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> These are the startups that fizzle out 2-3 years later Is that really the most common problem? I would probably be one of those engineers (if I'd start a bus

> These are the startups that fizzle out 2-3 years later Is that really the most common problem? I would probably be one of those engineers (if I'd start a business) and I'm a lot more afraid to sell something that doesn't exist yet than the other way around. Because now in addition to your usual problems you have legal obligations to deliver a product. I think this is one of the reasons for the crazy crunch culture of many startups. Instead of selling a fake MVP product it is probably more healthy to be upfront to customers and let them pay for your development time like a consultant... And then repeat the work faster for different customers until you can spin the process out into a actual product. In the case of the startups you describe I always imagine they have great sales and marketing people but no actual product, and thus survive only until the VC money dries up...

PragmaticPulp 6y ago
Statistically, more startup ventures fail than succeed. > Instead of selling a fake MVP product it is probably more healthy to be upfront to customers and let them pay for your development time like a consultant Careful, no one is advocating selling "fake" products. The key is to develop a minimal product that can be sold. It has to work, though. Fraud will sink a startup very quickly. From there, you can contract with additional customers to expand the product to meet their needs. This is more difficult than it sounds, though, as you'll quickly be torn between working on what's best for the product as a whole, and what's best for an individual customer's unique needs. I've seen many startups go down this path with best intentions, but ultimately become contracting shops with a single customer. That's fine if that's your goal, but it's painful when the contracts dry up and you don't have a product that appeals to the mass market.
an_opabinia 6y ago
> Is that really the most common problem? The most common problem, if you're a really talented engineer, is that you could work for a big company and be paid more in a single year than your business will bring in for its entire lifetime. Conversely what you really find is, the people running 20+ person companies with tens of millions in investor money to bring in only $1m in revenue a year - they lacked the talent, actually, to just make the money at a big company. That you should start with the assumption that capitalism works, and that the person doing this thing is not stupid but just shut out from a better opportunity. So maybe you're a really talented engineer but you are foreign so you'd need an H1-B to work for Google. Or maybe you're a former product manager from Microsoft who didn't quit, but was laid off, so you really can't just go and make the money. A transplant surgeon brings in about $1m in revenue per day for heart transplants. There is no risk there, there is unlimited demand for heart transplants. It's just extremely hard to become a transplant surgeon, it is extremely competitive, much more competitive than making a website. While I'm not suggesting every startup CEO is just a washed-out up-and-coming surgeon, there is other stuff they may have washed out from broadly, like just medicine itself, that led them to chase the worse economics of where they are.
- indymike 6y ago
  So, you've got a choice: $200K/year at bigco, or $120K/year + a one time payout of $2m when you sell your company in five year. Yes, slow and steady can win the race, but last I looked, $200K x5 is $1m. The solo founder will make $2.6m. Of course, there's no guarantee of any of this. The talented engineer could be caught up in layoffs at bigco, and the founder could go out of business or never sell. Usually, exits are done at a multiple of revenue, so it is not uncommon to sell a small company with $600-700K/year of revenue for 3-5x that amount. BTW, raising tens of millions for one million in revenue doesn't happen that often.
  - an_opabinia 6y ago
    Everyone I know who has worked at the top tech companies for 5 years has earned considerably more than the entire startup's revenue. I wasn't ever talking about the startup's equity value, but even if I was, they were earning more than the equity value they would receive too.
  - outside1234 6y ago
    You forgot to discount the $2M payout by like 0.05 (or 5%) which generously is the number of startups that will get anywhere near that.
  - icedchai 6y ago
    I've seen companies raise single digit millions and not even get close to $1M in revenue, over 5 years later. The result is founders have been diluted massively after a couple of down rounds. Meanwhile, preferred dividends are accruing year after year. The odds of a big payoff gets smaller and smaller the longer this goes on. Odds are you'd make more money taking a job at BigCo, live like you only needed half what you're making, and invest that extra money into the public market. This isn't as fun though.
- ErikAugust 6y ago
  The first business I started out of college was enabled solely by the fact I couldn’t find a full-time job. Like, at all really, for any pay. Was the business I started modestly successful? Sure. But did I move on when far better opportunities came about? Yes, I did. Opportunity cost is very much a real thing that dictates who actually starts a business or goes to work for one for under market rates. I have met some people who implicitly or even explicitly claimed they were above being an employee but I think they weren’t being honest about their actual employment prospects.
taneq 6y ago
> let them pay for your development time like a consultant... Do they not then own at least a share of the IP? You'd be lucky to find a customer that takes you on as a consultant but lets you keep the IP you develop during that time.

PragmaticPulp 6y ago

Statistically, more startup ventures fail than succeed. > Instead of selling a fake MVP product it is probably more healthy to be upfront to customers and let them pay for your development time like a consultant Careful, no one is advocating selling "fake" products. The key is to develop a minimal product that can be sold. It has to work, though. Fraud will sink a startup very quickly. From there, you can contract with additional customers to expand the product to meet their needs. This is more difficult than it sounds, though, as you'll quickly be torn between working on what's best for the product as a whole, and what's best for an individual customer's unique needs. I've seen many startups go down this path with best intentions, but ultimately become contracting shops with a single customer. That's fine if that's your goal, but it's painful when the contracts dry up and you don't have a product that appeals to the mass market.

an_opabinia 6y ago

> Is that really the most common problem? The most common problem, if you're a really talented engineer, is that you could work for a big company and be paid more in a single year than your business will bring in for its entire lifetime. Conversely what you really find is, the people running 20+ person companies with tens of millions in investor money to bring in only $1m in revenue a year - they lacked the talent, actually, to just make the money at a big company. That you should start with the assumption that capitalism works, and that the person doing this thing is not stupid but just shut out from a better opportunity. So maybe you're a really talented engineer but you are foreign so you'd need an H1-B to work for Google. Or maybe you're a former product manager from Microsoft who didn't quit, but was laid off, so you really can't just go and make the money. A transplant surgeon brings in about $1m in revenue per day for heart transplants. There is no risk there, there is unlimited demand for heart transplants. It's just extremely hard to become a transplant surgeon, it is extremely competitive, much more competitive than making a website. While I'm not suggesting every startup CEO is just a washed-out up-and-coming surgeon, there is other stuff they may have washed out from broadly, like just medicine itself, that led them to chase the worse economics of where they are.

indymike 6y ago
So, you've got a choice: $200K/year at bigco, or $120K/year + a one time payout of $2m when you sell your company in five year. Yes, slow and steady can win the race, but last I looked, $200K x5 is $1m. The solo founder will make $2.6m. Of course, there's no guarantee of any of this. The talented engineer could be caught up in layoffs at bigco, and the founder could go out of business or never sell. Usually, exits are done at a multiple of revenue, so it is not uncommon to sell a small company with $600-700K/year of revenue for 3-5x that amount. BTW, raising tens of millions for one million in revenue doesn't happen that often.
- an_opabinia 6y ago
  Everyone I know who has worked at the top tech companies for 5 years has earned considerably more than the entire startup's revenue. I wasn't ever talking about the startup's equity value, but even if I was, they were earning more than the equity value they would receive too.
- outside1234 6y ago
  You forgot to discount the $2M payout by like 0.05 (or 5%) which generously is the number of startups that will get anywhere near that.
- icedchai 6y ago
  I've seen companies raise single digit millions and not even get close to $1M in revenue, over 5 years later. The result is founders have been diluted massively after a couple of down rounds. Meanwhile, preferred dividends are accruing year after year. The odds of a big payoff gets smaller and smaller the longer this goes on. Odds are you'd make more money taking a job at BigCo, live like you only needed half what you're making, and invest that extra money into the public market. This isn't as fun though.
ErikAugust 6y ago
The first business I started out of college was enabled solely by the fact I couldn’t find a full-time job. Like, at all really, for any pay. Was the business I started modestly successful? Sure. But did I move on when far better opportunities came about? Yes, I did. Opportunity cost is very much a real thing that dictates who actually starts a business or goes to work for one for under market rates. I have met some people who implicitly or even explicitly claimed they were above being an employee but I think they weren’t being honest about their actual employment prospects.

taneq 6y ago

> let them pay for your development time like a consultant... Do they not then own at least a share of the IP? You'd be lucky to find a customer that takes you on as a consultant but lets you keep the IP you develop during that time.