I'm disappointed that this has gotten so many upvotes and positive comments.
There's a middle ground between web application "lifestyle businesses" (like duping credulous customers into overpaying for a time-tracking tool styled with this month's CSS trends) and trying to start the next Facebook.
There's nothing wrong with being a small software company. People have been doing it for decades now. It's boring, but there's nothing wrong with it. Don't expect anyone to celebrate you for doing it, though.
Our time on this earth is limited, and people's attention is even more limited. No wonder that more time and attention is put towards trying to execute on big ideas. Sometimes those ideas end up not working out, but we're all better, I think, for someone having tried.
As pg points out, the ideas that led to the businesses that have formed the infrastructure that enables web lifestyle businesses could not have, themselves, been lifestyle businesses. Someone has to think big, take risks, and deploy significant capital in the interest of a dramatically better world. If you don't want to be that person, great, but don't tell the risk-takers that they're "wasting their lives". Would you say the same to scientists who take big risks? Artists?
The media packaging of technology entrepreneurship is undeniably offputting. But that's no excuse for dim commentary like this.
Microsoft was a bootstrapped company and at the time, I suspect that some people derided it as a "lifestyle business". They didn't go chasing after VC money and didn't use the zero-revenue customer acquisition model to grow. Are you sure that Microsoft didn't impact the world.
I'm not sure which "lifestyle business" duped customers into overpaying, but it is absurd to equate the so-called lifestyle business to "duping credulous customers into overpaying for a time-tracking tool styled with this month's CSS trends". I can list far worse cases - corporate fraud and crimes - with large companies
Ultimately, the "lifestyle business" is a silly vc-invented label. Running after VC money is also a lifestyle. All businesses aim to impact lifestyles of founders, employees and customers. The difference is that vc-funded business also impact lifestyles of vcs. Bootstrapped companies don't impact vc lifestyles (unless they compete with a VC-funded company :).
imo both lifestyles are equally valid, but it is absurd to describe one as a lifestyle company and pretend that the other one (which risks other people's money) is the true and only "risk-taker"
He's attacking Amy Hoy, a vocal opponent of the hype around startups whose current business is a time-tracking app called Freckle. Freckle's main attraction is that it has a pleasant user interface. I'm not sure how anyone was duped. I guess it's supposed to be dishonest if you're getting people to pay money for functionality they can get free elsewhere.
Yeah, that was pretty nasty swipe. Exactly what the article kind of gets at: big shot dismissing with a sniff -- he's "disappointed" with us -- something that's a very nice goal for the little people. There are hordes of people making 6 or 7 figures online that are "duping" people worse than Amy Hoy -- who is duping people none at all.
Yes. In the interest of preserving history, he wrote and later deleted a line that went like:
"duping credulous customers into paying for [something something] time tracking styled with the latest CSS design site trends"
I was not directly named, but if you ask me, it's pretty clear which app he's talking about: my first, Freckle http://letsfreckle.com .
And yup, that's me! I dupe 1,000 paying customers every month! They're so well-duped that they write love letters to our support account. I really can't get over the fact that I've got them so well-fooled they actually believe my software makes them happier and helps them run a better, more profitable business.
For the record, though, we have lots of functionality you can't get elsewhere. That's part of the magic of the dupe.
EDIT: Hey, look like that line about duping is back in Alex's comment. Either I'm blind and didn't see it the last time (which I concede is possible)… or it returned.
Also seems childish of al3x to forget that out of amy hoy and thomas fuchs' work came scriptaculous which has probably inspired startup founders wowed by Ajax only less than Ruby on Rails itself. al3x probably leveraged that work early on at Twitter itself.
If lifestyle businesses like 37signals and freckle are producing the kind of tools like RoR and scriptaculous, more power to them!
The VC industry barely existed when Microsoft was founded in 1975. I don't know if Bill Gates would even have known the word "startup" then. He was starting a business the only way people knew how to at the time. Now founders have more options. That's not bad. In fact, the empirical evidence suggests it's net better, because the company that would be most people's candidate for the "next Microsoft," Google, took advantage of these new options to grow faster than Microsoft did.
More options are great. I have always said that the bootstrapped model and the vc-funded model are both good legitimate models for businesses.
My problem with the parent post was the absurd notion it promoted about companies that didn't run chase vc funding.
As mentioned, I also think that "lifestyle business" is a stupid vc-invented label.
Incidentally, Google developed great technology and a great monetization strategy before they took in vc funding. Being acquired wasn't Google's goal. The reality of today's VC world is the opposite of Google's approach. VCs make money through the acquisitions of companies they fund.
Empirically very few big technology companies do it without taking money from investors.
I've never really liked the term "lifestyle business" and I don't know who invented it. But I think it is a useful distinction, even for the people starting them. Is your goal for the company to make yourself a nice living, or do you want it to grow into something bigger than would be needed to achieve that?
It's false that VCs want companies to be acquired. They would much prefer that they continued to grow as independent companies, like Google or Facebook. Those are the big successes that generate most of the returns in the VC business.
I think that last sentence might be misleading. VCs very much do aim for eventual liquidity. In a very few rare cases, the obvious success of a portfolio company may allow them to defer the need for liquidity (when Goldman is creating new funds just to get itself into Facebook, there's probably no pressing need for a VC to get out of Facebook), but the underlying need is still there.
I've read enough about the economics of VC funds to understand why this is, but I've also witnessed it firsthand. Unless you are setting the world on fire, your VCs don't want to sit on your board for 6 years, and will press for an exit.
This is something that challenges me about your analyses; you evoke Microsoft and Google and Facebook. If you're Facebook, all bets are off. I hope the Airbnbs do become as big as Ebay, but very few of the companies you help start are going to achieve that bracket of success.
Sure, if a company isn't going anywhere, VCs will start to consider Plan Bs. Everyone considers Plan Bs when a project turns out badly. But getting acquired is always a Plan B. And when you talk about someone's "aim" when doing things, you're talking about Plan A.
Saying VCs aim to sell companies is like saying that if I try as hard as I can to get an A in a class and get a B, I was aiming to get Bs. That is just not what the word "aim" means. It's more like I accept the inevitability of Bs, since As are hard to get. Similarly, VCs accept the inevitability of acquisitions, because IPOs are hard to get.
In accordance with my new principle that once I have to start talking about the definitions of the words I'm using, the thread is doomed, I'm done now.
LPs care about IRR and liquidity. That causes VCs who are concerned about satisfying their LPs to also care about fund IRR and liquidity.
Sometimes, there is a tradeoff between liquidity and IRR. Groupon could have sold for $6bn, or perhaps they could IPO at $15bn. There, the board members decided that the prospect of improved IRR exceeded the delay in liquidity.
It's not an accurate representation to state that VCs only care about liquidity when a company isn't going anywhere: given that it's a tradeoff, and that liquidity has heightened importance the older the fund, VCs will push for liquidity even in investments in companies that are certainly doing better than "not going anywhere". The IRRs might be good, but their LPs may really want their money back after ten years, and are willing to sacrifice the IRRs to such an extent that a pretty good return just isn't good enough.
Paul, you're winding up in these "having to start talking about definitions" situations because you choose to describe businesses that produce millions in profits every year as "not going anywhere". At my very last job, I saw a company doing mid-8-figures profits experience pressure to exit. Pressure to exit later in life is a real hazard of accepting VC, just as pressure not to exit early in life is as well.
You don't, by the way, need to announce that you're "done now". That's passive-agressive. You can just "be done".
sure, and the average man on the street may prefer that he become a multi-millionaire within a year. However, that sort of preference isn't as important as the realistic outcomes that a VC aims for.
Unfortunately, I don't have specific data to back this up, but my sense is that very few VCs get to invest in blockbuster hits like Google (and as I mentioned, Google didn't take VC investment until they had already developed great technology and a great monetization strategy. So investment in Google was at a much higher valuation than what you'd expect for the typical VC deal)
Again without specific data, my sense is that most money-making deals (for investors) are deals like the YouTube acquisition or other much smaller acquisitions ........ and I also think that most VC-funded companies make little or no money for the investors (and either crash or go through firesales).
Acquisitions are never what VCs aim for. They aim for big, independent companies. They rarely hit that target, but it's always what they're aiming for.
Angels are different. Angels are willing to invest in a startup whose only likely good outcome is an acquisition. But VCs will not even consider making a series A investment in a startup that doesn't have a credible plan for getting to the kind of revenues that would support an IPO.
A VC's goal and responsibility is to maximize returns on investment. Imo changing the world etc. is just meaningless PR-speak for most of them. They'd be violating their fiduciary responsibilities if they really believed that changing the world was their primary goal and not maximizing ROI.
Now, it is true that a company (like Google) could maximize ROI and yet change the world by being a large independent company. However, this exception doesn't prove the rule.
My point is that a good VC can't afford to be divorced from reality. In practice, VCs do seem to understand that their primary aim is to maximize ROI (and that this aim is more often achieved through being acquired and not by being a large independent company)
Of course, all of this is opinion, but in the absence of data proving otherwise, I'm going to stick with my opinion :)
Microsoft raised $1M in VC in '81 from TVI (went on to become August Capital - at least shared some partners and LP's). they also burnt through a lot of Bill's parents' money (which is why he had a larger share than Allen)
for some reason this isn't part of the microsoft history story and most ppl don't know about it - but it took years for microsoft to gring out decent revenues and profits.
'lifestyle business' is meant to mean a small business where the goal is to gain enough revenue to live from. ie. something between ramen profitable and taking a salary from a VC funded business.
I can't really think of a top50 tech firm (on market cap) that didn't raise outside capital at some point.
>>it took years for microsoft to gring out decent revenues and profits.
Microsoft's first profitable program was Basic and it was released soon after the company's launch in 1975.
6 years after Microsoft launched, TVI invested and obtained a tiny portion of Microsoft's stock. To answer your question on the history, this sole vc investment played a very small part in Microsoft's history and the tiny VC share is one reason why Microsoft was a founder-run company.
Btw to be clear,capital can definitely be useful. Youtube had losses running into hundreds of millions of dollars. Yet, VC money helped them make a big impact on the world.
However, after Microsoft's model, my preference would be for the model adopted by companies like Google. Google developed great technology and a great monetization strategy before they took in a single penny of venture funds. Again, it is no coincidence that Google is a founder-run company today.
All that said, I have no problem with zero-revenue companies that chase vc funding and hope to get acquired (Acquisition is how most VCs get returns on their investments). I'm just suggesting that it is absurd to create silly labels like "lifestyle business" and pretend that risking other people's money (i.e. vc funds) is the litmus test for a true "risk-taker"
I agree re: risk taking. I would go as far as to say that when the fundraising environment is frothy, paying yourself $150k p.a as the CEO of a VC backed firm actually isn't 'taking a risk'.
There is a class of entrepreneur who don't quit their job, or leave one foot in that door, until they actually raise money and can pay themselves that salary.
for eg. I know of a smallish no-revenue VC funded startup where the CEO and founder pays himself $300k. what the board and investors didn't know is that for the first 6 months in the life of the startup while he was 'salary sacrificing' he was actually consulting with a big co. for $30k a month. I wouldn't call that taking a risk, its the opposite, really
The guys grinding out on almost nothing and quitting their jobs are the real risk takers - and that happens with self-funded, family funded, friend funded, angel funded, VC funded or zero funded businesses.
I find nothing wrong with an entrepreneur not wanting to shoot for the stars. Some people are simply not interested in changing the world, and maybe would prefer to spend more time with their family, should that really be discouraged? Calling it "disgusting" seems a step too far: https://twitter.com/al3x/status/48558660552630272
Personally, I'm in it to change things, but I'm not going to discourage someone who is in it to provide a good living for their family. Going all out when you're supporting others just isn't an option in some cases, in fact it could be downright dangerous.
Yup, totally agree with you. I'd say it takes more talent to build something and sell it to real people than to give PowerPoint presentations to rich people and build things that may never make any money. But that's just my take.
While making it all automated is the goal, it doesn't mean it will be attained. I believe CD Baby is more an exception than the rule. Its hard to hire people who care, let alone people who will make sure the business runs even without you.
Google shows me that Twitter was founded nine months before Alex came on board. I've read plenty of his posts and presentations and I respect his technical abilities, but your "built Twitter" comment oversimplifies his involvement in the company's history.
His presentations do imply that he was the driving force behind the Scala adoption for their messaging queue, so that's arguably a must-have to reach Twitter's current scale.
Small web businesses are only boring if they aren't challenging norms in what constitutes a small lifestyle web business. There is always room for innovation and ideas even if it's not the next Facebook. It's like you say: Someone has to try; We're all better off for it.
You seem to be contrasting running a small business with running a large business. My impression was that the article was contrasting running a small business with working for The Man. If so, the original author's argument has merit.
For one thing, software development is almost entirely a knowledge-based industry. It does not require external funding to reach any useful viability in the way that, for example, a factory for industrial machinery or a large retail store would.
Moreover, in software development, the mechanical grunt work is trivial. The real value is determined by things like project ideas, business models, dealing effectively with users, and ability to convert those into a useful software design. That means small teams of really good people can punch way above their weight class.
As I see it, those basically negate the two big reasons most projects would necessarily be implemented by a large company (scale of people and scale of materials). That pretty much leaves variations on the themes of community/personal development and regularity/job security as the major reasons a good software developer might choose to work as an employee of a company rather than going it alone or with a small team they put together.
After a few years, I came to the conclusion that both of those benefits are mostly illusory. Does employee #32,768 at BigCorp, Inc. really have more job security in the current economic climate than a contractor with four or five repeat clients, or than three guys running a lifestyle business that has 1,000 customers and enough money coming in each month to easily pay everyone's bills? And do employees at big companies really develop skills and experience faster than a bunch of guys who build an entire working business from scratch or a contractor who works with four or five different technology stacks within a few months?
I'm not saying employment isn't for anyone. Obviously the kind of regular work environment it brings suits a lot of people, and not everyone wants to take on all the other stuff that goes with doing it all yourself. However, those are basically social constraints rather than technical ones. They don't reflect on the potential value a particular software developer could contribute to a project.
I notice that several people in this discussion have pointed at the need for some things to be done at scale. Pg himself wrote:
> If that happened, the whole world would crumble, because we wouldn't have any technology bigger than could be built by lifestyle businesses.
But the way I see it, every successful large project is either a successful small project that grew or a bunch of successful small projects that learned to interact effectively. No-one says that just because you decide to run a small business instead of working for the The Man today, you can't grow that business or collaborate with others tomorrow.