59 min
Software at Scale 41 - Minimal Entrepreneurship with Sahil Lavingia Software at Scale
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- Technology
Sahil Lavingia is the founder of Gumroad, an e-commerce platform that helps you sell digital services. He also runs SHL Capital, a rolling fund for early-stage startups.
Apple Podcasts | Spotify | Google Podcasts
Sahil’s recent book, Minimal Entrepreneurship, explores a framework for building profitable, sustainable companies. I’ve often explored the trade-off between software engineering and trying to build and launch my own company, so this conversation takes up that theme and explores what it means to be a minimal entrepreneur for a software engineer.
Highlights
(edited)
Utsav: Let’s talk about VCs (referencing your popular blog post “Reflecting on My Failure to Build a Billion-Dollar Company”). Are startups pushed to grow faster and faster due to VC dynamics, or is there something else going on behind the scenes?
It’s a combination of things. People who get caught up in this anti-VC mentality are missing larger forces at play because I don't really think it's just VCs who are making all of these things happen. Firstly, there’s definitely a status game being played. When I first moved to the Bay Area, as soon as you mention you’re working on your own, the first question people ask you is how far along your company is, who you raised money with, how many employees you have, and comparing you with other people they know. You can’t really get too upset at that, since that’s the nature of the people coming to a boomtown like San Francisco.
The way I think about it, there’s a high failure rate in being able to build a billion-dollar company, so you want to find out reasonably quickly whether you will succeed or not. Secondly, we’re in a very unique industry, where equity is basically the primary source of compensation. 90% of Americans don’t have some sort of equity component in the businesses they work for, but giving equity has a ton of benefits. It’s great to have that alignment, and folks who take an early risk for your company should get rewarded. The downside of equity is that it creates this very strong desire and incentive to make your company as valuable as possible, as quickly as possible. In order to get your equity to be considered valuable to investors, you need to grow quickly, so that investors use these models that project your growth rate to form your valuation.
Many people took my blog to say - it’s the VC’s fault, but that’s not true. The VCs let me do what I wanted, they don’t really have that much power. The issue was that in order for employees to see a large outcome, you need the company to have a large exit. As a founder, you’d do pretty well if the company sold for $50 million dollars, but that’s not true for employees, they really need this thing to work, otherwise, the best ones can just go work for the next Stripe. So you have this winner-take-all behavior for employees, and it’s ultimately why I ended up shrinking the company to just me for a while.
Utsav: So do you give employees equity in the minimalist entrepreneurship framework?
Firstly: avoid hiring anyone else for as long as possible, until you know you have some kind of product-market fit. I think It depends on your liquidity strategy. How are you as a founder about to make money from this business? The way you incentivize your employees should align with that. If you want to sell your company for a hundred million dollars, consider sharing that and giving equity. If you plan to create a cash cow business, consider profit sharing.
Utsav: What, if any, is the difference between indie-hacking and minimalist entrepreneurship?
They’re pretty similar. Indie hacker seems like a personality, perhaps similar to a Digital Nomad, where the lifestyle seems to be the precedent. I went to MicroConf in Las Vegas, and the attendee’s goals were fairly consistent - to buy a nice house and spend more time with their family. In that case, your goal should be to build the most boring but profitable business p
Sahil Lavingia is the founder of Gumroad, an e-commerce platform that helps you sell digital services. He also runs SHL Capital, a rolling fund for early-stage startups.
Apple Podcasts | Spotify | Google Podcasts
Sahil’s recent book, Minimal Entrepreneurship, explores a framework for building profitable, sustainable companies. I’ve often explored the trade-off between software engineering and trying to build and launch my own company, so this conversation takes up that theme and explores what it means to be a minimal entrepreneur for a software engineer.
Highlights
(edited)
Utsav: Let’s talk about VCs (referencing your popular blog post “Reflecting on My Failure to Build a Billion-Dollar Company”). Are startups pushed to grow faster and faster due to VC dynamics, or is there something else going on behind the scenes?
It’s a combination of things. People who get caught up in this anti-VC mentality are missing larger forces at play because I don't really think it's just VCs who are making all of these things happen. Firstly, there’s definitely a status game being played. When I first moved to the Bay Area, as soon as you mention you’re working on your own, the first question people ask you is how far along your company is, who you raised money with, how many employees you have, and comparing you with other people they know. You can’t really get too upset at that, since that’s the nature of the people coming to a boomtown like San Francisco.
The way I think about it, there’s a high failure rate in being able to build a billion-dollar company, so you want to find out reasonably quickly whether you will succeed or not. Secondly, we’re in a very unique industry, where equity is basically the primary source of compensation. 90% of Americans don’t have some sort of equity component in the businesses they work for, but giving equity has a ton of benefits. It’s great to have that alignment, and folks who take an early risk for your company should get rewarded. The downside of equity is that it creates this very strong desire and incentive to make your company as valuable as possible, as quickly as possible. In order to get your equity to be considered valuable to investors, you need to grow quickly, so that investors use these models that project your growth rate to form your valuation.
Many people took my blog to say - it’s the VC’s fault, but that’s not true. The VCs let me do what I wanted, they don’t really have that much power. The issue was that in order for employees to see a large outcome, you need the company to have a large exit. As a founder, you’d do pretty well if the company sold for $50 million dollars, but that’s not true for employees, they really need this thing to work, otherwise, the best ones can just go work for the next Stripe. So you have this winner-take-all behavior for employees, and it’s ultimately why I ended up shrinking the company to just me for a while.
Utsav: So do you give employees equity in the minimalist entrepreneurship framework?
Firstly: avoid hiring anyone else for as long as possible, until you know you have some kind of product-market fit. I think It depends on your liquidity strategy. How are you as a founder about to make money from this business? The way you incentivize your employees should align with that. If you want to sell your company for a hundred million dollars, consider sharing that and giving equity. If you plan to create a cash cow business, consider profit sharing.
Utsav: What, if any, is the difference between indie-hacking and minimalist entrepreneurship?
They’re pretty similar. Indie hacker seems like a personality, perhaps similar to a Digital Nomad, where the lifestyle seems to be the precedent. I went to MicroConf in Las Vegas, and the attendee’s goals were fairly consistent - to buy a nice house and spend more time with their family. In that case, your goal should be to build the most boring but profitable business p
59 min