Take the Next Step, Paul

http://www.stubbleblog.com/index.php/2008/03/take-the-next-step-paul/

by brlewis • 18 years ago

65 44 18 years ago

brlewis• 18 years ago

I found this post interesting despite errors, e.g. PG is not a venture capitalist.

I don't think this guy made that assertion. What he said was that PG needs to be part of the VC game in order to make money.

The whole notion of YC is that they are seed funding, with the expectation that the startups they fund will be bought (or have some other favorable monetary transaction) by the big companies PG says are unnatural. The article is a nice way of calling PG a hypocrite.

It's a great argument. One of the best counters I've seen to PG's essay, and an angle I didn't even think of. I really hope Paul responds to this, as I'm interested in his thoughts on the matter.

SwellJoe6• 18 years ago

Actually, he explicitly called pg a venture capitalist...specifically, he said:

"He’s a venture capitalist."

You can't possibly take that any other way.

tonystubblebine3• 18 years ago

You totally got the intent even if I was wrong on the literal definition.

I'm definitely not calling PG a hypocrite. YC is amazing, is a good opportunity for founders, and is definitely saving some good people from some bad years in the corporate world. I just think that after you've made one big intellectual leap (starting an amazing new genre of investing) it's easy to focus on polishing that discovery rather than realizing that there's yet another leap to make.

tonystubblebine3• 18 years ago

(I wrote the original article) Ok, I'm convinced that he's not a VC for the reasons you mention and because he says in this thread that he's not a VC. On top of that the incubation support and the genuine care he gives to the founders is very non-VC.

However, none of that makes me want to change my argument which is based on the exit pressures and structure by which YC recoups it's investment. That pressure is very VC.

SwellJoe6• 18 years ago

This is something I've actually meant to ask pg about, but never seem to get around to it.

There are a few companies that YC has funded that have opted to go a slow-growth, close ownership, path to small business success that the article suggests is the logical conclusion of pg's essay (though, if one takes pg's work as a whole, I wouldn't say that's his raison d'etre--helping good developers create a huge amount of value in a short period of time is more his over-arching theme, I think).

Wufoo have opted not to push themselves into a giant business, but have a long-term plan for growth. My co-founder and I frequently waffle over which path to take, and so far have stayed the course of staying small with steadily increasing revenue over taking a bunch of investment and growing really fast. Both companies do have an exit plan, but it's a little further out and the intention is to make sure its on our own terms. pg has never indicated dissatisfaction with this path...even though it means the exit won't come quickly, as it did with reddit, Zenter, Parakey, etc. and thus YC won't see return on these businesses for at least a couple more years.

Of course, once one has a profitable exit, and optionally vests, you're then completely free to work in any environment you want. Which means you could do what Paul Buchheit did with his Googlebucks, and start a company that does exactly the work you want to do on the terms you want to do them on (and it turns out he wants to grow really fast, since he raised 5mil for FriendFeed). Which brings me back to what I think pg's real theme and logical conclusion is. pg likes to see people make something really great, really fast, and then make a really lot of money because of it. Once you've done that, you're then freed up to do anything you want (maybe after spending some time in a cage with your lion co-founders, while vesting)--including doing it all again.

davidw• 18 years ago

Sounds about right from everything I've read. The disparity is coming from PG aiming for a system that works, but isn't really in equilibrium, and the poster's looking for a system that might be more broadly applicable on a long term basis, if not everyone can be big winners.

I think one thing that makes sense about PG's general tactics is that hackers can probably figure out enough business to do a good startup, but as things drag on, and you're called on to be more of a manager, hackers are going to be at more of a disadvantage.

SwellJoe6• 18 years ago

Excellent point, and there's plenty of evidence to support the idea that it's very easy for hackers to grow a business to the level of their own incompetence (an entrepreneurial Peter Principle, I reckon), and thus achieve fail via success. So, early acquisitions can be a very smart way to avoid that problem.

Of course, now that I think of it more, loopt didn't go the fast acquisition path (and though Sam raised 5mil, he's still taking a long view of his business and building it the old-fashioned way without aggressively pursuing a fast exit of any sort, or ramping up head count faster than necessary), and I believe pg still considers loopt the biggest success story out of YC, so far. So, perhaps we already know where pg stands on the issue.

pg8• 18 years ago

Wufoo is going to surprise everyone.

SwellJoe6• 18 years ago

I agree wholeheartedly, and it's why I brought them up--I think they're a perfect example of what I had in mind. They're absolutely steadfast (in the best possible way).

ovi256• 18 years ago

Did Google not ate their lunch when it introduced forms in Google Doc's Spreadsheet? That basically took away their raison d'etre.

jasonlbaptiste• 18 years ago

for sure. so much potential with wufoo. seriously, i laughed at first "a startup for forms?". Then I used it,ate my words, and still recommend the service to EVERY startup I know. The customer service kicks ass there too. ++ to the wufoo team.

pg8• 18 years ago

I replied to this a couple days ago in a comment thread:

http://news.ycombinator.com/item?id=143480

startingup4• 18 years ago

What about the other possibility, Paul? 37Signals or Smugmug stay small & profitable, grow organically, but never straying from their true self. There is no big exit, but people (founders as well as other employees) are happy. Would that be another logical outcome of your original essay?

In fact, going public introduces all manner of considerations that often inherently introduce "bossiness", so this alternative seems even more logical to me! For one, public companies have to grow, grow and grow and a lot of the bad stuff about companies you point out in your essay arises from that one source. They do bad deals, they start to think very "strategically" (ignoring the human element) and so on.

stcredzero• 18 years ago

In E. F. Schumacher's Small is Beautiful (http://en.wikipedia.org/wiki/Small_is_Beautiful) there is a corporation described chartered in such a way as to not get "too large." In this case, "too large" is considered to be more than 350, which was considered by some to be the upper bound for a functional "village." But the particular value of N is not important. What is important is that this corporation was chartered to undergo mitosis and divide in half, forming two new companies with an equivalent charter. In _Small is Beautiful_ each corporation would have a relationship with one being a subsidiary, which would introduce "bossiness." Perhaps the charter could be modified so that neither spawn was subservient to the other?

pg8• 18 years ago

37Signals and Smugmug don't prove much yet because they aren't that old. I'd be willing to bet both either die, go public, or get bought within the next 10 years.

It's easy to stay medium-sized if you're a consulting firm, but hard if you're a product company. As a product company you tend to either extreme: you either keep growing, or die. And if you keep growing, you'll eventually either go public or get an acquisition offer so big it's hard to turn down.

I might turn out to be wrong. This world changes fast. But there aren't a lot of 20 year old 37Signalses around.

Bezos seems to agree with me. He invested in 37Signals. He would not have done that if he didn't expect some form of exit. And in fact 37Signals probably had to say explicitly that they expected some form of exit in order to get his money.

condor• 18 years ago

Regardless how much vc-funded start-ups are encouraged to stay small, the investors ultimate incentive is for them to get as valuable as possible, and I could be wrong, but that usually means getting large as possible as fast as possible. All things being equal, big & bossy = higher valuation.

pg8• 18 years ago

I meant we encourage startups to stay small in employees, not revenue.

startingup4• 18 years ago

This is a great post, by far the best response to PG's post. I had much the same question, but I am not as good at formulating it the way this guy has done it.

I have a feeling PG was aware of this logical implication when he wrote his essay ("if large companies constrain, err, even cage people, why put heart and soul into something just to deliver it to them?") Yeah, there is the money, but most people I know don't put heart and soul into work only for the money, and PG himself is doing Arc, YC, Hacker News etc. without any particular monetary goal. I wonder what his response would be!

menloparkbum• 18 years ago

What is a small business incubator? Empirically "incubators" in the silicon valley / software world have all been total failures.

pg8• 18 years ago

As far as I can tell it means an investor whose space the startups work in. We deliberately avoided that, because we feel it hurts the startups. It puts the founders in the position of employees.

Plus offices are actually crappy places to start startups. Apartments are better.

ambition• 18 years ago

I've also heard of "incubators" which were really "rich guy paying others to do his ideas."

I agree though, I can't think of a single example of a successful incubator that called themselves an incubator.

Spyckie• 18 years ago

I think we need to look at the landscape of the startup community. If you didn't have to grow to survive, then it would be fair to say that the goal is to create opportunities for people to 'live as they should'. However, the fact is that it is hard to stay afloat if you don't grow. Growth, as defined by how big your company gets and how much market share it has, is also an indication of how long the company will last. Ideally, the bigger your company is, the more it can do, and the more market share your company has, the less your competitors have. This means that you need to grow in order to survive - otherwise your competitors will take the market share from you and leave you without a business.

If you manage your successful company like a startup all of its life, then you'll hit failure sooner because startups just have a higher chance of failure because of their risk taking nature. Corporate structure just carries along a lower inherent risk.

Take the Next Step, Paul

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