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Signal v. Noise: Business

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Announcing Basecamp Enterprise Server for Windows NT

Basecamp
Basecamp wrote this on 56 comments

You asked for it. We listened. We’re proud to announce that Basecamp Enterprise Server for Windows NT is available for mail-order today!

It’s the Basecamp you know and love packed onto 37 easy-to-install 3.5 floppy disks. It’s as easy as A:\install.exe.

Basecamp for Windows NT

If you’re interested in purchasing Basecamp Enterprise Server for Windows NT just send a self-addressed stamped envelope along with $1,788 to:

37signals, ATTN: BCNT, 30 North Racine #200, Chicago, Illinois 60607 USA

Bootstrapped, Profitable, & Proud: Coudal

Matt Linderman
Matt Linderman wrote this on 53 comments

Back in 2001, Coudal Partners was on the ropes fiscally. And according to Jim Coudal, it’s the best thing that could have happened.

"After 9/11, we lost a lot of business. And we were in trouble. It wasn’t any problem of ours. One company got bought and other people cut back on their spending," he explains. "It’s the best thing that ever happened to us because we pulled back and said, ‘Well, do we wanna build up this whole thing again and go chase business that we don’t want and get into pitches and win or not win business based on the whims of people who are stupider than we are? Or is there another way?’"

It was the culmination of years of frustration from doing client work. "We never really maximized our creative potential by, I can say it, whoring ourselves out to people who knew less than we did," he says. "If you have the skills to do client work, you have the skills to make your own product. You’re selling yourself short by selling that on a work for hire basis."

To illustrate his point, he brings up the product that now generates the most revenue for the company: Field Notes. "We do a good job marketing it," he explains. "We sell hundreds of thousands of these things and we make money out of it. If I did that same work for this other company called Yard Notes and we did exactly the same work, they’d paid us $50,000 for the work and then sell a million of the memo books. We didn’t get any of that million that our work did. From an economic standpoint, that’s the essential inequality. Your own stuff is potentially more lucrative and also comes with peace of mind — and not having those ulcers that come with knowing full well that you know better than the client but still have to kneel down."

JC

Evolving goals
Coudal started out decades ago as a creative director for a big Chicago ad agency working on high profile accounts. But even then, he wasn’t happy with the system. He’d reach goals he set for himself yet still found himself dissatisfied.

"There’s this great quote by Dan Gilbert. He said that the reason that most of us are so unhappy most of the time is that we make our goals for the people we are when we set them, not for the people we’re gonna be when we reach them," Coudal explains. “And when I started at an ad agency I said, ‘I need to be a creative director. I need to be a hotshot creative director in an agency that’s highly visible.’ And I got there and was miserable doing work I wasn’t particularly proud of for people I didn’t like."

That’s when he left and, along with partners Susan Everett and Kevin Guilfoile, started a new eponymous agency. Despite the new company, the result was a familiar feeling. He says, "I wanted to bill $20 million and win some Addy Awards. That’s what we wanted to do. So we just kept pushing. And then adding people and growing and working for clients and we never evaluated whether this is really what we wanted to do. We were just trying to get to this arbitrary goal for no reason at all.

"I had set goals early without reevaluating where I was in terms of my happiness as a person. And I had to feed the beast. If you start adding people, then you gotta bring in more work and sometimes you gotta bring in work that you’re not particularly fond of in order to make the payroll to pay the more people that you’re hiring to do the work that you’re not particularly fond of.

“I had set goals early without reevaluating where I was in terms of my happiness as a person. And I had to feed the beast.”

"One thing leads to another and all of a sudden you look at the work you’re producing and you’re not proud of it and you’re out at the bar after work making fun of your clients. That’s funny for a little while, but that’s no way to go through life. It makes you jaded. If you don’t like your job, there’s something wrong. And going to the bar and complaining about your job is a symptom of something wrong.”

Continued…

They are not new lessons. Never owe any money you can’t pay tomorrow morning. Never let the markets dictate your actions. Always be in a position to play your own game. Never take on more risks than you can handle…Good businesses, good management, plenty of liquidity, always having a loaded gun; if you play by those principles you will do fine no matter what happens. And you don’t ever know what’s going to happen…

I mean, when times are good, it is kind of like Cinderella at the ball. She knew at midnight that everything was going to turn into pumpkins and mice, but it was just so much damn fun, dancing there, the guys looked better and the drinks got more frequent and there were no clocks on the wall.

And that’s what happened with capitalism. We have a lot of fun as the bubble blows up, and we all think we are going to get out five minutes before midnight, but there are no clocks on the wall.


Warren Buffett’s answer to “What are the key lessons you took from the financial crisis?”
Matt Linderman on Mar 29 2011 15 comments

The usual industry angle on these things is to debate whether anyone is willing to pay, or what the price point is, or how it will affect competition. But as much as people point to the success of paid media like iTunes, they forget the key lesson of an average consumer being able to understand that a single song costs $0.99. What do I get from The New York Times for $0.99? Or for $99? I don’t really know, and I don’t know how long it will last. And if as a reader I can’t understand that simple transaction, and can’t anticipate how it affects my behavior of searching, reading, and sharing stories, then I might respond to the whole initiative by just throwing up my hands and going somewhere else.

Matt Linderman on Mar 21 2011 3 comments

Media outlets to readers: "Put your money where your eyes are"

Matt Linderman
Matt Linderman wrote this on 18 comments

“If you’re still pursuing an online business strategy aimed at building impressions, you’re not going to make enough money,” says Dallas Morning News publisher and CEO Jim Moroney. That’s why the paper started a digital paywall.

And it’s why the NY Times is limiting non-subscribers to 20 free articles at its site each month and rolling out digital subscriptions for those who want unlimited access.

That follows News International’s move last year to charge for access to the online sites for Britain’s The Times and Sunday Times. Rebekah Brooks of News International said the decision to charge came “at a defining moment for journalism… We are proud of our journalism and unashamed to say that we believe it has value.”

Different paths to profit
Even if you’re not in the media game, its fascinating to watch these companies put a value on their efforts and move away from relying on ad sales. After all, getting customers to put money where their eyes are is the challenge for many tech companies too.

There are different – and sometimes conflicting – paths to success for publications. Cook’s Illustrated is doing great by taking no ads, charging for access to its recipes online, and staying away from food fashion. Consumer Reports gets taken seriously because of its clearly defined mission, extensive lab testing, and trustworthiness. By offering specialized business content, the Wall Street Journal has one of the most successful paid-for sites with about 407,000 electronic subscribers.

The New Yorker puts investigations of national security on the cover instead of celebs, yet it has the highest subscription renewal rate of any magazine in the country. A privately owned company, it is thought to be turning a profit of around $10m. Editorial decisions there are never made by focus groups.

If you wrote a plan for a magazine and said you thought you could make a profit by publishing 8,000-word pieces on the future of various African nations, hefty analyses of the pension system and a three-part series on global warming, hordes of people would laugh in your face…

No focus group is ever involved in an editorial decision. As [editor David Remnick] puts it, it doesn’t take a genius to work out that one hundred per cent of his readers are not going to get home from work, put their keys down and say: You know, honey, what I need to do now is read 10,000 words on Congo. ‘So you throw it out there, and you hope that there are some things that people will immediately read – cartoons, shorter things, Anthony Lane, Talk of the Town. And then, eventually, the next morning on the train, somebody sees this piece, and despite its seeming formidableness, they read it.’

A stripped down formula brings profits to The Week
And then there’s the success of The Week. Its inspiration: Time magazine’s first issue in 1923 which called for 100 articles – each one less than 400 words – in each week’s issue. That is just one of the many approaches The Week is taking that are completely different than other magazines…

Most weekly news magazines: Hundreds of employees.
The Week: 18 employees at the magazine, 15 at the site.

Competitors: Heavy essays.
The Week: 100 word news bites in simple language.

Competitors: Artful photo spreads.
The Week: Small photographs and minimalist graphics.

Competitors: Expand or reduce editorial content based on ad sales each week.
The Week: Limits the number of ad pages it sells to 20.

Competitors: Expensive reporting and guest columnists.
The Week: No bylines, content is synopses of reporting by other news organizations.

Competitors: Rely on both newsstand sales and subscribers.
The Week: Relies on subscribers for all but a tiny sliver of circulation revenue.

the weekWith this approach, The Week is profitable and growing steadily. It’s on track to make $6.3 million this year and its total circulation has grown by 5x since it launched in 2001. (It’s not doing any original reporting though, so you could make a case that it’s just piggybacking on the efforts of others.)

What’s funny is how those numbers aren’t big enough for others in the industry. Mark Edmiston, a former Newsweek president and founder of Nomad Editions, is quoted as saying, “This is not a multimillion-circulation publication, and that’s where you’re going to hit the profits…It doesn’t have a mass market appeal, nor do I ever think it will. It’s very difficult to generate a $30 million, $40 million profit when you’re that small.”

Newsflash: When you’re that small, you don’t NEED to generate $40 million in profit. That’s the nice thing about being small. 300 employees generating $30 million in profit – the multimillion-circulation publication model – is $100,000 per employee. With 32 employees generating $6.3 million, The Week is generating nearly $200,000 per employee. If you’re making twice as much per staffer as your competition, that ain’t too shabby.

Related Signal vs. Noise posts
Ranking tech companies by revenue per employee
More on payroll and efficiency

“Do you want to sell sugar water for the rest of your life, or do you want to come with me and change the world?”


What Steve Jobs said to Pepsi executive John Sculley to lure him to Apple. Sculley mentions it in the documentary Bloomberg Game Changers: Steve Jobs. The series also features profiles of Zuckerberg, Brin/Page, and other tech founders.
Matt Linderman on Mar 16 2011 15 comments

Exit Interview: Ask Jeeves' acquisition of Bloglines

Matt Linderman
Matt Linderman wrote this on 10 comments

By late 2004, Bloglines was the leading online RSS aggregator. “We were getting an incredible amount of great press. Our users were very happy. The problem was, we just didn’t have all that many of them,” says Mark Fletcher, then CEO of Bloglines. “There’s nothing viral about an RSS aggregator, and we had no idea how to make Bloglines appealing to non-power users (i.e. the majority of the Internet). Even with the great press, we just couldn’t juice our user growth curve. Huge exposure, small user base. That left me feeling very vulnerable.”

fletcherFletcher (right, in a photo by VicKuP) feared Google and Yahoo would enter the RSS aggregator space and use their considerable marketing power to take over the market. Around the same time, Ask Jeeves expressed an interest in acquiring Bloglines. Fletcher says, “I decided to sell to them in the hopes that they’d be able to send some of their traffic to Bloglines and drive our user numbers up. We began negotiations in December of 2004 and the deal closed February 4th, 2005.” The deal was reported to be around $10 million.

The purchase
Jim Lanzone, Ask Jeeves’ Senior Vice President of Search Properties at the time, said in a press release, “Bloglines is truly one of the most useful and addictive services on the entire Web. We are excited about providing Bloglines with the resources to grow its service and help it reach a broader audience.”

When asked now about the purchase, Lanzone explains that he loved Bloglines when the deal was made. “Bloglines was the original reader and the best. And I was personally addicted to it,” he says. “It almost immediately became the most useful site on the web to me. So we looked at buying it as an investment. If RSS readers blew up and became the leading gateway to information, we’d be in position A. And remember, it was really early days for blogs and Web 2.0. We would have the best blog search out there.

“We acquired it pretty cheaply – much lower than any reported figures at the time – and we budgeted to more than triple Mark’s resource base. As a former entrepreneur myself, I loved the idea of giving Mark a wide berth and seeing what he could do.”

In the release, Fletcher added, “By joining forces with Ask Jeeves, we will be able to accelerate our growth with access to the millions of unique visitors to Ask Jeeves’ properties. And we are eager to take advantage of Ask Jeeves’ support, extensive resources, operational scale and innovative technologies to expand and improve the services we deliver to users.”

Second time around
Despite the lofty words, Fletcher knew that acquisitions didn’t always go smoothly. In 2000, he sold another startup, eGroups, to Yahoo. “When eGroups was acquired by Yahoo in 2000, we had about 150 employees running the service,” he explains. “Within two years of being acquired and renamed Yahoo Groups, that number was down to 3 people running a service that has a staggering amount of email traffic and a huge user base. The development and evolution of Y! Groups stagnated for a very long time after the acquisition. Of course, Yahoo can do whatever they want with the service; they bought it. That was an object lesson in what can happen to a startup after an acquisition.”

So he knew a negative outcome was a possibility with the Bloglines deal. He says, “I went into the Bloglines acquisition with my eyes open. Once you sell your company, it really isn’t yours anymore. This may seem obvious, but until you go through it, you don’t know the emotions you’ll go through as other people start making decisions about how to run ‘your baby’.

Continued…

Inspiration and wealth will come to you if your goal is to help another person solve a problem.

Bootstrapped, Profitable, & Proud: Braintree

Matt Linderman
Matt Linderman wrote this on 59 comments

Braintree’s Bryan Johnson will answer your questions in the comments section.

BJIn 2003, Bryan Johnson (right) was hired for a commission-only job selling credit card services to businesses. “I was broke,” says Johnson. “The job was brutal. Business owners were tired of the industry’s deception and trickery and didn’t hesitate when given an opportunity to vent.”

Johnson quickly excelled, though. He became the top salesperson out of 400 nationwide and broke the existing sales record during his first year. His secret? “I simply figured out that businesses were looking for thee things: honesty, education and reliable service. I filled that gap and was received warmly. I also worked my tail end off.”

But by 2007, Johnson was sick of working for a big corporation. He says, “I concluded that I’d rather live poor and hungry than work in a large, bureaucratic and political environment where I personally couldn’t see how my efforts created value.”

He started figuring out what it would take to do his own thing. “I figured that I needed to make at least $2,100 a month to leave,” he explains. “My wife and I had learned to live quite frugally. I had started a few other businesses before, so this uncertainty and financial risk was something I was accustomed to. I had a single objective: Get back into the saddle. I was going to do whatever it took to get there.“

He took a few days off work and flew out to Utah, where his old customers resided. He asked them if they’d switch their processing to his new company, Braintree. Quite a few of them did, collectively generating $6,200 a month. Braintree was officially up and running.

Premium, not freemium
Early on, Johnson decided to stay away from the freemium model so popular among tech companies. “My experience in the payments industry told me it wasn’t for Braintree,” he explains. “We offer exceptional service during the sales and application process that continues after a merchant is set up with us. This level of service is too costly for a free account.”

So Braintree went the opposite route and charged a premium. It started with a $200 monthly minimum, which it’s since lowered to $75. “At $200, our minimum was 4 to 8 times higher than our competitors,” says Johnson. “Applying a floor helps the right kinds of customers self-select our services. After all, we’re as interested in having the right customers as they are in having the right provider.”

Who are the customers Braintree decided to write off? “It was a fool’s errand to try selling medicine to those who hadn’t yet experienced pain. Payment processing is complex. It’s difficult for inexperienced merchants to recognize value. We’d spend countless hours trying to explain ‘pain’ and our cure but some just didn’t care because they hadn’t felt it yet. With our limited resources, we had to figure out a way to work only with those who valued the medicine we were offering.

“We did take some grief for our higher minimums, but when we did, we’d politely explain that there were other, less expensive options in the industry, which may have been a better fit. I think staying firm often created an inverse effect, causing people to value us more than they did initially.”

Revenue growth
The formula is working so far. In 2010, Braintree generated $4.5MM in revenue, grew from 15 to 24 employees (now over 30), and doubled its customer base, according to Johnson. It powers payments for companies like LivingSocial, Github, OpenTable, and Animoto. And 99% of its customers come through word-of-mouth. “We’re on track to do $8 or $9 million in revenue during 2011,” Johnson says. “We also expect to rank among the top 50 on this year’s Inc. 500 list.“

Johnson is quick to note the difference between Braintree and other emerging payment companies. He says, “Four of these companies have raised around $40 million each and have roughly 3-6 times the personnel we do.”

Johnson feels that necessitates a different approach. “For many, raising a lot of money is accompanied by baked-in assumptions for how a business should be built,” he says. “The playbook typically calls for a large executive team and a few layers of management, which is very expensive. I think VC-funded companies are more inclined to throw money and people at opportunities and problems. This approach works for some, but there are other ways to build a successful business. Growing on our own dollar has granted us the freedom to do what we want, when we want, and how we want.”

It also forces Braintree to embrace constraints. “Without outside capital, we have to make do with less,” says Johnson. “Constraints are a beautiful thing because they force creativity and precision. We don’t have the resources to throw after hit-or-miss hires or strategies. Bootstrapping a business requires a different mentality. It’s taught us to be frugal, hire slowly, and exercise caution as we grew the business. While companies that take funding can do those things, people have a tendency to behave differently when it’s not their money on the line.”

“People have a tendency to behave differently when it’s not their money on the line.”
Continued…