Paul Graham thinks that startup founders need to sell their companies to get freedom and security:
They want enough money that (a) they don’t have to worry about running out of money and (b) they can spend their time how they want. Running your own business offers neither. You certainly don’t have freedom: no boss is so demanding. Nor do you have security, because if you stop paying attention to the company, its revenues go away, and with them your income.
I think he’s wrong in general and I know he’s wrong for me personally.
Fallacy #1: Owning a profitable company is like earning a salary
Getting your company to the point where you can pay yourself a decent salary is a great milestone. You created something sustainable that doesn’t rely on spending other people’s money. You deserve to pop a bottle and celebrate!
You certainly shouldn’t curb your ambitions because of that, though. The real economic pay-off for taking the risk of starting a business is what comes after this. That the company starts making enough money that you can take some and put away. After a while, that coveted financial independence you thought would make your life perfect should be achieved (and you’ll realize that it didn’t make it perfect).
But I can see how this line of thought would arise. If you’re building to flip, then profits aren’t really that interesting. If you can just get to break-even, you’re probably doing better than the majority of other companies in your made-to-flip space. So instead you focus on getting more eyeballs, more sign ups, or more of whatever you think an acquirer would place the highest premium on.
I would want to sell a company built like this too. But there are other ways to build companies. Lots of self-made millionaires made their money selling products for a profit.
So let’s strike out the security claim. Most successful business owners could walk away from their business tomorrow and still live very comfortable lives off the money they put away.
Fallacy #2: There’s always something you’d much rather do
You don’t have to work 60, 80, or 100 hours per week just because you run your own business. Many business owners do that, but if they’re successful, it’s usually because there’s nothing they’d rather be doing. Look at the top tech CEOs. None of them need to work, many of them are billionaires, but still Steve Jobs, Jeff Bezos, and others continue to helm their companies for decades because they love what they’re doing.
I don’t personally like to work 60 or more hours per week. Even 40 hours is pushing it. At 37signals, we all try to work just four days a week. That’s a perk in addition to the fact that we don’t count vacation days (I probably spent 4 weeks last year) and many of us often attend conferences and other out-of-the-daily-rhythm activities.
But when I actually do sit down to work, it’s very often that there’s nothing else I’d rather do. And I don’t think that’s really an uncommon phenomenon. I think lots of people really like what they do and for bursts of the time consider it the most interesting thing they could be working on.
If you’re building a company to flip, though, and feel like you have to put in endless hours to please investors and potential acquirers, I can certainly appreciate that there’ll often be something you’d much rather do. And that it can feel like you’re trapped trying to chase a prize that keeps moving. I don’t personally think that’s a rewarding way to live, but to each his own.
For me, the secret has been to do many other things besides work on 37signals. I enjoy working on Ruby on Rails and pursue a lot of hobbies. When you work less than 40 hours per week on something you actually like doing, it doesn’t feel very much like work at all. It feels like I’ve already retired and get to do a little of many things that I like so none of them really gets boring. There’s what I perceive to be healthy balance instead of a constant sprint.
This comes back to the earlier topic of early retirement as a false idol. I’ve talked to many entrepeneurs who’ve thought that they could just sit back and live the sweet life of no work after selling out. Most of them were right back working another idea after six months. Often times, the second idea wasn’t as good as the first one.
Bottom line is that you really should try to find something to work on that at least for substantial amounts of time constitutes that “nothing I’d rather do” feeling. I think it’s hard to be truly happy if the only reason you work is to win a paycheck. Whether it’s as an employee or a business owner.
Josh
on 24 Jul 08Excellent advice, David. I’m currently starting my third company, but this is the first one that I truly love. I work on it countless hours a week, not because I have to, but because I want to. Not surprisingly, the other two companies I started weren’t successful because they took too much “work” and weren’t fun and didn’t provide any real balance.
Tom
on 24 Jul 08Main message here: it’s easy to be retroactively wise. Congratulations, David, you got lucky and ended up doing something you enjoy and getting paid handsomely in money & fame for it. For the vast majority of people that isn’t going to happen, so this is pretty much useless advice. It’s easy for you to say “work is fun”, because your work is fun, but for everyone else on the planet (modulo tiny margin of error) it’s called work for a reason.
Geof Harries
on 24 Jul 08Perhaps I’m ignorant, but I fail to see why people have to work more than 50 hours per week to build a successful business (let alone 60, 80 or 100 hours). I’m into just over a year with my company and it’s been a good ride – stable paycheque, profitable and some very interesting projects – and I rarely work more than 40 hours a week. That way, I have time for our kids, my wife and all the things I want to do, like biking and fishing. Life’s too short to work yourself into the ground.
Sean Iams
on 24 Jul 08Hmmm…”retroactively wise”. Wisdom is inherently retroactive. Wisdom comes from experience. If you weren’t “retroactively wise” you’d just be a talker, full of shit, with nothing to back it up. I appreciate the wisdom that’s shared on this blog.
Jeff Putz
on 24 Jul 08If I ever get to thinking like Tom above, take me out back and shoot me.
I recently got laid-off from my job, and recruiters have been all over me like vultures. You know what? I’m waiting for exactly the right thing, and working on projects for my part-time business. I’m the happiest I’ve been in three years.
Josh
on 24 Jul 08Not to mention that building a company with stable growth, happy and sane employees, and profits is WAY MORE attractive to a possible acquirer than the zany opposite.
DHH
on 24 Jul 08Tom, luck or chance or timing or whatever you want to call it is certainly a factor in all successful businesses. No denying that.
And I’m not talking about general work. I’m sure a Chinese coal miner is not very happy about what he does. I’m talking about people who already have such tremendous resources available as to be able to start a new company.
Finally, if people who’ve made it can’t share their experience and advice, who can? Only people who haven’t made it yet? Or do you contend that all advice and sharing of experiences is useless?
Dave Hoover
on 24 Jul 08David, I couldn’t agree more with your disagreement with Paul. I love most of Paul’s essays, and his writing inspired me to join a tiny company in 2006 so that I could have the “leverage” I wanted. There have definitely been some 60 hour weeks, but in general I’m working 40 hours and loving the ride … and we’re profitable. I hope that you keep beating this drum because it’s something we all need to understand and internalize. Personally, I’d rather work at what I love to do for the next 50 years of my life than do stuff I hate for the next 5 years.
john nunemaker
on 24 Jul 08completely agree. Sometimes I’m amazed I get paid to do what I do. Often it feels like I just randomly get a paycheck every few weeks and I’m not sure why. :)
Berislav Lopac
on 24 Jul 08Before I even read this article, I’d just like to repeat the comment I gave on Paul’s piece:
I’m getting a bit bored by this perceived dichotomy of funded vs. bootstrapped startups. They are simply two different kinds of companies, and they can perfectly well coexist in an industry.
Some startups can be profitable almost from day one, and need very little cash to get there; others need to do experiments for a much longer time, and could end-up having a useful technology but no revenue model. In the latter case it’s only natural that someone will come along who could make use of the technology and simply acquire the company instead of spending even more money developing their own solution.
In many cases the companies in the latter group never have any significant chances of making a lot of money, and acquisition is really the only way for the founders to monetize on their work. Similarly, the companies in the former group could simply never grow enough to be interesting for acquisition—we call them lifestyle businesses.
37signals and Carsonified are great examples of lifestyle businesses; Digg, Twitter, Zemanta, and even Google, are companies which would never happen if they have tried to bootstrap.
john
on 24 Jul 08David:
What if I have two kids, want to be a think-tank operator / inventor, have a real skill with web development, and don’t have money to fund my own business.
What if I do have the oppourtunity to be a part of a startup doing something I LIKE, but not love?
What then?
Anonymous Coward
on 24 Jul 08Occasionally I wonder why people don’t question Paul Graham’s pedigree.
His fortune came from selling, what was it called – ViaWeb? to the big Y!. That “app” became Y! Stores, which has always been a horrible product. If you’ve ever had to use it, you’ll know exactly what I mean.
So, that’s one (financial) success. A very dated one, too, by Internet measures.
Correct me if I’m wrong, but how many of the YCombinator ventures have been genuinely successful?
How about Arc?
People listen to Paul because he tells them what they want to hear: that they were disliked in school just because they had better priorities; that they’re not just programmers, they’re hackers; and of course their looked-down-upon group is specially positioned to take over the world, originate the world’s next most important inventions, and of course make lots of money. And, however clear-eyed he may have started out, having a band of people idolizing you is not good for your own sense of perspective.
I may not always agree with the advice given here, but we can all agree that the 37Signals crew has done a variety of things that have worked out well and their advice is more diverse than “I did this one thing once, let me preach the gospel.”
Give me Philip Greenspun any day over Paul Graham.
Anonymous Coward
on 24 Jul 08... or, for that matter, Jason or David.
Stephen Fung
on 24 Jul 08I think the difference here is that Paul seems to see a company as just a money-making machine. In this paradigm, he’s probably right – financially you don’t want the risk of having everything invested in one small company.
But David seems to see a company as more than that. Beyond making money, a company can be a great thing by virtue of its culture, its fair and effective systems, and the connection it makes with other people. Building something like that has rewards far beyond portfolio diversification.
I’d bet David is a happier guy. Paul is probably richer at the moment, but if he’s losing his passion for his work, that may not last.
CG
on 24 Jul 08I have a lot of respect for the work you guys do, but I have to disagree with you on this. There’s something very anti-entrepreneurial about what you’re saying; it’s been bothering me since the talk at startup school.
An entrepreneur is defined by the risks he/she takes. You guys advocate working few hours, working on new (paid-for) products on the side, etc. Are you talking about startups or small businesses?
Arjay
on 24 Jul 08Paul Graham is just pretty bad with his logic. He makes up his mind and then tries to back into it with forced arguments rather than the other way around.
Your argument makes sense. His fails. It’s a shame so many young entrpereneurs are following such a blowhard.
Jonathan
on 25 Jul 08@Berislav – great points, but you should not be bored with the conversation. The discussion of this dichotomy will eventually lead to better funding models, and more clarity for entrepreneurs as it applies to their situation.
Unless you have the definitive framework for when / where different startup models apply, then there is still a useful conversation to be had.
Naynay
on 25 Jul 08CG, why do you assume the word “startup” is an antonym to “small business”? I think a lot of people are stuck thinking that there is one true path to creating a startup, when really a startup could just as easily be a business you bootstrap with personal savings as it could be a business you get off the ground with funds from an angel investor. Likewise those businesses could forever stay private, go public or be flipped.
To me a “startup” defines a business that is quick moving and small, maybe one that is trying to fit into a new market space or just trying to take a different approach to an old problem and probably initially run by 2 or 3 people. I don’t think startup is synonymous to long hours, tech-only companies that are trying to be bought out. In fact, I would argue that startups are inherently small businesses, at least at first.
David – thanks for your thoughts.
Jeff Putz
on 25 Jul 08Keep things in context though… in the tech world, especially when it comes to the Internet, the overwhelming attitude is one of get money, build, flip or go public. The Diggs of the world are the exception and not the rule.
It’s like I said in a comment on a previous post… it’s all madness. I admire Kevin Rose more than anyone for his timing, vision and having enough sense to get the hell out of TV. But I’m not as clever as him. My path as an entrepreneur, or partner in any developing business, is better served by being involved in something that has one goal: Sustainable execution. I think the odds of long-term success are much greater because, by definition, you’re looking at the long-term.
And my personal angle is that I get a lot more out of that in the long-term than chasing a pay day that may never come.
David Andersen
on 25 Jul 08CG – who says entrepreneurship is only defined by risks? And why do you assume that 37signals hasn’t taken any? Do you not think there is a risk investing your time – no matter how little – in a product that may not be successful? There is always risk.
But if it floats your boat to call business people who happen to start a business without leveraging their time and money to the max something other than ‘entrepreneur’ go for it. What matters is doing something in the way you want to do it as best as you can. Everything else is just B.S.
NewWorldOrder
on 25 Jul 08The nothing else I’d rather being doing being a temporal state is very true. I know quite a few people that LOVE to go to the gym and work out. However, I know that they don’t like to work out every day all day. In fact, if they could find a way to spend less time in the gym and get the same results they’d do that even though they LOVE working out.
CG
on 25 Jul 08@Naynay Obviously “Startup” isn’t antonymous to “Small Business”. The pt was that they suggest different levels of risk, etc. Startups should be more concerned with creating value rather than capturing it, regardless of the amount of risk involved or work-hours required.
@David Andersen I’m not saying entrepreneurship is exclusively defined by risk. Also, I’m not assuming that 37signals hasn’t taken any—all I’m saying that what they’re advocating doesn’t feel very entrepreneurial. Of course there is risk when you invest your time in any product, but that’s really not the pt.
Mark Nutter
on 25 Jul 08I think Dave hits the nail on the head here. If your motivation is to create a business in order to sell it to potential investors it’s probably going to feel more like work especially if you’re doing it in a field that has great market potential but isn’t all that interesting to you personally.
It’s akin to a musician just creating music so that they can become rich and famous rather than create music that they personally love. I don’t think many people would debate that the latter makes for a happier and more successful (if measured by quality of production) than the former.
Paul Pajo
on 25 Jul 08I’m looking right now at a piece of paper that I just drew for a potential investor – there’s 3 exits (I’m sure there’s more) – go for an IPO, be acquired (M&A) or continue making money – I had to concede that it should be spread out – maybe 20% should go to companies that need to IPO, 30% to what we’d try to be acquired and the rest we continue to run as companies to make it a profit.
Sam
on 25 Jul 08whats the point of profit if you don’t enjoy the game?
David Andersen
on 25 Jul 08all I’m saying that what they’re advocating doesn’t feel very entrepreneurial.
They started a company. They introduced new products. They undoubtedly had struggles and mistakes. They hired people and made payroll. They grew the company.
You’re right, I have no idea what’s entrepreneurial about that.
Justin
on 25 Jul 08Damn you. Damn you, 37Signals (and especially you David), for fueling my dreams that a company exists in which “work/life balance” is actually a real concept. But once again I have to ask the question—how many American companies:
1) are Ok with staying small and sticking with their core competencies and a nice steady profit; 2) recognize that a happy, talented, small team of employees is always better than an over-worked, larger team; 3) understand that the bureaucratic ladder is an antiquated feudal joke.If anyone knows of like-minded companies, I’d sure love to see them. Especially if they’re hiring any Flex/AS3 developers :)
I continue to hope that companies like 37s will lead a revolution against the cruel joke of the modern working world. But then I remember my Thoreau—“the mass of men lead lives of quiet desperation”.
Mark Holton
on 25 Jul 08...along these lines… the book “Small Giants: Companies That Choose to Be Great Instead of Big” is a great one (I think I heard of it first on Signal vs Noise).
Thank you, Mr. DHH, for the awesome insights. I have a dream… and hopefully inching my way towards it while taking care of my responsibilities today. Rome wasn’t built in a day. It adds confidence and hope to see someone else accomplish these things, and share insights. Greatly appreciate these posts.
Tim Harper
on 26 Jul 08David,
I’m glad you are preaching rational self-interest and treating humans as human beings like you would treat yourself. Its evident that you live a fulfilling life and are happy because of it, and haven’t sold your soul for money.
To some of the commenters on this forum, I am going to respond with harshness because I care about you, and I want to challenge you to change your thoughts:
@Justin – quit being a victim. You are getting paid more than you value your time. I work for such a company as described by 2) and 3), however not #1 as we would be unwise to limit our growth and stay small, and it by no means means that you have to overwork yourself to be a part of a huge company.
@john – I understand your life is hard. Life is hard. Deal with it, quit being a victim. Life pushes you around and winners find a way. Do you see life as an opportunity to improve, or a struggle to survive? That fundamental shift in thinking will determine a lot for where you are headed in life. Starting thinking.
@Tom – I’m sure shooting down other people’s dreams make your own miserable life seem more enjoyable. How about we all just sell our selves in to slavery, because, you know, “it’s work”? Either you have something to gain from what you are preaching (you have employees and treat them as slaves and as if their desires for their own lives are less important than your desires as an employer), or you work for someone who has something to gain by preaching that to you, and you are seriously deceived by it. Either way, it is evident that you are a miserable person by the ideas that you have. I would suggest for your own personal happiness that it would be good to consider the essence of what David is sharing.
Tim Harper
on 26 Jul 08@john – sorry, at second glance I realized that your question was sincere, and not an attempt to cry a victim story. In light of the other negativity in the comments it was difficult to separate out intent and tone in a conversation void of tone or context. Please disregard my comment about you being a victim.
Though your question was not directed at me, I’ll respond anyways since I’d already taken the liberty to make myself involved. I would suggest in your position, you find a way to reduce your financial obligations as low as possible. Do what ever you can that will be most profitable, to get into a good financial situation. If you have something that you can do that you at least partially enjoy, that would likely be a good choice to get you to the next step. Then, during such endeavor, if you can get to the point where you can support yourself and family on 20 hours a week or less, you will have plenty of time to work on your inventions, and hopefully resources. Having your time freed up and being able to work without immediate or even short-term compensation will be key to achieving the types of desires you want to achieve. Doing what you truly love may come with some sacrifices – but that’s what sacrifices are – giving up something in order to receive something that you truly value more.
Best,
Tim
Joaquim
on 26 Jul 08Thanks, God! I work 60 hours a week just because I want to. I make my own money, my own lifestyle. I take my risks! Its’ hard, but now I’m free to build my own success history.
Rob Williams
on 26 Jul 08This reminds me of some great principles I have read about wealth building. In particular, most people have a job and they only earn while they are working. Some people start a business, and now they OWN a job, but they still only earn while they are working (Paul’s scenario). Then there are people who buy an income-generating asset (such as a rental property), and now they earn as long as they own the asset (unless their market crashes in some manner). Some assets earn better than others (rentals versus stocks versus bonds, etc.). If the assets earn enough, then you can quit the job, whether you own it or someone else does.
So, if you merely own a job as Paul describes, then life may not be as blissful as expected. On the other hand, if you can leverage the job to earn the money to buy the assets that allow you to move past needing a job, then perhaps you truly can have the bliss.
At that point, it is appropriate to compare oneself with Steve Jobs or Bill Gates. But note that they earned it, at least for a while, by owning a job.
Tom G
on 27 Jul 08Is “retroactively wise” an oxymoron? I don’t think we’re born with wisdom; it comes from the lessons learned in our journey through life.
If you don’t have passion for what you do, you will probably not be really successful, and if are you will likely be bitter and miserable. Businesses like these are generally not valuable.
It’s hard to part with something you love, so selling your successful business that you have a passion for is hard to imagine. Partnerships with people who only bring money to the table is foolish because a successful business should generate all the money you need (note: not want – need). Partnerships are in many ways like a marriage; most would agree marrying for money alone is a recipe for catatrophe and heartbreak.
From a purely financial perspective, selling all or part of your business is just like selling stock – buy low & sell high. If your business is continuing to grow, why would you sell? If you’ve hit a wall, maybe it’s time to think about all the options including selling all or part of your business.
Finally, owning a business is much like the decision to have children. You can’t understand the responsibilities until you do it. The load it puts on your life can be unimagineable. The path you walk can be filled with fun, wonder and excitement. There is nothing greater in life than having a great and successful family with children that grow into awesome people. Likewise it’s a tremendous achievement to build a successful company that you and your colleagues enjoy working for. You wouldn’t sell your children, but at some point they grow to be independant and you have to let go. Perhaps businesses grow to the point where its time to let go…
Jack
on 27 Jul 08PG’s company is VC. PG live on finding founders building a business that he can flip. Of course PG is going to preach about how founders need his money…etc.
Ric
on 28 Jul 08I saw PG talk at the FOWA conference in London last year, and although he did have some inspiring comments about working for yourself (as he does in his essays), he also said a few things I disagree with such as: 1) You need to be on the west coast of the US to succeed. 2) Startups by definition only exist to be acquired… and that should be their goal. I’m a co-founder of a UK based startup, and I hope to prove him wrong.
Justin
on 28 Jul 08@Tim—I hardly consider myself a victim. I’m proactively looking to break out of the rat race and find a company for whom success doesn’t mean whoring yourself. (I’m in consulting now, so that business model is no real surprise).
I’m more just generally curious to find companies that flout the status quo to the extent 37signals does. I don’t believe the current model of American productivity is sustainable, so I’m excited to see growth in the 37s ethos.
Abe Murray
on 29 Jul 08@CG and the topic of entrepreneurship & risk:
At Harvard Business School they teach us that the smartest entrepreneurs are the ones who took the least risk. An idiot goes out and embraces risk for the sake of it, a smart person analyzes and reduces risk. So I would state that any entrepreneur who’s success appears to be risk-free is one of the better ones out there.
Some of the coolest entrepreneurship cases we read at HBS were the ones where an entrepreneur saw an opportunity and then executed against it by systematically removing all risk – ie literally no-downside-scenarios.
I am also an entrepreneur, and my businesses will all be low risk high profit. (By definition: if a business is low profit, I move on. By maintaining low risk businesses, I am never in a position where I cannot move on because I’ve bet the farm on an insane high risk idea). Risk aversion is a beneficial trait :)
This discussion is closed.