7 ms·

That "zombie startup" that Aaron is describing sounds like a nice, sustainable company that isn't chasing growth but can live for a while, profitably, with the

That "zombie startup" that Aaron is describing sounds like a nice, sustainable company that isn't chasing growth but can live for a while, profitably, with the customers you have. Why shut that down? That sounds great!

ackbar03 7y ago
Cause the investors are going, "that's not what I'm giving you money for! shut it down! SHUT IT DOWN for the love of god!"
- Jasper_ 7y ago
  The investors would prefer to lose their money entirely than get it repaid over a longer period of time?
  - koopuluri 7y ago
    If an investor bet on a founder that they could produce billion dollar returns in a 10 year time span for their investment, they would much rather have the founder work on another idea / direction that could potentially result in the crazy returns. You can never reach that level returns if a business is sitting at 50k/mo.
    - toomuchtodo 7y ago
      Then sell the business for a reasonable multiple, don’t shut it down.
  - nemothekid 7y ago
    Yes, or more specifically, Venture Capitals would.
  - decentralizedX 7y ago
    I actually think so, because of how the vc funds and balance sheets are structured. The only thing they care about is the one or two startups that will return the entire fund.
  - robhunter 7y ago
    There is a significant time value of money effect at play here - better to get the tax advantages from writing the investment off in Year 5 than getting paid back in Year 12
    - karthikb 7y ago
      They can always sell the shares back for a dollar and do the write off whenever they want.
      - frenchman99 7y ago
        If someone wants to buy the shares... even if the company is running well, if the founder has 51%, they might have no incentive to buyback.
        sokoloff 7y ago
        Is there a founder in the world of a company that's running well who wouldn't buy back 49% (or 9% or 79%) of their shares for a dollar per investor?
        karthikb 7y ago
        Exactly. And if in 2-3 years the company is doing spectacularly well it’s now additional headroom to raise without losing control.
        sokoloff 7y ago
        Heck, it's worth more than a dollar to not have to send an investor update or answer a resulting question.
  - paulsutter 7y ago
    Yes. All their returns come from 1-3 companies, while the other 40 board seats are a headache (founder squabbles, helping to hire a VP of Sales, etc) I’ve been in a VC fund for 10 years and literally all the returns are from three companies, the others make no difference whether they zero out for return 3x
mlevental 7y ago
didn't watch the video but generally the assumption is if you can get to cash flow positive but not hockey stick growth then you're good enough to work at a larger company and you're leaving money on the table (by not drawing a salary).
- jacquesm 7y ago
  But then you'd have a boss. Make sure your investors do not turn out being your boss.
nostrademons 7y ago
What game do you want to play with your life? Do you want to play the lifestyle business game? The startup game? The consulting game? The climb-the-corporate-ladder game? The just-collect-a-paycheck-and-get-your-fulfillment-elsewhere game? You should decide this before you enter the startup scene, and ideally as you're beginning your career. Because if you think you're playing one sort of game but are playing it according to the rules of another sort of game, you're basically guaranteed to lose. The assumption when you play the startup game is that you're playing for a big, low-probability payoff. There are a couple variations for just how big a payoff (are you looking to play the outsource-R&D-and-get-acquired game? show-I'm-a-good-programmer-and-get-aqhired game? build-a-billion-dollar-company game?), but in general, when people talk about startups, they mean hyper-growth. If you don't find hyper growth, you've lost at the startup game, and should call it and invest your time into either playing again or playing a different game. If you want a lifestyle business, you should play that game from the outset, because it means playing several choices differently. Notably, you should seek a small niche with real customers first, you can afford to pick an area off the cutting edge, you should seek profitability over growth, and you shouldn't take (equity) investment.
- ta1234567890 7y ago
  That would be ideal, to be able to make a decision a priori and then stick with it "forever". But as Mike Tyson would say, everyone has a plan until they get punched in the mouth. In reality, you can only make effective decisions once you've had the experience of what you are deciding about. Also, regarding the specific issue of zombie companies, they can always be brought back to life. There is tremendous value in having a fully working organization/team.
- streetcat1 7y ago
  I am not sure why would you need to take money (behind seed) even for a growth business. Can you just scale with customer money? Also, why not play in a big, HIGH probability payoff. For example, why not compete with Google or Amazon in what they think is their next market? This assures you a big market with at least 100M - 1B annual sale.
boltzmannbrain 7y ago
Because as a founder the startup is your life. It exhausts you mentally, physically, emotionally, financially. If your startup isn't accelerating, it feels like you are wasting your life away at an accelerating pace.
- criddell 7y ago
  Is the same true for someone that opens a restaurant or tire store?
  - boltzmannbrain 7y ago
    No. Apples and oranges. I presume the guy running the local AutoZone doesn't aspire to be acquired by Google or Roche for $2 billion. You could make the case for expert chefs or restaurateurs pursuing Michelin stars and fame -- going through relatable struggles, aspiring global success.
advertising 7y ago
We entered that zombie phase our 5th year in business. Now we are in our 9th year and have ticked along slowly slowly decling a bit each year. Down to two employees and probably have one year left to go. All investors except for our single biggest have said we should shut down largely so I can personally move on. Our biggest has been happy to see us stay alive being that there’s still a chance for success they believe. It’s largely been depressing coasting as a zombie. Making enough money to pay the bills but not enough to save or do anything for the future, but have been afraid to start something again for fear of going down this same route again.
- jacquesm 7y ago
  I've seen zombies turn around and amaze everybody involved as well, keep in mind that you have something that you've lost along the way up: agility. You can now make moves that you could not in the past, larger companies are like larger boats, they don't turn quite as nice or fast.
- pmikesell 7y ago
  Is it possible for you to figure some idea out that could be your last chance moonshot for this company? Maybe it’s better to go out with one last boom or bust push instead of slowly dribbling away? Best of luck to you - sounds like a tough spot.
cyborgx7 7y ago
I'm a hundred percent with you. I've seen the term "Zombie" to describe a company that is sustainable, providing a valuable service and paying their employees a lot on here. And noone was ever able to convince me why that is a bad thing. The fact that this business is only interested in bubbles and thinks sustainability is disease, really goes to show how fundamentally putrid this whole industry is.
closeparen 7y ago
He literally says, "it might be a good business but it's not a startup." Small businesses and startups (as YC uses the term) are different things. Your neighborhood coffee shop is not a startup that leveled off, it's a small business.
deleted 7y ago
[deleted]
borski 7y ago
There is a massive difference between: 1) A company that is sustainable and effectively “runs itself,” growing linearly, generating passive income, and default alive, but without much input or massaging from the founders outside of thinking about and implementing strategy, and, 2) A company that intended to be a startup, that still requires heavy support, tons of the founders’ time and effort, and is constantly still trying to figure out how to acquire new users. It’s profitable, but only because of the founders’ active efforts. One of these is depressing and leads to burnout. The other is fine.

ackbar03 7y ago

Cause the investors are going, "that's not what I'm giving you money for! shut it down! SHUT IT DOWN for the love of god!"

Jasper_ 7y ago
The investors would prefer to lose their money entirely than get it repaid over a longer period of time?
- koopuluri 7y ago
  If an investor bet on a founder that they could produce billion dollar returns in a 10 year time span for their investment, they would much rather have the founder work on another idea / direction that could potentially result in the crazy returns. You can never reach that level returns if a business is sitting at 50k/mo.
  - toomuchtodo 7y ago
    Then sell the business for a reasonable multiple, don’t shut it down.
- nemothekid 7y ago
  Yes, or more specifically, Venture Capitals would.
- decentralizedX 7y ago
  I actually think so, because of how the vc funds and balance sheets are structured. The only thing they care about is the one or two startups that will return the entire fund.
- robhunter 7y ago
  There is a significant time value of money effect at play here - better to get the tax advantages from writing the investment off in Year 5 than getting paid back in Year 12
  - karthikb 7y ago
    They can always sell the shares back for a dollar and do the write off whenever they want.
    - frenchman99 7y ago
      If someone wants to buy the shares... even if the company is running well, if the founder has 51%, they might have no incentive to buyback.
      - sokoloff 7y ago
        Is there a founder in the world of a company that's running well who wouldn't buy back 49% (or 9% or 79%) of their shares for a dollar per investor?
        karthikb 7y ago
        Exactly. And if in 2-3 years the company is doing spectacularly well it’s now additional headroom to raise without losing control.
        sokoloff 7y ago
        Heck, it's worth more than a dollar to not have to send an investor update or answer a resulting question.
- paulsutter 7y ago
  Yes. All their returns come from 1-3 companies, while the other 40 board seats are a headache (founder squabbles, helping to hire a VP of Sales, etc) I’ve been in a VC fund for 10 years and literally all the returns are from three companies, the others make no difference whether they zero out for return 3x

mlevental 7y ago

didn't watch the video but generally the assumption is if you can get to cash flow positive but not hockey stick growth then you're good enough to work at a larger company and you're leaving money on the table (by not drawing a salary).

jacquesm 7y ago
But then you'd have a boss. Make sure your investors do not turn out being your boss.

nostrademons 7y ago

What game do you want to play with your life? Do you want to play the lifestyle business game? The startup game? The consulting game? The climb-the-corporate-ladder game? The just-collect-a-paycheck-and-get-your-fulfillment-elsewhere game? You should decide this before you enter the startup scene, and ideally as you're beginning your career. Because if you think you're playing one sort of game but are playing it according to the rules of another sort of game, you're basically guaranteed to lose. The assumption when you play the startup game is that you're playing for a big, low-probability payoff. There are a couple variations for just how big a payoff (are you looking to play the outsource-R&D-and-get-acquired game? show-I'm-a-good-programmer-and-get-aqhired game? build-a-billion-dollar-company game?), but in general, when people talk about startups, they mean hyper-growth. If you don't find hyper growth, you've lost at the startup game, and should call it and invest your time into either playing again or playing a different game. If you want a lifestyle business, you should play that game from the outset, because it means playing several choices differently. Notably, you should seek a small niche with real customers first, you can afford to pick an area off the cutting edge, you should seek profitability over growth, and you shouldn't take (equity) investment.

ta1234567890 7y ago
That would be ideal, to be able to make a decision a priori and then stick with it "forever". But as Mike Tyson would say, everyone has a plan until they get punched in the mouth. In reality, you can only make effective decisions once you've had the experience of what you are deciding about. Also, regarding the specific issue of zombie companies, they can always be brought back to life. There is tremendous value in having a fully working organization/team.
streetcat1 7y ago
I am not sure why would you need to take money (behind seed) even for a growth business. Can you just scale with customer money? Also, why not play in a big, HIGH probability payoff. For example, why not compete with Google or Amazon in what they think is their next market? This assures you a big market with at least 100M - 1B annual sale.

boltzmannbrain 7y ago

Because as a founder the startup is your life. It exhausts you mentally, physically, emotionally, financially. If your startup isn't accelerating, it feels like you are wasting your life away at an accelerating pace.

criddell 7y ago
Is the same true for someone that opens a restaurant or tire store?
- boltzmannbrain 7y ago
  No. Apples and oranges. I presume the guy running the local AutoZone doesn't aspire to be acquired by Google or Roche for $2 billion. You could make the case for expert chefs or restaurateurs pursuing Michelin stars and fame -- going through relatable struggles, aspiring global success.

advertising 7y ago

We entered that zombie phase our 5th year in business. Now we are in our 9th year and have ticked along slowly slowly decling a bit each year. Down to two employees and probably have one year left to go. All investors except for our single biggest have said we should shut down largely so I can personally move on. Our biggest has been happy to see us stay alive being that there’s still a chance for success they believe. It’s largely been depressing coasting as a zombie. Making enough money to pay the bills but not enough to save or do anything for the future, but have been afraid to start something again for fear of going down this same route again.

jacquesm 7y ago
I've seen zombies turn around and amaze everybody involved as well, keep in mind that you have something that you've lost along the way up: agility. You can now make moves that you could not in the past, larger companies are like larger boats, they don't turn quite as nice or fast.
pmikesell 7y ago
Is it possible for you to figure some idea out that could be your last chance moonshot for this company? Maybe it’s better to go out with one last boom or bust push instead of slowly dribbling away? Best of luck to you - sounds like a tough spot.

cyborgx7 7y ago

I'm a hundred percent with you. I've seen the term "Zombie" to describe a company that is sustainable, providing a valuable service and paying their employees a lot on here. And noone was ever able to convince me why that is a bad thing. The fact that this business is only interested in bubbles and thinks sustainability is disease, really goes to show how fundamentally putrid this whole industry is.

closeparen 7y ago

He literally says, "it might be a good business but it's not a startup." Small businesses and startups (as YC uses the term) are different things. Your neighborhood coffee shop is not a startup that leveled off, it's a small business.

deleted 7y ago

[deleted]

borski 7y ago

There is a massive difference between: 1) A company that is sustainable and effectively “runs itself,” growing linearly, generating passive income, and default alive, but without much input or massaging from the founders outside of thinking about and implementing strategy, and, 2) A company that intended to be a startup, that still requires heavy support, tons of the founders’ time and effort, and is constantly still trying to figure out how to acquire new users. It’s profitable, but only because of the founders’ active efforts. One of these is depressing and leads to burnout. The other is fine.