Let's All Shed Tears For The Crappy Startups That Can't Raise Any More Money
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I've seen some genuinely awful ideas in startupland, but one has to remember that predicting success is really hard, especially the big types of success like Facebook or Google.
Google itself started as a product with no revenue stream, only a highly ephemeral "well we could sell ads?" one that almost didn't pan out. Facebook in its early form seemed like a website for Ivy Leaguers to fawn over each other.
Both were companies created by green entrepreneurs who also similarly had little to no job experience, nor business leadership experience.
The last page has yet to be written on either of those companies, but I don't think it's a stretch to say they've been two of the greater successes to come out of the "startup system".
So sure, we can celebrate the fact that "we're like Groupon, except we sell trips to space!" (seriously, a founder tried to recruit me for this) isn't getting any more funding. But how many Facebooks and Googles are we going to miss out on also?
And this won't be the end of the "startup crowd" - the sycophantic faux-journalists, the startup-groupies that don't ever seem to be building anything but are always present at meetups and parties, the guy at the event whose description of his company is consisted of 100% buzzword... those guys will remain. This isn't a return to sanity, it's just a plain old slowdown.
There is no original technology behind much of the startups. Not calling any names, but a glorified mailing list or a shopping cart is not original technology, not in 2012. Facebook seems to do interesting stuff with social graph, but I can't help the feeling whatever value they have there goes to relatively tiny set of paying customers (advertisers) rather than to end-users.
Criticism is necessary, but I think this kind of cynicism is mostly counterproductive. I think it takes more courage and intelligence to figure out how to make a blogger-turned-vc effective or find that diamond in the rough that no one expected to go anywhere than it does to say they're stupid.
Companies with good business models or great technology or great ability to persevere or the ability to iterate will always survive. The point of this article is that the clock has already run out for the ones that don't.
[1] http://www.brainyquote.com/quotes/quotes/w/warrenbuff383933....
Everyone is in it to try and become an outlier.
The theory is that we would be willing to invest in 1000 non-Googles and non-Facebooks if it means we can have a shot at having a single Google or Facebook. The "crunch", as it were, seems to be arising from the fact that there seem to be a lot more than 1000 non-Googles for every Google, and even the successful don't seem to be as successful as tech companies in previous generations - which leads to an adjustment in the ratio of failures/successes that you're willing to accept.
That in and of itself is unsurprising, but the natural concern is whether or not we've figured out, even roughly, what predicts success, and if the "crunch" correctly targets clearly bullshit companies, or if it's a general contraction that will eliminate good companies as well as bad.
I don't think anyone is lamenting the loss of bullshit businesses with no plan. The more concerning question is: are we any better at determining future success, on day 1, than we used to be?
Not one person in the universe is going to make a better business decision for having read this article. All it's does is confirm a trend story, snarkily. Congratulations, Dan Lyons, you made the train before it left the station. Can we get on with our lives now?
Meanwhile, back in the real world, history is full of examples showing that one of the best ways to come up with great ideas is to try a lot of different ideas out. This process sucks for all of the people who had hope and will lose their businesses. But in the long run it is better for all of us that they exist.
Sure, historically Silicon Valley has created 10 great companies per year. And many more successful but not widely known real ones. With the frothiness we might get 10 still. But hopefully they are better great companies. With all of the information being shared on how to be an entrepreneur, maybe we'll get half again as many moderate successes. (And the moderate successes are better off without venture capital. Really.) And established companies will get more entrepreneurial employees.
Believe it or not, this is actually a good outcome. It means more startups. More dashed hopes. And on the whole a better economic outcome.
I met a few companies solving real problems. I joined one. Never looked back. Real problem, real solution, real money being paid for it.
Startups are crazy, sometimes hugely profitable companies that sometimes start up with the same money it takes to start a restaurant or less. Sometimes they succeed, sometimes they fail, sometimes they are a complete joke. It's intense and awesome and that's why we are all drawn to it: huge potential. VCs are a part of it and without them this market wouldn't exist.
Not every startup needs VC money but some do and all the investment they have poured into the economy has had a positive impact. Again, I don't get the hate.
Dan Lyons's article is completely absurd (maybe that was the point) but I see no reason to help him or anyone else by posting this ridiculous ant-startup link bait. They all the say the same thing in different ways and they all have this weird, bitter, almost-jealous resentment to them.
I don't know if journalists are mad because they don't get into startups themselves, only cover them. Or because journalism has been fairly marginalized (sad but true) and is undergoing some major transitions... I don't know.
Not to defend the article (which I agree a little too snarky, but will get pageviews) but I imagine that working as a journalist covering startups is a thoroughly depressing existence. If it's anything like my (non-journalistic) interactions with the industry then every interesting, earnest startup founder you meet will be matched by five other over-confident blowhards selling bad ideas with bad polish on top.
I know that I would never have the patience to actually interview people like that, so sometimes I give credit to tech journalists just for not spontaneous combusting at conferences.
The responses you usually see to pointing out someone's idea is horrible is "well, it's hard to predict what ideas will be big, so you don't really know it's horrible. You may be wrong".
Given most ideas are horrible, and most startups fail, the onus is on the guy telling you how "rottenfood.com: Rotten food shipped same-day to your door!" will be the next big thing to provide evidence his idea is not horrible. Usually this "evidence" is in the form of talking points: "Rotten Food is a 500 million dollar industry just ripe for disruption". Then when it fails "the idea was good, but the time wasn't right, but it was a valuable learning experience".
No! The idea was not good. It was horrible. The fact that you think otherwise tells me it was not a valuable learning experience, because you didn't learn the most important thing.
I can't even write up this comment without it turning into all snark, so i'm just going to leave it to the tech journalists :)
There's a saying: "Lotteries are a tax on stupid people". I would extend that to the 'circle jerk' in the Valley. You have people with money throwing it at people with ideas, hoping to win the lottery, basically. Along the way, you get a thousand crappy startups burning out ten thousand 19 year olds who dropped out of school because Zuckerberg did. It's wasteful. It generates companies like Flooze. It's a massive hype machine sucking up all the oxygen in the room, depriving other, more sensible, but less glamourous businesses of resources.
The first comment on the article really captures it: "And you know what also sucks about this whole craziness that went on during these hard years?"
"That minority of mid-career people like me, with both real-word business experience and multiple engineering degrees and realworld P&L and people management experience, who started companies this past 3 years with good solid ideas that can make money but couldn't raise much money due to a combination of age discrimination and the fact that the money was going to young, inexperienced entrepreneurs with stupid but frothy sexy ideas like Gourmair."
Indeed. Lyons also identifies another real cost to the startup mania: "Meanwhile our country is facing a crisis because we have a shortage of students in STEM -- science, technology, engineering and math. Every big company in Silicon Valley is starved for talent. And there is an entire generation of young people who, instead of studying those hard subjects, would rather slap together the fourteenth version of a peeer-to-peer car sharing service or alternative taxi service. Because it's easy and you might get rich quick."
The fact that someone can build a piece of code doesn't mean that it solves a problem. The fact that it solves a problem doesn't mean that they can get money for it. The fact that they can get money for it doesn't mean that the lifetime revenue it generates will exceed the cost to develop. So on and so on...
Achieving these is as much about luck and timing as it is about skill. For most startups there are a few others also working on the problem including legacy providers and other startups. Succeeding and growing in the marketplace is about a ton of factors.
Now we get back to the hero worship. The startup community, from what I can tell, pays lip service to luck and environment and honestly believes that the marketplace is meritocratic. This is compounded by getting hounded by recruiters because your skills are in demand, it definitely helps your ego.
Ego breeds arrogance. Arrogance that is painfully annoying. Arrogance that makes this schaudenfreude so, so sweet.
Top Chef was sort of an exception on their network, which is sad. (Though it isn't exceptionally grounded in what an executive chef does. Where's the gripping examination of the price-list to determine what to buy from the greengrocer? Where's checking the walk in with the Sous to see what needs to go on special today?)
I can picture the show and imagine how bad it is. Their show is "Startups" in the same way that The Real Housewives is about a housewife. It's meant to be a show for people who love nerds ala the big bang theory.
There are real people behind all those "crappy" companies.
I will add that starting anything is difficult and companies like a food delivery service for dogs can easily pivot into an efficient way to get senior citizens their medication, cheaper faster and more efficiently. Many things start small, uninformed and experimentally.
David Heinemeier Hansson put this as succinctly as anyone in the world could, and at YC startup school! - "build something useful and charge money for it; it's not rocket surgery." But despite that advice instantly getting pegged to the top of HN, a huge number of would-be entrepreneurs have ignored it for years.
Dan Lyons has correctly spotted the symptoms but wildly missed the mark on the diagnosis.
You get to a very real point (kinda counteracts what I literally said, but gets to the heart of the point I was trying to make): don't play the startup lottery. Real apps, the apps you generate real revenue on, are those that don't require Series A.
I think the real trick is finding that idea.
People come up with elaborate schemes to avoid doing that because asking for money and being turned down is a form of rejection, and rejection stings. I'll tell you from 15 years in startups, including long stints in companies I didn't run that weren't even part of my identity with customer prospects I didn't even care about: rejection always stings, will probably always sting, and you will subconsciously (to your great detriment) always avoid situations with potential reject even though you know you need to not do that.
The result is a system that converges on stories that can pick up 6-18 months of funding runway without ever demonstrating value from real customers.
There are businesses that need to boot up without asking for money from customers, but they're not common, and when you find one, it will be very clear why you'd defer revenue, and the answer won't have anything to do with monetizing eyeballs.
The problem though, is the glamour of the concept has made people more excited about the status of the start-up... and not the problem the start-up is solving.
In fact the "problem" has almost been ignored. Look at PG's essay from a few weeks ago. The concept of using a start-up to solve A REAL PROBLEM was revolutionary to some, and debatable to others. Think about that for a moment. Looking for real problems to build a start-up around was revolutionary, and debatable. To me that says a lot.
So my question... can anyone name one great entrepreneur who did it for their love of doing a start-up, and not for the passion of "The problem"?
The problem is that the specific points Lyons builds on "don't sell cat pictures" are either useless, false, or both. Getting a real job and learning engineering aren't a solution to the problem of selling cat pictures. When you take someone whose first instinct is to build a cat picture app and train him on type theory, the CAP theorem, quorum commits, compiler backends, and linear algebra, guess what you get? Thermonuclear cat pictures.
In the end, the only actionable advice Lyons has that you should consider taking is "avoid long bus rides with Scoble".
To answer your question: which person at 37signals do you think built Basecamp for the love of project management? And how many entrepreneurs can we name who are passionate about dumb problems?
"with great respect, may I ask you.."
"With all due respect PG..."
"While I don't want to second-guess your judgement..."
And these are the comments disagreeing with pg ! Wow. Either internet ain't what it used to be or there's a lot of hero worship going on here.
Come on my fearless conquerors of the Internet. Stand up for yourselves. Show some spine. You're not going to create the next billion dollar business with that sort of genuflecting attitude.
A little shakeout is a good thing. It will free up talent and make the valley feel less trivial.
>Dan Lyons has no evidence of it himself.
Dan Lyons needs no special evidence. The evidence are the shitty start-ups that don't solve any real problems you come across everyday, promoting their launches on TechCrunch (and on others). He is just talking about this painful trend, I hate to say this, but, which is noticeable within YCombinator itself(no offence), off-late.
Great Start-ups look like bad ideas initially, but when they remain as bad ideas forever, its an entirely different story, which is what Dan is talking about, too, I believe.
with great respect, may I ask you, why did you have to kill this article? (I feel you are abusing your power) Why not let others know of this painful trend?? I'm not asking for my personal benefit, I'm just curious, it's a genuinely heart-felt written article.
Sincerely,
Neya
Second, there have always, always, always been weak startups. Lots of them.
Third, anyone can cite one or three facts to construct an argument. But when you do that carelessly, all you end up with is a fallacious syllogism. In Lyon's case, A, B, and C seem to add up to "go back to engineering school".
The same thing happened with your comment here. You look at the evidence and suggest that the problem is a phenomenon that prevents weak startups from becoming good startups. But that's not the problem either; weak startups have never tended to become good startups organically, so it's hard to make a case for the availability of seed funding retarding progress.
Finally, it's not a genuinely heart-felt written article. It's a deeply cynical attempt to capture pageviews by someone with only a peripheral connection to startup entrepreneurship.
This article has a lot of people talking and trying to figure out what works and what doesn't.
Why the harsh dichotomy? Surely one can believe upvotes to be a good filtering method on average while still accepting that occasionally they do a poor job and require some intervention?
(Note: not taking a position on the article itself, but rather the practice of manual intervention)
It's as if he visited a user page for someone he didn't like, saw 5000 karma and said "yeah, but his posts are mostly fluff. I'm making that 3500".
ha ha! I knew you would have commented on this article and tried to debase it even before I opened the comment section! it seems to me that the entire business of YC relies on there being a market for the exact type of start ups that this article describes as a waste of human talent. It is in your (pg's) best interest to kill this article because if there is a bubble, and it pops, YC will be a major loser. Your credibility would be destroyed because YC would be seen as a primary finder of companies.that.have no long term.value. . YC needs a liquid market of shitty start ups to get vc funding in order to function. I'm sure you are aware that even the tinyest hint of.trouble.can pop bubbles, which is.why you purged this.article.
I laughed at your decision to kill the article for a couple of reasons. first, this means that you are aware of the bubble and also aware that in order to prevent new companies from being discouraged from applying to YC you need a zero tolerance policy on even the hint of it showing its ugly head. by banning this article you have confirmed to me that there is a bubble and it is about ready to pop. second, this says a lot about your character and your priorities as a person. you are ok with draconian anti free flow of information banning if an idea goes against your personal interests. for.someone who funds tech start ups, you seem.to.have forgotten.how.the internet works. the Truth will get out. supposedly the voting system.of.hackernews should have prevented a false idea from.getting.to.the front page. if this idea was truly as false as you say it is in your reasons to ban it, it never would have been upvoted. and yet you had to ban it. third, this means that you truly don't give a shit about the.companies or the people that you fund. you know that it the.bubble.is.close.to.popping and.that.it may not be in their best long term interests to apply to YC, but you want their talent anyways so you can profit, so you continue.to cultivate the idea that their stupid business idea is not a problem as.long.as.they pivot.enough.times to.find a similiar, slightly less stupid idea to try to sell to Google or.whoever.
I've been thinking about it for a while, but your response to this.article has confirmed.to.me that I will.never apply to YC. You are not a person who I would want to take advice.from, let alone have any say over.my.life. or how I run my business. I wish you luck, though, and I hope.you can continue to find enough chumps.to.apply to.YC so you can continue.to.fund hackernews.and I can read interesting articles.for.free... so thanks.for.that, anyways.
edit: I know you (pg) won't respond, and I know you will probably shadow ban my account, and I know this comment will be downvoted into oblivion. I also know that you, pg, will read.it and know that I see through your bullshit. and if I can see it, so can others.
Care to publish aggregate statistics on the percentage of yc backed startups became profitable businesses compared to rest of the industry?
EDIT: Apparently I was mistaken. He's not actually looking to engage in a real discussion of yc's business model.
The main point was not what end-point you're aiming (large exits, which btw, are yet to be realized for either airbnb or dropbox) or merely progressively higher valuations in further rounds of funding (let's not argue over how those are beneficial to earlier investors, shall we.)
The point was that hordes of fresh graduates are working their asses off for peanuts with minuscule probability of making up for lost time and income. (That's not even including possible losses to health and any conception of what the real world looks like). Mass incubators like yc and it's ilk are rolling the dice and the invested amounts are so tiny that the only substantial losses are those incurred by the founders.
The counter-argument of course is that the founders are adults and are entering into these agreements of their own volition. That's where the whole issue of cult-like mentality and the callow youth of most of these founders comes into play. The asymmetry in knowledge and power between these founders and investors is vast.
That's why I cheer the writer of the original post for bringing the ridiculousness of the whole situation into the open. Lord knows techcrunch and other tabloids like it are not going to publish anything like that. And that's why you personally applying the kill switch on that post is so distasteful.
Same thing for suggesting YC is all about freshly minted grads. A significant percentage of founders are in their late 20s and older making that assumption of yours inaccurate.
Frankly your post is offensive for painting founders as brainwashed dudes making terrible life decisions as they go about joining this imaginary cult. Do you really believe this?
www.forbes.com/sites/venkateshrao/2012/09/03/entrepreneurs-are-the-new-labor-part-i/
its a long read, but worth it. it basically covers and expounded.upon the ideas you presented in your comment, that the incubators are exploiting the entrepreneurs
but than again I also agree with the original articles premise that there is another tech bubble of stupid companies and it is about to go bust. and I think YC actively contributes to the problem by funding companies with terrible ideas. they want their funded companies to be aquihires because than they get their return. YC doesn't care if the business is sustainable or not as long as it gets bought. that's their schtick: they do the training instead of the universities.
this will affect me if and when I decide to get outside funding because investors won't be willing to invest as much. it will be exactly like after the internet bubble where there is no market to sell investors on the company. that is what concerns me. I'm not looking for an aquihire. I'm not looking for an exit. I'm looking to build a sustainable company that brings value to my customers.
note: not trolling you, these are my actual concerns.
I'd love to hear you expand on that (specific cases? the progression of delusion? were they crazy to start out?).
But these are mostly people in their early to mid twenties who have little to no actual experience in the real world. They seem to believe startups and entrepreneurship was invented by this one man. The fact that after almost 200 investments, there are a sum total of two possibly viable businesses that may end up coming out of this enterprise seems to have no effect on that conviction (and one of them (airbnb) is teetering really close to edge of being unsustainable (pending the question of legal liabilities of renters as well city ordinances etc.)).
It really is a cult of personality with all connotations of the word "cult" coming into play.
edit: I just realized, there is no way that pg can respond to this. he cant confirm my ideas, because that would admit that there is a bubble and would be very much against his personal long term interests. he also can't deny my arguments because by responding to some random troll on the internet ( me), he lends credibility to what I'm saying, which would only confirm that I am at least partially right, which would, again, be against his long term personal interests. his only winning play is to not respond at all. but crazily, now that I've said this, I've essentially tipped his hand. the non response response is now considered a response because I called him out on it. by not responding he is saying that my arguments hit too close to home to respond to. they are not easily dismissed by a flipant comment.
I suppose he could always hide behind saying that he didn't see my response to his response.
... fuck it, pg, don't respond. I hereby declare that you not responding means that my arguments are wrong. I concede.
I also hereby declare that I am just a random troll on the internet and my ideas should not be taken seriously. this is especially true on hacker news because they break the standard circle jerking that goes on. you guys just keep living in your fantasy world, and ill keep on living in mine.
Given opportunities, I disagree with our site's owner probably more often than not, and even I think this site would be better if it was moderated more aggressively and less transparently by him, at least with regards to submissions. This was a stupid story and it produced a stupid thread and everyone can see that, and yet 'pg can't suggest the obvious and react to it without being beset by anonymous Internet trolls, all of whom have valiantly set aside the billions of dollars their intimate knowledge of the tech product market should be making them in order to spend their time here educating us on how exploited YC founders must be.
Stop being such a wuss, Paul, and start torching these threads. Burn them with fire.
two things: 1) I would say all of this to pgs face if we were discussing this. he is a man, not a god, and if he can't handle criticism than he should do some personal reflection and work on that. disagreements are not necessarily bad. 2) you obviously can't counter my argument, otherwise you would have done so. you have added nothing to.this discussion except tried to debase my arguments and ideas by essentially calling me rude. who cares if my presentation is rough if the ideas are good? idiots, that's who. this is life, not preschool.
edit: you edited your comment after I posted. I respond.to your edits by saying that pg doesn't need you to white.knight for.him and you should stop being such a brown noser.
Wouldn't it be funny if that was all it took to get me to shut up? :)
its like it doesn't even matter if you shut up or not.
Of course he could.
He could point out that the meta-comment-game wherein any response whatsoever is considered to "lend credibility" is a silly game, and that in reality, whether or not he chooses to respond to you says nothing about your credibility. Then he could agree or disagree with your actual point, and either confirm or challenge your credibility with facts, instead of engaging in the silly distraction of a side-game.
Your arguments must stand or fall on their own merit.
On their own merit, I find your arguments lacking. In particular, you are lacking concrete examples. The list of YC companies is known (http://yclist.com/ and http://ycuniverse.com/ycombinator-companies). Surely if pg was getting "ridiculous prices for things with little to not actual value" you could identify some specific companies the market overpaid for, and the effect that overpayment had on overall yc returns.
Out of all the garbage that you've written, this is the only thing you are right about.
(I'm referring to tech companies)
Aren't startups called startups for a reason? Some aren't going to thrive, some really suck, others can't pivot their talent and drive toward something grandiose and earth shattering for their next round of investment but all should be better because of the experience, investors and entrepreneurs alike.
The failure rate of startups has always been high, especially over time, right?
"There are also different definitions of failure. If failure means liquidating all assets, with investors losing all their money, an estimated 30% to 40% of high potential U.S. start-ups fail, he says. If failure is defined as failing to see the projected return on investment—say, a specific revenue growth rate or date to break even on cash flow—then more than 95% of start-ups fail, based on Mr. Ghosh's research." via Shikhar Ghosh, a senior lecturer at Harvard Business School http://online.wsj.com/article/SB1000087239639044372020457800...
The argument is that inflationary spending is what causes the boom bust cycle. Inflation creates an initial perspective of prosperity and causes an increase and shift in investment from capital goods to consumer goods. This leads to a self reinforcing bubble which eventually drains the economy and leads to a bust.
Trotsky is effectively saying that the bubble was due to interest rates and Dan Lyons is wrong to attribute it primarily to a character flaw of the persons involved. I don't wholly agree with that, but I think the ABCT does have merit.
You can think of it a bit like amphetamines. No doctor would disagree with the idea that amphetamines produce energy in the patient. The debate would only center around how productive or destructive that energy is.
A good explanation is here: http://krugman.blogs.nytimes.com/2009/05/02/liquidity-prefer...
[edit: wording]
That's describing 99% of bullshit yc stratups. The 1% (or less) which succeed would have done so with or without yc. And they mostly actually involve real business models of charging for a product/service.
Two people's opinions, in my mind, not to heed.. So, somewhere in the middle should be about right.
Let the hate flow through you!
(I'm an business/enterprise kinda guy, and it's been an ugly decade.)
I personally think it's going to come with google glass-likes and powerful mobile computers(read: phones) and have to do with blurring the lines between the internet and real life but that's just a guess.