← All Episodes ← Prev Next →
EPISODE 0009 - DEC 5, 2017

Planning is Guessing

with Jason Fried, Mark Michaels, and Ann Kienzle
Listen now

Basecamp’s founders never wrote a business plan when they started the company. Even today, they don’t like to look too far ahead. Too much long-term planning can hamper your ability to react to the present. Did you have plans to listen to this episode later? Be spontaneous and listen now! You’ll hear from a seasoned investor on how he came to run one of the oldest vinyl record pressing plants in the U.S.; Basecamp CEO Jason Fried on working in six-week cycles; and an independent toy store owner on surviving the holidays without giving into fads.

Transcript

Ann: (00:00:00) In the toy industry, the phase is, there’s probably never going to be another Beanie Babies, because it was so big. Every couple years there’ll be an article about, like, oh, what are your Beanie Babies worth now, and the article’s always saying, like, nothing.

(00:00:14) Broken By Design by Clip Art plays.

Shaun: (00:00:14) Welcome to REWORK, a podcast by Basecamp about the better way to work and run your business. I’m Shaun Hildner.

Wailin: (00:00:18) And I’m Wailin Wong.

Shaun: (00:00:20) We’d like to think that we can predict the future. We stress over writing the perfect business plans. We hire financial planners. We buy a bunch of tiny plush animals, hoping they’ll send our kids to college. But no matter how carefully we plan, we simply can’t foresee everything that may happen.

Wailin: (00:00:33) Let’s call planning what it really is, guessing. It might be an educated guess, but maybe there’s too much emphasis on having a perfect plan. Being beholden to a long-term plan leaves no room for improvising or reacting to reality. Sometimes you just have to say, let’s throw out the plan and go in a new direction.

Shaun: (00:00:52) On today’s episode, we have the story of a man whose plans to start his own investment firm went in a totally unexpected direction.

Wailin: (00:00:58) We’ll also hear Basecamp CEO Jason Fried talk about how he approaches work in six-week increments, and what happens when you get to the end of that cycle without shipping anything.

Shaun: (00:01:07) And, finally, we’ll pick up that Beanie Baby conversation you heard at the beginning and learn how an independent toy store plans for the holiday season.

Mark: (00:01:18) My name is Mark Michaels and I’m the CEO and chairman of United Record Pressing. I grew up in South Bend, Indiana in the ‘70s, and I have a mother that loves music, and so from an early age, we’d talk about Muddy Waters, and Howlin’ Wolf, and Son Seals. She’d take me to bars when I was 14 and say, you need to see this guy play. And I just fell in love with it. Music just spoke to me, and music spoke to a lot of people in the ‘70s, but to me, it just seemed to really take me to a different level. I loved it.

Wailin: (00:01:55) Mark loved music but didn’t pursue it as a career. He went to business school and then joined McKinsey as a management consultant. After that, he worked for a couple big private equity firms in New York and Chicago. In very simplistic terms, private equity firms buy businesses, try to increase their value and then sell them either to another company or on the stock market.

(00:02:16) After more than a decade doing these deals, Mark started his own private equity firm and set out to find his first investment. That’s when he came across United Record Pressing in Nashville, Tennessee, a company that had been around since 1949.

Mark: (00:02:29) They had manufactured most of the records for MoTown in the ‘60s and the ‘70s. They had pressed the first Beatles single in America. Above the plant, there’s this apartment that was built the owners of the United in the ‘60s, and it was built specifically for the MoTown artists and executives so that they would have a place to stay when they came to Nashville to see the records made and to celebrate the release of the record. Because of the segregated south, a lot of the African American artists couldn’t get hotel rooms in Nashville, so they would stay at United Record Pressing. You look at this apartment. There’s a bedroom, a bathroom, a kitchen, kind of this back party room, and then a large record release room and turntables and couches and this sort of Naugahyde covered furniture and brown paneling and nicotine stains on the ceiling. And it’s all intact and it’s exactly, it was when I first saw it in 2007, and it still is today. And it’s the most beautiful space in the world. With a spectacular history.

(00:03:24) I looked at it, and I kind of said, kind of like everybody, vinyl records, they’re still around? And you kind of look at this, and you say, okay, well, they are still around. It’s a small niche business, and the industry had consolidated dramatically. There were only a few plants left making vinyl records. And fortunately, United Record Pressing was the largest, or if not, it was one of the two largest. You needed to get yourself comfortable that hopefully it wasn’t going to go completely away and then, if it’s not, is there every reason to believe that this can be the last man standing, or one of the last men standing in a way that would still generate sufficient and interesting economics. And is there a management team there that you have confidence in that will keep the wheels turning.

(00:04:12) But the whole time, you kind of kept saying, well, these are records. This is pretty cool.

Wailin: (00:04:16) So, Mark decided to make United Record Pressing his first investment. Now, keep in mind, this was ten years ago. Before record store day and the current resurgence in vinyl. But, Mark felt good about the company. It had a reliable revenue stream.

Mark: (00:04:30) When I bought the business, the core of what the company did was, and really what was probably the core of vinyl consumption in 2006-2007, it was 12” singles that were done for promotional purpose. So, Jay-Z’s gonna release a new record, and there’s some single that’s a really hot single, and so the label would commission United Record Pressing to press 40, 50, 60, 80,000 copies of this 12” single, and there would be a regular version, a clean version, a dirty version, an extended dance version. They would give it away to clubs and radio stations and DJs around the world, and that drove a lot of the economics, the underlying economics of the business when we bought it.

Wailin: (00:05:17) But, you know what they say about the best laid plans.

Mark: (00:05:22) Shortly after the deal closed, they started to introduce products that would allow the DJs to digitally spin and scratch and mix and do all the things that they used to do with two turntables. And the record companies who were really in a tough place and looking to do things to strengthen their economics, kind of woke up one day and said, you know, giving a way thousands of free records to DJs, big, heavy, expensive vinyl records, is probably not an economic activity and so we ought to wind that down. And that was an important pillar of what United Record Pressing was at the time. You kind of say, gee, did we just catch a falling knife?

Wailin: (00:06:01) And losing that crucial revenue stream was just the beginning of Mark’s problems.

Mark: (00:06:05) As that core bedrock of our business started eroding, the prior CEO, who was the seller of the company had stuck around.

Wailin: (00:06:15) He owned it before, right?

Mark: (00:06:16) He was the owner, yeah. He’d owned it for about ten years, and he had some health issues and his wife had some health issues, and clearly, it wasn’t a whole lot of fun running it given what was going on. So, one day I got a call, and he said, you know, I’ve got these health issues, mine and my wife’s, and you’re the chairman. You come down and run it. I said, okay, well, we should talk about that. And he said, we should talk fast. This is on a Wednesday. He said, why don’t you come down tomorrow. I’ll give you the keys, I’ll take you through my Rolodex, and on Friday morning we’ll have a cookout and we’ll say goodbye. Friday afternoon, it’s yours. I got on a plane and I got some keys and a Rolodex and a real quick education. We had a cookout, and after lunch, I got my guys together and I said, okay, this is what’s new. This was my first deal. This was mine with my name on the door, and if my first deal flamed out in 18 months, there wasn’t going to be a second deal. So, I said, I’m going to do everything I can.

Wailin: (00:07:13) So now Mark was the CEO of a struggling company, a company that was supposed to be the first in a long line of investments, and he had to find a way to save it.

Mark: (00:07:23) After lunch on that first day, we got the team together and I got an earful of, we’ve got this quality issue on this record and this record, and this—Universal wants to have a call with you, and so on, he wants to have a call with you. And, oh my God. And, you know, then we kind of said. All right. After a day or two of phone calls and education, I got my operating guys together and said. Take me through every step to how you make a vinyl record. Because we’re going to reinvent this company. WE’re going to rebuild it. We’re going to take it apart, we’re going to strip it down. We’re going to rebuild it, and we’re going to make great records. And we started sourcing a higher quality vinyl compound. We invested in capital equipment, in our electroplating operation and our shrink-wrapping operation. We did little things like, I just put brighter lights above the inspectors.

(00:08:11) Initially I did this out of necessity and that was a few years of really hard work and a lot of sleepless nights and really uncertainty as to what the outcome was going to be. After two or three years in the trenches of all that, you kind of say, I think I understand what needs to happen better than everybody, and why not see if I can drive it to the finish line, or drive it to something that’s really exciting and promising.

Wailin: (00:08:40) Then, something almost miraculous happened. Vinyl came back. Record store day became a national event. By 2015, United Record Pressing had so much demand, it actually had to stop taking on new customers. Today, it’s operating out of a new plant in Nashville, with triple the capacity of its old one. Mark is still running the company, which remains the only business his private equity firm has ever invested in.

Mark: (00:09:04) Honestly, candidly, it was records. And so, it’s like, we’ve got it in a place where it’s stable. It’s got more than a fighting chance to really be something spectacular, and it’s music and so, you kind of think back to those days of your mother in South Bend, Indiana bringing you to see Muddy Waters, and it’s like. This is what I meant to do.

(00:09:26) Broken By Design by Clip Art plays.

Wailin: (00:09:29) Mark thought he had it all figured out. He started a private equity firm and was going to invest in a bunch of businesses that would produce healthy returns. But he also had the wherewithal to know when to scrap that whole plan. Now, he runs one of the oldest record pressers in America.

Shaun: (00:09:43) Next, we’re gonna play a conversation I had with Jason Fried about how we, here at Basecamp, break up work in to six-week cycles. And even when we were a small web design firm called 37signals, there was very little formal planning.

(00:10:03) Are you comfy?

Jason: (00:10:04) Yeah, I’m fine.

Shaun: (00:10:04) You look very tall.

Jason: (00:10:05) Well, the seat’s a little high, but, just because the mic was where it was. I’m fine.

Shaun: (00:10:09) Did you ever write a business plan for 37signals?

Jason: (00:10:12) No. I’ve never written a business plan. Like, I’ve been given them, and what do I do with this. It’s like ten pages of stuff that doesn’t matter. The thing I actually really don’t like are business plan competitions and they have business leaders or entrepreneurs or whatever come in and judge the business plans, and then, like, give awards. This is the best business plans. This is all bullshit. All of it is 100% made-up bullshit. It doesn’t have to survive reality at all, not even for a second.

(00:10:42) I’m going to put together this plan. This is what’s going to happen across my business. Here’s how fast we’re going to grow and here’s when we’re going to hire and here’s when we’re going to do this and do that. No, it’s not. People like to plan because they feel like it gives a certain level of confidence in what’s going to happen in the future. And the future is unknown and uncertain for a million different reasons. Just live with that and just go as you go.

(00:11:02) Planning, itself, is fine. It’s just recognizing what it is, is the key. Which is, it’s a guess, because a plan is like what you hope to happen. What you expect to happen. It’s not what’s going to happen. When you look out super far. Let’s even call it a year. Or even six months is super far in terms of planning. But let’s say a year, or two years or five years or whatever. The further away you get, the blurrier your vision is. You can’t see that far, really.

(00:11:25) For example, we basically plan out the next six weeks worth of work, broadly, but then the specifics are filled out as we go. But then we do six weeks worth of work, we take a couple weeks off, and then we do another six weeks worth of work. So, every six weeks, we’re reconsidering what we want to do next, versus laying out an entire year’s work ahead of time.

(00:11:46) Basically, anatomy of six weeks is the first week, get to some rapid prototyping to make sure that this idea is even feasible in pixels, in code, in interface. So, the first week is a little bit experimental. But at the end of the first week, we should be like, okay, we’re doing this. And then every week after that, we should be narrowing in, not widening out. And not adding in more things as we go.

Shaun: (00:12:07) What were we doing before that?

Jason: (00:12:09) Back when, I don’t know, Basecamp 2, I think it was, or maybe before that. We didn’t have any deadlines at all. It was just like, we’ll build this thing until it’s done. Or until we feel like it’s good enough. Whatever it takes to get it done right is the amount of time it’s going to take. But, it turns out that you tend to just kind of linger on things that don’t matter and you might as well just perfect everything.

(00:12:33) Some people might say, well that’s what you should do, perfect everything. I don’t think you should perfect everything. Anyway, so we kind of went from no deadlines to no timeframes, to then doing, I believe we did three-month, let’s call them cycles. Three months worth of work at a time. And it turns out that when you give something three months, it takes three months. You always seem to get right to the end and you use all the time up and you sort of ship it right at the end. And I think it was Conor, who was one of our designers. I might be saying the wrong person, but I think it was Conor, who was like, why don’t we try six weeks. What is this magic about three months?

(00:13:06) You get roughly the same outcome in six weeks if you know you only have six weeks that you do if you have three months. Basically, you spend as much time as you have. And, the nice thing about six weeks versus three months or having no deadlines at all, is that when you have six weeks, you can see the end. And you make better decisions, I think. Because, you have to be thinking more about scope, and what’s actually possible and what’s the important part here. What are the important things. What are the less important things. What are the essentials or the non-essentials. When you have three months or no time frame ,you don’t really have to make as many decisions, you just keep punting on things. You always have later in the three months. But six weeks, you don’t have any later. It’s like, basically now. It’s almost always now, and I think that’s a good thing.

(00:13:44) SO, it puts constraints on us and it forces us to make good decisions. Kick things out that don’t make sense. Focus in on what does. And then, do it again. We have more opportunities to make new choices and bring new ideas to the table every six weeks, versus only a few times a year.

Shaun: (00:13:59) What is the scope of one of the six-week cycles? This is not a product redesign. Is it a single feature?

Jason: (00:14:04) Scope is sort of the edges of something. We wouldn’t look at redesigning Basecamp as a whole in six weeks, that’s just an unrealistic thing. And how do we know that? We just know it through experience. It’s just too big of a thing to do in six weeks. But when we talk about six-week cycles, we’re typically talking about new features in a product. So, for example, this last six weeks, we redesigned the way search works in Basecamp. Fairly big project, but totally doable in six weeks. Now, of course, there’s also a three month version of that, but there’s also a six week version of that. And it turns out we did it in about four weeks.

Shaun: (00:14:40) Can we talk about the Clientside redesign?

Jason: (00:14:43) Yes. So, we had this idea to redesign this part of the product called the Clientside, which is a part of Basecamp where, if you’re working with a client, it’s like a separate place where you only have client communications. And we had this idea to do version two of it. Rethink it, and redo it.

(00:15:01) That was a red flag right there, but we didn’t pick up on it. Whenever we say, let’s do version two of something, that’s too big. It’s like, version two of something isn’t an idea. But what ended up happening was we took on too much, it was so big that we didn’t even know what we were looking at. We didn’t get real, or didn’t get to prototype stage early enough. It took us a few weeks. We didn’t make tough calls early on, enough. So part of being able to do work in six weeks is to make quick calls. We found ourselves almost at the end, about a week to go, realizing that we were still pushing up hill. Like, pushing a big huge rock up it. We were no where near the summit, basically. What ended up happening was we didn’t ship, we didn’t finish, and we weren’t excited about it anymore. We felt bad about what happened. We weren’t enthusiastic about it. We still had a bunch of unknowns so sort of decided to table it, shelve it, maybe come back to it next year, maybe not. Maybe have a whole new idea next year.

(00:15:56) The reason we get into that bind is almost always the same reason, which is we bite off too much up front. We’re not thinking specifically. We’re thinking too broadly. We aren’t realistic about what’s possible. And we also don’t have a really good idea about what we want to do yet. We’re still kind of experimenting and thinking it through.

(00:16:13) Whenever we start a six-week cycle, we should come to it with a feature that’s very clearly defined in terms of not all written out, but like, we know what the purpose of this is, and we know what we’re doing with it. The other thing that’s really nice about six weeks, is you can see the end of it. It’s almost over even at the start. There’s nothing more demoralizing than working on something that never ends, is something you don’t like to work on, or you’re not feeling good about, and you’ve got, I don’t know, three months? Six months? Nine months? A year left? Who knows? I’ve seen people get stuck in those situations, and I think we had that in the past when we didn’t have these six-week cycles, where we could just keep plugging along and pushing along and doing something, and there’s an undercurrent of dissatisfaction with it but there’s no natural end to it so it just kind of keeps going and the dissatisfaction builds because people start to imagine in their mind, I don’t like this. I didn’t like it last week. I didn’t like it the week before. How much more is this? I don’t even know how much more is going to be involved. This sucks.

(00:17:06) I don’t ever want to get to that point, so I like these deadlines because they at least, at the very least, they’re moments of release and relief where you can be like. Okay, we’re done with that. We can move onto something else.

Shaun: (00:17:19) Try being on a two-week podcast release schedule.

Jason: (00:17:21) Well, there you go.

Shaun: (00:17:22) Fantastic.

Jason: (00:17:22) Great. Like, this episode is going to be horrible, right?

Shaun: (00:17:24) Oh, it’s absolute horseshit.

Jason: (00:17:26) But, at least there’s another one after this, so we’re good.

Shaun: (00:17:28) You’re actually just a very small part of this episode.

Jason: (00:17:32) The horseshit part, I’m sure.

Shaun: (00:17:32) Yeah, absolutely.

(00:17:35) Broken By Design by Clip Art plays.

Shaun: (00:17:37) Well, we have less than six weeks before Christmas, so let’s talk about toys. Toys, and especially collectable toys are very susceptible to fads. And this brings us to Beanie Babies. Wailin, you seem like the kind of person that would know a little bit about Beanie Babies.

Wailin: (00:17:51) Oh, I knew about Beanie Babies. We have a five-year-old daughter who really likes stuffed animals and when we got to yard sales, people are just giving away Beanie Babies. Like, these things used to sell for hundreds of dollars and now they’re just considered clutter. There’s this little pocket guide that we also picked up for free at a yard sale. It’s called the Beanie Baby handbook, 1998 edition. That lists each Beanie Baby with their photo and it tells you their current value in 1998, and then their projected value in 2008. So, my daughter sometimes sleeps with the little brown bear called Britannia Bear. And guess what it was supposed to be worth in 2008.

Shaun: (00:18:31) What’s that?

Wailin: (00:18:32) $500!

Shaun: (00:18:35) That is absolutely crazy.

Wailin: (00:18:36) I know.

Ann: (00:18:40) My name is Ann Kienzle, I’ve been in the toy industry for 22 years, I think. As a manufacturer, as a sales rep, and then, now I own a retail store called Play in Chicago.

Wailin: (00:18:52) And, how long have you had your store?

Ann: (00:18:53) The store has been open seven years. This will be our eighth Christmas.

Wailin: (00:18:56) Is that you how you measure the seasons, is how many Christmases?

Ann: (00:19:00) For sure. Yeah. How many you’ve survived.

Wailin: (00:19:05) Where were you during the Beanie Baby craze.

Ann: (00:19:09) The Beanie Baby phase was right at the beginning of my career. And it escalated like, through about a four-year period. Where at the beginning, they were just these cute little things that were $5, and people could spend their allowance on them, so it was perfect. And then it turned into this like craze where people were chasing the UPS man and stealing boxes of Beanie Babies and people were in line for hours and all that kind of thing. Some stores were selling these things for crazy amounts of money. I think the really smart retailers knew that it wasn’t going to last forever and they planned well. And that was like, extra for them. Icing on the cake for them, as opposed to the cake. And those that started running their business in a way that counted on that kind of income hurt afterwards and probably were in big trouble after that. Because, with any trend, it has to be the icing. Most businesses can’t survive on trends alone, especially with kids. Kids are fickle. One minute they’ll only eat chicken nuggets, and then the next minute, they suddenly can’t stand chicken nuggets and don’t know what you’re talking about.

(00:20:28) The businesses that used it as the icing did well. I know people who bought second homes or paid off their home or it was a huge business at the time.

Wailin: (00:20:42) So, when you opened up your store, what was the big thing for that holiday season?

Ann: (00:20:48) Gosh, I’m trying to remember. I don’t remember there being a big thing the first couple years. We’ve had a couple dips. Rainbow Looms were big for a while, or rubber band bracelets. I definitely run my business on the mainstay products and we’ll dip our toes into trends but I think you have to be really careful with that because you could get into a lot of trouble with excess inventory or the things that come along with spending too much money on something that nobody wants anymore.

(00:21:22) But we’ll get a big hit. We had fun with the spinner craze. Or the fidgety craze in the last couple of months. But I am pretty conservative when it comes to stuff like that, because I don’t want to get stuck with a bunch of inventory at the end that suddenly kids think is so last year.

Wailin: (00:21:41) What was your inkling that fidget spinners were going to be a phenomenon?

Ann: (00:21:45) Fidget cubes came out before fidget spinners, and it was literally a cube and every side had something different. A button or a light switch type button, or a thing you could roll with your thumb. So, I was at a trade show in early January and I had heard of the fidget cube but they hadn’t really been on the market for too long. And somebody gave me one to hold and to take through the show. And I literally played with it through the whole show, in my hand, fidgeting with it while I was looking for product. And I thought like, okay. I can see this being big. So, we brought in the fidget cubes. We put them on social media. And that’s kind of a gauge for me, nowadays to see how well something might do. And we got a huge reaction.

Wailin: (00:22:40) Is that just likes and people commenting and asking more, or?

Ann: (00:22:43) Yeah, coming in and mentioning, oh, I saw you had the fidget cube. Phone calls. So, kind of like the buzz that it creates. We sold out of our first round pretty quickly and then we got a second round. Then came the fidget spinner. But, again, you may have noticed how quickly that came and went. Once school got out, it was sort of like an, eh. Nobody was talking about it anymore. And so to me the whole trick is of sensing that and starting to back down. And you may lose some sales in the transition period. But, I’d rather lose a couple of those sales than get stuck with cases of merchandise that nobody cares about anymore.

(00:23:29) Nobody’s talked about fidget spinners in the store in months. So… yeah.

Wailin: (00:23:33) So, is the key when you reorder to try to ballpark it where you’re not ordering too many? Like, you’d rather put in a second order of something than put in one huge order?

Ann: (00:23:45) Exactly, exactly. And, listening. Are people talking about them as much? What is the reaction, is it more of an eye-roll when they’re talking about them or is it more of the excitement of it? And then watching who else carries them. There was like a bin of them at a mass market office supply store. So, to me, it’s like, and… done.

Wailin: (00:24:09) When you go to the big trade shows, what do you look for. Because now you have a super trained eye, you’ve been doing this for so long, so have you developed some instincts around what you think has some good potential and what stuff is going to be a flop?

Ann: (00:24:23) I feel like I have. I mean I definitely haven’t honed it 100%, but there are people who go with like, plan and a game plan and a notebook and all this stuff, and I’m definitely someone who just walks the aisles and looks. And if it attracts my attention then I stop and go further. I go by gut more than some sort of grand plan. You’re spotting trends then, a little more, because your vision is wider than, I have to be in aisle X at this time. To me, you can get a better sense of what’s happening and then you can spot those, either style trends or product trends, or whatever.

Wailin: (00:25:09) Have there been any products in the last few years while you’ve been running your store where you thought it was going to do really well, and then it didn’t? Something that really surprised you?

Ann: (00:25:20) I’ve definitely brought in some dolls that I thought people would love, and they kind of sat longer. Those are the lessons you learn over time as a retailers. Okay, my customers just aren’t into this category. I need to move on.

Wailin: (00:25:35) What are you excited about for this upcoming selling season. The holidays.

Ann: (00:25:39) There’s a roll-up piano that we put out a couple weeks ago and people loved it. We sold out of that. So, we did a big order of that for the holidays. We’ve got Mad Mattr, a really interesting dough that never dries out. Again, some kind of grown-up fun things, like a karaoke mic that amplifies your voice and you can Bluetooth in music. This is our first selling season with Lego, so, our first Christmas season, I should say with Lego, so that we’re excited about having Lego for the holidays. You know, you could buy Lego a lot of different places, so the question is, do I want to dedicate that space to something you can find somewhere else. But at the end of the day it comes down to Lego is a really great toy. You know, and that’s what’s important to me is the quality of play you’re getting and you get a great quality of play from Lego, so.

(00:26:32) Broken By Design by Clip Art plays.

Shaun: (00:26:35) REWORK is produced by Wailin Wong and me, Shaun Hildner. Our theme music is Broken By Design by Clip Art.

Wailin: (00:26:41) Special thanks to my friend David Sax, who wrote a book called The Revenge of Analog. If you want to read more about United Record Pressing and the renaissance in vinyl, his book is out in paperback. Thanks, also to Dee Marsden at the American Specialty Toy Retailing Association.

Shaun: (00:26:58) Next time on REWORK, we’re answering your questions in our first mailbag show. If you’d like a question answered on the show, give us a call and leave a message at (708) 628-7850.

[Fast and the Furious Clip]

Dominic: (00:27:29) I live my life a quarter mile at a time. Nothing else matters. Not the mortgage, not the store, not my team, and all that bullshit. For those ten seconds or less, I’m free.

This is an episode title

00:00 / 00:00