Conference Presentation, Keynote
Joel Spolsky at Startup School 2012
- The speaker distinguishes between two primary business growth models: "get big fast" (VC-backed, land-grab) and "organic growth" (bootstrapped, slow scaling).
- A "get big fast" strategy is required only in markets characterized by network effects, where value increases exponentially with user count (n²), and a "land grab" for uncaptured territory is necessary to prevent competitors from locking users in.
- An "organic growth" strategy applies to saturated markets with existing competitors, where the goal is to patiently acquire customers one by one without network effects; these businesses must break even immediately to survive.
- Fog Creek Software was founded in 2000 by Joel Spolsky and Michael Pryor as an organic growth company, initially surviving on consulting revenue to avoid early VC funding.
- Following the November 2000 dot-com crash, consulting billings for competitors like Scient dropped by 90% in one month, forcing those firms to burn cash on idle staff while Fog Creek, having only 2-3 employees, survived on $250,000 in accumulated consulting savings.
- Fog Creek pivoted to selling its proprietary bug-tracking software, FogBugz, reaching $5,000/month revenue within months; at $15,000/month, the co-founders could pay salaries, and at $35,000/month, they hired a third employee.
- Stack Overflow, a joint venture between Fog Creek and Jeff Atwood launched to compete with Experts Exchange, adopted the "get big fast" model due to the strong network effects inherent in a question-and-answer platform.
- Stack Overflow experienced exponential growth, reaching 6 million global unique monthly visitors, then 10 million, and eventually 25 million, capturing a significant portion of the estimated 9 million software developers worldwide.
- The speaker notes that Stack Overflow's growth rate was approximately 350% year-over-year, a metric he considers steady for such a massive scale.
- Stack Exchange was technically bootstrapped for two years with three full-time employees working remotely with minimal server costs, leveraging compiled languages and hardware optimization to run a top-100 traffic site on just three servers.
- After two years of organic growth, Stack Exchange raised VC funding from Union Square Ventures in two weeks, a process facilitated by the company's proven traction and the founders' reputation from a decade of building Fog Creek.
- The speaker delayed raising capital for Stack Overflow to minimize equity dilution, arguing that raising money later when company value is higher is significantly more efficient.
- Fog Creek Software currently employs 45 people and operates as a cash cow, distributing 100% of annual profits as bonuses to employees based on seniority rather than paying dividends to shareholders.
- Fog Creek launched Trello, a project management tool, as a "get big fast" land-grab project, rapidly acquiring 800,000 users in one year without a clear monetization strategy to prioritize friction reduction and network effect acquisition.
- Fog Creek employees voted to forego their annual profit-share bonuses to fund Trello's development, effectively using internal bootstrapped cash to finance the new growth venture without VC involvement.
- The speaker warns that attempting to straddle both business models simultaneously leads to failure, citing Juno Online Services, which grew slowly in a land-grab market against AOL, resulting in Juno's decline to a dial-up ISP while AOL dominated.
- The speaker concludes that while "get big fast" ventures offer a vanishingly small chance (less than 5% of Y Combinator startups) of reaching a $10 billion valuation, organic growth businesses offer a high probability of generating a $10 million annual profit business within 5–10 years.