Paul Graham: Hiring is Obsolete 638
jazznjava writes "Paul Graham has a new essay covering what the influences of declining operating costs will have on startup companies, and the undervaluation of undergraduates."
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Paul Graham: Hiring is Obsolete
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Old programmers never die, they just hit account block limit.
The problem with R&D (Score:3, Informative)
R&D is bad for the books because so much of the money is wasted on ideas that fail. Letting start-ups do the R&D, initial product roll-out and marketing lets you do R&D totally off the books because someone else foots the bill. Rather than fund 100 R&D projects and see one create a successful project, you can let 100 start-ups do it and buy the one start-up that has a good idea.
Cisco also had the advantage that buying startups cost that "nothing." Rather than buy the startup in cash, the used stock to purchase the company (it dilutes the stock a bit, but Cisco almost never bought large companies). You are right about the issue of R&D on the books, because internal R&D cost real dollars, acquired R&D (buying startups) only cost shares.
Re:Dear Paul (Score:5, Informative)
Ever heard of Viaweb? It's the startup founded by Robert Tappan Morris and Paul Graham. It was sold to Yahoo! for (according to Wikipedia [wikipedia.org]) $49,000,000. I don't know how much of that actually went Graham, but he got enough of it to form his own VC company (Y Combinator [ycombinator.com]).
He's got the experience to back up what he says.
Re:Outsourcing... (Score:2, Informative)
Your example only makes sense if you pay with a credit card. The gas station gets their money and you get the bill. But you pay the minimum. You keep going to the gas station and pay the minimum. You hit your limit, call the credit card, and get your limit raised. How far do you keep raising your limit until your credit card company won't raise your limit again? THAT is what we're looking at with our, what, $9,000,000,000,000 in budget debt and $650,000,000,000 YEARLY trade inbalace.
Yes, we should be investing that money in our economy. But right now we're paying out the ass for defense spending. After that, we're likely to be paying out the ass for social security or medicaid, two programs that don't give a great rate of return.
Deficit spending is bad. It should only be done in EXTREME emergencies. Going into a deficit in order to fund tax cuts for the rich is extremely bad policy.
Re:Who thinks recent grads are undervalued? (Score:3, Informative)
Nothing in TFA contradicts this statement, or any of the others you made.
The point he's making is that founding a startup, even if it fails, is probably more attractive to a potential employer than years of work experience at some other company. It's staggeringly unlikely that you'll get bought out, but the fact that you even tried implies that you do have a clue.
Re:Overgeneralization (Score:3, Informative)
Who cares if a company has the same idea as you? You just have to do it better. That's competition.
3) Why should bigger companies buy startups when they can just partner with them or outsource company services to them?
Because they can. Because they get control. Because it's potentially cheaper. Because they get quality people.
Yeah, starting a web based startup doesn't cost significantly more than just being a slacker. But if you haven't noticed, 99% of us can't afford to just set around and be a slacker either!
The point is that you don't need to raise millions of dollars. $10,000 is a trivial amount of money in the grand scheme of things -- it is not impossible to come by if you think your ideas and your people are worth it. If you don't think they're worth it, then why bother?
Apparently Mr. Graham thinks most students graduate with tens of thousands of dollars in the bank and can afford to not have any income for several years.
Actually, he did recently help start a venture firm [ycombinator.com] that funds undergraduate startups [ycombinator.com].
So, it seems that he thinks 1) they don't need to graduate first, 2) tens of thousands of dollars is plenty, and 3) three months is a good enough bootstrapping period.
Y Combinator (Score:3, Informative)
I was on their website and look what I found in their F.A.Q.
He certainly practice what he preaches.
Re:Not really (Score:2, Informative)
It costs no more than whatever the per unit cost is times the number of units you order. If a unit costs $110 than you need invest no more than $110 to start outsourcing. You have missed my point that outsourcing doesn't mean setting up a factory in a foreign country. The factories are already there pumping out product like crazy. They have invested the captial to set up manufacturing and you simply place an order for the product, which they offer for sale to the open market.
A small company has a "harder time of it" in that the big company can "realize the possible efficiencies" by placing a larger order and only paying $$100 per unit instead of my $110.
But it still only costs you, the small startup, $110 for your first product.
I guess anyone can buy a white box and slap their logo on it...is that a viable start-up or long-term business?
My Creative DVD decoder card isn't made by Creative. It isn't "made for them" in some foreign factory that they have contracted to make their design. It is a Hollywood decoder card that Creative simply buys and puts a Creative decal on.
Dell is a whitebox seller. Nothing more. Nothing less. They make absolutely nothing. They outsource everything. These days usually including the assembly. They purchase their computers ready made from China through outlets now available to anyone.
Are Dell and Creative viable long term businesses?
For small volumes the quickest and simplest way to outsource is to simply go to the store and buy some stuff off the shelf, although your per unit cost may go up that way (although in some instances it may well go down quite dramatically because of the economies of scale available to the retailer. It is cheaper for me, for instance, to buy rough flute bodies at retail from a brick and mortar than it is to order them directly from the manufacturer.)
I did not choose the odd $110 figure at random. That is my per unit cost for outsourcing violin making to a factory in China. I purchase violins "in the white" from them through their already existing American agent, and finish the manufacturing by hand here, then put my label on them.
I started doing this in, yes, my mom's basement. Rent free. You can do it on the kitchen table of your apartment. There is nothing in the world more commditized than the student violin. You differentiate your product through branding and marketing.
Marketing is always the highest cost of doing any business, even a software business looking to be acquired before "selling a product" because the business is the product and you need to market it to the potential acquirers.
Violin making is a somewhat expensive business to get into, even outsourcing the rough manufaturing to a factory in China. My capital outlay was a couple thousand.
Simple flute making my total captial expenditures came to less than $50 by the time I had made my first profit.
If I wish to expand my market my costs will skyrocket. Because of the marketing expenditures. Marketing costs swamp manufaturing costs.
But that's the thing about hardware. You can start selling it right away. It has certain up front costs, but generates money quickly, so the total upfront costs to get started are no more, and may be considerably less, than a software startup. The hareware business fires itself on its own shavings, like a steam planer.
If you want to know what it takes to get into the software business, sure, talk to Mr. Graham, but if you want to know what it takes to get into the hardware business go talk to Mr. Dell, who grossed $6 million in his first year, starting from making white boxes on a card table.
And it was harder and more expensive to do it back then because
Re:Outsourcing... (Score:3, Informative)
Of course, doing any of that will be a huge task, as we'd have to get out of the WTO or severely alter it, figure out a way to keep most of Asia from completely screwing us by not rolling their treasury bonds over, and kicking the neo-cons out of office. But it's not impossible.