The Luxury Playbook for Online Businesses
Introducing a different kind of playbook for a different kind of startup
There’s a playbook for building successful companies that contradicts everything Paul Graham ever wrote.
Most business advice, what circulates on X, on Hacker News, and on Youtube, is modeled on PG’s essays. “A startup is a company designed to grow fast” (Startup = Growth); “the main value of whatever you launch with is as a pretext for engaging users”; “put a big piece of paper on your wall and every day plot the number of users” (Startups in 13 Sentences).
But the reality is that there are companies out there designed to grow slow, to launch late, and to deliberately restrict sales, that not only survive, but thrive.
The tech industry business model feels played out. Silicon Valley is both a place and a comedy show. It has grown so much that we now have a term for the point when these platforms have gone too far: enshittification.
Here is how platforms die: first, they are good to their users; then they abuse their users to make things better for their business customers; finally, they abuse those business customers to claw back all the value for themselves. Then, they die. I call this enshittification, and it is a seemingly inevitable consequence arising from the combination of the ease of changing how a platform allocates value, combined with the nature of a “two-sided market”, where a platform sits between buyers and sellers, hold each hostage to the other, raking off an ever-larger share of the value that passes between them.
— Cory Doctorow, The ‘Enshittification’ of TikTok
But as far as I can tell, nobody has articulated an alternative way of building online businesses. There’s a collective aloofness in the industry about this: “sure, enshittification is bad,” they seem to say, “but it’s the only way to build a startup.”
PG’s advice is battle tested: if you ignore his essays, you’re probably going to fail. But I argue that you can do something else: not to ignore PG, but to deliberately disobey him.
Let us call that approach The Luxury Playbook.
I’m Alvaro Duran, and you know I like playbooks. This article of The Payments Engineer Playbook, however, isn’t about the technology that moves money around. Today is April Cools: a celebration of what doesn’t fit the mold, so instead, I’m discussing business strategy.
But not your usual MBA pablum.
Since most startup founders learn how to build businesses from tech adjacent media, they usually treat PG’s advice as gospel. Thus, alternative approaches are poorly understood and underutilized in tech, and for exactly that reason, can be a secret weapon for those who wield them.
This is tricky advice, though. Most investors won’t understand it either, so funding will be more difficult. This article therefore has two main goals:
To make you understand The Luxury Playbook and apply it to your company.
To be a reference for investors who want to fund companies using this approach.
Enough intro, let’s dive in.
Make Something People Want, and then what?
It is impossible to build a successful business if you don’t make something people want.
That’s why both luxury brands and startups are, initially, very much alike. They both reject building for “everyone”, because that’s the same as building for no one. And both are designed to amplify the intensity of their founders.
Startups call it “founder mode”. But luxury founders go as far as naming their companies after them: Ferrari, Hermès, Yves Saint Laurent, Beats by Dr. Dre.
So the startup and the luxury brand agree on the starting conditions: make something real, stay close to it, and find Product Market Fit.
What separates them is what happens next.
The startup, once PMF is achieved, treats it as a milestone. From then on, it’s all about growth, speed, and distribution. The luxury brand, however, treats PMF as a horizon. Startups leave product market fit behind; luxury brands never fully reach it.
Luxury As The Anti-Playbook
You probably don’t dream of buying a Birkin bag.
But Samantha from Sex and the City can’t simply pay $4,0001 to get it. It’s not that she can’t afford it; it’s that she has to wait 5 years.
Luxury seems to operate in a completely different universe: rising prices famously spur demand (economists call these Veblen goods), websites do not show the price of the items, and physical shops are empty most of the time, usually because there’s a bouncer at the door.
Paul Graham’s advice is widespread because it makes sense. People understand in their bones that the right product must win, that being close to the users is a good thing, and that charts going up and to the right are indications of valuable companies.
On the other hand, Ferrari cars are uncomfortable, way too expensive, and you have to wait a few years to get one.
And yet, every kid wants a red car for Christmas, and every man wants a red Ferrari when they turn 40.
Different concepts of value
Luxury brands aren’t built to maximize growth. But that doesn’t mean they don’t make sense. Growth, for startups, vindicates the product. It’s evidence that a lot of people value what they’re selling.
Luxury brands, however, maximize the desirability of the product. It is very much the way consultants sell their services, and it’s not a coincidence. Luxury products have delayed gratification built in, which justifies the price in the mind of the buyer.
Startups make something PEOPLE want; luxury brands make something people WANT.
Move fast, or never break things
A Cartier Tank watch you buy today is largely unchanged to the one introduced in 1918.
Startups iterate and move fast. Their founders understand that every iteration is both a product to sell and a quest for market data; continuous change refines it, adapts to the changing environment, and sharpens the model of its ideal customer.
Luxury sees frequent change as instability, and the product as a promise. The Rolex you’ve waited years to buy isn’t just for yourself; in time, your kid will grow up, and you’ll give it to them, as if to pass the baton.
Startups move fast; luxury brands make timeless things.
Feedback as contamination
Startups iterate quickly, because the point is to gather feedback.
Their founders have gaps in their knowledge. These gaps are hard to spot, because your brain papers over them with assumptions. It is best to find paying customers, and figure out as much as you can from them, invade their privacy if required, so that the product feels tailor made to the ideal customer.
Luxury brands could not care less about that.
Obsessive attention to users is anathema in luxury. The creative genius is the source of all product decisions, and customers have little to say about that. A luxury brand dominates their customers the way a parent dominates their kids: “this is what is best for them, even if they don’t like it at first.”
Startups build bottom-up; luxury brands build top-down
The value of friction
Stripe’s entire thesis was to accept payments “in 7 lines of code”.
Nascent companies often position themselves against a big, but well-known competitor. Inertia and status quo are their biggest barriers to growth, and friction is the conversion killer. Startups, therefore, iterate on the way users interact with their product and remove friction every step of the way.
You can’t have startups without User Experience.
Luxury, on the other hand, embraces friction. A dream is the negation of the obstacle to attain the desire, but the obstacle must be there, and it must hurt. It is precisely the fact that not many people can have what you’re buying that makes it valuable. It says something about why you’re not just like anybody else.
Startups search for a moat in their business; luxury brands build a moat in their products.
What this means for online businesses
The luxury logic can’t be confined just to handbags, watches and sports cars.
One of the reasons I’ve been obsessed with luxury recently is because I have a thesis of my own: that luxury can be applied to online businesses, and digital products.
Since in digital markets the marginal cost of selling a product is near zero, everything naturally drifts towards commoditization. Things are free to sell, so we might as well give you cat videos for free, and aggressively pay for it with ads.
But this can’t be the only way to build successful businesses online. I have a visceral reaction to pointless ads. So, I’ve been mulling over this idea of online businesses that eschew commoditization.
And that brought me to luxury.
Luxury is taste, and there isn’t anything as tasteless as advertising. Therefore, online luxury brands, if they exist, build on the ideas I’ve described:
Maximize the desirability of the product, not the user count
Move slowly, and expand their offering only when it adds to the overall experience
Manufacture scarcity, even when the Internet has removed it
And you know what? I believe they exist, even if they don’t call themselves luxury. In fact, I believe that the first luxury digital product that has ever existed was the Bloomberg Terminal.
The Terminal is an informational product, accessed online, that signals that your financial company means business, and that it’s profitable enough to afford the price tag: $30,000 per user per year.
Why so expensive? Well, why not? Wall Street pays a premium for high-quality business information, delivered instantly, and that’s become even more true over time.
The Terminal is complex, intentionally dense, not optimized for casual users. And yet, sales from the Terminal account for more than 85 percent of the company’s revenue. The product itself is largely unchanged since its inception in 1982. Sure, “if it ain’t broke, don’t fix it.” But that sounds a lot like a Cartier watch.
Bloomberg made financial data feel like a professional credential. A founder following Paul Graham’s advice would have never invented the Bloomberg Terminal.
Superhuman is a more recent and interesting case. It launched with a wait-list, onboarding gatekeeping, and a high price for an email client.
That scarcity worked as a growth mechanism in the early days; everyone wanted in, precisely because not everyone could get in.
And yes, eventually Superhuman abandoned scarcity in order to keep growing. But that doesn’t invalidate the luxury approach. Superhuman simply abandoned it.
What does a digital product that remains faithful to The Luxury Playbook look like?
Beyond Y Combinator
Graham’s advice is not wrong. Making something people want is a valid way of building startups.
But I’m just tired of it. I’m tired of the same kind of CEO, selling their product onstage, sporting a black turtleneck in my memory, even when they actually dressed in something else.
I’m tired of a business model that puts the online user at odds with the company in order to build a business moat. Of treating users as the product, then customers as the product, then even the shareholders as the product.
The Startup Playbook feels played out at this point.
It’s time for companies to test if The Luxury Playbook makes sense for them. It’s not that the odds are in their favor anyway. So they might as well try something different.
In a big company, you can do what all the other big companies are doing. But a startup can't do what all the other startups do. I don't think a lot of people realize this, even in startups.
— Paul Graham, Beating the Averages
The choice between the two playbooks is a choice about the kind of value you want to create in the world. The Luxury Playbook is the natural consequence of people taking taste more seriously.
Go make your taste a differentiator.
This is it for this week in The Payments Engineer Playbook. I’ll see you next week.
PS: You’ve come this far, I have some secret to share with you.
I’ve written this article with a not-so-secret question in mind: how can I turn my newsletter into a luxury brand?
And after writing it, I’m convinced that newsletters are the perfect playground for building luxury brands online. This, as I said, is somewhat uncharted territory, and that’s why the most well-known publications out there are funded with ads, not with paid subscribers.
In this new model, newsletter articles are more like bottles in a wine cellar. That’s why they’re paywalled: because subscribers are the newsletter’s patrons.
I’m deliberately turning The Payments Engineer Playbook into something much more exclusive and much more valuable for a smaller set of highly interested individuals. The Playbook is the only newsletter on Earth tailor-made for engineers who build money software, and I want to speak to those who want to do their job exceptionally well.
For that reason, I’m putting together a Flagship Membership.
It’s going to be expensive, and it’s going to demand work from you. But it’s going to be worth your money and your time.
If you’re interested, please write down your name and your email in this form, and I’ll be in touch.
I’ll see you around.
It’s around 45,000 nowadays.