Sahil Lavingia wants creators to get interest on their interests

Welcome to Means of Creation!

Every Friday, Li and Nathan interview a guest in the passion economy — founders, creators and operators who are carving their own paths. This is a write-up of the most interesting parts of the conversation. If you want, you can listen to the full talk in your podcast app, or watch it on YouTube. There’s also a transcript at the end of this post.

Enjoy!

For the first episode of Means of Creation, Li and Nathan talked to Sahil Lavingia, the founder and CEO of Gumroad, about building a network for creators to turn their passions from side hustle to livelihood — and how he had to switch up his roadmap along the way.

Gumroad is a Swiss Army Knife for people who make things and the people who will buy them. The site hosts creators selling movies, music, online courses, and apps, among others. It also assists them through the entire process — from marketing to payment processing and delivery — helping them earn $300 million in revenue. Sahil Lavingia founded Gumroad almost a decade ago, at the age of 19. Today, more than 40,000 creators belong to the platform.

Creative people often think they can only work on their passions as a “side hustle”, something to do for little to no money in their free time while making a living from a day job. Creator-driven marketplaces are attempts to evolve that logic. People don’t have to go through middlemen to get returns on their work, and independence doesn’t have to come at the expense of income. Gumroad paves a more direct path that offers a bigger cut of the profits, allowing creators to “earn interest on their interests,” in Sahil’s words.

Sahil went for venture capital — but that didn’t work out as expected

Sahil envisioned Gumroad as a billion-dollar IPO one day, or an acquisition, like YouTube. Venture capital was the first source of funding he thought of. Over the first months of Gumroad’s life, Sahil raised $8 million from VC firms and angel investors. He grew what began as a three-person team, following a blueprint derived from other VC-backed startups.

Even though Gumroad had a strong product-to-market fit, its growth rate wasn’t rising as anticipated. He realized that true growth was a function of the following four questions:

• Are there people who love the product/platform?
• How many of those people are out there?
• How fast is that group growing out in the world -- and how fast are you finding them?
• For every individual you bring into your network, how much will they make? How much will you make?

Gumroad’s network of creators was not growing quickly enough, so Sahil downsized the company. After difficult conversations with friends, family, and coworkers, he emerged with a handful of concrete ideas on how to change the platform’s design to match its goals and best serve its users.

Although the site had been founded to give them control in building their audiences, Sahil realized that creators — especially newer, less visible ones — wanted more help in finding a consumer base. So he rebuilt the site with more functionality to direct audiences to new material. Creators took to this refurbished version of the platform — one that didn’t just house them, but helped them, too.

Gumroad’s growth today is better than ever. Here’s why Sahil still isn’t looking for VC funding

As the pandemic moves people from offices to homes, creator-driven businesses are growing with unprecedented speed. Halfway through this April, Gumroad creators earned more than they had over the entire month in 2019. Gumroad’s $12 million processed volume has increased 100% year over year, and its revenue is up 97%. 

But even as Gumroad looks like a better bet for a venture-scale success, Sahil isn’t particularly interested in returning to that sphere. Worldwide upheaval isn’t exactly predictable, and he wants the option to react to both extreme growth and plunging numbers amidst it. “I don’t think there’s anything wrong with raising venture,” he says, “but it locks you into a path before you even know what’s going to happen when you launch.”

Is Gumroad a platform or an aggregator?  

Sahil’s original vision for Gumroad was a white-label platform: it offered creators access to business without actually locating it for them, and remained invisible to consumers. Since Gumroad’s founding, platforms like YouTube have shifted to become aggregators — “destination” sites that control interactions between creators and audiences, and take a far bigger cut of the proceeds. 

Today, Gumroad sits somewhere between those two poles. It has swapped that initial hands-off approach for an active push toward connecting its creators with new consumers.“We’re slowly moving into an aggregator model,” Sahil explains. In five years, he thinks Gumroad is going to look “somewhere closer to where TikTok and YouTube are now,” a destination site dedicated to discovering new creators.

Vertical or Horizontal is the question. Is there a right answer?

Looking back, Sahil might have started Gumroad with a focus on a specific type of creator and their corresponding medium -- writers and eBooks, maybe, or filmmakers and their movies. This is closer to the vertical approaches of startups like Substack and Pietra, where creators appeal to specific, often pre-existing audiences. 

“Over time,” he said, “we would have gone more horizontal.” Successful sellers would have become case studies for the Gumroad team, as they diversified the sorts of creators they worked with. Sahil thinks this sort of rollout would have helped them isolate the most crucial assets of an online marketplace before going wide with the concept.

Still, he doesn’t think of the company’s initial wide scope as a mistake. “Whether you’re building a Gumroad for films or a Gumroad for books,” he says, “it’s the same software.” Even if a new creator might not receive a focused, dedicated audience off the bat, if and when their work catches on, it could likely happen with much more speed and growth. Sahil cites Patreon as one example of such a platform — “it serves a much more diverse set of people because its net is big,” he says. As artists and educators straddle forms and defy labels, the breadth of content and audience on a horizontal network invites more genres, forms, and types of creators.

If you’re building a company in the passion economy, the horizontal/vertical and platform/aggregator choices are two of many you have to make. Sahil has experience across both spectrums, but he wouldn’t claim any approach as the “right” one. You just have to be sure you can address and care for different types of creators and mediums.

This post was written by Babe Howard and Saanya Jain and edited by Nathan Baschez and Li Jin.

Transcript

Welcome to the first episode ever of our new popup talk show. In this show, we are going to be interviewing founders and operators who are building tech companies that help people to do what they love for a living. I'm your host Li Jin, along with Nathan Baschez. And we started this show because frankly, I have always wanted to become a YouTube influencer and live out my passion economy thesis. But putting that aside, oh yeah, we're going to take this Zoom recording, chop it up and just Quibi-like slices and put it onto YouTube and hopefully become YouTube influencers.

- We have a specific thesis around this six to seven minute format.

- But putting aside our own personal aspirations, we also want to encourage innovation in the passion economy and to help aid the world in becoming a place where people can unite their passions with their profession. And hopefully by shining a light on the innovators and thinkers in this space, we can help inspire more founders and creators who are forging their own paths. So our first guest ever for this inaugural episode is Sahil Lavingia, the founder and CEO of Gumroad, which is an online platform that enables creators to sell products directly to consumers. So Sahil started the business in 2011 when he was only 19 years old, which is insane. And today, it's used by over 40,000 creators, has paid out over $300 million to those creators, who are using it to sell things like films, courses, music, books, memberships and more. And it's mostly used to sell digital content. And the platform encompasses a bunch of functionalities, like payment processing, file hosting and delivery, marketing and communications, as well as the actual consumption experience, for a number of different verticals. And just a quick plug that this show is brought to you today by the Everything Bundle,

- Woo!

- Which you can find at everything.substack.com It contains so much amazing business analysis and strategy content that you guys should all subscribe to. And if you want to read more of my thoughts, I'm at li.substack.com And a quick note, before we dive in, that the structure will be for the first 30 minutes or so, Nate and I will have a discussion with Sahil. And then for the rest of the time, we'll switch over to audience questions. So if you guys think of any questions that you have, as we're talking, just put it in the chat and we'll pick and choose different questions to answer for the latter half of the show. So without further ado, let's dive in. So Sahil, thank you so much for being here today. I really appreciate your taking the time.

- You're welcome. That was the best. That was the best description, intro ever.

- Wow.

- [Nathan] Very professional.

- That was my first time ever giving an intro. So I'm really glad. It can only go downhill from here. So the first question that I have for you is, so you started Gumroad in 2011, almost 10 years ago, back when, even the word creator, or influencer, wasn't even really a word that people used. And so can you just help us understand and trace how the creator landscape has evolved and developed since then?

- Yeah, totally. So well yeah, when I started Gumroad, the thesis was, sort of really quickly, that people were building their audiences directly to their, you know, basically owning their audience, right? Like on Twitter, Facebook, YouTube, Pinterest, Instagram, email, blog, et cetera, instead of working. And this is before, as you mentioned, creator or influencer, so I was thinking about it like, musicians, filmmakers, you know, authors specifically, right? And teachers, potentially as well. So the label was gonna get disintermediated by Twitter, or the radio, or the record store, or whatever. Things didn't exactly go the way that I expected. But that was sort of the origin of the idea. Why I was excited about it was, first you sort of democratize this connection and then once you have the connection, you can sort of disintermediate these middlemen and start to sell directly, take a lot more of the proceeds home. Yeah, so the creator, specifically, the word was kind of interesting. There were two companies that we looked at for our, sort of, messaging. We really struggled in the early days. Like, what do we call these people? Are they creatives? Are they artists? Are they entrepreneurs? Do we just sort of reference, sort of say, musicians, designers, writers, every single time? Which is what we initially did. And then over time, YouTube kind of adopted the creator term and Kickstarter was the other one. I think Kickstarter was really the one that kind of pioneered that, like, these are creators. We were like, cool, awesome, creator. Like we can now obviously, everyone kind of knows, which is great, because it makes our lives easy. We just say this word and everyone kind of gets what that means. But yeah, I think the biggest shift has just been the growth of it, you know? We really anticipated this kind of hypergrowth, where like, this is gonna happen tomorrow. And it just took so long to really get to some sort of sense of maturity and scale. You know, Patreon launched in 2012 or, I think 2012. Teachable launched, I think in 2014 or 2015. It took a long time. And even those businesses, it a long time to get to that kind of scale. I think people kind of underestimate how long it can take to build an audience and how long it can take to monetize that audience. If you think about, even the life cycle of a startup, it takes five, six, seven, eight years, right? And so when you start with creators, who are now finally being on the internet and building their audiences on social media, it can take years and years and years to have 1000 followers, you know? And you wrote that great post, Li, about 100 true fans. And I think that's super, like really savvy, because I think people underestimate that. Like Kevin Kelly's 1000 true fans, like that many people paying you 10 bucks even, a month, to sort of be a six figure income, is a lot of people. Like that's, you know?

- Yeah. You read the S1's of Slack and it's just, 40% was from like 600 customers. You know, it's just, it's hard to really get to scale in terms of how many. And I think people look at Shopify and their million small-medium businesses, or Facebook, or Google, whatever. But just, the amount of time it takes Shopify, it's a 22 year old company, or something like that. You know, it takes a long time to reach all of these people. And so I think that's a big shift. And I think, just the educational piece. I think people understanding. I think the assumption we had was like, labels are gonna get disintermediated, because musicians can now sell directly to their audience, right? I think one thing we didn't realize, we kind of undervalued what a label does. And I think, Everything is actually a really good example of this, where they're super savvy about, you're not just a good, you can't just be a good writer. That's not enough, right? You have to find the audience, you have to do all the business stuff. You have to figure out pricing. You have to build a brand like this beautiful logo. I don't have it, but it would be here.

- You can get one, if you want it. We'll put that up.

- It's hard, it's true.

- It's interesting, Sahil, that you, you mentioned that even the term creator has become so ubiquitous over the past decade and broader awareness of the creator market has greatly expanded. And this market is much larger than it used to be. especially now that social platforms have reached such large scale. I think the word creator, a lot of people really struggle to pin down what that means. And so definitionally, I'd love to hear what creator means to you, or how you would define the term.

- Yeah, the way I think about a creator. And you mentioned in the beginning, like creators and founders, like, this is for creators and founders. And I think that's really interesting. Because I really believe a founder is actually kind of like a subset of a creator. And I think the way I define creator, is someone who makes stuff and makes money by sort of charging for that stuff, effectively. It's an incredibly broad term to me, but it's really anyone that makes money to make more of what they do. And they don't have to do something and get paid for it and then do something else that they love doing. It's the merging of those two things. So you can write content and get paid for that content, which is very different than a lot of the folks that, pre this sort of passion economy, would basically have a day job where they'd write about baseball. And then they'd have a little thing on the side where they write about video games. And it's like, no, now you can actually write about video games, get paid. And oh, you don't have to write about anything else.