There was an interesting post from 37Signals yesterday, complaining how the business press perpetuates the idea of “success” in terms of things like impressions, users, followers, etc. instead of hard numbers like profits and revenues–and in particular, on forecasted success rather than actual, current numbers. The post was inspired by a New York Times article, Using ‘Free’ to Turn a Profit, which used the example of a freemium company–currently losing money–to show how you can turn a profit on the Internet.
Aside from the rant about “the media” being the root of the problem, it does point to the problem in the private world of using proxy numbers — pageviews, followers, users, etc.–for financial success, revenues, and profits. We’ve been down this path before (anyone remember the Internet bubble?), and by now you’d think that most of the observers of the technology world would know that Internet metrics, like all statistics, can be manipulated to suit any viewpoint and company, as needed. The 37Signals post concludes, saying:
(Entrepreneurs) are seeing business success defined as “the projections say we’ll profitable later”. They’re constantly being exposed to excuses. They’re being taught that profits are these things that only happen one day far away. That’s just wrong.
Now, what does this have to do with Southern California’s high tech community? My observation: perhaps because we’re outside the Silicon Valley “echo chamber”, the blind reliance on Internet metrics being used to define success — isn’t happening here. Sure, there are a few companies who point at their user numbers now and then, there’s many an early entrepreneur trying to impress VCs with their uniques, but all of the investors I see here, and the vast majority of entrepreneurs here know that revenues and–most importantly–profits are the key to building long term, sustainable businesses. Especially in this economy, where “build it and flip” doesn’t work, nearly every entrepreneur I talk to understands that the key to a successful company–and even, a successful exit–is how to structure a business to make money. In part, this might be because we’ve got more serious “business folks” running companies here, whose interest is in crafting the right formula for a business which is inherently profitable; it might be because there are many, multimillion dollar companies who have self-financed their growth; it might be because many of the industries here–most notably the many folks in Internet advertising and lead generation—understand inherently how each of those pageviews needs to be profitable in its own right; or it might just be an entire generation of entrepreneurs here who lived through the dot com bust. In any case, it’s good to see–for once–where Southern California’s high tech companies have gone their own way, and haven’t stumbled into this particular Silicon Valley trap.