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Comment by axiom | Hacker News Reader

As much as it's fun to think about how much you personally stand to gain in an exit, it's all just pie in the sky silliness. Your number one goal should be to maximize your odds of success without constraining yourself to any arbitrary parameter like "no more than 2 cofounders."

Building a profitable company is such a difficult and volatile process that if you try and focus on anything other than just success (e.g. your personal take) you're going to end up shooting yourself in the foot and end up with nothing.

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On the contrary, there are many concrete decision points where this logic should come into play--dispelling your logic was exactly the point of the post. In particular:

--whether to go it alone for a while at the beginning and see if you can make something happen

--whether to bring on more than one co-founder; this may seem like a no-brainier, but I've seen plenty of startups with 3, 4 and even 5 initial founders.

--how much to raise in the first round of financing, which directly correlates to dilution

--what to do with the first round of financing, which directly correlates into whether you will need a second round and how much

--how much control to give up in terms of whether small exits are still on or off the table

I wasn't saying you should constrain yourself at all costs. I was saying you should really look hard at the potential personal financial outcomes that flow from these decisions.

Just so it's clear what I'm trying to say: when you're trying to decide whether to do x or to do y, you should always chose the one that maximizes the odds your company will succeed (whether that means exiting or becoming profitable...) So for example if you're thinking of bringing on another cofounder, quite frankly worrying about dilution is absurd - about 10x more important is whether this person is the right fit, and whether they will increase the chance that your company ends up on the right side of the 1/10 success ratio for startups.

Let me put it another way: startup success is largely a black swan event, so what you should be worrying about over and above everything else is your exposure to that highly improbably event, rather than the particular kind of black swan event you're hoping to get.

startup success is largely a black swan event

I don't think that is true at all, which is probably the core of our differences. Black swan implies a very low probability like 1% or less. On the contrary, I think that when approached well, the probability for startup success is much higher, like 10-40% depending on what you mean by success. I wrote up some of these thoughts at http://ye.gg/failure & http://ye.gg/success

More practically, consider the co-founder example. Worrying about dilution is not absurd because you have so many choices that may have equal outcomes for the success of your startup. For example, you can do a 50/50 split or you could hire a consultant for a specific aspect you need help with or you could do an 80/20 split like I mentioned in the post. All of those scenarios can be with the same person you have in mind, i.e. with all other things held constant. That's the point. People, especially first time entrepreneurs, reflexively pick up co-founders or reflexively go seek financing before they consider their other options.

Scenario 1: You work for six months and then take on Bob and give him 20%.

Scenario 2: You and Bob start working together from day one and it's a 50/50 split.

The same person in an even slightly different situation can behave wildly differently.

It's quite possible that Bob will feel awkward and detached. Never really able to commit, and always feeling that deep down it's really your company. The last thing you want is a co-founder with a morale problem, especially one lurking beneath the surface.

This is the kind of problem that happens when you're trying to have your cake and eat it too.

You are absolutely right. It won't work in every situation, and I've offered advice many times for 50/50 splits. I don't think it's one size fits all. All I'm trying to say is that one should really consider all the options. If there is a real possibility you can get some traction on your own in that first 6 months, I think in many cases you should go for it.

Just to share some industry perspective here, I heard that fewer than 15% of venture backed startups are still operating after 3 years (source: http://twitter.com/dharmesh/status/14067731416 <-- HBR hearsay). Presumably a significant majority of the survivors will never see a founder-meaningful exit and are in the "walking dead" category (as VCs call it).

Even if 1 in 3 see a meaningful exit, that puts us at a 5% win rate (I'm guessing it's more like 1 in 5).

I don't know if you'd disagree, but I'd say that venture-backed startups have a better shot at meaningful liquidity than their bootstrapped kin (given how many people have a vested interest in it and given that VC is a quality filter to SOME degree).

Anyhoo, all that tells me that 1% is a heckuva lot more correct than 10-40% (running the numbers).

I'm with the parent of your comment-- whenever you have the chance to nudge that 1% northward, you should take it.

The difference here is my when approached well language. When good angel investors report their #s, e.g. Brad Feld, Fred Wilson, etc. they say roughly 1/3 return nothing, 1/3 return something and 1/3 are successful to some degree. That's the 10-40% I'm talking about.

If you take the universe of all entrepreneurs, then yeah, it's super small, and looks like a black swan event from the outside. But that's sort of the point of the black swan theory--in the right context the black swan isn't nearly as rare. The context I'm talking about is entrepreneurs who are approaching it well. I know that is nebulous and I'm not defining it well, but roughly the type of people those really early stage angel investors would invest in.

I think he brings up important points that are useful to keep in mind. You don't want to put the cart in front of the horse, but you can't ignore this type of stuff either.

Well put. Would be entertaining to see the same basic maths with an adjustment for probability of success. E.g. "if you feel the extra confounder increases your odds of success 40% ..."

At the end of the day though, I don't think this kind of percentage calculation is useful (entertaining, sure). The human mind doesn't work that way. Similarly I think it's a mistake to bring on a cofounder purely for the fundraising benefits.

The decision to bring on a cofounder should be based on whether they bring critical skills, connections, and if you really want to work with them. IMHO, going with your gut is going to be a much safer bet than putting a number on it and using that to influence your decision.

Agreed, not useful, but entertaining. (Similarly, how about a webapp for simulation of various founder /funding scenarios?)

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