

Why Being Broke Is A Founder's Greatest Asset - biznickman
http://mixergy.com/broke-founders/

======
richardjordan
This is nonsense, or at least misleading for this audience. The example,
selling a company for $1.1million isn't even getting to the start line for
most folks.

If you look at many made-it-from-nothing founders of the companies we know,
they rarely start out broke, are often independently wealthy (it's a lot safer
to drop out of an ivy-league school with a wealthy family as a backs-stop) or
have made significant money from earlier stages in their careers.

Being broke is a huge distraction to most founders, having to focus on the
distractions of family, sometimes a spouse and/or kids, and struggling to pay
bills - none of that is a good thing for one's ability to focus on getting
your startup to any kind of critical mass.

Motivation-by-commitment, as many sales organizations will put it, is more
like what's being talked about in the article - that if desperate a smart
person will figure out ways to make money and often stabilize some sort of
business out of that. But even that is a stretch to claim being an advantage
over not being broke.

This is the kind of advice that leads mediocre founders to romanticize ramen-
noodles and cheapskate their talent - either getting second tier people or
trying to cajole talented engineers into taking much-below-market rate wages.

Obviously it's better for founders to be capital efficient and keep costs low.
Being hungry clearly is necessary to success. But if you can get yourself to
some degree of financial stability it'll make you more able to focus on what
matters building your startup, and if you pay people fairly you'll attract
talent and loyalty.

~~~
ericabiz
Hi, I'm Erica, and I'm the person that is mentioned in the OP. (Imagine my
surprise to click through a link on the front page of HN and find out it was
about me! That was quite a jolt.)

Anyway, I wanted to say: $1.1 million _is_ life-changing, especially when it's
for a company you started at age 20 and never expected to make more than a
couple hundred dollars a month on. I didn't take on any investors for that
business, and I found the buyer and did the sale.

Running (and later, selling) that business solidified my expertise not only in
the tech area, but also in learning how to acquire and keep customers. I
wouldn't trade that experience for anything. The payday was a nice bonus.

And, I have to say, in an era where tech companies IPO and then tank, is it
not refreshing to read about a bootstrapped company built by a sole founder
who then sold it for 7 figures? I know I love those stories. And, even in the
Valley, they're a lot rarer than you think.

~~~
jpdoctor
> _I wanted to say: $1.1 million is life-changing_

first: congrats. I'm curious: How much of the $1.1 did you manage to keep
(taxes etc.)

BTW It might be a good entry in your blog on how to set up a biz for such
events.

~~~
ericabiz
Hi JP: I lost about a third to taxes (I should have moved to Texas sooner! Ah,
well, I'm here in Austin now and loving it.) Another $125,000 or so to debt
(it was an asset sale and the business was holding some debt on its books.)
And $74,000 to a stupid mistake in the contract--should probably write out the
details on my blog so no one gets stuck in that particular quagmire. I owned
91.5% of the company, with the other 8.5% owned by two employees, who also got
paid their shares out of the $1.1 million sale.

I also did something risky that, looking back, probably wasn't the smartest
idea: I financed $999,000 to the buyer at 6% interest, who then paid it back
over 3 years. He _did_ pay it all back, which was awesome, but there were
definitely some heart-stopping moments in there. I gained back a lot of what I
lost due to the interest payments. But I would never sell a business in that
way again--it's just too risky.

Hope this helps. I do my best to be an open book. I totally agree on writing
out the blog post, too. I'm running another startup now, so my time is
limited, but this is still important stuff to so many entrepreneurs.

tl;dr: Enough to not have to work for 4 years, travel a lot, and to put a down
payment on a house here in Austin. :)

~~~
tisme
That's an earn-out, not a sale!

~~~
ericabiz
Unequivocally NO, it was not an earn-out. The sale price was pre-determined
and was not based on how much the company earned in the future. The monthly
payments and interest rate were also fixed.

------
MicahWedemeyer
Survivor bias mixed with anecdotal folksy wisdom.

"She scrounged what hardware she could get and succeeded" does not mean that
_everyone_ who does that will succeed. I'm sure most successful businesses buy
or lease or subscribe to the hardware they need.

Being a hustler and working hard is required for success. Money, or lack of
it, doesn't change that. But, having access to money, even just enough to get
by day-to-day, will make a hustler that much more powerful.

Sidenote: Compare the comments here on HN to the blog comments. Almost exactly
the opposite, which I find strange given the supposed overlap in audience.

~~~
mibbitier
FWIW, you can also find an absolute ton of examples of startups that had
plenty of money, and failed spectacularly.

Having too much money is probably worse than not having enough.

I think the difference is that HN is primarily venture backed "silicon valley"
startups. Mixergy is more about bootstrapped businesses.

~~~
richardjordan
I doubt that overfunding causes more failures than insufficient access to
capital. That defies experience and common sense. I suspect you're
extrapolating from a handful of high profile data points.

------
buro9
I disagree.

Hunger may be a driver, but too much hunger can start to be consuming and
distracting. Too much hunger and it would be tempting the next time someone
offers to acquihire.

Yes it's important to take a Senecan long view and prepare yourself for the
hardships you'll encounter, but to purposefully create hardship isn't a wise
thing.

You should earn as much as you need, as little as you can take to give your
company the best chance. But you shouldn't be broke, too hungry, and as a
result distracted.

------
jchung
I can assure you that having no money is not an asset.

------
finkin1
I'm a founder. I'm broke. It doesn't feel like an asset to me...

~~~
tisme
Stop being a founder for a bit then and do some contracting or get a job.
Being broke sucks but at least you have the skills to do something about it.

~~~
finkin1
I've been doing contractor work my whole life. It sucks. That's why I started
a business. I'd rather be broke and enjoy what I'm doing. I never understood
the people that could work a full-time job and do a startup. My mind and
emotions don't divide that way. So, I enjoy being broke...but I definitely
wouldn't say it's an advantage.

------
6ren
Christensen (disruption guy) notes that one of several barriers to large
companies leading with a disruptive technology is that they don't get excited
by small wins. Disruptive technologies start small.

He suggests they spin out a little company to work on the disruption: one of
the several reasons is that a little company can get excited by small wins.

As a tiny startup, with no money, you are already blessed with this. Ramen-
profitability is a mythical dream; $1,000 incomprehensible riches; and a $5
sale - someone wants what you created! They'll actually pay, like, money, for
it! - is a transcendental achievement.

Meanwhile, Google,Apple,Oracle,Microsoft notate their spreadsheets in
millions. Less-than-a-million is a proverbial rounding-error, literally. They
are _incapable_ of growing something that starts that small. That's why they
spend millions each year acquiring startups; until they eventually get
eclipsed by one they didn't or couldn't buy.

Stay hungry.

------
moocow01
If this was true there would be proof in the numbers but pretty much all
indicators point to this as increasingly incorrect (unfortunately). In America
there is increasingly less mobility from the "poor" to the rich and if
monetary desperation was an attribute to business success in the current
business climate the numbers would tell the story.

If the point of the article is to suggest that having to eat can make you work
your ass off out of fear - sure Ill agree with that one but that doesn't mean
your business is going to be taking off.

Its also not that hard to understand that the more your back is off the wall
the more power and freedom you have to leverage to make smart decisions. I
guess if you are just a lazy person desperation may help you get to work but
otherwise I cant think of any successful business person who is looking to
become poorer so they can get their spark back (and if that is the case, Ill
be glad to help)

~~~
richardjordan
This is a great point.

To add to the anecdotal aspects of the article, I see VERY few successful
founders whose starting point was being broke, at the point they were starting
and establishing their company. I see a LOT of successful founders who have
independent wealth - often through family. I see a LOT of successful founders
who saved up enough money to give them the runway to start a company WITHOUT
being broke.

If you need to be desperate and incapable of paying bills before you are
motivated enough to make your startup a success, you MAY not be well suited to
doing a startup.

------
gjm11
If you take a sample of successful founders, then I dare say the ones who were
broke are indeed particularly ambitious, determined, impressive, etc.

This doesn't mean that being broke is an advantage. Quite the reverse: it
happens because being broke is a disadvantage, so people who succeed despite
broke-ness have to have been better in some other respects. (In some cases
they might just have been luckier.)

I bet you'll find that professional basketball players who are short are
especially fast, that professional academics who score worse on standard
intelligence tests are more creative, that expensive houses that are in nasty
areas are particularly large or beautiful, that successful singers with
unimpressive voices are especially gifted musically, etc., etc., etc. None of
this means that those features are advantages.

Sorry, but this is just stupid.

------
seacond
What the blog author implies is that _being scrappy_ is a founder's greatest
asset. Assuming we agree with this, then does being broke always lead to being
scrappy? If yes, then I guess we could say being broke is, indirectly, a
founder's greatest asset. If no, then the argument falls well short of being
taken seriously. No one who is broke wants to be broke. And no one who is
wealthy wants to be broke.

~~~
richardjordan
I like the way you've put that. I certainly don't see being broke as a
necessary condition of being scrappy, or driven. I don't see that being broke
necessarily leads to being scrappy in ways that help a startup either.

I've seen (and been in) startups where the founders were more focused on short
term income to pay their bills than long term success in the company - and it
IS definitely possible for those two things to be at odds. It wasn't a recipe
for success.

I can appreciate (and believe) that being broke may add some level of
motivation for some people. I don't believe that motivation is going to be
distraction free in most cases, and therefore I feel the argument falls well
short of being taken seriously.

------
jonmc12
There is a correlation between social status, density of D2 receptors, and
creativity:
[http://www.sciencedaily.com/releases/2010/02/100203084254.ht...](http://www.sciencedaily.com/releases/2010/02/100203084254.htm),
[http://psychcentral.com/news/2010/05/19/mental-health-
creati...](http://psychcentral.com/news/2010/05/19/mental-health-creativity-
linked/13936.html)

As others have said, being broke, proper, is not an asset - broke people
problems are not synergistic with successful company problems. So, its
basically a time drain. Being perceived as less successful than you want to
be.. this could be an asset if you believe the above studies.

------
arbuge
Might be an asset for founders who would otherwise be stuck in a comfort zone,
but for most people I know the added stress would be a negative.

Besides founders generally get richer as companies get bigger, especially with
the advent of secondary markets where privately held shares can be sold. If
you're the kind of person that loses motivation as your comfort level
increases, you're unlikely to ever build a big company.

------
mhartl
I was broke for my first two startups, and I'm not broke for my third. Being
broke was a terrible distraction. Not being broke is _much_ better.

------
zupreme
This article's title is a textbook example of "The Grass is Greener" mindset.

Believe me. I've been broke before. When you are broke it's not an asset and
much of your time is spent thinking about how much easier everything would be
if you had money.

Alternatively once you have money, from time to time you might think about how
much simpler and less stressful your life was back when you had fewer
responsibilities and fewer people depending on you both personally and
professionally.

This article fails to take into account the dichotomy I have just described.
Perhaps in a few years the author will look back at that particular post and
wonder what he was thinking.

Interestingly enough, though, the body of the post doesn't really unpack that
title in any meaningful way. Selling for 1.1 million dollars is meaningless
compared to what well-funded companies are able to sell for (assuming they do
well in the market).

