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Comment by smallerfish | Hacker News Reader

Sure it is. If your business nets 3 million a year, it takes 5 people to run it, and your customer base is steady, that's lifestyle. Sucks for investors, pretty nice for you if you can keep it running.

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In other sectors that's just called a "small business" and celebrated as the fullest expression of the American dream. I've always found it funny that tech treats the idea of a going concern with such distaste.

Specifically investors, not "all of tech". And to be fair to them, if a company doesn't grow, your investment is wasted in that company, right? No shade to good small businesses, but they may not be worth investing in?

Venture Capitalists, not all investors.

See https://codiesanchez.com/book/ or https://store.hbr.org/product/hbr-guide-to-buying-a-small-bu...

While I do agree with you, if it took tens of millions of dollars in initial capital to get there, which hasn’t been returned, it’s quite a different thing to the standard small businesses model.

So ... is a restaurant considered a small business? Where do you draw the line on initial investment?

What kind of restaurant takes tens of millions to start? Most estimates I'm aware of are less than 1 or 2 million at the very most.

I imagine some of the themed restaurants in Disney cost at least that much.

Having worked at those, they are shoestring to the core. Guests see beauty, behind it is paper mache and $8/hr college students whose wages are garnished for rent and class fees.

At Disneyland? Where there’s a union for food and beverage workers?

> We perform everything from preparing and creating treats like turkey legs and churros to serving grant and exquisite meals at the famous and exclusive Club 33. If you are eating in the parks, our members are making that happen.

https://workersunited.org/joint-boards/local-50

Disney college program makes up a good portion of workers, and they are not a part of the union.

Edit - looks like 5% but they can only work the unskilled food service etc

A themed restaurant at Disney isn't exactly a small business...

Depending on the restaurant, those may not be independent businesses at all - they may just be one of the attractions at the park.

10x return

Depends on what kind of restaurant.

But the point is that a business model that is "profitable" but actually took millions in initial capital and has no provision for debt service isn't an actually profitable business model.

That’s what I’m asking. Most businesses take startup capital, but where do you draw the line?

If it takes 10mil of funding to get off the ground and it would also take any competitor that to catch up… then you have a moat and can basically make money forever.

Even if you wanted to get into money transfers, the licensing alone is around 1million, and you haven’t even written any software yet or gotten any infrastructure. You can also “rent” someone else’s license but then your margins go out the window.

So, I’m not sure what the point is here. Some types of businesses require capital to start, even if they never scale.

The point is that capital has a cost.

If you’re not carrying the cost of that capital on the books you’re not “making money” at all.

I know a guy who sells kitchens for a living and makes around $2-3 million per year with a profit margin of 60% or so.

But he didn’t spend 10s of million dollars to get there.

Even if he did, that’s not such a bad deal.

Particularly if the brand has value when he’s ready to move on and can be sold.

Or bar owners pulling down similar amounts.

The VERY lucky ones that have been around a long while and own their building, sure.

Also lucky to not get robbed by mafia

This is kind of like tech sales at huge tech old-cos. Sales people there can pull down insane comp if aligned to the right account with way less work than a traditional sales grind.

When you see how VC-funded AI startups market their products ("eliminate artists/editors/paralegals"), it's not surprising that they wouldn't be happy with dividends from a profitable business that employs people. Better to throw the money into a "moonshot" company that perennially loses money until BigCo buys them out to acquire their IP and fire everybody.

My favorite video game company is a little Japanese outfit called Nihon Falcom. They've been around since 1981, have about 65 employees, release exactly one new game a year, and if you've played any of their games, you can tell they're all made on absolutely shoestring budgets. They have also never posted a loss and have an absolutely bonkers amount of cash on hand (enough to keep the company going for several years on their current budget IIRC).

They also make the best story-driven RPGs I've played in my life. And they specifically went the story-driven route because it's cheaper to hire good writers than it is to wow people with AAA graphics or a giant open world or whatever.

More video game companies should be like Falcom.

Ahh good old dragon slayer iv in the MSX

I think people are overly fixated on the fact that a successful small business isn't a workable VC investment target (the winners have to pay for the losers, and even with a conservative portfolio of startups, most are going to lose) and they're working everything back from that.

Other sectors are filled with far fewer people with low empathy for other humans.

Not none, of course. It's just not a near-requirement.

But in a case like that eventually (once the business has become "sustainable") we will be speaking of 1.5 founders (some full-time founder and some guy who just holds some stock because they started together/knows some know-how) and 3.5 Indians/Ukrainians at $40 an hour. With like 60% of cash going to the main guy, domicile in some tax haven and probably that principal founder living in some tax haven, too, pocketing some 1.5M a year after all (minuscule) taxes. Good lifestyle!

I thought that was called sustainable.

Is it sustainable, if it took millions to bootstrap? I mean I guess if it can just keep running, but the investors might not agree if they need to wait 15 years to make their money back.

What choice do they have? If they shot the enterprise down, they got nothing.

I think someone else pointed this out as well, but if the business fail, they can most likely do a tax write-off.

Sell the company to the founder(s) for $1 and write off the rest?

Any startup investment that doesn't return, I don't know, like 5-10x "sucks" in the sense that it's not making the portfolio successful, but that's most investments in the portfolio. Beyond that: what sucks about this outcome? If your business has just 5 employees, chances are your investor doesn't have a board seat; it's not costing them much, they can just hang around on the off chance that you turn the knobs right and find a breakout success down the line.

It's true that investors aren't going to invest in your startup if you tell them that your likely outcome is a healthy, stable 3MM/year. And it would be unethical to tell an investor you were swinging for the fences when your true intention was to bank the money and bunt. But if you really do take a big swing, and end up settling in a comfortable spot, how pissed do you think investors are really? You swung, you missed, that's life in the National Football League.

A real false start on that baseball metaphor.

Just enough to keep going is different from a lifestyle business. Ramen/support low margins != a good lifestyle

3 million a year for 5 person is something like 400k/person after corporate tax. Which is pretty high and low at the same time(unless it is just freelancing). High in the sense that there would be competition and the other company will have more budget to reduce the price and make the entire segment unprofitable till you die. Low in the sense that you would likely make the same or higher in corporate if you are that skilled to net 3 million/year.

Once the competition has initially shaken out in a new category, minority players can hang on for years. Their product could be perfect for their customers in ways that the big guns don't accommodate.

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