Frontline Seed

It’s a Hard Time to Build a Business

Posted 23 August 2021
By Finn Murphy

The laws of business gravity have been suspended.

People are screaming from the hilltops that there’s never been a better time to be a founder, me included. In many ways they’re right — more capital flowing around makes starting a business a lower risk and lower hardship inducing endeavour than it’s ever been.

I know few founders paying themselves less than a market wage. The idea of going into debt to get yourself over the starting line is thankfully in the rearview mirror. Secondaries are making the game less black and white — you don’t have to build the next Facebook, you just have to look like you might for long enough and your financial future is secure.

On the learning side there’s never been more content from the world’s sharpest company builders available online. You can get niche interviews with domain experts on specific strategies for just about anything. Shared experience and learning is no longer limited to Silicon Valley meetups, mentors and intros. It’s freely available online. Twitter is an absolutely goldmine of useful info while simultaneously remaining a total cesspool.

Then when it comes to building: Holy shit are things easy now. The cloud vendors allow you to spin up global infrastructure in a few weeks. There is a SaaS tool for everything, remote hiring partners, banking and accounting products, DevOps automation — it’s all out there — admittedly it can become pretty expensive as you grow but if you think you might need it then it probably exists.

You can literally start a business for less than the cost of a sandwich and do it all from your bedroom. There’s more complexity for sure but many of these tools help you abstract that complexity away.

Roshan Patel tweets about how much it cost for him to build his MVP

These are good things. Legit. But while it might be easier than ever to start a company, learn the ropes and find your footing financially. It’s harder in every other aspect and some of these good things also work against you.

There is so much noise right now — finding the signal is harder than ever.

With a lot of money comes a lot of competition. There used to be a lot fewer venture backed tech companies and working at a cool venture backed startup was once a rare opportunity. Now every halfway decent engineer has about 10 of them trying to recruit them at all times.

It’s great that more people are deciding to become founders — but there hasn’t been a proportional increase in the number of good people to work for and build those companies. The pool of hirers is getting bigger and the pool of talent is about the same. I lol at founders who complain about salary and equity demands of potential hires while also raising at 100x multiples. This will course correct over time but it feels like we’re close to a local maximum right now.

Pam holds two cards, the first reading “High valuations/low dilution expectations” the second reading “High salary demands / large equity grant expectations”. The caption reads “they’re the same picture”.

I have no data for this but, anecdotally, and from more and more conversations I have, it feels like top talent at C suite and VP level just isn’t recycling the way it used to — previously as a VP at a breakout company you could expect to make a few million bucks — if you hit the jackpot at Google, Uber or Facebook? Maybe 10. Now there’s so many companies valued so highly the incentive for that talent to go and grind it out again is much lower. They’re already multimillionaires — they’d much rather become VCs, angel investors or shock and horror, spend time with their families.

Yes, you can raise quickly. So can everyone else. Problematically once you start to perform you’re so exposed and information about the top companies is so freely shared that it’s only a matter of time before four more companies with good teams are chasing the same market as you and yes they will get funded by top VCs.

If you’re in an interesting market then everyone wants a bet. If they can’t invest in you, they’ll find the next best thing. Look at the corporate credit card market as an example — Brex has about 5 fast followers all raising massive rounds for variations on the same idea.

Bar chart showing projected global venture dollar volume: 2010–2019, via Crunchbase

All those benefits of AWS and SaaS and They’re everyone’s benefit. The right team can execute extremely quickly in today’s world. Moving first is not a big advantage and while competition is almost never the thing that kills companies (most companies kill themselves) — it certainly makes life more difficult.

To top it all off it’s never been harder to recruit. It’s never been harder to get your message out there and it’s never been harder to distinguish between what’s real and what’s fake. You might be closing a lot of VC backed companies as customers who just aren’t price sensitive. You might be getting told you’re the second coming of Christ from investors. You might be looking at someones resume thinking they’re the real deal when in reality they got lucky on an overvalued rocketship. It is hard to know what to do sometimes and as an investor I have a hard time giving companies a steer on what’s the right move. Prove market need? Validate willingness to pay? Or just keep the fugazy up and ride the hype train.

To win in this environment you need to work harder than any generation of founders that’s come before you. And it is about winning. They struggled to raise the capital to realise their ideas but once they got over that hump the rock started to roll downhill. Founders today are stepping out into the most competitive company building environment we’ve seen in decades, if not ever. There’s going to be some big winners for sure. But there’s going to be a lot of bodies dropped along the way and right now no one thinks they’re going to be one of them. What a time to be alive.

Holding two seemingly contradictory viewpoints and arguing for them both simultaneously is a key VC skill best practised through the ancient art form of the ‘blog’.


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