"Personal financial stability and past experience can go a long way for people to take big bets."
Really liked that quote. One of the benefits silicon valley gets when it mints a few hundred or so millionaires is that those people now go out a bit more fearless.
Tom Lyon who is a serial entrepreneur once told me that you really needed three wins, the first was you joined a company that taught you about what being a tech company entailed, the second was a startup where you made enough out of it that you could do a third where you could better control the economics and the vision. There may be a number of attempts in that thread but its really true.
A number of people I know seem to have various milestones for fearlessness, but they roughly correlate to;
1) they own their house free and clear,
2) they have enough money set aside for their kids educations,
3) they have enough money set aside to keep them in Ramen indefinitely[1].
Each level brings its own level of fearlessness.
[1] generally the 'retirement' calculators ask you to predict when you're going to die. So you take that number, the cost of paying taxes/insurance on your house and your own health + ramen and that is your 'ramen retirement' number. Note that you leave behind a giant asset (the house) so many folks assume selling the house and moving to a smaller/cheaper place in that number.
No, it's really not nonsense at all. I honestly couldn't think of a worse place to start a company than Silicon Valley, other than potentially a third world country with no internet. Extremely high costs of living, constant talent warfare, and absolutely terrible traffic at peak hours. Unless you're venture backed, stay the hell away from the bay.
The thing is, the scraps from the talent wars here are, generally speaking, competitive with the best from elsewhere. Yeah, wages are a whole lot higher; but I've moved back and forth from SV to the Sacramento area several times - It's really funny how a 3 hour drive takes me from being a 'meh' employee... middle of the road kind of guy to being the go-to guy; the best on the team.
If anything, I think the talent gap makes the pay difference seem small.
The cost of living gap isn't as huge as you'd think, either; especially for the childless (and let's be honest; Illegal or not, everyone discriminates against parents. Once you have kids, well, your job just isn't your highest priority anymore, and rightly so.) I mean, in the suburbs around sacramento, you get a reasonable single family home for the price of a silicon valley condo. Let's simplify and say you pay half as much for housing. But housing is a vanishingly small part of a nerd's budget, at least until kids come. Yeah, food, gas and stuff cost a little bit more... call it 10%? not a lot more. Cars, computers, non-real-estate capital goods and gadgets cost the same or are slightly cheaper in slicon valley.
I mean, yeah, when it comes time to have kids? you have a point. But for childless nerds? silicon valley looks pretty nice.
Starting a company is different than building a disruptive startup. Elad is really getting at potentially disruptive startups. Disruptive startups require a supportive ecosystem and often need to burn cash for years before they can monetize. Those sorts of companies are almost impossible to build outside of the ecosystem of Silicon Valley. Starting a small business or starting a nice, healthy enterprise business that makes a few million a year can be done in a lot of places but those are not disruptive startups.
"Talent warfare" cuts both ways—it attracts talent that you could use. As long as people are willing to pay me to work on the California coast, I don't want to move back to the land of 100 degree summers and chilly winters.
I've been planning a blog post for some time on "hidden principles of Silicon Valley"; basically the unsaid assumptions that the top investors seem to follow but the startup peanut gallery don't grasp. Just little tidbits I've gained from the writings of Peter Thiel, Paul Graham, Marc Andreesen, Mark Suster, Ben Horowitz, etc.
One example: lots of people decry the trend for valley startups to burn cash to grow market share. Silly startups, why can't they bootstrap? Why is LinkedIn trading at a 300+ P/E ratio? But the hidden assumption (which may be wrong) is that the winners of today's tech game will be around for a long time, generating billion-dollar cashflows for decades.
Peter Thiel explained it better than I can:
"PayPal is illustrative. 27 months in, its growth rate was 100%.
Everybody knew that rate would decelerate, but figured that it would
still be higher than the discount rate. The plan was that most of the
value would come around 2011. Even that long-term thinking
turned out to undershoot; the discount rate has been lower than ex-
pected, and the growth rate is still at a healthy 15%. Now, it looks like
most of PayPal’s value won’t come until in 2020.
LinkedIn is another good example of the importance of the long-
term. Its market cap is currently around around $10B and it’s trading
at a (very high) P/E of about 850. But discounted cash flow analysis
makes LinkedIn’s valuation make sense; it’s expected to create around
$2B in value between 2012 and 2019, while the other $8B reflects ex-
pectations about 2020 and beyond. LinkedIn’s valuation, in other
words, only makes sense if there’s durability, i.e. if it’s around to cre-
ate all that value in the decades to come."
It never fails to amuse me that the mean HN poster is actually quite cynical about startups -- I think this is partly due to cynical people posting more.
So, how does this relate to PG's article: Black Swan Farming? There is a huge difference in profiting from a stochasitic-but-diversified portfolio with massive variance and extrapolating from the outlier data. The properties of the outlier data, by definition, are not charachteristic of the data-set as a whole. The properties of the outlier data are useful for talking about the potential of future outliers and possible portfolio variance.
'The sink or swim strategy was successful for all 1% of the successes'? [1]
Its easy to overgeneralize.
__________
[1] 'The sink or swim strategy was not successful for all 99x1% of the non-successes.'
A better title would be "The End of software startups in Silicon Valley Is Nonsense". There are plenty of companies in the SV that will still be there when the software startups are gone.
Also, behind the strawman arguments there are some hidden truths but they have to be rephrased to be interesting, e.g. software isn't easy but it appears to be easy so lots of people enter the field that shouldn't. Also, people should be working on harder things but not for the reasons discussed in the article.
Are there any good websites that cover non-software startups? As a physical scientist/engineer in training, I am more interested in the "physics or advanced materials" type of startups mentioned in the article.
[+] [-] ChuckMcM|13 years ago|reply
Really liked that quote. One of the benefits silicon valley gets when it mints a few hundred or so millionaires is that those people now go out a bit more fearless.
Tom Lyon who is a serial entrepreneur once told me that you really needed three wins, the first was you joined a company that taught you about what being a tech company entailed, the second was a startup where you made enough out of it that you could do a third where you could better control the economics and the vision. There may be a number of attempts in that thread but its really true.
A number of people I know seem to have various milestones for fearlessness, but they roughly correlate to;
1) they own their house free and clear,
2) they have enough money set aside for their kids educations,
3) they have enough money set aside to keep them in Ramen indefinitely[1].
Each level brings its own level of fearlessness.
[1] generally the 'retirement' calculators ask you to predict when you're going to die. So you take that number, the cost of paying taxes/insurance on your house and your own health + ramen and that is your 'ramen retirement' number. Note that you leave behind a giant asset (the house) so many folks assume selling the house and moving to a smaller/cheaper place in that number.
[+] [-] 001sky|13 years ago|reply
Translation: In maths for SF
1) $1-2 million, minimum for a house for 4
2) $250K per kid x 2 = $500k, assuming public high school
3) Min $1 million per head, 50k pre tak 30-40k post tax
total: $3.5 million to $4.5 million, NAV ~= 5% pretax of $100m exit
Sorta-back-of-the-envelope
This is why you need N exits, not just 1
[+] [-] NickKampe|13 years ago|reply
[+] [-] lsc|13 years ago|reply
If anything, I think the talent gap makes the pay difference seem small.
The cost of living gap isn't as huge as you'd think, either; especially for the childless (and let's be honest; Illegal or not, everyone discriminates against parents. Once you have kids, well, your job just isn't your highest priority anymore, and rightly so.) I mean, in the suburbs around sacramento, you get a reasonable single family home for the price of a silicon valley condo. Let's simplify and say you pay half as much for housing. But housing is a vanishingly small part of a nerd's budget, at least until kids come. Yeah, food, gas and stuff cost a little bit more... call it 10%? not a lot more. Cars, computers, non-real-estate capital goods and gadgets cost the same or are slightly cheaper in slicon valley.
I mean, yeah, when it comes time to have kids? you have a point. But for childless nerds? silicon valley looks pretty nice.
[+] [-] paul|13 years ago|reply
[+] [-] avichal|13 years ago|reply
[+] [-] majormajor|13 years ago|reply
[+] [-] brador|13 years ago|reply
[+] [-] IsaacL|13 years ago|reply
I've been planning a blog post for some time on "hidden principles of Silicon Valley"; basically the unsaid assumptions that the top investors seem to follow but the startup peanut gallery don't grasp. Just little tidbits I've gained from the writings of Peter Thiel, Paul Graham, Marc Andreesen, Mark Suster, Ben Horowitz, etc.
One example: lots of people decry the trend for valley startups to burn cash to grow market share. Silly startups, why can't they bootstrap? Why is LinkedIn trading at a 300+ P/E ratio? But the hidden assumption (which may be wrong) is that the winners of today's tech game will be around for a long time, generating billion-dollar cashflows for decades.
Peter Thiel explained it better than I can:
"PayPal is illustrative. 27 months in, its growth rate was 100%. Everybody knew that rate would decelerate, but figured that it would still be higher than the discount rate. The plan was that most of the value would come around 2011. Even that long-term thinking turned out to undershoot; the discount rate has been lower than ex- pected, and the growth rate is still at a healthy 15%. Now, it looks like most of PayPal’s value won’t come until in 2020.
LinkedIn is another good example of the importance of the long- term. Its market cap is currently around around $10B and it’s trading at a (very high) P/E of about 850. But discounted cash flow analysis makes LinkedIn’s valuation make sense; it’s expected to create around $2B in value between 2012 and 2019, while the other $8B reflects ex- pectations about 2020 and beyond. LinkedIn’s valuation, in other words, only makes sense if there’s durability, i.e. if it’s around to cre- ate all that value in the decades to come."
It never fails to amuse me that the mean HN poster is actually quite cynical about startups -- I think this is partly due to cynical people posting more.
[+] [-] 001sky|13 years ago|reply
'The sink or swim strategy was successful for all 1% of the successes'? [1]
Its easy to overgeneralize.
__________
[1] 'The sink or swim strategy was not successful for all 99x1% of the non-successes.'
[+] [-] zwieback|13 years ago|reply
Also, behind the strawman arguments there are some hidden truths but they have to be rephrased to be interesting, e.g. software isn't easy but it appears to be easy so lots of people enter the field that shouldn't. Also, people should be working on harder things but not for the reasons discussed in the article.
[+] [-] cli|13 years ago|reply