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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

#41

Post by notahacker »

roymurdock wrote: post #21
notahacker wrote: post #13

Earlier quoted context omitted.

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.

> to try to corner a market The author's point seems to be - don't try to corner the market, the days of us investing in 5% success rate "moonshots" that do corner the market is over because that 5% is now down to 0.5%, and easy liquidity events such as IPOs and acquisitions are getting harder to come by. Just make a decent product and swim along with all the other little fishes because we don't want any risky market…

That is, to put it mildly, an uncharitable way of interpreting a statement that most well-funded startups ought to be able to find a route to profitability without further growth capital if it's not forthcoming. If there's one single reason why 5% moonshots are in danger of becoming 0.5% moonshots it's the palpable contempt for the concept of a route to profitability that you're displaying. Having enough revenue to be able to grow [more slowly] once the VC cash has all been spent is not a bad thing, and it doesn't make you a "little fish".

It's even arguable a startup is not really that close to cornering a market if there's no route to breakeven point without taking on further funding. That basically means they're either too tiny to enjoy any economies of scale, not competitive enough to be able to price their product at breakeven point or haven't opened the money valve enough to actually have a real market at all yet. Sure, any startup keen on cornering a market should have estimates of just how much additional CLV can be realised if they raise another $50m to scale up the sales team rather than continuing on their current growth path with the smaller team, but few of them should need that Series C to keep the lights on.

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

#42

Post by michaelbuckbee »

rpgmaker wrote: post #31
sharkweek wrote: post #18

Earlier quoted context omitted.

"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

Huh, Gabe is on that show. How good is that tv show anyways? I've been meaning to binge watch it but it seems like its raison d'être is to take cheap shots at SV.

My non SV friends think that it's outlandish and unrealistic, my SF friends think it's close to a documentary.

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

#43

Post by nostrademons »

tdaltonc wrote: post #27
tarr11 wrote: post #3

The cynical side of me wonders if all this is "helpful advice" from VCs is just designed to bring valuations down to earth.

Is there no objective way to tell if things are really cooling? Or for what types of startups things cooling?

There is no "objective way" when it comes markets, there is only what the market will give you. If the market will give you $450M for 5% of a product that doesn't work (a la Theranos), then objectively you're worth $9B, at least until you go bankrupt and then you're worth nothing. If the market is dead but you somehow manage to IPO anyway, save the company, and sell for $1.5B, you're worth $1.5B (a la LoudCloud/Opsware). If you want to find out what you're worth, try to raise money, and whatever you can get is your answer.

This throws a lot of people for a loop who want one source of objective truth for everything. But markets don't work that way: they're just deals between individual people, which may or may not become public. If somebody else makes a deal that you think is absolutely crazy, it is objective truth for them but absolutely irrelevant to you.

Personal finance works the same way. I know a few folks who were momentarily multi-millionaires during the dot-com boom; then valuations came crashing down and they were completely broke. We also tend to think of the value of a dollar (in cash) to be stable, but as anyone who lives in Zimbabwe can tell you, that's not a given.

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

#44

Post by mindcrime »

tarr11 wrote: post #3

The cynical side of me wonders if all this is "helpful advice" from VCs is just designed to bring valuations down to earth.

The cynical side of me wonders if all this is "helpful advice" from VCs is just designed to bring valuations down to earth.

I'm not really into conspiracy theories as a rule, but I will admit to having a similar thought. At the last, I find myself wondering if advice from VC's - especially regarding something like valuation - doesn't inherently tend to be self-serving on their part.

Remember, the objectives of a VC and the objectives of an entrepreneur aren't always aligned.

That said, you can't really argue with this part:

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.

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

#46

Post by nostrademons »

gyardley wrote: post #32
tarr11 wrote: post #3

The cynical side of me wonders if all this is "helpful advice" from VCs is just designed to bring valuations down to earth.

Oh, it's decent advice for right now. Of course, you probably need that decent advice because you listened to your VCs' previous decent advice in better economic conditions - "don't worry about profit, just grow grow grow as fast as you can." The cynical side of me thinks that it's this flip-flopping between two extremes that ends up disproportionately benefitting investors, and that entrepreneurs would be better ser…

Nah, I figure that venture investors operate under conditions of extreme uncertainty, which means that they make decisions almost purely on emotion. That's what our emotional circuits are made for, after all: subconsciously aggregating a lot of signals so we can make decisions when there's not enough information to process it rationally.

And yes, entrepreneurs are almost always better off ignoring everything an investor says and using their own data (which ought to be better than that of an investor's, otherwise why the hell are you founding a company?) to come to a conclusion.

The "Mr. Market" allegory was published in 1949, but it's never been more apropos. Pretty much all venture capital operates on this principle; use it to your advantage:

https://en.wikipedia.org/wiki/Mr._Market

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

#47

Post by eldavido »

What goes unspoken is how tiny the overall effect of this will be.

Yes, it will bring some concentrated pain to investors, CEOs, and employees of lots of companies. But how many people will be genuinely, life-alteringly affected by this? 1000? Maybe a few thousand? 1-2% of SF's population? By way of comparison Google has what, 50,000 employees?

I keep having to remind myself that the big companies are the elephants in the room compensation-, real estate- and traffic-wise. They employ hundreds of thousands of people and pay billions of dollars annually in wages. As much as I'd like an affordable place to live, none of this will move the needle that much for the average Bay Area resident.

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

#48

Post by rpgmaker »

When a market like this turns, in order to survive, it is critical to redefine what success is going to look like for you – and your employees, and your investors, and your other stakeholders. Holding on to ‘old’ ideas about IPO dates, large exits and massive new up rounds can ultimately be demotivating to your team.

.

.

Stop worrying about morale: Yes, you heard me right. I can’t tell you how many board meetings I’ve been in where the CEO is anguished over the impacts on morale that cost cutting or layoffs will bring about.

With these prospects, I wonder how will these CEOs keep all those underpaid and highly skilled young laborers working for him/her now?

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

#49

Post by ojbyrne »

mathattack wrote: post #7
tarr11 wrote: post #3

The cynical side of me wonders if all this is "helpful advice" from VCs is just designed to bring valuations down to earth.

I am a cynic about VCs "Talking their books" but this is a little different: - The stock market is off 20%. - Very few IPOs. - Many hot IPOs are under the offering price. - Most of the public market investors that have entered late in the game (Fidelity, etc) are marking down their positions, and holding off on new investments. Every solid company should have a "What would we need to do to get cashflow positive?" sce…

Which stock market is off 20%? When I look at the Dow or S & P , I see a roughly 10-12% decline from its peak value. And after 2 days of up 2%, suddenly there's a headline saying "the bulls are back."

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

#50

Post by mindcrime »

morgante wrote: post #38
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…

Can you really not tell the difference between the corner laundromat (a profitable small business) and Atlassian (a startup which was profitable for most of its history)? Startups are companies designed to grow fast. [1] Frequently, that means spending more than comes in but it's definitely not a prerequisite. Likewise, there are plenty of small businesses which take years to reach profitability (some never do)—that…

Startups are companies designed to grow fast.

I would disagree with this terminology. I posit that a "startup" is a company designed to grow big. How fast it gets there is an implementation detail. Many startups aim for fast growth, but not all do. To me, the distinction between "the corner laundromat" and a slow-growing startup is that the startup still intends to be a Really Big Company.

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