Jed Christiansen

One of the all-time most popular posts on my blog is my original post where I showed how I modelled the revenue and revenue growth of 37signals. It showed a business that has made quite a bit of money in the past few years; I originally estimated revenue of $3.5million in 2007 and over $5million in 2008.

Well, it’s been nearly a year since I put up that post and based off of feedback I’ve received personally and comments on the post I decided to refine this model. My new estimates are that 37signals had revenue of over $4million in 2007 and over $8million in 2008.

Breaking down 37signals revenue by product

These are my estimates of 2008 revenue, in descending order. (Please read the initial post for more detail on how I created the model.)

• Basecamp: $4.9million
• Highrise: $1.9million
• Backpack: $0.6million
• Job/Gig Boards: $500k
• Conferences, workshops, etc: $180k
• Campfire: $133k
• The Deck: $60k
• Getting Real: $45k

Analysis

Basecamp is the 37signals product champion, and a key revenue generator. Highrise seems to be quickly gaining momentum, but facing tougher competition from entrenched CRM products. My figures for Backpack are likely a bit low after their recent multi-user update; I think that sales there have significantly increased. Campfire seems to be a minor product. The ranking of Basecamp/Highrise/Backpack is likely right, as it mirrors how they are promoted in 37signals marketing materials.

The other significant revenue source for them is the Job and Gig Boards, which I estimate to be $500k/year. The rest are fairly minor in the grand scheme of things.

Estimates on 37signals costs

37signals seems to be very generous with their 12 employees. (You can be when you’re generating over $600k in revenue per employee!) I’m guessing that between salary, perks, office space (where appropriate), payroll services, equipment, etc. that they average $150k in costs per person. I’m biasing this guess towards an overestimate, so as to be conservative in estimating profits. This is by far the biggest cost at $1.8million per year.

The other biggest cost they have is in servers/storage/etc. In April, their total costs with Amazon S3 were just $2k/month. Being conservative, I’ll guess they’re at $3k/month now, or ~$30k/year.

I believe they use Rackspace for servers. I can’t find any reliable information on Rackspace prices. But I’m going to guess that 37signals pays $30k/month with Rackspace. (If anyone has better numbers or a baseline for this, please let me know and I’ll update this post!) This is a yearly cost of $360k per year.

Guesstimate of 37signals profit

If 37signals is able to make $8million per year, with costs of just over $2million per year, it is a very good business to be in. If my figures are anywhere near correct, they make $6million in profit per year.

I titled this a guesstimate because there are just too many potential sources of error in this analysis. If any readers have any guidance, please leave a comment below or e-mail me directly.

Do you want to challenge my (revenue) assumptions?

You can download the spreadsheet I used by clicking on the icon below.

Summary

I hope this post is useful to you. Again, if you have any better information or want to challenge my revenue or costs model, please comment below or contact me directly.

While not the biggest business, 37signals does seem to be quite a profitable one.

I was thinking recently that it was only about a year or so ago that I finally decided to apply for business school. Registering (and paying!) for the GMAT was a first big step into making it real.

For those people that are reading this and have yet to take the GMAT, I have just a couple of simple tips for hacking the GMAT.

However, before all that, are you aiming to get into a top-tier school? Get a 700+ and you’ll be setting yourself up for success. You can certainly still get into top schools with significantly poorer scores. In fact, I’ve heard of a student who got into a top school with a GMAT score in the 400’s. (What happened in that case was the GMAT wasn’t at all consistent with the person’s CV/resume and work history. The interview clearly showed that the GMAT was an outlier; the person turned out to be a superstar.)

That said, the higher score you get the easier it is for schools to accept you.

Tip 1 — Challenge yourself

My first and most important tip is to really challenge yourself. If you really want to kick ass on the GMAT, forget 90% of the study books out there. Those are written for people who want to do above average on the GMAT, not kick ass. If you want to get that 700+, only go for the books that are trying to get you the mythical 800. Kaplan GMAT 800

is the book that I used.

Why do this? Well, instead of picking a representative sample of test questions, it only focuses on the really difficult questions. This is what you need to get comfortable with and master if you’re going to hack the GMAT. Forget your other study books; focus on the ones that challenge you.

Tip 2 — Prepare your body and mind

The second and final tip is to be very careful in the days before your exam. Get good sleep, and not just the night before the exam. Make sure your head is in the right place by getting good sleep consistently for a few days before the exam. Whatever you do, don’t be stupid and try cramming so much that you lose sleep the night beforehand.

So that’s it… my tips on how to Hack the GMAT. A good score won’t guarantee you entry, but neither will a bad score necessarily prevent it. But the better you can do, the easier it is for your chosen schools to accept you.

I want to say a public congratulations to Doug Rowe, a fellow Cambridge MBA student. Just yesterday he was named as the scrum-half for the Cambridge University Rugby Union Football Club 1st XV in their Varsity Match against Oxford at Twickenham Stadium next Thursday (the 11th). He will be a bit of a rare commodity; an MBA student that achieves a sporting “Blue”.

It’s hard to express how big a deal this is in the sporting world of the University. A sporting blue is the highest level of sports achievement, and comes with a distinctive blue blazer. While the Rugby Union Varsity Match isn’t quite as high-profile as the Boat Race (in rowing), it’s been played since 1872 and now takes place in the UK’s second biggest stadium, seating 80,000! Doug did used to play on the US Rugby Team, so top-level competition certainly won’t be foreign to him.

So a hearty congrats to Doug… well done! (Match photos of questionable quality taken by yours truly at a very cold home match a few weeks ago.)

On a completely different note, it’s already the last week of classes in Michaelmas Term! I really have no idea where all the time has gone.

Just this last weekend we finished a lengthy take-home exam for our Business Modelling class (lots and lots of Excel… thus the need for a take-home exam). In the next two weeks we’ll complete our term’s consulting project, a final essay for Management Practice, and the essay portion of Organizational Behaviour. Then it’s a month of holiday and revision for exams in the first week of January.

Finally, I just found what is quite possibly the best-written internship cover letter I’ve ever read. Check it out here.

Earlier this week the Guardian newspaper broke rowing news that I’m very happy about; Leander Club has been informed by the Henley Stewards that they cannot enter Club-level events at Henley Royal Regatta.

To explain a bit, Leander Club is a bit of a gorilla in British rowing. Their boathouse/clubhouse is at the very end of the Henley Royal Regatta course, which means they are able to make a significant sum of money from hiring out facilities during the regatta. Additionally, they are able to raise a significant amount of money from ~2000 members that keep their affiliation (and thus get tickets for the facilities during Henley). This means that for the other 51 weeks of the year they are able to pay for highly trained coaches and heavily subsidize their athlete’s training.

For club rowers at Leander, rowing is essentially their job. They are expected to train for around six hours a day. There’s really no way to have any sort of reasonable full-time job after that. Club rowers elsewhere around the country train in their spare-time. Really serious athletes either sacrifice and work part-time to train more, or sacrifice everything else in their life to train. Where Leander athletes pay virtually nothing for membership and get kit and camps largely paid for, any other club’s athletes pay a lot of money (hundreds of pounds) on membership, kit and everything else.

My rowing club, Thames Rowing Club, does it’s best and has had some really good success recently. We do pay some fairly significant membership fees, but we have very impressive facilities, a top-level paid coach and an incredible boat fleet.

With such a dramatic difference between one “club” and the rest of the clubs around the country, I completely support what the Henley Stewards chose to do in this case. It’s simply not fair to consider their athletes in the “club” category when they are able to and expected to train so much more than any of their competition.