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My sixth year as a bootstrapped founder

(mtlynch.io)
1071 points mtlynch | 13 comments | 16 Feb 24 15:07 UTC | HN request time: 0s | source | bottom
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tgtweak ◴[16 Feb 24 16:51 UTC] No.39399561[source]▶
I think people (and the founder) are focusing on yearly profits as their remuneration and comparing it to a salary... but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits. In reality your net worth went up by over $1.5 million in the last year, in addition to earning 236k - that is the actual value you created for yourself in the last year and not the 236k you cashflowed.

I find it redeeming that despite having a gift for development - software and hardware - the biggest factors affecting profitability and growth here are things that most MBAs would do in a business quite regularly (outsourcing design/packaging/fulfillment, streamlining costs, doing price elasticity experiments, polling customers and markets for product improvement).

I enjoyed seeing the inverted perspective that product/engineering is straightforward and low risk but things like optimizing fulfillment and operating costs is a new exciting endeavor.

One tip I suggest doing is leveraging google ads to figure out features that customers are willing to pay for before you build them... if they're clicking the ad they are searching for it and interested in buying it. Start a few very low cap campaigns calling out features you are thinking of building into the product, and see which one get's the most impressions and clicks per marketing dollar and focus on that. The added advantage is you know it will be easier to buy advertising for it once the feature is done.

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1. Aerbil313 ◴[16 Feb 24 17:06 UTC] No.39399792[source]▶
> …but the reality is you're creating a company that should be valued (and eventually sell) for 7-15X Earnings - and you really should be looking at that increase in value vs your increase in profits.

Muslim here. I think this is completely immoral and I don’t want to ever participate in stock market if/when I found a company. I want my business to be valued with the actual value it provides to people (the amount they are willing to pay me for my products), not the hypothetical future money it may potentially provide to rich people who gamble with their money and the economy.

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2. OJFord ◴[16 Feb 24 17:19 UTC] No.39399980[source]▶
What's the difference when the 'product' is the company itself? When a buyer comes along offering 7-15x the company's earnings for it, why is that not 'the actual value it provides' them?
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3. Aerbil313 ◴[16 Feb 24 17:26 UTC] No.39400092[source]▶
Company acquisition is possible without the existence of a stock market. What I’m objecting to is the latter.
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4. kuresov ◴[16 Feb 24 17:33 UTC] No.39400195{3}[source]▶
IPO/stock market was not mentioned anywhere in the post. It’s much more typical to be acquired than to go public.
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5. Aerbil313 ◴[16 Feb 24 17:41 UTC] No.39400320{4}[source]▶
Sorry, you’re right. Confused the two for a second.
6. tgtweak ◴[16 Feb 24 17:47 UTC] No.39400411[source]▶
The reality, and this is how a private party, PE firm, traditional bank or public market will determine this:

The company is generating profits currently at this rate Y, and is growing at this rate X, that means that over 3 years it should return those profits + the growth of that profit back to the buyer (in cash as dividends and/or in enterprise value), and that is factored into a rate of return - if that rate is greater than the rates elsewhere, compared to the risk, then it makes sense to buy it at that value.

Consider comparing the business to a traditional investment. How much money would you need to have invested in medium-risk markets to return $236k/yr? To beat the market average you'd need about $2M invested to generate those returns. Now factor in that the company itself is growing, and the company will likely generate >$236k next year, and more the following year... so how much do you need to invest today in traditional markets to generate 236k+360k+500k (1.09M) over the next 3 years? It's around $3M now. Consider that in 3 years time you could have taken $1.09M out in profit, and you now own a business that is worth $4-4.5M (based on future earnings potential).

You don't need to be an evil wallstreet hedge fund manager to think like this - the owner of a business should consider the enterprise value of their business at all times in making decisions about their business.

This is how the entire economy works - if you're saying that is against your moral Muslim faith then you should not be buying any goods right now from public companies, hold any mortgages, or keep any money in a bank.

7. avarun ◴[16 Feb 24 19:11 UTC] No.39401601{3}[source]▶
You're the only one that mentioned the stock market at all, so I would question if you know the difference you're alluding to here.
8. robocat ◴[16 Feb 24 19:41 UTC] No.39401960[source]▶
> immoral and I don’t want to ever participate in stock market

I feel that is a common opinion amongst people that haven't started a business. It is too easy to judge others.

If you are selling a product/service you can't avoid becoming part of the capitalist system and you are supporting "immoral" companies through your suppliers (e.g. paying Google for advertising, paying Amazon for fulfilment).

It is difficult to start a business and keep true to your ideals. And people that do walk the line between creating a business and keeping their morals is uncommon enough that they tend to be remembered for it e.g. Bob's Red Mill: https://news.ycombinator.com/item?id=39366542

It is much easier to be tritely moralistic if you don't start a business. I often really admire people with idealistic values - and morality is critical in business. I don't admire people if they go to negative extremes: https://en.m.wikipedia.org/wiki/Splitting_(psychology)

Almost by definition starting a business means taking on risks. Mixing risks and money is "gambling" and it is an inherent property of businesses. Deciding what is good gambling and what is bad gambling is a very old problem. Buying insurance is reducing risk (less gambling) but insurance is gambling by definition. Unfortunately you have chosen the moralistic word "gambling" to talk about the normal issue of managing risk.

Perhaps you just don't like the rich? One can have shares and own a business without being/becoming rich - you don't need to directly involve wealthy people.

One can bootstrap a company without taking rich-peoples investments - see article. Unfortunately we get hoodwinked by the success stories from the VC investment sector. We hear less about the losers in the VC game or other ways to play the game of business.

Edit: a business is just a complicated machine. If you believe selling a product is moral, then you must believe that selling a business is also moral.

9. Yabood ◴[16 Feb 24 19:52 UTC] No.39402095[source]▶
As a Muslim, I disagree. A business is more than the sum of its revenues. Marketing, research and development, relationship with clients, etc. are all part of the business valuation. If a buyer looks at some business and decides its worth 10x, then that's not haram as long as you're not deceiving them.
10. mardifoufs ◴[17 Feb 24 03:27 UTC] No.39406055[source]▶
Uh? Islam says nothing about the stock market. Participating in businesses and having shares is completely halal, and encouraged actually. That's the good way of generating long term revenue, as opposed to lending or profiting from interests. The very first Muslims and the prophet himself PBUH were merchants and traders, and business owners.
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11. OJFord ◴[17 Feb 24 09:53 UTC] No.39408008{3}[source]▶
As others pointed out, nobody else mentioned sale by public offering.

But let's go with it anyway, why is that different? It's just a way to have multiple owners, more easily very many of them than you could manage in a private sale. So why is the stock price not the actual value people see that slice of the company as providing them?

12. kasey_junk ◴[17 Feb 24 15:20 UTC] No.39410220[source]▶
I’ve met people that believe that any extension of credit that has a premium attached to it is against the rules. And that the very real fact that any transaction on a modern exchange involves the extension of credit with a premium, leads to a situation where the exchanges themselves are forbidden.

I don’t have any opinion on if this interpretation squares with their religion but it is certainly true that stock exchanges are run on extending credit and paying a premium for it.

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13. mardifoufs ◴[17 Feb 24 19:11 UTC] No.39412414{3}[source]▶
Mhmm I can see that argument being quite valid for trading stocks in general. As in, a actively trading since it inherently involves margin and leverage at one point or another, but just owning a share of a publicly owned corporation is a bit different imo.

As you said it depends on interpretation, and I think it depends but it's not as clear cut as the comment I was replying to could make it seem for others.