Your startup idea probably isn’t venture-scale
lennysnewsletter.com
lennysnewsletter.com
Do what you’re passionate about, solve problems for people, and constantly question whether you are doing enough to solve this problem for everyone possible. If you’re asking yourself that question in the most intellectually honest way, you will naturally realize that the necessary tools to do things for many people involves software, AI, and all those common tropes of “venture scale” business. You’ll end up realizing that things like consulting are doomed to not solve the problem for a broad swath of people.
Whereas if he had done some of his "million dollar" ideas, he'd be much better off, both financially and in a position to create a unicorn.
See: 1. Dropbox 2. AirBnB 3. Uber
[0]: https://www.uberpeople.net/threads/what-happens-to-uber-rate...
As it stands, last I was aware their current business model was fairly unsustainable without continued exploitation of drivers. Legal shenanigans aren't 'innovative' unless you're SBF.
Also btw legal shenanigans could be quite innovative. Word policing like this doesn't achieve anything.
On the other hand, for 'business' cases it was way, way easier to deal with than FTP, at least at the time.
When dropbox was coming into vogue, I was working as a 'drafter' that happened to spend more than half of his time coding AutoLISP routines and doing larger automation/tooling efforts via VBA and C#. (Ironically, I didn't really do VBA for Excel but did do some C# for it[0])
But outside of all that, I was working in an environment with a lot of 'construction' folks. The 'Ask them to open internet explorer and they click on their AOL icon'[1] types. To say nothing of an IT department that required a lot of ceremony and wait-time to open up IP addresses for FTP use.
Dropbox was a godsend. The UX was easy enough for the contractors to use, the IT department was overall fairly accepting of it, and frankly I thought it was great even if I made similar comments to my father about it when he asked me about "the cloud".
All of that said, I do think it did get enshittified at some point, but I don't remember when or what it was.
[0] - Bentley was, to my understanding, one of the few (only?) non-microsoft companies to have VBA support for their application. While the first things I wrote for it were in VBA (because I wasn't allowed to have VS at first,) after a certain point I was down to just a couple routines that were somehow faster to do in VBA than via the C# COM wrapper. Versus Excel, everything was VSTO.
[1] - Actual phone call with a subcontractor.
Uber had a pivot into a VC-scale idea, but AFAIK the other ones didn't.
We (the HN community) need to stop regurgitating and reswallowing our own mythology like this.
Like, yes, when Dropbox first posted their idea on HN some people were like “just setup an SMB share”. But when I got to college in 2008 my friends (CS and non-CS-majors alike) were all using Dropbox to share pirated music and group project files, and it was clear to all of us how useful it was. I know I wasn’t alone in this.
It is not the case that “everyone thinks good ideas are stupid”.
They are “working” because VC is pumping them with money to subsidise growth and adoption.
For me, living in an obscure part of Australia, I’m happy with a business that means I don’t have to commute and work in someone else’s office!
I’ve done big tech and run my own shop with staff and offices, and now I’m very happy working from home and seeing my family more often!
More Money would be nice though
I love that tech gives us the freedom to all have different preferences and live comfortably in them. Well as long as we get "lucky" enough to find our niche preferences.
eBay, pinterest and etsy are big today, but who could have predicted that? Does pinterest solve a Large, Urgent, and Valuable problem? I don't think it does.
Pinterest is basically another photo sharing app. Exactly the kind of thing that this author argues isn't venture scale, and yet it was valued at $50bn last year. Anything that has a few hundred million users is worth a lot.
It's trivial to tell whether a startup is venture-scale in hindsight, and impossible to predict in advance. A startup is venture-scale if the founders have growth as their #1 priority. Otherwise, not so much.
Assume the sales price of a dog walk is in the $25/session range, +/- $5 depending on location.
That walk has an underlying cost of labor and overhead. Assume 50-50 for each. That means the walker receives about $12.50 for the walk. The overhead pays for the transit time, the admin time (phone calls, scheduling, bookkeeping, insurance, etc.). It also includes marketing and sales.
For a local dog walker, the cost of marketing and sales is very low. It’s mostly done by word-of-mouth and referrals from good customers. So the salary is acceptable if they can get 2-3 walks in per hour.
Now, to scale this business from local to regional, some things have to change. More people are required. Training is required. And brand recognition is required.
The marketing costs must go up, the admin costs must go up, and ultimately the value to the customer must go up (to beat out the local provider), etc.
More customer value probably means a lower sales price (to compete).
And all of these extra costs doesn’t leave much of the pie left over for labor. So there is a lower labor salary-maybe only $5 per walk-which doesn’t attract very good talent.
In the end, you can see that it makes it extremely difficult to “scale up” a business like dog walking. It’s too labor intensive, the bar is too low for competitors, and it’s tough to create additional value for the customer.
You can do a similar analysis with other startup business ideas to test if there is really an opportunity for scale.
It's not hard to imagine any of these having huge TAM's.
On the flip side, there are tons of ideas that just don't have the market size - an app that helps students memorize the latin numeral system is unlikely to have a large market.
I agree it's not easy to predict if a startup will succeed - but that's different from seeing if there is a market worth going after.
TAM itself doesn't tell you anything. Take flying cars. Huge TAM and yet the space is uninvestable. An app that helps students learn a single thing won't get huge. But the educational software space is huge, and it's fine to attack a big market by starting out in a tiny and unprofitable niche. An app that helps students learn a single subject isn't an obviously worse business than helping collectors find their last missing Beanie Baby (which was the big growth driver for eBay back in the day).
That doesn't mean it's not possible or that a savvy entrepreneur shouldn't estimate market size today.
The flying car example you give is correct. Yes, I fully agree that a flying car (at right price point and specs) would have a huge TAM. That doesn't make it inherently investible (though I nite a number of companies have received investment in this space). There is a huge difference between a huge TAM is desirable, maybe even necessary and a huge TAM is all you need. You seem to think people are arguing for the latter, when they are arguing the former.
I fully agree that the educational software space maybe huge. As such building an app to capture a portion of that might well be worth doing! I think you just demonstrated the power of thinking in terms of TAM - while X doesn't look huge on the surface, it's actually just the first steps to Y which is.
You can get that as a tech employee with much less risk.
Get into tech in your 20’s, do good enough work, invest the money you aren’t using, and you can retire by 45 or so with a very low degree of variance.
Lake houses are pretty cheap too. Plenty of cute lakes in unpopular hard to reach areas.
Anything that you'd colloquially call a "lake house" is going to be $1m+, even in frigid remote areas.
But, IDK with inflation maybe in 2023 a $1,000,000 purchase does count as "cheap."
Also there are many countries outside USA with way cheaper lake houses. Prettier lakes too.
865k Texas - https://redf.in/ubeUye
590k California - https://redf.in/bYUSU3
I could do this all day, I enjoy it.
Last one is <1500 sq ft.
I gotta hand it to you, the second one is fantastic deal, I wonder why. Maybe bad schools or something. But still.
The issue in Texas is it takes forever to get anywhere from those river front and lake communities. Not a problem if you're remote, bit of a drag if you work in Austin.
Because I’ve been following tech salaries for 10+ years. If you can’t retire early (before 65) after making 150k+/year for 20+ years, you’re rather living way beyond your means or have very high expectations for what a normal person retirement looks like.
edit: or I guess in America it means you had a medical scare or two that burned all your money. But that’s not a problem anywhere else and has little to do with the maths behind savings. Tech incomes come with decent insurance at least
If we had better financial education in America, early retirement would be much more common.
isn't this literally past results guarantee future returns?
It comes down to questions like, am I willing to forgo ever eating out, buying expensive toys, down to AC etc. The issue for most people is extremely early retirement isn’t actually worth major sacrifices when another X years can raise your standard of living significantly.
Unfortunately, retirement isn’t that great when you don’t have money or friends to enjoy it with. The trick IMO isn’t about early retirement it’s avoiding the traps that force you into working a job you dislike.
I fault Elon Musk for many things, but it's never drive or passion. I assure you he isn't spending the weekend relaxing at his lake house.
Of course, that's not all startup founders, but so many of them (especially the ones that are obsessed with money for the sake of money) do end up that way.
Also, venture capital generates very short term thinking. Their thinking is almost wholly based on timescales of 1-5 years, maybe out to 10 years, for when they can exit and move on, letting the company either crumble post IPO or sale or end up gobbled up by some megacorp.
Average time to exit is now about 9-11 years. [1]
Maybe I'm just too millennial, but that doesn't sound like too short a timeframe in an industry that moves and changes as quickly as the tech world does. For instance, 11 years ago smartphone penetration was a tiny fraction of what it is today.
I wouldn't consider a 10 year time horizon to be 'short term thinking' - especially when that's an average, in a distribution with a much higher median - but that's just me.
It is a problem when the industries that depend on your work operate on much longer timescales. Not to mention, the degradation of service in the search for increased profits happens during that 9-11 years.
> 11 years smartphone penetration was a tiny fraction of what it is today.
Right, and I'd say we were better off then than now, and I believe science backs that up. Education, intelligence (literally brain and cognitive development), mental health, emotional health, community, time, and more have all suffered at the hands of smartphones. And that's what I'm getting at. Chasing capital value at the expense of everything else is short-term and short-sighted thinking.
That being said, the article is right to point out that not all companies are a good candidate for VC. You have to show the investor that your shares can be worth dramatically more in a few years than they are today. Why should they believe you? It's not wrong to say "because Apple will buy us for 50x," if you can articulate that outcome convincingly.
Let's say the market of your idea is $100M/year, and in a best case scenario you can get $10M/year... that might not be a lot, especially if you consider all the costs and risks of business.
Worse, is that the smaller the market, likely the harder the business to run. You end up spending more resources, to gain less customers.
There's a lot of value in trying to understand market size, before in eating time and effort into a venture - regardless of venture capital.
See for example https://www.bloomberg.com/opinion/articles/2023-06-27/silico...
That is maybe the more important question to ask.
As many people have suggested, it is as hard to build a small business as it is to build a large one, so don't aim too small.
I don’t think this is a good rule of thumb. After all…
> What do Product Hunt, Trello, Balsamiq, Basecamp, Things, DuckDuckGo, Brain.fm, and many of your favorite products have in common?
I don’t think any of them had 100M revenue within 10 years.
Edit: turns out I can't read...
So, you agree with the article then.. Or did you not bother reading beyond the first line?
Not everyone wants to sell their soul lol.
If you're not, then of course not.
A venture backed business is really hard to execute properly with tons of expectations. Lots of people have really basic ideas that they should just self fund or start small.