When interest rates are low the cost of borrowing is low. Now investors can get returns by parking their money so the value proposition has to be stronger for them to invest in the first place, hence companies are now needing to show profitability earlier.
This, and another angle is that whatever market you are in, it is harder to run profitable margins if your competitors can eat the market while sustaining losses. And there was a lot of money around to sustain those losses.
Not to say it wasn’t possible to be profitable during zero interest rates, Linear being an example, but the competitive landscape is certainly healthier today for companies trying to be profitable.
I would not agree, as these sorts of things were frequent before the latest round of ZIRPs:
* Uber IPOed in 2019, had a loss of $8.5b that year; interest rates were around 2%
* YouTube was acquired by Google for $1.65B in 2006, it lost ~$350m in the year before and the entire music industry was suing it; interest rates were around 4%
* Facebook bought Instagram for $1b in 2012, which at that point had no revenue and no plan how to achieve it; this was smack in the middle of the previous ZIRP cycle, however I don't think anyone would say that Instagram wasn't a huge success either for the founders or for Facebook
I would agree ZIRP fuels those things (to unhealthy levels), but not that it's always the root cause.
> I would agree ZIRP fuels those things (to unhealthy levels), but not that it's always the root cause.
It you were to set a house on fire with just a lighter in your hands, you would not succeed.
If you have a lighter and a tank of gasoline, you might probably succeed. ZIRP was the fuel, the lightener and your will are the "root causes". But with no fuel, no fire.
It's really great to see the shift that has been taking place away from unicorns, growth for the sake of growth, and all the chaos that drove throughout. Maybe it's my own personal bias but I feel that these stories of low, slow growth; small teams, small wins but consistency are becoming more norm. While I realize there is still plenty of froth, it's inspiring and makes me hopeful for an industry shift in that direction.
"And when we launched after a year in private beta, almost all of our 100 beta users converted to paid customers." — That's a neat stat and one I'd be extremely proud of.
I'm used to thinking that a "startup" implies a small company with hockey-stick growth and eventual market domination, usually deploying large amounts of capital to fuel the growth. Otherwise it's just a sparking small business: a pizzeria is not a startup.
It seems that the internet allows for a third option: a small company that grows slowly and organically which eventually captures a significant market segment, still staying small. GitHub was like that for many years since founding. Linear apparently is another example.
Solid? Right up to the point some funded start-up starts giving away the same thing in the hope that they can fake it until they make it and take everybody else in the same space down with them.
Maybe it's my own personal bias but I feel that these stories of low,
slow growth; small teams, small wins but consistency are becoming
more norm. While I realize there is still plenty of froth, it's
inspiring and makes me hopeful for an industry shift in that direction.
I prefer small teams myself too, but do keep in mind "an industry shift in that direction" would also mean far less demand for developers...
This idea makes the rounds on HN quarterly. I think folks reading this need to check their business model. Every company is slightly different and unique to how they are solving a particular problem.
That said, knowing how you get to profitability or what you need to change in your model to get to it are fundamental things to know. But just because Linear did it the way they’ve outlined here, doesn’t mean that is what will work for your model.
I’m a little suspicious of this because every startup says that they don’t hire the next engineer, they hire the next great engineer.
I think a lot of the value is taking the ordinary engineers (by hacker news) and letting them actually do something. Staying small helps this, because you are not thinking of the business ops burden of not building microservices. You’re building your single dockerized app.
Keep in mind “great engineer” will be a subjective term that means different things to everyone.
To Meta, it might mean cream of the crop, $1m+ engineer. To early Google, it might mean Stanford grad with deep CS knowledge. To a no-name startup, it might mean someone who takes initiative and knows how to crank out ugly code quickly on AWS and makes good prioritization decisions.
Hiring great engineers is only part of the problem. Management and product needs enough vision and foresight to allow the great engineers to execute. It’s doesn’t matter how great your engineering team is if you keep redirecting them like a deaf stubborn dementia patient.
You need a mix - a team of only stars will fail, and a team of only mediocre members will fail.
You want one or two stars, chemistry among the whole team, and good fundamentals.
Good sports examples: the LA Dodgers, 90s Chicago Bulls (a few stars, a few normal players, good fundamentals, and great chemistry)
Bad sports examples: the 2023 Mets with Verlander and Scherzer (both overpaid divas with bad attitudes that hated each other), the current Yankees (a few stars, no fundamentals or discipline)
Not to denigrate the content of the article or Linear - because it's a fantastic tool - but easy talking about profitability when you're able to spend a year in private beta, focusing on product. This is like talking about creating your own wealth, but not mentioning you have a trust fund.
You don't need a trust fund to keep a small team eating ramen for a year. Lots of people start businesses with just their savings and maybe a small loan.
Maybe that's not the kind of company you'd like to build, but if it's the only option given your financial circumstances, ramen it will be.
The whole point of startups is that you take on massive investment to scale extremely quickly and outrun all potential imitators. It's not the only viable growth model, but that's the whole conceit of startups and what differentiates them for small businesses
It's a bit silly to try to redefine the term b/c you want to self identify as a startup. Just come to terms with that fact you're running a small business
Being “startup” just means you’re a business building something new or novel, it doesn’t mean you automatically have to follow the VC-model for startups.
Wouldn't the key difference be the growth trajectory? I see a startup as a small business that aims to become a big one. Most small businesses are comfortable at their size, but a startup is not. It could achieve that growth by taking on lots of investment, but that's not the only way.
I think the point is there are many "startups" with similar revenue and growth to Linear that never become profitable. I don't think Linear qualifies as a small business and I don't think they're scaling less quickly than someone in same market with more funding and less profit.
But the post we are discussing is literally about hiring slowly and only if really needed and only hiring the "next great engineer".
I understand that the post words are written deliberately in a way open to more interpretations, and the "only if needed" can apply to "we need to take on more Atlassian customers so we need this and that".
Having lots of money to throw at moonshot problems is always important. The current breakthrough of the 2020s is LLMs. I wonder if such breakthroughs can be achieved with this kind of approach.
> investors are quite interested in profitable companies that also grow fast.
I'm gonna dispute this. We're currently profitable, and to do so our growth is just "good" (80-100% yoy). We're also raising a smaller amount because we want to return to profitable as soon as possible, and repeat the cycle. Being profitable hasn't been a big selling point in our discussions.
Either our growth is not high enough, or our round is not big enough, as they are so used to seeing ridiculously inflated projections from the last decade.
Furthermore being profitable also removes a lot of leverage from investors. That might make them shy away from a discussion because they know they can't twist out arm as easily.
I agree tho, I wouldn't want to build our company any other way than being profitable. Just saying that being profitable is not something investors seem to like as much as we thought.
I'm in my third startup. My first one (founded 2013) was acquired by the second one after a year. That one failed around 2018. The first one was a small technology company where my co-founder and I (both techies) made the classical "build it and they'll come" mistake. They didn't come and just as we were running low on savings, we met the CEO of startup #2 who was a classical business founder and had already secured a huge seed round (~3M euro). He had the ideas and the money, we had the tech. So we joined forces. The next few years we tried lots of things and pivoted a few times. But in the end product market fit remained elusive and the 3M was gone.
I went off and did a bit of consulting, freelancing, etc. And five years ago, I helped out a friend who was working on a bootstrapped company that I liked. And we kind of had complementary skills (not repeating my first mistake). It was the beginning of the lockdowns. I had nothing better to do having just come out of a lucrative project that got cancelled because of the lockdowns (and probably because it was doomed anyway). I had built up a bit of reserves over the past two years. My friend had just come out of an intense year of juggling projects for a big consultancy firm. And he had his own startup past. In short, we hit the sweet spot of being old, wise, and experienced enough to maybe pull this off and we weren't looking for pizza money.
An important lesson I learned in my pre-startup corporate career is that making teams smaller makes them go faster. I once had a gridlocked team that wasn't getting anything done. We split the team and immediately things moved faster. Less meetings and debating. And infighting. And stress. More coding. I applied that in startup #2 and while we ultimately failed, I re-affirmed that losing team members can actually accelerate development. The team was down to just 2 people (me and the CEO) by the time we had to pull the plug. But not for a lack of trying. We were crazily productive. We both did the work of 2-3 people and stepped way out of our comfort zones for the last two years of the company.
The lesson I took from the second startup is that investor money makes you lazy and that you don't need it if you can step up and do stuff yourself instead of being lazy and hiring too many people. Money removes urgency and tricks you into not focusing and postponing key work that needs doing, over-staffing, and losing focus. Having stared at having to abandon my third startup because we have been running on fumes continuously for the last five years has kept us laser focused on fixing our huge looming financial problem. For us that meant confronting the elephant in the room: getting customers to understand what it is we are selling. This took us years.
The tech didn't change much (though it got better of course). It flipped around a year ago after lots of failed experiments with getting others to sell our tech. Founder sales is the way to go. It requires founders that can build and that can sell. You need both skills in the team and preferably in all founders.
We've flirted with investors of course. But for about two years they struggled to understand what we are trying to do and in the last few years we proved that we were onto something by generating revenue without them. In an alternate universe we might have gotten invested in but at this point we don't need them and they don't want us for that reason.
Things are genuinely looking like we might hit the hockey stick curve soonish now. We have some very serious leads for multi-million euro deals. We're completely bootstrapped. We did everything with a small and lean team. We're down to three people and it's great. We might start expanding soon. But we're going to be super picky about who gets to join next. We don't want to derail our company with the wrong hire.
It could all still fail. That's the nature of any startup. But we've vastly improved our odds through hard work. I'm more confident than ever it will work out. And yet the reality remains that many startups don't make it. What can I say; I'm an optimist. Pessimists don't build successful companies.
I hope you succeed.
But I think it’s all down to luck; of course some work is required but I don’t think that hard work necessarily matters.
Or any of the stuff you mentioned.
In my experience you can do all the “mistakes” you mentioned and still come out on top.
And not to piss in your cereal but having leads for $bigcorp means nothing until a deal is inked.
Ps: and I’m very pessimistic; the scary thing is it’s all random as shit
You create your own luck. There's a difference between fatalism and pessimism. A pessimist might still choose to act despite expecting failure. A fatalist just gives up.
You create options for success through hard work. You need luck and inspiration to stumble upon the right options, and you need experience and wisdom to recognize it when you do. And you can do everything right and never get there. But without putting in the hours you likely don't create the options nor gain the wisdom to judge them correctly when you do. Don Reinertsen coined a notion of option value in his books and presentations on Lean 2.0. It's something that resonates with me. Lots of startups practice Lean 1.0 which is more like throwing out the baby with the bathwater.
> And not to piss in your cereal but having leads for $bigcorp means nothing until a deal is inked.
Being profitable is no bad thing - but you can be too profitable, too.
My startup, my cofounder was obsessed with profitability - I was far more focussed on growth. In theory, not a bad balance - but in practice, his drive towards profitability meant that we ended up underinvesting in the business - millions of pounds sat in our coffers that could have gone to hiring, could have gone to maintaining and building upon our core mission rather than focussing on a profitable sideshow - and in the end, while the business still exists, it is now Just Another Agency, rather than the tech startup it once was.
Anyway. These days I run my own affairs, and place emphasis on long term growth and keep short term profits to the absolute minimum needed to live well enough.
It’s good to make a profit - but business should be viewed as any investment should be - let it compound.
The boot strapped startups I've seen that have had this holier than thou attitude that they are somehow selecting the best engineers by only having a tiny team have always had the absolute worst tech, the worst engineering, the worst leadership and usually also the worst processes that I've ever encountered.
The reason everyone did it was: interest rates.
When interest rates are low the cost of borrowing is low. Now investors can get returns by parking their money so the value proposition has to be stronger for them to invest in the first place, hence companies are now needing to show profitability earlier.
This, and another angle is that whatever market you are in, it is harder to run profitable margins if your competitors can eat the market while sustaining losses. And there was a lot of money around to sustain those losses.
Not to say it wasn’t possible to be profitable during zero interest rates, Linear being an example, but the competitive landscape is certainly healthier today for companies trying to be profitable.
For every complex problem, there is an answer that is clear, simple, and wrong.
There are a number of other reasons that (might have) contributed to greater or lesser extent:
* rush to capture users and get acquired (the buyer can worry about profitability)
* race to the bottom by multiple competitors (you might want to be profitable but can't command a high price because others' are artificially low)
* ignoring costs that were rising faster than anticipated (wages, cloud costs, etc)
... and probably many more.
Not saying you're completely wrong, but ZIRP is just part of the picture.
I would argue that everything you’ve listed are just downstream of ZIRP.
I would not agree, as these sorts of things were frequent before the latest round of ZIRPs:
* Uber IPOed in 2019, had a loss of $8.5b that year; interest rates were around 2%
* YouTube was acquired by Google for $1.65B in 2006, it lost ~$350m in the year before and the entire music industry was suing it; interest rates were around 4%
* Facebook bought Instagram for $1b in 2012, which at that point had no revenue and no plan how to achieve it; this was smack in the middle of the previous ZIRP cycle, however I don't think anyone would say that Instagram wasn't a huge success either for the founders or for Facebook
I would agree ZIRP fuels those things (to unhealthy levels), but not that it's always the root cause.
> I would agree ZIRP fuels those things (to unhealthy levels), but not that it's always the root cause.
It you were to set a house on fire with just a lighter in your hands, you would not succeed. If you have a lighter and a tank of gasoline, you might probably succeed. ZIRP was the fuel, the lightener and your will are the "root causes". But with no fuel, no fire.
It's really great to see the shift that has been taking place away from unicorns, growth for the sake of growth, and all the chaos that drove throughout. Maybe it's my own personal bias but I feel that these stories of low, slow growth; small teams, small wins but consistency are becoming more norm. While I realize there is still plenty of froth, it's inspiring and makes me hopeful for an industry shift in that direction.
"And when we launched after a year in private beta, almost all of our 100 beta users converted to paid customers." — That's a neat stat and one I'd be extremely proud of.
I'm used to thinking that a "startup" implies a small company with hockey-stick growth and eventual market domination, usually deploying large amounts of capital to fuel the growth. Otherwise it's just a sparking small business: a pizzeria is not a startup.
It seems that the internet allows for a third option: a small company that grows slowly and organically which eventually captures a significant market segment, still staying small. GitHub was like that for many years since founding. Linear apparently is another example.
Is there a better word for these grow slow companies?
SME, bootstrapped business.
Businesses
Solid? Right up to the point some funded start-up starts giving away the same thing in the hope that they can fake it until they make it and take everybody else in the same space down with them.
Linear is a really, really good product though, so it is worth paying for.
Small business?
"hypeless growth"
"Normal growth"?
Note that Stripe had followed that path already.
They had 50 users after two years.
Though, conversely, Stripe was money-losing for the first 15 years of its existence.
I could swear I read this exact same comment back in 2016.
This idea makes the rounds on HN quarterly. I think folks reading this need to check their business model. Every company is slightly different and unique to how they are solving a particular problem.
That said, knowing how you get to profitability or what you need to change in your model to get to it are fundamental things to know. But just because Linear did it the way they’ve outlined here, doesn’t mean that is what will work for your model.
I’m a little suspicious of this because every startup says that they don’t hire the next engineer, they hire the next great engineer.
I think a lot of the value is taking the ordinary engineers (by hacker news) and letting them actually do something. Staying small helps this, because you are not thinking of the business ops burden of not building microservices. You’re building your single dockerized app.
Keep in mind “great engineer” will be a subjective term that means different things to everyone.
To Meta, it might mean cream of the crop, $1m+ engineer. To early Google, it might mean Stanford grad with deep CS knowledge. To a no-name startup, it might mean someone who takes initiative and knows how to crank out ugly code quickly on AWS and makes good prioritization decisions.
Hiring great engineers is only part of the problem. Management and product needs enough vision and foresight to allow the great engineers to execute. It’s doesn’t matter how great your engineering team is if you keep redirecting them like a deaf stubborn dementia patient.
Also only hiring great engineers is an existential risk. Every time someone leaves, you lose a part of the business that is hard to replace.
It sounds counter-intuitive, but mediocracy usually works better in the long run.
You need a mix - a team of only stars will fail, and a team of only mediocre members will fail.
You want one or two stars, chemistry among the whole team, and good fundamentals.
Good sports examples: the LA Dodgers, 90s Chicago Bulls (a few stars, a few normal players, good fundamentals, and great chemistry)
Bad sports examples: the 2023 Mets with Verlander and Scherzer (both overpaid divas with bad attitudes that hated each other), the current Yankees (a few stars, no fundamentals or discipline)
I'm a Dodgers fan and I'm kinda confused by your take that the Dodgers roster is different from the 2023 Mets or current Yankees.
If anything, the Blue Jays are the example, not the Dodgers.
Not to denigrate the content of the article or Linear - because it's a fantastic tool - but easy talking about profitability when you're able to spend a year in private beta, focusing on product. This is like talking about creating your own wealth, but not mentioning you have a trust fund.
You don't need a trust fund to keep a small team eating ramen for a year. Lots of people start businesses with just their savings and maybe a small loan.
Maybe that's not the kind of company you'd like to build, but if it's the only option given your financial circumstances, ramen it will be.
Is that what Linear did?
This is just called a small business...
The whole point of startups is that you take on massive investment to scale extremely quickly and outrun all potential imitators. It's not the only viable growth model, but that's the whole conceit of startups and what differentiates them for small businesses
It's a bit silly to try to redefine the term b/c you want to self identify as a startup. Just come to terms with that fact you're running a small business
Being “startup” just means you’re a business building something new or novel, it doesn’t mean you automatically have to follow the VC-model for startups.
if you start a bakery selling kimchi bagels, its not a startup
They're disrupting the bagel market, leveraging their unique vision. Think of them as a DoorDash for people who want to come into their bakery.
Wouldn't the key difference be the growth trajectory? I see a startup as a small business that aims to become a big one. Most small businesses are comfortable at their size, but a startup is not. It could achieve that growth by taking on lots of investment, but that's not the only way.
I think the point is there are many "startups" with similar revenue and growth to Linear that never become profitable. I don't think Linear qualifies as a small business and I don't think they're scaling less quickly than someone in same market with more funding and less profit.
"Linear raises $82M in series C funding at $1.25B valuation to challenge Atlassian"
interesting.. one wonders then why they raised funding if their income is covering all their expenses
unless they have some creative definition of profitable
Speed of growth.
Being profitable is one of the best times to raise. You don't need the money, but it'll accelerate the next phase of growth.
Retaining profitability after raising is probably harder as you're expected to spend that money to grow.
I'm sure it can be done if you've raised with the right people and you keep focus on ARR per FTE.
And if you raise after you’re already profitable, you have a lot more control / leverage over the terms and who is involved.
> Speed of growth
But the post we are discussing is literally about hiring slowly and only if really needed and only hiring the "next great engineer".
I understand that the post words are written deliberately in a way open to more interpretations, and the "only if needed" can apply to "we need to take on more Atlassian customers so we need this and that".
Having lots of money to throw at moonshot problems is always important. The current breakthrough of the 2020s is LLMs. I wonder if such breakthroughs can be achieved with this kind of approach.
> investors are quite interested in profitable companies that also grow fast.
I'm gonna dispute this. We're currently profitable, and to do so our growth is just "good" (80-100% yoy). We're also raising a smaller amount because we want to return to profitable as soon as possible, and repeat the cycle. Being profitable hasn't been a big selling point in our discussions.
Either our growth is not high enough, or our round is not big enough, as they are so used to seeing ridiculously inflated projections from the last decade.
Furthermore being profitable also removes a lot of leverage from investors. That might make them shy away from a discussion because they know they can't twist out arm as easily.
I agree tho, I wouldn't want to build our company any other way than being profitable. Just saying that being profitable is not something investors seem to like as much as we thought.
I'm in my third startup. My first one (founded 2013) was acquired by the second one after a year. That one failed around 2018. The first one was a small technology company where my co-founder and I (both techies) made the classical "build it and they'll come" mistake. They didn't come and just as we were running low on savings, we met the CEO of startup #2 who was a classical business founder and had already secured a huge seed round (~3M euro). He had the ideas and the money, we had the tech. So we joined forces. The next few years we tried lots of things and pivoted a few times. But in the end product market fit remained elusive and the 3M was gone.
I went off and did a bit of consulting, freelancing, etc. And five years ago, I helped out a friend who was working on a bootstrapped company that I liked. And we kind of had complementary skills (not repeating my first mistake). It was the beginning of the lockdowns. I had nothing better to do having just come out of a lucrative project that got cancelled because of the lockdowns (and probably because it was doomed anyway). I had built up a bit of reserves over the past two years. My friend had just come out of an intense year of juggling projects for a big consultancy firm. And he had his own startup past. In short, we hit the sweet spot of being old, wise, and experienced enough to maybe pull this off and we weren't looking for pizza money.
An important lesson I learned in my pre-startup corporate career is that making teams smaller makes them go faster. I once had a gridlocked team that wasn't getting anything done. We split the team and immediately things moved faster. Less meetings and debating. And infighting. And stress. More coding. I applied that in startup #2 and while we ultimately failed, I re-affirmed that losing team members can actually accelerate development. The team was down to just 2 people (me and the CEO) by the time we had to pull the plug. But not for a lack of trying. We were crazily productive. We both did the work of 2-3 people and stepped way out of our comfort zones for the last two years of the company.
The lesson I took from the second startup is that investor money makes you lazy and that you don't need it if you can step up and do stuff yourself instead of being lazy and hiring too many people. Money removes urgency and tricks you into not focusing and postponing key work that needs doing, over-staffing, and losing focus. Having stared at having to abandon my third startup because we have been running on fumes continuously for the last five years has kept us laser focused on fixing our huge looming financial problem. For us that meant confronting the elephant in the room: getting customers to understand what it is we are selling. This took us years.
The tech didn't change much (though it got better of course). It flipped around a year ago after lots of failed experiments with getting others to sell our tech. Founder sales is the way to go. It requires founders that can build and that can sell. You need both skills in the team and preferably in all founders.
We've flirted with investors of course. But for about two years they struggled to understand what we are trying to do and in the last few years we proved that we were onto something by generating revenue without them. In an alternate universe we might have gotten invested in but at this point we don't need them and they don't want us for that reason.
Things are genuinely looking like we might hit the hockey stick curve soonish now. We have some very serious leads for multi-million euro deals. We're completely bootstrapped. We did everything with a small and lean team. We're down to three people and it's great. We might start expanding soon. But we're going to be super picky about who gets to join next. We don't want to derail our company with the wrong hire.
It could all still fail. That's the nature of any startup. But we've vastly improved our odds through hard work. I'm more confident than ever it will work out. And yet the reality remains that many startups don't make it. What can I say; I'm an optimist. Pessimists don't build successful companies.
I hope you succeed. But I think it’s all down to luck; of course some work is required but I don’t think that hard work necessarily matters. Or any of the stuff you mentioned. In my experience you can do all the “mistakes” you mentioned and still come out on top. And not to piss in your cereal but having leads for $bigcorp means nothing until a deal is inked.
Ps: and I’m very pessimistic; the scary thing is it’s all random as shit
You create your own luck. There's a difference between fatalism and pessimism. A pessimist might still choose to act despite expecting failure. A fatalist just gives up.
You create options for success through hard work. You need luck and inspiration to stumble upon the right options, and you need experience and wisdom to recognize it when you do. And you can do everything right and never get there. But without putting in the hours you likely don't create the options nor gain the wisdom to judge them correctly when you do. Don Reinertsen coined a notion of option value in his books and presentations on Lean 2.0. It's something that resonates with me. Lots of startups practice Lean 1.0 which is more like throwing out the baby with the bathwater.
> And not to piss in your cereal but having leads for $bigcorp means nothing until a deal is inked.
Very aware of that, obviously.
48 Comments | 8-months ago
https://news.ycombinator.com/item?id=43130480
Being profitable is no bad thing - but you can be too profitable, too.
My startup, my cofounder was obsessed with profitability - I was far more focussed on growth. In theory, not a bad balance - but in practice, his drive towards profitability meant that we ended up underinvesting in the business - millions of pounds sat in our coffers that could have gone to hiring, could have gone to maintaining and building upon our core mission rather than focussing on a profitable sideshow - and in the end, while the business still exists, it is now Just Another Agency, rather than the tech startup it once was.
Anyway. These days I run my own affairs, and place emphasis on long term growth and keep short term profits to the absolute minimum needed to live well enough.
It’s good to make a profit - but business should be viewed as any investment should be - let it compound.
The boot strapped startups I've seen that have had this holier than thou attitude that they are somehow selecting the best engineers by only having a tiny team have always had the absolute worst tech, the worst engineering, the worst leadership and usually also the worst processes that I've ever encountered.
Linear is a venture funded company
Yeah, but they know how to make money