Unconventional lessons I learned after 5x startups, half a billion in revenue, 24 years building companies from scratch, and an exit.
— NickFriend.eth (@theNickFriend) January 12, 2022
Starting with the FOUNDATIONAL:
1. Start with the End -
— NickFriend.eth (@theNickFriend) January 12, 2022
When you are still considering starting a business, it is crucial to understand what the end game looks like for the specific business you plan to start.
Know what you’re getting into before you start and potentially waste years of your life.
Are you starting a software company? Currently, software companies command a 7-10x revenue multiple on the private market for an acquisition.
— NickFriend.eth (@theNickFriend) January 12, 2022
This means if you build a software company with $3mm in ARR, the valuation could be between $21-30mm.
On the other hand, a marketing consulting firm with the same revenue would command approximately a 9x multiple on EBITDA.
— NickFriend.eth (@theNickFriend) January 12, 2022
Let’s say you are running this business well and have a 15% EBITDA on $3mm revenue, which is $450,000. $450,000 x 9 = $4mm.
Two businesses with the same revenue, - but vastly different valuations and potential outcomes.
— NickFriend.eth (@theNickFriend) January 12, 2022
This information alone will get you to think differently about the type of business you want to build, and how you might approach building it.
2. You can and likely should bootstrap (raise no funding, at least for a long time) -
— NickFriend.eth (@theNickFriend) January 12, 2022
This is your strength. This is also your weakness.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
"One of the mistakes people make is they try to go out and find investors first. If you look at some of the biggest and best businesses, they were started when people's backs were against the wall and they had no capital." - @markcuban
— NickFriend.eth (@theNickFriend) January 12, 2022
Mainstream startup dogma wants you to think you need to raise money.
— NickFriend.eth (@theNickFriend) January 12, 2022
VC’s and entrepreneurs constantly brag about their funding rounds on Twitter and in the media, and you think you need to raise money too, that raising money is some sort of “win”!
When you raise money, you are buying time. If you 100% rely on organic growth, you are, by definition, going to end up with a small market share.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
It’s important that you see through this bullshit.
— NickFriend.eth (@theNickFriend) January 12, 2022
Look, your business really might need to raise money but the vast majority of businesses absolutely do not.
Unless you are building a unicorn business with a winner-take-all market (i.e. Facebook) then you don’t need to raise money.
— NickFriend.eth (@theNickFriend) January 12, 2022
And if you don’t need to raise money, you should not raise money. You can grow organically.
That's right. Your business model works for companies that are not going to 1B and beyond. But for a company that will go to 1B to 100B, I don't see how you skip raising money.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
This is your wisdom. This is so true. Even for those who raise money. You don't do this and you fail even if you raise money. I once met a dude in NYC who had raised his "seed round" based on connections and six months later still had no employee.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
It means taking one step at a time as the business requires it, and not spending beyond your current means.
— NickFriend.eth (@theNickFriend) January 12, 2022
You only spend on the marketing your business can afford and that it needs right now.
You only build the features the product needs right now to make more sales.
And then you go generate the sales you expected.
— NickFriend.eth (@theNickFriend) January 12, 2022
More often than not, things will not work, and you will need to adjust. And that is the whole point.
You should be adjusting your business rapidly to create deeper product-market fit before you spend a bunch of money trying to scale it.
— NickFriend.eth (@theNickFriend) January 12, 2022
You are so very right about product/market fit. You are not so right about scaling. I feel like you are saying all the right things about jumbo jets. But you are shying away from rocket territory. And jumbos are great!
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
Hence, growing organically will get you closest to reality when building a startup.
— NickFriend.eth (@theNickFriend) January 12, 2022
The closer you are to reality, the faster the feedback loop will be, and the faster you will implement accurate decisions.
Which brings me to my next point.
There's reality, and then there's imagination. Building products that the market does not even know it needs and will not tell you it needs in market research and customer surveys.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
3. There is an extremely low probability of building a unicorn - if you do your research, there are maybe 30 unicorns built in Silicon Valley a year.
— NickFriend.eth (@theNickFriend) January 12, 2022
That’s it. This means the numbers are tiny in other cities.
Do you really think you are building one of these businesses?
This is the gist of it. You are Mr. Jumbo Jet. You are not Mr. Rocket. And it is your integrity that you don't pretend otherwise.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
Do you understand what your life will be like if you really are building one of these?
— NickFriend.eth (@theNickFriend) January 12, 2022
Did you know that founders who take early VC money and go public most often only end up with ~ $30mm or so on average, after dilution? I didn’t know this either until I looked into it.
Building a company of that size and scale and only ending up with that outcome sounds like a disaster to me because I know I can meet or exceed that all on my own with a smaller company and 90% less the headache.
— NickFriend.eth (@theNickFriend) January 12, 2022
Yes, I’m trading off the possibility of becoming the next Facebook or AirBnb.
— NickFriend.eth (@theNickFriend) January 12, 2022
But I already knew that upfront because my business was not playing in the winner-take-all game anyways.
It is crucial to understand that VC's business is to earn a high return on their fund.
— NickFriend.eth (@theNickFriend) January 12, 2022
They have an obligation to their investors, no different than you feel if you raise money.
Therefore, they will push you as hard as possible to go for broke to become a unicorn.
They will push you to risk going out of business, at the expense of building a stable yet smaller, profitable business!
— NickFriend.eth (@theNickFriend) January 12, 2022
You need to know that this is the game.
@jasonlemkin explained this in his post on "Why VC's need unicorns just to survive." https://t.co/CpEEgBQqY0
— NickFriend.eth (@theNickFriend) January 12, 2022
So - if you build the $5mm or $10mm business I have described above, it would be a losing situation for a VC.
— NickFriend.eth (@theNickFriend) January 12, 2022
They will never encourage you to take this path even though it is the high-probability-of-success path for your business.
There are only a handful of 1T companies, more of 100B+, many more of 1B+, way, way more of 100M+, and waaaaay more in the 10M-100M range. Building and running a 10M company is a grand success. Don't get me wrong. In your case, maybe you need to be pushed into the 1B+ range.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
4. You must ignore the sensationalized stories from the media about fundraises and about founders becoming billionaires -
— NickFriend.eth (@theNickFriend) January 12, 2022
You don't have to be the next U2 (or YouTube). You can play your town and earn a living. That is the beauty of the new creator economy. You can build a small software operation. And that will be the vast segment of the ecosystem.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
I have friends whose companies were literally dead when they managed to raise a bit of money to keep the company alive, or they fire-sold it and the founders made no money on it.
— NickFriend.eth (@theNickFriend) January 12, 2022
The next thing I know there is an article on TechCrunch sensationalizing the story as if it were a success! A big acquisition! A big fundraising round! Not quite.
— NickFriend.eth (@theNickFriend) January 12, 2022
The story isn’t always what you think it is. So ignore all of this bullshit to keep your head straight.
Instead, it’s the stories about founders who bootstrapped and built $15-50mm businesses and retain maximum ownership are the ones that should be told and sensationalized.
— NickFriend.eth (@theNickFriend) January 12, 2022
Now that is a blog idea right there. A blog focused on Founders who do that. That is a large ecosystem. Many are doing it.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
It’s the story that is achievable for a much wider range of people, and frankly it’s the right path for the vast majority of people.
— NickFriend.eth (@theNickFriend) January 12, 2022
That is like saying to kids, very few will end up in the NBA, but if you learn to read and write and work hard, you will do well in life, and that is most of you. The overwhelming most of you. Great advice.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
But have you noticed these stories are few and far between?
— NickFriend.eth (@theNickFriend) January 12, 2022
A few folks on twitter like @sweatystartup will offer this alternative viewpoint.https://t.co/NeG6eT9e8Z
And while I am a huge fan of Peter Thiel, and I’ve listened to almost every public speech he has given, you also may need to ignore a lot of advice from his book “Zero to One” and other information sources like it.
— NickFriend.eth (@theNickFriend) January 12, 2022
You should write a book, 100 To 110. You got the material.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
I’m just using him as an example but you will see info telling you to build a “monopoly business” and that “competition is for losers”.
— NickFriend.eth (@theNickFriend) January 12, 2022
Having said that, I think you should not take your own advice. You have plenty of cushion. Maybe you should shoot for the moon next. And be okay if you fail. But you should at least give it your best shot.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
Is that an ape NFT that @VitalikButerin makes fun of every other week in your profile picture!? LOL ("What has become of Ethereum!")
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
Or kick back and relax and angel invest in the next unicorn. I have one.
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
NickFriend: Jumbo Jet Territory: Drones Will Fly https://t.co/k5IWGR9KZ4
— Paramendra Kumar Bhagat (@paramendra) May 19, 2022
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