies. But they'd raised multiple rounds of funding which meant a billion dollar exit was only barely an acceptable outcome for anybody. It just blew my mind that these people could at that point have invested 5-6 years of their lives building a great business, and that a $1B exit would no longer be something to celebrate. Instead it looked like they were contorting themselves and their priorities into chasing highly speculative new ideas in the hope that found the next big success. Their future was either multi-billion outcome or flame out trying.
Coupled with all of this was a certain level of frustration that the startup game hand changed in the past couple of decades. Very few companies were having to overcome the type of feasibility risk from back in the silicon days of Silicon Valley. Lots of them already had a product in market generating revenue! Cloud had made it cheap and fast to make something real. So funding was increasingly going toward pure execution and go to market/marketing. It was a materially lower risk proposition for investors. Most were still taking their ~20% equity stake though because of the perceived risk, and just inflating it with a higher valuation.
So when I got back to Australia I started exploring different models that gave founders better options. A way to have a stake in the business that felt more aligned with the value/risk. A way to give founders their company back if their ambition or outcomes changed without forcing that go big or flame out dynamic. I was also inspired a lot by what Bryce @ Indie.VC was trying to do around the same time. Unfortunately my co-founder (Matt) and I never managed to get quite enough capital together to get it off the ground. A few years have passed though, and Matt has managed to tweak the ideas, get the capital, and a team together to make it happen (https://www.tractorventures.com).
I have to think we'll see this type of model grow more successful and more popular over time. Not every company needs VC investment. For lots of them it's actually a terrible idea. But lots of founders have grown up buying into all the hype and thinking it's the only viable way to build a really successful company.
Coupled with all of this was a certain level of frustration that the startup game hand changed in the past couple of decades. Very few companies were having to overcome the type of feasibility risk from back in the silicon days of Silicon Valley. Lots of them already had a product in market generating revenue! Cloud had made it cheap and fast to make something real. So funding was increasingly going toward pure execution and go to market/marketing. It was a materially lower risk proposition for investors. Most were still taking their ~20% equity stake though because of the perceived risk, and just inflating it with a higher valuation.
So when I got back to Australia I started exploring different models that gave founders better options. A way to have a stake in the business that felt more aligned with the value/risk. A way to give founders their company back if their ambition or outcomes changed without forcing that go big or flame out dynamic. I was also inspired a lot by what Bryce @ Indie.VC was trying to do around the same time. Unfortunately my co-founder (Matt) and I never managed to get quite enough capital together to get it off the ground. A few years have passed though, and Matt has managed to tweak the ideas, get the capital, and a team together to make it happen (https://www.tractorventures.com).
I have to think we'll see this type of model grow more successful and more popular over time. Not every company needs VC investment. For lots of them it's actually a terrible idea. But lots of founders have grown up buying into all the hype and thinking it's the only viable way to build a really successful company.
Reminds me of talking to a VC who said that one of his investments 'turning into a $20MM company is the WORST outcome'.
The reasoning was that if the company just tanked, he had no ongoing issues, it was gone. Now, he still has his time & resources occupied by an ongoing company, even if minimally, it's a distraction...
The reasoning was that if the company just tanked, he had no ongoing issues, it was gone. Now, he still has his time & resources occupied by an ongoing company, even if minimally, it's a distraction...
We need a startup for the middle class
there are plenty, they're called 'business', or 'small business', or 'grocery store' etc. they have to make money first day to survive, unlike VC 'startup's that burns other's money without worrying about profits for a while.
What this guy doesn't seem to grasp about the Mittelstand is that those companies are ones that traditionally don't get acquired. They're usually generational family-owned businesses. They're the legacy of the lean bootstrapped startups he contrasts them with except they didn't aim for growth and acquisition but sustainability. Getting acquired is antithetical to being a Mittelstand business because acquired Mittelstand businesses stop being Mittelstand. The "exit" for Mittelstand business founders is death and inheritance.
The reason there's no "middle class for startups" is that both sets of startups he describes are growth-oriented investment/acquisition-seeking ventures, not sustainable businesses. You either get fast tracked by finding an investor or you have to take the long route and try to become profitable, but the end goal is to either get bought out (and die) or to go public (and become large enough to buy the competition).
Investors along the way buy you out piece by piece betting on you successfully reaching either of those two outcomes. Since investors are in it for big ROI they're willing to take some risks and overfund hopeful "unicorns" while underfunding startups that can't credibly promise (or don't aim for) that kind of ROI. Basically, the groups he describes are self-selecting. If you start bootstrapped as a growth-oriented startup either you wither and die or you grow successful enough to get acquired (and die) or get overfunded (and become part of the latter group). If you start overfunded either you overexert yourself (and die) or get acquired (and die) or continue growing bigger (or go public, leaving the VC bubble). Any "middle class" in between the two can only either be a transitional step from bootstrapped to overfunded (or from overfunded to bankrupt) or a consequence of low ROI expectations.
I'm not saying this middle class can't exist, but it can't be a growth-oriented startup and thus is only tangentially related to the kind of companies VCs think about. Another Siemens, Miele or Aldi isn't attractive to VCs because sustainable businesses aren't high enough ROI.
The reason there's no "middle class for startups" is that both sets of startups he describes are growth-oriented investment/acquisition-seeking ventures, not sustainable businesses. You either get fast tracked by finding an investor or you have to take the long route and try to become profitable, but the end goal is to either get bought out (and die) or to go public (and become large enough to buy the competition).
Investors along the way buy you out piece by piece betting on you successfully reaching either of those two outcomes. Since investors are in it for big ROI they're willing to take some risks and overfund hopeful "unicorns" while underfunding startups that can't credibly promise (or don't aim for) that kind of ROI. Basically, the groups he describes are self-selecting. If you start bootstrapped as a growth-oriented startup either you wither and die or you grow successful enough to get acquired (and die) or get overfunded (and become part of the latter group). If you start overfunded either you overexert yourself (and die) or get acquired (and die) or continue growing bigger (or go public, leaving the VC bubble). Any "middle class" in between the two can only either be a transitional step from bootstrapped to overfunded (or from overfunded to bankrupt) or a consequence of low ROI expectations.
I'm not saying this middle class can't exist, but it can't be a growth-oriented startup and thus is only tangentially related to the kind of companies VCs think about. Another Siemens, Miele or Aldi isn't attractive to VCs because sustainable businesses aren't high enough ROI.
I studied entrepreneurship in college. They didn't know what to do with me when they realized I was planning on running a lifestyle business. Everybody else's forecasts were in the millions. I would have been happy making more than I spend.
Exactly what I find also, everyone wants to take over the world, as if everything is a zero sum game with one winner and billions of losers.
It’s a PR problem. I think it matters the name we use to call them and how they are interpreted by general public.
Currently we call them like IndieHackers, bootstrapped startup, life style business.
All not fancy as “unicorn” it is. We need a new PR that makes this kind of business cool for the general public.
In these day if you have a profitable bootstrapped business (<1M$) people say that you should raise capital to grow and become an unicorn and your are not cool or not get PR attention until you raise funds. I think is a PR problem. There is an opportunity for a new media space. Like IndieHackers but without the term “hackers” in the title which reminds something dark for the general public.
Currently we call them like IndieHackers, bootstrapped startup, life style business.
All not fancy as “unicorn” it is. We need a new PR that makes this kind of business cool for the general public.
In these day if you have a profitable bootstrapped business (<1M$) people say that you should raise capital to grow and become an unicorn and your are not cool or not get PR attention until you raise funds. I think is a PR problem. There is an opportunity for a new media space. Like IndieHackers but without the term “hackers” in the title which reminds something dark for the general public.
I think the whole point is that it's not cool.
If you're not okay with boring success, then this type of business isn't for you.
If you're not okay with boring success, then this type of business isn't for you.
I am ok with boring success. The problem is that the media or common public cheer to VC-startup because terms like indieHackers, bootstrapped business or lifestyle business are not cool.
I can definitely bet that if we a have fancier name for this kind of business or funding strategies it will be different.
It must be cooler to create a profitable privately-owned business than a VC-owner business in loss
What's wrong with "small business" ?
The term "small" is not so cool. A founder is an ambitious person, so it doesn't say "i want to build a small business" even if in the end, it's likely it will build a SB. Therefore media coverage tends to focus on unicorn and vc-startups. Write article on "small business" is no so cool and entertainment.
That's why we need to find a new term if we want to make "small business great again". I would like to see more PR coverage for bootstrapped/small business instead of VC-startups.
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I think the type of industry here matters.
A big chunk of the classic Middelstand is something physical, not knowledge work.
And startups turn that effect up to 11. Either it works or it doesn't. It is by its nature not conducive to middle ground.
A big chunk of the classic Middelstand is something physical, not knowledge work.
And startups turn that effect up to 11. Either it works or it doesn't. It is by its nature not conducive to middle ground.
Microsoft should be the example to follow for any new business.
They never raised money, never talked to VCs or consultants.
They just went in the market and poached other companies to become stronger until they had to face the ultimate boss of the corporate world : IBM.
They beat that and only had to surrender to the really last boss which nobody ever beats: The U.S. Federal Government.
Without VCs you can stop at any point of the climb and rest, then you can decide to initiate descent or pass the baton or even camp there indefinitely
They never raised money, never talked to VCs or consultants.
They just went in the market and poached other companies to become stronger until they had to face the ultimate boss of the corporate world : IBM.
They beat that and only had to surrender to the really last boss which nobody ever beats: The U.S. Federal Government.
Without VCs you can stop at any point of the climb and rest, then you can decide to initiate descent or pass the baton or even camp there indefinitely
Couldn't agree more on this, my company is there now. One difficult problem to solve is hiring. This is due to a number of things but one big one is a lack of external validation. When you raise from a known VC you're gaining a stamp of approval similar to having attended a top tier school. When you're selling product and investing profits into hiring that's cool but it's harder to assess from a potential employee perspective.
There are a lot of random "startups" or rather, tech companies that managed to keep their customers happy while never really seeming to explode to huge capsizes.
You have funding... it's called nights and weekends. Most founders are "nights and weekends" to scrimp buy for YEARS [3-5?].
Anti-risk, security seeking, founders who think they should get funding in `3 months really haven't assessed "startups" as a profession too well. You get funding when capital has a reason to believe it isn't simply gambling.
"But I have kids and a family". Yep, so do many... and they made it work. Decide if you will.
Anti-risk, security seeking, founders who think they should get funding in `3 months really haven't assessed "startups" as a profession too well. You get funding when capital has a reason to believe it isn't simply gambling.
"But I have kids and a family". Yep, so do many... and they made it work. Decide if you will.
I suspect that there is a self full-filling prophecy for VC funding. If you aim small (read 50-500 million dollar business), then odds are a DecaBillion dollar business will eat your lunch sooner or later.
The only middle ground would appear to be in businesses which serve defensible tight niches, but in software these mostly appear to boil down to consultancies with a small set of customers.
The only middle ground would appear to be in businesses which serve defensible tight niches, but in software these mostly appear to boil down to consultancies with a small set of customers.
This describes a problem, a potential solution but not the steps needed to get there, the steps in-between.
Those are the tricky bits :)
It reminds me of the 'how to draw an owl' meme where you have a couple of circles on the left as step 1, a finished drawing of an owl on the right as step 2.
Great, but uh, what did you do to get from circles to an owl? :)
Those are the tricky bits :)
It reminds me of the 'how to draw an owl' meme where you have a couple of circles on the left as step 1, a finished drawing of an owl on the right as step 2.
Great, but uh, what did you do to get from circles to an owl? :)
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I don't see discussion of the conclusion, which seems to be creation of a "studio" that repeatedly aims to create Mittelstands.
I have seen this idea before, but am not aware of that many successful outcomes. IIRC, the idea of placing multiple bets made it challenging to focus.
I have seen this idea before, but am not aware of that many successful outcomes. IIRC, the idea of placing multiple bets made it challenging to focus.
The investment terms would be terrible; monopoly math is what makes early stage risk worth it. Alternatively, VC underwriting would need to get 100x better. (Which such a disruption IMO is entirely feasible by a new younger/smarter cohort of investors)
>Problem: There are only two types of businesses on social media:
>Bootstrapped from zero.
>Raised $100M+ from VCs.
Does anybody else see the irony in this being discussed on a website owned by a huge company whose entire business model is lending medium-sized amounts of money to startups?
>Bootstrapped from zero.
>Raised $100M+ from VCs.
Does anybody else see the irony in this being discussed on a website owned by a huge company whose entire business model is lending medium-sized amounts of money to startups?
From an investor side, what I see is that I'd have to keep my risk the same (these "Mittelstands" have the same chance of succeeding as any other VC backed company) while drastically reducing returns. Why would anyone go for this?
Sample size is much higher. VC's are rejecting thousands of applications.
Some aspects listed on the wikipedia page:
Family ownership or family-like corporate culture, Long-term focus, Nimbleness, Investment into the workforce, Social responsibility
...are very much feared or despised in SV and, to a lesser extent, in US in general.
Family ownership or family-like corporate culture, Long-term focus, Nimbleness, Investment into the workforce, Social responsibility
...are very much feared or despised in SV and, to a lesser extent, in US in general.
Isn't this what everyone calls a "scaleup"? https://en.wikipedia.org/wiki/Scaleup_company
This already exists in the US. How do you think <insert X project management software for devs> has 10k customers?
One of the biggest trends is now that PE is gobbling them up and rolling them up into $100M+ revenue businesses.
One of the biggest trends is now that PE is gobbling them up and rolling them up into $100M+ revenue businesses.
This sorta thing would mean the world to me and my team at our little bootstrapped startup. We may go broke before we turn revenue and we're now blowing enough smoke in front of mirrors to get VC funding.
“Secret: Mittelstands are already about one-third of our whole economy.”
That’s… not a secret. Anyone with even rudimentary knowledge of the economy knows that. You need to get out more.
That’s… not a secret. Anyone with even rudimentary knowledge of the economy knows that. You need to get out more.
we need a middle class for western civilization
* limited terms for government offices, all of them
* limited funding and/or public funding for top X candidates
* _Heavily_ regulated lobbying and audits of said lobbying, and complete transparency of All Meetings (time, date, topic, audio recording)
* free public higher education
Only then will we get a little bit closer to fair government and healthy middle class (which is starting to dwindle in the USA)
* limited terms for government offices, all of them
* limited funding and/or public funding for top X candidates
* _Heavily_ regulated lobbying and audits of said lobbying, and complete transparency of All Meetings (time, date, topic, audio recording)
* free public higher education
Only then will we get a little bit closer to fair government and healthy middle class (which is starting to dwindle in the USA)
Powerful message, but what is going on with the formatting of this post? Why are lines highlighted with two different colors?
I found it essentially impossible to read.
Great note/outline format, if I already know the key ideas/takeaways and where they are relative to each other, but really awful to follow reading it for the first time.
Great note/outline format, if I already know the key ideas/takeaways and where they are relative to each other, but really awful to follow reading it for the first time.
I use my own "outline" style to make my posts easier to read fast.
The brighter highlights are intended to be the most important points.
Is that confusing? I can change the shade of the lighter highlights.
The brighter highlights are intended to be the most important points.
Is that confusing? I can change the shade of the lighter highlights.
> We Need a Middle Class for Startups
You mean a bourgeoisie?
You mean a bourgeoisie?
For real, most VC's could take 100 different shots on solo devs who just need their living expenses paid... like me.
This is what UBI is supposed to enable.
People think it allows people to be slackers and just sit around smoking weed and playing video games all day and otherwise be an unproductive member of society, and yes, there's some truth to that.
But there's also a lot of people that have the desire to create some cool and useful stuff, but are already burnt out by working 40 hours a week at a job they have to work at to pay the bills.
That fits me, as well. I've got two projects that are half-written and probably just need another 200 hours or so of work to release an MVP, but after looking at code all day, more code is the last thing I wanna do when I log off for the day.
People think it allows people to be slackers and just sit around smoking weed and playing video games all day and otherwise be an unproductive member of society, and yes, there's some truth to that.
But there's also a lot of people that have the desire to create some cool and useful stuff, but are already burnt out by working 40 hours a week at a job they have to work at to pay the bills.
That fits me, as well. I've got two projects that are half-written and probably just need another 200 hours or so of work to release an MVP, but after looking at code all day, more code is the last thing I wanna do when I log off for the day.
I was expecting this article to be about how a middle-class is required for innovation.
If we end up in a world where 90% of the population are struggling to meet basic needs, 0.1% live off generational wealth and 9.9% act as a highly technical servant class, then there will be fewer innovators and fewer innovations.
If we end up in a world where 90% of the population are struggling to meet basic needs, 0.1% live off generational wealth and 9.9% act as a highly technical servant class, then there will be fewer innovators and fewer innovations.
Agree with this - that fundraise treadmill is brutal abyss to live in.
this is what we're building! https://docsend.com/view/petujc3wgtnj5ghy
while i concur this is a nice notion, it's a special type of rare investor who wants to do all the dilligence, take the risk, and not pursue a large reward.
It's called lifestyle business
You mean small businesses ?
I don't think it's an issue of making middle-sized businesses "cool", I think it's an issue of capital, right?
The reason "VC" or "bootstrapped from zero" (both are the author's words) are seen as the two available paths is... because they are seen as the two available paths.
Where do you get the funding to do a "middle-sized" business? The OP goes into this a little bit, but it seems to me that's the thing at the center of the whole discussion.
If people saw that it was feasible to find funding for a business that could grow faster and/or with less personal risk than what he is calling "bootstrapped from zero" (or is sometimes pejoratively called a "lifestyle business"); but without giving up the control that you do with VC funding -- of course people would be interested in starting a business like that, the appeal is obvious, right? It doesn't need to be made "cool". But, how? OP suggests "New non-dilutive funding sources are now available for revenue-generating businesses", okay, more on this, and hopefully it doesn't sound like a pyramid scheme or scamming retail "investors".
The things OP links to sound like... loans? OK... So this is just a variation of "bootstrapped from zero" where instead of just taking out credit card debt and loans from family and maybe a line of credit at your bank, you access loan products intended for new businesses? Are they secured by personal property? This doesn't sound so different from "bootstrapped from zero" to me, like these new sources of debt are going to make an entirely different business plan and category of business possible?
Then he moves on to advising that investors fund these businesses... in ways different than VC? Which would mean... without taking significant equity? Or without trying to maximize their payout? They're going to invest just planning on making money from dividends instead? And investors are going to do this because... it's been made "cool"?
I would love there to be more stable medium-sized sustainable businesses that don't pursue growth at all costs, treat their employees well, treat their communities well, etc. I feel like the OP weirdly seems to think the reason they aren't is becuase it's not "cool", rather than because of the economic factors. Businesses need capital, those with capital want to maximize their profit. So the two paths are either try for a capital-intensive startup that tries to give VC what they want; or you try to minimize the amount of capital you need by finding a way to start very small and have very slow but sustainable growth (the "bootstrapped from zero" "lifestyle business"). Making it "cool" to do something else does not solve these economic constraints. What might is talking about, say, changing the tax code to encourage a new type of business model or investment, or providing government subsidy for it, or something. Am I missing something?
The reason "VC" or "bootstrapped from zero" (both are the author's words) are seen as the two available paths is... because they are seen as the two available paths.
Where do you get the funding to do a "middle-sized" business? The OP goes into this a little bit, but it seems to me that's the thing at the center of the whole discussion.
If people saw that it was feasible to find funding for a business that could grow faster and/or with less personal risk than what he is calling "bootstrapped from zero" (or is sometimes pejoratively called a "lifestyle business"); but without giving up the control that you do with VC funding -- of course people would be interested in starting a business like that, the appeal is obvious, right? It doesn't need to be made "cool". But, how? OP suggests "New non-dilutive funding sources are now available for revenue-generating businesses", okay, more on this, and hopefully it doesn't sound like a pyramid scheme or scamming retail "investors".
The things OP links to sound like... loans? OK... So this is just a variation of "bootstrapped from zero" where instead of just taking out credit card debt and loans from family and maybe a line of credit at your bank, you access loan products intended for new businesses? Are they secured by personal property? This doesn't sound so different from "bootstrapped from zero" to me, like these new sources of debt are going to make an entirely different business plan and category of business possible?
Then he moves on to advising that investors fund these businesses... in ways different than VC? Which would mean... without taking significant equity? Or without trying to maximize their payout? They're going to invest just planning on making money from dividends instead? And investors are going to do this because... it's been made "cool"?
I would love there to be more stable medium-sized sustainable businesses that don't pursue growth at all costs, treat their employees well, treat their communities well, etc. I feel like the OP weirdly seems to think the reason they aren't is becuase it's not "cool", rather than because of the economic factors. Businesses need capital, those with capital want to maximize their profit. So the two paths are either try for a capital-intensive startup that tries to give VC what they want; or you try to minimize the amount of capital you need by finding a way to start very small and have very slow but sustainable growth (the "bootstrapped from zero" "lifestyle business"). Making it "cool" to do something else does not solve these economic constraints. What might is talking about, say, changing the tax code to encourage a new type of business model or investment, or providing government subsidy for it, or something. Am I missing something?
The capital for Mittelstands is in mid market PE funds.
Making it "cool" means getting founders who'd otherwise take VC to target PE.
It also means convincing these PEs to invest earlier.
Thanks for the feedback. I'll try to center this more in my post.
Making it "cool" means getting founders who'd otherwise take VC to target PE.
It also means convincing these PEs to invest earlier.
Thanks for the feedback. I'll try to center this more in my post.
with devs salaries in 200k+ range is regular startup even possible now?
Surely the answer is yes, but the question is: will "regular startup" now be more selective for founders with higher risk-appetite (paying the opportunity cost to forgo 200k salary) or higher self-delusion (to think they can replace their salary with whatever idea they have). And if they are more deluded, are their ideas any better/worse as a result?
There's plenty of decent <$15/hour devs up for grabs if you look for them. If you're more interested in building a cool company culture with a fancy office in an expensive city or just trying to do incredibly difficult things that require top of top devs then maybe just re-evaluate if that's the right business for you in this moment with attainable resources
No we dont
Killer you
Killer you
The problem with micro services is that your CEO drank the Kool-Aid. Now your CTO has to get it done and your VP of Engineering is stuck with a large bag of feces.
No, the author talks specifically about the "Mittelstand"
https://en.wikipedia.org/wiki/Mittelstand
https://en.wikipedia.org/wiki/Mittelstand
I'm proposing an alternative to the same goal.
No.
Already most businesses are started in this broad middle. It's where the TRUE root of entrepreneurship starts.
Heck, you are sure you will get no funding. For sure you will fight for every last customer. You will wonder how you will pay the rent every month and your staff.
Most of these businesses fail. But enough of them keep going to keep the economies of almost all countries going. These are the people that struggle.
There is no need for "funding" or someone to "buy" these businesses.
These business will always exist, and for every one that goes down 3 more spring up in their places.
Jesus.
Already most businesses are started in this broad middle. It's where the TRUE root of entrepreneurship starts.
Heck, you are sure you will get no funding. For sure you will fight for every last customer. You will wonder how you will pay the rent every month and your staff.
Most of these businesses fail. But enough of them keep going to keep the economies of almost all countries going. These are the people that struggle.
There is no need for "funding" or someone to "buy" these businesses.
These business will always exist, and for every one that goes down 3 more spring up in their places.
Jesus.
I've bootstrapped IPinfo.io to millions in revenue and a team of over 20 - so we're squarely in the "Middle class", and there's a tension between the "bootsrapper advice" (which mostly applies to optimizing for lifestyle and eliminating any risk) and "VC backed advice" (which mostly seems to optimize for scale and speed) - and a lack of advice for anything that balances those 2 (let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome).