Startups are in way better shape than traditional small businesses.
By our very nature, we need months of runway just to keep running. We're designed to weather this kind of storm because "zero revenue" is the default state.
Hearing about Bird cutting 30% of their workforce is awful. But it's nothing compared to the thin-margin Mom & Pop, or medium sized private enterprise that had 1 week of cash on hand and ceased operations overnight.
My friends and family in startups are doing fine, for the moment. It's those that chose to work at the more stable, traditional work environments that are getting wiped out, and much less likely to return when the economy starts back. Because when it does, there will be money ready for investment - extending your runway to get there for a startup is more straightforward. But when you're a bigger business with little cash and no-one is buying assets right now, you literally are unable to make any decision to help.
I've got friends in manufacturing, hospitality, services, and so on that will not return to work because their businesses are going to or have already failed, for good. That's the fucking terrifying thing happening right now and it's more deserving of attention than us tech bros.
This strikes me as wishful thinking and also incredibly myopic about the realities facing many startups.
A startup that recently closed a big round (and the need to close the round wasn’t necessitated by massive debt or existing expenses — so think almost all of the money can be used as future runway) might be in a better short-term position than a business that is relying on net-30 or net-90 payments from clients that might not come and that will struggle gaining new revenue needed to pay bills. This is especially true if the startup can pause or slow-down hiring for now to extend the runway — but that’s a short-term advantage.
Longer term, there is absolutely nothing inherent to being a “startup” that will make it any better at weathering the future than any other type of business. And when investments come back — and it could take years, we just don’t know at this point the extent of the economic situation — it is the biggest/best-connected that will benefit. Plenty of startups won’t ever be able to raise that future round. Plus, they get the additional disadvantage of trying to figure out an actual business model during a recession. At least existing businesses — even if they don’t survive — had a working business plan in place first.
> I've got friends in manufacturing, hospitality, services, and so on that will not return to work because their businesses are going to or have already failed, for good. That's the fucking terrifying thing happening right now and it's more deserving of attention than us tech bros.
This is the only part I agree with. I don’t want to see any business fold — but I’m much more concerned about people who aren’t venture-backed founders right now.
> I’m much more concerned about people who aren’t venture-backed founders right now.
I'm sure most bootstrapped founders are ecstatic that their competitors who have been dumping product at below cost for years are now mostly going out of business. Not seeing much complaining on Indie Hackers.
> And when investments come back — and it could take years, we just don’t know at this point the extent of the economic situation
Given unlimited QE and huge rounds of fiscal stimulus, the financial markets in major developed countries with debts denominated in their own currency are unlikely to suffer for too long.
Once there is a glimmer of hope that Covid-19 will likely be contained or its effects significantly mitigated, the flood of funds seeking yield should start to pour into discounted assets and other investments with good risk-reward ratio.
Looking at Germany and South Korea, mitigation through concerted efforts should be possible within a year or less. Pessimistically, if containment and mitigation fail, the population will have herd immunity by 1.5-2 years.
> Longer term, there is absolutely nothing inherent to being a “startup” that will make it any better at weathering the future than any other type of business.
I think the assumption is that "longer term" is "within your runway" for some set of startups. Early stage startups can have years of runway.
If you're a startup that's recently closed an amount that will carry you through this period I think you're probably in the ideal position. There is an open and obvious question as to how long that may be, but if you have multiple years of runway it feels safe.
I'm not sure I buy this. 80-90% revenue declines across many industries is unprecedented. Especially in cases where poor operations didn't impact the business. Businesses like Hilton or Disney that have operated for 100 years may go bankrupt (not out of business) before this is all over.
Hilton may go bankrupt but Disney won't, they've been quite successful at diversifying their portfolio and I'm sure their streaming service is doing quite well. They recently announced that at least one of their upcoming movies will skip theatres and go directly to their streaming service, while others theatrical releases are being pushed back.
This allows certain parts of their business empire to fund the less performant ones e.g. adventure parks. Hilton has no such option, they're quite invested in the hospitality industry which leaves very little room for pivoting.
Yes, I mentioned this. I’m just saying that a large drop in revenue right now doesn’t necessary correlate with a product that people generally want or is useful.
Right but they didn't result in Hilton / Disney having 80-90% revenue drops overnight. This is a very unique contraction. Even in the depths of 2008, DisneyWorld still had a steady flow of visitors, and Hilton hotels across the world still welcomed guests.
This is rather worse than your typical 8-year contraction. Like, experts aren't sure if it's going to be better or worse than the Great Depression and they're not optimistic based on what we've seen so far levels of bad.
Yep, if your startup plan has a good chunk of the budget dedicated to "how does the business survive global thermonuclear war" you are wasting money, time and focus.
Assuming a "tech startup".
d) Little to no costs with many-month wind-down period. A lease contract for a restaurant or shop might be 1-2 years, and one is still on the hook for that despite 0 income due to closed shop.
I think both your and the parent's perspectives are correct for different startups.
I don't think life is going to change much for pre-revenue startups still trying to find a market fit. Now, they're back to square one working out if they've got a product that can be sold somewhere.. anywhere! Uncertainty continues as usual.
But if a startup had a fit and were marketing for growth, well.. sucks to be them, unless they were in some kind of remote-collab space.
Comparing startups against small/mid-sized businesses is like comparing a lion cub against a house cat. People see them as the same when they look like they are equal, then their paths quickly diverge when/if growth kicks in.
Many, many businesses are suffering in some way, and startups are not impervious to it either - a major question is who is able to suffer through this longer in order to come out the other side alive. The advantage of startups here is that they have more direct “supply lines” to capital to “hold out through the winter” whereas businesses relying on government help and bank loans are not in as good of shape to survive when depending on indirect third-party capital.
Long-term, this sucks the most for non-venture backed companies if they can’t hold out and die, or make it through and are hampered with debt so much that they are handicapped from returning to normal for quite some time. Conversely, I think this is where investors and venture-backed startups will see an opportunity to thrive because they could easily “sink the damaged ships” and corner markets in a new wave of cheap M&A deals and market share growth.
It's myopic because the commenter is usi g their own circumstantes (i.e. anectodal evidence) to make a broad statement that startups are fine right now. Great for OP that their circle of friends at startups are unaffected but it is indeed myopic to extrapolate that to the entire startup scene being fine.
You weren’t around in 2000 or 2008 were you? Your startup is only in “better shape” as long as VCs are willing to keep funding you. VCs are only willing to keep funding you if they have confidence that you will have a profitable exit.
A friend’s medical practice will implode April 30... their business is down 90% and they won’t be able to
pay rent or the employees. They are only staying open in hope for some sort of aid or debt jubilee. The partners will lose pretty much everything.
People with cash aren’t going to keep plowing money into startups, they are going to buy depressed assets. Every leveraged real estate company will be broke in 90 days or less.
Governments (like the UK here) are trying to borrow then lend money to business like that so that at the other end of this, they can just return to normal.
But honestly I think it's too complex to attempt. Perhaps some form of managed debt jubilee will work "no rent for six months" or something. but the unintended consequences will be huge.
Good luck to your friend
Edit: we should probably focus on the areas that can be easier made whole - finding landlords with extant contracts and just paying them for the contract will be easier than getting their tenants paid, finding businesses with employment contracts easier than paying individuals...
This crisis is hitting medical practices incredibly hard, given that all non-emergency procedures are canceled (by law where I live). You seem to be implying by saying "cosmetic surgery" that it's just personal, cash-pay procedures, but that's totally wrong. Primary care, pediatrics, radiology, sports medicine, dermatology, on and on - they're all getting killed by this.
Shelter in place means shelter in place -- almost all non-essential procedures have stopped, where "essential" has varying degrees of severity depending on where they are. I personally know of cardiology, oncology, and internal medicine groups who have basically cut their businesses by 90% to keep people at home. It's not safe for their staff or for other patients to continue normal operations.
At least where I am (Australia/New Zealand) I have been hearing that GP visits are way down. I think people are trying to avoid the health system as much as possible and are therefore putting off any appointments that are not critical.
Too many people haven't lived through hard times. They think that rules exist and they know what the rules are. The other day I was describing to a friend who has a company that will need funding in about 6 months, in a conversation where I was imploring him to cut his burn rate, about how things can go.
In 2001, VCs actually pulled back investments from startups. People think that once cash is in the bank it's theirs.
Not all startups require VC capital, some of us are just running without venture funding just clients money, some startups are in better shape because are on right market on the right time. You just need to be in the right time.
Right now, client funding is extremely vulnerable. The startup I was working for in 2001 blew up when clients stopped paying bills due to their own bankruptcy. The one I was working for in 2008 was badly crippled by all the clients we were pre-sales engaged with simply closing their external purchasing.
This is the thing I've seen a lot of tech people missing, they are all "I'll be fine, my company already works from home and our business isn't effected". Yes, but what about your customers businesses? What if they stop paying? Or what about _their_ customers. The entire economy is going to be hit hard, and that will ripple through.
I think startups that cater to providing services to government funded organizations will probably do better, especially with all this new government debt globally in the form of "stimulus".
I don't expect that will turn out to be the case as funding will be reallocated across various government programs in an extreme manner. The impact of Hurricane Katrina on DHS programs is a comparatively small example of what can happen after an event like this.
Companies large enough to serve multiple different organizations may be able to re-balance their services.
Yeah I have a friend who works for a small company (although not a startup) that provides essential services to the government, we think he's as safe as anyone.
And you’re probably not looking for a large exit. You are trying that unheard of concept of spending less than you make. What you are doing is running a “lifestyle business”.
That’s not a negative despite what the tech bro’s think. I hate the idea of success for a company seems to be “we got another round of funding while losing money”.
The term "lifestyle business" really annoys me. It's Silicon Valley propaganda. There are better ways to build companies than taking hundreds of millions or billions in funding. Pre-crisis startup funding was largely decadence enabled by cheap money.
By contrast early generation SV companies took relatively small amounts of funding if at all. Intel for example took the equivalent of $18.4M US in 2019 dollars prior to IPO. [1]
I gave that a lot of thought lately. Not that I wanted to, but being a one-man bootstrapped startup kind of let to it.
And with all the stories coming out of Berlin's scene, and to a lesser degree Munich's, I came to the conclusion: "lifestyle businesses" businesses without external funding are hard. They are traditional small companies, the have to rely on positive cash flow, profitability and banks to keep running. Quite tough, especially if the founder and employees have to actually live from the profits.
Startups on the other hand, they life of VC money. As long as the founding team can sell their vision to VCs to get more VC money, they run just fine. So the founders can live the startup life with other people's money. Sounds more like lifestyle businesses to me.
The thing that annoys me about "lifestyle business" is that it also suggests this idea of short days, tons of vacation, etc. Which is usually not the case.
Honestly I think it’s a way for those that owe million to VCs to feel like they have one over us businesses that grew at a healthy pace, have money in the bank, and money in the bank goes up not down every month.
At least that is how lifestyle business is slung here. No one in my local business association would scoff at businesses growing at a healthy pace and no debt. Also nice if no VC gives me another round, I don’t have to shut down tomorrow.
Yes. However it can also be pitched as there's no big upside and the salary is so-so but it's a "lifestyle business" even though the hours and other time-off are nothing to write home about.
I'm the CTO of a "lifestyle" business, though we don't really call ourselves that. Salaries here are excellent for our area (MN). Time-off is better than average, and we have free worldwide flights for vacations as a perk. Highly flexible work hours and location - we have some FTE's 100% remote, living in other states; I'm 90% remote. No overtime culture, no death marches. Maybe every 2-3 years we have a couple weeks of a good crunch but it's with buy-in from everyone doing the crunch.
We're lucky to have a customer base that spans many industries. We've lost some chunks of income.. chains of malls closing, restaurants, lobbies, DMV offices, customers getting live sports info.. but it's all temporary and we're well in the black. Instead of worrying if we'll make it we're looking for opportunities and how we can best take advantage of our strong position.
That sounds great. A lot of the time "lifestyle" businesses for the owners (in the sense of control, no outside investors, etc.) doesn't trickle down to the employees in any meaningful way though.
I feel the phase means something different entirely - let's say I start a software consultancy with my friends, and my goals are to run the firm how I want, be my own boss and that we have fun working on interesting projects together.
That to me is a lifestyle business.
If there is a profitable decision I could take, like investment / partners / whatever, I prioritise the fact that I want to keep running this company myself without interference over profit. I prioritise my job satisfaction.
Maybe I could hire a more competent CEO, but that's not what I am trying to do here. I could get a mentor thou.
This business could be funded by debt, or investment, though not normally.
Now I might make a lot of money and grow the firm to 10k people, or I might take long holidays and go bankrupt - that's a different problem entirely.
> Pre-crisis startup funding was largely decadence enabled by cheap money.
Arguably with current rates we are going to have cheapest money ever possible. On top of that a lot of traditional investment vehicles are contracting.
It's a fair point but I think that the key issue is different. VC funds are a kind of equity investment; the question is whether they are actually delivering results. In the case of some of the top-notch US funds I would guess the answer is yes and will continue to be so.
On the other hand large funds like SoftBank are clearly under-performing. Cracks in that model were already appearing prior to Covid-19. So yes, interest rates are low, and equities should benefit in general. However it does not follow that VC investment funds are overall a good bet. To make that argument you would have to trade off against alternatives like real estate, more traditional industries, on-shoring of supply chains, etc.
Not necessarily, a startup could be boot strapped by founders themselves, and they might prefer to keep it a closely held operation with minimal third parties adding pressures. They might still be looking to cash out, just on different terms.
Its hard to find investors if you aren’t interested in hyper growth. The financial risk that the company will go out of business is the same but the expected returns are a lot lower. That just doesn’t make sense from an investors standpoint from a risk/reward vantage point.
there's a big gulf between "lifestyle" and "SV big startup", like startups that aims for 1.25-2x growth per annum, has taken fewer rounds of funding. There's several of them in SV, too.
Absolutely true — but the GP point about startups being “better prepared” because they already have runway and expect zero revenues (an opinion I wholly disagree with), doesn’t apply if the startup doesn’t have funding. As you say, a lot of this is about timing (and I’ll add, luck plays a massive role here too).
That's just a small business - the comment above is referring to companies with a huge VC cash raise in the bank and "runway" as being in a better position than companies like yours that rely on cash flow from customers
Not to mention VCs becoming more risk averse — not wanting to throw good money after bad. So not only does it need to be a profitable exit, it needs to be profitable at a good multiplier compared to every other business seeking investment.
VCs were always 'risk' averse, though this manifested in odd behaviors. Such as the herd signal, whereby one investor decided to invest attracted more capital.
One might argue that the signal indicated lower risk, but this runs at odds with the mission to find potentially large payoffs. That is, derisk enough, and you de-reward. Add to that, that there is no "sure thing", or ultimate de-risk. There are no silver bullets in this process, and signals you think may indicate one thing, actually indicate something entirely different.
This. I was in a fintech/payments startup that actually survived the initial 2000 tech crash... had found product-maket fit and were closing major customer deals with Banks . But we still substantially cash flow negative (payment networks are great scale economy business but take time to ramp) and in process to raise another ~18 month runway... when sept 11 hit. After which all funders dried up. Years later, that same product we built did become hugely successful, under new ownership. This after the startup was sold in a firesale and all founder/employee equity was wiped out and everyone laid off. Not that unusual a story in startup land, but one were going to see more of this year. Weak business as well as viable ones, all thrown out with the bathwater when a severe economic shock hits.
The markets present an even more compelling opportunity for high risk return at the moment.
I'd argue that VCs (being opportunists at heart) are very likely to redirect funds and shun startups for a while e.g. likely as long as post tech bubble timeframe.
How many companies are running with no VC funding that fit the profile of the parent poster?
“By our very nature, we need months of runway just to keep running. We're designed to weather this kind of storm because "zero revenue" is the default state.”
“months” is a vague term here. You have two months funding? I have some very bad news about what the world is still going to be like in two months time. Six months? The news is still not going to be great. You have a year of funding? OK, now we’re talking. And even then we’re talking cautiously.
The economic fallout from this is going to be huge. And if you think tech startups are immune to that you’re in for a shock.
I work for a well funded + product + paying customers + whatever su. Since inception of covid-19 the vast majority of customers withheld pretty much everything (some violated signed contracts). Some are MIA and impossible to communicate with.
It's a global turmoil and it's too soon to make assumptions about how great of a shape we're in.
This. I had revenue for 5 people but didn’t succeed to find them, just 1, so I feel very well off and I keep the positions open. However, we’re on a corporate market that errs in the side of luxury, and even with an incredibly safe runway, I can’t assume I’ll still have customers in one year...
Let's circle back in six months and see how you're doing. Things still feel nice and full when you've had a nice big dinner. But give me several lean days of no breakfast and meager lunch and dinner and you'll see just how full you feel.
Startups are not in any way, shape or form, "better" than any other traditional business. In fact, maybe worse.
Our board and investors have made it clear they think it's highly unlikely any meaningful funding will be able to progress until early 2022 at this point.
Recently-funded or reasonably conservative startups should be able to do okay with that, but ones without a lot of runway are going to be in a really difficult position.
Your board and investors clearly have an exceedingly high regard for their own predictive abilities if they can anticipate the reaction of a specific financial sector two years hence, based on the effects of a crisis that's realistically about 3-4 weeks old.
I'm not saying they are wrong. But the premise that anyone has a fucking clue what's going to happen on what timeline is ludicrous.
Well the money doesn't flow in as long as they think it. Which will last however long they want it to.
When you get old and wizened you'll notice the pattern whereby the VC investor types will express the same certainty about everything all the time, even when shifting their opinions 180 degrees regularly and pretending like they've held their most recent opinion the whole time.
Did your investors give some justification for the 2 year time span? For example, did they account for the possibility that many business won't open until September, or a second wave of infection that will hit late fall, followed by say, recession in full swing all of 2021.
It's known that some businesses won't open until September - that's the current target for sports stadiums, for example.
Even after September, there will be a lot of unknowns with massive economic implications. Will cruising recover in 1 year, or in 10 years? How much more friction will there be on international travel, and for how long? What's the risk of a coronavirus resurgence, both globally and locally? How different will the new crop of small businesses be from the ones that got eliminated in the shutdown? If you're going to give a startup huge chunks of cash, you need a high degree of confidence in the mid-term future, and in most areas that won't be available for a while.
I hope cruising only recovers with big reforms including:
* Cruise firms pay their taxes and aren't allowed to use flags of convenience
* They're required to look after and pay their staff properly
* They're required to dramatically improve their fuel usage and efficiency
* They're required to protect the environment, in particular their mooring and waste disposal practices
* They're required to improve their onboard sanitation so that the spread of noroviruses, bacterial infections and other transmission is much better filtered and controlled.
I expect they're basing two years on the time a vaccine will take to get to market, and judging that everything that happens prior to then won't help much.
Getting a vaccine is not a given. We don't have a SARS, MERS or HIV vaccines, and its been multiple decades for some of those. Having a SARS-CoV2 vaccine in two years is wildly optimistic.
Small-medium hotel owner here, that used to write code for a living.
What just happened in my industry, is forcing me to go look for a job. I don't think we are going to open for summer season or even if we do its not gonna make enough to live by.
Hundreds or thousands of years ago, a few had all the wealth and then most people were poor. We even had slaves.
I can't believe that in 2020 and with all the knowledge we've acquired as humanity we've allowed a few people to acquire all the wealth.
I am gonna struggle with paying any tax coming my way this year, or even supporting my employees who they very much need the job. And on the other hand, there are corporation that don't need to pay much tax through their umbrellas and then again they pay their employees peanuts so they can have a CEO that is worth in the hundred of billions of $. Sad to see that humanity hasn't improved at all.
But it's not this way everywhere: there are countries (I'm thinking of Scandinavian) where inequality is perhaps not so bad, and there are countries where governments are making major and genuine efforts to support businesses and people who are at risk of (or who have) lost their jobs due to Covid.
There's bad leadership and bad behaviour in many places, but not everywhere all at the same time.
Global population is 7.8B. Scandinavia's population is 25-26M (Norway, Sweden, Finland, Denmark). So your point applies to countries with 0.33% of humanity, which is not representative at all. Maybe add a few tiny countries or city-states and I would be surprised if their aggregative population crosses 2% of the overall global population.
So I believe GP's point still stands - humanity has not learned the lesson from thousands of years of its history.
The entire rest of the world that's not part of Scandinavia is not the polar opposite. There are many countries, and much diversity in their equality and government responses.
> I can't believe that in 2020 and with all the knowledge we've acquired as humanity we've allowed a few people to acquire all the wealth.
This is the most prosperous time in human history. There are more people alive right now than ever before. They live longer healthier lives and they’re more educated than ever before.
On every continent but Africa people are richer now than was the case after WWII. In the US, the richest country that has ever existed people are just coming out of one of the longest economic expansions in history.
What city are you in? A few years back I quit my QA job to travel from city to city in Europe and stayed in hostels. I loved Paris. The people running many of the hostels there are still friends to this day.
If there's one thing I've learned from the dotcom crash and the 2008 collapse, it's this: when the crap hits the fan, cash is king. Start-ups without profitable business models are extremely vulnerable. All of the pitches about exponential growth and glorious future profits carry little weight when investor psychology turns negative. So if you have a large pile of investor capital and you have investors who can't / won't claw their money back, you may be OK. But don't kid yourself that you are on an easier path.
I'm not sure why you think zero revenue is the default state. That's generally only the default during the short period of time in between selling angel investors on an idea or proof of concept and getting a first round of VC funding. Somewhere in the middle of that is launching a viable product and demonstrating a potential revenue stream while convincing investors there is a sizable addressable market you can poach from competitors or convince buyers they need a service they've never had before. Zero revenue is otherwise a short sprint towards irrelevance and insolvency.
Startups with a little bit of runway have to cut costs now to extend it, i.e. staff cuts, or they're also on a short spring towards insolvency. All business negatively impacted right now are extremely adverse to new expenditures for the next few months, and might only be slightly less so for the next six months to a year after that. All spending not absolutely essential to keeping the lights on is getting cut.
My workplace had contracts with a number of startups (and some more established) that provide industry-specific services, and as a matter of course we insist on a "force majeure" clause in contracts. As a result we are strongly moving towards terminating those contracts. We are considering it even for one or two that are close to being mission critical, because revenue loss just through June is in the range of $30,000,000. That represents roughly a 40% drop over expected revenue for that time period. Projections for the next quarter are much, much worse, even in an optimistic "we might be slightly less restricted as a society in 2-3 months" scenario.
Given this environment, startups that do not supplant an existing service for a lower cost, have VC confidence and can "hibernate" for a time, or some other type of product that can help businesses stem losses rather than just make some activity slightly easier and more seamless... only those startups will weather this storm.
> We're designed to weather this kind of storm because "zero revenue" is the default state.
This is completely contrary to what common sense would tell you if you ask yourself "what corporation would best survive a depression". Pick and choose any qualities, any sector, any background and be honest with yourself.
My bet for what company I would prefer to own is something along the lines of:
- Industrial manufacturing of common goods that are necessary for people, not industries, without many external factors where you are not exceedingly (more than others) exposed to price fluctuations of other goods. This could be ketchup, medicine, toilet paper, you name it.
- A long history of sustained profit leading to cash on hand which you can use to compensate for downturns that you can be almost 100% sure are temporary.
- Infrastructure in place that you can scale down and then back up without losing massive amounts of competence or inventory quality.
Here's what I wouldn't like to have:
- Complex technical software development that is completely optional for both people and industries, completely dependent on external factors and therefore heavily hit by economical downturn.
- An unknown company with no history (startup) with zero cash on hand to compensate for a downturn that you can't even know if it's temporary or if you need to pivot completely.
- Severe penalties for scaling down as key intellectual competence disappears from the company, causing double work when resumed and possibly a lower quality product going forward, making it even harder to sell.
I'm not trying to get you down, but don't kid yourself. This is definitely not the type of climate where you would elect to be a tech start-up.
I think this is definitely true for venture-backed startups which scaled conservatively. However, scaling conservatively runs directly at odds with what a lot of venture backed startups are expected, told, or cajoled into doing. For those that went along with the conventional wisdom of the times, they're now extremely overextended having spent all that potential runway with no way to get it back and no hot marketplace nor profligate VC to carry them over the next threshold.
You're absolutely right though. There are folks who are getting decimated who are part of the sustaining normal economy, and comparatively speaking having a "war chest" of capital, either VC supplied or otherwise, is a much more comfortable place to be.
If a business - any business whether a takeaway restaurant or a food hall or a white table cloth sitdown - cannot scrape by for more than a few weeks without steady revenue, wouldnt you say they are in a highly saturated niche or a highly saturated location or both or that they don't serve anything distinctive whether its their food or the experience, that couldnt be replaced by any other Joe Homecook with comparable resources?
Why is that restaurateurs deserve a special shake when your local HVAC guy does not, especially when the margins are so thin probably because they cant charge a premium for their offerings as they don't offer anything distinctive or compelling?
Most businesses operate that way for the same reason Starbucks doesn't check your ID every time you go to the counter to pick up a coffee. It's cheaper to just make another coffee in the rare scenario someone takes someone else's cup than to slow down everything. It is the optimal happy path that leads to far more productivity.
My comment was calling into question the viability & competitiveness of most restaurants that cannot weather a sudden change of fortunes. They are not be confused with long-lived, well-run and meticulously managed restaurants that stand the test of time because they offer something compelling. Most restaurants don't fit that bill and never had those ingredients baked into their DNA, to begin with.
Peter Thiel has opined on this in splendid detail:
In 2001, my co-workers at PayPal and I would often get lunch on
Castro Street in Mountain View, Calif. We had our pick of restaurants,
starting with obvious categories like Indian, sushi and burgers. There were more
options once we settled on a type: North Indian or South Indian, cheaper or
fancier, and so on. In contrast to the competitive local restaurant market,
PayPal was then the only email-based payments company in the world. We
employed fewer people than the restaurants on Castro Street did, but our
business was much more valuable than all those restaurants combined. Starting
a new South Indian restaurant is a really hard way to make money. If you lose
sight of competitive reality and focus on trivial differentiating factors—maybe
you think your naan is superior because of your great-grandmother's recipe—your
business is unlikely to survive….
The history of progress is a history of better monopoly businesses replacing
incumbents. Monopolies drive progress because the promise of years or even
decades of monopoly profits provides a powerful incentive to innovate.
[1]
Peter Thiel Will Not Be Opening A South Indian Restaurant In Silicon Valley
Mobile friendly quote (don't use code formatting for quotes):
> In 2001, my co-workers at PayPal and I would often get lunch on Castro Street in Mountain View, Calif. We had our pick of restaurants, starting with obvious categories like Indian, sushi and burgers. There were more options once we settled on a type: North Indian or South Indian, cheaper or fancier, and so on. In contrast to the competitive local restaurant market, PayPal was then the only email-based payments company in the world. We employed fewer people than the restaurants on Castro Street did, but our business was much more valuable than all those restaurants combined. Starting a new South Indian restaurant is a really hard way to make money. If you lose sight of competitive reality and focus on trivial differentiating factors—maybe you think your naan is superior because of your great-grandmother's recipe—your business is unlikely to survive….
> The history of progress is a history of better monopoly businesses replacing incumbents. Monopolies drive progress because the promise of years or even decades of monopoly profits provides a powerful incentive to innovate.
Starting a restaurant because you think your great grandmothers naan is superior is not dumb.
Neither is it dumb to start a restaurant because you love feeding people, or a bike shop because you love repairing bicycles, or <insert any other scenario>.
As long as you know what you’re getting into, it’s a perfectly honorable way to live your life and there are ways to make it work.
EDIT- at least there were ways to make it work during non pandemic times. I hope we will see an upswelling of these types of businesses in the wake of this, although you couldn’t pay me to take bets on a timeline.
Not necessarily to get rich, but to be around for long enough to even offer your food to enough people that will appreciate the superior taste, nutrition and craft that went into all of your offerings.
If you are having to seek alms just to pay the bills or resort to charity to even sustain yourself as a restaurant, there is something fundamentally wrong with the makeup of what you offer. Simply put, far too many people think they have what it takes to run a restaurant. Their abilities and resourcefulness cannot match their over sized egos.
Founders aren't dumb. They need to survive through the war of attrition, and they will find ways to extend that runway. It's naive to believe it will be business as usual just because you're used to "zero revenue".
If future rounds aren't coming (guess what, in this economy, they aren't), you extend runway by cutting expenses. Anyone with a career older than ten years knows how this will go.
You don't have to be dumb to be inexperienced. An awful lot of startup founders are young and were propagandized endlessly about being entrepreneurs, etc. Downside risk is an alien concept to many of them. Many of them do not actually know how to cut expenses because they've never known a time when the now-no-longer current fluffy, cushy environment wasn't standard.
Startups are more than just "us tech bros", though. If your company sells a physical product, for example, then you're typically reliant on either warehousing personnel on your own payroll or a third-party logistics (3PL) provider, both of which have been hit hard with COVID-19-related shutdowns. Pickers or packers or forklift drivers can't (usually) do their jobs from home; they need to be onsite at a warehouse to to do their work, and if the warehouse is literally not allowed to let employees in the door because the company is a "non-essential business", then guess who's getting laid off? For companies selling physical products, this threat is existential.
There are lots of startups that sell physical products. I work for one of them. We're doing pretty great for now (we sell, among other things, toilet paper and hand sanitizer / soap and cleaning supplies), but we also recognize that we're lucky, and that luck is unlikely to persist if this "great unwinding" lasts longer than the COVID-19 panic unless we do everything in our power to reduce costs and extend that runway as long as possible with the current tailwind. Most startups selling physical goods ain't so lucky (see also: the ones in the article, even if the article didn't really go into much detail on it).
>"By our very nature, we need months of runway just to keep >running. We're designed to weather this kind of storm >because "zero revenue" is the default state."
No you are not designed to weather this cataclysm. Especially a start up. This is the great cleanse. 2008-2020. We had a good run!
That is a different topic. Yes, your friends in manufacturing, hospitality, services (FIMHS) are on average probably worse off. If we compare your FIMHS to the poor in India, then suddenly your FIMHS are well off and are not deserving of attention either...
My experience is that "Mom and Pop" shops are generally awash in capital to the point of forgetting to bill customers for months on end. The are "over capitlized and under leveraged" and they offset their thin margins with absurdly low fixed costs. The biggest danger to their businesses is that the proprietors might be older and decide to retire instead of toughing this out.
On the other hand my experience with slightly bigger suppliers/vendors with 5+ employees is that they run into cash flow problems all the time and do in fact seem much more vulnerable to this shock than a startup with no inventory and cash on hand.
I'm still a little shocked when hearing this, though. I'm talking about the small business who face bankruptcy after a single month of downtime/no income - that doesn't sound like a healthy business anyway if you didn't just start out. Or maybe I'm thinking the wrong size, where you have tons of recurring costs?
Also freelancers (in IT, so assuming enough income usually) who are panicking because they couldn't sustain a few months.
Only exception I'm seeing are restaurants and shops with large inventory and a lot of personnel.
Unlikely. I've been through 2001 and 2008. Startups will cut things to the bone because most of them are cash flow negative, and that next VC round will be delayed 12+ months, maybe never.
> thin-margin Mom & Pop, or medium sized private enterprise that had 1 week of cash on hand and ceased operations overnight.
It would be foolish of them to fold instead of getting loans. And it would be foolish of a bank to deny a good business a loan to get through the next couple years. I think much of the moaning about closing up is to encourage low-cost loans. Which is fair, because the government should be subsidizing such loans to lower the bar for a "good" business.
One issue is the time it may take to get a loan approved and have funds available, especially during a crisis as dramatic as the one we’re in. The other larger issue is that the loan is incredibly high risk because the owner may not ever be able to pay it back and in some cases be asked to put their personal property up as collateral. If getting a loan was such a slam dunk, many more owners would be pursuing it, but the realities are, they may be worse off taking a loan they cannot pay back versus closing up and moving on.
Note: the OP heavily edited the original post which heavily downplayed the potential impact to startups because of some magical force that insulated them from all ill.
A startup, by definition, is a business that hasn't yet figured out how to turn $1 into $1.01 in the best of times, and relies on investment money to fund its operations.
They are in no way shape or form better suited to weather an economic collapse than a traditional business. Traditional businesses know how to turn $1 into $1.01.
Working for an electric utility. It's incredibly stable and no one has been let go. We still have all our contractors with us as well and are hiring in a few areas. People will always need power.
You cannot disrupt a market if the market itself ceases to exist. This is basic stuff.
A whole load of VC stuff relies upon the larger market to predate, has stupidly vapid IPO targets (which the actual big boys, Central Banks, are now culling off, since their actual liquidity stuff like Reits etc are crashing) and basically 100% worthless business models.
"Juicer" or whatever it was?
Go look up what Glencore is doing (20% emerging markets just disappeared) and get back to this thread and start figuring out an exit.
No-one in this thread seems to note this: try finding some ex-Soviet citizens who lived through 89-96 and ask them some serious questions.
~
Seriously: I was told HN was were the semi-smart tech people hung out.
Look: you just got slammed with ~10 mil unemployment in the USA. Call it 10% of workforce. Most developed countries are now running at 15-30% and it's about to get worse.
Entire industries are pretty much relying on bailouts or they fold (leisure, air (non-freight), cruise, hospitality, restaurants) and the people who own the real estate (or lend it out, Reits / Mortgages) are going to get hit by their tenants / clients being unable to pay.
You're not in the "ramp to land" scenario - you're in "this VC is going to look at the contract and claw back the largest % of capital they can, in the next 4 weeks, due to margin calls and other commitments".
Anyhow: no-one will read this, but it's fair warning to you guys. You're about to get frack'd, hard.
Please review the HN guidelines linked at the bottom of the page. I think the combative tone and the mention of downvotes, both of which are against the guidelines and are actively enforced by moderators and readers, is contributing to your karma woes more than the content of what you are saying.
(For whatever little it's worth, I suspect your assessment is correct.)
> No-one in this thread seems to note this: try finding some ex-Soviet citizens who lived through 89-96 and ask them some serious questions.
If there's one thing the dissolution of the Soviet Union proved, it's that a complete economic and political collapse does not prevent people from disrupting markets. Many Western companies got their first foothold in the region during that time.
> For start-up workers, the past few weeks have been sobering. Many had bought into the tech industry’s change-the-world ideals, had few boundaries between their work and personal lives and hoped for big payouts if their start-ups went public.
This saddened me, because it's a refrain that we hear over and over and over. Same exact thing happened during the .com bust (which scares me to believe that was 20 years ago already).
You can work really hard at a startup, put in a ton of energy, but at the end of the day, never forget it's just a business. It's a team, not a family, and in a team sometimes team members get cut. I've also found that the best folks in business tend to have rich, fulfilling lives outside of business as well.
> I’ve also found that the best folks in business tend to have rich, fulfilling lives outside of business as well.
Totally agree, but I’ve been burned multiple times by startups that see any kind of multifaceted lifestyle as “not fully committed” to the team or company, which is ridiculous. I’ve been so disappointed how frequently this happens in tech.
It’s because the owners are trying to squeeze as much value as they can out of you in as short a time as possible. This might be obvious but owners want as much they can show an investor as soon as possible to make their ownership of the company more valuable in the shortest amount of time, and also often trying to make the amount of money they lose to you as small as possible.
I think you probably already know this but for those that need to read this - the chances of you becoming a millionaire at a start up are zero. Better to go buy a lotto ticket. That said, much like owning a home in Southern California there are many good reasons to join a startup- money is not one of them.
There is of course the caveat that of course some people win the lotto but planning your financial life around winning the lotto is idiotic.
Owners of every kind of company want to extract as much value as they can at the lowest possible cost. Even nonprofits want to serve their missions (which are usually distinct from staff welfare) as best they can at a given budget. Greed doesn't seem to have much explanatory power for why startups in particular would be worse.
Owners of every kind of company want to extract as much value as they can at the lowest possible cost
Other than sports, what other industry than VC-backed startups lures in talented-but-naive young people, promises them riches, then chews up and spits most of them out, having burned them out? OK maybe music and fashion as well.
Pretty much any career that has an up or out policy with the promise of riches if you don't get pushed out of which there are plenty. For example, many consulting companies work this way where they will pay you a fraction of your billing rate and have you work a ton of hours in the hope that you will eventually make partner which is where you make the real money.
Good start-up CEOs struggle with this because many of them do care for their employees at a personal level, but they also have an obligation to the owners/investors to be financially successful. And the most findnacially successful CEOs are going to put investors first when they are up against the wall. I assume they rationalize it by saying that if the company is successful that is better in the long run for everyone.
Once you take outside funding, whether the founders “care” about their employees is irrelevant. They don’t guide the company any more. Their investors do.
If they “cared” about their employees and weren’t looking for a large exit, they would be creating a “lifestyle” business and not seek VC funding.
I’m not making a moral judgement either way. Everyone should go into any employment situation with their eyes wide open.
I agree with you but at the same time, a lot of people can't really create a lifestyle business. Yes, if you are a Senior Developer in SV, you can probably save 50k a year and then move to bumfuck Montana and start your lifestyle business, but a lot can't. I know many senior developers in my country that if they save 2000-3000 are probably in the top savers.
I already refused investment as I didn't think my goals aligned fully with the investors, but I am lucky as I don't have to pay rent (family flat) and I did some contracting that allowed me to save some money. Most of my developer friends will be fucked if their companies fire them as atm no-one will really hire them in the next few months for sure.
I’m assuming you aren’t in the US. Well I am in the US and if I lost my job in the current climate, I think I would have a hard time trying to find a job. I’ve never felt that way before - not in 2000 or 2008-2010. So your friends are far from unique. The entire global economy is screwed.
Assuming you’re trying to start a lifestyle software business, your startup costs should be cheap thanks to cloud providers or just using something like VMs.
I am not (Portugal). And I feel for you (and my friends and even myself, everyone is suffering now).
What I meant was, a lifestyle sw business, while low cost to run, means either someone having savings or a small family/friends angel investment/loan. That is why I mentioned some folks take funding because a lifestyle business is beyond their reach as they are working 40+ hours just to break even.
Exactly. I find that people who complain about shareholders or investors are literally just complaining that the business is not a not for profit.
Shareholders and investors are just a proxy for the business. If you want to use them as an excuse for lay offs - go for it - but realize that 99% of the time the decision comes down to "do I save half by firing the other half, or do we all go down with the ship?".
I had a recent stretch of unemployment that was made a bit more difficult than it had to be by the number of potential hirers who were under the impression that developers go home and just do more development. My GitHub repo? Uhh, yeah sure, here are some dotfiles I backed up a couple years ago...
What does "best" mean here? Successful? Affability? A tautology that the people with rich, fulfilling lives outside of work are the best people in business?
> Many had bought into the tech industry’s change-the-world ideals, had few boundaries between their work and personal lives and hoped for big payouts if their start-ups went public.
Surely this must be satire. The tech industry has only capitalist ideals, to ultimately seek rent from society like any other big industry, and big payouts for staff are essentially a lottery ticket.
I'm sorry for some of my schadenfreude here, but really, so many of these startups are overfunded with way too many employees to begin with. They've often paid top dollar for expensive technical talent in locations with very high cost of living.
I can't wait to see a pull back to solid fundamentals. I don't see why a daily vacation rental company honestly needs 240 highly paid employees. One company cited in the article (WanderJaunt) laid off 56 out of its 240 total employees, but honestly I bet they could do just well with 20 total employees.
Let's put the Lean back in Lean Startup and provide real value instead of playing the magical, mysterious game of VC musical chairs.
Why is it so offensive to people in this industry that our skills are valued?
Sometimes it seems a little crazy to me too, but I'm not, like, excited to need to live with 5 roommates 90 minutes away from work again like you seem to be.
You answered your own question. It's not that people don't think you're valued, it's that the value you are getting commensurate with pay levels is unsustainable in the region. When the tide goes down, the first boats to flounder are the ones on high ground. I hope we can also see an unwinding of the ridiculous cost of living that is part of the rationale behind unsustainable wage growth. These things go hand in hand.
>> I hope we can also see an unwinding of the ridiculous cost of living that is part of the rationale behind unsustainable wage growth.
From your mouth to god's ear. The ridiculous cost of living is what made me reconsider the Bay Area (South Bay) after 5 years there.
My wife and I are very financially conservative. We pay cash to own assets - car, house etc. That just wasn't possible out there. And I couldn't imagine shelling out >$1M (not that I have it) in cash to own a mediocre house that would be worth 5 times less almost anywhere else.
Interesting perspective. My employer entertains remote workers and satellite offices only to the extent that it feels the Bay Area is “tapped out.” If that thinking is at all representative of the industry, I think we’re likely to see those options evaporate rather than grow.
There are definitely IT jobs “native” to the Midwest, but they’re overwhelmingly seen as cost centers to be deskilled/automated/offshored rather than value-creating R&D.
I've been working remote for only a short time, but it's been interesting to watch as my entire company (its a software company) now goes remote due to COVID-19. There's a lot of people that seem to be having lightbulb moments like, "oh wow, I'm just as much if not more productive than I was before" as well as some people that seem to be having a crisis and not know what to do with themselves. The people that don't know what to do with themselves seem to be correlated with the same people that I previously felt had a negative impact on our velocity.
Any company that truly believes all the talent is on the coasts isn't the kind of small-minded company I would want to work for anyway, so it's kind of moot for me.
But I think there will be a lot more understanding of what jobs work well in a remote setting due to quarantine, and plenty of software companies will realize they can save a ton of money by not retaining an expensive office space, while gathering talent from a wider pool of diverse perspectives.
I mean, I've been doing it for the vast majority of the last decade, so my feeling is that it can only increase. The housing prices and the sheer stress of living in bay area / nyc are so overwhelming.
A fair number of tech jobs can draw from areas within an hour or so of tech centers where housing is, if not cheap, a lot less than much of the Bay Area. And in many cases the companies aren’t even downtown anyway.
The SF/NYC vs. back of beyond dichotomy is pretty silly.
I can't speak to your skillset or your job, but there are a lot of people working in our industry not because their skills are valued, but because investor dollars are often thrown at growing headcount.
And when the industry / economy in contraction, the first jobs to go is the "excess fat" of those 80% non-productive that accounts for 80% of wages. The remaining 20% are the high value contributors, which honestly represents what the true employment should have been.
VC economics are not the same as general market economics.
The lamentation that engineers are "paid too much" is about prohibitive housing. If you consider engineering compensation in terms of the lifestyle it buys rather than the nominal dollar values, it's a pretty normal college-educated middle class living.
See also the "Austrian business cycle theory". But the bust, while clearing the economy of a lot of mal-investment, goes on for quite a painful while before the previous level of output/employment/prosperity is matched.
First, assume the market is made up of rational actors. Second, assume that sustained irrational investment choices have been made by the rational actors.
Are you implying that venture funding at previous levels is a function of low interest rates (that's the theory in ABCT linked above). I don't think that specifically applies here. While it's possible venture funding is accelerated by low rates, this was not the case in the late 1990s prior to the 2000s dot-com crash.
Rather we're seeing a Black Swan event causing macroeconomic pull back, and it's pulling back the covers on companies that really had no fundamental underlying value or support. The only real exit for these companies was acquisition or public markets. But with both exits now drying up, there's nothing but overvalued, overfunded companies with revenue streams (if they have any) drying up faster than the glaciers are melting.
The fundamentals were never there, and it was only the fat-times of VC investment keeping them afloat. There might be a role to play with ABCT with regards to VC investment as a whole, but this downturn is more than just a normal business cycle.
The schadenfreude isn’t necessarily directed towards individuals who choose to work at a startup and have the misfortune of being laid off. I believe it was meant towards an overly aggressive/ borderline reckless leadership mentality that has founders raise tens/hundreds of millions in capital, pump a majority into explosive, unfettered growth objectives, without having to exercise much of the fiscal conservatism that many other industries try to operate by. Working for a startup is inherently risky, but more so when founders are too aggressive and do not leave themselves options to retain employees during an unexpected crisis. If a positive outcome of this event is more conservative spending strategies by founders, that’s great. However, based on past patterns, that may be unlikely. And as an employee choosing to work in that world, YOU have to accept those possible realities.
Exactly! This comment reflects the best summation of what I meant and how I feel. The schadenfreude is directed at the COMPANIES not the INDIVIDUALS. And honestly it's directed at the VC.
You know the numbers. 90%+ of startups fail. In an economic downturn, it's more like 99%+. If you're trying to put food on your table, startups are probably the wrong place to turn.
Maybe I don't know the numbers. Maybe I only work for a startup because it allowed me some flexibility I wouldn't have had otherwise. Maybe I didn't know that a global pandemic was going to shut down the economy. Maybe I'm fresh out of college and don't know better. Maybe I lost my last job and had to take this job because the other option was to go bankrupt. Who knows?
My point is the same as it was in my gp; your attitude is grim and you're misplacing your negativity onto real people. This is the wrong time to do that. In this situation, there is only one explanation for schadenfreude and that explanation is that the person feeling it is an asshole. I'm glad I've only head the pleasure of speaking to you on the internet.
> Maybe I didn't know that a global pandemic was going to shut down the economy.
Then you are a fool.
The tech economy crashes on 5-7 year cycles. See: Dot bomb. 2008 Financial Crash. Covid-19 in 2020. I can go backwards in time, too. 3D graphics card startup crash. Microprocessor startup crash. AI winter. etc.
Too much money flows into the sector and then eventually the VC funds want it back. Roughly on 5-7 year timescales. Funny how that aligns with crashes, no?
This time VC's changed tack--they won't put money into anything which produces a product so they can simply keep the shell game going. Presumably that's why this crash is a little late.
If you aren't ready for this kind of cycling, you shouldn't be in a startup.
My point isn’t that you or the parent that I’m replying to are incorrect at all. You seem to be missing my point entirely.
Feeling schadenfreude when a business fails is tantamount to being happy that someone loses their job. That’s fucked up- and I can’t believe anyone would be stoked about this. Seek help.
I don't see a problem in feeling good that a bad company failed and feeling bad that employees at that company are losing their jobs and going to suffer. Conflicting emotions are a natural result of complicated situations.
This is part of why I think we need a much stronger economic safety net with UBI and universal healthcare. Too often, we protect objectively bad institutions and companies because of the very real need to preserve the jobs they provide. If involuntary job loss became a less disastrous event, we might be more keen to cut out waste and inefficiency in the system because we're no longer potentially destroying people's lives in the process.
This is great insight. We protect bad companies because we want to protect good employees. In the process we reward bad management and bad investors and the good employees get shafted anyways.
I already said that. VC's decided that they weren't going to fund anything hardware related this time.
You can keep the shell game going infinitely with social crap built by 20-somethings to flog to the FAANG's because you can keep skimming until you hit your 100x.
Now that the unicorns are finally busted, we'll see what the landscape actually looks like.
Can you explain how your argument doesn't apply to local businesses as well?
And I would hope you would see the problem with telling people not to work at local businesses. Ultimately the only companies built to weather something like this is the larger multinational corporations and in times like these, it kills both startups and local businesses alike.
I don't think being multi-national confers much of an advantage considering this has spread across the globe.
Companies providing essential services (supermarkets, healthcare) will probably be fine. Otherwise having lots of cash on hand or no liabilities (rent, debt, etc).
I agree. At the end of the day, the startup ecosystem is much healthier when the market is sane. On the one end you have newbie angel investors and VCs throwing money at pre-revenue startups that will go nowhere. On the other end of the spectrum you have Softbank pumping in billions and ruining what could've been great businesses. Honestly, WeWork had (and still has) such a great value proposition. It could've been a very stably profitable company with a valuation in the hundreds of millions, but here we are.
I work for a Fortune 150 company as a programmer. I've had lots of people ask me why I don't move to California and work for a startup. The main reason is because I'm risk adverse and I really don't like the Bay Area (I spent many years living in San Ramon, Alameda, Newark, etc. in my youth and have no desire to ever return). Now I have a new reason to be grateful I work for a Fortune 150 company. I've been able to work from home no problem. Nobody has been laid off. The company has already announced that they are going to go ahead and pay 100% of our year end bonus regardless of what happens in the 4th quarter (the current quarter). Frankly the quarantine has been very very non-stressful for me and my family so far. I don't think that would be the case if I had been working for a startup.
>I spent many years living in San Ramon, Alameda, Newark, etc. in my youth and have no desire to ever return
I understand that this is not center to the point you're making but I am curious! What makes you hate the Bay area? I lived there for ~4 years and recently moved to Pittsburgh. I can't wait to move back. In fact, the mere mention of these places evokes a strong sense of homesickness in me for some reason.
Not OP. I've only visited the Bay Area a few times. Human filth, needles, and just so many people packed into the space. I can't imagine raising a family in that situation. Contrast that with where I am now: I have a very large house on 10+ acres of land on the edge of a lake. Each of my kids has their own room and there are lots of rooms and corners to "get away from each other". We have room for food storage, a home gym, and are not dependent on the city for water or gas (though we do have to fill our propane tank a couple times a year). If I walk to the edges of my property, I can see a couple other houses. We have bon fires, ride ATVs, go fishing, shoot guns and bows in the back yard. We have full on seasons (granted that winter is the largest, but we like cold and snow). Not to even begin talking about the political differences.
The few things I liked about the Bay Area: lots of economic opportunity (esp. as a software dev), nearby greenery, and lots of food options. Oh, and the ability to find others who would like to play board games. I can't find anyone to play board games with out in the middle of nowhere (my family is not interested in any).
The "Bay Area" is a big place. I live a similar lifestyle and I'm 45m from downtown Oakland. You could do closer if you're willing to spend more or have neighbors.
How? I was in the city for a week and saw more needles on the street than the slums of China.
Even the townsfolk would complain about some mental hospital closing down forcing mentally ill people to live on the streets and you could see them everywhere.
That said, I didn't have a guide, I'd just walk with friends for an hour or two aimlessly starting from the pier. On the other hand, this is how I'm used to do it and I've been to 20+ countries.
All cities have bad parts. San Francisco is somewhat unique amongst places that I've visited, in that most of the tourist traps are either in or are immediately next to the absolute worst parts of town.
Nope. I just don’t live in the tenderloin. Unfortunately that’s where all the hotels are. So I’m not surprised that visitors (and twitterati) get a certain sense.
Never been to Pittsburgh, but what do you miss, other than the weather? I lived there for 3 years (Mountain View, SoMa, Inner Richmond), and outside of work it's basically a giant cluster of generic burbs and gridlock, with a filthy medium-quality city in the middle, priced 3-4 times the amount of an average burby gridlock (e.g. San Antonio) or a medium-quality city (e.g. Denver then). There's awesome nature but it's 3-5 hours away, driving thru gridlock, whereas Seattle, Portland, Denver, SLC, etc have it next door.
Interestingly, in addition to the weather, I do miss nature. I think nature is always next door depending on where you are in the Bay area. For example, you can be in Foster City at 5 pm, get on 92W and reach crystal springs water reservoir on Canãda road by 5:10 (you already feel like you're far away from the city); 15 more minutes and you could be on Skyline (this was also one of my favorite "amaze the tourist" route whenever I was playing the tour guide for people visiting). There's plenty of nature around Pittsburgh, but I none of the hikes that are close to the city give you the feeling of being really deep in the woods. I also miss the Redwoods, the coast, and the seafood.
I used to bike up to Skyline on Old La Honda road. I didn't consider it to be really impressive nature... at least not compared to the above mentioned cities. IMHO there are too many people and built-up land there (a general problem in the Bay Area), and whatever hikes/etc. are available are flat and rather mediocre. Marin is not bad but also crowded, flat and gets old fast. Places like Skyline, Saint Helena, Mount Diablo, Half Moon Bay, Pinnacles etc. are really only good for 1-2 visits and then to impress visitors :)
Sierras are amazing, but far away (both Rockies in Denver and Cascades in PNW are much closer and the traffic is not so bad), and the ocean is very cold, you have to be really psyched to surf or do anything like that in the Bay Area.
I mean sure it's better than most places East of the continental divide, but not particularly great. Especially with all the people :)
I hear you, but to me it was a good mix of nature vs. city. I actually lived in Woodside (off of 280 so closer to the woods area, not to RWC) and it was amazing.
On the hikes, I'd recommend Windy hill and Russian ridge if you haven't tried them. The former especially really takes you deep into the woods.
It all depends what you want in life. Pittsburgh you can afford a beautiful home and support a family on $100k. That's studio apartment survival money in the bay. The portion of us who will ever make it to the big leagues and land that $300k FAANG job that allows you to buy a home and raise a family in the bay is infinitesimal. But if you just want to live that single lifestyle, enjoy the big city, and play the startup lotto, then go for it.
> big leagues and land that $300k FAANG job that allows you to buy a home and raise a family in the bay is infinitesimal.
$300k/yr is nowhere near big leagues to buy a home and raise a family in the Bay area, just fyi. It's more like a comfortable single income where you aren't worried about paying rent or going out to dinner.
You try and raise a family on a mere $300k in SF/SV, you're one layoff or recession away from being completely screwed.
You can absolutely raise a family in the SFBA on less than $300k of household income. (Source: me). You think everyone with kids in this region of 3.6m people is pulling down that kind of money?
There’s plenty of 3BR houses in the east bay for less than a million, which puts your mortgage+property taxes at around $60k, which is totally doable at even half the salary you’re talking about.
> which is totally doable at even half the salary you’re talking about.
Half that salary? That's $150k, or after taxes, about ~$8k/mo. or $3k/mo for everything else after your alloted $5k/mo. Yes, people can survive on a lot less, but why in the world would you want to live in the Bay area just to eek by on such a paltry net outcome without nearly enough to set aside for the rainy day that's coming soon.
And more importantly, that I think the vast majority of SF/SV kids seem to forget is, what happens when your cushy job disappears? How long can you survive dropping $5k/mo for a house that you could be paying $700/mo in a small town.
The trick is to also marry another engineer making that much :)
The majority of housing stock listed for sale in SV is being pulled off the market in a panic. I'm not sure what exactly it means, but if I had to guess, I think it's due to a huge reduction in demand.
No one is buying, so sellers don't want their homes to be listed as unsold for a lengthy period of time. Eventually, people will need to sell, and then we'll see a race to the new bottom for the market, which might still be incredibly unaffordable for most.
$300k will take you further then, but the issue will be whether companies will keep paying engineers that much when housing prices no longer warrant it.
For sure. I'd just hate to be someone who thought signing a 30-yr note on a modest $1.5M 3-bed/2-ba home was a sustainable decision, and is now faced with the almost certain deep recession we're heading into.
I'm a programmer at a Fortune 500 company, and it's a similar situation. I feel very lucky. I do wish I had as much knowledge of our day to day financial situation as all of the startup guys on here though, just to know where things are headed.
I've heard numerous times startups have had a hard time getting a smaller amount of funding from angels and VCs. As in, "I want $500k" and "no, we only do deals with $1M+", or something like that. I thought that was crazy. This is probably the pendulum swinging back, as pendulums do.
I am interested in how this situation affects larger companies. My guess is since they're so much larger this time around than back in 08-09, and since tech didn't really change all that much in the past ten years or so, there might be greater structural pressure for startups in terms of hiring talent and market direction, because the big guys have so much liquidity and are entrenched in many different verticals. It'll be interesting to see how it all plays out.
I think they get bullied into larger deals that inflate their valuation beyond what they think they're worth. It works in a growing market to fundraise beyond your valuation and then grow into it. It doesn't work when the market turns down. If your runway is sufficiently short, you'll be fundraising a down round in a down economy which will slash your valuation and make it harder to get good terms.
Yea, I had this c2015 when I was seeking 250k to grow a revenue generator. I was told to make a story that compels a 15M future valuation so I could ask for 750k now. But I didn't even believe the revenue projection need to justify! I said no, these are my numbers. I couldn't fake a 10x story and my 6x story wasnt compelling enough.
I mean VC's aren't banks giving out small business loans. If you want $500k you go to the bank or find an angel investor, not a VC. The math doesn't work out for them.
I think we just need better infrastructure for startups to bootstrap with debt. It's not impossible or unheard of but it's more difficult for fledgling startups to get decent small business loans.
It is impossible to get loans from banks for unproven business models and it always has been. Banks invest in businesses with proven models, revenue histories, collateral and audited financial statements. Its just not in any way comparable to what a venture needs.
While this makes sense, couldn't the founder personally guarentee the loan? If they have a strong income history, maybe collateral such as a home, it should be possible.
From what I've been hearing VCs are worried this is going to last awhile, and so they don't want to give small amounts of money to a company knowing it isn't enough to ride through this. If you only ask for enough funding for a year and the VCs believe the economy won't improve for another two then they aren't going to put money in.
The problem is smaller funded startups create smaller returns, and take away money that could be deployed in more promising startups that would benefit from larger deals. The money isn’t going out because it’s just not worth it at those levels.
Probably this is focused on ownership and there's miscommunication. VCs don't care that much about dollars; they want 18%+ ownership or even big returns aren't material to them.
Should you take VC -- while an important consideration -- is kind of a separate question.
Assuming you've decided to take VC, good ones won't invest small amounts of money. And this is separate from valuation; this applies even at the A stage. The reason is they want 18%+ ownership, ideally 22%. If they get less ownership, even if they have a big enough fund to fully exercise their pro-rata rights, they don't get a big enough return in a success. Hence someone who would be willing to put in $4m for 20% will be unwilling to put in $1m for 5%, or even $500k for 5%. The upside just isn't there.
A simpler explanation is that it's all driven by fund size. We all have the same 24 hours/day, 7 days/week and all investments require analysis and oversight. If I'm a VC with 600-800 million to deploy (typical large fund size), I can do, 30-40 deals/year, maybe, only if the diligence checks out, a partner is willing to commit 5-7 years to being on their board, and various other things work out.
That narrows you right away down to $20-30 million checks, maybe less if you keep reserves around for pro rata rights, but still, nobody's getting $500K out of this fund. Ownership is whatever it needs to be to generate the right returns for the fund. Also keep in mind, syndication is very common in VC so one $20 million check might be part of an overall round size of $50 million or more. Don't even bother with that if you can't show line of sight to nine, or ideally ten figures, of enterprise value.
It's hardly unique to startups, and has more to do with the industries they're in than the company size. Mine is still hiring very aggressively but we are in the health research industry which didn't face the same sort of "unwinding", and have always been remote so there's no empty office we're obligated to pay rent for. Meanwhile I have friends in very established publicly traded companies who have been laid off or had their benefits cut already. One lost all company matching on 401ks this year.
VCs remember that there are some very successful companies that came out of the 2008 recession, and many are doing a lot more than usual to help the more promising parts of their portfolio weather this storm.
This article fails to highlight how any of these startups (on that note, how is AirBnB a startup) are worse positioned than their larger competitors. Not one of the ways that workers are impacted that are mentioned in the article is unique to any size of public or private company.
Yep it is strange the author chose to focus on startups here. Almost every single company will be negatively impacted in the next few months to years (save for a handful of companies like Amazon/Walmart).
So I’m curious will property and rental prices drop in San Francisco now that funding is drying up? Can’t seem to find much information about that. For example a friend of mine who was laid off still has to pay $3300 / month for his studio. Curious how long this will last for?
Employees with high salaries at the larger more stable tech companies are doing most of the Bay Area home buying. Think FAANG, stripe, twitter, slack, etc. These companies can weather economic downturns without laying off people so Bay Area house prices don’t drop much. This was the case in 2000 and 2009.
Supply is also dropping as tons of homeowners are refinancing, which balances out any drop in demand.
The biggest hit is usually on the lower end of the market where you’ll see foreclosures as middle class people lose their jobs.
Anyone who thinks FAANG will survive without a contraction is deluding themselves. What happens to the ad market during a depression? How about luxury IT hardware? Entertainment subscriptions? Web services?
If there isn't a bounceback in three months or so, the entire tech sector will deflate like a balloon.
FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled projects and mass lay-offs. And those will have an effect on the the property and rental markets, on startup funding, and on everyone's cash flow.
Business is a herd phenomenon, and as soon as panic spreads through the herd it reverses direction - until some new excuse for optimism appears.
> FAANG will probably survive in some form because of cash reserves, but there will absolutely be cancelled projects and mass lay-offs. And those will have an effect on the the property and rental markets, on startup funding, and on everyone's cash flow
FAANG will lay off their armies of contractors before down sizing FTEs. Google has 125k FTEs but over 300k temps. Will it get to the point where FTEs are laid off? I’m not sure, but it seems pretty unlikely unless things don’t improve over the next few years or so
My takeaway so far is that the tech job search is going to be way more competitive for a while. Since this started, we have had about twice as many people pass phone screens. Smart people who were taking time off who suddenly want a stable income, and smart people who were laid off from less secure startups. Some very talented people that we would have hired two months ago, might not get hired when they interview next week, and it's not because we are hiring less.
Yup. Google has basically doubled in employee count since 2016. It doesn't seem unreasonable at all that it would contract back a few years or more, headcount-wise.
Only two of the FAANG companies get most of their revenue from ads, and all of those companies are weathering the storm rather well (except perhaps Google, but I can’t say for certain).
Facebook is struggling to keep up with site demand; more people are using it to communicate while shut in during this period of uncertainty.
Apple has enough cash on hand to not sell a single product for months - maybe years - and still keep paying everyone. But they have plenty of subscription-based revenue coming in anyway.
Amazon can barely keep up with demand to the extent that they are hiring 100,000 people and denying shipments of nonessential goods. (disclaimer: I work for AWS but have no inside information here; I read the same news stories everyone else does.)
Netflix is entertaining more people than ever who are stuck at home.
Google is, well, Google, and like Apple, awash in cash.
It’s not the FAANG companies we need to worry about; it’s the startups that were based on great ideas but needed the space and investment to incubate them but are now rapidly being depleted of oxygen.
While it is true that the marketing budget is often the first to go in terms of spend, FB is also awash in cash ($35B at EOY 2019) to keep them afloat for quite a while.
The cloud service providers will survive because they have a serious and relatively stable revenue from their services; even if they drop revenue to half, they cut contractors and investments for some months or a year and they are fine. Companies that rely on ads (like FB) will take a bad hit, ads are not essential services and companies will cut hard on that.
There may be modest layoffs in some specific targeted teams. But the giant tech companies are still hiring right now too. I'm still hearing from their recruiters.
Refinancing and selling
your home are both ways to get cash. The best time to refinance is when 1) rates are at their lowest 2) your home value is at its highest and 3) you can get good ROI on that cash. Typically people look for ROI either by investing it in the currently down market or using it for down payment on a second rental property.
All three of those apply at this moment so record numbers of people have been getting refi’s this month. When fed rates eventually go up perhaps next year people will shift back to selling, or simply holding while they wait for their perceived home value to recover. Either way you have less people selling homes.
Not an expert - this is just what has been explained to me so take it with a grain of salt. Also this falls apart if the market is flooded with foreclosures.
During the dot-com bust, rental prices went down a bit. During 2008, they stayed flat (as opposed to going up a few percent each year).
So I'm guessing it will either stay flat or go negative. It depends on how quickly things recover once the shelter in place is lifted and how many people actually leave the area.
The housing prices are driven by lack of supply, so even if demand softens a bit, it won't have that big of an effect, I think.
Rents fell in 2008. I can tell you this for sure, because I had just moved to SF, and landlords were making deals. My landlord lowered my rent by $100 a month in order to keep me from moving in 2009.
Even as late as 2010 this was happening. I looked at a place on Russian Hill around that time, and it was offering rent incentives.
In my recollection, the market didn't pick up again until around 2012, corresponding with the rise in startup investment.
The data seems to back you up, so I stand corrected. [0]
I was basing it on my own experience pricing the rental unit I've managed in Berkeley for the last 21 years. Each year I do a rent survey for the East Bay, and that was based on my experience there, but the East Bay is a little less price sensitive in both directions compared to SF, so that's probably the difference.
The center region of the bay area will hold its value longer while the outskirts will drop earlier. Basically people will "move up" when there is an opportunity to be closer to their job. Remember not all people will lose jobs during this downturn so some will take it as an opportunity to buy. If nothing else the bay area has great weather to offer.
These prices are set by the top 30% employees of the big tech firms. Unless there are massive layoffs there (e.g. 250k employees are let go) and this situation lasts for a few years (they have savings for 3-5 years usually), I wouldn't expect the prices to move.
Stock options and RSU's are a big part of the compensation packages for that group. So lower stock prices are essentially pay cuts.
And unlike 2008, many of these companies are more mature and much more exposed to the broader economy. Cloud computing, Ads, GSuite, etc... There are a handful tech companies that will probably thrive (Netflix, Zoom, etc...), but most of them are probably going to see big drops in revenue.
And considering that most of these companies have plenty of fat to trim (how many Alphabet moonshots are bringing in meaningful revenue, let alone profits?), I don't see how declining revenues won't result in some belt tightening. And when that starts happening, how many of the top 30% are going to be buying $2M-3M homes. The mortgages on those things are like ~$15k a month, and CA unemployment maxes out at ~$2k.
It is certainly possible that Bay area real estate weathers the storm just fine. But I really don't see a compelling case for it. Salaries can, and likely will go down. And bay area real estate is at all-time highs relative to incomes.
Why are lower stock prices pay cuts? Strike price is rarely fixed, usually it is some percantage of current stock price. So if stock price falls you get more shares.
You have no way of knowing what the price might be when you are able to exercise your options. You also don't have to exercise them, it's your choice. Equity compensation is always a gamble.
They live in 700K houses with 3K a month payments. Mortgages will be suspended: banks don't want foreclosures. Again, the tech bros are in the top 5% by income and assets. If they sink, then 95% will have been underwater already.
Are we talking about the same people and same area? You mentioned the top 30% of tech companies. Those folks aren't living in the far flung suburbs in the East Bay. They are living in SF and on the Peninsula, where median home prices have been well over $1M for a while now[1]. There are certainly some tech people that managed to buy real estate back in 2010-2012 at the bottom of the market, and who have been saving plenty of money for rainy days. Those folks will probably be fine. But there are plenty of others who took on large loans to buy expensive houses with incomes that were heavily based on stock based compensation.
Just to make sure I am understanding you, are you stating that the top 30% of employees have 3-5 years of savings socked away that they can get to easily?
If that’s true, well, I guess I am not in the top 30% of employees of big tech firms.
It also depends on if you include retirement accounts. It seems nuts to have 3-5 years of savings as cash in taxable accounts. But this is easily doable if you include retirement accounts, which you would start withdrawing from if things were really bad and the choice is to lose your house or withdraw early from 401K/IRA.
Corrections in real estate market, be it rent or selling, tend to reflect economy in slower pace and depend greatly on location/overall attractivity. Owners get very quickly used to higher rent/property valuations, but are very reluctant to go down with prices.
It might be good for those high renters to simply move elsewhere in couple of months when/if there will be many free places on the market. This is experience from elsewhere, from +-2008, so it might not work out exactly like this of course, but generally I would expect so.
My rent has gone up ~5-7% per year for the past 3 renewals and just recently (1 week ago) I got one that was 0 increase. I wouldn't have thought that was possible in the Bay Area until recently, so I'm not sure if I should renew or just wait until the last day and haggle a bit.
In the early 2000s, rents really didn’t go down. In rent controlled buildings you should expect they will still ask for the max increase. That’s what happened back then and people were moving away in droves.
Are you kidding? The 2008 recession killed a ton of tech. The core of traditional Silicon Valley (Mountain View, Sunnyvale, Santa Clara) had so much vacant office space that large areas zoned industrial felt like ghost towns. Sure, the companies that later became dominant survived. The electronic design automation sector held on because chipmakers couldn't stop doing design work. But it was very tough.
Perhaps, but the way it’s moving there will be another 20m+ people without jobs in a month or two (prime working age folks), and with a bunch of industries contracting at the same time it’s likely that recovery will take a while before it all resumes. Hope I’m wrong but it could be a few years before it will bounce back.
The news just keeps getting worse for SoftBank. "OneWeb, a satellite start-up that had raised $3 billion in venture funding from investors including SoftBank, the Japanese conglomerate, filed for bankruptcy on Friday and plans to sell itself."
Can we finally admit that SoftBank's model of so-called VC funding success is really just a colossal failure? The throw-everything-into-it approach of making Unicorns a reality just doesn't work.
Normally I would agree, but in this current shit-show of a market even investments in Delta can evaporate. Looks like everyone's suffering. Imagine even healthcare ETFs saw a 15% loss so far.
I’ve got an esports side project that was starting to get some interest within the community and generate non-trivial MRR (~4k mo). I have a closed alpha that a few teams in the league were using, and I was talking at some level to basically everyone that could be in the market for the current version of the problem. I was looking into getting a business/sales partner in order to have more success on the business side of getting the other organizations I was in talks with, as I am normally just a lead dev with no business interaction. Then the league, along with everything else, got delayed and quarantines started. Within 3ish days all of the professional teams, academy teams and two other organizations are interested in my “alpha” software. So now my “side project” as of April 1st has ~10x’d its MRR (~40k).
As of now I am getting some business stuff ironed out and only making bug fixes/small updates while I get a better feeling of what type of workload difference the growth is making
Interesting. If you don't mind me asking; how did you make contact with the first few teams? Was the early exposure from sharing parts of the project through social platforms or directly reaching out to the teams?
I have existing contact with some people in a few of the organizations which has come following the game over the last few years on a personal level. I’ve travelled to some events, have conversations with some players but mostly coaches, analysts and production team members, and have been around the scene on a hardcore fan basis for a long time. Last season I created a fantasy league app and some advance stats collection. This season I didn’t feel like doing the fantasy app again because there were good enough options out there but got some requests for stats/rankings from some of the people I know. So I started that then pivoted it into a platform instead of creating a bunch of spreadsheets (even though I still end up doing that for them sometimes)
Analytics and AV tagging/insights. So I can give them a bit deeper stats from data that they all have than what most teams can get internally, but then via tagging tournament audio and video can also show any clips that lead to the statistics. They can also upload their practice and scrimmage footage for private tagging and review.
Say Team X is the best team at Objective Y, they can filter that down and watch tournament footage of their strategies on that objective only instead of scrubbing through footage manually.
Thank! It’s exciting and scary at the same time. I’ve had some small projects that have also made small amounts of money, but never anything to possibly turn into a business
I've been contracting lately and I'm on two active contracts. One of the two is winding down. I've been billing at $155/hour via an agency (to be clear, their fee added on top of that $155). They offered me $90,000 salary to go employee. They upped that to $100,000 when I said no (I thought we were done but I said no again). Their thinking is they can take advantage of the situation to get cheap engineering staff.
If you're running a startup and thinking that now you can get cheap senior engineers, you might want to consider that it might be true for those who aren't careful with their finances. However, the talent you attract with this method is going to leave as soon as they find a better offer.
I don't think most management teams are like this one but I'm amazed by the short term thinking. Professionally, I can't really call them on this behavior but I'm glad to have been saving for financial independence (now is the time to go back to working on my own things and yes, I do have a multi-year runway).
Get an engineer for a year or two at the cut-rate price and once they've gotten ingrained into your org and code base they'll head off when (if?) the economy recovers. Not very forward-thinking.
Maybe, but right now it's too early to tell and a move like that, to take advantage of developers during this time, will hurt them nonetheless. I personally have been keeping track of companies I've applied for to see how they treat people during the worst times, right now, and I won't work for a company like that. I'm sure there are other developers who would do the same.
Article's premise is right but they primarily used start-ups in the travel and transportation space for examples of insane revenue drop. If people are sheltering no one is gonna be using these services. So, it's really not surprising.
The longer term impact is going to be the lack of funding in the coming couple of years and lack of customers for the services/products coming out of startups.
How will VC funds fair in this? Are there enough LPs out there willing to put their money into this risk pool?
Talking about startups in difficulties, any idea how wework is doing these days ? I would expect the work spaces being near empty, and for the companies renting spaces they might be even pulling the plug.
I am worried that if wework goes under because of the pandemic (and SoftBank realizing that it is not worth being salvaged), then it would trigger a domino effect in the whole US commercial real estate market.
Classpass was founded in 2013. Wonderschool was founded in 2012. Can we stop calling companies that age a startup? Or at least stop using them as examples? I mean, the article then goes on to call Airbnb a "home rental start-up". It isn't a start-up, it is over a decade old and has over 10,000 employees.
The reason AirBnb is a startup is because it makes no money. A company stops being a startup when you aren't relying on someone cutting you a check every month to keep it all going.
Most of these companies will now fold. The number of employees or, even, revenue is irrelevant.
I would have been in that camp. But it is probably unfair.
I still think the company is a dumpster fire but the big investments that Musk is making are, in part, driven by actual revenue.
...now that isn't wholly true. Musk seems to be able to keep raising debt without hitting equity. Over and over, he just finds utter idiots to keep bailing him out. The deal with the Chinese govt was incredible. Eventually, this will run out of road but the bankruptcy will show that Telsa did create some value.
Completely agree. I find the terms startup and scaleup as useful. Both aim for the same thing, but are in very different phases (pre/post business model validation). Then of course, in reality it's not that clear whether you're one or the other....
The term "start up" generally means any relatively young company (compared to companies that are multiple decades old) that's growing rapidly in revenue and/or valuation. The number of employees isn't as relevant.
And more precisely: any company that's young relative to incumbents / dominant competitors in the space (beyond a certain proportion, of course; a 99-year-old company is obviously not a startup even if compared to a 100-year-old competitor, but a 5-year-old company would be, IMO).
I personally think reliance on VC money is a more reliable indicator, though.
While PG tried to redefine the term "startup" to include "growing rapidly in revenue" or whatever, this redefinition never took hold outside of a very limited sphere centered in Silicon Valley.
Outside of the valley, startup means a company that doesn't know how to make money.
And yet we all know what they mean when they call those companies "startups". The term has drifted pretty far from its original meaning, but it does carry a new meaning even though it's almost completely different
Roughly. I would broaden the colloquial meaning to "new-wave tech companies". Ones from the past decade that aren't FAANG and maintain an agile culture (or at least purport to), and have a certain San Francisco sheen to them even if they aren't actually from there
I'm not arguing one way or the other, I'm just observing that "startup" is an overloaded term in 2020, and maybe the new definition is a bit silly, but it's also really hard to get everyone in a society to change the vocabulary they've become accustomed to.
> And yet we all know what they mean when they call those companies "startups".
That isn't true at all. These companies were startups almost a decade ago, but since then they already matured and strayed very far from the classification. This is like calling a 40yo man a teenager just because he was one in the distant past.
Another thing that's more than half a decade old is your objection. The term "startup" has come to have a broad meaning. The meaning of words changes over time. Fortunately, new terms often come along to fill gaps. In this case there is the term early-stage startup.
Often, a "startup" just means a private company that plans to go public but hasn't done so yet (as opposed to already public companies, and private companies that don't plan on going public)
No, that sounds like a private company trying to sound trendy.
A startup has a small number of employees to start with and a 2 - 3 year window to go big, fizzle out, or pivot into a small - medium sized business. You're not a "startup" forever, nor does eventually marketing yourself as one, actually make you one.
I mean, sure, but the fact that the objection is old doesn't mean it's wrong. While I wouldn't say there's a clear cutoff point in terms of time or employees between "startup" and "not a startup," there's got to be some point at which we say "company X was a startup, but really isn't one now."
Google was a startup, but we wouldn't call it one now any more than we'd call Apple a startup, right? How about Facebook? They're younger, they pushed that whole "move fast and break things" schtick. But with a billion users and worldwide offices and an actual corporate campus, I'm gonna say "no, not anymore," aren't you?
So I think it's fair to ask whether Airbnb, a profitable company with 12,000 employees and annual revenues of $3B+ for the last few years, can really be called a "startup" now. They were a startup. But now? Eh...
This just sounds like marketing spin. It's hip to be a "startup" because that conjures up the idea that the company possesses certain advantages over larger organizations, even if it doesn't anymore.
>>Another thing that's almost a decade old is your objection. The term "startup" has come to have a broad meaning. The meaning of words changes over time.
They use the word "startup" when it serves their interests. Yet, we don't call 10 year olds babies. Too bad
Companies are called start ups by people old enough to clearly remember when they really were just a start up, and haven't internalized just how long ago that really was.
One of my good friends is a restaurant owner in NYC and my spouse is a doctor/surgeon in NYC. Startups aren't pummeled -- they're insulated. Restaurant owners and doctors are pummeled. And all of you who thought incompetent federal government leadership was OK in this modern world -- you were bamboozled. You can start apologizing now.
If this crop of federal leadership is rotten, I'm not seeing much hope in the possible followup cohorts. The US government has effectively delegated responsibility for the crisis to state governments, and they all seem to be following the same stupid "stay in your home" model. Federal and state, their only solution has been to throw money at the problem, but that doesn't work when you've got no one around who can execute.
Taking control and centralizing all testing? Still barely happening. Isolating infected people? We've got thousands of non-critical COVID-19 patients and we are sending them home to infect their families. Anyone thought to use the hundreds of thousands of vacant hotel rooms for something? But there's no self-starters here. The option of least resistance is to just tell everyone "stay home it will be fine" and hope for the best.
I expected some failures in leadership but this is far beyond what I could've imagined. It's not Republican or Democrat, it's failures all down the line. No one is bringing anything to the table.
Only the federal government has the ability to borrow money. States have to balance their budgets every year, and whoops, half their tax money has now vanished, because so many can't work. Delegating responsibility to state governments and simultaneously refusing to provide the needed resources is a recipe for failure. Allowing unlimited profiteering on essential supplies and forcing states to bid against each other, while national stockpiles are withheld to be used for political purposes, means it isn't going to get better.
So we need to stay at home until we're able to test on a much larger scale.
There are also often limits on the purpose the money is borrowed for: in many states they can borrow to fund infrastructure or pay for some other project that spans many years, but they can't borrow to just meet a deficit. The result is that without federal aid we'll see a repeat of 2008 and just after: firing schoolteachers and other state workers, making those who remain take a pay cut, jacking up university expenses even more. And the impact on revenue is going to be much larger than 2008/2009.
Governors are just locking people in their homes and shuffling off blame. None of them think probabilistically or listen to anyone that does.
We are looking at an economic collapse that rivals late 80's Japan. People are viewing the "economy" as money. They need to rethink their smugness. Japanese salarymen work harder and longer hours than any American yet their salaries and purchasing power are half that of equivalent positions in America. The Nikkei has still not recovered from the crash 30 years ago.
That is our future if we just keep staying locked in houses. Also this "remote work" revolution people are cheering on should be rethought pretty damn fast. If this truly is the new normal, people are not going to hire Americans for $25/hr with benefits if we never meet them. Managers will just hire Indonesians for $4/hr since it's all the same to them.
At some point we need to let businesses reopen and ues temperature tracking + mandatory face occlusion. This isn't perfect, or even that good, but widespread testing won't happen anytime soon (it's not cheap and our government agencies are completely incompetent at large project design), so we just need to accept some risk.
But since no one thinks in a probabilistic way - since we are afraid to - it's gonna be shelter in place for a few months while the governors just cover their asses instead of actually searching for an 80% good solution, and blame Trump for not figuring it out either.
There is no leadership in our government, you are right. State, federal, local. Embarrassing.
But I genuinely believe all federal government leadership is incompetent - it’s not a matter of it being “OK”, that’s just the default for every administration. Which country on earth is responding to this well without resorting to authoritarian practices?
The fact of the matter is, there’s too many people in America invested in a cynical notion that we should expect the government to “fail,” which makes it easier to keep everything underfunded, which almost guarantees failure (random acts of heroism not withstanding). THAT, more than any single person, is what’s killing America. And that’s a bipartisan cancer.
No, in the US there's only one party that is explicitly anti-government, anti-expert, expecting government to fail. The other party has its own problems (its progressive and centrist factions are are war with each other, for example), but they are different problems.
The Singapore model for tackling the coronavirus that all the American press were blaming the American government for being too incompetent to manage doesn't even work in Singapore, as it turns out - they're going full-on lockdown now, with all non-essential businesses forced to either work from home or close down.
Denmark - shutdown everything march 14th, same week that the US started shutting down, not sure what we could emulate there except more trust in government? I live in a large very liberal city that has voted blue for the last 40 years and we still have our mayor pleading daily with ppl to follow SIP orders.
Norway - See Denmark. They have a slightly stronger federal government then the US and thus were able to use that power in ways that our Fed could not.
Singapore - Whatever they were trying before it all failed and they are now doing a lock down that's actually stricter than ours, also the stuff they implemented initially was draconian and would never fly here, and didn't work there in any case.
New Zealand - An island the size of New Jersey with almost half as many people (5 million), they still have 1000 cases. Not a lot the US could emulate from there. Only reason NJ has so many cases now is because of its proximity to NY and a certain demographic that still refuses to listen to SIP orders (See Bnei Brak for another ex., I'm pretty ashamed).
Taiwan - If you looked at what they were doing to contain this you would know why it's not practical here. 1) they have a national citizen db. 2) That db can be cross referenced with their national healthcare system, 3) which is also cross referenced with everyone at every point of entry. 4) They also used cell phone data to track people's whereabouts. Not a single one of those things is remotely possible in the US. Some are outright unconstitutional others would require bills to be passed and 3-5 years of preparation. If you think the patriot act is wrong... well the fed being able to unilaterally cross-ref different db's and track law-abiding citizens wouldn't pass muster either.
The American people want public services to be funded, but that is not where money comes from. American politicians are far more influenced by big money than they are by their constituents.
If you don’t believe competence can exist in federal government administration, then you don’t believe in our representative democracy. If you don’t believe in that, then spare us your participation, and don’t vote. But please don’t express your lack of belief in competence by intentionally voting an incompetent leader into our most important office.
This pandemic is a world-wide A/B test on the difference between competence and incompetence, and we here in NYC now have to suffer because of votes we did not cast. Indeed, in spite of millions of votes we cast, that simply did not count.
The callous, purposeless, senseless disease came to us first, the lack of coordinated federal response harms us the most, but the contagion marches exponentially along — indifferently laying waste to grand life projects, solid small businesses, and urban vibrancy — and soon, it will come for us all.
> If you don’t believe competence can exist in federal government administration, then you don’t believe in our representative democracy.
I have a different idea of what the federal government should be doing than you. I want the government to be as limited as possible and focus on fundamental issues like national defense. The federal government continually fails - see Hurricane Katrina, Iraq / Afghanistan (Obama made the situation worse!), the Great Recession - these are caused because a centralized all-knowing all-powerful actor can’t fix every problem. It’s my philosophical belief.
How will the pandemic be solved? The individual actions of millions people making their own localized choices. That’s how everything ultimately gets solved.
You can dream of a perfect president who could wave his hands and make everything better. But it’s simply not possible.
It'll be a couple more months before we can say with certainty, but I think Sweden has done an excellent job of balancing economic, life and liberty trade offs.
I heard an interview of someone from the Swedish chamber of commerce. He said "Social distancing is part of Swedish culture." Having spent a decent amount of time in Stockholm, I don't disagree. I remember the custom on mass transit is to stay quiet and as far away from any other passenger as possible...unless there's been drinking.
i been impressed with guatemala’s overall speed and depth. they were on top of the ball in latin america by weeks, to the initial derision of many countries.
Yes and no. Certainly the unit economics for some start ups always looked problematic. But for others, it's not hard to see how they would have solid businesses in normal times, but have no resources to weather this downturn.
I mean, it's not like people are never going to travel again or eat out at restaurants. But I certainly wouldn't want to be a travel startup or restaurant startup (at least of the dine-in variety) today.
Expedia and Booking have been around nearly 25 years and both have well over 20k employees. Seems like travel has more than enough margins to support multiple companies that size.
Yes, everyone fully understands with travel at a complete standstill, none of these companies are viable if the current situation were the norm.
But the current situation is not the norm, people will eventually get back to travelling a lot, and when they do there will be plenty of economic activity to support large companies in the travel business.
An extended shutdown with shut borders may have long-term effects on consumer's willingness and desire to travel. If the travel industry remains shut down for the next 12 months it's not unreasonable to think that the travel industry wouldn't fully recover for 10 years.
Or maybe pent up demand will have the opposite effect. There's no way to know.
I've had the same thoughts about the restaurant industry. Will lockdowns create a generation of home cooks, or will be so tired of staying in that the restaurant industry booms after this is over?
9/11 had a similarly chilling impact that shook the airline industry to it's core. Covid is likely going to be worse for the industry than that, but it's not without precedent
Yes and no. Yes; lots of startups fail and now just fail sooner. No; many who would have otherwise found a foothold now have to re-examine their path forward.
The startup I worked for until last Thursday is going through this. Despite most other startups in the space folding and the sales team finally getting traction with lots of buyers giving a path to becoming a viable business, those companies that were eager to sign contracts a month ago are having to rethink their cashflow and deciding if changing anything in their existing business is worth the risk.
Startups have had years to prepare, work on their plan, strengthen their fundamentals, and raise capital if necessary. I think the shock is that probably this is a faster onset and deeper drop scenario than most had modeled.
Every [1] startup has been thinking for the past couple years about their plan for when the recession would come. Probably hundreds of articles written in mainstream and economic/financial press over the last 2-3 years about "the coming recession" [1]. Trade war? Debt bubble popping? Auto loan credit crisis? Nope, turns out it's pandemic. Nobody saw that coming until January [3].
[1] No evidence but my guess. If they haven't it seems negligent.
People always write about coming recessions. I could "recession year 20NN" and find someone proclaiming a recession would happen that year. Given someone in the peanut gallery is always claiming recession is near imminent, when are businesses supposed to prepare? Leaving piles of purposeless cash is poor business acumen: it could be put into R&D, expanding operations, or returned to shareholders.
> Leaving piles of purposeless cash is poor business acumen: it could be put into R&D, expanding operations, or returned to shareholders.
Or put into making the company profitable, or at least not losing money. That might very well include R&D (to develop new products or more efficient ways to produce and distribute those products) or expanding operations (to leverage better economies of scale and have a better bargaining position with vendors).
Sure - different "math" for every stage of business on what to do with cash. But I think it's common (once in the revenue-generating phase) for companies to plan not to burn cash down beyond some contingency level. If the worst case scenario used in calculating that level of reserve cash is relatively mild compared to Pandemic'19 they could be headed for trouble.
I think what you can do is diversify and start thinking about business investments that would be good regardless of continued high growth or recession.
So continuing to invest in improved infra might be a good area to put your cash/resources since that will pay off really well in high growth and probably still have savings in a slower period.
It is faster and deeper and scarier than anything any leader working for a startup or VC in 2019 would have DARED put in a planning deck.
No one blogged about it in 2019, no one took a "how to navigate a pandemic-induced depression" class at business school.
That's not to say there isn't opportunity. Software engineer market comp WILL go down, as many point out, on account of shrinking RSU value. The talent war is over. It will soon be a great time to start a software company, if is not already.
I hope this is the final nail in the coffin of Silicon Valley: this place has been, very well deservedly until 2010-2015 but completely undeservedly after that, at the top of VC's investment list. But nothing innovative is coming out of that place anymore: the magical days of Facebook, Instagram, Twitter are over. What was my 'aman' (enough) moment? That startup with the juices and the juice squeezers (I forgot their name): to me that was the sign that the place is running out of steam. Hopefully this economic crisis will do enough damage and the investment focus will shift to more promising industries and locations. Awaiting the downvotes : I btw realise the irony of the fact that I write this comment on a website owned by ycombinator, but I am here because sometimes interesting things are shared :)
Airbnb is working on pulling out all the stops to try and prevent layoffs. They might not succeed, but if they were a smaller company they wouldn't even have anything to try.
Excuse me for getting a little bit off topic: I think these crazy times will cause startups, medium size companies, and especially individuals to, in the future, keep much larger cash reserves and generally exist more frugally.
It is true that at least in the USA that democrats and republicans in Congress and the president are working overtime to shore-up their constituents (i.e., large corporations) so they will be fine. I think the help given to the mega corporations will be at least an order of magnitude greater than what is given to help individuals and regular businesses - I base this on what has been just been given to the financial industry in the last month.
Frugal small businesses that we own ourselves are probably the most stable unless you are in the billionaire class.
Startups are having their great reckoning.
No longer can they just come up with fancy catch lines, and get bought by a billion dollar company.
Now they actually have to provide something unique, something useful, something worthy of them actually being acquired.
To me the most pertinent question is how long is the impact going to last. Are we ever going to get this under control? If it takes 6 months can any of the service businesses survive that long? What about startups?
I'm extremely optimistic about the coronavirus, something like the 90th percentile among positions I've read, and even I think we'll still be facing impacts in 6 months. Even if the lockdowns end this month and the public health problem is considered resolved in June, that won't be enough time to shake off all the effects.
Most businesses will certainly be allowed to open long before then, though.
Prediction: The great unwinding is going to be felt much more severely by Big Tech employees, but many months out from today.
Source: I don't work at Big Tech, but personally know many folks who do. For the most part, they are not really thinking very far into the future, because they think (with some justification) that their jobs are much safer than startups and smallish companies.
1 The usual reasons of less people spending money on stuff holds, of course. If your customer is now unemployed, they will eventually cancel your software subscription too.
2 Most employees working at these companies have stock options which will plummet once people start pulling money out of the stock market because they actually need the cash to survive.
3 There will be the usual letting go of people because the manager doesn't like them. In a big company, ironically, this is much easier because no single employee is indispensable.
4 The actual problems are not going to start at Big Tech till about a year from today. This is one of the main problems. Most predictions of economic recovery are way too optimistic. Unless something extraordinary happens (e.g. a combination of off-the-shelf medicines, all in large supply, which miraculously just negates the virus, and we learn about it tomorrow). There is an excellent chance that the layoffs will hit Big Tech precisely when most of their employees think they are safe.
5 The biggest problem, in my view, is how much these employees are used to the cash cushion. There will always be a few prudent folks who save a large chunk, but generally the lifestyles have already been elevated to match the income. The folks who never raised their lifestyle to that level will not really have much to worry about, but that is a small minority.
One can imagine these folks - who are basically going to be the last to be laid off, having to compete with much more hungrier folks while simultaneously having to significantly downsize their lifestyle. And suppose they also bring an "attitude" with them (not that everyone does, but some do), who will want to hire them?
Some folks will point out the large cash holdings of these companies and easy access to credit. But how far can that runway last, realistically, under these types of circumstances?
During the dot com bust - they began building Santana Row, on the site of a very old shopping center called Towne and Country.
The developers wanted to revamp the site to take advantage of all the tech money and provide upgraded experiences etc...
While they were in the middle of building it - the bust happened.
Then, one of the largest buildings that was ~65% complete or so caught fire. It was HUGE - I think it was an 11 alarm fire....
There was a crap ton of speculation as to how this happened - and the prevailing theory among many I knew at the time (I lived right down the street and actually stood across the street watching the thing burn down for a few hours) - was that it was insurance fraud to recoup some of the investment in the multi million dollar development due to the fact that its demographic was now largely out of work.
Obviously they did fine eventually, but lots thought it was an opportunistic attempt to take advantage of the situation.
As an aside, not too long after that, I had a pool aprtty at my place for all the tech people in our circle. 65 people showed up and out of that, only 2 were still employed.
The tech industry is a hell of a lot more resiliant this time - as actually many of the service provided are actually of great value to those stuck at home or unemployed. So this collapse will be nothing like the dot com bust.
However - the wealth transfer this time will be far greater than the 2008 collapse.
It really ticks me off when people think that 'startup' is different from 'business'. Startup is a new business. The fact that it is most frequently in the IT sector doesn't change it's nature. It's still a business that fall under all business rules.
I dunno.. online businesses will probably do well in this "new" economy. There's a ton of opportunity to remote work tooling as well. Right now people are hunkered down trying to get the basics in order. Restaurants and grocery stores have had to reconfigure themselves for delivery and curbside pickup. Cloud kitchens will do well here, Instacart is probably doing well too. AirBnB will not do well since they are a function of in person travel. Airlines though have moved to cargo delivery type function. Amazon is obviously cleaning up. If you can make masks or ventilators you are probably going to do really well. Every local community has an instacart like opportunity and some of these are grass roots organized.
By our very nature, we need months of runway just to keep running. We're designed to weather this kind of storm because "zero revenue" is the default state.
Hearing about Bird cutting 30% of their workforce is awful. But it's nothing compared to the thin-margin Mom & Pop, or medium sized private enterprise that had 1 week of cash on hand and ceased operations overnight.
My friends and family in startups are doing fine, for the moment. It's those that chose to work at the more stable, traditional work environments that are getting wiped out, and much less likely to return when the economy starts back. Because when it does, there will be money ready for investment - extending your runway to get there for a startup is more straightforward. But when you're a bigger business with little cash and no-one is buying assets right now, you literally are unable to make any decision to help.
I've got friends in manufacturing, hospitality, services, and so on that will not return to work because their businesses are going to or have already failed, for good. That's the fucking terrifying thing happening right now and it's more deserving of attention than us tech bros.