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We need a middle class for startups

neilthanedar.com

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Re: We need a middle class for startups

#51

Post by roflyear »

ar_lan wrote: post #21
roflyear wrote: post #3

Am I the only one not interested in taking advice from someone who has largely been massively successful? I always feel like these are the people who generally have nothing of real value to say, they just think they do because of their bias from their success.

I'm not 100% sure I agree, but I do think that people who have hit wild levels of success generally don't have advice that tangibly applies to most people. Ironically, I'm going to mention Alex Hormozi (who is very successful), but he said in an interview once that he spent something like $150k to talk to Grant Cardone and thought "I'm easily getting my ROI on that now because Grant's advice applies to someone in my…

Yes absolutely. It would be a great experiment to see what any ultra-successful person would do with even that massive leg up - which puts you in the top 10% of the US, if not the top 5%. And no, they aren't allowed to use any of their connections ;)

The ultra-successful, in my experience, are there because yes, they do have some strong, quantifiable qualities, but they also have massive, massive advantages. Not just being born into a home that gave them quality food, the best education, and all of the other things needed to be healthy in their developing years - but also the experience of their successful parents, the connections their family has, and many other things that I probably do not even know exist.

Some of these families that I know personally have it ridiculously well. Not only were they born with amazing portfolios, but they have great family jobs where they make $8k+ (after tax) every 2 weeks. And they get as much time off as they want - and you better believe they generally use it :)

Of course, they still find things to complain about - as do I.

There are a lot of brilliant and driven poor people. If they are lucky, they will get into the 10% or the 5%. If they win the lottery they make it into the .1%.

Re: We need a middle class for startups

#52

Post by mbreese »

thanedar wrote: post #17
clean_send wrote: post #2

I feel like this is just trying to rebrand “lifestyle businesses” or small businesses in general. Where I grew up it wasn’t uncommon for people to have businesses that did a few million in sales and the whole family worked at. While not as sexy as getting angel investment, it sustained a quality of life that met their needs. In order to run a successful business you don’t NEED mass profits or VC dollars.

I'm trying to split SMB into two categories. Lifestyle small businesses are great too, but I'm really talking about companies with $10M+ revenue potential. You can get top-tier VC returns by building a portfolio of Mittelstand businesses ($10M-$1B in revenue).

> top-tier VC returns by building a portfolio of Mittelstand businesses

I’m not sure this is true. You could get good relative percentage returns, but in terms of absolute returns, I’m not sure the math is there. Meaning, if you invest $1M in a smaller company and get a 20X return, that’s pretty good. But smaller companies won’t have much more need for investment capital. So, your absolute return is limited to $20M.

Now, if you have a larger company that needs $100M in investments (over multiple rounds), but still gets a 20X return, that’s a $2B return.

You have the same relative rate, but a massive difference in absolute numbers. To get the same absolute return, you’d need 100X more companies in a portfolio, which is just not manageable. Even with a 2X return in a $100M investment, you’re still way ahead in absolute terms. ($100M >> $19M)

What I think you’re really trying to argue for is that there needs to be smaller VC portfolios with smaller expectations. I think this is possible, but it’s more difficult to hedge bets with smaller expected returns.

Re: We need a middle class for startups

#53

Post by djhn »

ttcbj wrote: post #34
boringg wrote: post #9

Earlier quoted context omitted.

Also there was a time when "lifestyle business" was getting shade as if it an inferior product for inferior people. I think that was probably just VC shade being thrown at it because they couldn't do anything with the kind of business. That and platforms probably ate away at their core offerings...

As someone who owns a lifestyle business, I think the domain of lifestyle businesses is almost entirely distinct from that of startups. Something that has the potential to be a startup (massive growth), could not be "held back" to remain a lifestyle business. And things that are lifestyle business generally cannot be grown at the pace of a startup. Almost by definition, a lifestyle business lacks the potential for ma…

What kind of business do you operate? Mobile apps or desktop software? Consumer or business SaaS? Developer tools? Something else entirely?

Re: We need a middle class for startups

#54

Post by Taywee »

baddash wrote: post #29
roflyear wrote: post #3

Am I the only one not interested in taking advice from someone who has largely been massively successful? I always feel like these are the people who generally have nothing of real value to say, they just think they do because of their bias from their success.

If someone has been massively successful, that means they know how to be successful. It must be the case they have something of value to say. How can you make the argument they have nothing of value to say?

If somebody has been massively successful from nothing multiple times, it means they probably know how to be successful. If somebody has been massively successful once, it means there is a definite possibility that they know how to be successful, and also a definite possibility that they had connections and/or luck.

Re: We need a middle class for startups

#55

Post by di4na »

TuringNYC wrote: post #49
di4na wrote: post #44

As someone that has been working hard in this domain, there is one major problem to this in software. Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money. You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago…

>> Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money. For two tech founders, the first 500k is literally a year of salary for the two founders. One option here is to bootstrap without outside capital, de-risk, and raise a better round once you've de-risked. For tech founders, the best form of capital can be their own m…

As a tech person at a big tech company making 98k per year as a senior with a rent to pay.

Maybe reconsider what i said and why.

In particular consider that what you said highly limit who can do this and how that limit heavily the kind of company that could grow from this.

Re: We need a middle class for startups

#56

Post by thanedar »

tptacek wrote: post #40

I'm a fan of bootstrapped companies and have started and operated a couple of them, sometimes quite successfully. But I don't understand how the economics of funding them are supposed to work. VC is a star-search business. Most businesses fail, and that includes businesses run conservatively with organic growth. In a portfolio like that, the winners have to pay for the losers, or the math just doesn't work.

I dig into the economics in the post. The data shows the median VC would get better net IRR returns with a Mittelstand PE strategy.

It works because Mittelstand revenue and profitability is much more predictable.

If you're on the Midas List, VC is still a better business. But many investors, especially solo GPs, should consider building a portfolio of middle class startups.

Re: We need a middle class for startups

#59

Post by VictorPath »

roflyear wrote: post #3

Am I the only one not interested in taking advice from someone who has largely been massively successful? I always feel like these are the people who generally have nothing of real value to say, they just think they do because of their bias from their success.

> Am I the only one not interested in taking advice from someone who has largely been massively successful?

I think of Kevin Systrom selling Instagram to Mark Zuckerberg at Facebook. Both success stories. Systrom went to high school at Middlesex, Zuckerberg to Phillips Exeter. I can think of many examples like this. Phillips Exeter high school starts at $47,000 a year, Middlesex high school starts at $54,000 a year.

So my best advice is have your parents give you $200,000 before you start high school so you can be off to a good start.

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