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

Re: Build a Business, Not an Exit Strategy

#71

Post by guylhem » Sat, Oct 20, 2012, 5:38 PM UTC

hluska wrote: post #61

Negitivefrags wrote: post #48

Earlier quoted context omitted.

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…

So what you say with your example is that in a layered sample (say separate the population by heigh or muscle mass), the weighted mean is a better estimator than the arithmetic mean of a sample ?

It is not ignored by statistics. http://en.wikipedia.org/wiki/Weighted_mean

Re: Build a Business, Not an Exit Strategy

#72

Post by guylhem » Sat, Oct 20, 2012, 5:44 PM UTC

peripetylabs wrote: post #70

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 c…

Indeed, and one way to improve that is to separate the random variable that represents the population by different random variables (say male immigrant with at least master level studies, female of less than 30 years, other males, other females) and calculate the success rate of each.

They may have a different probability distribution, even if the population average follow a normal law (central limit theorem)

If you invest is the most achieving group instead of distributing your investment across the population, you will have better returns.

Re: Build a Business, Not an Exit Strategy

#73

Post by peripetylabs » Sat, Oct 20, 2012, 5:55 PM UTC

Great article. The analysis is correct and to the point.

This reminds me of an article about entrepreneurship in a small town in Germany, where they are known for high technology materials engineering. One interviewed businessman was shocked at the offers he received from large, multinational companies. His family business had begun generations ago, and his goal was not to get rich quick, but simply make a living doing what he enjoyed.

That's my definition of success. To each their own.

Re: Build a Business, Not an Exit Strategy

#74

Post by EGreg » Sat, Oct 20, 2012, 6:37 PM UTC

aaronbrethorst wrote: post #47

EGreg wrote: post #37

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…

> 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. Odds are that your VC isn't going to see eye-to-eye with this approach.

Not sure where you get such a conclusion about all the myriad VC firms out there. Founders who are getting a nice income and are able to work on changing the world can do well for the company and its investors:

http://www.youtube.com/watch?v=u6XAPnuFjJc

Re: Build a Business, Not an Exit Strategy

#75

Post by EGreg » Sat, Oct 20, 2012, 6:38 PM 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.

pg, not only are you right about this, but there is a greater mistake in the assumptions here -- namely that there can only be two outcomes: $100M with 0.002% chance, and $0 with a 9.998% chance. In reality, there is so much in between, which raises the expected value quite a bit.

Re: Build a Business, Not an Exit Strategy

#76

Post by [deleted] » Sat, Oct 20, 2012, 6:41 PM UTC

dstorrs wrote: post #62

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 defin…

[deleted]

Re: Build a Business, Not an Exit Strategy

#77

Post by EGreg » Sat, Oct 20, 2012, 6:42 PM UTC

pg wrote: post #69

Negitivefrags wrote: post #48

Earlier quoted context omitted.

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 suc…

Not only whether one is good at something, but whether they are in a good position to try. If you already have lots of traction, or investors, or smart people around you, then it's a good opportunity.

Having said that, what were the people who funded Color thinking?

Re: Build a Business, Not an Exit Strategy

#78

Post by Negitivefrags » Sat, Oct 20, 2012, 9:26 PM UTC

pg wrote: post #69

Negitivefrags wrote: post #48

Earlier quoted context omitted.

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 suc…

That is not an example of JK Rowling judging her own abilities. Her abilities were judged by the market when she published her books.

It's possible to know one is good at something, it's just not possible to judge your own abilities.

Re: Build a Business, Not an Exit Strategy

#79

Post by fearless » Sat, Oct 20, 2012, 10:08 PM UTC

dstorrs wrote: post #64

pg wrote: post #35

Earlier quoted context omitted.

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.

If you're actually arguing that FB doesn't have a positive impact on people, you are so far off the mark that you can't be reasoned with. You might be able to argue about Zuckerberg's methods, but the end result is that he created something that made hundreds of millions of people's lives better. Unless you've done the same, you don't really have the moral high ground here.

Re: Build a Business, Not an Exit Strategy

#80

Post by YZF » Sat, Oct 20, 2012, 11:04 PM UTC

mdda wrote: post #31

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 d…

There doesn't have to be but the way IPOs are set up there's incentive for dishonesty. At the very least, the buyers of the shares are at a information disadvantage compared to the issuer. If you were to personally buy an entire private business you would never accept the level of disclosure that people buying shares in an IPO have to accept. You'd have your experts review every corner of the business.