Filed under: bad advice, free of charge
It's an unprecedented time to be running a software startup. Whenever I check Twitter, I see tweets like this
Having launched our first product during the recession of 2008, a part of me envies the ease with which promising companies can fill their coffers. But another part of me thinks that the advice one sees on Twitter is too one-sided. It's as if nobody has considered the many benefits of struggling for years with too little capital and too few users. 😆
But in seriousness, if you are a Founder with a programming background creating a new software company, the early struggle can blossom into long-term strength. Assuming the company doesn't, you know, implode in a fiery wreck, it will possess key strategic advantages over its growth-obsessed competition.
The question of whether to "secure the bag" moonlights as the answer to "what type of job do you want to have?" Drawing from my varied experiences as a bootstrapped CEO and an investor-backed CEO, I hope that this essay might seed increased awareness of how today's fundraising victory translates into tomorrow's job responsibilities.
Among professional CEOs, it's common to find the deep-seated ambition to lead a team. The traditional CEO archetype will endure years of MBA training to manifest their dream of building and managing a fast-growing team toward a big payday. I've gotten to meet several such CEOs over my decade in the Seattle startup community. Their charisma is sufficient to disable an audience's critical thinking when they speak. Maybe they weren't born leaders (because who is?), but they were born with a mix of ambition, extroversion, and personability that coalesces into an incredibly polished leader by the time they reach their 30s.
Meanwhile, I've held the CEO title for 13 years now, but I was never like them. Like many who spent their teens programming late nights in the glow of a CRT monitor, leading via email feels more practical than delivering a speech. I match the pattern for a fairly new but increasingly common mutation of the traditional CEO archetype, the Programmer/CEO. It shares the eager ambition of a traditional CEO, but that ambition manifests as an intense desire to build interesting products that solve important problems. Not so much leading a large team toward a big exit. The Programmer/CEO would prefer to be working on a challenging programming problem with a couple close friends over choosing their next Head of Growth Marketing or Chief Diversity Officer. And this type of personality is largely disinterested in raising a big VC round, growing a company to hundreds of employees, or being feted by Forbes.
Do the most ambitious Programmers who start companies secretly want to evolve into Managers? Savants like Patrick Collison and Tobi Lutke make it look so fun & easy to transform from programming prodigy into market-beating CEO, maybe the progression makes sense for sufficiently brilliant people. But most of the literature I've read suggests that "technical proficiency" and "management interest" are unrelated. And since management is very much a learned skill, it's near impossible to become a great Manager if you don't love to do it.
If it's true that the ubiquity of software is driving ambitious Programmers to become
mutant hybrid Programmer/CEOs more often, how can this new breed play to its strengths while maximizing their success and satisfaction along the way? It's probably not by becoming one of these "half dozen founders who raises a seed round at a $20-40m pre-money," that Karn tweets about.
Those CEOs must cultivate the desire and experience to manage others. But if the love of programming was what got you this far, and the relationship between "technical proficiency" and "management interest" is negligible, where does that leave you? Unwittingly promoting yourself out of the job you already know you love.
Is it possible for the Programmer/CEO to retain control of their company and ultimately beat the traditional CEO at building a product that many users love? Yes, it's possible. But it takes patience, with a focus on incremental profitability.
To win over the long-term, one's company must be designed to play to the strengths of a Programmer. First, the company must avoid opting its CEO into the traditional "meeting turnstile" culture that follows from having a large number of direct reports. It is an immutable truth that more reports => less time to program. You can try to improve incremental efficiency by making checkins asynchronous and by hiring talented people with good intuition, but you can't escape the immutable truth.
Second, you can differentiate by growing your stakeholders gradually. VCs love to shit on the "build it and they will come" business model, because it doesn't optimize for rapid near-term growth. I would argue that's a feature, not a bug. When a company's growth exceeds its readily apparent merits, that's a type of "business debt," akin to writing code for your prototype release without tests. Companies with fewer stakeholders (investors, employees, and yes, even customers) can evolve a hell of a lot faster than those with more stakeholders.
Having launched five products since 2008, I constantly find myself discovering around year three that if we really want to create a transformative product, we ought to refocus all energy on a particularly cool aspect of the general idea we started with. To use a farming analogy, I always seem to eventually learn we should be growing bananas, not “organic fruit.” If you already have 10,000 customers, 500,000 lines of code, and a five-member Board of Directors, you're looking at months, if not years, to map out the transition from organic fruit to bananas. And even after you've exhausted yourself justifying the new direction to stakeholders, many will still depart on bad terms, feeling that they were misled or even betrayed by the decision to go bananas.
To make this more tangible with a real world example, consider the case of Evernote. They launched in 2008, and by 2011, they were the undisputed leader among note-taking apps with 11 million users. But then mobile came along. Web-based apps became viable. And the best parts of Evernote's original featureset became table stakes for newer competitors. Evernote didn't make any single, fatal blunder during their evolution. They were merely a victim of their stakeholders' expectations that they should do everything that was relevant in 2011, plus keep building more and more on top of that. Keeping pace with the onslaught of features offered by nimble competitors, while balancing tech debt incurred from early years of hypergrowth, eventually toppled the once-dominant brand.
What would have happened in an alternate universe where Evernote built all the same features from 2008-2011, but remained an underappreciated niche product with a team of five developers? Once it became apparent that mobile was the future, they could have jettisoned their legacy HTML-based editor in favor of a markdown-based editor that would have permitted them to more reliably sync between platforms. They would have put their best developer on the mobile app and would have began shedding desktop features like voice transcription and spellcheck that were redundant with mobile and web browser improvements. In short, they would have evolved with the times, because there wouldn't have been legacy stakeholders that prevented it.
Instead, Notion came along with its two pizza team and rebuilt the best of Evernote in about year. Then, unbridled by mountains of tech debt, went on to invent an in-notebook database that could masquerade as a table, and leveraged that killer feature into knowledge bases, spreadsheets, templates, and all the rest of the features that allowed them to obliterate Evernote's once-dominant market share.
Ambitious Programmer/CEOs who hope to compete against products with 100x the resources: don't despair. If you have the patience and the incremental revenue to slowly flesh out your dream product, there's a very real chance that you can win a long-term battle against highly celebrated VC-backed competitors.
One need look no further than Notejoy to see a contemporary example of how an underdog can patiently build a great product with the potential to unseat the titans. Notejoy CEO/Programmer Sachin Rekhi kicked off his Notejoy journey in 2017, a year after Notion. Over the time that Notion has raised $68m, Sachin has raised a number that rounds to $0. But he is a one-man wrecking crew. Looking over the feature comparison between the apps, Notion and their $68m team has implemented 144 features while Sachin has single-handedly implemented 120 features. Look at how much Sachin got done in 2020 alone and tell me that you wouldn’t be a little concerned if you were Notion?
Which of those teams is going to be better poised to rapidly adapt to whatever the next big evolution in the note-taking space? I wouldn't bet against Sachin.
At this point you might reasonably be thinking, "OK but what about Amazon or Stripe or Tesla?" They collected unfathomable piles of cash and seem to be doing alright. 😜
Even though these companies could arguably be evolving their product more quickly with less entrenched stakeholders, the reality is that many types of companies are beholden to circumstances that make slow growth impractical.
For Amazon, and all marketplaces, network effects rule the day. When you're building a two-sided business (i.e., where earning buyers depends on having sellers and vice versa), you can ill afford to grow slow.
For Stripe, they needed to fit into a legacy financial system with tremendous starting costs. More generally, businesses whose utility depends upon meshing with a byzantine regulatory ecosystem are going to be hard-pressed to do that without a bank account balance to rival Scrooge McDuck.
For Tesla, launching their first assembly line wasn't something that could be done in piecemeal fashion. This would seem to be applicable to any company in the business of creating physical products.
Note that, for each of these exemplary businesses, the forces that compelled them to raise money and grow fast also apply to their competitors. They're playing by different rules than the traditional internet company like Evernote, and all of their competitors are playing by those same rules. You can build a product that is 10x better than Amazon in features, and it wouldn't matter because network effects are what enables Amazon to be Amazon.