Ask yourself: would you sell your company? Would you sell it for $20 million? If you answered yes, at this stage, find a new idea. You don’t love it enough.
That strikes me as an over-generalized view. Different people have different circumstances that are going to affect that decision. Somebody who has already had a successful exit and is already set financially, or someone who is very young, might have a different threshold for when they would or wouldn't sell, versus someone who's older and who has never had an exit.
In my own case, as a 37 year old who's never had the "big exit" I can say that there are few - if any - ideas that I wouldn't sell for $20 million (assuming I owned a significant chunk of equity at exit and was going to be walking away with multiple millions of dollars personally.)
Sorry, but the chance to assure myself of financial independence now and for the foreseeable future, and to buy myself the ability to work on whatever I want in the future, could conceivably trump my allegiance to pretty much any idea I might be working on at the moment. I'm not saying it would necessarily be a slam dunk decision, or a decision I'd make on the spur of the moment... but it would be awfully tough to say no to an exit like that, knowing that I'm not getting any younger, and that another chance might not come along.
That said, if I were running a company, and owned enough equity to maintain control, and had to face that decision, I would say "no" if I believed the $20 million exit was far less than what we would eventually achieve, and/or if staying the course were the right thing to help more of the founders / early employees ultimately realize their own degree of financial freedom.
Would we have sold our company for $20 mil? Hell yes. But we went in to Y Combinator excited about an exit and we stunted the growth of our company by shooting for dollars instead of stars.
If the goal is just to build something that will get bought, you might be able to get... stressed and frantic about that. But you usually won't have the same type of passionate, intrinsic motivation that drives founders who are in love with their idea.
Fair enough, and I agree with that. I don't want to "build a company to flip," but if - in the process of building what I hope will be a billion dollar company - I get an early / unexpected chance to walk away with a nice chunk of bank; it would be hard to turn down. That's all I'm really getting at.
All I want to do is solve a real problem for some segment of a large market and make their lives a little easier. I want to build as much value as possible for my customers, so that they are willing to pay good money for my software. And yes, I want to get rich.
I agree that optimizing solely for a quick flip is not the best way to build a successful business. I would rather optimize for growth and creating value for customers and investors.
But questions like "Why is there so much materialism? Why is it so competitive?" strike me as absurd. If you accept the premise that a startup is a business and a fundamentally Capitalistic(rather than Marxist) endeavor, why wouldn't there be materialism and competition? Isn't that the point?
Selling a business for $20M would make it a lot easier to get traction for your next idea.
It seems like if I were to talk to a potential investor and tell them the ideas I have to change consumer behavior for the better and connect an industry in a way that hasn't been done before, they'd tell me to stop dreaming and to forecast their 10x.
If every company sells to Google when they get a chance, who becomes the next Google?
"Would you sell it for $20 million?" There are so many variables for consideration in answering this question that can result in anything from a symbiotic relationship with a bigger player to augmenting the market using the buyer party's core competencies to just forfeiting the rights to the other party (which is the only viewpoint factored into the author's answer- "find a new idea"). Don't need to necessarily find a new idea as much as be a master of the idea's fate.
Nonetheless, I heartily agree with the last section- mastery of a domain of knowledge. Advice needs to be slapped as a layer on top of hardcore expertise. I've made this mistake in the past of letting the allure of a tech lead me to an area where I didn't have the necessary expertise and idea dissipated quickly. Now I'm focused on an area that my partner and I have deep-seated expertise in and the advice is very easy to cut through to take only the nuggets that apply.
If the maximum potential is $20 million, and we're talking about the VC-style go-big-or-go-home sort of business, I agree. A business that will be worth $20 million if everything goes right is likely to end up near zero. The distribution is non-normal and most companies don't reach 50 or even 25 percent of their maximum potential, but less than 1 percent. If the IPO option isn't at least open, try again.
On the other hand, I think people should be honest about all the possibilities. Choosing a path based on what happens for the winningest of the winners is a terrible idea (even though it's what a lot of people do, and why companies overpay their CEOs; overpaying executives is actually cheap when you consider how much harder the chumps work for the slim chance of reaching that level). Which is better, a 60% shot at a $20 million exit, or a 1% shot at $10 billion? Expected value (which VCs care about) says one thing and common sense says another.
We only learned about YCombinator about 2 weeks ago, within days of having decided to go "all in" but it's too great of an opportunity to pass up so we're scrambling to hit the app. deadline while getting the house on the market, planning next steps etc. But we are so energized everyday by the possibility of bringing our idea to life.
The Ron Conway quote was right on time for me -“real entrepreneurs aren’t thinking about exits; they’re thinking about changing the world”... I always feel a little nuts for being sad when people say things like "you'll probably sell to...for millions"... but from now on, I'll think about you, Ron Conway and changing the world and smile because clearly, I'm not the only one! Thanks a bunch for this post.
An entrepreneur needs confidence, freedom, and opportunity. There needs to be a problem for him or her to solve, he or she must believe that it can be solved, and he or she needs the resources and freedom to do it. Then, he or she needs to be right on the solubility of the problem given available resources, and able to capture the value created (if he or she cares about being wealthy). That's all. It's not wizardry. It is something that few people have the freedom to do.
I think 20-year-olds' garage startups are very cool but overrated. People write about it because it's rare. The best time to start a business, for most people, I would put around age 35-50, when one is still young but has the experience to judge whether it will work, enough years to one's name that one can hire experienced people (no one wants a younger boss) and the connections to pull it off. (I'm 27, by the way; not an older person trying to justify himself.) Y Combinator gives the people in their 20s a bump by providing connections they'd otherwise never have, and that's an awesome service, but that's atypical for people of that age, and the prestige and contacts of YC, if not singular, are something most of its brethren don't have.
Also, I think it's very naive to believe anyone wouldn't "sell out" for $20 million personally. At $20 million, that lie school tells smart people about the world being their oyster becomes true. Ideas come and go, but being rich means you actually own your life instead of renting it from a series of employers (or, if you're lucky enough to be in a startup, VCs). The second-best thing about being rich is having the freedom not to work, but that (from what I've heard) is like a toy that gets boring after a few years. The actual best thing about being rich is having the freedom to work. (The shuffling around and taking orders from others, in an artificially stressful office environment, that most people do? Not really work. Real work improves the world and matters.) I can think of very few legal and ethical things (and some ethically acceptable but illegal ones) I would not do for $20 million; I'd have the confidence of knowing that I can do real work for the rest of my life. Seriously, I'd love to kill all of life's stupid anxieties and dedicate (most of) my existence to useful work.
The rest of your comment is rehashing things that have already been discussed above.
The way I see it, the only way to have sustained positive impact on the world is to allow humans to be more human and entangle it in the worlds economic system so it remains in place. That construction can only be achieved by a business.
My article: "That drive to make a part of the consumer world better is the mark of the entrepreneur."
I'm not saying everyone needs to cure AIDS. I think our sentences seen side by side align quite nicely.
First, let's be honest about our industry: programming is a lot of fun, but our industry kinda sucks. Most software produced is sloppy and buggy with bad APIs, most decisions are made based on economic factors, and most programmers are seriously underskilled, which wastes the time of the skilled. (I love strong static typing, though. The guy who is always breaking APIs actually has to fix his shit.) Even in startups, most of the code is hastily written by necessity. Moreover, technology is the best industry out there. Software sucks, but everything else sucks more.
I realize I'm hijacking your line of thought, but here's a problem that could be solved with enough thought put into it. Most smart people really want to work and, when they're motivated, will work very hard and very creatively. But less than 10% of people are doing what they want to do or are really motivated to do it well, so we have a shitty world where most people don't give a fuck. Most people, by age 35, are just jaded clock-punchers who just do what they're told because it's the path of least resistance. We're different; we're idealistic and trying to fight that trend, but "the enemy" (the ocean of suckitude outside our borders) is winning.
So, let's solve that problem. Let's not just fix the software industry. Let's fix work. There are millions of creative people out there with amazing ideas not getting implemented, while the very rich get to implement their shitty ideas and impose them on the rest of the world. How do we make a world that harnesses rather than suppresses this enormous amount of creative and industrious energy that is not being utilized?
Agreed. That kind of question I think only comes from a place where one has not experienced things like having a child or spouse or parent needing $100k+ for a medical problem. (To give just one easy example.) Or at least, not having the foresight to consider such events.
Excessive greed is idiotic, like a mental illness. We'd call a guy with 300 cats insane, and not want kids around someone who has a different sexual partner every day, but someone who works 100 hours per week to chase inordinate amounts of money he doesn't need is lauded as a hero. That, I'll agree, is a pathology. On the other hand, moderate greed is (very unfortunately) a survival trait in this morally crippled, creatively desolate, fiercely individualistic world.
That said, though I want to be rich, it's mainly because of the positive things I could do for the world, not what I would take from it. I can't ever see why I would want a private jet. If I had the money, I'd rather invest it in something that can make others' lives better-- maglev transport, green energy-- than fly around in absurdly ridiculous comfort as opposed to the merely ridiculous comfort of international first class. Besides, I'll probably marry my current girlfriend-- she's quite awesome-- so I have no interest in the "party" culture or impressing women, and I'm too abrasive to have a shot in politics, so what exactly would I need to be a billionaire for?
I sold my company for less than 20 million because I came from a middle class family, I had never had money, my parents were the epitome of middle class and I lived a modest life. The amount of money we settled on was enough for me to life for a very long time without significantly changing my lifestyle. It gave me a sense of security and a parachute in case I was to fall on hard times later.
Even at a young age I knew i was giving up alot of possible future profit for a short term payday, but that said i have never really regretted selling because it gave me the freedom to do anything I desired, as it turns out what i want to do and what I was already doing arent terribly far apart, but the projects I am working on now are EXACTLY what I want to do and will make money as time goes on but do not have to be rushed or turned into something they are not.
My current project I would not sell unless my percentage of the exit netted me over 250 million probably however I am a long way from that and just having fun right now.
Though for the most part I agree with the author of the original posts I just think people should consider that there are reasons why some people choose to exit for smaller amounts, some make perfect sense and others make very little however as long as the person selling is happy with the outcome who is to judge?
I'm not at all against starting lifestyle businesses; those also do not have exits.
Also, with that kind of money, you can actually socialize with VCs as equals and, if none of them want to fund you after a few years, it's probably because your idea sucks (as a business). Then you do not hire other people and you do not lose your $20 million.
That's what I would do. I wouldn't hire a single person (for cash, not equity) until I had the validation of knowing other people were willing to invest. This is because I know I'm smart, but I've done creative work (game design, writing) and know that half of even my ideas are bad. Creativity is just about having the persistence and judgement to develop the good ones.
my Linode hosting bill and Ramen receipts would beg to differ with you on that point. ;)
I also think a lot depends on how you're wired. I'm relentless & tireless when I believe in what I'm doing and good things tend to happen when I'm in that space. But I can't see myself getting there from a starting point built only on $$$.
I think this is exactly what we're seeing more of. Sites like reddit really allow for people to tap into their inner creativity and make something that makes other people happy (like rage comics).
Of course, no one is making money off rage comics (except reddit). I'd love to see more start-up ideas that empower regular people to make a living doing something they could be happy doing. In fact, I'd love to just hear some ideas along those lines, because my brain fails when brainstorming about this.
Sadly, I think that there are too many people in power who want the current arrangement to persist. Allowing people to work more creatively is great for society, but it's bad for the people who currently hold power (who care more about their relative position in society than the health of society as a whole). I don't see a non-confrontational solution.
I'm half socialist. I actually think the best way out is to provide a substantial basic income. Emphasis on basic, not minimum, income. The difference is that MI means the government makes up the difference for low earners, whereas BI is an amount (of cash and services, such as healthcare and education) that everyone-- rich, poor, or middle-class-- gets. Then there's no "welfare valley" where a person becomes poorer by getting a job; one's income is a monotonically increasing function, as it should be, of what one earns. I think the BI should be about 50% of society's income, financed through flat taxation, a small wealth tax at the upper end, and very high (90+ at top) inheritance taxes. The other 50% is distributed by a free market. This actually makes most middle-class peoples' net tax (remember that they get the BI as well) lower. I would also, if you haven't guessed this, cut the military budget dramatically.
Once BI is in place, you don't need the patchwork of semi-authoritarian and conditional welfare programs that require bureaucracies to prevent abuse and fraud or determine who should get it and who not: everyone gets it. The rest of the wealth is allowed to flow on an essentially free market (so you have a capitalistic engine on top of the socialist infrastructure). It's freer than the one we have. For example, once everyone has basic income, you don't need a minimum wage (which is just a clumsy minimum-income program paid-for by low-end employers, who compensate by hiring less, creating unemployment).
No one has to work, so the least productive people probably use the option not to work, but the most productive people do a lot more: they're more creative, autonomous, and effective. Basic income wouldn't stop most people from working, but it would dramatically change how they work-- for the better. The net gain is positive. The worst thing about basic income is that it might create an underclass of entitled parasites at the bottom of society, but authoritarian corporate capitalism has a class of entitled parasites at the top of it, and that's a lot more unhealthy for society.
One partial fix might be to "fix" job searching, but internet career sites are nothing new and, while they might match talented people more efficiently with jobs, don't fix the underlying problems of corporate capitalism. Startups are great, for people privileged enough to do them and connected enough to have a shot, but in the "real world", bad people are on top and hold the cards.
There are many things that need to be done to keep something as complicated as a world economy of specialists running, and many of them are not fun or intellectually stimulating. Maybe when robots have replaced us in all those roles, and programmers can wield the labor of a thousand workers.
On the other hand, the people who follow their passions would be merely living on not-very-much, but not at risk of starvation, long-term underemployment, medical bankruptcy, et cetera.