Jason Fried challenges your thinking on fundraising, goals, growth, and more
This episode features Jason Freed, co-founder and CEO of 37 Signals, discussing his contrarian approach to building a profitable, bootstrapped business. He shares insights on why small teams, efficiency over growth, and gut instinct lead to more fulfilling and lucrative outcomes, challenging the typical venture-backed startup model.
Deep Dive Analysis
20 Topic Outline
Introduction to 37signals' Bootstrapping Philosophy
37signals' Success Metrics and Profit Focus
When Venture Capital Makes Sense for Businesses
The Power and Efficiency of Small Teams
Redefining Business Success Beyond Growth
Playing Infinite Games in Career and Business
The Challenge of 'Staying Up' in Business
Lessons from 25 Years of Entrepreneurship
The 'Shape Up' Product Development Framework
Why 37signals Avoids Making Promises
Adopting New Ways of Working Gradually
Fostering a Gut-Driven Decision-Making Culture
Common Pitfalls When Adopting New Methods
Jason Fried's Mindset Shifts Over Time
The Philosophy of 'Figuring It Out As You Go'
Why Work Should Not Feel Like War
Practical Advice for Starting a Bootstrapped Business
The Value of Constraints in Business
Introducing 37signals' New 'Once' Product Line
Relaunching Campfire as a 'Once' Product
8 Key Concepts
Bootstrapping
Bootstrapping means starting and growing a business using only personal funds or operating revenues, without external venture capital. This approach forces a focus on profitability and cost control from day one, leading to financial independence and long-term sustainability.
Appetite vs. Estimate
In product development, 'appetite' is a fixed budget of time (e.g., six weeks) a team is willing to spend on a feature, forcing focus on the simplest effective version. An 'estimate' is a guess of how long something will take, which often leads to projects expanding indefinitely.
Shape Up Framework
Shape Up is a product development methodology emphasizing fixed-time cycles (e.g., six weeks), small two-person teams (one programmer, one designer), and 'shaping' work upfront with clear problem definitions but allowing teams latitude in execution. It aims to prevent long, demoralizing projects.
Hill Charts
Hill Charts are a visual tool used in Basecamp to track project progress, representing work as a hill. Being on the 'upslope' means figuring things out, while the 'downslope' signifies pure execution, helping teams understand where they are and when to cut scope.
Cool Down Period
A two-week break after a six-week development cycle where team members can 'internally freelance,' fix bugs, or work on small, unscheduled tasks. This period allows for replenishment and prevents burnout from continuous 'sprinting.'
Gut-Driven Culture
A decision-making approach that prioritizes intuition, experience, and how things 'feel' over strict reliance on data or metrics. It acknowledges that human judgment incorporates many unquantifiable factors and encourages team members to share their instincts.
Negative Visualization
Negative visualization is a stoic practice of contemplating the worst possible outcome of a situation. By being at peace with the worst that can happen, individuals and businesses can move forward with greater confidence and reduce anxiety about potential failures.
Once Products
Once Products are a new product line from 37signals offering non-SaaS business software. Customers pay a one-time fee, download and install the software on their own servers, and receive the code, providing an alternative to recurring subscriptions and offering greater control and customization.
10 Questions Answered
37signals has been profitable for 24 consecutive years, generating double-digit million-dollar profits annually with about 75 employees and over 100,000 paying customers, demonstrating that significant success is possible without venture capital.
Venture capital is typically necessary for businesses requiring significant capital expenditures like factories, hardware, or rapid physical expansion (e.g., Uber, Airbnb). However, for software businesses, it's often not needed and can even be detrimental by forcing an unsustainable 'go huge' growth mindset.
Small teams can succeed by focusing on efficiency, building one core product well, avoiding enterprise customization, and using disciplined development frameworks like Shape Up, which prioritizes fixed-time 'appetites' for features over open-ended 'estimates.'
Success for 37signals is defined by whether the work is enjoyable, worthwhile, and sustainable, focusing on being profitable rather than chasing external metrics like revenue targets, OKRs, or growth rates.
Starting a business (a 'startup') is often easier than 'staying up,' which refers to the long-term challenge of enduring market changes, competition, and plateaus while maintaining a sustainable operation.
37signals uses the 'Shape Up' framework, which involves fixed six-week development cycles, small two-person teams (one designer, one programmer), and defining 'appetites' (time budgets) for features rather than open-ended estimates.
Decisions are often made based on intuition, gut feeling, and collective judgment, acknowledging that human decision-making involves many unquantifiable factors. They prioritize 'how things feel' and embrace an iterative approach of 'making it up as they go' rather than rigid long-term planning.
The biggest mistake is attempting rapid, 180-degree changes quickly on critical projects. It's more effective to start with low-criticality projects to experiment and gradually integrate new methodologies, allowing teams to learn and adapt without high stakes.
Stay as small as possible for as long as possible, meticulously control costs, do as much work yourself before hiring, avoid unnecessary complications, and mentally prepare for the worst possible outcomes (negative visualization) to build resilience.
37signals believes in an alternative to the SaaS model, addressing 'subscription fatigue' and the commoditization of business software. 'Once' products are one-time purchase, self-hosted software, offering users more control, no recurring fees, and access to the code for customization.
47 Actionable Insights
1. Prioritize Business Independence
Make independence a foundational decision for your business, as it grants the freedom to operate exactly as you wish without external constraints or obligations to investors.
2. Focus on Profit, Not Revenue
Prioritize profit as your primary financial metric, understanding that high revenue doesn’t guarantee financial health, but consistent profit ensures sustainability and prevents going broke.
3. Embrace Constraints
Actively seek or impose constraints on your business, such as small teams and limited cash, as these limitations foster ingenuity, drive efficiency, and force effective problem-solving.
4. Explore Alternative Business Paths
Don’t default to the venture capital ‘go big or go home’ model; recognize that bootstrapping offers many more viable and often more fulfilling pathways to building a successful and sustainable business.
5. Define Success by Enjoyment
Measure success by asking if you genuinely enjoyed the work and would willingly do it again, prioritizing personal fulfillment and worthwhileness over external metrics or growth targets.
6. Play Infinite Games
Focus on playing ‘infinite games’ in business and life, pursuing endeavors that never end (like building relationships or a company you love) rather than finite goals (like exits or promotions) for greater long-term happiness.
7. Trust Your Gut Instinct
Value and utilize your gut and intuition as crucial decision-making tools, giving them credit for synthesizing vast amounts of known and subconscious experiences into valuable insights.
8. Avoid Long-Term Planning
Minimize rigid long-term planning to avoid making outdated decisions and committing to future obligations that can lead to unhappiness; instead, stay focused on the present and adapt as you go.
9. Reframe Work Metaphors
Consciously choose positive, additive language (e.g., ‘create,’ ’exist,’ ‘make something great’) over aggressive, destructive war metaphors in business to foster a mindset of pride, excitement, and creation.
10. Focus on “Stay Ups”
Shift your mindset from focusing on ‘startups’ to ‘stay ups,’ recognizing that sustaining a business long-term is much harder and more commendable than merely launching one.
11. Monitor Your Energy & Interest
Regularly assess if your business fuels or saps your energy; if it consistently drains you, re-evaluate its worth and consider changes to maintain personal and professional well-being.
12. Prioritize Efficiency Over Growth
Adopt a business model that prioritizes efficiency in operations and resource allocation over rapid, often unsustainable, growth, which can lead to ‘slop’ and unprofitability.
13. Simplify Product & Pricing
Streamline your product offerings to a single core product with simple pricing to reduce complexity, avoid high support costs, and eliminate the need for extensive sales and customization.
14. Underdo the Competition
Instead of trying to ‘outdo’ competitors (which is expensive and defensive), aim to ‘underdo’ them by offering more simplicity and clarity in your products and services.
15. Minimize Startup Expenses
Drastically reduce startup costs by avoiding non-essential expenses like branding, offices, or custom web design; instead, leverage affordable tools and self-service platforms.
16. Maximize Early Self-Reliance
In the initial stages of your business, strive to do as much work as possible yourself, delaying hiring until absolutely necessary to minimize costs and avoid the complexities of managing others.
17. Prioritize Business Simplicity
Actively pursue simplicity in all business operations, recognizing that while simple tasks can be challenging, complexity invariably leads to greater difficulties and can quickly overwhelm even small businesses.
18. Practice Negative Visualization
Mentally prepare for the worst-case scenario and make peace with potential failures, as this ’negative visualization’ allows you to move forward with greater confidence and less anxiety.
19. Adopt ShapeUp Development
Implement the ‘ShapeUp’ development framework, using fixed ‘appetites’ of no more than six weeks per feature instead of flexible time estimates, to streamline product building and prevent long-running projects.
20. Use Small, Time-Boxed Teams
Structure product development with small, cross-functional teams (e.g., one programmer, one designer) given a maximum of six weeks to deliver a feature, preventing scope creep and slow decision-making.
21. Empower Teams to Define Work
Empower development teams by providing a shaped idea rather than detailed specs or task lists, allowing them to define the specific work needed and figure out the implementation independently.
22. Set Fixed Time Appetites
Counter the tendency for work to expand by setting fixed ‘appetites’ (time budgets) for tasks, rather than open-ended estimates, to ensure efficient completion within set limits.
23. “Kill” Overdue Projects
If a project cannot be completed within its fixed time ‘appetite,’ be prepared to ‘kill’ it rather than extending the deadline, to maintain system integrity and prevent endless, demoralizing projects.
24. Implement “Cool Down” Periods
Schedule ‘cool down’ periods (e.g., two weeks) after intense work cycles, allowing teams to address minor tasks, fix bugs, or pursue small improvements, fostering replenishment and continuous refinement.
25. Avoid Firm Delivery Promises
Refrain from making definitive promises about project completion dates, particularly distant ones like ‘by the end of the year,’ as this often leads to disappointment and undermines trust.
26. Pilot New Methods on Low-Stakes Projects
When adopting new methodologies, start by applying them to low-criticality projects where failure has minimal impact, allowing your team to learn and improve without high stakes.
27. Avoid Rapid 180-Degree Changes
Do not attempt rapid, fundamental 180-degree changes in your business or processes, as existing organizational momentum makes such drastic shifts prone to failure.
28. Limit Failure Post-Mortems
Avoid excessive post-mortem analysis of failures, as the true causes are often complex and unknowable, and prolonged analysis can lead to superficial conclusions just for the sake of agreement.
29. Ask “How Does This Feel?”
Foster intuitive decision-making by encouraging open-ended discussions and asking team members ‘What do you think?’ or ‘How does this feel?’ to tap into their gut reactions and emotional responses.
30. Test Raw Instincts with Project
In hiring, especially for creative roles, assign a paid project and then ask candidates ‘If you had more time, what would you do?’ to assess their raw instincts, creativity, and ability to riff on the spot.
31. Embrace Ignorance for Innovation
Approach new challenges with a willingness to be ignorant of conventional methods, as not knowing ‘how it’s supposed to be done’ can foster greater creativity and reliance on intuition, leading to novel innovations.
32. Offer “Pay Once” Software
Explore developing and offering non-subscription, ‘pay once’ software products as an alternative to SaaS, addressing potential ‘subscription fatigue’ and providing value for a single purchase.
33. Target Overpriced Software Commodities
Identify ‘commodity’ business software categories where numerous similar products still charge premium subscription prices, as this presents an opportunity to offer a high-quality, lower-cost, non-subscription alternative.
34. Build Essential 80/20 Generics
Create high-quality, simple products that master the core 80/20 functionality, rather than attempting to replicate every feature of complex, expensive alternatives.
35. Seek Zero Marginal Maintenance Cost
Pursue business models, like self-hosted, one-time purchase software, that eliminate ongoing marginal maintenance costs associated with hosting and support, boosting profitability.
36. Offer Complementary Niche Tools
Develop products that serve as complementary tools or specialized solutions for specific contexts (e.g., backups, secure communication) rather than solely aiming to replace existing market leaders.
37. Target “No-Brainer” Price Points
Price your products to be an easy, ’no-brainer’ purchase for customers (e.g., under $1000 for business software), encouraging adoption as a valuable addition to their toolkit.
38. Provide Product Source Code
Grant users access to your product’s source code (with appropriate licensing) to empower them, especially product teams, to learn from its construction, modify, and customize it for their specific needs.
39. Design for Universal Accessibility
Design products for universal accessibility by minimizing text and focusing on intuitive categories people already understand, reducing the need for localization and making it instantly usable worldwide.
40. Implement Dynamic Multi-Language Panels
For global products, provide dynamic translation panels that display key words or phrases in multiple languages simultaneously, offering universal access without requiring separate language installations.
41. Embrace New Creative Explorations
Permit yourself to pursue novel creative projects and ideas, even if they diverge from established plans, to sustain excitement and personal engagement in your work.
42. Focus on Current Execution
Prioritize and concentrate on the tasks and projects currently underway, rather than being overwhelmed by a vast array of potential future opportunities.
43. Imagine an Alternate CEO
Periodically engage in the thought exercise of imagining how an outsider would run your business to identify potential missed opportunities or alternative strategies.
44. Seek New Business Grooves
Actively identify and explore new ways of operating or new opportunities to avoid getting stuck in established routines and to foster continuous evolution.
45. Hire Selectively for Small Teams
Maintain a small team size to foster close collaboration and allow for highly selective hiring, ensuring cultural fit and shared values.
46. Assess Candidate Tastes & Influences
During hiring for creative roles, inquire about candidates’ tastes, admired products, and influences to gauge their perspective and the unique contributions they might bring.
47. Seek Aligned VC Investors
If pursuing venture funding, seek out investors who align with a disciplined approach, understand your reluctance for growth obsession, and grant you the autonomy to build the business on your own terms.
7 Key Quotes
If you think you're too small to be effective, you've never been in bed with a mosquito.
Jason Fried
You don't need to outdo the competition. It's expensive and defensive. Underdo your competition. We need more simplicity and clarity.
Jason Fried
Long-term business planning is a fantasy. I don't plan long-term because I want to do what I think, not what I thought.
Jason Fried
Promises are the downfall of every business.
Jason Fried
Most of the things you worry about never happen anyway.
Jason Fried
No one ever went broke making a profit.
Jason Fried
Just keep making great s**t. Keep your costs in check. Charge appropriate prices for your work. Share as much as you can and let the chips fall where they may.
Jason Fried
3 Protocols
37signals' Shape Up Product Development Cycle
Jason Fried- Define the 'appetite' (fixed time budget, e.g., max six weeks) for a feature, rather than estimating.
- 'Shape' the work ahead of time by clearly defining the problem and desired outcome.
- Assign the project to a small team (typically one programmer, one designer).
- Allow the team latitude to figure out how to get the work done, creating their own tasks and to-dos.
- Engage in discussions and 'trade concessions' if unexpected issues arise, adjusting scope to fit the appetite.
- If work is not on the 'downslope' (pure execution) by the time limit, the project typically dies.
- After a cycle, take a two-week 'cool down' period for internal freelancing, bug fixes, and unscheduled tasks.
Advice for Adopting New Ways of Working
Jason Fried- Do not attempt rapid, 180-degree changes across the entire organization immediately.
- Keep working the current way for most projects.
- Pick a future, low-criticality project to experiment with the new method.
- Accept that the first attempts will likely not work perfectly ('you're going to suck for a while').
- If the new method shows promise, gradually integrate it into more critical projects.
- Avoid trying new methods on highly critical projects initially, as failure can destroy future adoption opportunities.
Advice for Starting a Bootstrapped Business
Jason Fried- Stay as small as possible for as long as possible, focusing on controlling costs.
- Figure out how to do as much work as possible on your own before hiring anyone.
- Avoid spending money on non-essentials like elaborate branding or an office.
- Use affordable tools and services (e.g., a good laptop, low-cost website builder).
- Keep things simple and avoid unnecessary complications in operations and product.
- Practice 'negative visualization' by being at peace with the worst possible outcome.