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All the wrong reasons for Stack Overflow's VC chase
- sabat 17y agoI'd take DHH's opinion more seriously if he had any actual experience with VC or startups. 37 Signals is not a startup -- they crow about that fact themselves. 37 Signals is a small business. David's points all presume that he fully understands what Joel is planning; he clearly cannot, since Joel hasn't laid out a detailed business plan.
- mrduncan 17y ago37signals has taken an investment from Bezos Expeditions. As Jason Fried explains in the blog post, it was certainly not the standard VC deal though - http://37signals.com/svn/archives2/bezos_expeditions_invests_in_37signals.php http://37signals.com/svn/archives2/bezos_expeditions_invests...
- pavs 17y ago> 37 Signals is a small business. Are they really a small business? I have the impression that they have a large user base - and IMO a better set of products than Stack Overflow.
- jsolson 17y agoSmall business in the sense of few employees and little in the way of capital assets. Just because you're making money hand over fist doesn't mean you're implicitly a "big business".
- pavs 17y agoI guess I am trying to find out whats HN's definition of small business. Not sure why I am getting downmodded.
- marilyn 17y agoI too am wondering the HM definitions. Big/small business versus startup. What is the definition of startup? I don't understand why businesses that go for VC funds have the monopoly on the term "startup".
- arockwell 17y agoThe definition I've seen given by PG is anything that scales up. In other words, a business that sells a product that can be used by many users. A small business is usually something that offers a service (a restraunt, a barber shop, or a consulting firm). Funding has nothing to do with it.
- lambda 17y agoI would say any business with fewer than 50 employees is a small business. According to Wikipedia, 37signals has 16. There are technical definitions in various countries of "small business", based in some cases on number of employees and in some case on revenues or other economic metrics. Any way you slice it, 37signals is a small business.
- 100k 17y agoThe point is that 37signals explicitly claims not to be a startup. Their line is that they're a profitable 10 year old company. I once asked DHH in a Q&A his opinion on working on a startup outside of Silicon Valley. He corrected me.
- KWD 17y agoThat's not to say they were not once a startup. Every 'startup' should have the objective of becoming a sustainable business. Eventually the startup tag will go away, but that's not to say they were not once there. Microsoft was once a startup. Apple was once a startup. It makes me laugh here on HN where some guys weekend project can be considered a startup when it really has no potential to ever be a business.
- dpcan 17y ago"Better set of products than stack overflow" This doesn't make any sense. That's like saying the Yankees have a better team than the Saints. Apples and oranges. I don't use any 37s products, I have email. However, I find StackOverflow invaluable. I will spend 20 minutes searching the web for answers, and when all hope is lost, I can ask a question on Stack, wake up in the morning and someone will have generously shared their knowledge, providing a perfect solution. It is simply incredible.
- _delirium 17y agoConsidering that they're successful taking that route, though, they do have some first-hand experience to back up their claim that you can be successful without going the VC/startup route.
- tptacek 17y agoYour point about DHH having no experience with VC is somewhat valid (they don't think Bezos counts), but your point about "small business" versus "startup" is completely devoid of meaning. You don't need to take VC to be a startup, and you don't need to exit inside of 5 years to be a startup either. An uncharitable summary of your argument: 37signals has been too successful to know what they're talking about.
- statictype 17y ago>An uncharitable summary of your argument: 37signals has been too successful to know what they're talking about. That's not a completely unreasonable argument to make. The fact that they were able to achieve success without having to take in investor money, in some ways disqualifies them from giving advice on when its ok to take investments.
- fnid2 17y agoWere they successful without taking investors money? I mean, they took investors money, so how do we know? We don't know how much Bezos gave them, it could have been millions. I don't know. Maybe someone knows, but to say they were able to achieve success without having to take investor money isn't entirely accurate, because they did.
- tptacek 17y agoDHH explicitly said they didn't receive operational cash from Bezos in his interview with Steve Blank's class. They took the money to get tight with Bezos and to trade some equity for risk mitigation.
- fnid2 17y agoI don't find this argument compelling. It doesn't matter why you take the money. It matters that you took the money and keep saying it doesn't matter. If it doesn't matter, why did they take it? For the benefits and they did benefit from it, so they can't keep saying they haven't taken investors money and be credible.
- lyudmil 17y agoThere is a talk by DHH where he shared stories about his jobs prior to 37Signals. These jobs were at VC funded, dot-com companies (something involving games) and he claims to have learned some lessons there. He talks about this in the beginning of the Q&A session here: http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2334 http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2334
- chime 17y agoReading the original post, I thought pretty much the same thing. The whole idea of getting VC money is to jumpstart the next phase of a company/product's life. Facebook was a college kid's side project that looked promising but VC money made it top 3 site on the web. YouTube would have been impossible for 3 typical 20-somethings to afford out of their personal/family savings. They needed VC funding because they were burning through $1m/month in cash. What exactly is it about Stack Overflow that Joel can't pay for himself with his own funds? What kind of hiring does he want to do to make it any bigger? Joel listed all these vague reasons that sort of sound good without actually saying concrete steps / changes that would come out of VC funding. I would definitely like to hear what it is that he, despite being one of the most popular tech bloggers with a boatload of notoriety and savings, can't do with Stack Overflow that somehow VC money can.
- sabat 17y agoWhat exactly is it about Stack Overflow that Joel can't pay for himself with his own funds? What kind of hiring does he want to do to make it any bigger? These are the precise questions that we can't presume to know the answers to. Joel probably has very good answers to these and more questions, and is using them during VC pitches right now. Just because his ideas are not obvious to us doesn't mean he doesn't have something good in mind.
- mikebo 17y agoMaybe I'm a cynic, but I wouldn't presume Joel has great answers for these questions. As DHH says in his post, he may just want to capitalize on the service's early success and take some money off the table.
- spolsky 17y agoI don't think many VCs let you "take money off the table" in the Series A. It has been done, but it's rare, and it's a sign that a founder doesn't believe in the business prospects that they're asking everybody else to invest in.
- swombat 17y agoIf I may permit myself a pun, DHH is right on the money. VC funding makes no sense for Stack Overflow.
- slavingia 17y agoMaybe not for Stack Overflow, but for the umbrella company that he wants to start to land grab the space.
- necrecious 17y agoI don't know why Joel used Starbucks as his example of why land grab makes sense for StackOverflow. Starbucks, like McDonalds, is all about location/location/location. So it is literally needing capital for a land grab. Websites are never about a land grab. Especially when talking about creating just a network of sites for individual niches.
- netcan 17y agoStarbucks wasn't about a literal grab for land. it's not that hard to find locations for coffee shops. It was a grab for a piece of culture. The US didn't have enough coffee houses with good coffee and that kind of an atmosphere. If Starbucks had taken 10 years to get to LA, there would have been Starbucks-like coffee houses there by that time.
- patio11 17y agoI don't even think Starbucks needed the culture, except for branding. If they make it into your morning ritual, you -- one individual customer -- are worth $1,000 a year. Every store they drop down is just another vending machine to recruit $1,000-a-year walking bags of money. This gives them expansion imperatives similar to a bank's desire to situate branches, or a cell phone company's desire to site stores.
- netcan 17y agoThat is more or less what I meant by culture: to become a part of a city/office/industry/person's culture. The culture was forming and if they didn't become part of it, some other cafe would have been the place where you go for your morning brew, George and Jenny meet on Tuesdays or the theatre school people go to use the internet.
- KWD 17y agoI agree. One problem with the analogy is that Starbucks is all about coffee. StackOverflow is about a Q&A platform. It'd be like Starbucks using their store model to be a donut shop, a hamburger stand, and a BBQ joint. In my opinion, the 37 signals post nails it with the problems.
- jasonlbaptiste 17y agoI don't get why they don't raise a small amount (750-1mil) from some insanely smart angels.
- deleted 17y ago[deleted]
- patio11 17y agoIf I were told "Here's several million dollars, an Answers platform, and a mandate to make a super-scalar return", I would immediately start trying to pull off Demand Media, starting each property with a core of content produced by cheap freelancers and then thickening them out with real UGC as they gained traction in the search engines. The million get spent on the freelancers and on having my crack team of engineers build a search prediction algorithm so that I know, e.g., what the top three questions about birdfeeders and the highest payout topics are. The resulting company looks very, very different than what StackOverflow looks like... but it would make sense, I guess. (Major risk of getting annihilated by Google in the next 12 months but, hey, not my money.) I generally yield to no one in my agreement against "land grab" economics. However, this space actually is a land grab. Maybe it isn't obvious to DHH because DHH doesn't really need to worry about the nuts and bolts of SEO all that much, but Demand Media can create a page for $15 and sell $40 of ads on it this year (it will still be there next year). That model scales to the effing moon, at least until Google gives them the smackdown.
- replicatorblog 17y agoThis is the key to it. Technology development isn't the point of an investment in a company like this (though some new tech will be needed and created). You need to find editors, create partnerships, advertise (as dirty a word as that may be) and provide runway to iterate. A question site on graphic design might be different than one on cooking and even more different from one on the finer points of SQL. I do think the land grab comparison is fair. If you can get into the verticals quickly and establish a lead in content it is that much harder for the next guy. I like 37S, but I don't get the compulsive need to criticize anyone that takes funding or sells their company as a sell out.
- vaksel 17y agothere is a difference between Demand Media and StackExchange...howto sites get linked to, Q&A sites do not. eHow is a PR8 site, while SO is a PR6 site. Original content will always outrank Q&A. I covered it here: http://news.ycombinator.com/item?id=1128146 http://news.ycombinator.com/item?id=1128146
- ojilles 17y agoQuoting from the article: "There are a few indicators for the type of company that I believe can benefit from, and should take, VC." Which means, the list in his article of companies that can benefit is more academical, and each of these may not apply to StackOverflow. The response from 37signals is a bit presumptuous in the sense that it assumes Joel means //all// of these apply to StackOverflow.
- Timothee 17y agoExactly. I'm surprised this didn't come up more in the comments and that even Joel Spolsky, when commenting himself, didn't mention it. He was not saying that StackOverflow is in a similar situation as Starbucks', just that Starbucks was one of these cases where it makes sense to take VC money.
- robryan 17y agoI got the impression that Joel just wants to give the big risk venture with a big payoff for success a go. As he says Fog Creek is build the safe slow constant growth way and he always has that to fall back on.
- yankeeracer73 17y agoI think you might be right. Bootstrapping a start up is damn hard and damn stressful. And it takes a long time. As someone mentioned earlier, 37s is a 10 year old company that is now highly profitable, but it took a long time for them to get there and build up the following they have now. There's something to be said for trying to grease the skids on Act II and get there a little quicker than with Act I, especially when you were successful with Act I.
- jmm 17y agoIt may be that DHH's last point (taking money off the table) is the crucial element here. I.e., this could be an easy way for Joel and Jeff to get their second or third homes without destroying their baby and their darling developers at Fog Creek.
- iamelgringo 17y agoI know that this is 37 Signal's thing. They like to be hip, contrary and different. They take a popular post, and they take an opposing view, stir the pot and raise a ruckus. After all, they are "rock stars". But really, David? Why do you care what Stack Overflow does? Why do you presume to know more about Stack Overflow's business needs than Joel? Why do you presume to know more about the VC funding process and it's outcomes than Joel? You've run a successful business and you manage a great open source framework. That's to be commended. You chose to not take VC, and you have been successful. Congratulations. (We'll ignore that bit about Bezos investing in you for now.) But, there are hundreds if not thousands of successful software companies that have indeed taken investor money. Presumably, it was the right decision for them. Why do you insist on criticizing those decisions and put people down for those decisions? When I worked as an ER nurse in the inner city, we had an expression for this behavior: "Up in someone else's kool aid, not knowing what the flava is".
- jayair 17y agoI like that expression. It pretty much sums up what they do. It was fun at first but grows old and worse it begins to act against them. Now even if they make a good point against the VC approach I'm less inclined to take their argument for what it really is.
- euroclydon 17y agoAll anyone knows is what Joel tells them, plus what they can speculate. Joel has made a career for himself by inviting the public into the inner-working of his software company, I mean, we even know what color the tiles are in the Fog Creek shower room, for goodness sake, so I don't think there is anything wrong with DHH's post; it's probably exactly the kind of thing that Joel wants.
- antirez 17y agothis is exactly the contrary of what I would expect to read in an "hackers" community. What's wrong with commenting a public post? After all Joel wanted to share with the world why he thinks it is a good idea to get a VC for stack overflow. This was promoted in HN, and is not just free promotion, also exposes you to other opinions, so the only sane way to reply to the 37 Signals post is with counter arguments, if you got some. There is a value in the 37 signals post that is really not about stack overflow itself. For instance, because Joel is considered to be a business expert, other people running services that are similar business-wise could think it is a good idea to get a VC for the same reasons. This guys deserve to hear another bell (and many others if possible).
- goodgoblin 17y agoI think DHH's post raises a valid question about the land-grab analogy. What land exactly is being grabbed here? I guess that is the real mystery, as other commentators have pointed out. I assume there is some kind of grand business plan which yahoo answers and expert exchange missed and which Joel et al have not missed. It would not be the first time they took a 'solved' problem - bug tracking software - and built a successful business off of it.
- dpcan 17y agoIt's like any real estate on the web. The best of the best are NOT hanging around Yahoo Answers. I've tried to get answers there and it's pitiful. You have to create a place where the most talented congregate. Location location location.
- 100k 17y agoI think the land grab is for Q&A that doesn't suck. Yahoo Answers is a punchline and Experts Exchange sucks and has already been eclipsed by Stack Overflow (that was SO's raison d'être).
- 100k 17y agoDoes anyone NOT think Joel is going to get one of the best VC deals of all time? He's insanely well connected and has a proven product. He'll get meetings with all the top angels and VCs no problem then start a bidding war. I bet he gets a great valuation with good terms on control and equity.
- mrphoebs 17y agoDHH is strongly typed.