Business
When the Series A check clears, most startups send out a bragging press release, the equivalent of flashing your grill. The VC backing is supposed to mean that the company has experienced hands in its corner. That it’s financially solid. A shoe-in for a puff profile piece in a magazine. Eligible for lunch conversation in Silicon Valley.
But if customers actually think about what a venture capital injection entails, it’s not all California Love. The company’s cash concerns might have (temporarily) vanished, but they’re replaced with a new list of problems. As a user you might be looking at any one of the following:
1. The Pivot
Sure, the product as described today sounds great, but if that hockey-stick growth pattern doesn’t emerge in six months, the product you wasted your time and money on might quickly turn into something else entirely.
2. The Talent Acquisition
Big companies like Google love to buy small bands of developers their VC friends tell them about (the risk easily triples if said band comes with Stanford or MIT pedigree). When the developers behind the app are acquired for their “talent”, you can expect a “sunset” to follow soon thereafter. That combination is the perfect euphemism for fuck the app and fuck the users.
3. The Runway
They don’t call it venture capital because you’re supposed to put it back in the bank. No, fool, that green gots to get spent. The quicker the better. So while $10 million dollars sounds like a lot, it might only just buy a company 12 months of runway. You know, once the swanky office in San Francisco has been decorated and the 100 programmer rockstars, designer ninjas, and bizdev suits have been bought.
4. The Pressure Cooker
Once a company takes millions of dollars of other people’s money, they’re instantly under extreme pressure to perform LIKE A TIGER. This kind of pressure can easily lead otherwise decent people to do indecent things with your data, your privacy, or anything else you hold dear. Because the scoreboard has already been set: winning means blowing it out of the park. And hey, sometimes a playa gots to cheat a little to make the magic sparkle, if you know what I’m saying.
5. The Acquisition Graveyard
If the product is strong enough to prevent a talent acquisition, you earn a few more years of fun and games before the product acquisition is likely to happen. With great fanfare some big company will announce what awesome synergies are in store now that the youngsters have “access to all the resources they need to take it to the next level”. The founders will spend two years on “integration” with the acquiring company’s legacy systems, and then – wait for it – their golden earn-out handcuffs will unlock and they’ll be long gone, along with any chance of the product ever getting better.
Of course, every now and then the clock that’s stopped tells the proper time. The fantastical success story somehow ends up being enough to swallow a hundred bad ones, so the crowd still cheers. See, world, we were there when this wee little lad got his first series A round and just look at him now!
Don’t fall for it. Given the odds involved, if you’re a user, or worse yet, a customer of a product, and the company behind it announces venture funding, the proper response is aahhhh, shiiiiiit.
One of the most pervasive myths of startup life is that it has to be all consuming. That unless you can give your business all your thoughts and hours, you don’t deserve success. You are unworthy of the startup call.
This myth neatly identifies those fit for mission: Young, without obligations, and few if any extra-curricular interests. The perfect cannon fodder for 10:1 VC long shots.
They’re also easier to rile up with tales of milk and honey at the end of the rainbow, or the modern equivalents, “compressing your working life into a few years” and “billon dollar waves”.
But running your life in perpetual crunch mode until the buy-out or bullshit-IPO fairy stops by your door is not surprisingly unappealing to lots of people.
The problem is that most “exciting new company” lore is intermingled with that of Startup Culture™. This means it’s hard to find your identity when it doesn’t match the latest company write-up of How Those Crazy Kids Turned VC Millions Into Billions!!!
Most people will look at that and say that’s not me. I don’t have 110% to give. I have a family, I have a mortgage, I have other interests. Where’s my place in the startup world if all I have to give is 60%? What can putting in part-time give?
The good news is much more than you think. The marginal value of the last hour put into a business idea is usually much less than the first. The world is full of ideas that can be executed with 10 to 20 hours per week, let alone 40. The number of projects that are truly impossible unless you put in 80 or 120 hours per week are vanishingly small by comparison.
This is of course nothing new. We’ve been playing this bongo drum for years. But every time I see people crumble and quit from the crunch-mode pressure cooker, I think what a shame, it didn’t have to be like that. It’s the same when I read yet another story about someone who won the startup lottery, and the stereotypical startup role model is glorified and cemented again.
It’s almost like we need another word. Startup is a great one, but I feel like it’s been forever hijacked for this narrow style, and “starting a business” just doesn’t have the sex appeal. Any suggestions?
Basecamp just turned 8 years old. Here’s the launch announcement right here on this blog back on February 5, 2004. That’s a long time ago.
We’ve learned a ton since then. One of the most interesting lessons has been the increasing degree to which time influences change.
When we first launched Basecamp, we could iterate rapidly. We were incredibly prolific those first few months. We launched a bunch of new stuff and made rapid improvement every few weeks. Eventually it plateaued and slowed down.
Why is that? Part of it is because many of the improvements we wanted to make have been made. Part of it is that we want to keep Basecamp focused on just a few things. Part of it is that the code base gets more and more tangled over time which makes change more difficult. Part of it is that we’ve also been working on other things.
But that’s nothing new. Those concerns have been part of software development since the start.
What’s new with SaaS (Software as a Service) products like Basecamp is that legacy doesn’t just build up in the code base, it builds up in customer expectations. People get used to the way things are. Even things that are broken or complicated become things some customers want to protect from change because they’re familiar with the intricacies of how those things work.
In the traditional software world, new releases were bundled up into distinct versions. And it was up to the customer if they wanted to upgrade or not. If they didn’t like the opinions of the new version, they could stick with the old, familiar version. If the new version didn’t solve any new problems they had, they could keep using the version they already had.
Not so with SaaS. When updates are deployed, they’re deployed instantly for everyone. That’s not always the case – sometimes you phase in a release – but for the most part the end game is the same: This is new and it’s making its way into the product. This means customers often don’t get the chance to opt out of changes in the SaaS world.
All of this is managable for companies and customers as long as the changes are incremental and somewhat predictable. And the younger customer base the easier it is to manage. But every once in a while a company has brand new opinions about a problem they’ve already solved before.
What then? Do you totally change the existing product to fit the new opinions? What about all the customers who are used to the way things currently work? They’re going to be upset. They’re going to feel forced and bullied into something brand new they didn’t ask for and can’t ignore. No one wants to feel like that. It’s often a recipe for a lot of turbulence.
This is why change gets really hard as a SaaS product matures. Existing customer expectations are some of the strongest forces pushing back at a company with new ideas.
This is the situation we found ourselves in with Basecamp last year. We had all new ideas about how to manage, organize, collaborate, and run projects. While some of the fundamental tools were the same, the application of these tools, the way in which they interacted, and the entire execution was different. Making the current Basecamp work the way we wanted the new Basecamp to work wasn’t possible without completely forcing huge change on people who didn’t ask for it. That wouldn’t fly.
I think there’s only one fair way to introduce significant change like this: Let people choose change. I don’t think people are afraid of change, as a concept. They’re afraid of change that’s forced upon them. That isn’t change, it’s violence. And violence is never customer friendly. Just about every time I’ve seen a big transition go wrong in this business it’s been because customers were forced to change, not offered the option to change.
This is why we decided to do the right thing. Design, develop, and launch an entirely new version of Basecamp along side the existing version of Basecamp. The new Basecamp is entirely opt-in. You can even use both at the same time, if you’d like. But if you prefer not to change, you won’t be forced to change. If the current Basecamp works well for you, you can continue to use the current Basecamp for as long as you’d like.
We’ve put in an extra months worth of work to make sure the optional transition is as smooth as possible. We’re excited to share Basecamp Next with everyone soon.
I recently read and watched “Moneyball”, and enjoyed both greatly. It’s a great story in and of itself, but I also found it to be an interesting parallel to the state of the “web software” industry today.
Moneyball starts in the week before the 2002 baseball draft, with a set of meetings that pit Oakland A’s general manager Billy Beane against his team of scouts. The scouts’ primary mechanism of evaluating players was visual – did the guy look, walk, and talk like a major league baseball player? On the other hand, Billy, with his assistant Paul DePodesta, had a largely objective system for evaluating baseball players based on things like how often they got on base.
Billy won the fight over talent selection and picked players that met his system, even if his scouts disagreed. This pattern continued throughout the season, and the A’s went on to set a league record for consecutive wins.
When I started writing I thought if I proved X was a stupid thing to do people would stop doing X. I was wrong.
—Bill James in his 1984 Baseball Abstract
In many ways, the “web software” industry is still where these scouts are. For most people, the primary way of evaluating their software is with their own eyes and emotions. Over the years, people have tried to bring some objectivity or framework to do thing this with things like “personas”, but the process is still a largely subjective one, just like a scout looking at how a player swings and never really looking at whether he gets on base.
The reality, of course, is that this is no longer necessary. Just like baseball in the years since Bill James coined “sabermetrics”, we have the tools now as an industry to do better. We can identify the outcomes we want to see, and we can objectively evaluate a design in the context of those outcomes.
It’s never been easier to test your designs and find out what works where the rubber meets the road. You can use a tool like Optimizely for any site or something like A/Bingo in a Rails app and have a test running in a matter of minutes. Measuring and understanding behavior in other ways has also never been easier—there are new tools and startups helping to do this every week.
For Billy Beane and the Oakland A’s, using data was about leveling the playing field between their meager salary budget and the huge budget of teams in places like New York and Boston. For the web industry, the playing field is already fairly level – it doesn’t take much more than a web browser and a text editor to build something. What data does for web software is reduce the role that blind luck plays. You’re more likely to – on average – find success if you evaluate your work using real data about the outcomes that matter.
You can choose to keep working like those scouts did and go on gut instinct alone. It might work for a while, but I think most people would say that baseball’s moving forward now, and the people who haven’t made the switch are being left behind. Our industry will move forward too—do you want to be left behind?
Apple’s last quarter was the second most profitable quarter of any company ever in US history. Only ExxonMobile topped them slightly in 2008 when oil was at an all-time high. That’s an astounding and awe-inspiring accomplishment.
But that’s not why some of us are so proud of what Apple’s been able to do; it’s much more personal.
When I switched to Apple back in 2002 after the introduction of OS X, it felt like a renegade position. The world was running Windows and anyone bothering with a Mac was by definition an outsider.
We had to deal with incompatibilities of all kind. There was the ridicule of overpriced shiny white plastic. We were somewhere in between the “first they ignore you” and the “then they laugh at you” state of adoption. But for those of us who endured it, the result was not disillusion but a hardening of the resolve.
Macs were (and are) just better. Not just because they were better built or put together, but because Apple was a better company. A braver company. A company that stood for higher ideals. When compared to the empire of Microsoft and the Dells, Sonys of the time, it simply felt like they were more right.
When I looked at that, it seemed like an injustice that Macs and Apple were the odd ones out. Like quality was being held back and barred a chance to shine just because the dominant gorillas in the room had so much power and inertia going for them.
I campaigned tirelessly to enlighten my fellow classmates at Copenhagen Business School about this injustice, about why they should get a Mac. I managed to convert my entire study group and a fair number of other people too. It was invigorating to be able to convince people of the fundamentals.
This battle is not that old. There are plenty of veterans who remember how it used to feel to evangelize the company and its products as an outsider. I still do it by habit even though we’ve long since moved into the “and then you win” phase of adoption.
Still, financial results of the likes Apple delivered yesterday serve as an affirmation of all that energy spent telling their story. Believing in the underdog. Like your favorite home team who couldn’t get into premier league while growing up just won the Superbowl, the Stanley Cup, and the World Series all together for the 10th time in a row — and you were the only one to believe in them. It’s an immensely satisfying feeling.
Nowadays we have to deal with the fact that Apple is the gorilla not just in the room but in most of the houses on the block. That’s a scary proposition in its own right. Far too many resistance movements turned drunk with power once they beat the incumbents and ended up being just as bad (or worse) than those they displaced.
While Apple has certainly shown that at times they’ve let their power corrupt, they’re still guided by the fundamental principle we fell in love with: Superior products through superior design.
There are, however, lots of people who make great products with great design. There aren’t lots of Apples who can spread that luxury to the masses and convince them of the benefits like this company has done. When you hear regular people talk about how much they love their iPhone or iPad, it really hammers home what Apple has done not just for themselves but for anyone trying to create better products and hoping to win markets because of them.
I’m well aware that this level of gushing is somewhat unbefitting in public, and I normally wouldn’t indulge the impulse. I’m just so proud of Apple that I’m willing to look foolish saying so.
No other company has inspired me more when it comes to marketing, design, focus, and even capitalism than Apple. Make the best damn product out there, charge a profitable price, and win the world.
When I worked with clients on a time and materials basis, I hated logging hours. I hated having the stop watch’s tick tock over me, being forced to account for every increment of time. Or, as it often happened, trying to remember after the fact where the hours went. I never met another developer who liked it either.
So, when 37signals launched the 37express idea, I thought about how cool it was (this was before I joined the company). Turning consulting into a product and charging a fixed price for it. No time-tracking, no tick tock, just clear expectations of what the client was going to get. It really opened my eyes to “you can refuse to do the shit you don’t want to do” way of running a business.
Other judo solutions to avoid time-tracking I’ve seen from consultants have been simply day or, preferably, week rates. You have my attention for this amount of time. Whatever we get done, we get done. I’m not going to break it down into 15-minute increments. Love it.
Similarly, I have almost equal wrath for the expense report. I’ve always felt that if you hire and pay me a good wage, why on earth would you want to always be checking in on me, forcing me to justify a $200 software purchase, or a plane ticket to a conference, or whatever else I might need to do my job well. Keeping paper receipts around and dutifully marking them down. Fuck that.
Now if you have multiple, concurrent clients, and you’re making them pay for your individual expenses, fine. You’re going to have to assign who paid for what steaks and who paid for what strippers.
But the legitimate moaning I’m hearing from people over expenses reports is when they’re being forced to do them purely for internal bookkeeping. This seems like a complete relic from the days when people would pay businesses expenses in cash. Nowadays your credit card company keeps all this on file. What was paid, who it was paid to, who charged it, even categorized. All the data is there. Asking people to fill that in again by hand just seems insulting.
Optimizing your business for happiness is about a lot of things, but taking out all the needless administrative minutiae seems like one of the easiest. Why aren’t you?
Taylor’s post about our growth in 2011 included a bunch of numbers showing how the pistons inside the 37signals engine are pounding faster, but it all got swept away by what seemed like an innocent side-note: The 100 millionth file was called cat.jpg.
Being as it is that the internet is constantly accused of being just an elaborate way of sharing pictures of cats, sharing pictures of cats, we thought that was funny. But it wasn’t. We shouldn’t make jokes about anything even remotely related to people’s data.
Because the natural train of thought from there goes: Hey, if they saw the file name cat.jpg and shared it with the world, what’s to prevent them from sharing other data? Actual sensitive data, like Downsizing-Plans-2012.pdf? Hell, what if they’re actually looking at my secret new logo and leak it to the press?
That’s a completely legitimate train of thought to ride and it was our mistake to get it on track. So let’s start with first things first: We’re sorry. We made a mistake. We should have thought it through and remembered that storing your data with someone else in the cloud hinges on a fragile layer of trust. We poked that trust in the eye and it was wrong. We shouldn’t have checked the log files to see the name of the 100 millionth file.
So what’s a business to do from here?
Continued…
Remote working might still be the minority configuration, but there are plenty of enlightened companies around who do get it. Here’s a list of five current positions from our job board:
If you want to post a remote-working position on the job board, please use “Anywhere” as the location. We’ll highlight these positions again in a few weeks.
Every day I read a new article about some company whining about how hard it is to hire technical staff. Invariably it turns out that they’re only looking for people within a commuters distance of their office. I refuse to feel sorry for such companies.
If we were only trying to hire in Chicago, we’d never have the world-class team we have today. 37signals has people from such distinct tech hubs as Fenwick (Canada), Phoenix, Caldwell (Idaho), Romiley (UK), Jefferson Hills (Pensylvania), Ann Arbor (Michigan), Boulder (Colorado), Tampa (Florida).
The technology to successfully run and manage remote teams has never been better. We use Basecamp to keep track of our projects, Campfire as the virtual water cooler, Skype for calls and screensharing, and iChat and email to top it off.
None of it is fancy, expensive, or hard to use. Everything we do to manage a business consisting mainly of remote employees is something anyone else could do too. There’s so much untapped tech talent that does not live near your office, but would work for you if you allowed them to.
So stop whining, spend a day to get up to speed on remote working practices, and hire outside of your commuter zone.
Cheap distribution model
Apple with iTunes has ushered in an era where CDs and DVDs are fast becoming extinct. CDs and DVDs require packaging to be produced, space in warehouses to store, and discs to be fabricated. Presumably offering the music and movies on iTunes is cheaper because all the costs to manufacture have been cut. The savings get passed on to the customer.
The Lazy Tax
Video games are different though, and I can’t really figure out why that is. You can get the game L.A. Noire from Amazon for under $19. It ships free (if you’re a Prime customer) too. The only problem is it comes on disc. You have to load it into your console when you want to play. You have to find someplace to store the game when you’re not playing it.
You can download the exact same game for $40 on Xbox Live. It gets saved to your console. You don’t need to insert the disc to play. You don’t need to store a case. You don’t have a box laying around.
My friend calls this the “Lazy Tax” because you pay extra for the convenience of not having a disc to insert into your console when you want to play. This doesn’t make sense to me though. App stores seem to be the future, so why are game manufacturers still encouraging gamers to buy physical media?
If you want to reach peak performance, you have to find the limit. Finding the limit means stepping over the limit. Going too far, going too fast. It means taking a good idea to the extreme to learn just how far it’ll bend before it snaps.
In racing, the driver who can most consistently drive just beyond the limit — running the optimal seven degrees of slip — is most likely to win. The same applies in business.
When you continously seek out the limit, you’ll realize that it’s often much higher than you expected. Yes, you can make that screen even simpler than the bare-boned version you’re looking at. Yes, you can trust your employees much more than you imagined. Yes, you can launch without a billing system.
Once you train yourself to seek out the limit in all endeavors, you’ll get better and faster at correcting the inevitable oversteps, and hit that peak performance.
But if you never dare venture close to the limit, you’ll find that it’s shrinking all the time. There will be even more people you could possibly offend, even more bells that need whistling, ever more realities of the real world you cannot change.
Records are set by the people who said fuck your limits and found their own.
Over the past 8 years, millions of people across every imaginable industry have used Basecamp to manage over 8 million projects. In total, they’ve shared over 275 million to-dos, messages, and files.
What started as a side project in 2004 has become the world’s most popular web-based project management and collaboration app. 96% of our customers say they’d recommend Basecamp to a friend, colleague, or co-worker.
The Basecamp business is booming.
But too much good news is a formula for complacency. And honestly, we have grown a bit complacent.
That’s about to end.
We’ve gone back to the basics and made them better, faster, clearer, easier, and smarter.
In early 2012, 37signals will introduce Basecamp Next and change the way people collaborate all over again.
We’ll initially be launching by invite only. If you’d like a chance at an invite, visit the teaser page, scroll down, and enter your email address at the bottom.
Over the next few weeks we’ll be revealing more details about Basecamp Next. Stay tuned.
Nobody has covered the beauty pageant of startup contestants and venture judges better than TechCrunch. They not only cheered on a generation of Silicon Valley dolls to dress their finest for the pump’n’dump cycle, they fucking owned the barn where the show was held.
So it’s hard to summon a pittance of pity for the mascara tears they’re now sporting. They knew this day was coming. When sugar daddy AOL, father of the Master Plan, pulled out the big checkbook to buy the prettiest doll of tech rags, did they really think it was true love?
Sure, they were all excited at the trophy wedding. TechCrunch was “delighted about becoming part of the AOL family,” and AOL’s PR department was thrilled that “[TechCrunch’s] reputation for top-class journalism precisely matches AOL’s commitment to delivering the expert content critical to this audience”.
But now it’s been 11 months since the check cleared, AOL daddy is all out of sugar, and the TechCrunch trophy is full of dust. Cue a drama worthy of the Bachelorette.
Hey, Yahoo Finance, running junk ads like this doesn’t exactly inspire confidence in your credibility. Ugh.
The best money during the nascent years of a business is patient for growth but impatient for profit.
I recently purchased a bike from Mission Bicycle Company. I wanted to share a great experience I had when something went wrong. Shit happens – how companies deal with the shit is what sets apart the great ones from the other ones.
Mission Bicycle Company is based in San Francisco. I placed the order online using their easy build your bike configurator. Since I’m in Chicago, they had to ship the bike UPS.
When I received the big box, there was a 4” hole/tear in the side. I didn’t think much of it at the time, but after I finished removing all of the well-packed packaging around the bike frame itself, I noticed a large and deep gash in the paint all the way down to the metal down tube. The tear in the box lined up with the gash on the bike. The bike was clearly damaged in shipping.
I sent an email to Mission with some pictures of the box and the damage and asked them what to do next. They wrote back quickly and asked me to give them a day to think about how best to handle the situation.
The next day I got an email from them. They said sending the whole bike back would be overkill since the only thing that was damaged was the frame. Further, the bike was ridable – it was just a paint problem – so sending the bike back would mean I didn’t have a bike for a week or so. They didn’t feel good about that.
So here’s what they did: They called up a local shop (On The Route) and arranged to ship a new frame to them. Then one of their bike techs would drive down to my office and swap the frames and reassemble the bike for me while I waited. All of this at Mission’s expense.
They went above and beyond and took care of the problem with virtually no disruption or inconvenience on my end. That’s incredible customer service. I’m a happy customer for life. If you’re in the market for a great custom bike, check out the good people and products at Mission Bicycle Company.
A few years ago at one of our annual company meetups, the topic of options/equity came up. We’ve never had an options/equity program, but some employees were wondering if we could explore the idea.
So David and I started thinking about it. We consulted some other business owners, Jeff Bezos (our sole investor), and our accountants and lawyers. We wanted to get a pretty full picture of the implications of an equity program.
The more people we talked to, the more complex it started to sound. The complexity was both psychological (company dynamics) and economic (options/equity doesn’t really mesh well with an LLC corporate structure). And since we have no intention of selling 37signals or going public – the two scenarios where options/equity really make sense – the complexity became too hard to justify.
However, we were determined to come up with another way so everyone could participate in the unlikely event of a sale or IPO. You never know, so we wanted to have a system in place just in case.
Some of the considerations included:
- It needs to be simple to administer. The closer we could get to zero administration, the better.
- It should be easy to understand and explain.
- It should reward current employees. This was about who was at the company at the time of a sale/IPO, not people who worked here years ago.
- It should reward seniority. The longer you’ve been here the more you would participate in the upside.
- The plan would be consistent from day one until the last day. Some companies grant lots of options in the early days and then barely trickle them out later. We wanted the same opportunity for all new employees forever.
- We didn’t want to discriminate by position. Every employee, no matter the position, participates in the same way.
There were other considerations as well, but those were the key things we kept in mind as we developed the program.
Here’s what we came up with in the event of a sale or IPO:
- At least 5% of the ultimate sale price (or, in the case of an IPO, the fair market value of the capital stock) would be set aside for an employee bonus pool.
- Each current employee will be credited with one unit for every full year they’ve worked at 37signals, starting after the first full year. The maximum amount of units one person could earn would be five units. So if you worked at 37signals for two years you’d get two units. Three-and-a-half years, three units. Four years, four units. Five years, five units. Seven years, five units. Etc.
- We would divide the total employee bonus pool dollar amount by the total number of units held by all employees. This would determine the unit value.
- Each person would receive the unit value multiplied by their units.
We’re pretty happy with how this turned out. We think it’s a simple, clear, and fair system. And it’s a great alternative to the organizational complexity of option grants, acceleration, strike prices, conversion into shares, private markets vs. public markets, dilution by outside parties, partial vesting, etc.
One other thing: We treat this entire idea purely as a bonus in the unlikely event of a future sale/IPO. We don’t even discuss it with new hires. It’s not part of the overall compensation package (we don’t pay a smaller salary and try to make it up for it with this program). I wouldn’t be surprised if many employees have forgotten about it or don’t even know about it at all.
Slicehost—a scrappy web company bootstrapped with $20,000—cashed out for big bucks in 2008. How did they do it? More importantly, was it worth it?
We had a growing wait-list of people that wanted to give us money but couldn’t.
David Heinemeier Hansson chats with the founders of Slicehost, Jason Seats and Matt Tanase, to find out.
In a big company you have to construct artificial ways to get information.
Watch the complete interview at 37signals.com/founderstories/slicehost.
Forbes is reporting that Facebook’s Zuckerberg is now richer than the Google’s Sergey and Larry. How did that happen? By using the most naive form of financial extrapolation and calling it fact.
Here’s how the financial alchemy works: GSV Capital spent $6.5 million to buy 225,000 shares at ~$30/share. That amounts to buying about 0.01% of Facebook. They purchased these shares at a 40% premium over the last big valuation that put Facebook to be worth $50 billion.
So if you extrapolate that the premium paid for 0.01% of the company is the same premium someone else would pay for 100% of the company, you get that Facebook is now worth $70 billion. So the relatively modest investment of $6.5M snowballs into a $20 billion creation of “wealth”. That’s a 3076 wealth leverage! Put one dollar in, get $3,076 out.
Now anyone with an iota of critical thinking would perhaps question whether a stock purchase of 0.01% is representative for the worth of the company at large, but not Forbes. They simply accept this fantasy 1:3000 transformation as fact and serves it up as the foundation of an article that then goes on to place Zuckerberg as the 3rd riches techie in the world.
That is grossly irresponsible financial reporting. But hey, Forbes is on a roll these days.
Unfortunately, it’s not exactly an isolated case either. Remember the cover of BusinessWeek from 2006? It had a happy Kevin Rose on the cover with the headline: “How This Kid Made $60 Million In 18 Months”. Anyone wants to ask Kevin how much of that paper money he got to keep as Digg tanked? I’ll bet you a buck that it wasn’t $60 million — or anything close to that.
We used the same math to value 37signals at $100 billion in 2009. It was meant as a joke, but I guess Forbes thought of it as a blueprint.
Donovan McNutt, Founder & President of GeekDesk, on his company’s story:
The beginning
This business started when I was a 17-year-old kid — I went innertubing in the snow with a friend of mine, the snow was icy, we got off course and ended up flying across a ravine in an accident bad enough that it broke her pelvis and darn near broke my back. I ended up with a rib broken loose from my sternum, and the vertebrae connected to that rib pretty much knocked silly. It didn’t affect me that much until I was older, but by the time I was in my 30s, back pain was a fairly recurring problem for me. That was what drove me to look for a better way to work as a programmer.
When I first started looking for better ways of working (in terms of sitting/standing), I kept coming across these fixed diagram pictures showing “the proper way to sit at a computer” — usually spouted by supposed ergonomic experts. You know the type I’m talking about — feet flat on the floor, elbows at perfect right angles, etc. For me, my body was saying something much simpler: “MOVE!” It was telling me to change position once in a while. I pretty much had to ignore the experts at the time to trust that intuition.
GeekDesk started with around $20,000 and some well-leveraged relationships. I already had a reasonably steady stream of income from a small consulting business, and long ago learned how to live pretty modestly. So we didn’t need to make a whole lot of money right out of the gate. We don’t share revenues or employee count figures, but we qualified for this profile (profitable and over $1M in revenues) last year with significant room to spare. And so far this year, sales are averaging between two and three times what they were last year.
I love who we sell our products to. Every week, it seems like somebody I’ve heard of buys a desk or we get some great feedback from someone whose life was changed by just being able to stand up once in a while. I can’t really name names but some of my personal programming superheroes have purchased desks from us. It’s all I can do to not reach out and say “Hey, thanks! We think you are really cool!” It’s fun to be able to produce something that people you greatly admire find useful.
How we work
We don’t have a conventional “office” of any kind. Our work environment is what I’d describe as flexible, down-to-earth, and human. I’ve been self-employed most of my adult life (I’m in my mid-40s now) and never cared much for the typical corporate environment. Our culture reflects that. I’d like to think Scott Adams wouldn’t find very much fodder for his Dilbert cartoon strip here.
In general, we try to give our team a lot of room to move and encourage people to think for themselves, focusing on the overarching values and vision more than policy and procedure. I’m not much of a taskmaster — in fact, I actually hate telling people what to do all day — so I have found that it helps if I surround myself with people who “get it,” are generally proactive, and can think for themselves. They can take my occasional “sidelines coaching” input and run with it in such a way that, given their specific gifts and talents, they completely blow out of the water anything I would ever be able to do by myself.
I like to keep the organization as “flat” as possible. Wherever possible, I like to see people working side-by-side rather than over/under. Sometimes this frustrates people, because they want positional authority; It’s more “efficient.” I prefer relational authority. It’s more effective.
Continued…
When you start cutting corners, customers can’t always tell. But employees usually can. And that can be just as bad.
In this Mixergy interview, Jim McCarthy, the co-founder of Goldstar, talks about his days working at Noah’s Bagels and recalls a corner cutting moment that revealed a deeper change in the culture there:
The culture of Noah’s began to change…There was a point where the management of Noah’s said, “Only 7% of our customers keep kosher.” But having kosher in the store means we can’t have a ham sandwich or even a turkey and cheese sandwich. So the logic went, “OK. If we lose the 7%, because we’re not kosher, we’ll replace it by selling these other things.”
I remember at the time thinking, “That’s not how it is going to work,” and saying, “That’s now how it is going to work,” and it did not, in fact work. Because you’ve taken the 7% of people who love you, think of you in a way that brings goose bumps to them, and told them to, “Go to hell.” You’ve told them to leave your store.
And more importantly, you’ve said to the employees, “Remember how we used to stand for something other than just selling bagels and cream cheese? We don’t stand for that any more.”
That type of “employees will notice even if customers don’t” thinking came in part from a story McCarthy had heard about Starbucks’ Howard Shultz:
There was a point, I think in the 80′s, where somebody came to Starbucks’ Howard Shultz, and coffee bean prices were going through the roof, and it was a threat to the survival of the company because the cost of coffee is a big part of their business. So of course somebody comes to Howard and says: “You know, if we just kind of kick down from the top grade of beans to this one, everything’s cool, and we’ve done a survey right here, that says only, let’s just say, 7% of customers can tell the difference between the best coffee and the second best coffee.”
And his response was, “No, we’re not going to do that, we’re going to find some other way to get through the price crisis. Because even if nobody noticed, the employees will notice.”
It’s a good lesson: You’re not just sending out a message externally, you’re sending one out internally too. If your employees don’t believe it, the whole plan falls apart.
Continued…
On Scotland’s North East coast, a craft beer startup is trying to brew a revolution. “The idea to start our own brewery certainly wasn’t something we consciously set out to do,” says James Watt, who founded BrewDog along with his school pal Martin Dickie. It all began when the two were discussing beer monotony (“the stuffy ales and fizzy yellow lagers”) and how often supermarket and big brand beers taste the same.
Dickie had just finished a degree in brewing so the duo decided to try and create their own beer. The goal was to make something a class apart from “the stuffy ales and fizzy yellow lagers” that dominate the UK market. Watt: “I guess like any good idea it just had this natural flow about it that just kept rolling and has never really stopped.”
Dickie (left) and Watt.
A makeshift brewery
After their discussion, the pair set up a “sketchy” makeshift brewery in Dickie’s garage and created the first batch of what is now known as Punk IPA. They took the pilot beer to a series of open tastings and were discovered by beer guru Michael Jackson (“The Beer Hunter,” not “The King of Pop”) at an event in Glasgow. Upon tasting the beer, he told them to quit their jobs and go into brewing fulltime. And that’s exactly what they did.
Both were only 24-years-old at the time, the pair took the plunge and leased a building. Watt: “We somehow managed to scrape together £10,000 of personal savings between us along with a £30,000 bank loan which we lied to get. We found that turning up at the bank wearing a suit whilst pointing at a series of useless numbers on a spreadsheet is the best way to get a business loan.”
The beginning stages involved a lot of long hours. “The first year involved living, eating and sleeping at the brewery — a drafty warehouse on Fraserburgh’s coastline,” says Watt. “Exposed to the elements and running short on funds, Martin and I often worked 20 hour shifts, both to stay afloat but also to stay warm.”
Within a year, a buzz began to form around their beers. Some people attacked their “reckless and irresponsible” approach to brewing. Others saw their beers as wildly innovative and providing a much-needed shakeup to the outmoded classic beer world. “Many people are still making their mind up over which brush to tar us with,” explains Watt.
Scaling up
The rocketing demand meant the company had to deal with scaling issues — specifically: maintaing quality control while brewing more beer. “We are all about the beer quality, not about how much beer we make,” says Watt. “We live and die by what is in the bottle and what is in people’s glass. We want to ensure every single beer that leaves our brewery is a true reflection of our beer philosophy and the beer we can make it. To have this much control is just not possible when you scale up too fast.”
Watt’s advice to other starters
Find something you are passionate about and have an almost unrealistic level of confidence in your own ability. Starting a small company you get so many doubters, so many kicks, so many knocks and so many set backs. Only passion and belief gets you through these times.
On a realistic level though, you also have to have a some kind of business sense. Check out the competition and if you can’t identify other businesses doing what you’re doing, it’s maybe worthwhile considering whether a marketplace actually exists.
So even though the company was profitable and turning over £1.8m (around $2.8m), it reevaluated its plans. Watt explains, “We needed to completely reinvisage the way we financed our company in order to hire talented staffers and boost the amount of beer we were able to produce whilst ensuring we still sourced the best, rarest, and most obscure ingredients.” In the midst of 2009’s post-recession climate, BrewDog opted for a completely alternative business model called “Equity for Punks.”
“Equity for Punks turned the concept of business ownership on its head,” according to Watt. “Despite having run the business for just two years, we took the unprecedented step to become a PLC. Then we offered the public the opportunity to buy shares (just under 5% of the company) in BrewDog. We managed to raise over £700,000 in extra funds as a means to growing BrewDog even further. Over 1,300 people bought into BrewDog’s vision of a craft beer future that offered people more choice.”
Now the company exports 700,000 bottles per month to over 27 countries worldwide. 2010 revenue was £3.5m with profits of £300k. There are 65 staffers and locations include a brewery, three bars, and a restaurant.
Continued…
Exit Interview is a Signal vs. Noise series that talks to founders to see what happens after companies get acquired.
Webshots
Webshots has been acquired multiple times. Webshots Founder Nick Wilder:
Webshots has quite a sordid history: we sold it to Excite@Home in 1999, they went bankrupt, we bought it back (97% off) in 2002, and sold it again to CNET in 2004. American Greetings bought it from CNET about two years ago.
After buying it back from Excite, we immediately figured out how to make it profitable and worked our asses off for a couple years. We had great growth, product development, and a huge profit margin, which made us an attractive acquisition.
CNET, despite being a company with great assets, was a disaster. They broke apart our team (engineering moved somewhere, ad sales went elsewhere, etc). They tried to move us to different server platforms. We accomplished absolutely nothing in the year I worked there. I quit on my 365th day, which was my part of the deal. The product seriously suffered, and users started dropping us for the newer photo sharing sites that were simply better.
Webshots has been in steep decline ever since, and it’s depressing to see your baby wither away. According to Alexa, it was once a top-20 ranked property (1999-2003 was the high); Now it’s around 1000.
It’s depressing to see your baby wither away.
TripUp
TripUp was acquired by SideStep in July 2007. TripUp Founder Samuel Rogoway:
SideStep’s acquisition of TripUp was bittersweet. On the one hand, we realized a successful exit in a market that was becoming increasingly saturated with travel social networks. Sidestep also had exciting plans for integrating and expanding our community features, which our users would have loved. On the other hand, Kayak subsequently acquired Sidestep and phased out TripUp, which was sad.
I think Kayak missed a big opportunity to integrate interactive community features into their metasearch platform. Interacting with like-minded travelers and locals to plan and experience your trip offers value that traditional user generated content and editorial content cannot provide.
I think Kayak missed a big opportunity.
GrandCentral
GrandCentral (now Google Voice) was acquired by Google in July 2007 (rumored price: $50 million). GrandCentral Founder (and currently Entrepreneur in Residence at Google Ventures) Craig Walker:
When you get acquired, you have a sense that there is some grand plan of exactly what you are expected to do at the new company and that everybody knows what this is. In reality, it was a lot more chaotic than that. There was nobody telling us what we had to do. We were empowered to figure out the best course for GrandCentral (aka Google Voice) within the company and we got a lot of support at every turn.
It’s difficult to say what would have happened had we not sold. We definitely would have raised a pretty substantial Series B and would have continued to innovate at a rapid pace. We likely would have been able to roll out more features more quickly (one of the side effects of being part of Google is that everything you do must be able to support millions and millions of users immediately, which does slow down the pace of innovation at a start up), but would have lost out on the ability to quickly reach tens of millions of users. At the end of the day, more users were definitely better off due to the acquisition as it got out to many more people.
At the end of the day, more users were definitely better off due to the acquisition.
The only thing I wish that Google would have done differently would have been to tie the product more closely to Gmail early on. We launched this feature last summer (2010) and its been a great hit. Had we done that in 2008, it would have been better.
Continued…
Jason 30 Jan 2006 — An email from a reader:
At every company I work at, I keep seeing product roadmaps with qtr by qtr delivery of different features – they typically go out 1-2 years. Of course the product roadmap is out-of-date almost immediately because knowledge is constantly gained from market analysis and interaction with customers. My question is do you guys do product roadmaps? If so, do you put times schedules around them? I’d love to see your comments on this stuff…
Our answer: Product roadmaps are dangerous. They close your eyes and often put you on the wrong path.
One of the tenets of the Getting Real process is the idea that the future should drive the future. When you let a product roadmap guide you you let the past drive the future. You’re saying “6 months ago I knew what 18 months from now would look like.” You’re saying “I’m not going to pay attention to now, I’m going to pay attention to then.” You’re saying “I should be working at the Psychic Friends Network.”
Instead of the roadmap, just look out a few weeks at a time. Work on the next most important thing. What’s the point of a long list when you can’t work on everything at once anyway? Finish what’s important now and then figure out what’s important next. One step at a time.
This doesn’t mean you can’t have ideas of where you think your product should go or future features you’d like to implement. This doesn’t mean you shouldn’t have a vision. It does mean that you need to pay attention to reality. Reality is where you’ll find the best answers. And you’re never closer to reality than right now. The further you get from now, the less you know. And the less you know, the worse your decisions will be.
The other problem with roadmaps is the expectations game. People expect you to deliver what you say you will in 4, 5, 6 months. And what if you have a better idea? What if there’s a shift in the market that you need to address? What if what you thought wasn’t what actually happened? Any change in the roadmap nullifies the roadmap. Then the map isn’t a map at all.
Try it. It’s liberating and certainly more satisfying than following a plan you know is outdated.
