
Q&A: Foul-Mouthed Blogger Ted Dziuba Tells Why Most Startups Fail  - nickb
http://www.wired.com/techbiz/people/news/2007/10/dzubia_qa
======
pg
It's strange they're surprised he's only 23. It doesn't surprise me. The
facile "you suck" is the hallmark of the Beavis and Butthead 15 year olds on
Digg.

~~~
neilc
Have you read any of the uncov reviews? Most of the sites they are making fun
of deserve the abuse, IMO.

I think the wide-eyed optimism of most Web 2.0 coverage justifies at least
_one_ more critical perspective.

~~~
davidw
You can be critical in an intelligent way, or you can simply avoid talking
about things that you don't like. No need to fling mud at them.

~~~
neilc
I think uncov is critical in a reasonably intelligent way -- albeit they use
humor, rather than sombre critical analysis. The things that uncov typically
makes fun of startups for -- being derivative, lacking interesting technology,
not providing value to users, not having a workable business model, etc. --
are substantive criticisms.

~~~
tokipin
sounds like a maddox wannabe imo

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asdflkj
"All these companies will keep getting bought up, but the acquirers are not
going to see great returns."

This struck me as the thing we don't talk about here--not unlike certain
topics you don't talk about with old German people. Is there data on how much
revenue startups bring to companies that buy them?

Another way to approach this issue: if startups are capable of revenues that
justify the enormous amounts that BigCos are paying for them these days, why
is there such focus on having an exit? If startups are so much better at
solving problems than BigCos, why can't they solve the problem of pulling in
revenue better, too? This is not meant to refute the antecedent. It's an
actual question that I'd be glad to hear someone answer.

Some startups do end up with healthy revenue, but you'll notice that their
expected source of revenue was obvious from the start. Not so with most YC
startups.

~~~
nostrademons
Risk mitigation. Most large tech companies don't purchase startups for the
revenue they bring in. They purchase them because they are _deathly_ afraid
that some startup will become the next big thing that renders their revenue
stream obsolete. It's happened often enough that big companies have reason to
be concerned: think of how the computer world would look different if IBM had
bought Microsoft instead of licensing their software, or if Yahoo had bought
Google when it was an early-stage startup.

If you look at the > $1B acquisitions, almost all (except Skype) have been for
companies that fundamentally threaten a large company's business model. If
Google hadn't bought YouTube, Viacom's lawsuit against it might have set a
precedent that literally puts Google out of business. If EBay hadn't bought
PayPal, it would've opened the door to a payment service that wasn't
controlled by Ebay yet was frequented by all of EBay's customers; it's not a
huge leap for Paypal to start offering its own listings then.

Startup founders have the opposite risk profile: their wealth is all tied up
in one company, so if they _don't_ take over the big company's market, they
get nothing. Most founders would rather take their $40M payout and diversify.

So basically it comes down to risk aversion. Say that a startup has a 1%
chance of displacing the big company (worth $100B for the sake of
argumentation), and a 99% chance of eventually failing. For a big company, 1%
is far too large a chance of losing everything, particularly when they have
the cash & stock to avert the possibility entirely. For a founder, $1B is a
helluva lot of money, and far better than a 1% chance at being the richest man
in the world yet a 99% chance of nothing.

There's also a moral hazard issue, in that the people actually responsible for
footing the bill are stockholders, yet the company executives have a far
stronger incentive to not look bad by botching an acquisition than to save
$1B. Many money managers _hate_ acquisitions, because it's by far the favorite
way to destroy shareholder value. But few CEOs will be replaced for making too
many acquisitions, while it's almost guaranteed that they will be replaced if
they _fail_ to make the acquisition that becomes a major competitor.

A pithy way to put it might be "Big companies are driven by fear, yet startups
are driven by greed." That gives both of them incentives to agree on an
acquisition price higher than fair market value.

~~~
asdflkj
Let's assume you're right. Then essentially, startups are primarily making
money by exploiting the irrationality and inefficiency of modern corporate
decision making? That's not very nice. I wouldn't call it stealing, but it's a
far cry from PG's squeaky-clean ideal of "creating wealth".

But I don't think you're exactly right, either (though most of your points are
well taken). First of all, >$B acquisitions account for a small percentage of
all acquisitions, and using them as a model isn't instructive. Do you think
Google was afraid that Zenter would displace it?

Second of all, when assessing the average startup's risk profile, success
shouldn't be defined as displacing the BigCo. It should be defined as making
some money (say, a few million). If there is a 99% chance that nobody will
want to pay for it, are you really making something people want?

~~~
nostrademons
> Do you think Google was afraid that Zenter would displace it?

No, but I think Google was afraid that it would displace Presently, its
presentation software. Since Google wants to play in the "online office
software" market, they're afraid of someone else becoming a market leader in
one of the sub-markets for that and fragmenting that market before they can
dominate it. They also bought one of Zenter's competitors.

> If there is a 99% chance that nobody will want to pay for it, are you really
> making something people want?

It's not enough _just_ to make something people want. You have to make it
better than everyone else.

This is implicit in startup advice, but it applies here because we're talking
about mature markets. With startups, it's assumed that you're not going to
build something someone else is already doing better, because then you're not
really making something people want (they want your competitors instead). And
you don't generally worry about someone coming along with a better product
later, because if you have a head-start and work your ass off, they'll want to
buy you rather than spend the time, money, and risk of developing it themself.
However, if you then spurn their acquisition offer, they have no choice but to
try and beat you, and there's a good chance that they will, because they have
more resources. You've still made something people want, but then you force
BigCo to waste money duplicating it (and possibly duplicating it better)
instead of buying you.

~~~
asdflkj
So basically, the reason not to try to go for revenue is that BigCo will crush
you, unless they buy you. But will they every time? In Zenter's case, it was
inevitable that it would come to that. But are BigCos after every market that
exists? Does Google care if $1M can be made a year from something that has
nothing to do with any of their products? Duplicating your technology is worth
it if a lot of money is at stake, by BigCo's definition of "a lot". But if
there isn't?

I don't think you will deny that, in theory, there are markets such that if
you want to capture them, it's better to go for revenue than for exit. The
question that interests me, what percentage of all markets do they
comprise[1]? Everyone seems to completely ignore them in favor of the Zenter
way, as per pg's advice. Are they insignificant, or underestimated?

[1]Of course, there will be no precise percentage figure, unless someone can
come up with a list of all the things that people want. pg's next essay,
maybe?

~~~
nostrademons
Oh, I think the _majority_ of markets are ones where it's better to go for
revenue rather than exit. By a large margin. After all, most of the country is
not Silicon Valley, and most industries outside of tech (and to a lesser
extent biotech) do not support acquisitions the way tech does.

Actually, I think that even if you're going for an exit, it's better to go for
revenue - at least enough to support yourself profitably. You're in a much
better negotiating position if you don't _need_ to be acquired.

But I assumed that if you're here, you're interested in the normal tech-
startup lifecycle. Come out with an innovative product, grow very fast,
disrupt some markets, and then get bought. Because that's what PG has
experience in, that's what his friends do, and that's what most of the sites
featured here do. If you're in a brick & mortar business, you're much better
off talking to local entrepreneurs than reading here.

Just make sure that you know which strategy you're pursuing (revenue-based
growth vs. quick acquisition), and that _everything_ you do - market, team,
capital structure, business model, positioning, technology platform,
engineering process - supports it. Some tech entrepreneurs think that they'll
do a technology business that's based upon slow revenue-based growth - I
worked for 2 years at one. However, there's a very real risk of having the
market pass you by, and being marginalized in a tiny corner where you're
essentially relegated to consulting. If you're going to grow slowly, you need
to pick your market niches carefully, you need a robust software engineering
process, and you can't afford to enter a market with lock-in.

~~~
asdflkj
Yeah, I see where I went wrong now. I was talking about tech startups, but it
didn't occur to me that a company whose market is off BigCo's radar is by
definition not a startup.

You know, I've learned something today. Thanks for this conversation.

------
brett
Uncov seems like a risky idea for a group who are about to launch a startup
themselves. Sure it gets them press, but they also inherit ill will and an
audience looking to call them on it when their product doesn't live up to
their rhetoric.

~~~
chuckHoffman
You talk as if uncov is some kind of calculated move to get them press for
persai. This kind of thinking pretty much forgets the fact that people usually
start sites like uncov as a hobby, or as they would put it, "for the lulz."
They probably had no idea they'd be even as popular as they are now. The
amount of attention it's getting now only suggests that maybe they have a
pretty good point.

~~~
brett
I definitely didn't mean to suggest that I think they did Uncov in a
calculated move for press. I don't doubt that it arose organically as you
suggest. I just think it goes to show that doing something like Uncov can be
short sighted.

I'm not really sure that attention is a good indicator of having a good point.
Bill O'Reilly gets a lot of attention. It's not necessarily because he is
making good points.

~~~
chuckHoffman
Maybe not in your opinion, but certainly in somebody's.

------
Harj
"If the business is every widget under the sun conglomerated into this giant
application, there's no real technology there. There's no noteworthy computer-
science problem being solved."

try to solve computer-science problems is a reason why startups fail. it
doesn't matter if there's no "real" technnology - the thing could be built in
lego bricks as long as it solves a USER pain it's irrelvant.

------
nickb
"TD: We want to build machine programs that can learn things from information
that's out there on the web. In the first application we'll come out with, you
tell us things that you're interested in, and we'll continuously go out and
find stuff on the internet that's related to that. There's a positive feedback
loop where you tell us what you like and don't, so the machine gets
progressively better in learning what you like."

That's extremely ambitious. I've seen so many implementations of what he's
talking about and the results have always been abysmal. Biggest problem for
these systems is that you need a lot (and I mean a LOT) of training data to
start making predictions/recommendations that make any sense.

Their scope also seems way too broad.

~~~
artlung
nickb -- I have no idea if they know what they're doing, but I believe they've
got the kind of large datasets you're talking about. On their <a
href="<http://blog.persai.com/>">[http://blog.persai.com/</a>](http://blog.persai.com/</a>);
blog they describe their collection of several hundred thousand RSS feed. I'm
curious to see what they come up with.

~~~
nickb
artlung, you need ranked data, not just raw feeds.

------
jamiequint
And digg is some sort of super incredible technology? what about facebook in
the beginning when "under the surface [there was not much] noteworthy going
on." This guy is a loser, although any press is good press I guess.

------
davidw
/me points to the Teddy Roosevelt quote again:

<http://news.ycombinator.com/item?id=66782>

------
ereldon
the funny thing here is that ted is the prototypical candidate for
ycombinator:

\- technical skill: math degree, radrails \- belief in tech meritocracy \-
ambition to solve a hard problem

thats why ted's criticisms hurt so bad -- he is slamming his peers. at least
give uncov some credit for both brains and balls. life without these guys
would be more status quo, which is not what any of us want.

~~~
pg
We don't consider only technical ability. Character and judgement also count.

------
edw519
"Under the surface, there's nothing noteworthy going on."

So what? It's about time for some of these bloggers to stop dealing with
details and start focusing on issues.

The promise of a good web app is not how pretty it is on the surface or how
much technology is under the hood, but the value it provides solving someone's
problem.

(By the way, his filthy language scores 0 points with serious business people.
If I want to listen to know-it-alls spewing forth f-words, I'd just go to any
<local bar>.)

~~~
derefr
Fixed: "The promise of a speech is not how clean the language is on the
surface or how much thought is under the hood, but the value it provides
solving someone's problem."

Seriously, people who swear still have good ideas. Filtering them out before
you can critically evaluate them is the mark of an idealist unsuited to the
pragmatism of real business.

~~~
edw519
"Filtering them out before you can critically evaluate them is the mark of an
idealist unsuited to the pragmatism of real business."

On what planet?

Toilet mouth is the quickest way to demonstrate that you are not to be taken
seriously in business. No need to filter. Just move along and talk with a
professional, not an idiot.

~~~
Goladus
What about wearing white-collared shirts and neckties? Beards? Comfortable
shoes?

------
DaniFong
It's like he's thinking the same thoughts I have, except he's not afraid to be
mean about it. O.o

------
tychay
I'd defend you Ted, but I'm too busy laughing.

[http://terrychay.com/blog/article/ycombinator-xobni-
party.sh...](http://terrychay.com/blog/article/ycombinator-xobni-party.shtml)

------
eusman
he talks too much shitting other companies when instead he should concentrate
on his startup...

by the way his idea is already implemented by others: www.feeds2.com

"All these companies will keep getting bought up, but the acquirers are not
going to see great returns."

gettting acquired without the potential of revenue? show us these dump
acquirers, others would be interested too!

he sais he likes companies like Joost, that have real technology behind them.
Yeah, it also has 100 employees.

~~~
hello_moto
I'm sure he is concentrating on his startup. What's wrong if he took a short
break to write Uncov article?

So what if his idea has already implemented? Google's idea had been
implemented by others as well. Just that Google does it better. It's possible
that his startup might do it better.

I kind of agree with you that he has no solid data on these "dumb buyers" but
I think the word "acquired" should be swapped with "invested". There are a lot
of web 2.0 companies that don't have strong revenue but got a lot of money via
investment. Let me ask you back, can you give example of web 2.0 companies
with strong revenue record?

The best deal I've seen so far was Flickr's 30-40 million dollars. The rest
seem to be over valued.

What's wrong with Joost and 100 employees? If Joost really needs 100
employees, be it. They have a solid product compare to most of YCombinator
companies out there.

By the way, out of 50 YComb companies out there, I only use Reddit.

~~~
eusman
I like Joost. You got that one wrong.

It's natural investments may turn out wrong. Especially when expectations are
larger than the potential, which is what happens..

He can do whatever he wants with his free time. I don't care. But telling
everyone that is pointless if you don't solve a computer science problem, he
is really illusionating himself. And raising his recomendation engine as the
ultimate computer science problem is really ridicilus.

I will put it this way:

It was said during the International Symposium in Computer Architecture this
year, although, i'd be mistaken who said it. I think it was put something like
this to the crowd:

"We asked teenagers to tell us what is the most significant discovery. Their
answer? YouTube That's what happened, we've gone so far with technology that
we neglected what is important to the people."

~~~
hello_moto
I'm sure there are other advances in technology that is very useful to others
but overlooked by American teenagers.

If what's important is to fulfill teenagers' fantasy, all of us should build
more social network a'la MySpace, Xanga and create cyberworld a'la
ClubPenguin, BarbieWorlds, CyWorlds instead of helping the Health industry.

------
jraines
I'm fond of the quote "If you're bored, it's your fault."

I think it must apply triple to someone working at Google. I'm guessing he was
eased out for surfing /b/ too much.

