I wrote this to challenge the common dichotomy that startups are either VC-backed money-burning machines or anti-VC/profitably bootstrapped. It doesn’t have to be that binary. There’s a spectrum, a middle ground. You can retain control by being profitable while still using funding as leverage or as a safety net if things don’t go as planned.
One of the paradoxes of fundraising is that it’s easiest when you don’t need the money—and almost impossible when you do. By keeping the company mostly profitable, you never have to need it, giving you full control over timing and the ability to choose the right deal. But having that funding can enable you some more leverage or add more risk business you could afford while being bootstrapped. In our case we raised the funding for the conservative case, but the reality turned much better than expected.
Another misconception is that sustainable growth comes from spending or hiring. In reality, many great products take off first and because they take off, any amount of hiring becomes justified. Some of these companies are even profitable before they go on a hiring spree. The problem is that the typical approach isn’t nuanced or intentional enough. You might decide to hire 100 engineers before knowing how the next 10 engineers impact your trajectory. If you cut the hiring plan in half—or even to a quarter—it might not affect growth at all. But there’s often an assumption that growing the team is also good, and maybe it comes from a time in the 90s or something when you had hire people to man the phones to take orders.
What I believe is that startup’s growth is primarily driven by product superiority and market fit, not just by headcount or marketing spend. Those things can amplify success, and in some cases, they can even mask a bad market fit through sheer force of sales and marketing.
A less cynical take on VCs is that they’re not necessarily pushing companies to burn cash they just want founders to double down when they see a company working. But whether you can truly scale depends on your market dynamics. Sometimes, you need time to learn or to land the right deals in a segment before pouring money into growth.
The problem is that the current thinking is often too simplistic. Since you're startup and have cash, the spending more is always the right move. Going all the way 100 when you could dial it down to 50 or 30 and regain control and de-risk the changes of complete flare out.
While I love companies that become profitable early and grow at a rate that allows them to continue being profitable ... it becomes an issue with investors.
Linear has raised over $50M+ (at $400MM valuation)
You just can't grow fast enough while being profitable - to grow into & surpass that kind of valuation ... in a timeframe ok that's for your investors.
My usual take on this is that if you do a great job, you'll grow at the speed your market is growing, ride the wave so to speak. The price of admission is doing a great job though, the rest of the comment doesn't apply blindly.
If your market is having a hockey stick growth because it's new or in vogue, even underperforming teams will outgrow the best team in the world stuck in a linear growth market.
So I chuckle a bit when founders try to convince you that they are the reason for the hockey stick, or that they are the reason for the linear growth. You're riding the wave more than anything. The main difference then being if you end up being the one chosen by Softbank to aggregate the market or if you'll be one of the ones that are bought out by them.
Good article but it doesn't fit in with American thinking. In search of a unicorn. The only very visible company in the United States I can remember following the profitability and measured growth path was 37signals. Even they have occasionally wandered way off course, with multiple products, and neglecting the main product (long discussion). I agree with you. This philosophy of profitable growth makes me interested in Linear as a potential customer. There's less risk of you closing your doors or just selling your smaller users out.
Alot of startups arent profitable because they are ran by people that have prestigious pedigrees, but dont know what theyre doing/have no experience. So they blow all kinds of money on bad ideas/poor execution, but are still able to raise more funding.
Eventually for some of these companies something clicks, and they do get to something of a valuable company.
This is what ZIRP was.
Alot of people dont know that investors are okay with this, they have 20 Million to push into a company, and figure that something might pop out.
enra ·1 days ago
I wrote this to challenge the common dichotomy that startups are either VC-backed money-burning machines or anti-VC/profitably bootstrapped. It doesn’t have to be that binary. There’s a spectrum, a middle ground. You can retain control by being profitable while still using funding as leverage or as a safety net if things don’t go as planned.
One of the paradoxes of fundraising is that it’s easiest when you don’t need the money—and almost impossible when you do. By keeping the company mostly profitable, you never have to need it, giving you full control over timing and the ability to choose the right deal. But having that funding can enable you some more leverage or add more risk business you could afford while being bootstrapped. In our case we raised the funding for the conservative case, but the reality turned much better than expected.
Another misconception is that sustainable growth comes from spending or hiring. In reality, many great products take off first and because they take off, any amount of hiring becomes justified. Some of these companies are even profitable before they go on a hiring spree. The problem is that the typical approach isn’t nuanced or intentional enough. You might decide to hire 100 engineers before knowing how the next 10 engineers impact your trajectory. If you cut the hiring plan in half—or even to a quarter—it might not affect growth at all. But there’s often an assumption that growing the team is also good, and maybe it comes from a time in the 90s or something when you had hire people to man the phones to take orders.
What I believe is that startup’s growth is primarily driven by product superiority and market fit, not just by headcount or marketing spend. Those things can amplify success, and in some cases, they can even mask a bad market fit through sheer force of sales and marketing.
A less cynical take on VCs is that they’re not necessarily pushing companies to burn cash they just want founders to double down when they see a company working. But whether you can truly scale depends on your market dynamics. Sometimes, you need time to learn or to land the right deals in a segment before pouring money into growth.
The problem is that the current thinking is often too simplistic. Since you're startup and have cash, the spending more is always the right move. Going all the way 100 when you could dial it down to 50 or 30 and regain control and de-risk the changes of complete flare out.
Show replies
tiffanyh ·1 days ago
Linear has raised over $50M+ (at $400MM valuation)
You just can't grow fast enough while being profitable - to grow into & surpass that kind of valuation ... in a timeframe ok that's for your investors.
https://tracxn.com/d/companies/linear/__xC97n-jdX7VZjDBpNyRf...
Show replies
vasco ·1 days ago
If your market is having a hockey stick growth because it's new or in vogue, even underperforming teams will outgrow the best team in the world stuck in a linear growth market.
So I chuckle a bit when founders try to convince you that they are the reason for the hockey stick, or that they are the reason for the linear growth. You're riding the wave more than anything. The main difference then being if you end up being the one chosen by Softbank to aggregate the market or if you'll be one of the ones that are bought out by them.
foliovision ·1 days ago
Show replies
codingwagie ·1 days ago
Eventually for some of these companies something clicks, and they do get to something of a valuable company.
This is what ZIRP was.
Alot of people dont know that investors are okay with this, they have 20 Million to push into a company, and figure that something might pop out.
Show replies