
It All Changes When the Founder Drives a Porsche - bensummers
http://learntoduck.com/startups/it-all-changes-when-the-founder-drives-a-porsche
======
flyosity
The title of the entry put me off to the overall premise, which, I think, even
the author may have missed.

Basically, the article should've been titled "It All Changes When The Startup
Is Making A Lot Of Cash". Supposedly Groupon is making nearly $2 billion a
year in revenue. The decision to turn down an acquisition has more to do with
"we're a real company making a TON of cash and we don't need to sell" than the
founder thinking about their legacy.

What's the point of an exit? Mostly it's to get a gigantic payday. If your
startup-turned-cash-machine is already making a ton of cash every month, the
founders are already getting a payday... all the time.

If you're already making FU money from the revenues of your business and
someone offers you more of it, the benefit of the FU money is you can say FU
to the offer.

~~~
vaksel
yeah if you have a real a business, making real revenue, then selling really
isn't a huge priority, and you can work on making something really huge.

However, I do think that Groupon is an exception to this. You can't build a
long lasting business, when your business model relies on tricking people into
throwing a ton of money down the drain. Once the whole hype ends, and all
business owners realize what a bad business proposition Groupon is, they'll
lose their market...and will regret not taking the offer.

~~~
klbarry
If you've studied the rise of the department store, John Wanamaker and Macies,
I think you'll find Groupon is following a pretty great and old formula of
style and group buying dynamics. The idea it's based on, people getting
excited about good deals that are trendy, is solid.

~~~
vaksel
the problem is that Walmart doesn't put it's suppliers out of business. They
have low margins, but the volume more than makes up for them, while Groupon
requires their suppliers to operate at a loss, because they've been tricked
into thinking they are getting something with high LTV.

~~~
netcan
Wal Mart has put suppliers out of business too.
<http://www.fastcompany.com/magazine/77/walmart.html>

It's also made many suppliers rich. I wouldn't be all that confident about
suppliers being tricked. I'm sure it works better for some than others. I'm
sure there are ways of making it work better. The businesses that did well
with Groupon will resign and the others won't. I would want to see some
evidence the Groupon are having a hard time selling before assuming what you
seem to be pretty confident of.

------
al3x
I'm kind of surprised that this conversation is solely about founders (well,
and which Porsche to buy). There's only a few founders out there, and a lot
more regular ol' employees.

Here's the thing about the scenario in this post: the founders and investors
that are swinging for the fences and taking big risks probably have their nest
eggs in place. But what about their employees? A modest exit could mean
security for them. That exit may not cement the founder's "legacy", but it
might give a few, a dozen, or even a big group of people a stable financial
footing for the first time in their lives. What's more important? What has the
most utility? I'm honestly not sure.

Having been an employee in that scenario and now a founder, I can see both
sides. Personally, I'm glad to see more investors making sure that early
employees get an opportunity to get a bit liquid if their founder bosses
decide to shirk acquisition offers and spin the wheel of IPO fortune.

~~~
blahedo
But, and this is important, this isn't an alternative between "exit with fat
sacks of cash" vs. "exit flat broke", for either the founder or the employees.
Presumably, in the "founder drives a Porsche" scenario, the startup is not in
imminent danger of collapse and the employees are not subsisting on ramen. So
if the founder decides not to cash out, the employees have the "stable
financial footing" of having a job that, presumably, they like and are good
at. On the other hand, if the buyout was a talent buyout aiming for the
founders or a shutdown buyout, if the founders decide to cash out, the
employees may have some $$ in hand but are back on the job market. That's not
exactly the most stable of positions.

------
ChaseB
"Today, Groupon did something that all entrepreneurs, in their heart of the
hearts, wishes they could do: spur the big acquisition offer and swing for the
fences."

6B isn't a home run these days?

~~~
nhangen
No kidding. I'm wondering if Groupon founders are overestimating the ceiling
of that business.

~~~
sliverstorm
Is it possible they don't ever intend to exit? I know that's pretty rare- most
startups seem to be aiming for the exit- but can't some simply be trying to be
their own business?

~~~
jules
Why is it so rare? If I had the choice between being the owner of and working
at a company that I love and believe in while earning $x, versus earning $10x,
the former sounds much more attractive.

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hc5
I don't know if Groupon made a mistake, only time will tell, but this
statement irked me a bit:

VC: “Founders make different decisions when money doesnt matter. He doesnt
HAVE to sell, so he can wait. He can do what he thinks is right for the
business. He can focus on his legacy.”

This can easily be the other way around: the founder chooses to focus on his
legacy instead of what is right for the business.

~~~
ericb
One nuance that I would add to your thinking. In the VC's eyes "right for the
business" really means "swing for the fences." In a VC's eyes, taking risks
that will kill a business 85% of the time but give 30x returns the other times
are probably doing "what is right for the business" because of the structure
of how they invest. In VC land, the big big wins pay for everything else. In
that case, I would argue they should be strongly in favor of cashing out
founders nicely when a business takes off. It is _much_ easier to swing for
the fences when you're not worried about striking out.

------
daemon
It's possible they were turning down the terms of the deal. If someone offered
me 1M for my site, I'd take it in a heartbeat. If someone offered me 1M and I
had to dance nude in the lobby for a year... I'd still take it. But some
people wouldn't and observers would say they turned down 1M.

~~~
rhizome
What if your $1MM site was giving you like $10K/mo and was still growing?

------
SteveC
While not related to the content of the article, the title reminded of Eagle
Computer. Its CEO, Dennis Barnhart, bought a Ferrari and accidentally drove
over a cliff and was killed on the day of their IPO.

<http://en.wikipedia.org/wiki/Eagle_Computer>

------
WillyF
Not that it's actually relevant to the point of the post, but Andrew Mason
rides a Vespa and lives in Ukrainian Village (not the most expensive real
estate in Chicago). Apparently his big splurge was on a grand piano.

Source:
[http://chicago.timeout.com/articles/shopping/90800/groupon-2...](http://chicago.timeout.com/articles/shopping/90800/groupon-20-andrew-
mason-groupons-next-deal)

------
mixmax
_"I have worked hard to get my founders as little as $25,000 to pay off credit
cards and student loans. Or, in a small deal that closed this week, I was able
to get a founder the money so he can pay for his wedding and not have to worry
about taking on debt."_

Am I the only one who finds this despicable, and probably bad business too?
The one person in the company making the most sacrifices, taking the biggest
risks and working the hardest is the one that can't even pay for his own
wedding. Even when there are millions floating around in VC money.

~~~
tptacek
The founders personal problems have nothing to do with the business. Venture
capitalists are investors, not life partners. You are rewarded for success,
not effort.

~~~
alextgordon
Soylent green is people.

The founder's personal problems have everything to do with the business. If a
founder's life falls apart, then it's the business that will suffer. Keeping
founders poor is a great way to make an investment more risky.

~~~
tptacek
Let's not veer off into crazytown here. I'm not saying the founders are
irrelevant to the business. I see why you think I might have been. I'm saying
that it's not despicable for venture capitalists not to care about the
founders wedding. They are making an investment. Do I care about the well
being of the guy who manages VFINX?

What percentage of the founder/investor drama you read about on HN comes from
misunderstandings about that basic fact? 90%?

You can imagine a better world in which everyone worked together as a team to
the betterment of all involved, but the reality is that you are _in business_
, and there are going to be times when business _doesn't give a sh#t_ about
your problems.

I think this gets overlooked because we read a lot about a very specific
investor who seems unusually attuned to the well-being of its investments. But
they do that because it makes very good business sense, and because they've
rigged their model so that the success or failure of any one investment is
much less impactful than it would be at Battery Ventures; they have less
incentive to be ruthless.

~~~
natrius
> _Do I care about the well being of the guy who manages VFINX?_

Well he is pretty replaceable...

~~~
tptacek
And that's a business decision, not a moral one.

------
danwolff
When the author implied that driving a Porsche means not caring about money is
exactly when I lost interest in his opinions.

The most interesting and successful (same traits, different present
situations) owners in the Porsche communities I participate in cringe at the
type of people who see it as a status symbol. It's about the connection to the
planet/universe that you get from driving such well designed and engineered
machines.

To the author's point, though, if they're driving it for the purpose of that
alone, yeah, I'd question their integrity, too.

edit - spelling typo

------
whatusername
And when you drive your own custom branded supercar -- we all know that you're
_never_ going to cash out: <http://zondahh.com/>

~~~
tptacek
Pretty sure DHH is in a continuous state of "cashing out". He has no VC, in
the sense being discussed here (they have a strategic investment from Bezos,
but that isn't a VC relationship).

------
asanwal
For folks thinking of working at a startup where stock options (and their
potential) are part of the decision criteria, it is important to ensure that
there is at least high-level alignment of goals and incentives between
employees and founders.

------
piney
the rest of us are scrambling up the slope to get to $5m, then we can relax.
Founders who reach that goal and still command the helm and less inclined,
nowadays more than ever, to jump ship and sit at a cafe with their laptop,
trying to look busy and tweeting about their comeback. Its cold outside baby!

------
CamperBob
Never invest in a startup where the parking lot is full of Porsches and
Ferraris... and don't ask me how I know.

------
jfb
Porsches are gauche. There's some lunatic who parks his DB9 _on the street_
(3rd & King, if you're interested), which is a statement of utter contempt for
us proles. "I don't mind parking my quarter-million dollar car at a meter
because I have four more just like it at home".

~~~
MarkSweep
Or maybe he just wants to park his car? Why should "proles" feel resentment
for his success or parking place choice?

~~~
jfb
I don't think I'd park an Aston Martin at a meter, particularly in SOMA; I'm
perfectly comfortable parking my $4k used Jetta there, but I've seen plenty of
cars significantly less awesome than a DB9 vandalized on the street.

~~~
jonknee
I'm sure he has insurance. What's the fun of a nice car if you are too
paranoid to use it?

~~~
nickpinkston
Totally - then again DB9s are a poor choice for a daily driver - at least a
Porsche can survive the grind - try driving anything British or Italian daily
- won't end well!

~~~
laut
Millions of people drive Italian cars every day. Fiat is taking over Chrysler.
You'll see modern Italian cars in the US soon. They are not like in the 1970s.

~~~
Locke1689
Actually the biggest problem you'll run into with a Ferrari and similar in the
states is that they ride so low that you will be continuously screwed by US
speed bumps. Hearing the bottom of a Ferrari scrape against a speed bump is a
truly tragic sound. For whatever reason Porsches actually do ride a bit
higher, just enough to avoid speed bumps (although some curbs can still be a
problem).

~~~
PStamatiou
I learned that the hard way with my last car. A speedbump took off my midpipe!
(pushed it up and the bolts snapped.. still intact just not connected) There
was a good month when I was driving around Atlanta with a straight header V8..
surprised I did not get pulled over with how loud that thing was.

