
Reflecting on My Failure to Build a Billion-Dollar Company - jamesjyu
https://medium.com/@shl/reflecting-on-my-failure-to-build-a-billion-dollar-company-b0c31d7db0e7
======
sahillavingia
Hey, #1 on Hacker News! I don't think that's happened since...I launched
Gumroad back in 2011:

[https://news.ycombinator.com/item?id=2406614](https://news.ycombinator.com/item?id=2406614)

Thanks HN for being a part of my journey!

~~~
ChuckMcM
I love your story Sahil, it is so true that people equate 'wealth' with
'success' but that is short sighted. If you step back and look at the big
picture, you're on this planet for anywhere from 70 to 100 years, and at the
end of that time there are two metrics, the number of people you helped and
the amount of wealth you amassed and held on to, which number is a better
representative of 'success'?

Working on things you enjoy, making a positive impact on people's lives, and
raising a new generation to carry on where you left off, that is success.

Stay focused there and you might accidentally accumulate so much wealth you
have to work at putting it to use helping people like Bill does!

~~~
kbenson
> at the end of that time there are two metrics, the number of people you
> helped and the amount of wealth you amassed and held on to, which number is
> a better representative of 'success'?

Let's not forget personal satisfaction. I'm a little leery of putting the
entire assessment of my life onto other people (even though if I was going to,
I could do a lot worse than number of people helped).

Hopefully helping other people leads to some amount of personal satisfaction
for most people, and they'll have a fairly good life and good impact on others
by the end. :)

~~~
Retra
Personal satisfaction doesn't matter once you're dead. Those other things do.
And your entire assessment of your life at that point _will_ be put onto other
people.

With that said, optimizing for after you're dead might be selfish and
reasonably desirable, but there's a lot to be said for optimizing for tomorrow
instead. Life would be pretty pointless if none of us were supposed to
optimize for some enjoyment while we're here.

~~~
FiberBundle
Intentionally being provocative here, but by that logic, why does your effect
on other people matter? You are unlikely to leave a lasting legacy, and the
generation you do affect, will die as well.

~~~
dwaltrip
> You are unlikely to leave a lasting legacy, and the generation you do
> affect, will die as well.

By this logic, culture and society would die every generation, and have to be
rebuilt from scratch each time.

We all leave behind a "small" but far-reaching legacy that ripples out from
our short lifetime. Each of the thousands of interactions we have with with
other people and our general environment have a tiny but real impact that
doesn't necessarily diminish to zero after we die. The change that occurs then
has a small domino effect on any other person or system that it touches. And
so on and so forth :)

My life today is deeply affected by the concerted actions of billions of
unknown individuals from centuries and millennia past in ways that I can't
even begin to fathom. I'm grateful for some of those impacts. For other
impacts less so, but I hope to contribute small changes for the benefit those
who live in the untold distant future.

~~~
FiberBundle
I completely agree that wanting to make a positive impact on the world is
important, although, and I don't want to sound too nihilistic here, the actual
magnitude of that will probably be small for most people, therefore I think
that personal satisfaction in life should be important and isn't meaningless,
which was what OP claimed and the reason why I asked that question.

~~~
robryan
Yeah small and quickly diminishing over time, outside of very close friends
and direct descendants. For example how many fought in WW2? How many were in
high level roles and instrumental to the conflict? How many would be thinking
they were making a lasting impact on the world? And of those what small
portion have pretty much a permanent place in the history books?

Even to pick a small part of it, 130,000 people worked on the Manhattan
Project but a history of it that the average person would consume might name
10 key figures.

~~~
dwaltrip
The long-term impact of any human activity is so much more than what is
written in a history book somewhere. A history book is an enormously
compressed, somewhat distorted depiction of human experience. Only a very
small sliver of the actual fiber of human culture, achievement, and experience
across time is recorded in this way. Yet all of these things are still
happening, and they form the substrate upon which the events that are actually
written down can take place.

To use your example of the Manhattan project: only 10 people may be remembered
in books, but they certainly would have never completed the project by
themselves. The contributions of those other thousands of individuals was
vital to the project's success. If they didn't exist, it's not a guarantee
that you could have replaced all of them -- the project may have simply
failed.

------
holman
Really love this post. My favorite line is:

> Every month of less than 20% growth should have been a red flag.

I think that's pretty insightful. 20% growth is great for a normal business,
of course; for a VC-backed startup it can show some warning signs about future
hard decisions you might have to face.

I think there's certainly lots of discussion that has been had — and _should_
be had — about "should I or shouldn't I raise money?", but there still are
plenty of companies and founders who will raise VC, and paying attention to
those early warning signs are important if that's the choice you make. It's
important to worry about it each month and each week rather than the two
months surrounding the raise of your next round.

~~~
sytelus
Let's run some numbers. Say you are VC putting in $1M in 100 companies. To
your great luck all companies become self-sustaining lifestyle business. By
definition, lifestyle business is making just enough for comfortable lifestyle
of founder, so may be $300K/yr pre-tax. Let's say founder decides to give back
10% of $300K as return on investment. At that rate, it would take 33 years for
VC to just recoup his original investment.

I wanted to illustrate this because it is necessary to understand why things
are the way are. Lifestyle businesses is not viable for VC funding. You add on
risk profile (i..e 80% of companies won't even become profitable) you get the
only outcome that one or two super-hits needs to occur to cover for rest of
the failures. Also remember that even with this strategy most VC funds are not
even as profitable as S&P500 index.

~~~
hn_throwaway_99
Yes, but hopefully your average founder will wise up to the following: The
chances of _you_ being super successful, happy and content are much higher
with a "lifestyle business" than a VC funded one.

Why?

Well, the biggest issue is that VCs can diversify (as you point out, have a
lot of bets counting on a few successes), while founders can't.

I think for the vast, vast majority of people, there are greatly diminishing
returns after a certain amount of money. That is, if you have a 1/10 chance of
having a $10 million payout, vs a 1/1000 chance of a $100 million payout, I
think most people would take the former. Put another way, most people are
willing to take a good deal of risk for "fuck you" money, but fuck you money
for most people is MUCH lower than what VCs expect with a unicorn.

Since VCs _do_ always need to swing for the fences, they invariable will say
no to ideas that don't have a huge potential market. My belief is then that
there are a number of "mid market" businesses, i.e. ones catering to smaller
niches, that have a lot of potential but have lower competition than huge,
winner-take-all type businesses.

~~~
chii
> That is, if you have a 1/10 chance of having a $10 million payout, vs a
> 1/1000 chance of a $100 million payout

1/10 chance of $10mil is higher expected value than 1/1000 of $100mil. Of
course anybody sane will take the former and not the latter.

I think you'll find the tune different if the latter had been 1/1000 chance of
$1 billion.

~~~
hn_throwaway_99
But again my whole point is that expected value is itself a very poor metric
to use for this decision, _precisely_ because a founder doesn't get many
"swings at bat" like a VC does. Even in the case where the expected value is
the same, the fact that the _actual_ value leads to 0 for all but the very,
very, very luckiest/skilled means you get St. Petersburg paradox-like results.

------
austenallred
I’m incredibly grateful for Gumroad - Lambda School (YC S17) wouldn’t exist
without it.

We threw up a my book on Gumroad because why not/it was easy, and now I
believe we’re sitting north of $100k in sales. I don’t think we would have put
it anywhere else - wasn’t worth the effort. I often think about how important
it is to remove even the slightest amount of friction as a result.

I also find the move from KPCB admirable. They gave up their interest in the
company (it was a loss for them anyway) and allowed the company to flourish.
Hats off for that.

~~~
jondubois
It's interesting how Lambda School was able to capitalize on investors pumping
cash into and hyping up Gumroad.

It's a smart move to capture some of that VC money without having to pitch
anything to them.

~~~
austenallred
Not sure that entirely follows; Gumroad may have existed whether VCs pumped
money in or not, but I hear what you're saying.

In a way every time you ride in an Uber or Lyft you're capitalizing on
investors pumping cash into companies.

Luckily the winners make enough to pay for all the losses of the losers.

~~~
jondubois
I'm starting to think that you can't achieve anything these days unless you're
riding some kind of well capitalized trend.

~~~
austenallred
Or, alternatively, every trend will be well capitalized

~~~
jondubois
I think that cause and effect reinforce each other but I think that social
connections and capital are stronger forces.

Following the money is the most popular overarching trend. I know this because
I used to not follow the money at all and it was a big financial mistake for
me.

I've worked on many trends that were not well capitalized and not given due
attention. Especially in open source; there are so many great solutions which
are ignored completely. When there is no money, 99% of people leave; the ones
that stay are the smartest, most critical-thinking type of people but they're
not the kinds of people who can create hype and drive trends towards
newsworthy goals because news only cares about money.

I work in cryptocurrency now (after a decade of free open source work) and I
can attest that it's not the same kind of people.

A product without capital almost never gets attention. Capital without a
product is what 99% of successful ICOs are. To some extent this is also true
for many startups too.

------
ilamont
_I was basically alone. I didn’t have a team, nor an office. And San Francisco
was full of startups raising gobs more money, building amazing teams, and
shipping great products. Some of my friends became billionaires. Meanwhile, I
had to run a “measly” lifestyle business. It wasn’t what I wanted to do, but I
had to keep the ship from sinking._

There's that term again, "lifestyle business." Uttered like a dirty word, when
in fact Sahil has an actual product that many thousands of people use and _pay
for_. I'm one of them.

Meanwhile, many startups aren’t true businesses – they book no revenue, and
they may not even have a sellable product. That’s fine, because almost all
businesses start with an idea or a dream or a need or pure desperation, and
it’s up to the founders to make it work. They may even need investment, too –
sometimes a lot of it. And that’s fine, too.

But when people from the startup world use the term “lifestyle business” to
describe real businesses that aren’t pure tech, have solo founders, don’t take
VC money, don’t intend to scale to a billion users, or whatever other
qualities are not worthy of investor consideration, I find it condescending
and misguided. Some startups could actually learn a thing or two from the
vendor who sells hot dogs in the park, the person who starts up a specialist
marketing agency, the partnership that builds a ceramics factory, or the solo
founder running a media distribution and sales platform. They have products or
services to sell. They have customers. They book revenue, pay their employees
and suppliers, and if they do things right, may even become really successful.

In short, people who run small businesses are not hobbyists or dilettantes.
They’re entrepreneurs doing real business selling something, often with
limited capital and without the glamor or hype.

Kudos to Sahil for what he's accomplished. But for the love of Pete, please
stop using the term "lifestyle business."

~~~
Justsignedup
"lifestyle business" is really just a small business that works, is self-
sustaining, and not overly bloated to attempt to make obscene amounts of $$$.

I feel like this is exactly what most companies should strive for. They'll
make better decisions that way.

~~~
ilamont
Most businesses should strive to be self-sustaining. And if they make obscene
amounts of money, all the power to them.

What I dislike is A) the view from startup land that there are only two types
of new businesses, "startups" and everything else ("lifestyle") B) and the
"everything else" category is somehow inferior or even some sort of hobby or
vanity project. Sahil used the term to describe his own company, and at one
point felt shame about it, even though he had a _real business with real
customers and real revenue_.

That's how twisted the mindset in startup land has become, where real business
owners are supposed to feel shame, and "success" is based on as-yet
unfulfilled promises and raising a round?

~~~
Zanni
There's a legit distinction, though, between startups and other businesses -
startups are designed to grow fast. [0] That doesn't mean they're better, but
you have to know the difference or you're going to get yourself in trouble. Is
a quarter-horse better than a camel? Yes, if you're trying to win a quarter-
mile race; not so much if you're trying to survive in the desert.

I think some of the disdain comes from legit growth startups trying to
distance themselves from one-man "startups" that could be better categorized
as micro-ISVs or side projects.

But there's definitely no shame to running a successful lifestyle business.
The 37signals guys have been great at shifting that perspective.

[0]
[http://www.paulgraham.com/growth.html](http://www.paulgraham.com/growth.html)

~~~
ilamont
_There 's a legit distinction, though, between startups and other businesses -
startups are designed to grow fast._

Are they, though?

I have looked at the incoming classes of various startup accelerators over the
years and see lots of niche-focused products and services that can never grow
to anything more than a niche-focused product or service as described in their
pitch decks.

I'm not putting down those types of businesses (or proto-businesses). I'm just
pointing out that they don't have a high-growth profile or potential, the
primary dividing line between "startups" and everything else dubbed
"lifestyle" in investor circles.

~~~
taneq
This seems to be a HN thing. Most places, a 'startup' is just someone trying
to bootstrap a business into profitability so that, well, they have a
profitable business. If you end up with a business that pays your wages, you
win. If you end up with a business that pays your wages without you having to
work full time (or at all) then you _really_ win.

On HN, a "startup" is a moonshot backed by venture capital, and is seen as a
failure if it doesn't achieve a massive valuation and take over the world. You
read about businesses with "mere" million-dollar-plus revenues being shut down
because they're "unsuccessful". It's insane.

------
theptip
> It doesn’t matter how amazing your product is, or how fast you ship
> features. The market you’re in will determine most of your growth. For
> better or worse, Gumroad grew at roughly the same rate almost every month
> because that’s how quickly the market determined we would grow.

This seems like a simplification, and perhaps overly fatalistic. A company's
growth rate is a function with many parameters, and at most points, one
parameter will be the limiting factor. An amazing product is (usually) a
necessary, but not sufficient condition for rapid growth.

It sounds like Gumroad built a product that delighted their users, but there
just wasn't a level of market demand to hit the growth numbers that they were
hoping for. (Though I consider their end state a big success; being a unicorn
isn't the only way to add value to your users' lives.)

In a different market, with enough pent up demand for the product, the story
could have gone another way; "We kept on getting new users, but ultimately
couldn't keep users because our product wasn't awesome enough."

~~~
randall
Market determines your growth almost always. I have enough data points now to
basically say this with enough certainty. Friendster is the countercase where
the technology couldn't scale, and their execution was poor, and they focused
on revenue at the expense of growth, but generally like... now-a-days with
modern web stack market is basically all that matters.

~~~
theptip
Is your claim "for most companies the quality is already sufficient, and so
it's not the limiting factor (even though it would be if the quality was
insufficient)"? Or literally "the TAM matters, your app's quality doesn't"?

~~~
randall
The prior. Now-a-days, the majority of developers can build a quality app
since infrastructure and tooling (heroku etc) are widely available, that you
can paper over most completely horrible / unacceptable experiences by limiting
features early on. If you pick a huge market and have simply 1-2 compelling
features, you can go from nothing to something within 90 days typically, and
then use that to become unstoppable.

~~~
wiwillia
I'm not sure I agree that quality isn't a major driver of success.

Two counterpoints: \- Shopify came in and dominated Magento and others via a
much better quality product (later they built network effects with app store,
but originally it was just an easier platform) \- Slack came into a workplace
communication space where there were (arguably) free alternatives in IRC and
others and won with a better, simpler product.

I think product quality is extremely important in determining success. I think
it was less important 10-15 years ago as the web was establishing itself, but
today consumers expect a polished, feature-complete experience.

~~~
lostctown
But then how do I sell my mvp startup newsletter to all the people not capable
of actually building a quality product? /s

In all seriousness, it is comical how often people apply revisionist
explanations for the rise of certain companies. Its simple really. Great
product + big market. You must have both, no exceptions.

------
lancesells
I've always liked Gumroad as a product and service but this line kind of
bothers me:

> There is, of course, the $178,000,000 we have sent to creators

This money wasn't sent to creators. They sold products worth $178M + Gumroad
fees through the service. The creators made the products, marketed the
products, acquired the customers, etc. When I use Paypal to sell something
they aren't "sending me money".

~~~
themagician
You could say the same thing about Uber, Lyft, Airbnb, Etsy, TaskRabbit, etc..

When you sit down and think about it you start to realize just how “temporary”
all these so-called unicorns are, as they are just middleware services with no
real differentiating benefits other than size and brand recognition and maybe
some vague “guarantee” to the customer. You’ve got to get big fast, because
what you actually do is easily replicated.

~~~
chkuendig
> no real differentiating benefits other than size and brand recognition and
> maybe some vague “guarantee” to the customer.

\- scale

\- brand

\- customer loyalty

that's a lot of differentiation. more then 99% of the businesses in the world
and more than even many public companies.

(especially once you add the power gained from aggregating demand and supply
which most of these companies have)

~~~
themagician
Most of the businesses in the world make a widget and sell that widget.

------
jim-greer
My experience with Kongregate was different, but I did feel some of the same
things. We became a vehicle for many indie game creators to make a living,
which I'm very proud of. In our case we also had a sale that was very
profitable for the founders and early employees, and also profitable for our
investors.

But the weird thing is that if our VC investors had known at the outset that
they would have a 3x return on their money in three years, they probably
wouldn't have made the investment. A 50% annual rate of return is not worth
their time. That's not what their LPs are looking for.

The angels made more like 6.5x and put in less time - most of them would take
that deal all day long. I'm an angel now, and I definitely would. So perhaps
startups that need capital but aren't looking to be billion dollar companies
should consider just raising a seed round from angels... The difficulty there
is that angels do want an exit, not dividends from a profitable company that
stays private forever.

~~~
dennisgorelik
> if our VC investors had known at the outset that they would have a 3x return
> on their money in three years, they probably wouldn't have made the
> investment.

Of course they would have made an investment.

Any guaranteed return above bank interest rate -- is appealing for investors.

Guaranteed return of 50%/year is an amazing investment opportunity.

What you probably meant is that if investors knew that the return cannot be
more than 3x, but also has high probability of failure -- then the investors
probably would not make the investment.

~~~
jim-greer
Look at it this way. A VC fund has a finite number of investments to make.
Typically a partner gets to say yes once or twice a year. They usually take a
board seat and spend lots of time helping the company.

Knowing that many of those investments will be worthless, they want to
maximize the number of shots they get towards a billion dollar company.

If 1/3 of their companies are a 3x return, and the rest become worthless, the
fund has failed. They’re all aiming for the one company that will deliver the
big returns that offset all the failures (and the high fees they charge LPs.)

Seed stage investors are different. YC, for instance, spends much less time
with each company, and therefore can take lots of shots.

Growth stage venture is different too. They aim to invest a few years before a
company goes public, and are fine with a 3x-5x return. They are taking much
less risk.

The VC model also creates a fundamental tension with the founder. Founders get
one shot at a time. $50M exits represent life-changing money for them (as long
as they didn’t raise too much money.) VCs pressure them to take greater risks
than are rational for the founder. This is why you want to look for VCs that
will truly put the founder first. Or keep control of your board.

Joel Spolsky explained this well 15 years ago, so we knew about it going in
and chose a founder-first VC firm.

Here’s that post: [https://www.joelonsoftware.com/2003/06/03/fixing-venture-
cap...](https://www.joelonsoftware.com/2003/06/03/fixing-venture-capital/)

Thoughtful VCs will do what’s right for the founder. It’s rational because
their reputation matters so much when competing for investments. This has
changed for the better since Joel’s post.

------
phkahler
I struggle to see how this story is one of failure. A kid launched a business
that is still going 8 years later. He learned that VC funding is a double
edged sword and was able to shed some of that burden - buying them out for $1.
In the beginning he speaks of building this thing and having it be his lifes
work - which it may well be if he keeps going. And yet there was all this talk
of being a billion dollar company and an IPO - which is actually as exit
strategy. I was floored by the notion that _only_ 20 percent _monthly_ growth
was a red flag. 'du fuk you people think you're doing? Launching a rocket? Oh
right... SV, VC, etc...

In the end this guy learned a bunch of hard lessons about business, finance,
and life. I hope he continues at least until he finds a new adventure, and
stops calling it a failure. It may turn out to be exactly what he said he
wanted in the beginning: "what I thought would be my life’s work."

~~~
rement
He "failed" to build a billion dollar company.

~~~
adventured
The most interesting thing about the setup premise, is that it should have a
"yet" attached to it somewhere.

Unless something terrible has happened in the last few months, their recent
November 2018 numbers indicate that at a continued reasonable rate of growth
over another decade, they'll have a sizable business and a large number of
creators utilizing it (which is one of his goals). It would be worth at least
a hundred million dollars. If the growth spikes upward even a bit on average
(maybe they garner more interest with scale or the market expands faster), it
could get them to between a $500m and $1b valuation a decade out. Modest
compounded growth with even a small kicker, from where they're already at,
will produce a big outcome over time. So he'd be a sub 40 year old with an
extremely valuable company and a lot of people that use what he created (and
which I assume he owns a large part of at this juncture).

Given time and their history of slow but steady growth, Gum is more likely
than not to produce a homerun. The continued growth over many years is a
stellar signal that they're already winning as a business. You can get there
slow or fast. The VCs want it fast, Sahil can afford to take his time, he's
still quite young and Gum is _his_.

------
AznHisoka
I wasn't interested in the emotional story behind this. But I did resonate
with 1 line in particular here: "It doesn’t matter how amazing your product
is, or how fast you ship features. The market you’re in will determine most of
your growth."

This is so true, in my experience. You hit a roadblock in recurring revenue,
not because your product doesn't have enough features, or your team sucks, but
simply: your market is smaller than you thought.

~~~
ryanSrich
Scaling to a billion dollar company in that market was certainly attainable.
Patreon started two years after Gumroad and now look where they are. Gumroad
had a movers first advantage - so I really disagree with the quote. Had they
continued to push feature development and tweak PMF they could have been a
billion dollar company.

Don't take that as a slight to Gumroad either. Building a profitable business
from almost going under and now generating close to $1m in annual profits is
an incredible feat. But I do disagree with the point that the market wasn't
ready (as clearly demonstrated by the success of others).

~~~
Kye
Patreon and Gumroad were different businesses for most of their histories.
Gumroad was always a place to sell stuff and launch subscription services.
Patreon is trying to pivot that way now with all their talk of membership
businesses, but no one who uses it seems to see it that way.

That's why everyone was up in arms about the fee change in 2017. People
tossing $1 here and there to people they liked were the foundation of
everything. Membership businesses generally _start_ at $5 a month.

And Patreon isn't going to have much luck with it. There are _so_ many better
options if someone just wants to set up a membership business. Memberful,
which they bought, wasn't even one of the better options. It doesn't even
handle anything other than plans, payments, and integrations with services
that do the heavy lifting.

~~~
Daegalus
Any examples of other business that do what you mention at the end? Just
curious what the "better" options are. I like to keep abreast of the
underdogs.

~~~
Kye
Gumroad is the only one I've used. Others popped up over the years, but I
didn't think to keep notes.

------
eanzenberg
Jesus this part sucks:

"In those nine months, when the whole team knew that we were fighting for our
company’s life, not a single person left Gumroad. From “this is gonna be
hard,” to “yep, turns out it was,” every single person worked harder than
ever."

Did everyone one of these people have significant equity in the company?

I'd expect people who love their jobs and who work on something crucial, such
as researching new medicines or making more efficient batteries to want and be
able to do this. No offense, but if this ultimatum was handed out and I wasn't
vested like the top guys I'd bail.

~~~
crispyporkbites
If gumroad became a billion dollar company you'd be retiring on that 9 months
of work with even a tiny bit of equity. I bet there are plenty of people that
bailed out of google, facebook or other similarly positioned startups at that
stage and regret it.

~~~
nabnob
This is the type of reasoning that startups use to justify making employees
work 60+ hour weeks for a tiny amount of equity and below-market pay. Most
startups will not become billion dollar companies.

~~~
ricardobeat
You are both right.

------
mixmastamyk
Sounds like the story of a young person who drank the VC cool-aid. The company
should have been bootstrapped from the get-go... $25k/mo office, …doh.

Yep, easy to say as a greybeard and hindsight. But I remember Joel on Software
articles on this subject circa 2000, so some information was out there.

Between the lines I feel a lot of self-punishment going on. Well, I'd _love_
to have $10k+ of "failure" coming in every month, with the satisfaction of
helping the little guy/gal no less.

Perhaps you'd consider selling to someone who believes in the mission and
hates dark patterns? I don't have a lot of capital laying around, but some,
and perhaps something else could be arranged?

------
NelsonMinar
Grateful to read such a personal and detailed post. I had a startup that
failed myself, back in the long ago, and in retrospect I'm glad that if failed
quickly and cleanly. I admire this alternate path though of working your way
to a new equilibrium.

The offer from KPCB to let you off the hook for the venture financing is
amazing. Is that a common thing to happen? I get why they just wanted to write
it off and be done with it, but it still seems like a generous outcome. An
undo button!

------
lquist
On the one hand I applaud KPCB for giving up their interest in a founder
friendly way, but this also leaves a bad taste in my mouth and seems a bit
“Heads I win, Tails you lose” from Sahil’s pov. The VC investment let him
build a fully fledged product capable of breaking out. But it didn’t and he
still got to keep the company without much liquidation preference. This is an
example of a true VC subsidy.

~~~
super-serial
I wonder if an entrepreneur with less connections and not a part of YC would
get that $1 buyout deal. I would think the default would be ousting the
founder and selling the assets. Then the founder would be left with nothing.
They'd have no lifestyle business, even though they could have had one if they
never took VC.

~~~
mdonahoe
If he only did a series A, I doubt he gave up enough control to get ousted.

~~~
jessaustin
_Looking back, I’m glad we didn’t hit those numbers. If we doubled down,
raised more money, and appeared in the headlines again, there was a very real
possibility it would only lead to a more spectacular failure._

Hmmm, reading between the lines, you seem to have a point...

------
sixQuarks
Ouch, number 2 employee at Pinterest - a $10 billion company that’s about to
go public this year.

He probably would have been worth an easy 100-200 million.

~~~
sahillavingia
I prefer not to do the math.

~~~
crispyporkbites
It's crazy that you care about the money, being in your mid-20s with a company
pulling in 60k USD net/month puts you squarely in the pretty much unlimited
money category of the world.

~~~
jimbokun
"It's crazy that you care about the money..."

Did you read the article?

------
amelius
Refreshing. I'd like to see more "anti-survivor" articles so the survivor bias
gets toned down.

~~~
abraae
Yep, I was braced for more failed-but-really-succeeded porn.

This is a great read, and clearly from the heart.

~~~
randlet
> was braced for more failed-but-really-succeeded porn.

Isn't that what this is though? Sure he failed to build a billion dollar
business, but his business is still way more successful than most. Lots of
people would certainly kill to attain this level of failure.

I certainly recognise failure is a very personal thing, but from the outside
looking in this looks like a success overall, even though I'm sure it was
completely gut wrenching along the way.

~~~
bduerst
Kind of. Usually these trope-filled stories make a mountain out of some small
setback, but this story genuinely feels like the company had some major
setbacks.

------
sytelus
This is very inspiring and kudos to author for being so transparent to share
the experiences.

However I really wonder if he actually did any analysis on market sizing and
if there is something preventing them to capture the share. I visited Gumroad
website, explored it around and even signed up as user and still I have very
little clue how _exactly_ does it work. Yes, I can see it "helps" me sell
something but I absolutely don't see anything available for purchase. There
are no sign of marketplace. So where am I selling? How does the listing look
like? What is exactly going on here? If myself as a geek can't figure this out
within 30 seconds of landing, there is little hope for non-tech customers.

As an uninformed person in this domain, I think this market is huge. There are
dozens of websites like Etsy enabling creators everyday and doing pretty well.
However on those websites I know how exactly things works within a minute of
encounter. On Gumroad, I can spend same time to encounter those annoying
marketing jumbotrones that doesn't go in to any specifics. Being a lifestyle
business is great and I love it but sometimes lack of growth is few simple
issues like above and one should probably not confuse it with topping out
market.

~~~
boyband6666
I was thinking the same thing. I really enjoyed reading a candid perspective
of the process, but think there's more that can be done.

You almost need a second page 'GumroadTunes' where I can browse all the
products. I strongly suspect there is a lot I'd be interested in, but it isn't
in one place. The website justifiably focusses on the product for creators,
but since there are a lot of thinm, it also feels like you could be driving
more traffic/sales to them, and by extension yourself.

Again though, thanks for the interesting read (and the comments too - also
interesting to read).

------
rossdavidh
Not that you asked, but as a word of advice from a random person on the
internet: if you do go the open-source it like Wordpress route, it would be
good if you made an easy path back in to your product. Some people who start
off self-hosting WP, Prestashop, or whatever, then decide after a few years
they would rather have somebody else do it. Oddly, it is often not a marketing
focus for the company that makes the software. If I had a self-hosted, open-
source Gumroad setup, and a couple years later wanted to pay someone else to
host/manage it, I would want a clear and easy article on your website about
how I could turn it over to you and pay you to do that.

~~~
Terretta
I’m curious: why open source at all in this particular business model at this
particular stage?

------
jiveturkey
Nice story, but:

> It doesn’t matter how amazing your product is, or how fast you ship
> features. The market you’re in will determine most of your growth.

This is just a cop-out. The market will _limit_ , not determine, your growth.
It's up to you to hit that maximum, and use marketing/sales to extend that
maximum. That is called creating a market. And overall it's called execution.

OTOH, Sahil isn't wrong. Some markets are either not that ripe (timing is
important), don't have enough support, are too niche, and a thousand other
factors. But as a generalization, "Product doesn't matter" is just wrong.

~~~
rhizome
This story seemed inside-out to me. With the "you just have to find the right
pre-existing market" logic, as well as the (much more significant to me) "but
we were venture-funded, which was like playing a game of double-or-nothing,"
buried as an aside.

I think these are the real stories in this story: basically stable and
relevant, coupled with irrational growth pressure. I get it, though: the
personal journey through the wilds of Sand Hill Road, doing battle with market
forces with an army of unknown strength, and so I would have liked to see some
spotlight on _the mistake of taking VC._

In this way, we also see this conclusion about halfway through the essay,
"[s]o instead of pretending to be some sort of product visionary, trying to
build a billion-dollar company, I’m just focused on making Gumroad better and
better for our existing creators. Because they are the ones that have kept us
alive."

I remember hearing a lot about Gumroad! People in the UK(? Aus?) used it a
lot! In that way, this incredible journey appears as another log on the fire
when it could have been part of a nice house. Or something like that.
Everything about this story signals a decent business that was killed by VC.

------
stillworks
This bit is interesting...

"I am following up our conversation a few months ago. KP would like to sell
our ownership back to Gumroad for $1. Can we discuss this week?"

...do founders discuss a Plan-B exit strategy/costs with the VCs ? Do VCs (or
their lawyers) give this option or offer to discuss.

For Gumroad, it sounds as if this was a lottery or a happy coincidence. But I
am interested in finding out if VCs actually only are interested in outright
discussion of the up side (similarly for the founders... but that's kind of
apparent from observation, and ... well also reading your article :-) )

------
bdcravens
> The next year was not fun: I shrunk the company from twenty employees to
> five. We struggled to find a new tenant for our $25,000/month office and
> focused all of our remaining resources on launching a premium service.

Ouch. Even at 20 employees, $25k a month is insane when you have no profit.
I'm sure it was a pretty office, the kind that attracts good developers in a
competitive market.

~~~
eeeeeeeeeeeee
I thought the same thing. There are tons of people all over the world, or even
spread out in America, that want to work on an interesting idea with
interesting people. The office really does not matter.

It feels like so much of the VC funding goes to creating buzz and cool-factor
(cool office, free lunch, potential lucrative exit), which can obviously be
great marketing, but it really limits your runway and obviously the control
you have over your idea.

Still insane to me that more companies do not embrace remote work.

~~~
johnvanatta
Ehh. It doesn't matter up until the point it does. I quit my last job partly
because we moved from a nice area in a dumpy building to an awful space (no
natural light) for ~10 months. My health suffered, I felt depleted, and the
entire team was on edge. How easy to commute to ($$) and how nice it is are
definitely things I consider. Free food gets an outsized return too, if we're
talking >100k salaries--I'd bet $4000 in free food gets more goodwill than a
5% pay bump.

Agree that remote should be more widely used, especially in software.

------
lbj
Reading about a 19 year old kid, grinding through that incredible ordeal is
just awe inspiring. I think his constant re-focusing on creating value for
creators and employees first has been his guardrail against total failure in
toughest of times - I'm glad to see he powered through.

------
weehobbes
I'm really surprised that Gumroad has such low gross margins. For April 2018
$65k gp on $273k revenue is 24% gm. It looks better in December $135k gp on
$341k revenue is 40%, but still lower that what I would have thought. Is it
credit card processing fees? Server costs? What am I missing?

------
gfodor
I'm pretty sure this is the best post I've ever read on Hacker News, because
of its potential positive impact on others. It's one thing to give advice,
it's another to back it up with detailed life experience. The lessons shared
here are invaluable ones, and if writing this story helps others learn them
without having to go through as many trials to get there, you have done a
great service. Bravo.

------
puranjay
I remember when Gumroad first launched. I was 24 at that time and just
couldn't believe that a kid that young could be so good at making such
polished products.

To that end, I considered Sahil - and people like him - to be my model of
success: being able to bring your vision to life.

------
jsonne
"Man reflects on horror of being millionaire instead of billionaire."

Should we start a Gofundme for him? What an unimaginable fate to befall
someone.

~~~
enimodas
While slaving away his employees who most likely don't share in his millions
now.

------
bluquark
It seems to me the acquihire option was rather summarily dismissed in this
post, and I’m not sure why. It would’ve been better for employees and
investors, and the customers at worst would’ve gotten a clean, slow wind-down
with time to find alternatives.

The idea that large companies are horrible places to work and where good
products go to die is another stereotype spread by VCs to convince people to
go hard into billion-dollar companies.

~~~
jumpingdeeps
Agree--definitely a better outcome for all the stakeholders, including Salil
(given the opportunity cost of building a lifestyle business). It didn't even
have to be an acquihire. He had enough of a product and/or business that a
buyer with the right strategic market need for it would have bought the
company for more than x per developer.

------
shruubi
You think you failed because you got to quit your comfortable job with high-
valued stock options to chase your dream and turn it into a profitable
business? To me that sounds like someone who is in it for possibly the wrong
reasons.

------
uptownfunk
This brings me back to a few lessons I’ve learned from other friends:

+One of the CEOs main roles is to raise money

+Rich or King? Know which one you wanna be.

+How much is your friendship _really_ worth? Think carefully about this before
you get in business with them.

------
jshowa3
Honestly doesn't seem like he failed at all. Sounded like just bad times for
the business. I mean 2 years of difficulty seems like a minor thing in the
grand scheme of the business lifetime. Not only that, the business literally
keeps growing if the graphs are to be believed.

Failing is when you can't come back and you close the business.

~~~
rchaud
I think that's the point the author is making. The benchmarks for "success"
are different if you're in the SV VC-funded startup world. What may be a
sustainable 10-person staff e-commerce business would be seen as a failure in
some circles because it didn't grow fast enough to IPO, which is all VCs care
about.

------
jmrobertson
"Every month of less than 20% growth should have been a red flag." It's
concerning that this is the state of affairs for expected business growth

~~~
robterrin
Venture capital is broken. Plenty of other good businesses to create out there
that don't have to do 20% month over month.

------
ttul
This is totally awesome, @sahillavingia. For a young guy, you have learned
some incredible lessons about business in a VERY short time. You are
positioned well to build that billion dollar venture that you originally
dreamed of. It might not be called Gumroad, but who cares?

"It doesn’t matter how amazing your product is, or how fast you ship features.
The market you’re in will determine most of your growth."

This is so utterly, absolutely, painfully true. We hear stories of hypergrowth
as if you can just choose that path and it magically happens. Reality is: most
companies never get to hypergrowth. Your only real option is to pick a large
potential market with a reasonable hypothesis for getting there. And then see
what happens.

------
mrskitch
After having founded a non-VC backed company (browserless.io), my anecdotal
experience is that most potential creators out there need more encouragement
to stand out on their own two feet. The maker market has huge potential, but
there are so many barriers to entry that it does stifle growth.

It takes almost a perfect storm of potential, communication, determination and
timing to birth a successful company/product. I think it's just what our
"startup" environment tends to favor, and how the ecosystem just works, for
better or worse. If we had more companies like Gumroad, Atlas, and
IndieHackers I think that there'd be a proliferation of growth in the creator
space. Even just getting decent health insurance as a single-person
LLC/company is a frightening thing, and that's just _one_ obstacle!

I also think that, once more and more folks awake to the idea that you don't
need VC funding to get something off the ground (and that it's really an
achilles heel in many regards), that more products will start getting out
there. It's also a conflict of interest many times: they want a return on
their capital, whereas you want that _and_ to make something of value. Sure,
VC is necessary in many regards, but it also isn't in a lot of cases.

I'm really happy that Gumroad stuck it out and is fighting for creators. Just
the notion of them _not_ closing for financial reasons is comforting to me.
Means that they cared that much about their users and the bigger picture,
rather than just money.

------
netwanderer3
Seriously can any company in this world even sustain a 20% monthly growth
rate? That seems like an impossible target to achieve and set you up for
failure right from the beginning.

I have come across Gumroad a number of times as a customer and unfortunately
some of the products sold through there were often either low quality or
grossly overpriced. After numerous occasions, eventually any products that use
Gumroad would immediately appear as a turn off for me. This was just my
personal experience.

~~~
bdibs
Spending $2 to make $1 with VC money is a pretty easy way to boost growth and
see numbers like those.

------
scriptkiddy
I have to say, this was a very pleasant read. I expected it to be a thinly
vield ad for some new business, but it was actually very insightful.

Seems to me like the author's failure taught them a valuable lesson about what
they actually valued vs. what they thought they valued.

I would like to see more tech companies like Gumroad; that is companies whose
focus is not on IPO and quick aquisition, but instead, on the quality of their
product/service and the prosperity of the customers/users.

------
woogiewonka
Thanks for sharing your story. There are many valuable lessons there and I
certainly wish you all the best.

I am familiar with Gumroad as someone who has used it to buy things. From what
I recall, the UX was smooth but left me wondering about the ease of
cancellations / ways to handle refunds. I recall not feeling like the product
lacked something critical - perhaps it was Paypal integration, but I don't
remember. Something about it didn't sit right with me as a customer.

From a UX perspective, I feel that some of the commenters here are onto
something. The website does not make it clear what the product does. Looking a
bit into it, it feels like there are two products in one - payments and
audience building - something that I would expect to be separate. It's like
the product is trying to do 2 things well instead of 1 thing really well. Of
course, this is my personal opinion which could be harsh and unfair seeing how
I am not really qualified to give advice. In all, you know your customers and
their needs best and it's great to hear you havent given up on gumroad. I hope
things go your way and you accomplish everything you set out to do.

------
snake117
This was a really insightful read, so first of all thank you to Sahil for
writing and sharing this.

I think this is a perfect read for anyone contemplating on starting their own
business as this clearly illustrates that not every startup is destined to
become a unicorn and/or should be _heavily_ backed by VCs. Moreover, if that
is the only reason why you are pursuing your venture, then you will most
likely experience heavy turbulence, possibly face the brink of total failure,
and possibly just have to accept failure.

All that being said, I really enjoyed the end of the post, where he was
explaining his change in outlook and open-sourcing the service. This could
lead to wider adoption and potentially open new sources of revenue, similar to
Discourse and how they can create and manage your forum for a fee even though
the product itself is open-sourced. The reality is, sometimes people need the
middle-man and it is nice to have the option available if you are in that
situation.

Thanks again for sharing your experiences. I wish Sahil and the Gumroad team
all the best :)

------
coupdejarnac
I use gumroad and like it.

This reminds me of the Patreon founder claiming a few days ago that he didn't
have a sustainable business. Did Patreon or Gumroad need $10 million of VC
money? Do they need to be located in the bay area? These seem like sustainable
businesses that shoot themselves in the foot with unnecessarily high operating
expenses and unreasonable expectations from VCs.

------
ThomPete
The lesson.

Don't take VC money before you've built something (anything) and tested it
out. You don't want to give away equity to invent your product.

I am aware it was way harder to build something in the payment space back then
but still.

Great story and while I definitely am happy Gumroad is doing well it's also
great to know that good things can end well with a fizzle rather than a big
bang.

------
misterprime
Thank you for writing that up. Is there a healthier, less painful path you've
identified for a company such as Gumroad to come into existence and get to the
point it's at today?

Perhaps a traditional business loan from a bank and a smaller team from the
start? Would it be possible to aquire new users at a similar rate without the
VC headlines?

------
anderspitman
He links another post he made a year ago about moving from SF to one of the
most conservative/religious cities in America[0]. Both were great reads.

[0] [https://medium.com/@shl/from-bubble-to-
bubble-21d86195e178](https://medium.com/@shl/from-bubble-to-
bubble-21d86195e178)

------
lordnacho
Why would KPCB sell back their stake for $1? Why not just hang on to the stock
just in case it turned around? The explanation that they didn't want the
overhead of appointing a board member sounds strange. If you don't like the
company, send a junior person who can learn board membering in an unimportant
firm.

~~~
winslow
Sounds like they wanted the tax benefit of marking a loss on the investment.

------
adamesque
Reminds me a lot of Bandcamp, which serves a similar market and has a similar
and very refreshing ethos: in it for the long haul, dedicated to serve their
audience because (likely) nobody else will, because there's not and never will
be VC-sized 100x upside.

------
newyearnewyou
If you're given $8M, how hard are you really struggling? I think many people
here on HN believe they could build a tremendously successful company with
$8M.

It's frustrating that I cannot get money for my ideas, which I believe are
more impactful.

------
robterrin
Off topic, but Sahil, love your drawings and paintings on your IG.

I've thought about the idea of moving to a place like Provo from NYC, but I
work in cybersecurity, and I don't think there's a client base anywhere but
DC, NYC or maybe SF.

------
aiisahik
For the employees of a VC backed company, the liquidation preference of its
investors is cage - a cage that you can't break out of unless you become a
billion dollar business.

This is a wonderful story and I have such enormous respect for Sahil for
sticking it out. I wonder if the story would be different if the investors
didn't give up the keys to cage.

Here's a challenge to VCs: do you really want to strangle us if we turn out
not to be the billion dollar business you hoped for? And if you don't want to
strangle us, put your money where your mouth is and do away with the
preference. Better still, buy common stock :)

------
jordinl
I'm sure it's been a very tough experience and the author learned a lot during
the time. But I would expect that if you fail to build a billion dollar
company you end up at least with a $100 million company...

~~~
beering
Unfortunately failing to build a billion dollar company often means ending up
with a $0 company. Like the OP said, VC too often comes with the pressure to
either succeed in a big way or pack everything up and go home. And when your
liquidation preferences are greater than the current value of your company, as
a founder it's not very compelling to keep moving forward.

------
wheredTheyGo
Cool story! Makes me think I should write my own up someday.

However, one thing I find odd. The story talks about the creators and how
important they are. But when I go to gumroad.com looking to see all these
creators, I see how to sign up as a creator, but don't actually find the pages
of other creators. Where are they all? After reading the article, I don't get
how the business works, I guess. The article led me to believe it was similar
to Etsy where creators sell their wares. Is that not the case here?

------
jameane
It's sad building a sustainable "lifestyle" business isn't good enough in go
go go Silicon alley culture. At the end of the day, our communities do not
need dozens of Amazons who grow too big to actually participate in a
meaningful way in the local community and motivated by stock price and not
impact.

The country would work a lot better if everyone who wanted to could build a
lifestyle business. And sustain themselves, their families and maybe a couple
of employees.

------
codazoda
I started using Gumroad to sell zines that teach you how to program by
creating generative art
([https://gumroad.com/l/splashofcode](https://gumroad.com/l/splashofcode)). I
love their product and I enjoyed reading this post about their journey. I'm
also excited that they plan to open source the product, providing a perfect
alternative if they were ever to be sold or shut down.

------
jayalpha
"In 2011 I left my job as the second employee at Pinterest"

Does this shitty website have a business model besides spamming google picture
search? Sorry for the rant.

------
beatpanda
David Heinemeier Hansson gave this speech at one of the early YC startup
schools and he's still right about everything. This feels like such an
impossible relic now that YC is firmly part of the grow-like-cancer VC
universe. How things change.

[https://www.youtube.com/watch?v=0CDXJ6bMkMY](https://www.youtube.com/watch?v=0CDXJ6bMkMY)

------
wtmt
> On top of that, our product ideas, like our credit card form and inline-
> checkout experience, have proliferated the web, ...

I've used Gumroad several years ago (as a customer), and the simplicity of the
transaction and this interface was something refreshing.

You also say that you'd make Gumroad open source soon. May we know what the
tech stack behind it is?

~~~
oddevan
From their calls for part-time/contract devs, I think it's largely a Rails
stack.

------
johnmarcus
poor guy, only making millions since 19. let me get my violin out.

------
echan00
Incredible article. Thank you for taking the time to share and educate the
world (and me) about your experience as a startup founder. I'm so happy and
proud of you to hear that you've found your way as an entrepreneur, who you
are in life and what you want to do with it. Good job!

------
WilliamEdward
The bigger, separate issue, is that billion dollar companies fit a certain
mold, not one you should ever strive for to be honest. Just do a quick manual
analysis of the top companies of the world and you will pick up patterns in
them that Gumroad would never have had.

------
pmarsh
I had not known about gumroad and took a look. Would you ever introduce more
of a product browsing store front experience?

I see all these great categories in the search drop-down, but no way to just
take a peak into what was available.

Great read and glad you are enjoying your journey.

------
goatherders
I think its hilarious that so many of the comments are calculating how much
money he can make from Gumroad when the ENTIRE point of the piece is that "
_hey_ there is plenty of success to be found in non monetary ways."

------
jmrobertson
"Every month of less than 20% growth should have been a red flag"

It's mildly concerning that this is expected business growth. Endstate is
what's happening now- how to get the public IPO to value my $1bil co at $1bil

------
evanweaver
Amazing and poignant story; thank you for sharing.

I do wonder if there was a path for Gumroad to become a Shopify killer,
instead of focusing on sellers too small and unsophisticated for Shopify,
which limited the addressable market.

~~~
Eric_WVGG
They're not really congruent products… if anything Gumroad is more similar to
Stripe. But to take your question seriously, I'd far rather hack together a
shopping site and use Gumroad for payments than grapple with Shopify again,
they give me a migraine.

Gumroad is also going to have some new opportunities if Patreon continues to
struggle with their similar deal-with-the-devil.

+1 Gumroad, glad to see it's found a way to thrive.

~~~
KaoruAoiShiho
Yes I'm confused why Gumroad didn't become more like stripe or patreon. That
would've been a natural development. It must be execution problems.

------
galfarragem
More relevant than the cliché striptease of a failure, specially when told by
a youngster, is this tidbit hidden in the article:

 _To me, happiness is so much about an expectation of positive change._

------
cityzen
Biggest lesson I learned from my failure to build even a million-dollar
company was the same... You can't engineer your way out of a marketing
problem.

------
imetatroll
This is quite the inspirational read believe it or not. It is really good to
hear about success that is actually a matter of redefining perspective.

------
luord
This is one of the best examples I've seen on "fighting for the users", the
rule that every developer should follow.

------
Quanttek
Stupid question, but what does gross profit mean here? How can the costs be so
high to provide one more gumroad installation?

------
wishinghand
I wonder if this issue they had is why they went from charging 5% per sale to
a monthly flat fee instead.

------
wespiser_2018
Great story. At the end of the day, we all need to be building something we
can be satisfied with.

------
mlthoughts2018
Suggested title change: “Reflecting on My Failure to Win the Lottery”

------
Waterluvian
To some money is a tool. To others it's a high score.

------
aboutruby
I'm pretty sure I saw that graph of the CEO not working much correlating with
low growth like a year ago

------
DVassallo
Businesses have a right size, and growth for growth's sake is cancer. Venture
capital fuels the cancer.

------
YeahSureWhyNot
this was a nice and soothing read...

------
aazarshad
Thank you :)

------
codinger
humble brag

------
Animats
Wants a login.

------
anxman
Amazing post.

------
the_other_guy
I am not sure whether he's really serious or this is a long false modesty
article about himself

~~~
bdcravens
I've had some interactions with @shl on Twitter where he seemed a bit full of
himself (a few years ago - I didn't realize he was so young, so that probably
had a lot to do with it). However, he could, and most would, have cut and run
and found the next opportunity. Not doing so probably cost him millions of
dollars; that's pretty authentic in my book.

~~~
sahillavingia
I'm sorry you had those interactions with me in the past!

I think I've grown since, but it still sucks to hear that about past-me.

~~~
bdcravens
No worries at all. Keep building good products and you as a person (too many
double down on their character flaws).

------
tempodox
What a nice mirror. Narcissus would be enthralled.

------
ncmncm
It was an interesting read until his admiration for Bill Gates soured it.

Besides milking the world of untold billions in unearned profits by illegally
enforcing a monopoly on OSes, Gates personally held back progress in
development of computer software by easily fifteen years. (Youngsters who
never suffered Windows 9x might not know that Microsoft singlehandedly changed
the meaning of "crashed" from "I need to restart my program" to "I need to re-
install my OS".) It was only the explosion of smart phones that knocked his
jackboot off the world's throat. Now he is putting drips and drabs into
philanthropy to try to salvage his reputation.

Inspired by Bill Gates? No thanks.

