
Navigating Mid-Success - craigcannon
https://blog.ycombinator.com/navigating-mid-success/
======
rmason
It's like a kid playing basketball. He beats the odds and make his high school
team. He beats the odds and is a starter. He beats more odds and is the star.
He beats even more odds and wins an athletic scholarship to college. He not
only makes the team but becomes a starter and eventually the star of the team.
He further beats the odds and is drafted by an NBA team. He not only makes the
team but becomes a starter.

Imagine telling that guy he's a failure because he's no LeBron James.
Apparently if you're not a unicorn founder you've achieved nothing.

~~~
corry
Good analogy, but without taking into account the financing side of things
it's only a partial picture.

Imagine if that player was borrowing and spending Other People's Money since
High School, based on the EXPECTATION that one day he'll be the next LeBron
James and pay it all back with sufficient return or forced into bankruptcy.

He had natural talent, but needed money for better shoes, trainers, better
nutrition, etc in order to achieve the top level as quickly as possible. So he
found some people to loan him the money.

In that scenario, it's not so much a question of whether playing in the NBA is
a desirable outcome -- it's certainly better than if he hadn't made it that
far -- but one would have to also consider the financial outcome for his
investors and him personally.

There are lots of bankrupt NBA players (for different reasons, but still).

This is the article's point: if you're not LeBron, don't choose a trajectory
that requires that level of outsized outcome in order to be successful.

~~~
jimbokun
I believe this scenario actually happens for soccer players, where investors
can by equity in a young player's future sale to a bigger club. Although I
think there have been some recent attempts to crack down on this practice.

------
tptacek
The subtext to this piece is the mathematics of venture capital investing.

1\. Most companies fail. Not "turn into airplanes"; plow into the ground at
terrific speed leaving an unrecognizable smoking crater.

2\. VC investors survive this by investing in a portfolio of companies, not
just one or two.

3\. For the math of a portfolio to work out, the winners have to pay for the
losers.

4\. The majority of the portfolio is losers.

Because they invest so little in such a large portfolio of companies, YC can
afford to cultivate startups that are aiming for 8-digit outcomes. But VC
firms, as a general rule, can't: for your startup's success to make their math
work, you need an outstanding return. They'd rather you return something than
nothing --- _but they wouldn 't rather by much_.

There's a lot not to like about this model, but it's not really a moral
question. There isn't a model where just a couple of investors plow millions
of dollars into your startup all at once where simple mathematics aren't
determining everyone's positions.

So when we talk about the difference between shoot-the-moon companies and
"airplanes" or "lifestyle businesses" or whatever dumb term we're using for
them this week, we'd do well to keep in mind that the people pushing you away
from these kinds of outcomes really don't have a choice.

------
beat
The flip side of this is that if you're not planning on a unicorn, don't get
hitched to the VCs that are hunting unicorns. There are other investors who'd
be quite happy to get that 5x back and build a $100M company, or even a $20M
company.

~~~
SatvikBeri
Huh, are there really a significant # of investors who put money into $20MM
companies looking for 5x returns? That's surprising.

~~~
sokoloff
Looking for and being quite happy to get are two different things.

I'll happily take a 5x on any of my angel investments. I didn't go into them
thinking that was the best possible (hoped for) case.

Getting 5x on all of them would be above my average.

~~~
beat
I would also expect angel investors to be a little more understanding about
slightly less than "MAX GROWTH NOW!!!!!", relative to a large VC firm, and
less likely to force the founders into a path the founders don't want to take
if the numbers aren't ideal..

------
blizkreeg
Fuck building a $100M. Can you build a $10M or just a $1M company? Just do
that (first).

I read somewhere - first get comfortable, then get rich (or change the world).
This insane focus on the wrong metric (valuation/size of your company) is
going to hurt nearly every first-time founder, which I presume most of you
will be.

Once in a while, you do hit the jackpot, but _let_ it happen to you, let it
come to you as you make progress and hit bigger and better milestones. Pretty
sure even Zuck, Gates, Jobs, or you-name-it-unicorn-founder had no fucking
clue that theirs would be the unicorn company.

~~~
the_watcher
This article isn't about building a $1M or a $10M company. It's about
companies who have done that already.

~~~
blizkreeg
Thank you for the nitpick. I wasn't talking about the article either.

------
achou
I'm a founder of a company that had "mid-success" (a few times over).

I mostly agree with this article and when I see companies in my former market
raising $100M+ rounds I always cringe.

> But as a general rule, the longer you delude your investors here, the worse
> shape you’ll be in.

This is true, but the real problem is not deluding your investors but deluding
yourself. It's often necessary to have unreasonable optimism to overcome every
hurdles along the way. Knowing when that optimism crosses the line can be
difficult especially in the bubble of fundraising.

> Very often I’ve seen cases where founders know in their hearts they have an
> airplane but are able to convince good investors it might still be a
> spaceship. This really causes a lot of heartache, and often precludes your
> opportunity for a good acquisition later.

The point about over-raising limiting future options really resonates. It's
one of the saddest things that can happen: all of the hard work has been done
to build a viable business, but in the rush to get there too much money was
raised, so the the cap table has gotten to the point where any reasonable exit
will yield the founders and employees almost nothing. So frustrating.

> Let’s define a “really good airplane” as a company that has profitability
> within reach and is on track to be worth $100 million with several more
> years of hard work.

Here's the thing. Airplanes can get much bigger than $100M, they just take
longer to get there. They have to fight their way there and rarely get the
spotlight. That's just the way some markets are, no matter how great the
product, no matter how smart the team. It's a shame when founders build a real
company but destroy the value of its equity by trying to make it something
that it's not.

------
ashbrahma
Quite often you find entrepreneurs getting sucked into the mindset of building
for investors and not necessarily building for customers. Entrepreneurs and
their teams are too focused on valuation and not enough on business
fundamentals.

------
pdog
Silicon Valley is a place where founders need to be reassured that building a
company that's profitable but only worth $100 million is "nothing to be
ashamed of."

~~~
CyrusL
I don't think the article is about founders needing reassurance or emotional
support. It's advice for founders to navigate the dynamic with investors that
are pushing them to go for a bigger outcome.

~~~
adam
Or perhaps we can just stop referring to them as "medium success" companies.
"Medium success" for whom?

$100M in revenue/year to anyone but a very very small percentage of people in
the world is a wildly successful business you just built.

~~~
kozikow
Article speaks about $100M valuation. It's much different from $100M/year.

------
aetherson
This advice is valuable to more than just "airplanes," because the truth is
that there aren't just two classes of companies -- "airplanes" and
"spaceships" \-- there are infinitely many.

And it's just as important to realize that your $2B company is not a $20B
company as it is to realize that your $200M company is not a $2B company.

If your company can plausibly be $50M, and you realize that, you can get
wealthy and your investors can have positive outcomes (not "wildest dream"
outcomes of course). But if your company is plausibly $2B, but you try to make
it a $20B company, you and your investors will end up less happy than $50M
guy, even though his company was worth 1/40th of what yours is.

I think that the story of a lot of companies during the Great Recession is of
over-funding themselves to their eventual detriment -- even companies that are
objectively very valuable.

------
benjamincburns
Anybody have any advice for those who are actually _aiming_ to build a
perfectly serviceable airplane, preferably with a reliable-enough autopilot?
Articles containing such advice are also welcome.

~~~
civilian
Don't take money from VCs who are expecting a 10-20x return?

~~~
throwaway91111
Hell, avoid VCs entirely if you can avoid it.

------
ajamesm
> When you start a startup, you get pushed off the side of a cliff with a bag
> of aerospace parts.

Here's a pain point for someone to solve: why the fuck does the VC process
necessitate pushing unequipped people off cliffs?

~~~
jeremymims
There are actually a number of VCs showing up right now to address this pain
point.

They're tending to fund profitable B2B companies with $5-40m in annual revenue
and explicitly state that they're content with the option of 3-5X returns
(while still hoping for more).

~~~
nikanj
Could you drop a few names here?

~~~
pquerna
one example i know of: [http://scaleworks.com/](http://scaleworks.com/)

they bought Filestack (formerly Fileppicker), Chargify and a few more

Lew wrote about basically the same thing as sama earlier this month:
[https://medium.com/@lewmoorman/not-venture-scale-get-over-
it...](https://medium.com/@lewmoorman/not-venture-scale-get-over-
it-282e93c4f873#.z06m9ejoo)

------
cookiecaper
This is a very investor-centric article. It assumes that successful founders
will one day want to "hit it out of the park" by the investor's definition
(moreso than they have with a $100M company), as if founders live to serve the
interests of the investors.

I'd suggest that founders who have a profitable $100M company get themselves
free from the chain of their investors as quickly as possible and go about
their lives running a successful company, never worrying about what investors
think or want again. Remember which party is actually engaged in creating
something valuable here. You might need their money to start, but if you do
things right, you don't need it to live.

The other caveat here is that sama says many founders are surprised when
potential acquirers don't consider them "legitimately valuable". That's
because founders typically think of value in technical terms. AFAIK,
acquisitions happen only because you have something that the company can't
just rip off: either you already have a large/significant installed base in a
segment the company wants, a recognizable brand, or you have some intellectual
property that the acquiring company couldn't recreate by stuffing 3-4
engineers in a closet for a year (which costs ~$1M, much cheaper than any type
of exit you're hoping for) (this basically means patents that they want to own
for themselves, not really patents on interesting technology, because such
patents can normally be circumvented).

------
squidlogic
This seems to be a much more apt analogy for most startups:

Rather than being pushed off a cliff and asked to build a rocket, they are
being strapped to the rocket (of VC funding) and asked to make it to the moon.

Not to diminish the hard work that goes into building a successful startup.
Not all rockets make it to the moon, as the difficulty of a moon shot isn't
really in generating thrust, but thrust is a necessary but not necessarily
sufficient condition.

------
CPLX
"A company that has profitability within reach and is on track to be worth
$100 million with several more years of hard work. This is nothing to be
ashamed of"

I wonder if there's some vague sense of how disconnected one has to be from
normal conceptions of reality to consider building a $100MM company something
to be ashamed of.

~~~
nikanj
I was reading this, and nodding along, until I saw that number. Is SV really
that inflated?

Your average entrepreneur, say Bob from Bob's Plumbing, would be really happy
to have his company build to $10MM over a decade or two.

~~~
derefr
I've always interpreted this sort of valuation as more about "potential best-
case acquisition price" than about real market cap. Instagram was "worth" a
billion dollars, because Facebook said so; that doesn't mean it had a $1bn
market cap. But when VCs talk about you having a "$100MM company", that's what
they mostly mean: that there might be a Facebook or two around who would pay
that.

I'm actually curious, since we've seen a few (not many, but a few) tech IPOs
of these SV darlings in the last five years: how well does their publicly-
traded market cap today align with the projected valuations VCs invested at?

