David Heinemeier Hansson's Speech about Making Money at SS2008 | Hacker News Reader

David Heinemeier Hansson's Speech about Making Money at SS2008

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74 pointsvlad48 comments

The credo of a tycoon of old (think JPMorgan or Vanderbilt) was to build an empire. His own empire, in his lifetime.

Tycoons of today have build their own empires (Microsoft, Google, Apple, Oracle etc.), same principle, same philosophy.

When and why did it happen that flippers took over this market's mindshare? A young entrepreneur today dreams of selling out to Yahoo/Google/Microsoft as soon as possible. Quite often even before his business is profitable.

Hey, if you have a growing business that is profitable, you should keep it for yourself. Many people with money I know (so-called 'professional investors') dream of having such a business in their possession. Such business is not listed, so you cannot buy it on the market. What you can buy on the market (what is listed) normally grows slower and is over-researched and over-valued.

But of course, if you focus on building the cash flow for yourself, and keeping the option of striking it very big at some time in the future for yourself, then the whole industry of undervalued option-buyers (VCs, angels etc.) will be left without work. So the propaganda is put to work... When is my next funding round?.. A round of what? When is your next client subscribing to your app - that should be the question.

DHH thrives on being controversial, but the point he makes here is simply a well forgotten truth about entrepreneurship. Building your business slow and taking full credit for it for yourself used to be the norm before the flipper ethics kicked-in.

Times change, and America is much more corporate than it used to be. When a market becomes saturated innovative people will look elsewhere to make their mark.

I don't want to spend my life managing a business. I want to make some money and do something else. I have no doubt that I would make a fitting CEO. But the hours are long and the work is unappealing. There aren't any CEOs I want to be like. Apple's CEO, maybe, but what price does he pay to do what he does?

I really get the feeling that anyone ('anyone') could be a CEO these days. I feel like the CEO is a reward that keeps everyone else on the corporate pyramid. Maybe I'm wrong. I could be. But I haven't seen the argument that debunks that idea. (And I have seen a lot of instances of CEOs who didn't deserve what they received.)

The money is a silly motivation. What am I going to do with $6 billion that I couldn't do with $6 million? Spend conspicuously? Raise a family of layabouts?

I would much rather become financially independent and begin doing the work I want to, when and where I want to. I like to make things, and I like to talk to creative people. I like to do small things really, really well. And I don't like to spend my time dealing with red tape. I feel like I have an obligation to society, but that I don't have to fulfill it by spending my time managing a large corporation. There a lots of other less flashy positions desperate for someone to do a really great job. I want to do something small perfectly, not something huge good enough. Does that make sense?

Are there simpler and more dependable ways of doing this than creating a startup?

If you want to solve the money problem, there are a bunch of ways. Creating a startup is hard work and is neither simple nor dependable.

For hackers, do IT consulting. For math guys, do trading. For everyone else, do finance. You get the idea.

Those don't "solve" the problem. Those don't even give you a wage as good as many of your peers.

Another route is to find a place where the cost of living is much lower for a comparable standard of living. According to my research, some more underdeveloped countries seem to be such the place:

http://news.ycombinator.com/item?id=122341

Of course you might say the cost of living won't always stay so low, but if it goes up, then that means the underdeveloped countries are becoming more productive, and the world economy is becoming better. If your interest comes from investments in the world economy, then that means you should be earning more from your investments.

I have created a good growing company that leaves me financially independent anyway - on a monthly basis at least - and I can continue to do other things also. I think this attitude of short-term gain misses out that success is a journey and not a destination. Your motivation still IS money - most of the successful people I know achieved the money because they loved what they are doing and the by-product was a financial reward

why waste time fiddling with a company when you have all the money you will ever need?

and not everyone's passion can make them money

Because I'm interested in startups, in commerce and not everyone can run a company. I provide employment to people and a social responsibility via my own and my companies actions. That's just for starters!

right, but those are your interests. mine, for example, are completely opposite -- i want to stay home and play with theories

i agree that if you have nothing better to do, and you want to be one of those famous CEO's, then selling out early doesn't sound right. but some people do, in their definitions, have something better to do

What's your point? You asked for his opinion, got it, then shot him because of it.

it was a rhetorical question, it didn't occur to me that it would pertain directly to who i was responding to

my point is not everyone wants to accomplish the same things in life, but everyone needs money to be able to accomplish them (at minimum to pay the bills)

why would someone want to just get some money and be done with all the company stuff? because they have something better to do. maybe they want to visit every city in the world. maybe they want to raise their children full time and homeschool them. having money, they have those options

if you don't have something better to do (in your definition of 'something better',) then you are already doing what you think is best, and more power levels to you. may your hair glow yellow or gold at some point

Sure, it does make a lot of sense. If you can do bigger things perfectly, this is likely to be very well rewarded, too.

But could any random person be a good CEO? I don't think so. It's tough to judge the difficulty of a position without actually holding the title.

This is a good discussion. The flipper mindset is probably localized to software tech, and maybe that mindset is required. The reason is the constant change of technology, the shifting attention span of web users, and the maturity of the field make it harder to build a "normal" sustainable business. So, most people take the path with less friction: build something that gets enough attention to sell, profits optional. Lack of technical depth and, hence, barriers to competition are factors, too.

I don't think the flipper mindset is unique to software. Day traders flip stocks, sometimes in seconds, and a lot of people in Miami (and elsewhere) just took a bath trying to flip condos (buying them in big blocks and then trying to unload them on out-of-towners for ridiculous prices). The general get-rich-quick scheme exists in every business.

I think the best software is built by people who are not looking to flip. Linus has been with his baby for over a decade. Richard Stallman even longer. Bill Gates had a lot of trouble giving up his software products, and Marc Andreessen said yesterday that his favorite part was building out the company... being a startup was just how he got to build companies. I think people looking to pump and dump will just do the minimum it takes to get by, and it shows.

"Flipper ethics"? Yikes. There is a special flavor of bile that comes from bootstrapping types. I wonder if it's caused by dread of their own lack of connections to investors, or of their lack of expertise in this area, or what.

There are actually very good reasons for why "flipping" is good for everyone. It's obviously good for the founders (notwithstanding DHH's puzzling story of a guy who was forced to switch from a mac to a PC after his startup was acquired). And the acquirers take a rational risk by purchasing a startup. At the point of acquisition, a startup may only have a 1/100 chance of being the next Facebook, but it will be acquired for 1/1000th the price of Facebook. 100 of those acquisitions, if you're Google, and what you have is a Facebook for tenth of the price (and a whole pile of other good stuff).

In fact, if you don't want to take too much risk, going for acquisition is better than going for revenue on the scale of 37signals. It even seems dishonest that he compares the 37signals way and the IPO way in terms of risk, completely ignoring the acquisition way.

Also, I don't think the average hacker wants to be a "tycoon". He probably just wants to solve the money problem once and for all.

Really, as soon as Justin TV gets the video online, people should see it. DHH's presentation really was the best of the bunch in my opinion, followed by San Altman's.

He really made a lot of sense. There is so much talk and buzz about getting funded that it was really refreshing to hear some one talk about just plain starting a business. The profit margins in the software business are very, very high. If you can offer a decent product and get people to pay for it, you can make a rather nice living for yourself without having to play the funding game.

HUGE if's.

Yes, it was a very nice presentation.

There's too many kool-aid drinkers in the web 2.0 world these days, and its a true breath of fresh air to see somebody with some real business fundamentals talking. I hope his talk makes more people wake up and realize that by trying to build a solid business over time, you have a much much MUCH greater chance at success than people flipping dodgy startups.

I don't think his message was controversial at all. Instead, its a shot of common sense in a world of disinformation.

Wow, this typed version destroyed the power of his talk. Please wait until you can see the video (on justin.tv?); his presence is huge.

It has been the best talk by far.

These are just my notes I chose to share as the speech came to an end. I apologize if I offended you in any way.

Oh, I'm not offended in any way. Sorry if it came off that way. I just think the power of his speech was lost in translation.

The notes are really good, actually.

Don't be a dick. Those notes were awesome. None of my partners are going to sit through a DHH talk; I was able to cut-paste from this to start a conversation.

He wasn't being a dick. I was also sitting there and I can attest that it's not near as powerful to read out of context as it was to see it.

A lot of that comes from the fact that he came on right after Greg McAdoo (Sequoia Partner) and just unloaded a totally contrasting view, and the delivery was excellent. Reading it in bullet point form just doesn't convey that (although the notes were great otherwise).

Everyone had great things to say, and Greg McAdoo really impressed me as well, but in the context of the whole day, DHH was pretty refreshing.

so its not worth watching for 25 minutes, but you're going to have a dialog based on the transcript? (Which doesn't really fully capture what he was talking about) That makes no sense.

Hey, you know what? I'm not particularly interested in having a conversation about DHH's company. His company runs fine without my input. I'm also not particularly interested in faithfully replicating all of DHH's ideas. That's why my eyes aren't glued to the screen every time he talks. I'm glad he has an audience. I like him. But I've got a pipeline to help manage. So really, and I'm asking you, Jamie, who gives a shit?

My point was, don't snipe at some guy who took the time to write up notes from the talk because his hero worship wasn't total enough to prevent him from doing me a favor. I'm sorry he folded up your favorite player's rookie card and stuck it in his BMX spokes --- that must drive you nuts --- but that writeup gave me a useful idea. I'm going to make a judgement call that says that watching some Flash video of DHH talking isn't going to be worth the billable 25 minutes.

Enough with the straw men.

In tptacek's defense, he has a right to share a news yc submission with his coworkers without waiting for a justin.tv video (great guys) to come out first. Or he could share the notes and send the video link when it comes (did come) out later. My notes weren't a transcript but they didn't contradict what DHH said and the message is the same as it was during the presentation. :)

>Try solving your own problems. Your own company is not unique, there are probably two hundred others who have the same problems.

But if someone solves the same problem as you, whine about it and have a quasi book-burning ordeal where you get it permanently removed from the internet. (Campfire)

video courtesy of justin.tv: http://www.justin.tv/hackertv/97862/DHH_Talk__Startup_School...

Great! Turns out this speech was in fact recorded successfully and completely by Justin.tv, but apparently some others like Arrington's were not due to technical difficulties (like I remembered last year.) I was actually very nervous because I made a decision to publish these notes to the public asap, but I was missing out on the first part of Paul Buchheit's speech to do so. Why was I nervous, when surely there would be perfect, uninterrupted video recordings , with full and clear audio after the event? Well...

For new technology, it seems to me to be a land-grab. Grab the users who want X, then either figure out how to make money off them (As google did), or sell to someone who sees the value of your audience share.

So... is it:

1. Find a problem - something's broken 2. Find a solution - make what people want 3. Price it 4. Get users

3. Get users 4. Work out how to monetize them

I think either can work, and both have disadvantages. Charging up front sort of goes against what PG said in his talk (Great talk I thought) - about being nice and helpful and giving users stuff they need. Waiting until you have the userbase before you start monetizing means you don't have cashflow, and may need funding.

I liked his comment about scalability. When you have paid subscribers, you like scaling issues. Scaling issues (server capacity being utilized) means your business is doing well. With your subscription fees producing a healthy profit, you can buy another server (a kick-ass one).

I don't think his speech was that great. Loud and arrogant doesn't make for a great speech. He kept stressing the ease of settling for the middle and just asking people to pay for your services. He used the analogy of us paying for cars but I think there's one huge difference. There is a huge barrier of entry into the car business which ultimately results in us having to pay what we pay, but I'm the web world, your product can be copied on the fly, look begged and be free, and that's why people want to horde the masses, something he criticized, so they can offer a free service and yet monetize using advertisements.

It happened with his product, the launch of huddlechat, but that as you know was taken down.

"His product" is Basecamp, not Campfire; a tiny fraction of their revenue comes from Campfire.

Most people would take good odds of running a multi-million dollar business over infinitessimally small odds of flipping and retiring. And he's obviously right about the odds: what percentage of YC companies have flipped?

Ok, but the point that the economics of information goods are often quite different from physical products is a valid one. That said, the idea that you should look for markets that aren't winner take all, where you could have a sustainable, mid-sized business, is a good one.

There is a difference between an entrepreneur and a speculator.

It's not a zero sum game, you can make money selling stuff that also given away for free elsewhere. Putting out a free version of Basecamp won't kill Basecamp, the market is big enough for everyone to live. As far as most businesses are concerned, $25 a month is free, it's pocket change. If your app solves one of their problems for that price, they'll pay it gladly rather than deal with hosting or maintaining their own free version, or using someone else's free version because most real business folk don't trust free.

"It happened with his product, the launch of huddlechat, but that as you know was taken down."

DHH != 37signals

I think you've missed the point. The point is not to settle for the middle, the point is that there are real everyday problems that need solving, and there's real success that can naturally come from solving those problems, overtime. You can't force success or simply will it.

I appreciated how he positioned "startups" in the same realm as other "regular" businesses; that's a very honest view because at the end of the day every business (tech startup or Italian restaurant) is judged by the profits they generate by creating value for their customers. Thats what a business does, 1 + 1 = 3, adding valuing. As a business owner you can't escape that law of commerce and expect to survive. Tech startups aren't a special class of business in and of themselves that deserve to be valued higher than other businesses, they're only special if they can grow more efficiently and operate at a higher margin than other businesses.

Loud and arrogant? It might come off that way, but that's pretty subjective, and I happen to disagree.

In any case, if you look past the delivery style, his speech contained many good observations.

I met him in Palo Alto on Saturday evening. He was honest, patient in answering people's questions, and very friendly.

in* and better*, last time I post with a drained iphone.

There's been an open source "copy" of Basecamp for quite a while now, but I don't see 37signals going out of business. Turns out companies are quite happy to pay a real company real money for a real service, rather than mess around playing with free alternatives that may or may not deliver.

It all goes back to the mentality of loving what you do...if that results in you being the next google so be it. The problem is people set their minds on being the next big thing instead of worrying about what they are doing in the present. DHH is speaking to living in the present and not compromising your ideals.

Great presentation! I'm already building a startup predicated upon the subscription model and I'm already familiar 37 Signals, DHH, and Getting Real. I just needed this talk to give my a little extra kick in the butt. New business plan in the works today.

Thanks for these notes. Very detailed and captured the meaning perfectly. But you just had to be there to see the frenetic energy with which he boils on stage.

Well, anecdote != data:)

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