Based on your article, you sound pretty bad ass by having gone through the journey. I'm doubtful you'd have that by staying. It's a pretty remarkable path, and I respect you for that!
Many years ago, you once mentioned that anyone who wants to build a startup should read Hacker News. I'm still here because of you. You've made an impact!
I can't begin to imagine what that must feel like, but I gotta say, your kind of company (i.e. non-VC-funded, don't care about the unicorn status, just serve the customers well) is the kind I'd like to do one day. The vision and values just align with me so much more than hypergrowth and whatever it takes to get there. Many hats off to you for making all the decisions you did to keep your customers first. It may not be worth much, but you have my respect forever.
Your story speaks to my soul. I've never been too attracted to the VC-funded startup life (although I wouldn't pass it up if it was the correct move to grow my business), but reading about your commitment to your users through thick and thin gives me so much more respect for you, and that is a quality I hope to emulate someday.
Hindsight is 20/20. A million different factors outside of your control could have led to different outcomes for both Pinterest and Gumroad. Thank you for sharing your story!
It's crazy that you care about the money, being in your mid-20s with a company pulling in 60k USD net/month puts you squarely in the pretty much unlimited money category of the world.
But would you trade the amount of time spent at Pinterest before IPO with the experience you gained at Gumroad? Tough call, given the professional and personal growth you gained from it.
Pinterest is a malignant tumor on the face of the Web that exists to trick people who are trying to search for images. Being rich off that would be worse that toiling in obscurity.
Uh - can you elaborate? I often search for images and sometimes from pinterest - but I don't find pinterest interfering with my searches when not using it.
The poster is likely referring to how Pinterest links now dominate Google image search results. Clicking on the Pinterest link takes you to the Pinterest website, and not the actual image source. Pinterest will often block you from viewing the page unless you sign in or create an account.
You are vastly overestimating what even an early employee (esp a jr one) gets at a unicorn. Not that it wouldn't be substantial today, but nothing close to 1-2% of the entire value of the company.
> You are vastly overestimating what even an early employee (esp a jr one) gets at a unicorn. Not that it wouldn't be substantial today, but nothing close to 1-2% of the entire value of the company.
Mmm...based on the valuation even 0.1% would equate to $10 million...not bad ;-)
you'd probably get around .1% as an early jr person. assuming a 4 year vest period, that .1% will have been diluted to maybe .05%, so assuming a $10b valuation it comes out to $5m. Still not bad, but a far cry from $200m.
crunchbase says pinterest has had 15 funding rounds. certainly they weren't all complete rounds and it would've been nice equity but nowhere near the nominal 1-2% early employees get.
who gives a fuck. i wish people would say this more, especially on this site. stop worshiping money. why am i saying this here, on what is a 50% get rich quick scheme site? i dont know... i somehow enjoy the downvotes. if you offered me 200 million to throw away a couple years of my life at pintrest, the thrill of saying "no" would far outweigh the benefit of being a sellout. only do stuff that is cool on its merits if you can possibly manage to. im sure almost no one here agrees with that but i find it cathartic to shout it at deaf ears.
"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."
We've asked you many times to please stop breaking the guidelines, so we've banned the account. We're happy to unban accounts if you email us at hn@ycombinator.com and we believe you'll start posting civilly and substantively.
I wasn't interested in the emotional story behind this. But I did resonate with 1 line in particular here: "It doesn’t matter how amazing your product is, or how fast you ship features. The market you’re in will determine most of your growth."
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.
I always think of the market as ... all those shitty services and websites I absolutely hate / or just don't like ... that i still use because I want the service.
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.
The corollary is that you can shift the market you're in and increase growth.
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.
That's really more for market leaders. If someone stops by your site and starts comparing it to other businesses and their features, you're not likely to shift the market soon. Even if you do shift the market, you might not get the growth as your well-funded competitors copy your features. It'd have to be some ground-breaking technology that essentially propels you to market leader overnight.
This is weird because... I've noticed the opposite. Often markets are way bigger than you think; or rather, 1000 users for a product seems small but is actually quite a decent size depending on how much effort has been put in.
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.
Scaling to a billion dollar company in that market was certainly attainable. Patreon started two years after Gumroad and now look where they are. Gumroad had a movers first advantage - so I really disagree with the quote. Had they continued to push feature development and tweak PMF they could have been a billion dollar company.
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).
Patreon and Gumroad were different businesses for most of their histories. Gumroad was always a place to sell stuff and launch subscription services. Patreon is trying to pivot that way now with all their talk of membership businesses, but no one who uses it seems to see it that way.
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.
Any examples of other business that do what you mention at the end? Just curious what the "better" options are. I like to keep abreast of the underdogs.
>. Patreon started two years after Gumroad and now look where they are.
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.
> was braced for more failed-but-really-succeeded porn.
Isn't that what this is though? Sure he failed to build a billion dollar business, but his business is still way more successful than most. Lots of people would certainly kill to attain this level of failure.
I certainly recognise failure is a very personal thing, but from the outside looking in this looks like a success overall, even though I'm sure it was completely gut wrenching along the way.
Kind of. Usually these trope-filled stories make a mountain out of some small setback, but this story genuinely feels like the company had some major setbacks.
> 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.
These “metrics” are exactly why you see these venture backed SV companies engage in the behavior we saw posted all over the front page of HN yesterday (I.e. silently apply workers tips to their “guaranteed” pay and pocket the difference). But hey it’s an HN/SV unicorn, so there is too much investment that needs to be made back to fail now...and they have the perfect back story, rejected from YC until they personally delivered PG a 6 pack of beer and pretended they had a functional product.
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.
Yeah it appears this is a perfectly fine and successful business... it just went through an odd route for someone to figure that out.
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.
>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.
It's also an unsustainable growth rate. But of course, VCs know that. They just need something that can front load the growth like that and unload it on the public before that growth plateaus... or plummets.
Yep. $1M ARR -> $9M ARR right after series A would kill 99% of startups :)
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.
You don't need 20% monthly growth for 9 straight years, but for your first year and maybe the second after your Series A you do. Although I'd say 10-20% is more the range.
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.
In your first few years your base is going to be low, is it a bad month if you went from 1000 to 1100 customers instead of 1200?
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.
> The idea behind Gumroad was simple: Creators and others should be able to sell their products directly to their audiences with quick, simple links. No need for a storefront.
Then:
> 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?
It is still baffling to me that the tech world has glommed onto a business model where steady growth and a solid core of loyal, happy customers is considered a failure.
It is because a startup is an investment vehicle, not a business.
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.
Indeed. I guess I should say, I understand the appeal for investors, I just don't get why so many founders are getting suckered into it.
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.
> I just don't get why so many founders are getting suckered into it.
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.
Let's run some numbers. Say you are VC putting in $1M in 100 companies. To your great luck all companies become self-sustaining lifestyle business. By definition, lifestyle business is making just enough for comfortable lifestyle of founder, so may be $300K/yr pre-tax. Let's say founder decides to give back 10% of $300K as return on investment. At that rate, it would take 33 years for VC to just recoup his original investment.
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.
Yup. In reality, it tends to be something more like a 4/3/2/1 split. If you are a VC and invest in 10 companies, 4 will fail outright within 5 years, 3 will be somewhere between zombie companies and lifestyle businesses (both of which are effectively negative ROI for a VC), 2 will be modest successes, and 1 will be a massive success.
Yes, but hopefully your average founder will wise up to the following: The chances of you being super successful, happy and content are much higher with a "lifestyle business" than a VC funded one.
Why?
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.
But again my whole point is that expected value is itself a very poor metric to use for this decision, precisely because a founder doesn't get many "swings at bat" like a VC does. Even in the case where the expected value is the same, the fact that the actual value leads to 0 for all but the very, very, very luckiest/skilled means you get St. Petersburg paradox-like results.
But when VCs are criticized for obsessing over hyper-growth, we're not really talking about $300K/yr businesses. We're talking about $5M/yr businesses that are forced to try and become $500M/yr businesses or go bust, rather than stabilizing at a lower level.
I hadn't heard of Gumroad before -- it actually looks like a really good product, and one that I would have occasion to recommend to people.
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. :)
"inability to get enough people to know about it, and to understand how it would fit their needs?"
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?).
Oh that's great! I'm gonna look into integrating Gumroad into my product in that case. One question: Do you support domestic cards from India? Or just credit cards?
Because that's a problem I face with Stripe as well.
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.
I love your story Sahil, it is so true that people equate 'wealth' with 'success' but that is short sighted. If you step back and look at the big picture, you're on this planet for anywhere from 70 to 100 years, and at the end of that time there are two metrics, the number of people you helped and the amount of wealth you amassed and held on to, which number is a better representative of 'success'?
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!
> at the end of that time there are two metrics, the number of people you helped and the amount of wealth you amassed and held on to, which number is a better representative of 'success'?
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. :)
Personal satisfaction doesn't matter once you're dead. Those other things do. And your entire assessment of your life at that point will be put onto other people.
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.
Intentionally being provocative here, but by that logic, why does your effect on other people matter? You are unlikely to leave a lasting legacy, and the generation you do affect, will die as well.
Well, my point was really more that the orignal claim was explicitly talking about "at the end" of the timeframe, so we're talking about near death -- where putting weight on immediate gratification is harder to justify.
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.
> You are unlikely to leave a lasting legacy, and the generation you do affect, will die as well.
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.
I completely agree that wanting to make a positive impact on the world is important, although, and I don't want to sound too nihilistic here, the actual magnitude of that will probably be small for most people, therefore I think that personal satisfaction in life should be important and isn't meaningless, which was what OP claimed and the reason why I asked that question.
Yeah small and quickly diminishing over time, outside of very close friends and direct descendants.
For example how many fought in WW2? How many were in high level roles and instrumental to the conflict? How many would be thinking they were making a lasting impact on the world? And of those what small portion have pretty much a permanent place in the history books?
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.
The long-term impact of any human activity is so much more than what is written in a history book somewhere. A history book is an enormously compressed, somewhat distorted depiction of human experience. Only a very small sliver of the actual fiber of human culture, achievement, and experience across time is recorded in this way. Yet all of these things are still happening, and they form the substrate upon which the events that are actually written down can take place.
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.
> 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.
>Personal satisfaction doesn't matter once you're dead.
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.
One wonders why you have those morals if they mean so little to you. And if you don't need to justify your behaviors to others, why are you trying to justify them to me?
“Nothing matters once you’re dead” seems inescapable until you realize that it’s based on the rather flimsy presupposition that presentism is true and eternalism is false.
Based on the revenue and growth rates of Gumroad my guess is Sahil will make more money from it than he would have at Pinterest. It will take longer but it will be on his terms.
How is that even remotely possible, unless he got no equity in pinterest? They are ~10b IPO'ing this year. Even 1 basis point of pinterest is worth more than what Gumroad brought in.
He owns the majority of Gumroad. Let’s say he had 100 basis points of Pinterest, call it 50% dilution, he’d walk away with $50m. That’s probably very generous, probably actually closer to $20m.
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.
So he'll be worth $50M in a few years with Gumroad. Meanwhile his original investors lost all the millions they invested. His employees lost all the time and vesting. Ouch.
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.
> So he'll be worth $50M in a few years with Gumroad.
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.
The employees got paid less because of vesting. It is a gamble and this story shows different outcomes for employees. Pinterest paided off and gumtree didn't.
In both cases the founder made between 20-50 million.
Actually, his employees got a ton of experience building systems and processes the “hard way,” from ground zero at a startup. This inevitably made them more attractive to whomever they decided to work with afterward — startup, large company, whatever — especially as they were let go into a frenzy of hiring by other firms.
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.
at the end of that time there are two metrics, the number of people you helped and the amount of wealth you amassed and held on to
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.
Agreed, these two metrics are just as arbitrary as any other life-defining metric, "the number of healthy grand children you had", "the number of phish concerts you went to", "the number of Free AOL hours CDs you collected"
My wife and I have missed the Trans-Siberian Orchestra every year for 10 years, but we REALLY want to go. It's almost a running joke at this point. This year I set about a dozen alerts that'll start going off at the end of summer to make sure I don't forget to get the tickets.
Oh man... I cannot recommend seeing TSO live highly enough. The music is amazing enough by itself, but the live shows - with the lights, the pyro, the video screens, and all the other "stuff" they do - are an absolutely amazing spectacle.
I'm also very happy that they've slowly been incorporating more old Savatage songs into their sets. :-)
Not really. I just don't remember exactly which years I went. I think I went to my first TSO show in like 2004 or 2005, and for a while I was keeping to a cadence of going every other year... but I haven't been for the past couple of years, and I've lost track of exactly how many times I've seen them.
>at the end of that time there are two metrics, the number of people you helped and the amount of wealth you amassed and held on to, which number is a better representative of 'success'?
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."
I couldn't possibly disagree more. For starters, I think the majority of those who accumulate massive wealth do so at the expense of countless others. Buffet is an excellent example, actually. As probably the premier monopolist of the late 20th and 21st centuries, he has played a huge role in consolidating industries and destroying US wage growth. That's probably the single most detrimental macro trend in terms of quality of life over the last 50 years. His charitable donations have been fantastic, but the man has truly been a parasite on economic growth for his entire career. I would have a hard time believing the good offsets the bad in his case.
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.
That you can help more people if you have more money is simply a fact, it's not an argument based on the statistically average behavior of wealthy Americans. And as to the sources of wealth, the economy is not a zero sum game. Lebron getting paid $30mm doesn't take money away from anybody.
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.
Thanks for sharing your story, Sahil. Something I was wondering: do you think that Gumroad could have gotten to where it was without raising money to begin with? You mentioned sales not really changing with or whithout a sales team, but do you think you could have developed Gumroad in the beginning with a smaller group of developers, or even just by yourself?
Hello Sahil, thanks so much for sharing this. I know it helps a lot of founders out there.
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?
I don't see the bridge mentioned. But thanks a lot for clearing that up. There's so little data out there on companies' term sheets so it's always good to get a dose of real world.
> 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.
Hi Sahil, I don't know why but I see you a lot in my LinkedIn feed. Hope you succeed even more in building Gumroad. Just visited Gumroad for the first time. Here is some of my feedback based on initial impressions.
1) The homepage seems to be designed around creators and not customers. It's trying too hard to onboard creators while ignoring the main source of revenue for the entire ecosystem, the customer.
2) The search bar for products is not very useful. It felt like I already need to know what I wanted to buy. There should be an alternative way for discovering, for example, top 10 selling items in each category. Like the first page a customer sees when visiting Amazon.
3) The review system although designed to help customers make more informed decisions, is not useful at this point in the product cycle. I could only find 5-10 ratings on every product. Compare this to the several 1000 reviews on Amazon products makes me scared to spend money on Gumroad.
I don't want to be too critical of the product but I feel like your motivations are genuine and hate to see you struggle. So, wanted share some honest feedback.
Hi Sahil,
Thanks for sharing the amazing story. I was wondering, since Gumroad's announcement about 2-3 years ago [1], is the plan to open source Gumroad still on track?
> 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.
Sahil, thanks for sharing your story to date. I remember meeting with you in 2011 in Palo Alto shortly after your launch, and I could tell then you had the “right stuff.” Proud of you man.
Hi Sahil, who are your most prominent competitors? Do you consider Patreon a competitor? I'm asking since with so many platforms for selling items online I find it surprising there is still room for more companies in this space.
Gumroad is really cool, bought lots of tutorials on 3d modelling, photoshop, texturing etc.. Maybe 100 or so. The platform does not get in the way and has useful ui.
I was reading an article recently about managing small business growth. Not tech or startup related, just a good old fashioned blog post from an accountant who said hey you've started a business and it's growing, here are some things to consider. (I've lost the link unfortunately.)
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.
> People addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year.
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).
Semantics aside, I'll say it again: people addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year. Even if the earnings are 5% or 3% or even 1% ....getting someone to give you that much money for something you are selling is a lot harder than most people realize. Whether it's a million widgets at one dollar each or one widget at a million dollars, that's a LOT of money to be transacting.
The business world is vast and diverse so generalizations are tricky, but as an example, the combined profit and owner compensation on an owner-operated service business with a $1M annual turnover can be 25-30%. The VC model would put this all back into growth (plus more) and try to go for broke. The mom and pop model might try to live frugally and sock away as much of that annual $250K as possible for 10 hard working years, then sell the business for a modest multiple of revenue. With a relatively low risk business strategy, this puts mom and pop in the top 5% of American households for the duration of running the business and probably higher in retirement. (Yes, software and other giants have eaten a lot of these businesses in the US, but they're still around.)
It's not just "semantics": We're talking about an order of magnitude difference, and revenue is not the same as earnings.
> 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.
Apologies for the snark but my original comment was intended to say "profit of 1 million a year"; my shorthand of "generate" inadvertently created some shade of gray and I might have been well served to simply clarify.
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.
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!
Just wondering how much of your decision for not starting new venture could be because of burn out. You can always hire your one person replacement to do customer service, fix occasional bugs etc so you move on. Especially if you hunt for good freelancer offshore/remote, you probably can do it with more devs and cheaply. This I wouldn’t recommend for spinning new products but for maintaining existing mature enough products it works out fairly well and lifestyle-level revenue is good enough to do this. Shouldn’t this allow you to move on to new ventures?
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
Grateful to read such a personal and detailed post. I had a startup that failed myself, back in the long ago, and in retrospect I'm glad that if failed quickly and cleanly. I admire this alternate path though of working your way to a new equilibrium.
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!
I remember when Gumroad first launched. I was 24 at that time and just couldn't believe that a kid that young could be so good at making such polished products.
To that end, I considered Sahil - and people like him - to be my model of success: being able to bring your vision to life.
I've had some interactions with @shl on Twitter where he seemed a bit full of himself (a few years ago - I didn't realize he was so young, so that probably had a lot to do with it). However, he could, and most would, have cut and run and found the next opportunity. Not doing so probably cost him millions of dollars; that's pretty authentic in my book.
> The next year was not fun: I shrunk the company from twenty employees to five. We struggled to find a new tenant for our $25,000/month office and focused all of our remaining resources on launching a premium service.
Ouch. Even at 20 employees, $25k a month is insane when you have no profit. I'm sure it was a pretty office, the kind that attracts good developers in a competitive market.
I thought the same thing. There are tons of people all over the world, or even spread out in America, that want to work on an interesting idea with interesting people. The office really does not matter.
It feels like so much of the VC funding goes to creating buzz and cool-factor (cool office, free lunch, potential lucrative exit), which can obviously be great marketing, but it really limits your runway and obviously the control you have over your idea.
Still insane to me that more companies do not embrace remote work.
Ehh. It doesn't matter up until the point it does. I quit my last job partly because we moved from a nice area in a dumpy building to an awful space (no natural light) for ~10 months. My health suffered, I felt depleted, and the entire team was on edge. How easy to commute to ($$) and how nice it is are definitely things I consider. Free food gets an outsized return too, if we're talking >100k salaries--I'd bet $4000 in free food gets more goodwill than a 5% pay bump.
Agree that remote should be more widely used, especially in software.
They probably leased a space with growth in mind. I've read about a lot of companies that continually move because they keep out growing their space and it's incredible distributive.
Amazing and poignant story; thank you for sharing.
I do wonder if there was a path for Gumroad to become a Shopify killer, instead of focusing on sellers too small and unsophisticated for Shopify, which limited the addressable market.
They're not really congruent products… if anything Gumroad is more similar to Stripe. But to take your question seriously, I'd far rather hack together a shopping site and use Gumroad for payments than grapple with Shopify again, they give me a migraine.
Gumroad is also going to have some new opportunities if Patreon continues to struggle with their similar deal-with-the-devil.
+1 Gumroad, glad to see it's found a way to thrive.
"I am following up our conversation a few months ago. KP would like to sell our ownership back to Gumroad for $1. Can we discuss this week?"
...do founders discuss a Plan-B exit strategy/costs with the VCs ? Do VCs (or their lawyers) give this option or offer to discuss.
For Gumroad, it sounds as if this was a lottery or a happy coincidence. But I am interested in finding out if VCs actually only are interested in outright discussion of the up side (similarly for the founders... but that's kind of apparent from observation, and ... well also reading your article :-) )
I have to say, this was a very pleasant read. I expected it to be a thinly vield ad for some new business, but it was actually very insightful.
Seems to me like the author's failure taught them a valuable lesson about what they actually valued vs. what they thought they valued.
I would like to see more tech companies like Gumroad; that is companies whose focus is not on IPO and quick aquisition, but instead, on the quality of their product/service and the prosperity of the customers/users.
I've always liked Gumroad as a product and service but this line kind of bothers me:
> 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".
You could say the same thing about Uber, Lyft, Airbnb, Etsy, TaskRabbit, etc..
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.
Uber and Lyft are middlemen, but because they interface directly with the consumer, they also create demand. I deleted my apps when I realized that I was spending a hundred bucks a month compared with twenty bucks a month if I had used cabs, and getting little real benefit out of it. It just feels so convenient, but the fares add up quickly. I bet if they sent weekly or monthly summaries people would use them less.
>because what you actually do is easily replicated.
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.
> There is, of course, the $178,000,000 we have {sent, channelled, moved-through-our-platform, assisted in transferring} to creators
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?
That would be better, but I also agree with the others who think the way it was written pretty clearly meant the same thing, in the context of the article.
Might be a language thing, but if someone sends me money through paypal, I definitely would say paypal receives the funds from that person and then sends them to me.
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.
I'm sure it's been a very tough experience and the author learned a lot during the time. But I would expect that if you fail to build a billion dollar company you end up at least with a $100 million company...
Unfortunately failing to build a billion dollar company often means ending up with a $0 company. Like the OP said, VC too often comes with the pressure to either succeed in a big way or pack everything up and go home. And when your liquidation preferences are greater than the current value of your company, as a founder it's not very compelling to keep moving forward.
I’m incredibly grateful for Gumroad - Lambda School (YC S17) wouldn’t exist without it.
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.
Indie.vc is built to make this not admirable, but the norm. I think KPCB is amazing and should be totally shouted out for this, but indie.vc is building an entire model so that founders don't have to choose.
I think that cause and effect reinforce each other but I think that social connections and capital are stronger forces.
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.
> It doesn’t matter how amazing your product is, or how fast you ship features. The market you’re in will determine most of your growth.
This is just a cop-out. The market will limit, not determine, your growth. It's up to you to hit that maximum, and use marketing/sales to extend that maximum. That is called creating a market. And overall it's called execution.
OTOH, Sahil isn't wrong. Some markets are either not that ripe (timing is important), don't have enough support, are too niche, and a thousand other factors. But as a generalization, "Product doesn't matter" is just wrong.
This story seemed inside-out to me. With the "you just have to find the right pre-existing market" logic, as well as the (much more significant to me) "but we were venture-funded, which was like playing a game of double-or-nothing," buried as an aside.
I think these are the real stories in this story: basically stable and relevant, coupled with irrational growth pressure. I get it, though: the personal journey through the wilds of Sand Hill Road, doing battle with market forces with an army of unknown strength, and so I would have liked to see some spotlight on the mistake of taking VC.
In this way, we also see this conclusion about halfway through the essay, "[s]o instead of pretending to be some sort of product visionary, trying to build a billion-dollar company, I’m just focused on making Gumroad better and better for our existing creators. Because they are the ones that have kept us alive."
I remember hearing a lot about Gumroad! People in the UK(? Aus?) used it a lot! In that way, this incredible journey appears as another log on the fire when it could have been part of a nice house. Or something like that. Everything about this story signals a decent business that was killed by VC.
I think what he meant was, there is no product so amazing that it will give you growth enough to satisfy your VC investors, if the market you're in is not big enough or growing fast enough. Could have been worded more precisely, but in the context of the article it was pretty clear.
Reminds me a lot of Bandcamp, which serves a similar market and has a similar and very refreshing ethos: in it for the long haul, dedicated to serve their audience because (likely) nobody else will, because there's not and never will be VC-sized 100x upside.
"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.
This is exactly why I won't hire good friends. The personal relations would skew business sense then, on both sides in order to stay loyal to your friends. This skew can be dangerous for business, and thus for the well-being of those who are involved and bet on its success.
If gumroad became a billion dollar company you'd be retiring on that 9 months of work with even a tiny bit of equity. I bet there are plenty of people that bailed out of google, facebook or other similarly positioned startups at that stage and regret it.
This is the type of reasoning that startups use to justify making employees work 60+ hour weeks for a tiny amount of equity and below-market pay. Most startups will not become billion dollar companies.
I bet there are far more people who didn't leave similarly-positioned-but-unsuccessful startups and regret it... maybe spurred on by the survivorship bias (or non-survivorship bias, in this case) of those who left a successful startup.
Exactly what I was thinking when I read that part. I hope those people are still his best friends.
Working long hours for 9 months and getting laid off at the end doesn't only affect you financially. It will will have a significant effect on your personal life and the people around you who may depend on you.
Honestly doesn't seem like he failed at all. Sounded like just bad times for the business. I mean 2 years of difficulty seems like a minor thing in the grand scheme of the business lifetime. Not only that, the business literally keeps growing if the graphs are to be believed.
Failing is when you can't come back and you close the business.
I think that's the point the author is making. The benchmarks for "success" are different if you're in the SV VC-funded startup world. What may be a sustainable 10-person staff e-commerce business would be seen as a failure in some circles because it didn't grow fast enough to IPO, which is all VCs care about.
I'm pretty sure this is the best post I've ever read on Hacker News, because of its potential positive impact on others. It's one thing to give advice, it's another to back it up with detailed life experience. The lessons shared here are invaluable ones, and if writing this story helps others learn them without having to go through as many trials to get there, you have done a great service. Bravo.
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[ 1.6 ms ] story [ 383 ms ] threadHe 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.
Did you read the article?
It's fuck-you money either way.
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."
https://news.ycombinator.com/newsguidelines.html
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.
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.
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.
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.
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.
This is a great read, and clearly from the heart.
Isn't that what this is though? Sure he failed to build a billion dollar business, but his business is still way more successful than most. Lots of people would certainly kill to attain this level of failure.
I certainly recognise failure is a very personal thing, but from the outside looking in this looks like a success overall, even though I'm sure it was completely gut wrenching along the way.
> 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.
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.
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.
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.
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.
Then:
> 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...
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.
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.
Why?
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 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 ;)
https://news.ycombinator.com/item?id=2406614
Thanks HN for being a part of my journey!
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".
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.
Couldn’t quite spot the failure though... maybe ESL thing.
https://news.ycombinator.com/item?id=2407053
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!
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.
Thanks again.
https://letscrate.com/gumroad/gumroad-progress
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. :)
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.
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.
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.
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.
You can be one of the people you help.
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.
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.
(Though, I was living in SF.)
In hindsight, what do you make of companies choosing or rejecting venture funding in the first place?
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
> 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.
Thank you.
[1] https://twitter.com/gumroad/status/811650470758359040
> 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.
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.
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!
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)
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!
To that end, I considered Sahil - and people like him - to be my model of success: being able to bring your vision to life.
I think I've grown since, but it still sucks to hear that about past-me.
Ouch. Even at 20 employees, $25k a month is insane when you have no profit. I'm sure it was a pretty office, the kind that attracts good developers in a competitive market.
It feels like so much of the VC funding goes to creating buzz and cool-factor (cool office, free lunch, potential lucrative exit), which can obviously be great marketing, but it really limits your runway and obviously the control you have over your idea.
Still insane to me that more companies do not embrace remote work.
Agree that remote should be more widely used, especially in software.
I do wonder if there was a path for Gumroad to become a Shopify killer, instead of focusing on sellers too small and unsophisticated for Shopify, which limited the addressable market.
Gumroad is also going to have some new opportunities if Patreon continues to struggle with their similar deal-with-the-devil.
+1 Gumroad, glad to see it's found a way to thrive.
"I am following up our conversation a few months ago. KP would like to sell our ownership back to Gumroad for $1. Can we discuss this week?"
...do founders discuss a Plan-B exit strategy/costs with the VCs ? Do VCs (or their lawyers) give this option or offer to discuss.
For Gumroad, it sounds as if this was a lottery or a happy coincidence. But I am interested in finding out if VCs actually only are interested in outright discussion of the up side (similarly for the founders... but that's kind of apparent from observation, and ... well also reading your article :-) )
+One of the CEOs main roles is to raise money
+Rich or King? Know which one you wanna be.
+How much is your friendship really worth? Think carefully about this before you get in business with them.
Seems to me like the author's failure taught them a valuable lesson about what they actually valued vs. what they thought they valued.
I would like to see more tech companies like Gumroad; that is companies whose focus is not on IPO and quick aquisition, but instead, on the quality of their product/service and the prosperity of the customers/users.
> 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".
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.
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.
- scale
- brand
- 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)
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?
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.
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.
> It doesn’t matter how amazing your product is, or how fast you ship features. The market you’re in will determine most of your growth.
This is just a cop-out. The market will limit, not determine, your growth. It's up to you to hit that maximum, and use marketing/sales to extend that maximum. That is called creating a market. And overall it's called execution.
OTOH, Sahil isn't wrong. Some markets are either not that ripe (timing is important), don't have enough support, are too niche, and a thousand other factors. But as a generalization, "Product doesn't matter" is just wrong.
I think these are the real stories in this story: basically stable and relevant, coupled with irrational growth pressure. I get it, though: the personal journey through the wilds of Sand Hill Road, doing battle with market forces with an army of unknown strength, and so I would have liked to see some spotlight on the mistake of taking VC.
In this way, we also see this conclusion about halfway through the essay, "[s]o instead of pretending to be some sort of product visionary, trying to build a billion-dollar company, I’m just focused on making Gumroad better and better for our existing creators. Because they are the ones that have kept us alive."
I remember hearing a lot about Gumroad! People in the UK(? Aus?) used it a lot! In that way, this incredible journey appears as another log on the fire when it could have been part of a nice house. Or something like that. Everything about this story signals a decent business that was killed by VC.
"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.
Failing is when you can't come back and you close the business.