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Why Being Broke Is A Founder's Greatest Asset

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Re: Why Being Broke Is A Founder's Greatest Asset

#31

Post by ericabiz »

richardjordan wrote: post #20
OldSchool wrote: post #16

Earlier quoted context omitted.

Sorry, but unless you were born with a trust fund, a million bucks in real money is still enough to change the course of the rest of your life. You aren't going to be buying your own island, but you certainly won't have the worries that most people have, as long as you're smart with it, as in living like you don't have it.

I've been there too (i.e. sold a company in the $1-2million range). Once taxes etc. are taken out it's more like half that and that's just two to four years of salary for most folks starting companies of the type we discuss on HN most of the time (given most founders of Silicon Valley style startups can make $100-200k elsewhere). No-one is saying that getting $1mm is a bad thing, just that for most start ups folks on…

I started my hosting company in 2001. If you were in the Valley at the time, you'd know it was a terrible time to be there. No one was hiring. I am a college dropout and had no degree. I sent literally hundreds of resumes out to every conceivable tech company. Never even got a call back. Newspapers (remember those?) were full of smug pundits telling us "The Internet is dead!" or "The Internet is a fad!" Huge companies were going bust by the day.

This was the way I made it work. I wasn't about to go back home to Indiana and live with my parents again, so I hustled.

2001 was a totally different timeframe and mindset than exists now in the tech industry. It's easy to look back, 11 years later, and say "It's easy" or "Startups get valuations 10x higher than that pre-revenue" or "She could have just gone to Google and made that much money." None of that was happening in the tech bust of 2001.

Re: Why Being Broke Is A Founder's Greatest Asset

#32

Post by richardjordan »

ericabiz wrote: post #30
richardjordan wrote: post #2

This is nonsense, or at least misleading for this audience. The example, selling a company for $1.1million isn't even getting to the start line for most folks. If you look at many made-it-from-nothing founders of the companies we know, they rarely start out broke, are often independently wealthy (it's a lot safer to drop out of an ivy-league school with a wealthy family as a backs-stop) or have made significant money…

Hi, I'm Erica, and I'm the person that is mentioned in the OP. (Imagine my surprise to click through a link on the front page of HN and find out it was about me! That was quite a jolt.) Anyway, I wanted to say: $1.1 million is life-changing, especially when it's for a company you started at age 20 and never expected to make more than a couple hundred dollars a month on. I didn't take on any investors for that busines…

Congrats. That's awesome. Particularly at that stage in your life - I bet it's hugely life changing. Would never do ANYTHING to discourage a young entrepreneur. I hope you go on to more, equally interesting, things.

I got a smallish exit a few years ago now, similar sort of range, did much worse with it. Unfortunately we took our $$ mostly in stock and that was depressing - seeing other companies selling for much more while our tech languished ignored in our acquirer as it tanked and our stock became worthless :-/

I think that your example is great, I just disagree with the premise of the article that being broke is "a founder's greatest asset".

Re: Why Being Broke Is A Founder's Greatest Asset

#33

Post by jpdoctor »

ericabiz wrote: post #30
richardjordan wrote: post #2

This is nonsense, or at least misleading for this audience. The example, selling a company for $1.1million isn't even getting to the start line for most folks. If you look at many made-it-from-nothing founders of the companies we know, they rarely start out broke, are often independently wealthy (it's a lot safer to drop out of an ivy-league school with a wealthy family as a backs-stop) or have made significant money…

Hi, I'm Erica, and I'm the person that is mentioned in the OP. (Imagine my surprise to click through a link on the front page of HN and find out it was about me! That was quite a jolt.) Anyway, I wanted to say: $1.1 million is life-changing, especially when it's for a company you started at age 20 and never expected to make more than a couple hundred dollars a month on. I didn't take on any investors for that busines…

> I wanted to say: $1.1 million is life-changing

first: congrats. I'm curious: How much of the $1.1 did you manage to keep (taxes etc.)

BTW It might be a good entry in your blog on how to set up a biz for such events.

Re: Why Being Broke Is A Founder's Greatest Asset

#34

Post by ericabiz »

jpdoctor wrote: post #33
ericabiz wrote: post #30

Earlier quoted context omitted.

Hi, I'm Erica, and I'm the person that is mentioned in the OP. (Imagine my surprise to click through a link on the front page of HN and find out it was about me! That was quite a jolt.) Anyway, I wanted to say: $1.1 million is life-changing, especially when it's for a company you started at age 20 and never expected to make more than a couple hundred dollars a month on. I didn't take on any investors for that busines…

> I wanted to say: $1.1 million is life-changing first: congrats. I'm curious: How much of the $1.1 did you manage to keep (taxes etc.) BTW It might be a good entry in your blog on how to set up a biz for such events.

Hi JP: I lost about a third to taxes (I should have moved to Texas sooner! Ah, well, I'm here in Austin now and loving it.) Another $125,000 or so to debt (it was an asset sale and the business was holding some debt on its books.) And $74,000 to a stupid mistake in the contract--should probably write out the details on my blog so no one gets stuck in that particular quagmire. I owned 91.5% of the company, with the other 8.5% owned by two employees, who also got paid their shares out of the $1.1 million sale.

I also did something risky that, looking back, probably wasn't the smartest idea: I financed $999,000 to the buyer at 6% interest, who then paid it back over 3 years. He did pay it all back, which was awesome, but there were definitely some heart-stopping moments in there. I gained back a lot of what I lost due to the interest payments. But I would never sell a business in that way again--it's just too risky.

Hope this helps. I do my best to be an open book. I totally agree on writing out the blog post, too. I'm running another startup now, so my time is limited, but this is still important stuff to so many entrepreneurs.

tl;dr: Enough to not have to work for 4 years, travel a lot, and to put a down payment on a house here in Austin. :)

Re: Why Being Broke Is A Founder's Greatest Asset

#35

Post by [deleted] »

jpdoctor wrote: post #33
ericabiz wrote: post #30

Earlier quoted context omitted.

Hi, I'm Erica, and I'm the person that is mentioned in the OP. (Imagine my surprise to click through a link on the front page of HN and find out it was about me! That was quite a jolt.) Anyway, I wanted to say: $1.1 million is life-changing, especially when it's for a company you started at age 20 and never expected to make more than a couple hundred dollars a month on. I didn't take on any investors for that busines…

> I wanted to say: $1.1 million is life-changing first: congrats. I'm curious: How much of the $1.1 did you manage to keep (taxes etc.) BTW It might be a good entry in your blog on how to set up a biz for such events.

[deleted]

Re: Why Being Broke Is A Founder's Greatest Asset

#36

Post by tisme »

ericabiz wrote: post #34
jpdoctor wrote: post #33

Earlier quoted context omitted.

> I wanted to say: $1.1 million is life-changing first: congrats. I'm curious: How much of the $1.1 did you manage to keep (taxes etc.) BTW It might be a good entry in your blog on how to set up a biz for such events.

Hi JP: I lost about a third to taxes (I should have moved to Texas sooner! Ah, well, I'm here in Austin now and loving it.) Another $125,000 or so to debt (it was an asset sale and the business was holding some debt on its books.) And $74,000 to a stupid mistake in the contract--should probably write out the details on my blog so no one gets stuck in that particular quagmire. I owned 91.5% of the company, with the ot…

That's an earn-out, not a sale!

Re: Why Being Broke Is A Founder's Greatest Asset

#37

Post by jpdoctor »

ericabiz wrote: post #34
jpdoctor wrote: post #33

Earlier quoted context omitted.

> I wanted to say: $1.1 million is life-changing first: congrats. I'm curious: How much of the $1.1 did you manage to keep (taxes etc.) BTW It might be a good entry in your blog on how to set up a biz for such events.

Hi JP: I lost about a third to taxes (I should have moved to Texas sooner! Ah, well, I'm here in Austin now and loving it.) Another $125,000 or so to debt (it was an asset sale and the business was holding some debt on its books.) And $74,000 to a stupid mistake in the contract--should probably write out the details on my blog so no one gets stuck in that particular quagmire. I owned 91.5% of the company, with the ot…

Very interesting details! Thanks again.

Re: Why Being Broke Is A Founder's Greatest Asset

#38

Post by nitrogen »

richardjordan wrote: post #20
OldSchool wrote: post #16

Earlier quoted context omitted.

Sorry, but unless you were born with a trust fund, a million bucks in real money is still enough to change the course of the rest of your life. You aren't going to be buying your own island, but you certainly won't have the worries that most people have, as long as you're smart with it, as in living like you don't have it.

I've been there too (i.e. sold a company in the $1-2million range). Once taxes etc. are taken out it's more like half that and that's just two to four years of salary for most folks starting companies of the type we discuss on HN most of the time (given most founders of Silicon Valley style startups can make $100-200k elsewhere). No-one is saying that getting $1mm is a bad thing, just that for most start ups folks on…

EDIT: Hm... not sure how one can be downvoted for clarifying my point in response to a comment. Meh, I guess I still don't understand the way HN works.

These things usually have a way of working themselves out. It could have been as simple as a misplaced thumb trying to scroll on a phone.

Re: Why Being Broke Is A Founder's Greatest Asset

#39

Post by [deleted] »

richardjordan wrote: post #2

This is nonsense, or at least misleading for this audience. The example, selling a company for $1.1million isn't even getting to the start line for most folks. If you look at many made-it-from-nothing founders of the companies we know, they rarely start out broke, are often independently wealthy (it's a lot safer to drop out of an ivy-league school with a wealthy family as a backs-stop) or have made significant money…

[deleted]

Re: Why Being Broke Is A Founder's Greatest Asset

#40

Post by hungry__founder »

richardjordan wrote: post #2

This is nonsense, or at least misleading for this audience. The example, selling a company for $1.1million isn't even getting to the start line for most folks. If you look at many made-it-from-nothing founders of the companies we know, they rarely start out broke, are often independently wealthy (it's a lot safer to drop out of an ivy-league school with a wealthy family as a backs-stop) or have made significant money…

Being broke is a huge distraction to most founders, having to focus on the distractions of family, sometimes a spouse and/or kids, and struggling to pay bills - none of that is a good thing for one's ability to focus on getting your startup to any kind of critical mass.

Un-fun things startups do when broke: Digging through your belongings for spare change to buy a meal while you're working on closing a deal is not fun. Closing your 401k is not fun. Trading in your car for an ancient beater is not fun. Keeping a straight face with clients while screaming inside is not fun. Staring at an empty cupboard wondering what you're going to eat is not fun. Coding on an empty stomach is not fun. Selling your furniture is not fun.

If an important deal gets delayed (which it always does), and you're living broke (AKA ramen profitable) to keep as much as possible in your business, you may have to do all the above and more to get through lean times. Far better to avoid the distraction of fighting to survive by not being broke.

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