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I'm going to say this knowing that I may get down voted to heck. And I don't mean it as a "told you so" to the OP, but rather hopefully some cautionary advice f

I'm going to say this knowing that I may get down voted to heck. And I don't mean it as a "told you so" to the OP, but rather hopefully some cautionary advice for would-be founders. I have come to the opinion that if you are bootstrapping, you have no business calling your company a startup. You are building a small business. And there is nothing shameful about this. You are among solid companions with your local plumbers, restaurants, and barbers. You make a good living building a sustainable business that is growing steadily but slowly, to serve a small group of loyal customers. But you are not a startup. Startups are about growth. About chasing metrics like 5% week over week. About going from 100 customers to 100,000 in a month. That is the reason you take VC money. It's not "I have this idea for a business, but I need some money to quit my job while I work on it". It's "I have an idea for a business that could be huge but I need to build it up fast". So when I see someone bemoaning the advice they were given by their investors, telling them they should be meeting all these crazy metrics, I can't help but ask, what did you expect? The VC isn't in the business of slow, organic growth of your company. They are in the business of generating a return for their fund within a relatively short timeframe. The advice you get is their best effort to try and help you find "explosive" growth. Before you sign your bootstrapped business on for investment money, ask yourself: is this business, and more importantly am I, really suited for massive, short term growth?

hidingmyname 13y ago
You're right. Many accelerators have a knack for picking up teams that have demonstrated the ability to build things that generate revenue and traction. The siren song of money, networking and growth is really seductive. The implications you speak of (and I experienced it) aren't always so clear (or too easy for a prospective founder to dismiss).
rcavezza 13y ago
You're wrong. A bootstrapped company can grow just as fast as a company that takes VC money.
- mtrimpe 13y ago
  Yet every bootstrapped company would grow faster if it took (the right kind of) VC money. (For the record... I'm happily bootstrapping my startup which is a startup as far as I'm concerned. I'd call startups that rely on VC funding "VC startups.")
  - bsenftner 13y ago
    That is the untrue statement of the decade. In my experience, VC and angels are little more than lucky, but deluded to believe otherwise. Or corrupt, and using you to hide their activities.
    - mtrimpe 13y ago
      By "right kind of" I meant to exclude the ones you're referring to. In general I'd find it hard to believe having more resources available reduces your growth rate.
      - angersock 13y ago
        Erm, the issue here is that defining the "right" type of VC funding as the type of VC funding that is "right" is a bit of a tautology...
    - vidarh 13y ago
      Many VC's may very well be primarily lucky, but that does not mean that the companies they put their money on are not more often than not in a position to grow faster with their investment. It's just that they are still also at high, and often substantially increased, risk of failing fast. Not least because an investment is often used to execute strategies that substantially increase the burn rate.
  - davidjgraph 13y ago
    I know a couple of 3 person startups where one person was pretty much full-time dealing with the funding side. When you're small that's a huge cut away from people focusing on delivering product. Both went under and said in retrospect the extra person would have been better applied building the product/marketing.
RyanZAG 13y ago
Agree completely - startup is about growth - but there is a definite difference between a small technology company and a local barber or restaurant. A local barber or restaurant has a limited customer base. No matter how incredible or world class his haircuts are, nobody will fly from across the country to have their hair cut. A technology/internet startup is different. If the company is small and sticks to very slow but definite growth through a genuinely good product, eventually they can become an enormous corporation even if they weren't planning on it because anybody in the world can give them money for their value. Intent is important, but the reality is that a slow growing internet company not focused on growth can eventually end up growing at 100% week on week simply because of slow improvement on product that provides value - 'startup by mistake'. A local barber can never have the same effect.
acjohnson55 13y ago
I would call any new business a startup, but call the VC-driven, exponential-growth-seeking model "growth startup". I think you make a great point, but out of curiosity, what do you suggest are the best avenues for funding a tech business in the more traditional revenue-driven-growth model, if you're not bringing enough seed capital to get off the ground on your own? It seems like what's missing is an accessible happy medium.
- greghinch 13y ago
  There are a couple options, but the traditional small business route was a bank loan. These are obviously harder to get now, but still not impossible. The right private investor/angel is also a good route. This should essentially be someone who wants to join you in the business, not someone who is looking for a specific return timeline on their investment. That's a big differentiator between a good angel and a VC.
- lsc 13y ago
  >I think you make a great point, but out of curiosity, what do you suggest are the best avenues for funding a tech business in the more traditional revenue-driven-growth model, if you're not bringing enough seed capital to get off the ground on your own? Traditionally, you start the business after you have some experience in the field, and either have some skill you can use to drive some revenue, or some capital. This idea that you start a product business (rather than a business selling your labor directly) right out of school seems like a new one.
  - acjohnson55 13y ago
    It's a relatively new idea, but I don't think things have changed in a bad way in that sense. The sort of people you speak of typically have plenty of experience using the sort of products they develop. Is it a problem to let people try to start business while they're relatively unencumbered and near peak creativity?
    - lsc 13y ago
      >Is it a problem to let people try to start business while they're relatively unencumbered and near peak creativity? It's not so much 'let' as "pay them lots of money to" as for the encumbrances, well, we all make choices. Children don't magically appear when you hit 30. Personally, I find it really surprising that people who choose to have children seem to be able to compete with the childfree in top jobs... but it seems they can, so what do I know?
michaelochurch 13y ago
So if "startup" is off-limits, what should we call (and how will we fund) the mid-growth/mid-risk businesses that are too risky for a sane person to take personal liability (which banks tend to require) but aim for 15-50% growth per year as opposed to 5% per week (which is 12.6x annual growth-- impossible without what would be, excluding extreme resources, degenerate gambling). We say in this country that getting rich slowly is the virtue and that get-rich-quick is the scam. Yet VC is obsessed with the latter. I have some ideas on how to finance this currently underexplored (and underfunded) class of businesses: http://michaelochurch.wordpress.com/2013/03/26/gervais-macleod-17-building-the-future-and-financing-lifestyle-businesses/ http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... . But I have no power, so don't count on me to fix the problem.
nhangen 13y ago
I don't agree with this because I don't think all bootstrapped businesses have to stay small. The advantage bootstrapping gives you is you can use revenue to find product/market fit, at which point you can start scaling. The problem many 'startups' make is they run out of money before getting to that point.
- Kurtz79 13y ago
  I think the OP was arguing against calling a bootstrapped business a "startup", and on that ground he has a point (at least according to PG's and Wikipedia's definition of a startup). That is to say, a bootstrapped business can be a startup (if it gets to the point where it focuses on fast growth) but not necessarily (as in the case of businesses with gradual or no growth).
  - nhangen 13y ago
    You may have missed mine. I'm saying that aside from investment, startups and bootstrapped have many similarities. Both are focused on growth, it's just that one is smarter about it (generally). Most of the startups the OP is referring to don't have a mission other than to get acquired before they run out of money. My preference would be to call these 'startups' burnouts instead, and reserve the name for the real businesses.
    - Kurtz79 13y ago
      I completely agree with what you are saying about the "burnouts", but I think a bootstrapped business (unlike a startup) it's not necessarily focused on growth. You could start a bootstrapped business and only grow to the point where is sustainable in the long term, and just provides you with a decent level of income so that you can work on something you like and under conditions that suit you.
      - nhangen 13y ago
        I don't know. I guess I've just always viewed bootstrapping as choosing revenue for financing rather than investors. I don't think boostrapping is the same as what some like to call a'lifestyle business.' My company is bootstrapped, but we're still very focused on growth.
UK-AL 13y ago
Bootstrapping is often the first phase of a vc powered company. Facebook was bootstrapped...
lakey 13y ago
Good points, but has any VC in history actually underpinned growth from 100 to 100,000 customers in a month? Users, perhaps, but users are different creatures to customers. What's the value of that kind of user growth? It very much depends on the quality of the user, and the startup's ability to convert users to customers. The Techcrunch effect might give you rapid user growth, but are these the right kind of users for the business? Maybe. Or maybe not. But for the short term story, the VCs love 'user growth', and let's not worry too much about the detail, right? The problem with taking the VC dollar is that you also need to take their metrics and KPIs. I can think of no better KPI in business than average customer lifetime value, but I doubt most VCs could care less about that, as it's a long-term KPI. It is the short-term vanity / hype metrics ('user growth' being a good example) that they're more interested in. They want to be in and out within a relatively short timeframe. Explosive growth is all well and good, but as ever we're overly focused on user / customer acquisition, and not with retention, which is far more profitable over the long term. A healthy business concentrates on the latter, and not just the former. For VCs, it seems to be the other way around, concerned as they are with exit strategy.
- hahnfeld 13y ago
  This unfairly generalizes and vilifies early stage investors. There are plenty of proper, professional VC's who are sufficiently patient and not focused on faux success. Remember, a typical VC fund has a life of 7-10 years. That's plenty of time to develop a company properly and focus on the things which build REAL value. Perhaps the devil is in the details here, but OP implies that he took accelerator/angel money -- that's potentially a very different thing than a professionally managed institutional investment.
  - lakey 13y ago
    You're right, I've gone and confused accelerators with VCs. And no, not all VCs are short-termists.
mathattack 13y ago
I agree with you conceptually. Steady stable businesses of any side have no business taking VC money. Maybe they take PE money for capital structure arbitrage purposes. But I still consider them start-ups. They are entrepreneurs fighting in the marketplace. Not every start-up needs VC money.
shin_lao 13y ago
Not entirely true. Growth can be exponential, but the growing phase might be very long. Meaning that some business need money, grow steadily for several years and then go stratospheric.
WillieBKevin 13y ago
I see your point about growth, but I disagree over the term bootstrap. I interpret bootstrap to be about external investment. Its possible to have a high-growth company (a "startup"), that receives no investment, or receives investment by the founders. Mailchimp is a fantastic example. Bootstrapped with 9 figure revenues and crazy profits. http://www.quora.com/MailChimp/How-much-revenue-is-MailChimp-doing http://www.quora.com/MailChimp/How-much-revenue-is-MailChimp...
- vijaykoogu 13y ago
  Pinterest CEO, Ben Silbermann share his xeperience https://www.youtube.com/watch?v=1JLc2PYyCa0 https://www.youtube.com/watch?v=1JLc2PYyCa0
deleted 13y ago
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bilbo0s 13y ago
"...“Cut out that pesky client that generates 80% of your revenue, they’re a distraction on the road to executing $OUR_BIG_VISION”..." "...I can't help but ask, what did you expect?..." I can't help but ask what the VC was thinking??? Serious question. I know we don't know all of the details, but this seems, on the face of it, a very bad idea. I would assume there must have been much better methods of handling that client than to cut them loose. A new free tier to generate growth maybe??? Or a tier on the high end which would serve to satisfy that client??? I just don't understand why "paying customer" and "high growth" have to be mutually exclusive??? They are not mutually exclusive in any other industry I work with. Not in the restaurant industry... see Chipotle. Not in the shoe industry... at least women's shoes. Not even bike components... SRAM. Even in industries that are notoriously difficult... like porn... growth and paying customers can coexist. I mean if "$OUR_BIG_VISION" has no room for customers who pay you gobs of money? I don't know what to think of that.
- nemesisj 13y ago
  This is out it happened, reading between the lines. "We can't get feature X,Y, and Z completed which we think will get us X,000 new customers because of Big Client." "Well, then fire Big Client." "OK." <months pass while new features X, Y, Z are built, Big Client leaves but it's OK b/c X,000 new customers are coming!> "Hooray! We just released X, Y, and Z" <crickets> "Oh no! It turns out the features weren't actually what customers wanted or needed!" <Hosed>
- greghinch 13y ago
  Without knowing more about the OP's business it's hard to say for sure, but I can give some thoughts based on my own experience. I'm going to assume they are a B2B company of some kind based on the limited description. In this capacity, when you are starting out, often you have a very small customer base. You likely know each of your customers individually. And as individuals, they have their own thoughts and opinions about how they want a service like yours to function. If you're not careful, you end up becoming something more akin to a consultant than a vendor. Your service becomes tailored to the specific needs of one or a few customers. The problem is, when you are going for growth, you can't focus on the needs of one. You have to be able to take a higher level view, and build a product that can do the most for all of your customers. Sometimes that means cutting features, or at the very least making changes. If you had a product which was tailored for one customer, that fact may very well be quite limiting to expand to many more customers. Even if you build something that could do just as much for that early customer, the fact that you had to make those changes may be enough to sour the relationship and end it. Again it's hard to know what happened in this specific case without details, but I would wager it was something along those lines. It's a decision not to be made lightly, but one you're likely to face as you grow a B2B service.
beat 13y ago
In all the debate this comment spawned, I think people need to realize that we need some language to clearly distinguish between big business, small business, and what I'll call "startups" here. I think "entrepreneur" is a good word to cover small business, including that local pub or barbershop. Such businesses have linear growth and a low ceiling. Software startups can have exponential growth and a ceiling orders of magnitude higher. An entrepreneurial small business could be very successful at a million dollars of revenue. An equivalent level of success in startups is a billion dollars. So "startup" as a subset of "entrepreneur" seems like good language to me. The difference is the opportunity for exponential growth.
Arjuna 13y ago
"Startups are about growth." Indeed... in his essay, "Startup = Growth", PG wrote: "A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth. If you want to start one it's important to understand that. Startups are so hard that you can't be pointed off to the side and hope to succeed. You have to know that growth is what you're after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face." [1] [1] http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html
- jt2190 13y ago
  There isn't consensus on what the vague term "startup" means. Here's a different definition, from Steve Blank: > "A startup is an organization formed to search for a > repeatable and scalable business model." [1] [1] http://steveblank.com/2010/01/25/whats-a-startup-first-principles/ http://steveblank.com/2010/01/25/whats-a-startup-first-princ...
  - ianterrell 13y ago
    This is still a growth focused definition: "repeatable and scalable" is really saying "growable".
    - jt2190 13y ago
      Here's an article with examples from popular media: > Steve Jobs often speaks of Apple's "startup" culture. > ... an article in the New York Times referred to > the seven-year-old airline Virgin America > as a startup. [2] [2] http://readwrite.com/2010/07/12/how-do-you-define-startup http://readwrite.com/2010/07/12/how-do-you-define-startup
    - nfailor 13y ago
      no it's not, it's growable+cloneable.
e2e4 13y ago
Your comment is spot on about the types of businesses that VCs are funding - the ones with "explosive" growth potential (with the expectation that it happens quite soon). I do disagree that startup has to be growth centered. By virtue of software for which the distribution costs are practically 0; most software companies have potential for a significant growth (unless they are targeting a very narrow audience). It seems that the growth would come naturally once you have a product of high quality (with sufficient exposure/marketing). Hence shouldn't the primary focus of startups be on producing a product of high quality?
dkrich 13y ago
That's your definition of a startup. Most people (myself included) think of a startup simply as a new, fledgling business. Every business starts with nothing. Your aspirations, whether they are to become billion-dollar or just side income are irrelevant. They can lead to some bone-headed decisions along the way though.
- enraged_camel 13y ago
  A barber shop is a new, fledgling business, but it is not a startup. PG wrote an essay on this - you should read it.
  - unimpressive 13y ago
    I'd like to second this, and provide a helpful link. http://paulgraham.com/growth.html http://paulgraham.com/growth.html
  - ooutpa 13y ago
    Oh come on. Just because Paul wrote something does not suddenly make it fact. The word 'startup' is at least a few hundreds years old, most likely from the word 'upstart' - the action of starting up. Startup as defined in the Merriam Webster dictionary: A fledgling business enterprise. Startup as defined in the Oxford dictionary: A newly established business.
    - unimpressive 13y ago
      We're talking about startups in the Silicon Valley Business vernacular, which has some strange definitions for common words. (See: Disrupt)
      - ooutpa 13y ago
        You see, I can get behind the usage of the word 'Disrupt' - to interrupt the normal course or unity of - Because that's often what happens when a startup enters a market to take market share from entrenched competitors who have been sailing along with a legacy for years. But I can't get behind changing the meaning of the word 'startup' based on geographic location. The meaning is literally in the word. To start up a new venture. Nothing about 5% weekly growth. Nothing about seeking a business model - because when the word was coined nobody had to 'seek' a business model, people just paid money for goods and services. There's your business model. Of course that part has become a little lost in Silicon Valley recently.
gohrt 13y ago
The word "startup" is the least important part of the whole story.
ooutpa 13y ago
I love the subtle patronization in your post. "You are building a small business." "You are among solid companions with your local plumbers, restaurants, and barbers." My brother in-law has a bootstrapped SaaS company making six figures per month at a profit margin of almost 100%. Is he building a small business? Is he among his local plumbers and barbers?
alexsilver 13y ago
I'm always confused why people assume that you need VC's money to grow FAST, especially if your company a B2B (similar to what people assumed about OP's business). Growing fast means getting a lot of new PAYING customers fast and if you priced your product right, that should cover the extra expenses of infrastructure, support and allow you to expand your staff to build more features to bring more customers in. VC's money is good when you don't have a proper monetization strategy (which may or may not be a problem to begin with) and need money to get by for the first while, which doesn't seem to be OP's case.
tptacek 13y ago
Ah, the "hacker/cracker" debate equivalent for software entrepreneurship, complete with the person who says other people have "no business" calling themselves something if they don't meet their specific definition of that something. Bolted, of course, to the top of any thread that mentions "bootstrapping" or "VC".
- natrius 13y ago
  I don't think this distinction is anywhere near as trivial. VC-funded companies have meaningfully different qualities than those that are just trying to build up their revenues. The author failed to internalize this distinction, and it later made him unhappy.
  - tptacek 13y ago
    People who break into computers are very different from people who build novel computer systems. The problem isn't the validity of the distinction.
- greghinch 13y ago
  This is more about an internalized understanding of the type of business you are building for the founders than it is about external perceptions. That can be difficult for some, particularly with the prestige we in this community attribute to the word "startup". But understanding the needs of your business and how you want to grow it are key. If you're thinking of your business as a startup, that massive growth is the only way forward, you'll make decisions like taking VC money. If you think of it as a profitable small business, with measured and planned growth, you can recognize that VC money may not be the answer for you.
  - tptacek 13y ago
    I think we understand that you believe businesses that don't aim for shoot-the-moon growth shouldn't call themselves "startups". The problem is, not everybody agrees with you. I've done both kinds of companies and don't think growth trajectory is the defining feature of a "startup". I'm also not particularly interested in debating the point, since it has very little to do with the story we're commenting on. (I also understand your rebuttal to that point, that the problem this person had was not understanding the distinction you're making, but I also disagree with that argument and find it a little mean-spirited.)
jusben1369 13y ago
Startups are not about growth. People have to stop thinking that way. Startups are about an idea that's new and not tried before. That's why you can have a medical startup raise $10 million and produce NO GROWTH for 5 years while they work in the laboratory solving a problem and creating a business that didn't exist before. (shameless plug I wrote about this last October: http://jmlite.tumblr.com/post/33443330774/startup-idea http://jmlite.tumblr.com/post/33443330774/startup-idea)
rdl 13y ago
There are clearly differences, different risks, etc. in different kinds of businesses. A new concept for a physical retail store is different from "another dry cleaner" vs. a franchise vs. taking over an existing successful business. A consultancy where you have 20 years experience in the field as a consultant for someone else is totally different from a b2b startup a a field you solidly understand where you have initial clients lined up before you start, vs. a consumer "hits driven" business. There isn't a universal line between startup and small business; it probably varies with time and with the founders themselves.
tlogan 13y ago
I disagree that startups are about growth. The growth is the key for startups in certain web / social networking space - but definitely not in all areas. I like Steve Blank definition of the startup: "A startup is an organization formed to search for a repeatable and scalable business model". So startups need to have _constant_ progress in their search for repeatable and scalable business model. For example, if you run a bio-med startup, are you going to grow and sell your drugs out of the door? Nope. Or if your startup is some B2B boring stuff - sometimes you want to work hard to make a couple big customers super happy and work very hard on how to repeat and scale that business model. Also some local restaurants do become startups - depending if they figured out how to scale their business model.
PencilAndPaper 13y ago
Its kind of annoying that most of the comments in response to this post are basically debating vague jargon The word means many things to different people. This is an indication that people should start using different words to describe things if they want their audience to interpret them as intended.
nostrademons 13y ago
Would this apply to companies like Hewlett-Packard or Microsoft that start out bootstrapped and eventually go public?
mindcrime 13y ago
But you are not a startup. ... in the opinion of greghinch. Sorry, but I'm of the opinion that your opinion, or at least your use of terminology, is a bit dodgy. I agree that taking VC money implies certain expectations that may not be what you - as a founder - want or are comfortable with, yes. That's just a warning against taking VC money, unless you know for sure what you're getting into. But to suggest that you aren't a "startup" unless you take VC money and do the "get big fast" thing is, IMO, totally unsupported. Just because a company is bootstrapping does not mean they are "building a small business" or that you are meant to be companions with the "local plumbers, restaurants and barbers". Big companies can be built slowly. Did Wal-mart start off as a huge mega-corp? McDonals? IBM? A million other examples? No. Organic growth, re-investing in the company and growing slowly but steadily can be a path to being huge just as well as grabbing a pile of VC money and trying to compress it all into a couple of years. It's all about the decisions you make and how you execute and what your vision is. Also note that it's really not a fixed decision anyway... you could bootstrap for 6 years, then - one day - decide to take VC or private equity money to expand. So were you, or were you not a startup? Or would that be a "Schrödinger startup"?
eaurouge 13y ago
Nonsense! To start with, "startups are about growth" is Paul Graham's thesis, and it's just one way to define a startup. There are others; see jt2190's comment for a reference to Steve Blank's: "A startup is an organization formed to search for a repeatable and scalable business model." I'm sure there are others. There was a Silicon Valley decades before Internet/Web 2.0/somolo startups started colonizing San Francisco, and back then, there were startups in other non-Internet industries - heck there still are. There are startups in biotech, medical devices etc, that take several years just to develop a commercially viable product. Those startups don't use metrics like "5% week over week". They are, however, scalable businesses that may eventually justify VC investment. There are lots of reasons to want to grow a business quickly, but a business doesn't automatically cease to be a startup because you have decided you don't "need to build it up fast", whatever that means. Bootstrapped businesses can be startups, obviously. The cost of starting almost any business has fallen sharply in the past few years. You don't need VC funding to build a startup, fast or slow, unless you're building a capital intensive business or you can't fund your startup otherwise.
ryanhuff 13y ago
Your description of what defines a startup is myopic and one dimensional. Would you consider a SpaceX competitor to be a startup? They would certainly not be about 5% week over week growth. I bet the race to reach the "hockey-stick" kills more companies than it helps. In many cases, there is no reason why you can't end up at the same place in 5 years if you let the business growth organically, rather than force-feed it in the beginning in search of that 1-2 year pop. But how many VC's want to see their investment wandering through the wilderness for 2-3 years before things start to "click"?
90002 13y ago
Hmmm, very interesting and strong viewpoints. However, wouldn't you say this is what is wrong with the industry now? Investors looking to make a few bucks rather quickly than having patience and seeing something flourish over time? Granted, not all startups, if any, actually quite blossom after a longer period of time, but I think it's a bit unfair to expect such rapid growth or success in such a small time. Nevertheless, I believe founders must be more cautious when it comes to taking money from folks who may have such narrow vision for the future. Due diligence should be happening on both sides of the table, and all entrepreneurs must understand the reality of the industry now compared to 10, 15 years ago where there was much more tolerance for high risk ventures and little bit more patience.

hidingmyname 13y ago

You're right. Many accelerators have a knack for picking up teams that have demonstrated the ability to build things that generate revenue and traction. The siren song of money, networking and growth is really seductive. The implications you speak of (and I experienced it) aren't always so clear (or too easy for a prospective founder to dismiss).

rcavezza 13y ago

You're wrong. A bootstrapped company can grow just as fast as a company that takes VC money.

mtrimpe 13y ago
Yet every bootstrapped company would grow faster if it took (the right kind of) VC money. (For the record... I'm happily bootstrapping my startup which is a startup as far as I'm concerned. I'd call startups that rely on VC funding "VC startups.")
- bsenftner 13y ago
  That is the untrue statement of the decade. In my experience, VC and angels are little more than lucky, but deluded to believe otherwise. Or corrupt, and using you to hide their activities.
  - mtrimpe 13y ago
    By "right kind of" I meant to exclude the ones you're referring to. In general I'd find it hard to believe having more resources available reduces your growth rate.
    - angersock 13y ago
      Erm, the issue here is that defining the "right" type of VC funding as the type of VC funding that is "right" is a bit of a tautology...
  - vidarh 13y ago
    Many VC's may very well be primarily lucky, but that does not mean that the companies they put their money on are not more often than not in a position to grow faster with their investment. It's just that they are still also at high, and often substantially increased, risk of failing fast. Not least because an investment is often used to execute strategies that substantially increase the burn rate.
- davidjgraph 13y ago
  I know a couple of 3 person startups where one person was pretty much full-time dealing with the funding side. When you're small that's a huge cut away from people focusing on delivering product. Both went under and said in retrospect the extra person would have been better applied building the product/marketing.

RyanZAG 13y ago

Agree completely - startup is about growth - but there is a definite difference between a small technology company and a local barber or restaurant. A local barber or restaurant has a limited customer base. No matter how incredible or world class his haircuts are, nobody will fly from across the country to have their hair cut. A technology/internet startup is different. If the company is small and sticks to very slow but definite growth through a genuinely good product, eventually they can become an enormous corporation even if they weren't planning on it because anybody in the world can give them money for their value. Intent is important, but the reality is that a slow growing internet company not focused on growth can eventually end up growing at 100% week on week simply because of slow improvement on product that provides value - 'startup by mistake'. A local barber can never have the same effect.

acjohnson55 13y ago

I would call any new business a startup, but call the VC-driven, exponential-growth-seeking model "growth startup". I think you make a great point, but out of curiosity, what do you suggest are the best avenues for funding a tech business in the more traditional revenue-driven-growth model, if you're not bringing enough seed capital to get off the ground on your own? It seems like what's missing is an accessible happy medium.

greghinch 13y ago
There are a couple options, but the traditional small business route was a bank loan. These are obviously harder to get now, but still not impossible. The right private investor/angel is also a good route. This should essentially be someone who wants to join you in the business, not someone who is looking for a specific return timeline on their investment. That's a big differentiator between a good angel and a VC.
lsc 13y ago
>I think you make a great point, but out of curiosity, what do you suggest are the best avenues for funding a tech business in the more traditional revenue-driven-growth model, if you're not bringing enough seed capital to get off the ground on your own? Traditionally, you start the business after you have some experience in the field, and either have some skill you can use to drive some revenue, or some capital. This idea that you start a product business (rather than a business selling your labor directly) right out of school seems like a new one.
- acjohnson55 13y ago
  It's a relatively new idea, but I don't think things have changed in a bad way in that sense. The sort of people you speak of typically have plenty of experience using the sort of products they develop. Is it a problem to let people try to start business while they're relatively unencumbered and near peak creativity?
  - lsc 13y ago
    >Is it a problem to let people try to start business while they're relatively unencumbered and near peak creativity? It's not so much 'let' as "pay them lots of money to" as for the encumbrances, well, we all make choices. Children don't magically appear when you hit 30. Personally, I find it really surprising that people who choose to have children seem to be able to compete with the childfree in top jobs... but it seems they can, so what do I know?

michaelochurch 13y ago

So if "startup" is off-limits, what should we call (and how will we fund) the mid-growth/mid-risk businesses that are too risky for a sane person to take personal liability (which banks tend to require) but aim for 15-50% growth per year as opposed to 5% per week (which is 12.6x annual growth-- impossible without what would be, excluding extreme resources, degenerate gambling). We say in this country that getting rich slowly is the virtue and that get-rich-quick is the scam. Yet VC is obsessed with the latter. I have some ideas on how to finance this currently underexplored (and underfunded) class of businesses: http://michaelochurch.wordpress.com/2013/03/26/gervais-macleod-17-building-the-future-and-financing-lifestyle-businesses/ http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... . But I have no power, so don't count on me to fix the problem.

nhangen 13y ago

I don't agree with this because I don't think all bootstrapped businesses have to stay small. The advantage bootstrapping gives you is you can use revenue to find product/market fit, at which point you can start scaling. The problem many 'startups' make is they run out of money before getting to that point.

Kurtz79 13y ago
I think the OP was arguing against calling a bootstrapped business a "startup", and on that ground he has a point (at least according to PG's and Wikipedia's definition of a startup). That is to say, a bootstrapped business can be a startup (if it gets to the point where it focuses on fast growth) but not necessarily (as in the case of businesses with gradual or no growth).
- nhangen 13y ago
  You may have missed mine. I'm saying that aside from investment, startups and bootstrapped have many similarities. Both are focused on growth, it's just that one is smarter about it (generally). Most of the startups the OP is referring to don't have a mission other than to get acquired before they run out of money. My preference would be to call these 'startups' burnouts instead, and reserve the name for the real businesses.
  - Kurtz79 13y ago
    I completely agree with what you are saying about the "burnouts", but I think a bootstrapped business (unlike a startup) it's not necessarily focused on growth. You could start a bootstrapped business and only grow to the point where is sustainable in the long term, and just provides you with a decent level of income so that you can work on something you like and under conditions that suit you.
    - nhangen 13y ago
      I don't know. I guess I've just always viewed bootstrapping as choosing revenue for financing rather than investors. I don't think boostrapping is the same as what some like to call a'lifestyle business.' My company is bootstrapped, but we're still very focused on growth.

UK-AL 13y ago

Bootstrapping is often the first phase of a vc powered company. Facebook was bootstrapped...

lakey 13y ago

Good points, but has any VC in history actually underpinned growth from 100 to 100,000 customers in a month? Users, perhaps, but users are different creatures to customers. What's the value of that kind of user growth? It very much depends on the quality of the user, and the startup's ability to convert users to customers. The Techcrunch effect might give you rapid user growth, but are these the right kind of users for the business? Maybe. Or maybe not. But for the short term story, the VCs love 'user growth', and let's not worry too much about the detail, right? The problem with taking the VC dollar is that you also need to take their metrics and KPIs. I can think of no better KPI in business than average customer lifetime value, but I doubt most VCs could care less about that, as it's a long-term KPI. It is the short-term vanity / hype metrics ('user growth' being a good example) that they're more interested in. They want to be in and out within a relatively short timeframe. Explosive growth is all well and good, but as ever we're overly focused on user / customer acquisition, and not with retention, which is far more profitable over the long term. A healthy business concentrates on the latter, and not just the former. For VCs, it seems to be the other way around, concerned as they are with exit strategy.

hahnfeld 13y ago
This unfairly generalizes and vilifies early stage investors. There are plenty of proper, professional VC's who are sufficiently patient and not focused on faux success. Remember, a typical VC fund has a life of 7-10 years. That's plenty of time to develop a company properly and focus on the things which build REAL value. Perhaps the devil is in the details here, but OP implies that he took accelerator/angel money -- that's potentially a very different thing than a professionally managed institutional investment.
- lakey 13y ago
  You're right, I've gone and confused accelerators with VCs. And no, not all VCs are short-termists.

mathattack 13y ago

I agree with you conceptually. Steady stable businesses of any side have no business taking VC money. Maybe they take PE money for capital structure arbitrage purposes. But I still consider them start-ups. They are entrepreneurs fighting in the marketplace. Not every start-up needs VC money.

shin_lao 13y ago

Not entirely true. Growth can be exponential, but the growing phase might be very long. Meaning that some business need money, grow steadily for several years and then go stratospheric.

WillieBKevin 13y ago

I see your point about growth, but I disagree over the term bootstrap. I interpret bootstrap to be about external investment. Its possible to have a high-growth company (a "startup"), that receives no investment, or receives investment by the founders. Mailchimp is a fantastic example. Bootstrapped with 9 figure revenues and crazy profits. http://www.quora.com/MailChimp/How-much-revenue-is-MailChimp-doing http://www.quora.com/MailChimp/How-much-revenue-is-MailChimp...

vijaykoogu 13y ago
Pinterest CEO, Ben Silbermann share his xeperience https://www.youtube.com/watch?v=1JLc2PYyCa0 https://www.youtube.com/watch?v=1JLc2PYyCa0

deleted 13y ago

[deleted]

bilbo0s 13y ago

"...“Cut out that pesky client that generates 80% of your revenue, they’re a distraction on the road to executing $OUR_BIG_VISION”..." "...I can't help but ask, what did you expect?..." I can't help but ask what the VC was thinking??? Serious question. I know we don't know all of the details, but this seems, on the face of it, a very bad idea. I would assume there must have been much better methods of handling that client than to cut them loose. A new free tier to generate growth maybe??? Or a tier on the high end which would serve to satisfy that client??? I just don't understand why "paying customer" and "high growth" have to be mutually exclusive??? They are not mutually exclusive in any other industry I work with. Not in the restaurant industry... see Chipotle. Not in the shoe industry... at least women's shoes. Not even bike components... SRAM. Even in industries that are notoriously difficult... like porn... growth and paying customers can coexist. I mean if "$OUR_BIG_VISION" has no room for customers who pay you gobs of money? I don't know what to think of that.

nemesisj 13y ago
This is out it happened, reading between the lines. "We can't get feature X,Y, and Z completed which we think will get us X,000 new customers because of Big Client." "Well, then fire Big Client." "OK." <months pass while new features X, Y, Z are built, Big Client leaves but it's OK b/c X,000 new customers are coming!> "Hooray! We just released X, Y, and Z" <crickets> "Oh no! It turns out the features weren't actually what customers wanted or needed!" <Hosed>
greghinch 13y ago
Without knowing more about the OP's business it's hard to say for sure, but I can give some thoughts based on my own experience. I'm going to assume they are a B2B company of some kind based on the limited description. In this capacity, when you are starting out, often you have a very small customer base. You likely know each of your customers individually. And as individuals, they have their own thoughts and opinions about how they want a service like yours to function. If you're not careful, you end up becoming something more akin to a consultant than a vendor. Your service becomes tailored to the specific needs of one or a few customers. The problem is, when you are going for growth, you can't focus on the needs of one. You have to be able to take a higher level view, and build a product that can do the most for all of your customers. Sometimes that means cutting features, or at the very least making changes. If you had a product which was tailored for one customer, that fact may very well be quite limiting to expand to many more customers. Even if you build something that could do just as much for that early customer, the fact that you had to make those changes may be enough to sour the relationship and end it. Again it's hard to know what happened in this specific case without details, but I would wager it was something along those lines. It's a decision not to be made lightly, but one you're likely to face as you grow a B2B service.

beat 13y ago

In all the debate this comment spawned, I think people need to realize that we need some language to clearly distinguish between big business, small business, and what I'll call "startups" here. I think "entrepreneur" is a good word to cover small business, including that local pub or barbershop. Such businesses have linear growth and a low ceiling. Software startups can have exponential growth and a ceiling orders of magnitude higher. An entrepreneurial small business could be very successful at a million dollars of revenue. An equivalent level of success in startups is a billion dollars. So "startup" as a subset of "entrepreneur" seems like good language to me. The difference is the opportunity for exponential growth.

Arjuna 13y ago

"Startups are about growth." Indeed... in his essay, "Startup = Growth", PG wrote: "A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth. If you want to start one it's important to understand that. Startups are so hard that you can't be pointed off to the side and hope to succeed. You have to know that growth is what you're after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face." [1] [1] http://www.paulgraham.com/growth.html http://www.paulgraham.com/growth.html

jt2190 13y ago
There isn't consensus on what the vague term "startup" means. Here's a different definition, from Steve Blank: > "A startup is an organization formed to search for a > repeatable and scalable business model." [1] [1] http://steveblank.com/2010/01/25/whats-a-startup-first-principles/ http://steveblank.com/2010/01/25/whats-a-startup-first-princ...
- ianterrell 13y ago
  This is still a growth focused definition: "repeatable and scalable" is really saying "growable".
  - jt2190 13y ago
    Here's an article with examples from popular media: > Steve Jobs often speaks of Apple's "startup" culture. > ... an article in the New York Times referred to > the seven-year-old airline Virgin America > as a startup. [2] [2] http://readwrite.com/2010/07/12/how-do-you-define-startup http://readwrite.com/2010/07/12/how-do-you-define-startup
  - nfailor 13y ago
    no it's not, it's growable+cloneable.

e2e4 13y ago

Your comment is spot on about the types of businesses that VCs are funding - the ones with "explosive" growth potential (with the expectation that it happens quite soon). I do disagree that startup has to be growth centered. By virtue of software for which the distribution costs are practically 0; most software companies have potential for a significant growth (unless they are targeting a very narrow audience). It seems that the growth would come naturally once you have a product of high quality (with sufficient exposure/marketing). Hence shouldn't the primary focus of startups be on producing a product of high quality?

dkrich 13y ago

That's your definition of a startup. Most people (myself included) think of a startup simply as a new, fledgling business. Every business starts with nothing. Your aspirations, whether they are to become billion-dollar or just side income are irrelevant. They can lead to some bone-headed decisions along the way though.

enraged_camel 13y ago
A barber shop is a new, fledgling business, but it is not a startup. PG wrote an essay on this - you should read it.
- unimpressive 13y ago
  I'd like to second this, and provide a helpful link. http://paulgraham.com/growth.html http://paulgraham.com/growth.html
- ooutpa 13y ago
  Oh come on. Just because Paul wrote something does not suddenly make it fact. The word 'startup' is at least a few hundreds years old, most likely from the word 'upstart' - the action of starting up. Startup as defined in the Merriam Webster dictionary: A fledgling business enterprise. Startup as defined in the Oxford dictionary: A newly established business.
  - unimpressive 13y ago
    We're talking about startups in the Silicon Valley Business vernacular, which has some strange definitions for common words. (See: Disrupt)
    - ooutpa 13y ago
      You see, I can get behind the usage of the word 'Disrupt' - to interrupt the normal course or unity of - Because that's often what happens when a startup enters a market to take market share from entrenched competitors who have been sailing along with a legacy for years. But I can't get behind changing the meaning of the word 'startup' based on geographic location. The meaning is literally in the word. To start up a new venture. Nothing about 5% weekly growth. Nothing about seeking a business model - because when the word was coined nobody had to 'seek' a business model, people just paid money for goods and services. There's your business model. Of course that part has become a little lost in Silicon Valley recently.

gohrt 13y ago

The word "startup" is the least important part of the whole story.

ooutpa 13y ago

I love the subtle patronization in your post. "You are building a small business." "You are among solid companions with your local plumbers, restaurants, and barbers." My brother in-law has a bootstrapped SaaS company making six figures per month at a profit margin of almost 100%. Is he building a small business? Is he among his local plumbers and barbers?

alexsilver 13y ago

I'm always confused why people assume that you need VC's money to grow FAST, especially if your company a B2B (similar to what people assumed about OP's business). Growing fast means getting a lot of new PAYING customers fast and if you priced your product right, that should cover the extra expenses of infrastructure, support and allow you to expand your staff to build more features to bring more customers in. VC's money is good when you don't have a proper monetization strategy (which may or may not be a problem to begin with) and need money to get by for the first while, which doesn't seem to be OP's case.

tptacek 13y ago

Ah, the "hacker/cracker" debate equivalent for software entrepreneurship, complete with the person who says other people have "no business" calling themselves something if they don't meet their specific definition of that something. Bolted, of course, to the top of any thread that mentions "bootstrapping" or "VC".

natrius 13y ago
I don't think this distinction is anywhere near as trivial. VC-funded companies have meaningfully different qualities than those that are just trying to build up their revenues. The author failed to internalize this distinction, and it later made him unhappy.
- tptacek 13y ago
  People who break into computers are very different from people who build novel computer systems. The problem isn't the validity of the distinction.
greghinch 13y ago
This is more about an internalized understanding of the type of business you are building for the founders than it is about external perceptions. That can be difficult for some, particularly with the prestige we in this community attribute to the word "startup". But understanding the needs of your business and how you want to grow it are key. If you're thinking of your business as a startup, that massive growth is the only way forward, you'll make decisions like taking VC money. If you think of it as a profitable small business, with measured and planned growth, you can recognize that VC money may not be the answer for you.
- tptacek 13y ago
  I think we understand that you believe businesses that don't aim for shoot-the-moon growth shouldn't call themselves "startups". The problem is, not everybody agrees with you. I've done both kinds of companies and don't think growth trajectory is the defining feature of a "startup". I'm also not particularly interested in debating the point, since it has very little to do with the story we're commenting on. (I also understand your rebuttal to that point, that the problem this person had was not understanding the distinction you're making, but I also disagree with that argument and find it a little mean-spirited.)

jusben1369 13y ago

Startups are not about growth. People have to stop thinking that way. Startups are about an idea that's new and not tried before. That's why you can have a medical startup raise $10 million and produce NO GROWTH for 5 years while they work in the laboratory solving a problem and creating a business that didn't exist before. (shameless plug I wrote about this last October: http://jmlite.tumblr.com/post/33443330774/startup-idea http://jmlite.tumblr.com/post/33443330774/startup-idea)

rdl 13y ago

There are clearly differences, different risks, etc. in different kinds of businesses. A new concept for a physical retail store is different from "another dry cleaner" vs. a franchise vs. taking over an existing successful business. A consultancy where you have 20 years experience in the field as a consultant for someone else is totally different from a b2b startup a a field you solidly understand where you have initial clients lined up before you start, vs. a consumer "hits driven" business. There isn't a universal line between startup and small business; it probably varies with time and with the founders themselves.

tlogan 13y ago

I disagree that startups are about growth. The growth is the key for startups in certain web / social networking space - but definitely not in all areas. I like Steve Blank definition of the startup: "A startup is an organization formed to search for a repeatable and scalable business model". So startups need to have _constant_ progress in their search for repeatable and scalable business model. For example, if you run a bio-med startup, are you going to grow and sell your drugs out of the door? Nope. Or if your startup is some B2B boring stuff - sometimes you want to work hard to make a couple big customers super happy and work very hard on how to repeat and scale that business model. Also some local restaurants do become startups - depending if they figured out how to scale their business model.

PencilAndPaper 13y ago

Its kind of annoying that most of the comments in response to this post are basically debating vague jargon The word means many things to different people. This is an indication that people should start using different words to describe things if they want their audience to interpret them as intended.

nostrademons 13y ago

Would this apply to companies like Hewlett-Packard or Microsoft that start out bootstrapped and eventually go public?

mindcrime 13y ago

But you are not a startup. ... in the opinion of greghinch. Sorry, but I'm of the opinion that your opinion, or at least your use of terminology, is a bit dodgy. I agree that taking VC money implies certain expectations that may not be what you - as a founder - want or are comfortable with, yes. That's just a warning against taking VC money, unless you know for sure what you're getting into. But to suggest that you aren't a "startup" unless you take VC money and do the "get big fast" thing is, IMO, totally unsupported. Just because a company is bootstrapping does not mean they are "building a small business" or that you are meant to be companions with the "local plumbers, restaurants and barbers". Big companies can be built slowly. Did Wal-mart start off as a huge mega-corp? McDonals? IBM? A million other examples? No. Organic growth, re-investing in the company and growing slowly but steadily can be a path to being huge just as well as grabbing a pile of VC money and trying to compress it all into a couple of years. It's all about the decisions you make and how you execute and what your vision is. Also note that it's really not a fixed decision anyway... you could bootstrap for 6 years, then - one day - decide to take VC or private equity money to expand. So were you, or were you not a startup? Or would that be a "Schrödinger startup"?

eaurouge 13y ago

Nonsense! To start with, "startups are about growth" is Paul Graham's thesis, and it's just one way to define a startup. There are others; see jt2190's comment for a reference to Steve Blank's: "A startup is an organization formed to search for a repeatable and scalable business model." I'm sure there are others. There was a Silicon Valley decades before Internet/Web 2.0/somolo startups started colonizing San Francisco, and back then, there were startups in other non-Internet industries - heck there still are. There are startups in biotech, medical devices etc, that take several years just to develop a commercially viable product. Those startups don't use metrics like "5% week over week". They are, however, scalable businesses that may eventually justify VC investment. There are lots of reasons to want to grow a business quickly, but a business doesn't automatically cease to be a startup because you have decided you don't "need to build it up fast", whatever that means. Bootstrapped businesses can be startups, obviously. The cost of starting almost any business has fallen sharply in the past few years. You don't need VC funding to build a startup, fast or slow, unless you're building a capital intensive business or you can't fund your startup otherwise.

ryanhuff 13y ago

Your description of what defines a startup is myopic and one dimensional. Would you consider a SpaceX competitor to be a startup? They would certainly not be about 5% week over week growth. I bet the race to reach the "hockey-stick" kills more companies than it helps. In many cases, there is no reason why you can't end up at the same place in 5 years if you let the business growth organically, rather than force-feed it in the beginning in search of that 1-2 year pop. But how many VC's want to see their investment wandering through the wilderness for 2-3 years before things start to "click"?

90002 13y ago

Hmmm, very interesting and strong viewpoints. However, wouldn't you say this is what is wrong with the industry now? Investors looking to make a few bucks rather quickly than having patience and seeing something flourish over time? Granted, not all startups, if any, actually quite blossom after a longer period of time, but I think it's a bit unfair to expect such rapid growth or success in such a small time. Nevertheless, I believe founders must be more cautious when it comes to taking money from folks who may have such narrow vision for the future. Due diligence should be happening on both sides of the table, and all entrepreneurs must understand the reality of the industry now compared to 10, 15 years ago where there was much more tolerance for high risk ventures and little bit more patience.