
DHH vs. Calacanis on This Week in Startups - adamhowell
http://37signals.com/svn/posts/2219-jason-calacanis-vs-david-heinemeier-hansson-on-this-week-in-startups
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ecaron
Best quote: "If you're not working on your best idea right now, you're doing
it wrong." ~DHH

The difference is between "I want to build something great that makes the
world better" and "I want to build something that makes money." And really,
when comparing 37signals to Mahalo, the mentality the leadership has is what
inspires the community opinion and quality of product coming from those
companies.

Note: I don't mean this as a all-too-common-on-HN cheap shot against Jason
Calacanis. My point is that when people talk about Calacanis' camp, they talk
about the quality of the business. When people talk about 37Signals, they talk
about the quality of the product. Neither is wrong - they're just different.

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n8agrin
I think both of them are making decent points. I don't understand the
community's desire to have one of them win or "rip apart" the other. Seems
just like a well balanced debate to me.

Calacanis seems focused on DHH's interest in having complete control over a
smaller business with continuous revenue. He keeps pushing DHH with scenarios
where DHH has a huge payday, DHH says he wouldn't do it and Calacanis acts
surprised. I totally understand DHH's perspective. I can't imagine not
working, that sounds so boring, so DHH has found what he loves to do and is
doing it. Why is it surprising that you'd choose valuable, profitable and
rewarding work over one big pile of cash?

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cookiecaper
You're making a false dichotomy; you can sell your business for a lot of money
and still have valuable, profitable and rewarding work _plus_ a big pile of
cash.

How many people acquire businesses just to push their founders out? Most
aren't interested in that; they obviously respect or at least fear what the
founder(s) were doing, or they wouldn't have bought their company. It's
perfectly likely that DHH could keep on at 37signals after an acquisition.

However, in the case where the buyer just boarded the place up or pushed out
the staff or whatever, who cares? DHH can go start 38signals and keep doing
"valuable, profitable and rewarding" work.

Good work and good money aren't necessarily mutually exclusive.

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dhh
Most acquisitions fail. Most founders end up leaving the bigger company once
their golden handcuffs are off. There's a reason for that. The company they
loved working at changed to be undesirable once consumed by the incumbent.

A huge part of what I love about working at 37signals is freedom. Freedom to
say what I want and swear when I will. Freedom to pick any course I see fit.
Freedom to try crazy things. Invariably, those freedoms would be curbed if we
were owned by some big company.

If the whole goal is to just sell the thing I already have and love to start
exactly the same thing again, then it doesn't make any sense to me. Why not
just earn my way to prosperity rather than depending on a single golden
benefactor to anoint me wealth?

Jason and I are already at the point where we don't have to work, we choose to
work. The joy I derive from working at 37signals much surpass the expected joy
of being able to afford a private jet or any other 10-digit luxury.

~~~
gcheong
"Most acquisitions fail. Most founders end up leaving the bigger company once
their golden handcuffs are off."

I don't know about that. It's not necessarily a sign of failure when the
founders leave, and it may actually be a good thing in the long run. You want
the founders around long enough to ensure that the business you bought gets
integrated into your operations and company culture, and once that is done the
founders should be free to leave if they choose. It may be a less desirable
situation for the founders, but that may be due more to them being founder
types (plus suddenly having a lot of cash ) rather than employee types. The
other approach is to buy the company but have the founders run it as they did
before with little interference from the acquiring company (e.g. Berkshire
Hathaway).

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ahoyhere
If your goal as a founder with an acquired business was to keep working at
your baby, and being as happy with it as you were before, and you end up
leaving, one can only assume that your goals were no longer being fulfilled --
ergo, failure.

That's why if I ever sell my business, _I_ won't be part of the package. I
never want to work for anyone else, ever again.

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maddalab
Tho, I only watched 15 minutes 47-62, I did not find the interview very
interesting. If anything it reflects the biases and cultures of the countries
they were each raised in. The comment about having a steady job and income
stream is exactly what you would hear from my father, who also bootstrapped
his own construction consulting business in India from working during the
evenings to owning it full time. America is a nation of excesses and trying to
grow you wealth in excess of what you require is based in American cultural
roots.

Digress: It is what makes American the richest nation in the world that cannot
afford a health care policy for all its citizen while much poorer nations
provide better health care for their citizens.

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hoggle
Yeah but I have the bad feeling that these glorious times are over - to me
this is universal short sightedness. If the US want to stay #1 they need
radical change especially in that regard. It might be hard to digest when you
see the illusions fade and that party time is over but then again cutting back
on a lot might lead to a much sturdier leadership.

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kevinholesh
I loved the quote from David when he said selling to Fortune 500 companies
takes "strippers and steaks."

Overall, great interview.

I'd love to see Jason C take on Jason Fried and DHH.

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jasonmcalacanis
Actually, the way David wound up on the program was that I invited JasonF to
be on and DHH happend to be in Los Angeles before JF.

What a great debate..... DHH was a fantastic guest who brought it in spades

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borism
you should definitely bring JasonF to your show too

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holdenc
Obviously DHH can't publicly say "sure we'd love to sell 37 signals for a nice
profit." I don't see the profundity in latching on to this point. No customers
of 37signals want to hear that it's being shopped around.

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jasonfried
37signals is not being shopped around because 37signals is not for sale.

~~~
holdenc
My point is only that are many reasons a business owner would deny ever taking
a buyout. True dedication to not selling is just one reason. To me, this make
JC's torturing DHH's adversity to selling not that interesting.

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adamtmca
The no venture capital thing is getting to be a bit much for me. Some
businesses and some situations require outside money, some don't.

In the hypothetical situation described where Basecamp grew as fast as Youtube
or Facebook DHH says he wouldn't raise external financing. I call BS.

Businesses with recurring revenues and upfront capital costs that grow fast
enough will need to raise money. You need to convert the future cash flows
from those customers into cash now to pay for the capital assets to serve
those customer today.

Sure, a single customer may net you $150 in a year and only require $15 in
capital investment. Unfortunately you need to spend the 15 dollars on day one
and you only make 12.50 on day one (month one). If your growing slowly you can
self finance it off previous customers or a small founder investment.

If your growing Youtube fast you get fucked to the tune of that 2.50 shortfall
x however many million users you just signed up. The only way to do it is
leverage or vc. Take your pick, your raising money.

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borism
the point is, the Tube thing is still losing money and the F thing is making
some intangible amount compared to investment it (the idea) got.

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woid
What a fantastic interview. Thank you guys! I'd love to see Paul Graham on the
show.

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axod
Great part about 'fire the workaholics' 'do less' @ 1:20 or so. Jason rips DHH
to shreds.

~~~
jasonfried
What Jason C didn't mention was all the other people who'd been putting in 80
hour weeks that didn't make it. You think Google was the only one working long
hours? Google had a better idea. They worked hard on their better idea, but
it's the idea that won, not the hour count.

The tech graveyard is full of overworked, tired, run-down, exhausted people
who put in more hours than their bodies could handle. I run into people all
the time who are putting in ridiculous hours and getting no where.

Hours don't make it. Good choices, the right focus, and intelligent decisions
over a long period of time make it.

Jason C's point about practice is absolutely right though. But practice
doesn't equal long hours. Practice equals practice. 3 hours of focused
practice on the right thing is far better than 6 hours of practicing the wrong
thing. Practice quantity isn't the secret, it's practice quality.

Here's a related post I wrote on "Making money takes practice like playing the
piano takes practice":

[http://37signals.com/svn/posts/1985-making-money-takes-
pract...](http://37signals.com/svn/posts/1985-making-money-takes-practice-
like-playing-the-piano-takes-practice)

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zedshaw
That's interesting, because I remember David working like a dog on Rails both
before and after it became popular while also working on your applications.
Sounds workaholic to me, so why didn't you fire him?

~~~
snom370
Nope, he had only 10 hours a week to build it, and he made the Rails framework
so he would be able to speed up development and meet the deadline.

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jagjit
DHH makes very good points about profit.

But he seems to imply that all other startups or majority of them do not get
this basic point. He also thinks that 37 signals would be making the same kind
of profits 20yrs later. These points do not fit in with how insightful and
bang on he is with his business sense.

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zacharypinter
What a great interview. I find myself going back and forth agreeing with both
of them. Calacanis makes a reasonable argument. DHH says something crazy-
sounding and unexpected. Then, DHH goes on to explain it in more detail and
sounds perfectly reasonable.

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fnid2
I'm not sure why JC keeps harping on the unique visitors number. More uniques
= less commitment to the product. Unique visitors are people who search,
click, leave. How are you going to build revenue off people who don't care
about your product?

How long do those unique visitors visit? When I _accidentally_ click a mahalo
link, my instant reaction is to hit the back button, yet, I'm one of those
numbers he's using to justify his business model.

Unique visitors is essentially irrelevant. If a unique doesn't stick around
long enough to see or click on an ad, what's it matter?

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axod
>> "Unique visitors are people who search, click, leave. "

You missed the vital ingredient ;)

    
    
      * search
      * click
      * don't find what they wanted
      * <B>Click on adverts</b>

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fnid2
Okay, that makes more sense, but it's not admirable in anyway and it's not
something I would invest in. 37s has a tiny fraction of mahalo's uniques, but
I can imagine it having more revenue and more potential.

~~~
axod
I think it's a grey area :/ It's all about how much value/content you're
adding, and whether those users would have been able to find those adverts
without your help.

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jules
Funny how Calacanis is analyzing DHH's psychological (e.g. is DHH afraid of
money?) reasons for not wanting to sell 37signals implicitly assuming that
it's stupid & insane.

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axod
not wanting to sell your business for _any_ price _does_ seem stupid and
insane.

If someone offered $2bn, there's probably a lot of good you could do with that
cash to make the world a better place.

But saying they'd never sell obviously fits with their PR of having contrarian
viewpoints.

~~~
probablycorey
There are lots of things people won't do for any price. That doesn't make them
stupid or insane.

I wouldn't separate from my wife for $2bn. I wouldn't cut off my fingers for
$2bn. I wouldn't murder someone for $2bn. A religious person may not denounce
God for $2bn.

Certain things are more valuable than money; but what those are differ from
person to person. DHH seems to value his work at 37signals more than money,
which seems to be working out great for him.

~~~
cookiecaper
But the thing is that there'd be no material detriment in taking the deal. DHH
would just have a ton of money, and he could keep working on Rails apps and
whatever else to his heart's content.

The kind of emotional connection to what is ultimately a meaningless, lifeless
brand where you refuse to sell for any amount of money is surely foolish.

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dhh
Of course there's a detrimental effect of selling the company that I've
invested the last decade into. The investment is much deeper than purely
financial. It's the pride of getting there, the satisfaction of staying there,
and the joy of coming to work with the best people I've ever worked with.

What a shallow perspective to think all this meaningless just for another zero
or two on the bank account.

~~~
cookiecaper
I guess I don't understand what you mean by "there". Selling the company would
only cause further progress. Your employees don't have to stay there, and you
don't have to quit. You can sell the company, keep doing the same things,
either at 37Signals or some other place, and just be a lot richer at the same
time.

I really am not seeing a detriment still. You just seem to value the brand
37Signals so much that you're not willing to let another control it. This is
silly in my mind, because it's just a brand, and there's no reason to believe
you'd lose a lot of control in a potential acquisition anyway, or that even if
you did, you couldn't go and start something else and keeping develop Rails
apps.

This all presumes a good deal. I'm not saying you should just sell to anybody,
because you shouldn't, and I wouldn't. But it is a little overboard to claim
that you'll never sell, not even for 10 or 20 times your annual revenue even
if everything else about the deal was good.

I understand not wanting to let someone else run your product into the ground.
I know how painful that is, because it's happened to me before. But not every
potential buyer is like that.

~~~
got_linux
No one is going to pay 10-20x to enjoy your business the way you do. Big
multiples come with big intentions... usually to realize "untapped potential"
or "synergize" your business into a greater whole.

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axod
nice quote when they talk about Facebook

DHH: "... begging for advertising crumbs which these companies are essentially
doing..."

Really odd perspective to have. Why is charging users directly any better?
Online advertising expenditure is _slightly_ more than crumbs.

Also I'm pretty sure total advertising expenditure online is massively more
than people paying for subscription/services online.

~~~
alayne
DHH has talked before about his opposition to ad-based businesses. It is bread
crumbs on a per user basis. That means you need a huge number of eyeballs to
profit. Building a system so large and popular that it gets that many users is
difficult and there is a lottery factor.

On the moral side, people don't like advertising. That's the seamy underbelly
of Google; they are constantly playing this game of how much advertising pain
will people endure for their free services. You know, maybe stoplights could
flash some adsense ads relevant to the types of passing vehicles to cover
infrastructure costs. I don't want to live in adsense world.

~~~
axod
It's a niche viewpoint. I do want to live in an adsense world, as do most
users. They find adverts useful.

>> "DHH has talked before about his opposition to ad-based businesses. It is
bread crumbs on a per user basis. That means you need a huge number of
eyeballs to profit. Building a system so large and popular that it gets that
many users is difficult and there is a lottery factor."

I think basically, it's 'harder'. It's a harder problem to solve. But really,
you can setup a profitable website in the right niche earning good money from
advertising easily without requiring large number of eyeballs.

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gtzi
I loved the interview, and I agree with most of DHH's comments, but I think
that being absolute on the correctness of a number of opinions (like, "all VC
powered companies are flawed" etc) is fundamentally wrong, absoluteness is not
the case when you talk about people and their actions.

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tyrelb
Great interview!

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shareme
What is interesting here between JC's style/outlook and DHH's style/outlook
is:

1\. World recession is decreasing capital exits, investments, etc..DHH's
outlook wins

2\. Increasing amount of college graduates have college loan debt loads..DHH's
outlook again wins

3 SV in recent years has been more focused on get there fast(money) but screw
the product quality or customer quality..

I see JC and DHH representing both what VC/angels have in the past make
possible represented by JC as opposed to the new way DHH's.

I think in the long term, 10 years out, that VC/angels will be gravitating
towards DHH's way rather than the old way that from 1980s until now led the VC
industry.

~~~
sthomps
I agree, that is well laid out. The VC sphere will start to rotate towards
"real businesses", not companies that will 'hopefully' make money some day by
turning a magic key.

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wildmXranat
Good video indeed

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frou_dh
I expected them to be swinging for each other from the buildup this got!

