Earlier today I read two posts that were practically mirror opposites of each other. The first was Paul Graham's essay, The Pooled-Risk Company Management Company, where he makes a case against founding a company that you intend to run as a successful business over the long term and instead building a company you that you can sell to a public company so you can move on and enjoy your money. His argument is excerpted below

At this year's startup school, David Heinemeier Hansson gave a talk in which he suggested that startup founders should do things the old fashioned way. Instead of hoping to get rich by building a valuable company and then selling stock in a "liquidity event," founders should start companies that make money and live off the revenues. Sounds like a good plan. Let's think about the optimal way to do this.

One disadvantage of living off the revenues of your company is that you have to keep running it. And as anyone who runs their own business can tell you, that requires your complete attention. You can't just start a business and check out once things are going well, or they stop going well surprisingly fast.

The main economic motives of startup founders seem to be freedom and security. They want enough money that (a) they don't have to worry about running out of money and (b) they can spend their time how they want. Running your own business offers neither. You certainly don't have freedom: no boss is so demanding. Nor do you have security, because if you stop paying attention to the company, its revenues go away, and with them your income.

The best case, for most people, would be if you could hire someone to manage the company for you once you'd grown it to a certain size.
If such pooled-risk company management companies existed, signing up with one would seem the ideal plan for most people following the route David advocated. Good news: they do exist. What I've just described is an acquisition by a public company.

Austin Wiltshire has a counterpoint to Paul Graham's article entitled New hire cannon fodder where he decries the practice of "exploiting" junior developers so that a couple of fat cats with money can get even richer. Parts of Austin's counter argument are excerpted below

Why these large firms, and now even places like YCombinator continually think the best way to move forward in software is to hire as many gullible young naive programmers as possible and work them to death is beyond me.  It’s pretty well known that 80 hour work weeks and inexperience is a guarantee to continually make the same damn mistakes over and over again.  It’s also an open question as to why new hires let these companies take advantage of them so badly.  Paul Graham had a start up, he begged for angel investing, and his life should show you - what does he do now?  Well he learned from his experience that designing and building is for chumps, to make the big bucks and sit on your ass you become an angel investor.

Kids will work for pennies.  You can continue to fill their heads with dreams of having the next big idea, even though they are carrying all the risk for you.  Junior developers, whether entrepreneurs or otherwise, are being asked to give up their 20’s, probably the best, most energetic years of their lives, to have a chance at making a dent in someone else’s bottom line.  (Make note, the one exception here I’ve seen is 37 Signals :) )

But have we never stopped to think who truly is benefiting from all these hours?  Do we get paid more?  No.  In fact, because many of us are salaried, we’re effectively paid less.  Are we compensated with faster promotions?  Possibly - but don’t forget about that silicon ceiling.  The only person who knows how many hours you’re putting in is probably just the guy above you - but he makes sure to show just how productive his department is (via your hard work) to everyone.  He will always get the spoils.  Who will end up really getting the spoils out of any of YCombinator’s work?  Paul Graham.

Both arguments have their merits and there are also parts I disagree with on both sides. Austin is right that YCombinator takes advantage of the naivety of youth. However when you are in your 20s with no serious attachments (like a mortgage, a family or even a sick relative) it doesn't sound like a bad idea to make hay while the sun shines. If you can sacrifice some time in your youth for a chance at a better life for yourself and your future spouse/kids/girlfriend/family/etc in a few years, is it wrong to treat that as an opportunity? Especially if you'll be working in an energetic environment surrounded by likeminded souls all believing that you are building cool stuff? Additionally, if the startup doesn't work out [which it most likely won't] the experience will still turn out to be useful when you decide to get a regular job at some BigCo even if it is just realizing how good you have it to no longer have to work 80 hour weeks while eating Top Ramen for breakfast and dinner any more.

From that perspective I don't think Austin is right to completely rail against the startup lifestyle. However I totally agree with the general theme of Austin's post that working ridiculous hours is dumb. It should be common knowledge that sleep deprivation impairs brain function and may even lead to psychiatric disorders. The code you check-in during your 14th hour at your desk will not be as good as what you checked in during your 4th. If you really have to work that much, work on the weekends instead of spending over 12 hours sitting in front of your IDE. Even then, busting your butt to that extent only makes sense if you not only get to share the risks of failure but also the rewards of success as well. This means you better be a co-founder or someone with equity and not just some poor sap on salary.

My issue with Paul Graham's essay and the investment style of YCombinator is that I it sells startup founders short. Paul recently wrote an essay entitled Cities and Ambition where he had this beautiful quote about the kind of "peer pressure" the Silicon Valley area exerts on startup founders

When you ask what message a city sends, you sometimes get surprising answers. As much as they respect brains in Silicon Valley, the message the Valley sends is: you should be more powerful.

That's not quite the same message New York sends. Power matters in New York too of course, but New York is pretty impressed by a billion dollars even if you merely inherited it. In Silicon Valley no one would care except a few real estate agents. What matters in Silicon Valley is how much effect you have on the world. The reason people there care about Larry and Sergey is not their wealth but the fact that they control Google, which affects practically everyone.

Read the above quote again and let its message sink in. The great thing about software is how you can literally take nothing (i.e. a blank computer screen) and build something that changes the world. Bill and Paul did it with Microsoft. Larry and Sergey have done it with Google. Jerry and David did it with Yahoo!, and some might say Mark Zuckerberg is doing it with Facebook.

Are any of those companies YCombinator-style, built-to-flip companies? Nope.

I strongly believe in the idea behind the mantra "Change the World or Go Home". Unlike anything that has come before it, the combination of software and the World Wide Web has the potential to connect people and empower them in more ways than humanity has never seen. And it is possible to become immensely rich while moving humanity forward with the software that you create.

So if you have decided to found a startup, why decide to spend your youth building some "me too" application that conforms to all the current "Web 2.0" fads in the desperate hope that you can convince some BigCo to buy you out? That sounds like such a waste. Change the world or go home.

Now Playing: Wu-Tang Clan - Triumph


Sunday, August 3, 2008 3:58:44 PM (GMT Daylight Time, UTC+01:00)
All right, Dare! Welcome back for sure.
Sunday, August 3, 2008 5:17:29 PM (GMT Daylight Time, UTC+01:00)
I agree with your general sentiment, "Change the World or Go Home". But I think this can also be interpreted as "Do what you love": focus on creating something that you believe in. However, the other view might make more sense in this context. Sometimes, "Do what pays", can be a practical middle-ground that allows you to make mistakes while paying the bills.

There can be a danger in fixating on an idea which Paul Graham's view might be hinting at. For example, paypal initially focused on transferring money PDA-to-PDA -- the website part was just a demo. Maybe the take away advice should be:

"Love what you do, but not what you are doing".
Sunday, August 3, 2008 9:45:24 PM (GMT Daylight Time, UTC+01:00)
Do you think there are parallels with this situation (which I would associate with the term 'precarity') and what's been going on for decades in the world of popular music?

Since WWII and the onset of the permissive society, there's always been a magnetic attraction to the music business for millions of young hopefuls that thought that all they had to do was to be in the right place at the right time and one day superstardom would shower down on them from the skies. Some realised that it actually takes talent, and they bothered to learn to play something, or bothered to learn to write a song or two, or bothered to get okay at singing. Most didn't think that mattered at all, and was an unnecessary hindrance and an awful lot of work that wouldn't really contribute to the being of a superstar, whenever that happens.

Even people that didn't think they could fill the shoes of a recording artist still flocked to work in studios, just to be associated with that world. People would work in recording studios making tea and as 'runners' for virtually nothing (in many cases, actually nothing) just to say that they work in that magical business. Similarly, in theatre, then in films, and other popular media.

All of this is essentially exploitation.
Sunday, August 3, 2008 10:33:15 PM (GMT Daylight Time, UTC+01:00)
I think blanket statements about YCombinator companies are a little unfair to the diversity of YC startups. Wufoo, for instance, has been profitable from the start and continues to build on a vision they believe in. Hardly built to flip.

Posterous, our YC-funded startup, is 100% committed to changing the world by bringing publishing online to the other 90% of people out there who know how to use email but don't know how to use complicated blog software. And we're pretty sure we'll be able to do it well enough that people will be willing to pay for the right features.

Finally, regarding the quote from Austin Wiltshire: "Who will end up really getting the spoils out of any of YCombinator’s work? Paul Graham." This quote strikes me as absurd on its face. YC takes an average of 6% but speaking from personal experience the value of the mentorship and connections far outstrip that slice of the pie. This isn't even including the access and network you get from the hundreds of other founders who have passed through YC doors now.

It's completely misguided to think that YC has some sort of strange or malicious goal of taking advantage of unassuming hard-working startup founders. Paul didn't HAVE to create YC, but he did it to serve a need he identified -- to help smart hackers like himself 'solve the money problem.' The business world rewards owners, and YC / PG is giving smart hackers a push in the right direction towards owning their creations and their destiny.

As for deciding whether to flip or not-- Google, Facebook, and every other world-changing tech firm you can think of had the chance to flip a thousand times. They said no. Making that decision is a part of a founder owning their own destiny. YC is there to help startups get to that point. What you do when you're on the threshold is your choice.
Monday, August 4, 2008 1:40:59 PM (GMT Daylight Time, UTC+01:00)
Interesting article Dare.

I have noticed that there is quite a lot of critique of Paul recently in varoius articles, in general. Not sure why... (not saying this one is critical)
Some might argue that Paul is getting too much into the 'man on a mission' mode. One article I read recently suggested ironically that Paul has a messianic mission to fulfill (sorry don't rememebr the URL). Well maybe he does, maybe he doesn't. Not for me to comment on that.

The thing is - Paul is not lying about what YC is about. He does not try to deceive or abuse.
He basically says from the very start that they (YC) are willing to help - they offer some cash to live off/fund your start up if you 're successsful, offer you their expertise and networking connections - wow, i'd say that the latter two are far more valuable than cash itself. Even if you fail, you are still winning. You get business exp, coding exp, develop connections etc etc. It's a win-win for any inexperienced youg coder/founder - for most of them it seems like they can confront their ideas with reality and learn under supervision. (we are talking here mostly about males in their early 20ies who have little exp but a lot of idealistic dreams - I'm still like that myself, although last 4yrs has been a crashcourse in reality.. but I'm strating off the main rant here)

I don't understand why people attack Paul for setting some rules in place. Is it because people are to spoiled and whinging to understand that 'tough love' usually works (in this context at least)? Do most people really need to be pampered and get their butts wiped for them? What happened to the spirit of the new frontier, reaching for the stars and sacrificing a bit to reach your goals?

YC offers intensive 3 months for start up founders - it does not FORCE them go, they are free to choose to comply with the rules; and the rules are there so that YC can avoid clowns trying to 'beat the system' and abuse the YC people. YC afterall INVESTS their resources in some folk with potential.
It seems to me that people seem to forget that YC is there to help people who want to help themselves. Yes it is intense - and that is the point. You don't go to YC to build something form the scratch. You are young, you have a product/service you want to promote. It is the shit (or so you think). Your buddies love it. Random folk love it. What you want is make 100 and 1% sure that you use full available potential to make it work. You apply to YC. They accept you - good for you! If not - then who stops you form putting the extra work and launching anyway yourself?
In the latter case it is mor difficult but no impossible. Sumbit a story on HackerNews, Slashdot etc. Send emails, message folks on Facebook, get a loan etc - you still can do it.

What YC ask is that you be serious about YOUR on THEIRS time and you give your baby complete attention. No time wasters allowed! :)
YC are not baby snatchers. Paul Graham is not the bad witch form brothers' Grimm stories.
These guys are serious about the work their do. Their cut their teeth on serious business, and they have no time to waste for nursing crybabies.
So it is a simple - your in or out. They provide you with environment separate form distractions (family, friends, gf etc) for limited time (3 months) and what they ask is that you concentrate on improving your product, and network with likeminded people.

I don't understand why someone (again forgot the URL) would compare YC to a sect. Again, YC is a company that offers cash, expertise, networking, good environment - asks little in return - and just wants you to commit for a short period of time. Is that asking much? i don't think so.
Also, it seems to me that people forget that YC accepts applications from all over the world.
It might seem less of a challenge to move to Silicon Valley if you live in US but if you live in UK or mainland EU or anywhere else, you do prov you are commited and you do want your product to work.
YC offers you a CHOICE, if you accept you get all the stimuli you needto focus on your project.

There is a criticism of Paul's idea to 'build to flip'. Why don't people see the obvious point that if you build to sell you work to a higher standard? Think about how many times you worked on you own projects and they are/were, well, sloppy.
You build to sell, you put in more quality. (btw, any management book will tell you that 'quality is free' - look it up, for explanation ;) You work on your project you just make it work, without caring about putting into proper structure.

If you want to be critical - be constructive. Don't whinge. And read something on eristics - ad personam arguments or drawing ill conceived paralleels just doesn't do the job.

Just my 2 pence...

End of rant. :)

(glad to hear back if anyone agrees/disagrees with my view...)
Marcin Dabrowski
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