
Startups and The Big Lie - ryanSrich
http://techcrunch.com/2015/07/25/startups-and-the-big-lie
======
ChuckMcM
This seems to be the narrative that the author wants to promote:

 _" Startups run on an alchemy of ignorance and amnesia that is incredibly
important to experimentation. Most startups fail. The vast, vast majority of
startup employees will never exercise their options, let alone become
millionaires while doing it. Mathematically, talented individuals are
certainly better off financially going into a profession or working at a large
tech company, where pay is higher and more secure."_

You will hear again and again and again how "Gee only some choice few people
get 'rich' in a startup, everyone else gets 'screwed.'" and people will tell
you how the whole "Silicon Valley Myth" is just that, smoke and mirrors
designed to dupe fools into giving up their valuable youth so that someone
else can get rich.

There is a real problem with the narrative though, its the pesky facts that
the Bay Area counties actually have lots of people who have a net worth over a
million dollars and a if you count the ones that got that way here and then
moved to places like Oregon, Washington, etc. Its an even larger number.

That is because while the typical startup may fail, such that 1 in 10 or even
1 in 15 have successful outcomes, it is "easy" as an employee to work in 5 or
6 of them for the first few years of your career. Just like universities there
is a cohort of people about the same age as you, they are all moving through
the world, getting older, and then dying. If you are in certain parts of the
world the overall probability that you will come out richer than the rest of
your cohort is much higher. Three areas that seem to consistently produce
durable net worth, banking, politics, and technology.

Next lets talk about lying, which is making a statement you know to be false.
Now buy a PowerBall lottery ticket, hand it to your special friend and tell
them "This Lottery ticket is a winner." are you lying?

The actual state of things is that the lottery ticket is both a winner and a
loser, and doesn't actually become a winning ticket until after a future
event, the ability to predict accurately is completely unknown. Your statement
has a probability of 1 in 179,000,000 of being true, which means it isn't a
lie.

So is this just counting angels on a pin? Yes and no. The reality is that as
adults we live in a probability filled universe, will you die today on the
Freeway driving to work? Yes you will. Unless you don't.

As a founder, the only way to stay sane, is to invest only in outcomes that
are positive, regardless of their probability, until they are proven
otherwise. So you absolutely believe that you're going to get the next round
of funding to take you to the next level, but that other path doesn't really
isn't one where you want to be.

That said, having multiple paths to the winning answer is much better than
having only one. Just like having ten lottery tickets is better than just
having one, in terms of likelyhood of success, plans that include funding and
plans that include restructuring but both end up across the goal should be in
your mind. When you have a number of difficult things (with unknown outcomes)
in your future that is called "stacking risk", you can succeed but the next
step failing kills you, Etc. So as a founder you work to figure out all of the
paths that meet at the success side of the equation, all of the events and
their outcomes that open or close paths to you, and you run like hell for the
goal.

Nobody accuses the quarterback of lying when he tells the wide receiver he is
going to through the pass to him, only to be sacked behind his own line of
scrimmage.

Startups are risky endeavors in an environment that doesn't care a bit about
whether they succeed or fail. And there are a lot of things you can't know
about how the future is going to go. But it is also not, in general, a game of
abuse where some privileged elite are fleecing the chumps out of their lunch
money, despite what some disgruntled people feel about it.

~~~
timr
_" while the typical startup may fail, such that 1 in 10 or even 1 in 15 have
successful outcomes, it is "easy" as an employee to work in 5 or 6 of them for
the first few years of your career."_

I've been here for nearly a decade now. I know a fair number of people who
have become genuinely rich (i.e. have fuck-you money in the bank), and people
who are theoretically rich on paper.

With only a few exceptions, the genuinely rich people were either founders,
long-time insiders at public companies (i.e. Google, Facebook, etc.), or (very
rarely) early employees at smaller companies that had an exit (as in, employee
numbers lower than 5).

Of the people I know who are currently theoretically rich, most are tied to
"unicorns", because they can't sell their insider shares. Maybe these people
will end up actually rich, maybe they won't.

But most of the people I know who match the profile you describe (i.e. worked
at a few startups as a not-super-early employee, of which some succeeded), are
doing okay, but are nowhere near retirement, and certainly nowhere near fuck-
you levels of wealth. The expected value of the lottery seems to be something
like a few years of market-rate salary at a big company.

What you're seeing in the bay area is the legacy of _decades_ of this kind of
wealth accumulation. Millions of people, taking 50+ years worth of chances,
over a series of successive economic bubbles. Said another way: you're
underestimating the denominator on the probability.

~~~
ChuckMcM
I don't know if I'm under estimating it, I've been researching different ways
to quantify it a bit more though.

But I think more importantly we need to differentiate a bit between rich and
wealthy. If you want to pick some number and say "that is rich" (which is
often the case with 'fuck you' money type statements, that is fine. However I
define it a bit differently. Do you own your home outright? Are your kids
undergraduate college funds funded so they don't need to take loans to get a
degree? Do you have enough money in the bank to pay for food and utilities for
the rest of your natural life time? I think of that as "wealthy", you have
lots of choices. That number though is a lot lower than the number that
typically people use.

For me, when having these discussions it helps to understand the
'expectations'. The number of people who own their own jets, multiple vacation
houses, and have paid staff to manage their affairs? Yeah, that is a pretty
high level of extreme wealth that you're extremely unlikely to achieve,
however I would estimate that every one of the first 2500 employees at Google,
NetApp, Sun, Oracle, HP, CA Associates, Electronic Arts, Ebay, Netscape,
Amazon, Zappos, hell even pets.com had an option at one point to buy their own
mortgage. So were they "rich" by your definition?

And its fair to say "gee Chuck but yeah looking back its easy to see companies
that did well, what about these days?" and the answer is really that you only
know by looking backward, if you could predict the winners the world wouldn't
work quite the way it does.

This the following statement however, deserves special attention.

    
    
       > But most of the people I know who match the profile 
       > you describe (i.e. worked at a few startups as a
       > not-super-early employee, of which some succeeded),
       > are doing okay, but are nowhere near retirement, 
       > and certainly nowhere near fuck-you levels of 
       > wealth. The expected value of the lottery seems to 
       > be something like a few years of market-rate 
       > salary at a big company.
    

This hints at what I think of as the unreal expectation, that you will come
out of college, join a startup, make enough money in equity to pay all your
current and future bills, and then go on to a life of partying or something.

No one should expect that any more than they should believe that buying one
lottery ticket will solve all their financial problems.

However what many have been able to do, is work in technology for 15 - 20
years and get enough money to cover a comfortable existence, save for their
kids college, and buy some property. The result of which means that the last
third of their life will likely be as comfortable as the middle third.

Certainly some of the current unicorns will likely become non-unicorns at some
point by going public or by merging with a public company. At which point some
of the illiquid wealth of some of your acquaintances will unlock.

    
    
       >  What you're seeing in the bay area is the legacy of
       > decades of this kind of wealth accumulation.
    

Yes, and while it might not be what folks are hoping for, if you aren't at
this level of wealth right now, this process is going to take _decades_ (like
two of them, maybe three) and when you come out the other end of those two or
three decades, if you have been working in tech, politics, or banking, your
last couple of decades will not be filled with worry about how you're going to
pay the rent or pay for groceries or heating in the winter. Your kids will be
doing better because they didn't have to pay for their own college educations
and so started after school debt free.

Oddly enough, for many people that is the definition of "winning" in life. Not
a big bank balance.

~~~
normloman
"However what many have been able to do, is work in technology for 15 - 20
years and get enough money to cover a comfortable existence, save for their
kids college, and buy some property. "

If you're frugal, and invest wisely, you can do the same thing with a plain
corporate job. And while it may not be as "cool," at least they don't ask you
to work excruciatingly long hours like a startup (well, some do).

------
ffn
Lying about your progress and metrics is extremely rampant in the startup
world of SV... but IMO SV's biggest lie is that you need to be in SV and you
need SV money to build a successful company. This flat out isn't true,
especially if you're building a web service where your customers can be
anywhere in the world and services / platforms that allow you to scale up
incrementally exist. Most of what goes into building a startup is time-
consuming trial-and-error grunt-work (e.g. reading documentation, editing
boiler-plate code, answering emails / phone) that can be done much more
cheaply and less stressful-ly from your mom's basement than hemorrhaging $10k
to $100k / month in a downtown SF office while the scaffold of a 4 month
deadline looms ominously before you. (There's a case to be made for the value
of mentorship, but that value is always multiplicative and never additive - as
in, if you don't have a business, your value of 0 is still 0 after multiplying
it by the value of your mentor. So for mentors, the later the better.)

SV's second biggest lie is that you need the so-called "hockey-stick" growth
curve to be competitive in order to be successful. This lie is clever because
you're so caught on hockey-stick that you forget to question the premise of
competitive. In the beginning of founding your startup, knowing about your
competition might help you build your own product, but worrying about your
competition is worthless because the world is more than big enough for the
both of you (especially considering you don't exist yet). And if you don't
have overhead (i.e. you didn't take SV money and hire a ton of SV's cleverest
and most paid engineers), the world will always be biggest enough for you to
survive.

SV's third biggest lie is coffee can replace sleep. That's not true, and one
of your organs (usually your liver, but I've heard stories of kidneys, lymph
nodes, beards, and even ovaries) will let you know after a bit.

~~~
flyinglizard
1\. SV money buys you some access to the market, in publicity and networking
effects. Rural startups don't enjoy the same prestige or easy access to other
companies.

2\. The hockey stick is mainly needed to deal with impatient investors, not in
itself. If you had a stable supply of money, you could grow over any number of
years, but without showing the right graph its hard to raise money.

3\. At least in SF you have a pool of clever engineers or cofounders. Its not
like that in all places.

I think it really depends on what kind of company you are building. If its
something startup oriented like APIs, or any fad (like IoT), SV is your place.
If you're in a capital intensive business, SV is again you place. If you're
solving problems for tech companies.. then again. And if its social, you'd be
cool if you're in SV and backed by an SV firm. You need the networking and
coverage to succeed, and its much easier to come by in SV.

If you're making enterprise software, real hardware products, SMB tools and
apps, then you can be anywhere else really.

Besides, SV has that startup vibe going for it. Its not quantifiable but it
sure energizes to some degree.

~~~
timr
_" SV money buys you some access to the market, in publicity and networking
effects."_

It buys you into the echo chamber. Unless your customers are in the startup
world, this probably doesn't matter for your business.

Pick a business category that isn't technology or software. Very likely, all
of the most recent successes in that category were founded outside of silicon
valley.

 _" At least in SF you have a pool of clever engineers or cofounders. Its not
like that in all places."_

It's not like that in _all_ places, but it's way better than people pretend.
The unemployment rate for a good engineer in the valley is _negative_ \--
everyone is being poached by identical-sounding startups, all the time. So
you're really just _paying substantially more_ for access to a group of people
who have worked at other tech companies.

...meanwhile, many of the best engineers I know continue to live outside of
the valley, and work for a fraction of the going rate.

~~~
irishcoffee
> "At least in SF you have a pool of clever engineers or cofounders. Its not
> like that in all places."

Heh, I've always viewed these people as the people selling shovels during a
gold rush. Good on them.

------
damonpace
When I moved to Palo Alto in 2011, I had this weird sense that their was a
hidden secret behind every term used. I've learned since that it's just a BS
game built by lawyers & VC's in the name of "protecting the company &
investment". In reality, it's a power game won somewhere in the knowledge gap.
The more you know and understand the less likely you are to lose the game.

~~~
rhaps0dy
Are you working in a startup?

------
socrates1998
I get why people want to be in a start-up, but I don't get why a lot of these
people won't look at starting their own company that doesn't fit into the
"start-up" framework.

Why does everyone have to try to be the next Google?

Why isn't it okay to start a company and just want to build it consistently
and be profitable from the start?

I get that it's the nature of the types of businesses that get VC money. I
just don't get the hype attached to it.

You are setting yourself up for failure, especially by telling everyone that
you are "killing it" and your new product is going to "change the world".

That is just asking for failure. You don't have to "Kill it" to be successful
and you don't have to change the world to be a good person.

It actually makes you look naive and stupid when your "start-up" fails because
you were bragging about it for the year or two that it existed.

~~~
AndrewKemendo
_Why isn 't it okay to start a company and just want to build it consistently
and be profitable from the start?_

It is "ok" and done all the time, all over the world. It's just not exciting
or newsworthy. Just look at dry cleaners - they are everywhere, and usually
family owned small businesses that do well enough to put kids through college.
In some cases they are even using exciting new technologies to make the
process more efficient. It's not _exciting_ though Maybe you don't need that,
which is also ok, but there is no sense in vilifying that.

The people doing startups are self selecting as people who want to be involved
in something that impacts a lot of people, very quickly. The Valley is full of
people who want to do moonshot exciting stuff - even if it doesn't seem
exciting to a lot of people outside of it.

------
jmspring
The culture around boom and bust and being able to start again has it's roots
in California and the gold rush. As placer mining was replaced by hard rock or
hydraulic mining, the individual became less relevant and the corportation
more so. Mining also saw a backlash as the corporations and banks required
more fees placed on the backs of the miners because of the need for water,
etc. (Severe compaction of history understood in above example)

With startups, we have seen the individual gain success for themselves and the
money backing them What we see here finally happening is that the success of
startups depends upon people who are becoming more aware of their own
contributions to the process. "Technical cofounder", "non-founding cto", early
engineers, etc. are starting to question the asymmetric relationships.

Yes, engineering talent is available, but the execution of a startup in this
day and age is nearly on par with the idea itself. Those engineers that can
take your idea, run with it, help grow the team, and make it successful are
aware of their talents and at a premium. Even worker-bees hired for a
particular task are understanding their role and often more important than the
management layer hired to shield them from the founders.

Interesting times we are in.

------
lkrubner
The entire essay contradicts this phrase:

"For one of the most hyper-rational populations in the world"

and yet the essay uses that phrase without irony. A better term might be
"bounded rationality":

[https://en.wikipedia.org/wiki/Bounded_rationality](https://en.wikipedia.org/wiki/Bounded_rationality)

For certain narrowly defined aspects of career and business, the people in
Silicon Valley demonstrate rationality. Yet, as the essay itself makes clear,
in many other respects, the people in Silicon Valley demonstrate remarkably
high levels of irrationality.

------
ArekDymalski
>However, we still need that Big Lie to function

No we don't. What everyone needs is a higher level of tolerance for the risk.
The "Big Lie" was simply a way for people to cope with the risk. The over-
analyzing is a current way to deal with a risk. Both ways doesn't solve the
basic problem: not all humans are ready to take risk.

~~~
x0x0
No, the lie is a way to actively deceive people about the risk they're taking
in order to induce them to work for you or buy something from you.

ps -- valley ethics go like this: my employer just had layoffs; we let an
engineer hired _7 weeks previous_ go. He was an immigrant, and I don't know if
he was on an h1b or he'd gotten his green card. It's a giant dick move either
way, but a super giant dick move if the former.

------
idlewords
"one of the most hyper-rational populations in the world" [citation needed]

------
paulpauper
I wonder if employees will start treating stat-ups like VCs do, by joining
many firms for fractional equity of a single employee.

~~~
ryanSrich
That's actually a very interesting idea.

The break down might look like this:

($100-$120/hr contracting + 0.025% equity)

\- 20% time to company x

\- 20% time to company n

\- 20% time to company z

\- 40% time to company y

~~~
b0sk
All at the same time? The context switch you have to do will end up being a
counterproductive factor. I'll guess the burnout rate would be high too (few
weeks down the line and you'd focus on only one or two)

~~~
imh
A few weeks down the line and you'd better know which ones are worth your
time! And the cost of context switching may be worth it for diluting risk.

------
imh
I disagree with the author's sense that the Big Lie is still necessary. I
really doubt that fewer companies will be founded, or fewer people will join
them if we were more honest. Maybe early employees will get more equity as a
result but that's all I'd expect.

------
amelius
Another lie of SV is that it is not so much about the technology, but about
the flow of money and accumulation of users on "freemium" pricing models.
Companies get big on funding, crush the competition elsewhere (e.g., in
Europe), while still not making any net profit.

That is unfair competition.

~~~
marincounty
Maybe that's the major reason to take that VC money? If you have a good,
innovatative product, or lousey product people seem to love; someone with
bigger pockets will eventually step in, tweak your idea, and might make it
better, and more successful?

The cutthroat business practices of SV seem to be evolving faster than
technology itself? I guess it's true with every sector of business these days,
including non-profits?

------
fffrad
Silicon Valley is Techcrunch's bread winner. What would they be if there were
no new start up to talk about every week? and die every week too.

------
MichaelCrawford
When you are offered options, inquire as to whether the shares you will obtain
by exercising will enable you to vote for directors.

The GOOG shares held by Larry Page and Sergey Brin give them control that its
publicly traded shares do not. I don't know either way about the shares obtain
through employee option exercises.

Stocks are authorized in a sequence of "series": Series A, Series B and so on.
What series are your options from? The corporate bylaws sometimes grant
different rights to the shareholders from different series.

------
MichaelCrawford
The Valley is a Harsh Mistress

[http://www.warplife.com/tips/business/stock/venture/capital/...](http://www.warplife.com/tips/business/stock/venture/capital/misery.html)

My Live Picture stock certificate sure looks nice. I dont really know but
would be unsurprised were someone to tell me I was the only one to exercise
our options.

It's not just startups, most businesses of any sort fail in their first five
years. While there are advantages to funding there are disadvantages too. Even
if you don't blow your VC on aeron chairs and craft beer you must sell a
product or service that, while perhaps not profitable at least conceivably
could be, and ship it so that it achieves convincing market penetration by the
time you burn rate has burned the round you are presently burning.

Most arguments for self funding focus on the dilution of equity that comes
with investment but there are many other arguments. Another is that if you
fund your project yourself you don't have to answer to anyone.

Whether that is a good thing depends on your own judgement; don't self fund a
product that does no one any good.

Every last one of us has the capacity to create a product that could could
earn us a tidy living, maybe pay a few employees. At that point we face a
choice: improve that one offering, or use some of the cash to fund something
completely unrelated?

There are many good arguments for each of the two choices. Ball Metal
Container makes every pop can in America. Nokia at first made rubber boots
while the predecessor to IBM made bacon slicing machines.

I grant that there is appeal to working for a startup: it's nice to be
noticed. I contributed to some products that were huge hits at trade shows. I
would make my Mama proud were I to make front page at the Wall Street Journal.

By contrast self-funders often labor in obscurity, sometimes poverty for
years. Even so, many succeed, often spectacularly so, as did the father and
son who invented Flow Hive, and improved way to harvest bee honey. Their is
some possibility that Flow Hive all by itself will reverse colony collapse
disorder, in that it makes beekeeping far more accessible to the
nonspecialist.

In my own estimation venture backed startups are no more likely to be in
business ten years later than the sole proprietorship.

