Why you shouldn't join Y Combinator
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This is the hardest question of starting a startup (or trying to do anything novel), as far as I can tell, but this was not at all my experience with YC’s advice.
The overwhelming feeling is: be humble in the face of reality, try something and try to try it in a way that you can assess whether it’s working — quickly/cheaply — then try something new.
YC seemed perfectly fine with us either pivoting or staying the course so long as it seemed like we were trying to be intellectually honest with ourselves, and what more could you hope for? It’s not like they have the answer either — nor do they act like it.
Edit: Also YC explicitly advises against using VC feedback as signal on your idea. Ideally you’re pivoting well before you run up against “VCs won’t fund my next round,” because clearly things already weren’t working prior to that. You were trying new things and being honest about whether they were working, weren’t you?
We had another year of runway in the bank and solid growth. ZIRP ended and the board nuked us from orbit.
You don't get to just 'decide' if your fledgling business is a potential unicorn or will just be a lifestyle SaaS business. It's a product of your idea/technology, the size of the market, competitive pressures, and your early traction.
It's more like this: You wake up and realize that -- while it's still early -- the thing you started has major potential; but you need a lot of capital to seize the opportunity. So you realize that going the VC route is likely your best bet. And that if you're doing the VC route, getting into YC is the best possible start.
If instead you wake up and realize your TAM is probably <$100M, your tech isn't anything particularly novel, and your path to a 'good life' is fairly clear if you can just organically grow from there - great, don't go the VC route.
But this idea that you're trying to discover treasure in a field or some bullshit is just bad. The better analogy is - you have a patch of land. You can slightly change that patch of land but it's mostly fixed. You could slowly farm that land and make a good living. Or you could risk it all, dig everything up in a search for oil, and maybe strike it big. If you fail, the land is worthless. Now, today you realize you have strong indications and evidence that there is A LOT of oil down there. So you go talk to some money guys, get funding for the exploration, and you're off.
But the guy who has zero evidence of oil, zero reasons for thinking it's down there, and is happy farming anyways - OF COURSE is better off just going the farm route.
So you suspect you may have oil hiding deep in your property, and while you know your land REALLY well, you're not totally sure how to go about validating that its there; or even if you could validate it, how to proceed best.
You hear there is a very friendly and experienced outfit called YC that will help you (a) quickly figure out if there's oil, and (b) if there might be oil, set you up for success with the bigger money that you'll need to extract the oil. This YC firm is basically geared towards helping someone like you figure this out quickly. And actually, YC will give you $ to explore this very thing. In exchange, they will own part of your land (a small fraction).
If it turns out there isn't oil after all - not the end of the world. You'll go back to farming, and at least you won't be wondering if you should have explored the oil thing more. YC won't care much about you anymore since they are in the business of owning a small % of the land that strikes BIG oil. But they also won't be a nuisance.
If it turns out there IS oil under there, then YC will help you navigate the big oil money people to help you get it out faster.
Metaphors are never perfect but I'm having fun with this one. :)
Ok so let's talk about your land itself. First time entrepreneurs just kind of randomly end up on a plot of land, due to their prior experience or friends or personal challenges they want to solve etc. Maybe that will happen to have oil under it or not. Maybe the oil is plentiful and close to the surface, or maybe it's deep and small anyways. But often the choice of your land is kind of happenstance.
Meanwhile, hype-driven 'founders' hear some piece of dubious folk wisdom -- "land that has coniferous trees on it tend to have oil underneath" (akin to 'blockchain is the future!!!1') and go buy the first patch of land with conifers on it. Then struggle and struggle.
In contrast, seasoned entrepreneurs spend a lot more time deciding which plot of land to buy in the first place. They'll pick one that has good indications of having oil underneath, although they still won't know how close to the surface or how large the patch might be. They'll conduct surveys and other studies prior to really buying the land. Once they feel like the odds are in their favour, they'll buy the land and start the process of proving there's oil.
Sure you do. Of course there are types of businesses that only succeed if they're a unicorn, but for the most part, you can decide how much business you want to do. I know we're talking about software, but I deal with lots of restaurants in my life. Say you start a restaurant, and after the initial opening craziness, you see that's it's a sustainable business with lots of loyal customers that like your food. There are people who are going to tell you to open another location, to franchise it out. You'll need investors to do that. It may or may not make you more money. You might think your product has the potential to be the next big chain. You also get the choice whether you want to do that or not.
If you have a good product that people want to pay for, you more than likely will have the choice to decide whether you want to scale the business up larger.
Fintech, bio, etc. are exceptions, but generally if you have a large TAM, you can still choose to take VC funding or not (you bootstrap at the risk of someone else taking funding to grow more quickly and capture the market).
If you raise VC money, the above scenarios are considered a failure. You will have to shutdown/get acquired for nothing. You have to shoot for the moon to get massive ARR, that very very few companies ever hit.
It’s really about the level of success needed to have a financial windfall, and bootstrapping is way lower for that.
I want a business that can support my wife and me; 500k is my target, and it would be a great situation for us because I would have a great work/life balance (based on how much time I spend right now).
But if I took money, the investors would clamor for more, and the stress would probably kill me.
1. Charging for bug reports or feature requests.
2. Support. (And I have great examples of public support as marketing.)
3. Consulting. (This would be exclusively to help companies trying to use my software, but unlike support, it would be about writing the stuff that uses my software and ensuring the client understands it so that I could do a handoff. The result would be carefully commented and documented code, probably just short of literate programming [1].)
4. SaaS. (If I did this, the server might not be FOSS, but the client would be, and it would use encryption.)
* A build system that is also a package manager like Nix, but usable by mere mortals. Also, it will have an easy way to restrict what builds can do. This one is almost done (well, usable for early adopters, not done); my HN annoucement should be in about three months.
* A VCS that, like Fossil, is self-contained with a bug tracker and everything. It will be able to handle binary assets and HUGE files. It will also be easy-to-use. (I'm going to be testing it on my non-technical wife without telling her how. Once she can use it naturally, I'll probably have a good model.)
(I've heard people use that term in multiple ways.)
I tried to get into Nix recently, but found it difficult to accommodate my workflows within its uncompromising nature. My goal was to set up a reproducible development environment, where anyone at my company could easily get set up to work on our code with a single (or concise set of) action(s). I also tried to use home-manager, which I have heard might have been a mistake.
Anyway, Nix is really only designed to manage the entire world. I wasn’t able to use Nix to build a development environment where other developers and I could work inside of it using our existing tools and workflows, including other package managers that want to mutate things — it seemed that Nix was all-or-nothing. This was too disruptive and a large barrier to adoption for me.
I would love a tool designed for reproducible builds and development environments that can compromise, and do as much as possible immutably while allowing for local mutation on top. That can be a package manager, but also make it easy to use existing package managers too — with the understanding that these other package managers are typically also able to reliably reproduce a build, within their own mutable state. It’s OK if this potentially needs to mutate “the system” in the process to try to reach a goal state (e.g. installing system-wide package managers, xcode, etc.)
Nix really did not seem to be designed to allow me to use other package managers inside it like npm or cargo. It has some support for directly vending packages from those via Nix itself, but that’s not what I want right now; it’s too disruptive to my workflow. We already have all of the build reproduceability that we need via those package managers and via a container based build process. Still, a fair number of development and operational tools are required to develop the software, and I would really have liked a one-click way to set up a development environment that doesn’t require a container (which is not native on Windows or MacOS).
(I admit that it is possible that this idea fundamentally could not work for technical reasons, but it seems plausible that it could.)
Another challenge that I had was with the complexity of the Nix config and file format. It’s basically a programming language, and there isn’t always one right way to do something. That made it considerably more complicated to solve tasks that would be just a single line command if I was using e.g. Homebrew to solve the same goal (brew install xyz).
From a user experience perspective, I would like a tool that provides a simple command line porcelain for mutating the state of the environment, while tracking it immutably under the scenes, so that it’s reproducible. For example, “cmd install foo” should add the “foo” package to my environment (and rebuild it). So at the end I have a declarative description of my environment contents, but I can build that configuration using a sequence of familiar install commands.
I admire what Nix is trying to do, and see a lot of merit to the approach for defining an entire machine’s state immutably. For managing and defining the state of servers, it seems like a great idea. However, the cost to adopt it seems high, and the value would probably be marginal in our case, since we don’t need to manage servers to deploy software (instead deploying only containers); and since existing package managers provide a way to build those containers reproducibly. But containers aren't ideal for defining the tooling used by an interactive local development environment.
As a build system, it can incorporate other build systems and run them natively. It only makes sense that it should do that for package managers as a package manager. So as long as you understand that most other build systems give you opaque binaries, I can make that happen.
But on the other hand, I think I can make your mutable environment idea work and cross-platform to. My design will require that the environments all be on the same disk because it will use hard links and a SQLite database, but those work on any platform.
But anyway, I also think I could set up mutable environments such that, as long as you only modify it through my tool, it could record those modifications and generate a file to recreate that environment elsewhere. That sounds like Nix, but again, my tool will use other build systems and package managers.
Is that what you want? Or did I read it wrong?
Do you charge per report / request? Or is it a subscription (storygraph has this model)?
It seems like a great idea to lessen the workload and focus on people who actually might turn into customers.
And that will only be for companies. For individuals and their personal projects, I'll respond when I have time, for free, for bug reports. (Not feature requests, obviously.) This is to build a clientele of people that might bring my software into their work. And it will reduce bugs.
That's why I have four ways to try to make money.
And the reason why is because companies aren't doing QA; they have things that need to get done.
The key for me is to reduce tech debt before I release. If I'm not dealing with tech debt, the actual programming shrinks, and I have time to deal with the other stuff.
This seems like everyone's dream and nobody's reality. Good luck.
Also an indie founder, and I've had the opposite experience.
Early on, I focused a lot on elegant code that would minimize my maintenance burden long-term. Then I read Rob Walling's book, Start Small, Stay Small,[0] and he talked about how programmers are typically afraid of ever taking on tech debt because they've been in orgs that don't allow them to ever pay down tech debt. As an indie founder, you can pay down tech debt whenever you want.
I've found it more useful to accrue tech debt early on in a new project or feature because it's likely that the product will fail or that I won't end up having to touch the feature for years.
Every time I have to work on code that has tech debt, I pay down the tech debt a bit, so eventually the parts of my codebase that see the most change are the most flexible and maintainable. But a lot of my code has tech debt in ways that don't matter because the product flopped or I never ended up having to extend the feature beyond the initial implementation.
You can outsource some of this stuff depending on how technical the product is. But realistically your time will be spent talking to customers and coding, about 50/50. Even if you get coding down to half it's still a lot of work. And managing customers is a lot more mentally draining.
That's all to say that a 9-5 is not that bad in terms of work life. You can always sign off and kick things up to senior people. You generally do things youre good at, so you won't be expected to do customer service, accounting, marketing, sales or a million other things you gotta take on as an independent business
I have a widely deployed FOSS project that I do "customer support" for. It is draining, and it does take a lot of time when I do need to do it.
That said, in my experience customer support was usually tied to new accounts. They need a bunch of support at the beginning. But once they get going, you essentially never get support tickets as long as the app continues to function. We literally had customers go 5+ years without ever filing a support ticket.
Once we realized customers do not really want to engage you & would rather self-serve, we invested more in documentation, simplifying UX, etc. Huge benefits to our time commitments for new accounts. I have seen others reduce time investment by having office hours where any customer can join and ask any question. The founder spends an hour or 3 a week and is able to help N customers, and customers are able to help each other as well.
Honestly we did not focus too much on tech debt because most of the things we considered tech debt ultimately did not impact the operation of the business.
That said, I often spend a lot of time and effort building generalized solutions, because these act as leverage down the road. So, while I might cut corners on many things initially, I will often invest a ton of effort into polishing a thing, if that thing can be reused all over the app and make everything work much better.
If that's unclear, here's an example: users need to configure columns in a table in my app. I could provide preferences for configuring that table (quick), or spend a month writing a general-purpose table configuration system that will allow all tables to be configurable. I will choose the latter.
If you keep your business small, there's not much need to outsource work. In software circles, it's easy to think you can just keep getting bigger and bigger and bigger, because it's so easy to scale, but if you keep things small, a business really only needs to make enough money to keep the person running it fed and comfortable enough that they can do the work they enjoy.
Although I am curious _how much_ risk did you take, could you elaborate?
I will have spent in the very low 5 digits for lawyers, to comb through my new FOSS licenses ([1], and we're still working on that, so they are not ready yet!) and to set up standard contracts.
Beyond that, less than 5 digits for two beefy computers over that time and longer.
I'm working with a lawyer to ensure that these licenses are void if the user expects me to have any duty, like the Bitcoin lawsuits ([1], see comments at [2]) or the EU's upcoming Cybersecurity Resilience Act that might require me to be audited or worse [3], which I can't afford. (I do want an audit when I can afford it, though.)
[1]: https://laanwj.github.io/2023/02/06/regrets.html
[2]: https://news.ycombinator.com/item?id=34684715
[3]: https://blog.opensource.org/what-is-the-cyber-resilience-act...
1. (at least some of) the links from the FAQ entries to license texts appear to be broken due (presumably) to a change/transformation from `<filename>.md` to directory path.
2. It might be helpful to more clearly identify the text differences between the multiple licenses and/or at least the FAQs to enable skipping duplicated commentary when reading.
2. That's a good idea, but I can't do that in the actual license documents since I need to keep the actual licenses clean from non-license materials. Do you have any good ideas how to do that?
The missed opportunity is your second income, the one you could have working for someone else, they didn't mean 'your household does not have a steady paycheck'.
You could probably get a more concrete number by multiplying your previous comp by 1.5~2x or something.
Although, I struggle to get jobs. I just don't interview well, nor do I fit the culture of most companies.
I guess the reason why I don't see an opportunity cost is because I firmly believe I couldn't have had a job anyway.
First, on this forum, your headline says, my work isn’t a priority in my life, it’s behind church. Church is about as popular as Congress in this industry. There’s a very funny HBO Silicon Valley bit about coming out to your gay dad as a Christian, that’s a little too close to reality for comfort (like that whole series).
Second, and more importantly, your LLC’s front page tells visitors, “I probably have ODD and am a gender discrimination lawsuit waiting to happen.” Is that the message you’re trying to send? Mate, never mind getting jobs, you’re not even making it past the HR screen with such sloppy social media hygiene.
Have you ever heard the phrase “hide your power level?” That doesn’t even really apply here, actually. You don’t have to hide your faith or your politics. Just don’t make it your introduction. First impressions matter, a lot.
So no, it’s not that you couldn’t have had a job. You’re just choosing to have an extremely unprofessional online presence, and that has consequences.
Am I being unfair, biased, uncharitable, judgmental? Sure, probably. I don’t know you, and I didn’t look very hard. But do you really think the average employer or customer is any better than me?
Yes, you are.
> But do you really think the average employer or customer is any better than me?
In my area, yes. My area has more people that would not see my profile as a problem. I'm not in Silicon Valley.
And if I'm not hired because I won't put work first, good.
> Second, and more importantly, your LLC’s front page tells visitors, “I probably have ODD and am a gender discrimination lawsuit waiting to happen.”
You read that wrong. I am saying that I use those words in writing my blog posts, something that would have been normal 10-20 years ago. If that's a gender discrimination lawsuit, well, I just don't belong in this world anyway.
And I don't have ODD. I just don't conform.
Most people who become entrepreneurs have this itch/calling, where they simply CAN'T do anything else (for long). Ignoring the call means living an unfulfilled life.
If you build a $500K a year SaaS business and have very little overhead, you can probably take $200K of that revenue as income and have a good work-life balance that's very comfortable. I know, I was able to do this without taking VC and bootstrapping 100% on credit cards and my own cash. However, there's an inflection point that happens with this sort of business IF you're not careful -- or it becomes more successful / or becomes a death spiral.
If we're speaking of a true SaaS model. It can work. But there's "gotchas".
I did well with this and but eventually sold the business for about 3X and went back to work for another company. But for about 7 solid years as we gained customers and got to that $500-700K, it became very hard to keep it a "balance" as with every 10 customers we added, the more of my time was spent at work and not as much at home. As we added customers, my "balance" was diminished, so I had to hire people, which then cut my income considerably. In the end, I realized it was better to sell the business and take the profit I could to pay off my cards and get something out of it before it killed me. I used to tell people who used to say, "wow, must be great having a business like that!" I used to tell them, "Yes, it's amazing 100 hour work week!".
It became more of a "job" and less of a "lifestyle" as the customer count increased. This could have been anecdotal to my business and product, but I have to believe that it won't matter as that size annual revenue demands a bit more of a sophisticated product type. Unless you've hit lightning in a bottle and have a very "light work" product that you're selling and have cracked the code of hitting $500K and having to do barely anything, more power to you... But I don't think there's a lot of those out there and a lot to be created.
I just find that with most SaaS businesses I've been involved with and built, the product is solving business problems that aren't usually a "set it and forget it" kind of product to meet those requirements and just sit back and collect money... I find that most SaaS businesses in that range of revenue are complicated and warrant a higher degree of overhead.
The real challenge is, "little overhead" to be able to create an income and survive. Support, service and development is expensive and requires more than one person. Good support is important to retain your customers to keep that $500K coming in, and that really is the problem because having just 10-20 customers paying you $500K is far riskier than having 1000 customers paying you $500K.
Churn is dangerous in SaaS products that are high cost with smaller customer bases. One or two customers leaving could give you a pretty good dent in your revenue, thus causing you to cut income. So the trick is mitigating churn by having a product that's priced at a point that you can gain a larger customer base so that churn isn't going to radically impact your revenue.
But both strategies are going to require support and service and that costs quite a bit of money and can gravely cut your income that has to be passed to engineers/developers who can improve and maintain the product. I had to hire really good support people and some engineers because as we grew that revenue, the product became more complicated and support and service was more demanding (I had about 400 customers). I eventually had to cut my income to pass that to people who could take on more because I couldn't do everything.
So there is a law of diminishing returns with this sort of business strategy.
It can work, but you have to really strategize, have a product strategy that can generate a good sized customer base but requires very little maintenance, development, support and service.
But I call this the "holy grail" SaaS business -- they simply don't exist -- or if they do, they are rare birds. Just be prepared to understand the issues if you do have some success and are lucky enough to grown a SaaS business to $500K+
Just don't be surprised when you feel like you've succeeded but feel like you're failing.
* $200K of income from $500K of revenue sounds low. There are places which have SaaS-friendly taxation, I'm lucky to live in one (EU, Poland) and 75% net margin for the entire business is easy to achieve. An 8.5% tax on revenue is a really good proposition :-)
* Support is key. I care a lot about support (I do it myself). It can easily get out of hand and become a chore, but that means something is wrong: if you listen to your customers carefully, you should be changing your SaaS so that less support is needed. I'm thinking about this a lot.
* We're talking B2B SaaS here: I also believe it is better to have more customers at lower price points rather than a few big ones. Big ones are difficult to get, and often have bizarre requirements. If you cater to them, you will alienate your other users. But there is a sweet point somewhere: you do not want to go too low, or you'll get customers that have very little money. These not only churn more often, they also often cause support issues. The sweet spot is somewhere in the middle.
- US based business, Boston. Taxes are higher, rent is higher (when you needed rent). Salaries are higher (if you want good people). As the founder, I wanted my company to have great benefits and healthcare. That cost (and I'm not kidding here) reduced our revenue considerably. This is why I'm a huge fan of a single payer option in the US that takes healthcare off corporations. - B2B business with SMB's, average customer ARR was about $3K. E-commerce integration product, so it was a bit of a lift on the technical side with many nuances between integrations. - Support ended up being about 75% of our labor costs.
Anyway. My point was to show that costs can vary wildly across countries, and I was surprised to see how low the net margin can end up in the US.
if so how do you scale your arr? is it retainers
further how did you get your first clients?
I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
Of course it does. It makes the difference between being wrong and being a liar.
>I guess the person taking the VC deal isn't actually against getting filthy rich if they have a chance. If you say "I think this can get big", burn cash and work hard for a while, then recognize the moment where it's not sustainable anymore and scale down, then you did what was expected.
But if at the time you said that you actually neither believed it could get big nor intended to try to make it big, you've committed fraud even if the ultimate outcome is expected.
They'll just boardroom coup you and replace you with someone who will hyperscale up.
It would also hurt their reputation by making it seem like they got duped by some founder.
But it's exception, not the norm.
Board seats, which are often a condition of investment at series A and later rounds.
YC gets 7%, they have zero power to make you do anything.
Selling enough company that you loose 50% control is such a rare thing that it's not relevant to what most founders will experience.
This presumes open and direct confrontation, which means the relationship is going bad, and which I’d speculate most people would rather avoid. You’re forgetting a bunch of things, like what the investment terms might say about it, what your reputation is going to be down the road, all the ways people can apply lots and lots of pressure, how important networking can be, and the fact that in some cases the investor is providing other resources and/or might be the gateway to future investment. Getting to a place where you’re openly ignoring your investors and calling for a board vote to overturn them is a last resort, and is playing Russian roulette, not the first thing to try if there’s disagreement about their advice, right?
The board is not controlled by shareholders. The board has a fiduciary responsibility to act in the best financial interest of the shareholders as a whole. But they (the board) essentially have full authority to decide what that means to them. Shareholders are effectively powerless outside of court, except for whatever power a board intentionally briefly concedes to them.
Disputes with investors about the direction of the company are rare. Disputes about how exactly to aim that direction happen often. In my own experience, VCs and large investors have this leverage:
* Future investment. A major investor pulling back or not participating in the next round usually will result in worse terms, lower valuations or, the round not happening.
* Legal issues. Investments come with terms and conditions, and they are rarely, here's $5m, do what you want.
* Restructuring. From time to time, you need to have investors be on board with restructuring debt or the company. If you are at odds with a major investor, they are a whole lot less likely to be helpful.
* "We'll make it hard for you" Everything from investing in competitors, to introducing key people to job opportunities to guiding customers elsewhere. Yes they have a fiduciary duty, but when they think that duty requires management to change direction, things can get ugly.
Finally, investors talk to each other, and you piss one off, and they will poison the well with many others.
When you’re a public or funded company you have no choice. You must grow until you pop. But if you’re some small private org, you can carve out a very comfortable niche.
What you really gain by not raising capital is freedom to pursue a less risky operating approach and a lower bar for a positive outcome.
It's just glorified contracting at this point.
You also have the option to automate yourself out of a job or hire someone to reduce the time you need to spend on the business.
As an employee you trade time for money with no ability to sell or reduce your workload.
That's not freedom. What's not freedom isn't richness. The attached price tag doesn't matter.
Of course being a small business owner is not really compatible with 2-4 week vacations, BUT.. you are empowered to make that decision. Maybe you just drag your laptop with you and stay reachable / keep things moving along, but from whatever sunny location you've decided to holiday.
Not much different than my last 6 day vacation where I had my laptop & work phone, and checked in on any urgent fires every morning & evening back at the hotel...
Sure, high compensation is only available in major cities with a thriving tech scene, but that's pretty much any major city.
Of course this is for very senior roles. But if you have what it takes to found and manage a start-up, you should have what it takes to be a leader in an established organization too.
Must be a bot indeed. Or maybe, just maybe, someone with a different experience than yourself.
One reason that hasn’t been mentioned yet as of this comment: ownership. Your startup is yours. You have the vision, you run the business, and there’s nobody to blame for anything but yourself.
When I was doing game development I got frustrated with the yearly post-mortem where we’d identify what things didn’t go well and what we could do to improve, only to make the same mistakes the next year. The company was relying on ambitious and hard-working people like me to keep fixing the same mistakes and avoid having to do deep planning and make hard decisions early.
With my own company, I still made mistakes but they were my mistakes to make and fix, and I never had to pull overtime to fix someone else’s mistake. I was far happier making a lot less money. (Up to a point… you can’t live on nothing. :P)
There are other benefits like doing both customer relations and engineering, which can make you better at both, and the slim potential for a large payout of FU money, among other things. Running a business isn’t for everyone, but wanting to and being willing to take all the responsibility is one thing you can’t get as a normal employee.
Of course you can also have shares and dividends but the same applies to being a normal employee in a normal company.
This is not always in the best interests of the company, because it doesn't incentivize the founder to stay as much. But it can be healthy for the founder's psyche to not have to have all of their net worth tied up in illiquid startup stock.
Also, I don't think this is as frequent as the crazy days of 2021. Where you could retire off of a Series A with not much revenue
Doing it yourself puts you in control of the expectations.
Taking money from a firm is really just a camouflaged “employer:employee” relationship and the desire for larger returns, “more”, will always trend toward a disregard and exploitation of the humans doing the actual work.
There's two axes. One axis of the matrix is what the founder wants. The other axis is what the business needs.
The business needs axis is continuous:
- Some businesses obviously don't require outside capital (e.g. founder is equipped to get a sellable product built by themselves).
- Some businesses require tons of outside capital and cannot be bootstrapped; self-driving cars is an obvious example.
- Some are in between; e.g. many b2b products require a baseline level of features / complexity with active competitors that's hard to achieve by bootstrapping.
If a business requires a significant amount of capital AND the maximum outcome is e.g. $500K a year, then it shouldn't exist. This is why VCs ask what the market size is.
Some founders think raising outside capital is a "win". They want that external validation and then convince themselves and/or VCs that there's a big outcome on the other side (or, in the ZIRP 2021 era, get convinced by VCs). This is a mistake -- the only external validation that matters is market validation.
Instead, founders should think of outside capital as a necessary evil, and make a clear-headed decision as to whether the benefits of capital for their businesses is worth the cost (in the form of preference and control -- or at least influence). And it should be worth the cost by some significant margin, because outside capital is often optimizing arithmetic mean outcome whereas the founder is often optimizing something closer to geometric mean outcome.
I should have phrased it as venture capital, which is structured to look for unicorns.
There are other forms of capital that are appropriate for businesses with a high chance of returning a moderate gains instead of a low chance of extraordinary gains.
That's a big if, and no guarantee that it's easier to pull it off than if you have VC money. Let's assume for a second that VC brings nothing to the table other than money.
The numbers are different for every business, and I'd argue that SaaS customers at $10k-$15k are not easy, because you need high-touch sales for that, but you can make various approaches work.
The main point is that VC-funded (or YC->VC funded) startups are not the only way to achieve success as defined by financial sufficiency. Arguably (and I would really argue) they aren't even the best way, if you take quality of life factors into account. Or if you care about your customers/users.
Depends. When a company is subscale it's purchase price varies wildly. This is because standard revenue x multiple thinking just doesn't make sense when:
* you are buying the team (leaders, skill positions, etc)
* you are buying the tech (which may have great value in accelerating go-to market or adding competitive advantage)
* The small company holds key contracts
* IP has great value
As companies grow, they tend to get valued more traditionally...
There are several noteworthy exceptions to this generalization.
If you retain board control, you’re free to run a lifestyle business and pay out dividends to you and your investors. Plenty of VC funded companies have founder-controlled boards.
Also, you can negotiate a buyout of your VC’s and shift to lifestyle once you fail to grow.
Even though we had a working software product and demonstrable 20% MoM growth, we couldn't get investors interested. I learned (the hard way) that what you need to do is put the dollar signs in investors eyes and manipulate their greed in order to convince them to cough over their money. Of course, it isn't often described that way - they say things like "we need to de-risk the investment" and "expand the total available market". But really what they mean is they're only interested in businesses that are shooting for billions of dollars and have a solid plan on how to get there.
If I ever go into business again, I'm staying far away from VC.
Yes on the first. No on the second. You can still sell the business like a small business at a multiple of Ebitda. Standard early-stage terms shouldn’t give investors the right to block an exit that returns their liquidation value.
N=1 example at least to the contrary... I read this a year ago.
https://twitter.com/robgo/status/1559517843388977152
I don't know who the company was, what the terms were, who/if were other investors, etc. But as I read it... the company was venture-backed, didn't really create (or pivoted away from) something that was "venture scale" but otherwise had built a good business.
The end result however, was not shutdown/get acquired.
By building a good business, the company gave themselves optionality with their current investors and seemingly got to a good outcome for everyone.
If you know your business is not going to be venture scale... there are probably better sources of capital out there for you to leverage if you need it (or bootstrap). Stresses that create less stress, less friction, etc.
That being said - venture or not... don't forget to build a good business.
Disclosure: NextView is one of our investors hence why I stumbled upon that post of Rob's back then.
> If you raise VC money, the above scenarios are considered a failure
Rings particularly true.
My side company doesn’t make much right now but it’s growing and one day I could see being able to go full time on it. However there is no scenario that I can imagine where taking money (even if someone wanted to give it to me) would be a good idea. The business just doesn’t have the potential to justify the investment. It could grow to support myself and maybe even a few other people but never to a point where it would make investors happy.
I wish more people went the bootstrap/self-funded route without the intention of selling from day 1. That’s the other gross part of our industry, making something you have no desire to run long-term, just making it attractive enough for a larger company to buy. Those businesses are rarely sustainable.
As I’ve grown older the idea of “winner takes all” or “creating a business just to sell it” has become less and less attractive to me. I’m not saying I wouldn’t “sell out” if the price was right but there is a difference in my mind between those two things (creating to sell and choosing to sell).
The sad thing is that some really cool ideas (that aren’t “winner take all”) do require a substantial, to me, amount of money to get off the ground. I spent time on a side project with a few other people until we realized that money transmitter licenses we would need pretty much required outside investment. Things like that really suck and I understand investment in those cases a little more.
The most successful people I know fell into category two, and all struggled for more than a decade each and had multiple mentors, but ultimately took out loans (from banks, friends, etc) that weren't based on owning shares; none relied on VC. None of them are billionaires, but they are solid decimillionaires (if that's even a word) whose businesses practically run on autopilot.
I think the author makes excellent points that I thought were common sense but I guess they are not, however I don't know a lot of techie entrepreneurs anymore, they are all much younger than me (mid-50s). All I know about younger startup folks is based on scanning HN for the past decade, but it seems they are all chasing the brass ring the same way the author describes. And the truth is in the numbers.
Group 1's long-term success/survival is contingent on timely exits and timely access to future funding, which historically (i.e. during all times + places, except 2008-2021 in SV) is a pretty volatile commodity. Group 2 develops fairly portable skills that they can "sell" to the market whenever they want to give up on building by themselves. They can compound in a way that's uncorrelated from LPs' appetites for risky allocations.
It's like comparing a firecracker and a candle. Although they both depend on combustion, the goals of the two groups are almost disjoint.
[Founders] need to ask themselves, and be honest about, is: do you want to be rich, or do you want to be king? Because very very very rarely can you be both.
Some founders legitimately care less about money than about ensuring that their business stays in alignment with their long-term vision/mission. They certainly want to be successful, but a removal from the leadership position in their company would, in their mind, mean personal failure, no matter how much gold they can expect to line their pockets with.
I will say I'm probably somewhat biased as, we went through YC, and yes if you don't want to be VC-backed, then don't do it. Maybe the title should be "You shouldn't raise Venture Capital, buy my course instead!"
That being said, the beauty of YC, SAFEs, and seed funding is you don't have anyone on your board. You get to decide what you want to build, how you want to build it, etc... The point of joining YC and raising money is because it helps you figure out what to build/not to build, and to build faster, and YC is REALLY good at helping you sort that out.
There are founders out there who realized they've built a product that doesn't have the unicorn potential and pay back their investors. I'm pretty sure Daniel worked at Gumroad for a bit, and that's what Sahil did.
Again I find it really hard to take advice from folks who have "something better" to sell you.
We do this all the time when considering a change from one product or service to another. The potentially better offering tells why their way is better, and why the other ways are inferior. Then they sell us their way.
> I'm pretty sure Daniel worked at Gumroad for a bit,
huh. Yes he appears to have been Head of Product. So I'd say the abstract for https://smallbets.co/event/4019ad11-d5db-45dd-a341-a0f130378... goes beyond salesmanship and is willfully deceptive. Unless he joined Gumroad after that video was produced? Hopefully he'll see this and comment. And update the abstract.
One comments says that venture funding is rocket fuel. That's true, but only if you actually have a rocket. You probably don't: you have a VW bug, or maybe a BMW. Almost no one has a rocket.
Anyway, I honestly don't understand the craving to hit a $billion business. It's completely unrealistic - it's just not going to happen. Creating a business that can support you, turning over 6-digits (instead of 9 or 10) is much more realistic. You won't get VCs on board for that, nor do you need them.
I think what the author is missing is that founders could have massive exits in the previous bubble in Series B rounds and walk away with millions. With that possible outcome available it's rational for founders to play the bubble game.
Otherwise, I agree, defining success as building an $X billion revenue business is completely irrational when there are infinite many success scenarios between 1million and $1 billion in revenue that you miss out on once you over grow your business' expenses.
You're right, I think. What I get reading this thread, and other sources, is that VCs will trash perfectly good VWs and BMWs trying to turn them into rockets. The reason being that only rockets have value to them. VW and BMW business are failures. E.g. a .1% chance at $1B is actually worth far more to a VC than a 100% chance at $1M even though the EV is the same.
1B is 10^9. 1M is 10^6. So we need a factor that takes away 3 decimal points. A percent is already taking away 2 decimal points. We need one more. So .1% of 1B is 1M because 9-3=6. I was correct.
I think I see your error: you read .1% as 1%. I applaud you checking the math, even if this time you were wrong.
Fantastic. :D
Definition from Paul Graham essay Startup = Growth:
Going by the definitions stated by Marc Andreessen and some of the YC Partners, product market fit is when you don't really need to spend marketing dollars because your product is growing so organically (with minimal marketing spend) that your team is barely able to keep up with the growth.
Chatbase is a very good example for a PMF product, one that comes off my head, and that didn't require any VC funding. On the other hand, I remember a YC startup launching similar in the summer, but I don't remember its name now.
Algolia is just a search provider. Supabase is just Firebase with better UX. Figma is just a drag and drop design tool.
* I will be entering this reply into "most HN comment" contest running at the end of this year
Do you want to try to go to space/the moon or whatever, for reasons like the personal glory and (mild) fame, the satisfaction of building the thing, the importance of being the person at the center of it all, the joy of changing an industry, etc?
That's the rocket: big big plans and you're kinda in it for the work.
Or, do you want a plane to a nice beach where you can relax? Because the fastest route to get enough money to relax is probably not via building a rocket these days.
Some caveats here: the successful (read: very lucky and very good) rocket builders do get the opportunity to relax, and often on a different level than the people who saved up and bought airplane tickets. But the 'great rocket builders' famously rarely "want to relax". And the vast vast majority of rocket builders don't actually directly succeed, but many do parlay it into savings for that plane ticket. But overall it's much easier for a random person to save up for a plane ticket than build a rocket.
A founder should get funding through selling equity (to VCs) if the risks are high. If the risks are low, the founder get funding through debt, even if you're "building a rocket". Or bootstrap, if possible.
What every VC dreams is to get equity in a low-risk venture. Because the return is high, but the risk is low. That's why there is so much marketing that convinces founders to pay with equity.
I am not 22 and I have never gone through YC, but many friends have. I would urge any young founders to try to do the same.
The reason most successful CEOs are older is due to experience and networks. YC, even if your startup fails, gives you both in spades. It also gives you some financial stability you might not otherwise have to attempt this moonshot. If you don't have capital to spend on pay-to-access communities let alone fund a startup then YC makes a good offer.
If you manage to fail and pivot multiple times, you've just had a crash course in multiple areas, maybe even multiple industries. If you can't get lucky, you can at least get wise.
So the "you" in this article might actually apply to me. I'm older, I could self-fund my own work for quite a while, and be happy with a modestly successful business. But the "you" in this article is not general. If "you" are young, hungry, willing to sleep on floors, eat ramen, and want to pursue your dream with a possibly naive passion, then yes. You should join Y Combinator.
What about resources in general? Like, settled and more money to burn?
But contrary to the article, I did get valuable non-financial rewards from these experiences. I wouldn't trade my rock-band experiences for anything. Twenty-five years have passed since the last time I seriously got on stage with my guitar, but my old bandmates are still my closest friends. My PhD taught me so much about how to tackle big ambiguous problems, how to think deeply about things, how to be patient when clarity comes slowly, and how to drag a hard painful project over the finish line. I also made career contacts that were invaluable later.
It sounds to me like YC might be worth trying once, especially for a young person, and when you get to the point where you have to pivot, you should take what you've learned and bail. If the terms of the agreement make that impossible, then maybe it is a bad deal.
This argument is very disappointing and dishonest. The piece repeatedly implies and assumes that every YC-funded company that isn’t currently valued at over a billion dollars is a failure for the founder.
This ignores the fact that many companies are still growing and will cross that threshold in a few years. It’s also not an honest representation of all the smaller acquisitions to call them “failures”.
Twitch’s acquisition wasn’t quite for a billion, but it was a massive success for its founders. There are many other companies that exited in the 9-figure range, for which this is true. Plenty of others excited in the 8 figure range and were still better outcomes than if the founders had just remained employees. Even those whose startups went to zero usually end up fine in terms of career.
What percentage of Daniel’s students have built unicorns? Have any or are they all, by his own metric, “failures”?
Once again, a much broader issue than just YC! The author could have written the exact same article, just with VC instead of YC.
So one path you take the startup route where you dedicate 10 years of your life going deep into a single idea in hopes you are one of the 1% to come up with a $1B idea. That dice has a $10M EV. (actually exaggerated high bc you are unlikely to be a sole founder, unlikely to monetize the full $1B of a unicorn yourself, and 1% success rate is for YC cohorts.. which you have an X% chance of getting into to start with!).
On the other hand you can focus on T-shaped skills in software engineering & domain expertise, possibly some entrepreneurship.. you course correct that career year to year in a 30 year career, possibly changing jobs every 2/3/5 years as appropriate. Let's exaggerate and say you have a 25% chance of making $500K. That dice has an EV of $125K.. peanuts!
The $10M EV dice you get maybe 2-3 rolls in a lifetime versus ~40 rolls annually at the $125K EV dice option. This still sounds like the first EV is better - $25M vs $5M!
However 97% of EV=$10M dice rollers get $0 over there entire life. Hypothetically every EV=$125K dice roller will win 7.5 times in their life because they get so many rolls.
It seems to me the fetishizing of youth and 20 something founders whereas the optimal path for an INDIVIDUAL might be to roll the boring $125k dice for a while, building up savings and experience.. and then try a few rolls of the $10M dice later in life when you may actually have realer ideas, a professional network, etc.
People on HN, they first complain about paywalls and then about entrepreneurs mentioning their stuff.
This is not exactly a place full of selfless altruist types.
Do you think all of PG’s essays aren’t pitching you something?
"BUT YOU JUST WANT TO SELL YOUR COURSE!!! Ahahaha, you caught me! It’s true. I do have something to sell you. I run a community for small-time entrepreneurs who are satisfied with reliably attainable mediocre success. The YC folks feel sorry for our joy with mediocrity while they’re out there changing the world. And we reciprocate the emotion.
So yes, I am promoting something that goes against everything YC stands for. But if you think YC is not also selling you something, I have a bridge to sell you. But maybe I’m being a bit too harsh. Because what is it that YC is selling you exactly?
Me, I charge you a one-time payment of $245, and you get access to my community, which includes live workshops, recorded classes, a group chat, and a few other things. It’s very clear what I’m doing. I ask for some money in exchange for access, and those who give me the money get access. Even my 6 year old kid understands it."
That's a definition of ergodicity I've never heard before. Ergodicity usually meant the phase space is fully occupied; in other words, a system tends to go through all possible configurations and sometimes irrespective of initial conditions.
[1] - https://medium.com/incerto/the-logic-of-risk-taking-107bf410...
If your life experiences do not depend on the initial conditions, then people all have about the same chance of reaching them.
Anyway, to the YC point about pivoting and digging a hole: Daniel has 0 experience with YC and this is absolutely not what YC encourages. YC is more than happy to see you pivot. You have the driver seat and you know best.
Do I agree you shouldn’t take VC money so easily? Yes. Do I agree everything applies to YC? Definitely not. Hell, pick your VCs well and you won’t face any of those problems.
I also own a metal recycling business. It is on track for USD 10 million revenue with about $1 million EBIT. This business has a low risk, it is cash-based and generates cash every month.
Basically, working with the startup are almost a charity. Yes, I like going to various universities, yes, I dicussing Deep Technology but my main source of incone and wealth comes from used beer cans.
Why do I need more that $500K pa? I will be dead soon enough.
Economic returns of VC-backed companies follow a power law distribution. This means that the vast majority of the returns for the VC are at the "fat head" of the distribution. The "long tail" does not impact returns, for the VC.
However, for the founder, those returns in the tail can be life-changing. It takes a $5B exit for YC to care. But a $5M exit can be real money for the founder.
So the correct math, from the perspective of the founder, is not "what % are unicorns" but rather "what % sell for more than capital invested" and that number is likely to be closer to 50% than 1%.
The relevant metric is not exit price, it's ratio of exit price to pref stack; i.e. raise $40M and sell for $50M, founder is worse than if they raised $2M and sold for $10M.
Another point they make is what I call "shots on goal". Investors will have tons of shots. That's the nature of investors. If your a startup founder it's tempting to think you have "one shot" but that's nonsense. Every day you have shots, every client call is a shot, every product decision is a shot.
One of my classmates was a co-founder of a company that had a near-$100M exit (acquired) ~10 years ago (back when that was real money). That sounds like a lot, right?
By the time the VCs took their cut, the equity grants were deducted, and the founders split the proceeds.. it wasn't life changing money.
The money wasn't much different than a typical equity grant at a FAANG for a 30-something dev. Especially after 5-10 years of effort. And then you might be stuck working for the acquirer for some contractual period before you can exit.
It was also one of the many ZIRP businesses that would never be bootstrapped. That is - gain a bunch of customers by giving away services for free in hope that you somehow get so many that you can ... do something, later.
But when I calculated out how much an exec would make for a diluted $1B exit compared to working at FAANG for the same amount of time... FAANG turned out better many times (unfortunately).
I think preventing dilution should be one of the highest priorities for founders for themselves and for retention. Every single dilution event sets the outcome bar higher and, thus, harder to achieve.
Say you co-found with 1-2 others, so you start at 30-51%. You want to attract some good talent, so you give away 10% to early hires. Each funding round you give up 15-25%. You can see how your equity can quickly get below 10%.
Zuck managed to hold onto ~30% but your typical control is much lower these days. Musk had 28% of Tesla at IPO. Kalanick had 8% of Uber at IPO. Foley had 6% of Peloton at IPO. Splunk 3 co-founders had 5-7.5% each at IPO. Butterfield had 8% at Slack IPO.
So you may be foregoing 10 years of $700K FAANG comp for a ~$80M payday (8% equity of $1B unicorn exit).
To me it raises the question if non-founder startup equity is basically worthless. If a founder ends up diluted down to 8% at exit, what happens to the 0.5-1% shares you get promised at hire? 0.06-0.125% ?? So your first senior engineer hire into a unicorn equity might end up worth a grand $1M at IPO? Ouch. Go grind some leetcode and work for FAANG and make that in 2 years.
This is a bit nitpicky, but:
* Some of those 4,000 may end up super successful but haven't yet; this isn't considering lag.
* Ten heads in a row is 0.1%; this is closest to six heads in a row.
I agree that your odds are low, and you should consider how much you care about a small chance of a massive success. But the odds do matter!
How can people ... adult, not in their early 20s etc ... afford to quit their job, and still feed themselves and family and pay mortgage ... to go off for months to a year to build a product to bootstrap something like that?
If you get into Y Combinator or whatever, there is at least a partial answer to that. Though clearly it comes with some really intense "strings attached."
This seems like a yawning gap in technology and it biases the set of solutions and products out there to those things that feed the VC furnace.
Work on it part time or save money beforehand by living below your means (which you really should do anyways but that's besides the point).
They can’t. That’s why bootstrap capitalism is largely a myth. When you scratch the surface what you often find is inherited wealth. If a person starts with a free house or a million dollars they have a massive advantage.
It’s not just about setting realistic expectations but also recognizing how often there are opportunities which only people with assets can take. For example, being married to someone high income with health insurance means that you are able to take a chance even if it won’t pay the bills immediately whereas someone else is limited to what they can do on the weekends.
This is what I don't get about today; just owning a house with some extra space, an internet connection, and being young and not having to work because your parents can support you into your 20's already gives people a huge advantage.
But loads of people enter their 20's deep in debt, living paycheck to paycheck, etc. Little or no innovation can happen in those conditions, let alone starting families and the like.
Same with e.g. Netscape. It started as a fork of Mosaic, already developed and paid for by a team.
Anyways, largely agreeing with you. Rich parents or favourable conditions generally play into it.
The other thing is that these conditions also tend to bias things such that even for the people who "bootstrap", they're young; which means that experienced, "wise" engineers ... who generally have lives and responsibilities ... are on the whole excluded. Which I think has a deleterious effect on the kind of products/projects that can make it to market.
Being born to parents rich enough that you could pursue an expensive education at a prestigious school, possibly beyond a 4 year degree. And then have the luxury of falling back to "living at home" with parents who own a home in a HCOL area where all the action is like NYC/SF/Seattle/Boston. And finally falling back on parental skills or connections because being in a HCOL area, they are distinguished professionals themselves who can give you legal/sales advice or hand you your first customers.
My parents handed me the newspaper with lawn care jobs circled when I turned 16. If I didn't succeed in college, and get a good job.. living-at-home would be in a shared bedroom with a younger sibling in an exurb.
And I was STILL lucky, probably in the economic top 10 or 20%, because I had a home to fall back on, 25% scholarship + 50% family funding which left me with minimal loans.
Most of these success stories are from kids who started in the 5% and got into the 0.1%.
Depending on what you did the first 20 years of your career, it isn't unreasonable to be 45 and have enough savings that going without pay for 12 months is feasible, especially if you come from a well off background. This is doubly true if you have a partner that also has a job. Also at 45 you hopefully have enough professional contacts that getting a new job if your business fails isn't impossible.
Another option is to bootstrap in your free time and then quit your job once you have your first customer. I've had at least a couple of colleagues that have done that.
The problem is that to properly bootstrap does mean there's things you'll need to pay out of pocket for that aren't just your own labour: for me this would be things like UX / graphic design, hosting costs, etc. That stuff can add up.
There’s a similar vein of story which repeats frequently in the news where some young couple has a “we bought a house in our 20s!” feel-good story and it’s like “I packed lunch every day, only went out to eat once a week, and we lived in my parent’s investment apartment for 3 years rent free” where the Calvinist tone directs all of the attention to the first part.
If you're building interesting things in an area where many people are annoyed with the status quo, you can according to my survivorship bias have money thrown at you, which then becomes self-reinforcing, since you can put more time into the project and find more success.
But there's admittedly a chicken and egg problem. I only got to that point by not having much work-life balance.
You do like what Tony did here: https://news.ycombinator.com/item?id=37622702
Make several weekend projects, improve your selection criteria over time, take what works, and throw away the rest.
I mean, from Vassallo:
>...YC wouldn't have a measly 1.25% success rate, or thereabouts.
From YCs site "39% of YC companies have raised a Series A". If success is only going over $1bn them him and all his students are failures along with 99.99% of the population.
>The biggest indicator YC is a bad deal is that only people who are easily duped take up these deals.
Again from YC "Every 6 months over 10,000 companies apply to participate in our accelerator and we typically have a 1.5% - 2% acceptance rate."
The main problem with YC would seem to be the difficulty of getting in. Fair enough starting VC style startups isn't for everyone but there's no need to lie about YC to flog his dumb course really.
The content in the article isn't inaccurate or misleading per se, but it's also basically repackaging well understood information about the economics of startups and venture backed businesses.
Further, the author asserts that, if you're trying to optimize your personal economic outcomes, you should not pursue venture funding. But this wrongly assumes that money is the sole motivator people have for starting a business. Further, it ignores the massive economic value that the venture ecosystem has created.
Some people want to retire early. Some people have bigger ambitions. Neither group is right or wrong, but, if you're starting the business, you should know which group you're part of.
The subtitle of the post is: "Or why YC is good for the economy but bad for your economy."
The bakery around the corner from my house has been around for the past 20 years. It makes a bucketloads of money every day. The guy who runs it is in complaint-mode 24/7. BUT he still runs the place, he still NOT innovates, he still sells good, tasty, average, boring bread.
Perhaps Daniel wants that. Good for him. The same for the "community for small-time entrepreneurs". Good for them. But if someone has the next Dropbox-potential idea, you better hand out with this crew here, than that crew there. Because that crew there will settle for mediocre, while this crew here will aim higher.
- Those who think of VC funding for a startup as the "default mode" and haven't considered a "slow burn"/lifestyle business/bootstrap/whatever alternative buzzword approach.
- Those who already agree with the indie hacker/no-VC style approach and Daniel's writing appeals to their confirmation bias. It's a feel-good piece for them.
Indeed.
Maybe old founders of YC can chime in but I do not think that someone that has that entrepreneurial spirit to have a start-up would gave up to a small-bet approach.
If we count all skills/perks/network of being in a YC program (seeing from the outside) it's a very hard sell to this folks.
There are several folks that at the same time could not take the BigCo. 9-5 could not take the solopreneurship/bootstrap as well.
Personally the idea of small-bets would not work for me due to the nature of my job (low-stress environment, high pay, a job that fits in my lifestyle and transitivity around countries with my set of skills) but I see the point on the approach.
There's a third way. Don't take VC, but hustle and focus on excellence and growth.
If you need capital, realize there are other non-dilutive sources. Or that perhaps you can achieve similar results with far less money than a speedy VC-backed company.
Think: what if I were not <demographics statistically favored by VCs> and did not have access to VC? How would I grow this business?
Think: how would the Mailchimp founders ($12 B exit), or the SAS founders, or the Epic Systems founder have solved this problem? Think: am I even aware that many (most?) multi-millionaire tech founders did not raise VC?
Look to non-tech industries for inspiration; VC typically doesn't fund high-growth companies, like Spanx, that are not tech companies. Then get big anyway, on your own terms.
The dichotomy between VC or small-time is false.
This binary thinking is beyond stupid. It is a reasonable thing with hard work to become millionaire and to earn more money than what you need. It is a reasonable thing to work on interesting problems with interesting people.
Once you have enough money your are not going to get happier with more money. On the contrary, with billions in the bank you can not do normal things because people could want to kidnap your family, and people around you are faking all the time their true intentions. You are being asked for money all the time and so on. You can trust nobody.
Most people that get into YC are going to get enough of those good things, but not too much, and this is going to make them to be in the top 5% in the world in satisfaction.
Maybe he needs to unlearn the idea that you need to go big or go die.
The best note that I saved that someone else wrote: Know What You Want. Do you want to build a lifestyle business? Do you want to grow into a company with employees? Do you want funding? An exit? You should figure these things out. Decide your own goals, don’t let someone decide it for you.
Also, even those who do not net any financial outcome, how many of those founders would say they regret going through YC? Guessing they have built a great network, learned a ton more than they would have as an IC at a big company, and are well positioned to do whatever they want to next, even joining a big company after all.
Big opener, controversial take, put a thing down, just to build your own product up by comparison, lack of nuance... from the get-go you can tell it's a marketing piece.
The premise imo is wrong.
> Silicon Valley is a non-ergodic industry
How do you define this? Obviously Daniel's take is on the founders that failed, that were stressed out by investors etc. but he doesn't talk about the thousands of people with the highest paying, most comfortable job they've ever had. People that switched from manual labor to customer support or programming. Or the thousands of minted (multi-)millionaires that got there by just working a comfortable 9-5 for 5-10 years? (in fact, he may be one of the beneficiaries of a SV style system, through his AWS career that sounded like it landed him enough money to start on his entrepreneurial journey – not so non-ergodic now...)
And of course, he loses credibility because he is selling his course. The whole point of the blog post is to sour YC and siphon off a few readers to his course. Kudos to him too, I mean, that's marketing, and it seems like that course is great too! But, imo, he is not taking the high road here.
YC has a great track record at helping people succeed. And if they didn't succeed, it opened doors. YC foots the bill for you to explore an idea. Sure, you can be smart enough to get into YC, but still naive enough to believe a religion-version of YC, about changing the world and something-something vision; then again, maybe you are smart enough to know what you're getting yourself into. Or you should.
Because on the other hand, there are plenty of people peddling get-rich-quick schemes out there, and how you can make it on your own, "just do this thing". Life's tough out there, and going solo is a difficult journey (something not mentioned often). You work for a company, or you work with investors, you are protected / sheltered. Choose your own path, for sure, but also recognize the pros and cons and how nuanced this situation is.
Per the article itself, Y combinators is actually a good deal if your objectives and theirs align.
If they don't, don's sign up.
Also the sky is blue.
But then he says that pivoting doesn't work either. Wasn't pivoting, in his analogy, deciding to dig for treasure in a new place?
1) after digging a deep hole, or even a mine, deciding no treasure, and starting a new mine
2) checking whether the shovel breaks the surface easily, and moving around till it can dig
It may be true VC want diggers to see how deep the mine can go before giving up, it may also be true VC want diggers to scrabble around surface area at the start until there's at least some sign of purchase. Those aren't exclusive.
If you've already decided you want to build a unicorn and are willing to make take that <1% chance of success, YC will help you. If you want a lifestyle business, you could probably skip YC (though you probably wouldn't get accepted even if you applied with that idea anyways).
So if one project becomes successful, the principals can pivot to that and drop other ventures?
YC promotes one path of doing so (the VC funded path). If your incentives as a founder aligns with YC’s values and interests, then it can be a great value add.
But for every company that’s a fit for YC, there are a lot of companies that absolutely aren’t a good fit (e.g. if you’re planning on bootstrapping, you should steer clear of YC).
There’s no 1 right way to get a business off the ground.
(“You” being the proverbial “you”)
There's not enough time for a single person to dig everywhere and it'd likely be a low payout if they did.
The push is that YC won't find the exact same idea and none others. It's a spread to maximise the tiles of people digging.
Actually more like why you shouldn't make a startup and instead live a bit longer. Then, if an idea comes to you, it'd be vetted through more experience and time.
And if you still want VC funding, just remember the house is setup to always win.
> So, digging in one spot is a dumb strategy for the economy of the individual, but a very wise strategy for the collective economy of all individuals.
First starts with the idea of diversification and why its good. Fair enough. Then an argument how a mining company could "just hire individual miners to do dig in one spot for cheap". While the individual miners are getting poorer you'll get rich! So why don't mining operations operate this way? Because there isn't an unlimited supply of stupid people to do waste away their lives for you to capture all the value.
> This is what happens in a non-ergodic system. We often hear politicians claim that the GDP is growing, but all the gains are going to the 1%. This is the same thing. The wealth of a country could be growing, but almost all the citizens could be getting poorer. There’s nothing inconsistent with this. The average is simply being dragged up by the freak outliers.
I'm fortunate enough to be living in a country with a growing GDP and I can tell you, life is pretty good here, even if you're not 1%. Sure could be better, but certainly great compared to countries with a contracting or stagnant economy. But cool, overstate your claim that the system is rigged.
> One of the bad learnings you get from YC is that there’s a formula for success, and it looks like this: First you do some brainstorming. Then you come up with a good idea that can scale to a billion dollars (otherwise what’s the point of getting out of bed in the morning?)
I was never part of YC but I read a lot of their literature and listened to a lot of their members, and this is opposite of their advice. The gospel is do things that don't scale and solve problems you're familiar with or have felt personally.
I guess my biggest gripe with the post is that the author sees founders as basically dumb diggers, a stupid exploitable resource that places like YC take advantage of. His bar for success is unicorn and only 1.25% of companies funded by YC make it. But would the other 98.75% have been better off working on optimizing ad placement at Google or something similar?
Sure taking VC money doesn't make sense in a lot of cases. If you can build a cash business without it, you probably should. And YC is definitely one of the better VCs from what I understand and have even pioneered the SAFE which was a huge step up from some contracts founders were asked to sign in the past.
YC is fairly relentless about iteratively finding product market fit but as far as pivoting goes - while YC makes it clear that you can pivot, it's pretty obvious that it's not ideal (but if people don't want your product, that's even less ideal). YC most definitely does not bill pivoting as part of a formula for success.
They also care about your idea when you apply, they do not expect you to start fresh during the batch. I honestly don't remember them saying anything about brainstorming, and that's probably because it's not true - most good startups have an unfair advantage in their industry and most founders already have some experience in their field of choice. Throwing a dart at a board and making a unicorn is quite rare indeed.
So this "formula" is mostly a strawman. And notably he tears down pretty much everything but iteratively finding product market fit, the one kernel of truth in this entire rant.
> Think about this for a second: The most successful business owners are typically in their 40s and 50s. Why is YC full of 22 year olds? Why aren’t the 40 year old entrepreneurs taking up this incredible deal that YC is offering? YC will tell you it’s because only the 22 year old kids can be true visionaries. BULL. SHIT.
So I went through YC in 2014 and I was 22 at the time - and I was among the youngest in the batch. Most founders seemed more towards his proposed age range, and to be fair they seemed to have a better handle on things. Go figure. So YC most definitely does not say that "only the 22 year old kids can be true visionaries." At least in 2014, it was in fact rare for them to bet on 22 year-olds.
> You might think that those who failed might still have gotten something. Maybe.
If you haven't founded a business before, it's quite valuable because you don't know what you don't know. Once you're a little more seasoned, I'd say it's a lot more situational.
I think he is treating pivoting as if it's some totally random exercise. Surely a pivot is when you see something within your existing activity that may be a better avenue to pursue? Or am I misunderstanding that?
You seem to be thinking of the colloquial definition of exploitation.
You could still argue it's a bad trade, poor work-life balance etc. but it's not like 1% chance of being a billionaire or debtors prison.
Also, their deal allows them to have interests aligned with founder’s if you just stop and read what’s publicly available.
I will always recommend YC.
* Read Cracking the Coding Interview and practice every exercise twice.
* Publish high-quality content (projects, tutorials, blog posts).
* Contribute to OS in some meaningful way, like owning the packaging for your favorite library for your favorite distro.
* Reach out to people at the company you want to work for, or go to a meetup hosted by that Co.
All of the above is much easier than starting a company.
https://www.nature.com/articles/s41567-019-0732-0#:~:text=It....
They're pretty much the same, and have nothing to do with...
"First, you have to understand a very important concept: in some systems, what’s best for a group is not necessarily what’s best for the individuals who make up the group. In other words, the total wealth of a group of people could be increasing, while almost everyone making up that group could be seeing their wealth diminish. When this happens, we say we have a non-ergodic system. If the system was ergodic, what’s happening to the collective would also translate to all individuals."
...which is how the article defines "ergodic" in the section with that name at the start.
The physics/economics definition is basically that time average = ensemble average. (The term "expectation value" is used in the Nature paper you reference, but that amounts to the same thing.) But individuals do not experience the ensemble average. A condition on averages is not the same as a condition on individual outcomes.
Which could be equal to the time average, and thereby satisfy the definition of "ergodic" that was given, without in any way contradicting this:
> while individuals are unable to realize their expected value because they only have one lifetime.
I am not disputing that this happens. I am only disputing the use of the term "non-ergodic" to describe it, or the term "ergodic" to describe a hypothetical world where every individual experienced exactly the average outcome.
> Some argue that firms should not choose competitive positions at all but concentrate on staying flexible, incorporating new ideas, or building up critical resources or core competencies that are portrayed as independent of competitive position. I respectfully disagree. Staying flexible in strategic terms renders competitive advantage almost unobtainable. Jumping from strategy to strategy makes it impossible to be good at implementing any of them. Continuous incorporation of new ideas is important to maintaining operational effectiveness, but this surely is not inconsistent with having a firm strategic position (xv-xvi)... A strategic position is a path, not a fixed location (xiv).
In other words, there is no such animal as a "fully diversified" entrepreneurial business (unless your business is simply investing money in a diversified stock portfolio). The very concept of a (non-financial) capitalist enterprise implies some degree of specialization. Even YC, to some extent, specializes and focuses their investments in certain high-tech industries.
Ergodicity is not about unequal distribution it is about all every part of the system having same chances of finding gold in the long run.
Both make money off the fact that establishing a successful, profitable business is hard and most people can't do it without some help, especially education and feedback.
He's not really competing with YC, so it's a little silly to target YC. Except, you know, it works well as a clickbait title because YC is a well-known big name, so it's disingenuous but "smart marketing."
YC isn't designed for small bets! That's not their thing. It would be interesting to see stats on non-huge exits though, some kind of distribution showing the following with a time element, indicating, say, the number of months for various outcomes.
Huge exits 1.25% (define huge), Exit exceeding YC's investment, YC investment repaid, YC investment partially repaid, YC investment entirely lost
I also want entrepreneurs to build smaller, self funded businesses but bagging on the VC isn't the way to demonstrate that.
Both paths (and others) can exist at the same time.
The customer, the entrepreneur and (if you want them) investors need to be aligned. Some want huge, some want less huge.
Neither path guarantee success. Starting a business is more like a guaranteed failure (95% or something)