Fine, the article should therefore argue, "Stop claiming to be profitable since day 3: claim to be cash flow positive not including consumer expenses such as apartment, car, home Internet and mobile telephone, since day 1." Such an important semantic difference. (Not.)
For virtually everyone on HN, the difference between $1000/mo profitable (which BTW is a dream scenario for the majority of would-be founders here) and $11k/mo underwater is about as extreme a distinction as can be made.
Why do people keep talking as if this is a semantic argument?
It isn't a semantic argument.
I know it feels amazing to build something with enough traction to reliably put $1500 a month in the founder's pockets, but that "profitability" is counterfeit. You cannot run that business forever; it is paying you less than the minimum wage.
If you think this is a semantic difference, try re-reading Steve Albini's "Some Of Your Friends May Already Be This Fucked" rant.
You don't understand. Internet profit isn't profit, we just learned that. Obviously the Internet works such that if it took you 100 hours to develop it, the Internet eats your hard drives every 30 days and you have to spend 100 hours again just to be at the same place. It's no different from standing at a lemonade stand for 100 hours. No different at all in any way. /s
It's not a straw-man argument. The post would make perfect sense if it were talking about an offline, labor-intensive business. Unpaid development time has nothing to do with cost-of-running-a-business expense. That's a fact. You can say from YOUR point of view it does. But it does not from the business's point of view.
This is like saying that a surgeon can't launch a profitable web business, because the time spent on it will not generate as much profit for him as if he had spent the time practicing surgery.
that's plainly completely false, and the web business can be very much profitable (just not to him.). Just THINK about it.
...When your business throws off $1500/mo (without salaries), that’s not the case. If you’ve been at this for a year, clearly next month won’t be $5000, (unless it's an internet business, where a single good source of publicity can easily bring you from 500 from x paying customers to 5000 from 10x as many) which means even in the sense that it’s “kicking off cash” it’s not sustainable in the long-term, (unless, like all Internet companies, costs are largely fixed or at the least certainly don't grow linearly with number of paying customers) not defensible in the market, not supporting even one human being in that effort, etc.. (unless it's an Internet business that can go from paying you 200 per month to 2000 per month without you so much as being sure where all these customers came from, how they heard about you.)
Therefore, in the normal sense of the phrase “profitable business,” it’s not. (unless you mean "profitable business" as a person normally means it when it comes to a startup).
So now that I’ve perhaps unfairly ridiculed you, (now that the author has ridiculed himself) let’s just recognize what’s really going on, because it’s wonderful and amazing and fantastic and exciting: (since it's not descriptive of most projects)
You’re building a business! (your project is cash-flow positive.) Sure it’s just begun, sure it might need a kick in the ass, sure it might be struggling, sure sure sure, so what? You and every other little new business. You and every other bootstrapper who by very definition doesn’t explode out of the blocks because you’re doing it part-time and with no cash. (that's not anyone's definition. you can explode out of the blocks or you can languish.) This is exactly what you’d expect it would do, even if you’re actually the next 37signals. (unless your expectation is different.)
That’s exactly what my company WP Engine looked like for the first 9 months. Now we’re making millions of dollars, employ 20 people, growing at 15%/mo, etc.. But we started just like that — slowly, and not profitable. (sounds like you did it from 50-100k in savings or seed capital, which puts you squarely in the type 1 bracket.)
Same with my previous company Smart Bear — it took 2.5 years before I could even hire one employee, and even then it was 1/4 of the salary he deserved (and later ended up making). Eventually we, too, made millions of dollars a year — in profit! — but not for years. (during those years I bet the net cash flow ever had reached -20k easily. all in direct costs.)
In other words, there’s nothing strange or bad here. It’s just not “profitable from day one.” Stop saying that. (unless you're cash-flow positive from day one, which is a different type of internet project).
Dispense with the feather-fluffing and get to what is — the strengths you have, the challenges you want to overcome, the resources at your disposal. (And if you've proven a scalable, repeatable business model that pays for its own hosting and direct expenses other than the time to develop it, I suppose you shouldn't boast about that fact? After all, it's not like if a web service is developed in 100 hours, you can keep running it without redevolping it from scratch every month, as though you'd just lost all your backups.)
And then set your mind and goals on making that sucker profitable for real! (turn your positive cashflow into a sizeable source of revenue. which nobody assumes you have if you mention the former.)
P.S. Need help figuring out how to do that? Go here to learn about the Smart Bear Live podcast where I’ll help you one-on-one, or email me to see whether I can turn your question into a blog post. (step 1: start with some money to burn.)
I'm sorry, what are you talking about. When people say "profitable since day 1" that doesn't mean $1000/mo profitable since day 1 - i.e. that within 30 days of deciding to do the project they billed $1000/mo. Nobody thinks that's what you mean.
You're telling me when people say "profitable since day 1" they should instead say "cash-flow positive not including consumer expenses I'm using for business". Fine. Go ahead. Say that instead. Or say the synonym "profitable since day 1" since everyone knows that's what you mean.
Let's do this. Do you think the article would still make the same argument if it read, instead, "Stop claiming to be cash-flow positive since day 1 - meaning day 6-23, besides your fixed consumer expenses!"
Then the article would read: (In parentheses is my point-by-point critique).
Stop claiming you’re cash-flow positive (not including consumer expenses)
JUNE 19, 2012 2 COMMENTS
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My company is cash-flow positive, and has been from day one. (meaning day 7-23 after coding it up and getting customers very soon)
– every high-tech bootstrapped founder (Actually, only a SMALL percentage of ALL projects, and a LARGE percentage of projects that can justify you giving them money.)
I know what you really mean.
What you mean is that the only business-related charges on your PayPal MasterCard — aside from those on intentional detour for tax-deduction like the external DVD drive you needed to rip CDs after you realized the MacBook Air in all its luxurious, silent, thin, sexy glory still cannot import “The Best of Pat Benatar” without the aid of a peripheral half the size and weight of the laptop itself — is an account with Amazon AWS where a medium instance whirs away for only $40/mo, just two clicks away from rebirthing as an XXL should you need “scale,” plus $0.67/mo for the S3 storage for web app uploads, plus $0.072/mo of S3 storage to back up the Pat Benatar mp3s.
(And you also don't count your rent, phone, Internet, and other expenses you currently have related to launching your business.)
So all you needed to do is sell one $49/mo account — which you did — and you’re cash-flow positive! (Except the above-mentioned things).
I know that’s what you mean, but when you say “I’m cash-flow positive” to someone with a modicum of experience it’s a turnoff, (unless they care about a scalable, repeatable business model you have already proven) because it’s actually bullshit (if somebody with "common sense" thought that any Internet business on the planet got ten thousand customers the very first day the founder had the thought to start coding it up). And when someone’s streaming bullshit at 720i, it means they’re either a full-blown bullshit artiste or they’re merely ignorant; in neither case do I want to hear more. (in other words, I've been burned by the recent bubble pop and I need some time to see you grow some more before I continue gambling. That doesn't mean it's not great that you're already cash-flow-positive. It means I'm a sore loser.)
The first and biggest error is thinking you can ignore your own salary. (Which nobody expects you to include when you say you're cash-flow positive.) Sure your time is worth $1000/hr (your opportunity cost is more like 80 dollars per hour if you weren't running the business, since you would accept a salary at 160k... the 1000 dollars heuristic is only to keep you on track if your business will keep growing and be acquired), but no you do not have to cover that to be dubbed “profitable.” (nor do you have to cover your foregone salary of 160k). But you do need at least a ramen-profitable definition of valuing your time. (no, you don't. even 2 dollars per hour is not necessary, nor is being able to pay for your apartment, car, phone, and Internet.) If your business makes $3000/mo after direct expenses, but isn’t paying you, and you still have a full-time day job to keep up with the mortgage on your under-water house, then you’re not profitable. (and if you can stop doing any work on it and the venture keeps generating $3000/mo after direct expenses, making 36k in a year or 200k in ten years as usage tapers off and customers switch away, and you use that 200k to buy a house somewhere. Well, you didn't just buy a house with the profits or positive cash-flow of your company, no-siree, you bought it with, uh...)
Why not? Because the business cannot sustain even one person to run itself, which means that $3000 is not “extra money which can be plowed back into the business or distributed for an awesome vacation.” (Unless the business can operate without one person, which is not mentioned here, or unless you can hire someone for a thousand dollars a month to maintain it and pocket the 2k per month difference). It’s just made-up leftovers because you’re not acknowledge the actual costs of a startup, which include time and you having to work a second job. (Likewise, your salary isn't actual cash-flow you can use to buy stuff. It's an illusion! If you make 200k in salary, but could be making the equivalent of 500k by founding a startup and selling it 5 years from now, that's not 200k you're earning. That's 300k you're losing. You don't have a job: you're a parasite on, well not society, but on your alternate self, whom you're robbing of 200k...)
In that case what have you proved? That if you slam yourself to the limit of endurance and ability, you can earn less money than Dell would give you for creating 1/34th of BIOS version 8.4.3.5?
That’s not a “cash-flow positive business.” (Unless you look at cashflow).
If you are living off it, even if that’s $3000/mo, then you’ve made it. You might not have a dynamo on your hands (yet!) but at least you’re in a somewhat sustainable place. Maybe next month you’ll make $3200 and you can “plow that extra $200 back into the company.” (likewise, if someone gives you 500k per year to be VP of Vatever at their company, and you spend it all on your lifestyle, you haven't made it at all.)
The other error is that it’s a misuse of what’s normally connoted by the phrase “profitable business.” (cash-flow positive business. Normally it means, in the first year of a business especially, but usually in the first couple of years of a startup, that you could keep putting time in and getting more money out than your business uses up. If you have savings of twenty k, you can run the business for two years and have savings of...thirty k. Where does the extra 10k come from? Oh, that's right the "non-profit" we all totally rightly call "profit.")
When someone says they’ve been in business for two years and they turned profitable last month, what that really means (if it’s a healthy, growing business) is that they are sustainably profitable, able to indeed “plow the rest back into the company” with a quantity of cash that could visibly move the needle on top-line revenue, or could significantly reduce further risk, or would allow for investment in a long-term project, or could be a down payment on a superstar, or something similarly valuable. (Or maybe it means the restaurant costs 10,000 per month in property, commodity prices, waitstaff, and all other expenses, and has just turned a profit of 200 for the first month after all that stuff was paid for, and at this rate you'll regain the 50k you invested to get it there in...well I'll let you do the math. That doesn't mean it's healthy does it.)
