Thanks HN for being a part of my journey!
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!
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. :)
You can be one of the people you help.
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.
Nothing matters to you once your dead. Other peoples' assessment of your life is irrelevant to you.
I would rather live my life happy with my decisions (part of which is helping people because of my own morals) rather than helping a bunch of people in ways that make me miserable.
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.
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.
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.
What you do in life, echoes in eternity.
But to address your question: people 'take the limit' and argue that life is just meaningless in every way all the time. If it were true, you shouldn't be bothered to make that effort in the first place. Obviously your actions matter to other people by the sheer virtue of the fact that you're optimizing for it. if you weren't, you wouldn't have bothered to ask the question.
Sometimes life is what you actually do, not merely what you think.
I don't disagree with your overall point, but I do wonder why those should be the only two metrics to consider. IMO, the range of metrics is nearly infinite and highly subjective.
Yep. For me it's "number of Mötley Crüe concerts attended" and "number of Trans-Siberian Orchestra concerts attended".
(currently "4" and "4 or 5" respectively)
I'm also very happy that they've slowly been incorporating more old Savatage songs into their sets. :-)
I'm curious now: is there a story behind this ambiguity?
But of course those are highly correlated - it's easier to help a lot of people if you have plenty of surplus wealth and time to share out. I'd imagine that Warren Buffet will end up helping more people that almost anyone else in the past 100 years despite never really having a goal other than "make lots of money."
But in addition to that, there is absolutely nothing to suggest that the extremely wealthy are generally a positive force in society. Many give nothing or close to nothing back, and often work against the interests of others in so many ways (trying to decrease their own tax burden, hoarding wealth in assets, disproportionately damaging the environment, etc.)
Americans in particular worship the wealthy, but I really believe that it is utterly misguided.
As far as Warren Buffet goes, I don't worship him - he got pretty lucky, was a little bit disciplined, and rode a wave of increasing value of American stocks for 40 years - but to say he has been a "premier monopolist" (hint: having high profit margins on the back of brand recognition like Coca-Cola and Apple have done is not what a monopoly is) or is a "parasite on economic growth," is only your own preconceived bias.
And as far as the behavior of the very wealthy in general, the things you describe are things that the middle class or the poor do as well. The vast majority of human beings are assholes, unfortunately. If you do happen to be a good person, though, I think the world is better off if you're wealthy than if you're poor. And if you set out to do the most good possible in the world, then choosing a career where you can make a lot of money, and then donating a large portion of it, is not a bad way to go. Doubly so if you can help people along the way, as many doctors or lawyers with pro bono hours do.
Gumroad will be worth that in a few years at this rate, and he could cash million dollar paychecks along the way if he wanted.
That's why it's way to dangerous to just follow any guy and do a startup and waste a few years of your life.
That's my best guess, yes.
> Meanwhile his investors lost all the millions they invested.
Well, some sold his equity back to him for $1, so yes.
> His employees lost all the time and vesting.
Well the employees could have exercised their grants when they were laid off, but I doubt they were inclined to double down on what was then a failing company.
> That's why it's way to dangerous to just follow any guy and do a startup and waste a few years of your life.
I mean, the employees got paid all along the way, and probably not that much less (if any) than they would have working for another company, and they got to work on something they loved.
Sad that it didn't work out. These things are risky, but having worked at startups and not gained anything from the equity I would do it again in a heartbeat.
In both cases the founder made between 20-50 million.
Founders own more of the company than employees, of course. The good news is anyone can start a company!
And if, God forbid, they wanted to start their own company and waste a few more years of their life (your words, not mine!), well... Everything is easier when you’ve seen someone else do it.
To what do you attribute the challenges?
Were you building a product there wasn't a market for, what you were delivering wasn't what people wanted?
Or, a marketting failure, inability to get enough people to know about it, and to understand how it would fit their needs?
Or, what I think I get from your post, is maybe you think neither of these -- rather you just tried to grow _too quickly_, quicker than the market/product could bear, and then had to deal with that.
Do you think if from the start you had _not_ tried to create a "billion dollar company", stayed smaller, accepted less investment with clearer expectations, had fewer employees, etc. -- you would have still been able to get to where you are now, but quicker and with less pain? You still would have been able to get _enough_ investment, and with the investment you had still would have been able to build the product succesfully?
I think maybe that's what your essay is implying you are suggesting, but I'm not totally sure if that's what you mean to be suggesting; or maybe you don't mean to be "diagnosing" it at all and aren't interested in these questions of what-could-have-been at this point. :)
> aren't interested in these questions of what-could-have-been at this point
Exactly. If we shipped this or that feature... If we raised more, or less.. If I stayed at Pinterest... If I invested in Bitcoin...
I'm just not sure I gain a lot from thoughts like that!
Just from visiting the landing page for gumroad.com, I wasn't clear about what the company did. Some questions that came to my mind:
By e-commerce, is it like shopify or like stripe? By audience-building software, is that SEO, marketing, or analytics?
Just writing the feedback I like to get from others. The features page answered most of my questions in general(I think its an online store platform for digital goods?).
It's a bit ironic that one of the main features of the product is "audience building for creators".
One point this guy made was that a lot of businesses develop additional overheads and need a lot of cash to grow after they reach around $1M in annual sales. Going from $1M->$10M is a big step which is hard to self-fund, there is some risk involved, and the owner's mindset needs to change.
I couldn't help but think, hey a consistent annual $1M in sales is quite an achievement by itself. If you own most or all of the equity in that company, financially you're doing far better than most people (OK, maybe less true if you run in certain Bay Area circles). This is a perspective you won't hear from VCs, but if you hit that milestone, who says you have to go higher?
Maybe it's OK for a founder to just stop at some point, especially if they don't enjoy what they're doing or they've been under-investing in other areas of their life.
Annual sales of $1M does not mean "generating a million dollars a year". In some industries, those $1M in sales might be as low as $30k to $50k in earnings (though it would probably be more for a software company).
> getting someone to give you that much money for something you are selling is a lot harder than most people realize
Absolutely, I agree! But the value of a business – which you were talking about – isn't determined by its revenue alone. In fact, earnings and earnings growth determine the value of a business a lot more than revenue.
Even for a "mom and pop" business – especially for a mom and pop business – earnings are much more important than total revenue.
Then I thought about it and said to thyself, "actually, a million is a lot either way." I've actually founded two companies that grossed over a million in a year (one at about 40% gross, 5% net and one closer to 75/65) and both times have required a whole lot of work.
So my fault for being vague, not intended.
> But I was accountable to our creators, our employees, and our investors–in that order. We helped thousands of creators get paid, every month. About $2,500,000 was going to go into the pockets of creators — for rent checks and mortgages, for student loans and kids’ college funds. And it was only growing! Could I really just turn that faucet off?
I really appreciate that you value being beholden to your customers more than your investors. It seems like as you've bought back your ownership you've had more opportunity to run your company the way you want to, and I admire that that way is doing right by your customers. If I ever start my own company, I would like to run it this way.
I also mentioned selling jQuery plugins (remember jQuery?) and advertising my own game engine (now free) in the thread. Feels like such a long time ago.
Gratz for pulling it off, Sahil!
(Though, I was living in SF.)
One question: You mentioned that you raised ~$8m from investors, but that your liq. preferences used to be $16.5m. Was there a 2x preference in the Series A term sheet?
$7M @ 1X
$2.25M (the bridge I mention) @ 4X
If you have 'startup' with so many unhappy customer - its expected to fail. https://gumroad.pissedconsumer.com/review.html
Focus more on being open, transparent and being kind. Good luck!
Couldn’t quite spot the failure though... maybe ESL thing.
I am a huge fan of gumroad, I remember your interviews on podcasts when you launched.
I have a couple Gumroad T-Shirts that are still my favs.
I have bought info products using Gumroad and it's a great experience.
Will definitely use you guys to sell my own in the future.
> Soon, we will also open-source the whole product, WordPress-style. Anyone will be able to deploy their own version of Gumroad, make the changes they want, and sell the content they want, without us being the middle-man.
thanks for writing this article. very useful to me (as someone working on iteration 2 of a company).
(If you see this, could you please fix the paypal integration. In India, we don't have any protection if credit card data gets leaked, (and could end up paying off whatever the hacker charges the card) and I don't use my credit card online if I can help it
Thanks in advance)
In hindsight, what do you make of companies choosing or rejecting venture funding in the first place?
Big fan of Gumroad! As a customer, it's one of the neatest checkout flows I've come across, among Stripe.
Do you have any plans to expand into subscription offerings?
Because that's a problem I face with Stripe as well.
> 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.
It allows them to continue to make the representations of growth to future investors, the more buy in have from investors, the more you can continue these market/marketing manipulations (e.g. the fyer festival).
Of course the entire SV ethos encourages this behavior: move fast and break things, growth hacking, and fake it till you make it. It’s also built into the system that 9 out of 10 of these scams will fail, but every 10th scam can be offloaded to the public through an IPO.
> For the type of business we were trying to build, every month of less than 20% growth should have been a red flag.
According to what metric? This isn't meant to be snarky, but that type of growth rounds out to about 900% over the course of a year. Even if it meant that they'd grow 20% in the first month and had profits plateau immediately (i.e. 20% -> 16% -> 14% -> 12.5%), that's still 240% growth over the first year. What kind of business expects 900% to be the minimum growth over the first year?
The Metric you have to meet now is Facebook's growth rate in the first few years of launching with high gross. 500% first year, 250% next year etc...
Those charts and numbers, all pretty good IMO. If someone came to me and said "Hey I (or we) made this thing here is what it does and the numbers." I'd be all about high fives and such. And yet at times they didn't think so based on the route they went, very interesting.
I always wonder if there is value lost in companies that are shuttered because something isn't the next big hit, or some private equity decides they want to cash out / break up a company that otherwise... would be just fine and would have continued contribute.
Of course there is, but you have to compare it with the opportunity cost of working at something world-changing.
But even from an individual perspective, I gotta think there are folks who would be fine working at a more ... not world changing business too. But these companies sometimes get shutdown or torn apart because they're not something else.
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.
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.
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.
If someone had X amount of dollars they want to maximize the rate of return on that wealth. The point of growth in investing is that you can see the future before it happens and pocket the difference.
For example if I invest in company Y and they are growing at a certain rate, I can sell my portion of the company based upon expected future potential. If the buyer of my shares believes the company will become 30% larger in 5 years, that is not much more than they would earn if they had some investment that return 5% a year. If the buyer of my shares believes my stock will be worth 100% more in 5 years that would now be equivalent to a return of 15% a year.
So here comes the trick. Even 10% a year would be a great rate of return. So I can sell my shares at a premium. Pocketing the 5% today as opposed to waiting 5 years. If I can pocket 7% or even 10% of that would be even better. Now if this company will be worth 500% more in 5 years, you can see how I would stand to make a large amount of money today by selling my asset that will be worth much more later.
With a company growing at a normal speed, there is not much of a premium I can extract for future growth to a potential buyer of my shares.
I suppose the investors are selling them a dream of fame, fortune, and early retirement, shored up with the implication that "if all these financial wizards want to invest in me, I must be on the right track." The fact that the investor expects most of his investments to fail, because he only needs one big success to wipe out all the failures, is glossed over.
because they either don't understand what's being done to them (after all, VCs can be very smooth talking), and the prospect of faster wealth gains for the founders also doesn't help.
If you start at 1 million users, 20% monthly growth for 9 years means you would have 13,375,565,248,934 users, or a little over 13 trillion.
The reason this is true is that your investors are giving you a lot of money.
Think of it this way, I have a big idea, and I've turned that into a small product making say 10k a month. What I'm telling the investor is that I NEED these millions to turn this small product into the big idea, and that I'm ready to scale this out.
At the point I'm asking you for money, I'm representing that I have the product that the market wants. I'm representing the marking is huge, and that I need this investment to take advantage of it.
Its not unreasonable to say that with that kind of money I can take something that's making around 10k a month and turn that into 30-100k (10% to 20% MoM growth) a month in a year.
The way I think about things is that there is some market with a size Y (or, size X now, but with the hope it will grow to Y). You need to service a certain percentage of that market to achieve economies of scale that make a business worthwhile, and capture enough that you have some sort of moat. In the presence of VC-money, that percentage has to be high enough that there's an upside to investors.
Given that goal and the idea that you only have so much runway to get there, because you'll either run out of money, or risk a competitor capturing the market. As long as you are on the right trajectory things are good.
The reason that I think monthly growth is a poor metric because it's looking at the delta and ignoring the goal. It doesn't matter if you hit 10-20% or more every month if you aren't going to capture the total market you need to succeed. Also number of customers is a poor proxy, because you can have a weak business model and lose money on most transactions as demonstrated by Pets.com.
In b2b & esp enterprise, a solid co seems:
* Year 0, 1: $0K-$1M (e.g., POC money or OSS project at another employer)
* Year X: $1M ARR <-- series a territory
* Year X+1: $2-4M ARR (ideally 3X+)
* Year X+2: $5-10M ARR (2X+) <-- series b territory
* IPO: $200M+ @ 1.5X growth
That's based on recent IPOs. b/c big seeds and series a concentration, maybe diff for current crop?
The post resonates. It took us awhile on "0->X" b/c we do deep tech vs vanilla saas, and had to get it to the point we can start cranking on more pure-product stuff. So for deep tech co's, you either make no true product and flip, or do a lot of work before even getting to the real business journey.
If you start with 10 users in month 1 all you need is 90 users in month 12 to have 20% MoM growth. Well, that's doable.
If you start with a million though you need to have 9 million by the end of said year. Tougher to find 8 MM new users than 80, don't you think?
If you're someone like Facebook with a billion users, good luck finding 9 Billion after 12 months of growth ;)
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.
It's a smart move to capture some of that VC money without having to pitch anything to them.
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.
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.
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."
I feel like this is exactly what most companies should strive for. They'll make better decisions that way.
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?
If he bootstrapped and reached 780k/mo after 8 years of work that would be a successful lifestyle business and he should be absolutely proud.
I'm absolutely not trying to be judgmental as I've succeeded and failed at businesses myself.
$65k is the gross profit, which appears to be before operating expenses are accounted for. He doesn't list the net profit in the tweet (as he does elsewhere in the post). In the other mention, net profit was just under 1/4 of gross profit. So he's probably netting somewhere around $15-25k/mo, depending on how much of his costs are fixed/variable. Still good, but considering how many millions went into the business, not great.
I find it difficult to call $10M/year a “lifestyle business.”
To me, lifestyle business means a business that can support the owner in their lifestyle. So unless the owner spends millions of dollars every year...
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.
I respect and admire pg as much as probably anybody on this board, but I still reject the idea that he has any particular standing to declare his subjective definition of "startup" to be "the" definition by fiat.
I would argue that "startup" actually refers to "businesses that are designed to grow big", where the speed at which you do so is mostly irrelevant. If one wants to raise VC money and tie themselves to that particular time-boxed constraint, that's great. But you can just as well do it "slow and steady" by focusing on early profitability and continually and incrementally reinvesting profits back into the company for growth.
Neither is "better" or "worse" than the other, except in context, just as with the quarter-horse/camel example.
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.
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.
Perhaps in the US, and probably in just a small part of the US. Everywhere else, a startup is just a new business.
While I realize people don’t always like to use constraining labels, limiting the word “startup” to businesses that are aggressively seeking a rocket-ship trajectory actually strikes me as a useful convention.
I think it's funny, though, that non-tech industry leaders critiqued Bezos in the past for running a 'lifestyle business' when in fact Amazon was always a technology company and has become dominant and successful to boot.
> We kicked butt, had fun, didn't cheat, loved our customers and changed computing forever
... and in many ways, it seems like only a "lifestyle business" can really prioritize those over core revenue and growth metrics.
Bryan Cantrill's discussion is also great: https://www.youtube.com/watch?v=-zRN7XLCRhc&t=2000
There are a lot of companies like this (big & small), though sometimes its not recognisable from the outside. Note the goal is still ostensibly to make money. You don't run a business when you could have retired if you don't love growing businesses. I cant imagine a founder turning down an offer to expand rapidly, if it made sense. They just tend to avoiding going all in on a particular bet and for obvious reasons don't like ceeding control to outside investors.
I don't think I've heard the phrase lifestyle business used that way. I'm not in the US let alone silicon valley so that might be relevant.
Rather I've heard lifestyle business used to describe a business, typically with zero to half a dozen employees, which the founder can run without putting in a whole bunch of time.
A real but deliberately vague example. A company that acts as an authorized dealer for a manufacturer. The sales company handles the sales process and takes orders through a website supplemented with phone calls. Actually shipping the merchandise and handling after sales customer support is done by the manufacturer. Why they don't want to do their own sales I don't know. Staffing requirements are one person to answer any phone calls and someone to do the books. Owner's required time is maybe a few hours a day.
Commissions on sales cover all the bills etc and let the owner pay themselves handsomely but it will never be a giant enterprise.
Really made me rethink my priorities and has had me change the kinds of things I do.
I guess it sounds too bourgeois for the young (and not so) SV rebels who are in to change the world and make some billions along the way.
Furthes, he ran this "lifestyle" business with outside investors.
He's written a nuanced, heartfelt essay, and this comment seems to have missed all of that to nitpick on a word.
Hackers news comments in a sentence.
Being a part of the SV startup ecosystem myself, I also see the term "lifestyle business" used as a soft-perjorative for "not ambitious enough".
They now have come around and appreciate their success. Their use of "lifestyle business" was chosen to convey their own negative attitude at the time.
The comment I replied to totally missed that the author wasn't critcizing their own business! They just felt badly about it a few years ago. See the part of the comment where they praise gumroad.
A more self aware comment would have merely decried the prevailing VC attitude that led the founder to feel bad. Instead the commentor seems to think the founder needs cheering up and convincing.
It's refreshing to see this perspective from founders. It's a story not often told and does well to characterize the grinding rollercoaster of hard decisions you won't easily find in the sea of "A-co raised $40mm!" press releases.
People seem to forget that the VCs are hidden from the blowback of those cut-and-run decisions, so it's easy for them to make those flippant recommendations. It is the executives who will be publicly shamed for cutting and running and that reputation will follow them and likely catch up to them.
Good on Sahil for sticking it through and getting out of the bubble and realizing that chasing money is not the path to happiness.
> Now, it may look like I am in an enviable position, running a profitable, growing, and low-maintenance software business with customers who adore us. But for years, I considered myself a failure. At my lowest point, I had to lay off 75% of my company, including many of my best friends. I had failed.
> I no longer feel shame in the path I took to get to where I am today. It took me years to realize that I was misguided from the outset. This is that journey, from the beginning.
He acknowledges that he is grateful and proud of his lifestyle business. There's nothing wrong with the phrase itself. I run a lifestyle tech business as well. I'm proud of it. I switch between "small business", "sustainable long-term business" and "lifestyle business" depending on my audience. "lifestyle business" doesn't have to be a dirty word if you don't use it as one.
But really it just means “business that supports a lifestyle”. Which a “startup” does not.
In that light, startup is the bad word when you think about it. What, you run a business that can’t even support your lifestyle? LooooooL
And yes if I’ve learned anything about silicon valkey in the past 4 years of living here is that people are elitist as fuck, hate their lives, and grab onto any little thing to make themselves feel better than others. It’s what they need to endure the grind and that’s okay. I get it.
That's when good old "small business" should be sufficient enough IMO. It has a stigma but it shouldn't.
To me vanity is a major red flag. That sort of self serving quality needs to describe the founder as somebody willing to ask for cash and drive necessary growth, but must not be a goal driving the business. The difference is that the qualities (appearance) of vanity are attainable early.
The lack of business sense in the startup scene is absolutely astounding.
Too many opt for playing game of thrones instead of creating value and capturing some of that value as a profit.
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."
- 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.
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.
> 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".
All of the above seem synonymous and none seems particularly malicious, but "sent" is easiest way to express it. For a marketplace, I don't think anyone's naive to believe the host is directly advancing funds to the tune of millions. Is it really necessary to nitpick that?
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.
- 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)
Not really for Lyft/Uber, at not now that it's flat fee and ride pooling instead of a traditional per minute/mile fee structure. To achieve those thing efficiently you need data and until you get that data you're burning through a lot of money.
Thus paypal can tally up how much money they have sent to their customers. I can't see how you could misunderstand that or think there is malice in the formulation. I can't possibly anyone would sit there thinking that gumroad ment he donated money to people or invested it.
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.
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.
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...
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.
You actually label yourself that vs. an investor?
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."
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.
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.
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).
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.
Two years away from buying back shares for $1 from their VCs?
There's this whole swath of the internet that can support thousands of small businesses that's being slashed and burned by VCs in search of a unicorn. Gumroad and Patreon are both perfect examples. They are both good ideas that are well executed. They are not, however, companies that can extract tens of millions to hundreds of millions in profit a year. They really should be 20-30 employee type companies making a steady couple of million in profit.
Arguably they failed to execute some of what they did (their actual app or site) very well, but it doesn't matter, they picked the right market because I can't stop using it even in the face of other things.
What it comes down to is being content that you will not always make a billion dollar product. With that in mind, a big market has many definitions. Maybe you should have paid attention to the emotional aspect.
Clickfunnels addresses a slightly different market and has 9 figures of recurring revenue. Partly because they charge a lot more and have a lot more bells and whistles, partly because they have way more intensive marketing, but partly because they're targeting the demographic that wants those bells and whistles over the simplicity of gumroad.
In many cases, they're attracting customers who would never dream of using gumroad.
"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.
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?
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!
Hmmm, reading between the lines, you seem to have a point...
He probably would have been worth an easy 100-200 million.
But you’re still in an incredibly fortunate situation, and it’s all about the journey anyway.
It's fuck-you money either way.
Did you read the article?
Mmm...based on the valuation even 0.1% would equate to $10 million...not bad ;-)
My guess is he’ll make more from Gumroad over the long run.
"There are only 3 kinds of people: the poor that wants to be rich, the rich that wants to continue being rich and the idealist, that using his ideals wants to be rich."