We Choose Profit at 37signals | Hacker News Reader

We Choose Profit at 37signals

37signals.com

58 pointsamin50 comments

There's situations where it makes sense to raise $X million. And then there's situations where it makes sense to take nothing, bootstrap and become self sufficient.

How do you compete against YouTube, Big Banks, Twitter if you generate $1 in "FU money" profit? A VC approach may make sense if that's your goal.

But if you're creating a REST API client, selling it B2B, why are you raising $250 million at a $5 billion valuation [1], when you can just start selling it through organic dev network effects and growth?

Context matters.

[1]: https://news.ycombinator.com/item?id=39702610

> Profit protects you from your ego

the whole thing was an ego trip.

the profits pay to host the page.

this is far from the first braggadocios piece out of there.

clearly much protection is needed.

If by egotrip you mean exit from the mainstream then yes. It’s refreshing to hear this simple methodology.

no, not hardly what was meant. the failure of a humble brag was tiresome, and quite mainstream.

Imo a huge problem with the business culture in the bay was that it seemed like, for years, VCs were encouraging some very irresponsible business practices in the name of growth at all costs. The low cost of lending in this environment allowed these businesses to survive by raising money whenever they needed it, which I think had a really negative effect on the software market. When the unprofitable companies can out compete the profitable ones, you essentially move to a regime where VCs are subsidizing the end user, which is unsustainable. When interest rates rose, the car suddenly decelerated and some folks went splat. A lot of user good will got burned by a sudden pivot to profitability (see the discussion on enshittification), and a lot of people's careers have been damaged. I can't help but wonder if things might have been better if we had grown sustainably, or if the current hangover was worth it for the period of blitz scaling we got.

... where VCs are cannibalizing the end users ..

FTFY

> This means every year we take risk out of the company.

erm, not sure how a company which doesn't reinvest it's profit is less risky than one that does....

I don't think the meaning is anything terribly sophisticated. I read it simply to mean that if you invest money in the company, that's money that is at risk of going poof if the company folds.

If you take the money out of the company, that money can never be impacted by anything that happens to the company in the future, so the total amount "at risk" in the company is decreased.

This is, IMO, an overly simplistic take and I'm not endorsing it by explaining!

If you don't reinvest enough money in your company, eventually, the market moves you by.

How many people on here still use Basecamp? I suspect a lot less than ten years ago. I'm at a startup, and we had to select project management software. Basecamp wasn't even in the discussion.

So, are they better off having made 10 years of profit, or should they have spent a bunch of money to end up with a product that's still probably irrelevant today, and no money to show for it?

Intuitively, all effort spent on a software has harsh diminishing returns.

Getting to 50% is easy. 80% isn't too bad. 90% is starting to feel like work. 95% is damn hard. 99% is a mammoth achievement. 100% is unattainable.

Increased functionality has value to a point, but it's fairly finite. By continually reinvesting in the same product, you are essentially betting on being at least a 99% product, if not 100%. Most products aren't that. Obviously you want to make a good product, but a lot of times trying to that by just throwing time and money at it just gets you Duke Nukem Forever'ed into irrelevance.

That's ok.

Most projects end in irrelevance.

Wouldn't you rather have a happy life and make a decent buck while on the path there? Many scientifically minded people mock the lottery as "a tax on people who don't understand math", but is extreme VC culture (and I'd paint most of the SF scene with that brush) anything but a lottery? It certainly isn't a meritocracy.

Depends who you are looking at.

As a customer of 37signals, I'd prefer they didn't increase the risk on the business by decreasing the risk that their investors wouldn't make money.

If the point of a for-profit company is to make a profit, then deferring profit is a big risk. Maybe it pays off with even more profit down the line, but for most businesses, there is no "down the line".

Because they've already made the money.

You can talk about future growth all you want. I'll pay you Friday for a sandwich today, and all that.

They're saying just do the thing. Actually make the money. Don't spend a lot of time faking white papers that say how you're going to make money 20 years from now.

> Don't spend a lot of time faking white papers that say how you're going to make money 20 years from now.

In the ZIRP era, it was much more profitable for founders to fake white papers about being profitable, than actually being profitable.

I think it still is, but not to the same degree.

I’m glad you’re learning. Glad you’re reading.

No, I think the article is misleading.

The "risk" is to the investors getting profit, not "risk" to me as a user.

What the hell did I just read?

They’re such a unique company, but they’ve always fail to recognize just how unique their situation is and how most people can only dream of being so lucky.

- First you have DHH who is one of the creators of Ruby on Rails. He has a large cult-like following

- You have relatively simple projects that are profitable from day 1

- They have a series of “self-help” style books for running a business that are popular. Rework was their most popular by far.

- And when you do take on money you get an extremely unique business arrangement. Bezos invested in them early on and only became a member in a LLC. All the VCs I know make you reform as a Corp.

The only other places even remotely close to that might be Vercel and Netlify. And I only say that because of their widely popular open source projects.

https://medium.com/signal-v-noise/the-deal-jeff-bezos-got-on...

They are rare (not unique), true, but I don't think they fail to recognize that. In fact, this post is the opposite of such failure. They're saying they're special because they choose to be--because they're clear on the tradeoffs and willing to make them.

There are plenty of other small, profitable, SAAS businesses out there, but you don't hear about them because they don't operate on the same scale (and they're not as outspoken).

There's hitting a home run, and then there's reaching home from 3rd on a sac fly. Don't confuse one for the other. It's easier to be a unicorn when you start with a horn already on your head.

Company chose profit. Bold.

In the context to the tech startup environment of growth and grandeur it is, but from your perspective yeah, nothing to see, time to move on and stop commenting.

Are they trying to gaslight people or are they really this stupid? If you don’t have any viable ways to reinvest then invest profits in bonds and index funds, that would truly be financially responsible and reduce risk for the company. The reality is they ARE reinvesting the money, in their personal accounts... What complete nonsense.

That's... the entire point of a for profit company. Why on earth would they put company money in an index fund? What an absurd idea.

Evidently my original comment wasn’t clear enough.

First of all plenty of companies do invest money into equities, bonds, real estate, etc. That’s completely standard and in no way absurd.

I have no problems with companies taking profit, I have a company and I take profit. I would just find it incredibly embarrassing to attempt to convince my customers that me taking profit is for their benefit, and somehow the optimal way for me to increase my reliability as supplier, against the alternative of investing in product improvement.

It’s not that they’re taking profit, it’s that they’re advertising it as if it’s some kind of noble deed they’re performing on behalf of their customers. It absolutely does not remove risk from the company, that’s complete nonsense. The whole post is just strange.

The point of a company should be to benefit the people who work for it. Reinvesting money into a company can help with growth, but as they say, it's a risk. The point of the company is the workers, so there's nothing lost by just ... giving the money to the workers. If it's time to look for growth, they can reinvest it. Being profitable gives that flexibility. But if you're not an investor driven or publicly traded company, contrary to popular wisdom, the line doesn't always have to go up. Sometimes sustained customer base or just slight growth is enough.

I swear HN is like peak satire at this point.

Do you not understand why one starts a business?]

It ain't to work 90 hours a week until you drop dead from a coronary at 48 with nothing to show for but an obituary that says you created lots of shareholder value.

When did the West Coast tech scene utterly lose the plot?

What ever happened to starting a good company that makes a good product that fills a need, and provides a stable and comfortable life for the employees?

We need more public benefit corporations and way less VC bullshit.

I do agree that we need more public benefit companies; not every company needs to be a multi-billion dollar enterprise. However, I disagree that Silicon Valley “lost the plot.” In fact, I believe this has been the plot of Silicon Valley since at least the 1970s. While there were companies that focused on good products, sustainable business markets, and great business-employee relations (Hewlett-Packard when The HP Way ruled is a fine example), there’s also a very long history where companies and businesspeople focused on growth and profit over other concerns, and where employees had the potential for a big upside (through some combination of high salaries, big bonuses, stock options, RSU grants) if they were willing to sacrifice work-life balance. The Macintosh team circa 1983 had “90 hours a week and loving it!” T-shirts. This led to many innovative products, but these companies were clearly about growth and profits, with innovation being a means to an end (Scrooge McDuck piles of money) instead of the end itself, even if these companies did employ dreamers who cared less about money and more about their technical visions.

After having worked in Silicon Valley for nearly a decade, the area to me isn’t about building future Hewlett-Packards or In-n-Outs or Costcos, as wonderful as this would be for our society since we definitely need companies that are rooted in serving their customers and society. It’s about building future Apples, Microsofts, Googles, Facebooks, etc., where they went for the gold and ended up with tons of it as a result of their success.

It ins't doing it though. It's splashing huge amounts of cash on performative BS like flashy SF office space (that's now sitting mostly unused) and not actually making products, even.

The goal stopped being about building a company and started being about building an acquisition target. Actually producing a product or innovating is secondary, if even considered.

Seriously .. this is non-sense, right ?

tldr : "profits = good, investments = bad"

Lewis Carroll's "Through the Looking-Glass" has a great way to show it things are done : you have to keep running to stay in the same position. If you stop investing (= stop working), then you fade behind, become less competitive, eventually die.

So, back to the original post, what they actually do want to say is, perhaps : "once we invest our money in things, we use what's left as profit". Which is obvious and a useless things to do.

Or perhaps the post argues against "invest everything and never take 1€ of profit" ? Or "only do invest with the money you earned" ? What a mess.

If 37Signals invested more money in their products, wouldn't they be doing a lot better than they are?

Basecamp is hardly talked about anymore. I don't know anyone who still uses it. They sunsetted a bunch of their other products.

Yes, you don't need to take VC money, but this post talks about keeping the profits instead of reinvesting them in the business.

I'm sure Fried and DHH are doing great taking profits every year out for themselves, but is 37Signals really a healthy and meaningful company?

Why does the health of a company matter at all, independent of the people who comprise it? It matters if there are investors, because then "the company" is shorthand for "the investors". If there are none, and its just a literal "company of people" doing stuff, then the right thing to do is the thing that makes those people happy. The corporate form is a tool we invented, not a god to be worshipped.

If you keep losing customers, market share, and mind share, eventually, you won't have a company. Basecamp went from being an industry-leading product to pretty much something that legacy customers too afraid to switch are still using.

You don't need investors to care about the long-term health of your company.

I think this is another case of mistaking a metaphor for actual reality. A company has no "health". This is a metaphor. If the people who constitute a company care whether or not it has customers, market share, "mind share", or about "having a company", then of course they should pursue the things that will make those goals happen. "having a company" is just one of many goals the people who make up the company might or might not have. The "one man shop" of someone close to retirement might be winding down and therefore not care about acquiring new customers. Maybe the people of the company would rather do something else and don't want to be bothered selling it -- fine, close it down and do something else. Serving the company itself is just serving Moloch, in my opinion. Always remind yourself that its just people.

Solid point. Always thought that way myself, even for individual work, not only for company work. Too many people in the world think they are successful only if others think or say so.

Who gives a flying fuck what others think, as long as you have confidence that you are doing the right thing, after having put in the thought and effort?

Basically they don't have confidence in themselves, and hence look for external validation from others, which is a trap. Today they like you, tomorrow they don't. Whatcha gonna do about that? Cry?

what you gonna do with your life now that I'm leaving - Santana.

Google lyrics of that song, and check the first two sentences.

Who cares if they are talked about? If they have happy customers and can pay their employees and make a profit, why does it matter?

Because if you keep losing customers and market share, you one day won't have a company?

If they have happy customers and the market is growing, then why would they be losing customers and who cares that their market share is shrinking?

If you're losing customers but only at a rate that looks like you'll be out of business in 150 years, is this actually a problem for the company of people?

Parents provide for their children. When they can't or won't do that anymore, then the child should go get a job. But why should they go get two jobs? Or three? Makes no sense. It might be okay (if miserable) for a while but they're going to burn out.

When you need to switch tactics (for internal or external reasons), go for it, but if you're winning the game you are looking to win and there's no existential threat looming? Who cares about market share? You don't need to win the market in order to win a satisfied life for you and your company of people.

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