Comment by ianbutler | Hacker News Reader

Comment by ianbutler | Hacker News Reader

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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 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.

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

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).

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.

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