Once you've taken VC money, its growth at all costs. Where "growth" is defined by inflating valuation, not necessarily "real" growth of the company.
If you want to be frugal and grow responsibly, you have to do it without VC money.
If you want to be frugal and grow responsibly, you have to do it without VC money.
If you’ve taken VC, you had a bad VC. Otherwise, this misconstrues most VCs’ advice in a downturn, which is to prioritise staying alive.
The defining difference between a startup and small business is scaling potential. If you can’t grow, you shouldn’t take VC.
Usually not. Most small businesses have geographic limits to their scaling potential. That said, yes, there are niches where small businesses will beat a start-up competitor, at least in the short run.
VC is expensive capital. The same dilemma exists for companies that issue high-yield debt.
> there are ways to scale even without that level of pressure but VC doesn't allow that
Genuine question: what is this?
More time. There are examples of bootstrapped businesses that may be took a decade to get to first few million which will be dead in VC terms. But they continued and got to 100s of Millions. VC model would tell them to kill it if after a decade, they were doing a lousy couple million in revenue even if on the right path with PMF.
Isn't the criticism of the last decade of VC that it backed many of these?
Everything changed and I’ve seen it change from a small agile business with nice people to a baby corporation with up or out mentality, useless processes everywhere, harassment methods from HR department. In one year, VC money created as many millionaires as employee burn-outs.
What would he say now?
Tons of old pg essays sound straight from something like Indie Hackers or Microconf with their "avoid raising VC money" angle. He even literally predicts the death of VC in web SaaS, saying "investors aren't worth the trouble": http://www.paulgraham.com/divergence.html .
His YC cofounder Jessica Livingston wrote a book "Founders at Work" and about half the founders in the book are bootstrappers (DHH, Joel Spolosky, Craigslist). The other half are mostly founders recounting horror stories of interacting with VCs.
Compare that to modern YC where there are videos where they say _everyone_ should consider applying to YC with the _only_ exception being people that want to bootstrap. Modern Startup School says: "Without startup funding the vast majority of startups will die." (https://www.ycombinator.com/library/4A-a-guide-to-seed-fundr...).
There's something very important to note which is that YC did not change the deal from 125k for 7% to 500k for 7%. It's still 125k for 7% plus 375k worth of equity on your next raise. Which only makes sense if there is a next raise. So obviously they discourage bootstrapping since their whole model has been built around you raising at least one more round after YC.
Seems a pretty simple case of "follow the incentives." YC basically became more of a traditional VC over time. And I think pg was still closer to a founder in the early 2000s, from a founder perspective, it's more of a set of tradeoffs whether you should bootstrap or seek VC. But from a VC's perspective, obviously they want you to seek VC since they can't get involved if you bootstrap and bootstrapped startups won't get the outsized returns they need.
My opinion is, pg is a smart guy, there's still a ton of wisdom to learn from in his essays, but as with every other person on the planet, consider their motivation and incentives for telling you what they're telling you.
Not that I disagree with your assessment on pg's incentives and YC's change in position over time, but the environment for software startups is also materially different now that affect you whether you take VC money or not.
Key costs like hosting are way cheaper, back then you probably had to rack server in a data center, now you can deploy a free/cheap PaaS with a free/cheap database while you find PMF.
Marketing is way cheaper, social media is a grind but it's a game you can play to acquire users/customers for _free_.
There's more stuff going on online, more people, more businesses, more everything. Think about the entire "creator economy", other bootstrappers, Shopify sites, etc.
Yeah some stuff has gotten harder, more platforms, higher UX standards. But on the whole I'd rather bootstrap in 2023 then 2010.
Check in with me in a year though.
Back in the day I have delivered several different cheap 1U rackmount servers to data centres. Once took one - using public transport - to whatever suitable spot in the Docklands in East London. Travelling on the DLR with a server under one arm was a a memorable experience.
Long story short: you can do a lot from a $1000 server, if you put your mind to it.
Yet these days it seems PaaS is better, (over-)paying GCP/AWS/Azure, while you grope around to find a product that will sell for $$$ before your cloud credits run out?
It wasn't the greatest thing in the world, but it was dual-core, 2GB RAM, 160GB HD. I ran a small forum, email server, and a couple buddies used it for shells and running whatever PHP apps they wanted.
An $80 Linode these days only has 16GB and 320GB.
Here's what you can get for $89+: https://www.hetzner.com/sb?price_from=89
For 92 euro: 128 GB RAM, 3 TB SSD, 8 core i9-9900K, unlimited bandwidth.
You get 50x value for the 2009 price.
If in 2009 you served 480p videos that was fine, now you have to serve 4k or you will look like a tool. Various grumbling about JS bloat is optional.
free marketing through effort is by no means a new concept.
( and it's not free. )
But this bias is there. I'd wager if YC started HN today, it wouldn't be called HN. That name is uniquely related to the times YC & PG came into.
It's a bit like trusting an insurance broker's opinion on your own personal insurance necessity -- it'd be unsurprising to me for a broker to tell me that I need the most comprehensive (expensive) plan that they sell.
If things don't go well, it would probably be hard to raise money for a future startup, due to the reputational damage of not having followed the VC playbook.
If things go fine, the VCs would probably say you could have grown even faster by spending faster. And what's considered a 'fine' outcome for you (selling for $15M with 1/3 for you) is not considered 'fine' for a VC whose model requires bigger wins — even if they take much longer.