
Let's All Shed Tears For The Crappy Startups That Can't Raise Any More Money - neya
http://readwrite.com/2012/12/03/lets-all-shed-tears-for-the-crappy-startups-that-cant-raise-any-more-money
======
potatolicious
Seems like a touch _too much_ schadenfreude.

I've seen some genuinely awful ideas in startupland, but one has to remember
that predicting success is _really hard_ , especially the _big_ types of
success like Facebook or Google.

Google itself started as a product with no revenue stream, only a highly
ephemeral "well we could sell ads?" one that _almost didn't pan out_. Facebook
in its early form seemed like a website for Ivy Leaguers to fawn over each
other.

Both were companies created by green entrepreneurs who also similarly had
little to no job experience, nor business leadership experience.

The last page has yet to be written on either of those companies, but I don't
think it's a stretch to say they've been two of the greater successes to come
out of the "startup system".

So sure, we can celebrate the fact that "we're like Groupon, except we sell
trips to space!" (seriously, a founder tried to recruit me for this) isn't
getting any more funding. But how many Facebooks and Googles are we going to
miss out on also?

And this won't be the end of the "startup crowd" - the sycophantic faux-
journalists, the startup-groupies that don't ever seem to be building anything
but are always present at meetups and parties, the guy at the event whose
description of his company is consisted of 100% buzzword... those guys will
remain. This isn't a return to sanity, it's just a plain old slowdown.

~~~
rexreed
Selecting the outliers as exemplars of what is typical doesn't make much
sense. What about the 100,000+ non-Googles and non-Facebooks that very much
fit into what the author is stating here? Poor businesses funded by poor
investors supported by a poor media is the problem here and all that the
"Series A Crunch" will do is "expose those who were swimming naked" as so
eloquently stated by Warren Buffet [1].

Companies with good business models or great technology or great ability to
persevere or the ability to iterate will always survive. The point of this
article is that the clock has already run out for the ones that don't.

[1]
[http://www.brainyquote.com/quotes/quotes/w/warrenbuff383933....](http://www.brainyquote.com/quotes/quotes/w/warrenbuff383933.html)

~~~
potatolicious
The entirety of the startup "industry" is about exemplars and outliers. If we
went by the typical outcome of a startup (or any new business, tech or
otherwise) we'd never start anything.

Everyone is in it to try and become an outlier.

The theory is that we would be willing to invest in 1000 non-Googles and non-
Facebooks if it means we can have a shot at having a single Google or
Facebook. The "crunch", as it were, seems to be arising from the fact that
there seem to be a lot _more_ than 1000 non-Googles for every Google, and even
the successful don't seem to be _as_ successful as tech companies in previous
generations - which leads to an adjustment in the ratio of failures/successes
that you're willing to accept.

That in and of itself is unsurprising, but the natural concern is whether or
not we've figured out, even roughly, what predicts success, and if the
"crunch" correctly targets clearly bullshit companies, or if it's a general
contraction that will eliminate good companies as well as bad.

I don't think anyone is lamenting the loss of bullshit businesses with no
plan. The more concerning question is: are we any better at determining future
success, on day 1, than we used to be?

------
tptacek
This piece is unbelievably lazy. It is the easiest thing in the world to have
written --- Lyons is, what, the 93rd person to hop on board this trend story?
--- and yet the analysis in it crumbles to dust and floats away the moment you
try to pick it up to look at it more closely. Go to medical school? Make real
tech products? Don't build apps in a weekend? Avoid bus rides with Scoble?

Not one person in the universe is going to make a better business decision for
having read this article. All it's does is confirm a trend story, snarkily.
Congratulations, Dan Lyons, you made the train before it left the station. Can
we get on with our lives now?

~~~
lmm
There is value in a succinct, eloquent expression of what many people are
saying. If nothing else this gives me a single page to point to in six months'
time that captures the attitude we had now.

------
btilly
If we're going to make it look like a train wreck, let's not forget that even
the fabled YCombinator is cutting back. See
<http://news.ycombinator.com/item?id=4861867> for verification.

Meanwhile, back in the real world, history is full of examples showing that
one of the best ways to come up with great ideas is to try a lot of different
ideas out. This process sucks for all of the people who had hope and will lose
their businesses. But in the long run it is better for all of us that they
exist.

Sure, historically Silicon Valley has created 10 great companies per year. And
many more successful but not widely known real ones. With the frothiness we
might get 10 still. But hopefully they are better great companies. With all of
the information being shared on how to be an entrepreneur, maybe we'll get
half again as many moderate successes. (And the moderate successes are better
off without venture capital. Really.) And established companies will get more
entrepreneurial employees.

Believe it or not, this is actually a good outcome. It means more startups.
More dashed hopes. And on the whole a better economic outcome.

------
wheaties
This is great. When I was once looking to join a start-up I met with people
who wanted to build a "social fitness food" website, a "social ebay where
people shared the things they bid on," a ton of "new way to share music," a
social "t-shirt based on Twitter" business, a ton of "new way to share
images," a "music video" business, a "new way of producing music in the music"
business, etc...

I met a few companies solving real problems. I joined one. Never looked back.
Real problem, real solution, real money being paid for it.

~~~
joshbert
I think that's pretty much the gist of it. Only solving real problems can
bring in real revenue.

------
ryanisinallofus
I really don't understand the hate with which Dan Lyons is speaking.

Startups are crazy, sometimes hugely profitable companies that sometimes start
up with the same money it takes to start a restaurant or less. Sometimes they
succeed, sometimes they fail, sometimes they are a complete joke. It's intense
and awesome and that's why we are all drawn to it: huge potential. VCs are a
part of it and without them this market wouldn't exist.

Not every startup needs VC money but some do and all the investment they have
poured into the economy has had a positive impact. Again, I don't get the
hate.

Dan Lyons's article is completely absurd (maybe that was the point) but I see
no reason to help him or anyone else by posting this ridiculous ant-startup
link bait. They all the say the same thing in different ways and they all have
this weird, bitter, almost-jealous resentment to them.

I don't know if journalists are mad because they don't get into startups
themselves, only cover them. Or because journalism has been fairly
marginalized (sad but true) and is undergoing some major transitions... I
don't know.

~~~
untog
_I don't know if journalists are mad because they don't get into startups
themselves, only cover them. Or because journalism has been fairly
marginalized (sad but true) and is undergoing some major transitions... I
don't know._

Not to defend the article (which I agree a little _too_ snarky, but will get
pageviews) but I imagine that working as a journalist covering startups is a
thoroughly depressing existence. If it's anything like my (non-journalistic)
interactions with the industry then every interesting, earnest startup founder
you meet will be matched by five other over-confident blowhards selling bad
ideas with bad polish on top.

I know that I would never have the patience to actually _interview_ people
like that, so sometimes I give credit to tech journalists just for not
spontaneous combusting at conferences.

~~~
DannyBee
I can't upvote this comment enough. Your explanation reminds me of why people
hate lawyers so much. For every 1 good lawyer I meet, I meet 5 truly horrible
ones. The same is true of startup founders i've met.

The responses you usually see to pointing out someone's idea is horrible is
"well, it's hard to predict what ideas will be big, so you don't really know
it's horrible. You may be wrong".

Given _most_ ideas are horrible, and most startups fail, the onus is on the
guy telling you how "rottenfood.com: Rotten food shipped same-day to your
door!" will be the next big thing to provide evidence his idea is not
horrible. Usually this "evidence" is in the form of talking points: "Rotten
Food is a 500 million dollar industry just ripe for disruption". Then when it
fails "the idea was good, but the time wasn't right, but it was a valuable
learning experience".

No! The idea was not good. It was horrible. The fact that you think otherwise
tells me it was _not_ a valuable learning experience, because you didn't learn
the most important thing.

I can't even write up this comment without it turning into all snark, so i'm
just going to leave it to the tech journalists :)

------
bksenior
This is the journalism equivalent of the problem he is espousing. An article
about nothing, a writer with a self-entitled attitude shamelessly riding
something topical. No thanks.

I will add that starting anything is difficult and companies like a food
delivery service for dogs can easily pivot into an efficient way to get senior
citizens their medication, cheaper faster and more efficiently. Many things
start small, uninformed and experimentally.

~~~
Apocryphon
I find it to be a good riposte to this fluffy NYT article:
[http://www.nytimes.com/2012/12/02/fashion/saying-no-to-
colle...](http://www.nytimes.com/2012/12/02/fashion/saying-no-to-
college.html?hp&_r=1&pagewanted=all&); "Saying No to College"

------
bdcravens
I think people are missing the biggest takeaway: everyone wants to get rich
writing Rails apps in a weekend that really don't contribute, that our
brightest minds are being wasted. Rather than creating things that are truly
innovative, we're barely iterating on things that were barely iterations to
being with.

~~~
tptacek
The world is full of weekend-hard Rails apps that can both contribute and make
loads of money. The problem has nothing at all to do with engineering, and
everything to do with echo-chamber marketing. The apps don't need to be harder
to write; they just need to solve problems for nurses or attorneys or auto
mechanics instead of early-adopter tech consumers and advertisers.

David Heinemeier Hansson put this as succinctly as anyone in the world could,
and at YC startup school! - "build something useful and charge money for it;
it's not rocket surgery." But despite that advice instantly getting pegged to
the top of HN, a huge number of would-be entrepreneurs have ignored it for
years.

Dan Lyons has correctly spotted the symptoms but wildly missed the mark on the
diagnosis.

~~~
peacemaker
While I agree with the quote "build something useful and charge money for it;
it's not rocket surgery." I think it over simplifies things. What exactly is
"useful" anyway? How do I find a useful idea? Who do I charge for it? How much
should I charge?

I think the real trick is finding that idea.

~~~
tptacek
A good way to find out if an idea is useful is to charge money for it.

People come up with elaborate schemes to avoid doing that because asking for
money and being turned down is a form of rejection, and rejection stings. I'll
tell you from 15 years in startups, including long stints in companies I
didn't run that weren't even part of my identity with customer prospects I
didn't even care about: rejection always stings, will probably always sting,
and you will subconsciously (to your great detriment) always avoid situations
with potential reject even though you know you need to not do that.

The result is a system that converges on stories that can pick up 6-18 months
of funding runway without ever demonstrating value from real customers.

There are businesses that need to boot up without asking for money from
customers, but they're not common, and when you find one, it will be very
clear why you'd defer revenue, and the answer won't have anything to do with
monetizing eyeballs.

------
swalsh
Was the article crude, and maybe more harsh then is needed? of course. Still,
the general point is correct. The thing that is great about start-ups is the
ability to solve real problems using innovative approaches. Large companies
have processes in place to stay steady, to minimize risk. Start-ups thrive on
risk.

The problem though, is the glamour of the concept has made people more excited
about the status of the start-up... and not the problem the start-up is
solving.

In fact the "problem" has almost been ignored. Look at PG's essay from a few
weeks ago. The concept of using a start-up to solve A REAL PROBLEM was
revolutionary to some, and debatable to others. Think about that for a moment.
Looking for real problems to build a start-up around was revolutionary, and
debatable. To me that says a lot.

So my question... can anyone name one great entrepreneur who did it for their
love of doing a start-up, and not for the passion of "The problem"?

~~~
tptacek
The "general point" that is "correct" in this article is someone everyone
commenting on this thread already knew; it's a point almost every credible
technology has been making for years. A well-known Google engineer made news
simply by moving from "cat picture" projects to "meaningful" projects. Anybody
in the world could have made that "correct" point.

The problem is that the specific points Lyons builds on "don't sell cat
pictures" are either useless, false, or both. Getting a real job and learning
engineering aren't a solution to the problem of selling cat pictures. When you
take someone whose first instinct is to build a cat picture app and train him
on type theory, the CAP theorem, quorum commits, compiler backends, and linear
algebra, guess what you get? Thermonuclear cat pictures.

In the end, the only actionable advice Lyons has that you should consider
taking is "avoid long bus rides with Scoble".

To answer your question: which person at 37signals do you think built Basecamp
for the love of project management? And how many entrepreneurs can we name who
are passionate about dumb problems?

------
bovik
"Ok, may I humbly ask..."

"with great respect, may I ask you.."

"With all due respect PG..."

"While I don't want to second-guess your judgement..."

And these are the comments _disagreeing_ with pg ! Wow. Either internet ain't
what it used to be or there's a lot of hero worship going on here.

Come on my fearless conquerors of the Internet. Stand up for yourselves. Show
some spine. You're not going to create the next billion dollar business with
that sort of genuflecting attitude.

------
jacoblyles
The bombastic tone of this article obscures some nuggets of truth. The most
promising startup founders I know have 5-10 years of experience in an
industry, enough to have some domain expertise and insight into the needs of
that industry. This contrasts with people who move here to "do a startup" -
largely producing clones of the latest consumer success story (in my time in
the valley, the cycle of clones has been Foursquare, Groupon, Zynga, and
Instagram, respectively). I was in that second group when I moved here,
embarrassingly working on a SoLoMo consumer app in an industry where I had
zero competitive advantage. (SoLoMoPho = social local mobile photo)

A little shakeout is a good thing. It will free up talent and make the valley
feel less trivial.

~~~
antr
I personally think you hit the nail on the head when you say _" The most
promising startup founders I know have 5-10 years of experience in an
industry"_. Yes, there are exceptions, like any other thing in life, but
experience in a sector is underrated by many of the recent graduates I meet
who want to start a company. The problem I think is that youngsters only read
TechCrunch and other similar blogs, which to me is like Warren Buffet trying
to read insurance/risk management news on Seventeen magazine - flashy
headlines with irrelevant information, in a world fuelled by cotton candy and
hairstyles.

------
pg
I'm going to kill this article as a dupe. It's just other articles rewritten
in more colorful language. But it's giving this thing too much credit even to
call it a dupe, because in the process of making the language more colorful,
he's now describing something that is definitely not the case. The other
articles are talking about a trend that's happening as slowly as global
warming. No door has suddenly crashed down, cutting off series As. It's just
gradually getting harder to raise later rounds. But the tightening up is so
slow that even I, who am arguably among the best positioned to see it of
anyone, can barely notice it. Which means for sure Dan Lyons has no evidence
of it himself.

~~~
ryanx435
note: typing on a smart.phone sucks balls.

ha ha! I knew you would have commented on this article and tried to debase it
even before I opened the comment section! it seems to me that the entire
business of YC relies on there being a market for the exact type of start ups
that this article describes as a waste of human talent. It is in your (pg's)
best interest to kill this article because if there is a bubble, and it pops,
YC will be a major loser. Your credibility would be destroyed because YC would
be seen as a primary finder of companies.that.have no long term.value. . YC
needs a liquid market of shitty start ups to get vc funding in order to
function. I'm sure you are aware that even the tinyest hint of.trouble.can pop
bubbles, which is.why you purged this.article.

I laughed at your decision to kill the article for a couple of reasons. first,
this means that you are aware of the bubble and also aware that in order to
prevent new companies from being discouraged from applying to YC you need a
zero tolerance policy on even the hint of it showing its ugly head. by banning
this article you have confirmed to me that there is a bubble and it is about
ready to pop. second, this says a lot about your character and your priorities
as a person. you are ok with draconian anti free flow of information banning
if an idea goes against your personal interests. for.someone who funds tech
start ups, you seem.to.have forgotten.how.the internet works. the Truth will
get out. supposedly the voting system.of.hackernews should have prevented a
false idea from.getting.to.the front page. if this idea was truly as false as
you say it is in your reasons to ban it, it never would have been upvoted. and
yet you had to ban it. third, this means that you truly don't give a shit
about the.companies or the people that you fund. you know that it
the.bubble.is.close.to.popping and.that.it may not be in their best long term
interests to apply to YC, but you want their talent anyways so you can profit,
so you continue.to cultivate the idea that their stupid business idea is not a
problem as.long.as.they pivot.enough.times to.find a similiar, slightly less
stupid idea to try to sell to Google or.whoever.

I've been thinking about it for a while, but your response to this.article has
confirmed.to.me that I will.never apply to YC. You are not a person who I
would want to take advice.from, let alone have any say over.my.life. or how I
run my business. I wish you luck, though, and I hope.you can continue to find
enough chumps.to.apply to.YC so you can continue.to.fund hackernews.and I can
read interesting articles.for.free... so thanks.for.that, anyways.

edit: I know you (pg) won't respond, and I know you will probably shadow ban
my account, and I know this comment will be downvoted into oblivion. I also
know that you, pg, will read.it and know that I see through your bullshit. and
if I can see it, so can others.

~~~
pg
When formulating this elaborate theory, did you stop to ask yourself why it
would be in our interest to fund shitty startups when all the returns are
concentrated in the most successful ones?

~~~
bovik
If you're actually willing to engage in this discussion, then here's your
answer. YC and (other "incubators" like it) are basically opportunistically
exploiting cheap/free labor of thousands of naive (mostly) young developers to
play the lotto on the cheap. You throw in a laughably small amount of money
for a good chunk of equity, encourage your young charges to go forth on a
steady diet of ramen noodles and ketchup -- burning through 100 hour weeks to
experiment with 100's of different(mostly bullshit) trendy catchwords of the
day.You only need to get lucky to be able to flip a few of these companies to
the next level of VC's or acquirers to make back your money multiple times
over. Rest of the blood, sweat, lost sleep and trashed health of the thousand
of other fools that failed is no sweat off your back.

Care to publish aggregate statistics on the percentage of yc backed startups
became profitable businesses compared to rest of the industry?

EDIT: Apparently I was mistaken. He's not actually looking to engage in a real
discussion of yc's business model.

~~~
pg
When you talk about flipping a company to VCs, it tells me you know nothing
about this business. VCs don't acquire the stock of earlier investors; they
just come in later and dilute you. But for the sake of completeness I'll
address your point about acquirers. Stock in a company like Dropbox or Airbnb
is worth literally a thousand times more than stock in a company that gets
acquired early. If there is one type of company that generates 1000x higher
returns than another, why would we spend our time focusing on the latter?

~~~
bovik
PG, I'm glad to see you're at least willing to engage in the discussion.

The main point was not what end-point you're aiming (large exits, which btw,
are yet to be realized for either airbnb or dropbox) or merely progressively
higher valuations in further rounds of funding (let's not argue over how those
are beneficial to earlier investors, shall we.)

The point was that hordes of fresh graduates are working their asses off for
peanuts with minuscule probability of making up for lost time and income.
(That's not even including possible losses to health and any conception of
what the real world looks like). Mass incubators like yc and it's ilk are
rolling the dice and the invested amounts are so tiny that the only
substantial losses are those incurred by the founders.

The counter-argument of course is that the founders are adults and are
entering into these agreements of their own volition. That's where the whole
issue of cult-like mentality and the callow youth of most of these founders
comes into play. The asymmetry in knowledge and power between these founders
and investors is vast.

That's why I cheer the writer of the original post for bringing the
ridiculousness of the whole situation into the open. Lord knows techcrunch and
other tabloids like it are not going to publish anything like that. And that's
why you personally applying the kill switch on that post is so distasteful.

~~~
zaidf
What are the so-called "substantial losses" that you are talking about? May be
you have some insider info that I don't but in my intimate conversations with
dozens of fellow YC founders, I haven't run into anyone who wished they didn't
do YC. I don't think you are being evil here but rather just have a belief
that isn't based in reality.

Same thing for suggesting YC is all about freshly minted grads. A significant
percentage of founders are in their late 20s and older making that assumption
of yours inaccurate.

Frankly your post is offensive for painting founders as brainwashed dudes
making terrible life decisions as they go about joining this imaginary cult.
Do you really believe this?

------
mburshteyn
So can we expect lower rents in SF and less congestion on the 101/280? The
last stat I saw indicated that Northern California's unemployment rate is
shrinking fast; it doesn't seem like this is the same situation we saw back in
the dot.com bubble from that perspective. Or is it? Can somebody explain the
discrepancy?

~~~
trotsky
i have no idea if anything resembling the last crash is going on (it doesn't
look like it to me, last time it was really obvious) but if you're looking for
leading indicators i would suggest commercial occupancy rates and not
employment. that is what dropped sharply first in sf a decade or so ago.

------
jonny_eh
Sure, Silicon Valley might produce only 10 great companies a year, but where
I'm from (Ottawa, Canada), we'd produce only 1 great company every 10 years.

(I'm referring to tech companies)

~~~
ytadesse
You got my up vote just for being from Ottawa.

------
realrocker
Maybe if the focus shifted to low cost-low yield start-ups we would see more
successes. We don't have to all create Taj-Mahal's you know,a few ant-hills
will do it too.

------
jameszol
I don't understand this ranty article...

Aren't startups called startups for a reason? Some aren't going to thrive,
some really suck, others can't pivot their talent and drive toward something
grandiose and earth shattering for their next round of investment but all
should be better because of the experience, investors and entrepreneurs alike.

The failure rate of startups has always been high, especially over time,
right?

"There are also different definitions of failure. If failure means liquidating
all assets, with investors losing all their money, an estimated 30% to 40% of
high potential U.S. start-ups fail, he says. If failure is defined as failing
to see the projected return on investment—say, a specific revenue growth rate
or date to break even on cash flow—then more than 95% of start-ups fail, based
on Mr. Ghosh's research." via Shikhar Ghosh, a senior lecturer at Harvard
Business School
[http://online.wsj.com/article/SB1000087239639044372020457800...](http://online.wsj.com/article/SB10000872396390443720204578004980476429190.html)

------
hack_edu
Has this post been moderated away? I'm not seeing it anywhere, even 5+ pages
deep. If so... is that really necessary; is someone threatened or offended?
This is a real article with just as valuable a point as all the self-posted
300-word blogspam that occupies the front page daily.

------
trotsky
How do you report on business for a decade and yet hold such a visceral and
character flaw type thesis about behavior that's nothing more than the
intended, text-book result of specific monetary policy decisions?

~~~
tptacek
What's the monetary policy that's influencing startups?

~~~
astine
He's referencing the Austrian Business Cycle theory:
<http://en.wikipedia.org/wiki/Austrian_business_cycle_theory>

The argument is that inflationary spending is what causes the boom bust cycle.
Inflation creates an initial perspective of prosperity and causes an increase
and shift in investment from capital goods to consumer goods. This leads to a
self reinforcing bubble which eventually drains the economy and leads to a
bust.

Trotsky is effectively saying that the bubble was due to interest rates and
Dan Lyons is wrong to attribute it primarily to a character flaw of the
persons involved. I don't wholly agree with that, but I think the ABCT does
have merit.

~~~
trotsky
Note that while it's understandable to think that this is an austrian theory
given all of the argument on the internet about whether or not it's a good
idea, the idea that easy credit drives business expansion is absolutely agreed
upon by both schools and pretty much every working economist.

You can think of it a bit like amphetamines. No doctor would disagree with the
idea that amphetamines produce energy in the patient. The debate would only
center around how productive or destructive that energy is.

------
bovik
I have no doubt that pg doesn't like the article Here's a quote "...smart
young people have been conned into thinking that starting a company is akin to
buying a lottery ticket or rolling dice at Las Vegas -- the odds are long but
you never know, you might get lucky and strike it rich. So make something up,
throw it out there, and see what hapens."

That's describing 99% of bullshit yc stratups. The 1% (or less) which succeed
would have done so with or without yc. And they mostly actually involve real
business models of charging for a product/service.

------
bjhoops1
One of the things I love about HN is that a scathing article criticizing
startups and tech entrepreneurs can make the front page.

~~~
vyrotek
Until PG kills it

------
equalarrow
I can't help but think about Peter Thiel encouraging people to drop out and
start companies. But then I saw that it was Dan Lyons that wrote it.

Two people's opinions, in my mind, not to heed.. So, somewhere in the middle
should be about right.

------
drupeek
I wish I could upvote this post a dozen times.

------
lifeguard
They may be crappy, but likely they would have been customers of several
quality startups as well.

------
carsongross
Goood, gooood.

Let the hate flow through you!

(I'm an business/enterprise kinda guy, and it's been an ugly decade.)

------
vergilis
This article was designed simply to inflame Rush Limbaugh style

------
wahdeh
What if I told you there was no Series A funding: <http://bit.ly/QCZCoD>

------
indiecore
I've been thinking we're on the cusp of what I'm just going to call "Web 3.0"
even though that term looks stupid to me _now_ so I apologize to me browsing
my history in a couple of months (sorry). The big social media darlings _have_
gone bust and the cycle looks a lot like (but obviously not as bad as) the web
1.0 crash. People look up, realize that they're doing some really silly shit
and then work on "serious" enterprise stuff for awhile as the market sorts
itself out and as the market is sorting itself something weird and new bubbles
up on the consumer side, last cycle it was social connections, cycle before it
was the existence of the consumer itself.

I personally think it's going to come with google glass-likes and powerful
mobile computers(read: phones) and have to do with blurring the lines between
the internet and real life but that's just a guess.

