5 ms·

The profitable startup

248 points by doppp 1y ago

timenotwasted 1y ago
It's really great to see the shift that has been taking place away from unicorns, growth for the sake of growth, and all the chaos that drove throughout. Maybe it's my own personal bias but I feel that these stories of low, slow growth; small teams, small wins but consistency are becoming more norm. While I realize there is still plenty of froth, it's inspiring and makes me hopeful for an industry shift in that direction. "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 1y ago
  I could swear I read this exact same comment back in 2016.
- nine_k 1y ago
  I'm used to thinking that a "startup" implies a small company with hockey-stick growth and eventual market domination, usually deploying large amounts of capital to fuel the growth. Otherwise it's just a sparking small business: a pizzeria is not a startup. 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 1y ago
    Is there a better word for these grow slow companies?
    - all2 1y ago
      "Normal growth"?
    - rebuilder 1y ago
      Small business?
    - eviluncle 1y ago
      "hypeless growth"
    - kchoudhu 1y ago
      Businesses
    - jacquesm 1y ago
      Solid? Right up to the point some funded start-up starts giving away the same thing in the hope that they can fake it until they make it and take everybody else in the same space down with them.
      - disgruntledphd2 1y ago
        Linear is a really, really good product though, so it is worth paying for.
    - layer8 1y ago
      SME, bootstrapped business.
    - designerbenny 1y ago
      If you slow grow and keep it smallish, then it’s a “lifestyle business”. That number can change but maybe $5million or less ARR. Thats enough to pay yourself and a few staff with benefits. But like palata said above, it is a startup if hasn’t found product-market fit.
  - palata 1y ago
    I consider that it is a startup when it hasn't found a product-market fit, i.e. it is not profitable. 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 1y ago
  Maybe it's my own personal bias but I feel that these stories of low, slow growth; small teams, small wins but consistency are becoming more norm. While I realize there is still plenty of froth, it's inspiring and makes me hopeful for an industry shift in that direction. I prefer small teams myself too, but do keep in mind "an industry shift in that direction" would also mean far less demand for developers...
- whiplash451 1y ago
  Note that Stripe had followed that path already. They had 50 users after two years.
  - rsanek 1y ago
    Though, conversely, Stripe was money-losing for the first 15 years of its existence.
alberth 1y ago
48 Comments | 8-months ago https://news.ycombinator.com/item?id=43130480 https://news.ycombinator.com/item?id=43130480
contrarian1234 1y ago
This is just called a small business... 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
- azundo 1y ago
  I think the point is there are many "startups" with similar revenue and growth to Linear that never become profitable. I don't think Linear qualifies as a small business and I don't think they're scaling less quickly than someone in same market with more funding and less profit.
  - palata 1y ago
    To me a startup hasn't found a product-market fit yet. That's the whole point, they're trying to find a way to get profitable. As soon as you are profitable, then you are a normal company.
    - cutemonster 1y ago
      That definition, I never heard before. I think you're confusing yourself and others if you make up your own meaning of words. A startup can be profitable.
      - palata 1y ago
        Wikipedia's first line is: "A startup or start-up is a company or project typically undertaken by an entrepreneur to seek, develop, and validate a scalable business model." 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.
masterzachary 1y ago
The boot strapped startups I've seen that have had this holier than thou attitude that they are somehow selecting the best engineers by only having a tiny team have always had the absolute worst tech, the worst engineering, the worst leadership and usually also the worst processes that I've ever encountered.
- comradesmith 1y ago
  Yeah, but they know how to make money
- jmtulloss 1y ago
  Linear is a venture funded company
- deleted 1y ago
  [deleted]
cmatza 1y ago
I’m a little suspicious of this because every startup says that they don’t hire the next engineer, they hire the next great engineer. 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.
- deleted 1y ago
  [deleted]
- selcuka 1y ago
  Also only hiring great engineers is an existential risk. Every time someone leaves, you lose a part of the business that is hard to replace. It sounds counter-intuitive, but mediocracy usually works better in the long run.
  - Esophagus4 1y ago
    You need a mix - a team of only stars will fail, and a team of only mediocre members will fail. 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)
    - rkomorn 1y ago
      I'm a Dodgers fan and I'm kinda confused by your take that the Dodgers roster is different from the 2023 Mets or current Yankees. If anything, the Blue Jays are the example, not the Dodgers.
      - Esophagus4 1y ago
        Sorry, I was talking about the previous iteration of the Dodgers that beat the Yankees. I haven’t been watching this year, other than Ohtani doing Ohtani stuff. 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.
kylegalbraith 1y ago
This idea makes the rounds on HN quarterly. I think folks reading this need to check their business model. Every company is slightly different and unique to how they are solving a particular problem. 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.
physicsguy 1y ago
The reason everyone did it was: interest rates. 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.
- yes_man 1y ago
  This, and another angle is that whatever market you are in, it is harder to run profitable margins if your competitors can eat the market while sustaining losses. And there was a lot of money around to sustain those losses. 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.
- senko 1y ago
  For every complex problem, there is an answer that is clear, simple, and wrong. 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.
  - antonymoose 1y ago
    I would argue that everything you’ve listed are just downstream of ZIRP.
    - senko 1y ago
      I would not agree, as these sorts of things were frequent before the latest round of ZIRPs: * 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.
jillesvangurp 1y ago
I'm in my third startup. My first one (founded 2013) was acquired by the second one after a year. That one failed around 2018. The first one was a small technology company where my co-founder and I (both techies) made the classical "build it and they'll come" mistake. They didn't come and just as we were running low on savings, we met the CEO of startup #2 who was a classical business founder and had already secured a huge seed round (~3M euro). He had the ideas and the money, we had the tech. So we joined forces. The next few years we tried lots of things and pivoted a few times. But in the end product market fit remained elusive and the 3M was gone. 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.
madaxe_again 1y ago
Being profitable is no bad thing - but you can be too profitable, too. 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.
- willsmith72 1y ago
  totally agree with this, operating cash flow positive + internal reinvestment seems like the best mix for an early software company
- joeiq 1y ago
  Very good point. Some profitability while maintaining alignment with core principles is an excellent outcome too.
joduplessis 1y ago
Not to denigrate the content of the article or Linear - because it's a fantastic tool - but easy talking about profitability when you're able to spend a year in private beta, focusing on product. This is like talking about creating your own wealth, but not mentioning you have a trust fund.
- kijin 1y ago
  You don't need a trust fund to keep a small team eating ramen for a year. Lots of people start businesses with just their savings and maybe a small loan. 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.
  - an0malous 1y ago
    Is that what Linear did?
    - kijin 1y ago
      Linear founders had "savings" from previous exits. Some of the early ones really were ramen-scale from what I can tell. 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!
      - plumthreads 1y ago
        A $4.2 million seed round from Sequoia also didn't hurt. Maybe they were able to eat pizza instead of ramen because of that.
sergioisidoro 1y ago
> investors are quite interested in profitable companies that also grow fast. 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.
bingemaker 1y ago
Having lots of money to throw at moonshot problems is always important. The current breakthrough of the 2020s is LLMs. I wonder if such breakthroughs can be achieved with this kind of approach.
noodlesUK 1y ago
I think it's an important thing to remind yourself of sometimes that there's a pretty significant difference between a startup and a small business. In spaces outside HN, small businesses are the default form of business, and there's plenty of merit to running one even in tech - not everything is scaleable, nor does it need to be. If you can identify a niche, generate profits, and provide business value and support the livelihood of your workers, that can be enough. Startups can be very impactful, and the tech sector has thrived as a result of the model, but the growth obsession and leverage is not mandatory.
palata 1y ago
Sounds like there is a lot of survivorship bias to me. "We were profitable because we did it right, and we don't understand why one would decide not to be profitable". 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.
- brazukadev 1y ago
  If all comes to luck, we can safely remove it from the equation when talking about success.
  - palata 1y ago
    That's complete nonsense. Do you safely remove luck from the equation when talking about the lottery?
    - brazukadev 1y ago
      Of course. There are many ways to increase the odds to win the lottery, bets, games. 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?
arthurofbabylon 1y ago
> Profitability isn't unambitious; it's controlling your own destiny. 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.
pawelkomarnicki 11mo ago
Large teams were a norm because VCs REQUIRED IT, telling things like “we invest in people” and demanding founders to hire rooms full of “the talent”.

248 points by doppp 1y ago

It's really great to see the shift that has been taking place away from unicorns, growth for the sake of growth, and all the chaos that drove throughout. Maybe it's my own personal bias but I feel that these stories of low, slow growth; small teams, small wins but consistency are becoming more norm. While I realize there is still plenty of froth, it's inspiring and makes me hopeful for an industry shift in that direction. "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 1y ago
I could swear I read this exact same comment back in 2016.
nine_k 1y ago
I'm used to thinking that a "startup" implies a small company with hockey-stick growth and eventual market domination, usually deploying large amounts of capital to fuel the growth. Otherwise it's just a sparking small business: a pizzeria is not a startup. 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 1y ago
  Is there a better word for these grow slow companies?
  - all2 1y ago
    "Normal growth"?
  - rebuilder 1y ago
    Small business?
  - eviluncle 1y ago
    "hypeless growth"
  - kchoudhu 1y ago
    Businesses
  - jacquesm 1y ago
    Solid? Right up to the point some funded start-up starts giving away the same thing in the hope that they can fake it until they make it and take everybody else in the same space down with them.
    - disgruntledphd2 1y ago
      Linear is a really, really good product though, so it is worth paying for.
  - layer8 1y ago
    SME, bootstrapped business.
  - designerbenny 1y ago
    If you slow grow and keep it smallish, then it’s a “lifestyle business”. That number can change but maybe $5million or less ARR. Thats enough to pay yourself and a few staff with benefits. But like palata said above, it is a startup if hasn’t found product-market fit.
- palata 1y ago
  I consider that it is a startup when it hasn't found a product-market fit, i.e. it is not profitable. 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 1y ago
Maybe it's my own personal bias but I feel that these stories of low, slow growth; small teams, small wins but consistency are becoming more norm. While I realize there is still plenty of froth, it's inspiring and makes me hopeful for an industry shift in that direction. I prefer small teams myself too, but do keep in mind "an industry shift in that direction" would also mean far less demand for developers...
whiplash451 1y ago
Note that Stripe had followed that path already. They had 50 users after two years.
- rsanek 1y ago
  Though, conversely, Stripe was money-losing for the first 15 years of its existence.

alberth 1y ago

48 Comments | 8-months ago https://news.ycombinator.com/item?id=43130480 https://news.ycombinator.com/item?id=43130480

contrarian1234 1y ago

This is just called a small business... 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

azundo 1y ago
I think the point is there are many "startups" with similar revenue and growth to Linear that never become profitable. I don't think Linear qualifies as a small business and I don't think they're scaling less quickly than someone in same market with more funding and less profit.
- palata 1y ago
  To me a startup hasn't found a product-market fit yet. That's the whole point, they're trying to find a way to get profitable. As soon as you are profitable, then you are a normal company.
  - cutemonster 1y ago
    That definition, I never heard before. I think you're confusing yourself and others if you make up your own meaning of words. A startup can be profitable.
    - palata 1y ago
      Wikipedia's first line is: "A startup or start-up is a company or project typically undertaken by an entrepreneur to seek, develop, and validate a scalable business model." 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.

masterzachary 1y ago

The boot strapped startups I've seen that have had this holier than thou attitude that they are somehow selecting the best engineers by only having a tiny team have always had the absolute worst tech, the worst engineering, the worst leadership and usually also the worst processes that I've ever encountered.

comradesmith 1y ago
Yeah, but they know how to make money
jmtulloss 1y ago
Linear is a venture funded company
deleted 1y ago
[deleted]

cmatza 1y ago

I’m a little suspicious of this because every startup says that they don’t hire the next engineer, they hire the next great engineer. 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.

deleted 1y ago
[deleted]
selcuka 1y ago
Also only hiring great engineers is an existential risk. Every time someone leaves, you lose a part of the business that is hard to replace. It sounds counter-intuitive, but mediocracy usually works better in the long run.
- Esophagus4 1y ago
  You need a mix - a team of only stars will fail, and a team of only mediocre members will fail. 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)
  - rkomorn 1y ago
    I'm a Dodgers fan and I'm kinda confused by your take that the Dodgers roster is different from the 2023 Mets or current Yankees. If anything, the Blue Jays are the example, not the Dodgers.
    - Esophagus4 1y ago
      Sorry, I was talking about the previous iteration of the Dodgers that beat the Yankees. I haven’t been watching this year, other than Ohtani doing Ohtani stuff. 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.

kylegalbraith 1y ago

This idea makes the rounds on HN quarterly. I think folks reading this need to check their business model. Every company is slightly different and unique to how they are solving a particular problem. 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.

physicsguy 1y ago

The reason everyone did it was: interest rates. 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.

yes_man 1y ago
This, and another angle is that whatever market you are in, it is harder to run profitable margins if your competitors can eat the market while sustaining losses. And there was a lot of money around to sustain those losses. 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.
senko 1y ago
For every complex problem, there is an answer that is clear, simple, and wrong. 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.
- antonymoose 1y ago
  I would argue that everything you’ve listed are just downstream of ZIRP.
  - senko 1y ago
    I would not agree, as these sorts of things were frequent before the latest round of ZIRPs: * 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.

jillesvangurp 1y ago

I'm in my third startup. My first one (founded 2013) was acquired by the second one after a year. That one failed around 2018. The first one was a small technology company where my co-founder and I (both techies) made the classical "build it and they'll come" mistake. They didn't come and just as we were running low on savings, we met the CEO of startup #2 who was a classical business founder and had already secured a huge seed round (~3M euro). He had the ideas and the money, we had the tech. So we joined forces. The next few years we tried lots of things and pivoted a few times. But in the end product market fit remained elusive and the 3M was gone. 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.

madaxe_again 1y ago

Being profitable is no bad thing - but you can be too profitable, too. 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.

willsmith72 1y ago
totally agree with this, operating cash flow positive + internal reinvestment seems like the best mix for an early software company
joeiq 1y ago
Very good point. Some profitability while maintaining alignment with core principles is an excellent outcome too.

joduplessis 1y ago

Not to denigrate the content of the article or Linear - because it's a fantastic tool - but easy talking about profitability when you're able to spend a year in private beta, focusing on product. This is like talking about creating your own wealth, but not mentioning you have a trust fund.

kijin 1y ago
You don't need a trust fund to keep a small team eating ramen for a year. Lots of people start businesses with just their savings and maybe a small loan. 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.
- an0malous 1y ago
  Is that what Linear did?
  - kijin 1y ago
    Linear founders had "savings" from previous exits. Some of the early ones really were ramen-scale from what I can tell. 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!
    - plumthreads 1y ago
      A $4.2 million seed round from Sequoia also didn't hurt. Maybe they were able to eat pizza instead of ramen because of that.

sergioisidoro 1y ago

> investors are quite interested in profitable companies that also grow fast. 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.

bingemaker 1y ago

Having lots of money to throw at moonshot problems is always important. The current breakthrough of the 2020s is LLMs. I wonder if such breakthroughs can be achieved with this kind of approach.

noodlesUK 1y ago

I think it's an important thing to remind yourself of sometimes that there's a pretty significant difference between a startup and a small business. In spaces outside HN, small businesses are the default form of business, and there's plenty of merit to running one even in tech - not everything is scaleable, nor does it need to be. If you can identify a niche, generate profits, and provide business value and support the livelihood of your workers, that can be enough. Startups can be very impactful, and the tech sector has thrived as a result of the model, but the growth obsession and leverage is not mandatory.

palata 1y ago

Sounds like there is a lot of survivorship bias to me. "We were profitable because we did it right, and we don't understand why one would decide not to be profitable". 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.

brazukadev 1y ago
If all comes to luck, we can safely remove it from the equation when talking about success.
- palata 1y ago
  That's complete nonsense. Do you safely remove luck from the equation when talking about the lottery?
  - brazukadev 1y ago
    Of course. There are many ways to increase the odds to win the lottery, bets, games. 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?

arthurofbabylon 1y ago

> Profitability isn't unambitious; it's controlling your own destiny. 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.

pawelkomarnicki 11mo ago

Large teams were a norm because VCs REQUIRED IT, telling things like “we invest in people” and demanding founders to hire rooms full of “the talent”.