Software at Scale 41 - Minimal Entrepreneurship with Sahil Lavingia
Is company building worth it for highly paid software engineers?
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.
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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.
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 possible, for a community you don’t particularly care about because your goals have nothing to do with serving that community, which is totally fine. No value judgments from me. With indie-hacking, it seems more geared around independence. I tried living the digital nomad life - work solo, travel the world, no schedule, but I didn’t actually enjoy it. It wasn’t really satisfying. I like working on a project with many people, and things improve, and I get to learn from others, they learn from me, I like talking to my customers, who I can talk to frequently, and their lives are getting better because of my work. I enjoy that. So I wanted a middle-ground between the “live on a beach” mentality and the blitzscaling, build the next Facebook mentality. I like to think that with things like crowdfunding, this will get more and more feasible.
Even though my article went viral and the ideas often resonated, there’s this aspirational aspect to many humans - they want to build something amazing and big. It’s kind of the Steve Jobs “make a dent in the universe” idea, even though he might not have actually said that. To account for that, I think incorporating some of the indiehacker principles in the startup path might actually be the most applicable and accessible solution for people.
Utsav: One of the key ideas in the book that, that strikes out to me as someone who's a software engineer is that you can keep trying projects on the side. And eventually, if you're doing things right, if you're talking to customers, you will hit something that people want to buy or to use, right? You're not going to get it right the first time probably. Um, but I think that's a really important idea in this. Could you elaborate on that?
There are two kinds of people: one, who builds a lot of stuff but don’t know who for. Another to-do-list app, a meditation app, you name it. So you build it, but then you can’t figure out who’ll use it. The other kind is stuck in analysis paralysis, and can’t really hone in on an idea that they want to commit to. The solution to both these personas is to forget about business and immerse yourself in the communities you care about, and try to help them. Focus on contributing to these communities. These could be slack/discord communities. For me, it was Hacker News, Dribbble, and IndieHackers. There’s a bunch of subreddits for everything.
Start being a part of these communities, first by listening, and eventually by contributing. I can guarantee that if you become a useful part of the community, you share ideas, people will come up to you and talk about problems that they’re facing. For example, they’re getting paid by YouTube to produce fitness videos, but have to wait for the end of the month, and they’d really like to get paid instantly. Once a community trusts you, and you solve a problem for a specific set of people, you instantly can validate good ideas and deliver value. And iterating over ideas with this community can give you a good chance of success.
Listen to the audio for the full interview!