Myths of Paul Graham's Do Things that Don't Scale

Paul Graham’s “Do Things that Don’t Scale” blog post has been commonly referenced but rarely understood. It makes me question if some of the people who reference the post have actually read it. The most common misunderstanding (or misrepresentation) comes from from this Airbnb reference:

Airbnb is a classic example of this technique. Marketplaces are so hard to get rolling that you should expect to take heroic measures at first. In Airbnb's case, these consisted of going door to door in New York, recruiting new users and helping existing ones improve their listings. When I remember the Airbnbs during YC, I picture them with rolly bags, because when they showed up for tuesday dinners they'd always just flown back from somewhere.

Many retell this anecdote in a way to suggest manual customer acquisition strategies are beneficial because new ventures are constrained by money but not time. This is a lie. The important quote is this:

The other reason founders ignore this path is that the absolute numbers seem so small at first. This can't be how the big, famous startups got started, they think. The mistake they make is to underestimate the power of compound growth. We encourage every startup to measure their progress by weekly growth rate. If you have 100 users, you need to get 10 more next week to grow 10% a week. And while 110 may not seem much better than 100, if you keep growing at 10% a week you'll be surprised how big the numbers get. After a year you'll have 14,000 users, and after 2 years you'll have 2 million.

The reason you follow the manual path is because you are more likely to get a higher K-factor. The question people don’t ask enough is why does this strategy get a K-factor above 1? The answer to me is customer service. You get a K-factor above 1 because you are delivering excellent customer service. The high investment in time into customer experience leads to word-of-mouth referrals.

When considering a manual strategy, here are things to pay attention to:

• What is the difference in the K-factor of the manual route relative to a more scaleable route (advertising, traditional sales). If churn does not improve from a manual strategy over an extended period of time, something is wrong and needs to be fixed. It’s probably the product.

• The correct process of a manual on-boarding strategy is not to hit high volume the way a cold-calling sales team does. It is to deliver excellent customer service and to work out all hurdles to ensure that the customer will evangelize your product/service. If you are rushing the manual on-boarding process for vanity numbers you are missing out on the benefit of compounding growth. This leaves you with the worst of both worlds: highly time consuming process with no benefits of an improved K-factor.

• Manual on-boarding lets you observe and fix customer roadblocks associated with your product. You then adjust your product in more scaleable manner based off of these learnings of the manual process. This means that user acquisition and product teams become deeply intertwined. You get an iterative cycle with manual on-boarding insights leads to product improvements. A natural side effect of this should be that K-factor improves from customers that do not receive manual onboarding. Customers acquired from performance marketing efforts should get a K-factor improvement as well over time (even if they don’t receive the manual process).

Finally, I want to note that you can incorporate these strategies for companies that are not seed or pre-seed stage as well. You just need organizational buy-in into the goals of such a strategy. Acknowledging this, I do understand it is harder to get stakeholder buy-in for strategies that start very small and lead to compounding growth.

Numbers have to be hit on a quarterly basis for public companies. Larger companies have strengths but they have weaknesses too. This is the advantage for new ventures and challenger brands associated with manual tactics. You don’t have to hit arbitrary quarterly targets. You just need to increase your compounding base.