When the startup can effortlessly expense a large shark tank to their office/space without pissing anyone off.
Because to do that, a startup really needs to be successful (roughly according to the points brought up by the article)... otherwise you will be angering your investors who don't have a return or they will regard you as horsing around, your user base will be unsatisfied and regard you as wasting money and time, and money wise you must be pretty profitable, etc.
This reminds me of something one of the Penny-Arcade guys (I think it was Jerry) said once. It was along the lines of that when they got a ping pong table in their office, they realized that having space for a ping pong table meant they were a real company.
It seems that having investors increases the likelihood that your business will be labeled a failure. If you take $10 million, you have to exit with at least that to be labeled a success. If you take nothing, or just a token amount, and reach ramen profitability, you can exit with any amount and be a success.
It is just like making movies. Spend $200 million on a movie, and it needs to gross at least double that to be a success. Make a $1 million indie movie, and it will be a smash hit when it earns $5 million.
most movies that are considered 'successes' wind up losing money.
It's actually just like the movies. The movie is set up as a corporation, which is funded by an investment by the studio (read:venture capital). The movie is made by the producer, director, actors, crew (founder, advisors, employees, contractors). The movie is released (public launch), and hopefully after a few months of being in theaters (ramen profitable), the movie leaves theaters (makes an exit). The corporation that was formed to make the movie pays back the studio (its investors), and the producers, directors, and maybe the lead actors get their backend cut (stock options). The corporation always "loses money" because the studio always gets paid back.
Founders: 5x the salary they could have expected in a job over the same period they worked at the startup, after taking off any monetary investment they put in (+ interest) and adding any salary earned.
e.g. $60k * 2 years * 5 = $600k for a successful exit per founder.
Great post! I'll paraphrase Scott Rafer: "An entrepreneurs success should be measured by the cash he puts in his pockets." By that measure, I think Dropbox is currently a success-- Drew is (or should be) making more money than he could if he'd gotten a job instead of founding Dropbox. For Drew, it'll be MORE successful when it exits. But if it crashed/burned now, it'd still be a success for him.
Of course, every startup has a different objective-- and every stakeholder has an objective.
Let's apply this to Diaspora. What if they end up with something that has an active, satisfied user base, which is also small. (Just for the sake of easy calculation, let's say it's 170,000 actual, active users.) Would Diaspora be a success?
I don't think so. Their stated objective is to change the world's social networking platform. Not start a lifestyle business or pet project. If they had gone into it with a hobbyist's approach 170,000 users is success.
So then success is tied to intention? What if John Doe did a bootstrap startup with the intention to become the next Bezos, but instead ended up making $500k a year? I'd still call that a success.
What if it ended up that Diaspora managed to gain enough users and convert enough of Facebook's user base to gain about 17.5% market share? (Measured in time online, on-site. Probably hard to measure, but this is a hypothetical.) Would they be a success? What percentage would represent the threshold?
In your example, I think you would consider it a success, but perhaps John Doe would not, in that he didn't fulfill his goal. If he did consider it a success, then I'd say that's due in large part to the fact that he must have revised his goal somewhere along the way.
Based on that, I would say success is 1) different things to different people, and 2) the fulfillment of each person's goals.
Success is tied to internal driving/motivating factors. Julius Caesar wept in front of a statue of Alexander the Great because at his age (30) Alexander had conquered the known world. He compared himself to Alexander and tried to live up to that standard. Likewise if John Doe truly wants to be the next Bezos 500k/yr isn't enough. The comment above supposes 170k users, not 17.5% of 500 million users.
I think the core question is, would you have been more satisfied not doing it and going with the next best option. Hopefully the next best option is something stable, so you can make a useful comparison.
I posted this over there, but it relates to HN as well:
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These are good thoughts, and of course, it seems clear the devil is in the details when it comes to defining 'success.' : ).
With the exception of YC, which as you say, has markedly changed the startup landscape without mind-numbing returns (so far), many of the concerns you mention are financial, or sort of finance-expectations outcome oriented.
There's a whole other category of outcomes that businesses traditionally provide: employment, social, civic and cultural improvement. While it's nice to get rich, and nice to have a successful exit, and even nicer to do it in such a way that other investors wish you would do it for them, almost everything you mention above is focused on the outcomes for a really small number of people: founders + investors.
This strikes me as venture capitalist thinking, and makes me think you've spent a lot of time with VCs, and not as much time with people trying to say, invent new water filtration technology, or build out a wind farm with a 50 year ROI, or maybe just make it as farmers in the developing world, .
There can be an element of small-minded profit focus in the VC world, a focus which can choose to ignore the 'but so what?' question -- 'So what if we got our clients 35%, ourselves 2/20, and the entrepreneurs 5x their salary potential for the period?' The billionaires I've met rarely seem to think about money as a measure of success; they are typically extremely engaged with the question of how to put that money to actual and good use, applying the principals they've learned along the way -- not wasting it either in a social sense, or a financial sense. They are typically extremely people focused, whether they live simply or extravagantly.
So, to me, there's a possibility of a sort of higher calling in business and entrepreneurship; moving past the 'make money for our close-knit stakeholders' idea to making a change in the world, in the lives of employees, actually moving job creation numbers, and so on. In a way, whatever floats your boat.
I believe that if, as an entrepreneur, you optimize only for financial success -- e.g. first your own exit value, then investors, you run the risk of hitting that 'so what' question hard -- perhaps when you've gotten rich, perhaps when you failed miserably.
On these terms I would call YC an unqualified success -- PG didn't need the money; he needed to do something useful with the money. He and his team have done that, and helped re-spin tech entrepreneurialism in America. I think that's awesome. But, I think it would be great if the work that's been done on showing young 20-somethings how to launch could be extended on pitching them on 'why' with a long-term view. Most mid-life entrepreneurs spend a lot of time thinking about the why, even while they continue to enhance their skills and ability to deliver good financial results.
Because to do that, a startup really needs to be successful (roughly according to the points brought up by the article)... otherwise you will be angering your investors who don't have a return or they will regard you as horsing around, your user base will be unsatisfied and regard you as wasting money and time, and money wise you must be pretty profitable, etc.