I used to get frustrated by the mentality that Justin is speaking out against. That said, those of us building "get rich slowly" businesses simply don't need the support network that people making crazy bets need.
The huge risk, huge return world will always be exciting to watch and talk about, and it will always be splashing around waste money, so it will always get a disproportionate amount of attention.
I'd like to see this taken to the next level: some kind of diagnostic.
It's easy to point out the general case. What's difficult is taking the general truth and turning it into stuff to do right now. Answer these questions. If you answer this way, you are heading down the wrong path.
From what very little I've seen, this is something that everybody sees in everybody else but never see in themselves. Perhaps this is because it's easy to imagine somebody else having to "settle" for a business making shinier widgets for 3 cents profit per unit while we all easily imagine ourselves as being the person to "change X as we know it"
I have no idea why some of us are like this. I continue to struggle with it, and I know better.
A lot of people want to skip the buildup to success. They don't want to develop a small business over a few years for a stable launching point to more ambitious projects.
And only requires making about $330 a day. This is the benchmark I'm shooting for with mobile apps, and right now with just 2 apps I'm at about $130 a day.
I sense a backlash growing. It seems like the only time people take you seriously these days is if you're in your 20's, have a spiky-haired asian dude as one of your founders and are launching a social/mobile/streaming video app in a weekend. That's what they cover on TechCrunch but not what the vast majority of us out there are doing.
Sidenote: I have nothing against asian dudes, spiky haired or not.
Hey, I'm in my 20s have spikey blue hair, and we started Answer in 30 (streaming video Q&A site w/ heavy social media integration) on Startup Bus, launched in private beta after 72 hours. No one takes us seriously which is why we're out there hustling and interviewing people so when we launch we have 1000+ videos. (Half way there!)
Show me an investor who takes us seriously and we'll be there to pitch within 24 hours. Or if you know TechCrunch people who are interested, we got wired coverage but it's not like it's 96 and people still read wired.
http://www.wired.com/underwire/2011/03/meet-startupbus-buspr...
That said, it's a lifestyle business that pays the bills and allows me to do crazy stuff like startup bus.
I didn't say there's anything wrong with fitting that mold, only that it's what the media seems to be pushing as the "right" way to do it. Best of luck to you, I almost took the StartupBus out of Cleveland but had to pass due to money.
The whole point of this type of model is that you make you $10k/mo by selling something that people actually pay money for, which means you don't care what TechCrunch/VCs are excited about. They're irrelevant for you.
$10k is your "fuck you money", provided you can rely on making it every month. This might be easier said than done, though.
$10K/month would give me freedom to spend 4+ hours with my son/day and not give a crap about how to get php+jquery+mysql to behave sensibly today. What do I care about FU money? If x$ gives you freedom, by definition it is FU money.
For me it's being able to support yourself and your family in a fairly comfortable western middle class quality of life. The FU part is that, if you're making this independently and reliably, you don't need to care about the TechCrunch/etc bullshit the OP mentioned.
For another person it might mean living in a West Village townhouse and sending your kids to private schools. For yet another it's owning a private jet and the 49ers. In these cases you probably need more than $10k/mo.
$10k/month is most certainly enough money for me to quit my 9-5 and live a comfortable life doing what I want to instead of what I have to. That's FU money as far as I'm concerned.
There's no average. It's just a target. You don't get $10/k a month overnight. It's a figure that you work toward. Many people don't need that much to live. It depends where you're at. If you need 5k/month to live then you can reach your goal even faster. $10k/month seemed like a good goal for the article that could support most people.
uh, okay. then you might want to update your blog before there are 1000s of unemployed web developers building their lifestyle web apps for eternal target of 10k/month.
David Heinemeier Hansson had the exact same conversation with Jason Calacanis and Jason just could not understand why DHH felt that building that kind of business made sense..
The only problem here is that entrepreneurs are humans and as such they tend to swing for the fences. I know I do. Its the come big or go home mentality. Its the American way. Whatever you want to call it, its in our genes to do it that way.
Yeah we could all become the equivalent of craftsmen who had to then organize into guilds/unions to get a decent wage. Why do that when we can go home millionaires with the right idea/right money.
If you build a small business you can build a large business. All the same principles are at stake. However, in theory it's easier to build a small business first time round (baby steps). You can swing for the fences on biz 2.
Yeah I hear you but the steps you take in building a small business, while perhaps less risky, are the same. Yet you even get cache in trying a big business. I've done 5 startups (2 successful and 3 not) but I can point to that in my next you can't use your small business as an example you can do a big one.
So at a certain point in your life it makes sense to swing for the fences if you are the only bread winner for your family I definitely understand reducing risk.
"The chances of building a Google, YouTube or Facebook and scaling to the millions of users required to be “considered” for VC investment are vanishingly small. We’re talking in the region of 0.0001%."
You don't need millions of users to be considered for VC investment. More like 10,000 users if the service is free, or 100 paying customers. And it's really not that hard to do that, it just takes enough perseverance to make it through the first few iterations.
It's not that hard to get a fairly small volume of users (100-10,000) -- compared to getting a huge, YouTube-sized volume (millions of users). But it's still hard to get any number at all. It takes work, persistence, luck, and intelligence.
> The absolute truth is that each and every one
> of us can build a business that can support us.
> ...
> In truth, there is no reason to fail – other
> than failing to learn from your mistakes.
Yes, maybe we can - eventually. But while we're building it, we still need a paycheck. Building a profitable business doesn't seem like the kind of thing you can do in your spare time, unless you're willing to sacrifice absolutely everything else in your life.
> But even better, once you have the knowledge that comes
> along with building a succesful $10k/month business, you
> also posses the exact same knowledge that it takes to
> build a $100k/month business.
And then, why not a $1M/month business? And then $10M/month! Etc! Etc!
I'm pretty sure that a $100k/month business is an outlier, too, it's just closer to the center of the bell curve than Facebook, but still pretty dang far away from everyone else.
Myself & Jason (techzing) are both building businesses on the side. Our paycheck come from consultancy. We both lead very fulfilling lives as well as building our side projects... :)
Now I'm contracting on the side while working on Gridspy. It is a hard slog, but totally worth it. We are creating a increasingly professional offering. I'm really looking forward to when we go to market and start selling this thing. Now I have the next problem - how much to contract (money) vs how much to work on Gridspy?
http://blog.gridspy.co.nz/2010/06/breaking-away-from-the-man...
their argument isn't that VC is evil, more that in a world where a lot of entrepreneurs seem to be focused on the fundraising/grow-quick/big-swing path, there are alternatives
the OP on the other hand is advocating something entirely different
Embrace being a lifestyle business and ignore all the startup noise. Do your best to serve your customers and grow your revenue. You'll never get famous, but then again neither will 99.9% of the people who go the other route.
He ignores that most categories only have 3 or 4 major players and rest can't get enough recognition to be profitable.
Also $10k/month is ok for one or two people, but what if someone gets sick or leaves, a business is not very stable at that size.
Additionally he assumes people want to change the world for monetary reasons, which I don't think is often the case, otherwise you'd manage a hedge fund or something.
"If you genuinely have the spirit of an entrepreneur inside of you, it’s perfectly possible to build a $10k/month webapp business that can set you free."
If you follow Amy's blogging on Unicorn Free you'll have a seen a recent post where she talks about how long it has taken her and Thomas to get Freckle to where they are now - about 2 years (http://unicornfree.com/2011/drawing-back-the-curtain/). Both Amy and Thomas hustle their tails off and yet it has taken them two years and a lot of hard work to get too where they are (not to mention the years before that leading up to it). The point is that there is very rarely an easy route, but there is absolutely a possible route if you're passionate and you hustle. You'll be lucky if you only fail a couple of times before you land on something that gains traction, but you can do it.
If you don't mind me asking, how long did it take you to get to $2k? That's always the number I find interesting, since it's my mental threshold for "allows a person with no children to go on eating ramen noodles in a cheap apartment."
I've been working on Pluggo for 1.5 years and I'm just coming up to 1.5k month. Now something to keep in mind is, due to me not understanding how to choose a market when I started, it has taken way longer than it needed.
I was silly to choose the twitter market because (a) everyone wants the tools for free (b) It's the most competitive single tools software market EVERYONE and his uncle made a twitter client (just like me) (c) It is impossible to SEO because EVERYONE and his uncle made a twitter site.
Even so, with all of that going against me, I've still been able to reach 1.5k month and it's now starting to really pick up due to valuable lessons I've learned from other bootstrappers along the way. Like Amy Hoy (above with the $10k/month) who's obviously a little bit cleverer than me!
I should also mention that for 6 of those months I did "absolutely nothing" with Pluggio. Because I didn't believe in it. Because it wasn't doing well enough according to my Entreporn expectations.
Yes, I let it slide for 6 entire months. If I had spent that time working on it, it would be at least 5k now.
I think the first 10k a month app will inevitably be the hardest, but like Justin says it'll be a lot easier than becoming the next Facebook or Google. Most people chase/fantasize about being the next Google because they think it will buy them freedom. If you are lucky enough to get close, depending on how you play it, it might do exactly that for you. But I agree with Justin the odds are just so small it's difficult to justify spending your life in eternal lustful pursuit of such dreams.
I'm sorry to roll out the cliché, but gaining time is more likely to make you happy and free. And a few slow grown bootstrapped 'dipshit companies' are much more realistic and likely to provide you with that time along with a boatload more autonomy. Instead it seems everyone is aiming to be the head of the next big thing and indebted to VC's in to the bargain. What do I know though, perhaps it's not all that bad...?
I do think that with a couple of $10,000 a month semi-automated apps in your pocket you've got a lot of choices. Especially if you are young. It can give you the free time to really work out what you want to get out of your life. With time to think you might find it's not what your doing and/or aspiring to right now.
For me if my startup ever starts to make 10K+ a month it'll simply mean trying to spend a little less time sat behind my keyboard. Spending more time outdoors travelling and experiencing the world instead of too much time indoors reading about it sounds like a good plan to me.
The original article seems to be arguing $10K is something like a "sweet spot" where lots of micro-entrepreneurs could comfortably stay. I would contend that if an entrepreneur is able to get to $10K/month with ease or with difficulty, they've probably got the resource to go to $20K, and then $40 look promising etc. That requires extreme hustle of course but so does staying at $10K.
IE, there's no "sweet spot" or stable spot. It is more like either failure or "lift-off".
Most of $10K/months business that continue along that I know of are consulting. And a lot of consulting is essentially continuing your connections with a larger enterprise but from the outside.
I think there's a simple logic to this.
If anyone has duplicatable way of getting to a $10k/month from their labor, they also have a key to building a business; they could just recruit people, teach the recruits their methods and split the profits in any number of ways. Thus, they would almost certainly have a business that could expand to $10 million a year fairly quickly (if you have the kind of business where you could add servers or machine instead, so much the better).
Now reason that there are VCs is that the number of businesses which can bootstrap to $10 million/year are inherently a subset of businesses that can be financed to $10 million/year.
Now, we know that if A > B and B == C, then A > C. Thus the number of VC-financable opportunities to build a $10 million/year company are inherently larger than the number of easily duplicable schemes that could allow a single individual to make $10K/month.
That leaves the "totally unique" ways, that depend on each person's special qualities and can't duplicated. If you're working on the web, how many of those are there?
Shrug That depends on what I go on to do with it, right? If AR or some other idea goes big, then it gets retroactively upgraded to be the amusing "when it was still scrappy" backstory.
I'm totally happy with where I am in life today, and there are a bunch of happy places I could see myself in two years, lifestyle business or no. A word of caution: not everyone selling Obama cereal intends to be doing so forever.
No, but Patrick could, for instance, try leveraging his reputation here to sell his marketing services (either as commercial software or as consulting - he's done this before). Or just set up a couple more BCC's; if one pays the bills, ten would be a very nice income. Etcetera - there's more than one way to do it, and patio11 does have some skills that can be used to make money.
Just go back to the job that used to pay you $6K/month...
In other words, the consulting jobs exist but they are for "niche markets" - companies hire back their most senior workers on a consulting basis. Also those explicitly trained by SAP and the like at one time could get the bucks. I don't know if that's still true.
Yes they really exist. Some niches pay more like 20k+/mo pretty easily. Consulting at 150/hour isn't that hard. If you want specific advice learn an eCommerce framework really really well or become a deployment specialist for large clusters of JBoss/Weblogic/Websphere.
A short-term contractor with highly relevant domain expertise can charge 2-3x what the same person would be getting on salary. Finding clients reliably is the real trick of course, I wish I knew that.
I'm not sure "simple" is the word I'd use, but yes, I think it's definitely do-able.
They key (as someone who has done it) is to look for niche B2B opportunities. Find a need and fulfill it better or cheaper than existing players. Exploit newer/cheaper tech or SEO knowledge that the existing guys don't/can't get.
Think of it this way: you need 500 businesses to pay you $20/month to get to $10k/month. If you can get 1 signup a day, you're there in < 2 years.
One example: we run nextproof.com that lets wedding and portrait photographers sell prints online (think of it as a shopify for photographers). There are way bigger players in the market (pictage, smugmug, printroom, etc.) but we have ~2,000 users. Half of them are on a paid plan at between $9 and $99/month. The other half are on a free plan BUT we still make money on them through transaction fees. So, after 3 years, it's well over $10k/month.
Another option is premium content or tools targeted at these niche businesses. This could be in the form of WordPress themes/plugins, eBooks, DVDs, etc. We did an SEO DVD for photographers and sold 1,000 @ $79 each.
Most of the "ideas" I come up with are along these lines. I have tons of them.
Getting six-pack abs is simple. Build muscle and burn fat by eating healthy, exercising and lifting weights. BUT... you've got to do that every day for a long time before you get results.
It's the same with building a successful $10k/month business. Find a niche, solve a problem people are prepared to pay money to have solved, market your solution and deliver on your promises. But all that won't happen in a week will it? Because of this, most people will give up before they get to the top of the mountain (or before they have six-pack abs).
The article and above comments are basically saying that you don't need an expensive gym membership and a highly qualified personal trainer to get six-pack abs. You can do it yourself by, as you note, by building muscle, burning fat, and eating healthy.
The above advice is meant to help those who are inclined to focus and work hard, but it's worth noting that it takes nothing away from the gourmands and loafers of the world: they (and I) will not have six-pack abs. Period. Those unwilling or unable to change their lifestyle would be best served by finding something else to do with their time.
I don't think the point is that it is 'easy' to create a $10K/mo - but that it is easier to build that, than to build a Google/Facebook.
I think he went overboard by imploring EVERYBODY to stop trying to build those types, and build a lifestyle business - but the criticism is valid.
We, the industry, is caught up with the $10M Series A round, and the major IPOs and acquisitions. When it's just as much of a major victory for a small company - one or two employees doing $10K - $100K/mo.
That's pretty major.
I think it is doable. Not for ALL types of technology - e.g. not Twitter, Google, or FB.
But certainly for many webapps.
Think of it like being the new 'professional', where professional is an accountant/lawyer/doctor. You no longer have to go to med. school for 7 years, but you have to invest time in learning about everything it takes to build and launch a successful webapp (which I would argue is just as grueling as med/law school).
The major difference is that it scales beautifully. If you can put the systems in place to earn $10K, you can relatively easily go to $100K/mo.
I just built a "business" that is on track to generate about $10k per month (I've made about $5k in the first week). There were some links to it here on Hacker News, but it's a site that sells iPhone design & development tutorials that I've written: http://designthencode.com. I've only published one full tutorial so far, but am working on others. The response has been great, and it's exciting to see something I've been working on for about 6-7 months actually generate real revenue.
Every person here at HN is talented enough to create a $10k/mo business. It may not be as easy as what the article suggests, but you can do it.
Also, I should note that I did it all on the side & the weekends. I have a full-time job as well.
Here's how you do it. 1) Stop reading Hacker News. 2) Pay attention to problems people have. 3) Build a solution and charge money for it. 4) Spend 2 years marketing it (i.e., talking to your market and learning) and making it better.
It worked alright for me and my business partners and we spent the first year working part time on it.
"If every developer was to focus on the very achievable goal of building a lifestyle/micro business – the entire house of cards would crumble."
If that happened, the whole world would crumble, because we wouldn't have any technology bigger than could be built by lifestyle businesses. Anyone who wanted to build a lifestyle business on the Internet, for example, would find that there was no Internet. You wouldn't have servers or routers or clients or backbones or local cable.
Not if you view a lifestyle business as a lilypad for something larger.
But even better, once you have the knowledge that comes along with building a succesful $10k/month business, you also posses the exact same knowledge that it takes to build a $100k/month business.
I run what would likely be classed as a lifestyle business (though I prefer to think of it as a large business in the process of bootstrapping). The more people there are running lifestyle businesses, the bigger the 'lillypad'.
With a sufficiently large lifestyle-driven economy, we could move away from the VC model where very few people have the majority of the capital necessary to fund big ideas.
We're already moving to a world where industrial costs continue to decrease, small businesses specialize in providing specific services (such as manufacturing), and computers and machines provide enormous leverage. Examples range from Amazon EC2 to affordable, low-scale manufacturing of injection molded plastics and cheap, on-demand PCB manufacturing.
In comparison to pg's example of a router, it is a small thing, but it's a great demonstration of how the bar is being lowered, and what was only accessible to large, capital-rich entities is now available to two guys with limited initial capital.
If it worked well to self-fund giant companies using the income from small ones, we should see instances of it happening in the wild. There is nothing to prevent that happening now. And yet it doesn't seem to happen. Few if any of the big technology companies grew that way. It seems like if you're good what happens is that your initial lifestyle business just grows bigger. E.g. as has happened to 37signals. But 37signals is not Google or Amazon.
If it worked well to self-fund giant companies using the income from small ones, we should see instances of it happening in the wild.
We don't have much of a history to work from, and the majority of the enabling tools available to us simple did not exist prior to or during the emergence of the current economic and business environment.
I think developments such as Kickstarter provide a glimmer of where things are headed.
One reason why you wouldn't expect to see this so often in the wild is that by the time you get to be as successful as 37signals, the drive to make speculative bets on shoot-the-moon business plans is diminished. Presumably after your second supercar, you don't so much feel like gambling people's jobs on a Google-killer.
Successful businesspeople may not be risk-averse; they're happy to start electric car companies for the joy of it. Successful businesses, on the other hand, don't think like that.
Yes, I think this is exactly right. The pattern you'd expect to see wouldn't be a small business spawning a large one; it would be one of the principals of the small business cashing out and leaving to start something that eventually got larger.
Ah, but this reminds me. I know three people who have made $500M or more on their earlier businesss who have cashed out and gone on to found new startups. Only one of the three funded the startup entirely out of his own holdings; the other two have other investors involved. I imagine the latter two think that they get more value (advice, connections, etc.) from these other investors (who I think include VC firms) than they give up in equity.
FWIW, the business funded entirely by the one founder eventually failed (I worked there for several years). Arguably, this was a failure of marketing, as we had a small number of wildly enthusiastic customers that never became a large number. Also arguably, had experienced VC firms been in on the deal, they would have made sure that the marketing was done competently.
So I'm suggesting that if you want to start something that you hope will get large, you may be well advised to involve professional VC even if you don't need the money.
Don't forget that you don't have to cash out of a successful business to move on to other things. You can install managers to grow a business once you figured it out and become an owner rather than a doer.
If you're in love with your current business, why would you do that just to take a 1/100 shot at The Next Big Thing? You wouldn't. If you're in love with your current business, you stay. I don't know if most people who get to the "Threadless" level of success with their companies are in love with them, but I bet many of them are.
Yeah, but at some point it may very well be that you're no longer in love with your current business. It's just become a job. At that point, you can sell it and cash out, or you can hire somebody to run it for you - either way, you move to whatever your Next Thing is.
Ok. I get the strong sense† that Fried and DHH are in love with 37signals. Which may be why they haven't bailed to shoot the moon yet.
So when you say something resembling "you'd expect to see companies like 37signals trying to roll the snowball into something like Twitter but that rarely ever seems to happen", I'm inclined to point out how that misreads the dynamics of companies like 37signals.
† (won't bore you with details, but I have many of them)
I think Fried and DHH are already shooting for the moon in their own way. The kind of people who shoot for the moon are generally not just looking for money, they are looking to "change the world", they are looking for fame.
Fried and DHH make enough money from 37signals. They are shooting for the moon by contributing to open source and writing bestselling business books.
If you're in love with your current business, why would you do that just to take a 1/100 shot at The Next Big Thing?
Because you might have fallen in love with the idea of creating the next big thing? The thrill, the excitement, the challenge of taking a shot at the next big thing?
I'd guess those people who attracted investment in the new startups could do so because of the earlier (self-funded? "lifestyle"?) businesses.
Large businesses don't necessarily come from small businesses, but many people who build large businesses were once people who built smaller businesses.
It's not fear that makes Jason Fried/DHH avoid trying to build a really big business quickly. It's a lack of ambition. There's nothing stopping them from taking $10 million from VCs at ridiculously generous terms to try to build a really big startup. Like most rational people they're content to have good jobs and enough money not to have to worry about it.
This is why successful serial entrepreneurs are so revered. It usually takes extraordinary ambition to succeed more than once.
Nobody who sees the new 37signals office will walk away thinking "these people lack for ambition". I don't want to bicker about this point you're trying to make; maybe you're right and there's a different breed of ambition at work in the shoot-the-moonies. But 37signals is not just a "good job and enough money".
Judging a company's ambition by the size or grandiosity of their office is exactly the kind of thing Fried/DHH rail against.
Tons of companies build big pimped out office and justify it to themselves as being necessary for their future plans. It's one of the signs that you have "arrived".
I don't think it's true that people capable of big successes are commonly derailed by the fruits of small ones. Remember how Caesar was particularly wary of thin men? There is something to that. People like Larry and Sergey, Mark Zuckerberg, and the younger Bill Gates are not driven by the desire for luxuries, so no amount of wealth is enough to make them lose interest.
some people don't care about money or being comfortable and just want to change the world
that is the difference between entrepreneurial pioneers and businessmen. for the former, it is never the money (see gates, zuck, sergey + larry, etc. etc.)
That's an interesting point: are there any big tech companies (in the top tier of "big") that didn't take venture capital? I can't think of any offhand.
It'd be an odd result, because there are big companies in other fields that grew by bootstrapping and then reinvesting profits. For example, as far as I can find, Wal-Mart took little to no investment before the IPO. I wonder what makes tech different? Is it somehow more capital-intensive, contrary to the usual assumptions? Or is it that it's a lot easier to get investors in tech, so people aren't forced to bootstrap? Or that alternative financing options are harder to use in tech (no equivalent to Wal-Mart's strategy of opening new stores by taking out loans with existing stores as collateral)?
Some interesting data to see would be: what's the biggest tech company that has never taken outside investment? Are there any significantly bigger than 37 Signals?
Also the industries aren't comparable directly on revenue numbers. Walmart had net sales of $340 million but the net income after tax was $11 million. That's a very low margin business compared to software, where a typical result might be $55 million in revenue to make $11 million.
I can't tell for sure (Wikipedia has no info, and http://www.fundinguniverse.com/company-histories/Microsoft-C... only talks about their IPO), but it certainly looks like MSFT was bootstrapped when they nailed their big licensing deals. They then IPO'd after 9 years incorporated to get some more cash on hand, presumably.
Microsoft took a mezzanine round a few months before the IPO. The reason usually given is so that they'd have connections to investment bankers to manage the actual IPO, as well as people with a stake in making sure that the IPO price was as high as possible.
> are there any big tech companies (in the top tier of "big") that didn't take venture capital?
That's an interesting question. I'd be curious if anyone knows if,when, and how much venture capital companies like Intel, HP, Microsoft, IBM, AT&T, Motorola, and Tektronix took.
VMware. Diane Greene funded it with the proceeds from her (much smaller) startup VXtreme, sold to Microsoft. The first outside capital we took, IIRC, was in 2002 or so, when VMware was already hundreds of employees, profitable, with several products, etc., and it was from Dell and IBM rather than typical VC firms.
I think that the differentiator for tech is that there is a massive skew towards providing free services via the web.
Because many companies work as "media" companies which rely on attracting eyeballs for ads, people get used to not paying for things online which perpetuates the need for VC.
You also don't see very many bootstrapped TV stations.
A different way of looking at it is that there are disruptions in progress (less capital required to reach 'giant', new funding options) that are making this significantly more likely.
I think timescale plays a part here. It's all well and good to open up a restaurant, then another, then two more the next year, then 5, then 20, then 50, then 200...Problem is, you're looking at at least a decade before you're large-scale. McDonalds is a 75 year-old company. Starbucks is 45 years old. OTI, the pace of growth (and failure) is much higher. Facebook is ~6 years old. Who knows if it will be here in another 10?
That kind of growth takes money. It's nearly impossible to scale from 3-4 people to 3000 in a couple years if you're self-funded. Now, the article was arguing that that kind of growth is unnecessary; that it's perfectly acceptable to have a business making 100-200k/year. That't true, but it in no way negates the need for VCs and angels.
You hear these examples a lot. But I think if you look closer you see that these are examples stories being more complicated than their stripped down versions, not counterexamples. The stripped down version still holds to the pattern.
The "real" beginning of Starbucks was an entrepreneur buying Starbucks and merging it with another couple of coffee shops then expanding immediately at serious pace. It went public 5 years after the purchase.
Mcdonalds is a similar story. Bought and expanded.
It's hard to measure the exact beginning of these businesses, they weren't founded with the intention of raising capital and going big. They did however join that trajectory at some point. The interesting thing is that they joined it very close to the launch point - these weren't small companies that slowly became medium then big, these were tiny companies that stayed small for decades, then they became giants very quickly, almost instantly.
edit: BTW, it is definitely possible of finding companies that grew slowly over decades. But in those cases you probably won't find that they were small businesses for a long time. They spent roughly equal amounts of time as 5 person companies, 10, 100, 1,000 - so you don't here so much about their heritage as a small business. They might have only spent a few years that way.
Something I noticed after I read your comment: The funny thing about both Starbucks and McDonalds is that, in both cases, it took an outsider who became an employee, _not a founder_, to grow the company. Two companies don't a pattern make, but it does make you wonder...
I think the right way of reading it is to put consider the outsider the founder and otherwise consider their takeover as the founding. It would be like Bill Gates buying a 4 person company that made Basic interpreters instead of starting one, it's not fundamental to the story.
If you looked at a graph of Starbucks and another startup going public at the same time the would look like this
What happened between founding and acquisition in company #2 isn't really part of the story. The day after aquisition though is pretty much the same after the day of founding company #1.
The more that I think about this, the more I wonder why we don't hear more about companies that succeed in this way. Surely they're out there but they're just privately piling up revenues? I'm amazed we can't name more.
Is 37 signals artificially limiting their size or are they growing organically?
It would be neat to profile them wouldn't it? Im betting a large portion of them have found that the start-up scene and growing large is great at the beginning of your career, but perhaps stability comes into play? Kids, Wife, Health?
It seems like a self-selection effect. We hear about the ones buying PR and pumping up their value. Those that are organically growing value don't need fertilizer.
You're looking to the past. It's recently become much easier to build a lifestyle business.
Also, I wasn't suggesting that bootstrapping Amazons and Googles would become the norm. Just that you're in a much better starting position when you already have a successful business paying the bills. Especially when it comes time to negotiate terms.
I think he's trying to say that venture capital isn't the only route to typical entrepreneurial goals; such as self-fulfillment, being your own boss and a comfortable life.
Note that he doesn't say that every typical goal could be satisfied by a lifestyle business (goals such as changing the world in a matter of years, or making loads of money).
It doesn't have to be every developer making that decision. The house of cards potentially starts to crumble once it's a big enough minority of developers -- and a chunk of the media starts to say "hey that's really a lot more interesting than the entreporn".
Free software is a third perspective which uses other forms of capital than Amazon does. It's not as fast as a targeted, talented, VC-backed firm, but it does get there; so I'm inclined to interpret the "omg-no-internet" sentiment as hyperbole, even without mentioning public funding sources like academia.
Except that instead of a big business doing those things, there could be a network of small businesses.
Each business does a small part of the whole, buying and selling what they need from other businesses.
The reason these networks don't come into existence is the problem of how an interdependent network gets bootstrapped. For example, suppose that gadgets are currently made by a large corporation, Acme, because making a gadget requires designing and making a widget, a vidget, and an xidget, a design for how to put the bits together, and the final assembly, and that is too much for a lifestyle business, and Acme doesn't buy or sell the parts as the whole process is vertically integrated. If there were widgets, vidgets, and xidgets on the market, and designs for building gadgets from them on the market, then there could be lifestyle business building gadgets - and likewise for any other part of the supply chain being removed. However, without any lifestyle gadget makers, there will be no demand for widgets (unless they are useful in another industry).
Maybe there is a business model for helping to bring a network of interdependent companies into existence simultaneously.
"Survival of the fittest", you mean. There are plenty examples of big companies that failed (or would have failed wasn't it for government intervention).
You're right. By biggest i mean profitability, reveneue, etc. Which is, for a company, an indicator of their 'fitness'. I'm not talking about the loss making whales that had to get bailed out and for whom we are all now paying for..
The big aren't successful because they are big, they are big because they are successful.
Of course, you could argue that the incremental value of an added employee is positive for successful companies.
But there's an opportunity cost, if employees in companies are not developing, taking risks, and focused like they would be if they were working for themselves.
Innovation often simply requires more investment (in both human and financial capital) than what a few-man show can handle.
With only lifestyle business you'd also exclude everything that has negative cash flow in the initial stages - except if you think another lifestyler can run a VC without relying on "the market".
Seriously, there are a lot of things wrong in our society, but scalable businesses ain't one of them.
The "if everyone did this" argument is such a poor way to argue a point.
I'm sure you would find the vast majority of people think being a doctor is a good thing - you help people, you're well paid and respected. Yet, if everyone was a doctor, everything would crumble.
There are many different paths in life. Our system as it now stands needs both large and small businesses. One cannot co-exist without the other.
> we wouldn't have any technology bigger than could be built by lifestyle businesses. Anyone who wanted to build a lifestyle business on the Internet, for example, would find that there was no Internet.
I think you're wrong, for two reasons.
First, this same argument used to be used to explain why long-distance telephone service is a natural monopoly — because if two people are using different long-distance phone carriers, then they wouldn't be able to talk to each other! And it's really true, in some cases. There are still developed countries where you can't send an SMS from one mobile carrier to another in the same city. But it's also obviously false in general.
Second, more generally, any relationship that is structured as a coworker relationship within a firm could also, in theory, be structured as a commercial transaction between individuals. http://en.wikipedia.org/wiki/The_Nature_of_the_Firm is a Nobel-winning piece of work about why that doesn't happen; it introduced the idea of "transaction costs". But it might turn out that transaction costs can be reduced to a low enough level that services that formerly required big businesses to provide them could be provided by "lifestyle businesses".
I said - "If every developer was to focus on the very achievable goal of building a lifestyle/micro business – the entire house of cards would crumble."
I stand by that.
To expand, IMHO the current "chasing after the golden ticket of investment" model would crumble.
But we humans are a very diverse bunch. It would be impossible for a few of us NOT to notice large scale problems and go after them.
Therefore, out of the masses of self driven "no-investment" entrepreneurs - there would be a few that would create the next internet, or cisco, or cable.
Under my Utopian ideal there's no reason why anyone couldn't seize and capitalize on big ideas as they arose.
The only difference is that VC's (and dare I say organizations like YC) wouldn't be the hub of the entrepreneurial universe that they now seem to be.
Of course there would most likely be a new hub of sorts. I'm not sure what that would look like. Although a while back I did have some specualtion.
Also, if I'm not mistaken, isn't the "lifestyle business" model the exact route that PG took to success?
He built Webgen/Viaweb an app that solved a problem for people that were willing to pay money for it. He iterated on it, built up the revenue, and then had the good fortune of selling it to Yahoo.
(I'm not even sure if Viaweb had investment did it? Anyone know?)
if developers suddenly started acting as a cartel, all that would happen is non-developers would become developers to fill the demand in building new businesses
nobody is saying anything against lifestyle businesses or micro businesses or whatever you call it. the argument is about your claim that capital investment isn't required (although self-funding is still an investment) and that we would have the same world today without the capital markets or the media, just if developers went and got on with it
outside capital expedites growth and development. if you don't do it, the next guy will, that is how a free market works. our entire civilization has benefited from this - how would microprocessors have even been invented, designed and manufactured as a non-funded business, let alone kept up with moores law?
Viaweb had investment. And it wasn't a lifestyle business - there was a terrifying bit in the middle where they weren't profitable. Plus the investors tried to screw them over multiple times, right up to the point where they got acquired. You really do need to read up on Viaweb's history.
My counter-argument to your post can be summed up in one question: name me one lifestyle business that is consumer Internet, of sufficient scale so as to make the world a better place.
Almost every startup in the 37signals's Bootstrapped, Profitable & Proud series are in enterprise. Consumer Internet companies (which are what blogs like Techcrunch obsess over) have different rules, different scale.
Github is the rare exception. I'm not saying that it's impossible, I'm saying that of the set of startups that have changed the world, it's just ... Github that's a lifestyle business. Every other one has taken funding. What does that say, empirically, about the nature of both models?
Note: I'm not arguing one's better than the other, I'm just rebutting OP's belief that 'lifestyle businesses are the way to go for everyone, woohoo!'
I'm skeptical about the statement that you quoted. I don't really have the facts to back up my assertion, but I believe we will always have large companies.
If the comment is meant to mean that if everyone had the entrepreneurial drive the whole house of cards would crumble down, I still think that is misguided. The distribution of the success of businesses is somewhat similar to the distribution of programming skill among developers. There are many that are in the low mid range. There are very few that are light years ahead of 90% of the other developers.
Nobody is building big companies to prevent the world to crumble. They are build because it's possible for their owner, because their market is big enough, because of money, and because of the fun building them.
If there were only lifestyle business, investors would simply change the way they invest. They'll begin seeking lifestyle business that could explode with extra investment. Entreprenors would be probably get better terms as they'd be in a better position to negociate, but there would still be big companies.
Note: I can only speak for my industry (penetration testing and antimalware) so YMMV
Last month at DC4420 (the London monthly DEF CON chapter meeting):
<dude from corporate security firm>: How many people do you have at Mandalorian?
<iuguy>: 6
<dude from corporate security firm>: Really? I always thought you guys were bigger? So it's more of a lifestyle firm?
<iuguy>: If by lifestyle firm you mean a company that treats it's people well for doing a good job - as well as they could do on their own - then yes. If you mean a firm that's focused on doing a good job doing work we enjoy instead of chasing cash and ticking boxes all day long, then yes.
I think http://www.fbtechies.co.uk/ was the first I knew of, but amongst us there's quite a few and it seems as though we're growing. I think the realisation of having a niche skillset combined with commercial ability makes for a compelling enough value proposition for people to go it alone outside the conventional areas.
We don't all need to be multibillionaires (although some do). For some of us it's the choice between working on yet another PCI box ticking exercise, or charming the pants off some cool experimental tech.
I would like to add though that the article really needs some data to back it up. While there's plenty of anecdata from patio11, peldi and (to some extent although I'm obviously not in the same league as those guys) me, a source of actual information would really blow the doors off.
This exact point occurred to me as I was listening to Reid Hoffman define 'entrepreneurship' at SXSW the other day. His definition restricted the term to 'industry-disruptive technology' and 'big ideas'. I thought it was a pretty self-serving definition coming from an angel investor who needs those kind of giant hits to cover bad bets. It's also a lot easier to start what Mark Cuban is calling the Ponzi-style investment process where every round at successively higher valuations leaves the next group of suckers holding the bag.
Regarding the chances to build something super-successful:
It's more interesting to hear about startups that fail. Seeing patterns emerging from failure is way more useful than trying to pinpoint what Google and Facebook founders have in common.
The problem I guess is that the failures mostly just fade away. A service where upstarters commit to write about their journey, especially if it goes bad, in exchange for helpful tips would be very useful.
I started a lifestyle business. It did that, and very well. And then I became bored.
If a lifestyle business works for you, then that's what you should strive towards. Some would call me naive or childish, but if you're the type of person who dreams about changing the world, don't sell yourself short. Don't grow up, and don't give up.
"If you genuinely have the spirit of an entrepreneur inside of you, something about No True Scotsman".
This article, as much as any feature on Mark Zuckerberg, is entreporn. Is it possible to build a $10k-per-month web app? Sure. Easier than building the next Facebook (which is a matter of mostly luck, a lottery)? Absolutely. Are most people who try going to fail? Yes. Is it possible to get funding for a lifestyle business? No, that doesn't exist. So you need to do it on your own time, which limits your losses but makes your likelihood of success very low. If nothing is lost but one's time, is trying a lifestyle business possibly a great idea? Of course. But is making it sound easy to make $10k per month entreporn? Yes.
Also, as for lifestyle businesses, there are good and bad scenarios. A good lifestyle business provides reliable income at a decent rate (at least $100/hour) and the ability to control how much money you make and how much time you spend; if you want more money, you work harder. If you want a 3-month vacation, you take it but make less money. That's what you want: the freedom to decide how much you work and how much money you make. This is a great thing to have, and if some idiot hipster thinks it makes you a loser that you didn't cash out for billions, who cares? A bad ("walking dead") lifestyle business is one that just turned out mediocre and ends up had-by-the-balls by one or two clients who become, de facto, very demanding bosses. Companies like this exist: single-client consultancies that haven't gone out yet, but never got enough headway above the mediocrity of client demands to take off and become something.
If the article made sound easy to make $10k/month that was an error on my part. It is not easy, it's very hard. But no where near as hard as building a successful business on VC investment. Don't forget, after you get the investment you're only just starting out... 8 out of 10 VC funded projects fail.
I think one also needs to consider the success and failure profiles in each. What do success and failure entail, and what are their implications for your career? The attraction of the get-rich-or-die-quickly company is that, if it doesn't make you rich enough never to have to work again, at least you can walk away from it and hopefully spin your story positively enough to get career credit, for your next job, for the time you spent there.
Taking VC and making $120k/year, which is low-average for a VC-funded firm's CEO, and then failing after three years, doesn't entail much financial loss. And unless the failure is catastrophic and obviously reflects badly on a single founder, it's not a huge career hit. Sure, it's 3 years working very hard for middling pay, but there are worse things in the world. Depending on how one is able to bounce back from the failure, it may have been 3 years very well spent.
As for lifestyle businesses, no VC is going to fund a lifestyle business; it's just not what they do. And bank loans are out because they make onerous personal-liability requirements, so scratch that. This leaves two options. (1) Don't quit your day job. Risk is minimal, but I'd be shocked if more than 2% of these also-employed "entrepreneurs" take off. (2) Quit your day job, and put personal savings at risk. This is a lot riskier, financially, than founding a VC startup if you have sufficient social connections to know (before you start) that you'll be funded. That doesn't mean it's not worth doing, and if you don't have those social connections you'll be eating savings either way while you hunt for funding, but it does mean that it's costly.
There is also option (3), somewhere between (1) and (2):
Explore the problem space and make a start while working for your previous employer. Slowly reduce the number of hours you are working (i.e contract vs fulltime).
Once you are getting some interest / traction or feeling more confident, switch over to (2) - now much less risky. Go fulltime with a 1/2 built business with several potential customers and perhaps a couple of paying ones. You are now much more attractive to investment.
That depends on your location and social connections. If you're in the Bay Area and have social connections, you can get funded out of the gate. If you're on the East Coast and just out of college, you're going to have to prove yourself before you get funded and, yes, you're looking at at least a year of unpaid hard work. It's all about contacts, and if you have none, you've got an uphill battle-- especially if you're not in the Valley.
Income-wise, a startup is generally a step down, but a tolerable one for most people. If you're 22 and without VC contacts, you can work for next to nothing for a year or two, make contacts by hanging out in the Valley, and start pitching when you have a product. If you're 36 and have a family to feed, but have VC connections, you can usually get early seed funding and pay yourself $100k annual salary, which is low for someone with those kinds of contacts but enough to live on.
When it is impossible is if you're 36 and have a family to feed, but don't have VC contacts. You can't afford to take a year or two off to prove yourself (which an outsider will have to do) but you don't have the contacts necessary to step immediately into a $100k/year salary with just an idea.
wmboy made a good analogy in a another comment to abs.
Most people can be thin/muscular/athletic and most want to be. Many try and of these, most fail. But, this is fundamentally different from an aspiration to be in the olympics. Most people can't do that, regardless of how hard they try or how strong willed they are.
I'm not sure the Olympics are a good metaphor for Facebook's success. The reason a person like me will never be in the Olympics is a lack of physical talent. People who have that talent, if they work very hard, have a realistic shot, but it's less (probably much, much less) than 1/10 of 1 percent of people for whom being an Olympic athlete is even an option.
By contrast, I think at least 1 or 2 percent of people have enough talent to do what Mark Zuckerberg did. He's a talented businessman who has done a lot of things really well, but I haven't seen him do anything I couldn't have done in his position. The odds are enormously against that kind of success no matter how smart you are, but the minimal level of talent to do that is not that rare.
I'm sure the metaphor can be tweaked to be more accurate in representing the mix of talent, luck, mentality, etc. (it's also the case that not everyone who gives it an honest shot will succeed at creating a 10k business while virtually everyone who diets and exercises will get slim an muscular)
The point is no so subtle though. One is in reach of most people who will give it a shot while the other is exceptional.
While I agree that you shouldn't knock lifestyle businesses, I feel that the TechCrunch quote was taken a bit out of context. The "dipshit" companies looks like its referring to the kind of apps that have no business model but ride on the hopes and dreams of overeager VCs who swear this is the next Google. Anyone who creates a company without a business model and hopes to sell to Google for $25MM is a dipshit. But those aren't lifestyle businesses, so it seems like that quote was a bit irrelevant.
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[ 3.5 ms ] story [ 340 ms ] threadThe huge risk, huge return world will always be exciting to watch and talk about, and it will always be splashing around waste money, so it will always get a disproportionate amount of attention.
I'd like to see this taken to the next level: some kind of diagnostic.
It's easy to point out the general case. What's difficult is taking the general truth and turning it into stuff to do right now. Answer these questions. If you answer this way, you are heading down the wrong path.
From what very little I've seen, this is something that everybody sees in everybody else but never see in themselves. Perhaps this is because it's easy to imagine somebody else having to "settle" for a business making shinier widgets for 3 cents profit per unit while we all easily imagine ourselves as being the person to "change X as we know it"
I have no idea why some of us are like this. I continue to struggle with it, and I know better.
http://www.10millionapps.com/space-gremlin-mac/
Sidenote: I have nothing against asian dudes, spiky haired or not.
Here's our startup bus pitch video. http://www.youtube.com/user/StartupBus#p/u/8/k4mixo4-SMs
Show me an investor who takes us seriously and we'll be there to pitch within 24 hours. Or if you know TechCrunch people who are interested, we got wired coverage but it's not like it's 96 and people still read wired. http://www.wired.com/underwire/2011/03/meet-startupbus-buspr...
That said, it's a lifestyle business that pays the bills and allows me to do crazy stuff like startup bus.
$10k is your "fuck you money", provided you can rely on making it every month. This might be easier said than done, though.
For me it's being able to support yourself and your family in a fairly comfortable western middle class quality of life. The FU part is that, if you're making this independently and reliably, you don't need to care about the TechCrunch/etc bullshit the OP mentioned.
For another person it might mean living in a West Village townhouse and sending your kids to private schools. For yet another it's owning a private jet and the 49ers. In these cases you probably need more than $10k/mo.
so this 10k/month figure is averaged from how many years?
uh, okay. then you might want to update your blog before there are 1000s of unemployed web developers building their lifestyle web apps for eternal target of 10k/month.
http://www.youtube.com/watch?v=XDGHxO6N3Ms
Yeah we could all become the equivalent of craftsmen who had to then organize into guilds/unions to get a decent wage. Why do that when we can go home millionaires with the right idea/right money.
So at a certain point in your life it makes sense to swing for the fences if you are the only bread winner for your family I definitely understand reducing risk.
You don't need millions of users to be considered for VC investment. More like 10,000 users if the service is free, or 100 paying customers. And it's really not that hard to do that, it just takes enough perseverance to make it through the first few iterations.
> The absolute truth is that each and every one > of us can build a business that can support us. > ... > In truth, there is no reason to fail – other > than failing to learn from your mistakes.
Yes, maybe we can - eventually. But while we're building it, we still need a paycheck. Building a profitable business doesn't seem like the kind of thing you can do in your spare time, unless you're willing to sacrifice absolutely everything else in your life.
> But even better, once you have the knowledge that comes > along with building a succesful $10k/month business, you > also posses the exact same knowledge that it takes to > build a $100k/month business.
And then, why not a $1M/month business? And then $10M/month! Etc! Etc!
I'm pretty sure that a $100k/month business is an outlier, too, it's just closer to the center of the bell curve than Facebook, but still pretty dang far away from everyone else.
Not trying to pull a GOTCHA, SEE, YOUR NUMBERS DON'T ADD UP, genuinely curious.
http://www.codusoperandi.com/posts/bootstrapping-with-kids
Now I'm contracting on the side while working on Gridspy. It is a hard slog, but totally worth it. We are creating a increasingly professional offering. I'm really looking forward to when we go to market and start selling this thing. Now I have the next problem - how much to contract (money) vs how much to work on Gridspy? http://blog.gridspy.co.nz/2010/06/breaking-away-from-the-man...
their argument isn't that VC is evil, more that in a world where a lot of entrepreneurs seem to be focused on the fundraising/grow-quick/big-swing path, there are alternatives
the OP on the other hand is advocating something entirely different
Embrace being a lifestyle business and ignore all the startup noise. Do your best to serve your customers and grow your revenue. You'll never get famous, but then again neither will 99.9% of the people who go the other route.
Also $10k/month is ok for one or two people, but what if someone gets sick or leaves, a business is not very stable at that size.
Additionally he assumes people want to change the world for monetary reasons, which I don't think is often the case, otherwise you'd manage a hedge fund or something.
Id love to hear how I can get one of those 10K/month businesses (outside of consulting/programmer-for-hire).
People keep making it sound like it super easy to just get such a business going. How about some examples ?
If you follow Amy's blogging on Unicorn Free you'll have a seen a recent post where she talks about how long it has taken her and Thomas to get Freckle to where they are now - about 2 years (http://unicornfree.com/2011/drawing-back-the-curtain/). Both Amy and Thomas hustle their tails off and yet it has taken them two years and a lot of hard work to get too where they are (not to mention the years before that leading up to it). The point is that there is very rarely an easy route, but there is absolutely a possible route if you're passionate and you hustle. You'll be lucky if you only fail a couple of times before you land on something that gains traction, but you can do it.
I was silly to choose the twitter market because (a) everyone wants the tools for free (b) It's the most competitive single tools software market EVERYONE and his uncle made a twitter client (just like me) (c) It is impossible to SEO because EVERYONE and his uncle made a twitter site.
Even so, with all of that going against me, I've still been able to reach 1.5k month and it's now starting to really pick up due to valuable lessons I've learned from other bootstrappers along the way. Like Amy Hoy (above with the $10k/month) who's obviously a little bit cleverer than me!
I should also mention that for 6 of those months I did "absolutely nothing" with Pluggio. Because I didn't believe in it. Because it wasn't doing well enough according to my Entreporn expectations.
Yes, I let it slide for 6 entire months. If I had spent that time working on it, it would be at least 5k now.
I'm sorry to roll out the cliché, but gaining time is more likely to make you happy and free. And a few slow grown bootstrapped 'dipshit companies' are much more realistic and likely to provide you with that time along with a boatload more autonomy. Instead it seems everyone is aiming to be the head of the next big thing and indebted to VC's in to the bargain. What do I know though, perhaps it's not all that bad...?
I do think that with a couple of $10,000 a month semi-automated apps in your pocket you've got a lot of choices. Especially if you are young. It can give you the free time to really work out what you want to get out of your life. With time to think you might find it's not what your doing and/or aspiring to right now.
For me if my startup ever starts to make 10K+ a month it'll simply mean trying to spend a little less time sat behind my keyboard. Spending more time outdoors travelling and experiencing the world instead of too much time indoors reading about it sounds like a good plan to me.
The original article seems to be arguing $10K is something like a "sweet spot" where lots of micro-entrepreneurs could comfortably stay. I would contend that if an entrepreneur is able to get to $10K/month with ease or with difficulty, they've probably got the resource to go to $20K, and then $40 look promising etc. That requires extreme hustle of course but so does staying at $10K.
IE, there's no "sweet spot" or stable spot. It is more like either failure or "lift-off".
Most of $10K/months business that continue along that I know of are consulting. And a lot of consulting is essentially continuing your connections with a larger enterprise but from the outside.
I think there's a simple logic to this.
If anyone has duplicatable way of getting to a $10k/month from their labor, they also have a key to building a business; they could just recruit people, teach the recruits their methods and split the profits in any number of ways. Thus, they would almost certainly have a business that could expand to $10 million a year fairly quickly (if you have the kind of business where you could add servers or machine instead, so much the better).
Now reason that there are VCs is that the number of businesses which can bootstrap to $10 million/year are inherently a subset of businesses that can be financed to $10 million/year.
Now, we know that if A > B and B == C, then A > C. Thus the number of VC-financable opportunities to build a $10 million/year company are inherently larger than the number of easily duplicable schemes that could allow a single individual to make $10K/month.
That leaves the "totally unique" ways, that depend on each person's special qualities and can't duplicated. If you're working on the web, how many of those are there?
I'm totally happy with where I am in life today, and there are a bunch of happy places I could see myself in two years, lifestyle business or no. A word of caution: not everyone selling Obama cereal intends to be doing so forever.
Do these things really exist? How do you find them?
In other words, the consulting jobs exist but they are for "niche markets" - companies hire back their most senior workers on a consulting basis. Also those explicitly trained by SAP and the like at one time could get the bucks. I don't know if that's still true.
They key (as someone who has done it) is to look for niche B2B opportunities. Find a need and fulfill it better or cheaper than existing players. Exploit newer/cheaper tech or SEO knowledge that the existing guys don't/can't get.
Think of it this way: you need 500 businesses to pay you $20/month to get to $10k/month. If you can get 1 signup a day, you're there in < 2 years.
One example: we run nextproof.com that lets wedding and portrait photographers sell prints online (think of it as a shopify for photographers). There are way bigger players in the market (pictage, smugmug, printroom, etc.) but we have ~2,000 users. Half of them are on a paid plan at between $9 and $99/month. The other half are on a free plan BUT we still make money on them through transaction fees. So, after 3 years, it's well over $10k/month.
Another option is premium content or tools targeted at these niche businesses. This could be in the form of WordPress themes/plugins, eBooks, DVDs, etc. We did an SEO DVD for photographers and sold 1,000 @ $79 each.
Most of the "ideas" I come up with are along these lines. I have tons of them.
It's the same with building a successful $10k/month business. Find a niche, solve a problem people are prepared to pay money to have solved, market your solution and deliver on your promises. But all that won't happen in a week will it? Because of this, most people will give up before they get to the top of the mountain (or before they have six-pack abs).
The above advice is meant to help those who are inclined to focus and work hard, but it's worth noting that it takes nothing away from the gourmands and loafers of the world: they (and I) will not have six-pack abs. Period. Those unwilling or unable to change their lifestyle would be best served by finding something else to do with their time.
The formula is simple but the implementation will always be up to the individual.
I think he went overboard by imploring EVERYBODY to stop trying to build those types, and build a lifestyle business - but the criticism is valid.
We, the industry, is caught up with the $10M Series A round, and the major IPOs and acquisitions. When it's just as much of a major victory for a small company - one or two employees doing $10K - $100K/mo.
That's pretty major.
I think it is doable. Not for ALL types of technology - e.g. not Twitter, Google, or FB.
But certainly for many webapps.
Think of it like being the new 'professional', where professional is an accountant/lawyer/doctor. You no longer have to go to med. school for 7 years, but you have to invest time in learning about everything it takes to build and launch a successful webapp (which I would argue is just as grueling as med/law school).
The major difference is that it scales beautifully. If you can put the systems in place to earn $10K, you can relatively easily go to $100K/mo.
Every person here at HN is talented enough to create a $10k/mo business. It may not be as easy as what the article suggests, but you can do it.
Also, I should note that I did it all on the side & the weekends. I have a full-time job as well.
It worked alright for me and my business partners and we spent the first year working part time on it.
What I'm really saying: if you stop at $10K/month, you haven't actually built that function.
If that happened, the whole world would crumble, because we wouldn't have any technology bigger than could be built by lifestyle businesses. Anyone who wanted to build a lifestyle business on the Internet, for example, would find that there was no Internet. You wouldn't have servers or routers or clients or backbones or local cable.
But even better, once you have the knowledge that comes along with building a succesful $10k/month business, you also posses the exact same knowledge that it takes to build a $100k/month business.
With a sufficiently large lifestyle-driven economy, we could move away from the VC model where very few people have the majority of the capital necessary to fund big ideas.
We're already moving to a world where industrial costs continue to decrease, small businesses specialize in providing specific services (such as manufacturing), and computers and machines provide enormous leverage. Examples range from Amazon EC2 to affordable, low-scale manufacturing of injection molded plastics and cheap, on-demand PCB manufacturing.
On the subject of building "big things", it's worth reading this blog post on how the Glif (http://www.theglif.com/) was created by a small team of two, funded by Kickstarter, from design to manufacturing: http://www.therussiansusedapencil.com/post/2794775825/idea-t...
In comparison to pg's example of a router, it is a small thing, but it's a great demonstration of how the bar is being lowered, and what was only accessible to large, capital-rich entities is now available to two guys with limited initial capital.
We don't have much of a history to work from, and the majority of the enabling tools available to us simple did not exist prior to or during the emergence of the current economic and business environment.
I think developments such as Kickstarter provide a glimmer of where things are headed.
Successful businesspeople may not be risk-averse; they're happy to start electric car companies for the joy of it. Successful businesses, on the other hand, don't think like that.
Ah, but this reminds me. I know three people who have made $500M or more on their earlier businesss who have cashed out and gone on to found new startups. Only one of the three funded the startup entirely out of his own holdings; the other two have other investors involved. I imagine the latter two think that they get more value (advice, connections, etc.) from these other investors (who I think include VC firms) than they give up in equity.
FWIW, the business funded entirely by the one founder eventually failed (I worked there for several years). Arguably, this was a failure of marketing, as we had a small number of wildly enthusiastic customers that never became a large number. Also arguably, had experienced VC firms been in on the deal, they would have made sure that the marketing was done competently.
So I'm suggesting that if you want to start something that you hope will get large, you may be well advised to involve professional VC even if you don't need the money.
I see myself doing this eventually.
So when you say something resembling "you'd expect to see companies like 37signals trying to roll the snowball into something like Twitter but that rarely ever seems to happen", I'm inclined to point out how that misreads the dynamics of companies like 37signals.
† (won't bore you with details, but I have many of them)
Fried and DHH make enough money from 37signals. They are shooting for the moon by contributing to open source and writing bestselling business books.
Because you might have fallen in love with the idea of creating the next big thing? The thrill, the excitement, the challenge of taking a shot at the next big thing?
Joel Spolsky is a great example.
cashing out to who? another lifestyle business?
Large businesses don't necessarily come from small businesses, but many people who build large businesses were once people who built smaller businesses.
This is why successful serial entrepreneurs are so revered. It usually takes extraordinary ambition to succeed more than once.
Tons of companies build big pimped out office and justify it to themselves as being necessary for their future plans. It's one of the signs that you have "arrived".
that is the difference between entrepreneurial pioneers and businessmen. for the former, it is never the money (see gates, zuck, sergey + larry, etc. etc.)
It'd be an odd result, because there are big companies in other fields that grew by bootstrapping and then reinvesting profits. For example, as far as I can find, Wal-Mart took little to no investment before the IPO. I wonder what makes tech different? Is it somehow more capital-intensive, contrary to the usual assumptions? Or is it that it's a lot easier to get investors in tech, so people aren't forced to bootstrap? Or that alternative financing options are harder to use in tech (no equivalent to Wal-Mart's strategy of opening new stores by taking out loans with existing stores as collateral)?
Some interesting data to see would be: what's the biggest tech company that has never taken outside investment? Are there any significantly bigger than 37 Signals?
Edit: Wikipedia says Wal-Mart was doing $340.3 million after 13 years.
http://walmartstores.com/Media/Investors/1976AR.pdf
http://news.ycombinator.com/item?id=2339287
raised VC in '81, IPO in '86
why isn't an IPO considered an outside investment in this argument anyway? it is, afterall, raising money
the argument should be what is the largest software company that never raised external funding and is still private
That's an interesting question. I'd be curious if anyone knows if,when, and how much venture capital companies like Intel, HP, Microsoft, IBM, AT&T, Motorola, and Tektronix took.
Because many companies work as "media" companies which rely on attracting eyeballs for ads, people get used to not paying for things online which perpetuates the need for VC.
You also don't see very many bootstrapped TV stations.
Also Starbucks: http://en.wikipedia.org/wiki/Starbucks#History
I don't claim to know whether that model extends to tech companies, but with enough time, I'd be willing to take the long side of that bet.
That kind of growth takes money. It's nearly impossible to scale from 3-4 people to 3000 in a couple years if you're self-funded. Now, the article was arguing that that kind of growth is unnecessary; that it's perfectly acceptable to have a business making 100-200k/year. That't true, but it in no way negates the need for VCs and angels.
The "real" beginning of Starbucks was an entrepreneur buying Starbucks and merging it with another couple of coffee shops then expanding immediately at serious pace. It went public 5 years after the purchase.
Mcdonalds is a similar story. Bought and expanded.
It's hard to measure the exact beginning of these businesses, they weren't founded with the intention of raising capital and going big. They did however join that trajectory at some point. The interesting thing is that they joined it very close to the launch point - these weren't small companies that slowly became medium then big, these were tiny companies that stayed small for decades, then they became giants very quickly, almost instantly.
edit: BTW, it is definitely possible of finding companies that grew slowly over decades. But in those cases you probably won't find that they were small businesses for a long time. They spent roughly equal amounts of time as 5 person companies, 10, 100, 1,000 - so you don't here so much about their heritage as a small business. They might have only spent a few years that way.
Something I noticed after I read your comment: The funny thing about both Starbucks and McDonalds is that, in both cases, it took an outsider who became an employee, _not a founder_, to grow the company. Two companies don't a pattern make, but it does make you wonder...
If you looked at a graph of Starbucks and another startup going public at the same time the would look like this
What happened between founding and acquisition in company #2 isn't really part of the story. The day after aquisition though is pretty much the same after the day of founding company #1.Take Mathematica. You don't think Stephen Wolfram is very happy with his "lifestyle business"?
Is 37 signals artificially limiting their size or are they growing organically?
Also, I wasn't suggesting that bootstrapping Amazons and Googles would become the norm. Just that you're in a much better starting position when you already have a successful business paying the bills. Especially when it comes time to negotiate terms.
Note that he doesn't say that every typical goal could be satisfied by a lifestyle business (goals such as changing the world in a matter of years, or making loads of money).
Each business does a small part of the whole, buying and selling what they need from other businesses.
The reason these networks don't come into existence is the problem of how an interdependent network gets bootstrapped. For example, suppose that gadgets are currently made by a large corporation, Acme, because making a gadget requires designing and making a widget, a vidget, and an xidget, a design for how to put the bits together, and the final assembly, and that is too much for a lifestyle business, and Acme doesn't buy or sell the parts as the whole process is vertically integrated. If there were widgets, vidgets, and xidgets on the market, and designs for building gadgets from them on the market, then there could be lifestyle business building gadgets - and likewise for any other part of the supply chain being removed. However, without any lifestyle gadget makers, there will be no demand for widgets (unless they are useful in another industry).
Maybe there is a business model for helping to bring a network of interdependent companies into existence simultaneously.
The market, overtime, always comes back to its natural state. Which is, 'Survival of The Biggest'.
The big aren't successful because they are big, they are big because they are successful.
Of course, you could argue that the incremental value of an added employee is positive for successful companies.
But there's an opportunity cost, if employees in companies are not developing, taking risks, and focused like they would be if they were working for themselves.
With only lifestyle business you'd also exclude everything that has negative cash flow in the initial stages - except if you think another lifestyler can run a VC without relying on "the market".
Seriously, there are a lot of things wrong in our society, but scalable businesses ain't one of them.
Yes, it's called a big company.
http://en.wikipedia.org/wiki/Theory_of_the_firm
I'm sure you would find the vast majority of people think being a doctor is a good thing - you help people, you're well paid and respected. Yet, if everyone was a doctor, everything would crumble.
There are many different paths in life. Our system as it now stands needs both large and small businesses. One cannot co-exist without the other.
the op used the same argument
I think you're wrong, for two reasons.
First, this same argument used to be used to explain why long-distance telephone service is a natural monopoly — because if two people are using different long-distance phone carriers, then they wouldn't be able to talk to each other! And it's really true, in some cases. There are still developed countries where you can't send an SMS from one mobile carrier to another in the same city. But it's also obviously false in general.
Second, more generally, any relationship that is structured as a coworker relationship within a firm could also, in theory, be structured as a commercial transaction between individuals. http://en.wikipedia.org/wiki/The_Nature_of_the_Firm is a Nobel-winning piece of work about why that doesn't happen; it introduced the idea of "transaction costs". But it might turn out that transaction costs can be reduced to a low enough level that services that formerly required big businesses to provide them could be provided by "lifestyle businesses".
I said - "If every developer was to focus on the very achievable goal of building a lifestyle/micro business – the entire house of cards would crumble."
I stand by that.
To expand, IMHO the current "chasing after the golden ticket of investment" model would crumble.
But we humans are a very diverse bunch. It would be impossible for a few of us NOT to notice large scale problems and go after them.
Therefore, out of the masses of self driven "no-investment" entrepreneurs - there would be a few that would create the next internet, or cisco, or cable.
Under my Utopian ideal there's no reason why anyone couldn't seize and capitalize on big ideas as they arose.
The only difference is that VC's (and dare I say organizations like YC) wouldn't be the hub of the entrepreneurial universe that they now seem to be.
Of course there would most likely be a new hub of sorts. I'm not sure what that would look like. Although a while back I did have some specualtion.
http://justinvincent.com/page/100/how-to-trump-microsoft-goo...
Also, if I'm not mistaken, isn't the "lifestyle business" model the exact route that PG took to success?
He built Webgen/Viaweb an app that solved a problem for people that were willing to pay money for it. He iterated on it, built up the revenue, and then had the good fortune of selling it to Yahoo.
(I'm not even sure if Viaweb had investment did it? Anyone know?)
nobody is saying anything against lifestyle businesses or micro businesses or whatever you call it. the argument is about your claim that capital investment isn't required (although self-funding is still an investment) and that we would have the same world today without the capital markets or the media, just if developers went and got on with it
outside capital expedites growth and development. if you don't do it, the next guy will, that is how a free market works. our entire civilization has benefited from this - how would microprocessors have even been invented, designed and manufactured as a non-funded business, let alone kept up with moores law?
My counter-argument to your post can be summed up in one question: name me one lifestyle business that is consumer Internet, of sufficient scale so as to make the world a better place.
Almost every startup in the 37signals's Bootstrapped, Profitable & Proud series are in enterprise. Consumer Internet companies (which are what blogs like Techcrunch obsess over) have different rules, different scale.
Note: I'm not arguing one's better than the other, I'm just rebutting OP's belief that 'lifestyle businesses are the way to go for everyone, woohoo!'
If the comment is meant to mean that if everyone had the entrepreneurial drive the whole house of cards would crumble down, I still think that is misguided. The distribution of the success of businesses is somewhat similar to the distribution of programming skill among developers. There are many that are in the low mid range. There are very few that are light years ahead of 90% of the other developers.
If there were only lifestyle business, investors would simply change the way they invest. They'll begin seeking lifestyle business that could explode with extra investment. Entreprenors would be probably get better terms as they'd be in a better position to negociate, but there would still be big companies.
Last month at DC4420 (the London monthly DEF CON chapter meeting):
<dude from corporate security firm>: How many people do you have at Mandalorian? <iuguy>: 6 <dude from corporate security firm>: Really? I always thought you guys were bigger? So it's more of a lifestyle firm? <iuguy>: If by lifestyle firm you mean a company that treats it's people well for doing a good job - as well as they could do on their own - then yes. If you mean a firm that's focused on doing a good job doing work we enjoy instead of chasing cash and ticking boxes all day long, then yes.
Probably the most successful example of this I've seen in my industry are these guys: http://www.pentestpartners.co.uk/
I think http://www.fbtechies.co.uk/ was the first I knew of, but amongst us there's quite a few and it seems as though we're growing. I think the realisation of having a niche skillset combined with commercial ability makes for a compelling enough value proposition for people to go it alone outside the conventional areas.
We don't all need to be multibillionaires (although some do). For some of us it's the choice between working on yet another PCI box ticking exercise, or charming the pants off some cool experimental tech.
I would like to add though that the article really needs some data to back it up. While there's plenty of anecdata from patio11, peldi and (to some extent although I'm obviously not in the same league as those guys) me, a source of actual information would really blow the doors off.
The problem I guess is that the failures mostly just fade away. A service where upstarters commit to write about their journey, especially if it goes bad, in exchange for helpful tips would be very useful.
If a lifestyle business works for you, then that's what you should strive towards. Some would call me naive or childish, but if you're the type of person who dreams about changing the world, don't sell yourself short. Don't grow up, and don't give up.
Go for it.
This article, as much as any feature on Mark Zuckerberg, is entreporn. Is it possible to build a $10k-per-month web app? Sure. Easier than building the next Facebook (which is a matter of mostly luck, a lottery)? Absolutely. Are most people who try going to fail? Yes. Is it possible to get funding for a lifestyle business? No, that doesn't exist. So you need to do it on your own time, which limits your losses but makes your likelihood of success very low. If nothing is lost but one's time, is trying a lifestyle business possibly a great idea? Of course. But is making it sound easy to make $10k per month entreporn? Yes.
Also, as for lifestyle businesses, there are good and bad scenarios. A good lifestyle business provides reliable income at a decent rate (at least $100/hour) and the ability to control how much money you make and how much time you spend; if you want more money, you work harder. If you want a 3-month vacation, you take it but make less money. That's what you want: the freedom to decide how much you work and how much money you make. This is a great thing to have, and if some idiot hipster thinks it makes you a loser that you didn't cash out for billions, who cares? A bad ("walking dead") lifestyle business is one that just turned out mediocre and ends up had-by-the-balls by one or two clients who become, de facto, very demanding bosses. Companies like this exist: single-client consultancies that haven't gone out yet, but never got enough headway above the mediocrity of client demands to take off and become something.
Taking VC and making $120k/year, which is low-average for a VC-funded firm's CEO, and then failing after three years, doesn't entail much financial loss. And unless the failure is catastrophic and obviously reflects badly on a single founder, it's not a huge career hit. Sure, it's 3 years working very hard for middling pay, but there are worse things in the world. Depending on how one is able to bounce back from the failure, it may have been 3 years very well spent.
As for lifestyle businesses, no VC is going to fund a lifestyle business; it's just not what they do. And bank loans are out because they make onerous personal-liability requirements, so scratch that. This leaves two options. (1) Don't quit your day job. Risk is minimal, but I'd be shocked if more than 2% of these also-employed "entrepreneurs" take off. (2) Quit your day job, and put personal savings at risk. This is a lot riskier, financially, than founding a VC startup if you have sufficient social connections to know (before you start) that you'll be funded. That doesn't mean it's not worth doing, and if you don't have those social connections you'll be eating savings either way while you hunt for funding, but it does mean that it's costly.
Explore the problem space and make a start while working for your previous employer. Slowly reduce the number of hours you are working (i.e contract vs fulltime).
Once you are getting some interest / traction or feeling more confident, switch over to (2) - now much less risky. Go fulltime with a 1/2 built business with several potential customers and perhaps a couple of paying ones. You are now much more attractive to investment.
Income-wise, a startup is generally a step down, but a tolerable one for most people. If you're 22 and without VC contacts, you can work for next to nothing for a year or two, make contacts by hanging out in the Valley, and start pitching when you have a product. If you're 36 and have a family to feed, but have VC connections, you can usually get early seed funding and pay yourself $100k annual salary, which is low for someone with those kinds of contacts but enough to live on.
When it is impossible is if you're 36 and have a family to feed, but don't have VC contacts. You can't afford to take a year or two off to prove yourself (which an outsider will have to do) but you don't have the contacts necessary to step immediately into a $100k/year salary with just an idea.
Most people can be thin/muscular/athletic and most want to be. Many try and of these, most fail. But, this is fundamentally different from an aspiration to be in the olympics. Most people can't do that, regardless of how hard they try or how strong willed they are.
By contrast, I think at least 1 or 2 percent of people have enough talent to do what Mark Zuckerberg did. He's a talented businessman who has done a lot of things really well, but I haven't seen him do anything I couldn't have done in his position. The odds are enormously against that kind of success no matter how smart you are, but the minimal level of talent to do that is not that rare.
The point is no so subtle though. One is in reach of most people who will give it a shot while the other is exceptional.