

Tell HN: PG's 6 Unexpected Advantages of "Cheapness" in a Startup - dwynings

Preface: So this afternoon I had the opportunity to attend a session at TiEcon on early-stage funding, in which Paul was a panelist.<p>Here's his list of 6 unexpected advantages:<p>1. You don't have to spend a lot of time raising money.<p>2. You are forced to grow a culture of efficiency within your company.<p>3. The only way to impress somebody is to build something great.<p>4. You don't attract the wrong type of people (the ones who are obviously only in it for the money)<p>5. You can't buy things so you're forced to build them.<p>6. You can't afford to hire someone to do sales. You have to do it yourself, which forces you to interact with the end-user.
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studio1057
There is a logic in this. The trick to understand it is to place
intellectualism ahead of capitalism. It was not long ago when the Internet
belonged to those who just wanted to exchange information. Kids and grown ups
with no money, only their knowledge and creativity have become very
successful. A lot of start-up companies started with little or no money only
to become a "blue-chip" in relatively short time. A fine example is Razorfish.

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grinich
In what situations is it worth to buy rather than to build?

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jasonkester
Big, Good things. Amazon S3 and Google Maps API are the only real ones that
come to mind. You couldn't do either of those better if you tried.

It's the Big, mostly good things that are the most dangerous. Off the shelf
Content Management Systems come to mind as the obvious example. They'll get
you close fast, then morph into a soul-draining time sink as you try to get
that last 5%. You'll know early on that you're on the wrong path, but it will
likely be six months of torture and waste before you actually scrap it and
build your own.

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alain94040
I especially like #4...

Technically, #1 is possibly the only incorrect one on the list. If you don't
have any money, you are quite likely to try to get some, or at least obsess
and waste a lot of time worrying about money.

#6 is so important... It's one of those truths that you only understand after
it happened to you once. Until it hits you, you just think "yeah, sure, I know
my customers alright".

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wastedbrains
At what point does hiring make sense or when does hiring not fit being cheap?
It seems that you often want to stay cheap by not hiring, but if you are
behind on the tech, and need it to be further along to answer questions about
your business does it make sense to hire earlier and answer those questions...
or try to find other cheaper ways to get those answers with out having a fully
developed product.

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tumult
I actually think #1 is accurate – if you don't have any money, and you're
already working on your product, then you obviously aren't burning through
tons of cash just to stay operational. If developing your product is eating
through cash, you have to keep spending time trying to raise more to keep
going, instead of working on your product.

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jerryji
"If you don't have any money", then "you don't have to spend a lot of time
raising money"?

Am I the only one baffled?

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pg
It was about the advantages of running a startup cheaply, not of having no
money. And if you're running a startup cheaply, you don't need to raise as
much.

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ojbyrne
The one big disadvantage I see is that you can quit pretty easily. Being poor
gets tiring pretty quickly, especially if someone waves a nice fat salary and
benefits in front of you.

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pg
This is one of the reasons the young and the nerdy tend to have an advantage
in starting startups. They have inexpensive tastes. So they feel prosperous on
an income that would make someone older and more conventional feel poor.

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ojbyrne
We're talking about smart people and inevitably they're going to look at
friends who've opted for the corporate world and do the math. Certainly as
long as the promise of a big payoff is there, then the math might weigh in
favor of doing a startup. But it also might not. That whole time value of
money thing says that sacrificing income in your twenties is going to hurt you
a lot more in the long run than sacrificing income later on.

edit: Of course, right now the "whole time value of money" is basically
negative. ;-)

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catch23
Coming from a "poor" entrepreneur who has previously held six-figure software
engineer salaries, I can say there's more to entrepreneurship than salary.
When I busted my ass working overtime to add cool new features, nobody cared.
The company doesn't care, the boss doesn't care, your coworkers don't care
either. If I have to spend 1/3 of my life at work, I might as well be doing
something I love, even if it puts my retirement at risk.

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ojbyrne
I mostly agree. But there's something to be said for retirement.

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spkthed
You can retire well even if you only make $10 an hour for 40 years. It just
requires you to be very frugal with your expenses and investing wisely. Let
interest do the heavy lifting for your retirement :)

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pbhj
The interest rates here are pretty much zero ...

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rguzman
It seems easy enough to agree that running a startup cheaply is good. However,
seldom are people quantitative about what is cheap. Any chance we can get some
numbers? What's a cheap burn-rate for a startup with 3 founders? 3 founders +
3 employees? ...?

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owinebarger
People are quantitative when they do their business planning. In this context
cheap is when cash flow is running close to break-even or better. If you have
employees without revenue, it's probably not cheap. If you'll need employees
for an extended period before getting significant revenue, you'll need to
figure out how to convince investors to open their wallets first.

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petervandijck
As to the disadvantages of not needing money: there's no immediate incentive
to focus on making money. Which means you often spend months/years just
building cool stuff that's useless.

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pbhj
You can only do that if you have money. Otherwise you'll die of starvation.

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elsewhen
there is a difference between "cheapness" and "having no money." points #5 and
#6 (at least as worded above) indicate having no money, which is fine, but it
seems to me that the best place to be is to have money but to be cheap.

there are times when money is very helpful, the trick is to have the money but
only use it when it is really needed.

having no money is just the simplest way of forcing a startup to be cheap, but
that is not necessarily the best state for a startup.

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DenisM
The answer to "buid or buy" is more nuanced than "always build".

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pg
Yes: the answer is that building almost always turns out to have unexpected
advantages.

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DenisM
This is silly. You did not build your own laptop or your own accounting
system, operating system or your own relational database. There is a crossover
point somewhere where building makes more sense than buying, but finding that
point is a delicate task for each business, a lot more complex than "yeah,
just build it whatever it is".

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pg
I didn't say the advantages always outweigh the disadvantages, just that there
are usually more advantages that you'd expect.

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DenisM
I see. In that case why did you label your post as "answer" to "build or buy"
question?

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pg
Because that is the more nuanced answer to "build or buy?" Of course you don't
always want to build. But in borderline cases, err on the side of building,
because there are often hidden advantages to building.

Are we clear now? Are you convinced I'm not advocating making your own
electric power generation stations?

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DenisM
Yep, it's clear what you meant now.

I think this was a terminology misunderstanding - I don't see it as "the
answer". "The answer" in my book is specific for each particular situation and
your _guideline_ is important to take into account for each such situation.
I'm splitting hair now, but only to illustrate the source of misunderstanding.

To advance the state of the art it would help if you created a list of cases
where "build" produced unexpected advantage and a list of cases where it
backfired. At least it would work better for me to calibrate properly.

EDIT: It just occured to me that you answer to my answer is what curried
function is to a function result. Throw in lazy evaluation and the line gets
blurry. :-)

