August 2015I recently got an email from a founder that helped me understandsomething important: why it's safe for startup founders to be nicepeople.I grew up with a cartoon idea of a very successful businessman (inthe cartoon it was always a man): a rapacious, cigar-smoking,table-thumping guy in his fifties who wins by exercising power, andisn't too fussy about how. As I've written before, one ofthe things that has surprised me most about startups is how few ofthe most successful founders are like that. Maybe successful peoplein other industries are; I don't know; but not startup founders.[1]I knew this empirically, but I never saw the math of why till I gotthis founder's email. In it he said he worried that he wasfundamentally soft-hearted and tended to give away too much forfree. He thought perhaps he needed "a little dose of sociopath-ness."I told him not to worry about it, because so long as he builtsomething good enough to spread by word of mouth, he'd have asuperlinear growth curve. If he was bad at extracting money frompeople, at worst this curve would be some constant multiple lessthan 1 of what it might have been. But a constant multiple of anycurve is exactly the same shape. The numbers on the Y axis aresmaller, but the curve is just as steep, and when anything growsat the rate of a successful startup, the Y axis will take care ofitself.Some examples will make this clear. Suppose your company is making$1000 a month now, and you've made something so great that it'sgrowing at 5% a week. Two years from now, you'll be making about$160k a month.Now suppose you're so un-rapacious that you only extract half asmuch from your users as you could. That means two years lateryou'll be making $80k a month instead of $160k. How far behind areyou? How long will it take to catch up with where you'd have beenif you were extracting every penny? A mere 15 weeks. After twoyears, the un-rapacious founder is only 3.5 months behind therapacious one. [2]If you're going to optimize a number, the one to choose is yourgrowth rate. Suppose as before that you only extract half as muchfrom users as you could, but that you're able to grow 6% a weekinstead of 5%. Now how are you doing compared to the rapaciousfounder after two years? You're already ahead—$214k a monthversus $160k—and pulling away fast. In another year you'll bemaking $4.4 million a month to the rapacious founder's $2 million.Obviously one case where it would help to be rapacious is whengrowth depends on that. What makes startups different is thatusually it doesn't. Startups usually win by making something sogreat that people recommend it to their friends. And being rapaciousnot only doesn't help you do that, but probably hurts. [3]The reason startup founders can safely be nice is that making greatthings is compounded, and rapacity isn't.So if you're a founder, here's a deal you can make with yourselfthat will both make you happy and make your company successful.Tell yourself you can be as nice as you want, so long as you workhard on your growth rate to compensate. Most successful startupsmake that tradeoff unconsciously. Maybe if you do it consciouslyyou'll do it even better.Notes[1]Many think successful startup founders are driven by money.In fact the secret weapon of the most successful founders is thatthey aren't. If they were, they'd have taken one of the acquisitionoffers that every fast-growing startup gets on the way up. Whatdrives the most successful founders is the same thing that drivesmost people who make things: the company is their project.[2]In fact since 2 ≈ 1.05 ^ 15, the un-rapacious founder isalways 15 weeks behind the rapacious one.[3]The other reason it might help to be good at squeezing moneyout of customers is that startups usually lose money at first, andmaking more per customer makes it easier to get to profitabilitybefore your initial funding runs out. But while it is very commonfor startups to diefrom running through their initial funding and then being unableto raise more, the underlying cause is usually slow growth orexcessive spending rather than insufficient effort to extract moneyfrom existing customers.Thanks to Sam Altman, Harj Taggar, Jessica Livingston, andGeoff Ralston for reading drafts of this, and to Randall Bennettfor being such a nice guy.
