
You don't have to sell your company to have financial security - pchristensen
http://www.37signals.com/svn/posts/1159-you-dont-have-to-sell-your-company-to-have-financial-security-and-the-freedom-to-do-what-you-want
======
pg
My point was not that selling was the only way to achieve freedom and
security, merely that it was the optimal way. (That was the thesis of the
essay in fact: that selling a company and living off its revenues aren't
opposing strategies, but rather that the former is the optimal case of the
latter.)

I don't see how anyone could argue that selling was not optimal for security.
Sure, you could gradually save money, but that's not optimal; it's not more
secure than getting a lump sum upfront.

Whether selling is the optimal way for most founders to work on what interests
them most is a fuzzier question, because it depends on the likelihood that the
average founder's startup is the most interesting thing he could be working
on. (Not just interesting; _the_ most interesting.)

You can't prove this, only offer arguments of various strengths.

The strongest abstract one is similar to Occam's Razor: that a choice that has
to satisfy two independent constraints is unlikely to be the optimal choice
for either alone. Specifically, that you can probably do better on the
dimension of interestingness if you don't also have to satisfy the constraint
of making lots of money.

I'm surprised people find this idea controversial. It seems to pervade almost
everyone's choices from the moment they enter the workforce. I.e. if you want
to make more money, you often have to compromise on the type of work you do,
and if you want to work on what you love, you often have to make financial
sacrifices.

There may be a few statistical outliers who escape this force (a few top
athletes, for a few years each) but for everyone else it's as pervasive as
gravity.

~~~
pchristensen
I think you're talking about an exit and DHH is talking about choosing what
kind of business to _start_. If someone offers to buy you, your chance of a
liquidity event is 100%. But if you're still deciding what kind of business or
startup strategy to use, that chance is more like 50%, 10%, or even 1% or
less. Given those odds that any normal entrepreneur (not you or DHH) faces, he
says it's smart to build for profit and take the safer money, rather than go
all or nothing.

~~~
Harj
_he says it's smart to build for profit and take the safer money, rather than
go all or nothing._

the point is that the two don't have to be mutually exclusive. they may well
be if you're building a consumer web app without any monetization strategy but
not for e.g. an ad network - something that needs to make money from the start
and can also be bought out eventually.

------
staunch
I find it hard to believe working on the projects they do is the most
interesting thing those guys can think of to do for 30+ hours/week. Either
they're incredibly boring people or a bit delusional.

I think they continue to work on them because it's mostly pleasant work, they
have total control, there's a lot of inertia, and of course because it's
making them wealthy.

~~~
edw519
_I find it hard to believe working on the projects they do is the most
interesting thing those guys can think of to do for 30+ hours/week._

I don't.

Sometimes the real fun comes after the business passes its first few
milestones. Lots of people bust their butts building a business _in order to_
get it to the point where it will be a lot more fun to run.

~~~
axod
I don't buy that. The excitement for a lot of people is in building. Creating.
Once a company is self sufficient where's the fun in that?

~~~
diego
I don't know what you mean by "self-sufficient". Neglect a stable company and
it will go out of business. The technology market is always changing and you
have to keep an eye on your competitors and new technologies.

Sustaining a business over the years and making it through the ups and downs
of the economy can be an extremely interesting challenge.

~~~
axod
Yes, but to some "sustaining" is very very boring.

~~~
dhbradshaw
Maybe the key is that rather than just "sustain" you have to keep building and
growing.

~~~
tonystubblebine
Why are people talking like 37signals is in a sustaining mode? They regularly
release new products and significant new features for existing products. I'm
pretty sure the people there still get the sense that they're creating
something new.

------
pavelludiq
I respect both PG and DHH and i think that they are both right from their
experiences. PG seems to be older and with more experience though. My thoughts
on the situation are simple. Why not be flexible? Why not start a business and
work on it as long as its rewarding to do so? If your company gets rally big
and you think it wouldn't be as fun to manage it, as coding all day, then sell
it, if you think running a big business is for you go for it. If you company
doesn't grow, but guaranties you an income you can choose if you want to sell
it and do something more interesting, or if you want to take it easy and just
enjoy working. Are these men blind to see this as an option? Why is it
supposed to be one way or the other? Flame wars on technology are annoying
enough, but on business strategy they are annoying and boring too.

~~~
gscott
In 10 years the 37Signals crew might not enjoy the work as much as they do
today. People change over time, interests shift, they might want to join the
hypothetical pg co-op later down the line.

However, if you can make a nice wage like 20k a month, work when you are in
the "groove", have all of the things you want in life, take some nice
vacations I don't see why they would need to make any changes until there
life's interests shift focus.

~~~
andreyf
_In 10 years the 37Signals crew might not enjoy the work as much as they do
today._

My thought exactly. Taking free cooking/art classes is fun, but sooner or
later, you start wanting to make something that'll last 100 years. That's what
Arc is about. Ditto for Knuth's Art of Computer Programming.

Can you imagine Knuth writing them while running a business?

------
vaksel
I think you do need to sell your company. The ideal of living of residuals
shouldn't apply to the internet businesses. They are just way too
unpredictable, look at companies from 1998...how many are still around? Only a
few of the few are still around, and that's only because they have become
synonyms with their niches. Google? Search, eBay? Auctions, Amazon? Online
Stores etc. But for each one there are a hundred dead companies that had a
good 5 years, and then died.

Small companies/large companies, most of them eventually fail to be
competitive. Internet has almost 0 barriers to entry, there is absolutely
nothing stopping another startup from coming in and taking you out, doesn't
matter if you have a bigger piggy bank.

Better to sell while you are still on top, and then if you really want to, you
can use some of that capital to build something else that you can be happy
about. And lets face it, if its 6 years later, chances are you have plenty of
new ideas you want to try out.

If I have a 5 year old company that makes $250,000/yr for me, and Google
offers to buy it for 10-20 mil, I'd take the deal, because it means I'll now
have guaranteed money to live the lifestyle I want for the rest of my life,
and I'll be able to use a portion of that to do my next startup that I'll be
just as excited, as I was about my original idea

~~~
akeefer
I don't think many people would debate what to do if you had the opportunity
to sell at a huge markup (i.e. 40-80x your yearly take) that would leave you
set for life. That's kind of a no-brainer.

The real question, to me, is whether you should build with the intention of
trying to flip or if you should build with the intention of making it a stable
business. That direction will make a huge difference in a lot of your
decisions about whether to take on funding, whether to focus on early revenue
or just on user numbers, etc. And there's no easy answer to that one; it
really depends on what you want out of the experience, what your expected
likelihood of being able to flip is, if you take satisfaction out of building
over the long term or if you'll get bored in a few years anyway, etc.

~~~
13ren
I think there's a legitimate question of how possible it is to build a stable
software/internet business for the _long term_

It's easy to start such a business; but it's also easy for your new
competitor, and for open source. But apart from barriers to entry, there's
that routine cataclysm of a computer technology revolution every decade or so.
That one is hard to survive. This volatility is the main reason Warren Buffett
doesn't invest in computer technology companies.

I think the _long-term_ is a decade or so.

~~~
garethm
For what it's worth, MiTek Australia, a subsidiary of Berkshire Hathaway,
recently acquired a software company:
[http://www.buildsoft.com.au/Content_Common/pg-
Announcements-...](http://www.buildsoft.com.au/Content_Common/pg-
Announcements-1.seo)

~~~
13ren
Thanks for that. I think there's some kind of a distinction between a
technology company, and technology company that is directly tied to a non-
technology business, so that it also is a non-technology company.

Buildsoft (the acquired company) develop software for the building industry.
At some point, this is the same business as developing physical tools for the
building industry. Once there's a known task and a standardized way to solve
it, we can develop our tool for doing that. There's less uncertainty.

I think the distinction is to do with uncertainty, generality and
abstractness. A "technology" company is doing something new and unknown, that
is _applicable_ to many different industries - but hasn't settled down yet.
Once the application becomes concrete, and specific to a particular industry,
and the way of solving it is pretty well established, I guess it becomes just
a regular business like any other.

Moore's "Crossing the Chasm" talks about customizing a product to a specific
industry, as a way to get a measure of security - you won't get wiped out
(until the next revolution in computers).

I was thinking that Warren might not have anything to do with this
acquisition, but he's very attentive to capital redeployment, so I would guess
he did personally approve this purchase.

------
aspirant
Sell your company, keep your company. If you want to maximize your ability to
work on interesting stuff, remember that there is a effective but unglamorous
dual pronged approach to financial security. _Require less luxury to be
happy._

Learn to cook brown rice. Bring your lunch to work. Walk to your job (or to a
bus stop to your job) and can the gym membership. Yoga studios tend to offer
free classes on Sunday. Visit the library instead of buying so many books. In
fact most libraries will even buy a book they don't have if you ask them. And
if you really want to give your mind a break from coding, buy a repair manual
and learn to fix your own car. This actually results in the satisfaction of an
affectionate bond with your car that you can't buy at the dealership.

Two things have surprised me the further I go down this path.

1\. Hacking the system by revolting against the consumer culture is so much
fun, that I keep pushing harder regardless of my income.

2\. While living like this, you'll even find low-maintenance (high-everything-
else) women doing the same thing who find it attractive.

------
Tichy
I think both dhh and pg want the best for "us" (and that's why they deserve to
have fans). Maybe dhh is worried that pg's talking about risk is too
discouraging for many people who would be happier as entrepreneurs but remain
scared in their cubicle life. On the other hand pg might be worried that
people end up not pushing themselves hard enough and ultimately failing and
staying mediocre.

Since dhh was a speaker at Startup School I also assume they get along fine
and we simply benefit from a kind of benign competiton.

Probably they are both right, what I would like to know now is which course of
action has the bigger chance of success ;-)

Nevertheless I also feel pointing to the CEOs who stayed with their company
might be inaccurate. Jeff Bezos might still be with Amazon, but he might not
be much into selling books. He might be exploring things like the Kindle and
Amazon Web Services, or something entirely different. The point: those
longterm-CEOs might simply be doing startups within the safety of the mother
company.

~~~
sanj
So who is the Vorlons and who is the shadows?

------
wallflower
My hat is off to DHH and 37signals for managing to implement the simple but
not easy and classic ideal of doing what you love for a (excellent) living. If
you hate your job, how can you be good at it?

~~~
nanijoe
I'm not even trying to be funny...I do hate my job, and I am pretty good at it

~~~
wallflower
Freud was once asked what he though a normal person should be able to do well.
The questioner probably expected a complicated, a "deep" answer. But Freud
simply said, " _Lieben und arbeiten_ " ("to love and to work"). It pays to
ponder on this simple formula; it gets deeper as you think about it. For when
Freud said "love", he meant the expansiveness of generosity as well as sexual
love; when he said "love _and_ work," he meant a general work productiveness
which would not preoccupy the individual to the extent that his right or
capacity to be a sexual or loving being would be lost.

(From "Identity and the Life Cycle", by Erik H. Erikson)

------
pchristensen
I knew it!!!

<http://news.ycombinator.com/item?id=254409>

~~~
kirubakaran
So did everyone else :) Here is the next prediction: pg will post a reply
comment here.

~~~
sant0sk1
If you want to formalize that prediction there is a medium to do so.

<http://www.intrade.com/>

------
fallentimes
We're in YC Summer 08, and our goal is the model spelled out by DHH in this
post...with slightly less arrogance.

Wufoo has a somewhat similar model to 37signals and they're unbelievably
profitable.

~~~
nickb
How do you plan on providing an exit to your investors by following the 37sig
model?

~~~
steveplace
Issue dividends or do a stock buyback.

Still, you probably could sell your hypothetical company. Could even be
easier, since you have actual cash flow to look at.

------
axod
Nearly every 37signals blog post seems to say the same thing.

~~~
d0mine
What do they say?

~~~
jcl
My impression: "You should make a product to sell rather than making a company
to sell."

~~~
axod
I think both are valid business plans. There's not _all_ that much difference
apart from the sums involved, and your potential market size.

~~~
tx
No, they aren't. The former suppresses competition because it relies on
existence of "big gorillas" to come over and buy you, therefore no new
gorillas can emerge. Meanwhile, most often than not, big gorillas simply put
their new toys on the shelf, thus suppressing innovation.

In that regard, entrepreneurs who build to flip are no different from real
estate speculators: they make a few people richer, but in the end you'll end
up with the same lot of aging houses.

Not to mention that "build to flip" companies simply suck. Their products are
jokes built overnight as parasites on shoulders of open source excellence, and
in the end they don't reward financially anyone but investors and (but not
always) founders: it's statistically stupid decision to work long hours as a
regular programmer for a startup whose goal is to sell out for $50M after 3
rounds of funding.

I like Paul a lot, but his patronage and encouragement (!) of build-and-flip
projects is the worst part of "PG culture" that I have the biggest problem
with. Especially when he blames VCs for not funding the "next Google". The
Google wouldn't has happened if S&L landed on YC.news some day in 99: they'd
sell out to Yahoo for $10M instead.

~~~
axod
"Not to mention that "build to flip" companies simply suck."

That's a slight generalization. Also you can actually do both - build to be
profitable long term, and also build to be attractive in terms of
acquisitions.

------
richcollins
One thing that hasn't been addressed here is the likelihood of creating a
company that that will be acquired for enough money that you no longer have to
work vs the likelihood that you can create a business that lets you live
comfortably.

My guess is that most businesses that make enough money for you to live off of
comfortably would have an acquisition value that is high enough that you
wouldn't have to work anymore.

------
dmix
They introduced the article as a rebuttal to PG's article.

But, like most of their recent articles, its just promoting the bootstrapped
stay-small business ideal.

If your looking to make a lifestyle business then they have some good advice.
But all businesses are not equal.

The market, industry, and success all play a big role in determining whether
or not VCs, M&As or IPO's are right for your business.

I've said this before, 37Signals is selling a work-style philosophy.

Which is probably why they didn't make much of an argument, besides "we work 4
days a week and still take vacation" and "other people have stayed small so
you can too".

Let's not forget that 37signals is no longer an early stage start-up. If your
making a million+ in revenues, of course you can make flexible hours for your
staff.

------
13ren
There's a tax advantage too: to have investments that return $100,000 pa you
need to have saved (assuming 10% ROI) $1,000,000. You get taxed each year on
that $100,000 as income - but you also got taxed when you made that $1,000,000
in the first place.

But if you create a business that returns $100,000 pa, while you similarly get
taxed on that income, _you don't get taxed on the creation of the business_ \-
even though it's equivalent to having saved $1,000,000, in terms of its
return.

And if that doesn't set your heart singing in transcendental joy, it's
probably better for you to just do what you love and the money will follow.
:-)

~~~
hs
the same is true for stock u won't get taxed for buying stock and the tax is
just one time (not recurring every year) at 25% (15% after 1 yr)

contrast this to 'work for company' ... u get taxed 35% every year :(

probably it's the social design school-work-govt 1\. you obtain huge debt from
school 2\. you become obedient by having to work to pay the debt 3\. you stay
in the loop because of taxes

~~~
13ren
_the same is true for stock u won't get taxed for buying stock and the tax is
just one time (not recurring every year) at 25% (15% after 1 yr)_

Really? Here in Australia, we don't get a tax break for buying stock (AFAIK).
When you earn the money, you pay tax, and then you buy stock with what's left
over. (though there's tax breaks for investing via superannuation)

~~~
hs
I meant to say u get taxed at 15% flat on capital gain after holding the stock
for more than 1 year (in the US)

in my country, the capital gain tax is only 0.1%, automatically included when
one sells stock (0.15% fee for buying and 0.25% fee for selling any amount any
time); however, income tax from working is 35% top

but the trend is ... tax on investment is substantially lower while it's much
higher on working income ... social control perhaps?

~~~
13ren
OK, I see. Yeah, we have similar tax breaks for capital gains (when they are
realized, via a sale). I think it's half the normal rate if you wait a year
(your tax rate depends on your income here - highest is about 50%); and half
_again_ (ie. 1/4 the rate), if it's the sale of a business you created.

But note that you only get taxed on capital gains if you realize them (ie. if
you sell the stock). If you just sit on it, and take the dividends, you don't
get taxed on the capital appreciation. Over time, the dividends (usually!)
increase reflecting the capital appreciation (so you are getting something out
of that capital appreciation), but you're not taxed on the capital
appreciation itself.

The distinction between this and starting a business yielding the same
dividends is that you don't pay tax on sweat equity; whereas you were taxed on
the $ equity (that you bought the stocks with) when you earnt it.

hmmmmm, they are both instances of capital appreciation which you don't get
taxed on - until you sell the stocks/business. It's just that the business
starts closer to $0, though there is always some $ investment in starting a
business - even if only in the form of your living expenses).

Yes, it's deliberate encouragement of investment (which creates new
employment, new wealth... new taxable income), but which flows naturally from
the nature of capital appreciation. And it's easier to police the event of a
sale. But truly, if they really wanted to tax capital appreciation (without a
sale), they could. It's a decision to not tax it, to encourage investment.

PS: you mean 0.1 capital gains don't you? (ie. not 0.1%, but 10%)

------
jsmcgd
I think this is quite interesting. On one hand we have an investor saying
things you would expect an investor would say (grow as much as you can). On
the other hand we have an owner saying things you would expect an owner would
say (my business is great). Yet when these two say it, it seems fresh for some
reason.

Perhaps because when they say these things we know that they believe it in
some absolute sense not just because it benefits them. So maybe I should say
refreshing, not fresh.

I love HN.

------
andreyf
Writing business apps in Ruby on Rails is only going to seem cool for so long.
Give them a couple of years for the coolness to wear off, and they'll sell
without a second thought.

~~~
subwindow
37signals has been doing web applications for five years.

They're not some new startup who are building Ruby on Rails applications
because it is the hot new technology.

They're building Ruby on Rails applications because _they invented it_. It is
the hot new technology because of what they did, not vice versa.

------
beaudeal
i think its great that theres all of this discussion over something such as
business models -- in this age of technology i feel its often something
overlooked -- but in my opinion, they are both valid, it just depends on what
you're going for. if dhh is happy working 4 days a week on 37signals and
earning the money that he is, and he wouldnt rather be doing something else,
than great for him! if his interest were exhausted, and he were still doing
that, then i would say why not sell? for me personally i could not be happier
than working on my current project, because it is what i am most passionate
about. however, with that being said, for the right price it would be crazy
not to sell. not only could you continue to work on it afterward, but if
something else came along more interesting you would have the opportunity to
pursue it. i just dont think this is as cut and dry as dhh wants to make it
seem, and i really agree with the clarifications that paul made in his first
comment.

------
endlessvoid94
I can certainly agree with some of this, but I really do enjoy working alot on
a software project of some sort. I COULD work 40 hours/week on it, but I'd be
perfectly happy working 60 or more and "chasing" this goal.

It's very rewarding for me.

------
soggo
just 2 ways to get to the destination, driving or taking a train .. which is
better ? well all depends on your taste, your feel or may be your mood! Just
do the way way your like it man!

~~~
pageman
an analogy for me is you're in Singapore and you're thinking of flying or
driving by car to Kuala Lumpur, Malaysia - driving, it takes you 4 hours.
Flying is only 30 minutes but check-in time is 2 hours and
disembarkation/waiting for your baggage is abou 30 minutes plus you need to
take a taxi to the airport - it works out the same. Choose your poison.
Driving is more scenic but you get flier's miles with flying.

