

Being rich will kill your startup - DanielBMarkham
http://www.whattofix.com/blog/archives/2012/02/being-rich-will.php

======
ChuckMcM
So close, and yet so far.

I like to the tell the story that a poor nerd can go into Fry's (electronics
store) and get all the parts to build themselves a pretty decent computer, a
rich nerd can go into Fry's and not buy anything. The difference is that the
rich nerd _could by_ anything, and that choice freeze them. The poor nerd has
a budget and has to work within it, so they have already done the work to
maximize their value given their budget. Since the rich nerd has no budget
they would have to analyze every possible system they could build out of Fry's
parts to have the same confidence in their buying decision as the poor nerd
has, and frankly there isn't enough time for that. Stalemate.

In the startup world there is an interesting and dangerous place called the
'self funded' or 'privately funded' startup. Those places have a hard time
because there is nobody to call their baby ugly and question their
assumptions. If your money isn't asking you questions about your existence
then you won't ask yourself those questions.

I interviewed at one such and asked how they expected to make money.
"Advertising" they said, their CEO was adamant that they had a unique position
with respect to their customers which would allow them to advertise more
effectively to them. And I asked "So why would people who are already spending
their ad budget with Google advertise with you?" and the answer was "We are
bringing new people to the Internet, people who have never advertised on this
scale before, we're growing the market." And that was when I thought 'Oh
really?' Now you could test that theory, you could survey your users and look
at their advertising budgets and you could talk to ad agencies and look to see
if they were trying to find new channels. But if you did all of that, it would
dispel the illusion that the advertising market was growing, its actually
shrinking in terms of total dollars (yes the Internet is disruptive again).

So Markham concludes that 'rich' startups failing because they spend all of
their money buying products. The counter being that a 'poor' or 'lean' startup
would be forced to husband their cash more carefully and build their own
tools. The effect is there, but I believe the conclusion is not. One of the
things that the poor startup is being forced to do, is develop a competency in
being a company. Its not a state that everyone is familiar with.

Lots of people know how to be employees, but not how to be a company.
Initially, those new to startups, aren't thinking so much about how long they
have to live (as a company) as how much cool stuff they can do with that fat
wad of cash. Perhaps they haven't experienced the pain of trying to raise
money while working 12 hr days, or had a product they depend on go bad, mid-
development cycle, and scrambled to replace it. There are lots of things like
that which can, and do, bite you.

It isn't rich vs poor, its disciplined cash management vs undisciplined cash
management. Doesn't matter where you start from if you don't respect the cost
of capital you will fail.

------
earle
Honestly, this is completely absurd.

The majority of startups fail, period. If you analyze the people who execute
successful startups, the amount of money or wealth they have is a non-negative
factor -- in most cases having money helps. This is why people who are super
successful with startups have many repeats.

~~~
movingahead
I think you are taking the title literally. The OP is making an analogy of
being rich - will try to throw money at every problem. If someone is short of
money, he will deal with whatever he can get for cheap.

~~~
earle
This has nothing to do with how much money a person has! This is yet another
reason why many CEOs fail -- throwing VC's money at areas they shouldnt!

The original point in its entirely is absurd. Most are destined to fail,
period. They come in all shapes and sizes, states of wealth, and food
allergies.

------
rrbrambley
_Startups are about creating narratives, not consuming them._

What he seems to miss here is that some of the best businesses produce a
consumable product after experiencing a problem first-hand and then deciding
to go build a solution. If the narrative is clear from the beginning, then the
part where "it actually starts working" will come much sooner.

~~~
DanielBMarkham
Remember that only part of the narrative, the end, is known by folks who are
in the fix-my-own-pain game. The part about finding the business, the
experience of using the service, etc -- all of that is yet to be invented. And
the front-end of the business, the marketing/sales/delivery channel, is
usually the hardest. Businesses are not simply products. (Although many
certainly start from them.)

------
realschool
Having money is helpful for start-ups as it allows them to focus on a problem
and solve it. The opposite side of the coin could be that when looking for
solutions with lots of money their maybe less efficiency.

------
angersock
For anyone interested, the book "Dreaming in Code"
(<http://en.wikipedia.org/wiki/Dreaming_in_Code>) had this sort of idea as a
central thread--one of the main failures of the Chandler project seemed to be
that, armed with adequate funding, development lost track of reality and
sprawled into some degree of failure.

Contrast with, say, "Masters of Doom"
(<http://en.wikipedia.org/wiki/Masters_of_Doom>) where the early id software
team was so pressed for cash that they would "borrow" their employer's
workstations during evenings to write their code. That's what I would consider
"scrappy".

~~~
DanielBMarkham
Even more to the point, and I should add this to the article, there are guys
out there who have already spent 10, 20, 30K or more -- and can't even
empirically demonstrate making something _one_ person wants. (And I'm sticking
to off-the-shelf, low-end products that most of the HN crowd might be tempted
by. Let's not even start in on the custom, high-end marketing plans and such.
Very painful.)

But they can tell you a lot of stories about how all the stuff they bought is
going to help them bring in millions.

