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Why do startups hire so many people?

quora.com

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Re: Why do startups hire so many people?

#21

Post by Silhouette »

dghlsakjg wrote: post #19
Silhouette wrote: post #16

Earlier quoted context omitted.

You would be approximating a cooperative. You just have a lot of founders. That is essentially what I was suggesting, yes. This kind of arrangement doesn't seem unusual in many other industries, yet in software it seems very rare, even though the potential for 5 or 10 top class people to outperform 50 or 100 mediocre contributors or basically any number of juniors is higher than many other fields. It has always puzzl…

There is a very loose correlation between software quality and success. Well written, useful software doesn't guarantee success, nor is it even necessary in many cases. Combine that with highly talented software makers earning some of the highest salaries in the world, and you get your answer. As far as I can tell Quibi had incredible infrastructure and programming, and god knows it had the funding. But a 100% uptime…

Of course there are other factors. You need to be building something people want and you need those people to find and pay you. I doubt anyone on HN would dispute that.

But other things being equal, a team of 10 excellent developers will annihilate a team of 50 or maybe even 100 mediocre ones in terms of sustained productivity and quality, so if you do have the market and the business strategy, why wouldn't you want the dev team as well?

Re: Why do startups hire so many people?

#22

Post by Fuzzwah »

civilized wrote: post #17
dafelst wrote: post #13

Earlier quoted context omitted.

"Bootstrapped" typically implies self-funding, so most likely no VCs were in the picture.

Right, but the article claims that you'll be pressured into VC-fueled hypergrowth because, if you don't take the VC cash, they will throw boatloads of money at a wannabe competitor who will then start... if not successfully competing against you, at least annoying you.

I guess that OP's comment about not being onto-something-hot means that VC's didn't see the market as being something worth throwing money at to smash the bootstrappers.

Re: Why do startups hire so many people?

#23

Post by s1artibartfast »

Silhouette wrote: post #16
jokethrowaway wrote: post #11

Earlier quoted context omitted.

You would be approximating a cooperative. You just have a lot of founders. I'm trying to go in a similar direction with my company. The idea is to consult under the same brand and create small passive revenue streams together (apps, websites, books, streaming). Earning are split based on the people working on it. The brand may help sell the individual consulting. We help and support each other and share costs. I've s…

You would be approximating a cooperative. You just have a lot of founders. That is essentially what I was suggesting, yes. This kind of arrangement doesn't seem unusual in many other industries, yet in software it seems very rare, even though the potential for 5 or 10 top class people to outperform 50 or 100 mediocre contributors or basically any number of juniors is higher than many other fields. It has always puzzl…

I have been in a similar situation and it made for questions of control when we did need funding. Some of the founders ended up giving back equity - not a feel good moment for the team

Re: Why do startups hire so many people?

#24

Post by Silhouette »

s1artibartfast wrote: post #23
Silhouette wrote: post #16

Earlier quoted context omitted.

You would be approximating a cooperative. You just have a lot of founders. That is essentially what I was suggesting, yes. This kind of arrangement doesn't seem unusual in many other industries, yet in software it seems very rare, even though the potential for 5 or 10 top class people to outperform 50 or 100 mediocre contributors or basically any number of juniors is higher than many other fields. It has always puzzl…

I have been in a similar situation and it made for questions of control when we did need funding. Some of the founders ended up giving back equity - not a feel good moment for the team

Surely if you're taking substantial funding you would expect the existing shareholders to give up part of their stake in the company though? The investors will want some equity and it has to come from somewhere. I don't quite understand what was different in the situation you described. Can you clarify?

Re: Why do startups hire so many people?

#25

Post by freefaler »

VCs optimize for high risk/high growth startups. However for a person investing his time it may be worth to keep more control of the business and greater share of the profits in the future. Would you rather own 1% of 100M business and thus be a minority shareholder, or 50% of 2M business and be in control. Financially you may fare better in the smaller business. And after a certain amount of money in the bank, health, time and controlling your day to day life gets more important than "selling to Google" or "managing the board" (an euphemism for my new boss is the board).

Re: Why do startups hire so many people?

#26

Post by s1artibartfast »

Silhouette wrote: post #24
s1artibartfast wrote: post #23

Earlier quoted context omitted.

I have been in a similar situation and it made for questions of control when we did need funding. Some of the founders ended up giving back equity - not a feel good moment for the team

Surely if you're taking substantial funding you would expect the existing shareholders to give up part of their stake in the company though? The investors will want some equity and it has to come from somewhere. I don't quite understand what was different in the situation you described. Can you clarify?

Started with a split close to 25% per founder. VCs all wanted to see one founder with clear control, so the equity was rearranged closer to 70-10-10-10

Re: Why do startups hire so many people?

#27

Post by Silhouette »

s1artibartfast wrote: post #26
Silhouette wrote: post #24

Earlier quoted context omitted.

Surely if you're taking substantial funding you would expect the existing shareholders to give up part of their stake in the company though? The investors will want some equity and it has to come from somewhere. I don't quite understand what was different in the situation you described. Can you clarify?

Started with a split close to 25% per founder. VCs all wanted to see one founder with clear control, so the equity was rearranged closer to 70-10-10-10

That just seems strange. I can understand wanting to have one person who is the ultimate decision-maker for company policy and I can understand wanting to avoid a possibility of deadlock if founders disagree, but neither of those requires anything close to the extreme change you described. What founder in any startup that was established enough to be seeking VC funding would ever accept that kind of change?

Re: Why do startups hire so many people?

#28

Post by s1artibartfast »

Silhouette wrote: post #27
s1artibartfast wrote: post #26

Earlier quoted context omitted.

Started with a split close to 25% per founder. VCs all wanted to see one founder with clear control, so the equity was rearranged closer to 70-10-10-10

That just seems strange. I can understand wanting to have one person who is the ultimate decision-maker for company policy and I can understand wanting to avoid a possibility of deadlock if founders disagree, but neither of those requires anything close to the extreme change you described. What founder in any startup that was established enough to be seeking VC funding would ever accept that kind of change?

Where I saw it was in the Healthcare field where several million of funding was required for series A and most of the founders were senior MDs and engineers having worked years on early development . When faced with choice between being highly unattractive for investment or being able to develop, they made the hard choice to put product over profit.

My point was mostly to shed light on the fact that most VCs want few founders and diffuse ownership can cause investment challenges.

Re: Why do startups hire so many people?

#29

Post by trowawee »

civilized wrote: post #17
dafelst wrote: post #13

Earlier quoted context omitted.

"Bootstrapped" typically implies self-funding, so most likely no VCs were in the picture.

Right, but the article claims that you'll be pressured into VC-fueled hypergrowth because, if you don't take the VC cash, they will throw boatloads of money at a wannabe competitor who will then start... if not successfully competing against you, at least annoying you.

I think that was the least-accurate part of a mostly decent answer. VCs, like most people, are trend chasers who live in a fairly constrained bubble, no matter how much they want to portray themselves as enlightened Renaissance thinkers who span across human experience and thus can offer useful insight anywhere. Sure, if you're in a trendy space (and in the Valley or one of a handful of other locations) and you refuse investment, they might throw that money at a competitor. But there's a tremendous amount of money sloshing around the world in so many more un-trendy industries and un-trendy places than anyone really realizes, and it's honestly not that hard to tap into those money flows and make an extremely comfortable life for yourself. It's just that most of the people doing that don't talk about it constantly, and they're living comfortably well, rather than making a billion dollars and buying islands.

Re: Why do startups hire so many people?

#30

Post by Silhouette »

s1artibartfast wrote: post #28
Silhouette wrote: post #27

Earlier quoted context omitted.

That just seems strange. I can understand wanting to have one person who is the ultimate decision-maker for company policy and I can understand wanting to avoid a possibility of deadlock if founders disagree, but neither of those requires anything close to the extreme change you described. What founder in any startup that was established enough to be seeking VC funding would ever accept that kind of change?

Where I saw it was in the Healthcare field where several million of funding was required for series A and most of the founders were senior MDs and engineers having worked years on early development . When faced with choice between being highly unattractive for investment or being able to develop, they made the hard choice to put product over profit. My point was mostly to shed light on the fact that most VCs want few…

OK, the economics will inevitably be different if you're not doing pure software work and also have some physical element or high regulatory barriers to entry. Maybe in those cases taking investment is the most likely way for most new businesses to become established.

But for pure software businesses my answer to your final paragraph would be "OK, so maybe you just bootstrap the business with a few good people and skip the VC part". If you aren't hiring hundreds of staff or buying up expensive cloud resources like they're about to run out regardless of how inefficient your product is, how many software startups could get by just fine with a real business model that actually makes money and some steady growth? Who says you have to have a pitch deck, a huge cash injection based on hope and high variance VC investment models, and one hand tied behind your back with investors holding the strings until the Big Exit(TM) or, more likely, the funding runs out before you have actually built a sustainable business and everything just gets shut down?

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