Harsh Realities From 500 Startups Founders | Hacker News Reader

Harsh Realities From 500 Startups Founders

500.co

131 pointsDanielRibeiro45 comments

You will LOSE all of your money that you ever earned, and then a bunch that you still have not earned. If you’re not prepared to put it all on the line, you’re not prepared for a start-up.

Terrible assumption at best, a lie at worst. Putting everything on the line is not the only way to do a start-up that's successful.

I could not agree more. It's an irresponsible statement and should only be qualified by those entrepreneurs talking about how much money they started with.

Though, having been to 500Startups and seeing the amount of 20-somethings there, I can't imagine they had much to lose in the first place.

I don't see why this lie of having to put everything on the line is consistently perpetuated within the start-up ecosystem. Yes, start-ups are hard -- but I am getting tired of what seems like a consistently perpetuated lie so that start-ups can feed their own ego -- or worse, justify their failure.

Why people such obsessed with running business like playing poker ? If you're puting your everything on the line, i think you are doing something wrong. What's hard with starting small, taking small risks and growing slow but steady ? Starting a business shouldn't be about going crazy, acting like a fool, putting everthing you have on the line and at the end loosing everything.

People please, while you are at the university ,please, visit some (m)ba lesssons. If you don't have this chance, take advices from someone who you trust and runs a business.

I have to assume it's based on having experience or not. If you don't have experience and had the opportunity to make mistakes then you have to make those mistakes, and they will have cost to them.

Actually - "Putting everything on the line" is the only way to get successful business.

Before the Silly Valley become synonym for a startup/business, whoever wanted to be entrepreneur needed to invest a lot of his/her money to start a business. For example, think about running a "simple" limo service - that requires a lot of investment.

In other words, you cannot assume that you will run startup and if it fails you will have great living like nothing happen. At least in software business you can easily find a job and start saving again.

Also startup is "marathon" and not "sprint" but word "marathon" does not mean you run slow - it only means it takes forever :)

In 2009 I started a company with another guy, and I used to read articles like this, about how startups are so very difficult, and how you have to put everything on the line, your health, your wealth, your relationships, everything. It's a very common theme in startup-land, and I constantly hear from founders who sacrificed their marriages, worked 19 hour days, slept under their desks, and racked up tens of thousands in credit card debt, all to make their dream a reality. The message is very clear: you have to be willing to do anything to succeed. Articles like this fed my ego, and made me feel like I was part of an elite cadre of founders. Then my startup failed, leaving myself and my cofounder with tens of thousands in debt and a pretty rough mess to clean up.

In the meantime, a good friend of mine who started a little project on the side slowly grew it over a period of a couple years into something that supports his family very well and has a good shot at doing millions in revenue within the next 5-10 years. And I don't think he's been very stressed while doing it. He loves what he does, has tons of time for his family, etc. The cynical among us might term this a "lifestyle business" and they'd be right. But I don't think that bothers him and I can't say I blame him.

There's this really ugly side of the startup world that drives founders to completely unreasonable levels in pursuit of fast wealth creation, and it comes as a result of two factors: founders are naturally ambitious, driven people, and investors are in a hit-driven business. So the result is that investors naturally gravitate towards founders who either hit a billion dollars in a few years, or die trying (sometimes literally), and then investors and founders both are incentivized to craft this story that they only way to win is to win big, fast, and with all your chips on the line. And these things become self-reinforcing, so you have investors talking about how the real reason startups are so valuable is that founders can work so hard that they accomplish a career's worth of work in just a few years. The message is clear: you need to work 90 hours a week and either be the next Dropbox or flame out. And for the model most investors work under, that's the only way they really make money.

But the more I look around, the more I wonder if there's really much correlation between blowing your life up and startup success. Yes, you hear a lot of successful founders talking about how they killed themselves to get there. But thanks to survivorship bias, you don't hear from all the ones who risked everything, turned their lives and relationships and health upside down, and then lost. And increasingly, I'm seeing a lot of examples of very successful founders who definitely work hard, but keep an eye on themselves, their health, their relationships, etc. and have lines they're just not willing to cross. 37signals is the classic example here, but there are scores of others, many of them right here on HN. The key seems to be patience and humility, two things a lot of 20-something founders (including myself) have in very short supply

Maybe startups are so hard because we're doing them wrong.

I have a similar story from back in 2008 (Labmeeting.com). Fortunately, I've had good success since then, but I learned the same lessons as you:

Don't go all out working 90 hour weeks only to burn out, don't get into debt for your company, don't become distracted by the startup scene and Techcrunch and trying to get the millions in vc funding.

Can't agree more. I hear people in the startup world talk about how it's a marathon, not a sprint. And then I find out that they mean you might have to work at this for three or four years!

The founders I admire most have almost all spent decades building their companies. I don't know if anyone in our industry is capable of thinking beyond the next 18 months, let alone 18 years.

The guys I know personally who are successful, who have become "overnight" successes recently (like box.net, airbnb, dropbox, and so on) have been at it (on the same company, not to mention the priors) for 4+ years beforehand or longer.

Wow, 18 years, I guess I still haven't learned my lessons!

Just to be clear, I'm not disparaging anyone who has experienced success quickly, but companies like Dropbox are an aberration, even if they weren't an "overnight success". The more realistic company probably takes a few years to hit 10 employees, and a decade or more to hit 100.

I completely agree with you. In particular about the sacrifice everything misconception. Ash Maurya goes even further into suggesting Keep your day job[1], until you reach product/market fit.

Nevertheless, I am always wary of absolutes. Some people can't wait, and not going all in is very harmful for them. Some people have a lot to lose, and cannot afford such approach. As always, context is king.

[1] http://www.ashmaurya.com/2010/03/bootstrapping-a-lean-startu...

Very much agree. I am planning to do a blog post that will touch on the idea that what investors promote as "the only way" is purely promoting and reenforcing a schema that's purely to their benefit. For me this had set very unhealthy psychological boundaries and pressures to work within. There are completely different ways though, as you state with your friend who slowly grew his venture over a couple of years. That high pressure path is addictive to many though, as you mentioned. I am okay with the slower path now - it's still a struggle but I'm currently hoping I can arrange my life to have the support I need to get me through the time and finance it on my own as I go, and perhaps smaller levels of investment from the local community. It's just not worth killing yourself over (literally or not), and you know, you still might just get lucky - it might just happen you get an opportunity for a large investment down the road.

Yes, you hear a lot of successful founders talking about how they killed themselves to get there. But thanks to survivorship bias, you don't hear from all the ones who risked everything, turned their lives and relationships and health upside down, and then lost.

You seem to be conflating the concepts of necessary and sufficient conditions. Working hard may be a necessary condition for success, but I don't think anyone has ever claimed it was a sufficient one.

I'm not talking about working hard at all; I think success pretty much always requires hard work of some kind. My friend definitely worked hard to get his business up and running and to the point where it supports him.

I'm talking about the idea that you have to work so hard that it threatens or consumes everything else in your life. And no one claims that doing that is sufficient, but a lot of people claim it's necessary.

It probably is necessary if the plan is to hit a billion-dollar exit in a few years. I just think that path entails a lot of extra risk that investors overwhelmingly benefit from, and founders end up paying for in the event that things go south. And sadly, I feel that a lot of investors essentially exploit young founders who don't know enough yet to know that they're paying a very high price for a 1/10000 chance at a grand slam (making $20m in 2-5 years), when they'd be better off in almost every way by going for the 1/10 or 1/100 base hit (making $2m in 5-10 years).

And to be clear, I'm not lumping YC in with most investors here. However, YC does place a little too much emphasis on raising VC and not enough on building revenues. But that's a bubble for you :)

Your reasoning exhibits another common fallacy. While the average probability of making $20m in 5 years may be low, that doesn't imply each individual's is. For the right sort of person the probability might be 2/3 or even higher. For most people it's epsilon. The reason the average is low is that it's the average of a lot of epsilons and a handful of higher numbers.

This is easier to understand if you consider e.g. the question of being over 7 feet tall. Maybe only 1 in 10000 (or whatever) people is over 7 feet tall. But that doesn't mean your probability of being over 7 feet tall is .01%. Your probability is either 0% or 100%.

Isn't this only valid in hindsight? Isn't your probability of anything 0% or 100% once it has happened or not happened? The problem here is that we have no idea in advance which bucket you'll end up in.

So yes, I suppose some founders have a very high probability and some have almost no probability. But that's not useful when you don't know which group you're in yet. So the average actually IS useful.

You have either 0% or 100% probability of being over 7 feet tall, but what about your unborn child? Genetics aside, if 1 out of 10000 kids are born over 7 ft and you have a gun to your head, how will you calculate your kids odds of being that tall?

An individual himself can't predict whether he or she will be successful or not, but someone who's seen many such individuals in their "before" state and in their "after" state can make more accurate predictions.

For example, YC's whole investment model is based on the assumption that it's not just hindsight, and that the YC partners can use the data model that they have, that gets better with each batch, to predict which founders fall into the "success bin", and they choose to invest in those.

YC's record is a lot closer to 1% than 100% of getting huge homerun hits.

By your logic, this implies that in the best possible circumstances (YC), you're not going to get above a few percent chance a priori of a huge success if you work like crazy.

Whereas an equally intelligent person working reasonable hours on the side when appropriate has a decent chance of making a profitable lifestyle business in the millions without the possibility burnout and debt.

I am not talking about "getting huge" at all, because I don't believe there is enough space in the market for 300+ (number of YC investments so far) huge (Google/Apple/Facebook/Microsoft) companies. I am, however, talking about non-trivial exits, ones that definitely put a founder in the "success" bin. Let's say, 10+ million in 4 years. I don't think it's possible to get to that point "on the side".

Don't use generalizations, just do the math.

$10 million, minus the VC investment, split each among 2 or 3 founders. That ends up being what, $2-3 million in 4 years? I personally know several people who make more than that off of one iPhone app on the side. Apple's paid out billions to app developers.

Again, look at the numbers: what percent of YC investments have exited at $10 million+ in 4 years? Again, much closer to 10% than 100%. This is in a thread where pg implies that the chances of a big success are 2/3 or higher for some people. Empirical evidence proves that top investors are not right anywhere near the probability suggested.

Investors are incentivized to not only pick the founders they think have a very high chance of huge success, but to make as many founders as possible think they belong to that group. If they're right, big rewards. If they're wrong, the founders (and LPs) pay the price.

More: http://www.paulgraham.com/venturecapital.html

Great point. And founders who have taken the 90-hour-a-week path are emotionally incentivized to believe it's the only path to success -- because if not, they could have made different tradeoffs.

The VC firm in business for the fees was mostly a product of the Internet Bubble of the late 90s. There were still a significant number around when I wrote that 6 years ago, but in the last few years (and particularly since 2008) the bad firms have been ruthlessly pruned.

No VC whose name you recognize will invest in bad startups to get the management fees.

I don't think that's any different from most other institutions that "accept" people for challenging endeavors. If you are accepted into medical school, work insane hours, and then fail out, you still have the loans to pay back.

But it is possible to tell which group you're in. Nearly everyone correctly estimates their probability of making $20m in 5 years at a startup at near zero, and responds by not starting one. A few people (e.g. Max Levchin) can with equal ease correctly estimate that the probability is high enough to make it worth doing. There are only a few borderline cases of people who mistakenly believe they are the right sort of person to start a startup when they aren't. They're overrepresented here, but they're a tiny fraction of the population.

Even if you're one of those people, you can do way better than falling back an average. You can for example ask experienced investors. It's part of their job to judge the probability that you'll succeed.

I think that makes sense. It'd be kind of like saying broad market indexes (averages) don't matter, for only individual stocks' have effect on stockholders' capital -ignoring indexed funds.

"In a down market," for example, "the index's direction doesn't matter if you have the right stock which is going up".

Being interested in social topology, I wonder if there's a parallel here to election/predestination; anyone else see it?

I think that fallacy should be called the anthropic fallacy (I don't think the fallacy has a name yet).

The anthropic principle is that even though the number of planets hospitable to life is tiny the probability that humanity evolved on a planet that is hospitable to human life is 100%. The examples you gave are symmetrical.

I think the ego thing from founders is a huge part of what feeds them... pride is a very powerful emotion that can cause us to work 14 hour days, 7 days a week, and sacrifice relationships and health. It's our fear not being like other "normal" people that drives us... it's not actually money or any logical reason. It's similar to what sports coaches do to motivate players by preaching the "us vs them" mentality.

Startups are hard because the founders/wannabe founders who perceive it that way far outnumber those who don't. In a way, it's similar to getting better (expert) at anything. It is hard for 80% of people does not mean it is hard for a given person. It's a matter of several factors (and luck) if something hard for many people is not so for you.

Perhaps doing a company is more in line with "wealth creation promise" than say getting better at music or chess or anything at all. And that's why startups being hard gets a special mention in the landscape of hard things?

I cannot tell whether thing you say are right or not, but I noticed that you lumped relationship/health and money in the same category. I think that is one is biggest mistake one can do in your life: thinking about wealth and health/relationship as equal or even related.

On this particular subject, I would say that risking wealth is ok but risking relationship/health is not.

As anyone who does relationship or health counseling can tell you, they're very closely linked. Financial problems destroy more marriages than any other single issue, and the stress of a bankruptcy is comparable to that of the death of a family member. Health and wealth are also closely linked. So it's not as easy to separate these issues as you might think.

You are right - and that is exactly I'm trying to say. People do make that mistake and organize their life in such way to connect wealth with relationship/health (maybe based on society, how they are raised, I don't know). And then their relationship suffers when one of partners loses a job or anything bad happens in the material world. It should be other way around: relationship should be stronger when resources get scare.

And I agree it is very hard to separate these issues... I guess one needs to be "indoctrinated" as a child.

Ah, I see what you're saying.

I guess I just don't think that's possible. Yes, we could be better about separating these things to some extent, but not completely. Losing everything you own is incredibly stressful, and stress is damaging to health and relationships, period. Similarly, the dissolution of a marriage always results in a net decrease in wealth for the combined parties, at least in the short term. And battling health issues is damaging to both relationships and your financial situation, on average. This is just human nature. "Whatever doesn't kill you makes you stronger", but sadly, a lot of things actually do kill you (or your health, 401k, marriage, etc).

Furthermore, a big part of the correlation you see between relationships, health, and wealth are due to very similar "life management" skillsets being required for them all. It's obviously not perfect correlation, but it's there for a reason.

Just my .02, though :)

successful founders talking about how they killed themselves to get there

Here's the thing: I'd ask if it was even worth it at that point. Sure, the money is nice and pays off any debt accrued, but everything else is still there: effects of a long period of extreme stress; broken/damaged relationships; the life you missed along the way.

I'd argue (for myself, obviously!) that being stinking rich is simply not worth that.

The reason I hate the phrase "fuck-you money" is that it isn't really an amount of $$$: it's a mental state. It's the ability to say "screw this job; I don't care if I'm poor tomorrow. I'm free to do what I want and I'm adult enough to handle the consequences."

You are doing it wrong. I started my business 4 years ago, while being a full-time student. Only this year I have decided to drop from University to test the waters. I made during the last 4 years enough to survive for 1 year (rent+food+internet), setup my desk, register my company and hire an accountant, and buy some cool stuff (smartphone, watch, tablet...)

Looking back and connecting the dots, if I have decided to take on my business full-time 4 years ago and be financially independent, I'll be a total fail. There is a hell lot of things that I learnt during this 4 years that can't be learnt just in few months.

Start your business in the side to learn the clues. Get a few clients and make some profit. Save at least a full year expenses. Go full time and work 40/45 hours a week while reading stuff and HN in the remaining of the time.

This is actually hard work.

I've worked on a few projects over the years and finally had one that I was proud to call a startup. We got into a top incubator program and busted our butts for a really long time. We had a set of willing investors, a rock solid MVP evolving to a real product and a launch event that was the talk of the town. We did everything right, asked good questions and were personable as hell. And in the end, I departed from the venture due to team fit issues. No matter how much I want to point fingers, I know I was also another source of the problems. I guess what I learned from this situation is -- deal with your shit early. I knew there were problems, but our team swept these issues under the "I'm going to work hard and sleep on the floor" rug and by the time we were ready to talk about them, they were at an unforgivable stage. Startups are intense and I was OK with that.. but the minute I stopped having fun, I stopped being productive. I also started to sacrifice my own activities to make the startup work and when I eventually did get burned out, I was feeling pretty bummed overall. A better balance and celebrating more team wins could have definitely helped.

I've been full time, self employed for 12+ years, starting when 2 years into university.

In that time I've started up several businesses. Freelancing, contracting, consulting, products. Some have gone further than others. Some had business model limitations (finding people), others had limitations of my interest.

One thing: All made money. Why? I was too young to get credit. The only way I got to do what I loved was to find a way for it to make money, sustainably.

12 years later, what do I have to show? Money made. Money spent. Worked hard. Lived Hard. Partied hard. There was no middle, only extremes.

In getting there, I starved and managed my last x dollars more times than I count. Little by little, I rid myself of desire for almost all material, social and other desires.

What hurts me to say the most is this. This suffering was avoidable in many ways looking back.

Software startups have two main challenges. First learning business in general, and two, learning what they are made of as people.

The only thing I needed to develop in my self is maintaining a high work ethic (avoiding burnout) and developing a focused pursuit of finding and doing the right things.

That doesn't require playing all-in hold em poker with your life.

Here's the thing: The act of building a business that doesn't make money itself, seems to me, to be a violation of what a business is meant to do -- make money.

If we as creative, creating, innovators expect to sustainably create for a long time, we have to do this for the long haul. Right now, the culture seems to be give it your all or get out of the way. The best financial successes rarely have done it like this, though. Apple bootstrapped. Microsoft bootstrapped.

If I have to love what I do, I have to spend time enjoying it and loving it.

Being absorbed to the point where my body, energy, relationships all suffer is akin to saying I'll hold my breath long enough until I reach other side of the pool while under water. How many drown, how many don't?

How much innovative energy and people have been sacrificed to find the fraction of a fraction?

How much innovation has been lost where it's needed?

Here's my challenge, can we lay down our egos, our need for glory and making a success "worth it all", to start solving problems that pay for our time to give us the real freedom to pursue the big ideas without suffering?

For me, the quality of my relationships is my wealth. I became broke because of startups. No time, making, or creating memories.

Now I'm taking it back and launching a few ideas a year as products. They make money, growing slowly. I know the idea that I'm to give my all to will come on my path as long as I keep my work ethic up, keep a focused pursuit of recognizing what I need.

Until then, living for a living is as important as startups.

Winning, man. I see you as the Charlie Sheen of startup guys.

I'm not sure whether that's good or bad, I rarely watch tv and it's a habit I'm trying to re-introduce..

Thanks, though for reading. Putting this out there was a little cathartic. If it helps someone in any positive way, great. :)

If you can't be earning, then at least be learning (ideally both) otherwise you're burning. Cheers.

Now this is hacker news (sorry, I've been fed up with some of the other posts recently that have nothing to do with software startups). Thanks for posting.

Makes me miss Hacker Hacker News

Putting everything on the line can focus you like never before. But if you fail, you may never get a chance to do another startup with a bankruptcy on your record and having to get an employee job for a decade.

Put up the money for the startup that is the extra from what you need to get by. Throw in your 401k and every penny you own as well as money you don't have, and you are risking living in the house of pain for 20 years trying to service it with an employee job as a desparate man.

Have a startup "complete failure" plan because odds are you will have to use it.

If a startup is meant to become a business that makes money, does it really have to be all-in poker?

Is there no way to make money as you go? Sooner or later it has to be figured out, no?

Reply on news.ycombinator.com