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Startup = Growth

paulgraham.com

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Re: Startup = Growth

#121

Post by d4nt »

"The best thing to measure the growth rate of is revenue. The next best, for startups that aren't charging initially, is active users. That's a reasonable proxy for revenue growth because whenever the startup does start trying to make money, their revenues will probably be a constant multiple of active users"

This, for me, is the weak point in an otherwise excellent article. A lot of investments, valuations and jobs rest on this assumption. Facebook's PE ratio is currently 127, this assumption is the reason that it isn't around the same level as other entertainment companies like, say, Disney (17) or News Corp (56). And when Facebook's valuation rises like that and people invest at that level then there's a whole lot of money for paying engineers >$100k salaries and buying up pre-revenue businesses like Instagram. So, even if you're Google and you're bringing in real money, the application of this assumption to a few big cases permeates through the whole system and means that you too have to pay engineers >$100k and you too have to pay more to get hold of someone like Nik (makers of Snapseed).

PG logic appears flawless, but as a seed fund manager in the middle of this ecosystem, he's working several layers of abstraction up from some big applications of this assumption. So much so that it probably doesn't feel like an assumption to him. After all, he didn't value Facebook[1] at that level.

I genuinely hope this assumption is correct, because a lot of people and livelihoods are depending on it.

[1] I'm using Facebook here as an exemplar, I'm sure there are lots of other companies out there with valuations that are due in part to the assumption that users = revenue. My argument is that when someone sets a valuation based on this assumption it has a knock on effect to the whole ecosystem.

Re: Startup = Growth

#122

Post by asknemo »

chubot wrote: post #115
asknemo wrote: post #105

Earlier quoted context omitted.

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, whic…

OK, but you're making an observation without a solution... that kind of thing is pretty much irrelevant to people like Paul Graham and CEOs of startups, who have to make decisions about what things to do. You can call people immoral from the sidelines but it will have zero effect. My opinion is that corporations are essentially "amoral" -- not immoral. Morality simply doesn't enter into any substantive decision. Goog…

I appreciate your response, and I fully understand the realistic angle that you have provided.

But I have to clarify that I am not calling pg immoral. I am suggesting the essay could be. People outside the game industry may not get the Zynga problem, but you can also look at, say, Groupon's controversies. "Immoral" could indeed be too strong a word, but I believe few will disagree that aggressive growth strategies has some inevitable side effects, and for this no amount of footnotes is sufficient.

But again, call me naive, "people like Paul Graham and CEOs of startups" should, contrary to what you claim, should care MORE about these problems, because they can certainly afford to, and when they do, it will matter. :)

Re: Startup = Growth

#123

Post by carsongross »

gruseom wrote: post #68
carsongross wrote: post #60

OK. But remember the old Paul Graham, who talked about things like this: http://www.avc.com/a_vc/2012/03/the-startup-curve.html Seems like there's a lot of non-startup in that startup curve, if we are using the new Paul Graham's definitions.

But doesn't that picture track the current essay rather well? Apart from a false start that turns out to be noise, it shows a series of experiments that don't go anywhere for a while but eventually produce a repeatable growth rate. If the diagram were data, the essay would explain it.

Not at all. Notice that Paul says you should be alarmed if you are not hitting 5/7% growth per week. That kind of growth only makes up a tiny fraction of "the process" and, in my opinion, is the easy part to deal with. The hard part, where VC/gurus can add value is the vast gut-it-out parts, but this essay hurts more than it helps on that axis.

I think this is an essay more about "startups y combinator can flip to VCs" than startups.

Re: Startup = Growth

#124

Post by sreitshamer »

I thought 'startup' was defined as a business-like organization in search of a business model. Once it finds/chooses one, it becomes a business.

The essay seems to define 'venture-backed startup'.

Re: Startup = Growth

#126

Post by dasil003 »

asknemo wrote: post #91

Am 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…

Growth is the litmus test, but the article seems agnostic about how you achieve it. Do you go full on psychological predation like Zynga? Or do you make a tool that is undeniably better than the competition by orders of magnitude such as Google? The article seems non-prescriptive on this point. But, if you do not achieve growth by any means, then your company is dead by definition, so you should probably be measuring it.

Re: Startup = Growth

#127

Post by jeremyjh »

nemesisj wrote: post #101

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 phot…

Your longer sales cycle should bring in a lot more revenue for each deal you finally do close. Growth is about revenues not just # of customers.

Re: Startup = Growth

#128

Post by rsheridan6 »

I don't understand why he chose restaurants and barbershops as examples of non-startups. Both make things lots of people want, and some of them are big chains that have wide reach, so they fulfill criteria a and b. Either these are startups, or there are more criteria pg didn't include, such as rate of growth - even the most successful chains usually have 10 years or so from the opening of the first store to becoming huge (inter)national chains.

Re: Startup = Growth

#129

Post by ekm2 »

pg listed writing novels and tech startups as "high-beta" occupations.What are other high beta and high alpha occupations?
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