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Before the Startup

paulgraham.com

141–150 of 169 posts

Re: Before the Startup

#141

Earlier quoted context omitted.

You can easily start a company that requires significant R&D: start with consulting; then one day sell the product you want to make with the right license and timeline, then make it and sell it to everyone. Look at Space X, they were making money wayyy before they were igniting rockets.

I don't think you could pick a worse example. Space X was founded by a billionaire, who injected 100M USD from his own pocket, and then took 20M from his buddies. That's as far as it can get from what people imagine when they read "bootstrapping".

SpaceX is a perfect example though. First off, of course a company like SpaceX requires a lot of money to do anything, that's the nature of a company that needs to produce and operate manufactured goods, there isn't the same cost floor as with digital goods (which is now practically zero).

More importantly, the goal of SpaceX is fundamentally the colonization of Mars, and the idealized method to do that is a fully reusable interplanetary spacecraft. If SpaceX had tried to build that and only that from their start they would have rapidly ran out of money, even $100 million, and had little to show for it. Instead they bootstrapped their way toward acquiring the capability to design, build, and operate such things while also building a corporation capable of funding such operations. Initially they built a small orbital launch vehicle, just barely at the limit of market feasibility, using very conventional technologies and very conventional designs, applying innovation peace-meal where it made sense. Even then it took them several tries to get a launch vehicle that worked, and it wasn't even very competitive in the launch market. But it proved that SpaceX was capable of building launch vehicles, which enabled them to get grants and contracts to build a launch vehicle that was.

It wasn't a demo or a prototype, the Falcon 1 was a fully functional "MVP". And it wasn't investment funding that got them to the next stage, it was effectively pre-orders for the next generation of their product. Then you look at what they've done since, they've built iteratively, advancing toward their goal, but even now they still haven't gotten everything into place that they need. They're still working on partial reusability, still working on manned spacecraft, still working on clustered core staging, and so on. But even so they have viable products that are bringing in a lot of revenue, with new products coming online soon that will bring in even more revenue. They are still several iterations and many years away from their goal but by the time they get there they'll have the expertise, experience, and revenue to actually make it happen.

As with most endeavors, it's almost always easier and better to get to a big goal iteratively. That's how you build skill, it enables you to sell your earlier iterations to maintain revenue to keep your company alive, and each iteration provides lessons which inform the next and can reshape the grand idea you once had.

Re: Before the Startup

#142

Earlier quoted context omitted.

From my observations as a participant of such events, people actually working on startups don't frequent them. The composition of people attending your typical bi-weekly unmeeting is: few people with money, lots of people who would like some of that money, few random CEOs who look for free employers, and the rest that just wants to hang out with "startup guys" because it's cool (and maybe they get to see some new toy…

This is spot on (especially for the "Hackers & Founders" kind of meetups) but there are a subset of (technical) events that are full of smart people and less bullshitters. None of them will probably be your real customers but most of the people you'll meet are extremely interested in startups and new ideas. It's a crowd of early adopters, willing to try anything. This is worth something, at least while you're startin…

Anyone know any good places to meet people who are interested in startups but who aren't from technical backgrounds?

There must be people out there who have identified problems that software can solve, but who can't build the solutions themselves. Lawyers who know what law firms need or plumbers who know what general contractors need, and such.

Re: Before the Startup

#143

Earlier quoted context omitted.

Sounds like you've had some negative experiences with your bank. I would beware of "specialized finance firms" that have "sprung up overnight". Typically their lines are very limited and come with huge rates. I don't think there's really much complexity to technology businesses that most competent finance guys can't figure out. They are looking at your P&L and financials for some key ratios, pretty simple. Regardless…

first of all, "pop up overnight" is in "quotes" because they didn't pop up over night. this industry and firms have been in existence for decades but only grew quickly in the last 10 years because commercial banks stopped lending money . did you hear about something called the "credit crisis"? second, what you're saying is so blindingly obvious that it doesn't even need to be said - startups do not fall into the cate…

--startups do not fall into the category of traditional businesses with strong P&Ls and great balance sheets--

So as a bootstrapper are you still taking this approach past year 3 or 4? At a certain point you need to hone in on that repeatable / scalable business model and put up some numbers or fold.

If you're a couple years in and have bootstrapped past breakeven your funding options AND odds of survival are greatly improved- so why not orient around that outcome?

I'm not here to defend the absurd behavior and ignorance of commercial banks just pointing out that sometimes the game changes if you can afford to take a slower more incremental approach to growth than what is typically demanded by VC.

Re: Before the Startup

#144

Earlier quoted context omitted.

As an investor, you'd rather fund Apple, Google, or Facebook than Viaweb.

Not necessarily. Would you properly fund EverPix or TextSecure, or would you worry about them sticking to their principles too much and avoiding potential profit opportunities?

As an investor, yes, necessarily. As someone trying to do good and make money at the same time, of course your priorities will be muddled.

Re: Before the Startup

#145
Nice I like this, it makes me feel somewhat better about choosing to pursue graduate education (in engineering) over getting a job at a bigco in my field. I will certainly learn more fundamental concepts, and frankly, work on much more interesting technical problems.

That being said, regarding having domain expertise on the furthering boundaries of a topic (presumed technical), I'm not sure if evidence suggests that this is the best way to go. Did this help any of AirBnB/Dropbox/Reddit? These are not "technical" companies, at least what got them started.

Maybe I'm reading too much into how technical the domain expertise should be, though he did mention computer science in his fractal analogy. Perhaps I'm just having a tough time having faith that doing research on the forefront of computer vision will lead to good startup ideas.

Re: Before the Startup

#146

Earlier quoted context omitted.

You can easily start a company that requires significant R&D: start with consulting; then one day sell the product you want to make with the right license and timeline, then make it and sell it to everyone. Look at Space X, they were making money wayyy before they were igniting rockets.

I don't think you could pick a worse example. Space X was founded by a billionaire, who injected 100M USD from his own pocket, and then took 20M from his buddies. That's as far as it can get from what people imagine when they read "bootstrapping".

Elon Musk was worth $160M and invested $160M in SpaceX, Tesla, and Solar City. His investors gave up on him during the hard times. He chose to risk all of his money instead of giving up.

Re: Before the Startup

#147
post #115

Earlier quoted context omitted.

I don't really remember those two talking about startups being gameable in the way that PG is talking about megacorps. Most of the reasons they prefer bootstrapping vs startups are around the idea that bootstrapping has a predicable model for success. Where as your chances of a successful exit in a startup are like winning the powerball. Even PG notes that one good exit covers the losses of hundreds of other investme…

Bootstrapping is not excluded from being a startup. 98% of all startups in Canada, for example (tech included) are self-funded. There ultimately is little freedom from bosses. Either your VC's are, or paying customers are.

>There ultimately is little freedom from bosses. Either your VC's are, or paying customers are.

I hear this line often, and I think it switches terms. I'm a bootstrapper. When I say I don't have a boss, I don't mean I don't have responsibilities. I have a ton of responsibilities – maybe more so than those with jobs. I can't easily take a 100% off vacation, for example.

But I don't have a boss. I can arrange things how I want. I could even blow off customer support entirely, if I felt like it. I'd make a bit less money, probably, but I'd still be fine.

And I've occasionaly "fired" whole categories of customers when I felt like stopping a certain activity. Couldn't do that to a boss.

Re: Before the Startup

#148
"My kids are little, but I can imagine what I'd tell them about startups if they were in college, and that's what I'm going to tell you."

------------ I made my first money at 8. I bought a Honda 50 for $60 and sold it for $180 after painting it and fixing some little things. My father guided the whole process of course, but it was my money and my work that got the result. Now I am 45 and I have 4 boys. My oldest is 10 and has been working on his "startup" for two years. He is making his own version of Pokemon, and he has sold some of his characters on T-shirts. Total revenue so far - $120.00 (1)

It is not much. But it is something. At 10, my kid is outsourcing graphic work overseas, he has sent out 30 projects on Fiverr. He is using outside vendors to make shirts, and having to deal with customers asking about shirt orders (he took some money, but forgot to order the shirt. Then he has to deal with upset people). While the dollar amounts are trivial, my purpose it to get him exposed to how business and making money works. So far he has been doing it for 2 years and his quality of work and detail have grown so much that you would probably not believe it. My main job is to ask him if the work is as good as he can make it (most of the time he makes it better, some times he decides that he is done)

The interesting follow on effect for me is that his younger brothers are now wanting to do the same. The 7 year old has been bugging me to get his website done, and has done his first few drawings. His project is very similar to his older brother;s , but we have made sure that they are distinct. Last week the 4 year old decided that he needed a company too (so far it is only a declaration, he has not decided on a concept).

So I guess I am doing it different. I can't imagine waiting until college for them to start. They see what I do, and want to do similar things. So they are. To me it is amazing what they can accomplish, and how "making a company" for them is more interesting than watching TV. This weekend we have a giant vat of playdough waiting to be made. My oldest is going to model the racetrack for his Android game in real life, then translate it to digitial . All of this was his plan, I merely drove to the store to get the materials.

It is not a startup of course, more like a complicated hobby. The kids are having fun, and so am I ,

Maybe in another 10 years my son will be ready for a real startup. By then he will have 10 years into customer service, colabortaing with an international team, product development. Mostly I hope he enjoys himself and learns some things about business. It beats a lemonade stand.

1 https://www.facebook.com/legimon?ref=hl

Re: Before the Startup

#149
post #72
post #70

Earlier quoted context omitted.

The important distinction is between what people want and what people are prepared to pay for. So when your startup is making something people want, but few are prepared to pay for, you can get a massive user base that make it look like you have a very solid startup which you manage to sell for huge amounts of money, while the company only has a tiny chance to ever make a profit. Then you have gamed the system.

Are there any good examples of startups creating a "massive user base" but not making any money? The likes of WhatsApp were valued significantly higher than the readings of their cash flows would convey. So such examples of massive valuations in spite of zero or negligible cash flow are not good examples.

Ecomom could be one. They sold below cost and essentially just bled money, if I remember correctly.

Re: Before the Startup

#150

I like the term "playing house". Seems like there are a lot of similar activities. I don't make it to many "startup" type events, but when I do, I always wonder why everyone there is spending so much time hanging out with each other instead of going to the events their customers go to.

I think there is some truth to this, but personally, I've been to events on both sides of the coin. StartX, for instance, hosted an event where I met several smart people and heard two fantastic presentations. If I were working on a startup, maybe I wouldn't have time to attend, but I'm not at the moment and why not meet and network with smart people with similar interests? That being said, there is a lot of BS you have to circumnavigate.
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