4 ms·

That some people win the lottery is not a good argument for playing the lottery

by sumeno 3y ago

tptacek 3y ago
If you feel that way, don't start a product company.
- mwcampbell 3y ago
  This seems to assume that the only reason to start a product company is because you want to gamble on the slim chance that you'll get rich. But what about starting a product company because there's a problem you believe really ought to be solved, and developing a commercial product is the best way to solve it? In that case, wouldn't it be prudent to avoid unnecessary risk?
  - tptacek 3y ago
    You'll still most likely fail! This is a really important part of why the VC math works the way it does. You can de-risk a product company by not trying to shoot for the moon, but it's an incremental derisking.
eastdakota 3y ago
The lottery is not a very good analogy. Let’s look at worst cases. In the lottery you put in cash and usually get nothing back. You literally learn nothing because every draw is random. At a VC-backed startup someone else gives you money. With that money you’re expected to pay yourself a salary. You get to learn at an incredibly fast rate on someone else’s dime. And you get that salary and learning even if your investors are awful and push you to do terrible things and you agree to do those terrible things and they tank the company. In the worst case, it’s a free education with room and board included. And, if it works, there’s a helluva upside. So, lottery expected worst case: you lose all your money. VC-backed startup expected worst case: you learn a ton and end up no worse financially than you started. As an aside, whether venture-backed or bootstrapped, having gotten to know a lot of successful founders the characteristic that seems to set them apart is their rate of learning. The best are relentlessly curious, always assume there’s something they don’t know, and seek to learn from as many people as possible.
- nwienert 3y ago
  You get almost no money in salary, and you spend something way more valuable than money: time, during your most energetic and precious years of life typically. I think it’s really dangerous to put rose tinted glasses on the whole thing. For anyone not upper class, if you spend 6 or so years chasing a startup and fail, and you’re a good software developer.. once you factor in savings and interest, your total opportunity cost is something like 2-4 million dollars. That’s making a good software dev salary for 6 years and saving some of it. That’s life changing for someone not already rich. And you’d still be learning a lot, plus working a much more relaxing job with time for side projects.
  - eastdakota 3y ago
    Agree that’s the right analysis for many people. Wasn’t arguing whether you should start a startup or not. Just that if you do bootstrapping isn’t inherently better than raising venture capital. Your broader point is important too: startups are unfortunately too often a luxury of the upper class. It is extremely scary to take a risk when you don’t have a safety net. I was personally broke when we started Cloudflare and had to borrow money from my mom to pay my rent. But I could borrow money from my mom. And I had a mom and a family that if I failed would make sure I didn’t go hungry. My family wasn’t anything close to what I now see really rich looks like, but we weren’t scraping by. Had I not had that safety net I don’t think I’d have had the confidence to start Cloudflare. And I think that’s a real issue with entrepreneurship we don’t talk enough about.
    - yibg 3y ago
      I think we also focus and celebrate too much the route of college drop out start up founders. For these cases yes some family wealth is definitely beneficial as a safety net. But there are also plenty of people that have worked for a while, provided themselves a safety net and go on the startup journey in their 30s and 40s. Eg. Eric Yuan, who was a eng VP already before zoom. But I guess those don’t grab the same headline attention.
      - 3y ago
hinkley 3y ago
Reversion to the mean is vastly overlooked in this Bayesian world. If I do something dangerous and win, then a roomful of people copying me have lower odds than I did, not better.

That some people win the lottery is not a good argument for playing the lottery

by sumeno 3y ago

That some people win the lottery is not a good argument for playing the lottery

tptacek 3y ago

If you feel that way, don't start a product company.

mwcampbell 3y ago
This seems to assume that the only reason to start a product company is because you want to gamble on the slim chance that you'll get rich. But what about starting a product company because there's a problem you believe really ought to be solved, and developing a commercial product is the best way to solve it? In that case, wouldn't it be prudent to avoid unnecessary risk?
- tptacek 3y ago
  You'll still most likely fail! This is a really important part of why the VC math works the way it does. You can de-risk a product company by not trying to shoot for the moon, but it's an incremental derisking.

eastdakota 3y ago

The lottery is not a very good analogy. Let’s look at worst cases. In the lottery you put in cash and usually get nothing back. You literally learn nothing because every draw is random. At a VC-backed startup someone else gives you money. With that money you’re expected to pay yourself a salary. You get to learn at an incredibly fast rate on someone else’s dime. And you get that salary and learning even if your investors are awful and push you to do terrible things and you agree to do those terrible things and they tank the company. In the worst case, it’s a free education with room and board included. And, if it works, there’s a helluva upside. So, lottery expected worst case: you lose all your money. VC-backed startup expected worst case: you learn a ton and end up no worse financially than you started. As an aside, whether venture-backed or bootstrapped, having gotten to know a lot of successful founders the characteristic that seems to set them apart is their rate of learning. The best are relentlessly curious, always assume there’s something they don’t know, and seek to learn from as many people as possible.

nwienert 3y ago
You get almost no money in salary, and you spend something way more valuable than money: time, during your most energetic and precious years of life typically. I think it’s really dangerous to put rose tinted glasses on the whole thing. For anyone not upper class, if you spend 6 or so years chasing a startup and fail, and you’re a good software developer.. once you factor in savings and interest, your total opportunity cost is something like 2-4 million dollars. That’s making a good software dev salary for 6 years and saving some of it. That’s life changing for someone not already rich. And you’d still be learning a lot, plus working a much more relaxing job with time for side projects.
- eastdakota 3y ago
  Agree that’s the right analysis for many people. Wasn’t arguing whether you should start a startup or not. Just that if you do bootstrapping isn’t inherently better than raising venture capital. Your broader point is important too: startups are unfortunately too often a luxury of the upper class. It is extremely scary to take a risk when you don’t have a safety net. I was personally broke when we started Cloudflare and had to borrow money from my mom to pay my rent. But I could borrow money from my mom. And I had a mom and a family that if I failed would make sure I didn’t go hungry. My family wasn’t anything close to what I now see really rich looks like, but we weren’t scraping by. Had I not had that safety net I don’t think I’d have had the confidence to start Cloudflare. And I think that’s a real issue with entrepreneurship we don’t talk enough about.
  - yibg 3y ago
    I think we also focus and celebrate too much the route of college drop out start up founders. For these cases yes some family wealth is definitely beneficial as a safety net. But there are also plenty of people that have worked for a while, provided themselves a safety net and go on the startup journey in their 30s and 40s. Eg. Eric Yuan, who was a eng VP already before zoom. But I guess those don’t grab the same headline attention.
    - 3y ago

hinkley 3y ago

Reversion to the mean is vastly overlooked in this Bayesian world. If I do something dangerous and win, then a roomful of people copying me have lower odds than I did, not better.