None of them are walk-awayable. (At least from the original core) They're fully aware of this, and they've mitigated that fact by not expanding, so that as they bring in more money, they're able to continue to divvy it up between the same core group (or thereabouts).

Their reward is making the company fit the lifestyle they choose to have as much as possible, instead of selling out. I agree that this is very appealing.

Why do you think they couldn't walk away? Sure, if Basecamp doesn't get an update for years, it will go down. But that will take some time. Imagine Basecamp is making $1m a year of revenues, and they stop maintaining it and marketing it. It's still a useful product, until someone build something better and cheaper. Even then, people are usually slow to switch. They could easiy make $800k in the year after they stop maintaining it. Then $500k the following. Then $200k the following. Probably some people would keep on paying for several years because they're used to it. That's not bad for not putting any work in it.

I evaluate being able to "walk away" as being able to maintain the status quo indefinitely. The slow revenue reduction that you are describing is applicable to any business model with a recurring revenue set up. Sure it's not bad, but the company begins to die the moment they leave.

You can't walk away from investments either by that definition.

There's an old Romanian saying:

The cow grows fat under the eye of the farmer.

Investments are just another business model with recurring revenues. It begins to die the moment you stop managing it. You can get a professional manager for that too - but they too require attention.

They've made so much money that they could walk away, let it die, and still be richer than most successful startup founders. Just think of the HotOrNot guys - who cares if it dies if you've already pulled $5 million apiece out of it?

I'm sorry, but I'm not getting your argument. What does investing have to do with whether or not 37Signals' founders can walk away from their business?

I'm saying that with your definition of "walking away" (can stop giving a shit and the income still comes steady forever), not even people who do sell their company can walk away. All they're doing is shifting from a business that they love and have poured their hearts into (their startup) to one which they may well hate and which they may know nothing about (investment management).

Both require attention to thrive.

A standard ING account is at 4% right now. on $5M, that's $200K.

What exactly do you have to manage again?

Watch out for the inflation rate! If inflation is at 4% your ING account is worthless and you're spending down your principal in real terms.

Believe me, I've been thinking a lot about that recently.

That said, your point is taken: There is some amount of money where you can set up some fairly risk-free, static investments and take out $X every year indefinitely. Just make sure you do a little more thinking upfront about how much money that is, and what static investments those are.

TIPS or I-bonds would seem to be the prototypical example: they guarantee a certain real rate of return (about 2% when I looked a couple years ago, though I heard it's gone negative with the credit crunch), so if you've got $10M or so you're guaranteed your $200k. Only thing you have to worry about is a government default, but if they do that, you have bigger problems to worry about than what happened to your money.

I evaluate being able to "walk away" as having the kind of FU money pg says founders get from an acquisition.

By my math, pg made between $10-$30 million. I don't know what his cut of the $50 million was, but Stan Reiss (?) from Startup School 2005 said the Yahoo stock value went up from $50mil to $750 mil, so whatever pg kept in Yahoo stock went up by 15x. We don't know how much Yahoo he kept post-crash, but I'd peg him still over $5mil, maybe up to $30mil if he's Mark Cuban savvy. I don't think the 37s guys have accumulated that much, but I'd bet they have more than any YC alum (so far - we'll look again when YC is 5 years old).

Ah, I had a different view of "walk away" then. I was thinking more of a "hit by a bus" analogy.

Using your definition, I don't think walking away is something anyone on that team is interested in doing. They're already living in their "walk away" phase.

Here it is: http://www.37signals.com/svn/posts/1159-you-dont-have-to-sel...

Excellent response. It perfectly distills the difference between Paul's claims and DHH's (and my) perspective.

I don't understand why expansion equals freedom - can you explain your logic?

If they can walk away that easily (i.e. they are replacable), do the founders add value anyway?

This is for swombat too - if revenue has grown 15-30 times since '04 as DHH said at Startup School, and headcount went up by 30%, then that's still 10-20x the revenue per employee.

Costs: Can't be too much more, certainly not nearly matching the revenue growth. They do their own advertising and marketing so that's free. Infrastructure costs are higher because of more accounts, so let's count that as the cost of 7 employees, giving them double the costs. And with extra benefits for employees, put it up to 2.5x of 2004 expenses. total.

The profit picture gets even more ridiculous. If they had 5% margins in 2004, their costs go up by 2.5 and revenues go up by 15, then their profit is over 250x over 2004. Divide that by 3(?) founders/principals and you get a lot per year. Heck, it's still a lot if you divide it by all 12 employees.

37s is probably making more profit annually than most startup founders will ever sell a company for. If they pocket a part of that a year, then they have the equivalent cash to a liquidity event plus they still have the company. Granted, they're exceptionally successful, but hopefully these numbers will open some eyes for people that look down on lifestyle businesses.

I totally agree with this analysis--it looks like they have a ton of money. But that just makes the investment they took from Bezos look even more strange. Any ideas on that?

I think the answer to that is - they didn't take the invenstement from Bezos for the money alone - they did it for the business advice and contacts they could get from him through the investment relationship. IIRC, this was stated, possibly by Jason Fried, on another somewhat recent 37Signals blog post.

A typo - I meant "investment".