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Reflecting on My Failure to Build a Billion-Dollar Company

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Re: Reflecting on My Failure to Build a Billion-Dollar Company

#331

Post by fyfy18 »

Zanni wrote: post #254
ilamont wrote: post #210

Earlier quoted context omitted.

Most businesses should strive to be self-sustaining. And if they make obscene amounts of money, all the power to them. What I dislike is A) the view from startup land that there are only two types of new businesses, "startups" and everything else ("lifestyle") B) and the "everything else" category is somehow inferior or even some sort of hobby or vanity project. Sahil used the term to describe his own company, and at…

There's a legit distinction, though, between startups and other businesses - startups are designed to grow fast. [0] That doesn't mean they're better, but you have to know the difference or you're going to get yourself in trouble. Is a quarter-horse better than a camel? Yes, if you're trying to win a quarter-mile race; not so much if you're trying to survive in the desert. I think some of the disdain comes from legit…

Although 37signals are often touted as being the poster child for building a lifestyle business, many people forgot they raised ~$10mm in private equity from Bezos in 2006. There are much better examples out there, but as with the nature of lifestyle businesses you aren't going to hear about them as they are rather boring to the media.

Re: Reflecting on My Failure to Build a Billion-Dollar Company

#332

Post by mdorazio »

sytelus wrote: post #313
holman wrote: post #11

Really love this post. My favorite line is: > Every month of less than 20% growth should have been a red flag. I think that's pretty insightful. 20% growth is great for a normal business, of course; for a VC-backed startup it can show some warning signs about future hard decisions you might have to face. I think there's certainly lots of discussion that has been had — and should be had — about "should I or shouldn't…

Let's run some numbers. Say you are VC putting in $1M in 100 companies. To your great luck all companies become self-sustaining lifestyle business. By definition, lifestyle business is making just enough for comfortable lifestyle of founder, so may be $300K/yr pre-tax. Let's say founder decides to give back 10% of $300K as return on investment. At that rate, it would take 33 years for VC to just recoup his original i…

Yup. In reality, it tends to be something more like a 4/3/2/1 split. If you are a VC and invest in 10 companies, 4 will fail outright within 5 years, 3 will be somewhere between zombie companies and lifestyle businesses (both of which are effectively negative ROI for a VC), 2 will be modest successes, and 1 will be a massive success.

Re: Reflecting on My Failure to Build a Billion-Dollar Company

#333

Post by giarc »

bdcravens wrote: post #37

> The next year was not fun: I shrunk the company from twenty employees to five. We struggled to find a new tenant for our $25,000/month office and focused all of our remaining resources on launching a premium service. Ouch. Even at 20 employees, $25k a month is insane when you have no profit. I'm sure it was a pretty office, the kind that attracts good developers in a competitive market.

They probably leased a space with growth in mind. I've read about a lot of companies that continually move because they keep out growing their space and it's incredible distributive.

Re: Reflecting on My Failure to Build a Billion-Dollar Company

#334

Post by adwn »

goatherders wrote: post #329
apatters wrote: post #321

Earlier quoted context omitted.

I was reading an article recently about managing small business growth. Not tech or startup related, just a good old fashioned blog post from an accountant who said hey you've started a business and it's growing, here are some things to consider. (I've lost the link unfortunately.) One point this guy made was that a lot of businesses develop additional overheads and need a lot of cash to grow after they reach around…

People addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year.

> People addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year.

Annual sales of $1M does not mean "generating a million dollars a year". In some industries, those $1M in sales might be as low as $30k to $50k in earnings (though it would probably be more for a software company).

Re: Reflecting on My Failure to Build a Billion-Dollar Company

#335

Post by Daegalus »

Kye wrote: post #188
ryanSrich wrote: post #122

Earlier quoted context omitted.

Scaling to a billion dollar company in that market was certainly attainable. Patreon started two years after Gumroad and now look where they are. Gumroad had a movers first advantage - so I really disagree with the quote. Had they continued to push feature development and tweak PMF they could have been a billion dollar company. Don't take that as a slight to Gumroad either. Building a profitable business from almost…

Patreon and Gumroad were different businesses for most of their histories. Gumroad was always a place to sell stuff and launch subscription services. Patreon is trying to pivot that way now with all their talk of membership businesses, but no one who uses it seems to see it that way. That's why everyone was up in arms about the fee change in 2017. People tossing $1 here and there to people they liked were the foundat…

Any examples of other business that do what you mention at the end? Just curious what the "better" options are. I like to keep abreast of the underdogs.

Re: Reflecting on My Failure to Build a Billion-Dollar Company

#336

Post by hn_throwaway_99 »

sytelus wrote: post #313
holman wrote: post #11

Really love this post. My favorite line is: > Every month of less than 20% growth should have been a red flag. I think that's pretty insightful. 20% growth is great for a normal business, of course; for a VC-backed startup it can show some warning signs about future hard decisions you might have to face. I think there's certainly lots of discussion that has been had — and should be had — about "should I or shouldn't…

Let's run some numbers. Say you are VC putting in $1M in 100 companies. To your great luck all companies become self-sustaining lifestyle business. By definition, lifestyle business is making just enough for comfortable lifestyle of founder, so may be $300K/yr pre-tax. Let's say founder decides to give back 10% of $300K as return on investment. At that rate, it would take 33 years for VC to just recoup his original i…

Yes, but hopefully your average founder will wise up to the following: The chances of you being super successful, happy and content are much higher with a "lifestyle business" than a VC funded one.

Why?

Well, the biggest issue is that VCs can diversify (as you point out, have a lot of bets counting on a few successes), while founders can't.

I think for the vast, vast majority of people, there are greatly diminishing returns after a certain amount of money. That is, if you have a 1/10 chance of having a $10 million payout, vs a 1/1000 chance of a $100 million payout, I think most people would take the former. Put another way, most people are willing to take a good deal of risk for "fuck you" money, but fuck you money for most people is MUCH lower than what VCs expect with a unicorn.

Since VCs do always need to swing for the fences, they invariable will say no to ideas that don't have a huge potential market. My belief is then that there are a number of "mid market" businesses, i.e. ones catering to smaller niches, that have a lot of potential but have lower competition than huge, winner-take-all type businesses.

Re: Reflecting on My Failure to Build a Billion-Dollar Company

#338

Post by echan00 »

Incredible article. Thank you for taking the time to share and educate the world (and me) about your experience as a startup founder. I'm so happy and proud of you to hear that you've found your way as an entrepreneur, who you are in life and what you want to do with it. Good job!

Re: Reflecting on My Failure to Build a Billion-Dollar Company

#339

Post by plinkplonk »

sahillavingia wrote: post #13

Hey, #1 on Hacker News! I don't think that's happened since...I launched Gumroad back in 2011: https://news.ycombinator.com/item?id=2406614 Thanks HN for being a part of my journey!

Sahil,

thanks for writing this article. very useful to me (as someone working on iteration 2 of a company).

(If you see this, could you please fix the paypal integration. In India, we don't have any protection if credit card data gets leaked, (and could end up paying off whatever the hacker charges the card) and I don't use my credit card online if I can help it

Thanks in advance)

Re: Reflecting on My Failure to Build a Billion-Dollar Company

#340

Post by goatherders »

adwn wrote: post #334
goatherders wrote: post #329

Earlier quoted context omitted.

People addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year.

> People addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year. Annual sales of $1M does not mean "generating a million dollars a year". In some industries, those $1M in sales might be as low as $30k to $50k in earnings (though it would probably be more for a software company).

Semantics aside, I'll say it again: people addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year. Even if the earnings are 5% or 3% or even 1% ....getting someone to give you that much money for something you are selling is a lot harder than most people realize. Whether it's a million widgets at one dollar each or one widget at a million dollars, that's a LOT of money to be transacting.
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