
Why we shut down a product that was $75,000/year profitable - alexknowshtml
http://wildbit.com/blog/2012/01/26/why-we-shut-down-a-product-that-was-75000year-profitable/
======
bluedevil2k
After reading the article I have to question whether it really was profitable.
I think one of the mistakes that coders (and most business owners) make is to
value a profit solely on the accounting values: (income from the application)
- (direct expenses of the application).

However, the true way to value profitability is to take a more financial
perspective (financial being different than accounting). A financial
perspective would value the opportunity cost of working on this application
compared to working on another application. If the team spent 10 hours a week
on the application, and those 10 hours a week could grow their other products
by more than $75,000 a year, then of course the application isn't profitable.
It's actually losing money.

Another way to look at its profitability is to look at it from an operational
standpoint. The employees on the team would be consider a fixed cost (yes,
they could hire more people, but that just changes the fixed cost). The
limited resource for this particular fixed cost is time, and from their
article I can assume that their time was maximized (working as many hours a
week as they wanted to). Operational theory says when a fixed cost is at its
maximum utilization, higher marginal profitability items should be
prioritized. Basically, they are better off working on other items if they
don't want to work more hours.

~~~
brador
I agree on the point of questioning it's true profitability figure.

If it was profiting @ 75K a year, thats half a designer, half a marketer and
half a programmer for a year. Hire them in, and let them do what they like
with it for 6 months. Get interns and let them have a play with it if you want
to give some kids a chance.

It's usually a bad idea to shut down a profit center, unless it truly is
unsustainable. @75K this was doing well and IMO should not have been shut
down.

~~~
rhizome
You're valuing a designer, marketer and programmer at $50K/yr each?

~~~
brador
At this level, yes. Go for 0 years experience but lots of passion and a basic
skill set. Give them a shot on it. You don't want pros for a project like
this, they're better used elsewhere, just a small team to keep the lights on
and try to grow it.

My usual strategy works well here: Hire in @min wage, with a huge bonus linked
to new subs.

~~~
wicknicks
You probably need someone experienced to semi-supervise the project. A bunch
of newbies might end up exploring more than being efficient and productive.

~~~
VBprogrammer
I know what you are saying, and I strongly agree. But in comparison to
chopping $75k off of you're bottom line then I think you are going to struggle
to find a way to be less efficient.

Depending on the size of the company it might just make a great graduate /
junior dev recruitment program. Take them on with a probationary period and
watch how well they do with the sideline gig. If they turn the code to
spaghetti within months then you probably don't want them working on the core
business. The last one through the mill becomes supervisor for the next one.

The only potential issue with this strategy is damaging the brand name of the
consulting company. I'm not entirely convinced that this is really an issue.

------
mgkimsal
I rather question the customer service aspect of all this.

I'm not sure I'd dig my electric company cutting off my electric service just
because they felt they could be more profitable somewhere else and didn't
"believe" in my service anymore. Service that I've paid for, come to rely on,
and have integrated in to my business.

Selling this or partnering with another company to transition accounts over to
them would have been better. Maybe they did that and didn't mention it in the
article (or I missed it).

Yeah, I get it. You're entrepreneurs and want to "have passion" about what you
do. But.. WTF - people are paying you for something that they obviously want,
and you just shut the accounts down - with or without notice, I don't really
care. How do I feel now about postmark? Will you still have passion for it in
15 months, or will you decide beanstalk is more profitable, and shutdown
postmark? regardless of what is said now, making decision like this is
emotional (read the language of the post) - emotions will change next year.

"Selling would have involved a lot of effort and time, and we just needed to
focus on our products that were growing. " Don't you think the existing paying
customer deserved that bit of respect for you to put the effort in to selling,
and ensuring their continued success as well?

Puzzling a best - disconcerting to say the least.

EDIT: [http://help.newsberry.com/kb/subscribers/transferring-
subscr...](http://help.newsberry.com/kb/subscribers/transferring-subscribers-
from-newsberry-to-campaign-monitor)

There's a help link to transition to campaign monitor. Fine that's there, but
the language of the post still seemed to ignore the needs of the existing
users, and focused their decision solely on the feelings of the people running
the show. Let's hope they always feel positive about postmark, otherwise
you'll be seeing 'transition from postmark to xxxxx' in their help pages in
the next year or two.

~~~
cnagele
Hi there. Chris here from Wildbit. I want to make sure I clarify some points.

A big reason we waited so long to shut it down was leaving our customers
stranded. Even at such low revenue, we owed everything to them for allowing us
to get our first product off of the ground and finding value in our service
for so many years. It was a VERY difficult decision.

We did not make a move until we had a very good transition process for all of
our customers. We set up a partnership with Campaign Monitor so each customer
could easily migrate their lists and avoid any downtime in sending emails.
Sure, it is a pain to export and import lists, but there are many good options
out there such as Campaign Monitor. If your electric company shut off your
service you would surely be screwed, not really the same case here.

Regarding Postmark, this should make you feel even more confident about it.
We've seen amazing growth and our team is so passionate about Postmark that we
decided it was worth giving up profits on Newsberry to make it even better.
That says a lot about our commitment to our other products and our focus as a
team.

In the history of Wildbit there were many times when we could have just added
a few employees to keep profits going in one area while we worked on something
else. A perfect example is when we decided to drop consulting to focus on
products. We could have kept it going along side of products, but focus is
everything in business if you want to create something that people really love
and enjoy to use.

~~~
alexknowshtml
In addition to Chris's point, when we reached out to our customers about the
decision, we gave them time to transition, and assistance in the transition
plan.

I didn't personally speak to every customer, but many of the customers were
understanding and in some cases, very supportive of the decision. The produce
hadn't gotten new features or much more than maintenance in over a year. They
appreciated our honesty and perhaps more importantly, our empathy for the
situation we ultimately created for them.

~~~
joering2
I still don't like what you did and I am sure you made plenty of
developer/startup enthusiasts angry and that they would love to be in your
shoes profitable. If it was profitable, it means it was sustainable, at least
in short period of time. You didnt have to spend your time on it, you could
hire a team and literally outsource entire project. You could easily sell it
for 10x fold and score $1MM to use for you current or future projects. I
assume your team worked hard on this, they should be rewarded monetary-wise as
well. Not to mention if you had coming back customers, it means they liked or
loved your service. Now you left them pissed. If you were concerned about
lists (which is nice thing of you not just selling to spammers), and if a
"large companies" truly approached you, I dont see a problem putting a
statement in your sell paper how the new company will treat existing database
of leads. I am sure if you would sell to Google, they wouldnt go wild and spam
the heck out of each lead you had.

~~~
rapind
Funny thing is, selling to Google often also means shutting the product down
anyways. For a product of this size, if Google had interest it would most
likely be a talent acquisition more than product.

Outsourcing an entire product like this is a pipe dream. It would also likely
screw over their customers, who may then pass word around that they were
douchebags for doing it.

I think they handled it well, and very morally.

~~~
joering2
closing down (killing) a self running, profit-generating, sustainable business
(even if its MVP) that customers love and recurringly use is a good moral
decision?

~~~
rhizome
Whenever I have the same question as you, I stop and remember that a lot of
people use "ethics" and "morality" interchangeably. If it doesn't make much
sense with one word, try the other. :)

------
danko
This is a classic microeconomics case study in opportunity cost and
externalities. From an accounting perspective, yes, money was coming in that
exceeded expenses in labor and overhead. But the opportunity cost of the
effort to support it -- as well as the negative externalities caused by the
distraction effect (as well as the negative impact it may have on their brand)
-- means that the $75K figure is more of a canard.

If I was a Microecon professor with a 101 class coming up, I know I'd have
this article spiked and ready to use for an upcoming semester.

~~~
googletron
If I was Marketing professor...

~~~
meric
Finance professor: In finance you calculate "Net Present Values" of project
and you take every project with an NPV > 0, if they aren't mutually exclusive.

In this case it is arguably a scale problem. You have the company being only
able to concentrate on one thing at a time, and even though the product is
profitable with NPV > 0, there are better projects out there to take with an
even bigger NPV, even if the rate of return might be reduced.

It's kind of like you have a block of land, do you want to setup a park that
charges money to enter or build a skyscraper? The park has a 200% rate of
return and the skyscraper only 15%.

------
plusbryan
Something doesn't add up here. It's like they bought a house, started renting
it, and when being a landlord got boring, burned it down.

When you start a service and sign on customers, you take on a responsibility
to keep that service going. Even if that means selling it or passing it on
when you can't carry the torch yourself.

~~~
paulhauggis
You have a responsibility to let your customers know in advance that you will
be shutting down, but not to keep the service going.

You have a responsibility to your employees and anyone else that works for the
company to do not harm their livelihood. Running a service that continues to
waste money can eventually put the company out of business.

------
steve8918
This is why at some point in a company's growth, you have to take the tech
guys out of the business positions and stick someone who really knows business
in charge.

One of my former coworkers helped build a ridiculous iPhone ringtone app a few
years ago that STILL generates positive cashflow, and profited several 100k.
This was done strictly through marketing. There are plenty of ways to grow a
product, but these guys didn't have the know-how or wherewithal to do it for
an already profitable product.

A real business person would have taken that $75k/yr and figured out a way to
grow it, through marketing, by pounding the pavement, etc. Most startups are
cash flow negative, and will die in a year and yet this company generating
profits and weren't able to make it grow? They gave up way too easily, and
like people said, it's because they got bored of it. That reeks of arrogance,
sorry to say, being bored of $75k/yr.

Hopefully your current products are profitable, so that this isn't a lesson
that comes back to haunt you later on. But as other people said, I also hope
this doesn't mean that your current customers have to look forward to their
product being closed down prematurely because your company got bored of it as
well.

~~~
mgkimsal
Well, I think it's primarily a business decision.

"We can devote $x resources on XYZ and make $75k profit, and spend more time
and money to figure out how to grow it, or we can spend that $x resources on
ABC, make more than $75k from that resource expenditure, and not have to
invest more time/money to figure out how to grow ABC because it's already
growing (either because we figured it out or we'll figure it out along the
way)."

Yes there are plenty of ways to grow a product, but how much time/energy do
you justify on learning/testing when you've already got other products that
are more profitable and growing?

That said, the original post still focused too much on the feelings of the
devs/peeps involved and didn't seem to address things from their customers'
perspective. They addressed that in another reply to my earlier post, but it
still set a bad tone to me off the bat.

~~~
steve8918
Maybe they are making a lot of money to the point where they don't need it the
extra cash. I don't know who these guys are, so maybe they're doing really
well, and if so good for them.

But balking at spending effort to maintain a $75k/yr business doesn't seem
"hungry" enough to me. They tried to killing off the business and dropped
their price, and instead they doubled the number of users. What??? How much
more of a clue do they need that they really have a viable product here?

Any businessperson worth their salt would take this and start figuring out a
way to build on it. What about get an MBA intern from Wharton and give them
the project of figuring out how to grow the business? Hire a real entrepreneur
and tell them if they can grow the business, you'd split the profits 50/50
with them.

I mean, come on. There's a real solid base there of people who were willing to
pay for their service. The BEST solution was to shut it down? I can't believe
it.

~~~
zachinglis
You really negate yourself when you say "I don't know who these guys are."

The truth is from what I can gather and what this posts says, they're very
passionate people. They don't want their name attached to a half-baked
product. Nor do they want to deal with it anymore. It makes a lot of
businesses sense to deal with things they ARE passionate about. $75k is small
change. They don't need the hassle.

------
jroseattle
Sounds like a very well-reasoned decision, one I would agree with if in the
same situation.

I'd call the entire premise a success (not Newsberry per se, but in light of
other product development.) Great recognition of where the product was going
and where limited resources should be directed.

------
gearoidoc
I'm all for making well designed, useful products. But refusing to (at least)
sell the product to another company because you weren't sure they "would do do
right by our customers and the industry" just seems dumb to me.

~~~
unreal37
Why would they ruin their reputation by selling their email marketing company
to a spammer, scammer or worse? They would have to be very careful when
choosing the buyer - might be more hassle than its worth.

Also, they have a product called Postmark in the same space, Why create a
competitor for yourself?

It's their decision to sell or not. They did right by their existing customers
in first making an honest go of the business, then cutting the price when that
didn't work, and then getting a transition plan for closing it when the lower
price brought too many low quality (ie: borderline spammer) customers.

You can have an opinion if that's right or not, but ultimately its their
decision.

~~~
gearoidoc
Obviously its their decision but its a good discussion point all the same :-)

I understand that it's out of their hands once they sell it but if somebody
made a good offer to buy the piece of tech then I (emphasis on the "I") would
accept. The actions of the buyer doesn't dent their reputation IMHO as its no
longer their product.

------
ef4
The most charitable explanation for this seems to be that they don't want to
damage their brand by having a less-than-perfect product. Fine. So "spin it
off", give it a new name, and then ignore it while it continues to generate
revenue for years and years.

They're dramatically underestimating how much the average user dislikes
change. It doesn't matter if Campaign Monitor is better -- some of your users
would have gladly stuck with the old way simply because it's the old way, and
they were probably pissed they had to learn something new.

Letting the product coast isn't cheating your users. It's simply offering them
one more option.

------
chaostheory
Why not just sell it instead or am I missing something? The post was very
vague on this point.

~~~
alexknowshtml
We will elaborate on why we did not sell in another post - it's a good
question, with an important set of reasons. Thanks for the push.

------
wgx
Reminds me that there's a good failure and a bad failure. A good failure is
over and you move on, hopefully with some learned lessons. While a bad failure
is doing _just_ well enough to be kept 'ticking over', and you're stuck
working on something you don't really believe in.

------
mvkel
Profitable or no, profit is really irrelevant in this situation. If my company
is making $100K/year and I only spend $25K on myself and I'm the sole
employee, then technically my company is "profitable," but it's essentially
invisible in the market.

This is what drives me nuts about the "I bootstrapped my company to
profitability and success!" blog posts, because in most instances, the owner
is making $50K/year and can't afford to hire anyone else.

I'd be interested in seeing what their top line numbers looked like, as that'd
give an indicator of their overall market penetration, and true success.

This is why companies that do $750MM in revenue per year, but report an annual
loss are still hugely successful, because $750MM is a ton of money!

------
zizee
I wonder if wildbit considered selling the product to someone who could give
it some love?

Perhaps it could have been similar to this recent story:
[http://www.softwarebyrob.com/2012/01/25/the-inside-story-
of-...](http://www.softwarebyrob.com/2012/01/25/the-inside-story-of-a-small-
startup-acquisition-part-1/)

------
rob
Can this company even be trusted now? Are they going to shut down Beanstalk
and Postmask when they get bored of those services, even if they are
profitable? This is absurd.

~~~
zoltarSpeaks
I hadn't considered it from this point of view. Although a tad extreme, as
they did mention partnering with Campaign Monitor to aid the move for
customers, I can imagine I might have been a bit miffed to see a service I
regularly use be shut down.

It would be interesting to here some ex-customer perspectives on this.

------
ahoyhere
Background: I'm friends with the owners of Wildbit, and have watched the
journey they took that led to shutting down Newsberry. Several times, over a
couple bottles of wine, my husband and I advised them to "just shut it down"!
Because my husband & I run a very similar business, and we understand what
it's like.

Here's the thing about the comments on this article, here on HN: of the people
saying it was a mistake, that the article was misleading, etc, etc: How many
of them have a profitable business with a team of any size, and multiple
products?

That's the hidden problem with HN: with a few notable exceptions, everybody
here is an Monday morning quarterback.

There is NOTHING more draining than to keep a product running "because it's
just profitable enough." Or worse, because you feel guilty about shutting it
down, because you feel like you're going to let down your customers.

There's nothing more divisive than a redheaded stepchild product.

There's nothing more wasteful than a distraction to you & your team.

Running 2 products is not simply double the work than running 1. Running 3
products is not simply 50% more than running 2.

When one runs a successful business oneself, one knows this implicitly.

But when you haven't, then you are likely to look at this kind of story and go
"WTF? They just threw away $75k/year? But they could have spent 1 day a week
on fixing it and making it more profitable! They could have hired a part-time
designer!"

But this is just a lament wrapped up in logical, impartial language - but
still a lament, which is really saying "WTF? I could use $75k/year! How could
they possibly throw that away? WASTEFUL. SHAMEFUL."

Which is, really, totally understandable. Until you run a business of this
scale, it's hard to imagine how $75k/yr in profit could be a millstone around
your neck instead of something to celebrate. However, that does not good
business advice make, and one must always consider the source & experience of
the person dispensing it.

~~~
zizee
A lot of good points here.

Perhaps I should grow a thicker skin, but as a father of two redhead children
I found the use of the expression "redhead stepchild" offensive. Mostly
because I'd hate them to read something like that and think that there is
something wrong with them.

I know it's meant to be a funny expression, and it's cool to make fun of
redheads and all (isn't it great to find a minority that is ok to publicly
ridicule without having to think about issues like racism), but perhaps the
joke is getting not funny anymore...

or maybe I need to have a coffee and lighten up?

~~~
ahoyhere
You need to have a coffee and lighten up. Nobody is making fun of redheads.

1\. Lots of people think redheads are sexy.

2\. The implication of "redheaded stepchild" is that "it's obviously not your
kid" or possibly even a bastard.

3\. I'm fat, and a Rails developer, and I don't get my knickers in a twist
every time somebody makes the "fat models" metaphor about good MVC design.

No offense, but your sensitivity to your kids' redheadedness is far more
likely to make them think it's a bad thing than some random colloquial phrase.

~~~
zizee
No offense taken. I'm actually not sensitive about their red hair, I love it
and the hair of their very sexy redhead mother.

I guess I must have misnderstood the colloquialism as I read it as similar
humor to this [http://smh.drive.com.au/governments-dont-be-a-dickhead-
campa...](http://smh.drive.com.au/governments-dont-be-a-dickhead-campaign-
takes-aim-at-gingers-emos-20100329-r7gr.html)

~~~
zizee
[http://m.urbandictionary.com/#define?term=red%20headed%20ste...](http://m.urbandictionary.com/#define?term=red%20headed%20stepchild)

You are right, the "redheaded" part of the phrase is simply meant to imply the
child is obviously not a legitimate child of the parent (who is assumed to be
a non-redhead). So I was way off base, my apologies.

That's what you get for posting immediately after learning your flight has
been delayed two hours :-(

~~~
ahoyhere
S'ok.

The point of "redheaded stepchild" is that nobody loves it cuz it's not THEIR
baby. Making it the perfect metaphor for this product. :)

------
ThaddeusQuay2
Hello from Philadelphia! I live and work quite near you, in center city. My
economics and motives are likely rather different from yours, and/or from what
you are used to seeing in most other people. Let me know the next time you
feel like throwing away a project which might, in the right hands, still be
viable. One man's trash is another man's treasure.

NOTE TO SELF: New startup idea: Create a Craigslist for no-longer-wanted,
about-to-be-defunct startups. Woot!

~~~
orenmazor
flippa.com is basically that, sort of.

~~~
slig
Flippa signal to noise is pretty low. Maybe something more "curated" and
targeted directly to HN would be better.

~~~
dangrossman
I don't think that's a real problem; you don't page through all 1800 listings
to look for something to buy. You add a couple filters and get exactly what
you want. Heck, if you wanted to find Newsberry, just click "High End" in the
main menu and sort by price -- it would have been right there on page one. Any
custom set of filters/searches can be saved and turned into a daily e-mail
alert, too.

~~~
slig
> Any custom set of filters/searches can be saved and turned into a daily
> e-mail alert, too.

I did not know about that. Thanks.

