SEASON 2 - EPISODE 0089 - DEC 27, 2023

Working with a Business Partner

In this week’s episode of REWORK, host Kimberly Rhodes sits down with Jason Fried and David Heinemeier Hansson to share the essential elements that foster a thriving partnership.

Witness firsthand the enduring stability of their collaboration as Jason and David explore how explicit power-sharing agreements and trust enable each partner to take the lead in their own domain.

Tune in for a vibrant behind-the-scenes look at how mutual admiration and a shared commitment to vision and values has paved the way for Jason and David’s long standing partnership at 37signals.

Check out the full video episode on YouTube.

Key Takeaways

Jason and David share their origin story—from “Apple” pay to the pivotal transition into a partnership after the Basecamp launch.
Mutual admiration, respect, and the other factors that contribute to a successful partnership that allow Jason and David to make decisions based on their vision and values.
The explicit power-sharing agreements that allow each partner to take the lead in their domain—Jason spearheading design and David steering programming.
The value of embracing distinct dispositions in idea generation and differences in decision-making.
The importance of engaging in productive—sometimes intense—discussions about product features and ideas.
How the enduring longevity and stability of their partnership helps Jason and David to consistently reach mutually beneficial decisions.

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 at 708-628-7850 or email, and we might answer it on 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 this week we’re talking about business partnerships. And the saying goes that if you’ve been in a business partnership, it’s kind of like being in a marriage. And I’m joined today by Jason Fried and David Heinemeier Hansson, co-founders 37signals ,who have been in that business relationship, marriage for more than 20 years, longer than a lot of people stay actually married. So I’m sure there’s some secrets to your success that we can share with our audience. Before we get started, Jason, I think maybe if you’ll kick us off and kind of tell us the origin story of the two of you guys getting together. I know we’ve heard, if you’ve listened to the podcast for any period of time, we’ve started by saying David only worked 10 hours a week to start, but clearly that has progressed. So tell us how did this all get started?

Jason (00:47): He works 11 hours a week now. I think that’s about it.

David (00:50): On every other week.

Jason (00:53): Well, I was, I’ve been building, I’m going to use air quotes for this software for a few years prior to meeting David. We’re using FileMaker Pro, which was this database thing where you can make your own databases and I would design the interfaces. This is how I got an interface design and then I wanted to bring one of these products to the web. I wanted to do something that wasn’t FileMaker based. You had to download the FileMaker Pro and the whole thing. So I’m like, can I make a SaaS tool, essentially? This is way before SaaS even had a name. So I had this idea to make my book thing, I called it Single File, and I was going to bring this book database online where you can track your book collection to see what you have and enter the ISBN number, look up the data online, pull it down, the whole thing.

(01:34): So I started using PHP to write this primarily because a book I found on, I was looking for books, programming books, and one of the books was a PHP book and the example was a book database. So I’m like, I should probably, this is great, I should just copy this basically. So I kind of got fairly far and then I got stuck. And then I posted something online. I said, I’m stuck here with pagination was the specific thing I was stuck on. How do I show 50 records and then 50 more and 50 more and 50 more and show how many total pages there were at the bottom is links, whatever, 1, 2, 3, 4, 5, 6, 7, whatever. And I didn’t know how to do it. I posted something online and David responded. Now I didn’t know David had been reading our blog and sort of was aware of our company and his response was very thorough, very fair, very kind. It was not like a flippant response. It was a detailed, thoughtful response. I’m like, this is great, thank you so much. And we started kind of going back and forth and eventually he’s like, can I see the whole thing that you made? I’m like, sure. And he looked at it and he’s like, this is absolute shit. Let me redo this. I’m like, okay, fine. He redid it in PHP. This is our first thing we ever built together and we launched this thing called Single File. And then, so I’ll stop there.

Kimberly (02:49): And what year are we talking about? What year is this that this all happened?

David (02:54): 2001?

Jason (02:54): Yeah, 2000, 2001. Is it 2001?

David (02:57): 2001, yep.

Jason (02:59):

Yeah. And so I’ll stop there. We did other things after that, but that’s essentially how we hooked up and we found that we could work together.

David (03:08): And that relationship started, I mean, across continents. I was in Copenhagen, Denmark. Jason was in Chicago. We had the seven time zones between us and in the beginning, which was interesting, we actually didn’t even talk on the phone until I think six months into it. So it was really a full on remote working relationship. It was email, it was AIM. I think that instant messenger we were using at the time was called and it was good enough. I think this is one of those foundational experiences for both of us that if we could build something real, get it to market on 2001 collaboration tools and techniques with the scarce amount of time we had together with the computing power that we have, I always use that as a reference whenever I measure the hardship of anything we’re doing today. Like, doo you know, what if we could do it in 2001 using these tools, primitive tools, and we’re essentially still trying to do the same thing.

(04:07): I mean this is the irony of the web, like 95% of every web application, certainly every SaaS application, and absolutely every B2B SaaS application is essentially Single File. It’s a web UI in front of a database that allows you to enter stuff and retrieve it. That’s all it is. But I think a lot of folks have perhaps a difficult time dealing with the reality of the mundaneness of their existence, and I don’t. I don’t think we do. Generally speaking, when it comes to work, you’re like, yeah, we make web interfaces on top of databases. We’ve been doing it for 20 years, and there’s a lot of value in that. There’s a lot of businesses that’s just all they need. Databases are amazing. They were invented a long time ago. We barely changed them and it’s still good. Anyway, that’s a tangent. I think the sort of constraints though, I think is the point to take away that we had quite severe constraints on our way of collaboration, on our overlap, on our time, our resources, all the things to get things going, and it just wasn’t a big deal.

(05:12): You could still make stuff and you could make great stuff, and I still fondly remember Single File. I remember scraping amazon.com when someone would enter that ISPN number for the book, I would look up and just take the image that Amazon had at the time to put it into our database. And so just a lot of good stuff around it. But it was real and there were real people who liked it. But also it wasn’t a big success. By modern standards it wasn’t a success at all, by present day standards 2001, I mean it was nice. What did we get Jason? Like a few thousand people to use it?

Jason (05:45): Maybe, something like that.

David (05:46): I think at peak. But wonderful. Great learning experience, great thing to get going. The first time you hit the ball doesn’t mean you’re going to make a home run. I mean it actually took us working on quite a few projects together before Basecamp became what it was and is.

Kimberly (06:02): Okay. So I’m imagining that these early days, David was kind of working as a contractor. You’re just doing work as a contractor for a few hours a week, but I think there’s a big difference between I’m just having this guy do some work for me to, we’re now in business together. So kind of talk me through that transition.

Jason (06:21): It was even shadier than that. I don’t think I was paying him in cash. I was paying him in computers. So he was in Denmark. He couldn’t get the latest Apple stuff. They didn’t distribute that way back then. And so whenever we’d come to the US, I’d give him a box of computer equipment basically I think is what it was. So he was like, yeah, I think you’ve earned two laptops or whatever. I mean, he would track his hours and we’d sort of add it up and here you go. That’s how that worked. Well, we’ve been working together for a while for clients now. So we were doing work for, the first client I think we ever worked for was this company called Summit Credit Union, which was this company in Madison, Wisconsin. They needed an intranet. Now, prior to David joining up or he wasn’t actually joined up, but prior to David being available, let’s say, my company 37signals was just doing website design.

(07:09): So just the front end of things. And these guys came to us and said, can you build a whole intranet for us? That includes the backend. Intranet, by the way, stone age term, old school thing. People don’t really have 'em so much anymore, but they’re fantastic. It was like, who works here? What are all the files everybody needs? And then a wiki like document center. That was literally ran the company, which is what again, most companies still need frankly and is way too complicated. But they asked us to build one or they had one, I think we were remaking it or something like that. Anyway, I needed someone to do the backend. I’m like, David, why don’t we do this? So we did that together and that was the first project we worked on together. And then we did a few more for a fellow named Richard Bird, and I think we did maybe another one, I’m not quite sure, and then had this idea to make Basecamp, and so I’ll kind of again maybe stop there, but that’s the transition was, sort of, hey, help me with this homegrown thing to let’s do some real client work together.

(08:05): Now we’ve got some work under our belt, we’ve done some things together. It’s been a couple years now basically. There’s something here. We enjoy working together, we see things the same way. We’re really frustrated by complicated things and there’s something here. Now I don’t remember, maybe David has a better memory than I do on this. I don’t remember exactly when partnership discussions happened, but maybe you remember. I don’t remember exactly when that started.

David (08:33): Yeah, it came up after we launched Basecamp. And we had launched Basecamp and Ruby on Rails had been released, and I was looking at the end of my studies. I graduated in 2005 and I knew sort of, alright, what am I going to do after that graduation? Either there’s an opportunity here to continue to work on this Basecamp thing or this Ruby Rails thing is taking off. Where should I direct my efforts? And I think part of the magic of this was exactly as Jason said, by that time, this is now, I think early 2005 was when we finalized things. We’d been working together for almost four years and this is, I often hear this about people picking business partners and it sounds like essentially an arranged marriage. Like that there was no time before that. There was just like, Hey, I need a business partner.

(09:21): You seem to be available. Should we go into business together? That to me sounds nuts. I’ve worked with a lot of people. Very few of them would I want to go into business with, sort of on an ongoing multi-decade basis? But with Jason it was so much easier to go, this makes sense. I know him. I know how we work together. I know how we view the world because we’ve literally been working on things together for several years in advance. So by the time my decision point came up after graduation that I needed to figure out what to do, it felt just natural to say, do you know what? If we’re going to continue to work together, then I want to be a partner in this. And I think what’s also interesting about that is what happened a year after the release of Basecamp and things just always get difficult when you’re trying to divvy up something that’s worth something.

(10:14): Thankfully Basecamp wasn’t really worth a lot at that point, so it was much easier for me to approach Jason and say like, hey, if we’re going to work together going forward, you got to make me a partner with this thing. But I think it was just made so much easier by the fact that I think, well, Jason can’t answer for himself, but it didn’t seem like to me at least that it was a big risk, that I was going to gamble on a person and a personality that I didn’t have full insight into that might turn out to be someone totally different. I mean one of the key reasons, I think maybe it was Paul Graham who mentioned that the number one reason why businesses, startups fail in the early phase is that the founders fall out. That they don’t want the same thing, they don’t have the same work ethic, they just view the world in a different way.

(11:02): That it is actually quite difficult to find someone that you’re compatible enough with to not only just go the distance but also go the stress, go the attention go, all these other metrics that you’re going to be measured on when you’re trying to build something together. So I think it was just a continuation of everything we’ve ever done in the sense that there was no risk. Just like with Basecamp, there was no risk with Basecamp. Startup mythology is full of people bragging about how much risk they took and sometimes you need to take some risk and that’s great for some kinds of businesses, but there’s also this huge swath of domains, we don’t need risk at all. That Jason and I could start working together just on a contract basis. Then we could elevate that to working on a project together. Then we could see how that project even went before we went further, such hat we didn’t waste a lot of time like, oh whoa, how much do you own of this or that before there’s even anything. I think that those foundations made it easier for us to just sail through without a whole lot of drama in the arrangement.

Jason (12:06): The other thing was is that, and this just goes to show you don’t really, things just sort of happen and situations present themselves. I originally started the business with two other founders, co-founders, Carlos and Earnest. And subsequently a few years in, one of 'em left and another one left a few years after that. So I was solo at this time, which made it a lot easier. So I’d run the business by myself for a bit too. I’d had partners. By myself, it made it a lot easier to bring David in. Had there been two other partners also in this, David would’ve been a fourth. It probably wouldn’t have happened. I mean frankly it’s complicated. You got to divvy things up. People want different things. It’s a total mess. And at that time, I think Basecamp, I don’t even know if we had a million bucks in revenue at that point. Probably close to it, maybe? I don’t know. Total, I don’t remember what it was by 2006, I think actually when we talked to Bezos, it was like a million bucks. I mean I think it was even quite a bit less than that. It

David (12:55): Was definitely less than a million bucks.

Jason (12:56): Yeah, 2005 it was less than that. So there was some equity that I built by building the business, by being around the business for five years more. There’s some of that, but we were basically starting essentially kind of from scratch here. Prior to this, we were a web design company. We’re no longer at this point, I don’t think we’ve totally made the transition, but we’re not doing web design anymore. So it felt like a new business, a new opportunity. Yet we’d worked together for a handful of years. So just sort of as David said, the risk was low, but it’s not even just, that’s a big part of it, but the risk can be low and the partnership can be bad. It felt like it was a good partnership and the risk was low, so let’s go for it. This is a new frontier, why not? That’s kind of how it felt. So I think we had a few rounds in negotiation initially. David had this one piece and then I think he earned some more. I forget exactly how that went, but I think there was two steps and then it was straightforward agreements, arrangements, whatever, and that’s how it all came together ultimately.

David (13:52): In fact, that agreement, the operating agreement as it’s called for an LLC is essentially kind of, it’s changed a little bit, but that document is almost untouched from 20 years on. We had an original operating agreement drawn up and it’s just fascinating to think of contracts being that long lived. I mean I know in the grand scheme of things, there’s probably a Japanese restaurant that can trace it’s a landlord contract back to the 11th century or something. But in modern times in technology times, this idea that there’s still this piece of paper, I think I might actually have the original piece of paper with actual wet signatures on it from 2005 or whenever when I joined the company that was sort of drawn up. It’s just kind of fascinating that things can have that kind of longevity.

Kimberly (14:43): I mean I looked it up and the average in the US, the average marriage is like eight years, so you guys have long lasted most people who are getting married, which is kind of crazy. So tell me what some of those secrets to success are, because as you said, sometimes businesses don’t work because the founders have a fallout, you guys have gone the distance. What are some of those secrets to making it work?

Jason (15:07): Well, I would say whether or not these are the reasons I don’t know, but these feel like maybe the reasons for sell David’s on the technical side and more on the design side. So we have very different domains that we sort of look after, but we have this central core shared vision on the business. And then we stay out of each other’s hair for the most part. Otherwise, David’s a little bit more in my hair on the design side because it’s easier to comment on design. I can’t really comment much on tech, but for the most part, we respect each other’s domains. We stay out of each other’s domains, but then we have very similar outlooks in business in the middle, and I think that’s a really core important part of this, really important part. I think if we’re both designers or both programmers, it’s just so much easier to butt heads and naturally think about all the collisions that happen in a business.

(15:51): And if you’re around for 5, 6, 7, 8 years, 10 years, whatever, and you’re doing the same thing every day, you’re going to see enough stuff differently that you’re going to butt heads too many times. I think that’s what ends up happening quite a few times or someone wants a lot more, they want to go big and huge and someone else wants to stay small. That’s hard too. But I think we see all that about the same. And then personally, I just have great admiration, respect for his skills and abilities and talents, and I’m always in awe of what he’s able to pull off and do. And I think that in any relationship you need to really admire the other person. I won’t speak for him towards me, but I think that’s an important part of it because otherwise you build up resentment and that’s just not a good recipe for anything, period, flat out.

(16:33): So I dunno, I think it’s pretty simple and I think also we have a very low tolerance for bullshit, a very low tolerance for complexity, for things that don’t make sense for waste. We don’t like those things and those are also important things not to like together. I think if you have very opposite viewpoints on those core fundamentals, you’re just going to, again, going to end up butting heads too often. At some point the bruise starts to bleed and then you’re like, this sucks. I don’t want to do this anymore. This doesn’t heal anymore. It’s like one thing to, we’ve butted heads before but then you heal because we don’t keep butting heads, so you’re going to butt heads sometimes. If you keep butting heads, you have a wound that doesn’t heal and then you’re in trouble. That’s where I think things start to fall apart.

(17:16): Actually, one more thing I would add actually, now that I thinking about it, we don’t have external pressure bearing down on us from someone else. That compression I think pushes people together and apart in bad ways when someone else, when you’re doing this for actually ultimately for someone else higher up, we don’t have that, which is a decision we made. We didn’t take outside money from anyone to run the business, so we don’t have that pressure, which I think really, really helps. I’ve just heard so many stories about founders who get along and are great and whatever, but someone else is just forcing them into a position they don’t want to be in and they have no choice but to bear it and endure it and then ultimately just they don’t want to do it anymore.

David (17:59): Yeah, I think a key moment or key aspect of this as I see it is this notion of the power sharing agreement. And power sharing is so much easier. As Jason says, when you have distinct domains that you get to have it “your way” within the field that you’re the expert on. And that can happen… If Jason and I were both designers, we were both programmers, we were going to have opinions and power struggles about the same domain and we were going to have it all the time. It’s so much easier when you have this distinction that most of the time we work on, I work on programming and Jason worked on the design side, and it’s natural that if there is a tension or a conflict about some of those things, you defer. You go like, do you know what? Hey, on product vision, Jason’s ultimately going to make the call.

(18:55): I’m going to make a plea. I’m going to make my opinions known. But I know going into that discussion that we’re not arm wrestling, that the point is not for me to beat him because we’ve already set up an established power sharing agreement where when it comes to this, that’s his decision. And the same way the other way, if for whatever reason Jason was incredibly fond of the cloud and thought that we should never have left or whatever, that would’ve brought a lot of tension into it and it just doesn’t happen. And then in that shared space in the middle on the business side, I think it does help that we are so aligned. This is how we’ve been able to write many books together. And I think it’s not always obvious to the reader which chapter is written by who and so on. We can blend our styles and we can speak each other’s talking points in a way that feels sort of authentic and natural.

(19:48): But it is, I think this notion that the power sharing has to be fairly explicit, that it’s actually better when it is. And this is also one of those things you can trace all the way back to the founding. Jason owns more of the company than I do. He brought more of it into it. There was brand equity and there was whatever, some startup things that he brought into it. And do you know what? That’s a recognition that’s been there since the beginning and it helps diffuse a lot of the conflict, I think, when you can go, do you know what on this one area we both agree that if there is a disagreement, I’m going to take the lead and on this area I agree that you’re going to take the lead and then for the rest of it where it’s a little murky in the middle, do you know what we’ll just trade.

(20:32): There’s almost nothing we’ve made decisions about even large decisions where I wouldn’t go, do you know what? If Jason really cares about this point, alright, let’s see where it goes. And it goes back to this risk factor too. We don’t have someone else breathing down our neck if we miss a quarter. What does that mean? It doesn’t mean very much. It just means that all right, maybe profits are slightly lower and we share that cake, a slightly smaller cake, but it’s cut the same way. This is the other thing, right? If I go like, oh, Jason, you want to try a crazy business experiment that I think is not going to pan out, what’s the worst that’s going to happen? You’re going to feel as much pain on the profit side as I am. There’s stake on their skin in the game on both sides in a way that really makes it easier to go, like

(21:20): I’ll just trust you on this one and you can trust me on the next one. And enough history to go, even if you’re really wrong, you get to be wrong a lot. You can be wrong five times in a row and you know what? The business is still going to be here if we’re wrong all the time, forever, eventually you do go out of business. But I think it just really loosens things up, loosens things up that any individual decision, I can’t think of a single one that was so crucial that I thought, shit, if Jason is wrong on this, we’re done. So when you don’t have those kinds of criticalities, I think it just lowers the temperature in most of the decision-making rooms, not withstanding that I think also we have had some aggressive disagreements at time, usually over product decisions. But that has also just when you work together for long enough, you see, you know what, sometimes I’m right, sometimes he’s right, it’s going to even out. It’s going to be fine.

Kimberly (22:23): Okay. So you guys are very similar in a lot of ways about your business philosophies. I mean you’re writing the books together. How are you guys different other than just design side and tech side? How are you guys different from each other, either personality wise or things that the other person does that you’ve learned from, you’ve incorporated into your own life since this 20 year partnership?

Jason (22:46): I’m guessing that people would probably say that I’m more patient, but that’s not a good thing necessarily. So it’s just probably I may be willing to give things one more try when David’s like, no, this is fucking not going to work. And he’s often right, that’s the case. My instinct is to, depending on what it is, if it’s not super critical, let’s try another time or try it a different way or whatever. I think that’s maybe one of the things.

Kimberly (23:10): David, do you agree with that?

David (23:12): Yes. And I sort of describe it in a slightly different way too. I think Jason, as I see it, you like to expand – expand horizons, expand options, expand experiments, and I provide the opposite function. I narrow. So when we’ve tried a lot of things, I’m like, all right, now it’s time to narrow this down, to narrow it down to a decision. And I think this is part of the magic, is that there is a yin and yang to it, that you need both sides of it. You need times of expansion and you need times of narrowing. And if you only have expansion, do you know what? That’s probably not going to be great. And if you only have narrowing, that’s not going to be great either. So I think it’s almost like a decision-making flip side of the fact that we have different domains when it comes to programming versus design, that we have different dispositions when it comes to idea generation, experimentation, all these other things.

(24:08): And oftentimes, we’re not even that far apart. We’re just apart on the timeline. So I’ll be after three months, for example, alright, time to narrow, and Jason will be like, nah, I’d like to give another three months on the expansion. But eventually, usually we converge on the fact that all right, now we have given this experiment or this idea long enough. And it’s rare, I’d say, that once the facts are in or once the sentiment is in or the vibe is in that we actually see things that differently. It’s mostly in negotiating the timeline and the duration of how long we’re willing to let something run. I’m willing to let things run far shorter than Jason is, and I think you need a little bit of that push and pull. This is the other thing of where even when I think about back to the most ferocious discussions we’ve had, they usually all were about product, like how the feature should be some new thing we’re working on in Basecamp, that pressing function when it’s not about the power struggle, it’s not about who gets to have control, it’s about how do we squeeze the best idea out of these opposing forces.

(25:17): That’s actually positive. And I’ve seen a lot of businesses too, where the founders are not willing to engage fully on that, not willing to pull the lever back and forth. And you go like, you know what? You’re not getting to the best idea here. You’re not getting to the best examination of what we’re trying to go because you’re not willing to subject it to that amount of force. And I think having the knowledge and faith in the fact that even when we do push relatively hard, we can walk out of that room and go like, all right, what should we have for lunch?

Kimberly (25:53): Okay, well, thanks for sharing all of that. I know people listening just don’t really know the backstory and how it all works together, so thank you for sharing that. REWORK is a production 37signals, so you can find show notes and transcript on our website at 37 signals.com/podcast. Full video episodes or on YouTube and Twitter. And if you have a question for Jason or David about a better way to work and run your business or working with a business partner, send us a text or leave us a voicemail at 708-628-7850 and we just might answer it on an upcoming show.