Don’t Build a Billion-Dollar Business
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At the same time though, you are right in the market leading nature of it. That is, while building your business the opportunity might arise that you can shift what you are doing and that shift would open up your market to a larger opportunity. Alternatively you could choose not to shift and go for a smaller win.
Why I take issue with the original post is because it is basically saying, if it looks like there is a market opportunity to make a billion dollar company, don't take it.
Mojang?
So it wasn't an accident, as it happens it lined up so that interests aligned for the buyout.
Actually some do. The classic example is Google's founders - they tried to exit to Yahoo! for a million or so, but were turned down.
Perhaps "accidentally" is not the word. Of course, it's not accidental - tons of hard work is involved. But many people never dream of building a billion dollar business, and a few of them still get there.
More importantly, focusing on building a billion dollar business might not be productive. It might actually distract you from doing what customers would like you to do.
The key point though is that, somewhere between their Yahoo pitch and today Sergei and Larry made the decision to grow to the $B scale. I think it was when Eric came on actually was when that shift happened.
I'm really getting tired of these calculations of "the chance" of a startup doing X. You are not a lottery ticket. It's not random. The 20 year-old version of Mark Zuckerberg beats the 20 year-old version of me every time. Business isn't exactly chess, but it's a lot closer to hold'em than it is to a lottery.
The 20 year old Mark Zuckerberg could likely beat both of us combined in say, business. And would probably be successful no matter what. But would probably not be a billion dollar business, were circumstances even slightly different.
Lots of companies and individuals fail all the time, despite their skills.
You are unlikely to be a special snowflake. Even in the case that you are, it might be summer.
20 year old Mark Zuckerberg would keep adjusting until he was whatever a unicorn needs to be in this instant. That's his nature.
You would not.
That's the difference.
What's so special about those people? Their success is probably due to their connections, and mostly luck in timing. I'm sure there are people that are better than Larry or Sergei and are much less successful.
Even with that, Zuckerberg isn't 100% focusing on the Facebook core product; look at the Connectivity Lab, for example.
It's not all luck, a lot of it is who they are. They are mostly aspie nerds. They all went to private montessori "we just do whatever we want" schools. Those schools teach them they don't have to compromise, they don't have to be average, they don't have to work within the system. They just do whatever they want. If someone tries to stop you, you destroy them for standing in the way of you doing whatever you wanted to do.
The same people generally lack overt, crippling hardships in their lives. They get to associate with other successful people from an early age and often have built-in family or community connections.
Musk was studying supercapacitors obsessively as a kid, as a teenager, as a 20-something, and now he puts them in his cars. It's not all luck.
We're at the first age of humanity where aspie hyper-focused weirdness can be funneled into taking over the world. We're just getting started.
EDIT - This comment is at -4. And it's 100% factually and clearly observably true and devoid of emotional content. Which says a lot about how voting works on this site.
Most succeses had been a combination of being born at the right place and time, to the right parents, going to the right school and meeting the right people. Most of those are heavily determined by the past beyond one's control -- and others are semi-random.
Then there's talent for business and determination -- but it's only survivorship bias that doesn't let us see that lots of people who didn't get to have FB also had equal talent for business and determination, or even more than Mark.
Even a "perfect" Mark could have been hit by a bus before the success, or had a dehabilitating illness, etc -- and then your "magical unicorn" admiration would go to whoever else got to be succesful at the time, while Mark still be the same person (only unsuccesful).
https://en.wikipedia.org/wiki/Great_Man_theory
And since it's all about the determined individual, I also guess women, blacks, latinos, LGBT et al are just lazy or not competent enough as Mark, Gates et co to not have such many billion dollar success stories -- heck even way less million dollar success stories per percentage of the population. Right?
He was born with his star in ascendence, destined to rule over the unruly private lives of every human alive, destined to surround himself with empty mansions so no others may peek upon his divine unicornhood.
He is the first coming of social media ceo-frat-bro-jesus.
praise be unto the billionaires, for they know not what they do; they only do what they are destined to accomplish regardless of their parents sending them to $60,000 per year teenage boarding schools. do not believe you can know them, for they are not fellow humans, they are Greater while we shall always remain Lesser to their unicorn brilliance. Bow, and praise be.
Demonstrate then. "What can be asserted without evidence can be dismissed without evidence" - https://en.wikipedia.org/wiki/Hitchens%27s_razor
So, the alternative hypothesis is no better if you want to go throwing around that sort of blame.
He wasn't some genius programmer. He created a glorified forum (and in PHP).
He wasn't some genius businessman (evident from his early interviews). He created something at the right time, that got momentum because of that, and that attracted the right people to help make it a success business wise.
Would he have gotten somewhere else if it wasn't for that? Maybe, maybe not.
I don't see anything particularly convincing that he wouldn't have regressed to the mean.
1) self driven
2) loves to build
3) doesn't let things get in their way
4) goals based on their version of the future
5) deep thinkers / intellects
6) holds their own values and priorities
7) evidence driven / scientific
8) conqueror's mindset
9) idea person, doer, dreamer, student, teacher all in one
10) never was about the money, and more about passion
I don't claim this list to be 100% accurate or exhaustive, but the point is there is more than just luck and DNA, and many of these traits are acquirable. The demographic to me says that the chances of becoming that person are higher under those circumstances, but the demographic itself does not directly enable or cause any such success. Just as all presidents were white until Obama, maybe we just need someone to shatter the stereotype.
Personally, what I respect most is their capacity to generate their own philosophies and to then apply them to their products, to their companies, and to their lives. I find people that can do this are successful at any level.
I mean is Mark "deep thinkers / intellects" etc in general? Or it's just a (average) smart college boy who wrote a service that hit the right spots and got viral?
I also know many millionaires (and billionaires) for whom it was always "about the money", and that was their passion.
Yes, many of the traits are shared with average people, as is the trait of being human. This to me only attests to how similar and ordinary and close we really are to those we love to put on high pedestals. How do ordinary people accomplish extra-ordinary feats? To this I suspect combination is key. You could be perfectly capable but not have a dream. You could be a dreamer but lack self motivation... and so on and so forth. And sure, maybe you had it all except for the money to fund yourself. But either way, if we are admitting there is a combination, we're already past the luck hypothesis.
We also have to acknowledge that you can still take two people who started in roughly the same circumstances and get dramatically different outcomes due to different drives to succeed. To say "most successes had been a combination of being born at the right place and time, etc." leaves out this part of it. I went to a top university and was incredibly privileged to be born both very intelligent and in the middle class to be able to get there. Yet, while all of my classmates are doing just fine in life, there's a huge difference between those that were passionate and hard working and those who weren't. There are tons of people I know who are very smart and came from privileged backgrounds, but who you knew would never do something big because they didn't have the fire inside to work 60-100 hrs/wk for 10 years straight or who valued the prestige and reduced risk of a big company more. Honestly, I don't entirely blame them as it's not always the most fun way to live. But some people are just driven as hell and while it's not enough to be that way without the luck of natural abilities and familial resources, you shouldn't leave it out of your list of factors for things that contribute to success because it makes a really big difference even if not necessarily sufficient by itself.
That's a caricature of the problem. You don't need to live in a bad neighborhood. You only need to live in a community where people don't talk about starting businesses, don't know how to start businesses, or never made friends with anybody who owned a successful business. No connections = low chance of success.
http://thewireless.co.nz/articles/the-pencilsword-on-a-plate
And you sound like a guy who likes ad-hominens (and still believes in self-help books).
>For one Bill Gates who worked hard to become who he is, there are tons of other people who were in similar or even better situations than him who didn't.
You forgot the tons of other people who worked as hard or more hard than Bill Gates, but didn't get anywhere. Which is the whole point of this thread.
Nobody said that Bill Gates didn't work hard. Just that working hard doesn't mean much as a means to be a billionaire for three reasons:
1) You can work the same or even 2x as hard, in the same business, and get nowhere. Or do you think that failed Microsoft competitors didn't work just as hard, or weren't smart enough?
2) It's many times easier for someone with the backhistory of Bill Gates (the family, the education given to him, being white etc) to be able to even try to do what he did, that for people with less fortunate back histories. And that has nothing to do with smarts or hard work. There are tons of hardworking smart blacks, latinos, LGBT, Nigerians, Sudanese, Venezuelans, etc. Just being white and middle class (or upper middle class even better) means you play life in "easy mode".
3) And obviously you can work 2x or 10x as hard and/or smart in another business, as a scientist, coal-miner, surgeon etc and never get nowhere near making millions, much less billions.
Of course you also overestimated how hard Bill Gates actually worked to get where he got -- because you thought backwards to support your belief: "oh, he is a billionaire therefore he must have worked much harder than people that aren't billionaires to get there".
Instead of making an empirical observation: lots of company owners, in startups etc, bleed sweat for their company, often working 16 hours a day, toiling for years etc, and then fail. And that others are often made millionaires for being in the right place at the right time (Google's first cook, for one).
Gates was smart and worked hard indeed, but there were lots of CS pioneers who worked harded and were much smarter, without billions to show for it.
In fact if Digital Research's boss haven't blown IBM lucrative DOS contract for totally BS reasons, Microsoft would probably have gotten nowhere fast.
They're fairly explicit about it.
And their track record is pretty positive about the concept.
Am I wrong about YC's central operating principle?
Are they not explicit about it?
Does their track record prove them wrong?
Since we're talking here about what you call 'unicorns' (I hate that word), then we're talking about the odds of building a billion-dollar company. YC is made up of hundreds of incredibly talented entrepreneurs, and even then, it's pretty evident that building a billion dollar company is as much about luck and circumstance as it is about talent and determination.
EDIT: Correction - I was very wrong about YC stats, as it turns out [1]. My mistake. I stand by the original point, though. 8 billion-dollar companies out of ~940 YC companies demonstrate clearly that building a billion dollar company isn't easy, and takes a whole lot of luck.
50% of yc startups are still going.
Just because money changes hands in the end doesn't make it a success. You fail upwards until you become a creature of pure thought leadership (i.e. a VC whose only job is to 'have an opinion' on stuff and can never be proven wrong because, hey, it's all an opinion or luck or the market or some unforeseeable outside force you failed to consider when failures continually happen).
People who believe that will is everything are generally pretty naive. Successful people know that if external conditions were even slightly different, their path wouldn't have turned out the way it did, and no one can guarantee it would've been as prosperous.
For example, I make an OK living as a software developer. My interest in computers started when my dad brought home a Packard-Bell in the early 90s. He bought it through a discount program that his workplace offered to increase computer ownership amongst their employees. If he had worked for a different company, or if his company had not made it affordable for him to buy a computer when they were still relatively uncommon in homes, it's very possible that I would be out there bagging groceries somewhere.
If MySpace had been a little wiser, there would've been no room for Facebook. Did the people at MySpace feel the sheer force of Zuckerberg's unicorn-desire and decide to just back off? I don't think so. He was in the right place (at least half-random) at the right time (80%-ish random) and had the right skillset (probably 10% random). There are many thousands of kids like him that didn't have "the stars align" when they had their shot. It doesn't mean Z. wanted it harder and it doesn't mean that these no-names didn't do a good job. The world is not a meritocracy.
Naturally, people tend to emphasize only some of these factors, depending on their own experiences, current agenda, and what kind of story they need or want to tell at the time. Each of these stories is the truth, but not the whole truth.
[Is this fatalistic? I don't think so. Just because most factors aren't under your direct control, doesn't mean you can't be determined and keep trying. Also you could insert here some aphorism like, "it's the journey not the destination". If you're having any fun and even a modest amount of success, you're quite fortunate. You could do worse. Some billions of people probably are doing worse. You may as well be appreciative and thankful, while you keep pushing forward.]
This is an uneducated man who could barely write but managed to make a fortune through, luck, tenacity, delusions of grandeur, and a series of truly idiotic or brilliant decisions depending on how you look at it.
I'm calling it. American dream's heart stopped beating. 04/09/2015. Dead.
Nice house
Raising kids (4)
Single income
American
EDIT: I guess HN doesn't support Unicode, my cute little checkmarks are getting eaten. Maybe the dream isn't real after all...
Yes, it's expensive, and it's getting harder as prices begin to reflect the dual-income status of a lot of middle class families, but it's not that difficult if you're willing to make some basic compromises. Consider that it's all relative. I think my life is pretty nice as-is, and that's what matters.
I would say that it's a lot easier if you don't live in SF or another city with an atrocious cost of living, but really in SF and NY you need a sextuple income to afford a liveable place, so the point is kind of moot anyway.
You think folks back in the 1920s could live in the most expensive cities in the US, own a home, send their kids to college, all on one income. I don't think so.
Your seem to be saying people don't even want that any more.
If so, what's the problem?
"Luck is what happens when preparation meets opportunity." - Seneca
Scott Adams' book "How to Fail at Almost Everything and Still Win Big" also touches on this, suggesting that skill + hard work don't automatically result in success (there certainly are factors beyond our control), but it's a lottery that you can keep playing over and over with no real inherent cost other than time. Especially in software, you can test a lot of ideas with very little financial risk/investment, and persistence often allows preparation and opportunity to meet. There are no guarantees of course, except the guarantee of failure without trying.
A lot also comes down to your definition of success. I'd say aim high, but expect very little. Expect the kind of return you'd get from a hypothetical full-spectrum new venture ETF. A handful of unicorn successes averaged with a huge tail of losses = returns that are probably really depressing. Be happy with anything above that.
There are a ton more to keep going on.
I'm not saying the first versions of Facebook were ingenious feats of engineering, but Mark easily may have never learned to build things. Considering everything else mentioned in this thread, we can reasonably conclude that a lot of went very right for him at many points along the way.
2. Being white
3. Being cis
4. Being straight
5. Being born in the US
If that's your attitude, then yes he would.
But Facebook being the success it is was not due some genius insight on his part that was destined for greatness, it was mostly luck. If MySpace hadn't driven itself into the ground, Facebook would have never taken off.
If Google hadn't been so slow to realize the importance of social media, if Google+ hadn't been so bad, etc. There are any number of factors that are 100% outside of Mark Zuckerberg's ability to influence that could have stymied Facebook.
A good idea, hard work, good decision making, etc. all are necessary, but they are not enough. People who are hugely successful, and people who think they will one day be that successful like to believe that it's merit that got them there. But it's not. There's just as many talented people who don't make it. The filter is largely luck.
Survivorship bias always applies and it is the normal way.
No, he doesn't. FB's success due to 20+ random meetings, connections etc he had. And of course that there wasn't already a capable competitor in that space.
And the non-random facts of his rise, you can't control anyway (being born to rich parents, going to an Ivy League school, etc).
The idea that we as individuals are somehow "special" and odds don't matter is a fallacy.
> The theory was popularized in the 1840s by Scottish writer Thomas Carlyle.
> But in 1860 Herbert Spencer formulated a counter-argument that has remained
> influential throughout the 20th century to the present; Spencer said that
> such great men are the products of their societies, and that their actions
> would be impossible without the social conditions built before their
> lifetimes.(And if we don't care enough to do the work, then we can always not do it and just skip the comment with the link).
It serves no purpose, because the purpose itself was never mentioned. I asked for one. I don't quite understand why it bothered you.
>I don't quite understand why it bothered you.
Because of the entitlement ("YOU have to do the work" etc) and the pissing on his contribution ("what's the point of linking to such articles" etc).
That being said, how could the fact that "Great Men" have been raised in stagnating societies be explained?
If you were raised in a societie's whose culture embraces mediocrity, you have to think for yourself and let that fact not define your actions.
That's not the right question. It's whether the 20 yr old Mark Zuckerberg beats himself every time? What are his chances of doing it again.
In my life I've met a lot of people that made it, but few that made it multiple times. The ones that made it all had a lot going for them and many were brilliant. A lot of them were in the right place at the right time, and had a lot of luck along the way. Very few of them (1 that I know for sure) was a serially successful. Henry Burkhardt III. Problem is, he was not an ethical person and was sued by the SEC for fraud[1].
Let's also be honest: on the path to being insanely wealthy there are a lot of forks in the road. One fork is treating people "right" (think golden rule here) and the other is being completely selfish and screwing people over. In my career, I've been at that road many times. I always chose the sleep-at-night path. There are some serially successful people that always take the "get mine" path. I've known a few of those people, too.
So, luck and the willingness to screw people over. Those are two ingredients for success.
The older I get and the more I witness people doing business, the more I have come to the same conclusion. I would possibly broaden "willingness to screw people over" to something like "the capacity to be able to overlook or be oblivious to any negative effects of one's path to success on the other people on the planet."
I know it's a little weak to reference a fictional TV show, but the Silicon Valley investor who made it big with radio on the internet then spends the rest of his career flailing around with no idea what he's doing is more real than the mystical Great Man Unicorn.
Elon Musk has succeeded at everything he has touched, and some of those things were deemed impossible before he did them. As a society, we should be throwing money and projects at Elon until he fails for the first time in his life.
Disclaimer: I work at Backblaze.
But like both of those comparators it is certainly a gamble.
25 year old Page beats you because he invents PageRank while studying the graph structure of the web as a PhD student at Stanford. That's a much better example of intellectual horsepower/execution rather than luck playing a pivotal role in making a successful business.
Even with having the same metrics for the YC entrants, they still get more than a 50% failure rate.
It's mostly random.
Why are you so sure about that? Has anybody ever observed all the Mark Zuckerbergs that didn't make it? This situation is a classic hindsight bias problem.
What basis do you have for saying this? If Mark missed out on the social media boom, what are the odds that he would find another industry waiting for a multibillion dollar company to come along?
There were many other social networks starting when fb did. They did not build and iterate at the same speed.
https://news.ycombinator.com/item?id=10149308
Focused more on building a small (5ish people) business with $1mil in revenue a year as the path to enlightenment.
Key insight: building a $1mil/yr business ($7/mo * 12 mo/yr * 12,000 subscribers) that focuses on delivering pure awesome is an excellent way to build a $10mil/yr business is an excellent way to....
If your business is only profitable by constantly expanding, it will crash soon. If you have a smaller, but sustainable business, your company might be around in a few centuries still.
This is how a lot of small businesses in Europe work, and how they continued to exist for a millenium.
You grew a steady, low-stress $1MM/year lifestyle business? Great. Now thousands of people are going to see what you're doing, and dozens are going to try to clone you, many of them far better connected than you are. Software is rarely like the e.g. restaurant business, where you can own a scarce piece of property in a good location and don't have to compete with the whole world, or other defendable advantages. Tech startups tend to have far fewer defendable advantages.
Once you realize this, it becomes obvious that "grow or die" is the nature of the business. Not some silly scheme that only exists due to VCs forcing it upon entrepreneurs.
Long-term opportunities that are easily defendable with minimal effort are extremely rare in the tech startups field.
On top of that, guess which type of businesses are, by far, the most attractive to cloners and other competition? - those "ideal" lifestyle businesses that make profits from early on and require minimal upfront investment.
Edit: Or instead of Atari, insert here all the other profitable businesses that you've never heard of, who got crushed after a couple years because they slowed their investments into innovating, assuming that their very steady profits would continue instead of dropping off a cliff. Happened to me twice.
Atari went from nothing to a household name, something a lot of people had and loved, was sold to Warner Comms for millions of dollars making the founders rich, and became 30% of Warner Communications' income within 10 years of being founded. That sounds much like the meteoric rise of a hot-new-thing 'successful' startup (e.g. Myspace) that lost out to a competitor (e.g. Facebook/Nintendo) than a niche 'lifestyle' company that didn't innovate.
Had they been working on, I don't know, restaurant POS machines maybe they would have been much less known but made that same amount of money over 20 years before some competitor bested them. And what the article is saying is that's also not bad.
But that's the idea that not everything is a startup. If the addressable market is $10M and you get a good chunk of it already, there's a lot less motivation from anyone to compete with you. And they probably have no clue your market even exists.
And yes, most SMB require more than "minimal efforts", but normal efforts. Much less than building a unicorn. And in many cases a great flexibility and quality of life.
I used to buy that. Then I started looking around:
1) What's McAfee today that it wasn't 30 years ago? 2) Windows 10 is a slightly newer look with small WinRT runtime (which may have come from WinCE I don't know) but most of the software underneath is the same code running for over 2 decades as it looks to my eyes. 3) SereneScreen fish screensaver, has it changed much? 4) How many years has Skype been around?
Put some lipstick on the pig and if it ever sold at all, software is renewable.
Also your restaurant analogy isn't really fair, it takes a lot of work every day to keep a popular restaurant popular regardless of location.
>> Now thousands of people are going to see what you're doing, and dozens are going to try to clone you, many of them far better connected than you are.
Linux is better than Windows yet what runs on most desktops? OS/2 was far, far better than Windows yet Windows is still on desktops because IBM stopped selling OS/2 (and PC's for that matter); not because people would not still be buying it but because they are more interested in selling mainframes (which were supposed to be dead by now).
(Well, you don’t need to be the best, just very good).
I'm not doubting you at all, I'm just very curious about this. Searching around a bit failed me, so I'm wondering if you have any examples of this?
A billion dollar company (~$100 million per year in revenue with 10x valuation multiplier) requires $274,000 per day in revenue (which is $8.33 million per month, or $3.20 per second, every second of the year).
To actually receive a billion in revenue requires $2,740,000 per day (which is $83.33 million per month. Broken down further it reaches $32.00 per second, which doesn't sound impossible).
To become Apple, you would need about $329,000,000 in revenue every day (which is $10 billion per month, averaging out to $3,800 per second).
Much easier to do if you sell to businesses. At $100/mo instead of $7/mo you only need 833 customers. I'm nearly there just by adding 1-2 customers a day, which is eminently doable without a team.
Just curious, are there any other examples of one man million dollar software business?
One man million dollar software business is very doable if your focus has commercial intent. What marketplace services do people crave, but don’t have ?
If you have 833 customers paying $100/mo, any one of them is just 0.1% of your revenue; you're not beholden to them individually. If they expect unreasonable things of you, then you might not be a good fit for them and can part ways. Sometimes firing a customer is the right thing to do. https://www.groovehq.com/support/how-to-fire-a-bad-customer
Sounds like having a well-designed product can help you reach the $1m/year mark :)
To put it another way, building a lifestyle business already requires a huge amount of luck and time on top of the hard work and stress. There are only so many trips to the plate and swinging for the fence may be the rationale option.
If you try to make a billion dollar business, you're more likely to fail completely and end up with nothing. If you go in with more reasonable expectations and a more sustainable approach, you're more likely to be successful, whether the end result is a million dollar business or a billion dollar one.
Starting off with the attitude of "a billion or nothing" makes you more likely to fail to accomplish anything.
The quantum step in risk is from wage worker to self-employee, and two year's toil with no net income for a little thing makes less sense than for a big thing. The article pretends that little things are sure things. They aren't.
You're also still ignoring the point the article makes about the chances of success. Going for a billion dollar business often forces you to make decisions that sacrifice your ability to succeed with a smaller business. Even if the work and stress were the same, I'd take a 1-in-10 chance at $10M over a 1-in-10000 chance at $1B any day.
The key thing is, a billion dollars is nothing like 1000x better than a million. In fact, I suspect it's barely 1.1x better (and there's even some weak evidence from subjective wellbeing studies that it could be worse).
The St Petersburg Paradox[1] is a fun application of this fact — the fact that when you already have a LOT of money, even a LOT more money is pretty well useless to you.
But I'm not sure not having to worry about work would be good for everybody — me included. It could be good ... but I worry it could also leave one purposeless and adrift (I have some anecdotal evidence on this point).
Apologies for not looking up the literature to corroborate this (or not), but I should get back to the day job.
These numbers are low by a factor of ~2 unless you want to live in flyover country/a cheap country other than America.
If that's not enough to not worry about work, you might have lifestyle issues.
$1MM won't buy you a "really nice house" here, though, so I agree with you on that point, but it is still enough to not worry about housing if you choose "sufficient, not luxurious" level of housing.
$1MM will buy you a very nice new construction 6,000+ sq ft house on about 20 or more acres of land with an outdoor pool most likely. And you're within commuting distance of major job markets. $10MM and you're living quite comfortably (probably spending weekends at your cabin on the lake) and certainly not needing to work, so maybe you spend your free time tending to your horses or alpacas.
To just not have to worry about housing, even if I were to buy a house again today, would only take about $600k for a pretty standard 3 bedroom house w/garden even in London...
Edit: they're the famous HNWI ("High Net Worth Individuals")
https://en.wikipedia.org/wiki/Millionaire
https://en.wikipedia.org/wiki/High-net-worth_individual
The famous "one percenters" are people with 8.4 million in net worth or more:
"The 1 percent threshold for net worth in the Fed data was nearly $8.4 million"
Source: http://economix.blogs.nytimes.com/2012/01/17/measuring-the-t...
http://www.nytimes.com/2012/01/15/business/the-1-percent-pai...
https://www.reddit.com/r/AskReddit/comments/2s9u0s/what_do_i...
There seems to be a pretty big difference between 10m and 1b.
In that perspective, a billion is exactly a thousand times better than a million. Even more so, perhaps, because it enables you to never have to worry about losing your money and going broke, which you could easily do with a million or even ten.
That's a problem for small businesses, the individual owner usually has to keep playing because the smallness makes them integral to operations. Cashing out and walking away is rare, maybe they can negotiate some reasonable buy out over a few years...but targets insure that's not really a walking away right away. On the other hand, business makes it likely that the owner is replaceable and makes the opportunity to step into their operational roles attractive.
"But why would I ever want to walk away from my business? It is my life's work."
Why then would you make it small?
Every VC I've ever talked to --- middle double digits over 3 different startups --- has told me this story about how they're not looking for "10-baggers" or "unicorns" or whatever it is they're calling them these days. They want to invest in founders, trust that a good team will come up with ways to make money if they just stay out of the way, &c &c zzz.
The fact is that the economics of venture capital pretty much depend on most/all of a portfolio's investments having some shot at becoming outlandishly successful. The winners have to pay for the losers.
If you're an early-stage investor you don't look for unicorns not because you don't want them (you obviously do) but because you can't spot them based on business model, traction, etc.
As an early stage investor you focus on team/founders because that's the best early predictor that a company will become a unicorn in the longer term.
According to people commenting here, it's not the team or founders, it's luck.
So you need a way to identify luck. Then you're golden!
Great team + great market = great business (for some definition of great, almost always < 1bn)
Great team + great market + luck = billion dollar business.
The role of luck ("fortune", "fate") in the success of great people is a deep and ancient question, and you should not dismiss it. Machiavelli's Prince is at least 50% about the subject, and Sun Tzu is infatuated with it. Acknowledging luck does not mean dismissing the successful - it's just intellectual honesty.
Let's say there's some stochastic mechanics at work, randomness more than 'luck'. Luck is the attribute of someone, when randomness is an attribute of events, which makes a big difference.
Of course I can understand people citing 'luck' as necessary... but it's more superstition than science.
All in all, it means you can't really know for sure...
It's not exactly the same as a stochastic variable though. It's really any forces that you cannot influence, control, or anticipate.
I'm a little unclear on how the economics of seed-stage investors interlock with those of venture capitalists, and what level of influence VC decisions have over the whole ecosystem. But from the vantage point of a founder, modern seed stage investors seem like an unalloyed improvement.
A bit perplexing, but in my experience, VCs who aim lower will often put far more stress and pressure on founders to meet short-term milestones and ramp up revenues immediately. Since the distant billion dollar goal is gone, it becomes all about the short-term.
Aiming for a billion is a great filter too. At the early stages, you desperately need to be associated at least a few investors / founders / employees who absolutely believe you're on the path to something huge. Low goals allows more people to get involved who have extremely misaligned interests, who are often looking for something medium sized to milk, instead of something huge to help grow.
Great innovators are shooting for something they're pretty sure they can get to. They know what it takes, and know their market. It's by limiting your scope and achieving quality innovation that you get black swans.
The success will typically be a surprise, not a plan.
VC's looking for billion dollar exits are less patient which often times can prevent middle outcomes. Good businesses swing for the fences and end up outright failing instead of taking it a bit slower and really nailing their product/market.
You don't build a business by setting out to be Facebook. You build a business by setting out to create thefacebook for universities.
Whether that will end up with a billion dollar company is a matter of way to many factors.
Edit: I can see you edited your post a little. My response here is to what you wrote originally.
> You don't build a business by setting out to be Facebook.
> You build a business by setting out to create thefacebook for universities.
In practice, the difference between building a billion dollar company and building a 10 million dollar company is marginal. You still need to constantly raise money, you will ruin your culture and so on; everything that OP describes as awful downsides of SV mentality is just as present. The author seems to hint towards bootsrapping ("figure out how to earn your first dollar", etc), but examples that he gives, with the exception of 37Signals are just smaller and less successful versions of Facebook with all downsides included.
There are plenty of other bootstrapped companies out there; I know a few of them and they are doing very well.
Not sure what you mean with downsides. These bootstrapped companies have freedom to do whatever they want and they are mostly built on actual problems that others have not kept artificially alive by the funding game.. That in itself is worth quite a lot, at least to some.
As someone who works at a company that was acquired in the 8 figures range...
You don't know what you are talking about.
* The mindset change in regards to accounting, legal risks, etc.
* The amount of red tape & interaction with state/federal governments. No one cared what we were doing when we were just an 8 figure company.
* We actually care about PR when it, frankly, didn't matter before.
Sure, you "care" about these things as a smaller business but you don't have dedicated teams of people solely to manage them. Building dedicated teams solely to perform function X vs. having teams that are more general purpose is a huuuuuuuuge practical difference imo.
Disclaimer: I work at Backblaze. The biggest difference I see is the expectations and control of investors. Most of our Backblaze team was involved with a startup called MailFrontier which raised $22.5 million over four years selling almost 90 percent of the company to the VCs. The VCs removed the founder CEO (my partner), installed a puppet CEO that did whatever they asked, and the VCs eventually forced us to sell in a way that basically returned them their original investment.
So Backblaze was a visceral reaction to that experience of losing that control. It's the same team, but we all agreed to go a year without salary to jump start it without selling control. To this day, the only people who sit and vote on the board of directors are Backblaze employees and founders.
The lack of cash meant slower growth, there is no doubt about it. But it is a profoundly different company, and a profoundly different experience. We make decisions that are good for our business and good for our employees, not to massage the egos of a bunch of spoiled VCs. And along the way, the Backblaze founders and employees own the vast majority of the company. Most importantly, nobody can force us to sell. I like my job and I like my coworkers, and I make a fine salary here. Why does everything have to be about the winning top score no matter how unpleasant and then ending the experience? I want to enjoy the ride and keep it going.
That's not even remotely true. Building a billion dollar business is a much different experience than trying to build a $10 million dollar business. It's not a simple difference of scale, it's a difference of kind. What you're saying is kind of like saying that playing high school football and playing in the NFL (or Premier League for our European friends) are only 'marginally different'.
I get this from two working experience: one with my family business (valued in the 8 figure range) and one with a start-up shooting for a billion dollar valuation (which is our actual stated goal). The difference is palpable, but the biggest difference has to be with the opportunities we choose to pursue. The family business tends to have a pretty solid understanding of the market we're in. We know who we are, who our competitors are and we choose our targets carefully. This has led us to profitable, sustained growth. At the start-up, we were going for crazy opportunities and saying yes to very challenge projects, something the family business would have said no to. Why? Because the start-up has to get 'lucky' and find an unexpected opportunity that propels us forward. We need this because there is no other way to get to $1 Billion valuation than through crazy growth, which if you're a start-up means working crazy hard and getting lucky.
If you're operating in a market where your turnover is going to max out at a few million then you have a much smaller margin for error, you have to execute close to perfectly to win that market.
Building a large business doesn't have to involve raising huge amounts of money, taking undue risks, etc.
It's nearly impossible to start a company and have it worth a billion dollars within a decade. But if you drop the get rich quick thinking of Silicon Valley, it's much more possible if you grow slow and steady over a few decades or generations even. My family has a business started 30 years ago that's now worth in the hundreds of millions for example, and we are ecstatic if it grows 15% per year. In the next 20 years, if we don't fail, we should have a billion dollar business. We don't take excessive risk, so there's a fairly good shot. It's a bank in the South FWIW.
Ps: the most interesting question is if it is the creator who shapes the creation or is it vice versa.
Just because a16z buys shares at year two at a $100MM valuation, and more shares at year 3 at $400MM valuation, and even more shares at year 4 at $1B valuation does not make you a billion dollar biz.
In fact, it says more about a16z bubble inflation methods than anything else.
Why care what 'Silicon Valley' thinks about that? The author is making a mental mistake there. If you want to build a million dollar business, you don't need to care what the big money in SV thinks at all. So, stop. It is that simple.
The problem with aiming so high, like the article points out, is that you often fail and are left with almost nothing if it fails. You took a low salary with a lot of equity, but if you work for 3-5 years on a project and then it turns out the company fails (which is highly likely), then you just worked for 3-5 years for a cheap discount.
Sure, you might have learned a lot in that time, but if you worked at a better salary for a more stable opportunity, you would have learned stuff as well (different, but maybe not less important stuff).
I get the allure, but as I get older, I don't really see the value. You don't have forever in your career to make below average wages on the lotteries chance you will make millions.
Take google - attempted to sell at 100 mln
Take facebook - was in-college network
Take airbnb - struggled along for many years
What this article is trying to convey?
The article doesn't hint how to decide when not to fuse capital in, other than discriminating by the projected growth.
One of the author's arguments is that you will dilute your ownership by taking on the "required" investment needed to have a chance at reaching the magic 1B. Is this true? Of the 40 mentioned private >1B firms, what fraction raised lots of VC money and experienced significant founder dilution? My guess is not that many of them; the author simply assumes it is the case.
Some benefits of taking funding:
* you move financial risk off of yourself onto others in exchange for a paycheck * you can get the cash to start the business today * you gain work experience, and probably get more responsibility than you'd get at an "entry level" job
However, it's incoherent that an article that is against the "Go big or go home" philosophy discusses how much your company valuation needs to multiply given you sell X% of shares in T amount of time.
At least in today's macroeconomic context, a company is the best platform to scale something valuable, and investors are there to help with that scaling process.
I used to work at one. It doesn't exist any more.
At some point this went out of style.
Because of observer bias, this is what I see when people talk about inequality. And I see that it was quite deliberately chosen.
It needs to be worth 400% more for a same founder/employee value share.
Don't tell me what to do. Really.
OR
Has Budman just written this article as psychological warfare against any soft targets who might be competing against his future billion dollar business? The plot thickens.
I don't want to run a $10M company, I want to run a $10BN company. It's the difference between tee ball and Major League.
The author is basically saying that everyone should just shoot to stay in tee ball, which is equally as arbitrary as choosing to shoot for the majors. What the hell is the point of all of this if we aren't going for the big win?
It's more along the lines of 'you don't have to run a $1bn+ business to be successful' – that is, by chasing after the very unlikely dream of becoming one of the vanishingly small number of $1bn+ companies, you are ignoring the possibility of becoming a thoroughly successful $n-million sized company, and focusing on the wrong metrics.
There's no shame in building what would by any means be a large, successful company just because it doesn't break the $1bn barrier – but making that the goal is a weird choice. Like the article says:
'The better goal? Keep your head down, make a great product, and build a successful business.'
If you have an idea and execution that is worth $1bn+ then great! Hopefully it will pay off. But it shouldn't be the goal; develop a good product and sell it well. Take the opportunities you can to build a market. Maybe you'll make it to $1bn+! But maybe you won't – and that's ok.
Why stop at $10BN? That doesn't get you into the Global 500.
For that matter, if you want to "run a $10BN" company, what makes you think the best path to that is by doing a startup? Of the Global 500 how many of the CEOs come from startup backgrounds? None of the top 10.
If you really want to run a giant company, your best shot might be to work at a giant company for a really long time and become the boss.
Do you want a highly talented person to work on something for two years that ends up being utterly destroyed, or do you want them to work for 20 years on a business that keeps improving?
What the hell is the point of all of this if we aren't going for the big win?
Life? What you're saying sounds like the result of an absolutely off-whack work/life balance. There is, and will always be, more to life than work.
This is where I am in constant disagreement with people. My work based on what I want to be doing with my life. I want my life to be my work - that's what life is about imo, dedicating your efforts to something that grows and sustains a community. A lot of people don't want that for some reason, but if you look at basically every person who has ever done something great and massive no matter what it is, ghandi, gates etc... their life WAS their work.
In any case: if you're so intent on building a billion dollar company, what will you do when, as probably states will be the case, that company does not reach a billion dollars and in fact fails entirely?
If one venture fails completely, then you take what you learned and start again when you can.
If you are in a position that you can start your own company and raise money for it, the worst that can happen is that you have to go find a job. Lets even assume that you lose your house in the process. Ok, well downsize, keep your head down till the next opportunity arises and keep moving forward. I don't see any other way to live.
People have these marginal goals of working 9-5 going to the beach on the weekend, having a couple kids, then retiring at 65/70 and traveling or whatever till they die at 85. That sounds terrible to me - and my guess is that would sound terrible to anyone who worked on something that people gain value from (Salk, Scorsese, Musk etc...).
You're drawing lines where there are none. Why, exactly, is striving for but not necessarily achieving a billion dollar company a more worthwhile pursuit than raising children and traveling the world?
If you are in a position that you can start your own company and raise money for it, the worst that can happen is that you have to go find a job.
No, the worst that can happen is that you waste years of your life, and look back as an old man and only see a series of failed ventures to your name.
It's a more worthwhile pursuit because your individual impact can be much wider.
If you're going to conflate living your life with working hard, then you've got no reason to separate spending your money from making your money, and at that point it doesn't matter how much you're making.
People also have goals like "achieve something with lasting value" and running a company with a big budget is not intrinsically that. Especially when you're so prone to fail at it.
They reckoned they bought 5.5 petabytes of data at retail prices. I've always taken what they say with a grain of salt.
It was cheaper because costco didn't adjust their prices to account for the crisis.
My CPA would not like that.
> Over the next few days prices spiked in all of our traditional purchasing channels,
They were grabbing existing stock from stores which had not raised their prices yet, even if they were limiting the amount of drives per customer.
> In addition to the price of the drive there were now extra costs to shuck the drives, extra costs to recycle the shucked parts, and once shucked we couldn’t return a bad drive, but it was still less expensive than buying internal drives even if we could find them
They did factor costs into account. This was an emergency situation, they never said that's how they do business normally.