Paul Graham. Why a startup has the benefit of being generous

Recently, I received a letter from the founder that helped me understand something important: it is beneficial for startups to be good people.

I grew up with a very successful businessman in a cartoonish way: an avid smoking cigar, noisy, domineering and not too picky in the media. As I wrote earlier, one of the things that amazes me most about startups is that some of the most successful creators are nice people. Maybe successful people in other industries are similar to this cartoon image, I don't know, but not start-ups.

Many people think that successful startup founders are obsessed with money. In fact, the secret weapon of the most successful creators is that they are not. The most successful founders are driven primarily by their company as a project.

I came to this empirically, but I never saw any theoretical evidence of this before I received the letter of this startup. In it, he spoke of concern for his principled kindness, because of which he does too much for free, and believes that he needs to be a little tougher.
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I told him that you should not worry about this, because his behavior helps his startup grow quickly. If he was focused on maximizing revenue from his business, growth would be somewhat smaller, but the growth schedule would be exactly the same.

As an example, consider the situation when your company is currently bringing in $ 1000 per month, and you are doing something so cool that you are growing at 5% per week. Two years later, you will earn about $ 160 thousand per month.

Now suppose you are not so greedy and take half of what you could take from your customers. This means that two years later you will earn $ 80 thousand per month instead of $ 160 thousand. How far are you lagging behind? How long does it take to move to the same level of income? Only 15 weeks. After two years, a generous start-up in just 3.5 months will catch up in terms of income of the most greedy businessman (other things being equal).

If you are going to optimize numbers, the only way is to increase growth rates . Suppose, as before, for your services you charge half the possible, but such generosity increases your growth rate to 6% per week instead of 5%. Compare the income levels of a generous and greedy strategy after two years of doing business? The first gives already $ 214 thousand per month compared with $ 160 thousand at an accelerated pace. For another year, you can earn $ 4.4 million a month against a greedy founder with $ 2 million.

It is obvious that greed takes place only in the case when its manifestation provides rapid growth. Unlike many other industries, this rule does not apply to startups. Startups usually win by doing something so cool that people recommend them to their friends, as a result, greed will not only help you with this, but will probably bring additional problems.

Another reason to siphon money from customers is that, as a rule, startups lose money at the beginning of their operations, and increasing profitability at the expense of the client makes it easier to achieve profitability before initial funding runs out. At the same time, the high mortality rate of startups lies in the lack of funds caused, as a rule, by slow growth or excessive expenses, while insufficient efforts to extract client funds have nothing to do with this.

So if you are a startup, here’s a deal you can make with yourself. She will make you happy and your company successful. Tell yourself that you can be good as long as you like, working hard at your growth rate to compensate. Most successful startups come to this compromise unconsciously. Maybe if you make it consciously you will have even greater success.