Pulse is raising $800,000 in venture capital. According to the New York Times, this is “the first step in moving along the path from building an app to running a profitable business.” So the first step to becoming profitable involves taking funding? Marco Arment ain’t having it.
It’s ridiculous, incorrect, and insulting to those (like me) who have chosen the traditional business model — charge money, spend less than you make — for this author suggest that giving away your product for free and paying your expenses with VC money is the “first step” to make your app development “a profitable business”.
The attitude of that Times piece is representative of a bigger problem with the business media. Reporters and magazines are in love with the sexiness of BIG NUMBERS! The more zeros, the better. Is it a round of funding or actual profit? Doesn’t matter. Is there actually a sustainable business underneath all those zeros? Doesn’t matter. By the time the reality of the situation comes to light, they’ve moved on to the next lottery winner/victim.
Case in point: “Digg makes $60,000,000 in 18 months!” is a cover story. But how much attention is paid when the company eventually lays off 37% of its staff while struggling to reach profitability? And you don’t often see a cover story with the headline “Funded Company Gets Sideways with Investors and Winds Up Going Under.” That’s just mundane, commonplace reality. Yawn.
And then you’ve got the blogs that track who got funding and what round they’re on. People follow along as if it all means something. In reality, it’s just scoreboard watching that’s more titillating than valuable.
While it’s easy to blame the media, they’re just playing this big numbers game because it works. People keep buying into the lottery winners plotline so the media keeps rolling it out. Circulation and traffic matters more than the truth. And as long as our startup culture keeps buying into the fantasy, the media will keep selling us zeros.
Man
on 15 Nov 10Right on. When is the tech industry going to learn that the real talent is in funding yourself.
Richard
on 15 Nov 10Depressing.
rotsognir
on 15 Nov 10we get it, you hate VC
Chris Johnson
on 15 Nov 10You don’t need a dime—or much of a brain. You just have to be willing to be of service always, no matter what, every time.
David Andersen
on 15 Nov 10It’s not simply big numbers, it’s superficial sensationalism. Not a lot of critical thinking in the run of the mill media.
Bobby
on 15 Nov 10Getting Ridiculous with this hype machine. I’m glad some ppl will say the They have no fucking clothes on.
Chuckie
on 15 Nov 10I’ve never understood the whole dot-com business model (called freemium these days) nor the angst with VC. My experience has been that you self-fund as far as possible, then take as little Angel/VC investment as you have to so that you can maintain control of the company. These neo-dot-coms have the same bad business model as their predecessors and the media, an entity in love with train wrecks because it gets more viewers, continues to fawn all over any number with lots of zeros.
Sheesh!
Brooks
on 15 Nov 10I agree with Matt’s point, but to be fair to Pulse and the NYT, I don’t think they assertion was that raising money was the first step for EVERY business, or that it’s a necessary step to make money from apps.
The article being about Pulse, I think there’s an implicit ”...in their business plan…” in there. Maybe they’ve looked at what they’re doing and know that they can’t be profitable without investment (which is VERY different than “debt”, Matt).
THE Annonymous Coward
on 15 Nov 10Yet for your “Profitable and Proud” series you have set of criteria, one of which is, at least $1,000,000,000 in revenue. What is wrong with a solid company (that has not take VC) and makes $750k or $500k? Seems like there are not enough zeroes. People in glass houses…
Joshua Blankenship
on 15 Nov 10I think you’ve got a few extra zeros there, Anonymous. $1mil+ is the Profitable And Proud cutoff.
And I’m sure the 37s have nothing against a profitable, bootstrapped $500k company, but you have to draw a line somewhere to set criteria.
GeeIWonder
on 15 Nov 10Business media pretty much exists to make buzz and money. It’s nice to want buzz, but when it comes down to it most people are more interested in making money, so unless 37signals is going to be seeking to stakeholders (and yes, sometimes that means equity holders) other than yourselves, the buzz is just a reach-around. It’s nice to see glossy photos of yourselves and stuff, but the business media is actually serving their audience pretty well by covering companies that are seeking ownership/selling equity.
And yes, there is a readership that looks to the business media as inspiration. Fine. But frankly, there are better forms of inspiration for these people than the business media anyways.
I’m not saying you’re wrong, but there are plenty of other ‘medias’ to attack than business for sensationalist coverage/neglecting actual stakeholders.
D4
on 15 Nov 10This sort of vacuous hype is the media in general, not just business media, and it’s been increasingly this way for decades. Sadly, with your blinders on, all you see is this tiny segment of the larger world you pretend to understand.
Scott
on 16 Nov 10“Reporters and magazines are in love with the sexiness of BIG NUMBERS! The more zeros, the better. Is it a round of funding or actual profit? Doesn’t matter. Is there actually a sustainable business underneath all those zeros? Doesn’t matter.”
I agree it doesn’t matter and I propose that in fact, it shouldn’t matter. The media you are referring to is in business to make money. They’ve learned that when they write stories like those you despise, they get more readers, sell more ads, and make more money. That’s their job.
I think smart people realize they consume the media you refer to not for business knowledge, but for entertainment, encouragement, and water-cooler chatter.
If you want the reality of the situation, there are plenty of business journals that deliver the truth and provide valuable insight from others experiences. Harvard Business Review alone has enough to keep people that really want to learn busy for a long, long time.
Steven
on 16 Nov 10I read that story and thought, you raise money then you give your product away?
So paying back the debt is not an option. But you get users, which sucks up your time with support. But you’re not making any money from them.
If that is your motivation, then run a non-profit charity.
Pookles
on 16 Nov 10Your statement is a non starter. Companies need money to operate and if that Works for them then so be it. Why bitch and moan every time somebody takes vc capital.
RP
on 16 Nov 10Y are you getting so sentimental? Its a democratic, multi-model, secular, diverse world. You follow model 1 and someone else follows model 2 and some random commentator who doesnt follow any model just talks about it raises model 2 over model 1. Big deal.
David Harris
on 16 Nov 10This article says “So the first step to becoming profitable involves, um, going deeper into debt!?”
Raising equity != debt. They are very different.
ML
on 16 Nov 10Raising equity != debt
Fair enough. Changed that line.
Tim
on 16 Nov 10I agree with you completely, my business has been going for 7 years and we grow a tiny bit each year. We are in the enterprise 2.0 space and get very little media coverage, WHY? Because we don’t have a VC paying the bills. These startups tend to get the coverage because they hired a PR company to push the story out to sites like techcrunch.
Its a different game, Their business is not the sames as yours or mine, They are less interested in building a great product and making profit but more in meeting people and having stories posted about them. Its been like that since the 80’s in the valley.
Scott
on 16 Nov 10It’s not about PR firm vs. no PR firm and it’s not about great product vs. meeting people. You can do both. After all, 37signals has used PR firms. It’s about what type of stories are entertaining and feed advertising revenue. Just like people like best those movies that have a happy ending, readers like best those stories with a happy slant.
Michael
on 16 Nov 10Anonymous, I agree that $500k is legit revenue. I would be happy to be pulling that much right now. The reason 37S limits P&P to companies with $1MM+ revenue is because the VC-crazy crowd needs to see companies that bootstrap AND make real money, or else they’ll spout nonsense about “lifestyle” income vs. being the next Facebook.
Daryl
on 16 Nov 10Many comments missed the point about Pulse and VC money. This is a company that had a well regarded product and had income. Why should they then drop their existing revenue model without a replacement except to accept VC money? They should have already lined up their new revenue stream to replace the App sales revenues before dropping the App price to zero. Do they need that VC money to grow? Add facilities? Hire more people? Unlikely in my opinion. I agree with Matt. This was a bad business plan idea that was a story because of “zeros.”
No one has ever said VC money is bad. (Read the book.) VC money is inappropriate for a large class of (mostly) web/IT startups that have no viable plan for profitability. Pulse seems to be in that category.
As for equity != debt, that might be technically true, but in fact shareholder equity is placed on the balance sheet right along with liabilities such as loans and accounts payable items.
GeeIWonder
on 16 Nov 10Daryl: I think you (and maybe the OP) have missed the point. You’re commiting the cardinal sin (by proxy) of assuming your interests lie above that of the people buying the products the ‘business media’ is selling
It’s like complaining that Consumer Reports never features your awesome handwashing/ridiculously expensive but commercially unavailable hacked together dishwasher that uses a nuclear reactor and is way better than the rest of what they feauture. 1) Maybe it is. On thee other hand, maybe you’re just seeking press and have no one else around to honestly account. 2) who cares? I still need my dished cleaned /my carpets cleaned/my hair cut etc. Unless I want to make all of my own appliances, I certainly don’t. 3) why do you care so much? If it worrks for you and you’re not selling it to me, why do you need me to keep telling you how awesome your dishwasher is? 4) what the fuck basis do you have to think that you haven’t ‘won the lottery’, albeit in a modesly different way?
Scott
on 17 Nov 10+1 to GeeIWonder
Pawel
on 17 Nov 10Matt, your criticism is right of course. But personally I also like to think about these kinds of products from a non-business perspective: There are unprofitable businesses out there that create amazing things. YouTube, Facebook, Twitter etc. This stuff profoundly changes our lives. But an idea and its execution only receive credit when they make somebody rich.
Rumen Stankov
on 17 Nov 10Ok folks, we get it – these types of posts are starting to get too common here. The “Bootstrapped & Profitable” category of posts is super fine – keep it up, but these things starts to get boring. We got your idea (or is it, DHH’s idea) years ago and we somewhat agree with it.
Still, there are many ways to skin a cat – and many ways to start a business. Your way is excellent. But there are many other ways. VCs, bank credits, cheating people to get your first million, getting lucky, etc.
Nathan
on 17 Nov 10@Pawel – that would be fine if all of these products out there that are unprofitable didn’t claim to businesses – its not so much about making someone rich, its about living in reality. Don’t claim to be a successful business if you don’t make any profit.
Scott
on 17 Nov 10Would everyone here be howling foul at Apple and Microsoft in the ‘90s when Microsoft invested $150,000,000 in the unprofitable Apple?
Jason
on 17 Nov 10I don’t blame the Pulse, I blame the NYT. My problem with these stories is that everything about the company is a “wants to do” or a “plans to do.” They haven’t really done anything yet (except captured some funding). I’m much more interested in reading about a company’s path to success - and the changes and lessons learned along the way - rather than a glorified press release about their website/app/whatever launch.
Stephan
on 18 Nov 10Take a look at Atlassian. They started 8 years ago and were profitable each year. The first VC was only this year.
http://delimiter.com.au/2010/07/15/atlassian-takes-60m-venture-capital-round/
Rydal
on 18 Nov 10I completely agree, what happened to doing things old school, craft up an idea, build it, charge for it and work towards being profitable while closely monitoring and reduces expenses. I’ve been working on my own startup going 2 years and its taking me this long because I wanted it to be bootstrapped, it feels so much better but I guess others will bet the defer.
link for more info
on 22 Nov 10It is just a strategy to get rolling further. This has reaped good benefits in the past and still remains to be the things that has many people roped in still. I think that this is to go on for a long way and go on to have the expected results, there is just a little change and apart from all that all the other things are just complementary.
This discussion is closed.