There's a reason for this phenomenon. It might be misguided in this particular case, but there is a reason that it exists. It's the same reason that everyone here loves businesses based on technology. It's the same reason that VCs are willing to invest millions of dollars in nascent companies which will, in all likelihood, fail in the near future. It's the same reason I spend my evenings working on my own startup.<p>The reason is scalability.<p>My dad was always shocked that investors valued the last startup I worked for in the tens of millions of dollars while we were losing money. He's worked in construction his whole life for firms that do on the order of $100MM in revenue per year. Like all construction firms, however, their margins are razor thin. Their revenue doesn't grow much faster than their costs (employees and materials, primarily).<p>A construction company that loses money is not going to be worth $50MM any time soon. A tech company with similar financials <i>might be</i>. A tech company might take a while to get their technology right. But when they do, they can leverage it. Their revenues can grow <i>far faster</i> than their costs. Software as a product scales better than just about anything I can think of. Software businesses often go from slightly in the red to huge annual profits in very little time.<p>Everyone in tech is trying to find the Next Big Thing. This includes us (entrepreneurs), the media, and investors. In the case of the media, they're just trying to be the first ones to break the next big story, as usual. Just like investors, if they want to succeed, they have to be willing to take risks. They have to bet on companies that look like they have potential. Sometimes they're wrong. But in those rare cases where it pays off, it usually pays off big.<p>Other industries lack this quality. In other industries 1 success is not going to make up for 10 failures. In technology you make money by picking winners before everyone else. It's somewhat of a crap shoot. But the bar is low because the potential reward is high.
<sigh><p>37Signals' products weren't profitable for a year or more, if memory serves. They took "investment" from the other side of their business (consulting). Every month, when their product revenue grew, I'm sure they were thinking, "Wow, we're going to be profitable in X months"... and eventually, they were.<p>Product profitability takes resources. You need:<p>1) Time (you can accelerate this with cash if you're disciplined)
2) Money (you can use savings, investment, or you can "buy" money/time with consulting)<p>That's immutable.<p>EverNote and their ilk ("our ilk", I should say, as RescueTime falls squarely in that world) is trying to build a business formula that works... And it looks like they're succeeding. Presumably they could cut dev staff, stop all experiments, and get to profitability MUCH sooner-- maybe even today.<p>But that's how business works, right? It's all about intelligent debt to ultimately maximize the metrics you care about (presumably some combo of growth, revenue, profit, and lifestyle). You hire an employee, and you are spending time and money on them for a while before they are really contributing. You take funding so that you can run the experiments that require capital. You take your consulting profits and pump them (and your spare time) into product efforts. And some businesses scale differently than others (Amazon is a great example).<p>That's ALL DEBT. And it can all be smart debt (like a mortgage used to be!).<p>Just because companies are choosing a different flavor of debt or choosing markets that scale differently doesn't make them bad. I personally am THRILLED to give up a relatively small stake in our company so I don't have to consult and can run experiments about as fast as I want to.<p>Scarcity FORCES you to be smart-- but the lack of scarcity doesn't mean that you CAN'T be.
<i>It still blows me away that David’s talk at Startup School 2008 was met with such enthusiasm (I know David was surprised too).</i><p>The content of his talk was not the main reason that it was met with such enthusiasm. (What he talked about was obvious and no one would disagree.)<p>It was his delivery that made it such a bit hit. His passion and conviction was easy to see. We could have easily read the talk on-line, but we go to these things to get the "whole story", the things that words alone do not convey. What a pleasure it was to see someone in his position so enthusiastic about his work. It's hard <i>not</i> to get caught up in the moment.<p>(The fact the he's the author of Rails and his liberal use of the f word to make his point also helped.)
I'm sure many plumbers are profitable from day one.
Amazon wasn't profitable for a while.<p>Which is the more successful business now?<p>I agree that you aren't a success until you are making money, but I don't think that it's important to be profitable always.
Some one wise once told me: we humans strive for 3 things to become successful.<p>1. Money<p>2. Fame<p>3. Making a difference<p>Everyone aims for all the 3 things. But you have to pick one out of the 3 - prioritize what you want. And then come up with the metrics that will help you measure your success.<p>Most startups these days unfortunately have no idea what they are aiming for.
One of the dubious features of business journalism today is that articles tend to privilege the passive investor's point of view. Hence the emphasis on things like stock-market indices.<p>And from an investor's point of view, a successful business is one whose stock is going up. A "hot" company that is losing money hand-over-fist but has a slim chance of Hitting It Big may or may not be a great place to work (depending on how Dilbertesque the management is) and may or may not be fulfilling the dreams of its founders, but the investor who has that company as one element of a large portfolio has every reason to be happy with it.<p>And if you're a reporter or editor in the business/tech press and you're used to seeing things from the investor's point of view, why <i>shouldn't</i> you run with a story like the one Jason F. complains about? Why wait two years publish an article about a startup that is actually wildly profitable when you can fill the news hole <i>right now</i> with an article about a startup that <i>might someday be</i> wildly profitable?<p>By contrast, a bootstrapped company that makes a tidy heap of profit for its two founders and three employees is booooring.
I think this article is wrong for three reasons. Products can be successful without businesses being successful. Success is determined by meeting your own goals. Acquiring paying customers is a business success.<p>A piece of software can be very popular and successful, even if there is no direct business correlation.<p>Not everything can be easily correlated. Even 37signals own rails isn't being charged for in many situations. How much extra value has giving away rails done for 37signals? Giving some things away for free can be considered a marketing expense... an expense where you get to do what you like best - making software.<p>If a painting doesn't sell for a lot of money, is it a successful painting?<p>Seriously... there's <i>lots</i> of software bringing joy, and helping people do stuff - not all of it has to be making money.<p>If the business plan is to make something cool, then eventually pay off the investment... then that's a success. Success is merely meeting of goals.<p>So this company, has made something people like and use, and also give them money for. They are also on their path to paying back their investment, and gotten a lot of cred, press, and <i>customers</i> in the meantime.<p>Software companies almost always make multiple products. So gaining a lot of customers with early products is a great way to bootstrap things. Then the software company can more easily sell stuff to their existing customers.<p>They've met their own criteria for success and other peoples.<p>So this article misses out on how a product can be a popular success without the business being a financial success. It also misses out on how, if they are meeting their goals they are a success. Finally it misses the business goal of acquiring customers who like what they do and pay them money... in their first product.<p>In this case the New York Times has more of a leg to stand on than 37signals.
Ok, this one calls for just a little bit of snark:<p>> The bar for success in our industry is too low<p>As evidenced by one of the most widely watched companies as of late in said industry making lots of money with a product they constantly boast "does less"?<p>I'm not sure I've quite nailed it, but you get the general idea.<p>Actually, what they fail to point out is that they are famous enough that they won't necessarily get clobbered by someone who does what they do better, because the other guys will really struggle to get the word out, whereas they have Rails, their blog, books and so on to promote their 'does less' products.
Similar to Everynote there are lots of companies that have taken money from VC's and have not yet become profitable e.g Vonage.2011 is a big target though since it is 2 years away and nobody know what might happen then, there might be a much better killer product then Evernote running at much lower cost.
While i agree that profitability is important but in the field of Web and according to the market you sometimes have to give away something for free to charge for something else.Even 37signals gives away tadalist etc for free.The best part is they have a bunch of products to earn cash from.
Obtaining press for a new/exciting product is especially easy when its free. Journalists have to write about what people think is interesting, without it they would be out of jobs.<p>That being said publicity is easy, actually being successful-entirely different story. Dont judge success on publicity.
Summary: If you don't make a profit, you're not successful.<p>Enlightening. Hey, guess what? A lot of businesses have run in the negative until they got traction and make a metric ton of money. Congratulations on being profitable from day one. TMTOWTDI<p>That said, I despise the twitter business model...