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Don’t Build a Billion-Dollar Business

476 points by discreditable 11y ago

alexro 11y ago
The thing is - you can't by any means start building a billion dollar business just by deciding to do so. Take google - attempted to sell at 100 mln Take facebook - was in-college network Take airbnb - struggled along for many years What this article is trying to convey?
- ericcholis 11y ago
  I think your point is exactly what the article is trying to convey. Start by building a great product, not with a target exit dollar figure.
  - alexro 11y ago
    This is 2015. Noone goes and say they gonna sell dog food to every person on the planet? Obvious.
- arielm 11y ago
  I believe it's trying to point out the currently flawed mindset of the valley. The same mindset that would fail to build any of the businesses that you listed above ;)
  - alexro 11y ago
    But then it lists the VC who don't think so... Puzzled
    - matthewmacleod 11y ago
      It's quite clear that there's a general perception that bigger is better. The fact that some VCs are investing in smaller businesses doesn't negate that.
- m12k 11y ago
  Maybe you can't just decide to make a billion dollar business, but certain choices may decide whether that's what you're trying to do. The main thing is VC funding and hiring. If you are in a situation where you could get a big cash injection from a VC, at the cost of a reduction of control, you are considering whether to buy rocket fuel - if you do, you either hit the moon or explode while trying. And even before such a situation, the metrics that you choose to focus on will also reflect which strategy you are employing, e.g. are you focusing on total number of active users (think Twitter), or number of paying users (think Slack). Are you thinking growth, monetization or both? Are you spending money on advertising or do you wait to let word of mouth spread your product at whatever pace it can? And if you do spend money on advertising, do you pay more or less for acquiring a new user than that user's LTV is likely to be (hint: if you pay more, you're running a "get big fast" business).
  - alexro 11y ago
    But you can fall into the same trap trying to build a 50 mln business? This is merely a difference between going on a natural growth vs speeding up with investor money, it's irrelevant to the company size unless you're tiny? The article doesn't hint how to decide when not to fuse capital in, other than discriminating by the projected growth.
nxb 11y ago
Is lower goals really more founder-friendly? I'm not so sure. A bit perplexing, but in my experience, VCs who aim lower will often put far more stress and pressure on founders to meet short-term milestones and ramp up revenues immediately. Since the distant billion dollar goal is gone, it becomes all about the short-term. Aiming for a billion is a great filter too. At the early stages, you desperately need to be associated at least a few investors / founders / employees who absolutely believe you're on the path to something huge. Low goals allows more people to get involved who have extremely misaligned interests, who are often looking for something medium sized to milk, instead of something huge to help grow.
- rubidium 11y ago
  No. Great innovators are shooting for something they're pretty sure they can get to. They know what it takes, and know their market. It's by limiting your scope and achieving quality innovation that you get black swans. The success will typically be a surprise, not a plan.
- rcarrigan87 11y ago
  Generally I agree, but when it comes to VC this isn't so true. VC's looking for billion dollar exits are less patient which often times can prevent middle outcomes. Good businesses swing for the fences and end up outright failing instead of taking it a bit slower and really nailing their product/market.
  - deleted 11y ago
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- ThomPete 11y ago
  Thats not how business work. You don't build a business by setting out to be Facebook. You build a business by setting out to create thefacebook for universities. Whether that will end up with a billion dollar company is a matter of way to many factors. Edit: I can see you edited your post a little. My response here is to what you wrote originally.
caser 11y ago
Good read :)
kragen 11y ago
This is a deeply insightful post on the Dollar-Auction-style tournament nature of the startup ecosystem, with interesting parallels to Sudhir Venkatesh’s research on why drug dealers are willing to work for less than minimum wage.
- eterm 11y ago
  This is the same company who came to the conclusion it was cheaper to send people to costco to buy hard drives and manually remove them from enclosures than just negotiate with a vendor[1]. They reckoned they bought 5.5 petabytes of data at retail prices. I've always taken what they say with a grain of salt. [1] https://www.backblaze.com/blog/backblaze_drive_farming/ https://www.backblaze.com/blog/backblaze_drive_farming/
  - guipsp 11y ago
    You are taking it out of context, this was during the global hard drive crisis. It was cheaper because costco didn't adjust their prices to account for the crisis.
    - brianwawok 11y ago
      Seems pretty creative to me.
      - lultimouomo 11y ago
        I've always wondered how they kept the accounting for the money spend on driver bought by family members etc. My CPA would not like that.
        icedchai 11y ago
        "Receipts." Have you heard of them?
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sokoloff 11y ago
> If you sell 80 percent of your shares before an exit, your company needs to be worth 500 percent more for you and your employees to make the same amount. It needs to be worth 400% more for a same founder/employee value share.
xiaoma 11y ago
>Thus, in rough numbers, the chance that a funded company goes on to become a billion-dollar business is 0.005 percent to 0.016 percent. Rounding to any significant digits, that’s basically zero. I'm really getting tired of these calculations of "the chance" of a startup doing X. You are not a lottery ticket. It's not random. The 20 year-old version of Mark Zuckerberg beats the 20 year-old version of me every time. Business isn't exactly chess, but it's a lot closer to hold'em than it is to a lottery.
- Joeboy 11y ago
  Ok, but what's the probability that a 20 year old who believes they're as good as Mark Zuckerberg is correct?
- outworlder 11y ago
  It's not entirely random, but most of the forces involved are out of your control. So, thinking in terms of chance is helpful. The 20 year old Mark Zuckerberg could likely beat both of us combined in say, business. And would probably be successful no matter what. But would probably not be a billion dollar business, were circumstances even slightly different. Lots of companies and individuals fail all the time, despite their skills. You are unlikely to be a special snowflake. Even in the case that you are, it might be summer.
  - waterlesscloud 11y ago
    No. 20 year old Mark Zuckerberg would keep adjusting until he was whatever a unicorn needs to be in this instant. That's his nature. You would not. That's the difference.
    - Amezarak 11y ago
      So why isn't Zuckerberg continuing to create new billion dollar businesses? Why stop with Facebook?
      - vinceguidry 11y ago
jenkoian 11y ago
but, the 3 comma club...
- brianwawok 11y ago
  The doors need to open like THIS
DrNuke 11y ago
The underlying message here is that you may be overlooking a very good lifestyle business opportunity (which is totally under your control) while looking at a startup framework that is at best casual and at worst not depending on you at all.
Kenji 11y ago
Regardless of whether or not I want to build such a business... Don't tell me what to do. Really.
ig1 11y ago
What missed here is that if you're operating in a market which you can build a billion dollar business, you can miss badly and still have a hugely successful company. If you're operating in a market where your turnover is going to max out at a few million then you have a much smaller margin for error, you have to execute close to perfectly to win that market. Building a large business doesn't have to involve raising huge amounts of money, taking undue risks, etc.
brudgers 11y ago
The thing is, building a billion dollar business doesn't require 1000x the work or entail 1000x the stress of building a million dollar one...even if it is more than 1000x less likely. It's also the case that only getting 5% of the way to a billion dollar business after six years is probably going to feel better than 20% of a million dollar business after two years...one comes with a reasonable paycheck, the other doesn't. Finally, the investors in your million dollar idea aren't going to be any less assholes, and probably moreso; your credit card and local bank are less ok with failure than angels and VC. To put it another way, building a lifestyle business already requires a huge amount of luck and time on top of the hard work and stress. There are only so many trips to the plate and swinging for the fence may be the rationale option.
- ebbv 11y ago
  Seems to me you missed the point. If you try to make a billion dollar business, you're more likely to fail completely and end up with nothing. If you go in with more reasonable expectations and a more sustainable approach, you're more likely to be successful, whether the end result is a million dollar business or a billion dollar one. Starting off with the attitude of "a billion or nothing" makes you more likely to fail to accomplish anything.
  - brudgers 11y ago
    I didn't miss the point. I just happen not to agree with it 100%, by which I mean that building any sort of business that just survives tends to be incredibly hard work and high risk, and even then most don't build long term value or throw off six figure salaries year in and out. 37 Signals is still a unicorn, just not in the VC sense. That's why another 36 similar companies don't immediately leap to mind. The quantum step in risk is from wage worker to self-employee, and two year's toil with no net income for a little thing makes less sense than for a big thing. The article pretends that little things are sure things. They aren't.
    - csallen 11y ago
      There are many, many, many businesses that do several millions or tens of millions in revenue and are happy doing that. The reason they're hard to name is because they aren't nearly as famous at the the billion dollar business. You're also still ignoring the point the article makes about the chances of success. Going for a billion dollar business often forces you to make decisions that sacrifice your ability to succeed with a smaller business. Even if the work and stress were the same, I'd take a 1-in-10 chance at $10M over a 1-in-10000 chance at $1B any day.
chucksmash 11y ago
There was a similar article submitted last week that resonated with me more: https://news.ycombinator.com/item?id=10149308 https://news.ycombinator.com/item?id=10149308 Focused more on building a small (5ish people) business with $1mil in revenue a year as the path to enlightenment. Key insight: building a $1mil/yr business ($7/mo * 12 mo/yr * 12,000 subscribers) that focuses on delivering pure awesome is an excellent way to build a $10mil/yr business is an excellent way to....
- kuschku 11y ago
  And, more important, don’t focus on growing to become a $10mil/yr business – if there is no need to expand, just don’t expand. If your business is only profitable by constantly expanding, it will crash soon. If you have a smaller, but sustainable business, your company might be around in a few centuries still. This is how a lot of small businesses in Europe work, and how they continued to exist for a millenium.
  - nxb 11y ago
    What's missing from this argument is that opportunities to make ongoing profit without considerable ongoing investments tend to be VERY short lived in the tech field. Assuming that steady revenue will last, will lead you to ending up crashing as hard as Atari. You grew a steady, low-stress $1MM/year lifestyle business? Great. Now thousands of people are going to see what you're doing, and dozens are going to try to clone you, many of them far better connected than you are. Software is rarely like the e.g. restaurant business, where you can own a scarce piece of property in a good location and don't have to compete with the whole world, or other defendable advantages. Tech startups tend to have far fewer defendable advantages. Once you realize this, it becomes obvious that "grow or die" is the nature of the business. Not some silly scheme that only exists due to VCs forcing it upon entrepreneurs. Long-term opportunities that are easily defendable with minimal effort are extremely rare in the tech startups field. On top of that, guess which type of businesses are, by far, the most attractive to cloners and other competition? - those "ideal" lifestyle businesses that make profits from early on and require minimal upfront investment. Edit: Or instead of Atari, insert here all the other profitable businesses that you've never heard of, who got crushed after a couple years because they slowed their investments into innovating, assuming that their very steady profits would continue instead of dropping off a cliff. Happened to me twice.
AndrewKemendo 11y ago
What is this constant thread of "Don't shoot for the stars?" Why are people trying to reign in expectations and goals for what are essentially crazy and highly talented people? I don't want to run a $10M company, I want to run a $10BN company. It's the difference between tee ball and Major League. The author is basically saying that everyone should just shoot to stay in tee ball, which is equally as arbitrary as choosing to shoot for the majors. What the hell is the point of all of this if we aren't going for the big win?
- matthewmacleod 11y ago
  I think you're misreading this. It's more along the lines of 'you don't have to run a $1bn+ business to be successful' – that is, by chasing after the very unlikely dream of becoming one of the vanishingly small number of $1bn+ companies, you are ignoring the possibility of becoming a thoroughly successful $n-million sized company, and focusing on the wrong metrics. There's no shame in building what would by any means be a large, successful company just because it doesn't break the $1bn barrier – but making that the goal is a weird choice. Like the article says: 'The better goal? Keep your head down, make a great product, and build a successful business.' If you have an idea and execution that is worth $1bn+ then great! Hopefully it will pay off. But it shouldn't be the goal; develop a good product and sell it well. Take the opportunities you can to build a market. Maybe you'll make it to $1bn+! But maybe you won't – and that's ok.
- kasey_junk 11y ago
  > I don't want to run a $10M company, I want to run a $10BN company. It's the difference between tee ball and Major League. Why stop at $10BN? That doesn't get you into the Global 500. For that matter, if you want to "run a $10BN" company, what makes you think the best path to that is by doing a startup? Of the Global 500 how many of the CEOs come from startup backgrounds? None of the top 10. If you really want to run a giant company, your best shot might be to work at a giant company for a really long time and become the boss.
  - AndrewKemendo 11y ago
    Yea I mean I chose 10B as a magnitude of 10MM ... but 500B+ would be even better. To your second question though it's not about doing it as a "startup" it's about creating the business that I want on my terms.
tptacek 11y ago
It feels dismissive to write this, but: Every VC I've ever talked to --- middle double digits over 3 different startups --- has told me this story about how they're not looking for "10-baggers" or "unicorns" or whatever it is they're calling them these days. They want to invest in founders, trust that a good team will come up with ways to make money if they just stay out of the way, &c &c zzz. The fact is that the economics of venture capital pretty much depend on most/all of a portfolio's investments having some shot at becoming outlandishly successful. The winners have to pay for the losers.
- ig1 11y ago
  The two aren't mutually incompatible. If you're an early-stage investor you don't look for unicorns not because you don't want them (you obviously do) but because you can't spot them based on business model, traction, etc. As an early stage investor you focus on team/founders because that's the best early predictor that a company will become a unicorn in the longer term.
  - waterlesscloud 11y ago
    No no no. According to people commenting here, it's not the team or founders, it's luck. So you need a way to identify luck. Then you're golden!
    - bbaumgar 11y ago
      That's not the message (most) are conveying. The formula is: Great team + great market = great business (for some definition of great, almost always < 1bn) Great team + great market + luck = billion dollar business.
    - rfrey 11y ago
      Nobody is saying luck is sufficient, just that it's necessary. As is talent, hard work, &c. The role of luck ("fortune", "fate") in the success of great people is a deep and ancient question, and you should not dismiss it. Machiavelli's Prince is at least 50% about the subject, and Sun Tzu is infatuated with it. Acknowledging luck does not mean dismissing the successful - it's just intellectual honesty.
le_clochard 11y ago
P(my business becoming a billion dollar business) (~0.0005%) * (1-P(me saying "no" to letting my business become a billion dollar business) (~0.0005%)) is still 0.00000499997. Nothing to worry about, Budman. OR Has Budman just written this article as psychological warfare against any soft targets who might be competing against his future billion dollar business? The plot thickens.
jt2190 11y ago
I agree with Gleb's point that there's no shame in trying to achieve a small, profitable business instead of a shoot-for-the-moon billion dollar business, however, I don't understand the "if your VC-funded startup fails there is only downside for you" attitude. Some benefits of taking funding: * you move financial risk off of yourself onto others in exchange for a paycheck * you can get the cash to start the business today * you gain work experience, and probably get more responsibility than you'd get at an "entry level" job
austenallred 11y ago
What if I want to build a billion dollar company?
- onedev 11y ago
  glhf
sly010 11y ago
Aiming for orbit and running out of fuel means you will probably fall back and burn up in the atmosphere. Aiming for the moon and running out of fuel means you can still get to orbit (which is still very cool) but you have to plan ahead. Mishandling rocket fuel and blowing up is always possibility.
phkahler 11y ago
My most interesting "great idea" actually wants to be a non-profit. OTOH a friend thinks it's also potentially a billion dollar idea because of the total lack of anything in the space. But that would require finding a way to reap the rewards without driving away the users - they can not be the product in this case.
DavidWanjiru 11y ago
I say build a company. Go where it takes you. If it takes you to a billion dollars, fine. If it takes you to a million, fine. If you aim to achieve a given number, I suggest you question why your ego, as opposed to your business, needs you to achieve that number. Are you aiming to become number one or two in your business because you have substantive reasons, or is it becaused you once read about Jack Welch saying GE businesses had to be number one or two, and you took that message to heart for no other reason except Jack Welch said it? Are you aiming for the low millions coz you have a substantive reason for it, or are you doing it simply coz you admire Paul Graham who exited at those low millions and you want to be like Paul Graham when you grow up? Life is fluid, people and businesses change, goal posts get shifted all the time, businesses that shunned evil start being evil. These are just the places where businesses take people. Go where yours takes you. And if you don't like where it takes you, then by all means come back, shift your goal posts. Change your sport, even, if that's where your business takes you.
- ryanelfman 11y ago
  Great post with great perspective. I feel like a lot of the self-help community is responsible for the ego boost people get.
  - amatic 11y ago
    Yeah, agreed. There was a wonderful website called "Guru ratings" where this guy read a whole bunch of self-helf literature and rated them and posted a short review. Can't find the site now, seems to be down. edit: https://web.archive.org/web/20110820085531/http://lukeprog.com/selfhelp/guru_ratings.html https://web.archive.org/web/20110820085531/http://lukeprog.c...
    - ryanelfman 11y ago
      That's a damn good find!
- AndrewKemendo 11y ago
  No one accidentally builds a Billion dollar business - so it's not the case that it just leads you there by default, you need to choose to be that size. At the same time though, you are right in the market leading nature of it. That is, while building your business the opportunity might arise that you can shift what you are doing and that shift would open up your market to a larger opportunity. Alternatively you could choose not to shift and go for a smaller win. Why I take issue with the original post is because it is basically saying, if it looks like there is a market opportunity to make a billion dollar company, don't take it.
DavidWanjiru 11y ago
I say build a company. Go where it takes you. If it takes you to a billion dollars, fine. If it takes you to a million, fine. If you aim to achieve a given number, I suggest you question why your ego, as opposed to your business, needs you to achieve that number. Are you aiming to become number one or two in your business because you have substantive reasons, or is it becaused you once read about Jack Welch saying GE businesses had to be number one or two, and you took that message to heart for no other reason except Jack Welch said it? Are you aiming for the low millions coz you have a substantive reason for it, or are you doing it simply coz you admire Paul Graham who exited at those low millions and you want to be like Paul Graham when you grow up? Life is fluid, people and businesses change, goal posts get shifted all the time, businesses that shunned evil start being evil. These are just the places where businesses take people. Go where yours takes you. And if you don't like where it takes you, then by all means come back, shift your goal posts. Change your sport, even, if that's where your business takes you.
cdnsteve 11y ago
Instead of having a billion dollar plan have an exit plan first, that's more impressive because you acknowledge failure head on. The chances of you failing are much greater than you even surviving 5 years. As a founder, you need to have an exit strategy that will be the least impactful to your team. Statistics Canada shows a huge failure rate folks. Everyone wants billions but everyone needs steady employement. http://www.ic.gc.ca/eic/site/061.nsf/eng/02807.html http://www.ic.gc.ca/eic/site/061.nsf/eng/02807.html
ianstallings 11y ago
To be honest I don't even think about making billions. I play the hand I'm dealt to the best of my abilities. And it works just fine.
- sibmike 11y ago
  Here is the best and the most honest comment on this thread. Just do it boys n girls. N see where it takes you. Nature, nurture, luck? One can't change these things, so just do it n see where it takes you. Ps: the most interesting question is if it is the creator who shapes the creation or is it vice versa.
jgalt212 11y ago
Let's not forget that most, if not all of these unicorns are not really billion dollar businesses. Just because a16z buys shares at year two at a $100MM valuation, and more shares at year 3 at $400MM valuation, and even more shares at year 4 at $1B valuation does not make you a billion dollar biz. In fact, it says more about a16z bubble inflation methods than anything else.
sparkzilla 11y ago
If you have a product that has a huge potential market then go for it. You will probably only have one chance. The problem I see at YC is that, despite supposedly looking for unicorns, so many of the companies that go through the accelerator only have limited markets. I think it's dangerous to impose unicorn-style thinking on young founders whose products or psychology may actually not be up to it.
ljw1001 11y ago
ok.
socrates1998 11y ago
I agree with this. I get both sides, I mean, who wouldn't want to have a billion dollar business? But building one is insanely lucky and there are a ton of super talented businessmen and engineers that haven't done it. The problem with aiming so high, like the article points out, is that you often fail and are left with almost nothing if it fails. You took a low salary with a lot of equity, but if you work for 3-5 years on a project and then it turns out the company fails (which is highly likely), then you just worked for 3-5 years for a cheap discount. Sure, you might have learned a lot in that time, but if you worked at a better salary for a more stable opportunity, you would have learned stuff as well (different, but maybe not less important stuff). I get the allure, but as I get older, I don't really see the value. You don't have forever in your career to make below average wages on the lotteries chance you will make millions.
jmduke 11y ago
Kyle Neath wrote a very similar post last week, which IMHO is more developer-centric and less VC-centric: http://warpspire.com/posts/million-dollar-products/ http://warpspire.com/posts/million-dollar-products/
- welanes 11y ago
  Great link, thanks.
marze 11y ago
If you want to change the world significantly, you will need significant numbers of customers, and associated revenue. Nothing wrong with wanting to change the world. One of the author's arguments is that you will dilute your ownership by taking on the "required" investment needed to have a chance at reaching the magic 1B. Is this true? Of the 40 mentioned private >1B firms, what fraction raised lots of VC money and experienced significant founder dilution? My guess is not that many of them; the author simply assumes it is the case.
baristaGeek 11y ago
I agree with the article when it poses that a product should be built because you enjoy doing so and when it becomes a company you should do it to generate revenue and not an exit. However, it's incoherent that an article that is against the "Go big or go home" philosophy discusses how much your company valuation needs to multiply given you sell X% of shares in T amount of time. At least in today's macroeconomic context, a company is the best platform to scale something valuable, and investors are there to help with that scaling process.
rw2 11y ago
I don't think people choses to build a business of a certain size. It's more like people try to build a successful business, and it settles into it's natural size. Planning your company size is not what I did as entrepreneur, making sure your company survive is.
pyrrhotech 11y ago
It's important to note that the numbers discussed by the New York Times were only of VC-funded tech companies founded this century. There are at least a few thousand private companies in the US worth 1 billion or more. Forbes keeps track of a few hundred here http://www.forbes.com/largest-private-companies/list/ http://www.forbes.com/largest-private-companies/list/ with the lowest on the list having over 2 billion in revenue. It's nearly impossible to start a company and have it worth a billion dollars within a decade. But if you drop the get rich quick thinking of Silicon Valley, it's much more possible if you grow slow and steady over a few decades or generations even. My family has a business started 30 years ago that's now worth in the hundreds of millions for example, and we are ecstatic if it grows 15% per year. In the next 20 years, if we don't fail, we should have a billion dollar business. We don't take excessive risk, so there's a fairly good shot. It's a bank in the South FWIW.
SeoxyS 11y ago
Buffer has raised a 3.5M Series A. GitHub has a quarter billion dollar in funding. Bootstrapping doesn't have to be an eternal culture, it might just be what makes sense in the early days of a company, and it might no longer make sense further down the line.
adventured 11y ago
"What I do take issue with is the fact that Silicon Valley derides almost any other kind of business." Why care what 'Silicon Valley' thinks about that? The author is making a mental mistake there. If you want to build a million dollar business, you don't need to care what the big money in SV thinks at all. So, stop. It is that simple.
kristianp 11y ago
The text is way too light on this site. Please improve the contrast. See http://contrastrebellion.com/ http://contrastrebellion.com/
ArkyBeagle 11y ago
The United States used to be planted thick with $40M/year companies. These sustained families and made modest opportunities to innovate. They could be anywhere. I used to work at one. It doesn't exist any more. At some point this went out of style. Because of observer bias, this is what I see when people talk about inequality. And I see that it was quite deliberately chosen.

476 points by discreditable 11y ago

The thing is - you can't by any means start building a billion dollar business just by deciding to do so. Take google - attempted to sell at 100 mln Take facebook - was in-college network Take airbnb - struggled along for many years What this article is trying to convey?

ericcholis 11y ago
I think your point is exactly what the article is trying to convey. Start by building a great product, not with a target exit dollar figure.
- alexro 11y ago
  This is 2015. Noone goes and say they gonna sell dog food to every person on the planet? Obvious.
arielm 11y ago
I believe it's trying to point out the currently flawed mindset of the valley. The same mindset that would fail to build any of the businesses that you listed above ;)
- alexro 11y ago
  But then it lists the VC who don't think so... Puzzled
  - matthewmacleod 11y ago
    It's quite clear that there's a general perception that bigger is better. The fact that some VCs are investing in smaller businesses doesn't negate that.
m12k 11y ago
Maybe you can't just decide to make a billion dollar business, but certain choices may decide whether that's what you're trying to do. The main thing is VC funding and hiring. If you are in a situation where you could get a big cash injection from a VC, at the cost of a reduction of control, you are considering whether to buy rocket fuel - if you do, you either hit the moon or explode while trying. And even before such a situation, the metrics that you choose to focus on will also reflect which strategy you are employing, e.g. are you focusing on total number of active users (think Twitter), or number of paying users (think Slack). Are you thinking growth, monetization or both? Are you spending money on advertising or do you wait to let word of mouth spread your product at whatever pace it can? And if you do spend money on advertising, do you pay more or less for acquiring a new user than that user's LTV is likely to be (hint: if you pay more, you're running a "get big fast" business).
- alexro 11y ago
  But you can fall into the same trap trying to build a 50 mln business? This is merely a difference between going on a natural growth vs speeding up with investor money, it's irrelevant to the company size unless you're tiny? The article doesn't hint how to decide when not to fuse capital in, other than discriminating by the projected growth.

nxb 11y ago

Is lower goals really more founder-friendly? I'm not so sure. A bit perplexing, but in my experience, VCs who aim lower will often put far more stress and pressure on founders to meet short-term milestones and ramp up revenues immediately. Since the distant billion dollar goal is gone, it becomes all about the short-term. Aiming for a billion is a great filter too. At the early stages, you desperately need to be associated at least a few investors / founders / employees who absolutely believe you're on the path to something huge. Low goals allows more people to get involved who have extremely misaligned interests, who are often looking for something medium sized to milk, instead of something huge to help grow.

rubidium 11y ago
No. Great innovators are shooting for something they're pretty sure they can get to. They know what it takes, and know their market. It's by limiting your scope and achieving quality innovation that you get black swans. The success will typically be a surprise, not a plan.
rcarrigan87 11y ago
Generally I agree, but when it comes to VC this isn't so true. VC's looking for billion dollar exits are less patient which often times can prevent middle outcomes. Good businesses swing for the fences and end up outright failing instead of taking it a bit slower and really nailing their product/market.
- deleted 11y ago
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ThomPete 11y ago
Thats not how business work. You don't build a business by setting out to be Facebook. You build a business by setting out to create thefacebook for universities. Whether that will end up with a billion dollar company is a matter of way to many factors. Edit: I can see you edited your post a little. My response here is to what you wrote originally.

caser 11y ago

Good read :)

kragen 11y ago

This is a deeply insightful post on the Dollar-Auction-style tournament nature of the startup ecosystem, with interesting parallels to Sudhir Venkatesh’s research on why drug dealers are willing to work for less than minimum wage.

eterm 11y ago
This is the same company who came to the conclusion it was cheaper to send people to costco to buy hard drives and manually remove them from enclosures than just negotiate with a vendor[1]. They reckoned they bought 5.5 petabytes of data at retail prices. I've always taken what they say with a grain of salt. [1] https://www.backblaze.com/blog/backblaze_drive_farming/ https://www.backblaze.com/blog/backblaze_drive_farming/
- guipsp 11y ago
  You are taking it out of context, this was during the global hard drive crisis. It was cheaper because costco didn't adjust their prices to account for the crisis.
  - brianwawok 11y ago
    Seems pretty creative to me.
    - lultimouomo 11y ago
      I've always wondered how they kept the accounting for the money spend on driver bought by family members etc. My CPA would not like that.
      - icedchai 11y ago
        "Receipts." Have you heard of them?
- deleted 11y ago
  [deleted]

sokoloff 11y ago

> If you sell 80 percent of your shares before an exit, your company needs to be worth 500 percent more for you and your employees to make the same amount. It needs to be worth 400% more for a same founder/employee value share.

xiaoma 11y ago

>Thus, in rough numbers, the chance that a funded company goes on to become a billion-dollar business is 0.005 percent to 0.016 percent. Rounding to any significant digits, that’s basically zero. I'm really getting tired of these calculations of "the chance" of a startup doing X. You are not a lottery ticket. It's not random. The 20 year-old version of Mark Zuckerberg beats the 20 year-old version of me every time. Business isn't exactly chess, but it's a lot closer to hold'em than it is to a lottery.

Joeboy 11y ago
Ok, but what's the probability that a 20 year old who believes they're as good as Mark Zuckerberg is correct?
outworlder 11y ago
It's not entirely random, but most of the forces involved are out of your control. So, thinking in terms of chance is helpful. The 20 year old Mark Zuckerberg could likely beat both of us combined in say, business. And would probably be successful no matter what. But would probably not be a billion dollar business, were circumstances even slightly different. Lots of companies and individuals fail all the time, despite their skills. You are unlikely to be a special snowflake. Even in the case that you are, it might be summer.
- waterlesscloud 11y ago
  No. 20 year old Mark Zuckerberg would keep adjusting until he was whatever a unicorn needs to be in this instant. That's his nature. You would not. That's the difference.
  - Amezarak 11y ago
    So why isn't Zuckerberg continuing to create new billion dollar businesses? Why stop with Facebook?
    - vinceguidry 11y ago

jenkoian 11y ago

but, the 3 comma club...

brianwawok 11y ago
The doors need to open like THIS

DrNuke 11y ago

The underlying message here is that you may be overlooking a very good lifestyle business opportunity (which is totally under your control) while looking at a startup framework that is at best casual and at worst not depending on you at all.

Kenji 11y ago

Regardless of whether or not I want to build such a business... Don't tell me what to do. Really.

ig1 11y ago

What missed here is that if you're operating in a market which you can build a billion dollar business, you can miss badly and still have a hugely successful company. If you're operating in a market where your turnover is going to max out at a few million then you have a much smaller margin for error, you have to execute close to perfectly to win that market. Building a large business doesn't have to involve raising huge amounts of money, taking undue risks, etc.

brudgers 11y ago

The thing is, building a billion dollar business doesn't require 1000x the work or entail 1000x the stress of building a million dollar one...even if it is more than 1000x less likely. It's also the case that only getting 5% of the way to a billion dollar business after six years is probably going to feel better than 20% of a million dollar business after two years...one comes with a reasonable paycheck, the other doesn't. Finally, the investors in your million dollar idea aren't going to be any less assholes, and probably moreso; your credit card and local bank are less ok with failure than angels and VC. To put it another way, building a lifestyle business already requires a huge amount of luck and time on top of the hard work and stress. There are only so many trips to the plate and swinging for the fence may be the rationale option.

ebbv 11y ago
Seems to me you missed the point. If you try to make a billion dollar business, you're more likely to fail completely and end up with nothing. If you go in with more reasonable expectations and a more sustainable approach, you're more likely to be successful, whether the end result is a million dollar business or a billion dollar one. Starting off with the attitude of "a billion or nothing" makes you more likely to fail to accomplish anything.
- brudgers 11y ago
  I didn't miss the point. I just happen not to agree with it 100%, by which I mean that building any sort of business that just survives tends to be incredibly hard work and high risk, and even then most don't build long term value or throw off six figure salaries year in and out. 37 Signals is still a unicorn, just not in the VC sense. That's why another 36 similar companies don't immediately leap to mind. The quantum step in risk is from wage worker to self-employee, and two year's toil with no net income for a little thing makes less sense than for a big thing. The article pretends that little things are sure things. They aren't.
  - csallen 11y ago
    There are many, many, many businesses that do several millions or tens of millions in revenue and are happy doing that. The reason they're hard to name is because they aren't nearly as famous at the the billion dollar business. You're also still ignoring the point the article makes about the chances of success. Going for a billion dollar business often forces you to make decisions that sacrifice your ability to succeed with a smaller business. Even if the work and stress were the same, I'd take a 1-in-10 chance at $10M over a 1-in-10000 chance at $1B any day.

chucksmash 11y ago

There was a similar article submitted last week that resonated with me more: https://news.ycombinator.com/item?id=10149308 https://news.ycombinator.com/item?id=10149308 Focused more on building a small (5ish people) business with $1mil in revenue a year as the path to enlightenment. Key insight: building a $1mil/yr business ($7/mo * 12 mo/yr * 12,000 subscribers) that focuses on delivering pure awesome is an excellent way to build a $10mil/yr business is an excellent way to....

kuschku 11y ago
And, more important, don’t focus on growing to become a $10mil/yr business – if there is no need to expand, just don’t expand. If your business is only profitable by constantly expanding, it will crash soon. If you have a smaller, but sustainable business, your company might be around in a few centuries still. This is how a lot of small businesses in Europe work, and how they continued to exist for a millenium.
- nxb 11y ago
  What's missing from this argument is that opportunities to make ongoing profit without considerable ongoing investments tend to be VERY short lived in the tech field. Assuming that steady revenue will last, will lead you to ending up crashing as hard as Atari. You grew a steady, low-stress $1MM/year lifestyle business? Great. Now thousands of people are going to see what you're doing, and dozens are going to try to clone you, many of them far better connected than you are. Software is rarely like the e.g. restaurant business, where you can own a scarce piece of property in a good location and don't have to compete with the whole world, or other defendable advantages. Tech startups tend to have far fewer defendable advantages. Once you realize this, it becomes obvious that "grow or die" is the nature of the business. Not some silly scheme that only exists due to VCs forcing it upon entrepreneurs. Long-term opportunities that are easily defendable with minimal effort are extremely rare in the tech startups field. On top of that, guess which type of businesses are, by far, the most attractive to cloners and other competition? - those "ideal" lifestyle businesses that make profits from early on and require minimal upfront investment. Edit: Or instead of Atari, insert here all the other profitable businesses that you've never heard of, who got crushed after a couple years because they slowed their investments into innovating, assuming that their very steady profits would continue instead of dropping off a cliff. Happened to me twice.

AndrewKemendo 11y ago

What is this constant thread of "Don't shoot for the stars?" Why are people trying to reign in expectations and goals for what are essentially crazy and highly talented people? I don't want to run a $10M company, I want to run a $10BN company. It's the difference between tee ball and Major League. The author is basically saying that everyone should just shoot to stay in tee ball, which is equally as arbitrary as choosing to shoot for the majors. What the hell is the point of all of this if we aren't going for the big win?

matthewmacleod 11y ago
I think you're misreading this. It's more along the lines of 'you don't have to run a $1bn+ business to be successful' – that is, by chasing after the very unlikely dream of becoming one of the vanishingly small number of $1bn+ companies, you are ignoring the possibility of becoming a thoroughly successful $n-million sized company, and focusing on the wrong metrics. There's no shame in building what would by any means be a large, successful company just because it doesn't break the $1bn barrier – but making that the goal is a weird choice. Like the article says: 'The better goal? Keep your head down, make a great product, and build a successful business.' If you have an idea and execution that is worth $1bn+ then great! Hopefully it will pay off. But it shouldn't be the goal; develop a good product and sell it well. Take the opportunities you can to build a market. Maybe you'll make it to $1bn+! But maybe you won't – and that's ok.
kasey_junk 11y ago
> I don't want to run a $10M company, I want to run a $10BN company. It's the difference between tee ball and Major League. Why stop at $10BN? That doesn't get you into the Global 500. For that matter, if you want to "run a $10BN" company, what makes you think the best path to that is by doing a startup? Of the Global 500 how many of the CEOs come from startup backgrounds? None of the top 10. If you really want to run a giant company, your best shot might be to work at a giant company for a really long time and become the boss.
- AndrewKemendo 11y ago
  Yea I mean I chose 10B as a magnitude of 10MM ... but 500B+ would be even better. To your second question though it's not about doing it as a "startup" it's about creating the business that I want on my terms.

tptacek 11y ago

It feels dismissive to write this, but: Every VC I've ever talked to --- middle double digits over 3 different startups --- has told me this story about how they're not looking for "10-baggers" or "unicorns" or whatever it is they're calling them these days. They want to invest in founders, trust that a good team will come up with ways to make money if they just stay out of the way, &c &c zzz. The fact is that the economics of venture capital pretty much depend on most/all of a portfolio's investments having some shot at becoming outlandishly successful. The winners have to pay for the losers.

ig1 11y ago
The two aren't mutually incompatible. If you're an early-stage investor you don't look for unicorns not because you don't want them (you obviously do) but because you can't spot them based on business model, traction, etc. As an early stage investor you focus on team/founders because that's the best early predictor that a company will become a unicorn in the longer term.
- waterlesscloud 11y ago
  No no no. According to people commenting here, it's not the team or founders, it's luck. So you need a way to identify luck. Then you're golden!
  - bbaumgar 11y ago
    That's not the message (most) are conveying. The formula is: Great team + great market = great business (for some definition of great, almost always < 1bn) Great team + great market + luck = billion dollar business.
  - rfrey 11y ago
    Nobody is saying luck is sufficient, just that it's necessary. As is talent, hard work, &c. The role of luck ("fortune", "fate") in the success of great people is a deep and ancient question, and you should not dismiss it. Machiavelli's Prince is at least 50% about the subject, and Sun Tzu is infatuated with it. Acknowledging luck does not mean dismissing the successful - it's just intellectual honesty.

le_clochard 11y ago

P(my business becoming a billion dollar business) (~0.0005%) * (1-P(me saying "no" to letting my business become a billion dollar business) (~0.0005%)) is still 0.00000499997. Nothing to worry about, Budman. OR Has Budman just written this article as psychological warfare against any soft targets who might be competing against his future billion dollar business? The plot thickens.

jt2190 11y ago

I agree with Gleb's point that there's no shame in trying to achieve a small, profitable business instead of a shoot-for-the-moon billion dollar business, however, I don't understand the "if your VC-funded startup fails there is only downside for you" attitude. Some benefits of taking funding: * you move financial risk off of yourself onto others in exchange for a paycheck * you can get the cash to start the business today * you gain work experience, and probably get more responsibility than you'd get at an "entry level" job

austenallred 11y ago

What if I want to build a billion dollar company?

onedev 11y ago
glhf

sly010 11y ago

Aiming for orbit and running out of fuel means you will probably fall back and burn up in the atmosphere. Aiming for the moon and running out of fuel means you can still get to orbit (which is still very cool) but you have to plan ahead. Mishandling rocket fuel and blowing up is always possibility.

phkahler 11y ago

My most interesting "great idea" actually wants to be a non-profit. OTOH a friend thinks it's also potentially a billion dollar idea because of the total lack of anything in the space. But that would require finding a way to reap the rewards without driving away the users - they can not be the product in this case.

DavidWanjiru 11y ago

I say build a company. Go where it takes you. If it takes you to a billion dollars, fine. If it takes you to a million, fine. If you aim to achieve a given number, I suggest you question why your ego, as opposed to your business, needs you to achieve that number. Are you aiming to become number one or two in your business because you have substantive reasons, or is it becaused you once read about Jack Welch saying GE businesses had to be number one or two, and you took that message to heart for no other reason except Jack Welch said it? Are you aiming for the low millions coz you have a substantive reason for it, or are you doing it simply coz you admire Paul Graham who exited at those low millions and you want to be like Paul Graham when you grow up? Life is fluid, people and businesses change, goal posts get shifted all the time, businesses that shunned evil start being evil. These are just the places where businesses take people. Go where yours takes you. And if you don't like where it takes you, then by all means come back, shift your goal posts. Change your sport, even, if that's where your business takes you.

ryanelfman 11y ago
Great post with great perspective. I feel like a lot of the self-help community is responsible for the ego boost people get.
- amatic 11y ago
  Yeah, agreed. There was a wonderful website called "Guru ratings" where this guy read a whole bunch of self-helf literature and rated them and posted a short review. Can't find the site now, seems to be down. edit: https://web.archive.org/web/20110820085531/http://lukeprog.com/selfhelp/guru_ratings.html https://web.archive.org/web/20110820085531/http://lukeprog.c...
  - ryanelfman 11y ago
    That's a damn good find!
AndrewKemendo 11y ago
No one accidentally builds a Billion dollar business - so it's not the case that it just leads you there by default, you need to choose to be that size. At the same time though, you are right in the market leading nature of it. That is, while building your business the opportunity might arise that you can shift what you are doing and that shift would open up your market to a larger opportunity. Alternatively you could choose not to shift and go for a smaller win. Why I take issue with the original post is because it is basically saying, if it looks like there is a market opportunity to make a billion dollar company, don't take it.

DavidWanjiru 11y ago

cdnsteve 11y ago

Instead of having a billion dollar plan have an exit plan first, that's more impressive because you acknowledge failure head on. The chances of you failing are much greater than you even surviving 5 years. As a founder, you need to have an exit strategy that will be the least impactful to your team. Statistics Canada shows a huge failure rate folks. Everyone wants billions but everyone needs steady employement. http://www.ic.gc.ca/eic/site/061.nsf/eng/02807.html http://www.ic.gc.ca/eic/site/061.nsf/eng/02807.html

ianstallings 11y ago

To be honest I don't even think about making billions. I play the hand I'm dealt to the best of my abilities. And it works just fine.

sibmike 11y ago
Here is the best and the most honest comment on this thread. Just do it boys n girls. N see where it takes you. Nature, nurture, luck? One can't change these things, so just do it n see where it takes you. Ps: the most interesting question is if it is the creator who shapes the creation or is it vice versa.

jgalt212 11y ago

Let's not forget that most, if not all of these unicorns are not really billion dollar businesses. Just because a16z buys shares at year two at a $100MM valuation, and more shares at year 3 at $400MM valuation, and even more shares at year 4 at $1B valuation does not make you a billion dollar biz. In fact, it says more about a16z bubble inflation methods than anything else.

sparkzilla 11y ago

If you have a product that has a huge potential market then go for it. You will probably only have one chance. The problem I see at YC is that, despite supposedly looking for unicorns, so many of the companies that go through the accelerator only have limited markets. I think it's dangerous to impose unicorn-style thinking on young founders whose products or psychology may actually not be up to it.

ljw1001 11y ago

ok.

socrates1998 11y ago

I agree with this. I get both sides, I mean, who wouldn't want to have a billion dollar business? But building one is insanely lucky and there are a ton of super talented businessmen and engineers that haven't done it. The problem with aiming so high, like the article points out, is that you often fail and are left with almost nothing if it fails. You took a low salary with a lot of equity, but if you work for 3-5 years on a project and then it turns out the company fails (which is highly likely), then you just worked for 3-5 years for a cheap discount. Sure, you might have learned a lot in that time, but if you worked at a better salary for a more stable opportunity, you would have learned stuff as well (different, but maybe not less important stuff). I get the allure, but as I get older, I don't really see the value. You don't have forever in your career to make below average wages on the lotteries chance you will make millions.

jmduke 11y ago

Kyle Neath wrote a very similar post last week, which IMHO is more developer-centric and less VC-centric: http://warpspire.com/posts/million-dollar-products/ http://warpspire.com/posts/million-dollar-products/

welanes 11y ago
Great link, thanks.

marze 11y ago

If you want to change the world significantly, you will need significant numbers of customers, and associated revenue. Nothing wrong with wanting to change the world. One of the author's arguments is that you will dilute your ownership by taking on the "required" investment needed to have a chance at reaching the magic 1B. Is this true? Of the 40 mentioned private >1B firms, what fraction raised lots of VC money and experienced significant founder dilution? My guess is not that many of them; the author simply assumes it is the case.

baristaGeek 11y ago

I agree with the article when it poses that a product should be built because you enjoy doing so and when it becomes a company you should do it to generate revenue and not an exit. However, it's incoherent that an article that is against the "Go big or go home" philosophy discusses how much your company valuation needs to multiply given you sell X% of shares in T amount of time. At least in today's macroeconomic context, a company is the best platform to scale something valuable, and investors are there to help with that scaling process.

rw2 11y ago

I don't think people choses to build a business of a certain size. It's more like people try to build a successful business, and it settles into it's natural size. Planning your company size is not what I did as entrepreneur, making sure your company survive is.

pyrrhotech 11y ago

It's important to note that the numbers discussed by the New York Times were only of VC-funded tech companies founded this century. There are at least a few thousand private companies in the US worth 1 billion or more. Forbes keeps track of a few hundred here http://www.forbes.com/largest-private-companies/list/ http://www.forbes.com/largest-private-companies/list/ with the lowest on the list having over 2 billion in revenue. It's nearly impossible to start a company and have it worth a billion dollars within a decade. But if you drop the get rich quick thinking of Silicon Valley, it's much more possible if you grow slow and steady over a few decades or generations even. My family has a business started 30 years ago that's now worth in the hundreds of millions for example, and we are ecstatic if it grows 15% per year. In the next 20 years, if we don't fail, we should have a billion dollar business. We don't take excessive risk, so there's a fairly good shot. It's a bank in the South FWIW.

SeoxyS 11y ago

Buffer has raised a 3.5M Series A. GitHub has a quarter billion dollar in funding. Bootstrapping doesn't have to be an eternal culture, it might just be what makes sense in the early days of a company, and it might no longer make sense further down the line.

adventured 11y ago

"What I do take issue with is the fact that Silicon Valley derides almost any other kind of business." Why care what 'Silicon Valley' thinks about that? The author is making a mental mistake there. If you want to build a million dollar business, you don't need to care what the big money in SV thinks at all. So, stop. It is that simple.

kristianp 11y ago

The text is way too light on this site. Please improve the contrast. See http://contrastrebellion.com/ http://contrastrebellion.com/

ArkyBeagle 11y ago

The United States used to be planted thick with $40M/year companies. These sustained families and made modest opportunities to innovate. They could be anywhere. I used to work at one. It doesn't exist any more. At some point this went out of style. Because of observer bias, this is what I see when people talk about inequality. And I see that it was quite deliberately chosen.