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…
Question for you Karri. If revenue is benchmarked at $500k - $1mil per employee, how much salary is each employee expected to receive?
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.…
All three of those examples strategically traded profitability for marketshare, and at a time when money was very cheap. This is what is meant by "prioritize growth over everything else."
That is not today's environment.
When it's the focus, profitability can be easily achieved somewhere between day 1 and month 18.
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…
I think your point would've been clearer if you clarified up front that Linear has taken 50M+ in funding. You would have clearly indicated where in the range of middle ground you are speaking from.
I know of YC startups that have taken <1M in funding and are now profitable. Similarly, the Discord founders (995M+ funding) have dropped hints on this very website several times that they are now profitable, but they would be laughed out of this room if they tried to outright claim that they are a "Profitable Startup". To say that Linear's story is comparable to any of these is, well, a stretch.
Alot of startups arent profitable because they are ran by people that have prestigious pedigrees, but dont know what theyre doing/have no experience. So they blow all kinds of money on bad ideas/poor execution, but are still able to raise more funding. Eventually for some of these companies something clicks, and they do get to something of a valuable company. This is what ZIRP was. Alot of people dont know that inves…
> This is what ZIRP was.
Yeah. And a lot of people still doesn't seem to have waken up to the fact that ZIRP is dead. So no infinite amounts of cash in the economy to blow on unprofitable 'growth' startups anymore.
The reason for prioritizing growth above all else, historically, is network effects. If you try to grow more slowly someone buying growth by foregoing profitability will zoom past you and capture the network, and once the network is captured it's incredibly difficult to disrupt. A good recent lesson in the awesome power of network effects is X. A huge number of users on that platform hate the direction Elon -- and it…
I wouldn't necessarily call growth-hacking / blitzscaling to capture customers at a loss network effects. More accurately it's about cornering the market or dominating market share. Network effects are more prominent for things like social media networks where the network value grows exponentially with scale. But not as much for a B2C or B2B solution where there's an identifiable or fixed number of customers and the…
Indeed. I'm not sure network effects is the main topic here, as you can use Linear perfectly fine when everyone else is using Jira, without missing out on anyrhing. Same applies to many B2B services.
Maybe I could see this argument being used for cross-company collaboration tools like Slack, Zoom, Miró. But even then it's weak.
As you say, cornering the market seems way more important.
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…
It is great for founders, and not so nice for VC investors, and Karri seems comically oblivious to that fact.
They address this in the article, and I'd say it's rather the opposite of being oblivious. Rather, they understand that you can get way better deals by choosing the times when investors come crawling to you as opposed to times when you're short on cash and the investors know they have you over a barrel.
It's not required of the founder to sell the company cheaply to investors, even though the investors would of course quite like that.
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…
Just curious about all this as it's a topic that interest me, but I'm not sure I follow: how does Linear raising $50+M changes the point of the article? I believe it reinforces what they are saying about being profitable while also having some VC money to take risks and grow in a balanced way than if they didn't have it.