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Making Startups Powerful

paulgraham.com

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Re: Making Startups Powerful

#71

Post by dqh »

arnorhs wrote: post #66
dqh wrote: post #60

> Being generous makes you more powerful. As Tim O'Reilly said, you should create more value than you capture. Many hard-headed business types would write this off as idealistic hippy stuff, but in fact this is the route to becoming really rich. > Hired CEOS take the power of the companies they run for granted, whereas founders remember the days when the company was so weak that it had to delight users to survive. I'…

This depends on what you are building and what your goals are. What pg is referring to is how to build transformative companies, unicorns if you will. There's plenty of businesses where you are simply optimizing a funnel, and driving more revenue at all costs is fully aligned with the goals of the company

I'm nearly always building early stage companies, where even the dev and operational overhead of charging for some added extra is not guaranteed to be paid for by the money collected.

Re: Making Startups Powerful

#72

Post by InvertedRhodium »

dqh wrote: post #60

> Being generous makes you more powerful. As Tim O'Reilly said, you should create more value than you capture. Many hard-headed business types would write this off as idealistic hippy stuff, but in fact this is the route to becoming really rich. > Hired CEOS take the power of the companies they run for granted, whereas founders remember the days when the company was so weak that it had to delight users to survive. I'…

> Can anyone offer any advice or experiences on talking people out of trying to prematurely squeeze out every last penny?

Yes. Lend them many more pennies, removing the necessity for short-term profit taking and allowing them to run at a loss until they decimate the competition, capture the market and then start raising prices to the point that they are more profitable than had they taken the short-sighted approach.

Re: Making Startups Powerful

#73

Post by wanderingmind »

dqh wrote: post #60

> Being generous makes you more powerful. As Tim O'Reilly said, you should create more value than you capture. Many hard-headed business types would write this off as idealistic hippy stuff, but in fact this is the route to becoming really rich. > Hired CEOS take the power of the companies they run for granted, whereas founders remember the days when the company was so weak that it had to delight users to survive. I'…

As a startup with deep pockets, you think you can afford to be generous, without realising it is made possible due to borrowed time and money. When the bills come due, generosity ends and enshittification onsets.

Re: Making Startups Powerful

#74

Post by iterance »

howunfortunate wrote: post #68
dqh wrote: post #60

> Being generous makes you more powerful. As Tim O'Reilly said, you should create more value than you capture. Many hard-headed business types would write this off as idealistic hippy stuff, but in fact this is the route to becoming really rich. > Hired CEOS take the power of the companies they run for granted, whereas founders remember the days when the company was so weak that it had to delight users to survive. I'…

My sense is that it's context dependent. If you've got VC backing (or could soon) and are making deals in SF, the generosity path makes a lot of sense. Limited downside, infinite upside. You can afford generosity. If you're starting with $2000 and bootstrapping a textiles business out of Kolkata, it's a terrible idea, you're likely going to immediately get burned and never recover. (take with a grain of salt as I hav…

Generosity is not "giving stuff away for free when it hurts you badly to do so." Neither the giver nor the receiver are comfortable when generosity hurts the giver, and the dignity of both may be compromised as well. Generosity that is disrespectful of comfort and dignity is worth very little.

A company with $2000 in its first few days need not give away $1000 to act generously.

Re: Making Startups Powerful

#75

Post by austin-cheney »

mjr00 wrote: post #33
austin-cheney wrote: post #9

> Another thing I'm always looking for is tails that could wag the dog. The history of startups is full of these. Paypal started out doing security for hand-held devices. They created Paypal as a demo of their security software. But then eBay sellers started using it to take payments, and after a couple months the founders acknowledged that this was the business they were now in, even though they hadn't meant to be.…

> I never understood why anybody would pay for Slack when its based on IRC and IRC is free, but whatever. Comparing IRC vs Slack maybe made sense when Slack was very young, and it was like buying a Honda Civic vs a Ferrari, where one is obviously nicer but the other still accomplished the same thing with less frills. These days it's the choice between buying a Honda Civic vs a Boeing 747. They both get you from one p…

I guess I can see it both ways. Most people who claim to be software developers have never written software. They likely write some JSX, type a few commands, and pat themselves on the back.

For those of us who do write software an API integration is typically one HTTP request and I wouldn’t pay a subscription price per headcount for something that takes 10 minutes to build and test one time.

Re: Making Startups Powerful

#78

Post by ignoramous »

dqh wrote: post #60

> Being generous makes you more powerful. As Tim O'Reilly said, you should create more value than you capture. Many hard-headed business types would write this off as idealistic hippy stuff, but in fact this is the route to becoming really rich. > Hired CEOS take the power of the companies they run for granted, whereas founders remember the days when the company was so weak that it had to delight users to survive. I'…

> always instinctively followed the generosity path

> experienced that when customers are delighted and that when frictions are removed

Charlie Munger:

  When other companies find ways to save money, they turn it into profit. [Costco] passes it on to customers. It’s almost a religious duty. [They] sacrifice short-term profits for long-term success”.
> not always been able to convince others

Many different ways to conduct business. "Lean Enterprise" might be in line with your thinking: https://en.wikipedia.org/wiki/Lean_enterprise

> talking people out of trying to prematurely squeeze out every last penny?

I'd say this is a wrong framing. It isn't the people; it is the systems & environs they are in, the incentives they operate under.

Economists have a term they call "willingness-to-pay", using which some business might optimize for "consumer surplus" (low price), some for "producer surplus" (high margin).

See also, The Economics of Customer Businesses, Michael Mauboussin et al, https://www.eatonvance.com/insights/consilient-observer/the-... (2021).

Or Bezos' "Create more than you consume": https://www.aboutamazon.com/news/company-news/2020-letter-to...

Re: Making Startups Powerful

#79

Post by CM30 »

There is some really good advice here. Honestly, I think this might be one of the most important takeaways you can have as a startup founder/CEO in general:

> It's exciting when you notice users "misusing" your product to do something you hadn't intended. This means there's something they want so desperately that they'll not only use any solution you offer, but even use things that aren't meant to be solutions. When you see something like that, don't be annoyed that your users are using your product wrong; listen for the message they're sending, because it could be valuable.

A lot of very specialist businesses seem to fail this test, and lose out on the potential for a huge market because of it. Like it sounds ridiculous as hell, but I remember when GoAnimate had a huge audience among kids and teens looking to make silly videos for sites like YouTube. I also remember the company feeling uncomfortable that they were getting known for that online, and trying to refocus their product/service towards business users instead.

Maybe they should have not done that, and realised that the periphery demographic was a potential customerbase that could have used a slightly different, perhaps more focused product with features relevant to their usecases.

Similarly, I remember an example of a business creating software meant for designing signs for road and metro systems being surprised that toy train and simulation game enthusiasts were using the software for other uses. Again, feels like they should have treated this as a business opportunity, not a cause for confusion or concern.

> Squeezing every last penny out of customers is a distraction. It gets you 2x returns at most. Whereas discovering some new thing you could make for them could easily get you 10x or 100x returns. They're two different ways of looking at the world, and the O'Reilly way makes more, for those who can do it. [5]

This feels like a perfect condemnation of how a lot of private equity firms manage businesses. These sorts of tactics make them money sure, but a lot of the businesses they buy up would probably do better if they held off on the whole 'squeeze resources to breaking point' philosophy in favour of a much more customer focused one.

Re: Making Startups Powerful

#80

Post by epolanski »

jwilber wrote: post #77
ElProlactin wrote: post #76

[flagged]

Yeah, Airbnb has been awful since 2022. Hotels always cheaper, easier, and better.

Airbnb is insanely expensive and I have to do everything myself.

The only reason to choose it is because it has some great venue that Booking is missing, but it's very rare.

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