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DHH vs. Calacanis on This Week in Startups

• axod 17y ago
  nice quote when they talk about Facebook DHH: "... begging for advertising crumbs which these companies are essentially doing..." Really odd perspective to have. Why is charging users directly any better? Online advertising expenditure is slightly more than crumbs. Also I'm pretty sure total advertising expenditure online is massively more than people paying for subscription/services online.
  • runevault 17y ago
    When you introducing advertising, you have two sets of users, the advertisers who are your income stream, and the users who you need to keep around to make the advertisers happy. If you have directly paying users, you only have to worry about making those users happy, and you know you have something people really can't do without easily, because they are willing to pay their hard earned money for it, since many people value money more than time, or so it appears based on the popularity of free services.
    • axod 17y ago
      If users didn't find advertising useful, they wouldn't click on them. So the two forces aren't opposing.
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      • mquander 17y ago
        Well, that's just not true. When I don't have an ad blocker, I click on ads just by accident once in a while, since many are so intrusive. Also, ads are often tremendously misleading, and will try their hardest to fool you into imagining that they are useful without actually being useful; that's how they make money.
        • axod 17y ago
          I disagree. Lets say for the sake of argument that people only clicked on ads by accident. Then no clicks would convert, advertisers would pull the ads, or drastically reduce payouts. Advertisers only pay, when advertising works - eg converts to a sale/signup/etc
          • telemachos 17y ago
            You seem to have ignored a key part of the parent's argument: ads often mislead people. So the fact that they make a sale doesn't show that they are 'useful' for a reasonable definition of useful.
            • axod 17y ago
              There are so many adverts that "often" really needs to be backed up with hard data.
              • telemachos 17y ago
                Our worldviews seem so completely different that we're probably talking past each other. Case in point: I don't know how to respond to someone who requests data to establish that advertising is based on manipulation. You may as well be speaking Martian to me. (My immediate response - after sputtering - is, more or less, "It's advertising. Look at some.") Let me stress, I'm not saying this as a put-down or any kind of argument in proof of anything. I'm simply trying to express in words my jaw dropping when I read your response.
                • axod 17y ago
                  Advertising is just "information". :/ and information 'manipulates' people who consume it. But I'm not sure why you consider that a bad thing. Probably about half the posts on HN are 'adverts'. They are posts that have a message, urging us, the readers, to consider this information and possibly act on it. That's an advert. Your previous point "Ads often mislead people"... News often misleads people. People often mislead other people. It's not unique to advertising by any means.
  • aditya 17y ago
    Because when someone pays you directly, you're offering them something they value and would pay for rather than invading their brain with ads that they don't want to see?
    • axod 17y ago
      It works for some things. But charging users money to use facebook/twitter/most websites just wouldn't work.
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      • mquander 17y ago
        There's no good fundamental reason why it wouldn't work. The only reasons are cultural (people like getting things for "free", especially on the internet) and technical (you have to dig out your credit card, sign up with it, and trust Facebook not to screw you, in order to pay them a dollar a month.)
        • axod 17y ago
          I disagree. The reasons are more straightforward. If there's a choice between a paid website, and a free website, the free one will win out. And advertising means you can offer users something for 'free'. So lets say google switched to charging users for access to their search engine, a competitor would just popup that was 'free', and everyone would use that instead.
          • mquander 17y ago
            Well, I agree. That's what I meant to say when I referred to the cultural reason; since free alternatives always appear, people always expect a good free version to be available, and are even more hesitant to pay. However, I don't think that's a good place for us to be. Firstly, it remains to be seen whether it's technically sustainable; if ad blockers continue to become more mainstream and more sophisticated, ads will start bringing in less and less money. Secondly, I think that many non-ad-blocking users are making a poor choice when they choose an ad-supported free version, because it's very hard to evaluate the costs to you of having ads on content. It puts a mental burden on you, wastes your time, and may (invisibly to you) cause you to make poor purchasing decisions later. Those are all real costs, but it's impossible for you to put a dollar value on them.
  • alayne 17y ago
    DHH has talked before about his opposition to ad-based businesses. It is bread crumbs on a per user basis. That means you need a huge number of eyeballs to profit. Building a system so large and popular that it gets that many users is difficult and there is a lottery factor. On the moral side, people don't like advertising. That's the seamy underbelly of Google; they are constantly playing this game of how much advertising pain will people endure for their free services. You know, maybe stoplights could flash some adsense ads relevant to the types of passing vehicles to cover infrastructure costs. I don't want to live in adsense world.
    • axod 17y ago
      It's a niche viewpoint. I do want to live in an adsense world, as do most users. They find adverts useful. >> "DHH has talked before about his opposition to ad-based businesses. It is bread crumbs on a per user basis. That means you need a huge number of eyeballs to profit. Building a system so large and popular that it gets that many users is difficult and there is a lottery factor." I think basically, it's 'harder'. It's a harder problem to solve. But really, you can setup a profitable website in the right niche earning good money from advertising easily without requiring large number of eyeballs.
    • armandososa 17y ago
      People don't like advertising? I think it is an unfair generalization. People love free stuff and are willing to endure advertising because they love free stuff. The charge upfront idea is great for some business but let's be honest: if every website did that and the whole internet was behind a paywall the web would die.
• ecaron 17y ago
  Best quote: "If you're not working on your best idea right now, you're doing it wrong." ~DHH The difference is between "I want to build something great that makes the world better" and "I want to build something that makes money." And really, when comparing 37signals to Mahalo, the mentality the leadership has is what inspires the community opinion and quality of product coming from those companies. Note: I don't mean this as a all-too-common-on-HN cheap shot against Jason Calacanis. My point is that when people talk about Calacanis' camp, they talk about the quality of the business. When people talk about 37Signals, they talk about the quality of the product. Neither is wrong - they're just different.
• tyrelb 17y ago
  Great interview!
• kevinholesh 17y ago
  I loved the quote from David when he said selling to Fortune 500 companies takes "strippers and steaks." Overall, great interview. I'd love to see Jason C take on Jason Fried and DHH.
  • jasonmcalacanis 17y ago
    Actually, the way David wound up on the program was that I invited JasonF to be on and DHH happend to be in Los Angeles before JF. What a great debate..... DHH was a fantastic guest who brought it in spades
    • borism 17y ago
      you should definitely bring JasonF to your show too
• axod 17y ago
  Great part about 'fire the workaholics' 'do less' @ 1:20 or so. Jason rips DHH to shreds.
  • jasonfried 17y ago
    What Jason C didn't mention was all the other people who'd been putting in 80 hour weeks that didn't make it. You think Google was the only one working long hours? Google had a better idea. They worked hard on their better idea, but it's the idea that won, not the hour count. The tech graveyard is full of overworked, tired, run-down, exhausted people who put in more hours than their bodies could handle. I run into people all the time who are putting in ridiculous hours and getting no where. Hours don't make it. Good choices, the right focus, and intelligent decisions over a long period of time make it. Jason C's point about practice is absolutely right though. But practice doesn't equal long hours. Practice equals practice. 3 hours of focused practice on the right thing is far better than 6 hours of practicing the wrong thing. Practice quantity isn't the secret, it's practice quality. Here's a related post I wrote on "Making money takes practice like playing the piano takes practice": http://37signals.com/svn/posts/1985-making-money-takes-practice-like-playing-the-piano-takes-practice http://37signals.com/svn/posts/1985-making-money-takes-pract...
    • axod 17y ago
      But then I'd say "fire the workaholics" is still silly. Fire the unproductive workaholics. Sure, there are workaholics who don't get anywhere, but that's a minority. Maybe it's common in SV though :/ >> "I run into people all the time who are putting in ridiculous hours and getting no where." Were they not productive, or did their idea stink? A ton of the startups that get investment are just really bad ideas IMHO. Why didn't they recognize they weren't getting anywhere earlier, and make better decisions? Why didn't they change their idea, or the things they were focusing on? Building stuff takes hard work, and sometimes crazy hours. If you're not being productive, then stop wasting time, but if you are able to put in more hours than the competition to beat them, it's going to pay off. Be a productive workaholic. Google/Yahoo/Apple/etc just wouldn't have been built if people hadn't put in crazy hours. Same is true for most large companies. I would say that yes, Google had a good idea, but they would not have succeeded without crazy hours. You need both. But I also think Jasons point about "simple software" was valid. 37Signals is all about simple 'lite' software that solves the basic need, rather than taking on the massive hard problems, and that seems to be more why there's the 'do less' stance.
• holdenc 17y ago
  Obviously DHH can't publicly say "sure we'd love to sell 37 signals for a nice profit." I don't see the profundity in latching on to this point. No customers of 37signals want to hear that it's being shopped around.
  • jasonfried 17y ago
    37signals is not being shopped around because 37signals is not for sale.
    • holdenc 17y ago
      My point is only that are many reasons a business owner would deny ever taking a buyout. True dedication to not selling is just one reason. To me, this make JC's torturing DHH's adversity to selling not that interesting.
• jules 17y ago
  Funny how Calacanis is analyzing DHH's psychological (e.g. is DHH afraid of money?) reasons for not wanting to sell 37signals implicitly assuming that it's stupid & insane.
  • axod 17y ago
    not wanting to sell your business for any price does seem stupid and insane. If someone offered $2bn, there's probably a lot of good you could do with that cash to make the world a better place. But saying they'd never sell obviously fits with their PR of having contrarian viewpoints.
    • generalk 17y ago
      So on the one hand, I (hypothetically) have a business that I run every day. This makes me immeasurably happy. On the other hand, I have two billion USD, which may make me happy but I'll lose my business, which does make me happy. It's not stupid or insane to keep something that makes you happy.
      • axod 17y ago
        You don't think you'd be able to create the circumstances to be happy again with $2bn? I'm also extremely happy working on what I work on day to day, but I'm also extremely confident that I'd be able to come up with other stuff that'd make me just as happy if not happier in the future :/
    • probablycorey 17y ago
      There are lots of things people won't do for any price. That doesn't make them stupid or insane. I wouldn't separate from my wife for $2bn. I wouldn't cut off my fingers for $2bn. I wouldn't murder someone for $2bn. A religious person may not denounce God for $2bn. Certain things are more valuable than money; but what those are differ from person to person. DHH seems to value his work at 37signals more than money, which seems to be working out great for him.
      • 17y ago
• zacharypinter 17y ago
  What a great interview. I find myself going back and forth agreeing with both of them. Calacanis makes a reasonable argument. DHH says something crazy-sounding and unexpected. Then, DHH goes on to explain it in more detail and sounds perfectly reasonable.
• n8agrin 17y ago
  I think both of them are making decent points. I don't understand the community's desire to have one of them win or "rip apart" the other. Seems just like a well balanced debate to me. Calacanis seems focused on DHH's interest in having complete control over a smaller business with continuous revenue. He keeps pushing DHH with scenarios where DHH has a huge payday, DHH says he wouldn't do it and Calacanis acts surprised. I totally understand DHH's perspective. I can't imagine not working, that sounds so boring, so DHH has found what he loves to do and is doing it. Why is it surprising that you'd choose valuable, profitable and rewarding work over one big pile of cash?
  • cookiecaper 17y ago
    You're making a false dichotomy; you can sell your business for a lot of money and still have valuable, profitable and rewarding work plus a big pile of cash. How many people acquire businesses just to push their founders out? Most aren't interested in that; they obviously respect or at least fear what the founder(s) were doing, or they wouldn't have bought their company. It's perfectly likely that DHH could keep on at 37signals after an acquisition. However, in the case where the buyer just boarded the place up or pushed out the staff or whatever, who cares? DHH can go start 38signals and keep doing "valuable, profitable and rewarding" work. Good work and good money aren't necessarily mutually exclusive.
    • n8agrin 17y ago
      I make no effort to argue that there is a dichotomy of either "continuous rewarding work" or "big pile of cash". I don't even imply that. In fact I think it would be hard to argue that DHH doesn't have a big pile of cash, at least when put into perspective with my bank account. What I do state is that I understand DHH's perspective of wanting continuous rewarding work with total control of his business over a single pay day and subsequent buyout, even if that buyout is for a value greater than the business' current profits. In other words, his business is literally priceless in his mind because it gives his life meaning, something a pile of cash and no control over his creative work (which he clearly seems to believe is the best idea he's had and may ever have, in his life) does not. I think we're looking at the hypothetical scenario from two different perspectives. Your's is arguably more realistic, in that you're right, if 37signals was bought out it's unlikely that DHH would be out of a job. And even if he was he could go on to create "38signals". My hypothetical scenario is based more on the idea of "sell to go sit on a beach for the rest of your life". That's to say, you would sell the business for a big pay day explicitly so you would not have to work anymore.
• maddalab 17y ago
  Tho, I only watched 15 minutes 47-62, I did not find the interview very interesting. If anything it reflects the biases and cultures of the countries they were each raised in. The comment about having a steady job and income stream is exactly what you would hear from my father, who also bootstrapped his own construction consulting business in India from working during the evenings to owning it full time. America is a nation of excesses and trying to grow you wealth in excess of what you require is based in American cultural roots. Digress: It is what makes American the richest nation in the world that cannot afford a health care policy for all its citizen while much poorer nations provide better health care for their citizens.
  • hoggle 17y ago
    Yeah but I have the bad feeling that these glorious times are over - to me this is universal short sightedness. If the US want to stay #1 they need radical change especially in that regard. It might be hard to digest when you see the illusions fade and that party time is over but then again cutting back on a lot might lead to a much sturdier leadership.
• fnid2 17y ago
  I'm not sure why JC keeps harping on the unique visitors number. More uniques = less commitment to the product. Unique visitors are people who search, click, leave. How are you going to build revenue off people who don't care about your product? How long do those unique visitors visit? When I accidentally click a mahalo link, my instant reaction is to hit the back button, yet, I'm one of those numbers he's using to justify his business model. Unique visitors is essentially irrelevant. If a unique doesn't stick around long enough to see or click on an ad, what's it matter?
  • axod 17y ago
    >> "Unique visitors are people who search, click, leave. " You missed the vital ingredient ;) * search * click * don't find what they wanted * <B>Click on adverts</b>
    • fnid2 17y ago
      Okay, that makes more sense, but it's not admirable in anyway and it's not something I would invest in. 37s has a tiny fraction of mahalo's uniques, but I can imagine it having more revenue and more potential.
      • axod 17y ago
        I think it's a grey area :/ It's all about how much value/content you're adding, and whether those users would have been able to find those adverts without your help.
• frou_dh 17y ago
  I expected them to be swinging for each other from the buildup this got!
• shareme 17y ago
  What is interesting here between JC's style/outlook and DHH's style/outlook is: 1. World recession is decreasing capital exits, investments, etc..DHH's outlook wins 2. Increasing amount of college graduates have college loan debt loads..DHH's outlook again wins 3 SV in recent years has been more focused on get there fast(money) but screw the product quality or customer quality.. I see JC and DHH representing both what VC/angels have in the past make possible represented by JC as opposed to the new way DHH's. I think in the long term, 10 years out, that VC/angels will be gravitating towards DHH's way rather than the old way that from 1980s until now led the VC industry.
  • sthomps 17y ago
    I agree, that is well laid out. The VC sphere will start to rotate towards "real businesses", not companies that will 'hopefully' make money some day by turning a magic key.
• wildmXranat 17y ago
  Good video indeed
• jagjit 17y ago
  DHH makes very good points about profit. But he seems to imply that all other startups or majority of them do not get this basic point. He also thinks that 37 signals would be making the same kind of profits 20yrs later. These points do not fit in with how insightful and bang on he is with his business sense.
• woid 17y ago
  What a fantastic interview. Thank you guys! I'd love to see Paul Graham on the show.
• adamtmca 17y ago
  The no venture capital thing is getting to be a bit much for me. Some businesses and some situations require outside money, some don't. In the hypothetical situation described where Basecamp grew as fast as Youtube or Facebook DHH says he wouldn't raise external financing. I call BS. Businesses with recurring revenues and upfront capital costs that grow fast enough will need to raise money. You need to convert the future cash flows from those customers into cash now to pay for the capital assets to serve those customer today. Sure, a single customer may net you $150 in a year and only require $15 in capital investment. Unfortunately you need to spend the 15 dollars on day one and you only make 12.50 on day one (month one). If your growing slowly you can self finance it off previous customers or a small founder investment. If your growing Youtube fast you get fucked to the tune of that 2.50 shortfall x however many million users you just signed up. The only way to do it is leverage or vc. Take your pick, your raising money.
  • borism 17y ago
    the point is, the Tube thing is still losing money and the F thing is making some intangible amount compared to investment it (the idea) got.
• gtzi 17y ago
  I loved the interview, and I agree with most of DHH's comments, but I think that being absolute on the correctness of a number of opinions (like, "all VC powered companies are flawed" etc) is fundamentally wrong, absoluteness is not the case when you talk about people and their actions.