I have come to the opinion that if you are bootstrapping, you have no business calling your company a startup. You are building a small business. And there is nothing shameful about this. You are among solid companions with your local plumbers, restaurants, and barbers. You make a good living building a sustainable business that is growing steadily but slowly, to serve a small group of loyal customers.
But you are not a startup.
Startups are about growth. About chasing metrics like 5% week over week. About going from 100 customers to 100,000 in a month. That is the reason you take VC money. It's not "I have this idea for a business, but I need some money to quit my job while I work on it". It's "I have an idea for a business that could be huge but I need to build it up fast".
So when I see someone bemoaning the advice they were given by their investors, telling them they should be meeting all these crazy metrics, I can't help but ask, what did you expect? The VC isn't in the business of slow, organic growth of your company. They are in the business of generating a return for their fund within a relatively short timeframe. The advice you get is their best effort to try and help you find "explosive" growth.
Before you sign your bootstrapped business on for investment money, ask yourself: is this business, and more importantly am I, really suited for massive, short term growth?
Bolted, of course, to the top of any thread that mentions "bootstrapping" or "VC".
The problem is, not everybody agrees with you. I've done both kinds of companies and don't think growth trajectory is the defining feature of a "startup". I'm also not particularly interested in debating the point, since it has very little to do with the story we're commenting on. (I also understand your rebuttal to that point, that the problem this person had was not understanding the distinction you're making, but I also disagree with that argument and find it a little mean-spirited.)
I think creating a business can be one of the most rewarding things a person can do, and I want as many people to find success in that as possible.
It is possible to create a business with a very ambitious growth trajectory regardless of whether you have taken VC or angel funding or whether you are bootstrapping. It's just a lot easier to do this if you've taken funding.
In the valley, most plausible ambitious growth trajectory businesses are VC-funded of course; this is not necessarily true elsewhere. As someone who has lived in the valley for many years and before starting a startup outside of the valley, it's easy to understand why: not all funding climates are created equal.
The thing is, your comments come off as extremely dismissive: the implication is that anything not-funded is a "small business", which is the equivalent of a pat on the head and "nice lemonade stand, son" (or, Italian restaurant, if you're DHH).
Finally: say a startup has a high growth trajectory and closes a Series A round. Was it a startup before it closed the round? I'd argue the investors thought so...
I found your comment(s) very insightful. Thanks a lot for posting.
If you're starting up you should be questioning the ROI on everything--and trying to figure out what it may be for a VC is part of that.
There's no free l(a)unch.
As I understand it, that's the startup game. If you want to call the shots and build your own dream, don't take the money.
Makes perfect sense to me.
The startups where the VCs end up calling the shots are the ones that are on bootstrapped revenue and user-acquisition trajectories but with VC funding. You have no leverage in that situation, because they provided all the money and you're providing...nothing useful at the moment. If you're careful about taking VC funding only once you've validated the market and your ability to execute against that market, the investors don't even want to call the shots, because if they just let you be they'll make a whole lot of money for zero effort.
Intent is important, but the reality is that a slow growing internet company not focused on growth can eventually end up growing at 100% week on week simply because of slow improvement on product that provides value - 'startup by mistake'. A local barber can never have the same effect.
But funding from customer revenue does not automatically imply "small business". If you manage to generate a reasonable margin off that revenue, but you reinvest the profit back into the company, you can grow that way, as opposed to growing by taking outside money.
Not charging money, taking VC investment, joining an incubator, and creating a stupid name that ends in "fy" or "ly" a startup does not make.
BTW, I've read the essay. I like most of what he writes, but I have a fundamental disagreement on this one and just because it comes from the hands of PG does not make it gospel.
What does this mean, "designed to grow fast?" Only technology businesses can achieve overnight billion dollar valuations, so are we saying that anything that is not in the field of tech is not a startup? If you are aiming to become the next Google, Facebook, or Twitter, good luck to you but you're going to fail. Most businesses that drive our economy were not overnight success stories. Starbucks, Wal-Mart, and Macy's were once single store fronts whose founders were not aiming for "hocky-stick" growth out of the gate.
Ask John Paul DeJoria about what a startup is. The guy started by selling fucking shampoo to salons out of his car in Los Angeles when he was 36 and now owns Patron. Yes, the Tequila company. Watch this video for some perspective: http://www.youtube.com/watch?v=hndfUwPpzyQ
Edit: See below, I was referring to accelerated growth
PG doesn't exclusively define the startup world.
Is there really any point in Github's development that anyone would've doubted it was a startup?
But I stand by that.
The term "startup" originated during the dot-com bubble. The very origin of the term means it is supposed to apply primarily to new tech companies who are designed to grow fast.
A barber shop is not a startup. It is a small business. This doesn't make it any less legitimate as a venture. It just distinguishes it in terms of the nature of its business and industry.
edit: if you're going to downvote, at least have the courage to voice your disagreement as a reply.
Unless there's another dot-com bubble that happened 150 years earlier than the one I know about, I think you're pretty well wrong about the etymology.
Within the HN-bubble, people may define "startup" to be "VC-backed-startup, but the term does have a meaning outside of that bubble. I call my own company a "startup", and I have no plans to seek out a slot in an incubator or investment from VC.
Wow, you get some bullshit ideas about business if you get your mba at wikipedia.
Edit: Also, it was only during the bubble that you saw startups go from zero to IPO in two years, and moonshot IPOs were unheard of prior to Netscape. The conventional wisdom pre-Netscape is that you had to be profitable and growing for 6-8 quarters before the IPO. A "moonshot" IPO was one that bumped 10-15% on the first day. When Boston Chicken went public their stock was up something like 50% on the first day and it was major news.
The word 'startup' is at least a few hundreds years old, most likely from the word 'upstart' - the action of starting up.
Startup as defined in the Merriam Webster dictionary: A fledgling business enterprise.
Startup as defined in the Oxford dictionary: A newly established business.
Are we? I'm not in Silicon Valley, and what happens there is of little consequence to me. I, for one, only care what startup means in my vernacular.
For what it's worth, I consider a "startup" any business that's intended to grow into a very large business, where the definition of "very large" is somewhat fuzzy. But I don't think you have to have intent to achieve that in any certain period of time, in order to qualify as a startup.
... in the opinion of greghinch.
Sorry, but I'm of the opinion that your opinion, or at least your use of terminology, is a bit dodgy. I agree that taking VC money implies certain expectations that may not be what you - as a founder - want or are comfortable with, yes. That's just a warning against taking VC money, unless you know for sure what you're getting into. But to suggest that you aren't a "startup" unless you take VC money and do the "get big fast" thing is, IMO, totally unsupported.
Just because a company is bootstrapping does not mean they are "building a small business" or that you are meant to be companions with the "local plumbers, restaurants and barbers". Big companies can be built slowly. Did Wal-mart start off as a huge mega-corp? McDonals? IBM? A million other examples? No.
Organic growth, re-investing in the company and growing slowly but steadily can be a path to being huge just as well as grabbing a pile of VC money and trying to compress it all into a couple of years. It's all about the decisions you make and how you execute and what your vision is.
Also note that it's really not a fixed decision anyway... you could bootstrap for 6 years, then - one day - decide to take VC or private equity money to expand. So were you, or were you not a startup? Or would that be a "Schrödinger startup"?
Indeed... in his essay, "Startup = Growth", PG wrote:
"A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth.
If you want to start one it's important to understand that. Startups are so hard that you can't be pointed off to the side and hope to succeed. You have to know that growth is what you're after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face." 
> "A startup is an organization formed to search for a
> repeatable and scalable business model." 
> Steve Jobs often speaks of Apple's "startup" culture.
> ... an article in the New York Times referred to
> the seven-year-old airline Virgin America
> as a startup. 
'Revenue first, growth second', a paraphrasing of Clayten Christiansen.
VC's essentially use founders like race horses. They pump in the steroids, exercise them to the point of optimal performance or death, and then put them out to pasture if they don't perform. Founders are part of a portfolio plain and simple. They are part of a stable. The VC's are benevolent trainers but they have one goal: ROI. Their benevolence is in direct correlation to their ROI, which is largely determined by growth. The irony is that Wall Street operates in exactly the same way. The difference is that the relationship between Bank and Borrower or Shareholder and Company is more clearly defined than the relationship between VC and Founder.
There isn't anything wrong with VC's. They play a vital role in the financial community. Yet, at the end of the day, a VC is going to look at a startup as a financial product. VC's are offering their partners a product just like a startup is seeking to offer the market a product. The fortunate part about the rest of the business world, cut-throat though it may be to some, is that no one expects anyone else to be benevolent. They expect people to conduct business.
The better the VC-Startup relationship is defined, the better it will be for the long-term health of founders. On the other hand, VC's have no incentive to change course because their is still a willing market of young people who want to strike it rich. In some sense, it would be far better for the market and founders if data was more readily available. In fact, it is a jilted environment. It is always in the VC's favor because they hold the money. However, it doesn't mean that they hold future value. If it did, they wouldn't need to go fund startups.
The current VC-Founder relationship is imbalanced compared to other portions of the marketplace. The VC's hold additional chips because of the allure of a successful exit, the siren of Silicon Valley.
Mailchimp is a fantastic example. Bootstrapped with 9 figure revenues and crazy profits. http://www.quora.com/MailChimp/How-much-revenue-is-MailChimp...
(For the record... I'm happily bootstrapping my startup which is a startup as far as I'm concerned. I'd call startups that rely on VC funding "VC startups.")
Both went under and said in retrospect the extra person would have been better applied building the product/marketing.
In general I'd find it hard to believe having more resources available reduces your growth rate.
That is to say, a bootstrapped business can be a startup (if it gets to the point where it focuses on fast growth) but not necessarily (as in the case of businesses with gradual or no growth).
You could start a bootstrapped business and only grow to the point where is sustainable in the long term, and just provides you with a decent level of income so that you can work on something you like and under conditions that suit you.
My company is bootstrapped, but we're still very focused on growth.
My company is bootstrapped, but we're still very focused on growth.
Same here. We intend to build a billion dollar business, but we are (so far) bootstrapping. That doesn't, however, mean we'll never take outside money, but there's no need to right now. Once we prove the model and get some initial traction, it might make sense to do it just to fund expansion, but that's a decision for another day.
"...I can't help but ask, what did you expect?..."
I can't help but ask what the VC was thinking???
Serious question. I know we don't know all of the details, but this seems, on the face of it, a very bad idea. I would assume there must have been much better methods of handling that client than to cut them loose. A new free tier to generate growth maybe??? Or a tier on the high end which would serve to satisfy that client???
I just don't understand why "paying customer" and "high growth" have to be mutually exclusive??? They are not mutually exclusive in any other industry I work with. Not in the restaurant industry... see Chipotle. Not in the shoe industry... at least women's shoes. Not even bike components... SRAM. Even in industries that are notoriously difficult... like porn... growth and paying customers can coexist.
I mean if "$OUR_BIG_VISION" has no room for customers who pay you gobs of money? I don't know what to think of that.
The problem is, when you are going for growth, you can't focus on the needs of one. You have to be able to take a higher level view, and build a product that can do the most for all of your customers. Sometimes that means cutting features, or at the very least making changes. If you had a product which was tailored for one customer, that fact may very well be quite limiting to expand to many more customers. Even if you build something that could do just as much for that early customer, the fact that you had to make those changes may be enough to sour the relationship and end it.
Again it's hard to know what happened in this specific case without details, but I would wager it was something along those lines. It's a decision not to be made lightly, but one you're likely to face as you grow a B2B service.
If you have a client like that who is hindering to growth, then a dominating strategy would be to spin-off rather than ditch. You can afford to put 1 or 2 people on that work while you build from what's already been done.
"We can't get feature X,Y, and Z completed which we think will get us X,000 new customers because of Big Client."
"Well, then fire Big Client."
<months pass while new features X, Y, Z are built, Big Client leaves but it's OK b/c X,000 new customers are coming!>
"Hooray! We just released X, Y, and Z"
"Oh no! It turns out the features weren't actually what customers wanted or needed!"
I think you make a great point, but out of curiosity, what do you suggest are the best avenues for funding a tech business in the more traditional revenue-driven-growth model, if you're not bringing enough seed capital to get off the ground on your own? It seems like what's missing is an accessible happy medium.
The right private investor/angel is also a good route. This should essentially be someone who wants to join you in the business, not someone who is looking for a specific return timeline on their investment. That's a big differentiator between a good angel and a VC.
Traditionally, you start the business after you have some experience in the field, and either have some skill you can use to drive some revenue, or some capital.
This idea that you start a product business (rather than a business selling your labor directly) right out of school seems like a new one.
It's not so much 'let' as "pay them lots of money to"
as for the encumbrances, well, we all make choices. Children don't magically appear when you hit 30. Personally, I find it really surprising that people who choose to have children seem to be able to compete with the childfree in top jobs... but it seems they can, so what do I know?
I bet the race to reach the "hockey-stick" kills more companies than it helps. In many cases, there is no reason why you can't end up at the same place in 5 years if you let the business growth organically, rather than force-feed it in the beginning in search of that 1-2 year pop. But how many VC's want to see their investment wandering through the wilderness for 2-3 years before things start to "click"?
There was a Silicon Valley decades before Internet/Web 2.0/somolo startups started colonizing San Francisco, and back then, there were startups in other non-Internet industries - heck there still are. There are startups in biotech, medical devices etc, that take several years just to develop a commercially viable product. Those startups don't use metrics like "5% week over week". They are, however, scalable businesses that may eventually justify VC investment.
There are lots of reasons to want to grow a business quickly, but a business doesn't automatically cease to be a startup because you have decided you don't "need to build it up fast", whatever that means.
Bootstrapped businesses can be startups, obviously. The cost of starting almost any business has fallen sharply in the past few years. You don't need VC funding to build a startup, fast or slow, unless you're building a capital intensive business or you can't fund your startup otherwise.
Many accelerators have a knack for picking up teams that have demonstrated the ability to build things that generate revenue and traction. The siren song of money, networking and growth is really seductive. The implications you speak of (and I experienced it) aren't always so clear (or too easy for a prospective founder to dismiss).
So "startup" as a subset of "entrepreneur" seems like good language to me. The difference is the opportunity for exponential growth.
The word means many things to different people. This is an indication that people should start using different words to describe things if they want their audience to interpret them as intended.
I like Steve Blank definition of the startup: "A startup is an organization formed to search for a repeatable and scalable business model". So startups need to have _constant_ progress in their search for repeatable and scalable business model.
For example, if you run a bio-med startup, are you going to grow and sell your drugs out of the door? Nope. Or if your startup is some B2B boring stuff - sometimes you want to work hard to make a couple big customers super happy and work very hard on how to repeat and scale that business model.
Also some local restaurants do become startups - depending if they figured out how to scale their business model.
I do disagree that startup has to be growth centered. By virtue of software for which the distribution costs are practically 0; most software companies have potential for a significant growth (unless they are targeting a very narrow audience). It seems that the growth would come naturally once you have a product of high quality (with sufficient exposure/marketing). Hence shouldn't the primary focus of startups be on producing a product of high quality?
A new concept for a physical retail store is different from "another dry cleaner" vs. a franchise vs. taking over an existing successful business.
A consultancy where you have 20 years experience in the field as a consultant for someone else is totally different from a b2b startup a a field you solidly understand where you have initial clients lined up before you start, vs. a consumer "hits driven" business.
There isn't a universal line between startup and small business; it probably varies with time and with the founders themselves.
What's the value of that kind of user growth? It very much depends on the quality of the user, and the startup's ability to convert users to customers. The Techcrunch effect might give you rapid user growth, but are these the right kind of users for the business? Maybe. Or maybe not.
But for the short term story, the VCs love 'user growth', and let's not worry too much about the detail, right?
The problem with taking the VC dollar is that you also need to take their metrics and KPIs. I can think of no better KPI in business than average customer lifetime value, but I doubt most VCs could care less about that, as it's a long-term KPI. It is the short-term vanity / hype metrics ('user growth' being a good example) that they're more interested in. They want to be in and out within a relatively short timeframe.
Explosive growth is all well and good, but as ever we're overly focused on user / customer acquisition, and not with retention, which is far more profitable over the long term. A healthy business concentrates on the latter, and not just the former. For VCs, it seems to be the other way around, concerned as they are with exit strategy.
Perhaps the devil is in the details here, but OP implies that he took accelerator/angel money -- that's potentially a very different thing than a professionally managed institutional investment.
But I still consider them start-ups. They are entrepreneurs fighting in the marketplace. Not every start-up needs VC money.
We say in this country that getting rich slowly is the virtue and that get-rich-quick is the scam. Yet VC is obsessed with the latter.
I have some ideas on how to finance this currently underexplored (and underfunded) class of businesses: http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... . But I have no power, so don't count on me to fix the problem.
Your co-founder will, hopefully, not find out about this through guessing "Is this my company?" on Twitter, but rather in hearing it from you. You may be heartbroken about it, you may cry a bit (totally OK). Then, you will put on your Responsible Adult pants, call your employee into the office, and tell them the situation. You will emphasize that it is in no way their fault. You will tell them the status of your future payments to them (you can make them -- good), and instruct them that they have no job now other than lining up their next gig, and that you are totally at their disposal for making that happen. First among all things you take care of your employees -- they have the worst risk situation of anyone involved.
You will then tell your investors that you're failing and will be proceeding to wind up the business in an orderly fashion. They probably already know this. None of the ones who you care about will hold it against you -- "this is the nature of the business we have chosen." Some of them may likely attempt to invest in your endeavors in the future, if you decide to go down that route.
You will then draw up and execute on a plan to wind down the business in an orderly fashion. Give your customers a window on their apps going dark, if appropriate. Turn off new signups now. Turn off ability to take money now, unless it is absolutely required to continue paying your employees. There likely a small mountain of very boring administrative work here -- your lawyer and accountant can help you through it.
After this is over, you'll probably be very stressed. That is fine and natural. You're in the hottest market ever in terms of hiring right now. If you want a job immediately, you will have many offers for it. "Built a company with real revenues from nothing. Got into an accelerator. Took funding. It didn't work." is enough of a resume to get you an interview at any number of places. If you need introductions, you are probably well-networked enough to get them, but if for some reason you want more drop me an email. Your designer co-founder will have, similarly, no shortage of offers.
Like tptacek says below, this will not meaningfully hurt your chances of creating a business later. You've likely learned plenty through the experience.
It sucks. It will be better, very soon. You don't have to be scared: this is routine and, while it doesn't feel like it, you're actually in very good position, both absolutely and relative to many other people.
The one time so far in the history of Shadowcat I've had to cut people for no reason other than lack of money, I talked to managers I knew at other companies who might have an interest in the sort of talent that I was about to force onto the market.
Two people finished working for me on a friday and started a new job on the following monday. The reduction in stress and guilt and hence increase in my capacity to focus that resulted from knowing that was the outcome for them repaid the time spent finding them new gigs within a handful of days. Maintaining a positive relationship with those people afterwards - and the attitude of people who saw how I'd handled it - was effectively just gravy.
Or: Handling this sort of situation with honour tends to help turn it into a positive sum game.
Having said that, a month to live is still a month to live. Talk about the situation with your team members and advisors and try to figure out whether or not it's salvageable. Perhaps, after making some difficult choices, there's a way that you can still continue. There have been moments in my own startup experience where things seemed really bleak and hopeless, and it seemed time to give up, but in the end we actually got past it. Another friend of mine had a situation where he literally had no money left in the bank and took the company to Vegas on credit card (I don't advise this!), when someone threw him a $200k life preserver at the 11th hour.
I guess the question you really have to ask yourself is whether you still believe in what you're doing. If the answer is no, then I think your involvement with the company has to end, which may or may not be fatal for the startup overall. I feel for you OP - my own startup failed 18 months ago and it's no fun. However, you'll get through it and I hope you decide to try again.
I would add, I usually give myself twenty four hours between drafting and submission of any seriously emotionally charged communications.
sometimes you don't need it, but you want to be as calm (hah) as possible.
Talking to your co-founder "sometime this week" and your employee because if you don't fire him you "fucking won't make payroll" for all of two paychecks should really have been the first moves.
But then, this doesn't sound like someone who cares about much else other than deflecting failure onto his investors and co-founder.
No need to be defensive about it if it did not work out, just go talk to your people.
At the height of the bubble I co-founded a vanity e-mail business. We wanted it to be a paid service. Our only competitor was a paid service. But when we looked around, we saw ludicrous valuations per user for users that provided little to no revenue. And the VC's saw it too. And everyone were seduced into going for a free service and figure out monetization later. So that's what we did.
Of course the bubble burst, and the lofty valuations disappeared, and we had to hunker down. The business survived, but we fired 45 or so people - the vast majority of the team, and the VC's lost most of their investment.
I have two big takeaways from that experience: Be conscious whether or not you want to gamble. A gamble can be worth it, but you may be much happier building a company that'll stand a reasonable chance of giving you steady returns and pay you a salary than taking a long shot at millions. We started out wanting that reasonable chance, but got seduced into the long shot without really thinking about it.
Secondly: Keep in mind the VC's often have a vastly different risk preference than you. A founder is usually investing all his/her time in a single business, often for years. A VC spreads their investment over a wide range of companies, and spreads risk accordingly. For them, it's not such a big deal if a few of their portfolio companies fail, if they get the occasional massive return, so it may make sense for them to be willing to take risks with your business that are not in your interest.
It's vitally important to think through how much risk you're ok with before going out and getting investment, and to look for money accordingly, as well as consider how much control you're willing to give up depending on how aligned you think your interests are with the profile of any investors you bring in.
Failures makes valuable lessons (and I've had more lessons...).
Is it wrong that I feel worse for this employee than for the author? He's looking forward to a (probably well-earned) vacation, and he's about to be forced into a job hunt instead.
Trust me, any employee would be happier to be in a stable and improving startup than in one that's going downhill anyway. If they're a dev with startup experience, they'll have no trouble finding a new job and will be better for it.
Don't worry, just be honest and open with them ASAP. The worst thing you can do is keep them in the dark.
I've since learned that you keep your ears to the ground at all times, in ANY company you work for.
You don't sit in your cube with your Dr Beat Headphones on, you listen to office talk. You overhear that phone call from a vendor asking where their overdue payment is. You notice the rise in closed-door meetings between management and the CFO. You make friends with the assistant that cuts the checks. When you've done it long enough, you know where you stand and when it's time to get the hell out before you're caught with your pants down.
Obviously we don't all have the option to bail at any time and find other work, but if this is the kind of culture you're seeing as normal, I feel very sorry for you.
Anyone in this position should -- for their own good -- at least attempt to take a longer view and see if they have options that don't involve constantly sleuthing to narrow down your job's expiration date. Unless you actually like living like this... in which case, hey, it takes all kinds. ;)
That's a very reasonable and business-minded way to approach your employment. You have a very direct interest in the company's success: your paycheck, reputation, friends, etc. Being aware if the company is exploding is simple sanity.
What I'm saying is that it's not a bad idea to understand the health of your employer (commercially, competitively, and financially) and recognize when that health changes for better or worse. If I get up and ask 10 co-workers who our biggest competitors are, I can guarantee 5 of them couldn't answer that question. If I asked the winning 5 which ones were growing and could possibly eat our lunch, 4 of them would fail that test.
Have you ever been let go from a job after being told for months/years that everything was fine and the company was doing great? I have. Luckily, at the time, I had no substantial obligations such as raising a family. Now I do.
I learned from that point on to never be blindsided again. And it's worked well for me so far. And I'm not a paranoid person at all. I sleep pretty well, actually.
That means NOT stringing people along. Sit down and figure out whether you're going to be able to keep people employed at 100% of their current pay and benefits. If you know you can't, then the biggest favor you can do for them is to lay them off quickly so they can start looking for a new job immediately.
If you can make some calls to get them leads at other places that's great, but the most helpful thing you can do for them is to let them go as soon as you know that they have no future at your company.
I've done firing and layoffs and I know it's hard. Delaying it makes it all much worse, for you and the departing employees.
Congratulations: You're normal. Look at it this way: You are commanding on a battlefield, there are a helluva lot of guys about to die. If you freeze up, they all die.
So make some fucking decisions, save as many as you can. Throw some into the line of fire for the sake of the others. It's what battlefield commanders do. The gods have chosen you for this role, rise up and do your best. You will make some bad calls, and don't sweat it. Focus on making the right calls, then course correcting the bad ones.
Sports analogies work better since there is always next season with some of the same and some different players. You decide to go for the touchdown for the win instead of the field goal to tie on 4th down. Its a choice, it works or it doesn't, you go on to the Superbowl or your don't. The decisions tomorrow will be affected by today but you will still have decisions to make.
Start-ups (and I think this is one, and I think pizza stores are start-ups too) are sprouts of a business. Sometimes they grow into bushes, sometimes trees, sometimes they can't develop enough to stay alive and they die after a while. But a start-up "dying" isn't people dying. Its people going on to do something else. For non-founders their work day may proceed pretty much unchanged other than office environment and neighbors in a new job somewhere else. As for founders? Well it demands reflection and inspection to glean the maximum amount of understanding about what worked and what didn't. Sadly its the only way to learn some of those lessons.
No, but firing somebody who is the head of household and has major medical issues at home, is a helluva lot more serious than 4th down.
There are scenarios one can construct that are quite painful, the person you convinced to move out of their home town away from an ok job and family to work for you who, due to the high cost of living, had a really long commute and got into a vehicle accident their first week, because they had been putting in 80 hour weeks to come up to speed quickly, that put them into the hospital but they they hadn't worked long enough to qualify for California Disability Insurance. Can we make it any worse? Perhaps their girlfriend found out she was expecting that week and so that was why this poor guy was rushing home? And your startup goes out of business because the lead investor pulled out just before the round closes, so now they don't have a job.
I'm sure we could pile more on.
My point is that the common case, the general case, is that people have multiple jobs throughout their lives. Sometimes it is wonderful, sometimes it sucks, but when they are 60 looking back at their 20's it will be part of a much larger tapestry of experience. If for the majority of people it isn't the end of their world.
In this situation, I would tell your investors immediately that their investment is going to zero if you can't manage to sell the company for the value of the team - and that in order to even try to sell the company for the value of the team you're going to need a bridge loan, because otherwise the team is going to evaporate.
If you can get a month's worth of bridge, get all your investors to start looking for a home for the team and concentrate solely on that. If you can't, tell the employees to start job hunting and use the small amount of money you've got left to wind things down gracefully and sanely. Winding things down on your own without the help of a lawyer is a pain in the ass, and lawyers cost money.
Hold a company meeting, put the accounts up on the wall, explain that you have almost no money left and the company is about to go broke. Be willing to consider ideas, but don't string people along so you can postpone pulling the plug on them. It's possible that your employees (individually or collectively) will come up with solutions that you can't; your lack of transparency about the firm's health may be part of your problem.
Have a meeting with the guys that do work for your company/product first, LISTEN to them, and then take it from there.
What tremendous waste of time.
Triying to chase the "investor money" was the most damaging thing I do. I waste months on that. Building investor plans, do meetings, and work on CANVAS and other methodologies where some company, that get the real $$$ to "create startups", guided each of us to the path of silicon valley..yes, rigthhh....
At the end, I understand that we was part of a masterplan, where the money was on the big players sucking from the gov funds on build startups, with pre-pakaked advice and zero of the real value that we need.
I think that YCombinator is the only that truly make sense, and the rest copy-cats are more a waste of time than not (even with good intentions).
It seems to me that if you're truly out of money, you can either:
1) Try to double down on funding. Your investors can either re-up you or kiss the money they've put in and the debt/equity they have goodbye. But this just puts you on the treadmill for another X months. If you don't like how that feels now, maybe it's not the best direction.
2) Try to get acquired by someone who will pay you to finish your product.
3) Get outside work to pay the bills and put your startup into side project status. Surely with what you've built, you have made yourself highly employable, and if you're in a big-time accelerator, you probably know people who need your skills.
4) Make a "personal pivot", and use the skills and experience you've developed to springboard into something else.
I've come to learn that the discourse in the startup world is completely slanted toward success stories, even though success is far from the most common outcome. Almost no one gets it right the first time.
For example, from my own limping startup, I've learned a lot about what I did that didn't set myself up for success, and how I would do it differently. I got a day job--which I'm loving so far--and I'm planning to save a substantial portion of my pay to build a warchest over the next few years, such that next time, I won't dive in already broke (just one of several crucial things I would do differently).
This may be a shot in the dark, but if it were me I would call up the VCs and begin having the hard conversations. "Hey, we're in trouble. I think we made mistakes here, here and here. I'm in over my head, what do we do now?"
They may ask for what's left of the money back, your business may fail, but at least you go out having been straight-forward with yourself. And you can get on the horse and do it again.
Just my two cents.
DHH is well known for being against investors in general. Why would he be proud ?
My point of view on this : investors are OK while the funder(s) have more than 51% share, and therefore still making the decisions. You kind of sell your thing to satan here brother, you shouldn't have. You are not in charge of what you put so much work building, from scratch. People with money come here and change your view on the business, on your values ?
Also, I feel you don't talk enough to your co-funder(s). You should not have secrets, work-wise of course.
A bit of advice, if I may : at my startup (in which I'm associate, not funder), we make a scrum retrospective meeting every now and then (2-3 weeks). In these meetings every member of the team explains :
1/ what we should do more
2/ what we should do less
3/ what we should do the same (SAME !)
4/ what they have found frustrating
5/ what they are happy about
6/ any questions
I feel this is really important so that every one is happy. It takes courage to explain all this in front of people, but it builds up the team...
Anyway, good luck brother.
Perhaps it's cheaper than a psychologist, but in the process of being "stretched so thin" why are you spending time and effort into something that won't materially help you.
Dude, you have 30 days left. Don't be one of those football teams that gives up with :30 left on the clock. If you're going to lose anyway, throw the ball into the fucking end zone and try your hardest until the game's officially over.
Use your name. Tell us and the world about your company. Ask for ideas and help. Take advantage of this medium to try and turn it around with a Hail Mary pass instead of quitting early. There may be plenty of time for psychoanalysis in August, so what have you got to lose?
There are already 148 people on HN who care enough to comment. And thousands of readers, all of whom are tech savvy and perhaps more. You just never know.
Even if it fails, you'll go down a fighter instead of an anonymous blogger bemoaning his bad fortune. Which would you rather be?
Why are they happy with you? ASK them and then shut up and write down why.
Take a step back. What do you need to achieve break even NOW and next month? Who do you need to let go? Who do you need to keep?
I too am running a startup with a downward trajectory. We have more like 6-12 months of runway left but things aren't looking good.
Our path tracks your alternate reality.
I started a project several years ago that took off. It wasn't meant to be a business at the beginning but once it started getting traction I slowly devoted more and more time to it.
It was "profitable" from the first day; the Adsense ads more than made up for the costs of hosting it and the initial design work. I programmed it myself so there was no development cost.
From the beginning it snowballed. It had a thousand users the first week, ten thousand the first month, and 50k users 3 months in. It was at that point that my amateur coding got in the way and the server crashed and burned.
By this time the business was making about $300/day in advertising. The costs were basically zero (a single virtual server + me part-time while I was still in school).
In retrospect this is the point I wish I had dropped out of school, raised some funding, and started building a development team. But I didn't; I read up all I could on scaling and hacked together some more code. That helped the project grow to a million users by the end of the first year.
By this time I had added in for-pay features to the free product to augment advertising and was making well over $1000 per day. I started plugging some of this into advertising to accelerate the growth but most of it was being distributed to me as the only shareholder. Things were going peachy until the servers crashed again.
Again, I read up on scaling, bought a couple hours of consulting time, and patched things up. Within a few months the advertising spend had paid off and at the peak the project was raking in $20,000/day (most funneling straight back to me since at this point it was just me [still part-time] and a couple of part-time customer service reps). This was where the project hit its peak of about 1 million monthly actives.
And, of course, the servers tanked again. This time by the time I was able to get things stable again the market was not as good and we weren't ever able to get back our exponential growth.
I wish I had at the very least "gone for it" and plugged the profits back into the business to hire people to help me. It was about this time that my competitors were discovering the same things I had been experiencing (easy viral growth, cheap user acquisition) and raised about 100 million in VC funding to buy up and saturate the market.
Long story short, we stagnated and slowly declined (no longer able to compete effectively with our newly extremely well-funded competition). Our competitor who raised 100MM in VC is now a public company with several billion in market cap, and there are several others who took a similar path that are worth in the range of a billion as well.
By the time I decided to hire and build a team it was too late to make much of a difference.
I made a couple million bucks and had a fun ride but I'm still kicking myself for not seizing the opportunity to go all-in while the window was open.
We're now playing catch-up but the market is more fully developed now and it's harder for underdog players to get an upper hand.
What was stopping you from hiring a couple full-time devs (and devops) at this point? And going full-time yourself? It didn't sound like you need VC / angel investment at this point. It sounds like you had enough money to self-sustain.
It took me a long time to get over the fear of others relying on me to support their family/lifestyle. I think deep down inside I felt like my business was a fad and since I didn't have a clear vision of where it would be in 3-5 years I didn't feel comfortable having others reliant on it for their livelihood.
I started it when I was 19 and since it wasn't on purpose and I couldn't envision myself working on it in 5 years I didn't feel like I could ask that of someone else. I wasn't passionate about the project, it was just the first thing I'd done that had gotten so much traction.
I liked the freedom of being able to travel the world without feeling beholden to others back at home. Since I was only accountable to myself I could work 10 hours a week from anywhere on the globe and there was nobody to tell me to get back to work.
At one point I remember saying "I don't want this to be what I'm remembered for." I still feel that way; I want to solve a big problem with my next company someday (bud I didn't and still don't don't know what that will be yet). But that shouldn't have precluded me from going big on this project. I was rushing things, trivializing what I was currently doing, in search of my next big thing.
I eventually did invest a significant portion back into the company to hire a couple developers, designers, etc. But I should have done this much, much sooner.
There are so many interesting people on this site...
That probably sounds quite harsh if it's something you love, but a million bucks is like economic freedom for life, and you can try again with a different idea later where there's less active competition. Sounds to me like you did pretty well for yourself.
We keep trying to fix that but over the past year or two we've had little success.
I like the team and we're working on another project that could potentially re-ignite the company so I haven't given up all hope yet.
I committed a block of money back into the company when I decided to hire a team. We haven't burned through it yet (that's the 6-12 months runway that's left at this point) but once it's up I can't justify putting in any more and wouldn't feel comfortable asking an investor to put money into something that I wouldn't fund myself.
Best of luck!
200k is a silly number to use in this calculation. Most studies show that "happiness" stops having big returns past something like 70-80k. Could I spend 200k a year? Sure no problem. Do I need to? No way.
You would have to purchase a house, it should be in a safe area with a good school district, so that's probably 200K? (I don't know what prices would be far away from the coasts)
So now you have 800K generating dividends for you, plus you have to save every year to be able to cover your kids college tuition since you can't get any need based money due to your nest egg. Even assuming you somehow do that on 50K/year (or your kids get merit scholarships), in 30 years (by the time you are 60) your 50K has the purchasing power of ~25K.
As for kids college, I had parents that helped some, and I paid for a significant portion myself (i also paid a significant portion of my wife's). I plan to save for my kids college, but it will be on the order of 1k a year or so. With 18 years of stock returns, it should be a decent amount for them. If it isn't enough for their desired school choice, they will have to pay the rest. That seems more than fair to me, but it won't be a huge sacrifice to put away 1k a year.
Also note, that the above linked article was doing math based on 4.2 mil. I think 1 mil would be enough to consider myself totally free, I'm certain 4.2 would be way more than enough.
Edit: Also, by only taking dividends and not principle, any inflation should also be reflected in the stocks. This means the purchasing power should stay constant assuming competent investment decisions.
2) Without a mortgage or debt, even 25k goes a very long way. Add up all of your non-housing bills, it shouldn't come anywhere close to 25k, I just did a sample budget and it still leaves 500 in savings per month.
2) Assuming a low cost of living state, and you live frugally for just yourself, I totally agree. I don't think that anyone would say raising a family on that much is easy in any part of the country. (I'm not saying its impossible, just not easy, probably to the point where you would say screw it and go back to work.)
2) It's not that frugal, that's my point, here's the budget I put together, which still has luxuries like cable tv, smart phones, and $250 a month for going out. https://www.budgetsimple.com/budget/DKwEDsxt
Assumptions- You own your house outright, you own a car outright. There are other costs like property taxes and car repairs, but with $500 savings per month, those should be easily covered in a year.
EDIT- It's also worth noting, we're talking about income solely from dividends on $800k. Once your kids are going to college if you want to help them out, you have 800k (plus the $500 in savings per month to help them.)
Most people can live quite comfortably for far less than $200k/yr when they are debt free and (figuratively) sitting on a giant pile of cash, especially if they aren't tied to living in SV, NYC, etc.
If you're the "permanent vacation" type of retired then $200k / year fixed income might be low. Waterfront properties, luxury hotels and first-class plane tickets are expensive. You're at least 1-2 orders of magnitude from private jet money.
If you're the "I paid off my mortgage and cars, set aside my kids' tuition account, and now my only expenses are food, utilities and taxes, and now I have years of runway to build my next project, plus free time to do hobbies, raise my kids, and enjoy life" type, then a 2-4 million payout is probably plenty to qualify for "FU money." That's more than most people make in a lifetime, so if you get it in a lump sum, you're set.
It's all about what standard of living you want.
There was ridiculous money and growth to be had early on in the Facebook gaming race but I imagine it's extremely hard to get traction now.
No raise potential as metrics are nowhere near where they should be. Solid IP and team that might make for a good acquisition, provided investors will OK it (they've rejected one some time ago)
If you give employees 30 day notice, most will look for other jobs and leave. You will then have no hopes in turning the company around.
1. I work for a company that can alleviate any back-office pain you have, setting you up on the proper infrastructure, rather than startup blood-sucking solutions like BackOps, TriNet, and Algentis.
2. I have industry connections to help you find mentors, funding, or guidance of any kind.
3. I don't know you, but I am passionate about you. You're a founder and I believe you have great value to offer the world. With this startup or any other you create in your lifetime.
4. You've drummed up great awareness for you and your product with this post, so why not use it to get feedback on your product, with hopes to continue developing something customers want.
That's all I can say. I wish you the best, and hope you're not too discouraged if things don't work out with your current startup. You have the spark. Keep it alive, and build something of value.
"Honestly think the only thing that keeps my health and my marriage intact is my running."
I gotta start running. That's the one thing I always get wrong.
Good luck. Just remember, this happens all the time. For you, it will be a learning experience. In a year's time, you'll be in a new situation with almost a completely new life, and your experience will be valuable to that next step.
Next time will be a little bit better. You'll be a little more trusting of yourself, with a little less naivete, and you'll create something again. Or you'll help someone else create something. Either way, your life will get better, because you're a capable person who started a company, and you're capable of even more. Do the best you can right now and stay positive. The future will be brighter.
It's literally the only thing that keeps me going some days I reward sustained effort with a ride and a ride wakes me up, clears out the cobwebs and I get some of my best work done after a ride.
It also helps that I've lost more than a stone (14lbs) in just over a month by switching diet and cycling 200 miles a week :).
Communicate. communicate! Cofounder relationship is like any other and communication matters. a lot. You will get tired, feel low and discouraged. you'll have to share it and let one person know who has an outside chance of understanding it and help you out if possible. your co-founder(s).
If the developer you need to let go is as good as you say, he won't have a problem finding a new job. You feeling shitty will not help him nor you so continue working to remedy the situation to the best of your ability. That's all you need to do and I think it sounds like you will be able to look back to all of this and be proud of you being able to make hard decisions even in a situation when it's so much easier not to.
I'm not in a position to give "advice" nor do I suggest anyone follows "advice".
If you're a new founder and about to get on the VC train, through the accelerator and out again at light speed, it's good to know that this is one way it can all end up. (Nobody really speaks about it anyhow)
> ... our initial desire to not raise a seed round was
> dismissed and we were thoroughly convinced that we had
> to continue on the VC rocket-ship in order to matter to
> anyone. My reluctance to do this was met by scoffs and
> dismissals from many others in the accelerator cohort...
> as well as by the mentors and investors who had offered
> their time, network and resources to help us succeed.
> I didn’t believe the shit I was selling investors. This
> was not the company I put my life on the line to build.
> When I built this team, I didn’t build it with
> generalists and with people who could jump into any
> area of the business and get shit done. Instead, I built
> it with quality-minded perfectionists who build
> beautiful things.
> What happens next?
Hard to tell without precise context, but:
as far as I can tell, your company just needs money (paid customers I guess); you cannot be good at your (too many) jobs? Fine, if your company is B2B there is only 1 job to get done right now: business development, if you cannot do it yourself, let's find the best business dev guy you can in your industry. BTW "biz dev" is the only kind of guy I can sincerely hate and love at the same time; that's how I recognize them.
My 2 cents.
My biggest regret was allowing my VC to convince me to not worry about money...but you live & learn.
Best thing to do now is man-up, spend your last dollars taking your guys out for a drink and try and leave it with relationships in tact.
Best of luck on re-entering the workforce and don't lose hope. You may find an opportunity you can get started in your spare hours without all the extra sparkly bits that brought you down this time.
Since you are an entrepreneur, you will inevitably build another successful startup - except this time you'll make it happen in half the time with twice the wisdom.
At this point, I'm running out of options and have a dev team that I can't afford to pay for much longer.
talk to your potential customers and competitors , your IP can be complimentary to someone or if your team is good you can get acquihired for sure
It is much slower but much less stressful too, in my opinion!
I can only echo what many others have said in one way or another: be at integrity with yourself, do what you can to support your team and maintain your honour, and I believe that you will look back at this, in 6 months, with some kind of gratitude.
You lived it. :)