Y Combinator's Message to Founders
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One thing it obviously does not address is the human element of who you cut and whether they will be “default alive” unemployed in a recession. A huge amount of YC advice in general positions founders as protagonists and employees as NPCs then are shocked people pick Google over their startup offer.
Funny thing is I’ve seen this exact advice destroy a company. In March 2020 they did deep layoffs and cited the need to be “default alive.” Then their main market surprisingly quickly grew in the rest of 2020 , they wanted to capitalize on that, but they had laid off too many engineers who knew their infra and had enough outages and slow product development that they lost to their competitors and are now way underwater on their valuation.
They decided to be serious and prudent and go “default alive” which ironically killed them. Of course if 2020 had gotten worse maybe they would look smart but the takeaway is there’s no easy answers.
I would just like to see the human impact of layoffs at least lightly considered in these conversations which it rarely is. And it’s bad for business to as Im sure many people are hesitant to join companies that will have a gut reaction of doing 70% layoffs. If you even think about doing 70% layoffs you clearly over hired and are not making good leadership decisions leading up to the layoff.
For example, one outage related to Google Ads API changing their parameters. This led to ads not being run which directly cost revenue since those ads were profitable. The outage went on for much longer than it needed to since people with expertise on the marketing pipelines were gone.
Id say the “bad engineering” here is mostly Google ads who should version their API changes. But if Google can’t do good engineering, I’m not counting on too many other companies to do so. This idea that infra is a “set and forget” operation because autoscaling exists is a fantasy for conference talks, not reality.
100% agree with this part.
Going default alive was not the cause of whatever this company was dying. At best, it would slow or kill your growth, not your company. It sounds like it was mismanaged and prioritized something else over fixing their product. It is not bad for a company to focus on profitability.
More employees also does not mean faster product development, every developer knows this is often the complete opposite.
This is only true up to a point. Otherwise, every startup would be a one man show.
People feel important and "arrived" when they lead a big organization, and also, it can feel like you're doing the right thing, because it alleviates some stress. Even if you're otherwise allergic to large teams, you're so busy as a founder that any help feels like good help.
I've definitely run into this a handful of times, mostly due to runway concerns and "keeping options open".
I can't think of one org I've ever worked at that hit a sweet spot where you were able to hire exactly as many engineers as you needed while keeping up with growth and attrition.
Maybe teams are more productive when their membership is stable. Either adding or removing developers mid-project could disrupt development.
An individual's personal financial circumstance is not a factor though. There are many people that have fixed their personal finance issue adequately. And for those who really don't have easy choice of employers or personal runway, then they're fucked. Did that really need to be said? That's what is going to happen.
When you cut 70%, it’ll make future hiring difficult, it’ll make existing employees recognize where they stand (no where). Getting laid off is one of the worst events that can happen to a person, and you really have no way of knowing what the impact on them is.
Which is to say, If a founder decided to cut exactly 70% of their staff based solely on an email from YC - I’d be very certain to dissuade anyone in my network from working with them in any capacity.
I recognize that later in your comment you say "Of course if 2020 had gotten worse maybe they would look smart" but I think it's worthwhile to compare/contrast the pure macroeconomics of early pandemic versus now. To the Fed the pandemic was an exogenous shock and they unleashed all their tools to keep the economy going. Now they are dealing with the backlash of unleashing all their tools (inflation) and are making it very clear that their priority is to bring down inflation and they are very aware that they do that by bringing down employment. So encouraging startups to go default alive is very much what the Fed wants right now. Big difference in policy direction. Exogenous shock versus endogenous course correction.
Part of the problem is that Congress is largely broken and can't adequately address issues like this. That pushes most of the responsibility onto The Fed and they have a much smaller bag of tools than Congress.
The fed is effectively cutting off the labor side of the business cycle.
yeah - overly simplistic conclusion.. for example, you do not recognize classes of business activity at all, yet some classes of employer are affected differently or even in the opposite direction; misleading.
Dominant first order and second order effects often have simple sounding narratives. Inflation, interest rates, and growth are complex relationships. The Fed's actions on the market are however simple instruments.
The above comment points out that since the Fed started using modern monetary theory to regulate the economy. Wages and Productivity have decoupled, while one may not cause the other - it's reasonable to hypothesize a relationship based on bargaining power.
It sounds like it was an unhealthy company and just didn't realize it till the tide went out. Seems doubtful that a quarter or two of fewer engineers slinging code was the root of its inability to attract & retain customers in a growing market.
This "70%" advice was getting thrown around by every two-bit "thought leader" back at the start of COVID. I could totally see how following that advice would result in your competitors scooping up all of your former employees. And then you would be stuck in long and expensive rebuilding process just to get back to where you were, but now you would be stuck with more junior employees making higher salaries to boot. Oh and let's not forget that the 30% of the employees that you so graciously let stick around all probably dusted off their resumes, resulting at least a handful of defections. Accounting for those circumstances, I could absolutely see how a deep layoff in early 2020 would sink a company. COVID was a once in a generation opportunity for certain businesses as the entire world moved from IRL to online. Even some of the biggest tech companies struggled to keep up with the sudden demand.
https://dalton.substack.com/p/letter-to-myself-in-late-2008?...
For a taste:
"Doing multiple small layoffs is a form of cascading failure. Do one layoff, but much much deeper than seems correct. Do it decisively. Do it so that you get profitable. In your case that is something like a 70% cut, not a 5-10% cut. Yes you read that right: a 70% cut. Cutting once and cutting hard allows you to reassure the people that are still here that you are truly profitable and won’t need to do it again. Doing a layoff and remaining unprofitable and counting on fundraising to save you is a stupid plan."
If your employees are dumb enough that they interpret a 70% cut of the workforce as a sign that your company is stable, you're doomed. It's hard to imagine the dumbest person in the world interpreting that as a sign of stability.
When I eventually quit, senior management then explained how I was part of their grand comeback plans and offered a salary bump, and in my mind, all I could think of was how they were trying to balance a cost equation.
People far more talented than me had landed pink slips, presumably because of how "expensive" they were for their "output".
That may be the right call for longevity of the business, but I could easily be the one being disposed after my valuable output is put to use and my expense-output is reconsidered.
As someone who has witnessed repeated smaller rounds of layoffs, I also began job hunting after the pattern was evident. A layoff is an inherit signal that management made mistakes. Sure, there are probably better ways to handle it than others. However there is no getting over the fact that prior mismanagement now necessitates drastic measures to recover from it. That is going to be enough to get some people looking for an escape regardless of your approach.
I was genuinely scared when my time came, and it took another 4 months, but I consider myself lucky but am uncomfortable with the fact that a previous manager of mine at one of those large/profitable companies which had one of those fishing job postings, saw my resume and swapped me for one of his under performers (aka someone got laid off at the end of the fiscal year, and I got hired). And I took a ~40% pay cut for the privilege.
Literally the only people who were getting hired in my area where situations like that. Never assume you will get hired during a downturn unless you have a really solid network of people who will risk their own positions for you and/or work at companies that treat people like cogs to be replaced if they can get a cheaper/more effective cog.
I was at another stable but small company during the 2008 downturn, and I sadly had to turn away a lot of people I would have loved to work with again, but we were on a hard hiring freeze (the ones where upper mgmt breaths a sigh every-time someone leaves of their own volition because it gives them a bit more breathing room). So these times hurt no matter which end of the table your on.
So, don't assume the job market will remain the way it is today.
Now my problem is that I have to move to something, and not away from something. If the company and job aren't intriguing I have a tendency to perform not as good. And I still like my employer and manager, the latter more than the former. Plus, I need to be able to show something before switching jobs.
Something to think about on the next weeks and months, especially with a family and commitments. As I said, the market is good. I wouldn't have much trouble finding something if I really wanted to. On the other hand, having a stable income after a failed attempt on a start-up is quite nice, and I'm out of the probation period.
I was an independent consultant from a 2001 dot-bomb layoff to the beginning of 2008. I saw hard times coming and took a job with the most bomb-proof client I had, and it worked out really well.
The founders did not adequately think through the ramifications of their decisions, and it did seem (as another commenter in this thread succinctly put it) that they viewed everyone as very predictable NPCs in their narrative.
I believe Ben Horowitz made a similar decision and a similar pitch to his employees that he recounted in The Hard Thing About Hard Things. I don't remember Horowitz getting into the depth of the cut but I remember survivability being a stressed point.
In particular, many of the employees will have options that are obviously underwater. Any belief they had in dreams of billion dollar valuations will be gone.
It’s almost as if the blog poster would have a vested interested in seeing a massive cut.
Now if the plan is going to end in flames anyway, it still seems like a great reason to stick around and absorb the knowledge and experience.
I'm a fix-it person and would love the opportunity to turn a company around - it's like the ultimate challenge.
Recovering from a 70% layoff only happens once in a blue moon, and usually only when a founder led company that has already reached revenue and product-market fit makes a well executed hard cut that does an exceptional job at keeping and supporting the core team amd managing emotions.
In any other more chaotic situation, the product/emotion/revenue death spiral ensuing is usually impossible to stop.
And then there's the 3x increase in workload.
No person should have assumed stability in a company that was not yet turning a profit. I'm not saying they are bad companies to take a gamble on, but understand they were/are a gamble. VC money suddenly drying up was part of the that gamble.
Put another way, if you couldn't staff right in the good times, why would remaining employees trust that your "one big cut" will work now? Hint: they won't
This is also why a company should cut a little more than needed, so they have some cushion for things to get worse before getting better again.
I did build up my savings, actively engage my network “just in case” and updated my resume.
Once the final hammer hit and we got acquired for our customer list and everyone got laid off. We went to lunch, hung out in the office after our layoffs and from looking at LinkedIn, everyone had a job within a month.
At each round of layoffs, people reached out to their network and had jobs quickly.
I met a recruiter for lunch that following Monday and had an offer Thursday.
No matter how your company is doing, you should always “keep your running shoes around your neck”.
AirBNB did a 25% one-off layoff and is now doing fine.
I don't know of any 70% layoffs but I tend to agree that cutting once and hard is the best approach, given what I experienced with paper-cut layoffs.
Hopefully we're not heading there, but as the message says, "things don't look good".
There's almost always better opportunities for an experienced dev because there are plenty of industries better suited to weathering out a recession.
Famous last words. I'm pretty sure that companies always believe this (or at least tell their staff such), whether cutting 5%, 25% or 75%.
The only way this might work is if a company was expanding into a completely new market and pivots away from that (ie, software startup gets a hardware division going, etc)
Hiring and onboarding takes awhile. VC-funded companies are intended to grow quickly. Those two things put together means you need to hire for where you want to be in a year or two and not where you are right now.
The actual goals & constraints have changed.
When you hired those people your goal was scaling up as quickly as possible and your constraint was having enough people (in this scenario, money is not one of your constraints).
In the new world, the goal is "stay alive" and the gating constraint is runway.
So, no, the fact that you can survive after large staff cuts doesn't mean the CEO was incompetent. It might, but it might also just be a function of the goals/constraints/execution strategy/environment having all changed.
https://www.manager-tools.com/2008/10/race-don’t-chase-part-...
I know nothing about the company, but they seemed to have a decent go at it, founded in 2003. At the end of the day, though, I just can't imagine their business model succeeding, Great Recession or not.
Sure, perhaps they could have pivoted into basically something completely different, but at that point, if they were a 5-year old company, how much value would they really have been able to salvage? Given he talks about high burn rate and one of his bullet points is "Renegotiate all of your contracts with the music industry.", my guess is that their model was just fundamentally unprofitable given how much they were paying for licenses.
You'll hear lots of stories and theories about what companies could have done to save themselves, but recessions also serve a very important function of really sussing out who was selling dollars for 90 cents, and honestly that's what it sounded like his company was doing.
"No one cannot predict how bad the economy will get, but things don't look good."
Clif notes:
- Plan for the worst ... cut costs within 30 days... get to Default Alive[0]
- Get money if you need it, and if you can
- With or without money you must survive 24 months
- VCs are people too, and subject to the same downturn. Adjust your fund raising expectations in the same direction. Expect lower valuations, lower rounds and many fewer deals.
- Disproportionate impact on international, asset heavy, low margin, hardtech, high burn, long road to revenue companies
- If you get a meeting, don't take that as a good sign, we still take a lot of meetings.
- Future fundraises will be much more difficult than they have been in the last 5 years.
- Don't expect more money until you demonstrate product market fit.
- If you planned on raising money in the next 6-12 months, we recommend changing that plan, or you may be tryng to raise at the peak of the downturn
- If you survive, and your competitor does not, you may pick up significant market share.
They don't explicitly spell this out, but this is because being a VC is still a job. Even if they're not actually making any deals, management doesn't want to see everyone sitting at a desk scrolling twitter for 8 hours, so instead they do pointless meetings.
Matt Levine had a fun Great Recession story which I cannot find right now, which is that during 2008 in the M&A department at Goldman Sachs everyone still came to work, even though obviously merger and acquisition activity was way down. They would spend every day doing calls and making pitchbooks, all of which went nowhere. Goldman didn't close a deal for a full year. A floor full of people could have just collected a salary and stayed home for 12 months and it would have had an identical outcome.
The company that stayed home for 12 months? or the company that continued working for 12 months?
Imagine swimming hard against a strong current. You get nowhere (or maybe even go backwards slightly!), but when the current changes you make a lot of progress.
If you don't swim at all, you go backwards. When the current changes, you may get to where you were at the start.
How many tech companies that were founded since Facebook would anyone call “successful”?
Apple only took about $20K of investments and was profitable when it went public
Microsoft didn’t need any investments before it went public. Bill Gates took funding to get professional advice.
Google was profitable before going public and definitely never had billions in losses.
Facebook only went public because it had so many investors that the regulations around reporting got so onerous it was easier to go public. But it also didn’t lose billions of dollars at any point.
Amazon was the outlier, but it was also using its cash flow to expand. Most people knew that they could have been profitable at any point by not expanding. Amazon is the only one of the BigTech companies that is capital intensive.
Well Apple is to some extent. But it has always had high margins.
Even if you look at the second tier profitable tech companies like Intel, Nvidia, Oracle, VMWare, etc., you will see the same thing. None of them had billions of losses (even inflation adjusted) before going public and they were all profitable before their IPO. That means they had a proven profitable business model.
First of all there have been tons of successful private and public tech companies in the 100M+ range since Facebook which received venture funding. You can find a whole list of them just in this very website, from YC alone. Many of them profitable, not just focusing on growth and future profitablity. I also don't see a reason to limit things arbitrarily to "since Facebook".
Secondly I only fact checked your claim about Apple, but they received much more than $20k of funding. But whether or not those companies were venture funded really doesn't affect my argument. There are tons of successful companies that received venture funding. That you would double down on your claim that it's just a giant Ponzi scheme beggars belief.
If businesses pull in their horns, stop supporting innovation, the economic result is easy to predict.
An empty shelf of baby formulas are not a sign of "economy is too hot". It is a sign of supply issue.
Can I ask you why you've chosen this particular example? It is not about I agree with you, or I'm going to contradict in a some way, it is completely unrelated question. A complete off-topic.
The cause of this round of inflation can be many things, we've been in low-interest environment for 10+ years with occasional QEs. It hasn't inflated the economy as much as we hoped for that 10+ years. It is lazy thinking to attribute back to QE for this round of inflation.
0: https://www.bloomberg.com/news/articles/2022-05-19/house-pas... (Picked at random from a search for "baby formula bill")
It seems like a very poor example to refer to when talking about the broad economy’s needs and completely unrelated to a tech bubble.
I would tend to agree that one "industry's" quality and policy related failings are not a sign of wider economic failure, although I think another commenter had it right with "covid hangover." There's a lingering supply/demand mismatch in seemingly all consumer markets that seems in large part due to problems that were started or brought to a head during covid.
Baby formula is a poor example; that was Abbott having regulatory capture and a de facto monopoly [1].
[1] https://mattstoller.substack.com/p/big-bottle-the-baby-formu...
The highest rate of inflation since 1981 is a sign of "economy is too hot".
The Fed has two jobs: keep both unemployment and inflation low. Unemployment is near 40 year lows, inflation is near 40 year highs.
You know what is going to happen, and the Fed has said what is going to happen, if you understand Fedspeak. They're going to raise rates, they're going to keep raising rates, they're not going to stop just because inflation slows a little, and there's a good possibility it will cause a recession.
Changing interest rates does not fix supply chain problems. It actually makes them worse because it removes the financial headroom that companies involved in those supply chains have to invest in improvements.
For example, there is a shortage of computer chips. Say that you are Intel or Texas Instruments. You want to invest in producing more chips. Does increasing interest rates and probable recession make the magnitude of that investment go up or down?
The Fed is like a surgeon that has amputated the wrong leg. Not only is the patient missing a perfectly good leg, but the other leg still has gangrene.
+20% increase in home prices is not “growth”. Its sheer injustice
"A war causing a massive energy crisis" seems to be a good time to increase energy production with more investment in things like fracking, which from what I heard, people are reluctant to invest due to the economy and rates concerns (they borrow from banks too).
Interest rate hike certainly has impact, but that is the Fed to decide. Remember, Trump asked Fed to not raise rate before and JPow kowtowed to that just fine.
China's shutdown is a Black Swan. The market apparently haven't digested that yet (APPL "only" down 20% YTD).
Also a bad idea for climate change, which is becoming very expensive.
Imagine, for example, the military placing an order for a few SMRs from each of the credible startups in the space. The reactors themselves would surely be overpriced and of dubious value, but it might substantially accelerate development and production.
In a situation where energy supplies are limited, the availability of extra (carbon-free!) electricity could help considerably.
How bad will this be?
Is China waiting to renegotiate tariffs?
Are we talking about groceries delivery in under 15 minutes or crypto bla bla bla
Most recent VC backed starups are a big Bonze scheme that lead to poor economical output
Just look at the last spacs how poorly they performed
Hard tech is rare, and it’s not even interesting for vc
So innovation and vc startups really don’t have anything to do with each other
1. Good people will be more available (there will be public company cuts and private cuts, as well as resignations, especially people working for companies in the Series B to Series D range (who raised those rounds at the old multiples) who will need massive growth/patience for their options to grow into the new multiples).
2. As businesses cut costs, those are opportunities for products and services which enable efficiency.
This is key. Innovation aside, if you can simply provide comparable services at a lower price point, the downturn just increased your customer base tenfolds: nobody is looking too much at cutting costs when things are looking up. Find niches that got too greedy over the past few years, and undercut them.
I hope to be wrong about this as I would like very much to see some lower prices in some areas.
https://www.fgemm.com, coming soon.
Sounds like some blockhain thing - easy to verify, hard to compute.
The bottleneck of machine learning in half.
In fact you're being quite generous with your offer of 1 dollar for 95 cents, but I must decline. 50 might work much better for you, you might secretly need 1 dollar for 50 cents more than you need 1 dollar for 95 cents. But are embarrassed to ask. Provided we're talking about matrix multiplication.
And like everyone's business plan is turning matrix multiplication, better known as AI, into money, so there could be a good synergy there.
https://www.fgemm.com, coming soon.
It's quite possible that this era of that is over, but I'll eat my hat if another era of stupid money chasing silly ideas doesn't spring up within a decade.
It's called the Business Cycle. Those days are not over, they're merely hibernating
For a few years
Would've also been interesting if they had separate guidance for crypto startups.
But there is a huge sea of blockchain startups which are trading alt-coins, or providing trading analytics software/exchanges for alt-coins, or simply making coins which have vague differentiators, or whatever web3 is supposed to be. I suspect that any crypto company that doesn't have a specific use case that customers pay for will struggle for the next few years.
Work for a startup and you'll have an embarrassment of riches for learning opportunities. Work in finance and you'll likely need to take some initiative, and earn and deploy some political capital, to make your own.
Right now, though, it's time to be looking for a safe port above all else. If you're young and good, you won't have trouble ending up with a compelling story to tell about your time with BigCo. In the meantime you want to think about how much worrying you'd like to do about where your next check's coming from.
You want to maximise your learning, as long as there isn't a massive salary discrepancy try to have a lengthy chat with your future tech lead and pick the one that seems better - ultimately this is the person you'll be learning from the most in the next few years.
And also, don't be scared to quit or change teams early. Don't stay longer than you have to.
Just be pragmatic about what companies you pick, the companies I view most skeptically during the downturns are the ones that cater to startups, like dev productivity startups, or those startup credit card companies, and given the chaos in the crypto markets, those don’t look like safe bets to me either. You can always ask about the company’s run rate, profitability, and war chest. They might not show you, but that is a sign also.
Taking risks for the sake of increasing risk is a combination of naive and stupid. Increased risk taking must come with an increasing reward.
In an economic collapse and likely recession, having a stable job at a large established company would give you stability and, soon enough, capital for buying up home and basement prices.
Working at an unprofitable early stage startup will give you a couple high fives from the founders, but you'll be in constant fear of losing that paycheck. The reward must be substantially higher than a steady big-corp job in normal times, and even more so in today's job and economic environment.
> Ergo, take that startup offer. You will always have a job as a programmer.
Working at a startup does not magically make you a better programmer any more than working at a large company automatically turns you into a cog churning out Java beans.
Working at a startup has a far better learning curve and better feedback about your rate of learning compared to a large company.
Buying up capital for home and basement prices is not a part of my equation at all.
Take the safer option, weather out the recession and if you find an exciting startup you can join them with confidence that even if they fall apart you'll have the experience to find the next job much faster.
As usual, there's no one-size fits all advice.
I never worried about whether I wouldn’t be able to find a job.
I personally would choose the one that would help me grow more as an engineer and IMHO, you can get pigeonholed much more easily at a big corp than at a startup.
I've been reading about how corpos are bad for years and my experience is completely different from what people say
My personal opinion on corpos is:
_____________
pros:
working on real and complex tech products that actually make huge $$ instead of burning VCs cash on yet another food/car/room/dating app
strong execution (it definitely doesnt feel like it is moving slowly, waiting a few weeks for simple decisions)
good $$$
way stronger brand on CV
contact with people who define industry
you can change teams and do something different, you don't have to change company because huge corpos probably do "everything" (im simplifying)
___________
cons:
your impact is small, there are hundreds or thousands of people involved
your exposure to whole development process (from getting requirements, to initial architecture, development, then just support) is small because you'll probably be thrown into existing project
___________
As others suggested - at the beginning small company / startup? where you are touching everything and doing various stuff may be very helpful to learn, but it's not like corpos are bad and you should avoid them as hard as you can
I wrote a blog about this topic: https://www.airplane.dev/blog/evaluate-startup-offers-in-a-t...
You will be the first to be laid off. When everyone is competing to keep their jobs, you will have no influence. Also, fintech can be cutting edge, which is not what people spend on during downturns.
The reality is that in a turn down turn you aren't choosing among great options. In 1999 software engineers making 100k+ in 1999 (this was a lot more money back then) working for a cool startup ended up working in banks making boiler plate code for ~80k. Most of them were forced out of the industry.
If you're in a position to be making choices like you describe than there is no meaningful down turn in your industry.
A more likely outcome in the event of a serious is that in 5 years you aren't doing CS related work. Talk to people that have worked in aerospace during various periods of down turn (or any similar industry).
Either way, you need to ask yourself if 6 months out you get laid off and there is no one hiring, what's your plan?
The wider economy isn't terrible. Inflation is rising and GDP is pulling back a little bit, but unemployment is low, and wages are mostly flat.
But the NASDAQ (comprised of mostly tech stocks) is down 26%+ year-to-date and falling. People on this forum mostly work in software, and this downturn will almost certainly shift the balance of power from unprofitable high-growth companies (especially crypto, Web3, etc.) to companies that actually make real money.
Interest rates are rising, to appease inflation.
As the interest rate goes up, allocators of capital have less appetite for risky allocations. This makes access to capital for VC firms becomes more competitive. This makes access to capital for "startups" becomes more competitive.
There's also a bigger macrotrend, which is another hangover from COVID: investment poured into the tech sector, which was booming during COVID. Investors over-bullishly priced-in the idea that this boom was, in fact, a new baseline or indicative of future exponential growth. As we recover from COVID, these pricings are increasingly revealed to be wrong as companies generally report post-COVID numbers that are closer to pre-COVID numbers.
This is bad for investors leveraged on tech. Therefore, it's bad for VCs that raised LP capital on the basis of COVID performance. Therefore, it's bad for companies that raised >20x ARR multiples on the basis of COVID performance.
Basically, it's a single or double whammy for most of the economy, but a double or triple whammy for unprofitable startups.
Must be the greatest theft in US history.
In nominal terms it was.
Yes, stimulus is a contributing factor. But I don’t think it’s the primary contributing factor, it depends on the sector.
The price of oil affects the price of food, heavy things, etc much more than stimulus checks. I’m not saying stimulus has no impact on prices, but I think it’s erroneous to say it’s the “driving force” of 8% YOY inflation — maybe it’s the driving force of 2 or 3% of that? The price of gasoline is very underrated as an influence on prices generally: the cost of transport is the backbone of our globalized economy.
On the flip side, partially thanks to direct stimulus checks, child credits, etc, median household savings are at an inflation-adjusted high watermark, and the debt:income ratios are also in a decent spot so the median American is better prepared for this recession than previous ones.
Encourages resource mis-allocation, which means there is less stuff we actually need to go around.
We should have used fiscal policy more aggressively to fix the Great Recession, but that would entail taking money from rich people and giving it to poor people, and we can't have that can we?
Make an effort YC.
Well earlier this week I myself made a prediction this week there would two days were the market would fall, one down -2.9%, the other down -2.2%[1]. I told this to a friend who speculates. Telling him we should talk that day, Sunday, instead of later in the week, because after those shitstorm days he would have no fucking time. Just booked solid, bailing out shit from those storms.
I was wrong, there was one day down -4%, another down I think down -1%. So I was wrong. No one can predict how bad a market will get. At the same time, my speculator friend hasn't written back.
[1] Yeah I realize down -2.2% might be interpreted as a double negative. In other languages like French and Spanish, and African languages, negatives are emphasis. It's an English thing to say even number of negations is positive. Basically so the words in people's denials could be deformed into admissions. Making their defection defective. Obviously the way to express a market rise is "the stock market went up +2%." Note also the + symbol, very rarely seen.
???
I get that it's twitter, but grammar is still a thing.
Interestingly, I've been learning Indonesian and they actually have a solution for this ambiguity: two words for 'we'. There is 'kita', which is a 'we' that includes the listener (or reader in this case) and 'kami' which excludes them. So in this case YC could've used 'kita' to mean "we (including you the reader) cannot predict...".
"pre-product market fit" - links to a list of resources: - The only thing that matters by Marc Andreessen https://pmarchive.com/guide_to_startups_part4.html - What is “product/market fit” by Emmett Shear: https://twitter.com/eshear/status/1155180521485242368?lang=e... - Andy Rachleff on “How to Know If You’ve Got Product Market Fit” https://greatness.floodgate.com/episodes/andy-rachleff-on-ho... - How Superhuman Built an Engine to Find Product/Market Fit by Rahul Vohra https://firstround.com/review/how-superhuman-built-an-engine... - The real product market fit by Michael Seibel https://www.ycombinator.com/library/5z-the-real-product-mark... - Jeff Chang's blog - specifically his take on retention as measure of PMF https://www.growthengblog.com/ - Sequoia's Doug Leone discusses PMF https://streamable.com/rm7pr7 - Dalton Caldwell & Michael Seibel discuss PMF https://youtu.be/UqKzpLqXuI0
"Series A Milestones" - links to a private resource available only to YC founders
"Save your startup during an economic downturn" - https://www.youtube.com/watch?v=0OVSTWozvfY
Edit: I don't really think all YC backed companies think that low of employees.
I mean, i mean: is this one going to be worse than 2008?
Fortune magazine is trying to compare our current problems with 2008. They say that it might turn out to be worse, this time, as 2008 was merely a "black swan event", the difference being that inflation is coming "for real" right now. https://fortune.com/2022/03/26/great-recession-key-differenc... Also this:
"By some standards, stocks are now even more overvalued than they were back then, leading some experts to argue we’re experiencing an “everything bubble.”
Dan Ives told Fortune. “Tech valuations relative to growth, in particular, are much cheaper today, by about 25%, than they were going back to ‘07.”
Ives argued that the financial stability of tech stalwarts, which by some estimates represent over 20% of the S&P 500, is unparalleled, noting that the Great recession was mainly a “black swan driven event.” "
Also the economists don't appear to have predicted it. Well, at least US Intel was right about the war in Ukraine...
and worst of all, c)pursuing a predatory pricing strategy to monopolize the market and crowd out competitors.
OCR'd text:
4:11
Greetings YC Founders,
During this week we've done office hours with a large number of YC companies. They reached out to ask whether they should change their plans around spending, runway, hiring, and funding rounds based on the current state of public markets. What we've told them is that economic downturns often become huge opportunities for the founders who quickly change their mindset, plan ahead, and make sure their company survives. Here are some thoughts to consider when making your plans:
1. No one cannot predict how bad the economy will get, but things don't look good.
2. The safe move is to plan for the worst. If the current situation is as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days. Your goal should be to get to Default Alive.[1]
3. If you don't have the runway to reach default alive and your existing investors or new investors are willing to give you more money right now (even on the same terms as your last round) you should strongly consider taking it.
4. Regardless of your ability to fundraise, it's your responsibility to ensure your company will survive if you cannot raise money for the next 24 months.
5. Understand that the poor public market performance of tech companies significantly impacts VC investing. VCs will have a much harder time raising money and their LPs will expect more investment discipline. As a result, during economic downturns even the top tier VC funds with a lot of money slow down their deployment of capital (lesser funds often stop investing or die). This causes less competition between funds for deals which results in lower valuations, lower round sizes, and many fewer deals completed. In these situations, investors also reserve more capital to backstop their best performing companies, which further reduces the number of new financings.
This slow down will have a disproportionate impact on international companies, asset heavy companies, low margin companies, hardtech, and other companies with high burn long time to revenue.
Note that the numbers of meetings investors take don't decrease in proportion to the reduction in total investment. It's easy to be fooled into thinking a fund is actively investing when it is not.
6. For those of you who have started your company within the last 5 years, question what you believe to be the normal fundraising environment. Your fundraising experience was most likely not normal and future fundraises will be much more difficult.
7. If you are post Series A and pre-product market fit,[2] don't expect another round to happen at all until you have obviously hit product market fit. The Series A Milestones[3] we publish here might even turn out to be a bit too low.
8. If your plan is to raise money in the next 6-12 months, you might be raising at the peak of the downturn. Remember that your chances of success are extremely low even if your company is doing well. We recommend you change your plan.
9. Remember, that many of your competitors will not plan well, maintain high burn, and only figure out they are screwed when they try to raise their next round. You can often pick up significant market share in an economic downturn by just staying alive.
10. For more thoughts watch this video we've created: Save Your Startup during an Economic Downturn.[4]
Best,
YC
________________________________
Notes:
Presumed links (I do not have a copy of the original message). See also https://news.ycombinator.com/item?id=31436244
1. Default Alive: http://www.paulgraham.com/aord.html
2. Pre-product market fit: See: https://www.ycombinator.com/blog/ycs-essential-startup-advic... "do things that don’t scale: remain small/nimble"
3. Series A Milestones: Presumably private.
4. Save Your Startup during an Economic Downturn: https://yewtu.be/watch?v=0OVSTWozvfY?vq=hd720
Wonder how things will shake out for biotech. I know biotech investors have long timeline, but surely they are feeling pressure too ("LPs will expect more investment discipline")
Bad investments driving down good is one of the perverse dynamics of panics that J.K. Galbraith notes in The Great Crash: 1929:
The great investment trust boom had ended in a unique manifestation of Gresham's Law in which the bad stocks were driving out the good.
(Chapter VI)
Inherently long timelines has pluses and minuses, but can make you very sensitive to timing.
Raising a bunch of money to go through a long dev cycle just before a downturn/recession can be a pretty comfortable place to be. Coming out of that development into the face of one - brutal.
Wouldn't a blog serve the message better?
The king is dead
Long live YC
The 'storm' will be focused heavily on capital and so all that liquidity will tighten up.
Big waves up, big waves down.
Healthcare won't miss a beat.
Healthcare is an economy that tends to be much more recession proof, for a variety of reasons.
First is obviously less elastic demand - if your arm is broken, well, you need to fix it.
Second, is that it's really institutional and operational. Healthcare is not a highly leveraged industry, like Crypto - they're not subject so much to the whims of the market. Healthcare is not quite as 'capitalist' as other industries either, obviously in some ways it is, but there's an underlying kind of goodwill.
Third, is that 1/2 the industry is government spending, which doesn't get hit bad like markets, so there's a smoothing effect.
Fourth, is that investment cycles are much longer, to the point where they almost rise above most of the short term 5-10 year macro cycles.
Beyond that, there are indications that people 'get sick more' in downturns and there may be an increase in demand in some ways.
Healthcare tends to be a bit recession proof for those reasons. You may want to Google up on that a bit.
Companies, by definition, can only be thriving when people are spending money with them. By definition, a bad economy means people aren't spending much money.
Specific sectors may do well during recessions. I knew of a business that used to publish bankruptcy notices for attorneys. A recession meant doubling their sales. But it's necessarily impossible that every business can be "anti-fragile".