My thoughts on Paul Graham's "The Pooled-Risk Company Management Company"
I read Paul Graham’s latest article on, “The Pooled-Risk Company Management Company” a couple days ago. I always appreciated Mr. Graham’s insights and opinions. He’s been successful not only as a technologist and entrepreneur, but he’s pretty much master-minded a new way to help entrepreneurs with great ideas and build great products with his creation of Y Combinator. But, I don’t think this was one of his better essays. Josh mentioned he disagreed with a lot of what Mr. Graham had to say in that article. Since Josh and I started a company together and have gone through some of the things Mr. Graham wrote about in his article, I feel we’re at the very least, the audience he is addressing.
His article centers around rebutting David Heinemeier Hansson’s suggestion that startup founders should start companies that make money and live off revenues rather than hoping to get rich by selling stock in a liquidity event.
Here’s an example:
The best case, for most people, would be if you could hire someone to manage the company for you once you’d grown it to a certain size.
Then you would have both freedom and security. You could pay as little attention to the business as you wanted, knowing that your manager would keep things running smoothly.
There will of course be some founders who wouldn’t like that idea: the ones who like running their company so much that there’s nothing else they’d rather do. But this group must be small.
While the main objective he assumes are founders that start businesses look for both freedom and security, the article seems to bend toward getting rich and jumping onto the next venture. Mr. Graham asserts that after the founders have grown their business, to scale it means to be “frantically attentive to customers’ needs” and he assumes they just don’t want to deal with that external force. He believes founders’ desire for their business would be different than what the customers’ want. I definitely do not think this is the majority he suggests.
I’ve attended a few conferences where founders would talk about the companies they started. Even some of those that made fantastic exits through a buyout had some regret of selling due to lack of continued innovation of their product after the acquisition. One value Mr. Graham seem to underestimate is the level of deep attachment founders feel for their pet project. The sense of responsibility and delivering a product or service their audience deeply value and praise.
They understand they must listen to their users, but more often than not, they encourage for user feedback in order to continue to build a solid product. They don’t see users as an obstacle; quite the contrary, they see users and their feedback as valuable resources that help speed up their iteration process of their product.
Even in the traditional businesses, founders wanting to running their own companies is even more apparent. As Josh pointed out, the small business lobby of America is strong because there are a lot of people who really do want to keep running their companies.
Not every company has the aspirations of hitting a home run — building it great, perhaps giving it away for free (in most cases with the web industry), and making it attractive enough to convince a big company to buy you out at a premium that benefit founders and investors. And, not every company as the ability to scale to millions.
Paul Graham has proven otherwise, showing this can be done with all the fantastic companies and exits Y Combinator has produced in such a short amount of time. Perhaps this model works for the niche startups he works with. However, what he believes, is the minority. Businesses, innovation, and motivation don’t end just because founders can’t sell their company and I’m sure there are tons of small business owners that can attest to that.
