The analysis paralysis that comes with wondering whether your idea is “venture scale” is a really common mental pitfall for many friends that have considered starting a company.
Do what you’re passionate about, solve problems for people, and constantly question whether you are doing enough to solve this problem for everyone possible. If you’re asking yourself that question in the most intellectually honest way, you will naturally realize that the necessary tools to do things for many people involves software, AI, and all those common tropes of “venture scale” business. You’ll end up realizing that things like consulting are doomed to not solve the problem for a broad swath of people.
We (the HN community) need to stop regurgitating and reswallowing our own mythology like this.
Like, yes, when Dropbox first posted their idea on HN some people were like “just setup an SMB share”. But when I got to college in 2008 my friends (CS and non-CS-majors alike) were all using Dropbox to share pirated music and group project files, and it was clear to all of us how useful it was. I know I wasn’t alone in this.
It is not the case that “everyone thinks good ideas are stupid”.
All of those were things that already existed, in some capacity. Dropbox did it better, AirBnB had better advertising (which, by the network effect, meant their offering was better). and Uber must be some kind of money laundering scheme: a multinational taxi service that underpays its drivers (often to the point of abusiveness[0]) that is still haemorrhaging billions of dollars a year.
This is a weird list. Competitors of first two already existed which means there was a proven market, and Uber solved a problem that everyone knew existed and could be solved technically, just that it was hard.
Uber also had a proven market. Taxis existed for about 400 years before Uber was created. Gig jobs also existed before and mostly seemed to suffer supply issues (not a lot of flexible work available), leading to lots of scams in the area. Like Dropbox and AirBnB, Uber brought some improvements for customers, but demand was well established.
isn't it a meme on here that when dropbox was announced it got panned as a concept on here? Smth "I could just set this up using FTP and a unix box for free so why would I want to pay for it?" smth?
Not exactly[1]. First comment said that they could do this using some command then after some explanation by the founder, the commenter said: "You are correct that this presents a very good, easy-to-install piece". The second comment said "This is genius. It's is problem everyone is having, and everyone knew it". Even just by quantity most commentators said it was great. Just first comment is taken as fact that it was panned by HN.
On the other hand, for 'business' cases it was way, way easier to deal with than FTP, at least at the time.
When dropbox was coming into vogue, I was working as a 'drafter' that happened to spend more than half of his time coding AutoLISP routines and doing larger automation/tooling efforts via VBA and C#. (Ironically, I didn't really do VBA for Excel but did do some C# for it[0])
But outside of all that, I was working in an environment with a lot of 'construction' folks. The 'Ask them to open internet explorer and they click on their AOL icon'[1] types. To say nothing of an IT department that required a lot of ceremony and wait-time to open up IP addresses for FTP use.
Dropbox was a godsend. The UX was easy enough for the contractors to use, the IT department was overall fairly accepting of it, and frankly I thought it was great even if I made similar comments to my father about it when he asked me about "the cloud".
All of that said, I do think it did get enshittified at some point, but I don't remember when or what it was.
[0] - Bentley was, to my understanding, one of the few (only?) non-microsoft companies to have VBA support for their application. While the first things I wrote for it were in VBA (because I wasn't allowed to have VS at first,) after a certain point I was down to just a couple routines that were somehow faster to do in VBA than via the C# COM wrapper. Versus Excel, everything was VSTO.
Uber didn't solve logistics, if they had, they would have used their money to actually be a logistics provider, or one of the big ones would have bought them out.
As it stands, last I was aware their current business model was fairly unsustainable without continued exploitation of drivers. Legal shenanigans aren't 'innovative' unless you're SBF.
Prior to Uber, call-to-order taxi services were largely operated by human dispatchers. The exploitation of drivers and legal practices of Uber are valid criticism of Uber, the company, but not valid criticisms of their product imo.
I ran a business doing consulting work and was hired onto a small startup a few months ago. The relief I get from still having the freedom to work remote and on a team of talented people without a true boss is freeing especially since I don't have to focus on the economics of my business or business taxes or acquiring new clients.
I love that tech gives us the freedom to all have different preferences and live comfortably in them. Well as long as we get "lucky" enough to find our niche preferences.
It's not obvious, except in hindsight, which startups are venture-scale. How big is the audience going to be for a new product? How much can you charge? Who knows? Some products start out in a small niche, get fanatical users, and then become mainstream.
eBay, pinterest and etsy are big today, but who could have predicted that? Does pinterest solve a Large, Urgent, and Valuable problem? I don't think it does.
Pinterest is basically another photo sharing app. Exactly the kind of thing that this author argues isn't venture scale, and yet it was valued at $50bn last year. Anything that has a few hundred million users is worth a lot.
It's trivial to tell whether a startup is venture-scale in hindsight, and impossible to predict in advance. A startup is venture-scale if the founders have growth as their #1 priority. Otherwise, not so much.
I have to disagree. An auction website that everyone in America can use? A marketplace for small crafts that is nation wide? A social network that connects a large creative community and show cases brands and products?
It's not hard to imagine any of these having huge TAM's.
On the flip side, there are tons of ideas that just don't have the market size - an app that helps students memorize the latin numeral system is unlikely to have a large market.
I agree it's not easy to predict if a startup will succeed - but that's different from seeing if there is a market worth going after.
It's easy to imagine those marketplaces having huge TAMs /today/. With the benefit of hindsight, it's easy. And it's easy to extrapolate to similar businesses. It wasn't obvious then, not even to the founders. eBay started as a hobby project. Only after it took off did Omidyar realize he might have stumbled onto something important, and started taking it seriously.
TAM itself doesn't tell you anything. Take flying cars. Huge TAM and yet the space is uninvestable. An app that helps students learn a single thing won't get huge. But the educational software space is huge, and it's fine to attack a big market by starting out in a tiny and unprofitable niche. An app that helps students learn a single subject isn't an obviously worse business than helping collectors find their last missing Beanie Baby (which was the big growth driver for eBay back in the day).
Let's say your correct and the founders didn't know ebay could scale (even though this was during dotcom bubble and raised millions of dollars in investment) so what?
That doesn't mean it's not possible or that a savvy entrepreneur shouldn't estimate market size today.
The flying car example you give is correct. Yes, I fully agree that a flying car (at right price point and specs) would have a huge TAM. That doesn't make it inherently investible (though I nite a number of companies have received investment in this space). There is a huge difference between a huge TAM is desirable, maybe even necessary and a huge TAM is all you need. You seem to think people are arguing for the latter, when they are arguing the former.
I fully agree that the educational software space maybe huge. As such building an app to capture a portion of that might well be worth doing! I think you just demonstrated the power of thinking in terms of TAM - while X doesn't look huge on the surface, it's actually just the first steps to Y which is.
Yeah, it's not clear how to estimate the market size or TAM of an idea even if there already is a market, like take random examples of a dog walking or podcasting app. You can easily find sources that claim the dog walking or podcast business are $1 billion dollar markets. But how does that translate to evaluating growth in a startup in this business, and how big can it realistically grow?
There is an answer to this question, so I’ll give it a try in this context. Let’s assume “dog walking” as the example.
Assume the sales price of a dog walk is in the $25/session range, +/- $5 depending on location.
That walk has an underlying cost of labor and overhead. Assume 50-50 for each. That means the walker receives about $12.50 for the walk. The overhead pays for the transit time, the admin time (phone calls, scheduling, bookkeeping, insurance, etc.). It also includes marketing and sales.
For a local dog walker, the cost of marketing and sales is very low. It’s mostly done by word-of-mouth and referrals from good customers. So the salary is acceptable if they can get 2-3 walks in per hour.
Now, to scale this business from local to regional, some things have to change. More people are required. Training is required. And brand recognition is required.
The marketing costs must go up, the admin costs must go up, and ultimately the value to the customer must go up (to beat out the local provider), etc.
More customer value probably means a lower sales price (to compete).
And all of these extra costs doesn’t leave much of the pie left over for labor. So there is a lower labor salary-maybe only $5 per walk-which doesn’t attract very good talent.
In the end, you can see that it makes it extremely difficult to “scale up” a business like dog walking. It’s too labor intensive, the bar is too low for competitors, and it’s tough to create additional value for the customer.
You can do a similar analysis with other startup business ideas to test if there is really an opportunity for scale.
Hmm, so is your conclusion that dog walking startups are not venture scale? But there are several dog walking startups that have received VC funding, and at least one that's IPO'ed. I agree with all your points that makes these types of gig economy businesses difficult to be profitable, but they similarly apply to many businesses like food delivery -- so this can't be right. (unless you believe none of these gig economy apps are successful, which some people argue, but is a bit of a stretch imo).
Retiring by 35 is very possible on programmer salaries assuming you start young with minimal debt, and avoid major financial disasters.
It comes down to questions like, am I willing to forgo ever eating out, buying expensive toys, down to AC etc. The issue for most people is extremely early retirement isn’t actually worth major sacrifices when another X years can raise your standard of living significantly.
Unfortunately, retirement isn’t that great when you don’t have money or friends to enjoy it with. The trick IMO isn’t about early retirement it’s avoiding the traps that force you into working a job you dislike.
Depends on how much you save. I'm aiming for the option of retirement at 50. For most of the world, that's a very early retirement age. Anything before 65 can essentially be considered early retirement. You don't need to be 35 to call it early retirement.
Depends really on how high the salary is. I think you have to work out what is important to you, and what in one's life is just gratuitious consumption and can thus be eliminated.
Initially my search had an acre as the minimum lot size. There are probably much better deals in Montana than what I saw. Same for Texas.
The issue in Texas is it takes forever to get anywhere from those river front and lake communities. Not a problem if you're remote, bit of a drag if you work in Austin.
> how can you claim this with a straight face (in terms of low variance)?
Because I’ve been following tech salaries for 10+ years. If you can’t retire early (before 65) after making 150k+/year for 20+ years, you’re rather living way beyond your means or have very high expectations for what a normal person retirement looks like.
edit: or I guess in America it means you had a medical scare or two that burned all your money. But that’s not a problem anywhere else and has little to do with the maths behind savings. Tech incomes come with decent insurance at least
Though what you say is technically true, most people I know don't have the mindset to save and invest for the long term. Many people making six figures live paycheck to paycheck. They spend every dollar they make, and then some.
If we had better financial education in America, early retirement would be much more common.
And people whose goals are to become rich rarely have the intrinsic motivation to ever create anything worthy of market success. Money isn't everything; it's a pretty weak motivator in the grand scheme of things. Yes, the uber-wealthy use money to keep score, but make no mistake, all self-made billionaires have deeper motivations that drove them to success.
Totally agree. I've known startup owners who were all-in on their companies. All-in to a degree that they sacrificed time with their family and friends regularly just to grow the business. I always wonder what the end goal is there. Okay, you have a successful business, woohoo! But your kids hate you, your wife divorced you, and the "friends" you have left are trying to get to your money. Money beyond a certain amount simply does not buy happiness.
Of course, that's not all startup founders, but so many of them (especially the ones that are obsessed with money for the sake of money) do end up that way.
I am pretty exhausted by the startup world and their market ideas. Nearly ever single one is just taking some mundane part of life and throwing software at it.
Also, venture capital generates very short term thinking. Their thinking is almost wholly based on timescales of 1-5 years, maybe out to 10 years, for when they can exit and move on, letting the company either crumble post IPO or sale or end up gobbled up by some megacorp.
> Their thinking is almost wholly based on timescales of 1-5 years, maybe out to 10 years, for when they can exit and move on, letting the company either crumble post IPO or sale or end up gobbled up by some megacorp.
Average time to exit is now about 9-11 years. [1]
Maybe I'm just too millennial, but that doesn't sound like too short a timeframe in an industry that moves and changes as quickly as the tech world does. For instance, 11 years ago smartphone penetration was a tiny fraction of what it is today.
I wouldn't consider a 10 year time horizon to be 'short term thinking' - especially when that's an average, in a distribution with a much higher median - but that's just me.
A ten-year horizon is extremely short-term. It doesn't have anything to do with generations.
> 11 years smartphone penetration was a tiny fraction of what it is today.
Right, and I'd say we were better off then than now, and I believe science backs that up. Education, intelligence (literally brain and cognitive development), mental health, emotional health, community, time, and more have all suffered at the hands of smartphones. And that's what I'm getting at. Chasing capital value at the expense of everything else is short-term and short-sighted thinking.
> Maybe I'm just too millennial, but that doesn't sound like too short a timeframe in an industry that moves and changes as quickly as the tech world does.
It is a problem when the industries that depend on your work operate on much longer timescales. Not to mention, the degradation of service in the search for increased profits happens during that 9-11 years.
Venture investors want the prospect of a high return on their capital. Whether it's by investing in "the next AirBnB" - a business that can on its own scale to billions in revenue - or by investing in a company whose technology innovation can be sold to Apple or Google one day doesn't matter. What matters is the price you paid vs. the price you sell at. The direct revenue potential of the startup's product vision is not the only determinant of value.
That being said, the article is right to point out that not all companies are a good candidate for VC. You have to show the investor that your shares can be worth dramatically more in a few years than they are today. Why should they believe you? It's not wrong to say "because Apple will buy us for 50x," if you can articulate that outcome convincingly.
And that's ok! It's much easier to build a business worth $10-100M and get it to liquidity than it is to do the same for one worth >$1B. But if you don't take venture funding, your personal stake will likely still be worth life-changing money.
The flip side of this is that if your idea is not able to scale... it might not be worth doing.
Let's say the market of your idea is $100M/year, and in a best case scenario you can get $10M/year... that might not be a lot, especially if you consider all the costs and risks of business.
Worse, is that the smaller the market, likely the harder the business to run. You end up spending more resources, to gain less customers.
There's a lot of value in trying to understand market size, before in eating time and effort into a venture - regardless of venture capital.
A cynical person might argue that whether your startup has the serious potential to become "venture-scale" is unimportant in attracting funding - it's all about psychology and perception.
I think that was the point of the author. There are great products and services that are not necessarily unicorns and that's fin. Product Hunt I believed had a US$ 20M exit, which in the VC world is a rounding error.
A venture backed business is really hard to execute properly with tons of expectations. Lots of people have really basic ideas that they should just self fund or start small.
Do what you’re passionate about, solve problems for people, and constantly question whether you are doing enough to solve this problem for everyone possible. If you’re asking yourself that question in the most intellectually honest way, you will naturally realize that the necessary tools to do things for many people involves software, AI, and all those common tropes of “venture scale” business. You’ll end up realizing that things like consulting are doomed to not solve the problem for a broad swath of people.