VC Charles Hudson on ‘the conversation no one has during an upmarket’
techcrunch.com
techcrunch.com
My conjecture is that more successful companies are founded during downturns because more founders are forced into the process by circumstance.
If we want to increase the successful startups in the world, increase the number of people who can afford to do so. We are seeing paycheck protection programs across the globe - why not use some of the same cash as giant seed funds.
The disconnect between how cheap/easy new tech is these days and how few interesting experiments we've seen in the last decade, especially in the web space, suggests that it's something other than the money. We're just not really building things because VCs and startup mantras have convinced us we need a million dollars to do anything and it's just not he case.
Do bootstrappers have an advantage in an environment like this? They've always had to tighten their belts, so they should have some advantage relative to these bigger ventures that have bills/investments to pay for.
To respond more directly to you, your conjecture should be pretty easy to test, look at metrics like the stock market plotted against when successful companies are founded. The data are there.
To provide an example, I'm bootstrapping. I haven't made more than 40k a year last decade, got student loans, about to get out of school, don't have a job, got limited funds to fall back on. This economic crunch isn't any worse for me than the past 10 years, so if the idea is it can't be done, thus far I'm doing it. Odds are I won't succeed, but it's doable. If I was making 100k and had connections, it may be easier, but I also wouldn't have the time available. Cheap machines, free OSes, and a decade of HN and other free resources don't cost much. Everyone's sitting at home, anyway. Not much better to do, not much to lose.
https://www.enotes.com/shakespeare-quotes/yond-cassius-has-l...
It’s possible for bootstrapping to scale just as far, but it opens the door for competition to outgrow you very quickly.
You've got to make something that enables you to make a living, and then you scale up. If you have the option to get funding first and then build, yeah, it's probably a better way to do it because you'll be able to build in a lot more comfort and you'll be able to do more, but that's the whole point of bootstrapping, you bootstrap, then you grow.
It's that I can think of probably half a dozen pretty sizeable websites in sizeable markets that have had next to no competition for years, and they're not exactly technical marvels nor in some cases user friendly. Why have we not seen competition as the price of tech dropped and dropped and dropped over the last two decades? The things you can do on a cheap, cheap droplet are pretty wild.
The very notion that in an industry where you can literally build things anywhere that the expected approach is that you move to the most expensive locale in the US says that we've really taken a very narrow and kind of unimaginative approach. We're supposed to be an industry all about innovation. Where is it?
There are so many business models out there that don't require blitzscaling to succeed. I would be worried if my access to VC money to outgrow any competition would be my only competitive advantage I have.
This particular example (prolonged "dumping" of services far below cost in the business of taxi-like-services) is what we've seen in practice a bunch of times in many cities as there have been multiple 'waves' of richly funded new entrants trying to come in.
I'm running a startup right now. The first year cost 0 for me and my partner (besides gas). All the engineering work was done on my gaming PC and the feedback from potential clients was gathered by my partner.
After we got something going, it cost us about 2k for servers (256GB RAM, 50TB storage, 32 CPU cores total) and around 4-5k for graphical product and website design in the next year.
If we're lucky, we're getting a contract this year netting us about 100k/yearly revenue, which will cover all costs + good wages (we were on no/minimal for two years) + another engineer (bus factor of 1 is not fun).
Disclaimer: What I wrote applies to software B2B startups, hardware startups almost necessarily cost a lot, B2C may be harder, but still not that hard if you're not selling fluff.
If the startup idea requires someone (or more than one person) to work on it full time in order to succeed then that's not a valuation that is practical.
Sweat = Equity
Time used wisely is an investment, but time used poorly is an expense.
Being able to tell the difference is key.
So you were paying for it, just in a different way.
Not everyone with technical skills to make something lives in the USA and pulls the high wage (yes $40k is a very very high wage) that you have.
If you have not broken $15k a year for the last decade, and had spent that decade busting your ass, working nights, weekends, etc and had managed to pull yourself into the, by comparison, fabulously paid world of $35k (myself but not USA based) would you now be considering working nights?
Another decade of not having a life, working 10-14 hours a day, for ???
maybe you might make something someone will use?
I don't understand this.
I would expect petty crime to have a better risk/reward profile than this.
What you describe is complete and utter insanity.
Doing what you love where you live is not insanity, it's what the vast majority of people want.
Oh
https://github.com/pixelfed/pixelfed
https://www.patreon.com/dansup/overview
What about Pixelfed? That's a single person looking for a thousand dollars a month for part-time wages. You can mock all you want, but check your biases at the door.
No, it's not complicated stuff to build something like TikTok and Instagram. But it is complicated to do all the other important parts besides building it, which are just as important if not much more so. To get people to use it, and to incrementally improve it 0.1% more week over week -- that's the part that you need a full company to do, and that's the thing that a lone founder will struggle to do.
It took Twitter 10 years to increase the message size. It's not hard to incrementally do that as a single founder, you can probably make changes like it in a single night, and you can probably do that with a lot more ease than if yo've got a team and expectations.
Bootstrapping doesn't intrinsically have anything to do with this kind of strategy. If your idea doesn't have product-market fit, bootstrapping will just make its failure slower and less painful to the founder (assuming the founder continues being able to make money through independent income streams). But it also risks stretching out an idea that would have otherwise failed fast (maybe into a more productive pivot) into a zombie.
With all that said, I think that, for reasons DHH has elucidated and demonstrated far better than I, bootstrapping remains the better way to build businesses for the vast majority of people in the world. But even with that said, it doesn't take out the low success rate of starting a product driven company. Product building is capital-H Hard.
You shouldn't take my advice, I very well may not know what I'm talking about. I'm just laying down some beliefs I've got that I plan on testing out. You can't know if you've got a market fit unless you try. That's all I'm advocating.
People give advice on everything here every day, a lot of them won't tell you that they very well could be wrong, but I'm very aware I may be.
If you have a solid business generating cash flows, things are different.
I cannot imagine any startup like that. Maybe if you get real lucky.
My conjecture that less VC makes more successful companies out of the same number of founders (more as in numerous, not as in a higher degree of success).
This is so totally against history as to be laughable.
Sure, some very small single digit percentage of good VCs will be making hay and throwing money at companies.
Most VC's are sheep. With nobody to follow, the majority of VC's will simply hold onto their money. After an implosion, there will be zero new companies competing against you for at least 6-12 months.
Even better, some ideas that couldn't get their heads above water when there was too much chum can finally breathe and take off.
A lot of the most successful tech companies got that way because they exited the other side of an implosion.
Amazon thrived because of the dotcom bust. Not the bubble but the bust, which took out their ~entire deeply uneconomic competition.
There's no better time to create a sensible business than when all the non-economic actors and their VC donors are taken out. Infinite money makes it impossible to do so because you'll be undercut by "blitzscaling" and other creative forms of capital destruction.
This crisis will serve to take the prom queens to the dumpster and allow reality to show the other ones with slightly crooked teeth are the real winners.
Yep, startups that merely survive this are going to be mean.
> startups that merely survive won’t be judged merely against their peers that also survived; they will also compete with brand-new startups for capital and companies that didn’t need to hunker down during lean times.
Interesting perspective here. It definitely cuts both ways.
The converse is that if you're able to find product market fit in a down market, you'll have a lean and focused operation for the upswing to accelerate. For most companies that will mean a product people really want, and in the surviving case, probably profit and optionality.
Every company will be in a different situation. For some it might make perfect sense to tough it out, but for others that might not make sense. If you're burning cash, why do that for 2 years when it's pretty clear you're not going to be able to make any progress over that time? You'd come out of the down turn with a stack of debts any possible competitors won't have. In a few years time if the business case still make sense, you might even be in a position to try again.
Not sure how you got from his core idea, but how do you even guess to measure that?
As you said, start ups are hard already, no need to make it any harder with bad timing.
Also goes the other way round, if the right timing is now, do it now.
Though it's true you have to really love the idea you're working on. I've seen people with what they thought were clever ideas for which they had no real passion fail again and again.
IMHO the people who have it the hardest are those trying to find product market fit in this environment as it has to be absolutely brutal.