5 ms·

If it worked well to self-fund giant companies using the income from small ones, we should see instances of it happening in the wild. There is nothing to prev

• nupark 16y ago
  If it worked well to self-fund giant companies using the income from small ones, we should see instances of it happening in the wild. We don't have much of a history to work from, and the majority of the enabling tools available to us simple did not exist prior to or during the emergence of the current economic and business environment. I think developments such as Kickstarter provide a glimmer of where things are headed.
• tptacek 16y ago
  One reason why you wouldn't expect to see this so often in the wild is that by the time you get to be as successful as 37signals, the drive to make speculative bets on shoot-the-moon business plans is diminished. Presumably after your second supercar, you don't so much feel like gambling people's jobs on a Google-killer. Successful businesspeople may not be risk-averse; they're happy to start electric car companies for the joy of it. Successful businesses, on the other hand, don't think like that.
  • ScottBurson 16y ago
    Yes, I think this is exactly right. The pattern you'd expect to see wouldn't be a small business spawning a large one; it would be one of the principals of the small business cashing out and leaving to start something that eventually got larger. Ah, but this reminds me. I know three people who have made $500M or more on their earlier businesss who have cashed out and gone on to found new startups. Only one of the three funded the startup entirely out of his own holdings; the other two have other investors involved. I imagine the latter two think that they get more value (advice, connections, etc.) from these other investors (who I think include VC firms) than they give up in equity. FWIW, the business funded entirely by the one founder eventually failed (I worked there for several years). Arguably, this was a failure of marketing, as we had a small number of wildly enthusiastic customers that never became a large number. Also arguably, had experienced VC firms been in on the deal, they would have made sure that the marketing was done competently. So I'm suggesting that if you want to start something that you hope will get large, you may be well advised to involve professional VC even if you don't need the money.
    • timharding 16y ago
      Don't forget that you don't have to cash out of a successful business to move on to other things. You can install managers to grow a business once you figured it out and become an owner rather than a doer.
      • tptacek 16y ago
        If you're in love with your current business, why would you do that just to take a 1/100 shot at The Next Big Thing? You wouldn't. If you're in love with your current business, you stay. I don't know if most people who get to the "Threadless" level of success with their companies are in love with them, but I bet many of them are.
        • Vivtek 16y ago
          Yeah, but at some point it may very well be that you're no longer in love with your current business. It's just become a job. At that point, you can sell it and cash out, or you can hire somebody to run it for you - either way, you move to whatever your Next Thing is. I see myself doing this eventually.
          • tptacek 16y ago
            Ok. I get the strong sense† that Fried and DHH are in love with 37signals. Which may be why they haven't bailed to shoot the moon yet. So when you say something resembling "you'd expect to see companies like 37signals trying to roll the snowball into something like Twitter but that rarely ever seems to happen", I'm inclined to point out how that misreads the dynamics of companies like 37signals. † (won't bore you with details, but I have many of them)
            • Vivtek 16y ago
              Ah. I guess I missed the context. Sure, with 37signals I definitely agree with you.
            • 16y ago
  • dools 16y ago
    Isn't Jason Fried on the board of Groupon?
    • staunch 16y ago
      He was until recently, but a new investor took the spot.
  • staunch 16y ago
    It's not fear that makes Jason Fried/DHH avoid trying to build a really big business quickly. It's a lack of ambition. There's nothing stopping them from taking $10 million from VCs at ridiculously generous terms to try to build a really big startup. Like most rational people they're content to have good jobs and enough money not to have to worry about it. This is why successful serial entrepreneurs are so revered. It usually takes extraordinary ambition to succeed more than once.
    • tptacek 16y ago
      Nobody who sees the new 37signals office will walk away thinking "these people lack for ambition". I don't want to bicker about this point you're trying to make; maybe you're right and there's a different breed of ambition at work in the shoot-the-moonies. But 37signals is not just a "good job and enough money".
      • staunch 16y ago
        Judging a company's ambition by the size or grandiosity of their office is exactly the kind of thing Fried/DHH rail against. Tons of companies build big pimped out office and justify it to themselves as being necessary for their future plans. It's one of the signs that you have "arrived".
        • tptacek 16y ago
          Judging a company by its office is indeed a bad idea. Judging ambition by an office, less so.
  • pg 16y ago
    I don't think it's true that people capable of big successes are commonly derailed by the fruits of small ones. Remember how Caesar was particularly wary of thin men? There is something to that. People like Larry and Sergey, Mark Zuckerberg, and the younger Bill Gates are not driven by the desire for luxuries, so no amount of wealth is enough to make them lose interest.
  • nikcub 16y ago
    some people don't care about money or being comfortable and just want to change the world that is the difference between entrepreneurial pioneers and businessmen. for the former, it is never the money (see gates, zuck, sergey + larry, etc. etc.)
  • nikcub 16y ago
    as an aside, 37signals raised money from Bezos Expeditions, so they are no less part of 'the system' as twitter, fb, etc. are
• _delirium 16y ago
  That's an interesting point: are there any big tech companies (in the top tier of "big") that didn't take venture capital? I can't think of any offhand. It'd be an odd result, because there are big companies in other fields that grew by bootstrapping and then reinvesting profits. For example, as far as I can find, Wal-Mart took little to no investment before the IPO. I wonder what makes tech different? Is it somehow more capital-intensive, contrary to the usual assumptions? Or is it that it's a lot easier to get investors in tech, so people aren't forced to bootstrap? Or that alternative financing options are harder to use in tech (no equivalent to Wal-Mart's strategy of opening new stores by taking out loans with existing stores as collateral)? Some interesting data to see would be: what's the biggest tech company that has never taken outside investment? Are there any significantly bigger than 37 Signals?
  • rfergie 16y ago
    It could be because the industry is relatively new. 37 Signals is about 12 years old. How big was Wal-Mart after 12 years? Edit: Wikipedia says Wal-Mart was doing $340.3 million after 13 years.
    • akronim 16y ago
      Also the industries aren't comparable directly on revenue numbers. Walmart had net sales of $340 million but the net income after tax was $11 million. That's a very low margin business compared to software, where a typical result might be $55 million in revenue to make $11 million. http://walmartstores.com/Media/Investors/1976AR.pdf http://walmartstores.com/Media/Investors/1976AR.pdf
    • tptacek 16y ago
      2011 37signals is not the same company as 2001 37signals. They've been doing product for just about as long as Matasano has been in business; ~2005.
  • jdp23 16y ago
    SAS is over $2B in revenue -- http://en.wikipedia.org/wiki/SAS_Institute http://en.wikipedia.org/wiki/SAS_Institute
• jdp23 16y ago
  A different way of looking at it is that there are disruptions in progress (less capital required to reach 'giant', new funding options) that are making this significantly more likely.
• smarterchild 16y ago
  McDonalds spent 17 years being a diner before Ray Kroc got involved: http://en.wikipedia.org/wiki/History_of_McDonald%27s http://en.wikipedia.org/wiki/History_of_McDonald%27s Also Starbucks: http://en.wikipedia.org/wiki/Starbucks#History http://en.wikipedia.org/wiki/Starbucks#History I don't claim to know whether that model extends to tech companies, but with enough time, I'd be willing to take the long side of that bet.
  • redthrowaway 16y ago
    I think timescale plays a part here. It's all well and good to open up a restaurant, then another, then two more the next year, then 5, then 20, then 50, then 200...Problem is, you're looking at at least a decade before you're large-scale. McDonalds is a 75 year-old company. Starbucks is 45 years old. OTI, the pace of growth (and failure) is much higher. Facebook is ~6 years old. Who knows if it will be here in another 10? That kind of growth takes money. It's nearly impossible to scale from 3-4 people to 3000 in a couple years if you're self-funded. Now, the article was arguing that that kind of growth is unnecessary; that it's perfectly acceptable to have a business making 100-200k/year. That't true, but it in no way negates the need for VCs and angels.
  • netcan 16y ago
    You hear these examples a lot. But I think if you look closer you see that these are examples stories being more complicated than their stripped down versions, not counterexamples. The stripped down version still holds to the pattern. The "real" beginning of Starbucks was an entrepreneur buying Starbucks and merging it with another couple of coffee shops then expanding immediately at serious pace. It went public 5 years after the purchase. Mcdonalds is a similar story. Bought and expanded. It's hard to measure the exact beginning of these businesses, they weren't founded with the intention of raising capital and going big. They did however join that trajectory at some point. The interesting thing is that they joined it very close to the launch point - these weren't small companies that slowly became medium then big, these were tiny companies that stayed small for decades, then they became giants very quickly, almost instantly. edit: BTW, it is definitely possible of finding companies that grew slowly over decades. But in those cases you probably won't find that they were small businesses for a long time. They spent roughly equal amounts of time as 5 person companies, 10, 100, 1,000 - so you don't here so much about their heritage as a small business. They might have only spent a few years that way.
• robg 16y ago
  Wait, now you're judging companies by their size? Not the exits for the founders? That seems backwards. Take Mathematica. You don't think Stephen Wolfram is very happy with his "lifestyle business"?
  • robg 16y ago
    The more that I think about this, the more I wonder why we don't hear more about companies that succeed in this way. Surely they're out there but they're just privately piling up revenues? I'm amazed we can't name more. Is 37 signals artificially limiting their size or are they growing organically?
    • herdrick 16y ago
      There are tons; you just rarely hear about them.
      • erikj54 16y ago
        It would be neat to profile them wouldn't it? Im betting a large portion of them have found that the start-up scene and growing large is great at the beginning of your career, but perhaps stability comes into play? Kids, Wife, Health?
      • robg 16y ago
        It seems like a self-selection effect. We hear about the ones buying PR and pumping up their value. Those that are organically growing value don't need fertilizer.
    • sreitshamer 16y ago
      They don't want the attention and the resulting competition?
• richcollins 16y ago
  You're looking to the past. It's recently become much easier to build a lifestyle business. Also, I wasn't suggesting that bootstrapping Amazons and Googles would become the norm. Just that you're in a much better starting position when you already have a successful business paying the bills. Especially when it comes time to negotiate terms.