

Profits = Freedom - whyleym
http://37signals.com/svn/posts/2223-profits-freedom

======
pchristensen
This is typical of what drives me crazy about 37signals. They say several
things that are true but then claim that there's a causal relationship between
them.

Take this post.

Premise: Profits = Freedom.

Results:

Company runs without debt: unrelated to profits. Profitable companies can use
debt as a tool, and they cite their lack of credit history as causing a
problem! Debt free is not the same as profitable.

We trust our employees: this has everything to do with hiring and nothing to
do with profitability. They can offer the benefits they list _because they're
profitable_ , but profit doesn't make them trust their employees.

We speak our minds: this is because they have controlling interest in the
company, not because they don't have debt. Again, no relation.

This would be confusing as hell for someone that tried to build their business
based on the advice in this post.

~~~
FreeRadical
The 37signals posts often seem rushed.

~~~
aswanson
Probably busy counting profits.

~~~
orblivion
Or not worry about losing a little profit here and there for speaking their
mind.

------
Periodic
I found it amusing that the <title> of the page is:

    
    
        Profits = Freedom - (37signals)
    

Which is the same as saying:

    
    
        Profits + 37signals = Freedom
    

Doesn't sound very helpful to us who don't have 37signals.

~~~
alexkay
Could be fixed by using an &mdash;

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smakz
Rather fluffy article but one point I'd like to raise is that it is odd for a
consistently profitable company to avoid debt.

Debt can be a good thing, it can help finance growth or reduce monthly costs
to increase cash flow. For the same reasons there could be justifiably good
financial reason to get a mortgage even though you could pay for the house in
cash, relating to tax benefits and other incentives.

Once you are consistently profitable, or have a high paying job that affords
significant personal cash flow, you might be inclined to forgo all debt
entirely, but on the other hand once you are in this scenario you are the
least likely to default on a debt and have the capacity to take bigger risks
by borrowing without ruining either your credit or causing an immense about of
stress.

It's great I guess that they don't take the debt approach, but it's not
necessarily a positive thing, and I bet I could look at their financial
statements and see tons of opportunity to leverage debt that would free up
cash flow so they could be making better use of their capital.

~~~
portman
>> _"it is odd for a consistently profitable company to avoid debt"_

It's also probably not true, unless 37Signals uses their debit card for every
random purchase they make.

A credit card is a perfect example of why debt is not categorically bad. If
you pay off the debt within 30 days, you have a 0% interest rate. You also
probably earned some kind of rebate, airmiles, or loyalty points. And you
probably saved time over trying to pay for the product using cash or check.

Purchasing with a credit card is a small example of how intelligent use of
debt can be a wise business decision.

------
bonsaitree
I think the main issues here are ones of capital scale and efficiency. I
believe 37Signals' tenets work well for low headcount, extremely capital-
efficient businesses such as software development, hedge fund management, or
specialty insurance.

Unfortunately, there are many enterprises (drug research, agriculture,
smelting, office construction, theme parks, waste processing, private space
exploration, etc.) which are fundamentally dependent on large amounts of
capital both during the start-up phase as well as to ensure daily continuity
of operations.

Most of these capital intensive business also demand a reasonably large staff
to support these daily workflows.

With a larger staff comes the increasing probability that one bad apple will
be hired. Just one bad apple can bring an entire enterprise down without a
reasonable set of security and trust-limiting thresholds on capital
expenditures and workflow control. The Union Carbide chemical spill in Bhopal
and the Barings bank collapse come immediately to mind.

A prominent COO once told me that for every 100 hires, he expected to pick-up
1 bad apple every 2 years. In his context a "bad apple" was someone whom, over
time, would repeatedly and deliberately attempt to criminally defraud,
sabotage, or publicly discredit the company.

With those odds, basic human nature, and capital-intensive business economics,
it's not hard to see why these enterprise's mores on debt and individual trust
run counter to 37Signals' philosophy.

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gridspy
I read this as - "If you want real freedom, you don't just want to run a
company, you want to run a PROFITABLE company"

The point being that running Twitter isn't freedom until Twitter doesn't need
to constantly ask others to pay the bills.

~~~
_delirium
You need more than _just_ profits, though; you also need all the equity. If
you run a profitable company but are beholden to investors, you still don't
have complete freedom, though they might give you more leeway than if you were
losing money.

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InclinedPlane
Only on the web is completely stone sober run of the mill stock business
advice considered revolutionary and "out there". 37signals' advice is pretty
straightforward: build something worthwhile, charge money for it, make a
profit, grow based on your profit not on some hypothetical ideal, etc. Mundane
business advice in any other industry.

~~~
axod
There are millions of web businesses making extremely big profits - from
advertising, leadgen, and even a few like 37signals from subscriptions

37s advice about charging is still quite a niche model for the web though. But
I'll resist the temptation to start another 'get users to pay' vs 'advertising
debate.

Grow based on your profit isn't really 'run of the mill stock business advice'
though. Some businesses take time to build. Some require a few years
investment. Some can be profitable straight away. One size doesn't fit all.

If you want the lowest risk sure fire way to make money online though, it's
certainly "Find a niche" -> "Create useful content" -> "Promote" -> "Monetize
through advertising".

The other thing is that in the several autobiographies I've read, people who
create really cool stuff - for example Walt Disney, Richard Branson, Duncan
Bannatyne... They're _always_ in debt. They're always running from one thing
to the next by the skin of their teeth trying to get the next thing financed.
Investing all their profit and more into building and growing. But they're
also workaholics as well. So what do they know ;)

~~~
dirkstoop
I'd say the more sure-fire way is: “Create something useful” -> “Charge for
it”.

Now there's always the risk that nobody wants what you made (see fendale's
comment), but lets assume for a sec that that's hard either way. Here's a very
dry analysis of the path to money for both:

Advertising model:

\- Create something useful

\- Find an audience

\- Find advertisers

\- Get advertisers to pay you

Product model:

\- Create something useful

\- Find an audience

\- Get audience to pay you

That's at least one less step in the ‘product model’. You can even argue that
to properly execute the advertising model you'll actually need one more step
in between: “Create an ad placement strategy” (“Create” as in “design and
implement” in all cases here).

Getting money from the people who experience the value of the “useful thing”
sounds a lot more direct (and more efficient, which correlates to a better
return) than getting the people who value the attention of the people who
value the “useful thing” to pay you.

I don't have any first-hand experience with the ad-supported model, but I
seriously question whether it's a/the sure-fire way of making money online.

~~~
axod
Problem is, people expect things to be free. By restricting yourself only to
people willing to pay money, you've cut out most of the internet population.
You might be restricting yourself to a small business.

There's also a heap of other reasons... for example, if you create X, and sell
it to users, you're only selling one thing. By advertising other peoples
products, you can be selling 1,000 different things. The chances of success
are vastly increased. Also, if you sell directly, your users are likely only
to purchase once from you. If you run advertising, they are more likely to
generate continuous revenue for you, from multiple products.

~~~
gnaritas
> Problem is, people expect things to be free.

Businesses don't.

> By restricting yourself only to people willing to pay money, you've cut out
> most of the internet population.

No, you've cut out freeloaders who expect something for nothing, people you
generally don't want anyway. This isn't cutting people out, it's filtering out
bad prospects. People who want stuff free are the worst customers, I'd much
prefer those who are willing to pay for something they find valuable to them.
You can avoid a lot of scaling problems by only focusing on paying customers
and there's no shortage of paying customers if you build something of real
value.

~~~
axod
If you want to do business to business, then sure. Personally I don't
particularly enjoy that.

Also the point about 'avoiding scaling problems' is sort of funny. You can
certainly avoid scaling problems if you don't try and grow big.

~~~
gnaritas
Growing big and growing profitable are entirely different things. If you get
profitable without getting big you do gain the benefit of not being forced to
scale on borrowed money. The goal of business isn't to be big, it's to make
money.

~~~
axod
Getting profitable is easy. It's the getting big bit which is hard.

The fact is, it's often easier especially online, to solve the hard problem
(get big) first. Once you've done that getting profitable is a walk in the
park.

~~~
gnaritas
> Getting profitable is easy. It's the getting big bit which is hard.

Exactly my point, and since the point of most business is to make money that
should be the obvious first goal. Getting big is for dreamers, it's a lottery,
getting profitable is the sensible goal. Get big later, or risk failing
chasing wild dreams.

------
mark_l_watson
Right on. Surprised to hear the criticisms in these comments since this seems
like such basic advice: don't have debt, work in a context of trust, and the
desire to have everyone do good work.

Not having debt is fundamental for real freedom. Not having debt is worth
giving up some material crap for.

Trust people. Make adjustments on an individual basis if it is ever necessary.

We all want to do good work that has a positive effect on the world and make
money to support people we love. Try to set up an environment so people can do
their best work.

------
skmurphy
From <http://news.ycombinator.com/item?id=171567> by redorb in response an
earlier 37signals post at <http://37signals.com/svn/posts/979-quit-your-job>

    
    
        "Life is too short to work at a job you hate,
        but everyone has to do something someone else is willing to pay 
        them for." Sid Emmert

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andrewcooke
i'm curious no-one here (or in the article) name checks amartya sen -
<http://en.wikipedia.org/wiki/Amartya_Sen>

the concept of "feedom" (and the idea that being able to maximise it is a good
thing) is very similar to his "capabilities" -
<http://en.wikipedia.org/wiki/Capability_approach>

------
lionheart
Lack of debt might be good, but lack of credit history is bad.

As an individual, even if you don't ever want to get into debt and pay for all
your purchases up-front, you have to make an effort to build your credit
history. If you don't have a good one a lot of things completely unrelated to
debt become a lot harder in our society.

Same thing applies to companies. Possibly even more.

~~~
ThomPete
This of course assume that credit history is both good and the only way to do
it.

In Denmark it's the other way around. You don't get a credit history you get
marked as a bad payer. In other words you are not forced to take on debt to
show that you can pay your rent instead you are checked to see if you are a
bad payer.

I have lived in the US and had to build a credit history to rent a flat. I
never understood why this is good for anyone but the banks.

~~~
patio11
Thom, you are collateral damage from a rational decision that an American with
no history has something to hide. Their defaults are _measurably_
stratospheric compared to folks with positive history. There are nondefault
risks such as property damage or running a meth lab, which will cost the
landlord five figures to clean if it does not raze the property. Apologies for
the inconvenience.

~~~
ThomPete
You take the system that you know and assume that this is the only way to do
it.

I have just explained how it can also be done and is done and run perfectly
well.

Make of it as you want.

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tmsh
Perhaps one assumption in this business philosophy is that you have to be
really clear to everyone about why they're being given certain liberties and
why it's important.

The only way I could see people not 'acting like adults' is if they think that
by extension certain other things are allowed, which aren't -- by virtue of
not being mutually beneficial. DHH and Jason Fried are pretty forceful
personalities. It's hard to imagine them not being clear about why they're
managing the way they do.

Would it ever backfire without clear, forceful personalities guiding it?

Refreshing to hear about anyway. Investment in the confidence of employees via
trusting them seems like always a good investment.

And ditto what other people have said here about the advice being somewhat
basic. But on the other hand, the investment strategies of say Warren Buffett
are incredibly basic as well. Basic != overvalue

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jswinghammer
I enjoyed this article and because I know David reads this I wanted to suggest
the book "Human Action" by Ludwig von Mises. It seems like his discussion of
profits in that book might be pretty interesting with your line of thought.

I saw in an interview that John Mackey of Whole Foods got a lot out of reading
it for what's that worth.

<http://en.wikipedia.org/wiki/Human_Action>

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anigbrowl
This is so obvious as to be trite.

 _It’s these supposedly crazy things that make me not want to give up
37signals for anything._

I'm guessing a sufficiently large buyout offer will change your mind on that
right quick.

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mattew
I love this snippet from the comments, referring to the fact that 37signals is
beholden to their customers.

"Everyone has a boss. There is no escape."

~~~
tjogin
Their customers don't all want the same thing, so they can't "do what their
customers want", even if they wanted to.

What they can't do is only whatever would cause _massive_ amounts of customers
to stop using their products.

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paraschopra
How can they manage to get so many upvotes in a post with essentially no
content?

I am absolutely baffled.

