"If every developer was to focus on the very achievable goal of building a lifestyle/micro business – the entire house of cards would crumble."
If that happened, the whole world would crumble, because we wouldn't have any technology bigger than could be built by lifestyle businesses. Anyone who wanted to build a lifestyle business on the Internet, for example, would find that there was no Internet. You wouldn't have servers or routers or clients or backbones or local cable.
Except that instead of a big business doing those things, there could be a network of small businesses.
Each business does a small part of the whole, buying and selling what they need from other businesses.
The reason these networks don't come into existence is the problem of how an interdependent network gets bootstrapped. For example, suppose that gadgets are currently made by a large corporation, Acme, because making a gadget requires designing and making a widget, a vidget, and an xidget, a design for how to put the bits together, and the final assembly, and that is too much for a lifestyle business, and Acme doesn't buy or sell the parts as the whole process is vertically integrated. If there were widgets, vidgets, and xidgets on the market, and designs for building gadgets from them on the market, then there could be lifestyle business building gadgets - and likewise for any other part of the supply chain being removed. However, without any lifestyle gadget makers, there will be no demand for widgets (unless they are useful in another industry).
Maybe there is a business model for helping to bring a network of interdependent companies into existence simultaneously.
Innovation often simply requires more investment (in both human and financial capital) than what a few-man show can handle.
With only lifestyle business you'd also exclude everything that has negative cash flow in the initial stages - except if you think another lifestyler can run a VC without relying on "the market".
Seriously, there are a lot of things wrong in our society, but scalable businesses ain't one of them.
"Survival of the fittest", you mean. There are plenty examples of big companies that failed (or would have failed wasn't it for government intervention).
You're right. By biggest i mean profitability, reveneue, etc. Which is, for a company, an indicator of their 'fitness'. I'm not talking about the loss making whales that had to get bailed out and for whom we are all now paying for..
The big aren't successful because they are big, they are big because they are successful.
Of course, you could argue that the incremental value of an added employee is positive for successful companies.
But there's an opportunity cost, if employees in companies are not developing, taking risks, and focused like they would be if they were working for themselves.
I said - "If every developer was to focus on the very achievable goal of building a lifestyle/micro business – the entire house of cards would crumble."
I stand by that.
To expand, IMHO the current "chasing after the golden ticket of investment" model would crumble.
But we humans are a very diverse bunch. It would be impossible for a few of us NOT to notice large scale problems and go after them.
Therefore, out of the masses of self driven "no-investment" entrepreneurs - there would be a few that would create the next internet, or cisco, or cable.
Under my Utopian ideal there's no reason why anyone couldn't seize and capitalize on big ideas as they arose.
The only difference is that VC's (and dare I say organizations like YC) wouldn't be the hub of the entrepreneurial universe that they now seem to be.
Of course there would most likely be a new hub of sorts. I'm not sure what that would look like. Although a while back I did have some specualtion.
Also, if I'm not mistaken, isn't the "lifestyle business" model the exact route that PG took to success?
He built Webgen/Viaweb an app that solved a problem for people that were willing to pay money for it. He iterated on it, built up the revenue, and then had the good fortune of selling it to Yahoo.
(I'm not even sure if Viaweb had investment did it? Anyone know?)
Viaweb had investment. And it wasn't a lifestyle business - there was a terrifying bit in the middle where they weren't profitable. Plus the investors tried to screw them over multiple times, right up to the point where they got acquired. You really do need to read up on Viaweb's history.
My counter-argument to your post can be summed up in one question: name me one lifestyle business that is consumer Internet, of sufficient scale so as to make the world a better place.
Almost every startup in the 37signals's Bootstrapped, Profitable & Proud series are in enterprise. Consumer Internet companies (which are what blogs like Techcrunch obsess over) have different rules, different scale.
Github is the rare exception. I'm not saying that it's impossible, I'm saying that of the set of startups that have changed the world, it's just ... Github that's a lifestyle business. Every other one has taken funding. What does that say, empirically, about the nature of both models?
Note: I'm not arguing one's better than the other, I'm just rebutting OP's belief that 'lifestyle businesses are the way to go for everyone, woohoo!'
if developers suddenly started acting as a cartel, all that would happen is non-developers would become developers to fill the demand in building new businesses
nobody is saying anything against lifestyle businesses or micro businesses or whatever you call it. the argument is about your claim that capital investment isn't required (although self-funding is still an investment) and that we would have the same world today without the capital markets or the media, just if developers went and got on with it
outside capital expedites growth and development. if you don't do it, the next guy will, that is how a free market works. our entire civilization has benefited from this - how would microprocessors have even been invented, designed and manufactured as a non-funded business, let alone kept up with moores law?
> we wouldn't have any technology bigger than could be built by lifestyle businesses. Anyone who wanted to build a lifestyle business on the Internet, for example, would find that there was no Internet.
I think you're wrong, for two reasons.
First, this same argument used to be used to explain why long-distance telephone service is a natural monopoly — because if two people are using different long-distance phone carriers, then they wouldn't be able to talk to each other! And it's really true, in some cases. There are still developed countries where you can't send an SMS from one mobile carrier to another in the same city. But it's also obviously false in general.
Second, more generally, any relationship that is structured as a coworker relationship within a firm could also, in theory, be structured as a commercial transaction between individuals. http://en.wikipedia.org/wiki/The_Nature_of_the_Firm is a Nobel-winning piece of work about why that doesn't happen; it introduced the idea of "transaction costs". But it might turn out that transaction costs can be reduced to a low enough level that services that formerly required big businesses to provide them could be provided by "lifestyle businesses".
Not if you view a lifestyle business as a lilypad for something larger.
But even better, once you have the knowledge that comes along with building a succesful $10k/month business, you also posses the exact same knowledge that it takes to build a $100k/month business.
If it worked well to self-fund giant companies using the income from small ones, we should see instances of it happening in the wild. There is nothing to prevent that happening now. And yet it doesn't seem to happen. Few if any of the big technology companies grew that way. It seems like if you're good what happens is that your initial lifestyle business just grows bigger. E.g. as has happened to 37signals. But 37signals is not Google or Amazon.
One reason why you wouldn't expect to see this so often in the wild is that by the time you get to be as successful as 37signals, the drive to make speculative bets on shoot-the-moon business plans is diminished. Presumably after your second supercar, you don't so much feel like gambling people's jobs on a Google-killer.
Successful businesspeople may not be risk-averse; they're happy to start electric car companies for the joy of it. Successful businesses, on the other hand, don't think like that.
Yes, I think this is exactly right. The pattern you'd expect to see wouldn't be a small business spawning a large one; it would be one of the principals of the small business cashing out and leaving to start something that eventually got larger.
Ah, but this reminds me. I know three people who have made $500M or more on their earlier businesss who have cashed out and gone on to found new startups. Only one of the three funded the startup entirely out of his own holdings; the other two have other investors involved. I imagine the latter two think that they get more value (advice, connections, etc.) from these other investors (who I think include VC firms) than they give up in equity.
FWIW, the business funded entirely by the one founder eventually failed (I worked there for several years). Arguably, this was a failure of marketing, as we had a small number of wildly enthusiastic customers that never became a large number. Also arguably, had experienced VC firms been in on the deal, they would have made sure that the marketing was done competently.
So I'm suggesting that if you want to start something that you hope will get large, you may be well advised to involve professional VC even if you don't need the money.
Don't forget that you don't have to cash out of a successful business to move on to other things. You can install managers to grow a business once you figured it out and become an owner rather than a doer.
If you're in love with your current business, why would you do that just to take a 1/100 shot at The Next Big Thing? You wouldn't. If you're in love with your current business, you stay. I don't know if most people who get to the "Threadless" level of success with their companies are in love with them, but I bet many of them are.
If you're in love with your current business, why would you do that just to take a 1/100 shot at The Next Big Thing?
Because you might have fallen in love with the idea of creating the next big thing? The thrill, the excitement, the challenge of taking a shot at the next big thing?
Yeah, but at some point it may very well be that you're no longer in love with your current business. It's just become a job. At that point, you can sell it and cash out, or you can hire somebody to run it for you - either way, you move to whatever your Next Thing is.
Ok. I get the strong sense† that Fried and DHH are in love with 37signals. Which may be why they haven't bailed to shoot the moon yet.
So when you say something resembling "you'd expect to see companies like 37signals trying to roll the snowball into something like Twitter but that rarely ever seems to happen", I'm inclined to point out how that misreads the dynamics of companies like 37signals.
† (won't bore you with details, but I have many of them)
I think Fried and DHH are already shooting for the moon in their own way. The kind of people who shoot for the moon are generally not just looking for money, they are looking to "change the world", they are looking for fame.
Fried and DHH make enough money from 37signals. They are shooting for the moon by contributing to open source and writing bestselling business books.
I'd guess those people who attracted investment in the new startups could do so because of the earlier (self-funded? "lifestyle"?) businesses.
Large businesses don't necessarily come from small businesses, but many people who build large businesses were once people who built smaller businesses.
I don't think it's true that people capable of big successes are commonly derailed by the fruits of small ones. Remember how Caesar was particularly wary of thin men? There is something to that. People like Larry and Sergey, Mark Zuckerberg, and the younger Bill Gates are not driven by the desire for luxuries, so no amount of wealth is enough to make them lose interest.
It's not fear that makes Jason Fried/DHH avoid trying to build a really big business quickly. It's a lack of ambition. There's nothing stopping them from taking $10 million from VCs at ridiculously generous terms to try to build a really big startup. Like most rational people they're content to have good jobs and enough money not to have to worry about it.
This is why successful serial entrepreneurs are so revered. It usually takes extraordinary ambition to succeed more than once.
Nobody who sees the new 37signals office will walk away thinking "these people lack for ambition". I don't want to bicker about this point you're trying to make; maybe you're right and there's a different breed of ambition at work in the shoot-the-moonies. But 37signals is not just a "good job and enough money".
Judging a company's ambition by the size or grandiosity of their office is exactly the kind of thing Fried/DHH rail against.
Tons of companies build big pimped out office and justify it to themselves as being necessary for their future plans. It's one of the signs that you have "arrived".
some people don't care about money or being comfortable and just want to change the world
that is the difference between entrepreneurial pioneers and businessmen. for the former, it is never the money (see gates, zuck, sergey + larry, etc. etc.)
That's an interesting point: are there any big tech companies (in the top tier of "big") that didn't take venture capital? I can't think of any offhand.
It'd be an odd result, because there are big companies in other fields that grew by bootstrapping and then reinvesting profits. For example, as far as I can find, Wal-Mart took little to no investment before the IPO. I wonder what makes tech different? Is it somehow more capital-intensive, contrary to the usual assumptions? Or is it that it's a lot easier to get investors in tech, so people aren't forced to bootstrap? Or that alternative financing options are harder to use in tech (no equivalent to Wal-Mart's strategy of opening new stores by taking out loans with existing stores as collateral)?
Some interesting data to see would be: what's the biggest tech company that has never taken outside investment? Are there any significantly bigger than 37 Signals?
VMware. Diane Greene funded it with the proceeds from her (much smaller) startup VXtreme, sold to Microsoft. The first outside capital we took, IIRC, was in 2002 or so, when VMware was already hundreds of employees, profitable, with several products, etc., and it was from Dell and IBM rather than typical VC firms.
Also the industries aren't comparable directly on revenue numbers. Walmart had net sales of $340 million but the net income after tax was $11 million. That's a very low margin business compared to software, where a typical result might be $55 million in revenue to make $11 million.
> are there any big tech companies (in the top tier of "big") that didn't take venture capital?
That's an interesting question. I'd be curious if anyone knows if,when, and how much venture capital companies like Intel, HP, Microsoft, IBM, AT&T, Motorola, and Tektronix took.
I can't tell for sure (Wikipedia has no info, and http://www.fundinguniverse.com/company-histories/Microsoft-C... only talks about their IPO), but it certainly looks like MSFT was bootstrapped when they nailed their big licensing deals. They then IPO'd after 9 years incorporated to get some more cash on hand, presumably.
Microsoft took a mezzanine round a few months before the IPO. The reason usually given is so that they'd have connections to investment bankers to manage the actual IPO, as well as people with a stake in making sure that the IPO price was as high as possible.
I think that the differentiator for tech is that there is a massive skew towards providing free services via the web.
Because many companies work as "media" companies which rely on attracting eyeballs for ads, people get used to not paying for things online which perpetuates the need for VC.
You also don't see very many bootstrapped TV stations.
You hear these examples a lot. But I think if you look closer you see that these are examples stories being more complicated than their stripped down versions, not counterexamples. The stripped down version still holds to the pattern.
The "real" beginning of Starbucks was an entrepreneur buying Starbucks and merging it with another couple of coffee shops then expanding immediately at serious pace. It went public 5 years after the purchase.
Mcdonalds is a similar story. Bought and expanded.
It's hard to measure the exact beginning of these businesses, they weren't founded with the intention of raising capital and going big. They did however join that trajectory at some point. The interesting thing is that they joined it very close to the launch point - these weren't small companies that slowly became medium then big, these were tiny companies that stayed small for decades, then they became giants very quickly, almost instantly.
edit: BTW, it is definitely possible of finding companies that grew slowly over decades. But in those cases you probably won't find that they were small businesses for a long time. They spent roughly equal amounts of time as 5 person companies, 10, 100, 1,000 - so you don't here so much about their heritage as a small business. They might have only spent a few years that way.
Something I noticed after I read your comment: The funny thing about both Starbucks and McDonalds is that, in both cases, it took an outsider who became an employee, _not a founder_, to grow the company. Two companies don't a pattern make, but it does make you wonder...
I think the right way of reading it is to put consider the outsider the founder and otherwise consider their takeover as the founding. It would be like Bill Gates buying a 4 person company that made Basic interpreters instead of starting one, it's not fundamental to the story.
If you looked at a graph of Starbucks and another startup going public at the same time the would look like this
What happened between founding and acquisition in company #2 isn't really part of the story. The day after aquisition though is pretty much the same after the day of founding company #1.
I think timescale plays a part here. It's all well and good to open up a restaurant, then another, then two more the next year, then 5, then 20, then 50, then 200...Problem is, you're looking at at least a decade before you're large-scale. McDonalds is a 75 year-old company. Starbucks is 45 years old. OTI, the pace of growth (and failure) is much higher. Facebook is ~6 years old. Who knows if it will be here in another 10?
That kind of growth takes money. It's nearly impossible to scale from 3-4 people to 3000 in a couple years if you're self-funded. Now, the article was arguing that that kind of growth is unnecessary; that it's perfectly acceptable to have a business making 100-200k/year. That't true, but it in no way negates the need for VCs and angels.
The more that I think about this, the more I wonder why we don't hear more about companies that succeed in this way. Surely they're out there but they're just privately piling up revenues? I'm amazed we can't name more.
Is 37 signals artificially limiting their size or are they growing organically?
It would be neat to profile them wouldn't it? Im betting a large portion of them have found that the start-up scene and growing large is great at the beginning of your career, but perhaps stability comes into play? Kids, Wife, Health?
It seems like a self-selection effect. We hear about the ones buying PR and pumping up their value. Those that are organically growing value don't need fertilizer.
If it worked well to self-fund giant companies using the income from small ones, we should see instances of it happening in the wild.
We don't have much of a history to work from, and the majority of the enabling tools available to us simple did not exist prior to or during the emergence of the current economic and business environment.
I think developments such as Kickstarter provide a glimmer of where things are headed.
A different way of looking at it is that there are disruptions in progress (less capital required to reach 'giant', new funding options) that are making this significantly more likely.
You're looking to the past. It's recently become much easier to build a lifestyle business.
Also, I wasn't suggesting that bootstrapping Amazons and Googles would become the norm. Just that you're in a much better starting position when you already have a successful business paying the bills. Especially when it comes time to negotiate terms.
I run what would likely be classed as a lifestyle business (though I prefer to think of it as a large business in the process of bootstrapping). The more people there are running lifestyle businesses, the bigger the 'lillypad'.
With a sufficiently large lifestyle-driven economy, we could move away from the VC model where very few people have the majority of the capital necessary to fund big ideas.
We're already moving to a world where industrial costs continue to decrease, small businesses specialize in providing specific services (such as manufacturing), and computers and machines provide enormous leverage. Examples range from Amazon EC2 to affordable, low-scale manufacturing of injection molded plastics and cheap, on-demand PCB manufacturing.
In comparison to pg's example of a router, it is a small thing, but it's a great demonstration of how the bar is being lowered, and what was only accessible to large, capital-rich entities is now available to two guys with limited initial capital.
The "if everyone did this" argument is such a poor way to argue a point.
I'm sure you would find the vast majority of people think being a doctor is a good thing - you help people, you're well paid and respected. Yet, if everyone was a doctor, everything would crumble.
There are many different paths in life. Our system as it now stands needs both large and small businesses. One cannot co-exist without the other.
It doesn't have to be every developer making that decision. The house of cards potentially starts to crumble once it's a big enough minority of developers -- and a chunk of the media starts to say "hey that's really a lot more interesting than the entreporn".
Free software is a third perspective which uses other forms of capital than Amazon does. It's not as fast as a targeted, talented, VC-backed firm, but it does get there; so I'm inclined to interpret the "omg-no-internet" sentiment as hyperbole, even without mentioning public funding sources like academia.
I think he's trying to say that venture capital isn't the only route to typical entrepreneurial goals; such as self-fulfillment, being your own boss and a comfortable life.
Note that he doesn't say that every typical goal could be satisfied by a lifestyle business (goals such as changing the world in a matter of years, or making loads of money).
I'm skeptical about the statement that you quoted. I don't really have the facts to back up my assertion, but I believe we will always have large companies.
If the comment is meant to mean that if everyone had the entrepreneurial drive the whole house of cards would crumble down, I still think that is misguided. The distribution of the success of businesses is somewhat similar to the distribution of programming skill among developers. There are many that are in the low mid range. There are very few that are light years ahead of 90% of the other developers.
Nobody is building big companies to prevent the world to crumble. They are build because it's possible for their owner, because their market is big enough, because of money, and because of the fun building them.
If there were only lifestyle business, investors would simply change the way they invest. They'll begin seeking lifestyle business that could explode with extra investment. Entreprenors would be probably get better terms as they'd be in a better position to negociate, but there would still be big companies.
I'm disappointed that this has gotten so many upvotes and positive comments.
There's a middle ground between web application "lifestyle businesses" (like duping credulous customers into overpaying for a time-tracking tool styled with this month's CSS trends) and trying to start the next Facebook.
There's nothing wrong with being a small software company. People have been doing it for decades now. It's boring, but there's nothing wrong with it. Don't expect anyone to celebrate you for doing it, though.
Our time on this earth is limited, and people's attention is even more limited. No wonder that more time and attention is put towards trying to execute on big ideas. Sometimes those ideas end up not working out, but we're all better, I think, for someone having tried.
As pg points out, the ideas that led to the businesses that have formed the infrastructure that enables web lifestyle businesses could not have, themselves, been lifestyle businesses. Someone has to think big, take risks, and deploy significant capital in the interest of a dramatically better world. If you don't want to be that person, great, but don't tell the risk-takers that they're "wasting their lives". Would you say the same to scientists who take big risks? Artists?
The media packaging of technology entrepreneurship is undeniably offputting. But that's no excuse for dim commentary like this.
Microsoft was a bootstrapped company and at the time, I suspect that some people derided it as a "lifestyle business". They didn't go chasing after VC money and didn't use the zero-revenue customer acquisition model to grow. Are you sure that Microsoft didn't impact the world.
I'm not sure which "lifestyle business" duped customers into overpaying, but it is absurd to equate the so-called lifestyle business to "duping credulous customers into overpaying for a time-tracking tool styled with this month's CSS trends". I can list far worse cases - corporate fraud and crimes - with large companies
Ultimately, the "lifestyle business" is a silly vc-invented label. Running after VC money is also a lifestyle. All businesses aim to impact lifestyles of founders, employees and customers. The difference is that vc-funded business also impact lifestyles of vcs. Bootstrapped companies don't impact vc lifestyles (unless they compete with a VC-funded company :).
imo both lifestyles are equally valid, but it is absurd to describe one as a lifestyle company and pretend that the other one (which risks other people's money) is the true and only "risk-taker"
He's attacking Amy Hoy, a vocal opponent[1] of the hype around startups whose current business is a time-tracking app called Freckle. Freckle's main attraction is that it has a pleasant user interface. I'm not sure how anyone was duped. I guess it's supposed to be dishonest if you're getting people to pay money for functionality they can get free elsewhere.
Yeah, that was pretty nasty swipe. Exactly what the article kind of gets at: big shot dismissing with a sniff -- he's "disappointed" with us -- something that's a very nice goal for the little people. There are hordes of people making 6 or 7 figures online that are "duping" people worse than Amy Hoy -- who is duping people none at all.
Yes. In the interest of preserving history, he wrote and later deleted a line that went like:
"duping credulous customers into paying for [something something] time tracking styled with the latest CSS design site trends"
I was not directly named, but if you ask me, it's pretty clear which app he's talking about: my first, Freckle http://letsfreckle.com .
And yup, that's me! I dupe 1,000 paying customers every month! They're so well-duped that they write love letters to our support account. I really can't get over the fact that I've got them so well-fooled they actually believe my software makes them happier and helps them run a better, more profitable business.
For the record, though, we have lots of functionality you can't get elsewhere. That's part of the magic of the dupe.
EDIT: Hey, look like that line about duping is back in Alex's comment. Either I'm blind and didn't see it the last time (which I concede is possible)… or it returned.
Also seems childish of al3x to forget that out of amy hoy and thomas fuchs' work came scriptaculous which has probably inspired startup founders wowed by Ajax only less than Ruby on Rails itself. al3x probably leveraged that work early on at Twitter itself.
If lifestyle businesses like 37signals and freckle are producing the kind of tools like RoR and scriptaculous, more power to them!
The VC industry barely existed when Microsoft was founded in 1975. I don't know if Bill Gates would even have known the word "startup" then. He was starting a business the only way people knew how to at the time. Now founders have more options. That's not bad. In fact, the empirical evidence suggests it's net better, because the company that would be most people's candidate for the "next Microsoft," Google, took advantage of these new options to grow faster than Microsoft did.
More options are great. I have always said that the bootstrapped model and the vc-funded model are both good legitimate models for businesses.
My problem with the parent post was the absurd notion it promoted about companies that didn't run chase vc funding.
As mentioned, I also think that "lifestyle business" is a stupid vc-invented label.
Incidentally, Google developed great technology and a great monetization strategy before they took in vc funding. Being acquired wasn't Google's goal. The reality of today's VC world is the opposite of Google's approach. VCs make money through the acquisitions of companies they fund.
Empirically very few big technology companies do it without taking money from investors.
I've never really liked the term "lifestyle business" and I don't know who invented it. But I think it is a useful distinction, even for the people starting them. Is your goal for the company to make yourself a nice living, or do you want it to grow into something bigger than would be needed to achieve that?
It's false that VCs want companies to be acquired. They would much prefer that they continued to grow as independent companies, like Google or Facebook. Those are the big successes that generate most of the returns in the VC business.
I think that last sentence might be misleading. VCs very much do aim for eventual liquidity. In a very few rare cases, the obvious success of a portfolio company may allow them to defer the need for liquidity (when Goldman is creating new funds just to get itself into Facebook, there's probably no pressing need for a VC to get out of Facebook), but the underlying need is still there.
I've read enough about the economics of VC funds to understand why this is, but I've also witnessed it firsthand. Unless you are setting the world on fire, your VCs don't want to sit on your board for 6 years, and will press for an exit.
This is something that challenges me about your analyses; you evoke Microsoft and Google and Facebook. If you're Facebook, all bets are off. I hope the Airbnbs do become as big as Ebay, but very few of the companies you help start are going to achieve that bracket of success.
Sure, if a company isn't going anywhere, VCs will start to consider Plan Bs. Everyone considers Plan Bs when a project turns out badly. But getting acquired is always a Plan B. And when you talk about someone's "aim" when doing things, you're talking about Plan A.
Saying VCs aim to sell companies is like saying that if I try as hard as I can to get an A in a class and get a B, I was aiming to get Bs. That is just not what the word "aim" means. It's more like I accept the inevitability of Bs, since As are hard to get. Similarly, VCs accept the inevitability of acquisitions, because IPOs are hard to get.
In accordance with my new principle that once I have to start talking about the definitions of the words I'm using, the thread is doomed, I'm done now.
Paul, you're winding up in these "having to start talking about definitions" situations because you choose to describe businesses that produce millions in profits every year as "not going anywhere". At my very last job, I saw a company doing mid-8-figures profits experience pressure to exit. Pressure to exit later in life is a real hazard of accepting VC, just as pressure not to exit early in life is as well.
You don't, by the way, need to announce that you're "done now". That's passive-agressive. You can just "be done".
LPs care about IRR and liquidity. That causes VCs who are concerned about satisfying their LPs to also care about fund IRR and liquidity.
Sometimes, there is a tradeoff between liquidity and IRR. Groupon could have sold for $6bn, or perhaps they could IPO at $15bn. There, the board members decided that the prospect of improved IRR exceeded the delay in liquidity.
It's not an accurate representation to state that VCs only care about liquidity when a company isn't going anywhere: given that it's a tradeoff, and that liquidity has heightened importance the older the fund, VCs will push for liquidity even in investments in companies that are certainly doing better than "not going anywhere". The IRRs might be good, but their LPs may really want their money back after ten years, and are willing to sacrifice the IRRs to such an extent that a pretty good return just isn't good enough.
sure, and the average man on the street may prefer that he become a multi-millionaire within a year. However, that sort of preference isn't as important as the realistic outcomes that a VC aims for.
Unfortunately, I don't have specific data to back this up, but my sense is that very few VCs get to invest in blockbuster hits like Google (and as I mentioned, Google didn't take VC investment until they had already developed great technology and a great monetization strategy. So investment in Google was at a much higher valuation than what you'd expect for the typical VC deal)
Again without specific data, my sense is that most money-making deals (for investors) are deals like the YouTube acquisition or other much smaller acquisitions ........ and I also think that most VC-funded companies make little or no money for the investors (and either crash or go through firesales).
Acquisitions are never what VCs aim for. They aim for big, independent companies. They rarely hit that target, but it's always what they're aiming for.
Angels are different. Angels are willing to invest in a startup whose only likely good outcome is an acquisition. But VCs will not even consider making a series A investment in a startup that doesn't have a credible plan for getting to the kind of revenues that would support an IPO.
A VC's goal and responsibility is to maximize returns on investment. Imo changing the world etc. is just meaningless PR-speak for most of them. They'd be violating their fiduciary responsibilities if they really believed that changing the world was their primary goal and not maximizing ROI.
Now, it is true that a company (like Google) could maximize ROI and yet change the world by being a large independent company. However, this exception doesn't prove the rule.
My point is that a good VC can't afford to be divorced from reality. In practice, VCs do seem to understand that their primary aim is to maximize ROI (and that this aim is more often achieved through being acquired and not by being a large independent company)
Of course, all of this is opinion, but in the absence of data proving otherwise, I'm going to stick with my opinion :)
> Google developed great technology and a great monetization strategy before they took in vc funding.
Larry/Sergey took $100k investment from Andy Bechtolsheim before they even had incorporated. Less than a year later they took $25 million in VC. AdWords was launched a while after that.
Microsoft raised $1M in VC in '81 from TVI (went on to become August Capital - at least shared some partners and LP's). they also burnt through a lot of Bill's parents' money (which is why he had a larger share than Allen)
for some reason this isn't part of the microsoft history story and most ppl don't know about it - but it took years for microsoft to gring out decent revenues and profits.
'lifestyle business' is meant to mean a small business where the goal is to gain enough revenue to live from. ie. something between ramen profitable and taking a salary from a VC funded business.
I can't really think of a top50 tech firm (on market cap) that didn't raise outside capital at some point.
>>it took years for microsoft to gring out decent revenues and profits.
Microsoft's first profitable program was Basic and it was released soon after the company's launch in 1975.
6 years after Microsoft launched, TVI invested and obtained a tiny portion of Microsoft's stock. To answer your question on the history, this sole vc investment played a very small part in Microsoft's history and the tiny VC share is one reason why Microsoft was a founder-run company.
Btw to be clear,capital can definitely be useful. Youtube had losses running into hundreds of millions of dollars. Yet, VC money helped them make a big impact on the world.
However, after Microsoft's model, my preference would be for the model adopted by companies like Google. Google developed great technology and a great monetization strategy before they took in a single penny of venture funds. Again, it is no coincidence that Google is a founder-run company today.
All that said, I have no problem with zero-revenue companies that chase vc funding and hope to get acquired (Acquisition is how most VCs get returns on their investments). I'm just suggesting that it is absurd to create silly labels like "lifestyle business" and pretend that risking other people's money (i.e. vc funds) is the litmus test for a true "risk-taker"
I agree re: risk taking. I would go as far as to say that when the fundraising environment is frothy, paying yourself $150k p.a as the CEO of a VC backed firm actually isn't 'taking a risk'.
There is a class of entrepreneur who don't quit their job, or leave one foot in that door, until they actually raise money and can pay themselves that salary.
for eg. I know of a smallish no-revenue VC funded startup where the CEO and founder pays himself $300k. what the board and investors didn't know is that for the first 6 months in the life of the startup while he was 'salary sacrificing' he was actually consulting with a big co. for $30k a month. I wouldn't call that taking a risk, its the opposite, really
The guys grinding out on almost nothing and quitting their jobs are the real risk takers - and that happens with self-funded, family funded, friend funded, angel funded, VC funded or zero funded businesses.
I find nothing wrong with an entrepreneur not wanting to shoot for the stars. Some people are simply not interested in changing the world, and maybe would prefer to spend more time with their family, should that really be discouraged? Calling it "disgusting" seems a step too far: https://twitter.com/al3x/status/48558660552630272
Personally, I'm in it to change things, but I'm not going to discourage someone who is in it to provide a good living for their family. Going all out when you're supporting others just isn't an option in some cases, in fact it could be downright dangerous.
Yup, totally agree with you. I'd say it takes more talent to build something and sell it to real people than to give PowerPoint presentations to rich people and build things that may never make any money. But that's just my take.
Nothing excludes people who start lifestyle businesses from starting a huge multi-billion dollar infrastructure play after they have created their first business.
However they will be much better at "business" by the time they do it.
Yes, they may be better at running a business, but they'll be stuck in running a business.
Small businesses aren't easy to sell, there are tons of family-type small businesses (and I am not talking about corner shops) lacking anyone to take over.
While making it all automated is the goal, it doesn't mean it will be attained. I believe CD Baby is more an exception than the rule. Its hard to hire people who care, let alone people who will make sure the business runs even without you.
> Nothing excludes people who start lifestyle businesses from starting a huge multi-billion dollar infrastructure play after they have created their first business.
so they would invest their own money to create a bigger company, the difference being that the source of funding is now the founder
then the founder thinks, jeez, I am taking a big risk here, investing $100M of my own money to start this bigger business. I am going to call some friends and ask them if they want to share this load
and thus you end up re-inventing venture capital
issue of semantics isn't it - why does it matter that it has to be the founders own money?
Google shows me that Twitter was founded nine months before Alex came on board. I've read plenty of his posts and presentations and I respect his technical abilities, but your "built Twitter" comment oversimplifies his involvement in the company's history.
His presentations do imply that he was the driving force behind the Scala adoption for their messaging queue, so that's arguably a must-have to reach Twitter's current scale.
Small web businesses are only boring if they aren't challenging norms in what constitutes a small lifestyle web business. There is always room for innovation and ideas even if it's not the next Facebook. It's like you say: Someone has to try; We're all better off for it.
You seem to be contrasting running a small business with running a large business. My impression was that the article was contrasting running a small business with working for The Man. If so, the original author's argument has merit.
For one thing, software development is almost entirely a knowledge-based industry. It does not require external funding to reach any useful viability in the way that, for example, a factory for industrial machinery or a large retail store would.
Moreover, in software development, the mechanical grunt work is trivial. The real value is determined by things like project ideas, business models, dealing effectively with users, and ability to convert those into a useful software design. That means small teams of really good people can punch way above their weight class.
As I see it, those basically negate the two big reasons most projects would necessarily be implemented by a large company (scale of people and scale of materials). That pretty much leaves variations on the themes of community/personal development and regularity/job security as the major reasons a good software developer might choose to work as an employee of a company rather than going it alone or with a small team they put together.
After a few years, I came to the conclusion that both of those benefits are mostly illusory. Does employee #32,768 at BigCorp, Inc. really have more job security in the current economic climate than a contractor with four or five repeat clients, or than three guys running a lifestyle business that has 1,000 customers and enough money coming in each month to easily pay everyone's bills? And do employees at big companies really develop skills and experience faster than a bunch of guys who build an entire working business from scratch or a contractor who works with four or five different technology stacks within a few months?
I'm not saying employment isn't for anyone. Obviously the kind of regular work environment it brings suits a lot of people, and not everyone wants to take on all the other stuff that goes with doing it all yourself. However, those are basically social constraints rather than technical ones. They don't reflect on the potential value a particular software developer could contribute to a project.
I notice that several people in this discussion have pointed at the need for some things to be done at scale. Pg himself wrote:
> If that happened, the whole world would crumble, because we wouldn't have any technology bigger than could be built by lifestyle businesses.
But the way I see it, every successful large project is either a successful small project that grew or a bunch of successful small projects that learned to interact effectively. No-one says that just because you decide to run a small business instead of working for the The Man today, you can't grow that business or collaborate with others tomorrow.
I'd like to see this taken to the next level: some kind of diagnostic.
It's easy to point out the general case. What's difficult is taking the general truth and turning it into stuff to do right now. Answer these questions. If you answer this way, you are heading down the wrong path.
From what very little I've seen, this is something that everybody sees in everybody else but never see in themselves. Perhaps this is because it's easy to imagine somebody else having to "settle" for a business making shinier widgets for 3 cents profit per unit while we all easily imagine ourselves as being the person to "change X as we know it"
I have no idea why some of us are like this. I continue to struggle with it, and I know better.
A lot of people want to skip the buildup to success. They don't want to develop a small business over a few years for a stable launching point to more ambitious projects.
I used to get frustrated by the mentality that Justin is speaking out against. That said, those of us building "get rich slowly" businesses simply don't need the support network that people making crazy bets need.
The huge risk, huge return world will always be exciting to watch and talk about, and it will always be splashing around waste money, so it will always get a disproportionate amount of attention.
I just built a "business" that is on track to generate about $10k per month (I've made about $5k in the first week). There were some links to it here on Hacker News, but it's a site that sells iPhone design & development tutorials that I've written: http://designthencode.com. I've only published one full tutorial so far, but am working on others. The response has been great, and it's exciting to see something I've been working on for about 6-7 months actually generate real revenue.
Every person here at HN is talented enough to create a $10k/mo business. It may not be as easy as what the article suggests, but you can do it.
Also, I should note that I did it all on the side & the weekends. I have a full-time job as well.
I'm not sure "simple" is the word I'd use, but yes, I think it's definitely do-able.
They key (as someone who has done it) is to look for niche B2B opportunities. Find a need and fulfill it better or cheaper than existing players. Exploit newer/cheaper tech or SEO knowledge that the existing guys don't/can't get.
Think of it this way: you need 500 businesses to pay you $20/month to get to $10k/month. If you can get 1 signup a day, you're there in < 2 years.
One example: we run nextproof.com that lets wedding and portrait photographers sell prints online (think of it as a shopify for photographers). There are way bigger players in the market (pictage, smugmug, printroom, etc.) but we have ~2,000 users. Half of them are on a paid plan at between $9 and $99/month. The other half are on a free plan BUT we still make money on them through transaction fees. So, after 3 years, it's well over $10k/month.
Another option is premium content or tools targeted at these niche businesses. This could be in the form of WordPress themes/plugins, eBooks, DVDs, etc. We did an SEO DVD for photographers and sold 1,000 @ $79 each.
Most of the "ideas" I come up with are along these lines. I have tons of them.
Getting six-pack abs is simple. Build muscle and burn fat by eating healthy, exercising and lifting weights. BUT... you've got to do that every day for a long time before you get results.
It's the same with building a successful $10k/month business. Find a niche, solve a problem people are prepared to pay money to have solved, market your solution and deliver on your promises. But all that won't happen in a week will it? Because of this, most people will give up before they get to the top of the mountain (or before they have six-pack abs).
The article and above comments are basically saying that you don't need an expensive gym membership and a highly qualified personal trainer to get six-pack abs. You can do it yourself by, as you note, by building muscle, burning fat, and eating healthy.
The above advice is meant to help those who are inclined to focus and work hard, but it's worth noting that it takes nothing away from the gourmands and loafers of the world: they (and I) will not have six-pack abs. Period. Those unwilling or unable to change their lifestyle would be best served by finding something else to do with their time.
"If you genuinely have the spirit of an entrepreneur inside of you, it’s perfectly possible to build a $10k/month webapp business that can set you free."
If you follow Amy's blogging on Unicorn Free you'll have a seen a recent post where she talks about how long it has taken her and Thomas to get Freckle to where they are now - about 2 years (http://unicornfree.com/2011/drawing-back-the-curtain/). Both Amy and Thomas hustle their tails off and yet it has taken them two years and a lot of hard work to get too where they are (not to mention the years before that leading up to it). The point is that there is very rarely an easy route, but there is absolutely a possible route if you're passionate and you hustle. You'll be lucky if you only fail a couple of times before you land on something that gains traction, but you can do it.
If you don't mind me asking, how long did it take you to get to $2k? That's always the number I find interesting, since it's my mental threshold for "allows a person with no children to go on eating ramen noodles in a cheap apartment."
I've been working on Pluggo for 1.5 years and I'm just coming up to 1.5k month. Now something to keep in mind is, due to me not understanding how to choose a market when I started, it has taken way longer than it needed.
I was silly to choose the twitter market because (a) everyone wants the tools for free (b) It's the most competitive single tools software market EVERYONE and his uncle made a twitter client (just like me) (c) It is impossible to SEO because EVERYONE and his uncle made a twitter site.
Even so, with all of that going against me, I've still been able to reach 1.5k month and it's now starting to really pick up due to valuable lessons I've learned from other bootstrappers along the way. Like Amy Hoy (above with the $10k/month) who's obviously a little bit cleverer than me!
I should also mention that for 6 of those months I did "absolutely nothing" with Pluggio. Because I didn't believe in it. Because it wasn't doing well enough according to my Entreporn expectations.
Yes, I let it slide for 6 entire months. If I had spent that time working on it, it would be at least 5k now.
I think the first 10k a month app will inevitably be the hardest, but like Justin says it'll be a lot easier than becoming the next Facebook or Google. Most people chase/fantasize about being the next Google because they think it will buy them freedom. If you are lucky enough to get close, depending on how you play it, it might do exactly that for you. But I agree with Justin the odds are just so small it's difficult to justify spending your life in eternal lustful pursuit of such dreams.
I'm sorry to roll out the cliché, but gaining time is more likely to make you happy and free. And a few slow grown bootstrapped 'dipshit companies' are much more realistic and likely to provide you with that time along with a boatload more autonomy. Instead it seems everyone is aiming to be the head of the next big thing and indebted to VC's in to the bargain. What do I know though, perhaps it's not all that bad...?
I do think that with a couple of $10,000 a month semi-automated apps in your pocket you've got a lot of choices. Especially if you are young. It can give you the free time to really work out what you want to get out of your life. With time to think you might find it's not what your doing and/or aspiring to right now.
For me if my startup ever starts to make 10K+ a month it'll simply mean trying to spend a little less time sat behind my keyboard. Spending more time outdoors travelling and experiencing the world instead of too much time indoors reading about it sounds like a good plan to me.
The original article seems to be arguing $10K is something like a "sweet spot" where lots of micro-entrepreneurs could comfortably stay. I would contend that if an entrepreneur is able to get to $10K/month with ease or with difficulty, they've probably got the resource to go to $20K, and then $40 look promising etc. That requires extreme hustle of course but so does staying at $10K.
IE, there's no "sweet spot" or stable spot. It is more like either failure or "lift-off".
I don't think the point is that it is 'easy' to create a $10K/mo - but that it is easier to build that, than to build a Google/Facebook.
I think he went overboard by imploring EVERYBODY to stop trying to build those types, and build a lifestyle business - but the criticism is valid.
We, the industry, is caught up with the $10M Series A round, and the major IPOs and acquisitions. When it's just as much of a major victory for a small company - one or two employees doing $10K - $100K/mo.
That's pretty major.
I think it is doable. Not for ALL types of technology - e.g. not Twitter, Google, or FB.
But certainly for many webapps.
Think of it like being the new 'professional', where professional is an accountant/lawyer/doctor. You no longer have to go to med. school for 7 years, but you have to invest time in learning about everything it takes to build and launch a successful webapp (which I would argue is just as grueling as med/law school).
The major difference is that it scales beautifully. If you can put the systems in place to earn $10K, you can relatively easily go to $100K/mo.
Most of $10K/months business that continue along that I know of are consulting. And a lot of consulting is essentially continuing your connections with a larger enterprise but from the outside.
I think there's a simple logic to this.
If anyone has duplicatable way of getting to a $10k/month from their labor, they also have a key to building a business; they could just recruit people, teach the recruits their methods and split the profits in any number of ways. Thus, they would almost certainly have a business that could expand to $10 million a year fairly quickly (if you have the kind of business where you could add servers or machine instead, so much the better).
Now reason that there are VCs is that the number of businesses which can bootstrap to $10 million/year are inherently a subset of businesses that can be financed to $10 million/year.
Now, we know that if A > B and B == C, then A > C. Thus the number of VC-financable opportunities to build a $10 million/year company are inherently larger than the number of easily duplicable schemes that could allow a single individual to make $10K/month.
That leaves the "totally unique" ways, that depend on each person's special qualities and can't duplicated. If you're working on the web, how many of those are there?
Shrug That depends on what I go on to do with it, right? If AR or some other idea goes big, then it gets retroactively upgraded to be the amusing "when it was still scrappy" backstory.
I'm totally happy with where I am in life today, and there are a bunch of happy places I could see myself in two years, lifestyle business or no. A word of caution: not everyone selling Obama cereal intends to be doing so forever.
No, but Patrick could, for instance, try leveraging his reputation here to sell his marketing services (either as commercial software or as consulting - he's done this before). Or just set up a couple more BCC's; if one pays the bills, ten would be a very nice income. Etcetera - there's more than one way to do it, and patio11 does have some skills that can be used to make money.
Here's how you do it. 1) Stop reading Hacker News. 2) Pay attention to problems people have. 3) Build a solution and charge money for it. 4) Spend 2 years marketing it (i.e., talking to your market and learning) and making it better.
It worked alright for me and my business partners and we spent the first year working part time on it.
Yes they really exist. Some niches pay more like 20k+/mo pretty easily. Consulting at 150/hour isn't that hard. If you want specific advice learn an eCommerce framework really really well or become a deployment specialist for large clusters of JBoss/Weblogic/Websphere.
Just go back to the job that used to pay you $6K/month...
In other words, the consulting jobs exist but they are for "niche markets" - companies hire back their most senior workers on a consulting basis. Also those explicitly trained by SAP and the like at one time could get the bucks. I don't know if that's still true.
A short-term contractor with highly relevant domain expertise can charge 2-3x what the same person would be getting on salary. Finding clients reliably is the real trick of course, I wish I knew that.
> The absolute truth is that each and every one
> of us can build a business that can support us.
> ...
> In truth, there is no reason to fail – other
> than failing to learn from your mistakes.
Yes, maybe we can - eventually. But while we're building it, we still need a paycheck. Building a profitable business doesn't seem like the kind of thing you can do in your spare time, unless you're willing to sacrifice absolutely everything else in your life.
> But even better, once you have the knowledge that comes
> along with building a succesful $10k/month business, you
> also posses the exact same knowledge that it takes to
> build a $100k/month business.
And then, why not a $1M/month business? And then $10M/month! Etc! Etc!
I'm pretty sure that a $100k/month business is an outlier, too, it's just closer to the center of the bell curve than Facebook, but still pretty dang far away from everyone else.
Myself & Jason (techzing) are both building businesses on the side. Our paycheck come from consultancy. We both lead very fulfilling lives as well as building our side projects... :)
Now I'm contracting on the side while working on Gridspy. It is a hard slog, but totally worth it. We are creating a increasingly professional offering. I'm really looking forward to when we go to market and start selling this thing. Now I have the next problem - how much to contract (money) vs how much to work on Gridspy?
http://blog.gridspy.co.nz/2010/06/breaking-away-from-the-man...
Note: I can only speak for my industry (penetration testing and antimalware) so YMMV
Last month at DC4420 (the London monthly DEF CON chapter meeting):
<dude from corporate security firm>: How many people do you have at Mandalorian?
<iuguy>: 6
<dude from corporate security firm>: Really? I always thought you guys were bigger? So it's more of a lifestyle firm?
<iuguy>: If by lifestyle firm you mean a company that treats it's people well for doing a good job - as well as they could do on their own - then yes. If you mean a firm that's focused on doing a good job doing work we enjoy instead of chasing cash and ticking boxes all day long, then yes.
I think http://www.fbtechies.co.uk/ was the first I knew of, but amongst us there's quite a few and it seems as though we're growing. I think the realisation of having a niche skillset combined with commercial ability makes for a compelling enough value proposition for people to go it alone outside the conventional areas.
We don't all need to be multibillionaires (although some do). For some of us it's the choice between working on yet another PCI box ticking exercise, or charming the pants off some cool experimental tech.
I would like to add though that the article really needs some data to back it up. While there's plenty of anecdata from patio11, peldi and (to some extent although I'm obviously not in the same league as those guys) me, a source of actual information would really blow the doors off.
I agree. You have no idea how much I agree.
My small online business never made it to 10000 us a month, but I don't care.
I am writing from a nice Balinese house with a great tropical garden where I'm spending 2 months.
And then I'll spend a month in Sri Lanka.
Then, maybe it will be China.
I have been living like this for the past 10 years, working online and enjoying life as I never thought it was possible.
So, go for your small business and be free, it's really much easier than it seems.
And it's so beautiful.
Ok so make sure you build it mobile from the beginning. I mean delegate any task which requires to be in a specific place or to be online at a specific time. Or, worse, to be in a specific place at a specific time.
It may seem odd, but that's the key.
If you want to be free to go anywhere anytime you can't be supposed to be somewhere sometime.
There are so many tasks down the road waiting to get you stuck in some place.
It may ne hard to do but you need to give them away.
Sorry if that sounds insane :)
But it worked for me, so I hope it works for you.
I started a lifestyle business. It did that, and very well. And then I became bored.
If a lifestyle business works for you, then that's what you should strive towards. Some would call me naive or childish, but if you're the type of person who dreams about changing the world, don't sell yourself short. Don't grow up, and don't give up.
David Heinemeier Hansson had the exact same conversation with Jason Calacanis and Jason just could not understand why DHH felt that building that kind of business made sense..
This exact point occurred to me as I was listening to Reid Hoffman define 'entrepreneurship' at SXSW the other day. His definition restricted the term to 'industry-disruptive technology' and 'big ideas'. I thought it was a pretty self-serving definition coming from an angel investor who needs those kind of giant hits to cover bad bets. It's also a lot easier to start what Mark Cuban is calling the Ponzi-style investment process where every round at successively higher valuations leaves the next group of suckers holding the bag.
"The chances of building a Google, YouTube or Facebook and scaling to the millions of users required to be “considered” for VC investment are vanishingly small. We’re talking in the region of 0.0001%."
You don't need millions of users to be considered for VC investment. More like 10,000 users if the service is free, or 100 paying customers. And it's really not that hard to do that, it just takes enough perseverance to make it through the first few iterations.
It's not that hard to get a fairly small volume of users (100-10,000) -- compared to getting a huge, YouTube-sized volume (millions of users). But it's still hard to get any number at all. It takes work, persistence, luck, and intelligence.
He ignores that most categories only have 3 or 4 major players and rest can't get enough recognition to be profitable.
Also $10k/month is ok for one or two people, but what if someone gets sick or leaves, a business is not very stable at that size.
Additionally he assumes people want to change the world for monetary reasons, which I don't think is often the case, otherwise you'd manage a hedge fund or something.
And only requires making about $330 a day. This is the benchmark I'm shooting for with mobile apps, and right now with just 2 apps I'm at about $130 a day.
their argument isn't that VC is evil, more that in a world where a lot of entrepreneurs seem to be focused on the fundraising/grow-quick/big-swing path, there are alternatives
the OP on the other hand is advocating something entirely different
There's no average. It's just a target. You don't get $10/k a month overnight. It's a figure that you work toward. Many people don't need that much to live. It depends where you're at. If you need 5k/month to live then you can reach your goal even faster. $10k/month seemed like a good goal for the article that could support most people.
uh, okay. then you might want to update your blog before there are 1000s of unemployed web developers building their lifestyle web apps for eternal target of 10k/month.
Embrace being a lifestyle business and ignore all the startup noise. Do your best to serve your customers and grow your revenue. You'll never get famous, but then again neither will 99.9% of the people who go the other route.
This post saddens me. Startups should aim larger, not smaller. That is, in my opinion.
The blog post (which I am interpreting as "every entrepreneur wants to raise VC and swing for fences") is generally wrong, in my experience. For every "a million dollars isn't cool, you know what is? a billion dollars" startup founder, there is one that insists that Groupon is over valued, and startups should monetize on day 1 and be in charge of their own destiny by retaining all equity.
There is no right or wrong answer in terms of what your aspirations are. But there is a huge audience of startup founders that are building lifestyle businesses, and killing it.
What's it wrong about, that people don't respect lifestyle businesses? Hmm, I wonder if that's the silicon valley reality distortion field.
The post says that most people don't consider lifestyle businesses, and they should. And you're claiming that lifestyle businesses are in fact quite common, and that you wish more people were searching for scalable businesses. You agree with the post that a lifestyle business is a perfectly fine, viable option. Am I getting all that right?
I read the post as implying that all entrepreneurs are chasing mega hits whereas some may prefer, or be better suited towards, lifestyle businesses.
" ... to the advantage of almost every player in our industry that we “believe” in chasing the next big thing. They need us to keep chasing it. In the truest sense – the next big thing – is a carrot on a stick that keeps us occupied and keeps them in business."
Whereas in my experience, lots (loads!) of entrepreneurs are chasing lifestyle companies. You just don't see them as much because they need far less from the ecosystem. I can think of tons of ~$10k/mo companies building iPhone apps, wordpress plugins, b2b web apps, etc etc.
While I agree that you shouldn't knock lifestyle businesses, I feel that the TechCrunch quote was taken a bit out of context. The "dipshit" companies looks like its referring to the kind of apps that have no business model but ride on the hopes and dreams of overeager VCs who swear this is the next Google. Anyone who creates a company without a business model and hopes to sell to Google for $25MM is a dipshit. But those aren't lifestyle businesses, so it seems like that quote was a bit irrelevant.
Most startups need VC money because their ideas are obscure, stupid, and market-less. There is nothing wrong with using your skills to build a simple small business to fill a market need. Anyone who feels guilty for trying to make money with their talent is a sheep and a fool.
I think there are already lots of software companies which aim not too high. Last time I heard there were 150.000 apps in the AppStore. There are lots and lots of indie game developers and casual game developers; a great chunk of them don't have the income to avoid their day jobs because they are not even ramen profitable. There are thousands of cheap shareware software on download.com. And lots of websites trying to generate money using adsense.
I agree that it may be a bad decision to aim too high, but there is also a possibility to aim too low: into markets where there is not much money or there is free stuff as competition. I've first made the 'aim too high' and then as a compensation I also made the 'aim too low' mistakes. Now I finally aim in-between.
The only problem here is that entrepreneurs are humans and as such they tend to swing for the fences. I know I do. Its the come big or go home mentality. Its the American way. Whatever you want to call it, its in our genes to do it that way.
Yeah we could all become the equivalent of craftsmen who had to then organize into guilds/unions to get a decent wage. Why do that when we can go home millionaires with the right idea/right money.
If you build a small business you can build a large business. All the same principles are at stake. However, in theory it's easier to build a small business first time round (baby steps). You can swing for the fences on biz 2.
Yeah I hear you but the steps you take in building a small business, while perhaps less risky, are the same. Yet you even get cache in trying a big business. I've done 5 startups (2 successful and 3 not) but I can point to that in my next you can't use your small business as an example you can do a big one.
So at a certain point in your life it makes sense to swing for the fences if you are the only bread winner for your family I definitely understand reducing risk.
Wow, this is exactly what I was saying with a recent comment of mine (http://news.ycombinator.com/item?id=2330900). There's a wide continuum of successes in the startup world. VC's are interested in the funding the top end, but many devs would probably be satisfied by a much wider swath, that could include wholly bootstrapped operations.
I think this article is just an original argument for bootstrapping. I don't think this guy is saying: "don't reach for the stars" - at least that's not how I interpret it. He's saying: "set achievable goals, lean how to execute, then you might just build a big ship organically."
Arguing about the term "lifestyle business" is itself distracting.
To me the point is that nowadays you don't have to get permission (in the form of someone else investing in your company) to get started. On your own you can fairly quickly build a business that pays your bills (your "lifestyle") and lets you escape "wage slavery". Once you do this, you have a lot of security and a lot of power/control over your next move.
I didn't think the point was to build a business that makes enough to pay the bills and then stop building. I'm certainly not stopping.
I'm in a 3rd world country so $10K a month is more than enough for me to more things. Like 1. Start a foodstore, business; petrol stations (Startup cost around $50K), a popular restaurant etc. So this is what I'm doing now; trying to create a lifestyle business.
I want to believe this story, but the reality is that the big companies have economies of scale that are very difficult to compete with and they often win.
The agility of small companies makes it ridiculously easy to compete with large companies.
Large companies have huge amounts of unsatisfied customers that are easy to research, find and sell to- who are more then happy to pay for a direct line to the software maker.
Large companies don't even care if you do this, because unless you hit $100m revenue you're about as significant as a gnat on their butt.
This article is not sensational. It does not tell you what you should do with your life. It does not say VCs are evil. It doesn't say funded companies are a waste of time.
The "if every developer" line is clearly just as much grandstanding as PG makes when he compares hackers taking a job to caging a lion. To take this line in this essay literally -- and be offended -- but not to take PG's line about lions literally is to be intellectually dishonest.
Here's what this essay actually says:
* there's a monetary reason that we're all soaking in VC/fund/"liquidity event" news
* there's a psychological reason that we seek out VC/fund/"liquidity event" news
* reading about this stuff isn't even the remotely same vein as working on it, or making real money
* the author is angry that he believes people are being pushed towards lives/businesses that don't make them happy
* every developer is capable of making a product for an independent income
* and everybody might be happier if they did
Gee, not so controversial, is it?
All the hullaballoo about this article can be only one thing: overly identifying with your life/business choices and attacking anyone who dares call them into question. In a general sense. Not in a PERSONAL attack, for example labeling someone's work "a lifestyle business" or "like duping credulous customers into overpaying for a time-tracking tool styled with this month's CSS trends".
The only reason anyone even paid attention to this article at all is because 98% of what everyone hears, all the time, is pro-big startup, pro-VC, pro-liquidity event, pro- this and pro- that.
There is so rarely a dissenting voice that the moment there is one, however mild, everybody is in attack mode.
> The only reason anyone even paid attention to this article at all is because 98% of what everyone hears, all the time, is pro-big startup, pro-VC, pro-liquidity event, pro- this and pro- that.
Perhaps because you're so far out in the (physical) hinterlands of software, you hear a time-delayed different message. Living close to the epicenter of the startup world, I hear very few people really talk about flip-based startups anymore, and the general consensus is to be wary of VC and take it as late as you need it. Indeed, if I had to describe a "pro-" that has infected Valley culture right now, I would call it the "pro-lean startup" fetishism. It gets a little tedious, but it's a far more reasonable sentiment than the pro-flip culture that dominated the Valley back a few years ago.
Really, the difference between the idea put forth in this essay and a game-changing techcrunch-courting startup is scope. I could work on a small lifestyle product (and I have a few in mind that might be fun), but they're not... game changers. I'd like to work on a product that really makes a difference to a large number of customers. Very few independent products have the resources or scope to achieve this.
Coming out of college, people think they have to work either for a big company or a big idea. The truth put forth in this article is that you need not do either, And That Is Okay. Indeed, there is a great deal of freedom that comes with it.
> Look, dominant paradigm: You need to chillax.
"Dominant," you say? Hardly. "Glorified," perhaps. The vast majority of people do what you do; sell small-scale contracts and services to small-scale partners and customers. And that's fine and good and noble and grist for the mill of global economics. But let's not kid ourselves, it is not an ambitious path, and western culture glamorizes (unfulfilled) ambition.
"If you genuinely have the spirit of an entrepreneur inside of you, something about No True Scotsman".
This article, as much as any feature on Mark Zuckerberg, is entreporn. Is it possible to build a $10k-per-month web app? Sure. Easier than building the next Facebook (which is a matter of mostly luck, a lottery)? Absolutely. Are most people who try going to fail? Yes. Is it possible to get funding for a lifestyle business? No, that doesn't exist. So you need to do it on your own time, which limits your losses but makes your likelihood of success very low. If nothing is lost but one's time, is trying a lifestyle business possibly a great idea? Of course. But is making it sound easy to make $10k per month entreporn? Yes.
Also, as for lifestyle businesses, there are good and bad scenarios. A good lifestyle business provides reliable income at a decent rate (at least $100/hour) and the ability to control how much money you make and how much time you spend; if you want more money, you work harder. If you want a 3-month vacation, you take it but make less money. That's what you want: the freedom to decide how much you work and how much money you make. This is a great thing to have, and if some idiot hipster thinks it makes you a loser that you didn't cash out for billions, who cares? A bad ("walking dead") lifestyle business is one that just turned out mediocre and ends up had-by-the-balls by one or two clients who become, de facto, very demanding bosses. Companies like this exist: single-client consultancies that haven't gone out yet, but never got enough headway above the mediocrity of client demands to take off and become something.
If the article made sound easy to make $10k/month that was an error on my part. It is not easy, it's very hard. But no where near as hard as building a successful business on VC investment. Don't forget, after you get the investment you're only just starting out... 8 out of 10 VC funded projects fail.
I think one also needs to consider the success and failure profiles in each. What do success and failure entail, and what are their implications for your career? The attraction of the get-rich-or-die-quickly company is that, if it doesn't make you rich enough never to have to work again, at least you can walk away from it and hopefully spin your story positively enough to get career credit, for your next job, for the time you spent there.
Taking VC and making $120k/year, which is low-average for a VC-funded firm's CEO, and then failing after three years, doesn't entail much financial loss. And unless the failure is catastrophic and obviously reflects badly on a single founder, it's not a huge career hit. Sure, it's 3 years working very hard for middling pay, but there are worse things in the world. Depending on how one is able to bounce back from the failure, it may have been 3 years very well spent.
As for lifestyle businesses, no VC is going to fund a lifestyle business; it's just not what they do. And bank loans are out because they make onerous personal-liability requirements, so scratch that. This leaves two options. (1) Don't quit your day job. Risk is minimal, but I'd be shocked if more than 2% of these also-employed "entrepreneurs" take off. (2) Quit your day job, and put personal savings at risk. This is a lot riskier, financially, than founding a VC startup if you have sufficient social connections to know (before you start) that you'll be funded. That doesn't mean it's not worth doing, and if you don't have those social connections you'll be eating savings either way while you hunt for funding, but it does mean that it's costly.
There is also option (3), somewhere between (1) and (2):
Explore the problem space and make a start while working for your previous employer. Slowly reduce the number of hours you are working (i.e contract vs fulltime).
Once you are getting some interest / traction or feeling more confident, switch over to (2) - now much less risky. Go fulltime with a 1/2 built business with several potential customers and perhaps a couple of paying ones. You are now much more attractive to investment.
That depends on your location and social connections. If you're in the Bay Area and have social connections, you can get funded out of the gate. If you're on the East Coast and just out of college, you're going to have to prove yourself before you get funded and, yes, you're looking at at least a year of unpaid hard work. It's all about contacts, and if you have none, you've got an uphill battle-- especially if you're not in the Valley.
Income-wise, a startup is generally a step down, but a tolerable one for most people. If you're 22 and without VC contacts, you can work for next to nothing for a year or two, make contacts by hanging out in the Valley, and start pitching when you have a product. If you're 36 and have a family to feed, but have VC connections, you can usually get early seed funding and pay yourself $100k annual salary, which is low for someone with those kinds of contacts but enough to live on.
When it is impossible is if you're 36 and have a family to feed, but don't have VC contacts. You can't afford to take a year or two off to prove yourself (which an outsider will have to do) but you don't have the contacts necessary to step immediately into a $100k/year salary with just an idea.
wmboy made a good analogy in a another comment to abs.
Most people can be thin/muscular/athletic and most want to be. Many try and of these, most fail. But, this is fundamentally different from an aspiration to be in the olympics. Most people can't do that, regardless of how hard they try or how strong willed they are.
I'm not sure the Olympics are a good metaphor for Facebook's success. The reason a person like me will never be in the Olympics is a lack of physical talent. People who have that talent, if they work very hard, have a realistic shot, but it's less (probably much, much less) than 1/10 of 1 percent of people for whom being an Olympic athlete is even an option.
By contrast, I think at least 1 or 2 percent of people have enough talent to do what Mark Zuckerberg did. He's a talented businessman who has done a lot of things really well, but I haven't seen him do anything I couldn't have done in his position. The odds are enormously against that kind of success no matter how smart you are, but the minimal level of talent to do that is not that rare.
I'm sure the metaphor can be tweaked to be more accurate in representing the mix of talent, luck, mentality, etc. (it's also the case that not everyone who gives it an honest shot will succeed at creating a 10k business while virtually everyone who diets and exercises will get slim an muscular)
The point is no so subtle though. One is in reach of most people who will give it a shot while the other is exceptional.
I sense a backlash growing. It seems like the only time people take you seriously these days is if you're in your 20's, have a spiky-haired asian dude as one of your founders and are launching a social/mobile/streaming video app in a weekend. That's what they cover on TechCrunch but not what the vast majority of us out there are doing.
Sidenote: I have nothing against asian dudes, spiky haired or not.
Hey, I'm in my 20s have spikey blue hair, and we started Answer in 30 (streaming video Q&A site w/ heavy social media integration) on Startup Bus, launched in private beta after 72 hours. No one takes us seriously which is why we're out there hustling and interviewing people so when we launch we have 1000+ videos. (Half way there!)
Show me an investor who takes us seriously and we'll be there to pitch within 24 hours. Or if you know TechCrunch people who are interested, we got wired coverage but it's not like it's 96 and people still read wired.
http://www.wired.com/underwire/2011/03/meet-startupbus-buspr...
That said, it's a lifestyle business that pays the bills and allows me to do crazy stuff like startup bus.
I didn't say there's anything wrong with fitting that mold, only that it's what the media seems to be pushing as the "right" way to do it. Best of luck to you, I almost took the StartupBus out of Cleveland but had to pass due to money.
The whole point of this type of model is that you make you $10k/mo by selling something that people actually pay money for, which means you don't care what TechCrunch/VCs are excited about. They're irrelevant for you.
$10k is your "fuck you money", provided you can rely on making it every month. This might be easier said than done, though.
For me it's being able to support yourself and your family in a fairly comfortable western middle class quality of life. The FU part is that, if you're making this independently and reliably, you don't need to care about the TechCrunch/etc bullshit the OP mentioned.
For another person it might mean living in a West Village townhouse and sending your kids to private schools. For yet another it's owning a private jet and the 49ers. In these cases you probably need more than $10k/mo.
$10K/month would give me freedom to spend 4+ hours with my son/day and not give a crap about how to get php+jquery+mysql to behave sensibly today. What do I care about FU money? If x$ gives you freedom, by definition it is FU money.
$10k/month is most certainly enough money for me to quit my 9-5 and live a comfortable life doing what I want to instead of what I have to. That's FU money as far as I'm concerned.
Regarding the chances to build something super-successful:
It's more interesting to hear about startups that fail. Seeing patterns emerging from failure is way more useful than trying to pinpoint what Google and Facebook founders have in common.
The problem I guess is that the failures mostly just fade away. A service where upstarters commit to write about their journey, especially if it goes bad, in exchange for helpful tips would be very useful.
If that happened, the whole world would crumble, because we wouldn't have any technology bigger than could be built by lifestyle businesses. Anyone who wanted to build a lifestyle business on the Internet, for example, would find that there was no Internet. You wouldn't have servers or routers or clients or backbones or local cable.