I wrote this to challenge the common dichotomy that startups are either VC-backed money-burning machines or anti-VC/profitably bootstrapped. It doesn’t have to be that binary. There’s a spectrum, a middle ground. You can retain control by being profitable while still using funding as leverage or as a safety net if things don’t go as planned.
One of the paradoxes of fundraising is that it’s easiest when you don’t need the money—and almost impossible when you do. By keeping the company mostly profitable, you never have to need it, giving you full control over timing and the ability to choose the right deal. But having that funding can enable you some more leverage or add more risk business you could afford while being bootstrapped. In our case we raised the funding for the conservative case, but the reality turned much better than expected.
Another misconception is that sustainable growth comes from spending or hiring. In reality, many great products take off first and because they take off, any amount of hiring becomes justified. Some of these companies are even profitable before they go on a hiring spree. The problem is that the typical approach isn’t nuanced or intentional enough. You might decide to hire 100 engineers before knowing how the next 10 engineers impact your trajectory. If you cut the hiring plan in half—or even to a quarter—it might not affect growth at all. But there’s often an assumption that growing the team is also good, and maybe it comes from a time in the 90s or something when you had hire people to man the phones to take orders.
What I believe is that startup’s growth is primarily driven by product superiority and market fit, not just by headcount or marketing spend. Those things can amplify success, and in some cases, they can even mask a bad market fit through sheer force of sales and marketing.
A less cynical take on VCs is that they’re not necessarily pushing companies to burn cash they just want founders to double down when they see a company working. But whether you can truly scale depends on your market dynamics. Sometimes, you need time to learn or to land the right deals in a segment before pouring money into growth.
The problem is that the current thinking is often too simplistic. Since you're startup and have cash, the spending more is always the right move. Going all the way 100 when you could dial it down to 50 or 30 and regain control and de-risk the changes of complete flare out.
I think your point would've been clearer if you clarified up front that Linear has taken 50M+ in funding. You would have clearly indicated where in the range of middle ground you are speaking from.
I know of YC startups that have taken <1M in funding and are now profitable. Similarly, the Discord founders (995M+ funding) have dropped hints on this very website several times that they are now profitable, but they would be laughed out of this room if they tried to outright claim that they are a "Profitable Startup". To say that Linear's story is comparable to any of these is, well, a stretch.
Thank you for writing this and sharing this perspective. It's nice to see a quality-focused company winning purely on the merits of their product. I've found it deeply frustrating to watch what used to be considered "running a business" (building profitable products/services) get snubbed in favor of half-baked cash furnaces that spin their tires.
Very encouraging to see this. Congrats on achieving profitability and staying profitable. Excited to see what the Linear crew comes up with next.
While I love companies that become profitable early and grow at a rate that allows them to continue being profitable ... it becomes an issue with investors.
Linear has raised over $50M+ (at $400MM valuation)
You just can't grow fast enough while being profitable - to grow into & surpass that kind of valuation ... in a timeframe ok that's for your investors.
They address this in the article, and I'd say it's rather the opposite of being oblivious. Rather, they understand that you can get way better deals by choosing the times when investors come crawling to you as opposed to times when you're short on cash and the investors know they have you over a barrel.
It's not required of the founder to sell the company cheaply to investors, even though the investors would of course quite like that.
He's not oblivious to this and the answer lies in "Raise on Your Own Terms" section.
Linear raised its A during the 2020-2021 frenzy and its Series B when every VC was telling their portfolio companies to reduce burn and get a 4-5 year runway. They created a profitable business in between.
They get to do every single thing exactly how they want to until they raise again (if they ever do).
Correct. Those raises were made when there was some uncertainty about how the business would grow, and the opportunity and timing seemed right. For example, in 2022, it was difficult to predict how deep the market downturn would be. We saw several customers churn because their companies folded. In the end, the market didn't tank as bad than some expected, and we executed better than anticipated. In hindsight, we might not have needed that funding, but at the time, the outlook wasn’t as clear.
Part of this post is to debunk the myth that can be VC backed startup, be profitable and grow fast at the same time. VCs are quite keen in this approach too.
> While I love companies that become profitable early and grow at a rate that allows them to continue being profitable ... it becomes an issue with investors.
You know what? Good, and hopefully Linear sets the example instead of the others just running back to VCs again for another top-up.
Once you have shown that you're profitable, then you don't need them. The moment you do, you're always having to cede control and be at their mercy after raising and burning ridiculous amounts of their money and losing parts of your business.
Of course VCs see that as an issue as they feed on startups by doing this. If you're profitable then you don't need them.
Otherwise, you'll be on your Series Z until there are no more investors left to throw money on to your unprofitable startup.
"Venture debt is like a delicious sandwich that only costs ten cents, but occasionally explodes in your face" - PG
Part of being a startup is still that there is not a lot of historical precedent and uncertainty how well your business will do in the future. The problem with any fundraise is that it's always future looking (perhaps maybe you create some kind of option structure to call on it if needed).
VCs, especially Tier 1, can be still helpful in different ways, and them owning equity aligns the incentives more than debt.
My usual take on this is that if you do a great job, you'll grow at the speed your market is growing, ride the wave so to speak. The price of admission is doing a great job though, the rest of the comment doesn't apply blindly.
If your market is having a hockey stick growth because it's new or in vogue, even underperforming teams will outgrow the best team in the world stuck in a linear growth market.
So I chuckle a bit when founders try to convince you that they are the reason for the hockey stick, or that they are the reason for the linear growth. You're riding the wave more than anything. The main difference then being if you end up being the one chosen by Softbank to aggregate the market or if you'll be one of the ones that are bought out by them.
Good article but it doesn't fit in with American thinking. In search of a unicorn. The only very visible company in the United States I can remember following the profitability and measured growth path was 37signals. Even they have occasionally wandered way off course, with multiple products, and neglecting the main product (long discussion). I agree with you. This philosophy of profitable growth makes me interested in Linear as a potential customer. There's less risk of you closing your doors or just selling your smaller users out.
Alot of startups arent profitable because they are ran by people that have prestigious pedigrees, but dont know what theyre doing/have no experience. So they blow all kinds of money on bad ideas/poor execution, but are still able to raise more funding.
Eventually for some of these companies something clicks, and they do get to something of a valuable company.
This is what ZIRP was.
Alot of people dont know that investors are okay with this, they have 20 Million to push into a company, and figure that something might pop out.
It's bigger and wider than that. Throughout the 1990s people didn't care what anything cost on the web because they figured the money would work out someday. There was the 2000s crash but the success of Amazon, Google and such proved that the web was a great idea.
The story of social media was that there was a narrow time window and a single place (other than, recently, China) where investors were willing to take a chance that the likes of Facebook and Twitter would find a funding model. By the time that model was proven, it was too late for new entrants. Thus Europe was left high and dry.
Yeah there's a few winners they are hoping for. So they pattern match, Jeff Bezos went to Princeton and worked at hedge funds, so lets fund everyone that looks like that.
Turns out a bunch of those people are actually lemons, so they run a bunch of unprofitable startups.
There's two things going on:
1. Long term risky bets that could pay off massive
2. Who is the person they choose to try and execute on the above
Yeah. And a lot of people still doesn't seem to have waken up to the fact that ZIRP is dead. So no infinite amounts of cash in the economy to blow on unprofitable 'growth' startups anymore.
I think the author is correct that more startups can be profitable earlier than they think. It comes down to making conscious decisions about hiring and focusing on customer value, it's that simple. The reason why that's not the case often comes from how blitzscaling and ZIRP became the norm for a few years, and how VC, especially post seed stage, started to resemble a Ponzi scheme, with investors trying to put lipstick on a pig and pass the bag down the road.
The fact is, that for VC's it makes perfect sense to push for growth as much as possible. For every one of their portfolio startups. That doesn't necessarily make sense for the founders, who likely might prefer lower risk and profits instead.
VC's don't care about mediocre successes. They want couple of huge exits, and if the rest go bankrupt, they don't give a shit. That's the VC business model and all the great company-building "advice" they give, is actually just crafted to generate profits to them, not really to make sense for the founders or other stakeholders.
I forget exactly who said it but somebody said something along the lines of “venture capital is rocket fuel, unless you have a rocket it will only blow up your engine. Have a Bugatti Veyron? It will blow up your engine.”
This is also something DHH has been saying for years. However, I think it is more true now than ever. With how easy it is to start and scale a software company I really struggle to understand the justification for venture funding at the earliest stage, unless you want to larp as a founder, have low conviction, or just want “the experience”.
You probably know answer and just hyperboling here, but there are plenty of reasons to raise as a startup. Even in pure software.
Most obvious one is you’re building something actually technically challenging and need to grow your team to get there. People, especially great people, are bloody expensive. No way to afford any reasonable headcount as a 22yo first time founder without venture money.
Of course, simple ideas are easy and need less resources and might be bootstrapped, hard ideas less so.
You could have customers commit money upfront. You could do it slowly with a reduced headcount. You could raise money, but not from VCs. You could have a solutions/consulting team that brings in the bucks while financing product development.
Agreed. Put another way: because software has low marginal cost and high up-front cost (even higher in very competitive markets) it makes sense to raise venture early to hire a great team and build an awesome product that then scales incredibly well (great investment returns).
VC funding is often required for companies that require a lot of runway prior to selling. The example that comes to mind are database companies like Mongo, dgraph, scylla etc. These require a fair amount of upfront work to create the product before their usable. A different example are industries that require a fair amount of compliance like healthcare, banking etc
If all you're doing is building a project management app, yeah it's easy to be profitable.
The trick is when you're trying to take risks and innovate. It took Amazon a long time to be profitable. It took Uber a long time to be profitable. It took Facebook a long time to be profitable.
When it's a land grab - when you're racing against other companies in a new market like AI - you need to burn money fast to run fast. Can't take a year in private beta.
All three of those examples strategically traded profitability for marketshare, and at a time when money was very cheap. This is what is meant by "prioritize growth over everything else."
That is not today's environment.
When it's the focus, profitability can be easily achieved somewhere between day 1 and month 18.
You could dismiss almost any company as "if all you're doing is building an X app...". It's a no-true-Scotsman argument.
Even setting that aside, not everything is or should be a land grab. It's notable that all the examples you provided — Amazon (at least, its initial online store product), Uber, Facebook — are all B2C plays and I don't think that's a coincidence.
I tried to ask examples of this yesterday[1], but afaik the patterns seems to be think throwing money at the problems works in undifferentiated, maybe transactional categories like food delivery, ride share, e-commerce etc where the software is not the product, it's just the payment method or the market place. The market places are also localized so you have these countless local turf wars, until you regain some kind of dominance or balance. Then deep tech, hardware etc is harder where you need large initial investment. Social networks because they need the critical mass, and usually there isn't a direct business model available.
I'd argue most b2b/enterprise software is a new version of something that already exists or addressing a need that already has a market. Business model is also very clear, there is very little network effects usually other than reputation and customer proof. Yet most the startups not even close being profitable.
In my mind most software products are differentiated so in the end the main success comes from getting the differentiation right for the market, not outspending the competition.
Profitable startup works for founders, but it doesn't work for the venture capital industry.
But it's hard to be a profitable, bootstrapped startup when rocket fueled / venture-backed startups are too busy growth hacking and venture-funded blitzscaling to capture customers at low cost to the customer, only later to screw the customer when it comes time to either flip the company to a buyer in order to return those VC dollars, or to turn the screws on the customers and enshittify the product when blitzscaling is no longer feasible.
Personally, I prefer a bootstrapped, profitable startup in markets where blitzscaling venture-backed rockets aren't raiding the customers.
A great piece of advice from Linear. Even in this flourishing AI landscape, every startup should avoid being overly speculative about resource mgmt. Linear raised from YC and Sequoia though. I'd love to learn more about how they balanced their burn rate
Profitability is good for product quality, if you can stay afloat, but it is a choice; venture capital lets you trade profitability for growth. And once you are big, you are able to cater to enterprises with deeper pockets to pay down your debt.
The reason for prioritizing growth above all else, historically, is network effects. If you try to grow more slowly someone buying growth by foregoing profitability will zoom past you and capture the network, and once the network is captured it's incredibly difficult to disrupt.
A good recent lesson in the awesome power of network effects is X. A huge number of users on that platform hate the direction Elon -- and it -- have taken, but they still use it. Major brands still use it. Governments targeted by people Elon is amplifying use it. Journalists who hate it use it. Why? People use it because people use it, and it's hard to get everyone to migrate at once.
Network effects are a force of nature. They are the strongest possible lock-in.
I wouldn't necessarily call growth-hacking / blitzscaling to capture customers at a loss network effects. More accurately it's about cornering the market or dominating market share. Network effects are more prominent for things like social media networks where the network value grows exponentially with scale. But not as much for a B2C or B2B solution where there's an identifiable or fixed number of customers and the rocket fueled competitor captures them all with unsustainable pricing.
Indeed. I'm not sure network effects is the main topic here, as you can use Linear perfectly fine when everyone else is using Jira, without missing out on anyrhing. Same applies to many B2B services.
Maybe I could see this argument being used for cross-company collaboration tools like Slack, Zoom, Miró. But even then it's weak.
As you say, cornering the market seems way more important.
Karri from Linear here.
I wrote this to challenge the common dichotomy that startups are either VC-backed money-burning machines or anti-VC/profitably bootstrapped. It doesn’t have to be that binary. There’s a spectrum, a middle ground. You can retain control by being profitable while still using funding as leverage or as a safety net if things don’t go as planned.
One of the paradoxes of fundraising is that it’s easiest when you don’t need the money—and almost impossible when you do. By keeping the company mostly profitable, you never have to need it, giving you full control over timing and the ability to choose the right deal. But having that funding can enable you some more leverage or add more risk business you could afford while being bootstrapped. In our case we raised the funding for the conservative case, but the reality turned much better than expected.
Another misconception is that sustainable growth comes from spending or hiring. In reality, many great products take off first and because they take off, any amount of hiring becomes justified. Some of these companies are even profitable before they go on a hiring spree. The problem is that the typical approach isn’t nuanced or intentional enough. You might decide to hire 100 engineers before knowing how the next 10 engineers impact your trajectory. If you cut the hiring plan in half—or even to a quarter—it might not affect growth at all. But there’s often an assumption that growing the team is also good, and maybe it comes from a time in the 90s or something when you had hire people to man the phones to take orders.
What I believe is that startup’s growth is primarily driven by product superiority and market fit, not just by headcount or marketing spend. Those things can amplify success, and in some cases, they can even mask a bad market fit through sheer force of sales and marketing.
A less cynical take on VCs is that they’re not necessarily pushing companies to burn cash they just want founders to double down when they see a company working. But whether you can truly scale depends on your market dynamics. Sometimes, you need time to learn or to land the right deals in a segment before pouring money into growth.
The problem is that the current thinking is often too simplistic. Since you're startup and have cash, the spending more is always the right move. Going all the way 100 when you could dial it down to 50 or 30 and regain control and de-risk the changes of complete flare out.
I think your point would've been clearer if you clarified up front that Linear has taken 50M+ in funding. You would have clearly indicated where in the range of middle ground you are speaking from.
I know of YC startups that have taken <1M in funding and are now profitable. Similarly, the Discord founders (995M+ funding) have dropped hints on this very website several times that they are now profitable, but they would be laughed out of this room if they tried to outright claim that they are a "Profitable Startup". To say that Linear's story is comparable to any of these is, well, a stretch.
Thank you for writing this and sharing this perspective. It's nice to see a quality-focused company winning purely on the merits of their product. I've found it deeply frustrating to watch what used to be considered "running a business" (building profitable products/services) get snubbed in favor of half-baked cash furnaces that spin their tires.
Very encouraging to see this. Congrats on achieving profitability and staying profitable. Excited to see what the Linear crew comes up with next.
Question for you Karri. If revenue is benchmarked at $500k - $1mil per employee, how much salary is each employee expected to receive?
While I love companies that become profitable early and grow at a rate that allows them to continue being profitable ... it becomes an issue with investors.
Linear has raised over $50M+ (at $400MM valuation)
You just can't grow fast enough while being profitable - to grow into & surpass that kind of valuation ... in a timeframe ok that's for your investors.
https://tracxn.com/d/companies/linear/__xC97n-jdX7VZjDBpNyRf...
Wow.. really changes my perspective on this article to find out that Linear has raised 50M+
Thanks for this source
It is great for founders, and not so nice for VC investors, and Karri seems comically oblivious to that fact.
They address this in the article, and I'd say it's rather the opposite of being oblivious. Rather, they understand that you can get way better deals by choosing the times when investors come crawling to you as opposed to times when you're short on cash and the investors know they have you over a barrel.
It's not required of the founder to sell the company cheaply to investors, even though the investors would of course quite like that.
He's not oblivious to this and the answer lies in "Raise on Your Own Terms" section.
Linear raised its A during the 2020-2021 frenzy and its Series B when every VC was telling their portfolio companies to reduce burn and get a 4-5 year runway. They created a profitable business in between.
They get to do every single thing exactly how they want to until they raise again (if they ever do).
Correct. Those raises were made when there was some uncertainty about how the business would grow, and the opportunity and timing seemed right. For example, in 2022, it was difficult to predict how deep the market downturn would be. We saw several customers churn because their companies folded. In the end, the market didn't tank as bad than some expected, and we executed better than anticipated. In hindsight, we might not have needed that funding, but at the time, the outlook wasn’t as clear.
Part of this post is to debunk the myth that can be VC backed startup, be profitable and grow fast at the same time. VCs are quite keen in this approach too.
> While I love companies that become profitable early and grow at a rate that allows them to continue being profitable ... it becomes an issue with investors.
You know what? Good, and hopefully Linear sets the example instead of the others just running back to VCs again for another top-up.
Once you have shown that you're profitable, then you don't need them. The moment you do, you're always having to cede control and be at their mercy after raising and burning ridiculous amounts of their money and losing parts of your business.
Of course VCs see that as an issue as they feed on startups by doing this. If you're profitable then you don't need them.
Otherwise, you'll be on your Series Z until there are no more investors left to throw money on to your unprofitable startup.
I agree with what you're saying ... but why take venture capital then?
They should have raised debt instead.
"Venture debt is like a delicious sandwich that only costs ten cents, but occasionally explodes in your face" - PG
Part of being a startup is still that there is not a lot of historical precedent and uncertainty how well your business will do in the future. The problem with any fundraise is that it's always future looking (perhaps maybe you create some kind of option structure to call on it if needed).
VCs, especially Tier 1, can be still helpful in different ways, and them owning equity aligns the incentives more than debt.
My usual take on this is that if you do a great job, you'll grow at the speed your market is growing, ride the wave so to speak. The price of admission is doing a great job though, the rest of the comment doesn't apply blindly.
If your market is having a hockey stick growth because it's new or in vogue, even underperforming teams will outgrow the best team in the world stuck in a linear growth market.
So I chuckle a bit when founders try to convince you that they are the reason for the hockey stick, or that they are the reason for the linear growth. You're riding the wave more than anything. The main difference then being if you end up being the one chosen by Softbank to aggregate the market or if you'll be one of the ones that are bought out by them.
Good article but it doesn't fit in with American thinking. In search of a unicorn. The only very visible company in the United States I can remember following the profitability and measured growth path was 37signals. Even they have occasionally wandered way off course, with multiple products, and neglecting the main product (long discussion). I agree with you. This philosophy of profitable growth makes me interested in Linear as a potential customer. There's less risk of you closing your doors or just selling your smaller users out.
Interestingly, both 37signals and Linear have non-American founders.
Alot of startups arent profitable because they are ran by people that have prestigious pedigrees, but dont know what theyre doing/have no experience. So they blow all kinds of money on bad ideas/poor execution, but are still able to raise more funding.
Eventually for some of these companies something clicks, and they do get to something of a valuable company.
This is what ZIRP was.
Alot of people dont know that investors are okay with this, they have 20 Million to push into a company, and figure that something might pop out.
It's bigger and wider than that. Throughout the 1990s people didn't care what anything cost on the web because they figured the money would work out someday. There was the 2000s crash but the success of Amazon, Google and such proved that the web was a great idea.
The story of social media was that there was a narrow time window and a single place (other than, recently, China) where investors were willing to take a chance that the likes of Facebook and Twitter would find a funding model. By the time that model was proven, it was too late for new entrants. Thus Europe was left high and dry.
Yeah there's a few winners they are hoping for. So they pattern match, Jeff Bezos went to Princeton and worked at hedge funds, so lets fund everyone that looks like that.
Turns out a bunch of those people are actually lemons, so they run a bunch of unprofitable startups.
There's two things going on:
1. Long term risky bets that could pay off massive
2. Who is the person they choose to try and execute on the above
> This is what ZIRP was.
Yeah. And a lot of people still doesn't seem to have waken up to the fact that ZIRP is dead. So no infinite amounts of cash in the economy to blow on unprofitable 'growth' startups anymore.
Everything will need to change.
I think the author is correct that more startups can be profitable earlier than they think. It comes down to making conscious decisions about hiring and focusing on customer value, it's that simple. The reason why that's not the case often comes from how blitzscaling and ZIRP became the norm for a few years, and how VC, especially post seed stage, started to resemble a Ponzi scheme, with investors trying to put lipstick on a pig and pass the bag down the road.
The fact is, that for VC's it makes perfect sense to push for growth as much as possible. For every one of their portfolio startups. That doesn't necessarily make sense for the founders, who likely might prefer lower risk and profits instead.
VC's don't care about mediocre successes. They want couple of huge exits, and if the rest go bankrupt, they don't give a shit. That's the VC business model and all the great company-building "advice" they give, is actually just crafted to generate profits to them, not really to make sense for the founders or other stakeholders.
>They want couple of huge exits,
yes, exactly. what they want is what they (used to) call ten-baggers. meaning 10x their investment, prolly, I don't remember the exact meaning.
I said "used to", because that is from sometime ago, before the fuckheaded idea of so-called unicorns.
nowadays they want a million times their investment.
I forget exactly who said it but somebody said something along the lines of “venture capital is rocket fuel, unless you have a rocket it will only blow up your engine. Have a Bugatti Veyron? It will blow up your engine.”
This is also something DHH has been saying for years. However, I think it is more true now than ever. With how easy it is to start and scale a software company I really struggle to understand the justification for venture funding at the earliest stage, unless you want to larp as a founder, have low conviction, or just want “the experience”.
You probably know answer and just hyperboling here, but there are plenty of reasons to raise as a startup. Even in pure software.
Most obvious one is you’re building something actually technically challenging and need to grow your team to get there. People, especially great people, are bloody expensive. No way to afford any reasonable headcount as a 22yo first time founder without venture money.
Of course, simple ideas are easy and need less resources and might be bootstrapped, hard ideas less so.
You could have customers commit money upfront. You could do it slowly with a reduced headcount. You could raise money, but not from VCs. You could have a solutions/consulting team that brings in the bucks while financing product development.
Agreed. Put another way: because software has low marginal cost and high up-front cost (even higher in very competitive markets) it makes sense to raise venture early to hire a great team and build an awesome product that then scales incredibly well (great investment returns).
Maybe for something truly novel, but the exception proves the rule here IMO.
What is an example of a not simple idea pure software play that would require VC funding at the earliest stage?
VC funding is often required for companies that require a lot of runway prior to selling. The example that comes to mind are database companies like Mongo, dgraph, scylla etc. These require a fair amount of upfront work to create the product before their usable. A different example are industries that require a fair amount of compliance like healthcare, banking etc
All the folks in replies saying this is "bad for investors", lets check back in 5 years and see how they did :)
If all you're doing is building a project management app, yeah it's easy to be profitable.
The trick is when you're trying to take risks and innovate. It took Amazon a long time to be profitable. It took Uber a long time to be profitable. It took Facebook a long time to be profitable.
When it's a land grab - when you're racing against other companies in a new market like AI - you need to burn money fast to run fast. Can't take a year in private beta.
All three of those examples strategically traded profitability for marketshare, and at a time when money was very cheap. This is what is meant by "prioritize growth over everything else."
That is not today's environment.
When it's the focus, profitability can be easily achieved somewhere between day 1 and month 18.
You could dismiss almost any company as "if all you're doing is building an X app...". It's a no-true-Scotsman argument.
Even setting that aside, not everything is or should be a land grab. It's notable that all the examples you provided — Amazon (at least, its initial online store product), Uber, Facebook — are all B2C plays and I don't think that's a coincidence.
I tried to ask examples of this yesterday[1], but afaik the patterns seems to be think throwing money at the problems works in undifferentiated, maybe transactional categories like food delivery, ride share, e-commerce etc where the software is not the product, it's just the payment method or the market place. The market places are also localized so you have these countless local turf wars, until you regain some kind of dominance or balance. Then deep tech, hardware etc is harder where you need large initial investment. Social networks because they need the critical mass, and usually there isn't a direct business model available.
I'd argue most b2b/enterprise software is a new version of something that already exists or addressing a need that already has a market. Business model is also very clear, there is very little network effects usually other than reputation and customer proof. Yet most the startups not even close being profitable.
In my mind most software products are differentiated so in the end the main success comes from getting the differentiation right for the market, not outspending the competition.
1) https://x.com/karrisaarinen/status/1892700146414096549
Question. If revenue is benchmarked at $500k - $1mil per employee, how much salary is each employee expected to receive?
My rule of thumb is $250K/yr employee all in (benefits, the opportunity cost of an actual job, etc).
I'm always surprised by multi-person founding teams with no path (aka pricing model) to covering their own lifestyle.
https://forstarters.substack.com/p/for-starters-17-at-least-...
Profitable startup works for founders, but it doesn't work for the venture capital industry.
But it's hard to be a profitable, bootstrapped startup when rocket fueled / venture-backed startups are too busy growth hacking and venture-funded blitzscaling to capture customers at low cost to the customer, only later to screw the customer when it comes time to either flip the company to a buyer in order to return those VC dollars, or to turn the screws on the customers and enshittify the product when blitzscaling is no longer feasible.
Personally, I prefer a bootstrapped, profitable startup in markets where blitzscaling venture-backed rockets aren't raiding the customers.
A great piece of advice from Linear. Even in this flourishing AI landscape, every startup should avoid being overly speculative about resource mgmt. Linear raised from YC and Sequoia though. I'd love to learn more about how they balanced their burn rate
No, not in the AI space. Disagree that you can be successful by avoiding risk and conserving resources.
I mean, those wrappers etc.
Profitability is good for product quality, if you can stay afloat, but it is a choice; venture capital lets you trade profitability for growth. And once you are big, you are able to cater to enterprises with deeper pockets to pay down your debt.
The reason for prioritizing growth above all else, historically, is network effects. If you try to grow more slowly someone buying growth by foregoing profitability will zoom past you and capture the network, and once the network is captured it's incredibly difficult to disrupt.
A good recent lesson in the awesome power of network effects is X. A huge number of users on that platform hate the direction Elon -- and it -- have taken, but they still use it. Major brands still use it. Governments targeted by people Elon is amplifying use it. Journalists who hate it use it. Why? People use it because people use it, and it's hard to get everyone to migrate at once.
Network effects are a force of nature. They are the strongest possible lock-in.
I wouldn't necessarily call growth-hacking / blitzscaling to capture customers at a loss network effects. More accurately it's about cornering the market or dominating market share. Network effects are more prominent for things like social media networks where the network value grows exponentially with scale. But not as much for a B2C or B2B solution where there's an identifiable or fixed number of customers and the rocket fueled competitor captures them all with unsustainable pricing.
Indeed. I'm not sure network effects is the main topic here, as you can use Linear perfectly fine when everyone else is using Jira, without missing out on anyrhing. Same applies to many B2B services. Maybe I could see this argument being used for cross-company collaboration tools like Slack, Zoom, Miró. But even then it's weak. As you say, cornering the market seems way more important.
This Or "Learning Curve Pricing" which dominated the outcomes of early SV.
I've heard it said that for investors, finding the companies that need money is easy. But the real gold is in finding the companies that don't