HN Theater @HNTheaterMonth

⬐ apo

In a nutshell, the situation is that the startup is:

> ... not growing but it's not dying. ... and the founder doesn't really know what to do.

Makes me think of Paul Graham's concept of "default alive/dead":

> When I talk to a startup that's been operating for more than 8 or 9 months, the first thing I want to know is almost always the same. Assuming their expenses remain constant and their revenue growth is what it has been over the last several months, do they make it to profitability on the money they have left? Or to put it more dramatically, by default do they live or die?

http://paulgraham.com/aord.html

I think this is a much more valuable place to start the conversation. The available options (which may or may not include shutdown) depend strongly on the answer to the question "are you default alive or default dead?"

⬐ situational87

This is the old way of thinking, profitability doesn't seem to matter much anymore. The last two startups I worked for were (luckily) profitable and growing, but when the Series A investors found out about this they got very angry and started demanding we increase spending on things we didn't need: more engineers, more AWS, more initiatives for crazy tangents, hire a growth hacker, hire a growth marketer, then some more engineers who have nothing to work on.

The demand for perpetual (even artificial, fraudulent) growth is prioritized over all else. The VCs can't get out of their investment unless things have grown. That's all that matters to them.

Neither of those startups is around anymore, they were both driven out of business by this demand for more growth. The Series A investors couldn't care less, they exited long before the end and left someone else holding the bag.

⬐ jjeaff

There is another reason they want spending to increase. They need you to run out of money before you hit profitability or else you won't need to do another round of financing so that the VCs can take a larger piece of the pie.

⬐ tru3_power

This is messed up man. I bet a lot of a good startups are killed for no good reason (and only for greed)

⬐ randall

Solution: Ignore VCs. They're incentivized for you to be Facebook size. Not the size of the business's opportunity * your execution strength, which is how you stay in business.

⬐ hinkley

Do you remember those stories about label reps getting bands hooked on drugs so they were beholden to the label?

Those people found a new place to work.

There's pushing people out of their comfort zone, and there's pushing people way out of their comfort zone so they are perpetually off-balance and need your help.

⬐ gms

https://twitter.com/paulg/status/1160446857270579200

⬐ ilikehurdles

Dumb question incoming.

If your company is marginally profitable and stable, and you choose to ignore demands from an early minority stakeholder investor to spend more, what are the consequences? I get that they might stand in the way of future funding rounds, but what if you simply don't need future funding rounds? The VC likely has eight times as many bleeding startups as it has profitable, let alone growing startups. Would they ditch a profitable slow one?

⬐ shartshooter

Your reputation can be significantly tarnished in the eyes of vc’s if you go that route. There’s nothing stopping you from ignoring investors(assuming you’ve got the board seats to retain control) but the expectation, generally, when taking vc I that 1) you’ll do whatever it takes to keep scaling 2) the market you’re going after is significant and 3) if either of those two things change then you’ll pivot/shutdown/etc.

This isn’t gospel but I have a friend at a tier 1 vc who told me something to the effect of: we’ve got $X00MM in this fund. We’ve got four years to invest the money and will choose something like 40 companies over that time. Two need to become unicorns to make their nut. If you don’t have the intent to be that, then they don’t want to invest.

Of course there are vc’s And angels who don’t follow that methodology but for the most part they want to invest in _growth_ startups rather than lifestyle businesses.

⬐ gnicholas

Were they raising their next round and trying to demonstrate to LPs that they pick high-growth startups?

⬐ bryanrasmussen

profitability matters for how much you need the VC. Of course they might want you to need them more than you want to need them, and in their eyes therefore profitability might be a minus.

⬐ sharkweek

It’s kind of a joke but the scene from HBO’s Silicon Valley with their investor telling them to remain “pre-revenue” for as long as possible to maintain the appearance of endless possibility always struck me as more accurate than the joke might imply.

⬐ strenholme

My startup shutdown horror story: A start up I briefly worked for during the dot-com bubble one day just ran out of money. I could see the writing on the wall, went to another dot-com (which also failed), but kept in touch with the people there. As they described it, the boss came in one day and told everyone “OK, the company has run out of money and is now closed. You will not get paid for the work you did in the last week, all medical and other benefits are now null and void, and good luck finding a new job.”

⬐ huehehue

Hey I had this happen last week, but every non-exec was blindsided. In fact, I had to break the news to another engineer after he was just kicked from Slack/GH/etc with no explanation.

The video I'd love to see is "How to Shut Down a Startup"

⬐ jacquesm

That's mismanagement to wait until the day you are out of money to inform your employees.

⬐ EliRivers

It's disrupting employment norms :)

⬐ bsder

I thought California is normally pretty decent about going after those kind of people.

IIRC, some of the executives can be held personally liable for payroll in California law.

⬐ strenholme

Looking at https://sebastianmillerlaw.com/liable-unpaid-wages-following... it looks like this would had been an uphill battle at the time; “dot-com bubble” refers to a company which went out of business in the late 1990s or very early 2000s.

From that page:

>>>Until a few years ago, however, it seemed that, absent special circumstances like alter ego or failure to observe corporate formalities, courts in California would not impose personal liability for wage and hour claims on the key employees, directors, officers, or investors of a corporate entity.

Recent decisions suggest the tide has turned.<<<

⬐ nostrademons

That's comparatively tame. My two startup shutdown stories (in both cases I left 1-2 years before they totally blew up and heard about it through former coworkers):

In one, the VCs came in, ousted all the management, installed their own highly-paid employees, and then promptly ran out of money. The technical cofounder stealth-bid (through an employee friend) against the VC for the company IP at the bankruptcy auction. The auction house messed up and told both parties that they'd won. Lawsuits started flying back and forth. The founder decided that rather than deal with this, he'd move to China with the IP, where they don't enforce IP laws, and start the exact same company with Chinese employees. The company failed for exactly the same reason the first one did, namely the technical founder's complete and utter inability to manage a production-quality project to completion.

In the other, the business cofounder quit, ran off with the customer list, contacted all their customers saying "Hey, I'm founding a new startup", a lawsuit was filed, and AFAIK both businesses failed.

I've been lucky that with my own startups, I've parted on amicable terms with all the cofounders I've worked with - though this is usually because we only gave up when it was clear neither of us wanted to do it anymore.

⬐ tschellenbach

If you have a team you're happy with and your cap table is not messed up, there is always a solution. See Slack, Youtube, Flickr and many others.

⬐ going_to_800

If that zombie startup gives you freedom and a good salary, why shut it down? This is not for bootstrappers or those who pursue life-style businesses, it's for VC backed startups.

⬐ cameronbrown

Or alternatively: Hire a new C-level and some time training them up to replace you, and go do something else.

⬐ cheschire

I suspect the people that feel the way you do probably wouldn't gravitate towards the risk/reward system of the startup lifestyle in the first place.

⬐ jbay808

Instead, they might gravitate towards the organic growth / bootstrap / lifestyle business lifestyle, which is a distinction that the GP made.

⬐ jacquesm

Life can change. That 'hot start-up' that morphed into something that employs you and a bunch of others might be less than what you and your investors hoped for but still substantially more than nothing.

⬐ bredren

It can change, though if it is obviously a country club your investors may not reinvest in your next thing.

⬐ jacquesm

Sucks to be them if it takes off then. After all, your chances of success on the second time around are substantially larger than the first. But then again, you'll also be a much harder case to take advantage off so that would rule out quite a few investors up front. And accelerators too, for that matter.

⬐ thesausageking

It's easy for founders to get stuck in the short-term thinking of "how do I keep my startup alive" and, after months or years of this, end up with a business that isn't going to grow and they don't enjoy or feel passionate about running. I believe this is what Aaron means when he talks about "Zombie startups". It's a pretty common state for startups to get into.

In those situations, it's better to shut it down and move onto something else then stay working on it simply because of momentum. Every year of your life is a huge opportunity cost.

⬐ jakozaur

Unfortunately a lot of startups doesn’t shut down cleanly. Shutting down your own startup can feel for many founders like killing your own baby.

However, the alternative such as a messy shutdown by leaving unpaid bills and unrealized contracts is even worse. Bankrupcy laws doesn’t work so smoothly around the world, even after bankcrupcy you can still be liable for taxes as well as unpaid bills/wages get bad reputation which can hurt you in the future.

⬐ Jasper_

That "zombie startup" that Aaron is describing sounds like a nice, sustainable company that isn't chasing growth but can live for a while, profitably, with the customers you have. Why shut that down? That sounds great!

⬐ cyborgx7

I'm a hundred percent with you. I've seen the term "Zombie" to describe a company that is sustainable, providing a valuable service and paying their employees a lot on here. And noone was ever able to convince me why that is a bad thing. The fact that this business is only interested in bubbles and thinks sustainability is disease, really goes to show how fundamentally putrid this whole industry is.

⬐ advertising

We entered that zombie phase our 5th year in business. Now we are in our 9th year and have ticked along slowly slowly decling a bit each year. Down to two employees and probably have one year left to go. All investors except for our single biggest have said we should shut down largely so I can personally move on. Our biggest has been happy to see us stay alive being that there’s still a chance for success they believe.

It’s largely been depressing coasting as a zombie. Making enough money to pay the bills but not enough to save or do anything for the future, but have been afraid to start something again for fear of going down this same route again.

⬐ jacquesm

I've seen zombies turn around and amaze everybody involved as well, keep in mind that you have something that you've lost along the way up: agility. You can now make moves that you could not in the past, larger companies are like larger boats, they don't turn quite as nice or fast.

⬐ pmikesell

Is it possible for you to figure some idea out that could be your last chance moonshot for this company? Maybe it’s better to go out with one last boom or bust push instead of slowly dribbling away?

Best of luck to you - sounds like a tough spot.

⬐ borski

There is a massive difference between:

1) A company that is sustainable and effectively “runs itself,” growing linearly, generating passive income, and default alive, but without much input or massaging from the founders outside of thinking about and implementing strategy, and,

2) A company that intended to be a startup, that still requires heavy support, tons of the founders’ time and effort, and is constantly still trying to figure out how to acquire new users. It’s profitable, but only because of the founders’ active efforts.

One of these is depressing and leads to burnout. The other is fine.

⬐ closeparen

He literally says, "it might be a good business but it's not a startup."

Small businesses and startups (as YC uses the term) are different things. Your neighborhood coffee shop is not a startup that leveled off, it's a small business.

⬐ boltzmannbrain

Because as a founder the startup is your life. It exhausts you mentally, physically, emotionally, financially. If your startup isn't accelerating, it feels like you are wasting your life away at an accelerating pace.

⬐ criddell

Is the same true for someone that opens a restaurant or tire store?

⬐ boltzmannbrain

No. Apples and oranges. I presume the guy running the local AutoZone doesn't aspire to be acquired by Google or Roche for $2 billion. You could make the case for expert chefs or restaurateurs pursuing Michelin stars and fame -- going through relatable struggles, aspiring global success.

⬐ ackbar03

Cause the investors are going, "that's not what I'm giving you money for! shut it down! SHUT IT DOWN for the love of god!"

⬐ Jasper_

The investors would prefer to lose their money entirely than get it repaid over a longer period of time?

⬐ paulsutter

Yes. All their returns come from 1-3 companies, while the other 40 board seats are a headache (founder squabbles, helping to hire a VP of Sales, etc)

I’ve been in a VC fund for 10 years and literally all the returns are from three companies, the others make no difference whether they zero out for return 3x

⬐ koopuluri

If an investor bet on a founder that they could produce billion dollar returns in a 10 year time span for their investment, they would much rather have the founder work on another idea / direction that could potentially result in the crazy returns.

You can never reach that level returns if a business is sitting at 50k/mo.

⬐ toomuchtodo

Then sell the business for a reasonable multiple, don’t shut it down.

⬐ decentralizedX

I actually think so, because of how the vc funds and balance sheets are structured. The only thing they care about is the one or two startups that will return the entire fund.

⬐ nemothekid

Yes, or more specifically, Venture Capitals would.

⬐ robhunter

There is a significant time value of money effect at play here - better to get the tax advantages from writing the investment off in Year 5 than getting paid back in Year 12

⬐ karthikb

They can always sell the shares back for a dollar and do the write off whenever they want.

⬐ frenchman99

If someone wants to buy the shares... even if the company is running well, if the founder has 51%, they might have no incentive to buyback.

⬐ sokoloff

Is there a founder in the world of a company that's running well who wouldn't buy back 49% (or 9% or 79%) of their shares for a dollar per investor?

⬐ karthikb

Exactly. And if in 2-3 years the company is doing spectacularly well it’s now additional headroom to raise without losing control.

⬐ sokoloff

Heck, it's worth more than a dollar to not have to send an investor update or answer a resulting question.

⬐ postit

The point is that they don’t care about a delivering useful sustainable business. They want growth, Growth, GROWTH, GROWING GROW!

⬐ mlevental

didn't watch the video but generally the assumption is if you can get to cash flow positive but not hockey stick growth then you're good enough to work at a larger company and you're leaving money on the table (by not drawing a salary).

⬐ jacquesm

But then you'd have a boss. Make sure your investors do not turn out being your boss.

⬐ nostrademons

What game do you want to play with your life? Do you want to play the lifestyle business game? The startup game? The consulting game? The climb-the-corporate-ladder game? The just-collect-a-paycheck-and-get-your-fulfillment-elsewhere game?

You should decide this before you enter the startup scene, and ideally as you're beginning your career. Because if you think you're playing one sort of game but are playing it according to the rules of another sort of game, you're basically guaranteed to lose.

The assumption when you play the startup game is that you're playing for a big, low-probability payoff. There are a couple variations for just how big a payoff (are you looking to play the outsource-R&D-and-get-acquired game? show-I'm-a-good-programmer-and-get-aqhired game? build-a-billion-dollar-company game?), but in general, when people talk about startups, they mean hyper-growth. If you don't find hyper growth, you've lost at the startup game, and should call it and invest your time into either playing again or playing a different game.

If you want a lifestyle business, you should play that game from the outset, because it means playing several choices differently. Notably, you should seek a small niche with real customers first, you can afford to pick an area off the cutting edge, you should seek profitability over growth, and you shouldn't take (equity) investment.

⬐ ta1234567890

That would be ideal, to be able to make a decision a priori and then stick with it "forever". But as Mike Tyson would say, everyone has a plan until they get punched in the mouth.

In reality, you can only make effective decisions once you've had the experience of what you are deciding about.

Also, regarding the specific issue of zombie companies, they can always be brought back to life. There is tremendous value in having a fully working organization/team.

⬐ jacquesm

People that start the start-up game might morph into those who wouldn't mind a life-style business as they play the game. No need to kill something that is just another company even if it does not end up being the next unicorn. Investors take a risk and they know it, if you can't make it work for them that's no need to commit corporate Seppeku and to kill it. You have other responsibilities besides those to the shareholders, there are employees, their - and your - dependents and customers to account for as well.

⬐ inimino

Given that doing any of these successfully is not the default outcome, I always find it amazing when people would rather throw away a viable business they stumbled onto because it wasn't the kind of viable business they were looking for. If it's a game, why not play them all at once and maximize your chances of winning?

⬐ literallycancer

Why shouldn't you take equity investment, if the terms are better than other sources you can access?

⬐ sokoloff

As long as you're honest with your equity investors about your desire and intention (as best as you understand it) to have a lifestyle business, there's nothing at all wrong with taking their investment.

Once you make it clear to them, though, you're unlikely to face that conundrum.

⬐ streetcat1

I am not sure why would you need to take money (behind seed) even for a growth business. Can you just scale with customer money?

Also, why not play in a big, HIGH probability payoff.

For example, why not compete with Google or Amazon in what they think is their next market? This assures you a big market with at least 100M - 1B annual sale.

⬐ RussianCow

> I am not sure why would you need to take money (behind seed) even for a growth business.

> why not compete with Google or Amazon in what they think is their next market?

These two things are at odds, because your startup generally can't compete with the likes of Google and Amazon because you simply don't have the resources that they do. VC money evens the playing field a bit, so at least you have a chance at getting your product out there and getting real customers before BigCo eats you alive. You can't have it both ways.

⬐ streetcat1

I am not sure, You might need VC for later growth stage.

But this is the way I see it:

1) Concentrate on the product. Since they did the marketing research, there is a market, hence you do not need user validation or marketing.

2) Leverage open source as much as possible.

3) Piggyback on their marketing efforts.

You goal is to get to cash flow positive. Than it is your choice if you want VC or not.

⬐ doctorpangloss

> What game do you want to play with your life? ... just-collect-a-paycheck-and-get-your-fulfillment-elsewhere game

This sort of rhetoric shows how much of entrepreneurship isn't really about like, making money. It's meaningless emotional warble-garble, a kind of psychological warfare that people do to themselves to stay happy in a system of really emotionally punishing rules of one-upmanship.

Like one funded founder I know, I asked him straight, "Are you motivated by acting out college-age vengeances against your peers?" and he said yes! It's not really about, "I don't want that Google engineer lifestyle," because that person does, he just wasn't qualified (in some narrow sense) to do that. He just failed at it.

A lot of people don't grow out of that.

And it's not just limited to people who didn't pass the Google interview. There are plenty of Google engineers who said to, e.g., studying medicine in college, "I don't want that doctor lifestyle," when really they did not perform competitively in their first-year life sciences class! Medicine dropouts everywhere!

The startup handbook materials seem so incomplete. They don't honestly engage with the emotions of their audience, which is overwhelmingly disaffected college-educated 20-40 year old men of means.

In fact, the reason your rhetoric is so appealing is because it doesn't put these emotional things out into the open. It amplifies the weird psychological warfare, it doesn't question it.

The right question isn't, what kind of game you want to play? It starts with what a therapist would ask, "Why are you here today?" to lead to "Why do you think you're unhappy?", questions that make the audience of your line of thinking deeply uncomfortable and something to be avoided.

⬐ hisnameisjimmy

Figuring out what you want to be when you grow up, what makes you happy, etc etc is a mind-bogglingly complex problem. Often, we just have to make decisions with the best information we have with whatever emotional motivations we have.

A lot of our decision making, historically, was just decided for us. Parents had children and married them based on economic benefits. Your work was just what your Dad did or through other close relationships. Now you have seemingly infinite choices. People are often making the wrong decision for the wrong reasons all the time. Sometimes it works out, sometimes it doesn't.

I think anything that helps you frame your actions and understand yourself and your motivations is fine. I know plenty of people who happily would identify with the 'collect a paycheck and get fulfillment elsewhere'. I also think it's perfectly valid to want to start a company to get vengeance on those who appeared to underestimate you.

The reality is there are many paths and it's very hard to judge what a valid or right path is.

⬐ peignoir

I disagree I would not shut it down I would either sell it or keep it to maintain jobs. As for the investors if a long term plan i would convert to debt and try to get them to flat especially if friends and family. But yep, there are cases when you need to shut down and zombie mode sux if you can’t escape

⬐ None

None

⬐ vfc1

Unpopular opinion, I just don't understand this whole reasoning and this whole startup mythology thing.

So what he said is that if its a viable, sustainable business that the founder wants to do, that adds value to society, but there is no exponential growth on the horizon, then it should be shut down.

Because (and he said it explicitly), the only thing that makes a startup truly a startup is the exponential growth and nothing more.

This is just crazy, exponential growth is extremely rare in business and only happens in situations like the way Facebook grew, by upon sign up getting the whole list of email contacts of the new user, and sending invitations to join Facebook to all of them.

Most of the times in business, linear growth is what happens. what's wrong with a 20 employee company that adds a ton of value to society, operates for 30 years and gives the founder and family a comfortable life, isn't that more than enough and worthwhile pursuing?

Exponential growth is impossible to predict and only comes by accident, it's like chasing the rainbow.

Just focus on building a real business that you really want to dedicate your life to, preferably borrowing as little money as possible if it all, how about that?

⬐ shafyy

I agree. I want to add that nothing is set in stone, either. One can build a business slowly, without crazy growth and crazy amounts of VC money, and five years later start growing exponentially (with or without VC money) for multitude of reasons. Or the other way around.

To new founders: The most important thing is that you believe that this is something worth working on, that you have a good financing strategy and that you (most of the time) like working on it.

Now, that doesn't mean ignore feedback and advice, but just make sure that you know why you are doing it. Make sure your financing strategy fits with your business strategy and your character as well. It might make sense to not pursue VC funding now, but maybe later. Or never.

Hanging out on HN, watching YC videos and reading their essays can be misleading. Think about why YC says what they say (might they have a self-serving motivation ;-))

The coolest thing about being an entrepreneur is that you can and must think for yourself.

Edit: Typos.

⬐ antoniuschan99

He wrote this: "For instance – if you enjoy working with your co-founders on a business that produces positive cash flows but is not growing, you probably shouldn’t shut down"

⬐ hyperpallium

Because, by the definition yc uses, it's not a "startup".

It's a "small business" - nothing wrong with that, autonomy is great (e.g. The "E-myth" (Entrepreneur) is that people start businesses to get rich, when most just don't want a boss), it's just that yc doesn't fund them.

⬐ ska

I don't think this is an unpopular opinion really, but that you are getting a bit hung up on the semantics.

Most businesses that you start, are not "startups". And that's good, for all the reasons you outline. It's ok to look at companies that are trying to find exponential short term growth as a different thing, and talk about when to pull the plug if you aren't going to achieve that.

The more interesting question I think is when you should try to initiate that sort of company, vs "a viable, sustainable business the founder wants to do", as you put it.

⬐ EpicEng

It comes down to accepting VC money and the expectations that go along with it. Obviously a sustainable business is a great thing, but if you're taking millions from investors they want a return.

⬐ bsder

> So what he said is that if its a viable, sustainable business that the founder wants to do, that adds value to society, but there is no exponential growth on the horizon, then it should be shut down.

I have a big problem with this.

From my point of view, most "exponential" startups are simply those startups that stayed alive long enough to be around when something shifted and left them in the right place at the right time to take advantage of the exponential that they now found themselves in.

I watched this in the "dot-bomb". The companies that "won" were big enough to actually mobilize enough resource at the problems but small enough to still react quickly. That generally meant that you needed to be "alive" for several years--they had enough infrastructure and the people to make use of it but not so many that they were too sclerotic when the shift happened.

Most "overnight" successes are 5+ years in the making.

⬐ thrwwy745884

Maybe it's like your parents, if you are happy making sangrias at $3.50 per hour and can pay your rent, but they want you to start using your medical degree and open a practice.

Maybe it's within everyone's power, who could do the first part, to make an exponential-growth startup. Just like most anyone with a medical degree can start working as a doctor.

It's not a perfect analogy, but is what I thought of.

⬐ DoreenMichele

There are lots of articles on zombie startups: https://www.google.com/search?client=firefox-b-1-d&q=zombie+...

I think the crux of the issue is that if you set out to create a startup and you end up with a viable business that isn't really growing, it isn't really a good business in most cases.

There are people who intentionally start other kinds of businesses. These are often called lifestyle businesses. They tend to be structured differently than the kind of business that attracts VC money.

Since a Venture Capitalist typically does more than lend you money, it's a huge drain on their business for you to keep plugging along, calling on them for advice, etc and they can't divest because you aren't worth enough.

There's nothing wrong with starting a different kind of business. But if you set out to have something grow rapidly and you attracted talent based on the idea that this would be an exciting venture and you attracted investors based on that and you don't follow that path, it creates a lot of problems.

Think of like borrowing money to build a mansion, then building a little shack in the woods. You might be happy with the little shack in the woods, but the bank can't repossess your little shack and sell it for anything remotely resembling the amount they lent you.

So now you have some problems. You have legal and financial obligations you can't really meet.

⬐ 1_over_n

where does medtech / biotech / synthetic biology / drug development fit into this thinking too? Especially now YC are pushing into Bio. Long R&D timeline. Long path to revenue. Huge scaleability for those who get it right?

⬐ brianwawok

Build a sustainable slow growing business. Just don’t take VC money to do so.

⬐ exergy

Succinct and ever so apt.