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The Profitable Startup

linear.app

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Re: The Profitable Startup

#31

Post by tiffanyh »

rvz wrote: post #29
tiffanyh wrote: post #14

While I love companies that become profitable early and grow at a rate that allows them to continue being profitable ... it becomes an issue with investors. Linear has raised over $50M+ (at $400MM valuation) You just can't grow fast enough while being profitable - to grow into & surpass that kind of valuation ... in a timeframe ok that's for your investors. https://tracxn.com/d/companies/linear/__xC97n-jdX7VZjDBpNyRf…

> While I love companies that become profitable early and grow at a rate that allows them to continue being profitable ... it becomes an issue with investors. 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…

I agree with what you're saying ... but why take venture capital then?

They should have raised debt instead.

Re: The Profitable Startup

#32

Post by fuzztester »

earnesti wrote: post #16
mtrovo wrote: post #6

I think the author is correct that more startups can be profitable earlier than they think. It comes down to making conscious decisions about hiring and focusing on customer value, it's that simple. The reason why that's not the case often comes from how blitzscaling and ZIRP became the norm for a few years, and how VC, especially post seed stage, started to resemble a Ponzi scheme, with investors trying to put lipst…

The fact is, that for VC's it makes perfect sense to push for growth as much as possible. For every one of their portfolio startups. That doesn't necessarily make sense for the founders, who likely might prefer lower risk and profits instead. VC's don't care about mediocre successes. They want couple of huge exits, and if the rest go bankrupt, they don't give a shit. That's the VC business model and all the great com…

>They want couple of huge exits,

yes, exactly. what they want is what they (used to) call ten-baggers. meaning 10x their investment, prolly, I don't remember the exact meaning.

I said "used to", because that is from sometime ago, before the fuckheaded idea of so-called unicorns.

nowadays they want a million times their investment.

Re: The Profitable Startup

#33

Post by amoorthy »

sfvisser wrote: post #9
pclowes wrote: post #4

I forget exactly who said it but somebody said something along the lines of “venture capital is rocket fuel, unless you have a rocket it will only blow up your engine. Have a Bugatti Veyron? It will blow up your engine.” This is also something DHH has been saying for years. However, I think it is more true now than ever. With how easy it is to start and scale a software company I really struggle to understand the jus…

You probably know answer and just hyperboling here, but there are plenty of reasons to raise as a startup. Even in pure software. Most obvious one is you’re building something actually technically challenging and need to grow your team to get there. People, especially great people, are bloody expensive. No way to afford any reasonable headcount as a 22yo first time founder without venture money. Of course, simple ide…

Agreed. Put another way: because software has low marginal cost and high up-front cost (even higher in very competitive markets) it makes sense to raise venture early to hire a great team and build an awesome product that then scales incredibly well (great investment returns).

Re: The Profitable Startup

#34

Post by toasterlovin »

foliovision wrote: post #28

Good article but it doesn't fit in with American thinking. In search of a unicorn. The only very visible company in the United States I can remember following the profitability and measured growth path was 37signals. Even they have occasionally wandered way off course, with multiple products, and neglecting the main product (long discussion). I agree with you. This philosophy of profitable growth makes me interested…

Interestingly, both 37signals and Linear have non-American founders.

Re: The Profitable Startup

#35

Post by enra »

tiffanyh wrote: post #31
rvz wrote: post #29

Earlier quoted context omitted.

> While I love companies that become profitable early and grow at a rate that allows them to continue being profitable ... it becomes an issue with investors. 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…

I agree with what you're saying ... but why take venture capital then? They should have raised debt instead.

"Venture debt is like a delicious sandwich that only costs ten cents, but occasionally explodes in your face" - PG

Part of being a startup is still that there is not a lot of historical precedent and uncertainty how well your business will do in the future. The problem with any fundraise is that it's always future looking (perhaps maybe you create some kind of option structure to call on it if needed).

VCs, especially Tier 1, can be still helpful in different ways, and them owning equity aligns the incentives more than debt.

Re: The Profitable Startup

#36

Post by enra »

a-priori wrote: post #25
unreal37 wrote: post #21

If all you're doing is building a project management app, yeah it's easy to be profitable. 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.…

You could dismiss almost any company as "if all you're doing is building an X app...". It's a no-true-Scotsman argument. 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 tried to ask examples of this yesterday[1], but afaik the patterns seems to be think throwing money at the problems works in undifferentiated, maybe transactional categories like food delivery, ride share, e-commerce etc where the software is not the product, it's just the payment method or the market place. The market places are also localized so you have these countless local turf wars, until you regain some kind of dominance or balance. Then deep tech, hardware etc is harder where you need large initial investment. Social networks because they need the critical mass, and usually there isn't a direct business model available.

I'd argue most b2b/enterprise software is a new version of something that already exists or addressing a need that already has a market. Business model is also very clear, there is very little network effects usually other than reputation and customer proof. Yet most the startups not even close being profitable.

In my mind most software products are differentiated so in the end the main success comes from getting the differentiation right for the market, not outspending the competition.

1) https://x.com/karrisaarinen/status/1892700146414096549

Re: The Profitable Startup

#37

Post by [deleted] »

unreal37 wrote: post #21

If all you're doing is building a project management app, yeah it's easy to be profitable. 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.…

[deleted]

Re: The Profitable Startup

#38

Post by rglover »

enra wrote: post #27

Karri from Linear here. 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 eas…

Thank you for writing this and sharing this perspective. It's nice to see a quality-focused company winning purely on the merits of their product. I've found it deeply frustrating to watch what used to be considered "running a business" (building profitable products/services) get snubbed in favor of half-baked cash furnaces that spin their tires.

Very encouraging to see this. Congrats on achieving profitability and staying profitable. Excited to see what the Linear crew comes up with next.

Re: The Profitable Startup

#39

Post by ricokatayama »

unreal37 wrote: post #23
ricokatayama wrote: post #18

A great piece of advice from Linear. Even in this flourishing AI landscape, every startup should avoid being overly speculative about resource mgmt. Linear raised from YC and Sequoia though. I'd love to learn more about how they balanced their burn rate

No, not in the AI space. Disagree that you can be successful by avoiding risk and conserving resources.

I mean, those wrappers etc.
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