Not to be a stickler, but the series plainly says "'Profitable and proud' is a Signal vs. Noise series that profiles companies that have $1MM+ in revenues, didn’t take VC, and are profitable..."
And here, in just the second post of the series, a company states "taking this investment from John H. Phillips was probably the best decision we ever made. Apart from allowing us to meet payroll for the first year..."
This was originally posted as part of our “Profitable & Proud” series but commenters rightly pointed out that Shopify’s angel investor broke the “no funding” rule that is part of the series. We’ll leave the interview up but we’re removing it from the P&P series. We’re sorry about confusing our readers and Shopify (we are the ones who originally approached them about participating). Thanks to all who pointed out the error and stay tuned for another P&P profile that does fit the bill.
The key is that we want companies for this series that are bootstrapped. Companies that didn't take outside funding to run operations, but either put in their own money or didn't go full-time until they were profitable.
Shopify is still a great story and we're leaving it up. It just didn't fit the narrow criteria of the category we created.
The fact that you couldn't easily tell whether the company fits your criteria shows that your criteria are pretty much meaningless. Is there a reason for all this, besides to glorify your own company, which fits the criteria? "Ideology" is the word that comes to mind. You create arbitrary divisions, and then drum up emotions to make it seem like people on the other side of the imaginary fence are different and unworthy.
Beyond ideology, this series can help entrepreneurs in regions where VCs are highly conservative and bootstrapping is the only way you can even take risky business decisions.
I was thinking the same. Technically, they didn't take VC, they took angel investment. They are different, but I completely agree on your point as I wrote in my comment on SVN blog.
I don't get how they can claim to be a bootstrapped company when they did indeed take angel investment. I would love for someone to shed some insight.
Here's some insight: It's hard to find successful startups that are truly 100% bootstrapped. 37 signals entire purpose for doing these posts will be undermined if they can't find a good number of companies that fit their theoretical profile.
It's not really an angel investment either. Just like a VC, an angel typically hopes to cash out at some point in the future via an acquisition or IPO.
In this case, the investor received common stock. Which means he hopes to generate a return on his investment from his share of the profits.
This is in keeping with 37signals' focus on profitable companies, as opposed to startups which are built to flip.
I usually refer to that distinction as "self-financed" vs. "bootstrapped", where "bootstrapped" implies an alternate revenue stream while building (usually a full-time job or consulting).
37signals, having evolved from a consultancy, is a more classically bootstrapped company.
However, in practice, the lines are often fuzzy with companies using a number of instruments to fuel growth.
It seems like a great idea and if it works in practice, great. It's the sort of idea that could cause bad feelings to fester with the wrong group of people though. [Warning: gross generalizations ahead..] Think what happens when grumpy-but-reliable "server guy" doesn't ever get any bonuses because people don't understand what he does while "pretty girl on reception who buys candy bars for everyone on Thursday" does OK, etc.
Sure. I guess the implementation would be important. The screenshot toward the end of the 37s post suggests that employees have an opportunity to advertise their accomplishments, to which their peers can then respond with fractional portions of their available bonus funds. My guess is that accomplishments that demonstrably move this business forward may get exceedingly large payouts, but that wouldn't preclude server guy or Shopify's 71-year old office manager from getting regular (if smaller) disbursements.
This would be less of an issue with a smaller team like Shopify. As you get bigger you're right, it starts to become a popularity contest. At < 30 employees though, everyone knows who is making real contributions.
I'll let you know soon. We are over 30 people already ( 2 people started since the interview ).
The point of the system is that for a bonus system to work well the people who give the bonuses need to know about the individual people's contributions. From the company perspective, people who are very helpful to other employees are very valuable and Unicorn rewards this. People who finish big and hard projects are obviously valuable to the entire company and Unicorn rewards this. People who may be solid but are grumpy and don't like to show off their accomplishments... well... If they leave over unicorn and end up being replaced with people who do the things that are rewarded by the system then I'm happy with this outcome.
So far it's been a huge surprise to see where the money goes in Unicorn and I'm thrilled with it.
People who may be solid but are grumpy and don't like to show off their accomplishments... well... If they leave over unicorn and end up being replaced with people who do the things that are rewarded by the system then I'm happy with this outcome.
Do you prefer less-talented, extroverted employees over more-talented, introverted ones?
Being a (hopefully) talented introvert myself I definitely don't optimize for that :-)
I don't think it's fair to see our system so black and white. First of all, i'm sure it has problems. Probably many. However, bonus systems all have problems. The traditional top down, performance review style bonus system definitely works best for the extroverts. From what i've seen of unicorn, the people who are most rewarded are the quiet but helpful kinds.
Also, if unicorn helps to get people into the habit of sharing their accomplishments with their friends and coworkers then I think that's worth it all by itself. You have to share your accomplishments. Everyone loves to work with people who do great stuff. But if those people don't tell you about the great stuff they do then you cannot know about it and you cannot partake.
Any chance of sharing some screen shots or code on how one actually awards accomplishments? Is it like a badge system where there are a set number of achievements, or is it something like a "free form" achievement where one states how it can be solved and a way for the system to know when it has been solved? Is it something like: "Fix bug #30 and get $10"? Or is it something like: "Solve 20 bugs in one week and get $10?"
I'm just thinking of doing something similar for my own little shop too...
I described it below. I think your approach would vastly overcomplicate a system like this. It's essentially a freeform money transfer system. You click on a person, you enter an amount and we have a ledger system that moves the money from your bonus budget into someone else's bonus receivables.
Originally we thought we will have to protect against bonus trading but instead we simply trust our employees as we should. If two people start trading bonuses then this may be a fireable offense.
I work at a company with ~30 employees, and I can tell you that you're not always right.
There's certainly a lot of gossip and speculation, but at 30 people there's enough division that it's not automatically obvious that any given person is doing something worthwhile.
But that's exactly the problem with the 'unicorn' idea - the appearance of contributing to the company is more valuable than actually doing it.
In a very small startup, you're not going to be able to fake it - but by the time the company's at 30ish people, it's not so clear cut. Who's the most valuable developer in my employer? I'm not on the dev team, so I don't know. They all seem to be doing great work, but I don't know the details.
Do we credit the sales guy for landing this big contract, or the operations guys that made sure their trial system worked, or the devs who wrote their custom integration?
If you're not involved in that project, it's going to be hard to judge whose contributions deserve what share of the reward.
Basically, it's a neat reward system, but I don't think it scales very well at all.
If it's tough to fake in small groups, why not just split people into groups. For example, only people who work directly with each other can reward them. Obviously that's a little bit of an oversimplification but I don't see why such a split couldn't be made to work.
For example, only people who work directly with each other can reward them.
How would that apply to HR, accounting, or legal? Not usually the most loved members of any company and they're routinely involved in bureaucratic compliancy tasks that are more necessary than appreciated.
If you don't mind, could you share some more about how this works?
I'm curious about the mechanics of such a system, if you've set up rules saying "a bonus is paid out when 51% of the votes agree" (assuming that someone nominates someone for an award and an amount and the rest of the employees vote to approve it or not).
Or is it just that everyone gets 1/Nth of the pie allocated to themselves and can dole out any slice of that 1/N however they like?
* twice a month we determine how much money goes into the system based on how well we are doing
* Money is split evenly amongst all employees and contractors who have been with us for more then 3 months.
* This money can be arbitrarily spend as a bonus on any other colleagues. You can't spend it on yourself and you can't simply take it. It has to be spend on others.
* Once a quarter the bonuses are paid out through payroll.
* As you can see in the screenshot, everyone can show their accomplishments. This looks a lot like http://dribbble.com/ . This serves as inspiration if someone doesn't know who deserves a bonus. Once an accomplishment is posted it will also be cross posted into our company Campfire.
Glad to see your from Ottawa. I am a masters student at Carleton's TIM program. Are you guys involved with the Ottawa startup scene? I am curious if there are any meetups/events/websites you can recommend.
Lot's of people form Shopify show up for the regular startup drinks events.
By the way, we love the Tony's Tim program. We hired 2 people directly from there. You should track our careers page and apply for some coop positions when they come up :-)
sigh
These types of companies sound like amazing places to work.
At the same time, it is somewhat depressing because they don't seem to hire non-programmers. I'd love to work in an environment like this, but do any of these awesome companies hire 30-year old MBA grads who are technical but don't program?!
Absolutely. The single most important ceo/cto person in a tech company like ours would be an analytical marketing VP. Now, programming would help but being technical and having an MBA lends itself to transitioning into this track. I've heard of many places where amazing Analytical VP of Marketings make more then the CEO.
Personally, it means that I have programmed in a prior life, understand web programming (rails, javascript, et al), can talk intelligently about technologies, but don't want to actually program for a living.
EDIT: Another important point - understanding the business implications of technologies. A lot of people understand the business side, or understand the technical side, but few really understand how they fit together, and how their relationship truly impacts a company.
Almost from day one. This has probably changed now but don't forget, Shopify is one of the biggest Ruby on Rails sites on the web and I've been part of the Rails Core team since it's inception (until recently).
Rails stood for something new, it was a paradigm shift of sorts. That's what every VC in the world looks for.
The VCs who correctly predict which technologies fuel innovations always do very well. See Peter Fenton of Benchmark to illustrate the point at hand.
It's worth noting that Shopify totally reevaluated their model and changed not only their prices, but what they charge their customers for, well after launching and becoming quite popular.
I think the how and why of that decision and process would be really interesting to HN readers trying to put a price on their own product(s).
Oh boy. Changing our business model was one of the worst days of my life. I recently relived that day when I saw the ZenDesk thing unfold. Luckily we had grandfathered all our customers when we did the big switch. The problem was that our old system was setup so that Shopify was very cheap for people who weren't successful and became quickly expensive for people who actually sold a lot of product. Everyone who expected to setup a 1M revenue store ( e.g. everyone ) picked up a calculator and realized that.
Once we changed to more of a subscription model for our pricing we ended up getting a lot more customers who build successful businesses. Even though in reality our product became somewhat more expensive overall.
Humorous to see a HN front page article bash Yahoo Stores. (IIRC, PG’s well-known essay on why he loves Lisp talks a lot about building what would become Yahoo Stores.)
One of the reasons for Shopify's initial popularity was their plan that only charged a transaction fee. No setup or monthly fees. They quickly abandoned that and now all programs have a monthly fee.
And here, in just the second post of the series, a company states "taking this investment from John H. Phillips was probably the best decision we ever made. Apart from allowing us to meet payroll for the first year..."
That's not exactly "didn't take VC".