After reading the article I have to question whether it really was profitable. I think one of the mistakes that coders (and most business owners) make is to value a profit solely on the accounting values: (income from the application) - (direct expenses of the application).
However, the true way to value profitability is to take a more financial perspective (financial being different than accounting). A financial perspective would value the opportunity cost of working on this application compared to working on another application. If the team spent 10 hours a week on the application, and those 10 hours a week could grow their other products by more than $75,000 a year, then of course the application isn't profitable. It's actually losing money.
Another way to look at its profitability is to look at it from an operational standpoint. The employees on the team would be consider a fixed cost (yes, they could hire more people, but that just changes the fixed cost). The limited resource for this particular fixed cost is time, and from their article I can assume that their time was maximized (working as many hours a week as they wanted to). Operational theory says when a fixed cost is at its maximum utilization, higher marginal profitability items should be prioritized. Basically, they are better off working on other items if they don't want to work more hours.
I agree on the point of questioning it's true profitability figure.
If it was profiting @ 75K a year, thats half a designer, half a marketer and half a programmer for a year. Hire them in, and let them do what they like with it for 6 months. Get interns and let them have a play with it if you want to give some kids a chance.
It's usually a bad idea to shut down a profit center, unless it truly is unsustainable. @75K this was doing well and IMO should not have been shut down.
Cut those employee time figures by half -- FT employees cost a company about twice as much as the base salary. And even then, your designer and marketer figures are way low, even in a city like Philadelphia.
At this level, yes. Go for 0 years experience but lots of passion and a basic skill set. Give them a shot on it. You don't want pros for a project like this, they're better used elsewhere, just a small team to keep the lights on and try to grow it.
My usual strategy works well here: Hire in @min wage, with a huge bonus linked to new subs.
You probably need someone experienced to semi-supervise the project. A bunch of newbies might end up exploring more than being efficient and productive.
I know what you are saying, and I strongly agree. But in comparison to chopping $75k off of you're bottom line then I think you are going to struggle to find a way to be less efficient.
Depending on the size of the company it might just make a great graduate / junior dev recruitment program. Take them on with a probationary period and watch how well they do with the sideline gig. If they turn the code to spaghetti within months then you probably don't want them working on the core business. The last one through the mill becomes supervisor for the next one.
The only potential issue with this strategy is damaging the brand name of the consulting company. I'm not entirely convinced that this is really an issue.
Natalie, who wrote the article, asked me to share this:
"Thanks for commenting. You are spot on, we weren't profitable in many other ways. The time we were spending on Newsberry could, and does, bring more profitability on our other products. In our opinion at Wildbit, half of an anything is not worth something. We don't build half-projects, and we don't put interns to work on them. But for many, it's hard to turn away $75/year."
So, someone who doesn't understand how to speak about profit correctly describues what happened under an eye-catching, surprising headline that turns out to be completely inaccurate and unsurprising.
I got what I expected: an article about why $75k in paper profits wasn't actually worth pursuing. Did you expect the article to say: "We don't want money on philosophic grounds"? Of course it's an article about why $revenue - $cost is the wrong metric. It's less linkbait than can be said for a lot of other articles.
I am not sure I understand, exactly what you are saying here. I am sure you guys could have devoted a day a week to find out what was lacking in Newsberry and make it better. Creating value rather than just destroying it. You said you were a company that prides itself on design, detail and quality, so why not make an existing profitable application better and reap the benefits from that effort.
Totally doesn't make any sense. Idealist for sure.
Nah, it's a focus thing. Juggling 3 projects instead of 2 has a pretty significant cost associated with it. Most people do 1 thing better than 2, and 2 things better than 3, etc.
It doesn't make logical sense but this isn't about logic as much as it is about emotion. You definitely get the sense after reading this that their hearts just weren't in it. For one reason or another that lack of continuing passion led them to shutter it rather than force themselves to work on something they just didn't have as much love for anymore. Plus it was an unprofitable time sink. Yes, it made money but the opportunity cost wasn't worth it considering their other projects.
Not all good decisions are based in objective reality. Never underestimate a gut feeling.
Just because emotions are involved doesn't mean the decisions aren't based in logic. It is totally logical to shut down a project that nobody really wants to work on, and one that wasn't making enough to justify its continued existence. Even if it's a source of profit.
After all, something like a mailing list service requires lots of ongoing care if it's to be any good (deliverability, etc).
googletron, are you familiar with the concept of opportunity cost?
It's not idealist, as you say, to shut down a project that is a time and energy suck. It's idealist to think a busy company with 2 very successful, well-loved projects should "devote a day a week" to a project that isn't nearly as profitable as the others, and which nobody really enjoys working on to boot.
I used to work for a company that did about $35M/year turnover, had cash flow problems, and the CEO was yanking money for himself wherever he could, so we had endless 'we need to tighten our belts' speeches. The Service Manager left, tired of being a punching bag, and he wasn't replaced because 'we don't have the money' (CEO's pet project had nine developers on it...). The reasoning was that he doesn't do much more than a support engineer, and we're handling the load fine. The braindead reasoning, that is. It was the Service Manager who organised and chased up the support contracts, worth over $600k in our neck of the woods. We were a medical device company, so we had to keep supporting our gear, and we had customers ringing up begging to pay contracts because they didn't want to be left out in the cold, but there was no-one to prepare them.
Eventually, a year later, the overtaxed sales staff were punted the job. The sales guys were fantastic at sales and very personable, but there's a direct conflict of interest between sales and support contracts, especially when they don't understand the cost of supplying it.
All because the only things the CEO could see were his pet project, the projected sales figure, and any possible way to vacuum money into his pocket (he owned 2/3rds the company, so its long term health was actually in his interest...)
For a small firm, cutting excess baggage and focusing on star products may be better for profits and moral. On the other hand, if the culture is that of a tenacious startup, showing a fighting attitude may be a great way to lead.
However, the true way to value profitability is to take a more financial perspective (financial being different than accounting). A financial perspective would value the opportunity cost of working on this application compared to working on another application. If the team spent 10 hours a week on the application, and those 10 hours a week could grow their other products by more than $75,000 a year, then of course the application isn't profitable. It's actually losing money.
Another way to look at its profitability is to look at it from an operational standpoint. The employees on the team would be consider a fixed cost (yes, they could hire more people, but that just changes the fixed cost). The limited resource for this particular fixed cost is time, and from their article I can assume that their time was maximized (working as many hours a week as they wanted to). Operational theory says when a fixed cost is at its maximum utilization, higher marginal profitability items should be prioritized. Basically, they are better off working on other items if they don't want to work more hours.