Back when we all worked at the same office in Huntington Park, I was able to bring my dog Strawber to work everyday. She sort of became the DreamHost mascot. I captured some video of Strawber this weekend for my up and coming short “The Dingo and the Slope Glider”. Here is a snippet.

My other shorts featuring Strawber are here http://tavis.la/video.html

Why grow?

Last week I talked about what I thought it took for a company to handle exponential growth (an “entrepreneur”) as well as non-exponential growth (an “MBA”). This week I’m going to rewind a bit and get into why companies like to grow at all.

Unfortunately, growing a lot generally comes hand in hand with spending a lot.

Sadly, most of the time, ALL the extra revenues you receive from your new customers was already spent trying to get those customers! In fact, the money you spend to grow is likely more than the revenues you collect as a direct result of that growth. Which is why businesses frequently need loans or investment to grow.

But hey, what kind of special businessperson spends more on something than they expect to take in? Isn’t the point of a business to maximize PROFIT, not to maximize SIZE?

Indeed it is! So why grow?

Well, why was it that in 2000, Amazon was valued thousands of times more than DreamHost, even though we had double-digit profit margins while Amazon was losing more money each week than we had collected in our entire history?

I’d pay a heck of a lot more for a treasury bond that paid me interest of $500/day than one that cost me $600,000/day! So why would investors, no matter how irrationally-exuberant they may have been at the time, pay more for the latter?

I think it’s because what entrepreneurs do is harder than what MBAs do. 

According to the US Census Bureau, 60% of US businesses have less than 5 employees. 80% have less than 10. And only 1.7% have 100 or more. Assuming most businesses are profitable (and if they’re still in business, that’s usually key), it seems pretty clear to me that a lot more businesses are profitable than big. It’s just easier.

Which is why you want to grow!

Wait, why exactly? What, just because it’s harder? Blow a bunch of money just to prove to the world you can do something difficult? The point of a business is to maximize profit, not pain!

No, not because it’s harder. The reason it’s much more valuable to get big (what entrepreneurs do) than to get profitable (what MBAs do) is because once you’ve grown a lot, it only takes a tiny change in your profitability before that $600,000/day loss transforms into a $600,000/day gain.

So you see, when you’re spending all that money on growing, you don’t actually spend more than the growth is really worth. Growth is actually worth a lot more than the average MBA might guess. Of course, it’s also not worth as much as some entrepreneurs value it. The trick is knowing (or at least guessing) how much it’s worth better than your competitors do.

So how much is getting big worth? 

It depends. In web hosting, as in insurance, magazines, cell phones, cable tv, xm radio, and any other soul-stealing business, growing is worth exactly one bajillion dollars. After all, theoretically every new customer you add is an unending stream of revenue for all time! So it’s okay to spend one bajillion dollars minus one on growing by one customer, especially since there’s always one bajillion MBAs ready to swoop in and turn your business profitable the moment the entrepreneur can’t get it to grow anymore.

You see, heh heh, I lied before.

The point of a business is actually to maximize VALUE!

It just that for most businesses, maximizing profits is the best way to do that. However… 

A company’s value is maximized when it’s big AND growing fast.

(As I established, growing fast is more valuable than being profitable, and all other things held equal, a bigger company is worth more than a smaller one.)

Clearly, when you’re at the maximum value, it’s time to sell your company (ipso facto, as any other time it’d be worth less). Therefore, the best time to sell your company is right before your growth rate starts to decline. That is, the biggest you’ve ever been while still growing fast.

You see, as soon as you stop growing fast, people are going to start basing your valuation directly on your profits, and that’s not going to grow very fast, because, um, we just said your growth rate is starting to decline!

Case in point… wouldn’t you have like to have sold all your Google shares right before their last earnings announcement? You know, the one where they told the world they weren’t growing quite as fast as the world expected? 

Me too. Trust me… ME TOO.

And that’s Part 2 of my thoughts on growing! There may be another part later or not! Stay tuned?

There are two kinds of people running companies.

There are entrepreneurs and there are MBAs. (And when I say “MBA”, I don’t necessarily mean a person with an actual Master in Business Administration.. I just mean anybody who isn’t an “entrepreneur”. By defining things this way, nobody will be able to argue with all the horrible generalizations I’m going to make!)

There are also two types of companies… those that are growing exponentially and those that aren’t. 

There’s nothing an entrepreneur loves more than exponential growth. It’s pretty much why they start companies.. when you start at zero, any growth is “exponential”! Hell, percentage-wise, your rate is infinity! 

On the other hand, nothing scares an entrepreneur more than doing the same old thing day in and day out.

However, on the other other hand (we’re back to our original hand), exponential growth is the scariest thing in the world to an MBA. MBAs (my definition of them) love nothing more than taking a stable company and cutting costs, refining processes, and improving quality untill they squeeze every possible cent of profit from the proverbial lemon.

An entrepreneur on the other other other hand can’t stand piddling about with shoe-string budgets and incremental improvements. They’ve got an empire to build! And if you want to go along for the ride, you better strap yourself in tight and put on your flame-proof helmet… because there’s a decent chance you’re going to crash and burn.

You see, it’s very very hard to truly achieve exponential growth. It’s not so hard to achieve growth, fast growth, or even mega-stupendous growth… but exponential growth is quite a thing indeed.

Let me give you an example. In the last month since we quadrupled disk space allotments, our usage has been growing 200GB a day. The month before we were growing more like 70GB a day. That’s totally, like, triple. Needless to say, we’ve been scrambling to keep up. Now it could be that that’s it, we’ve just changed growth rates and we’ll still be doing 200GB a day come Christmas. However, if it turns out to even be just linear growth, by next month we’ll be growing at 330GB a day, and by the end of the year it’ll be something like 1.6 terabytes a day.

Which seems pretty crazy right now, but I bet by then we’d be ready for it.

Now, if it actually turns out to be exponential there’s no way we could keep up! I’d contend the human brain can’t even comprehend true exponential growth, let alone plan for it. If this current growth was actually exponential, by the end of the year we’d be adding TWENTY PETABYTES a DAY… 100,000 times more than what we’re doing now. Which is clearly crazy. Or is it?

It is. Trust me.. this is no exponential growth. But it’s sooooo alluring to believe it is. So seducing is the power of the exponent! But heed me, young Starbuck, and don’t give in. It is that seduction that has proved the undoing of so many many a start-up!

You see, the only way you can keep up with exponential growth is by spending, as the french say, a butt-load of bucks. And the surest way to go out of business is to spend a butt-load of bucks preparing for growth that never arrives.

But on the other other other other hand, there is no bigger business tragedy than missing out on exponential growth the few times it actually is happening, just because somebody didn’t have the cojones to spend the money necessary to keep it going.

So, who is the best person to run a company? An “entrepreneur” or an “MBA”? I’d say what you really need is both. Either as equal partners who understand when it’s the other person’s turn to shine, or perhaps if you’re really lucky, as just one person with two brains. Either way, there are times in a company’s life when you need a wild, spendy, risk-taker at the helms, and there are times when you need that conservative, tight-wad, prude.

The ironic thing is, the time you usually need the prude is early in a company’s life. Even if you’ve got mad venture capital (and who doesn’t?), the younger your company is the less ability you have to survive an over-enthusiastic entrepreneur-type planning for exponential growth that never materializes. But… companies are generally founded by entrepreneurs! Oh, the sweet irony!

Do you know when Starbucks was founded? If my memory serves me correct, I first saw them popping up everywhere around, I dunno, 1992? Let’s go check.. oh nope, 1992 is actually when they went public with 165 stores (currently they have 5,715).. Starbucks was founded in 1972.

What were those idiots doing for 20 years? If they’d only gotten off their keister a little earlier there’d now be three Starbucks for every man, woman, child, and dog on earth! Think of the possibilities! Think of the average city block! Think of the ?????! Think of the profits!

The thing is, they most likely were growing exponentially that whole time.. it’s just for a long time at the beginning of an exponential growth curve, things look pretty linear. Which is good. I wasn’t alive, but I bet for the first 20 years they were building up cash, trying out lots of different coffee-type things, and learning exactly what their customers dug and didn’t dig. Then, when the time came, they could fund their hyper expansion with the profits they were already earning (plus the always-nice IPO dough).

So who was running Starbucks through all this? It looks like three dudes. I haven’t met them, but, assuming there’s a 50/50 chance of any person being an “entrepreneur” or an “MBA”, there was a 75% chance of having at least one of each!

(BTW, we have four head honchos. I guess that gives us an 87.5% chance. Eat that, Starbucks!)

Stay tuned next week for Part 2 (of 2?) …

…it’s smoking.

We ordered some kick-butt jackets for our employees recently. They’re these nice heavy navy blue cotton doo-dads with a super warm fleece lining, AND they’ve got our logo embroidered right on the front.

They arrived today and I was excited – but for more reasons than you might expect!

Shortly after you begin working at DreamHost you quickly develop an uneasy relationship with Ted. Ted is a 12 inch lead pipe that the boss keeps in the top drawer of his desk. If you screw up, you get a “Ted to the head”. It hurts. A lot. I’m beginning to think we should start mentioning it to people in our hiring interviews. On the upside, productivity pretty much doubles when Ted makes an appearance, so I think people realize that in the end Ted is good for the company, and it makes them better, stronger people in the process.

Anyway.

One day the trail of tears leading from the boss’ office to my coworkers’ desks was more than I could bear. I wanted to help. But how? I knew exactly what to do. I made sure to order these large, warm jackets. Not only would they protect myself and my coworkers from the blistering cold of southern California, but they’d also give us something to hold above our heads as we cower in fear when Ted comes a-knocking. (The fleece works well for sopping up tears too.)

But wait! Something was amiss. As I began sorting the jackets, I realized that some were a completely different shade of navy blue than the others!

Instantly my heart sank. Our supplier had screwed up and given us jackets from what looked like two different manufacturers. It wasn’t my fault, but Ted didn’t care.

I blacked out shortly after this picture was taken.

His methods may seem odd to outsiders, but I realize now that when Ted gave me a concussion it was just his way of saying “Stop being such an idiot and fix this mess. Seriously. You make me sick.”

Good old Ted.