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Comment by kevin | Hacker News Reader

Just in case people are going to mentally summarize this as startups need to choose one or the other...the most important idea from Fred here comes at the end: Great companies can do both. Don't let investors (or anyone for that matter) say there's only one way to play the game. Reminds me of one of my favorite quotes from Charles Eames. And while it pertains to making products, I think it fits:

"Never delegate understanding."

We followed this strategy (the never delegating and balancing growth and profitability) at Wufoo and I can tell you that it was the best decision we ever made.

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Do most YC companies follow this balanced approach?

Not being in YC, I can only imagine that it's different strokes for different folks.

For example, if you're doing a land-grab in a newly discovered market, such as Uber, you have to prioritize growth above all.

On the other hand, if your market is well-established and your plan to win by superior polish of your offering, you're better off growing slowly, using revenue both as a funding source and as a guide for making a superior product.

In any case, the competitive situation will dictate if you have to grow fast at all costs (by raising large rounds), or if you can grow slowly by using your own revenue.

Is Uber an example of a land-grab? Regulation arbitrage and long term domination of a market are not really compatible outcomes. Sure they need to focus on growth over all to beat their competition, but the end result will just mean that they end up as regulated as the current taxi industry once they actually achieve domination.

And that's great for them! As a big company they can afford the lawyers to deal with regulations, and the scrappy upstart competitors can't.

Yes but once they reach a certain size they will need to transition from regulator arbitrage to a model similar to the one the current taxi system. Once this happen they will be as vulnerable to the next scrappy upstart as the taxi industry is. Either domination or regulatory arbitrage has to give.

They'll change from arbitrage on the current regulation, to having a say in the next regulation and living cosily in it.

Side question: why do the new regulations have to be similar to the current taxi system? Uber doesn't need eg a medallion system, they'd be happy with onerous legal (eg reporting) requirements to keep upstarts out.

Sure Uber might be able to help write the new regulations to their advantage, but at that point they will be open to attack from upstarts who choose to ignore the regulations. They need not only write the regulations and then be able to get them enforced to keep the upstarts out.

The new system does not need to the same as the current medallion system, but unless the new system is providing them with a competitive a means of keeping upstarts out the market will become one of perfect competition where profits all end up with the consumer.

Could the outcome to the founders have been bigger if wufoo became a bigger company by prioritizing growth over profits?

Our outcome is much larger than you might think. Definitely more than what the average startup founder (who might have tried to raise more funding to chase growth over profits) under a similar exit, because the founders maintained a large portion of our equity to the end.

Now, I still have equity in SurveyMonkey and their amazing story is still in progress (one that also balances growth vs profits in a very similar way), but our outcome could be the equivalent to a traditional exit 3-4 times our size when all is said and done.

Also, a startup feels completely different when it's profitable and we were profitable 9 months after launch. Running a company on the edge is incredibly stressful and I'm glad I didn't have to do so for 4 years. I'm not saying I couldn't have done it, but I'm glad I wasn't forced.

This is not to say I believe every startup should run like ours, because sometimes you don't get the luxury or choice to do so. We were lucky to get to choose to grow the company the way we wanted at Wufoo. Sometimes growth comes to a startup and they have to do everything they can to hang on including raise money. If that's the right path, I won't be afraid to recommend that route.

The reason I'm at YC is because we don't try to slap a one plan fits all model for the startups. There are many paths to success and I'm delighted to be a testament to that.

The one plan that YC can't really slap on is the one that is most advantages to founders in many cases - the bootstrap model where no outside funding is required. If you were able to achieve profitability after 9 months do you think you could have got there (maybe a bit slower) without raising external capital at all?

When we applied to YC, the three of us only had enough money saved up for two of us to quit our jobs. So two of us quit and Chris kept working in a cubicle and split his paycheck 3 ways. Even that plan didn't give us enough money to work on Wufoo full time because we needed all 3 of us. So that 2 of out 3 plan resulted in 2 of us making a web development magazine that we'd sell and hopefully make enough money for the 3rd one to quit.

The idea behind the magazine was that I calculated we could run it in a way that half the month could be spent on that and the other half on working on the software we wanted to build. I'm pretty sure that play would have taken forever to execute.

So we actually really needed that $18K that YC gave us AND the 3 dedicated months to blow everything off and only work on the software. Very different times back then.

Couldn't you have gotten ~$18K as a personal loan from a bank? Even if everything failed, working off that level of depth would have been easy in a silicon valley corporate job afterwards.

That $18K only covered our expenses up till Demo Day. The $100K we raised after that allowed us to get to launch and then profitability. Also, it's not like we could predict that it was all going to work out. From our perspective everything was a risk up until it wasn't.

Having the choice to not take on debt and work with people who'd done it before made way more sense especially considering we hadn't written a line of code when we got into YC and had no idea what we were doing. YC paid us to start our company and gave us amazing advice that kept us from making a lot of bad decisions. The loan option isn't exactly a great deal by comparison.

Plus, we were not from Silicon Valley at the time. We quit our jobs because we hated working in a fucking cubicle. It was probably irrational, but easy for some people was completely unacceptable to us.

Thanks for clarifying! I just wanted to know those additional reasons.

Certainly was. I kind of fell into my startup without really intending to start a business (I gave a pitch and someone literally wrote out a check on the spot and said go get to work), but I wonder if more founders would be better waiting and building up more capital before starting? If you only need 18K and three months full time then this should be within the reach of almost all founders especially if you are building a business where profitability is within relatively easy reach.

What is profitability? If you stop reinvesting your revenues into growth, you can be profitable. So what?

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