Scale is a four letter word

I’ve been in fund raising mode, if not actually raising money then at least mentally, since 2001. I have had mixed success, raising a round in early 2000s and various debt rounds since then.

The thing that matters most when raising money from seasoned investors is scale. Scale means getting as many customers as you possibly can in the shortest amount of time as possible. But charging for something adds friction to the process and thus slows scaling. So the idea of generating income from what you produce can be anathema to scale.

This is why we have so many free software products these days. Funding dictates this due to the god called Scale.

I was addicted to this for years. We needed low priced and free products because the way you make money is to charge a little to a lot of people, and you can’t have a lot of people until you have scale. Of course I didn’t have venture funding to help me out so we constantly played games, releasing some free and some paid apps in an attempt to scale and make money at the same time. I was praying at the alter of two completely different gods, two that rarely got along.

By realizing my true calling as a grinder, by now focusing on building a sustainable business that lets me grind away at my chosen craft for years and years and years, I no longer have to pray to the scale gods.

And that changes how I think about our products, how we price them and deliver them. I don’t need scale. What I need are enough customers willing to pay me a fair wage to use our products, and I need enough of them to be profitable and make a living that can pay for a small team, for my house, my family, and save for the future including my kids’ college funds. I no longer have to be the cheapest solution and I don’t have to appeal to everyone. I can now focus on being the best once again for my core group of customers.

Praying at the alter of two gods — revenues and scale — was very hard. I no longer feel pulled in two directions.

Fail slowly

Fail fast.

That’s the mantra of the modern era. If you spend time on something you are stupid, useless, something.

Fail fast.

Another word for “fast” is “half-assed.” I was taught if it’s worth doing it is worth doing well. I want to play with an idea, let it formulate and bubble, let my thinking expand, show it to people, get feedback, find out I’m wrong, find out I’m right.

Do it right. Take my time.

If I move fast I miss the feedback, or interpret it incorrectly. It takes time to listen and it takes time to think.

I’ve been working on my next thing, Equals, for many moons. We started a prototype in 2011, showed off the ideas to a few, gathered feedback, almost shipped it, didn’t.

It wasn’t right.

We spent more time on giving us time than we thought we would. We needed contract work to keep going and a bit of luck with some existing contracts. We refinanced some debt to buy us more time.

We refocused. What was really missing? What was the feedback really saying? How do we build a product people are willing to pay for?

To me I don’t slap together a little code and shove it under a few people’s noses and see whether they get a disgusted look on their faces.

My code is my craft. The products I create are just that, my creation. Maybe, in the end, I’m reading the feedback incorrectly and the product won’t generate much money.

But at least I knew I put my best foot out there. I took my time to create something I’ll be proud of.

I’d prefer to fail slowly.

The One Who Owns The Customer Wins

Once upon a time software developers owned the customer relationship. We knew who purchased our software and could talk directly to them. We lost in mobile when the app stores became the only way to sell software because we no longer had a direct relationship with our customer. We had to jump through hoops to get responses to product questions, even to understand why a customer purchased and how we could get them to buy more. Apple and Google, the primary providers of app stores, owned that relationship instead.

Every industry has suffered. Why do musicians still make money from touring and, except a rare few, not from album sales? Because musicians can talk directly to their biggest fans through concert venues. It’s the only way for independents to survive and thrive.

When I think about the IBM-Apple deal, I only need the answer to one question: who owns the customer relationship? If it’s IBM then long-term the deal will fail for Apple. IBM’s ownership means they get to understand what the problems inside the enterprise are, they get to understand what additional things the enterprise needs and IBM gets to sell it to them, which builds a stronger relationship. If Apple owns the relationship then the primary benefits will accrue to them instead.

A friend who had worked at Apple during the time period told me a story: in the late 80s and early 90s Apple put lots of money into Aldus and Adobe and other companies focused on the desktop publishing market. This was not just in the form of investment but also in the form of co-marketing and promotion. By 1995, though, Microsoft came calling and despite the money invested by Apple, Aldus and the rest all jumped at the chance to prioritize Microsoft and their 95% market share. Apple was left holding the bag.

My friend told me this is why Apple has such a mixed relationship with developers. On one hand Apple needs them to be successful; on the other hand if any of them are too successful they could leave Apple holding the bag again. As my friend put it, Apple wants to keep developers bare foot and pregnant.

I think the lesson learned wasn’t that the developers could jump ship and leave Apple holding the bag. Instead it is that Apple couldn’t have anyone standing between them and the customer. Direct sales, Apple stores, staying in consumer markets, iTunes, the app store, these are all things Apple did on purpose to maintain their strangle-hold relationship with the customer.

This is Tim Cook’s challenge with IBM. Logically IBM has the customer relationship in this deal. After all it is IBM who have sales people standing inside the companies it is trying to sell. Did Apple give up too much control over that relationship or just enough?

Interestingly, this is also what all of us mobile software developers need to do, too. If we can wrestle back control of our own customer relationship, at least we have a fighting chance to succeed again.


Joe Posnanski is running this great series of the top 100 baseball players over at his blog. #50 was Al Kaline. I love the way he sets this up:

When I was young, the thing that I admired most in the world was talent.

When I grew a little bit older, I changed, and the thing I admired most in the world was skill.

And now? Now, as I close in on 50, I think something else still.

Persistence. I think it comes down to persistence.

And persistence, more than his youthful talent, more than his developed skill, is why Al Kaline matters.

We quit too easily. We don’t have the guts to stick it out, to work a little harder, to look for a new angle or develop a new skill.

I’ve been listening to this podcast called CMD+SPACE lately. It’s an interview show with various developers, designers and other technical people. At the start of every show the host asks what do you want to be remembered for? Because of this, I’ve been thinking about this question a lot lately.

Personally, I want to be remembered as a good father and husband and friend, someone who could always be counted on. Professionally, I hope I’m remembered for my persistence, for my unwillingness to give in when I knew I was right, for my strength in constantly moving forward, and my willingness to learn what I needed to and do what I needed to (within a strong ethical boundary) to get the job done.

Why Most Start-Ups Should Never Raise Money

There’s a fascinating conversation recorded (you can read it, too) between Jason Cohen of A Smart Bear and Edwin, who runs a new service called The entire conversation is interesting, mostly focused on how to present a business to customers and where to focus the marketing message, but this segment on fund raising really struck a nerve. I’ve shortened it (but not changed the wording) considerably to make it more reasonable to read here:

JasonRaising money completely changes what the company is and what the outcomes can be and what your job is.  

Let me ask you this: what is it that you want as the endgame of this company? Do you want to make a billion dollar company? Do you want to make a company in which you personally take home millions of dollars, but it doesn’t really matter what other form that might take as long as that’s happening? Do you want to keep it a tight group of people where you know everyone’s name forever and it’s just a high-performing, awesome group of people? Or do you want to have a thousand employees someday? What is your goal with the whole company?

Again, regardless of how you get there. What do you want? What would be the best end-state for you? Do you want to sell it someday?

Edwin: Yes, but that’s not short-term. In seven years my daughter will go to college and travel is my biggest hobby so it would be great if I can
cash out successfully in seven years. But before that, I would like to build a profitable business, a business that can exist on its own.

Jason: Okay. Why?

Edwin: Well, because I think that’s the very essence of a successful business, that you can make profit with it. I think it is the ultimate measure of you’re offering value to people that they are willing to pay for it. Yes, I think I would get a lot of satisfaction out of that, and I am already getting that.

Jason: That’s true. Okay, and when you say you’d like to exit someday in the next seven years, let’s say between now and seven years from now, what kind of money are we talking about that you want to have from that exit? If it’s half a million dollars, that’s not enough.  I’m guessing if it’s $500 million, it’s enough. So what’s the minimum you want to get out of it to where you’re like bang, I got enough money on it that I never have to worry about money again or whatever it is that your goal is.

Edwin: Ten million, I think I can be very, very happy for the rest of my life.

Jason: Okay, so all the things you’ve said so far are telling me do not raise money. So you said I value making a profitable company. That’s
important to me that it be profitable. That’s the point. That’s the measure of success is that it’s a self-sustaining, profitable, growing company.

When you raise money, that isn’t the goal. That is explicitly not the goal, and that won’t be the goal for those seven years that you’re talking
about wanting to run this for roughly. I know that’s rough, but still. It won’t be the goal, and it won’t be the kind of company that you’re building. So it’s interesting that the fact that that’s kind of against your nature, which I totally understand by the way and agree with that nature, but that isn’t what the goal will be. So that will be dissonance for you.

The second thing is exit. There is no venture capitalist who wants an exit in which you would only make five or ten million. And the trouble with that is you would be happy with that exit, again, assuming it’s a fair exit of course. But assuming it’s a fair exit, a venture capitalist, and I’m explicitly not saying angel because we could talk about angel and they’re sort of special so that might work out.

But a venture capital, if we’re talking about institutional money, venture capital is not interested in any kind of outcome where that’s all the money you make because it means they wouldn’t have made much money and they’re not interested in that. They’re not signed up for that. And to be fair, when you take their money, you’re not signed up for that either or you shouldn’t be.

I’ve talked to lots of budding entrepreneurs over the years. Most of them want to raise money. Most of them want to build profitable businesses with a tight team that could have a reasonable, human-sized exit. Jason so starkly points out that these goals — VC money and profitable, reasonable-sized businesses — don’t match.

I may have to refer people to this post in the future.