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Build a Business, Not an Exit Strategy

melanie.io

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Re: Build a Business, Not an Exit Strategy

#61

Post by hluska »

Negitivefrags wrote: post #48
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.

There is no misunderstanding of how probability works here. 100% of people who start businesses believe they can succeed, otherwise they wouldn't start one. Clearly given that such a high percentage of businesses fail, you are not qualified to judge your own chance at success. Therefore the only time you can know that your percentage chance is higher than the average is when you have a 3rd party that is skilled at ev…

Mind if I jump in with an analogy?

In 2012, the Canadian Olympic team sent 281 athletes to compete at the summer Olympics in London. The World Bank reports that Canada's population is approximately 34,000,000.

Using a raw analysis, you could say that, "A Canadian has a 281/34,000,000 probability of reaching the summer Olympics." That is perfectly valid.

However, you cannot use that same technique to judge individual chances of success. Let's say that I am in a room with Brent Hayden.

Brent Hayden (a swimmer who won a bronze medal) is 6'4 and has a very athletic build. I am 25 pounds overweight, pasty faced from too much time in front of computers and completely void of hand-eye coordination.

Clearly, our individual odds of reaching the Olympics are different. The probability that I will make the summer Olympics is, in actuality, far below 281/34M because I am on the left side of the athletic prowess bell curve. Someone like Brent Hayden's probability of making the summer Olympics in, in actuality, higher than 281/34M because they would fall on the right side of the athletic prowess bell curve.

Those sorts of normal distributions happen in startups as well. Some teams are significantly more suited for the demands of startup lives (just like some couples are significantly better suited for the demands of marriage than others are).

Re: Build a Business, Not an Exit Strategy

#62

Post by dstorrs »

dmor wrote: post #11

It seems like each week or so we have an existential crisis on HN by an author who has realized the "go big or go home" mindset/lifestyle might not work for them. There is a HUGE fallacy in all this expected value rationalization for building a lifestyle business. You are going to DIE someday. You don't have unlimited time, and I'd rather take crazy bets toward building something risky and radical than be comfortable…

"I am doing a startup because...."

So, to you, it's not a startup unless it's what the OP calls the "go big or go home" approach. The OP asserts that that is not a critical element of starting up a business, nor a healthy one, nor necessarily one that will increase your odds of success.

Honestly your argument seems odd. If you were able to do a successful company ($2mm / year rev, $3mm exit after 10 years by OP definition) at 19, why didn't you? Why not use that money to fund your "bigger is better" startup instead of taking VC? Or did you?

Re: Build a Business, Not an Exit Strategy

#63

Post by jborden13 »

pg wrote: post #35
melanie_io wrote: post #34

Earlier quoted context omitted.

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.

One could argue that Facebook's success still remains to be seen. Yes, it captured the masses quickly - but its long term viability has yet to be solidified. It hasn't quite found its business model and the rapid declines of social networks have been well documented. See Myspace...

Re: Build a Business, Not an Exit Strategy

#64

Post by dstorrs »

pg wrote: post #35
melanie_io wrote: post #34

Earlier quoted context omitted.

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.

I consider Zuckerberg to be rich. As far as I can tell from his and FB's public-facing personas, he's a failure at the things that really matter -- integrity, positive impact on others, respect of peers for anything other than wealth acquisition.

Re: Build a Business, Not an Exit Strategy

#65

Post by dstorrs »

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.

The kindest thing I can say here is that I find your interpretation odd and that it contains some substantial And unusual interpretation of the text.

Melanie said she tried the standard (accellerator leading presumably to VC) route, it didn't work, she tried another, nonstandard route, it did. Now she is sharing the lesson that alternatives exist.

Re: Build a Business, Not an Exit Strategy

#66

Post by kazevedo »

dmor wrote: post #11

It seems like each week or so we have an existential crisis on HN by an author who has realized the "go big or go home" mindset/lifestyle might not work for them. There is a HUGE fallacy in all this expected value rationalization for building a lifestyle business. You are going to DIE someday. You don't have unlimited time, and I'd rather take crazy bets toward building something risky and radical than be comfortable…

The way I read it, the post primarily advocates a focus on being sustainable and profitable rather than optimizing for a VC raise. You said as much yourself in the recent TC article on Referly's seed round, no?

As the common wisdom goes, the best way to raise money is to not need it. Whether you decide to take funding at that point to accelerate your growth is up to you.

While looking to raise capital and "go big or go home" is perhaps a good barometer of desired impact, I don't think it necessarily correlates to actual impact. From personal experience, there are plenty of companies that go through accelerators or do the "startup" route that are completely optimized for a flashy launch and raising a few $MM. Even if they do eventually prove to be disruptive and earn an exit, the definition of "impact" is a separate discussion, and, I would argue, not solely based on sale price or how many users you've obtained.

Re: Build a Business, Not an Exit Strategy

#67

Post by dmor »

kazevedo wrote: post #66
dmor wrote: post #11

It seems like each week or so we have an existential crisis on HN by an author who has realized the "go big or go home" mindset/lifestyle might not work for them. There is a HUGE fallacy in all this expected value rationalization for building a lifestyle business. You are going to DIE someday. You don't have unlimited time, and I'd rather take crazy bets toward building something risky and radical than be comfortable…

The way I read it, the post primarily advocates a focus on being sustainable and profitable rather than optimizing for a VC raise. You said as much yourself in the recent TC article on Referly's seed round, no? As the common wisdom goes, the best way to raise money is to not need it. Whether you decide to take funding at that point to accelerate your growth is up to you. While looking to raise capital and "go big or…

I'm not advocating for or against raising money here, but I think the post offers a very low intensity approach as a meaningful way to build a successful business. And for more entrepreneurs, especially first timers, I don't think that is going to work out.

Re: Build a Business, Not an Exit Strategy

#68

Post by ryanwaggoner »

jborden13 wrote: post #8

I love this. It sets a realistic expectation for the vast majority of entrepreneurs. Odds are, you're not getting VC funding. If you want to be an entrepreneur, which should mean you are inherently risk adverse, get to revenue/profitability/CF positive as quickly as possible. Again, with the odds of landing VC funding so low, if landing VC funding is the foundation of your business plan, odds are you are fucked and s…

Could you email me? I'd like to talk more about this offline: ryan at dailypath dc

Re: Build a Business, Not an Exit Strategy

#69

Post by pg »

Negitivefrags wrote: post #48
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.

There is no misunderstanding of how probability works here. 100% of people who start businesses believe they can succeed, otherwise they wouldn't start one. Clearly given that such a high percentage of businesses fail, you are not qualified to judge your own chance at success. Therefore the only time you can know that your percentage chance is higher than the average is when you have a 3rd party that is skilled at ev…

Your mistake in turn is to assume that it's impossible for people to judge their own abilities.

Lots of people think they could write a decent novel. Most are wrong. Suppose only .01% actually could. If your argument were correct, JK Rowling should assume her chances of writing a decent novel are .01%. She feels fairly confident that she could, but she has to discount that, because people are often mistaken about such things, and "fall back to the raw figures."

It is possible to know that one is good at something.

Re: Build a Business, Not an Exit Strategy

#70

Post by peripetylabs »

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.

I think the author correctly understood probability theory.

If a population is modelled by a random variable, each individual probability is unknown. What is known is the continuous probability distribution of the entire population.

Intuitively, this means you cannot know which individuals will succeed or fail, you can only know what proportion will succeed -- regardless of the merits of each individual.

The author correctly calculated mean outcome -- more precisely, expected value:

http://en.wikipedia.org/wiki/Expected_value#Univariate_conti...

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