I'm normally a fan of Paul's essays, but this one felt a little forced. Maybe not enough "essayer", too much agenda?
Sounds like a good plan. Let's think about the optimal way to do this.
Disagreeing by agreeing is a powerful technique. But it's pretty obvious in this case. I prefer disagreeing head on, if I have a solid argument.
They want enough money that (a) they don't have to worry about running out of money and (b) they can spend their time how they want. Running your own business offers neither.
I have a friend who "ran his own business" for 4 years while doing his medical degree, and accumulated over a million dollars in the process. That's not enough to change your lifestyle to be like the mega-rich, but it's certainly enough to gain the freedom to spend your time the way you want it. Think of it this way: $1m gives you at least enough money to spend 10 comfortable years doing other stuff and figuring out what else you really want to do.
And as anyone who runs their own business can tell you, that requires your complete attention.
That's not true for all businesses. I have a business that I haven't paid attention to for over 9 months and it's still generating revenues (couple of thousand dollars a month). Sure, revenues go down, but even with minimal maintenance you can keep them dropping reasonably slowly.
There will of course be some founders who wouldn't like that idea: the ones who like running their company so much that there's nothing else they'd rather do. _But this group must be small_.
Why must it be small? Maybe this group is much larger than the other. Where's the evidence, or even argument, that it must be small? It seems to me there are far more people running IT businesses than people starting up in the valley. I would think actually the number of people who enjoy running an online business must be large.
I could go on, but this comment will turn into a rant. I'm quite disappointed in this one. When DHH gave his presentation I thought it was quite interesting that Startup School was hosting a talk that went directly against their principles ("make something ppl want and don't worry about the money", for example), and I was curious what pg's answer would be. I'm not convinced by this answer. It seems weak and somewhat dishonest.
I get "This video is not available" for DHH's presentation: http://omnisio.com/startupschool08/david-heinemeier-hansson-...
If 37s has doubled revenue for the last 4 or 5 years while hiring 2-3 extra people, I'm pretty sure they're not far from walking away whenever they want. Or they could just work 4 days a week and have the company pay for their cooking and Tai Chi classes while still retaining full control. That still sounds like a better deal to me.
If they can walk away that easily (i.e. they are replacable), do the founders add value anyway?
Costs: Can't be too much more, certainly not nearly matching the revenue growth. They do their own advertising and marketing so that's free. Infrastructure costs are higher because of more accounts, so let's count that as the cost of 7 employees, giving them double the costs. And with extra benefits for employees, put it up to 2.5x of 2004 expenses. total.
The profit picture gets even more ridiculous. If they had 5% margins in 2004, their costs go up by 2.5 and revenues go up by 15, then their profit is over 250x over 2004. Divide that by 3(?) founders/principals and you get a lot per year. Heck, it's still a lot if you divide it by all 12 employees.
37s is probably making more profit annually than most startup founders will ever sell a company for. If they pocket a part of that a year, then they have the equivalent cash to a liquidity event plus they still have the company. Granted, they're exceptionally successful, but hopefully these numbers will open some eyes for people that look down on lifestyle businesses.
Their reward is making the company fit the lifestyle they choose to have as much as possible, instead of selling out. I agree that this is very appealing.
There's an old Romanian saying:
The cow grows fat under the eye of the farmer.
Investments are just another business model with recurring revenues. It begins to die the moment you stop managing it. You can get a professional manager for that too - but they too require attention.
Both require attention to thrive.
What exactly do you have to manage again?
Believe me, I've been thinking a lot about that recently.
That said, your point is taken: There is some amount of money where you can set up some fairly risk-free, static investments and take out $X every year indefinitely. Just make sure you do a little more thinking upfront about how much money that is, and what static investments those are.
By my math, pg made between $10-$30 million. I don't know what his cut of the $50 million was, but Stan Reiss (?) from Startup School 2005 said the Yahoo stock value went up from $50mil to $750 mil, so whatever pg kept in Yahoo stock went up by 15x. We don't know how much Yahoo he kept post-crash, but I'd peg him still over $5mil, maybe up to $30mil if he's Mark Cuban savvy. I don't think the 37s guys have accumulated that much, but I'd bet they have more than any YC alum (so far - we'll look again when YC is 5 years old).
Using your definition, I don't think walking away is something anyone on that team is interested in doing. They're already living in their "walk away" phase.