Sunday Scaries: Your Startup is Now a Pizza Shop
You don’t need to build a unicorn. A profitable $1M business might be the smarter play.
The world has changed in the last year. It has changed so fast, that a lot of founders haven’t even realized it. They are stuck in Seed stage trying to survive and not getting interest in a Series A. They downshift into “default alive” mode.
This term was either coined or made popular by Paul Graham:
October 2015
When I talk to a startup that's been operating for more than 8 or 9 months, the first thing I want to know is almost always the same. Assuming their expenses remain constant and their revenue growth is what it has been over the last several months, do they make it to profitability on the money they have left? Or to put it more dramatically, by default do they live or die?
Here is the difference in today’s terms: Default alive meant that your startup executed on a path to profitability with the hope that surviving a tough fundraising cycle would mean that they would be around for the next cycle.
For a founder that is mission oriented, the next phase may be in fact to build a durable lasting business. One that is focused on moderate growth, profitability and building a great client base.
Instead of growing at all costs, grow with the market and be profitable.
Why is this not just an option but likely a path for many startups?
With AI and offshore staffing, you may be able to build a $1mARR business and be very profitable. Historically the bar to being able to be a sustainable business was on the order of $5mARR.
For example - the average pizza shop does on the order of $1m/year. Not everyone sets out starting a pizza shop to be Papa John’s. They start out focused on creating a product that people want and building a loyal customer base. They look in the cash register at the end of the day and hope that there is enough money to pay staff and buy supplies for the next day.
When they get big enough, they go to the local bank and get a loan.
The key question:
Did you start your company to be rich or solve a problem that clients needed solving?
If it turns out that it won’t scale and that’s what you want, probably just shut it down.
The other option being to stop grinding out growth, look at expenses and get creative. Sometimes the top of the S-curve may in fact be $1mARR. (See previous post about S-curve).
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