I think what made people think DHH's advice was relevant to startups was that he was talking about starting a business to write software, which is also what most startups do. But structurally the kind of small business he was talking about was more like a landscaping company or a shoe store or a restaurant. Which is a perfectly legitimate thing to do; it's just not a startup.
Say like foot locker or Zappos for a "shoe store" (both big business) and say McDonald's or Olive Garden for a restaurant.
By the same measure, we're building 37signals to grow as well. Grow revenues, grow customers, grow influence. We're just not that hooked on growing head count or office space (which are often the most visible indicators of growth for a private company and thus often mistaken as the only indicators).
To me a startup simply means a new business that's getting off the ground. That business may well end up big one day and it may not, which is okay too.
I generally don't think that you can become a star by trying to be a star. I think you just try to be the best at what you do and if you are, hopefully the star part will take care of itself.
Maybe, but I didn't invent it. It's just the definition in current use. As most people use the word, it's more specific than a business that's merely new. As most people use the word, it doesn't include barber shops, gas stations, shoe repair stores, etc.
There are structural differences between that kind of company and a startup. McDonald's and Olive Garden aren't restaurants, but restaurant chains. They do things very differently from your local Italian restaurant.
But that's again off topic. I do agree that the startup term is most frequently associated with technology companies, but you do hear about startups within a fair number of other lines of business too.
Sometimes the chain guys will take a restaurant that's successful and turn it into a chain, but when they do this they usually keep nothing more than the name and a few recipes. McDonald's was a burger place started by the McDonald brothers, but it only became the McDonald's we know after Ray Kroc bought it and transformed it into a chain.
I agree that startups don't have to be doing technology. I don't remember saying otherwise.
You're right; restaurants conceived as chains dominate the top of the list, with some very notable exceptions, including KFC, Starbucks, and Subway.
Something else that the top of that list shares in common is that they were lucrative for their investors.
Something else that they share is that they are all crappy. Look how far down that list you have to go before you hit something you'd actually choose freely? In-N-Out is #89.
Basically, the difference between a small business and a startup is like the difference between a shrub and a redwood seedling.
The metaphor isn't perfect, because occasionally companies are transformed from one to the other. But this is extraordinarily rare.
How many YC companies fit this definition? I thought the goal was to make the founders rich, which so far hasn't included growing into a big company.
Amer. Heritage: A business or an undertaking that has recently begun operation: grew from a tiny start-up to a multimillion-dollar corporation.
Note that's just example usage; startup doesn't denote a design to become a big company.
I thought the goal was to make the founders rich, which so far hasn't
included growing into a big company.
Also, with only minimal snark intended: you're saying 37Signals is a "shrub"?
In the Apple/Microsoft initial period, there were plenty of smaller competitors who wanted to slowly sell stuff to hobbyists and "expand naturally" and none of those companies exist anymore.
There were no desktops when Microsoft started. There was the Altair, and they started by writing a basic for it. The market was not planetary as it is now.
Apple was started by a guy who wanted to make the best personal computers
Woz was making computers for himself and to show off at homebrew. From his own words, the Apple I was a PC board they sold to hobbyists for $40 apiece after manufacturing them for $20, per Jobs's egging. You're probably right about Yahoo, but MSFT and APPL did not start out as global reach companies. They started out as local restaurants.
If that happens to lead to a billion-dollar company, awesome. But the odds of business tells us that's probably not overly likely, so we're making sure we'll be happy even if that doesn't happen.
(Who knew merely being satisfied with millions -- single, tens, or even hundreds -- would sound like a humble goal in this context.)
You've assumed that 37Signals refusal to staff up and take speculative VC rounds means they're steering the ship away from being "a billion dollar mammoth". But 37Signals is more successful than most of the companies (yes, most) that take VC rounds, and has enviable revenue growth.
I think you're seeing a business model that doesn't fit the YC get-rich-quick mold --- and that's what it is, read the essays --- and pushing it into a "small business" bucket. The real world doesn't bucket like you want it to.
We now return to your regular program...
Some times they will simply develop concepts (often 4 or 5 at a time) start one of each, and see what sticks.
I've studied the restaurant industry quite a bit and can only think of a few chains that stumbled into it.
That said, the things you describe closely match what I've wanted to pursue. For me, and many others, it's the more rewarding, long-term way of doing things. Your talk at SS08 was a huge breath of fresh air.
But, I don't think it's all that fair to dilute someone else's definition of a startup with your own idea of what a startup is. It might be time to come up with a different term, and let startup mean the thing that pg and the vc guys and others want it to mean.
If so, there's an awful lot of tech companies that have been wrongfully labeled as startups under this narrow definition. And you'd only be able to call yourself a startup in retrospect once you saw whether you ended up being a megabucks exit.
So 37signals would have been a startup if we sold to Google tomorrow, but not if we kept on as an independent company just making money?
Do I necessarily think that that's the only kind of "startup" that exists? No, not at all. (And I'm probably gonna get busted at some point for putting words in pg's mouth.)
But, in a nutshell, no, they're not talking about the same kind of businesses you are. Others have already made this point for me (http://www.gaborcselle.com/blog/2008/04/startup-school-surfi...).
So, coming back and saying, "No, we're talking about two different approaches to the same thing!" ... well, that's not helpful.
Again, my only point is that they're talking about a very specific sort of model when they use the word "startup". If you think your model is the same thing, I wonder how you'd distinguish between a startup and a "software business", or "web venture", or whatever. (And, I think this point is getting made by other elsewhere, not just in this thread but outside of news.yc.)
PG, who is always civil here, dragged into a stupid semantic fight?
"So 37signals would have been a startup if we sold to Google tomorrow, but not if we kept on as an independent company just making money?"
No, man. You're just playing semantic games, and you know it . The company would have been a startup if its founders had the intentions of being large or becoming part of something large.
Really, you have nothing better to do than to come to this nice place and crap all over it?
You're giving him more credit than he's due. He is not polite. Passive-aggressive arrogance is not the same thing as "polite".
Argh. I haven't been doing anything to the definition of the word. I'm just using it as everyone does. Think about newspaper headlines, for example. Wouldn't you be surprised if a company described in a headline as a "startup" turned out to be a shoe repair shop, or Exxon?
I got an accountant to do my taxes this year for the first time. He called my sole proprietorship a startup and did the accounting accordingly. Bootstrappers: keep records of all your expenses, even if it takes years for you to get everything going. Eventually it will all be deductible, amortized over 5 years from the time you start getting revenue.
Every startup should be free to choose their outcome, and if most choose to try and quickly flip, then more power to them. If they choose to try and build a profitable independent business, great! There is no need to turn the 'liquidity event' vs 'sustainable business' camps into warring factions, like some weird language flame war.
It was refreshing at SUS to see a contrasting opinion, but neither side is trying to argue that their way is the only way. Both ways obviously work, and I think anyone would be happy with either of them over not succeeding at all.
Zappos was also a poor choice. It wasn't as if Zappos was a small time shoe store that decided to put up a web storefront and somehow magically scaled up its operations into a billion dollar business in the course of 5 years. Zappos was started buy a guy who had 250 million dollars from selling a software startup to Microsoft. It was specifically started to corner the online shoe market, in the same way Amazon was started to corner the online book market. It was also funded by Sequoia capital, further making it more like a "startup" startup than a DHH work-life-balance startup.
And I think that's really unfortunate because controlling the language controls the thinking.
Let's face it: people (at least in tech circles) think it is very cool to be in a startup. And it is in the VCs interests to further that sense -- of being caught up in something big and exciting.
It lends a rockstar sensibility to a startup that is NOT conferred to a lifestyle company.
Even reading at Paul's posting on this tends to reinforce that subtle dig -- look at the examples: "landscaping company or a shoe store or a restaurant". None of those sound exciting to me.
Perhaps my issue is that the measure of "grow very large" is ambiguous. Does it mean large profits? Sorry, Facebook. Large revenues? Sorry Youtube. Spending lots of money? Yay Webvan! Perhaps it means employing lots of people -- which the left-winger in me approves of mightily!
I've always felt that the goal should be to touch as many lives a possible. That's my personal metric on which I base "large". This is consistent with Paul's examples -- you can touch a limited number of people with a landscaping company or a shoe store or a restaurant.
But on the web you can touch a LOT of lives with a small set of money. I would hazard that David's touched far more lives at 37Signals through their consumer products and through Rails than all by one or two of the startups on YC or part of YC.
In my world, that counts as a startup.
Yes, the majority of breakout chains/startups are started as chains/startups.
But, plenty of breakout businesses aren't built to scale out fast. Starbucks didn't break out for over a decade. Microsoft didn't get the DOS contract until '81.
Meanwhile, lots of small businesses are small deliberately. Thomas Keller isn't franchising Per Se. Grant Achatz isn't franchising Alinea.
So what does it tell us when a company runs a single restaurant for 10 years, or refuses to take VC funding or hire ahead of revenue?
Alinea was funded by 8 futures traders who each put in half a million dollars.
From the site:
Opened in May 2005, Mr. Kokonas says Alinea grossed $3.5 million its first year, an average of $14,000 for every night it was open. There are eight investors: The smallest stake was $75,000, the largest Mr. Kokonas', at just less than $500,000. Return on investment is expected to exceed 20% per year, he says.
This doesn't sound like an old-school arts patronage to me.
You have to already be famous to start one, you have to have met a rich guy who thinks investing in you will make him cool, you only cater to a class of people who in previous centuries would be known as "the aristocracy." Etc.