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The bar for success in our industry is too low

282 points by terpua 17y ago

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tsally 17y ago
Good old Midwestern thinking is always refreshing.
ankeshk 17y ago
Some one wise once told me: we humans strive for 3 things to become successful. 1. Money 2. Fame 3. Making a difference Everyone aims for all the 3 things. But you have to pick one out of the 3 - prioritize what you want. And then come up with the metrics that will help you measure your success. Most startups these days unfortunately have no idea what they are aiming for.
- run4yourlives 17y ago
  I think the problem is most are gunning for number 2.
  - ankeshk 17y ago
    If they're looking for fame, and they get the fame they want - then they're a success - no? But if their aim is money, but they use fame based metrics (number of page views, number of users, amount of publicity) - thats where the problem arises.
    - tptacek 17y ago
      No. The fame is a delusion. If you're trying to get famous behind entrepreneurship, your businesses have to succeed, or you stop being famous --- or you wind up Scoble Famous, which may be even worse. The subtext is good though. Fame of any sort is highly, highly overrated.
      - ankeshk 17y ago
        Not really. Most authors go after fame. Not money. A New York Times bestseller status is 100 times more meaningful than the low royalty fees they may earn. Most non-profits and social movements (eg: http://blogactionday.org/ http://blogactionday.org/) aim for fame and/or making a difference too. R. Buckminster Fuller never chased money. He went for making a difference. And (I think) he achieved that. J.P. Morgan was one more guy who aimed for fame more than money. He made a shit load of money too. But people were surprised after his death that he wasn't the richest person of his generation (everyone thought he was...) Different folks have different wants and measure success differently.
        tptacek 17y ago
        We're not talking about humanitarians or artists. We're talking about entrepreneurs, and their goals. I agree money doesn't have to matter to an artist. But it has to matter to an entrepreneur, even if your goal is fame. It matters the same way that being able to kick a ball matters to a punter, even if they're playing football just for the fame.
run4yourlives 17y ago
A-friken-men. Money in must be more than money out, otherwise you aren't a successful business, you're an eventual death.
flooha 17y ago
Summary: If you don't make a profit, you're not successful. Enlightening. Hey, guess what? A lot of businesses have run in the negative until they got traction and make a metric ton of money. Congratulations on being profitable from day one. TMTOWTDI That said, I despise the twitter business model...
- run4yourlives 17y ago
  >Hey, guess what? A lot of businesses have run in the negative until they got traction and make a metric ton of money. I think the key point here is that while they are in the negative phase, they aren't "successful businesses"; they're struggling to survive. Jason's problem it seems is not so much that people aren't profitable, its that they are credited with being successful prematurely.
  - flooha 17y ago
    I get his point, and agree with it. In hindsight, I think I was responding more to the underlying theme of nearly every 37signal blog post.
    - tptacek 17y ago
      What, that successful technology entrepreneurship isn't a potion doled out in little bottles by the gatekeepers in Waltham and Sand Hill Road? That you can apply the same common sense that bike shop owners and building contractors do, reach Internet-scale success, and not live in a sleeping bag on your friend's floor while you do it?
      - flooha 17y ago
        No, that it's easy and obvious and a certain amount of luck has nothing to do with it. EDIT: Or maybe it's just the "We know the best way to do everything" attitude. I admire their success, but not the condescension. I might be the only one here, but not the only one.
- tptacek 17y ago
far33d 17y ago
I'm sure many plumbers are profitable from day one. Amazon wasn't profitable for a while. Which is the more successful business now? I agree that you aren't a success until you are making money, but I don't think that it's important to be profitable always.
- tptacek 17y ago
  Plumbers make a lot more money than people think. But when Amazon started, Jeff Bezos was still probably making more in interest payments than any Plumber makes in a year. So, two responses: (1) Amazon, and (2) what's your point? Lots of plumbers are more successful today than lots of YC startups.
  - rythie 17y ago
    There is not much chance of being a millionaire plumber any time soon especially not after a couple of years work.
    - MicahWedemeyer 17y ago
      There's not much chance of being a tech millionaire, either. Much more likely that you end up poorer than the plumber. But hey, I'm still working on my startup, so I guess that just means I'm dumb.
    - tptacek 17y ago
      I think you're probably wrong. Plumbing scales like any services business: you stop being able to manage your inbounds, so you hire another plumber who makes less than you. Repeat N times. At some point, you're making enough off the top of all the plumbing work to stop doing plumbing; now you're a full-time business manager. You brand, promote, and scale --- by franchising, hiring more managers, partnering, or securing large contracts. Somewhere in the middle back there, you became a millionaire. What is also probably true is that it is very hard to go out of business as a freelance plumber. It is very easy to go bust as a tech entrepreneur. The flip side of that: on a steady income, the plumber gets more opportunities to grow her business than the tech entrepreneur --- she can stay in business, turning different knobs, indefinitely. You hope that the tech entrepreneur's individual opportunities are much more valuable, but that depends, doesn't it? There's also the classic factoid that most millionaires got there not by striking gold, but by managing their money well. Be careful about Geek Exceptionalism. It will burn you. People excelled in business long before there was an Internet.
n-named 17y ago
Interesting perspective.. I'm looking forward to his talk at start-up school.
mrshoe 17y ago
There's a reason for this phenomenon. It might be misguided in this particular case, but there is a reason that it exists. It's the same reason that everyone here loves businesses based on technology. It's the same reason that VCs are willing to invest millions of dollars in nascent companies which will, in all likelihood, fail in the near future. It's the same reason I spend my evenings working on my own startup. The reason is scalability. My dad was always shocked that investors valued the last startup I worked for in the tens of millions of dollars while we were losing money. He's worked in construction his whole life for firms that do on the order of $100MM in revenue per year. Like all construction firms, however, their margins are razor thin. Their revenue doesn't grow much faster than their costs (employees and materials, primarily). A construction company that loses money is not going to be worth $50MM any time soon. A tech company with similar financials might be. A tech company might take a while to get their technology right. But when they do, they can leverage it. Their revenues can grow far faster than their costs. Software as a product scales better than just about anything I can think of. Software businesses often go from slightly in the red to huge annual profits in very little time. Everyone in tech is trying to find the Next Big Thing. This includes us (entrepreneurs), the media, and investors. In the case of the media, they're just trying to be the first ones to break the next big story, as usual. Just like investors, if they want to succeed, they have to be willing to take risks. They have to bet on companies that look like they have potential. Sometimes they're wrong. But in those rare cases where it pays off, it usually pays off big. Other industries lack this quality. In other industries 1 success is not going to make up for 10 failures. In technology you make money by picking winners before everyone else. It's somewhat of a crap shoot. But the bar is low because the potential reward is high.
- tptacek 17y ago
  This is a great way for financiers to think about entrepreneurship, but maybe a really bad way for operators to think about it.
- DrJokepu 17y ago
  Don't forget that there are other industries having such remarkable properties as well: another example is pharmaceuticals and generally biotechnology. Or the motion picture and music recording industries.
illumen 17y ago
I think this article is wrong for three reasons. Products can be successful without businesses being successful. Success is determined by meeting your own goals. Acquiring paying customers is a business success. A piece of software can be very popular and successful, even if there is no direct business correlation. Not everything can be easily correlated. Even 37signals own rails isn't being charged for in many situations. How much extra value has giving away rails done for 37signals? Giving some things away for free can be considered a marketing expense... an expense where you get to do what you like best - making software. If a painting doesn't sell for a lot of money, is it a successful painting? Seriously... there's lots of software bringing joy, and helping people do stuff - not all of it has to be making money. If the business plan is to make something cool, then eventually pay off the investment... then that's a success. Success is merely meeting of goals. So this company, has made something people like and use, and also give them money for. They are also on their path to paying back their investment, and gotten a lot of cred, press, and customers in the meantime. Software companies almost always make multiple products. So gaining a lot of customers with early products is a great way to bootstrap things. Then the software company can more easily sell stuff to their existing customers. They've met their own criteria for success and other peoples. So this article misses out on how a product can be a popular success without the business being a financial success. It also misses out on how, if they are meeting their goals they are a success. Finally it misses the business goal of acquiring customers who like what they do and pay them money... in their first product. In this case the New York Times has more of a leg to stand on than 37signals.
- tptacek 17y ago
  You're missing the premise of the article. Fried isn't ragging on open source projects which will never make money. He's ragging on the business press for pumping up companies as success stories when they haven't turned a dime in profit. There are a million ways to score a software project, but not nearly as many to rate a business.
shabda 17y ago
With all respect to 37Signals, havent they said it n-number of times, and we have had the same discussion on HN n+m-number of times
webwright 17y ago
<sigh> 37Signals' products weren't profitable for a year or more, if memory serves. They took "investment" from the other side of their business (consulting). Every month, when their product revenue grew, I'm sure they were thinking, "Wow, we're going to be profitable in X months"... and eventually, they were. Product profitability takes resources. You need: 1) Time (you can accelerate this with cash if you're disciplined) 2) Money (you can use savings, investment, or you can "buy" money/time with consulting) That's immutable. EverNote and their ilk ("our ilk", I should say, as RescueTime falls squarely in that world) is trying to build a business formula that works... And it looks like they're succeeding. Presumably they could cut dev staff, stop all experiments, and get to profitability MUCH sooner-- maybe even today. But that's how business works, right? It's all about intelligent debt to ultimately maximize the metrics you care about (presumably some combo of growth, revenue, profit, and lifestyle). You hire an employee, and you are spending time and money on them for a while before they are really contributing. You take funding so that you can run the experiments that require capital. You take your consulting profits and pump them (and your spare time) into product efforts. And some businesses scale differently than others (Amazon is a great example). That's ALL DEBT. And it can all be smart debt (like a mortgage used to be!). Just because companies are choosing a different flavor of debt or choosing markets that scale differently doesn't make them bad. I personally am THRILLED to give up a relatively small stake in our company so I don't have to consult and can run experiments about as fast as I want to. Scarcity FORCES you to be smart-- but the lack of scarcity doesn't mean that you CAN'T be.
- defunkt 17y ago
  I think the point is that the article is talking explicitly about how to "turn a profit" and using, as an example, a company which does not turn a profit.
  - webwright 17y ago
    Yep, and I think that's stupid. Strictly speaking, they aren't profitable. Of course, GROSS profit (sales - COGS), they might be. We don't know. But consider the following scenario: I have an apartment building, and I clear $10k per month on it in clean profit. Yum! But I've got bigger dreams, and I know that if I had ANOTHER apartment building, there'd be scaling economies in terms of management and maintenance staff as well as marketing. But $10k a month isn't going to build/buy another building. So I take out a loan whose monthly debt service is $30k per month. All of a sudden I'm unprofitable, right? Except that as soon as I get my 2nd building up and full (a 2+ year process, quite a long time to be "unprofitable"), I'm clearing $70k a month. Until the end of time. Short term (voluntary) pain for a long-term gain. Evernote is doing the same thing. You don't build something like Evernote and get to profitability super quickly because of the economies of scale (much like Amazon). But the other place where 37s is wrong is totally dismissing forecasting, which at this scale works pretty well. When dealing with signup and conversion rates like Evernote has, it's actually pretty statistically significant. You can predict where you'll be in 12 months and it's pretty easy to calculate how what your COGS is going to looking like when you're serving 10m users instead of 100k. Just like Facebook, Evernote could reduce their investment in growth. They could trim staff and they could turn the screws a bit on their free users to up their conversion rate. But given how the scaling works out, I think they are likely making the right choice with their investment/debt. By delaying this as long as they can, they can ultimately have a higher margin business.
edw519 17y ago
It still blows me away that David’s talk at Startup School 2008 was met with such enthusiasm (I know David was surprised too). The content of his talk was not the main reason that it was met with such enthusiasm. (What he talked about was obvious and no one would disagree.) It was his delivery that made it such a bit hit. His passion and conviction was easy to see. We could have easily read the talk on-line, but we go to these things to get the "whole story", the things that words alone do not convey. What a pleasure it was to see someone in his position so enthusiastic about his work. It's hard not to get caught up in the moment. (The fact the he's the author of Rails and his liberal use of the f word to make his point also helped.)
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rajatmehta1 17y ago
Similar to Everynote there are lots of companies that have taken money from VC's and have not yet become profitable e.g Vonage.2011 is a big target though since it is 2 years away and nobody know what might happen then, there might be a much better killer product then Evernote running at much lower cost. While i agree that profitability is important but in the field of Web and according to the market you sometimes have to give away something for free to charge for something else.Even 37signals gives away tadalist etc for free.The best part is they have a bunch of products to earn cash from.
sethg 17y ago
One of the dubious features of business journalism today is that articles tend to privilege the passive investor's point of view. Hence the emphasis on things like stock-market indices. And from an investor's point of view, a successful business is one whose stock is going up. A "hot" company that is losing money hand-over-fist but has a slim chance of Hitting It Big may or may not be a great place to work (depending on how Dilbertesque the management is) and may or may not be fulfilling the dreams of its founders, but the investor who has that company as one element of a large portfolio has every reason to be happy with it. And if you're a reporter or editor in the business/tech press and you're used to seeing things from the investor's point of view, why shouldn't you run with a story like the one Jason F. complains about? Why wait two years publish an article about a startup that is actually wildly profitable when you can fill the news hole right now with an article about a startup that might someday be wildly profitable? By contrast, a bootstrapped company that makes a tidy heap of profit for its two founders and three employees is booooring.
davidw 17y ago
Ok, this one calls for just a little bit of snark: > The bar for success in our industry is too low As evidenced by one of the most widely watched companies as of late in said industry making lots of money with a product they constantly boast "does less"? I'm not sure I've quite nailed it, but you get the general idea. Actually, what they fail to point out is that they are famous enough that they won't necessarily get clobbered by someone who does what they do better, because the other guys will really struggle to get the word out, whereas they have Rails, their blog, books and so on to promote their 'does less' products.
- tjogin 17y ago
  When 37signals started Basecamp they didn't have their fame, Rails, their books or their blog readers... Just like everybody else, they started with none of that.
  - davidw 17y ago
    I had the impression the blog was already pretty big. Still, I think "aw, shucks, little us?" thing is kind of silly. Without that fame, would they still be raking in so much money?
    - tjogin 17y ago
      They had an about average size blog for the time. It's definitely not like their fame preceded or enabled their success. It's the other way around. They've explained this on multiple occasions when people ask them how to repeat their success without their advantage of having a big audience and (relative) fame: they didn't have that when they launched Basecamp. They had a blog, but not a huge audience like they do now — they certainly did not have a bigger audience than is possible to build up through "traditional" blogging means (writing great content that people like to read and link to).
      - davidw 17y ago
        I'm not convinced. I'd rather see a series of case studies of small and successful firms that don't have something like Rails or a huge following (and what other word to describe some of the people who comment on their blog... some of them are really falling all over themselves to sing praises to 37S).
sabat 17y ago
Yes -- for instance, 37Signals is considered a success.
baran 17y ago
Obtaining press for a new/exciting product is especially easy when its free. Journalists have to write about what people think is interesting, without it they would be out of jobs. That being said publicity is easy, actually being successful-entirely different story. Dont judge success on publicity.

282 points by terpua 17y ago

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tsally 17y ago

Good old Midwestern thinking is always refreshing.

ankeshk 17y ago

Some one wise once told me: we humans strive for 3 things to become successful. 1. Money 2. Fame 3. Making a difference Everyone aims for all the 3 things. But you have to pick one out of the 3 - prioritize what you want. And then come up with the metrics that will help you measure your success. Most startups these days unfortunately have no idea what they are aiming for.

run4yourlives 17y ago
I think the problem is most are gunning for number 2.
- ankeshk 17y ago
  If they're looking for fame, and they get the fame they want - then they're a success - no? But if their aim is money, but they use fame based metrics (number of page views, number of users, amount of publicity) - thats where the problem arises.
  - tptacek 17y ago
    No. The fame is a delusion. If you're trying to get famous behind entrepreneurship, your businesses have to succeed, or you stop being famous --- or you wind up Scoble Famous, which may be even worse. The subtext is good though. Fame of any sort is highly, highly overrated.
    - ankeshk 17y ago
      Not really. Most authors go after fame. Not money. A New York Times bestseller status is 100 times more meaningful than the low royalty fees they may earn. Most non-profits and social movements (eg: http://blogactionday.org/ http://blogactionday.org/) aim for fame and/or making a difference too. R. Buckminster Fuller never chased money. He went for making a difference. And (I think) he achieved that. J.P. Morgan was one more guy who aimed for fame more than money. He made a shit load of money too. But people were surprised after his death that he wasn't the richest person of his generation (everyone thought he was...) Different folks have different wants and measure success differently.
      - tptacek 17y ago
        We're not talking about humanitarians or artists. We're talking about entrepreneurs, and their goals. I agree money doesn't have to matter to an artist. But it has to matter to an entrepreneur, even if your goal is fame. It matters the same way that being able to kick a ball matters to a punter, even if they're playing football just for the fame.

run4yourlives 17y ago

A-friken-men. Money in must be more than money out, otherwise you aren't a successful business, you're an eventual death.

flooha 17y ago

Summary: If you don't make a profit, you're not successful. Enlightening. Hey, guess what? A lot of businesses have run in the negative until they got traction and make a metric ton of money. Congratulations on being profitable from day one. TMTOWTDI That said, I despise the twitter business model...

run4yourlives 17y ago
>Hey, guess what? A lot of businesses have run in the negative until they got traction and make a metric ton of money. I think the key point here is that while they are in the negative phase, they aren't "successful businesses"; they're struggling to survive. Jason's problem it seems is not so much that people aren't profitable, its that they are credited with being successful prematurely.
- flooha 17y ago
  I get his point, and agree with it. In hindsight, I think I was responding more to the underlying theme of nearly every 37signal blog post.
  - tptacek 17y ago
    What, that successful technology entrepreneurship isn't a potion doled out in little bottles by the gatekeepers in Waltham and Sand Hill Road? That you can apply the same common sense that bike shop owners and building contractors do, reach Internet-scale success, and not live in a sleeping bag on your friend's floor while you do it?
    - flooha 17y ago
      No, that it's easy and obvious and a certain amount of luck has nothing to do with it. EDIT: Or maybe it's just the "We know the best way to do everything" attitude. I admire their success, but not the condescension. I might be the only one here, but not the only one.
tptacek 17y ago

far33d 17y ago

I'm sure many plumbers are profitable from day one. Amazon wasn't profitable for a while. Which is the more successful business now? I agree that you aren't a success until you are making money, but I don't think that it's important to be profitable always.

tptacek 17y ago
Plumbers make a lot more money than people think. But when Amazon started, Jeff Bezos was still probably making more in interest payments than any Plumber makes in a year. So, two responses: (1) Amazon, and (2) what's your point? Lots of plumbers are more successful today than lots of YC startups.
- rythie 17y ago
  There is not much chance of being a millionaire plumber any time soon especially not after a couple of years work.
  - MicahWedemeyer 17y ago
    There's not much chance of being a tech millionaire, either. Much more likely that you end up poorer than the plumber. But hey, I'm still working on my startup, so I guess that just means I'm dumb.
  - tptacek 17y ago
    I think you're probably wrong. Plumbing scales like any services business: you stop being able to manage your inbounds, so you hire another plumber who makes less than you. Repeat N times. At some point, you're making enough off the top of all the plumbing work to stop doing plumbing; now you're a full-time business manager. You brand, promote, and scale --- by franchising, hiring more managers, partnering, or securing large contracts. Somewhere in the middle back there, you became a millionaire. What is also probably true is that it is very hard to go out of business as a freelance plumber. It is very easy to go bust as a tech entrepreneur. The flip side of that: on a steady income, the plumber gets more opportunities to grow her business than the tech entrepreneur --- she can stay in business, turning different knobs, indefinitely. You hope that the tech entrepreneur's individual opportunities are much more valuable, but that depends, doesn't it? There's also the classic factoid that most millionaires got there not by striking gold, but by managing their money well. Be careful about Geek Exceptionalism. It will burn you. People excelled in business long before there was an Internet.

n-named 17y ago

Interesting perspective.. I'm looking forward to his talk at start-up school.

mrshoe 17y ago

There's a reason for this phenomenon. It might be misguided in this particular case, but there is a reason that it exists. It's the same reason that everyone here loves businesses based on technology. It's the same reason that VCs are willing to invest millions of dollars in nascent companies which will, in all likelihood, fail in the near future. It's the same reason I spend my evenings working on my own startup. The reason is scalability. My dad was always shocked that investors valued the last startup I worked for in the tens of millions of dollars while we were losing money. He's worked in construction his whole life for firms that do on the order of $100MM in revenue per year. Like all construction firms, however, their margins are razor thin. Their revenue doesn't grow much faster than their costs (employees and materials, primarily). A construction company that loses money is not going to be worth $50MM any time soon. A tech company with similar financials might be. A tech company might take a while to get their technology right. But when they do, they can leverage it. Their revenues can grow far faster than their costs. Software as a product scales better than just about anything I can think of. Software businesses often go from slightly in the red to huge annual profits in very little time. Everyone in tech is trying to find the Next Big Thing. This includes us (entrepreneurs), the media, and investors. In the case of the media, they're just trying to be the first ones to break the next big story, as usual. Just like investors, if they want to succeed, they have to be willing to take risks. They have to bet on companies that look like they have potential. Sometimes they're wrong. But in those rare cases where it pays off, it usually pays off big. Other industries lack this quality. In other industries 1 success is not going to make up for 10 failures. In technology you make money by picking winners before everyone else. It's somewhat of a crap shoot. But the bar is low because the potential reward is high.

tptacek 17y ago
This is a great way for financiers to think about entrepreneurship, but maybe a really bad way for operators to think about it.
DrJokepu 17y ago
Don't forget that there are other industries having such remarkable properties as well: another example is pharmaceuticals and generally biotechnology. Or the motion picture and music recording industries.

illumen 17y ago

I think this article is wrong for three reasons. Products can be successful without businesses being successful. Success is determined by meeting your own goals. Acquiring paying customers is a business success. A piece of software can be very popular and successful, even if there is no direct business correlation. Not everything can be easily correlated. Even 37signals own rails isn't being charged for in many situations. How much extra value has giving away rails done for 37signals? Giving some things away for free can be considered a marketing expense... an expense where you get to do what you like best - making software. If a painting doesn't sell for a lot of money, is it a successful painting? Seriously... there's lots of software bringing joy, and helping people do stuff - not all of it has to be making money. If the business plan is to make something cool, then eventually pay off the investment... then that's a success. Success is merely meeting of goals. So this company, has made something people like and use, and also give them money for. They are also on their path to paying back their investment, and gotten a lot of cred, press, and customers in the meantime. Software companies almost always make multiple products. So gaining a lot of customers with early products is a great way to bootstrap things. Then the software company can more easily sell stuff to their existing customers. They've met their own criteria for success and other peoples. So this article misses out on how a product can be a popular success without the business being a financial success. It also misses out on how, if they are meeting their goals they are a success. Finally it misses the business goal of acquiring customers who like what they do and pay them money... in their first product. In this case the New York Times has more of a leg to stand on than 37signals.

tptacek 17y ago
You're missing the premise of the article. Fried isn't ragging on open source projects which will never make money. He's ragging on the business press for pumping up companies as success stories when they haven't turned a dime in profit. There are a million ways to score a software project, but not nearly as many to rate a business.

shabda 17y ago

With all respect to 37Signals, havent they said it n-number of times, and we have had the same discussion on HN n+m-number of times

webwright 17y ago

<sigh> 37Signals' products weren't profitable for a year or more, if memory serves. They took "investment" from the other side of their business (consulting). Every month, when their product revenue grew, I'm sure they were thinking, "Wow, we're going to be profitable in X months"... and eventually, they were. Product profitability takes resources. You need: 1) Time (you can accelerate this with cash if you're disciplined) 2) Money (you can use savings, investment, or you can "buy" money/time with consulting) That's immutable. EverNote and their ilk ("our ilk", I should say, as RescueTime falls squarely in that world) is trying to build a business formula that works... And it looks like they're succeeding. Presumably they could cut dev staff, stop all experiments, and get to profitability MUCH sooner-- maybe even today. But that's how business works, right? It's all about intelligent debt to ultimately maximize the metrics you care about (presumably some combo of growth, revenue, profit, and lifestyle). You hire an employee, and you are spending time and money on them for a while before they are really contributing. You take funding so that you can run the experiments that require capital. You take your consulting profits and pump them (and your spare time) into product efforts. And some businesses scale differently than others (Amazon is a great example). That's ALL DEBT. And it can all be smart debt (like a mortgage used to be!). Just because companies are choosing a different flavor of debt or choosing markets that scale differently doesn't make them bad. I personally am THRILLED to give up a relatively small stake in our company so I don't have to consult and can run experiments about as fast as I want to. Scarcity FORCES you to be smart-- but the lack of scarcity doesn't mean that you CAN'T be.

defunkt 17y ago
I think the point is that the article is talking explicitly about how to "turn a profit" and using, as an example, a company which does not turn a profit.
- webwright 17y ago
  Yep, and I think that's stupid. Strictly speaking, they aren't profitable. Of course, GROSS profit (sales - COGS), they might be. We don't know. But consider the following scenario: I have an apartment building, and I clear $10k per month on it in clean profit. Yum! But I've got bigger dreams, and I know that if I had ANOTHER apartment building, there'd be scaling economies in terms of management and maintenance staff as well as marketing. But $10k a month isn't going to build/buy another building. So I take out a loan whose monthly debt service is $30k per month. All of a sudden I'm unprofitable, right? Except that as soon as I get my 2nd building up and full (a 2+ year process, quite a long time to be "unprofitable"), I'm clearing $70k a month. Until the end of time. Short term (voluntary) pain for a long-term gain. Evernote is doing the same thing. You don't build something like Evernote and get to profitability super quickly because of the economies of scale (much like Amazon). But the other place where 37s is wrong is totally dismissing forecasting, which at this scale works pretty well. When dealing with signup and conversion rates like Evernote has, it's actually pretty statistically significant. You can predict where you'll be in 12 months and it's pretty easy to calculate how what your COGS is going to looking like when you're serving 10m users instead of 100k. Just like Facebook, Evernote could reduce their investment in growth. They could trim staff and they could turn the screws a bit on their free users to up their conversion rate. But given how the scaling works out, I think they are likely making the right choice with their investment/debt. By delaying this as long as they can, they can ultimately have a higher margin business.

edw519 17y ago

It still blows me away that David’s talk at Startup School 2008 was met with such enthusiasm (I know David was surprised too). The content of his talk was not the main reason that it was met with such enthusiasm. (What he talked about was obvious and no one would disagree.) It was his delivery that made it such a bit hit. His passion and conviction was easy to see. We could have easily read the talk on-line, but we go to these things to get the "whole story", the things that words alone do not convey. What a pleasure it was to see someone in his position so enthusiastic about his work. It's hard not to get caught up in the moment. (The fact the he's the author of Rails and his liberal use of the f word to make his point also helped.)

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rajatmehta1 17y ago

Similar to Everynote there are lots of companies that have taken money from VC's and have not yet become profitable e.g Vonage.2011 is a big target though since it is 2 years away and nobody know what might happen then, there might be a much better killer product then Evernote running at much lower cost. While i agree that profitability is important but in the field of Web and according to the market you sometimes have to give away something for free to charge for something else.Even 37signals gives away tadalist etc for free.The best part is they have a bunch of products to earn cash from.

sethg 17y ago

One of the dubious features of business journalism today is that articles tend to privilege the passive investor's point of view. Hence the emphasis on things like stock-market indices. And from an investor's point of view, a successful business is one whose stock is going up. A "hot" company that is losing money hand-over-fist but has a slim chance of Hitting It Big may or may not be a great place to work (depending on how Dilbertesque the management is) and may or may not be fulfilling the dreams of its founders, but the investor who has that company as one element of a large portfolio has every reason to be happy with it. And if you're a reporter or editor in the business/tech press and you're used to seeing things from the investor's point of view, why shouldn't you run with a story like the one Jason F. complains about? Why wait two years publish an article about a startup that is actually wildly profitable when you can fill the news hole right now with an article about a startup that might someday be wildly profitable? By contrast, a bootstrapped company that makes a tidy heap of profit for its two founders and three employees is booooring.

davidw 17y ago

Ok, this one calls for just a little bit of snark: > The bar for success in our industry is too low As evidenced by one of the most widely watched companies as of late in said industry making lots of money with a product they constantly boast "does less"? I'm not sure I've quite nailed it, but you get the general idea. Actually, what they fail to point out is that they are famous enough that they won't necessarily get clobbered by someone who does what they do better, because the other guys will really struggle to get the word out, whereas they have Rails, their blog, books and so on to promote their 'does less' products.

tjogin 17y ago
When 37signals started Basecamp they didn't have their fame, Rails, their books or their blog readers... Just like everybody else, they started with none of that.
- davidw 17y ago
  I had the impression the blog was already pretty big. Still, I think "aw, shucks, little us?" thing is kind of silly. Without that fame, would they still be raking in so much money?
  - tjogin 17y ago
    They had an about average size blog for the time. It's definitely not like their fame preceded or enabled their success. It's the other way around. They've explained this on multiple occasions when people ask them how to repeat their success without their advantage of having a big audience and (relative) fame: they didn't have that when they launched Basecamp. They had a blog, but not a huge audience like they do now — they certainly did not have a bigger audience than is possible to build up through "traditional" blogging means (writing great content that people like to read and link to).
    - davidw 17y ago
      I'm not convinced. I'd rather see a series of case studies of small and successful firms that don't have something like Rails or a huge following (and what other word to describe some of the people who comment on their blog... some of them are really falling all over themselves to sing praises to 37S).

sabat 17y ago

Yes -- for instance, 37Signals is considered a success.

baran 17y ago

Obtaining press for a new/exciting product is especially easy when its free. Journalists have to write about what people think is interesting, without it they would be out of jobs. That being said publicity is easy, actually being successful-entirely different story. Dont judge success on publicity.