The Core of Staying Small and Beautiful: Profitability First

Small and Beautiful—1 The core of the “small and beautiful” approach to business is “profitability first.” In one sentence: do not pursue expansion single-mindedly; instead, do everything possible to turn a profit. This view grew directly out of the author’s experience. The company he founded went through a rise, a fall, and another rise. First, its “unicorn” dream collapsed; later, it was reborn as a “small and beautiful” business. In 2011, while still in college, the author suddenly had an idea: give creators a platform where they could freely sell their work online, especially digital products such as video tutorials, audio courses, software subscriptions, or even something as small as a digital icon. He thought it was an idea for a “billion-dollar company.” So, without waiting to cash out his equity, he left Pinterest—where he was employee number two—to pursue his “unicorn dream.” He built a simple sales website, Gumroad. On its first day in operation, it attracted more than 50,000 visitors. That impressive start made him even more confident. After a good start, what came next? For a future “unicorn,” the obvious answer was venture capital. He began making the rounds of Silicon Valley, moving from one meeting room to another and passionately pitching his vision to venture capitalists. He eventually secured more than US$8 million in investment. Most of his backers were prominent figures in venture capital who had helped nurture internet giants such as Amazon, Apple, Google, Facebook, and Twitter. Like the author, they believed they could see a unicorn charging toward them. With the money secured, what else did a “unicorn” need? Talent, obviously. He quickly recruited dozens of employees from major internet companies and got to work with great enthusiasm. He felt that before long, he and this first-rate team would take the platform worldwide, win both fame and fortune, and find themselves chatting comfortably with Bill Gates and the celebrated investor Warren Buffett. Unfortunately, none of that happened. At first, the company grew rapidly on investors’ money. Once that money was spent, however, growth hit a bottleneck. For the next nine months, they kept trying to raise more, without success. Without venture funding, Gumroad was like a car with an empty fuel tank: it could go no farther. He eventually laid off most of the staff, leaving only a few core team members. Although the Gumroad website was still operating, he felt he had failed completely. He moved from Silicon Valley to a quiet small city, intending to think carefully about restructuring the business. There, things began to change. He made new friends who, after hearing his story, thought he must have been crazy to set out to build a billion-dollar company from the start. Was Gumroad not good enough already? It was still operating and providing many creators with services they wanted. Was that not a good thing? At first, he could not understand their view. Nobody in Silicon Valley thought that way. There, the mindset was “go big or go home.” Gradually, he realized his friends had a point. The unicorn he had pursued so single-mindedly had turned out to be only a little pony. But that pony was fulfilling his original vision: thousands of creators were running small businesses on Gumroad, selling courses, ebooks, and software they had designed, and using their earnings to supplement their incomes and support their children. More and more writers, programmers, craft enthusiasts, and other creators came to the platform, realizing their dreams day by day. He realized that the root of the problem lay not in the company but in himself. He had been fixated on an unreachable unicorn, dissatisfied that the company had stopped expanding. He had overlooked the fact that the business had actually remained profitable and was appropriately sized for its target market. For some Silicon Valley investors, Gumroad might have been a poor investment. For the customers it served, however, it was a very good platform. Once he understood this, he resolved to develop Gumroad properly. Instead of thinking about expansion, he focused on creating more value for creators. He published an online article titled 《打造10億美元級企業夢想破滅後的自我反思》 (“Reflections After My Dream of Building a Billion-Dollar Company Fell Apart,” a descriptive translation), describing his entrepreneurial experiences, the lessons he had learned, and the changes in his thinking. Afterward, he met many more entrepreneurs and heard their stories. He came to understand more deeply that most startups are not suited to the unicorn path: raising money and expanding furiously from the outset, pursuing “winner takes all,” and aiming to become a market giant. Many businesses have to raise substantial venture capital early on because they have not found a sustainable profit model to support normal business development. They end up trapped in a cycle of pursuing size for its own sake, making expansion their most important goal and neglecting profitability. The author compares entrepreneurship to sailing. Developing a business solely through fundraising is like plunging into the sea, treading water and flailing about while waiting for a lifeboat to rescue you. That approach is unsustainable. What is the sustainable alternative? Build your own boat. That boat is the business’s ability to generate profits. In other words, however grand your plans, you first have to make money. You need the boat of profitability before it can carry you anywhere else. This is the core of the “small and beautiful” approach: “profitability first.” It took the author eight years, full of setbacks and pain, to learn that lesson. ----- Taiwanese startups, please make sure your business model can generate profits before pursuing expansion. As in the Buffett view I, Robin, shared a few days ago, making money is the only way to develop sustainably.