The Problem with Founders (2014)

http://techcrunch.com/2014/07/20/the-problem-with-founders/

by prostoalex • 11 years ago

74 38 11 years ago

kordless• 11 years ago

The simple solution to this problem is to enable a new type of sales model for software. The current models are broken and lean toward the investor-founder-operations-developer chain of control, with the investor and founders controlling the revenue. Flipping the model on its head would allow for the revenue to flow directly to the developers, bypassing the chain. I think I may have a solution for this, but it's going to require some infrastructure changes.

paulhauggis2• 11 years ago

The problem is money. There is no way to magically get money into the hands of the founders and the people that have it (IE: investors), will never make a deal where they won't get a good ROI.

MichaelCrawford• 11 years ago

Sell software directly from your own website.

software you write all by yourself.

Lots of coders do this, some are brilliantly successful. The ones that dont make money dont know how to Read The Fine Manual.

For example, SEO is not a black art, it is well documented.

vezzy-fnord• 11 years ago

For proprietary software, other than per-unit or tier/SaaS, what would be more viable? Artificial scarcity can only be exploited so far, especially with a highly saturated sphere of competition.

Now for free software, where there is zero marginal cost for redistribution and no information restrictions are enforced, there's some experimentation going on with quadratic base pledging (multiple people pledge a low base amount, e.g. 1c, and for each individual the base pledge times the number of pledgers is what is deducted). This is being done by Snowdrift.coop: https://snowdrift.coop/

baudehlo4• 11 years ago

The numbers in this article are way off. A higher end employee (senior/chief engineer) who joins at say #30 in a company will still have a decent exit on a $250million exit. I say this as someone experienced in this.

rosser• 11 years ago

  s/will still/can/g

Your experience, while fortuitous and probably well-earned, is far from universal.

baudehlo4• 11 years ago

Totally true. I developed the product that was responsible for >50% of the company's revenue and walked away with 0.04% at exit.

It was decent, not life changing. I probably should have negotiated significantly higher. Hindsight etc.

itbeho• 11 years ago

Define "decent".

baudehlo4• 11 years ago

See my reply to the sibling post.

philsnow• 11 years ago

The article is talking more about entrepreneurship being an avenue for establishing a personal brand.

Credit really only goes to founders when a startup exits for less than $250 million. Under a $1 billion, a handful of the early employees will be able to receive credit. And above $1 billion, the number of early employees who can claim credit continually increases with exit value all the way up to a Google or Facebook, where people will mention and receive acknowledgment for even their triple-digit employee number.

They're saying employee #20 at a $250M exit doesn't get mentioned much generally. Employee #20 at a google/facebook exit does, generally.

mfkp• 11 years ago

Somebody should add [2014] to the title. I started reading it, then realized that it all sounded familiar.

dang• 11 years ago

Thanks. Done.

sparkzilla2• 11 years ago

This was ridiculous the first time it came out. It's just as bad now.

hemantv• 11 years ago

care to explain?

sparkzilla2• 11 years ago

Here's what I wrote at the time: So much nonsense in one article. If you think the "bar is so much lower" to becoming a founder then stop whining about being one of the forgotten early employees and get off your ass and start a company for the right reasons: finding a market opportunity and making money from it. If you can't or won't, then you can't expect the rewards.

Early employees are important, and should be given credit and fair payment for their work, but their risk profile is far, far less than the founders and investors. Investors stand to lose their investment (which is an accumulation of work) and the founders can lose money, reputation, and time. In my last business I lost hundreds of thousands of dollars of my own money and five year's 24/7 sweat. Every employee walked away.

technotony• 11 years ago

"Feeling bored at work? Just go start a company. Feeling depressed about life and lack any direction? Just go start a company. Broke up recently? Just go start a company. Had a parent die and can’t move on? Just go start a company."

This is how we end up with statistics like 27% of founders have mental health issues. Source: http://www.businessinsider.com/austen-heinzs-suicide-and-dep...

Animats• 11 years ago

About 10% of VC-funded companies are big successes, defined as making 10x their investment. About 20% go broke, and most of the rest end up in zombie mode, able to pay their bills but not pay off their investors.

Most founders, therefore, are doomed to be losers.

But VCs look for people who are sure they will succeed. Most of them turn out, in hindsight, to be wrong. This is inherently going to push a sizable fraction of them into mental health issues.

nnain• 11 years ago

What every founder will tell you - https://www.youtube.com/watch?v=SVKKRzemX_w [Louis Armstrong - Nobody Knows the Trouble I've Seen (1962)]

...and it's true.

michaelochurch3• 11 years ago

The founder/engineer social class division is one of the reasons why I expect the Silicon Valley ecosystem to implode and will be disappointed if it doesn't.

First, there are two types of founders: Made Founders and Hustling (it's a nicer word than "Marginal") Founders. Made Founders (often called "serial entrepreneurs") already have it worked out that, unless they rip off their VCs, they'll get a soft landing. I won't say that they don't work, but they have enough investor-rank friends that they don't really worry about anything, because if their companies tank, they'll be lined up with VP-level positions where they'll probably make twice the salary that they had as founders (typically, founders don't make more than $175k). They probably put in 30-60 hours per week, but they work on the fun stuff and have double-digit equity so... yeah. They worry more about managing up into the investor ranks than running a company, for obvious reasons. (If you build a successful company but lose control and most of your reward, you lost. If you fail but the investors like you and make you a Partner at their VC firm, you won.) It ain't a bad gig, although it's a bit boring because, well, you're a corporate executive. Being a Made Founder is based on pre-existing social class; either something you're born with, or something you luck into. Merit's not a part of it. Hustling Founders are the ones who don't have investor-level people pulling strings all the time and who really, really, really fucking have to pound the pavement-- and hope that a Made Founder doesn't decide to compete in their space, because then they're up against someone who's going to have 50 times the capital.

In the 1960s, all founders were of the Hustling variety because the pedigreed people were still in banking, during the Bateman days when it wasn't a real job (3-martini lunch), and in a time when the pedigreed asswipes still thought the West Coast unprestigious.

What the OP is describing is a cultural shift as pedigreed people with generational social connections jump into the game as Made Founders. They've never been employees or subordinates of any kind (except to VCs) so they don't have the empathy that it takes to run a company, and they tend to be low on competence spectrum (since the mainstream business elite puts its successes in hedge funds and private equity to manage billion-dollar deals, and throws its failures into VC and VC-funded tech).

What hoodwinks a lot of people is that the Made Founders are great at presenting the appearance of Hustling Founders, and thereby they justify getting 100 times the equity as the employees they manage. In reality, most of the Hustling Founders (a middle-class crew) have been driven out and are unfundable due to a lack of social connections, and also because the amount of stress involved in dealing with VCs and abusive investor-level personalities is such a mental-health crusher that even normal people become paralytically neurotic after about 5 years in that game.

justonepost2• 11 years ago

It's a good post, but I think the success of ycombinator speaks against your concept of "made founders" as a common thing.

I will agree though, they definitely exist and they definitely suck. (Born into it? No, I think they worked their ass off into ivy league university, but now feel they can coast .. which is understandable, it's hell getting into Ivy league universities. To imagine that you now have to sacrifice the next phase of your life probably too much to bear for most)

michaelochurch3• 11 years ago

It's hell getting into Ivy League universities for middle class people.

Rich kids from well-connected families take it for granted. Why do you think parents in New York pay $40,000 per year from pre-school to high school? Because you're an auto-admit at many of the Ivies (Harvard, Yale, and Princeton are still a reach unless you're top-25%, but there's always Stanford) if you attend one of the top 5 prep high schools.

Also, Ivy League is one of the less important elements of pedigree. Pedigreed (read: well-connected, not necessarily well-educated and certainly not cultured) people who don't go to elite schools still have their advantages. Also, the middle-class smart kids and the pedigreed legacy kids tend not to mix at elite schools anyway. A prestigious university provides a bump, but not as much as one thinks. It's not like going to Harvard makes you set for life. I know Harvard grads making $50k as social media whatevers at dipshit ed-tech startups. Middle-class people tend to overestimate the connections-forming capacity of college. It certainly happens, but the tendency for 18- to 21-year-olds (well, everyone, but especially adolescents) is for like to group with like and that means that the middle-class smart kids and the dumbasses-with-family-connections don't mix.

gull2• 11 years ago

Merit's not a part of it.

If you are good enough to build something people want, skip VCs and get paid directly from users.

S4M• 11 years ago

+1.

What michaelochurch seems to ignore is that it is now so easy and cheap to start alone and without investment something with a non zero probability that people will want. It's not easy - I am trying to do that, so far unsuccessfully - but definitely doable, by renting a cheap VM from Digital Ocean or Amazon and start making a web app, or putting a mobile app in the App Store or Play Store.

meesterdude• 11 years ago

has now become something akin to Hollywood: a world of stars amid extras and hopefuls.

wow, nailed it.

The Problem with Founders (2014)

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