We need a middle class for startups
neilthanedar.com
neilthanedar.com
I've bootstrapped IPinfo.io to millions in revenue and a team of over 20 - so we're squarely in the "Middle class", and there's a tension between the "bootsrapper advice" (which mostly applies to optimizing for lifestyle and eliminating any risk) and "VC backed advice" (which mostly seems to optimize for scale and speed) - and a lack of advice for anything that balances those 2 (let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome).
Where does this community exist?
by "it" I mean a sustainable company that pays dividends and isn't focused on constant growth
Traditionally, isn’t this what a bonus was, back in the day?
> "let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome"
This sounds so great.
Well, he can't yet, since it's still a going concern!
https://saasclub.io/podcast/ipinfo-ben-dowling/
Congrats on winning in this space btw, site is super slick!
This is a really incredible article about the economics of data businesses, if you haven't seen it: https://pivotal.substack.com/p/economics-of-data-biz?s=r
You've just described a number of regular business I know. The idea that they're not trying to create competitive advantages is...flawed.
I likely am thinking of a narrow set of "regular businesses" - what came to mind were corner shops, hairdresses, bars or restaurants etc. Even in those cases there are obviously large successful busniesses that do have competitive advantages - but I suspect they mostly get erroded away by competition rather than the business being able to sustain them, and high margins. I would love some counter examples though!
I think the word you are looking for is called "business". There are tons of books for these types of businesses.
On the shelf behind me is E-Myth Mastery, 22 Immutable Laws of Branding, Traction by Gino Wickman. You just have to look outside of tech. All of these books and practices apply to software businesses.
I do think there is space for a new category, or way of thinking about these businesses though. There's lots of great "regular / non-tech business" advice and books etc on how to operate in a non-VC way. But we're still talking about startups / tech companies here. So it's how do you marry the advice on operating a regular business with many of the dynamics of a VC backed business (that is, competative advantage, compounding growth, large market, high margins, attracting talent etc).
... Is that what you mean by "optimize for lifetyle"? "lifestyle business" is used as kind of epithet in some circles, as an "othering" term to identify people who don't work as hard as they do, but the MicroConf audience has a lot of people who want to grow their companies as much as is reasonably possible, but with non-negotiable ideas about family time, taking actual vacations instead of working vacations, etc.
One of the creators of MicroConf also is one of the hosts of the podcast "Startups for the Rest of Us" [1], which I don't see talked about very much on HN but which is very much my jam.
But the person we're responding to has already achieved that aspiration. What's out there to serve the incremental growth of people who are looking to go from 7-8 to 9-10 figures?
The feedback I've heard from people who've attended MicroConf multiple times tends to be that its invaluable content until you're above a certain size, and then the content becomes less impactful.
This is crucial. Many bootstrapped companies don't offer much stock ownership from employees. Yes, they can pay a good salary, but these employees are laying down the business brick by brick, but never see a dime of the upside. Mailchimp comes to mind. I'm sure there are others.
This basically leaves stock ownership in VC-backed startups as a way to get rich quick (albeit with low odds): https://topstartups.io/startup-salary-equity-database/
In fact, Mittelstands will probably perform even better if they can figure out how to attract the kinds of talent well-funded startups do. And from there, it'll be a virtuous cycle.
Because if they do, then if the company goes bust they lose their job and their savings on the same day. See Enron as an example where employees were heavily invested in Enron.
And the company doesn't even need to go bust - a downturn in the stock price leads to some cutbacks and redundancies, and you're the unlucky one...
The first rule of investment is diversification, and keeping your salary separate to your savings seems like a good start.
By all means buy options, and sell for a quick bonus, then take the money elsewhere. If you can't sell the stock (company not yet IPO) then treat money spent on options as "lost"... In 99% of cases it will be.
Also, the idea here is not that it's a great investment (although it usually is), but that it transfers power to experienced employees. Imagine if you and your coworkers owned enough company shares so that you could veto the CEO together.
My point I guess is that there's no materially different upside to owning shares where you work, or just shares outside. And shares outside diversify your income stream.
If there is a material difference in terms of power, well then I guess that's different.
Perform better towards what end?
This comes from a place of amazement not some sort of passive aggressive thing It really astounds me just how bad a I am at judging potential markets. Maybe you could give hope to some of us soul sucked 9-5ers looking to escape. I'm really glad you figured something out.
We ran into some minor problems along the way, mostly around cost, and eventually had to switch to something else. We still don't know much about the space and the main thing that stood out about our new provider is that it is cheaper but the data seems to be of lower quality.
Getting finer grained data down to smaller groups blocks is harder and not public.
Packaging it up into easy to consume (normalized) is yet another layer of work.
And that's just producing the data. Making it available via a low latency and highly available API that handles over 100 billion requests per month requires some work, along with supporting data downloads in various file formats, and integrations into all of the various platforms that our customers want to use our data with.
And that's just on the engineering side of things!
But I'd say that even if our data was publicly availble (and to be fair some geolocation data is available for free - although it's generally not very accurate, and we also have other data sets beyond just geolocation) - there's still lots of value is making that accessible, easy to use and understand, and helping your customers get back to solving thier own problems while you worry about solving that piece for them.
A sad casuality of "tech" VC mania is that small scale online businesses are passed over. Apparently internet-reliant startups must all subscribe to VC ideals because that is the only way they can be funded. Selling products and services for profit to non-advertisers is largely ignored as a viable option due the incessant focus on the www's feudual robber barons and the army of robot-like "tech" workers who ignore the lack of ethics and absence of long-term sustainability ("best practices") and want to be just like them. Few are interested in independently-owned, "Mom-and-Pop" online businesses, except for the opportunity to turn them into sharecroppers.
I like that. But is it doable or viable?
* "Bootstrapped from zero" is, of course, founder-friendly - no investors and no board means you get to do what you want!
* "Raised $100M+ from VCs" is also pretty founder-friendly, at least in the early days, because you're selling those VCs on the lottery-ticket dream that they could earn 3-5 orders of magnitude ROI. With such an incredibly high upside, VCs and angels are willing to take risks with zero due diligence on unproven founders and small dilution.
If you remove the long tail of upside from the possible outcomes and tell your early investors "the best case for you is 100x return, but zero is still just as possible" then the market will compensate in these ways:
* Less availability of capital
* More dilution
* Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
* Long and protracted due diligence processes before the check even lands
All of that is fine! There's nothing wrong with building a business this way. But there's no free lunch here - companies that don't chase astronomical outcomes will have a harder path to getting those first few dollars in funding.
This can be the Goldilocks deal for founders where you raise <$5M from angels or PEs who are happy with consistent 5x returns and get to $10M+ revenue and $50M+ value with majority ownership. And there are orders of magnitude more of these opportunities available vs. VC-backed unicorns.
And being VC-backed is only great if you're one of the winners. If you're one of the >90% that's written off, you're back to zero.
I hit the wall at Series B with my startup Labdoor. We pivoted to profitability and are now headed to Mittelstand land, but this all would've been way easier if we just headed straight to middle class.
I think you're getting at the crux of it here. The question is, how does one of these businesses "prove" to investors that they are less likely to fail? The failure rate for new business starts is famously high, whether that business is a tech startup chasing unicorn status or the corner deli. I think this will manifest itself in the due diligence phase, bringing back a bunch of things that tech founders have eschewed: detailed business plans, fundraising towards specific initiatives (as you point out in your post), and harsh measurement of progress towards those goals in board meetings with rapid consequences if goals are missed.
Someone who wants to build niche business software vs "the next Facebook" is a good example. The first case has clients outlined, a good estimation of revenue, competition, etc... The second is more abstract but aims higher. Success (albeit highly unlikely) means billions in revenues.
It's a stereotype that startups don't have things like estimates of revenue, a clear business plan, clients, etc... A few crazy outliers get all the attention but the vast majority that get funding have a clear and convincing plan to get to profitability, and often clients or at least partner businesses (in other words clients that aren't paying yet, but are willing to spend their own resources working with you).
The problem is that most new businesses fail, so if you're investing in new businesses the winners can't just make you a little money, they have to pay for multiple losers too.
You also need to convince investors that it's worth putting their money into these risky businesses instead of say Microsoft/Apple/Google/Amazon/etc... which will not go out of businesses anytime soon and produce respectable returns.
By having a business plan. That's why banks (at least over here in Germany) ask for one when you ask for a loan. You present a plan, someone reads it, you talk it through, clarify a few things and if everyone is happy they give you a loan and you start (or grow) your business with it.
In the US, unless you can put up property like a house or land as collateral, or plan to use the loan to purchase recoverable assets like industrial equipment (I suppose a data center would qualify, but actual computer hardware depreciates faster than banks like), you won't get the loan, even if it's a local bank you're approaching.
In theory a software business could use IP assets as collateral, but that usually doesn't apply to new software businesses.
Getting to the point where a software business could get a business loan from a bank more or less requires bootstrapping.
Yes, they do, if you can provide a security for the loan. More often than not, the founder is the guarantor, which sucks for them if the business fails. This is moderately founder friendly, to say the least.
This is what the US should really subsidize, the ability to bootstrap and start a new business, especially first time business owners. I know the SBA does some things around this but it is very much focused on "mom & pop" type stores, I don't know of any software businesses started with an SBA loan (though I imagine due to time and volume, there probably is one).
I think taking the risk out of it in this way would be a huge economic win, but it would definitely not be popular with the incumbent businesses that have the dominate lobby voice in US politics.
software doesn't have an investment problem. in fact, it's a maturing industry where all the big money that investors can squeeze out has mostly been squeezed out. that's where the lack of interest in the sector lies, not some missing middle investment. investors are looking for bigger opportunities because the risks have risen, but there's such a glut of money looking for return that we have risky sideshows like crypto/nft's seeing billions pouring into it irrationally just because it could be big.
what is actually happening in relation to the middle is the hollowing out of the real middle class, where family wealth and non-professional investment is going to zero and becoming untenable for starting a new business, and economic rents overwhelm even those where it's available. the problem is that we're becoming feudal, and fewer people managing bigger pots of money is less efficient and less dynamic.
I don't necessarily mind that people are trying to make money with their money, but it is a shame that so much capital is caught up in financial instruments that don't do any real work while it's holding onto it.
like most systems, balance is critical to optimality. greed in moderation drives the economy, while greed in excess grinds it to a halt (as does a dearth of greed, à la communistic economies).
at least 50 years of poor financial policy fostered by laissez-faire economic dogma led us to these distortions, so it's no better time than now to start realizing this and digging ourselves out of it, rather than being distracted by outrage du jour.
If I point out that Marxist economic theory talks about a "crisis of capital accumulation" where capitalists (meaning those with capital to invest) don't have enough places to invest their capital succesfully, and that this is related to "financialization" as a method of opening new places to put capital (also in some circumstances "imperialism"), and that in different periods this can go up and down... in the past I usually get down-voted.
Citation needed.
Around half of new businesses in the US fail after five years[0], and it is reasonable to assume the vast majority are small.
Mom and pop businesses fail all the time, we just don't hear about it very often.
Also, one of the key properties of Mittelstand, as I understand it, is that you don't need, or indeed want, an exit. It's (ideally) a cosy, lifestyle business.
I agree that this is a healthy approach and more people should be aware this is a viable option, but I'm not so sure it can be mixed with PE or VC (for the reasons I mentioned).
[0] https://www.lendingtree.com/business/small/failure-rate/
If the business is already on the path to a small profitability, it is much more likely to get into large profitability than something that wasn't even started. And much less likely to get into a total loss.
Your points also seem a bit odd:
> Less availability of capital
There's no reason for that. If the investments are less risky, there should be more capital, not less.
> More dilution
Yep, at least more dilution per round. Companies doing that shouldn't do multi-round or have a very small first round followed by a second one.
> Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management
Hum... Bringing management is a VC only thing. Their desire to bring management is clearly one of the forces stopping them form investing on less risky ventures. It's a non-performing choice for risky startups, and it's a non-performing choice for less risky ones. I'll just not call it stupid because there are handful of contexts where it's not, but doing it by default is clearly stupid. The good thing is that it's not viable for less risky bets.
> Long and protracted due diligence processes before the check even lands
Hell yes. That's the largest difference.
Healthy for whom?
- startups founders?
- angel investors?
- VCs?
- national economy?
- financial markets?
- ...
But now that you enumerated more, you can add "national economy" too.
Concerning "And quite likely brings better results for both the investor and the founders.":
That "[it] brings better results" for some groups does not imply that it more healthy for this group. Also the other way round: "more healthy for some group" does not necessarily imply "better results for this group".
In this sense I did not think that this phrase was to be considered an answer to my point.
It looks more healthy for both groups. I do expect it to bring better both first-order and second-order results. (Those two are always correlated, and on investment relationships they are very strongly correlated.)
That's not the right metric. An investment balances risk and reward. If the reward of the less risky business is too low, then there will be less capital. If I guarantee your money back, and also zero growth (I'll just hold the money then return it), no one would invest - not enough reward.
Next, you have to outperform other risk/reward outcomes, such as bond or stocks or real estate, etc. Otherwise investors should (and likely will) put their money elsewhere.
For some market to get significant investment, it has to do well on the risk/reward frontier compared to alternatives.
Those reasons are why there is not massive VC type funds investing in companies like these. It's not that VCs are stupid, or investors are stupid. It's that the risk/reward for such companies has to compete against all other options for that capital.
I don't understand your definition of "founder-friendly." I want to build a business that delivers real value to customer and I want to do that from day one. I don't mind working harder or working on boring problems (if necessary) to do that.
Even without this restriction the common definition in Germany is the equivalent of SME, i.e. less than 500 employees and less than €50M annual revenue. This includes some 95% of companies in Germany.
So unless he's asking VCs to invest without demanding equity or any amount of control that would interfere with the will of the family owners of the business and for the goal to be capped at €50M annual revenue, I don't see how "Mittelstand" is the right concept to use.
FWIW the resilience of (traditional, i.e. older) Mittelstand companies is likely more related to the same factors as the resilience of worker co-ops (which likewise tend to be growth-limited but stable across economical crises): the owners have a personal (often generational) stake in the company and the workers are assumed to be in it for the long run rather than being laid off at the next opportunity. Plus of course the owners' fortunes being so tightly coupled to the well-being of the company means that they're able and willing to inject their own capital as necessary to weather crises.
- bootstrapping is very hard
- traditional credit/loans aren't structured well for the "mid" type risks of starting software businesses (not much collateral)
- and on the VC side there is much less opportunity for the Unicorn 1 in 10 exits.
Tackling this problem are two funds that I didn't see mentioned in either the article or the comments so far: TinySeed and Calm Fund.
https://calmfund.com/shared-earnings-agreement
Broadly both invest much less than a traditional VC would and are compensated differently. The details are different (and matter) between the two but it's more along the lines of profit sharing than looking for big exits.
Point of clarification: we don't do profit-sharing. Instead, we are equity owners. So when a company gets to the point of success where they want to take money off the table, they can issue dividends (and TinySeed get's a pro-rata amount of those dividends). I find this is one of our most unique points and aligns the incentives of the founder with TinySeed.
As mentioned in that page, by investing broadly into B2B SaaS, we can succeed as a venture firm without needing to count on unicorn exits. We're about to back our 80th company, and our founders tend to be older, more likely to have families, and tend to be "unsexy" businesses. We're only a few years old, but we've had very promising results (as a VC firm) so far.
If you’re a founder looking at TinySeed, what this means is that if your business reaches a level of success you can pay yourself over $250k-$300k through your W-2, you’ll either have to cap it there or pay the rest through dividends.
That said, this isn’t really a terrible setup if you plan to go down this route. The IRS takes issue when tightly held C-corps pay themselves large amounts via W-2’s because they would want to reclassify those as dividends. They won’t say what the “large amount” is, but I’ve been advised that its around $250k-$300k if you don’t have disinterested stockholders or board members voting on your comp.
As always, consulting with your accountant before making tax and/or fundraising decisions.
Isn’t dividend income taxed less than W-2 income?
Honest founders often love the status that comes with big salaries and expensive perks, so investors need some way to cap that behaviour or otherwise investors get shafted.
It is perfectly fair: dividends do not overly cause taxation imbalance.
Micro-optimising for success before you are successful is a loser’s game. It is, of course, critical to configure your business so that you do indeed reap your rewards if you are successful (watch out for VC’s who have asymmetric information about the end-game and they can optimise for that against you).
If you are successful, then don’t sweat the micro-optimisations you missed out on. When founding, it is often easier to make the business 5% more profitable, rather than lose time pre-optimising for potential 5% gains.
Correct — also, most B2C companies have, or will build, a B2B component due to the higher contract prices they allow.
There are many paths to becoming rich that don't involve VCs and billion dollar exits. 99% of entrepreneurs don't talk to or know anything about the VC system. But if you are in tech and want to hire the best possible team to create something new, you need a lot of capital because those people are super expensive labor. And VCs don't want to give you $XX millions of dollars if the potential return is 2x. So that's the system we have in tech.
I’ve seen plenty of job openings where companies want “ninja rockstar 10x developers” to write what ends up being something that anyone who knows the latest MVC framework with three years of experience can do competently.
And most “entrepreneurs” who own franchising are barely middle class and “bought a job”. The average fast food franchise, convenient store averages about $70K a year and that’s with the owner working insane hours and putting their family to work as free labor.
Back at my peak. Me and another guy got a new startup to 1,000 paying clients in b2b space in 2 years. We had a few “regular” guys that helped out, but they would have taken 20 years to do what we did.
Where can I find industry stats to explore this assertion?
https://www.mashed.com/178309/how-much-mcdonalds-franchise-o...
7-11 is between $50-$75K.
https://mobile-cuisine.com/franchise/7-eleven-cost/
Subway is about $40K a year
https://www.eposnow.com/us/resources/how-much-do-franchise-o...
Almost by definition, a lifestyle business lacks the potential for massive growth. If it has it, and the owner tries to 'hold it back' someone else will come along and capture the rest of the market. The incentive to do so is large.
Occasionally, you will see privately held businesses that have the potential of startups, but they are not lifestyle businesses (maybe mailchimp). They grow into full fledged businesses that just happen to be privately held. They will often find ways of funding their growth (and have options for doing so), even if that isn't VC.
That said, lifestyle businesses are awesome for your lifestyle. I didn't think I wanted one until I ended up with one, and it turns out high-ish income, total control of your time, and direct positive relationships with customers are a great lifestyle for me.
Lifestyle small businesses are great too, but I'm really talking about companies with $10M+ revenue potential.
You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).
The fact that SMB is literally two categories (Small and Medium Business) but effectively one category is a great way to capture the frustration here.
I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M.
Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return.
You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M)
What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.
Constellation software does exactly that. They've quietly been the Warren Buffet of SaaS business for like 20+ years now.
I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipment to ISPs in the region. It's owned by one person. I don't know their margins, but that person might be making $20M/year. They might be able to grow that business and sell it for $500M dollars if they play their cards right. I wouldn't call that a "lifestyle" or "small" business. It's somewhere in the middle.
I think it's the latter type that the article is referring to.
Seriously, please get out of the SV bubble.
By whom?
The problem is with this definition of "lifestyle business". What is the cutoff? What does it mean to "support a lifestyle?" If a company makes 10M/year and it is growing at a healthy pace without VC capital, is it "lifestyle"?
If someone makes a living of investing in fast food franchises, each shop by itself taking 500k of initial investment and then returning $100k/year in profit, do you count each individual franchise as a "lifestyle" business or the whole thing as an "equity investment"?
Like others said already (and maybe that is the point of TFA), this definition of "lifestyle business" seems to serve only as a way for VCs to downplay the significance and importance of so many businesses that exist in every sector.
Cut off is “would an investor buy equity for growth”.
Some people own say 5 mcdonalds franchises: the owning business might be a growth one if they are planning to expand. Might be lifestyle if they don’t. Dynamics matter as much as a static snapshot view.
Might be a middle ground but I think it is small. Coops for example.
all this is still around ya know
people act like they just forgot
It is neither a lifestyle business nor a shareholder-driven business.
My (very wrong) opinion on what Mittelstand is: I think of a small-to-medium sized company that manufactures (I've never thought of service providing companies as Mittelstand) one group of things at a very high and competitive level. I think of companies that are pretty much strictly B2B. These are mostly family-owned businesses, but for me that doesnt need to be true. Companies that you only know of, when you need to know. And when you do need to know about them, you most definitely will know about them.
Again, this definitely isnt what most people consider to be Mittelstand. Just my view on it.
That’s his point. Small businesses can become unicorns - but they need space and time to grow. We need a better environment, and a more nuanced understanding, of them.
My skept-o-meter went off-scale upon reading this. Can you point to exactly when BH was a lifestyle business and what they were doing at that point that would classify them as a lifestyle business?
Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago when said younguns moved to uni degrees as a path in.
There is a lot of money idling out there to do that, but as Indie.vc showed, the usual LP are super frigid to it.
I do not have a good answer to this. The current young people simply are too unstable and too close to poverty to take the risks. And there is noone taking a risk on them either.
There is a looooot of value to make though. These markets are ripe for productivity enhancement through good software by small teams.
But the people that have the domain knowledge and the tech skills do not have the risk taking capability to execute.
Whoever find out how to provide them this will unleash massive growth on the world.
I advice to look at what calm fund is doing. https://calmfund.com/
The solution may end up being some kind of crowdfunding from other tech specialists with high income. Like FAANG devs.
For two tech founders, the first 500k is literally a year of salary for the two founders. One option here is to bootstrap without outside capital, de-risk, and raise a better round once you've de-risked. For tech founders, the best form of capital can be their own minds and time. (Doesnt work as well if you have a family and if you're a single earner with dependents of course!)
Maybe reconsider what i said and why.
In particular consider that what you said highly limit who can do this and how that limit heavily the kind of company that could grow from this.
In my case, when I was raising in 2012, the typical VC line was "go move to SF/SV and work for ramen-pay", which is ridiculous and only something rich people can do (things have changed now.) So I bootstrapped and built it myself on my spare hours (note, of course the start up should not be competing in the same market with your dayjob which would be a conflict of interest.)
Once you have a prototype and de-risking, the tables turn and VCs chase you
I mean, what is the alternative? See the GP comment I was replying to:
>> There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.
If you're not in the circle where VCs are throwing money at you for some juice squeezing appliance, then you just have the option i've presented...or the option of not playing at all. But i'm very interested in the topic, i'd love to hear what your proposal is...because I think "poor people cant found tech startups" is not the world I would want to live in.
The reason it is harder in tech to get funding for these good ideas that could be profitable has multiple factors
1. As pointed, decoupling of relationship between entrepreneurs and "old money". This could be rebuilt even a the local government level with reach out actions
2. The untangibility of tech assets make banks loans near impossible to get
3. People cannot afford the risk. Better safety net would help. Obamacare was a good first step. Far more are needed.
4. The winner take all model has failed to generate profit. It generated capital returns but as pointed out by OP, pretty bad one. But it needed a lot of capital and LPs had a lot of money to throw around. The current inflation and folding back to Value investment will help. But we need to make the point.
5. The rise of passive investing has reduced the amount of money available to these kind of "semi anateur small rounds". The return to a less bullish market may help.
6. Housing. A lot of money and security rn for young people is sinked in rent
7. O'Reilly had amazing result with Indie.vc. The LPs refused to invest. There is a story that need to be told more. We need dozens of people banging the drum on this.
In the end... i don't have a solution sadly. We need a return to fundamentals to make the story of these models work. Focus on real possible profit and not some "we will control the world". FAANG are the exception. Not the rule. LP need to realise that.
>> 2. The untangibility of tech assets make banks loans near impossible to get
Avoid bankloans and explore PIPE financing or similar non-dilutive financing
>> It is that access start at 250k a year which is really hard to get even in tech.
Not really. If you aren't VC funded, you can hire anywhere and anyone. You make the rules. At that point, you can hire in India, Indiana, Ukraine, Pakistan, or Pennsylvania. You get a lot for your money. We hired entirely outside major markets and saved a lot. Unfortunately once you go the VC route you get forced into hiring expensive talent and end up burning money.
Id love to reach out offline, we should chat!
Take a group of 4-6 CS grads and maybe a business major. The parents of these kids form a company and bootstrap the kids by having them work from home and just covering legal costs and cloud costs with a focus on keeping costs low. They go find a problem and start finding customers. No salaries are needed as each parent takes care of their own kids. This gets rid of the problem of just giving 22 year olds $10M and hoping they figure it out. The middle class doesn't have that kind of money, they have to be smarter but it is possible. Someone who has the knowledge could make a template that others could just use even without the know how. I wish my parents would have done something like this. I didn't have the chance to mess with a start-up after graduation. I worked 40 hours/week while in college. Graduation was about getting money asap to start digging out. This is the thing that the 1% have over others, a huge backstop and support self in case they fail.
This is easier said than done, no?
I feel like the next rounds may become much more difficult. How can I raise the next 10M, …, 200M if the company is unlikely to grow beyond 500M?
And sorry but as upper middle class, my family cannot fund 500k. 100k max. And young people do not have a home.
Welcome to the real world.
One piece of the solution that is very clear to me and contains many other upsides is better access to healthcare. The fact that Americans mostly get healthcare through large corporate jobs significantly ratchets up the risk of entrepreneurialism. A better healthcare safety net would make it safer to leave the safe confines of a corporate job that provides health insurance.
If you are an entrepreneur under say 40, can’t you just roll a D10 and hope you don’t get a 1? Surely most people before middle-age won’t need expensive healthcare?
In my case have a cognitive trouble. Allergy. All kind of disease you can catch. Breaking a tooth while tripping over something.
Being young does not isolate you. And the trip to poverty is far faster than getting out of it.
Also: parents. Childbirth is expensive and most parents want some reasonable level of certainty that they can afford good healthcare for their kids. Or, to put a finer point on it, when forced to choose between health stability for their children and starting a business, most will sacrifice the latter to get the former.
The same is true for a medium sized business. Nothing is stopping you from doing it, its just stopping you from doing it from a hammock in the Caribbean.
Thank you but no.
"Medium scale/growth/etc startups should be feasible.
And
"Middle class startups should be feasible for people of all time/energy/financial constraints"
---
My point is that medium sized businesses (including startups) have always been feasible. Yeah it takes more effort then coasting on huge financing but thats the price you pay.
Four hundred* golden tickets per year winning $500k available here for the low price of $0, although an application is required, and some light strings are attached: https://www.ycombinator.com/deal
YC is simply not shaped for the Mittelstands and honestly really not compelling. At all.
As you are pointing out, the risk of being a founder is just not worth it for you or most people, financially or socially or personally. It rarely makes sense even if you are already wealthy or privileged: even given the advantages you have correctly identified, the expected outcome is failure. Without those advantages the rewards for the risks are even worse. Calculate the median return[1][2][3] implied for the majority of ycombinator founders and it is approximately zero.
Selection bias is a bitch.
[1] https://jaredheyman.medium.com/on-600b-of-y-combinator-start... [2] https://techcrunch.com/2017/06/01/the-meeting-that-showed-me... [3] https://80000hours.org/2014/05/how-much-do-y-combinator-foun...
I went to talk to our local chamber of commerce and industry, which handle navigating the subsidies, and their answer was "how many local jobs are you creating ? Just you for now ? Then we cannot help you, come back when you create a dozen in the region"
One of my favorite stories about Dabo Swinney, Clemson's football coach, came when he had just gotten the job and very few people had any confidence in him. ESPN rated him as a D+ hire at the time. He sat down at a coaches dinner event and a much older retired coach named Bill Curry was at his table. They struck up a conversation and Bill said, "Dabo, congratulations on the job! Can I give you 3 pieces of advice?"
And Dabo took out a pad and pencil from his pocket.
The advice was good, but the fact that Dabo was humble enough to actually take notes. Think about how much advice we just let go in one ear and out the other.
Now he's the best coach we've ever had and won 2 national titles.
Ironically, I'm going to mention Alex Hormozi (who is very successful), but he said in an interview once that he spent something like $150k to talk to Grant Cardone and thought "I'm easily getting my ROI on that now because Grant's advice applies to someone in my position, where I have $100 MM. 10 years ago, when I was broke, the advice he's giving me now would have just put me further in insurmountable debt."
Most ultra-successful people somewhat forget the baseline that most people live in. For example, if they were to "restart with nothing", they usually assume that "nothing" still implies a good credit score, housing, food, healthcare, etc. which most of America is really spending all of their time trying to fight to secure. This translates to the out-of-touch and generally vague advice they give.
The ultra-successful, in my experience, are there because yes, they do have some strong, quantifiable qualities, but they also have massive, massive advantages. Not just being born into a home that gave them quality food, the best education, and all of the other things needed to be healthy in their developing years - but also the experience of their successful parents, the connections their family has, and many other things that I probably do not even know exist.
Some of these families that I know personally have it ridiculously well. Not only were they born with amazing portfolios, but they have great family jobs where they make $8k+ (after tax) every 2 weeks. And they get as much time off as they want - and you better believe they generally use it :)
Of course, they still find things to complain about - as do I.
There are a lot of brilliant and driven poor people. If they are lucky, they will get into the 10% or the 5%. If they win the lottery they make it into the .1%.
I think there is just some mental fatigue that happens when you read about other's success - maybe this is an unhealthy reaction, I do not know.
Failing to build a billion dollar startup does not exactly disprove the “massively succesful” point that GP made. Unless your criteria for “failure” is completely ridiculous.
Pull like any tech big shot at random, their parents are rich and bought some part of their success. Gates’ folks had an IBM mainframe installed in his fucking high school.
Oh myGod, this kid Bill Gates is way ahead of the curve on computers.
Anyway, you're attacking a premise I didn't put forward - I didn't say his advice was not valuable, I said I feel that way when presented with articles like these by wildly successful people.
I think of Kevin Systrom selling Instagram to Mark Zuckerberg at Facebook. Both success stories. Systrom went to high school at Middlesex, Zuckerberg to Phillips Exeter. I can think of many examples like this. Phillips Exeter high school starts at $47,000 a year, Middlesex high school starts at $54,000 a year.
So my best advice is have your parents give you $200,000 before you start high school so you can be off to a good start.
If you change successful to be defined as people like OP, I believe a large majority of successful people are extremely lucky. Probably over 99.9%. They owe their success to being extremely fortunate in a combination of many factors, not limited to:
- Where they were born
- Who their parents were
- What food their parents gave them when they were kids
- What other types of nurture they received
- Where they went to school
- When they went to school
- Who they met at school
- Who their parents knew
- The time they were born
- The time they ...
You can go on and on here ...
It is up to you to be able to filter good information from bad. Wealthy founders do share some opinions that will help you be wealthy. However you need to learn to discriminate between good advice and bad advice. Your blanket ban seems poorly thought out to me.
Bonus unwelcome advice: you appear to be using the word successful to mean wealthy. Perhaps deconstruct your worldview a bit.
For other classes of successful people it makes more sense to read a biography (or autobiography if you feel the subject is intellectually honest) of successful people to understand how they think and operate. Many of these people won't be looking to give advice, but it is worthwhile to learn from them. For instance you can read the biography of Rockefeller, Carnegie, Franklin, and listen to "How I made this" featuring Michael Dell, and see the threads that are common amongst them. You may then compare that to yourself and understand the differences.
IMO there's plenty of value in the article, but it's an example of something you should critically analyze and verify against other sources before acting on.
1. Remote work, no code, social media, and ecommerce platforms all make it easier to bootstrap new businesses from zero to revenue
2. (From Wikipedia) Mittelstand commonly refers to a group of stable business enterprises in Germany, Austria and Switzerland that have proved successful in enduring economic change and turbulence. The term is difficult to translate and may cause confusion for non-Germans. It is usually defined as a statistical category of small and medium-sized enterprises with annual revenues up to 50 million Euro and a maximum of 500 employees
3. There are hundreds of YC-backed startups stuck at ~$1M revenue that can predictably grow to $10M+ revenue with the right team and funding structure
4. Many VC-backed startups would be better as Mittelstands
5. My first business, Avomeen, is a classic Mittelstand
6. Mittelstands are already about one-third of our whole economy
7. Mittelstands can launch and get profitable for <$1M
The economies of scale are enormous in software (and data-oriented businesses in general). That's good for the efficiency of any given enterprise, but it pushes very heavily towards monopolization and zero competition without regulatory force to counterbalance.
My family grew up relatively poor and extremely frugal. My dad was formerly a professor in machine learning, but decided to enter the private sector. He didn’t speak much English if at all, and entered the field when it was still immature.
After he was laid off, and with little options left, they decided to use their remaining savings and likely a loan from family & friends to bootstrap a company. My parents never wanted a business, but they had to out of survival. They never discussed the business with us, so I don’t fully understand the operating model behind their company, but it involved with semiconductors/hardware, etc.
What I think about is was this simply a business or during that time a “startup”. It was in a hyper growth period on relatively emerging technology, they were learning as they went, and exited quickly.
Recently, though my dad unretired in his 70s working at a FANG… Amazon warehouse worker. He says he does it for the exercise and $20/hour.
Contra the subtext of this post, it is not in fact low-risk to take a company from 0 to $5-10MM annual revenue. Companies that do this quickly tend do it with substantial funding, which is predicated on them aiming for much, much higher revenue and valuation numbers. Companies that don't take funding that eventually hit those numbers run for a long time before they get there. And those kinds of companies fail all the time; failure is their default mode.
As I understand it, a basic fact of life for venture funding is that the winners have to pay for the winners. Do the math with a portfolio of 10 companies taking $1 each to see what the winners have to make just to break even at various hit rates.
Further, targeting "mid-market" startups with growth targets low enough to somehow derisk them would also drastically reduce the amount of funding you could provide. You can't give $10MM to a company that's going to grow slowly and organically from low-7-figures; that company has such a low valuation that $10MM would buy too much of it. My first impression is that you'd be able to do something early-stage-YC-ish, giving a single founder ramen wages for a year or two, and not much more than that. But you'd have to take a huge chunk of equity to do that, so it'd be a terrible deal for the founder.
This model would make sense if there was a reliable path to get to $5MM/yr, such that you could build a portfolio of a bunch of companies taking that path with a very high hit rate. But there isn't? You are very likely to fail trying to start a company like that. Worse: the resources you'll need to operate a company doing $5MM/yr will rapidly outstrip any amount of funding a VC could provide. The VC-funded companies doing $5MM/yr got that money because they promised they'd soon be doing $500MM/yr.
What am I missing? Obviously, I'm not a golfer.
2) acting like a VC with companies that are not VC suited is prone to failure because of something like the observer effect: you cannot just add funds and get a better outcome, adding funds can create worse outcomes by changing the way the company is run: priorities, timeframes and metrics, etc.
Maybe it would work if you could add funds without the company knowing they had them until they were at the moment of failure?
It is always possible that what we are apparently calling the Mittelstands market is somewhat underfished or modified since previous efforts (less overhead is required for many opportunities) and the new fund will find success there. A diversity of approaches is a good thing.
Let's imagine the bottom level of the mittlestand as 2.4M pa revenue - call that 200k pmth, 40/400 licenses at 500/5k. I think that is the barest level.
Now there is very little technology risk in most B2B saas. (Inam not talking about fusion startups here. That's what VC/gov is truly useful).
But a team of 2-5 people at 100k pa is feasible here.
This is not VC shoot for the moon, but it is also not worth putting in 2 years of runway (400k-1M) for equity. But it is worthwhile as a loan.
So IMO VC money could start handing out ridiculously low interest rate loans with big forgiveness clauses (dies with the bankruptcy of company?). The founder takes the equity swap or the loan depending on their vision of future. Add in some conversion later on and it seems one way to divide the market
I suppose the point is, if you have 100M to invest, which is riskier - 100 1M investments or 1 100M investment? And if you wait till later stages before deciding you probably miss out.
Somewhere there is a different approach to capital structure and corporation structure. The one we have ... it works yes. But it's not the only one and we can see problems. And we should try to encourage some experimentation- Mittelstand is one divergence from the UK Limited company model that kind of came packaged with the industrial revolution. (That it came from the UKs big rival in the revolution says a lot)
Why should Bezos or Musk or any early founder get so much of the upside ? Is having a hierarchical command structure stable ? As the oil / Electric / Silicon revolutions start to come to an end, will we need different corporate and capital structures to handle a more sustainable model?
Why should public markets demand quarter on quarter growth as if that was a natural state of affairs (which tends to force every PLC to be a conglomerate whether it wants to or not (tech giants not withstanding). Should companies not be like Unix commands and just do one thing well?
All these are choices - we could have smaller companies, democratic companies, different companies. But we choose not to. (Don't say they are competed away in the market - how many co-operatives exist to be competed away?)
Maybe we can continue the kind of tech-social change we have been seeing for past 200 years. If so keep the scaffolding up. But otherwise maybe we should experiment with new forms of organisation. Because that's what has helped humans rise out of the mud - how we worked together to build something ... less muddy.
And choosing the right kind of organisation for the job at hand is crucial. And an equity corporation controlled by one or two people employing millions who have no say in its direction, might not be the right choice.
So fund a few wild cat companies - we might surprise ourselves.
Edit: literally just ran over this comment : https://news.ycombinator.com/item?id=31346487 (ignore my dumb sarcasm after). But the point is that a congress with 5,000 congressmen is a wildly different beast to the current one. And potentially better (very arguable). But that it's such a crazy, reject it without thinking idea is the whole point - there are alternatives to our current system (and yes that does include fucking it all up and crashing the economy - but we are risking that anyway).
Then you have to engage with the company, take a board seat, etc. Only way it pans out operationally is if you can still succeed while being really passive (hasn’t worked yet) or automate it. But if you automate it people will know it is automated and game it.
Do all of the problems you allude to there exist - yes absolutely. But we need something to spin the flywheel.
There is a story that inspires me is https://en.m.wikipedia.org/wiki/Arunachalam_Muruganantham - he invented a low cost tampon making machine - it was not the technology but the marrying of tech, social entrepreneur and local cultural knowledge that increased wealth - and that's the next stage - we don't need another social media giant - we need thousands of locally useful social media (for definitions of local, social, useful etc)
And finally to be brutal - if some fund has 100M to invest and it's too tough to build out their deal funnel, no one is going to sympathise :-(
Without some system that isn't inherently about 'move fast, big returns, oh and also it really helps if you're a young man with a Stanford connection and a way to get through the period of time where you have no income' then we get the technology that results from that. And the 'system' reflects a funding situation where big investors, often having 'good' missions (the LPs I mean) look to folks from SV VC to pattern-match their way into high returns.
If you are building a business and it's a "good business" that can be profitable early then great, but you will be stuck at scale (or in almost anything consumer-facing in tech) with only the companies willing to maximally exploit the systems that I think we know are extractive and unsustainable.
Like with most systems problems, it's hard to know what the 'answer' is- if you buy into this line of thinking- but I hope we'll start trying new ways to approach the problem, whether it's by putting some pressure on the LPs or by making it easier to crowdfund or by some more radical means...
But, yes, opening up funding to people of different socioeconomic backgrounds at different "risk" levels might lead to more innovation and entrepeneurship. So would a population of citizens who don't have healthcare tied to their job, childcare tied to their location or reliant upon wealth, and so forth. People who don't have to worry about bankruptcy due to an accident or disease, and people who can have their children taken care of during the day while they're off starting a company can focus more on a company and less on the risk of failing in everything else.
It works because Mittelstand revenue and profitability is much more predictable.
If you're on the Midas List, VC is still a better business. But many investors, especially solo GPs, should consider building a portfolio of middle class startups.
sure 13% IRR is amazing, but it is not going to make my neighbor jealous
Another sticking point with me is that claim that even services companies can get to this level of profitability with good management. Well, yeah, they can. But they don't exit at the same valuation as product companies, because they tend to fall apart when their founders leave.
Somehow to allow them to "exit" at 1/10/100 instead of trying for 1b or crash would be nice. But it would need a different type of "VC" partner.
One funding mechanism could be something akin to "guilds" - once you have a group of ten or so of these businesses "together" they could help fund additional ones. A "guild-like" setup (think Union of workers that owns a percentage of the companies, perhaps) could be used to fund new ones starting out.
Bear in mind also that as you scope down the size of the companies you're starting, you necessarily also have to scope down the investment (these companies have, obviously, much smaller valuations, meaning $1MM of equity buys a much bigger chunk of the company). But companies today take A-B-round-scale investments to get to 8 figures ARR. You get those investments by targeting a much, much higher ARR.
This thesis doesn't hold up for me, I feel like I have to be missing something.
I wish there were more dividends-only VCs...
Do you have any examples?
The clearest, most obvious sign that the End of the Bubble was imminent was that the discussion about "startups" you'd seen in public was completely dominated by discussion of fundraising and not products. And this blog post, even though it argues against extravagant fundraising, is no different.
It's not about funding, it just isn't. Basically zero historical Unicorns needed billions of dollars in cash to bootstrap. Software companies all did it for almost free, but even Tesla (a heavy industry player competing directly with established outfits with hundreds of billion dollars in revenue!) did it on a few tens of million dollars and one too-visionary-for-his-own-damn-good angel.
The obsession with fundraising reflects the investor dollars looking for a home. It's an inherently inflationary conceit. And even now that the gravy train turned over, it's frustrating that people don't see that.
And while it was flattering to be considered either, there was only one business they were going to invest in.
I understand the mechanics involved in some of these funds and the myriad of considerations that go into their investment theses, but it was also sad and frustrating that a lowly "$100M business" (with 4.5M registered users, mind you) couldn't get funded.
Don't hear me bemoaning the fact that we didn't get funded or that we somehow didn't receive our due. I'm just adding my experience with the gap that Neil is citing. And just like in broader societal terms, I think a healthy startup "Middle Class" would make for a healthier overall economy.
https://nothingventured.rocks/what-startups-can-learn-from-t...
Get a bunch of people to move into one of the founders houses. Sleep on the floor if you have to. Have a coffee pot making bulk coffee for the whole house day-over. Live on nice healthy foods that require no cooking so you can code more. No take away obviously because its horribly over-priced. Plenty of cash for hosting services. Obviously no meme shit like cloud hosting. Use real servers for everything. There are even enough services that provide free resources to startups that you may not need to pay for this. You want to avoid the trap though: becoming dependent on services designed to screw your time and wallet later on.
Anyway, it seems like investors in startups only care about companies with million or billion dollar potential. You hear much less about people who build smaller profitable businesses, period. I'm guessing if it's a small business with limited growth potential you just have to bootstrap it with your own money.
For that I got a Delaware C-Corp, an SVB bank account, and $5k of AWS credits that expired after 12 months. Our AWS bill in that first 12 months was roughly $5k.
Money well spent.
Did you know you can get $500k by applying to this fund: https://www.ycombinator.com/deal
I see this in my extended family where almost everyone runs this kind of business and is so for several decades. They make much more money than if they worked for someone else, but none of them are going to break the $100M mark
I'm especially interested in this last bit and I'm wondering if anyone has any recommendations for learning about the different models people have tried for this.
I have what I can only really describe as a hunch or an instinct (not even a theory at this point) that there's something good for people about owning what they help create.
But I keep getting caught in the brass tacks of it. When I've earned small ownership stakes in companies, the only real way that had any direct monetary value to me was if the company had an exit and I stopped being an owner.
Would some sort of dividend or profit-sharing agreement solve this? Are there long-established means of allowing small-scale owners to profit from their ownership that I've just failed to come across?
The accredited investor laws in the U.S. make it such that most working class people can't buy ownership in private companies, but if they could earn it and profit from that ownership, that seems like a much stronger way of "investing in what they know" and potentially seeing outsized returns rather than just investing broadly in the stock market as it goes up.
I don't see how this is any different than social media itself. You only see the "bootstrapped from zero" or the "industry plants". The middle class of social media however? They are there, they make a decent living, and they still create. They may not be recommended on the front page of feeds, but they still exist and are arguably how the platforms became big in the first place.
I'll be honest and say I hate articles that only talk about raising money or valuations. That's like half of twitter and it's annoying. Startups are more accessible than ever today and can happen organically from like a HN, Reddit, or Twitter post. People find pain in their daily lives, and they create a painkiller. You don't need millions to create a v1.0 to assess product-market fit.
This take really speaks to me and does a great job conveying frustrations that I have felt with the startup world for years.
I could go on and on about the downsides of the different funding models and how none of them have ever really worked for us.
Coupled with all of this was a certain level of frustration that the startup game hand changed in the past couple of decades. Very few companies were having to overcome the type of feasibility risk from back in the silicon days of Silicon Valley. Lots of them already had a product in market generating revenue! Cloud had made it cheap and fast to make something real. So funding was increasingly going toward pure execution and go to market/marketing. It was a materially lower risk proposition for investors. Most were still taking their ~20% equity stake though because of the perceived risk, and just inflating it with a higher valuation.
So when I got back to Australia I started exploring different models that gave founders better options. A way to have a stake in the business that felt more aligned with the value/risk. A way to give founders their company back if their ambition or outcomes changed without forcing that go big or flame out dynamic. I was also inspired a lot by what Bryce @ Indie.VC was trying to do around the same time. Unfortunately my co-founder (Matt) and I never managed to get quite enough capital together to get it off the ground. A few years have passed though, and Matt has managed to tweak the ideas, get the capital, and a team together to make it happen (https://www.tractorventures.com).
I have to think we'll see this type of model grow more successful and more popular over time. Not every company needs VC investment. For lots of them it's actually a terrible idea. But lots of founders have grown up buying into all the hype and thinking it's the only viable way to build a really successful company.
The reasoning was that if the company just tanked, he had no ongoing issues, it was gone. Now, he still has his time & resources occupied by an ongoing company, even if minimally, it's a distraction...
The reason there's no "middle class for startups" is that both sets of startups he describes are growth-oriented investment/acquisition-seeking ventures, not sustainable businesses. You either get fast tracked by finding an investor or you have to take the long route and try to become profitable, but the end goal is to either get bought out (and die) or to go public (and become large enough to buy the competition).
Investors along the way buy you out piece by piece betting on you successfully reaching either of those two outcomes. Since investors are in it for big ROI they're willing to take some risks and overfund hopeful "unicorns" while underfunding startups that can't credibly promise (or don't aim for) that kind of ROI. Basically, the groups he describes are self-selecting. If you start bootstrapped as a growth-oriented startup either you wither and die or you grow successful enough to get acquired (and die) or get overfunded (and become part of the latter group). If you start overfunded either you overexert yourself (and die) or get acquired (and die) or continue growing bigger (or go public, leaving the VC bubble). Any "middle class" in between the two can only either be a transitional step from bootstrapped to overfunded (or from overfunded to bankrupt) or a consequence of low ROI expectations.
I'm not saying this middle class can't exist, but it can't be a growth-oriented startup and thus is only tangentially related to the kind of companies VCs think about. Another Siemens, Miele or Aldi isn't attractive to VCs because sustainable businesses aren't high enough ROI.
Currently we call them like IndieHackers, bootstrapped startup, life style business.
All not fancy as “unicorn” it is. We need a new PR that makes this kind of business cool for the general public.
In these day if you have a profitable bootstrapped business (<1M$) people say that you should raise capital to grow and become an unicorn and your are not cool or not get PR attention until you raise funds. I think is a PR problem. There is an opportunity for a new media space. Like IndieHackers but without the term “hackers” in the title which reminds something dark for the general public.
If you're not okay with boring success, then this type of business isn't for you.
A big chunk of the classic Middelstand is something physical, not knowledge work.
And startups turn that effect up to 11. Either it works or it doesn't. It is by its nature not conducive to middle ground.
They never raised money, never talked to VCs or consultants.
They just went in the market and poached other companies to become stronger until they had to face the ultimate boss of the corporate world : IBM.
They beat that and only had to surrender to the really last boss which nobody ever beats: The U.S. Federal Government.
Without VCs you can stop at any point of the climb and rest, then you can decide to initiate descent or pass the baton or even camp there indefinitely
Anti-risk, security seeking, founders who think they should get funding in `3 months really haven't assessed "startups" as a profession too well. You get funding when capital has a reason to believe it isn't simply gambling.
"But I have kids and a family". Yep, so do many... and they made it work. Decide if you will.
The only middle ground would appear to be in businesses which serve defensible tight niches, but in software these mostly appear to boil down to consultancies with a small set of customers.
Those are the tricky bits :)
It reminds me of the 'how to draw an owl' meme where you have a couple of circles on the left as step 1, a finished drawing of an owl on the right as step 2.
Great, but uh, what did you do to get from circles to an owl? :)
I have seen this idea before, but am not aware of that many successful outcomes. IIRC, the idea of placing multiple bets made it challenging to focus.
>Bootstrapped from zero.
>Raised $100M+ from VCs.
Does anybody else see the irony in this being discussed on a website owned by a huge company whose entire business model is lending medium-sized amounts of money to startups?
Family ownership or family-like corporate culture, Long-term focus, Nimbleness, Investment into the workforce, Social responsibility
...are very much feared or despised in SV and, to a lesser extent, in US in general.
One of the biggest trends is now that PE is gobbling them up and rolling them up into $100M+ revenue businesses.
That’s… not a secret. Anyone with even rudimentary knowledge of the economy knows that. You need to get out more.
* limited terms for government offices, all of them
* limited funding and/or public funding for top X candidates
* _Heavily_ regulated lobbying and audits of said lobbying, and complete transparency of All Meetings (time, date, topic, audio recording)
* free public higher education
Only then will we get a little bit closer to fair government and healthy middle class (which is starting to dwindle in the USA)
The brighter highlights are intended to be the most important points.
Is that confusing? I can change the shade of the lighter highlights.
Great note/outline format, if I already know the key ideas/takeaways and where they are relative to each other, but really awful to follow reading it for the first time.
You mean a bourgeoisie?
People think it allows people to be slackers and just sit around smoking weed and playing video games all day and otherwise be an unproductive member of society, and yes, there's some truth to that.
But there's also a lot of people that have the desire to create some cool and useful stuff, but are already burnt out by working 40 hours a week at a job they have to work at to pay the bills.
That fits me, as well. I've got two projects that are half-written and probably just need another 200 hours or so of work to release an MVP, but after looking at code all day, more code is the last thing I wanna do when I log off for the day.
If we end up in a world where 90% of the population are struggling to meet basic needs, 0.1% live off generational wealth and 9.9% act as a highly technical servant class, then there will be fewer innovators and fewer innovations.
The reason "VC" or "bootstrapped from zero" (both are the author's words) are seen as the two available paths is... because they are seen as the two available paths.
Where do you get the funding to do a "middle-sized" business? The OP goes into this a little bit, but it seems to me that's the thing at the center of the whole discussion.
If people saw that it was feasible to find funding for a business that could grow faster and/or with less personal risk than what he is calling "bootstrapped from zero" (or is sometimes pejoratively called a "lifestyle business"); but without giving up the control that you do with VC funding -- of course people would be interested in starting a business like that, the appeal is obvious, right? It doesn't need to be made "cool". But, how? OP suggests "New non-dilutive funding sources are now available for revenue-generating businesses", okay, more on this, and hopefully it doesn't sound like a pyramid scheme or scamming retail "investors".
The things OP links to sound like... loans? OK... So this is just a variation of "bootstrapped from zero" where instead of just taking out credit card debt and loans from family and maybe a line of credit at your bank, you access loan products intended for new businesses? Are they secured by personal property? This doesn't sound so different from "bootstrapped from zero" to me, like these new sources of debt are going to make an entirely different business plan and category of business possible?
Then he moves on to advising that investors fund these businesses... in ways different than VC? Which would mean... without taking significant equity? Or without trying to maximize their payout? They're going to invest just planning on making money from dividends instead? And investors are going to do this because... it's been made "cool"?
I would love there to be more stable medium-sized sustainable businesses that don't pursue growth at all costs, treat their employees well, treat their communities well, etc. I feel like the OP weirdly seems to think the reason they aren't is becuase it's not "cool", rather than because of the economic factors. Businesses need capital, those with capital want to maximize their profit. So the two paths are either try for a capital-intensive startup that tries to give VC what they want; or you try to minimize the amount of capital you need by finding a way to start very small and have very slow but sustainable growth (the "bootstrapped from zero" "lifestyle business"). Making it "cool" to do something else does not solve these economic constraints. What might is talking about, say, changing the tax code to encourage a new type of business model or investment, or providing government subsidy for it, or something. Am I missing something?
Making it "cool" means getting founders who'd otherwise take VC to target PE.
It also means convincing these PEs to invest earlier.
Thanks for the feedback. I'll try to center this more in my post.
I think this is the next opportunity for very large growth, but the ecosystem isn’t where it needs to be yet.
Already most businesses are started in this broad middle. It's where the TRUE root of entrepreneurship starts.
Heck, you are sure you will get no funding. For sure you will fight for every last customer. You will wonder how you will pay the rent every month and your staff.
Most of these businesses fail. But enough of them keep going to keep the economies of almost all countries going. These are the people that struggle.
There is no need for "funding" or someone to "buy" these businesses.
These business will always exist, and for every one that goes down 3 more spring up in their places.
Jesus.