Not raising funds to stay small and happy
antoine.finkelstein.fr
antoine.finkelstein.fr
I then swore I would never be an employee again and decided to join an accelerator but crashed out. Now I am freelancing and building a bootstrapped business on the side: much less headaches, I earn a good living, and get to build something I am passionate about while remaining master of my destiny. Not seeking VC money nor VC-esque returns, just a meaningful life where my work is valued and provides enough to live comfortably.
I think evaluating the viability of startups is a skill that I've gotten better at as time goes on. I've been at 5-6 failed startups (small old companies) with zero upside on exits. That being said, the time I was the happiest was when I was working for myself for about 18 months on things I was passionate about.
I am about to start one myself and I am curious about how and why experienced devs choose their ambitious side projects
We already have one interested customer, so trying to finish the MVP by January!
If you try to build a funded company in a space that can't sustain one you will struggle, likewise if you try to build a small bootstrapped company in a space that can you will similarly struggle.
If your direct competitors have a much better product then you (because they have more dev/product/ux resources than you), a professional sales org, marketing machine, etc. then it's very hard to compete. Your acquisition costs and churn will be high which will severely hurt your ability to grow to a sustainable level.
There are some ways to compete by going after the customers your competitors don't want (if they're price sensitive, too small, wanting unusual customization, services, niche needs, etc.) but you should think about upfront what your strategy is going to be.
I would disagree. If the customers are comfortable with your product, and they don't feel a big reason to switch, they probably won't. This is more true in the B2B space where customers tend to be less finicky. There are plenty of products that haven't innovated in years, but still enjoy decent sales.
If you're in a moribund space you can get away with a MVP product for a long time, but if you're in a highly competitive space where your competitors have a significantly better product and a better sales team it has a real impact.
The other major factor driving churn in bootstrapped b2bs is they largely sell to SMEs who have a high-rate of insolvency.
All this costs money. We have a competitor, a big VC-funded company. They have very aggressive marketing and lots of sales people. But it all comes at a price. They spend 75-80% of their revenue on sales and marketing. We don't and it lets us keep our prices 8-10 times lower. For a similar (although, a bit more lightweight) product! We beat their product hands down every time we directly compete with them. So my point is -- it's not all black and white. It is possible to survive on a market with big VC-funded companies.
If you're in a space where the addressable market is very hard to reach or fragmented, a venture based run will probably run aground. Whereas a small player hitting a niche might be great for a long time.
Theoretically, I can run my small bootstrapped company and make a profit for myself of $1m a year. Thats excellent for me since I own the entire company. It's peanuts for a VC funded startup, assuming there isn't that much room to grow above $1m.
In fact, I co-founded a startup that raised millions and makes 10x more than my bootstrapped company. But it will likely fail and pay me nothing because if it can't generate an exit in the $100m+ range, then the VCs would rather run it into the ground trying to hit that Mark than sit back and let the net income flow.
I find that there isn't enough critical thought given to why one ought to pursue an aggressive growth strategy. And that generally, staying small is seen as a failure to grow, rather than a conscious effort to grow in line with ones own life. Going from 3 to 100 employees in a (relatively) short period will naturally have a large impact on one's personal life and mental/emotional state. I think it's important to ask, before one ventures into that kind of adventure, whether or not you're okay risking mental/emotional (and arguably physical) stability in place of the adventure, and the potential financial windfall.
There's nothing wrong with saying no to that risk. This is a short life we have, and spending it chasing growth to keep up w/ the momentum of the extremes of capitalism doesn't need to be your game ;)
[edit] Prefer my last paragraph be written as: There's nothing wrong with saying no to that risk. This is a short life we have, and if you're spending it chasing growth to keep up w/ the momentum of the extremes of capitalism, it doesn't need to be your game ;)
It's interesting how people get this inaccurate perspective. It's an interesting phenomenon where the majority (incorrectly) believes they are the suppressed minority. (I feel there must be a name to describe that phenomenon but I don't know what it is.)
The HN community actually is heavily tilted towards no-growth or low-growth bootstrapped companies. (I use "HN" to mean the HN discussion forum and not the YC fund.) Spending any time on HN and noticing what type of business articles are popular would make that obvious. Also, a relevant quote from dang: "Far more HN commenters (and voters) identify against VC than with it.": https://news.ycombinator.com/item?id=13931617
Examples of this are the very popular David Heinemeier Hansson (DHH) articles that make a case for staying small and avoiding VC money that pressures you to grow fast:
https://news.ycombinator.com/item?id=14694434
https://news.ycombinator.com/item?id=13668746
https://news.ycombinator.com/item?id=13929398
Those get upvoted to the front page and commenters pile on in violent agreement. There's no need to be "refreshed" by the advice to stay small -- it's basically the default sentiment on HN.
I have yet another opinion - I’ve seen a wide variety of articles on HN from how to grow fast to how to stay small. We’re not going to stay productive by arguing without data.
If it isn't clear, "dang" is one of the longtime moderators and I'm confident he's seen enough quantity of posts over the years to have an accurate pulse of the HN readership.
There are virtually zero articles giving the advice to "take VC money and grow grow grow" that made it to the front page. (If you have examples, please post them.) The YC fund emphasizes exponential growth startups but in contrast, the HN discussions downgrade it.
This thread's article from Antoine Finkelstein and the DHH posts that I cited are much more popular with the HN crowd. I'm not complaining about it; it's just an interesting observation.
Let's just take an article from our own backyard: https://blog.ycombinator.com/ycs-essential-startup-advice/
Almost 800 points on HN: https://news.ycombinator.com/item?id=15331016
Quoting the article, "Growth is always a focus for startups, since a startup without growth is usually a failure." This is article doesn't apply to folks who want to stay small (the discussion of this topic ~ 3 people company).
You could have approached your argument a little less strongly - simply stating your opinions. Authoritative didactic statements require data to back it up otherwise it just sounds abrasive and completely unproductive.
Ok, I see the misunderstanding. I wasn't talking about the existence of any VC startup related articles. Yes those do show up on HN. I wasn't talking about those.
I was talking about a very specific type of startup article that would advise you that "staying small is suboptimal and won't make you happy. Instead, if you want to be happy, you must get big by getting VC firms to invest in you." It's the the type of advice that's the opposite of what this article and DHH's articles are about. There are no such articles giving that type of growth-for-happiness advice on HN's front pages.
The "YC’s Essential Startup Advice" that you cited is meant for people who've already bought into the "startup" mindset and is mostly "build product fit" advice and not "growth=happy" advice. It's not a counterpoint to this article's advice nor counterpoint to the popular DHH articles.
(I see that you participated in that previous thread's discussion so it may seem like YC startup advice dominates here. You wanted tactical advice on starting a small business that wasn't AirBnb or Uber and that article didn't cater to that scenario.)
>Quoting the article, "Growth is always a focus for startups, since a startup without growth is usually a failure."
Yes, that quote about "startup=growth" is relevant to YC's and Paul Graham's definition of "startup" so it's their tautological statement in the context of their blog post. It's not advising that entrepreneurs of small businesses will find happiness by chasing growth. Yes, a small bootstrapped business that stays small is another definition of "startup" but that's not the "startup" YC/PG are talking about.
To restate the context of my comment, the gp (onassar) wrote, "I think it's great/important for an article/concept like this to be given some reach."
... which he is agreeing with the advice of the article to avoid VC money to stay "happy". He framed it as if that "happy=small" idea was some "lone voice in the woods" that everybody on HN needs to be reminded of. My point is that onassar must have some false impression because that's already the overwhelming sentiment on HN.
>it just sounds abrasive
Did you also find Daniel Gackle's (dang) comment abrasive?
YCombinator is incubator for startups, hence their HN site is aimed at startups too.
> On-Topic: Anything that good hackers would find interesting. That includes more than hacking and startups. If you had to reduce it to a sentence, the answer might be: anything that gratifies one's intellectual curiosity.
For me, HN has become a source of news/ideas related to innovation (with an obvious leaning towards digital/technological innovation).
I guess, given how I see this community (and use it for access), it's refreshing to see an article like this :)
https://steveblank.com/2010/01/25/whats-a-startup-first-prin...
"A startup is an organization formed to search for a repeatable and scalable business model."
Maybe you see "scalable" and think "to a billion users". I see "scalable" and think "sustainable over the long term".
I think a small business is when you know the business model can work and have moved on to long-term execution. Until then you are a startup.
I disagree slightly. A small business is one where the founders have a particular business model in mind, regardless if it's feasibility. If the business model is wrong, the business folds; it doesn't pivot. Until I was introduced to the startup community this was my sole understanding of "starting a business".
Having been through the financing process before for at a previous start-up, I can say that the time invested in the side business was not a whole lot different than time invested in fund raising (+ meetings, reporting to investors after the raise).
By hustling, we were able to build a nice life style business, while being able to grow our tech SaaS. At the same time, we had much more flexibility and have been able to build / invest in what we want, and for what we believe is best long-term.
A 3-person shop might not be sustainable if me (1/3) decides to retire and has to pay someone to keep it afloat. And that is, if I find such a person. I also have to make sure that whatever service I provide, will keep making sense in ~30 years.
Saving might work in countries with stable economies, but you still have to set aside quite a bit of money -- and should you outlive your saving, you're in trouble.
There are 2 obvious solutions:
- keep making sense until your retirement (innovate, adapt, ...)
- sell (for a significant amount, at the right time) in case of a saas or shop
Neither sounds solid, but they might turn out to be less bad than we think now?
Now that SaaS is maturing and opportunities are smaller microSaaS will become more commonplace.
I built one 10 years ago and I remember people thought I was crazy at that time...
Out of interest having been chasing growth for decades I assume we are at the highest GDP measure ever, but do you assume that we are happier than ever? The opioid crisis in the US would suggest otherwise.
Also, no one says you can't sell your bootstrapped business. A project generating $30k in profit can generally be sold for $1-1.3m. Reinvest that, and you suddenly have great cash flow from investments in addition to any other income you manage to make from your next project.
All in all, a path worth taking in life if you want flexibility and freedom.
There are more businesses that are totally inappropriate for VC than should take VC money. The problem is everyone is equating tech businesses with VC. There are plenty of dead tech startups that actually have modest economics and would have worked if VC, and the high expenses of the top tier US talent, had been avoided.
Another note, something I’ve learned more recently. Some businesses won’t make more money even if you force more capital in to them. You can end up with a really good company that can be profitable for decades, but destroy it by force feeding it outside capital (VC or other.) It is important to identify this early.
But in this winner-takes-all reality, is that possible? If your business concept becomes successful, what prevents a bigger player to copy it, improve upon it, and steal away your customers?
This is an assumption, and I would say, an invalid one. The reality is actually that there are many successful businesses in any given industry. This is thanks to the fact that one-size does not fit all. Niching down is a good way to build a small, profitable business, because you can address the needs of the niche better than those bigger players that have to try to solve the problems of many different customers using the same systems.
Its size can be as much a hindrance as a help. Big companies turn more slowly and are less likely to put out elegant ideas for the same reason a committee is.
Paul Graham writes about how his small online store was able to turn out features faster because he was leaner. I can't find it among his essays (http://paulgraham.com/articles.html) but Getting Real, a small book by the makers of Basecamp, says the same thing (https://basecamp.com/books/getting-real).
Big companies like Google know this, and often seem to structure themselves into small competitive groups.
Google is not now, nor will they ever be having a meeting where they decide to allocate a few hundred engineers and marketers to crush that space.
There are tens of thousands of niches like this that will pay for teams of 1-3 people to live on the beach after a few years of work.