Jason Fried on PLG and scaling without external funding

Note: this is an automated transcription of our podcast interview with Jason Fried. There will be some typos 🙂
Would you rather listen to the conversation? Listen to our podcast!

Jan Aleman: Welcome all to today’s podcast with Jason Fried from 37signals, also known as Basecamp. I think you guys recently changed your name?

Jason Fried: Yes. We’re 37signals again now.

Jan Aleman: Cool. I’ve known the company for a long time and I’ve always been in awe of what you guys have developed. But maybe you can describe in 30 seconds where you guys started and where you are now.

Jason Fried: So, we started out in 1999 as a web design company. So we were doing websites for other companies and we got really busy but we couldn’t end up managing it all very well. I ended up dropping balls and communication was scattered everywhere. We needed a better way to manage all the work that we were doing. So, we built our own little internal project management tool, which we started using with some customers, and they said, “Can we use this? What is this?” And we said, “I don’t know. It’s just this thing we made.” 

Eventually, the light bulb went on and we realized, “There’s probably a product here if we need this, other companies need it. We’re hearing from other companies who need it.” So, we turned it into a product and called it Basecamp, and launched that in 2004. Since then, we made a handful of other products and most recently, Hey.com, which is a new email service. SAnd now that we’re back to a multiproduct company, we’re going back to the original name of 37signals. As of now, we make two things and we’ll probably make more things in the future. But fundamentally, our products are trying to make really straightforward product software as a service web apps, mobile apps that try not to do too much, but just do the things that they do really well. 

Jan Aleman: And in terms of company size, what are your numbers?

Jason Fried: Yes, we have tens of thousands of paying customers and 66 employees. We’re based all over the world. So we’ve been working remotely pretty much ever since the beginning. We’ve been around for 23 years, but for about 20 years or so, we’ve been working remotely and the majority of our employees now are outside the US.

We even wrote a book called Remote: Office Not Required, which came out in 2013. So, it’s been out for quite a while now, a little bit ahead of its time. I suspect it didn’t actually sell very well initially. I think it was too early and during the pandemic, it picked up.

Jan Aleman: So, now most of your employees are outside of the US. Do you find that more challenging in terms of time zone, language, culture, etc.?

Jason Fried: Everyone’s English-speaking, so we’re okay there. But time zones are tricky, and as we begin to expand more and more outside the US, we have to think more about teams and overlaps and who’s able to work with who in what time zones. So it’s a little bit more challenging but totally doable. My business partner and I worked remotely for many years. He was in Denmark while I was in Chicago at the time. So, we kind of grew up together working seven or six hours apart. So, it’s actually quite nice to have only about 3 or 4 hours overlap with someone else, and then you naturally have a lot more time to yourself. So, it’s actually an advantage but it’s really hard to do it if you only have 1-2 hours of overlap. You need, I think, at least 3-4. So, that’s how we sequence our teams.

Jan Aleman: But your co-founder is still based in Europe.

Jason Fried: He was in the US for a long time. He moved back to Denmark a year and a half ago. So, he’s in Denmark now.

Jan Aleman: And if I’m not mistaken, your co-founder invented Ruby on Rails?

Jason Fried: Yes, he invented Ruby on Rails. And Ruby, of course, was a language invented by someone else in Japan. He invented Rails. So, just so that’s clear for everybody. So, yeah, Basecamp, the product was the first Rails app ever. Rails was extracted from Basecamp in open source in 2005 and it’s been powering all sorts of companies since then. It’s been pretty exciting to watch.

Jan Aleman: Yeah, very cool. And is that one of the reasons that you’re able to have a surprisingly small team given your number of customers? That’s impressive productivity levels! 

Jason Fried: Rails has a lot to do with that. Plus, our general approach to working. We have built our own work methodology called Shape Up. You can read about it. We have a free book about this. That’s kind of our secret sauce, although it’s not a secret because we decided to share it with everybody. But that’s a huge productivity enhancement for us, allows us to get a lot done in a short period of time with very few people. And also just decisions you make about fidelity and what are the quality needs to be and what not to do. I think we’ve become very good at deciding what not to do. One of the best ways to make a lot of progress is not to do things. 

Jan Aleman: I’ve coached about 20 Dutch software companies in the past year and I always tell them at the beginning of coaching, I’m mainly going to tell you what not to do because you already know what to do. You probably already know by now if you’ve come up with a product and a company but if you have a pretty sharp list of “don’t do all of this, don’t go here” then you’re going to save a lot of time. 

Jason Fried: That’s a really fundamental and profound thing even though it sounds so simple.

Jan Aleman: And it is very tough because we just launched a new company and we’re already now in all the stuff we could be building. Let’s build it. Let’s go this way. Let’s go this way. It’s very attractive to get in to create a tremendously long backlog. And then, you’re never able to do it all or you do everything a little bit and you don’t have the focus to get it out there.

Jason Fried: This is a big part of Shape Up. There’s no backlog, no long list of things to do. You decide what to do every six weeks and that’s it, you don’t look beyond that. You might have a directional vision about what you want to build but you don’t decide everything you’re going to do upfront and then make a long list and try to get it all done. Every six weeks, you work on a set of projects. After that, you look around and go, “Where do we want to go next with this?” And you decide as you go. And that way you’re always current and not working from an old list of things. We found it to be a much more effective way to do it. But you still have the same struggle, which is “When do you stop?” You just keep adding more and more and more stuff to the product. You still have the same challenges and what not to do is still a big part of it. But at least you’re not working off a long list of things, which doesn’t really work very well.

Jan Aleman: And if you compare your methodology to  Agile Scrum, would you say that’s the biggest difference? 

Jason Fried: That’s certainly one of the big differences. Another one is that with Shape Up nothing can take more than six weeks. And I know you can look at the agile scrum and say, “Well, we work in these two-week sprints but you can work on something two weeks at a time for 24 months or for 12 months to shape up the whole feature. Whatever idea you have has to be done in six weeks or less. That way, things don’t drag on and on. So, you’ve got to figure out the simplest, clearest, and easiest way to get something done and figure out what the real value is and do that. 

That’s one of the things also just making it up as you go. There are no backlogs. We’re not working off long lists and we’re not constantly shifting our attention between different tasks. People are very focused on individual projects for a certain period of time and then you move on to the next thing. So, it’s quite a bit different. We don’t do daily stand-ups or weekly stand-ups or anything like that either. It’s a very different approach. There are some similarities but the other thing is nobody tells you what to do. There are projects that are defined but then the team decides how to get them done themselves. So, you’re not taking tickets and in that stuff, there’s no stories or any of that other stuff. So it’s just a different approach, I would say, and I would say it’s really worth looking into.

Jan Aleman: I’ve heard some companies are very successful with it. One of the previous guys I interviewed recently, a Dutch software company called Moneybird, is using it and they seem to be very happy with it.

Jason Fried: It’s slowly but surely making its way out there. We’re not really aggressively pushing it but it’s something that we think we’ll take hold. And it really is a better way to work. And we’ve tried pretty much all the ways.

Jan Aleman: So, you tried agile scrum before you came up with this?

Jason Fried: Not formally. We didn’t follow it to the letter, but we followed similar methodologies/approaches. But we could see what’s wrong with them at a fundamental level. So, Shape Up came from us trying to solve a lot of the problems that we couldn’t find solutions for elsewhere. And this is just born out of 20 years of experience building products. There’s nothing theoretical about it. It’s very practical. And it also recognizes human nature, which is that if you make a long list of things, you end up getting frustrated because you never get to them all. And we don’t want to work from a place of frustration and feeling like we’re always behind, feeling like we’re always sprinting. Even the language is really different. Sprint – to me it’s a bad word and that you’re tired at the end. You’re burned out. That’s what a sprint is. I don’t even want that language to make its way into the way we work.

Jan Aleman: And I’ve seen you mention in your blog that we shouldn’t be using all these army terms in software businesses. I like that approach.

Jason Fried: This is something we put in our book, It doesn’t have to be crazy at work, which is our last major book release. For some reason, business always gets sort of tangled up with sports and war and all the examples are sports-based or war-based. And I just don’t think it’s a healthy way to think about things. Sports might be a better parallel, but war is about destruction, killing, and defeating. And I don’t think you need to look at business that way. I don’t think it’s a zero-sum game. And so we’ve talked about how companies want to conquer the market, capture mindshare, and target customers, and they hire headhunters and they have a sales force, want to pick their battles and make a killing. It’s like you don’t need to talk this way. Some people think it doesn’t really matter. But I really do think it does matter when these are the words in your head. It’s destruction versus creation. War doesn’t create things. It destroys things. And I just think you should think about creation and then let the chips fall where they may versus trying to destroy everything.

Jan Aleman: Okay. And in terms of 37signals, would you mainly see yourself as a product-led growth strategy or as sales and marketing led?

Jason Fried: We’re product-led. We don’t have a sales team. We’ve never had anyone in sales. It’s all it’s all word of mouth. So, we’ve done a lot of nontraditional marketing and we’ve written a lot of books and a lot of stuff and shared a lot of things, which is now called content marketing. But it wasn’t called anything when we started. It was just, let’s share as much as we can. Let’s share our opinions, let’s share our points of view. Let’s share how we work. Let’s show people behind the scenes, and let’s put out books that embody our philosophies because we think these are valuable things for other people to know. So, there’s that side of the marketing component but historically we don’t actually have a marketing department. We don’t have a CMO, we don’t have that. We’re primarily product-led, though we want to get more into being more intentional about our marketing. But we’ve never really been intentional about it in the past.

Jan Aleman: Do you consider the books and putting Rails out there as marketing? 

Jason Fried: It is but it’s not. I think a lot of it comes down to intention. So, we didn’t build Rails as a marketing vehicle. We didn’t write books for marketing purposes. They do, of course, introduce people to our way of thinking. And Rails, of course, introduces people to our way of working and Shape Up as well. But there’s no marketing strategy, like we need to write a book so we could X, Y, or Z or we need to release a framework so we can X, Y, or Z or this is going to increase sales or growth. That’s not the reason we do it. It’s a byproduct of doing it, but it’s not the reason we do it.

Jan Aleman: Now, let’s talk about growth. Your company grew substantially in the past 20 years but you’re not taking the traditional approach of raising money, maybe the first round with friends, then  VCs and grow, grow, grow and then go public. You guys took a different road.

Jason Fried: We did. We bootstrapped the business ever since the beginning. We’re 100% funded by our customers. When I say funded, I mean we sell products and they pay for them. We don’t have investors in that regard and we’ve just decided to grow at our own pace, in our own way, and not get ahead of ourselves. And if we can’t afford to do something, we don’t do it, we find a cheaper way to do it, or we wait until we can’t afford to do it. But we’ve always believed in being profitable and running an economically sound business, one that makes more money than it spends, one that has healthy margins. And we live within our means, within those margins. And that means we’re not taking out Super Bowl ads and it means we’re not spending $50 million on ad campaigns that end up with a negative cost of acquisition. Or I should say, we don’t want to lose money on customers. We just want to do the right thing, maintain a profitable business, and maintain a solid conservative economic business. We may never be as big as we could have been or whatever. But size is not our goal. We want to grow because we don’t want to shrink and die. But we’re not aiming for 2 x 10 x 20 x every year. That’s not a thing we’ve ever been attracted to.

Jan Aleman: So, healthy growth is paid by a healthy margin on a software product.

Jason Fried: Yeah. And sometimes there’s not even growth. Sometimes, it’s the little flat line. Like, that’s fine too. Yu plateau and you hope you keep being on an upward trend over the long term. But some years are more growth-focused than other years. I think it’s a little bit like more life. There are times in life over a handful of years when you make a lot of progress and other times, you just exist, study, and wait to use those skills in the future. So, I think that’s how we’ve always looked at it. It’s about looking back on the arc over time? Staring at a stock every single day will make you crazy. Hopefully, you buy good companies and hang onto them for the long term and in the end, you hope that you do well that way.

Jan Aleman: If you look at the stock every day, then the past two weeks have been tough weeks for you.

Jason Fried: Brutal. Brutal, terrible, terrible, terrible, terrible. And sometimes you should sell things, right? But over the long term, you pick good companies, and hopefully, you do well.

Jan Aleman: Looking at let’s say the past five years, what would you say are the most important lessons you’ve learned?

Jason Fried: For me, it’s hard to transfer lessons to others I think because everyone’s in a different situation. But I’m happiest when I’m not worrying about measuring things. I’m happiest when I’m building something new. And I don’t know what’s going to happen, but I believe in it. And so I find that I do my best work. What I’m trying to get to is you’ve got to know yourself. 

So, for example, if I were under some sort of a regime at work where I was being measured constantly, I would not be a happy person. That’s not how I like to be. I’ve realized for myself that I need to just build things that I believe in and do the best job I can – have a hunch and follow it and see where it goes. And some things work out better than others, but for me, that’s an important thing that I’ve realized about myself. 

So, whoever is listening, whoever you are, I think it’s important for you to figure out in what environment will you do your best work and will you be happiest? Because I think that’s the best shot you’re going to have to be successful. I mean, this is hard to begin with. And if you’re always fighting uphill battles because somewhere isn’t conducive to the way you work, it’s going to be very hard. So, find the environment that nurtures you.

The other thing is don’t be afraid to stick to your principles. I think that’s another thing that’s become harder and harder as voices have become louder and louder. Companies tend to not want to say what they believe and not want to stand for things that they believe in because they’re afraid of alienating a certain group or collection of other people or whatever it is. And I think you’ve got to stand up for what you believe in and live by that. But that’s very important. You’ve got to have a point of view and believe in it. So, those are two specific things that I think are really important at a macro scale.

Jan Aleman: So, I guess it also accounts for your company culture that you have to, as the founders, be clear to your employees about it and then also keep enforcing it.

Jason Fried: Yeah. I think it’s important for everybody to essentially know what the company believes but not in a written format. Frankly, I don’t like a mission statement style format but you need to constantly live the things. I don’t think there’s much value in the written list of things as they either are self-evident because of your actions or they’re incorrect because you’re not living up to them, to begin with. So, I’m more of a person who’s like: let the actions speak for themselves. Try to be fluid in that things can change and don’t feel like we can’t try something new because we said we wouldn’t do something before. 

For example, when we went to switch to becoming Basecamp, we used to be 37signals and we switched to the name Basecamp. We decided at that point, in 2014, not to do any more products anymore. We’re going to be a one-product company. And then a few years ago, we just had this itch and we had to build this new email service called Hey.com, and if had we just followed what we had said then we would have missed an opportunity. We just decided to be fluid and go, We’re going to try something because we just feel like we have to. And that’s the most important value. 

Changing your mind is a good value. And I think that that’s important, even though you still want to stand for things that you believe in, you can change your beliefs over time. But the best way to do that is to not have this written thing that you keep butting your head against. That’s typically my feeling. And as far as company culture goes, I’ve always believed that culture is not a static thing.  I always think about it as a moving average. What’s the last 50-90 days been like at your company? That’s your culture. It’s not what it was two years ago. It’s not what you say it is. It’s what it actually is: How are we to each other? How have we been to one another? What have we done over the last 50 to 90 days? That’s the culture. I think that’s an important thing to keep in mind.

Jan Aleman: Do you find it’s tougher with everybody remote and now even in different countries to keep everybody on the same page? I guess you fly them in once in a while and you physically see each other.

Jason Fried: Twice a year we get together. We didn’t do this during the pandemic, but we just did it recently in March in Miami. It was wonderful to see everybody again. So, we do that twice a year. We fly everybody into the same city and hang out for a week. But yeah, as you get more people and more places across more time zones, it is more challenging, which is why writing is so important to us and I think so important to remote companies. Video chats are handy occasionally, but not really great to try to communicate with the whole company as it’s hard to coordinate times. So, you can’t really rely on a real-time culture when you have people all over the world. It has to be more asynchronous, more written, and more thoughtful. I think that’s a really important thing. But the teams that are working together on a daily basis probably should catch up at least once a week in some sort of a real-time format.

Jan Aleman: Would you say that instead of a daily stand-up, you prefer to have a weekly gathering to get everybody up to speed and do everything?

Jason Fried:  Basecamp is an asynchronous tool. There’s this feature called automatic check-ins, which will prompt people on a daily basis to ask them what they’ve worked on. And so we don’t have to do a daily stand-up. We don’t have to pull people off their work and coordinate schedules. People just write up every day what they worked on at the beginning of the week. They write up what they’re roughly planning on working on or what they hope to get to this week. And that is a lot of information that’s being shared on a daily basis without having to coordinate any schedules. Then, during the week there’s a lot of small team work. So, whenever we build a feature, for example, in a product, there are no more than two people working on it – one programmer, one designer. So two people can catch up frequently without having to really coordinate schedules across three or four or five or six people. That’s what becomes hard to people, pretty easy. They can catch up in real-time occasionally when they need to, but for the most part, most of the work is done asynchronously. And as a team, we typically get together once a week just to kind of catch up with each other. But it’s not to talk about the things we can write down. It’s about catching up on things we don’t write down. That’s the value of these weekly camaraderie moments.

Jan Aleman: So then, there must be strong discipline for people to write things down, which is a challenge with a lot of people.

Jason Fried: Yes, but that’s exactly how it goes. So, we hire great writers. It’s a big part of what we do. And it’s actually a  primary skill no matter what role you’re in. So, you’ve got to be a great writer and if you’re not, this just isn’t the right culture for you.

Jan Aleman: So, what does your onboarding process for a new employee look like? 

Jason Fried: We do have a company handbook, which is also public. I think it’s Basecamp. com/handbook currently. We’ll probably move this over to 37signals at some point. We ask people to read that and we give them access to Basecamp. Of course, our tool that we use to do all of our work. The beauty of writing things up and having a written culture is that people could read, they can go back and read. 

You can’t do that if you’re just having meetings all the time. First of all, no one’s going to watch if you recorded them all, no one’s going to watch 180 hours of boring meetings. People can read, though, and they can read at their own pace and in their own time. So, they’ve got a written culture so there’s a rich history of how we work and examples of how we work. In some cases, we bring people in and they’ll meet up in person. 

I just hired a new head of product strategy and I flew him in for a week and we hung out together for three days. It wasn’t a full week but for three days, we hung out to get to know each other in person. Some teams will do that, some teams won’t.  During the pandemic, we didn’t do it so there’d be a little bit more video time. But we have a prescriptive way to do it. You read this, you read that, you catch up with your team, and you’re assigned a buddy who’s your point of contact that you can rely on to answer questions to get to know the culture and the company a bit. And it’s been working out pretty well. We’re always adjusting. It’s not always perfect and different roles are better at it than others. Like our customer service team, it is a really wonderful training program. They’ve got a very detailed onboarding process, not quite as much on the design side. The programming side’s a little bit better. It depends on the different roles. But one thing I would say is that we try to get people involved in real work as soon as possible. That way they’re not sort of wondering how things go. It’s nice to jump in with someone and get to real work. 

Jan Aleman: I guess with a tool like Basecamp, you can also make the writing and the sharing of this data within the organization easy.

Jason Fried: Yeah. Since everything is written, there’s a full history of every project and it’s not a transcript. It’s not like Slack. You cannot say, Here, go read back across 14 chat rooms and try to make sense of anything. Whereas on Basecamp, all the conversations are structured. So, when there’s a To-Do or a piece of work that’s being discussed. The discussion is attached to the To-Do itself. So, all the discussion on that page is about that very thing versus trying to balance between a transcript. Basecamp is a structured place to have communication that’s centralized and long-form, and it’s very easy to kind of read back and dig into things that interest you and find out how things work. So, it is a nice way to get up to speed.

So, it’s to-dos, it’s schedule items, it’s a lot of message boards, so a lot of long-form writing and then decisions with comments that are attached to that writing. Everything in Basecamp has comments attached to it. So if you have it to do, you can discuss that to do on The To-Do. If you have a to-do list and you want to talk about the list and not just To-Do, you can discuss the list. There’s a common thread on the list. 

There are check-ins, which is this automated system that polls people on a regular basis to submit information like, “What’d you work on today? What are you going to work on this week? What’s something you’ve learned in the past month?” Things like that. So, there’s this kind of constant pulse. There are chat rooms. We do have direct messaging built into Basecamp. These are tools that can be used, but they’re not the primary method of communication. The primary method is writing something up in long-form, attaching thoughts to things in context, and having a real library of progress versus a long transcript list, which is not progress – it’s just random conversations.

Jan Aleman: I think we’ve covered a lot of content in 30 minutes. For people who want to find out more, you’ve shared a couple of your publications and URLs already. I’ll make sure to post them in the show notes. I think for developers that haven’t looked into the Shape Up methodology, you should. 

Jason Fried: The way I would look at it is just ask yourself is what we’re doing working well for us? And if you’re very satisfied with what you’re doing then you should probably stick to that. If you’re like, “We used to make more progress, we’re not making as much progress anymore. It feels like we’re doing a lot of work, but not moving forward. Things never seem to ship.” Shape Up is really an interesting method because it’s all about shipping high-quality things. It’s not just about working on stuff, it’s about shipping, which is a different thing. 

Jan Aleman: Thanks. Great. Thanks a lot for this!

Jason Fried: Any time. Great to talk to you again!