Friday, September 25, 2009

37 Signals Satirizes Freeconomics

37 Signals founder Jason Fried's take on the current wave of venture capital interest in Internet-based companies that aren't making money, "PRESS RELEASE: 37SIGNALS VALUATION TOPS $100 BILLION AFTER BOLD VC INVESTMENT". Excerpts:

CHICAGO—September 24, 2009—37signals is now a $100 billion dollar company, according to a group of investors who have agreed to purchase 0.000000001% of the company in exchange for $1.

Founder Jason Fried informed his employees about the new deal at a recent company-wide meeting. The financing round was led by Yardstick Capital and Institutionalized Venture Partners.

In order to increase the value of the company, 37signals has decided to stop generating revenues. “When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuation,” said Mr. Fried. “Once you have profits, it’s impossible to just make stuff up. That’s why we’re switching to a ‘freeconomics’ model. We’ll give away everything for free and let the market speculate about how much money we could make if we wanted to make money.


A $100 billion value for 37signals is “not outlandish,” says Aanandamayee Bhatnagar, a finance professor and valuation guru at Grenada State’s Schnook School of Business. Bhatnagar points to a leaked, confidential corporate strategy plan that projects 37signals will attract twelve billion users by the end of 2013.

How will the company overcome the fact that there are only 6.8 billion people alive today? “Why limit users to people?” said Bhatnagar.

In order to determine the valuation of companies, Bhatnagar typically applies the following formula: [(Twitter followers x Facebook fans) + (# of employees x 1000)] x (RSS subscribers + daily page views) + (monthly burn rate x Google’s stock price)2 and then doubles if it they use Ruby on Rails[1] or if the CEO has run a business into the ground before.

I wonder if Fred Wilson, venture capitalist investor in Twitter, among other Internet businesses, will respond to this on his blog. If so, it should lead to a spirited discussion in the comments.

[1]Ruby on Rails, the web framework my developers use, was created by one of the partners in 37 Signals. My web developers mentioned this to me when I asked them if they had read the book Getting Real by 37 Signals, which I had first heard about from this video blog post from Tim Ferriss's site.


JK said...

That was a riot. lol

Speaking of Tim Ferris, regarding our previous discussion on BrainQUICKEN, I reconsidered my skepticism towards the product. He did develop it for himself while he was a neurology student at Princeton, so he probably did incorporate what he was learned there to concoct the supplement.

DaveinHackensack said...

Now I'm skeptical.

JK said...

Something against Princeton?

DaveinHackensack said...

No, just the idea of him concocting it himself while at Princeton knocks it down a peg for me. I don't know. I also assumed he was a business major. But you're more of a science guy than me.

JK said...

Hmm. It's a step up from what I had envisioned when I first heard about it. I'd rather he made it to use for himself and then decide to market it, than plan it as a get rich quick product from the beginning and not use it (that might have been the case anyway, but I'm assuming he is honest). Eat your own cooking, like you've said before.

From reading about it, it seems to have the stimulative effects of an energy drink minus the sugars, since it is in pill form. That makes sense, I like to down an E-drink both before I work out and before a test, even though I know all those sugars are not healthy.

DaveinHackensack said...

So it's basically a stimulant, like caffeine? Reminds me of something my roommates and I did a few times in college, I forget where the idea originally came from: we'd take an aspirin and a stimulant/diet pill I forget the name of (it has since been banned) and wash it down with a cup of coffee before lifting weights. Do you have a link to Ferriss's origin story for this?

JK said...

I'm not sure if it actually contains stimulants or not, I was going off of online mentions of the product's effect on consumers who reviewed it. Now that I'm looking at the products website, it claims to have a lot of vit B12 (cognamine) which is associated with preserving our neuron's myelin sheaths and fatty acid production, among other things. The cognamine complex they use is proprietary according to the website so there's probably not much I can find out about it. When I have more time I'll dig some, because now I'm curious about it. I do suspect that they have some kind of stimulant in there, even if they don't mention it on the website (since they want to make it seems like a vitamin suplement instead of a '5-hour energy' product), in which case I'd have to order a bottle and look on the label.

Someone asked Tim about the history of brainQUICKEN in one of the comments on his blog, and he replied and said he developed it for his own personal use as a neurology student at Princeton before he commercialized it. I forget which blog post that was, however. I think it was a recent one.

DaveinHackensack said...

Incidentally, I mentioned this 37 Signals post, and Tyler Brûlé's Saturday FT column ("Bliss of a Twitter-free moment"). Fred's response was that one of Twitter's advantages is that "it's so easy to dis".