Chapter 1. Why Startups
The age of the tech startup
About 540M years ago something amazing happened on planet Earth: life forms began to multiply, leading to what is known as the “Cambrian explosion”. Until then sponges and other simple creatures had the planet largely to themselves, but within a few million years the animal kingdom became much more varied. … Something similar is now happening in the virtual realm: an entrepreneurial explosion. Digital startups are bubbling up in an astonishing variety of services and products, penetrating every nook and cranny of the economy. They are reshaping entire industries and even changing the very notion of the firm.
[A Cambrian Moment 2014], The Economist
At this very moment, somewhere in the world, two programmers are sitting in a garage and creating our future, one line of code at a time. We are in the era of the high-tech startup. Silicon Valley is leading the way, but every major city, from Boulder to London to Tel Aviv to Singapore, is trying to build its own startup hub. In the United States alone, there are more than 1,000 venture capital firms and two million angel investors who collectively invest around $50 billion in young businesses every year [Hollas 2011]. In 2010, US entrepreneurs founded more than 30,000 new high-tech and communications technology companies [Hathaway 2013, 7], or nearly four new tech startups every hour of the day.
The startup revolution is here, and in this chapter, I’ll explain why that’s something you’ll want to pay attention to (reading this book is a good start!). I’ll talk about some of the things that make startups great and why you should consider joining one or even starting your own. To keep the discussion honest, I’ll also confess to the things that make startups terrible and why they are not for everyone. But first, I’ll define what I mean by tech startup in this book, as the phrase can mean different things to different people.
What is a tech startup?
This book is primarily focused on tech startups. The tech part is easy to explain. If your company’s business primarily depends on building technology—whether that technology is the actual product you sell or if the technology is used to sell some other product—you’re a tech company. If you primarily use technologies that already exist, then you’re not. For example, GitHub is a tech company because they build and sell technology that makes it easier for programmers to collaborate. Likewise, TripAdvisor is a tech company: they sell travel products (e.g. hotel rooms, vacation packages, flights), but to make that possible, most of the work is building technology such as hotel pages, user accounts, review storage, photo storage, and search features. A local restaurant is not a tech company, even if that restaurant has a fancy website and even if that website is written in Flash and auto-plays music. That’s because the restaurant’s primary activity as a business is to create food and a great atmosphere for diners, and not technology.
So that takes care of the word tech, but what about the word startup? The prototypical startup is a week-old company with two developers in a garage. But the word startup is sometimes also used to describe much bigger and older companies. For example, the Wall Street Journal [Phillips 2014b] uses startup to refer to:
Snapchat: $10 billion valuation, 2 years old, 20+ employees
Uber: $42 billion valuation, 5 years old, 550+ employees
SpaceX: $4.8 billion valuation, 12 years old, 3,000+ employees
So it doesn’t seem like a startup is defined by how much it’s worth (from $0 to $42 billion), how old it is (from 1 week old to 12 years old), or how many employees it has (from 3 to 3,000). So what is a startup? To answer this question, let’s look at a few definitions from well-known entrepreneurs. We’ll start with Eric Ries:
A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.
[Ries 2011a, 27], Eric Ries, The Lean Startup
Creating products and services makes sense, and startups definitely face lots of uncertainty, but so do most local restaurants, which face failure rates similar to most startups [Miller 2007]. You generally wouldn’t call the local pizzeria a startup, so we need more. Let’s see what Paul Graham has to say:
A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.
[Graham 2012b], Paul Graham, Co-founder of Y Combinator
In addition to uncertainty, you now have another essential ingredient for a startup: massive growth. The goal of a local pizzeria usually isn’t massive growth; it’s to attract enough customers every night for the owner to make a reasonable income. On the other hand, although the food delivery company SpoonRocket has been profitable since 2013 [Sciacca 2013], it was designed for growth and continues to raise more money, spread to new cities, and get new customers. So SpoonRocket is a startup, but will it be a startup forever or does it become an “established company” at some point? To answer that question, let’s turn to Steve Blank and Bob Dorf:
A startup is a temporary organization designed to search for a repeatable and scalable business model. Within this definition, a startup can be a new venture or it can be a new division or business unit in an existing company.
[Blank and Dorf 2012, xvii], Steve Blank and Bob Dorf,
The Startup Owner’s Manual
An established business has a product that has been proven to work in the market, so the focus is on scaling, optimizing, and efficient execution. A startup has no idea what product will work in the market, so the company is primarily focused on experimentation and trial and error—on searching for a repeatable and scalable business model. In other words, the final ingredient of startups is that they run in search mode. Now that we have all the ingredients, let’s put them together. A tech startup is an organization with the following characteristics:
Environment: extremely uncertain
Goal: massive growth
Mode of operation: search
For the purposes of this book, I’m not concerned with the age of the organization, how many employees it has, what industry it’s in, or how much money it makes. The material in this book will apply to a brand-new three-person company or a new venture within an established 3,000-person company as long as you’re building technology, your environment is constantly changing, your primary goal is growth, and you’re running in search mode. This might not be the way most people think of the word startup, but I’m not aware of any other word or phrase that captures these ideas better. I briefly considered calling the book Hello, Organization Designed for Massive Growth That is Searching for a Repeatable Business Model and Building Technology in an Extremely Uncertain Environment—but Hello, Startup sounded a bit sexier, so I’ll stick with startup.
Why you should work at a startup
So now that you know what a tech startup is, why all the fuss? What makes them so great? There are three main reasons you should consider working at, or even starting, a tech startup: more opportunity, more ownership, and more fun.
Here’s a fun fact: you are a cyborg. Over time, your mind and body have been enhanced with artificial components and technology. It happened so gradually that you probably didn’t even notice, but if you and all of your augmentations were sent a few thousand years back in time, you would have superpowers compared to the purely organic beings back then. There are the obvious physical enhancements that are possible due to modern medicine such as glasses, contact lenses, hearing aids, fillings, braces, dentures, cardiac pacemakers, heart valve replacements, hip replacements, artificial hearts, 3D-printed ears, hair implants, breast implants, skin grafts, titanium bones, and prosthetic limbs. But all of that barely scratches the surface of how intertwined you are with technology.
For example, this book, and more generally, writing, are technologies that augment the abilities of your mind. You can extend your memory by “storing” words on paper. You can extend your computational abilities by working through math problems step by step on a whiteboard. You can extend your ability to communicate by sending someone a letter, email, or text message. And every time you draw a diagram, chart, table, timeline, or blueprint, you are literally using writing to enhance your ability to think [Victor 2014].
These days, you do much of your thinking in a digital medium. You might be reading a digital version of this book on a tablet or an e-reader and you probably purchased it in an online bookstore (e.g., O’Reilly, Amazon, iTunes). You might get your news from Twitter and Reddit, put your résumé on LinkedIn, file your taxes using TurboTax, get your entertainment from YouTube and Netflix, and stay in touch with your friends and family via Gmail and Facebook. Nearby, in your pocket, purse, or on a desk, you probably have a smartphone. You use it to enhance your communication (e.g., phone calls, text messages), your memory (e.g., calendar reminders, alarms, photos), your sense of direction (e.g., GPS, Google Maps), your entertainment (e.g., music, videos), and to help gain knowledge (e.g., Google, Siri, Yelp, Stocks, Weather). The phone is a part of you. You carry it with you wherever you go, you sleep next to it, you check it dozens of times per day, and you rely on it constantly. In fact, you probably feel lost and nervous without it.
Now head outside. Did you walk past a car, bus, or train? These marvels of technology, which are designed on computers and built in factories full of robots, enhance your ability to travel vast distances in a short amount of time. Now look up. Somewhere above you an airplane might pass by, powering its way across the sky using jet engines, radio, and autopilot. Somewhere above that, satellites and space stations are orbiting the earth, taking pictures, measuring the weather, and routing phone calls.
But this is only the beginning. Soon you’ll be wearing technology (e.g., Apple Watch, Google Glass, Jawbone Up), locking your doors with your phone (e.g., August Smart Lock, Lockitron, Goji), using your phone to monitor and diagnose diseases (e.g., spot heart attacks early by tracking blood pressure and performing an electrocardiogram straight from your phone [Topol 2015, 6]), relying on robots instead of people for a wide variety of tasks (e.g., replacing cleaning staff with the Roomba vacuum robot, replacing FedEx with Amazon’s Drone Delivery), using “replicators” to create physical objects (e.g., printing DNA at home [Lee 2014] or emailing a wrench to outer space [LeTrent 2014]), traveling in robot-controlled vehicles (e.g., a self-driving car from Google or Tesla), and traveling to outer space (e.g., via Virgin Galactic or SpaceX).
What do all of these technologies have in common? They all rely on software. In other words, as Marc Andreessen predicted in 2011, “software is eating the world” [Andreessen 2011]. As technology becomes more and more ubiquitous, software companies will take over more and more industries. For example, Amazon dominates the book industry, controlling 41% of all new book purchases and 65% of all online book purchases [Milliot 2014]. In the US entertainment industry, 50% of households now use Netflix, Hulu, or Amazon Prime [Leichtman Research Group 2014] and YouTube reaches more 18– to 34–year-olds than any cable network [YouTube Statistics 2014]. In the travel space, Airbnb has more than 1 million homes listed and is adding 20,000 more per week. Compare that to the InterContinental Hotels Group, which is one of the largest hotel companies in the world (they own the Holiday Inn and InterContinental chains) and has just 700,000 rooms [Griswold 2014]. In the communications industry, WhatsApp users send 7.2 trillion messages per year, compared to 7.5 trillion text messages per year across the entire global telecommunications industry [Evans 2014]; and Skype users make over 200 billion minutes of international calls per year, which is already 40% the size of, and growing 50% faster than, the global telecommunications industry [Gara 2014]. Software companies are becoming dominant in many other industries as well, such as LinkedIn in the recruiting industry; Paypal, Square, and Stripe in payments; Uber and Lyft in transportation; Spotify and Pandora in music; and so on.
The biggest change of all is coming from mobile. The smartphone takes all the software that changes how you live and puts it into a package that includes a fast CPU, lots of memory and storage, unparalleled connectivity (3G, LTE, WiFi, Bluetooth, NFC, GPS), a plethora of built-in technologies (microphone, camera, accelerometer, fingerprint recognition, gyroscope, barometer, proximity sensors), a touchscreen, and speakers. And this package is so small and useful that you have it with you at all times and in all places. As a result, mobile has become one of the fastest-growing technologies in human history (see Figure 1-1).
The numbers around mobile are staggering. As shown in Figure 1-2, far more people on earth have access to mobile phones than TVs, bank accounts, and even safe drinking water and toothbrushes [Hall 2011]. By 2020, 80% of the adults on earth will have access to a smartphone. In other words, mobile is eating the world [Evans 2014].
Tech startups are at the head of a great deal of the software and mobile revolution. This is because a revolution means an enormous amount of change, and change is something startups are better equipped to handle (and initiate) than big companies. Some tech giants are responding by trying to run parts of their organization like a startup,1 but many will be unable to keep up and startups will displace them. In fact, every generation of startups is growing faster than than the one before it, as shown in Figure 1-3. Companies like Facebook, Google, Groupon, and Zynga grew faster in a decade than most corporations grew in the entire 20th century [Blank and Dorf 2012, xxviii]. In 1958, the average tenure for a firm on the S&P 500 index was 61 years. Today, that number is down to just 18 years [Innosight 2012].
Startups are reaching billion-dollar valuations twice as fast as they did back in 2000 [Van Grove 2014], not because of a bubble, but because it is easier to build and grow a company than ever before. Here are some of the things that have lowered the barrier to entry for startups:2
- Open source
Instead of having to write everything from scratch, a modern startup can leverage the code in over 10 million open source repositories [Doll 2013]. Many of these repositories are developed, tested, and documented by a large community of developers, which means you not only save time by using open source but you also get access to projects that are larger and higher quality than anything you would be able to build in-house. See Chapter 5 for more information on open source and choosing a tech stack.
Startups can also leverage hundreds of services that make it dramatically easier and faster to get up and running. For example, instead of building your own data center, you can use AWS, DigitalOcean, or Rackspace. Instead of building your own monitoring software, you can use New Relic, KISSMetrics, or MixPanel. Instead of building your own email service, you can use Amazon SES, MailChimp, or SendGrid. If you need a logo, you can use DesignCrowd; if you need legal services, you can use RocketLawyer; if you need to accept payments, you can use Stripe; if you need to manage customer data, you can use Salesforce; and if you need to provide customer support, you can use Zendesk.
Distribution is easier than ever before, both in terms of marketing your product and in terms of being able to run a distributed company with employees all over the world. For marketing, due to the ubiquity of technology, the Internet, and mobile phones, you have instant access to more people than ever before through search engines, mobile app stores, advertising, email, and social media channels like Twitter, Facebook, LinkedIn, Reddit, Hacker News, and YouTube (see “Distribution” for more details). For building a distributed company, you have access to a plethora of collaboration tools such as GitHub, Skype, Google Hangouts, JIRA, Slack, HipChat, Basecamp, Asana, Trello, and many others.
These days, there is a lot more information available on how to build a successful startup. This includes books (such as this one!), courses (the free online Stanford course, How to Start a Startup 2014, makes an excellent complement to this book), blogs (especially Paul Graham’s essays), meetup groups, conferences, accelerators, and incubators.
Thanks to open source, services, easier distribution, and more information, startups need less money than ever before. And when you do need money, you have plenty of options, including not only traditional venture capital firms, but also angel investors (e.g., AngelList), crowdfunding (e.g., KickStart, Indiegogo, Lending Club, Kabbage), and government funding and incentives for startups (e.g., Startup-Up NY 2014 and Singapore Startups Government Funding and Assistance Schemes).
All of this means that we are at a remarkable time in history. Software is taking over every industry, smartphones are changing how we live our lives, and startups are able to reach more people in less time than ever before. In other words, software is eating the world, mobile is eating the world, and as a result, startups are eating the world. As a programmer, you have the unprecedented opportunity to join this feast and touch millions of lives by joining a startup and writing some code.
So why not write code at a big, established company? What advantages does working at a startup offer over tech giants such as Microsoft, Cisco, or IBM? Isn’t it better to work for a more “stable” company that has thousands of employees, has been around for years, and provides job security?
Well, let’s talk about job security. Perhaps your parents or grandparents worked at the same company for 50 years, climbed the career ladder, and retired with a golden watch. You won’t have that luxury because those types of jobs are long gone. In the United States, the average person born in the early 1960s held 11.3 jobs between the ages of 18 and 46 [BLS 2012] and this number might be on the way up, as the average person born in the early 1980s has had an average of 6.2 jobs by age 26 [BLS 2014]. That means that the average job tenure is under three years. And big companies don’t seem any safer than little ones. For example, in 2014 alone, Cisco laid off 6,000 employees, IBM laid off 13,000 employees, Microsoft laid off 18,000 employees, and HP laid off 27,000 employees [Tolentino 2014]. Job security is dead.
One piece of advice I got when I was deciding where to go after university was that you should think of Silicon Valley as one big company, with a Facebook department, a Google department, and a bunch of small startup departments. Sometimes departments get re-orged and don’t exist independently anymore, but all the people just join other groups. I think this is a pretty good analogy. People move around quite frequently between different companies here.
If you’re even a semi-competent software engineer, you don’t really have to worry about the risk of joining a startup. You’re probably getting paid a reasonable salary, perhaps not as much as at the biggest companies, but it’s going to be enough for you to pay your bills and loans, and to get by. If that startup flops, you just go find another job, so it’s not really risky.
[Chou 2014], Tracy Chou, Software Engineer at Quora and Pinterest
The real risk is not losing your job because you joined a tiny startup—after all, there is no guarantee you won’t lose your job at a big company—but the risk of losing an opportunity. When you choose to work at one company, you’re implicitly choosing not to work at many others. In that respect, the death of job security might not be such a bad thing. If you stay at the same job for a long time, you are probably missing out on better opportunities elsewhere.
At big companies, stagnation is a common problem. You end up doing the same tasks over and over again, so you no longer feel challenged, you stop learning, and you get bored. Moreover, you have little say in what you work on, and your contributions usually feel small and unimportant. Working for a large company is a bit like being one of the thousands of oarsmen on a large galley ship. You’re doing repetitive, back-breaking work, but your contribution is completely lost in the wake of everyone else’s rowing. If anyone gets any credit, it’s the person at the helm, even if they seem to do little more than wear an impressive hat. And although you’ve got little say in where the ship goes, when you do make an effort to make a difference, you find that it’s incredibly hard to turn a big ship.3
In my experience, at larger companies, your success or failure is often based around what group you end up in, if upper management feels that the work being done in that group is strategic, aligns with the business, will matter when earnings come around, that sort of thing. While that’s important, I prefer environments where you have more of a say in your fate and your success or failure is based around your ability to execute and build something that the market wants.
[Grace 2014], Julia Grace, Co-Founder of WeddingLovely, CTO at Tindie
At a small company, you usually have more autonomy. You have more say in what you work on, when you’ll work on it, and how you will do it. You also have less red tape, bureaucracy, and politics. Most importantly, as a founder or early employee of a startup, you get to define the company culture (see Chapter 9). For example, what is the company’s mission and what are its values? Will you be transparent or secretive with your communication? Will you have an open floor plan or private offices? Will employees be able to work from home? Will you organize the company using a management hierarchy or keep the company flat? Will you track hours and vacation time or just focus on results? At a large company, most of these decisions have already been made, and you have to live with them. At a startup, many of these decisions will be up to you.
Each decision you make at a small startup has a big impact on the company. Moreover, you’ll see your impact sooner because small companies usually have a faster feedback loop than large companies. Every line of code you write and every feature you build will make a visible difference. You’re no longer just a small cog in a big machine, but a significant influence on the entire organization. The result is that you will feel more connected to the company’s mission and feel a heightened sense of purpose. It’s hard to care about increasing the profit margin of a huge company, but at a small startup where you are responsible for its very survival, it’s easy to feel inspired and connected.
Startups also give you more opportunities for mastery. You’ll be faced with a huge variety of tasks and you’ll constantly have to learn new things as you go. You might be writing database queries one day, designing a user interface the next day, answering customer service emails the day after that, and putting together an investor pitch deck in between. You’ll develop skills that will be useful for the rest of your career and you’ll learn to deal with pressure, stress, and risk. You’ll be pushed beyond your comfort zone, which is where learning really happens. This is why many people learn more in three months at a startup than three years at a big company.
[At previous companies,] I felt like there was all of this architectural cruft that had carried on over the years that would take a massive amount of effort to change, and I was in no position to even start arguing with people what to do about it. So I felt very beholden to decisions of people that came before and what they thought was the right way to do things.
At Foursquare, there was only a handful of engineers, most of the decisions had not been made yet, and I would get to make the decisions and it would be much better. And that panned out. I did get to make a lot of decisions. They weren’t necessarily good ones. Three-and-a-half years later, I was like, I’m so sorry, I’m so sorry, don’t quit because of this terrible choice I made three years ago. But it was a great learning experience. I definitely learned a lot.
[Ortiz 2014], Jorge Ortiz, Software Engineer at LinkedIn, Foursquare,
Together, autonomy, mastery, and purpose are three of the most powerful human motivators (see “Motivation”). If you’ve found a job that offers all three, then you’ve found a job that you will love and a place where you can do work you’re proud of.
Startups can be more fun. In a big company, you have a product that already works in the market, so your primary task is to optimize it. In a startup, all you have is a bunch of guesses about what might work in the market, and the focus is on search. It turns out that searching is a lot more fun.
A search can feel like a battle of you against the world. Fighting to stay alive creates stronger bonds than trying to increase profit margins by 2%; struggling to bring something new into the world is more exciting than optimizing something already there; celebrating your first public launch, becoming profitable, or an IPO is far more memorable than the annual Christmas party or the latest performance review cycle.
The coolest day in my life, to be very honest—I mean, Silicon Valley pays well and all that—but the greatest joy I ever got was this call in the middle of the night from one of my co-founders, who said, “someone is paying us 50 bucks!” That was how much we were charging for our software through PayPal and the money had just landed in our account. All I could think was that we made this software, this thing we put online, and now someone is giving us real money for it. I was afraid to withdraw the money because, well, I was worried our software was going to crash and the customer would come back and ask for the 50 bucks back, and I don’t even know if I have 50 bucks, so let’s not touch it.
[Rangnekar 2014], Vikram Rangnekar,
Co-founder of Voiceroute and Socialwok
Even the “crappy” days at a startup can be fun. The ghetto office, the need to scrape by on a budget, the constant sense that you have no idea what you’re doing can all be terrifying, but also exciting. They teach you to appreciate the small victories in life rather than becoming obsessed with promotions or politics.
Some of my favorite memories at LinkedIn are from when I first joined, for the first two years at the East Embarcadero office. There were pretty much no benefits and we still loved working there. Lunch was typically frozen burritos or perhaps a random food truck that might or might not show up that day. It was quite a contrast to the lavish treatment of engineers at Valley startups these days. That said, we were still treated really well. One of my favorite memories was when Reid Hoffman personally paid for an ice cream truck to stop by the office one summer day to treat the company.
It was a crazy office. It was situated between the dump, an airport, a golf course, and East Palo Alto. The bathrooms were flooding all the time. We had multiple break-ins. But it was super fun. We had scooter races around the office, Guitar Hero competitions, and epic Nerf wars. Ian McNish had this giant toy bazooka and he would tag you in the back of the head with it. It was almost concussion-inducing.
One thing I really liked was our weekly product all-hands meeting, where all the product managers and engineers would get in the room and just go over the numbers. We launched the recruiter product in around Fall ’05, and we were like, wait, we are making money? People actually want to pay for this? Then we started making a million dollars, and we were like, oh my God, we’re making a lot of money!
[Dellamaggiore 2014], Nick Dellamaggiore,
Software Engineer at LinkedIn and Coursera
Startups are inherently about change, and are thus more open to doing things differently, which is why the most fun company cultures are found at startups and not huge corporations. You’ve probably heard of the basics available at most tech companies, such as a casual dress code and free snacks, drinks, and meals, but it goes beyond that. For example, HubSpot regularly hosts talks from thought leaders, reimburses an unlimited number of books for employees, does a semi-random “seat shuffle” every three months, and has an unlimited vacation policy [Hubspot 2013]. Evernote also has an unlimited vacation policy, but they go a step further by offering employees a $1,000 bonus for actually taking a vacation [Bryant 2012]. At Asana, employees get $10,000 to customize their office setup, as well as access to in-house yoga, massage, and a full-time on-site chef who cooks customized meals for the employees [Drell 2011] (check out Chapter 9 for more startup culture hacks).
Some of these might sound like silly perks, but they have a way of changing what you do from being “just another job” to something more. If you’re lucky enough to catch a ride on a rocketship—that is, a highly successful, hypergrowth startup—it can be life changing. For me, LinkedIn was a blur of incredible moments: scaling the site to handle hundreds of millions of members; hackday competitions in Mountain View, New York, Berlin, Amsterdam, and Toronto; the InDay Speaker Series, with talks from Sheryl Sandberg, Marc Andreessen, Arianna Huffington, Thomas Friedman, Cory Booker, Bryan Stevenson, and even President Barack Obama; the IPO in New York; holiday parties in the Ferry Building, Club Auto Sport, and Giants Stadium; T-shirts to commemorate every product launch and celebration;4 and much more. At times, it was hard to believe that someone was paying me for all of this.
The fact that startups have the courage to stray from the safe path in an attempt to do something new is what makes them an amazing place to work. And, as shown in Figure 1-4, having the courage to stray from the safe path is also the key to living a remarkable life [Newport 2012, chap. 6].
Why you shouldn’t work at a startup
So far, this chapter has made it sound like startups are better than established companies in every way. They aren’t. Startups have problems of their own, some of them far worse than big companies. In fact, startups are all about extremes: the highs are much higher and the lows are much lower.
Joining a startup is not for everyone. Founding a startup is for even fewer people. In this section, I’ll present some of the drawbacks to the startup world: it’s not glamorous, you’ll have to sacrifice a lot, and you probably won’t get rich. I’ll also discuss some of the trade-offs between joining someone else’s startup and founding your own.
It’s not glamorous
Steve Jobs has been on the cover of Time, Elon Musk has appeared on the cover of Fortune, Twitter is constantly referenced on TV, and there is a movie about Facebook. Tech entrepreneurs have become the new rock stars and some programmers even have agents [Widdicombe 2014]. For the most part, that’s great. Anything that gets kids excited about technology is a good thing, and an entrepreneur or programmer is arguably a better role model than a rock star or an athlete. But, as is often the case with the media, it creates a distorted image of what the startup world is really like.
Seeing entrepreneurs on the cover of every magazine creates the myth of an entrepreneur-hero who single-handedly comes up with a brilliant strategy, surmounts all obstacles, defeats all competitors, changes the world, and becomes rich in the process. Movies like The Social Network portray startup life as an endless series of parties and successes. In reality, no entrepreneur and no startup is actually like that. For one thing, the vast majority of startups fail. And of the few startups that do succeed, it’s not because they had a single hero with a eureka moment but because there was a team of people grinding it out day after day, constantly iterating and evolving the product and the company. The true story behind every startup includes a huge number of missteps, failures, pivots, arguments, and fights. Sometimes there are betrayals or fallouts. There is always fear, stress, and pain. And in the end, the winner is usually not a brilliant strategist who came up with the perfect plan ahead of time, but a scrappy team that survived even when things did not go according to plan.
In other words, a startup is 99.9% hard, unglamorous work. At 11 p.m. on a Thursday, while your loved ones are at home, relaxing in front of the TV, you’ll be deploying new code. And at 2 a.m. on a Friday night, while your friends are all out partying, you’ll be furiously coding away to fix a bug in the release from the night before. And all day Saturday and Sunday, while people with normal jobs take the time to get away from their work by going on hikes and road trips, you’ll be afraid to be more than five feet from your computer, because a website needs to run 24/7 and you’re on call this week.
Large companies have the luxury of hiring specialists dedicated to some of these tasks, but in a tiny startup, just about everyone has to be a generalist, and you’ll have to do a little bit of everything. You might have to set up cubicles, estimate how much toilet paper to get for the bathroom, learn how to hire a VP of sales, set up payroll, fill out all sorts of legal and tax forms, create pitch decks for investors, design a logo, and a whole lot more. Some programmers love this because they get to learn lots of new skills, but other programmers would much rather be coding.
There’s a big difference between building a business and solving interesting engineering problems. There are interesting engineering problems in startups, but very frequently, your business will not succeed or fail based on how well you solve those engineering problems. The exception to this is startups focused on hard scientific problems. For example, I have a friend who has a battery company and his business will succeed or fail based on the scientific breakthroughs they make, as well as how well they run the business. This hard science component is not applicable to 99% of web startups; most web startups succeed or fail based almost entirely on execution, meaning marketing, sales, product, and engineering. We think as engineers that if we can write great code and build something that can scale to a million people that we will be successful and lauded in the community and people will say, “Oh, you’re so amazing,” and they’ll want to acqui-hire us for millions of dollars. That’s what we read in TechCrunch and that’s what we hear about at meetups, but it is very very far from reality.
[Grace 2014], Julia Grace, Co-Founder of WeddingLovely, CTO at Tindie
For developers who have spent their careers at big companies, it often comes as a surprise that much of the work you do at a startup has nothing to do with engineering. Big companies have their own distractions to take you away from coding, such as useless meetings or heavy processes and methodologies (see “Process”), but at a startup, the non-engineering tasks are often an essential part of the job. This work is worth doing to build a company, but it can be mundane. Despite the reputation startups have for being “sexy” places to work, a lot of the time is actually filled with drudge work and tasks that are decidedly not sexy. And the higher up you go in the organization, the less time you’ll spend on the engineering tasks you love.
I love getting in the zone, banging out code, realizing it’s midnight, and holy crap, you have this cool thing you’ve just built. As you scale up a business, as the leader of it, you realize you can’t do that as much anymore. It happens gradually. You don’t really notice it.
When it’s just five people, you’re spending very little of your time talking to people about career development, thinking about their promotion cycles, the pay rates. As you get to where you have 50 people, all of a sudden, you find you’re doing it 10% of your time. You get to 100 people and now you have four or five people that are reporting to you that each have 20 people, and now it takes up 50%–75% of your time. And then you get bigger, and all of a sudden, you’re starting to be the public face of the business. And that crushes the last little bit of coding time you have. If you have to be on the road, talking to investors, doing presentations, and going to talks, the rest of your time gets sucked up. Your schedule becomes so variable that it’s hard to get blocks of solid time where you can do honest engineering work. The evolution happens slowly enough over time that one day you wake up and you realize, “Oh wow, I haven’t coded in four months.”
[Conine 2014], Steven Conine, Founder of Wayfair
Many developers have trouble transitioning from a coding role to a leadership role such as CEO, CTO, or VP. If you’ve never had such a role, you might expect that being part of the executive team will make you feel important, respected, and powerful. You imagine yourself spending all your time drawing up strategies, giving orders, and moving chess pieces around a board, like a five-star general. In reality, you’ll be more of a salesperson crossed with a psychiatrist. You’ll spend a lot of time trying to get someone, anyone, anywhere, to care about your company. You’ll also spend lots of time listening to your employees, trying to figure out their needs, dealing with their complaints, and figuring out how to motivate them. You will get to make decisions, but many of them will be painful, risky, and unpopular. And no matter how much you try, you’ll get some of these decisions wrong. Some people thrive in this sort of environment, but if you’re not one of them, a leadership role might not be for you.
People have this vision of being the CEO of a company they started and being on top of the pyramid. Some people are motivated by that, but that’s not at all what it’s like. What it’s really like: everyone else is your boss—all of your employees, customers, partners, users, media are your boss. I’ve never had more bosses and needed to account for more people today. The life of most CEOs is reporting to everyone else—at least that’s what it feels like to me and most CEOs I know. If you want to exercise power and authority over people, join the military or go into politics. Don’t be an entrepreneur.
[Libin 2012], Phil Libin, CEO of Evernote
It’s a sacrifice
Building a successful startup is incredibly hard. It’s hard to hire great people when competing against big companies. It’s hard when great people you’ve managed to hire decide to leave. It’s hard to fire people who turned out to not be great. It’s hard to motivate people. It’s hard to motivate yourself when nothing is working and you’re running out of money. It’s hard to raise money. It’s hard to keep investors from derailing your business after they’ve given you money. It’s hard to focus on the long-term direction of the company when you have to worry about short-term survival. It’s hard to bring a new product into a constantly changing market. It’s hard to spend so much time working on something—building it, selling it, marketing it—and still no one seems to take notice. It’s hard to fend off the competition when they suddenly do take notice. It’s hard to make dozens of decisions every single day with not nearly enough information and with each one putting a lot of time and money, and many careers, at risk. And it’s hard when you make mistakes—and you will make many mistakes—because you have no one to blame but yourself.
All of this means that working at a startup involves a lot of sacrifice. Some people manage it better than others, but working at a young startup often means you won’t get to see your friends and family as much as you like; in addition, your health might even suffer. Startups have ruined marriages, caused mental and physical health problems, and worst of all, even driven some founders to suicide [Feld 2014]. It rarely gets that bad, but long hours and too much stress are common problems.
I was 26 and ended up in the doctor’s office. I was experiencing short-term memory issues. He did some blood tests and he said, “You have the numbers of a 60-year-old, so we have a problem.” I realized I didn’t want to be on that path, so later I told my boss, “Look, I’m leaving. I’m not enjoying myself, I’m working 90 hours a week, and I’ve been doing it for eight or nine months.” And he said, “Yeah, I’m at the doctor with heart troubles myself, so I’m going to probably leave, too.” I learned that you have to pace yourself at a startup. You have to work hard, but you also have to find a way to do this on a sustainable basis.
[Jacob 2014], Philip Jacob, Founder of StyleFeeder,
Software Engineer at Stackdriver and Google
A startup is an emotional roller coaster. There are extreme highs and extreme lows. For some people, this is part of the charm. For others, it’s more stress than they can handle. It’s particularly stressful for founders. If you’re an employee of a startup that has failed, it’s disappointing, but you shake it off and move on to your next job. But if you’re the founder of a startup that has failed, it will feel like you’ve let everyone down. Your employees gave you years of their lives, your customers gave you their money and trust, your investors funded you, your family supported you, and in the end, you did not deliver. Your dream is dead, and that can be devastating.
You probably won’t get rich
Most startups fail. The numbers vary depending on what you define as a “startup” and as “failure,” but the typical failure rate is somewhere around 75% [Gage 2012]. Three out of four times, despite all the pain and sacrifice, the startup goes nowhere. And if you’re one of the lucky few that does succeed, you’re still unlikely to get rich. That’s because in the startup world, returns are distributed according to a power law distribution, where a tiny number of winners get the vast majority of the money. In an analysis of more than 600,000 startups since 2000, just 34 companies—well-known giants such as Facebook, Twitter, LinkedIn, and Uber—accounted for 76% of the total market cap [Van Grove 2014]. If you’re at one of these giants you might get rich, but your odds of ending up at such a company are fairly low. If instead you ended up at one of the other startups, even if it were successful, the returns would be small and would mostly go to the investors (see “Equity” for more information).
You also shouldn’t expect to get rich from your salary. Most early startups pay a lower salary than the market, so if anything, you actually run the risk of making less money by joining a startup. If the company is successful and grows, your salary usually will, too, but rarely enough to make up for several years of being paid less. And don’t assume you’ll be able to make up for it by getting promoted into senior roles (e.g., CTO, VP) just because you were an early hire. This is because in the early days, you’ll be faced with long hours, rapidly changing requirements, and tight deadlines, all of which make it nearly impossible to produce high-quality software. As the company grows, the ad hoc, hacky, legacy system you built will begin to buckle under its own weight, and more “experienced” hires will be brought in to “clean it up.” Although it took a heroic effort to build that system and it’s the reason those new hires have a job in the first place, it doesn’t make a strong case for a high-level position [Church 2012].
In short, joining a startup to get rich is a bad idea. It’s not only unlikely to happen, but also a weak motivation. The desire for money will not be enough to get you through the brutally hard work of building a company. If anything, it can actually reduce motivation, as I’ll discuss in “Motivation”.
I want to remind you that financial success is not the only goal or the only measure of success. It’s easy to get caught up in the heady buzz of making money. You should regard money as fuel for what you really want to do, not as a goal in and of itself. Money is like gas in the car—you need to pay attention or you’ll end up on the side of the road—but a well-lived life is not a tour of gas stations!
[O’Reilly 2009], Tim O’Reilly, Founder of O’Reilly Media
Joining versus founding a startup
As I’ve mentioned a few times in this chapter, your startup experience will be different as a founder than as an early employee of a startup. Here’s the basic trade-off: as a founder, you will have to make ten times the sacrifice in exchange for a chance at ten times the reward. By sacrifice, I mean you will be faced with an order-of-magnitude more stress, risk, and long hours, and by reward, I mean that in exchange for this pain, you could earn an order-of-magnitude more money and reputation if you succeed. Founding a company is a high-risk, high-reward game, and as most people are not equipped to handle that much risk and the stress that goes with it, most people should not be entrepreneurs, no matter what great ideas they have.
Even if you can handle the stress, there is another factor to consider. I came across it while writing this book and it completely changed the way I thought about founding a company. As a founder, if you get lucky enough to build a successful startup (remember, the odds are roughly one in four), it will take you on average seven to eight years to reach a successful exit (i.e., an acquisition or IPO) [Lennon 2013].5 Of course, it’s really only an “exit” for the investors—the founders will usually stay on at least a couple years more.6 So here’s the rule of thumb to take away from this: only start a company if you’re willing to spend the next decade of your life working on it.
If you’re 20 years old, you’ll be working on the company until you’re 30. If you’re 30, you’ll do little else until you’re in your 40s. When I heard this statistic, I went back to my list of startup ideas and threw half of them away. I realized that many of them were just “get rich quick” schemes at their core, and there was no way I’d be able to spend the next decade toiling away at them.
A successful exit isn’t the only reason to found a company—as I’ve mentioned before, it’s one of the worst reasons to do anything related to startups—but so many people see startups as a “get rich quick” scheme that if you take away nothing else from this chapter, remember this: building a startup probably won’t make you rich, and if it does, it won’t be quick. Success is rare, and when it happens, it takes on the order of a decade.
During that decade, you’re going to have to work very hard. Harder than you’ve worked at anything else in your life. It might be easier than ever to start a company, but making it successful is just as hard as ever. Any founder will tell you that bringing a new product into the market, changing user habits, and hiring the right people all while making ends meet is one of the hardest things you will do in your life.
I think the hardest thing is that the success function is very discontinuous. For example, you’re trying for months to figure out how to accelerate user growth. You try to introduce some features which you think will help make the metrics go “up and to the right,” but nothing really works. For ages, nothing happens. And then, suddenly, some massively successful thing happens totally unexpectedly.
Since you have no idea in advance where these discontinuities are going to be, it seems then that the only reasonable behavior is to work really hard. You have a finite length of runway, so if you can maximize the amount of stuff you can get done, that maximizes the chance that you’re going to hit that next discontinuity before you die. And if you die before you get to that next discontinuity, you know that you worked so hard that you couldn’t have possibly done anything else to get there faster.
[Kleppmann 2014], Martin Kleppmann,
Co-founder of Go Test It and Rapportive
Because the success function is very discontinuous, working at a startup, especially as a founder, is a bit like running a marathon with a blindfold on. You know it’s a long race, but you can’t see the mile markers or a clock, so you have no sense of how far you’ve gone and you’re not even sure if you’re running in the right direction—but you can’t slow down and take a break—or someone will surely pass you. So you keep chugging along as fast as you can, chasing after that next discontinuity.
For most programmers, joining someone else’s startup gets you enough of the benefit with far fewer drawbacks. In fact, rolling the dice on several startups is one of the best ways to have a fun and successful career as a programmer. If you start a company, the odds that it’ll be the next Google or Facebook are very low, but as a founder, you’re committed, and you’ll have to stick with it for 5–10 years to find out. During that same time period, as an employee, you could join three or four different startups for a few years each and significantly increase your chances of finding a successful one.
[Moskovitz 2013], Dustin Moskovitz, Co-founder of Facebook and Asana
Just as there are lawyers who chase ambulances, there are engineers in Silicon Valley who chase IPOs and acquisitions. This isn’t a bad thing. These engineers hop from pre-IPO company to pre-IPO company and contribute value to each one by building products and helping to scale the organization. In return, they get to develop a wide variety of skills, enjoy the unique culture at each company, accumulate some stock options, and after a few years, they walk away with lots of fun experiences under their belts, and in many cases, a fair bit of money in their pockets.
If you knew which engineers to pay attention to, you could probably get pretty good at predicting which companies will soon have a massive IPO or acquisition. For example, in the last few years, I’ve watched several friends of mine rotate through LinkedIn, Facebook, and Twitter, joining each company a few years before it had an IPO. How did they know? There are three primary signs. First, look for products you and most people you know are already using. Most developers are early adopters, so if a lot of them are flocking to a particular technology, there’s a good chance the rest of the world will soon follow. Second, look for companies that have raised a lot of money through multiple rounds of financing. The more money invested, the more the investors will want to see big returns, and the most common way to make that happen is for the company to go public or get acquired. Third, look for companies that are growing at an incredible pace and will need more money to sustain that growth until they become profitable.7
If you’re more likely to get rich and have fun by joining someone else’s startup, is it ever a good idea to start your own? Yes: when you simply can’t not do it [Moskovtiz 2014]. That is, the best reason to start a startup is because you are so passionate about an idea that you must bring it into the world. You’re doing it not for fame or fortune but because it’s important enough to you that you are willing to go through all of the pain, risk, and sacrifice to make it happen.
Just make sure not to confuse the dream of accomplishing a specific mission with the dream of building a startup. Sometimes a startup is the best way to accomplish your dream, but in many cases you’d be better off starting a lifestyle business (e.g., a work-from-home consultant), joining someone else’s company, or doing research at a university. A startup is just a means to an end [Payne 2013b].
[Horowitz 2014, 21], Marc Andreessen,
Co-founder of Netscape, Loudcloud, Opsware, and Ning
You’ve now seen both the light and dark sides of startup life. Startups can be more fun, but they can also be more stressful. You get more autonomy, but you also get more drudge work. You could make a huge impact on your career and the world, but you are also very likely to fail. The question is, is a startup right for you?
There is only one way to answer this question: try it. That doesn’t mean everyone should go out and start a company, but at least once in your life, just about everyone should work at a startup. And for that matter, everyone should also work at one big, established company. Startups aren’t for everyone and big companies aren’t for everyone, so it’s a good idea to try both to see which one fits you.
I’ve worked in large companies and I’ve worked in small companies. I think it’s valuable to go between the two because there are different skills that you have to rely on. In startups, there’s this sense of energy, you’re doing new things that are resonating with people, changing how they communicate, or travel, or whatever it happens to be. When you’re working at larger companies, you need the ability to communicate and think about the perspectives that other people have. But I think sometimes, when you just want to get something done, it’s nice to have a bank account with three million dollars and nobody in your way.
[Jacob 2014], Philip Jacob, Founder of StyleFeeder,
Software Engineer at Stackdriver and Google
Perhaps after trying it out, you’ll find that startup life is for you. Maybe you’ll even be inspired to become an entrepreneur. In some sense, everyone is already an entrepreneur. Adam Smith wrote that every person “becomes in some measure a merchant” [Smith 2003, chap. IV]. You sell your time, knowledge, and resources to others, either to someone else’s company or to customers of your own company. The days of working at the same job and climbing a career ladder for many years are over. Self-employment is at record levels [Monaghan 2014] and the peer-to-peer economy is on the rise, powered by startups such as Uber, Sidecar, Lyft, Airbnb, TaskRabbit, Homejoy, and Etsy.
Of course, renting out a room in your house or doing consulting work is not the same as creating a startup, but as self-employment becomes more ubiquitous, it will hopefully make people more accepting of startups and less attached to the false sense of job security of larger companies. You may even realize that the modern notion of a “job” as some entity that floats around and to which you’re entitled after college makes no sense. There are no jobs. There are just things you can do that someone else—an employer or a customer—finds valuable enough that they’ll pay you for it.
That’s a very limited life. Life can be much broader once you discover one simple fact: Everything around you that you call life was made up by people that were no smarter than you and you can change it, you can influence it, you can build your own things that other people can use.
Once you learn that, you’ll never be the same again.
[Jobs 2011], Steve Jobs
1 For example, Google X is a semisecret branch of Google that is in permanent search mode, exploring projects such as wearable technology, self-driving cars, high-altitude WiFi balloons, and glucose-monitoring contact lenses [Gertner 2014].
5 For example, consider the age of some of the most successful startups of the last decade at the time of their IPOs or acquisitions: Facebook was 8 [Facebook 2014], Google was 6 [Google 2014], Twitter was 7 [Twitter 2014], LinkedIn was 8 [LinkedIn 2014], WhatsApp was 5 [Hoff 2014], and Zappos was 10 [Zappos 2014].
6 In fact, if a founder tries to leave immediately after an IPO, it will hurt the founder’s reputation, the company, and the stock price, so most founders stick around for at least a few more years. As for acquisitions, most of the contracts involve a cliff or vesting period of one to two years to help transition the company over. The founders only get the financial rewards of the acquisition after this period, so this sort of contract is usually referred to as the golden handcuffs.
7 A few companies to watch in 2015 and 2016, at least based on their fundraising, growth, and recent developer migration patterns, are Uber, Airbnb, Square, Stripe, Dropbox, Pinterest, PagerDuty, Slack, Zenefits, and GitHub.