SEASON 2 - EPISODE 0040 - NOV 16, 2022 Small Business

Out-Teach Your Competition

with Jason Fried and David Heinemeier Hansson

Throughout its tenure, 37signals has consistently grown without spending much on marketing.

How’d the company do this? By out-teaching their competition.

Recently, they’ve begun sharing their thoughts on company decisions and even doing product walkthroughs on their YouTube channel.

Jason Fried and David Heinemeier Hansson, the Co-founders of 37signals, discuss the true value of sharing the behind-the-scenes of how they work and what they’ve learned in over 20 years in business.

Show Notes

00:40 - The transparency in sharing the winding road of building your business.
01:17 - Why we share the behind-the-scenes of our work.
02:40 - David shares that the philosophy of out-teaching the competition is in their DNA.
03:04 - Building the company without overspending on advertising by sharing what we do through various mediums.
03:33 - Jason shares why the go big or go home tropes for building businesses fails to show all the options.
04:38 - How we built Basecamp.
05:25 - It doesn’t have to be all or nothing: how sharing makes things more approachable for more people.
06:16 - The key to sharing what people need to hear when starting out.
07:13 - The value of practical and pragmatic lessons for small to medium-sized businesses.
09:01 - David shares why the lessons from mega companies might be detrimental to your company.
12:33 - Sharing the behind-the-scenes, how we work, and what we’ve learned in our over 20 years of business through our Discussing Decisions! Videos on YouTube.
13:49 - Why you won’t normally find the ‘good stuff’ in content marketing.
16:54 - Why Jason and David are not afraid of sharing their ‘chef’s’ secrets.
18:21 - The “secret ingredient” lesson from Kung Fu Panda.
19:08 - Why most businesses succeed (or fail).
19:26 - The topics Jason and David don’t feel are worth sharing.
21:32 - Jason shares why they don’t discuss revenue.
22:48 - Changing your lens of view to discover the value of the truth vs. a vanity metric company.
23:41 - The immense value of sharing the ‘true gold.’

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. In their book REWORK, 37signals co-founders Jason Fried and David Heinemeier Hansson write about a simple way to get ahead without spending a lot on marketing. And that’s to out-teach your competition. And they’ve recently doubled down on this, sharing their thoughts on company decisions and even doing product walkthroughs on YouTube. I’m joined by Jason and David to talk all about this teaching philosophy. I feel like the two of you guys have always been very open about sharing what the company’s doing and sharing a lot of behind the scenes stuff that honestly, most founders wouldn’t. So why is that?

David (00:40): I think we’re just incredibly comfortable with the transparency that implies we are not ashamed of being even slightly ashamed that work in progress can be unrefined or unfinished and it’s fine. That is the reality that everyone everywhere already lives. Anyone can appreciate that this product or that decision kind of came together in a sort of windy road. But that’s also where all the lessons are. That’s where all the meat is on it. If you simply present the final result, the fully polished thing, there’s no lessons in that. There’s no learning in that. It’s kind of handing in your math paper and you just have all the results. How is a teacher gonna look at that and grade that and figure out whether you really understood the principles behind it? So we try to share all those subdivisions because that’s actually what I find really interesting.

(01:34): When I read from someone else or I follow someone else and I get that insight, look the behind the scenes, what is it actually? What is it actually? What goes into it? What are the ingredients into this thing behind of it? And I also think it’s just one of those sort of side things that have been created. Anyway, we are having these deliberations to make progress with our product. We could just share them. They’re happening anyway. The discussions are happening, the liberations are happening. All this stuff exists in reality. So for us to take two steps more and share it is not that big of a deal. And then of course, finally it’s incredibly effective. I mean, we have essentially built this entire company on the philosophy of out teaching the competition because no one else seems to be as interested in doing it or as transparent about doing it.

(02:28): So it’s a bit of a superpower still, even though these days it’s kind of gotten branded as content marketing, which is the absolute barf term for this whole box of things that you could do. No, we’re sharing things that we’re learning. We’re trying to teach you some of the lessons that we’ve picked up over 20 years in this business. And even before it was 20 years in the business, we did it right from the get go. We wrote our first book Getting Real in 2006. We did a damn seminar on how to build base camp a year after it launched. So it’s kind of just in our DNA to share all this stuff. As soon as we learn it and we share it in terms of writing, we share it in terms of software, we share it in terms of design, we share it in all these kinds of different avenues, everything that we do. And it means that we’ve been able to build this company without kind of racing a ton of money to spend on a ton of advertisement. Not that advertisement is bad and we’re dipping our feet into that as well. But we got all the way from zero to here on, I think less than a million dollars spent, at least in the first 15, 16, 17 years of the company’s history.

Jason (03:33): The other thing I would add is that part of it is just simply outta frustration. The majority of the storylines out there in our industry are raise a bunch of money, do it this way, go big or go home, hire a bunch of people. The tropes basically, right? That’s the story. And hang on a second there. No, no, no, no. That is a way you can do it that way. But there’s actually another way to do it, which is our way, which is by the way, quite mainstream. What’s interesting is in our industry, we’re seen as outliers, but actually our point of view is incredibly mainstream. Make more money than you spend. Run a fiscally conservative business. Don’t get ahead of yourself. Don’t take on more than you can deal with that kind of thing. So that message needs to be heard and needs to be an option for people. Otherwise, I feel like if we weren’t out there saying it, it just wouldn’t even be sort on the table for a lot of folks. So all the things David said, plus the fact that we just feel like we must share this stuff. We must tell people and show people there’s another way to do it and we think a better way to do it.

David (04:38): And that counter melody is so important because someone who’s sitting in the same shoes we were back when we got started, should feel like there is a choice. That there isn’t just this one playbook of how to get going, particularly in software, particularly in tech, where you sign up for this aspiration of becoming a unicorn or whatever nonsense is continuously being pedaled. No, there’s also a way of just getting started with part-time. One of the things that we’ve been talking about for two decades is side projects. Getting going with a new business without risking everything and putting it all on the line. That’s how we got going. That’s how we built B37asecamp. And hey, here by the way, is a way to do that. You may look at the competition or someone else that you’re inspired by and you’re like, I could never do that.

(05:25): They raised 10 million and had 50 people before they even got off the ground. How can I even get going? And then you can look at the counter melody that we’re singing. They’re like, Oh man, they built this thing as a side project. How did they do that? Oh, they used this piece of technology. They used these kinds of design techniques. They use these kinds of decision making frameworks to make progress on something as little as 10 hours a week. Do you know what that kind of sounds doable. I could probably kind of do that and then get inspired, get going and realize that this path is an option instead of just having this constant barrage of fantastical out of reach, either your total risk maniac who puts it all on the line, or you have the right connection to raise a ton of money. This is approachable for far more people than those who fulfill criteria like that.

(06:16): And it feels good, to be honest, to inspire that. That’s the other thing. This isn’t just a content marketing strategy. We don’t sit down and whoa, what do people want to hear? We sit down, say, What did I want to hear? What were the kind of lessons that I would’ve loved to be able to listen in on? What’s the behind the stuff scenes that I would’ve loved to been a fly on the wall with? That’s the kind of stuff that we produce, things that where we have something to say, not what kind of fills some damn quota about pushing something out because it has to fit some cadence. Now this is something we actually believe in and this is something we feel like we’ve learned something, right? If nothing else, you’ve been in business 307signals since 1999. If we hadn’t picked up some lessons in the course of 23 years, I’d be seriously full of regret over having wasted my time like that.

Kimberly (07:13): Well, and in the chapter you say something about how this is an advantage for small and medium sized businesses being able to teach that large businesses often don’t take advantage of.

Jason (07:26): There’s a few points to make about that. One of them is that most companies are small or medium sized. Listening to Facebook tell you how they built Facebook doesn’t help you at all because, and Facebook’s maybe a bad example right now cause they’re falling off a cliff, but still they’re massive. They’ve got what, 70,000 people still or some huge number or whatever. Its right. So listening to big companies tell you their stories, they don’t apply. They simply do not apply to where you are. And so I think that when we talk about our business, our business is far more relatable in the same sphere as pretty much everyone else’s business. We hold these big companies up on a pedestal. We don’t, but the industry does as if they are the leaders to follow. You can’t follow them. They’re extreme outliers and you’re not them at all.

(08:17): So I think that our lessons are far more practical and pragmatic, and I think that’s why they resonate more. Although what’s interesting is that I think people, a lot of entrepreneurs, although this might be changing now, they wanted to be Zuckerberg for a long time. I don’t think any of them wanna be that anymore, which is really an interesting thing to see that, gosh, maybe I don’t want that. Maybe I wanna build a more sustainable business. I mean, they’ve been around for a long time, so it’s kind of really not a great company to use an example for. But the hurt he’s in right now, a lot of people would prefer not to have that hurt upon them. So anyway, you can build a wonderful smaller business, medium sized business that’s ncredibly successful, that does great work, and you don’t have to have that kind of stress on your back all day long.

David (09:01): I’d even put it stronger. A lot of the lessons, and this goes for how to operate your company, it goes for what kind of technology to use. The lessons that come out of these mega companies are not just something that do not apply to you but actually applies it negatively to you. If you follow this advice, you will be worse off, as in you had never heard it in the first place. And I think this is why I also feel like we have an obligation actually to share something else since the people don’t get looped in to some bad advice that applies to a company of 70,000, applies to the processes of a 70,000 person company, applies to the logic of the scale, applies to the problems that they face in technology, the kind of problems that we face on a daily basis. They’re the same kind of problems you face if you’re five people or 10 people.

(09:50): We’re in the same sort of gravitational pool of reality and a lot of these huge companies just aren’t operating on different laws of physics and business. And you really have to be careful in that regard of what you listen to. And I said, it doesn’t just apply on the business side, it’s very much applies also in technology. Both Jason and I are intimately involved with actually building the things that we’re building anymore. If you’re an executive at a company of 70,000, you’re probably not spending a whole lot of time designing a feature. Programming a feature. We still do partly because we enjoy it, but partly also because that’s simply what you have to do at a company of our size. So I think the lessons that we end up extracting are just a very different setup lessons and that they apply so much broader. That’s the irony.

(10:38): If you look at the Fortune 500 and the kind of lessons that are being learned at that level, it applies to 500 other companies. That’s a tiny audience of companies where this is like, Yep, I’m at the same scale as you are. I have the same kind of problems when we’re reorganizing our divisions and we have, I don’t know, seven layers of management. These are totally the things that you need to know about. We’re dealing with a reality that’s the one of the Fortune 5 million or beyond, so many more people within that and a journey, even though I fucking hate that word, a history, let me use that word instead, a history that matches so many more, right? We didn’t go from the four people who started building Basecamp to 400 in 18 months, this kind of completely unnatural steroid driven development of these hyper companies.

(11:33): We were what, seven people after three years or something. In fact, we were a bit of a turtle in that regard, even compared to a lot of “normal” businesses. So on the same timeline, we’re on the same sense of page of history. And I think that just creates a connection that’s just so much more satisfying, which also means that these conversations around the lessons that we’re sharing are actually personable. I love getting the feedback that I get whenever I share something on my HEY world, I’ll write about something that we learned or whatever, and I’ll hear back from a ton of people who sit in that exact situation at that same time, those kind of connections, very difficult to create those within some sort of mega company.

Kimberly (12:17): And I’ve in seen, Jason, you’ve been sharing some things on YouTube and some behind the scenes things. I feel like people comment and really are connected. Those are not necessarily even your customers, but people who are respecting the business, they feel more connected to you guys that way.

Jason (12:33): So we used to do this a lot more. David and I would sort of share behind the scenes thing. David had a thing called On Writing Software or something like that. I had this one called Design Decisions, and we’re gonna get back into this. We’re starting to get back into, this is my point. And I think it’s, again, it’s not because there’s some deeper reason to do it. It’s like, I think we just want to do it. We wanna show people what we know, what we’re doing over here. I wish I could look behind the scenes of a lot of other companies and see how they’re doing it, but a lot of companies are afraid to share these kinds of things. And we feel like we have, there’s nothing to hide here, so let’s just share. So I’ve been doing these walkthroughs. We’ll be doing some more design decision things, maybe putting some design reviews up online.

(13:16): We’ve got this thing called the Betting Table where we decide what to work on every six weeks and maybe we’ll record one of those and put that up. And then David’s gonna be doing some walkthroughs and code. And it’s just that’s what we can contribute. You, Kimberly and Chad who do different kinds of videos, contribute that. There’s just different things that we can be putting out. And I think this is a really exciting time for us because we are willing to put out a bunch of different kinds of things and different people have different strengths and we’re sort of expanding that. But David and I are gonna focus primarily on the nitty gritty walkthrough stuff because that’s kind of the stuff that we’re involved with all day long.

David (13:49): And this is the reason I absolutely loathe the term content marketing because it sounds like something contrived. It sounds like something planned and measured and designed where I don’t think that’s where the interesting lessons are. I do not think, like what is it that the audience exactly wants to hear? That’s not where you’re gonna get the good stuff. I think the good stuff comes out when you’re simply sharing what you’re doing without this transactional approach to it. This is just something we are doing to juicing the numbers in some regard. Just look at it on the large scale of, we’ve written thousands of blog posts, we’ve shared countless lines of code and designs and so on over the years, could we pinpoint exactly back to what it was that moved the needle for us? No, there’s a time and a place to track that in all sorts of marketing efforts.

(14:48): But thinking of this in terms of content marketing, this exact little box is just, I think a dark path to go down. Now, on the bigger point though, this is actually good for business in the sense that you can either buy someone’s attention or you can earn it. And I think when you earn someone’s attention by actually sharing something that’s interesting, actually sharing something that they learned something from it is a far more valuable connection that you establish rather than just plastering a bunch of ads in front of them. Now again, you can use ads too and that can work and you can even use them in concert. But the connection you establish when you truly teach someone something, when you truly change their mind on something or at least provoke them to think about that topic in a new way, it’s just so much deeper.

(15:40): And this is the stuff that I love hearing from people who’ve been following us or been inspired from things we’ve done over the years. Some of them will say like, Oh man, I read all your stuff for years. And then, Hey, I just signed up for Basecamp yesterday. I’ve literally been listening to your stuff. How do you even track or quantify that? Again, big word journey from the customer being exposed to something I wrote or Jason shared five years ago. Just you put good stuff into the universe and most of the time the universe will return good stuff to you. And even if it doesn’t, you should still be enjoying it. I enjoy the sharing that we do for its own sake. It is actually a source of energy for me to share what I learn when I learn it. And I would do it whether there was a return or not a return. I feel like I actually learn more myself when I try to articulate what it is we took away from something. The decisions, for example, Jason and I have been talking about. I think about them deeper and then next time we go into a decision, it kind of sits just a little tighter. This is the old adage that if you really wanna learn something, you should try teaching it. And I really wanna learn a lot of things, so we should try teaching it.

Kimberly (16:54): Here’s my question 'cause I think a lot of people don’t share for the fear that someone’s going to take that and run with it. So tell me about that, 'cause clearly you guys aren’t worried about sharing company secrets and someone taking that and running with it and affecting your business.

Jason (17:12): So we have a thing in REWORK about this, which is we’ve always tried to emulate chefs. So chefs have restaurants and they also, a number of them write cookbooks. And the cookbooks have all the recipes, all the recipes that they have in the restaurant. There’s a cookbook here, Make my restaurant at home. What they know is that people aren’t gonna buy that book and open up a restaurant right next to 'em and put them outta business. That’s not how it works. What they wanna do is share as much as they can so at least people pay attention to them. And then maybe one day when they’re in town, they’ll come to the restaurant cuz they made some recipes at home and they’ll try the real thing or whatever, right? You have nothing to fear. I mean, we are saying, take this stuff. We want you to use these things if they’re useful for you. This isn’t a zero sum game here. This isn’t like if we tell people how we run the business, then we can’t run the business that way anymore because we’ve given it to them. That’s just not how it works. So sharing is caring, as they would say sharing. Sharing is just helpful. It’s helpful for everybody. We have nothing to hide. It’s better for our business, it’s better for their business. And these aren’t things that we’re giving away in a sense. They’re things that we’re sharing with everybody.

David (18:21): This is the thing, most businesses are not fucking Coca-Cola. They don’t have this secret recipe that’s the foundation of their success. Even I’d probably argue at this point, I’m not even sure that’s true for Coca-Cola, but let’s just assume for a moment that it is that the secret recipe of the secret ingredients. It was funny, I was just watching Kung Fu Panda the other day and they have this like, Oh, I’m gonna tell you the secret ingredients to my special noodle soup and the secret ingredient is nothing. That was the big revelation. Just this aura of we have the secret. So sauce here and a lot of companies have a secret source when it comes to the code bases. They think it’s so precious, it’s not precious. Vast majority of code is not precious at all, and it’s not that unique. There’s nothing there to steal.

(19:08): It is based in an old style thinking, based on patents and so on. And maybe that is relevant to some kinds of businesses in some ways. The vast majority of businesses, no, not relevant to them. The vast majority of businesses succeed or fail on the basis of their execution and their timing and sharing the recipes of how they got there. It doesn’t do anything. There just aren’t that many profound secrets that completely alter the trajectory of whatever wherever some company’s going. And if competitors learn that they’ll have everything again, maybe that’s true in other domains that we don’t have any insight into, but it certainly isn’t true for us. And when it’s not true, you gotta realize that all these lessons that sit unshared is just dead weight. They earn you nothing. They earn you no good will. They earn you no attention. They don’t do anything.

(20:05): It’s just waste. So why don’t you take that waste and turn it into some fuel, turn it into something else. It doesn’t actually take that much effort. That’s the other thing. I get this all the time. How do you have time for all this sharing? How do you have time to write all these blog posts? I’m like, Dude, I spent fucking 10 minutes writing this post and then I just hit send. It’s not perfect. I didn’t go over it with a copywriter. This stuff we’re doing right now, do we do five takes to get it just perfect? Just right? No, we don’t. We hit record and then we go. So if you treat it at that level that the wrapping doesn’t matter that much, the production values don’t need to be a Hollywood blockbuster. The most important thing that you’re sharing is what you learned.

(20:51): It doesn’t take that much more and you can get good at it, good at it in a sense that it really feels like it takes nothing at all. To me, I feel like most days, even when I’m writing or we’re recording this podcast or something, it doesn’t feel like it steals anything. I still have time to do all the other stuff and work on the products and do everything else that we can do. So it’s not like you suddenly have to think, Oh, I need another job on top of the job I have, just to share the things that I’ve learned. Absolutely not.

Kimberly (21:16): Okay. So you guys are very open about sharing, teaching. Are there any things that you wouldn’t share? I mean, I hear you guys talk about numbers that I’m like, Oh, I get surprised when I hear things like, Oh, they said that that number out loud. Is there anything you wouldn’t share?

Jason (21:32): Yeah, I mean, we typically don’t share specific revenue numbers, exact customer counts. It’s like that kind of stuff is, I think for us it, it’s one of the things that’s really nice about being a private company is that you can sort of keep some of that to yourself. There’s something there, and there’s also not specific lessons in that. So I think most of the things that we share are lesson based, so to say, we have exactly this revenue. It doesn’t really send a, there’s no lesson in that. We have said we generate tens of millions of dollars in annual profits. We’ll say that right? What is the lesson there? The lesson there is that you can build a company like that. You can build a profitable company with fewer than a hundred people selling software as a service the way we do it without very much marketing, but the specific numbers not that interesting. So we don’t share those things. I think most of the things we share are lesson based. If you do this, this can happen. Here’s how we actually did this. Here’s how we actually made that decision. Here’s some insight into why this works the way it works. Here’s how we use that for this to this end. Here’s how we run our business using this software for this reason. That’s the kind of stuff I think that’s ultimately more valuable versus a sort of a vanity metric, which is kind of what sharing numbers specifically is.

David (22:48): I think a lot of another angle here is we share perspectives a lot. Here’s how to change your lens. Here’s how to look at this kind of problem in a different way. And we also share to some degree aspirations. Hey, do you know what, It’s not just okay to be a small company. Small companies are great. I mean, you don’t have anything to be ashamed of. You don’t have to constantly live in this doubt and sense that you should be more, you should go further, you should be bigger. We’re giving you essentially permission to be just the size you are because we’ve been there and we’ve been through it, and it’s been a great phase in many ways. I love absolutely adored the face when we were seven people. There’s just some pure magic there that we can account for and tell you about. Like, hey, do you know, here’s how we work when we were that size, here’s the tools that we were using to still be productive.

(23:41): Do you know how large you can build a company, even in terms of revenues and customers, when you are that size? It’s pretty good. So giving that perspective and giving that self confidence because there’s, There are a lot of entrepreneurs and people running small businesses who just constantly have those doubts about, shouldn’t I be bigger? Should I pretend to be bigger? No, you should not pretend to be exactly who you are the size that you are, and just feel good about that. So sharing that since sharing those lessons from not just something in the super distant path here, we’re still on the same company that was that size and we’re not that much bigger even today than we were then. I think it’s really valuable, and this is something I hear back all the time from people who are just starting out, how valuable that is, that they’re not just constantly seeing these unattainable goals shoved in their face. Like, Oh, I’m not a unicorn yet. Should I feel bad about that? Hey, here’s someone saying they don’t even want to be one. Oh, that’s interesting.

Kimberly (24:44): Well, you guys, I’m gonna link to all of the places that you’re teaching to YouTube, all of the places that you guys are sharing information, because I think it’s great. And thank you for being here, sharing with us as you always do. And REWORK is a production of 37signals. You can find show notes and transcripts on our website@rework.fm. You can also find us on Twitter at @reworkpodcast. And for even more transparency and teachings from the tech team at 37signals, check out their new blog at dev.37signals.com.