The Profitable Startup
For years, startups have been taught to prioritize growth over everything else. Profitability was seen as unambitious or even wrong – something to worry about when you hit scale. Why focus on profits when money and valuations were easy to come by?
But that thinking was always flawed.
Profitability isn't unambitious; it's controlling your own destiny. It means you don't have to rely on investors for survival. It means you can focus on your unaltered vision and mission. And it means you as a founder decide the pace of growth. And once you experience it, it's hard to imagine doing things any other way.
Paul Graham famously wrote about "ramen profitability" – the point where a founding team could survive without external funding. He argued this made startups more attractive to investors, showing they could get customers to pay, were serious about building valuable products, and were disciplined with expenses.
Graham wrote his essay in 2009. I’d argue that we now live in a world where it’s not just easier to get ramen profitable, but traditionally profitable – while also growing fast.
At Linear we didn't set out to be profitable but kind of stumbled into it. We believed that to win this market we really needed to build a superior tool. The best way we knew how to do that was to keep the team small and focused. And when we launched after a year in private beta, almost all of our 100 beta users converted to paid customers. To our surprise, we realized it wouldn't take that long to become profitable if we kept the costs in check. Twelve months after launch, we hit profitability, and we've stayed profitable ever since.
I don't know why hiring massive teams ever 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 fast. Maybe it's investors whispering that your team is "understaffed compared to benchmarks." Being understaffed compared to benchmarks almost always should be a source of pride, not a problem. People should be surprised how small your team is, not how big it is.
What holds you back is rarely team size – it's the clarity of your focus, skill and ability to execute. Larger teams mean slower progress, more management overhead, more meetings, more opinions, and usually dilution of vision and standards. Yet growing the team has somehow become a symbol of success.
At Linear, we hired our first employee after six months and roughly doubled the team each year. With each hire, we make sure they truly elevate the team. We don't set out to hire ten engineers – we hire the next great engineer. This intentional approach has allowed us to maintain both quality and culture.
The most underrated thing about profitability is how much peace of mind it gives you. Once you're profitable, you stop worrying about survival and focus on what really matters: building something great. Building the way you want. Instead of optimizing for the next fundraising round, you optimize for value creation.
While profitability might not come quickly for every startup, I believe it's achievable sooner than most think. If you're creating a new market, or truly require massive scale like a social network, or significant upfront investment like a hardware company, it might take longer. But if you're in a category where there isn't hard 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 become profitable. And usually, it's a decision about how much and how fast you hire.
Measure What Matters
Revenue per employee is one of the clearest ways to see you’re hiring appropriately. While some of the best public companies benchmark at $1-2M per employee, for startups it's not unreasonable to target the range of $500k-$1M per employee.
Understand Your Risk Profile
Are you building something highly speculative where you're not sure if there's a market for it, or are you building something that already has a market but with a different take on it? In the former case profitability takes longer, but in the latter it could happen right away. Most software today, especially in the B2B space, is about building a modern version of something existing.
Hire Intentionally and Slower
For most software startups, ten people before product-market fit should be your ceiling, not your target. After PMF, every hire should address a specific, pressing need – not just fill out an org chart. At Linear, our deliberately slow headcount growth forced us to be selective, which meant making better hires. It also protected our culture, since rapid hiring often dilutes the very things that made your startup special in the first place. When you hire less, you naturally hire better.
Raise on Your Own Terms
Being profitable doesn't mean you have to be anti-investors. It means you have that choice, and investors are quite interested in profitable companies that also grow fast. You can raise more, less, or nothing. You can wait for the right timing, the right partner, or fund. For most ambitious startups, it can still be a good idea to raise something even if you could get by bootstrapping. Investors can still be helpful, and the additional cash balance can help you to 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 or as hard as people make it out to be. The secret is that a lot of successful companies actually were quite profitable early on, 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 for impressing 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.
