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One short remark: There was a lot of good in that lecture. But generally the theme is, that when have 2-3 founders and are growing to 10-15 people, the situat

by graycat 12y ago

One short remark: There was a lot of good in that lecture. But generally the theme is, that when have 2-3 founders and are growing to 10-15 people, the situation is, in just one word, desperate. Let's consider that: Yes, the subject is a startup that is intended to grow to be worth $1+ billion. The field is information technology. Okay, but at 2-3 people up to 15, whatever the potential is, what is there is, in two words, still a small business. Now, what can we say about starting and running a small business? Well, the US, coast to coast, border to border, in cross roads and villages up to the largest cities, is just awash in small businesses. We know about many of them quite well, e.g., grass mowing (the guys that mow grass in my neighborhood arrive with about $70,000 in capital equipment and 3-4 people), pizza shops, Chinese carry out shops, red/white checkered table cloth, red sauce Italian-American restaurants, auto body shops, auto repair shops, barber shops, kitchen remodeling, residential construction general contractors, suburban paving, masonry, a dental practice, a family medical practice, an independent insurance company, a SOHO law firm, a CPA accounting firm, and, actually, many more that are B2B and less well known, e.g., wholesale plumbing, manufacturer's representative, electrical engineering, and more generally a huge range of big truck/little truck businesses. With this background, I come to the main Point: Now these businesses are often sole proprietorships, file taxes as a Subchapter S, are not Delaware C corporations, do not have a board of directors, have no one with an MBA, and have never watched a lecture such as Altman's. And, commonly they stay in business. And mostly there is usually no air of being desperate. E.g., for one point of difference with Altman's lecture, one bad hire does not kill the company. And hiring a good person does not take nearly as long as a year. Okay, once a company has done well and grown to, say, 10-15 people, fine; if then the company has promise of growing to $1+ billion and many employees, terrific; then let the growth begin. But first step, make it through the stage of a small business, and that should not necessarily be wildly different from running, say, a pizza shop. So, since I'm eager to learn, where is this little point wrong?

rgbrgb 12y ago
You're making a mistake Sam talked about in his lecture: measuring a company by the number of employees. Software scales in a way that other businesses do not. Instagram got millions of downloads and a $1B acquisition with 13 employees.
- graycat 12y ago
  You are correct. I thought about that and was tempted to admit this possibility and not call every business with 15 employees "small", but I wanted to keep the wording simple! I'm not completely wrong! Commonly many people will regard any business, whatever the revenue or acquisition value, with 15 or fewer employees as "small". They just will! And there is the recent A16Z essay that indicates that we may soon see a startup, with a solo founder, worth $1 billion. So, such an example would agree with your point. But such an example would conflict with Altmam's lecture where he is really down on solo founders! There is an example of a successful solo founder: As I recall, early on the Canadian romantic matchmaking site Plenty of Fish was just one person, the founder, two old Dell computers, ads just via Google, and $10 million in annual revenue. So, let's, see: Since the business was growing, maybe we should assign a P/E of 100? Since likely ballpark $9 million was annual (pre-tax) profit, maybe for the worth of the business we should multiply by 100 and get $900 million, ballpark $1 billion, from one person! A "small" business? Maybe not! Yes, what Altman was talking about was a venture funded business with some explosive growth potential, but, still, when the company had just 2-3 people and was on the way to 15, trying not to hire, maybe not yet profitable, their value unknown except for the terms of the VC investment, maybe they are still a "small business". Maybe a point would be that what Altman was talking about is so desperate to achieve the explosive growth potential that the office likely necessarily has a desperate air where one bad hire could wreck the company. Still, the strong conflict with so many millions of US small businesses is tough to swallow.
prostoalex 12y ago
> Okay, but at 2-3 people up to 15, whatever the potential is, what is there is, in two words, still a small business. Couple problems: 1) The burn rate of a software business with 15 employees is likely to be at $1.5 mil a year. Engineers cost more than line cooks or lawn mowers. Can you think of a software company that reached $1.5 mil in year two? 2) While running this small business, in the Valley you're competing with rocketships, which are Square and Uber at the moment. A rational engineer considering your company versus one of the rocketships is going to sense there's more upside for him at a rocketship company than a company with small business vision. Don't get me wrong, there's a bunch of software-based small businesses (consulting shops, hosting companies, Web design firms) that are successful, but employees know that very rarely anybody outside the founding team will hit it big money-wise.
- graycat 12y ago
  My main point is: Just why is an information technology startup with explosive growth potential, early on with just a few employees, as described so vividly in Altman's lecture, usually so different, say, in level of desperation, from most of millions of US small businesses? That is, I'm not getting the solid reason for so much desperation. On your 1) and a startup being a small business: As a side point, for 1) your $100 K per employee per year might even be too small. I'd guess that in SV Google spends $300+ K per year per employee. In your 1), you are assuming a lot of burn rate. Yes, I know; I know: Twitter long ran with rapid growth in usage, i.e., traction, with low or no revenue but recently, from some VC Fred Wilson comments, worked on revenue and is doing well with it. Maybe SnapChat and Instagram burned a lot of cash with low or no revenue. And maybe Square, Uber, and some others have high burn rates. And recently VCs Bill Gurley and Fred Wilson, and, now, A16Z, are complaining about high burn rates. I know. Still, from nearly all I've seen, coast to coast, "pre-revenue" usually means $0.00 equity funding. So, connecting with my point above, maybe the offices of Square and Uber have some high level of desperation as described in Altman's lecture, but from all I can see for information technology startups with explosive growth potential and just a few employees, that such a high level of desperation, so different from nearly all of millions of US small businesses, is necessary or usual seems difficult to believe. Instead, with just a few employees, in nearly all respects the level of desperation should be just ordinary for small businesses. Then there is the issue of burn rate and, thus, usually, VC funding: from what I've seen, for a startup writing software and pre-revenue, about the best they can get from a VC is either "it appears that you are still in heavy development" (i.e., not a candidate for equity funding) or "when you go live with your service we'd like to 'play with it'" meaning that nothing prior to that is worth equity funding. That is, VCs want to see at least a product ready for usage. That is, they don't want to pay for software development. That is, we get reminded of the Mother Goose story of The Little Red Hen who got no help or interest from anyone until she had hot, fragrant loaves of bread fresh from the oven and lines of eager customers out front. So, what is a founder of an information technology startup to do about equity funding? A big point here, at times also mentioned by VCs, is that now the expenses, at least the capital expenses, for an information technology startup can be so low that really, by the time VCs are interested, the startup should be within just some weeks of getting users, ads, revenue, earnings, and enough in earnings to have a nicely successful small business with plenty of cash for organic growth and low to no need for equity funding. So, from all I can see, usually by the time VCs are willing to meet, there's a profitable small business or nearly so. E.g., Menlo Ventures told me that they want to see at least 100,000 uniques per month. Okay, for my Web site that would be, say, for each unique visitor, an average of, say, 8 visits a month with an average of 8 Web pages seen per visit, with an average of 5 ads per page. So, if take the Mary Meeker KPCB estimate of $2 revenue for each 1000 ads displayed, then get monthly revenue of 100,000 * 8 * 8 * 5 * 2 / ( 1000 ) = 64,000 dollars for my solo startup. Moreover they want that traction growing quickly. At that time I'm looking for equity funding? I doubt it! Even if the $64,000 is too high by a factor of 10, still I'm not looking for equity funding; instead I'm profitable with plenty of cash for organic growth. So, for equity funding, here is my Point: For information technology startups of just a few people, nearly always, by the time the VCs are ready to write a first check, the company doesn't much need it. Then what's left for VC funding is expansion stage or, maybe, some funding in pursuit of the company being acquired. Or, again, I'm not seeing as very common Altman's description of VC funded startups with desperation. For your > Can you think of a software company that reached $1.5 mil in year two? I'm not sure what Microsoft, Plenty of Fish, etc. did already in year two. Still I'm lost on your point here: You seem to have an implicit assumption that an information technology startup with explosive growth potential must go at least two years burning a lot of cash instead of making at least a little in earnings, and I'm not seeing a very good argument for that. For 2), maybe the company is not in Silicon Valley? Even if the company has only a few employees and level of desperation like most small businesses, it might still have explosive growth potential and a corresponding "vision". You seem to be suggesting that there is high competition for good employees, say, in developing software. I very much do not see that at all: From all I can see, the US is just awash in highly motivated, highly talented, Bachelor's degree and higher graduates in STEM fields with some to a lot of software development experience who can send 1000 resume copies and get back only silence or at best some absurd questions about how many golf balls will fit in a school bus, a question "What is your favorite programming language?" with, apparently, only one acceptable answer, C++, or a requirement that the candidate have several years of experience with just the combination of software tools and infrastructure the company is using that day. Nonsense. I've seen very highly qualified and otherwise just excellent people in computer science and practical software go for years looking for jobs and be essentially totally unemployable. E.g., there is the parody, too close to being true, "If Carpenters Were Hired Like Programmers" at http://www.jasonbock.net/jb/News/Item/7c334037d1a9437d9fa6506e2f35eaac http://www.jasonbock.net/jb/News/Item/7c334037d1a9437d9fa650... Indeed, some famous companies have a personnel policy for technical employees of promotion into management by age 35 or fired. The US is awash in people with 5-20 years of software development experience essentially totally unemployable in software. For such a person, they would have been better off, literally, at age 20 starting a lawn mowing service so that by age 35 they would have a nice business with, say, 8 crews, be immune from being fired, able to continue the business as long as they were physically able, and also able to involve their family members in the business -- make it a family business. Software developers do not have good careers, and the US is awash in highly qualified people at relatively low wages, e.g., not enough to buy a house and support a family. The US is just awash with good universities with good STEM and computer science programs with highly talented, well educated, highly motivated students ready, willing, able, and eager to get going in a career in information technology and with no significant offers for months or years. For my startup, I have no question that I can hire and, with minimal training, have people writing the necessary Visual Basic .NET code using the .NET Framework, ASP.NET, SQL Server, etc. E.g., they can write what is needed for customer service. They can also learn, especially with some good consulting, how to plug together servers and get them into standard racks, connect the cables, automate the software installation and configuration, set up and operate the server and network monitoring, management, and administration, develop reports on users, usage, errors, loads, etc. For the tricky, unique, difficult to duplicate or equal crucial core code, that's mine and already in good shape.

by graycat 12y ago

rgbrgb 12y ago

You're making a mistake Sam talked about in his lecture: measuring a company by the number of employees. Software scales in a way that other businesses do not. Instagram got millions of downloads and a $1B acquisition with 13 employees.

graycat 12y ago
You are correct. I thought about that and was tempted to admit this possibility and not call every business with 15 employees "small", but I wanted to keep the wording simple! I'm not completely wrong! Commonly many people will regard any business, whatever the revenue or acquisition value, with 15 or fewer employees as "small". They just will! And there is the recent A16Z essay that indicates that we may soon see a startup, with a solo founder, worth $1 billion. So, such an example would agree with your point. But such an example would conflict with Altmam's lecture where he is really down on solo founders! There is an example of a successful solo founder: As I recall, early on the Canadian romantic matchmaking site Plenty of Fish was just one person, the founder, two old Dell computers, ads just via Google, and $10 million in annual revenue. So, let's, see: Since the business was growing, maybe we should assign a P/E of 100? Since likely ballpark $9 million was annual (pre-tax) profit, maybe for the worth of the business we should multiply by 100 and get $900 million, ballpark $1 billion, from one person! A "small" business? Maybe not! Yes, what Altman was talking about was a venture funded business with some explosive growth potential, but, still, when the company had just 2-3 people and was on the way to 15, trying not to hire, maybe not yet profitable, their value unknown except for the terms of the VC investment, maybe they are still a "small business". Maybe a point would be that what Altman was talking about is so desperate to achieve the explosive growth potential that the office likely necessarily has a desperate air where one bad hire could wreck the company. Still, the strong conflict with so many millions of US small businesses is tough to swallow.

prostoalex 12y ago

> Okay, but at 2-3 people up to 15, whatever the potential is, what is there is, in two words, still a small business. Couple problems: 1) The burn rate of a software business with 15 employees is likely to be at $1.5 mil a year. Engineers cost more than line cooks or lawn mowers. Can you think of a software company that reached $1.5 mil in year two? 2) While running this small business, in the Valley you're competing with rocketships, which are Square and Uber at the moment. A rational engineer considering your company versus one of the rocketships is going to sense there's more upside for him at a rocketship company than a company with small business vision. Don't get me wrong, there's a bunch of software-based small businesses (consulting shops, hosting companies, Web design firms) that are successful, but employees know that very rarely anybody outside the founding team will hit it big money-wise.

graycat 12y ago
My main point is: Just why is an information technology startup with explosive growth potential, early on with just a few employees, as described so vividly in Altman's lecture, usually so different, say, in level of desperation, from most of millions of US small businesses? That is, I'm not getting the solid reason for so much desperation. On your 1) and a startup being a small business: As a side point, for 1) your $100 K per employee per year might even be too small. I'd guess that in SV Google spends $300+ K per year per employee. In your 1), you are assuming a lot of burn rate. Yes, I know; I know: Twitter long ran with rapid growth in usage, i.e., traction, with low or no revenue but recently, from some VC Fred Wilson comments, worked on revenue and is doing well with it. Maybe SnapChat and Instagram burned a lot of cash with low or no revenue. And maybe Square, Uber, and some others have high burn rates. And recently VCs Bill Gurley and Fred Wilson, and, now, A16Z, are complaining about high burn rates. I know. Still, from nearly all I've seen, coast to coast, "pre-revenue" usually means $0.00 equity funding. So, connecting with my point above, maybe the offices of Square and Uber have some high level of desperation as described in Altman's lecture, but from all I can see for information technology startups with explosive growth potential and just a few employees, that such a high level of desperation, so different from nearly all of millions of US small businesses, is necessary or usual seems difficult to believe. Instead, with just a few employees, in nearly all respects the level of desperation should be just ordinary for small businesses. Then there is the issue of burn rate and, thus, usually, VC funding: from what I've seen, for a startup writing software and pre-revenue, about the best they can get from a VC is either "it appears that you are still in heavy development" (i.e., not a candidate for equity funding) or "when you go live with your service we'd like to 'play with it'" meaning that nothing prior to that is worth equity funding. That is, VCs want to see at least a product ready for usage. That is, they don't want to pay for software development. That is, we get reminded of the Mother Goose story of The Little Red Hen who got no help or interest from anyone until she had hot, fragrant loaves of bread fresh from the oven and lines of eager customers out front. So, what is a founder of an information technology startup to do about equity funding? A big point here, at times also mentioned by VCs, is that now the expenses, at least the capital expenses, for an information technology startup can be so low that really, by the time VCs are interested, the startup should be within just some weeks of getting users, ads, revenue, earnings, and enough in earnings to have a nicely successful small business with plenty of cash for organic growth and low to no need for equity funding. So, from all I can see, usually by the time VCs are willing to meet, there's a profitable small business or nearly so. E.g., Menlo Ventures told me that they want to see at least 100,000 uniques per month. Okay, for my Web site that would be, say, for each unique visitor, an average of, say, 8 visits a month with an average of 8 Web pages seen per visit, with an average of 5 ads per page. So, if take the Mary Meeker KPCB estimate of $2 revenue for each 1000 ads displayed, then get monthly revenue of 100,000 * 8 * 8 * 5 * 2 / ( 1000 ) = 64,000 dollars for my solo startup. Moreover they want that traction growing quickly. At that time I'm looking for equity funding? I doubt it! Even if the $64,000 is too high by a factor of 10, still I'm not looking for equity funding; instead I'm profitable with plenty of cash for organic growth. So, for equity funding, here is my Point: For information technology startups of just a few people, nearly always, by the time the VCs are ready to write a first check, the company doesn't much need it. Then what's left for VC funding is expansion stage or, maybe, some funding in pursuit of the company being acquired. Or, again, I'm not seeing as very common Altman's description of VC funded startups with desperation. For your > Can you think of a software company that reached $1.5 mil in year two? I'm not sure what Microsoft, Plenty of Fish, etc. did already in year two. Still I'm lost on your point here: You seem to have an implicit assumption that an information technology startup with explosive growth potential must go at least two years burning a lot of cash instead of making at least a little in earnings, and I'm not seeing a very good argument for that. For 2), maybe the company is not in Silicon Valley? Even if the company has only a few employees and level of desperation like most small businesses, it might still have explosive growth potential and a corresponding "vision". You seem to be suggesting that there is high competition for good employees, say, in developing software. I very much do not see that at all: From all I can see, the US is just awash in highly motivated, highly talented, Bachelor's degree and higher graduates in STEM fields with some to a lot of software development experience who can send 1000 resume copies and get back only silence or at best some absurd questions about how many golf balls will fit in a school bus, a question "What is your favorite programming language?" with, apparently, only one acceptable answer, C++, or a requirement that the candidate have several years of experience with just the combination of software tools and infrastructure the company is using that day. Nonsense. I've seen very highly qualified and otherwise just excellent people in computer science and practical software go for years looking for jobs and be essentially totally unemployable. E.g., there is the parody, too close to being true, "If Carpenters Were Hired Like Programmers" at http://www.jasonbock.net/jb/News/Item/7c334037d1a9437d9fa6506e2f35eaac http://www.jasonbock.net/jb/News/Item/7c334037d1a9437d9fa650... Indeed, some famous companies have a personnel policy for technical employees of promotion into management by age 35 or fired. The US is awash in people with 5-20 years of software development experience essentially totally unemployable in software. For such a person, they would have been better off, literally, at age 20 starting a lawn mowing service so that by age 35 they would have a nice business with, say, 8 crews, be immune from being fired, able to continue the business as long as they were physically able, and also able to involve their family members in the business -- make it a family business. Software developers do not have good careers, and the US is awash in highly qualified people at relatively low wages, e.g., not enough to buy a house and support a family. The US is just awash with good universities with good STEM and computer science programs with highly talented, well educated, highly motivated students ready, willing, able, and eager to get going in a career in information technology and with no significant offers for months or years. For my startup, I have no question that I can hire and, with minimal training, have people writing the necessary Visual Basic .NET code using the .NET Framework, ASP.NET, SQL Server, etc. E.g., they can write what is needed for customer service. They can also learn, especially with some good consulting, how to plug together servers and get them into standard racks, connect the cables, automate the software installation and configuration, set up and operate the server and network monitoring, management, and administration, develop reports on users, usage, errors, loads, etc. For the tricky, unique, difficult to duplicate or equal crucial core code, that's mine and already in good shape.