
The Danger of Being Default Alive - hajak
https://hajak.se/the-danger-of-being-default-alive-6a9afee2f05e#.epail4h8x
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Animats
This is a VC perspective. They need 10x wins and expect mostly failure. From a
VC perspective, the worst case is the zombie - cash flow positive, so you
can't kill it, not making enough money to repay investors, and can't be
ignored because the VC still owns it. A portfolio of zombies can eat all of a
VC's time. It's easier on the VC if the losers just die already.

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codinghorror
Wait how do zombies eat time, exactly? If they have cash flow and are viable
businesses, what do they need from the VCs that would take up their time?

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andrewfromx
are u kidding? favor after favor the CEO asks from the network of each VC
partner. Can you do this, can you intro me to that guy, and they can't say,
"Well... but you're a zombie"

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PhasmaFelis
Why can't they?

I mean, yes, obviously, it's rude and unpleasant to say "I don't have time for
you because you're not making enough money," but it's a lot _more_ unpleasant
to say "I'm firing you and all your employees even though you're making a
profit because you keep asking for favors and it's annoying."

~~~
andrewfromx
Because until they are ready to cut their losses and actually burn this bridge
with the entrepreneur, they want to be in a good position if the entrepreneur
turns things around and all of a sudden the company is a hit. You don't want
to finally get rid of a zombie only to find that if u waited 6 months that
zombie would have been a hit.

~~~
Chris2048
How do you burn your bridge? You still get rich don't you?

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andrewfromx
1) If you cut ties with entrepreneur A cuz you think his company is zombie,
his business then folds and he goes on to next thing and doesn't invite you to
invest in his new company.

2) If you cut ties with entrepreneur A cuz you think his company is zombie, he
doesn't tell you about entrepreneur B who is about to start the next big thing

3) i.e. it's like high school. You want to always be in the right crowd
invited to the right parties. And if you stop associating with a certain group
of people, you better be sure those are not the future kings.

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vinceguidry
As a kid, you are young, full of energy. As you mature, you learn to get more
done with less. The basic challenge of adulthood is to learn how to do this
while you are still having fun. Staying young and dumb is not an option any
more than ossifying is.

Maturity is getting everything you used to get done as a teenager done at five
so you can go home to your other job of your family. Once you are cash flow
positive, then it's time to grow up. Lock everything down and secure your
revenue flows. It's not just your livelihood that rides on it, the people
paying you to stay in business deserve a reliable service. Chase hares with
whatever resources you have left.

If you want to keep playing startup, the answer is to cash out and go start
another startup.

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jobu
_" As an investor, I love founders that can balance this — being less
dependent on external financing but still staying ambitious is ideal."_

I worked for a company with a founder like this, but I think he was driven by
a love for chaos as much as ambition. Every time it seemed like things were
going great and stress was down he would find a way to toss a grenade in the
mix (new partner, new crazy-ass idea, etc). Often the grenades ended up being
huge wins, but as the company got bigger he was forced to go through
budgeting, product managers, development processes, QA, etc.

It was never really clear if he was forced out or left on his own, but before
he left he did mention to me how boring it had gotten.

~~~
PhasmaFelis
> _before he left he did mention to me how boring it had gotten._

God save us from executives who think that the purpose of business is to
entertain them.

~~~
orasis
But this is why we start the companies in the first place my friend. ;)

~~~
PhasmaFelis
Whaaaat? I was told that startups were all about using technology to make the
world a better place for everyone!

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aetherson
Graham's essay does not describe "default alive" as being "cash flow
positive." Rather, in his essay, "default alive" means that you are on a path
towards being cash flow positive.

"Assuming their expenses remain constant and their revenue growth is what it's
been over the last several months, do they make it to profitability on the
money they have left?"

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rguzman
this piece just highlights something that is well understood by a lot of
people: non-rich/first-time founders and investors don't have aligned
interests until the founders cash out.

of course the VC prefers you die over you stopping to take risks. duh? they
don't make money on cashflow positive companies. however, a lot of cashflow
positive companies are really good outcomes for the founders and employees. as
a founder, you ought to consider this before raising money.

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gsharma
I believe the author is confusing "Default Alive" with "Self Funded". In fact,
raising money for a Default Alive company is a lot easier than Default Dead.

Every Self Funded company has to be Default Alive, but the converse is not
true.

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tarsinge
Nothing really substantial, basically an investor saying you should not be
satisfied with your profitable business and that should take more risks (the
obvious agenda being taking external investment)

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tarr11
Curious if this is actually true, statistically speaking. Is there some
statistically significant relationship between delaying profitability,
investment and exit size?

It would be interesting to see aggregated data on this.

Ie, look at companies by cohort, determine if / when they became profitable,
how many exited, at what amount, and how many failed, how many flatlined.

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nikanj
The founder team of a default-alive company is in an immensely better
bargaining position, and VC naturally prefer the kinds of deals people only
sign in distress. It's hard to put the squeeze on people, when they can just
decide to take the investment next year instead.

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dgreensp
Dreams are prettier than reality. It's fun to not have customers. It's fun to
just spend investors' money. Lots of things are fun, for a while.

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graeme
As a bootstrapper with no interest in VC, I can say this rings true. I was
never more productive than when I was scrambling to ensure financial
sustainability.

Once things became comfortable, I slowed down. Partly, this was good:
recovering social life, dating, etc. You can't keep up a breakneck pace
forever.

But, I needing more money was a clear, objective metric that kept me focussed.
Once you're default alive you need new metrics.

