Ask HN: Is it really this easy? | Hacker News Reader

Ask HN: Is it really this easy?

57 pointsrfnslyr67 comments

I'm browsing startups near my area and what I'm seeing are a lot of startups that are based on previous big ideas, just applied to a very niche market. Ideas that I'm sitting on the subway and thinking to myself, "Hmm that'd be a cool idea", and then I discard it two seconds later. I have hundreds of ideas written down, and I am so quick to discard each and every one of them as silly because who the fuck would use any of these apps I came up with. Then I see the list of startups and what they are all about and I weep.

How do these companies get funding? Why do they get funding? A majority of these startups don't have a very unique ideas and it doesn't look like many are really making a difference or increasing wealth.

How do startups work? Do a lot of these just get initial funding, get an office, work on their stuff, and if it doesn't succeed, it just shuts down?

I'm honestly a bit confused at how the startup scene works as I have a great idea and I'm pouring my blood, sweat, and tears into it. It'd be lovely to have a small team to work with and I'm wondering how do these people get SO MUCH funding? It seems that every second company I'm looking at has been funded through the roof.

I'm genuinely curious how it works as I'm trying to get my own business going. Can somebody shed some light into the process?

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Working to obtain external financing for a startup is a miserable experience, even for people who are good at it, and for most of the kinds of ideas software people have for companies, usually results in a situation where (a) you have worked your ass off and beaten extraordinary odds simply to land yourself in a situation where you are working a job for a boss and (b) assuming all the risks and liabilities of working at your own company but with incentives that are now tailored for financiers.

External funding for startups has a place, but we'd all be better off if it wasn't glamorized to the extent that it is. The more money you raise, the worse problems (a) and (b) tend to be, with the possible exception of extreme cases where revenue growth and customer adoption are so clear that the glamor of having raised is less than that of having started such an amazing business to begin with. Most companies that raise good-sized A rounds aren't like that, though.

It doesn't have to be that way, and if you're wondering how anyone would go about getting a company funded, it shouldn't be that way for you either. Start your company in your spare time. Scale down the ambitions of your product so that you can accomplish it with the resources you have now. Prove your idea on a very small scale, and, as you gain small amounts of traction, gradually expand your ambitions, which will now often track your returns on running the small business. At some point, you'll be making enough money and have enough apparent upside that it'll make sense to quit your day job.

I stabbed the upvote button so hard I may need a new mouse, in particular for the encouragement for the side project to sustainable business trajectory. I did that. It was, no lie, lifechanging. (And I started with a business which many, many people assume must be a joke.)

I am betting a little more. I have a ambitious startup that has no middle term, is 0,00001% of chance to make me a multimillionaire or 99,99999% of no revenue at all. But in the meantime I am starting a less ambitious, more solid SaaS business, with more equal chances between small loss and decent profit. Ok, I had to quit my job because in top of that I had to learn to code. But my savings are in the most conservative investment (treasure bills). But my idea, if this small SaaS doesn't give me enough money until my reserves end, is to come back to a day job, while still pursuing the sustainable business trajectory that patio11 sugests.

This is similar to Taleb investment strategy, simultaniously doing a highly agressive investment and a highly conservative one.

I probably should have clarified in my post. I'm not sitting here crying that I'm not funded to the moon. I'm just simply wondering how it works and why so many seemingly mediocre startups get so much funding.

"Isn't a press release announcing you got funding tantamount to a press release saying you got a mortgage?" - @stevenf

Where do you find companies that do not restrict side projects in their employment contracts? All the ones I know of set their employment contracts so tight that they may have copyright over the comment you [1] just wrote.

[1] I do not really mean you specifically.

One idea comes to mind in that case. May be register LLC and work for that company in your spare time ? people can have side parttime jobs right ?

Employment contracts also carry non-compete clauses which can prevent you from (a) making anything that can complete with the company in its current or anticipated line of business [1], (b) have policies for outside employment that may restrict all but employments that are completely unrelated to the company (like running a family-owned shop, etc.), and (c) disallow even make plans to form a business entity that the company may consider to be potentially competing with their current or anticipated line of business.

The above is largely coming from my contract from a previous employer. I have seen contracts of at least two other big-name companies and they were similarly restrictive.

[1] AFAIK, the legal definition of "line of business" is quite broad. It was suggested that something falling within the same trademark code would be considered to be the same line of business. Computers and software fall under a single class [2]. So an enterprise content-management system and an iPhone game both would fall under the same line of business.

[2] http://www.tmweb.com/trademark_classes.asp

Just don't work for a company that insist on b and c. I have lot of friends in SV who make iphone apps on the side.

My bet is that they are doing it in spite of their employment contracts, as opposed to the contracts allowing them to do those projects. Let me know in case you check with them. This usually works out because most (statistically) will never make enough money to be a target of a lawsuit.

I am currently full time on my projects, so do not have such legal issues anymore. When I did, I had started looking around to find out which companies have better contracts and who all people do not have such issues. It was largely an empty set. One big-name company had the contract optional with the condition that if you do not sign it when joining, you do not get bonus/stocks in the company during performance reviews (only the base salary and benefits).

I had also posed these questions to several wannabe founders as well as a few successful ones at YC Startup School and elsewhere. Nearly all people in the first category had never read their contracts ever, while the people in the second category became tight-lipped right away and diverted the question. One from the latter category told me that incoming lawsuits are commonplace for his company but that I should not worry about them because lawsuits come only after the company also gets some money to deal with them.

Man, that sounds extreme. Strike out that part from your employement contract before you sign it.

I always would in the future.

FYI: Many companies have turned to electronic signing to prevent such modifications to the contract.

You can still technically modify the contract. Copy it into an email and delete the bits.

This helps. Never knew this before.

Legally you can change any and all parts of a contract (more or less, law superceeds contracts obv.). It's all just a matter of finding a mechanism or method to edit the contract.

You are not suggesting, are you, that they cannot refuse to accept the changes to the contract, which by itself is said to be a condition for the employment?

Sure they can refuse any changes. And you can refuse any changes. But then you don't have a contract, and then you don't have an employement.

So if they say "We'll give you a job, under conditions X, Y, Z" and you say "I don't like Y", they could either say (a) "Well, OK, we'll offer you a job under conditions X and Z" (in which case you have a job), or (b) "Sorry Y is a deal breaker for us, no deal" in which case you don't have a job.

In California companies are much more limited about what they can claim to own of your (unrelated) side project.

Previous discussions (including information about California):

https://news.ycombinator.com/item?id=5210732

https://news.ycombinator.com/item?id=2208056

Summary: It is not so simple.

Since the tech market is still quite good for employees, you could demand, as part of your employment contract, that you own copyright on stuff you wrote outside the office.

In general, talking to customers, shipping software, and selling things to people for money strictly dominate either thinking beautiful ideas or wondering what alchemy would hypothetically make your startup fundable. If you're really, really interested in that question, I can explain it in detail, but I would bet against you liking the answer, so I'd suggest talking/shipping/selling rather than spending more time thinking about what other people are doing.

It feels to me that a lot of these ideas are hackish and serve only the purpose of getting funded, an easy money scheme. There are genuinely unoriginal ideas. An image host. Like hundreds of other image hosts don't exist? Why did you get funded?

I don't understand. When I think of ideas, the perspective I view the idea from is whether or not it solves a significant problem in daily peoples lives. A lot of these startups, don't solve anything.

I'm interested in your extended response regardless of my stance.

Is it just guys that have too much money and fund startups hoping that 1 in 100 of the funded ones will eventually make them billionaires? That's currently what it seems like.

There are far easier ways to get money than raising money for a startup. If two founders raise, say, $500k, under most circumstances they'll work a lot harder and earn a lot less than just working for Amagoobooksoft as engineers. (Remember, it doesn't magically become their money. They'll be expected to spend it on employee salaries, and employees are much, much more expensive than anyone who doesn't have employees thinks they are.) I wouldn't get too jealous of their lot in life, because it will cloud your judgment.

Is it just guys that have too much money and fund startups hoping that 1 in 100 of the funded ones will eventually make them billionaires?

Again, you're letting sour grapes color your perceptions here. Broadly speaking: "Make lots of bets, lose lots of bets, but have some money invested in [without loss of generality: Google]" is, in broad strokes, the model. Note that there is no reward for being original. Google wasn't. ("Another search engine? Please. And their portal is much worse than Yahoo's.") Facebook wasn't. ("So it's like MySpace but with 1/1,000th the users? Great idea, Harvard dropout.") etc, etc.

In terms of what makes a startup fundable: http://venturehacks.com/articles/unfundable-startup

In general, with exceptions which would be pretty obvious to a hypothetical founder if they applied, a hypothetical founder is fundable if:

+ They are located in proximity to investors who routinely fund companies like theirs

+ They are addressing a market with potential to make $10M ~ $100M (seed stage, angels, and early VC funding) to $X00M a year in revenues, at a minimum.

+ They've got a team who "look like winners", for very subjective versions of that. Graduated from a good school, worked for one of a few firms with known high hiring bars (AmaGooBookSoft, etc), had a high-impact role at a previously successful startup (first hire or first VP engineering at a company which exited or is a shoe-in to do so, etc), etc etc.

+ They are clearly capable of shipping great product. What makes a great product? Um, investors "know it when they see it", but suffice it to say that high-caliber design is very big right now.

+ Traction. In brass tacks: $X0,000 of monthly recurring revenue or millions to tens of millions of free users but growing fast. Less at early seed stage, but you should ideally be able to demonstrate it in micro-scale. (e.g. If you can show $1,000 of ad spend got you 4 customers and their LTV is probabalistically above $1,000 then you're in a much better position than if you can't, even if $4,000 doesn't really ring any bells for investors.)

Now, let's contrast this to a hypothetical guy. Guy has big dreams. Guy probably has not shipped a product. If Guy has shipped a product, Guy got 20 people to look at it once, but no one still uses it. Guy lives in the Midwest. Guy graduated from a respectable (but not name-brand) school. Guy worked has worked the last few years as a freelancer. Guy has not convinced a second guy to join him on his crazy adventure. Guy has an idea which Guy thinks is awesome but which Guy has not succeeded in actually selling to 10 customers or instantiating on the desktops or home screens of several thousand users.

Guy will have a very, very difficult time raising funding.

Stabbed me right in the heart. Pretty much what I'm doing now. Thank you for the article and your response.

That's not a penetrating wound to your chest you're feeling. It's just gas. You shouldn't want to get a company funded. You should want to build a company. If you have initiative and drive and perseverance, which you'd need anyways to succeed at a funded company, you're in a lot of ways better off in the Midwest working outside the pageant system.

Want a couple of examples? How about me and Patrick? I'm in Chicago, and Patrick lives in the Tulsa of Japan.

No, the Tulsa of Japan is 11 minutes away on the train. I live in the Norman, Oklahoma of Japan. (Come over and I will give you the tour. It, uh, won't take long.)

Wow, cool. You have a national severe thunderstorms center there?

It's just you hit the nail on the head and perfectly described my situation.

Right now I'm working on a mobile labour job marketplace with a low barrier of entry. Jobs like snow removal, cutting grass, simple errands. House owners can post a task, set a schedule for that task, and set a monthly budget for said tasks. Workers can view these tasks and areas, sign up for the task, at which point the house owner would review that workers profile to determine whether they are a good match. I like this idea because it would enable people to make quick money (teenagers, jobless people) and it would simplify the process much more.

I think it's a great idea and I'm spending every second of my time researching and developing, I'm really excited about this and I really think it will take off.

So that's my situation, just working on a prototype now.

I'm not crying about not being funded, just wondering why so many mediocre startups are funded. Thanks for your response!

Far be it for me to jump right into the fray between you and the 2 highest karma rated people on HN, but here here are my 2 cents:

MVP: focus on one aspect of your idea and just do it. From the ideas you gave above, I see winter and summer MVPs (snow removal, grass cutting) If you have a site ready to go now, go for 'www.grassbegone.com' and get a site out matching grass cutters with lazy home owners. Do the research while executing. If you don't have a site ready, spend the next few months developing www.snowbegone.com, learn marketing (from patio11 - hint, you're not charging enough) and launch at the end of autumn and corner the snow removal market.

Neither will get you funded now but I would bet money that what you learn would put you into the section of Guy who is now able to get funded.

Or you may end up like patio11 and make your millions without needed funding. Or you could end up like tptacek rich, acerbic and full of knowledge.

I prefer "slightly tannic, with notes of tobacco and new oak".

Thanks for the advice. I'm starting September after I finish this internship at a bank which will hopefully fund the next or so year of mine.

I was reading this very interesting thread, and had to jump in here as well. I actually worked (briefly) on a very similar idea last year - basically an Exec clone for the UK. We scrapped the idea after a month, since we realised that you're basically competing directly with existing service firms, and the unique niche of a "mobile tasks marketplace" is tasks that are:

- not doable by a specialised company (cleaning, gardening)

- have a physical component (else they could be done by a VA)

- are more efficient to outsource than do yourself (which seems to rule out pretty much everything)

I came to the conclusion that the only way to go would be to build a specialised services firm, which seems to be what Exec has done (they now seem to just do cleaning). Which is cool, but maybe I'm missing something, since I don't see how they're really a tech startup as they don't really leverage tech in the way that Uber does. But straight services firms make tons of money anyway, so Justin Kan deserves applause for persuading pg to invest in a cleaning company.

Anyway my points to grandparent are:

- I agree, figure out a niche skillset first, then expand

- don't get seduced by the "on-demand mobile workforce" element. It sounds cool, but your target market probably doesn't care about cool. You have to answer the question "who really wants a dogsbody to do generic tasks?"

- Though the social aspect of this kind of business is nice, nailing the supply side is really easy. Unskilled and semi-skilled labour is really cheap, if you haven't noticed. 90% of your focus should be on nailing the demand side.

- read everything you can get your hands on about Exec/TaskRabbit/all their many clones.

- agree with parent's plan. Most local services firms probably suck at online marketing. If you can figure out a way to reliably get online customers for service X, you can then go to all the local firms that offer service X and offer a 10% affiliate deal. I'd focus more on nailing the marketing channel before the product (SEO, AdWords, whatever works - find out if there's underpriced search terms like "best window cleaning firms in Cambridge" and go from there).

And yeah, I've become a big fan of the patio11/tptacek approach. Just need to put it into action myself...

Have you done the math on your marketplace idea? How much would a typical transaction be? What % of that would you charge as fees? How many jobs can you sell in a month and how?

No need to bust out Excel and do any complicated models, but it's surprising how few people even do the mental arithmetic to figure out the volume of business and prices they need to charge to make rent.

For example, most people starting out with SaaS go with freemium with a premium plan of... you guessed it right.. $10/month!!! But, even at a conversion rate of 2% (which is not trivial and assumes you're making something people actually want), you'd need 3,000 users to earn your $600 of current living expenses, ignoring things like business costs and tax.

Do the math.

I'm going to be honest here. I did not do the math. However, I am able to see the need for an application like this in my particular area. There really isn't much, everything startupy related is based in the US so there is a lot of opportunity here in Canada. Many people I know have mentioned how great it would be if there was a central Canadian hub to hire labour. I fully believe in this idea, I have a vision, and I plan to finish it.

I'm really only doing this as a side project, to learn new technologies, to display that knowledge, and ultimately create an awesome portfolio piece if the idea doesn't take off.

If it does take off, that would be incredible.

I want to make it completely free. I want people to be able to find jobs with this amazing app, keep all the money, and keep the interaction between the employee and customer. I don't take any cuts. Registration is free. The app is free. In the future, if it does get traction, I may introduce some premium services or incorporate it. Right now, I just want to experiment with a mobile labour job marketplace.

I believe there are two powers for seeing the umpteenth smiling kitten-apps getting funded.

One reason is the team behind the app has already proven its worth. So while the angel or VC probably won't be crazy about the idea, he/she will count on the fact that the team will either get acquihired by another, bigger fish, or will pivot into something with better chances of success.

The other power is that for every smiling kitten-app you see on TC, there are hundreds that won't make it. You just don't read about them, so you're biased. It's comparable to aspiring actors moving to LA, where they end up serving meals.

The truth is getting funded is hard, even harder if you're new to the game, and damn near impossible if you're new and haven't got traction (read: users) yet. I suffer from the same idea-overload as you. But I force myself to write the ideas down, and keep working on something until I finish it.

So my advice would be to pick an idea you're passionate about, keep working on it relentlessly, and cut down on reading tech news.

> So my advice would be to pick an idea you're passionate about, keep working on it relentlessly, and cut down on reading tech news.

Exactly this. There is no better advice.

So my advice would be to pick an idea you're passionate about, keep working on it relentlessly, and cut down on reading tech news.

OK, great, but what if there is no market for it?

This advice sounds just like, "Do what you love and the money will follow."

I'm deeply skeptical. It sounds like magical thinking.

Somewhere is this are all sorts of assumptions about marketing and sales that just sort of happens.

Not at all. The more projects you have attached to your name, the more you are worth. If you spend two years writing apps that don't go anywhere, but you finish them, and you can preview them, and you throw them on your portofolio and market yourself you can land a really good job.

I really don't see a downside, this is the worst case scenario.

... and you throw them on your portofolio and market yourself you can land a really good job.

The whole point of this is to avoid having a "really good job" and to have a business instead.

I had no problem getting really good jobs. I can get one today. I no longer want to work for other people.

Godspeed!

I'm a marketer/coder myself, I should have elaborated! You're right. If you want to build a succesful business there is a massive amount of validating, marketing and PR involved. In fact, building your app is the easiest part...

>> One reason is the team behind the app has already proven its worth.

I just heard of a startup raising money at a few million dollar valuation with something any programmer could create in one month or so. Surely they understood a business need (which I later found referred to in a two-year old news article) that I was not aware of before. Yet, x million valuation for it?!

To make it worse, the founder says that he'll hire about fifteen-twenty folks and that by itself will raise valuation to a few tens of millions. Someone else also told me that the people who are involved in due diligence for a company's valuation are often merely comparing it to previous startup exits in the same space and at the current size of the company (plus of course largely made up projections).

Looks like there are not so commonly known rules of thumb used for valuation that are being exploited by those who know.

This reminds me that I'm due for the next post in my 'starting Stormpulse' blog series, wherein I cover how and why we raised significant money 6 years after we started.

Would love to read this.

See LMGTFY link above.

No snark intended. Just lazy, sry.

Starting Stormpulse turns up nothing for me in Google. Could you link me? I'm super interested.

Sure!

http://lmgtfy.com/?q=bootstrapping+stormpulse

Just as an aside, I usually see LMGTFY as a snarky, condescending way to send people in the right direction with some chiding for not searching for themselves.

Your post suggests just the opposite, as you seem genuinely happy to help and point people to the blog. Why didn't you just link to your blog rather than the LMGTFY?

Maybe my cynicism detector is tweaked too high today. Congrats on your success with StormPulse.

Agreed. I didn't actually intend any snark. The fact is, the URL was easier to remember for me than the blog link or Google query one, so that's why I used it as I was running out the door. I considered changing it later but haven't had any time. :-P

Thanks for not judging me. :)

PS. Despite everything I still don't think Stormpulse is a success yet. I'll let you know in a couple years. :)

I am so deeply offended by your LMGTFY link ;)

Matt is the real deal. Check out his interview with patio11 - http://www.kalzumeus.com/2013/04/08/kalzumeus-podcast-4-stor...

I have hundreds of ideas written down, and I am so quick to discard each and every one of them as silly because who the fuck would use any of these apps I came up with.

I think the only way to know the answer is to ask people. I've made the mistake of spending time building a product that I and my co-founders really liked, but we never actually asked (in one way or another) if anyone else would pay for it, or even use it. We assumed that because we wanted it that others who were (we thought) like us would want it too.

I have some other ideas for products but before I put too much effort into them I want to go talk to potential customers and see what they think.

I dread this because I'm not naturally gregarious, but I cannot count on my gut feelings about what people will pay money for.

You need to put yourself in your target markets shoes. You have to close your eyes, visualize their day, visualize their life, and see how it ties into your application and whether your application truly solves their problem.

I have maybe 5 apps I use on a weekly basis on my phone. If another app is to make it onto my phone, it better be a great solution to an existing problem.

Asking people if they would use your app is pointless since there is no prototype, and its hard to summarize all the nuances of a complex application in a few sentences, you'll almost always get a shrug and an "Sure, I'd use that" which I really don't think suffices as a basis to build your application on.

People will almost always say "Yeah, I'd use that" because it doesn't actually exist yet.

Find an idea, see what problem is solves, and fly with it. Better yet, just try to solve your own problems, don't think about whether it will make you a billionaire. Worst case scenario is you have a cool project you were passionate about and can add to your portfolio.

"The very best startup ideas tend to have three things in common: they're something the founders themselves want, that they themselves can build, and that few others realize are worth doing." - Paul Graham

Great essay by Paul: http://www.paulgraham.com/startupideas.html

Or go talk them and not guess what their day is like or whether your code solves their problems.

Asking people if they would use your app is pointless since there is no prototype

I first want to know what their actual problems are, not what I naively assume them to be. And I would not discuss a potential program in the abstract, but get feedback on something concrete.

Thanks, but I did that. It was fun, I learned a lot. Didn't pay my bills. I have a lot of fun projects to keep me busy. What I want is an income.

"Follow your bliss" and the endless variations of that are trite.

Passion may be necessary, it's certainly a goal, but it isn't sufficient.

Or go talk them and not guess what their day is like or whether your code solves their problems.

Yes that too, but in a broader sense.

And I would not discuss a potential program in the abstract, but get feedback on something concrete.

Good.

"Follow your bliss" and the endless variations of that are trite.

If you want an income, develop iOS apps. My cousin started writing really simple apps that cost 99c and he's been making a steady 4k a month. Use that money to buy you time to work on your stuff.

When I was talking about 'worst case scnario', I meant it will add to your portfolio, help you become a better developer, and help you land a job.

If you want an income, develop iOS apps.

OK, but now we're far away from just pursuing passion. Now it's do some work for the money so you can afford to do the things you really care about. Which is fine. I suspect that's how it works for most people.

I'm curious, though, how _you_ managed to achieve a successful business. Did you have to work on things you didn't care about in order to fund what ultimately became a self-sustaining company?

Did you manage to create a successful product by imagining the problems of others and offering a solution?

Do you have recurring revenue, or is it one-time sales of a product?

I made money through a lot of sketchy black hat SEO endeavors. Things like content farms, making specific product pages from Amazon categories and working off referrals. Affiliate marketing. Legitimate SEO work.

All of that shit crashed. It was too much to maintain, but it was fun while it lasted.

Right now I saved up money from my job, quit it, and I'm working on my business. I live off of $600/mo total. $350 for tiny room in a place with roommates, $150 for food, rest for transportation.

I have not achieved anything remotely close to a successful business. If I ever need money for rent or food, I'll do a freelance gig or two.

It's shitty, but we're all going to make it brah.

I've read unless you'vew already had a successful exit it hard to get funidng without traction. This artical talks about how much traction you might need. Also, assume your target market needs to be at least $100 million.

http://bestengagingcommunities.com/2013/02/09/how-much-tract...

> Do a lot of these just get initial funding, get an office, work on their stuff, and if it doesn't succeed, it just shuts down?

I'd assume that a lot of these do it in a different order: they work on their stuff (a prototype) first, then get funding when they have something to show off.

(that's how it worked for me anyway)

If you have connections, use them. That's some money. Plus your own and from your family/friends. Office, employee #1-3. Start shipping. You have the appearance of a startup. Now getting a return on the money and time/work is another thing. Good luck!

First question I think you should ask yourself: do you really even want to pursue funding?

It beats coding in my basement covering backend and frontend simultaneously. I'd kill to have a good small team of a designer, backend developer, and front end developer. That would be ideal.

You would trade 40% of your company for this?

I'm not sure I understand what you mean.

Taking funding from a vc o angel comes at a cost - maybe 20 or 40% of your future profits. Nice to have an office, hi end equipment, and a developer or two. I am not judging, just pointing out the other side of the coin.

Ah yeah, it's definitely not worth it then.

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