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So this is the third counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working. Gaming the system may conti

by IsaacL 12y ago

So this is the third counterintuitive thing to remember about startups: starting a startup is where gaming the system stops working. Gaming the system may continue to work if you go to work for a big company. Depending on how broken the company is, you can succeed by sucking up to the right people, giving the impression of productivity, and so on. [2] But that doesn't work with startups. There is no boss to trick, only users, and all users care about is whether your product does what they want. Startups are as impersonal as physics. You have to make something people want, and you prosper only to the extent you do. The bootstrapper crowd (Amy Hoy, patio11, etc) often level this as a criticism of VC-backed startups -- that they are a gameable system, a series of hurdles from accelerator to series A to series B to acquihire. Whereas (they say) bootstrapping isn't gameable, it relies on making something users want, and it teaches you to deal with raw reality head-on. [1] Maybe they are only looking at a dysfunctional subset of VC-backed startups though? One common pattern seems to be that a person enters a particular field, notices that many people around them are unimpressive and focused on perception, "networking" and system-gaming -- and concludes that the field is corrupt. But in actuality, they'd only seen the bottom tier of the field, and the higher tiers have more genuine talents who also despise bullshitters.[2] [1] http://unicornfree.com/2012/why-blacksmiths-are-better-at-startups-than-you http://unicornfree.com/2012/why-blacksmiths-are-better-at-st... [2] I'm thinking specifically of academia as another example of this pattern. Since bullshitters do manage to reach the higher tiers of both startups and academia, there's a genuine question as to whether the bullshitters will someday come to dominate both of these areas, and whether this has already happened. By definition, a field that has been taken over by bullshitters is not going to let you know that this has happened.

schoolixer 12y ago
It is curious that people spend so much time considering games to avoid actual work rather than figure out work that they can enjoy; or at least feel a sense of progress.
strlen 12y ago
How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale? This is armchair quarterbacking, of course, I'm not an entrepreneur and do not pretend to be one. Patio11 has a lot of interesting and relevant things to say, but I would hate to live in a world where entrepreneurs only undertook ventures that could be bootstrapped for a reason that I'll frankly admit is selfish: throughout my career I've worked on very fascinating problems in either VC funded startups or companies that have began their life as such; I can't see a scenario where I would have been able to do this (or similar kind of work) in a bootstrapped product company. That's not to say there aren't other interesting problems that could be solved in a bootstrapped company, but my own area of focus -- distributed systems -- is almost by definition something that requires both infrastructure and up-front development (and, in general, is only something that should be used if there's a scalability or reliability problem to start with.)
- onion2k 12y ago
  How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale? You can't. That isn't a problem though. The 'bootstrapped versus capital-backed' dilemma is false. It's not a case of one being better than the other so much as a case of "the one that's best for the business and its founders". Often there won't be a choice - some businesses have zero chance of raising money before they start and some have zero chance of starting without raising capital first. The discussion is usually around whether or not the majority of SaaS startups need to raise money first rather than any business.
- adrianhoward 12y ago
  "How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale?" You can't — obviously. And folk like Amy Hoy @patio11 freely admit that. The key word there though is "requires". I've encountered lots of companies that have spent silly amounts of money, often their investors money, because they've missed opportunities to validate their business model in cheaper ways. Either because they don't know how or they don't want to. Folk who are so focussed on the vision that their aiming for that they fail to look down as they walk over a cliff. To stereotype slightly I'd say that folk with a dev background are more likely to go that route than not — since the business / marketing / user research end of the skill spectrum that can help with that stuff is less familiar to them. Nothing against VC funding, and it's absolutely necessary for some companies. It's just that the majority of folk that I see trying for it are doing so before it is actually required. Either because they're missing ways they can continue more economically because they lack the skills, or they hope that the (lack of) positive feedback that they're getting so far will be solved by money.
  - johnward 12y ago
    Yeah part of bootstrapping is identifying a business that is capable of being bootstrap. Super high R&D costs would rule it out as a viable option.
jaoued 12y ago
I disagree with you on academia, as the checks & balances plus the peer review system for worldwide recognised published research kill and destroy bullshitters. I am not saying there aren't any but having been in both academia & corporate, the latter is infested with them. In startup world, they get also eliminated quite rapidly as they will just fail. Success of any startups is not to raise funds but to get customers who will pay for value and for that bullshitters cannot trick the system.
- Allower 12y ago
  "the checks & balances plus the peer review system for worldwide recognised published research kill and destroy bullshitters" if only this was true!!
- TeMPOraL 12y ago
  Well it is already painfully visible that "checks & balances plus peer review" is barely managing to hold science together. Research has already been thoroughly gamed on a systemic level. Scientific funding and the whole "publish and perish" culture pretty much promotes bullshit over real research nowadays. And while solutions are easy to name (increase rigor for statistical significance, publish negative results, make scientist pre-publish description of planned data analysis before collecting data, etc.) they are almost impossible to implement, as everyone inside the system is trapped by the incentive structures that drive the whole thing.
  - patkai 12y ago
    Exactly, but if you are a member of the cult you can't admit this.
- LunaSea 12y ago
  A very high percentage of memoirs, thesis and research papers that contain source code doesn't compile, run or work as expected. Peer review doesn't work in science because nobody cares to review unknown or lesser known authors.
- grayclhn 12y ago
johnward 12y ago
I don't really remember those two talking about startups being gameable in the way that PG is talking about megacorps. Most of the reasons they prefer bootstrapping vs startups are around the idea that bootstrapping has a predicable model for success. Where as your chances of a successful exit in a startup are like winning the powerball. Even PG notes that one good exit covers the losses of hundreds of other investments and that they still don't really know how to pick winners (they just happen). Startups that take VC are also kind of designed to fail early so as to not waste too much investor money. The other pro for bootstrapping seems to be around the idea of "freedom" from bosses. In a megacorp you work for like 14 bosses. In a startup your bosses are the VC's. As bootstrapper you work for yourself and the people that pay your for what you produce.
- j45 12y ago
  Bootstrapping is not excluded from being a startup. 98% of all startups in Canada, for example (tech included) are self-funded. There ultimately is little freedom from bosses. Either your VC's are, or paying customers are.
  - 7Figures2Commas 12y ago
    You can fire customers you don't want; you can't get rid of investors so easily.
  - graeme 12y ago
    >There ultimately is little freedom from bosses. Either your VC's are, or paying customers are. I hear this line often, and I think it switches terms. I'm a bootstrapper. When I say I don't have a boss, I don't mean I don't have responsibilities. I have a ton of responsibilities – maybe more so than those with jobs. I can't easily take a 100% off vacation, for example. But I don't have a boss. I can arrange things how I want. I could even blow off customer support entirely, if I felt like it. I'd make a bit less money, probably, but I'd still be fine. And I've occasionaly "fired" whole categories of customers when I felt like stopping a certain activity. Couldn't do that to a boss.
    - 12y ago
ingenieros 12y ago
Looking at the valuations of the likes of Snapchat I think it's pretty safe to assume that B.S has already taken over.
patio11 12y ago
I think you may be attributing to me some things which I don't recall having written.
- AznHisoka 12y ago
  can we pretend you wrote them though? It would make me think even more highly of you :P
  - tptacek 12y ago
    That thought pattern doesn't alarm you a little bit?
    - AznHisoka 12y ago
      the grandfather's thought pattern? No, why would it?
      - tptacek 12y ago
        The idea that one would like or dislike someone to the extent that the person confirms their biases. Not that it's an offensive thought; just that it's a handicap.
- pchristensen 12y ago
  IIRC, you've said things more along the lines of "VC interests are often not aligned with founders' interests" and "VC funding isn't really my cup of tea". Amy Hoy and 37signals/Basecamp are the ones who ardently speak out against VC funding as a business strategy.
- IsaacL 12y ago
  Sorry. As my sibling poster pointed out, I think I mixed you up with other pro-bootstrap/anti-VC writers.
soundlab 12y ago
I think one of the distinctions is that for bootstrapping you can start with something (very) small and end with something big over a long period of time. Whereas when you take on venture capital the expectation is to build something very big very fast. The latter requires more capital to expedite the ROI for the VC whereas the former is typically a much slower, organic process that may not reach an equivalent scale for 10+ years. I'm a firm proponent of bootstrapping and organic growth. After a few years of positive cashflow and growth you can walk into a commercial bank (gasp!) and setup revolving lines of credit or expansion capital to fund more growth.
- beachstartup 12y ago
  > you can walk into a commercial bank (gasp!) and setup revolving lines of credit or expansion capital to fund more growth. commercial banks are incredibly hesitant to do this even if you've passed the magical 5 year mark. their commercials loans are underwritten by people who are extremely risk averse, and the "commercial bankers" at your local branch are basically the people who aren't good enough for investment banking i.e. the b-stringers who don't understand how a technology business works. they'll just say no. in fact, it's their job to say no. i have my doubts as to how much money they even make with their loans. most of their revenue comes from fees these days. however - there are thousands of specialized finance firms who will gladly help you, because there is a massive hole in the middle of the money market for these kinds of funds. they will provide you with: * revolving lines of credit * commercial equipment leases * straight up loans * special insurance * lots of other industry-specific stuff that a bank just doesn't even know exists this entire industry has sprang up "overnight" in the past 10 years - the vast, vast majority of new businesses in america are bootstrapped (think restaurant, construction company, small accounting firm, small scale manufacturing/machining, software companies, etc). venture capital and large banks are not involved. this isn't their game. it's "main street". these specialized firms generally specialize in an industry i.e. construction, technology, food service, etc. and will know at a glance if your business is healthy or not. and don't worry - they'll find you. they have a knack for swooping in at exactly the right time. they also will not require a personal guarantee, which is a huge leg up on the banks, who will make you sign at least 2 or 3 documents saying they own your life. if you ask me, commercial banks are nearly useless for anything but checking accounts and wire transfers. they're run by morons, or at least people who don't give a damn about technology businesses, which is tantamount to being a moron in the 21st century.
happyscrappy 12y ago
>You have to make something people want, and you prosper only to the extent you do. This is necessary but unfortunately not sufficient. You still have to do all the sales and marketing grunt work. It is amazingly hard to get people to pay money even if they love your product. Brutal and depressing.
- poteleu 12y ago
  Diana Kander has an interesting view about that in her book "All in startup". She mentions that it is not enough to find a "headache" the people have (problems they can live with), you have to find a "migraine problem" (problem they'll do anything to get rid of). Obviously, you still need to get the people to know about your product.
rayiner 12y ago
Even users are gameable. What do you think advertising is?Companies spend vast sums of money on user acquisition.

by IsaacL 12y ago

schoolixer 12y ago

It is curious that people spend so much time considering games to avoid actual work rather than figure out work that they can enjoy; or at least feel a sense of progress.

strlen 12y ago

How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale? This is armchair quarterbacking, of course, I'm not an entrepreneur and do not pretend to be one. Patio11 has a lot of interesting and relevant things to say, but I would hate to live in a world where entrepreneurs only undertook ventures that could be bootstrapped for a reason that I'll frankly admit is selfish: throughout my career I've worked on very fascinating problems in either VC funded startups or companies that have began their life as such; I can't see a scenario where I would have been able to do this (or similar kind of work) in a bootstrapped product company. That's not to say there aren't other interesting problems that could be solved in a bootstrapped company, but my own area of focus -- distributed systems -- is almost by definition something that requires both infrastructure and up-front development (and, in general, is only something that should be used if there's a scalability or reliability problem to start with.)

onion2k 12y ago
How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale? You can't. That isn't a problem though. The 'bootstrapped versus capital-backed' dilemma is false. It's not a case of one being better than the other so much as a case of "the one that's best for the business and its founders". Often there won't be a choice - some businesses have zero chance of raising money before they start and some have zero chance of starting without raising capital first. The discussion is usually around whether or not the majority of SaaS startups need to raise money first rather than any business.
adrianhoward 12y ago
"How do you bootstrap a company that requires significant R&D before an MVP can be shipped? Or for that matter one that has initial infrastructure costs, or one would only be affordable if there's an economy of scale?" You can't — obviously. And folk like Amy Hoy @patio11 freely admit that. The key word there though is "requires". I've encountered lots of companies that have spent silly amounts of money, often their investors money, because they've missed opportunities to validate their business model in cheaper ways. Either because they don't know how or they don't want to. Folk who are so focussed on the vision that their aiming for that they fail to look down as they walk over a cliff. To stereotype slightly I'd say that folk with a dev background are more likely to go that route than not — since the business / marketing / user research end of the skill spectrum that can help with that stuff is less familiar to them. Nothing against VC funding, and it's absolutely necessary for some companies. It's just that the majority of folk that I see trying for it are doing so before it is actually required. Either because they're missing ways they can continue more economically because they lack the skills, or they hope that the (lack of) positive feedback that they're getting so far will be solved by money.
- johnward 12y ago
  Yeah part of bootstrapping is identifying a business that is capable of being bootstrap. Super high R&D costs would rule it out as a viable option.

jaoued 12y ago

I disagree with you on academia, as the checks & balances plus the peer review system for worldwide recognised published research kill and destroy bullshitters. I am not saying there aren't any but having been in both academia & corporate, the latter is infested with them. In startup world, they get also eliminated quite rapidly as they will just fail. Success of any startups is not to raise funds but to get customers who will pay for value and for that bullshitters cannot trick the system.

Allower 12y ago
"the checks & balances plus the peer review system for worldwide recognised published research kill and destroy bullshitters" if only this was true!!
TeMPOraL 12y ago
Well it is already painfully visible that "checks & balances plus peer review" is barely managing to hold science together. Research has already been thoroughly gamed on a systemic level. Scientific funding and the whole "publish and perish" culture pretty much promotes bullshit over real research nowadays. And while solutions are easy to name (increase rigor for statistical significance, publish negative results, make scientist pre-publish description of planned data analysis before collecting data, etc.) they are almost impossible to implement, as everyone inside the system is trapped by the incentive structures that drive the whole thing.
- patkai 12y ago
  Exactly, but if you are a member of the cult you can't admit this.
LunaSea 12y ago
A very high percentage of memoirs, thesis and research papers that contain source code doesn't compile, run or work as expected. Peer review doesn't work in science because nobody cares to review unknown or lesser known authors.
grayclhn 12y ago

johnward 12y ago

I don't really remember those two talking about startups being gameable in the way that PG is talking about megacorps. Most of the reasons they prefer bootstrapping vs startups are around the idea that bootstrapping has a predicable model for success. Where as your chances of a successful exit in a startup are like winning the powerball. Even PG notes that one good exit covers the losses of hundreds of other investments and that they still don't really know how to pick winners (they just happen). Startups that take VC are also kind of designed to fail early so as to not waste too much investor money. The other pro for bootstrapping seems to be around the idea of "freedom" from bosses. In a megacorp you work for like 14 bosses. In a startup your bosses are the VC's. As bootstrapper you work for yourself and the people that pay your for what you produce.

j45 12y ago
Bootstrapping is not excluded from being a startup. 98% of all startups in Canada, for example (tech included) are self-funded. There ultimately is little freedom from bosses. Either your VC's are, or paying customers are.
- 7Figures2Commas 12y ago
  You can fire customers you don't want; you can't get rid of investors so easily.
- graeme 12y ago
  >There ultimately is little freedom from bosses. Either your VC's are, or paying customers are. I hear this line often, and I think it switches terms. I'm a bootstrapper. When I say I don't have a boss, I don't mean I don't have responsibilities. I have a ton of responsibilities – maybe more so than those with jobs. I can't easily take a 100% off vacation, for example. But I don't have a boss. I can arrange things how I want. I could even blow off customer support entirely, if I felt like it. I'd make a bit less money, probably, but I'd still be fine. And I've occasionaly "fired" whole categories of customers when I felt like stopping a certain activity. Couldn't do that to a boss.
  - 12y ago

ingenieros 12y ago

Looking at the valuations of the likes of Snapchat I think it's pretty safe to assume that B.S has already taken over.

patio11 12y ago

I think you may be attributing to me some things which I don't recall having written.

AznHisoka 12y ago
can we pretend you wrote them though? It would make me think even more highly of you :P
- tptacek 12y ago
  That thought pattern doesn't alarm you a little bit?
  - AznHisoka 12y ago
    the grandfather's thought pattern? No, why would it?
    - tptacek 12y ago
      The idea that one would like or dislike someone to the extent that the person confirms their biases. Not that it's an offensive thought; just that it's a handicap.
pchristensen 12y ago
IIRC, you've said things more along the lines of "VC interests are often not aligned with founders' interests" and "VC funding isn't really my cup of tea". Amy Hoy and 37signals/Basecamp are the ones who ardently speak out against VC funding as a business strategy.
IsaacL 12y ago
Sorry. As my sibling poster pointed out, I think I mixed you up with other pro-bootstrap/anti-VC writers.

soundlab 12y ago

I think one of the distinctions is that for bootstrapping you can start with something (very) small and end with something big over a long period of time. Whereas when you take on venture capital the expectation is to build something very big very fast. The latter requires more capital to expedite the ROI for the VC whereas the former is typically a much slower, organic process that may not reach an equivalent scale for 10+ years. I'm a firm proponent of bootstrapping and organic growth. After a few years of positive cashflow and growth you can walk into a commercial bank (gasp!) and setup revolving lines of credit or expansion capital to fund more growth.

beachstartup 12y ago
> you can walk into a commercial bank (gasp!) and setup revolving lines of credit or expansion capital to fund more growth. commercial banks are incredibly hesitant to do this even if you've passed the magical 5 year mark. their commercials loans are underwritten by people who are extremely risk averse, and the "commercial bankers" at your local branch are basically the people who aren't good enough for investment banking i.e. the b-stringers who don't understand how a technology business works. they'll just say no. in fact, it's their job to say no. i have my doubts as to how much money they even make with their loans. most of their revenue comes from fees these days. however - there are thousands of specialized finance firms who will gladly help you, because there is a massive hole in the middle of the money market for these kinds of funds. they will provide you with: * revolving lines of credit * commercial equipment leases * straight up loans * special insurance * lots of other industry-specific stuff that a bank just doesn't even know exists this entire industry has sprang up "overnight" in the past 10 years - the vast, vast majority of new businesses in america are bootstrapped (think restaurant, construction company, small accounting firm, small scale manufacturing/machining, software companies, etc). venture capital and large banks are not involved. this isn't their game. it's "main street". these specialized firms generally specialize in an industry i.e. construction, technology, food service, etc. and will know at a glance if your business is healthy or not. and don't worry - they'll find you. they have a knack for swooping in at exactly the right time. they also will not require a personal guarantee, which is a huge leg up on the banks, who will make you sign at least 2 or 3 documents saying they own your life. if you ask me, commercial banks are nearly useless for anything but checking accounts and wire transfers. they're run by morons, or at least people who don't give a damn about technology businesses, which is tantamount to being a moron in the 21st century.

happyscrappy 12y ago

>You have to make something people want, and you prosper only to the extent you do. This is necessary but unfortunately not sufficient. You still have to do all the sales and marketing grunt work. It is amazingly hard to get people to pay money even if they love your product. Brutal and depressing.

poteleu 12y ago
Diana Kander has an interesting view about that in her book "All in startup". She mentions that it is not enough to find a "headache" the people have (problems they can live with), you have to find a "migraine problem" (problem they'll do anything to get rid of). Obviously, you still need to get the people to know about your product.

rayiner 12y ago

Even users are gameable. What do you think advertising is?Companies spend vast sums of money on user acquisition.