The suite approach is indeed working famously well for HubSpot 😂 That plus I think a rare agreement with the board that long-term-growth and customer happiness Matter.
My question on that would be, does the board support the idea of customer happiness because they think it leads to more money later, or because customer happiness is Good on its own?
(This isn’t quite the same thing, but it’s like how boards see DEI issues. I think that it’s a mistake to try to back into some math that says DEI is actually good for the bottom line, because 1) that math is kinda tenuous, and 2) it halfway concedes that DEI isn’t worth pursuing on its own merit. I’d rather people just make the argument that it’s the right thing to do, and if there are financial benefits, that’s a bonus.)
Oct 8, 2023·edited Oct 8, 2023Liked by Benn Stancil
> It encourages companies to push them beyond what they are naturally suited to do.
This I think is the essence of the point. My addition would be that I think the excesses pressured companies without the correct combination of intangibles (PMF, FPF, FMPF etc) to make it happen, and it sort of then happened through sheer power of narrative control and aligned incentives.
Whether this is any different to how you sell a new style of <anything else> I don't know, but it just happens in a much quicker and more visible way (to us)?
Ah, that's an interesting angle - startups start off sort of directionless, and take time to figure out exactly what to do. Giving them money too early could make them worse by letting them thrash when they need to be looking for focus, PMF, whatever. So the product ends up worse because people start building the building before they've built the foundation. The building is still probably better than it would've been had they tried to build it *without* money - but if they didn't have money, they would've kept building the foundation. (That sentence says "build" way too many times)
I like the simple explanation that when interest rates were zero no one cared that much, everyone was spending, everyone was growing, everything was overvalued. Now that we're much more focused on cashflow and back to running profitable businesses some companies end up being overvalued and it shows in the variety of ways you listed. There are great examples of companies raising money and continuing to raise as they grow (how much did Snowflake raise total? And seems they have been just getting better and better) - but some markets may just be too small for the $ invested but it's taken time for that to play itself out.
I think that's true, but even in that context still seems weird to argue that a company's product would be better if they had less money to spend on building. I guess you could argue that there was never really a product to build, so throwing money at it made it worse because there wasn't for the product to do? I'd buy that for some tools, though I'm not sure it'd make sense with something like dbt?
I don't know; that's why it feels kinda paradoxical to me.
What if the angle is more that having some more $ is better but having too much more $ is worse? Like there's clearly an "aftermarket for parts" with dbt (https://www.piperider.io/, https://www.datafold.com/, https://datacoves.com/, etc) and ideally dbt would be doing this themselves and providing a much more vertically integrated experience. But each of those might be too small given how much they raised so they have to be much more ambitious which doesn't line up with their current product.
I could see raising a bunch money making you extend too far too fast, without building the foundation you need first. I'm not quite sure I'd frame that as being about vertical integration, but more like, people pushing out new product lines before they've really finished the first one. So you've really got three options:
1. Lots of money + little focus
2. Lots of money + lots of focus
3. Little money + lots of (necessary) focus
2 is best. But if scarcity is the mother of innovation, etc, abundance is probably the opposite, so 2 is really hard to do. So you end up doing 1, even though 2 is definitely better and 3 is probably better.
Yea - that's a good way to put it. There's also a lot said of the value of being resource constrained since it leads to more focus vs being able to pursue whatever whims you have. Then you can bring it back and say the easy funding environment of prior years led to a lot of 1.
one additional thought on the bootstrapped vs VC funded part. I think there is also a component here where once a startup gets VC funding the money often serves as a magnifying glass for the ALREADY existing problems. The product problems, the tech problems, the market problems and of course the people problems. You know... mo money mo problems. However the money also comes with strings attached - like making more money. That fact atleast gives people a common goal. There are far worse common goals than making money for VCs - for example making a founders dreams come true. :-)
On the second point, I’m not sure I understand what you mean about the goal. Are you saying it’s good to raise money because now the entire company knows that they have to make money, and that’s the point of this whole operation now? Whereas before, the company could exist as a sort of trophy for the founders, a vehicle for their own status and wealth?
If that’s what you’re saying, I think I agree, though I don’t think raising money fixes that actually. But, a lot more on that next week.
Yup - that’s what I’m saying. VC money comes with some accountability - without the money there is possibly much less accountability. The less accountability can make the business a trophy or a piggyback bank or something other than… a business. Ya I see how VC money doesn’t fix that but maybe it helps a little? Excited for next week.
On the first point about the magnifying glass, meaning, external people are more sensitive to problems and things they don’t like about well-funded companies vs bootstrapped ones? If that’s true (which I’d say it is), my question is why? Because they’re more in the news? My take there is it’s still because it becomes an us vs you thing. (As one caveat, for early customers, that may not be the case. It’s like knowing a band before they got big; you hold on to the idea that you’re a special fan, or something. But once you raise money, the *new* customers are now just customers, and no longer supporters or on your team or whatever.)
Ya I agree about the external people being more sensitive to funded companies. However I was more referring to the VC money magnifying internal problems. Like let’s say you are bad at hiring - now that you have more money if you choose to use that money to hire a bunch of people you now have a bigger problem.
Ahh. Which is interesting, because I think a lot of people see big funding rounds as being a type of cavalry that fixes your problems. Though I could also see the case where it just amplifies them.
The suite approach is indeed working famously well for HubSpot 😂 That plus I think a rare agreement with the board that long-term-growth and customer happiness Matter.
My question on that would be, does the board support the idea of customer happiness because they think it leads to more money later, or because customer happiness is Good on its own?
(This isn’t quite the same thing, but it’s like how boards see DEI issues. I think that it’s a mistake to try to back into some math that says DEI is actually good for the bottom line, because 1) that math is kinda tenuous, and 2) it halfway concedes that DEI isn’t worth pursuing on its own merit. I’d rather people just make the argument that it’s the right thing to do, and if there are financial benefits, that’s a bonus.)
> It encourages companies to push them beyond what they are naturally suited to do.
This I think is the essence of the point. My addition would be that I think the excesses pressured companies without the correct combination of intangibles (PMF, FPF, FMPF etc) to make it happen, and it sort of then happened through sheer power of narrative control and aligned incentives.
Whether this is any different to how you sell a new style of <anything else> I don't know, but it just happens in a much quicker and more visible way (to us)?
Ah, that's an interesting angle - startups start off sort of directionless, and take time to figure out exactly what to do. Giving them money too early could make them worse by letting them thrash when they need to be looking for focus, PMF, whatever. So the product ends up worse because people start building the building before they've built the foundation. The building is still probably better than it would've been had they tried to build it *without* money - but if they didn't have money, they would've kept building the foundation. (That sentence says "build" way too many times)
I like the simple explanation that when interest rates were zero no one cared that much, everyone was spending, everyone was growing, everything was overvalued. Now that we're much more focused on cashflow and back to running profitable businesses some companies end up being overvalued and it shows in the variety of ways you listed. There are great examples of companies raising money and continuing to raise as they grow (how much did Snowflake raise total? And seems they have been just getting better and better) - but some markets may just be too small for the $ invested but it's taken time for that to play itself out.
I think that's true, but even in that context still seems weird to argue that a company's product would be better if they had less money to spend on building. I guess you could argue that there was never really a product to build, so throwing money at it made it worse because there wasn't for the product to do? I'd buy that for some tools, though I'm not sure it'd make sense with something like dbt?
I don't know; that's why it feels kinda paradoxical to me.
What if the angle is more that having some more $ is better but having too much more $ is worse? Like there's clearly an "aftermarket for parts" with dbt (https://www.piperider.io/, https://www.datafold.com/, https://datacoves.com/, etc) and ideally dbt would be doing this themselves and providing a much more vertically integrated experience. But each of those might be too small given how much they raised so they have to be much more ambitious which doesn't line up with their current product.
I think that makes sense, though I'd phrase it in a different way (inspired by a comment above: https://benn.substack.com/p/does-venture-capital-ruin-great-products/comment/41537432).
I could see raising a bunch money making you extend too far too fast, without building the foundation you need first. I'm not quite sure I'd frame that as being about vertical integration, but more like, people pushing out new product lines before they've really finished the first one. So you've really got three options:
1. Lots of money + little focus
2. Lots of money + lots of focus
3. Little money + lots of (necessary) focus
2 is best. But if scarcity is the mother of innovation, etc, abundance is probably the opposite, so 2 is really hard to do. So you end up doing 1, even though 2 is definitely better and 3 is probably better.
Yea - that's a good way to put it. There's also a lot said of the value of being resource constrained since it leads to more focus vs being able to pursue whatever whims you have. Then you can bring it back and say the easy funding environment of prior years led to a lot of 1.
bootstrap companies are like pets, vc backed startups like cattle
Meaning, once you’re VC-backed, you’re just a financial statistic, and lose any character and personality (to the market)?
one additional thought on the bootstrapped vs VC funded part. I think there is also a component here where once a startup gets VC funding the money often serves as a magnifying glass for the ALREADY existing problems. The product problems, the tech problems, the market problems and of course the people problems. You know... mo money mo problems. However the money also comes with strings attached - like making more money. That fact atleast gives people a common goal. There are far worse common goals than making money for VCs - for example making a founders dreams come true. :-)
On the second point, I’m not sure I understand what you mean about the goal. Are you saying it’s good to raise money because now the entire company knows that they have to make money, and that’s the point of this whole operation now? Whereas before, the company could exist as a sort of trophy for the founders, a vehicle for their own status and wealth?
If that’s what you’re saying, I think I agree, though I don’t think raising money fixes that actually. But, a lot more on that next week.
Yup - that’s what I’m saying. VC money comes with some accountability - without the money there is possibly much less accountability. The less accountability can make the business a trophy or a piggyback bank or something other than… a business. Ya I see how VC money doesn’t fix that but maybe it helps a little? Excited for next week.
Gotcha, I'd agree with that, with a couple rather prominent *cough*sbf*cough* exceptions.
Ha. Ya... good point.
I’m not sure I entirely follow?
On the first point about the magnifying glass, meaning, external people are more sensitive to problems and things they don’t like about well-funded companies vs bootstrapped ones? If that’s true (which I’d say it is), my question is why? Because they’re more in the news? My take there is it’s still because it becomes an us vs you thing. (As one caveat, for early customers, that may not be the case. It’s like knowing a band before they got big; you hold on to the idea that you’re a special fan, or something. But once you raise money, the *new* customers are now just customers, and no longer supporters or on your team or whatever.)
Ya I agree about the external people being more sensitive to funded companies. However I was more referring to the VC money magnifying internal problems. Like let’s say you are bad at hiring - now that you have more money if you choose to use that money to hire a bunch of people you now have a bigger problem.
Ahh. Which is interesting, because I think a lot of people see big funding rounds as being a type of cavalry that fixes your problems. Though I could also see the case where it just amplifies them.
yes I think the customer/vendor relationship becomes secondary. Lost to speculators