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I can't wait for DHH's re-rebuttal on SvN on Friday. :) If 37s has doubled revenue for the last 4 or 5 years while hiring 2-3 extra people, I'm pretty sure the

I can't wait for DHH's re-rebuttal on SvN on Friday. :) If 37s has doubled revenue for the last 4 or 5 years while hiring 2-3 extra people, I'm pretty sure they're not far from walking away whenever they want. Or they could just work 4 days a week and have the company pay for their cooking and Tai Chi classes while still retaining full control. That still sounds like a better deal to me.

jkent 18y ago
I don't understand why expansion equals freedom - can you explain your logic? If they can walk away that easily (i.e. they are replacable), do the founders add value anyway?
- pchristensen 18y ago
  This is for swombat too - if revenue has grown 15-30 times since '04 as DHH said at Startup School, and headcount went up by 30%, then that's still 10-20x the revenue per employee. Costs: Can't be too much more, certainly not nearly matching the revenue growth. They do their own advertising and marketing so that's free. Infrastructure costs are higher because of more accounts, so let's count that as the cost of 7 employees, giving them double the costs. And with extra benefits for employees, put it up to 2.5x of 2004 expenses. total. The profit picture gets even more ridiculous. If they had 5% margins in 2004, their costs go up by 2.5 and revenues go up by 15, then their profit is over 250x over 2004. Divide that by 3(?) founders/principals and you get a lot per year. Heck, it's still a lot if you divide it by all 12 employees. 37s is probably making more profit annually than most startup founders will ever sell a company for. If they pocket a part of that a year, then they have the equivalent cash to a liquidity event plus they still have the company. Granted, they're exceptionally successful, but hopefully these numbers will open some eyes for people that look down on lifestyle businesses.
  - tonystubblebine 18y ago
    I totally agree with this analysis--it looks like they have a ton of money. But that just makes the investment they took from Bezos look even more strange. Any ideas on that?
    - easyrider 18y ago
      I think the answer to that is - they didn't take the invenstement from Bezos for the money alone - they did it for the business advice and contacts they could get from him through the investment relationship. IIRC, this was stated, possibly by Jason Fried, on another somewhat recent 37Signals blog post.
      - easyrider 18y ago
        A typo - I meant "investment".
run4yourlives 18y ago
None of them are walk-awayable. (At least from the original core) They're fully aware of this, and they've mitigated that fact by not expanding, so that as they bring in more money, they're able to continue to divvy it up between the same core group (or thereabouts). Their reward is making the company fit the lifestyle they choose to have as much as possible, instead of selling out. I agree that this is very appealing.
- swombat 18y ago
  Why do you think they couldn't walk away? Sure, if Basecamp doesn't get an update for years, it will go down. But that will take some time. Imagine Basecamp is making $1m a year of revenues, and they stop maintaining it and marketing it. It's still a useful product, until someone build something better and cheaper. Even then, people are usually slow to switch. They could easiy make $800k in the year after they stop maintaining it. Then $500k the following. Then $200k the following. Probably some people would keep on paying for several years because they're used to it. That's not bad for not putting any work in it.
  - run4yourlives 18y ago
    I evaluate being able to "walk away" as being able to maintain the status quo indefinitely. The slow revenue reduction that you are describing is applicable to any business model with a recurring revenue set up. Sure it's not bad, but the company begins to die the moment they leave.
    - swombat 18y ago
      You can't walk away from investments either by that definition. There's an old Romanian saying: The cow grows fat under the eye of the farmer. Investments are just another business model with recurring revenues. It begins to die the moment you stop managing it. You can get a professional manager for that too - but they too require attention.
      - run4yourlives 18y ago
jasonfried 18y ago
Here it is: http://www.37signals.com/svn/posts/1159-you-dont-have-to-sell-your-company-to-have-financial-security-and-the-freedom-to-do-what-you-want http://www.37signals.com/svn/posts/1159-you-dont-have-to-sel...
- h3h 18y ago
  Excellent response. It perfectly distills the difference between Paul's claims and DHH's (and my) perspective.

jkent 18y ago

I don't understand why expansion equals freedom - can you explain your logic? If they can walk away that easily (i.e. they are replacable), do the founders add value anyway?

pchristensen 18y ago
This is for swombat too - if revenue has grown 15-30 times since '04 as DHH said at Startup School, and headcount went up by 30%, then that's still 10-20x the revenue per employee. Costs: Can't be too much more, certainly not nearly matching the revenue growth. They do their own advertising and marketing so that's free. Infrastructure costs are higher because of more accounts, so let's count that as the cost of 7 employees, giving them double the costs. And with extra benefits for employees, put it up to 2.5x of 2004 expenses. total. The profit picture gets even more ridiculous. If they had 5% margins in 2004, their costs go up by 2.5 and revenues go up by 15, then their profit is over 250x over 2004. Divide that by 3(?) founders/principals and you get a lot per year. Heck, it's still a lot if you divide it by all 12 employees. 37s is probably making more profit annually than most startup founders will ever sell a company for. If they pocket a part of that a year, then they have the equivalent cash to a liquidity event plus they still have the company. Granted, they're exceptionally successful, but hopefully these numbers will open some eyes for people that look down on lifestyle businesses.
- tonystubblebine 18y ago
  I totally agree with this analysis--it looks like they have a ton of money. But that just makes the investment they took from Bezos look even more strange. Any ideas on that?
  - easyrider 18y ago
    I think the answer to that is - they didn't take the invenstement from Bezos for the money alone - they did it for the business advice and contacts they could get from him through the investment relationship. IIRC, this was stated, possibly by Jason Fried, on another somewhat recent 37Signals blog post.
    - easyrider 18y ago
      A typo - I meant "investment".

run4yourlives 18y ago

None of them are walk-awayable. (At least from the original core) They're fully aware of this, and they've mitigated that fact by not expanding, so that as they bring in more money, they're able to continue to divvy it up between the same core group (or thereabouts). Their reward is making the company fit the lifestyle they choose to have as much as possible, instead of selling out. I agree that this is very appealing.

swombat 18y ago
Why do you think they couldn't walk away? Sure, if Basecamp doesn't get an update for years, it will go down. But that will take some time. Imagine Basecamp is making $1m a year of revenues, and they stop maintaining it and marketing it. It's still a useful product, until someone build something better and cheaper. Even then, people are usually slow to switch. They could easiy make $800k in the year after they stop maintaining it. Then $500k the following. Then $200k the following. Probably some people would keep on paying for several years because they're used to it. That's not bad for not putting any work in it.
- run4yourlives 18y ago
  I evaluate being able to "walk away" as being able to maintain the status quo indefinitely. The slow revenue reduction that you are describing is applicable to any business model with a recurring revenue set up. Sure it's not bad, but the company begins to die the moment they leave.
  - swombat 18y ago
    You can't walk away from investments either by that definition. There's an old Romanian saying: The cow grows fat under the eye of the farmer. Investments are just another business model with recurring revenues. It begins to die the moment you stop managing it. You can get a professional manager for that too - but they too require attention.
    - run4yourlives 18y ago

jasonfried 18y ago

Here it is: http://www.37signals.com/svn/posts/1159-you-dont-have-to-sell-your-company-to-have-financial-security-and-the-freedom-to-do-what-you-want http://www.37signals.com/svn/posts/1159-you-dont-have-to-sel...

h3h 18y ago
Excellent response. It perfectly distills the difference between Paul's claims and DHH's (and my) perspective.