4 ms·

"...but being first-time founders, they are already carrying enormous amounts of risk, because they don't know how to run any kind of business, let alone a mega

"...but being first-time founders, they are already carrying enormous amounts of risk, because they don't know how to run any kind of business, let alone a mega-successful high-growth tech startup." I think the author is right if for no other reason than this statement. Running a business is hard enough, but taking investment increases the complexity of the business side of things. And that alone increases risk.

graycat 13y ago
> because they don't know how to run any kind of business, let alone a mega-successful high-growth tech startup. (1)For "run", this is a common statement, but I believe that it is contradicted by oceans of simple observations: The US, coast to coast, village to the largest cities, is just awash in solo founder, entrepreneur, small and medium family businesses. Examples include auto repair, auto body repair, grass mowing and landscaping, plumbing, residential and small business electrical, roofing, carpentry (e.g., for a deck), swimming pool installation, dentistry, family practice medicine, restaurants of various kinds from franchised fast food to pizza carryout, Italian red sauce, French bistro, and Chinese carryout, a hardware store, a restaurant supply store, a huge range of big truck, little truck businesses where the owner buys in large quantities and sells in small quantities, independent insurance agency, medical testing lab, and many more with variety too large to characterize. E.g., in my neighborhood the shrubbery around a house was too large. So, a team came in with a simple chain saw and a few simple tools, and cut way back all the green, loaded it on a large sheet of plastic, dragged it to some woods, and piled it where it will slowly decompose into 'soil'. Apparently the team was recently from Mexico, but they had a nice, new pickup truck. There are millions of such businesses in the US where the owner, sole proprietor makes money enough to be a good breadwinner, and the more successful such owners make money enough for a vacation house, a restored muscle car and other toys, and a 50' yacht. In my area it appears that the electricians work four day weeks, i.e., Friday is golf day. For example, a guy good at managing 10 fast food restaurants can pay himself over $1 million a year. Flatly, these business people definitely do know how to "run" their businesses. Even a guy recently from Mexico, China, or India can quickly learn how to "run" his business. (2) For "mega-successful high-growth tech startup", if this is a serious problem, then there is an easy solution: Convert the business to a mega-successful low-growth tech startup. Generally conversion from low-growth to high-growth is challenging but conversion from high-growth to low-growth is easy. A guy in business who is able to get plenty of paying customers can get a lot of advice on how to run a business from bookkeepers, accountants, lawyers, business insurance agents, bankers, friends, mentors retired from business, etc. It works, everyday, all across the US, in many millions of cases. It's putting kids through Ivy League universities, paying for family winter ski vacations and summer boating/fishing vacations, paying for high end cars from Mercedes, BMW, Cadillac, Lexus, etc., paying for single family homes at $500,000+, etc., and rarely with any formal training in how to run a business. The general idea that how to run a business is really obscure knowledge is wacko; tell that to a guy doing well mowing grass -- three teams, each with about $100,000 in equipment -- with much less than a high school education, poor knowledge of English, and recently from Mexico without benefit of papers. If an information technology business can get customers and revenue, then how to "run" the business is something many millions of sole proprietors learn on the job and not some secret, black art.
- mcintyre1994 13y ago
  I agree with your general point, and I'm inexperienced in this stuff - but isn't converting from high growth to low growth going to spook VC investors? I mean, you're probably right that people can figure out how to run their business - but is that conversion reasonable with investment?
  - graycat 13y ago
    You don't really have to "convert" but from the beginning just don't let the rate of growth get out of hand. So, if you can't grow fast enough, say, can't recruit and train new employees fast enough, get more office space, etc., that is, don't want the headaches of 40 hour days from really fast growth, then have essentially a 'shortage' of what you are supplying in which case you take the usual approach of raising your 'prices'. So, at a Web site, ask users to 'register' and limit the number of new users per month. Or if you are selling something, then just raise your prices. Or if what you are selling is ads on Web pages, then try to go for better user 'demographics' and, thus, get higher 'click through rates' and, thus, higher 'cost per 1000 ads displayed' (CPM), etc. If you have some nice traffic, then hopefully you are cash flow positive or have enough cash to make do while you hire slowly and carefully and train your new staff, improve your product or service, handle all the routine stuff such as business checking account, bookkeeper, accountant, tax record keeping, trademarks, domain name registration, business insurance, legal issues in HR, legal issues of using a residence as a business location, get a car for business use, etc. Then with all that routine stuff behind you, a good staff in place, and some cash in the bank so that you won't be late on your credit card payments, etc., then let the growth rate increase, prudently. I contacted a lot of VCs and slowly learned what they wanted if only from what they were silent about that they didn't like. About the best feedback I got was from Menlo Ventures that said that to write a check they wanted to see, for a Web site business, 100,000 "uniques" per month. So, take that number, some reasonable usage scenario of a Web site, and a reasonable CPM and do the arithmetic on revenue per month. Will likely find that the revenue is plenty for 1-2 people and computers, bandwidth, supporting a small family, etc. That is, before they will write a check, you must already have a nice business, likely already better for you and your family than 95% of employee slots. And for such a business, you might need only one or a few servers at about $1500 each, where a guy mowing grass needs a riding mower at about 10 times that, plus a trailer and a truck, many times the capital equipment you need. Indeed, the grass mowing guy likely gets bank loans, and maybe you could do the same if you maintain good relations with a local banker. So, you are looking much better than a grass mowing guy; e.g., to grow, he needs more bodies, but for you to grow you just need to handle the paper pushing, which is a lot less than twice the work for you for twice the revenue, etc. and otherwise grow your server farm that works and makes money 24 x 7. Do the arithmetic: A dozen servers kept busy sending Web pages with ads puts you in the 1% in a big hurry. If your Web site traffic is high enough and growing nicely, then maybe a VC will write you a Series A check for $3 million to $30 million expecting you to rush out, rent offices, furnish them, hire lots of people, use 'real' servers in racks instead of servers in mid-tower cases you plug together from parts, have a Diesel generator for backup power, etc. But, still, if you keep down the growth rate, then you can keep down the headaches per week and the number of weekends at the office. A well managed business doesn't have to be a total rat race, at least not for the CEO: A secret is to divide the work into well defined pieces (as founder, you are supposed to know what such pieces are), for each piece, hire a head guy, expect each such head guy to handle his piece, check up on him once a week, that is, get his 5 minute report and ask him if he needs help from you and where, and otherwise let him do the work of his piece. If he is getting his work done and not causing any headaches for you, then enjoy counting the money in the bank. The main business challenge is just getting in the customers/users and their revenue; the main technical challenge is getting the software written; one of the keys is just having a good business idea that you have executed well enough. Essentially all the rest is routine until time to sell out, if you wish, and even there can get a lot of expert advice. This stuff about 'information technology' is a super nice area of business, i.e., 'clean, indoor work, no heavy lifting'. Think instead about a guy killing 5000 hogs a day, chilling down the parts want to keep, getting rid of the rest in a way that doesn't have the state EPA on your back, the next day cutting the hogs, putting the pieces into boxes, loading the boxes onto refrigerated 18 wheel trucks, and driving the trucks a few hundred miles for sale. Then Excedrin Headache #948,224,395: It's winter and one of your 18 wheel trucks loaded with 40,000 pounds of fresh pork slides on ice on a highway at a toll booth, takes out the toll booth, injures the toll taker, wrecks the truck, and spreads all 40,000 pounds of fresh pork on the highway. Don't expect an MBA program or a VC to help you clean up such a mess! But, not likely to happen with just a Web site! Instead you get to worry about SQL injection, easy enough to avoid just by checking out user input before letting SQL see it or arranging, as is routine, that SQL sees the user input only as data and not as a T-SQL command! Likely shouldn't ask the IT guys at Target just how to do this!

graycat 13y ago

> because they don't know how to run any kind of business, let alone a mega-successful high-growth tech startup. (1)For "run", this is a common statement, but I believe that it is contradicted by oceans of simple observations: The US, coast to coast, village to the largest cities, is just awash in solo founder, entrepreneur, small and medium family businesses. Examples include auto repair, auto body repair, grass mowing and landscaping, plumbing, residential and small business electrical, roofing, carpentry (e.g., for a deck), swimming pool installation, dentistry, family practice medicine, restaurants of various kinds from franchised fast food to pizza carryout, Italian red sauce, French bistro, and Chinese carryout, a hardware store, a restaurant supply store, a huge range of big truck, little truck businesses where the owner buys in large quantities and sells in small quantities, independent insurance agency, medical testing lab, and many more with variety too large to characterize. E.g., in my neighborhood the shrubbery around a house was too large. So, a team came in with a simple chain saw and a few simple tools, and cut way back all the green, loaded it on a large sheet of plastic, dragged it to some woods, and piled it where it will slowly decompose into 'soil'. Apparently the team was recently from Mexico, but they had a nice, new pickup truck. There are millions of such businesses in the US where the owner, sole proprietor makes money enough to be a good breadwinner, and the more successful such owners make money enough for a vacation house, a restored muscle car and other toys, and a 50' yacht. In my area it appears that the electricians work four day weeks, i.e., Friday is golf day. For example, a guy good at managing 10 fast food restaurants can pay himself over $1 million a year. Flatly, these business people definitely do know how to "run" their businesses. Even a guy recently from Mexico, China, or India can quickly learn how to "run" his business. (2) For "mega-successful high-growth tech startup", if this is a serious problem, then there is an easy solution: Convert the business to a mega-successful low-growth tech startup. Generally conversion from low-growth to high-growth is challenging but conversion from high-growth to low-growth is easy. A guy in business who is able to get plenty of paying customers can get a lot of advice on how to run a business from bookkeepers, accountants, lawyers, business insurance agents, bankers, friends, mentors retired from business, etc. It works, everyday, all across the US, in many millions of cases. It's putting kids through Ivy League universities, paying for family winter ski vacations and summer boating/fishing vacations, paying for high end cars from Mercedes, BMW, Cadillac, Lexus, etc., paying for single family homes at $500,000+, etc., and rarely with any formal training in how to run a business. The general idea that how to run a business is really obscure knowledge is wacko; tell that to a guy doing well mowing grass -- three teams, each with about $100,000 in equipment -- with much less than a high school education, poor knowledge of English, and recently from Mexico without benefit of papers. If an information technology business can get customers and revenue, then how to "run" the business is something many millions of sole proprietors learn on the job and not some secret, black art.

mcintyre1994 13y ago
I agree with your general point, and I'm inexperienced in this stuff - but isn't converting from high growth to low growth going to spook VC investors? I mean, you're probably right that people can figure out how to run their business - but is that conversion reasonable with investment?
- graycat 13y ago
  You don't really have to "convert" but from the beginning just don't let the rate of growth get out of hand. So, if you can't grow fast enough, say, can't recruit and train new employees fast enough, get more office space, etc., that is, don't want the headaches of 40 hour days from really fast growth, then have essentially a 'shortage' of what you are supplying in which case you take the usual approach of raising your 'prices'. So, at a Web site, ask users to 'register' and limit the number of new users per month. Or if you are selling something, then just raise your prices. Or if what you are selling is ads on Web pages, then try to go for better user 'demographics' and, thus, get higher 'click through rates' and, thus, higher 'cost per 1000 ads displayed' (CPM), etc. If you have some nice traffic, then hopefully you are cash flow positive or have enough cash to make do while you hire slowly and carefully and train your new staff, improve your product or service, handle all the routine stuff such as business checking account, bookkeeper, accountant, tax record keeping, trademarks, domain name registration, business insurance, legal issues in HR, legal issues of using a residence as a business location, get a car for business use, etc. Then with all that routine stuff behind you, a good staff in place, and some cash in the bank so that you won't be late on your credit card payments, etc., then let the growth rate increase, prudently. I contacted a lot of VCs and slowly learned what they wanted if only from what they were silent about that they didn't like. About the best feedback I got was from Menlo Ventures that said that to write a check they wanted to see, for a Web site business, 100,000 "uniques" per month. So, take that number, some reasonable usage scenario of a Web site, and a reasonable CPM and do the arithmetic on revenue per month. Will likely find that the revenue is plenty for 1-2 people and computers, bandwidth, supporting a small family, etc. That is, before they will write a check, you must already have a nice business, likely already better for you and your family than 95% of employee slots. And for such a business, you might need only one or a few servers at about $1500 each, where a guy mowing grass needs a riding mower at about 10 times that, plus a trailer and a truck, many times the capital equipment you need. Indeed, the grass mowing guy likely gets bank loans, and maybe you could do the same if you maintain good relations with a local banker. So, you are looking much better than a grass mowing guy; e.g., to grow, he needs more bodies, but for you to grow you just need to handle the paper pushing, which is a lot less than twice the work for you for twice the revenue, etc. and otherwise grow your server farm that works and makes money 24 x 7. Do the arithmetic: A dozen servers kept busy sending Web pages with ads puts you in the 1% in a big hurry. If your Web site traffic is high enough and growing nicely, then maybe a VC will write you a Series A check for $3 million to $30 million expecting you to rush out, rent offices, furnish them, hire lots of people, use 'real' servers in racks instead of servers in mid-tower cases you plug together from parts, have a Diesel generator for backup power, etc. But, still, if you keep down the growth rate, then you can keep down the headaches per week and the number of weekends at the office. A well managed business doesn't have to be a total rat race, at least not for the CEO: A secret is to divide the work into well defined pieces (as founder, you are supposed to know what such pieces are), for each piece, hire a head guy, expect each such head guy to handle his piece, check up on him once a week, that is, get his 5 minute report and ask him if he needs help from you and where, and otherwise let him do the work of his piece. If he is getting his work done and not causing any headaches for you, then enjoy counting the money in the bank. The main business challenge is just getting in the customers/users and their revenue; the main technical challenge is getting the software written; one of the keys is just having a good business idea that you have executed well enough. Essentially all the rest is routine until time to sell out, if you wish, and even there can get a lot of expert advice. This stuff about 'information technology' is a super nice area of business, i.e., 'clean, indoor work, no heavy lifting'. Think instead about a guy killing 5000 hogs a day, chilling down the parts want to keep, getting rid of the rest in a way that doesn't have the state EPA on your back, the next day cutting the hogs, putting the pieces into boxes, loading the boxes onto refrigerated 18 wheel trucks, and driving the trucks a few hundred miles for sale. Then Excedrin Headache #948,224,395: It's winter and one of your 18 wheel trucks loaded with 40,000 pounds of fresh pork slides on ice on a highway at a toll booth, takes out the toll booth, injures the toll taker, wrecks the truck, and spreads all 40,000 pounds of fresh pork on the highway. Don't expect an MBA program or a VC to help you clean up such a mess! But, not likely to happen with just a Web site! Instead you get to worry about SQL injection, easy enough to avoid just by checking out user input before letting SQL see it or arranging, as is routine, that SQL sees the user input only as data and not as a T-SQL command! Likely shouldn't ask the IT guys at Target just how to do this!