Trading Time for Money is Stupid: But Everyone Wants to be a Doctor?
Are you trading time for money? Is your entire business model built on that idea? There are some people who would argue that the direct exchange of hours for dollars is foolish, limited in potential upside, and simultaneously difficult to scale. Generally speaking, I agree with all of those arguments. Service-based businesses can't explode like SaaS companies or even physical product companies can. But that being said, some of the most esteemed professions that exist today - doctors, lawyers, management consultants - all do just that, the direct exchange of time for money. Sometimes this exchange is based on a Fixed Fee model, and the practitioners who are particularly efficient may ultimately profit at a higher rate than their pricing is designed to provide but most of the time businesses in these industries are based on some sort of hourly rate. Their potential earnings are capped by the number of hours in the day and vacation days come at a high price to the organization (particularly if it’s an organization of one).
If these professions are fundamentally limited in potential upside, why do so many people pursue them? Why are they held in such high esteem across societies? See I think that we’ve all gotten a little too delusional watching the Snapchat’s of the world explode overnight such that now all we can think of is scale, scale, scale. Everyone wants to be the winner in a winner-take-all market. Even the way companies are valued in recent years has shifted to support it. Fuck being profitable - you know, making more money than you spend - you can spend all the money you want as long as you are growing. We want more customers locked in. Recurring revenue is king, who cares how much we have to spend to obtain it.
Don’t get me wrong, I understand the economics of subscription based businesses well enough to understand where that viewpoint is coming from (approximately 50% of my clients are software businesses). But I’m just a little less sure. The model essentially says it’s ok to go negative up front to acquire the customer, because as long as you retain a high percentage of customers, over time you will recover those costs and ultimately be highly profitable as the ongoing support costs are dwarfed by the ongoing revenue. That makes a lot of sense. However, what we’re seeing in practice is that companies are “re-investing” the proceeds from the “profitable” customers right back into acquiring customers. They say things like “If we stopped spending on sales and marketing tomorrow, we would be hugely profitable.” Ok, great assuming that one day you do stop, or at least slow down. No one is doing it. Salesforce - one of the largest (if not the largest) enterprise SaaS companies in the world still hasn’t slowed down. When is enough enough? At what point do you outspend your market potential, and how in the hell are you ever going to know before it’s too late?
Maybe, just maybe, there’s a reason kids are still tearing pages out of text books in medical school libraries - they really want those jobs. Those jobs are profitable, day one. No need for venture capital. Those jobs are rewarding, day one. No argument about how “it’s rewarding to build something, that might some day, have some real value.” Maybe, just maybe it's ok to be small and profitable, to have a strong impact on a few people and no impact on the many.
