With the proliferation of subscription-based hosted businesses, my first thought with each new one is to wonder if they’ll be around in a year. Are they funded? Are they profitable? How long have they been around? When trusting a company with your data or any important piece of your business, I would think that this would be more important to people. Apparently it’s not.
Let’s simplify to two scenarios. One is the funded team that is working towards profitability. The other is the bootstrapped team that’s working to justify their time. Both are tenuous situations with little guarantee of longevity.
If a web app is run by a team of 10 people, then even with conservative salaries and operational expenses, it needs to make significantly upwards of $50,000 per month just to break even. Admittedly, my knowledge of actual financials for hosted web applications is limited to a handful of applications run by people that I know, but based on that knowledge, $50,000 per month is not trivial to achieve. Of course, that’s just what it takes to break even in those circumstances, and that’s a generously small number. Put that team somewhere like Silicon Valley, and you’re going to find that threshold a lot closer to $100,000.
If we look at the alternative, boot-strapped team, profitability by itself is a fairly easy goal, but you want to wonder if the team has the tenacity to sustain it until it makes enough money to support them full-time. As an essentially solo founder, there are plenty of times where I questioned whether I could handle it. I always found the tenacity to push through, but it hasn’t been a cake walk. Thankfully, things are running pretty smoothly these days, but it’s been a long, hard road. So, while profitability has never been an issue, there have never been any guarantees.
In either situation, there are reasons for concern with no guarantee about the longevity of the business, but I haven’t seen anyone really discuss it. If a web application that your company relied upon disappeared tomorrow or gave 30 days notice that they were shutting down, what would you do? Sure, the data is yours, and they might have a great API, but you’ll be in a tough position.
With Sifter, we get countless questions about features and roadmaps that are “deal breakers” if we don’t offer them, but nobody ever asks if we think we’ll be in business next year. I would think that should be the biggest deal breaker of them all. Admittedly, a lot of people and businesses would probably lie about that if asked, but that’s another story entirely. I just find it interesting that nobody even asks.