My point was not that selling was the only way to achieve freedom
and security, merely that it was the optimal way. (That was the
thesis of the essay in fact: that selling a company and living off
its revenues aren't opposing strategies, but rather that the former is the optimal case of the latter.)
I don't see how anyone could argue that selling was not optimal for
security. Sure, you could gradually save money, but that's not
optimal; it's not more secure than getting a lump sum upfront.
Whether selling is the optimal way for most founders to work on
what interests them most is a fuzzier question, because it depends
on the likelihood that the average founder's startup is the most
interesting thing he could be working on. (Not just interesting;
the most interesting.)
You can't prove this, only offer arguments of various strengths.
The strongest abstract one is similar to Occam's Razor: that a
choice that has to satisfy two independent constraints is unlikely
to be the optimal choice for either alone. Specifically, that you
can probably do better on the dimension of interestingness if you
don't also have to satisfy the constraint of making lots of money.
I'm surprised people find this idea controversial. It seems to
pervade almost everyone's choices from the moment they enter the
workforce. I.e. if you want to make more money, you often have to
compromise on the type of work you do, and if you want to work on
what you love, you often have to make financial sacrifices.
There may be a few statistical outliers who escape this force (a few top athletes, for a few years each) but for everyone else it's as
pervasive as gravity.
"I don't see how anyone could argue that selling was not optimal for security. Sure, you could gradually save money, but that's not optimal; it's not more secure than getting a lump sum upfront."
That's a pretty bold statement. If you think that an offer on the table is greater than all the net income you're comfortable your company will generate (discounted to present value of course), then you would take the money and run. If on the other hand your company is creating value (net income), and you are confident it will be creating more value (net income) going forward so that the discounted future net income the company generates is way more than the upfront lump sum, you wouldn't sell and it wouldn't be more secure or optimal. I think the issue is that most 'startup' owners aren't focusing on the net income part so they don't view their company as a cashflow generating entity which can be rationally valued against an upfront lumpsum, which means they'll take the money and run just about everytime; why wouldn't they?
I'm sure 37signals could have sold their company right after launching basecamp in 2004 for a multiple of revenues at the time, guessing a couple of million dollars. However, for some reason that wasn't optimal for their security, and by 2007 (doubling revenues every year since 04) chances are they've earned/pocketed the value they could have sold the company for in 04 (if not a majority of that value) and they get to keep that cashflow generating machine going forward (which means more cashflow + more valuable equity).
I think you're talking about an exit and DHH is talking about choosing what kind of business to start. If someone offers to buy you, your chance of a liquidity event is 100%. But if you're still deciding what kind of business or startup strategy to use, that chance is more like 50%, 10%, or even 1% or less. Given those odds that any normal entrepreneur (not you or DHH) faces, he says it's smart to build for profit and take the safer money, rather than go all or nothing.
I keep thinking there is a risk dimension here. Build for profit and the worst case scenario is, you have to wait to save enough to have financial independence. Build to flip and worst case is bust, start again.
One strategy is lower risk then the other, pick the one you like best.
But DHH does make a good point about the special scenario when your startup is indeed the most interesting thing you'll ever work on. Then after you flip it and decide retirement is not for you, you've already sold your best idea.
I think that's a rare scenario, there's not much risk of "losing" the idea of your life. Then again, there's not much chance that any particular startup will be sold.
In the case of 37signals and their product line, there's no fuzziness that they are most interested in their business. They say 'NO' to all but a few of their customer requests and implement the ideas THEY want to implement, WHEN they want to implement them.
Pg says make something people want and will find useful, while DHH says make something you will find useful and stick to your intuition.
I think 37signals and their manifesto make them much happier than trying to please others.
I find it hard to believe working on the projects they do is the most interesting thing those guys can think of to do for 30+ hours/week. Either they're incredibly boring people or a bit delusional.
I think they continue to work on them because it's mostly pleasant work, they have total control, there's a lot of inertia, and of course because it's making them wealthy.
Perhaps the authors, like many artists, are happy to have the perfect day jobs so that they can pursue interesting hobbies in their spare time. You know, hobbies like blogging, or writing open source software. [1]
There really is a limit to the amount of exciting original thinking that a person can do in a week. You need to sleep. You need to exercise. And you need downtime. If you've got an exciting, fast-moving, forward-looking hobby, it's kind of useful to have a pleasant, renumerative job to do in your off hours.
And it's hard to develop frameworks for building maintainable software if you never actually have to maintain any software. Practice makes perfect.
[1] I cannot believe that I just read a post suggesting that David Heinemeier Hansson might not be doing enough interesting things with his time. How much more code should the guy be giving away? I'm sure there's a non-empty set of people who wish he'd slow down.
Some people may think that doing pleasant work where you have total control and make lots of money is indeed the most interesting thing you can think of. Especially if you have the freedom to tinker with random ideas and enjoy the people you work with.
I am in a similar situation (well, probably not making as much money) and I do find it very interesting. At this point in my life I wouldn't want to lead a company with a limited runway and investors eager to find a buyer for it.
I still get to play and experiment with new technologies, and I use some of our profits to fund at least a couple of interesting projects per year. I could do this for decades.
I find it hard to believe working on the projects they do is the most interesting thing those guys can think of to do for 30+ hours/week.
I don't.
Sometimes the real fun comes after the business passes its first few milestones. Lots of people bust their butts building a business in order to get it to the point where it will be a lot more fun to run.
I don't own the company I work for, so perhaps my outlook is different, but I certainly love my job and find that a lot of the time it's the most interesting thing I do.
I think that some of the "interesting" factor comes in when people rely on your projects. It is the most satisfying thing when you begin a new project with goals, milestones, ambition, and fervor. However, it is very satisfying when people benefit and appreciate what you put effort into.
I don't think technology wise, but they seem to spend a lot of time thinking about and experimenting with user interface and user experience. That is an interesting field no matter what, and satisfying when you get it right.
I respect both PG and DHH and i think that they are both right from their experiences. PG seems to be older and with more experience though. My thoughts on the situation are simple. Why not be flexible? Why not start a business and work on it as long as its rewarding to do so? If your company gets rally big and you think it wouldn't be as fun to manage it, as coding all day, then sell it, if you think running a big business is for you go for it. If you company doesn't grow, but guaranties you an income you can choose if you want to sell it and do something more interesting, or if you want to take it easy and just enjoy working. Are these men blind to see this as an option? Why is it supposed to be one way or the other? Flame wars on technology are annoying enough, but on business strategy they are annoying and boring too.
In 10 years the 37Signals crew might not enjoy the work as much as they do today. People change over time, interests shift, they might want to join the hypothetical pg co-op later down the line.
However, if you can make a nice wage like 20k a month, work when you are in the "groove", have all of the things you want in life, take some nice vacations I don't see why they would need to make any changes until there life's interests shift focus.
I think you do need to sell your company. The ideal of living of residuals shouldn't apply to the internet businesses. They are just way too unpredictable, look at companies from 1998...how many are still around? Only a few of the few are still around, and that's only because they have become synonyms with their niches. Google? Search, eBay? Auctions, Amazon? Online Stores etc. But for each one there are a hundred dead companies that had a good 5 years, and then died.
Small companies/large companies, most of them eventually fail to be competitive. Internet has almost 0 barriers to entry, there is absolutely nothing stopping another startup from coming in and taking you out, doesn't matter if you have a bigger piggy bank.
Better to sell while you are still on top, and then if you really want to, you can use some of that capital to build something else that you can be happy about. And lets face it, if its 6 years later, chances are you have plenty of new ideas you want to try out.
If I have a 5 year old company that makes $250,000/yr for me, and Google offers to buy it for 10-20 mil, I'd take the deal, because it means I'll now have guaranteed money to live the lifestyle I want for the rest of my life, and I'll be able to use a portion of that to do my next startup that I'll be just as excited, as I was about my original idea
I don't think many people would debate what to do if you had the opportunity to sell at a huge markup (i.e. 40-80x your yearly take) that would leave you set for life. That's kind of a no-brainer.
The real question, to me, is whether you should build with the intention of trying to flip or if you should build with the intention of making it a stable business. That direction will make a huge difference in a lot of your decisions about whether to take on funding, whether to focus on early revenue or just on user numbers, etc. And there's no easy answer to that one; it really depends on what you want out of the experience, what your expected likelihood of being able to flip is, if you take satisfaction out of building over the long term or if you'll get bored in a few years anyway, etc.
You don't have to live off residuals. You can live off the money you put away while running your business. That's one of the things that DHH points out in his post.
I have a friend who ran an online business for 4 years while doing a medical degree and put away about half a million pounds (~$1m) while doing so (that's on top of the money that he actually spent). That's enough money to be quite comfortable for a long time.
Sell your company, keep your company. If you want to maximize your ability to work on interesting stuff, remember that there is a effective but unglamorous dual pronged approach to financial security. Require less luxury to be happy.
Learn to cook brown rice. Bring your lunch to work. Walk to your job (or to a bus stop to your job) and can the gym membership. Yoga studios tend to offer free classes on Sunday. Visit the library instead of buying so many books. In fact most libraries will even buy a book they don't have if you ask them. And if you really want to give your mind a break from coding, buy a repair manual and learn to fix your own car. This actually results in the satisfaction of an affectionate bond with your car that you can't buy at the dealership.
Two things have surprised me the further I go down this path.
1. Hacking the system by revolting against the consumer culture is so much fun, that I keep pushing harder regardless of my income.
2. While living like this, you'll even find low-maintenance (high-everything-else) women doing the same thing who find it attractive.
I think both dhh and pg want the best for "us" (and that's why they deserve to have fans). Maybe dhh is worried that pg's talking about risk is too discouraging for many people who would be happier as entrepreneurs but remain scared in their cubicle life. On the other hand pg might be worried that people end up not pushing themselves hard enough and ultimately failing and staying mediocre.
Since dhh was a speaker at Startup School I also assume they get along fine and we simply benefit from a kind of benign competiton.
Probably they are both right, what I would like to know now is which course of action has the bigger chance of success ;-)
Nevertheless I also feel pointing to the CEOs who stayed with their company might be inaccurate. Jeff Bezos might still be with Amazon, but he might not be much into selling books. He might be exploring things like the Kindle and Amazon Web Services, or something entirely different. The point: those longterm-CEOs might simply be doing startups within the safety of the mother company.
My hat is off to DHH and 37signals for managing to implement the simple but not easy and classic ideal of doing what you love for a (excellent) living. If you hate your job, how can you be good at it?
Wufoo are my heros because to be honest, I would never have thought there would be money in providing web forms. They might be an excellent example for "just don't die"?
One thing that hasn't been addressed here is the likelihood of creating a company that that will be acquired for enough money that you no longer have to work vs the likelihood that you can create a business that lets you live comfortably.
My guess is that most businesses that make enough money for you to live off of comfortably would have an acquisition value that is high enough that you wouldn't have to work anymore.
They introduced the article as a rebuttal to PG's article.
But, like most of their recent articles, its just promoting the bootstrapped stay-small business ideal.
If your looking to make a lifestyle business then they have some good advice. But all businesses are not equal.
The market, industry, and success all play a big role in determining whether or not VCs, M&As or IPO's are right for your business.
I've said this before, 37Signals is selling a work-style philosophy.
Which is probably why they didn't make much of an argument, besides "we work 4 days a week and still take vacation" and "other people have stayed small so you can too".
Let's not forget that 37signals is no longer an early stage start-up. If your making a million+ in revenues, of course you can make flexible hours for your staff.
There's a tax advantage too: to have investments that return $100,000 pa you need to have saved (assuming 10% ROI) $1,000,000. You get taxed each year on that $100,000 as income - but you also got taxed when you made that $1,000,000 in the first place.
But if you create a business that returns $100,000 pa, while you similarly get taxed on that income, you don't get taxed on the creation of the business - even though it's equivalent to having saved $1,000,000, in terms of its return.
And if that doesn't set your heart singing in transcendental joy, it's probably better for you to just do what you love and the money will follow. :-)
the same is true for stock
u won't get taxed for buying stock
and the tax is just one time (not recurring every year) at 25% (15% after 1 yr)
contrast this to 'work for company' ... u get taxed 35% every year :(
probably it's the social design school-work-govt
1. you obtain huge debt from school
2. you become obedient by having to work to pay the debt
3. you stay in the loop because of taxes
I think this is quite interesting. On one hand we have an investor saying things you would expect an investor would say (grow as much as you can). On the other hand we have an owner saying things you would expect an owner would say (my business is great). Yet when these two say it, it seems fresh for some reason.
Perhaps because when they say these things we know that they believe it in some absolute sense not just because it benefits them. So maybe I should say refreshing, not fresh.
Writing business apps in Ruby on Rails is only going to seem cool for so long. Give them a couple of years for the coolness to wear off, and they'll sell without a second thought.
i think its great that theres all of this discussion over something such as business models -- in this age of technology i feel its often something overlooked -- but in my opinion, they are both valid, it just depends on what you're going for. if dhh is happy working 4 days a week on 37signals and earning the money that he is, and he wouldnt rather be doing something else, than great for him! if his interest were exhausted, and he were still doing that, then i would say why not sell? for me personally i could not be happier than working on my current project, because it is what i am most passionate about. however, with that being said, for the right price it would be crazy not to sell. not only could you continue to work on it afterward, but if something else came along more interesting you would have the opportunity to pursue it. i just dont think this is as cut and dry as dhh wants to make it seem, and i really agree with the clarifications that paul made in his first comment.
I can certainly agree with some of this, but I really do enjoy working alot on a software project of some sort. I COULD work 40 hours/week on it, but I'd be perfectly happy working 60 or more and "chasing" this goal.
just 2 ways to get to the destination, driving or taking a train ..
which is better ? well all depends on your taste, your feel or may be your mood!
Just do the way way your like it man!
an analogy for me is you're in Singapore and you're thinking of flying or driving by car to Kuala Lumpur, Malaysia - driving, it takes you 4 hours. Flying is only 30 minutes but check-in time is 2 hours and disembarkation/waiting for your baggage is abou 30 minutes plus you need to take a taxi to the airport - it works out the same. Choose your poison. Driving is more scenic but you get flier's miles with flying.
[+] [-] pg|17 years ago|reply
I don't see how anyone could argue that selling was not optimal for security. Sure, you could gradually save money, but that's not optimal; it's not more secure than getting a lump sum upfront.
Whether selling is the optimal way for most founders to work on what interests them most is a fuzzier question, because it depends on the likelihood that the average founder's startup is the most interesting thing he could be working on. (Not just interesting; the most interesting.)
You can't prove this, only offer arguments of various strengths.
The strongest abstract one is similar to Occam's Razor: that a choice that has to satisfy two independent constraints is unlikely to be the optimal choice for either alone. Specifically, that you can probably do better on the dimension of interestingness if you don't also have to satisfy the constraint of making lots of money.
I'm surprised people find this idea controversial. It seems to pervade almost everyone's choices from the moment they enter the workforce. I.e. if you want to make more money, you often have to compromise on the type of work you do, and if you want to work on what you love, you often have to make financial sacrifices.
There may be a few statistical outliers who escape this force (a few top athletes, for a few years each) but for everyone else it's as pervasive as gravity.
[+] [-] condor|17 years ago|reply
That's a pretty bold statement. If you think that an offer on the table is greater than all the net income you're comfortable your company will generate (discounted to present value of course), then you would take the money and run. If on the other hand your company is creating value (net income), and you are confident it will be creating more value (net income) going forward so that the discounted future net income the company generates is way more than the upfront lump sum, you wouldn't sell and it wouldn't be more secure or optimal. I think the issue is that most 'startup' owners aren't focusing on the net income part so they don't view their company as a cashflow generating entity which can be rationally valued against an upfront lumpsum, which means they'll take the money and run just about everytime; why wouldn't they?
I'm sure 37signals could have sold their company right after launching basecamp in 2004 for a multiple of revenues at the time, guessing a couple of million dollars. However, for some reason that wasn't optimal for their security, and by 2007 (doubling revenues every year since 04) chances are they've earned/pocketed the value they could have sold the company for in 04 (if not a majority of that value) and they get to keep that cashflow generating machine going forward (which means more cashflow + more valuable equity).
[+] [-] pchristensen|17 years ago|reply
[+] [-] biohacker42|17 years ago|reply
One strategy is lower risk then the other, pick the one you like best.
But DHH does make a good point about the special scenario when your startup is indeed the most interesting thing you'll ever work on. Then after you flip it and decide retirement is not for you, you've already sold your best idea.
I think that's a rare scenario, there's not much risk of "losing" the idea of your life. Then again, there's not much chance that any particular startup will be sold.
[+] [-] craigbellot|17 years ago|reply
Pg says make something people want and will find useful, while DHH says make something you will find useful and stick to your intuition.
I think 37signals and their manifesto make them much happier than trying to please others.
[+] [-] dhbradshaw|17 years ago|reply
[+] [-] staunch|17 years ago|reply
I think they continue to work on them because it's mostly pleasant work, they have total control, there's a lot of inertia, and of course because it's making them wealthy.
[+] [-] mechanical_fish|17 years ago|reply
There really is a limit to the amount of exciting original thinking that a person can do in a week. You need to sleep. You need to exercise. And you need downtime. If you've got an exciting, fast-moving, forward-looking hobby, it's kind of useful to have a pleasant, renumerative job to do in your off hours.
And it's hard to develop frameworks for building maintainable software if you never actually have to maintain any software. Practice makes perfect.
[1] I cannot believe that I just read a post suggesting that David Heinemeier Hansson might not be doing enough interesting things with his time. How much more code should the guy be giving away? I'm sure there's a non-empty set of people who wish he'd slow down.
[+] [-] diego|17 years ago|reply
I am in a similar situation (well, probably not making as much money) and I do find it very interesting. At this point in my life I wouldn't want to lead a company with a limited runway and investors eager to find a buyer for it.
I still get to play and experiment with new technologies, and I use some of our profits to fund at least a couple of interesting projects per year. I could do this for decades.
[+] [-] crocus|17 years ago|reply
It doesn't seem like it is. They recently decided to spend less time on the company:
http://www.37signals.com/svn/posts/893-workplace-experiments
If it was the most interesting thing they could imagine doing, why would they decrease the amount of time they spent on it?
[+] [-] edw519|17 years ago|reply
I don't.
Sometimes the real fun comes after the business passes its first few milestones. Lots of people bust their butts building a business in order to get it to the point where it will be a lot more fun to run.
[+] [-] Jem|17 years ago|reply
I am quite a boring person though!
[+] [-] invisible|17 years ago|reply
[+] [-] michaelneale|17 years ago|reply
[+] [-] Tichy|17 years ago|reply
[+] [-] pavelludiq|17 years ago|reply
[+] [-] gscott|17 years ago|reply
However, if you can make a nice wage like 20k a month, work when you are in the "groove", have all of the things you want in life, take some nice vacations I don't see why they would need to make any changes until there life's interests shift focus.
[+] [-] pageman|17 years ago|reply
[+] [-] vaksel|17 years ago|reply
Small companies/large companies, most of them eventually fail to be competitive. Internet has almost 0 barriers to entry, there is absolutely nothing stopping another startup from coming in and taking you out, doesn't matter if you have a bigger piggy bank.
Better to sell while you are still on top, and then if you really want to, you can use some of that capital to build something else that you can be happy about. And lets face it, if its 6 years later, chances are you have plenty of new ideas you want to try out.
If I have a 5 year old company that makes $250,000/yr for me, and Google offers to buy it for 10-20 mil, I'd take the deal, because it means I'll now have guaranteed money to live the lifestyle I want for the rest of my life, and I'll be able to use a portion of that to do my next startup that I'll be just as excited, as I was about my original idea
[+] [-] akeefer|17 years ago|reply
The real question, to me, is whether you should build with the intention of trying to flip or if you should build with the intention of making it a stable business. That direction will make a huge difference in a lot of your decisions about whether to take on funding, whether to focus on early revenue or just on user numbers, etc. And there's no easy answer to that one; it really depends on what you want out of the experience, what your expected likelihood of being able to flip is, if you take satisfaction out of building over the long term or if you'll get bored in a few years anyway, etc.
[+] [-] swombat|17 years ago|reply
I have a friend who ran an online business for 4 years while doing a medical degree and put away about half a million pounds (~$1m) while doing so (that's on top of the money that he actually spent). That's enough money to be quite comfortable for a long time.
[+] [-] aspirant|17 years ago|reply
Learn to cook brown rice. Bring your lunch to work. Walk to your job (or to a bus stop to your job) and can the gym membership. Yoga studios tend to offer free classes on Sunday. Visit the library instead of buying so many books. In fact most libraries will even buy a book they don't have if you ask them. And if you really want to give your mind a break from coding, buy a repair manual and learn to fix your own car. This actually results in the satisfaction of an affectionate bond with your car that you can't buy at the dealership.
Two things have surprised me the further I go down this path.
1. Hacking the system by revolting against the consumer culture is so much fun, that I keep pushing harder regardless of my income.
2. While living like this, you'll even find low-maintenance (high-everything-else) women doing the same thing who find it attractive.
[+] [-] Tichy|17 years ago|reply
Since dhh was a speaker at Startup School I also assume they get along fine and we simply benefit from a kind of benign competiton.
Probably they are both right, what I would like to know now is which course of action has the bigger chance of success ;-)
Nevertheless I also feel pointing to the CEOs who stayed with their company might be inaccurate. Jeff Bezos might still be with Amazon, but he might not be much into selling books. He might be exploring things like the Kindle and Amazon Web Services, or something entirely different. The point: those longterm-CEOs might simply be doing startups within the safety of the mother company.
[+] [-] sanj|17 years ago|reply
[+] [-] wallflower|17 years ago|reply
[+] [-] nanijoe|17 years ago|reply
[+] [-] unknown|17 years ago|reply
[deleted]
[+] [-] pchristensen|17 years ago|reply
http://news.ycombinator.com/item?id=254409
[+] [-] kirubakaran|17 years ago|reply
[+] [-] fallentimes|17 years ago|reply
Wufoo has a somewhat similar model to 37signals and they're unbelievably profitable.
[+] [-] Tichy|17 years ago|reply
[+] [-] nickb|17 years ago|reply
[+] [-] axod|17 years ago|reply
[+] [-] Andys|17 years ago|reply
[+] [-] d0mine|17 years ago|reply
[+] [-] richcollins|17 years ago|reply
My guess is that most businesses that make enough money for you to live off of comfortably would have an acquisition value that is high enough that you wouldn't have to work anymore.
[+] [-] dmix|17 years ago|reply
But, like most of their recent articles, its just promoting the bootstrapped stay-small business ideal.
If your looking to make a lifestyle business then they have some good advice. But all businesses are not equal.
The market, industry, and success all play a big role in determining whether or not VCs, M&As or IPO's are right for your business.
I've said this before, 37Signals is selling a work-style philosophy.
Which is probably why they didn't make much of an argument, besides "we work 4 days a week and still take vacation" and "other people have stayed small so you can too".
Let's not forget that 37signals is no longer an early stage start-up. If your making a million+ in revenues, of course you can make flexible hours for your staff.
[+] [-] 13ren|17 years ago|reply
But if you create a business that returns $100,000 pa, while you similarly get taxed on that income, you don't get taxed on the creation of the business - even though it's equivalent to having saved $1,000,000, in terms of its return.
And if that doesn't set your heart singing in transcendental joy, it's probably better for you to just do what you love and the money will follow. :-)
[+] [-] hs|17 years ago|reply
contrast this to 'work for company' ... u get taxed 35% every year :(
probably it's the social design school-work-govt 1. you obtain huge debt from school 2. you become obedient by having to work to pay the debt 3. you stay in the loop because of taxes
[+] [-] jsmcgd|17 years ago|reply
Perhaps because when they say these things we know that they believe it in some absolute sense not just because it benefits them. So maybe I should say refreshing, not fresh.
I love HN.
[+] [-] andreyf|17 years ago|reply
[+] [-] subwindow|17 years ago|reply
They're not some new startup who are building Ruby on Rails applications because it is the hot new technology.
They're building Ruby on Rails applications because they invented it. It is the hot new technology because of what they did, not vice versa.
[+] [-] beaudeal|17 years ago|reply
[+] [-] endlessvoid94|17 years ago|reply
It's very rewarding for me.
[+] [-] soggo|17 years ago|reply
[+] [-] pageman|17 years ago|reply