Exploiting Silicon Valley For Profit (and Maybe Fun)

http://diegobasch.com/exploiting-silicon-valley

by dbuthay • 14 years ago

283 117 14 years ago

diegobasch.com

chrisyeh• 14 years ago

Sad, but true.

doug_ludlow• 14 years ago

This is easily one of the most honest and true posts I've read about Valley culture in a long, long time.

Having been through this exact process, I can assure you that this is how it really works.

gruseom2• 14 years ago

Would be interested in hearing about your process if you'd care to tell us.

njharman• 14 years ago

> Having been through this exact process, I can assure you that this is how it really works.

Read OA.

rudiger2• 14 years ago

If you look at all the people making 6 million dollar paydays, is this really how it works? I suspect not, but I don't have the data to back that assertion.

kokey• 14 years ago

The strange thing is it reminds me of the late 90s, the GooBook back then were companies like Cisco.

tptacek7• 14 years ago

So I liked this, like everything else Diego writes, but this graf doesn't ring true to me:

Joe and Wayne work on building something they know GooBook could acquire without looking stupid. Something they might be able to do in-house, except their most talented engineers are desperately working on ways to extract more money out of ads, or to reduce the costs of their gargantuan infrastructure. Some are stationed in Antarctica building a self-cooling datacenter; others are diverted from creative projects into the new 99.9999999999% uptime initiative: one second of downtime costs a million dollars. Forget that stupid 18% free-time web app project, and come help make some mon-ay. The quarterly report must look good. Shareholders demand it!

Working on self-cooling data centers sounds awesome to me, & also penguins. But more importantly: the 99.9999999999% uptime initiative that saves a million dollars for every second rescued sounds awesome to me. Developers are rarely so privileged as to work on problems that are simultaneously hard, well capitalized, and easily quantifiable.

"Mon-nay"? This paragraph reminds me painfully of how mouthy I was when I was 24 and had just had the company where I was an early employee be acquired by a BigCo.

bengl3rt2• 14 years ago

Also, $6m really isn't that much these days. Might get you a nice house in the Silly Valley and a few years of living expenses, but that's not "set for life" money if you're in your 20s.

vertr3• 14 years ago

Are you serious? $6m sounds like more than enough to retire on at any point for most people.

tptacek7• 14 years ago

6MM is way the fuck more than almost anyone pulls out of their startup, but that aside, his point was you take the 6MM to buy breathing room for your next startup, which "really" swings for the fences.

dsrguru5• 14 years ago

Hacker News is one of the few forums where being able to lock in a six-figure salary (100k USD) for 60 years isn't viewed as being set for life. The wonders of entrepreneurship and the cost of living in the Bay Area.

diego3• 14 years ago

Possibly true. However, I'd argue that the quantum difference between student debt and a few million in the bank is higher in terms of utility than the one between $5M and billions. Most of your money problems are solved with a few million: you get to work on what you want, can take a year off whenever, etc. You can still die of pancreatic cancer, suffer an ugly divorce, etc.

That's a different post, though.

nonce42• 14 years ago

This discussion seems to be mostly theoretical, so as someone who actually has $7 million, I'll provide my experience. In summary, not life-changing - my life is pretty much like the average engineer. I'm not spending like a rock star - your car, computer, stereo, clothes, etc are probably better than mine. (Although my house is a bit larger than average for Silicon Valley: 5br/3ba in an unfashionable city.) It's not enough money to feel even slightly important or rich in Silicon Valley. I don't feel like the "money problem" is solved; I plan to keep working for the foreseeable future.

I suppose I could move to somewhere like Kansas and retire, and live an upper-middle class life, but I don't see the point in that. (The "official" recommended spending rate of 4% would yield a high but not enormous income. Expecting 6-8% income is crazy talk.) The obvious HN answer is to start a company, but a) I'd be bad at it, b) I wouldn't enjoy it, c) I'd probably end up losing a pile of money, d) large opportunity cost, and e) health care.

Trying to summarize: the people who say a few million doesn't go far in Silicon Valley are right. It eliminates various problems (and I do sympathize with those with financial difficulties), but otherwise hasn't changed much for me. (Or maybe I'm just using it wrong.)

diego3• 14 years ago

Of course it's awesome to work on those problems. The point I was trying to make is that in this case the company has to choose between innovating for the long term, and solving urgent problems that mean lots of $ in the short term. Internal venture projects tend to be put on the back burner when your best engineers could save 50M by optimizing the hell out of your backend.

tptacek7• 14 years ago

I took that point; it's just the way you wrote it: derisively (sorry, that's just the most appropriate word; I'm not harumphing at you).

lukejduncan4• 14 years ago

I'm continually reminded of Neal Stephensons remark "I saw the best minds of my generation... writing spam filters." He talks a lot lately about how we've stopped trying to solve the really hard problems and instead are continually trying to sell digital "sugar water."

*Source: https://plus.google.com/116416314233992548280/posts/NxCMjiQX...)

seiji5• 14 years ago

I think the key point was diverted from. The employees aren't doing what they want anymore, so some stable "we can always get acquihired by google again when we fail" startup is attractive. As employee 3, they will walk away with a huge 0.5% of the exit while the founders walk away with 35% each.

how mouthy I was when I was 24

Welcome to The Bay Area: where self worth is measured by frat-like posturing and manipulation to level up at any cost.

tptacek7• 14 years ago

Ahhhhh there it is. Whew. I thought there was a risk that this was going to be a boring civil conversation.

seiji5• 14 years ago

Disturbingly accurate.

• Make a sufficiently shiny, yet imminently disposable product.

• Hoard employees (each one bumps your valuation by ~$1.5 million), be loud, get acquired.

• Kill product. (You never cared about it anyway -- it was just a vehicle for ego and attention. Now that you've got your $5 million, you don't need the validation of all those silly pawns/customers anymore.)

vertr3• 14 years ago

If new startups agreed that they wouldn't leave their users out to dry if they got acquired would you be more likely to trust them and use their service?

seiji5• 14 years ago

Getting a future promise from a startup CEO is as trustworthy as a politician's promise during election season.

The only sane approach is open data. Leave everything available for export so some other feature company can pick up where you left off.

You could venture into an insane realm where startups enter into a Startup Insurance™ league. When a company gets acquihired, instead of shutting down the product, a separate foundation runs the product (or figures out a way to open all the data for export).

jaggederest3• 14 years ago

No, because how would they enforce that? If your company is acquired, all that goes out the window anyway.

Spoom• 14 years ago

If startups want to be acquired, they'd never make such a policy anyway, because that makes them less attractive to the acquirer (who, after all, may only acquire them to prevent competition).

DanielRibeiro• 14 years ago

Heard this recently, with a little more background history, and little less humor: http://www.youtube.com/watch?list=LL1tJgy-O6EgwisFV559z43w&#...

ryanlchan• 14 years ago

What worries me, more than the accuracy of the story or not, is the overwhelming level of agreement from commentators. There's a pervasive sense of cynicism blanketing the tech start up world, but for some reason we're all still in the game.

There's a certain amount of hypocrisy you have to accept. We do this to ourselves. No one on HN would think worse of themselves for achieving a $5M exit, yet we are happy to vilify those who do.

Where are the founders of the next GE? The next IBM? Those who seek to solve the fundamental problems society faces? I'm not asking about space ships and world hunger. I'm just talking about solving real, concrete, long term business problems. The ultimate filter on this is simple: If your product were to disappear, would your customers' quality of life significantly decrease?

fredsters_s• 14 years ago

"Where are the founders of the next GE? The next IBM?"

Not doing startups.

JamesLeonis• 14 years ago

To be realistic, who wouldn't want to be holding 30% of a $10M or $20M buyout? There will always be the allure of quick money, and tech isn't immune to the sentiment.

It seems to be similar to the Zed Shaw talk-within-a-talk [1]. Instead of working for BigCo for a paycheck and going home to work on your own things, you use a lesser idea and work for a VC via their investments while developing your master idea. The difference is the level of risk and the size of the payout.

[1] http://vimeo.com/2723800

The other part that isn't mentioned here is this is a commentary on the most visible portion of the tech industry, namely web/app based social startups. I can't help thinking of Sturgeon's Law. In a way, that makes me cautiously optimistic. You have a bunch of people tackling hard problems in computing as well as society. When Facebook changes it's privacy settings, or Path collecting our address books, we all freak out. It forces us to confront things we as a society never had to think about before. Fifteen years ago, who was thinking this seriously about mass privacy concerns that didn't involve the government?

I also look around and think about what cool things happened in the last decade. I can look up anything from a black monolith sitting in my pocket. I can connect with people I haven't seen physically in years. I can read about events as they happen in real time. I can buy just about anything without ever leaving my house, and it will arrive a couple of days later. I can learn about any subject from very respectable institutions for free.

In a few years, we will have a (more or less) unified communication system for health records, cheap 3D printers and fabricators, a mass market for self driving cars, and privately funded space travel. Right now people are seriously considering space mining of all things.

All of these things were born alongside purely self-interested companies that have since failed or were acquired. If it takes many short term companies to get a few gems, then let the VCs, GooBooks, and hustlers knock themselves out. I highly doubt we can optimize for more success, so I don't see a point in fighting it. Maybe it's that very culture that allows for such gems to be formed in the first place. Even if you are involved with such a company, the talent and knowledge you come away with is invaluable and will follow you wherever you go.

I would say you should try to make your ideas a reality. You should try to make money, build companies, and commit yourself. You just might be involved with something great.

</reality distortion field>

maxko872• 14 years ago

This is exactly why people consider the valley to be a huge bubble. This kind of "innovation" isn't sustainable at all.

dsrguru5• 14 years ago

But what makes it not sustainable? As long as there exist a few GooBooks, won't acquisitions continue to be sought?

maxko872• 14 years ago

Yeah, but only until the GooBooks realize that they are just paying a huge premium for acquiring talent (and a worthless product).

hkarthik2• 14 years ago

The linchpin to the whole thing is the easy VC money. It's what makes both the few startups turning into GooBooks and the many startups turning into ZombiePlatypus possible.

As soon as the smart money that's currently focused on VC finds decent returns in other, less risky investment vehicles, the VC money train will stop. It's just a matter of time.

gregholmberg2• 14 years ago

Google, Bing and HN Search all think that "Hacker Noise" is a neologism.

gruseom2• 14 years ago

"GooBook" and "SoSoMa" are pretty funny, but "Hacker Noise" is brilliant. A direct hit!

rudiger2• 14 years ago

Except this isn't how people are making 5+ million dollars in practice.

jconley• 14 years ago

The acquihire is just the Dot Com Ferrari signing bonus of the new age. Except now you have to prove you can actually take risk and get shit done before they give you the Ferrari. Seems reasonable.

mck-• 14 years ago

Is this the real story (and motivation) behind IndexTank?

wslh• 14 years ago

Even if it is inspired on IndexTank the difference is that IndexTank was a very valuable service and ended being an open source project. We can think of IndexTank as a kickstarter project now!

jhandl2• 14 years ago

Also Flaptor was a search consulting company five years before the startup.

villagefool2• 14 years ago

A bit ironic that he sarcastically referees to HN as "Hacker Noise" but then at the end invites people to discuss the post on it.

graue• 14 years ago

I didn't interpret that as a dig at HN, any more than "GooBook" is a dig at Google and Facebook... He just changed the names to make it clear his story is fictional.

Estragon3• 14 years ago

I'm curious, is the name "ZombiePlatypus" a reference to any specific recently acquired startups with monsters and animals in their names?

gregholmberg2• 14 years ago

ZOMGPOP would be close.

corford• 14 years ago

Hahah I've been wondering the same thing but can't come up with anything.

SkyMarshal• 14 years ago

Zynga, Plants vs Zombies, and Minomonsters is what came to mind for me.

smattiso2• 14 years ago

Anybody have any firsthand knowledge on how prevalent things like this happen? Seeing as how his company was acquired by LinkedIn, is he admitting this was his strategy?

endlessvoid94• 14 years ago

a lot.

wildmXranat• 14 years ago

Concise, compelling and rich,- would read again.

But honestly, that sort of stuff rarely gets transcribed into Internet ink.

jhandl2• 14 years ago

You think he started a search as a service company because he was targeting LinkedIn?

Flaptor (the name of the company, IndexTank was the product) was a search consulting company five years before becoming a startup. I know, I was there.

villagefool2• 14 years ago

By the way, how much of this post is IndexTank's own story?

jcc802• 14 years ago

By now they have some traction: hundreds of thousands of users, some of whom are even real.

I wonder what percentage of users are generally fake and how much some startups goose this number. Maybe adding in 5% worth of fake users increases an acquisition price. I'd imagine it varies by the type of app (CRM, social, etc) but that you'd probably have to get your next funding from the Salvation Army if/when you get caught.

seiji5• 14 years ago

There exist companies where you pay $100 and get 1000 to 10,000 people (read: south east asians) to sign up to your service.

CEOs have been invited to conferences to speak about their "sudden rapid growth." They never admit they are cheating. You can usually tell who does it because their traffic will abruptly stop once they realize the 100,000 one-time-login users in Singapore aren't virally spreading or clicking on ads.

acoyfellow• 14 years ago

I've never been so glad I'm on the other side of the country..

Nikkki• 14 years ago

As long as all the parties profit from this kind of business there is nothing wrong with it. See for example Android. Whoever thought it would be what it is for Google today for Google?

EternalFury• 14 years ago

Sometimes someone says something true. When that happens, it has to be veiled in the appearance of a satire because no one wants to admit the world really works that way.

mark-r• 14 years ago

I nearly burst out laughing when I read "Hacker Noise".

ema• 14 years ago

If that is the price the world has to pay for the occasional google so be it.

Exploiting Silicon Valley For Profit (and Maybe Fun)

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