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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

#311

Post by tptacek »

lifeisstillgood wrote: post #295
svnt wrote: post #264

Earlier quoted context omitted.

There a couple of subtle things going on from my reading, both potentially but not necessarily fatal: 1) Author is success biased because his dad handed him a playbook that worked on company #1 and then they were able to pivot the second time, so a reasonable outcome appears guaranteed (pro tip: if you founded a company with your dad and you were under 30, he gifted you, and you are both rare, even among founders) 2)…

I'm trying to put some numbers on it Let's imagine the bottom level of the mittlestand as 2.4M pa revenue - call that 200k pmth, 40/400 licenses at 500/5k. I think that is the barest level. Now there is very little technology risk in most B2B saas. (Inam not talking about fusion startups here. That's what VC/gov is truly useful ). But a team of 2-5 people at 100k pa is feasible here. This is not VC shoot for the moon…

There's very little technology risk, but there's absolutely enormous business risk in any technology venture. There's a reason no bank will loan 250k-650k to a 2-5 person tech startup with no revenue.

Re: We need a middle class for startups

#312

Post by bruce511 »

fxtentacle wrote: post #296
bruce511 wrote: post #274

Earlier quoted context omitted.

Personally I do not think employees should pay money to invest in the company where they work. Because if they do, then if the company goes bust they lose their job and their savings on the same day. See Enron as an example where employees were heavily invested in Enron. And the company doesn't even need to go bust - a downturn in the stock price leads to some cutbacks and redundancies, and you're the unlucky one...…

I believe you're seeing things through a US lens there. Many of these small Mittelstand companies are incredibly durable because they don't have high loans and they don't have investors. Also, the idea here is not that it's a great investment (although it usually is), but that it transfers power to experienced employees. Imagine if you and your coworkers owned enough company shares so that you could veto the CEO toge…

Sure, if employees owned more than 50% of the company then they'd have more "seats at the table". In my experience the employee poll is negligible though from a "power" point of view.

My point I guess is that there's no materially different upside to owning shares where you work, or just shares outside. And shares outside diversify your income stream.

If there is a material difference in terms of power, well then I guess that's different.

Re: We need a middle class for startups

#313

Post by tmp_anon_22 »

di4na wrote: post #287
tmp_anon_22 wrote: post #226

Earlier quoted context omitted.

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.

I think we're mixing two points.

"Medium scale/growth/etc startups should be feasible.

And

"Middle class startups should be feasible for people of all time/energy/financial constraints"

---

My point is that medium sized businesses (including startups) have always been feasible. Yeah it takes more effort then coasting on huge financing but thats the price you pay.

Re: We need a middle class for startups

#314

Post by lifeisstillgood »

tptacek wrote: post #311
lifeisstillgood wrote: post #295

Earlier quoted context omitted.

I'm trying to put some numbers on it Let's imagine the bottom level of the mittlestand as 2.4M pa revenue - call that 200k pmth, 40/400 licenses at 500/5k. I think that is the barest level. Now there is very little technology risk in most B2B saas. (Inam not talking about fusion startups here. That's what VC/gov is truly useful ). But a team of 2-5 people at 100k pa is feasible here. This is not VC shoot for the moon…

There's very little technology risk, but there's absolutely enormous business risk in any technology venture. There's a reason no bank will loan 250k-650k to a 2-5 person tech startup with no revenue.

There is a "super" risk issue I am trying to put into words.

Somewhere there is a different approach to capital structure and corporation structure. The one we have ... it works yes. But it's not the only one and we can see problems. And we should try to encourage some experimentation- Mittelstand is one divergence from the UK Limited company model that kind of came packaged with the industrial revolution. (That it came from the UKs big rival in the revolution says a lot)

Why should Bezos or Musk or any early founder get so much of the upside ? Is having a hierarchical command structure stable ? As the oil / Electric / Silicon revolutions start to come to an end, will we need different corporate and capital structures to handle a more sustainable model?

Why should public markets demand quarter on quarter growth as if that was a natural state of affairs (which tends to force every PLC to be a conglomerate whether it wants to or not (tech giants not withstanding). Should companies not be like Unix commands and just do one thing well?

All these are choices - we could have smaller companies, democratic companies, different companies. But we choose not to. (Don't say they are competed away in the market - how many co-operatives exist to be competed away?)

Maybe we can continue the kind of tech-social change we have been seeing for past 200 years. If so keep the scaffolding up. But otherwise maybe we should experiment with new forms of organisation. Because that's what has helped humans rise out of the mud - how we worked together to build something ... less muddy.

And choosing the right kind of organisation for the job at hand is crucial. And an equity corporation controlled by one or two people employing millions who have no say in its direction, might not be the right choice.

So fund a few wild cat companies - we might surprise ourselves.

Edit: literally just ran over this comment : https://news.ycombinator.com/item?id=31346487 (ignore my dumb sarcasm after). But the point is that a congress with 5,000 congressmen is a wildly different beast to the current one. And potentially better (very arguable). But that it's such a crazy, reject it without thinking idea is the whole point - there are alternatives to our current system (and yes that does include fucking it all up and crashing the economy - but we are risking that anyway).

Re: We need a middle class for startups

#315

Post by cortesoft »

dontreact wrote: post #229
cortesoft wrote: post #74

Earlier quoted context omitted.

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.

Makes sense as an equilibrium point. I wasn't making a moral claim.

Re: We need a middle class for startups

#316

Post by robocat »

di4na wrote: post #286
robocat wrote: post #266

Earlier quoted context omitted.

> 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.

You sound like you are making a lot of excuses, but I actually deeply agree with every negative point that you make.

As you are pointing out, the risk of being a founder is just not worth it for you or most people, financially or socially or personally. It rarely makes sense even if you are already wealthy or privileged: even given the advantages you have correctly identified, the expected outcome is failure. Without those advantages the rewards for the risks are even worse. Calculate the median return[1][2][3] implied for the majority of ycombinator founders and it is approximately zero.

Selection bias is a bitch.

[1] https://jaredheyman.medium.com/on-600b-of-y-combinator-start... [2] https://techcrunch.com/2017/06/01/the-meeting-that-showed-me... [3] https://80000hours.org/2014/05/how-much-do-y-combinator-foun...

Re: We need a middle class for startups

#317

Post by svnt »

lifeisstillgood wrote: post #295
svnt wrote: post #264

Earlier quoted context omitted.

There a couple of subtle things going on from my reading, both potentially but not necessarily fatal: 1) Author is success biased because his dad handed him a playbook that worked on company #1 and then they were able to pivot the second time, so a reasonable outcome appears guaranteed (pro tip: if you founded a company with your dad and you were under 30, he gifted you, and you are both rare, even among founders) 2)…

I'm trying to put some numbers on it Let's imagine the bottom level of the mittlestand as 2.4M pa revenue - call that 200k pmth, 40/400 licenses at 500/5k. I think that is the barest level. Now there is very little technology risk in most B2B saas. (Inam not talking about fusion startups here. That's what VC/gov is truly useful ). But a team of 2-5 people at 100k pa is feasible here. This is not VC shoot for the moon…

I believe your last paragraph illuminates the answer: how does a fund with $100M to invest come up with the sales funnel to generate 100 $1M quality deals? You arguably have to do the same amount of work per deal (let’s be generous and say somehow it is 1/2) and your profit is 1/100. So your costs/workload are 50 times higher. (edit: looking back at this I believe I’m not even being pessimistic enough, but I’m too lazy to do the math. We’ve got 5% of 5% sorts of things going on here. So using these numbers to fill your funnel you need 400 initial meetings for one big deal, or 40,000 initial meetings for 100 small deals. That’s one person vs 100 people on payroll. But with small deals you have higher people noise and so you probably need more stages in your funnel and specialization. So it’s probably much worse.)

Then you have to engage with the company, take a board seat, etc. Only way it pans out operationally is if you can still succeed while being really passive (hasn’t worked yet) or automate it. But if you automate it people will know it is automated and game it.

Re: We need a middle class for startups

#318

Post by lifeisstillgood »

svnt wrote: post #317
lifeisstillgood wrote: post #295

Earlier quoted context omitted.

I'm trying to put some numbers on it Let's imagine the bottom level of the mittlestand as 2.4M pa revenue - call that 200k pmth, 40/400 licenses at 500/5k. I think that is the barest level. Now there is very little technology risk in most B2B saas. (Inam not talking about fusion startups here. That's what VC/gov is truly useful ). But a team of 2-5 people at 100k pa is feasible here. This is not VC shoot for the moon…

I believe your last paragraph illuminates the answer: how does a fund with $100M to invest come up with the sales funnel to generate 100 $1M quality deals? You arguably have to do the same amount of work per deal (let’s be generous and say somehow it is 1/2) and your profit is 1/100. So your costs/workload are 50 times higher. (edit: looking back at this I believe I’m not even being pessimistic enough, but I’m too la…

I have seriously suggested that there should be a "million startups" fund - I think it was when softbank lost X billions and I reckoned it was feasible to fund a million YC style / cost companies globally. Yeah it's not viable in SV but there are a lot of cities outside USA.

Do all of the problems you allude to there exist - yes absolutely. But we need something to spin the flywheel.

There is a story that inspires me is https://en.m.wikipedia.org/wiki/Arunachalam_Muruganantham - he invented a low cost tampon making machine - it was not the technology but the marrying of tech, social entrepreneur and local cultural knowledge that increased wealth - and that's the next stage - we don't need another social media giant - we need thousands of locally useful social media (for definitions of local, social, useful etc)

And finally to be brutal - if some fund has 100M to invest and it's too tough to build out their deal funnel, no one is going to sympathise :-(

Re: We need a middle class for startups

#319

Post by dmueller39 »

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.

IMO it's good to take the advice of consistently successful investors who seem to prioritize honesty. Warren Buffet, Charlie Munger, and Chamath Palihapitiya are my favorites. My reasoning is that you can't make consistently good investment decisions without having a reliable mental framework for how to look at the world.

For other classes of successful people it makes more sense to read a biography (or autobiography if you feel the subject is intellectually honest) of successful people to understand how they think and operate. Many of these people won't be looking to give advice, but it is worthwhile to learn from them. For instance you can read the biography of Rockefeller, Carnegie, Franklin, and listen to "How I made this" featuring Michael Dell, and see the threads that are common amongst them. You may then compare that to yourself and understand the differences.

IMO there's plenty of value in the article, but it's an example of something you should critically analyze and verify against other sources before acting on.

Re: We need a middle class for startups

#320

Post by raybb »

lifeisstillgood wrote: post #318
svnt wrote: post #317

Earlier quoted context omitted.

I believe your last paragraph illuminates the answer: how does a fund with $100M to invest come up with the sales funnel to generate 100 $1M quality deals? You arguably have to do the same amount of work per deal (let’s be generous and say somehow it is 1/2) and your profit is 1/100. So your costs/workload are 50 times higher. (edit: looking back at this I believe I’m not even being pessimistic enough, but I’m too la…

I have seriously suggested that there should be a "million startups" fund - I think it was when softbank lost X billions and I reckoned it was feasible to fund a million YC style / cost companies globally. Yeah it's not viable in SV but there are a lot of cities outside USA. Do all of the problems you allude to there exist - yes absolutely. But we need something to spin the flywheel. There is a story that inspires me…

Wow that is a great story. I learned about social enterprises a few years ago and since have been collecting related resources and putting them here https://github.com/RayBB/awesome-social-enterprise
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