4 ms·

Another alternative: don't build something huge, don't get funding from VCs, build a comfortable business for yourself instead of a gimmicky trend that will be

Another alternative: don't build something huge, don't get funding from VCs, build a comfortable business for yourself instead of a gimmicky trend that will be irrelevant in a few years. I feel like this is really underrated these days, if you spend the time truly earning it, not only is it more rewarding but the company may last more than 3-4 years. Build a small focused product to generate some revenue, then hopefully that will give you time and financial freedom to build more complex products down the road.

coffeemug 10y ago
> don't get funding from clueless VCs Usually if people put money down and there is an entire industry around it, the collective mindset of that industry is close to optimal. They might be wrong on a couple of important issues. They also might be very wrong, but they're still close to optimal by definition because nobody's doing it better. TL;DR: calling entire world-class industries clueless implies naiveté.
- tjholowaychuk 10y ago
  Removed my "clueless" generalization. It's anecdotal, but most that I've encountered (relating to SaaS products) don't have much of a technical background at all, just throwing money at buzzwords, meanwhile they think critical services such as logging aren't worth going after, just because it's not trendy. I'm sure it varies from industry to industry.
  - keithwhor 10y ago
    Hey TJ. It's easy to feel that way coming from a deeply technical background, but trust me, money isn't "thrown" anywhere. It's a high-risk high-reward game where one company (esp. at seed stage) will end up returning the majority of your fund, and every company has to potentially be that company, so outlandish buzzwords that might be the next big thing more often draw capital. Investors are people, paid to move money, with targets to hit and limited partners to provide returns for. In the same way you or I wouldn't accept a PR that doesn't align with the larger vision of a framework or library we've written, VCs don't want to fund a company if the leaders of the company aren't empathetic with the VCs goals. It's about aligning interests. The goal is really to align technology and people - create something technically amazing, with huge potential, and align yourself and your vision with those who have the capital to fund you. You don't have to do the dance if you don't want to, but I'd be hesitant to be overly dismissive of it.
  - jzwinck 10y ago
    Logging is indeed a critical part of many processes, but it's very hard to do it in a way that pleases everyone. Most loggers don't even support renewable inputs like bamboo. Before you think this is a mere joke, consider that normal people don't even know what computer logging is, much less want to become a user of a logging service. The addressable eyeballs are few, and it's a market chock full of free products already. Plus the most serious consumers always end up with a bespoke proprietary solution.
    - deleted 10y ago
      [deleted]
  - alexqgb 10y ago
    Serious money is rarely thrown at anyone - no matter how buzzy their language - without some sign of a defensible offering that has product / market fit in a sector with healthy prospects + a team that can clearly execute against the opportunity. While it's easy to find sensational stories to the contrary, bear in mind that sensationalism is a cheap path to sales, meaning not every narrator is reliable. Indeed, if you start raising money yourself you'll quickly discover how unreliable many "sources" can be.
- ian0 10y ago
  While true, assuming the collective mindset of an industry runs close to optimal just because its there is also naive. VCs themselves bet on industries being un-optimised! Plus in evaluating an industry you would need to see it in context. So returns for investors VS similar asset classes. Or in this case how VC funding compares to other funding methods for founders under relevant circumstances - and looking at relevant metrics (pace of growth, sanity etc).
  - dllthomas 10y ago
    > VCs themselves bet on industries being un-optimised! And they're usually wrong.
- calchris42 10y ago
  In finance this is called efficient market hypothesis. And as I understand, generally considered false. From Efficient Market Hypothesis: Is The Stock Market Efficient? | Investopedia http://www.investopedia.com/articles/basics/04/022004.asp#ixzz4QmzFc26W http://www.investopedia.com/articles/basics/04/022004.asp#ix... "Conclusion It's safe to say the market is not going to achieve perfect efficiency anytime soon. For greater efficiency to occur, the following criteria must be met: (1) universal access to high-speed and advanced systems of pricing analysis, (2) a universally accepted analysis system of pricing stocks, (3) an absolute absence of human emotion in investment decision-making, (4) the willingness of all investors to accept that their returns or losses will be exactly identical to all other market participants. It is hard to imagine even one of these criteria of market efficiency ever being met."
  - nostrademons 10y ago
    I wouldn't say it's generally considered false, considering that the company founded on this assumption - Vanguard - is now the largest fund in the U.S. and second largest asset manager in the world. Markets are interesting, though, in that the more people believe they are efficient, the more inefficiencies creep in, and the more people believe they are inefficient, the more they become efficient. When everyone assumes everyone else has found all the opportunities, nobody bothers to look, and so there are lots of undiscovered opportunities to cash in on. When everyone assumes they can get rich finding opportunities, they bid up prices to very close to their "true" value, and the profit opportunities disappear. It's a self-correcting system. The question of how widely believed the EMH is itself suffers from selection bias. People who believe markets are efficient don't enter the financial industry, they give their money to Vanguard to manage. That means that everyone in the financial industry, by definition, believes that they can make better-than-average returns, otherwise they wouldn't be in the industry. And then by returns, most of them are wrong, but that also doesn't matter because the few who are right are the ones who survive to play the next round.
LoSboccacc 10y ago
If an idea works but you don't scale it to some sort of monopoly using your tech advantage or lock in systems a competitor with VC money will eventually outprice you out of the market, get an unbreakable hold on the business whole then convert some aspect of it to premium to monetize the now huge user base.
- deleted 10y ago
  [deleted]
- schwarrrtz 10y ago
  This is not necessarily true. For example, your market may be too small / niche to attract venture backed companies but large enough to sustain your lifestyle business. Edit: Foiled by my delay settings! Damn.
- tjholowaychuk 10y ago
  Depends on the product I suppose, if it's niche enough you may not have big competitors at all. I choose to entire a SaaS market that is already monopolized but I'm still paying my bills. That's definitely something to watch out for though, I think it's best to have many smaller products for redundancy, at least that's my plan.
  - eloff 10y ago
    This can work and be a great, profitable business. But a lot of these kinds of markets are winner takes all. Which is why companies compete with VC money to be that winner. You don't have great chances of doing that without VC capital if you have VC funded competitors. But your objective may not be go big or go broke - and you may well end up personally happier for being more balanced in your life. That's perfectly fine in my opinion, and very underrated here on HN.
khuknows 10y ago
Not affiliated with this site in any way, but Indiehackers shares many examples of people doing exactly this: https://www.indiehackers.com/businesses https://www.indiehackers.com/businesses
- tjholowaychuk 10y ago
  Indie Hackers is a great site! I have my first little product on there (http://apex.sh/ping/ http://apex.sh/ping/), making just over 3k/m now (50% each month FWIW), sure it's not millions but now I have time/freedom to work on the next thing. Plus the freedom is worth thousands alone in my opinion, if I have the choice I'll never go back to startups. It seems like startups are the default these days, and so many of them would probably be just fine as regular small-medium businesses. I have to cram the idea in people's heads haha, you can make money in software and not be a slave working 14hr days.
  - seanlinehan 10y ago
    You can also build a successful startup not being a slave working 14hr days. Both small businesses and big businesses can be either well run or poorly run. It's mostly a function of building the right culture, having the right systems in place, and having enough resources to not burn your team out.
arikrak 10y ago
Is there any data on the success rate of companies that aim small? A lot of the allure of the startup is a chance to strike it big. If one isn't doing that anyways, might make more sense to join a big company since they offer a considerably higher expected return on your work. (Also if one can get funding, it lets one get paid an actual salary more quickly.)
- tjholowaychuk 10y ago
  I have no clue, it seems uncommon in software, but personally I'd choose working 3 hours a day over 200k/yr any day. IMO having a small team constraint is powerful too, you really have to optimize things otherwise you're screwed. Basically the opposite of a startup, where you'd toss money at the problem while you try and attract more people, making the product increasingly brittle.
  - rsp1984 10y ago
    working 3 hours a day over 200k/yr any day A business that you own and which makes you any money on 3 hours a day may be even more rare than a unicorn. In most cases you'll be spending those 3 hours per day on administrative stuff alone.
    - gl338 10y ago
      That's definitely not true. There are only a few dozen unicorns, and hundreds of self-sustained businesses that "print" small amounts of money. If you join any large city's small business CEO groups (in NYC, SF, Toronto, London, etc.) you'll find a lot of one-person, bootstrapped companies that just run themselves. It's not easy, but there are dozens or hundreds in many large cities.
    - jaxn 10y ago
      Success as a small company often comes from passion and expertise. Passion wants more than 3 hours a week. And if it makes money in 3 hours, chances are it makes more in 30 hours.
EGreg 10y ago
Another alternative: use this compensation model and you may not need VC https://qbix.com/blog/index.php/2016/11/properly-valuing-contributions/ https://qbix.com/blog/index.php/2016/11/properly-valuing-con...
- rajacombinator 10y ago
  Have you actually implemented this idea in contracts? It sounds cool in theory but a PITA/unrealistic in practice.
  - EGreg 10y ago
    Yes we pretty much did and why?
    - rajacombinator 10y ago
      Well to name a few reasons ... seems infeasible/inaccurate to measure and attribute the various changes in the product to individual contributors or changes. (eg. what if multiple changes are occurring simultaneously, what about seasonality, what if it's just a random surge, etc.) Further, seems impossible to verify or trust metrics for the external developer. If the company is behaving unethically and misreporting/shortchanging, good luck suing them. Furthermore, from the company's perspective they're opening themselves up to massive legal risk by making this as a contract for the reason above - developer might try to sue them claiming gains which may or may not rightly be attributable to that developer's effort. I think this is a situation where be a just ruler and exercise judgment in paying employees in proportion to their contribution, makes a lot more sense than trying to codify an agreement.
adentranter 10y ago
100% agree with this. IMO there is to much focus on becoming high growth vs simply creating revenue. Of course creating high growth companies is great thing to do - But so is creating a company that solves a small niche problem and creates sustainable revenue.

coffeemug 10y ago

> don't get funding from clueless VCs Usually if people put money down and there is an entire industry around it, the collective mindset of that industry is close to optimal. They might be wrong on a couple of important issues. They also might be very wrong, but they're still close to optimal by definition because nobody's doing it better. TL;DR: calling entire world-class industries clueless implies naiveté.

tjholowaychuk 10y ago
Removed my "clueless" generalization. It's anecdotal, but most that I've encountered (relating to SaaS products) don't have much of a technical background at all, just throwing money at buzzwords, meanwhile they think critical services such as logging aren't worth going after, just because it's not trendy. I'm sure it varies from industry to industry.
- keithwhor 10y ago
  Hey TJ. It's easy to feel that way coming from a deeply technical background, but trust me, money isn't "thrown" anywhere. It's a high-risk high-reward game where one company (esp. at seed stage) will end up returning the majority of your fund, and every company has to potentially be that company, so outlandish buzzwords that might be the next big thing more often draw capital. Investors are people, paid to move money, with targets to hit and limited partners to provide returns for. In the same way you or I wouldn't accept a PR that doesn't align with the larger vision of a framework or library we've written, VCs don't want to fund a company if the leaders of the company aren't empathetic with the VCs goals. It's about aligning interests. The goal is really to align technology and people - create something technically amazing, with huge potential, and align yourself and your vision with those who have the capital to fund you. You don't have to do the dance if you don't want to, but I'd be hesitant to be overly dismissive of it.
- jzwinck 10y ago
  Logging is indeed a critical part of many processes, but it's very hard to do it in a way that pleases everyone. Most loggers don't even support renewable inputs like bamboo. Before you think this is a mere joke, consider that normal people don't even know what computer logging is, much less want to become a user of a logging service. The addressable eyeballs are few, and it's a market chock full of free products already. Plus the most serious consumers always end up with a bespoke proprietary solution.
  - deleted 10y ago
    [deleted]
- alexqgb 10y ago
  Serious money is rarely thrown at anyone - no matter how buzzy their language - without some sign of a defensible offering that has product / market fit in a sector with healthy prospects + a team that can clearly execute against the opportunity. While it's easy to find sensational stories to the contrary, bear in mind that sensationalism is a cheap path to sales, meaning not every narrator is reliable. Indeed, if you start raising money yourself you'll quickly discover how unreliable many "sources" can be.
ian0 10y ago
While true, assuming the collective mindset of an industry runs close to optimal just because its there is also naive. VCs themselves bet on industries being un-optimised! Plus in evaluating an industry you would need to see it in context. So returns for investors VS similar asset classes. Or in this case how VC funding compares to other funding methods for founders under relevant circumstances - and looking at relevant metrics (pace of growth, sanity etc).
- dllthomas 10y ago
  > VCs themselves bet on industries being un-optimised! And they're usually wrong.
calchris42 10y ago
In finance this is called efficient market hypothesis. And as I understand, generally considered false. From Efficient Market Hypothesis: Is The Stock Market Efficient? | Investopedia http://www.investopedia.com/articles/basics/04/022004.asp#ixzz4QmzFc26W http://www.investopedia.com/articles/basics/04/022004.asp#ix... "Conclusion It's safe to say the market is not going to achieve perfect efficiency anytime soon. For greater efficiency to occur, the following criteria must be met: (1) universal access to high-speed and advanced systems of pricing analysis, (2) a universally accepted analysis system of pricing stocks, (3) an absolute absence of human emotion in investment decision-making, (4) the willingness of all investors to accept that their returns or losses will be exactly identical to all other market participants. It is hard to imagine even one of these criteria of market efficiency ever being met."
- nostrademons 10y ago
  I wouldn't say it's generally considered false, considering that the company founded on this assumption - Vanguard - is now the largest fund in the U.S. and second largest asset manager in the world. Markets are interesting, though, in that the more people believe they are efficient, the more inefficiencies creep in, and the more people believe they are inefficient, the more they become efficient. When everyone assumes everyone else has found all the opportunities, nobody bothers to look, and so there are lots of undiscovered opportunities to cash in on. When everyone assumes they can get rich finding opportunities, they bid up prices to very close to their "true" value, and the profit opportunities disappear. It's a self-correcting system. The question of how widely believed the EMH is itself suffers from selection bias. People who believe markets are efficient don't enter the financial industry, they give their money to Vanguard to manage. That means that everyone in the financial industry, by definition, believes that they can make better-than-average returns, otherwise they wouldn't be in the industry. And then by returns, most of them are wrong, but that also doesn't matter because the few who are right are the ones who survive to play the next round.

LoSboccacc 10y ago

If an idea works but you don't scale it to some sort of monopoly using your tech advantage or lock in systems a competitor with VC money will eventually outprice you out of the market, get an unbreakable hold on the business whole then convert some aspect of it to premium to monetize the now huge user base.

deleted 10y ago
[deleted]
schwarrrtz 10y ago
This is not necessarily true. For example, your market may be too small / niche to attract venture backed companies but large enough to sustain your lifestyle business. Edit: Foiled by my delay settings! Damn.
tjholowaychuk 10y ago
Depends on the product I suppose, if it's niche enough you may not have big competitors at all. I choose to entire a SaaS market that is already monopolized but I'm still paying my bills. That's definitely something to watch out for though, I think it's best to have many smaller products for redundancy, at least that's my plan.
- eloff 10y ago
  This can work and be a great, profitable business. But a lot of these kinds of markets are winner takes all. Which is why companies compete with VC money to be that winner. You don't have great chances of doing that without VC capital if you have VC funded competitors. But your objective may not be go big or go broke - and you may well end up personally happier for being more balanced in your life. That's perfectly fine in my opinion, and very underrated here on HN.

khuknows 10y ago

Not affiliated with this site in any way, but Indiehackers shares many examples of people doing exactly this: https://www.indiehackers.com/businesses https://www.indiehackers.com/businesses

tjholowaychuk 10y ago
Indie Hackers is a great site! I have my first little product on there (http://apex.sh/ping/ http://apex.sh/ping/), making just over 3k/m now (50% each month FWIW), sure it's not millions but now I have time/freedom to work on the next thing. Plus the freedom is worth thousands alone in my opinion, if I have the choice I'll never go back to startups. It seems like startups are the default these days, and so many of them would probably be just fine as regular small-medium businesses. I have to cram the idea in people's heads haha, you can make money in software and not be a slave working 14hr days.
- seanlinehan 10y ago
  You can also build a successful startup not being a slave working 14hr days. Both small businesses and big businesses can be either well run or poorly run. It's mostly a function of building the right culture, having the right systems in place, and having enough resources to not burn your team out.

arikrak 10y ago

Is there any data on the success rate of companies that aim small? A lot of the allure of the startup is a chance to strike it big. If one isn't doing that anyways, might make more sense to join a big company since they offer a considerably higher expected return on your work. (Also if one can get funding, it lets one get paid an actual salary more quickly.)

tjholowaychuk 10y ago
I have no clue, it seems uncommon in software, but personally I'd choose working 3 hours a day over 200k/yr any day. IMO having a small team constraint is powerful too, you really have to optimize things otherwise you're screwed. Basically the opposite of a startup, where you'd toss money at the problem while you try and attract more people, making the product increasingly brittle.
- rsp1984 10y ago
  working 3 hours a day over 200k/yr any day A business that you own and which makes you any money on 3 hours a day may be even more rare than a unicorn. In most cases you'll be spending those 3 hours per day on administrative stuff alone.
  - gl338 10y ago
    That's definitely not true. There are only a few dozen unicorns, and hundreds of self-sustained businesses that "print" small amounts of money. If you join any large city's small business CEO groups (in NYC, SF, Toronto, London, etc.) you'll find a lot of one-person, bootstrapped companies that just run themselves. It's not easy, but there are dozens or hundreds in many large cities.
  - jaxn 10y ago
    Success as a small company often comes from passion and expertise. Passion wants more than 3 hours a week. And if it makes money in 3 hours, chances are it makes more in 30 hours.

EGreg 10y ago

Another alternative: use this compensation model and you may not need VC https://qbix.com/blog/index.php/2016/11/properly-valuing-contributions/ https://qbix.com/blog/index.php/2016/11/properly-valuing-con...

rajacombinator 10y ago
Have you actually implemented this idea in contracts? It sounds cool in theory but a PITA/unrealistic in practice.
- EGreg 10y ago
  Yes we pretty much did and why?
  - rajacombinator 10y ago
    Well to name a few reasons ... seems infeasible/inaccurate to measure and attribute the various changes in the product to individual contributors or changes. (eg. what if multiple changes are occurring simultaneously, what about seasonality, what if it's just a random surge, etc.) Further, seems impossible to verify or trust metrics for the external developer. If the company is behaving unethically and misreporting/shortchanging, good luck suing them. Furthermore, from the company's perspective they're opening themselves up to massive legal risk by making this as a contract for the reason above - developer might try to sue them claiming gains which may or may not rightly be attributable to that developer's effort. I think this is a situation where be a just ruler and exercise judgment in paying employees in proportion to their contribution, makes a lot more sense than trying to codify an agreement.

adentranter 10y ago

100% agree with this. IMO there is to much focus on becoming high growth vs simply creating revenue. Of course creating high growth companies is great thing to do - But so is creating a company that solves a small niche problem and creates sustainable revenue.