Starting something in the hopes of making an extra $1,000 a month is every bit as worthy as trying to colonize Mars. Start small and give your ambitions room to grow.
> Not every billion dollar business starts with a billion dollar idea. Not everything unfundable by VCs is unworthy of doing.
It's interesting the author is being a VC is understandably blinded by the bubble that never reports on such businesses. The vast majority of businesses created in the world, i.e. almost all small businesses, are exactly that. It's been done before and it's being done now, in large quantities. It's just so common that people don't feel writing medium posts about it and you don't tend to call them startups per se without the VC-funding and fast growth factor[1]. If you restrict the definition of a startup to this, then almost by definition you need such ambitious visions.
I left this blog post deeply curious about that family's business. I'd like to know how they set out to earn an extra few thousand each month and accidentally stepped into an "empire" that will gross $100M in the span of a few years, without venture capital.
>I'd like to know how they set out to earn an extra few thousand each month and accidentally stepped into an "empire" that will gross $100M in the span of a few years, without venture capital.
That happens a lot more than 1 billion exits happen, and even outside the startup space.
There are tons of 10-100M companies in all kinds of sectors, even in local fast-food chains...
Net margins are only 1.5%, though, according to the industry trade group [1]. With median sales of about $25M/year, that's under $400K profit for running a supermarket. It's a decent living, but before giving up programming to buy a supermarket, consider that you can get to $400K/year income a lot quicker with less risk than you can grow a business with 1.5% margins to $25M/year.
Business is about profit, not revenues. $100M revenue is considered a huge number in software because it's assumed that your marginal costs are close to zero, and so that's basically pure profit. $100M in many other industries gives you a decent living in exchange for a lot of work. Hell, I could easily build a billion-dollar business selling $100 bills for $99.99, but I'd lose $100K on it.
Considering you criticize supermarkets for this, consider how the tech "unicorns" usually celebrated on HN are all about revenues (at best), and eyeballs (at worse) and hardly about profit.
Even Amazon took 10+ years to turn actual profits...
It ain't working out so well for most of those unicorns...
There's a complication in that if you're spinning off massive profits per customer but re-investing them in expansion, you won't show any GAAP profits, but your revenue will increase exponentially and as soon as you stop expanding you'll be massively profitable.
Amazon & Uber are in a very different league from say Fab or Homejoy. If your core business segments are profitable but you're investing that money into moving into other segments, then you're in good shape. If you're losing money on every new customer and making it up in volume, you have a problem.
Who says that your supermarket needs to be in the Valley? In Michigan you can live like a member of the elite on $400K a year. In Detroit you could live like a king.
Who says that your supermarket needs to be in the Valley? In Michigan you can live like a member of the elite on $400K a year. In Detroit you could live like a king.
I think the 1.5% margins would be a problem though. Plus I image the big supermarket chains have the benefit of large economies of scale taht the small individual stores don't have.
I think we're just used to the idea of CEOs earning multiple millions of dollars per year. So if you hear about a CEO who runs a grocery store with $100M in revenue, you would expect that he earns a lot more than $400K.
It's actually higher than that. Those numbers are after the inflated pay of the higher ups. One company makes almost exactly that margin. The CEO makes over ten million a year. The board is doing good. The shareholders are doing great. They have perks like luxury jets, wine-and-dines, etc. All this while other people run it for them.
Gotta factor these things in to claims by companies talking razor-thin margins. There's more money to be made than they'd make you think. Although, it's still work to get there as you said.
> Starting something in the hopes of making an extra $1,000 a month is every bit as worthy as trying to colonize Mars. Start small and give your ambitions room to grow.
This was my favorite takeaway from this blog post. Rob Walling presents a similar idea in his book "Start Small, Stay Small.
You're probably right, and that's the only way a VC will make any returns. But there's also a large group of us on HN who would be very content to bootstrap our own projects and retire with a relatively small amount of passive income.
Maybe worth explicitly mentioning that the very fact that you have a trillion dollar plan could be negative to your chances of achieving even 1K/month.
The pie in the sky is tasty, and everyone wants to sink their teeth in it. Moon shots will naturally attract a certain type of individual, and the incentives will favour big gambles. Think of it as an internal land grab or gold rush.
I was in a place where we got the gold fever. People were getting insanely unrealistic ideas about the value of the idea. We applied to YC with it, and people questioned whether we were giving away too much (one them said "who are they" which is both funny and not funny at once). This is at the stage where we had 1 competent programmer, zero customers (but lots of connections), and a barely working prototype with fantasies that people wanted added. Funnily enough, nothing came of it, except my old colleagues still think I was trying to defraud them.
Slow and steady is less glamourous. I'm not surprised the anecdote is about a small family humbly trying to put something together. And you don't get fantasists thinking they need a piece of this trillion dollars.
I was turned down recently by several EARLY STAGE investors on the basis that the Total Addressable Market (TAM) of our first target niche is only in the hundreds of millions while they only invest in billion dollar opportunities (ideally you should also have a proven product market fit or be profitable or both, you know, early stage). Trying to explain, that this is only the first niche we want to target and once we will have users we can experiment with ways to monetize them, didn't help either.
Exactly this. We have revenues and repeat users and yet, we got rejected everywhere. Some places want a "world domination vision", others (even supposedly great investors) are just blindly running after buzzwords ("Revenues? Profits? Pass.... AI/Machine learning based hyperlocal customer engagement platform TAKE MY MONEY PLEASE RIGHT NOW")
There was only one investor who was honest with us and said "Look, don't ask investors anything. We don't know. If it works, it's a good idea."
actually. imho. the most important thing you need is the motivation to just keep on going with the plan even when you only have $50 left in the bank and everyone thinks you are crazy.
Pure cash isnt enough of a motivation for those kind of hurdles. And they will come.
Not really survivorship bias? Although if you can be clearer what you mean.
IMHO
"Almost all startups fail" - not because they don't have a good plan, a great idea, or "fail to start"
They fail because they don't have the motivation (or capability) to push through the inevitable hard times and come out the other side strong and profitable.
It takes a very special dedication to take an idea from start to profit.
And it seems most "Master Plans" are to cobble together a good idea then sell it for millions to a greater fool.
So, the subject of the OP is doing a
successful startup.
On that, three of my thoughts are:
First, nearly all first, wild guesses for
a successful startup are doomed to fail.
Why? (A) Nearly no one wants the
product/service, say, the results, even
for free.
(B) Lots of people like the results, but
nearly all of the those people regard the
price as too high.
We can call getting past both (A) and (B)
as finding product-market fit.
(C) Okay, but, still, say, for a battery
with 10 times the currently best in energy
in KWh per kg of weight, we don't know how
to do that. Similarly for some software
that is as intelligent as a human in all
respects.
Second, to have some idea that a project
won't fail due to (A)-(C) or anything else
serious can easily think of, one should
have some good plans and, of course, check
the plans as carefully as possible.
Then we can formulate a
Saying: If you fail to have a good plan,
then you have a good plan to fail.
Lesson One: So, to avoid problems such as
(A)-(C) and to improve chances of success,
IMHO good planning is important.
Third, startups that are successful enough
to make money for venture capitalists
(VCs) and their limited partners (LPs --
the people the VCs get the money from) are
rare.
How do we know this? A VC firm may look
at 1000 unique proposals from
entrepreneurs for each proposal they fund,
and fund 20 proposals for each one that is
very successful and actually makes money
for the VCs and their LPs. So, for such a
success, that VC firm has looked at 20,000
unique proposals.
Yes, if in some year there are a total of
20,000 unique proposals, there are 200
VCs, each proposal is sent to all the 200
VCs, each VC funds one proposal out of
each 1000 they see, then each VC funds 20
proposals and in total there are (20)(200)
= 4000 proposals funded of the 20,000.
But, again, only one in 20 is successful
for only 200 successes out of the 20,000
or 1 in 100.
So, depending on assumptions about the
data, the chance of success from a
proposal is 1 in 20,000 to 1 in 200.
So, in a word, the desired success is
exceptional.
Lesson Two: To have one of the 1 in
20,000 proposals that is successful,
instead of just luck, about the best
approach is to have some good planning.
Is it possible to have some effective
plans? Yes, e.g., there was the first
Xerox photocopying machine, the first
daisy wheel printer, the first good dot
matrix printer, the first good inkjet
printer, the first good laser printer, the
first good program to drive such printers,
the first good spreadsheet program.
Now, let's look at the arguments of the
OP:
"But we have done something in the
ecosystem to encourage this type of
outlandish promotion ... where you feel
like you need to use words like trillion."
Why is the planning for a trillion
necessarily "outlandish"? We know that we
are planning for something exceptional,
and maybe good and careful planning, which
is the kind we want, says that, really, if
we do well and take all the market, then
we do get a company worth $1 T. An
investor would prefer the planning to be
for $1 B or $1 M instead? Okay, if the
company really looks like it could be
worth $1 T, then it is easy enough to cut
down the estimate to something much lower.
"Reality is, that for every thoughtfully
articulated and executed world domination
master plan, most of the biggest and
impactful companies started out with much
more humble ambitions. Some just wanted
to give students an alternative to a
summer job. Others just wanted make their
friends feel like pimps."
This situation is likely true but doesn't
say much:
Why? The situation says that most
successes are from luck. Then the
suggestion is to forget about planning and
count on luck?
Here is an analogy that explains the
situation: Go to a famous golf course and
to a par 3 hole. Get the data for the
past 10 years on who made a hole in one.
See, first, what fraction of the holes in
one were made by (A) professi...
Bryce is one of my favorite Twitter follows from the VC world. He's one of the few who seem _down-to-earth_ for lack of a better phrase. He's also one of the few who has ever responded to a random email I've sent (I live 4 hours south of SF and have zero connections to that world).
I agree. A person has no clue what will happen until one is in the 'game'. Sitting on the sidelines writing a plan is a futile exercise. However, once you are in the game then plans are important.
38 comments
[ 2.6 ms ] story [ 91.1 ms ] threadI suppose smaller targets are just as applicable.
> Not every billion dollar business starts with a billion dollar idea. Not everything unfundable by VCs is unworthy of doing.
It's interesting the author is being a VC is understandably blinded by the bubble that never reports on such businesses. The vast majority of businesses created in the world, i.e. almost all small businesses, are exactly that. It's been done before and it's being done now, in large quantities. It's just so common that people don't feel writing medium posts about it and you don't tend to call them startups per se without the VC-funding and fast growth factor[1]. If you restrict the definition of a startup to this, then almost by definition you need such ambitious visions.
[1]: http://www.paulgraham.com/growth.html
I remember Joel Spolsky talked at Startup School a few years back on this subject and he was spot on[2].
[2]: https://www.youtube.com/watch?v=pPJf8KrvJXU
That happens a lot more than 1 billion exits happen, and even outside the startup space.
There are tons of 10-100M companies in all kinds of sectors, even in local fast-food chains...
Business is about profit, not revenues. $100M revenue is considered a huge number in software because it's assumed that your marginal costs are close to zero, and so that's basically pure profit. $100M in many other industries gives you a decent living in exchange for a lot of work. Hell, I could easily build a billion-dollar business selling $100 bills for $99.99, but I'd lose $100K on it.
[1] http://www.fmi.org/research-resources/supermarket-facts
Considering you criticize supermarkets for this, consider how the tech "unicorns" usually celebrated on HN are all about revenues (at best), and eyeballs (at worse) and hardly about profit.
Even Amazon took 10+ years to turn actual profits...
There's a complication in that if you're spinning off massive profits per customer but re-investing them in expansion, you won't show any GAAP profits, but your revenue will increase exponentially and as soon as you stop expanding you'll be massively profitable.
Amazon & Uber are in a very different league from say Fab or Homejoy. If your core business segments are profitable but you're investing that money into moving into other segments, then you're in good shape. If you're losing money on every new customer and making it up in volume, you have a problem.
You startup people always make me think I live in the third world :-)
But you're right, $400K is quite a lot of money.
Gotta factor these things in to claims by companies talking razor-thin margins. There's more money to be made than they'd make you think. Although, it's still work to get there as you said.
This was my favorite takeaway from this blog post. Rob Walling presents a similar idea in his book "Start Small, Stay Small.
The pie in the sky is tasty, and everyone wants to sink their teeth in it. Moon shots will naturally attract a certain type of individual, and the incentives will favour big gambles. Think of it as an internal land grab or gold rush.
I was in a place where we got the gold fever. People were getting insanely unrealistic ideas about the value of the idea. We applied to YC with it, and people questioned whether we were giving away too much (one them said "who are they" which is both funny and not funny at once). This is at the stage where we had 1 competent programmer, zero customers (but lots of connections), and a barely working prototype with fantasies that people wanted added. Funnily enough, nothing came of it, except my old colleagues still think I was trying to defraud them.
Slow and steady is less glamourous. I'm not surprised the anecdote is about a small family humbly trying to put something together. And you don't get fantasists thinking they need a piece of this trillion dollars.
For example this strategy: 'strategy secret - have: 0.834 employees'.
Of course this book might be the half truth, but imho it has a lot of value for startups.
[1] http://www.tinaja.com/ebooks/ismm.pdf (10.4 MB)
I was turned down recently by several EARLY STAGE investors on the basis that the Total Addressable Market (TAM) of our first target niche is only in the hundreds of millions while they only invest in billion dollar opportunities (ideally you should also have a proven product market fit or be profitable or both, you know, early stage). Trying to explain, that this is only the first niche we want to target and once we will have users we can experiment with ways to monetize them, didn't help either.
There was only one investor who was honest with us and said "Look, don't ask investors anything. We don't know. If it works, it's a good idea."
~ https://techcrunch.com/gallery/dr-elon/
Pure cash isnt enough of a motivation for those kind of hurdles. And they will come.
IMHO "Almost all startups fail" - not because they don't have a good plan, a great idea, or "fail to start"
They fail because they don't have the motivation (or capability) to push through the inevitable hard times and come out the other side strong and profitable.
It takes a very special dedication to take an idea from start to profit.
And it seems most "Master Plans" are to cobble together a good idea then sell it for millions to a greater fool.
On that, three of my thoughts are:
First, nearly all first, wild guesses for a successful startup are doomed to fail.
Why? (A) Nearly no one wants the product/service, say, the results, even for free.
(B) Lots of people like the results, but nearly all of the those people regard the price as too high.
We can call getting past both (A) and (B) as finding product-market fit.
(C) Okay, but, still, say, for a battery with 10 times the currently best in energy in KWh per kg of weight, we don't know how to do that. Similarly for some software that is as intelligent as a human in all respects.
Second, to have some idea that a project won't fail due to (A)-(C) or anything else serious can easily think of, one should have some good plans and, of course, check the plans as carefully as possible.
Then we can formulate a
Saying: If you fail to have a good plan, then you have a good plan to fail.
Lesson One: So, to avoid problems such as (A)-(C) and to improve chances of success, IMHO good planning is important.
Third, startups that are successful enough to make money for venture capitalists (VCs) and their limited partners (LPs -- the people the VCs get the money from) are rare.
How do we know this? A VC firm may look at 1000 unique proposals from entrepreneurs for each proposal they fund, and fund 20 proposals for each one that is very successful and actually makes money for the VCs and their LPs. So, for such a success, that VC firm has looked at 20,000 unique proposals.
Yes, if in some year there are a total of 20,000 unique proposals, there are 200 VCs, each proposal is sent to all the 200 VCs, each VC funds one proposal out of each 1000 they see, then each VC funds 20 proposals and in total there are (20)(200) = 4000 proposals funded of the 20,000. But, again, only one in 20 is successful for only 200 successes out of the 20,000 or 1 in 100.
So, depending on assumptions about the data, the chance of success from a proposal is 1 in 20,000 to 1 in 200.
So, in a word, the desired success is exceptional.
Lesson Two: To have one of the 1 in 20,000 proposals that is successful, instead of just luck, about the best approach is to have some good planning.
Is it possible to have some effective plans? Yes, e.g., there was the first Xerox photocopying machine, the first daisy wheel printer, the first good dot matrix printer, the first good inkjet printer, the first good laser printer, the first good program to drive such printers, the first good spreadsheet program.
Now, let's look at the arguments of the OP:
"But we have done something in the ecosystem to encourage this type of outlandish promotion ... where you feel like you need to use words like trillion."
Why is the planning for a trillion necessarily "outlandish"? We know that we are planning for something exceptional, and maybe good and careful planning, which is the kind we want, says that, really, if we do well and take all the market, then we do get a company worth $1 T. An investor would prefer the planning to be for $1 B or $1 M instead? Okay, if the company really looks like it could be worth $1 T, then it is easy enough to cut down the estimate to something much lower.
"Reality is, that for every thoughtfully articulated and executed world domination master plan, most of the biggest and impactful companies started out with much more humble ambitions. Some just wanted to give students an alternative to a summer job. Others just wanted make their friends feel like pimps."
This situation is likely true but doesn't say much:
Why? The situation says that most successes are from luck. Then the suggestion is to forget about planning and count on luck?
Here is an analogy that explains the situation: Go to a famous golf course and to a par 3 hole. Get the data for the past 10 years on who made a hole in one.
See, first, what fraction of the holes in one were made by (A) professi...