The Profitable Startup

The trick is when you're trying to take risks and innovate. It took Amazon a long time to be profitable. It took Uber a long time to be profitable. It took Facebook a long time to be profitable.

When it's a land grab - when you're racing against other companies in a new market like AI - you need to burn money fast to run fast. Can't take a year in private beta.

Even setting that aside, not everything is or should be a land grab. It's notable that all the examples you provided — Amazon (at least, its initial online store product), Uber, Facebook — are all B2C plays and I don't think that's a coincidence.

I wrote this to challenge the common dichotomy that startups are either VC-backed money-burning machines or anti-VC/profitably bootstrapped. It doesn’t have to be that binary. There’s a spectrum, a middle ground. You can retain control by being profitable while still using funding as leverage or as a safety net if things don’t go as planned.

One of the paradoxes of fundraising is that it’s easiest when you don’t need the money—and almost impossible when you do. By keeping the company mostly profitable, you never have to need it, giving you full control over timing and the ability to choose the right deal. But having that funding can enable you some more leverage or add more risk business you could afford while being bootstrapped. In our case we raised the funding for the conservative case, but the reality turned much better than expected.

Another misconception is that sustainable growth comes from spending or hiring. In reality, many great products take off first and because they take off, any amount of hiring becomes justified. Some of these companies are even profitable before they go on a hiring spree. The problem is that the typical approach isn’t nuanced or intentional enough. You might decide to hire 100 engineers before knowing how the next 10 engineers impact your trajectory. If you cut the hiring plan in half—or even to a quarter—it might not affect growth at all. But there’s often an assumption that growing the team is also good, and maybe it comes from a time in the 90s or something when you had hire people to man the phones to take orders.

What I believe is that startup’s growth is primarily driven by product superiority and market fit, not just by headcount or marketing spend. Those things can amplify success, and in some cases, they can even mask a bad market fit through sheer force of sales and marketing.

A less cynical take on VCs is that they’re not necessarily pushing companies to burn cash they just want founders to double down when they see a company working. But whether you can truly scale depends on your market dynamics. Sometimes, you need time to learn or to land the right deals in a segment before pouring money into growth.

The problem is that the current thinking is often too simplistic. Since you're startup and have cash, the spending more is always the right move. Going all the way 100 when you could dial it down to 50 or 30 and regain control and de-risk the changes of complete flare out.

You know what? Good, and hopefully Linear sets the example instead of the others just running back to VCs again for another top-up.

Once you have shown that you're profitable, then you don't need them. The moment you do, you're always having to cede control and be at their mercy after raising and burning ridiculous amounts of their money and losing parts of your business.

Of course VCs see that as an issue as they feed on startups by doing this. If you're profitable then you don't need them.

Otherwise, you'll be on your Series Z until there are no more investors left to throw money on to your unprofitable startup.