Why to Start a Startup in a Bad Economy (2008)

199
18
13 days
(paulgraham.com)
by karimf

Comments

hwers
13 days

This whole “what matters is the founder” idea really discourages me. It’s such a VC perspective. The VC has a flock of people they pick from to invest in and if your traits doesn’t fit the necessary requirements you shouldn’t start a startup. And I’m sure it’s true too. It’s just that it feels like if you don’t have the grit etc necessary you’re just out of luck and out of this club and it’s not really something you can work on. (After all if it was something you could improve then it could be taught but PG et al seems to think - and I think they’re right - that it’s an innate thing.)

tomhoward
13 days

This is probably my biggest topic of contemplation and experimentation.

The startup I co-founded was funded by YC the month after this essay was published. It was the same batch as Airbnb. We didn't tick the VC boxes. PG commented later that we were "so nervous" in the interview; he had no idea how much.

It was said that all the startups in our batch were chosen because we seemed particularly resilient. It's amazing how being told that by someone like PG will make it come true.

Our startup didn't make it as a "home run" success, and we found it hard to raise VC funding, partly, I think due to not ticking VC boxes. But the company still exists in a different form. It employs over 10 people and is doing really important work to help airlines recover from the effects of the pandemic. It could yet be a huge success, thanks to the resilience and determination of the people still there (I left about 7 years ago).

Thanks in large part to the YC experience and vote of confidence, I've been undertaking a very profound journey of self-discovery and growth, and have worked on several important and successful projects. I'm now exploring multiple opportunities to start or join new startups, some related to the work we were doing in our YC-funded startup, and others completely different.

I think the last few years has been a tough time to be the kind of founder who doesn't tick VC boxes; the whole startup world has been dominated by glitz and hype.

It feels like that's changed in the past week. It seems the latest hype era is over, and we're re-entering a period where resilience, resourcefulness and determination will be in strong demand.

Please don't be discouraged. If you really want to build something important and valuable, you'll find a way to do it, and you'll get the support and funding you need when you're ready. It may take a long time, but important work always takes a long time.

I hope you find the purpose and motivation you need to have a go. It really can be the most amazing, life-changing experience. Feel free to contact me (email in bio) if you want to ask or discuss anything.

Best wishes.

cercatrova
12 days

Looks like the site is Adioso, but I don't see a link to it on the Internet. A reddit post which you replied to says you shut it down for now [0], is there a link I can visit? Or are you talking about another startup that employs 10 people?

[0] https://old.reddit.com/r/travel/comments/owdpnj/it_seems_adi...

tomhoward
12 days

The original company rebranded when it pivoted to enterprise. I traded the Adioso brand/IP for my equity when I left, but have been working on other things, particularly since the pandemic arrived. A bit of LinkedIn sleuthing will lead you to the rebranded/active company, or you can email me if you want to know more.

RMthrowaway
13 days

I'm a little skeptical of the thesis because the company you're referring to survived by becoming increasingly VC friendly. It got leadership with connections to investors and pivoted to VC-legible products. There's only one person still there from the beginning, who is, admittedly, resilient and determined, but would also tick the VC boxes because he's just generally a stud

tomhoward
13 days

This is mostly false, except perhaps for the suggestion of my co-founder being a stud.

The company survived by becoming commercially focused and profitable, which happened after we recruited a leader with experience/connections in the airline industry, not to investors. The products the company pivoted to were not more "VC-legible" than what we started out doing; they were just products that could generate enough short-term revenue to enable survival. The company hasn't raised funds from VCs; its funding has been from angels, airline/travel tech companies and family offices.

It has unquestionably taken a ton of resilience to get the company to where it was before the pandemic, then to survive the pandemic, and to find a way to thrive on the other side of it.

dustingetz
13 days

Startups are a game of kings, courts and conquerers. Everything written by a player is propaganda, it was written with intention to further an interest. No one gives a fuck if a peasant can become Alexander the Great but they very much benefit from getting you to dream that you can, and your compliance.

cercatrova
12 days

I don't see how a VC benefits, they'd be throwing their own money at a peasant who might not be successful.

projectazorian
12 days

Most VC’s don’t fund peasants. Founders tend to be the children of lesser nobles, with a few social climbers thrown in to add spice.

SeanAppleby
12 days

I grew up working class and found that VCs were more accessible than, in my experience, any other upper class institution I have seen.

When I was younger I had an easier time getting meetings with partners at decent VC funds (including YC) than interviews with Google, for example. And accordingly an easier time getting seed funding than a prestigious internship.

VCs would generally look at prototypes and listen to the story, if you made the initial case concisely and it made sense, whereas other institutions would just throw my resume away with no calls because it didn't match whatever filters. I just wouldn't even get to talk to hiring managers at decent companies.

I didn't raise a really meaningful amount of money, but it seems implausible that VCs/angel investors who were willing to give me five-six figures for pre-seed wouldn't have given me six-seven in the next round if traction was there.

They said they would, and if they wouldn't, they knew the company had a runway such that it would need to raise again, so giving me anything would have been irrational. If I was going to be discriminated against for being from a working class background/not going to a good enough school/being a technical cofounder who didn't study CS, it would probably be at the very beginning.

projectazorian
12 days

Willing to believe that this used to be the case, especially when YC was less famous and G was wildly elitist in its hiring practices (less so now). But I’ve seen very few venture funded startup founders, then or now, who lack either family wealth or an elite education.

In fact I’d say the diversity of founders seems worse than it was five years ago, back then it seemed like founders from underrepresented groups were becoming more common.

cercatrova
12 days

Yes, hence why I was confused at the parent's line:

> but they very much benefit from getting you to dream that you can, and your compliance

I can't see how VCs benefit from selling a dream to peasants.

projectazorian
12 days

The employees need to come from somewhere, and selling the dream helps with that. It’s also good investor storytime for the LPs, and great PR for prospective customers.

Not to mention it boosts applications from the unconnected, from which you can find the most appealing diamonds in the rough - or, if you’re more underhanded, you can just pass their ideas on to someone in your network.

This is the model Ivy League schools have practiced for decades; most applicants who get marketing materials from Harvard have no chance of getting admitted, and Harvard knows this.

Comment was deleted :(
dustingetz
12 days

VCs do not market to peasants. When a VC emphasizes "team" - that is a specific euphemism for "not peasant". But if they said that outright they would be cancelled.

dennis_jeeves1
12 days

That's a pretty accurate way of putting it.

sigmaprimus
13 days

> This whole “what matters is the founder” idea really discourages me.

Yep that is one of those pesky traits...not getting discouraged from rejection.

I think everyone should at the least start their own business, even if just to become a better employee in the future through their failure and gaining perspective of how difficult starting and running one successfully is.

Before this turns into a rant about how soft the world has become and I share my unacceptable opinions, I will just say that if you allow fear of failure to keep you from making the attempt you fail by default.

solatic
13 days

> It’s such a VC perspective

Ideas don't execute themselves. Problems are everywhere and ideas are a dime a dozen. Reddit is full of armchair generals. Companies are ultimately run by people. They live and die by whether the people running the company can build a solution, sell a solution, recruit people to expand the solution, and keep the people they have come to depend upon. Everything else - even money - is secondary.

krono
12 days

> Reddit is full of armchair generals

So is the local pub. Sometimes what they say is based on some inside information, a unique perspective, or otherwise makes a lot of sense. There can be actual value in those comments, even if the commenter themself doesn't recognise this or simply isn't in a favourable position to exploit it. Dismissing all that's said off-hand is rather wasteful :)

hardwaresofton
13 days

> This whole “what matters is the founder” idea really discourages me. It’s such a VC perspective. The VC has a flock of people they pick from to invest in and if your traits doesn’t fit the necessary requirements you shouldn’t start a startup.

In an uncharitable interpretation, this is tech/VC returning to the mean -- this is the "good ol' boys club" (the sex of the person in particular is not important) that generally people talk about, and it's how society works most of the time. VC is not charity, they are incentivized to filter, and they do. That does not necessarily mean it's the same discriminatory environment but that depends on the person doing the searching and their ethics/principles/choices.

That said, YC is just about the antithesis of the aforementioned phenomenon -- they were one of if not the first to significantly drop the barriers to accessing VC. They took their program abroad and lowered barriers to entry for smaller international economies abroad. They've upped the amount given to founders and are running hot trying to accommodate huge incoming batches. They make founder school and other resources available absolutely free. YC's made it a breeze to work at any of their companies and get on the hundreds/thousands of rocketships they launch every year, VISA difficulties aside (there was also some mention of them working on a VISA "fast track"-ish path or something).

> It’s just that it feels like if you don’t have the grit etc necessary you’re just out of luck and out of this club and it’s not really something you can work on. (After all if it was something you could improve then it could be taught but PG et al seems to think - and I think they’re right - that it’s an innate thing.)

This is an extremely reasonable thing to filter for -- judging startup ideas is hard/impossible, and with lots of reflection it seems that grit is one of the things that sets founders apart (clearly ideas don't, execution usually will but maybe sometimes doesn't, etc). It makes sense for all VCs to filter for these qualities.

Now where I do agree is that people who can game the system -- but maybe grit is hard to fake. At some point you end up just... acquiring grit, because the situation is hard.

Grit and perseverance can definitely be learned. What it takes to embed it in yourself and motivations may vary from person to person, but it can definitely be acquired most of the time, I think.

[EDIT] - forgot about free founder school and stuff on YT

yowlingcat
12 days

Great points here especially about YC, and but I want to highlight one that you missed which I think is most impactful, which is the innovation of a SAFE.

Early stage fundraising before SAFEs became a norm sucked. You had to deal with awful convertible note terms if you wanted a note, or deal with highly dilutive priced rounds; either way, there was so much friction on both sides. With the SAFE, you had a highly standardized instrument that both parties understood and which was very founder friendly. If investors wanted special things beyond that, they need to specifically carve it out into a side letter which spells out the special things they want. Just a different conversation.

Beyond that, it's not just that the SAFE as an instrument revolutionized early stage funding, it's that YC made it the de facto norm. This, more than anything else YC has done IMO, has permanently changed the landscape for early stage founders. I'll always be thankful to YC for that.

hardwaresofton
12 days

Ahhh yes, you're totally right -- the invention and forcing forward simplification/normalization of the process of raising money and running a startup is huge.

sigmaprimus
13 days

I agree 100%,

I donate every year to charitable causes but VC is not charity.

This thread reminds me of my softer youthful years, I can still feel the despair while standing with my back against the wall at the school dance, wondering why and noting how unfair it was that I wasn't dancing with anyone...

jandrewrogers
13 days

Having grit is probably the single most important trait of a founder, and one of the few which could reasonably argued to be innate. Just about everything else is learned, often by doing, which is why you need grit -- the learning curve is long and steep. Grit is how you bootstrap your way to being good at the other parts of building a startup.

sigmaprimus
13 days

I think grit is obtained through adversity.

Hard times create strong people, Strong people create good times, Good times create weak people, Weak people create hard times.

What time is it?

moron4hire
13 days

Hard times create weak people. People aren't iron that gets tougher when forged in fire. People are bags of meat. People accumulate damage and damage creates scars. Scars are only "tough" in the sense that they are less easily damaged than the virgin tissue before. Otherwise, the function of the tissue is degraded in every other property.

Stress causes health issues. Particularly traumatic stress causes (wait for it) Post-Traumatic Stress Disorder. All else being equal, a person with ulcers and anxiety disorders and depression and PTSD is a less capable person than one without.

sokoloff
13 days

The body’s response to exercise argues the opposite of your first paragraph.

moron4hire
13 days

Sitting on your butt and punching keys at a startup for 60hrs a week is not anything like exercise.

ant6n
13 days

It’s „weak people“?

Comment was deleted :(
mytailorisrich
13 days

Not everyone can start a successful business. When you start you have your idea and yourself, and as the saying goes ideas are cheap.

So I think that the founder is key, indeed, and whether VCs are involved is not relevant. But of course this means that VCs will judge the founder, not just the business plan.

closedloop129
13 days

I would only consider the lack of grit unfair if you have passion for achieving a specific goal and you cannot achieve it due to the lack of grit. Is that possible? If you deeply want to achieve something, don't you automatically have the grit to achieve it?

Lack of grit should be more a problem for people who see startups as a job where they are team-leads and they need some level of perseverance to overcome obstacles.

Still, why shouldn't grit be trainable? It's just that VC make money by selecting founders with grit. In a sense, they corner the market by investing into the best. Why should they destroy their moat by flooding the market with viable founders?

solatic
13 days

> why shouldn't grit be trainable?

Grit is not trainable in the sense that one can add it to a grade school curriculum and reliably graduate people with grit. Fundamentally, grit is formed by coming up against obstacles, failing, and getting back up again and perservering. No curriculum on the planet can standardize the experience of failure - even the Kobayashi Maru was beat by Kirk.

moron4hire
13 days

Kirk didn't beat the Kobayashi Maru.

solatic
12 days

Depends on your perspective.

If you think Kobayashi Maru is about measuring your ability to function under pressure, loss, and failure, then you're correct. Kirk's unwillingness to face failure made him fail.

If you think Kobayashi Maru is about how the captain is supposed to react in an unwinnable scenario, then you're wrong, and you're not just wrong, Kirk is the poster-boy for exactly the correct approach. Ultimately, there are no real rules in war - only who survives. Business is different, but not that different. The annals of history are awash with the red ink of failed companies who insisted on letting the perfect be the enemy of the good.

eropple
13 days

"Cheating is fine because I'm the main character and I'll get away with it" is not a bad summation of "hustle culture", though.

ant6n
12 days

He kind of did beat it by sacrificing himself at the end of Star Trek vii.

closedloop129
13 days

You don't need a guarantee of failure. Let the students do several challenges at their skill level and they are bound to fail at some. That's where they can learn.

solatic
12 days

> Let the students do several challenges at their skill level

Define "their skill level". Particularly in large classrooms with mixed skill levels.

Coming up with such challenges is more difficult than it would seem.

klysm
13 days

Nah I think it is absolutely not innate. There are so many other factors at play into the success or failure of a founder beyond their innate characteristics.

yobbo
13 days

"Grit" is another word for the ability to distinguish between surmountable and insurmountable obstacles. Otherwise we would have to believe that insurmountable obstacles don't exist. If you believe an obstacle is insurmountable, it is rational to give up.

Therefore, grit can only be identified (or distinguished from irrational belief) in retrospect.

scarface74
12 days

Let’s be more blunt, VCs pattern match. If you don’t look like Zuckerberg, you’re much less likely to get funding.

https://www.holloway.com/g/venture-capital/sections/pattern-...

gitfan86
13 days

When they say "founder", they are talking about building BILLION+ dollar companies. They are talking about someone who is going to give up everything else in life if necessary to win at building a billion dollar company.

They are not talking about someone who is going to build a company with 5M in profit a year and live a balanced life. Almost by definition they are talking about an insane person.

Personally, I don't think it is a insult for someone to look at me and say. "That guy seems like he spends a lot of time with his family and traveling and staying healthy, he isn't good founder material since he is so busy with those other things"

Bubble_Pop_22
13 days

> When they say "founder", they are talking about building BILLION+ dollar companies

Last time I checked the most successful companies in American corporate history are:

1) Standard Oil

2) IBM

3) Microsoft

All 3 of them managed outcompete any other company in their field and were only stopped by the U.S. Federal Government

None of them ever needed VC capital. VCs are like sirens, they are bankers in disguise.

Given all that you might as well do like the 3 aforementioned GOATs and just go to a banker if you need money.

There is nothing wrong with debt. When you have to add a liability to the balance sheet you might as well add a liability that looks and feels like a liability instead of falling for the sirens who promise to make that liability into an asset. It ain't.

nxmnxm99
13 days

Umm... that's because "VC" as an asset class has only existed for a few decades, and didn't come out of the fringes until around the dot-com bubble. So pointing at companies started decades earlier with massive first mover advantages as a call against VC is a bit silly.

Perhaps instead talk about the % of VC funded decacorns over the last 10-15 years?

Bubble_Pop_22
13 days

> Umm... that's because "VC" as an asset class has only existed for a few decades, and didn't come out of the fringes until around the dot-com bubble

Rockefeller and Gates wouldn't have wanted VCs on the cap table anyways, even if they were around back then.

That's because they knew they had the means to repay the 27%something interest rate loan that a newborn Standard Oil or Microsoft commanded.

People resort to VCs because they don't have the entrepreneurial arrogance to believe that the thing that they'll build is gonna be a hit.

Actually given that any movement is a bottom-up movement...VCs exists solely because entrepreneurs have lost their entrepreneurial arrogance.

NAHWheatCracker
13 days

Oh come on, you don't know what Rockefeller or Gates would have done if VCs were in vogue at the time of founding their companies. It's entirely possible they would have taken VC money. The advantage of getting a huge boon of cash to grow the company may have seemed worth it for the reduction in risk.

Times have changed from when Rockefeller or Gates founded their companies. It's far riskier and harder today to build successful companies. Competition is fierce due to globalization. Increased standards means a longer road before people will pay you. The population has the same distribution of "entrepreneurial arrogance" by nature, but there's less viable options to exercise it.

Instead, people turn to VCs for a multitude of practical reasons:

  - Capital to get the idea off the ground
  - Networking
  - Guidance of experienced people
Someone who is absolutely sure their jump to conclusions mat company is going to be a hit isn't arrogant, they're just stupid. On the other hand, an arrogant but smart person with an idea on how to design a better wind turbine recognizes the practical problems that building wind turbines is expensive.
rileyphone
12 days

Gates chose to put a VC (Technology Venture Investors) on the cap table even when flush with cash.

Bubble_Pop_22
12 days

He picked him, like he picked Ballmer. Not because of the cash but because he wanted that particular person on board and they were particularly adamant about joining in that particular fashion.

yowlingcat
12 days

Interesting argument, just a minor comment/question here...are you aware of the history of the Silicon Valley come and modern VC? Would you say that your argument already accounts for that history?

Bubble_Pop_22
12 days

Silicon Valley is the last 10ft effort at the end of a 5000 years long race made possible thanks to debt.

I also don't buy the hype of Silicon Valley , from a social standpoint it seems a place full of arseholes. Zeros and ones in the bank account, however many won't compensate having to live in such environemnt

Being one of the many "millionaires next door", that is what the American dream has always been about.

Comment was deleted :(
vikramkr
13 days

How are those the most successful companies in corporate history? By what metric? Apple took dilutive investment, as did Amazon, as did Google and famously Intel did also. Even the formation of general electric involved financing from jp morgan, who financed a lot of the early giants.

deepnotderp
12 days

Apple is the most successful company in American, and well, human history

Bubble_Pop_22
12 days
acchow
12 days

> After all if it was something you could improve then it could be taught but PG et al seems to think - and I think they’re right - that it’s an innate thing.

But who will do the teaching and how can anyone figure out who it can be taught to?

Allowing the innate trait to emerge naturally avoids needing to solve these difficult problems.

heyflyguy
13 days

Don't let it discourage you, because it's motivation to discover what they're trying to key in on. For us and our investors it was whether we'd mortgage our houses (hypothetically) to keep the business afloat and see the vision through.

As it turned out, we started in Feb of 2020, with much of our sales pipeline (over 2mil) disappearing in a day and a half when things shut down. So we didn't mortgage our houses but we buckled in, reduced expenses, found alternative revenue streams and survived.

We are here today and executing on our original vision after going through all that. I did end up selling my house to fund my family while we navigated everything, and it was not easy.

Now our investors treat us well because we did that. If you asked me ahead of time if we had the grit to do that I would think almost certainly no. When you're in the thick of it (And especially if you PG'd something), it changes perspective.

For me, it was really a life lesson of don't raise money or take a chance unless you really believe in it and there's a fuzzy path to victory. Sales fixes everything, even if you have to temporarily pivot.

You have it in you, I promise.

kleinsch
13 days

What an awful criteria. Your investors aren’t mortgaging or selling their houses. They’re just giving you other people’s money. Unfortunately, in a bad economy investors will hold all the cards and will be able to pressure founders into questionable life decisions.

sokoloff
13 days

If you had a choice to invest in founders who had such clarity, commitment, and grit that “they’d mortgage their house” vs a choice to invest in founders who were “in it as long as things keep going well”, which would you pick?

zhte415
12 days

One that had a savvy to stay focused on the bottom line and the gut to say no to investors making vastly asymmetrical demands of risk, reward and personal security.

I do however wish the GP all the luck in the world.

Bubble_Pop_22
13 days

Do they face the same constraints with their LPs?

Does CALPERS or the Texas Teachers Pension Fund require an Austin based VCs to mortgage their house?

Hardly.

Founders who have been around a long time know the game. Founders are disposable soldiers , VCs are Lieutenants and GPs/Asset Owners are Generals.

It's that simple. And it's okay. The BS part is when Lieutenants feel the need to conceal the truth or make motivational posts such as the OP .

The absolute worst is when a soldier manages to be decorated in battle...all the Lieutenants become absolute fangirls and ask him for autographs and pictures whereas they treat other soldiers like crap. Of course such behavior is in the hope to impress the Generals.

laserlight
12 days

The latter, because the former clearly doesn’t understand the game.

heyflyguy
13 days

No, they gave us their own money as angel investors.

The criteria isn't awful if you rationalize what the goal is: don't lose the money without a good fight in a good strategy.

sixie6e
13 days
thesausageking
13 days

Is the economy actually bad? Tech stocks are down recently, but are still above where they were 2 years ago. Unemployment is under 4%. I don't understand all of the doom and gloom in VC and startupland.

ryanSrich
12 days

Generally things are pretty bad yeah.

- housing issues are reaching levels we’ve never seen. Not just buying, but renting is becoming exceedingly difficult for some. The fed raising interest rates so far has done nothing to level home prices.

- supply chains are crumbling. It’s nearly impossible to find a new vehicle. Used vehicles are selling for more than new ones. It’s yet another bubble that will burst miraculously.

- gas prices are still through the roof. It’s not uncommon to see $6/gal on the west coast (in any of the three states).

- the baby formula shortage is actually much worse than people realize. It went from hard to find to literally no one has any over the course of 7 days.

- stocks and crypto are tanking. Yes, some stocks aren’t seeing it as bad as others, but it’s not insignificant.

- food prices are increasing, and it’s very noticeable walking around a grocery store. Meat is $1-3/lb higher than it was 6 months ago. Certain produce is either not available or marked up 1.5-2x what it should be.

Now, a lot of these are going to get much much worse. The government seems content with really doing nothing other than seeding billions to countries not named the United States.

I think it’s fair for financial analysts and investors to be in full on bear mode.

rkk3
12 days

> The fed raising interest rates so far has done nothing to level home prices.

They've barely raised rates! 0-1% federal funds rate is not a normal range, especially when inflation is ~10%

PuppyTailWags
12 days

> The government seems content with really doing nothing other than seeding billions to countries not named the United States.

I think this isn't quite accurate for a variety of reasons, much of it is that the federal government actually has significantly limited control of the above + what control it does have it has to pass through a hostile senate to accomplish.

- The federal government cannot force local government to build housing to increase supply, it can only try to incentivize, and housing can't be built fast enough to offset current demand

- The federal government cannot factories, particularly overseas ones, to produce more

- The federal government can, at most, go through a faster approval process for foreign baby formula; it cannot force current domestic makers to produce formula

- The federal government literally doesn't control crypto that's what the attraction of crypto was lol; its bombing is entirely crypto's fault; and the stocks have been pushing back against government regulation for ages already

- The gov't cannot set food prices

So precisely what do you expect the government to be doing here?

csdreamer7
12 days

This is so wrong.

> The federal government cannot factories, particularly overseas ones, to produce more

I am assuming you mean 'force'. Trump literally used the defense production act to keep hamburger patties flowing when workers were complaining about COVID.

https://thehill.com/homenews/administration/495175-trump-use...

While keeping hamburgers coming was the purpose of this EO. This act allows the president to force producers to change production to benefit the defense needs of the united states. To produce 'more' of something through retooling or other means.

https://en.wikipedia.org/wiki/Defense_Production_Act_of_1950

> - The gov't cannot set food prices

Please see a history of price controls. The article literally has a poster prohibiting charging more than govt set prices. Not saying price controls are a good idea, but do not claim something easily disproven with a google search. I learned about this in middle school.

https://en.wikipedia.org/wiki/Price_controls

spicyramen_
12 days

So basically you are saying that federal government is useless in a crisis. That's inaccurate, there are mandates that can be overwritten, constitution is very clear about it.

cmrdporcupine
12 days

Yes, the parent poster is being disingenous IMHO.

Federal gov'ts could do all these things, and did, before the advent of the current neo-liberal governance in the 80s and 90s. The choice not to be able to do so, to strip governments of planning and industrial policies, was a conscious policy choice made by several consecutive administrations and governments across the whole G20 (at least).

Even more so federal governments especially did these things during war times. And we're basically in a proxy war with Russia (and IMHO, for the first time in my memory this might actually be a conflict with an actual morally justifiable cause), yet governments in the west have not put themselves on a footing yet to really weather such a war.

We should have put ourselves on that footing during COVID. Or hell, to deal with the climate crisis. And now here we are with this latest situation in Ukraine...

eeeeeeeee

mdp2021
12 days

> It’s not uncommon to see $6/gal

You'd be "relieved" to know that some places in Europe saw 8$/gal in the past weeks.

whiplash451
12 days

Historically, gas prices have always been much higher in Europe than in the US. I was used to a 3x difference over the past decades. $6/gal in the US is brutal.

scarface74
13 days

Because VC funding is by its nature a Ponzi scheme hoping they can throw enough money at a business until it looks like it might be a viable profitable business to the “bigger fool” in the future (“$x is a gazillion dollar market. If we just capture 1% then we can be worth billions”). That “fool” can either be some other tech company that acquires it and let’s it whither (and the founders post a message about “our amazing journey”) or the public markets.

The retail investors don’t have any desire when the stock market is tanking to buy stocks in money losing former unicorns. The investment bankers who organize the IPO also won’t see the initial “pop” that allows them to make a quick profit.

Of course the employees who sacrificed real compensation in cash or RSUs in a public company in lieu of statistically worthless “equity” come out on the short end as the companies repeatedly delay an IPO waiting for the “environment to improve”.

All this to say, if you want to be a founder, go for it. But unless the startup you are thinking about has enough funding to compensate you as an employee at market value in cash, skip it.

DragonStrength
12 days

> But unless the startup you are thinking about has enough funding to compensate you as an employee at market value in cash, skip it.

Yes, and the good new is these companies have been paying significantly more cash in the last few years. It may not be enough to justify moving or staying in the Bay Area, but many small companies are paying the same remote, which seems like a better deal than the big tech companies in the short term, if you're looking to cut costs while their equity is down.

There's a lot of bad jobs out there right now, but if you're not in a gambling mindset, there are some good opportunities to improve your overall financial position.

scarface74
12 days

I took the route of working for a public $BigTech company. My RSUs for the year might be down 33% YTD. But at least they are will be worth something and I can diversify as soon as they vest.

DragonStrength
11 days

Yes, I think those at larger tech companies are in a fine position to stay put. Those who are questioning whether it's for them or not just have other good alternatives now, which aren't lottery tickets. A startup can still be a conservative choice in this environment when considering the whole picture, which is what I felt was missing from the above. There are certainly many ways to be financially conservative right now.

mjthrowaway1
13 days

Yes, it’s bad. Gas and rent are very high. People are broke and not spending. Everyone in retail, including myself, is feeling it.

silisili
13 days

Sorry to hear that. I have no idea how most people afford rent. I do OK, and rent hikes the last 2 years were making me nervous. I cannot imagine how someone making retail/service wages are even surviving. I really wish the government would or could do something to help here.

adam_arthur
12 days

What they could do,

lower tariffs, subsidize capital investment into production of lumber/housing, aggressively push and fight for higher density residential zoning, limit leverage allowed for investors of buy and hold rental properties, eliminate capital gains tax advantage for income above $1 million/year, enact temporary taxes on non essential consumption items, restart student loans (billions a month in excess spending for consumers). Etc etc

Instead they keep trying to tie BBB to inflation fighting, when its provisions are nothing of the sort.

They handed consumers far too much money, and need to suck it back up in a way that targets discretionary spending (vs essential spending). Too bad they won't...

PuppyTailWags
12 days

How much of this would be approved by both parties? [The democrats in the house, the republicans in the senate]

adam_arthur
12 days

The Democrats passed the ARP with 0 republican support, and they can do the same now via reconciliation.

But they are proposing BBB, not these things. Reconciliation does have limitations in that the matters must be budget related, but seems pretty easy to fit most of these under that umbrella.

They can resume student loans at the stroke of a pen

treeman79
13 days

And food. Stuff is almost double from a couple years ago.

Local restaurants that survived Covid are shutting down due to cost of food. Others are adding x% to food bill to cover cost. Things are rising so fast they don’t want to keep ordering new menus.

mehphp
12 days

Eating out now is ridiculous. It's extremely easy to spend $100 for a family of four.

czbond
12 days

It is! Our family of 4 generally goes out on Friday; as a sign of change last night we decided to order out, but eat at home. What would be $80, was now $45. (getting rid of the 4 drinks, appetizer, and ample server tip).

I have to imagine consumers will become tired of the cost increases - we put up with it a few months, and decided "no".

silisili
12 days

Yeah it's insane. Family of three, 58 dollars before tip. And this was a sit down very casual burger type joint.

addajones
12 days

It’s extremely easy to spent $100 on restaurants in LA just for 2 even. It’s obscene.

Comevius
13 days

I would argue that the supply chain is the economy, and the rest is fantasy if and when money can't make the supply keep up with the growing demand.

Innovation used to save our bacon, but now you have to innovate just to stay in the same place. Just pouring money on the problem doesn't work, it increasingly won't with climate change.

So we are between a rock and a hard place, inflation and recession. Choose your adventure. If the future could vote it would vote for curtailing demand across the globe.

SkyMarshal
13 days

> I would argue that the supply chain is the economy,

Agreed, though that includes not just the supply of things, but the supply of money as well, which is also being reduced as the Fed raises interest rates.

victor106
13 days

> I would argue that the supply chain is the economy, and the rest is fantasy…

An increasing and rapidly growing part of the economy is Services and Services are not that dependent on supply chains.

Also supply chains were disrupted mainly due to the world economy being overly dependent on China and China being shutdown.

In the long run this might actually be bad for China as countries pass laws to not be so dependent on China.

Comevius
12 days

What you are thinking is manufacturing versus services, what I'm thinking about is the distinctly B2B supply chain that includes both. Then there is B2C, which depends on the supply chain.

The financial markets are used to facilitate the operation of this economy and my argument was that it should not be seen as the economy itself.

The current inflation is because of China, Russia, the pandemic, lack of investment into the supply chain (during deflation, resilience being seen as inefficiency, preference for stock buybacks), bad investment (during the pandemic), lack of innovation and increasingly climate change. Something weird is going on with the fuel prices too.

ransom1538
12 days

IMHO The people that come out ahead here (for good or bad) are large locked debt holders. EG. You have a 700k mortgage that you locked in 2020 at 3%. Each month inflation eats away the loan - and the bank can do nothing accept eat it. Property has already inflated 10-15% in a year. I don't see interest rates that low for a decade -- that group of people lucked out. I don't see a huge home construction boom due to supply constraints - so those investments are pretty secure.

The people that get screwed are cash users/holders and maxed 401k holders. EG People about to hit retirement paying rent. Young people working two jobs to trying to pay bills. There will be nothing but rent hikes for years - shrinking ETFs, with tight restrictions to become debt holders. As usual the poor guy gets shafted. :(

soared
12 days

Does inflation help mortgage holders if their income is not increased at the rate of inflation?

disgruntledphd2
12 days

Nope, but the kind of people buying houses tend to have their salaries match inflation.

lr4444lr
12 days

In terms of raising money, which is a major concern for startups, yes, it's bad.

cmrdporcupine
12 days

When you have the high priests of capitalism demanding old-school industrial policy and state planning and intervention, you know the economic model in place since the Reagan & Clinton years... may have jumped the shark:

https://www.youtube.com/watch?v=Q-5US4J03Wo

I'd say we're in the mid-stages of what might be called an "economic crisis"; that doesn't necessarily mean riots in the streets and stocks plummeting to zero. But it means severe transformations that will displace the way things are done.

In most crisis it's usually the working classes who suffer first and most deeply. And that's been happening for some time; long prior to COVID, probably dating back to 2008. Once the upper and uppder middle classes start saying things like what you see above, you're already in the trenches and now shit's gonna get real.

Maybe.

marcosdumay
12 days

Whatever is your opinion of the current economy, it's about to get worse. Investment is drying up, and that has a delay before reaching the factors most people care about.

Simp4Zuck
12 days

The main thing is some companies doing hiring freezes & layoffs. Twitter has started rescinding some offers, Meta implemented a hiring freeze, Coinbase & Robinhood stock are in serious pain, etc. This kind of stuff is making most speculate that tech is about to be in a lot of hurt, especially for less profitable companies.

moistly
12 days

The Wiltshire 5000 indexes basically the entire US market. Take a look at its chart. It has lost more than a year’s worth of gains. I think if you look deeper, you’ll find that almost every public company is on the decline.

lordnacho
13 days

It's what's on the horizon that matters. Interest rates look like they're coming off the floor, and that will have an effect on those kinds of investments. When rates were zero it made a lot of sense to have a punt on VC. Once they come off zero they might not be back for a long time.

mr90210
12 days

Bad is relative…

Aulig
13 days

I needed to hear this. I wouldn't say we're in a bad economy yet, but I was worrying about the future a bit.

I like the advantages pg mentions (like less competition), which are a great way to look at potential problems. There's always 2 sides.

Since I run my business (https://webtoapp.design) with relatively low monthly fixed costs (around 200€) I think I should be fine. I don't think I'll run out of money under these circumstances. So I'm already avoiding startup killer #1 according to pg, which has calmed me down :)

rmbyrro
13 days

Why's this being downvoted?

Plug? C'mon, let people get their work out folks...

coldcode
13 days

I tried to start a travel company once. It didn't even get started at all because it I begin to plan the first week of Sept, 2001. Sometimes bad timing is as bad as a bad economy. In retrospect what I was wanting to do was impossible anyway; building a search engine for vacations using raw airfare/hotels/cars data + geographical info (I had experience with reservation tech and high volume search). Oh well, I never tried again.

rmbyrro
13 days

I don't understand, aren't there many successful travel search engines doing something quite similar to that?

arjvik
13 days

Why impossible?

steve_adams_86
12 days

I think it was close to impossible at the time for a start up. Not today, but a crazy amount has changed in 20 years. Access to this kind of data has really opened up.

I remember how expensive a lot of this stuff was back then too. Access to an API for fairly trivial data could have a meaningful cost to a business back then. Tying all of this together, especially with useful geographical data, would probably have been very expensive.

coldcode
12 days

Yes the data was not really there, I knew how enough to build the search part, but without sufficient raw data (i.e. not scraped or just via API without being able to search it directly) it would not have been possible. But that was a long time ago now. Oh well it was only a week...

georgeburdell
12 days

> When times get bad, hackers go to grad school.

Aint that the truth. A PhD from 2009-13 wasn’t a bad way to spend 4 years for me, but it definitely set me back personally and financially

A PhD is basically a years-long nerd snipe

abhayhegde
12 days

I understand how doing a PhD is a big opportunity cost. But is it that bad a choice financially though? I mean are the opportunities later not lucrative enough?

georgeburdell
11 days

Hard to say, but my first job out of grad school was as a process engineer at Intel. The pay grade for a fresh PhD was called "Grade 7", while that of fresh MS is either a "Grade 5" or "Grade 6". The thing is, grade promotions take maybe 2-3 years, so all other things equal, not only did I lose money by not being industry each of my PhD years, I could have been at the same grade level more quickly.

Yes, there are career paths that are only attainable by having a PhD, but those are really only for the top PhD students, so an elite group of an already elite group. The rest of us join career tracks that are accessible by lower credentialed employees by grinding out an equivalent industry experience.

abhayhegde
11 days

I see. So what you are saying is that the career opportunities did not justify the opportunity cost. Thanks for sharing! As a prospective PhD student, this helps me gauge the worth better.

lifeisstillgood
13 days

Give 100 random HNers a salary for five years and say "start and grow a company"

Amazingly they will all have grit. They will be working full time on starting a company because it's just the day job.

will those 100 companies succeed? who knows depends on markets, products etc.

Founders are no different from early employees, so make them early employees.

lbotos
13 days

I don't get your point? I think you are saying "early employees become future founders"?

As a former early employee, I was different from a founder in that I wanted to help build something, I didn't want to lead building something. Founder got more equity because of it. No problem from me.

The founders skills had to be way wider and more diverse than my own, and I got to stretch a bit, but still hone my core skill set.

rmbyrro
13 days

For likely >80% of HN readers, entrepreneurship is not their day job.

Signing for a job and showing up mon-fri is not nearly the same as building a business from the ground.

lifeisstillgood
12 days

I think I am feeling jaundiced - I just smell another "elite" class brewing. Turns out the thing distinguishing the elite from the masses throughout history has been money. Often money in order to for example train in warfare (ie knights or samurai) but money just the same

czbond
12 days

Our you have this belief that companies are started mostly by people with money.

A high number of the founders I know were all broke as heck to get to company success with no personal or family money.

lifeisstillgood
11 days

Would they all have preferred to have had a salary while they built the company? I am guessing yes.

The "problem" is to find the "right" people to give salaries to. VC theory today seems to say "the right people are so hungry / passionate / desperate that they will work for nothing to make their project succeed, therefore we don't have to pay salaries"

My conjecture is that far far more people will make good founders of good companies than the subset that will risk family ruin. So there is a real problem in that those people "should" be given a salary and told to found the company that will benefit the world. and VCs don't know how to find or find them

rmbyrro
12 days

I don't mean to imply thar entrepreneurs are "superior".

Just that they're quite different roles.

Entrepreneurs definitely developed (and are willing to continually develop) skills that the vast majority of employees don't. And that's fine. It's not meant that one is superior and the other inferior. Just different contributions, risks taken, etc.

czbond
12 days

Ever started a company and stuck with it for a long while? Yeah - founders without funding are VERY different than early employees, do not kid yourself.

Early employees go out and get a job; founders live through hell, making their lives very difficult to get to where they can hire. I know of many that went from tech salaries to living below poverty for years to make things work. [at least for those not funded in the valley]

devoutsalsa
13 days

I started my company in 2009. It was great to have lots of great people able & willing to work for cheap because I could barely afford to pay anything. It worked out well.

rmbyrro
13 days

Compared to the revenue a successful product and sales process can generate today, people are still quite cheap.

If your product solves a real problem that is painful, there's big enough market paying for it, and you know how to reach thid market and sell, you can pay a good engineer year salary in a week of sales.

devoutsalsa
12 days

I was starting a recruiting business w/ a consulting model (charge for time, not commission on placements), which is a cutthroat, competitive business. I needed big fat margins because I had to grow the business w/ cash flow, and I started from -1000 USD in the bank. I got one customer to pay me 5000 USD in advance for one job, and that was how I got traction. I needed help, and my first hire was a woman w/ a STEM masters from a good school, and she needed a job. I paid her 15/hour while paying myself 12/hour. Things were tight for a really long time!

rmbyrro
12 days

I'm not sure that was the intention or not, but from my perspective, your experience reinforces that people are still quite cheap.

What's really hard is building a product/service that solves a big enough problem, is marketable and you can sell.

If you don't have those skills, it's quite expensive to develop them. Way more expensive than salaries, even well paid engineers.

tluyben2
13 days

My best startups were started in 2001 and 2008. I am doing a new one this year again. It is a good time for sure; enough choice of colleagues and employees and competitors (especially the growth oriented VC funded) dropping like flies.

antupis
13 days

Yup I think right now is like best time found company, if you can get funding semifast you can start hiring when layoffs begin.

sigmaprimus
13 days

>If you can get funding semifast...

That is the problem with the current times, people are selling off sure things like bonds and precious metals just to maintain liquidity and meet margin calls right now.

I agree now is the best time to found a company, yesterday was better and tomorrow is almost as good as today! Very much along the lines of the best time to plant a tree!

Traster
13 days

I feel like the headline mis-states the actual case - and implies something that people believe but probably isn't true. Which is that it's better to found a company in a recession. I don't see any reason to beleive that, and it's certainly not the case for most companies.

The obvious thing though is that the only really important things are: Are you reliant on discretionary consumer spending, and are you dependent on investment capital. If either of those two things are true you're going to have a tough time during a recession.

rmbyrro
13 days

Unless you find a way to print dollars, I don't see much option besides those two. What would be the alternative to revenue or capital to pay the bills?

lelanthran
12 days

>> Are you reliant on discretionary consumer spending, and are you dependent on investment capital. If either of those two things are true you're going to have a tough time during a recession.

> Unless you find a way to print dollars, I don't see much option besides those two.

Selling to government, selling to business (B2B). If you're starting a company that does either of those two things, the risk is generally a lot lower because you'll have your first customer before you even start the company.

rmbyrro
12 days

Ah ok, the comment referred specifically to B2C, not B2B.

imachine1980_
12 days

If you are a tool to cut spending for companies maybe not as bad tool for automatically reduction billing in aws,as trying to sell 500 headphones.

lkrubner
12 days

There are different ways to measure a bad economy. For instance, there are formal measures, such as GDP, and under that measure, the economy formally shrunk in the USA in Q1. Which is bad, but not catastrophic.

There are some informal measures that are also interesting. There is the feeling you get on any particular street, the vibe of a place, whether it seems fun or dead or boring or even dangerous.

Last week I had lunch with a friend who I had not seen since 2019 (I've been doing a lot of post-pandemic catch-up recently.)

I'm in New York City, up on 98th, UWS. I like my neighborhood but I've often thought of moving to one of the really cool neighborhoods. My friend lived down on 72nd, much closer to everything cool. I asked him if he still liked 72nd.

"Oh, I've moved back down to Chelsea," he said. "Where I lived 6 years ago."

Wow! Very cool! And how is that, I asked, full of envy.

"There are so many homeless people. The streets feel dangerous now. When I get off the subway I have to think about how to walk home, otherwise I get very aggressively asked for money."

That was a shock.

On a related note: two months ago I needed to get some writing done. I've some long-term guests at my apartment, so I can't think straight there. I decided I'd rent a hotel room, go relax, shut out the world, and focus on writing. I got a room at the Marriot down in Tribeca. This is 2 blocks away from all of the events that I described in my book "How To Destroy A Tech Startup In Three Easy Steps."

I remember this area as somewhat industrial, but also popping with startups and co-working spaces and some very cool hotels, like the Ace. And some great restaurants, kept alive in part by the startup workers and entrepreneurs. Some of that vibe probably comes through in the book.

Now it was dead. Very dead. Almost all of the restaurants were closed. The streets were shockingly empty.

Several things occurred to me:

I no longer know which neighborhoods in NYC are "cool". I no longer know where the best restaurants are, where the coolest people hang out, where the best bars are, where the most interesting people want to hang out. The whole city is alien to me.

That long decline in crime, from 1993 to 2020, is over. That automatic feeling, which lasted (in NYC) 27 years, that each year would safer than the last year, is gone. The certainty that even a rough neighborhood will be safe in a few years is gone. Just the opposite now. Some of the coolest neighborhoods are getting rough.

All of the above combines in ways that make it more difficult to network, to get a job, or to recruit people for a team, or to talk to investors, or to talk to someone who knows investors, etc. The whole chain of meetings and friendships and networking has been disrupted. It will take some time to put all of that back together. Or to put that differently, it's not just the supply chain with China or India or Mexico that is disrupted, for millions of us, it is our personal supply chain that is disrupted.

indus
12 days

Venture Capital moves us between a distribution crazy entrepreneur to a hacker who sits down and creates, instead.

Though there’s a lot of chatter about funding the current situation, but this rodeo ain’t for the first time[1].

[1]https://reactionwheel.net/2015/01/80s-vc.html

hardwaresofton
13 days

RIP bountii[0][1] which was mentioned in the past

[0]: https://www.ycombinator.com/companies/bountii

[1]: http://bountii.com (now owned by a SEO/click farm?)

jollybean
12 days

I think a better essay would be :

'It doesn't matter that much at which time in the economic cycle you start your startup'.

Because for most of the relevant inputs, it doesn't matter that-that much.

abhayhegde
13 days

Great article! But what's the aversion towards grad schools?

ganyu
11 days

It's not a bad economy right now. It's not even close to one. It's just the end of the beginning of the a recession.

Comment was deleted :(
Comment was deleted :(
sixie6e
13 days
rmbyrro
13 days

For sure. Living in a cave and hunting pigs is the only honest way of living.

That's what you're doing, right?

lvl102
13 days

Yet, we continue to have innovations and standard of living across the world is rapidly increasing…hmmm.

geranim0
13 days

Yes, and that can't go on forever. We are abusing our planet faster than its recovery, and unless we discover a way to make a lot more energy, at some point people are gonna die by the millions. Just don't want to be there when it happens.

DethNinja
12 days

But this isn’t true for everyone. My skills and productive output is increasing each year but life quality and discretionary income just keeps going down.