The 10-Person Unicorn?

PLUS: AI for Ecomm... How Founders Spend VC Dollars... Rents in ATX Are Down... And more...

Author

Ethan Brooks
March 21, 2024

Welcome to this week’s issue of Austin Business Review, a weekly roundup of great local events and insights for Austin business owners (plus some other cool stuff for your life outside of work).

My name’s Ethan and I’m the one writing this (holler at me here!).

This week, we’ve got a few things on-deck:

  • 📅 Upcoming Events

  • 🦄 The 10-Person Unicorn?

  • 📣 Word On The Street

Did someone forward this to you? If you like it, you can sign up here!

-Ethan

Upcoming Events

Running a business is tough. Here are a few great places to meet cool people going through the same sh*t you are.

Fun Stuff Coming Up

…Annd if you’re anything like me, you work too much already. So here’s some fun stuff to do around town that’s not necessarily related to business.

  • Mar. 25: Joe Rogan fan club - hosted by Alice Hng (her stuff rocks!)

  • Mar. 26: Bookless Book Club - bring your own reading, and discuss

  • Mar. 26: Tuesday Twilights at the Ladybird Johnson Wildflower Center

  • Mar. 27: Pour The Record Club - Wine and Vinyl pairing

  • Mar. 28: Sober & Funky - Non-alc cocktail tasting & happy hour

  • Mar. 28: Snooti After Dark - Chef’s tasting menu & after-dinner lounge

  • Mar. 29-31: Balloons Over Horseshoe Bay - hot air balloon fest

  • Mar. 30: Hyde Park Storytelling - like The Moth, but local

  • Apr. 11: CultureMap Tastemaker Awards

  • Apr. 13: Tequila Tempo - with 200+ agave spirits to sample

  • Apr. 20: Field Guide Festival - a celebration of local food, farmers, and Austin-area chefs

The 10-Person Unicorn?

If you like a bold bet, you’re going to love this. Santosh Sharan, COO at Austin-based Retention.com, shared their plan to bootstrap their new B2B product to ~$95m in revenue with less than ten FTEs.

Some highlights…

  • LinkedIn will be the main channel of user acquisition

  • No outbound sales - just enterprise folks and strong price positioning

  • Rather than reducing churn, they’ll relentlessly cull bad-fit clients

  • First 5 hires are Sales, Support, Growth, Community, Engineering

  • 96% of their support requests are already handled via bots

Santosh’s projections

So can this really work?

Well, I’m not an ops guy. I’m a content guy. But I like the thought experiment Sharan’s doing here. Reminds me of A Beautiful Constraint, one of my favorite books on creative thinking.

Sam Altman grabbed headlines recently talking about how AI is going to unlock one person unicorns. Lots of people are buzzing about it. But the reality is that this trend towards smaller teams has been on founders’ minds for years.

Back in 2020, Auren Hoffman wrote that the new status game for founders was small teams with high revenue per employee.

Anand Sanwal from CB Insights expanded on this in 2021, with a provocative Twitter brainstorm around what it would take to bootstrap a $25m cos that never had more than 50 employees. Dozens weighed in there, including heavy hitters like Austin Rief from Morning Brew, and Ryan Deiss from Digital Marketer.

The concept clearly stuck with him, and in 2023, he had another popular post about how damaging headcount had become as a pseudo-indicator of success in startups.

So between the evolving tech and changing founder sentiment, a ten-person unicorn with 8- to 9-figures in revenue feels like it’s just a matter of time.

So who are the models to emulate?

When this topic comes up, a lot of people point to Instagram as an early example. They had just 13 employees when they were bought for $1B. But remember – they famously had no revenue, and everyone thought Zuck was crazy.

Mojang, is a little better. That’s the company that developed Minecraft, and when Microsoft acquired them in 2014, they had about 40 employees, and had done $330m in revenue the year before (with 39% profit).

BUT Minecraft was like catching lightning in a bottle. If we’re going to talk seriously about lean unicorns, we need inspiration that’s a little more replicable.

I think I’ve found two I like…

The first is Ahrefs. Back in 2019, they were doing $50m+ with just 45 people, and by 2021 that grew to ~$85m USD with a team of roughly the same size (39).

Like Santosh’s team at Retention, they were bootstrapped. They also reportedly started with a similar mindset, setting a 50-person limit on the company, though they’ve since grown to 101, which poses an interesting question around whether future lean unicorns will be able (or indeed, even want) to stay lean.

The other model to look at is 37 Signals. They don’t share revenue figures, but in a recent interview on My First Million, Jason Fried said they do tens of millions in profit every year, and their team is <80 people. They also…

  • Don’t do paid ads

  • Limit teams to 2 people (1 dev, 1 designer)

  • Work normal schedules with a 4-day week in the summer

  • Maximize profits over growth (then distribute 100% of those annually)

All while competitors like Monday and SmartSheet have similar numbers of customers, but 15-40x the headcount.

“Building complex, large organizations is a choice, not a requirement,” Fried writes. “We chose differently. Other companies might as well.”

Word On The Street

Thought-provoking ideas and stories published by ATX Founders

1. How Founders Spend VC Dollars: Everyone talks about raising money, but few ever talk about how they spend it. Well, in this interview, local founder Shannon Davenport of Esker Beauty, joins two other founders to share…

  • How she structured her SAFE and found investors

  • The split between FTEs and agencies on her payroll

  • Best and worst money spent over the last 6 years

  • What she wishes she spent more on

  • And much else…

2. Rents Are Down: Man, I wish I found Kirtana Reddy’s Selling Austin newsletter before I re-signed my lease – it would have saved me thousands. According to the most recent issue, we just went through the 2nd highest rental decline in the country, with average monthly rent falling 12.5% YoY.

On the housing side, inventory is sitting at a 4.1 MOI, which is relatively balanced for both buyers and sellers. But recently, there have been lots of new listings coming in from large builders. If that trend continues, the market will shift more and more in favor of buyers. If that’s you, be sure to keep an eye on her work.

3. AI For Ecomm Founders: The other day, Steve Mudd from Talentless AI, did an hour-long webinar for Ecomm founders who want to get their feet wet with generative AI. I liked it for two reasons…

First, he does a great job decreasing overwhelm. For each function (ad writing, product photography, TikTok video generation, etc) he suggests just 1-3 tools worth checking out. Way easier than trying to navigate the landscape solo.

Second, towards the end, he gets into some cutting edge ecomm-specific stuff that’s very cool, like:

  • Rembrand: GenAI product placement in podcast videos

  • Omneky: AI-powered product ads and personalization

  • A handful of Shopify addons worth exploring

4. Using AI In Psychedelics Research: If you’re curious about psychedelics, Henry Winslow here in town writes a great newsletter with updates and insights from the space.

This week, the story that caught my eye was about Mindstate Design Labs, which built an LLM to scrape forums like Reddit, where people talk about their experiences while high.

They analyzed 70k+ “trip reports,” and used that info to choose which drug to do more clinical trials on. Fascinating. It’s got me thinking about how other companies will do similar things for product development in the coming years.

5. SMB Buyer Report: A friend of mine once jokingly told me that, “every exited founder’s dream is a six-figure cash-flowing business.”

Well, Codie Sanchez recently polled a couple hundred business buyers and found that indeed, most of them would be thrilled to buy something that kicks off a low- to mid-six-figure income.

That may sound low, but here’s the thing – back when I was at Hampton, we found that even among our wealthiest members, it was rare for their living expenses to ever go above $50k/mo. and more often, it was $10-$20k.

So $250-$500k in free cash flow is perfect.

It’s an interesting place to end this week’s issue, after talking about the rise of lean unicorns. While technology seems to be making a $1B business more accessible, the bar for happiness seems to be much, much lower.

That’s all for this week! If you liked this email, and you’re not subscribed, you can sign up here to get it next week.

You can also email me here if you’re hosting something for local founders that might be a fit for the newsletter.

Until next week,

-Ethan

Thank you to all the incredible local founders and leaders who share great insights and events. You can follow and connect with them here…