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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

#101

Post by eric4smith »

No.

Already most businesses are started in this broad middle. It's where the TRUE root of entrepreneurship starts.

Heck, you are sure you will get no funding. For sure you will fight for every last customer. You will wonder how you will pay the rent every month and your staff.

Most of these businesses fail. But enough of them keep going to keep the economies of almost all countries going. These are the people that struggle.

There is no need for "funding" or someone to "buy" these businesses.

These business will always exist, and for every one that goes down 3 more spring up in their places.

Jesus.

Re: We need a middle class for startups

#103

Post by coderholic »

Totally agree with this article. It's not just about funding methods, but also playbooks for these types of businesses, and best practices.

I've bootstrapped IPinfo.io to millions in revenue and a team of over 20 - so we're squarely in the "Middle class", and there's a tension between the "bootsrapper advice" (which mostly applies to optimizing for lifestyle and eliminating any risk) and "VC backed advice" (which mostly seems to optimize for scale and speed) - and a lack of advice for anything that balances those 2 (let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome).

Re: We need a middle class for startups

#104

Post by belval »

bradleybuda wrote: post #98
thanedar wrote: post #68

Earlier quoted context omitted.

The key is that Mittelstand businesses are much less likely to fail. (This is why PEs on average outperform VCs. I go into these economics in my post.) This can be the Goldilocks deal for founders where you raise And being VC-backed is only great if you're one of the winners. If you're one of the >90% that's written off, you're back to zero. I hit the wall at Series B with my startup Labdoor. We pivoted to profitabil…

> The key is that Mittelstand businesses are much less likely to fail I think you're getting at the crux of it here. The question is, how does one of these businesses "prove" to investors that they are less likely to fail? The failure rate for new business starts is famously high, whether that business is a tech startup chasing unicorn status or the corner deli. I think this will manifest itself in the due diligence…

I don't have a definitive answer, but I'd venture that that's is something that can be addressed by your pitch, how high you are aiming, etc...

Someone who wants to build niche business software vs "the next Facebook" is a good example. The first case has clients outlined, a good estimation of revenue, competition, etc... The second is more abstract but aims higher. Success (albeit highly unlikely) means billions in revenues.

Re: We need a middle class for startups

#105

Post by clairity »

thanedar wrote: post #68
bradleybuda wrote: post #45

Businesses that are shooting for the "middle class" (say, less than $50M in earnings at their peak) are of course possible and healthy and good for the economy. What's missing in this analysis is that those businesses are not going to be "founder-friendly" the way that the prototypical YC-seed-stage startup is. To use the article's definitions: * "Bootstrapped from zero" is, of course, founder-friendly - no investors…

The key is that Mittelstand businesses are much less likely to fail. (This is why PEs on average outperform VCs. I go into these economics in my post.) This can be the Goldilocks deal for founders where you raise And being VC-backed is only great if you're one of the winners. If you're one of the >90% that's written off, you're back to zero. I hit the wall at Series B with my startup Labdoor. We pivoted to profitabil…

most new businesses in the US are still bootstrapped, usually through a combination of family (non-)wealth, non-professional investment, (small) bank loans, supplier credit, and plain ol' hard labor. most of those will be small businesses, but many will grow to mid-sized businesses. most will not be software businesses.

software doesn't have an investment problem. in fact, it's a maturing industry where all the big money that investors can squeeze out has mostly been squeezed out. that's where the lack of interest in the sector lies, not some missing middle investment. investors are looking for bigger opportunities because the risks have risen, but there's such a glut of money looking for return that we have risky sideshows like crypto/nft's seeing billions pouring into it irrationally just because it could be big.

what is actually happening in relation to the middle is the hollowing out of the real middle class, where family wealth and non-professional investment is going to zero and becoming untenable for starting a new business, and economic rents overwhelm even those where it's available. the problem is that we're becoming feudal, and fewer people managing bigger pots of money is less efficient and less dynamic.

Re: We need a middle class for startups

#106

Post by czbond »

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…

No founders are paying themselves $250k/each/yr until MANY rounds of funding in. If you get seed/angel funding, you'd be paying yourself like $40k in the U.S. if at all. Founders take a lot of risk too, not just "play with funding money earning a job salary"

Re: We need a middle class for startups

#107

Post by marcosdumay »

q-big wrote: post #96
marcosdumay wrote: post #79

Earlier quoted context omitted.

I think this would be much more healthy than the multi-phase aim-for-the-moon approach everybody takes today. And quite likely brings better results for both the investor and the founders. If the business is already on the path to a small profitability, it is much more likely to get into large profitability than something that wasn't even started. And much less likely to get into a total loss. Your points also seem a…

> I think this would be much more healthy than the multi-phase aim-for-the-moon approach everybody takes today. Healthy for whom? - startups founders? - angel investors? - VCs? - national economy? - financial markets? - ...

Hum... I answered that just on the next phrase.

But now that you enumerated more, you can add "national economy" too.

Re: We need a middle class for startups

#108

Post by teucris »

rglullis wrote: post #72
chadash wrote: post #19

Earlier quoted context omitted.

There's somewhere between a "lifestyle business" and a unicorn though. You can be a contractor with a focus on re-doing roofs and pull in $1m/year without too much work once you have things running. You will be wealthy, but you won't ever pull in $20m/year. I think it's fair to call that a "lifestyle business". I know of a company near me that has $300M/year revenue (gross, not net) that sells cables and other equipm…

Oh, come on. You are putting one third of the economy as "lifestyle businesses"? How many fast food franchises make less than that per year, are they "lifestyle businesses"? Seriously, please get out of the SV bubble.

My interpretation of the comment was that tons of business are just clumped into the “lifestyle” category just because they don’t aim to maximize valuation.

Re: We need a middle class for startups

#109

Post by alexashka »

This describes a problem, a potential solution but not the steps needed to get there, the steps in-between.

Those are the tricky bits :)

It reminds me of the 'how to draw an owl' meme where you have a couple of circles on the left as step 1, a finished drawing of an owl on the right as step 2.

Great, but uh, what did you do to get from circles to an owl? :)

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