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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

#221

Post by akerl_ »

bombcar wrote: post #211
tptacek wrote: post #178

Earlier quoted context omitted.

Again: the winners have to pay for the losers. The unusually large successes are what makes the model work. I'm sure they're pushed past the point where they need to go to be economically viable, but by the time you've reached that scale, you're already out of the "mid-market" bracket.

Sure, but if you're 9/10 on successes it's a lot easier than if you have to deal with 1/100.

If you’re able to pick successes with 90% accuracy at the stage where they’d benefit from this level of investment, I’d like to borrow your crystal ball.

Re: We need a middle class for startups

#222

Post by tptacek »

bombcar wrote: post #211
tptacek wrote: post #178

Earlier quoted context omitted.

Again: the winners have to pay for the losers. The unusually large successes are what makes the model work. I'm sure they're pushed past the point where they need to go to be economically viable, but by the time you've reached that scale, you're already out of the "mid-market" bracket.

Sure, but if you're 9/10 on successes it's a lot easier than if you have to deal with 1/100.

Right, where I think you're seeing pushback is on the idea that you can reasonably get anything resembling 9/10. Think about what that's saying: we're talking about businesses doing 8 figures of annual revenue. If there's a playbook for reliably creating those --- "reliably" meaning "you can build a portfolio of them run by different people serving different markets, and make money" --- what is that playbook? Getting a 10MM/yr company off the ground is not a small achievement.

Bear in mind also that as you scope down the size of the companies you're starting, you necessarily also have to scope down the investment (these companies have, obviously, much smaller valuations, meaning $1MM of equity buys a much bigger chunk of the company). But companies today take A-B-round-scale investments to get to 8 figures ARR. You get those investments by targeting a much, much higher ARR.

This thesis doesn't hold up for me, I feel like I have to be missing something.

Re: We need a middle class for startups

#223

Post by fxtentacle »

cseleborg wrote: post #188
sgift wrote: post #122

Earlier quoted context omitted.

> 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? By having a business plan. That's why banks (at least over here in Germany) ask for one when you ask for a loan. You present a plan, someone reads it, you talk it through, clarify a few things and if everyone is happy they give you a loan and you start (or grow) yo…

> they give you a loan Yes, they do, if you can provide a security for the loan. More often than not, the founder is the guarantor, which sucks for them if the business fails. This is moderately founder friendly, to say the least.

In Germany, there's the option to have the government secure your loan towards the investment bank. For the founder, that means you get capital into your new company and only the company is legally liable for it, but not you personally.

Re: We need a middle class for startups

#224

Post by Quanttek »

englishrookie wrote: post #187
Quanttek wrote: post #163

Earlier quoted context omitted.

the "-stand" comes from the German word for "estate" in the medieval sense [1]. It's typically translated with small- and medium-sized enterprises, which is also the lingo used at EU level. As you said, it's a mass noun, so if you want to refer to an individual enterprise belonging to the "Mittelstand," you'd effectively use it as an adjective and speak of e.g. a Mittlestand firm. [1]: https://en.wikipedia.org/wiki/E…

How would you call a person belonging to the Mittelstand in German? In another Germanic language, Dutch, you would say "middenstander" (or plural"middenstanders"), derived from "middenstand".

Oh yeah, if we talk about a person, like the business owner or founder, I'd use Mittelständler and if I desperately tried to anglicize it to Mittelstander

Re: We need a middle class for startups

#226

Post by tmp_anon_22 »

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…

Disagree. This is like complaining rent in the big city is $4k/mo and impossible. No, spend a week on craigslist and get a great place with a roommate for $1.8k/mo.

The same is true for a medium sized business. Nothing is stopping you from doing it, its just stopping you from doing it from a hammock in the Caribbean.

Re: We need a middle class for startups

#227

Post by phendrenad2 »

Didn't the 21st century establish that if something is valuable, it'll be way more valuable if you throw millions of dollars it and run all of the other penny-ante competitors out of business? If you do manage to find some niche, you'll have to either become the one to get VC funding, or watch as someone gets VC funding and eats your lunch. Very few remain under the radar long enough to grow too large to leapfrog.

Re: We need a middle class for startups

#229

Post by dontreact »

cortesoft wrote: post #74
dontreact wrote: post #6

My sense is that in general, and especially in software, the world is becoming more of a winner take all place. This is not a good thing.

With near zero marginal costs associated with software, it makes sense for a winner take all outcome to be the equillibrium.

Makes sense for who? If all competition becomes winner takes all, then most humans become losers.

Re: We need a middle class for startups

#230

Post by Uptrenda »

I get the sentiment but how exactly is raising literal millions in funds 'middle class' in startups? If I had a million dollars I could put together a team of founders who needed about 20k per year each to survive and we wouldn't need to raise until shit was actually finished with substantial revenue. Granted, this assumes you're not in Le Bay (I know) and your expenses are very low (like owning your house) but in my mind this is how startups should be done.

Get a bunch of people to move into one of the founders houses. Sleep on the floor if you have to. Have a coffee pot making bulk coffee for the whole house day-over. Live on nice healthy foods that require no cooking so you can code more. No take away obviously because its horribly over-priced. Plenty of cash for hosting services. Obviously no meme shit like cloud hosting. Use real servers for everything. There are even enough services that provide free resources to startups that you may not need to pay for this. You want to avoid the trap though: becoming dependent on services designed to screw your time and wallet later on.

Anyway, it seems like investors in startups only care about companies with million or billion dollar potential. You hear much less about people who build smaller profitable businesses, period. I'm guessing if it's a small business with limited growth potential you just have to bootstrap it with your own money.

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