The Problem With Founders | Hacker News Reader

The Problem With Founders

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128 pointszvanness36 comments

I have to commend TC for writing an article like this, as they are largely the biggest vehicle for turning founders into Hollywood-esque stars and boasting founders as being disruptive (heck, their own conference is called Disrupt).

The central principle of realizing that there are more people behind a startup and we should cherish them as well, is an absolutely awesome thought!!

I just hope that the vision for how we recognize them is not how the author describes in: "We need to find a way to build up the profile of that quiet army of people who are developing products behind the scenes, the engineers and product managers who took risks to build their founders’ dreams." Because that just sounds like what they currently do to founders!

Idea: maybe TC could take the charge and list the founding employees profiles with every company article they write?

I like your idea. I expect if they implemented it they would see that the article gets it wrong on a number of levels.

Take any successful company, Google, Intel, Apple, Facebook, LinkedIn, Yahoo!, Microsoft, Boeing, any of them. Now compile a list of the first 10 - 100 employees. Now take the net worth for those individuals and compare it to the rest of the world. You'll find it lands north of the 99th percentile.

You can pull out exceptions of course, the sales guy at Sun who was worth several million and lost it all through a series of really poor choices, the Googler who left 6 months in rather than vest that first tranche of stock, the Apple employee who gave up their shares to live a simpler life. But for the most part all of those people have a net worth north of $1M. Ask Charlie Ayers, the original chef at Google if he is mad/bitter/whatever because Larry and Sergey are billionaires and he is just a multimillionaire.

The narrative that founders win and everyone else loses is wrong. You've heard about the abominable failure rate of startups 9 in 10 fail. An employee can get a piece of 10 different startups in 10 years if they move from place to place, vest their 25% of their option and exercise it. A founder is lucky if they get 3 shots at the prize in 10 years. Do the employees who are driving around matching Ferrari's in the Facebook parking lot feel bad that Zuckerberg is worth a lot more than they are? Most of them no, they don't care, they are "rich".

Do founders get the 'fame' ? Sure, is that a good thing or a bad thing? Sometimes it makes you a target. I was amazed at how much Eric Schmidt paid for personal security (its in the 10Q) he can afford it of course but really? You have to hire ex-special forces types because you're too tempting a kidnapping target? I personally would much rather be anonymously wealthy than 'target on your back' wealthy.

One summer I worked at IBM and lost my housing just before my internship was up. I stayed at one of my co-workers places for the last three weeks. He had a computer which he used to monitor the stock market, I helped him enter data into it (which at the time there was no Internet). One evening having just gone through a list of number/value pairs (qty and price) I multiplied them all out in my head and summed them, the result was over $2M. I asked him if that was his savings and he said "yup". I couldn't believe this guy who lived in the same tract house he had been living in for years was a millionaire. Where was the fancy car? the lavish furnishings? None of that. I asked him what it was like, he said, "I worry less about the future than I did before."

My point is that the ecosystem that is Silicon valley creates a lot of those kinds of people. People who don't get caught up in the razmatazz and just save money when they can, diversify when their stock value goes up, and accumulate over time. They are usually "employee" types and not "founder" types though.

I think you are correct about the big companies, but I didn't get the feeling that's who the author was addressing. They seemed to be addressing the new up and comers with founders who are stingy with equity and bad at sharing the limelight with their staff.

Big companies were small companies before they were big companies. It is important to understand that as they grow companies issue new stock, that new stock "dilutes" the existing stock, so lets say your a new company and you have Scrooge as you CEO who gets half, and you as the employee get 1/100th. Now while the company is growing and new investors are coming on board, typically new stock gets issued, they get new stock, the CEO's 1/2 becomes 2/5ths and you the employee who is doing great get another 'evergreen' option to keep you interested. So the CEOs percentage drops a lot faster than your percentage as an employee does. It may be that you're stays constant with new options while their falls. But none of that matters if the company is growing and growing. The stock splits two for one and you've got twice the number of shares. If the company is going to become big, you will always do well in a company that has been sharing equity from the start. The math makes it come out that way.

But it does only work if the company succeeds enough to either be acquired for the product or go public. Sometimes you can be acqui-hired and still get rich, there are number of folks who got into Facebook that way early on and have done well, but as always there is timing, luck, and quality. If you are in this valley to "get rich" then my experience is that you won't do as well as people who are here to "do great things." That was made really obvious to me when the company that acquired the company I helped get going hit an all time high, and some of the employees did nothing but hit 'refresh' on the NASDAQ page all day "Oh look another $100K, oh wait, -$50K, or good $200K, oh wait ..." They became completely non-functional as employees. The people who were there to get things done, didn't have that issue.

Agreed! I was just addressing the type of startups you mentioned!

yeh I think that's the point if a large incumbent Telco's share options are returning £80k tax fee (that's the standard one every employee gets not key technical staff).

a start up is going to have to do a lot better than that and more open about the cap table and dilution protection - id expect if they had a good 10x exit I would expect at least 1/2 a mil.

Back in 2000 one vc backed company I was working for every member of staff was a dollar millionaire on paper at one point - pity the coop didn't buy us out :-(

The Valley has changed. If you started in the 1990s, you got real equity and housing costs were low. You could get into the low millions just by working hard and living frugally. It was a different time-- more egalitarian and far more engineer-driven.

The question is: if you're 22-25 now and move into the Bay, do you have a good chance of ending up a made man (or woman)? The answer is "no". It's been overrun by MBA culture and has severe founder quality problems and I don't think it's salvageable.

What qualified as "real equity" back then?

The valley constantly changes.

Your question is identical to the one posed in 1999 during the first 'bubble' people saying "Oh but now it has gotten so inflated and ridiculous, someone moving here now doesn't stand a chance" and yet here we are in 2014 with a bunch of new LinkedIn, Google, Facebook, and other millionaires. In '84 when I moved here it was the 'great semiconductor dying' where places like Intel argued they were a good company because they were losing money less quickly than any other semiconductor company. Or had you been here in the 70's when cutbacks on defense work was the 'death knell' for the valley. What the observations miss is that the value is in the change not in the status quo.

If you move here as a 22 - 25 year old I think you continue to have a better chance of becoming financially independent than you would elsewhere. But its not a 'done deal', there is always luck, choices, and opportunities. Every time something fundamental changes, it creates a shift. In the last part of the 20th century it was the arrival of cheap computation, in the early 21st century the arrival of the Internet. Both created big shifts and opened up big opportunities to create value and wealth. They appear and vanish. I find it amusing that much of the money that went into my house came from Sun stock which, when I sold the last bit was worth very little, but during that time when it was valuable it became a part of my house. I see three candidates leading the next wave, adding autonomy to normally non-autonomous products (cars, trucks, lawn mowers), ubiquitous sensing to achieve better efficiencies in raw material usage (farming, manufacturing, housing, etc) and information economics (changing the way information is priced, bought, and sold). These are all emerging even as we're exploiting the tail end of social and Internet everywhere.

But here is the thing, if your 22, thing about being 'made' when you are 52, not when you are 25. And if you are suddenly "rich" at 25 think about how to make sure you are still rich enough when you're done working for others.

Good chance compared to what? The only "scene" I know of that has a better chance of "making" someone than the Bay area startup scene is Wall Street, but the barriers to entry there are much, much higher.

>if you're 22-25 now and move into the Bay, do you have a good chance of ending up a made man (or woman)? The answer is "no".

Of myself and all my acquaintances in the 21-25 age range, most grads are either:

1.) Working in SV/Tech for Corp X, making 6 figures, and independent

2.) Working in NYC/Finance for Corp Y, making 6 figures, and independent

3.) Post-grad (masters, medical, law)

4.) Back at home with mom & dad, with crippling debt, bombarded with the rhetoric that "millennials don't want to work, can't move out of their parents homes, are selfish," and so on and so forth.

So I'd say it depends on what means to be a "made man." Did the workers who worked for Ford and GM aspire to be the Zuckerbergs and Brin's of their time, or were they just happy to have a relatively stable, high paying job? Were the auto workers of the 50s and 60s made men?

I fully agree with you and I have my theories:

1) The early 2000 dot-com crash + the Enron crash that changed the regulatory landscape to make it harder for companies to IPO. This has resulted in start-ups being formed for the pure purpose of the acquisition route - fund, and flip strategy.

2) I see the Netscape IPO as the transition point - I like to call the eras, BN and AN (before-Netscape, and after-Netscape) which coincided with the commericialization of the internet. Netscape IPO with its cult of the young founder started this trend.

All you have to do is list the companies that were formed in the BN vs the AN era, and get a feel of the 'engineering quotient' of these companies. Of course it also coincides with software overshadowing hardware companies where the former requires less upfront capital than the latter.

The capital requirements have gone down even further thanks to virtulization and consolidated infrastructure services like AWS.

3) Paradoxically larger involvement of the state. All the UC system and other universities occurred due to the threat of the cold war. Almost all the success of technology companies since the 1980s' can be traced back to the investments made in the earlier decades in universities (eps. in STEM fields), infrastructure (inter-state highways) and so forth.

How the same forumula can be replicated is going to be a challenge. Some signs like allowing private companies like Space-X to compete and augment govt. agencies might be the first steps - it will create new markets that will drive innovation.

The American triangular replationship between the State, Universities, and Private Enterprise are the 3 legs of the proverbial stool, and when one or the other legs weakens, the whole edifice starts to stumble.

4) Larger numbers of H1Bs who are legalized indentured labor that makes it harder for them to be confrontational with their employers. Note I myself went thru. the process, so I am not your garden-variety bigot here. My answer to this is to streamline the immigration process to: a) Delink H1Bs' from a spnosoring employer. Allow H1Bs' to freely move to any companies to allow a more fluid labor market.

b) Allow H1Bs' to start companies - i.e. if they get VC funded (as founders, co-founders or early founding member teams), they get immediate upgrade to green cards. DHS can keep a list of certified VCs' where this program can apply, and it can also get a % of equity as a one-time fee (along with other concrete fees), so the immigration department can be self-sustaining, and overall encourge more entrepreneurship.

c) Reduce the 6 year process to 3 years for H1Bs to acquire green-cards, and remove country-based quotas (a holdover from 1920s regulations to limit immigrants were certain undesired countries which is really an anachronism in todays globalized economy).

Note from an IRS pespective, you are as good as a American citizen or a green-card holder after the 6 months residing in the US - i.e. you are submitting full taxes as anyone else, and IRS treats you as a resident.

Eric Schmidt almost surely doesn't _need_ ex special forces guys doing his security. He does it because it makes him feel/look important, or he's paranoid, or he may as well because he has the money and the company may pay for it anyway.

There are plenty of super-rich super-famous people in SV who don't have large security entourages and get by just fine.

Warren Buffet is worth ~6 times more than Eric Schmidt; I don't see him any sort of security escort near what Eric Schmidt has.

The line between need and want can be blurry.

Steve Jobs was a good example of what you're talking about. Ask people around Palo Alto and they will tell you stories about running into him in town. Like the time I was sitting out on the patio at La Strada, within arm's reach of the University Avenue sidewalk, and I looked over at the next table and there were Steve and his daughter having a quiet dinner just like anyone else. And no security forces in sight.

And then there is Chuck Geschke, who was kidnapped from the Adobe parking lot, blindfolded and held hostage for days in real fear of not only his own life but his family's:

http://www.losaltosonline.com/news/sections/news/215-news-br...

(Four part series in the Los Altos Town Crier)

Wow, I never knew about that. Gripping story.

> He does it because it makes him feel/look important, or he's paranoid, or he may as well because he has the money and the company may pay for it anyway.

Unless you have internal knowledge, for all we know he and his family had dozens of anonymous threats due to his role and the company insisted they provide security. Or not. Who knows?

What’s a shorthand way to see this? Credit really only goes to founders when a startup exits for less than $250 million. Under a $1 billion, a handful of the early employees will be able to receive credit. And above $1 billion, the number of early employees who can claim credit continually increases with exit value all the way up to a Google or Facebook, where people will mention and receive acknowledgment for even their triple-digit employee number.

It's right there in the article. This is about startups, not monoliths.

It is right there, and the author is confused. Not everyone cares about "credit", and if you're 100 person start up exits for 4-5x what you've raised to date, its a good day for all the employees.

The "hollywood" people as I call them, the people who want their name in the credits, are not the people you want to aspire to be. Its the people who everyone who has worked with knows they are the 'real deal.' When I did interviews at Google one of my goals was to separate out the people whose mission in life was "to work at Google" from the people whose mission was to do "<some thing>." The former are the 'star struck' ones, the latter are there to do something useful.

When you are in a successful start up, it becomes a bigger company, the people who were there with you and helped build it all know who did good and who didn't. There is no reason at all to be mentioned in Tech Crunch, it adds no value to get 'credit.'

You're making the same mistake as most, however, which is seeing "Google, Intel, Apple, Facebook, LinkedIn, Yahoo!, Microsoft, Boeing, any of them" as typical startups.

They aren't. They're the 1 in a billion exception - so for you to then talk of exceptions is... exceptional!

I'm actually surprised you're making this mistake -- you've pulled out once a generation companies and are generalizing from there. With these select companies, all the early employees get rich; this is totally true. But again, these come along once every 5 years at best. So what? It's still lottery tickets.

Hell, I remember reading (and I wish I'd saved the source) that the US makes roughly 5 billion dollar companies per year. And even at a billion dollar company the first 100 employees won't be rich (where rich is > $1mm after taxes after vcs take their share). So your statistics are just wildly delusional. And remember, $1mm these days isn't even buy a modest house in the peninsula money.

Now of course, live well within your means has been good advice since, well, forever.

   Annual income twenty pounds, annual expenditure nineteen six, result 
   happiness. Annual income twenty pounds, annual expenditure twenty pound 
   ought and six, result misery.

Just as true as when Dickens wrote it in 1850.

I've worked for many of those companys, Intel -> Sun -> { startups } -> NetApp -> Google -> {startup}. I find it hard to call them 'once a generation' as I've seen several in my singular generation.

That said, from the ones I worked at, the first 100 employees of every tech company (and that is important as Tech companies give out lots of equity, others do not) that hit a billion dollar + valuation have made at least a million dollars from their participation. Most multiple millions. That has simply been my experience, and I completely agree its just a data point. It would be fun to have someone with more time to dig to make up that list of 100 of every tech company that is worth more than a billion dollars and check the millionaire/not millionare box. I'd love to see the chart.

I take something completely different from your list: everybody should follow you around =P. You certainly have much better judgement than me.

Definitely goes against the grain of their usual writing.

So much nonsense in one article. If you think the "bar is so much lower" to becoming a founder then stop whining about being one of the forgotten early employees and get off your ass and start a company for the right reasons: finding a market opportunity and making money from it. If you can't or won't, then you can't expect the rewards.

Early employees are important, and should be given credit and fair payment for their work, but their risk profile is far, far less than the founders and investors. Investors stand to lose their investment (which is an accumulation of work) and the founders can lose money, reputation, and time. In my last business I lost hundreds of thousands of dollars of my own money and five year's 24/7 sweat. Every employee walked away.

Yeah. I was going to be upset at getting tarred as a naval-gazing member of the new startup elite, but then realized I make less money and have less social prestige than anyone Techcrunch actually cares about.

I think the article is complaining precisely because many people are doing that; they refuse to be one of the forgotten early employees and start their own company. As a result, you get a glut of startups, a massive shortage of engineers (particularly in the startup ecosystem), and a series-A crunch as many of these startups fail to gain traction.

The market may fix everything in the long run, but usually it does so through failure. The article seems like it's trying to get ahead of the curve and glorify being an early employee before it's popular.

(Side note: I'm currently trying my own thing, but I wonder how well economically I would do by offering to be an early employee for high [>10%] equity stakes. My guess is I would get - reluctantly - laughed out of the office, but that's okay, because I've got my own thing and am probably more well-funded with better tech skills than they are.)

I'd like to add that while I totally admire Gideon Lewis-Kraus and Nikki Durkin for the struggles they went through, their stories aren't the average experience of a founder in today’s Bay Area ecosystem.

For every founder that has gotten seed funding, there are several times that number that haven't gotten anything. I made it to a startup accelerator, so I know that already puts me above the average experience. But for the others...

Maybe they tried it for a year and burned through their life savings. Maybe they worked on nights and weekends and are still struggling. Maybe they quit their jobs, talked to every investor they could, and are still trying. That's the average experience.

And don't forget about the world beyond the Bay Area...

We also need to shift our culture and empower our employees to build their own careers, networks, and ultimately, dreams. Companies should take the opportunity to encourage their engineers to give technical talks, release open-source code libraries, and receive external credit for the work that they are doing.

I get the sense from this article that every startup can be reduced to a lot of engineers chained to benches with a founder (or cofounders) standing gloriously in the limelight, cracking the whip between press interviews and investor meetings at the Battery.

One thought is that the founding team at a startup is likely to be entrepreneurial and initiative-taking enough to seek out these opportunities for themselves, should they want them; though I appreciate the nod to startups who remain in 'stealth' mode indefinitely, leaving a puzzling blur on someone's resume.

Another, that I definitely see folks out and about from startups who are not the founding team, but then I go to technical events and read technical publications, neither of which tend to fawn over the CEO to the exclusion of all else. Should we glorify the Rails developer who built a CRUD app over the CEO who found the money to pay the team, test the app in the market, and ultimately grow the business? No, we should reward ingenuity regardless of the title of the person behind it. But HN does a pretty good job of that, and at its core I think this article is just an argument against shallow tech journalists who prefer a tidy story about college roommates over a messy bunch of talented folks who did great work.

Yes, that's the image the author wants you to take away. It doesn't make much sense though.

For starters, what on earth chains these engineers to their benches?

Startup engineers get weekly emails from recruiters and hiring managers at competitors (and often partners, which really stinks). The pay, perks, and work environments available to them are tremendous and only getting better. If they don't like where they're at, they can be in another job in a fortnight. And if that's no good, they can jump onto the next opportunity until they find a good fit.

For this reason as a founder that went through YC and took a startup from 0 to acquisition in 3 years, I never once felt like I had anything resembling leverage over the engineers in our company. Just the opposite, I spent a lot of time thinking about how to give them the best possible work experience because I knew if I didn't, someone else would.

There's so much that's wrong with this post it's hard to know where to begin.

> The secret of Silicon Valley is that the benefits of working at a startup accrues almost entirely to the founders, and that’s why people repeat the advice to just go start a business.

This is simply not true in today's environment. Most startups fail so at a typical startup, there is no upside for employees or founders. Funding, however, is plentiful and most of that funding is directed to employee salaries. So who is benefiting the most at the average startup? The engineers paid well into the six-figures to work on modest CRUD apps regardless of said app's ability to drive sufficient revenue to sustain a real business.

In other parts of the post the author suggests that engineers (and other non-founders) aren't compensated appropriately, but his argument isn't convincing. Lots of early stage startups (perhaps the majority) don't generate enough cash to fund operations and many won't any time soon if ever. Just how much should folks be paid at a company that, without investment dollars, wouldn't be able to make payroll?

> There is a reason it is hard to hire in Silicon Valley today, and it isn’t just that there are a lot of startups. It’s because engineers and other creators are realizing that the cards are stacked against them unless they are the ones in charge.

There are a lot of reasons companies find it hard to hire in Silicon Valley today. They're too picky and/or focused on "culture." They can't pay market salary. Lots of companies are uninspiring and thus unattractive. Many startups fail at retention. Not everyone wants to work at a startup or live in an area with a high cost of living. And so on and so forth.

Absent hard numbers to back up the claim, the author fails to present evidence is there that there isn't enough talent primarily because individuals are leaving the labor force to start their own companies.

> Founders are not normal people in any of the ways that matter of course. For them, the benefits of building a business are many-fold. They can connect with journalists, advisors, mentors, new business partners, and most importantly, investors...

Note how the author left out "customers." Interestingly, the word doesn't appear anywhere in this article, nor do the words "sales", "revenue", "cashflow" or "profit." For a post that does an awful lot of complaining about how the fruits of startup success are divvied up, I think it's telling that the author completely ignored the things that make a company successful.

I agree mostly with the article, but early stage employees are also investing in themselves.

Young product managers at Google or Microsoft don't get the opportunity to work on big problems. The few young people I've met tend to lack the macro thinking on what makes a product successful. Why talking to users is so important. Why defining a problem is so important. Why retention is more important than growth. Why cohorts are so important and why analytics can be misleading.

With young engineers, they tend to lack the understanding on why striving for simplicity is important. Why thinking in iterations is important. Why writing tests are important. Why the best engineering in the world can't save a product that doesn't solve real problems.

Big companies do teach you these things, but not at the pace of a real startup.

My experience - having worked at both Google and in the startup scene - is that young PMs at Google/Microsoft actually get to work on much bigger problems and have a much better understanding of the macro scene than startup founders. At Google, it's not uncommon to hear "Can't we just buy [famous startup X]?" or "Figure out the benefit for users, and if it turns out to be useful for a large number of people, we'll see if the lawyers and lobbyists can get the law changed" or "We'll just throw 65,000 machines at the problem." As a result, there's a presumption that problems are solvable if we just think really hard and identify the incentives of everybody in the system. Few startups have this privilege.

Where Google really falls down compared to a startup is in micro-level thinking. A PM at Google may understand how a hundred million users behave in the aggregate, but fail to understand how to change one user's behavior. When your sole work experience is at a powerful corporation, you start assuming that people will take your phone calls, and you don't develop the skills of how to cold-call an ambivalent prospect, or how to empathize with a minority user who is really frustrated, or how to focus and prioritize on only the tasks that you can make a real impact on.

For engineers, I'd say Google (and presumably Microsoft) engineers understand far better than a startup why simplicity is important. The codebase, after all, is orders of magnitude bigger and harder to understand. And iterations and tests are common practice as well. What a Google engineer does not know is how to stare at a blank editor window and, in the next 3-4 hours, get something cool up on the screen. They don't know how to duct-tape open source components together into a working, if imperfect, system.

Articles like these always repeat it is hard to hire in the SV. I got a few interviews to do remote working for such startups and some of them said it was not possible to work with me only four days per week (I'd like a part time job). If talent is so rare, why is it better to go with zero hours instead of four days ? (Or maybe I just suck at something they don't want to say and telling me about the part-time requirement is easier.)

it is like, if you have standup comedian talent , people around you will notice invariably and force you to enter into the arena, similarly if you possess entrepreneurship skill obviously including your family can support you... there you take the first step...otherwise enjoy the world of piece...

Off topic: Clothing brand "banana republics" just released a summer line called the startup guy. Even a clothing line is catching up to the phenomenon of "Just start a company"

http://venturebeat.com/2014/07/20/startup-guy-fashion-is-lit...

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