Where the Rubber Hits the Gumroad with Sahil Lavingia

Podcast Transcript 

Ep.4 Sahil Lavingia

Bart: Sahil, thanks for joining us today.  

Sahil: Thanks for having me. I’m excited to be here. 

Bart: So Built to Stay focuses on building businesses for long-term growth with staying power. Your business, Gumroad, went through quite a ride to get to where it is today. It’s a profitable business that you’re building, and today we want to discuss not only your road to getting to that staying power but also how our builders can use an e-commerce platform like Gumroad to help them grow. So, Sahil to get started, can you just tell us a little bit about Gumroad, your current endeavor? 

Sahil: Sure. So Gumroad is a company that I started in 2011, and we help creators sell the things that they make directly to their audiences.

So we help musicians, writers, filmmakers, stand-up comedians, photographers, anyone that makes stuff on their computer. We want to make it really easy for them to take that stuff, upload it, and then sell it directly to their audiences.  If it’s shareable, if it’s uploadable, if it’s on your computer somewhere, it’s probably possible to put it on Gumroad and sell video books, e-books, photoshop brushes, tutorials courses, cookbooks, podcasts, anything–anything that you know consists of binary data you can sell on Gumroad.

Bart: So it’s primarily digital products. 

Sahil: It’s primarily digital. There’s definitely I would say probably 10-15 percent of our volume is physical goods, but it’s often digital content creators that also want to sell t-shirts, hats, other merchandise, maybe a physical book with their digital as a sort of a premium tier or something. But it’s mostly digital.

That’s definitely our focus. 

Bart: So you make it easy for them by providing that capability. It’s like a one-stop shop for their digital and then also their physical if they have those products. 

Sahil: Yeah, exactly. 

Bart: Got it. Cool. So you have an interesting kind of insight into creators–online creators–and how they’re finding success in their businesses.

Are there things that you see that kind of stand out like, “Hey, this type of creator or this kind of business practice makes these people successful.” 

Sahil: Well, I think the number one correlation with having success on Gumroad is having a group of people that really care about you and are invested in your success.

I think the folks that really do well are the ones that take time and energy and effort to really build a relationship with their audience. And so it’s not just a million people following them on Twitter that laugh at their jokes, but it’s actually people that if they were in town they’d want to cancel dinner to see you perform stand-up or something like that. And I think that’s where we see the most success is not necessarily in the volume of people that listen to you or know who you are but actually the amount of people that you know, the sort of true fans, the thousand true fans that really want you to win and are willing to spend their own hard-earned cash to help you do what you love.

Bart: Yeah, that’s interesting and online people seem to find these creators that they really buy into, not necessarily buy into in terms of the product or what they’re selling, but they buy into the story and often the creative product that goes along with that story or that person’s identity. So how did you build it? How? You know, there’s a story online on Medium. You’ve got this awesome article that talks about how basically first you wanted to build a billion-dollar business. Let’s go way back and just talk for a minute about where you were at the time, and how did you decide to get started on Gumroad?

And then how did you build it? Now, you were at a start-up at the time, right? 

Sahil: Yes, I was. I was the second employee at Pinterest at the time and Gumroad initially was just a weekend project. I wanted to sell this pencil icon that I had designed in Photoshop to my audience and tried to find a solution basically to help me do that, and I couldn’t find anything online.

And so that weekend I built Gumroad. I luckily knew how to code, and you have to design well enough to build this little web application. That would allow me to basically monetize this digital asset that I had in a way that I didn’t really see anyone else empower. And so I built it that weekend, launched it Monday morning, put on Hacker News–which is a little form for people in tech industry– and we did really well, got to number one. And that’s when I was like, okay. I mean I knew there was something, you know I tweeted that thing Friday night I believe, within that space that was really compelling and interesting around really democratizing the ability to sell anything. But I think Monday was when it was like, “Okay, other people see this too. It’s not just me that I’m crazy or delusional or something like that. There’s a wide belief that sort of democratizing this ability to create an e-commerce website, basically, is interesting. There’s something here….”

Bart: You got some validation, and did you just say to yourself, “You know, forget Pinterest. I’ve got stock options I have invested. I’m heading off on my own now.” Or was that a hard decision? How did that go down?  

Sahil: Yeah. I mean, I honestly didn’t think too much initially. I was at Pinterest. I had a good chunk of the company that I believe was going to be worth something someday. But, what happened was over just the course of the next few months, I just couldn’t stop really thinking about Gumroad and this idea that I had stumbled upon. 

And sort of tangentially to that there are investors and other people in Silicon Valley that were telling me like, “Dude, you should start a company. You can design. You can code. These investors want to give you money. Why don’t you do that? People come here to start a company. That’s sort of the end goal. That’s what you want to do in ten years. Why don’t you try out if that’s something you want to do today?” And so that’s kind of what I did. I kind of fell into it. I wasn’t going out to raise money or anything.

I was just again working on this thing and investors are like, “Well, what would you do with $100,000? What would you do with a million dollars?” And yeah, pretty quickly I feel like I just woke up one day with a million bucks. 

Bart: Not everyone has that problem. Not everyone just finds themselves with a hundred thousand or a million dollars of other people’s money, OPM. How did that feel?

I mean was that crazy to you? Or was it just like, “Yeah. I mean everyone’s doing it. I’ll do it too, I guess.” 

Sahil:  I think it was somewhere in the middle. I definitely was super grateful and appreciative, and I hopefully was aware that not everyone has these opportunities, certainly. But also it wasn’t that abnormal either. And I think actually it was relatively normalized at the time to drop out of school to join a start-up to raise money.

And I knew that a million dollars in my bank account doesn’t mean I’m worth a million dollars, right? Doesn’t mean I can go spend a million dollars on a nice car. It means I have to take that million bucks and turn it into more than a million bucks. That’s hard and I knew that. So I think I was relatively grounded about what I was supposed to do with it, but it definitely was a little bit surreal when a year and a half ago I was in high school. And then pretty soon after I raised an extra seven million dollars in a Series A led by Kleiner Perkins. So basically two years after being a high school senior, I was the CEO of a company with a dozen employees and 8 million bucks.

It was definitely weird. I’d say the downside of it is it kind of drove this narrative within my head of the chosen one almost where I’m like, “Wow, I’m gonna do this because obviously all of these other things are working for me.” So you sort of connect the dots, you draw the line, you continue the line past the end of the graph like a billion dollar company.

Bart: I’m sure I would have the same thoughts. So, what next ? You raise 7 million from Kleiner Perkins and things are going pretty well. You’re growing right? Otherwise, they wouldn’t have been reinvested or invested their first time. But this is not the first round of investment.

You’ve done good; you’ve done well with the first couple of years. And then what happens? 

Sahil: Yeah, so I think part of it is we had a lot of potential energy. And when I talk to folks that are interested in raising money, it’s always about showing people that you have potential energy. Because if you have kinetic energy, if you actually have real numbers and stuff–you’re either profitable, you might not need to raise money, or you just show people the numbers and you’re basically getting a bank loan–they just kind of do the math. 

But when you’re early, early stage, you kind of have to sell a story. You have to sort of create this large vision and sell people on the 10% chance that you’re a hundred million dollar company or the 1% chance that you’re going to be a billion dollar company, not necessarily that your company today is going to be worth 30 million bucks. That’s not really how the math works in servicing. 

Bart: They were still venture money. It wasn’t growth.  

Sahil: Yeah. It was still early venture money, almost like a glorified seed round just in terms of the stage of the company. But we were growing. I think the first two years from 2011 to 2012, 2012 to 2013, and 2013 to 2014 –every year we 10 x’ed the volume going through the system. We went from ten thousand to a hundred thousand to a million to 10 million for example. So it was working. 

I think the thing started to take a turn for us when we hit a ceiling . We were 10 x’ing every year and then from 2014 to 2015 we grew something like 20, 30, 40 percent. We very quickly hit the ceiling, and you just can’t react to it very quickly right here. There’s a market. If you hit the ceiling, it takes time to reorient, to ship new product, and to figure out what you want to do.

Already at that point, we just started to talk to investors. It was just going to be really difficult to keep going. 

Bart: To keep going all the way to where some of the imagination or the potential had been seen. 

Sahil: Yeah, the venture model I call double or nothing where you race money. 18 months later you raise double that. 18 months later you raise double that. And that’s all based on sort of growth potential. And if you falter, it becomes very difficult to recover, because the timeline is so compressed and because you’re not profitable. But because you have sort of an over-inflated team in order to meet the growth potential , when you stop, your actual business is unsustainable by definition. You need to make a change to get yourself into a place where you can decide what you want to do instead of be forced to decide what you have to do.

Bart: Yeah, that’s interesting.

So far in our first episode, we talked about how there’s kind of the short term failure and long-term failure. And with short term failure, you really can learn and find what’s right. You’re trying to avoid long-term failure at the end of the day. Do you see this as you got to a point there was a bit of a cap on your growth?

Was it a time to call it quits?  Why didn’t you say, “Hey, this is just the end. We’re done.” Were there signs that you could get past that and actually get to that vision that you originally had? What were your thoughts at that point?  

Sahil: Honestly, not really. I mean the vision was so built upon the idea for the 10x thing. To build a company in which you’re taking sort of a 5% fee on the volume going through your system, if that’s the model, you need to be processing billions of dollars a year in order for after to work out.

And so if you’re doing ten million one year and you’re doing 20 million even the next year, it’s going to take way too long. If you’re an investor, you’re not building a company to vacuum, right? When you raise money, you’re raising from someone who is also thinking about investing in other companies.

So you’re not just saying this is a good business. It’s like this is the best of all the things that you’ve seen, and you can make two investments a year. This is one of those two. If you’re next to a company that’s growing 10 times a year, and you’re growing four times a year , it’s not good enough.

 I think the way out of that situation would have been to say, “Look, we went from 10 to 20, but we realize this. We’ve been working on this new set of features going after this new market that’s going to reset our growth back to that 10x, because we’re changing the market, redefining the market, we’re making the market, etcetera.” And we just weren’t really able to do that in a compelling way and also in a way that we really would have felt and was authentic. We just thought about it; we experimented, but at the end of the day, I think we didn’t build the company for that purpose, and I think it would have been very difficult and probably the wrong move long-term. I think especially if you didn’t work, then you have even less motivation to keep working on the thing. At least with Gumroad when it didn’t work, I was still like, “Well, this is the thing that I want to do. This is the group of people that I want to solve for etc.”

And I’m glad for that. But yeah, I don’t know if there would have been another option in terms of being able to secure enough capital or whatever to sort of pursue that original vision. I think what turned out to be the original vision was just wrong, some of the assumptions that we made that led to that billion-dollar company outcome based on that market and that product.

Bart: Yeah, and you already had super fans like you mentioned. You had creators that loved Gumroad, and you wanted to continue to serve them not just pivot and change just because of the weight, that heavy responsibility that the investment brought to do that. You’re kind of pulled between two really important things, right?

Sahil: Exactly. Yeah, it’s really hard. When we went from a very traditional venture-backed company, we went almost the opposite. We went to this sustainable profitable business very quickly within a year, went from 20 people to five people. And to me it’s hard enough to do something that you want to do in this world that I can’t imagine half-assing anything. I just wouldn’t be able to do it effectively.

I wouldn’t be able to hire; I wouldn’t be able to raise money. I wouldn’t be able to sell the product to customers. I just don’t think I’d be a very effective person. For better or worse, that’s a weakness or a strength. I don’t know. And for me it was like, “Look, we’re not going to do that. We need to go totally the opposite direction,” if that makes sense… 

Bart: Yeah, that makes sense. So you basically said, “Hey look, we have a company. We’ve got a company. It’s worth keeping around. It’s worth even growing and building, but first we have to look .”

This is really interesting to me because many of our builders, the people who are listening to this podcast, are either thinking about starting or have already started something, and they’re trying to figure out what to make it or even where to go from where they are. They may have taken financing. They may not have; they may be considering it. And where you were, you had to look around and say, “Okay. I’ve got real stakeholders in my customers who love this company, and I have real stakeholders in these investors that I brought on.” And the question becomes, what can you do if they’re pulling you in two different directions? You chose to go with the customers, which I think is in this situation, it sounds like, the right way. Otherwise, you’d basically be just starting over in many ways. But you had to go to these investors and negotiate, right?

Sahil: Kind of . It wasn’t exactly like a negotiation. It was more like, “Look, the company is going to die if we don’t have significant change. Would you want us to shut down? Would you want us to sell? Or can I radically reduce the company size and get to profitability? And then we can have a conversation on what the company looks like in 10 years and what the new plan is.”

And I think that one of the things that I did really well over the course of the Gumroad journey is I always really kept investors up to date on what we were doing, why we were doing it , even in the first signs of “Oh, maybe this sort of billion dollar company is not going to happen.”

I had always kept them in the loop. I wasn’t shy of telling them the real truth behind some of the numbers and even when you have to sort of project sort of a nicer than just to the public. We always did a pretty good job with the team, with the investors, where we were as a company which I knew can be two different things.

You can have a product that’s killing it and people love, but the company itself is unsustainable, right? That happens all the time. You look at Uber. TBD on if that works out. Hopefully. I think for them it would be nice for sure– 

Bart: Convenient 

Sahil: –a lot of people hurt, but you don’t know.  Anyone that knows is I think a little bit overconfident, because you truly don’t. I went to investors and I was like, “Look, what do you want me to do?” The other thing is that investors knew how much I wanted to build Gumroad into the same vision that we aligned on in the beginning. And so we raised money in 2011 and early 2012. So it had been three almost four years of me doing that working really, really, really hard.

And so I think when I said, “Look, we’re going to do this other thing. Maybe we’ll go back once we figure things out, or maybe we’ll continue to do it doing that other thing. Or maybe we’ll just shut it down because it turns out I don’t really want to work on that problem or what have you anymore.” And they were like, “Yeah, we trust you. You’ve been doing this long enough. If you’re trying to run circles around us, you wouldn’t have kept us up to date on all the stuff anyways.” So I think because I had built up that relationship with them and they trust me, I think that gave me more freedom to do what I think was the right thing to do. And just for Gumroad, right?

I think we talk about the creators, the investors, the employees with three buckets of people, but there’s also just the product. And there’s sort of this ephemeral idea of what this product is, and I wanted to do what was right for the product too. I love building products. I want to make a really great product. So that’s also a sort of consideration: what’s going to lead to the best product ?

Bart: Yeah. I’m seeing a theme here . You talked about what traits you see in successful creators, that really they have a great relationship and a great product. 

But the way you’re describing your story, you tried to do the same, right? Keep great relationships with your investors. Keep a great product and relationships with your creators that are your customers. And ultimately, even though they have some difficult things you may have to navigate, that kind of keeps things aligned and allows you to keep the company afloat.

Sahil: Exactly. That’s one of the really rewarding things about the last year when I started to become more public about the Gumroad journey. I was a little worried that creators would kind of freak out, that all this drama had sort of happened under their noses. You weren’t really aware of it, most of them. But actually it sort of had the very opposite effect of they were like, “Wow, you’re going through the same struggles, the same issues, the same existential crises that we are going through as creators. All of us are trying to build these businesses. We’re all trying to make money, enough money to do what we want to do to support our families or whatever other things we have in our lives that we really care about. And we’re just trying to construct a life and relationships in order to do that effectively.” I think the more open you are . . . At least how it worked for me, was the more open I was about Gumroad, the more they empathized with what I was doing.  Now we’re doing pretty well. We did four hundred thousand dollars monthly last month, which is not nothing. 

Bart: You’re very open about that. 

You know, you tweet about your profit–

Sahil:  Yeah. 

Bart: –or revenue. 

Sahil: I do tweet them. And a lot of folks told me, “Yeah, I don’t know if this is a good idea, because you don’t want to come off like you’re bragging. People might not have context.” Frankly, if you’re a creator making a hundred bucks on Gumroad, you might get annoyed that our fee is this and you’re like, “What? You’re making so much money off of me.” But I was like, “You know, well, it’s happening anyways. Even if those things were true, which I don’t think they are, it’s happening anyways. Might as well be open about it.” That openness is going to shine a light on the problems and would encourage me to be a better CEO, better founder,  and build a better product for these creators. I really believe that.

But even then it’s exactly the opposite where people love knowing that we’re thoughtful and considerate and building things in a sustainable way. It’s already starting to work for us and contributing to a lot of people knowing what Gumroad is even and growing the product itself. 

But I think in 5, 10, 15 years–when we’ve been doing it for hopefully 5, 10, 15 years–people are going to be able to look back and be like, “Oh, it wasn’t just a gimmick. It wasn’t just marketing. It was genuinely these folks building a really creator-focused business, creators themselves.” And I think that’s going to go a long, long way. Another thing to note about building sort of sustainable, lasting companies is that they don’t typically sustain and last because they’re building the best products ever. Hopefully, they’re building great products. But when you think about the brands that people are really loyal to, it’s often the brand, right? It’s often the identity to the marketing messaging–

Bart: The products come and go. They always have new better products, right?  

Sahil: Yeah, and I think with tech especially, you’re competing on such a fast-moving landscape. Competing on technology is really hard, really challenging. Some kid on their laptop could outcompete you on product. It’s a scary, scary thing. But you know, it’s much harder for someone to say, “Hey, we built a better Gumroad.” Because they don’t have the eight-year path. They don’t have the openness, the financial openness, the struggles.

A friend of mine, he says a resume should be a list of your sufferings . And that’s why we like certain people and empathize with certain people in route for certain people in certain companies is often because we know the stories behind them and the suffering. 

Bart: What I’m hearing from you is something that I think is really valuable. I think that what you’re saying is it’s not just the product. It’s not just the service that you offer. It’s the story. It’s the trust. It’s the brand, people who have subscribed to Gumroad and used Gumroad.

Partly, of course, it’s the product. It has to do what they want it to do. But also , they’re part of the journey with you, and they trust you because you’ve been transparent. And if someone else comes on with a “better product”, there’s a lot more to it that needs to be proven before someone would switch. And I’m not just talking about Gumroad. I’m talking about really any business. It seems like that’s what you’re saying and that sounds true to me.

Sahil: Yeah, that is correct. I think that applies across the board. 

Bart: So tell me this, Sahil. You’re working on Gumroad. Your main goal is no longer “I need to build this into a billion dollar company.” You did mention that you want it to be around for 10 or 15 years.

 What’s next and what are you really going for now?

Sahil: Yeah, I mean honestly a lot of it is just not even thinking that far out but just focusing on the next month, the next quarter of what we want to build.  Our roadmap maybe goes for the next nine months depending on how fast we ship. There’s this quote that I love that’s something like, “No plan survives contact with the enemy.” 

You can plan all you want, but the minute you launch a product, you’re going to learn so much about how people are using it, what they really want, and what they don’t want. Maybe the group of people that you wanted to use it actually don’t care, and there’s this new other group that you had no idea about that actually latches on. You just don’t really know, and I think I’m still in that mode.

I sort of re-put myself in that mode of I think of Gumroad as almost like a new company . We’re just building a great product. We’re talking to customers . Instead of trying to strategize, instead of trying to say, “No, you don’t want a faster horse. You want a car. We’re going to build a car,” it’s more like, “No, we’ll just talk to creators. We have a lot of them and we don’t have to sell Gumroad anymore. We can just talk to our existing base and say, ‘Hey, what do you want? What do you wish Gumroad did?'” I’m flying around the country right now doing dinners in San Francisco, New York, L.A., and that’s a lot of the conversations we’re having, people saying, “Hey look, this is what we’re thinking about building. We started building this. This is going to go live next week. Are you excited? What do you want? What problems are you dealing with?”

And I think most of the time the customer is pretty right . They kind of know what they want, and we’re comfortable listening and doing what they say. And we hope and we believe that if we just do those things over and over again, they’re going to sell the product to their friends, or their audiences, or their co-conspirators better than we ever would be able to. So the customer acquisition “cost” would be much, much lower if we just build a really great product and get their help to spread the word. 

 One of the big things that I learned to appreciate is patience, and one of the things profitability gives me is patience. I can take the time to talk to creators, figure out what they really want to do.

Whereas, when you have nine months of runway left, you’re kind of like, “We need to be building shipping all the time, because any one of these things could save the company.” And sort of ironically, probably because you’re thinking about it like that, it doesn’t. But if you really can get yourself to a place in which you can take the time to talk to customers and strategize and really be thoughtful about what you’re building and you can do it on your own terms, it can take 5-10 years for a thing that we’ve built to really pan out. That’s okay. And I actually think creators notice that. They see what we’re doing and that we’re not after the short term goals anymore. They’re actually more likely to reinvest in the company, because they see that we’re not just trying to flip the company in 18 months.  And it goes a long ways.

So I think if you can get to a position where you’re profitable and sustainable, that’s going to give you the ability to be patient which is going to allow you to make the really big experiments and interesting bets that are going to really be what builds your brand. 

Bart: I love that. That’s a great wrap up.

So Sahil, thank you so much for joining us today. 

Sahil: You’re very welcome. 

Bart: If you enjoyed today’s episode, give Sahil a follow on Twitter. He’s got a really cool Twitter handle @shl. I don’t know how many people have just three letters there: @shl. And check out his writings on Medium.

You can also learn more about getting your business started on Gumroad at gumroad.com. Links to all of these will be in our show notes on builttostay.com.