Recently there was an article floating around where a VC asked why there aren't more B2B startups. This mindset is why - there's simply no way you can grow at these rates in the early days with most B2B products, particularly the ones in very hard to solve areas like ERP or the like. Anything with a longer sales cycles seems to be instantly disqualified by this definition, which is why we're relegated to so many photo apps and twitter thingies.
Startup = Growth
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Re: Startup = Growth
#102> And the probability of a group of sufficiently smart and determined founders succeeding on that scale might be significantly over 1%. For the right people—e.g. the young Bill Gates—the probability might be 20% or even 50%. So it's not surprising that so many want to take a shot at it.
Which means that even Bill Gates may have failed repeatedly at creating a successful startup.
Just as in poker even great players will lose if it's not in the cards and even the mediocre player can win big on occasion.
The lesson is that even a founder as good as Bill Gates can only expect to succeed if she is willing to make multiple attempts.
Re: Startup = Growth
#103I've read most of the points made here in an essay Joel Spolsky wrote a while back: http://www.joelonsoftware.com/articles/fog0000000056.html
It was very insightful at the time I read it.
Re: Startup = Growth
#104- Venture Capital pouring millions into untried businesses. - The crazy valuations. - The recent complains of VCs that "Entrepreneurs aren't working on enough big ideas". It all actually makes sense now. It's all in the name of Big Risk = Big Reward style ventures. Especially after defining a "startup" as a company meant to grow rapidly and to massive proportions. Not necessarily a tech business. Not an online store…
Yeah, there is something about this startup model I don't quite like. To be upfront, I am not arguing what the word startup means - the society is free to assign to it any meaning it wants and what Paul describes here is a clear, specific meaning that's as good as any.
What makes me uneasy is the model itself and what it implies for the entrepreneur. To me, it makes the most sense for the VCs and other investors who manage a portfolio and can accept to fail in 90%+ of their decisions while still getting massive returns from the remaining 10% that succeed (Maybe I'm even understating the split here). But it's awful for the entrepreneur. They manage portfolios of one and surely, nobody sets out to fail! It's an awful feeling and no matter how much you say "I've learned a ton!", you still waste a big part of your life while also surviving under intense stress.
There is no one model, no clear right/wrong here and clearly Paul's model does work over large numbers of cases, judging from the Googles, Apples, Dropboxes of the world.
I personally favor a more grounded approach where you start with a strong industry background/knowledge or at least a set of skills that make you and your team special. The more diverse your team, the better, as you'll make connections between possible/untapped solutions and your domain's problems. Then you set out to solve a problem you've noticed (with a clear business model and path to initial traction based on your industry intuition and upfront customer discussions) and seek customer interaction as early as possible. If you're in IT, you're in luck as you can often get to your MVP early and you should try to get customers FAST.
Doing this with limited exposure to the VC game, in my mind, teaches your company to live within constraints and minimize your burn rate while making the most out of every member of your team. You can also take a little more time evolving your product, devoting your energy to the science (as opposed to fund-raising, etc.) and discovering unique value propositions. You also have the freedom to pivot as you need and perhaps even spend lots of time with your initial clients (and maybe be a consulting firm for a while) to learn. There may then be a point where you are much better informed about your business and want to go the VC route to transition to Paul's growth mindset. Apple started in a garage with family loans (if memory serves right) and got funded after it was already selling its prototypes and had traction. This formula, of course, would never work for a crappy team, but then no formula does.
Now if you happen to be working on the next Google, then it really is moot trying to achieve a disciplined organization upfront or taking it slow or spending time with initial clients or [fill in the blanks here]. You've found a gold mine and you're essentially pillaging it - who cares if you're inefficient. But less than 1% of smart entrepreneurs out there will end up finding that gold mine and somehow I would hate to be in the 99%. I would prefer a strategy that increases my chances of initial traction, possibly slows me down a litte, but gives me the mental leeway to discover a true niche and possibly a scalable product later on. The book "Nail It then Scale It" comes to mind.
Maybe this is what Paul means all along, but I can't help thinking that the "weekly growth targets" would paralyze many of the newcomer entrepreneurs out there with its singular mindset and make them blind to the intricacies of the problem they are actually trying to solve.
Re: Startup = Growth
#105Am I the only one who think pg's view points appear to be getting more and more extreme, in some sense rather biased compared to his previous essays? Zynga is definitely all about growth. It is fiercely focused on metrics, fiercely focused on growth. But as someone from game industry, we cannot agree that this model is THE model that gives the world and everyone value. If the game industry worked like the way pg desc…
I don't think he's trying to make any moral judgements. He's just making observations about what actually works within the context of our capitalist system. Capitalism has produced this period of explosive growth centered around technology in the USA and Silicon Valley in particular. And if you are trying to participate in that ecosystem, then you should understand what he says (IMO). There wasn't any part of the ess…
You made great points, but I disagree about the morality part.
Wall Street had also produced explosive growth in our economy. It was also a ingenious system with participation of lots of hackers and talents. But I think most will agree now, that when Wall Street operates without considering its own morality, it is by itself, immoral.
In other words, I believe the essay's lack of reflection on the morality issue, which is definitely not a small one (e.g. the Zynga example), is what makes it biased, and partly, immoral.
Re: Startup = Growth
#106Earlier quoted context omitted.
Obviously I meant investment in the traditional sense, the deployment of capital with the expectation of yield and preservation of principal. Working for a startup is an "investment" in the figurative sense, since you are trading your time for equity instead of cash, but what I meant here was literally putting money into some asset or security to increase your wealth or income.
What I meant is that there is no 2x2 matrix like this. You can: work for/be a founder. And you can invest. There are no 'figurative sense investments'. You can't 'invest time'. Nobody cares about your time. You can only invest money [or hours * your market rate, which is money].
I think you are just repeating my point and misunderstood my original description. There are people who invest in and work for startups, people who invest in and work for non-startups, people who invest in startups and work for non-startups, and people who invest in non-startups and work for startups. The interplay between time and money and risk and growth with these combinations became clearer to me because of this post.
Re: Startup = Growth
#107Earlier quoted context omitted.
There really isn't a continuum in most technology markets. Startups that constrain their growth tend to get pounded into the ground by startups that don't. Try being a small search engine competing with Google.
Duck duck go is doing just fine.
Judged by growth rate it's not doing very well: https://duckduckgo.com/traffic.html
Re: Startup = Growth
#108I think it's missing the idea of bootstrapping. I think it makes a much rougher environment for fledgling startups, but I think it should be considered more like a hot forge. The more the odds are stacked against you, the better you get. I guess people sometimes miss that when they are aiming for Twitter/Facebook level revenue accountability.
That's a little bit like saying the optimal strategy for running the Boston Marathon is to start running naked from the Arctic Circle three weeks prior.
Training in harsher conditions than you'll compete in works extremely well.
I suspect Github would have done worse if they had taken early funding. There should probably be more businesses built following their model.
Re: Startup = Growth
#109This essay highlighted something for me, you actually end up having a 2x2 matrix for "work for" vs "invest in" and "startup" vs "non-startup." For example, a certain person may try increasing their wealth by investing in startups, but prefer working in a non-startup. Or another person may prefer investing in non-startups (safe, dividend paying stocks or bonds), but try increasing their wealth by working for startups.…
Most people can't just invest in startups. You need to be an accredited investor, which rules out most people who haven't had a liquidity event or are independently wealthy. The restrictions on what your net worth needs to be are here: http://startuplawyer.com/startup-law-glossary/accredited-inv...
Accredited investor rules only apply to US and Canadian companies. It's possible to angel invest in companies in the rest of the world without being a 1%er - in Europe at least it's very common to angel invest in friends' small businesses/startups.
Re: Startup = Growth
#110Excellent piece. A few comments:
> The constraints that limit ordinary companies also protect them. That's the tradeoff. If you start a barbershop, you only have to compete with other local barbers. If you start a search engine you have to compete with the whole world.
This is one of the reasons why 37 Signals' "small Italian restaurant" is not pertinent to many web businesses.
On PG's concept of startup, which I feel is spot on:
At this stage in my life, I'm more interested in... the "stay small" type of business, ala Rob Walling or patio11's bingo card thing. I think there's something to be said for a niche that's small enough that it's not interesting to larger companies, but can be served with a business that's mostly automated enough to mostly run itself. Perhaps you won't make zillions of dollars, but if it works, it's a good path to more freedom, which for some of is, is what it's about.