I'm a sole founder and just want to add that if you're looking for the independence that a multimillion dollar acquision brings, you should also consider alternative ways to achieve that end.
Specifically, consider whether building one or more $X,000/month apps can help you achieve a similar lifestyle that a $5M payday would bring. For me, I want the independence to work on what I want when I want, have the flexibility to take breaks to spend time with my wife and future kids, take a nice vacation or two each year, etc.
This will obviously depend on your life situation, your savings, your spending habits, etc, but for me, I think I can achieve that with $4K-$5K profit/month. And making that much via a few niche web apps is much, much more likely than selling for a few million dollars down the road. (I currently have two ~$1K/mo web apps and am still at my day job for the moment, so getting to that point from where I am should definitely be doable.)
If this appeals to you, I recommend checking out Rob Walling's Micropreneur Academy, which is a great start for anyone going down this route: http://www.micropreneur.com/
+1 for rob walling. I read his book start small stay small a few years ago and it totally changed my strategy on how to build a business. I've gone the multiple apps route and on track to gross over 500k this year. And all the while I've travelled the world for 7 months and rarely spend more than 30 hrs a week on work. I have a few friends that went through YC and I wouldn't trade places with them for a second. Maybe I'm just lazy but working 80 hour weeks just for a shot at a large exit just isn't for me. Without rob's book I would never have known there was an alternative path.
For me, $5k/month won't be able to do it. It's good enough if it's a salary, but a job also includes other things such as health insurance, 401K, and intangibles such as social contact with other human beings. So for me, the amount would have to 3 times my normal annual salary.
I currently make $7K a month with 10 minutes of work a month (creating a newsletter), so I agree - the path to residual income is much easier than creating a startup. But it definitely doesn't feel like I can quit my job anytime.
Yep, the figure is going to vary person to person. For example, I'm married and my wife brings in an income and will be able to provide health insurance once I jump ship, so that number is lower for me than it would be for someone without that additional income.
My point though is that for every person there is a monthly mostly-passive income which, if achieved, would let them live a similar lifestyle as being part of a multimillion dollar acquisition. And it's a hell of a lot easier to reach.
Do you think it's easier for you to make $5K/month passively or make $5M from a acquisition? $10K? $20K?
Edited to add: Why not invest more time into your newsletter so that you can leave your job? If you truly invest 10 minutes per month and believe that there's still room for growth, why not spend more time getting it to the point where it does cover your health insurance and 401K? Or if there's minimal room for growth why not try to replicate it? Or does the money not even matter: do you want to stay with your day job because it gives you purpose and socialization? Your situation is fascinating and I'd love to hear more about how you got to where you are.
I got > 90% of the subscribers from SEO over the course of 2 years. The growth rate of those subscribers has dwindled ever since my sites got punished by Google Panda.
For those curious, the newsletter has to do with a very niche product that people usually order every single month. I'm simply an affiliate and write a newsletter with tips for that product along with a coupon code.
The affiliate program is pretty friendly as I get paid a commission every month even if I don't get them a new customer (but get an existing customer to order it through my link).
this only makes sense if its recurring income(i.e. subscriptions) and if you aren't depending on any other service for that income.
if your $5K/mo comes mostly from Google traffic you can lose everything overnight.
i.e. I have a friend who had an affiliate site that was generating $20K/mo. Then the Google Panda update happened, and that went down to $1K overnight(well it took a few weeks). Last month that site generated a whopping $24 in revenue.
Google tends to be the biggest threat here.
Traffic? Can't lose out in Google search results.
Ad Revenue? Can't get banned from adsense(impossible...since all it takes is a competitor clicking a bunch of times on your ads)
Paid Traffic? Can't get banned from adwords...which can change their policies at any time.
Payments? Can't get banned by PayPal.
Basically what I'm trying to say, is that there is a TON of risk. And you need a huge cushion to feel comfortable. Personally I'd want a $30K/mo income in order to have a $4-5K/mo lifestyle...just to be on the safe side. To at least avoid the stress...that everything can be lost overnight.
That's why these big payouts should be preferable...since then there is no more risk(short of losing it all in financial crash)
Just because you have income without a lot of effort does not mean you have a sustainable company. Granted, you don't have to make 30k a month for all that long to get to years of living expenses in the bank.
If you really want a lifestyle business you need to be able to survive even if you have to pay for advertising. As to ad-words, there are plenty of forms of non Google advertising out there. If your site is so dependent on new search engine traffic it can lose 98% of it's visitors from a few changes in Google's algorithm you have not created value your just doing arbitration. Arbitration opportunities are always short lived, that's not to say they are not worth perusing, but don't think they are anything but a quick windfall.
There is risk, but that's why you lessen it by diversifying your traffic streams, and even your income streams. I own multiple software products and web apps; if any of them tanks I still have more than I need to live on. Actually, at this point, more than one could totally disappear and I would be ok financially.
The odds of you selling out and making $5M are ridiculously lower, and I mean hundreds or thousands of times lower, than making a few small apps that generate a full-time income.
I'd argue there are even bigger risks in swinging for the fences which is almost by definition a low probability/high reward endeavor. You might not have to rely on the impact of a Google algorithm change as much, but you've now got to worry about a host of other issues: cofounder problems, hiring employees, raising money, running out of money, dealing with well-funded competitors, etc etc etc. There's risk in both paths.
As an aside, this why I like diversifying my portfolio (ie, I'd rather have five apps making $1K/month than one making $5K). There are downsides to this path too, but I think it's a decent way to minimize the risk if you want to do this professionally long term (as I do) and are not relying on an acquisition.
I am. Are you (collectively) against all dark versions or just this one, because I've been trying to tweak it incrementally for readability. If you have any specific improvement suggestions, I'm happy to try them.
If you're on a Mac, hit Ctrl-Alt-Cmd-8 to invert contrast and enjoy. =) (Personally I find the site pretty readable as it is, typography is OK so inverse contrast isn't really distracting, although it might be just me.)
Does anyone provide data on startup acquisitions each year? I know the amounts are usually private, but the numbers always seem to leak out (or at least estimated numbers). It would be interesting to do some data processing to look for trends and averages.
There are a lot of "boring" strategic acquisitions that happen in the 10-20m area. Small companies that are viewed as useful groups for large organizations to own, because they need/want the capability, or they're interested in preventing a competitor from grabbing it up.
A great article. I am a solo founder myself and this article has given me more confidence about doing this alone, at least for a while. I have a couple of employees on board, so work load is not a big problem. I'd still love another founder to join me though, especially someone with complementary skills. I haven't raised money yet, and would like to do a small round, so not sure how much of a challenge this is going to be, as a solo founder.
I agree, I'm also running solo to begin with. It's sometimes pretty demoralizing when you read and hear that you would get nowhere if you're a single founder. I subscribe to the notion of building something first and perhaps gaining traction before bringing complementary skills onboard.
If you're giving up 70% of your company in order to pay for servers, you're doing it wrong. If all your server costs combined adds up to more than one developer salary, you either have a mammoth scaling disaster or a runaway success which should have VCs begging to give you money on whatever terms you like.
I'm afraid this article will lead people to mis-prioritize their decision making. When doing a startup, all of your focus needs to be on the building the best product possible. If you can do that as a single founder, great! But if you need more people, you should do that if that's what the product calls for. In my opinion, making decisions based on future equity and payout is poor management.
Everyone complains about coporate CEOs who are so focused on the stock price that they forget to make good products. Focus on the product, and the $$ will take care of itself.
I agree, but it's just one of an infinite number of ways to mis-prioritize your decision making. That's the hardest part of entrepreneurship: you have very limited time and you need to make smart choices day after day about how to spend it.
The value of this article IMO is to offer a counter-point to the multiple-founders mantra. A lot of people take that as gospel, but I think if you are spending time looking for a co-founder you're doing it wrong. Rather, if you know the right person to be a co-founder, by all means extend the offer ASAP, but if you don't then get to work and stop fretting.
To maximize your chance of success you have to focus on the greatest ROI at every moment in time. Hiring the right person is the biggest ROI a one-person operation with a lot of work to do can achieve, but on the same token, finding the right people is often nearly impossible.
Obviously, a single founder gets more when and if a payday happens. Most startups fail, however. If attracting a co-founder increases the odds of success it is surely worth it. The article points out that you can also attract a co-founder in return for a smaller stake after you get traction. This could be the best of both worlds, unless it leads to envy and friction within the team.
Good co-founders you take on where and when you can until you have all the skills you need to make your team complete.
Compensation should be relative to value added rather than relative to time-to-get-on-board. That's because typically both sides know the value contributed and if one side tries to slant the division in their favour this will inevitably lead to trouble down the road.
Start-ups are fragile, if you build in tensions right at the beginning you'll get that back when you need it least.
For instance, during negotiations about an acquisition your key co-founder that you successfully screwed over during the founding days now has you over a barrel. After all he/she has very little to lose and you will stand to lose a lot. You could of course try to take care of that in your articles of incorporation and your shareholder agreements but you can't actually force someone to perform unless they are willing.
Keeping your goals aligned is good for everybody and fairly sharing a much larger pie is the best way to have the story end happily.
"After you gain traction" is sufficiently vague that I don't think that is a good criterion. Better would be that you would take into account the amount of capital already sunk and the risk that you perceive at the moment of joining. Lots of traction can actually mean more risk rather than less.
What advice can you give to potential founders who will be pitching on events like StartupWeekend,etc.? For us who attended, after someone pitched, random people approached him/her and wants to be on the group. Is it right to just say sorry that you're not accepting potential co-founders with random people?