Why Not To Do A Startup

I totally disagree with the assertion that it's important to try to do great things, or at all noble to encourage others to do so. For some of us it is, for some of us it is not, and it isn't universal. I don't think it's safe to assume that it's what is is best for everyone and try to encourage them to do it. It clearly is not the best course through life for most people.

It's incredibly selfish to try to convince others to sacrifice their own happiness to make the world a better place for you and to do what you think is important. If someone is happier working at Wal-Mart, and it means they won't author the next web-based [insert MS Office product here] why try to convince them otherwise? Because you want that social network for [insert hobbyist or demographic here]?

It seems to me that a startup can reduce its risk by swapping stock with another startup. That way, if either startup has a liquidity event, then the founders of both startups get approximately half as rich as they would have without the swap. Of course, more than just two startups can participate in a stock-pooling arrangement, reducing the participant's risk further.

Of course a startup does not want to swap stock share-for-share with just any other startup, and there are startups whose prospects are so dim that even if they offer 5 or 10 shares for every share of yours, you would not want to swap stock with them. And learning enough about another startup to judge their expected earnings is a lot of work. But sometimes the work has already been done for you, by YC for example.

There exists what economists call a "moral hazard" here: namely, once a startup has swapped stock with more than one or two other startups, its optimal strategy is for its founders not to put themselves out (that is, to coast, to relax) and rely on the possibility that one of the other startups will make a lot of money. But this is the same concern any individual founder has when he takes on any co-founder, and the solution is the same: you have (or someone you can trust has) to watch the other startups with whom you have swapped stock closely enough to verify that they are working as hard as you are. (YC's requirement that the startups it invests in must all move to the same city makes it easier for YC startups to watch each other in this way.) Along with that you will want to give yourself a time frame (1 year seems about right) during which time you can back out of the stock swap deal if you believe the startup you are swapping stock with is not putting themselves out (or has misrepresented themselves in negotiations with you).

I can think of several way to refine this strategy to deal fairly for example with the situation in which one startup gives up after 18 months while another works hard for four years, but I will stop here for now.

"I totally disagree with the assertion that it's important to try to do great things (...)"

I must admit, I respect your difference of opinion, but I find it very hard to relate to your point of view. Your statement seems to be contrary to a basic aspect of the human condition; that is, the desire to improve our lots in life.

Greatness does not mean "startups for everyone". Perhaps the use of "our obligation" in my quote from Seth Godin meant "completely everyone's obligation" in your interpretation? For me, it meant the obligation of Seth's audience; that is, many of the same types with dreams of entrepreneurship who read YC news. In any case, my belief, which I believe to be the common one, is that greatness has a definition in many different situations.

Personal experience and my readings on the science of happiness (see "Flow: the Psychology of Optimal Experience" by Mihály Csíkszentmihályi) lead me to believe that the happy Wal-Mart employee is probably happy because they are able to regularly accomplish things that are meaningful to them in an environment they find suitably challenging. To say it simply, the happiness the employee finds in their work means they are likely a great Wal-Mart employee!

I think your interpretation of my statement on the nobility of encouragement alters the meaning very dramatically from the plain contextual meanings of my words. Perhaps I am not cynical enough, but to me, 'encouraging' another implies having their best interests at heart, not one's own.

For some of the readers here at YC News, we find ourselves with a startup dream inside of us that we are nearly dying to express externally. Indeed, I agree with you that those who plan to undertake a startup should take pause and not do so lightly. I believe that most of the startup bloggers you speak of at least suggest this. Encouraging people who have taken this look at the strength of their desire and their capability -- that is, freely helping this self-prepared group to reach the happiness they seek -- seems quite noble to me.

I feel I also ought to say something about the strength of your apparent disillusionment with the concept of startups. Life as a entrepreneurial success doesn't have to mean that all of one's old friends and new acquaintances turn manipulative. If it is a fear, one could simply give money beyond living allowance away to worthy causes and step back from the power game (see Woz). It's true there are relationship strengthening opportunities to be missed in starting a company, but there are also some to be gained. Co-founders may become best friends. Compatible significant others may be easier to attract when one is doing what one is passionate about.

That's a very interesting idea! This sounds like something that could be brokered more efficiently by YC or something similar - create an option pool for all the companies in a season (maybe 1% or 0.5% of each). 1% split 6 (8? how many companies per season?) ways isn't a ton, even in a big liquidity event, but's a nice hedge that would reduce risk for all the founders and make YC even more attractive.

For instance, 1% of a $10 mil acquisition would be $100K. If there are 8 companies that round, each would get $12.5K, which for 2-3 founders is like another infusion of YC cash and a few more months of runway.

Hardly enough to cause a moral hazard but still a significant benefit.