All posts filed under “Entrepreneurial

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First day+ with the iPhone

So I’ve had my new iPhone for about a day now. Upgrading to this from a Motorola RAZR is like skipping two generations of evolution… wow. The display alone is so crisp, sharp and readable that it makes it a treat to use.3Giphone.jpg

The problems I’ve had so far definitely relate to battery life. Partly because it was my first day I’ve been using it a lot and the battery got low really quickly. But part of it was being in a mix of 2G, 3G and WiFi connections. At home I’ve got a solid 2G and WiFi connection (at least when the wireless router isn’t playing up), at work I’ve got a solid 3G and average WiFi connection. Walking around London I’ve got a great 3G connection and no WiFi, and on the Tube there’s crap for anything.

What I really NEED RIGHT NOW is someone to write an application that will allow me to quickly switch between power use settings. As I leave in the morning I’ll use 3G to download NYTimes stories, switch everything off to get on the Tube, and switch certain bits on at the office. If this could be combined with push e-mail settings (which are great when I’m not in the office, but are unnecessary in the office) it would be IDEAL.

Luckily, because of the Application Store, this is quite likely to be developed in the near term! Anyone volunteering?

Overall, it’s a fantastic phone. I really look forward to getting more adept to it in the coming days/weeks.

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Career advice when leaving the military – a potential lifeline

I recently traded some interesting e-mails with Charlie O’Donnell, the Founder/CEO of Path101. If you haven’t heard of them now, I wouldn’t be surprised as they’re still very much in their development phase. But I think in the coming few years you certainly will have heard of and experimented with their website.

Path101 aims to build “a place for career discovery – a site where you can learn about all sorts of different career paths.” This is more than a networking site, more than an educational site, more than a recruitment site, and in fact manages to combine all of these to help people make wise decisions about their professional future. (At least, that’s what I understand they’re trying to do.)

If you’re reading this, you likely know that I spent six years in the US Navy as a submarine officer. (The examples I use below are very Navy submarine specific… my apologies to the Army/Marine Corps/Air Force folks out there.) This site could be very powerful for ex-military members, and put them on a path for a very successful post-military career. Here are some of the issues that military people have entering the wider job market:

  • You develop a great network in the military. It can be extremely powerful, but for most people it is very informal.
  • “Military experience” is way too broad. To adequately figure out what someone’s training is best suited for, you need to drill down to their designator/rating/rank.
  • Military members have excellent training and a great work ethic, but that’s very hard to translate into civilian terms.
  • The military is typically the only real professional experience ex-military members have when entering the job market.

After that email conversation, I started thinking about those issues, and how a site like Path101 could solve them. The more I thought about it, the more excited I became, largely because it could finally put some data-driven specifics behind what is commonly a very informal process. Here are some of my thoughts:

How a site like Path101 could help the military-to-civilian transition

First of all,

it could help formalise your network!! This is one of my biggest regrets in my military career. In the military, everyone is moving all the time and in the last few years I’ve already lost track of a number of great people I served with. Everyone in the military should use LinkedIn (or similar variant, though I don’t know of a better one) to keep in contact with friends, shipmates, supervisors, etc. Virtually no one does this now, and that’s really too bad. Most ex-military people I know would bend over backwards to help out someone they served with or a friend of someone they served with… you form lifetime bonds in the military. (See this post as an example.)

Fundamentally, you never know when you’re going to leave the military. To have a successful career, you need to constantly network. In this sense “networking” doesn’t mean kissing ass to get people to like you, it just means keeping track of people that you want to stay in touch with in your career. Already there are military groups on LinkedIn, such as (for me) the Gold Dolphins group and blog, to help take advantage of these relationships.

Secondly,

it could help show military members what they can specifically do based on their experience. Path101 is building what they call the “Resume Genome Project” which aims to take millions of resumes/c.v.’s to help you figure out what people with your background have done with their careers. Eventually this tool could be very powerful for military members looking to transition to the civilian world. If the resumes of other ex-military members were coded with the correct designators/rates/etc., you could see exactly what every ex-submarine officer did in their career after leaving as a JO, after leaving as a DH, after leaving as an CO/XO, etc. Nuclear Machinist Mates could see where all MM(N)’s went after they left the Navy. A Marine Corps MOS 0369 could take a look at where his training and education has fit best for others that have left the Corps.

This information could be invaluable to people leaving the military. I would predict that many submarine officers go to business school or law school, a lot of aviators go become corporate pilots, and submarine supply officers become international arms dealers. (Only slightly kidding on that last one!) But smart people are data-driven, and it would be VERY interesting to see the results of a Resume Genome Project for the military. The military tends to be very insular, and if people are only familiar with what their immediate friends and colleagues do after they leave the military, they may be missing out on a wealth of opportunities available for people with their training and background.

Finally,

Path101 could serve as an excellent knowledgeable and unbiased career advisor. For the vast majority of people leaving the military, it’s the only real professional experience they’ve ever had. Going back to university career advisors (for those people whom that’s even possible) is useless because they have no idea of what to do with military experience. While the military does provide transition assistance, having a source of unbiased advice would be extremely useful. People could use forums to help each other explain their military experience in civilian terms, teach people about unusual jobs/industries that come up in the Resume Genome Project, and more.

I personally believe that the military career advisors suffer from a lack of quality data, and thus tend to funnel people into the kinds of careers that are easy to funnel people into. Certain employers historically hire ex-military at much higher rates than other employers. (To me, that smells like untapped potential for a lot of employers.) If you have quality information on what people with your military background have done once they’ve gotten out and had a chance to connect with them and learn more about different opportunities, the career choices people make could potentially be very different.

Summary

The military is an amazing, life-changing experience for virtually everyone. It is a great career opportunity, but it can be difficult when transitioning back to the civilian world. I think Path101 could grow to be a great resource for military members as they look to leave the service. Having data and opportunities at their fingertips will allow them to make more informed and better decisions about their future. I really look forward to what Charlie and his team are building.

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37signals is one hell of a profitable business

[UPDATE]: Based on a number of comments below, via e-mail, and through additional research I’ve updated my original estimates.  I think 37signals had revenue of ~$4million in 2007 and ~$8million in 2008.  Please read my new post for details and to download the updated spreadsheet to play with the model on your own.

Inspired by a recent post on 37signals’ Signal vs. Noise blog, I decided to play around and see if I could try and figure out exactly how much money they’re making. Though my analysis is crude (as they obviously won’t release key figures), I think I’ve got a pretty decent handle on their turnover. Based on my calculations, they made around $3.5 million in 2007 alone, and look to make over $5 million in 2008.

So how did I come to this? Let’s dig a little deeper…

Data

37signals clearly doesn’t talk about specific numbers much at all. They’re private and close-held, so there’s no reason to. That said, they have provided some numbers in three key posts that I’ve seen:

What’s making money and how much had some initial discussion and a datapoint for number of Basecamp projects.
Ask 37signals: Numbers had key data for all of the different products.
The New Backpack’s first 24 hours provided a few new numbers on Backpack.

To complete the analysis I took pricing data from the various pricing pages and other data from the overall 37signals website(s).

General Model

There were a few different ways that I could have modeled 37signals’ revenue. I decided to look at the data the same way that 37signals charges for their products: month-to-month. Each month, a certain number of people sign up for accounts. A large majority of these are free accounts, so the use of these accounts are limited. (And some people will just register and try them out, never to return.) A slice of these accounts will be (or will turn into) paying customers.

Each subsequent month, a new group of accounts are registered. However, this time a certain number of accounts are carried over (except for those that cancel the service), and these are added to the new paying accounts for that month.

What 37signals provided in their “Ask 37signals: Numbers” post was not the number of accounts, but instead they posted:

  • Basecamp: # of projects
  • Backpack: # of pages
  • Campfire: # of rooms
  • Highrise: # of contacts

They posted more information, but I decided that I would try to create a model that would match these datapoints.

Essentially I use this model with assumptions on how each pay and free account generate new projects/pages/etc., play with the numbers within general assumptions of growth and ratio of free/pay accounts, match the data provided, then calculate monthly revenue based off an assumed revenue per pay account times the number of current pay accounts. Simple!

General assumptions

I had to make some assumptions to use the model above:

  • Only 1-3% of new accounts are pay accounts
  • Each free account creates a certain # of projects, rooms, pages, etc. over the lifetime of the account
  • Each pay account creates a certain # of projects, rooms, pages, etc. per month while a pay account
  • Between 1-10% of pay customers cancel their service each month
  • The growth of people registering for new accounts has been growing steadily since each service launched

More on each application

Basecamp

Basecamp is clearly the main revenue generator for 37signals. It’s been going the longest, and so has built up a good number of pay accounts and people who really value the service. I estimate that at the beginning of 2008, 37signals is making nearly $300k per month from about 5k pay accounts.

Backpack

Backpack is the second oldest application for 37signals, and with the recent changes to make it multi-user, I think this is really set for a lot of growth in 2008. Up until now, I estimate that 37signals is making about $35k per month from about 2300 pay accounts.

Campfire

Campfire was released in early 2006. This is a hard product to estimate, but based on my (rather wild-ass) guesses, I believe they are making about $9k per month from 600 pay accounts.

Highrise

Highrise is the new kid on the block, and competes with more sophisticated CRM software. (I’m sure Jason and Co. would describe their competition as needlessly complicated CRM software.) I estimate that over the past year Highrise has grown to contribute $30k per month to 37signals from 1100 pay accounts.

Other streams

37signals doesn’t just make money from their web applications. There are three other streams that should be taken into account:

  • Job Board (and Gig Board)
  • The Deck
  • Getting Real book sales

Since each Job Board ad runs for 30 days and costs $300, I just counted the number of current advertisements to guess their revenue. From this alone it looks like 37signals is making nearly $40k per month! The Gig Board adds to that, but it looks to be negligible. Please note the sampling error… to make a more accurate measurement I would need to count the number of ads every “x” many days and average them all out. My version is quick and should at least be in the right ballpark.

The Deck is an advertising network that runs on the 37signals blog. I calculated the total revenue for the Deck based on the cost of an ad and the number of advertisers, divided by the number of blogs on which Deck ads appear, and added in a factor that represents a somewhat larger share of the revenue for 37signals since it’s one of the most prominent blogs in the network. Based on all of this, I estimate that they earn about $6k per month from The Deck.

Finally, they have certainly made some money from selling copies of Getting Real. 30k copies of the PDF version sold for about $19 each, and the book version sells for $25. I estimate that they earn about $10k per month from these sales (PDF and hard copies).

Grand Total

All together, I believe 37signals currently generates revenue of approximately $400k per month from a diverse stream of applications and other revenue sources. If this continues, they are on track for yearly revenues of almost $5 million. This makes them incredibly profitable. They have 9 employees, plus some other help from time to time (it appears.) Jason Fried and DHH (and Jeff Bezos) must be doing quite well.

Think I’m full of s**t?

Well, I don’t blame you. To quote a great Radiohead song, I might be wrong. This analysis is a bit crude because of a lack of data. You may have very different assumptions that you would use in this analysis would could dramatically change the figures here. My growth model might be quite a way off.

Here’s the Excel file I used to calculate everything; try it out for yourself.

Right-click this link to download the 37signalsRevenueModel.xls

Just plug the assumptions into the relevant boxes and see how the figures line up for you.

Summary and why?

Let me make it clear that I’m both a big fan of 37signals and a user of their applications. I did this partly for my own edification and partly to better understand the industry of SaaS. (I’m working on an app of my own, but since I’m not a professional developer it’s taking quite me a while.)

Clearly 37signals has be incredibly successful, and I’m very happy for them. They clearly give back, through Ruby on Rails, thoughtful blogging, etc. And if they’re making $5 million a year, it’s no wonder why Jeff Bezos wanted to invest!

That said, 37signals clearly laid out in Getting Real that “Outside money is plan B.” With revenues of $3-5million and a small team, that fits completely with Furqan’s thoughts on early-stage venture capital funding. They could probably scale their apps a lot larger, but by maintaining a clear and consistent focus, they’re able to do what they do best and keep their quality and craftsmanship at the highest levels.