Startup = Growth - <AUTHOR> http://paulgraham.com/growth.html <comment><USER3> \- Venture Capital pouring millions into untried businesses.

\- The crazy valuations.

\- The recent complains of VCs that "Entrepreneurs aren't working on enough big ideas".

It all actually makes sense now. It's all in the name of Big Risk = Big Reward style ventures. Especially after defining a "startup" as a company meant to grow rapidly and to massive proportions. Not necessarily a tech business. Not an online store for your company. But instead an extreme-expantion-potential style company. I wish Startups were defined like this from the beginning.

It also further pushes me away from the whole Startup / Silicon Valley thing. Growing that fast means a lot can go wrong and there's very little time to learn from mistakes. I'm a slower thinker, I like to analyze and enjoy, learn and understand, build and live, not sacrifice my life and grow my company like a lunatic.

Thank you Paul. You've actually freed me from a dream that I now realize will never make me happy. I can finally let go of my plan to abandon my family, move to the bay area, drain my life savings, live in a shoebox, stumble from one conference and event to the next hoping to network and find my messiah & co-founder, try to get funded, grow my business to someone else's expectations, all for a tiny fraction of a chance to succeed and be either a slave to my own company or lose control of my baby and walk away with diluted equity. I think I'll stay here in St. Louis with my aging family and build my businesses slowly and calmly.

You freed me Paul. You gave me back my life, my real one.

<comment><USER4> We need a "slow startup" movement.

pg's definition of a startup is just one kind of startup. I like to call it the VC startup. It's an organization whose goal is to succeed big or fail, and fast. This "charter" is driven by the needs of investors, and I get that. It makes perfect sense, and from where pg's sitting, it's the attitude he needs to have to successfully manage his portfolio. But it's not the only way to grow a startup, and I think it unfairly marginalizes non-VC startups as non- startups.

pg probably wouldn't consider my company a startup, but I think he'd be wrong.

We're 4 years old, have 4 employees, profitable, and grow at a pokey 100% YoY. The pace of work is enjoyable. We build things for the long-term. We have time to help our customers. We get to see our friends and family. A lot. The principals own 100% of the equity.

But in our minds we aren't building just a tech business, we are building a startup. A slow startup. We picked a huge market (photography). We started by marketing to a small niche where we could be profitable while building the infrastructure required to scale to a larger horizontal market.

If we'd been VC funded, we might be in the same position for growth; finally finding traction after years and several expensive, painful pivots. In this alternate startup universe we'd own practically none of the company at that point, and we'd have wasted a lot more money.

I "grew up" in the 90s dot-com era reading Geoffrey Moore. We feel like we're executing that strategy and doing it well. We're poised for overnight success in a larger market, and on our own terms. I don't feel like any less of a startup than the multiple VC-backed startups I have worked for previously. I do feel a lot less stress.

So, if you want to enjoy life, build great things, and potentially make a ton of money, don't think it's not possible. Find or found a slow startup and change the world!

<comment><USER5> Couldn't agree more - let the entrepreneurs define and _live_ the term "startup" - not the VCs.

(PS: After sleeping over pg's essay, I found it much less convincing the next day - implicitly, he's mixing up price with value, ignoring the temporal nature of markets and of opportunities - Google couldn't have been a startup in 1989 and Ford was a startup in the 1910s - and disregarding multi-product and B2B startups (premium Tibetan to Hungarian services) altogether. The clincher from yesterday - weekly growth of 7% - sounds like utter BS today.)

EDIT: Not sure why I'm being downvoted. I'm just pointing out that this article only and only defines a startup in terms of its worthiness to investors. It's as misleading as any other single-formula characterization of a complex multi-agent system. Startups != Growth, period.

<comment><USER6> 7% weekly growth may seem like BS, but it happens. The arbiter of this growth rate is a function of need and reach as PG said. To say it is BS while there is evidence the phenomenon is possible (having experienced it first hand and seeing friends achieve it for long periods of time) and that we even know the factors in it -- that is a self limiting belief indeed.

<comment><USER5> I am not terming that as BS because it's impossible - it's not. I'm saying it's not suitable for all businesses (it might be downright hara-kiri for some of them) - that alone should not disqualify them from being known or viewed as startups.

<comment><USER7> Why not? Words and terms are useful only if they mean something. It is not useful to mix "high growth startups" and "slow growth startups" in a single word meaning/term, as the practical difference is actually bigger than what they have in common. So PG is saying that "startup" means "growth startup", and young enterprises without the goal of explosive growth should be called something else, as they are significantly different.

</comment></comment></comment></comment></comment></comment><comment><USER8> A few thoughts:

1\. This is a superb essay delineating the attributes of a fast-growth, all- or-nothing type of startup. No surprise here. Who besides pg has had the depth and breadth of _quality_ first-hand experience with such ventures over such a sustained period and in such an explosive context as that of recent years? He has here given us a classic analysis of the prototypical, Google-style startup.

2\. I think the idea of a startup should not be so narrowly defined, however, and the big reason is this: many founders set out to build ventures that are tech-based, innovative, aimed at winning key niches via hoped-for rapid growth and scaling, positioned for outside funding as suited to their needs, and aimed at liquidity via capital gains as the primary ROI for their efforts . . . _but_ who also place a huge premium on minimizing dilution and maximizing founder control. These are the independents. The ones who, by design, want to defer or even avoid VC funding so as to build their ventures on their own timing and on their own terms. Now this is not the Google startup model. It is, in a sense, its opposite. But it is not the model of a small business either. It is just a different type of startup.

3\. The trend over this past decade has moved decidedly toward greater founder independence in the startup world. Back in the bubble days, as a founder, you had very little information available to learn how startups worked, you often had heavy capital needs (e.g., $2M to $4M) right up front to do such things as build your own server banks, and you would almost certainly have little leverage by which to minimize dilution or loss of control at the time of first funding. Today, this has completely flipped. Vast resources are extant teaching founders how startups work. Initial capital needs are often minimal. And it is relatively easy to get reasonable funding on founder-friendly terms. What this means is that, today more than ever, the independent-style startup is more open to founders than ever before.

4\. Given the above, it seems to me that this is not the time to say that the _only_ style of startup worthy of the name is that of the super-rapid-growth type. The rapid-growth type may be more glamorous by far but it really defines only the tip of the startup world. Beneath it is a vast world offering incredible opportunities to founders who want more control over the timing, scale, and management of their ventures and who seek to realize gains and manage risks accordingly.

<comment><USER9> I strongly agree with your #2. PG's essay makes it sound like you're only a startup if nothing else matters but growth. But if all you care about is growth, does that make it acceptable to exploit your users Zynga-style? Obviously not to all startups, so even for many startups that are heavily growth-oriented, they are still constrained by other priorities.

So why would balancing lifestyle, minimizing dilution, and maximizing founder control not qualify as valid constraints for a "startup" on the principle of growth as a priority? After all, no startup, ever, has grown as fast as they could have if nothing else truly mattered.

EDIT: removed a reference to criminal activity deemed to be a strawman

<comment><USER10> Please don't spoil the parent comment's excellent arguments by introducing a strawman.

Most organizations have goals - be it growth, profit, advancing a nonprofit mission, or whatever - and in all cases, the rider "Oh, and of course we mean to pursue this end by legal means" is so obvious that, unless we're talking about a criminal organization, it doesn't even need to be stated.

<comment><USER9> Meh, perhaps my example was too over the top, but my point is that all startups, regardless of how growth-oriented they are, still consider other goals to be constraints on what they're willing to do in order to grow as quickly as possible. And it seems odd to exclude things like lifestyle and control from the list of valid things.

</comment></comment></comment></comment><comment><USER11> _A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing._

This is, to me, the most interesting thing here: I've seen lots of people talk about "traction", but this is the first time I've seen someone in the startup world give hard numbers for what a "good growth rate" is.

Another way to look at these numbers: A good growth rate during YC means that you're doubling every 10-14 weeks. An exceptional growth rate is doubling every 7 weeks, and if your doubling time is more than a year, it's a sign you haven't yet figured out what you're doing.

This fits pretty well with the rather imprecise commentary that "a startup measures the time to double in size in months, except for wildly successful ones, which measure it in weeks".

<comment><USER12> To me, the cautionary warning (echoing Andrew Chen's[1]) for consumer startups was key:

 _Beware too of the edge case where something spreads rapidly but the churn is high too, so that you have good net growth till you run through all the potential users, at which point it suddenly stops_

Sean Ellis[2] has a similar test for product market fit (the _40% rule_ ):

 _I ask existing users of a product how they would feel if they could no longer use the product. In my experience, achieving product/market fit requires at least 40% of users saying they would be "very disappointed" without your product._

[1] [http://andrewchen.co/2012/06/20/quora-when-does-high- growth-...](http://andrewchen.co/2012/06/20/quora-when-does-high-growth-not- imply-productmarket-fit/)

[2] <http://startup-marketing.com/the-startup-pyramid/>

</comment></comment><comment><USER13> Am I the only one who think pg's view points appear to be getting more and more extreme, in some sense rather biased compared to his previous essays?

Zynga is definitely all about growth. It is fiercely focused on metrics, fiercely focused on growth. But as someone from game industry, we cannot agree that this model is THE model that gives the world and everyone value. If the game industry worked like the way pg describes in the essay decades ago, we would never have Diablo, Baldur's Gate, Grim Fandango or Minecraft. We would all be left with choices like Farmville, Monsterville, Mineville, forever and ever.

"Growth drives everything in this world."? Does it? All fads grow like wildfire too, but does it drive everything in world? Or a better question would be: should we allow it to?

<comment><USER14> I don't think he's trying to make any moral judgements. He's just making observations about what _actually_ works within the context of our capitalist system. Capitalism has produced this period of explosive growth centered around technology in the USA and Silicon Valley in particular. And if you are trying to participate in that ecosystem, then you should understand what he says (IMO).

There wasn't any part of the essay which says you should start a startup, or that it is a morally valuable thing to do.

I somewhat agree with you that capitalism doesn't produce optimum value for society. Zynga's maybe an example of that -- I'm sure the are worse ones. But as the saying going, we have the worst system except for all the other ones that have been tried. For all the Zyngas there are some pretty good companies too.

Also, I think your question is essentially hypothetical or philosophical: "should be allow it to?" Who's we? Short of an overthrow of the US government, I think this segment of the economy will exist for a long time.

If you want to have an interesting reflection on capitalism, read "The Idea Factory", about Bell Labs. That is the other end of a spectrum -- a single company holding a monopoly for 50+ years. But it actually produced immeasurable value. It's interesting to think on which model produces more value -- a monopoly where people are free from competitive pressures, or an intensely competitive market.

<comment><USER13> You made great points, but I disagree about the morality part.

Wall Street had also produced explosive growth in our economy. It was also a ingenious system with participation of lots of hackers and talents. But I think most will agree now, that when Wall Street operates without considering its own morality, it is by itself, immoral.

In other words, I believe the essay's lack of reflection on the morality issue, which is definitely not a small one (e.g. the Zynga example), is what makes it biased, and partly, immoral.

<comment><USER14> OK, but you're making an observation without a solution... that kind of thing is pretty much irrelevant to people like Paul Graham and CEOs of startups, who have to make decisions about what things to do. You can call people immoral from the sidelines but it will have zero effect.

My opinion is that corporations are essentially "amoral" -- not immoral. Morality simply doesn't enter into any substantive decision. Google's founders often invoke the self-interest argument: "people don't have to trust us to be moral, because if we acted against our users, they would leave us, and we wouldn't make any money". This is what I call an amoral argument -- with no negative connotation to "amoral". PG almost invoked a version of this in footnote 8.

You might think that being amoral is equivalent to being immoral, but morality isn't as well-formed a concept as people think it is. Namely, the most common use of the concept of immorality is to label "stuff I don't like". I mean, what's wrong with millions of people playing Zynga games all day? Would people be curing cancer if they weren't playing Zynga games?

Another issue is that a person isn't moral or immoral; it's well known that the same person will act moral or immoral according to their environment. Paul Graham even said that about HN (in terms of trollish behavior). (See <http://en.wikipedia.org/wiki/Fundamental_attribution_error>)

In the case of Wall St, there's no possibility of it "considering its own morality". No amount of goading or convincing will make an ounce of difference. The only way I can think of is for voters to make it clear to elected officials that they won't tolerate the status quo, but so far that hasn't happened. Even after the 2009 crash.

(And btw I didn't make any assertion about morality in my original message, other than to say "I somewhat agree" about Zynga, so not sure what you are disagreeing with.)

<comment><USER13> I appreciate your response, and I fully understand the realistic angle that you have provided.

But I have to clarify that I am not calling pg immoral. I am suggesting the essay could be. People outside the game industry may not get the Zynga problem, but you can also look at, say, Groupon's controversies. "Immoral" could indeed be too strong a word, but I believe few will disagree that aggressive growth strategies has some inevitable side effects, and for this no amount of footnotes is sufficient.

But again, call me naive, "people like Paul Graham and CEOs of startups" should, contrary to what you claim, should care MORE about these problems, because they can certainly afford to, and when they do, it will matter. :)

<comment><USER14> OK... well I think your point is that PG's essay is "amoral", which is true. It doesn't say anything about whether hyper-growth is a thing we should value (as human beings, not as money making machines).

Actually ALL his essays are amoral. PG is very precise. He doesn't advocate specific things; he lays out a set of deductions. You will come to the same conclusions IF you have the values he supposes. IF you value this, then you should believe that. Which is a true statement regardless of what you believe.

My point is that amoral != immoral. But I think you are saying they're the same -- that all decisions must have a moral component or they are immoral.

I agree that hyper aggressive growth doesn't always produce the kinds of companies that society "should" want... but sometimes it does! It's probably impossible to separate the two, not least because everyone has different opinions on what's valuable.

<comment><USER15> You're reading too much of your own POV into another person.

Compare this essay with a random earlier one I selected (I just scrolled down and clicked a title that would seem ripe to disprove you)

<http://paulgraham.com/opensource.html>

Morality is rife within it, justice, monopolies, boss-employee relations.

He may have changed but _all_ of his essays aren't amoral.

<comment><USER14> I don't read that essay as having much morality. I think YOU are reading your POV into it.

There is an assumption that a monopoly by MS would be dangerous. That's not a particularly judgmental stance. I could imagine someone having a different belief system about monopolies, but it hardly seems like a moral claim.

Then he is saying that he prefers to work with an economic partner rather than under the employer-employee system. He doesn't say it is morally right. He says that business can learn from this, because it would make the business more productive. That's an amoral argument. He's invoking economics to justify a way that people should interact.

It's basically a libertarian argument, and in general this type of argument is agnostic about morals.

</comment></comment></comment></comment></comment></comment></comment></comment><comment><USER9> The discussion of expected return sounds good from an investors perspective, but founders have no diversification, so a 1% chance of $100m or 99% chance of wasting five years sounds pretty lousy. This is my biggest issue with the VC world from a founder's standpoint. The situation gets even worse once you throw the decreasing marginal utility of money into the mix, because now the expected value of $100m is not worth 10x as much to me as $10m. In terms of ability to change my life, $10m provides probably 50-70% of the value that $100m provides.

So if my odds of succeeding with a $10m payout from a bootstrapped business are 10%, and my odds of succeeding with a $100m payout from a VC business are 1%, those expected returns are equal in math terms, but not utility terms, and I'd be crazy to raise money.

<comment><USER16> Yes, if you value money at log($) like microeconomics says you should, then you should start something less risky than a startup.

As Charlie Stross's essay ([http://www.antipope.org/charlie/blog- static/2012/09/on-the-d...](http://www.antipope.org/charlie/blog- static/2012/09/on-the-diminishing-marginal-ut.html)) points out, there's another level. Elon Musk might get to retire on Mars. Bill Gates will probably cure malaria and several other big world problems.

So if your goal in life is not just having enough food & toys but changing the world, the big money comes in handy.

<comment><USER9> Do it on your second venture, especially since now you're talking about levels of wealth that offer odds of first-time-founder success far, far below 1%.

</comment></comment></comment><comment><USER17> This article is, for me, more proof of a general phenomenon that's happening recently - startups are no longer considered the best vehicle for hackers to become wealthy.

Maybe it's just my own history and confirmation bias speaking here (recently switched from startups to a Consulting business). But lately, the whole "bootstrap" movement is getting much more popular around here. More and more, I'm seeing articles and comments from tptacek, patio11, and others talking about how programmers could make vastly more money, especially by doing freelancing. I think the message is starting to sink in - the kind of people who read this site can start _very profitable businesses_ , make loads of cash, and do this _without_ the high risk of startups. No chance of a working 5 years and then striking a goldmine of an exit, but much higher chance of working 5 years and putting aside large amounts of money.

This pg article is a great one, and a very honest one too. To me it reflects the changing times, and the changing understanding of what a startup means. No longer, like in previous articles on wealth, is pg very clearly advocating that all hackers should be starting startups. This essay, to me, reads as a much more precise explanation of what someone can expect if they start a startup. And it makes it much clearer when people should _not_ start a startup.

<comment><USER18> Interesting observation, but I'd extend it to posit that maybe there is no "best" vehicle for hackers to become wealthy. It depends on the particular options available to you, and your "best" strategy is simply to consider all the options and pick the ones that seem most promising.

In an efficient market, eventually you'd expect that you'd be paid the same amount for equal amounts of value created. In today's low-capital, target-rich hacker environment, it seems like good hackers would eventually become indifferent to the particular corporate structure used, and would instead choose whatever corporate structure lets them work on the highest-impact problems. Sometimes that'll be a startup, sometimes it'll be a consulting firm, and sometimes it'll be employment at a large tech company.

Personally, I'm a plain old employee of a large tech firm. I see some of the financials that patio11 posts, and I'm making significantly more than that (we're the same age). I'm not nearly as well-off as tptacek, thanks to Matasano's acquisition, but I have a few years to catch up. I see rumors posted to HN about engineers at large tech companies making outlandish amounts of money, and I'm making more than that, and yet the comments are all "Wow. This seems unbelievable, it can't be true." I also know coworkers that are rumored to have those multi-million-$ retention grants; I'm fairly certain they exist.

<comment><USER17> (You work at Google if I remember correctly, right?)

Your situation with your employer might be more uncommon throughout the rest of the world as you think. Silicon Valley has a huge shortage of good hackers, but the rest of the world isn't _quite_ as programmer friendly as all that. It's still very good for programmers, but not as good as some posts would have you believe.

In any case, you are of course correct that there is no single "best" vehicle for hackers to become wealthy. But 5 years ago, starting a startup was the only way I knew about or considered seriously. The same is true of some friends today. I'm just happy the word is out that: a) startups fail, a LOT, and b) there are other ways of making large sums of money, including just being a highly-compensated employee.

<comment><USER18> I suspect that that's because startups are the mostly highly-visible and well- publicized path to riches. The other ones are private, and usually if people don't have to reveal their wealth, they don't.

I also think that this phenomena of people making a lot of money through non- startup means isn't new, it's that _publicity_ of it is. I have a friend whose dad worked for Wells Fargo in the 70s and then struck off as an independent computer consultant for big enterprises in the 80s and 90s. I asked her how much she thought he made when she was growing up, and she was like "Somewhere between $300-500K/year." And now that all eyes are on Wall Street, people are realizing that fund managers have made multi-millions a year since at least the 1980s. In hindsight, I also think about some of my family friends who owned local businesses - muffler shops, auto-body repair - and they had nice houses and vacation cottages and boats and expensive cars too, so I wouldn't be surprised if they were making in the multi-hundred-K to few millions per year. It just takes _The Millionaire Next Door_ for people to realize that.

(Yes, I work at Google. My path is perhaps uncommon, but still very achievable for a lot of people, and I don't think that refutes my overall point.)

</comment></comment></comment></comment><comment><USER19> One of my favorite pg essays of all time. Loved this:

"Almost every company needs some amount of funding to get started. But startups often raise money even when they are or could be profitable. It might seem foolish to sell stock in a profitable company for less than you think it will later be worth, but it's no more foolish than buying insurance. Fundamentally that's how the most successful startups view fundraising. They could grow the company on its own revenues, but the extra money and help supplied by VCs will let them grow even faster."

Took me awhile to realize this as a founder.

Profitability is a great goal (and makes the business very "real" by cutting away vanity metrics), but self-funding growth from profitability pretty much guarantees you are locked into a relatively slow growth rate. pg's simple charts show why being locked into a lower growth rate could mean being blown away by your competitors.

<comment><USER20> _self-funding growth from profitability pretty much guarantees you are locked into a relatively slow growth rate_

That's an unwarranted assumption. Part of designing a startup business model is organizing growth so that you are unconstrained, so that more input produces greater output, earlier -- whether it's capital, users, employees, or support. All it takes is for one component of your business to not scale and you won't hit your growth numbers despite the brilliance of every other part.

Capital is just one of the areas you have to look at. Amazon is a decent example. Bezos chose books because it was (a) accessible (catalogs existed), and (b) he got 6 months to pay back booksellers, which meant he could afford to grow the more he sold, by using the money owed to the booksellers as float.

Startups would do well to evaluate all possible constraints on growth, capital and otherwise. Many times small tweaks to how you sell your product (or what product you sell) can produce large variations in the amount and timing of capital needed.

Here's an example: do you have customers pay for the first 30 days up front, with an option to cancel within that time? Or do you charge your customers _after_ the first 30 days are up?

Now, you'd think the latter would always be better for "growth", because it involves a weaker commitment -- no money changes hands early.

But it also has a huge capital cost differential, if the service costs a substantial amount of money to deliver. In order to grow the latter model, you'll have to obtain more and more capital over time as you grow.

But if you do the former, you can "fund" your company's growth _off of_ its earlier growth. Although this might impact growth negatively, by turning away customers that "won't pay" for the first 30 days up front, but who would have become customers the other way.

So which is better? It really depends. If your growth rate is already 7% with the pay-up-front model, that's better IMO than getting, say, an 8% growth rate with the pay-after model. The latter will require raising increasingly greater amounts of capital, despite the fact that it's growing "faster" initially, ultimately _hurting_ your growth or wiping out your equity, or both.

Both approaches will still have their "S" curves end up at the same place (the market size doesn't change), but let's be blunt here: no company can catches up to 7% growth, so wasting your equity on 8% growth just makes you poorer, and the VCs richer.

Sustainable growth is just as important, and treating capital as something you "have to" raise is exactly what VCs want you to think, since, hey, that's what they sell. Venture capital is a financial _tool_ , not the only (real) way to capitalize a startup during and after growth.

<comment><USER21> Amazon of course not only raise venture capital but also raised an enormous amount of money after that. They didn't get to where they are today by constraining their access to capital to their float.

<comment><USER22> They also reinvested their revenues _very_ aggressively. It was years after IPO before they became profitable, and even now they're remarkably low-margin.

</comment></comment></comment></comment><comment><USER23> I gotta say, "a company designed to grow fast" is not only more concise, but broader and more on point than Steve Blanks' definition ("an organization formed to search for a repeatable and scalable business model"[1])

An epic essay with tremendous depth. Love the ending:

"A startup founder is in effect an economic research scientist. Most don't discover anything that remarkable, but some discover relativity."

[1] [http://steveblank.com/2010/01/25/whats-a-startup-first- princ...](http://steveblank.com/2010/01/25/whats-a-startup-first-principles/)

<comment><USER24> While the definition "a company designed to grow fast" makes his point clear, it's not as accurate as Blank's. There are lots of companies "designed to grow fast" that are not at all startups. The "search for a business model" is essential to the definition of a startup.

<comment><USER25> Which companies designed to grow very fast are not startups?

</comment></comment></comment><comment><USER26> Based on required growth rates and measurement intervals (5-10% per week), there would seem to be a pretty heavy bias towards the consumer space.

B2B or so-called Enterprise Companies, especially industry-specific new companies, would have a hard time qualifying on several fronts (market size, growth rate, growth interval). I am particularly interested in the B2B style of startup because I run an Enterprise Startu-er... Enterprise New Company focused on serving the insurance industry. A B2B Startup, it would seem, would have to link customer charges to something that can grow without a new sales contract. I guess, the trick to achieving high growth rates is to create viral growth inside an existing account. Growth in the B2B space will be large jumps (with a new contract) followed by organic growth or not (within the bounds of the existing sales contract). It seems to follow then that since the purchase agreement is the painful and tough and slow part, a B2B Startup would want to have a Freemium or some other type of contract with low/no startup costs and higher per user/GB/account/server/unit costs.

Gives me some new direction on pricing.

On an unrelated note, I'll disagree with other comments of "favorite pg essays" and say that "Wealth" was the best by an order of magnitude. <http://paulgraham.com/wealth.html>

<comment><USER27> Selling expensive enterprise products does have a longer sales cycle than cheaper consumer products, and increments to your revenue come in more discrete blocks. But that doesn't invalidate pg's argument about growth: you just have to use other proxies to estimate your trajectory.

For example, instead of active users you track a number of leads and how interested they are. Even without a single closed deal, you can measure your sales pipeline. It is an imperfect proxy for potential revenue growth, but so is daily active users for consumer internet startups.

Thus, if you are planning to sell an enterprise solution costing $100000, and you think you are going to make these kind of deals a few times a year in the beginning, then you use your sales pipeline measurements to estimate your growth with a finer granularity than a big sale now and then.

<comment><USER26> From my experience selling services and products to large companies for the past 10 years, "interest" doesn't mean much. Everyone is interested. You don't have anything until you see the signature. And I don't mean the signature on the contract. I mean the signature on the check.

I agree with you that pg's point about startup growth is not invalidated by the realities of enterprise selling. But I think te way past those realities is to change the rules of the game. The "sale" should be a low-friction agreement to do business at some cost per unit/user/GB/etc. Growth is the. The ability of the product to go viral within the account. Essentially, it becomes the same process as a consumer sale with the one additional step of getting approved to sell into that batch of consumers.

While that might seem to be a big negative against starting an enterprise business, the advantage is that you're then convincing people to spend someone else's money which is easier than convincing them to spend their own. How else could a $.99 app look, feel, perform better than a $100,000 peice of enterprise software.

</comment></comment></comment><comment><USER28> I think seeing it put so clearly, it's convinced me that I don't even want to found a startup. I'd like to own a business, but that's different, and I should behave accordingly. That might make it the most useful thing I've read in years.

<comment><USER29> Makes me consider opening a barbershop.

</comment></comment><comment><USER30> I'll admit that I was a little bummed after reading this article. Every single PG essay I've read left me feeling stoked, lit on fire like I could take on the world. I felt I could identify with the man, and like I belonged here.

This essay, on the other hand, left me feeling like I don't belong here. I feel as if the YC philosophy has evolved into something different than it was, or perhaps, that this is more honesty than we've ever seen before.

Either way, I couldn't be happier to use revenue as my measuring tool, and not free users. Racing to give my product away at a rate of 5-7% weekly growth would require me to completely change my product development philosophy. I build what I build because I see something missing, not because I hope to flip it in a year.

</comment><comment><USER31> Recently there was an article floating around where a VC asked why there aren't more B2B startups. This mindset is why - there's simply no way you can grow at these rates in the early days with most B2B products, particularly the ones in very hard to solve areas like ERP or the like. Anything with a longer sales cycles seems to be instantly disqualified by this definition, which is why we're relegated to so many photo apps and twitter thingies.

<comment><USER32> Your longer sales cycle should bring in a lot more revenue for each deal you finally do close. Growth is about revenues not just # of customers.

</comment></comment><comment><USER33> Consider an alternate universe with far worse odds: 1 startup in a field of 100,000 makes $100 billion, the rest make zero. Expected value is $1 million.

Should you be one of the 100,000 founders who "rationally" choose to buy a startup lottery ticket for $100b?

Well of course! _If_ you could live for long enough to run through thousands of iterations of the startup game, that is.

In the real world, \- Founders are typically limited to 1 startup at a time \- It takes time - years perhaps - for a startup to fail \- Founders can do only a few startups in their lifetimes

Given low odds like 1%, with < 10 iterations per lifetime, expected value is the wrong metric. From a purely financial POV then, it appears only rational to do growth startups \- If you are on the investing side (a "parallel" entrepreneur, running tens or hundreds of iterations in your lifetime) \- You are a founder (a "serial" entrepreneur) with reasonable financial security and none of your life goals would be irrevocably damaged by the most likely outcome - a string of failures.

(There are of course several non-financial reasons and payoffs. For instance, an Idea takes demonic possession of you, and the only way to exorcise from your tortured brain is to do a startup..)

</comment><comment><USER34> This essay highlighted something for me, you actually end up having a 2x2 matrix for "work for" vs "invest in" and "startup" vs "non-startup."

For example, a certain person may try increasing their wealth by investing in startups, but prefer working in a non-startup. Or another person may prefer investing in non-startups (safe, dividend paying stocks or bonds), but try increasing their wealth by working for startups.

For people with talent in creating products, best to focus their investing in safe, low maintenance non-startup investments and their wealth creation in working for startups. For people who have access to capital and a knack for choosing winners, they should work for non-startups (or philanthropy, or whatever, since they are probably already fairly wealthy) and invest in startups they think can win.

For the really talented, who both know a thing or two about building products, and also can pick winners, then you should work for a startup that invests in startups. See: pg.

<comment><USER35> Most people can't just invest in startups. You need to be an accredited investor, which rules out most people who haven't had a liquidity event or are independently wealthy. The restrictions on what your net worth needs to be are here: [http://startuplawyer.com/startup-law-glossary/accredited- inv...](http://startuplawyer.com/startup-law-glossary/accredited-investor)

<comment><USER34> Right, I specified that when I said they were already likely wealthy. The point being however that even once you have had a liquidity event, it might not make sense to invest in startups, it might make sense to build wealth via _another_ startup, but reserve your capital for less risky investments. I think there's a tendency for founders who have had an exit to immediately transform into angel investors. But, this only makes sense if you have a knack for picking winning ideas and identifying founder talent, which is probably only somewhat correlated with, if at all, with what is necessary to be successful at building a startup yourself.

</comment></comment></comment><comment><USER36> "We usually advise startups to pick a growth rate they think they can hit, and then just try to hit it every week. The key word here is "just." If they decide to grow at 7% a week and they hit that number, they're successful for that week. There's nothing more they need to do. But if they don't hit it, they've failed in the only thing that mattered, and should be correspondingly alarmed."

This is the gem.

<comment><USER37> I'm curious if PG encourages a "discovery" stage where they don't have growth targets but rather are learning about the market/customer and building a product? And if so, how long of a "discovery" stage is encouraged?

<comment><USER38> The sixth footnote appears to address this a bit. You of course need to have something that could possibly grow before you can hope to achieve growth.

 _During Y Combinator we measure growth rate per week, partly because there is so little time before Demo Day, and partly because startups early on need frequent feedback from their users to tweak what they're doing. [6]_

...

 _[6] This is, obviously, only for startups that have already launched or can launch during YC. A startup building a new database will probably not do that. On the other hand, launching something small and then using growth rate as evolutionary pressure is such a valuable technique that any company that could start this way probably should._

In other words, if a startup hasn't launched yet they quite sensibly don't measure growth rate--but it's a good idea to launch early so you can measure growth and optimize for it.

<comment><USER37> Another option is if you need time to build your product, you can launch another "something"... like the legendary mvp video from Dropbox or the finance blog from Mint.com they used to draw in signups several months before launching.

</comment></comment></comment></comment><comment><USER39> _"The best thing to measure the growth rate of is revenue. The next best, for startups that aren't charging initially, is active users. That's a reasonable proxy for revenue growth because whenever the startup does start trying to make money, their revenues will probably be a constant multiple of active users"_

This, for me, is the weak point in an otherwise excellent article. A lot of investments, valuations and jobs rest on this assumption. Facebook's PE ratio is currently 127, this assumption is the reason that it isn't around the same level as other entertainment companies like, say, Disney (17) or News Corp (56). And when Facebook's valuation rises like that and people invest at that level then there's a whole lot of money for paying engineers >$100k salaries and buying up pre-revenue businesses like Instagram. So, even if you're Google and you're bringing in real money, the application of this assumption to a few big cases permeates through the whole system and means that you too have to pay engineers >$100k and you too have to pay more to get hold of someone like Nik (makers of Snapseed).

PG logic appears flawless, but as a seed fund manager in the middle of this ecosystem, he's working several layers of abstraction up from some big applications of this assumption. So much so that it probably doesn't feel like an assumption to him. After all, he didn't value Facebook[1] at that level.

I genuinely hope this assumption is correct, because a lot of people and livelihoods are depending on it.

[1] I'm using Facebook here as an exemplar, I'm sure there are lots of other companies out there with valuations that are due in part to the assumption that users = revenue. My argument is that when someone sets a valuation based on this assumption it has a knock on effect to the whole ecosystem.

</comment><comment><USER40> So, is "b) reaching all the people in the Market" a function of converting a decentralised market to a centralised model?

Facebook is a successful startup because it took a decentralised model (talking to your friends) and centralised it.

Barbers are decentralised - but after I build a robo-barber for every home, then suddenly one company can cut everyones hair.

So is it possible that growing a startup fast is about increasing the slope between a decentralised (diffuse players, low margins) and a centralised model.

I suspect there are good counter examples but really startups that grow fast seem to optimise for one central point for doing what they do - dropbox, airbnb readthedocs

</comment><comment><USER41> PG's definition of startup is self selecting. Increasingly, startups do not need VCs nor Angels as the cloud (Azure, outsourcing what used to be IT for pennies, etc.) quashes the cost curve of startups.

This is pushing angels, seed round, and VCs farther and farther up the enterprise growth curve where costs become something that the founders can't bootstrap. For virtual enterprises, this is leaving them with a smaller and smaller set of companies as software eats all of the historical infrastructure costs.

Basically, he is defining startup in a way that YC is a necessary component - but increasingly, it isn't.

</comment><comment><USER42> Not a fan of praise for the sake of it either, but having said that, this is one of the most succinct and focused essays I've read on startups, in a long time, and hard to fault it's fundamental message.

As founders it's easy to do things other than push every day to get customers and/or _active_ users. Some founders are so focused on other less stressful activities, that they outsource the entire function to a _'growth hacker'_. Let someone else deal with it... Yikes!

Grow is _core_ to the startup's success, and happy to be reminded of it.

</comment><comment><USER43> So basically a startup is a company whose goal is not to create a profitable business, but a company whose goal is to grow a large userbase rapidly and lure VCs to pump more money into it, because VCs just _dream_ about finding the next google or apple and funding it in an early stage.

This just emphasizes why I do _not_ want to be a part of this scene.

As DHH says: fuck doing a startup.

<http://vimeo.com/3899696#t=1290>

<comment><USER21> I won't argue against you selecting yourself out, but your argument is incorrect. Google and Apple are insanely profitable.

<comment><USER43> Yes, that's why VCs are hoping for.

I doubt that a free photo-sharing app is going to be as profitable as Apple, for example.

<comment><USER44> just because something starts as a free photosharing app doesn't mean it stays that way. One of pg's main points is that entrepreneurs see a way in that is often undervalued by others for a variety of reasons. When MSFT came along people underestimated the value of the OS, for Apple it was the PC, in Intel's second coming (first being memory) it was the microprocessor which even Intel itself underestimated for a while. Before Apple's rebirth phones and music players were seen as a small, relatively commoditized business. I dare say that a large part of FB is a free photo sharing app...

<comment><USER43> PG's essay makes it perfectly clear: it's not about creating technology, it's about user acquisition.

Read my original reply again.

The startup's goal is to acquire users fast. Why? To lure VCs.

I don't want to be a part of that.

I want to create a business, not a startup (in the sense defined by PG's essay).

<comment><USER45> No, PG states a preference for revenue growth... with user growth being an acceptable stand-in, contingent on the usual assumption that users will convert to revenues.

And the VCs in his model are not the end goal, but only a middle stage, to accelerate growth and thus dominate a market, creating an enterprise that will be valuable to others on some combination of traditional factors (such as discounted expected profits or synergistic/strategic value when combined with an existing business).

I think you're trying so hard to see what you already believe you're missing parts of the PG argument.

</comment></comment></comment></comment></comment></comment><comment><USER46> Excellent piece. A few comments:

> The constraints that limit ordinary companies also protect them. That's the > tradeoff. If you start a barbershop, you only have to compete with other > local barbers. If you start a search engine you have to compete with the > whole world.

This is one of the reasons why 37 Signals' "small Italian restaurant" is not pertinent to many web businesses.

On PG's concept of startup, which I feel is spot on:

At this stage in my life, I'm more interested in... the "stay small" type of business, ala Rob Walling or patio11's bingo card thing. I think there's something to be said for a niche that's small enough that it's not interesting to larger companies, but can be served with a business that's mostly automated enough to mostly run itself. Perhaps you won't make zillions of dollars, but if it works, it's a good path to more freedom, which for some of is, is what it's about.

</comment><comment><USER5> "For a company to grow really big, it must (a) make something lots of people want, and (b) reach and serve all those people"

Very valuable insight.

However, (b) in its own right, can serve as a fast growth business model - where the delivery or "clearing" of value between those who demand and those who supply is the value proposition itself - because everyone wants delivery (making it, by default, a big market).

Most banks work on this principle, in an abstract sense. A business like FedEx or UPS is a more physical example of this.

Online takeout-ordering services are examples of this - the customer wants the food and the "online ordering website" startup does not produce food - <USER2> what it produces is "clearing" ie matching demand to supply.

This - as an idea, in my experience, always scales and grows fast as well while falling into the category (b) that pg mentions.

</comment><comment><USER47> I don't think good ideas are ideas that are overlooked. I think we saw many times that being second is better. Google vs Altavista, Facebook vs Myspace, Github vs SourceForge, Google maps vs Mapquest, Foursquare vs Yelp, Stackoverflow vs ExpertsExchange, and the list goes on.

I think the ideas are overrated, what matters is the small twist in the idea that makes you better than the competition, and most importantly, execution. Once you are out with your product, getting the right talent, getting the right design, getting features out there faster than your competition (like your own company in the past based on one of your posts) is what matters.

I think there are not that many ideas that are overlooked, just people that don't think they can do something with them. the chance that an idea was not thought by someone else, that reads the same blogs, have a similar lifestyle, and is a smart person like you, is very low (or the problem you are trying to solve is not a real problem), but the chances of that person to have the courage, time, effort and perhaps money to start a business, and find good co- founders, (and willing to risk his marriage and apply to YC) is what's a bit more rare in my opinion.

On the other hand, I have zero experience relative to you, and it's a little weird for me to disagree with one of the biggest startup mentors of our time, but still, this is just my opinion.

</comment><comment><USER48> What about in my case, where I run a free service that currently has served over 9.3 million requests in the last month? (That service is <http://jsonip.com>)

Its a utility service that a lot of people are finding useful and has a lot of traction, but no way that I can see to monetize it. Not even sure I have a _desire_ to try and monetize it, since it costs me almost nothing to run.

I would love to be able to build that resource into something more, but I'm not even sure where to start. It has a lot of usage and growth, but its not something I would remotely call a startup.

I made a short post a few hours ago about the current state: <http://news.ycombinator.com/edit?id=4556711>

<comment><USER49> Serving 9.3M requests is impressive and if you are looking to build it into something more, have you tried getting some feedback from users? What is the reason they are using your service? I think in general, one of many ways the growth can be actualized is via feedback from those who is actually using the product/service.

</comment></comment><comment><USER50> OK. But remember the old Paul Graham, who talked about things like this:

<http://www.avc.com/a_vc/2012/03/the-startup-curve.html>

Seems like there's a lot of non-startup in that startup curve, if we are using the new Paul Graham's definitions.

<comment><USER51> But doesn't that picture track the current essay rather well? Apart from a false start that turns out to be noise, it shows a series of experiments that don't go anywhere for a while but eventually produce a repeatable growth rate.

If the diagram were data, the essay would explain it.

<comment><USER50> Not at all. Notice that Paul says you should be alarmed if you are not hitting 5/7% growth _per week_. That kind of growth only makes up a tiny fraction of "the process" and, in my opinion, is the easy part to deal with. The hard part, where VC/gurus can add value is the vast gut-it-out parts, but this essay hurts more than it helps on that axis.

I think this is an essay more about "startups y combinator can flip to VCs" than startups.

<comment><USER52> I found this essay exasperating, but YC doesn't "flip startups to VC". That's not how it works.

<comment><USER53> Why'd you find it exasperating?

<comment><USER52> Rather not talk about it on this thread.

</comment></comment></comment></comment></comment></comment><comment><USER54> Seminal article - fantastic. I immediately calculated growth rate for Mightbuy.it - posted them here: <http://blog.mightbuy.it/2012/09/22/user- growth/>

The total #s are pretty embarrassing but the growth rate actually looks good, at around 10% currently - except the rate of growth of the growth is decreasing.. how meaningful is growth rate for such short time periods?

In my case I'm closer to the first stage of just making a product people want, but seems useful to keep track of this rate already.

PS - please sign up and help a brother out.

</comment><comment><USER55> It may be sacrilege round here to disagree with pg but I dislike the appropriation of the word startup for this niche of companies. I think of all new businesses as startups for the first couple of years. I think a better name for speculative high growth companies would be 'venture companies' which could have venture founders to go with the VCs that may fund them.

That way the term would make sense for older companies if they hit a high growth phase.

</comment><comment><USER56> I did not think about the definition of a startup too much but in fact I always thought about it as 'product business' as opposed to 'service business'.

Given this definition of a startup I don't want to start a startup anymore. My aim is a product business. I am into products which make me money when I sleep. Even if the income rate stops growing at $100.000 per year because of the relatively small market.

</comment><comment><USER57> pg makes his point clearly at the cost of oversimplifying his definition. Scalability is a continuum. There is a continuum between barbershop and search engine.

VCs have every incentive to hit the far high end of the continuum. But a young, hungry entrepreneur probably gets higher expected value by not straying quite so far out.

<comment><USER21> There really isn't a continuum in most technology markets. Startups that constrain their growth tend to get pounded into the ground by startups that don't. Try being a small search engine competing with Google.

<comment><USER58> Duck duck go is doing just fine.

<comment><USER59> Judged by growth rate it's not doing very well: <https://duckduckgo.com/traffic.html>

<comment><USER18> Isn't that circular reasoning:

"Startups that constrain their growth..."

If it's cited as an example of a startup that constrains its growth, of course its growth rate is going to be low. The real question is whether it stays in business and is a worthwhile investment for its founder.

<comment><USER59> And they took VC actually so it's a muddy example.

</comment></comment></comment></comment></comment></comment><comment><USER59> > _And the probability of a group of sufficiently smart and determined > founders succeeding on that scale might be significantly over 1%. For the > right people—e.g. the young Bill Gates—the probability might be 20% or even > 50%. So it's not surprising that so many want to take a shot at it._

Which means that even Bill Gates may have failed repeatedly at creating a successful startup.

Just as in poker even great players will lose if it's not in the cards and even the mediocre player can win big on occasion.

The lesson is that even a founder as good as Bill Gates can only _expect_ to succeed if she is willing to make multiple attempts.

<comment><USER18> Microsoft was Bill Gates's 4th venture. His first was consulting for CCC, finding bugs in their software in exchange for free computer time. His second was a payroll program in COBOL for Information Sciences. His third was Traf-O- Data, a startup with Paul Allen to make traffic counters. He'd already been programming for 6 years by the time he started Microsoft.

Similarly, Facebook was Mark Zuckerburg's 3rd startup, and Apple was Steve & Steve's 2nd.

<comment><USER59> I think you're stretching a bit. Traffic-O-Data was Gates' first company and Apple was Steve's.

</comment></comment></comment><comment><USER60> A 'startup' is simply a new business. That's what the word means. You can't just take a word that has an existing meaning and say it means something else.

</comment><comment><USER61> "It's the same with other high-beta vocations, like being an actor or a novelist. I've long since gotten used to it. But it seems to bother a lot of people, particularly those who've started ordinary businesses. Many are annoyed that these so-called startups get all the attention, when hardly any of them will amount to anything."

I see so many comments on HN poking fun at VC backed startups with underdeveloped business models. Sure, a lot of the criticisms are well deserved, but I wonder if a part of it is because people are bothered by the power law phenomenon.

<comment><USER21> I think that's true. I also think that the cliche of the venture-backed entrepreneur who goes for growth yet has no idea how the company will generate revenue is mostly false. Most of the smart entrepreneurs I know who are apparently pursuing that strategy actually know exactly how they're going to make money, they just don't say much about it up front.

</comment></comment><comment><USER22> > But the two connections are distinct and in principle one could start a > startup that was neither driven by technological change, nor whose product > consisted of technology except in the broader sense.

Arguably Netflix was one of these. DVD's may have been the "technological change" driving the company, but in principle you possibly could have done the same thing with VHS.

Most logistics-based big companies, like Fedex, Walmart, or even Costco, could be cited as examples. Jetliners predated Fedex by decades, for instance. Aside from the novelty of selling PC's, Dell was a similar instance.

This indicates that, just as in war, solving logistical problems often provides the biggest wins in business as well.

Combining innovation and logistics was powerful enough to make humble Apple erupt into the world's most valuable business. In fact, Apple's growth rate during Jobs' tenure as CEO was ultimately exponential despite the company's age--does Jobs-era Apple somehow qualify as a startup due to this?

> I once explained this to some founders who had recently arrived from Russia. > They found it novel that if you threatened a company they'd pay a premium > for you. "In Russia they just kill you," they said, and they were only > partly joking.

I remember that in the 90's, many of Microsoft's acquisitions had this same sinister undertone to it. I'm reminded of a Simpsons episode where Microsoft "buys out" Homer's startup, but all that happens is a bunch of goons smash up the house while Bill Gates quips, "I don't get rich by writing a lot of checks."

</comment><comment><USER62> This is a foundational essay. It's hard to believe the whole Y Combinator ecosystem has gone on for so long without it.

</comment><comment><USER63> If this essay had an _abstract_ , this would be it:

"If you want to understand startups, understand growth. Growth drives everything in this world. Growth is why startups usually work on technology—because ideas for fast growing companies are so rare that the best way to find new ones is to discover those recently made viable by change, and technology is the best source of rapid change. Growth is why it's a rational choice economically for so many founders to try starting a startup: growth makes the successful companies so valuable that the expected value is high even though the risk is too. Growth is why VCs want to invest in startups: not just because the returns are high but also because generating returns from capital gains is easier to manage than generating returns from dividends. Growth explains why the most successful startups take VC money even if they don't need to: it lets them choose their growth rate. And growth explains why successful startups almost invariably get acquisition offers. To acquirers a fast-growing company is not merely valuable but dangerous too."

</comment><comment><USER64> pg, just out of curiosity what was the (approximate) weekly growth rate of Viaweb ? Did you focus on this metric when you were building Viaweb?

Just curious if you were aware of this factor when building Viaweb.

</comment><comment><USER65> _If you write software to teach Tibetan to Hungarian speakers, you'll be able to reach most of the people who want it, but there won't be many of them._

It may not scale, but the chances of it making (any/more) money are much higher ("riches are in the niches") than a "fast startup" as it's very rare for a startup to grow fast and monetize quickly at the same time, because most people just won't buy immediately, sometimes even if it solves a problem for them.

For example, I've been using Evernote and Dropbox for years, but haven't had the need to buy a premium account. I believe there are many others like me who are happy with the free (or open source) software that does solve an itch. Are these "fast startups"? Is their business model (freemium) scalable?

<comment><USER66>
        It may not scale, but the chances of it making (any/more) money are much higher ("riches are in the niches") than a "fast startup" as it's very rare for a startup to grow fast and monetize quickly at the same time, because most people just won't buy immediately, sometimes even if it solves a problem for them.

That is the exact point of the essay. An average niche business makes more money than an average startup, but a successful startup makes many orders of magnitude more money than a successful niche business.

<comment><USER67> You might mean: a median niche business makes more money than a median startup.

Average is much higher than a median for startups because it includes the most successful startups which are by definition have a high growth rate over an extended period of time so they are very big.

Niche businesses in this context have a low growth so their average is closer to the median. The growth is constrained at the top in absolute terms (otherwise it would be a startup) so the average is lower than the one for startups.

</comment></comment></comment><comment><USER68> I've read most of the points made here in an essay Joel Spolsky wrote a while back: <http://www.joelonsoftware.com/articles/fog0000000056.html>

It was very insightful at the time I read it.

</comment><comment><USER69> One of the things we don't see often, and I wonder about are situations where the Angel funds 40% of the company at a seed round at one valuation, and then contributes half their interest in exchange for cash in the series A.

From a practical standpoint this means that the company needs to raise n + A where the "+ A" part pays back a return to the angel. But it allows the Angels to shoulder risk early to weed out the non-viable players and still make money at it.

So imagine this scenario. Alice wants to start Woohoo and Bob funds 40% at a $250K valuation (since Alice is the only person so far, that is $100K invested. Alice works hard and gets out an MVP and goes for a Series A where she wants to raise $1.5M at a post raise valuation of $5M. Bob sells into the round half his shares (its taking money off the table for him) with a contractual net return of xx% (probably anywhere from 20 - 100, that being the negotiating rub) and does not participate in future rounds, he retains y% at the end of the series A (optionally converted to Common stock) and dilutes going forward. (remember he's got 'free' stock at this point, he's made his bit with the angel round)

The two negotiation points on Bobs term sheet are the net return and the retained interest portion. The people coming in after Bob are Ok with it because Bob is out now and paid his 'finders fee' or however ever you want to describe his return. The net return will affect the series A amount needed by the founder, the retained interest would be a function of how many rounds the founders think they will need to exit.

Given the seed to series A or bust cycle is usually at most 24months, Bob has a good idea of his risk profile, and by stepping out from an equity point at the Series A he's not an obstruction to new partners coming in, more of an adviser at that point.

</comment><comment><USER70> This article might just be my point of reference whenever I get a bit too much "valley hate". Like, when I start reading a bunch of the ideas coming out of the blog from 37 Signals.

I still think that for every serious genius, there are a lot of copycats. These copycats create this gigantic echo chamber of ideas. It's a ton of noise from a lot of likely failures. That noise can feel dishonest.

After reading this essay, I'm left with a sense that startup land is probably the best, dare I say more honest way, of turning investment money into new technology and jobs.

I'm actually left wondering about the relationship between "normal small businesses" and bankers. It feels adversarial in comparison.

</comment><comment><USER71> What defines a startup for me is utilizing technology with a very good chance it will be a spectacular failure. You have a great feeling that you'll have users but there's a very real chance that you'll get none to 10 and go down in tremendous flames. You're swinging for the fences. That's because you're doing something that no one has done or your entering a market with huge dominant players whom you hope to usurp. It's either very audacious or insane. Your 10 professional friends split down the middle when asked.

You know if you open a barber shop you will get people come in off the street to cut their hair. You just worry you'll have enough over time to sustain it. If you start a consulting business you know you'll get clients (at least I assume you do) as your skills are in demand. You probably got commitments from at least 3 before you made the plunge. It's just whether you'll get enough and a steady flow to go with. If you're bootstrapping a lifestyle tech company it's probably because you know exactly what the market needs and have your first 5 customers from your previous gig so you know you can get through the first year. All of these still have a large amount of risk but they're not really true startups to me.

It's true it's very hard to have a startup without (rapid) growth as the central tenant . And you can have many businesses that are not startups that aren't focused on growth over anything else. However, you can have many businesses that are not startups hyper focused on growth (SuperCuts, Pappa Johns) to make the definition in this essay too weak for me.

</comment><comment><USER72> I thought 'startup' was defined as a business-like organization in search of a business model. Once it finds/chooses one, it becomes a business.

The essay seems to define 'venture-backed startup'.

<comment><USER73> That's the Steve Blank definition. In the end of this essay, it seems to come around to that point of view.

 _You're committing to search for one of the rare ideas that generates rapid growth. Because these ideas are so valuable, finding one is hard. The startup is the embodiment of your discoveries so far. Starting a startup is thus very much like deciding to be a research scientist: you're not committing to solve any specific problem; you don't know for sure which problems are soluble; but you're committing to try to discover something no one knew before. A startup founder is in effect an economic research scientist. Most don't discover anything that remarkable, but some discover relativity._

Not exactly the same, but has the searching element.

</comment></comment><comment><USER74> Question: w.r.t. weekly revenue growth, are we talking about growth rate of monthly revenue run rate (assuming billing happens monthly) or something else? For instance, something like this: new signup revenue in the current week x historical conversion to paid divided by revenue of paying customers + sum of estimated revenue of recent previous weeks who haven't yet hit the date of conversion? (if that makes sense)

I'd love to hear thoughts on how to calculate the referenced number.

<comment><USER75> Ask yourself: what's the most important thing a user of this product can do? Pick one thing. It might be "sign up", or it might something way more specific like "run a report" or "receive a fax". Drive growth in that thing.

</comment></comment><comment><USER76> It's a little Pop Science, but as Geoffrey West notes, other things that follow an S-curve growth are people. We start small and weak, at some point start rapidly growing, and as we reach a certain age we level off. West then extends this to the inevitable deaths of corporations:

[http://www.ted.com/talks/geoffrey_west_the_surprising_math_o...](http://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_and_corporations.html)

</comment><comment><USER77> Fred Wilson's followup on PG's growth essay: <http://www.avc.com/a_vc/2012/09/growth.html>

</comment><comment><USER37> For a startup measuring users (not revenue), what's the right thing to measure to know your growth rate?

Is is DAUs, MAUs, daily sessions, length of session, total signups?

<comment><USER21> The typical metrics are DAUs and MAUs, with attention paid to DAU:MAU ratio, and then some gauge of activity within each session. For some companies that means length of session, but for other companies you'd want something else (e.g. services that actually want users to leave, like search engines).

One of the things that impresses us in pitches is when the entrepreneur has really thought through what the best metrics are for that particular service.

</comment></comment><comment><USER78> Question about measuring weekly growth rate: A lot of YC startups are centered around an iPhone app. If it rides up the charts, it will likely get a huge bump in whatever metric you are trying to measure. But the bump's very often temporary, since more than likely the app will slide back down the charts in a week. How do you measure growth when this happens?

<comment><USER21> That is a great point, and one of the things VCs see a lot are startups that perform all kinds of contortions to boost their app store chart rankings right before they raise money.

Because there are not very many ways to boost your rankings legitimately aside from true organic growth, sometimes this means paying for sketchy marketing techniques that can actually result in Apple banning your app when they find out.

I think the honest thing to do is probably to measure actual user engagement in the app. The high quality app startups that pitch us use something like Mixpanel (disclosure: one of our investments itself) to do this -- in fact, this is one of the reasons we invested in Mixpanel.

</comment></comment><comment><USER79> I think it's missing the idea of bootstrapping. I think it makes a much rougher environment for fledgling startups, but I think it should be considered more like a hot forge. The more the odds are stacked against you, the better you get. I guess people sometimes miss that when they are aiming for Twitter/Facebook level revenue accountability.

<comment><USER21> That's a little bit like saying the optimal strategy for running the Boston Marathon is to start running naked from the Arctic Circle three weeks prior.

<comment><USER59> Training in harsher conditions than you'll compete in works extremely well.

I suspect Github would have done worse if they had taken early funding. There should probably be more businesses built following their model.

</comment></comment></comment><comment><USER65> Lot of insight, but I'd rather breath outside the bubble and build a slow company, and I'll still call it a startup - [http://www.fastcompany.com/3000852/37signals-earns- millions-...](http://www.fastcompany.com/3000852/37signals-earns-millions- each-year-its-ceo%E2%80%99s-model-his-cleaning-lady)

</comment><comment><USER45> Some community-oriented/UGC startups nowadays seem to prefer modest growth, at least for a while, to make sure the right standards/user-expectations can be maintained. (Hypergrowth can mean a change in community makeup faster than desireable norms can be maintained, which can spoil the dynamics in a way that's hard to un-spoil.)

Compare HN's own revealed preference for limiting certain surges of new users. (Corollary: HN is not a 'startup'.) In a way, even Facebook's initial campus limitations served this purpose, getting certain mechanics (and corporate practices right) before facing the challenges of a larger userbase.

I wonder: have YC companies had to face an explicit decision: grow faster or defend/consolidate the culture of the existing userbase, and if so what advice would PG and the other partners be likely to give?

</comment><comment><USER80> Paul Graham is a hero all technology startup founders need to look up to. Who else can say "the constraint of growing at a certain rate can help define a startup", so well?

It is rare to find a blog post that has so much insight that you will need to read it slowly and then read it again even more slowly.

</comment><comment><USER71> The problem is a barber shop can be a startup. It can have fierce local competition and global aspirations (Supercuts anyone?) It feels like a brave attempt to solve the question that regularly to torments these boards but I don't feel any closer.

</comment><comment><USER81> spellcheck: abolute

My favorites were the last paragraph and the last footnote.

How did those Russians get on anyway?

The only other thing I would add is that these high growth companies, so- called startups, are all utilizing the web. They are relying on what it provides. I guess that's implicit, maybe it need not be stated, but historically could older forms of media have supported the type of growth rates discussed? How popular was the term "startup" before the web? And did it mean the same thing?

The startup: 1. Trying to solve a harder problem than existing businesses are willing to take on. 2. Being equipped for rapid growth. 3. Utilizing the web.

</comment><comment><USER82> I don't understand this part: "For founders who are younger or more ambitious the utility function is flatter." Does flat mean O(1) or O($)? I'd guess the former, but the latter seems to fit more with the conclusion.

<comment><USER83> I think the intended idea is U($) = k*$, a linear relationship between dollars earned and utility, or (its derivative) a horizontal line on marginal utility. Typical economically rational adults have utility curves that eventually flatten out, with the marginal utility falling to zero.

</comment></comment><comment><USER84> I'd be interested to know the volatility of these growth rates. PG talked as if the might be fairly constant over the course of one or two years, but my gut feeling is that they'd be anything but.

</comment><comment><USER85> I don't understand why he chose restaurants and barbershops as examples of non-startups. Both make things lots of people want, and some of them are big chains that have wide reach, so they fulfill criteria a and b. Either these are startups, or there are more criteria pg didn't include, such as rate of growth - even the most successful chains usually have 10 years or so from the opening of the first store to becoming huge (inter)national chains.

<comment><USER86> I think it's implied that there's a difference between a taco stand that is just running in a local geography and not really innovating, and a company like Chipotle which spent a lot of time and effort optimizing their business model to make it replicable while taking large investments to pursue fast growth. He's not referring to Chipotle in the essay. It's why says "restaurants" and not restaurant chains.

</comment></comment><comment><USER87> _But at the moment when successful startups get started, much of the innovation is unconscious._

\-- This is an interesting bit. The notion of what is intelligence.

At any given time, there are 1001 questions that may be [intelligent]. But ask _right_ question, and the answer is often [easy] to see. So Framing. Observation. Caring. Passion. Perserverence. Non-ovious. Yet invaluable. Forms of intelligence.

</comment><comment><USER88> This is probably the most insightful article on startups ever written. I was blind, and now I see. Thank you, Paul.

</comment><comment><USER89> The part "and how to reach those people" should be written in bold. It seems like the difference between lifestyle business and startup is sometimes (or in majority of cases?) just in figuring out scalable way to acquire new customers.

</comment><comment><USER90> Isn't a start-up that's bootstrapped and designed with a clear path to monetization desirable anymore? You can obviously design something to grow quickly, but doesn't that also increase the risk of it being a flash-in-the- pan?

</comment><comment><USER91> Indeed, this cogent essay has been a long time coming and should be a pre- requisite for anyone thinking of getting in the game. "A barbershop isn't designed to grow fast. Whereas a search engine, for example, is." Brilliant.

</comment><comment><USER92> Illustrated over nearly 75 years of growth for Hewlett-Packard here: <http://www.youtube.com/watch?v=FCOt03Y_0SM>.

</comment><comment><USER93> pg listed writing novels and tech startups as "high-beta" occupations.What are other high beta and high alpha occupations?

<comment><USER25> Anything where the best practitioners are famous.

Sports player.

Politician.

Artist.

You can complete the list.

</comment></comment><comment><USER94> follow up articles:

[http://www.bothsidesofthetable.com/2012/09/22/is-going- for-r...](http://www.bothsidesofthetable.com/2012/09/22/is-going-for-rapid- growth-always-good-arent-startups-so-much-more/)

Any others?

</comment><comment><USER95> minor corrections:

"What matters is not the abolute number of new customers ..." should be "absolute"

in footnote 13:

"Though nominally acquisitions and sometimes on a scale …" should be "acquisitions ARE sometimes" I guess?

</comment><comment><USER96> I learned a lot, thx pg!

</comment><comment><USER97> Flattr?

</comment><comment><USER98> more blah, blah on what made google, fb, etc. great,

what's the point?

</comment><comment><USER99> "the same thing that makes" -> "the same thing makes"</comment>


Friqing Out with Python Closures - <AUTHOR> http://mikepetry.blogspot.com/2009/01/friqing-out-with-python-closures.html <comment><USER2> Fun for sure but for priority queues it would be more practical to just use Python's built-in heapq module: <http://www.python.org/doc/2.5.2/lib/module- heapq.html></comment>


Programmed Introduction to MIPS Assembly Language - <AUTHOR> http://programmedlessons.org/AssemblyTutorial/index.html

<comment><USER2> I remember doing MIPS assembler in the computer hardware class in college. We used the book "Computer Organization and Design: The Hardware/Software Interface" (aka "Patterson and Hennessy") [1]. At the time it was an enlightening experience because until then I hadn't fully internalized how computers were implemented at the hardware level.

[1] [http://www.amazon.com/Computer-Organization-Design-Fifth- Arc...](http://www.amazon.com/Computer-Organization-Design-Fifth- Architecture/dp/0124077269/)

<comment><USER3> If you don't have a MIPS machine on hand, try SPIM: [http://users.ece.gatech.edu/~sudha/academic/class/ece2030/Le...](http://users.ece.gatech.edu/~sudha/academic/class/ece2030/Lectures/spim- isa/index.html).

<comment><USER4> or any Playstation 1 emulator

</comment></comment></comment><comment><USER5> Another fantastic MIPS resource is a book by David and Sarah Harris' book "Digital Design and Computer Architecture".

It is a great book that covers digital logic, computer architecture, HDL design (both Verilog and VHDL) and the MIPS architecture.

[http://www.amazon.co.uk/Digital-Design-Computer- Architecture...](http://www.amazon.co.uk/Digital-Design-Computer-Architecture- Harris/dp/0123944244/)

</comment><comment><USER6> "Works best with IE 6.0 or higher, at 1024 x 768 resolution or better"

Does IE6 not load the background?</comment>


Airbnb: #weaccept - <AUTHOR> https://www.airbnb.com.au/weaccept <comment><USER2> I would love to see televised congressional hearings on the need to regulate the sketchy, under the radar, gray market hotel industry that is Airbnb. There could be a parade of witness who tearfully tell how their lives and homes were destroyed as a result of doing business with Airbnb, or how renting through Airbnb resulted in them becoming crime victims.

Then they could bring Brian Chesky, CEO of Airbnb, into testify, and get him to explain why he is so indifferent to all of the suffering and misery his company has caused.

</comment><comment><USER3> I'd be glad if I could book an airbnb without been discriminated as a tourist while black, not an immigrant. Fix your business first, because today airbnb is a creator of harassment.

</comment><comment><USER4> In the future, will corporations do more of whatever service that governments traditionally do for its people?

<comment><USER5> Probably, but only so long as it's profitable.

</comment></comment><comment><USER6> I just don't know where to start. This is so bad and pretty condescending.</comment>


OCaml in the Browser - <AUTHOR> http://ocsigen.org/js_of_ocaml/ <comment><USER2> If you want to get into OCaml, O'reilly is releasing a new book about it next October, with an early release eBook available since earlier this week:

[http://shop.oreilly.com/product/0636920024743.do](http://shop.oreilly.com/product/0636920024743.do)

I haven't read it, but heard very good things about it from friends who did.

<comment><USER3> Online public beta at [https://realworldocaml.org/](https://realworldocaml.org/)

</comment></comment><comment><AUTHOR> Google cached version: [http://webcache.googleusercontent.com/search?q=cache:uRRBDOc...](http://webcache.googleusercontent.com/search?q=cache:uRRBDOcYUpAJ:ocsigen.org/js_of_ocaml/)

</comment><comment><USER4> Only stumbled onto ocaml last week. Very Nice indeed. You can try it online at TryOcaml.

[http://try.ocamlpro.com/](http://try.ocamlpro.com/)

</comment><comment><USER5> What's OCaml a solution for?

Rather, what sorts of problem domains does it excel at?

(More cynically: why shouldn't I just use Ruby/C/Javscript/Erlang?)

<comment><USER6> it's strict (so not as weird as lazy haskell), statically typed (with inference, so little extra typing) and reasonably fast. so it's faster than ruby, safer than c, has more compile-time checking than erlang or javascript.

it's a functional language, but it supports side-effects and classes. it used to be pretty much unique. it's closely related to F#.

more generally, it's a rather nice, general programming language. but it's not so popular, so doesn't have the range of libraries available to, say, python or java. but it does have all these: [http://ocaml-batteries- team.github.io/batteries-included/hdo...](http://ocaml-batteries- team.github.io/batteries-included/hdoc/)

maybe i'm not answering the question exactly enough, but the problem is it really is a pretty nice, general language you could use for a lot of tasks. so nothing obviously jumps out to me as being "the [one] kind of task for ocaml".

</comment></comment><comment><USER7> OCaml seems like one of those languages that's so well-designed that it's boring.

<comment><USER8> The mutable strings should add some excitement.

<comment><USER7> Oh thanks. I need to read that spec again more closely.</comment></comment></comment>


A simple guideline for blogging - <AUTHOR> http://blog.antoniocangiano.com/a-simple-guideline-for-blogging <comment><USER2> I think that's well enough, but I also think that wrapped up somewhere in that blog post is the assumption—which is now terribly widespread but still strange to me—that the decision to blog comes before the decision on what to blog about. It seems like nearly all the writing _about_ blogging (like this article), and nearly all the blogs themselves, are the product of either an individual or a company saying, 'I/we should definitely have a blog.' Only then is the next step occupied by a discussion about what to put in it.

Call me simplistic but I feel like there was indeed a time when a much greater proportion of blogs were the direct result of someone having something to say. When a blog is the means by which somebody expresses themselves, or communicates with others, it tends to be good. But I think that a great deal of blogging culture, by now, tends to consist of bloggers who started websites to fulfill some business plan, and who need to rustle up things to say.

Even I have a new blog that I started (you can see it at zdsmith.com, but:) that has absolutely no content in it. Because I haven't had anything to say yet. Frankly, it's not therefore apparent that I need it at all. Part of this is because my writing has migrated to more socially direct venues, like HN, or twitter, or message boards. But nevertheless one has the sense that if one has a popular blog, that there's much more prestige and exposure and professional value in it. So you start a blog, and then you have to find a quote to begin a discussion about what to blog about. If I had a lot to say (and it was most suited to the rather these-days relatively long form of the blog), wouldn't guidelines like that be kind of superfluous?

</comment><comment><USER3> I agree with the sentiment, it's a noble idea and cause, however, don't you find it ironic that 90% of your post is about the thoughts and ideas of Mrs. Roosevelt?

<comment><AUTHOR> We're not discussing Mrs. Roosevelt per se though, are we? We're discussing her ideas, which is the point. :)

<comment><USER3> well yes we are discussing her, since you make multiple mentions of her (1st graph, block quote, summary), my comment is about her, and your defense is again, about her.

There have been many figures throughout history who have established similar ideas (the lower class write about people... the upper class write about ideas) but you didn't choose to quote from them, you choose to quote from Ms. Roosevelt.

Essentially, I'm suggesting that you could have pulled any quote about this idea, but you used mrs. roosevelt. I think you did this b/c you admire her and it supports your idea, but you used _her_ as your vehicle.

My point is that it's a mix, and even when trying to advocate that we take the moral high ground and not chit-chat about people, we (wait for it) chit-chat about people. Hence the original statement... "dont you find it ironic"

Regardless, it was a good read. thanks.

</comment></comment></comment><comment><USER4> What about combining the first and the last - wrap an idea in a discussion about people? Like in the book Sophies World: en.wikipedia.org/wiki/Sophie's_World

<comment><USER5> Max, when I strike it rich I will offer a scholarship in your name: Max Klein Endowment for Pedestrian Research.

That idea is just perfect. You can use histories of people and events to deliver great insight. That's why "comparative biography" type articles are popular in management: "What Napoleon and Lady Gaga have in common", etc. It's because these articles attempt to teach fairly abstract notions about organizations, change, movement and relationships to a fairly non-critical audience that only thinks in the concrete, and lives in the now.

</comment></comment><comment><USER6> I've always felt like questioning the pithy sayings everyone takes for granted, but this one seems to hold up, in my experience.

I notice that if I'm tired and distracted and not with it, I trend towards gossipy talk, and when I'm fully engaged and my brain feels like it's firing on all cylinders, I'm talking about some sort of idea. In between, it's mostly talk about things or stuff that needs to be done.

</comment><comment><USER7> Great minds talk about remarkable people, actually. Or more accurately, great minds talk about people important to them, whether they be a role model, family member, etc.

</comment><comment><USER8> _Events that tie into the greater scope of those ideas may also be worth sharing and commenting on; however discussing people per se is probably best left to gossip blogs._

Nice thought, but 179 degrees away from natural human tendencies. For the most part, people want to talk about other people, see pictures of other people, and be with other people.

Even here at Hacker News...

Last week, there were 2 or 3 gossip threads with hundreds of upvotes and on the front page for several days (Angelgate, New York vs. Chicago, Facebook). At the same time, there were quite a few excellent threads about useful ideas and techniques that I had to bookmark because they were gone so fast.

There's a difference between what _should_ work and what _does_ work and we're all guilty.

<comment><AUTHOR> I agree 100% with the human tendencies argument, but I feel that the guideline still stands. Your blog may end up being less popular because of it, but I'd argue that its content will be far more valuable to society.

<comment><USER9> Dick Lipton's blog ( <http://rjlipton.wordpress.com/> )does this as well, and I think this is an essential part of it being as successful as it is. People like being mentioned and like reading about other people, and humanizing ideas goes a long way towards making them interesting.

<comment><USER6> We might need some clarification about what we mean by interesting or valuable.

There is the interest that draws pageviews and adds advertising dollars, and I believe there is a different interest that informs you and gives you new things to think about, with less mass appeal but greater utility/value to the reader.

Talk about people or talk hedged in human interest might be at the first end of the spectrum because anyone can have an opinion, and reciting that opinion is the extent to which you interact with the idea.

The other end of the spectrum has a limited, focused appeal because you must have thought about it or have some understanding of the subject before you can participate. Then, your opinion/understanding process is challenged to fit pieces together that might offer contradictions to your beliefs, or require you to form new ones.

</comment></comment></comment></comment><comment><USER10> Summarizing the post is nine lines long, at the core is this quote from Eleanor Roosevelt:

Great minds discuss ideas. Average minds discuss events. Small minds discuss people.

Now my question is: the value of this quote is in the person who wrote it or in its content?

Great mind are great in a narrow sense. When you examine the lives of people with great minds you discover that the greatness is not so great. For example Newton did some experiments by diving a hole in his eyes, Fisher was in jail and a never ending story of miserable lifes for great people.

</comment><comment><USER11> The implication being that great minds are updating their blog?</comment>