Don Dodge, a startup investor and well-known “developer advocate” for Google, said today’s startups are more focused than ever on revenue—as evidenced by the large revenue-growth charts most of them showed off during the presentations to investors. In prior years, founders focused more on the number of people using their service, he said.
Refreshingly, he said, there are no longer social-networking-related startups. “It’s run its course,” he said. “Now startups are more focused on solving boring problems that make money,” said Dodge, who last year invested in a YC company that helps programmers create mobile apps.
I wouldn't be surprised if he's being tongue-in-cheek by saying 'boring'. Or at least, it's not meant to be negative. Besides, there are lots of boring problems that can be made into interesting and beautiful solutions. For example, Square is made payment processing into an elegant and holistic experience.
It's not meant to be negative. At CircuitLab (Don Dodge's
specific example for "solving boring problems that make money"), we're interpreting "boring problems" as a concise way of saying "problems that people have 9am-5pm (at work) and want to solve faster so they can leave at 5pm". That's not a bad place to be. Or perhaps they are problems that are exciting to our users but boring to Don Dodge. :)
Don't under sell CircuitLab! I thought it was the only cool and useful engineering project of the batch! You actually have deep technical skills that are not easy to replicate. And you can go both ways: web based, educational, makers or go make a native (just use chromium :)) high priced version and go after the incumbent market.
That's exactly it. Revenue. I've heard PG say in numerous interviews that he doesn't want to incubate small companies. He said he wants "the next big thing". Has he changed his mind?
Revenue growth is better than active user growth, but growth is the high order bit.
In other words, growing revenue 10% a week is better than growing active users 10% per week. But for a startup (in the startup=growth sense), 10% growth in active users per week and no revenue is much better than being ramen profitable and growing revenues at 2% per week.
PG has always been in favor of "ramen profitability." I've never heard him disparage revenue or think having it is indicative of being a small company.
Perhaps the average group going into YC has shifted in their goals. I believe there's a general trend towards focusing more on small-risk small-reward startups, I assume this trend is trickling into SV as well.
You are correct. It was not meant to be negative. It was meant to convey the importance of the shift from social/consumer apps with no thought of monetization, to startups focused on solving real world problems that generate revenue from day one. This can be boring to investors looking for flying cars, or journalists looking for mind blowing technology.
I mentioned Circuit Labs, great technology that makes money in a boring way by selling parts. I also mentioned Thalmic Labs as an example of cool technology.
My personal favorite was Skip, the RFID checkout company, but I couldn't talk about it because they haven't officially launched. I think there could be an indoor location play using the RFID tag data.
Overall, I was impressed with the focus on solving real world problems and generating immediate revenue. Boring to some, but I liked it.
I think there's some truth in both perspectives, yours and dmor's.
There is also a third perspective; use of the term "boring" and saying
social has "run its course" was intended as a compliment to the current
W13 batch, although being dismissive of previous "social" startups.
Unfortunately, using the term "boring" even in jest as a compliment is
still a bit too close to calling someone's baby ugly.
(I'm certainly guilty of using poorly chosen words at times, and so is
everyone else.)
Another issue, is some potential investors most likely want to appear
disinterested even when they really want to invest, since it is to
their advantage in negotiations. It seems part of the intent behind the
"Handshake Deal Protocol" was to put an end to this kind of posturing
and dancing. Playing hard to get might be profitable in some sense, but
it wastes an enormous amount of time and effort.
The last issue is "interesting" and "fascinating" are choices. You
decide to be interested of fascinated by a subject. Other than surprise,
it often takes effort and investment to be interested or fascinated.
Others may decide differently. I've worked on a ton of fascinating and
challenging things that when explained to others could literally bore
them to death. Even if the bored people count on the boring thing every
single day, the decision to be interested or fascinated by it is their
choice to make.
When people find a difference in their interests, the usual result is
along the lines of resentment, intimidation, or elitism. A better
approach is to acknowledge the difference of opinion on "interesting"
and try to find some common ground of mutual interest.
The whole W13 batch is interesting to me. Even if I don't fully grasp
the problem they're trying to solve or don't agree that their approach,
I always enjoy learning about someone fascinated enough to try building
a company around a problem that they consider interesting. If I just
don't get it, then there's most likely an important, unknown something I
can learn from them. If I do get it, then I my understanding is probably
way behind theirs, and I still have something to learn from them.
If you're uninvolved with the push and pull between startups and
potential investors and are unaffected by startup outcomes or business
competition, then it's easy to ignore the nonsense and enjoy learning
about all the new companies on demo days. It's OK to be a spectator and
cheer the accomplishments of others.
I think what everyone here is missing is that the press is looking for "Tech" companies doing wild, innovative things with technology.
-The WSJ article was in the "technology news and insights" section.
-TechCrunch has the word Tech in its name.
-Demo Day is held at the computer history museum
-this is Silicon Valley
Sorry I didn't attend demo day, but when I read the summary I felt none of the companies were very high tech, and I'm sure that's what the press felt too. I was waiting for Peter Thiel to say: "we asked for flying cars and you gave us painless divorce."
Don't get me wrong, I would love to invest in companies that make money over companies that use some fancy new technology.
I call bullshit on the claim that there were no tech-oriented companies. One of them is a platform for automating flying drones. Another is a platform for EE circuit design. These are both pretty nerdgasmic if you ask me. edit: oh and how could I forget Thalmic.
You don't need to be "the next Google" to be an exciting tech company, though. Even AirBnB are not "the next Google" but they're still hugely successful.
That's exactly his point though: AirBNB is not really a high tech company. Other than scaling issues, it's a relatively simple CRUD web-app, their competitive advantage is in their business/social/whatever skills.
Yeah, I think you're understanding the complaints well. Why even bother with YCombinator if you do something boring that makes money. Might as well call it a small business and borrow at 8%—it would be a lot cheaper than VC.
This makes me wonder if there's a perception issue: many of the companies are doing very well and delivered solid presentations, so no one really looks "10x" ahead of the rest. Especially since each company gets only 2:30 and many share the same structure. "This is what we do. Look, we have awesome traction. And we're making a bunch of money. And our growth is very healthy. There's a big potential market to capture. And this is how we see ourselves changing the world." And on top of that, you don't get a very strong sense of product and user experience within that narrow timeframe, sitting in an audience of a few hundred.
My guess is that if the quality distribution was more like what an angel/vc sees outside of YC, it'd be more obvious that that there are some amazing companies in the W13 batch.
> Founders risk everything, move across the country or further, endure endless stress, damage relationships, sacrifice their health and pour their every waking moment into creating something people want — and they’re rewarded with a yawn.
Risk and effort are admirable and impressive, but at the end of the day it's the product that is being demonstrated. No one is entitled to the awe of the crowd just because they took big risks or made big sacrifices.
I read the main thrust of her post to be to fellow entrepreneurs - and to remind them to not worry about that commentary and keep going with the hard work of what they are doing.
Rather than the whole woe is me portion you quoted (and I agree it was laid on a little thick) I think money quote was fuck that noise and for the target audience I think that is pretty good advice.
I know of a lot of "boring" businesses that make buckets of cash. That's what I'm interested in. The tech press isn't, because interesting reporting on them involves lots of research and diving into the real story. They want an easy headline filled with buzzwords to drive clicks.
My guess is that about 10-12m from now we'll see the media talking about one of these companies that "you've never heard of" that is "crushing it" on bookings/revenue.
People tend to forget that the media has little to no memory and is usually staffed by people in their 20s who have little idea of what they are talking about. Obviously not always the case, but using the media (or other bloggers) as your measure of success is a very bad idea.
And in case anyone jumps to this conclusion - no, I'm not saying that anyone in their 20s will have no idea what they are talking about. :)
Agreed. It's hard for a recent college grad to get really excited about "human capital management software". In contrast, it's very easy to understand the use case for something that lets you edit videos on your iPhone. Thus, young people have a difficult time inventing Workday while they eagerly can imagine the use cases and are stimulated by xyz-instagram-of-video.
Thalmic Labs I think is the only one that should not be considered a yawn. The applications are endless, if you have not seen it watch the demo video below, shows some very consumer friendly applications which currently have no equal substitute. Only question is how long until it works that seamlessly?
I like FlightCar a lot and I have said so previously, if I could invest in only one single company that launched yesterday, it would be this. It is instantly useful.
That said, I can 'understand' the non excitement of the press. Except WeVorce which is arguably a service business, nothing seems to be pioneering. Magical. Crazy. They all seem to be X of this or Y of that. The 'this' and 'that' are what the press might have been looking for. This/that= YouTube, AirBnB, Heroku, Kickstarter etc.
I think the criticism is the downside of the expectations and premium accorded startups coming out of YC.
It is still good though. The founders can put their heads down and focus on their business without having the noise of expectation distracting them. Hopefully, they would prove all the doubters wrong.
I don't think any of your examples would have looked impressive just based on the idea. In all of those cases, the wild growth is what made the company a big story.
Tell the world that your startup will deliver burgers, and nobody will care. Then mention 1 million burgers served per day and you'll be a legend.
Agree with your comment. I think it's more a matter of startup fatigue.
Few startups seem that great without testing the product or seeing their growth. Dropbox? The idea is not so great, but the execution was just awesome. Google? (yet another search engine), eBay? (a place to buy and sell beanie babies), Facebook? etc...
Who cares? Are you in this for the flash-in-the-pan press? Or are you in it to make money and/or change the world?
Every day, I'm focused on growing matchist (http://matchist.com/talent) so it can make more money and become a better business. If that produces yawns, so be it.
Yeah, I have seen businesses that rely too much on press as a growth strategy, which is dangerous when you turn from hot startup of the week to yesterday's news.
Let's hope they're rewarded by making a business that creates value and makes them some cash in the process rather than being the tech darling of the next seven days!
It looks like YC is actually shifting to investing in products that have a real way of generating revenue this time. I'm not sure if this is a trend in the whole VC community though.
There are great VCs that spot trends before they are big trends and then there are VCs that miss the boat because they invest when things are already frothy. So buzzwords like "social" and "mobile" happen and then "enterprise" becomes a hot story in the tech press after people get sick of thinking social will be the end all be all of VC investing. The things is VCs are going for 100X exits, so something that generates revenue that doesn't have the potential to be big is just as bad for a VC as a social product that probably won't make revenue anytime soon.
Well, investors bitch and moan because, let's face it, that's how they roll. They also have an incentive to do that in order to lower prices (as long as they all do that, and these guys have a dominant herd mentality gene).
Now it seems that their problem is one of an efficient market. If startups play it safe (according to the investors), then their performance has a higher expected value but with less volatility, so the VC can't strike rich on the off-chance. I do think, though, that they might miss the volatility in the market size. Very successful products tend to change the market size, and they might get 10x and even 1000x returns yet.
Anyway, sometimes they bitch about too much risk, and now about too little. You just can't please these guys, but, like Danielle says -- neither should you.
Not sure what the hoopla is about as there are a ton of great technology companies in this batch. Not sure how wearable computers and drones don't count as bleeding edge tech.
It takes about a year or two for these things to play out and for the trends YC is currently observing to become the next sexy thing for startups to mass replicate. The "next big thing" is always boring until it isn't :)
It's interesting how pretty much everyone I ask about W13 has a different set of favorite startups, and the top one on one person's assessment can be the bottom on someone else's. That means any of the rankings really say more about the evaluator and his/her metrics vs. the startups themselves.
This really wasn't the case with previous batches, or most other groups of startups.
We noticed that, and it's actually an encouraging sign. If YC reached the limit case where we had all the best new startups, that's what it would feel like: there would be so many good ones that it would be hard to pick the best.
This is a great analysis. I would also challenge any of the jaded reporters to dig through their publication's coverage of the Demo Day from Airbnb's class and see how many correctly called it as a "10X" startup. It seemed insane at the time, but brilliant in retrospect.
Thalmic and Semantics3 are absolutely working on crazy exciting stuff. I don't see how anybody could consider either of those boring.
The only problem I see with Semantics3 is access to the data they want to index. If they can sell merchants that having their stuff listed in their index is a valuable discovery mechanism and will help sales, it could work. But if merchants decide they don't want to be part of it and close off access to the underlying data, I think they'll have a tough row to hoe.
Say what you will, but this is the first YC class in recent memory that has a product I am going to both remember and use when needed: FlightCar.
Personally I'm glad things are looking like the "bubble" slowly deflated instead of popped. And instead of a crash and destruction of wealth, we're left with an urge to pursue viable business models. I think we can point to FB, GRPN, and ZNGA for this (the stocks, not the companies), thanks guys.
I don't know about others but I quite enjoy working on something that would be considered boring by most. We just quietly work away generating real profits.
I agree with OP on overall premise. Majority of startups look boring at the start. Just doing software for computers was considered boring in 70s. So was yet another search engine. Peer-to-peer money transfer using Internet, who would've thought that would be interesting. Or online bookstore. Twitter, all of my non-techie friends thought it was stupid. Even YC itself was considered crazy in their early years.
Interestingly, Semantics3 is starting up in a space that we're currently doing quite well in. Seeing the messaging that they're putting forward has given me some better copy ideas, so I guess it's time to get to A/B testing.
And, considering we've sold somewhere in the realm of $xx million last year with a beta product (which has since matured), there is definitely money to be made 'the boring way'.
I agree with WSJ, and this is the first time I didn't get excited about the companies coming out of YC. But I don't think it's entrepreneur's fault.
Investors are starting to go after companies that generate revenue from the beginning (as a result of the series a crunch?), which shifts the focus on what companies individuals can start if they want to find funding (unfortunately).
All told, you can only seem so impressive on a stage. Nothing impresses me more than when a non technical/startupy friend or relative casually mentions a new product.
Don Dodge, a startup investor and well-known “developer advocate” for Google, said today’s startups are more focused than ever on revenue—as evidenced by the large revenue-growth charts most of them showed off during the presentations to investors. In prior years, founders focused more on the number of people using their service, he said.
Refreshingly, he said, there are no longer social-networking-related startups. “It’s run its course,” he said. “Now startups are more focused on solving boring problems that make money,” said Dodge, who last year invested in a YC company that helps programmers create mobile apps.
I wouldn't be surprised if he's being tongue-in-cheek by saying 'boring'. Or at least, it's not meant to be negative. Besides, there are lots of boring problems that can be made into interesting and beautiful solutions. For example, Square is made payment processing into an elegant and holistic experience.