Most of your examples have raised large amounts of VC funding. It's debatable whether they "need" the funding to success, but they certainly wanted it enough to eat the dilution.
They have raised, but they didn't raise until they were profitable -- that is, WELL past "default alive". They are remarkably different in this respect than essentially every YC startup.
Pretty sure Fog Creek has never raised either, while having 50-100 employees.
The overall point is that you don't have to be a one-person business to grow at a slower but "healthy" rate.
With the above examples: imgur has raised $40 million and can barely keep one website running. GitHub has raised $350 million and can't seem to add new features or fix existing features. 37signals did fake funding just to get connections, but they at least isolated themselves and stopped trying to infect the rest of their world in their hype bubble.
The $1.2M revenue number looks completely made up by the article submitter. The article makes no mention of this or any other specific monthly revenue number.
I would expect a service like this to have very high churn as people export a list and leave, so the actual recurring revenue is likely much, much lower.
Why do you figure overhead would be anywhere near 90%? It sounds like he's basically automatically scraping this info, and it doesn't need to be done at any particularly fast rate. He's probably leasing a single dedicated server for a few hundred dollars a month and working from home. I expect his overhead is near zero.
True. I just figured it was unnecessarily conservative. He said, "Overheads would be significant," which I don't think is actually true. I agree with the general principle that it's a lot of money.
My experience has been different I guess. I run a small web-based business serving around 50,000 visitors a day. We don't do anything particularly bandwidth-intensive, but we spend less than $500/month on our server and bandwidth.
This guy's traffic would be considerably lower than ours I would think. Most of his resources are going to be going to the scanning effort. But that can run at a continuous rate around the clock, which is the most efficient way to utilize resources. And it doesn't need to be done completely quickly: it looks like he'd be fine completing a full scan in under a month. That shouldn't require particularly high-powered hardware.
So, I can't imagine this guy could possibly be spending more then $100k/month on hosting. Honestly I would be surprised if it was more than $10k. I was just trying to clear up what I saw as a misconception.
The article mentions enough figures that you can derive the figure yourself. 2-3k paying customers, plans are $300-1k/mo and the plan breakdown is hinted at.
Path's failure is a fitting reminder of the likely outcome of making your key metrics friendships and moments rather than revenue. No doubt this is just one of many overfunded social apps that will fall into the abyss this year.
This is about as empty as criticism could get. If a company is solely focus on revenue then it's "short sighted and make bad product". Otherwise they're "over funded without business plan". You can't win anyway huh?
I have no idea on why any of those social/ mobile apps is useful and I have never used Path either. But please keep the no substance criticism to a minimum please.
Isn't the one job of a startup CEO to keep customers happy?
Pandering to VCs to the detriment of customers seems like a surefire can't miss recipe for failure. Compare the biggest exits with the biggest disasters and you'll find that's the main thing that differentiates them.
Customers increase your revenues and your costs. If you're making a play that's long-term by necessity and will be running at a loss for a while, then customer acquisition actually speeds up your burn.
On the other hand, VCs determine: whether your company can raise money, whether your competitors get funding, what your acquisition/exit options are, and what kind of job you personally will get after leaving the company (one way or another).
Also, VCs are a small set of people who all know each other and in which one voice can end not just your job or company but your career. Customers are a large set of people where one might get pissed off and write a bad Yelp review.
This seems like it could be a real business with a lot of traction, especially with the death of Rapportive. I wonder why the founders chose to throw it away and get jobs at LinkedIn.
How do you measure founder quality? Most startups have some amount of traction when they raise VC funding. Either hundreds of thousands of users or $1M or more in revenue, especially with the bar for Series A getting consistently higher. That would speak to the quality of founders increasesing over time, not decreasing.
The post makes some valid points, but this reads more like self promotion "content marketing" for her expensive make money online by bootstrapping course than an objective analysis.
So what of the statements by venture capitalists with $100+ million funds and founders/employees at venture-backed startups that couldn't make payroll without investor money? When they argue that there is no bubble and the startup economy can only go up and to the right, should we not note that their arguments are self-interested too?
Just a reminder, you're on HN, so expect some downvotes and angry people when you point out the inherent non-value of many VC-backed startups, similarly experienced when advocating for privacy (I'm looking at you free-to-use startups that rely on user-data to sell/exploit).
Most likely $0. If you don't have any traction or investors, what makes you an attractive acquihire target? If it were so easy to throw together a few friends and make a million dollars via acquihire everyone would be doing it instead of applying for a job.
Acquihire is 30% about getting a team with proven ability to execute and 70% about paying back investors as a favor or a down payment on maintaining a good relationship with them. If your dream is really to get acquihired your best bet is to pull together enough traction to raise seed funding and then invest that money in hiring the best engineers possible before shopping it around to get acquired.
They might have a great technological solution or expertise that the acquihiring company needs. Thus they might be paying for the technology instead of spending time and resources trying to develop it themselves.
That's not quite an "acqui-hire", though, that's a technology purchase.
"Acqui-hire" has a strong implication of, "we don't need your technology, and will likely discard/discontinue your product... but we want your engineers, as a cohesive team with relevant domain experience."
In that case the acquiring company would be coming to them. If there is a pinch point that bad that an unproven technology would be implemented before it has traction, any wind of the technology to fix it would draw mice.
If there is no technology play, at the minimum it should be a signon bonus that the company would pay engineers joining at that position in the company. How much higher than that would depend on other factors that everybody is discussing.
Welcome to the unfortunate reality of most internet businesses. The default outcome of a lifestyle business is a lot closer to this than a patio11 style runaway success. The lifestyle entrepreneur myth is so pervasive on HN that the common mindset of non startup people is "Oh, I don't want to do the startup thing, I'll just build a steady slow growth business and make $10K a month". The reality is that a side project making $10K a month is even less likely than a multi million dollar acquisition of a venture funded startup. The median outcome is not that you'll get 0.01% of a niche market, it's that you'll get 0%
If by "lifestyle business" you mean "something I stuck in a private Github repository, set up a web page for, tinkered with Google Adwords a bit, and hoped for the best", you are absolutely right.
Patrick's businesses aren't viable because he got lucky with the right lines of code and the right blog posts. He's viable for approximately the same reasons that a decent local bookkeeping firm are. It just happens that he generate value with small amounts of Ruby code instead of accounting services.
I have a good friend here in Padova who has started two of those, and they've been quite successful. He also works his ass off from morning til night running the things despite hiring some good people. Something like BCC, which seems to mostly run itself and generate some decent money, is, in some ways, far more "successful" than that, in my book. Generating even modest money without doing anything is a nice accomplishment.
This is an interesting conversation (the whole thread). I think people get really tripped up with these discussions because they're talking about different things. The first comment talks about "side projects" making $10k per month. I think 'patio11 and 'tptacek as well as yourself would all agree that $10k/month is impressive for a true side project (built and maintained entirely outside of normal working hours), but that it's completely normal (almost required) for even the smallest of "lifestyle businesses". (That term, to me, signifies a business which demands full time attention from its principals, at least to start.)
The "patio11 as runaway success" quote is probably what triggered the rest of this discussion--obviously 'patio11 is successful, but there's nothing "runaway" about it.
The default outcome of a lifestyle business is a lot closer to this than a patio11 style runaway success.
Maybe this is a matter of perspective, but I don't consider my business a runaway freight train. There exist many, many, many businesses in your town which make more than I do.
I know literally hundreds of people who have businesses which are roughly similar (consultancies / SaaS shops / infoproducts / etc, created without substantial non-founder investment), and believe me when I say this, I neither optimize for nor have achieved an unattainably high watermark.
Our business makes several times what patio11's does and we are not a runaway success, either, not by a long shot.
If you do not actually attempt to make a business — by selling something people need and already are willing to pay good money for — then yes, you don't tend to make any money. Just stabbing out in the dark with "good ideas" doesn't work.
I have helped my students gross more than $2 million in revenue from "lifestyle businesses." It is absolutely achievable and not rare.
This:
> The reality is that a side project making $10K a month is even less likely than a multi million dollar acquisition of a venture funded startup.
…is factually wrong. Multi-million acquisitions are rarer than being struck by lightning, some 400-500 a year. There are at least an order of magnitude times new bootstrappers every year making well over $10k a month than there are acquisitions.
Startup acquisitions seem more common because they get talked about. Your basic availability heuristic (aka cognitive error) at work.
"The median outcome is not that you'll get 0.01% of a niche market, it's that you'll get 0%"
There are so many assumptions in here that it's useful to unpack. What makes you think you need to aim for 0.01% of a niche? Why do you think you need a niche? What's a niche mean to you?
It's the unspoken "knowledge" about "how to do it" that holds people back. Everybody "knows" you have to "find a niche." Meanwhile there are millions of painful business problems all around you that get ignored in favor of looking for some weird little niche market.
It's logarithmic. But your time as a consultant is worth more than some number of 9's of people on the planet (99.99% for instance). You've got one business that runs itself, and another one ticking along pretty well. Maybe you haven't made all the money you want to make, but you're well on your way to financial freedom, appear to be doing something that makes you happy, and have a family (congrats!), friends, and seem to be fairly happy with the world.
If you look at things in absolute terms, rather than relative terms (someone always has more), you seem pretty successful to me in a way that not a lot of people manage. I wouldn't belittle it too much.
He's not belittling it, he's (politely and patio11-ly) saying: "Stop putting this huge space between me and you because it isn't there, and you're short-selling yourself by pretending it is."
If we were to look at the most quantitative, objective thing, consulting rates, there very certainly is a difference between patio11 and the average HN user (and most of us are better off than the population at large, I'm willing to bet).
I've met him, and you're right that he's very polite, generally humble and a good guy, and I can appreciate he's seen plenty of people making orders of magnitude more money than him. Still though, he's pretty successful.
It's a bit irrelevant to go down this road since patio11 has quit direct consulting, but from what I've read, patio11's path to (consulting) success goes like this: patio11 likes teachers, makes bingo card app, charges for it like a reasonable person; patio11 notices all these mistakes he's making while selling to teachers, blogs about it, blog gains popularity among like-minded individuals; patio11 falls into consulting, delivers a good service, and finds out how much he can charge for it.
There's nothing in this story that's dependent on being very lucky or being exceptionally smart; the only outstanding traits here are overcoming the fear of the unknown that plagues everyone and being a good teacher, but both of these can be learned. It mostly just comes down to spending your time doing the right things.
And now with AR, just by focusing on the major mistake from BCC (selling to teachers), patio11 has sort of proven my point for me: it doesn't take that long to bootstrap a successful business with all the resources available to you now. There are more than enough blog posts telling you what to do, what not to do, and there are more than enough open niches that are perfect for microbusinesses to supplant the dayjobs of everyone on HN who has the same restless ambition that makes staying in those dayjobs an impossibly depressing prospect. And from there, consulting for larger businesses with what you learn in your micro is just icing on the cake.
Thanks, in my experience that's basically true. I've never really wanted to go after funding or go for acquisition, but I can see how that path in some ways has a higher probability of success than hustling on side projects.
No, your second sentence is factually incorrect (except for the first clause, of course). Don't let the fact that you're not interested in building a business fool you into thinking that building a business is more difficult than it is.
You're not interested in building a business. That became clear when I read your sentence: "At the end of the day we aren't that driven by money, and we aren't really running a business." I didn't even need to glance at your "anti-sales page", though that page certainly hammers the point home, then jumps up and down on it for good measure.
It's not a radical act of rebellion to do good work at your day job, get paid, go home after work, and have fun building things in your spare time without any thought of profit. This is how most of my favorite people live their lives. This is all fine. What is not fine is trying to define this happy life as a "failed business" and trying to calculate the "ROI" of your fun, then lapsing into despair because the spreadsheet has a zero in it. That hasn't been doing your happiness any favors, it isn't doing your audience any favors, and it isn't leading you to draw sensible conclusions.
Stop being an uninspired businessperson and become an inspired maker of stuff. You're almost there.
I think you're right and I'm at my best when I'm an inspired maker of stuff.
My hope is that sharing our experiences, we transition to making awesome stuff and sharing it with other people that like what we do.
You're also right on trying to calculate the "ROI" on our fun is the wrong approach. At best revenue is a data point, not the goal in itself. If the goal was money for its own sake, we'd make much different choices.
Ouch. 3 years is a long time to go with nearly 0 revenue. If you're selling to businesses, the most important thing is you go talk to people who will be your customers. In person. Build it and they will come is a total myth, you need to actually get out there and sell! patio11 did the same with Appointment Reminder.
Yeah it's tough and if we didn't have the early small wins, we probably would have quit years ago.
In selling to businesses, I agree that we need to get out there and talk to businesses about what problems they need solved and are willing to pay for. I did a little bit of that before building v1 of Answer Customers, but we would have been better served by spending months interviewing business owners than by building software.
One thing I've learned is that being a builder is a bit of a curse. It's too easy to get excited about an idea, come up with reasons why it has to work, and then just build and ship. Fighting that urge is difficult, but necessary to find success.
Hopefully it doesn't take 3 years for other people to figure this out.
Why do you think CryptoSeal failed? What are some lessons learned from running a YC startup for the past 3 years? It would be very interesting to see a postmortem.
I wouldn't say it failed -- we never got Internet-scale customerbase, but honestly the goal was "do awesome security stuff" more so than "become Facebook".
I'm actually writing the post for Saturday; CloudFlare has a bunch of stuff going on this week so I've been pretty busy on top of getting some odds and ends resolved for this announcement.
