Why We Choose Profit
People ask us why all the time. Why choose profit?
Capital Thinking • Issue #109 • View online
Jason Freid is kinda of a hero of sorts - at least, to me. In a world of techies determined to “change the world” and who live by “growth at any cost”, he’s been unwavering in his support for common sense.
He wrote a short piece for his blog late last year and I keep wanting to show it to you and talk about it, but really, it’s something you need to read for yourself.
I included both the link to the post in Medium and the complete text for those who don’t like to work for it. :-)
Don’t worry, it’s not long at all.
There’s also a link to his latest book coming out later this year - take a look and tell me this all sounds good to you:
It Doesn’t Have To Be Crazy at Work
Jason Fried
We’re outspoken about running a profitable company in an industry that so often eschews profits for potential.
So why?
People ask us why all the time. Why choose profit?
So I thought I’d detail some of the reasons why we designed Basecamp, our company, to be profitable as quickly and consistently as possible. And 17 years into it, we’ve been profitable for 17 years straight. Being profitable is a feature of our company (companies are products too).
To set some context, since we launched the company in 1999, our revenues have grown every year (2016 being our best year yet), and for years we’ve been generating millions in annual profits. We currently have just 51 people at the company (the most people we’ve ever had).
Reasons, in no particular order. A non-comprehensive list, but a complete-enough one:
No one ever went broke taking a profit.
Unlike companies that reinvest all or most of the money back into the company every year, we take money (profit) out every year in the form of distributions (we’re an LLC). This means every year we take risk out of the company.
Companies that keep reinvesting keep adding risk to their companies. If the shit hits the fan one day, and the company ceases to exist, we’ll have enjoyed the upside as we went, vs. never if all the reinvestment didn’t lead to an outcome which is greater than the annual distributions.
And since most companies die smaller than they were at their peak, the chance the unrealized future will be better than the certain now is slim. Basically, we work to enjoy the now we have, not the future we don’t.
Fuck deferred living.
Profit buys you time and flexibility. Profit is the ultimate flexibility because it buys you the ultimate luxury: time.
As long as you remain profitable, you can go in any direction you want and take as much time as you need. But if you can’t generate enough of your own cash through operations, and you have to go outside to borrow or sell off pieces of your company to generate the cash you need to continue, then the ones you owe are the ones who own your time.
If someone else owns your time, you aren’t free. And if you aren’t free, you can’t be flexible. We value flexibility above almost anything else.
Profit is true vertical integration.
Cash is an unusually special raw material because you can transform it into anything (cash is basically like a stem cell). And when you make your own, you can use it any way you want, no strings attached.
You can take it all home. You can give it all to your employees. You can put it back into the business. You can do stupid shit with it since it’s your shit.
But when you have to source raw materials from a very limited number of suppliers (investors), the money comes with all sorts of strings attached. Money with strings attached isn’t really yours, it’s someone else’s property that you’re renting on their terms. We prefer to own.
We don’t care about valuation.
If generating revenue can hurt your valuation, making a profit can have an even more deleterious effect. But we couldn’t give a shit. We don’t know what we’re worth and we don’t care.
The fewer things you have to worry about that don’t affect your day to day, your customer’s experience, and the actual operating of your business, the more energy you can put into the business itself.
We spend zero hours a year on valuation and fake-number nonsense.
I’ve seen far too many founders spend countless hours pitching for money, marking up term sheets with lawyers, fixating on cap tables, sweating over other people’s make-or-break decisions, etc.
Fuck all that.
What an enormous waste of time and energy.
Profit is the ultimate shield against bullshit.
When you’re profitable you don’t have to play games, succumb to substitutional metrics, cross your fingers, or grovel for other people’s money, validation, or acceptance.
You simply make more money than you spend — and run a fundamentally sound, economics 101 business. When profit’s a requirement, it becomes a lot harder to step in the bullshit.
Profit protects you from your ego.
One of the easiest things to do in business is get ahead of yourself. To feel so grand! To be obsessed with growth and potential and “if only…”
To hire too many people, to take on too much rent, to do one too many things, to complicate your business by tying strings around your money. The list goes on. But when you set out to be a profitable company, you watch your costs.
You don’t hire that extra person if you can’t afford them. You don’t get into an office space that’s too big for you. You don’t sign a long-term lease that you can’t afford. You don’t sink a pile of money into things just because you can, you consider your spends more carefully.
There’s nothing easier than spending other people’s money — and that should concern you. When you’re running on your money, and you want to make sure you have some left at the end of the year, you spend it wisely. You build good, responsible habits this way.
Profit creates reasonable borders and boundaries, and that’s a very healthy thing — especially early on.
All we owe is our best effort.
When you’re profitable and debt free, you don’t owe anyone anything other than your best efforts.
And who do we owe that to?
Ourselves and our customers. The peace of mind, clarity, and calm that comes with that is immeasurable.
$1 in profit is the ultimate FU money.
I typically don’t like the term “fuck you money” — it’s so in-your-face ugly — but I’m going to use it to make a point.
Typically when people talk about FU money, they think about millions. Once you have millions you have FU money. Well, actually, all you need is $1 in annual profit.
Because once your company is self-sustaining and profitable, and you don’t owe anyone anything (in my book, if you owe money you aren’t truly profitable), then you can say FU to just about anything.
You don’t need to do anything you don’t want to do when you don’t have to rely on anyone else to be sustainable. You don’t have to dance on anyone else’s stage, or play by anyone else’s rules.
FU money isn’t about buying an island, it’s about being an island — your own sustainable entity.
Profits provide insulation.
When tastes change, when trends shift, when the markets flutter, funding freezes up. That happens whether your particular business is unaffected or not.
And you might well be caught out in the cold and freeze to death.
Remember 2008? 2009? The nuclear winters of funding?
Those were some of our best years! Profits insulated us from jittery investors, and our customers still kept paying for Basecamp.
Profits are just simpler.
We’re still an LLC at Basecamp. The simplest pass-through structure you can have at our size. That means fewer lawyers, fewer accountants, less paperwork, less hoop-jumping.
Our books are so silly simple, our operating agreement hasn’t changed in a decade. Keeping your corporate structure this lean means making time for much more interesting things, like building a better product.
Having all of the company focused on either making a better product or supporting a better product.
There’s no CFO at Basecamp. There’s no accounting department. Our amazing office manager Andrea can handle all that in concert with Ann, our accountant of 17 years.
Profits focus the mind.
There are so many things we could do as a company, but far less that really constitute the essence of why we’re here.
Profits helps us concentrate on what to do and what not to do. It helps us shed things beyond the scope,it helps us keep the company fit, without accumulated layers of fat from chasing a thousand potential directions at once.
Profits have gotten a bad rep.
They’ve gotten maligned together with “creating shareholder value”. Could there be a more uninspiring mission for a business?
So it’s no wonder that profits have gotten a bad rep, but it’s unwarranted and disproportionate. Profits should sue for slander!
Having a profitable business doesn’t mean squeezing the lemon for every last bitter drop. It isn’t all or nothing.
You can be profitable and generous. Profitable and fair. Profitable and kind. These aren’t opposite ends of some moral spectrum.
Quite the contrary.
It’s EASIER to be generous when you’re doing well. It’s EASIER to be fair when there’s enough. It’s easier to be kind when it’s not tipping you over the edge.