6 ms·

This is nonsense, or at least misleading for this audience. The example, selling a company for $1.1million isn't even getting to the start line for most folks.

This is nonsense, or at least misleading for this audience. The example, selling a company for $1.1million isn't even getting to the start line for most folks. If you look at many made-it-from-nothing founders of the companies we know, they rarely start out broke, are often independently wealthy (it's a lot safer to drop out of an ivy-league school with a wealthy family as a backs-stop) or have made significant money from earlier stages in their careers. Being broke is a huge distraction to most founders, having to focus on the distractions of family, sometimes a spouse and/or kids, and struggling to pay bills - none of that is a good thing for one's ability to focus on getting your startup to any kind of critical mass. Motivation-by-commitment, as many sales organizations will put it, is more like what's being talked about in the article - that if desperate a smart person will figure out ways to make money and often stabilize some sort of business out of that. But even that is a stretch to claim being an advantage over not being broke. This is the kind of advice that leads mediocre founders to romanticize ramen-noodles and cheapskate their talent - either getting second tier people or trying to cajole talented engineers into taking much-below-market rate wages. Obviously it's better for founders to be capital efficient and keep costs low. Being hungry clearly is necessary to success. But if you can get yourself to some degree of financial stability it'll make you more able to focus on what matters building your startup, and if you pay people fairly you'll attract talent and loyalty.

timc3 14y ago
I couldn't agree more in my experience (joint founder, bootstrapping a new business from personal small amount of savings).
tweiss 14y ago
This. I can't even imagine how founders with families and kids deal with the stress that goes hand in hand with being broke. Being scrapy and hungry is a good thing. But not knowing how to pay rent or having to freelance a couple of days a week is a huge distraction.
- richardjordan 14y ago
  I can tell you from personal experience how: If you take literally the advice of investors and startup-ra-ra types and put everything on the line for your startup, your own money, your time... and then something like the financial crash of 2008 hits just as you're raising your round, your $500k Salesforce.com pipeline of business that depends on marketing spend from big corporates in q4/08 and q1/09 collapses and literally 0% closes... You get divorced. Being broke isn't a bonus feature of the startup process. It can be an unfortunate side-effect and one that takes some effort to dig out from. You'll make it out again if you stick at it, but it's not fun and it WILL cost you things in your life that are important to you. Remember, families didn't sign on for your start-up dream. Not being able to pay the bills is not cool. It's bad advice from people who've either never honestly been there, or folks who've forgotten what it was like there and are romanticizing it, or folks who are insecure about their success and want to build a struggle-against-adversity narrative to feed the myth of the hero-founder.
  - mibbitier 14y ago
    I think perhaps you're the wrong audience. The advice is great for bootstrapped businesses who are looking to get profitable. It's probably not so great for "raising a round" venture backed "startups" who are playing the startup lottery. If you're building a business, then being broke is a pretty great incentive to make things work.
    - richardjordan 14y ago
      I understand what you're saying, though i think the characterization of startups as a lottery is a mistake. There is some luck involved with startups but smarts and execution count far more. But for lifestyle businesses too I just don't buy the argument that being broke is a great asset. It just makes it more likely you'll fail. Ask anyone who's tried opening a store or a restaurant. It's better to take a job and save some $$ before starting and having some runway. If the writer is going for the narrower case of a consulting or contracting business then founder is misleading, or at least being used in a very different way than most HNers are using it.
biznickman 14y ago
Some people romanticize being broke ... others romanticize raising funding. It's unfortunate that you think selling a company for $1 million isn't the starting line. Outside of Silicon Valley, most people would not understand why you are thinking that way. Perhaps saying "Broke" is the incorrect term ... "almost broke" will light a fire under your ass.
- richardjordan 14y ago
  To clarify that comment: you get into the semantics of "startup" and "founder" here a bit. But most folks starting companies or working in startups on Hacker News are in the kind of startups where even an early angel round has a starting valuation north of $1million. So, that's what I mean by the starting line. Obviously, selling for a million dollars will work in some circumstances for some folks. But also it's worth remembering that it's not as much money as it once was. I once had a startup that for various reasons we chose to exit for right around GBP1million. It's not retiring money for someone who is (as I was) still young and has a lot of years to go. It's helpful, but not where most folks on here are aiming to be when they build a company. I doubt most people driven to start companies need the perverse incentive of being broke to light a fire under their ass. Most founders I know are incredibly driven and motivation of that kind is seldom necessary or helpful.
OldSchool 14y ago
Sorry, but unless you were born with a trust fund, a million bucks in real money is still enough to change the course of the rest of your life. You aren't going to be buying your own island, but you certainly won't have the worries that most people have, as long as you're smart with it, as in living like you don't have it.
- richardjordan 14y ago
  I've been there too (i.e. sold a company in the $1-2million range). Once taxes etc. are taken out it's more like half that and that's just two to four years of salary for most folks starting companies of the type we discuss on HN most of the time (given most founders of Silicon Valley style startups can make $100-200k elsewhere). No-one is saying that getting $1mm is a bad thing, just that for most start ups folks on HN are starting or working on pre-money valuations for angel rounds are higher than that... hence the starting line comment. It's the usual semantic question of what people mean by startup and founder. However my primary point is that it's nonsense to say being broke is better than not being broke when dealing with the stresses of starting a company. EDIT: Hm... not sure how one can be downvoted for clarifying my point in response to a comment. Meh, I guess I still don't understand the way HN works.
  - OldSchool 14y ago
    I hear ya, broke is only good because you have nothing to lose and need is a strong motivator. It may be fun for a newly-funded startup guy to count up his illiquid shares and say "I have $X now (in monopoly money)" but as you said, it's not over until your shares are actually sold, taxes are paid and indemnifications have been released. (saw your EDIT: I don't know how downvoting works either - it wasn't me!!!)
  - ericabiz 14y ago
    I started my hosting company in 2001. If you were in the Valley at the time, you'd know it was a terrible time to be there. No one was hiring. I am a college dropout and had no degree. I sent literally hundreds of resumes out to every conceivable tech company. Never even got a call back. Newspapers (remember those?) were full of smug pundits telling us "The Internet is dead!" or "The Internet is a fad!" Huge companies were going bust by the day. This was the way I made it work. I wasn't about to go back home to Indiana and live with my parents again, so I hustled. 2001 was a totally different timeframe and mindset than exists now in the tech industry. It's easy to look back, 11 years later, and say "It's easy" or "Startups get valuations 10x higher than that pre-revenue" or "She could have just gone to Google and made that much money." None of that was happening in the tech bust of 2001.
ericabiz 14y ago
Hi, I'm Erica, and I'm the person that is mentioned in the OP. (Imagine my surprise to click through a link on the front page of HN and find out it was about me! That was quite a jolt.) Anyway, I wanted to say: $1.1 million is life-changing, especially when it's for a company you started at age 20 and never expected to make more than a couple hundred dollars a month on. I didn't take on any investors for that business, and I found the buyer and did the sale. Running (and later, selling) that business solidified my expertise not only in the tech area, but also in learning how to acquire and keep customers. I wouldn't trade that experience for anything. The payday was a nice bonus. And, I have to say, in an era where tech companies IPO and then tank, is it not refreshing to read about a bootstrapped company built by a sole founder who then sold it for 7 figures? I know I love those stories. And, even in the Valley, they're a lot rarer than you think.
- richardjordan 14y ago
  Congrats. That's awesome. Particularly at that stage in your life - I bet it's hugely life changing. Would never do ANYTHING to discourage a young entrepreneur. I hope you go on to more, equally interesting, things. I got a smallish exit a few years ago now, similar sort of range, did much worse with it. Unfortunately we took our $$ mostly in stock and that was depressing - seeing other companies selling for much more while our tech languished ignored in our acquirer as it tanked and our stock became worthless :-/ I think that your example is great, I just disagree with the premise of the article that being broke is "a founder's greatest asset".
- jpdoctor 14y ago
  > I wanted to say: $1.1 million is life-changing first: congrats. I'm curious: How much of the $1.1 did you manage to keep (taxes etc.) BTW It might be a good entry in your blog on how to set up a biz for such events.
  - ericabiz 14y ago
    Hi JP: I lost about a third to taxes (I should have moved to Texas sooner! Ah, well, I'm here in Austin now and loving it.) Another $125,000 or so to debt (it was an asset sale and the business was holding some debt on its books.) And $74,000 to a stupid mistake in the contract--should probably write out the details on my blog so no one gets stuck in that particular quagmire. I owned 91.5% of the company, with the other 8.5% owned by two employees, who also got paid their shares out of the $1.1 million sale. I also did something risky that, looking back, probably wasn't the smartest idea: I financed $999,000 to the buyer at 6% interest, who then paid it back over 3 years. He did pay it all back, which was awesome, but there were definitely some heart-stopping moments in there. I gained back a lot of what I lost due to the interest payments. But I would never sell a business in that way again--it's just too risky. Hope this helps. I do my best to be an open book. I totally agree on writing out the blog post, too. I'm running another startup now, so my time is limited, but this is still important stuff to so many entrepreneurs. tl;dr: Enough to not have to work for 4 years, travel a lot, and to put a down payment on a house here in Austin. :)
deleted 14y ago
[deleted]
hungry__founder 14y ago
Being broke is a huge distraction to most founders, having to focus on the distractions of family, sometimes a spouse and/or kids, and struggling to pay bills - none of that is a good thing for one's ability to focus on getting your startup to any kind of critical mass. Un-fun things startups do when broke: Digging through your belongings for spare change to buy a meal while you're working on closing a deal is not fun. Closing your 401k is not fun. Trading in your car for an ancient beater is not fun. Keeping a straight face with clients while screaming inside is not fun. Staring at an empty cupboard wondering what you're going to eat is not fun. Coding on an empty stomach is not fun. Selling your furniture is not fun. If an important deal gets delayed (which it always does), and you're living broke (AKA ramen profitable) to keep as much as possible in your business, you may have to do all the above and more to get through lean times. Far better to avoid the distraction of fighting to survive by not being broke.

timc3 14y ago

I couldn't agree more in my experience (joint founder, bootstrapping a new business from personal small amount of savings).

tweiss 14y ago

This. I can't even imagine how founders with families and kids deal with the stress that goes hand in hand with being broke. Being scrapy and hungry is a good thing. But not knowing how to pay rent or having to freelance a couple of days a week is a huge distraction.

richardjordan 14y ago
I can tell you from personal experience how: If you take literally the advice of investors and startup-ra-ra types and put everything on the line for your startup, your own money, your time... and then something like the financial crash of 2008 hits just as you're raising your round, your $500k Salesforce.com pipeline of business that depends on marketing spend from big corporates in q4/08 and q1/09 collapses and literally 0% closes... You get divorced. Being broke isn't a bonus feature of the startup process. It can be an unfortunate side-effect and one that takes some effort to dig out from. You'll make it out again if you stick at it, but it's not fun and it WILL cost you things in your life that are important to you. Remember, families didn't sign on for your start-up dream. Not being able to pay the bills is not cool. It's bad advice from people who've either never honestly been there, or folks who've forgotten what it was like there and are romanticizing it, or folks who are insecure about their success and want to build a struggle-against-adversity narrative to feed the myth of the hero-founder.
- mibbitier 14y ago
  I think perhaps you're the wrong audience. The advice is great for bootstrapped businesses who are looking to get profitable. It's probably not so great for "raising a round" venture backed "startups" who are playing the startup lottery. If you're building a business, then being broke is a pretty great incentive to make things work.
  - richardjordan 14y ago
    I understand what you're saying, though i think the characterization of startups as a lottery is a mistake. There is some luck involved with startups but smarts and execution count far more. But for lifestyle businesses too I just don't buy the argument that being broke is a great asset. It just makes it more likely you'll fail. Ask anyone who's tried opening a store or a restaurant. It's better to take a job and save some $$ before starting and having some runway. If the writer is going for the narrower case of a consulting or contracting business then founder is misleading, or at least being used in a very different way than most HNers are using it.

biznickman 14y ago

Some people romanticize being broke ... others romanticize raising funding. It's unfortunate that you think selling a company for $1 million isn't the starting line. Outside of Silicon Valley, most people would not understand why you are thinking that way. Perhaps saying "Broke" is the incorrect term ... "almost broke" will light a fire under your ass.

richardjordan 14y ago
To clarify that comment: you get into the semantics of "startup" and "founder" here a bit. But most folks starting companies or working in startups on Hacker News are in the kind of startups where even an early angel round has a starting valuation north of $1million. So, that's what I mean by the starting line. Obviously, selling for a million dollars will work in some circumstances for some folks. But also it's worth remembering that it's not as much money as it once was. I once had a startup that for various reasons we chose to exit for right around GBP1million. It's not retiring money for someone who is (as I was) still young and has a lot of years to go. It's helpful, but not where most folks on here are aiming to be when they build a company. I doubt most people driven to start companies need the perverse incentive of being broke to light a fire under their ass. Most founders I know are incredibly driven and motivation of that kind is seldom necessary or helpful.

OldSchool 14y ago

Sorry, but unless you were born with a trust fund, a million bucks in real money is still enough to change the course of the rest of your life. You aren't going to be buying your own island, but you certainly won't have the worries that most people have, as long as you're smart with it, as in living like you don't have it.

richardjordan 14y ago
I've been there too (i.e. sold a company in the $1-2million range). Once taxes etc. are taken out it's more like half that and that's just two to four years of salary for most folks starting companies of the type we discuss on HN most of the time (given most founders of Silicon Valley style startups can make $100-200k elsewhere). No-one is saying that getting $1mm is a bad thing, just that for most start ups folks on HN are starting or working on pre-money valuations for angel rounds are higher than that... hence the starting line comment. It's the usual semantic question of what people mean by startup and founder. However my primary point is that it's nonsense to say being broke is better than not being broke when dealing with the stresses of starting a company. EDIT: Hm... not sure how one can be downvoted for clarifying my point in response to a comment. Meh, I guess I still don't understand the way HN works.
- OldSchool 14y ago
  I hear ya, broke is only good because you have nothing to lose and need is a strong motivator. It may be fun for a newly-funded startup guy to count up his illiquid shares and say "I have $X now (in monopoly money)" but as you said, it's not over until your shares are actually sold, taxes are paid and indemnifications have been released. (saw your EDIT: I don't know how downvoting works either - it wasn't me!!!)
- ericabiz 14y ago
  I started my hosting company in 2001. If you were in the Valley at the time, you'd know it was a terrible time to be there. No one was hiring. I am a college dropout and had no degree. I sent literally hundreds of resumes out to every conceivable tech company. Never even got a call back. Newspapers (remember those?) were full of smug pundits telling us "The Internet is dead!" or "The Internet is a fad!" Huge companies were going bust by the day. This was the way I made it work. I wasn't about to go back home to Indiana and live with my parents again, so I hustled. 2001 was a totally different timeframe and mindset than exists now in the tech industry. It's easy to look back, 11 years later, and say "It's easy" or "Startups get valuations 10x higher than that pre-revenue" or "She could have just gone to Google and made that much money." None of that was happening in the tech bust of 2001.

ericabiz 14y ago

Hi, I'm Erica, and I'm the person that is mentioned in the OP. (Imagine my surprise to click through a link on the front page of HN and find out it was about me! That was quite a jolt.) Anyway, I wanted to say: $1.1 million is life-changing, especially when it's for a company you started at age 20 and never expected to make more than a couple hundred dollars a month on. I didn't take on any investors for that business, and I found the buyer and did the sale. Running (and later, selling) that business solidified my expertise not only in the tech area, but also in learning how to acquire and keep customers. I wouldn't trade that experience for anything. The payday was a nice bonus. And, I have to say, in an era where tech companies IPO and then tank, is it not refreshing to read about a bootstrapped company built by a sole founder who then sold it for 7 figures? I know I love those stories. And, even in the Valley, they're a lot rarer than you think.

richardjordan 14y ago
Congrats. That's awesome. Particularly at that stage in your life - I bet it's hugely life changing. Would never do ANYTHING to discourage a young entrepreneur. I hope you go on to more, equally interesting, things. I got a smallish exit a few years ago now, similar sort of range, did much worse with it. Unfortunately we took our $$ mostly in stock and that was depressing - seeing other companies selling for much more while our tech languished ignored in our acquirer as it tanked and our stock became worthless :-/ I think that your example is great, I just disagree with the premise of the article that being broke is "a founder's greatest asset".
jpdoctor 14y ago
> I wanted to say: $1.1 million is life-changing first: congrats. I'm curious: How much of the $1.1 did you manage to keep (taxes etc.) BTW It might be a good entry in your blog on how to set up a biz for such events.
- ericabiz 14y ago
  Hi JP: I lost about a third to taxes (I should have moved to Texas sooner! Ah, well, I'm here in Austin now and loving it.) Another $125,000 or so to debt (it was an asset sale and the business was holding some debt on its books.) And $74,000 to a stupid mistake in the contract--should probably write out the details on my blog so no one gets stuck in that particular quagmire. I owned 91.5% of the company, with the other 8.5% owned by two employees, who also got paid their shares out of the $1.1 million sale. I also did something risky that, looking back, probably wasn't the smartest idea: I financed $999,000 to the buyer at 6% interest, who then paid it back over 3 years. He did pay it all back, which was awesome, but there were definitely some heart-stopping moments in there. I gained back a lot of what I lost due to the interest payments. But I would never sell a business in that way again--it's just too risky. Hope this helps. I do my best to be an open book. I totally agree on writing out the blog post, too. I'm running another startup now, so my time is limited, but this is still important stuff to so many entrepreneurs. tl;dr: Enough to not have to work for 4 years, travel a lot, and to put a down payment on a house here in Austin. :)

deleted 14y ago

[deleted]

hungry__founder 14y ago

Being broke is a huge distraction to most founders, having to focus on the distractions of family, sometimes a spouse and/or kids, and struggling to pay bills - none of that is a good thing for one's ability to focus on getting your startup to any kind of critical mass. Un-fun things startups do when broke: Digging through your belongings for spare change to buy a meal while you're working on closing a deal is not fun. Closing your 401k is not fun. Trading in your car for an ancient beater is not fun. Keeping a straight face with clients while screaming inside is not fun. Staring at an empty cupboard wondering what you're going to eat is not fun. Coding on an empty stomach is not fun. Selling your furniture is not fun. If an important deal gets delayed (which it always does), and you're living broke (AKA ramen profitable) to keep as much as possible in your business, you may have to do all the above and more to get through lean times. Far better to avoid the distraction of fighting to survive by not being broke.