SEASON 2 - EPISODE 0092 - JAN 17, 2024

User Testing, Stoic Philosophy, and Other Listener Questions

In this episode of REWORK, the spotlight is on listener questions. Listen in as Jason Fried and David Heinemeier Hansson share their insights on a range of topics — from 37signals’ approach to user testing and the impact of Stoic philosophy on their business principles, to discussions on profits and expenses, and the crucial decision of when to hire.

Tune in to hear their unique perspectives on these key aspects of building a successful company.

Watch the full video episode on YouTube

Key Takeaways

Uncover why 37signals rejects traditional user testing and prioritizes being their own first customer. They unveil their unique perspective on product development and share the one question you need to test every product against.
Explore how Stoicism functions as a mental operating system, fostering calm and efficient thinking in response to business challenges. David delves into Stoic principles and recommends some essential Stoic readings for entrepreneurs (See links below).
Jason and David discuss their approach to profits, expenses, maintaining healthy margins, and the independence and freedom that profitability affords in decision-making.
How to use the principle of “hire when it hurts” to ensure resources align with the business’s growth and increased demand.

REWORK is a production of 37signals. You can find show notes and transcripts on our website. Full video episodes are available on YouTube and X.

If you have a question for Jason or David about a better way to work and run your business, leave us a voicemail, or send us a text at 708-628-7850 or email, and we might answer it in a future episode.

Links & Resources

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, and I’m joined by the co-founders of 37signals, Jason Fried and David Heinemeier Hansson. This week we’re going to knock out some listener questions, so let’s jump right to it. This one I actually thought was really interesting, especially in light of the new products that we are working on. So this question came in, it says, “Hey team, love the podcast. Y’all are a light in the darkness exposing the fallacies and insanity of the Byzantine mess that is the corporate tech workplace. I’m curious how 37signals, approaches user testing and what Jason and David think about it as a practice. User testing is supposed to help teams spot insights that help them make better decisions. Unfortunately, it can often slow things down or create unnecessary bureaucratic hoops to jump through. Would love to hear how the team approaches testing and validation of product design. Cheers, Skyler.”

Jason (00:54): Alright.

Kimberly (00:54): Jason, do you want to take that one? I know with the two new products we’ve kind of done some new interesting things.

Jason (00:59): Yeah, we don’t do, just to answer briefly, we don’t do traditional user testing, which means we don’t put our unfinished products in front of people to see what they think. We put our unfinished products in front of us to see what we think. Our entire company uses everything that we build, so we’re always working on the things… we’re using, the things that we’re building as we go, and that’s our primary method. Now, prior to launch, public launch, we sometimes have a small collection of people who have access first just to spot any major problems, but we don’t tell them to look for things. We’re not saying, what do you think of this feature? What do you think of that feature? Does this work? Does that… we just say, here it is. And with that, sometimes we spot some things that were sort of, we missed or we didn’t know about and we want to fix ahead of time, but it’s not formal user of testing at all.

(01:47): I don’t believe in it =. And I also don’t believe in such things as validation. I don’t think you can validate an idea until it’s done. So what we do is we make the best v1 we can, and I don’t even like the term MVP, minimum viable product. I’m not a big fan of that either. We build the product, version one. We put that out there on the market and that is the validation and that is the testing. Again, some people have it ahead of time, but really when it hits the market, that’s the only real moment you really have to really learn anything I think really important. Unless you totally missed the mark and some people ahead of time would’ve told you that, but if you are that far gone, you’re fucked to begin with. If you need four people on the outside to tell you that you’ve totally screwed up, then your judgment is gone. It’s shot and it’s not worth it to begin with. So our point is do the best you can. Put it out there, let the market have it, use it in the real world, the real scenarios, and from there you’ll learn a few things and you can adjust from there, but that’s how we approach it.

David (02:50): I think the key here too is we build software for us. We are customer number one. So when we built HEY email for example, it was to build the best possible product that Jason or I would’ve bought if other people had made that. So we are already the user group, the user testing and as Jason said, the rest of the company falls into with that as well. You have to have, I don’t know if you have to have, there are other people who built software for others that they don’t know anything about the domain and they’re saints. I have tremendous respect for people who do that very, very difficult work of trying to find out what is right when you don’t know anything or much about what the problem domain actually is. It’s not how we build software. We build software for ourselves because that’s the only way we know how to build great stuff.

(03:37): Because when you’re able to tell whether the quality’s high enough or there’s enough features or you would’ve bought it from someone else, you just have such a great confidence because we go, we’re not that special. If Jason and I really like HEY email, there’s going to be other people who like it too. We’re going to find someone else to want to buy it. We’re not that unique. So building for us first and foremost with v1 ensures that you have at least some version of a product that someone would love. We don’t put stuff out there that people would go like, eh. It’s got to be good enough that I would buy it. I have to want to get my own credit card out. We actually had that test from the very beginning. Would I get my own credit card out? And we had a version of Campfire, an early chat program we built that was built around sort of you pay once to use it, and it failed the test. It failed the like, would I actually get my credit card out for this?

(04:34): No, no. We ended up thinking we wouldn’t. So we redesigned it. And I think you get just a tremendous amount of clarity when you first assign for yourself, you first assign for would I buy this from other people? And then as Jason says, you put it out there, the validation is strangers who you do not know, who you did not pay, who give their unvarnished opinion through the wonders that is the free market, are they actually paying? That’s really the kindest thing anyone can ever say about the products that we put out is I’m paying, I’m buying.

Kimberly (05:08): Okay, well let’s go to question number two. It’s a voicemail.

Listener (05:11): Hey y’all, this is Mark from North Carolina. Love the podcast and I just wanted to comment on the fact that David said the obstacle is the way, not one, but two times in the episode on speaking publicly. Would love to hear a future episode on how Stoic philosophy has impacted your business philosophy. Thanks and keep up the good work guys.

Kimberly (05:37): We’re not going to do a whole episode on that. David, do you want to just take that Stoic philosophy, how it has affected the business?

David (05:43): So Stoicism for me has been a mental operating system that I can use to process all the impressions we get from the world, from the market, from customers, from employees, from Jason, from myself. What do you do with all these inputs and impressions that the world thrust at you? Prior to Stoicism, I’d say I was more liable to fly off a handle in reaction to some of these things, to not really process so much as just react. And what I found in Stoicism was essentially a fairly well debugged mental operating system that allows for a much calmer and efficient running of my brain. So in practice that is things like realizing, I think this is chapter nine in The Manual by Epictetus, that today will be frustrating. He uses the example of the public pool. If you go to the public pool, people will splash you.

(06:45): They will be rude. They will be inconsiderate. This is what it is. This is life. If you are bothered by the fact that you go to a public pool and you are splashed or people are loud or they’re obnoxious, who are you hurting but yourself? I think when you make products and you put them out there, you have to accept that customers will be loud, they will be rude, they will be inconsiderate, and they will think of themselves first. And that’s how life is. So rather than getting worked up about this, and I mean we’re all humans, so we occasionally do get worked up. I get worked up about it too, but then I let it process through that Stoic filter and realize this is the way. This is the way things are. If you want nice things, if you want to have an impact, if you want to make products that are used by many people, you have to accept that you will get splashed in the public pool.

(07:36): So to me, that’s one of the examples that’s really helped me. The other one that has helped me a lot is negative visualization, which is a preparation technique for stormy weather. Right from the beginning of when I learned about Stoicism and even before that I had a beta version, a poorly debugged version of the same technique in my head. I started envisioning all the bad things that would happen to the business or to a product or a product launch or something else that we put out there. Do you know what? People can hate this. We can go out of business, something bad can happen to the business that puts us on a poor trajectory or we can simply hit a long slope. These are all part of the human, product, company experience, and I should be ready. And I will be ready if I prepare myself mentally by thinking through all of those things and preparing a responsive sorts.

(08:27): If we take the most basic example, we are going to go out of business, right? Something happens, either it’s a catastrophe or it’s just a slow death. Things change. Markets change, product change, customer sentiments change all the time. Good companies go out of business almost by default. Over a long enough period of time almost every company in the history of the world has gone out of business. There’s about five left that have lasted more than 500 years or something like that. A couple of hotels in Tokyo and a few other things. Most businesses go out of business. Prepare yourself for that eventuality. Think through what that means. For me, what that means is if we went out of business tomorrow, I got a glorious, what’s that going to be? 23 years building awesome products with an incredible team and we made a small fortune doing that over two decades.

(09:20): How can you look back upon that with anything else but gratitude and appreciation for the wonders of the world? Now that’s one path, right? Gratitude and appreciation. The other path would be like, this is the worst thing that ever happened to me. I’m destroyed. My life is over, I’m out of business. So Stoicism has a bunch of these techniques to prepare yourself with the eventualities of life and business and I have found it has been just absolutely amazing to see the wisdom of an empire of the Roman Empire from two and a half thousand years ago recorded with such accuracy, the trials and tribulations that a executive at a software company in 2024 will go through. It is truly incredible how the wisdom of the human condition is so stable that it can travel 2000 years and still be incredibly relevant. So I think everyone should have a mental operating system.

(10:20): I think everyone should try to incorporate the best wisdom of the ages and a lot of that wisdom is wisdom because it’s been debugged over a long period of time. Stoicism has literally lasted 2000 years plus, which to me tells me there’s something in it. And that goes for many kinds of philosophies or even religions or other ways of thinking. If something has lasted 2000 years, it has something. You might not be able to see it right away. You might not appreciate it, whatever. There’s something there that allowed it to survive. Most ideas, most business books for example that were published last year, in five years, you’re never going to hear about them again. They’re just going to be irrelevant. So this standing the test of time thing is a really good way to filter quality wisdom through the seive of your impression. So I would recommend people start with the espresso of Stoicism, which is The Manual by Epictetus.

(11:13): You can read it in 45 minutes. I have never in my life discovered more wisdom in a slimmer tone and there’s nothing even close. Nothing even close. I read the manual at least twice a year and a half for many years now and if that inspires you and I really cannot see how it couldn’t, you should move on to Seneca on the Shortness of Life or Marcus Aurelius or the broad introduction I often recommend is The Guide to the Good Life which pulls from all historic thinkers into a accessible modern way, but don’t think that you have to get it by secondary sources. That’s what’s so amazing about both The Manual and On the Shortness of Life. These are books translated straight from the original text 2000 years ago and they’re so approachable. They speak so directly to your challenges of today. It’s a marvel to behold.

Kimberly (12:07): Well, we’ll link to all those books in David’s book club in the show notes. And next question, Jason, this one will be for you. It’s from Daniel from Uruguay. “First of all, thank you for making this podcast. I really appreciate how you share your approach on running a business and building products. I’ve listened to a lot of your podcasts and read a fair amount of your blogs too, and there are some questions that continuously come to mind when you talk about profits. Do you have the goal of increasing the profits of 37signals year over year? And do you set yearly cost budgets for 37 signals based on that assumption?”

Jason (12:38): So we don’t have targets other than let’s be profitable. It’d be nice to be more profitable, but if we’re less profitable and still profitable, that’s fine too. I mean it’s not, it can’t slide down a slope for 20 years to the point where you’re no longer profitable. But as long as you’re profitable year, I’m pretty happy with that. We don’t have specific cost budgets for things. We do have appetites for things. So occasionally there’s something we’ll say, we’ll spend X on this, we’re willing to spend X on this and it could be time or it could be money, but in general, we just keep, first of all, we keep very healthy margins. And margins allow you to not pay attention to other things to some degree, They are cushions and I’ve always preferred to run a business that way where we don’t have to be afraid of every little dollar that’s spent and every little dollar that’s saved because we know we have some cushion.

(13:26): Now you can’t get lazy and that can make you lazy, but as long as you have the discipline still to say, we don’t like to waste, we don’t want to blow things that aren’t worth it, we don’t want to spend money on things that we don’t need. Then a combination of high margins and that level of discipline can get you pretty far. And as long again as your point is we want to make sure we’re a profitable company and that comes down to a variety of different things. First of all, we have to sell products that make sense. People often say, “Why don’t you price HEY at 20 bucks a year, I’d buy it for 20.” It’s like, because we can’t afford to do that. We would lose money if we did that. So you’ve got to find price points that make sense. HEY, has one price point, Basecamp has another one.

(14:08): ONCE stuff that we’re going to come out with has yet another. You’ve got to find things that can be run profitably, and it doesn’t always mean they’re going to be profitable in a year one or year two necessarily, but you can’t wait 25 years for things to make sense. So you got to have a good sense of what makes sense. You got to keep your costs low, got to keep your team small, got to keep your overhead low. You do all these things and you have a good business, and you have a good product and you have a good way of getting the word out. You can build a profitable business that can sustain itself over a long period of time. My general feeling is that this is not exactly true, but spiritually it’s true – as long as you make $1 more than you spend, and that means covering everything, costs, taxes, salaries, all the things, then you live to see another day. That’s kind of the point. You’ve got to survive to see another day. If you want to keep making stuff that you like to make. Profit is really a way for us to keep making stuff that we like to make. If you don’t get that, you can’t continue and you can’t continue and you can’t do what you want to do. So that’s the beauty of it. Of course, it’s nice to have the money and to buy nice things and all this stuff and have comfort and all that stuff, but ultimately if we want to keep making the things we want to make, there’s only one way to keep doing that. Well, there’s a few ways you can keep borrowing money from other people, which doesn’t end up working out well ultimately. Or you can make your own and make more than you spend and you can live another day. So that’s sort of the general idea here.

David (15:28): What I love about profit too is the independence it affords you. When you’re not taking other people’s money, either borrowing it or through equity sales, you get to do what you want to do. As Jason says, you get to live another day and that extra day you live, you get to choose what you do. You get to choose what you spend attention on, what new products you make, how you go about your business. We just had this huge fight again with Apple, which is the kind of things that very few boards or backers or investors would give you permission to do. We get to do things that we feel are right either with the product or our principles because we are profitable, because that profitability pays for the independence. And that is just such a crucial point that I think a lot of entrepreneurs miss when they think, I can raise some money, I can take some money. But there’s always strings attached.

(16:24): There is no free money. Well, the money was technically free in terms of interest rates five minutes ago, but yeah, okay, blink twice and now it’s at 5% and it’s a completely different ball of wax. And a lot of companies and entrepreneurs who thought the money was free have learned within the last 18 months, that can change incredibly quickly. So those interest rates change. What does that do to us? Nothing really. I mean, in a theoretical sense, it raises the cost of capital and we should think about our investments differently and so forth, but in a practical sense, how it affords our freedom and independence to do what we want to do, not really. I will say though, that when it comes to cost, to me it’s an aesthetic thing. A company that is flappy, floppy and out of shape when it comes to cost control is to me, an ugly company.

(17:16): There is something ugly about waste, about spending on things that doesn’t give a proportionate return. That to me is just as offensive to the eye as excess code, as bells and whistles on a design that you haven’t shaved down. I have an extreme aesthetic attraction to a company and business models that are simple, that are profitable and that are rounded in such a way that there’s not all this gunk on them. I’m just allergic to the gunk that most businesses will accumulate over a long enough period of time because as Jason says, once you’re profitable, if you don’t have the discipline, if you don’t have the allegiance to the aesthetic of a well run business, you can get sloppy and you can get gunky and you can get a little flappy. No, that’s not the business we’re going to run. However that pays out at the end of the day, in terms of money, it’s not about targets. It’s not about ratios per se. It’s about making beautiful businesses.

Kimberly (18:17): Okay, Jason, you mentioned staying profitable by keeping your team small, which is a perfect transition to this next question, which is “How do you know when as a company you’re financially able to hire more people? I’m a developer and during my career I’ve seen a lot of startups which were not heavily backed by investors just failing to keep the pace of their profits, and this led to having to cut their expenses, which in the majority of the cases meant cutting the teams. This year in particular, I saw a lot more of those cases. So if you’re a founder and your company has started to make some good profits and also you have a lot of stuff to do, is it wise to just jump to hire more people using those profits or the majority of them? How did you do it at 37signals?”

Jason (18:56): One person at a time? How do you know? Well, if you can afford them or you can’t, and if you can’t, then you don’t. I mean it really is as simple as that. You do not go into debt to hire somebody. You figure out how to do more with fewer people or you figure out how to do less with who you have. You figure out what’s the better thing to do. You figure out how to be more efficient. That’s what you do until you can afford to buy the next person. I mean, that’s the wrong way of buying a person, but you know what I mean, until you hire another person, right? That’s the best, that’s the only way. I mean, yes, I shouldn’t say it’s the only way. Yes, you can take a risk. Yes, you can go into the hole and yes, you can come out ahead.

(19:37): Of course that can happen, but the odds are against you and the pressure then is on and expectations are on, and all this stuff pushes down on you and makes you nervous in a way that I don’t think really benefits the product and benefits your clear thinking. A lot of companies they get stuck in a hard spot, they’re not really usually innovating their way out of it. They’re freaking their way out of it and they often don’t get out of it. So yeah, a little bit of pressure is good. Obviously a little bit of that, but the wrong kind of pressure is not, and you got to find the right kind of pressure. So I’d rather say, say you have extra $85,000 in profit this year and you can hire someone for 80. Maybe it’s worth it at that point. That’s a good amount of pressure.

(20:19): You’re basically now breakeven, okay? You don’t want to stay there. You want to be able to make some more money so you can do more things, but maybe that’s worth it, but I would not go in the hole to bring someone else on. It’s just not worth it. You’re much better off practicing ways to get more out of who you have or again, cutting back scope. There’s a lot of things that we all think we need to be doing that you probably don’t need to do. Like god, if we only had that one person, we could build these seven more things. What if we just built three more things really well, maybe are the things that really mattered? I mean, again, I’m simplifying here because there’s no other way to answer this question, but that’s how I would approach it. Don’t put yourself at risk. Don’t put yourself in the hole. Take a risk. Don’t put yourself at risk.

David (21:01): One of the ways we’ve been thinking about this historically has been higher when it hurts. And defining that hurt is usually, the business is ahead of where you are. You’re not imagining that we’re going to need this in six months and then it would be great to have them, so we should hire now. No, no, no. The business is ahead of you. You have more business, more customers, more revenue, and now it hurts. You don’t have enough people to keep up with all these customers that you have. That’s the time to hire. And that always brings you into sort of this lag that the business will be ahead of you by the time you start hiring, because if the business is not ahead of you and it already hurts, the business is broken. There’s something wrong with the unit economics. If you need more expenses than what you can actually bring in and it hurts at that point, you actually have to fix something fundamentally with the gears of the business before you proceed.

(21:55): And this is what occasionally happens with entrepreneurs who’ve raised a lot of money that they can run ahead of their business where they don’t fix the fundamentals. They don’t make sure that the unit economics are actually right. They don’t make sure that they can make it up on volume. If you’re spending $2 to make one, it doesn’t matter how many customers you bring in, you’re going to be forever in the hole. Now, there are tipping points in, there are fixed costs versus variable cost, and there’s all sorts of analysis that you can make, but at the end of the day, make sure you hire when it hurts. Not in anticipation of the hurt, but once it’s actually arrived.

Kimberly (22:30): Okay, well, with that, we’re going to wrap it up. REWORK is a production at 37signals. You can find show notes and transcripts on our website at 37 signals.com/podcast. Video episodes are on YouTube and Twitter, and if you have a question for Jason or David, we love to answer them. We love these question podcasts occasionally, so send us your questions. You can do that by sending us a voicemail at 708-628-7850. You can also text that number or email us at rework@37signals.com.