I wasn't expecting much (most articles with titles like that are terrible), but this vastly exceeded my expectations. If I'd had advice like this when I worked on my first couple of startups, rather than the advice in Hackers and Painters, I think things would have turned out differently.
The first-time founders I mentor now have somewhat more realistic expectations than we did during the Web 2.0 startup craze circa 2005, but there are still far too many of them looking to build what comes easy (e.g. social network) instead of looking to build what makes money.
For my part, I'm done taking money unless there's a compelling reason. Right now I'm spending weekends building my next startup while doing my time at my last startup, now post-acquisition. It doesn't just feel better than chasing money, it feels right. If enough revenue comes in such that I need to quit and put my full time in, it will be a victory that tastes all the sweeter because this time I did it on my own terms.
Let me preface this by saying that when I was 19 and Hackers and Painters was just published, there was no book more subversive to the natural order of things. H&P changed my life so completely that less than a year after reading it I was standing in the YC office in Mountain View for a YC interview.
And even after subsequent rejection, deciding to change majors to CS, going back to school to seek of the advice of Olin Shivers, and actually getting a CS degree, I practically kept it by my bedside. There was nothing even close to as influential in my decision to move to Cambridge and get reinvolved with startups as soon as I graduated.
But while H&P is is great at showing people like me that you can succeed in business without an MBA, and in fact might be at an advantage, it might be too subversive in that sense as well. Later essays that weren't included in H&P tell a clearer story. Black Swan Farming and What We Look For In Founder and Why Smart People Have Bad Ideas are essays that might have affected my thinking back then.
I don't think anything could have changed my path away from startups; any book containing Why Nerds Are Unpopular and How to Make Wealth was destined to have a profound affect on my life. But while VC is somewhat demonized and stories are told about running out of money, I think there is a certain glorification of the process that
translated in my brain to "build product -> seek seed funding (YC) -> get users -> get VC", when I might have been better served by something telling me in big, bold l
etters that while all this is great, if you're just starting out, don't just make something people want, make something people want to pay you for.
I didn't learn the lesson fully (after all, everyone I knew was building facebook clones back then) until being part of my first exit at a startup where we took no money
. It was so refreshing to fund the company off customers' payments that even for my latest side project I found ways to make people want to pay me for it before I had built anything.
So while I don't think Hackers & Painters gives any wrong advice, I think that you are such a good essayist that you unintentionally glorified the traditional VC-back
ed startup process to someone as young as I was. If I'd read more about how to be a cockroach, and had someone tell me that my first company should focus on making so
mething people will pay me for immediately, maybe I would have had a better chance of success at 19 instead of in my mid-twenties.
I feel the same way - it was an inspiring book but didn't suitably point out the difference between an unproven and proven founding team and how they can approach fundraising, which I believe caused parent (and me) to "get into the game" with unrealistic expectations.
That seems a bit of a stretch. Hackers & Painters wasn't a book about startups. It was a collection of essays about topics related to computers. One of them ("How to Make Wealth") happened to be an analysis of the economics underlying startups. But tactical advice about fundraising would have been out of place in it.
Probably the original parent and I should not have been directing our comments at Hackers & Painters so much as your set of essays on startups before How to Convince Investors. You've served as a source of inspiration which accomplished a net good overall, I simply feel I (and others) went all in with un-calibrated expectations on closing investment. This explains why realism on the topic (your recent essays, alex's article, etc.) is being well received.
Thanks for the kind words, but I think you may be attributing ideas to "How to Make Wealth" that you picked up elsewhere at about the same time. Perhaps from your peers building Facebook clones. The whole point of that essay is that startups should make something people pay them for. E.g.
What a company does, and has to do if it wants to continue
to exist, is earn money. And the way most companies make
money is by creating wealth.
I don't deny that I may have missed the point of "How to Make Wealth" when I was younger, but I think it wasn't so hard to get the wrong things out of it:
--
So I think you should make users the test, just as
acquirers do. Treat a startup as an optimization problem
in which performance is measured by number of users.
--
Here, as so often, the best defense is a good offense.
If you can develop technology that's simply too hard for
competitors to duplicate, you don't need to rely on
other defenses. Start by picking a hard problem, and
then at every decision point, take the harder choice.
--
The advantage of creating wealth, as a way to get rich,
is not just that it's more legitimate (many of the other
methods are now illegal) but that it's more straightforward.
You just have to do something people want.
What those passages mean to an experienced entrepreneur and what they mean for a college student living in a dorm around the time facebook was released might be completely different (it was for me). Building something technically difficult to replicate that people wanted didn't scream "find paying customers yesterday", then build it. None of us paid for any of the software we used (either b/c it was free or we had Kazaa), so the "user test" meant something different to me than it does now. I think I was pretty convinced that the "monetize later" model was the way to go until at least 2008.
So you might say my main critique is that I was too naive at 19, and needed things spelled out for me. "How to make Weath" was just too subtle.
Investing in India is very nascent. I think You need to have a fully working company with customers to raise seed money.
We have planned 5 products in our suite, 1 of which is in production use and 3 in advanced prototype and it was not enough to get into an accelerator program.
Also not sure if angel investors here understand what is seed money. Currently in the US, seed money that YC offers is about 11k to 18k USD. The angel firm we were speaking to mentioned an amount of about INR 10 million (which is way above even the US amount as seed).
INR 0.5 mil would be enough as seed money here, but I think nobody wants to take this early stage risk here.
We have eventually got into an accelerator program at iim-a, but that is because we won a contest.
Thank you for your replies. It's very similar to this, here in Poland. The emerging markets have a lot of common characteristics. However, I didn't expect risk taking aversion to be one of them. Maybe just an "American thing" to be bold and take risks. Might be this that can't be replicated elsewhere :-(
umm.. I think its more to do with time. Someone sometime in your region will fund that crazy start up, waiting to explode. Others will follow suit after that.
> As for people, there are plenty of folks willing to work for free.
Advising founders to recruit unpaid volunteers is horrible advice. Not only do you tend to get what you pay for, "free" labor can prove to be anything but free once the lawyers get involved.
Not to speak for the author...but, well, here it goes...
I read that point to specify that you don't have to pay them in money, rather there are other currencies that are out there that can be far greater than money; like stock options, connections, real life code examples, etc.
All of the points you mention about the pitfalls of "unpaid" persons can be seen with paid employees as well. It just seemed like he was saying that there are alternative currencies out there other than just money.
It's very hard to find a good team who can work for free or cheap. It's a founders job to do very hard things.
Oh and anyone working full time on sweat equity should be a founder and if you're not calling them a founder you shouldn't have them on your team at this point.
This mirrors my own thinking... delay fund-raising as long as possible, and bootstrap as far as you can. Best case: You never raise at all, and find that you achieve your goals based solely on organic growth. Less ideal case: You have to raise outside money eventually, but you have more leverage and therefore more favorable terms.
19 comments
[ 3.4 ms ] story [ 56.2 ms ] threadThe first-time founders I mentor now have somewhat more realistic expectations than we did during the Web 2.0 startup craze circa 2005, but there are still far too many of them looking to build what comes easy (e.g. social network) instead of looking to build what makes money.
For my part, I'm done taking money unless there's a compelling reason. Right now I'm spending weekends building my next startup while doing my time at my last startup, now post-acquisition. It doesn't just feel better than chasing money, it feels right. If enough revenue comes in such that I need to quit and put my full time in, it will be a victory that tastes all the sweeter because this time I did it on my own terms.
And even after subsequent rejection, deciding to change majors to CS, going back to school to seek of the advice of Olin Shivers, and actually getting a CS degree, I practically kept it by my bedside. There was nothing even close to as influential in my decision to move to Cambridge and get reinvolved with startups as soon as I graduated.
But while H&P is is great at showing people like me that you can succeed in business without an MBA, and in fact might be at an advantage, it might be too subversive in that sense as well. Later essays that weren't included in H&P tell a clearer story. Black Swan Farming and What We Look For In Founder and Why Smart People Have Bad Ideas are essays that might have affected my thinking back then.
I don't think anything could have changed my path away from startups; any book containing Why Nerds Are Unpopular and How to Make Wealth was destined to have a profound affect on my life. But while VC is somewhat demonized and stories are told about running out of money, I think there is a certain glorification of the process that translated in my brain to "build product -> seek seed funding (YC) -> get users -> get VC", when I might have been better served by something telling me in big, bold l etters that while all this is great, if you're just starting out, don't just make something people want, make something people want to pay you for.
I didn't learn the lesson fully (after all, everyone I knew was building facebook clones back then) until being part of my first exit at a startup where we took no money . It was so refreshing to fund the company off customers' payments that even for my latest side project I found ways to make people want to pay me for it before I had built anything.
So while I don't think Hackers & Painters gives any wrong advice, I think that you are such a good essayist that you unintentionally glorified the traditional VC-back ed startup process to someone as young as I was. If I'd read more about how to be a cockroach, and had someone tell me that my first company should focus on making so mething people will pay me for immediately, maybe I would have had a better chance of success at 19 instead of in my mid-twenties.
--
-- -- What those passages mean to an experienced entrepreneur and what they mean for a college student living in a dorm around the time facebook was released might be completely different (it was for me). Building something technically difficult to replicate that people wanted didn't scream "find paying customers yesterday", then build it. None of us paid for any of the software we used (either b/c it was free or we had Kazaa), so the "user test" meant something different to me than it does now. I think I was pretty convinced that the "monetize later" model was the way to go until at least 2008.So you might say my main critique is that I was too naive at 19, and needed things spelled out for me. "How to make Weath" was just too subtle.
We have planned 5 products in our suite, 1 of which is in production use and 3 in advanced prototype and it was not enough to get into an accelerator program.
Also not sure if angel investors here understand what is seed money. Currently in the US, seed money that YC offers is about 11k to 18k USD. The angel firm we were speaking to mentioned an amount of about INR 10 million (which is way above even the US amount as seed).
INR 0.5 mil would be enough as seed money here, but I think nobody wants to take this early stage risk here.
We have eventually got into an accelerator program at iim-a, but that is because we won a contest.
*Edit (grammar)
Advising founders to recruit unpaid volunteers is horrible advice. Not only do you tend to get what you pay for, "free" labor can prove to be anything but free once the lawyers get involved.
I read that point to specify that you don't have to pay them in money, rather there are other currencies that are out there that can be far greater than money; like stock options, connections, real life code examples, etc.
All of the points you mention about the pitfalls of "unpaid" persons can be seen with paid employees as well. It just seemed like he was saying that there are alternative currencies out there other than just money.
Oh and anyone working full time on sweat equity should be a founder and if you're not calling them a founder you shouldn't have them on your team at this point.
"consider NOT fundraising"
This mirrors my own thinking... delay fund-raising as long as possible, and bootstrap as far as you can. Best case: You never raise at all, and find that you achieve your goals based solely on organic growth. Less ideal case: You have to raise outside money eventually, but you have more leverage and therefore more favorable terms.