I'm a sole founder and just want to add that if you're looking for the independence that a multimillion dollar acquision brings, you should also consider alternative ways to achieve that end.
Specifically, consider whether building one or more $X,000/month apps can help you achieve a similar lifestyle that a $5M payday would bring. For me, I want the independence to work on what I want when I want, have the flexibility to take breaks to spend time with my wife and future kids, take a nice vacation or two each year, etc.
This will obviously depend on your life situation, your savings, your spending habits, etc, but for me, I think I can achieve that with $4K-$5K profit/month. And making that much via a few niche web apps is much, much more likely than selling for a few million dollars down the road. (I currently have two ~$1K/mo web apps and am still at my day job for the moment, so getting to that point from where I am should definitely be doable.)
If this appeals to you, I recommend checking out Rob Walling's Micropreneur Academy, which is a great start for anyone going down this route: http://www.micropreneur.com/
+1 for rob walling. I read his book start small stay small a few years ago and it totally changed my strategy on how to build a business. I've gone the multiple apps route and on track to gross over 500k this year. And all the while I've travelled the world for 7 months and rarely spend more than 30 hrs a week on work. I have a few friends that went through YC and I wouldn't trade places with them for a second. Maybe I'm just lazy but working 80 hour weeks just for a shot at a large exit just isn't for me. Without rob's book I would never have known there was an alternative path.
For me, $5k/month won't be able to do it. It's good enough if it's a salary, but a job also includes other things such as health insurance, 401K, and intangibles such as social contact with other human beings. So for me, the amount would have to 3 times my normal annual salary.
I currently make $7K a month with 10 minutes of work a month (creating a newsletter), so I agree - the path to residual income is much easier than creating a startup. But it definitely doesn't feel like I can quit my job anytime.
this only makes sense if its recurring income(i.e. subscriptions) and if you aren't depending on any other service for that income.
if your $5K/mo comes mostly from Google traffic you can lose everything overnight.
i.e. I have a friend who had an affiliate site that was generating $20K/mo. Then the Google Panda update happened, and that went down to $1K overnight(well it took a few weeks). Last month that site generated a whopping $24 in revenue.
Google tends to be the biggest threat here.
Traffic? Can't lose out in Google search results.
Ad Revenue? Can't get banned from adsense(impossible...since all it takes is a competitor clicking a bunch of times on your ads)
Paid Traffic? Can't get banned from adwords...which can change their policies at any time.
Payments? Can't get banned by PayPal.
Basically what I'm trying to say, is that there is a TON of risk. And you need a huge cushion to feel comfortable. Personally I'd want a $30K/mo income in order to have a $4-5K/mo lifestyle...just to be on the safe side. To at least avoid the stress...that everything can be lost overnight.
That's why these big payouts should be preferable...since then there is no more risk(short of losing it all in financial crash)
It may be wiser to focus on the absolute best way to make something that people want rather than just crunching your optimal exit strategy. In most cases this probably means you want a co-founder.
I am. Are you (collectively) against all dark versions or just this one, because I've been trying to tweak it incrementally for readability. If you have any specific improvement suggestions, I'm happy to try them.
If you're on a Mac, hit Ctrl-Alt-Cmd-8 to invert contrast and enjoy. =) (Personally I find the site pretty readable as it is, typography is OK so inverse contrast isn't really distracting, although it might be just me.)
Does anyone provide data on startup acquisitions each year? I know the amounts are usually private, but the numbers always seem to leak out (or at least estimated numbers). It would be interesting to do some data processing to look for trends and averages.
There are a lot of "boring" strategic acquisitions that happen in the 10-20m area. Small companies that are viewed as useful groups for large organizations to own, because they need/want the capability, or they're interested in preventing a competitor from grabbing it up.
A great article. I am a solo founder myself and this article has given me more confidence about doing this alone, at least for a while. I have a couple of employees on board, so work load is not a big problem. I'd still love another founder to join me though, especially someone with complementary skills. I haven't raised money yet, and would like to do a small round, so not sure how much of a challenge this is going to be, as a solo founder.
I agree, I'm also running solo to begin with. It's sometimes pretty demoralizing when you read and hear that you would get nowhere if you're a single founder. I subscribe to the notion of building something first and perhaps gaining traction before bringing complementary skills onboard.
If you're giving up 70% of your company in order to pay for servers, you're doing it wrong. If all your server costs combined adds up to more than one developer salary, you either have a mammoth scaling disaster or a runaway success which should have VCs begging to give you money on whatever terms you like.
I'm afraid this article will lead people to mis-prioritize their decision making. When doing a startup, all of your focus needs to be on the building the best product possible. If you can do that as a single founder, great! But if you need more people, you should do that if that's what the product calls for. In my opinion, making decisions based on future equity and payout is poor management.
Everyone complains about coporate CEOs who are so focused on the stock price that they forget to make good products. Focus on the product, and the $$ will take care of itself.
I agree, but it's just one of an infinite number of ways to mis-prioritize your decision making. That's the hardest part of entrepreneurship: you have very limited time and you need to make smart choices day after day about how to spend it.
The value of this article IMO is to offer a counter-point to the multiple-founders mantra. A lot of people take that as gospel, but I think if you are spending time looking for a co-founder you're doing it wrong. Rather, if you know the right person to be a co-founder, by all means extend the offer ASAP, but if you don't then get to work and stop fretting.
To maximize your chance of success you have to focus on the greatest ROI at every moment in time. Hiring the right person is the biggest ROI a one-person operation with a lot of work to do can achieve, but on the same token, finding the right people is often nearly impossible.
Obviously, a single founder gets more when and if a payday happens. Most startups fail, however. If attracting a co-founder increases the odds of success it is surely worth it. The article points out that you can also attract a co-founder in return for a smaller stake after you get traction. This could be the best of both worlds, unless it leads to envy and friction within the team.
Good co-founders you take on where and when you can until you have all the skills you need to make your team complete.
Compensation should be relative to value added rather than relative to time-to-get-on-board. That's because typically both sides know the value contributed and if one side tries to slant the division in their favour this will inevitably lead to trouble down the road.
Start-ups are fragile, if you build in tensions right at the beginning you'll get that back when you need it least.
For instance, during negotiations about an acquisition your key co-founder that you successfully screwed over during the founding days now has you over a barrel. After all he/she has very little to lose and you will stand to lose a lot. You could of course try to take care of that in your articles of incorporation and your shareholder agreements but you can't actually force someone to perform unless they are willing.
Keeping your goals aligned is good for everybody and fairly sharing a much larger pie is the best way to have the story end happily.
"After you gain traction" is sufficiently vague that I don't think that is a good criterion. Better would be that you would take into account the amount of capital already sunk and the risk that you perceive at the moment of joining. Lots of traction can actually mean more risk rather than less.
What advice can you give to potential founders who will be pitching on events like StartupWeekend,etc.? For us who attended, after someone pitched, random people approached him/her and wants to be on the group. Is it right to just say sorry that you're not accepting potential co-founders with random people?
[+] [-] matt1|14 years ago|reply
Specifically, consider whether building one or more $X,000/month apps can help you achieve a similar lifestyle that a $5M payday would bring. For me, I want the independence to work on what I want when I want, have the flexibility to take breaks to spend time with my wife and future kids, take a nice vacation or two each year, etc.
This will obviously depend on your life situation, your savings, your spending habits, etc, but for me, I think I can achieve that with $4K-$5K profit/month. And making that much via a few niche web apps is much, much more likely than selling for a few million dollars down the road. (I currently have two ~$1K/mo web apps and am still at my day job for the moment, so getting to that point from where I am should definitely be doable.)
If this appeals to you, I recommend checking out Rob Walling's Micropreneur Academy, which is a great start for anyone going down this route: http://www.micropreneur.com/
[+] [-] bignoggins|14 years ago|reply
[+] [-] AznHisoka|14 years ago|reply
I currently make $7K a month with 10 minutes of work a month (creating a newsletter), so I agree - the path to residual income is much easier than creating a startup. But it definitely doesn't feel like I can quit my job anytime.
[+] [-] vaksel|14 years ago|reply
if your $5K/mo comes mostly from Google traffic you can lose everything overnight.
i.e. I have a friend who had an affiliate site that was generating $20K/mo. Then the Google Panda update happened, and that went down to $1K overnight(well it took a few weeks). Last month that site generated a whopping $24 in revenue.
Google tends to be the biggest threat here.
Traffic? Can't lose out in Google search results.
Ad Revenue? Can't get banned from adsense(impossible...since all it takes is a competitor clicking a bunch of times on your ads)
Paid Traffic? Can't get banned from adwords...which can change their policies at any time.
Payments? Can't get banned by PayPal.
Basically what I'm trying to say, is that there is a TON of risk. And you need a huge cushion to feel comfortable. Personally I'd want a $30K/mo income in order to have a $4-5K/mo lifestyle...just to be on the safe side. To at least avoid the stress...that everything can be lost overnight.
That's why these big payouts should be preferable...since then there is no more risk(short of losing it all in financial crash)
[+] [-] PStamatiou|14 years ago|reply
[+] [-] loceng|14 years ago|reply
[+] [-] yangez|14 years ago|reply
10% of something is better than 100% of nothing.
[+] [-] niico|14 years ago|reply
[+] [-] ballstothewalls|14 years ago|reply
It gets rid of anything that isnt pertinent to the article and allows you to customize viewing conditions.
[+] [-] epi0Bauqu|14 years ago|reply
[+] [-] goblin89|14 years ago|reply
[+] [-] br0ke|14 years ago|reply
[+] [-] ed209|14 years ago|reply
What sort of companies get bought for $17m?
[+] [-] kooshball|14 years ago|reply
The companies that're commonly talked about on HN are just a small subset of the startup world.
For example, look at this list. How many companies do you recognize?
http://en.wikipedia.org/wiki/List_of_acquisitions_by_Oracle
[+] [-] tensafefrogs|14 years ago|reply
[+] [-] byoung2|14 years ago|reply
[+] [-] rscale|14 years ago|reply
[+] [-] hsuresh|14 years ago|reply
[+] [-] fourmii|14 years ago|reply
[+] [-] radagaisus|14 years ago|reply
[+] [-] cperciva|14 years ago|reply
[+] [-] aseem|14 years ago|reply
Everyone complains about coporate CEOs who are so focused on the stock price that they forget to make good products. Focus on the product, and the $$ will take care of itself.
[+] [-] dasil003|14 years ago|reply
The value of this article IMO is to offer a counter-point to the multiple-founders mantra. A lot of people take that as gospel, but I think if you are spending time looking for a co-founder you're doing it wrong. Rather, if you know the right person to be a co-founder, by all means extend the offer ASAP, but if you don't then get to work and stop fretting.
To maximize your chance of success you have to focus on the greatest ROI at every moment in time. Hiring the right person is the biggest ROI a one-person operation with a lot of work to do can achieve, but on the same token, finding the right people is often nearly impossible.
[+] [-] danielharan|14 years ago|reply
[+] [-] jt2190|14 years ago|reply
http://news.ycombinator.com/item?id=2625143
[+] [-] fmw|14 years ago|reply
[+] [-] jacquesm|14 years ago|reply
Compensation should be relative to value added rather than relative to time-to-get-on-board. That's because typically both sides know the value contributed and if one side tries to slant the division in their favour this will inevitably lead to trouble down the road.
Start-ups are fragile, if you build in tensions right at the beginning you'll get that back when you need it least.
For instance, during negotiations about an acquisition your key co-founder that you successfully screwed over during the founding days now has you over a barrel. After all he/she has very little to lose and you will stand to lose a lot. You could of course try to take care of that in your articles of incorporation and your shareholder agreements but you can't actually force someone to perform unless they are willing.
Keeping your goals aligned is good for everybody and fairly sharing a much larger pie is the best way to have the story end happily.
"After you gain traction" is sufficiently vague that I don't think that is a good criterion. Better would be that you would take into account the amount of capital already sunk and the risk that you perceive at the moment of joining. Lots of traction can actually mean more risk rather than less.
[+] [-] ronbeltran|14 years ago|reply
[+] [-] jaxn|14 years ago|reply
Go have fun at StartupWeekend and if you find some people you like working with then do a real startup with them later.
[+] [-] reilly3000|14 years ago|reply
I like the idea of doing one of those every 3-5 years for the rest of my life rather than go for the glory IPO and... then what?
[+] [-] efsavage|14 years ago|reply
[+] [-] Porter_423|14 years ago|reply
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