14 ms·

Startups are in way better shape than traditional small businesses. By our very nature, we need months of runway just to keep running. We're designed to weathe

• BillinghamJ 7y ago
  Our board and investors have made it clear they think it's highly unlikely any meaningful funding will be able to progress until early 2022 at this point. Recently-funded or reasonably conservative startups should be able to do okay with that, but ones without a lot of runway are going to be in a really difficult position.
  • CPLX 7y ago
    Your board and investors clearly have an exceedingly high regard for their own predictive abilities if they can anticipate the reaction of a specific financial sector two years hence, based on the effects of a crisis that's realistically about 3-4 weeks old. I'm not saying they are wrong. But the premise that anyone has a fucking clue what's going to happen on what timeline is ludicrous.
    • treyfitty 7y ago
      It doesn’t matter if they’re wrong. That’s what they think. And if they think that, money doesn’t flow in. It becomes a self fulfilling prophecy.
      • CPLX 7y ago
        Well the money doesn't flow in as long as they think it. Which will last however long they want it to. When you get old and wizened you'll notice the pattern whereby the VC investor types will express the same certainty about everything all the time, even when shifting their opinions 180 degrees regularly and pretending like they've held their most recent opinion the whole time.
  • xiaolingxiao 7y ago
    Did your investors give some justification for the 2 year time span? For example, did they account for the possibility that many business won't open until September, or a second wave of infection that will hit late fall, followed by say, recession in full swing all of 2021.
    • Marsymars 7y ago
      I expect they're basing two years on the time a vaccine will take to get to market, and judging that everything that happens prior to then won't help much.
      • ageofwant 7y ago
        Getting a vaccine is not a given. We don't have a SARS, MERS or HIV vaccines, and its been multiple decades for some of those. Having a SARS-CoV2 vaccine in two years is wildly optimistic.
    • SpicyLemonZest 7y ago
      It's known that some businesses won't open until September - that's the current target for sports stadiums, for example. Even after September, there will be a lot of unknowns with massive economic implications. Will cruising recover in 1 year, or in 10 years? How much more friction will there be on international travel, and for how long? What's the risk of a coronavirus resurgence, both globally and locally? How different will the new crop of small businesses be from the ones that got eliminated in the shutdown? If you're going to give a startup huge chunks of cash, you need a high degree of confidence in the mid-term future, and in most areas that won't be available for a while.
      • rswail 7y ago
        I hope cruising only recovers with big reforms including: * Cruise firms pay their taxes and aren't allowed to use flags of convenience * They're required to look after and pay their staff properly * They're required to dramatically improve their fuel usage and efficiency * They're required to protect the environment, in particular their mooring and waste disposal practices * They're required to improve their onboard sanitation so that the spread of noroviruses, bacterial infections and other transmission is much better filtered and controlled.
  • vladislav 7y ago
    That's highly doubtful. If you really think that you should be raising a fund right now.
• im_down_w_otp 7y ago
  I think this is definitely true for venture-backed startups which scaled conservatively. However, scaling conservatively runs directly at odds with what a lot of venture backed startups are expected, told, or cajoled into doing. For those that went along with the conventional wisdom of the times, they're now extremely overextended having spent all that potential runway with no way to get it back and no hot marketplace nor profligate VC to carry them over the next threshold. You're absolutely right though. There are folks who are getting decimated who are part of the sustaining normal economy, and comparatively speaking having a "war chest" of capital, either VC supplied or otherwise, is a much more comfortable place to be.
  • wozniacki 7y ago
    If a business - any business whether a takeaway restaurant or a food hall or a white table cloth sitdown - cannot scrape by for more than a few weeks without steady revenue, wouldnt you say they are in a highly saturated niche or a highly saturated location or both or that they don't serve anything distinctive whether its their food or the experience, that couldnt be replaced by any other Joe Homecook with comparable resources? Why is that restaurateurs deserve a special shake when your local HVAC guy does not, especially when the margins are so thin probably because they cant charge a premium for their offerings as they don't offer anything distinctive or compelling?
    • akiselev 7y ago
      Most businesses operate that way for the same reason Starbucks doesn't check your ID every time you go to the counter to pick up a coffee. It's cheaper to just make another coffee in the rare scenario someone takes someone else's cup than to slow down everything. It is the optimal happy path that leads to far more productivity.
      • wozniacki 7y ago
        Are you sure youre replying to my comment? My comment was calling into question the viability & competitiveness of most restaurants that cannot weather a sudden change of fortunes. They are not be confused with long-lived, well-run and meticulously managed restaurants that stand the test of time because they offer something compelling. Most restaurants don't fit that bill and never had those ingredients baked into their DNA, to begin with. Peter Thiel has opined on this in splendid detail: In 2001, my co-workers at PayPal and I would often get lunch on Castro Street in Mountain View, Calif. We had our pick of restaurants, starting with obvious categories like Indian, sushi and burgers. There were more options once we settled on a type: North Indian or South Indian, cheaper or fancier, and so on. In contrast to the competitive local restaurant market, PayPal was then the only email-based payments company in the world. We employed fewer people than the restaurants on Castro Street did, but our business was much more valuable than all those restaurants combined. Starting a new South Indian restaurant is a really hard way to make money. If you lose sight of competitive reality and focus on trivial differentiating factors—maybe you think your naan is superior because of your great-grandmother's recipe—your business is unlikely to survive…. The history of progress is a history of better monopoly businesses replacing incumbents. Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate. [1] Peter Thiel Will Not Be Opening A South Indian Restaurant In Silicon Valley https://dealbreaker.com/2014/09/peter-thiel-will-not-be-opening-a-south-indian-restaurant-in-silicon-valley https://dealbreaker.com/2014/09/peter-thiel-will-not-be-open...
• robocat 7y ago
  That is a different topic. Yes, your friends in manufacturing, hospitality, services (FIMHS) are on average probably worse off. If we compare your FIMHS to the poor in India, then suddenly your FIMHS are well off and are not deserving of attention either...
• yellowapple 7y ago
  Startups are more than just "us tech bros", though. If your company sells a physical product, for example, then you're typically reliant on either warehousing personnel on your own payroll or a third-party logistics (3PL) provider, both of which have been hit hard with COVID-19-related shutdowns. Pickers or packers or forklift drivers can't (usually) do their jobs from home; they need to be onsite at a warehouse to to do their work, and if the warehouse is literally not allowed to let employees in the door because the company is a "non-essential business", then guess who's getting laid off? For companies selling physical products, this threat is existential. There are lots of startups that sell physical products. I work for one of them. We're doing pretty great for now (we sell, among other things, toilet paper and hand sanitizer / soap and cleaning supplies), but we also recognize that we're lucky, and that luck is unlikely to persist if this "great unwinding" lasts longer than the COVID-19 panic unless we do everything in our power to reduce costs and extend that runway as long as possible with the current tailwind. Most startups selling physical goods ain't so lucky (see also: the ones in the article, even if the article didn't really go into much detail on it).
• scarface74 7y ago
  You weren’t around in 2000 or 2008 were you? Your startup is only in “better shape” as long as VCs are willing to keep funding you. VCs are only willing to keep funding you if they have confidence that you will have a profitable exit.
  • 0x0001 7y ago
    Not all startups require VC capital, some of us are just running without venture funding just clients money, some startups are in better shape because are on right market on the right time. You just need to be in the right time.
    • Natsu 7y ago
      I think startups will adapt in time. I mean, I'm surprised there aren't TP-finding apps right now...
      • WalterSear 7y ago
        Get with the times. https://cryptoticker.io/en/toilet-paper-token-bitcoin/ https://cryptoticker.io/en/toilet-paper-token-bitcoin/
    • scarface74 7y ago
      And you’re probably not looking for a large exit. You are trying that unheard of concept of spending less than you make. What you are doing is running a “lifestyle business”. That’s not a negative despite what the tech bro’s think. I hate the idea of success for a company seems to be “we got another round of funding while losing money”.
      • sambull 7y ago
        But for a whole summer I didn't pay for a ride share app.. thanks VCs!
      • rmason 7y ago
        When you raise money it's not a win, it's an obligation - Mark Cuban
• rexreed 7y ago
  Let's circle back in six months and see how you're doing. Things still feel nice and full when you've had a nice big dinner. But give me several lean days of no breakfast and meager lunch and dinner and you'll see just how full you feel. Startups are not in any way, shape or form, "better" than any other traditional business. In fact, maybe worse.
  • deleted 7y ago
    [deleted]
• treyfitty 7y ago
  Keep telling yourself that.
  • treyfitty 7y ago
    Note: the OP heavily edited the original post which heavily downplayed the potential impact to startups because of some magical force that insulated them from all ill.
• avip 7y ago
  I work for a well funded + product + paying customers + whatever su. Since inception of covid-19 the vast majority of customers withheld pretty much everything (some violated signed contracts). Some are MIA and impossible to communicate with. It's a global turmoil and it's too soon to make assumptions about how great of a shape we're in. Are we better off than baristas? Likely.
  • alexis_fr 7y ago
    This. I had revenue for 5 people but didn’t succeed to find them, just 1, so I feel very well off and I keep the positions open. However, we’re on a corporate market that errs in the side of luxury, and even with an incredibly safe runway, I can’t assume I’ll still have customers in one year...
• untog 7y ago
  “months” is a vague term here. You have two months funding? I have some very bad news about what the world is still going to be like in two months time. Six months? The news is still not going to be great. You have a year of funding? OK, now we’re talking. And even then we’re talking cautiously. The economic fallout from this is going to be huge. And if you think tech startups are immune to that you’re in for a shock.
• filmgirlcw 7y ago
  This strikes me as wishful thinking and also incredibly myopic about the realities facing many startups. A startup that recently closed a big round (and the need to close the round wasn’t necessitated by massive debt or existing expenses — so think almost all of the money can be used as future runway) might be in a better short-term position than a business that is relying on net-30 or net-90 payments from clients that might not come and that will struggle gaining new revenue needed to pay bills. This is especially true if the startup can pause or slow-down hiring for now to extend the runway — but that’s a short-term advantage. Longer term, there is absolutely nothing inherent to being a “startup” that will make it any better at weathering the future than any other type of business. And when investments come back — and it could take years, we just don’t know at this point the extent of the economic situation — it is the biggest/best-connected that will benefit. Plenty of startups won’t ever be able to raise that future round. Plus, they get the additional disadvantage of trying to figure out an actual business model during a recession. At least existing businesses — even if they don’t survive — had a working business plan in place first. > I've got friends in manufacturing, hospitality, services, and so on that will not return to work because their businesses are going to or have already failed, for good. That's the fucking terrifying thing happening right now and it's more deserving of attention than us tech bros. This is the only part I agree with. I don’t want to see any business fold — but I’m much more concerned about people who aren’t venture-backed founders right now.
  • shoo 7y ago
    > Plus, they get the additional disadvantage of trying to figure out an actual business model during a recession. this has a bit of a silver lining: it'll help filter out bullshit business models that appear to work in the times of plenty.
    • deleted 7y ago
      [deleted]
    • EthanHeilman 7y ago
      It will also filter out sound business models that actually do work in times of plenty, but don't under the conditions of a pandemic.
• bdcravens 7y ago
  Founders aren't dumb. They need to survive through the war of attrition, and they will find ways to extend that runway. It's naive to believe it will be business as usual just because you're used to "zero revenue". If future rounds aren't coming (guess what, in this economy, they aren't), you extend runway by cutting expenses. Anyone with a career older than ten years knows how this will go.
  • foobiekr 7y ago
    I agree with your last sentence, but... You don't have to be dumb to be inexperienced. An awful lot of startup founders are young and were propagandized endlessly about being entrepreneurs, etc. Downside risk is an alien concept to many of them. Many of them do not actually know how to cut expenses because they've never known a time when the now-no-longer current fluffy, cushy environment wasn't standard.
• rjdagost 7y ago
  If there's one thing I've learned from the dotcom crash and the 2008 collapse, it's this: when the crap hits the fan, cash is king. Start-ups without profitable business models are extremely vulnerable. All of the pitches about exponential growth and glorious future profits carry little weight when investor psychology turns negative. So if you have a large pile of investor capital and you have investors who can't / won't claw their money back, you may be OK. But don't kid yourself that you are on an easier path.
• gjs278 7y ago
  your startup is going to fail lol
• invertY 7y ago
  You cannot disrupt a market if the market itself ceases to exist. This is basic stuff. A whole load of VC stuff relies upon the larger market to predate, has stupidly vapid IPO targets (which the actual big boys, Central Banks, are now culling off, since their actual liquidity stuff like Reits etc are crashing) and basically 100% worthless business models. "Juicer" or whatever it was? Go look up what Glencore is doing (20% emerging markets just disappeared) and get back to this thread and start figuring out an exit. No-one in this thread seems to note this: try finding some ex-Soviet citizens who lived through 89-96 and ask them some serious questions. ~ Seriously: I was told HN was were the semi-smart tech people hung out. It's like WeWork in here.
  • invertY 7y ago
    Look: you just got slammed with ~10 mil unemployment in the USA. Call it 10% of workforce. Most developed countries are now running at 15-30% and it's about to get worse. Entire industries are pretty much relying on bailouts or they fold (leisure, air (non-freight), cruise, hospitality, restaurants) and the people who own the real estate (or lend it out, Reits / Mortgages) are going to get hit by their tenants / clients being unable to pay. You're not in the "ramp to land" scenario - you're in "this VC is going to look at the contract and claw back the largest % of capital they can, in the next 4 weeks, due to margin calls and other commitments". Anyhow: no-one will read this, but it's fair warning to you guys. You're about to get frack'd, hard.
    • ThrowawayR2 7y ago
      Please review the HN guidelines linked at the bottom of the page. I think the combative tone and the mention of downvotes, both of which are against the guidelines and are actively enforced by moderators and readers, is contributing to your karma woes more than the content of what you are saying. (For whatever little it's worth, I suspect your assessment is correct.)
    • torgian 7y ago
      Agreeed.
    • 7y ago
• empath75 7y ago
  > By our very nature, we need months of runway just to keep running Even if you have months of runway, vc’s are going to be very tight about funding for the next two years at least.
• my_green_book 7y ago
  I totally second this comment. Startups often have 2 years of fund till the next round. It's much better than 30 days of private restaurant.
• ineedasername 7y ago
  I'm not sure why you think zero revenue is the default state. That's generally only the default during the short period of time in between selling angel investors on an idea or proof of concept and getting a first round of VC funding. Somewhere in the middle of that is launching a viable product and demonstrating a potential revenue stream while convincing investors there is a sizable addressable market you can poach from competitors or convince buyers they need a service they've never had before. Zero revenue is otherwise a short sprint towards irrelevance and insolvency. Startups with a little bit of runway have to cut costs now to extend it, i.e. staff cuts, or they're also on a short spring towards insolvency. All business negatively impacted right now are extremely adverse to new expenditures for the next few months, and might only be slightly less so for the next six months to a year after that. All spending not absolutely essential to keeping the lights on is getting cut. My workplace had contracts with a number of startups (and some more established) that provide industry-specific services, and as a matter of course we insist on a "force majeure" clause in contracts. As a result we are strongly moving towards terminating those contracts. We are considering it even for one or two that are close to being mission critical, because revenue loss just through June is in the range of $30,000,000. That represents roughly a 40% drop over expected revenue for that time period. Projections for the next quarter are much, much worse, even in an optimistic "we might be slightly less restricted as a society in 2-3 months" scenario. Given this environment, startups that do not supplant an existing service for a lower cost, have VC confidence and can "hibernate" for a time, or some other type of product that can help businesses stem losses rather than just make some activity slightly easier and more seamless... only those startups will weather this storm.
  • hef19898 7y ago
    Good point about Force Majeure, definitely have to add this my contacts going forward.
• icedchai 7y ago
  Unlikely. I've been through 2001 and 2008. Startups will cut things to the bone because most of them are cash flow negative, and that next VC round will be delayed 12+ months, maybe never.
• nkozyra 7y ago
  If you're an investor, this isn't how you see things. If there's no future, you cut bait. The startup doesn't have a real runway.
• muse900 7y ago
  Small-medium hotel owner here, that used to write code for a living. What just happened in my industry, is forcing me to go look for a job. I don't think we are going to open for summer season or even if we do its not gonna make enough to live by. Hundreds or thousands of years ago, a few had all the wealth and then most people were poor. We even had slaves. I can't believe that in 2020 and with all the knowledge we've acquired as humanity we've allowed a few people to acquire all the wealth. I am gonna struggle with paying any tax coming my way this year, or even supporting my employees who they very much need the job. And on the other hand, there are corporation that don't need to pay much tax through their umbrellas and then again they pay their employees peanuts so they can have a CEO that is worth in the hundred of billions of $. Sad to see that humanity hasn't improved at all.
  • vosper 7y ago
    First, I'm sorry about your troubles. But it's not this way everywhere: there are countries (I'm thinking of Scandinavian) where inequality is perhaps not so bad, and there are countries where governments are making major and genuine efforts to support businesses and people who are at risk of (or who have) lost their jobs due to Covid. There's bad leadership and bad behaviour in many places, but not everywhere all at the same time.
    • RestlessMind 7y ago
      Global population is 7.8B. Scandinavia's population is 25-26M (Norway, Sweden, Finland, Denmark). So your point applies to countries with 0.33% of humanity, which is not representative at all. Maybe add a few tiny countries or city-states and I would be surprised if their aggregative population crosses 2% of the overall global population. So I believe GP's point still stands - humanity has not learned the lesson from thousands of years of its history.
      • cutemonster 7y ago
        Our genes don't change and improve that fast Good points about the numbers
• sanguy 7y ago
  This assumes that startups can still secure funding to run at zero revenue state. This will likely become a lot more difficult over the next couple months or longer.
• xapata 7y ago
  > thin-margin Mom & Pop, or medium sized private enterprise that had 1 week of cash on hand and ceased operations overnight. It would be foolish of them to fold instead of getting loans. And it would be foolish of a bank to deny a good business a loan to get through the next couple years. I think much of the moaning about closing up is to encourage low-cost loans. Which is fair, because the government should be subsidizing such loans to lower the bar for a "good" business.
  • ikiris 7y ago
    Sounds like you should go into the loan business. Good luck
    • xapata 7y ago
      I would if I could.
  • mikeg8 7y ago
    One issue is the time it may take to get a loan approved and have funds available, especially during a crisis as dramatic as the one we’re in. The other larger issue is that the loan is incredibly high risk because the owner may not ever be able to pay it back and in some cases be asked to put their personal property up as collateral. If getting a loan was such a slam dunk, many more owners would be pursuing it, but the realities are, they may be worse off taking a loan they cannot pay back versus closing up and moving on.
• readhn 7y ago
  >"By our very nature, we need months of runway just to keep >running. We're designed to weather this kind of storm >because "zero revenue" is the default state." No you are not designed to weather this cataclysm. Especially a start up. This is the great cleanse. 2008-2020. We had a good run!
• jv22222 7y ago
  > We're designed to weather this kind of storm because "zero revenue" is the default state. Yeaaaaaah, about that... https://sivers.org/startnow https://sivers.org/startnow
• starpilot 7y ago
  Working for an electric utility. It's incredibly stable and no one has been let go. We still have all our contractors with us as well and are hiring in a few areas. People will always need power.
• hnarn 7y ago
  > We're designed to weather this kind of storm because "zero revenue" is the default state. This is completely contrary to what common sense would tell you if you ask yourself "what corporation would best survive a depression". Pick and choose any qualities, any sector, any background and be honest with yourself. My bet for what company I would prefer to own is something along the lines of: - Industrial manufacturing of common goods that are necessary for people, not industries, without many external factors where you are not exceedingly (more than others) exposed to price fluctuations of other goods. This could be ketchup, medicine, toilet paper, you name it. - A long history of sustained profit leading to cash on hand which you can use to compensate for downturns that you can be almost 100% sure are temporary. - Infrastructure in place that you can scale down and then back up without losing massive amounts of competence or inventory quality. Here's what I wouldn't like to have: - Complex technical software development that is completely optional for both people and industries, completely dependent on external factors and therefore heavily hit by economical downturn. - An unknown company with no history (startup) with zero cash on hand to compensate for a downturn that you can't even know if it's temporary or if you need to pivot completely. - Severe penalties for scaling down as key intellectual competence disappears from the company, causing double work when resumed and possibly a lower quality product going forward, making it even harder to sell. I'm not trying to get you down, but don't kid yourself. This is definitely not the type of climate where you would elect to be a tech start-up.
• vkou 7y ago
  A startup, by definition, is a business that hasn't yet figured out how to turn $1 into $1.01 in the best of times, and relies on investment money to fund its operations. They are in no way shape or form better suited to weather an economic collapse than a traditional business. Traditional businesses know how to turn $1 into $1.01.
• JamisonM 7y ago
  My experience is that "Mom and Pop" shops are generally awash in capital to the point of forgetting to bill customers for months on end. The are "over capitlized and under leveraged" and they offset their thin margins with absurdly low fixed costs. The biggest danger to their businesses is that the proprietors might be older and decide to retire instead of toughing this out. On the other hand my experience with slightly bigger suppliers/vendors with 5+ employees is that they run into cash flow problems all the time and do in fact seem much more vulnerable to this shock than a startup with no inventory and cash on hand.
• wink 7y ago
  I'm still a little shocked when hearing this, though. I'm talking about the small business who face bankruptcy after a single month of downtime/no income - that doesn't sound like a healthy business anyway if you didn't just start out. Or maybe I'm thinking the wrong size, where you have tons of recurring costs? Also freelancers (in IT, so assuming enough income usually) who are panicking because they couldn't sustain a few months. Only exception I'm seeing are restaurants and shops with large inventory and a lot of personnel.