This article by @Pirijan (welcome!) of kinopio.club very much resonated with me:
Some excerpts (but the full article is well worth a read):
Interesting, cool, and nice-to-use tools and platforms come out all the time. But it’s annoying to invest the time in learning and relying on something new only for it to get acquired and sunset, or become crappy in the pursuit of growth-at-all-costs.
I’ve experienced this first hand with two of the projects I’ve worked for (Papers 3 and Citavi) and it still hurts. I’m convinced that both of these apps would still thrive if they weren’t acquired and effectively sunset.
Still, it would be interesting to hear about a case where taking VC funding didn’t eventually ruin the software or alter its goals/focus/ideals to such an extend that it became essentially a different kind of software (usually not for the better).
I’ve found that the best way to predict whether software is made to die is to look at how it’s funded. What’s the company’s business model? How will they make money?
This.
Also, Pirijan proposes a business model which he calls “organic software”:
So maybe we should have ‘organic’ software as well, made by companies that:
Are not funded in such a way where the primary obligation of the company is to chase funding rounds or get acquired (so bootstrapping, crowdfunding, grants, and angel investment are okay)
Have a clear pricing page
Disclose their sources of funding and sources of revenue
And, if you are making organic software, please proudly tell the world because we want to know you’re making something we can rely on.
There’s too many examples to count of venture capital allowing companies to be built that would have never had the money to build up the infrastructure in place for their product to eventually succeed. (See https://www.acquired.fm for an awesome podcast which includes many examples)
VC itself isn’t the problem. It’s a lack of vision of the purpose for the money. If a founder goes into their startup thinking, “We’ll make everything free, figure out what we’re building, and then start charging” the product can change in ways that original users will dislike or destroy the actual value add of the product.
Similarly, using it as a means of “getting more done, faster” can go wrong very easily. Suddenly you have more designers and developers and so they need “more work” to be utilizing the money effectively. So a founder can decide this means expanding into other corollary markets before the core product has found its product fit or hold on customers.
These are just a few examples.
The problem is that many founders think their idea is a unicorn and VCs are always looking for the big payouts.
All that being said, I largely agree with the sentiment that we should normalize success as a metric meaning sustainable, not likely to make you a billionaire. And it’s absolutely a shame that you have to evaluate a product not solely on it’s merits but on whether you believe it will still be here in 2 years.
This resonates a lot with what David Heinemeier is usually harping about --although Basecamp took some capital from Mr. Bezos himself on its day.
I do not dare to judge, from the founders perspective, one approach is better than the other but as customers we need to be aware of the fact that VC will certainly change gears looking for growth, the more explosive the better. Also, one can guess there are different types of investors, some more aggresive than others.
Subscriptions are a recent alternative to seeking VC money but still establish a sustainable business model.
With the high level of competition that exists in Mac software now, where it seems like every feature is explored and offered by someone, and where the best ideas are often Sherlocked by Apple itself, it has become nearly impossible for a developer or small team to sustain themselves simply by charging for upgrades to a cool little app.
I think you’ve identified 2 other key incentives in the market that can effect pricing which are interesting, and relevant, but not exactly what this thread was originally about.
You’ve described sherlocking by Apple, which I don’t really consider an issue (in many cases those businesses have found power workflows in addition which allows them to remain successful or at least relevant). But, I do think Apple has had a part to play in the abundance of software subscriptions. The lack of a paid upgrade path on iOS/iPadOS + recurring in app purchases added practically guaranteed subscriptions to become the new thing.
Again, I think you’re close on “charging for upgrades to a cool little app.” As software as a market has matured, the expectations of baseline capacity of software has shifted. It’s no longer ‘worth paying for’ a single purpose utility that only works on one OS. It’s got to work at least across all Apple devices, ideally all OSes. This sets the requirements of work way higher for consumer software. (I think this standard was always around at Enterprise/B2B level and they charged a premium for it and still do)
A third aspect of consumer demands which influences market incentives is that it seems like all businesses apply the psychology of a single subscription to their business. Sure! It totally is easier to swallow $10/month as opposed to a $120/year cycle of upgrades. But not when you have 14 of those across 12 different app categories.
Small nitpick, but 37Signals didn’t take on any capital. Jason and David sold some personal shares to Jeff Bezos. By contract he isn’t allowed anything but his annual dividend from profits.
It’s refreshing to see that there are investment firms focussing on small seeds and which value survival more than growth. But many indie software projects are likely way to small for them to be interesting. And I guess this even more so applies to classic VC funding.
Yes, that’s true, and that kinda saddens me.
If you don’t have the money to bootstrap your project during the initial development phase, it’s hard to reach a point of feature completeness & stability that is required for the product to generate enough money by itself. And money (and thus the availability of man power / time for development) also greatly affects the product’s time to market – with all of its consequences.
I’ve been mulling over the idea of software development with a farming sort of attitude as well. I feel like there are many types of “organic” software available already and have been for a while. Maybe it just feels as though the recognition of that sort of business has diminished between VC funding and subscriptions?
Like agriculture, sustainable software development models are going to have to be addressed and formulated, I suppose.
I got an email yesterday from Reflect Notes (MPU thread) that they’re doing a community round of fundraising. Goal is to do nothing more than pay a dividend. It’s an interesting approach to what I assume is the problem of ‘only’ having 1.5k paying customers to fund development, and wanting to avoid needing to make the product fit a market of the size demanded by VC funds and board members.
Sharing this link for the detail it provides, not to invite investment.
Direct link to SEC filings (some interesting numbers):
I’ve really enjoyed this thread. I’m reminded of great note-taking apps (an area of software development I’m particular passionate about): iA Writer, Obsidian, and Ulysses seem to have each found their pathways to finding that values their customers over their investors.
I’m also reminded of 1Password, which increasingly feels like it’s getting away from what I loved and becoming something else. That’s ok! Things change with time. (I once swore by Byword too.)
Thank you! And I’m super humbled organic software has provoked so much interesting discussion here and elsewhere.
Some thoughts while reading this thread, and while marinating on this post for a while:
In my experience there’s a bit of a chicken and egg situation going on here. The typical VC model is based on making big $$ returns by investing in many failures to get 10x-20x successes. Because of this, VCs only really want to fund moonshots and unicorns – which in turn encourages founders to turn what should be regular-sized companies/products into funding-addicted titanic-s .
As a result I’m not surprised that most new software comes out for the web first or only. As a developer/business it’s also extremely high risk to build something new and novel for iOS with the ever present risk that months or years of work could be made worthless in a flash because an app reviewer had a bad day. I build kinopio.club for the web, with a lot of effort, from the root-design on up, spent to make it work on ios/touch devices), but it’s definitely an ongoing challenge to squeeze out the performance and quality that I’d like.
Fun related fact: Kinopio weighs < 300kb , I could deliver it to you on a double density floppy disk (https://twitter.com/pketh/status/1530549451881857024). That web apps are too often fat and sluggish is more about the care in which they’re made than because of the platform IMO
This has been my experience looking into this as well. Most funds like this (earnest capital, etc.) only invest in companies that are already successful/sustainable, which defeats many of the reasons for needing funding in the first place.
This bums me out too, the idea that doing what’s often the best, or most ethical, thing for your product and it’s customers is an option that’s only available to some people. I think that as a civilization/species the quality of our funding instruments is directly correlated to the quality of the software we use.
+1 , I certainly feel that way. Recognition/visibility is such an uphill battle
I got an email yesterday from Reflect Notes (MPU thread) 4 that they’re doing a community round of fundraising. Goal is to do nothing more than pay a dividend.
I rarely see this but I love this model (the other time that sticks in my mind was: We are now letting anyone invest in Are.na. Here's why. — Are.na). It’s something I want to explore more in the future. (but it’s a little weird for me as a Canadian, because I think only American businesses are legally allowed do this?)
My understanding is that this isn’t like a kickstarter, oftentimes the founder has already talked to a bunch of professional investors/angels who’d like to invest and they help set the equity terms and invest an outside amount as well. That said, I’m pretty optimistic about the relative transparency and openness of this kind of funding process.
Briefly reflecting on my original post,
Running a consumer software business is really hard. As a developer, I totally understand why someone would take funding. It’s often the only way to survive, and the decision at the time isn’t “do I want to be rich”, so much as it is “do I want to even be able to make this software”.
I’m bootstrapped and it’s extremely stressful to have to worry about money on a daily basis. It’s an especially stupid feeling because I suffer through this knowing that I’m choosing to do so, and that maybe if I was actually smart I’d decide to get a really high paying dev/design job like I used to have instead.
I can see how it’d be very comforting for a founder to be able to say “I’ve got plenty of money today so I’ve got a tomorrow to figure out the rest”…
pursuit of growth-at-all-costs.
.