Bolted, of course, to the top of any thread that mentions "bootstrapping" or "VC".
The problem is, not everybody agrees with you. I've done both kinds of companies and don't think growth trajectory is the defining feature of a "startup". I'm also not particularly interested in debating the point, since it has very little to do with the story we're commenting on. (I also understand your rebuttal to that point, that the problem this person had was not understanding the distinction you're making, but I also disagree with that argument and find it a little mean-spirited.)
I think creating a business can be one of the most rewarding things a person can do, and I want as many people to find success in that as possible.
It is possible to create a business with a very ambitious growth trajectory regardless of whether you have taken VC or angel funding or whether you are bootstrapping. It's just a lot easier to do this if you've taken funding.
In the valley, most plausible ambitious growth trajectory businesses are VC-funded of course; this is not necessarily true elsewhere. As someone who has lived in the valley for many years and before starting a startup outside of the valley, it's easy to understand why: not all funding climates are created equal.
The thing is, your comments come off as extremely dismissive: the implication is that anything not-funded is a "small business", which is the equivalent of a pat on the head and "nice lemonade stand, son" (or, Italian restaurant, if you're DHH).
Finally: say a startup has a high growth trajectory and closes a Series A round. Was it a startup before it closed the round? I'd argue the investors thought so...
I found your comment(s) very insightful. Thanks a lot for posting.
If you're starting up you should be questioning the ROI on everything--and trying to figure out what it may be for a VC is part of that.
There's no free l(a)unch.
As I understand it, that's the startup game. If you want to call the shots and build your own dream, don't take the money.
Makes perfect sense to me.
The startups where the VCs end up calling the shots are the ones that are on bootstrapped revenue and user-acquisition trajectories but with VC funding. You have no leverage in that situation, because they provided all the money and you're providing...nothing useful at the moment. If you're careful about taking VC funding only once you've validated the market and your ability to execute against that market, the investors don't even want to call the shots, because if they just let you be they'll make a whole lot of money for zero effort.
Intent is important, but the reality is that a slow growing internet company not focused on growth can eventually end up growing at 100% week on week simply because of slow improvement on product that provides value - 'startup by mistake'. A local barber can never have the same effect.
But funding from customer revenue does not automatically imply "small business". If you manage to generate a reasonable margin off that revenue, but you reinvest the profit back into the company, you can grow that way, as opposed to growing by taking outside money.
Not charging money, taking VC investment, joining an incubator, and creating a stupid name that ends in "fy" or "ly" a startup does not make.
BTW, I've read the essay. I like most of what he writes, but I have a fundamental disagreement on this one and just because it comes from the hands of PG does not make it gospel.
What does this mean, "designed to grow fast?" Only technology businesses can achieve overnight billion dollar valuations, so are we saying that anything that is not in the field of tech is not a startup? If you are aiming to become the next Google, Facebook, or Twitter, good luck to you but you're going to fail. Most businesses that drive our economy were not overnight success stories. Starbucks, Wal-Mart, and Macy's were once single store fronts whose founders were not aiming for "hocky-stick" growth out of the gate.
Ask John Paul DeJoria about what a startup is. The guy started by selling fucking shampoo to salons out of his car in Los Angeles when he was 36 and now owns Patron. Yes, the Tequila company. Watch this video for some perspective: http://www.youtube.com/watch?v=hndfUwPpzyQ
Edit: See below, I was referring to accelerated growth
PG doesn't exclusively define the startup world.
Is there really any point in Github's development that anyone would've doubted it was a startup?
But I stand by that.
The term "startup" originated during the dot-com bubble. The very origin of the term means it is supposed to apply primarily to new tech companies who are designed to grow fast.
A barber shop is not a startup. It is a small business. This doesn't make it any less legitimate as a venture. It just distinguishes it in terms of the nature of its business and industry.
edit: if you're going to downvote, at least have the courage to voice your disagreement as a reply.
Unless there's another dot-com bubble that happened 150 years earlier than the one I know about, I think you're pretty well wrong about the etymology.
Within the HN-bubble, people may define "startup" to be "VC-backed-startup, but the term does have a meaning outside of that bubble. I call my own company a "startup", and I have no plans to seek out a slot in an incubator or investment from VC.
Wow, you get some bullshit ideas about business if you get your mba at wikipedia.
Edit: Also, it was only during the bubble that you saw startups go from zero to IPO in two years, and moonshot IPOs were unheard of prior to Netscape. The conventional wisdom pre-Netscape is that you had to be profitable and growing for 6-8 quarters before the IPO. A "moonshot" IPO was one that bumped 10-15% on the first day. When Boston Chicken went public their stock was up something like 50% on the first day and it was major news.
The word 'startup' is at least a few hundreds years old, most likely from the word 'upstart' - the action of starting up.
Startup as defined in the Merriam Webster dictionary: A fledgling business enterprise.
Startup as defined in the Oxford dictionary: A newly established business.
Are we? I'm not in Silicon Valley, and what happens there is of little consequence to me. I, for one, only care what startup means in my vernacular.
For what it's worth, I consider a "startup" any business that's intended to grow into a very large business, where the definition of "very large" is somewhat fuzzy. But I don't think you have to have intent to achieve that in any certain period of time, in order to qualify as a startup.
... in the opinion of greghinch.
Sorry, but I'm of the opinion that your opinion, or at least your use of terminology, is a bit dodgy. I agree that taking VC money implies certain expectations that may not be what you - as a founder - want or are comfortable with, yes. That's just a warning against taking VC money, unless you know for sure what you're getting into. But to suggest that you aren't a "startup" unless you take VC money and do the "get big fast" thing is, IMO, totally unsupported.
Just because a company is bootstrapping does not mean they are "building a small business" or that you are meant to be companions with the "local plumbers, restaurants and barbers". Big companies can be built slowly. Did Wal-mart start off as a huge mega-corp? McDonals? IBM? A million other examples? No.
Organic growth, re-investing in the company and growing slowly but steadily can be a path to being huge just as well as grabbing a pile of VC money and trying to compress it all into a couple of years. It's all about the decisions you make and how you execute and what your vision is.
Also note that it's really not a fixed decision anyway... you could bootstrap for 6 years, then - one day - decide to take VC or private equity money to expand. So were you, or were you not a startup? Or would that be a "Schrödinger startup"?
Indeed... in his essay, "Startup = Growth", PG wrote:
"A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth.
If you want to start one it's important to understand that. Startups are so hard that you can't be pointed off to the side and hope to succeed. You have to know that growth is what you're after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face." [1]
> "A startup is an organization formed to search for a
> repeatable and scalable business model." [1]
> Steve Jobs often speaks of Apple's "startup" culture.
> ... an article in the New York Times referred to
> the seven-year-old airline Virgin America
> as a startup. [2]
'Revenue first, growth second', a paraphrasing of Clayten Christiansen.
VC's essentially use founders like race horses. They pump in the steroids, exercise them to the point of optimal performance or death, and then put them out to pasture if they don't perform. Founders are part of a portfolio plain and simple. They are part of a stable. The VC's are benevolent trainers but they have one goal: ROI. Their benevolence is in direct correlation to their ROI, which is largely determined by growth. The irony is that Wall Street operates in exactly the same way. The difference is that the relationship between Bank and Borrower or Shareholder and Company is more clearly defined than the relationship between VC and Founder.
There isn't anything wrong with VC's. They play a vital role in the financial community. Yet, at the end of the day, a VC is going to look at a startup as a financial product. VC's are offering their partners a product just like a startup is seeking to offer the market a product. The fortunate part about the rest of the business world, cut-throat though it may be to some, is that no one expects anyone else to be benevolent. They expect people to conduct business.
The better the VC-Startup relationship is defined, the better it will be for the long-term health of founders. On the other hand, VC's have no incentive to change course because their is still a willing market of young people who want to strike it rich. In some sense, it would be far better for the market and founders if data was more readily available. In fact, it is a jilted environment. It is always in the VC's favor because they hold the money. However, it doesn't mean that they hold future value. If it did, they wouldn't need to go fund startups.
The current VC-Founder relationship is imbalanced compared to other portions of the marketplace. The VC's hold additional chips because of the allure of a successful exit, the siren of Silicon Valley.
Mailchimp is a fantastic example. Bootstrapped with 9 figure revenues and crazy profits. http://www.quora.com/MailChimp/How-much-revenue-is-MailChimp...
(For the record... I'm happily bootstrapping my startup which is a startup as far as I'm concerned. I'd call startups that rely on VC funding "VC startups.")
Both went under and said in retrospect the extra person would have been better applied building the product/marketing.
In general I'd find it hard to believe having more resources available reduces your growth rate.
That is to say, a bootstrapped business can be a startup (if it gets to the point where it focuses on fast growth) but not necessarily (as in the case of businesses with gradual or no growth).
You could start a bootstrapped business and only grow to the point where is sustainable in the long term, and just provides you with a decent level of income so that you can work on something you like and under conditions that suit you.
My company is bootstrapped, but we're still very focused on growth.
Exactly.
My company is bootstrapped, but we're still very focused on growth.
Same here. We intend to build a billion dollar business, but we are (so far) bootstrapping. That doesn't, however, mean we'll never take outside money, but there's no need to right now. Once we prove the model and get some initial traction, it might make sense to do it just to fund expansion, but that's a decision for another day.
"...I can't help but ask, what did you expect?..."
I can't help but ask what the VC was thinking???
Serious question. I know we don't know all of the details, but this seems, on the face of it, a very bad idea. I would assume there must have been much better methods of handling that client than to cut them loose. A new free tier to generate growth maybe??? Or a tier on the high end which would serve to satisfy that client???
I just don't understand why "paying customer" and "high growth" have to be mutually exclusive??? They are not mutually exclusive in any other industry I work with. Not in the restaurant industry... see Chipotle. Not in the shoe industry... at least women's shoes. Not even bike components... SRAM. Even in industries that are notoriously difficult... like porn... growth and paying customers can coexist.
I mean if "$OUR_BIG_VISION" has no room for customers who pay you gobs of money? I don't know what to think of that.
The problem is, when you are going for growth, you can't focus on the needs of one. You have to be able to take a higher level view, and build a product that can do the most for all of your customers. Sometimes that means cutting features, or at the very least making changes. If you had a product which was tailored for one customer, that fact may very well be quite limiting to expand to many more customers. Even if you build something that could do just as much for that early customer, the fact that you had to make those changes may be enough to sour the relationship and end it.
Again it's hard to know what happened in this specific case without details, but I would wager it was something along those lines. It's a decision not to be made lightly, but one you're likely to face as you grow a B2B service.
If you have a client like that who is hindering to growth, then a dominating strategy would be to spin-off rather than ditch. You can afford to put 1 or 2 people on that work while you build from what's already been done.
"We can't get feature X,Y, and Z completed which we think will get us X,000 new customers because of Big Client."
"Well, then fire Big Client."
"OK."
<months pass while new features X, Y, Z are built, Big Client leaves but it's OK b/c X,000 new customers are coming!>
"Hooray! We just released X, Y, and Z"
<crickets>
"Oh no! It turns out the features weren't actually what customers wanted or needed!"
<Hosed>
I think you make a great point, but out of curiosity, what do you suggest are the best avenues for funding a tech business in the more traditional revenue-driven-growth model, if you're not bringing enough seed capital to get off the ground on your own? It seems like what's missing is an accessible happy medium.
The right private investor/angel is also a good route. This should essentially be someone who wants to join you in the business, not someone who is looking for a specific return timeline on their investment. That's a big differentiator between a good angel and a VC.
Traditionally, you start the business after you have some experience in the field, and either have some skill you can use to drive some revenue, or some capital.
This idea that you start a product business (rather than a business selling your labor directly) right out of school seems like a new one.
It's not so much 'let' as "pay them lots of money to"
as for the encumbrances, well, we all make choices. Children don't magically appear when you hit 30. Personally, I find it really surprising that people who choose to have children seem to be able to compete with the childfree in top jobs... but it seems they can, so what do I know?
I bet the race to reach the "hockey-stick" kills more companies than it helps. In many cases, there is no reason why you can't end up at the same place in 5 years if you let the business growth organically, rather than force-feed it in the beginning in search of that 1-2 year pop. But how many VC's want to see their investment wandering through the wilderness for 2-3 years before things start to "click"?
There was a Silicon Valley decades before Internet/Web 2.0/somolo startups started colonizing San Francisco, and back then, there were startups in other non-Internet industries - heck there still are. There are startups in biotech, medical devices etc, that take several years just to develop a commercially viable product. Those startups don't use metrics like "5% week over week". They are, however, scalable businesses that may eventually justify VC investment.
There are lots of reasons to want to grow a business quickly, but a business doesn't automatically cease to be a startup because you have decided you don't "need to build it up fast", whatever that means.
Bootstrapped businesses can be startups, obviously. The cost of starting almost any business has fallen sharply in the past few years. You don't need VC funding to build a startup, fast or slow, unless you're building a capital intensive business or you can't fund your startup otherwise.
Many accelerators have a knack for picking up teams that have demonstrated the ability to build things that generate revenue and traction. The siren song of money, networking and growth is really seductive. The implications you speak of (and I experienced it) aren't always so clear (or too easy for a prospective founder to dismiss).
So "startup" as a subset of "entrepreneur" seems like good language to me. The difference is the opportunity for exponential growth.
The word means many things to different people. This is an indication that people should start using different words to describe things if they want their audience to interpret them as intended.
I like Steve Blank definition of the startup: "A startup is an organization formed to search for a repeatable and scalable business model". So startups need to have _constant_ progress in their search for repeatable and scalable business model.
For example, if you run a bio-med startup, are you going to grow and sell your drugs out of the door? Nope. Or if your startup is some B2B boring stuff - sometimes you want to work hard to make a couple big customers super happy and work very hard on how to repeat and scale that business model.
Also some local restaurants do become startups - depending if they figured out how to scale their business model.
I do disagree that startup has to be growth centered. By virtue of software for which the distribution costs are practically 0; most software companies have potential for a significant growth (unless they are targeting a very narrow audience). It seems that the growth would come naturally once you have a product of high quality (with sufficient exposure/marketing). Hence shouldn't the primary focus of startups be on producing a product of high quality?
A new concept for a physical retail store is different from "another dry cleaner" vs. a franchise vs. taking over an existing successful business.
A consultancy where you have 20 years experience in the field as a consultant for someone else is totally different from a b2b startup a a field you solidly understand where you have initial clients lined up before you start, vs. a consumer "hits driven" business.
There isn't a universal line between startup and small business; it probably varies with time and with the founders themselves.
What's the value of that kind of user growth? It very much depends on the quality of the user, and the startup's ability to convert users to customers. The Techcrunch effect might give you rapid user growth, but are these the right kind of users for the business? Maybe. Or maybe not.
But for the short term story, the VCs love 'user growth', and let's not worry too much about the detail, right?
The problem with taking the VC dollar is that you also need to take their metrics and KPIs. I can think of no better KPI in business than average customer lifetime value, but I doubt most VCs could care less about that, as it's a long-term KPI. It is the short-term vanity / hype metrics ('user growth' being a good example) that they're more interested in. They want to be in and out within a relatively short timeframe.
Explosive growth is all well and good, but as ever we're overly focused on user / customer acquisition, and not with retention, which is far more profitable over the long term. A healthy business concentrates on the latter, and not just the former. For VCs, it seems to be the other way around, concerned as they are with exit strategy.
Perhaps the devil is in the details here, but OP implies that he took accelerator/angel money -- that's potentially a very different thing than a professionally managed institutional investment.
But I still consider them start-ups. They are entrepreneurs fighting in the marketplace. Not every start-up needs VC money.
We say in this country that getting rich slowly is the virtue and that get-rich-quick is the scam. Yet VC is obsessed with the latter.
I have some ideas on how to finance this currently underexplored (and underfunded) class of businesses: http://michaelochurch.wordpress.com/2013/03/26/gervais-macle... . But I have no power, so don't count on me to fix the problem.
I have come to the opinion that if you are bootstrapping, you have no business calling your company a startup. You are building a small business. And there is nothing shameful about this. You are among solid companions with your local plumbers, restaurants, and barbers. You make a good living building a sustainable business that is growing steadily but slowly, to serve a small group of loyal customers.
But you are not a startup.
Startups are about growth. About chasing metrics like 5% week over week. About going from 100 customers to 100,000 in a month. That is the reason you take VC money. It's not "I have this idea for a business, but I need some money to quit my job while I work on it". It's "I have an idea for a business that could be huge but I need to build it up fast".
So when I see someone bemoaning the advice they were given by their investors, telling them they should be meeting all these crazy metrics, I can't help but ask, what did you expect? The VC isn't in the business of slow, organic growth of your company. They are in the business of generating a return for their fund within a relatively short timeframe. The advice you get is their best effort to try and help you find "explosive" growth.
Before you sign your bootstrapped business on for investment money, ask yourself: is this business, and more importantly am I, really suited for massive, short term growth?