This is a topic I care a lot about, thank you for bringing it up
I've been an entrepreneur for 5 years. I started out like most Software Developers - by starting a startup. After a few years, I became convinced that this is NOT the best way to achieve the outcome you're talking about (financial independence, aka ~5mil USD).
My basic problem with your post is simple, and others have pointed it out - you can make up all the numbers you want, but empirically, MOST startups fail. The usual figure given is 10% of startups fail, but this is a gross simplification, and I tend to think the number is much higher. More importantly, the number of years that it takes to fail can be long - the number of years before a successful exit is usually >5. Failures can happen earlier, but the worst-case scenario is to "fail at the last minute".
To convince me that you're going to achieve your goal within 10 years, you have to show that for some reason, you'll do better than the statistics suggest.
The problem with #1 is you have no real reason to think you'll do better than anyone else. This is where a lot of people get lost - they hear this statement, they nod, but they think to themselves &q...
You're taking a very inside-view approach to analyzing something that you have no direct experience with. (Assuming you don't.) This isn't a winning approach. Outside view predicts that 90% of startups will fail.
Startups' high reward is associated with high risk. But most people are risk averse, and insurance schemes create moral hazard.
Inside view: "If I enumerate the things I think can make a startup fail and estimate probabilities, failure seems unlikely"
Outside view: "If I look at actual startups, empirically 90% of them fail, so failure is likely"
Given all of this, I think that if you're smart and hard working, you should have at least an 80-90% chance at succeeding at a startup.
Uhm, I don't think you're multiplying together the likelihood that you don't fail in each of the ways you outlined. You got so close by identifying all the hurdles you have to go through - and then instead of doing the math, you basically said "these look like stuff that can get overcome by a smart and hard working individual" and slapped the "80-90%" label on it.
I counted 21 distinct ways you said a startup can fail. 0.99^21 = 0.8. I'm pretty confident you envisioned more than one person failing in that way out of a hundred.
Doing a successful startup is hard. Surpassing the default 90% lack-of-major-success rate for experienced startup founders, startup founders who are nephews of VCs, startup founders who impress even VCs, etcetera is hard. The best of our community have not yet demonstrated that they have surpassed this level. It could be that with sufficiently systematic training our community could achieve outsized returns by not just being specific but also acquiring sufficient skill levels of See Through Conventions and Avert Office Politics and Use Conditioning Correctly and Be Really Original and Cooperate With Cofounders and MurphyJutsu and Learn From Others Experience and Be Calibrated and so on. It's not the sort of thing where you can read LW and breeze through it. Your post was downvoted because it displayed a tremendous ignorance of the problem's magnitude, trying to hit a 16-pound nail with a 4-ounce hammer.
"Given all of this, I think that if you're smart and hard working, you should have at least an 80-90% chance at succeeding at a startup."
Your method is bad- you have come up with some imaginary numbers and not addressed the obvious difference with reality, except with the qualifier that you mean people who are "smart & hardworking".
Surprisingly, when I went looking, you might be partially correct: at least for people who really are smart and hardworking and for certain values of "success". To look at the Ycombinator list - the number of "failures" or dead companies is very low and this probably provides a decent filter in that they are as experienced as anyone in identifying people who are smart and hardworking in the ways relevant for a startup.
The huge caveat is of course that nearly all startups don't get funded by ycombinator and "not dead yet" is not comparable to "success".
Making up imaginary numbers and then coming up with a rationalisation for those numbers is still a horrible way of making an argument though. Worse, you haven't explained why your made-up number is so different from the commonly quoted made up number that 90% of startups fail.
This post by Yvain is my cached thought in response to "Why don't more rationalists do good thing X?"
Yvain writes:
One factor we have to once again come back to is akrasia. I find akrasia in myself and others to be the most important limiting factor to our success. Think of that phrase "limiting factor" formally, the way you'd think of the limiting reagent in chemistry. When there's a limiting reagent, it doesn't matter how much more of the other reagents you add, the reaction's not going to make any more product. Rational decisions are practically useless without the willpower to carry them out. If our limiting reagent is willpower and not rationality, throwing truckloads of rationality into our brains isn't going to increase success very much.
I suspect that your limiting factor for being successful at a start-up probably has something more to do with raw intelligence, having a good work ethic and good business partners, making the right connections, or things like being in the right field at the right time [citation needed]. The only evidence I have for this is that in the successful silicon valley start-ups I have observed, the founders have always been ha...
I am a web programmer / designer. I work at a startup, and I have attempted several (failed) website projects. I will offer an "inside view" from my own experience.
My main failed website was a cool idea. Everyone said it was cool. Everyone said they would use it. So I spent months building the functionality. Then I started working on the design and UI. As a newbie to design, the web design and UI sucked. The site was useable, but nobody cared except a couple friends. The Facebook page got around 5-10 likes. I realized that the design sucked and it would take a rewrite to improve it, but I couldn't justify the time expenditure.
I tried a more content-oriented site as another project. My graphic/web design skills were better, so I was no longer embarrassed to send the site around to people I knew. Most of my friends read anything I posted on the site, but I couldn't very far outside my friend circle in audience. Ran out of energy to promote the site to a wider audience. Final metrics: 70 likes for the FB page, a few Twitter followers, 100 hits a day from Google (mostly bounces), and a few cents from affiliate links (and this was not because someone bought one of the produc...
You make a lot of theoretical arguments but don't talk at all about the fact that most of the startups VC's fund fail sooner or later.
If all it takes to have a startup with a 80-90% chance of a $5-10M exit is checking whether the funder is smart and is hard working, VC's should have higher success rates.
You seem wildly optimistic. Have you got an impartial outsider to do a premortem on your startup?
What you posted is not a premortem, it's the opposite of it. Assume that a year or two from now your enterprise has failed. What caused it to fail? E.g. insufficient cash flow, lack of school buy-in, lack of investor interest, regulatory obstacles, competing services, failure to execute... For the duration of the exercise you have to suspend your natural optimism and truly believe that bad things happened. Can you do that? If not, then the 90% failure rate statistic definitely applies to you.
A lot of people are commenting on the feasibility of clearing all these hurdles, but I've got a different reason for steering clear. (It's the same reason I avoid jobs on Capitol Hill, though I live in DC). Startups require a heckuva lot of time at their inception. The thing I'm buying instead is time with my friends.
I'm in my 20s, I make enough to have a reasonable standard of life and to save/give, but not enough to retire dramatically early, by any means. My work doesn't follow me home after work, it's not the main focus of my attention, and that's just the way I like it.
I'll also add that investing a lot of your 20s into a really time-consuming job (startups, i-banking, Capitol Hill) may really slow down your chance to date and discern marriage with a partner. Again, not a tradeoff I wanted to make.
My motivation behind this post stems from (Aumann's agreement theorem)
It shouldn't, for hu-mans Aumann's is more like a dark artsy inspirational poster of "YOU can do ANYTHING if you just believe in yourself!" than it is a relevantly applicable theorem (the wiki article is in need of an overhaul).
You mixed up the syntax for links: Parantheses for the link text and brackets for the link itself.
I did a text search for "fail fast" and nobody seems to have said it in the discussion below yet, and I would be shocked if you hadn't heard that buzzword before, but it means nothing more than this: your business idea is a sort of hypothesis, and you want to test your hypothesis as quickly and cheaply as possible. You would actually prefer to fail today if you could, so that you could be over and done with this and you could move on to the next thing and not waste any more time and money. "If it's a bad idea, you want to know it's a bad i...
http://lesswrong.com/lw/1p5/outside_view_as_conversationhalter/
I'm not even claiming that the inside view yields better predictions. I'm just saying, "let's try it". What I'm getting, from the comments is "no, you shouldn't try it". To claim that it's not even worth trying, is to claim that the inside view has such a low likelihood of working, that it isn't even worth your time/energy.
And for the record, I'm taking a Weak Inside View.
Real world rationality (defined as winning) requires very good people skills. This is something I expect the vast majority of LW community to not have (sorry, mates, but our archetypical member is a male CS student with no partner).
I think it is a shame this post is downvoted. I mean, while it is clearly over optimistic, I think that the systematic way it breaks down various ways you could fail is useful.
In recent years a huge number of computer technology startups are effectively being subsidized by free money sloshing around the monetary system searching desperately for anything resembling a return in a low interest rate environment. That plus human psychology equals massive bubble valuations that are horrifically unstable and have remarkably little basis in reality.
I don't think you can predict going forward in time that such circumstances would last.
EDIT: Also, isn't the above post pretty much a textbook example of the planning fallacy?
What I've gotten from the comments is that you guys don't think it's smart to take an inside-view. That's a separate argument in itself, but what I'm trying to do in this post is to take an inside view, so please take that as a given and comment on the components themselves.
I agree with VAuroch that this won't help much, because in general taking the inside view is a bad idea.
But if you want a few examples of places you've gone wrong - both getting a good idea, and executing a business, any business, are much harder than you imagine. For example, you wrote:
"Failure to think specifically about benefits." "The big issue here is the first bullet point. As spelled out by Eliezer's article, people are horrible at thinking specifically about the benefits that their idea will bring customers. They're horrible at moving down the ladder of abstraction. They think more along the lines of "we connect people" instead of "we let you talk to your friends". Even YC applicants (probably the best startup accelerator in the world) suffer from this problem immensely. I think that this problem is the single biggest cause of failure for startups. (They say that 90% of startups fail? Well >99% of people can't think concretely.) However, I think that it's something that could be avoided with willpower, reading the LessWrong sequences, and taking some time to practice your new habit."
Well, not thinking specifically is one issue, sur...
Before we get into more details, here are some higher-level thoughts on the business overall: how will people get to your site and how will you make money from them?
One strategy is to pay for ads. People doing this already are easy to find: search in an incognito window with questions like "college information", "choose college", or "college for me" (be imaginative). Click on the ads that don't look like they're for particular colleges. This drops me on a few landing pages:
You don't know very much about these businesses, but you know they're all making enough money on an ad click for it to be worth it for them to advertise here. (Looking in the AdWords keyword planner suggests they're paying $5-$20 per visitor (CPC).) If one of these sites is doing something that seems weird to you, don't write it off as dumb: they're making money or they wouldn't be able to afford to show up when you did the search. Maybe they have some low-hanging fruit in improving their layout, and they certainly don't all look the same, but if in doubt they probably know something you don't.
It's also possible for people to come to you via searches. Do some searches yourself; see who shows up. This business model is harder to replicate because it's much less clear how they got onto the front page for a search. SEO advice tends to be terrible, and for good reason: it's an adversarial game where success is very lucrative and people are constantly pushing limits to see how scummy/profitable they can get without stepping over the line and getting banned (recent example: rapgenius).
Word of mouth and viral/social are also possible, but even less predictable. But then my bias here is for paying for traffic because I used to work in advertising and it all feels very natural to me. But however people get to your site, you want a good sized flow so you can experiment and test things and see what works. Iterating with no one watching is hard to get to go anywhere. (One nice thing about the non-ads flow is that focusing on making your users happy and have a good experience lines up with your incentives. If you go the ads flow every visitor is to a first approximation someone you'll never see again and so you don't care about their experience just how much money you can get from them. It's like businesses that cater to regulars vs tourists.)
Once people get on your site, how do you get money from them? The simple strategy is to put up ads, like adsense. These pay very little, like $0.01 to $1 per thousand visits. Maybe somewhat higher because you're in a vertical (education) where there are advertisers with a bunch of money to spend (colleges). There's no way you can pay for ads at $5 per click and make your money back at $0.001/visit. So what are those sites like educationmatch doing? They're collecting information from people and selling it to colleges. This is called "lead-gen" advertising. The most obvious form is when you land on a page and it immediately asks you for information about yourself. If you're going to place search ads, you basically have to do lead-gen; nothing else is profitable enough per-visit. (When you start off you'll sell leads to a lead-aggregator who sells them to the colleges. When you get big you negotiate deals directly with the colleges and get a bit more per lead.) If instead you want to make money by putting ads on your pages you need to go with cheaper but higher-volume sources of traffic, like being awesome, getting people to link to you and talk about you, and getting high up on search results pages.
Back to specific design notes:
I do think that the current design satisfices (won't wow, but won't draw people away). Do you?
To actually answer this question you need data from your site and competitors to compare bounce rates. You're not going to get that, so the best you can do is calibrate retrospectively: when you do get a designer and redo your site you should A/B test the redesign so you can see it's impact. This only works if you have enough traffic by then to get meaningful results.
My guess is that the appearance will make some people leave with "this looks unprofessional/fake" but this isn't something I'm good at estimating. You should at least fix the aspect ratio on the main image; I found the vertical squishing very distracting. Cropping it instead of scaling it in the browser would work, as would using only one of height= and width=.
there are some ways in which I think my design is much better than that of my competitors ... unigo.com
unigo looks more professional to me, though still not as polished as something could be. But polish isn't everything; many of the sites I linked to above aren't going to win any design awards. Many of them look kind of tacky and overly slick. They're all making money, though.
I've heard this before, and am not sure what I should do.
Sit down with someone and watch what they do with your site. Then sit down with someone else. Look at your competitors and take the best ideas from many sources, then mock up a new front page design and sit down with another person. Repeat until you run out of fresh victims/friends. You're too small for fully-automated a/b testing, so substitute quality for quantity and watch real users in person.
I'm not sure how to limit by IP
Many colleges have a contiguous IP range. For example, everyone browsing from on-campus at Swarthmore will be 130.58.something.something. Make guesses from looking at the IP of the college webserver, and if various departments that do their own webhosting (cs, math) all are in the same IP range you're probably good. You can also look through your server logs to see the visits from people you know are at certain schools. It's also possible that this can be looked up somewhere.
I feel that being comprehensive is more important than annoying some people with some questions.
It's a balance. Trying to channel "teenage girl" I have the impression that "how hot are the girls" would be something I would find off-putting. But my mental model is pretty bad here, having never been one.
A final note: this all sounds kind of mercenary. My perspective is that's what you have to do if you want to make money in such a tightly competitive market. That's part of why I'm glad I don't work in this industry anymore.
If instead you want to make money by putting ads on your pages you need to go with cheaper but higher-volume sources of traffic, like being awesome, getting people to link to you and talk about you, and getting high up on search results pages.
That's the plan.
My motivation behind this post stems from Aumann's agreement theorem. It seems that my opinions on startups differ from most of the rationality community, so I want to share my thoughts, and hear your thoughts, so we could reach a better conclusion.
I think that if you're smart and hard working, there's a pretty good chance that you achieve financial independence within a decade of the beginning of your journey to start a startup. And that's my conservative estimate.
"Achieve financial independence" only scratches the surface of the benefits of succeeding with a startup. If you're an altruist, you'll get to help a lot of other people too. And making millions of dollars will also allow you the leverage you need to make riskier investments with much higher expected values, allowing you to grow your money quickly so you could do more good.
A lot of this is predicated on my belief that you have a good chance at succeeding if you're smart and hardworking, so let me explain why I think this.
Along the lines of reductionism, "success with a startup" is an outcome (I guess we could define success as a $5-10M exit in under 10 years). And outcomes consist of their components. My argument consists of breaking the main outcome into it's components, and then arguing that the components are all likely enough for the main outcome to be likely.
I think that the 4 components are:
The Idea
Your idea has to be for a product or service (I'll just say product to keep things simple) that creates demand, and can be met profitably. In other words, make something people want (this article spells it out pretty well).
What could go wrong?