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Ask HN: Are startups kind of pyramid schemes?

• kleer001 4y ago
  With poetic license, yes. But only at a low resolution of analysis, if you squint. Otherwise there's a mountain of difference between the inherent intentions. One is fraud, the other is servicing a new group of customers to make their lives better (ostensibly).
  • sharemywin 4y ago
    Most MLM's have earnings disclosures and there's lots of MLM companies and alot of times the products do delivery results or customers wouldn't buy. Marketing gimmicks only go so far.
• deleted 4y ago
  [deleted]
• CharlieDigital 4y ago
  Ostensibly, founders should have a lot of the equity because they took on a lot of the risk; often going months or years either without collecting pay or at least below market pay for their skillset. I worked with a founder who spent 7 years, spent tens of thousands (if not over $100k) of his own savings, and took on loads of debt before he finally landed a $100m Series C last year. The execs and employees joining later are by nature taking less risk because they are being paid near market rates with equity making up the rest. The later employees get less of the pie because the early employees took all of the risk.
• mindcrime 4y ago
  I would not say so. Saying a "pyramid scheme" implies intentional fraud, which is not the business that (most) startups are in. Theranos, etc. aside, most startups are sincere attempts to build viable businesses and are not committing fraud. It's just an inherently risky game. shrug
  • tabtab 4y ago
    I'm sure a lot of hype-centric start-ups intentionally try to surf buzzwords. Theranos mostly got in trouble because it made medical claims, which are more heavily regulated. If I sold a "microservice distributed edge-cloud webscale AI-self-tuned database" and created a working product, ignoring quality and practically, there's very little legal options for investors, unless they can find written evidence of an intentional devious plan. "The concept didn't fly well" by itself is not going to get your money back in court. Thus, pyramidness can be hidden via buzzwords if you go through the typical motions of making a real product. There are cases where lying to investors can make a lawsuit successful, such as using "hidden" humans to fake AI results if you claim an AI product. But that's old-fashioned business fibs. Oracle allegedly pulled a borderline scam of getting their database to "run" on different OS's but never bothering to fix many known glitches on that platform. That allowed them to claim they "ran" on a wider variety of OS's than competitors, when in fact "run" was in name only from a practical perspective. Actually older versions often worked on more OS's, having been tuned over time, but so did competitors'. Oracle implied the latest version ran (practically) on all the listed OS's.
  • sharemywin 4y ago
    where does something like FTX or theranos fit?
• cableshaft 4y ago
  There's some similarities, but it's still a job paying you wages (unless you're only working for equity), so it's not anywhere near as bad as actual pyramid schemes, which often require a monetary buy-in from you in order to pay people directly up the chain (as well as the sales you make). You just have to evaluate the startup based on their offer (heavily weigh the compensation, benefits, and learning opportunities, but don't weight the equity too much, imo), where they're at (series A/B/C, burn rate, other factors) and see if it's worth it to you to take a chance on the job.
• humanistbot 4y ago
  Look at the business model. In a pyramid scheme, the primary business model is recruiting other people into the scheme, rather than selling actual goods or services. They ostensibly sell goods or services, but to join, you typically have to pay money to buy products from someone else at the company. You hope to sell at a profit, but the only real way to recoup your 'investment' is to recruit someone else into the scheme. That said, startups can be full of toxic hierarchies, exploitation, unequal distribution of benefits, and similar qualities, but that's been true for centuries of capitalism.
  • mindcrime 4y ago
    That said, startups can be full of toxic hierarchies, exploitation, unequal distribution of benefits, and similar qualities, but that's been true for centuries of capitalism. None of that is unique to capitalism. What system involving n human beings (where n > 1) does that not apply to?
• unmole 4y ago
  > A pyramid scheme is a business model that recruits members via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. So, no.
• 1attice 4y ago
  It's not a 'pyramid scheme' like Amway, but yeah, it's pyramidal. The moral discomfort you notice is not because there is something wrong with startups per se, but with the winner-take-all dynamic that emerges in poorly-regulated markets. https://www.amazon.com/dp/B00K33AFOK?plink=B7Qs6pIL3Rfw7mh2&ref_=adblp13nvvxx_0_5_ti https://www.amazon.com/dp/B00K33AFOK?plink=B7Qs6pIL3Rfw7mh2&... You are looking at the most basic feature of capitalism: that the rich tend to get richer. The usual mechanism is that rich people can afford to take on more risk, and therefore earn more reward. Your moral intuitions are correctly picking out injustice, but failing to notice that your entire life takes place among pyramids. Sure, startups are pyramidal, but so are corporations -- don't forget Zuckerberg telling the 'metamates' to put his company before themselves. Size doesn't matter; nor does industry; the same dynamic plays out in banking, agriculture, and all the rest. If you follow that intuition, you may, like me, discover with surprise that you're a socialist progressive. And once you've adjusted to that self-reperception, you may want to get active. The only way out of the Valley of the Pyramids is redistribution.
  • 1attice 4y ago
    In writing the above, I also came up with this ELI5: In the video game of life, Elon Musk has infinite lives, has a health bar that stretches across the whole screen, and you and I are lucky to have 1up. Who do you think is going win? Putting aside winning: If you and I want to keep playing the game at all, we have to pick smaller bad guys to fight, and we will be rewarded with concomitantly smaller amounts of loot.
  • sharemywin 4y ago
    I think you missed the last part. the rich get richer until the poor rise up and kill them. Not advocating for this just re-marking on history.
• travisjungroth 4y ago
  Short answer, no, for the reasons other people described. There is something really pyramid-scheme-like about moving up the management chain. An early engineer becomes a manager. Then more people join thinking they'll become managers. Maybe they do and the first manager becomes a director. But, just like a pyramid scheme, this isn't really sustainable without huge turnover. The math just doesn't work out.