How Basecamp Built a $100 Billion Business by Doing Less on Purpose
Do not innovate. Do not grow. Do not exit. And do not be a startup.
“Our company fails the real world test in all kinds of ways.”
In the late 90s, a web designer called Jason Fried started a company with two friends in Chicago. The company’s name was 37Signals and like many others at the time, the trio redesigned people’s websites. But unlike their peers, the way they went about getting clients was distinctly odd. If you visited their website back then, you’d be at least mildly baffled by its plain, barren look and you’d search in vain for a portfolio of previous projects or client testimonials or anything in the way of bragging rights. In their place you’d find impassioned manifestos and articles in which the three designers spoke about everything they thought was wrong with business and how it should be done instead. Their views were bizarre and contrarian and people browsing noticed them, some stopped and listened, many became clients.
By 2003 the designers at 37Signals could barely keep up with all the client work. Things began to slip through the cracks and they decided to look for a dedicated project management tool. But back then most such tools were clunky and complex, wasting more time than they saved, and so the year after, in 2004, Jason hired a Danish programmer called David Heinemeier Hanson to develop their own application in house. When clients saw the finished product, many of them liked it so much they asked to license it.
This is the origin story of Basecamp, one of the most popular web applications for project management and team collaboration. It’s been used by 16 million people worldwide and still continues to bring in several thousand new signups every week, more than a decade after it first launched. The company, which changed its name to Basecamp in 2014, has been valued at $100 billion dollars and has annual profits in the millions of dollars. David, the original programmer, eventually moved to Chicago and joined Jason as a business partner. If you haven’t heard of him, you’ve probably come across another one of his creations — Ruby on Rails, the popular web framework which grew out of his work on Basecamp.
The surprising thing about Basecamp’s success is not so much its magnitude as the unusual way in which it came to be. Remember the plucky web designers who didn’t even have a proper website and instead of sinking them, it’s what made them stand out? Well, that wasn’t the only unconventional thing 37Signals did on their way up. The entire story of the company is, in fact, a story of doing the opposite of what we think successful companies are supposed to do.
Grow slowly or not at all.
Build half a product.
Say no to meetings.
Go to sleep.
Underdo your competitors.
These are just a few of the controversial principles they live and run their business by. The core insight is that what we think of as best practices or just the way the real world works is often nothing more than received wisdom that doesn’t hold up empirically. The way Jason and David put it, “Our company fails the real world test in all kinds of ways.”
It’s a bold book, with many fans and perhaps just as many critics. But that’s partly its point and largely its value — to stir both thoughts and emotions. Even if you don’t agree with the conclusions, it’s a book that will force you to think harder, to question your defaults, to examine your biases and maybe glimpse a different path to becoming successful.
Don’t plan your exit. Commit to the “long slow run”.
The story of how entrepreneurs succeed usually goes like this: You make something for a big and growing market. You raise funds. You scale, shooting up like a hockey stick, and then you exit, a newly minted millionaire sauntering off into the sunset, into a new life of white sandy beaches and a never-ending supply of piña coladas. There’s one problem with this story: it never really happened.
When you start a business, you are encouraged, expected even, to have an exit plan. But the odds of being acquired are so slim, say Jason and David — one in 10,000, maybe one in 1,000 — that betting on it is one foolish gamble. Your motivations for starting a business need to go deeper than a mere desire to get rich.
Moreover, the very preoccupation with cashing out can be self-sabotaging. The way Jason and David see it, plotting to escape and planning to succeed just don’t mix. Instead of fixating on jumping ship, you need to obsess about making the ship sail.
You need, in their words, not an exit strategy but a commitment strategy.
The difference may seem subtle but it forces a significant mindset shift. If your end goal is to get acquired, your priorities get out of whack. Your focus shifts from solving customers’ problems to searching for buyers. Since you don’t plan to stick around, you build to sell rather than to last and the irony is that you end up with nothing valuable enough to make you actually worth buying.
Back in 1999 Jason started 37Signals with an intention that might strike some as youthfully and charmingly naïve: to do something meaningful on his own terms for the next several decades. From the very beginning, he was committed to what he calls “the long slow run”. And as far as you can tell, this commitment is still very much the driving force behind Basecamp.
Don’t be hot. Optimize for timelessness.
As a result of this mindset, Basecamp looks at every decision through the lens of sustainability and value that lasts. Unlike many other tech companies, they don’t hustle to be hot, but aim instead to be timeless. They don’t strive to be the next big thing, but try instead to figure out how to be the thing that never goes out of fashion. They don’t look at their competitors and ask how can we beat them; they look instead at their users and ask what do they need that won’t change.
For example, Basecamp solves a problem that’s unlikely to go away anytime soon. No matter how technologies evolve and businesses change, you can imagine that decades from now people will still be trying to solve problems together in the most efficient way they can. And you can safely bet that no matter how tastes change, customers will still value simplicity, speed and ease of use — the very things that Basecamp stands for — over cluttered interfaces and bloated features.
Forget success. Think about your legacy.
This unwavering commitment to creating lasting value over the long slow run is in large part the reason behind Basecamp’s unabated success in a very crowded market. But for Jason and David, there’s more to it. Not merely a means to an end, the work itself holds enormous personal value to them, a satisfaction and a significance resembling those of an intimate relationship.
Here’s how Jason and David put it:
What’s with people who can’t build something without planning how to leave it? Would you go into a relationship planning the breakup? Would you write the prenup on a first date? Would you meet with a divorce lawyer the morning of your wedding?
It seems incredulous to them that anyone would approach a business venture any less seriously than a romantic one, because they see both as part of a bigger issue: how to live well. They’ve seen this repeated over and over again: an entrepreneur sells out, retires to a private island, soon enough realizes that paradise is vastly overrated and a life of sipping piña coladas can be a doomed one indeed. So the entrepreneur comes back and hurls himself into another startup, but the new idea is worse, more forced, than the one he traded away.
Whatever you set out to do, they say, you need to look at it through the lens of your life’s work. The thing you are going to leave behind. And you need to ask yourself what you want it to be. Is it making a difference? Is anyone changed as a result of it?
Don’t change the world. Be of use.
Curiously, the way Jason and David think of change and difference is not in the sense of saving the world or curing cancer. Instead of aiming at an epic breakthrough, try to be of use. See if you can make life a little better for the people who use your product. Would they notice your absence if you suddenly disappeared? What matters is utility and an effort that feels valuable. Then you know you are making a meaningful contribution.
Hire “when it hurts”
Speaking of things that matter, here’s one they think doesn’t: size. People often equate size with success. The bigger you are, the more impressive you seem to everybody. But Jason and David disagree. Why should bigger be better? And who’s to say what size is the right one?
Fast growing teams can quickly turn into strangers at a cocktail party, where no one feels safe enough to say what they really think, where conversations run shallow and ideas become stale. And since mistakes become more costly at scale, larger companies devolve into cautious, slow, bureaucratic entities. Finally, there isn’t one magic size that works for all. Every business is unique.
37Signals grew from 4 people at the time Basecamp launched in 2004 to just 16 as the book went to print in 2010. Growing slowly has allowed them to stay lean, avoid communication bottlenecks, move quickly on ideas and most important of all, retain a spirit of intimacy and intellectual stimulation. So hire deliberately, only when it hurts, as they would put it. That way you will know when you reach the right size — and it could be it 10 or 50 or 100 people, or it could be just you and your laptop.
Bootstrap, bootstrap, bootstrap.
Besides size, outside funding is another thing that sounds impressive until you consider the costs. Completely bootstrapped from the very beginning, Jason and David have turned down tens of VC offers and caution young entrepreneurs to look for other ways before they take external cash. Money loses much of its appeal when you give up control of your company and end up catering to investors’ interests, often at the expense of your own vision. Meeting growth targets takes your focus off building a great product and delighting your customers. And spending other people’s money is addictive, too. Once it runs out, you go back for more and at every turn you give away another piece of the thing you set out to bring into the world.
If size and funds raised don’t matter, then what does? Jason and David’s answer: a profitable, sustainable business. It’s not the hot startup that they look up to as a role model; their real hero is the small laundry shop around the corner that has been around for decades. Though inconspicuous, it has figured out the real secret: not how to start — that’s easy — but how to persist, to endure, to create value that lasts. It’s this staying power no matter what size it comes in that’s worth aspiring to more so than sheer bigness.
Stop being a startup and grow up.
Along those lines, Jason and David recommend not just a change of role models but a wholesale identity shift. Stop calling yourself a startup and start to think and act like a real business. Many companies use their startup status as a crutch and a hiding place for fundamental problems. “The startup is a magical place”, say Jason and David. “It’s a place where that pesky thing called revenue is never an issue. It’s a place where you can spend other people’s money until you figure out a way to make your own”. Startups can slip into a dangerous delusion — that profits don’t matter or that they can set the question aside indefinitely. And then the money runs out and it’s too late.
When you think like a business instead, the bottom line is what you worry about all the time. If you don’t make payroll, if you can’t pay the bills, if no one is buying your product, you feel the pain immediately. Your very survival keeps you honest and aligned with the things that matter.
This is a serious offence to the romantic notion of entrepreneurship that dominates the media. But Jason and David have more sacred cows to kill.
One of them is innovation, which they don’t speak much of. At least not of innovation in the sense of hitting on the next big thing. We take the pursuit of novelty as a requirement, often as the goal itself, but Jason and David disagree. They talk, instead, about quality.
It’s more important to build something good than something novel; it’s also much harder.
Quality takes time. Empirically, to build anything of value requires longer hours and more intense effort than it seems at first. That’s why Jason and David have learned to treat plans as mere guesses and to avoid tying themselves to big projects, where they know their projections will almost certainly be way off the mark.
To give you a sense of what they mean when they talk about quality, consider Basecamp, a product that was so good right out of the box that it broke even within weeks of launching. And yet for over 13 years now it has continued to evolve, to improve, and every iteration, more refined than the previous one, keeps pushing the quality bar even higher. So much higher, in fact, that in 2014 the company decided to drop all of its other products — two of them highly successful, mind you — and focus exclusively on Basecamp, betting that after more a decade of development they could still do better.
That doesn’t imply, however, that the way to make something great is to throw more money, more people and more time at it. More resources don’t solve more problems but often create new ones. So what do you do instead? How do you go about building a sustainable business on limited resources? The answers are both surprising and sane.
Think small. And then smaller.
First off, say Jason and David, to achieve big things, you need to think small. The moonshot goals you are often told to chase after can actually set you up for failure. You bite off too much too soon and choke. The exacting nature of quality means that you can either do one thing exceptionally well or many things badly — or at a merely passable level. Choose the former. Do just one thing at a time but do it exceptionally well. Indeed, think even smaller than that. “Cut your ambition in half”, say Jason and David.
You are better off with an ass-kicking half than a half-assed whole.
They don’t mean that ambition is bad, just that small can be a better starting point on the way to big things. But small also has underestimated virtues of its own. Basecamp, for example, is known for its minimal design. Even today, when the company can afford to spare no expense on the product, it maintains a think-small approach to feature development. The product does less than most competitors and yet Basecamp’s popularity keeps rising. As Jason and David like to say, only half joking, “if you want to beat your competitors, underdo them”.
We assume that more features make a better product, but Basecamp proves that the opposite is often true. The more you add to something, the more complex it becomes. Complexity spawns new problems you couldn’t have predicted beforehand: it creates clutter, increases confusion and reduces ease of use. Think of the Flip camera and its basic design, stripped down to a single button at the front. There isn’t much you can do with it, but the one thing that you can do — taking a picture — you can do in the simplest, most efficient way possible. And that’s precisely why many people loved the Flip camera.
Good designers kill the inessential.
Adding more features is a form of trying to please as many people as you can. But to really please one person, you’d have to piss another one off and so any attempt to meet different needs all at once ends up diluting the experience for everybody. In fact, according to Jason and David, if no one is upset about your product, it’s likely not because everyone loves it, but because it’s too boring to be worth the attention.
The way to build something your users actually care about is to act as a curator of their experience. Curators — from those who arrange gallery collections to chefs in great restaurants — think just as much about what they need to remove from the design as about what they need to add to it. Good design is like good taste: it’s largely defined by the omission of the unnecessary. Extraneous detail doesn’t enhance, it detracts from the desired effect.
Basecamp is both praised and criticized for its minimal design, but it’s more a matter of essentialism than minimalism. True, its features are few but not merely few; they are, instead, as few as necessary. For Jason and David, the biggest challenge for the designer is to discern the essential from the secondary and to not let the good ideas get in the way of the great ones. The real question is not what you can do or even what you would like to do but what you have to do.
It’s all too easy to get bogged down in details that are nice to have but not of essence. And while Jason and David don’t contest the power of the right detail, quality does demand sacrifices. To make room for their best work to emerge and to shine, writers cross out good paragraphs, directors cut out good scenes. You need to learn to operate with the same ruthlessness and discipline.
One way to determine what is necessary vs what isn’t is to start at what Jason and David call the epicenter, then build out from there while constantly circling back to it to avoid distractions. The epicenter is the core of what you are building, the thing without which your product wouldn’t work. One question you can ask yourself is “If I took this away, will what I’m selling still exist?” Jason and David offer the example of a hamburger stand. A hamburger stand has a whole lot of parts to it — from the cart to the various condiments — but only the hamburgers are essential. You can take everything away and still have a hamburger stand as long as you have hamburgers. They are the epicenter.
When in doubt about what direction to take, use the epicenter as an anchor and a compass. The first version of Basecamp shipped without a billing system. Instead of building one, the team used the time before the launch to fix key issues without which the product wouldn’t work. Taking payments wasn’t one of them. True, they needed a way to get paid but that wasn’t the epicenter. Basecamp functioned just as well without a billing system, so initially they set it aside, then they shipped and then they sat down to figure out how to get paid. Of course, it helped that billing occurred in monthly cycles and they had 30 days to crack it before the money came due. But you get the point.
Constraints enable creativity.
This example also underscores another central part of the decision-making process at 37Signals: embracing constraints. It sounds like a paradox, but Jason and David have learned that constrained decisions are often better decisions because the elimination of options enables speed, creativity and focus. Having limited time and resources before the launch forced them to be crystal clear about their priorities, selective about their features and creative about the non-essential but still important details.
I didn’t tell you that at the time of Basecamp’s initial development Jason and his 3 co-founders were in Chicago working full time on web design projects, while David, the only one with programming skills, was in Denmark finishing his graduate degree. Between school commitments, he barely managed to squeeze it 10 hours a week over 6 months to work on Basecamp. These limitations, quite annoying on the surface, forced — I mean, enabled — the simple, lightweight, easy-to-use design that people love about Basecamp.
Besides helping to clarify priorities, constraints compel creativity. They make you a better problem solver. We believe, mistakenly, that complex problems demand complex solutions and remain oblivious to cheaper or easier ones that may be lying in plain sight. But because they seem too simple and unimpressive, maybe a little beneath us, we become aware of them only when other options are not available.
You don’t have to face real constraints to reap their benefits. Nowadays Jason and David have almost unlimited resources on their hands but in spite of this — or perhaps because of it — they are careful to impose constraints on their decisions by asking questions that limit the set of available options. One such question is “Do you really need X?” For instance:
Do you really need $500,000 or is $50,000 enough for now?
Do you really need six months or can you make something in two?
Do you really need a big office or can you share office space or work from home for a while?
Do you really need to hire another person or can you do the job yourself?
For two years after BaseCamp launched Jason personally handled customer support, but there are other options that this line of questioning may open up. Can you eliminate the job altogether? Can you somehow automate it? Just asking yourself if you really need something forces you to consider a host of possibilities and creative solutions you may have overlooked otherwise.
Ask better questions.
Often, though, it’s not that we are not creative enough with our solutions; it’s that we are solving imaginary problems or the wrong ones. Here, too, questioning your actions and decisions can jolt you out of default mode and surface unconscious biases and unhelpful assumptions.
Some useful questions:
Why am I working on this?
What is it for?
What is the problem I am solving?
Who benefits from it being solved?
Here’s another one: What could I be doing instead?
Everything you do has an opportunity cost, whether you are aware of it or not. When you factor in that cost, a seemingly productive activity can turn out to be a waste of time. Meetings, for example.
According to Jason and David, meetings are some of the worst productivity killers in a company. A one hour meeting of 10 people is actually a 10-hour meeting, because the true cost to your company is one hour summed across all 10 people. And if you account for task-switching time, which can be significant, the opportunity cost gets even higher. Nothing, according to Jason and David, destroys productivity like an interruption. The smallest distraction — a tap on the shoulder, a quick office joke — can cause a disproportionately large disruption in your focus. And once you are interrupted, you don’t just slip back into your zone; you have to start all over again.
That’s why, Jason and David suggest you try your best to enforce large blocks of uninterrupted time for work. Some ways to do this are keeping meetings to a minimum, favouring passive asynchronous communication such as email over face time or instant messaging, or designating a certain day or certain times every day as no-talk times.
“Don’t throw good time after bad work.”
Besides the opportunity costs, some activities have sunk costs. In this case, you keep doing something even though it’s not working or no longer worth it because of all the time and effort you’ve already sunk into the activity. And also because you don’t want to give up and look like a quitter. What you end up doing, though, as Jason and David put it, is throwing good time after bad work out of ego. So, they say, don’t be a hero. Next time something isn’t working or it’s taking longer than you thought, ask yourself “why not quit?”
It’s tempting somewhat to call these “productivity hacks”. But that’s not how Jason and David see things. They don’t talk about productivity. Instead of doing more in less time, they care about wasting less ofthe time they already have. It’s that same thing they’ve been saying all along, really: that it’s not about the many but the meaningful few, not about the biggest possible but the smallest essential. Cast in this light, their advice doesn’t seem so revolutionary after all. It seems like getting back to basics. But in a world of secrets, tricks, tactics and hacks, perhaps the very things that actually make sense and matter have become the most revolutionary.