[sliverstorm]

Say I build a company to a point where I could sell for enough that I could walk away with, I don't know, let's call it $10,000,000 USD. The other option is to stay independent and maybe, maybe eventually IPO.

This is the part that rankles with me. Why is, "stay privately held and continue to turn a profit year over year" never considered an option? Why is it only "sell" or "IPO"?

[mbell]

It depends on your goal. Even companies that stay privately held and turn a profit year over year end up in many ways being a lifestyle company; Often resulting in stagnation and then slowly erode from the inside. It can work, you can avoid stagnation, but only for a few types of companies / founders.

For example Valve can pull this off, they are a game company, always building the next great game, they always have something new to work on and have gone to great lengths to keep their employees involved and attract top talent. They have avoided stagnation.

On the other hand, many of the companies you see get acquired built one or two focused products, they don't have 'the next big game' to work on, that is boring for many people, particularly the 'founder type'. Boredom -> stagnation -> erosion.

You could say that company X could just define themselves as e.g. a 'mobile app' company the way that Valve is a 'game company', but in reality, 'mobile app' is way too broad. How is a 'mobile app' company any different than startup? The difference is that instead of investors taking the risk on the new product, the company takes the risk, which doesn't bode well for the constant year over year profit ideal.

The 'company taking the risk' model can work, e.g. Google, but you have to be wildly profitable to pull it off, that is hard, really hard, so hard that only a hand full of companies have ever pulled it off.

tl;dr Privately held long term companies can get boring quickly. It takes a very particular type of market, a founder who really wants a lifestyle company, or a company that is wildly profitable to avoid stagnation. All three options are relatively rare.

[sliverstorm]

My first thought is, you don't have to grow like wildfire. From what I've seen, operations that stay smaller, tend to avoid stagnation.

Of course, I suppose keeping your company modestly sized does stand in the way of securing your "cool billion", which is apparently the minimum take for anybody who is anybody?

[mattzito]

It really depends on your industry/vertical. It's true, small companies can remain more agile, but they're also far more vulnerable to change - when it's three friends who run a software development shop, and one of them decides they want to strike out on their own, that's a huge upheaval for the organization. Plus, they tend to have a smaller customer base to draw from, or a smaller set of products on offer, all of which increase the long-term vulnerability.

Snark about the "minimum take" aside, everyone has different priorities. If you're a good businessperson with a good idea, there's no reason that you can't bootstrap a small business that makes you $400k/year for a number of years, which I think most people would agree is a pretty decent living.

[epsylon]

> Valve can pull this off, they are a game company, always building the next great game

Ironically enough, Valve hasn't created a game for years. These days they are mosty a platform (Steam) company rather than a game studio.

[mbell]

Many modern games take a long time to produce, 3-5 years is not uncommon for AAA titles. I also wouldn't say they haven't released a game 'for years', there has been at least 1 title a year, a ton of DLC for older games, porting games to linux, etc.

[mej10]

I agree that they are mostly a platform, but they have had at least one game come out every year (except 2002) since it started.

Recent ones: Portal 2 - 2011; Counter-Strike: Global Offensive - 2012; Dota 2 (to be released) - 2013

[Swannie]

Since when do they have to be a lifestyle company? Hire a CEO with mandate to grow the company, and go start the next one...

[whynotbalu]

Super thoughtful, very analytical comment.

[DannoHung]

Cuz he wants to get rich or die trying.

To which I would say: Seriously dude, why didn't you go into iBanking if you're so shit hot and what you really care about is stacks on stacks on stacks.

[niggler]

This. Many people go into startups just for the profit motive, but I firmly believe that you should start a startup because it is something you want to do or because a side project became too large to continue as a side project (forced to do)

[sliverstorm]

I feel like HN's focus has changed in that regard. Call me crazy, but I feel like it was less "get-rich" focused a couple years ago.

[mindcrime]

I feel like HN's focus has changed in that regard. Call me crazy, but I feel like it was less "get-rich" focused a couple years ago.

I dunno... considering that HN was originally "startup news" and that it's run by a company that funds / incubates startups, there's pretty much always been a certain segment of posters who are very into the financial side of things.

What gets me is the people who come along and (seemingly) present this viewpoint that "making money is evil" or "wanting to be rich is a Bad Thing". I don't get it and probably never will. As long as you play by the rules, behave ethically, and are honest, I see no problem with becoming as rich as (you can | you want). What's wrong with, say, wanting to have "fuck you money" so you don't have to live the rest of your life under the thumb of a boss, or worrying about how to pay for repairs if your car breaks down, or what to do if sudden medical expenses arise, etc? Even more so if you build a company, create jobs, and improve the standard of living for others along the way. To me, it's the greatest thing in the world.

[integraton]

There's nothing wrong with making money. The problem is that most tech companies focused from inception on high growth never earn their founders or employees anything remotely resembling "fuck you money."

If you want "fuck you money," go into finance. If you want "fuck you money" and still want to be an entrepreneur, start a financial services or legal firm in one of the many niches in the financial industry. And if you want "fuck you money" and you want to create jobs, tech is probably one of the worst fields to be operating in.

[derefr]

What if you've been doing software development, by all rights, since you were 10--it's in your bones and blood, as much as the feeling of wanting to be an entrepreneur is--but you would also like some fuck-you money anyway?

Is the answer, perhaps, "start a SaaS financial services firm"? ;)

[sliverstorm]

Absolutely nothing wrong with being rich. It's about goals.

When you learn to ride a motorcycle, there is a phrase: "Look where you want to go". At least to me, it seems like when you are looking only at your exit, you might make that exit, but you won't really make much else of value along the way.

In other words, when your goal is not to build a sustainable, profitable company with lasting value, but rather just to get out as fast as possible with as much money as possible... just how far away is such a person from "scam artist"?

[mindcrime]

In other words, when your goal is not to build a sustainable, profitable company with lasting value, but rather just to get out as fast as possible with as much money as possible... just how far away is such a person from "scam artist"?

Sure, I don't disagree with any of that. I mean, wanting to have "fuck you money" does not necessarily imply that you're only interested in the exit, or that you want to "just get out as fast as possible with as much money as possible". There's some middle ground there.

[niggler]

'As long as you play by the rules, behave ethically, and are honest, I see no problem with becoming as rich as (you can | you want).'

The rules are questionable at best and we've seen many startups (including some that are funded by YC) act in a manner that some would not consider ethical (I'm reminded of InstallMonetizer https://news.ycombinator.com/item?id=5092711 -- I think a made a few comments there). That suggests people are it in just for the money, which makes the situation worse for the rest of us who are doing startups for something more.

[jmorton]

Maybe, maybe not. This essay was published almost ten years ago...

"Wealth is what you want, not money. But if wealth is the important thing, why does everyone talk about making money? It is a kind of shorthand: money is a way of moving wealth, and in practice they are usually interchangeable. But they are not the same thing, and unless you plan to get rich by counterfeiting, talking about making money can make it harder to understand how to make money." http://www.paulgraham.com/wealth.html

[niggler]

"I feel like HN's focus has changed in that regard"

I think that people started smelling easy money and rushed in. I hope to see a shakeout soon, not because I want to see others fail but because perpetuating the status quo damages the ecosystem and harkens back to 1999

[jacquesm]

> Many people go into startups just for the profit motive

Do you feel that increases or decreases their chances of success?

[niggler]

The profit motive drives a very short-term hyper-growth mentality, and the decisions reflect that nature (abrupt axing of free service tier or price hikes to show "revenue growth", engaging in questionable accounting practices, etc), which increases success if you define success as cashing out.

If you define success in terms of longevity, given that certain practices essential for long-term survival run counter to the goal of fast growth and high valuations, the profit motive decreases chances of success.

[jacquesm]

> the profit motive decreases chances of success.

Agreed. I think it works that way because if profit is your motive you will run your start-up focusing on the wrong goal, which is to increase your bank account instead of to increase your users satisfaction or the quality of your product. By focusing on a second order goal you will likely lose track of what really matters. But if you focus on what does really matter your second order goal will be achieved as a by-product.

I do believe that you can achieve higher profits by tweaking an existing, successful model. But to achieve high profits by going for the money directly only works well for those that are either in finance or direct derivatives of finance (such as bank robbers, who after all have the most direct line between 'profits' and their actions ;) ).

[mindcrime]

but I firmly believe that you should start a startup because it is something you want to do

There's no reason it can't be that and a desire to become wealthy, ya know...

[niggler]

"There's no reason it can't be that and a desire to become wealthy, ya know..."

I take the (apparently quaint) view that you should make money because your product/service provides real value to others. And that if you do provide real value then there's a monetization pathway (by charging those people that you do provide value to).

[mindcrime]

I take the (apparently quaint) view that you should make money because your product/service provides real value to others. And that if you do provide real value then there's a monetization pathway (by charging those people that you do provide value to).

I have to admit, I don't see the connection between that and the blurb you quoted above. I certainly don't disagree with the idea of providing real value, nor with the idea of charging people that you provide value to. In fact, I very recently wrote a rant[1] expressing very much that opinion. So I'm not sure what exactly it is you think we disagree about, if anything.

I'm just saying that launching a startup can be based in both a desire to "do something you enjoy" AND a desire to become wealthy. Exactly which "monetization strategy" you employ is, IMO, up to the founder(s) based on: their goals, market conditions, business circumstances, life circumstances, and probably a bazillion other things.

[1]: http://fogbeam.blogspot.com/2013/03/the-point-of-startup-is-...

[niggler]

I think we disagree on the extent to which "desire to become wealthy" should be a driving factor. I think the state where founders are primary driven by short-term wealth is not appropriate (it is easier to be wealthier in other areas like finance), whereas I take your comments to suggest that you think it's acceptable for making money to be the primary motivation. The views aren't mutually exclusive (timing factors, etc)

[eli_gottlieb]

I thought everyone knew that the expected value of a start-up is positive but small?

[mindcrime]

Cuz he wants to get rich or die trying.

You make it sounds like there is something wrong with that.

[phillmv]

Well, it's not an option if you've taken VC.

A VC is only looking at time frames of 3-5 years, given the limitations of their business model. If you don't look poised to grow 5-10x within that time frame then it's not worth their time, given they could be throwing money at the next potentially huge company instead.

If you run out of time you might get turfed by your investors when they call in their convertible note, and they'll either aim to liquidate the place or put in someone they think can turn it around.

If you run out of money, it's likely you're screwed because you were encouraged to trade growth for profitability. By this point it's often obvious whether you've run out of time.

Something like that.

[crapshoot101]

Not true. VC funds have 10 year lives, depending on the fund obviously.

[3pt14159]

This is only partially true. They have 10 years from the start of the fund, but most don't invest it all in the first year.

[mindcrime]

In reality it is an option, but given the artificially constrained "world" we're dealing with in this article, it made sense to skip that to make a point. Also, depending on what you are trying to accomplish, it might not make sense, depending on your liquidity needs. It's one thing to own a big chunk of a company which is actually very valuable, but quite another when you do not have access to that money in order to actually, ya know, do stuff.

[sliverstorm]

It's one thing to own a big chunk of a company which is actually very valuable, but quite another when you do not have access to that money in order to actually, ya know, do stuff

Further illustration of exactly the sort of strange mindset I'm talking about. This mindset where a business does not exist to make a profit, oh no, but to be sold to others for a profit.

The origin of business is to turn profits for the invested via the operations of the business. It gets more complicated in large corporations, but if I start a strawberry jelly business and make & sell strawberry jelly, I directly profit on the operations of that business. Because that is what businesses are for!

Now I suppose if you start a business that is unprofitable and will never be profitable, then you better take whatever buyout you can get and run, making sure to leave someone else holding the bag. But hopefully that is not the businesses you folks are trying to start, else this is just the set for another remake of "The Producers".

[mindcrime]

Absolutely, and I didn't say anything to contradict that. But there are limits to the availability of the value you have created with your business. Outside of paying yourself a salary equal to the entire profit of the company (or more, for a limited period of time), what do you do if you need a chunk of cash for some specific purpose at a point-in-time? The most obvious, straightforward and common means is to sell equity in the company to others, up to or including selling the entire company.

I, for one, am not advocating the idea of "build to flip" as a generally good thing. But still... the goals of the founders have to be kept in mind, and if selling the company is the best path for them to accomplish their goals, who are we to tell them otherwise?

[eli_gottlieb]

The whole economy has been oriented to advantage capital-gains over revenues, profits, and dividends. Sorry.

[kybernetikos]

I think the point of the article is that the majority of startups are founded by people who want to get rich more than they really want to be a visionary or entrepreneur.

People talk about 'exit' strategies. It makes it rather obvious that the thing they've created is much less important than the money to them.

Whether or not that bothers you, I think it's nice to have occasional articles talking about the view espoused in this article - that entrepreneurship is artistic and artists that care about their money more than their art are viewed with a mixture of admiration and disappointment by artists that have not yet had the chance to 'sell out' or the few who get the chance and don't.

[mindcrime]

Yeah, I can sorta see that. My position is just that "it's complicated" and that no one really has the standing to tell others what their goal ought to be.

In my own case, I absolutely want to build a profitable, sustainable company that "becomes one of the tech giants" or whatever. I'm not into the "build to flip" mentality, and we have some very specific goals and values[1] driving what we're doing. But all of that said, IF we reach a point where our company has some value, and the right acquisition offer comes along, it would be damn hard to say "no" when you consider the opportunity to do things like I spoke about above: Buying my mother a new house, travelling the world, etc. And no matter which decision I might make, I reject the notion that you're a "failure" if you choose the earlier exit.

[zem]

spolsky's "ben & jerry's versus amazon" post is relevant. http://www.joelonsoftware.com/articles/fog0000000056.html

as someone whose psychology is more aligned with the organic growth model, i fully agree with you, but if you lean the other way staying privately owned is just passing up the opportunity to get big fast.