There’s an interesting discussion off of Jason Calacanis’s latest This Week in Start Ups with David Heinemeier Hansson (DHH) of 37signals about running a company and scaling. In a nutshell, Jason’s point is that there is finance available and companies should try and raise money to “swing for the fences”. DHH say’s that’s crap, companies should focus on making money. Contrast that with Ben Horowitz talking about building a case for the Fat start up, one that raised buckets of money to really operate at a high level and Fred Wilson disagreeing with that. So who’s right? They all are.
There’s no right way to build a big business, I don’t believe raising buckets of money is a bad thing, I also don’t believe focussing on being amazingly profitable as soon as possible is wrong either. It’s all about how you measure success. Companies may not be profitable but they may be providing a bucket load of value that doesn’t make tonnes of profit – for now, with a return coming at some time in the future. Twitter was raising money figuring stuff out, and then turned a switch and got to broke even. Facebook raised a bucket of money as well and is just getting to profitability. YouTube sold for a boatload and wasn’t making much money till recently. But could we imagine our lives without YouTube, Facebook and twitter? I don’t think so. These services provided a lot of value before they made a lot of money. But they will make a lot of money in the future, but they created a lot of value.
Leaving Yahoo! and starting my own thing has lead me to worrying about the same fork in the road. Do we get investors and try to invest in the product to produce the most value while playing around and figuring out the value or do we turn on the revenue tap and hope that we’re able to get to profits quickly to fund development? It’s a question we’re struggling and we’re trying to go for both. Turning on and working in quick development cycles, but trying to raise money as well to invest in some of the ideas we have that will build out more value.
There is no wrong answer here, you have to do what’s best for yourself, your company and your users and sometimes the answer isn’t totally clear. Building for value or building for profit or building for both, as long as you’re in touch with which direction you’re going in, can help you create a big sustainable business.