“One of the problems with raising money is it teaches you bad habits from the start,” said Jason Fried, the co-founder of the software company Basecamp, who has written frequently on the perversions of the venture capital industry. “If you’re an entrepreneur and you have a bunch of money in the bank, you get good at spending money.”
But if companies are forced to generate revenue from the beginning, “what you get really good at is making money,” Mr. Fried said. “And that’s a much better habit for a business to work on early on, to survive on their own rather than be dependent on money people.”
Getting to the point of being sustainable by building what n customers want today gives you both the (infinite) runway, as well as hopefully some insight, into what 100n customers will want tomorrow.
The 2 biggest reasons start ups fail are:
1. No/not enough market demand for what your building
2. User acquisition costs exceed LTV.
Those 2 things should be the very top concern of any software entrepreneur/founders. I don't understand why the survey doesn't reflect that.
They say hiring good talent is a primary concern, but if that were really the case, wouldn't start ups be moving to cities where the labor supply was greater than the labor demand? And wouldn't there be a corresponding willingness to hire remote workers (as this greatly increases the pool of candidates)?
Moving to an area where labor is 1/2 as cheap, could double your runway, assuming there aren't other timed restraints.
>Nearly 1 in 5 founders say they're raising a unicorn
This is not necessarily optimism. some companies require that kind of scale in order to get the economies of scale required for profitability.
I love this one:
How confident are you that you're building a billion dollar company?
Answers:
1. I'm certain that we will - 18%
2. I'm confident we have a decent shot at it - 42%
Recently on a John Oliver segment, Oliver was speculating on how Trump University received 98% excellent approval ratings from current students. Turns out that the students were asked to give feedback while still enrolled in the course, meaning that giving a bad review could negatively influence their grade or relationship with the teachers, and thus the students were motivated to give more positive answers than they otherwise might have.
I wonder if founders giving answers here had names attached to their answers or if they were anonymous at submission-time.
That's how every university course evaluation I've ever done has worked. Though they say data is shielded from the instructor until after final grades are submitted. Not sure if that applies to the Trump thing.
Are we in a bubble answered yes is declining from 73% -> 57%. That means the real probability of being in a bubble just increased ;P Remember the 2008 crisis was only seen by very few in advance...
Well this is one of the few but key differences between a "startup" and a "business."
A business that isn't profitable is either a hobby or a bad idea. A startup that isn't growing is dead. Personally I'd rather make $5/10/15/25k a month with a business than kill myself trying to get millions in funding, pay myself a $10k/mo in salary and leave with nothing through either failure, dilution or some combination thereof.
Given that you can make $5/10/15/25k a month with a cushy 9-5 corporate job where everything's taken care of for you, in most cases the choice is not small-business vs. startup, it's corporate job vs. startup.
The "lifestyle" self-running company that spits out a comfortable amount of cash and is easier to handle than a corporate job is somewhere between a myth and a unicorn. It's very rare. If you want to stay on the legal side of things it takes a great amount of connections, experience, time and effort to build such a company. You might as well invest that time in a "proper" startup and get some funding. Chances of success will be similar in the end.
If you want to create a big company, there are only two options: 1) grow fast, 2) grow slowly for multiple decades. The latter is riskier because of constant landscape changes and the fact that you only have a 100 years (optimistic) of life.
I was told by a VC just the other day that investors want you to get bought.
Maybe, when you start a business, instead of all this bickering about what is bad startup behavior, you just define whether or not you think you want to get bought or go on your own, and act accordingly.
There's a disconnect between founders who want to build a startup and founders who want to build a business. They think the two are the same but they're really not and this study clearly shows that. There are situations where startups turn into businesses but I'd rather build a profitable business for myself from the start and our team than to build a startup purely focused on "growth".
I am very disconnected from the "startup" world, and something in your comment has me asking: What is the difference between a startup and a business? To me, they ought to be one in the same...
a startup is a company designed to scale very quickly
Steve Blank believes a startup is determined by the search of a business model. If you have a business model, then you have a small or new company, not a startup.
Another distinction worth making, almost its own axis really, is the difference between "a tech business" and "a business that uses tech".
Companies like Cisco, Facebook, Apple, Google, Canonical, and so forth are companies that are tech companies--without their technology, they wouldn't be in business at all. They provide a service or product that is IP in its own right.
Companies like Chipotle, Subway, Uber, Lyft, AirBNB, DoorDash, Dollar Shave Club, and so forth are companies that use tech to achieve economies of scale and growth that wouldn't be as easy otherwise but could still be done. You can imagine a way of making something that to the user is substantially like the Uber today without a complicated backend, even just using call centers and massive dispatch. The key part of their business is part-time contractor drivers, which is a business and not tech innovation.
It's easy to assume that all startups are tech startups, but that's not quite true and it also can limit and slow developing a good business model.
But then, can't you make the same analogy for early stage Google--basically, a big marketing firm that manually places ads in the yellow pages? Similarly, Facebook can also be executed over a phone system ("Press 1 to hear your friends' updates, press 2 to post an update...")
I'm not sure there's such a strong distinction between a tech business and a business that uses tech nowadays.
Google's core beginning was PageRank (under license from Stanford), without which it would've been no better than similar offerings at the time. Additionally, their approach to setting up their equipment and making use of cheap gear and managing said cheap gear probably gave them a leg up...something they still do today at scale. So, no, you can't really make that analogy.
Facebook was a tech company specifically, and not a company using tech, because the entire product was devoted to rapidly filling social profiles and spinning up the microsites that were user accounts, mining those accounts for information, and then integrating as a platform for advertisers and game developers. None of that tech is really stuff they could've outsourced and still had a business--they couldn't have just white-labeled MySpace for example and gotten away with it.
It's the difference in preference between e.g. $500k nearly sure profit versus a tiny chance of $100M profit but a most likely result of losing it all. For a "normal" business, the first one is preferable; a startup is the condition where the first result is considered unacceptable and the investors are there for the second possibility only - go big or go home.
It means quite different cultures, quite different "correct answers" to similar situations, and has mostly opposite requirements for many business factors and people involved.
Yes, scrolling through a rainbow in the background was really distracting from the text. On mobile I had to pan around a bit just to see the words because some parts had very little contrast.
Interesting answers on lack of gender diversity in IT: Most of the men believe the reason is that there just aren't that many women entering the field, while almost all the women blame bias at various stages of education, hiring and promotion. Someone has a cognitive dissonance.
I don't think it's cognitive dissonance if two different groups believe separate things. Only if one group believes two conflicting things. Being wrong (whichever side that may be) isn't cognitive dissonance.
Women are not applying for IT jobs en masse, and certainly not as much as men. That might be because we have issues with our current education system or because we need to do a better job as a society to remove gender bias from the conversation; but that's not up to the entrepreneur to fix. Really, I think it's a bit unfair to point at someone building a company and shout "Cognitive dissonance!" if what they are telling you is that they are not getting applications.
there were less than 5 girls on my computer science class, so unless woman are claim that they should have the job without education. I can totally see the reason why there is a gender diversity in IT?
This data point isn't super useful without telling us the total size of your class. 5 out of 5–10 is great, 5 out of 25–50 might be realistic, 5 out of 100+, not great.
same here (tough we were 32 guys and 3 women). - germany, still have relationship with teachers, they barly see more than 3 girls/30 in 5 classes per year.
"IT Professionals" is a broad label. Maybe we can think of getting a 'degree in a field' as a proxy-variable for 'interest in the field'. What's astonishing to me is through the 60s, 70's and into the mid-80s, computer-tech interest in female cohorts tracked with science, law and medical fields. Then it flattened and fell, while female participation in those other three fields continued to expand at the rates they had before. (So, what happened in 1985?)
Thanks for that link. My original sighting of the phenomena used the exact same graph, but made no attempt at being explanatory. I have since then, been searching, but failed to re-find a copy of that graph to stick into my files. Now, thanks you you, I have! Thanks!
Firstly, that isn't true. Huge numbers of people learn to write code as part of a degree that isn't CS - for example, if you want someone to develop a GIS startup you'd be better off with a geography graduate who can write decent code than a CS graduate who probably doesn't have experience of GIS.
Secondly, if you hear "startup" and think "developers" then you're ignoring at least 50% of the work necessary to make the business a success, all of which can (and often should) be done by someone without a CS degree. There's a lot more to tech than writing code.
To me the pipeline is not about "women entering the field". It's about fixing the whole pipeline from the beginning — getting a more diverse group started with tech and computers early, say elementary school, and then seeing (hopefully a high percentage of) those groups go on to eventually enter the field professionally. And just like an accelerator reaching successful exits, this whole process takes a long amount of time and we are only right in the middle of it.
Well, those aren't exclusive options. It makes sense that fewer women would enter the field if they think they're going to be subjected to rampant discrimination.
I guess that is technically true, but if anyone who is NOT a VC is buying into the idea that VC backing is the only valid definition of a startup... you have drunk too much of the kool-aid.
I would say they more just look at it as an easy filter. While there will be some false negatives, you have very few to none false positives i.e., venture-backed companies that turn out to be non-startups but don't close or exit.
The example that comes to mind that breaks this is the failing startup turned dev shop in attempt to revive the startup pattern.
It's not the "startup" label that's a problem, it's that VCs breed a monoculture. There are lots of startups that don't secure funding because they don't fit the VC mindset. This is a survey of "what VCs want in their portfolios", not "what entrepreneurs choose to do", which are very different things.
> And it only gets less balanced with time. Among respondents' companies, the boards of later-stage startups are almost three times less likely to have a woman on their board.
If later-stage companies are older (probably correlated, but not perfectly), then this could be a function of the year in which the boards were created.
There's more of a push for diverse boards now than there was 3 years ago, so if a company got funding and formed a board back then, it's not surprising their board would look different.
I think this is a very interesting question to ask when interviewing at a startup: "If you're not successful, why do you think that will be?" And also "what leads the culture" (engineering, sales, design etc).
If you think your first 3 hires deserve less than 1% then you probably shouldn't be hiring them. Alternatively, you gave too much equity to your investors. That's how I see it.
If you join BEFORE seed money, and do a bunch of work for free, you can be a cofounder.
If you join AFTER seed money, and get something like a market salary, you are an engineer.
The gray area is the in-between places. If you join before seed money, but only work 1 hour a week (say to help out a buddy), are you a cofounder? I would likely vote no.
Or if you join AFTER seed money, but work for 75% of market rate. Or 50%. At what pay do you appear to be a cofounder vs engineer?
So you're saying it is a definition issue. Regardless of what work you do at a startup, you are considered a "co-founder" if you put in initial sweat equity (ie. did work for free) but an "engineer" if you only joined after the company was funded and paying wages at market rates?
As for the grey area, it seems as if common-sense should prevail but sadly that doesn't always happen so you always need a contract laying out exactly what each side gets, even for volunteer work. I seem to recall a story earlier this year (can't remember the company involved) where one of the founders' friends had helped out occasionally before they got funded, then the company got funded, ended up with a fairly large valuation, and the 'friend' reappeared and claimed that they were owed a significant share of the company.
What does this article have to do with Europe? I know First Round is based in SF, but they don't state where the startups are located - the only mention of the US is when comparing demographics of the workforce with the US itself.
What I mean is, Europe generally does not even come close to that level of pay/compensation. So I assumed that these are US based startups. I could be wrong though.
Yes but you (generally) get other things like universal healthcare, free or cheap university, retirement plans, no need for a car due to proper urban planning, etc. In the US you have to shell out for all these things, paying into a private 401(k) for retirement, paying back student loan debt, paying for your health insurance etc. And these are at well funded tech firms.
While true, that doesn't even come close to filling the gap.
In Berlin "the silicon valley of Europe", as people here like to say, there are pretty much zero engineering jobs paying >$100k/year. There is some magical ceiling of around $90k/year, no matter how senior you are. This isn't only true for startups but pretty much any company.
That's one of the reasons I work remote for Silicon Valley.
There's also the fact that US in general has higher living costs, even if they are not immediately evident. Take for instance the price of renting a shitty one person flat in Berlin vs San Francisco. Not to mention that in most European countries you don't have to tip 30% over the price of a meal because waiter salaries here are actually enough to cover living costs.
On the other hand, costs in SV are way higher than Berlin. Berlin has very low living costs, even compared to other European (and German) cities. With $90k/yr you probably have the same living standard as in SV with twice as much. Probably even a higher standard, with $90k/year in Germany you can afford a large appartment, eat out regularly, don't have to worry about retirement or health care.
Of course living in a cheap area and being paid the salary of the high cost area is always better. But that's not specific to Berlin.
"$90k/year in Germany you can afford a large appartment, eat out regularly, don't have to worry about retirement or health care" - That's definitely true. But I'd argue with similar profile you can make at least 2x that in SV at which point I don't think you have to worry about those things either, even if you pay $5k/month for your apartment.
You already get healthcare with US startups.. so that isn't a "benefit" of Europe.
"Proper urban planning?" Hah. In Paris you pay San Franscico housing prices or you spend over an hour on strike-prone un-air conditioned buses or trains.
As far as retirement plans, pay me more and I'll invest it myself. If I make $150k per year, that's almost triple a French salary -- plenty of extra money to start my own damned retirement fund without depending on the government.
On top of that in Europe the small salary you do get is subject to confiscatory tax rates. Then (in France at least, you have a 20% VAT, high fuel costs and higher costs for basic utilities.) Food costs more, services cost more -- everything costs more. At the end of the day your net income is far far less than the US, even factoring in all of the 'free' stuff. But hey at least you can get employer sponsored 'free' lunch cheques and mandatory vacation time.
I live in France and I like living here, but I pay dearly for that benefit. I am not here because it's a good value. Financially and socially and well as entrepreneurially I would be better off in Houston, but I love the Provençal weather, the wine and the laid back feel of living in the countryside -- but a good value? Definitely not. If I had to survive on a French salary, there'd be no way I would choose to live here.
Would it be fair to say that your personal valuation of the Provençal weather, the wine and the laid back feel of living in the countryside is greater than the salary difference of working in a high-paying US company?
There is no tech job in the French countryside, so basically you cannot live there.
If you have to go to Paris, it is one of the worst place for tech talent (relative to the other major EU cities). Higher costs of living, lower income, limited competition for talents.
That healthcare in europe or any of the social security systems are better is just left-wing propaganda. My health insurance costs me 270$/m whereas in my home country Germany I would have to pay 15.6% which is limited to 678.60€(721.61)/month in the government health insurance. There is predictions and plans that the government retirement insurance mandatory fee will increase to 23-25% in 2030(Currently ~19%). That's just socialist insanity if you ask me. I'm gladly paying my 401k :)
You're missing the crucial fact that you pay half and your employer pays the other half! From an employee point of view it's 8.4% for health insurance and 9.35% for pension (how much are you contributing to your 401k?).
Public health insurance also covers your spouse and children for free, along with any pre-existing medical conditions. Having to cover my wife's minor pre-existing condition basically ruled out ever living in the USA for us.
Take into account what will insurance be if you have kids, not to mention that even with insurance you will usually still get an invoice after visit to the doctor/hospital (correct me if I am wrong), which may be substantial amount of money (even after insurance negotiations, etc.).
Don't know how it's in US but in EU you have around 20-30 days of payed holidays, payed sick leave, payed _sick child_ leave (!). For example my coworker's 2 kids and wife had severe pneumonia, full treatment took around 2 or 3 months and he could help his family on paid sick leave that whole time. I do not know how much it would've cost in US but it would be a significant amount of money, not to mention that you would still needed either to work, to take unpaid leave or to quit.
It's all about averages. You maybe healthy (now) and do not pay much, but what if some serious illness hits you or your family member? What if you will get some chronic illness/condition? On those cases your insurance price may be adjusted.
To be fair, I want social health care to be more efficient and economical, i.e. not to pay 1/3 of my earned money for it, but I am treating it as a cost for my sanity and not needing to worry about some shit luck hitting me and insurance twisting their ass out of the situation, as insurance's goal is to pay you out as little money as possible.
that's partially true, but you forget european countries usually have higher tax than US (not only income tax, but also VAT, fuel tax, etc).
here in London a mid-level engineer, which I assume is the bottom half of senior software engineers, are typically paid £50-£60k/year in startups, which usually have poor pension schemes. £50k is about $60k and you already start paying for 40% tax for the top £10k of your salary.
You can get more if you go to big companies but then so can you in the US.
That might be true for start-ups. VP level engineer in the bank can yield £80-120K and that does not include bonuses and other perks.
If you plan to run a start-up, and you can have remote first organisation (physical co-location is not required by say client attendance or manufacturing process) then do so!
And if you do stay in London, compete with banks for best talent with your wallets, not ping-pong tables.
I was talking about mid-level engineers in startups, not senior engineers in banks, if you want to compare big employers, £80-£120k is nothing compared with $250-300k you get as senior developer in Silicon Valley.
Well, the 1 bedroom in London is far from 3000-4000 per month.
I don't know the details of the costs of living and all the expenses. Maybe SV is better but I just want to say that it is not twice as better, contrary to what some comments would have you think.
The cost of living in SF is 1.4 times higher but the wage is 1.75 times higher. Note this number is assuming you are renting, and not considering electronics which is a lot cheaper in the US.
The house price in London is still more expensive, and if you are a senior developer in your 30s that's probably more relevant than renting price.
Factor those in, as a software developer, in SV you are easily 30-50% better off than London, the best paid city in Europe. The pay gap between Europe and US do exist, Silicon Valley is the technology centre of the world, Europe isn't.
So basically, a mid-range profession in the US is comparable to a mid-range profession in the EU, a high-end profession in the US earns heaps more, and a low-end profession (or unskilled job) in the US means you're screwed?
Although not true in all cases, many of those cities that were built before the distinct concept of urban planning existed were also built and grew large before cars existed. So they grew naturally in in a way that's fairly pedestrian friendly.
In contrast, many cities in the U.S. and Canada grew very rapidly from the 1960s to the present, so you'll often see big cities with a nice (but relatively small) walkable downtown surrounded by vast stretches of generic, car-friendly, pedestrian-hostile suburbs.
In the Toronto area, at least, there are plenty of suburban areas that are nominally served by transit, but it is so inadequate that you'll usually need a car to get anywhere in a reasonable amount of time.
Looks like there are only US based startupts. At least 39 % of the start ups were located in the Bay area, so that must distort the figure quite a bit I guess.
Keep in mind how heavily we are taxed at higher income brackets, higher living expenses, and also that "US salary" is a huge overgeneralization. Startups in third and fourth tier startup cities might pay 1/3-1/2 of what's in SF, etc. Comp varies a lot.
I just picked data which I find interesting and not obvious, there's much more information which I don't cover. Data is in chronological order and often aggregated to less numbers. 700 founders inside and outside of FirstRound were surveyed.
- 7 of 10 say bitcoin is overhyped
- cofounder relationship: 5% fired their cofounder, 5% are strained, 40% collegial, 28% best friends
- 13% sold secondaries
- 61% optimise on growth, rest on profitability
- 52% want to fire up to 10 people, 32% up to 50, 10% more than 50 the next 12 months
- Hardest people to hire: tech, sales and marketing leader
- 90% of mid-level engineers get <1% equity, 64% <0.4%
- Most (55%) of mid-level engineers get between $100K and $150K
- Primary drivers of company culture are tech, sales and design
- Most (43%) people leave between 6-7pm, 10% work longer than 8pm
- 75% could close a round in 4 months or less
- 78% pitched less than 20 investors
- 76% raise exactly or more compared to what they planned
- 55% expect that raising gets harder the next 12 months
- 22% of investors didn’t meet expectations
- 20% <= 30yrs, 32% older than 40yrs, rest inbetween
- Most popular sectors are enterprise, consumer, fin-tech
The software allows resubmissions of stories that didn't get significant attention after enough time has past and there's no longer any hope for them. It does this so that those stories have more than one chance, which is often needed before they catch on. Sorry that it wasn't yours that did! Community members have analyzed the submission data to see if there's any way for submitters to do better than random here and it seems like there isn't.
But if companies are forced to generate revenue from the beginning, “what you get really good at is making money,” Mr. Fried said. “And that’s a much better habit for a business to work on early on, to survive on their own rather than be dependent on money people.”