Why you shouldn't join Y Combinator(newsletter.smallbets.co)
newsletter.smallbets.co
Why you shouldn't join Y Combinator
https://newsletter.smallbets.co/p/why-you-shouldnt-join-y-combinator
328 comments
As a fellow YC founder, I agree with everything you've said here. This article wrongly characterizes the YC experience. I think the author is attempting to apply a normal VC incentive structure to YC, but YC positions itself a little differently in the landscape.
As a former employer for a YC funded company that was shut down against the founder's wishes, forced to via the investor board; I can say that this article does not universally wrongly characterize the YC experience.
We had another year of runway in the bank and solid growth. ZIRP ended and the board nuked us from orbit.
We had another year of runway in the bank and solid growth. ZIRP ended and the board nuked us from orbit.
Did YC have a board seat?
What stage of funding were you at by the end?
This has so much backwards.
You don't get to just 'decide' if your fledgling business is a potential unicorn or will just be a lifestyle SaaS business. It's a product of your idea/technology, the size of the market, competitive pressures, and your early traction.
It's more like this: You wake up and realize that -- while it's still early -- the thing you started has major potential; but you need a lot of capital to seize the opportunity. So you realize that going the VC route is likely your best bet. And that if you're doing the VC route, getting into YC is the best possible start.
If instead you wake up and realize your TAM is probably <$100M, your tech isn't anything particularly novel, and your path to a 'good life' is fairly clear if you can just organically grow from there - great, don't go the VC route.
But this idea that you're trying to discover treasure in a field or some bullshit is just bad. The better analogy is - you have a patch of land. You can slightly change that patch of land but it's mostly fixed. You could slowly farm that land and make a good living. Or you could risk it all, dig everything up in a search for oil, and maybe strike it big. If you fail, the land is worthless. Now, today you realize you have strong indications and evidence that there is A LOT of oil down there. So you go talk to some money guys, get funding for the exploration, and you're off.
But the guy who has zero evidence of oil, zero reasons for thinking it's down there, and is happy farming anyways - OF COURSE is better off just going the farm route.
You don't get to just 'decide' if your fledgling business is a potential unicorn or will just be a lifestyle SaaS business. It's a product of your idea/technology, the size of the market, competitive pressures, and your early traction.
It's more like this: You wake up and realize that -- while it's still early -- the thing you started has major potential; but you need a lot of capital to seize the opportunity. So you realize that going the VC route is likely your best bet. And that if you're doing the VC route, getting into YC is the best possible start.
If instead you wake up and realize your TAM is probably <$100M, your tech isn't anything particularly novel, and your path to a 'good life' is fairly clear if you can just organically grow from there - great, don't go the VC route.
But this idea that you're trying to discover treasure in a field or some bullshit is just bad. The better analogy is - you have a patch of land. You can slightly change that patch of land but it's mostly fixed. You could slowly farm that land and make a good living. Or you could risk it all, dig everything up in a search for oil, and maybe strike it big. If you fail, the land is worthless. Now, today you realize you have strong indications and evidence that there is A LOT of oil down there. So you go talk to some money guys, get funding for the exploration, and you're off.
But the guy who has zero evidence of oil, zero reasons for thinking it's down there, and is happy farming anyways - OF COURSE is better off just going the farm route.
Just to continue my metaphor (because - why not?) -
So you suspect you may have oil hiding deep in your property, and while you know your land REALLY well, you're not totally sure how to go about validating that its there; or even if you could validate it, how to proceed best.
You hear there is a very friendly and experienced outfit called YC that will help you (a) quickly figure out if there's oil, and (b) if there might be oil, set you up for success with the bigger money that you'll need to extract the oil. This YC firm is basically geared towards helping someone like you figure this out quickly. And actually, YC will give you $ to explore this very thing. In exchange, they will own part of your land (a small fraction).
If it turns out there isn't oil after all - not the end of the world. You'll go back to farming, and at least you won't be wondering if you should have explored the oil thing more. YC won't care much about you anymore since they are in the business of owning a small % of the land that strikes BIG oil. But they also won't be a nuisance.
If it turns out there IS oil under there, then YC will help you navigate the big oil money people to help you get it out faster.
Metaphors are never perfect but I'm having fun with this one. :)
So you suspect you may have oil hiding deep in your property, and while you know your land REALLY well, you're not totally sure how to go about validating that its there; or even if you could validate it, how to proceed best.
You hear there is a very friendly and experienced outfit called YC that will help you (a) quickly figure out if there's oil, and (b) if there might be oil, set you up for success with the bigger money that you'll need to extract the oil. This YC firm is basically geared towards helping someone like you figure this out quickly. And actually, YC will give you $ to explore this very thing. In exchange, they will own part of your land (a small fraction).
If it turns out there isn't oil after all - not the end of the world. You'll go back to farming, and at least you won't be wondering if you should have explored the oil thing more. YC won't care much about you anymore since they are in the business of owning a small % of the land that strikes BIG oil. But they also won't be a nuisance.
If it turns out there IS oil under there, then YC will help you navigate the big oil money people to help you get it out faster.
Metaphors are never perfect but I'm having fun with this one. :)
Part 3 :)
Ok so let's talk about your land itself. First time entrepreneurs just kind of randomly end up on a plot of land, due to their prior experience or friends or personal challenges they want to solve etc. Maybe that will happen to have oil under it or not. Maybe the oil is plentiful and close to the surface, or maybe it's deep and small anyways. But often the choice of your land is kind of happenstance.
Meanwhile, hype-driven 'founders' hear some piece of dubious folk wisdom -- "land that has coniferous trees on it tend to have oil underneath" (akin to 'blockchain is the future!!!1') and go buy the first patch of land with conifers on it. Then struggle and struggle.
In contrast, seasoned entrepreneurs spend a lot more time deciding which plot of land to buy in the first place. They'll pick one that has good indications of having oil underneath, although they still won't know how close to the surface or how large the patch might be. They'll conduct surveys and other studies prior to really buying the land. Once they feel like the odds are in their favour, they'll buy the land and start the process of proving there's oil.
Ok so let's talk about your land itself. First time entrepreneurs just kind of randomly end up on a plot of land, due to their prior experience or friends or personal challenges they want to solve etc. Maybe that will happen to have oil under it or not. Maybe the oil is plentiful and close to the surface, or maybe it's deep and small anyways. But often the choice of your land is kind of happenstance.
Meanwhile, hype-driven 'founders' hear some piece of dubious folk wisdom -- "land that has coniferous trees on it tend to have oil underneath" (akin to 'blockchain is the future!!!1') and go buy the first patch of land with conifers on it. Then struggle and struggle.
In contrast, seasoned entrepreneurs spend a lot more time deciding which plot of land to buy in the first place. They'll pick one that has good indications of having oil underneath, although they still won't know how close to the surface or how large the patch might be. They'll conduct surveys and other studies prior to really buying the land. Once they feel like the odds are in their favour, they'll buy the land and start the process of proving there's oil.
> You don't get to just 'decide' if your fledgling business is a potential unicorn or will just be a lifestyle SaaS business. It's a product of your idea/technology, the size of the market, competitive pressures, and your early traction.
Sure you do. Of course there are types of businesses that only succeed if they're a unicorn, but for the most part, you can decide how much business you want to do. I know we're talking about software, but I deal with lots of restaurants in my life. Say you start a restaurant, and after the initial opening craziness, you see that's it's a sustainable business with lots of loyal customers that like your food. There are people who are going to tell you to open another location, to franchise it out. You'll need investors to do that. It may or may not make you more money. You might think your product has the potential to be the next big chain. You also get the choice whether you want to do that or not.
If you have a good product that people want to pay for, you more than likely will have the choice to decide whether you want to scale the business up larger.
Sure you do. Of course there are types of businesses that only succeed if they're a unicorn, but for the most part, you can decide how much business you want to do. I know we're talking about software, but I deal with lots of restaurants in my life. Say you start a restaurant, and after the initial opening craziness, you see that's it's a sustainable business with lots of loyal customers that like your food. There are people who are going to tell you to open another location, to franchise it out. You'll need investors to do that. It may or may not make you more money. You might think your product has the potential to be the next big chain. You also get the choice whether you want to do that or not.
If you have a good product that people want to pay for, you more than likely will have the choice to decide whether you want to scale the business up larger.
This is a good analogy to make, but I'd add that in this analogy, the majority of land has oil underneath it, and the majority of that oil can be reached without capital for exploration.
Fintech, bio, etc. are exceptions, but generally if you have a large TAM, you can still choose to take VC funding or not (you bootstrap at the risk of someone else taking funding to grow more quickly and capture the market).
Fintech, bio, etc. are exceptions, but generally if you have a large TAM, you can still choose to take VC funding or not (you bootstrap at the risk of someone else taking funding to grow more quickly and capture the market).
I don't see how this disproves anything. The win rate is 1.25%. These are all "major potential" projects.
Do you believe Twitch “lost”, then?
If you build a business that makes 500k a year, which can be done with 30-50 customers for saas selling for 10-15k, you can sell the business and retire. Even at 250k a year, you have an asset that could change your financial life for good.
If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit.
It’s really about the level of success needed to have a financial windfall, and bootstrapping is way lower for that.
If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit.
It’s really about the level of success needed to have a financial windfall, and bootstrapping is way lower for that.
I'm a business owner currently doing what the parent says to do, and the parent is exactly correct.
I want a business that can support my wife and me; 500k is my target, and it would be a great situation for us because I would have a great work/life balance (based on how much time I spend right now).
But if I took money, the investors would clamor for more, and the stress would probably kill me.
I want a business that can support my wife and me; 500k is my target, and it would be a great situation for us because I would have a great work/life balance (based on how much time I spend right now).
But if I took money, the investors would clamor for more, and the stress would probably kill me.
You also took a bigger risk, either in your own money to support your product to profitability or in missed opportunity from a steady pay check (although the latter is also true to varying extents in VC backed companies)
Although I am curious _how much_ risk did you take, could you elaborate?
Although I am curious _how much_ risk did you take, could you elaborate?
My wife is the breadwinner right now, so no missed opportunity from a steady paycheck. It did take me longer to get to this point, though (about three years once I got serious).
I will have spent in the very low 5 digits for lawyers, to comb through my new FOSS licenses ([1], and we're still working on that, so they are not ready yet!) and to set up standard contracts.
Beyond that, less than 5 digits for two beefy computers over that time and longer.
[1]: https://yzena.com/licenses/
I will have spent in the very low 5 digits for lawyers, to comb through my new FOSS licenses ([1], and we're still working on that, so they are not ready yet!) and to set up standard contracts.
Beyond that, less than 5 digits for two beefy computers over that time and longer.
[1]: https://yzena.com/licenses/
> My wife is the breadwinner right now, so no missed opportunity from a steady paycheck.
The missed opportunity is your second income, the one you could have working for someone else, they didn't mean 'your household does not have a steady paycheck'.
The missed opportunity is your second income, the one you could have working for someone else, they didn't mean 'your household does not have a steady paycheck'.
There's a certain point where more income has diminishing returns, especially if it means someone in the household is putting off their dreams of entrepreneurship.
Most people who become entrepreneurs have this itch/calling, where they simply CAN'T do anything else (for long). Ignoring the call means living an unfulfilled life.
Most people who become entrepreneurs have this itch/calling, where they simply CAN'T do anything else (for long). Ignoring the call means living an unfulfilled life.
Absolutely, I'm not saying it was a bad decision, merely explaining what the other commenter meant by the opportunity cost.
Fair enough.
So missed opportunity of 3 years after tax for a programmer is probably somewhere above $100,000 and below $1,000,000. Possibly a little above $1,000,000 if your missed opportunity is at a FAANG in Some Higher Level title.
You could probably get a more concrete number by multiplying your previous comp by 1.5~2x or something.
You could probably get a more concrete number by multiplying your previous comp by 1.5~2x or something.
That would be less than $200,000.
Although, I struggle to get jobs. I just don't interview well, nor do I fit the culture of most companies.
I guess the reason why I don't see an opportunity cost is because I firmly believe I couldn't have had a job anyway.
Although, I struggle to get jobs. I just don't interview well, nor do I fit the culture of most companies.
I guess the reason why I don't see an opportunity cost is because I firmly believe I couldn't have had a job anyway.
I peeked at your website and your profile. I’m not surprised you struggle to get jobs… Do you realize these profiles will turn up when recruiters and hiring managers google your name? You’re basically telling them two things when they skim it.
First, on this forum, your headline says, my work isn’t a priority in my life, it’s behind church. Church is about as popular as Congress in this industry. There’s a very funny HBO Silicon Valley bit about coming out to your gay dad as a Christian, that’s a little too close to reality for comfort (like that whole series).
Second, and more importantly, your LLC’s front page tells visitors, “I probably have ODD and am a gender discrimination lawsuit waiting to happen.” Is that the message you’re trying to send? Mate, never mind getting jobs, you’re not even making it past the HR screen with such sloppy social media hygiene.
Have you ever heard the phrase “hide your power level?” That doesn’t even really apply here, actually. You don’t have to hide your faith or your politics. Just don’t make it your introduction. First impressions matter, a lot.
So no, it’s not that you couldn’t have had a job. You’re just choosing to have an extremely unprofessional online presence, and that has consequences.
Am I being unfair, biased, uncharitable, judgmental? Sure, probably. I don’t know you, and I didn’t look very hard. But do you really think the average employer or customer is any better than me?
First, on this forum, your headline says, my work isn’t a priority in my life, it’s behind church. Church is about as popular as Congress in this industry. There’s a very funny HBO Silicon Valley bit about coming out to your gay dad as a Christian, that’s a little too close to reality for comfort (like that whole series).
Second, and more importantly, your LLC’s front page tells visitors, “I probably have ODD and am a gender discrimination lawsuit waiting to happen.” Is that the message you’re trying to send? Mate, never mind getting jobs, you’re not even making it past the HR screen with such sloppy social media hygiene.
Have you ever heard the phrase “hide your power level?” That doesn’t even really apply here, actually. You don’t have to hide your faith or your politics. Just don’t make it your introduction. First impressions matter, a lot.
So no, it’s not that you couldn’t have had a job. You’re just choosing to have an extremely unprofessional online presence, and that has consequences.
Am I being unfair, biased, uncharitable, judgmental? Sure, probably. I don’t know you, and I didn’t look very hard. But do you really think the average employer or customer is any better than me?
> Am I being unfair, biased, uncharitable, judgmental?
Yes, you are.
> But do you really think the average employer or customer is any better than me?
In my area, yes. My area has more people that would not see my profile as a problem. I'm not in Silicon Valley.
And if I'm not hired because I won't put work first, good.
> Second, and more importantly, your LLC’s front page tells visitors, “I probably have ODD and am a gender discrimination lawsuit waiting to happen.”
You read that wrong. I am saying that I use those words in writing my blog posts, something that would have been normal 10-20 years ago. If that's a gender discrimination lawsuit, well, I just don't belong in this world anyway.
And I don't have ODD. I just don't conform.
Yes, you are.
> But do you really think the average employer or customer is any better than me?
In my area, yes. My area has more people that would not see my profile as a problem. I'm not in Silicon Valley.
And if I'm not hired because I won't put work first, good.
> Second, and more importantly, your LLC’s front page tells visitors, “I probably have ODD and am a gender discrimination lawsuit waiting to happen.”
You read that wrong. I am saying that I use those words in writing my blog posts, something that would have been normal 10-20 years ago. If that's a gender discrimination lawsuit, well, I just don't belong in this world anyway.
And I don't have ODD. I just don't conform.
[deleted]
Hey, a bit off track but can u see if my portfolio sites have any red flags too :)
https://prakgupta.com/
https://prakgupta.com/
googling the phrase 'hide your power level' returns very interesting results
Calculate the negative impact of working for FAANG on anything. Every programmer is - and leaves everything - better off not working for FAANG.
Why bespoke licenses? Won't that make customers more wary as they have to clear the licenses through their legal too?
Yes, but these licenses have far more protection for me than regular licenses.
I'm working with a lawyer to ensure that these licenses are void if the user expects me to have any duty, like the Bitcoin lawsuits ([1], see comments at [2]) or the EU's upcoming Cybersecurity Resilience Act that might require me to be audited or worse [3], which I can't afford. (I do want an audit when I can afford it, though.)
[1]: https://laanwj.github.io/2023/02/06/regrets.html
[2]: https://news.ycombinator.com/item?id=34684715
[3]: https://blog.opensource.org/what-is-the-cyber-resilience-act...
I'm working with a lawyer to ensure that these licenses are void if the user expects me to have any duty, like the Bitcoin lawsuits ([1], see comments at [2]) or the EU's upcoming Cybersecurity Resilience Act that might require me to be audited or worse [3], which I can't afford. (I do want an audit when I can afford it, though.)
[1]: https://laanwj.github.io/2023/02/06/regrets.html
[2]: https://news.ycombinator.com/item?id=34684715
[3]: https://blog.opensource.org/what-is-the-cyber-resilience-act...
FWIW:
1. (at least some of) the links from the FAQ entries to license texts appear to be broken due (presumably) to a change/transformation from `<filename>.md` to directory path.
2. It might be helpful to more clearly identify the text differences between the multiple licenses and/or at least the FAQs to enable skipping duplicated commentary when reading.
1. (at least some of) the links from the FAQ entries to license texts appear to be broken due (presumably) to a change/transformation from `<filename>.md` to directory path.
2. It might be helpful to more clearly identify the text differences between the multiple licenses and/or at least the FAQs to enable skipping duplicated commentary when reading.
1. Yes, sorry. In the process of fixing those as the licenses are finalized.
2. That's a good idea, but I can't do that in the actual license documents since I need to keep the actual licenses clean from non-license materials. Do you have any good ideas how to do that?
2. That's a good idea, but I can't do that in the actual license documents since I need to keep the actual licenses clean from non-license materials. Do you have any good ideas how to do that?
Good luck, but I don't know many business owners who have a great work/life balance. I don't think it ever gets easier really. It's like writing software. It's never "complete". 500k revenue doesn't leave a lot of room for outsourcing work
>500k revenue doesn't leave a lot of room for outsourcing work
If you keep your business small, there's not much need to outsource work. In software circles, it's easy to think you can just keep getting bigger and bigger and bigger, because it's so easy to scale, but if you keep things small, a business really only needs to make enough money to keep the person running it fed and comfortable enough that they can do the work they enjoy.
If you keep your business small, there's not much need to outsource work. In software circles, it's easy to think you can just keep getting bigger and bigger and bigger, because it's so easy to scale, but if you keep things small, a business really only needs to make enough money to keep the person running it fed and comfortable enough that they can do the work they enjoy.
You are absolutely right.
The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff.
The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff.
>The key for me is to reduce tech debt before I release.
Also an indie founder, and I've had the opposite experience.
Early on, I focused a lot on elegant code that would minimize my maintenance burden long-term. Then I read Rob Walling's book, Start Small, Stay Small,[0] and he talked about how programmers are typically afraid of ever taking on tech debt because they've been in orgs that don't allow them to ever pay down tech debt. As an indie founder, you can pay down tech debt whenever you want.
I've found it more useful to accrue tech debt early on in a new project or feature because it's likely that the product will fail or that I won't end up having to touch the feature for years.
Every time I have to work on code that has tech debt, I pay down the tech debt a bit, so eventually the parts of my codebase that see the most change are the most flexible and maintainable. But a lot of my code has tech debt in ways that don't matter because the product flopped or I never ended up having to extend the feature beyond the initial implementation.
[0] https://mtlynch.io/book-reports/start-small-stay-small/
Also an indie founder, and I've had the opposite experience.
Early on, I focused a lot on elegant code that would minimize my maintenance burden long-term. Then I read Rob Walling's book, Start Small, Stay Small,[0] and he talked about how programmers are typically afraid of ever taking on tech debt because they've been in orgs that don't allow them to ever pay down tech debt. As an indie founder, you can pay down tech debt whenever you want.
I've found it more useful to accrue tech debt early on in a new project or feature because it's likely that the product will fail or that I won't end up having to touch the feature for years.
Every time I have to work on code that has tech debt, I pay down the tech debt a bit, so eventually the parts of my codebase that see the most change are the most flexible and maintainable. But a lot of my code has tech debt in ways that don't matter because the product flopped or I never ended up having to extend the feature beyond the initial implementation.
[0] https://mtlynch.io/book-reports/start-small-stay-small/
I didn't think of that. That's a good idea.
Solo bootstrapped SaaS founder here. I accrue a lot of tech debt, because (as others have pointed out) I can pay it back whenever I want.
That said, I often spend a lot of time and effort building generalized solutions, because these act as leverage down the road. So, while I might cut corners on many things initially, I will often invest a ton of effort into polishing a thing, if that thing can be reused all over the app and make everything work much better.
If that's unclear, here's an example: users need to configure columns in a table in my app. I could provide preferences for configuring that table (quick), or spend a month writing a general-purpose table configuration system that will allow all tables to be configurable. I will choose the latter.
That said, I often spend a lot of time and effort building generalized solutions, because these act as leverage down the road. So, while I might cut corners on many things initially, I will often invest a ton of effort into polishing a thing, if that thing can be reused all over the app and make everything work much better.
If that's unclear, here's an example: users need to configure columns in a table in my app. I could provide preferences for configuring that table (quick), or spend a month writing a general-purpose table configuration system that will allow all tables to be configurable. I will choose the latter.
That sounds like a good idea too.
Tech is one part and you're right that having a manic focus on tech debt will alleviate maintenance. But from my experience the most time consuming stuff is really customer service. Depending on what your product is, it'll likely not be 100% self serve. If it's expensive and not a lot of customers then they'll expect a lot. If it's cheap and a lot of customers then there will be a lot of people to service.
You can outsource some of this stuff depending on how technical the product is. But realistically your time will be spent talking to customers and coding, about 50/50. Even if you get coding down to half it's still a lot of work. And managing customers is a lot more mentally draining.
That's all to say that a 9-5 is not that bad in terms of work life. You can always sign off and kick things up to senior people. You generally do things youre good at, so you won't be expected to do customer service, accounting, marketing, sales or a million other things you gotta take on as an independent business
You can outsource some of this stuff depending on how technical the product is. But realistically your time will be spent talking to customers and coding, about 50/50. Even if you get coding down to half it's still a lot of work. And managing customers is a lot more mentally draining.
That's all to say that a 9-5 is not that bad in terms of work life. You can always sign off and kick things up to senior people. You generally do things youre good at, so you won't be expected to do customer service, accounting, marketing, sales or a million other things you gotta take on as an independent business
Having run a bootstrapped-SaaS, I can say that it's 100% correct that customer service is the dominant term, time wise. More importantly, it's often the only commitment that has urgency (updating the site or the app can usually wait a day or a week).
That said, in my experience customer support was usually tied to new accounts. They need a bunch of support at the beginning. But once they get going, you essentially never get support tickets as long as the app continues to function. We literally had customers go 5+ years without ever filing a support ticket.
Once we realized customers do not really want to engage you & would rather self-serve, we invested more in documentation, simplifying UX, etc. Huge benefits to our time commitments for new accounts. I have seen others reduce time investment by having office hours where any customer can join and ask any question. The founder spends an hour or 3 a week and is able to help N customers, and customers are able to help each other as well.
Honestly we did not focus too much on tech debt because most of the things we considered tech debt ultimately did not impact the operation of the business.
That said, in my experience customer support was usually tied to new accounts. They need a bunch of support at the beginning. But once they get going, you essentially never get support tickets as long as the app continues to function. We literally had customers go 5+ years without ever filing a support ticket.
Once we realized customers do not really want to engage you & would rather self-serve, we invested more in documentation, simplifying UX, etc. Huge benefits to our time commitments for new accounts. I have seen others reduce time investment by having office hours where any customer can join and ask any question. The founder spends an hour or 3 a week and is able to help N customers, and customers are able to help each other as well.
Honestly we did not focus too much on tech debt because most of the things we considered tech debt ultimately did not impact the operation of the business.
Yes, you are correct.
I have a widely deployed FOSS project that I do "customer support" for. It is draining, and it does take a lot of time when I do need to do it.
I have a widely deployed FOSS project that I do "customer support" for. It is draining, and it does take a lot of time when I do need to do it.
"The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff."
This seems like everyone's dream and nobody's reality. Good luck.
This seems like everyone's dream and nobody's reality. Good luck.
Thank you! But I've already done it. I have been constantly refactoring over the three years I've been working on it. My tech debt is minimal at this moment.
Yes, but my point is that as you continue to code you are likely to encounter more tech debt, especially as you get more customers and as you need to make dependency version upgrades to address security vulnerabilities. A world without tech debt is a dream.
Yes, that's fair. Sorry for misunderstanding at first.
This is otherwise known as a "lifestyle business". It's the north star for most people and should be but it's not easy.
If you build a $500K a year SaaS business and have very little overhead, you can probably take $200K of that revenue as income and have a good work-life balance that's very comfortable. I know, I was able to do this without taking VC and bootstrapping 100% on credit cards and my own cash. However, there's an inflection point that happens with this sort of business IF you're not careful -- or it becomes more successful / or becomes a death spiral.
If we're speaking of a true SaaS model. It can work. But there's "gotchas".
I did well with this and but eventually sold the business for about 3X and went back to work for another company. But for about 7 solid years as we gained customers and got to that $500-700K, it became very hard to keep it a "balance" as with every 10 customers we added, the more of my time was spent at work and not as much at home. As we added customers, my "balance" was diminished, so I had to hire people, which then cut my income considerably. In the end, I realized it was better to sell the business and take the profit I could to pay off my cards and get something out of it before it killed me. I used to tell people who used to say, "wow, must be great having a business like that!" I used to tell them, "Yes, it's amazing 100 hour work week!".
It became more of a "job" and less of a "lifestyle" as the customer count increased. This could have been anecdotal to my business and product, but I have to believe that it won't matter as that size annual revenue demands a bit more of a sophisticated product type. Unless you've hit lightning in a bottle and have a very "light work" product that you're selling and have cracked the code of hitting $500K and having to do barely anything, more power to you... But I don't think there's a lot of those out there and a lot to be created.
I just find that with most SaaS businesses I've been involved with and built, the product is solving business problems that aren't usually a "set it and forget it" kind of product to meet those requirements and just sit back and collect money... I find that most SaaS businesses in that range of revenue are complicated and warrant a higher degree of overhead.
The real challenge is, "little overhead" to be able to create an income and survive. Support, service and development is expensive and requires more than one person. Good support is important to retain your customers to keep that $500K coming in, and that really is the problem because having just 10-20 customers paying you $500K is far riskier than having 1000 customers paying you $500K.
Churn is dangerous in SaaS products that are high cost with smaller customer bases. One or two customers leaving could give you a pretty good dent in your revenue, thus causing you to cut income. So the trick is mitigating churn by having a product that's priced at a point that you can gain a larger customer base so that churn isn't going to radically impact your revenue.
But both strategies are going to require support and service and that costs quite a bit of money and can gravely cut your income that has to be passed to engineers/developers who can improve and maintain the product. I had to hire really good support people and some engineers because as we grew that revenue, the product became more complicated and support and service was more demanding (I had about 400 customers). I eventually had to cut my income to pass that to people who could take on more because I couldn't do everything.
So there is a law of diminishing returns with this sort of business strategy.
It can work, but you have to really strategize, have a product strategy that can generate a good sized customer base but requires very little maintenance, development, support and service.
But I call this the "holy grail" SaaS business -- they simply don't exist -- or if they do, they are rare birds. Just be prepared to understand the issues if you do have some success and are lucky enough to grown a SaaS business to $500K+
Just don't be surprised when you feel like you've succeeded but feel like you're failing.
If you build a $500K a year SaaS business and have very little overhead, you can probably take $200K of that revenue as income and have a good work-life balance that's very comfortable. I know, I was able to do this without taking VC and bootstrapping 100% on credit cards and my own cash. However, there's an inflection point that happens with this sort of business IF you're not careful -- or it becomes more successful / or becomes a death spiral.
If we're speaking of a true SaaS model. It can work. But there's "gotchas".
I did well with this and but eventually sold the business for about 3X and went back to work for another company. But for about 7 solid years as we gained customers and got to that $500-700K, it became very hard to keep it a "balance" as with every 10 customers we added, the more of my time was spent at work and not as much at home. As we added customers, my "balance" was diminished, so I had to hire people, which then cut my income considerably. In the end, I realized it was better to sell the business and take the profit I could to pay off my cards and get something out of it before it killed me. I used to tell people who used to say, "wow, must be great having a business like that!" I used to tell them, "Yes, it's amazing 100 hour work week!".
It became more of a "job" and less of a "lifestyle" as the customer count increased. This could have been anecdotal to my business and product, but I have to believe that it won't matter as that size annual revenue demands a bit more of a sophisticated product type. Unless you've hit lightning in a bottle and have a very "light work" product that you're selling and have cracked the code of hitting $500K and having to do barely anything, more power to you... But I don't think there's a lot of those out there and a lot to be created.
I just find that with most SaaS businesses I've been involved with and built, the product is solving business problems that aren't usually a "set it and forget it" kind of product to meet those requirements and just sit back and collect money... I find that most SaaS businesses in that range of revenue are complicated and warrant a higher degree of overhead.
The real challenge is, "little overhead" to be able to create an income and survive. Support, service and development is expensive and requires more than one person. Good support is important to retain your customers to keep that $500K coming in, and that really is the problem because having just 10-20 customers paying you $500K is far riskier than having 1000 customers paying you $500K.
Churn is dangerous in SaaS products that are high cost with smaller customer bases. One or two customers leaving could give you a pretty good dent in your revenue, thus causing you to cut income. So the trick is mitigating churn by having a product that's priced at a point that you can gain a larger customer base so that churn isn't going to radically impact your revenue.
But both strategies are going to require support and service and that costs quite a bit of money and can gravely cut your income that has to be passed to engineers/developers who can improve and maintain the product. I had to hire really good support people and some engineers because as we grew that revenue, the product became more complicated and support and service was more demanding (I had about 400 customers). I eventually had to cut my income to pass that to people who could take on more because I couldn't do everything.
So there is a law of diminishing returns with this sort of business strategy.
It can work, but you have to really strategize, have a product strategy that can generate a good sized customer base but requires very little maintenance, development, support and service.
But I call this the "holy grail" SaaS business -- they simply don't exist -- or if they do, they are rare birds. Just be prepared to understand the issues if you do have some success and are lucky enough to grown a SaaS business to $500K+
Just don't be surprised when you feel like you've succeeded but feel like you're failing.
Very good thoughts and observations here. As a solo founder of a SaaS, I'd add:
* $200K of income from $500K of revenue sounds low. There are places which have SaaS-friendly taxation, I'm lucky to live in one (EU, Poland) and 75% net margin for the entire business is easy to achieve. An 8.5% tax on revenue is a really good proposition :-)
* Support is key. I care a lot about support (I do it myself). It can easily get out of hand and become a chore, but that means something is wrong: if you listen to your customers carefully, you should be changing your SaaS so that less support is needed. I'm thinking about this a lot.
* We're talking B2B SaaS here: I also believe it is better to have more customers at lower price points rather than a few big ones. Big ones are difficult to get, and often have bizarre requirements. If you cater to them, you will alienate your other users. But there is a sweet point somewhere: you do not want to go too low, or you'll get customers that have very little money. These not only churn more often, they also often cause support issues. The sweet spot is somewhere in the middle.
* $200K of income from $500K of revenue sounds low. There are places which have SaaS-friendly taxation, I'm lucky to live in one (EU, Poland) and 75% net margin for the entire business is easy to achieve. An 8.5% tax on revenue is a really good proposition :-)
* Support is key. I care a lot about support (I do it myself). It can easily get out of hand and become a chore, but that means something is wrong: if you listen to your customers carefully, you should be changing your SaaS so that less support is needed. I'm thinking about this a lot.
* We're talking B2B SaaS here: I also believe it is better to have more customers at lower price points rather than a few big ones. Big ones are difficult to get, and often have bizarre requirements. If you cater to them, you will alienate your other users. But there is a sweet point somewhere: you do not want to go too low, or you'll get customers that have very little money. These not only churn more often, they also often cause support issues. The sweet spot is somewhere in the middle.
Couple points to follow up.
- US based business, Boston. Taxes are higher, rent is higher (when you needed rent). Salaries are higher (if you want good people). As the founder, I wanted my company to have great benefits and healthcare. That cost (and I'm not kidding here) reduced our revenue considerably. This is why I'm a huge fan of a single payer option in the US that takes healthcare off corporations. - B2B business with SMB's, average customer ARR was about $3K. E-commerce integration product, so it was a bit of a lift on the technical side with many nuances between integrations. - Support ended up being about 75% of our labor costs.
- US based business, Boston. Taxes are higher, rent is higher (when you needed rent). Salaries are higher (if you want good people). As the founder, I wanted my company to have great benefits and healthcare. That cost (and I'm not kidding here) reduced our revenue considerably. This is why I'm a huge fan of a single payer option in the US that takes healthcare off corporations. - B2B business with SMB's, average customer ARR was about $3K. E-commerce integration product, so it was a bit of a lift on the technical side with many nuances between integrations. - Support ended up being about 75% of our labor costs.
Yes, benefits and healthcare are important. Did I mention that these tax rates and margins I listed also cover full healthcare costs (state-provided health insurance)?
Anyway. My point was to show that costs can vary wildly across countries, and I was surprised to see how low the net margin can end up in the US.
Anyway. My point was to show that costs can vary wildly across countries, and I was surprised to see how low the net margin can end up in the US.
I am bookmarking your comment for myself. It is a great warning, and I would do well to pay heed.
What are you doing to try hit that 500k target? Running a SaaS, consulting, etc?
I am giving away my code as FOSS, so I'm doing the following, in this order:
1. Charging for bug reports or feature requests.
2. Support. (And I have great examples of public support as marketing.)
3. Consulting. (This would be exclusively to help companies trying to use my software, but unlike support, it would be about writing the stuff that uses my software and ensuring the client understands it so that I could do a handoff. The result would be carefully commented and documented code, probably just short of literate programming [1].)
4. SaaS. (If I did this, the server might not be FOSS, but the client would be, and it would use encryption.)
[1]: https://en.wikipedia.org/wiki/Literate_programming
1. Charging for bug reports or feature requests.
2. Support. (And I have great examples of public support as marketing.)
3. Consulting. (This would be exclusively to help companies trying to use my software, but unlike support, it would be about writing the stuff that uses my software and ensuring the client understands it so that I could do a handoff. The result would be carefully commented and documented code, probably just short of literate programming [1].)
4. SaaS. (If I did this, the server might not be FOSS, but the client would be, and it would use encryption.)
[1]: https://en.wikipedia.org/wiki/Literate_programming
Can you elaborate on charging for bug reports or feature requests?
Do you charge per report / request? Or is it a subscription (storygraph has this model)?
It seems like a great idea to lessen the workload and focus on people who actually might turn into customers.
Do you charge per report / request? Or is it a subscription (storygraph has this model)?
It seems like a great idea to lessen the workload and focus on people who actually might turn into customers.
I will do either; it depends on what will work.
And that will only be for companies. For individuals and their personal projects, I'll respond when I have time, for free, for bug reports. (Not feature requests, obviously.) This is to build a clientele of people that might bring my software into their work. And it will reduce bugs.
And that will only be for companies. For individuals and their personal projects, I'll respond when I have time, for free, for bug reports. (Not feature requests, obviously.) This is to build a clientele of people that might bring my software into their work. And it will reduce bugs.
Sorry to pry, but "will"? Does that mean the business model is yet to be validated? Not pushing back just curious - if it's worked out for you I'd be interested in hearing more, because it sounds like a business model I could adopt for a FOSS project I'm working on.
Correct. Sorry.
That's why I have four ways to try to make money.
That's why I have four ways to try to make money.
Best of luck!
Can you say what the software is? I do like the model you have laid out.
It depends on what companies have interest in. Below is a list of the ideas I have.
* A build system that is also a package manager like Nix, but usable by mere mortals. Also, it will have an easy way to restrict what builds can do. This one is almost done (well, usable for early adopters, not done); my HN annoucement should be in about three months.
* A VCS that, like Fossil, is self-contained with a bug tracker and everything. It will be able to handle binary assets and HUGE files. It will also be easy-to-use. (I'm going to be testing it on my non-technical wife without telling her how. Once she can use it naturally, I'll probably have a good model.)
* A build system that is also a package manager like Nix, but usable by mere mortals. Also, it will have an easy way to restrict what builds can do. This one is almost done (well, usable for early adopters, not done); my HN annoucement should be in about three months.
* A VCS that, like Fossil, is self-contained with a bug tracker and everything. It will be able to handle binary assets and HUGE files. It will also be easy-to-use. (I'm going to be testing it on my non-technical wife without telling her how. Once she can use it naturally, I'll probably have a good model.)
I’m definitely interested in the build system / package manager. I have (idly, in a daydreaming sort of way) considered building something like it myself.
I tried to get into Nix recently, but found it difficult to accommodate my workflows within its uncompromising nature. My goal was to set up a reproducible development environment, where anyone at my company could easily get set up to work on our code with a single (or concise set of) action(s). I also tried to use home-manager, which I have heard might have been a mistake.
Anyway, Nix is really only designed to manage the entire world. I wasn’t able to use Nix to build a development environment where other developers and I could work inside of it using our existing tools and workflows, including other package managers that want to mutate things — it seemed that Nix was all-or-nothing. This was too disruptive and a large barrier to adoption for me.
I would love a tool designed for reproducible builds and development environments that can compromise, and do as much as possible immutably while allowing for local mutation on top. That can be a package manager, but also make it easy to use existing package managers too — with the understanding that these other package managers are typically also able to reliably reproduce a build, within their own mutable state. It’s OK if this potentially needs to mutate “the system” in the process to try to reach a goal state (e.g. installing system-wide package managers, xcode, etc.)
Nix really did not seem to be designed to allow me to use other package managers inside it like npm or cargo. It has some support for directly vending packages from those via Nix itself, but that’s not what I want right now; it’s too disruptive to my workflow. We already have all of the build reproduceability that we need via those package managers and via a container based build process. Still, a fair number of development and operational tools are required to develop the software, and I would really have liked a one-click way to set up a development environment that doesn’t require a container (which is not native on Windows or MacOS).
(I admit that it is possible that this idea fundamentally could not work for technical reasons, but it seems plausible that it could.)
Another challenge that I had was with the complexity of the Nix config and file format. It’s basically a programming language, and there isn’t always one right way to do something. That made it considerably more complicated to solve tasks that would be just a single line command if I was using e.g. Homebrew to solve the same goal (brew install xyz).
From a user experience perspective, I would like a tool that provides a simple command line porcelain for mutating the state of the environment, while tracking it immutably under the scenes, so that it’s reproducible. For example, “cmd install foo” should add the “foo” package to my environment (and rebuild it). So at the end I have a declarative description of my environment contents, but I can build that configuration using a sequence of familiar install commands.
I admire what Nix is trying to do, and see a lot of merit to the approach for defining an entire machine’s state immutably. For managing and defining the state of servers, it seems like a great idea. However, the cost to adopt it seems high, and the value would probably be marginal in our case, since we don’t need to manage servers to deploy software (instead deploying only containers); and since existing package managers provide a way to build those containers reproducibly. But containers aren't ideal for defining the tooling used by an interactive local development environment.
I tried to get into Nix recently, but found it difficult to accommodate my workflows within its uncompromising nature. My goal was to set up a reproducible development environment, where anyone at my company could easily get set up to work on our code with a single (or concise set of) action(s). I also tried to use home-manager, which I have heard might have been a mistake.
Anyway, Nix is really only designed to manage the entire world. I wasn’t able to use Nix to build a development environment where other developers and I could work inside of it using our existing tools and workflows, including other package managers that want to mutate things — it seemed that Nix was all-or-nothing. This was too disruptive and a large barrier to adoption for me.
I would love a tool designed for reproducible builds and development environments that can compromise, and do as much as possible immutably while allowing for local mutation on top. That can be a package manager, but also make it easy to use existing package managers too — with the understanding that these other package managers are typically also able to reliably reproduce a build, within their own mutable state. It’s OK if this potentially needs to mutate “the system” in the process to try to reach a goal state (e.g. installing system-wide package managers, xcode, etc.)
Nix really did not seem to be designed to allow me to use other package managers inside it like npm or cargo. It has some support for directly vending packages from those via Nix itself, but that’s not what I want right now; it’s too disruptive to my workflow. We already have all of the build reproduceability that we need via those package managers and via a container based build process. Still, a fair number of development and operational tools are required to develop the software, and I would really have liked a one-click way to set up a development environment that doesn’t require a container (which is not native on Windows or MacOS).
(I admit that it is possible that this idea fundamentally could not work for technical reasons, but it seems plausible that it could.)
Another challenge that I had was with the complexity of the Nix config and file format. It’s basically a programming language, and there isn’t always one right way to do something. That made it considerably more complicated to solve tasks that would be just a single line command if I was using e.g. Homebrew to solve the same goal (brew install xyz).
From a user experience perspective, I would like a tool that provides a simple command line porcelain for mutating the state of the environment, while tracking it immutably under the scenes, so that it’s reproducible. For example, “cmd install foo” should add the “foo” package to my environment (and rebuild it). So at the end I have a declarative description of my environment contents, but I can build that configuration using a sequence of familiar install commands.
I admire what Nix is trying to do, and see a lot of merit to the approach for defining an entire machine’s state immutably. For managing and defining the state of servers, it seems like a great idea. However, the cost to adopt it seems high, and the value would probably be marginal in our case, since we don’t need to manage servers to deploy software (instead deploying only containers); and since existing package managers provide a way to build those containers reproducibly. But containers aren't ideal for defining the tooling used by an interactive local development environment.
Before your comment, my design could not do that. After your comment, I'll make sure it will.
As a build system, it can incorporate other build systems and run them natively. It only makes sense that it should do that for package managers as a package manager. So as long as you understand that most other build systems give you opaque binaries, I can make that happen.
But on the other hand, I think I can make your mutable environment idea work and cross-platform to. My design will require that the environments all be on the same disk because it will use hard links and a SQLite database, but those work on any platform.
But anyway, I also think I could set up mutable environments such that, as long as you only modify it through my tool, it could record those modifications and generate a file to recreate that environment elsewhere. That sounds like Nix, but again, my tool will use other build systems and package managers.
Is that what you want? Or did I read it wrong?
As a build system, it can incorporate other build systems and run them natively. It only makes sense that it should do that for package managers as a package manager. So as long as you understand that most other build systems give you opaque binaries, I can make that happen.
But on the other hand, I think I can make your mutable environment idea work and cross-platform to. My design will require that the environments all be on the same disk because it will use hard links and a SQLite database, but those work on any platform.
But anyway, I also think I could set up mutable environments such that, as long as you only modify it through my tool, it could record those modifications and generate a file to recreate that environment elsewhere. That sounds like Nix, but again, my tool will use other build systems and package managers.
Is that what you want? Or did I read it wrong?
You description reminded me of Salt Stack [0] on Qubes OS. I'm no expert and may be mistaken that it's relevant, but did you consider it?
[0] https://www.qubes-os.org/doc/salt/
[0] https://www.qubes-os.org/doc/salt/
Is the vcs offline first?
I'm not sure what you mean by "offline first." Can you elaborate?
(I've heard people use that term in multiple ways.)
(I've heard people use that term in multiple ways.)
With Fossil I pull in the full issue tracker and forum and have it stored locally, if I'm offline I can then make my changes, comments etc. and when I'm online it all syncs.
Yes, it will be offline like that.
Feel free to link your product. Self promoting is allowed
Thanks! But it's not ready yet. My HN announcement will be in about three months.
I don't get why anyone would pay for bug reports. Users reporting bugs is doing the developers a favor, they are doing QA for free.
Not individuals, but companies.
And the reason why is because companies aren't doing QA; they have things that need to get done.
And the reason why is because companies aren't doing QA; they have things that need to get done.
looks like you run a consulting practice, is that correct?
if so how do you scale your arr? is it retainers
further how did you get your first clients?
if so how do you scale your arr? is it retainers
further how did you get your first clients?
This general concept is what I wish I’d see more of: it’s okay not to grow.
When you’re a public or funded company you have no choice. You must grow until you pop. But if you’re some small private org, you can carve out a very comfortable niche.
When you’re a public or funded company you have no choice. You must grow until you pop. But if you’re some small private org, you can carve out a very comfortable niche.
I'd argue that if you're running a internet based company you do need some growth regardless of what you've raised or not raised. Someone is always trying to cut into your business and if you sit back and ignore everything growth related you will eventually be in a worse position.(Besides competition you do also have other things to consider like every year employees need raises, etc).
What you really gain by not raising capital is freedom to pursue a less risky operating approach and a lower bar for a positive outcome.
What you really gain by not raising capital is freedom to pursue a less risky operating approach and a lower bar for a positive outcome.
I would add some things to the framing:
There's two axes. One axis of the matrix is what the founder wants. The other axis is what the business needs.
The business needs axis is continuous:
- Some businesses obviously don't require outside capital (e.g. founder is equipped to get a sellable product built by themselves).
- Some businesses require tons of outside capital and cannot be bootstrapped; self-driving cars is an obvious example.
- Some are in between; e.g. many b2b products require a baseline level of features / complexity with active competitors that's hard to achieve by bootstrapping.
If a business requires a significant amount of capital AND the maximum outcome is e.g. $500K a year, then it shouldn't exist. This is why VCs ask what the market size is.
Some founders think raising outside capital is a "win". They want that external validation and then convince themselves and/or VCs that there's a big outcome on the other side (or, in the ZIRP 2021 era, get convinced by VCs). This is a mistake -- the only external validation that matters is market validation.
Instead, founders should think of outside capital as a necessary evil, and make a clear-headed decision as to whether the benefits of capital for their businesses is worth the cost (in the form of preference and control -- or at least influence). And it should be worth the cost by some significant margin, because outside capital is often optimizing arithmetic mean outcome whereas the founder is often optimizing something closer to geometric mean outcome.
There's two axes. One axis of the matrix is what the founder wants. The other axis is what the business needs.
The business needs axis is continuous:
- Some businesses obviously don't require outside capital (e.g. founder is equipped to get a sellable product built by themselves).
- Some businesses require tons of outside capital and cannot be bootstrapped; self-driving cars is an obvious example.
- Some are in between; e.g. many b2b products require a baseline level of features / complexity with active competitors that's hard to achieve by bootstrapping.
If a business requires a significant amount of capital AND the maximum outcome is e.g. $500K a year, then it shouldn't exist. This is why VCs ask what the market size is.
Some founders think raising outside capital is a "win". They want that external validation and then convince themselves and/or VCs that there's a big outcome on the other side (or, in the ZIRP 2021 era, get convinced by VCs). This is a mistake -- the only external validation that matters is market validation.
Instead, founders should think of outside capital as a necessary evil, and make a clear-headed decision as to whether the benefits of capital for their businesses is worth the cost (in the form of preference and control -- or at least influence). And it should be worth the cost by some significant margin, because outside capital is often optimizing arithmetic mean outcome whereas the founder is often optimizing something closer to geometric mean outcome.
I'm fairly certain most independently run american crop farms require many multiples of that in capital for around that much revenue if not less and NEED to exist. Of course they aren't good candidates for venture investment capital. But saying they shouldn't exist is probably a bit too far.
You're right, and there's other things like restaurants that require capital and have a cap on earnings.
I should have phrased it as venture capital, which is structured to look for unicorns.
There are other forms of capital that are appropriate for businesses with a high chance of returning a moderate gains instead of a low chance of extraordinary gains.
I should have phrased it as venture capital, which is structured to look for unicorns.
There are other forms of capital that are appropriate for businesses with a high chance of returning a moderate gains instead of a low chance of extraordinary gains.
I see this said here all the time, but why are obligated to do so? If VCs don’t own a majority stake what authority do they have to make you chase such huge returns at the cost of a stable and profitable business?
> what authority do they have
Board seats, which are often a condition of investment at series A and later rounds.
Board seats, which are often a condition of investment at series A and later rounds.
That still requires majority vote of board members which implies you've sold at least 50% of your company.
YC gets 7%, they have zero power to make you do anything.
Selling enough company that you loose 50% control is such a rare thing that it's not relevant to what most founders will experience.
YC gets 7%, they have zero power to make you do anything.
Selling enough company that you loose 50% control is such a rare thing that it's not relevant to what most founders will experience.
> That still requires majority vote
This presumes open and direct confrontation, which means the relationship is going bad, and which I’d speculate most people would rather avoid. You’re forgetting a bunch of things, like what the investment terms might say about it, what your reputation is going to be down the road, all the ways people can apply lots and lots of pressure, how important networking can be, and the fact that in some cases the investor is providing other resources and/or might be the gateway to future investment. Getting to a place where you’re openly ignoring your investors and calling for a board vote to overturn them is a last resort, and is playing Russian roulette, not the first thing to try if there’s disagreement about their advice, right?
This presumes open and direct confrontation, which means the relationship is going bad, and which I’d speculate most people would rather avoid. You’re forgetting a bunch of things, like what the investment terms might say about it, what your reputation is going to be down the road, all the ways people can apply lots and lots of pressure, how important networking can be, and the fact that in some cases the investor is providing other resources and/or might be the gateway to future investment. Getting to a place where you’re openly ignoring your investors and calling for a board vote to overturn them is a last resort, and is playing Russian roulette, not the first thing to try if there’s disagreement about their advice, right?
It doesn't require selling 50%. You can sell less than 50% of your company and still have the board majority controlled by investors, because those were the terms of the preferred investment.
If I'm not mistaken, YC takes a 7% at the seed stage, then the SAFE bumps it to around 15-20% on the next fundraise? From that, they're diluted down in subsequent rounds is what I presume.
Board control and share control are two different and competing things, with the board generally trumping shareholders.
The board is not controlled by shareholders. The board has a fiduciary responsibility to act in the best financial interest of the shareholders as a whole. But they (the board) essentially have full authority to decide what that means to them. Shareholders are effectively powerless outside of court, except for whatever power a board intentionally briefly concedes to them.
The board is not controlled by shareholders. The board has a fiduciary responsibility to act in the best financial interest of the shareholders as a whole. But they (the board) essentially have full authority to decide what that means to them. Shareholders are effectively powerless outside of court, except for whatever power a board intentionally briefly concedes to them.
But YC doesn’t equal a series A, it’s a seed funding round
Right. I’ve never heard of someone losing control of their company at the seed stage. It’s always after later rounds.
I've seen it happen, with a seed round dragged out over years in multiple tranches. The company was poorly performing, never even came close to its projections, ran out of money, and was desperate.
It's definitely possible. Example: gumroad. I don't know the whole story, but basically at one point they couldn't raise more VC money, so they scaled down (read: fire people) and made it at least moderately profitable.
But it's exception, not the norm.
But it's exception, not the norm.
Gumroad is a major exception. They fired almost everyone and took on part time contractors instead.
They’re an exception because VCs pressure funded not to do what Sahil did. All investors wanted him to shut it down and do something else.
> If VCs don’t own a majority stake what authority do they have to make you chase such huge returns at the cost of a stable and profitable business?
Disputes with investors about the direction of the company are rare. Disputes about how exactly to aim that direction happen often. In my own experience, VCs and large investors have this leverage:
* Future investment. A major investor pulling back or not participating in the next round usually will result in worse terms, lower valuations or, the round not happening.
* Legal issues. Investments come with terms and conditions, and they are rarely, here's $5m, do what you want.
* Restructuring. From time to time, you need to have investors be on board with restructuring debt or the company. If you are at odds with a major investor, they are a whole lot less likely to be helpful.
* "We'll make it hard for you" Everything from investing in competitors, to introducing key people to job opportunities to guiding customers elsewhere. Yes they have a fiduciary duty, but when they think that duty requires management to change direction, things can get ugly.
Finally, investors talk to each other, and you piss one off, and they will poison the well with many others.
Disputes with investors about the direction of the company are rare. Disputes about how exactly to aim that direction happen often. In my own experience, VCs and large investors have this leverage:
* Future investment. A major investor pulling back or not participating in the next round usually will result in worse terms, lower valuations or, the round not happening.
* Legal issues. Investments come with terms and conditions, and they are rarely, here's $5m, do what you want.
* Restructuring. From time to time, you need to have investors be on board with restructuring debt or the company. If you are at odds with a major investor, they are a whole lot less likely to be helpful.
* "We'll make it hard for you" Everything from investing in competitors, to introducing key people to job opportunities to guiding customers elsewhere. Yes they have a fiduciary duty, but when they think that duty requires management to change direction, things can get ugly.
Finally, investors talk to each other, and you piss one off, and they will poison the well with many others.
edit: my comment on SAFEs was wrong
This is true of most debt instruments but explicitly not SAFEs, which do not have an interest rate.
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VCs won’t invest if they know this is your plan? If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is).
"I initially planned to scale but eventually realized the company wouldn't make enough to survive, as happens to most startups. I chose to scale down and make the company profitable instead of killing it." Could the VCs really argue against that in court? It's well-known that most startups fail without any scamming.
I don't think you even need to go to court over this. If you have a reasonably good relationship with your VCs you can just offer to buy them out with a small premium on their investment. They see how the business is going too and most are not looking to hold you on their portfolio forever for no reason.
It seems like VCs will often sell shares for a near-total-loss on their investment, for simplicity and relationship with founders, and they can write it off[0].
[0] https://www.youtube.com/watch?v=XEL65gywwHQ
[0] https://www.youtube.com/watch?v=XEL65gywwHQ
Making fraud your retirement plan seems unwise, even if there's a chance you'd get away with it.
How is there any fraud here? You took seed money, built a profitable company and it just can’t scale to a unicorn. That isn’t fraud and no court would consider it as such
How is it not fraud to initially represent to investors that you plan to scale to the moon while planning all along to later say that you decided it wasn't going to work out?
What your mental plan is doesn't matter though, as long as you actually made a reasonable effort towards what the VCs expect. Or does anyone actually tell them "invest in me because I'll overtake Nvidia or die trying"?
I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
>What your mental plan is doesn't matter though
Of course it does. It makes the difference between being wrong and being a liar.
>I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
But if at the time you said that you actually neither believed it could get big nor intended to try to make it big, you've committed fraud even if the ultimate outcome is expected.
Of course it does. It makes the difference between being wrong and being a liar.
>I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
But if at the time you said that you actually neither believed it could get big nor intended to try to make it big, you've committed fraud even if the ultimate outcome is expected.
Former Silicon Valley lawyer here. It would be very difficult for a VC to win such a case, and it would almost certainly not be worth it for them given the amount of damages at issue.
It would also hurt their reputation by making it seem like they got duped by some founder.
It would also hurt their reputation by making it seem like they got duped by some founder.
>If you lie to them and keep going for 500k, they can sue you for scamming (or whatever legal term is).
They'll just boardroom coup you and replace you with someone who will hyperscale up.
They'll just boardroom coup you and replace you with someone who will hyperscale up.
Again, this requires them having a majority stake and we’re discussing YC which is a seed round. The current company I work at is YC backed and the founder still controls 85% of the company
This is exactly right. A couple years ago I became a co-founder of sorts, supporting the technical side. I assumed all you needed was a good idea that attracted users - we had that.
Even though we had a working software product and demonstrable 20% MoM growth, we couldn't get investors interested. I learned (the hard way) that what you need to do is put the dollar signs in investors eyes and manipulate their greed in order to convince them to cough over their money. Of course, it isn't often described that way - they say things like "we need to de-risk the investment" and "expand the total available market". But really what they mean is they're only interested in businesses that are shooting for billions of dollars and have a solid plan on how to get there.
If I ever go into business again, I'm staying far away from VC.
Even though we had a working software product and demonstrable 20% MoM growth, we couldn't get investors interested. I learned (the hard way) that what you need to do is put the dollar signs in investors eyes and manipulate their greed in order to convince them to cough over their money. Of course, it isn't often described that way - they say things like "we need to de-risk the investment" and "expand the total available market". But really what they mean is they're only interested in businesses that are shooting for billions of dollars and have a solid plan on how to get there.
If I ever go into business again, I'm staying far away from VC.
what did you end up doing?
I’m not sure I agree. I hear from lots of people wanting to buy my business IF it’s making at least $5 million/year (it’s not). $500K/year might get you a 2X exit, and $1M is nothing to sneeze at, but it’s not early retirement money.
> $500K/year might get you a 2X exit,
Depends. When a company is subscale it's purchase price varies wildly. This is because standard revenue x multiple thinking just doesn't make sense when:
* you are buying the team (leaders, skill positions, etc)
* you are buying the tech (which may have great value in accelerating go-to market or adding competitive advantage)
* The small company holds key contracts
* IP has great value
As companies grow, they tend to get valued more traditionally...
Depends. When a company is subscale it's purchase price varies wildly. This is because standard revenue x multiple thinking just doesn't make sense when:
* you are buying the team (leaders, skill positions, etc)
* you are buying the tech (which may have great value in accelerating go-to market or adding competitive advantage)
* The small company holds key contracts
* IP has great value
As companies grow, they tend to get valued more traditionally...
For a non-strategic buy you are right. For a big 1B PE fund, they can't be arsed to buy a bunch of 300k a year companies. I think its just too much to manage. So the higher in the millions you go, the more PE type people it can appeal to.
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing.
There are several noteworthy exceptions to this generalization.
If you retain board control, you’re free to run a lifestyle business and pay out dividends to you and your investors. Plenty of VC funded companies have founder-controlled boards.
Also, you can negotiate a buyout of your VC’s and shift to lifestyle once you fail to grow.
There are several noteworthy exceptions to this generalization.
If you retain board control, you’re free to run a lifestyle business and pay out dividends to you and your investors. Plenty of VC funded companies have founder-controlled boards.
Also, you can negotiate a buyout of your VC’s and shift to lifestyle once you fail to grow.
I run a business similarly to what the parent advised to do and I wouldn't have it any other way. I am independent, I don't have to pursue GROWTH GROWTH GROWTH at all costs, I don't have to worry about running out of funding, I don't have to "scale", I don't have to hire people just because investors want me to.
The numbers are different for every business, and I'd argue that SaaS customers at $10k-$15k are not easy, because you need high-touch sales for that, but you can make various approaches work.
The main point is that VC-funded (or YC->VC funded) startups are not the only way to achieve success as defined by financial sufficiency. Arguably (and I would really argue) they aren't even the best way, if you take quality of life factors into account. Or if you care about your customers/users.
The numbers are different for every business, and I'd argue that SaaS customers at $10k-$15k are not easy, because you need high-touch sales for that, but you can make various approaches work.
The main point is that VC-funded (or YC->VC funded) startups are not the only way to achieve success as defined by financial sufficiency. Arguably (and I would really argue) they aren't even the best way, if you take quality of life factors into account. Or if you care about your customers/users.
Not all problems can be solved by a solo founder bootstrapping a business. If you're driven by the problem you're trying to solve for, you should take the path that most likely will result in you actually solving the problem. For many types of startups, that requires VC.
These are all good points. To play Devil's advocate - the argument against this is that when you raise money you can sometimes take money off the table. Meaning you sell of a portion of your ownership for cash to you personally and not the business.
This is not always in the best interests of the company, because it doesn't incentivize the founder to stay as much. But it can be healthy for the founder's psyche to not have to have all of their net worth tied up in illiquid startup stock.
Also, I don't think this is as frequent as the crazy days of 2021. Where you could retire off of a Series A with not much revenue
This is not always in the best interests of the company, because it doesn't incentivize the founder to stay as much. But it can be healthy for the founder's psyche to not have to have all of their net worth tied up in illiquid startup stock.
Also, I don't think this is as frequent as the crazy days of 2021. Where you could retire off of a Series A with not much revenue
I’ve been of this opinion for quite a while now and the part about
> If you raise VC money, the above scenarios are considered a failure
Rings particularly true.
My side company doesn’t make much right now but it’s growing and one day I could see being able to go full time on it. However there is no scenario that I can imagine where taking money (even if someone wanted to give it to me) would be a good idea. The business just doesn’t have the potential to justify the investment. It could grow to support myself and maybe even a few other people but never to a point where it would make investors happy.
I wish more people went the bootstrap/self-funded route without the intention of selling from day 1. That’s the other gross part of our industry, making something you have no desire to run long-term, just making it attractive enough for a larger company to buy. Those businesses are rarely sustainable.
As I’ve grown older the idea of “winner takes all” or “creating a business just to sell it” has become less and less attractive to me. I’m not saying I wouldn’t “sell out” if the price was right but there is a difference in my mind between those two things (creating to sell and choosing to sell).
The sad thing is that some really cool ideas (that aren’t “winner take all”) do require a substantial, to me, amount of money to get off the ground. I spent time on a side project with a few other people until we realized that money transmitter licenses we would need pretty much required outside investment. Things like that really suck and I understand investment in those cases a little more.
> If you raise VC money, the above scenarios are considered a failure
Rings particularly true.
My side company doesn’t make much right now but it’s growing and one day I could see being able to go full time on it. However there is no scenario that I can imagine where taking money (even if someone wanted to give it to me) would be a good idea. The business just doesn’t have the potential to justify the investment. It could grow to support myself and maybe even a few other people but never to a point where it would make investors happy.
I wish more people went the bootstrap/self-funded route without the intention of selling from day 1. That’s the other gross part of our industry, making something you have no desire to run long-term, just making it attractive enough for a larger company to buy. Those businesses are rarely sustainable.
As I’ve grown older the idea of “winner takes all” or “creating a business just to sell it” has become less and less attractive to me. I’m not saying I wouldn’t “sell out” if the price was right but there is a difference in my mind between those two things (creating to sell and choosing to sell).
The sad thing is that some really cool ideas (that aren’t “winner take all”) do require a substantial, to me, amount of money to get off the ground. I spent time on a side project with a few other people until we realized that money transmitter licenses we would need pretty much required outside investment. Things like that really suck and I understand investment in those cases a little more.
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit.
N=1 example at least to the contrary... I read this a year ago.
https://twitter.com/robgo/status/1559517843388977152
I don't know who the company was, what the terms were, who/if were other investors, etc. But as I read it... the company was venture-backed, didn't really create (or pivoted away from) something that was "venture scale" but otherwise had built a good business.
The end result however, was not shutdown/get acquired.
By building a good business, the company gave themselves optionality with their current investors and seemingly got to a good outcome for everyone.
If you know your business is not going to be venture scale... there are probably better sources of capital out there for you to leverage if you need it (or bootstrap). Stresses that create less stress, less friction, etc.
That being said - venture or not... don't forget to build a good business.
Disclosure: NextView is one of our investors hence why I stumbled upon that post of Rob's back then.
N=1 example at least to the contrary... I read this a year ago.
https://twitter.com/robgo/status/1559517843388977152
I don't know who the company was, what the terms were, who/if were other investors, etc. But as I read it... the company was venture-backed, didn't really create (or pivoted away from) something that was "venture scale" but otherwise had built a good business.
The end result however, was not shutdown/get acquired.
By building a good business, the company gave themselves optionality with their current investors and seemingly got to a good outcome for everyone.
If you know your business is not going to be venture scale... there are probably better sources of capital out there for you to leverage if you need it (or bootstrap). Stresses that create less stress, less friction, etc.
That being said - venture or not... don't forget to build a good business.
Disclosure: NextView is one of our investors hence why I stumbled upon that post of Rob's back then.
For an anecdotal story Bingo Card Creator was a lifestyle business having a large amount of customers and a stable cash flow. Then he moved forward an SEO consultant like business model which was rather successful after making Bingo Card Creator and eventually tried to do a startup with Y combinator trying to gamify hiring but then failing (and IIRC he downsized his lifestyle during the startup) but I think he moved forward and is doing well.
By most measures https://news.ycombinator.com/user?id=patio11 seems to be doing alright. But given the trajectory I’m not sure the anecdote holds.
> If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing
Yes on the first. No on the second. You can still sell the business like a small business at a multiple of Ebitda. Standard early-stage terms shouldn’t give investors the right to block an exit that returns their liquidation value.
Yes on the first. No on the second. You can still sell the business like a small business at a multiple of Ebitda. Standard early-stage terms shouldn’t give investors the right to block an exit that returns their liquidation value.
> If you build a business that makes 500k a year, which can be done with 30-50 customers for saas selling for 10-15k, you can sell the business and retire
That's a big if, and no guarantee that it's easier to pull it off than if you have VC money. Let's assume for a second that VC brings nothing to the table other than money.
That's a big if, and no guarantee that it's easier to pull it off than if you have VC money. Let's assume for a second that VC brings nothing to the table other than money.
ARR doesn't seem to be super important for VC funded companies as long as someone will pay a lot of money for the company and everyone can cash out.
If you don't turn a profit you'd better have significant, consistent growth. Pulling that off is not necessarily easier.
This is just bog standard capitalist formula.
Doing it yourself puts you in control of the expectations.
Taking money from a firm is really just a camouflaged “employer:employee” relationship and the desire for larger returns, “more”, will always trend toward a disregard and exploitation of the humans doing the actual work.
Doing it yourself puts you in control of the expectations.
Taking money from a firm is really just a camouflaged “employer:employee” relationship and the desire for larger returns, “more”, will always trend toward a disregard and exploitation of the humans doing the actual work.
Yeah but you don't get to rub elbows and party with VCs! Isn't that what it's actually about? /s
Please don’t sell the business, at least not to a larger company. That’s how everything is sliding into enshittification.
"enshittification" is my least favorite recent word. i like the concept but it's a terrible word. very cringe, it's got middle schooler trying to cuss vibes
That is a big incentive the build the company in the first place. If you eliminate that option you would simply have fewer startups.
You can get 500k as a normal employee. Why bother with the startup risk to make that amount?
It's just glorified contracting at this point.
It's just glorified contracting at this point.
> Why bother with the startup risk to make that amount?
One reason that hasn’t been mentioned yet as of this comment: ownership. Your startup is yours. You have the vision, you run the business, and there’s nobody to blame for anything but yourself.
When I was doing game development I got frustrated with the yearly post-mortem where we’d identify what things didn’t go well and what we could do to improve, only to make the same mistakes the next year. The company was relying on ambitious and hard-working people like me to keep fixing the same mistakes and avoid having to do deep planning and make hard decisions early.
With my own company, I still made mistakes but they were my mistakes to make and fix, and I never had to pull overtime to fix someone else’s mistake. I was far happier making a lot less money. (Up to a point… you can’t live on nothing. :P)
There are other benefits like doing both customer relations and engineering, which can make you better at both, and the slim potential for a large payout of FU money, among other things. Running a business isn’t for everyone, but wanting to and being willing to take all the responsibility is one thing you can’t get as a normal employee.
One reason that hasn’t been mentioned yet as of this comment: ownership. Your startup is yours. You have the vision, you run the business, and there’s nobody to blame for anything but yourself.
When I was doing game development I got frustrated with the yearly post-mortem where we’d identify what things didn’t go well and what we could do to improve, only to make the same mistakes the next year. The company was relying on ambitious and hard-working people like me to keep fixing the same mistakes and avoid having to do deep planning and make hard decisions early.
With my own company, I still made mistakes but they were my mistakes to make and fix, and I never had to pull overtime to fix someone else’s mistake. I was far happier making a lot less money. (Up to a point… you can’t live on nothing. :P)
There are other benefits like doing both customer relations and engineering, which can make you better at both, and the slim potential for a large payout of FU money, among other things. Running a business isn’t for everyone, but wanting to and being willing to take all the responsibility is one thing you can’t get as a normal employee.
If you own a business with $500k profit then you can sell it for a multiple of that.
You also have the option to automate yourself out of a job or hire someone to reduce the time you need to spend on the business.
As an employee you trade time for money with no ability to sell or reduce your workload.
You also have the option to automate yourself out of a job or hire someone to reduce the time you need to spend on the business.
As an employee you trade time for money with no ability to sell or reduce your workload.
You can't leave your desk whenever you want. And when you leave your desk, you've always this social/peer pressure to ensure there aren't any complaints about you being frequently away or for longer, for example.
That's not freedom. What's not freedom isn't richness. The attached price tag doesn't matter.
That's not freedom. What's not freedom isn't richness. The attached price tag doesn't matter.
It is the other way around, as part of a large company you can take 2-4 weeks' vacation without any material impact to your career or companies' performance not so in your own startup. In many cases you can take 1 year sabbatical and join back where you left, with a startup you are tied to weekly and quarterly result.
Really depends on industry.. maybe at FAANG that is normal, elsewhere - no.
I've worked almost 20 years now and haven't done a real 2-weeker vacation in 5 years, and probably won't again for a while. 4 week vacation is practically unheard of, as is sabbatical.
Of course being a small business owner is not really compatible with 2-4 week vacations, BUT.. you are empowered to make that decision. Maybe you just drag your laptop with you and stay reachable / keep things moving along, but from whatever sunny location you've decided to holiday.
Not much different than my last 6 day vacation where I had my laptop & work phone, and checked in on any urgent fires every morning & evening back at the hotel...
Of course being a small business owner is not really compatible with 2-4 week vacations, BUT.. you are empowered to make that decision. Maybe you just drag your laptop with you and stay reachable / keep things moving along, but from whatever sunny location you've decided to holiday.
Not much different than my last 6 day vacation where I had my laptop & work phone, and checked in on any urgent fires every morning & evening back at the hotel...
Im pretty sure the 500k employee at Google is vastly vastly more free to leave his desk than the small business owner making that much.
There's a wide range of workloads for small business owners. Sometimes a strategy finds a market and after significant effort to get to capture customers, doesn't take a lot of work to maintain. Others might be pulling 80 hour weeks for $40k/year
That's 100x more true if you're a business owner. You can't take simply time off whereas as a employee you can
Getting to $500k comp as an employee isn't exactly a walk in the park either.
Not at all actually. That's half a million dollar compensation we're talking about. That's not the norm or average compensation.
This is not that easy outside the FAANG bubble
The "FAANG bubble" itself employs like 100k engineers and many many more startups and Fortune 500 companies pay >90% as much.
Only in the US and mostly there in the tech bubble cities. That compensation is for an equally skilled expert nowhere else seen in the world.
That is not correct; you can have this level of compensation in Europe, Asia, the Middle East and Australia as well.
Sure, high compensation is only available in major cities with a thriving tech scene, but that's pretty much any major city.
Sure, high compensation is only available in major cities with a thriving tech scene, but that's pretty much any major city.
source on the 100k number? pay is heavily tied to geo as well
Tax vehicles is one big advantage. Your take home as an employee on $500K is only $250K a year, whereas you can defer income in a business and pay 20% tax.
A business that's not a self-employment scheme would also need to pay founders through salaries.
Of course you can also have shares and dividends but the same applies to being a normal employee in a normal company.
Of course you can also have shares and dividends but the same applies to being a normal employee in a normal company.
Founders can be paid entirely in dividends. They can also choose what salaries to pay themselves - thus bringing down their taxable income bracket spread out over time.
5 million exit in one year is much different than 500k yearly
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less risk of layoffs, diversification
The only startup founders I've known (and we didn't call them that in the late 80's early 90's) fall into two categories: those who want to get rich and don't care about the product, and those who really believe in their product (and hope that it makes them rich, but that's not the primary objective). I'm not sure if there is a third type, if there is I have not met them.
The most successful people I know fell into category two, and all struggled for more than a decade each and had multiple mentors, but ultimately took out loans (from banks, friends, etc) that weren't based on owning shares; none relied on VC. None of them are billionaires, but they are solid decimillionaires (if that's even a word) whose businesses practically run on autopilot.
I think the author makes excellent points that I thought were common sense but I guess they are not, however I don't know a lot of techie entrepreneurs anymore, they are all much younger than me (mid-50s). All I know about younger startup folks is based on scanning HN for the past decade, but it seems they are all chasing the brass ring the same way the author describes. And the truth is in the numbers.
The most successful people I know fell into category two, and all struggled for more than a decade each and had multiple mentors, but ultimately took out loans (from banks, friends, etc) that weren't based on owning shares; none relied on VC. None of them are billionaires, but they are solid decimillionaires (if that's even a word) whose businesses practically run on autopilot.
I think the author makes excellent points that I thought were common sense but I guess they are not, however I don't know a lot of techie entrepreneurs anymore, they are all much younger than me (mid-50s). All I know about younger startup folks is based on scanning HN for the past decade, but it seems they are all chasing the brass ring the same way the author describes. And the truth is in the numbers.
Rich versus King is another categorisation: https://siliconhillslawyer.com/2016/03/30/rich-v-king-the-co...
[Founders] need to ask themselves, and be honest about, is: do you want to be rich, or do you want to be king? Because very very very rarely can you be both.
Some founders legitimately care less about money than about ensuring that their business stays in alignment with their long-term vision/mission. They certainly want to be successful, but a removal from the leadership position in their company would, in their mind, mean personal failure, no matter how much gold they can expect to line their pockets with.
The most successful might be from category two, but what is the denominator? How many with that attitude failed? I suspect category one has significantly higher survival, probably close to 100%.
I think it depends on what you count as "survival".
Group 1's long-term success/survival is contingent on timely exits and timely access to future funding, which historically (i.e. during all times + places, except 2008-2021 in SV) is a pretty volatile commodity. Group 2 develops fairly portable skills that they can "sell" to the market whenever they want to give up on building by themselves. They can compound in a way that's uncorrelated from LPs' appetites for risky allocations.
It's like comparing a firecracker and a candle. Although they both depend on combustion, the goals of the two groups are almost disjoint.
Group 1's long-term success/survival is contingent on timely exits and timely access to future funding, which historically (i.e. during all times + places, except 2008-2021 in SV) is a pretty volatile commodity. Group 2 develops fairly portable skills that they can "sell" to the market whenever they want to give up on building by themselves. They can compound in a way that's uncorrelated from LPs' appetites for risky allocations.
It's like comparing a firecracker and a candle. Although they both depend on combustion, the goals of the two groups are almost disjoint.
Category a - 0 of 5; category b - 7 of 9.
It's hard to take advice from someone peddling their own course.
I will say I'm probably somewhat biased as, we went through YC, and yes if you don't want to be VC-backed, then don't do it. Maybe the title should be "You shouldn't raise Venture Capital, buy my course instead!"
That being said, the beauty of YC, SAFEs, and seed funding is you don't have anyone on your board. You get to decide what you want to build, how you want to build it, etc... The point of joining YC and raising money is because it helps you figure out what to build/not to build, and to build faster, and YC is REALLY good at helping you sort that out.
There are founders out there who realized they've built a product that doesn't have the unicorn potential and pay back their investors. I'm pretty sure Daniel worked at Gumroad for a bit, and that's what Sahil did.
Again I find it really hard to take advice from folks who have "something better" to sell you.
I will say I'm probably somewhat biased as, we went through YC, and yes if you don't want to be VC-backed, then don't do it. Maybe the title should be "You shouldn't raise Venture Capital, buy my course instead!"
That being said, the beauty of YC, SAFEs, and seed funding is you don't have anyone on your board. You get to decide what you want to build, how you want to build it, etc... The point of joining YC and raising money is because it helps you figure out what to build/not to build, and to build faster, and YC is REALLY good at helping you sort that out.
There are founders out there who realized they've built a product that doesn't have the unicorn potential and pay back their investors. I'm pretty sure Daniel worked at Gumroad for a bit, and that's what Sahil did.
Again I find it really hard to take advice from folks who have "something better" to sell you.
> find it really hard to take advice from folks who have "something better" to sell you
We do this all the time when considering a change from one product or service to another. The potentially better offering tells why their way is better, and why the other ways are inferior. Then they sell us their way.
We do this all the time when considering a change from one product or service to another. The potentially better offering tells why their way is better, and why the other ways are inferior. Then they sell us their way.
Yeah but is it a good idea? I mean a neutral source might be better than someone trying shill product.
Disagree with your take, generally speaking. This is just called salesmanship. You don't present a balanced picture, you present a selectively, opinionated, persuasive one. The reader can take from it what they will. And as Daniel points out in a sibling comment, YC is actually much worse on this front.
> I'm pretty sure Daniel worked at Gumroad for a bit,
huh. Yes he appears to have been Head of Product. So I'd say the abstract for https://smallbets.co/event/4019ad11-d5db-45dd-a341-a0f130378... goes beyond salesmanship and is willfully deceptive. Unless he joined Gumroad after that video was produced? Hopefully he'll see this and comment. And update the abstract.
> I'm pretty sure Daniel worked at Gumroad for a bit,
huh. Yes he appears to have been Head of Product. So I'd say the abstract for https://smallbets.co/event/4019ad11-d5db-45dd-a341-a0f130378... goes beyond salesmanship and is willfully deceptive. Unless he joined Gumroad after that video was produced? Hopefully he'll see this and comment. And update the abstract.
That event is in the future. What’s deceptive about it?
Thanks for clarifying it was in the future. Seems fine then. I read too much into it.
You think all the YC articles aren’t also peddling something? At least I’m clear.
The article makes excellent points. VCs fund a zillion different projects, playing the odds that one of them will make a mint. For the individual project, - which is you - the chances of success are very small.
One comments says that venture funding is rocket fuel. That's true, but only if you actually have a rocket. You probably don't: you have a VW bug, or maybe a BMW. Almost no one has a rocket.
Anyway, I honestly don't understand the craving to hit a $billion business. It's completely unrealistic - it's just not going to happen. Creating a business that can support you, turning over 6-digits (instead of 9 or 10) is much more realistic. You won't get VCs on board for that, nor do you need them.
One comments says that venture funding is rocket fuel. That's true, but only if you actually have a rocket. You probably don't: you have a VW bug, or maybe a BMW. Almost no one has a rocket.
Anyway, I honestly don't understand the craving to hit a $billion business. It's completely unrealistic - it's just not going to happen. Creating a business that can support you, turning over 6-digits (instead of 9 or 10) is much more realistic. You won't get VCs on board for that, nor do you need them.
That's true, but only if you actually have a rocket. You probably don't: you have a VW bug, or maybe a BMW. Almost no one has a rocket.
You're right, I think. What I get reading this thread, and other sources, is that VCs will trash perfectly good VWs and BMWs trying to turn them into rockets. The reason being that only rockets have value to them. VW and BMW business are failures. E.g. a .1% chance at $1B is actually worth far more to a VC than a 100% chance at $1M even though the EV is the same.
You're right, I think. What I get reading this thread, and other sources, is that VCs will trash perfectly good VWs and BMWs trying to turn them into rockets. The reason being that only rockets have value to them. VW and BMW business are failures. E.g. a .1% chance at $1B is actually worth far more to a VC than a 100% chance at $1M even though the EV is the same.
How is the EV of 1% of change at $1B and 100% chance at $1M the same? The EV is respectively $10M and $1M. I actually think, that if it was the same, they would have different approach towards being a VC.
I was thinking in exponents. Maybe I made a mistake. Let's see.
1B is 10^9. 1M is 10^6. So we need a factor that takes away 3 decimal points. A percent is already taking away 2 decimal points. We need one more. So .1% of 1B is 1M because 9-3=6. I was correct.
I think I see your error: you read .1% as 1%. I applaud you checking the math, even if this time you were wrong.
1B is 10^9. 1M is 10^6. So we need a factor that takes away 3 decimal points. A percent is already taking away 2 decimal points. We need one more. So .1% of 1B is 1M because 9-3=6. I was correct.
I think I see your error: you read .1% as 1%. I applaud you checking the math, even if this time you were wrong.
Oh yeah, I read it as 1%. My apologies.
They are obviously not the same. But, as a founder not coming from a rich family, you may get at best 2 or 3 chances at making a decent business. So now choose: 3 chances of winning 1M at 100% probability vs 3 chances of winning 1B at 1% probability each. Which would you take if your net worth happened to be less than 200K?
Yeah, everyone knows that mean is a bad estimator in presence of outliers or long tailed distributions. The distribution of startup outcomes is exactly that yet people talk about EVs all the time.
> Anyway, I honestly don't understand the craving to hit a $billion business. It's completely unrealistic
I think what the author is missing is that founders could have massive exits in the previous bubble in Series B rounds and walk away with millions. With that possible outcome available it's rational for founders to play the bubble game.
Otherwise, I agree, defining success as building an $X billion revenue business is completely irrational when there are infinite many success scenarios between 1million and $1 billion in revenue that you miss out on once you over grow your business' expenses.
I think what the author is missing is that founders could have massive exits in the previous bubble in Series B rounds and walk away with millions. With that possible outcome available it's rational for founders to play the bubble game.
Otherwise, I agree, defining success as building an $X billion revenue business is completely irrational when there are infinite many success scenarios between 1million and $1 billion in revenue that you miss out on once you over grow your business' expenses.
If you don't want to raise venture funding, you shouldn't join YC. Venture funding is rocket fuel, and if you're not building a rocket you really don't want rocket fuel.
Rocket fuel is very often highly refined kerosene. You could use it to run a jet engine or a diesel truck with small modifications.
* I will be entering this reply into "most HN comment" contest running at the end of this year
* I will be entering this reply into "most HN comment" contest running at the end of this year
Maybe a better analogy is nitromethane. If you put it in your honda civic, you will blow up your engine. You put it in a top-fuel dragster which cranks out thousands of hp and needs an engine rebuild after each race.
Better, but with EFI I bet you could get it working with what otherwise looks like an extremely lean tune
Depending on who you ask, RP-1 costs between 20 and 80 times what diesel goes for. Others have tortured this analogy enough, but you certainly don't want to fuel your non-rocket startup with funding that costs far too much, which is conceptually adjacent to the point of the original article.
This is ignoring the whole tanker full of liquid oxygen part of the equation.
I mean you can plumb that into your diesel truck if you really wanted to. Ever see a RAM Fifteenhunnerd run in vacuum?
Many of the YC projects I've seen posted on HN don't look like rockets. Or maybe I'm of the false impression that developer tooling, or products that bring iterative improvements cannot be rockets.
YC focuses on product-market fit so it's not uncommon to see a YC company start as something that just looks like a single feature. The product objective of doing this is to gather some early user feedback so you can grow and refine that feature into an entire business. Until that happens you are flying blind.
I think we often miss the marketing part and take a lot of focus in the technology stack. A good part of the need for funding is linked to the marketing part. You can make hundreds of technology copycats of existing unicorns but surely cannot market themselves as the did.
Well honestly, if your product requires a significant amount of marketing dollars to reach "product market fit", is it really PMF?
Going by the definitions stated by Marc Andreessen and some of the YC Partners, product market fit is when you don't really need to spend marketing dollars because your product is growing so organically (with minimal marketing spend) that your team is barely able to keep up with the growth.
Chatbase is a very good example for a PMF product, one that comes off my head, and that didn't require any VC funding. On the other hand, I remember a YC startup launching similar in the summer, but I don't remember its name now.
Going by the definitions stated by Marc Andreessen and some of the YC Partners, product market fit is when you don't really need to spend marketing dollars because your product is growing so organically (with minimal marketing spend) that your team is barely able to keep up with the growth.
Chatbase is a very good example for a PMF product, one that comes off my head, and that didn't require any VC funding. On the other hand, I remember a YC startup launching similar in the summer, but I don't remember its name now.
If you receive money from A16Z or enter the YC program the marketing is embedded with the investors and accelerators.
Iterative improvements can definitely be rockets.
Algolia is just a search provider. Supabase is just Firebase with better UX. Figma is just a drag and drop design tool.
Algolia is just a search provider. Supabase is just Firebase with better UX. Figma is just a drag and drop design tool.
Are you confusing Show HN projects with companies accepted into the Y Combinator startup incubator? They're two very separate classifications
Maybe parent is referring to "Launch HN" posts (https://news.ycombinator.com/launches), which features YC startups.
Any posts with “Launch HN” are promoted posts from YC startups.
The point of the article is that it's not rational for individual startup founders to take rocket fuel at company conception which is what YC provides.
Startup means rocket. Very few businesses are startups, and very few business founders have use for YC
Definition from Paul Graham essay Startup = Growth:
http://www.paulgraham.com/growth.html
Definition from Paul Graham essay Startup = Growth:
http://www.paulgraham.com/growth.html
This is not a very good analogy because it assumes there is only one option if you build a rocket.
A founder should get funding through selling equity (to VCs) if the risks are high. If the risks are low, the founder get funding through debt, even if you're "building a rocket". Or bootstrap, if possible.
What every VC dreams is to get equity in a low-risk venture. Because the return is high, but the risk is low. That's why there is so much marketing that convinces founders to pay with equity.
A founder should get funding through selling equity (to VCs) if the risks are high. If the risks are low, the founder get funding through debt, even if you're "building a rocket". Or bootstrap, if possible.
What every VC dreams is to get equity in a low-risk venture. Because the return is high, but the risk is low. That's why there is so much marketing that convinces founders to pay with equity.
I keep seeing this "cute" line repeated, how do you find out if you're building a rocket or not...?
It's just what you want. Continuing to misuse the metaphor:
Do you want to try to go to space/the moon or whatever, for reasons like the personal glory and (mild) fame, the satisfaction of building the thing, the importance of being the person at the center of it all, the joy of changing an industry, etc?
That's the rocket: big big plans and you're kinda in it for the work.
Or, do you want a plane to a nice beach where you can relax? Because the fastest route to get enough money to relax is probably not via building a rocket these days.
Some caveats here: the successful (read: very lucky and very good) rocket builders do get the opportunity to relax, and often on a different level than the people who saved up and bought airplane tickets. But the 'great rocket builders' famously rarely "want to relax". And the vast vast majority of rocket builders don't actually directly succeed, but many do parlay it into savings for that plane ticket. But overall it's much easier for a random person to save up for a plane ticket than build a rocket.
Do you want to try to go to space/the moon or whatever, for reasons like the personal glory and (mild) fame, the satisfaction of building the thing, the importance of being the person at the center of it all, the joy of changing an industry, etc?
That's the rocket: big big plans and you're kinda in it for the work.
Or, do you want a plane to a nice beach where you can relax? Because the fastest route to get enough money to relax is probably not via building a rocket these days.
Some caveats here: the successful (read: very lucky and very good) rocket builders do get the opportunity to relax, and often on a different level than the people who saved up and bought airplane tickets. But the 'great rocket builders' famously rarely "want to relax". And the vast vast majority of rocket builders don't actually directly succeed, but many do parlay it into savings for that plane ticket. But overall it's much easier for a random person to save up for a plane ticket than build a rocket.
Are you taking a huge swing at a huge market looking to IPO? If so it's a rocket. If you are building a niche product looking to scale to a few hundred thousand or single digit millions in revenue, its not.
> Venture funding is rocket fuel, and if you're not building a rocket you really don't want rocket fuel.
Fantastic. :D
Fantastic. :D
I am not persuaded by this article.
I am not 22 and I have never gone through YC, but many friends have. I would urge any young founders to try to do the same.
The reason most successful CEOs are older is due to experience and networks. YC, even if your startup fails, gives you both in spades. It also gives you some financial stability you might not otherwise have to attempt this moonshot. If you don't have capital to spend on pay-to-access communities let alone fund a startup then YC makes a good offer.
If you manage to fail and pivot multiple times, you've just had a crash course in multiple areas, maybe even multiple industries. If you can't get lucky, you can at least get wise.
So the "you" in this article might actually apply to me. I'm older, I could self-fund my own work for quite a while, and be happy with a modestly successful business. But the "you" in this article is not general. If "you" are young, hungry, willing to sleep on floors, eat ramen, and want to pursue your dream with a possibly naive passion, then yes. You should join Y Combinator.
I am not 22 and I have never gone through YC, but many friends have. I would urge any young founders to try to do the same.
The reason most successful CEOs are older is due to experience and networks. YC, even if your startup fails, gives you both in spades. It also gives you some financial stability you might not otherwise have to attempt this moonshot. If you don't have capital to spend on pay-to-access communities let alone fund a startup then YC makes a good offer.
If you manage to fail and pivot multiple times, you've just had a crash course in multiple areas, maybe even multiple industries. If you can't get lucky, you can at least get wise.
So the "you" in this article might actually apply to me. I'm older, I could self-fund my own work for quite a while, and be happy with a modestly successful business. But the "you" in this article is not general. If "you" are young, hungry, willing to sleep on floors, eat ramen, and want to pursue your dream with a possibly naive passion, then yes. You should join Y Combinator.
> The reason most successful CEOs are older is due to experience and networks.
What about resources in general? Like, settled and more money to burn?
What about resources in general? Like, settled and more money to burn?
I don't know. I can think of persuasive arguments that financial security helps and ones that financial security hurts a given individual's chances of being a successful CEO. My intuition is that there would be a correlation but that it's not causal.
This article could just as easily be "why you should not try to be a rock star", or "why you should not try to be a college professor". Both are non-ergodic pursuits where the chance of success is low and the expected financial ROI across all aspirants is negative. Coincidentally, I've done both and failed at both and I don't regret either one.
But contrary to the article, I did get valuable non-financial rewards from these experiences. I wouldn't trade my rock-band experiences for anything. Twenty-five years have passed since the last time I seriously got on stage with my guitar, but my old bandmates are still my closest friends. My PhD taught me so much about how to tackle big ambiguous problems, how to think deeply about things, how to be patient when clarity comes slowly, and how to drag a hard painful project over the finish line. I also made career contacts that were invaluable later.
It sounds to me like YC might be worth trying once, especially for a young person, and when you get to the point where you have to pivot, you should take what you've learned and bail. If the terms of the agreement make that impossible, then maybe it is a bad deal.
But contrary to the article, I did get valuable non-financial rewards from these experiences. I wouldn't trade my rock-band experiences for anything. Twenty-five years have passed since the last time I seriously got on stage with my guitar, but my old bandmates are still my closest friends. My PhD taught me so much about how to tackle big ambiguous problems, how to think deeply about things, how to be patient when clarity comes slowly, and how to drag a hard painful project over the finish line. I also made career contacts that were invaluable later.
It sounds to me like YC might be worth trying once, especially for a young person, and when you get to the point where you have to pivot, you should take what you've learned and bail. If the terms of the agreement make that impossible, then maybe it is a bad deal.
> ” I can't afford to rely on 26 lifetimes. But maybe you think you’re special. You’re not like those 3,950 dummies who failed. Maybe you are in fact special, but I wouldn’t rely too much on that. Business is much more random than it seems. If business was predictable, YC wouldn't have a measly 1.25% success rate, or thereabouts.”
This argument is very disappointing and dishonest. The piece repeatedly implies and assumes that every YC-funded company that isn’t currently valued at over a billion dollars is a failure for the founder.
This ignores the fact that many companies are still growing and will cross that threshold in a few years. It’s also not an honest representation of all the smaller acquisitions to call them “failures”.
Twitch’s acquisition wasn’t quite for a billion, but it was a massive success for its founders. There are many other companies that exited in the 9-figure range, for which this is true. Plenty of others excited in the 8 figure range and were still better outcomes than if the founders had just remained employees. Even those whose startups went to zero usually end up fine in terms of career.
What percentage of Daniel’s students have built unicorns? Have any or are they all, by his own metric, “failures”?
This argument is very disappointing and dishonest. The piece repeatedly implies and assumes that every YC-funded company that isn’t currently valued at over a billion dollars is a failure for the founder.
This ignores the fact that many companies are still growing and will cross that threshold in a few years. It’s also not an honest representation of all the smaller acquisitions to call them “failures”.
Twitch’s acquisition wasn’t quite for a billion, but it was a massive success for its founders. There are many other companies that exited in the 9-figure range, for which this is true. Plenty of others excited in the 8 figure range and were still better outcomes than if the founders had just remained employees. Even those whose startups went to zero usually end up fine in terms of career.
What percentage of Daniel’s students have built unicorns? Have any or are they all, by his own metric, “failures”?
At those success rates, he's going to need a lot of students working for long enough to exit to yield statistically significant results. How long has his program been open?
I bought it two years ago, and according to Gumroad, the version I bought has made 3,499 sales. It might be more due to different versions of his course, and it's certainly not much fewer than the pool of 4,000 he's using to calculate the failure rate for YC founders.
The article discusses known issues being a startup founder, such as the low odds of success, as if they’re unique to YC, followed by a pitch for his own product.
You missed the point. Using the analogy from the article, if you take YC money (or any VC money) you need to dig until you find a massive pile of treasure, if you dig and find a small pile of treasure you have to ignore it and start over because VCs are not looking for small piles of treasure, they only care about massive ones. Ignore the fact that the small pile of treasure could actually result in a very good life for a small group of people in a small company.
I considered that as an issue with being a vc funded startup founder. I could have made that part slightly more clear.
Once again, a much broader issue than just YC! The author could have written the exact same article, just with VC instead of YC.
Once again, a much broader issue than just YC! The author could have written the exact same article, just with VC instead of YC.
Can they take the pile and start another company?
No, the VC will want a big exit, the founders will be forced to raise more money and grow the business to be unsustainable and then it will either be shuttered or acquired.
No, they'd be forced by the board to spend/invest that pile towards digging deeper trying to find a massive treasure.
There is a bit of a point here re: maximizing expected values vs individuals only getting one lifetime to walk finite iterations of the path.
So one path you take the startup route where you dedicate 10 years of your life going deep into a single idea in hopes you are one of the 1% to come up with a $1B idea. That dice has a $10M EV. (actually exaggerated high bc you are unlikely to be a sole founder, unlikely to monetize the full $1B of a unicorn yourself, and 1% success rate is for YC cohorts.. which you have an X% chance of getting into to start with!).
On the other hand you can focus on T-shaped skills in software engineering & domain expertise, possibly some entrepreneurship.. you course correct that career year to year in a 30 year career, possibly changing jobs every 2/3/5 years as appropriate. Let's exaggerate and say you have a 25% chance of making $500K. That dice has an EV of $125K.. peanuts!
The $10M EV dice you get maybe 2-3 rolls in a lifetime versus ~40 rolls annually at the $125K EV dice option. This still sounds like the first EV is better - $25M vs $5M!
However 97% of EV=$10M dice rollers get $0 over there entire life. Hypothetically every EV=$125K dice roller will win 7.5 times in their life because they get so many rolls.
It seems to me the fetishizing of youth and 20 something founders whereas the optimal path for an INDIVIDUAL might be to roll the boring $125k dice for a while, building up savings and experience.. and then try a few rolls of the $10M dice later in life when you may actually have realer ideas, a professional network, etc.
So one path you take the startup route where you dedicate 10 years of your life going deep into a single idea in hopes you are one of the 1% to come up with a $1B idea. That dice has a $10M EV. (actually exaggerated high bc you are unlikely to be a sole founder, unlikely to monetize the full $1B of a unicorn yourself, and 1% success rate is for YC cohorts.. which you have an X% chance of getting into to start with!).
On the other hand you can focus on T-shaped skills in software engineering & domain expertise, possibly some entrepreneurship.. you course correct that career year to year in a 30 year career, possibly changing jobs every 2/3/5 years as appropriate. Let's exaggerate and say you have a 25% chance of making $500K. That dice has an EV of $125K.. peanuts!
The $10M EV dice you get maybe 2-3 rolls in a lifetime versus ~40 rolls annually at the $125K EV dice option. This still sounds like the first EV is better - $25M vs $5M!
However 97% of EV=$10M dice rollers get $0 over there entire life. Hypothetically every EV=$125K dice roller will win 7.5 times in their life because they get so many rolls.
It seems to me the fetishizing of youth and 20 something founders whereas the optimal path for an INDIVIDUAL might be to roll the boring $125k dice for a while, building up savings and experience.. and then try a few rolls of the $10M dice later in life when you may actually have realer ideas, a professional network, etc.
This is how bootstrappers market stuff. If we have something interesting to say, we write a blog post and plug our own product, and the blog post is usually not even related to a product. That Joel Spolsky or DHH were writing their posts out of boredom, you think?
People on HN, they first complain about paywalls and then about entrepreneurs mentioning their stuff.
This is not exactly a place full of selfless altruist types.
People on HN, they first complain about paywalls and then about entrepreneurs mentioning their stuff.
This is not exactly a place full of selfless altruist types.
This is how PG markets YC as well. Why do you think he wrote all those essays? :)
Yes, and I’m free to criticize it for being a mediocre article with a clickbait headline.
If I was pitching my product, maybe I would have put a link to it. Or maybe mentioned the name.
Do you think all of PG’s essays aren’t pitching you something?
Do you think all of PG’s essays aren’t pitching you something?
Direct from the article:
"BUT YOU JUST WANT TO SELL YOUR COURSE!!! Ahahaha, you caught me! It’s true. I do have something to sell you. I run a community for small-time entrepreneurs who are satisfied with reliably attainable mediocre success. The YC folks feel sorry for our joy with mediocrity while they’re out there changing the world. And we reciprocate the emotion.
So yes, I am promoting something that goes against everything YC stands for. But if you think YC is not also selling you something, I have a bridge to sell you. But maybe I’m being a bit too harsh. Because what is it that YC is selling you exactly?
Me, I charge you a one-time payment of $245, and you get access to my community, which includes live workshops, recorded classes, a group chat, and a few other things. It’s very clear what I’m doing. I ask for some money in exchange for access, and those who give me the money get access. Even my 6 year old kid understands it."
"BUT YOU JUST WANT TO SELL YOUR COURSE!!! Ahahaha, you caught me! It’s true. I do have something to sell you. I run a community for small-time entrepreneurs who are satisfied with reliably attainable mediocre success. The YC folks feel sorry for our joy with mediocrity while they’re out there changing the world. And we reciprocate the emotion.
So yes, I am promoting something that goes against everything YC stands for. But if you think YC is not also selling you something, I have a bridge to sell you. But maybe I’m being a bit too harsh. Because what is it that YC is selling you exactly?
Me, I charge you a one-time payment of $245, and you get access to my community, which includes live workshops, recorded classes, a group chat, and a few other things. It’s very clear what I’m doing. I ask for some money in exchange for access, and those who give me the money get access. Even my 6 year old kid understands it."
> If the system was ergodic, what’s happening to the collective would also translate to all individuals.
That's a definition of ergodicity I've never heard before. Ergodicity usually meant the phase space is fully occupied; in other words, a system tends to go through all possible configurations and sometimes irrespective of initial conditions.
That's a definition of ergodicity I've never heard before. Ergodicity usually meant the phase space is fully occupied; in other words, a system tends to go through all possible configurations and sometimes irrespective of initial conditions.
Not the OP, but being a former follower from him he is a big fan of Nassim Taleb that made some changes in the ergodicity concept to the everyday life in some of his books[1].
[1] - https://medium.com/incerto/the-logic-of-risk-taking-107bf410...
[1] - https://medium.com/incerto/the-logic-of-risk-taking-107bf410...
I’m using the definition from economics not physics. https://www.youtube.com/watch?v=f1vXAHGIpfc&feature=emb_logo
On economics, one implies the other. (it's not true about every stochastic process, but for the ones important to economics, they do.)
If your life experiences do not depend on the initial conditions, then people all have about the same chance of reaching them.
If your life experiences do not depend on the initial conditions, then people all have about the same chance of reaching them.
Agreed, I think fallacy of composition is more appropriate here
I hate Vassallo’s spam on every single platform. I get it, you have a bootstrapping course.
Anyway, to the YC point about pivoting and digging a hole: Daniel has 0 experience with YC and this is absolutely not what YC encourages. YC is more than happy to see you pivot. You have the driver seat and you know best.
Do I agree you shouldn’t take VC money so easily? Yes. Do I agree everything applies to YC? Definitely not. Hell, pick your VCs well and you won’t face any of those problems.
Anyway, to the YC point about pivoting and digging a hole: Daniel has 0 experience with YC and this is absolutely not what YC encourages. YC is more than happy to see you pivot. You have the driver seat and you know best.
Do I agree you shouldn’t take VC money so easily? Yes. Do I agree everything applies to YC? Definitely not. Hell, pick your VCs well and you won’t face any of those problems.
I work with University spin-outs mainly in Life Sciences. They take years and cost millions of dollars betfore they can start generating revenue.
I also own a metal recycling business. It is on track for USD 10 million revenue with about $1 million EBIT. This business has a low risk, it is cash-based and generates cash every month.
Basically, working with the startup are almost a charity. Yes, I like going to various universities, yes, I dicussing Deep Technology but my main source of incone and wealth comes from used beer cans.
Why do I need more that $500K pa? I will be dead soon enough.
I also own a metal recycling business. It is on track for USD 10 million revenue with about $1 million EBIT. This business has a low risk, it is cash-based and generates cash every month.
Basically, working with the startup are almost a charity. Yes, I like going to various universities, yes, I dicussing Deep Technology but my main source of incone and wealth comes from used beer cans.
Why do I need more that $500K pa? I will be dead soon enough.
I believe the author made a simple math error.
Economic returns of VC-backed companies follow a power law distribution. This means that the vast majority of the returns for the VC are at the "fat head" of the distribution. The "long tail" does not impact returns, for the VC.
However, for the founder, those returns in the tail can be life-changing. It takes a $5B exit for YC to care. But a $5M exit can be real money for the founder.
So the correct math, from the perspective of the founder, is not "what % are unicorns" but rather "what % sell for more than capital invested" and that number is likely to be closer to 50% than 1%.
Economic returns of VC-backed companies follow a power law distribution. This means that the vast majority of the returns for the VC are at the "fat head" of the distribution. The "long tail" does not impact returns, for the VC.
However, for the founder, those returns in the tail can be life-changing. It takes a $5B exit for YC to care. But a $5M exit can be real money for the founder.
So the correct math, from the perspective of the founder, is not "what % are unicorns" but rather "what % sell for more than capital invested" and that number is likely to be closer to 50% than 1%.
I’ve been on the acquirer side of $50M exits and from what I’ve seen almost no one makes any money in those situations. It is usually a deal done in desperation and everyone is diluted to the brim.
I mean, N=3, but I've made decent money on smaller exits.
The relevant metric is not exit price, it's ratio of exit price to pref stack; i.e. raise $40M and sell for $50M, founder is worse than if they raised $2M and sold for $10M.
The relevant metric is not exit price, it's ratio of exit price to pref stack; i.e. raise $40M and sell for $50M, founder is worse than if they raised $2M and sold for $10M.
The $5M exit is more likely for a founder who isn't raising VC money, and instead who's following Vassallo's principles and running a bootstrapped business.
This is sort of a gibberish article. It has nothing to do with YC really. The story being told is that of any venture backed startup. The investors take the risk but if you build a business they may do better than you financially. Money generates money.
Another point they make is what I call "shots on goal". Investors will have tons of shots. That's the nature of investors. If your a startup founder it's tempting to think you have "one shot" but that's nonsense. Every day you have shots, every client call is a shot, every product decision is a shot.
Another point they make is what I call "shots on goal". Investors will have tons of shots. That's the nature of investors. If your a startup founder it's tempting to think you have "one shot" but that's nonsense. Every day you have shots, every client call is a shot, every product decision is a shot.
I think people also way overestimate the founder takes from even successful exits.
One of my classmates was a co-founder of a company that had a near-$100M exit (acquired) ~10 years ago (back when that was real money). That sounds like a lot, right?
By the time the VCs took their cut, the equity grants were deducted, and the founders split the proceeds.. it wasn't life changing money.
The money wasn't much different than a typical equity grant at a FAANG for a 30-something dev. Especially after 5-10 years of effort. And then you might be stuck working for the acquirer for some contractual period before you can exit.
It was also one of the many ZIRP businesses that would never be bootstrapped. That is - gain a bunch of customers by giving away services for free in hope that you somehow get so many that you can ... do something, later.
One of my classmates was a co-founder of a company that had a near-$100M exit (acquired) ~10 years ago (back when that was real money). That sounds like a lot, right?
By the time the VCs took their cut, the equity grants were deducted, and the founders split the proceeds.. it wasn't life changing money.
The money wasn't much different than a typical equity grant at a FAANG for a 30-something dev. Especially after 5-10 years of effort. And then you might be stuck working for the acquirer for some contractual period before you can exit.
It was also one of the many ZIRP businesses that would never be bootstrapped. That is - gain a bunch of customers by giving away services for free in hope that you somehow get so many that you can ... do something, later.
wow. was he heavily dilluted?
A lot more founders and employees are heavily diluted than you think. I always just assumed massive exits meant people were rich.
But when I calculated out how much an exec would make for a diluted $1B exit compared to working at FAANG for the same amount of time... FAANG turned out better many times (unfortunately).
I think preventing dilution should be one of the highest priorities for founders for themselves and for retention. Every single dilution event sets the outcome bar higher and, thus, harder to achieve.
But when I calculated out how much an exec would make for a diluted $1B exit compared to working at FAANG for the same amount of time... FAANG turned out better many times (unfortunately).
I think preventing dilution should be one of the highest priorities for founders for themselves and for retention. Every single dilution event sets the outcome bar higher and, thus, harder to achieve.
Yeah I mean, it can get diluted pretty quick right!
Say you co-found with 1-2 others, so you start at 30-51%. You want to attract some good talent, so you give away 10% to early hires. Each funding round you give up 15-25%. You can see how your equity can quickly get below 10%.
Zuck managed to hold onto ~30% but your typical control is much lower these days. Musk had 28% of Tesla at IPO. Kalanick had 8% of Uber at IPO. Foley had 6% of Peloton at IPO. Splunk 3 co-founders had 5-7.5% each at IPO. Butterfield had 8% at Slack IPO.
So you may be foregoing 10 years of $700K FAANG comp for a ~$80M payday (8% equity of $1B unicorn exit).
To me it raises the question if non-founder startup equity is basically worthless. If a founder ends up diluted down to 8% at exit, what happens to the 0.5-1% shares you get promised at hire? 0.06-0.125% ?? So your first senior engineer hire into a unicorn equity might end up worth a grand $1M at IPO? Ouch. Go grind some leetcode and work for FAANG and make that in 2 years.
Say you co-found with 1-2 others, so you start at 30-51%. You want to attract some good talent, so you give away 10% to early hires. Each funding round you give up 15-25%. You can see how your equity can quickly get below 10%.
Zuck managed to hold onto ~30% but your typical control is much lower these days. Musk had 28% of Tesla at IPO. Kalanick had 8% of Uber at IPO. Foley had 6% of Peloton at IPO. Splunk 3 co-founders had 5-7.5% each at IPO. Butterfield had 8% at Slack IPO.
So you may be foregoing 10 years of $700K FAANG comp for a ~$80M payday (8% equity of $1B unicorn exit).
To me it raises the question if non-founder startup equity is basically worthless. If a founder ends up diluted down to 8% at exit, what happens to the 0.5-1% shares you get promised at hire? 0.06-0.125% ?? So your first senior engineer hire into a unicorn equity might end up worth a grand $1M at IPO? Ouch. Go grind some leetcode and work for FAANG and make that in 2 years.
> only about 50 companies met that expectation out of the 4,000 or so that went through their program. That’s 1.25% ... All those 4,000 kids who went into YC also thought they were visionaries, and where are they now? They’re all in the startup cemetery, except for a dozen or so who despite the low odds managed to flip 10 heads in a row.
This is a bit nitpicky, but:
* Some of those 4,000 may end up super successful but haven't yet; this isn't considering lag.
* Ten heads in a row is 0.1%; this is closest to six heads in a row.
I agree that your odds are low, and you should consider how much you care about a small chance of a massive success. But the odds do matter!
This is a bit nitpicky, but:
* Some of those 4,000 may end up super successful but haven't yet; this isn't considering lag.
* Ten heads in a row is 0.1%; this is closest to six heads in a row.
I agree that your odds are low, and you should consider how much you care about a small chance of a massive success. But the odds do matter!
I guess the thing that always sticks out to me is: access to seed capital to bootstrap.
How can people ... adult, not in their early 20s etc ... afford to quit their job, and still feed themselves and family and pay mortgage ... to go off for months to a year to build a product to bootstrap something like that?
If you get into Y Combinator or whatever, there is at least a partial answer to that. Though clearly it comes with some really intense "strings attached."
This seems like a yawning gap in technology and it biases the set of solutions and products out there to those things that feed the VC furnace.
How can people ... adult, not in their early 20s etc ... afford to quit their job, and still feed themselves and family and pay mortgage ... to go off for months to a year to build a product to bootstrap something like that?
If you get into Y Combinator or whatever, there is at least a partial answer to that. Though clearly it comes with some really intense "strings attached."
This seems like a yawning gap in technology and it biases the set of solutions and products out there to those things that feed the VC furnace.
Rich parents; Google, Amazon et al were started in a garage.
This is what I don't get about today; just owning a house with some extra space, an internet connection, and being young and not having to work because your parents can support you into your 20's already gives people a huge advantage.
But loads of people enter their 20's deep in debt, living paycheck to paycheck, etc. Little or no innovation can happen in those conditions, let alone starting families and the like.
This is what I don't get about today; just owning a house with some extra space, an internet connection, and being young and not having to work because your parents can support you into your 20's already gives people a huge advantage.
But loads of people enter their 20's deep in debt, living paycheck to paycheck, etc. Little or no innovation can happen in those conditions, let alone starting families and the like.
Google only partially started in Susan Wojcicki's parent's garage. The reality is that L&S already did a bunch of the Google work at Stanford.
Same with e.g. Netscape. It started as a fork of Mosaic, already developed and paid for by a team.
Anyways, largely agreeing with you. Rich parents or favourable conditions generally play into it.
The other thing is that these conditions also tend to bias things such that even for the people who "bootstrap", they're young; which means that experienced, "wise" engineers ... who generally have lives and responsibilities ... are on the whole excluded. Which I think has a deleterious effect on the kind of products/projects that can make it to market.
Same with e.g. Netscape. It started as a fork of Mosaic, already developed and paid for by a team.
Anyways, largely agreeing with you. Rich parents or favourable conditions generally play into it.
The other thing is that these conditions also tend to bias things such that even for the people who "bootstrap", they're young; which means that experienced, "wise" engineers ... who generally have lives and responsibilities ... are on the whole excluded. Which I think has a deleterious effect on the kind of products/projects that can make it to market.
Agreed A LOT of successful founder stories fall apart when you dig below the surface.
Being born to parents rich enough that you could pursue an expensive education at a prestigious school, possibly beyond a 4 year degree. And then have the luxury of falling back to "living at home" with parents who own a home in a HCOL area where all the action is like NYC/SF/Seattle/Boston. And finally falling back on parental skills or connections because being in a HCOL area, they are distinguished professionals themselves who can give you legal/sales advice or hand you your first customers.
My parents handed me the newspaper with lawn care jobs circled when I turned 16. If I didn't succeed in college, and get a good job.. living-at-home would be in a shared bedroom with a younger sibling in an exurb.
And I was STILL lucky, probably in the economic top 10 or 20%, because I had a home to fall back on, 25% scholarship + 50% family funding which left me with minimal loans.
Most of these success stories are from kids who started in the 5% and got into the 0.1%.
Being born to parents rich enough that you could pursue an expensive education at a prestigious school, possibly beyond a 4 year degree. And then have the luxury of falling back to "living at home" with parents who own a home in a HCOL area where all the action is like NYC/SF/Seattle/Boston. And finally falling back on parental skills or connections because being in a HCOL area, they are distinguished professionals themselves who can give you legal/sales advice or hand you your first customers.
My parents handed me the newspaper with lawn care jobs circled when I turned 16. If I didn't succeed in college, and get a good job.. living-at-home would be in a shared bedroom with a younger sibling in an exurb.
And I was STILL lucky, probably in the economic top 10 or 20%, because I had a home to fall back on, 25% scholarship + 50% family funding which left me with minimal loans.
Most of these success stories are from kids who started in the 5% and got into the 0.1%.
It’s possible with hard work and decent luck, but if you look behind the scenes it almost always involves family money. There’s a lot of carefully cultivated imagery around hardworking founders, and it’s true that many of them put in long hours, but that’s not sufficient in most cases unless you can also take advantage of things like free real estate or being able to get your first million in funding from your parent’s friends.
There’s a similar vein of story which repeats frequently in the news where some young couple has a “we bought a house in our 20s!” feel-good story and it’s like “I packed lunch every day, only went out to eat once a week, and we lived in my parent’s investment apartment for 3 years rent free” where the Calvinist tone directs all of the attention to the first part.
There’s a similar vein of story which repeats frequently in the news where some young couple has a “we bought a house in our 20s!” feel-good story and it’s like “I packed lunch every day, only went out to eat once a week, and we lived in my parent’s investment apartment for 3 years rent free” where the Calvinist tone directs all of the attention to the first part.
There are actually other options. I'm 38 and managed to eke out about 2 years of runway without touching VC money from grants and private donations. No family money or huge savings.
If you're building interesting things in an area where many people are annoyed with the status quo, you can according to my survivorship bias have money thrown at you, which then becomes self-reinforcing, since you can put more time into the project and find more success.
But there's admittedly a chicken and egg problem. I only got to that point by not having much work-life balance.
If you're building interesting things in an area where many people are annoyed with the status quo, you can according to my survivorship bias have money thrown at you, which then becomes self-reinforcing, since you can put more time into the project and find more success.
But there's admittedly a chicken and egg problem. I only got to that point by not having much work-life balance.
I think the issue is a lot of people think "I have an idea and all I need is money" versus "I have these skills and constraints what is an idea I can make work with them."
You don't need to do those things though. I'm almost 40, I like programming. I do it for fun in my own time. I've got couple of projects that earn around a 1/3 of my salary every month without doing too much more with then. I plan on making a few of those. Some will fail, some will succeed. I still get to pick what I work on and enjoy doing it. If they all fail then it doesn't matter too much.
>How can people ... adult, not in their early 20s etc ... afford to quit their job, and still feed themselves and family and pay mortgage ... to go off for months to a year to build a product to bootstrap something like that?
Work on it part time or save money beforehand by living below your means (which you really should do anyways but that's besides the point).
Work on it part time or save money beforehand by living below your means (which you really should do anyways but that's besides the point).
You shouldn’t do spend months on your project.
You do like what Tony did here: https://news.ycombinator.com/item?id=37622702
Make several weekend projects, improve your selection criteria over time, take what works, and throw away the rest.
You do like what Tony did here: https://news.ycombinator.com/item?id=37622702
Make several weekend projects, improve your selection criteria over time, take what works, and throw away the rest.
How can people ... adult, not in their early 20s etc ... afford to quit their job
Depending on what you did the first 20 years of your career, it isn't unreasonable to be 45 and have enough savings that going without pay for 12 months is feasible, especially if you come from a well off background. This is doubly true if you have a partner that also has a job. Also at 45 you hopefully have enough professional contacts that getting a new job if your business fails isn't impossible.
Another option is to bootstrap in your free time and then quit your job once you have your first customer. I've had at least a couple of colleagues that have done that.
Depending on what you did the first 20 years of your career, it isn't unreasonable to be 45 and have enough savings that going without pay for 12 months is feasible, especially if you come from a well off background. This is doubly true if you have a partner that also has a job. Also at 45 you hopefully have enough professional contacts that getting a new job if your business fails isn't impossible.
Another option is to bootstrap in your free time and then quit your job once you have your first customer. I've had at least a couple of colleagues that have done that.
I could maybe do 12 months without bringing in a paycheque by digging into savings, for sure.
The problem is that to properly bootstrap does mean there's things you'll need to pay out of pocket for that aren't just your own labour: for me this would be things like UX / graphic design, hosting costs, etc. That stuff can add up.
The problem is that to properly bootstrap does mean there's things you'll need to pay out of pocket for that aren't just your own labour: for me this would be things like UX / graphic design, hosting costs, etc. That stuff can add up.
> How can people ... adult, not in their early 20s etc ... afford to quit their job, and still feed themselves and family and pay mortgage ... to go off for months to a year to build a product to bootstrap something like that?
They can’t. That’s why bootstrap capitalism is largely a myth. When you scratch the surface what you often find is inherited wealth. If a person starts with a free house or a million dollars they have a massive advantage.
They can’t. That’s why bootstrap capitalism is largely a myth. When you scratch the surface what you often find is inherited wealth. If a person starts with a free house or a million dollars they have a massive advantage.
There's a massive number of small businesses in the US owned by immigrants that came to the US with fairly little. It's fair to say you prefer a regular job or VC money to the hell those immigrants went through but that is different than it being even close to impossible.
Yes, but also consider that most of those were smaller businesses with different revenue prospects. It’s still an accomplishment but the feel good stories which feature in the news are things like “Mark started a billion dollar company in his dorm room”, not “Lan worked 80 hour weeks to start a solid restaurant which provides a decent middle class income but no likelihood of becoming actually rich”.
I mean we're talking about an article on lifestyle businesses so going from "I can't bootstrap a lifestyle business on my own" to "I can't bootstrap a billion dollar business on my own" seems to be moving the goal post.
We’re talking about an article which also talked about the allure of growing billion dollar companies which YC uses to recruit. My point was simply that there’s a LOT of marketing for “be your own boss” concepts which sound like you’re a lot better off than, say, the typical immigrant who works hard and ends up with a small business paying a decent but not noteworthy income. Those narratives rarely end with “you too could own a laundromat and convenience store in Flushing!”
It’s not just about setting realistic expectations but also recognizing how often there are opportunities which only people with assets can take. For example, being married to someone high income with health insurance means that you are able to take a chance even if it won’t pay the bills immediately whereas someone else is limited to what they can do on the weekends.
It’s not just about setting realistic expectations but also recognizing how often there are opportunities which only people with assets can take. For example, being married to someone high income with health insurance means that you are able to take a chance even if it won’t pay the bills immediately whereas someone else is limited to what they can do on the weekends.
There are also immigrants who came to America who started businesses using their wealth from their home countries, like my in-laws who are literally revanchist counter-revolutionaries in exile. Immigrants as a class are the most highly-resources people among the population of their home country, even if they are relatively lower status in the place they arrive.
From the outside looking in, it seems to me that the biggest benefit of YC is the people you get to meet and build relationships with along w/ the advice and feedback and accountability to focus on the things that actually matter to growing a business. These are lessons and relationships that will carry through even if you decide that VC-backed hypergrowth isn't for you and you want a small lifestyle business. Joining YC does not preclude you from doing things differently, but it does provide access to some amazingly smart and capable people that would be hard, if not impossible, to replicate somewhere else.
Don't really get it, there is no should or shouldn't. If you think your idea has multi billion dollar market then go for it, if it doesn't then YC probably don't want you anyway, there is no conflict.
This article is so rubbish about YC. There was a very good article about YC's founding and philosophy by Jessica Livingston the other day https://foundersatwork.posthaven.com/grow-the-puzzle-around-...
I mean, from Vassallo:
>...YC wouldn't have a measly 1.25% success rate, or thereabouts.
From YCs site "39% of YC companies have raised a Series A". If success is only going over $1bn them him and all his students are failures along with 99.99% of the population.
>The biggest indicator YC is a bad deal is that only people who are easily duped take up these deals.
Again from YC "Every 6 months over 10,000 companies apply to participate in our accelerator and we typically have a 1.5% - 2% acceptance rate."
The main problem with YC would seem to be the difficulty of getting in. Fair enough starting VC style startups isn't for everyone but there's no need to lie about YC to flog his dumb course really.
I mean, from Vassallo:
>...YC wouldn't have a measly 1.25% success rate, or thereabouts.
From YCs site "39% of YC companies have raised a Series A". If success is only going over $1bn them him and all his students are failures along with 99.99% of the population.
>The biggest indicator YC is a bad deal is that only people who are easily duped take up these deals.
Again from YC "Every 6 months over 10,000 companies apply to participate in our accelerator and we typically have a 1.5% - 2% acceptance rate."
The main problem with YC would seem to be the difficulty of getting in. Fair enough starting VC style startups isn't for everyone but there's no need to lie about YC to flog his dumb course really.
This article would be more accurately titled, "Why you shouldn't try to build a venture capital funded business." Of course, my suggested title is not nearly as compelling and edgy as the actual title, and would be less likely to make it to the front page of Hacker News.
The content in the article isn't inaccurate or misleading per se, but it's also basically repackaging well understood information about the economics of startups and venture backed businesses.
Further, the author asserts that, if you're trying to optimize your personal economic outcomes, you should not pursue venture funding. But this wrongly assumes that money is the sole motivator people have for starting a business. Further, it ignores the massive economic value that the venture ecosystem has created.
Some people want to retire early. Some people have bigger ambitions. Neither group is right or wrong, but, if you're starting the business, you should know which group you're part of.
The content in the article isn't inaccurate or misleading per se, but it's also basically repackaging well understood information about the economics of startups and venture backed businesses.
Further, the author asserts that, if you're trying to optimize your personal economic outcomes, you should not pursue venture funding. But this wrongly assumes that money is the sole motivator people have for starting a business. Further, it ignores the massive economic value that the venture ecosystem has created.
Some people want to retire early. Some people have bigger ambitions. Neither group is right or wrong, but, if you're starting the business, you should know which group you're part of.
> "Further, it ignores the massive economic value that the venture ecosystem has created."
The subtitle of the post is: "Or why YC is good for the economy but bad for your economy."
The subtitle of the post is: "Or why YC is good for the economy but bad for your economy."
So much to unpack, so I will not just not bother apart from one point that I keep to be discussing with many people who are stuck in a buzzword mode: "I run a community for small-time entrepreneurs who are satisfied with reliably attainable mediocre success".
The bakery around the corner from my house has been around for the past 20 years. It makes a bucketloads of money every day. The guy who runs it is in complaint-mode 24/7. BUT he still runs the place, he still NOT innovates, he still sells good, tasty, average, boring bread.
Perhaps Daniel wants that. Good for him. The same for the "community for small-time entrepreneurs". Good for them. But if someone has the next Dropbox-potential idea, you better hand out with this crew here, than that crew there. Because that crew there will settle for mediocre, while this crew here will aim higher.
The bakery around the corner from my house has been around for the past 20 years. It makes a bucketloads of money every day. The guy who runs it is in complaint-mode 24/7. BUT he still runs the place, he still NOT innovates, he still sells good, tasty, average, boring bread.
Perhaps Daniel wants that. Good for him. The same for the "community for small-time entrepreneurs". Good for them. But if someone has the next Dropbox-potential idea, you better hand out with this crew here, than that crew there. Because that crew there will settle for mediocre, while this crew here will aim higher.
I agree with you, but I also agree with Daniel. Content like this is IMO oriented to two audiences:
- Those who think of VC funding for a startup as the "default mode" and haven't considered a "slow burn"/lifestyle business/bootstrap/whatever alternative buzzword approach.
- Those who already agree with the indie hacker/no-VC style approach and Daniel's writing appeals to their confirmation bias. It's a feel-good piece for them.
- Those who think of VC funding for a startup as the "default mode" and haven't considered a "slow burn"/lifestyle business/bootstrap/whatever alternative buzzword approach.
- Those who already agree with the indie hacker/no-VC style approach and Daniel's writing appeals to their confirmation bias. It's a feel-good piece for them.
> Those who already agree with the indie hacker/no-VC style approach and Daniel's writing appeals to their confirmation bias
Indeed.
Maybe old founders of YC can chime in but I do not think that someone that has that entrepreneurial spirit to have a start-up would gave up to a small-bet approach.
If we count all skills/perks/network of being in a YC program (seeing from the outside) it's a very hard sell to this folks.
There are several folks that at the same time could not take the BigCo. 9-5 could not take the solopreneurship/bootstrap as well.
Personally the idea of small-bets would not work for me due to the nature of my job (low-stress environment, high pay, a job that fits in my lifestyle and transitivity around countries with my set of skills) but I see the point on the approach.
Indeed.
Maybe old founders of YC can chime in but I do not think that someone that has that entrepreneurial spirit to have a start-up would gave up to a small-bet approach.
If we count all skills/perks/network of being in a YC program (seeing from the outside) it's a very hard sell to this folks.
There are several folks that at the same time could not take the BigCo. 9-5 could not take the solopreneurship/bootstrap as well.
Personally the idea of small-bets would not work for me due to the nature of my job (low-stress environment, high pay, a job that fits in my lifestyle and transitivity around countries with my set of skills) but I see the point on the approach.
> The same for the "community for small-time entrepreneurs". Good for them. But if someone has the next Dropbox-potential idea, you better hand out with this crew here, than that crew there. Because that crew there will settle for mediocre, while this crew here will aim higher.
There's a third way. Don't take VC, but hustle and focus on excellence and growth.
If you need capital, realize there are other non-dilutive sources. Or that perhaps you can achieve similar results with far less money than a speedy VC-backed company.
Think: what if I were not <demographics statistically favored by VCs> and did not have access to VC? How would I grow this business?
Think: how would the Mailchimp founders ($12 B exit), or the SAS founders, or the Epic Systems founder have solved this problem? Think: am I even aware that many (most?) multi-millionaire tech founders did not raise VC?
Look to non-tech industries for inspiration; VC typically doesn't fund high-growth companies, like Spanx, that are not tech companies. Then get big anyway, on your own terms.
The dichotomy between VC or small-time is false.
There's a third way. Don't take VC, but hustle and focus on excellence and growth.
If you need capital, realize there are other non-dilutive sources. Or that perhaps you can achieve similar results with far less money than a speedy VC-backed company.
Think: what if I were not <demographics statistically favored by VCs> and did not have access to VC? How would I grow this business?
Think: how would the Mailchimp founders ($12 B exit), or the SAS founders, or the Epic Systems founder have solved this problem? Think: am I even aware that many (most?) multi-millionaire tech founders did not raise VC?
Look to non-tech industries for inspiration; VC typically doesn't fund high-growth companies, like Spanx, that are not tech companies. Then get big anyway, on your own terms.
The dichotomy between VC or small-time is false.
This man is calling anyone that does not become a billionaire a failure and those that get it a "success".
This binary thinking is beyond stupid. It is a reasonable thing with hard work to become millionaire and to earn more money than what you need. It is a reasonable thing to work on interesting problems with interesting people.
Once you have enough money your are not going to get happier with more money. On the contrary, with billions in the bank you can not do normal things because people could want to kidnap your family, and people around you are faking all the time their true intentions. You are being asked for money all the time and so on. You can trust nobody.
Most people that get into YC are going to get enough of those good things, but not too much, and this is going to make them to be in the top 5% in the world in satisfaction.
This binary thinking is beyond stupid. It is a reasonable thing with hard work to become millionaire and to earn more money than what you need. It is a reasonable thing to work on interesting problems with interesting people.
Once you have enough money your are not going to get happier with more money. On the contrary, with billions in the bank you can not do normal things because people could want to kidnap your family, and people around you are faking all the time their true intentions. You are being asked for money all the time and so on. You can trust nobody.
Most people that get into YC are going to get enough of those good things, but not too much, and this is going to make them to be in the top 5% in the world in satisfaction.
He even has a "Unlearning is hard" section in his article.
Maybe he needs to unlearn the idea that you need to go big or go die.
Maybe he needs to unlearn the idea that you need to go big or go die.
Having been on both sides of this, ran a YC startup and now running a "lifestyle" SaaS business, the honest reality is that both have their risks/rewards. I wouldn't trade anything for the experience + network I received from being a part of a YC batch. But bootstrapping a business and going from $0 to $1 is also just as exciting for me as well right now. Most likely for my next business, I will be re-applying for YC again.
The best note that I saved that someone else wrote: Know What You Want. Do you want to build a lifestyle business? Do you want to grow into a company with employees? Do you want funding? An exit? You should figure these things out. Decide your own goals, don’t let someone decide it for you.
The best note that I saved that someone else wrote: Know What You Want. Do you want to build a lifestyle business? Do you want to grow into a company with employees? Do you want funding? An exit? You should figure these things out. Decide your own goals, don’t let someone decide it for you.
I bet the distribution of outcomes among all YC participants tells a different story - not all or nothing. Getting acquired or acqui-hired, while not as prestigious, often nets the founders as much or more than the opportunity cost of not taking lucrative tech jobs. And surely there are plenty that need to close up shop without any financial outcome at all as well, but again, would love to see the distribution.
Also, even those who do not net any financial outcome, how many of those founders would say they regret going through YC? Guessing they have built a great network, learned a ton more than they would have as an IC at a big company, and are well positioned to do whatever they want to next, even joining a big company after all.
Also, even those who do not net any financial outcome, how many of those founders would say they regret going through YC? Guessing they have built a great network, learned a ton more than they would have as an IC at a big company, and are well positioned to do whatever they want to next, even joining a big company after all.
I like David's posts on Twitter generally, but this piece is poorly written.
Big opener, controversial take, put a thing down, just to build your own product up by comparison, lack of nuance... from the get-go you can tell it's a marketing piece.
The premise imo is wrong.
> Silicon Valley is a non-ergodic industry
How do you define this? Obviously Daniel's take is on the founders that failed, that were stressed out by investors etc. but he doesn't talk about the thousands of people with the highest paying, most comfortable job they've ever had. People that switched from manual labor to customer support or programming. Or the thousands of minted (multi-)millionaires that got there by just working a comfortable 9-5 for 5-10 years? (in fact, he may be one of the beneficiaries of a SV style system, through his AWS career that sounded like it landed him enough money to start on his entrepreneurial journey – not so non-ergodic now...)
And of course, he loses credibility because he is selling his course. The whole point of the blog post is to sour YC and siphon off a few readers to his course. Kudos to him too, I mean, that's marketing, and it seems like that course is great too! But, imo, he is not taking the high road here.
YC has a great track record at helping people succeed. And if they didn't succeed, it opened doors. YC foots the bill for you to explore an idea. Sure, you can be smart enough to get into YC, but still naive enough to believe a religion-version of YC, about changing the world and something-something vision; then again, maybe you are smart enough to know what you're getting yourself into. Or you should.
Because on the other hand, there are plenty of people peddling get-rich-quick schemes out there, and how you can make it on your own, "just do this thing". Life's tough out there, and going solo is a difficult journey (something not mentioned often). You work for a company, or you work with investors, you are protected / sheltered. Choose your own path, for sure, but also recognize the pros and cons and how nuanced this situation is.
Big opener, controversial take, put a thing down, just to build your own product up by comparison, lack of nuance... from the get-go you can tell it's a marketing piece.
The premise imo is wrong.
> Silicon Valley is a non-ergodic industry
How do you define this? Obviously Daniel's take is on the founders that failed, that were stressed out by investors etc. but he doesn't talk about the thousands of people with the highest paying, most comfortable job they've ever had. People that switched from manual labor to customer support or programming. Or the thousands of minted (multi-)millionaires that got there by just working a comfortable 9-5 for 5-10 years? (in fact, he may be one of the beneficiaries of a SV style system, through his AWS career that sounded like it landed him enough money to start on his entrepreneurial journey – not so non-ergodic now...)
And of course, he loses credibility because he is selling his course. The whole point of the blog post is to sour YC and siphon off a few readers to his course. Kudos to him too, I mean, that's marketing, and it seems like that course is great too! But, imo, he is not taking the high road here.
YC has a great track record at helping people succeed. And if they didn't succeed, it opened doors. YC foots the bill for you to explore an idea. Sure, you can be smart enough to get into YC, but still naive enough to believe a religion-version of YC, about changing the world and something-something vision; then again, maybe you are smart enough to know what you're getting yourself into. Or you should.
Because on the other hand, there are plenty of people peddling get-rich-quick schemes out there, and how you can make it on your own, "just do this thing". Life's tough out there, and going solo is a difficult journey (something not mentioned often). You work for a company, or you work with investors, you are protected / sheltered. Choose your own path, for sure, but also recognize the pros and cons and how nuanced this situation is.
Seems like it's just a matter of the stats you want, goals you have and compromise you are willing to make, as usual.
Per the article itself, Y combinators is actually a good deal if your objectives and theirs align.
If they don't, don's sign up.
Also the sky is blue.
Per the article itself, Y combinators is actually a good deal if your objectives and theirs align.
If they don't, don's sign up.
Also the sky is blue.
This article is built over the assumption that 1.25% is small, but it never presents how this number changes between YC and non-YC companies. Without this comparison it doesn't make sense to say 1.25% is small.
It is too small when the expected payoff is business success in one lifetime.
Alot of commenters here talking about scaling a saas biz which they can ride to retirement but imo it's a shot not worth taking for the average person. Way easier to build a consulting practice or become skilled in a niche area of development. There's literally Fortran developers making 500k year taking odd contracts. I know a MongoDB sme who bills $300/hr to fix common scalability challenges and address technical debt. Yes it's not sexy and you won't be featured on product hunt, but you'll be rich and can retire young in decadence.
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Very compelling arguments against being someone's longshot bet.
But then he says that pivoting doesn't work either. Wasn't pivoting, in his analogy, deciding to dig for treasure in a new place?
But then he says that pivoting doesn't work either. Wasn't pivoting, in his analogy, deciding to dig for treasure in a new place?
From the comments about pivots, there are arguably two forms:
1) after digging a deep hole, or even a mine, deciding no treasure, and starting a new mine
2) checking whether the shovel breaks the surface easily, and moving around till it can dig
It may be true VC want diggers to see how deep the mine can go before giving up, it may also be true VC want diggers to scrabble around surface area at the start until there's at least some sign of purchase. Those aren't exclusive.
1) after digging a deep hole, or even a mine, deciding no treasure, and starting a new mine
2) checking whether the shovel breaks the surface easily, and moving around till it can dig
It may be true VC want diggers to see how deep the mine can go before giving up, it may also be true VC want diggers to scrabble around surface area at the start until there's at least some sign of purchase. Those aren't exclusive.
This is a really bad article. There is a nugget of truth, but it's never properly articulated because the author himself doesn't actually understand the distinction.
If you've already decided you want to build a unicorn and are willing to make take that <1% chance of success, YC will help you. If you want a lifestyle business, you could probably skip YC (though you probably wouldn't get accepted even if you applied with that idea anyways).
If you've already decided you want to build a unicorn and are willing to make take that <1% chance of success, YC will help you. If you want a lifestyle business, you could probably skip YC (though you probably wouldn't get accepted even if you applied with that idea anyways).
Are there any "accelerators" that are employee-owned? I'm thinking of an arrangement where it's basically a software consulting company 90% of the time to pay the bills and get experience/inspiration. The remaining 10% of the time is spent trying to spin out new businesses that are collectively owned. Modulate the ratio as appropriate.
So if one project becomes successful, the principals can pivot to that and drop other ventures?
So if one project becomes successful, the principals can pivot to that and drop other ventures?
So many mistakes! a) What you describe is the VC industry, not YC. b) Yes, it's a well known fact that the expected value (in $$$) of doing a startup is less than that of being an employee, so don't do it for the money; and c) most importantly, your article makes no argument for the claim of your title, because it doesn't compare success rates with or without joining YC.
There’s a lot of different ways to build a business.
YC promotes one path of doing so (the VC funded path). If your incentives as a founder aligns with YC’s values and interests, then it can be a great value add.
But for every company that’s a fit for YC, there are a lot of companies that absolutely aren’t a good fit (e.g. if you’re planning on bootstrapping, you should steer clear of YC).
There’s no 1 right way to get a business off the ground.
YC promotes one path of doing so (the VC funded path). If your incentives as a founder aligns with YC’s values and interests, then it can be a great value add.
But for every company that’s a fit for YC, there are a lot of companies that absolutely aren’t a good fit (e.g. if you’re planning on bootstrapping, you should steer clear of YC).
There’s no 1 right way to get a business off the ground.
I think the point was just because your a "good fit" for YC doesn't mean the odds are with you. It's similar to the lotto moto. "you can win if you don't play".
If this is news to you, you definitely shouldn’t be starting a VC backed company.
(“You” being the proverbial “you”)
(“You” being the proverbial “you”)
What I don't understand with this article is why it should be beneficial for YC to make you dig deep rather than everywhere. The digging analogy basically says that you can push founders in a way that the probability of ANY success decreases, but the overall average return increases. What push mechanism is that supposed to be? Fixation on an idea? And how will it increase return?
Dig deep because that's the highest chance of a single or few people hitting gold.
There's not enough time for a single person to dig everywhere and it'd likely be a low payout if they did.
The push is that YC won't find the exact same idea and none others. It's a spread to maximise the tiles of people digging.
There's not enough time for a single person to dig everywhere and it'd likely be a low payout if they did.
The push is that YC won't find the exact same idea and none others. It's a spread to maximise the tiles of people digging.
It is due to heavy-tailed returns; the winner who goes deep strikes big and compensates for the rest.
I think this article is more directed towards all Venture Capital funding rather than just Y Comb. Mostly the type that demands an absolutely insane amount of return.
Actually more like why you shouldn't make a startup and instead live a bit longer. Then, if an idea comes to you, it'd be vetted through more experience and time.
And if you still want VC funding, just remember the house is setup to always win.
Actually more like why you shouldn't make a startup and instead live a bit longer. Then, if an idea comes to you, it'd be vetted through more experience and time.
And if you still want VC funding, just remember the house is setup to always win.
This is just a collection of absolutely flawed arguments. Any (even a little bit) smart person reading this should see the BS immediately
This article is just bad.
> So, digging in one spot is a dumb strategy for the economy of the individual, but a very wise strategy for the collective economy of all individuals.
First starts with the idea of diversification and why its good. Fair enough. Then an argument how a mining company could "just hire individual miners to do dig in one spot for cheap". While the individual miners are getting poorer you'll get rich! So why don't mining operations operate this way? Because there isn't an unlimited supply of stupid people to do waste away their lives for you to capture all the value.
> This is what happens in a non-ergodic system. We often hear politicians claim that the GDP is growing, but all the gains are going to the 1%. This is the same thing. The wealth of a country could be growing, but almost all the citizens could be getting poorer. There’s nothing inconsistent with this. The average is simply being dragged up by the freak outliers.
I'm fortunate enough to be living in a country with a growing GDP and I can tell you, life is pretty good here, even if you're not 1%. Sure could be better, but certainly great compared to countries with a contracting or stagnant economy. But cool, overstate your claim that the system is rigged.
> One of the bad learnings you get from YC is that there’s a formula for success, and it looks like this: First you do some brainstorming. Then you come up with a good idea that can scale to a billion dollars (otherwise what’s the point of getting out of bed in the morning?)
I was never part of YC but I read a lot of their literature and listened to a lot of their members, and this is opposite of their advice. The gospel is do things that don't scale and solve problems you're familiar with or have felt personally.
I guess my biggest gripe with the post is that the author sees founders as basically dumb diggers, a stupid exploitable resource that places like YC take advantage of. His bar for success is unicorn and only 1.25% of companies funded by YC make it. But would the other 98.75% have been better off working on optimizing ad placement at Google or something similar?
Sure taking VC money doesn't make sense in a lot of cases. If you can build a cash business without it, you probably should. And YC is definitely one of the better VCs from what I understand and have even pioneered the SAFE which was a huge step up from some contracts founders were asked to sign in the past.
> So, digging in one spot is a dumb strategy for the economy of the individual, but a very wise strategy for the collective economy of all individuals.
First starts with the idea of diversification and why its good. Fair enough. Then an argument how a mining company could "just hire individual miners to do dig in one spot for cheap". While the individual miners are getting poorer you'll get rich! So why don't mining operations operate this way? Because there isn't an unlimited supply of stupid people to do waste away their lives for you to capture all the value.
> This is what happens in a non-ergodic system. We often hear politicians claim that the GDP is growing, but all the gains are going to the 1%. This is the same thing. The wealth of a country could be growing, but almost all the citizens could be getting poorer. There’s nothing inconsistent with this. The average is simply being dragged up by the freak outliers.
I'm fortunate enough to be living in a country with a growing GDP and I can tell you, life is pretty good here, even if you're not 1%. Sure could be better, but certainly great compared to countries with a contracting or stagnant economy. But cool, overstate your claim that the system is rigged.
> One of the bad learnings you get from YC is that there’s a formula for success, and it looks like this: First you do some brainstorming. Then you come up with a good idea that can scale to a billion dollars (otherwise what’s the point of getting out of bed in the morning?)
I was never part of YC but I read a lot of their literature and listened to a lot of their members, and this is opposite of their advice. The gospel is do things that don't scale and solve problems you're familiar with or have felt personally.
I guess my biggest gripe with the post is that the author sees founders as basically dumb diggers, a stupid exploitable resource that places like YC take advantage of. His bar for success is unicorn and only 1.25% of companies funded by YC make it. But would the other 98.75% have been better off working on optimizing ad placement at Google or something similar?
Sure taking VC money doesn't make sense in a lot of cases. If you can build a cash business without it, you probably should. And YC is definitely one of the better VCs from what I understand and have even pioneered the SAFE which was a huge step up from some contracts founders were asked to sign in the past.
> One of the bad learnings you get from YC is that there’s a formula for success, and it looks like this: First you do some brainstorming. Then you come up with a good idea that can scale to a billion dollars (otherwise what’s the point of getting out of bed in the morning?) Then you work hard until you find “product-market-fit.” And then if the noises from investors indicate you won’t be getting a next round of funding, you start looking for a “pivot.”
YC is fairly relentless about iteratively finding product market fit but as far as pivoting goes - while YC makes it clear that you can pivot, it's pretty obvious that it's not ideal (but if people don't want your product, that's even less ideal). YC most definitely does not bill pivoting as part of a formula for success.
They also care about your idea when you apply, they do not expect you to start fresh during the batch. I honestly don't remember them saying anything about brainstorming, and that's probably because it's not true - most good startups have an unfair advantage in their industry and most founders already have some experience in their field of choice. Throwing a dart at a board and making a unicorn is quite rare indeed.
So this "formula" is mostly a strawman. And notably he tears down pretty much everything but iteratively finding product market fit, the one kernel of truth in this entire rant.
> Think about this for a second: The most successful business owners are typically in their 40s and 50s. Why is YC full of 22 year olds? Why aren’t the 40 year old entrepreneurs taking up this incredible deal that YC is offering? YC will tell you it’s because only the 22 year old kids can be true visionaries. BULL. SHIT.
So I went through YC in 2014 and I was 22 at the time - and I was among the youngest in the batch. Most founders seemed more towards his proposed age range, and to be fair they seemed to have a better handle on things. Go figure. So YC most definitely does not say that "only the 22 year old kids can be true visionaries." At least in 2014, it was in fact rare for them to bet on 22 year-olds.
> You might think that those who failed might still have gotten something. Maybe.
If you haven't founded a business before, it's quite valuable because you don't know what you don't know. Once you're a little more seasoned, I'd say it's a lot more situational.
YC is fairly relentless about iteratively finding product market fit but as far as pivoting goes - while YC makes it clear that you can pivot, it's pretty obvious that it's not ideal (but if people don't want your product, that's even less ideal). YC most definitely does not bill pivoting as part of a formula for success.
They also care about your idea when you apply, they do not expect you to start fresh during the batch. I honestly don't remember them saying anything about brainstorming, and that's probably because it's not true - most good startups have an unfair advantage in their industry and most founders already have some experience in their field of choice. Throwing a dart at a board and making a unicorn is quite rare indeed.
So this "formula" is mostly a strawman. And notably he tears down pretty much everything but iteratively finding product market fit, the one kernel of truth in this entire rant.
> Think about this for a second: The most successful business owners are typically in their 40s and 50s. Why is YC full of 22 year olds? Why aren’t the 40 year old entrepreneurs taking up this incredible deal that YC is offering? YC will tell you it’s because only the 22 year old kids can be true visionaries. BULL. SHIT.
So I went through YC in 2014 and I was 22 at the time - and I was among the youngest in the batch. Most founders seemed more towards his proposed age range, and to be fair they seemed to have a better handle on things. Go figure. So YC most definitely does not say that "only the 22 year old kids can be true visionaries." At least in 2014, it was in fact rare for them to bet on 22 year-olds.
> You might think that those who failed might still have gotten something. Maybe.
If you haven't founded a business before, it's quite valuable because you don't know what you don't know. Once you're a little more seasoned, I'd say it's a lot more situational.
> If you reach the magma layer and you still have nothing, then you’d be encouraged to pivot. But that’s not how you find business opportunities in the real world.
I think he is treating pivoting as if it's some totally random exercise. Surely a pivot is when you see something within your existing activity that may be a better avenue to pursue? Or am I misunderstanding that?
I think he is treating pivoting as if it's some totally random exercise. Surely a pivot is when you see something within your existing activity that may be a better avenue to pursue? Or am I misunderstanding that?
Aren’t most yc or funded founders broke asf? Meanwhile the solopreneur scene is printing cash money. Daniel makes good points here.
VC business is reinforcement learning for investors doing the exploitation part whereas founders doing the exploration part.
I think you have it backwards. Each founder exploits one idea, and the ensemble of VC's founders explores.
You seem to be thinking of the colloquial definition of exploitation.
You seem to be thinking of the colloquial definition of exploitation.
I'm trying to bootstrap a SaaS ( handshake www.weatherthetrip.com/download also on X @jasonmarks__ ) and sympathize with some of the points. Do I know what YC really does? Not really. Maybe they grease marketing? I don't think that's worth the equity ask though.
If your VC funded business fails, you probably still collected a salary. Also "failed" could mean, you had a $50m exit.
You could still argue it's a bad trade, poor work-life balance etc. but it's not like 1% chance of being a billionaire or debtors prison.
You could still argue it's a bad trade, poor work-life balance etc. but it's not like 1% chance of being a billionaire or debtors prison.
I strongly disagree with the post. YC is the most founder friendly investor I’ve ever met, and they do have founder’s best interest in mind.
Also, their deal allows them to have interests aligned with founder’s if you just stop and read what’s publicly available.
I will always recommend YC.
Also, their deal allows them to have interests aligned with founder’s if you just stop and read what’s publicly available.
I will always recommend YC.
I never implied they were not friendly. All the YC folks seem very nice. I’m sure they want you to succeed, but they succeed more if you take a strategy that is against your self-interest.
Join YC, maybe your startup is a success and you retire early. There’s a slim chance of that. However, YC on your resume opens the door for that comfy fang career slinging Java at 300k total comp.
There are easier ways to get into FANNG:
* Read Cracking the Coding Interview and practice every exercise twice.
* Publish high-quality content (projects, tutorials, blog posts).
* Contribute to OS in some meaningful way, like owning the packaging for your favorite library for your favorite distro.
* Reach out to people at the company you want to work for, or go to a meetup hosted by that Co.
All of the above is much easier than starting a company.
* Read Cracking the Coding Interview and practice every exercise twice.
* Publish high-quality content (projects, tutorials, blog posts).
* Contribute to OS in some meaningful way, like owning the packaging for your favorite library for your favorite distro.
* Reach out to people at the company you want to work for, or go to a meetup hosted by that Co.
All of the above is much easier than starting a company.
Not as fun or educational, though, in the well-rounded sense. The best way to understand the business of software is to start one.
1.5% chance of becoming a billionaire per try is good odds, actually. Also doesn’t take into account all the outcomes you become merely a millionaire (likely over 5% in the case of YC?)
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My pretentiousness detector went off when I saw a completely wrong definition of "ergodicity" at the start of the article.
It’s the definition from economics, not physics:
https://www.nature.com/articles/s41567-019-0732-0#:~:text=It....
https://m.youtube.com/watch?v=f1vXAHGIpfc&feature=emb_logo
https://www.nature.com/articles/s41567-019-0732-0#:~:text=It....
https://m.youtube.com/watch?v=f1vXAHGIpfc&feature=emb_logo
> It’s the definition from economics, not physics
They're pretty much the same, and have nothing to do with...
"First, you have to understand a very important concept: in some systems, what’s best for a group is not necessarily what’s best for the individuals who make up the group. In other words, the total wealth of a group of people could be increasing, while almost everyone making up that group could be seeing their wealth diminish. When this happens, we say we have a non-ergodic system. If the system was ergodic, what’s happening to the collective would also translate to all individuals."
...which is how the article defines "ergodic" in the section with that name at the start.
They're pretty much the same, and have nothing to do with...
"First, you have to understand a very important concept: in some systems, what’s best for a group is not necessarily what’s best for the individuals who make up the group. In other words, the total wealth of a group of people could be increasing, while almost everyone making up that group could be seeing their wealth diminish. When this happens, we say we have a non-ergodic system. If the system was ergodic, what’s happening to the collective would also translate to all individuals."
...which is how the article defines "ergodic" in the section with that name at the start.
The author of that paper, an economics professor, agrees with my definition: https://twitter.com/ole_b_peters/status/1450761675049734144
Argument from authority. Sorry, not buying it.
The physics/economics definition is basically that time average = ensemble average. (The term "expectation value" is used in the Nature paper you reference, but that amounts to the same thing.) But individuals do not experience the ensemble average. A condition on averages is not the same as a condition on individual outcomes.
The physics/economics definition is basically that time average = ensemble average. (The term "expectation value" is used in the Nature paper you reference, but that amounts to the same thing.) But individuals do not experience the ensemble average. A condition on averages is not the same as a condition on individual outcomes.
That’s how I used the term. YC experiences the ensemble average, while individuals are unable to realize their expected value because they only have one lifetime.
> YC experiences the ensemble average
Which could be equal to the time average, and thereby satisfy the definition of "ergodic" that was given, without in any way contradicting this:
> while individuals are unable to realize their expected value because they only have one lifetime.
I am not disputing that this happens. I am only disputing the use of the term "non-ergodic" to describe it, or the term "ergodic" to describe a hypothetical world where every individual experienced exactly the average outcome.
Which could be equal to the time average, and thereby satisfy the definition of "ergodic" that was given, without in any way contradicting this:
> while individuals are unable to realize their expected value because they only have one lifetime.
I am not disputing that this happens. I am only disputing the use of the term "non-ergodic" to describe it, or the term "ergodic" to describe a hypothetical world where every individual experienced exactly the average outcome.
For a contrarian argument, it is worth considering the advice of Michael Porter in his seminal study "Competitive Strategy: Techniques for Analyzing Industries and Competitors" (published in 1980):
> Some argue that firms should not choose competitive positions at all but concentrate on staying flexible, incorporating new ideas, or building up critical resources or core competencies that are portrayed as independent of competitive position. I respectfully disagree. Staying flexible in strategic terms renders competitive advantage almost unobtainable. Jumping from strategy to strategy makes it impossible to be good at implementing any of them. Continuous incorporation of new ideas is important to maintaining operational effectiveness, but this surely is not inconsistent with having a firm strategic position (xv-xvi)... A strategic position is a path, not a fixed location (xiv).
In other words, there is no such animal as a "fully diversified" entrepreneurial business (unless your business is simply investing money in a diversified stock portfolio). The very concept of a (non-financial) capitalist enterprise implies some degree of specialization. Even YC, to some extent, specializes and focuses their investments in certain high-tech industries.
> Some argue that firms should not choose competitive positions at all but concentrate on staying flexible, incorporating new ideas, or building up critical resources or core competencies that are portrayed as independent of competitive position. I respectfully disagree. Staying flexible in strategic terms renders competitive advantage almost unobtainable. Jumping from strategy to strategy makes it impossible to be good at implementing any of them. Continuous incorporation of new ideas is important to maintaining operational effectiveness, but this surely is not inconsistent with having a firm strategic position (xv-xvi)... A strategic position is a path, not a fixed location (xiv).
In other words, there is no such animal as a "fully diversified" entrepreneurial business (unless your business is simply investing money in a diversified stock portfolio). The very concept of a (non-financial) capitalist enterprise implies some degree of specialization. Even YC, to some extent, specializes and focuses their investments in certain high-tech industries.
Are there examples of YC investments that have become successful after a pivot?
everybody seems to miss one of the arguments of this article: instead of being a tiny bet for a VC, you should be like your own VC and make tiny bets on yourself. that's sensible logic.
Eh, YC and Mr. "Don't join YC! Buy my course instead!" are in the same business, they just have different target markets.
Both make money off the fact that establishing a successful, profitable business is hard and most people can't do it without some help, especially education and feedback.
He's not really competing with YC, so it's a little silly to target YC. Except, you know, it works well as a clickbait title because YC is a well-known big name, so it's disingenuous but "smart marketing."
Both make money off the fact that establishing a successful, profitable business is hard and most people can't do it without some help, especially education and feedback.
He's not really competing with YC, so it's a little silly to target YC. Except, you know, it works well as a clickbait title because YC is a well-known big name, so it's disingenuous but "smart marketing."
This is a compelling piece.
tl;dr: The "Small Bets Newsletter" says YC isn't suitable for small bets.
YC isn't designed for small bets! That's not their thing. It would be interesting to see stats on non-huge exits though, some kind of distribution showing the following with a time element, indicating, say, the number of months for various outcomes.
Huge exits 1.25% (define huge), Exit exceeding YC's investment, YC investment repaid, YC investment partially repaid, YC investment entirely lost
YC isn't designed for small bets! That's not their thing. It would be interesting to see stats on non-huge exits though, some kind of distribution showing the following with a time element, indicating, say, the number of months for various outcomes.
Huge exits 1.25% (define huge), Exit exceeding YC's investment, YC investment repaid, YC investment partially repaid, YC investment entirely lost
Already joined HN.
Would you value this take on YC whatsoever if they hadn’t been it in? How would they know what it’s really like?
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I don't think this person understands what/why pivot happens.
I also want entrepreneurs to build smaller, self funded businesses but bagging on the VC isn't the way to demonstrate that.
Both paths (and others) can exist at the same time.
The customer, the entrepreneur and (if you want them) investors need to be aligned. Some want huge, some want less huge.
Neither path guarantee success. Starting a business is more like a guaranteed failure (95% or something)
I also want entrepreneurs to build smaller, self funded businesses but bagging on the VC isn't the way to demonstrate that.
Both paths (and others) can exist at the same time.
The customer, the entrepreneur and (if you want them) investors need to be aligned. Some want huge, some want less huge.
Neither path guarantee success. Starting a business is more like a guaranteed failure (95% or something)
This is the hardest question of starting a startup (or trying to do anything novel), as far as I can tell, but this was not at all my experience with YC’s advice.
The overwhelming feeling is: be humble in the face of reality, try something and try to try it in a way that you can assess whether it’s working — quickly/cheaply — then try something new.
YC seemed perfectly fine with us either pivoting or staying the course so long as it seemed like we were trying to be intellectually honest with ourselves, and what more could you hope for? It’s not like they have the answer either — nor do they act like it.
Edit: Also YC explicitly advises against using VC feedback as signal on your idea. Ideally you’re pivoting well before you run up against “VCs won’t fund my next round,” because clearly things already weren’t working prior to that. You were trying new things and being honest about whether they were working, weren’t you?