9 ms·

Startups and The Big Lie

126 points by ryanSrich 11y ago

paulpauper 11y ago
I wonder if employees will start treating stat-ups like VCs do, by joining many firms for fractional equity of a single employee.
- ryanSrich 11y ago
  That's actually a very interesting idea. The break down might look like this: ($100-$120/hr contracting + 0.025% equity) - 20% time to company x - 20% time to company n - 20% time to company z - 40% time to company y
  - b0sk 11y ago
    All at the same time? The context switch you have to do will end up being a counterproductive factor. I'll guess the burnout rate would be high too (few weeks down the line and you'd focus on only one or two)
    - imh 11y ago
      A few weeks down the line and you'd better know which ones are worth your time! And the cost of context switching may be worth it for diluting risk.
  - ojbyrne 11y ago
    I think what actually happens now in SV is more realistic - employees switch jobs every 12-18 months.
  - dasil003 11y ago
    You have to be a unicorn in your own right for me to give you equity at one day a week in my company. Don't let the white hot market fool you about your actual abilities, you need to focus to accomplish great things. That said, startups are desperate to hire, so it's possible you could pull this off.
  - bbcbasic 11y ago
    You can also achieve the same by contracting for one company, and then using spare cash to buy shares on the stock market.
- tdicola 11y ago
  Ignoring the issues of non-competes, ethics, and trade secrets, how do you expect one person to be an effective full time employee for 3, 4+ companies at the same time?
- pavlov 11y ago
  There's maybe a startup idea there: a service like Gigster [1] where the vetted developers also get equity, not just pay. [1] https://www.trygigster.com https://www.trygigster.com
  - jkestner 11y ago
    Assembly is along the same vein: http://venturebeat.com/2013/11/01/assembly-will-crowdsource-development-of-your-awesome-startup-idea-then-pay-you-cash/ http://venturebeat.com/2013/11/01/assembly-will-crowdsource-...
    - pavlov 11y ago
      Looks like they have pivoted -- assembly.com has the heading "Simple Changelogs for happy teams", with no mention of crowdsourcing project ideas for equity.
  - sprobertson 11y ago
    Pretty much what we do at Prontotype http://prontotype.us/ http://prontotype.us/
- lifeisstillgood 11y ago
  Sadly Ronald Coase' theory of the firm gets us here. The idea is that for a given business process, say designing an engine cylinder, painting a widget, there is a complexity that the free market cannot profitably supply and it's simpler to hire someone and change their job description every day to cope. The advent of software means more complexity can be codified so we will see smaller firms and more outsourcing (socially beneficial) but, if you need to hire someone, it basically means you cannot find a suitable replacement in the market. This may of course be your fault - but still :-)
  - w1ntermute 11y ago
    There's a recent EconTalk episode on how the decrease in transaction costs from technology & the internet reduces the need for Coasean-syle firms: http://www.econtalk.org/archives/2015/06/adam_davidson_o_1.html http://www.econtalk.org/archives/2015/06/adam_davidson_o_1.h...
- mattzito 11y ago
  The difference, of course, being that employees (even the fractional kind) will not get the preferential stock treatment that VCs have, and many will not have the legal resources or expertise to protect themselves throughout the ongoing life of the company.
  - rch 11y ago
    So, partner up, hire lawyers, and cut MSAs that protect your collective IP and other interests. There are plenty of employee owned companies to pattern after (e.g. W. L. Gore & Associates).
- rhino369 11y ago
  Wouldn't it be easier to just pool the equity with a bunch of employees across the nation and distribute the risk and reward. Though I bet there is some sort of restriction on the stock options.
  - hkmurakami 11y ago
    All equity awards come with a nontransfer clause in the agreement (exceptions are limited to family members, usually in extreme circumstances like death)
    - obastani 11y ago
      Does that apply after the options have been exercised? Can you have a contract saying that you'll share part of the payout from exercising the options?
- ForHackernews 11y ago
  Would startups agree to you working for them only one day a week?
  - rch 11y ago
    Do you have the patience to wait out a 6 week period of negotiation that might result in another candidate taking the job full time? If so, then offer terms to 5 companies simultaneously and take the first two that execute agreements. If that's going well, offer a few hours a week of engineering analysis and code review in return for right of first refusal on your original terms to one of the remaining three.
- tomphoolery 11y ago
  If joining a company was just as risky as giving it a couple million dollars and hoping it doesn't (but it probably will, by the way) run itself into the ground, I'm sure that's the way things would be. But as an employee in the tech industry with skills, the worst thing that could possibly happen to me is I'm out of work for a couple weeks. There's no risk at all.
  - rch 11y ago
    Are you factoring in opportunity cost? If you're working 3-4 years for 30-50% less than you could earn at an established company, you're effectively risking a dollar value that would qualify as a non-trivial early stage investment.
- brudgers 11y ago
  Capital investment is primarily passive. Employees are valued by their activities. What you describe sounds more like consulting and anything other than cash payment is usually a bad idea for at least one party and probably both.
damonpace 11y ago
When I moved to Palo Alto in 2011, I had this weird sense that their was a hidden secret behind every term used. I've learned since that it's just a BS game built by lawyers & VC's in the name of "protecting the company & investment". In reality, it's a power game won somewhere in the knowledge gap. The more you know and understand the less likely you are to lose the game.
- rhaps0dy 11y ago
  Are you working in a startup?
idlewords 11y ago
"one of the most hyper-rational populations in the world" [citation needed]
lkrubner 11y ago
The entire essay contradicts this phrase: "For one of the most hyper-rational populations in the world" and yet the essay uses that phrase without irony. A better term might be "bounded rationality": https://en.wikipedia.org/wiki/Bounded_rationality https://en.wikipedia.org/wiki/Bounded_rationality For certain narrowly defined aspects of career and business, the people in Silicon Valley demonstrate rationality. Yet, as the essay itself makes clear, in many other respects, the people in Silicon Valley demonstrate remarkably high levels of irrationality.
ArekDymalski 11y ago
>However, we still need that Big Lie to function No we don't. What everyone needs is a higher level of tolerance for the risk. The "Big Lie" was simply a way for people to cope with the risk. The over-analyzing is a current way to deal with a risk. Both ways doesn't solve the basic problem: not all humans are ready to take risk.
- x0x0 11y ago
  No, the lie is a way to actively deceive people about the risk they're taking in order to induce them to work for you or buy something from you. ps -- valley ethics go like this: my employer just had layoffs; we let an engineer hired 7 weeks previous go. He was an immigrant, and I don't know if he was on an h1b or he'd gotten his green card. It's a giant dick move either way, but a super giant dick move if the former.
imh 11y ago
I disagree with the author's sense that the Big Lie is still necessary. I really doubt that fewer companies will be founded, or fewer people will join them if we were more honest. Maybe early employees will get more equity as a result but that's all I'd expect.
ffn 11y ago
Lying about your progress and metrics is extremely rampant in the startup world of SV... but IMO SV's biggest lie is that you need to be in SV and you need SV money to build a successful company. This flat out isn't true, especially if you're building a web service where your customers can be anywhere in the world and services / platforms that allow you to scale up incrementally exist. Most of what goes into building a startup is time-consuming trial-and-error grunt-work (e.g. reading documentation, editing boiler-plate code, answering emails / phone) that can be done much more cheaply and less stressful-ly from your mom's basement than hemorrhaging $10k to $100k / month in a downtown SF office while the scaffold of a 4 month deadline looms ominously before you. (There's a case to be made for the value of mentorship, but that value is always multiplicative and never additive - as in, if you don't have a business, your value of 0 is still 0 after multiplying it by the value of your mentor. So for mentors, the later the better.) SV's second biggest lie is that you need the so-called "hockey-stick" growth curve to be competitive in order to be successful. This lie is clever because you're so caught on hockey-stick that you forget to question the premise of competitive. In the beginning of founding your startup, knowing about your competition might help you build your own product, but worrying about your competition is worthless because the world is more than big enough for the both of you (especially considering you don't exist yet). And if you don't have overhead (i.e. you didn't take SV money and hire a ton of SV's cleverest and most paid engineers), the world will always be biggest enough for you to survive. SV's third biggest lie is coffee can replace sleep. That's not true, and one of your organs (usually your liver, but I've heard stories of kidneys, lymph nodes, beards, and even ovaries) will let you know after a bit.
- jordanpg 11y ago
  In sum, capitalism churns away normally in the the United States. The magic internet hasn't been able to revolutionize away any of the basic realities of economics. In other news, I hear that Amazon just turned a profit for the first time! ;)
- roghummal 11y ago
  SF's biggest lie is that it's SV.
- deleted 11y ago
ChuckMcM 11y ago
This seems to be the narrative that the author wants to promote: "Startups run on an alchemy of ignorance and amnesia that is incredibly important to experimentation. Most startups fail. The vast, vast majority of startup employees will never exercise their options, let alone become millionaires while doing it. Mathematically, talented individuals are certainly better off financially going into a profession or working at a large tech company, where pay is higher and more secure." You will hear again and again and again how "Gee only some choice few people get 'rich' in a startup, everyone else gets 'screwed.'" and people will tell you how the whole "Silicon Valley Myth" is just that, smoke and mirrors designed to dupe fools into giving up their valuable youth so that someone else can get rich. There is a real problem with the narrative though, its the pesky facts that the Bay Area counties actually have lots of people who have a net worth over a million dollars and a if you count the ones that got that way here and then moved to places like Oregon, Washington, etc. Its an even larger number. That is because while the typical startup may fail, such that 1 in 10 or even 1 in 15 have successful outcomes, it is "easy" as an employee to work in 5 or 6 of them for the first few years of your career. Just like universities there is a cohort of people about the same age as you, they are all moving through the world, getting older, and then dying. If you are in certain parts of the world the overall probability that you will come out richer than the rest of your cohort is much higher. Three areas that seem to consistently produce durable net worth, banking, politics, and technology. Next lets talk about lying, which is making a statement you know to be false. Now buy a PowerBall lottery ticket, hand it to your special friend and tell them "This Lottery ticket is a winner." are you lying? The actual state of things is that the lottery ticket is both a winner and a loser, and doesn't actually become a winning ticket until after a future event, the ability to predict accurately is completely unknown. Your statement has a probability of 1 in 179,000,000 of being true, which means it isn't a lie. So is this just counting angels on a pin? Yes and no. The reality is that as adults we live in a probability filled universe, will you die today on the Freeway driving to work? Yes you will. Unless you don't. As a founder, the only way to stay sane, is to invest only in outcomes that are positive, regardless of their probability, until they are proven otherwise. So you absolutely believe that you're going to get the next round of funding to take you to the next level, but that other path doesn't really isn't one where you want to be. That said, having multiple paths to the winning answer is much better than having only one. Just like having ten lottery tickets is better than just having one, in terms of likelyhood of success, plans that include funding and plans that include restructuring but both end up across the goal should be in your mind. When you have a number of difficult things (with unknown outcomes) in your future that is called "stacking risk", you can succeed but the next step failing kills you, Etc. So as a founder you work to figure out all of the paths that meet at the success side of the equation, all of the events and their outcomes that open or close paths to you, and you run like hell for the goal. Nobody accuses the quarterback of lying when he tells the wide receiver he is going to through the pass to him, only to be sacked behind his own line of scrimmage. Startups are risky endeavors in an environment that doesn't care a bit about whether they succeed or fail. And there are a lot of things you can't know about how the future is going to go. But it is also not, in general, a game of abuse where some privileged elite are fleecing the chumps out of their lunch money, despite what some disgruntled people feel about it.
deleted 11y ago
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MichaelCrawford 11y ago
The Valley is a Harsh Mistress http://www.warplife.com/tips/business/stock/venture/capital/misery.html http://www.warplife.com/tips/business/stock/venture/capital/... My Live Picture stock certificate sure looks nice. I dont really know but would be unsurprised were someone to tell me I was the only one to exercise our options. It's not just startups, most businesses of any sort fail in their first five years. While there are advantages to funding there are disadvantages too. Even if you don't blow your VC on aeron chairs and craft beer you must sell a product or service that, while perhaps not profitable at least conceivably could be, and ship it so that it achieves convincing market penetration by the time you burn rate has burned the round you are presently burning. Most arguments for self funding focus on the dilution of equity that comes with investment but there are many other arguments. Another is that if you fund your project yourself you don't have to answer to anyone. Whether that is a good thing depends on your own judgement; don't self fund a product that does no one any good. Every last one of us has the capacity to create a product that could could earn us a tidy living, maybe pay a few employees. At that point we face a choice: improve that one offering, or use some of the cash to fund something completely unrelated? There are many good arguments for each of the two choices. Ball Metal Container makes every pop can in America. Nokia at first made rubber boots while the predecessor to IBM made bacon slicing machines. I grant that there is appeal to working for a startup: it's nice to be noticed. I contributed to some products that were huge hits at trade shows. I would make my Mama proud were I to make front page at the Wall Street Journal. By contrast self-funders often labor in obscurity, sometimes poverty for years. Even so, many succeed, often spectacularly so, as did the father and son who invented Flow Hive, and improved way to harvest bee honey. Their is some possibility that Flow Hive all by itself will reverse colony collapse disorder, in that it makes beekeeping far more accessible to the nonspecialist. In my own estimation venture backed startups are no more likely to be in business ten years later than the sole proprietorship.
amelius 11y ago
Another lie of SV is that it is not so much about the technology, but about the flow of money and accumulation of users on "freemium" pricing models. Companies get big on funding, crush the competition elsewhere (e.g., in Europe), while still not making any net profit. That is unfair competition.
- marincounty 11y ago
  Maybe that's the major reason to take that VC money? If you have a good, innovatative product, or lousey product people seem to love; someone with bigger pockets will eventually step in, tweak your idea, and might make it better, and more successful? The cutthroat business practices of SV seem to be evolving faster than technology itself? I guess it's true with every sector of business these days, including non-profits?
MichaelCrawford 11y ago
When you are offered options, inquire as to whether the shares you will obtain by exercising will enable you to vote for directors. The GOOG shares held by Larry Page and Sergey Brin give them control that its publicly traded shares do not. I don't know either way about the shares obtain through employee option exercises. Stocks are authorized in a sequence of "series": Series A, Series B and so on. What series are your options from? The corporate bylaws sometimes grant different rights to the shareholders from different series.
jmspring 11y ago
The culture around boom and bust and being able to start again has it's roots in California and the gold rush. As placer mining was replaced by hard rock or hydraulic mining, the individual became less relevant and the corportation more so. Mining also saw a backlash as the corporations and banks required more fees placed on the backs of the miners because of the need for water, etc. (Severe compaction of history understood in above example) With startups, we have seen the individual gain success for themselves and the money backing them What we see here finally happening is that the success of startups depends upon people who are becoming more aware of their own contributions to the process. "Technical cofounder", "non-founding cto", early engineers, etc. are starting to question the asymmetric relationships. Yes, engineering talent is available, but the execution of a startup in this day and age is nearly on par with the idea itself. Those engineers that can take your idea, run with it, help grow the team, and make it successful are aware of their talents and at a premium. Even worker-bees hired for a particular task are understanding their role and often more important than the management layer hired to shield them from the founders. Interesting times we are in.
socrates1998 11y ago
I get why people want to be in a start-up, but I don't get why a lot of these people won't look at starting their own company that doesn't fit into the "start-up" framework. Why does everyone have to try to be the next Google? Why isn't it okay to start a company and just want to build it consistently and be profitable from the start? I get that it's the nature of the types of businesses that get VC money. I just don't get the hype attached to it. You are setting yourself up for failure, especially by telling everyone that you are "killing it" and your new product is going to "change the world". That is just asking for failure. You don't have to "Kill it" to be successful and you don't have to change the world to be a good person. It actually makes you look naive and stupid when your "start-up" fails because you were bragging about it for the year or two that it existed.
- AndrewKemendo 11y ago
  Why isn't it okay to start a company and just want to build it consistently and be profitable from the start? It is "ok" and done all the time, all over the world. It's just not exciting or newsworthy. Just look at dry cleaners - they are everywhere, and usually family owned small businesses that do well enough to put kids through college. In some cases they are even using exciting new technologies to make the process more efficient. It's not exciting though Maybe you don't need that, which is also ok, but there is no sense in vilifying that. The people doing startups are self selecting as people who want to be involved in something that impacts a lot of people, very quickly. The Valley is full of people who want to do moonshot exciting stuff - even if it doesn't seem exciting to a lot of people outside of it.
- paulkon 11y ago
  I think a startup which claims they're going to change the world should break up the process into bite-sized phases. Early on, it's simpler to function as a small business; one which caters to a niche sector of the target market. One which thoroughly understands the needs and satisfactions of customers in that niche. One that creates a solid, self-sustaining feedback loop within the company to address those needs before moving forward. Putting the cart before the horse hurts worse than dying from not having any customer's at all. There's a natural progression to how large companies grew from children to fully-functioning adults. It's akin to using a slow cooker vs. throwing the steak into a microwave and wondering why it doesn't taste good.
fffrad 11y ago
Silicon Valley is Techcrunch's bread winner. What would they be if there were no new start up to talk about every week? and die every week too.

126 points by ryanSrich 11y ago

I wonder if employees will start treating stat-ups like VCs do, by joining many firms for fractional equity of a single employee.

ryanSrich 11y ago
That's actually a very interesting idea. The break down might look like this: ($100-$120/hr contracting + 0.025% equity) - 20% time to company x - 20% time to company n - 20% time to company z - 40% time to company y
- b0sk 11y ago
  All at the same time? The context switch you have to do will end up being a counterproductive factor. I'll guess the burnout rate would be high too (few weeks down the line and you'd focus on only one or two)
  - imh 11y ago
    A few weeks down the line and you'd better know which ones are worth your time! And the cost of context switching may be worth it for diluting risk.
- ojbyrne 11y ago
  I think what actually happens now in SV is more realistic - employees switch jobs every 12-18 months.
- dasil003 11y ago
  You have to be a unicorn in your own right for me to give you equity at one day a week in my company. Don't let the white hot market fool you about your actual abilities, you need to focus to accomplish great things. That said, startups are desperate to hire, so it's possible you could pull this off.
- bbcbasic 11y ago
  You can also achieve the same by contracting for one company, and then using spare cash to buy shares on the stock market.
tdicola 11y ago
Ignoring the issues of non-competes, ethics, and trade secrets, how do you expect one person to be an effective full time employee for 3, 4+ companies at the same time?
pavlov 11y ago
There's maybe a startup idea there: a service like Gigster [1] where the vetted developers also get equity, not just pay. [1] https://www.trygigster.com https://www.trygigster.com
- jkestner 11y ago
  Assembly is along the same vein: http://venturebeat.com/2013/11/01/assembly-will-crowdsource-development-of-your-awesome-startup-idea-then-pay-you-cash/ http://venturebeat.com/2013/11/01/assembly-will-crowdsource-...
  - pavlov 11y ago
    Looks like they have pivoted -- assembly.com has the heading "Simple Changelogs for happy teams", with no mention of crowdsourcing project ideas for equity.
- sprobertson 11y ago
  Pretty much what we do at Prontotype http://prontotype.us/ http://prontotype.us/
lifeisstillgood 11y ago
Sadly Ronald Coase' theory of the firm gets us here. The idea is that for a given business process, say designing an engine cylinder, painting a widget, there is a complexity that the free market cannot profitably supply and it's simpler to hire someone and change their job description every day to cope. The advent of software means more complexity can be codified so we will see smaller firms and more outsourcing (socially beneficial) but, if you need to hire someone, it basically means you cannot find a suitable replacement in the market. This may of course be your fault - but still :-)
- w1ntermute 11y ago
  There's a recent EconTalk episode on how the decrease in transaction costs from technology & the internet reduces the need for Coasean-syle firms: http://www.econtalk.org/archives/2015/06/adam_davidson_o_1.html http://www.econtalk.org/archives/2015/06/adam_davidson_o_1.h...
mattzito 11y ago
The difference, of course, being that employees (even the fractional kind) will not get the preferential stock treatment that VCs have, and many will not have the legal resources or expertise to protect themselves throughout the ongoing life of the company.
- rch 11y ago
  So, partner up, hire lawyers, and cut MSAs that protect your collective IP and other interests. There are plenty of employee owned companies to pattern after (e.g. W. L. Gore & Associates).
rhino369 11y ago
Wouldn't it be easier to just pool the equity with a bunch of employees across the nation and distribute the risk and reward. Though I bet there is some sort of restriction on the stock options.
- hkmurakami 11y ago
  All equity awards come with a nontransfer clause in the agreement (exceptions are limited to family members, usually in extreme circumstances like death)
  - obastani 11y ago
    Does that apply after the options have been exercised? Can you have a contract saying that you'll share part of the payout from exercising the options?
ForHackernews 11y ago
Would startups agree to you working for them only one day a week?
- rch 11y ago
  Do you have the patience to wait out a 6 week period of negotiation that might result in another candidate taking the job full time? If so, then offer terms to 5 companies simultaneously and take the first two that execute agreements. If that's going well, offer a few hours a week of engineering analysis and code review in return for right of first refusal on your original terms to one of the remaining three.
tomphoolery 11y ago
If joining a company was just as risky as giving it a couple million dollars and hoping it doesn't (but it probably will, by the way) run itself into the ground, I'm sure that's the way things would be. But as an employee in the tech industry with skills, the worst thing that could possibly happen to me is I'm out of work for a couple weeks. There's no risk at all.
- rch 11y ago
  Are you factoring in opportunity cost? If you're working 3-4 years for 30-50% less than you could earn at an established company, you're effectively risking a dollar value that would qualify as a non-trivial early stage investment.
brudgers 11y ago
Capital investment is primarily passive. Employees are valued by their activities. What you describe sounds more like consulting and anything other than cash payment is usually a bad idea for at least one party and probably both.

damonpace 11y ago

When I moved to Palo Alto in 2011, I had this weird sense that their was a hidden secret behind every term used. I've learned since that it's just a BS game built by lawyers & VC's in the name of "protecting the company & investment". In reality, it's a power game won somewhere in the knowledge gap. The more you know and understand the less likely you are to lose the game.

rhaps0dy 11y ago
Are you working in a startup?

idlewords 11y ago

"one of the most hyper-rational populations in the world" [citation needed]

lkrubner 11y ago

The entire essay contradicts this phrase: "For one of the most hyper-rational populations in the world" and yet the essay uses that phrase without irony. A better term might be "bounded rationality": https://en.wikipedia.org/wiki/Bounded_rationality https://en.wikipedia.org/wiki/Bounded_rationality For certain narrowly defined aspects of career and business, the people in Silicon Valley demonstrate rationality. Yet, as the essay itself makes clear, in many other respects, the people in Silicon Valley demonstrate remarkably high levels of irrationality.

ArekDymalski 11y ago

>However, we still need that Big Lie to function No we don't. What everyone needs is a higher level of tolerance for the risk. The "Big Lie" was simply a way for people to cope with the risk. The over-analyzing is a current way to deal with a risk. Both ways doesn't solve the basic problem: not all humans are ready to take risk.

x0x0 11y ago
No, the lie is a way to actively deceive people about the risk they're taking in order to induce them to work for you or buy something from you. ps -- valley ethics go like this: my employer just had layoffs; we let an engineer hired 7 weeks previous go. He was an immigrant, and I don't know if he was on an h1b or he'd gotten his green card. It's a giant dick move either way, but a super giant dick move if the former.

imh 11y ago

I disagree with the author's sense that the Big Lie is still necessary. I really doubt that fewer companies will be founded, or fewer people will join them if we were more honest. Maybe early employees will get more equity as a result but that's all I'd expect.

ffn 11y ago

Lying about your progress and metrics is extremely rampant in the startup world of SV... but IMO SV's biggest lie is that you need to be in SV and you need SV money to build a successful company. This flat out isn't true, especially if you're building a web service where your customers can be anywhere in the world and services / platforms that allow you to scale up incrementally exist. Most of what goes into building a startup is time-consuming trial-and-error grunt-work (e.g. reading documentation, editing boiler-plate code, answering emails / phone) that can be done much more cheaply and less stressful-ly from your mom's basement than hemorrhaging $10k to $100k / month in a downtown SF office while the scaffold of a 4 month deadline looms ominously before you. (There's a case to be made for the value of mentorship, but that value is always multiplicative and never additive - as in, if you don't have a business, your value of 0 is still 0 after multiplying it by the value of your mentor. So for mentors, the later the better.) SV's second biggest lie is that you need the so-called "hockey-stick" growth curve to be competitive in order to be successful. This lie is clever because you're so caught on hockey-stick that you forget to question the premise of competitive. In the beginning of founding your startup, knowing about your competition might help you build your own product, but worrying about your competition is worthless because the world is more than big enough for the both of you (especially considering you don't exist yet). And if you don't have overhead (i.e. you didn't take SV money and hire a ton of SV's cleverest and most paid engineers), the world will always be biggest enough for you to survive. SV's third biggest lie is coffee can replace sleep. That's not true, and one of your organs (usually your liver, but I've heard stories of kidneys, lymph nodes, beards, and even ovaries) will let you know after a bit.

jordanpg 11y ago
In sum, capitalism churns away normally in the the United States. The magic internet hasn't been able to revolutionize away any of the basic realities of economics. In other news, I hear that Amazon just turned a profit for the first time! ;)
roghummal 11y ago
SF's biggest lie is that it's SV.
deleted 11y ago

ChuckMcM 11y ago

This seems to be the narrative that the author wants to promote: "Startups run on an alchemy of ignorance and amnesia that is incredibly important to experimentation. Most startups fail. The vast, vast majority of startup employees will never exercise their options, let alone become millionaires while doing it. Mathematically, talented individuals are certainly better off financially going into a profession or working at a large tech company, where pay is higher and more secure." You will hear again and again and again how "Gee only some choice few people get 'rich' in a startup, everyone else gets 'screwed.'" and people will tell you how the whole "Silicon Valley Myth" is just that, smoke and mirrors designed to dupe fools into giving up their valuable youth so that someone else can get rich. There is a real problem with the narrative though, its the pesky facts that the Bay Area counties actually have lots of people who have a net worth over a million dollars and a if you count the ones that got that way here and then moved to places like Oregon, Washington, etc. Its an even larger number. That is because while the typical startup may fail, such that 1 in 10 or even 1 in 15 have successful outcomes, it is "easy" as an employee to work in 5 or 6 of them for the first few years of your career. Just like universities there is a cohort of people about the same age as you, they are all moving through the world, getting older, and then dying. If you are in certain parts of the world the overall probability that you will come out richer than the rest of your cohort is much higher. Three areas that seem to consistently produce durable net worth, banking, politics, and technology. Next lets talk about lying, which is making a statement you know to be false. Now buy a PowerBall lottery ticket, hand it to your special friend and tell them "This Lottery ticket is a winner." are you lying? The actual state of things is that the lottery ticket is both a winner and a loser, and doesn't actually become a winning ticket until after a future event, the ability to predict accurately is completely unknown. Your statement has a probability of 1 in 179,000,000 of being true, which means it isn't a lie. So is this just counting angels on a pin? Yes and no. The reality is that as adults we live in a probability filled universe, will you die today on the Freeway driving to work? Yes you will. Unless you don't. As a founder, the only way to stay sane, is to invest only in outcomes that are positive, regardless of their probability, until they are proven otherwise. So you absolutely believe that you're going to get the next round of funding to take you to the next level, but that other path doesn't really isn't one where you want to be. That said, having multiple paths to the winning answer is much better than having only one. Just like having ten lottery tickets is better than just having one, in terms of likelyhood of success, plans that include funding and plans that include restructuring but both end up across the goal should be in your mind. When you have a number of difficult things (with unknown outcomes) in your future that is called "stacking risk", you can succeed but the next step failing kills you, Etc. So as a founder you work to figure out all of the paths that meet at the success side of the equation, all of the events and their outcomes that open or close paths to you, and you run like hell for the goal. Nobody accuses the quarterback of lying when he tells the wide receiver he is going to through the pass to him, only to be sacked behind his own line of scrimmage. Startups are risky endeavors in an environment that doesn't care a bit about whether they succeed or fail. And there are a lot of things you can't know about how the future is going to go. But it is also not, in general, a game of abuse where some privileged elite are fleecing the chumps out of their lunch money, despite what some disgruntled people feel about it.

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MichaelCrawford 11y ago

The Valley is a Harsh Mistress http://www.warplife.com/tips/business/stock/venture/capital/misery.html http://www.warplife.com/tips/business/stock/venture/capital/... My Live Picture stock certificate sure looks nice. I dont really know but would be unsurprised were someone to tell me I was the only one to exercise our options. It's not just startups, most businesses of any sort fail in their first five years. While there are advantages to funding there are disadvantages too. Even if you don't blow your VC on aeron chairs and craft beer you must sell a product or service that, while perhaps not profitable at least conceivably could be, and ship it so that it achieves convincing market penetration by the time you burn rate has burned the round you are presently burning. Most arguments for self funding focus on the dilution of equity that comes with investment but there are many other arguments. Another is that if you fund your project yourself you don't have to answer to anyone. Whether that is a good thing depends on your own judgement; don't self fund a product that does no one any good. Every last one of us has the capacity to create a product that could could earn us a tidy living, maybe pay a few employees. At that point we face a choice: improve that one offering, or use some of the cash to fund something completely unrelated? There are many good arguments for each of the two choices. Ball Metal Container makes every pop can in America. Nokia at first made rubber boots while the predecessor to IBM made bacon slicing machines. I grant that there is appeal to working for a startup: it's nice to be noticed. I contributed to some products that were huge hits at trade shows. I would make my Mama proud were I to make front page at the Wall Street Journal. By contrast self-funders often labor in obscurity, sometimes poverty for years. Even so, many succeed, often spectacularly so, as did the father and son who invented Flow Hive, and improved way to harvest bee honey. Their is some possibility that Flow Hive all by itself will reverse colony collapse disorder, in that it makes beekeeping far more accessible to the nonspecialist. In my own estimation venture backed startups are no more likely to be in business ten years later than the sole proprietorship.

amelius 11y ago

Another lie of SV is that it is not so much about the technology, but about the flow of money and accumulation of users on "freemium" pricing models. Companies get big on funding, crush the competition elsewhere (e.g., in Europe), while still not making any net profit. That is unfair competition.

marincounty 11y ago
Maybe that's the major reason to take that VC money? If you have a good, innovatative product, or lousey product people seem to love; someone with bigger pockets will eventually step in, tweak your idea, and might make it better, and more successful? The cutthroat business practices of SV seem to be evolving faster than technology itself? I guess it's true with every sector of business these days, including non-profits?

MichaelCrawford 11y ago

When you are offered options, inquire as to whether the shares you will obtain by exercising will enable you to vote for directors. The GOOG shares held by Larry Page and Sergey Brin give them control that its publicly traded shares do not. I don't know either way about the shares obtain through employee option exercises. Stocks are authorized in a sequence of "series": Series A, Series B and so on. What series are your options from? The corporate bylaws sometimes grant different rights to the shareholders from different series.

jmspring 11y ago

The culture around boom and bust and being able to start again has it's roots in California and the gold rush. As placer mining was replaced by hard rock or hydraulic mining, the individual became less relevant and the corportation more so. Mining also saw a backlash as the corporations and banks required more fees placed on the backs of the miners because of the need for water, etc. (Severe compaction of history understood in above example) With startups, we have seen the individual gain success for themselves and the money backing them What we see here finally happening is that the success of startups depends upon people who are becoming more aware of their own contributions to the process. "Technical cofounder", "non-founding cto", early engineers, etc. are starting to question the asymmetric relationships. Yes, engineering talent is available, but the execution of a startup in this day and age is nearly on par with the idea itself. Those engineers that can take your idea, run with it, help grow the team, and make it successful are aware of their talents and at a premium. Even worker-bees hired for a particular task are understanding their role and often more important than the management layer hired to shield them from the founders. Interesting times we are in.

socrates1998 11y ago

I get why people want to be in a start-up, but I don't get why a lot of these people won't look at starting their own company that doesn't fit into the "start-up" framework. Why does everyone have to try to be the next Google? Why isn't it okay to start a company and just want to build it consistently and be profitable from the start? I get that it's the nature of the types of businesses that get VC money. I just don't get the hype attached to it. You are setting yourself up for failure, especially by telling everyone that you are "killing it" and your new product is going to "change the world". That is just asking for failure. You don't have to "Kill it" to be successful and you don't have to change the world to be a good person. It actually makes you look naive and stupid when your "start-up" fails because you were bragging about it for the year or two that it existed.

AndrewKemendo 11y ago
Why isn't it okay to start a company and just want to build it consistently and be profitable from the start? It is "ok" and done all the time, all over the world. It's just not exciting or newsworthy. Just look at dry cleaners - they are everywhere, and usually family owned small businesses that do well enough to put kids through college. In some cases they are even using exciting new technologies to make the process more efficient. It's not exciting though Maybe you don't need that, which is also ok, but there is no sense in vilifying that. The people doing startups are self selecting as people who want to be involved in something that impacts a lot of people, very quickly. The Valley is full of people who want to do moonshot exciting stuff - even if it doesn't seem exciting to a lot of people outside of it.
paulkon 11y ago
I think a startup which claims they're going to change the world should break up the process into bite-sized phases. Early on, it's simpler to function as a small business; one which caters to a niche sector of the target market. One which thoroughly understands the needs and satisfactions of customers in that niche. One that creates a solid, self-sustaining feedback loop within the company to address those needs before moving forward. Putting the cart before the horse hurts worse than dying from not having any customer's at all. There's a natural progression to how large companies grew from children to fully-functioning adults. It's akin to using a slow cooker vs. throwing the steak into a microwave and wondering why it doesn't taste good.

fffrad 11y ago

Silicon Valley is Techcrunch's bread winner. What would they be if there were no new start up to talk about every week? and die every week too.