The article seems to be only about what the best way of selling your company is (whether or not you technically sell).
There isn't even anything in it about just running your own company indefinitely.
And the article does not mention "user" or "good software" once, staying only within an economical framework ("how to get rich") - which is literally the point of GP.
Also as humans we are myopic and can only understand everything as a relation to us. His tweet (https://twitter.com/paulg/status/1129897694984646657) about how you don't need to be rich to run a startup invariably shows that as humans we are poor at judging almost anything out of our current circle of understanding.
The major major thing that makes a startup successful in almost all cases is money. With enough wind even chickens can fly.
There are millions of brilliant people all over the world whose ideas we never see because they never had their opportunity or funding to bring their ideas to life.
Off topic: I'm not familiar with this turn of phrase, but as anyone who has ever chased after free range chickens as a child knows - chickens fly fine with no wind at all. The can only fly a short distance though.
> Why is it that this argument only seems to apply to software?
Maybe because software has a unique property: a practically zero marginal ("reproduction") cost. Hence software, and services that depend only on software are suitable for the rocket-fuel injection strategy VCs so heavily rely on.
Make no mistake - good software is damn expensive to create, but once it's ready for delivery, creating and selling additional copies (or serving more clients) costs practically nothing.
the distribution costs nothing but six months old software is still six months old software. Pushing half finished products on the entire world is another 'feature' hailed by people like PG. I thought we had all learned how great "move fast and break things" and "when it works you're shipping too late" is for us at this point.
There was a good article on HN recently about 500 year old Japanese family owned businesses. Most hypergrowth software probably doesn't live five. Isn't it interesting that most of the software that actually has lived decades looks more like it's made by people like that rather than VC fuelled companies?
200 years ago, railway was the big thing. Everyone was interested in building railways, steam engines, etc. Companies sprung up, many people got rich. Nowadays, the railways are already built and transport many goods. Building new railways is extremely expensive now because we have lost the know how, workforce, have higher labour standards, bureaucracy etc. Nowadays we are mainly considering how to operate railway tracks instead of building new ones.
Nowadays, software is the new economic frontier and enjoys explosive growth. The land that software embarks into is still virgin, and it's comparatively easy to build a new software company. It's a growth market.
In such an environment, bootstrapped companies are generally at a disadvantage to VC started companies, as bootstrapped ones can focus on capturing the market before becoming profitable, while bootstrapped ones have to keep both in mind. So people turn to VCs.
This situation of explosive growth is kinda unique to software, and VCs aren't the only solution to the problem, but the dot com bubble has shown what happens when companies go public more early on in the process.
That's a bit like saying "This person won the lottery, so therefore..."
Sure, it's possible. But having met a few founders, their lifestyle from taking VC money seems far preferable to the bootstrap approach. It's true that you have to grow, but if you have growth, then nothing else matters. And if you don't, then you're one of the most employable people in the entire world.
A shocking number of people, somehow, end up in insane amounts of debt by trying to start their own companies. And you're sort of forced to. An example: one of our family members had a lucrative pole barn business. (Apparently in the midwest, lots of people wanted pole barns built, or something.) But in order to pay his employees to go construct the pole barns, he needed loans, leveraged against the future income from the construction project.
Then 2008 hit. Poof! Contracts all went poof. And he was left holding the bag.
So, if you need employees, and you're bootstrapped, how exactly are you going to pay an engineer roughly $130k per year? (Remember, the fully-loaded cost of an employee is much higher than their salary.) Loans must be so quite tempting.
And sure, LLCs are designed to mitigate personal risk. But that implies you can find someone willing to risk loaning to you.
I'm not saying that VC is great, just that it fills a need.
Yeah but all the successful VC funded startup stories are a form of survivorship bias too. The whole idea of venture capital is to fund many companies that will fail with the hope of finding the one unicorn that will make up for all the losses. A lottery just the same.
It's true that if you're taking out loans to fund your bootstrapped company you could be left holding the bag. But it's also true that you can build an IT startup without taking a lot of big loans for capital expenditures. You only grow when you're making money, so it's a slower path, but for some businesses it may make more sense.
> But in order to pay his employees to go construct the pole barns, he needed loans, leveraged against the future income from the construction project.
Rather than collateralized loans, a better financial instrument might have been factoring (selling the receivable outright, typically for 90-95¢ on the dollar), plus having a reasonable penalty clause in the contract.
This isn't a criticism. Hardly anyone outside of the fashion industry (that has long waits, like net-90, for payment after eventual delivery) or heavy industry (that has expensive equipment that can be amortized long-term) seems to know about factoring.
> That's a bit like saying "This person won the lottery, so therefore..."
Caveat: I love Jetbrains, and am a happy subscriber.
However, as the parent commenter says, it's important to realise that Jetbrains has been lucky as well. Java dev tools suffered from poor performance and poor UX for the longest time.
Eclipse, despite its early promise (SWT and native widgets) has much 'rougher' UX compared to IDEA. But I remain surprised how much better even simply typing feels on IDEA, and how good the refactoring tools are. (The latest Eclipse has improved a lot in the refactoring dept, though.)
Java's combination of openness and poor dev tools definitely helped Jetbrains a lot and gave them a cachet in the marketplace that helped them as they expanded into other languages. That said, I've also used their Microsoft VS addins and those were very good too, but they likely would have made much less money if they were a Microsoft-only shop.
Or, don't start a business with a loan. If you're gonna bootstrap (the "right" way) then step zero is have 12mo runway of your own capital and step one is start a business
> $130k to pay a single employee for one year. I don't know about you, but it's extremely difficult for most people to save up that kind of runway.
I think the idea is that step one isn't hiring a subordinate employee; it's having secure enough finances that you (or you and your co-founders) can work for yourself for a time.
Step two is actually working on the business, and step three is growing is revenues to the point where it can sustain you, four is growing them further to the point where they can support an employee, and five is actually hiring that employee and paying them $130k a year.
Co-founders? Why are they co-founding? Profit sharing?
That's an excellent way to devolve into squabbling about who gets what. VC also protects against that: the money is for the company, and it's illegal to siphon it out of the company.
Unfortunately in practice your suggestion tends to become "You're working for yourself, alone." And sure, I love the idea of a one-person company. Lots of talented devs can sell, if they try. But lots of talented devs are also trying to get rich on the iOS app store; few do.
I am a cofounder of a non-VC backed startup. We work together because (1) we're friends (2) like working together (3) have complimentary skillsets. We split the equity 50/50 and receive the same salary. We've been doing it several years and we've never had even a single conversation on the topic, we just assumed from the beginning it was an even split and that's how we went about it.
> Co-founders? Why are they co-founding? Profit sharing?
Because they had an idea with you and want to work together to make it happen? Or all kinds of other things like that?
And yeah, if you're going to do that, you're going to have to be careful make sure you're not the kind of people who will need adult supervision to avoid squabbling.
VC might have its uses, or provide some service, but that shouldn't be misunderstood to mean that it's essential or alternatives aren't worth considering.
The other thing to note is that one of the things VCs do is sell the VC paradigm, so they're going to try their hardest to make it seem like it's essential or at least the best product out there.
Hmm. You're dodging the question: Why would a cofounder want to start a company with you? No handwaving.
People cofound to get rich. Can your company offer that to your cofounder?
If you focus on that question, the rest falls into place. Unfortunately a lot of people don't want to focus on that question, because it's at the heart of why bootstrapping rarely works.
"Not needing adult supervision" indicates that you probably haven't done what you're saying. It's not a matter of supervision. It's managing expectations. You are legally required to lay out what you offer, in clear terms, and what you expect in return. That's the basis of a business arrangement.
So, we're going into business together. How will your company make me rich? Why should I work as hard as I possibly can to make the company succeed?
The model happens to be aligned with how and why people actually start companies. It's not my model.
You have to come up with a persuasive answer to "Why should I work as hard as I can on this company, rather than go work for Google?" That question is in fact so hard that it (possibly) almost killed YC in the crib, back in '08. No one wants to work for a startup when they can get paid far more and live an easier life.
What you're proposing, if I understand you correctly, is that someone works extremely hard, for no concrete gain other than perhaps intellectual curiosity. Sure, you can argue that the usual benefits apply: you're free to do as you please, and to self-manage. But that's not a very convincing argument in the face of $RIDICULOUS_SALARY at a bigco.
It's cliche to say "Don't hate the player, hate the game," but I believe it applies here. Neither of us chose to live in a capitalistic society. We were born into one. Why not make the optimal decisions, all else being equal?
> The model happens to be aligned with how and why people actually start companies. It's not my model.
That someone else created the model and you believe it doesn't mean it's true.
> You have to come up with a persuasive answer to "Why should I work as hard as I can on this company, rather than go work for Google?" That question is in fact so hard that it (possibly) almost killed YC in the crib, back in '08. No one wants to work for a startup when they can get paid far more and live an easier life.
Actually, I don't. Honestly, you seem kind of set in your thinking, and I don't think it's worth the effort to try to figure out how to persuade you out of your misconceptions. There are counterexamples even in this subthread that falsify your model. It's up to you to either be open to them or not.
Statistically you are right that big tech currently provides the best expected value for a programmer, but in practice people's decisions aren't based on a single criteria. A lot of people find working for Google soul crushing and would happily take a $100k job that gives them more control and impact versus trying to navigate the path to promotion and relevance in a sea of stillborn products at Google.
I also agree founders want to get rich, I mean who doesn't? It's a nice fantasy. However if they don't have a deeper motivation to solve a problem for its own sake they will fail. If you're super smart and just want to get rich, the right move is to go into finance because you'll never cross the chasm of building something people actually want. Even the language you use to describe the premise indicates you don't really get what makes successful founders tick. Founders don't "work for a startup" and they don't need to be convinced—the whole point is these are people who have decided for one reason or another that they are passionate about building a company. You might think them fools because 25yo engineers are making $500k at FAANG and that is a high bar to clear for any startup (it is), but consider that all SWEs under 35 have never known a recession, and they may have come to believe that a programmer is inherently worth $500k even though this is just market rate given todays demand. If there is another dot-com style correction, a bunch of folks might find out real quick what the value of knowing how to make your own dollar is.
They co-found to make money. It's just not as fast paced as the VC option but it's the same thing as any business. The founder thinks that with more than 1 person, each person would make more money than if only the founder worked.
No one will loan to an LLC without a personal guarantee from the founder. LLCs protect against legal liability, not against financial liability for debt.
This is probably it. There are some companies that just can't be bootstrapped, the up-front cost is too high. There are some that would suffer from the high-growth demands of VC.
If you've got a plan that starts with high-fixed costs that over time becomes low-fixed cost at scale, then VC is probably the best way to go.
If you've identified low-hanging fruit to solve problems for people, bootstrapping makes the most sense.
Any arguments for or against seem to imply either way is a one-sized fits all solution. It's not.
It seems generally correct, i.e. VC works because the alternative sucks.