For years, startups have been taught to prioritize growth over everything else. Profitability was seen as unambitious or even misguided – something to worry about when reaching scale. Why focus on profits when money and valuations were easy to come by?
But that thought was always wrong.
The profitability is not unambitious; It is controlling your own destiny. It means you don’t need to depend on investors to survive. It means you can focus on your vision and mission unchanged. And it means that you, as the founder, decide the pace of growth. And once you experience it, it’s hard to imagine doing things any other way.
Paul Graham wrote about the “profitability of ramen” – the point at which a founding team could survive without external funding. He argued that this made startups more attractive to investors, demonstrating that they could get customers to pay, were serious about creating valuable products, and were disciplined about spending.
Graham wrote his essay in 2009. I would argue that we now live in a world where it is not only easier to make ramen profitable, but traditionally profitable, and at the same time growing rapidly.
At Linear we didn’t set out to be profitable, but we stumbled upon it. We believed that to win this market we really needed to create a superior tool. The best way we knew to do it was to keep the team small and focused. And when we launched it after a year in private beta, almost all of our 100 beta users became paid customers. To our surprise, we realized that it wouldn’t take us as long to become profitable if we kept costs under control. Twelve months after launching, we achieved profitability and have remained profitable ever since.
I don’t know why hiring massive teams became the norm. In my own experience, small teams always delivered better quality and faster. Maybe it’s fear of missing out if you don’t grow the team quickly. Maybe it’s investors whispering that your team is “understaffed compared to benchmarks.” Being understaffed compared to benchmarks should almost always be a point of pride, not a problem. People should be surprised at how small your team is, not how big it is.
What holds you back is rarely the size of the team: it’s the clarity of your focus, skill, and ability to execute. Larger teams mean slower progress, more management overhead, more meetings, more feedback, and usually a dilution of vision and standards. However, growing the team has somehow become a symbol of success.
At Linear, we hired our first employee after six months and roughly double the team each year. With every hire, we make sure they truly elevate the team. We don’t set out to hire ten engineers: we hire the next one excellent engineer. This intentional approach has allowed us to maintain both quality and culture.
The most underrated thing about profitability is the peace of mind it gives you. Once you’re profitable, you’ll stop worrying about survival and focus on what really matters: building something great. Building as you want. Instead of optimizing for the next fundraising round, optimize for value creation.
While profitability may not come quickly for all startups, I believe it can be achieved sooner than most think. If you’re creating a new market, or really need massive scale, like a social network, or a significant upfront investment, like a hardware company, it may take longer. But if you’re in a category where there’s not a huge upfront investment and you get some level of product-market fit with customers willing to pay, you can probably be profitable. You can decide to be profitable. And it’s usually a decision about how much and how quickly you hire.
Measure what matters
Revenue per employee is one of the clearest ways to prove you’re hiring right. While some of the best public companies quote between $1 million and $2 million per employee, it’s not unreasonable for startups to aim for the $500,000 to $1 million per employee range.
Understand your risk profile
Are you building something highly speculative for which you’re not sure if there is a market for it, or are you building something that already has a market but with a different vision of it? In the first case, profitability takes longer, but in the second it could happen immediately. Most software today, especially in the B2B space, is about creating a modern version of something existing.
Hire Intentionally and Slow Down
For most software startups, ten people before product market fit should be your ceiling, not your goal. After the PMF, each employee must address a specific and urgent need, not simply complete an organizational chart. At Linear, our deliberately slow headcount growth forced us to be selective, which meant making better hires. It also protected our culture, since quick hiring often dilutes the very things that made your startup special in the first place. When you hire less, you naturally hire better.
Increase on your own terms
Being profitable does not mean that you have to be against investors. It means you have that option, and investors are very interested in profitable companies that also grow quickly. You can raise more, less or nothing. You can wait for the right time, the right partner or the right fund. For more ambitious startups, it may still be a good idea to raise something even if you could achieve it through bootstrapping. Investors can still be helpful and the extra cash balance can help you make larger investments or acquisitions.
The point is that you can be and are allowed to be profitable as a startup. It’s not a bad thing, it’s not an oxymoron, and it’s not as difficult as people think it is. The secret is that many successful companies were actually quite profitable from the beginning, they just didn’t talk about it. When you’re profitable, you make decisions based on what’s best for your customers and your product, not what’s best to impress investors.
I didn’t set out to build a profitable startup. But once I got there, I realized I wouldn’t want to build a company any other way.
