The whole point of startups is that you take on massive investment to scale extremely quickly and outrun all potential imitators. It's not the only viable growth model, but that's the whole conceit of startups and what differentiates them for small businesses
It's a bit silly to try to redefine the term b/c you want to self identify as a startup. Just come to terms with that fact you're running a small business
A startup can be profitable.
Then it has a notion of "growing large beyond the solo founder". But I argue that most of the time, this is just the story they tell to justify their losing money. As in: "we are not profitable YET, because we need to grow larger to reach the scale we need, hence you should give us more money".
> A startup can be profitable.
Is Logitech a startup? They (or at least not so long ago) call themselves a startup. I disagree: it's an established company.
If a company of 20 employees has been profitable for 10 years and doesn't grow, would you call it a startup? If it is profitable and keeps growing while staying profitable, wouldn't you say it's "expanding"?
Now if that company of 20 employees suddently gets a big funding to try to become a company of 2000 and goes into a state where it may well bankrupt in the next 2 years if it fails, then I would again consider it a startup: it's "trying a completely new business model" (one that works for 2000 employees instead of 20, probably with the goal of making the leadership rich).
Another thing is that startups usually tend to be those Ponzi schemes where employees are badly treated but get not-so-worthy stock options (that may compensate someday for the bad conditions, but often don't) while the founders get a shot at getting rich. If your company is profitable and stable, it's much harder to do: how would you justify the bad conditions if you could actually afford better ones?
But of course, saying that you are a startup is "cool", which is exactly why Logitech was saying it though they were one of the big tech companies in the world.
unless they have some creative definition of profitable
Being profitable is one of the best times to raise. You don't need the money, but it'll accelerate the next phase of growth.
Retaining profitability after raising is probably harder as you're expected to spend that money to grow.
I'm sure it can be done if you've raised with the right people and you keep focus on ARR per FTE.
But the post we are discussing is literally about hiring slowly and only if really needed and only hiring the "next great engineer".
I understand that the post words are written deliberately in a way open to more interpretations, and the "only if needed" can apply to "we need to take on more Atlassian customers so we need this and that".
I think a lot of the value is taking the ordinary engineers (by hacker news) and letting them actually do something. Staying small helps this, because you are not thinking of the business ops burden of not building microservices. You’re building your single dockerized app.
It sounds counter-intuitive, but mediocracy usually works better in the long run.
You want one or two stars, chemistry among the whole team, and good fundamentals.
Good sports examples: the LA Dodgers, 90s Chicago Bulls (a few stars, a few normal players, good fundamentals, and great chemistry)
Bad sports examples: the 2023 Mets with Verlander and Scherzer (both overpaid divas with bad attitudes that hated each other), the current Yankees (a few stars, no fundamentals or discipline)
If anything, the Blue Jays are the example, not the Dodgers.
The previous Dodgers were stacked, but I meant that they had good chemistry and fundamentals. They beat the Yankees because the Yankees just made too many mistakes.
The Mets hired highly paid stars but couldn’t find chemistry, as nobody could get along. They did have some good eras with DeGrom, Syndegaard, etc, but if I remember, many of those stars started out small and grew into their stardom with the team.
For startups it's best to start with at least one or two good technical co-founders, as the risk of losing them is lower when compared to an employee.
To Meta, it might mean cream of the crop, $1m+ engineer. To early Google, it might mean Stanford grad with deep CS knowledge. To a no-name startup, it might mean someone who accepts the job who takes initiative and knows how to crank out ugly code quickly on AWS and makes good prioritization decisions.
That said, knowing how you get to profitability or what you need to change in your model to get to it are fundamental things to know. But just because Linear did it the way they’ve outlined here, doesn’t mean that is what will work for your model.
When interest rates are low the cost of borrowing is low. Now investors can get returns by parking their money so the value proposition has to be stronger for them to invest in the first place, hence companies are now needing to show profitability earlier.
Not to say it wasn’t possible to be profitable during zero interest rates, Linear being an example, but the competitive landscape is certainly healthier today for companies trying to be profitable.
There are a number of other reasons that (might have) contributed to greater or lesser extent:
* rush to capture users and get acquired (the buyer can worry about profitability)
* race to the bottom by multiple competitors (you might want to be profitable but can't command a high price because others' are artificially low)
* ignoring costs that were rising faster than anticipated (wages, cloud costs, etc)
... and probably many more.
Not saying you're completely wrong, but ZIRP is just part of the picture.
* Uber IPOed in 2019, had a loss of $8.5b that year; interest rates were around 2%
* YouTube was acquired by Google for $1.65B in 2006, it lost ~$350m in the year before and the entire music industry was suing it; interest rates were around 4%
* Facebook bought Instagram for $1b in 2012, which at that point had no revenue and no plan how to achieve it; this was smack in the middle of the previous ZIRP cycle, however I don't think anyone would say that Instagram wasn't a huge success either for the founders or for Facebook
I would agree ZIRP fuels those things (to unhealthy levels), but not that it's always the root cause.
It you were to set a house on fire with just a lighter in your hands, you would not succeed. If you have a lighter and a tank of gasoline, you might probably succeed. ZIRP was the fuel, the lightener and your will are the "root causes". But with no fuel, no fire.
I used "fuel" in the meaning "to make people's ideas or feelings stronger, or to make a situation worse", not "a substance that is burned to provide heat or power", see https://dictionary.cambridge.org/dictionary/learner-english/...
I did provide two quick examples of these effects happening in the absence of ZIRP, so it is clearly not always required.
As, sadly, is not a tank of gasoline or ill intent to set a house on fire - these things can happen by accident, often a single spark is enough.
There's plenty of literal fuel beside gasoline, and there's plenty of "startup growth at all costs" fuel beside ZIRP.
But the "Z" in "ZIRP" is literally zero% interest so your reply doesn't seem to address the gp's counter-examples of >0%. Other examples of non-zero% interest rate time periods include 1990s high-interest rates of +5% with Amazon in 1994 losing money for 7 years, PayPal 1998 losing money for 3+ years, Google 1998 losing money for 3+ years.
Those counter-examples means the simplistic narrative of "ZIRP is The Reason" does not explain everything. Those non-profitable companies were immediately scaling out to win the market and didn't wait for year 2008 ZIRP to do it.
Today, OpenAI (and other AI startups) are losing billions and expect to lose more billions in the upcoming years even though the current interest rate is ~4%.
AI stuff is little different. If OpenAI and others hit AGI or anything remotely near it, the money is in theory massively endless. So investing when you could get 4% in a company that would return 10000% makes sense.
However, 4% in a company growing 15% in their field with profit margin of 10% means if only 1 in 5 survive, you have lost money so investors pull back.
For most of the 2010’s ZIRP created a startup gold rush with everyone trying to leverage the same “burn money, get users” strategy you’ve outlined.
Excepting the current AI bubble, you cannot play that strategy today. Investors started demanding real results in the post COVID inflation years and continue to do so today, or else don’t invest at all in high-risk ventures with no tangible results.
Just if anybody was wondering. Would have liked to see it spelled put at first mention, so I do that for y'all.
I went off and did a bit of consulting, freelancing, etc. And five years ago, I helped out a friend who was working on a bootstrapped company that I liked. And we kind of had complementary skills (not repeating my first mistake). It was the beginning of the lockdowns. I had nothing better to do having just come out of a lucrative project that got cancelled because of the lockdowns (and probably because it was doomed anyway). I had built up a bit of reserves over the past two years. My friend had just come out of an intense year of juggling projects for a big consultancy firm. And he had his own startup past. In short, we hit the sweet spot of being old, wise, and experienced enough to maybe pull this off and we weren't looking for pizza money.
An important lesson I learned in my pre-startup corporate career is that making teams smaller makes them go faster. I once had a gridlocked team that wasn't getting anything done. We split the team and immediately things moved faster. Less meetings and debating. And infighting. And stress. More coding. I applied that in startup #2 and while we ultimately failed, I re-affirmed that losing team members can actually accelerate development. The team was down to just 2 people (me and the CEO) by the time we had to pull the plug. But not for a lack of trying. We were crazily productive. We both did the work of 2-3 people and stepped way out of our comfort zones for the last two years of the company.
The lesson I took from the second startup is that investor money makes you lazy and that you don't need it if you can step up and do stuff yourself instead of being lazy and hiring too many people. Money removes urgency and tricks you into not focusing and postponing key work that needs doing, over-staffing, and losing focus. Having stared at having to abandon my third startup because we have been running on fumes continuously for the last five years has kept us laser focused on fixing our huge looming financial problem. For us that meant confronting the elephant in the room: getting customers to understand what it is we are selling. This took us years.
The tech didn't change much (though it got better of course). It flipped around a year ago after lots of failed experiments with getting others to sell our tech. Founder sales is the way to go. It requires founders that can build and that can sell. You need both skills in the team and preferably in all founders.
We've flirted with investors of course. But for about two years they struggled to understand what we are trying to do and in the last few years we proved that we were onto something by generating revenue without them. In an alternate universe we might have gotten invested in but at this point we don't need them and they don't want us for that reason.
Things are genuinely looking like we might hit the hockey stick curve soonish now. We have some very serious leads for multi-million euro deals. We're completely bootstrapped. We did everything with a small and lean team. We're down to three people and it's great. We might start expanding soon. But we're going to be super picky about who gets to join next. We don't want to derail our company with the wrong hire.
It could all still fail. That's the nature of any startup. But we've vastly improved our odds through hard work. I'm more confident than ever it will work out. And yet the reality remains that many startups don't make it. What can I say; I'm an optimist. Pessimists don't build successful companies.
Ps: and I’m very pessimistic; the scary thing is it’s all random as shit
You create options for success through hard work. You need luck and inspiration to stumble upon the right options, and you need experience and wisdom to recognize it when you do. And you can do everything right and never get there. But without putting in the hours you likely don't create the options nor gain the wisdom to judge them correctly when you do. Don Reinertsen coined a notion of option value in his books and presentations on Lean 2.0. It's something that resonates with me. Lots of startups practice Lean 1.0 which is more like throwing out the baby with the bathwater.
> And not to piss in your cereal but having leads for $bigcorp means nothing until a deal is inked.
Very aware of that, obviously.
Marc Andreessen has made statements that align with the idea that abundant capital can lead to poor decision-making or a lack of discipline among founders. The core of his perspective emphasizes the importance of resourcefulness, persistence, and an intense focus on building the business over optimizing for fundraising.
"Too much capital breeds sloppy execution": While this specific quote might be from another source, it reflects a sentiment consistent with Andreessen's philosophy, which values the discipline forced by resource constraints (bootstrapping) in the early stages of a startup.
Wasn't there a whole movement of Lean startups? What happened to that?
My startup, my cofounder was obsessed with profitability - I was far more focussed on growth. In theory, not a bad balance - but in practice, his drive towards profitability meant that we ended up underinvesting in the business - millions of pounds sat in our coffers that could have gone to hiring, could have gone to maintaining and building upon our core mission rather than focussing on a profitable sideshow - and in the end, while the business still exists, it is now Just Another Agency, rather than the tech startup it once was.
Anyway. These days I run my own affairs, and place emphasis on long term growth and keep short term profits to the absolute minimum needed to live well enough.
It’s good to make a profit - but business should be viewed as any investment should be - let it compound.
Maybe that's not the kind of company you'd like to build, but if it's the only option given your financial circumstances, ramen it will be.
So that's one way to come up with the capital you need. Start something, grow it, sell it for $$, and invest that $$ in a new company that you hope will be worth $$$$. Rinse and repeat. You don't have to make it big on your first try!
I'm gonna dispute this. We're currently profitable, and to do so our growth is just "good" (80-100% yoy). We're also raising a smaller amount because we want to return to profitable as soon as possible, and repeat the cycle. Being profitable hasn't been a big selling point in our discussions.
Either our growth is not high enough, or our round is not big enough, as they are so used to seeing ridiculously inflated projections from the last decade.
Furthermore being profitable also removes a lot of leverage from investors. That might make them shy away from a discussion because they know they can't twist out arm as easily.
I agree tho, I wouldn't want to build our company any other way than being profitable. Just saying that being profitable is not something investors seem to like as much as we thought.
I think it's important to note that if you're building your business and you are profitable, then you're lucky: you're doing something that you find cool, and it's bringing money.
> What holds you back is rarely team size – it's the clarity of your focus, skill and ability to execute.
This, to me, confirms what I said: nowhere they mention anything like "luck". "Being in the right place at the right time", etc.
The reason startups grow without being profitable is because they "fake it until they make it". They pretend that it's all normal and it will work in order to convince VCs who have no way to know if it's true or not, and don't care (it's just another bet).
Of course a founder won't say "we're not profitable because our company is failing". They will truly believe that they're not profitable because they are on the way to get profitable, through growth. But the numbers are here: most startups fail.
It's always tempting to believe that you succeeded because you are strictly better than the others. And that's the whole point of founding a startup: if it succeeds, the founders want to be rich. The first employees will be "compensated" for their lower salary and extra hours, they won't get rich. The founders have to believe that it's all their doing and that they deserve to get rich and not the other employees, that's an obvious cognitive bias. Otherwise how would they feel about themselves? I don't think it could work.
You can't discuss luck but you can discuss everything else, like frequency. More attempts, more opportunities to get lucky. This is kinda obvious, no?
Um..? Not sure what your definition of "rich" is. My neighbor joined a U.S. tech company as employee 1000-ish when that company was at a few hundred $100M revenue, 8 years later they are at a few $1B revenue and his comp has brought him into 8-figures (USD). If he wanted to then he'd never again need to work in his life. I call that "rich".
If your neighbour got into 8-figures, it means that it's one of the very big tech companies, and the founders are super, super rich. But that's a very, very small minority of the cases.
The lotery makes a few people rich, but I don't think it would be fair to say that "the lotery makes people rich" in general. In general, the lotery makes people a little poorer.
Even better, profitability is all about a harmonious developer-customer relationship. This was alluded to later in the essay, but I believe it is worth emphasizing. The entire point of business is to serve customers. That relationship is everything, and profitability indicates the presence of net-positive impact.
timenotwasted•3mo ago
"And when we launched after a year in private beta, almost all of our 100 beta users converted to paid customers." — That's a neat stat and one I'd be extremely proud of.
BobbyJo•3mo ago
nine_k•3mo ago
It seems that the internet allows for a third option: a small company that grows slowly and organically which eventually captures a significant market segment, still staying small. GitHub was like that for many years since founding. Linear apparently is another example.
8n4vidtmkvmk•3mo ago
all2•3mo ago
rebuilder•3mo ago
eviluncle•3mo ago
kchoudhu•3mo ago
jacquesm•3mo ago
disgruntledphd2•3mo ago
layer8•3mo ago
designerbenny•3mo ago
But like palata said above, it is a startup if hasn’t found product-market fit.
palata•3mo ago
As soon as it is profitable, it is a normal company. Small or big.
An established company has established products and keep building/improving them. A startup does not have that: they just have ideas and try them until one works, or they run out of money. VCs consider it's worth fueling that "trial-and-error" with investments because they believe it is a competent team in a promising field. Nothing more, nothing less, it's just a lottery after that point. Just one where VCs and founders like to believe they are enlightened.
Because the first idea you try is successful does not mean you know more than the (numerous) others, but rather that you were lucky at the first try.
ido•3mo ago
whiplash451•3mo ago
They had 50 users after two years.
rsanek•3mo ago