Lenny Rachitsky: evaluation

Transcript context

…I used to look at it 10 years ago you'd say, "Is this a company that can get to 100 million in annual revenue?" And now those numbers are all changed because IPOs are happening closer to 200, 250 million and the markets are all over the place depending on the day. I look at this as if you are going to be that large company, you need to get to a billion in revenue per year. It doesn't have to be overnight, it can be over 20 years, it's not something that has to happen quickly, but that's how I think about it. And if I don't feel like there's a clear path to that, it doesn't mean I don't raise money. It just means that I take a step back and really think about that particular idea because when you get on that treadmill, there's plenty of ideas that will sell for 400 million, 500 million. But then if you're on the funding treadmill and you look at how much money that founder that exec team ends up getting at the end of it's like you might have been better just building a 50 million cash flowing business that you're getting more money from that and you still have the choice to sell it. So that's how I think about it. It's a spectrum and it's on the margins there. It's not a fixed rule. But the other thing I also think about when I think about building my next company, we're going to be bootstrapped for, I don't know what... It's not a timeline, but I had imagined probably the first 18 to 24 months because I don't want to give up that equity for that funding on figuring out the idea. Obviously, I had an exit so I'm able to afford that and I'm in a position where I don't have to worry about my own livelihood. But I think it's one of those things if you can bootstrap, even if you're going after a funded idea, if you can bootstrap for the initial ideation and maybe even through product market fit, which is not an easy thing to do, but that's the ideal time then to raise because then you're just going and you're going for the fences at that point. I really like that very concrete stat you shared and that's exactly how we think about it, that if you don't think you can get to a billion dollars in revenue a year eventually that it probably is not a venture-scale business. And I think that just boils down to how large is the market. If there's not enough people that are going to pay enough money to make this a billion dollar a year in revenue business, you probably shouldn't go down the VC treadmill. And I think when you think about that, it opens up this world of options for you as someone listening to this. And so think of it this way, you don't have to have the pressure to create a billion dollars in revenue If you can take a step back and be like, "Okay, I can create a $10-million business." You're listening to this and probably you're like, "I don't know." But if you were a director level somewhere at a corporate company or you're leading product somewhere, you can go create a $10-million business. It might not happen overnight, it might take 10 years, all these other things. But that's amazing. That's insane. Think of 20, 30, 40, 50 years ago, you'd have to have a corner store and you'd have to work 18 hours a day to build that type of ability or that wealth to then hopefully retire when you're 65 and sell the business for 1X. Now you can build a software company that's doing a million a year, have an amazing life, reduce the number of hours if you want, or go all in, make it into a 10 or $100-million company over time. And I think that's amazing and we should celebrate that rather than if it's not a billion, you're failing. But we should just know our limits. I think that's the thing a lot of people fail out with funding.…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.