37signals’ unconventional business practices are shaking up the startup world. Oliver Lindberg chats to company partner David Heinemeier Hansson, who explains why he thinks venture capital is harmful and workaholics should be fired
This article originally appeared in issue 205 of .net magazine in 2010 and was republished at www.techradar.com.
David Heinemeier Hansson avoids coming to the office as much as he can and doesn’t believe in working long hours. He hates venture capital money and doesn’t care about market share. He says planning is overrated and doesn’t want to hire more people. You wouldn’t think he runs a multimillion dollar company and yet his unconventional approach is revered around the world.
Heinemeier Hansson is a partner at 37signals, a Chicago firm that specialises in web-based business and productivity tools, founded by Jason Fried. The pair recently released their second book, Rework, a greatest hits compilation of everything they’ve learned over the last decade. Their controversial thoughts, based on their own experiences of starting and running a business, have turned Rework into a bestseller.
Heinemeier Hansson puts the book’s success down to him and Fried confirming things that people feel they already know. “It resonates because it’s something that a lot of people have inside of them already. They’re already annoyed by all the meetings that they have and by all the time they spend on useless planning. Once there’s a connection, they’re much more willing to listen to the rest of what we have to say.”
Hold on a minute. Planning is useless? “Planning in general is overrated,” Heinemeier Hansson says. “Plans usually are guesses. Planning is a fancy way of dressing up what you’d like to happen. It’s most often just wishful thinking. A financial plan is how we’d like our company to be in five years. It doesn’t necessarily have much bearing on reality. If you focus too much on these long-term plans, you have a tendency to do so at the expense of short-term planning, which is the kind of planning you need. It’s useful and helpful to plan what you do next week or next month, not how the world might look a year or five from now. That’s just intellectual freewheeling.”
Planning also puts on blinders. If you’re too focused on your long-term plan, you’ll miss opportunities that might come up along the way, says Heinemeier Hansson. “37signals started out as a web design firm. If we’d had a five-year plan, we’d never have embarked on Basecamp. We’d never have decided to change our whole business around and become a product company.”
When Fried hired Heinemeier Hansson in 2001 to help him with programming, 37signals was still a web design shop. Heinemeier Hansson, who still lived in Copenhagen, then wrote the code for an online collaboration tool Fried wanted for his employees. They came up with Basecamp (Heinemeier Hansson invented Ruby on Rails on the way), realised its potential and it became their flagship product.
Today, more than three million people use 37signals’ apps and Basecamp alone generates millions of dollars a year in profits. Except for a minority share by Amazon’s Jeff Bezos, the company has never taken outside investment.
“Too much money is one of the most harmful things you can do to a new business”, Heinemeier Hansson explains. “Excellent decisions come out of constraints. When you don’t have all the money in the world, you can’t afford all the people in the world and you don’t have all the time in the world. You must make compromises and decisions to cut down and release something that’s simple and easy to use. Most venture capital is going into companies that are looking for a big sugar daddy like Google or Microsoft to pick them up and pay for the bill, rather than creating sustainable value.”
For Fried and Heinemeier Hansson, the top priority is profits. Everything else is secondary. That’s why 37signals still only employs 18 people and is not interested in growing its head count. “Most businesses think that to increase profits you have to hire more people. That’s absolutely not true when you’re working on something like software. We’re working with our own money, so if I hire somebody else, his salary is coming out of my end-of-year bonus or the profits for the company.”
37signals’ employees mostly work remotely, spread across various cities in three countries. Fried and Heinemeier Hansson have no idea how many hours they work. How do they stay so disciplined? “I think it’s actually easier,” Heinemeier Hansson explains. “It’s very easy to be undisciplined when you show up at work and all you have to do is sit in an office chair from 9 to 5 and that’s the key representation that you have done work. It’s very easy to just waste eight hours.
“When you’re not sitting next to each other, the only thing that you see is the work. If the work is not there, there is nothing. So we remove all of the distractions and then we can just look at whether the work’s been done. But the vast majority of work we do from home. I hardly come into the office at all.”
Heinemeier Hansson hates workaholics. In fact, he advises employers to fire them — a philosophy that goes strictly against what Gary Vaynerchuk, star of Wine Library TV and author of Crush It!, preaches. Vaynerchuk lives by his own recipe for success: you need to hustle relentlessly. “There is a chance it might work for sales people, but for anybody else that’s terrible advice,”Heinemeier Hansson counters.
“Most people aren’t productive in their 14th hour of the day. If you’re working in writing, programming, designing or another creative endeavour like that, what matters way more is the quality of the hours. If you can get just four or five quality hours, without interruptions, you can get an amazing amount of work done. Pouring in more hours is not only not going to help, it’s going to hurt. People who’ve been working 80 to 100 hour weeks are not going to churn out quality work. They’re going to turn out bad designs, poor writing and buggy code. Humans are simply not built to be creative for such long periods of time.”
And so over the summer, 37signals cuts down the hours even more: they take Fridays off. Heinemeier Hansson claims that although this means their working week is 20 per cent shorter, they’re not getting 20 per cent less done. “People come in much more motivated, much better rested and they’re having a whole lot more fun, which is worth more than the loss of the hours.”
Divide and conquer
Critics argue that this minimalist approach can’t be applied to all businesses (check out Heinemeier Hansson’s clash with Jason Calacanis in This Week in Startups). And in general, 37signals seems to polarise the web design community — you either love them or hate them, a position Heinemeier Hansson is very comfortable with. “Who has an opinion on Dell?” he asks. “It’s just a grey box, nobody really cares. I’d much rather create products that people care about.”
Heinemeier Hansson and Fried plan on staying around for the next 20 years. Rather than releasing more and more products, the duo want to concentrate on the products that they have and keep them fresh and evolving, while continuing to come up with little side projects from time to time.
The 37signals Job Board, for example, took the team just a few days to build and brings in between $50,000 and $70,000 a month in advertising. One of their most recent projects, Sortfolio, is an index of web designers that 37signals is using to find an agency to redesign Signal vs Noise, the popular company blog that attracts more than 100,000 readers every day.
After years of sharing an office with Coudal Partners, 37signals is also about to move into its own space. The new office will include a 37-seat theatre that Heinemeier Hansson and Fried will use to teach small masterclasses; they’ll also invite people in to teach the team. Heinemeier Hansson justifies the move in true 37signals style: “The new office is unnecessary. It’s luxury, it’s indulgence. It’s not because we need a new office. But we’ve been in business for more than 10 years and it feels like it’s just a nice thing to do.”
In February 2014, the company adopted a new strategy, focusing entirely on its flagship product, Basecamp, and renaming the company from 37signals to Basecamp.