Startups for the rest of us
Like thousands of other software developers, I have read the majority of Paul Graham’s blog both past and present. He’s a fantastic writer. He has great insights into software startups and building a startup
software company. I even went to one of the Startup School
presentations that he helped organize at Harvard last October, and you
I was sorely disappointed.
It occurred to me that Mr. Graham has a huge following of developers who all want the same thing. They all want to know how to start a company, get VC funding, sell the company, make millions and retire at a very young age. It’s a worthwhile goal, and I don’t blame anyone who makes the attempt. Paul and several of his colleagues even started Y Combinator, which is essentially an early stage investment group for software developers who want to make the attempt. If Paul and the other Y Combinator owners think your idea has merit, they’ll fund you and up to four of your colleagues with $6,000 each for 12 weeks to work on your idea.
Unfortunately, there’s some fine print.
First, you have to move.
You and your co-founders are asked to relocate to Cambridge, MA for three months during the summer or the Bay area during the winter so that you can work on your idea and interact with the people at Y Combinator. Doesn’t seem like a big deal.
Next, you have to be willing to give up around 6% of the company.
Again, nothing major. If you’re going for VC funding, you’ve already come to terms with the fact that you’re going to give up roughly 80% ownership over multiple rounds of funding.
Third, you have to be selected.
This is the part which you have very little control over. Y Combinator only accepts a handful of groups twice per year. My best guess is that the actual number is probably less than a dozen groups per year total. At the Startup School presentation I went to in Cambridge, the auditorium was packed to the gills. There were people sitting on the stairs so they could listen to the presenters. This was more than a year ago. With all the publicity since then, I’m betting that the field of competition is pretty fierce.
Overall, the Y Combinator program seems like a great deal until you do the math and take the fine print into consideration. Then you realize that there are vast numbers of developers who simply couldn’t participate in the Y Combinator program, even if they wanted to. The entire program is geared towards developers who are young and don’t have anything to tie them down. If you have a mortgage, it will likely be difficult to manage an apartment in either the Bay area or Cambridge while still paying your mortgage. And to get that mortgage, you had to have a job, which you will need to quit in order to take this chance. And don’t delude yourself; you are taking a chance.
Are you married, or involved with someone? Well, you’re going to be gone for the next three months. You’ll be gone for much longer if things go well for the business. If you’re married, it’s going to be a hard sell to the wife (or husband) that you intend to quit your job and move away for 3 months at a minimum. I suppose this might be a good time to get divorced if you were seriously thinking about it.
All of this begs the question that myself and thousands of other developers have probably asked themselves.
“What about me?”
I’m going to let you in on a little secret since I believe I’ve found the answer. You don’t need Y Combinator.
Go back and reread that because it’s important. I’ll wait.
I mean no disrespect to the people at Y Combinator but given that they’re ignoring the rest of us, I think they’re going to understand. They’re running a business and are targeting a specific group of developers because they think it is the best target audience for them. Any business needs to segment the market and target its members aggressively to do well. Y Combinator is no different. They openly state that although they originally had benevolent intentions, it is not a charity. They expect to make money on their investments.
But the requirements that will come as part of the offer leave a hollow feeling for the rest of us who can’t uproot our lives and shirk our existing responsibilities for a chance like that. What if you’re a little bit older? What if you have already graduated from school, maybe bought a house, moved in with someone, your student loans have kicked in, or can’t live on $2,000/month for one reason or another? What if you have kids? Then what do you do? Shirking responsibilities like those is just not cool my friend.
As I said before, you don’t need Y Combinator. It would certainly help to be associated with them because you can never have too many business contacts, especially people who know people. But the fact is, if you’ve got what it takes to make it big with the Y Combinator program, you can make it big on your own, too. It’s just likely to take a little bit longer and will be a bit more work.
Last August, I spent the money to incorporate Moon River Software and since October I have worked for my new company full time. Approximately 10 months later, I have an office in downtown Worcester, a decent list of clients, a great deal of incoming work, enough money in the bank to survive with no income for the next six months, and am currently looking to hire additional help to keep up with the workload.
All that and no outside investment capital. I did have a chance to accept outside investment early on and I never actively pursued it beyond the initial stages because I wanted to be the master of my own destiny. That’s the reason I started the company to begin with.
I could certainly continue with my accomplishments thus far, but I fully believe I would inadvertently cross the line from being proud of how far my business has come and waltz into the realm of bragging.
What I’m really trying to accomplish with this article is to illustrate that anyone can do it. I don’t think you need to be a hotshot programmer who can do crazy hard things like write a compiler to translate C into Lisp. You don’t need to “know the right people” to be successful, although I won’t deny that it would help. In fact, there are only three things that you really need to get a software company off the ground and build it into a successful business.
First, you need to be dedicated.
If you don’t tend to follow through with side projects you’re never going to make it as the founder of a new company. Building your company needs to be at the front of your mind. It doesn’t need to be at the top of the list mind you, but it needs to be in the top five in the same slot that a real job would be. Putting family first is fine, and in fact I would encourage that. You’re going to need a motivational support group anyway. Just don’t expect them to understand in any way, shape or form what you’re going through. The bottom line is that if you’re starting a business because you want freedom, you’re going to have to sacrifice a lot of it in the beginning
The second thing is you need to be a decent developer.
You don’t need to be in the top 1% of the world, but you need to be decent. I’ll be honest and say that this is really hard. Not because this is governed solely or even mostly by innate ability, but because it is governed first by perception and then by ability. We developers are an arrogant lot, and it’s difficult to look at things that other developers have worked on and think that we couldn’t do a job that was equivalent or better, hence our perpetual desire to rework and rewrite what we consider to be ‘bad code’. During interviews, we make snap judgments based on 30-120 minute conversations that sum up the career experience of a total stranger and inevitably determine that the person is either not as good as we are or is equivalent to our experience. It’s difficult for our fragile egos to fathom that a complete stranger could be a far better developer. This is why nearly every developer describes themselves as an ‘above average’ programmer. A more accurate measure than the people you interview is your peers. If you find that you can hold your own in a group of your peers who have about the same level of experience that you do, then you should be alright. If not, you’ve got your work cut out for you.
Finally, you need a little bit of money.
You didn’t think you’d get away that easy did you? It takes money to make money. Anyone who tells you otherwise is selling something. Whether it’s hardware, software,internet access, phone lines, office equipment, paper for your printer, pens, notebooks or whatever. You’re going to need a little bit of money. If you’re planning on quitting your job outright to attempt starting a business, you’re going to need a lot more money than if you worked on your new business in your spare time. If Y Combinator can invest just $6,000 per person, chances are good that you can build a company with less than that.
If you can manage just those three things, you’ve got what it takes to build a successful software business.
Special thanks to Rob Walling for reviewing drafts of this article.
This is a fabulous post Mike and I whole-heartedly agree with you. There are a lot of great programs out there for people right out of school, but not many cater to those who are established in their lives and careers. By the time I graduated from college with my BS, I had already done a stint in the Navy, been married for 8 years, and had a child. My husband was (and still is) in the Army and I had a family to feed. i couldn’t just take off so I got a job as gvmt contractor and started on my business.
4 years later and another child here, I am FINALLY making a go at the business full-time. Not only do you need the qualities you mentioned.. you need to be willing to take the risk and take the chance to make it happen.
One reason I wasn’t ready to take my company full time was because I really enjoyed the lifestyle my income provided for us and was unsure if I wanted to go from 70k/year to who knows what a year.
Now that my husband’s job has brought us to belgium however and seeing as how the Belgians tax yoru wages by 50%, it’s now time for me to throw caution to the wind and go for it.
I think alot of what you said can be applied to most businesses whether it’s a software startup or not.
Some nitpicking pedantic comments:
“And don’t disillusion yourself; you are taking a chance.”
I do not think that that means what you think it means.
“I don’t think you need to be a hotshot programmer who can do crazy hard things like write a compiler to translate C into Lisp.”
o_O That is crazy indeed. The other way around is actually useful, but I honestly can’t see why you’d go from C to Lisp.
oops. Totally correct. I meant “don’t delude yourself”. Corrected in the blog entry.
Excellent article, I especially liked the “First you need to be dedicated…” paragraph. Spot on advice in there.
With all due respect Mike, isn’t your “startup” actually a consulting business? Y Combinator isn’t relevant to your experience anyway, since they don’t accept consulting businesses. Businesses which are based on a product which is not 100% reliant on the continued work of the founder/s have different needs to a consultancy, as consultancies are not sellable as a going concern without the founder being there.
Because they don’t have “a little bit of money” 🙂
I read the Chinese version of Paul’s book, it’s great (the translation is crap though).
I absoultely agree on your 3 points, however to get a company IPO we may need something more than that 🙂
Mike, great article. I also attended the Startup School last year and came away wondering “what about me”. I have two children and a wife with mortgage. I decided that the best thing that I could do was to spend all of my spare time working on my own projects and consulting. I now run a profitable business and have a few employees(and a lot of interns). We do consulting and custom software development for ourselves and for clients. We hope to make the jump to our own applications soon so that we can stop consulting and focus on our stuff more, but this is like working for someone else and programming in your spare time, I just work for myself. Great read and I hope your business keeps going well.
It seems to me to be a bit obvious really. Was anyone under any illusions that Y-Combinator was aimed at early stage, low investment startups? The only people who could survive on such a wage would be college kids or the sort of entrepreneur who will live for 6 months on burritos and 9p ramen in order to get things going.
I mean – I don’t go for a job in McDonalds because, frankly, the pay sucks, the conditions suck and I want to be my own boss. I’m not going to even attend a startup school for Y-combinator because their services are not aimed at me!
At the end of the day, hot coffee is hot.
I agree with what you say (by the way, great post)
In any case (working with Y combinator or any other fund or by yourself), you have to know that you can’t have progress if you don’t sacrifice something.
This can be your free time, money, the ownership of your company or ever a divorce from your wife.
From your advices the most important is to be dedicated. Because if you are dedicated you will manage a way to find the resources and the knowledge needed.
For the end I would like to give you some lyrics from Aerosmith : “You’ve got to lose to know how to win” I think this is one of the things that comes with the dedication thing 😉
News Flash: Different routes to different goals, pictures at 11
Mike, come on. I was at Startup School too and the common thread between most of the presentations was “This is how I did it and here’s what you need to be aware of” and then each presenter told of their almost completely unique experience. ( http://caseysoftware.com/node/165 )
It’s not news that there are different ways to go about it for people in different circumstances.
Nice article and observations. Just remember that everyone’s priorities are different. I’ve met those in their forties who put their life on hold to get their masters and that requires a lot of time and new monies away from families. At 6k a head per month is most most people will be getting even in their standard jobs. Hoofing a mortgage and sharing an apt with your co-founders shouldn’t be that difficult. Not to mention you’re doing this for an end-goal purpose. If your wife isn’t going to support you and you aren’t going to find ways to keep it all together then this deffinitely isn’t you’re cut. As an early family man though we would see this as an opportunity none the less. Everyone’s different.
The other thing no one talks about is the turn around on your time. It shouldn’t take you more than 4-6 months of all out dedication to get where you are going, or at least a foothold on the beach. If by one years end your product isn’t gold and in the web then your idea is probably going to be snafu’d anyhow. This is a time of cheap RAD.
Like Keith said though and I’ll remangle, you can skin a cat a lot of ways. Just because you can’t handle the delta doesn’t mean others in similar positions wouldn’t, or couldn’t.
Nice post. Really.
But I think you missed a point. You also need to be at the right place.
I live in Uruguay (imagine Miami…but 6000 km south). We are not Indians. We do not live in tents. We have a decent education, a stable democracy, freedom of speech, nice weather even and cable tv with HBO.
I (like the mayority of the developers), consider myself an above-the-average developer, wanting to retire early. But you cant imagine how hard it is to build some kind of successful Internet-based business from here. All kinds of limitations arise when you want to start. Buy cheap servers on eBay..no way, your credit is not accepted. Wanna accept Paypal/Google payments. No way to bring the money in after you collected it on your account. Want to promote your product using word-of-mouth with some nice pals from a nice University? Negative, you don’t have any pals in the states. And a long etcetera.
I’m not stating that is not possible. Some successful companies here live by making nice software and sell it overseas. But the path is just a few miles longer.
Unless you want to be exploited, you don’t go to Ycombinator. They are leeches.
Great article. I’ve always thought the same thing.
Does anybody know how old Paul Graham was when he started his lisp company before selling it to Yahoo!
Andy C –
It’s 6k for three months per person!
That’s only like $2k per month (per person!).
Even at age 25, that’s too low for me. (when you make $60 per hour doing consulting… working for $2k per month is not all that appealing)
The only thing I would say though Mike is that, you’re 100% right. Do you have friends pushing you to try to get into Y Combinator or something?
Personally I’d much rather take $100k from angel investors in Silicon Valley for 10% of my startup.
That way you have at least 1 year (if you manage your funds correctly) to get something out the door.
While keeping a full-time day job… I’ve managed to get my side projects (95% automated) generating ~ $4,500 per month. Keep up the hard work, man.
This is a great post. I’m living the day job and .com start-up at night (Quotiki.com). I partnered up with a strong programmer, since I’m stronger on the web design side of things. I think you could add a fourth point called ‘Find Someone Who’s Strengths Are Your Weakenesses’
Actually, I wouldn’t say that. In fact, I don’t think that it’s completely necessary to have a partner. Most people do indeed find partners, but the myth that a partner is a requirement for a successful business has been perpetuated for so long that it is difficult to be sure where it originated.
In any case, I wouldn’t say that you need a partner to succeed. Read my other article on Startup Myths Debunked for more on that.
In my experience doing consulting work combined with a startup is at least in the early phase an excellent combination. Good luck to all of you!
Right on! The Y Combinator is like Medical School. It sounds good. Then you realize that there are vast numbers of students who simply couldn’t participate in Medical School, even if they wanted to. The entire program is geared towards people who are young and don’t have anything to tie them down. If you have a mortgage, it will likely be difficult to manage an apartment near whichever medical school accepts you while still paying your mortgage. And to get that mortgage, you had to have a job, which you will need to quit in order to take this chance. And don’t delude yourself; you are taking a chance.
Are you married, or involved with someone? Well, you’re going to be studying for the next three years. You’ll be gone for much longer if you don’t wait. If you’re married, it’s going to be a hard sell to the wife (or husband) that you intend to spent night and weekends at the hospital. I suppose this might be a good time to get divorced if you were seriously thinking about it.
All of this begs the question that myself and thousands of other people have probably asked themselves.
“What about me?”
I’m going to let you in on a little secret since I believe I’ve found the answer. You don’t need Medical School.
Riddle me this: Since when was becoming a doctor considered a ‘chance’ at success?
Careerbuilder.com puts a doctors’ average salary at nearly $150k in 2003. Doctors tend to be paid more than most other professionals. With medical school, there has been the expectation for years that you will need to take out loans to make ends meet, both in terms of tuition and in terms of living expenses.
People who go to medical school also go into debt with loans to get them by knowing that when all is said and done, their salaries will have increased dramatically when it is over, thus allowing them to pay back those loans and then some.
The people applying to Y Combinator have no such guarantees and are truly taking ‘a chance’.
Pablo: You’re absolutely right. I’m from the Philippines and I can understand where you’re coming from. Plus, it’s harder to hire “qualified” developers from our location (at least for me).