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Starting a Business in Silicon Valley (tlalexander.com)
257 points by imartin2k 55 days ago | hide | past | web | favorite | 135 comments



These articles are always a guilty pleasure, because all of us reading them can point out countless mistakes the author made that we, of course, would never make. All the time failing to consider that we would simply make different mistakes.


I like this tweet from Zach Holman [1]:

1. Try something new

2. Read all the advice from experts

3. Nod and say “sure, no problem”

4. Make all the mistakes anyway

5. Finally understand for yourself what that advice really meant

6. Advise beginners not to do that thing

7. Repeat

---

I've had that experience more than once.

* "Don't remove the credit card field from your sign up form."

* Hmm, but what if I remove the credit card field from my sign up form?

* Conversions went down

[1] https://twitter.com/holman/status/990311600451076096


LOL...Substitute "parents" for "experts" in 2 and your comment is an observation of youth growing up. I think it's a human condition.


Experience is what you get just after you needed it.


Completely agree. But if you read something like this, you notice there will be a failure...

> but all the stories of success from Techcrunch, the accelerator Y Combinator, and the Facebook movie combined and fed in to my fantasies that somehow through sheer will and my own brain power I could achieve similar success

Maybe just me, but getting inspired by Mark its the first mistake you could do.


Just you. What's with all the hate to Mark lately? Even tho Facebook has its issues today it was a very innovative and well-executed product.


That's not how I read it...more like "watching a movie about facebook and building my hopes and dreams on this being me in x years" is what you should avoid.

FB/GOOG/etc are the very rare outliers. Don't hedge your business (or mental-wellbeing) on the expectation to replicate their success.

It's good to have high ambitions but have a plan B & don't expect to be the unicorn. It would be analogous to starting a band in the hopes of becoming the next Beatles.


Facebook has had major ethical issues every step of the way and Mark himself has made some serious mistakes over the last year or two. Plus, arguably the most innovative part of Facebook was the go-to-market strategy.


Indeed. I'll see stuff and be like "that's idiotic" and them I'm like "Ryan, with your last company you did a 9/11 sale and got ripped apart online for it because you don't have a high EQ and didn't even think how it would be received, go stand in the corner".


> I'd later learn from some hardware experts that you really want to price goods like mine around 5x the cost to manufacture.

This. If you're doing hardware, your price needs to be minimum 3x-5x the COGS.

If you think you're going to win some market by pricing with lower margins, like 1.5x-2x, you're setting yourself up for failure.

Interestingly, the same rule holds for restaurants: food input costs should be no more than 20-30% of the meal price.


There's a good video from EEVblog (EEVblog #887 - The Economics Of Selling Hardware) where he suggests a MINIMUM of 2.5 x COGS. But I think that was assuming directly selling to customers and passing the cost of shipping to the customer.


I recall that episode. It was a Bobby Dazzler.


Know the owner of a failed restaurant. He said you aim for 25% for food but usually it ends up around 33% no matter how hard you try. This was for a single non-chain restaurant.

Someone else about to close a business down for a physical product. He was boutique sized, because of competition from factory made higher volume, he could never get above 2x COGS, and it has been a hard grind that is now losing money instead of the narrow margins he'd had for a while.


Gordon Ramsay likes to say something similar. The costs should be:

- 33% food

- 33% all other expenses

- 33% gross profit


Is there a Net Profit target % too?


On average, 3-5%.


Cousin is a restaurant manager in the bay area. He mentioned that the margins are so thin in the business that one or two "bad" nights can literally ruin the balance sheet for the entire month.


Brutal. Imagine the effect raising the minimum wage could have on top of that.


I don't have to imagine - Australia has a much higher minimum wage than America and we still have plenty of restaurants. Maybe their margins are just better. Maybe that one particular restaurant would go out of business and others would continue, maybe they'd raise their prices along with their competitors.


Speaking as an Australian living in the US, it's a little bit different. Australians are used to the higher price of food, have been trained not to expect table service, have a rigorous set of laws around underpaying trainees and teens, have endemic "under the counter" wage fraud to avoid taxes and the minimum wage, and don't feel morally obliged to tip their expensive waiters and waitresses.

Maybe if America slowly increased the minimum wage at inflation + 10% each year, it would end up in the same place as Australia. Right now, US social rules and expectations are set up around a low minimum wage, and doubling that minimum wage overnight might rock the boat a lot.


> Australians are used to the higher price of food, have been trained not to expect table service, have a rigorous set of laws around underpaying trainees and teens, have endemic "under the counter" wage fraud to avoid taxes and the minimum wage, and don't feel morally obliged to tip their expensive waiters and waitresses.

Woah. One of these things is not like the other ones.

(As an Aussie, though, the tipping thing just seems weird. It's nice to tip a little for really good waitstaff, but if doing so means they get a pay cut on their hourly wage then that's bogus. Paying your staff poverty rates because you expect them to live off tips is like paying your police force poverty rates because you expect them to live off bribes.)


It's actually sort of related. Because US waitstaff get so much of their pay in tips, the industry commits fraud by under-reporting them, while in Australia the industry actually pays its staff, and so commits fraud by under-reporting hours and headcount. I'm sure prices will rise a bit until everyone figures out how to rip off the taxman again.


That is a very wrong metaphor.

A waiter literally works for you during the meal you tip for. A policeman is not supposed to.


> A waiter literally works for you during the meal you tip for.

As a European I would say that US type waiter works against me. When I'm trying to eat my meal, I don't need some stranger to come to my table every two minutes to ask me "how are you?", "is everything ok?", "do you need something more?". It's just annoying. I can't eat, I can't talk personal talks with friends, when someone is around me trying to annoy me all the time. I can't raise my head or look around because the waiter would come to annoy me again. And in the end, that annoyance comes to your table and expects 15-35% of the price for the annoyance "service" he gave you during the lunch?

Sorry, but when I'm in restaurant, I just want to order food or drink and be left alone. If I need something I'll raise my hand and wait. What's the issue in waiting for a guy to come, he's a waiter after all ;) If the waiter comes quickly after I raise my hand (usually to pay the bill) I would round the bill to the next full €, and that's it.

That's why in Germany you have 3-5 times less waiters serving the same number of people in restaurants, they are paid a livable wage, and you pay what you see in the menu, without a need to add 50% for VAT and service tips.


That is the same opinion I have voiced here before, my experience with waitstaff in the US was atrocious, I really wasn't prepared to be interrupted every 2-5 minutes by the waiter doing a tour around the tables and asking if I need something else, if everything is ok. Even more because it feels like I'm being rushed.

In one specific instance I had finished my meal and was pondering on getting dessert or another beer, talking to my friend, the waiter came over to ask if we wanted something else, I said "not yet" and 2 minutes later had the check on my table.

I really didn't have any great experiences in the US on a sit-down restaurant, the food was nice but the service is always too much on your face. I understand that it's done because of American's social norms but even coming from a Latin country it felt way too much. And way too fake, my feeling was always that this behaviour was for the tips, never for a genuine care on how I'm being served.


I know how it works in Europe, I'm European. Why should it work like we want it to all around the world? Haven't we exported enough of our culture? USA is a different place, let it be.


I'm not an European (as stated on my other comment, I'm Brazilian) and was also quite bothered by servicing in the US.

I wish there was a way to signal that I don't want to be bothered but even when I voiced this feeling to a waiter in NY he was still coming around unasked.


What's wrong with exporting best practice? Underpaid waiters bugging customers on the expectation that with enough extra coffee they might get their aspirational wages paid, customers who have to calculate the cost of their meal plus service charge... in what world is that efficient?

Restaurateurs - just pay your staff properly, waitstaff - don't bug the customers; there you go - european advice for free.


We can give advice but we shouldn't expect them to conform. I think people should be free to do any business model they wish.

There is root cause underneath - poverty. Let's focus on that.


I guess this is a perfect illustration of the difference in perception, because I wrote that thinking "the waiter works for the establishment (for pittance) and you tip (bribe) them for better service (nicer treatment).


> A waiter literally works for you during the meal you tip for.

No, they work for the restaurant. Their job is to relay orders from me to the kitchen and bar.


And you think that a human alternative to conveyor belt is worth more than the current minimal wage?

You got the whole thing wrong, and you managed to insult every waiter and waitress in the process:

A waiter does so much more than that. They generally take care of you - they help you to choose your places to your liking, undress, seat, they recommend food based on their expertise and clever judging of their client, and so on - they generally take care of you, and that can and is (and should) way more complex than being a human conveyor belt.

The actual argument is whether this job is a job done to the customer or to the restaurant (because it can be thought of as a whole package service or their image).

Americans think that the waiter will help a client more if the client is the person who pays them - literally, with actual cash changing hands.

Other people don't. I'm from such country and sometimes it leads to horrendous results, however most of the time it's OK - yeah, "OK", never great, so I definitely can see the point the Americans have.

Overall, IMO there are places where human staff is appropriate (fine dining places, brewery, upclass cafe...) - tipping is appropriate here. Of course there are places where the point is to obtain a plate and eat everything as soon as possible so you can be gone - but IMO people shouldn't serve the plates at these places.


They don't do any of that. Waitpeople aren't magical happiness-producers, they're just pleasant and make sure your glass is refilled and ask if you need anything. Which would just be my Australian experience talking if it hadn't been exactly the same when I was in the U.S. Waitstaff aren't magical concierges of euphoria, they're just nice and bring you more coffee.

As you say, the real difference is whether the waitperson is an employee of the restaurant who is paid by them to look after you, or whether they're an independent contractor who resells the kitchen to you at the table as a service. The service produced is generally the same, IME, but in the U.S. model you have to negotiate with two different contractors while each is trying to push the costs onto the other. Ugh.


Cute metaphor. But waitpeople can't actually set their price. They don't say "You want more coffee? How will that affect my tip?"

In a tip economy they are what they are - poor supplicants begging for your scraps. They have no power over the kitchen nor much over you, since they get their feedback after they've made their 'pitch' not before.


Waiters don't do ANY of what you suggest they do.

1. They can't choose a place to your liking, because they are assigned to specific zones of the restaurant. At best, you can request the host/hostess for a particular location, at which point your waiter is selected for you by virtue of your location.

2. They don't . . . undress you. You may be thinking of a brothel, not a restaurant. This claim is probably the most bizzare.

3. Again, it is generally one of the host staff that does the actual seating.

4. If asked for a recommendation, at best you'll get what they prefer eating, or a generic "what's popular" suggestion. In no way do they judge their client (On what? They just barely met you!) and immediately recommend that you'd love the lobster bisque because . . . your hair is brown.


I think I'm used to visiting different sort of places than you do (but I don't mean snob places, most of the ones I frequent are affordable for a working university student).

>2. They don't . . . undress you. You may be thinking of a brothel, not a restaurant. This claim is probably the most bizzare.

I'm not native english speaker. What is bizzare about waiter taking your coat and carrying it to the coatroom, "helping" you off it in the process? It's act of courtesy.


Let me rephrase: the waiters are the customer facing employees of a restaurant. They are no more working for the customer than a till worker in a shop is, or a help-desk employee is. Therefore, the onus is on the restaurant to provide compensation for their time, not on the customer.


Except in a free market, the customer is free to compensate the waitstaff at will. Which enables tipping whether we want it to or not. And motivates the waitperson to behave differently than a simple employee.


That’s a false equivalency.


"False equivalency" is a nonsense phrase. Analogies aren't true or false.


There is an article on the German satiric website "Der Postillon":

"Study: Wages cause billions of damage for German companies"

https://www.der-postillon.com/2014/08/studie-lohnzahlungen-v...


Ok, I imagined it. What I saw was a lot of restaurants closing and new restaurants with better models opening in their place


Minimal effect on the business directly because the costs just get included in the formula to determine how much they're going to charge for the meal. As it's a statutory change, everyone's costs go up so everyone's prices go up.

There's ancillary effects of course but not in the way you're suggesting.


I think the minimum wage laws apply to all restaurants. So prices just go up.


No diversion of consumption to home-cooked meals (single or multi family)? No marginal restaurants fail? No reduction in tipping? No reduction in add-ons to meals? (apps, drinks, deserts) No reduction in staffing count, hours, or benefits?

It would seem unusual if “prices just [went] up” without any other changes to the overall system.


Everyone deserves a livable wage.


That doesn't tell us much without knowing what standard of living you think everyone deserves, and for what level of effort. And if I'm more kindhearted than you and think that everyone deserves a standard of living twice as high for half as many hours, what then?


I don't have answers to those questions but it doesn't mean I'm wrong.


Not much, because (1) the effect would be felt by all restaurants at the same time and (2) your customers would have more money to spend.


#1 is definitely true but #2 is only true if most of your customers make the minimum wage. Since we're talking about less than 4% of hourly workers[0] (so excluding everyone making a salaried wage which is going to be almost everyone reading this and everyone they interact with professionally), it's extremely unlikely that a majority of your customers make the minimum wage even if we're talking about a fast food franchise.

[0] https://www.bls.gov/opub/reports/minimum-wage/archive/charac...


Always surprised to hear friends & acquaintances remark that a $50 dry-aged steak from a steakhouse is overpriced.

24 ounces of Prime beef, aged for a month? I'm not sure I can get it myself for less than $25/lb.

No way they're making money on the beef.


A well known Dutch chain restaurant owner once said "They're eating me poor, but drinking me rich".

Good waiting staff is worth their weight in gold. Knowing when to ask if the customer would like an extra drink is an art. On a side note: I never get the 'free refill' policy in the states. Why would you give something away that has a 300% margin...


For drinks that get free refills the initial sale means more than the refills. It literally cost 1c to provide the drink and you sold it for $3.00 (that's the 300% margin). Who cares if you spend another 1c to provide a free refill if that would be the difference in the customers mind on whether they should buy the drink initially or just have water or OJ (something that has negative margin, or a very low margin).


Ah, so the refills are for fountain drinks only? I'm not from the US, and I never realized that. Thanks!


Yeah fountain drinks and occasionally tea (sweet or unsweet) depending on where you are at.

No problem!


I'm kinda curious where the rest all goes. Seems like there's a market opportunity to streamline operations & improve efficiency if 80% of the purchase price of a product goes into things that are not the product.


5x the cost to manufacture, which would not include product development, not to mention sales, failed products, cost of returns or fixing defects, office rent, testing, certification, support, and on and on and on.

There is a market opportunity and many people capitalize on it. Amazon is full of things like this. Generic items or barely designed items with your brand stuck on them, built by somebody found on Alibaba and shipped to the consumer. They're fantastically cheap, the margins are much thinner, and the products range from adequate to terrible.

It's terribly difficult to build a high quality product people will want for many years (no new design costs) which you don't have to market or do anything with and can just manufacture and sell for a tiny profit. When it is done you'll usually find it as a small very specialized family type business which hasn't sold out yet.


But still, most of those things are one time costs: product development, failed products, fixing defects, certification. once you have completed those things, you can keep selling the successful product for decades right? especially now that the pace of innovation is slowing down. I mean just look at the clothing industry: a t-shirt today is the same as it was 10 or 50 years ago, right?

I would imagine things are super high tech and new, would need some iteration in their first 5 to 10 years, but after that, I don't know.

the costs that scale with each good sold is: Support, cost of returns, Sales, marketing, etc.


Constantly amazed at folks who don't appear to have any relevant experience pretending to educate folks who clearly do. You managed to list 4 things before punting to "etc." and 3 of them were lifted from the parent without modification. Can you explain how the only thing you added, marketing, scales per good sold? Why is "fixing defects" a one-time NRE and not related to the volume of product produced?

But who can forget the stellar recent hardware companies like Fitbit, Jambox, Sonos, and Pebble all of whom waited a minimum of 5 years before bothering to introduce a second product.


Name something built by a hardware startup in the recent past or imaginable future which would be designed once and built for 10 and 50 years exactly the same.


Jenkins valves. Same cast iron gate valves for a century.

Ad from 1924.[1]

Current product brochure.[2]

Jenkins used to advertise that one from a 19th century water main had been removed because the line was being re-routed by a water utility. The valve was cleaned up and put on display, and after a while, when everybody was tired of looking at it, it was put back into inventory and went back into the ground, probably to serve another 100 years.

[1] https://s.ecrater.com/stores/260372/5725ed67b3cab_260372b.jp...

[2] http://www.cranecpe.com/chem-energy/products/valves/gate-val...


  recent past

  1924
I think you may've skipped a step.


It also says that will be built almost the exact same for the next 10 to 50 years. In this case I would consider recent past everything going back to around the start of the 20th century.


> Jenkins valves. Same cast iron gate valves for a century.

More than 150 years!

"Jenkins Valves - Since 1864"


This is so cool, thanks for sharing!


The Hitachi Magic Wand


Nah, even sex toys are constantly improving and being made more "efficient".


...and yet this market-leading product remains essentially unchanged since its debut in 1968.

How many other electronic devices can make that claim?


Unless you're selling paperclips, it's never that easy. There's always constant work to be done with any reasonable complex modern product, especially if digital.


You need to give away margin to distributors and retailers.

If you go direct to consumer, you need to invest in building out awareness, and online and offline sales channels by yourself, which costs margin too.


I, too, think that industrial designers, PM's, engineers, DFM experts, labor that actually produces the thing, 3PL, packaging experts, marketers, salesfolk, shipping, a dozen required professions I'm still forgetting, and retailers shouldn't see a dime. Buncha greedy jerks trying to horn in on my money I'm paying for a bunch of unprocessed plastic and raw sand.


Payroll, customer acquisition, rent. (Probably true for both hardware companies and restaurants.)


Yes, totally true. And this very reason "good goods" don't survive on the market for long.

The need to just make any money at all, means that you have to import cheap goods from China, unless your competitive advantage will worth more than that 5x margin ones get from "cheap sh*t." And you will never ever get this for any non-high tech (which implies easy to manufacture) consumer product.


> cheap goods

Price anything at professional grade. For example, a heavy duty professional microwave can cost well over $1,000, but you can run it 20 hours a day for years.

Thanks to my former restaurant owner friend for this example.


This isn't true anymore.

There are plenty of direct-to-consumer brands now thriving with around 50% to 60% gross margins, i.e., selling at 2x-3x COGS.

If you have a quality product and a lean sales organization, the 5x COGS model is a thing of the past.


> There are plenty of direct-to-consumer brands now thriving with around 50% to 60% gross margins, i.e., selling at 2x-3x COGS

Mature ones, sure. Unless you plan on financing growth pretty much exclusively out of the middle of your cash flow statement, however, you'll need a wider margin as an upstart.


We are tentatively at 3x COGS for a hardware product we are about to launch in Q1 2019 and the margin feels incredibly tight. We may go to 3.5 - 3.7x COGS.


Pricing is scary. But people have subsequently told me they would have paid $85 per board for my product. I charged $20 and it sunk me. $85 would have meant a small manageable launch that was well funded. Instead I went $100k in debt. Be sure you’ll hve enough to cover unexpected issues. Are you over optimistic about production targets, setbacks, etc? My time estimates were way too optimistic which compounded the price issues.

I’m obviously biased from my bad experience, but do be mindful to do due diligence on pricing, delivery, and costs. Well, my other issue was that I didn’t know how to do those things and I ran out of time.

Best of luck on the launch.


That's an insane ratio. Maybe makes sense for consumer markets and sale through retail channels, but not in general. Your competition will eat you alive.


The difference between the ancient way of working a lifetime for a salary, perks and a gold watch on retirement and the new one of building a breakout company in tech lies in a wholly changed business environment by which super-talented founders with a business sense can draw on a depth of knowledge/expertise (typically gained from work experience in a demanding tech environment) to conceive of a solid business model to profitably disrupt existing enterprises and thereafter apply grit, good sense, unbelievable perseverance, and basic street smarts to execute on that model via a startup world that affords amazing access to capital, an ultra-connected network of technically savvy persons with whom one can potentially ally, and a huge reservoir of resources by which founders can educate themselves to learn, grow, and develop.

One might sum this up by saying "Silicon Valley" but it really is most anywhere in the modern world where any modicum of freedom prevails, though Silicon Valley still offers unique advantages in my view.

The odds of failing are still stunningly high and those who make it to success are often bloodied by the process but the door is open today in a way it never has been before.

Another way of saying this is that, in the founder/investor partnering that is typically necessary to succeed, no arrangement was even possible for all but a rare few in mom/dad's ancient days, a reasonable arrangement that skewed heavily toward investors was possible just 20 years ago, and an even more reasonable one with founders and investors in near parity (when the founders are strong) is readily achievable today.

I actually don't believe that the story told in this blog post conveys a typical situation but what I have just said does so based on my having worked in depth in this world since the mid-1980s.


> The difference between the ancient way of working a lifetime for a salary, perks and a gold watch on retirement and the new one of building a breakout company in tech lies in a wholly changed business environment by which super-talented founders with a business sense can draw on a depth of knowledge/expertise (typically gained from work experience in a demanding tech environment) to conceive of a solid business model to profitably disrupt existing enterprises and thereafter apply grit, good sense, unbelievable perseverance, and basic street smarts to execute on that model via a startup world that affords amazing access to capital, an ultra-connected network of technically savvy persons with whom one can potentially ally, and a huge reservoir of resources by which founders can educate themselves to learn, grow, and develop.

The length and structure of this sentence obfuscates its meaning.


After several minutes I was able to read it in full... and lots of reading and back-tracing.

He says our business model is "wholly-changed" and now founders need to be super-talented and a long list of other things in order to succeed in the modern world.

I would argue that founders have always needed incredible smarts and a good product/market fit to succeed. I don't think anyone would claim that the "titans" of industry (think Rockefeller, John Jacob Astor) didn't have street smarts, grit, and perseverance.

> affords amazing access to capital, an ultra-connected network of technically savvy persons with whom one can potentially ally, and a huge reservoir of resources by which founders can educate themselves to learn, grow, and develop

For sure, there's more resources (cheaply) available than ever before.

IMO, this should all add up to make it easier to start a business and succeed. Maybe that's what he wanted to say.


I assumed it was satire.


That's putting it nicely.


It would also crush all-comers in a game of buzzword bingo!


> The difference between the ancient way of working a lifetime for a salary, perks and a gold watch on retirement

That system existed for at most 40 years, probably less. It lasted from the beginning of the post WW2 boom to the oil crash in 1973. It lingered on in companies built up during that era and the expectations and cultures built up then but it was surely dead by 1990. To call a system that barely lasted the working life of one human ancient is a bit much, no?


Governments and the church have supported that career structure for hundreds, maybe thousands of years. For example, military officers take salary, perks and retirement.

Also large, long lived companies like the 17th century East India Company employed tens of thousands of people, many for decades.

China also has centuries old companies and civil service institutions.

Neither entrepreneurs nor megacorps are recent inventions.


True but hardly relevant to the great majority of people throughout history. The modern civil service is a copy of the Chinese Imperial model but outside the Sinosphetr that started in what the ~1800’s? In China throughout the vast majority of its history you had well under one professional, career civil servant per 1,000 of population. The professionalised military is also a creature of the European Wars of Religion at the earliest. Officers didn’t get pensions, they got the opportunity to loot and if they survived and were lucky they got land. Converting officers from nobles or mercenary captains who brought their own men and equipped them to military civil servants was a long drawn out process.

Parastatal companies like the EIC or VOC were products of societies that had just barely mastered professional rather than personal administration. They were also very unusual. Setting them up took special acts of the legislature and vanishingly small portions of the population served in them, or any similar organisation.

Professional bureaucratic organisations outside the state were absolutely in place by the Renaissance, like Florentine banking houses but they were small.

Entrepreneurs and mega corps are not recent inventions but mega corps not intimately entwines with the state are. In what Francis Fukuyama calls a closed access order they’re impossible and open access orders are at most two centuries old. See his book, Origins of Political Order.

The efflorescence of megacorps, outside the state, that could believably promise a lifetime career with the security of the civil service was a time limited thing.


Well, if you'd said "was efflorescent for 40 years" and not "existed for 40 years", I wouldn't have had any beef :)


No the modern western civil services are not a copy of the Chinese system - it was developed to replace nepotism and fraud.


https://en.wikipedia.org/wiki/Civil_service

> The origins of the British civil service are better known. During the eighteenth century a number of Englishmen wrote in praise of the Chinese examination system, some of them going so far as to urge the adoption for England of something similar. The first concrete step in this direction was taken by the British East India Company in 1806.

> Thomas Taylor Meadows, Britain's consul in Guangzhou, China argued in his Desultory Notes on the Government and People of China, published in 1847, that "the long duration of the Chinese empire is solely and altogether owing to the good government which consists in the advancement of men of talent and merit only," and that the British must reform their civil service by making the institution meritocratic.

> Influenced by the Chinese imperial examinations, the Northcote–Trevelyan Report of 1854 made four principal recommendations: that recruitment should be on the basis of merit determined through competitive examination, that candidates should have a solid general education to enable inter-departmental transfers, that recruits should be graded into a hierarchy and that promotion should be through achievement, rather than "preferment, patronage or purchase"


Interesting I never knew that. I thought it came from the reforms post restoration in particular the Royal Navy.

Downside is it prioritises a classical education and the cult of the amateur chap who did a PPE but doesn't have any serious domain knowledge (Jen from the IT crowd)


No reason it can’t be multicausal, or that the actual reasons and the intellectual window dressing can’t be utterly at odds. Dewey’s American educational philosophy is very different from the Prussian model of schools as a factory for good, loyal subjects but while American teachers are taught about Dewey the system they work in is a Prussian one.


This is the winner-take-all economic system that we have constructed for ourselves. It's not a law of nature.


Winner take all systems occur anywhere that there are large differences in quality of performers and the top performers can serve many consumers (almost) as easily as serving as small numbers.

Before recorded music the very best professional musician probably made five times as much as the one who was just barely able to reliably get work.

There’s an entire economics literature on these systems.

https://en.wikipedia.org/wiki/Tournament_theory

> Tournament theory is the theory in personnel economics used to describe certain situations where wage differences are based not on marginal productivity but instead upon relative differences between the individuals.

Where this doesn’t apply you get Baumol’s Cost Disease.

https://en.wikipedia.org/wiki/Baumol%27s_cost_disease

> Baumol's cost disease (or the Baumol effect) is the rise of salaries in jobs that have experienced no or low increase of labor productivity, in response to rising salaries in other jobs that have experienced higher (low or no) labor productivity growth.

> The rise of wages in jobs without productivity gains is from the requirement to compete for employees with jobs that have experienced gains and so can naturally pay higher salaries, ...


"Winner-take-all" is an end result, not an explanation.

The explanation, or part of it, is a unified interconnected world market where even a tiny idea, well executed, can be incredibly well rewarded, since it scales across the economy of most of humanity.

Nobody really "constructed" it. It emerged.


Of course it was constructed. Aliens didn't just drop it from the heavens - the US specifically released the internet to the public and commercial interests, whereas previously it was limited to academic interests. Once commerce was up and running on the internet, it was simply a matter of companies getting big quickly and inserting themselves as middlemen between customers and producers/distributors. The fact that most of these companies eschewed profits for many, many years in favor of growth makes it self-evident that they understood that capturing the majority of the network (winner-take-all) was the primary goal.


"People will come up with reasons the system they live under is the laws of nature," probably is a law of (human) nature, though.


Actually it kinda is (power law and all). Whether or not we should choose to adhere to it is another question.


Oh wow I didn’t expect this to get posted yet! There is also a video of this lecture, which I’ve now added a link to in the article.

https://youtu.be/huOzokY_fME

It’s part of a series of lectures I delivered are African Leadership University in March. Please check out the playlist here below. I just finished editing these videos last night! https://www.youtube.com/playlist?list=PLP0dfLFk-anezfZZMB4Dh...


Wow this is was truly an amazing piece to read. I have a few questions:

1) How did you manage to keep working even after you realised you were $85k in debt after 2 years?

2) What drove you further into investing into the business after that point? Sheer motivation?

3) How did you stay sane throughout all this?


I'd like to see a essay about starting a business outside the SV. Maybe even outside a startup hippie communities in general.

* no investors interested in pre-seed phase - they all say that you should call them when you are already profitable

* nobody interested in being cofounder - cold cash only

* clients saying that they like your MVP - but you unknown, so they won't buy the product anyway

I don't mean that in SV things are magically happening on its own, but sometimes I have an impression that anywhere else you have to be twice as bold and twice as careful to get 1/10th of a result... Yet they are written in a way that suggest that you can easily reproduce SV results everywhere.


Check out the MicroConf community - https://www.microconf.com/

Read the The E-Myth Revisited (80's classic)

Check out MIT's Bill Aulet's Disciplined Entrepreneurship: 24 Steps to a Successful Startup & accompanying workbook.


If you think about it from the first principles and ignore the location, it’s a fact that a business can be launched anywhere. We are in a global economy and most software runs in the cloud. Companies like Stripe will let you bill from the cloud. So technically running a SaaS company from anywhere should be possible.

That being said, any great company is a product of vision * team * execution * luck.

SV and to a larger degree US provides the huge networking effects of talent, funding and a big market.

That being said, it still warms my heart to see successful startups from other countries do well.


"I knew at that moment I wanted to run my own robotics company. I have been hell bent on it ever since."

Robotics is a tough business. The problems tend to be way underestimated. Even by the big names, like John McCarthy and Vic Scheinman. There is progress, but it's slow. I've done some stuff there myself, but never made money off it, although I sold some technology off to the game industry.

Linear motors have never made it big. They exist, but they're a tiny niche and cost too much. I once was very interested in Aura, which made the electrical equivalent of a hydraulic cylinder, but they went off into strange directions, first subwoofers for gamers (the Aura Interactor), then some financial mess.

If you're building RF stuff, as this guy was, the test gear you need is quite expensive. More expensive than what you need to build the product. Big problem for startups.

This guy seems to have failed to research the history of the fields he was in. That's important in technically hard areas. Otherwise you repeat old mistakes.


Well I did have the help of Silicon Valley’s most talented RF guy, who had met me and agreed to lend me his time and lab to help test my product. I never could have gotten this off the ground without him. Even if I got things working with my first layout, I’d never have been able to solve the manufacturing problem I had when the fab house swapped the RF crystal for 5 different clones.

I am forever indebted to Earl McCune for his help: http://wirelessandhighspeed.com/

I did get a functional RF design that passed FCC testing, but the fear of regulations around RF sunk me. I read the specifications for wireless in the US, EU, Australia and New Zealand and designed a frequency hopping wireless protocol that I believe satisfied all three regions rules. The protocol supported operating in the 902-928 MHz band, 915-928 MHz band, and the 865-870 MHz band with pseudorandom channel schedules picked as a hash of the network name.

But damn it was a lot of work. And then I found out about how the FCC also issues directives that maybe count as law too, so it’s not just part 15 you have to comply to...

I suppose that could be called a lack of research. I saw it as naïveté and optimism, which might be the same thing. I learn everything else by doing so that was my plan for learning to run a business. I can’t research everything so I just dive in and see what happens. I was desperate to do something.

As far as the linear motors, they were specifically sex toys. The linear motors worked, but only at the prototype stage and they needed better electronics and software to work at the desired speed and smoothness the application would require. Here’s some videos I have not posted publicly, but have thought I should share (safe for work):

https://youtu.be/Fm8lxtqEPk8 https://youtu.be/H3qLlZ6cJho

See the mildly NSFW web page: http://www.mobiusadult.com/investors.html

And SFW images of the device hardware: http://www.tlalexander.com/content/images/2016/12/IMG_7219_p... http://www.tlalexander.com/content/images/2016/12/IMG_7185_s... http://www.tlalexander.com/content/images/2016/12/robots_sm....


That is an incredibly large amount of engineering effort to compete with plain old vibrators, and also appears to misunderstand the target market.

Was your BOM cost 100x higher than the competition, or only 10x higher?


As a small business I was trying to compete with awkward or overly expensive “sex machines” for the niche kink market. Our closest competitor sold for $2k, and my bom cost was $200, so hopefully 2x-5x lower BOM cost than the competitor.


If you're trying to start a real business, your competitors are mass market sex toys with a $2 BOM cost, not one-off dildo-sawzalls pieced together in someone's garage.


I strongly disagree. Thrusting sex machines are not competing with a $2 vibrator. The goal is not to orgasm but to have an experience worth having, and thrusting sex machines provide a vastly different experience from a vibrator. The competition I describe was a functioning small business and not a sawzall. Honestly your comment seems super dismissive to me, and I don’t really understand the vitriol after I’ve shared honestly my experience for all to benefit from.

I wasn’t trying to start a billion dollar business. I was the only employee and I wanted to make enough to support myself while making a fun product. Unfortunately the product was too complex for me to do it myself, especially at that skill level.


This is the kind of stories we need in the valley. This more than any other story gives you a the sense of anxiety that goes with each phase of building, marketing and launching a product.

Thank you for sharing!


Thank you for the kind words! :)


"I lost $100,000 over five years on my first halfway successful venture."

Real World MBA.


That’s what I tell myself!


Yeah, that's the experience of working on a hardware startup. The amount of anxiety is unreal. Great writeup, with a rawness that most people don't get in these retrospective pieces.


Does shipping 20 packages a weekend sound kind of low for a pre-manufactured product?


It's low. Remember that at this point, I was well past burn-out. I'd burnt out two years earlier and was still going. I worked a full time day job and had been doing this all by myself for years. I was tired of working on it, and sure as hell wasn't going to work 7 days a week for the Nth year. That meant I spent part of the weekend trying to live my life. It was a miserable balance and my productivity was super low. Nothing like what it would be if this was my day job.


Great article and appreciate the transparency/honesty.

FYI the link in your profile (www.reboot.love) isn't working - outdated?


Thank you for the kind words and for the tip! I forgot about that, but you reminded me that my server is not configured properly and the links should say http://reboot.love

I’ve updated my profile and I’ll have to fix my server!


Fair enough, I've been there before. Good to hear you got out of the "funk".


It certainly sounds horribly inefficient. With my business I shut down a few years ago I shipped about 1600 shipments in 16 months while working a full time job with a lot of OT and still training 3 days a week with plenty of time to sit around watching tv on Sundays while also doing my own SEO, answering customer emails, looking for other product options, constantly monitoring competitors, manually cleaning 500+ pounds of LEGO pieces as part of an exploration at moving to another business etc.

(Never buy 500+ pounds of used LEGO pieces, ever, just trust me)


"I found that the manufacturer did not use the part I specified, but something else." - Everyone who works with manufacturers needs to watch out for this, especially if they're in the East.

I knew a small scale bicycle manufacturer and he worked with a well known & respected bicycle manufacturer in Taiwan. Even then he'd only get his bikes produced while he or someone else was on site as otherwise they swapped parts, or worse, change the alloy mix in the metals to something cheaper but a lot weaker.


What a brutally raw narrative. Thank you for sharing! Things I never would have thought about.


:) Thank you! I’m glad my story is appreciated.


This was frustrating to read. He describes the romanticized notions promoted by silicon valley similarly to “making it” in Hollywood or as a singer. There, people waited tables and were peniless but at least they didn’t borrow huge sums from their parents who borrowed against their home, and then said it was a huge success when they ended up in the red. Not to mention all the drinking drugs and stress.

In the end, the guy got crowdfunded, and his girlfriend helped him a lot. They could have done that from anyplace, living near his parents, and gotten married.


I'd like to see more content like this. Find it 100x more helpful than the success stories. Karenina principle and whatnot. Would gladly subscribe and pay buku bucks for a more rigorous startupgraveyard-esque page. And would gladly contribute as well..


[dead]


Since this type of comment gets traction every time it's posted, I feel like posting my rebuttal story just to be fair.

I went to a shit liberal arts school that taught me COBOL for Information Systems I/II in 2003, Windows 3.11 for Workgroups + Novell Networks for Building Local Area Networks where we had to patch Novell to recognize what a CD-ROM was, all on Jaz/Zip disks.

I dropped out 3.5 years into it and changed my major five times. I moved across the country with no support network over there and I've worked since I was 14 and full-time since I was 17 to support myself.

I solely founded my current company which was named in some publications as a fast growing company in the United States and the state I live in, and brought on a partner (who I ceded the CEO title to) who I met not in college.

It's possible. The challenges are enormous. And I don't think articles like this undermine them at all. It isn't easy to drop out and to work full-time your whole life from a family of below-average means, but it can be done in this country, maybe specifically this country because of the unbounded opportunity and low amount of government regulation that exists.

I'm not saying my path is doable for everyone, or even anyone, really. But it isn't NOT doable.


You can make a ton of money with COBOL, even in 2018.


Interesting. Doing what?


Maintaining/ fixing old banking SW.


Exactly. Gates and Zuckerberg (don't know about Jobs. did he drop out?) went to a good school and stayed there until the business took off. In a sense they graduated early. that is totally different from people who drop out of college and then look for a job.


Jobs left Reed College in part because he didn’t like it and felt that his parents were sacrificing too much for him to attend.


He stuck around for a while attending classes without being enrolled. That says something about how much he valued college.


People like to say all the time that Gates was a 'dropout', nevermind that he came from a wealthy family that was probably in the top 2% of income-earners for the Seattle area at the time. He went to high school at the Lakeshore school, the most expensive private school in the Seattle metro area (one year tuition currently around $34,000 USD, it was similarly expensive relative to inflation and cost of living back in the 70s). Gates started with a huge advantage over the middle class. Both of his parents were lawyers specializing in corporate law.


Where to eat, University Ave PA:

- Cafe 220 $

- Oren's Hummus $$

- Crepevine $$

- Il Fornaio $$$

- Coupa Cafe $$

- Local 271 $$

- Sprout $$

- Madera $$$$ (Sand Hill Rd)

Man-bod approved.




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