Startups: Poverty is Underrated. Be Glad That You’re Not Rich

The Chinese have a saying "fighting with your backs to the river" that originated from the Battle of Jingxing around 205 B.C.: http://en.wikipedia.org/wiki/Battle_of_Jingxing In that battle the general Han Xin organized his troops against a river, with no prospect of retreat. Apparently it focused their fighting abilities immensely.

From the wikipedia article: At the feast after the battle, Han Xin's officers, still somewhat incredulous at their own good fortune, inquired into the rationale for the astounding deployments. Han Xin explained that as he was commanding a ragtag army and he was not a general of high renown, he had to resort to such drastic measures to force everyone to fight hard. This led to the saying "You achieve survival by fighting from a position of certain death (置之死地而後生)"

One should also know that, even though most VCs say they "invest in the team", what you're doing is selling a very specific path to profitability, a path that will be much harder to change once you have investors on board.

So you lose time, effort and flexibility.

Of course you gain a lot too, but it's easy to be blinded by all the money. It is not free.

It sounds like his argument for "poverty" is that investors micromanage and sink companies. The obvious solution is hands-off VC and more trust of entrepreneurs. In other words, we need to move away from a culture in which VCs are high priests and entrepreneurs (unless they've "completed an exit") are seen as unwashed beggars.

Also, investors can be a pain in the ass if you're funded; most people know at least one entrepreneur who was sunk or scumbagged by a bad investor. They can also be a pain in the ass if you're not; getting them is a miserable endeavor I wouldn't wish on anyone, and although someone who hasn't invested in you can't fire you, obviously, he can black-ball you (investors talk to each other).

And a founder is far more likely to drive a company toward profitability if he’s is about to lose his life’s savings.

Meh. I don't disagree at a 180-degree tack-- maybe 160. I think "the stick" is a pretty bad motivator overall, and when people get panicked, they make bad decisions. Everyone's different, but in the aggregate, people perform better if the potential personal loss is reduced; that's much of why limited liability exists. This is true in small as well as large companies. We all know that small companies tend to be more innovative, but that's in spite of the small company's insecurity, not because of it.

Capital starvation leads to innovation. Slim bank accounts are the best way to motivate sales people. So don’t worry if you think you don’t have enough capital. Instead, be grateful for your sense of urgency.

Disagree. Bad financial situations and anxiety lead people to take greater risks and make decisions that it's harder to make in a "cozy" corporate job, not because comfort leads to mediocrity but because the corporate strings often hamstring or extinguish greatness.

Sometimes those risky decisions turn out to produce results that are really good for the person making them, and for society. Sometimes the results are terrible. On the whole and for most people, "the stick" is not a very good and definitely not a very productive thing. Exceptions exist-- final fantasies that produce something great (actually, Final Fantasy was so-named because it was produced by, and actually saved, a dying game company)-- but those are rare.

Don't get me wrong: startups are great, but I think the poverty and urgency are necessary evils of the game, not benefits. We need startups in this economy, because what was once accomplished by blue-sky R&D (which doesn't exist anymore) is now increasingly done by startups, which are acquired if successful.

Also, don't get me started on urgency. Bosses in large companies play the "urgent" card with artificial deadlines all the time, so a lot of people work under a state of urgency. Does the OP have an idea how many millions, if not billions, of lines of absolutely terrible code have been written in the name of urgency?