Start a Business, Not a Startupwith Jason Fried and David Heinemeier Hansson
Last episode of the year and we’re talking about startups. The new dry cleaner down the street doesn’t call itself a startup. The pizza place on the corner doesn’t call itself a startup. They’re new businesses, that’s all! So, what’s so special about your tech company that you need a fancy word for it? Startups make you think of unlimited growth, huge investments, no expenses to worry about. This mindset can be unhealthy and detrimental to your new business.
- 02:57 - Request for Proposal (Investopedia)
- 10:02 - Greater fool theory (Wikipedia)
- 15:57 - R.I.P. Good Times (Sequoia Capital)
- 23:00 - Hotwire
The Full Transcript
Shaun: [00:00:00] Welcome to Rework. Before we get into the show, we actually got a question sent in from a listener. So let me play that and I’ll have you two respond.
Joram: [00:00:11] Hello, my name is Joram. In the recent episode where you talked about mission statements, I could sense your disgust for them. But I wonder if mission statements are the most effective way of letting strangers know about what we do as a business. I mean, if they didn’t work, beer companies wouldn’t have been paying tens of thousands of dollars to marketing companies to come up with them. Are mission statements, one of those things that we know deep down in our hearts, that they work, even though we hate them, and therefore we should continue to have them if we are to own a company?
David: [00:00:47] I think it is a grave misunderstanding if you think that something works just because we keep doing it. We keep doing all sorts of things that make no sense in all walks of life all the time. And I think the mission statement is case in point. I think it’s a case in point of also just business cargo culting. It happens all the time, you see these trends rip through, like, oh, all logos are supposed to have a swoosh, that was the joke in the early 2000s. And there’s just these trends. You do it because that’s what others do. I don’t think you need to find a deep wisdom necessarily, in the fact that this is working. It could be, but I think it’s also entirely possible that we’re just keeping up this charade.
[00:01:31] And also, things must work because businesses pay tens of thousands of dollars for them. Absolutely not. Large companies in particular waste gobs of money on things that absolutely do not work all the time. So I think it’s better actually to flip it around. Instead of thinking like these must work because we do them, try to remove them and see if it doesn’t still work. Do you think Nike is going to go out of business, if they pull down their mission statement, if they have one somewhere, or any other company really? That’s this falsification approach.
[00:02:07] Not we’re too afraid these might do some magic, just try to remove them and then see what happens. As we mentioned, Basecamp hasn’t had a real mission statement. We’ve been in business for damn near 20 years. Made plenty of writings on missions of all sorts, but not the mission statement, as we discussed last time. And we were more than just fine. So try to remove it even just for a year. Hide it. Is anyone even going to notice that it’s gone? I doubt it.
Jason: [00:02:33] I think that lesson itself is really valuable. This idea of don’t do something you thought you had to do. I’ve told this story before, I don’t know on this podcast or not. But way back when I was doing website design, so this is back in the late ‘90s. I used to think you had to write this really long proposal, this really ornate proposal to get work. I would be asked, I’d get an RFP and get this request for proposals and spend a lot of time on a lot of intricate proposals. And at some point, I’m like, I just don’t like to do these so let me just keep shortening them and shortening them. And then I realized that well, I noticed that I got a proposal from somebody else to redo I think it was a kitchen or bathroom situation I had at my apartment. And all I did was I got the proposal and I looked at the back page. I looked for the price and the time. Like that’s all I really wanted to know. How much is this going to cost and how long is this going to take?
[00:03:25] And I just realized that if that’s all I’m doing, that’s probably all anyone else is doing. If they’re asking me to submit a proposal, they already know my work. They already know who I am. They already know what I can do. What’s it going to take? How long is it going to take? How much it’s going to cost?
[00:03:37] So I kept reducing the proposals down to a single page ultimately, which was basically a statement and a price and a time. And it was easier for me. It was more direct and clear for who I was bidding. And it was a differentiation point, too, which was like, here’s my approach, which is straightforward and simple. And here’s everyone else’s approach which you’ve got to like labor through this long document.
Shaun: [00:03:58] Mm-hmm.
Jason: [00:03:58] And I don’t think I won or lost any more work. You know, it was just about the same. Maybe I won some more, maybe… I don’t know. But it didn’t matter, it was about right. And at the end of the day, it was a good reminder that I don’t have to do all these things I thought I had to do. I thought I had to stay up late. I thought I had to write these long things. I thought I had to submit these big, fancy things. And it turns out you probably don’t have to.
Shaun: [00:04:21] Yeah. Well, Joram, thank you so much for your question. If anyone else out there has any comments or questions about the show, please leave us a voicemail at 708-628-7850, or better yet, and because the audio quality is so much better. You can record a voice memo on your phone and email it into email@example.com.
[00:04:41] Okay, now for the show.
[00:04:43] Broken By Design by Clipart plays.
Shaun: [00:04:43] Welcome to Rework a podcast by Basecamp about the better way to work and run your business. I’m your host, Shaun Hildner.
[00:04:51] This week we’re talking about the word startup. You know, we’ve talked about the importance of language on the show before but startup is a special word that carries with it a ton of baggage. It makes you think of something flashy, new, carefree, a place where you don’t really have to care about things like expenses, where you can spend other people’s money like it’s going out of style, a magical land of unfettered growth. Well, we all know that’s not true. A startup is just a business like any other. There’s nothing inherently special about it. And here to discuss startups with me are the co founders of Basecamp and the authors of Rework. Jason Fried how are you?
Jason: [00:05:26] I’m okay, Shaun, how are you?
Shaun: [00:05:27] Wonderful. And David Heinemeier Hansson, how are you?
David: [00:05:30] Good, good.
Shaun: [00:05:31] Fantastic. This week, we are talking about the chapter “Start a Business, Not a Startup.” I know how, I think we’ve talked about this word startup before in a previous episode. But can you sort of, I guess, lay out the definition of that sort of fairy tale ideal of what a startup is, what does that word conjure in your mind?
Jason: [00:05:52] For me, it sort of conjures up this feeling that there’s a reason to suspend basic economics. And it’s sort of cover for like, we don’t know what we’re doing yet. We’re not bringing in any revenue yet. We’re not selling something yet. There’s this just sense that like, we’re special and new.
[00:06:10] Now, starting a business is great. Like, you’re just starting a business, it’s a new business, a startup is just a new business. Let’s just call it a new business, because that’s what it has to be. It’s a business. And I think that the word startup just bugs me because of that. It’s the sense that we’re this special, fragile thing, and it’s cool, and the whole thing, but I just think it’s distracting. I think it takes away from the fact that this is actually a business. And people still call us a startup 20 years later, like, that’s wrong, too, right?
Shaun: [00:06:40] Yeah, I still hear that. Absolutely.
Jason: [00:06:43] Yeah. And it’s like, well, people think we’re startup because we’re a tech company or a software company, or something like that.
Shaun: [00:06:46] And we’re small.
Jason: [00:06:48] And we’re small.
Shaun: [00:06:49] Yeah.
Jason: [00:06:49] And I don’t like the term because I don’t know when it really flips. So my point is, get rid of it. Just don’t flip it in the first place. Just you’re a new business. That’s enough.
Shaun: [00:06:57] Yeah.
David: [00:06:57] I think what’s interesting about the word startup, though, is, it has some punch. I’ve been on this side, too, like, you know what, we just shouldn’t use it. But I can also see there’s some energy in it that at the same time, I’m loathe to give up, particularly, because then the term will just be reserved to just the kinds of startups that we otherwise advocate caution with. The raising of tons of money, the fact that the business is in a certain location, it started in the Bay Area, or San Francisco, or whatever. And it feels like giving up some territory that actually has some energy in it. That there is an identity in the word startup of we are a new business.
[00:07:44] Now, I think the big danger is when, as Jason says, it becomes sort of like it’s a separate species of thing, rather than a subcategory. Just like we have small companies, we have big companies, both kinds of companies would also have startup companies that are essentially just hey, you get to call yourself a startup for like 18 months, that’s it.
Shaun: [00:08:04] Not 20 years.
David: [00:08:05] 18 months and one day, you have now graduated, and your small business, whether you’re profitable or not. But in much the same way that you turn 18, hey, you get the right to vote. That’s just it. After that, that’s just what happens. And I think startup could have that same potential, and could avoid being captured by the kinds of people who prey on that energy in that word to lure people in who think like, oh, yeah, I want to do a startup because that sounds really exciting.
[00:08:39] We’re all doing startups, startup is just the first phase of business. And then to connect it to Jason’s point from the last discussion we had is like, in many ways, we need to take it down a notch, a peg. This is the easy time, the startup when it’s just you and a few people or even moreso the startup when you raised a bunch of money and you don’t actually have to account for your expenses. That’s the easy time. It shouldn’t be flipped in this way that like all the glory of getting going is with the startup because like that’s so hard and blah, blah, blah. Absolutely not. It’s just that early phase and that’s what it should be.
Shaun: [00:09:15] You write that startups, and I quote here, “Run by people trying to postpone the inevitable,” and it just conjured that image of Peter Pan in the Lost Boys not willing to grow up. How long can you live in that fantasy world before you have to decide to become a business?
David: [00:09:32] I think unfortunately, you can delay maturity for an awful long time.
Shaun: [00:09:37] Right.
David: [00:09:37] We made this we made this point in the chapter, “A business without a path to profit isn’t a business, it’s a hobby,” which—
Shaun: [00:09:45] Yeah.
David: [00:09:45] I agree to some extent, but I’d actually rewrite it now and to say a business without a path to profit isn’t the business. It’s a financial instrument, because that’s what this has become, like startups or like NFTs you’re hoping to sell it on to the greater fool, someone who will just pay more money for your shares, not because there’s something underlying there that necessarily has value, but simply because this is how we pass things around. And I think it’s just such a perversion of the normal formation of business, that, hey, to have a healthy economy, we need, let’s just adopt the word for a moment, we need startups, we need new companies to be created. This is the natural life cycle. And we also need other companies to go out of business.
[00:10:29] What I don’t think we need is to financialize all these new companies into these NFTs that we’re just passing around, not because there’s some fundamental underlying value, but because we think someone else would buy it from us for a higher price. Now, that’s of course, a sort of spectrum. And you could say stocks in general are that, but it seems particularly dire when it comes to startup and the froth and infatuation with startups as NFTs I think is just not helpful. It’s not helpful for an economy that’s looking to grow solid, long term businesses, it’s not healthy for the people who work at these NFTs. It’s not helpful, I think, ultimately, for society at large.
Jason: [00:11:16] Yeah, I don’t have anything else to add. That was particularly crisp. I like that.
Shaun: [00:11:21] So how do you avoid this trap? How do you avoid the trap of running into starting what you think is a startup as opposed to starting a business?
Jason: [00:11:30] I think a lot of has to do with words, you know, the words you put in your head. It’s then the path that you follow, in a sense. So it’s kind of like don’t put the Halloween costume on basically. Be yourself. Don’t try to be something else. Because when you’re trying to be a startup, you start to adopt all the things, all the trappings that a startup has. Versus like, okay, I’m just gonna start a business. I always go back to these basic ideas, like, the dry cleaner on the corner is not a startup. It’s a new dry cleaners. It’s a new business. The pizza place on the corner is not a startup. The convenience store is not a startup. The carwash is not a startup. They’re businesses. And why is it that if you make software, you’re something else, like you’re not. We don’t need to play games with this.
[00:12:16] So I think it is about language. Think about like, if I’m starting a dry cleaners, what am I going to call it? It’d be ridiculous to call it a startup. It’s a new business. And so I do think the labels and the names and the language you use does set the tone from the beginning, about how you’re going to act and feel and talk and be. Again, part of it, too, is the path. So if you go and raise money early, everyone else is going to call you a startup, when everyone else is calling you something, you’re going to think of yourself that way as well.
[00:12:43] So there’s a lot of these things right from the beginning, that set the tone and the habits and the path that you’re on. So I’d be careful about that. Now, granted, it probably doesn’t matter that much to a lot of people. People prefer to call themselves startups, because it’s an exciting label and it’s an exciting word. And some startups have gone on to become billion dollar businesses. And so I get it. We’re basically swimming upstream here. But so what, you know? I think, it’s just good to get the nonsense out of the way early.
David: [00:13:11] I think, though, that swimming upstream is also just the proof in the pudding is people still call their startup startups.
Shaun: [00:13:18] Right.
David: [00:13:18] Which goes to show just that the fight over language and over words and the definitions of it, is a very difficult one. And no matter almost how good your arguments are, sometimes there’s just an emotional appeal in a given word, that is incredibly hard, if not impossible, to shake. That’s why I’m perhaps more liable to just throw in the towel on the dispute of whether you should use this word or not, and then engage in the fight to redefine it. That startup is more of a time. It’s not a type. It’s a time, it’s the early time of a business. You’re trying to validate this thing.
[00:13:58] If we go to these examples that Jason used, like the dry cleaner, and so on. You might think oh, well, there’s no validation, there’s been 100 of these. There’s plenty of validation. There’s location, there’s how you put it together, there’s the execution. If you look at yet another enterprise SaaS company, like they’re just as run of the mill as a fucking another dry cleaner. It’s not like there’s anything ground shaking necessarily there. And yet another way of I don’t know, processing HR invoices or and that sounds demeaning. And I don’t mean it that way because we are the same thing. In many ways. Basecamp is a communication platform and there’s a lot of those and we have our take and blah, blah, blah. But it’s this separation that like, you know what, we’re actually better than, we’re better than a normal business. We’re not a normal business. Normal businesses are boring. Normal businesses have expenses that they need to worry about in the early phases. This is not us. We’re a rocket ship. We’re going to the moon kind of thing.
[00:14:59] And I think it’s that delusion that you are outside of the realm of basic economics that not only is false, but is harmful in terms of teaching you the things that you should know, to ultimately long term become a good business, that the fundamental principles of making more money than you spend and so forth are habits, as Jason likes to say, that you have to teach yourself early on, because you can’t just pick them up later.
[00:15:25] And there’s countless stories of startups that stayed in that immature state, and never converted to a mature state where they actually had proper concept of making more money than they spend and then suddenly found themselves without the guardian angels of capital. And then like, oh, all of a sudden, like, oh, gee, what was it called the last time? The ice winter in 2012, or ‘13, or something a bunch of VCs coined this term, “Rip the good times.”
[00:15:58] And you’re like, um…
Shaun: [00:16:00] Fuck off.
David: [00:16:01] It’s kind of sad to me that there’s that level of infantilization. That, unless mommy and daddy continued to clear your credit card bill—
Shaun: [00:16:12] You’re allowance. Right?
David: [00:16:13]Exactly. You’re going to be in real trouble. How about you just stand on your own two feet? And how about you just fucking move out and become independent and in charge of your own destiny? And that’s the kind of stuff that you will achieve, if you adhere to these basic tenets of business. And as we’ve talked about several times, isn’t that why you’re in this in the first place?
[00:16:38] Isn’t that the purpose of starting a either business or startup, that you want some independence, that you want to run things by yourself, that you want to have your own company? Why are you moving back in with mommy and daddy capital. Having some higher aspirations here, which is part of the inversion of the ethos here, right? A lot of people adopt the word startup because it implies this limitless ambition.
Shaun: [00:17:03] Right.
David: [00:17:03] That we’re not for just going in orbit, we’re going to the moon! And yet at the same time, you don’t even have the ambition to get your own house in order and to move out and be independent and in control of that destiny, of yourself. There’s some weird schism here to me, in presenting yourself as this extremely ambitious business while at the same time not being in control of your own destiny.
Shaun: [00:17:29] As Jason was saying, earlier in this conversation, I still hear Basecamp described as a startup 20 years later. Did you ever think of Basecamp, or I guess, 37signals at the time as a startup?
Jason: [00:17:43] Yeah, it was just always a business. We were starting a business. Back in the day it was three of us starting a business. And that was that. You start a business and you start doing work, and at the time, we were finding clients, and they were paying us for the work, we were delivering the work, and we’re sitting on a desk and doing the work. That’s what it is. And that’s all it was. And all it still is. You know, we’re a business, we make stuff and we work together and we deliver things for customers. We take care of customers. We take care of employees. We do the things that a business does, there’s nothing you can do that a startup does that a business doesn’t do.
Shaun: [00:18:14] Right.
Jason: [00:18:15] So there’s no, I just have never thought about it any other way.
David: [00:18:19] I don’t think we’ve ever had that desire to embellish either.
Shaun: [00:18:23] Right.
David: [00:18:23] As to pretend that this is more than just that, because there was enough satisfaction in hey, we’re running our own business. That’s pretty great. We get to make all sorts of decisions about how we structure that business and what that business pursues. And why do we need more than that? Why do we need the sort of invisible clothes here that everyone should be so in awe of.
[00:18:47] No, just a business and that’s fine. And I think having that sense of confidence that you don’t need to blow it up to more. You don’t need to act bigger than you are, or be on a different path than you are, I think is really key to how our experience turned out quite different than a lot of other tech startups turned out.
[00:19:13] And a lot of that does come to the funding. The whole premise of raising money is pretending. I’m going to pretend that I am worth $1,000,000,000 seven years from now. Now, that implies just such a pomposity, right? A billion dollars based off an idea. Wow, that’s quite some extrapolation you’ve got going there. Really fancy. And I think then all these other things come along with it. That you can’t just be like, Well, I’m just a business because you’re supposed to be worth a billion dollars in about seven years. That’s not that long.
Shaun: [00:19:46] Well, this podcast is about looking back at least 11 years to when you published the book Rework, but as this is the last episode before the New Year, I want to give you a little bit of time here at the end to talk about what you’re looking forward to, in the future. What’s 2022 have to offer that you’re excited about, as far as Basecamp’s concerned?
Jason: [00:20:07] Well, it’ll be our 23rd year being a startup, so that’s [crosstalk]. That’s gonna be great. There’s a lot to look forward to next year, I think there are many ways 2021 was for us all about 2022 and beyond, in a way that we didn’t necessarily anticipate. But we have a new sense of ambition, which is something that’s kind of a weird thing to find 22 years in, but you know, you stick around long enough, and the wave comes back. And we’re excited about some of the things we’re working on Basecamp. And HEY, of course, working on these at the same time, we’ve hired a bunch of wonderful people recently, so we can do a lot more.
[00:20:43] Our overarching aim right now is just to become a more capable company that can do two or three or four things at once, instead of just one thing at a time. And we’ve already put that into motion. So that’s particularly exciting. Broadly, these aren’t promises, but I’d love to build a HEY calendar this year, we’ve been talking about that.
Shaun: [00:21:01] Whoa, whoa, whoa. I don’t know if I should even publishe that.
Jason: [00:21:05] Yeah, well, we’ll see. I said, we’d love to not that we’re going to.
Shaun: [00:21:08] Sure.
Jason: [00:21:08] But we’d love to. Maybe we will. We have another product idea that could happen. There’s a lot of things that are going on, but mostly HEY and Basecamp are going to get better and better and better and better at a really sustainable six weeks at a time pace, that I think is going to really impress a lot of people and surprise a lot of people. And so we’ve a lot of ideas and we’re eager to get to them and continue to do things our own way.
David: [00:21:31] Yeah, I think in many ways, as Jason said, it’s odd to some extent that 20-plus years into this, there’s this level of excitement.
Shaun: [00:21:40] Yeah.
David: [00:21:41] You have this, sometimes, perhaps this is one of the reasons people are not so keen to embrace the word 20 year old business, because it sounds stale to some extent. I think there’s a lot, just good stuff in that. Wow, you’ve lasted 20 years, that’s some stamina to have and most people don’t make it that fast. But there’s also the flip side of it, like you must be set in your ways in ways that can’t change, or you can’t fundamentally try new things, or develop new ambitions, or whatever. And I think if you look at the current makeup of the company, and where we’re going, I’m hard pressed to remember when we last had this amount of bursting energy.
Shaun: [00:22:23] Mm-hmm.
David: [00:22:23] And that is just really exciting. And it’s exciting in all the ways. It’s exciting with the products and where they’re going. I’m incredibly excited about some of the technology we’ve been developing. That’s finally, like, all the pieces are coming together at the same time.
[00:22:37] I mean, I’ve been working on Ruby on Rails for what is that going to be now? Almost 18 years. And I’m insanely excited about the latest version we’re about to release just before Christmas, or right after. Rails 7. That just has all this great stuff that we built during the creation of HEY. We have the whole new approach to front end development with hotwire our new set of frameworks for doing things very differently there.
[00:23:05] The fact that we’ve been able to retain that independence and fighting spirit, and we’re going to charge our own path if there’s not another path that looks like something we want to go down is invigorating.
Shaun: [00:23:19] Yeah.
David: [00:23:20] It wanes and waxes over the years. I mean, as I’ve been at this for 20 years, like not every year feels like this. I didn’t come up on every Christmas thinking, holy shit next year.
Shaun: [00:23:33] Right.
David: [00:23:33] Wow, it’s just loaded up. Like look at all these things. You line up all the things and you go like, wow.
Shaun: [00:23:38] New toys under the tree.
David: [00:23:39] Yeah, the toys under the tree. And I just I can’t wait to to open them up, to show them off and to engage with all of that and see 2022 as a new thing. Yeah, incredibly excited in a way that hasn’t happened that many years and that way over 20 plus years.
Shaun: [00:23:59] Well, fantastic. I think that’s a perfect place to wrap it up. Like I said, there’s not going to be an episode next week. We’re going to take a short break for holidays and New Year and to catch up on episodes and give my bosses a break from me bugging them every week. So we will see all of you in 2022. But for now, I want to say thank you to David Heinemeier Hansson.
David: [00:24:21] Thanks, Shaun.
Shaun: [00:24:21] And thank you, Jason Fried.
Jason: [00:24:24] Thank you, Shaun.
Shaun: [00:24:25] All right, Happy New Year.
Jason: [00:24:26] You, too.
David: [00:24:26] Late.
[00:24:27] Broken By Design by Clipart plays.
Shaun: [00:24:27] Rework is a production of Basecamp. Our theme music is by Clip art. We’re on the web rework.fm where you can find show notes and transcripts for this in every episode of Rework. We’re also on Twitter at @reworkpodcast. No episode next week. We’ll pick back up next year with more advice and strategies for running a better business. If you like the show, I’d really appreciate it if you would leave a review on Apple Podcasts and if you have any comments or questions for Jason or David, leave us a voicemail at 708-628-7850. Or, better yet, record a voice memo on your phone and email it to firstname.lastname@example.org.