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Entrepreneurship's Dirty Little Secret (kernelmag.com)
63 points by zg on Apr 17, 2012 | hide | past | web | favorite | 52 comments

Let's rewrite this: I work with entrepreneurs and have a pretty good window into their world. What I am seeing is too many poorly-skilled young people lacking business acumen and trying their hand at starting their own business, when their time could be much better spent on other pursuits such as learning to code.

I work with developers and have a pretty good window into their world. What I am seeing is too many poorly-skilled young people lacking developer acumen and trying their hand at writing their own code, when their time could be much better spent on other pursuits such as learning a business.

See, it's just as valid either way, in other words it's not specific to entrepreneurship at all. You learn something--whether it's coding or running a business or playing a sport or anything else--by trying and failing, evaluating, and trying again.

First comment on the article is excellent, by Mike Conte CEO & Founder at Stealth Startup

"A banker thinks entrepreneurs should have to take a test first, for the safety of the economy? That's rich. There is no better or faster way for entrepreneurs to learn than to try. Yep lots fail. And some try again and others go to work for other business, together with their hard-won experience and probably do a better job than they would otherwise."

"...We’re all failing this generation of entrepreneurs by not being tough on them....we need to stop encouraging entrepreneurship without acknowledging the extremely long odds of success, the numerous downsides..."

I completely agree with the thrust of this article. My only qualm is that the word "entrepreneur" is too broad.

Let's put it this way. Need money? Go downtown and go door-to-door looking to help people. Maybe you can clean their office, or walk their dog, make a website, or cook a hamburger for somebody. But if you have some reasonable amount of skill and are willing to physically go out and meet people and adapt to what you hear, I can guarantee you that you are going to make money. It probably won't be in the way you imagined, but it'll work.

This is the basis of entrepreneurialism: making something people want. Get out there and find what people want. Match your abilities up to that. It's a wonderful thing.

The problem comes when we try to add any qualifiers at all to this. What this author is talking about is internet or technology startups. That's a whole nother can of worms. It's like going downtown and looking for work as an accountant. Yes, it might work, if you are already an accountant and your town has a lot of accounting firms. But the odds suddenly increase a hell of a lot.

The problem I see with many recent college grads and many startup fans is the belief that they already know what kind of entrepreneur they are going to be. Once you start qualifying things, you are killing your odds. Business is a conversation, not a soliloquy. We've got a lot of people terribly dedicated to some long-shot, 1-in-50 chance venture. That's not a startup. That's gambling.

But I completely agree that for purposes of this article, we have let a lot of people down. We deserve to give them a much more realistic view of how things work instead of spending so much time on Facebook, Google, and Instagram. We're making this into some kind of perverse lottery, and that's not good for anybody. Just don't use such a broad term as startup and then make some sweeping case that "people just aren't cut out for it" Yes, most people aren't cut out for some specific description of a business venture. But I'd argue that just about anybody can sell apples on the street corner. This isn't an intelligence thing, this is an engagement thing. If anything, you can be too smart for startups.

Big +1 from me.

Entrepreneurship is not complicated nor is it necessarily difficult to execute. This article is way too specific on what it is (a technology startup game that requires outside investment for success).

The alternative to entrepreneurship is to work for someone else. When you work for someone else, it's not mentioned enough that your boss is making more money off of you than he's paying you. If you can offer the same service directly to your customer, whether you're selling hot dogs or bottled water or cruise missiles, then you will absolutely make more money and live a more independent lifestyle.

There are far far more entrepreneurs out there making $60k a year than there are entrepreneurs working at startups that will soon become worthless. Those exact same entrepreneurs probably don't have a marketable skill that would make them any more than $30k working for someone else. But the market loves it when you assume some level of risk, and the risk isn't nearly as high as this article or some of the comments in this thread seem to imply.

Without finishing the article, or knowing anything about the author, I knew that this couldn't be somebody who has ever tried his hand at starting a business.

The fact that he repeatedly quotes Eric Ries and Steve Blank makes this article a little hilarious to me as well. I for one am only really interested in hearing stories from actual entrepreneurs who have tried and failed or tried and succeeded. Both are equally interesting to me. Academics who have spent their life in office jobs or espousing theories and quotes about how difficult it is do not interest me. Anybody can write about how hard something is from a hundred miles off the ground, but unless you have actually tried, you don't know what you are talking about. This applies to pretty much anything.

It also seems strange to me that he suggests hopeful entrepreneurs should jump from running a business to something useful, like, learning to code. How original. I have been coding half my life. Coding is a means to an end. It solves some particular problems in one particular way. It is not an end-all be-all panacea that picks you up from poverty and moves you into the upper class. Despite what many people think, particularly in the Silicon Valley startup world, knowing how to code is not required to start a business. It is a trade, just like construction, or plumbing, or welding. The only difference is that coding tools are basically free and relatively new. But the law of supply and demand still governs which products succeed.

Both Eric Ries and Steve Blank are actual entrepreneurs who have tried on multiple occasions and have both success and failure in their experience.

Eric Ries founded CatalystRecruiting as an undergrad, worked as an engineer for a few years, and then co-founded and was CTO of IMVU, which had a string of internal failures followed by perseverance and success. His experience there seems to have formed the core of the Lean Startup book.

Straight from Steven Blank's personal bio: "After 21 years in 8 high technology companies, I retired in 1999. I co-founded my last company, E.piphany, in my living room in 1996. My other startups include two semiconductor companies, Zilog and MIPS Computers, a workstation company Convergent Technologies, a consulting stint for a graphics hardware/software spinout Pixar, a supercomputer firm, Ardent, a computer peripheral supplier, SuperMac, a military intelligence systems supplier, ESL and a video game company, Rocket Science Games. Total score: two large craters (Rocket Science and Ardent), one dot.com bubble home run (E.piphany) and several base hits."

Don't write somebody off as an academic just because they've written a book.

Who said I wrote them off? I am writing off the author of this article. This article is about 5% substance, 30% quotes from other people, and the rest is a mixture of vague personal opinions and forewarnings about the realities of the odds against entrepreneurs from a guy who, from what I can tell, has never had the guts to start a business.

I personally don't find much value in Eric Ries advice and think he capitalized on the brand value of his education and a couple of minor business successes to write a highly successful and oft-cited book. I feel the same way about Seth Godin, Guy Kawasaki, and Tim Ferris. More power to them for building their personal brands and book sales through the insecurity of people just starting out, but I wouldn't spend too much time studying their prescriptions for success, because in reality, there is no such thing.

My point in the original post was that any author spending so much time citing startup gurus can't himself know too much about what he is talking about. It is like writing about new technology by reblogging Engadget articles.

I agree. Seth Godin made Squidoo, which is considered to be a content farm. Guy Kawasaki.. what has he even made lately? AllTop? Both of them are examples of good personal branding, but not entrepreneurs you want to imitate.

I disagree. Your opinion was largely derived just from your experience. There are reasons why academics and intellectuals are better at explaining phenomena compared to individual experience. They research and aggregate the experiences of hundreds if not thousands of people, thus making their contentions universally applicable.

Here's my take on it- if you are reading for personal accounts or advice on whether to start a business, the best advice comes from people who have done it. To me, that is the target audience for this author's advice, and precisely the reason I find fault with it.

If you are reading to learn a new skill, then academics are great. For example, if I want to learn how to set up an LLC, the intricacies of employment law, or accounting methods for a small business, learning from academics is the best way.

In either case you are learning from people who know from experience. I tend to take advice from those most experienced in the advice they are offering. Who is this guy to explain the difficulties of starting a business? Would I be qualified to write about the difficulties of becoming a physician if I have never gone through the process myself? Probably not.

To take that a step further, if I am looking to open a bakery, I want to talk to people who have opened bakeries. They know better than anybody what to expect and can paint a vivid picture of what my life will look like if I choose to proceed. What applies to other entrepreneurs in other fields is largely irrelevant. Which is why it is so ridiculous to try to boil something as complicated as starting a business down to "it's really fucking hard and you probably won't succeed, so be realistic." While that may be true, it is not particularly helpful. Nor is advising people to go learn to code.

Well I agree that it's better to talk with people who did the exact same thing you're planning to do. The experience is more detailed. But her article is about entrepreneurship in general, not a specific type of business. That's why one of her advice was to work for a company that specializes on the industry you want to get into.

Even beyond this core point (not everyone is cut out for entrpreneurship) lies a more important point: society doesn't need everyone to be an entrepreneur. If we assume that there are roughly 150 million Americans in the workforce, we're not better off with 150 million startups than we are with, say, 1 million startups and 149 million workers. We're not even better off with a substantially larger ratio of small to large businesses than what we have today. An economy too fragmented among millions and millions of small businesses is inherently inefficient and internationally uncompetitive.

We need startups, and we need entrepreneurs, but the idea that everyone's an entrepreneur is an unproductive fantasy. We need to be empowering those cut out for entrepreneurship to succeed -- but we shouldn't be courting widespread economic inefficiency by encouraging or, even subsidizing, everyone to chase pipedreams.

I agree that not everybody needs to be an entrepreneur, but I think you vastly overstate your point.

Small businesses can be inefficient, but so can large companies. Indeed, because large companies are larger, so are their opportunities for waste. Worse, large companies are much more insulated from market forces, allowing them to be wasteful for much longer. And it's literally impossible for anybody to understand what a large company is doing, making it very hard to pursue systemic efficiency.

The real efficiency wins may be somewhere in the middle. Consider the German Mittelstand, a major engine in Germany's economy: http://en.wikipedia.org/wiki/Mittelstand

But to get those companies, you have to have a lot of small ones. Everyone might not be an entrepreneur, but that doesn't mean we shouldn't encourage people to try if they feel called. (Not subsidize; encourage.) Worst case is that they learn something about themselves and about business, and those are lessons anybody can use.

No worries, most people don't want to be entrepreneurs.

You said a lot with very few words. There are entrepreneurs and what people think an entrepreneur is. Most people do want to be entrepreneurs except they want to be the second, unrealistic kind. You know, the kind that makes their own hours, works in their pajamas, does a lot of delegating but not much real work, and takes a lot of vacations on Yachts in the Pacific. People want to do that. Everyone wants to do that.

Too bad most who try will find out that real entrepreneurship isn't all Yachts, caviar, and a totally flexible schedule. It's harder than being an employee, especially at first.

Yep! The family saying is that the freedom of entrepreneurship is that you can work any 70 hours a week you want.

I'm not sure that it would be bad if the average size/age of businesses decreased. It seems to me that in larger businesses, while you do get advantages of scale, you also have problems related to size (bureaucracy, knowledge problems, etc.)

I started a business, with three cofounders, right out of college. The year was 1980, and we had all just graduated from MIT. Here are some things I wish we had known:

() A market is defined by people's understanding of the function of a product.

() Most markets are winner-take-all. Sometimes two or three products can coexist in the same space for some reason, but usually not.

() So to be successful, you should seek to define a market niche you can own. You get to pick what that is, but of course you don't know until you try whether it's large enough to sustain your business.

() Also, you will need to communicate the definition of your niche to the market. This may be easy or hard. If you're in a crowded space, for example, or if (as happened to us) the space started out fairly open but then better-funded competitors showed up, you may need to redefine your niche as a specific smaller part of what is hopefully now a larger market. This is called "product differentiation".

() The better you understand the needs of your target market, the better you will be able to understand the potential functions for which your product can be used. This will help you in both choosing a niche and in communicating your definition of that niche to the market.

I could go on, but I think that's a decent summary of the basics. Of course, there's a lot more to marketing if you really get into it (chasm phenomena etc.), but I think if we had just understood that much, we might have been a lot more successful.

I'm so relieved to hear this from someone else.

About two years ago I read an article by Peter Thiel and it was kind of my "ask what you can do for your country" moment. That was when I realized that I didn't want to be an academic, that I believed people who built technology in the private sector were actually doing more good in the world. So I thought "I want to be an entrepreneur."

I've had to scale back a little as I did a couple of start-ups and learned how ignorant I was. I'm not ready to be CEO of anything. I'm not even sure I want to be; I want to write algorithms more than I want to manage a company. Honestly, right now, I want to work with people smarter than I am, and get better at what I do.

I'm done with the notion that you should always start a company right away in your early twenties, that you shouldn't have to take any time to pay your dues or build mastery. I don't want to work at a silly, unsuccessful start-up just for the sake of "being an entrepreneur." I want to get as good as I can at what I do. I want to work somewhere where I'm not the only one who's heard of an inner product. I want to do something substantive, and I'd rather do something substantive at 35 than something crappy at 23.

Who's supposed to be the gatekeeper for who should be an entrepreneur and who shouldn't? Doesn't the market already do that anyway?

Yes. But the author makes his living in the market and is sick of having to go through the effort of determining where to invest his money. He'd like a nice gatekeeper to kick all the ones who will fail out so every single investment makes him more money for less effort.

Why doesn't he just give potential investments his test? It is of no consequence to him if the ones who fail continue on and ultimately fail in their business, he will have only invested in those who are guaranteed winners anyway.

I understand all too well the perils of starting your own company. But I think this article focuses on the wrong reasons why someone should start a business. Entrepreneurs don't think to themselves "gee, I need to be the solution to world's current employment woes."

We just get really excited about an idea, and we run with it. We're passionate about something, and it doesn't matter what the end result is yet. We are compelled by everything in us to do this one thing and see what happens. And it doesn't need to be explained, justified, scale, make business sense, or any of these things... especially not at the beginning. Life is an experiment. We live that through our ideas, projects, and love to put it out there and get feedback, and then just keep going. We want to create things, build things, try something new, tackle interesting problems... Making money is never the primary focus. I understand that this is not necessarily practical, rational, and responsible. But it's the kind of thinking that spawned most great enterprises.

We have to be fearless. We have to ask dumb questions. I can't stand "smart" people that make entrepreneurs feel dumb for asking dumb questions. There are no dumb questions. If that person keeps learning, and pursues what they want, then they'll someday get somewhere. We're optimistic and somewhat blind, and thank God because otherwise we'd never get started and never do anything interesting.

Some of the most successful people have little education, and kinda stumble into their fortune because of some of the reasons above. And this makes those who are smart, educated, and experienced upset because they feel entitled, that they've earned it above those who "don't know what they're doing."

I don't know what I'm doing, and I want to keep it that way. It can be an advantage and lead to new ways of seeing the world. A world that maybe one of my half-baked ideas that I throw together without any plan might someday change.

>We need to discourage those who aren’t fit to start their own business.

I request you to define "fit". How can one know if one is "fit". The line is very blurry I believe, unless there is something that I am missing here.

Not unlike many others here, I aspire to be an entrepreneur too. But after reading this article I am left undecided on what side I "fit" in. Am I not supposed to be doing this? How am I (or others like me) supposed to know? It would really help if there were some questions that we could answer. I understand the answer will not always be yes/no but I have to start somewhere.

The author's main point seems to be that not everyone realizes that chances of success is very very small. But I know that, and I understand that very well. So where does that leave me?

One moment I am absolutely sure I know what I have to do, then I read some article like this and it makes me think. The more I think, the more likely I am to be confused.

Here's one objective way to measure fit: If you let a half assed article from someone who (I suspect) has never started a business dissuade you from being an entrepreneur, then you don't fit.

The skill to have (and it is easy for me, but it may not be for everyone) is to know what's right and what you're going to do, while at the same time separating the signal from the noise out there and integrating what the signal tells you about the market into your business.

There are a surprising number of people who think their mission in life is to "help" entrepreneurs... who think that their opinions are helpful independant of whether they are or not.

IF you remain unsure, there's nothing wrong with working for others (or working for someone else's startup) and doing your own thing on the side. Side projects can be very educational-- I learned as much from my side projects as I did from my day jobs working for startups.

You don't have to start off on your own right now, if you feel you're not ready.

Also, I don't think the chances of success for starting business are very small. I think they are probably better than 50/50. (Of the dozens of businesses I've started in my life, nearly all have been profitable.) People think a "startup" is this magical thing that is a "Scalable business", but most of the businesses I've started in my side projects have been scalable as well.

Moving to the bay area and starting a web site that has no real business model other than "sell advertising once we get to 50 million users" and high real costs making it dependent on external financing, on the other hand, is an approach that has very, very small chances.

I think the real problem is that this is the only model people seem to think exists.

What you say makes sense but I just wanted to point out that i never said that I question my decision. I said "The more I think, the more likely I am to be confused". But other than that, I would like if you appreciate that it is not the easiest thing to tell the noise from the signal when you are new. Everyone seems to be right in their place and have valid points. I believe it takes experience.

The sense I have coming from the UK is that the US tolerates start up failures far better than we do. If you try in the US and fail, the general vibe seems to be one of, "Ok, it went wrong, brush your self down and try again, and make sure you learned the lessons". In the UK, its more like, "you evil failure, you conned every one and we will bankrupt you and stop you trying again".

So, from a UK POV, the caution this article seems to urge, seems more applicable to the UK than the US.

I highlight this because I believe failure is as useful as success, I think there is possibly more to learn from a failure. I almost feel like a few failures are essential so that lessons can be learned, and stronger new start ups emerge with stronger founders. I believe the US is way better at this than the UK, and possibly Europe.

Or perhaps I have too a rosier view of the US in this respect? Dunno.

This article is based on the current rose-tinted view of employment as 'the safe option' which says 'if you don't want to be a founder or co-founder of a startup, don't worry, with the right skills there'll always be a nice safe, steady job for you with one of those big reliable old operations who are all so great at innovation that they'll always be around'. Alan, you're right, entrepreneurship does have a dirty little secret: failure. But unlike big established employers, a determined serial startup founder can even be bankrupt and still get together with a mate and start another. Failure is good for the fledgling entrepreneur, because it releases the hardest-won experience back into the startup ecosystem. It's the big guys whose failures will leave employees with skills which will be less likely to be transferable in any future downturn. The days when the likelihood of failure was a good excuse for not starting a startup were over the moment that it became possible to try it at zero cost, before or after getting a job, or even being on the dole. Get out there. Do a startup. Fail fast, fail cheap, get the bug, pass it on, share what you learn. If you succeed, become an Angel. If you don’t, become a mentor. Failed first-timers who retain enthusiasm and commitment can make inspiring mentors.

I agree that entrepreneurship is challenging, but I think the tone of this article is bunk.

We should absolutely be brutal and frank in our questioning. That's because the world will be even tougher on their ideas once they start taking action. They need to be ready for that, and they will benefit by thinking things through a bit.

But we should never pour cold water on people's enthusiasm. We should never tell people their idea won't work. We should never butt in to tell them how they should be spending their time.

Enthusiasm is precious, and none of us has a crystal ball. Making mistakes is an important part of life. By all means we should help people avoid dumb mistakes, but only because we want them to be making interesting ones.

I think these things have to be experienced by trying. It's one of those cognitive biases we have - we always think other people are going to fail, not us. So it can't be intellectually internalized, it can only be learned through experience.

"we need to push back on the growing belief that they can eschew writing a business plan when they are too busy 'doing'"

How many startups change their business model when they realize something is not working? Most?

I suppose the only valid thing coming from a business plan is the recognition that you're not hitting your goals, you're running out of runway, and you better adjust course.

Other than that, guessing what your revenue will be 3 years from now and how many employees you'll need to satisfy those mythical customers seems to me to be a colossal waste of time when you could be busy "doing."

I think it depends a lot on your kind of business.

For the kind of internet businesses VCs like, business plans were always BS. That's because the pivoting and the hockey-stick growth curves make mush out of them.

But I've watched friends start more normal businesses: 1-10 person service or manufacturing businesses. For them the business plan has been really useful in that it has forced them to think through the details. And in particular, made them work out the math.

That math is useless if you're planning on making the next Google; either you'll be buried in money or you'll be done. But margins on real-world businesses are modest, so it's really worth thinking through whether you can turn a profit.

That's true. My post assumed a software-centric view of the world, where costs are very low and all that matters is a great product.

In most other businesses, it would be very important to know how many widgets you need to sell at what price to float the loan payments for production or to know all your overhead costs before taking on a consulting/service contract. Neither of those require long range planning, though, which I think are still guesses. The immediate budget and plan, however, is important.

Writing a business plan? Cash-flow management?

We all know what happens to a plan when it sees the light of day.

As for cash-flow management, my parents called it spend less than you earn if you want to stay in business. But that is just we.

>Similarly, we need to stop encouraging entrepreneurship without acknowledging the extremely long odds of success, the numerous downsides and the fact that many of today’s entrepreneurs are tomorrow’s social welfare recipients.

Yeah for a few months. The kind of people who are going to start their own company are not the kind of welfare recipients we should care about (inner city kids and white trash) -- they are those for whom welfare was created, as temporary safety net.

A business is a company formed to search for a scalable revenue model? Ok, that's from a businessman's point of view.

It's also formed to search for a product that resonates with the market. And to search for a capable team. And to satisfy a need by the founders to create something meaningful.

Remove Any of those, and you don't succeed. None are the 'true meaning' of entrepreneurship.

Anyone have the text of the FT article he links to? It points at a paywall for me.

If you register (just your email address) the FT gives you 20 articles free per month. Good enough for me.

Search for the title in Google and then click on the link it gives you.

One thing I see is a lot of people stressing about starting a company when they are in college or just out of college.

If you're struck dead by the idea for a business in college and is so compelling the idea of working for someone else is absolutely laughable-- then by all means, start a business.

But if an entrepreneur is what you "Want to be" but you're "not quite sure how to get there", or even if you're like me-- and you've been starting businesses since before you were a teenager, but you're not struck dead by a compelling vision of the startup you need to build RIGHT NOW, or if you've been kicking around and things aren't quite coming together-- go pay your dues and work for awhile.

I'm a natural born entrepreneur. I'm the kid who was buying coke wholesale at walmart and selling it to the other kids. In my day the big thing on the school yard was toothpicks soaked in cinnamon oil.

I knew I wanted to start companies, and so when I got out of college, I went to work for a startup. This job, and the ones that followed, taught me a great deal. I worked my way down until I was an earlier and earlier employee-- I've seen lots of startup failure modes. I also did some stints contracting for big tech companies, saw their failure modes too.

It also gave me the opportunity to find what industries worked best, where leverage was, get industry specific experience, find out what I was best at doing, and not doing. So, when it was time to do my own thing, a lot of decisions had already been made or were easily made because I had the practical knowledge and experience.

I think the glamorousness and programs like YC, and the media attention towards Facebook and instagram, etc, gives people the wrong idea.

You don't need to do your startup when you're 20, 25, 30. 35, 40, 45, 50, these are all ages at which great companies have been built.

And believe it or not, experience is a very valuable teacher.

Unlike the article I won't say that some people shouldn't do startups... but I will say that if you're in one of the categories I mentioned above, there's absolutely nothing wrong with spending some time paying dues. In fact, its invaluable.

I would never do a real estate startup because I have no domain expertise there. I wouldn't propose a new alcoholic beverage, because, again, no domain expertise. If it was what I really wanted, I'd still go work for someone for 6 months or a year. (nice thing about being a programmer is- sales offices in both those industries could probably use some help on a contract basis.)

I wish I would have done this. I started working on Iron Money[1] during my first year of college, and I even took a year off so I could make it profitable. I don’t regret what I’ve done, but I wish that I had worked for other companies to get experience before starting my own venture.

In the same way that new companies should be an improvement to what is already offered by others, I think there is a lot to be said for learning the successes and failures of how other companies run before starting your own.

[1] https://IronMoney.com/

this will be mod'd down but it's the truth. Below I reveal entrepreneurship's REAL dirty little secret.

it's that if you're talking to an early founder about helping in any way, shape, or form, you are going to get screwed - the question is for how long, and for how much.

is it just going to be your opportunity cost at accepting the wage that you were offered and any other compensation? or are you even going to get paid what you agreed to?

the true dirty little secret to entrepreneurship is downright marxist(3): it's how much value you can steal from your contributors. but wait, why does that work in a capitalist system? everyone sets their own price. Ah, but the thing is, people expect you to at least stick to agreeements. that's how zynga became zynga. (1)

it's like hollywood accounting - how about fifty thousand and five percent of net profits? My last three films each grossed over 500 million. (Author thinks: YES. If this thing makes anything like that, 5% of net profits is going to make me rich. The film grosses a quarter billion, net profit...0..)(2)

zynga is entrepreneurship's dirty little secret.

you can mod me down now.

summary of my whole commment: the dirty secret to entrepreneurship is that it's a sucker's game for a talented developer to come on board as an early non-founder.

Modded down indeed, but for incoherence.

I've added clarifications, let me know if there is anything left unclear. (I didn't want to explain every comment, thought it would be condescending or unnecessary, but I've explained anything I thought was unclear in an edit, and can add more if anything is still unclear.

I guess you've worked your way up from incoherence to confused but apparently baseless allegations.

You appear to suggest that Zynga is typical. It isn't. Indeed, it's gotten so much press because it is very different than the Silicon Valley norms.

From the exits I've seen, early employees generally do well when founders do well. The only financial games I've heard of are ones that VC investors play with founders. E.g., the joy of "participating preferred". But even those aren't games like Hollywood plays: nobody bends the rules or hides profits.

As a counterexample to Zynga, consider Google. The NY Times estimated in 2007 that there were more than 1,000 employees worth $5m or more thanks to stock and options: http://www.nytimes.com/2007/11/12/technology/12google.html

I have to say that 90% of what I said applies to the vast majority of startups today, rather than the occassional one that succeeds big. Google is characteristic of a different era and philosophy; I doubt very much that it would be possible for Google to have become Google in today's ethos, and if it did, it would not have created more than a handful of truly rich people.

And what's your basis for saying you have insight into the vast majority of startups today? Because an assertion from an anonymous, semi-coherent commenter isn't doing it for me.

As another counterexample, I just checked the YouTube purchase. They started much later than Google. When they sold for $1.6 billion, about 140 million ended up in the hands of the 20 non-founder employees with enough equity to list in the SEC filing:


That includes these titles: Senior User Interface Designer, Director for Networking at YouTube, Senior Engineer, Engineering Manager; Vice President of Content at YouTube, Director of Product Development, Director of Customer Support, Systems Architect and Office Manager.

hi, youtube is the same era and was heavily influenced in gearing up, by input from google management. I'm talking about now.

YouTube is definitely not the same era. Google was started in 1998, and was firmly part of Bubble 1.0. YouTube was started in 2005 by former PayPal people. I see no evidence that their early employee equity deals were influenced by Google management; if you have some, please provide it.

I can't, of course, prove anything about this week's equity deals by looking at IPO numbers because median time-to-exit is circa 7 years and we had a long period with few IPOs. But I don't have any reason to think that people today are doing something much different. But these historical numbers seem in line with current advice. E.g.: http://www.avc.com/a_vc/2010/11/employee-equity-how-much.htm...

You also ignore my request for evidence about your sweeping statements about the current state of things. Unless you have some, I'm going to presume that you're one of the many anonymous disgruntled people on the Internet. If you did get screwed, I'm sorry about that, but I don't think that's reason to go around tarring a whole industry.

I'd mod you down not because you did not have something to add to the conversation, not even because you provoked me to do so, but because your comment is so unreadable.

've added clarifications, let me know if there is anything left unclear. (I didn't want to explain every comment, thought it would be condescending or unnecessary, but I've explained anything I thought was unclear in an edit, and can add more if anything is still unclear. I think my point is quite clear.



It's inside my edit window and several people have asked for clarification, so I'll try to clarify. If something is unclear, ask, and if it's outside the edit window anymore I will reply.

(1) (footnote from above) The Zynga case is here: http://online.wsj.com/article/SB1000142405297020462190457701... (there's a search engine friendly url if ever I saw one)

this is the rare case where you get to zynga size before the "clawback", which is very formal and unusual for that reason...it's not just a couple of heated skype conversations when you're tiny. usually there is no such thing, and the collaboration breaks down around your first few sales or after the product can actually be finished by someone on a small wage. Conveniently, the founders are left holding the "bag".

(2) Hollywood accounting: http://en.wikipedia.org/wiki/Hollywood_accounting

e.g. http://en.wikipedia.org/wiki/Forrest_Gump#Author_controversy

clarification on "search engine friendly URL" - I meant I think the wall street journal should put the title in the URL so that it's matched in pages such as this one, and so Google gives the article more weight!).

(3) Under marxist theory, anyone who actually owns the means of production (e.g. the web server hosting the content let's say) makes money off of "surprus profit" that workers contribute. If the workers owned the means of production, they would be better off. So, this part of my comment was that it sounds like marxist to talk about ripping off workers, who are voluntarily contributing their labor under capitalist laws. But it only sounds that way -- critics of hollywood accounting do not criticize capitalism, nor that a film distributor can make 500,000,000 worldwide after spending 100,000,000 all told, with the rest being the retained profit. The analogy with marxist discontent is only superfluous, not deep.

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