Confessions of a Middle-Class Founder⁠↗

Every founder tells themselves a story about why they’re heading to the gold rush, but the executive coach I would eventually hire says there are really only two. Do you want to be rich, generating wealth in service of some further end? Or do you want to be king, with money a mere byproduct of trying to make the world the way you feel it should be?

You could call me a middle-class founder: proprietor of a business you may or may not have heard of, tenuously wealthy on paper, by no means a failure but not yet a success, chugging along in the twilight of an era that minted more giants and more waste than any other in history with no exit in sight.

Seek money, find nothing — but seek the voice of the customer, and find the riches you never wanted but are darn glad to have.

Before I met my co-founder, I spent a year trying to identify business opportunities that were both personally compelling and commercially viable. When I pitched my VC friends these ideas — for example, a niche media company — they were kind but unimpressed.

Venture capitalists, I’d soon learn, don’t get out of bed unless a start-up has the potential to generate roughly a hundred million dollars of revenue per year. This implies the company is worth some multiple of that number, which in turn enables the average investor to “return the fund,” or generate a sum of returns equivalent to the whole pot of money they have to invest, if the company is bought or goes public. I had been introduced to the tyranny of the power law: the need for winners to win big because most start-ups fail.

The venture world has a condescending label for bootstrapped companies without scale potential: a “lifestyle” business, which roughly translates to: Good for you, now back to the sandbox until you’re ready to play with the big boys.

So I narrowed my focus to the beam of a management consultant, scanning for hallmarks of a “venture-scale” business: addressable market, gross margins, incumbent NPS, lifetime value. You can Google these terms if you’d like, but taken in aggregate, all they mean is dollar signs.

Most businesses are interesting if you look at them closely enough, but the perception of boringness — workflow automation, human-resource information systems — is good because competition is death; the cooler you sound at parties, the harder it is to succeed.

We received plenty of rejections. These surprised us, though a state of the world enabling two people who barely know each other to obtain hundreds of thousands of dollars with nothing but a few dozen prettily formatted words should have been far more astonishing. Some part of me was relieved by the rejections, which might have built slowly toward permission to throw in the towel, until we got our first yes — on the basis of a single phone call with an investor about the same age as me.

As I typed our company name into the web form, I recalled that when my father started a small company decades ago, he had to write a physical letter to a legal agent in Delaware. I wondered briefly if there should be more friction in making a decision to start a company. To some extent, reducing friction is what the whole start-up game is about: Calling a cab when you want it, summoning food when you want it, an infinite radio that plays whatever you want on command. I clicked the button, submitted the form, and incorporated.

I learned most customers are indifferent as long as the job gets done, about 20 percent are discerning but reasonable, and 3 percent will drive you nuts (no amount of support will satisfy them because the product they really need is therapy).

Buried in my master plan was an assumption that I could stay above the emotional fray of building a company. In hindsight, this was dumb. Start-ups are like sharks: They need movement to survive. But movement implies change, change implies volatility, and volatility implies fluctuations between good and bad. To succeed, you need to average more good days than bad, but bad days are impossible to avoid. And more than any other trait, good founders are defined by an obsession with doing things right; it was inevitable that my self-worth would become entangled with the performance of the business.

you might be having fun sober at the party, but it’s hard not to watch your friends on drugs and wonder what it’s like. The irony that selling fiction to investors was making these founders richer than selling a bona fide product to paying customers wasn’t lost on me. But it wasn’t just the money: After years of work, I had the temerity to be proud of the culture and product we had built. I had started to believe we could actually make a difference. In the market of 2021, our mission felt quaint; we may as well have been a lifestyle business.

The culprit is technically rising interest rates, but you could argue it began when founders and investors started to see the downside of swinging for the power law. The first venture funds formed as a way for savvy investors to help innovators create fundamental technologies like transistors, which required huge outlays of time and treasure before they could produce value. But in the past few years, causality inverted: Start-ups and entire markets were manufactured from whole cloth to meet the demand of overcapitalized venture funds searching for a home run.