Hacker News Re-Imagined

We need a middle class for startups

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  • 4 days ago

  • @thanedar
  • Created a post

We need a middle class for startups


@akhilpotla 4 days

Replying to @thanedar 🎙

Good article from a few years ago, but it still stands up.

https://nothingventured.rocks/what-startups-can-learn-from-t...

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@brotoss 4 days

Replying to @thanedar 🎙

No we dont

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@roflyear 4 days

Replying to @thanedar 🎙

Am I the only one not interested in taking advice from someone who has largely been massively successful? I always feel like these are the people who generally have nothing of real value to say, they just think they do because of their bias from their success.

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@lumost 4 days

Replying to @thanedar 🎙

I suspect that there is a self full-filling prophecy for VC funding. If you aim small (read 50-500 million dollar business), then odds are a DecaBillion dollar business will eat your lunch sooner or later.

The only middle ground would appear to be in businesses which serve defensible tight niches, but in software these mostly appear to boil down to consultancies with a small set of customers.

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@bsimpson 4 days

Replying to @thanedar 🎙

I studied entrepreneurship in college. They didn't know what to do with me when they realized I was planning on running a lifestyle business. Everybody else's forecasts were in the millions. I would have been happy making more than I spend.

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@Ken_At_EM 4 days

Replying to @thanedar 🎙

Bootstrapped our way to a B2B Hardware and Software product company. On target to hit about $10M in revenue this year, 35 employees.

This take really speaks to me and does a great job conveying frustrations that I have felt with the startup world for years.

I could go on and on about the downsides of the different funding models and how none of them have ever really worked for us.

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@tylertringas 4 days

Replying to @thanedar 🎙

Sounds like you're describing calm companies: https://calmfund.com/thesis

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@synergy20 4 days

Replying to @thanedar 🎙

there are plenty, they're called 'business', or 'small business', or 'grocery store' etc. they have to make money first day to survive, unlike VC 'startup's that burns other's money without worrying about profits for a while.

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@danschumann 4 days

Replying to @thanedar 🎙

For real, most VC's could take 100 different shots on solo devs who just need their living expenses paid... like me.

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@scotuswroteus 4 days

Replying to @thanedar 🎙

We need a startup for the middle class

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@dontreact 4 days

Replying to @thanedar 🎙

My sense is that in general, and especially in software, the world is becoming more of a winner take all place. This is not a good thing.

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@mgdev 4 days

Replying to @thanedar 🎙



@AussieWog93 4 days

Replying to @thanedar 🎙

>Problem: There are only two types of businesses on social media:

>Bootstrapped from zero.

>Raised $100M+ from VCs.

Does anybody else see the irony in this being discussed on a website owned by a huge company whose entire business model is lending medium-sized amounts of money to startups?

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@stjohnswarts 4 days

Replying to @thanedar 🎙

we need a middle class for western civilization

* limited terms for government offices, all of them

* limited funding and/or public funding for top X candidates

* _Heavily_ regulated lobbying and audits of said lobbying, and complete transparency of All Meetings (time, date, topic, audio recording)

* free public higher education

Only then will we get a little bit closer to fair government and healthy middle class (which is starting to dwindle in the USA)

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@ajross 4 days

Replying to @thanedar 🎙

I've made this comment verbally to a lot of people who seem to agree, but now that we seem to be in a firm correction maybe it's safe to say it here on HN:

The clearest, most obvious sign that the End of the Bubble was imminent was that the discussion about "startups" you'd seen in public was completely dominated by discussion of fundraising and not products. And this blog post, even though it argues against extravagant fundraising, is no different.

It's not about funding, it just isn't. Basically zero historical Unicorns needed billions of dollars in cash to bootstrap. Software companies all did it for almost free, but even Tesla (a heavy industry player competing directly with established outfits with hundreds of billion dollars in revenue!) did it on a few tens of million dollars and one too-visionary-for-his-own-damn-good angel.

The obsession with fundraising reflects the investor dollars looking for a home. It's an inherently inflationary conceit. And even now that the gravy train turned over, it's frustrating that people don't see that.

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@jjmorrison 4 days

Replying to @thanedar 🎙

Agree with this - that fundraise treadmill is brutal abyss to live in.

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@kaheofwkw 4 days

Replying to @thanedar 🎙

Killer you

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@Uptrenda 4 days

Replying to @thanedar 🎙

I get the sentiment but how exactly is raising literal millions in funds 'middle class' in startups? If I had a million dollars I could put together a team of founders who needed about 20k per year each to survive and we wouldn't need to raise until shit was actually finished with substantial revenue. Granted, this assumes you're not in Le Bay (I know) and your expenses are very low (like owning your house) but in my mind this is how startups should be done.

Get a bunch of people to move into one of the founders houses. Sleep on the floor if you have to. Have a coffee pot making bulk coffee for the whole house day-over. Live on nice healthy foods that require no cooking so you can code more. No take away obviously because its horribly over-priced. Plenty of cash for hosting services. Obviously no meme shit like cloud hosting. Use real servers for everything. There are even enough services that provide free resources to startups that you may not need to pay for this. You want to avoid the trap though: becoming dependent on services designed to screw your time and wallet later on.

Anyway, it seems like investors in startups only care about companies with million or billion dollar potential. You hear much less about people who build smaller profitable businesses, period. I'm guessing if it's a small business with limited growth potential you just have to bootstrap it with your own money.

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@brentm 4 days

Replying to @thanedar 🎙

Couldn't agree more on this, my company is there now. One difficult problem to solve is hiring. This is due to a number of things but one big one is a lack of external validation. When you raise from a known VC you're gaining a stamp of approval similar to having attended a top tier school. When you're selling product and investing profits into hiring that's cool but it's harder to assess from a potential employee perspective.

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@dustingetz 4 days

Replying to @thanedar 🎙

The investment terms would be terrible; monopoly math is what makes early stage risk worth it. Alternatively, VC underwriting would need to get 100x better. (Which such a disruption IMO is entirely feasible by a new younger/smarter cohort of investors)

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@tptacek 4 days

Replying to @thanedar 🎙

I'm a fan of bootstrapped companies and have started and operated a couple of them, sometimes quite successfully. But I don't understand how the economics of funding them are supposed to work. VC is a star-search business. Most businesses fail, and that includes businesses run conservatively with organic growth. In a portfolio like that, the winners have to pay for the losers, or the math just doesn't work.

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@asellke 4 days

Replying to @thanedar 🎙

I once pitched a fairly well-known Bay Area VC in 2015. We were looking to raise a $2.5M Seed round. The VC looked at me through his steepled fingers and said: "This is great. I'm just trying to figure out if you're a $100M business or a $1B business..."

And while it was flattering to be considered either, there was only one business they were going to invest in.

I understand the mechanics involved in some of these funds and the myriad of considerations that go into their investment theses, but it was also sad and frustrating that a lowly "$100M business" (with 4.5M registered users, mind you) couldn't get funded.

Don't hear me bemoaning the fact that we didn't get funded or that we somehow didn't receive our due. I'm just adding my experience with the gap that Neil is citing. And just like in broader societal terms, I think a healthy startup "Middle Class" would make for a healthier overall economy.

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@glenngillen 4 days

Replying to @thanedar 🎙

When I left SF (circa 2014) I had this general unease about what a bunch of my friends, who were now founders, had done to themselves. Quite a few that had what were perfectly great businesses, doing good things, giving people an enjoyable place to work, solving valuable problems for other companies. But they'd raised multiple rounds of funding which meant a billion dollar exit was only barely an acceptable outcome for anybody. It just blew my mind that these people could at that point have invested 5-6 years of their lives building a great business, and that a $1B exit would no longer be something to celebrate. Instead it looked like they were contorting themselves and their priorities into chasing highly speculative new ideas in the hope that found the next big success. Their future was either multi-billion outcome or flame out trying.

Coupled with all of this was a certain level of frustration that the startup game hand changed in the past couple of decades. Very few companies were having to overcome the type of feasibility risk from back in the silicon days of Silicon Valley. Lots of them already had a product in market generating revenue! Cloud had made it cheap and fast to make something real. So funding was increasingly going toward pure execution and go to market/marketing. It was a materially lower risk proposition for investors. Most were still taking their ~20% equity stake though because of the perceived risk, and just inflating it with a higher valuation.

So when I got back to Australia I started exploring different models that gave founders better options. A way to have a stake in the business that felt more aligned with the value/risk. A way to give founders their company back if their ambition or outcomes changed without forcing that go big or flame out dynamic. I was also inspired a lot by what Bryce @ Indie.VC was trying to do around the same time. Unfortunately my co-founder (Matt) and I never managed to get quite enough capital together to get it off the ground. A few years have passed though, and Matt has managed to tweak the ideas, get the capital, and a team together to make it happen (https://www.tractorventures.com).

I have to think we'll see this type of model grow more successful and more popular over time. Not every company needs VC investment. For lots of them it's actually a terrible idea. But lots of founders have grown up buying into all the hype and thinking it's the only viable way to build a really successful company.

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@anonimul 4 days

Replying to @thanedar 🎙

Killer you

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@dv111 4 days

Replying to @thanedar 🎙



@bxtt 4 days

Replying to @thanedar 🎙

I think about this quite a bit as my parents likely fit this category in the early 90s in Silicon Valley. At peak, they were bootstrapped a company from nothing to eventually at peak with ~40 employees at 100M USD annual revenue, no idea on income as it was a fairly large operation (distribution, warehousing, engineering team, sales team, operations, etc) They exited out of business within 6 years and retired in their 40s.

My family grew up relatively poor and extremely frugal. My dad was formerly a professor in machine learning, but decided to enter the private sector. He didn’t speak much English if at all, and entered the field when it was still immature.

After he was laid off, and with little options left, they decided to use their remaining savings and likely a loan from family & friends to bootstrap a company. My parents never wanted a business, but they had to out of survival. They never discussed the business with us, so I don’t fully understand the operating model behind their company, but it involved with semiconductors/hardware, etc.

What I think about is was this simply a business or during that time a “startup”. It was in a hyper growth period on relatively emerging technology, they were learning as they went, and exited quickly.

Recently, though my dad unretired in his 70s working at a FANG… Amazon warehouse worker. He says he does it for the exercise and $20/hour.

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@di4na 4 days

Replying to @thanedar 🎙

As someone that has been working hard in this domain, there is one major problem to this in software.

Initial funding. There is a lot of growth non dilutive capital available but the first 500k are near impossible to get without a network in old money.

You used to raise that money through other local mittrlelstands. At the Masons lodge. At the local kiwanis or Rotary. But these have closed to young member decades ago when said younguns moved to uni degrees as a path in.

There is a lot of money idling out there to do that, but as Indie.vc showed, the usual LP are super frigid to it.

I do not have a good answer to this. The current young people simply are too unstable and too close to poverty to take the risks. And there is noone taking a risk on them either.

There is a looooot of value to make though. These markets are ripe for productivity enhancement through good software by small teams.

But the people that have the domain knowledge and the tech skills do not have the risk taking capability to execute.

Whoever find out how to provide them this will unleash massive growth on the world.

I advice to look at what calm fund is doing. https://calmfund.com/

The solution may end up being some kind of crowdfunding from other tech specialists with high income. Like FAANG devs.

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@hnbad 4 days

Replying to @thanedar 🎙

What this guy doesn't seem to grasp about the Mittelstand is that those companies are ones that traditionally don't get acquired. They're usually generational family-owned businesses. They're the legacy of the lean bootstrapped startups he contrasts them with except they didn't aim for growth and acquisition but sustainability. Getting acquired is antithetical to being a Mittelstand business because acquired Mittelstand businesses stop being Mittelstand. The "exit" for Mittelstand business founders is death and inheritance.

The reason there's no "middle class for startups" is that both sets of startups he describes are growth-oriented investment/acquisition-seeking ventures, not sustainable businesses. You either get fast tracked by finding an investor or you have to take the long route and try to become profitable, but the end goal is to either get bought out (and die) or to go public (and become large enough to buy the competition).

Investors along the way buy you out piece by piece betting on you successfully reaching either of those two outcomes. Since investors are in it for big ROI they're willing to take some risks and overfund hopeful "unicorns" while underfunding startups that can't credibly promise (or don't aim for) that kind of ROI. Basically, the groups he describes are self-selecting. If you start bootstrapped as a growth-oriented startup either you wither and die or you grow successful enough to get acquired (and die) or get overfunded (and become part of the latter group). If you start overfunded either you overexert yourself (and die) or get acquired (and die) or continue growing bigger (or go public, leaving the VC bubble). Any "middle class" in between the two can only either be a transitional step from bootstrapped to overfunded (or from overfunded to bankrupt) or a consequence of low ROI expectations.

I'm not saying this middle class can't exist, but it can't be a growth-oriented startup and thus is only tangentially related to the kind of companies VCs think about. Another Siemens, Miele or Aldi isn't attractive to VCs because sustainable businesses aren't high enough ROI.

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@laurex 4 days

Replying to @thanedar 🎙

I think one myth that exists in both American culture and startups in particular is that you can "make it" if you just have the skills and the chutzpah.

Without some system that isn't inherently about 'move fast, big returns, oh and also it really helps if you're a young man with a Stanford connection and a way to get through the period of time where you have no income' then we get the technology that results from that. And the 'system' reflects a funding situation where big investors, often having 'good' missions (the LPs I mean) look to folks from SV VC to pattern-match their way into high returns.

If you are building a business and it's a "good business" that can be profitable early then great, but you will be stuck at scale (or in almost anything consumer-facing in tech) with only the companies willing to maximally exploit the systems that I think we know are extractive and unsustainable.

Like with most systems problems, it's hard to know what the 'answer' is- if you buy into this line of thinking- but I hope we'll start trying new ways to approach the problem, whether it's by putting some pressure on the LPs or by making it easier to crowdfund or by some more radical means...

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@bradleybuda 4 days

Replying to @thanedar 🎙

Businesses that are shooting for the "middle class" (say, less than $50M in earnings at their peak) are of course possible and healthy and good for the economy. What's missing in this analysis is that those businesses are not going to be "founder-friendly" the way that the prototypical YC-seed-stage startup is. To use the article's definitions:

* "Bootstrapped from zero" is, of course, founder-friendly - no investors and no board means you get to do what you want!

* "Raised $100M+ from VCs" is also pretty founder-friendly, at least in the early days, because you're selling those VCs on the lottery-ticket dream that they could earn 3-5 orders of magnitude ROI. With such an incredibly high upside, VCs and angels are willing to take risks with zero due diligence on unproven founders and small dilution.

If you remove the long tail of upside from the possible outcomes and tell your early investors "the best case for you is 100x return, but zero is still just as possible" then the market will compensate in these ways:

* Less availability of capital

* More dilution

* Less faith in "visionary founder" CEOs and more desire by investors to bring in professional management

* Long and protracted due diligence processes before the check even lands

All of that is fine! There's nothing wrong with building a business this way. But there's no free lunch here - companies that don't chase astronomical outcomes will have a harder path to getting those first few dollars in funding.

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@Bubble_Pop_22 4 days

Replying to @thanedar 🎙

Microsoft should be the example to follow for any new business.

They never raised money, never talked to VCs or consultants.

They just went in the market and poached other companies to become stronger until they had to face the ultimate boss of the corporate world : IBM.

They beat that and only had to surrender to the really last boss which nobody ever beats: The U.S. Federal Government.

Without VCs you can stop at any point of the climb and rest, then you can decide to initiate descent or pass the baton or even camp there indefinitely

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@toss1 4 days

Replying to @thanedar 🎙

Reminds me of talking to a VC who said that one of his investments 'turning into a $20MM company is the WORST outcome'.

The reasoning was that if the company just tanked, he had no ongoing issues, it was gone. Now, he still has his time & resources occupied by an ongoing company, even if minimally, it's a distraction...

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@phendrenad2 4 days

Replying to @thanedar 🎙

Didn't the 21st century establish that if something is valuable, it'll be way more valuable if you throw millions of dollars it and run all of the other penny-ante competitors out of business? If you do manage to find some niche, you'll have to either become the one to get VC funding, or watch as someone gets VC funding and eats your lunch. Very few remain under the radar long enough to grow too large to leapfrog.

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@alexashka 4 days

Replying to @thanedar 🎙

This describes a problem, a potential solution but not the steps needed to get there, the steps in-between.

Those are the tricky bits :)

It reminds me of the 'how to draw an owl' meme where you have a couple of circles on the left as step 1, a finished drawing of an owl on the right as step 2.

Great, but uh, what did you do to get from circles to an owl? :)

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@andrewedstrom 4 days

Replying to @thanedar 🎙

Powerful message, but what is going on with the formatting of this post? Why are lines highlighted with two different colors?

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@mbesto 4 days

Replying to @thanedar 🎙

This already exists in the US. How do you think <insert X project management software for devs> has 10k customers?

One of the biggest trends is now that PE is gobbling them up and rolling them up into $100M+ revenue businesses.

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@wollsmoth 4 days

Replying to @thanedar 🎙

There are a lot of random "startups" or rather, tech companies that managed to keep their customers happy while never really seeming to explode to huge capsizes.

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@user_7832 4 days

Replying to @thanedar 🎙

While some comments here are criticizing the author, I'd like to add that what the author says matches with my (extremely) limited experience. The most "glamorous" are YC-type funds, while others seem to be built with money more locally pooled from friends/family/banks. There are a few <X City> entrepreneurship centres and startups, but these unsurprisingly aren't as famous as funds with billions of dollars. I wonder if there's a way to increase the visibility of the middle kind of organized-but-not-10s of millions of $ funds - both as a social experiment but also as an aspiring entrepreneur.

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@paxys 4 days

Replying to @thanedar 🎙

From an investor side, what I see is that I'd have to keep my risk the same (these "Mittelstands" have the same chance of succeeding as any other VC backed company) while drastically reducing returns. Why would anyone go for this?

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@techsin101 4 days

Replying to @thanedar 🎙

with devs salaries in 200k+ range is regular startup even possible now?

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@cseleborg 4 days

Replying to @thanedar 🎙

I like some of what the article proposes, but some parts leave me skeptical. The author sketches out an industry of funds to buy and scale small businesses to Middelstand level. I think one of the reasons for Germany's strong Mittelstand is that many of these are privately owned, sometimes even family-owned, and can take a long-term view on business and innovation. I lack the imagination to see how the proposed kinds of funds could be content with dividends year after year rather than the exits I suspect they'd prefer.

I wish there were more dividends-only VCs...

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@Havoc 4 days

Replying to @thanedar 🎙

I think the type of industry here matters.

A big chunk of the classic Middelstand is something physical, not knowledge work.

And startups turn that effect up to 11. Either it works or it doesn't. It is by its nature not conducive to middle ground.

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@czbond 4 days

Replying to @thanedar 🎙

You have funding... it's called nights and weekends. Most founders are "nights and weekends" to scrimp buy for YEARS [3-5?].

Anti-risk, security seeking, founders who think they should get funding in `3 months really haven't assessed "startups" as a profession too well. You get funding when capital has a reason to believe it isn't simply gambling.

"But I have kids and a family". Yep, so do many... and they made it work. Decide if you will.

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@formerkrogemp 4 days

Replying to @thanedar 🎙

Unpopular opinion: Paul Graham and a generation of startups with Silicon Valley magical thinking has inculcated this belief that startups are the solution to everything. Don't get me wrong: startups have their place, but they're no panacea. Most of our problems are political and, more and more often now and moving forward, environmental.

But, yes, opening up funding to people of different socioeconomic backgrounds at different "risk" levels might lead to more innovation and entrepeneurship. So would a population of citizens who don't have healthcare tied to their job, childcare tied to their location or reliant upon wealth, and so forth. People who don't have to worry about bankruptcy due to an accident or disease, and people who can have their children taken care of during the day while they're off starting a company can focus more on a company and less on the risk of failing in everything else.

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@michaelbuckbee 4 days

Replying to @thanedar 🎙

This post is describing a structural issue on the funding side of new ventures: -

- bootstrapping is very hard

- traditional credit/loans aren't structured well for the "mid" type risks of starting software businesses (not much collateral)

- and on the VC side there is much less opportunity for the Unicorn 1 in 10 exits.

Tackling this problem are two funds that I didn't see mentioned in either the article or the comments so far: TinySeed and Calm Fund.

https://tinyseed.com/thesis

https://calmfund.com/shared-earnings-agreement

Broadly both invest much less than a traditional VC would and are compensated differently. The details are different (and matter) between the two but it's more along the lines of profit sharing than looking for big exits.

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@westcort 4 days

Replying to @thanedar 🎙

My key takeaways:

1. Remote work, no code, social media, and ecommerce platforms all make it easier to bootstrap new businesses from zero to revenue

2. (From Wikipedia) Mittelstand commonly refers to a group of stable business enterprises in Germany, Austria and Switzerland that have proved successful in enduring economic change and turbulence. The term is difficult to translate and may cause confusion for non-Germans. It is usually defined as a statistical category of small and medium-sized enterprises with annual revenues up to 50 million Euro and a maximum of 500 employees

3. There are hundreds of YC-backed startups stuck at ~$1M revenue that can predictably grow to $10M+ revenue with the right team and funding structure

4. Many VC-backed startups would be better as Mittelstands

5. My first business, Avomeen, is a classic Mittelstand

6. Mittelstands are already about one-third of our whole economy

7. Mittelstands can launch and get profitable for <$1M

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@eric4smith 4 days

Replying to @thanedar 🎙

No.

Already most businesses are started in this broad middle. It's where the TRUE root of entrepreneurship starts.

Heck, you are sure you will get no funding. For sure you will fight for every last customer. You will wonder how you will pay the rent every month and your staff.

Most of these businesses fail. But enough of them keep going to keep the economies of almost all countries going. These are the people that struggle.

There is no need for "funding" or someone to "buy" these businesses.

These business will always exist, and for every one that goes down 3 more spring up in their places.

Jesus.

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@bredren 4 days

Replying to @thanedar 🎙

I don't see discussion of the conclusion, which seems to be creation of a "studio" that repeatedly aims to create Mittelstands.

I have seen this idea before, but am not aware of that many successful outcomes. IIRC, the idea of placing multiple bets made it challenging to focus.

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@fortuna86 4 days

Replying to @thanedar 🎙

You mean small businesses ?

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@gw67 4 days

Replying to @thanedar 🎙

It’s a PR problem. I think it matters the name we use to call them and how they are interpreted by general public.

Currently we call them like IndieHackers, bootstrapped startup, life style business.

All not fancy as “unicorn” it is. We need a new PR that makes this kind of business cool for the general public.

In these day if you have a profitable bootstrapped business (<1M$) people say that you should raise capital to grow and become an unicorn and your are not cool or not get PR attention until you raise funds. I think is a PR problem. There is an opportunity for a new media space. Like IndieHackers but without the term “hackers” in the title which reminds something dark for the general public.

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@goodpoint 4 days

Replying to @thanedar 🎙

Some aspects listed on the wikipedia page:

Family ownership or family-like corporate culture, Long-term focus, Nimbleness, Investment into the workforce, Social responsibility

...are very much feared or despised in SV and, to a lesser extent, in US in general.

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@jrochkind1 4 days

Replying to @thanedar 🎙

I don't think it's an issue of making middle-sized businesses "cool", I think it's an issue of capital, right?

The reason "VC" or "bootstrapped from zero" (both are the author's words) are seen as the two available paths is... because they are seen as the two available paths.

Where do you get the funding to do a "middle-sized" business? The OP goes into this a little bit, but it seems to me that's the thing at the center of the whole discussion.

If people saw that it was feasible to find funding for a business that could grow faster and/or with less personal risk than what he is calling "bootstrapped from zero" (or is sometimes pejoratively called a "lifestyle business"); but without giving up the control that you do with VC funding -- of course people would be interested in starting a business like that, the appeal is obvious, right? It doesn't need to be made "cool". But, how? OP suggests "New non-dilutive funding sources are now available for revenue-generating businesses", okay, more on this, and hopefully it doesn't sound like a pyramid scheme or scamming retail "investors".

The things OP links to sound like... loans? OK... So this is just a variation of "bootstrapped from zero" where instead of just taking out credit card debt and loans from family and maybe a line of credit at your bank, you access loan products intended for new businesses? Are they secured by personal property? This doesn't sound so different from "bootstrapped from zero" to me, like these new sources of debt are going to make an entirely different business plan and category of business possible?

Then he moves on to advising that investors fund these businesses... in ways different than VC? Which would mean... without taking significant equity? Or without trying to maximize their payout? They're going to invest just planning on making money from dividends instead? And investors are going to do this because... it's been made "cool"?

I would love there to be more stable medium-sized sustainable businesses that don't pursue growth at all costs, treat their employees well, treat their communities well, etc. I feel like the OP weirdly seems to think the reason they aren't is becuase it's not "cool", rather than because of the economic factors. Businesses need capital, those with capital want to maximize their profit. So the two paths are either try for a capital-intensive startup that tries to give VC what they want; or you try to minimize the amount of capital you need by finding a way to start very small and have very slow but sustainable growth (the "bootstrapped from zero" "lifestyle business"). Making it "cool" to do something else does not solve these economic constraints. What might is talking about, say, changing the tax code to encourage a new type of business model or investment, or providing government subsidy for it, or something. Am I missing something?

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@Zaskoda 4 days

Replying to @thanedar 🎙

This sorta thing would mean the world to me and my team at our little bootstrapped startup. We may go broke before we turn revenue and we're now blowing enough smoke in front of mirrors to get VC funding.

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@givemeethekeys 4 days

Replying to @thanedar 🎙

The problem with micro services is that your CEO drank the Kool-Aid. Now your CTO has to get it done and your VP of Engineering is stuck with a large bag of feces.

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@onion2k 4 days

Replying to @thanedar 🎙

Isn't this what everyone calls a "scaleup"? https://en.wikipedia.org/wiki/Scaleup_company

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@thenerdhead 4 days

Replying to @thanedar 🎙

These are the two businesses you see on social media. It does not mean the middle class doesn't exist. Perhaps they are busy delivering value to their customers to brag about it on social media and/or source their revenue from "building in public"?

I don't see how this is any different than social media itself. You only see the "bootstrapped from zero" or the "industry plants". The middle class of social media however? They are there, they make a decent living, and they still create. They may not be recommended on the front page of feeds, but they still exist and are arguably how the platforms became big in the first place.

I'll be honest and say I hate articles that only talk about raising money or valuations. That's like half of twitter and it's annoying. Startups are more accessible than ever today and can happen organically from like a HN, Reddit, or Twitter post. People find pain in their daily lives, and they create a painkiller. You don't need millions to create a v1.0 to assess product-market fit.

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@coderholic 4 days

Replying to @thanedar 🎙

Totally agree with this article. It's not just about funding methods, but also playbooks for these types of businesses, and best practices.

I've bootstrapped IPinfo.io to millions in revenue and a team of over 20 - so we're squarely in the "Middle class", and there's a tension between the "bootsrapper advice" (which mostly applies to optimizing for lifestyle and eliminating any risk) and "VC backed advice" (which mostly seems to optimize for scale and speed) - and a lack of advice for anything that balances those 2 (let's be ambitious and serve a large market and create the best products with great people, but let's run this as a marathon and not a sprint, and let's not risk everything on a big outcome).

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@togaen 4 days

Replying to @thanedar 🎙

“Secret: Mittelstands are already about one-third of our whole economy.”

That’s… not a secret. Anyone with even rudimentary knowledge of the economy knows that. You need to get out more.

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@elasticventures 4 days

Replying to @thanedar 🎙

while i concur this is a nice notion, it's a special type of rare investor who wants to do all the dilligence, take the risk, and not pursue a large reward.

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@substation13 4 days

Replying to @thanedar 🎙

I was expecting this article to be about how a middle-class is required for innovation.

If we end up in a world where 90% of the population are struggling to meet basic needs, 0.1% live off generational wealth and 9.9% act as a highly technical servant class, then there will be fewer innovators and fewer innovations.

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@plehoux 4 days

Replying to @thanedar 🎙

> We Need a Middle Class for Startups

You mean a bourgeoisie?

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@davidw 4 days

Replying to @thanedar 🎙

Rob Walling's TinySeed looks relevant: https://tinyseed.com/

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@saq7 4 days

Replying to @thanedar 🎙

I think most businesses fall into this so called middle class already. Perhaps this group could be labeled The Silent Majority of businesses given how these folks get up and do their work everyday without particularly expecting to escape the grind or becoming billionaires.

I see this in my extended family where almost everyone runs this kind of business and is so for several decades. They make much more money than if they worked for someone else, but none of them are going to break the $100M mark

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@hoerzu 4 days

Replying to @thanedar 🎙

It's called lifestyle business

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@tptacek 4 days

Replying to @thanedar 🎙

I'm having a hard time understanding how you could do a funding mechanism for "mid-market" startups.

Contra the subtext of this post, it is not in fact low-risk to take a company from 0 to $5-10MM annual revenue. Companies that do this quickly tend do it with substantial funding, which is predicated on them aiming for much, much higher revenue and valuation numbers. Companies that don't take funding that eventually hit those numbers run for a long time before they get there. And those kinds of companies fail all the time; failure is their default mode.

As I understand it, a basic fact of life for venture funding is that the winners have to pay for the winners. Do the math with a portfolio of 10 companies taking $1 each to see what the winners have to make just to break even at various hit rates.

Further, targeting "mid-market" startups with growth targets low enough to somehow derisk them would also drastically reduce the amount of funding you could provide. You can't give $10MM to a company that's going to grow slowly and organically from low-7-figures; that company has such a low valuation that $10MM would buy too much of it. My first impression is that you'd be able to do something early-stage-YC-ish, giving a single founder ramen wages for a year or two, and not much more than that. But you'd have to take a huge chunk of equity to do that, so it'd be a terrible deal for the founder.

This model would make sense if there was a reliable path to get to $5MM/yr, such that you could build a portfolio of a bunch of companies taking that path with a very high hit rate. But there isn't? You are very likely to fail trying to start a company like that. Worse: the resources you'll need to operate a company doing $5MM/yr will rapidly outstrip any amount of funding a VC could provide. The VC-funded companies doing $5MM/yr got that money because they promised they'd soon be doing $500MM/yr.

What am I missing? Obviously, I'm not a golfer.

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@adamqureshi 4 days

Replying to @thanedar 🎙

Yes.100% with that this guy said. I have a 1 man shop marketplace startup. I been at it since 2016. I have to literally figure shit out on the fly. I can't afford a full time engineering time ( i have a pay for play engineer). I pay for the platform from the sales i make. I have no goals to raise VC. I am under no illusion of raising series ABCDFU. My goal is to make sales and put food on the table for me and my family. For me, as a 1 man shop. Surviving IS Succeeding. I am very happy being a thousandaire. techCrunch will never write about me or my start up. So if you have an idea, build it and start testing. your #1 goal should be making sales / money ASAP. Thats it. Do not fall in to the trap of I have an idea i will raise funding and i will exit making billions. That is NOT reality / real world. What you read on techcrunch is not reality, those unicorns are very rare. Good lucky out there. Make sales. Charge money.

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@clean_send 4 days

Replying to @thanedar 🎙

I feel like this is just trying to rebrand “lifestyle businesses” or small businesses in general. Where I grew up it wasn’t uncommon for people to have businesses that did a few million in sales and the whole family worked at. While not as sexy as getting angel investment, it sustained a quality of life that met their needs. In order to run a successful business you don’t NEED mass profits or VC dollars.

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@smeej 4 days

Replying to @thanedar 🎙

> Vision: Promote employee stock ownership for American Mittelstands.

I'm especially interested in this last bit and I'm wondering if anyone has any recommendations for learning about the different models people have tried for this.

I have what I can only really describe as a hunch or an instinct (not even a theory at this point) that there's something good for people about owning what they help create.

But I keep getting caught in the brass tacks of it. When I've earned small ownership stakes in companies, the only real way that had any direct monetary value to me was if the company had an exit and I stopped being an owner.

Would some sort of dividend or profit-sharing agreement solve this? Are there long-established means of allowing small-scale owners to profit from their ownership that I've just failed to come across?

The accredited investor laws in the U.S. make it such that most working class people can't buy ownership in private companies, but if they could earn it and profit from that ownership, that seems like a much stronger way of "investing in what they know" and potentially seeing outsized returns rather than just investing broadly in the stock market as it goes up.

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