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Dear Startups: Here’s How to Stay Alive

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Re: Dear Startups: Here’s How to Stay Alive

#11

Post by rgbrgb »

roymurdock wrote: post #4

You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepre…

Doesn't matter what they're called. If you're running a startup right now and have the option to be profitable vs pursue expensive growth, OP says now is the time to choose profitability. The funding climate has changed and hence risk/reward ratio needs to be recalibrated. Whether this climate change is real or not is maybe up for debate but I'd guess that in most cases profitability is not orthogonal to growth. As a side note, getting profitable while maintaining growth would seem to put you in the best possible position to pursue more funding if you wanted it.

Edit: I'll also add that according to pg's "Startup = Growth" [0], profitability doesn't really come into the definition. Hence the existence of bootstrapped startups.

[0]: http://www.paulgraham.com/growth.html

Re: Dear Startups: Here’s How to Stay Alive

#12

Post by c0l0 »

arielm wrote: post #8

I think the startup world has become somewhat of a fork of how real companies should be built. Over the last few years companies have been investing into "scaling" and getting traction with no real revenue to substantiate any of the growth. That to me is backwards, and why those startups are fearing for their lives now. Companies should be built with revenue (and profit) in mind, and in most cases those are the ones…

That's exactly how the financial markets/businesses have become somewhat of a fork of how "real" markets/businesses should work over the last two or so decades.

I've always perceived startups to be some kind of an extension of these (highly questionable) concepts and principles into the tech space. These days, it sems we're drawing closer to witness a clash of this weird, bubbly universe of its own with the real world as it were. The only real questions about it, I think, are: when _exactly_ will it happen, and what will the fallout look like?

Re: Dear Startups: Here’s How to Stay Alive

#13

Post by notahacker »

roymurdock wrote: post #4

You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepre…

A company that raises millions of dollars of equity funding to try to corner a market is not a "small business", and it's certainly not a smaller business for having non-trivial revenues so that any follow-on rounds are reinvested in expansion rather than survival.

Re: Dear Startups: Here’s How to Stay Alive

#14

Post by bkjelden »

arielm wrote: post #8

I think the startup world has become somewhat of a fork of how real companies should be built. Over the last few years companies have been investing into "scaling" and getting traction with no real revenue to substantiate any of the growth. That to me is backwards, and why those startups are fearing for their lives now. Companies should be built with revenue (and profit) in mind, and in most cases those are the ones…

Scaling without revenue makes sense if you're in an industry with strong network externalities or large economies of scale. In those cases, expensive customer acquisition is okay because customers have a very high lifetime value.

During the "unicorn boom", I think we all had this belief that network externalities were very common in tech - a belief driven by the rise of facebook, google, and others. But now we're realizing that maybe strong network externalities are just as rare in tech as they are in other industries - and a business without network effects that's losing money for growth is just a business that loses a lot of money.

This NYT article from last week seemed to do a good job summing up the issue: http://www.nytimes.com/2016/02/13/business/dealbook/the-rise...

Re: Dear Startups: Here’s How to Stay Alive

#15

Post by jorgecurio »

> You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepreneurs are still talking about their plans to the next round. What if there is no next round? Don’t you still want to survive?

Sort of reminds me of the conversation with a senior developer I had the first time I joined a startup and my first company lunch at my first job.

Me: "So, we just spend whatever money the company makes"

him: "Correct"

Me: "what if the company is burning all the money it makes to grow as fast as possible, and they can't raise money anymore?"

him: "that will never happen"

Me: (concerned) "so the company is constantly breaking even"

him: "sometimes"

ME: (shocked) "so the company loses money some year, yet raises more money year after year so it can lose more money the following year than the last"

him: (annoyed) "you studied economics haven't you? you dont get it? everyone knows this is how you do startups what did they teach you in that shithole?"

(everyone else laughs)

end scene.

That was 4 years ago. I checked the glassdoor comments and boy I didn't think a 2.1 rating was possible on glassdoor because that would pretty much scare off anyone in the job market....and yup the company is going under exactly for the reasons I asked 4 years ago but was ridiculed at my 'ignorance'

another one bites the dust for vancouver's brain drained tech scene. thank god I won't have to work here again in the near future.

Re: Dear Startups: Here’s How to Stay Alive

#16

Post by roymurdock »

rgbrgb wrote: post #11
roymurdock wrote: post #4

You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepre…

Doesn't matter what they're called. If you're running a startup right now and have the option to be profitable vs pursue expensive growth, OP says now is the time to choose profitability. The funding climate has changed and hence risk/reward ratio needs to be recalibrated. Whether this climate change is real or not is maybe up for debate but I'd guess that in most cases profitability is not orthogonal to growth. As a…

> Doesn't matter what they're called.

It absolutely does matter. Important terms need to be well-defined before you can have any sort of intelligent conversation about them. This is a rule in academic research for a reason, it clears up a lot of unnecessary confusion and vitriol.

Reframe this post as a bank talking to a small business owner about not taking on too much liability without proving a concept and it comes off as simple, sensible advice.

> in most cases profitability is not orthogonal to growth

It absolutely is. The longer you can offer a service for free, or for cost below margin, the more users you can attract to your business. It's pretty simple economics - build a nice free garden, let people play in it and invite their friends, get investments to pay your operating costs while improving the garden, keeping it open and free, then close it off and advertise once your ecosystem is strong enough to prevent substantial churn. This is not to say that all companies follow this path, but high growth companies certainly tend to, as it gives them a huge monopolistic advantage by putting profitability off into the future.

Re: Dear Startups: Here’s How to Stay Alive

#17

Post by ritchiea »

rgbrgb wrote: post #11
roymurdock wrote: post #4

You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepre…

Doesn't matter what they're called. If you're running a startup right now and have the option to be profitable vs pursue expensive growth, OP says now is the time to choose profitability. The funding climate has changed and hence risk/reward ratio needs to be recalibrated. Whether this climate change is real or not is maybe up for debate but I'd guess that in most cases profitability is not orthogonal to growth. As a…

When did the funding market change?

Re: Dear Startups: Here’s How to Stay Alive

#18

Post by sharkweek »

roymurdock wrote: post #4

You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrepre…

"If you show revenue, people will ask 'HOW MUCH?' and it will never be enough. The company that was the 100xer, the 1000xer is suddenly the 2x dog. But if you have NO revenue, you can say you're pre-revenue! You're a potential pure play... It's not about how much you earn, it's about how much you're worth. And who is worth the most? Companies that lose money!"

https://www.youtube.com/watch?v=BzAdXyPYKQo

Re: Dear Startups: Here’s How to Stay Alive

#19

Post by CPLX »

jorgecurio wrote: post #15

> You know what kind of companies generally survive? Companies that make more money than they spend. I know, duh, right? If you make more than you spend, you get to stay alive for a long time. If you don’t, you have to get money from someone else to keep going. And, as I just said, that’s going to be way harder now. I’m embarrassed writing this because it is so flipping simple, yet it is amazing to me how many entrep…

Ah, memories. In 1999 I was working for a soon to be doomed music startup, and recall being at a lunch with the founder, who was even younger than me in my early 20's glory. He was quite impressed with himself having raised $1MM and hired a team of 20-30 or so of us.

Me: [Suggesting we should consider a couple things that would give us some revenue, and be mindful of spending]

Him: Listen, you're pushing it here. No offense to your economics degree but it's not like you've founded a business that's made more money than I have.

Me: Of course I have.

Him: When exactly did that happen?

Me: I ran a profitable lawn service business. I don't know the exact figure but we netted thousands of dollars over the lifetime of the business, which is about half a million dollars more than this business, as far as I can tell.

Him: [Grrk, change the subject...]

Re: Dear Startups: Here’s How to Stay Alive

#20

Post by Ftuuky »

What? One of the advice is to get cash flow positive with the money you already have. Isn't that basic knowledge? You can't spend more than you have and you only ask for other people's money when you don't need it. Idk, maybe this is an american thing, with all the capital you have but here (Portugal) you can't get series A funding without being at least cash flow positive, no way.
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