David argued that just because they had a home run in one niche, it didn't mean that they will have success in another niche.
I disagree. The brilliance of Stack Overflow (SO) is that they've come up with a product that takes flows with how the internet works.
People type questions into search engines constantly. And, Google gives a high page rank to sites that provide frequently updated, quality content on a specific topic. Stack Overflow has nailed that, and because of that, a large percentage of their search traffic is organic. Stack overflow, has also solved a big problem that Yahoo answers has, which is reputation and trust.
I'm guessing the reason that they are interested in rapidly expanding SO to other markets, is Joel sees that this is how the internet currently works and SO has a 6-9 month lead on them in terms of technology and answer site savvy. It's a good time to exploit that, in my opinion.
David also suggests via straw man argumentation that people typing questions like "How to make swedish meatballs" isn't a market worth chasing. You'd have to ask the people at the Food Network that. Joel might be interested in licensing a "Food Overflow" to the Food Network's set of web sites. Or, perhaps he would be interested in setting up a "Home Repair Overflow" for Home Depot. Or, a "Car Repair Overflow" to Napa Auto Parts. Speaking of which, my 2003 caravan is acting up, and I'd kill for a "Car Repair Overflow".
2. Stack Overflow is like Starbucks
Just because David can't see a reason for Stack Overflow to spend money doesn't mean that Joel cant. SO has grown from zero to 6 million monthly unique visitors in 18 months with a staff of 6 people. I'm guessing that Joel is interested in adding dozens or hundreds of niche specific SO sites. And, yes, if he is going to chase that option, then he needs a lot of capital to hire.
3. Stack Overflow wants to get on Techcrunch
Ummm. No. Read Joel's post. That's not what Joel said. Again, another straw man by David. Joel said that he was interested in publicity. Publicity != Tech Crunch. Publicity can also mean attention from old media outlets like television shows, and newspapers. And, answers site benefit particularly well from media attention and publicity. One of the big reasons that SO was a success was because Jeff and Joel's blogs were so popular. If SO can get some media attention in other markets, I'd wager could see explosive growth for other verticals as well.
David dispariaged expanding SO to other niches by suggesting that SO was going after kids interested in how to find 3 gold rings in Zelda. I'm guessing that Joel is more interested in the consumer that asks "How do I change the alternator on my 2003 Dodge Caravan". Someone asking that question ooking for advice on changing an alternator in a 2003 Caravan, is going to be in the market to purchase that alternator. Advertisers pay a premium to reach people at that point in the sales funnel.
4. The investor will give you advice, connections, and introductions
David has the balls to give Joel hell for raising money in order to get advice? 37 Signals took money from Bezos to "get his advice". I'm just flat out calling bull shit on that one. I'm really sick of 37 Signals guys talking out of both sides of their mouths about this subject. They really have no room to talk on this one.
And, yes, investors often do have connections that young entrepreneurs can use. I have a number of friends in funded startups that have gotten introductions to airline executives, banking executives, CFO's of large consumer product companies because they found investors that had experience in those industries. It might not be an issue for 37 Signals, because they are sell ebooks, chat and TODO lists to Rails Developers, but if your business has anything to do with medium to large businesses, then the introductions come in really handy.
5. Taking money means big exit or IPO
"I don't know if you heard, but IPO markets aren't all that interested in eyeball companies without the numbers to back them up". Fog Creek makes $1 million a year on a job board that he advertises on his blog. 37 Signals also makes a bunch of money off their job board. There are more ways to monetize eyeballs than just advertising. SO is already doing that.
And, Silicon Valley is full of people that have made a bunch of money off of big exits or IPO's. Have you looked at the real estate market in the area? One of the reasons that it's so high, is because Google's first 1000 employees were all millionaires. Yahoo, Ebay, HP, Intel, Cisco, Sun, Oracle... Living here, you're surrounded by people that have made a killing off of options. Living in Chicago, you'd never see that, so I can see where David's myopia comes from.
The IPO market isn't over, and the merger and acquisition market is warming up. The last 10 years of financial and real estate hubris are collapsing before our eyes, and investors are going to be looking for places to make big returns again. It's just a matter of time before companies like Facebook, Yelp or Twitter IPO, and I'd be wiling things in the tech world will begin to look a lot different. Also, there's a bunch of companies in the economy that laid off a lot of people and they are now sitting on tons of cash. Those companies are going to be interested in growing, and acquisitions are a very nice way to do that.
A founders chances of getting a large company to look at her startup as a potential acquisition are better if they have already been valued at $10 million post money, than if it's 4 guys in their garage with a website. There's a reason that Del.icio.us took investment before they got picked up by Yahoo.
6. Taking VC will make your company successful
Joel said that taking VC makes sense if it meant you could grow the company and the founder wasn't interested in self aggrandizement. Joel has written a number of times that one of the problems that he saw with a self funded company, is that his employees don't have a huge upside potential. Upside can be shared with employees via options and an IPO. A quick acquisition for $6 million based on 3x annual revenues... not so much to share with employees.
I don't get the impression that Joel is doing this because he wants the money personally.
1. The Answers market is in a land grab mode
David argued that just because they had a home run in one niche, it didn't mean that they will have success in another niche.
I disagree. The brilliance of Stack Overflow (SO) is that they've come up with a product that takes flows with how the internet works. People type questions into search engines constantly. And, Google gives a high page rank to sites that provide frequently updated, quality content on a specific topic. Stack Overflow has nailed that, and because of that, a large percentage of their search traffic is organic. Stack overflow, has also solved a big problem that Yahoo answers has, which is reputation and trust.
I'm guessing the reason that they are interested in rapidly expanding SO to other markets, is Joel sees that this is how the internet currently works and SO has a 6-9 month lead on them in terms of technology and answer site savvy. It's a good time to exploit that, in my opinion.
David also suggests via straw man argumentation that people typing questions like "How to make swedish meatballs" isn't a market worth chasing. You'd have to ask the people at the Food Network that. Joel might be interested in licensing a "Food Overflow" to the Food Network's set of web sites. Or, perhaps he would be interested in setting up a "Home Repair Overflow" for Home Depot. Or, a "Car Repair Overflow" to Napa Auto Parts. Speaking of which, my 2003 caravan is acting up, and I'd kill for a "Car Repair Overflow".
2. Stack Overflow is like Starbucks
Just because David can't see a reason for Stack Overflow to spend money doesn't mean that Joel cant. SO has grown from zero to 6 million monthly unique visitors in 18 months with a staff of 6 people. I'm guessing that Joel is interested in adding dozens or hundreds of niche specific SO sites. And, yes, if he is going to chase that option, then he needs a lot of capital to hire.
3. Stack Overflow wants to get on Techcrunch
Ummm. No. Read Joel's post. That's not what Joel said. Again, another straw man by David. Joel said that he was interested in publicity. Publicity != Tech Crunch. Publicity can also mean attention from old media outlets like television shows, and newspapers. And, answers site benefit particularly well from media attention and publicity. One of the big reasons that SO was a success was because Jeff and Joel's blogs were so popular. If SO can get some media attention in other markets, I'd wager could see explosive growth for other verticals as well.
David dispariaged expanding SO to other niches by suggesting that SO was going after kids interested in how to find 3 gold rings in Zelda. I'm guessing that Joel is more interested in the consumer that asks "How do I change the alternator on my 2003 Dodge Caravan". Someone asking that question ooking for advice on changing an alternator in a 2003 Caravan, is going to be in the market to purchase that alternator. Advertisers pay a premium to reach people at that point in the sales funnel.
4. The investor will give you advice, connections, and introductions
David has the balls to give Joel hell for raising money in order to get advice? 37 Signals took money from Bezos to "get his advice". I'm just flat out calling bull shit on that one. I'm really sick of 37 Signals guys talking out of both sides of their mouths about this subject. They really have no room to talk on this one.
And, yes, investors often do have connections that young entrepreneurs can use. I have a number of friends in funded startups that have gotten introductions to airline executives, banking executives, CFO's of large consumer product companies because they found investors that had experience in those industries. It might not be an issue for 37 Signals, because they are sell ebooks, chat and TODO lists to Rails Developers, but if your business has anything to do with medium to large businesses, then the introductions come in really handy.
5. Taking money means big exit or IPO
"I don't know if you heard, but IPO markets aren't all that interested in eyeball companies without the numbers to back them up". Fog Creek makes $1 million a year on a job board that he advertises on his blog. 37 Signals also makes a bunch of money off their job board. There are more ways to monetize eyeballs than just advertising. SO is already doing that.
And, Silicon Valley is full of people that have made a bunch of money off of big exits or IPO's. Have you looked at the real estate market in the area? One of the reasons that it's so high, is because Google's first 1000 employees were all millionaires. Yahoo, Ebay, HP, Intel, Cisco, Sun, Oracle... Living here, you're surrounded by people that have made a killing off of options. Living in Chicago, you'd never see that, so I can see where David's myopia comes from.
The IPO market isn't over, and the merger and acquisition market is warming up. The last 10 years of financial and real estate hubris are collapsing before our eyes, and investors are going to be looking for places to make big returns again. It's just a matter of time before companies like Facebook, Yelp or Twitter IPO, and I'd be wiling things in the tech world will begin to look a lot different. Also, there's a bunch of companies in the economy that laid off a lot of people and they are now sitting on tons of cash. Those companies are going to be interested in growing, and acquisitions are a very nice way to do that.
A founders chances of getting a large company to look at her startup as a potential acquisition are better if they have already been valued at $10 million post money, than if it's 4 guys in their garage with a website. There's a reason that Del.icio.us took investment before they got picked up by Yahoo.
6. Taking VC will make your company successful
Joel said that taking VC makes sense if it meant you could grow the company and the founder wasn't interested in self aggrandizement. Joel has written a number of times that one of the problems that he saw with a self funded company, is that his employees don't have a huge upside potential. Upside can be shared with employees via options and an IPO. A quick acquisition for $6 million based on 3x annual revenues... not so much to share with employees.
I don't get the impression that Joel is doing this because he wants the money personally.