The Era of Startups Is Over | Hacker News Reader

The Era of Startups Is Over

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56 pointsacecreamu63 comments

The era of startups isn't over. The era of low quality startups certainly is though, which is basically the point this article makes at the end among the general doomery. This in my opinion, is great news.

Being a startup can be conceived of as one possible path taken as an early phase in the business cycle, hard to see that changing. What is changing is now you have to be more realistic about justifying to others that you can be quickly scaled for a return. You need to have high natural growth underlined by great unit economics and the right plan to utilize capital to super charge that. Free money just meant wider bounds to take risks, which in a lot of cases turned into mediocre business. This is bad for everyone involved, VC down to consumer.

You now need to be more realistic about what is a lifestyle business or something that can be bootstrapped into a solid medium sized business through slow methodical growth instead of taking capital, flailing, reducing the product quality in a bid to survive, harm consumers and then dying anyway.

What I think this does harm unfortunately are moonshots, now you'll need to be even closer to some idealized SaaS with easily digestible metrics and plans to get funding. I imagine it's very very hard to separate a true moonshot that will succeed and revolutionize vs bunk and the risk profile has changed a lot, and quickly.

As a side note I also hope this reduces startup solely as a vehicle to acquisition and restores some novel public companies being created.

>You now need to be more realistic about what is a lifestyle business or something that can be bootstrapped into a solid medium sized business through slow methodical growth

I sort of dislike the term "lifestyle business" as to me the term implies something you can do without working too hard at it--which is not necessarily the case. That said, I agree that putting a bunch of the background tech and supporting services together is easier than ever. Yes, it's easier for the competition too and maybe no one involved will make a ton of money but the basic approach is more viable than ever. You don't need to hire large supporting teams.

I'm really just using it because it's a known term, I've never been a giant fan of it either. It has a sort of implication of being lesser in certain circles, and I don't really think that's the case.

Totally agree. I've also personally experienced it in the context of we can't afford to pay what Big Tech or VC-funded companies pay but that doesn't mean you can work 3 days a week.

"Lifestyle business" as I know it is a term used by VCs (in a derogatory sense) for a business that sustains with small profit, enough to keep going or even permitting the founders to live well, but not exhibiting the 40x growth that VCs would like.

VCs would rather see a startup fail, for at least in such a situation they can write down their investment as a loss and move on; whereas in a lifestyle business their capital remainds bound. The founders may be perfectly happy in that situation, but never be able to produce an exit of the kind risk capital seeks.

There is nothing wrong with desiring to set up a lifestyle business from a founder's perspective. But it is not appropriate to use risk capital to fund it, because neither the risk is high enough nor is the return; so bootstrapping or bank loans are more appropriate to finance them (some individual business angels may be okay with smaller returns that professional VCs - as long as returns are at least higher than the 16% you can typically get from investing in an index).

Yes, "lifestyle business" could be perfectly harder than building a startup. Mainly when your main stakeholder is your family.

> I sort of dislike the term "lifestyle business" as to me the term implies something you can do without working too hard at it--which is not necessarily the case.

There is nothing wrong with the term. I first encountered it in the early 80s, but I think it dates back to the 60s when people started to question the big company profile of the then social contract.

Yiu say, “which is not necessarily the case”. Well in that case it’s not a lifestyle business, as that’s 60% of the definition.

The classic lifestyle business is a surf shop or dive shop: you like the activity, you don’t need a lot of money, you can shut the business for a day (or early) when the weather is good and just go surfing/diving. Some bike shops were like this too, before that business changed.

A consulting business can be like this too. I have friends who are EEs and programmers and they live the same way. One works Jan-march and then takes the rest of the year off unless something is particularly interesting. Another won’t take jobs during ski season. One key is that they love the work (I see comments on HN from people who don’t enjoy programming; for them programming could never be a lifestyle business).

Other businesses like being an electrician can be like this too but for whatever reason don’t get swept under the same rubric.

You are absolutely describing lifestyle businesses. But it's also used to describe businesses without outside investment that are mostly about scraping by with a lot of hard work where people actually want/need to make decent comp. Which, as you suggest, is really a different beast.

It is utter insanity to think that running a small retail location like a surf or dive shop is easy or that you would be able to just shut down for a day on a whim and not need the revenue.

Obviously anecdotal, but my grandparents ran a shoe store from the 50's to the 70's and when they thought the weather was nice enough to go to the beach, they closed up shop and went to the beach. It's all about mindset I guess.

However, in general I would agree that any form of retail venture does not match a lifestyle business very well.

If you've ever lived in a beach town in the caribbean, south pacific, even hawaii etc you'd encounter all sorts of businesses like this.

Reminds me of the parable of the management consultant and the fisherman, oft quoted here on HN.

Why is the era of low quality startups over? Have VC’s suddenly become better judges of talent, market and technology? Have founders suddenly become more serious? Last year A16Z funded Adam Neumann for $350M for a blockchain carbon credit platform.

If things change it won’t be in a Wicked Witch of the West meltdown after which the flying monkeys of Silicon Valley burst out singing Ding Dong the Witch Is Dead.

Things haven’t changed.

Last year interest rates weren't 5.5%, they were 3% and investments were already starting to tighten up. It now costs even more to deploy capital and looks to remain that way for a while, possibly indefinitely. It's really as simple as that.

Higher scrutiny, tighter purse strings, the dynamic has been shifting for a while.

That's pretty simple but it doesn't explain how or why low quality startups will get weeded out. It explains why there will be fewer startups but it says nothing about their quality.

Maybe help me understand where in my original comment I lost you? I'm not seeing where your lack of clarity stems from. If you have to have significantly more solid economic fundamentals, per what I originally wrote, before you'll get investment, that almost tautologically removes low quality startups.

I think the point being made is that it's easy to tell low quality after the fact, but it's not obvious before investment. The startups that'll get weeded out will be the ones whose business fundamentals aren't obvious. Some of them will be low quality anyway. Some other businesses could have been high quality even if the fundamentals don't look it (Facebook springs to mind).

I think you're defining quality of startup to be "has known good unit economics" and that's certainly one determinant of quality, but part of why investors have been throwing money at Adam Neumann and others is that it's not the only way that a startup can become a huge success.

I hear what you're saying, I think this is a case where there's no perfect total solution. I would amend what I said to be more "on the balance" more bad then good get weeded out.

The thing about Facebook is they were widely profitable and quickly growing quite early on if I recall correctly, so not sure that's a great example, but I get what you're saying anyway.

Shallow ahistorical analysis.

Apple and Microsoft were born in the oil shocks of the late 70s and survived Volcker’s high rates through the early 80s.

Google barely took off before the tech crash wiped out the Valley in 2001.

Many companies we use today were young and dicey affairs during the 2008-2009 financial crash.

Just because the bloom is off the rose, and both VCs and financial tourists like Tiger are overfunding fewer ideas, doesn’t mean the fundamental engine of innovation leading to huge companies is dead.

Quite the contrary. The engine is still ticking, but there is less noise.

Maybe but Apple, Google, and Microsoft are improbable anomalies.

They are. That’s why they’re called “unicorns.”

Most startups fail regardless of the economic climate.

No, a unicorn is simply a private company valued at $1B or more.

Apple, Google and Microsoft are on an completely different level of anomaly.

Everything that becomes successful is an improbable anomaly. Any company in the S&P500 is an extreme outlier. That’s the whole point of the venture model — you know 95% of startups won’t succeed, but 5% might return multiples of your investment and 1% might return multiples of your entire fund. But often not. Hence why the average VC fund can’t beat the S&P. This is how it has always been.

> Everything that becomes successful is an improbable anomaly

Exactly my point. The above comment is trying to make a point with cherry picked data.

Implying there was any analysis is being generous.

Just wanted to say that!

Totally agree, thanks for your comment vonnik!

That's just an intro. I was expecting to scroll down to graphs of startup rates and VC returns. But no. He just makes the statement with no backup.

So, is this a legit claim?

General thesis is cream always rises to the top even in high interest rate environments. Crappy, pointless startups will struggle and wither without the easy credit spigot.

So yeah, it's legit and always has been.

Are these crappy, pointless startups (“a student raising 1 million on an idea”) in the room with us right now?

I think the contention is that there are fewer of them now than before the recent interest rate shock.

“Fewer risky investments being made due to economic conditions” Is a much less attention grabbing title

That would be the peak of the cycle. We're at the point now where it's, "clever engineer who has domain knowledge in some niche goes out on his/her own to make something novel that could be leveraged inside an established organization but isn't worthy of being a full fledged business".

Contrariwise, it's never been easier to bootstrap a solo or <5 person business.

Given the profound malinvestment and market distortions groups like SoftBank/WeWork and FTX/Theranos/AirBnB/A16Z have created I frankly say good riddance.

I ve been bootstrapping a one-man tech company my self, and with 100usd/month I have the following facilities: managed db with weekly backups, managed kubernetes with autoscaling(DO), ci/cd (GitHub + self hosted runners), VPN meshing (tailscale), and a bunch of other open source tools (airflow, selenium, etc). This would have required an entire IT department only 5-7 years ago

If it's easy for you, it's easy for your competitors too. IMHO, how easy it is to start a startup is dictated by the competition, not the accessibility of the underlying technology. The tech is always the state of the art at the current time. But that doesn't have any bearing on markets, resources, hiring, etc.

I agree but with a different frame of reference. How easy it is to start a startup is not dictated by how easy it is for your competitors to start one, but by how big of a moat the incumbents have. With all these tools available to me now, that moat is becoming smaller and smaller

Not really, competitors can be antiquated. A ten year old tech stack can be very hard to pivot away from, and easy to catch up to with modern programming

Yes, and that has always been the case. We are trying to figure out why it's different now.

Someone asked why it was easier but deleted their comment while I was replying.

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Shopify is all in one for many business, contrast that to 10-20 years ago where you had to build the entire storefront. There are several ways to accept online payments, the easiest by far being apple/google in-app.

Amazon fulfilment services mean you can skip on logistics (if you're a PHY company). Customers are used to buying things online now, everyone has a phone of some kind so you have an app channel you never had before...

Cheap money is over.

If you don't need money, like a bootstrap, the odds are in your favor.

If you are a startup that hasn't quite made a name for itself yet and the coffers are getting low and it's time for another round of funding, you're going to have a rough time.

Yes, you can do a ton with a small team. It’s a new era!

It’s a healthy thing. Getting back to building on bootstraps means building fundamental value again. If that scares you, or makes you think we are doomed, you might think twice about that perspective.

Downmarket trends make companies solve real problems that generate real revenues and get rid of the easy money that supports unsustainable business models.

They clear out of cruft of technologists who only come to the valley for the high salaries and push common sense technology frameworks that are more focused on productivity than large scale Enterprise-style collaboration to the forefront.

They force essential effort to be applied due to scarcer resources, and discourage frivolity by punishing financial schemes and forcing businesses to focus on the bottom line.

I’d love to see some fundamental restructuring so new generation players can emerge, and unfortunately, in order for the new to come to market, the existing system needs to be shaken up a bit.

Downmarkets are hard, but we need them.

A million is very little capital to raise (literally a 2 senior engineers team over 2 years), and no one “make bank” over raising that.

It was the example amount used in the article.

I did not use it as an example because of the merit of its amount, merely because it was the quote in the post:

> Remember stories like "I was a student, I got an idea, so I raised a million and hired a team"? It’s safe to say we can forget about them.

I think you are confusing the era of startups with the era of VC bubble/ponzi economy.

Startups are a symptom of technology advancing, the basic human psychology of desired progress and dissatisfaction, and an economic system.

Macro policy can warp startup priorities on average but it can't stop them without stopping the whole economy.

I actually don't buy this.

Lurking in the background is analogy to e.g. car manufacture. There was an era of fomentation, followed by an era of consolidation. Eventually, we wound up with a handful of automakers.

But the market for software is fundamentally different. For one thing, there is not the same reliance on mass labour, nor is there significant material cost; nor is there the need to maintain a sales network.

Sure, there are always network effects which replicate some of the momentum/inertia of a physical-goods market, and yes, ZIRP was one heck of an accelerant, and it's not coming back soon.

But software has not finished eating the world. It might not even be halfway through, as AI has opened up new regions of the (if you will) 'carcass' for software to ingest (much as fire and the cooking of food opened up new nutritional pathways for humans.) And even when software is finished eating the world, opportunities for disruption will remain plentiful, as incumbents will have a hard time maintaining moats.

Now, that said, I expect three things to happen in tandem: (1) the average software engineer salary will stagnate or decline; (2) credentialism, long foreign to the industry, will begin to creep back in; you'll see CS and Eng degrees rise in importance, along with more situation-specific certifications; (3) the average market cap of startups (specifically: SaaS startups) will decline, along with growth cadence.

This isn't death. It's just middle age. A touch of grey, as Jerry Garcia put it.

Anyone who mentions Ray Dalio in a positive way can be immediately disregarded. I read the whole thing and didn’t see anything insightful.

I agree with the vibe of this article. The difference between today versus historical periods of high interest rates is that today there are multiple mature billion/trillion-dollar tech companies, and also a huge population of entrepreneurs who have either tried your idea already, or are in a better position to execute your idea than you.

If I had a dollar for every time someone comes out with dire predictions for startups or the greater economy, I'd be proverbally rich. 1987, 1989, 1993, 1998, 2001, 2007, 2012... 202x... All years during which a 'correction' occurred. In 2001, the intertubes imploded during the internet crash. But it was anything but fatal, despite two of every three startups failing.

When GDP is so high, it creates a momentum that does help every sector. One thing that would help would be an administration that is pro-business and doesn't pick winners and losers. Maybe leadership that has an idea of what economic theory means.

The headline and article are unnecessarily hyperbolic. It’s not “over” but yes if you’re trying to found a startup with a high burn rate and little prospects to be unit economics positive it’s going to be a rough ride. For new startups the bad ideas will just get filtered out earlier and not get funded. The ones that will have the most pain are later stage startups funded during period of excess that now have little future prospects and with no chance of raising the funds they need to keep going. Thats where we’ll see fire sale acqu-hire M&A activity or just flat out implosions.

> the high interest rates are here to stay, and it will be years before investing in startups becomes profitable again and startups will have money to spare

I admit that I don’t want this to be true. I want my own startup. But…how can you possibly know this? Nobody knows how long the interest rates will stay high and nobody knows what new companies will emerge in the future and how profitable their economic model will be. For all we know, investing in startups will be even more profitable than it was in the past. The article was light on details…

What changed? Is it the interest rates? The saturation of the market? The reduction of RoI? The competition that reduces available capital for whomever wants to jump?

I'm willing to believe that statement, I'm sure there can be tons of arguments made to back it up, lots of data to be seen, but there's none in this post and we're left to guess with a generic Ray Dalio economics video.

The general self-substantiation of that post doesn't blend well with its general snarky "o, sweet summer child" tones.

This reads like someone who think startups are structurally dependent on infinite VC money or loose spending due to low interest rates, perhaps because the writer's business is impacted. Nothing about rising interest rates prevents the formation of new businesses. Many great internet businesses were founded in 2008 (Airbnb, Uber, Whatsapp, etc). Let's not forget that businesses are supposed to make money, and it doesn't require that much capital to start a software business.r

I read is kind of thing in the 90s. It’s just the frothy bullshit is in abeyance (another commenter used the term “tourists”). Solid companies are still starting.

Startups that were propped up by “cheap money” are gonna fail faster now that interest rates are high(er). But there’s nothing to indicate a fundamental shift has occurred. The system, policies, and values that have led to the era of “cheap money” are here to stay. It’s really the era of fiscal responsibility (and non-dramatic titles ) that is over.

I think I missed the part where they support the title of the post with some arguments.

> as tough for any Web2 startups outside of AI (and soon for them too)

says who?

> And it will get worse because new funds are (not) being raised right now,

Wait are they or they aren't? And is there some data to support this? I am not saying it's incorrect but it'll be good to support this with some sources.

This seems like a perfect post to engage on solo entrepreneur and indie hackers and bootstrapper that have basically more space to thrive and we love the idea that we don't need to have VC money to launch and build a great product that can turn into an amazing business!

So Startups can not get a Billion valuation without any revenue or losing $100 million a year?

What terrible idea....

It is not the End of Startups. It is the end of "free Money" from boomers savings, that now are retiring and need the money.

Startups will have to be profitable and auto finance themselves, like it has been normal for companies in the past.

They will need to find a way to create value and survive sooner. It will make for smaller and slower growth companies but also more stable.

> And I'm not even talking about Web3, where we’re working, the situation is already just as tough for any Web2 startups

There is no such thing as "Web2". Into the trash it goes.

New rule of thumb: if some article's background is #000000 (absolute black), expect the content to be similarly lacking in subtlety and accuracy.

So https://black.bikeshed.com/ is unsubtle and inaccurate bullshit, but https://white.bikeshed.com/ is subtle and accurate analysis?

The actual point was, opinions that lean towards the absolute extremes are often low-quality.

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