Build a Business, Not an Exit Strategy • Hacker News Board

Re: Build a Business, Not an Exit Strategy

#31

Post by mdda » Sat, Oct 20, 2012, 6:23 AM UTC

YZF wrote: post #10

Hear hear. I've been saying a similar thing for a long time. If the business is so great why sell? The act of selling implies you think it's worth less than what someone else is willing to pay which is dishonest. If you thought it was worth more you wouldn't sell (under most situations, there are always exceptions). Why shouldn't a VC hold on to the great business they've built for the sake of future cash flow? A gre…

> The act of selling implies you think it's worth less than what someone else is willing to pay which is dishonest.

Any trade involves both parties giving up what they have for what the other person has. Both parties believe they gain from the exchange. There doesn't have to be any dishonesty involved : Both parties can come out ahead of where they started (because they value what they had before vs having after in different ways).

A startup entrepreneur can reasonably value freedom+cash more highly than a cash-cow business. The business buyer may value proven yield above their other alternatives for their cash. Both people win by doing the trade.

Re: Build a Business, Not an Exit Strategy

#32

Post by melanie_io » Sat, Oct 20, 2012, 6:27 AM UTC

dmor wrote: post #28

melanie_io wrote: post #19

Earlier quoted context omitted.

I think you either did not read the article, or did not understand it. I am certainly not advocating 'giving up' in any sense. I doubt you would say that DHH or Tim Ferris have 'given up' and 'settled in their twenties.' I even say outright, that my point is to follow your own path, and make your own rules, rather than listen to the hype and tech press. I am advocating for a worldview where getting VC funding is not…

With all respect (and I loved your previous company) I read it and quite frankly it read like this: "I raised $75K and flamed out and this is my rationalization for taking it easy right now". That's fine for you, but I don't think it is good for other entrepreneurs. I also think the expected value argument is poorly reasoned.

So, profitable business, totally bootstrapped, growing at 20% a month. I guess you could call that "taking it easy." If you think my argument is not well-reasoned, then you should refute it, not just insult me. Lastly, and I don't think the crowd on HN really gets this, I was using the absolute most conservative assumptions possible to prove my argument. Which is, 'even just working 30 hours a week, you still have a better chance at making millions of dollars by NOT raising VC.'

Re: Build a Business, Not an Exit Strategy

#33

Post by [deleted] » Sat, Oct 20, 2012, 6:27 AM UTC

olalonde wrote: post #29

oinksoft wrote: post #18

Earlier quoted context omitted.

I always forget the name of that startup where Torvalds wrote Linux ... he couldn't have made a dent without a startup, could he?

But the same reasoning applies. What was Torvald's "expected value" at the time he wrote Linux? Probably -XXXXX$ if we factor in opportunity cost.

[deleted]

Re: Build a Business, Not an Exit Strategy

#34

Post by melanie_io » Sat, Oct 20, 2012, 6:31 AM UTC

dmor wrote: post #30

melanie_io wrote: post #26

Earlier quoted context omitted.

So, under this reasoning, you are saying all bootstrapped entrepreneurs are average and a waste of life, simply because they choose to go it alone, and not take funding. Hmm, what was that? Something about man, made of out straw...

I'm saying the value will begin to go up as soon as the mindset isn't "30 hours and a good salary". "Expected value" of startups is all about how much money an exit gets you, not the salary you get along the way. I think its awesome you are self-employed, but as far I am concerned it isn't a startup in the sense I think of them, geared for massive growth.

Do you think that is a marker for success in life? A photo sharing app 'geared for massive growth'?

Re: Build a Business, Not an Exit Strategy

#35

Post by pg » Sat, Oct 20, 2012, 6:35 AM UTC

melanie_io wrote: post #34

dmor wrote: post #30

Earlier quoted context omitted.

I'm saying the value will begin to go up as soon as the mindset isn't "30 hours and a good salary". "Expected value" of startups is all about how much money an exit gets you, not the salary you get along the way. I think its awesome you are self-employed, but as far I am concerned it isn't a startup in the sense I think of them, geared for massive growth.

Do you think that is a marker for success in life? A photo sharing app 'geared for massive growth'?

That's essentially what Facebook is. I'm not sure what you mean by "a marker for success in life," but most people consider Mark Zuckerberg to be successful.

Re: Build a Business, Not an Exit Strategy

#36

Post by dmor » Sat, Oct 20, 2012, 6:39 AM UTC

melanie_io wrote: post #32

dmor wrote: post #28

Earlier quoted context omitted.

With all respect (and I loved your previous company) I read it and quite frankly it read like this: "I raised $75K and flamed out and this is my rationalization for taking it easy right now". That's fine for you, but I don't think it is good for other entrepreneurs. I also think the expected value argument is poorly reasoned.

So, profitable business, totally bootstrapped, growing at 20% a month. I guess you could call that "taking it easy." If you think my argument is not well-reasoned, then you should refute it, not just insult me. Lastly, and I don't think the crowd on HN really gets this, I was using the absolute most conservative assumptions possible to prove my argument. Which is, 'even just working 30 hours a week, you still have a…

The problem with your argument it that it rests on a false premise, that you should start the calculation of a $100M exit with the 1% chance you will raise funding. You should actually be multiplying this by the chance that you'll have a 100M exit. And I think far fewer bootstrapped companies have that outcome than VC funded companies. FWIW I don't think being VC funding is success, but adding fuel can certainly help it grow. Just because it didn't work out for you doesn't mean it isn't a powerful tool to a startup founder.

Re: Build a Business, Not an Exit Strategy

#37

Post by EGreg » Sat, Oct 20, 2012, 6:43 AM UTC

The expected value is wrong here, because it imagines a distribution where you either go big or you go home with bubkis.

The truth is that there are a lot of things in between. Owning 33% of a company that is making millions, and is funded, but not sold for $100M, gives you a nice income and you work on something you like. And all this time you were hiring great people and receiving a good income. If you compare that with the lifestyle business, where you have to grind it out, you have a lot more risk in the lifestyle business actually.

So no, not only was the math in the calculation wrong, but really, VC is about scaling a startup (in the Paul Graham sense) into being worth tens and hundreds of millions of dollars and beyond. It's often worth it for the people you meet and the potential exit.

Re: Build a Business, Not an Exit Strategy

#38

Post by pg » Sat, Oct 20, 2012, 6:45 AM UTC

The critical mistake here is a misunderstanding of how probability works. If we know that x% of startups succeed, that doesn't mean that each group of founders starting a startup have x% chance of succeeding.

Some people are orders of magnitude more likely to succeed than others. For those it's a good idea to start a startup. For the rest (a much larger group) it's a bad idea.

Re: Build a Business, Not an Exit Strategy

#39

Post by guynamedloren » Sat, Oct 20, 2012, 6:52 AM UTC

pg wrote: post #38

The critical mistake here is a misunderstanding of how probability works. If we know that x% of startups succeed, that doesn't mean that each group of founders starting a startup have x% chance of succeeding. Some people are orders of magnitude more likely to succeed than others. For those it's a good idea to start a startup. For the rest (a much larger group) it's a bad idea.

And how would one know they are orders of magnitude more likely to succeed than others?

Re: Build a Business, Not an Exit Strategy

#40

Post by pg » Sat, Oct 20, 2012, 6:57 AM UTC

guynamedloren wrote: post #39

pg wrote: post #38

The critical mistake here is a misunderstanding of how probability works. If we know that x% of startups succeed, that doesn't mean that each group of founders starting a startup have x% chance of succeeding. Some people are orders of magnitude more likely to succeed than others. For those it's a good idea to start a startup. For the rest (a much larger group) it's a bad idea.

And how would one know they are orders of magnitude more likely to succeed than others?

I've talked about this in several essays. Someday soon I'll write one specifically about that topic.

Curiously enough, one of the best ways would be to apply to YC. We have a huge amount of data about which founders succeed, and we work very hard to identify the probable successes among the applicants.