Before the Startup(paulgraham.com)
paulgraham.com
Before the Startup
http://paulgraham.com/before.html
168 comments
I don't really remember those two talking about startups being gameable in the way that PG is talking about megacorps. Most of the reasons they prefer bootstrapping vs startups are around the idea that bootstrapping has a predicable model for success. Where as your chances of a successful exit in a startup are like winning the powerball. Even PG notes that one good exit covers the losses of hundreds of other investments and that they still don't really know how to pick winners (they just happen). Startups that take VC are also kind of designed to fail early so as to not waste too much investor money. The other pro for bootstrapping seems to be around the idea of "freedom" from bosses. In a megacorp you work for like 14 bosses. In a startup your bosses are the VC's. As bootstrapper you work for yourself and the people that pay your for what you produce.
Bootstrapping is not excluded from being a startup. 98% of all startups in Canada, for example (tech included) are self-funded.
There ultimately is little freedom from bosses. Either your VC's are, or paying customers are.
There ultimately is little freedom from bosses. Either your VC's are, or paying customers are.
>There ultimately is little freedom from bosses. Either your VC's are, or paying customers are.
I hear this line often, and I think it switches terms. I'm a bootstrapper. When I say I don't have a boss, I don't mean I don't have responsibilities. I have a ton of responsibilities – maybe more so than those with jobs. I can't easily take a 100% off vacation, for example.
But I don't have a boss. I can arrange things how I want. I could even blow off customer support entirely, if I felt like it. I'd make a bit less money, probably, but I'd still be fine.
And I've occasionaly "fired" whole categories of customers when I felt like stopping a certain activity. Couldn't do that to a boss.
I hear this line often, and I think it switches terms. I'm a bootstrapper. When I say I don't have a boss, I don't mean I don't have responsibilities. I have a ton of responsibilities – maybe more so than those with jobs. I can't easily take a 100% off vacation, for example.
But I don't have a boss. I can arrange things how I want. I could even blow off customer support entirely, if I felt like it. I'd make a bit less money, probably, but I'd still be fine.
And I've occasionaly "fired" whole categories of customers when I felt like stopping a certain activity. Couldn't do that to a boss.
The boss, the VC or the customer is ultimately people you have commitments to. You can always decide not to comply to their request and see what happens.
If your product is great, the customer might frown but will stay, and you'll be fine. The same thing with your boss, if you're a stellar employee, your boss won't be pleased but your job will probably be safe. In any case, you measure and take risks.
The main difference in my opinion is you see your boss almost everyday, she gives you guidance and tells you if things go bad. With customers, you have to proactively get the feedback, or anticipate their needs.
Actually you can fire your boss, that's called quitting. And if you're a tech worker, you really have the freedom to do it because it's easy to find something else if you're decently competent.
> Actually you can fire your boss, that's called quitting.
Quitting is (to the extent the metaphor works at all) firing your employer, not your boss; these can sometimes be the same, but often your boss is, like you, an employee of your employer, not someone with whom you engage in a direct exchange that you can terminate.
If a line supervisor isn't given permission to terminate his subordinates' employment (because, e.g., that's reserved for a higher-level manager), but can quit, it would be wrong to say he can fire his employees. Likewise, it is wrong to say you can fire your boss unless you can terminate the boss's employment.
Quitting is (to the extent the metaphor works at all) firing your employer, not your boss; these can sometimes be the same, but often your boss is, like you, an employee of your employer, not someone with whom you engage in a direct exchange that you can terminate.
If a line supervisor isn't given permission to terminate his subordinates' employment (because, e.g., that's reserved for a higher-level manager), but can quit, it would be wrong to say he can fire his employees. Likewise, it is wrong to say you can fire your boss unless you can terminate the boss's employment.
You can fire customers you don't want; you can't get rid of investors so easily.
This depends on your definition of "startup". Paul Graham's definition - "a company built to grow fast", while not 100% incompatible with a bootstrapped company, certainly is in tension with the idea of not taking on outside investment.
If the goal of your company is to grow as fast as possible, then the VC rocket ship approach seems like a no-brainer.
If the goal of your company is to grow as fast as possible, then the VC rocket ship approach seems like a no-brainer.
I like Steve Blanks description that a startup is (paraphrasing) .. a temporary organization to find a repeatable and scalable business model.
Many startup factories forget that the goal of a startup is to quit existing and become a business.
Depending on the type of product and market you're in funding can help.
For the first, or second time entrepreneur, there is a far more valuable lesson to learn than getting external validation in the form of investment: Learning to add value, and learning to build something of value at a small scale, as well as the associated business skills, before doing it at presumably a larger scale.
The VC rocketship can create as many distractions from finding something people want. I'm not against it, but glad I hesitated taking investment in my 20's, I'm a much more well rounded entrepreneur for it, and now as the opportunities are coming up, investment is around that much more, and secondary to finding the right fit with team, market, and product.
As you can tell, I think growth capital interests me more than getting funding to get a market. I think both are fine, I just find I respond better to grinding, hustling and being resourceful.
Many startup factories forget that the goal of a startup is to quit existing and become a business.
Depending on the type of product and market you're in funding can help.
For the first, or second time entrepreneur, there is a far more valuable lesson to learn than getting external validation in the form of investment: Learning to add value, and learning to build something of value at a small scale, as well as the associated business skills, before doing it at presumably a larger scale.
The VC rocketship can create as many distractions from finding something people want. I'm not against it, but glad I hesitated taking investment in my 20's, I'm a much more well rounded entrepreneur for it, and now as the opportunities are coming up, investment is around that much more, and secondary to finding the right fit with team, market, and product.
As you can tell, I think growth capital interests me more than getting funding to get a market. I think both are fine, I just find I respond better to grinding, hustling and being resourceful.
How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale?
This is armchair quarterbacking, of course, I'm not an entrepreneur and do not pretend to be one. Patio11 has a lot of interesting and relevant things to say, but I would hate to live in a world where entrepreneurs only undertook ventures that could be bootstrapped for a reason that I'll frankly admit is selfish: throughout my career I've worked on very fascinating problems in either VC funded startups or companies that have began their life as such; I can't see a scenario where I would have been able to do this (or similar kind of work) in a bootstrapped product company. That's not to say there aren't other interesting problems that could be solved in a bootstrapped company, but my own area of focus -- distributed systems -- is almost by definition something that requires both infrastructure and up-front development (and, in general, is only something that should be used if there's a scalability or reliability problem to start with.)
This is armchair quarterbacking, of course, I'm not an entrepreneur and do not pretend to be one. Patio11 has a lot of interesting and relevant things to say, but I would hate to live in a world where entrepreneurs only undertook ventures that could be bootstrapped for a reason that I'll frankly admit is selfish: throughout my career I've worked on very fascinating problems in either VC funded startups or companies that have began their life as such; I can't see a scenario where I would have been able to do this (or similar kind of work) in a bootstrapped product company. That's not to say there aren't other interesting problems that could be solved in a bootstrapped company, but my own area of focus -- distributed systems -- is almost by definition something that requires both infrastructure and up-front development (and, in general, is only something that should be used if there's a scalability or reliability problem to start with.)
"How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale?"
You can't — obviously. And folk like Amy Hoy @patio11 freely admit that.
The key word there though is "requires". I've encountered lots of companies that have spent silly amounts of money, often their investors money, because they've missed opportunities to validate their business model in cheaper ways. Either because they don't know how or they don't want to. Folk who are so focussed on the vision that their aiming for that they fail to look down as they walk over a cliff.
To stereotype slightly I'd say that folk with a dev background are more likely to go that route than not — since the business / marketing / user research end of the skill spectrum that can help with that stuff is less familiar to them.
Nothing against VC funding, and it's absolutely necessary for some companies. It's just that the majority of folk that I see trying for it are doing so before it is actually required. Either because they're missing ways they can continue more economically because they lack the skills, or they hope that the (lack of) positive feedback that they're getting so far will be solved by money.
You can't — obviously. And folk like Amy Hoy @patio11 freely admit that.
The key word there though is "requires". I've encountered lots of companies that have spent silly amounts of money, often their investors money, because they've missed opportunities to validate their business model in cheaper ways. Either because they don't know how or they don't want to. Folk who are so focussed on the vision that their aiming for that they fail to look down as they walk over a cliff.
To stereotype slightly I'd say that folk with a dev background are more likely to go that route than not — since the business / marketing / user research end of the skill spectrum that can help with that stuff is less familiar to them.
Nothing against VC funding, and it's absolutely necessary for some companies. It's just that the majority of folk that I see trying for it are doing so before it is actually required. Either because they're missing ways they can continue more economically because they lack the skills, or they hope that the (lack of) positive feedback that they're getting so far will be solved by money.
Yeah part of bootstrapping is identifying a business that is capable of being bootstrap. Super high R&D costs would rule it out as a viable option.
Interesting answer, thank you for writing it.
As an armchair quarterback I'm a bit surprised about what you've said about "folks with a dev background" (if I didn't focus on distributed systems, I'd likely focus on development tools/services -- and there are tons of bootstrapped companies in that area), but I'll take your word for it.
As an armchair quarterback I'm a bit surprised about what you've said about "folks with a dev background" (if I didn't focus on distributed systems, I'd likely focus on development tools/services -- and there are tons of bootstrapped companies in that area), but I'll take your word for it.
Sorry — I didn't mean to imply that dev folk don't bootstrap!
What I meant, and expressed poorly, was that dev-ish folk tend to not have some of practices in their toolbox that you can use to validate cheaply (e.g. by knowing how to assess markets well, or knowing how to interview potential customers in a non-directive way, or indeed the ability to talk to customers at all, etc).
We also have a tendency to want to build things because, y'know, that's what we do ;-) We also tend to want to build things really, really well for that awesome future place where we have millions of users. So we over-engineer for where we are now, and the learning we need now.
Because of both of these issues I think folk with a dev background find themselves in a position where VC is the only route forward — when if they'd taken a different approach earlier on they could have continued bootstrapping and avoided VC money until later / forever.
Does that make sense?
What I meant, and expressed poorly, was that dev-ish folk tend to not have some of practices in their toolbox that you can use to validate cheaply (e.g. by knowing how to assess markets well, or knowing how to interview potential customers in a non-directive way, or indeed the ability to talk to customers at all, etc).
We also have a tendency to want to build things because, y'know, that's what we do ;-) We also tend to want to build things really, really well for that awesome future place where we have millions of users. So we over-engineer for where we are now, and the learning we need now.
Because of both of these issues I think folk with a dev background find themselves in a position where VC is the only route forward — when if they'd taken a different approach earlier on they could have continued bootstrapping and avoided VC money until later / forever.
Does that make sense?
You can easily start a company that requires significant R&D: start with consulting; then one day sell the product you want to make with the right license and timeline, then make it and sell it to everyone. Look at Space X, they were making money wayyy before they were igniting rockets.
It's so simple, even a cave man could do it!
It's a plan that probably works for enterprise middleware, but for the majority of reality that is not covered by such a descriptor, it is significantly harder to find a path this way.
Unless you're an Oracle consultant on one end of the scale, or a WordPress theme designer on the other end, you're probably not going to be able to repeatably find lots of clients who want a little of your time and are willing to pay enough for you to work on the side.
A lot of clients want to hire consultants for full-time work, and they are frequently only looking for bodies to fill chairs. Finding a decent client that treats you with respect and understands they can't monopolize your time is hard, hard work.
So if your R&D effort is not related to your consulting--or your contract terms assign ownership of all work materials to the client--you'll just end up in the same situation as having a job.
I suspect the only reasonably repeatable path for early funding for big R&D efforts is through obtaining grants. Learn grant writing, or pay someone who does do grant writing (imagine the longest paper you wrote in college and quadruple it). There are a lot of research grants available, even for independent people not associated with accredited academic research environments. There are even grants for work in the arts.
I've spent the last two years doing freelance consulting. The money I've made was great, but I'm no closer now to starting a company than I was before. You should only do consulting if consulting is what you want to do.
It's a plan that probably works for enterprise middleware, but for the majority of reality that is not covered by such a descriptor, it is significantly harder to find a path this way.
Unless you're an Oracle consultant on one end of the scale, or a WordPress theme designer on the other end, you're probably not going to be able to repeatably find lots of clients who want a little of your time and are willing to pay enough for you to work on the side.
A lot of clients want to hire consultants for full-time work, and they are frequently only looking for bodies to fill chairs. Finding a decent client that treats you with respect and understands they can't monopolize your time is hard, hard work.
So if your R&D effort is not related to your consulting--or your contract terms assign ownership of all work materials to the client--you'll just end up in the same situation as having a job.
I suspect the only reasonably repeatable path for early funding for big R&D efforts is through obtaining grants. Learn grant writing, or pay someone who does do grant writing (imagine the longest paper you wrote in college and quadruple it). There are a lot of research grants available, even for independent people not associated with accredited academic research environments. There are even grants for work in the arts.
I've spent the last two years doing freelance consulting. The money I've made was great, but I'm no closer now to starting a company than I was before. You should only do consulting if consulting is what you want to do.
I'm doing it right now, actually. It is possible; there are clients out there that will pay for problems to be solved or for deep expertise. Even in the cases where they want a warm body for 3 months to a year, if it brings in enough cash for your other two partners to keep working, then great!
Outside of America this is basically how you have to do it pre-traction.
Outside of America this is basically how you have to do it pre-traction.
I'm not saying it's impossible, I just take issue with your description of it as "easy".
I think freelancing equips you with other skills (knowledge of the Big Three financial statements, ability to work independently, relevant laws, how to value a company etc) that will prove beneficial when it comes time to start a company.
I don't think you could pick a worse example. Space X was founded by a billionaire, who injected 100M USD from his own pocket, and then took 20M from his buddies. That's as far as it can get from what people imagine when they read "bootstrapping".
Space X is just an available metaphor.
You could say "I want to build colonies on Mars, I just need 10 Trillion in capital!" or you could say "I want to build colonies on Mars, how can I get there even though I only have 1 / 100,000th of the capital?
The same goes for all these startups that think they need 2 million or 10 million dollars to start. You need skills and $100 to start. Someone mentioned distributed systems as an "unbootstrapable product" which is total baloney. Start by identifying clients that would buy your product once it exists and help them distribute their systems. Build up your team and use your spare cycles to build out the features you think you're going to need but currently can't find anyone to pay you to build them.
If you are still hung up on Space X starting with $100m, let me ask you this. Say Elon had lost it all on Telsa and he was starting with a loan from one of his friends to start Space X. How small would the loan have to be for you to confidently say that Space X would never get people on Mars? To me, the size of the loan only dictates the speed of reaching the ultimate goal.
You could say "I want to build colonies on Mars, I just need 10 Trillion in capital!" or you could say "I want to build colonies on Mars, how can I get there even though I only have 1 / 100,000th of the capital?
The same goes for all these startups that think they need 2 million or 10 million dollars to start. You need skills and $100 to start. Someone mentioned distributed systems as an "unbootstrapable product" which is total baloney. Start by identifying clients that would buy your product once it exists and help them distribute their systems. Build up your team and use your spare cycles to build out the features you think you're going to need but currently can't find anyone to pay you to build them.
If you are still hung up on Space X starting with $100m, let me ask you this. Say Elon had lost it all on Telsa and he was starting with a loan from one of his friends to start Space X. How small would the loan have to be for you to confidently say that Space X would never get people on Mars? To me, the size of the loan only dictates the speed of reaching the ultimate goal.
SpaceX is a perfect example though. First off, of course a company like SpaceX requires a lot of money to do anything, that's the nature of a company that needs to produce and operate manufactured goods, there isn't the same cost floor as with digital goods (which is now practically zero).
More importantly, the goal of SpaceX is fundamentally the colonization of Mars, and the idealized method to do that is a fully reusable interplanetary spacecraft. If SpaceX had tried to build that and only that from their start they would have rapidly ran out of money, even $100 million, and had little to show for it. Instead they bootstrapped their way toward acquiring the capability to design, build, and operate such things while also building a corporation capable of funding such operations. Initially they built a small orbital launch vehicle, just barely at the limit of market feasibility, using very conventional technologies and very conventional designs, applying innovation peace-meal where it made sense. Even then it took them several tries to get a launch vehicle that worked, and it wasn't even very competitive in the launch market. But it proved that SpaceX was capable of building launch vehicles, which enabled them to get grants and contracts to build a launch vehicle that was.
It wasn't a demo or a prototype, the Falcon 1 was a fully functional "MVP". And it wasn't investment funding that got them to the next stage, it was effectively pre-orders for the next generation of their product. Then you look at what they've done since, they've built iteratively, advancing toward their goal, but even now they still haven't gotten everything into place that they need. They're still working on partial reusability, still working on manned spacecraft, still working on clustered core staging, and so on. But even so they have viable products that are bringing in a lot of revenue, with new products coming online soon that will bring in even more revenue. They are still several iterations and many years away from their goal but by the time they get there they'll have the expertise, experience, and revenue to actually make it happen.
As with most endeavors, it's almost always easier and better to get to a big goal iteratively. That's how you build skill, it enables you to sell your earlier iterations to maintain revenue to keep your company alive, and each iteration provides lessons which inform the next and can reshape the grand idea you once had.
More importantly, the goal of SpaceX is fundamentally the colonization of Mars, and the idealized method to do that is a fully reusable interplanetary spacecraft. If SpaceX had tried to build that and only that from their start they would have rapidly ran out of money, even $100 million, and had little to show for it. Instead they bootstrapped their way toward acquiring the capability to design, build, and operate such things while also building a corporation capable of funding such operations. Initially they built a small orbital launch vehicle, just barely at the limit of market feasibility, using very conventional technologies and very conventional designs, applying innovation peace-meal where it made sense. Even then it took them several tries to get a launch vehicle that worked, and it wasn't even very competitive in the launch market. But it proved that SpaceX was capable of building launch vehicles, which enabled them to get grants and contracts to build a launch vehicle that was.
It wasn't a demo or a prototype, the Falcon 1 was a fully functional "MVP". And it wasn't investment funding that got them to the next stage, it was effectively pre-orders for the next generation of their product. Then you look at what they've done since, they've built iteratively, advancing toward their goal, but even now they still haven't gotten everything into place that they need. They're still working on partial reusability, still working on manned spacecraft, still working on clustered core staging, and so on. But even so they have viable products that are bringing in a lot of revenue, with new products coming online soon that will bring in even more revenue. They are still several iterations and many years away from their goal but by the time they get there they'll have the expertise, experience, and revenue to actually make it happen.
As with most endeavors, it's almost always easier and better to get to a big goal iteratively. That's how you build skill, it enables you to sell your earlier iterations to maintain revenue to keep your company alive, and each iteration provides lessons which inform the next and can reshape the grand idea you once had.
Elon Musk was worth $160M and invested $160M in SpaceX, Tesla, and Solar City. His investors gave up on him during the hard times. He chose to risk all of his money instead of giving up.
I'm not arguing against your point, but he wasn't a billionaire when founded SpaceX. He sold PayPal to Ebay for $1.5b, but owned only a fraction of that.
> How do you bootstrap a company that requires significant R&D before an MVP can be shipped?
First you bootstrap something less ambitious. Then you can use that money to start more R&D heavy companies.
First you bootstrap something less ambitious. Then you can use that money to start more R&D heavy companies.
That circles back to the same problem, then, doesn't it? One would is now essentially looking for less ambitious, bootstrap-able ideas, as opposed to doing interesting things and seeing what comes out -- whether or not it's bootstrap-able or not.
Of course many natural-going ideas are also amenable to being bootstrapped (software development tools/services would probably be a good example), but key here is ideas that naturally arise from your area of expertise.
Of course many natural-going ideas are also amenable to being bootstrapped (software development tools/services would probably be a good example), but key here is ideas that naturally arise from your area of expertise.
How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale?
You can't. That isn't a problem though. The 'bootstrapped versus capital-backed' dilemma is false. It's not a case of one being better than the other so much as a case of "the one that's best for the business and its founders". Often there won't be a choice - some businesses have zero chance of raising money before they start and some have zero chance of starting without raising capital first. The discussion is usually around whether or not the majority of SaaS startups need to raise money first rather than any business.
You can't. That isn't a problem though. The 'bootstrapped versus capital-backed' dilemma is false. It's not a case of one being better than the other so much as a case of "the one that's best for the business and its founders". Often there won't be a choice - some businesses have zero chance of raising money before they start and some have zero chance of starting without raising capital first. The discussion is usually around whether or not the majority of SaaS startups need to raise money first rather than any business.
How do you bootstrap a company that requires significant R&D before an MVP can be shipped
It's hard but possible. Your team could do consulting on the side to pay for the R&D. A hardware company I am very familiar with did this for 2 years and skipped all seed funding, to build a highly complex and expensive hardware product. It was succesful.
It's hard but possible. Your team could do consulting on the side to pay for the R&D. A hardware company I am very familiar with did this for 2 years and skipped all seed funding, to build a highly complex and expensive hardware product. It was succesful.
Are you under the impression that most interesting R&D is done at venture-backed startups?
What about universities and government funded projects?
Are you also under the impression that most interesting R&D need significant funding?
What about universities and government funded projects?
Are you also under the impression that most interesting R&D need significant funding?
Getting university and government grants requires a great deal of gaming the system. I'd say governments and academia also attract gamers of the system moreso than startup world (indeed, that is a point that pg makes).
I can't speak of "most interesting", I can only speak of what I've worked on :-)
I can't speak of "most interesting", I can only speak of what I've worked on :-)
What have you worked on that could not have been done without VC backing?
Distributed systems that span tens and hundreds of thousands of nodes and provide excellent reliability characteristics. A multi-year C++ project being built by a small/medium sized team. Those are just a few example (stated deliberately vague due to NDAs, etc...)
I think you may be attributing to me some things which I don't recall having written.
IIRC, you've said things more along the lines of "VC interests are often not aligned with founders' interests" and "VC funding isn't really my cup of tea". Amy Hoy and 37signals/Basecamp are the ones who ardently speak out against VC funding as a business strategy.
Sorry. As my sibling poster pointed out, I think I mixed you up with other pro-bootstrap/anti-VC writers.
can we pretend you wrote them though? It would make me think even more highly of you :P
I think one of the distinctions is that for bootstrapping you can start with something (very) small and end with something big over a long period of time. Whereas when you take on venture capital the expectation is to build something very big very fast.
The latter requires more capital to expedite the ROI for the VC whereas the former is typically a much slower, organic process that may not reach an equivalent scale for 10+ years. I'm a firm proponent of bootstrapping and organic growth. After a few years of positive cashflow and growth you can walk into a commercial bank (gasp!) and setup revolving lines of credit or expansion capital to fund more growth.
The latter requires more capital to expedite the ROI for the VC whereas the former is typically a much slower, organic process that may not reach an equivalent scale for 10+ years. I'm a firm proponent of bootstrapping and organic growth. After a few years of positive cashflow and growth you can walk into a commercial bank (gasp!) and setup revolving lines of credit or expansion capital to fund more growth.
> you can walk into a commercial bank (gasp!) and setup revolving lines of credit or expansion capital to fund more growth.
commercial banks are incredibly hesitant to do this even if you've passed the magical 5 year mark. their commercials loans are underwritten by people who are extremely risk averse, and the "commercial bankers" at your local branch are basically the people who aren't good enough for investment banking i.e. the b-stringers who don't understand how a technology business works. they'll just say no. in fact, it's their job to say no. i have my doubts as to how much money they even make with their loans. most of their revenue comes from fees these days.
however - there are thousands of specialized finance firms who will gladly help you, because there is a massive hole in the middle of the money market for these kinds of funds. they will provide you with:
* revolving lines of credit
* commercial equipment leases
* straight up loans
* special insurance
* lots of other industry-specific stuff that a bank just doesn't even know exists
this entire industry has sprang up "overnight" in the past 10 years - the vast, vast majority of new businesses in america are bootstrapped (think restaurant, construction company, small accounting firm, small scale manufacturing/machining, software companies, etc). venture capital and large banks are not involved. this isn't their game. it's "main street".
these specialized firms generally specialize in an industry i.e. construction, technology, food service, etc. and will know at a glance if your business is healthy or not. and don't worry - they'll find you. they have a knack for swooping in at exactly the right time. they also will not require a personal guarantee, which is a huge leg up on the banks, who will make you sign at least 2 or 3 documents saying they own your life.
if you ask me, commercial banks are nearly useless for anything but checking accounts and wire transfers. they're run by morons, or at least people who don't give a damn about technology businesses, which is tantamount to being a moron in the 21st century.
commercial banks are incredibly hesitant to do this even if you've passed the magical 5 year mark. their commercials loans are underwritten by people who are extremely risk averse, and the "commercial bankers" at your local branch are basically the people who aren't good enough for investment banking i.e. the b-stringers who don't understand how a technology business works. they'll just say no. in fact, it's their job to say no. i have my doubts as to how much money they even make with their loans. most of their revenue comes from fees these days.
however - there are thousands of specialized finance firms who will gladly help you, because there is a massive hole in the middle of the money market for these kinds of funds. they will provide you with:
* revolving lines of credit
* commercial equipment leases
* straight up loans
* special insurance
* lots of other industry-specific stuff that a bank just doesn't even know exists
this entire industry has sprang up "overnight" in the past 10 years - the vast, vast majority of new businesses in america are bootstrapped (think restaurant, construction company, small accounting firm, small scale manufacturing/machining, software companies, etc). venture capital and large banks are not involved. this isn't their game. it's "main street".
these specialized firms generally specialize in an industry i.e. construction, technology, food service, etc. and will know at a glance if your business is healthy or not. and don't worry - they'll find you. they have a knack for swooping in at exactly the right time. they also will not require a personal guarantee, which is a huge leg up on the banks, who will make you sign at least 2 or 3 documents saying they own your life.
if you ask me, commercial banks are nearly useless for anything but checking accounts and wire transfers. they're run by morons, or at least people who don't give a damn about technology businesses, which is tantamount to being a moron in the 21st century.
Sounds like you've had some negative experiences with your bank. I would beware of "specialized finance firms" that have "sprung up overnight". Typically their lines are very limited and come with huge rates. I don't think there's really much complexity to technology businesses that most competent finance guys can't figure out. They are looking at your P&L and financials for some key ratios, pretty simple. Regardless of whether you're selling lawn mowers or SaaS they want to see strong cashflow. If you're trying to get a loan on MAU growth projections you're probably right.
first of all, "pop up overnight" is in "quotes" because they didn't pop up over night. this industry and firms have been in existence for decades but only grew quickly in the last 10 years because commercial banks stopped lending money. did you hear about something called the "credit crisis"?
second, what you're saying is so blindingly obvious that it doesn't even need to be said - startups do not fall into the category of traditional businesses with strong P&Ls and great balance sheets and constantly increasing margins, like a bank wants to see. most bootstrapped startups operate at break even, or can even dip into loss for a few months at a time. these are the companies that need the money.
this will immediately disqualify you for a bank loan. which is the original premise of this entire thread - the banks won't give you shit.
second, what you're saying is so blindingly obvious that it doesn't even need to be said - startups do not fall into the category of traditional businesses with strong P&Ls and great balance sheets and constantly increasing margins, like a bank wants to see. most bootstrapped startups operate at break even, or can even dip into loss for a few months at a time. these are the companies that need the money.
this will immediately disqualify you for a bank loan. which is the original premise of this entire thread - the banks won't give you shit.
--startups do not fall into the category of traditional businesses with strong P&Ls and great balance sheets--
So as a bootstrapper are you still taking this approach past year 3 or 4? At a certain point you need to hone in on that repeatable / scalable business model and put up some numbers or fold.
If you're a couple years in and have bootstrapped past breakeven your funding options AND odds of survival are greatly improved- so why not orient around that outcome?
I'm not here to defend the absurd behavior and ignorance of commercial banks just pointing out that sometimes the game changes if you can afford to take a slower more incremental approach to growth than what is typically demanded by VC.
So as a bootstrapper are you still taking this approach past year 3 or 4? At a certain point you need to hone in on that repeatable / scalable business model and put up some numbers or fold.
If you're a couple years in and have bootstrapped past breakeven your funding options AND odds of survival are greatly improved- so why not orient around that outcome?
I'm not here to defend the absurd behavior and ignorance of commercial banks just pointing out that sometimes the game changes if you can afford to take a slower more incremental approach to growth than what is typically demanded by VC.
yes, you take it past year 3 or 4. you get half a million bucks, a million bucks in the bank during the first years, and then you start spending it on real things. sometimes your cash dips. sometimes you bolster it with a good few months. however, you can't spend it all - you need capital. you need a reasonable amount of debt you can service.
when the bank sees this, they will flip the fuck out. but someone with experience in your industry and a specific financial product designed to help you will know exactly what you're doing.
it's repeatable, it's scalable - however, it requires money to grow just like every other business. this isn't skating by on ultra thin margins with $50k in the bank - it's a business with significant cash that needs significantly more cash, and is willing to sacrifice margins in the short term to grow. and that's not what banks do (these days).
when the bank sees this, they will flip the fuck out. but someone with experience in your industry and a specific financial product designed to help you will know exactly what you're doing.
it's repeatable, it's scalable - however, it requires money to grow just like every other business. this isn't skating by on ultra thin margins with $50k in the bank - it's a business with significant cash that needs significantly more cash, and is willing to sacrifice margins in the short term to grow. and that's not what banks do (these days).
+1. That's precisely my first hand experience.
I really appreciate what you've laid out here and honestly would like to know more about it, both as a bootstrapper and as an investor.
I disagree with you on academia, as the checks & balances plus the peer review system for worldwide recognised published research kill and destroy bullshitters. I am not saying there aren't any but having been in both academia & corporate, the latter is infested with them.
In startup world, they get also eliminated quite rapidly as they will just fail. Success of any startups is not to raise funds but to get customers who will pay for value and for that bullshitters cannot trick the system.
In startup world, they get also eliminated quite rapidly as they will just fail. Success of any startups is not to raise funds but to get customers who will pay for value and for that bullshitters cannot trick the system.
Well it is already painfully visible that "checks & balances plus peer review" is barely managing to hold science together. Research has already been thoroughly gamed on a systemic level. Scientific funding and the whole "publish and perish" culture pretty much promotes bullshit over real research nowadays. And while solutions are easy to name (increase rigor for statistical significance, publish negative results, make scientist pre-publish description of planned data analysis before collecting data, etc.) they are almost impossible to implement, as everyone inside the system is trapped by the incentive structures that drive the whole thing.
Exactly, but if you are a member of the cult you can't admit this.
"the checks & balances plus the peer review system for worldwide recognised published research kill and destroy bullshitters"
if only this was true!!
if only this was true!!
A very high percentage of memoirs, thesis and research papers that contain source code doesn't compile, run or work as expected.
Peer review doesn't work in science because nobody cares to review unknown or lesser known authors.
Peer review doesn't work in science because nobody cares to review unknown or lesser known authors.
Ah, you must have never had to deal with administration.
Or so I've heard. All of the administration at my university is of course irreproachable. (Hi boss!) But the stories my friends tell me... ;)
Or so I've heard. All of the administration at my university is of course irreproachable. (Hi boss!) But the stories my friends tell me... ;)
Even users are gameable. What do you think advertising is?Companies spend vast sums of money on user acquisition.
It is curious that people spend so much time considering games to avoid actual work rather than figure out work that they can enjoy; or at least feel a sense of progress.
Looking at the valuations of the likes of Snapchat I think it's pretty safe to assume that B.S has already taken over.
>You have to make something people want, and you prosper only to the extent you do.
This is necessary but unfortunately not sufficient. You still have to do all the sales and marketing grunt work. It is amazingly hard to get people to pay money even if they love your product. Brutal and depressing.
This is necessary but unfortunately not sufficient. You still have to do all the sales and marketing grunt work. It is amazingly hard to get people to pay money even if they love your product. Brutal and depressing.
Diana Kander has an interesting view about that in her book "All in startup". She mentions that it is not enough to find a "headache" the people have (problems they can live with), you have to find a "migraine problem" (problem they'll do anything to get rid of).
Obviously, you still need to get the people to know about your product.
one guaranteed way to turn your mind into the type that has good startup ideas is to get yourself to the leading edge of some technology—to cause yourself, as Paul Buchheit put it, to "live in the future." When you reach that point, ideas that will seem to other people uncannily prescient will seem obvious to you. You may not realize they're startup ideas, but you'll know they're something that ought to exist.
I think this is one reason why geographic clusters of startups occur: You get a few people "living in the future" co-located and suddenly the "uncannily prescient" idea no longer just seem obvious to you, they seem obvious to everyone around you too, and everyone wants them now.
The future is here, it is just not evenly distributed -- William Gibson.
I think this is one reason why geographic clusters of startups occur: You get a few people "living in the future" co-located and suddenly the "uncannily prescient" idea no longer just seem obvious to you, they seem obvious to everyone around you too, and everyone wants them now.
The future is here, it is just not evenly distributed -- William Gibson.
Thank you for putting that quote into context for me - have always enjoyed it, never saw quite so good an example.
In Southern California right now we're living this with regard to Oculus / Virtual Reality.
Oculus being born here / the dev conference happening in LA / and the amount of devs that are playing w/the tech logcally feels like one of those times where we get exposed to Bay Area "newness" of a product.
And as a result, get to invent and problem-solve before the general population even has the consumer tech (which they'll probably first see in bestbuy via gear vr soon).
In Southern California right now we're living this with regard to Oculus / Virtual Reality.
Oculus being born here / the dev conference happening in LA / and the amount of devs that are playing w/the tech logcally feels like one of those times where we get exposed to Bay Area "newness" of a product.
And as a result, get to invent and problem-solve before the general population even has the consumer tech (which they'll probably first see in bestbuy via gear vr soon).
Interesting insight.
I think the internet, which sometimes serves as its own geographical place, can foster the same sort of clusters.
You can see that with bitcoin/blockchain communities, all kinds of inventive ideas coming out of the online communities there. It's a cluster of people who are living in a certain subset of the future already, and the community is centered online.
Which implies that a smart incubator would want its own online geography to cluster people living in the future. HN isn't quite that. I'm not sure exactly how it misses that target, but it does somehow.
Hmmmm.
I think the internet, which sometimes serves as its own geographical place, can foster the same sort of clusters.
You can see that with bitcoin/blockchain communities, all kinds of inventive ideas coming out of the online communities there. It's a cluster of people who are living in a certain subset of the future already, and the community is centered online.
Which implies that a smart incubator would want its own online geography to cluster people living in the future. HN isn't quite that. I'm not sure exactly how it misses that target, but it does somehow.
Hmmmm.
I think the internet, which sometimes serves as its own geographical place, can foster the same sort of clusters. You can see that with bitcoin/blockchain communities, all kinds of inventive ideas coming out of the online communities there. It's a cluster of people who are living in a certain subset of the future already, and the community is centered online.
I agree, but I think it's difficult to achieve this deliberately.
Which implies that a smart incubator would want its own online geography to cluster people living in the future. HN isn't quite that. I'm not sure exactly how it misses that target, but it does somehow.
There have been some attempts to do this (NReduce) but no outstanding systematic successes that I know of.
I think it's an interesting area.
I agree, but I think it's difficult to achieve this deliberately.
Which implies that a smart incubator would want its own online geography to cluster people living in the future. HN isn't quite that. I'm not sure exactly how it misses that target, but it does somehow.
There have been some attempts to do this (NReduce) but no outstanding systematic successes that I know of.
I think it's an interesting area.
Reading a bit of history you usually notice how famous painters, and other artists, lived close to each other. The same is true of scientists, I am sure.
For me, reading Paul Graham's writings has taken on something of the flavor of a Phillip Roth novel. I'm committing voyeurism, watching the inner life of the protagonist, PG, mature. There's an arc to the narrative.
Around the turn of the millennium, the brashness born of 1990's success transformed his writing from youthfully exuberant technical expertise [2] toward experienced practical advice [3]. In Before the Startup we meet up with PG again just as he walks back into the ring of the public light. His load has shifted, advice must be sage: consistent with the gestures of hands that have firmly held the tiger's tail twice. Yet, despite the years, PG's youthful earnestness remains intact.
Recently, because I've seen ViaWeb and HN trotted out as contemporary examples of successful uses of Lisp in business, I've wondered how much of Beating the Averages describes what really happened and how the older PG would ascribe the success of his first startup.
Was Lisp really the secret sauce? Would it have mattered if PG and Morris ground out updates in Perl? Will there be an immodest greybearded admission that, in hindsight, it really was the people?
Autobiography is not so much an author's way of gaming history, but rather gaming the business of history. And that, the gaming of "the business of x" is the central theme of Before the Startup. What Graham is arguing is that a person can't game their way into running a successful startup. He doesn't deny that a person can successfully game the business of startups...there are people who can sell Yelp for Dogs to investors sufficiently to purchase barker.com.
No longer YC's designated spokesmodel, PG is in the agora pitching eudaemonia, the not-as-seen-on-TV good life, to the youths of the valley. His life's example is not the celebrity brought about by business success. His advice is "stay earnest."
[1] yes.
[2] On Lisp
[3] Beating the Averages
Around the turn of the millennium, the brashness born of 1990's success transformed his writing from youthfully exuberant technical expertise [2] toward experienced practical advice [3]. In Before the Startup we meet up with PG again just as he walks back into the ring of the public light. His load has shifted, advice must be sage: consistent with the gestures of hands that have firmly held the tiger's tail twice. Yet, despite the years, PG's youthful earnestness remains intact.
Recently, because I've seen ViaWeb and HN trotted out as contemporary examples of successful uses of Lisp in business, I've wondered how much of Beating the Averages describes what really happened and how the older PG would ascribe the success of his first startup.
Was Lisp really the secret sauce? Would it have mattered if PG and Morris ground out updates in Perl? Will there be an immodest greybearded admission that, in hindsight, it really was the people?
Autobiography is not so much an author's way of gaming history, but rather gaming the business of history. And that, the gaming of "the business of x" is the central theme of Before the Startup. What Graham is arguing is that a person can't game their way into running a successful startup. He doesn't deny that a person can successfully game the business of startups...there are people who can sell Yelp for Dogs to investors sufficiently to purchase barker.com.
No longer YC's designated spokesmodel, PG is in the agora pitching eudaemonia, the not-as-seen-on-TV good life, to the youths of the valley. His life's example is not the celebrity brought about by business success. His advice is "stay earnest."
[1] yes.
[2] On Lisp
[3] Beating the Averages
> Yet when it comes to startups, a lot of people seem to think they're supposed to start them while they're still in college.
Is PG seriously implying he doesn't know where college students got the idea that they should be founding startups instead, after spending the last ten years telling them to?
Is PG seriously implying he doesn't know where college students got the idea that they should be founding startups instead, after spending the last ten years telling them to?
"The three big powers on the Internet now are Yahoo, Google, and Microsoft. Average age of their founders: 24. So it is pretty well established now that grad students can start successful companies. And if grad students can do it, why not undergrads? (...)
The less it costs to start a company, the less you need the permission of investors to do it. So a lot of people will be able to start companies now who never could have before.
The most interesting subset may be those in their early twenties. I'm not so excited about founders who have everything investors want except intelligence, or everything except energy. The most promising group to be liberated by the new, lower threshold are those who have everything investors want except experience." - http://www.paulgraham.com/hiring.html
If PG has genuinely changed his mind in the face of new evidence, we should award him points for that. But he should also come out and admit it.
The less it costs to start a company, the less you need the permission of investors to do it. So a lot of people will be able to start companies now who never could have before.
The most interesting subset may be those in their early twenties. I'm not so excited about founders who have everything investors want except intelligence, or everything except energy. The most promising group to be liberated by the new, lower threshold are those who have everything investors want except experience." - http://www.paulgraham.com/hiring.html
If PG has genuinely changed his mind in the face of new evidence, we should award him points for that. But he should also come out and admit it.
I didn't get the vibe that PG was saying not to start a company in college. I may have misinterpreted him incorrectly, but to me the advice was to not do both simultaneously.
He does mention that there are certain things you can't do if you start a successful company at a young age, but to me the main point was that when you take on a startup you have to be completely invested, and if you're still in school it will be very hard to find time work on both the company and maintain your grades.
He does mention that there are certain things you can't do if you start a successful company at a young age, but to me the main point was that when you take on a startup you have to be completely invested, and if you're still in school it will be very hard to find time work on both the company and maintain your grades.
So if you exclude 20 and 21, you are still in your early twenties and you just graduated from college.
PG is a living man. the essay is a dead document.
Everybody should adjust to facts and experience. PG points to an important issue that this is an important period in life where you are old enough to to do things kids can't, yet young enough without the daily responsibilities which will patiently wait for you for the next decades. The startup can wait after these unique years
Refusing to change your mind in light of contradicting evidence is not a virtue :-)
For the record, I do recall that YC changed their policy on this rather early-on its history (explicitly advising undergrads against applying) and pg has repeatedly told "Ask HN" posters on this site not to drop out of college.
For the record, I do recall that YC changed their policy on this rather early-on its history (explicitly advising undergrads against applying) and pg has repeatedly told "Ask HN" posters on this site not to drop out of college.
Yea, I was kind of surprised when he said college students shouldn't start startups.
This could be partially because 10 years ago, PG thought startups were undervalued in society and wanted to preach them as a valid alternative route to success. Now startups are the new Pogs, with everybody in Intro to CS wanting to be a part of their college's official startup program. So maybe now he thinks they're overvalued and wants college kids to know that even if they could reach that "The Social Network"-ian dream (which, by definition, a majority of them can't), it wouldn't be worth it and they should enjoy their carefree life a little more before they bite off more than they can chew.
Or, like brudgers said, maybe it's a sign of personal progression. The overactive young PG wanted people to live the obsessively fast lifestyle like he did, but now the older and wiser PG thinks it wouldn't have done him too much harm if he spent a couple of more years crashing in random hotels around Beijing. Certainly the more amusing of explanations, I guess.
This could be partially because 10 years ago, PG thought startups were undervalued in society and wanted to preach them as a valid alternative route to success. Now startups are the new Pogs, with everybody in Intro to CS wanting to be a part of their college's official startup program. So maybe now he thinks they're overvalued and wants college kids to know that even if they could reach that "The Social Network"-ian dream (which, by definition, a majority of them can't), it wouldn't be worth it and they should enjoy their carefree life a little more before they bite off more than they can chew.
Or, like brudgers said, maybe it's a sign of personal progression. The overactive young PG wanted people to live the obsessively fast lifestyle like he did, but now the older and wiser PG thinks it wouldn't have done him too much harm if he spent a couple of more years crashing in random hotels around Beijing. Certainly the more amusing of explanations, I guess.
I think he's been iffy on that question for at least years. I remember a talk where he disagreed with an audience member who was suggesting people should always drop out.
Yeah I find that statement strange.
Not only that, but haven't the majority of the 'successful' founders in which he's invested either been in college or at least in their 20s?
Adjacent point: 99% of founders don't stick around with their companies for life like Mark Zuckerberg. That's an ideal scenario for a game-changing company. In the overwhelming majority of cases, you exit and move on.
Not only that, but haven't the majority of the 'successful' founders in which he's invested either been in college or at least in their 20s?
Adjacent point: 99% of founders don't stick around with their companies for life like Mark Zuckerberg. That's an ideal scenario for a game-changing company. In the overwhelming majority of cases, you exit and move on.
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> So this is the third counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working. Gaming the system may continue to work if you go to work for a big company(...) But that doesn't work with startups. There is no boss to trick, only users, and all users care about is whether your product does what they want. Startups are as impersonal as physics. You have to make something people want, and you prosper only to the extent you do.
I don't believe this is true. I think the startup ecosystem actually learned how to game "making something people want". After all, startups are companies, companies need to profit, and "making what people want" vs. "making what people will pay for" are similar, yet not perfectly aligned goals.
pg may be right that startups are "as impersonal as physics", but users aren't, and herein lies the trick. One of the most blatant ways of gaming the system is the exit-seeking, toilet-paper startup. It exploits the disconnect between "growth" and "making something users want". The algorithm works like this:
I don't believe this is true. I think the startup ecosystem actually learned how to game "making something people want". After all, startups are companies, companies need to profit, and "making what people want" vs. "making what people will pay for" are similar, yet not perfectly aligned goals.
pg may be right that startups are "as impersonal as physics", but users aren't, and herein lies the trick. One of the most blatant ways of gaming the system is the exit-seeking, toilet-paper startup. It exploits the disconnect between "growth" and "making something users want". The algorithm works like this:
- find something people apparently "want"
- make a half-baked solution, maximize it for user-acquiring candies
- market the living hell out of it
- keep the growth until you can sell your startup or get acquihired
- kill the product; who cares about it, anyway? oh and don't forget to thank your users for the journey, you couldn't all share this awesome moment without their help.
The 'gaming the system' section gave me insight into both why 'growth hacking' is such a popular idea and why I hate the term.
Founders know they need growth, so they ask themselves "How do we...", and "Hire a Growth Hacker!" is an easy response. It sounds like a way to game the system. After all, growth is right there in the job title, and we all know hackers game systems.
The appeal of a 'hacker' for growth is that it sounds like it solves the hard work of growing by building something people like. We'll just game around it with our hacker!
I don't think that's the conscious intent, but I do think it's the subconscious intent. And both why the term is appealing to founders and why it bugs the hell out of me. It's the subliminal implications of gaming the system.
Founders know they need growth, so they ask themselves "How do we...", and "Hire a Growth Hacker!" is an easy response. It sounds like a way to game the system. After all, growth is right there in the job title, and we all know hackers game systems.
The appeal of a 'hacker' for growth is that it sounds like it solves the hard work of growing by building something people like. We'll just game around it with our hacker!
I don't think that's the conscious intent, but I do think it's the subconscious intent. And both why the term is appealing to founders and why it bugs the hell out of me. It's the subliminal implications of gaming the system.
Honestly, with fierce hatred I hate that term. It basically means "word 'hacker' sounds cool, so let's make marketing cooler by renaming it to 'growth hacking'". Seriously, just look at the Wikipedia article[0] and see how meaningless this term is. The whole text is just basically pile of buzzwords.
But you're right. Growth is hard, and if you're a hacker at heart, focused on developing your idea/product, someone specialized in "all that murky businessy client-getting stuff" is godsend. You don't want to distract yourself with it, you have better things to do.
I also think that it can sometimes be a way to out-source conscience. You pay the growth hacker to do "the magic", and you don't care what it is that he is actually doing. You can hire one that will do black-hat SEO and abuse social networks without feeling any guilt, by simple virtue of not thinking about it.
[0] - http://en.wikipedia.org/wiki/Growth_hacking
But you're right. Growth is hard, and if you're a hacker at heart, focused on developing your idea/product, someone specialized in "all that murky businessy client-getting stuff" is godsend. You don't want to distract yourself with it, you have better things to do.
I also think that it can sometimes be a way to out-source conscience. You pay the growth hacker to do "the magic", and you don't care what it is that he is actually doing. You can hire one that will do black-hat SEO and abuse social networks without feeling any guilt, by simple virtue of not thinking about it.
[0] - http://en.wikipedia.org/wiki/Growth_hacking
The people being "hacked" by the title "growth hacker" and the folks who do the hiring.
I don't believe this is true. I think the startup ecosystem actually learned how to game "making something people want". After all, startups are companies, companies need to profit, and "making what people want" vs. "making what people will pay for" are similar, yet not perfectly aligned goals.
The important distinction is between what people want and what people are prepared to pay for. So when your startup is making something people want, but few are prepared to pay for, you can get a massive user base that make it look like you have a very solid startup which you manage to sell for huge amounts of money, while the company only has a tiny chance to ever make a profit. Then you have gamed the system.
Are there any good examples of startups creating a "massive user base" but not making any money? The likes of WhatsApp were valued significantly higher than the readings of their cash flows would convey. So such examples of massive valuations in spite of zero or negligible cash flow are not good examples.
Probably not an exact match, but until Twitter shows a profit, it would fall into this category. It has millions of users but tiny amounts of revenue, yet did a big IPO and is valued at an incredibly-hard-to-justify share price.
I mean, there are insurance and retail stocks that have billions in revenue, showing serious profit each quarter and their share price is half of Twitter's. But, to be fair, Twitter didn't 'growth hack', they did build something people wanted to use. But their exit (as of now) would have to be considered 'gaming the system'.
I mean, there are insurance and retail stocks that have billions in revenue, showing serious profit each quarter and their share price is half of Twitter's. But, to be fair, Twitter didn't 'growth hack', they did build something people wanted to use. But their exit (as of now) would have to be considered 'gaming the system'.
Could Quora be such example?
Yeah. I think so.
Found this while Googling for Quora's valuation: http://techcrunch.com/2014/04/09/quora-forever/
Found this while Googling for Quora's valuation: http://techcrunch.com/2014/04/09/quora-forever/
Yup, that's what I was thinking about. It was brought to my attention by @idlewords. From the article that is probably the most linked thing in comments this year, [0].
Take the case of Quora. Quora is a question-answering website. You type a question and a domain expert might answer it for you.
Quora's declared competitor is Wikipedia, a free site that not only doesn't make revenue, but loses so much money they have to ask for donations just to be broke.
Recently, Quora raised $80 million in new funding at a $900 million valuation. Their stated reason for taking the money was to postpone having to think about revenue.
Quora walked in to an investor meeting, stated these facts as plainly as I have, and walked out with a check for eighty million dollars.
That's the power of investor storytime.
So yeah. No one games anything here.
[0] - http://idlewords.com/bt14.htm
Take the case of Quora. Quora is a question-answering website. You type a question and a domain expert might answer it for you.
Quora's declared competitor is Wikipedia, a free site that not only doesn't make revenue, but loses so much money they have to ask for donations just to be broke.
Recently, Quora raised $80 million in new funding at a $900 million valuation. Their stated reason for taking the money was to postpone having to think about revenue.
Quora walked in to an investor meeting, stated these facts as plainly as I have, and walked out with a check for eighty million dollars.
That's the power of investor storytime.
So yeah. No one games anything here.
[0] - http://idlewords.com/bt14.htm
Ecomom could be one. They sold below cost and essentially just bled money, if I remember correctly.
It seems like the question is talking about large, zero-revenue startups. Ecomom definitely doesn't fit here, since they were collecting over $1M/month in gross revenues. Of course, they were discounting so much that each order had a negative margin, but that is a different story.
I think the most dramatic example of this (other than WhatsApp) is Snapchat.
I think the most dramatic example of this (other than WhatsApp) is Snapchat.
I was thinking about something exactly opposite - tricking people into paying for things they don't really want that much. But your take on it is interesting. I guess you can game the system at both extremes.
"So strangely enough the optimal thing do to in college if you want to be a successful startup founder is not some sort of new, vocational version of college focused on "entrepreneurship." It's the classic version of college as education for its own sake. If you want to start a startup after college, what you should do in college is learn powerful things. And if you have genuine intellectual curiosity, that's what you'll naturally tend to do if you just follow your own inclinations. [10]
The component of entrepreneurship that really matters is domain expertise. The way to become Larry Page was to become an expert on search. And the way to become an expert on search was to be driven by genuine curiosity, not some ulterior motive.
At its best, starting a startup is merely an ulterior motive for curiosity. And you'll do it best if you introduce the ulterior motive toward the end of the process.
So here is the ultimate advice for young would-be startup founders, boiled down to two words: just learn."
This is my favorite part. Elon Musk does it this way even after his first few companies. He goes and learns a bunch of stuff to the cutting edge.
The component of entrepreneurship that really matters is domain expertise. The way to become Larry Page was to become an expert on search. And the way to become an expert on search was to be driven by genuine curiosity, not some ulterior motive.
At its best, starting a startup is merely an ulterior motive for curiosity. And you'll do it best if you introduce the ulterior motive toward the end of the process.
So here is the ultimate advice for young would-be startup founders, boiled down to two words: just learn."
This is my favorite part. Elon Musk does it this way even after his first few companies. He goes and learns a bunch of stuff to the cutting edge.
Some of the things I've learned at university are pretty interesting and fun to play with. Now, notice the "fun to play" with part. Some thing require a lot of investment (both money and time) in order to be learned. So, I believe it's not unfeasible to want to start a company so that you can fund your curiosity and learn the new things. The company itself might fail, or might not, but I believe as long as the purpose was to learn something new, failing is not as bad. If you start a company thinking this is the future, and you put value in making money as opposed to learning, then failing is losing.
In an ideal world, that would be possible, yes. But a company does need to make some money, even if only to pay its founders for their time. That money can come from investments, but if you start a company just to learn new stuff you'll have a hard time finding those.
> He goes and learns a bunch of stuff to the cutting edge.
Some of my best work and graduate school assignments had started off by being handed an RFC (or a language, or a third party library, or a paper, etc...), asked to become an expert on it, and then implement it (or in the case of a library to re-factor old NIH-y code to use that library, etc...). Learning isn't useful as preparation for something else, but it's extremely rewarding in it of itself.
Some of my best work and graduate school assignments had started off by being handed an RFC (or a language, or a third party library, or a paper, etc...), asked to become an expert on it, and then implement it (or in the case of a library to re-factor old NIH-y code to use that library, etc...). Learning isn't useful as preparation for something else, but it's extremely rewarding in it of itself.
The most important point in the lecture: Startups are the one area where the traditional gaming of the system will not work. May bring you seed or even series A, but not users. Learning in a college is, after all, gaming a traditional system.
Regarding the first point, I recently came to this conclusion: "The reason listening is hard is that not-listening doesn't feel like not-listening, it just feels like the other person is wrong."
Keeping this in mind has been very helpful.
Keeping this in mind has been very helpful.
It seems odd not to acknowledge that most successful startups are not created like this. Very few are. Perhaps only the truly great ones take the organic personal project route. Apple, Google, Facebook, and YC are among the handful one could list out of thousands of startups.
Most successful startups are the result of ambitious people working hard to come up with good ideas. PG has explicitly said he started Viaweb to get rich. IIRC it was picked from a list of other startup ideas and was the second attempt. He wasn't deeply fascinated by online stores, it just seemed like a good business to start.
Most successful startups are the result of ambitious people working hard to come up with good ideas. PG has explicitly said he started Viaweb to get rich. IIRC it was picked from a list of other startup ideas and was the second attempt. He wasn't deeply fascinated by online stores, it just seemed like a good business to start.
As an investor, you'd rather fund Apple, Google, or Facebook than Viaweb.
Not necessarily. Would you properly fund EverPix or TextSecure, or would you worry about them sticking to their principles too much and avoiding potential profit opportunities?
As an investor, yes, necessarily. As someone trying to do good and make money at the same time, of course your priorities will be muddled.
Because doing good cannot be made coherent with making money? Or that you have to optimize for one or the other? This seems quite limiting and contrary to human history as well.
I like the term "playing house". Seems like there are a lot of similar activities. I don't make it to many "startup" type events, but when I do, I always wonder why everyone there is spending so much time hanging out with each other instead of going to the events their customers go to.
From my observations as a participant of such events, people actually working on startups don't frequent them.
The composition of people attending your typical bi-weekly unmeeting is: few people with money, lots of people who would like some of that money, few random CEOs who look for free employers, and the rest that just wants to hang out with "startup guys" because it's cool (and maybe they get to see some new toys).
The composition of people attending your typical bi-weekly unmeeting is: few people with money, lots of people who would like some of that money, few random CEOs who look for free employers, and the rest that just wants to hang out with "startup guys" because it's cool (and maybe they get to see some new toys).
This is spot on (especially for the "Hackers & Founders" kind of meetups) but there are a subset of (technical) events that are full of smart people and less bullshitters.
None of them will probably be your real customers but most of the people you'll meet are extremely interested in startups and new ideas. It's a crowd of early adopters, willing to try anything. This is worth something, at least while you're starting out and need to validate your ideas.
Compare that with pitching your startup idea to random people in a Walmart, that's way harder than it sounds :)
None of them will probably be your real customers but most of the people you'll meet are extremely interested in startups and new ideas. It's a crowd of early adopters, willing to try anything. This is worth something, at least while you're starting out and need to validate your ideas.
Compare that with pitching your startup idea to random people in a Walmart, that's way harder than it sounds :)
Anyone know any good places to meet people who are interested in startups but who aren't from technical backgrounds?
There must be people out there who have identified problems that software can solve, but who can't build the solutions themselves. Lawyers who know what law firms need or plumbers who know what general contractors need, and such.
There must be people out there who have identified problems that software can solve, but who can't build the solutions themselves. Lawyers who know what law firms need or plumbers who know what general contractors need, and such.
I think there is some truth to this, but personally, I've been to events on both sides of the coin. StartX, for instance, hosted an event where I met several smart people and heard two fantastic presentations. If I were working on a startup, maybe I wouldn't have time to attend, but I'm not at the moment and why not meet and network with smart people with similar interests? That being said, there is a lot of BS you have to circumnavigate.
Yep. Even in my area I could go to 2-5 startup events a week but so much of it just feels so fake and full of hanger-ons that just want to be associated with startups. It is nice to get out once in a while, but I get a lot more out of virtually hanging out with my group of other indie app developers that actually sell.
Can this advice be generalized to other creative endeavors in general? There's an interesting article by Scott Alexander, "Negative Creativity" http://slatestarcodex.com/2014/08/05/negative-creativity/
"It is said that one of the highest-level and most awe-inspiring of rationalist skills is Sitting And Thinking About Something For Five Minutes.
The sitting part isn’t that difficult. It’s not even that hard to…how should I put it…apply mental effort at the problem. But that mental effort tends to be spent rehearsing the solutions already thought up, retreading worn paths, ruminating on how difficult the problem is.
Coming up with entirely novel ideas is really, really hard."
In other words, if we set out deliberately to "come up with a startup idea" or (in a completely different context) "plot for a short story" we're likely to fall into the "gaming" trap, that is coming up with what _sounds like_ a great idea and could potentially even convince others, e.g., professors in a "Creative Writing" class or investors that it is one.
I've been applying this same tactic when dealing with "once in a million" (which at -- I hate to use this term, but it's actually a good one -- webscale can easily happen once an hour) Heisenbugs: fire up five processes in gdb (as to force contention around network, disk, and CPU), add a bunch of log statements, pepper the code with random usleep()s, and set assertions or watch/break points in "impossible" places -- as opposed to a more rookie approach of rewriting any suspect code ("let's put a lock around this just to be sure...") and hoping the problem goes away.
"It is said that one of the highest-level and most awe-inspiring of rationalist skills is Sitting And Thinking About Something For Five Minutes.
The sitting part isn’t that difficult. It’s not even that hard to…how should I put it…apply mental effort at the problem. But that mental effort tends to be spent rehearsing the solutions already thought up, retreading worn paths, ruminating on how difficult the problem is.
Coming up with entirely novel ideas is really, really hard."
In other words, if we set out deliberately to "come up with a startup idea" or (in a completely different context) "plot for a short story" we're likely to fall into the "gaming" trap, that is coming up with what _sounds like_ a great idea and could potentially even convince others, e.g., professors in a "Creative Writing" class or investors that it is one.
I've been applying this same tactic when dealing with "once in a million" (which at -- I hate to use this term, but it's actually a good one -- webscale can easily happen once an hour) Heisenbugs: fire up five processes in gdb (as to force contention around network, disk, and CPU), add a bunch of log statements, pepper the code with random usleep()s, and set assertions or watch/break points in "impossible" places -- as opposed to a more rookie approach of rewriting any suspect code ("let's put a lock around this just to be sure...") and hoping the problem goes away.
I find it much more natural to walk/run and think about a problem. I don't know what you need to do when you need to keep notes and look at numbers while approaching the problem, you can't do that on your iPhone while walking, but generally speaking running/walking disconnects my brain from my body very effectively. So all I need to do is focus on the problem, but doesn't take as much as effort as it would take if I did it while sitting on a desk.
It's referred to as 'dissociative thinking'. The back burner of your mind... similar to waking in the middle of the night with an answer to a problem that has been plaguing you for days
I find it interesting how YC is trying to increase its classes sizes significantly and YC partners are traveling all around encouraging everyone to apply (which would seemingly reduce the standard for getting in, unless qualified applicants are significantly increasing every year) in light of pg's point about gaming the system. Getting into an incubator, for many applicants, is effectively like "playing house" at starting a company or gaming the system, when really what those people should be focusing on is just building/growing their product, rather than figuring how to get into an incubator before they have a validated product. Especially given the predictors on a YC app that might increase an applicant's chance of getting in (prestigious school, work experience, etc.), seems like there are still lots of opportunities for "gaming the system" in YC.
> > which would seemingly reduce the standard for getting in This statement is fairly unfounded
This is basically just speculation (and rather uncharitable speculation at that). And, plausibly, if the YC partners manage to increase the pool of applicants faster than they increase class sizes (which is plausible because the class sizes have not expanded tremendously), it would only raise the bar
> unless qualified applicants are significantly increasing every year
This is probably what is happening.
This is basically just speculation (and rather uncharitable speculation at that). And, plausibly, if the YC partners manage to increase the pool of applicants faster than they increase class sizes (which is plausible because the class sizes have not expanded tremendously), it would only raise the bar
> unless qualified applicants are significantly increasing every year
This is probably what is happening.
>>which would seemingly reduce the standard for getting in, unless qualified applicants are significantly increasing every year
An ulterior motive behind Sam Altman's startup class? Incredible engagement already with 400+ University viewing groups*
*https://docs.google.com/spreadsheets/d/1P5xh1t0SOUlVmFkLKPk0...
An ulterior motive behind Sam Altman's startup class? Incredible engagement already with 400+ University viewing groups*
*https://docs.google.com/spreadsheets/d/1P5xh1t0SOUlVmFkLKPk0...
The magic formula, it seems, is "become an expert in something that matters (what other people want or need to be done) usually in a non-CS realm, but you must "love it" and then apply CS with someone who could program/engineer better than you". At least it resembles a pg + rtm pair.)
The question is not like "what code in which language should I write", The fact that Zukerberg wrote a yet-another-bunch-of-webforms in PHP doesn't mean that you should do it too. It isn't about PHP at all, it is about being in a right time in a right place and being able to code some PHP. (the facebook really began after it has been noticed by a "serious guys" from Harvard alumni).
So, it boils down to a very few words - learn some fundamental principles of CS, then become an expert in a field (follow the money), being an expert you would "see" opportunities which cannot be seen by an ignorant observer outside the field. Then try, approach the problem, describe it, discuss, try to write a naive prototype (to discover the difficulties and lack of appropriate knowledge) and then try to make a team. btw, other people in the field would quickly grasp and validate your idea, and if it is really good, they would find money for you, because the result will be beneficial for them.
Another key idea (to which having children is a nice metaphor, at least to those who have no siblings) is that one have to go into unknown. There is no other way. It should be unknown and first time, like any learning on-the-go in any field. We start totally ignorant, and then we learn by doing.
And about gaming the system (another polite-correct name for cheating) - one cannot game yourself. You are either good at what you do or not.
The question is not like "what code in which language should I write", The fact that Zukerberg wrote a yet-another-bunch-of-webforms in PHP doesn't mean that you should do it too. It isn't about PHP at all, it is about being in a right time in a right place and being able to code some PHP. (the facebook really began after it has been noticed by a "serious guys" from Harvard alumni).
So, it boils down to a very few words - learn some fundamental principles of CS, then become an expert in a field (follow the money), being an expert you would "see" opportunities which cannot be seen by an ignorant observer outside the field. Then try, approach the problem, describe it, discuss, try to write a naive prototype (to discover the difficulties and lack of appropriate knowledge) and then try to make a team. btw, other people in the field would quickly grasp and validate your idea, and if it is really good, they would find money for you, because the result will be beneficial for them.
Another key idea (to which having children is a nice metaphor, at least to those who have no siblings) is that one have to go into unknown. There is no other way. It should be unknown and first time, like any learning on-the-go in any field. We start totally ignorant, and then we learn by doing.
And about gaming the system (another polite-correct name for cheating) - one cannot game yourself. You are either good at what you do or not.
Dagny, there's nothing of any importance in life - except how well you do your work
I'm a college kid, started a startup with my roommate and sold it to our university. We did everything wrong, but learned so much that I could write a thesis on it. If I had to do it again and change ONE thing, though, it would be one of PG's central points in this post: get to know your users. We knew who they were at a big picture (UofM students) but did not do a good job honing on on specific 'personality types' that would enjoy our app nor did we keep in touch with our loyal users as much as we should have. Will definitely do that when a next time comes around. The crazier, and daunting, part of reading this post is realizing that despite how much I learned from my first startup, there will be so much to learn from when I find the next fun thing or problem to work at. Can't wait.
What did your product do?
It was a social calendaring app exclusive to UofM students. We uploaded the course database so students could pick the classes they were enrolled in and sync it to a calendar (students could also sync their other calendars) and share it with their friends. It was an easier way for UofM students to see what their friends/classmates were upto throughout the day.
I was really hoping this article would be about how massive companies were built (billion dollar or otherwise) before the invention of the "startup."
Something along these lines: http://startupguide.com/world/the-history-of-entrepreneurshi... with less use of the word "entrepreneur" as PG expressed his distaste as such.
Something along these lines: http://startupguide.com/world/the-history-of-entrepreneurshi... with less use of the word "entrepreneur" as PG expressed his distaste as such.
That article, expanded, would make a fantastic, fantastic book, if done properly.
"The component of entrepreneurship that really matters is domain expertise. The way to become Larry Page was to become an expert on search. And the way to become an expert on search was to be driven by genuine curiosity, not some ulterior motive.
At its best, starting a startup is merely an ulterior motive for curiosity. And you'll do it best if you introduce the ulterior motive toward the end of the process.
So here is the ultimate advice for young would-be startup founders, boiled down to two words: just learn."
It's not about the money, it's not about how old you are, it's not about giving up, it's not about tricks or hacks and it's not about the obvious path.
For me it's about the curiosity of genuinely wanting to understand how the world generates, transports and consumes energy and how I can remove the barriers and inefficiencies of transitioning our global society towards using clean energy more efficiently and cost effectively so we can mitigate the effects of climate change.
At its best, starting a startup is merely an ulterior motive for curiosity. And you'll do it best if you introduce the ulterior motive toward the end of the process.
So here is the ultimate advice for young would-be startup founders, boiled down to two words: just learn."
It's not about the money, it's not about how old you are, it's not about giving up, it's not about tricks or hacks and it's not about the obvious path.
For me it's about the curiosity of genuinely wanting to understand how the world generates, transports and consumes energy and how I can remove the barriers and inefficiencies of transitioning our global society towards using clean energy more efficiently and cost effectively so we can mitigate the effects of climate change.
Nice to hear from pg again. I love his writing. He has useful points, and says them well. HOWEVER...
There's a lot of prescribing of advice, but not too much explaining why it's good advice. Usually there's a few sentences of explanations, but the topic could be discussed in much more depth. I'd like to hear a more complete explanation from pg.
There's a lot of prescribing of advice, but not too much explaining why it's good advice. Usually there's a few sentences of explanations, but the topic could be discussed in much more depth. I'd like to hear a more complete explanation from pg.
While I certainly can't speak for PG, I would imagine that the advice is simply derived empirically, and so doesn't really demand a great deal of elaboration.
The claim made is that "gaming doesn't work on users". The claim breaks down when selling to the enterprise.
That's because you're not selling to the actual users of your product.
Yes. That's how it goes in enterprise sales.
PG, this has been one of your best essays IMO.
Maybe these are also the same qualities required to be a winning investor. Thinking clearly, loving the area that you're working in, and developing domain expertise.
Maybe these are also the same qualities required to be a winning investor. Thinking clearly, loving the area that you're working in, and developing domain expertise.
This is a really useful perspective for undergrads. I would have gained a lot of value if I could have read this while studying.
I started a startup during my undergrad degree, and ended up finishing my degree at the same time. I made a deal with my lecturers to allow me to skip basically everything during the term time, and then just took "holiday" from my startup to write exams. It worked out OK and we raised a lot of money the year after I got my degree. So I don't think that's impossible, but it was pretty hard work.
I started a startup during my undergrad degree, and ended up finishing my degree at the same time. I made a deal with my lecturers to allow me to skip basically everything during the term time, and then just took "holiday" from my startup to write exams. It worked out OK and we raised a lot of money the year after I got my degree. So I don't think that's impossible, but it was pretty hard work.
A very nice read as always. Footnote [4] is a bit off-putting though
"[4] What should you do if your true calling is gaming the system? Management consulting."
Management consulting probably has more opportunities for gaming the system than startups do, and I concur. However, my friends who work at management consultants, from what I can tell based on anecdotal evidence, mostly perform value adding work for their clients, including performing managerial duties in for fast grown firms that do not have the talent at hand, performing macroeconomic research and factory floor optimization. My friends are mostly of engineering background, though, so that probably affects the sampling quite a bit.
I would rephrase the dichotomy of not being about adding value vs. gaming the system but about creating something new versus optimizing and tinkering with an established system.
As an example all the protagonists in "The art of profitability" (http://www.amazon.com/The-Art-Profitability-Adrian-Slywotzky...), for instance, deal mostly in a similar problem space as described by my friends' professional war stories.
Management consulting probably has more opportunities for gaming the system than startups do, and I concur. However, my friends who work at management consultants, from what I can tell based on anecdotal evidence, mostly perform value adding work for their clients, including performing managerial duties in for fast grown firms that do not have the talent at hand, performing macroeconomic research and factory floor optimization. My friends are mostly of engineering background, though, so that probably affects the sampling quite a bit.
I would rephrase the dichotomy of not being about adding value vs. gaming the system but about creating something new versus optimizing and tinkering with an established system.
As an example all the protagonists in "The art of profitability" (http://www.amazon.com/The-Art-Profitability-Adrian-Slywotzky...), for instance, deal mostly in a similar problem space as described by my friends' professional war stories.
You can add value by gaming the system. Gaming the system is a mean, not a goal.
Good point, I hadn't thought of it in that way but very true. Most systems have pathologies and you just need to work around them somehow. I agree: Gaming for personal profit and gaming for some higher goal are two different things.
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thanks for sharing the link to that book - i will be grabbing a copy and reading it this weekend!
pg wrote, "Batch after batch, the YC partners warn founders about mistakes they're about to make..."
My question would be "what are the mistakes"?
It would be amazingly interesting if PG, Sam or someone else from YC can start to list some of these warnings / common mistakes in one of the classes.
Obviously, some advice is company specific, however starting to compile this list of advice would be a valuable additional to community knowledge.
My question would be "what are the mistakes"?
It would be amazingly interesting if PG, Sam or someone else from YC can start to list some of these warnings / common mistakes in one of the classes.
Obviously, some advice is company specific, however starting to compile this list of advice would be a valuable additional to community knowledge.
The 18 Mistakes That Kill Startups by Paul Graham http://www.paulgraham.com/startupmistakes.html
A list from 2006 - http://paulgraham.com/startupmistakes.html
Nice I like this, it makes me feel somewhat better about choosing to pursue graduate education (in engineering) over getting a job at a bigco in my field. I will certainly learn more fundamental concepts, and frankly, work on much more interesting technical problems.
That being said, regarding having domain expertise on the furthering boundaries of a topic (presumed technical), I'm not sure if evidence suggests that this is the best way to go. Did this help any of AirBnB/Dropbox/Reddit? These are not "technical" companies, at least what got them started.
Maybe I'm reading too much into how technical the domain expertise should be, though he did mention computer science in his fractal analogy. Perhaps I'm just having a tough time having faith that doing research on the forefront of computer vision will lead to good startup ideas.
That being said, regarding having domain expertise on the furthering boundaries of a topic (presumed technical), I'm not sure if evidence suggests that this is the best way to go. Did this help any of AirBnB/Dropbox/Reddit? These are not "technical" companies, at least what got them started.
Maybe I'm reading too much into how technical the domain expertise should be, though he did mention computer science in his fractal analogy. Perhaps I'm just having a tough time having faith that doing research on the forefront of computer vision will lead to good startup ideas.
What's an especially productive 22 year old to do?[...] If you're really productive, why not make employers pay market rate for you? Why go work as an ordinary employee for a big company, when you could start a startup and make them buy it to get you?[0]
And though starting a startup can be part of a good life for a lot of ambitious people, age 20 is not the optimal time to do it.[1]
PG seems to be giving contradictory advice or his stance seems to have changed on whether 20 year olds should start a startup
[0] http://paulgraham.com/hiring.html
[1] http://paulgraham.com/before.html
And though starting a startup can be part of a good life for a lot of ambitious people, age 20 is not the optimal time to do it.[1]
PG seems to be giving contradictory advice or his stance seems to have changed on whether 20 year olds should start a startup
[0] http://paulgraham.com/hiring.html
[1] http://paulgraham.com/before.html
Well written article.
I think PGs advice doesn't just apply to startups but to nearly everything in life. Learning (or as PG puts it, "Just Learn") is huge part of the equation if one wants to advance. You'll be surprise how this attitude is not very prevalent to the general population of adults.
Want to get earn more money? Just learn how.
Want that promotion? Just learn what you need to achieve.
Not an expert on a particular thing? Just learn from someone else.
In trouble and need help? Just learn where to find it.
Having said that, in my experience, I think another crucial step needs to tie in with learning is self-efficacy to make it worthwhile. Learning is one thing but if you don't have the belief to stick to it and act on it, learning will only get you so far.
I think PGs advice doesn't just apply to startups but to nearly everything in life. Learning (or as PG puts it, "Just Learn") is huge part of the equation if one wants to advance. You'll be surprise how this attitude is not very prevalent to the general population of adults.
Want to get earn more money? Just learn how.
Want that promotion? Just learn what you need to achieve.
Not an expert on a particular thing? Just learn from someone else.
In trouble and need help? Just learn where to find it.
Having said that, in my experience, I think another crucial step needs to tie in with learning is self-efficacy to make it worthwhile. Learning is one thing but if you don't have the belief to stick to it and act on it, learning will only get you so far.
This is the sort of advice that, imo, sounds great (especially to HN readers and PG fans) but isn't actually helpful or correct.
Learning is important but life isn't that simple--earning money is mostly leverage and negotiation, promotions are mostly politics, and so on. You can choose not to participate and "just learn" but you'll be at a disadvantage unless you are a truly exceptional learner.
Learning is important but life isn't that simple--earning money is mostly leverage and negotiation, promotions are mostly politics, and so on. You can choose not to participate and "just learn" but you'll be at a disadvantage unless you are a truly exceptional learner.
Yep, I wholly agree!
Which is why i say self-efficacy[1] is the other important half of the learning bit. Without it, learning is only just that: learning. If you don't have the belief, motivation or even the tenacity to act and follow through on what you learned, then all you have is just knowledge in your head.
[1] http://en.wikipedia.org/wiki/Self-efficacy
Which is why i say self-efficacy[1] is the other important half of the learning bit. Without it, learning is only just that: learning. If you don't have the belief, motivation or even the tenacity to act and follow through on what you learned, then all you have is just knowledge in your head.
[1] http://en.wikipedia.org/wiki/Self-efficacy
The general idea of the essay is, i think, spot on. However, like you say it's a bit idealistic. In practice the mountain of student debt facing your average college grad changes the nature of the discussion.
What are the examples of successful startups that were created deliberately to 'start a startup'?
I'd imagine the majority of successful startups never set out with any aspiration of becoming one. I think having that goal is poison and leads people to "playing house" and going through the motions of a successful startup without achieving the key ingredient: a product users need.
I'd imagine the majority of successful startups never set out with any aspiration of becoming one. I think having that goal is poison and leads people to "playing house" and going through the motions of a successful startup without achieving the key ingredient: a product users need.
I wish he included that joke about users being like sharks. Something like "you can't trick sharks; it's meat or no meat".
"[1] Some founders listen more than others, and this tends to be a predictor of success. One of the things I remember about the Airbnbs during YC is how intently they listened."
- Looks like a case of survivor bias. How many founders who listened as intently did not build Airbnbs ?
"[4] What should you do if your true calling is gaming the system? Management consulting."
- Nailed it.
- Looks like a case of survivor bias. How many founders who listened as intently did not build Airbnbs ?
"[4] What should you do if your true calling is gaming the system? Management consulting."
- Nailed it.
- Looks like a case of survivor bias. How many founders who listened as intently did not build Airbnbs ?
There were also examples of failure in their portfolio.
There were also examples of failure in their portfolio.
I don't think it's survivor bias. PG wrote about the opposite as well about the worst startups they funded: "I could never quite tell if they understood what I was saying."
http://www.paulgraham.com/word.html
http://www.paulgraham.com/word.html
Great essay! It makes me feel good to know that random curiosity may prove to be a good thing somehow. Alas, I am much older than his intended audience.
And as a proof of being old I would like to congratulate Paul Graham for being one of the very few people in the world to actually use the "begging the question" phrase correctly.
And as a proof of being old I would like to congratulate Paul Graham for being one of the very few people in the world to actually use the "begging the question" phrase correctly.
Hey guys,
I believe this is from the "How To Start A Startup Lecture 3", so if you'd like to hear it go here... https://www.youtube.com/watch?v=ii1jcLg-eIQ
Another great essay by PG... I would just add (in the All-Consuming part) that startups are all-consuming either if you make it or you fail... at least that is what experience has taught me. It's important to know when you have to pull the plug.
"So starting a startup is intrinsically something you can only really learn by doing it"
This makes absolutely no sense coming from somebody who built an empire giving advice to budding entrepreneurs.
This makes absolutely no sense coming from somebody who built an empire giving advice to budding entrepreneurs.
No, PG built that not by giving advice to founders, but by selecting them.
How did he get into a position where he has his choice of founders? He built the empire by offering mentorship, money, and community (which is peer-to-peer mentorship). In the beginning, the draw wasn't money because they didn't offer much of it.
In his essay, he says that most people ignore his advice, so it's unclear how value there is in the mentorship. The money though, is pretty important when your young - it pays for travel, 2-3 months of food and rent. Another very important element these days is the opportunity to pitch at demo day, as well as having the YC cachet associated with you.
I would argue (and I'm sure that a lot of people would disagree), that one of the most important things that YC does is give budding entrepreneurs a chance to just get away from everything else in their life and completely focus on their startup.
He also caveats a lot of his points by saying that honestly, he really is never particularly certain which startups or set of founders is really going to take off.
At the end of the day, it's really up to them.
I would argue (and I'm sure that a lot of people would disagree), that one of the most important things that YC does is give budding entrepreneurs a chance to just get away from everything else in their life and completely focus on their startup.
He also caveats a lot of his points by saying that honestly, he really is never particularly certain which startups or set of founders is really going to take off.
At the end of the day, it's really up to them.
I thought he kind of built the empire by winning the startup lottery with viaweb?
[deleted]
Slightest nitpick...a missing hyperlink due to handcoded (?) html in lines 240-41:
<xa href="relres.html">tough and ambitious</a>i found it a bit jarring that pg has bought into the idea of "known boring ideas" - there is little that is not interesting to somebody. i would cheerfully read books on literary theory, for instance, and i'm sure that doing middle management cleanly and efficiently involves challenges that are interesting to people who are intrinsically interested in group dynamics and effort-to-result optimisation.
This is one of the best & "easy to understand" article I've read on start-ups, entrepreneurship etc. in a long time.
Title should be: "Just Learn"
"My kids are little, but I can imagine what I'd tell them about startups if they were in college, and that's what I'm going to tell you."
------------ I made my first money at 8. I bought a Honda 50 for $60 and sold it for $180 after painting it and fixing some little things. My father guided the whole process of course, but it was my money and my work that got the result. Now I am 45 and I have 4 boys. My oldest is 10 and has been working on his "startup" for two years. He is making his own version of Pokemon, and he has sold some of his characters on T-shirts. Total revenue so far - $120.00 (1)
It is not much. But it is something. At 10, my kid is outsourcing graphic work overseas, he has sent out 30 projects on Fiverr. He is using outside vendors to make shirts, and having to deal with customers asking about shirt orders (he took some money, but forgot to order the shirt. Then he has to deal with upset people). While the dollar amounts are trivial, my purpose it to get him exposed to how business and making money works. So far he has been doing it for 2 years and his quality of work and detail have grown so much that you would probably not believe it. My main job is to ask him if the work is as good as he can make it (most of the time he makes it better, some times he decides that he is done)
The interesting follow on effect for me is that his younger brothers are now wanting to do the same. The 7 year old has been bugging me to get his website done, and has done his first few drawings. His project is very similar to his older brother;s , but we have made sure that they are distinct. Last week the 4 year old decided that he needed a company too (so far it is only a declaration, he has not decided on a concept).
So I guess I am doing it different. I can't imagine waiting until college for them to start. They see what I do, and want to do similar things. So they are. To me it is amazing what they can accomplish, and how "making a company" for them is more interesting than watching TV. This weekend we have a giant vat of playdough waiting to be made. My oldest is going to model the racetrack for his Android game in real life, then translate it to digitial . All of this was his plan, I merely drove to the store to get the materials.
It is not a startup of course, more like a complicated hobby. The kids are having fun, and so am I ,
Maybe in another 10 years my son will be ready for a real startup. By then he will have 10 years into customer service, colabortaing with an international team, product development. Mostly I hope he enjoys himself and learns some things about business. It beats a lemonade stand.
1 https://www.facebook.com/legimon?ref=hl
------------ I made my first money at 8. I bought a Honda 50 for $60 and sold it for $180 after painting it and fixing some little things. My father guided the whole process of course, but it was my money and my work that got the result. Now I am 45 and I have 4 boys. My oldest is 10 and has been working on his "startup" for two years. He is making his own version of Pokemon, and he has sold some of his characters on T-shirts. Total revenue so far - $120.00 (1)
It is not much. But it is something. At 10, my kid is outsourcing graphic work overseas, he has sent out 30 projects on Fiverr. He is using outside vendors to make shirts, and having to deal with customers asking about shirt orders (he took some money, but forgot to order the shirt. Then he has to deal with upset people). While the dollar amounts are trivial, my purpose it to get him exposed to how business and making money works. So far he has been doing it for 2 years and his quality of work and detail have grown so much that you would probably not believe it. My main job is to ask him if the work is as good as he can make it (most of the time he makes it better, some times he decides that he is done)
The interesting follow on effect for me is that his younger brothers are now wanting to do the same. The 7 year old has been bugging me to get his website done, and has done his first few drawings. His project is very similar to his older brother;s , but we have made sure that they are distinct. Last week the 4 year old decided that he needed a company too (so far it is only a declaration, he has not decided on a concept).
So I guess I am doing it different. I can't imagine waiting until college for them to start. They see what I do, and want to do similar things. So they are. To me it is amazing what they can accomplish, and how "making a company" for them is more interesting than watching TV. This weekend we have a giant vat of playdough waiting to be made. My oldest is going to model the racetrack for his Android game in real life, then translate it to digitial . All of this was his plan, I merely drove to the store to get the materials.
It is not a startup of course, more like a complicated hobby. The kids are having fun, and so am I ,
Maybe in another 10 years my son will be ready for a real startup. By then he will have 10 years into customer service, colabortaing with an international team, product development. Mostly I hope he enjoys himself and learns some things about business. It beats a lemonade stand.
1 https://www.facebook.com/legimon?ref=hl
[deleted]
Fantastic article
There's a lot of good in this essay. I'm going to attack the weak point, even though I agree with most of it.
So this is the third counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working. Gaming the system may continue to work if you go to work for a big company. Depending on how broken the company is, you can succeed by sucking up to the right people, giving the impression of productivity, and so on. [2] But that doesn't work with startups. There is no boss to trick, only users, and all users care about is whether your product does what they want.
Then, to his credit, he admits...
The dangerous thing is, faking does work to some degree on investors. If you're super good at sounding like you know what you're talking about, you can fool investors for at least one and perhaps even two rounds of funding. But it's not in your interest to. The company is ultimately doomed. All you're doing is wasting your own time riding it down.
Okay, so we have something to chew on.
First of all, investors are gameable if you're good at social proof arbitrage (that is, lying about competing interest in order to set off a "herd mentality" and become a VC darling). I don't have an ethical problem with social proof arbitrage. It's what you have to do if you want to raise VC and you're not from a very wealthy family.
Is the system gameable? It depends on what your objectives are. You can't build a successful company if you make something no one wants. That's clear. However, let's be cynical and realistic here. Do you care about the success of "the company" or of your own career?
If your investors don't like you but you build a great company, they'll give it (and most of the rewards) to someone they do like. If your investors like you and your company fails, they'll arrange a favorable acqui-hire. This means that you collected $120k for each year that the business was alive, and got a 3x salary bump (plus a 7-figure hiring bonus) in your next job. Or, they might make you a VC.
The part that determines whether your product is Google or Clinkle is difficult, if not impossible, to fake. We don't even understand how many of those random variables work. There's some part that's performance- and skill-related and a large part that's luck, and no one knows where to draw the lines. However, the startup career is immensely gameable, and that's true the whole way to the top (partner-level ranks in VC firms).
So this is the third counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working. Gaming the system may continue to work if you go to work for a big company. Depending on how broken the company is, you can succeed by sucking up to the right people, giving the impression of productivity, and so on. [2] But that doesn't work with startups. There is no boss to trick, only users, and all users care about is whether your product does what they want.
Then, to his credit, he admits...
The dangerous thing is, faking does work to some degree on investors. If you're super good at sounding like you know what you're talking about, you can fool investors for at least one and perhaps even two rounds of funding. But it's not in your interest to. The company is ultimately doomed. All you're doing is wasting your own time riding it down.
Okay, so we have something to chew on.
First of all, investors are gameable if you're good at social proof arbitrage (that is, lying about competing interest in order to set off a "herd mentality" and become a VC darling). I don't have an ethical problem with social proof arbitrage. It's what you have to do if you want to raise VC and you're not from a very wealthy family.
Is the system gameable? It depends on what your objectives are. You can't build a successful company if you make something no one wants. That's clear. However, let's be cynical and realistic here. Do you care about the success of "the company" or of your own career?
If your investors don't like you but you build a great company, they'll give it (and most of the rewards) to someone they do like. If your investors like you and your company fails, they'll arrange a favorable acqui-hire. This means that you collected $120k for each year that the business was alive, and got a 3x salary bump (plus a 7-figure hiring bonus) in your next job. Or, they might make you a VC.
The part that determines whether your product is Google or Clinkle is difficult, if not impossible, to fake. We don't even understand how many of those random variables work. There's some part that's performance- and skill-related and a large part that's luck, and no one knows where to draw the lines. However, the startup career is immensely gameable, and that's true the whole way to the top (partner-level ranks in VC firms).
The bootstrapper crowd (Amy Hoy, patio11, etc) often level this as a criticism of VC-backed startups -- that they are a gameable system, a series of hurdles from accelerator to series A to series B to acquihire. Whereas (they say) bootstrapping isn't gameable, it relies on making something users want, and it teaches you to deal with raw reality head-on. [1]
Maybe they are only looking at a dysfunctional subset of VC-backed startups though? One common pattern seems to be that a person enters a particular field, notices that many people around them are unimpressive and focused on perception, "networking" and system-gaming -- and concludes that the field is corrupt.
But in actuality, they'd only seen the bottom tier of the field, and the higher tiers have more genuine talents who also despise bullshitters.[2]
[1] http://unicornfree.com/2012/why-blacksmiths-are-better-at-st...
[2] I'm thinking specifically of academia as another example of this pattern. Since bullshitters do manage to reach the higher tiers of both startups and academia, there's a genuine question as to whether the bullshitters will someday come to dominate both of these areas, and whether this has already happened. By definition, a field that has been taken over by bullshitters is not going to let you know that this has happened.