Exclusive interview: Why Sahil Lavingia is betting his company on the rise of the creator economy

You founded Gumroad in 2011. Around then, “influencers,” “creators,” and “personalities” were already a big part of the online culture and ecosystem, but they were not at all talked about or utilized in the way that they are today. What did you see back then before other big companies in the space like Patreon were getting started that you kind of identified as an opportunity and made you want to go all-in on Gumroad?

There's two parts to this. One was that I wanted to solve my own problem — I wanted to sell this pencil icon that I designed to my Twitter audience, and I didn't even have a website. I just had around 1,000 people following me on Twitter. This was kind of a new problem, because most of the time if you have an audience, it means you already have a website. The order of operations was flipped for me. Then the next phase of that was realizing that there are probably a lot of people who are having this experience right now because the internet is making it much easier to build an audience without needing a website. The insight I had was that people are connecting directly with their audience [via Instagram or YouTube or Twitter], and the next phase of that for me was commerce. You can talk to your fans directly — you don't need a record store or radio to get in front of them. That’s step one.

Step two was asking, “Well, why do you need the record label or radio star at all?” I felt like that structure was going to inevitably change because creators were just getting more and more powerful. Though, at the time, the “creator economy” was not even a word. I believe we were actually the first company to ever use the term “creator economy” in 2015, so it even took us three or four years to realize that this was really a new kind of use case from the term “influencer” that people were mostly using to describe things back in the day.

In your blog about the history of Gumroad, you said that you had this all-star cast of angel investors. I’m curious — Since you talked about identifying the “creator economy” before people were catching on to it, was it difficult to sell those investors on your vision?

It was really easy, honestly. Most people were sold pretty early. The simple “why now?” was basically that every human being is going to be able to build an audience without any gatekeepers. The next step was this sort of deep unbundling of the storefront and the marketplace, which means people will be able to sell things on their own accord. This was also around the time when Bitcoin was first making waves — it was around $1 at the time — so a lot of people were talking about Bitcoin, decentralization, and unbundling even in 2011. I think that helped as well. 

So yeah, I think Chris Sacca, Naval, and some other folks got it even back then. Maybe they got too much, right? Because it turned out that maybe we were all a few years too early. Now, because of COVID, we’re really seeing a big boost and “Creator economy” is now becoming a term, but it's still insanely early.

On that note, could you talk about how Gumroad differs from services like Patreon, Ko-Fi Substack, and other companies that are in the creator economy space?

We were first, but who cares, right? I think we just really try to prioritize the creator. I think the crowdfunding round that we did was in that vein — we asked, “How do we get creators equity in the company itself?” So I think that's just philosophically very different. Substack just raised $65 million at a $650 million valuation, and we raised $6 million at $100 million valuation from our customers and community. I don't think Substack really even considers themselves to be in the creator economy. I think they're really focused on kind of being this all-in-one solution. At Gumroad, we don't care as much about becoming massive; it's more about whether we can build a really great extensible product that's affordable, and also just way cheaper than Substack and Patreon. We’re also profitable. That's another big thing that a lot of these companies can't really say. They're generally losing money. Which if you're a creator, I think you probably want to be a little cautious with who you build your own business on top of.

I found the philosophical differences you mentioned really compelling. When I was reading your blog. You quit your Pinterest job before your one-year cliff to pursue a passion, which means you had no payout. It reminded me almost immediately of the story that a lot of creators who jump to platforms like Gumroad end up telling. The pitch Gumroad makes to creators is to quit their job today and pursue their passions. Do you see that comparison, and does it make you think differently about Gumroad’s role in the creator economy?

Yeah, totally. I like to think of Gumroad as a company built by creators for other creators. We hire a lot of our top Gumroad creators to basically run chunks of the organization because my belief is that they should be able to decide — and are probably better positioned, honestly — to make decisions on what we should be building or prioritizing.

I'm not trying to be a Steve Jobs-ian visionary. I think some of these other companies, just by the nature of the beast, raise a bunch of capital and try to build a $5 billion or $10 billion company. To do that, you have to predict the future in a sense. My opinion was just like, “I'm just going to build the best product. I’m going to talk to creators to make our product better, and I’m going to try to be pretty low-ego about it.” I don't think creators want someone to come in and say, “Hey we've solved all your all your problems!” and take 10-15% of earnings and constantly make changes. A lot of creators just want the simple stuff to do what it does and they don't want it to get more expensive. At Gumroad, we want to be the onramp to the creator economy. We want to help people quit their jobs. If they use Gumroad and it helps them succeed, and they decide they want to go use Teachable or Patreon instead, they’re welcome to do that.

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"If there is a “winner,” it’s not going to be purely about pricing or functionality. It's going to be about creator consensus. I think a lot of creators will pick the platform that feels more aligned with them philosophically." — Lavingia

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We're bigger than Substack, by the way. We do far more revenue and volume than Substack or Cameo, but obviously we're not growing as fast. Sometimes I think that maybe I should get back on that path, but I just try to remind myself that the creator economy is not about making millions of dollars. In my view, the creator economy is about quitting your job, and it just seems kind of ironic to me [to be a company that says] we want to make it possible for more people to quit their jobs, but the way we do that is by basically hiring people and making them work 60 hours a week. That seems a bit weird. I just really want to kind of eat my own dog food and build a company in this really weird way where we don't have meetings or schedules or deadlines and we just hire dozens or hundreds of creators to chip in. And everyone gets paid, obviously.

I think a lot of VCs will hear that and say “Sorry, but you’re gonna die. This is a winner-take-all market.” But I just don't buy that. I think the creator economy is absolutely massive. Gumroad is gonna be a great business, and so are Substack and Patreon. The other thing I like to say is that if there is a “winner,” it’s not going to be purely about pricing or functionality. It's going to be about creator consensus. I think a lot of creators will pick the platform that feels more aligned with them philosophically. So my long-term map of that is that over time, these services will all roughly have the same functionality just like Shopify and Squarespace will basically offer the same functionality, but depending on what you care about you’ll choose one or the other.

It's refreshing to hear you talk about building a company this way. I'm so used to interviewing founders who talk about the typical venture-backed metrics for success like rapid, non-stop growth and being the winner in their space.

It's funny because I run a venture fund, so I write checks to startups. I’m not necessarily opposed to that way of thinking, but for me personally — and maybe this is just me being selfish — I just don't think I need to work 60 hours a week anymore. I don't say that to brag, but I do have a level of confidence that I did something correctly and I'm pretty good at what I do. I don’t think a lot of people would have the confidence to crowdfund their company at a $100 million valuation. I get emails from VCs all the time that are like, “Hey, do you want to raise more money?” When that happens, I just say, “Look, please do the research on the way that I run Gumroad and then get back to me if this is something that you would want to fund.” Like, go read this article about how we have no full time employees and I don't have deadlines. [They always come back and say] “yeah, we don't really want to give you $30 million.” There’s a reason I’m very open. It saves everyone a lot of time.

I want to pivot here to something that you said recently in a Clubhouse room.

Uh oh.

No, no! It’s nothing awful. You said, “It's easy to get caught up in millions of followers. But 400 followers is an insane amount of people. You'd fly to another city to speak at an event with 400 people. 400 people subscribing to your newsletter for $10 a month is a living for almost anybody in the world.” That really changed the way that I think about the creator economy. I’d like to hear you talk about whether it's become easier or harder over time to be able to monetize a hobby with a smaller audience like 400. Is that something that Gumroad uniquely enables, or has it just evolved over time?

I think it's a combination. Certainly Gumroad and other platforms have made it easier. But I do think that the larger shift is that consumers are used to this way of supporting creators more than they were in the past. If you asked somebody 10 years ago how they supported a YouTuber, they would have said that they watch their videos, which they make ad revenue on. But today it's much more complex. You can support people through a newsletter subscription, you could give them money for digital products, you can join their communities. Online courses are another thing that will be absolutely massive. I think the nice thing about COVID is that it really forced people to figure that out. Like, “What is the online version of the offline?” As it turns out, not too different. 

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"We don't want to replace the record label with Gumroad; we want to get out of the way. And I think the top creators know that." — Lavingia

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But the other thing I'd say is that it's still very difficult. It sounds easy to have 400 people follow you on the internet. I think one of the issues with how easy it’s become to get started is that it makes people think that it's easy [to actually do]. Like, the technical burden is easier — the cost is zero — but you still have to become a really good writer. That doesn't happen overnight. So that part is sometimes lost on people where they think, “Oh, just because I can build an audience on the internet means that I will.” But no, you still have to spend years getting good at your skill. You still need the thousands and thousands of hours of painting or writing. And I think that sometimes gets lost.

To use your 400-follower example, You could have 400 followers on Twitter, but really only 100 or fewer of those followers are “activated” and engaging with your content. How can a creator get the most out of their audience? How does somebody judge whether their platform is actually big enough to go independent via a service like Gumroad?

I think a lot of it comes down to the fidelity of those relationships, right? I think that generally, creators have a pretty good sense that they should be engaging with their audience back and forth through several modalities. It's kind of like product market fit, right? You should have a pretty good sense of if you're actually solving the problem that your audience has. I think the other thing to point out is that it's unlikely that you’ll have 100 people paying $10 a month, for example. Usually you have 80 people paying you $10 a month, and then you have 10 people paying you $50 bucks a month, and you have one person paying you $300 a month or $1000 a month because they’re your super fan who like wants to sit down with you and have a Zoom call one hour a week. Often what we see is that these people who run newsletters are doing it as lead generation for consulting businesses. So I think it's helpful for people to think about multiple revenue streams. It's very pure, to say, “I'm gonna have 1000 people paying $1 a month.” But the truth is, generally, there's a first class ticket, a business class ticket, and an economy ticket. And those things scale. Because your audience is not all at the same income level, right?

Do you think it's the role of a company like Gumroad to provide tools to help build and develop that audience? Or is it on the creator to build the audience and then go to a platform?

It's funny — people are pretty split on this. A lot of creators, especially the ones who are just getting started or thinking about getting started, like to ask, “Hey, does Gumroad help with distribution? Will you give me sales?” Or they’ll say, “I'm an amazing writer, but I don't have an audience.” To be honest, I'm always a little skeptical of those people. Because if you're a really great writer, you should have some people who want to read that stuff. It also makes me worry because generally people who really like doing something are doing it already. When people are waiting for the panacea, it often means that they actually don't want to do the hard work. 

I think most creators don't actually want Gumroad to participate in the discovery. We don't want to become the new middleman. We don't want to replace the record label with Gumroad; we want to get out of the way. And I think the top creators know that. They also know that the economics become very different, right? If we start to drive more and more of their traffic, that gives us the leverage, and we can charge more money. So I always think it's healthy for a creator to have their own audience to be able to communicate with them directly.

As the creative economy grows, how will the role of platforms like Gumroad, Patreon and others develop over the next 10 years?

I think financial services is going to be a big thing that we do probably in the next five to 10 years. Things like helping creators spin up LLCs or help them split pay with their bandmates. I think the difficulty with that is that you just need a lot of scale. There are a lot of things that we could get into with accounting services for creators. However, we're still very small. The number one thing I tell people trying to start creator economy companies is that you need a lot of creators. Gumroad has roughly as many creators using the product as Shopify did when they IPOd. All you are as a platform is the growth of your customers.

I did an interview recently with Austin Rief of Morning Brew, and one of the questions I asked him was, “How does Morning Brew prevent itself from running into the situation you often see where a very popular writer decides to leave and go to Substack to start their own newsletter?” He said that the company needs to create a flywheel where they offer editors, different ways to monetize — all these things to make Morning Brew an appealing place for creators to stay. I want to ask you about the flip side of that equation. Is it the goal of companies in the creator economy to pull creators away from where they’re at and towards their platform?

I think Gumroad’s goal is that we want to provide a really great suite of software that creators can choose to use to basically get leverage over the traditional media industry that they're in. We want to be able to do that affordably, profitably, and sustainably. I think for Substack, they're on a path where, for this to be a success for their new funding round, they probably have to become a multi, multi, multi-billion dollar company. The market’s just not big enough for that yet; they're gonna have to pull people away from other outlets.

But to Austin's point, the truth is that most people don't want to be part of the creator economy, and I don't know if that will ever really change. Most people I talk to on a daily basis are very happy getting paid a salary and getting health care. I think if you talked to most musicians you’d see that the vast majority want to sign with a label because they want to have someone help them do it right. With Gumroad, I want to make it easier and easier for people to choose to go independent, but I understand that no matter how easy we make it, if there are other cognitive burdens that mean most people will never do it. And I hope I’m wrong. [Personally], I can't imagine working for somebody. I worked for Pinterest for eight months and that's the only job I've ever really had and probably ever will. So I just can't fathom working a nine-to-five, But most of my friends can't fathom not doing that.

Is there anyone in the creator economy or otherwise who’s really captivated you and you recommend people pay attention to?

What I'm really interested in is regulation. The number one thing holding back the creator economy is not better software; I think it's the fact that you don't get health care. Maybe it's just because I'm getting older and I’m getting more philosophical, but I'm just bored of talking about software. I end up thinking a lot about talking to people in Congress about what we can do to change these SEC rules and these accreditation laws, because I think the truth is that the tech is pretty well built. So that’s really what I'm trying to spend a lot of my time on. Can I help push through anything that may make it easier for people to invest in startups? Or for people to get healthcare? I think that is worth spending a lot of my time on, personally.

Do you think that the number of people who would make the jump to become an independent creator would greatly change if something like Medicare For All got passed?

Oh yeah, I really think so. I think it would [cause the same kind of growth as] COVID. It took us eight years to get to 5,000 users selling on Gumroad and one week to get to 7,000 because of the New York and California lockdowns, which is pretty insane. It just made me hyper aware of what macro shifts can really do for Gumroad. It's far beyond anything that I or a new feature could do. But yeah, I think I think there's two things that would massively accelerate the creator economy. One is health care — I think that would be a 2x kind of thing, and not just for the creator economy, but for people starting companies, too.

The second thing is app stores. Currently, Google and Apple take 30% of all digital content on their stores, which, by the way, is how most people consume content these days. Things like Gumroad and Patreon have apps, but no one thinks about the apps when they think about these pipelines. But imagine if you opened up Substack like you open up Reddit. The reason that will never happen is because we can't give 30%. We already only take 10% or 5% [on our own platforms]. How can we give 30% of that to Apple?

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"I don’t plan to ever sell the business to anybody except the public." — Lavingia

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I've been talking mostly about deregulation around the crowdfunding stuff but I think in this case, more regulation which would tell Google and Apple “sorry, you can’t take 30% from an economy” [would be good]. That’s a 30% tax. It's preventative. I really believe if that was different, frankly, Substack would have been too late. It would have already happened. [Healthcare] would 10x the creator economy. Like, that would be really, really game changing.

Well, maybe that 30% take is about to change with this lawsuit going on between Epic Games and Apple.

Yeah, I think it is inevitable, to be honest. I just really believe the economic stimulus that would happen because of it — too many people want it to happen. Everyone except Apple wants it. They're the only winners in this game. I'm not hopeful because these things don't come easy. But if I could wave a magic wand and make one thing true, that’s what I would probably do. 

I will say that one of the things that I really have taken away from my journey has been not going away. I started Gumroad in 2011 and it really took until 2020 for the “creator economy” to become a buzzword in any real capacity. I would still argue that if you Google Trends “creator economy” it's probably at zero, right? It's very, very new. So I hope and I believe, at some point in the next 50 years, that 30% is changing. And I will be around. I don’t plan to ever sell the business to anybody except the public. I’m glad I didn’t give up. I believe that if we just don't stop what we're doing, and we just stick around, eventually a lot of these macro shifts will happen, just like COVID happened. So I always like to remind myself that the goal here is basically to stay in the game. And I think as long as we do that, then one day I'll wake up and like there'll be some crazy ruling, and then Gumroad is going to do a lot better.