
99 Problems But Money Ain't One - tptacek
http://37signals.com/svn/posts/3107-99-problems-but-money-aint-one
======
emmett
Companies don't spend through all their money because a VC makes them.
Companies raise VC when they see the need to spend lots of money.

The aspersion on all startups that have raised financing as likely to be
unscrupulous and play fast and loose with ethics is pretty uncalled for.
Because, of course venture backed startups do those things, but so do
bootstrapped startups. You know what usually causes it? Desperation that
you're going to fail. Bootstrapped startups can fail too, and often do. They
usually just don't get big enough for anyone to notice first.

Finally there's this idea of an "acquisition graveyard". While it's true that
acquisitions often go south, when they succeed the results can be great. Take
Siri, for example, where the product reaches tens of millions more people than
they ever would have on their own.

It seems like what DHH really objects to is taking chances, where you run the
risk of failure for higher reward. And it's his right to go for the lower risk
option. Raising money and doing acquisitions are just risky, not bad.

~~~
tptacek
It doesn't matter whether VC's motivate the moon-shot business model or simply
enable companies to try it. Either way: a VC investment usually implies a
moon-shot.

We've had numerous articles, many of them by VC's, explaining the economics
here. VC's need their investments to wrap up within a specific time frame.
Near the beginning of the time frame, VC's resist liquidity. Near the end of
the time frame, VC's push for liquidity. The companies that hit the moon pay
for the ones that don't.

Nobody is taking VC at gunpoint, so bickering over whether the founders are
the ones begging to get to the moon or the VC's are pushing them to go there
is besides the point.

Either way, customers are strapping themselves in alongside the company for
the ride.

~~~
ChuckMcM
_a VC investment usually implies a moon-shot._

You lose me here. 'Lean' startups can benefit from a VC investment as much as
'Moon-shot' startups do. My experience is that a VC investment implies that
someone believes that the product can be accelerated by the application of
money. When I hear 'moon shot' I hear mostly a pejorative 'high risk,
publicity loaded but ultimately no follow-on project' (which is what the NASA
Moon shot was)

I also agree with the 37signals guys that money in the bank is great, but its
only great if you getting somewhere. John Walecka was one of the investors in
FreeGate and he used a car analogy where money is the gas, and if you're
sitting there idling you are using gas and not getting anywhere. Money, like
gas, should be enough to get you from here to your destination plus a little
reserve to cover contingencies.

~~~
joedev
Isn't high risk by definition what a VC investment is? I'm asking, not stating
because maybe my assumption is wrong. I thought VC's look for the high returns
which come along with high risk (vs. banks looking to make low risk loans).

~~~
ChuckMcM
Yes, but that risk has flavors. Funding the Moon Landing was exceptionally
high risk [1] because NASA did not yet have a minimum viable product. VC's
that I've met don't usually take that level risk, they wait until there is at
least some expectation that the team can deliver something (hence the MVP
requirement in many series A rounds).

[1] In "Proofiness: The Dark Arts of Mathematical Deception", Charles Seife
claims that NASA asked GE to calculate the chances of success in the Moon
Landing and came out with 5%. [http://www.amazon.com/Proofiness-Dark-Arts-
Mathematical-Dece...](http://www.amazon.com/Proofiness-Dark-Arts-Mathematical-
Deception/dp/0670022160)

------
pg
Companies without VC funding also fail. They may fail at a higher rate than
companies with VC funding. I wouldn't be surprised if that was the case,
because you have to be pretty good at whatever you do to raise a series A
round. So even if VCs didn't help the companies they funded at all, the
companies they fund might do better than the ones they don't.

Instead of simply assuming that one of two equally plausible alternatives is
true, it would be useful if David tried looking at the world and trying to
figure out which actually is true. I'm not asking for a scientific study. It
would be a start just to find an industry where some participants are VC
funded and some aren't, and then look at how they each fared.

~~~
awj
> Companies without VC funding also fail.

Companies without VC funding also don't have to deal with investors pushing to
get a big return at the expense of every other part of their business. Maybe
not all VCs do this - I suspect that's the reason your responses to this
string of 37signals posts seem defensive - but a significant portion of them
do.

> Instead of simply assuming that one of two equally plausible alternatives is
> true, it would be useful if David tried looking at the world and trying to
> figure out which is actually true.

Honestly, I think you're both painting with a wide brush. He's lumping all VCs
together as pump-and-dump investors and you're taking his criticism of that
business model as "no one should take VC money."

This is a tough topic, which makes the vague language at play here all the
more frustrating. I'm not entirely convinced you two are actually talking
about the same things.

While you're right that VC funding (and all of the other resources) can be
valuable assets, I've had the end-user experiences he cites often enough to
get suspicious any time I see someone taking it.

~~~
dgreensp
The source of the vagueness is that David doesn't make any real claims to
correlation, let alone causation, between VC funding and the company-level
problems he lists -- he just says VC-backed companies might do this, VC-backed
companies might do that.

For example, The Talent Acquisition -- if anything, raising VC means you
probably _won't_ be a talent acquisition, right? His excuse for including this
problem is that your VCs will be the ones to blab to Google about how great
you are, at which point they acquire you and shut you down. Huh?

~~~
seclorum
Companies that don't pay their bills, fail. A VC is only needed as a big lump
of cash when that rule is broken very early on.

Any group can focus on generating profit from their ability to work well
together and deliver to the world something that is truly needed and wanted. A
group that pays its bills forward and productively pushes its ability to
generate revenues, no matter if consisting of two people or many, many more,
has to manage this fact.

VC as an 'injection combustible' is definitely of value in markets, but I
propose that the group dynamic as defined by the individuals actively
contributing to the survival of the company is too often over-managed before
this reality sinks in. An executive team who have worked together to do big
things in the past is really, sort of, a step above 'need outside help or else
we are toast' levels of competence.

------
hello_moto
Many people see this as yet-another-DHH rant about startup, VC, silicon
valley.

I see this piece as a marketing material with implicit message: "use
Basecamp.Next, not Asana, Trello, Sprintly, or other products".

I've got to give the man a prop: well done marketing-wise, well done.

~~~
justinph
I don't think it's quite that mischievous. I mean, he doesn't mention Basecamp
Next anywhere in the post.

He's basically making the reasonable point to build quality shit people
actually want to use without accounting gimmicks and all else will follow.
Funny that it takes a Danish guy to understand the American Way™.

He's tired of all the Kool Kids making a product with no hope of ever making
money somehow landing millions in VC. It's offending to those of us that
actually build things people want to use, but don't happen to live in the
right place or have the right institution on their résumé.

~~~
philwelch
> he doesn't mention Basecamp Next anywhere in the post

He doesn't need to; it would undermine the credibility of his message, and
given 37signals' business principles, he stands to gain more by spreading FUD
towards VC-backed startups in general than by plugging any one particular
product.

~~~
georgemcbay
I still don't see it.

If this is a marketing piece, who is it marketing towards? It certainly
doesn't read as if it is written for people who decide what web-based
collaboration software their company will use.

~~~
spitfire
/everything/ on their blog is a marketing piece. Nothing they do is
altruistic. It either markets a specific product or promotes the brand in
general. Part of that brand is lifestyle related - use our products and you'll
be a successful small businessman/woman.

~~~
GnarlinBrando
The term is enlightened self interest. Think of it like this if it is good for
my customers and they all make money then they have more money to pay me. If I
get my customers, who are largely start ups and developers, to believe my
model, which is clearly working, works, then more people will use my product,
and I will have more large clients working in the same space as my company is.
Sure it is self interested, but it is also genuine and productive.

------
revorad
No one disputes that the success rate of VC funded companies is low, but I'd
like DHH to propose an alternative model of funding that creates a world
changing company like Google, Amazon, Apple, Facebook, Twitter with a better
success rate.

~~~
ryanwaggoner
Not to mention Microsoft, Craigslist, Broadcom, Godaddy, SAS, Dell, Siebel,
Oracle, Cisco, Github, Zoho, Atlassian, Mailchimp, and more.

Oh wait...those were all started and built to very significant revenues
without VC (at least not until they were already large and successful).

And that's just in the tech industry.

~~~
revorad
Some of those I didn't know aren't VC funded, so thanks for educating me. But
I wouldn't put Zoho, Atlassian, Mailchimp in the same bucket as Google.

~~~
ryanwaggoner
That's true, they _do_ give a shit about their users.

------
joshu
I think it's a shame that they let their ideology be shaped by being against
something rather than being for something. What an awful place to be.

~~~
abalashov
Why's that? They've spelled out quite clearly what they're for. Besides,
knowing what you're not is an indispensable part of ascertaining what you are.

------
gleb
It turns out that in enterprise software company acquisitions, VCs will often
prioritize customer satisfaction over millions of dollars of cash money.

That's because there are a lot of startups that, say, Sequoia backs, but there
is only one IBM. If a Sequoia-backed startup screws IBM, IBM CIO will not talk
to another Sequoia startup for the next 10 years.

~~~
tptacek
Can you provide specific examples of this?

Because there are only a few major acquirers of security software/hardware
companies (Cisco and Symantec being by far the leaders) and I have never
observed this mentality among those companies; there are absolutely VCs that
tend to make investments in IT security companies, too.

It is also the case that what is true for Sequoia --- the top tier of the top
tier of the top tier of VCs --- is probably not true of the asset class as a
whole.

~~~
gleb
A company that I worked for, Pivia (HTTP acceleration software/appliance), was
sold to Swan Labs that continued to service existing customers rather than to
an alternative that would have paid more, but was more interested in IP and
engineers.

To be clear, we are not talking about successful acquisitions that make the
fund. There interests of shareholders and customers are likely to be aligned
anyway.

I agree, but few things are true of VC funds as asset class as a whole. Top-
tier funds behave differently than the rest.

------
jrockway
Acquisitions aren't always a bad thing; Android probably ended up being a lot
more successful because Google bought them before launch. YouTube is another
company that got bought and didn't get shut down.

A lot of companies get bought, but in most cases, the innovative software they
made doesn't go away. It just gets rolled into some other product.

~~~
rdl
It's kind of about talent vs. tech vs. product acquisition.

The best example of product acquisition taking over the host is probably eBay,
a PayPal Company (now).

------
mattmaroon
tldr; same as every other 37s article. Not sure why they keep writing them or
people keep posting them here.

~~~
jarek
Yeah I am shocked to see repetitive content on HN.

------
tlogan
There is also one thing I noticed: companies which raised VC money don't
curtail their paying customer as much as bootstrapped ones (or with small
investment). Of course, they are some exceptions - but in general I see the
trend.

(This actually run thru my head when I saw Stripe getting big VC funding. I
was thinking - damn their great support will probably significantly
deteriorate : if I run into a problem, I will probably be forwarded to some
low wage employee reading the script)

~~~
pc
Don't worry; this won't happen with Stripe.

------
brandall10
"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”."

Perhaps this is a bit of an outlier, but this is how the Heroku acquisition
was framed and it does seem to actually be working out well, no?

~~~
markerdmann
Heroku is an impressive example of founders not selling out their users. They
had multiple suitors before Salesforce, and any one of those offers would have
made them millionaires. They only said "yes", however, when Salesforce agreed
to give them not just a mountain of cash but also to let them continue running
Heroku as an independent entity.

I wish all acquisitions looked more like the Heroku acquisition. I also wish I
had a pony... :-)

------
Mc_Big_G
I'd genuinely like to see 37signals launch a product anonymously, with no
marketing budget, like a real bootstrapped startup and see how they fare after
a year or two. Succeed at that and I'll buy into their attitude.

~~~
cubicle67
they already did. where do you think their company came from?

way back before dhh had enough money to commission his own Zonda, 37signals
were just another little company no one had heard of. what they preach is
_what they already did_ to get where they are now

oh, and as part of that journey they created (not sure when) and opensourced
(almost 8 years ago) a little web framework Rails, built on a little known
(outside of Japan, at the time) language called Ruby.

~~~
Mc_Big_G
Yes, exactly. Now do it again and we'll know it wasn't largely luck.

~~~
mattgreenrocks
Ridiculous. They don't have to prove anything.

~~~
Mc_Big_G
I should have said "I wonder what would happen if...". Building a successful
business through bootstrapping isn't as easy as they make it out to be.

The right investors will change the game for you.

~~~
mattgreenrocks
Ah, I see what you're saying. Landing investors can be strong social proof.

I suppose it depends on what markets you're targeting. 37Signals tends to aim
at small businesses that would be more willing to embrace SaaS solutions. In
Rework they admit they chase the common case _because_ of the money involved.
But targeting larger customers in more entrenched industries (such as health)
is not as simple as making an attractive landing page + an edgy slogan.

------
moizsyed
pg and dhh need to have a proper one on one debate. I'd love to see that!

------
sdizdar
One thing why this is not correct: VC money definitely helps in hiring the
best team. And the team is the most important factor for making a great
company.

------
drumdance
Filed under "shit DHH says"

------
dennisgorelik
Does it mean we have to yell "aahhhh, shiiiiiit" about Stripe's $18M in
funding?

<http://news.ycombinator.com/item?id=3573530>

------
nickpinkston
"If you're havin' cash problems, I feel bad for you son..., I got 99 problems,
but my pitch ain't one."

------
almightygod
I counted 5 problems, not 99...is it just me?

~~~
neilparikh
It's a reference to a Jay-Z song called "99 problems", where he says, "I got
99 problems, but a bitch ain't one".

