

An Entrepreneurial Counter Culture is Looming – The Startup Market is Not OK - rizzn
http://siliconangle.net/ver2/2009/09/18/an-entrepreneurial-counter-culture-is-looming-the-startup-market-is-not-ok/

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patio11
Capital available in $200,000 chunks would be an interesting world:

1) You'd presumably want to make the offering mass-customizable, like a
typical residential mortgage. There are a few levers to play with, sure, by
98% of the contract got vetted by the company lawyers _once_ as being Good
Enough and folks can take it or they can leave it. This allows you to close
deals quickly, avoid spending much time teaching buyers about your process,
and have the deals offered by junior staff. Most home buyers want a house,
they don't want a mortgage. Most startup founders have a business to have a
business, not to raise capital.

(Note that this would make "comparison shopping" easy.)

2) Automate and outsource more of the process. Banks can profitably do loans
for $200,000 houses because there is an infrastructure of people who can say
"Yep, this is a $200k house" and FICO scores, which let you push a button and
get a quick estimate of my propensity to default in a second. I know we all
think we're beautiful snowflakes, but I'm willing to bet there is a function
which can be evaluated cheaply that is unfair, misses all sorts of edge cases,
has numerous theoretical problems, and nonetheless is Good Enough when only
$200k is at stake.

3) As you reduce the amount of marginal effort in each deal, it becomes
possible to scale it to the moon, in a manner similar to e.g. mortgages and
mutual funds. (The fund has a lot of money, the individual investors have
comparitively little money and reduced exposure to any single investment,
etc.)

~~~
jacquesm
The big reason banks can say that about a house is that there _is_ a house,
which is a commodity (or at least, they were until recently), so if the deal
does not work out the bank can sell the house.

Without collateral of some sort this will not work. And if you have collateral
you could simply either sell that or mortgage that (and plenty of founders
do).

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danielrhodes
I found the article was rather long and a bit confusing. I wanted to summarize
and clarify it:

There are more companies these days, but VCs are funding the same number of
companies as before with the same huge expectations. Why not instead fund more
companies with a lower amount of cash so as to not miss some opportunities.

My answer: putting all your eggs in one basket in a competitive environment
will likely lead to better results than spreading the money out among a bunch
of different baskets. Most startups are going to fail anyways, even with $200K
of funding because the markets they are hitting are not that huge, not to
mention all the other hurdles. What funding a bunch of different companies
does is make a clear market winner harder to come by, which screws everybody.
It's better if there was one clear winner sooner rather than later. My bet is
handing out smaller investments like $200K would actually make the IPO market
worse since most companies would get too tired to ever make it big enough to
IPO.

The quick answer to why IPOs have not been good recently (other than the
economy sucking): Sarbannes-Oxley made it very expensive to IPO with big
requirements which means that the next best exit is selling. To sell, you have
to get big fast to become attractive to suitors. Profitability/revenue is not
a requirement/important for selling to a larger company (they use startups to
cheaply get new talent and good ideas rather than quickly adding new revenue
streams). So why don't more companies focus on revenue as a backup plan? It's
very distracting and doing so means you might only scrape by. With such a do
or die environment, the goal is not to create good businesses which will
survive, just ones that will become great.

The good thing is that as it has become cheaper to run a startup, people have
more options and can create self-funded sustainable businesses aimed at
smaller markets. You won't become a billionaire doing that, but you'll get by.
That's fine with VCs though, they are after big returns. If you are
comfortable with creating such a business, by all means do so, but don't be
pissed when a VC is not interested, even if it does make a little money. There
is clearly room for both. If you do hit on a massive market opportunity, they
can always catch up with you later.

So what is something like Y Combinator? It is a cheap way to vet companies for
VCs and angels who see too many startups without enough information on them to
make a good value judgement on whether they'll succeed. You don't need $200K
to do that, you just need a small amount of money.

~~~
sielskr
The writing in the parent is significantly better than the writing in the
original post (the web page not on Hacker News). So, thanks, danielrhodes, for
summarizing!

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plinkplonk
"Technology, however, isn’t the driver any more for startups. The scarce
talent is business model engineering and product marketing"

How true is this? Sounds like wishful thinking from a non programmer to me.

(Please note : I am not saying that marketing/product engineering is not
important. They (obviously) are. I just think "Technology, however, isn’t the
driver any more for startups" is too broad a brush)

~~~
TimothyFitz
I think his point is that scaling up on the web is a solved problem, which is
mostly true. If you look at most startup's pitch/plan the biggest risks are
not in technology.

Steve Blank would say there's Market Risk (will your customers want it?) but
minimal Invention Risk (can you deliver it?). Contrast this with biotech where
you're trying to cure diseases. Minimal market risk, tons of invention risk.
Read more here: <http://steveblank.com/category/vertical-markets/>

~~~
plinkplonk
"his point is that scaling up on the web is a solved problem, which is mostly
true"

Maybe, but that isn't what "Technology, however, isn’t the driver any more for
startups" means. "Technology" is a lot more than "scaling on the web", even in
software based startups.

"Steve Blank would say there's Market Risk (will your customers want it?) but
minimal Invention Risk (can you deliver it?). "

Steve Blank is also careful to qualify that statement with "for some types of
startups" (unlike the author of this article, hence my "too broad a brush"
judgment). Assuming every software startup, even when the web is used as an
interface, is a "web 2.0" startup with minimal Invention risk is intellectual
laziness.

"The scarce talent is business model engineering and product marketing"

This doesn't have any supporting arguments/evidence/data. sounds like
something a non programmer MBA type person, for whom of course programming is
easy and programmers are commodity hires (like say receptionists) would say.
I'd like to hear a supporting argument for why great programmers, who are what
startups are usually desperate to hire, are not "scarce talent", but marketing
folks are. Sure, for _some_ startups, that is no doubt true, but as a
generalization it seems too broad, which was my point.

So yes I've read Steve's book too and like it a lot :-), but I don't think
this dichotomy of risks supports the original article much.

~~~
TimothyFitz
I think we're agreeing. As I do for all blogs, I just assumed the courtesy
implicit prelude: "This is my opinion shaped by my experiences and most likely
only applies to the system I'm currently interacting with."

I mostly agree with his sweeping generalization if applied to, say, the subset
of startups that get coverage on Techcrunch.

~~~
plinkplonk
"I think we're agreeing."

Yes we are.

"As I do for all blogs, I just assumed the courtesy implicit prelude: "This is
my opinion shaped by my experiences and most likely only applies to the system
I'm currently interacting with.""

As did I, but if, as a writer, I made an unqualified claim (even if true) that
is completely out of whack with my _readers_ experience, I think it is fair to
get push back. This is perhaps due to my coming across this article on HN vs
directly on the original site.

I think the article is a decent one (not great, but decent).

"I mostly agree with his sweeping generalization if applied to, say, the
subset of startups that get coverage on Techcrunch."

As would I. But this is HN. :-)

------
TimothyFitz
"The scarce talent is business model engineering and product marketing –
building for scale isn’t the problem anymore. I can build a hack protytype
that works well into the "validation" stage to establish a funding event or
customer revenue stream then use the new capital to rebuild, hire and grow."

This interestingly follows my own career growth. I was the tech lead
responsible for scalability/reliability at IMVU for a long time, but
eventually our bottleneck clearly shifted from reliability back to
marketing/product development. Around that time I switched teams, and have
since been the tech lead for our marketing team. It might sound less sexy to
other engineers, but getting to be on the bleeding edge of marketing for
virtual economies is constantly challenging and fun; especially with IMVU's
data driven culture.

~~~
arijo
Do you think IMVU would be the great company it is today if it started with
two product marketing folks and one business "model engineer" and all the
programming was outsourced to "commodity" coders in elance.com or
getafreelancer.com?

~~~
plinkplonk
that seems to be a reaction to an exaggeration of what Tim said. He clearly
said(emphasis mine)

"I was the tech lead responsible for scalability/reliability at IMVU for a
long time, but eventually our bottleneck clearly _shifted_ from reliability
back to marketing/product development. "

I read it as, " _Once_ we got reliability sorted out, the bottleneck _moved_
to marketing/product development."

He never said IMVU could have been built without good programmers(of which
class, he is an instance), but product dev/marketing _became_ (or were)
equally important (or more important) and so he moved to that team. At least
that's how I read it

~~~
arijo
I agree. However the point I was trying to make is that technology expertise
continues to be a "scarce talent" which seems to be the opposite view of that
supported by Tim's post.

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jf781
I really am enjoying the thread here on my post. Interesting to see some of
the comments thinking that I'm anti-development with my quote about product
mktg and validation is the scarce resource. Of course great architects and
developer are the scare resource but I've seen many code a great solution
right now a cul de sac of no market.

to me the biggest issue driving this counterculture that I'm seeing is "trust"
of the capital markets. Especially since most of the productive actors in this
marketplace have lived in a successful open source movement culture for 25
years. The capital markets (VCs) are at odds with this culture.

There are many other points in the post that I would be happy to discuss if
there is interest.

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wattersjames
With cloud computing rising to prominence as the underpinning of many modern
web applications the amount of technology already 'assumed' in any new
application design.

This trend seems to align with John's key point.

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ruslan
I read through the article but could not get the roots of "shrinking venture
market" problem. Can someone please summarize/provide better explaination ?

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lsc
do you really think handling a (non-technical) investor will be less work/less
distraction than contracting part time? Sure, contracting takes time away from
what you want to do, but it's pretty easy, and clients don't push you to do
things that may not be in the interest of your customers.

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rizzn
This is the final draft based on the original Hacker News thread and
conversation about a month ago.

