Why to Start a Startup in a Bad Economy • Hacker News Board

Re: Why to Start a Startup in a Bad Economy

#51

Post by fallentimes » Thu, Oct 16, 2008, 6:36 PM UTC

emmett wrote: post #43

fallentimes wrote: post #41

Earlier quoted context omitted.

That was an obvious hyperbole. The point is: 50,000 or even 100,000 users =! success, and you don't necessarily need users to make money (although it helps!).

The grow-users-before-revenue strategy has several spectacular success stories: Google, YouTube, Facebook, Flickr, MySpace, etc. etc. That's not to say it's the only valid strategy, but it's certainly a valid strategy. In fact, it probably has the highest payoff, albeit with the highest variance.

-Google, obviously. Anomaly.

-Youtube might have been fucked if it didn't get acquired. It was hemorrhaging cash like Pac Man Jones & Robert Downey Jr. trapped in a strip club.

-Flickr was _priced_ like a talent acquisition.

-Like most acquisitions, the Myspace acquisition has largely failed according to Google, their primary advertiser. Additionally, Myspace's contribution to News Corp's earnings have been piss poor.

I agree that it's a valid strategy (especially for a company like Justin.TV), but IMHO opinion most companies have tunnel vision when it comes to turning in to a real business. It almost makes them risk seeking. Although getting acquired is nice, it sure as hell isn't a strategy - it's a cop out.

I'm trying to come up with companies that tried this strategy and either worked (issued dividends continuously) or was acquired and actually benefited (i.e. was worth their acquisition price based on DCF) their acquiring company. I'm sure there are examples, I just can't think of any off the top of my head.

Re: Why to Start a Startup in a Bad Economy

#52

Post by einarvollset » Thu, Oct 16, 2008, 6:44 PM UTC

Totally unrelated:

Clicked through to Bountii, and then onto their API TOS, and found this:

"[you agree not to] use the Bountii API to operate nuclear facilities, life support, or other mission critical application where human life or property may be at stake. You understand that the Bountii API is not designed for such purposes and that their failure in such cases could lead to death, personal injury, or severe property or environmental damage for which Bountii is not responsible;"

Me he heeeeeee

Re: Why to Start a Startup in a Bad Economy

#53

Post by mariorz » Thu, Oct 16, 2008, 6:49 PM UTC

fallentimes wrote: post #51

emmett wrote: post #43

Earlier quoted context omitted.

The grow-users-before-revenue strategy has several spectacular success stories: Google, YouTube, Facebook, Flickr, MySpace, etc. etc. That's not to say it's the only valid strategy, but it's certainly a valid strategy. In fact, it probably has the highest payoff, albeit with the highest variance.

-Google, obviously. Anomaly. -Youtube might have been fucked if it didn't get acquired. It was hemorrhaging cash like Pac Man Jones & Robert Downey Jr. trapped in a strip club. -Flickr was _priced_ like a talent acquisition. -Like most acquisitions, the Myspace acquisition has largely failed according to Google, their primary advertiser. Additionally, Myspace's contribution to News Corp's earnings have been piss poor…

Listen, I understand that this is the kind of thing you might expect to read in a 1998 edition of Wired and does not fit with the 'getting real' mantra, but (at the very least) eyeballs are monetizable trough advertisement. It's a time tested strategy that has worked just fine in other mediums.

Sites like youtube and myspace did not need to worry about the monetizing part as they got acquired quickly, had they not, maybe the story would be different. I still can't think of sites with a huge and active userbase that failed.

Re: Why to Start a Startup in a Bad Economy

#54

Post by fallentimes » Thu, Oct 16, 2008, 6:50 PM UTC

kingkongrevenge wrote: post #18

brk wrote: post #2

Good article, but I disagree with the Microsoft/Apple example in the beginning. MS and Apple happened to come along when the microcomputer was really starting to take off, and they were able to ride that wave (while 1000's of other microcomputer startups crashed). One thing that worries me personally about starting the "stereotypical" HN startup right now, is that I think the free/fremium model is going to lose steam…

> I would look to solar and certain other viable alternative energy options right now as the next major tech growth sector. Right. The next wave is further electrification, new power generation, and first world infrastructure renewal. New advanced rail and massive rail line build outs. Rebuilding sewage and water systems. Alternative energy. Revamping agriculture for expensive oil and scarce fresh water will also be…

You should become a limited partner at Kleiner; they share many of your thoughts.

Re: Why to Start a Startup in a Bad Economy

#55

Post by Alex3917 » Thu, Oct 16, 2008, 6:52 PM UTC

shimon wrote: post #25

Alex3917 wrote: post #16

"Last year you had to be prepared to explain how your startup was viral. Next year you'll have to explain how it's recession-proof." In my experience, what's true of investors here is also true of potential co-founders. It's so much easier to get other people to work with you if your project is in a trendy field or appeals to the dominant logic of the afternoon. And it's really really frustrating. /end rant

Think of it as an easy way to screen out people who would be uncreative and uncommited. Less signal, but a higher signal to noise ratio.

Intuitively that makes sense but I'm not sure if it's actually true. It's relatively easy to convince someone who would otherwise go into hedge funds to instead do a web startup with you. It's much more difficult, however, to convince that person to do a startup to the field of, say, ethnic pharmacology. That doesn't mean the hedge fund guy would necessarily make a bad partner for a web startup though. (Stereotypes about finance people aside.)

Also, I know pg says that not being able to find a cofounder after a certain point signals a lack of competence or a bad idea, which is generally of correct, but also realize that in some areas finding a cofounder is literally 10x harder than in others-- independent of the merits of the founder or the idea.

Re: Why to Start a Startup in a Bad Economy

#56

Post by pg » Thu, Oct 16, 2008, 6:57 PM UTC

incomethax wrote: post #20

aaronsw wrote: post #19

This article seems to ignore the main argument I've heard: exit strategies are fewer in a recession. IPOs are out of the question and few companies are in an acquisition mood. So instead of growing fast and selling out before you hit your plateau, you have keep your traffic climbing until the market picks back up. That's really hard, esp. since founders have a tendency to get bored. I expect many will start something…

While exit strategies might be fewer during a recession, the point of starting now is that the economy will (hopefully) be out of the recession by the time you want to exit (typically beyond 12-18 months).

Yes. Startups generally take 3-5 years to succeed. The economic situation that far ahead is effectively random, so you can discount it.

Re: Why to Start a Startup in a Bad Economy

#57

Post by arockwell » Thu, Oct 16, 2008, 7:01 PM UTC

emmett wrote: post #43

fallentimes wrote: post #41

Earlier quoted context omitted.

That was an obvious hyperbole. The point is: 50,000 or even 100,000 users =! success, and you don't necessarily need users to make money (although it helps!).

The grow-users-before-revenue strategy has several spectacular success stories: Google, YouTube, Facebook, Flickr, MySpace, etc. etc. That's not to say it's the only valid strategy, but it's certainly a valid strategy. In fact, it probably has the highest payoff, albeit with the highest variance.

Of the companies in that list the only one that I am sure actually turned a profit is Google. Youtube, Facebook, and MySpace don't have a business model. No idea about Flickr, but iirc they were acquired for a pretty low dollar amount.

Re: Why to Start a Startup in a Bad Economy

#58

Post by pg » Thu, Oct 16, 2008, 7:06 PM UTC

jackchristopher wrote: post #50

shimon wrote: post #25

Earlier quoted context omitted.

Think of it as an easy way to screen out people who would be uncreative and uncommited. Less signal, but a higher signal to noise ratio.

It felt like Paul was going to make a hard statement like that, but edited it. But I was thinking, "If the economy is stopping you, you're not the type to start one."

I never said it in the essay, but we have actually been thinking it at YC. One of the hardest things we have to do in the selection process is filter out people who are smart but uncommitted. (Smartness is much easier to judge than commitment in a 10-minute interview.) And now the economy is going to be doing it for us. So frankly I'd prefer to be operating in a mild recession. Unfortunately this one sounds like it is scheduled to be a few notches above mild.

Re: Why to Start a Startup in a Bad Economy

#59

Post by axod » Thu, Oct 16, 2008, 7:07 PM UTC

bad_user wrote: post #46

emmett wrote: post #43

Earlier quoted context omitted.

The grow-users-before-revenue strategy has several spectacular success stories: Google, YouTube, Facebook, Flickr, MySpace, etc. etc. That's not to say it's the only valid strategy, but it's certainly a valid strategy. In fact, it probably has the highest payoff, albeit with the highest variance.

From my pov those are anomalies, rather than the norm. For every Google, Youtube and Facebook, there are thousands of startups with similar strategies that fail. I think it is safer to go the long route and start small, working your way to the top, charging a price right from the beginning. If your application is useful, users will pay for it.

By doing that you limit your growth rate, and your maximum size.

Charging up front puts people off, whereas if you slowly incrementally introduce revenue later, they will probably be hooked by then.

Re: Why to Start a Startup in a Bad Economy

#60

Post by fallentimes » Thu, Oct 16, 2008, 7:17 PM UTC

mariorz wrote: post #53

fallentimes wrote: post #51

Earlier quoted context omitted.

-Google, obviously. Anomaly. -Youtube might have been fucked if it didn't get acquired. It was hemorrhaging cash like Pac Man Jones & Robert Downey Jr. trapped in a strip club. -Flickr was _priced_ like a talent acquisition. -Like most acquisitions, the Myspace acquisition has largely failed according to Google, their primary advertiser. Additionally, Myspace's contribution to News Corp's earnings have been piss poor…

Listen, I understand that this is the kind of thing you might expect to read in a 1998 edition of Wired and does not fit with the 'getting real' mantra, but (at the very least) eyeballs are monetizable trough advertisement. It's a time tested strategy that has worked just fine in other mediums. Sites like youtube and myspace did not need to worry about the monetizing part as they got acquired quickly, had they not, m…

Ugh that getting real shit makes me barf. Applying blanket statements like "you shouldn't need to take VC money" only demonstrates the tunnel vision of working on one business for so long. Much of their advice is very good, but there's too many absolutes for my liking..

Anyway, all I'm saying is too many people are applying the blanket statement "worry about monetization later" when not all of them should be.

In my opinion, it can be easier for businesses to reach the tipping point of paying customers (i.e. break even) vs. the tipping point of users (???, profitability?, acquisition?). I think MM touched on this.

Myspace hasn't show itself to be a real business yet and either has Youtube. I still can't think of user based acquisitions that have quantifiably proved themselves to be a wise decision, though I think Youtube will.