(1) of all startup's started by people who working in the industry, quit FT jobs to do startup or put in serious moonlighting hours in startup; total earnings - opportunity cost, annualized:
(total income from startup - opportunity cost of hours worked on startup) / years spent
Maybe this data-set should be split further into bins of founders whose last title prior to startup were only individual contributors, or were executives, their age and pedigree etc.
Would love to see the distribution + standard deviation say, for computer programmer who quits the job to do a startup would gain or lose in earnings per year.
(2) of funded all startup; the alpha of investment: total return on investment - (S&P500 Index return in duration of funding to IPO/exit) / (S&P Index Return)
Maybe this data-set should be split further into bins of people involved: founders, first 10 percentile employees by join date, second 50 percentile employees and so forth...
Would love to see the distribution of return on investing in startup's as an investor vs. investing in S&P500.
I think that would make for very depressing reading. It would be comparable to making a documentary about everybody who ever played the lottery. For the most part you'll see people that lost. Year after year after year. And then there would be the lottery winners. A couple of them.
The middle is quite narrow, it's good money for a relatively large number of people but it is still a very small fraction of the total number that 'went for it'.
Still, better to try and fail than never to have tried, worst case you'll learn more in 3 years than you'd otherwise learn in your whole career.
But they aren't a lottery. Startups (and business in general) is about unfair advantages - knowing information that other people don't, and acting on that knowledge.
As a founder, your job is to find your unfair advantage and execute on it. Startups that successfully find a valuable secret and exploit it become worth billions. Startups that have no such advantage usually die.
I thought the article was getting at this, but it seems like a lot of the folks here missed it. Twitch succeeded because, as justin.tv, they were in a position to notice rising demand for gaming livestreams. And then when they did, they executed against it very effectively - look at Emmett's user interview lecture for how they systematically gathered feedback from prospective users to convert them to current users. [1]
That's what Justin's talking about when he says "Trust your metrics and your growth." They had an information advantage over VCs - there was very good reason for believing VCs were ignorant there, because in this case, they were.
> Twitch succeeded because, as justin.tv, they were in a position to notice rising demand for gaming livestreams.
So, for an alternative view:
This is not an unfair advantage at all. I was in exactly the same position. We however thought that having game sessions streamed was terribly boring (none of the people in our office were gamers), and so, instead of catering to this niche (which I'm sure hit us well before it hit justin.tv simply because we started much earlier) we threw the gamers out and concentrated on the people.
They found another home and Justin absolutely ran with it, he recognized the opportunity that we squandered and I'm very happy that he made it.
There is absolutely nothing unfair about any of this.
And VCs were already funding fantasy sports, casual gaming and other game related activities, they just never made the link with screencasts that Justin did.
But long before then they already won the lottery in the sense that they got more money to work with than anybody in the space up to that point. The biggest deal in that space up to then was probably spotlife, a Logitech / Philips collaboration around the theme of live video, they picked up $30M.
That's what I'm trying (and apparently failing) to get at:
For Twitch, being gamers who also ran a video streaming site was a huge unfair advantage, because they were in a position to recognize a trend as it just started. There was no reason, if you look at statistics or data, to believe that this was a combination worth a billion dollars - that moment had never happened before in the history of business, and will probably never happen again. There was a lot of reason, if you look at personal experience of them and their early customers, to believe it would be.
Similarly, Mark Zuckerburg was a college sophomore at an elite institution who had also built a machine-learning music player. He had a huge unfair advantage, because he realized what he could do with the personal data of a few thousand students. I was also a college student at the same time, at an elite college, and was (as a volunteer) involved with writing our own campus social network. It never occurred to me that it could be a business, let alone a $300B one, because at the time I thought that software companies were things that sold high-performance databases to Fortune 500 companies for real money.
What other unfair advantages do Hacker News readers have that they don't realize are advantages?
> For Twitch, being gamers who also ran a video streaming site was a huge unfair advantage, because they were in a position to recognize a trend as it just started. There was no reason, if you look at statistics or data, to believe that this was a combination worth a billion dollars
There was no reason not to believe the opposite either.
I think I have a problem with your use of the word 'unfair'. Unfair to me means 'cheating', 'foul play'.
Having first spent the required time to create a video service put them in the position to realize that there was another trend brewing and they capitalized on that.
It's a classic pivot into a niche that was unproven, it could have been worth absolutely nothing (and it looked for quite a while that it wasn't going to be worth anything, even long after they already bet the company on it). At least, that's what it looked like to me from the outside. I was more than happy to be rid of the gamers.
> It never occurred to me that it could be a business, let alone a $300B one, because at the time I thought that software companies were things that sold high-performance databases to Fortune 500 companies for real money.
Well, that's just sour grapes. And I'm pretty sure that Mark Zuckerberg is just as surprised as you are at the $300B. That you failed to capitalize on the same opportunity as someone else because they realized something that you did not has very little to do with Mark Zuckerberg being a college sophomore at an elite institution, and even less with a music player, it has everything to do with recognizing an opportunity when one comes along (and whether he acted fairly towards others in that same project or not is not the subject).
If you want to argue 'unfair advantage' you will have to shift your viewpoint to the third world.
Notice how I could have written that Justin had an unfair advantage over our team because he was in Silicon Valley and we were not. But I did not write that because I know that it wouldn't have made a shred of a difference. What matters is that he took the chance and we did not.
> What other unfair advantages do Hacker News readers have that they don't realize are advantages?
Hacker News Readers' advantages are: a great channel to communicate with like minded individuals, access to some of the smartest people that I know, a collective experience that dwarfs even that of the most seasoned individuals in the industry, access to capital, access to YC if you want it and you pass muster, in general a good or even excellent education, not to have to worry about what they're going to eat tomorrow (well, probably not everybody, but most of us anyway) and so on. In short, all the privileges that we as an industry (the IT industry) take for granted and that other people have to fight for.
But between us there is no 'unfair advantage', you're looking at a minute difference between two sets of individuals already from one of the most privileged groups on the planet.
I think that you're taking the emotional tone of my message differently than I intended it because I use the word "unfair" differently from how many people do. To me, it just means "Something not shared by many people; a trait that may gain you certain privileges that not everyone possesses." It's a valueless judgment, because I've already come to terms with business (and the world) being unfair. I could use the word "unique" instead, but chose "unfair" both because unfair connotes privileges (which we are certainly talking about here) and because Peter Thiel has talked in the same terms about what makes business go round.
I certainly don't harbor any sour grapes toward Zuckerburg - that is the nature of business, he was prepared & prescient enough to capitalize on his opportunity and I was not. And it's not like life has turned out badly for me in the meantime anyway. :-)
Fair enough :) It would make communication easier if you put such creative uses of words up front. I'm not familiar with Peter Thiels use of the word 'unfair', but the doesn't get to creatively re-define the words we use either.
Unfair has a very negative connotation.
> And it's not like life has turned out badly for me in the meantime anyway. :-)
Peter Thiel used the word 'unfair' as you would expect, in the context of saying that monopolies are successful for exactly the same reasons that they are unfair. And that, as a founder, people should be looking to build monopolies (which are unfair by definition).
That is the wrong wy to think about it. If you want to take an analogy, and I still dislike it but if pushed, I would call it sportsbetting.
There is a degree of chance (lets stop using luck) about both start ups and sportsbetting. They depend on forces outside of one's control.
However, a lottery mathematically dictates that you will have a poor outcome of winning and all you can do is increase your probability by buting tickets. A startup has more control over how it operates.
A gambler can watch tapes and use past performance to find a perceived mismatch between the spread or gaming lines, and their appraisal.
Many gamblers are unsuccessful. However there is a reason that the same couple guys seem to make it to the end of the world series of poker every year[0].
Peter Theil discusses it in depth in You're not a lottery ticket[1]. Startups are risky as hell and even smart people with good ideas fuck them up. However, smart people with good ideas only rarely win the lottery[2]
Dug up a post of mine from 2 years ago [1]. I bootstrapped for 14 months without salary and then took a pay cut for 2 years. Here are my numbers. I blogged about this as well [2].
Loss of salary for 1 year, 2 months
Does not include loss of 401k match or ESPP
-$140,000
Successful Kickstarter @ $25k
+$20,000
8 week contracting project @ 20hrs / week
+$16,000
Living expenses for 14 months (savings/stocks)
-$70,000
Post funding difference in salary from market rate
-$50,000 (year 1)
-$40,000 (year 2)
Total ≈ -$264,000
Thank you jmathai for digging up your numbers and posting them again. Really appreciate it, echoing the previous poster, I think living expenses really shouldn't be part of equation as you would incur them anyways if you had a FT job.
I think it is really impressive that you generated a significant income, which puts you arguably in a relatively high percentile of people who try to do startups.
Thanks for the numbers. I imagine you got equity of the company in the end, so in terms of your personal asset accounting, it should be factored in (not that getting a valuation on equity is easy, if it hasn't been traded).
Pity! I had my fingers crossed that you would have some kind of neat exit, you certainly deserved it with all the hard work put in. Better luck next round!
Your living expenses don't belong in those calculations. In both cases that would be money spent. In case of a startup if you have less expenses they would even offset the total.
You'll want to divide again by hours worked per year, since that's where the true payoff comes from running your own business.
Imagine a SaaS product that brings in just shy of a single Bay Area dev salary. Is that a success for a single founder who has put six years into building it? Of course not, right?
But what if said single founder now needs to put in roughly 100 hours per year to keep that business ticking along and delivering that salary? What if he can spend another 1000 hours per year building the next product, leaving a little over half the year to pursue his dream of competitive kite surfing?
Stick that into your curve, and I bet it'll trend a little more up and to the right.
Thank you jasonkester, it is indeed very complicated because to be nitpicky, you have to consider the growth or decay of the said established SaaS business over the years, the probability of the next SaaS business taking off; which I'd go out on a limb and say is highly variable but assume the median case to be: steady of loss of income from established business (e.g., BingoCard Creator) and very high risk/reward of next business in pipeline taking off.
(1) of all startup's started by people who working in the industry, quit FT jobs to do startup or put in serious moonlighting hours in startup; total earnings - opportunity cost, annualized:
(total income from startup - opportunity cost of hours worked on startup) / years spent
Maybe this data-set should be split further into bins of founders whose last title prior to startup were only individual contributors, or were executives, their age and pedigree etc.
Would love to see the distribution + standard deviation say, for computer programmer who quits the job to do a startup would gain or lose in earnings per year.
(2) of funded all startup; the alpha of investment: total return on investment - (S&P500 Index return in duration of funding to IPO/exit) / (S&P Index Return)
Maybe this data-set should be split further into bins of people involved: founders, first 10 percentile employees by join date, second 50 percentile employees and so forth...
Would love to see the distribution of return on investing in startup's as an investor vs. investing in S&P500.