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Comment by ilamont | Hacker News Reader

Most businesses should strive to be self-sustaining. And if they make obscene amounts of money, all the power to them.

What I dislike is A) the view from startup land that there are only two types of new businesses, "startups" and everything else ("lifestyle") B) and the "everything else" category is somehow inferior or even some sort of hobby or vanity project. Sahil used the term to describe his own company, and at one point felt shame about it, even though he had a real business with real customers and real revenue.

That's how twisted the mindset in startup land has become, where real business owners are supposed to feel shame, and "success" is based on as-yet unfulfilled promises and raising a round?

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Gumroad took 10.35MM in investment to build a company that does 780k/yr (65k/mo*12mo) in profit. The numbers don't work out to call that a success.

If he bootstrapped and reached 780k/mo after 8 years of work that would be a successful lifestyle business and he should be absolutely proud.

I'm absolutely not trying to be judgmental as I've succeeded and failed at businesses myself.

That's actually not a bad return on investment (7.5% yearly)

And it doesn’t stop there. The money certainly isn’t vaporized as with a failed business.

It's not a good return on investment because the underlying asset hasn't appreciated 7.5%/yr some 8 years later. I am not a valuation expert but as a small business I'd estimate a 3x EBITDA placing the valuation at 2.34MM. The investors presumably owned a fraction of that.

Risk adjusted its a pretty poor return. Also you are completely ignoring the time value of money.

There's a time value on that money. If you'd put $10M into an S&P 500 index fund in 2011, it'd be worth about $22M now, which first of all is a fair bit more than 7.5% and secondly is the denominator you're looking for to figure out percentage returns on capital now. The company wasn't making $780K/year in profit in 2011, it took 7 years to get there.

That's timing though, historically I believe s&p yields 7% per year on average.

And the return on venture capital during those slow periods are also presumably lower (due to recessions etc)

Assuming reinvested dividends, the S&P has returned 7% real, or 10% nominal over its lifetime.

>>If he bootstrapped and reached 780k/mo after 8 years of work that would be a successful lifestyle business

I find it difficult to call $10M/year a “lifestyle business.”

To me, lifestyle business means a business that can support the owner in their lifestyle. So unless the owner spends millions of dollars every year...

I think the parent mistyped and meant $780k per year, not month. $780k/mo is an entirely different beast, and would be a success regardless of whether it were bootstrapped or had taken $10mm in capital.

> a company that does 780k/yr (65k/mo12mo)*

$65k is the gross profit, which appears to be before operating expenses are accounted for. He doesn't list the net profit in the tweet (as he does elsewhere in the post). In the other mention, net profit was just under 1/4 of gross profit. So he's probably netting somewhere around $15-25k/mo, depending on how much of his costs are fixed/variable. Still good, but considering how many millions went into the business, not great.

There's a legit distinction, though, between startups and other businesses - startups are designed to grow fast. [0] That doesn't mean they're better, but you have to know the difference or you're going to get yourself in trouble. Is a quarter-horse better than a camel? Yes, if you're trying to win a quarter-mile race; not so much if you're trying to survive in the desert.

I think some of the disdain comes from legit growth startups trying to distance themselves from one-man "startups" that could be better categorized as micro-ISVs or side projects.

But there's definitely no shame to running a successful lifestyle business. The 37signals guys have been great at shifting that perspective.

[0] http://www.paulgraham.com/growth.html

> There's a legit distinction, though, between startups and other businesses - startups are designed to grow fast.

Perhaps in the US, and probably in just a small part of the US. Everywhere else, a startup is just a new business.

So I think the point that many folks would make is that maybe we should call a new business a “new business” or a “small business” rather than a “startup”.

While I realize people don’t always like to use constraining labels, limiting the word “startup” to businesses that are aggressively seeking a rocket-ship trajectory actually strikes me as a useful convention.

There's a legit distinction, though, between startups and other businesses - startups are designed to grow fast. [0]

I respect and admire pg as much as probably anybody on this board, but I still reject the idea that he has any particular standing to declare his subjective definition of "startup" to be "the" definition by fiat.

I would argue that "startup" actually refers to "businesses that are designed to grow big", where the speed at which you do so is mostly irrelevant. If one wants to raise VC money and tie themselves to that particular time-boxed constraint, that's great. But you can just as well do it "slow and steady" by focusing on early profitability and continually and incrementally reinvesting profits back into the company for growth.

Neither is "better" or "worse" than the other, except in context, just as with the quarter-horse/camel example.

the definition I've used for years is "a startup is a business creating a new business model or service over the internet". Because there were so many people around me who were/are part of the startup scene, building businesses that were/are definitely "startups" and yet not focused exclusively on growth.

There's a legit distinction, though, between startups and other businesses - startups are designed to grow fast.

Are they, though?

I have looked at the incoming classes of various startup accelerators over the years and see lots of niche-focused products and services that can never grow to anything more than a niche-focused product or service as described in their pitch decks.

I'm not putting down those types of businesses (or proto-businesses). I'm just pointing out that they don't have a high-growth profile or potential, the primary dividing line between "startups" and everything else dubbed "lifestyle" in investor circles.

This seems to be a HN thing. Most places, a 'startup' is just someone trying to bootstrap a business into profitability so that, well, they have a profitable business. If you end up with a business that pays your wages, you win. If you end up with a business that pays your wages without you having to work full time (or at all) then you really win.

On HN, a "startup" is a moonshot backed by venture capital, and is seen as a failure if it doesn't achieve a massive valuation and take over the world. You read about businesses with "mere" million-dollar-plus revenues being shut down because they're "unsuccessful". It's insane.

As far as YC goes, it seems that they are investing in companies they think might be able to dominate a niche in the hope that a few of them use that as a springboard to a much larger market.

Although 37signals are often touted as being the poster child for building a lifestyle business, many people forgot they raised ~$10mm in private equity from Bezos in 2006. There are much better examples out there, but as with the nature of lifestyle businesses you aren't going to hear about them as they are rather boring to the media.

Keep in mind that HN is a website operated by Y Combinator, a company in the business of developing and launching startups that will raise more money through the VC system. The core business model involves encouraging companies to take more money at better valuations. If you view the startup world from the HN lens, it's all about the VCs and how to maximize their returns at all costs. Those incentives run counter to the values of sustainable profitability and doing right by customers.

Also, keep in mind that HN is mostly user curated, and represent the views of it's participants more than ycombinator itself.

I agree about the unjustifiable dichotomy much of the tech scene holds between "startups" and everything else (as you describe it).

I think it's funny, though, that non-tech industry leaders critiqued Bezos in the past for running a 'lifestyle business' when in fact Amazon was always a technology company and has become dominant and successful to boot.

Not to mention that Amazon has returned more to investors over the last 10 years than many startups and Unicorns have.

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