Let's ride this bull

http://37signals.com/svn/posts/3160-lets-ride-this-bull

by jroes • 14 years ago

153 34 14 years ago

cft3• 14 years ago

I am a founder of a bootstrapped company, that has been profitable for a couple of years. The profits have been reinvested, and the company is growing. We never planned to take money. So far, we mainly see the negative sides of this bubble: it's harder to hire quality people, services (lawyers, bandwidth, etc) are becoming expensive or harder to get. How can we take advantage of this boom? How long will it last, or at least, what will be the mechanism for its deflation, because it's only limited to tech sector so far, unlike '99.

volandovengo• 14 years ago

I agree - the problem with the bubble is that it makes all relatively sane business people seem insane. It now seems insane to create a profitable business that lives within its means...

sks3• 14 years ago

If you want to build a sustainable business you should keep up the discipline of living within your means and grow slowly through the bubble.

If you want to make money rite now (and lots of it) ride with the bubble. The answer depends on what your objectives were when you started your business.

anon8082• 14 years ago

why do you want to take advantage of this bubble? why do you want to take advantage of anything other than your own abilities?

zackzackzack• 14 years ago

Because he is an opportunist and likes money? I take advantage of everything I legally and ethically can. I expect everyone else to do the same when it comes to business.

cft3• 14 years ago

Because when you are given lemons, you should make lemonade?

Retric• 14 years ago

If you want to maintain control I would suggest getting low interest business loans.

If you want to cash out early I would trying to sell your company early in the boom.

If you think you can grow vary quickly take some outside investment.

If you just want stability build up a little cash hoard so you can grow during the crash and pickup talent cheaply.

cft3• 14 years ago

>If you just want stability build up a little cash hoard so you can grow during the crash and pickup talent cheaply.

This is why I am interested in the timescales involved: how long will it last, and why will the bubble deflate? This input is highly desirable to make the correct decision.

sks3• 14 years ago

Well I agree that there are many signals pointing towards a bubble (as david points out in his post). I don't think it will be as bad as the late 90s. Memories of the last tech bubble and the recent recession will hopefully dampen the rise and the subsequent fall this time.

quanticle• 14 years ago

I don't know about that. Individual actors may have long memories, but financial markets as a whole often have the collective memory of a goldfish. During the height of the bubble, there are always people who are proclaiming, "No, this time its different," and "We learned our lesson from last time." And they're right! The actors in the market did learn their lesson from last time. It's just that they make entirely new mistakes that lead to the same end result.

joeag3• 14 years ago

I agree there will always be bubbles - it's human nature in the form of greed. The height and crash are determined by how much liquidity and credit are available. So for that reason this time around there may be less heights and therefore less "crash" because there are a lot less people that can borrow on their home equity line or margin account to speculate on IPO's, etc.

carguy1983• 14 years ago

For the comedy impaired, riding the 'bull' in this case is a double entendre.

joeag3• 14 years ago

The quote:

Matt Taibbi from Rolling Stones reports:

Ostensibly, the law makes it easier for startup companies (particularly tech companies, whose lobbyists were a driving force behind passage of this law) attract capital by, among other things, exempting them from independent accounting requirements for up to five years after they first begin selling shares in the stock market.

Is just wrong. You still need audited financials to be a public company (current, plus 2 years prior to IPO instead of 3). I believe what changed is some of the Sarbox rules related to rotating auditors, etc. See http://www.orrick.com/fileupload/4624.htm for one leading law firm's analysis of the JOBS act.

(I am not affiliated with the firm)

There is certainly room to relax some of the regulations put on small public co's by Sarbox. That's part of the reason companies are listing on foreign exchanges, and let's be honest, you dont' see "fraud running amuck" on the London Stock Exchange do you?

I like 37 Signals approach to building products and many of their business philosophies but they seem to have a need to relentlessly attack any other way of creating a company or doing business. Not quite sure why.

mapgrep2• 14 years ago

Do you have anything other than "I believe what changed" - a memory you are uncertain of - to dispute the article? The doc you link does not mention auditors at all.

And for what it's worth, this NY Times article would seem to support the original Rolling Stone assertion:

"Under the JOBS bill, companies with up to $1 billion in annual revenue would be free to ignore — for their first five years as a public company — regulations that were put into place after the end of the dot-com bubble and the collapse of Enron. Among them are requirements to hire an independent outside auditor to attest to a company’s internal financial controls..." http://www.nytimes.com/2012/03/23/business/senate-passes-sta...

joeag3• 14 years ago

The link does in fact mention auditing but you have to go to the "Jobs Act Alert" linked on that page. I wanted to cite to the "Jobs Act Alert" link, but it's a PDF, so I thought it was easier to cite to html page containing the link.

Your citation to the NY Times only governs "a company's internal financial controls" - not it's financials or independent accounting requirements (which is essentially audited financials).

My original criticism of the Rolling Stone assertion as reproduced by quote in the 37Signals blog post was and is that companies are exempt from independent accounting requirements. That's supported in the information I cited.

motti_s3• 14 years ago

I don't think we're in a bubble. How can the author compare the IPO of Facebook, a company with a billion users and billion dollar in revenue, to those IPOs of the late 90s of companies with no revenue and no viable plan to have any in the foreseeable future? In fact most IPOs since LinkedIn started the trend are of mature companies. That's not what happened in the bubble days.

It's true that more companies are being created and seed valuations are going up. But the selection process still occurs at the series A stage and crappy companies usually still can't pass that hurdle.

As for the JOBS act: if I'm not mistaken investment is capped at (the lowest of) $10K or 10% of the annual salary. I believe you even have to go through a course before you can invest though the JOBS act. Conversely, in the stock market you can invest as much as you want, without any training, and lose everything overnight.

The fact is that economy fluctuates. Whenever there's an upswing people scream bubble. It's a result of the traumatic effect of previous bubbles. But the irony is that real bubbles sneak on you. Hardly anyone sees them coming. So keep screaming bubble, it makes me feel safe.

moocow01• 14 years ago

"But the irony is that real bubbles sneak on you. Hardly anyone sees them coming. So keep screaming bubble, it makes me feel safe."

I think there is a bubble and I can accept the rest of your viewpoint, but this part is not true. Most people who have a well developed understanding of an industry and basic financial sense easily recognize bubbles and have always done so in the past. The people who it sneaks up on are those who listen to the media and listen to their friends who listen to the media. Bubbles typically start out of real economic growth. The problem is that they outgrow market indicators when you get too many lemmings playing the telephone game and ignoring fundamentals. From what I see around the bay area there seem to be a lot of indicators of this social dynamic playing out. There is lots of money chasing other money to nowhere but Ill agree its not as bad as it was in 2000.

motti_s3• 14 years ago

"Most people who have a well developed understanding of an industry and basic financial sense easily recognize bubbles and have always done so in the past."

I try to listen to what people I trust from the industry say about the existence of a bubble. Pretty much all of them say that there is none. For example Ben Horowitz (of Andreesen Horowitz) consistently argues that there is absolutely no bubble (and he was around for the real bubble occurred). See 5:10 - http://www.youtube.com/watch?v=9xzcJnqcTP4

I think that often when markets become hot, people automatically think of a bubble, but that's not necessarily true. The internet has grown from 50 million users to over 2 billion and smartphones were non-existent in the 90s. So perhaps higher valuations for tech companies are justified due to higher potential.

But you could be right, only time will tell.

ebaysucks• 14 years ago

Bubbles are not about believing in the wrong trends, they are about believing the trend will materialize too fast.

E.g. dot com boom: Basic premise was right, "software will eat the world", only the speed at which it would happen is overestimated.

This is what makes growth investing so difficult: Quite easy to predict solar or electric cars will take off, very hard to predict which company in the cambrian explosion will win.

Overall history has proven over and again that in aggregate, value investing beats growth investing for exactly this reason.

hcarvalhoalves• 14 years ago

I believe the critic is more about the fact Facebook buying a company with no business plan, let alone revenue, for $ 1b, and how that reflects on the industry.

richcollins• 14 years ago

Now isn’t that swell. Enable people with an extreme financial incentive to spin the truth, or outright lie about the numbers, a 5-year get-out-of-jail cover

Removing independent accounting requirements isn't the same thing as making fraud legal.

methoddk• 14 years ago

Enter our trusted troubadour of bullshit, TechCrunch:

Hands down the funniest thing I've read in a while.

franciswolke• 14 years ago

I will see you there.

Let's ride this bull

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