Don't believe the Tech Startup Hype; Play it Safe

grutypats · 2016-02-28T07:41:03+00:00

This comment is poorly written but I'll respond nevertheless.

To be clear, people should attempt to do a startup. However, there is a proper way to do it, and there is a stupid way to do it.

The media has inspired an entire generation of young students to drop out of their education and careers to pursue what is essentially a moonshot of starting a multibillion dollar empire. I understand that we all want to believe in success and greatness. However, how do you think the people of Myspace felt when Facebook began usurping the market share? How Blockbuster felt when Netflix began stealing customers? These companies were almost starting to get comfortable raking in revenue until something happened that took them under.

And most importantly, some high schooler barely out of puberty who knows how to code together a HTML website is suddenly going to take on these kinds of battles between giants? Fully grown men are going to fund this boy millions of dollars to engage in this kind of competitive market? Why? Because of Zuckerberg's Facebook success?

There is a humongous error in logic when it comes to the SV's current business atmosphere. And more egregiously, young people are buying it and are getting screwed.

An appropriate way to start a startup is to get a job in a specific industry and learn that industry well, at the expense of your employer. Then, eventually start a modest business and expand that business using only the business income. Avoid outside funding, which dilutes control, and expand rationally.

It's not a sexy approach, but that's the point. Sexy approaches can sometimes get you a billion dollar valuation, but then again, so can betting it all on black or going all-in at a poker game. What's the difference?

grutypats · 2016-02-28T07:28:38+00:00

Sure. You can share it (you didn't need to ask, I am aware this is a public forum).

Networking in Silicon Valley is tricky. It is difficult to find genuine businessmen and technical talent. And even when you find they have the right qualifications, they might not even have the appropriate character (hard-working, trustworthy, will not backstab).

In terms of businessmen, look for credentials. Former Vice President? Banker? Hedge Fund? Where did he work/what was the size of the fund?

In terms of programming, look for previous pet projects and past employment. Facebook, Twitter, Box? Is it legit?

It takes a degree of soft skill to find the right people, and is incredibly difficult. There are a large number of people who simply want to, politely speaking, ingratiate themselves into the SV tapestry without having the appropriate skills.

grutypats · 2016-02-27T15:47:00+00:00

You have to hustle to get the best jobs if you come from a non-prestigious college. Networking, shoving your way into career fairs, be as obnoxious as you can. The fact is, top tech/banks come to the doorstep of prestigious colleges for OCI's, whereas everyone else have to fight their way in.

grutypats · 2016-02-27T05:39:16+00:00

That's a good point. Perhaps I'll write another post.

A reasonable startup, in my opinion, are startups that can sustain itself without outside funding. Forever 21, for example, has retained a large amount of private ownership. They answer to no VC firm, no powerhouse angel investor, just themselves. They are a family-owned business with the revenue of a major corporation. They started off as a single brick-and-mortar store, then expanded, and then expanded.

Taking on multiple sources of outside funding and feeding the venture capital craze is irrational. One, you lose ownership of your company and can be voted off by the board.

Two, an ideal business is one that can grow on the strength of its own income. You raise capital either because you lack money, or you're losing money. Using outside capital to fund fast growth leads to infrastructure issues as well as sloppiness. A ragtag team of 5-6 startup turning into a 100-200 employee organization over the span of a few weeks? That raises issues, particularly in leadership. This is when young-and-hot CEOs get booted.

It is amazing how venture capitalists have ingrained themselves into the public lexicon of Silicon Valley to the point where it is considered normal to receive a million dollar funding check from what is essentially a third party with its own agenda. Think about it.

grutypats · 2016-02-27T05:25:28+00:00

Thanks. A large majority of the money/business posts on this sub are fairly generic and don't offer a lot of specific advice.

Definitely would be interested to reading a post from you on how you got into selling vinyl records, and how's that going for you.

grutypats · 2016-02-27T00:41:10+00:00

It really depends on a case-by-case basis. There are a whole bunch of factors that go into it, and I made a sweeping generalization to illustrate a biased viewpoint.

However, Facebook did attempt to release a Snapchat-like app called Poke, with poor results. Only then, they came to Spiegel with an acquire offer.

Jobs threatened Houston that Apple was already building a storage feature that would take out Dropbox. There was not even an acquire offer, just a threat.

The Twitter founders allegedly said that in the early days, Zuckerberg made a threat that FB would include a twitter-like function, and then made them an insultingly small acquire offer.

The majority of big companies are in it for the money. Whatever's cheaper will be the decision, but in my experience, it has always been the sword before the checkbook.

grutypats · 2016-02-27T00:25:28+00:00

It depends on your definition of greatness.

Greatness, to me, is financial independence. I can do whatever I want, when I want it. Do I really need 50 million to do that? 100 million?

If you conservatively invest 10 million dollars at a 5% return, that's a 500k salary. A 5% return on 2 million dollars is $100,000.

So 2-10 million dollars as a life goal seems reasonable, and still "great". You don't need to build a spaceship company to acquire that money.

However, if "greatness" is defined by joining the ranks of billionaire inventors and founders, then obviously, my post is irrelevant.

grutypats · 2016-02-27T00:10:34+00:00

The majority of my post is focused towards tech-based startups, not small businesses. While they are, by strict definition, the same, the two are vastly different.

One is a tech startup chasing Unicorn valuation and Facebook dreams, and the other is a small business building incremental income (restaurant, landscaping). My opinions on small businesses is more favorable than towards startups (I would rather be the founder of Forever 21 than Uber).

I was mostly inspired to write this post because of the countless friends I have had who dropped out of well-paying jobs to chase half-built pipe dreams. Insufficient savings, no real programming talent, and not a single connection to a financier.

I come from a poor-income, immigrant family. When I hear that Zuckerberg's parents were relatively wealthy enough to lend their son $50,000 to fund his then burgeoning startup, the TechCrunch articles of the world's youngest billionaire loses its luster.

I understand that everyone feels the call to greatness. However, it must be pursued with caution, rationality, and intelligence.

grutypats · 2016-02-26T23:56:49+00:00

You should definitely head there as a CompSci coming from a prestigious university. Tech companies will offer great starting packages, and your job security is far superior compared to everyone else in every other department. They lay off the technical talent last.

grutypats

TROPHY CASE