The following is a guest article by Philip Crissman.
OnStartups partially sponsored Philip's trip to Startup School 2008 in exchange for sharing some of key lessions for those of us that could not make it. -Dharmesh
David Heinemeier Hansson's Startup School talk was probably one of the most
popular, and the most out of sync with the rest of the day's talks.
Where most speakers took for granted that the entrepreneur would be
seeking VC funding, David took the opposite approach; he wanted to talk
about how you could start making money on your own, growing your
company without needing to go look for funding.
David opened with the canonical "business model joke", made famous on Slashdot:
1. Brilliant Product
His answer to this, was:
1. Brilliant Product.
went on to argue against the Venture Capital model, in general, in
favor of simply building a business by the somewhat revolutionary idea
of just charging money for your products.
he was immediately preceded by Greg McAdoo of Sequoia Capital. McAdoo,
naturally, was telling the audience what VCs were looking for and how
to build a presentation or a company which would get their attention.
Following this, Hansson's message seemed nearly the opposite.
I enjoyed both talks, and thought that they were simply talking about two very different ideas.
is a venture capitalist, so a large slant of his perspective is going
to lean towards the investors. This is not to say that Sequoia or other
VCs are not interested in the entrepreneur's best interest --
obviously, VCs need entrepreneurs in order to do what they do. However, they also need to represent
their investors. Without capital, they would simply be business
consultants, whose attention and advice the entrepreneur would need to
pay for. Since their beholden to their investors, it's well known that
they are looking not just to double or triple their investment, but
quadruple or quintuple their initial investment.
Hansson, on the other hand, is thinking about the developer. He's
asking: wouldn't you rather simply run a profitable company with a
product you enjoy? Why do you need to be a billion dollar company when
you can more easily be a million dollar company?
where I sat, they were both saying some of the same things. Both acknowledged
the same odds -- how relatively few startups would be those huge
winners, the billion dollar ideas.
The difference is,
- McAdoo and the
VCs are specifically, on purpose, looking for those top few percent;
that's their role. That is what they do.
- Heinemeier Hansson is looking
at all the other successful-but-not-necessarily-world-changing
businesses you could start, and asking "Why not just build something like this?"
do want to be realistic; it's important to acknowledge the risk we
might be getting ourselves into. It may be that, like Hansson suggests,
we'd rather take a 1:10 chance of making a million versus a 1:10,000
chance of making a billion.
What seemed to
have been skipped is that the nature of the idea will have a lot to do
with which path you decide to pursue. It's difficult to see how a
business idea like Google, for example, could have succeeded without
seed capital. It's hard to imagine Google starting and succeeding with
a 37Signals-style subscription model; especially in the time when
Google launched, having to "pay" for the privilege of searching the web
would likely have been a recipe for failure.
the other hand, it's just as hard to see Basecamp as a ubiquitous piece
of software that simply everyone uses -- not everyone needs to manage
projects. There's a much smaller pool of people who would need to do
that, but they are much more likely to pay for a good way to do it.
I took from the contrast between Heinemeier Hansson's talk, and the
majority of the other talks, was the importance of having a healthy
dose of realism.
ideas might well have that billion-dollar potential, and may need that
VC funding to get going. A lot more ideas really can be put together in
10 hours per week (as Hansson mentioned Basecamp was built), and then
run as a profitable business. The
important thing is having the ability to tell one sort of idea
from the other.