4 ms·

Just in case people are going to mentally summarize this as startups need to choose one or the other...the most important idea from Fred here comes at the end:

by kevin 11y ago

Just in case people are going to mentally summarize this as startups need to choose one or the other...the most important idea from Fred here comes at the end: Great companies can do both. Don't let investors (or anyone for that matter) say there's only one way to play the game. Reminds me of one of my favorite quotes from Charles Eames. And while it pertains to making products, I think it fits: "Never delegate understanding." We followed this strategy (the never delegating and balancing growth and profitability) at Wufoo and I can tell you that it was the best decision we ever made.

paragpatelone 11y ago
Do most YC companies follow this balanced approach?
- DenisM 11y ago
  Not being in YC, I can only imagine that it's different strokes for different folks. For example, if you're doing a land-grab in a newly discovered market, such as Uber, you have to prioritize growth above all. On the other hand, if your market is well-established and your plan to win by superior polish of your offering, you're better off growing slowly, using revenue both as a funding source and as a guide for making a superior product. In any case, the competitive situation will dictate if you have to grow fast at all costs (by raising large rounds), or if you can grow slowly by using your own revenue.
  - danieltillett 11y ago
    Is Uber an example of a land-grab? Regulation arbitrage and long term domination of a market are not really compatible outcomes. Sure they need to focus on growth over all to beat their competition, but the end result will just mean that they end up as regulated as the current taxi industry once they actually achieve domination.
    - eru 11y ago
      And that's great for them! As a big company they can afford the lawyers to deal with regulations, and the scrappy upstart competitors can't.
      - danieltillett 11y ago
        Yes but once they reach a certain size they will need to transition from regulator arbitrage to a model similar to the one the current taxi system. Once this happen they will be as vulnerable to the next scrappy upstart as the taxi industry is. Either domination or regulatory arbitrage has to give.
        eru 11y ago
        They'll change from arbitrage on the current regulation, to having a say in the next regulation and living cosily in it. Side question: why do the new regulations have to be similar to the current taxi system? Uber doesn't need eg a medallion system, they'd be happy with onerous legal (eg reporting) requirements to keep upstarts out.
        danieltillett 11y ago
        Sure Uber might be able to help write the new regulations to their advantage, but at that point they will be open to attack from upstarts who choose to ignore the regulations. They need not only write the regulations and then be able to get them enforced to keep the upstarts out. The new system does not need to the same as the current medallion system, but unless the new system is providing them with a competitive a means of keeping upstarts out the market will become one of perfect competition where profits all end up with the consumer.
csentropy 11y ago
Could the outcome to the founders have been bigger if wufoo became a bigger company by prioritizing growth over profits?
- kevin 11y ago
  Our outcome is much larger than you might think. Definitely more than what the average startup founder (who might have tried to raise more funding to chase growth over profits) under a similar exit, because the founders maintained a large portion of our equity to the end. Now, I still have equity in SurveyMonkey and their amazing story is still in progress (one that also balances growth vs profits in a very similar way), but our outcome could be the equivalent to a traditional exit 3-4 times our size when all is said and done. Also, a startup feels completely different when it's profitable and we were profitable 9 months after launch. Running a company on the edge is incredibly stressful and I'm glad I didn't have to do so for 4 years. I'm not saying I couldn't have done it, but I'm glad I wasn't forced. This is not to say I believe every startup should run like ours, because sometimes you don't get the luxury or choice to do so. We were lucky to get to choose to grow the company the way we wanted at Wufoo. Sometimes growth comes to a startup and they have to do everything they can to hang on including raise money. If that's the right path, I won't be afraid to recommend that route. The reason I'm at YC is because we don't try to slap a one plan fits all model for the startups. There are many paths to success and I'm delighted to be a testament to that.
  - danieltillett 11y ago
    The one plan that YC can't really slap on is the one that is most advantages to founders in many cases - the bootstrap model where no outside funding is required. If you were able to achieve profitability after 9 months do you think you could have got there (maybe a bit slower) without raising external capital at all?
    - kevin 11y ago
      When we applied to YC, the three of us only had enough money saved up for two of us to quit our jobs. So two of us quit and Chris kept working in a cubicle and split his paycheck 3 ways. Even that plan didn't give us enough money to work on Wufoo full time because we needed all 3 of us. So that 2 of out 3 plan resulted in 2 of us making a web development magazine that we'd sell and hopefully make enough money for the 3rd one to quit. The idea behind the magazine was that I calculated we could run it in a way that half the month could be spent on that and the other half on working on the software we wanted to build. I'm pretty sure that play would have taken forever to execute. So we actually really needed that $18K that YC gave us AND the 3 dedicated months to blow everything off and only work on the software. Very different times back then.

by kevin 11y ago

paragpatelone 11y ago

Do most YC companies follow this balanced approach?

DenisM 11y ago
Not being in YC, I can only imagine that it's different strokes for different folks. For example, if you're doing a land-grab in a newly discovered market, such as Uber, you have to prioritize growth above all. On the other hand, if your market is well-established and your plan to win by superior polish of your offering, you're better off growing slowly, using revenue both as a funding source and as a guide for making a superior product. In any case, the competitive situation will dictate if you have to grow fast at all costs (by raising large rounds), or if you can grow slowly by using your own revenue.
- danieltillett 11y ago
  Is Uber an example of a land-grab? Regulation arbitrage and long term domination of a market are not really compatible outcomes. Sure they need to focus on growth over all to beat their competition, but the end result will just mean that they end up as regulated as the current taxi industry once they actually achieve domination.
  - eru 11y ago
    And that's great for them! As a big company they can afford the lawyers to deal with regulations, and the scrappy upstart competitors can't.
    - danieltillett 11y ago
      Yes but once they reach a certain size they will need to transition from regulator arbitrage to a model similar to the one the current taxi system. Once this happen they will be as vulnerable to the next scrappy upstart as the taxi industry is. Either domination or regulatory arbitrage has to give.
      - eru 11y ago
        They'll change from arbitrage on the current regulation, to having a say in the next regulation and living cosily in it. Side question: why do the new regulations have to be similar to the current taxi system? Uber doesn't need eg a medallion system, they'd be happy with onerous legal (eg reporting) requirements to keep upstarts out.
        danieltillett 11y ago
        Sure Uber might be able to help write the new regulations to their advantage, but at that point they will be open to attack from upstarts who choose to ignore the regulations. They need not only write the regulations and then be able to get them enforced to keep the upstarts out. The new system does not need to the same as the current medallion system, but unless the new system is providing them with a competitive a means of keeping upstarts out the market will become one of perfect competition where profits all end up with the consumer.

csentropy 11y ago

Could the outcome to the founders have been bigger if wufoo became a bigger company by prioritizing growth over profits?

kevin 11y ago
Our outcome is much larger than you might think. Definitely more than what the average startup founder (who might have tried to raise more funding to chase growth over profits) under a similar exit, because the founders maintained a large portion of our equity to the end. Now, I still have equity in SurveyMonkey and their amazing story is still in progress (one that also balances growth vs profits in a very similar way), but our outcome could be the equivalent to a traditional exit 3-4 times our size when all is said and done. Also, a startup feels completely different when it's profitable and we were profitable 9 months after launch. Running a company on the edge is incredibly stressful and I'm glad I didn't have to do so for 4 years. I'm not saying I couldn't have done it, but I'm glad I wasn't forced. This is not to say I believe every startup should run like ours, because sometimes you don't get the luxury or choice to do so. We were lucky to get to choose to grow the company the way we wanted at Wufoo. Sometimes growth comes to a startup and they have to do everything they can to hang on including raise money. If that's the right path, I won't be afraid to recommend that route. The reason I'm at YC is because we don't try to slap a one plan fits all model for the startups. There are many paths to success and I'm delighted to be a testament to that.
- danieltillett 11y ago
  The one plan that YC can't really slap on is the one that is most advantages to founders in many cases - the bootstrap model where no outside funding is required. If you were able to achieve profitability after 9 months do you think you could have got there (maybe a bit slower) without raising external capital at all?
  - kevin 11y ago
    When we applied to YC, the three of us only had enough money saved up for two of us to quit our jobs. So two of us quit and Chris kept working in a cubicle and split his paycheck 3 ways. Even that plan didn't give us enough money to work on Wufoo full time because we needed all 3 of us. So that 2 of out 3 plan resulted in 2 of us making a web development magazine that we'd sell and hopefully make enough money for the 3rd one to quit. The idea behind the magazine was that I calculated we could run it in a way that half the month could be spent on that and the other half on working on the software we wanted to build. I'm pretty sure that play would have taken forever to execute. So we actually really needed that $18K that YC gave us AND the 3 dedicated months to blow everything off and only work on the software. Very different times back then.