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Comment by mwseibel | Hacker News Reader

Happy to answer questions about the post here for the next couple of hours.

How do you reconcile this advice and position yourself if the seed round is only enough to prove out whether the product can be built at all?

As an analogy, say I had the idea for a car when everyone is still using horses. I raised a seed round to build my car but the funding is only enough to build a car prototype that goes 10mph. At 10mph, there is obviously no product/market fit since horses are still faster and cheaper. However, the prototype proved out the technical challenges, so I know with more capital I'd be able to make a car that can go 80mph, making the horses obsolete. How would your post apply in this case?

High technical risk projects like this typically come with highly vetted market needs.

On the other hand low technical risk projects tend to come with higher market need risk.

I think in that case your ability to raise additional funds will be dependent on the persuasiveness of your argument. The investors would need to believe that you have a viable plan, and that you are the person who can execute it. If they don't believe you are worthy of investment others may take inspiration from your work in their attempts to make the product a reality.

I think there are certain companies with significant upfront capital requirements that first time founders will find it almost impossible to get funded. This is unfortunate and probably reducing overall innovation but I think the revolution that has caused first time founders to get funding has been software. Software has significantly reduced the upfront capital required to get a business off the ground. I think we Founder venture further and further away from pure software companies they are going to find fundraising much more challenging.

A company that comes to my mind is Kestrel Aviation. They had a great plan up front, founder pedigree, and experience. But they got distracted by hubris and stopped executing.

Launching a new general aviation company is massively capital intensive. They raised a bunch but failed to do anything that resembled shipping. They could have made individual parts, they could have sold kits. Any number of things.

Sometimes you have to start with the small pieces, or do services engagements. These things generate revenue, attract staff, and enable you to build the kind of organization necessary to do something capital intensive.

Trying to go to Mars as step one won’t typically work. Try to find business models for the components and assemble over time. My guess is that Elon Musk’s portfolio follows this model.

If that's the case, shouldn't you then align yourself with someone who does have a proven track record in doing these things?

'Deserve' seems like a very odd word choice here. Startups can do a lot of great work and still fail unless they can 'Justify' more funding.

Unless I am missing some nuance you where going for?

I took it as a normative justification. Lots of companies out there looking to get capital, why should I give it to you? Are you going to do something useful with it or are you just going to fritter it away?

I agree with this comment. I think it’s too easy for founders to say - that shitty company over there got money so why can’t we get any. I want to reframe the conversation.

Reframing the conversation to make founders in this situation re-think their approach is very laudable, and you give very valuable and concrete advice.

I still agree with the GP post that 'deserve' is an unfortunate choice of wording. It has the potential to again mislead founders, now in a different direction.

Nobody deserves your investment (except some non-profit organizations). Fairness is no significant criterion for investors. You probably just give it to the founders with the best risk/gain ratio. The founders you want to educate might think that they now can say "I did what you suggested. Now I deserve your money". And they will again be surprised if "that shitty company over there" gets it instead.

Michael, how do you avoid deluding yourself into thinking that you DO have a market fit when you actually do not?

User count. Put a big LED on your wall right above your monitor with your weekly active users in the last 7 days. Any time it goes up, play a bing noise. Eventually you'll pavlov yourself into liking that sound.

Chasing those numbers can be a fools game. I've seen money going down the drain because stakeholders wanted to stroke their egos. Instead of staying lean, and since there was money in the company to burn, a big sum was spent on ads to keep new users pouring in. It was a horrible sight.

Some combination of retention rate and user count, with a heavier weight on retention, looks more optimal for long-term viability.

Daily or weekly meetings on the ‘scores’ sound like a good idea.

I tried to help with this question in this blog post: https://blog.ycombinator.com/the-real-product-market-fit/

When you were at $4M-$6M in revenue, but not growing, what was your retention like?

Were you adding new users but churning out so many that growth was flat?

Or were you not adding new users, but retaining the ones you already had?

I was at JTV during this time. We were basically churning. There was certainly a significant cohort of regular viewers, but much of our traffic owed to spikes of viewers who would come for specific content, then bounce. They didn't care about us, so long as we had the thing they wanted to see.

We spent a lot of time debating whether or not this was just the nature of "live" content (e.g. live television derives most of its value from sports and real-time events, and they defend these verticals viciously). I have no special information on Twitch, but from the outside, it is a qualitatively different audience. There's a level of commitment that just wasn't there for JTV.

The lesson is burned into my mind, because there are a lot of ways for a startup to generate deceptive "traction", and if you're not careful you can fool even yourself. You have to be brutally honest about how committed your users are, and what their actual value is. It's an easy way to become a zombie startup -- trundling along, nursing a "big" audience of users who require a lot of care and attention, but don't really care about your product in return. These kinds of audiences are worse than worthless, because they waste your time.

Perfect description of JTV

Kind of seems like justin.tv became kind of an incubator of it's own building a $5m/yr platform. That spun off a couple pretty cool businesses.

What happened with the people you had to let go? Did you prioritize rehiring them once your ship was righted or help them find new positions?

We were doing well enough to give them good severance and the tech market was good enough that it was easy for them to find jobs.

There could be a good blog post in that? Planning to do right by your employees, even when times are hard.

(Also, I can't imagine what it'd be like for jobs to be easy to find!)

Also, I can't imagine what it'd be like for jobs to be easy to find!

I’m curious. What do you mean?

I’m not in IT tech, last job search a couple years ago took about a year and I’m starting another that’ll likely take as long. It’s just fantastic to me that multiple people could simultaneously find employment on short notice. It’s a world I haven’t experienced and am frankly envious of.

If what caused the layoff is a microeconomic issue - your company isn’t profitable and not a macroeconomic issue - the entire economy sucks- and you’re technical with marketable skills, it shouldn’t be an issue.

Between 2009-2011, I was working for a company that had three rounds of layoffs until the company finally shut down. We all knew the company was in dire straights, management was very up front with us. None of us who were left, jumped shipped because we liked our jobs, were working on resume building technology and we knew we could get a job relatively quickly.

Without fail, within a month of being laid off, every person who was laid off had another comparable or better job. This was true for developers, QA analysts, and L1 and L2 tech support. On our last day, when the company shut down and laid all of us off, we hung around, went to lunch, laughed, joked and called our recruiters for our next opportunity.

My biggest fear is never being unemployed, it’s being unemployable. If you keep your skills marketable in tech, finding a job or at least a contract is not hard. It’s been true for me for almost 25 years asa Developer - and I’m not on the west coast.

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