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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

#281

Post by coderholic »

Fomite wrote: post #276
coderholic wrote: post #171

Earlier quoted context omitted.

No, I actually think it's much more closely aligned with a VC business than a regular business. It's just a more "regular business" approach towards it. That is, it's still serving a large market, creating a competative advantage (which "regular businesses" rarely have), has compounding growth - it just doesn't need to rush to make it all happen in a few years in a very high risk way.

"That is, it's still serving a large market, creating a competative advantage (which "regular businesses" rarely have), has compounding growth - it just doesn't need to rush to make it all happen in a few years in a very high risk way." You've just described a number of regular business I know. The idea that they're not trying to create competitive advantages is...flawed.

Happy to have my flawed thinking corrected - can you share the examples?

I likely am thinking of a narrow set of "regular businesses" - what came to mind were corner shops, hairdresses, bars or restaurants etc. Even in those cases there are obviously large successful busniesses that do have competitive advantages - but I suspect they mostly get erroded away by competition rather than the business being able to sustain them, and high margins. I would love some counter examples though!

Re: We need a middle class for startups

#282

Post by cseleborg »

tptacek wrote: post #195
cseleborg wrote: post #192

I like some of what the article proposes, but some parts leave me skeptical. The author sketches out an industry of funds to buy and scale small businesses to Middelstand level. I think one of the reasons for Germany's strong Mittelstand is that many of these are privately owned, sometimes even family-owned, and can take a long-term view on business and innovation. I lack the imagination to see how the proposed kinds…

Which is another way of saying you wish there were more LPs to invest in funds that were structured that way.

Is it, though? I'd imagine throwing more partners into the mix only increases the pressure to generate big returns in the short run.

Do you have any examples?

Re: We need a middle class for startups

#284

Post by jadbox »

Ken_At_EM wrote: post #249

Bootstrapped our way to a B2B Hardware and Software product company. On target to hit about $10M in revenue this year, 35 employees. This take really speaks to me and does a great job conveying frustrations that I have felt with the startup world for years. I could go on and on about the downsides of the different funding models and how none of them have ever really worked for us.

Congrats on the growth! What raising modal worked for your startup?

Re: We need a middle class for startups

#285

Post by 1vuio0pswjnm7 »

coderholic wrote: post #103

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 mos…

How about optmising for the customer. Where profits were required, and where there was legitimate competition, this generally used to be a necessity. The "VC backed advice" cannot be to optimise for the customer because it must optimised for the client investor first. This often relies on giving away work for free to non-customers and operating at a loss in order to achieve anti-competitive "growth" and "scale" (according to the "playbook"). The non-customers are the "product", marketed as advertising targets for customers. The race ("sprint") is to acquire unfettered access to the majority of non-customers by getting them to sign in to or otherwise visit cookie-setting websites, install mobile apps, and/or purchase always online computers with pre-installed apps and other surveillance built-in.

A sad casuality of "tech" VC mania is that small scale online businesses are passed over. Apparently internet-reliant startups must all subscribe to VC ideals because that is the only way they can be funded. Selling products and services for profit to non-advertisers is largely ignored as a viable option due the incessant focus on the www's feudual robber barons and the army of robot-like "tech" workers who ignore the lack of ethics and absence of long-term sustainability ("best practices") and want to be just like them. Few are interested in independently-owned, "Mom-and-Pop" online businesses, except for the opportunity to turn them into sharecroppers.

Re: We need a middle class for startups

#286

Post by di4na »

robocat wrote: post #266
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…

> but the first 500k are near impossible to get without a network in old money Four hundred* golden tickets per year winning $500k available here for the low price of $0, although an application is required, and some light strings are attached: https://www.ycombinator.com/deal * https://www.ycombinator.com/companies

A lot of strings attached among other being able to give up your life for 3 months. And a expectation and push to 100x. And a lot of others.

YC is simply not shaped for the Mittelstands and honestly really not compelling. At all.

Re: We need a middle class for startups

#287

Post by di4na »

tmp_anon_22 wrote: post #226
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.

I have a total free time to do non essential things per week of 3h. And i already have insomnia which is the only reason this time is not in the negative.

Thank you but no.

Re: We need a middle class for startups

#288

Post by PeterisP »

missedthecue wrote: post #243
bityard wrote: post #124

Earlier quoted context omitted.

> Is Berkshire Hathaway a lifestyle business? Because it started out as one. My skept-o-meter went off-scale upon reading this. Can you point to exactly when BH was a lifestyle business and what they were doing at that point that would classify them as a lifestyle business?

He raised $105,000 from friends and family and started a hedge fund which became BH.

Yes, but why would you say that it was a lifestyle business? I mean, it's not about size or being family-funded, I'd argue that this hedge fund was something entirely different from a lifestyle business since day 1.

Re: We need a middle class for startups

#289

Post by PeterisP »

ttymck wrote: post #237
snarf21 wrote: post #71

Earlier quoted context omitted.

There is a simple solution. It also give middle class an actual shot at an exit even without hitting a unicorn. This is for the groups that went to state schools not the Ivys. Take a group of 4-6 CS grads and maybe a business major. The parents of these kids form a company and bootstrap the kids by having them work from home and just covering legal costs and cloud costs with a focus on keeping costs low. They go find…

> They go find a problem and start finding customers This is easier said than done, no?

If they can't do that, then it's not an initial funding problem (which the parent post tries to solve) but that their business just should not get started.

Re: We need a middle class for startups

#290

Post by glenngillen »

When I left SF (circa 2014) I had this general unease about what a bunch of my friends, who were now founders, had done to themselves. Quite a few that had what were perfectly great businesses, doing good things, giving people an enjoyable place to work, solving valuable problems for other companies. But they'd raised multiple rounds of funding which meant a billion dollar exit was only barely an acceptable outcome for anybody. It just blew my mind that these people could at that point have invested 5-6 years of their lives building a great business, and that a $1B exit would no longer be something to celebrate. Instead it looked like they were contorting themselves and their priorities into chasing highly speculative new ideas in the hope that found the next big success. Their future was either multi-billion outcome or flame out trying.

Coupled with all of this was a certain level of frustration that the startup game hand changed in the past couple of decades. Very few companies were having to overcome the type of feasibility risk from back in the silicon days of Silicon Valley. Lots of them already had a product in market generating revenue! Cloud had made it cheap and fast to make something real. So funding was increasingly going toward pure execution and go to market/marketing. It was a materially lower risk proposition for investors. Most were still taking their ~20% equity stake though because of the perceived risk, and just inflating it with a higher valuation.

So when I got back to Australia I started exploring different models that gave founders better options. A way to have a stake in the business that felt more aligned with the value/risk. A way to give founders their company back if their ambition or outcomes changed without forcing that go big or flame out dynamic. I was also inspired a lot by what Bryce @ Indie.VC was trying to do around the same time. Unfortunately my co-founder (Matt) and I never managed to get quite enough capital together to get it off the ground. A few years have passed though, and Matt has managed to tweak the ideas, get the capital, and a team together to make it happen (https://www.tractorventures.com).

I have to think we'll see this type of model grow more successful and more popular over time. Not every company needs VC investment. For lots of them it's actually a terrible idea. But lots of founders have grown up buying into all the hype and thinking it's the only viable way to build a really successful company.

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