My co-founder and I lived in San Francisco for years. The peak of Silicon Valley. We were very familiar with startups going with the VC model.
You know the one:
- Startup raises a ton of money.
- Startup burns cash to try and achieve unicorn status.
In fact, we both worked at one: Facebook. To be fair, by the time we worked there, Facebook was way beyond unicorn status.
For every Facebook, there were many, many companies that failed to find traction. But for VCs, it's a numbers game. A tiny fraction of their portfolio ends up "returning the fund". To you, your startup is everything. To them, your startup is one pull at a slot machine.
Maybe the exposure helped us see that was not how we wanted to build Canny. Growth at all costs was not an attractive path for us.
Definitely not a unicorn
By not raising money, we made a choice: we’re not trying to be a unicorn. There hasn’t been a day on our journey so far where we’ve doubted that decision.
We focused on profitability before growth. We’re aiming to build a product that businesses stick with because it solves a real problem.
We don't spend money that we don’t have. We hire with our profits and our marketing budgets are sustainable. We never want to feel we must raise a round to stay afloat.
Our big goal is not an acquisition or IPO.
We want to serve our customers above all else. We think investors would get in the way of that.
It is possible to build a billion-dollar business without raising money but those companies are the exception. It also take a long time. This has a lot to do with your market size and your ability/willingness to take a large enough slice of that pie.
These decisions away from the unicorn path are quite clear-cut. Articles like this explain the difference.
Choices that we made that drove us away from being a lifestyle business are a little more nuanced and interesting.
Not (really) a lifestyle business
On the other hand, we have lifestyle businesses.
According to Wikipedia: “A lifestyle business is a business set up and run by its founders primarily with the aim of sustaining a particular level of income and no more”
I wrote a bit about this in a previous blog post but I still feel the same way. I do not like the term "lifestyle business". I feel it implies we're not taking Canny seriously. However, we’re still here trying to build a very successful, ambitious business.
I believe there are a lot of success states between unicorn and lifestyle business. A newer term has emerged that we resonate more with: the Zebra. A Zebra company is focused on sustainable growth while solving meaningful problems. I'm happy to see startups like this getting more attention.
We are biologically more similar to the lifestyle business than a VC-funded business. We resonate with the polar differences between the two. Mainly, profitability and sustainable growth.
However, there are some important differences. Here are some significant decisions we made that put us on a Zebra path.
Hiring top talent
At some point last year, we were making enough money to bring on our first teammates.
Lifestyle businesses seldom aim to reach this point and are scrappier with their finances in general. They're focused on growth to the point that they can support their own day to days. If they hire at all, it's common to hire cheaply from places like the Philippines. If not, they can easily get by with contractors. Businesses like Fiverr have sprung up to support these businesses with easy access to (often) cheap labor.
We considered hiring from the Philippines for a brief period. I had heard great success stories from other founders and the average salary is significantly lower. Pay a few people a small salary and pocket the rest? Pretty tempting.
Instead, we pushed through until we could afford top talent. It meant hiring later than we wanted but also that our business was further along. We hired experienced people and we're able to pay them well.
Really smart people aren’t cheap but they are worth it. With our stellar team of five, I can see how we will reach our growth targets and beyond.
This is definitely the most significant decision we made that put us on our current path. All of us experts in our respective areas of work.
Setting aggressive goals
We know VC-backed companies are motivated to grow at all costs. Even if that means inflating metrics to raise their next round. It’s about big numbers in a short amount of time. The health of the company isn't scrutinized.
Lifestyle companies usually work with a low-volume of customers. Often as many as they need to sustain their chosen lifestyle. Instead of high quantities, they're focused on building a stable product and providing quality customer service. Retaining their customers is key to ongoing passive income.
While we’re on the same wavelength, our goals are a lot more aggressive than the lifestyle business. They need to be. We have a team of people invested in the company’s success. We’re aiming to grow the company beyond what we need to get by. We want to grow quickly and bring on more awesome people so we can continue building great products.
When we set goals, it all comes down to sustainability. When thinking about what to work on, we focus on long term impact. We look at things like customer retention, keeping churn low, and finding consistent marketing channels. We also focus on metrics that show we’re providing real value to our customers.
Thanks @jasonleow for the link tip!