It's interesting that of the many friends I have who started companies (10 - 12), only two of them didn't receive funding. Both businesses built from scratch and now have a revenue somewhere in the neighborhood of $1m a year after two years. That's honestly pretty good IMO.
The other eight or so friends who started companies accepted some form of money. Of those, only two are still in existance. The survival rate of the other guys are 2/2, the survival rate of the funded startups to-date is 2/(8-10) or <25%.
I think part of that is simple because the people who didn't have funding didn't have a choice. It was survive or die.
It reminds me of probably the wisest words I've read regarding startups:
> Startups rarely die in mid keystroke. So keep typing!
- How Not to Die by Paul Graham[1]
The point is, focusing on something practical that doesn't need funding is like the easiest way to succeed and also find real problems. I've accidentially stumbled on solutions to problems other people have had and often those are the greatest little apps that can make you a steady income.
I think startups die because they are pressured to spend a dollar or more for every dollar that comes in.
Bootstrapped businesses are forced to retain cash for a rainy day. It is anti-fragile vs the fragile nature of a negative/break even cash flow business that depends on a steady stream of investors who introduce other investors who introduce other investors. It's built on ego and not on fundamentals and humans are fallible.
These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate. No equity, no control traded for a 3rd party who's sole interest is ROI.
I've personally seen bootstrapped businesses that had healthy MRRs rapidly transform into a race to zero or negative cashflow. When I questioned the robustness, I was told by a software engineer angrily I didn't know what I was talking about and that perhaps my economic degree wasn't any use lol. I don't think he's equity is worth anything now but the whole scenario reminded me of the Horse in Animal Farm.
The fake it till you get bought out by a giant is a lottery. Don't trade your life for one.
Maybe the logic is another way around? Companies that have a clear product-market fit and generate enough revenue to self-fund and don't have competition closely behind their backs have much less reason to raise.
Maybe you are mistaking "They were so successful, so they didn't need to raise" with "they didn't raise, so they were successful".
How long did your “non-funded” friends put into it before it could pay their own expenses? Unless it was really fast, it’s probably more accurate to call it self-funded or bootstrapped and then compare numbers.
I’m not disagreeing that bootstrapping can often be the better path, but it’s also not credibly available to everyone. What percentage of folks can work for a year without pay? In my experience it’s fairly “U-shaped”: people just out of school (minimal expenses) and people who don’t need money anymore. People in the middle rarely are up for burning through their savings for an idea.
The main reason why bootstrapped companies have a better chance is that they grow more naturally/slowly. Once you take VC money you have to go full steam ahead so the investors can exit in 3-4 years. And in most cases that forces you to take directions you don't want to.
I've thought about taking money, not because I need the money, but because I am interesting in tapping some expertise. However, it has always been unclear how much expertise is exchanged for startup capital.
Observing some of the people I know looking for startup funding they are pretty focused on getting funding and less so on having a profitable business. The plan seems to be funding, try to be the uber or blockchain for something then seek more funding. Bootstrapping forces you to look for ideas which are actually cash profitable which may help account for the difference.
And those 8 startups have spoiled the culture. Honestly your 2 bootstrapped startup/friends are lucky to survive but imagine if they had to compete against funded startups? The funded guys will outsmart them with money muscle and might eventually crash themselves ruining it for everyone..
There are plenty of profitable business ideas but you can’t get capital for them because they aren’t going to be billion dollar ventures with 10x returns. The problem with entrepreneurship in America is lack of micro financing and support for starting small business - not lack of ideas or lack of people.
How many more entrepreneurs and businesses could we create if financing was focused on capitalizing new business instead of only seeking the largest profit for the sake of enriching banks and already wealthy investors.
What you're referring to here are boring old commerical loans. Of course you're never going to get a bank to lend you money unless they can be sure you will repay the principal.
If you're throwing money at risky ventures where you may lose your investment entirely it seems reasonable to expect a large amount of upside.
The last sentence really stuck home to me (edited for clarity):
While these Red Ocean ideas may not result in creating multibillion dollar companies they do offer opportunity that can lead to riches and personal autonomy.
It’s sad that we live in a world where the goal of personal autonomy is so lofty. We have an over abundance of resources in the West. And yet having the freedom to work on useful things under our own direction is rare. It’s a shame that having “autonomy” is such a difficult goal to obtain.
While is the US is moving slightly backwards... In most of the developed world we have never had as much free time, vacation and money as we do now.
You don't need to have your own business to have some degree of personal autonomy. In many ways you'll have fewer responsibilities if you're just an employee, and a larger degree of self-determination.
I'm not necessarily convinced doing your own business is a guide to happiness. That said, author has a point, if you do want to try, maybe avoid VC money. It's easier to become profitable if you're not dragged down by investors who needs to profit first.
You're underestimating how expensive that goal is. Providing every adult with basic income so that they can pursue their dreams would bankrupt the country.
The author doesn't describe the most reliable indicator of new opportunity, which is economic change. Change can come in the form of shifting demographics, new tech, or new product adoption. These are the events that increase demand or decrease cost for a new product opportunity. They should be where you direct your attention.
When experts are wrong, it's often because they're experts on an earlier version of the world.
I absolutely believe there IS a "static world fallacy", and it gets particularly acute as you get older (and I'm not young).
A couple really obvious examples are say Apple's App Store, or Google AdWords. Huge companies have been built on those drastic changes in the environment. If you understood those things early, you had a tremendous advantage. AdWords was tremendously effective when it first came out. I know a number of people who built single-person companies on top of it.
Beware of hindsight bias: it's easy to think that those things were "obviously big", but there were plenty of other things going on at the time that you could have directed your attention toward.
This is somewhat covered in the "Industry Growth Rates" section:
> At any given time, there are dozens of industries operating within new and underserved markets that are experiencing rapid growth… This almost always represents a possible entrepreneurial opportunity.
His strategy might benefit from incorporating some of the things you mentioned — shifting demographics, new tech, etc.
Then again, one of the most common entrepreneurial mistakes is to develop a solution and go looking for a problem. That rarely works out, because most new tech doesn't have any business applications. It doesn't fit into the market.
So there's something to be said for a market-based approach, where you look for new things that people are actually paying for by examining high-growth industries, rather than simply looking at new tech.
Great point. Reminds of a very good book. If you haven’t read “Good strategy, bad strategy” by R. rumpelt, you definitely should:
Out of the myriad shifts and adjustments that occur each year, some are clues to the presence of a substantial wave of change and, once assembled into a pattern, point to the fundamental forces at work. The evidence lies in plain sight, waiting for you to read its deeper meanings.
Are there research firms that do ground work research, focus groups, talk to people on the street, build real professional networks to extract "problem stories" for ideas, and do competition research to the same level that e.g. short sellers might?
Are these just normal market research firms, and are there boutique firms that have low-volume, high value clients?
The problem is, people's words are not reliable. You can ask 100 people "would you pay $5/month for app X", and maybe 25 will say they would, but only 3 actually will when you build it.
There only real way to avoid building a useless MVP is to ask to pre-pay for a product that doesn't exist yet.
Can anyone give a decent concrete real example of "extracting problem stories"?
I see this line of thinking repeated a lot but haven't seen any realistic examples that could lead to a viable small businesses.
There are obvious ones that you don't need anyone telling you nowadays.
Like "I need a good customer support software.". You don't need someone telling you that to know that you can make customer support software and make money with it. It's an existing category with lots of money and competition in it.
Chances are anything you want to make already fits inside an existing "category".
In that case it's not that useful to know the problem exists. The hard part is competing with hundreds of existing companies that have multiple years of experience advantage over you.
Or you may get specific individual complaints and requests.
Either it's such a specific odd thing that the solution for it is going to be "use google docs, dropbox, Excel, etc...".
Or it is "missing features" from other stuff like "Zendesk is ok but it doesn't do ...".
I just don't quite see the "light bulb moment" of this "talk to people and hear their problems" narrative.
Problems fit into broad categories like file sharing, website creation, collaboration, productivity tools, word processing, entertainment, and so on.
Whatever you do is going to fall under a category/industry amongst a bunch of other companies. Then it's a matter of competition and incremental improvement and everything that comes with it.
I can't imagine what sort of "surprising" problem description one might hear from people that could give you new substantial knowledge about something you didn't already know.
I run IdeaCheck.io [0] where we try to validate startup ideas by asking the target audience what they think about the idea and whether they'd buy it. I'm not aware of any "full service" market research firms that you can hire without any prior notion of the problem/industry that you'd like to tackle.
I have issue with the "Blue/Red Ocean" concept. Google is supposedly a Blue Ocean idea. Really? Sure, their approach was novel but the search market was already saturated by Alta Vista, Lycos, Yahoo, etc. You could say the same about Facebook with the competition of Friendster and MySpace.
In both cases they took a new angle that let them expand well beyond the existing market, but the market did exist and was already developed. I would say that most "Blue Ocean" ideas seem to be more like "Red Ocean, with potential upside".
I think of it in terms of: do customers already know that they want/need it - alternativly phrased - does is it solve a current customer need/painpoint?
Taking that into account, google is indeed rather a red ocean idea. Whereas, the iPhone was a Blue Ocean product. The original iPhone was a bad phone to make calls with, it didn’t know MMS and no App Store. Many would prefer a Blackberry back then for serious stuff. But, is was magical enough to create a new market through its appeal.
It looks like the article is not complete. There are still comments in there for missing citations.
> To find out which industries are experiencing rapid growth, its often useful to look at secondary research sources. Three great secondary resources to gauge industry growth are IBIS Industry Reports, Dunn & Bradstreet and SageWorks [insert links for all three]
> Richard White, in The Entrepreneur’s Manual, [insert link to resource] creating a decision tree that divides life by time and experiences exactly in half. For example, White recommends a person initially divide life between work and leisure.
I’m currently reading ‘Blue Ocean Strategy’, the book where these red and blue ocean terms come from and I feel like what he’s describing sort of is blue ocean strategy even though he says it’s not, the Chipotle example is for sure.
Really? Because I've never been able to think of one.
And every successful company I've seen grew out from an idea the founder had only because they were coincidentally deeply involved in some specific area of some market and something just clicked. It all seems extremely difficult to reproduce.
If it's so easy to come up with good ideas, then why does random happenstance seem to be the most common way founders come up with their initial ideas?
I used to think so as well, but over the years, I've realized that execution is the easy part, at least for me. Finding good ideas, as in ideas that can lead to profitable businesses, is difficult because it requires deep domain expertise.
[+] [-] lettergram|8 years ago|reply
The other eight or so friends who started companies accepted some form of money. Of those, only two are still in existance. The survival rate of the other guys are 2/2, the survival rate of the funded startups to-date is 2/(8-10) or <25%.
I think part of that is simple because the people who didn't have funding didn't have a choice. It was survive or die.
It reminds me of probably the wisest words I've read regarding startups:
> Startups rarely die in mid keystroke. So keep typing!
- How Not to Die by Paul Graham[1]
The point is, focusing on something practical that doesn't need funding is like the easiest way to succeed and also find real problems. I've accidentially stumbled on solutions to problems other people have had and often those are the greatest little apps that can make you a steady income.
[1] http://www.paulgraham.com/die.html
[+] [-] pwaai|8 years ago|reply
Bootstrapped businesses are forced to retain cash for a rainy day. It is anti-fragile vs the fragile nature of a negative/break even cash flow business that depends on a steady stream of investors who introduce other investors who introduce other investors. It's built on ego and not on fundamentals and humans are fallible.
These days you can just get a loan from a bank if you have a high enough MRR to cover the interest rate. No equity, no control traded for a 3rd party who's sole interest is ROI.
I've personally seen bootstrapped businesses that had healthy MRRs rapidly transform into a race to zero or negative cashflow. When I questioned the robustness, I was told by a software engineer angrily I didn't know what I was talking about and that perhaps my economic degree wasn't any use lol. I don't think he's equity is worth anything now but the whole scenario reminded me of the Horse in Animal Farm.
The fake it till you get bought out by a giant is a lottery. Don't trade your life for one.
[+] [-] kozikow|8 years ago|reply
Maybe you are mistaking "They were so successful, so they didn't need to raise" with "they didn't raise, so they were successful".
[+] [-] boulos|8 years ago|reply
I’m not disagreeing that bootstrapping can often be the better path, but it’s also not credibly available to everyone. What percentage of folks can work for a year without pay? In my experience it’s fairly “U-shaped”: people just out of school (minimal expenses) and people who don’t need money anymore. People in the middle rarely are up for burning through their savings for an idea.
[+] [-] elorant|8 years ago|reply
[+] [-] bluetwo|8 years ago|reply
[+] [-] tim333|8 years ago|reply
[+] [-] murukesh_s|8 years ago|reply
[+] [-] anovikov|8 years ago|reply
[+] [-] lap2|8 years ago|reply
[+] [-] scoot|8 years ago|reply
[deleted]
[+] [-] fogzen|8 years ago|reply
How many more entrepreneurs and businesses could we create if financing was focused on capitalizing new business instead of only seeking the largest profit for the sake of enriching banks and already wealthy investors.
[+] [-] gfodor|8 years ago|reply
If you're throwing money at risky ventures where you may lose your investment entirely it seems reasonable to expect a large amount of upside.
[+] [-] comstock|8 years ago|reply
While these Red Ocean ideas may not result in creating multibillion dollar companies they do offer opportunity that can lead to riches and personal autonomy.
It’s sad that we live in a world where the goal of personal autonomy is so lofty. We have an over abundance of resources in the West. And yet having the freedom to work on useful things under our own direction is rare. It’s a shame that having “autonomy” is such a difficult goal to obtain.
[+] [-] jopsen|8 years ago|reply
You don't need to have your own business to have some degree of personal autonomy. In many ways you'll have fewer responsibilities if you're just an employee, and a larger degree of self-determination.
I'm not necessarily convinced doing your own business is a guide to happiness. That said, author has a point, if you do want to try, maybe avoid VC money. It's easier to become profitable if you're not dragged down by investors who needs to profit first.
[+] [-] brucephillips|8 years ago|reply
[+] [-] brucephillips|8 years ago|reply
[+] [-] chubot|8 years ago|reply
http://www.paulgraham.com/ecw.html
When experts are wrong, it's often because they're experts on an earlier version of the world.
I absolutely believe there IS a "static world fallacy", and it gets particularly acute as you get older (and I'm not young).
A couple really obvious examples are say Apple's App Store, or Google AdWords. Huge companies have been built on those drastic changes in the environment. If you understood those things early, you had a tremendous advantage. AdWords was tremendously effective when it first came out. I know a number of people who built single-person companies on top of it.
Beware of hindsight bias: it's easy to think that those things were "obviously big", but there were plenty of other things going on at the time that you could have directed your attention toward.
[+] [-] csallen|8 years ago|reply
> At any given time, there are dozens of industries operating within new and underserved markets that are experiencing rapid growth… This almost always represents a possible entrepreneurial opportunity.
His strategy might benefit from incorporating some of the things you mentioned — shifting demographics, new tech, etc.
Then again, one of the most common entrepreneurial mistakes is to develop a solution and go looking for a problem. That rarely works out, because most new tech doesn't have any business applications. It doesn't fit into the market.
So there's something to be said for a market-based approach, where you look for new things that people are actually paying for by examining high-growth industries, rather than simply looking at new tech.
[+] [-] baxtr|8 years ago|reply
Out of the myriad shifts and adjustments that occur each year, some are clues to the presence of a substantial wave of change and, once assembled into a pattern, point to the fundamental forces at work. The evidence lies in plain sight, waiting for you to read its deeper meanings.
[+] [-] thomk|8 years ago|reply
[+] [-] config_yml|8 years ago|reply
[+] [-] FLUX-YOU|8 years ago|reply
Are these just normal market research firms, and are there boutique firms that have low-volume, high value clients?
[+] [-] bufferoverflow|8 years ago|reply
There only real way to avoid building a useless MVP is to ask to pre-pay for a product that doesn't exist yet.
[+] [-] borplk|8 years ago|reply
I see this line of thinking repeated a lot but haven't seen any realistic examples that could lead to a viable small businesses.
There are obvious ones that you don't need anyone telling you nowadays.
Like "I need a good customer support software.". You don't need someone telling you that to know that you can make customer support software and make money with it. It's an existing category with lots of money and competition in it.
Chances are anything you want to make already fits inside an existing "category".
In that case it's not that useful to know the problem exists. The hard part is competing with hundreds of existing companies that have multiple years of experience advantage over you.
Or you may get specific individual complaints and requests.
Either it's such a specific odd thing that the solution for it is going to be "use google docs, dropbox, Excel, etc...".
Or it is "missing features" from other stuff like "Zendesk is ok but it doesn't do ...".
I just don't quite see the "light bulb moment" of this "talk to people and hear their problems" narrative.
Problems fit into broad categories like file sharing, website creation, collaboration, productivity tools, word processing, entertainment, and so on.
Whatever you do is going to fall under a category/industry amongst a bunch of other companies. Then it's a matter of competition and incremental improvement and everything that comes with it.
I can't imagine what sort of "surprising" problem description one might hear from people that could give you new substantial knowledge about something you didn't already know.
[+] [-] niko001|8 years ago|reply
[0] https://ideacheck.io
[+] [-] lubujackson|8 years ago|reply
In both cases they took a new angle that let them expand well beyond the existing market, but the market did exist and was already developed. I would say that most "Blue Ocean" ideas seem to be more like "Red Ocean, with potential upside".
[+] [-] baxtr|8 years ago|reply
Taking that into account, google is indeed rather a red ocean idea. Whereas, the iPhone was a Blue Ocean product. The original iPhone was a bad phone to make calls with, it didn’t know MMS and no App Store. Many would prefer a Blackberry back then for serious stuff. But, is was magical enough to create a new market through its appeal.
[+] [-] eli|8 years ago|reply
[+] [-] judge2020|8 years ago|reply
[+] [-] paulie_a|8 years ago|reply
You are a sales person. Not a developer
[+] [-] kostarelo|8 years ago|reply
> To find out which industries are experiencing rapid growth, its often useful to look at secondary research sources. Three great secondary resources to gauge industry growth are IBIS Industry Reports, Dunn & Bradstreet and SageWorks [insert links for all three]
> Richard White, in The Entrepreneur’s Manual, [insert link to resource] creating a decision tree that divides life by time and experiences exactly in half. For example, White recommends a person initially divide life between work and leisure.
[+] [-] ajeet_dhaliwal|8 years ago|reply
[+] [-] bronlund|8 years ago|reply
[+] [-] throwaway0255|8 years ago|reply
And every successful company I've seen grew out from an idea the founder had only because they were coincidentally deeply involved in some specific area of some market and something just clicked. It all seems extremely difficult to reproduce.
If it's so easy to come up with good ideas, then why does random happenstance seem to be the most common way founders come up with their initial ideas?
[+] [-] enraged_camel|8 years ago|reply
[+] [-] danieltillett|8 years ago|reply
0. https://www.tillett.info/2015/08/30/ideas-are-not-cheap/
[+] [-] unknown|8 years ago|reply
[deleted]