Saturday, January 24, 2009

Why Your Startup Will Fail

At the end of my presentation on Archaeopteryx yesterday afternoon in Montréal, you asked me how many millionaires became millionaires with open source, and why a programmer should avoid venture capital if they want to become a millionaire.

Your startup will definitely fail.

It's not just that the numbers are against you. It's not even simple probability. Most startups fail; that's why venture capitalists like to fund many startups, not just one. Luck plays such a powerful role that VCs can only make their money by investing in many, many more companies than can ever succeed.

I'm interested in acting, and I live in Los Angeles. There are many, many more people in Los Angeles who are interested in acting than the local entertainment industry can simultaneously employ, even in small roles, even counting theater, video game voiceovers, radio voiceovers, puppet shows, reality TV, and dressing up as Spiderman to sell star maps to tourists. I can't criticize anyone determined to do something difficult where any success they see will be an extraordinary fluke. All power to you there.

But I know professional actors. Edward James Olmos is a friend of a friend. (I've never met him, but our mutual friend is a professional actor.) I know a lead on a sitcom, and my acting teacher has two Emmys. Let me tell you something professional actors have in common: they didn't get into acting because they wanted to become millionaires.

It doesn't work that way. If you want to become a millionaire, you pursue a strategy where becoming a millionaire is likely. Acting is a constant struggle. No matter how good you are, no matter how big you get, no matter how many millions your movies make. Robert Downey Jr. had to fight his ass off to get Iron Man. Bruce Willis loses roles to Tom Hanks.

In 2000, I read some research on how the whole dot-com boom thing was going and discovered to my shock that the only business making money on the Internet was porn. I tried to convince my friends to start a porn site. I failed, and freaked them out in the process. A year later, I was the only one of them who still had a job. All the millionaires were in porn in 2000; all the people who started startups did it for a different reason.

That's true today as well. Maybe what they really want is the thrill ride. Maybe they have a genuine passion for technology, and they've discovered something significant and new. Maybe they believe through and through that the world needs their new technology, to take on global warming and climate change, to survive the impending apocalyptic fallout of pollution, to become more peaceful, or fairer, or safe. I think most of them just don't understand economics or statistics.

Some of them have a chance. But you? The guy who wants to start a startup so he can become a millionaire? Give it up, dude. You're fucked.

The startup world requires intensity and focus. With a lot less effort, you can get a kickass job earning two hundred grand a year. Your startup will fail because millions of dollars might be different from hundreds of thousands of dollars, but they just aren't different enough to justify that much effort. You're incredibly lucky to face this kind of unterrifying dilemma, and sooner or later you'll figure it out.