
All the oxygen trapped in a bubble - raganwald
http://37signals.com/svn/posts/3177-all-the-oxygen-trapped-in-a-bubble
======
pg
The pieces of this argument fit together very neatly, but the problem is that
they don't correspond to reality. E.g. the cloud about increased VC
fundraising. In reality VCs are having a hard time fundraising:

[http://nvcaccess.nvca.org/index.php/topics/research-and-
tren...](http://nvcaccess.nvca.org/index.php/topics/research-and-
trends/290-vc-fundraising-contraction-and-concentration.html)

Thus it also isn't true that the cause of higher valuations is that VCs have
more money. Valuations are certainly higher, but I think the reason is that
founders are increasingly getting the upper hand over investors. Which is why
in addition to getting higher valuations, founders are increasingly able to
retain board control.

~~~
richcollins
Where is the money that's driving increased developer/designer demand coming
from?

~~~
pg
I don't think investor money is the main driver of increased demand for
hackers. The biggest sources of demand are the big companies, like Google and
Facebook, and they're paying the hackers' salaries out of revenues.

~~~
izak30
So conversely, more money is needed to compete with those who are already
profitable.

------
3pt14159
I'm finally coming around to thinking that it is starting. About three years
ago people were screaming bubble because YC companies were getting $4m or $5m
valuations and I wrote the following:

"The truth is this: Bubbles don't exist without my aunt's mutual fund getting
involved or my next door neighbor getting told to mortgage his house to invest
by his financial advisor. Web 1.0 was all about IPOing on the nasdaq and
fleecing the public with business models that disregarded profit. This time
around things are different. At every stage of the process you see startups
with business models. Guestlist, Github, FreshBooks, heck even Groupon, are
making nontrivial money relative to the valuations and expected future
growth."

And the money is starting to come in from my Aunts pension fund (Facebook
buying instagram because they knew they were going to have her money within a
couple months). Just barely starting, so we've got probably 2 to 4 years
before the pop actually happens. But what are we supposed to do while it is
happening? We can warn people for a while, but it won't change anything. Get
money while you can, build a warchest like paypal did and get ready for the
winter of 2015 to 2018.

~~~
AznHisoka
Or you can just concentrate on building a sustainable business, and worry
about more urgent things that will affect your business, rather than the
macro-trends.

~~~
DrJokepu
But "macro-trends" always affect your business even if you are building a
sustainable one. Even if you have no investors, if your clients are suffering,
you are suffering. If your clients' clients are suffering, you are suffering.
If your clients' clients' clients are suffering, you are suffering.

~~~
loganfrederick
You're right, but a truly valuable and sustainable business/technology will be
one that clients consider worth paying for even when they are suffering.

There aren't necessarily a lot of modern tech companies that would survive
this test though.

------
patio11
Numerically, it is difficult to credit VC-fueled startups for driving the
quick increase in engineering wages. First, _they don't pay top salaries_. If
a bidding war erupts for a particular candidate it is highly unlikely that a
VC startup wins. It will be won by everyone's favorite multinational
advertising company which will _this quarter_ hire enough engineers to staff
approximately 1023signals worth of product dev companies, or their close
bretheren AppAmaFaceSoft, which together could a) fill the SuperDome with
engineers making more than $120k apiece (and substantially more these days)
and b) which cannot reasonably be said to be paying engineers with money they
swindled out of gullible investors. No, they pay the money with the _hundreds
of billions of dollars of sales_ they make directly attributable to software.

The price of butter is the price of butter. If one hypothetically thinks
butter is too expensive, sell butter, don't buy butter. (i.e. offer your
services as an engineer rather than trying to hire engineers.) It think it is
highly unlikely that anything happening in the capital markets, positive or
negative, will make cause engineering (and related trades) to re-transition to
the days where you could e.g. find perfectly adequate programmers for $40k.
(P.S. Not to slight anybody making that, as I was at $30k like two years ago.
Get a wee bit more sophisticated about who you work for and what you work on.
You'll do better monetarily and quite possibly have more fun.)

There exist repeatable ways to scalably build product businesses with millions
of dollars of actual revenue out of a few man months of work. Unless that
economic reality goes away, engineers (&etc) will continue to be cheap at
essentially any price.

This is great news for everyone selling talent here. Is it bad news for those
buying talent? Meh. If you could pick any time in the history of the world to
start a software business, it would probably be now, because the markets are
bigger than ever, the distribution channels are fantastic, the SaaS billing
model allows us to 10x prices without business customers perceiving any
increased difficulty to justify the purchase, the non-human capital costs
associated with a software business are asymptotically approaching zero, etc
etc.

------
dave1619
I know the guys at 37Signals are a smart pack, but I don't understand their
hangup with Instagram and Pinterest... and apparently FB (esp. their older
posts). FB has proven to be able to make $billions of revenue and substantial
profit, and is only growing. Isn't that proof that an ad-based model can work
if it's large enough?

Instagram was FB's biggest competitor... huge growth and huge adoption amongst
young groups of friends. FB was smart to buy them.

Pinterest... I'm less bullish on. I can see how they can make money with
affiliate commissions on products and such. But I just don't see Everyone
using this. Pinterest at $1.5billion might be over-valued for where it's at.
But then again, I don't have privy to their internal numbers (ie., traction,
metrics, retention, etc). But, I can see Pinterest be worth a lot in the
future, just right now I'm not sure about the $1.5b.

FB, Instagram and maybe Pinterest are amazing companies with crazy traction.
They're all riding on the huge distribution channels of our day (web, mobile,
social) and have reached or are close to reaching the 100+million users mark
(for FB is the 1+billion user mark). Any service that can garner 100s of
millions of users can find a way to monetize. How much in monetization is
another story, but I wouldn't bet against them to create some substantial
value.

~~~
lmm
They're probably hung up because it's making them look small-time. What do
37Signals actually do, other than generate a steady stream of blog posts for
HN? They make some sort of dropbox knockoff, right?

~~~
spitfire
TODO and project management apps for small business. Unfortunately their
success has gone to their heads.

~~~
tferris
Couldn't upvote this more.

Rails was groundbreaking. Yes. DHH did something great but that's now 7 or 8
(!) years ago. Rails has aged, DHH showed often how opinionated he can be and
that he just isn't perfect. And the 37signals products live primarily because
of DHH's and Rails' reputation and not because there are outstanding (there
tons of better Basecamps out there).

Still DHH is a smart guy but a Kevin Systrom who built a company, who learned
how to build a scalable backend while starting this company and then sold this
company after just 2 years for 1 billion achieved something special as well
and this should be appreciated instead of ranting. This is just infantile and
shows once again DHH's temper and lack of self-control.

------
zackzackzack
It's a shame that all of that talent is working on things the author doesn't
think are worthwhile. I mean, everyone should work on what everyone can agree
on is worth their time, right?

Yet, I don't think everybody can really agree on what is worthwhile for a
person's time. I can point at people working on things like Linux and Khan
Academy and say "Their efforts are worthwhile!" but then Microsoft and that
one guy, who bitches about Khan Academy stealing all the VC money or whatever,
will wag their fingers and say "They are hurting our business! Their time
isn't worthwhile!"

Personally, the efforts DHH has put into basecamp and their products is
worthless to me. I don't use the products and see no reason to start. That
isn't a diss to the products themselves: I literally have no use for them
right now. I freelance and study at college and their suite of products
doesn't solve any of my problems.

So, who decides what's worthwhile? There are at least two instances where two
groups of people don't all agree the same thing is worthwhile. It's a hard
problem and implying "adopt my values so you will work on things I think are
worthwhile" isn't going to solve it.

(Also, I agree we are in a bubble. I value economic growth and American
strength, not pictures of cats.)

~~~
potatolicious
> _"It's a shame that all of that talent is working on things the author
> doesn't think are worthwhile."_

That's an unfair statement - I think more importantly the bubble is making
people work on things that _they themselves_ do not believe are worthwhile.
You have more and more people entering the market working on things because
they think it will flip for ${MAX_INT}, not working on products they genuinely
believe people want, or will pay for.

~~~
ahlatimer
> _You have more and more people entering the market working on things because
> they think it will flip for ${MAX_INT}, not working on products they
> genuinely believe people want, or will pay for._

Do you have any actual examples of this happening?

I'm not saying there aren't people starting companies because they want to get
rich, but I don't think it's happening in the droves that people make it seem
like it is. I'm as pessimistic about the whole SV culture as they come, to the
point of moving away in two weeks, but even I can't say I've met many, if any,
people who seemed to be generally disinterested in what they were building,
only doing it because they thought they could flip it.

~~~
potatolicious
> _"Do you have any actual examples of this happening?"_

As a guy who hangs out at a number of SF-area meetups and startup events (free
booze and food? count me in) I have met _many_ startup employees and founders
who freely admit to this.

For the most part people are interested in the _work_ they're doing (big
scalability issues, big data problems, etc), but many people are in it for the
money (either ludicrous SV salaries or the hope of a massive flip) and don't
genuinely believe in what their product does.

I think this is the attitude OP was railing against, and I'm inclined to
agree. There are some damn smart cookies in this town, most of whom are
incredibly well paid and mobile - to work on something you don't believe in...
that seems incredibly wasteful.

------
jmduke
The issue in my mind is that "all those smart and talented heads" which the
article mentions, even if they're aware of the bubble, have no incentive to
change directions.

Call me jaded, but I don't think most startups are created with the intention
of improving society. So long as there's an Ouroboros effect of VCs funding
brilliant engineers without _truly revolutionary_ ideas, those engineers are
going to create business models revolving around getting a big enough user
base to justify high valuations, and eventual acquisition.

And businesses shouldn't be about exit strategies.

------
theorique
Strategically, it makes sense for a programmer to let his / her skills get bid
up and use the surplus to store up some dry powder for the next recession. If
you stay focused, bubbles are great times to build up your skills and do
something real.

Unless you're planning to play the startup lottery by creating a gamified
social network for teenaged felines or something, in which case, good luck,
and have fun. You can probably still come out ahead in skills and experience.

~~~
aaronblohowiak
This is my strategy. Contract and stash during bubble, then try and start my
own thing in the lull.

~~~
theorique
If you can time it right, it is probably best to start your own thing right
before the peak - get funded, and have a nice Series A war chest just as the
lean times hit and the water turns red.

Although to truly weather the lean times, this would have to be a real
business - ideally with customers cash flow - not a fluffy built-to-flip
eyeball monetizing engine.

------
postfuturist
I'm just a working developer. I'm not looking to start a business of my own
any time soon. I'll say one thing: I don't work for companies that cut
paychecks out of rapidly dwindling venture capital funds and I don't work for
large corporations that hire and fire teams like chattel. If the bubble burst
tomorrow, it wouldn't affect my life in any meaningful way. I'd probably get
fewer recruiters bugging me, which would be nice for a change.

------
cletus
I've called the kneejerk "bubble" reactions "boring" [1] and I stand by that.
That doesn't mean I disagree (or agree for that matter). It just means that
banal perjoratives with nothing to back them up are _boring_.

To call this a bubble, one must first describe what one means by a bubble. A
bubble in my mind is a period of rapid growth in valuations followed by a
massive devaluation on such a scale that it hinders investment and innovation.

The subprime collapse was a bubble. Many people were left underwater on their
mortgages. Building in many places stopped for years. This has a knock-on
effect on jobs, related industries and so on. That's a bubble.

The dotcom collapse was also a bubble. But there are several differences this
time around:

1\. Startup costs now, for most Internet startups, are essentially zero. 10+
years ago you had to spend $5-10M to do _anything_ (once you paid for Sun
servers, Oracle licenses and so on);

2\. Lax listing requirements, particularly on the NASDAQ, helped perpetuate
fraud;

3\. There was no experience to draw on (from living memory at least). Now we
hopefully know a little better;

4\. Sarbanes-Oxley, clusterfuck that it is, has at least kept the number of
Internet companies IPOing relatively low. This has some negative consequences
too but it means that retail investors and mutual funds have largely been
excluded from the startup scene, which honestly is a Good Thing [tm]; and

5\. Now, as opposed to then, there are real businesses operating in the tech
space who are generating profits on a scale not seen in probably a century or
more. Apple, for example, is worth >$500B market cap now and by some estimates
that's still _cheap_ given their profits.

10+ years ago investment dried up, capital dried up and legitimate businesses
couldn't start or continue to operate, which had a domino effect.

What happens if next month Facebook goes from $100B valuation to $10B?
Honestly, not a lot. Late stage investors will lose their shirts. That's fine.
VC is a high-risk business. Individuals who participate in the IPO will lose a
lot of money. That's not ideal but so be it.

But the important thing to ask is: what will happen to the system as a whole?
Startups will still start. When you can build a mobile app and business for
$50k the capital markets are basically irrelevant to you. Apple, Google,
Microsoft and others will remain. Life will go on.

The low cost of startups is itself a barrier to institutional investment (by
pension funds and the like) because the amounts are too small. Again, that's a
Good Thing [tm].

What's really happening here is a lot of money is changing hands between VCs
and endowment funds and honestly in relative terms it's not that much money.

Speaking to some examples (recent and otherwise):

\- Instagram: I think this purchase was overvalued but, if anything, it
demonstrates just what a high-risk investment Facebook is if a company can go
from nothing to being an existential threat in 2 years. I honestly believe
Facebook was taking them out of the market with this buy;

\- Pinterest: through affiliate and advertising revenue I see potential for
this company to be a huge business with massive ability to drive traffic to
commerce sites. Make no mistake, this is a real business. It's not without
risk but the potential is huge;

\- Youtube: I bring this one up because it went, in 18 months, from being
nothing to being bought by Google for >$1.5B (IIRC). Some said now it was
overpaying. Honestly, in hindsight I think that price may well have been a
massive bargain.

Just because you don't see potential doesn't mean there isn't any. Just
because something ends up failing doesn't mean the risk wasn't worth taking.

The reason the kneejerk bubble accusations annoy me is that they come from the
sort of people who seem so averse to risk that they neve take any. That is,
until the very peak of the bubble (when they finally convince themselves this
can go on forever).

Please, I beg of you, if you're going to jump and down and yell "bubble" at
least add something to the conversation or back it up with something. A >$1B
valuation on a funding round doesn't actually mean anything.

Disclaimer: I work for Google.

EDIT: I forgot to address a couple of points.

Firstly, I too find it depressing what a lot of us are working on [2] [3]. The
fact that SpaceX can revolutionize launch costs for less money than was spent
on Instagram is sobering and depressing.

Secondly, it is incredibly hard to hire good engineers. I don't see this as
evidence of a bubble. I see this as evidence that:

a) (good) engineering is hard;

b) when other costs (bandwidth, servers, software) go to zero, demand for
manpower will go up because businesses that once weren't possible or viable
will become so; and

c) in a world where anyone can be a founder, it makes no sense to stick to 90s
era equity arrangements. To be honest, being an early employee is a lottery
ticket and, generally speaking, a shitty deal. Last cofounder = 25-50%. First
employee = 1-2%. If good talent is better off working on their own startup you
shouldn't be surprised that they do.

[1]: <http://news.ycombinator.com/item?id=3985393>

[2]: <http://news.ycombinator.com/item?id=3876897>

[3]: <http://www.youtube.com/watch?v=vKmQW_Nkfk8>

~~~
Androsynth
Just because we are not in a tech-bubble doesn't mean there is no bubble. All
these crazy valuations may be secondary effects from a larger, hitherto unseen
bubble.

-Credit/Money: We are currently printing money to finance our lifestyle here in the US. China currently holds around 3 trillion US dollars and the dollar is only worth something as long as they don't try to cash out.

-Education: Something bad is happening and it is fueled by cheap, govt backed credit. Everyone is rushing to invest in their children's future because of the it-can-only-help-them mindset, similar to the it-can-only-go-up mindset of the housing bubble (also fueled by cheap, govt-backed credit).

-healthcare: this is a weird case and probably only local to the US. Heres the situation: We value our health, but we don't pay out of our own pockets for much, our employers do. So naturally we keep slipping down the slope of wanting more and more done for us. A huge friction coefficient is being added to our economy due to the nature of making businesses provide healthcare, meanwhile insurance companies interests are aligned with the insured because they both want as much done as possible (provided neither of them pay for it).

~~~
aaronblohowiak
> We value our health

cardio-vascular disease, number one killer in america, is largely preventable
through diet and lifestyle. being overweight (actually even high-"normal") is
also significantly correlated with cancer incidence. i don't have the type 2
diabetes figures offhand, but they aren't pretty.

healthcare in america is very expensive. fat, inactive americans are a part of
the reason why it is expensive (diabetics cost on average $6.6k more a year
than non-diabetics..)

I agree that employer-sponsored healthcare is dumb, a relic from the
difficulty in recruiting people after the war.

------
crusso
Really, all these bubbles are just an economic manifestation of the hyper-
information processing problem that our society has yet to learn to deal with.

Just like it took quite a while for my Dad to learn to stop passing around
"Bill Gates pays you for every email forwarded" email, members of our society
have to learn to ignore all the internet marketing and media-generated hype.

Just like snopes.com was a valuable piece of infrastructure in weeding out the
urban legends and reducing our forwarded crap email -- other societal/internet
support is going to need to come into place to help investors weed through all
the media and marketing hype.

The sad part is that change like this always produces victims who didn't catch
on quickly enough. Given the magnitude of the changes brought on by this stage
of the "Information Age", there's a lot of learning to be done and it's going
to take another generation to develop the infrastructure and mind share needed
so that typical members of society aren't so easily fooled by the falseness of
the latest investment bubbles.

The genie is out of the bottle now, though. We need to get to learning,
informing, and building solutions to the bubble problems. My biggest fear is
that governments will [continue to] use this time of change as a power-
grabbing excuse to drastically curtail our liberties and destroy many of the
advantages of the Free Market.

------
michaelpinto
talent can't get "trapped" by a bubble: if a bubble is really a bubble then it
will burst and the talent will become free. in fact if you feel there is a
bubble then you should encourage it because over the long term the market will
be flooded by talent which will be cheaper.

but something that everyone here has to think about: even if you don't think
there is a bubble, the nature of tech is that it is cyclical in nature. this
means that sooner or later there will be winners, and those looking for a job.
although i dare say that those down cycles are in fact THE best times to start
a new business or venture.

i would also say that at this point in time that most of the costs of most
startups are talent. years ago this wasn't the case, and one of the things
that screwed me over in the original dot.com bust was the fact that my real
estate costs tripled in the same space at the high point of the bubble. i also
wasted a ton of money on hardware and have bitter memories of owning expensive
servers that were destined for eBay.

i should add that deeply respect 37signals, and i've found myself following
their model -- but it's not the only model.

------
rudiger
The chance that granny is going to lose her pension fund is much more related
to the actions of the banking and financial industries. Granny is already
losing her savings with near-zero interest rates.

~~~
SCdF
Is this really true? As in, are savings accounts in the US essentially useless
now?

I don't know about the rest of the world, but in NZ standard saving accounts
are ~2%, and more investment focused (fixed term and variants) are 4-6%.

~~~
jmitcheson
I assume that the parent poster meant that granny is having the real value of
her cash savings eroded through inflation because of the zero percent interest
rate @ the US fed

------
dsirijus
Worst thing for me is that I actually feel completely out of place actually
building my company up last 6 months so I can take on an idea I have,
completely self-funded.

------
veyron
It is possible to build a sustainable internet business which does not rely on
the prospects of an IPO.

Unfortunately it seems that few people treat the industry in that way.

------
grandalf
While David's argument is interesting, how would his claims be falsified?

The economy is a noisy mess of contemporaneous booms and busts. What we
typically call a "bubble" is a boom that lasts long enough that the bust is
socially noteworthy.

What if the information age is simply arriving faster and faster? Parents and
grandparents are now buying tablets and laptops, uploading photos, liking wall
posts, etc.

There could be a huge shift toward the digital economy even if no bubble is
occurring.

How many wall posts result in a greeting card not sent, paper not
manufactured, trees not felled, shipped, and processed? What other
efficiencies are occurring to divert so much capital to information tech?

Most of the technologies that are getting the most money are things that save
people serious time/money/effort. This is equivalent to big dollars.

So not only should capital be diverted from other industries, but certain
existing ones become more valuable -- photo finishing has more value when you
are sending in 30 favorite pics chosen from 1000 digital photos you took,
rather than sending in a roll of film and hoping that a few out of the 24 on
the roll turned out as expected.

Travel has more value when you can use yelp to find great restaurants, AirBnB
to find the perfect lodging at a great price, and Facebook to reconnect with
old friends who it turns out live there.

Technology brings value to so many areas, both expected and unexpected. This
is why capital is flowing. And it will continue to flow.

Yes there are meta factors such as monetary policy that impact the cost of
credit and to some extent influence the risk-appetites of investors, but I
think that's likely to be a small fraction of what we're seeing. The reason
it's less obvious to us is b/c we've lived in this world of tech for at least
5-10 years before the rest of society started to arrive.

------
wisty
[http://blogs.reuters.com/felix-salmon/2012/05/07/how-
venture...](http://blogs.reuters.com/felix-salmon/2012/05/07/how-venture-
capital-is-broken/)

The bubble is not in IPOs, it's in VC. Venture capitalists having been losing
money for a decade. Their General Partners are starting to cotton on, and will
start pulling funding.

Yes, there's good VCs which do make a bit, and a few lucky ones, but many VCs
are taking money from "bucket fillers" - institutions who are told "put X% in
VC". These "bucket fillers" have to invest the money, and the top VCs already
have enough cash, so it goes to less savvy VCs who invest it in the startups
who couldn't get funded by the good VCs.

~~~
adventureful
Some of it is definitely in stocks / IPOs.

RAX had a 100 pe ratio recently. That's as high as Cisco was during the dotcom
bubble.

CRM has no PE ratio at all, despite their monstrous market cap.

Amazon has a zillion PE ratio because they're not making much money any
longer.

There's a very long list at this point of tech stocks with crazy valuations.
When people do their anti-bubble refutes, they only list stocks like HP or
EBAY or MSFT or INTC or AAPL, and they ignore the big pile of other tech
stocks with massive valuations.

ZNGA and GRPN were both bubble stocks, priced to extremes, and worth nowhere
near what they IPO'd at. Pandora, HomeAway, and on the list goes. I bet I can
name 40 from the last three years.

------
will_work4tears
I don't have anything really substantial to add to this topic, but I find it
interesting I have some serious envy for the "talent" that is so in demand.

I went the easy route, chose the web development path in my education, rather
than a more math heavy, software engineering direction. I've been slapping
myself for years now, but this just rubs salt in my wounds.

Granted, I interview very poorly, am not the most articulate person (stutter
and stammer a lot, etc) and I certainly can't at this point in my life up and
move to San Francisco, so it is probably not important anyway.

~~~
damoncali
You are not asking for enough because you don't believe you are worth it.
Seriously. Adjust your mindset.

------
mxfh
I was expecting some illustration like this:
<http://ga.water.usgs.gov/edu/earthhowmuch.html> Just with oxygen instead of
water.

------
tsotha
>There just aren’t enough programmers, designers, operations people, and other
warm bodies to man all the hot air balloons. So you have a predictable effect:
Rapidly increasing demand for an only steadily increasing supply. Thus,
inflation.

As one of those warm bodies manning a balloon, I don't mind seeing this
happen. I enjoyed having a little market power during the last bubble, and
I'll enjoy it this time around as well. Sure, when the bubble pops it will
suck, but mostly for people trying to get into the field and not people with
experience.

------
endlessvoid94
> Rapidly increasing demand for an only steadily increasing supply. Thus,
> inflation.

I think it might be possible to rapidly increase the supply. I'm working on
Bloc (<http://bloc.io>) and have been privileged enough to hang out at dev
bootcamp (<http://devbootcamp.com>), and if I've learned anything, it's that
people want to fill this supply.

The challenge is taking the lessons we've learned and scaling them up to meet
something like an economic demand.

I don't think it's impossible.

------
drewinglis
This article left a bad taste in my mouth. Companies that have millions of
active users are hardly bridges to nowhere that are devoid of economic or
public value.

------
389401a
This sounds like DHH is predicting an imminent drop in his income. Call it a
bubble. Call it inflation. Call it whatever you like. But he's probably right.

------
kevinpet
Well, the key feature of a financial bubble is that no one is behaving
irrationally at a micro level. Even if you know its a bubble, it may be worth
trying to get in now and get out closer to the top.

Same thing with building social local mobile stain removal advice apps -- if
someone's buying, then someone will be supplying it.

If it is really, no shit, a bubble, then there is a lot of money to be made by
determining how to pop it.

------
waratuman
Inflation isn't an increase in demand that leads to higher cost. Inflation is
a general increase in supply. A rise in prices is not the same as inflation.
Inflation will eventually cause a rise in prices but it is not the only reason
for an increase in prices.

------
tferris
> All those smart and talented heads, and all those benjamins, didn’t progress
> the economic base in a way we’re going to care about tomorrow.

He's talking of Facebook, Instagram, Pinterest, etc. and doesn't have the
courage to name then. Is this envy? That DHH's products haven't got this far?
Or just naive? Because he should know the typical deal terms of a Pinterest
and that valuations and raising are blown up for the sake of getting PR and
the real milestone payments are much smaller? And that FB IPO can still fail
in the long run?

Whatever.

As much I appreciate DHH and his past work his posts have always the same
bitter taste: 37signals is the benchmark and the rest is wrong.

EDIT: Hey downvoters, downvoting != disagreeing, just reply if you disagree

~~~
mhartl
The benchmark is profits. "Instapintora" might work out well for its founders,
but DHH argues that grabbing a ton of users and hoping for the best isn't a
good general strategy for building a business. I'd amend that slightly by
saying that companies with a huge number of users _are_ valuable, either as
eventual cash cows or as strategic acquisitions, but at best following that
route is a risky strategy. Sure, you might win the startup lottery, but you
probably won't. Actually charging customers with the goal of becoming
profitable in the shorter term is a likelier route to success. Even if you
don't end up with a cash cow, you still have a good chance at a cash
goat—which is still worth milking.

~~~
tferris
> ... grabbing a ton of users and hoping for the best isn't a good general
> strategy for building a business.

Everyone has their own way and why do people judge about others? Some grab a
ton of users and hoping for the best and others write online tutorials for
aged technologies. Let people just do what they like and appreciate if they
are successful (grabbing a ton of users is as hard as it is to write good
online tutorials).

~~~
mhartl
You're criticizing my paraphrase of DHH, not my actual point. That point was
"companies with a huge number of users _are_ valuable, either as eventual cash
cows or as strategic acquisitions, but at best following that route is a risky
strategy." So you can see that I'm not judging at all: I have no problem with
the high valuations of Instagram, Pinterest, etc. Growth companies with
millions of users are hugely valuable even if they aren't currently making any
money. (This is a point on which DHH and I respectfully disagree.)

If you want to follow a high-variance strategy, there's nothing wrong with
that. What is wrong is expecting that your new startup has a reasonable chance
of being the next Instapintora. If you want to build a sustainable business,
lower-variance strategies (which typically aim to become profitable quickly)
are a better bet. I dealt with these issues explicitly in a talk I gave at LA
RubyConf in 2011, which you can find here: <http://youtu.be/j0jT98ZXh5M>

P.S. My tutorial for an "aged" technology is only step 1 in a four-step plan
for world domination; steps 2-4 are much higher-variance. Stayed tuned.

------
elorant
If it's a bubble then Facebook's IPO could be the turning point.

~~~
pyre
Or not. If Facebook remains profitable, then it could basically be this
bubble's Google.

------
lifeisstillgood
To me the most convincing part is the bridge to nowhere.

So, just build bridges to somewhere.

Build what people want, and preferably, will pay for.

Even if you build it in a bubble, its still a bridge, somewhere.

------
ericson578
What would the difference be between a market correction and a bubble
bursting? Is it just a buzz word or a quantifiable difference in size?

------
wildmXranat
What I want to know is, what kind of business service do I need to build on
the upswing and downswing to hedge the risk - anybody ?

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mpg33
as long as companies have good product's and can consistently generate
revenue...the industry should be fine

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adventureful
If it makes everybody feel better, the temporary bubble has already popped.
It's over, it's just that very few people know it yet.

The Facebook IPO is timed to get out the door before the stock market falls
any further. It signals the end of this micro era, just as Apple's stock at
$644 was the big monster stock of this time frame (referring to the small
bubble periods that the Fed generates with their monetization programs and
rate manipulation).

The previous two Fed liquidity bubbles, 1997/99 and 2005/07, both had all the
same trimmings.

Chin up, it's over, now comes the winter. Hope you've got your funding.

------
bluedanieru
What about "creative destruction?" Part of the process is resources being
diverted to shit that goes nowhere. Eventually the people who made that shit
go out of business and then go to work on something else (and hopefully for
them, this time, it doesn't suck).

I suspect the author's point is that lately there is much more destruction and
less creativity, but he doesn't state it explicitly or even do a very good job
of implying it. In fact, this almost reads like a critique of basic
capitalism. Certainly the ratio of expensive but worthless shit to good and
useful stuff seems headed up. I agree that it is. However the boom-bust cycle
is a feature of capitalism, not something you set about to correct. The author
doesn't propose any solution here, which is convenient. If he had, he would
have come to the sudden realization: Aha! There isn't one.

Is Instagram worth $1B? Definitely not. But neither is Facebook worth $100B,
or whatever made-up number they're valued at these days. Evaluating the value
of ideas is not an easy task. Capitalism arrives at a solution eventually, but
no one ever said it was efficient about it.

(Okay, lots of people say that, but they're deluded assholes.)

