Interesting article and impressive to see that kind of tenacity. Truly that's a take-away from the full perspective. The other take aways, for me, aren't nearly as complimentary.
1. Want to make a lot of money? Find an out-dated system where grunt labor is worth a lot less than the technology the grunt labor uses, and target this gap mercilessly (call centers)
2. Act like every other shady, fly-by-night, asshole salesman and cold call people without a real product until some sucker from Provo, Utah cuts you a check ($40,000 should be a good amount)
3. Aim to arbitrage a stale technology like long-distance phone calls before any of the competition, pretend getting lucky in such an opportunity is a validation of tenacity ("blieve in yourself" is trite because it's trite)
>Believe that even if you do something stupid like quit your job without a clue, somehow you’re going to figure it out.
...or, you can study up on something called "survivorship bias" and realize most of the "wisdom" in the article is utterly useless.
No, he made a significant observation - the industry was operating at a high price point which was no longer justified due to advances in technology. That's a classic opportunity.
The incumbents in the field won't want to drop their prices by an order of magnitude, even if the technology allows it. Especially if they have an expensive in-house sales force. This is a huge advantage for a startup.
This happened to copiers, computer printers, personal computers, graphics cards, word processing software, CAD software, point of sale software, encyclopedias... Up next, hearing aids.
John you make a very good point. Look for industries where the current market has not kept up with advances in technology due to the business structures of the incumbents. Even if they want to change they can't (e.g Kodak).
Hearing aids might fall into this category, but unlike the others on your list you need to deal with the FDA. The FDA should really be called the IPA - Incumbent Protection Agency.
For hearing aid industry disruption, see iHear.[1] Unfortunately, they run on Kickstarter time. (Like mañana, but without the sense of urgency.) They just slipped their delivery date from Q1 2016 to Q2 2016.
I suspect this slip is due to having to deal with the FDA. If you look through their FAQ and look at the regulation rigmarole they have to deal with just for their hearing test product you will see why this is not an easy area to innovate in. The one thing you can give the medical industry is they have built an amazing system for maintaining the status quo.
To be honest, I wish the FDA was tougher. They're so many drugs, we are currently taking, that are just slightly better than placebo--and that's with fuzzy statistics, and a bunch of questionable studies.
I took so many pointless medications over the years. When I was younger, I just figured if the drug/devise was FDA approved; it must be efficient? I was wrong!
I actually wish the FDA was far less strict. One of the reasons we have so many ineffective drugs is that the FDA values safety over everything else. The ideal drug to get licensed is a sugar pill that due to statical chance (or fraud) shows a slight effect. No side effects and you can sell it to everyone. Of course it wouldn’t do anything, but it would make you a lot of money.
If the FDA was less strict then drug companies would develop drugs that actually worked, but also had side effects (basically we would tip the balance back in favor of effectiveness over safety). While it would always be ideal to have a drug that worked perfectly without side effects, it is always better to have a drug that works than one that doesn’t. You can always choose to not take a drug because of the side effects, but if the drug is not sold then you don’t have a choice.
Phase III drug trials compare new drugs to the best available treatment, not just placebo.
There are also huge classes of drugs that are obviously effective and beneficial (pain killers/nsaids, antihistamines, blood pressure medications, antibiotics,).
Could a company manufacture a device in China, and sell via the internet (also from China) and completely ignore the FDA? I suppose the unapproved devices could be "banned" and shipment could attempted to be blocked, but is that not damn near impossible with the amount of mail coming in from China on a daily basis?
I can appreciate what the FDA does, but sometimes there comes a point where it is preferable to provide warning and education to consumers but let them choose which product they wish to use.
Technically the FDA is not responsible for seizures, but they do deal with infringements. Sure you can get things in that should not come in (after all cocaine and other drugs get in). It is still not a wise idea to start doing this.
>The FDA should really be called the IPA - Incumbent Protection Agency.
the Theranos story i think clearly shows one more time why such protection from "disruptors" is necessary. Unfortunately we still don't know how to do it more efficiently though.
My personal favorite here is FAA - who basically stalled to the complete halt the aircraft development for the last half of century, yet even here i understand the rationale behind it.
It wasn't the FAA. It was all the lawsuits that made the liability of general aviation airplanes completely unprofitable. Aircraft development is still going strong in other countries around the world.
Um, he may have made a significant "observation" as you call it, but it wasn't his idea to research VOIP, to go out and get a device, or even how to implement it in a functional way to enact the advances in technology in a meaningful cost-savings avenue. It's right there in the article:
>And I had the good fortune of Tooter, The Machine and my former boss eventually rallying around my vision with their considerable super powers. To this day, I’m so thankful for each of them.
So in this particular instance, he's much more akin to a record producer creating a hit by lifting samples from other artists and then rapping about himself over the track. You might see it differently, that's fine. I just don't buy the self-directed, "Look what I made" narrative being put forward as fundamental here. Oh sure, it's his "vision" and all, but vision without talent and skill is just daydreaming. So he got some real people do to the hard part, that's a great "leadership" example I suppose.
> So in this particular instance, he's much more akin to a record producer creating a hit by lifting samples from other artists and then rapping about himself over the track.
Only in this case, it was an employee of the same company. His job as the CEO was to get the best out of his employees. He succeeded in doing that. I think that deserves appreciation.
I agree. The first sentence of the article pretty much sums the guy up and the figure is hardly inspirational. Tenacity and the ability to sell as well as to manipulate/exploit others: sure he has those, just like any typical street market peddler in Beijing - only Beijing street peddlers aren't lucky enough to have the opportunity scale of Silicon Valley. But, do these qualities make them inspirational figures? Not in my book.
Not really. This is exactly what happened in the 80s and 90s with Vanilla Ice stealing from David Bowie and Freddie Mercury[1], and MC Hammer stealing from Rick James[2]. It even happened outside of rap with The Verve's Bittersweet Symphony stealing from "The Last Time"[0].
I'm curious, what do you think is new in hearing aids?
edit: Just looked at iHear. I'm skeptical: There's a reason pretty much all hearing aid researchers advocate outside-of-ear hearing aids. But I didn't look into it much so maybe there's something I missed.
> but then found someone who would mail me a check for $40,000, even during a recession, because they were risk-taking business owners themselves.
Perhaps the guy from Provo Utah, instead of being a sucker, really wanted to see something new and better succeed? Just because he paid for something before it was ready doesn't mean he didn't know what he was doing.
Or it actually made business sense for him to use the new product...hey, the small business owner doesn't have to worry about getting fired for buying from the wrong vendor.
1. Want to make a lot of money? Find an out-dated system where grunt labor is worth a lot less than the technology the grunt labor uses, and target this gap mercilessly (call centers)
Finding such a system would require you to have some experience with it, knowing the current problems, and then build a solution for it.
This is the case in the article.
Which is not easy I'm guessing, at least as a developer.
Oh for sure, there have been numerous articles featured here that illuminate how sometimes it takes a business + developer mentality - in the form of different people - to tackle an issue, innovate, and end up with a profitable venture. That's pretty much what I think about with the well-worn maxim of "build a better mouse-trap."
I guess what the framing of the story reminded me of would be somebody looking at the modern shovel, used to dig ditches, and "invents" a new version that reduces the physical strain on the user just enough to get the US Department of Labor to change the mandatory break and lunch times mandated for manual labor, and realizing savings or additional profit through that channel.
I mean, sure, inventing new systems and devices is a really worthwhile avenue, no dispute here! This particular story though, it doesn't quite sit well. Maybe it's from years working as a wage slave and feeling a little bit exploited, but I think there's some implications worth considering outright.
>> Believe that even if you do something stupid like quit your job without a clue, somehow you’re going to figure it out.
> ...or, you can study up on something called "survivorship bias" and realize most of the "wisdom" in the article is utterly useless.
Maybe there's a correlation between people who believe that and those who make it long enough to have internet guys say their success is survivorship bias.
I'm just playing devil's advocate here. I'm an ex-poker-professional who's well aware that survivorship bias is a thing.
> ...or, you can study up on something called "survivorship bias" and realize most of the "wisdom" in the article is utterly useless.
So true...I was thinking more along the lines of "How I Created A $200 Million Retirement Account By Buying the Right Powerball Lottery Ticket" but I like yours as well.
I never meant to imply the guy wasn't driven and had serious business skils...that much is beyond obvious.
Just his ability to cold call so many people and secure a $40k angel investment over the phone shows he is miles above most when it comes to dedication and drive.
My point was..even with all that, it's still a total crapshoot to strike 9-digit gold.
Certainly true. Also worth remembering that only a small fraction of those 9 digits made it into his pocket. Most of it went to his investors (I know John IRL).
Not sure why you think those 3 points aren't complimentary. They seem like great + useful takeaways. No, they aren't new, but they are useful.
Regarding your last point: nothing is a sure thing. Of course survivorship bias is a thing. Of course believing in yourself/ability to figure stuff out isn't a sufficient condition for success. But, maybe it's just a necessary one?
Well I'll freely admit that the 3 points I'm not fond of is directly a result of, rightly or wrongly, preferring stories of tenacity to feature sympathetic characters who strive for and achieve success through merit "idealistic" avenues and behaviors. Those areas I mentioned felt a lot like short-cuts, in that glorifying "cold calling with vaporware until we get enough money to actually make software" doesn't strike me as a useful example, if morals are of any value to the person taking action. It just didn't sit right with me, and thus isn't an admirable aspect of the narrative.
On the last point: Of course nothing is a sure thing, and not once has success come from "believing in yourself" trumped "talent and hard work" without straight up dumb luck. Whether starting a business, playing the lottery, or testing gravity by way of jumping off a large building, I think "believing in yourself" is flat out useless. Or, in a different way of phrasing it, "believing in yourself" is about as fundamental to entrepeneurship as waking up and getting out of bed - of course it's necessary, but that doesn't make the "you can do it too!" framing any less vapid.
Many (most?) successful business like this come from people who live and work in the industry for several years noticing the inefficiencies along the way. If you're a technical person, networking at professional events is a GREAT way to find someone that's identified one of these problems who needs someone to bring it to life.
I live in a world full of people that love talking about doing things, but very few of them actually do anything.
This is how I moved to SF. Talked about doing a startup with friends. Move out there and they'd all rather smoke weed and get drunk than work on our project.
Happens in every facet of life as well. People talk about going to Europe, but never go. Talk about getting in shape, but never exercise, etc.
Dreams are great, but if you act on them you might fail. Or it might actually take some thing to accomplish those dreams. Sad that more people don't follow through.
So true. I have a similar story, and can add that people use all sorts of things to not work on the project. Smoking weed and drinking are common, but I have found analysis paralysis to be very common in smart people. Executing is hard for a number of reasons, and the hardest to get over is that you'll likely prove your idea sucks and was just braincrack [1].
Facebook acquaintances. Lives diverge, it's not a big deal. I still consider them friends, just not close friends like they were before moving out there.
I worked very closely with Five9 for years. I can say that every company has their flaws but the key thing I took away from my time with them is that technology is in service of business goals, not the other way around. There were always discussions of what a "perfect" system might look like, and, every time, cooler heads prevailed. They simply did what was needed to meet their business goals and there's something admirable about that clarity.
Is Five9's product the best in call centers? No, but it's about an order of magnitude cheaper than the top product and works most of the time.
For those reading this article and wondering about a niche area that is in need of innovators:
LIMS - Laboratory Information Management Systems.
Here's the deal. Most manufacturing companies (think Big Pharma, Petrochemical, Chemical, Widget manufacturing, anything really) measure quality. Those quality measurements are probably done in a laboratory. Every laboratory generates data. All that data needs to be managed well so that the laboratory can maintain its accredidation.
Basically, LIMS systems manage samples and lab result data. In addition, they probably integrate with Instruments and instrument software to automate some of that data entry.
Other industries besides manufacturing are Govt (waste and wastewater treatment labs), Third-party labs (labs that do testing for other companies), Healthcare (clinical labs), Forensic Labs, and more.
Bottom line, there are tons of laboratories and they all need to manage their data.
The players in this space are downright stuck in the last decade. There is so much opportunity here for a few new players.
As someone who has sells a LIMS module for DNA sequencing the problem is the people that run theses systems do not like change. You need a scientific background to run these labs, but the work is very routine. The personalities that gravitate towards being a lab manager are the personalities that really, really, really like systems to stay the same. It is a very tough sell to get them to use something new no matter how good.
You are correct. Change is slower in this industry. That can be both a curse and a blessing. For validated environments (FDA-regulated industries such as Pharma), it can be downright glacial.
I am doing something like this (aimed to QA/contract laboratories), it is in pivot phase with first customer, replacing pen and paper system (for laboratory doing 500 samples a day).
Speaking of the "glacial pace" of change of people in this LIMS space (and other industries), as well as the comment that states that someone saw people still using Windows XP, I wonder if it is simply that these people have really no use in changing technology that really does not change their lives or their customers'.
For example, why don't they change the Air conditioner in the building? Or the coffee machine? Well, maybe because it really does not make a difference which one you get. It's still just fine.
So the issue is not replacing Windows XP with Linux or whatever or a better UI in Angular or [your favorite framework]. It is coming up with a better business process. But if the processes are restricted by regulation, then by definition then the process cannot change too fast in LIMS and other similar industries. Therefore, why replace Windows XP?
However, what about "doing better Lab-ing"? Whatever that means. What about better Marketing for Labs? What about better analytics to track folks who should be getting their next labs but won't because they forgot to go to the doctor? What about helping these Labs with problems I cannot seem to comprehend because I am not in the Lab industry?
Seems the issue is not in LIMS itself (the clinical aspects), but on what is around the problem of doing the business of Labs.
Interesting. But is part of that also that many labs may be stuck on older gen operating systems that newer software would need to support? Thinking of a recent visit to a hospital that was running WinXP on their machines.
Hospitals run their own version of LIMS called LIS (Laboratory Information Systems - go figure). The common practice is to partition off your lab network behind a firewall. The reason is because many of the instrumentation vendors still run their instrument control software on legacy OS versions and cannot be upgraded, as well as the fact that the operation of these systems can be critical to the organization and there is usually little to no redundancy due to cost. That being said, there is no reason that a modern LIMS/LIS system cannot be integrated with these legacy systems. In fact, that is usually what happens: An organization's central IT group puts just enough money in the budget to upgrade to the latest version of the LIMS, but doesn't include any costs for upgrading of instrumentation control software.
"I created a horse-racing simulation game in Applesoft BASIC in Manhattan Beach Middle School’s computer classroom and ran a small gambling operation."
Great story about a successful business that gained tremendous value based on domain knowledge and grit. But you can't say you knew nothing about software.
Yeah...while creating a BASIC game may not seem much to professional programmers...it's a world of difference from people who know nothing about software fundamentals, such as how code is just text files. Or the concepts of loops and functions. Or the necessity of telling a program exactly what you need it to do, as opposed to learning someone else's software.
Was kinda sad they eventually replaced these Apple IIs with locked down macs you couldn't really program on. Might be heresy but they really should load up school companies with development tools instead of SimAnt or Oregon Trail or whatever. SimAnt was fun but I'm pretty sure I didn't learn shit from it.
Short version: Convince great software developers to work mostly for stock options ($150K for 3 employees) and “harass [them] into programming day and night,“ while selling promises that they will need to back up with working software.
The amount of risks everyone in this story took is pretty psychopathic. It's not sane, but those are the people who make it big. Those are the people we reward. Those are the people who get away free when the entire mortgage industry collapsed in 2008.
...and for everyone one of these success stories, there are probably 8, 10...12 or more stories of people who totally failed and ended up with $200k in debt still paying it off from failed startups.
There's a side not talking about on Hacker News and it needs to be.
Hey, that's what I thought too, but you do need someone to sell customers and investors on the concept. Also it sounds like he had a huge product and project management role as well.
You can distill this article into two key insights:
1. Find great people to believe in your vision. Without the two amazing coders to help him, he wouldn't have made much headway in the project at the beginning. To be able to convince brilliant developers to quit their job, sell their house, and move across the country takes an incredible visionary to convince such a skeptical demographic as the brilliant developer.
2. Get people to buy the thing you want to sell before you make it. He had $150,000 from a wealthy financier before he had a product to show for it. To be able to secure capital and then worry about delivering on it is a much more tenable problem to solve than trying to build a business without some sort of capital to live off of while you develop it.
There's a third really important insight here: "Know thy product area." The author of the article may not have known anything about software, but he definitely knew a lot about call centers, as did the coders who were working with him.
I think the difference for me here was that they took money to create a known solution to a known problem. Theranos, on the other hand, seemed to have claimed to have already had a solution, when in reality they were pursuing an unknown solution to a hazy problem.
(And by "hazy problem" here I basically mean that Theranos is pursuing something that sounds like a problem (medical testing) but is actually a large number of only somewhat related problems. For me, going after a known problem would have been picking one test, or a small number of them and then nailing that before expanding to adjacent problems.)
The difference is between implementation/engineering, which is what most software companies are doing, and invention/science, which is what Theranos is trying to do. It's OK not to build something before selling it if you know that it's possible to make it, but just haven't done it yet because it would take time/money you don't have. It's not OK if you don't even know if it's possible.
This is how you know he's good at sales. Always ask for a referral at the end of every call.
> Then I called him back and asked him, as calmly as I could, if he knew of anyone else at his newly acquired startup that might want to create a software company with me. I reminded him that I was good at selling shit. He introduced me to “Tooter,” who, it turned out, was heading my way to go snowboarding in Tahoe.
I hate to judge a book by it's cover (or an article by it's title) but good lord... All it's missing is "this one weird trick".
Edit: Ok now that I've read it I can say I judged it fairly. Survivorship bias to the max... This guy got lucky and the article doesn't really touch on anything he did that you wouldn't already expect...
The day trader pointed to a picture of a small jet on his office wall and said, “I want you to help me buy this.” He then wrote us a check for $150,000 on the spot, and we were officially funded.
Inspiring and really like this. Sometimes, you just need that one person to believe in you if you don't have the means...
More than believing in you, it speaks to the importance of empathy.
That day-trader didn't want to revolutionize call-centers, he wanted a fucking jet. As the business owner, recognize where his goals (getting rich) and yours (getting funding to grow the business) converge.
Single most important line in the entire article: "And that’s really how the curve in our hockey stick began. We finally figured out a way to deliver a product that was 10x better and 5x cheaper."
I would also say that believing in yourself helps a great deal with b as well. Sales is very harsh on the ego. I am always impressed with how sales people can handle the level of rejection they get day in and day out. I am a very good closer, but I am not too good at taking the abuse and rejection that is involved with cold calling.
If getting $150k before doing pretty much anything else was standard, it would be significantly easier to create sub-billion dollar companies. I've looked at multiple companies that wouldn't have needed further funding at all beyond about $75k unless they wanted to accelerate growth further, and would have made all of their participants extremely wealthy.
Yup. That's where I am right now. My current project could turn into a successful, and eventually relatively hands-off, business if I had about $50K more in the bank than I do right now. So I'm working on it on the side while I put that together, but it's slow.
That was a great article. Funny and inspiring. Like to see that for a change.
Far as lessons learned, I agree with 6stringmerc on targeting anything where tools are overpriced and investing in aggressive, skilled salespeople. These are proven practices. The first can be tricky, though, because it's often other factors that keep that tech there. Resistance to change, preferrence to deal with mature businesses, integration with horrible stuff (eg mainframe stack), and so on. Not always the case but it can kill startups when it is. Healthcare systems are a good example as many HN posts show.
There is a lot of hustling around in this story. One former bookie with callcenter experience and courage to make tousands of cold calls and one brilliant programmer involved in illegal activities burning bridges (quitting job and moving to an other state) and selling software to the 2nd worst slavedrivers of the 21th century (fast food chains are still worse employers than callcenters).
"Because a SaaS call center product has to have three phone connections ongoing per each call center agent (versus the traditional two in an on-premise model)"
Can someone please clarify why 3 and 2 connections are needed in each case?
In SAS model w/ no voip, a call needs to be made from call center to SAS system that manages call. They both need one to connect customer to call center and another call center software to agent.
Does this sound logical to you though? In 2009? You're saying that the software wasn't available online? The call center had to make a "call" to the SAS system? Could be true but sounds bizarre.
1. Want to make a lot of money? Find an out-dated system where grunt labor is worth a lot less than the technology the grunt labor uses, and target this gap mercilessly (call centers)
2. Act like every other shady, fly-by-night, asshole salesman and cold call people without a real product until some sucker from Provo, Utah cuts you a check ($40,000 should be a good amount)
3. Aim to arbitrage a stale technology like long-distance phone calls before any of the competition, pretend getting lucky in such an opportunity is a validation of tenacity ("blieve in yourself" is trite because it's trite)
>Believe that even if you do something stupid like quit your job without a clue, somehow you’re going to figure it out.
...or, you can study up on something called "survivorship bias" and realize most of the "wisdom" in the article is utterly useless.