SEASON 2 - EPISODE 0061 - JUN 7, 2023

It's Time to Care About Costs

In a time when many companies are disregarding profitability and spending recklessly, Jason Fried and David Heinemeier Hansson have taken a different approach at 37signals. They believe that caring about costs is a timely concern and a fundamental principle for running a successful small business.

In this episode of the REWORK podcast, they sit down with Kimberly Rhodes to discuss the critical importance of cost management in today’s business landscape.

From reevaluating software subscriptions to establishing fixed pricing models, listen in as Jason and David share their proactive approach to cost management. They discuss strategies for navigating the dangers of unchecked expenses and eliminating unnecessary expenditures and their detrimental effects on a company’s long-term viability.

Tune in as Jason and David share their practical insights and hard-won wisdom for building a sustainable AND profitable business in any economic climate.

Show Notes

00:00 - Kimberly introduces the episode and opens today’s discussion on the importance of caring about costs in business.
00:49 - As the availability of money is decreasing, companies are starting to realize the importance of profitability.
02:22 - Jason discusses the difficulty of shifting into a cost-conscious mindset and the common first steps of cutting costs.
03:39 - How to ensure profitability.
04:41 - David shares their experience during the dot-com boom and bust, which influenced their mindset of never wanting to be financially vulnerable.
06:24 - Why smaller bootstrap businesses must cultivate cost-conscious habits early on.
07:16 - Money buys independence (options, time, and flexibility).
08:07 - Redefining what makes financial sense and prioritizing cost-effectiveness—even if it’s not your money.
08:50 - Companies are facing the harsh reality of survival. It’s time to focus on maintainable practices before it all comes crashing down.
09:40 - An opportunity to rein in wasteful spending for a more sustainable future.
10:37 - Without occasional controlled burns, the forest of technology becomes a ticking time bomb.
11:21 - A startup in Denmark is facing the end of their runway in just nine months—how they could extend their runway twofold.
12:19 - Kimberly shares about the caution-to-carelessness cycle that happens as small businesses begin to thrive.
12:43 - Jason shares how hard it is to break free from the spend-centric growth-chasing culture, especially when fuelled by other people’s money.
14:13 - The “spend it all” mentality that creates a Monopoly-style illusion masking financial responsibility.
14:48 - The habit of spending is easily acquired, but making more than you spend is the real challenge, and in the next 18 months, companies lacking a profitable formula will face the music.
15:44 - Categorizing and Value Assessment: monitoring expenses depends on the stage of your business.
16:30 - David shares that if you evaluate costs beyond the immediate month or year, numbers that seem small become meaningful.
18:46 - Some costs can evoke disgust when examined closely—like our $3 million annual cloud bill—revealing their true magnitude
19:34 - A company should be a well-run, efficient system like a perfectly prepared hotdog.
20:42 - Kimberly shares that staffing and subscriptions are crucial to evaluate. Subscriptions, in particular, can accumulate and should be assessed for their value.
21:47 - David shares how 37signals prices their products and how overlooking unnecessary subscriptions can significantly impact your bottom line.
22:30 - Would you pay for multiple tools when one comprehensive solution, like Basecamp, would suffice?
23:20 - Why paying excessive amounts for separate tools seems grossly unnecessary, Kimberly shares how the expense of five different software tools to Basecamp and the savings are staggering!
24:07 - Jason gives an example of how variable costs can quickly spiral out of control (especially with per-seat pricing)
24:52 - How Basecamp’s unlimited plan with a maximum cap offers businesses the peace of mind of a fixed price, helping to keep expenses from spiralling out of control.
25:39 - Predictability can be a good thing—how to assess variable costs and determine ways to fix them.
26:59 - How SaaS software’s per-seat pricing model often leads to exorbitant expenses. Plus, a story about what Twitter’s shift from Campfire to Slack cost them.
28:19 - We’re spending how much money on the chat tool? Even companies the size of Twitter can use Basecamp for just $299 a month.
29:11 - You can find out more about Basecamp at basecamp.com. REWORK is a production of 37signals. You can find show notes and transcripts on our website at 37signals.com/podcast. If you have a question for David and Jason about running a business, leave a voicemail at 708-628-7850 or email us with questions to have it answered on an upcoming episode.

Links & Resources

Do you have a question for Jason and David? Send us an email or leave us a voicemail at 708-628-7850.

Transcript

Kimberly (00:00): Welcome to REWORK, a podcast by 37signals about the better way to work and run your business. I’m your host, Kimberly Rhodes. It’s no secret that businesses have to watch their spending in order to be profitable, but these days we hear about all kinds of companies that just aren’t profitable. Companies that are losing tens of millions of dollars each year, but continue to spend as if it doesn’t matter. That’s not how Jason Fried and David Heinemeier Hansson, the co-founders of 37signals have chosen to run their business. And very likely it’s not how you can run your small business either. Jason and David are here with me this week to talk about the need to care about costs in your business. I’m calling this episode, it’s time to care about cost, but I have a feeling, guys, you guys are gonna say it’s always time to care about cost, but that’s like not what people are doing, not what companies are doing right now. Help me understand this.

Jason (00:49): You know, I think a lot of small businesses do, obviously. So I think there’s a narrative out there that, that, um, people don’t care. Most do care, but the problem is, is that the, the highlight companies, the the ones that have raised a bunch of money, haven’t cared. And so people tend to follow those stories because those are the sexy stories. Those are the big success stories. And so they kind of emulate that in the same way they emulate how they might work or whatever. And what we’re seeing now, of course, is that as money dries up, people start to go, oh, we should pay attention to this stuff. And profitability starts to matter. All of a sudden, like, and it happens all of a sudden, um, you know, the markets tank or VC funding dries up or the bank goes under and, or interest rates go up and whatever it is, all of a sudden what, what, you know, the free money is gone.

(01:38): Like for the past 10 years, money was kind of free in business for a lot of people. Interest rates are incredibly low. There was tons of money out there, and now it’s gone. So what, what happens though? What’s difficult about that is that companies aren’t used to being prudent about this. They aren’t used to being, I’m not even gonna use the word frugal. They just aren’t used to thinking about the cost side of things. And so to have to shift into that mentality is very, very hard. And it’s often very, very painful because one of the first things to do to cut costs is to cut people and cut marketing and then cut people. Basically, that’s like what you cut. And, and David will probably talk about also being able to cut technical costs and getting outta the cloud and some other things there. But, um, like short term, quickly, it’s, I hate to, I mean, I’m air quoting this, it’s easy to lay people off.

(02:22): If you need to save a bunch of money, that’s like the fastest way to do it. By next Friday you can be saving money, that kind of thing. So it’s a very awkward moment. It’s very painful, and then you’re just not practiced. And, uh, and then, then it’s very, very hard. And I think, um, the good thing is to is to just always be exercising, you know, um, always be exercising. It’s hard to, like, you sit on the couch for three years and start to get up and try to run. You’re gonna be, it’s gonna be pretty bad and pretty bad, terrible and painful. But if you’re, if you’re constantly exercising or every few days a week or whatever it might be, it’s just a lot easier to do better if you need to. And also to feel comfortable adapting to new reality.

(02:59): And even though we’ve always been paying attention to costs, um, there are new realities for us too. Like the market’s changing and, and the economy’s changing. And it’s just easy for us to think about those things because we’ve always been thinking about them than having to immediately think about them and have no idea what to do. So anyway, we’ve always been focused on making more money than we spend. We’ve been profitable every year since we’ve been in business for 24 years. And it’s just a fundamental part of, it’s a feature of our company. It’s a feature of our products essentially, is to make sure that we’re making more money than we spend. And that’s, I guess why we’re comfortable with it. But a lot of people are not. Cause a lot of companies have been losing tons of money for a long time.

David (03:39): And I think for us, a lot of this boils down to independence. If you are making more money than you spend, you get to live and do as you please forever as a business. If you’re the kind of company who’s been spending tens of millions of dollars in the red every year, you are at the mercy of someone providing that capital for you. And that might be easy in the good times and the good times lasted a very long time. There’s an entire generation, maybe a couple of people who’ve worked in the technology industry who’ve never seen a belt tightening on a grand scale like we’re seeing right now. I think this is one of those things that both Jason and I got vaccinated with very early in our career when the.com boom and bust in the late nineties, early two thousands, that cycle, going through that, seeing it really up close, seeing people laid off as an employee and really feeling that, um, provided us with this vaccine and this zeal to like, do you know what?

(04:41): I don’t ever want to be in that position. I don’t ever want to get so far out over our skis that if there’s a hiccup in the market, like that we have to adjust. And then as Jason say, if you have to adjust really quickly and you’re not used to it at all, it’s a habit that doesn’t exist and it’s incredibly painful. So we’ve been exercising the whole time. I also just have a aesthetic interest in this. I hate wasteful things and there is so much waste in spend for a lot of companies just wildly overspending on things they don’t need at all or things they might need, but it’s completely disproportionately priced. This is how we ended up pulling back from the cloud. It wasn’t that we didn’t need servers. It wasn’t that the cloud didn’t have some advantages. It was that that need and those advantages did not square up at all with the costs involved.

(05:38): So getting back behind our skis and, and running a highly conservative business, I think is one of the things that’s just been out of fashion for a really long time. It comes into fashion for a couple of years around each downturn. And then I guarantee you, a couple of years from now, presumably when the bull market returns, people will just forget about this until the next time. But it doesn’t have to be that way. And I think it was probably easier for Jason and I to not get out of that because we’re playing with our own money. We have skin in the game, we own the business. A lot of people who spend a lot of money, they don’t have that kind of skin in the game. It’s just not their business. It’s investor money. And when we say investor money, it’s not even in the investor’s money.

(06:24): It’s the limited partners money. So there’s even, uh, a hop removed when you think of, of the VC funding and so forth. The actual people losing money in many cases are two or three hops removed. Those limited partner might be a pension fund. So there you have another layer of indirection before you get to the person whose money you’re actually playing with. And when you have 2, 3, 4, 5 different layers of indirection before there’s a connection to spend and um, sort of where that money is coming from, it becomes quite difficult to care in the same way as if it’s your own money. So I think this is just one of the reasons why it’s easier for smaller businesses, why it’s easier for bootstrap businesses to be efficient, um, to care about cost, to grow those habits early on. And I think that’s an incredibly good thing.

(07:16): Um, as we look at our business and as, as we go through it, I just, I get this sort of sense that I’ll look at something, I’ll look at a line item, right? Like I’ll go through the um, the books with Ron every month where I just, I look at a line and go like, eh, uh, no, do you know, no, that is not worth. And I always times 12, right? Like we look at the monthly things and I go like, how much is this on a yearly basis? The last one we just went through was this, um, piece of software we’re using for monitoring our services. You added it up, it was $88,000 a year. And I just went like, no, no, no, no, this is not $88,000. Then I do the calculation right away. So what is an all in developer, um, sort of more junior developer, like it is six months worth of a junior developer’s time.

(08:07): Are we getting like six months worth of like effort out of this tool? And I was like, no, absolutely not. It’s a great tool. I don’t mind us having it. I’ve seen it, it works well, but like, do you know what, what feels right here? Feels like, uh, no, two months, one month, that would be about right. They’re asking six months. No, no, we’re not doing that. Um, so I think getting into that habit, getting that feel for it, getting the taste for it, that like this is actually the money matters. And even if it’s not your money getting into the sense that the money buys you independence, it buys you options, it buys you time, it buys you flexibility, all these other things you can look at and go like, yeah, I would like some more independence. I wouldn’t like some more flexibility. Even if you’re in a venture capital funded company.

(08:50): Wouldn’t it be nice if you didn’t have to raise money every 18 months? What if we could stretch it to 24 or 36 or whatever it i s, or what if we were just allowed to survive, right? Like that’s the reality a lot of these companies are facing right now. A bunch of these companies who have been losing tens of millions if not hundreds of millions. Several of our competitors, Jason and I went through this when those whole um, sort of contractions started, there are companies out there who sell comparable products to Basecamp who’ve literally been losing a hundred million a year, a year selling the same thing that we do. Just building it with ludicrously, bloated organizations spending way too much money because they would just force fed all this capital and had to show these ludicrous growth rates where it just didn’t matter what money was left over, it just mattered,

(09:40): Can you grow the top line buyer a dollar, I don’t know, spend three bucks on it, spend five bucks on it, who cares? Just get to that magic $100 million, um, a year revenue mark and then we can sell it to the greater fool. Like that whole charade has stopped. And this is one of the things when people think of a crisis like the one we’re going through right now in large part of technology, they usually think of like, oh man, this is, this is awful. And it is on an individual level for someone getting laid off absolutely awful. But you know what, on a systemic level in term of reigning these excesses in, it’s actually good. It’s kind of like this, um, in California where both Jason and I have spent quite a lot of time now we had this, all these problems with um, wildfires and some of that wildfire problem came because we didn’t burn the chaparral, I think it’s called, like the accumulation of debt branches that were sort of just laying around.

(10:37): If you don’t occasionally sort of clear that out, it’ll just build up into an even bigger fire when it finally hits. And I think that’s what we’re seeing right now. We’ve gone like 12 or what is it, 14 years without even a controlled burn. No wonder the entire forest of technologies is stacked with all this chaparral and it is just gonna burn the whole thing down in half a town and more to it. And it didn’t need to be this way. We could make different choices, we could run businesses in different ways and we’re trying to put one example forward where we’re running it in a different way. And it really, it starts with cost. Just before jumping on this, I was just on a call with a startup here in Denmark that I’ve put a little bit of money into who’re looking at this right now.

(11:21): We’re like, we’re gonna run outta money in, whatever nine months I think it was. That’s the end of their so-called runway. And they just took it for given that like, oh man, we gotta, we gotta grow the top line and of course you should try to grow the top line. I took the other approach like, do you know what you could, you could extend that runway to double just cut your expenses in half. They’re like, whoa. What, what do you mean cut you expenses in half? Like so many people are not sort of born to think about that. And I think that’s why, or one of the reasons why is that entrepreneurs are such optimists. They’re so attracted to this idea that you can just grow the top line and that’s a great sort of instinct to have, but you have to mirror it always with the fact that there’s costs there and you just, markets are gonna change and you can’t just always grow your way out of it. Sometimes you’re gonna hit a plateau and you’re gonna be at that plateau until you unlock the next idea. And the way you get to stay there and not tumble all the way down the hill is to cut your costs.

Kimberly (12:19): And I know for some small businesses you start, I’m speaking from my own personal experience, you start your business being very cautious of costs and then things start going well and then you just kind of loosen up a little bit. I think it’s not that one year one where you’re overspending, it’s that year 3, 4, 5 when yes, you have a business now and things are going great, so you can spend some more on different pieces of software or whatever you wanna do.

Jason (12:43): Yeah, that happens. The other thing is, is that the, I don’t know the the financial industrial complex, wherever, whatever we wanna call this in this industry, it trains people to spend money. It encourages their companies that to you cannot raise around and hoard that cash. You’re supposed to spend that cash so then you can come back to the well and get some more. And every time you do that, the VC firms get a little bit more of your company and you lose a little bit more of your company. Um, but it, it was all about growth. It was all about market share. It was just grab spend and grab basically. And so that’s what people are trained to do and that’s very hard to reverse your training. Now in your case, you know, the solo entrepreneur event planner, like, you’re gonna be tight with this stuff early.

(13:28): You’re like, and I think about, I was thinking about the dry cleaner on the corner. It’s like my always my poor typical small business, the dry cleaner on the corner is not blowing money on things that don’t matter. They’re just not, they can’t and they’re not, they are tight business people. They have to figure out how to make more money than they spend. There’s not even a moment where they’d be like, yeah, I’m gonna buy something, you know, I don’t need, it’s just not gonna happen. Um, but once you’re flushed with other people’s money, like David was saying, that’s really the key phrase to other people’s money. Once you’re flushed with other people’s money, it doesn’t even feel like you’re spending it. You’re just using it. It’s like you’re not spending, I always think you spend your own money because it’s gone now. Um, but if it’s other people’s money, you’re just kinda like almost, I mean this is the wrong way to say it, but you’re almost playing with it.

(14:13): It’s the wrong way to say it, but, but it kind of almost feels that way in a sense. It’s a little bit more monopoly style. And the problem I think again is that the industry, the money makers or the, the people who, I shouldn’t say money makers, but the people who seed these companies with money, they want you to spend the money. If you’re not spending the money, they’re like, what? What are you doing? You need to spend this money that we gave you. And so that’s, that’s the training you get. That’s what happens. Yeah.

Kimberly (14:39): Jason, I’ve heard you say before, when you have that kind of venture capital money, you’re being taught how to spend not taught how to make.

Jason (14:48): Right, every entrepreneur, I mean, whatever you do is you form habits by doing things, right? So if your, if your habit is, is spending, if you become really good at spending money, then that’s what you’ll be good at. Thing is, that’s actually the easier thing to do. The harder thing is, is to make more money than you spend. But, and if you don’t practice, how would you ever expect to be good at that? And um, a lot of companies are not practiced and you’re seeing the implications of that now. And you will be seeing this unfold probably over the next 18 months. Cuz some companies do have, they raise money not too long ago before things kind of went bad and they’ve got money and now they’re cutting, but they still don’t have the formula to make more than they spend. And so, uh, we’ll see what happens.

Kimberly (15:26): So David, you mentioned looking at costs monthly. Kind of talk us through just like as a business perspective, advice, what you guys do looking at those expenses and like what you would suggest someone else do. Is it monthly? Is it quarterly? Is it weekly? When should they be analyzing this kind of stuff?

David (15:44): I think it depends probably on where you are, how early on you are. If you just got started and you really don’t have a lot, you have to watch it a lot closer for us, it kind of comes and goes somewhat. I mean as we talked about, we have two people on finance who are paying attention overall and can flag things, but that’s more of a categorization effort. It doesn’t necessarily tell you whether it’s worth it. Like we might have line items that are incredibly large, like, wow, we just spent, I don’t know, $400,000 on a meetup like that looks like a huge lineup. And I’d go like, wow, that was such great money spent, that was well worth it. And then there’ll be another line item that’s like 25 grand and I go, look, there’s no f’ing way. Get that line item off there, right?

(16:30): Because the proportion between value and cost is totally outta whack. And I mean, I do now have a lower limit. I didn’t used to, like, I’d get upset about us wasting $700 on something. I’d be like, why the fuck are we…? Now I have like a little bit of a, like a threshold there. Like anything below five grand, at least at our level now, I, I don’t really spend that much time on unless it’s a recurring cost. And then of course I don’t look at five grand, I look at 60 grand because that’s how much five grand a month expense is gonna add up to. And then I often even look at it, especially if it’s about computer equipment. I look at it on a three or five year, right? It’s not five grand a month. It’s 60 grand a year is 180 grand for three years and then you’re like, yeah, actually no, no that it’s not worth 180 grand.

(17:14): So let’s get rid of that. So that’s some of the things you can use to motivate yourself to care about these things. Just multiply it, just think about it over a year. Think about it over three years, suddenly relatively small numbers start feeling rather meaningful. But the mode we’ve been in for a good while now has just been like, I felt like on a few things, on some of our subscriptions for example, I felt like we got a little sloppy, like we got a little bit where even within a company that’s run by someone whose money you’re playing with, as Jason would say, um, there are other people in the company who, again, it’s not their money, right? Like Jason or I own the company. So it is more visceral to us to some extent than to someone else who signs up for, hey, I just feel like this is a nice product, we should use this or use that.

(18:01): They don’t have the same feeling with value as we have. And of course they wouldn’t because no one else have that if, if you don’t have skin in the game or at least it doesn’t come natural and it’s something that has to be sort of passed on. So we got a little floppy on some of it, the same thing with the cloud thing. And then I just went like, do you know what, no, let’s just clean it all up because then we can clean it all up and get it down to a level that feels good, feels right. And then we don’t need to like look at it every, every month. Like for a long time I looked at it like once a quarter or once every six months. Now that we’ve been in this more intensive phase, I’ve looked at it every month and I’ve really just like, let’s just make a big push now, clean it all up and then we can keep, keep it clean at a much lower effort.

(18:46): That’s the other thing, as Jason said, like if you don’t practice something, if you’re not in the habit of it, if you’re not following up, it will accumulate. You will end up with a bunch of stuff that like I, I wish we’d rather not. Um, on cloud, this was most evident there because the numbers were so large, our cloud bill is over 3 million a year. Like that’s real serious money and once you broke it down and so on, um, it really just became gross to me. This is also one of those things where I know that it’s just a different frame of mind to be in because I use the disgust metaphors when it comes to cost that feels disproportion. Like it’s gross, right? That’s literally how I, I look at it like a, like a sausage that fell on the ground and has a bunch of hair on it and I just go like, ugh, that’s disgusting.

(19:34): I don’t want, I don’t wanna hold that, let alone eat it. And I’d like to look at our business, our company as like a system that again, staying in the metaphor here is delicious. It’s well run, it’s efficient, it’s not overly efficient. It shouldn’t just be everything at the max tolerances. That’s also our fragile and brittle system, but it should be like well oiled and it should be clean and it should be a nice place to sit and eat a hotdog. And I think using some of those human instincts to help motivate you because you know, I mean it’s not sexy, it’s not exciting actually that’s a lie. I do actually find it exciting. I am seriously excited when we are able to shave off let’s say 20 grand of expenses that felt like useless, needless it feel like I really cleaned something up that’s satisfying. It’s kinda like those videos with a power washer. I dunno if you’ve ever seen those where like you look at something really dirty, right? And then someone walks up with one of those power washing machines, you go like, oh, that’s really satisfying cleaning all that grime off, right? That’s how I at least like keep myself motivated to review expense reports once a month.

Kimberly (20:42): Nice. Okay, so you guys mentioned staffing being a big place people usually cut um, cloud expenses. David, you’ve noticed that. What are some other kind of key areas people should be looking at? Subscriptions? You said that, I mean, , I think all of us have that, you know, now you’re on a subscription for television, you’re on a subscription for like everything in the world that you used to just buy once you’re now on a subscription for.

David (21:04): Yeah, I think that subscriptions is really one of those things that’s quite near and dear to our heart because we make subscription software. So I wanna also just feel like what we are offering feels proportionate. The way Jason and I for the longest time forever has priced our stuff has been, first it has to pass the gate of would I pay for it? Does it feel reasonable to me while we’re charging for this product? So if we look at something like, uh, like Basecamp, if we had to buy Basecamp from someone else that made Basecamp, would I feel like this is a good deal? Um, and we try to design prices around that and I feel like it is a pretty good deal. Like on our, on our site we compare it to like, hey, if you’re using this suite of five different, um, products, how much would that add up to?

(21:47): How would that feel to have like these five different subscription charges tick in on your account every month? You’d be like, uh, I don’t know. That probably wouldn’t feel that great. Um, again, I enjoy also cleaning up my own subscription just personally it was like, do you know what this newspaper subscription, am I reading it enough? Is it worth, worth worthwhile to to keep it? And you can carry those instinct forward into operating your business and I think you’re actually better off for it because most people do have these instinctual senses of whether something is worth it when they’re playing with their own money. So when they’re reviewing their own subscriptions, they’re going like, nope, too much. I’m gonna cut whatever HBO o it’s gone to go. That’s dumb out. Um, and then you can carry that forward into you’re looking at your, your business subscription.

(22:30): And I’ve talked to a lot of people who run relatively small companies who were talking about like having 10, 15, 20 subscriptions to pieces of software. And I go like, what? Wait a minute, what, how much are you spending per employee? Like counting up all the per seat costs? Like that’s a vast sum of money. Like I wouldn’t feel comfortable with that. Um, so I think people do really well to just go through that. Look at it. Does it feel reasonable and reasonable compared to the alternative, right? Like one of the things that we pitch all the time is that Basecamp is like five products in one. Like you may very well like, I don’t know, Trello or Dropbox or Asana or Slack, but do you like them enough to pay for all of them versus this thing? Um, you might not and might look a little silly if you do the numbers.

Kimberly (23:20): Yeah, I mean I did the numbers and it’s like 10 times as much to have those five pieces of software compared to Basecamp. Literally we as a small company, 80 people would pay 10 times as much.

David (23:30): Which I mean, I’m a I need to sort of restrain myself for not just blurting out gross gross, like why would you pay 10 times as much for something like that? Um, if, if you can get an integrated, solution that can do it. And again, we’re obviously talking our own book here, of course we’re gonna like our own software, but this is a general exercise that you should make regardless of what kind of company you’re in, regardless what kind of software that you’re buying, you gotta manage those expenses in the good times such that it’s, it’s easier to do and deal with when inevitably like the not so good times are gonna happen.

Jason (24:07): The other thing I wanna bring up is this idea of variable costs versus fixed costs. So we’re talking about costs, but, but variable costs are where you can really get into trouble. Like you mentioned Kimberly, let’s say you’re paying for five different products and they’re all per seat and there’s no cap, there’s no limit and you have a growth spurt and you hire another 20 people or 25 people, or in some cases a hundred people or two. Everything just got way more expensive. I mean, salaries of course, but also all, all your products got way more expensive. It’s the same product you had before. Why are you paying this much more for it? Yeah, there’s more people using it, but like, so what really? Like how, how did that happen? So when your, when your costs are not something you can sort of fix and, and hold in your head like, we are only paying this much for this.

(24:52): Um, it just becomes harder to manage and you don’t see the slippage as much. When it’s variable, it slips slowly until it’s this big huge snowball. You’re like, how did that happen? So one of the things that we have in Basecamp is, is this is this, uh, idea of the unlimited plan. We’ve had this for many, many years, which is basically a cap. Right now it’s 299 bucks a month, 299 a month, and it’s unlimited users at that point. So we have a per user and also a cap maximum ultimate plan. And I think it’s important to offer businesses a fixed price where they know that no matter how big they get or how much they use it, their costs will stay the same. This is sort of one of the first methods to kind of getting costs under control, which is to actually make them predictable.

(25:39): Variable costs are not really predictable. I mean they kind of are, you gotta do some math every time, but they can also get outta control. Any company, no matter how big they grow, the maximum they can decide to pay us is 299 a month and that’s fixed and they don’t have to think about that anymore and it’s out of their mind. They can hire more people, whatever they need to do, it won’t matter. That’s another way to start to get costs under control. So look at your variable costs and figure out other ways to fix some of these costs. Um, I mean cutting them might be even better, but at least fixing 'em then, then they’re predictable and you know where you’re going. And that’s a nice way to mentally start to hold these numbers in your head.

David (26:11): This is actually the driving force behind the whole cloud realignment that we’re, the cloud exit that we’re doing is that the burial will cost sneak up on you so quick, particularly when it comes to cloud. You can start on something you’re going yeah, isn’t not so bad, and then you get a little more traffic, you add a few more servers or whatever, and suddenly you go like, wait, what? We’re paying how much and we’ve been paying that much for how long, um, that it can really sneak up on you and surprise you in ways where you just go like, this just feels outta control. This was the same thing with the case I just mentioned earlier where we were paying $88,000 for this monitoring vendor. We had, we did not start, I did not sign off on an $88,000 a year spend for this. I think when we originally looked at it, it was like 30 or 40,000 already a pretty heavy chunk, but it wasn’t 88.

(26:59): And then suddenly through usage and overages and whatever, it just got away from us. And this is what happens with costs so often, they get away from you. If you’re not on it, if you haven’t capped yourself, if haven’t protected yourself, they get away from you. I think we actually do a major reset when it comes to SaaS software pricing, this unlimited, per seat, it just scales to the moon kind of pricing and suddenly a company wakes up and they’re spending like thousands and thousands of dollars on something they signed up for at a much, much lower cost. I think there’s just a huge opportunity there, waiting for someone to come in with different pricing models, try new things. We’ve been locked into this per seat model with no cap for so long that you think of these, um, uh, large company. I’m Twitter used to be a customer of campfire back in the day and they got the sweetest deal ever, right? Like they had like 5,000 people on the servers, they were paying us $50 a month. That was obviously grossly disproportionate and they shouldn’t be paying us far more. But then they switched to Slack, right? And I think at their uh, height there were like 8,000 people. I think Slack is like $15, uh, a seat or something. So that’s what, a hundred grand a month or something? Over a million dollars a year, a million dollars a year for a chat tool.

(28:19): That is just so insane. I’m like, I hardly can wait until Elon Musk discovers that line item as he’s going to, we’re spending how much, like now they’re down to 2000 people or whatever, but we’re spending how much money on the chat tool?

(28:33): He just like, I can imagine his head just exploding. And I think that as we’re going through this, uh, contraction, downturn, whatever, there’s gonna be a lot of that where people just go like, this is just, this is nuts. This is absolutely nuts. There are wonderful software businesses as as we’re doing where you’re like 299. That’s it. I don’t care if you’re Twitter, you can use Basecamp for $299 a month. That’s it. Where someone would go like, yeah, I need me. Some of that. I need some of the cap stuff, some of it that’s not gonna run away. Some of it where I don’t end up spending a million dollars per year for a chat tool.

Kimberly (29:11): I love that. Well, with that we’re gonna wrap. You can find out more about Basecamp at basecamp.com. REWORK is a production of 37signals. You can find show notes and transcripts on our website at 37signals.com/podcast. And last time, if you have a question for David or Jason about a better way to work or run your business, leave us a voicemail at 708-628-7850 and we just might answer your question on an upcoming show.