Common Mistakes That Start-ups Make

Question: What are the common mistakes new businesses make? 

Jason Fried: When\r\n you borrow money from somebody else, you’re on their schedule, you’re \r\nrenting time.  When you have your own money, or when you’re generating \r\nmoney through customers, you own your own time, you own your own \r\nschedule, and so you can take your time.  We can take 10 years to do \r\nsomething because we have revenue coming in and there’s not someone \r\nsaying your loan's due in three years, you know.  So I think a lot of \r\npeople struggle because they start of by borrowing money and then \r\nthey’re sort of on someone else's schedule and they don’t have time to \r\nsort of get in the groove.  So there’s some of that.  I think people \r\njust typically just try too hard, actually.  That’s weird because you \r\nhave to try hard to succeed, but I mean try hard on the wrong things. \r\n You focus on the wrong things too early.  And those can range, \r\ndepending on the business you’re in.  But I don’t think it’s... I guess \r\nmy point is, I don’t think it’s competition that puts these businesses \r\nout of business, I think it’s the business themselves putting themselves\r\n out of business by hiring the wrong people, being afraid of making \r\nmoney, spending too much money early on, maybe getting a storefront \r\nthat's too big if you’re a physical store.  You know.  Doing all that \r\nstuff when you really got to focus on the product first and keep it as \r\nsmall as you can and if you’re going to open a bakery, open it out of \r\nyour house first.  Just make – I mean, that’s probably technically \r\nillegal in some place, but make some... if you want to open a cupcake \r\nbakery, make some cupcakes and sell them at the Farmer’s market for six \r\nmonths, for a year first, on the weekends.  See if it works.  If it \r\nworks, okay, now you have some people who like your cupcakes, you’re \r\nselling out every weekend.  Now maybe you can move into something else. \r\n Instead of saying, "I’m going to open a bakery" and go buy a storefront\r\n and some expensive machinery and stuff like that.  So I think people \r\nkind of start a little bit too quickly sometimes too and they should \r\njust make their time and starts something on the side and see where it \r\ngoes. 

Question: How did 37signals transition between business models? 

Jason Fried: The\r\n big thing for us was that, we started out as a web design firm.  And we\r\n were doing client work for hire—web design work for hire.  And it was \r\ngreat.  We were doing really well and things were going all right.  And \r\nthen we hit on this idea to make project management software.  Right? \r\n But we didn't stop our client work business to build software.  We \r\nstarted building software on the side.  So we treated the new product \r\nlike Base Camp, which was our first product, as a client.  So we still \r\nwere doing client work.  So there was an overlap.  So we kind of treated\r\n Base Camp as a side project, as a side business and let’s see what \r\nhappens.  And it turned out in a year or a year and a half later, it was\r\n making more money for us than our consulting business.  So then we \r\ncould stop doing consulting—which was a great day—and sell software \r\ninstead.  But we didn’t say, like we’re going to stop doing consulting \r\nand start doing software the next day because that’s very risky.  And \r\nI’m not a big fan of risk.  I know like the whole entrepreneurial myth \r\nis like you know, the risk, take on risk and the entrepreneur with the \r\nrisk.  I just don’t buy that.  So I think side businesses, trying \r\nsomething on the side, spending a few hours a week, seeing where things \r\ngo first is the right way to do it.  And especially if you have a day \r\njob.  People dream of starting their own business, I don’t recommend \r\npeople quit their day job and start their business.  I think you should \r\nstart your business on the side a couple of hours a night, a couple of \r\nhours a week, see what happens.  You know, use your day job salary to \r\npay the bills, to fund your new idea, and then maybe a year later you’ll\r\n be all right and you can do that.  So, the business model shift for us \r\nwas a slow and gradual shift making sure we were able to sustain \r\nourselves on the new model before we give up the old model 

Question: What milestones should a start-up reach as it grows? 

Jason Fried: Our\r\n new business model, the model we have today is a subscription model. \r\n So people pay us on a monthly basis to use our products.  And we had \r\nthis idea that if we can make $5,000 a month on Base Camp after the \r\nfirst year, so $60,000 a year, that would be good because as a side \r\nproject, we didn’t have this vision of changing the company. We hit that\r\n in about six weeks, I think it was that we were making $5,000 a month. \r\n And so we realized at that point that something... there was something \r\nthere.  Didn’t know how big it was going to get.  It’s gotten much \r\nbetter than we ever imagined.  But that’s when we sort of knew that \r\nthings were going to be okay.  But at that point, we didn’t change.  And\r\n so we didn’t say, oh my god, we got to quit this thing and start \r\nsomething... and change our business or we’re going to be successful so \r\nlet’s buy a bunch of servers and... We had one server the first year and\r\n when we needed two, we bought two, when we needed three, we bought \r\nthree.  You now, it wasn’t about, "Wow, I think this is going to work, \r\nwow let’s spend money and get crazy."  It was about, "Let’s slowly grow,\r\n just like everything in nature, slowly grows."  Things get stronger and\r\n better slowly over time.  And that’s how we try to run our business. \r\n So it’s not about the big plan, it’s about a day by day by day by day \r\nand seeing where things go and just kind of making decisions as we go. 
\r\nAnd the main reason why I think this is important is because people \r\noften make decisions with the wrong information.  So they make decisions\r\n far into the future, based on information they have today.  You’re \r\nbetter off making decisions today based on information you have today \r\nbecause that’s when you make your best decisions.  You make your best \r\ndecisions when you have the best information.  That’s always right now. \r\nYou and I know more about this interview right now then we did three \r\nmonths ago.  So, you can ask me a new question right now.  If you had \r\nall your questions, you have some written now, but if you had all of \r\nthem written out and never changed your ideas on the questions you might\r\n want to ask, the interview wouldn’t be as good as you can say, "Jason \r\njust said something now I can ask something else."  So, that’s why... \r\nthat’s the agile side of it.  So there’s a little bit of planning, but \r\nthere’s the agile side of paying attention to the information you have \r\nright now.  And that’s why I don’t like the big long plans because \r\nyou’re saying in two years you’re going to be here and in three years \r\nyou’re going to be here.  Well you’re just saying that based on \r\ninformation you have today.  It’s not really going to be any good in two\r\n years.  The best information today is the information you have today \r\nand that’s the information you have to make decisions. 

Question: What advice do you have for Web developers thinking of starting a business?

Jason Fried: I\r\n think it is important if a developer is going to start a business that \r\nthey understand business at some level.  And I think business should be \r\ntaught in design schools, it should be taught to engineers; it should be\r\n taught at every level because a lot of people when moving into the \r\nfuture are going to be doing things on their own.  So I’ve seen a lot of\r\n software built by developers and they put on the market and they don’t \r\nunderstand about pricing, they don’t understand anything about customer \r\nservice, they don’t like customers, you know, there’s all that stuff \r\nthat can happen.  So... and the lucky thing about David, especially is \r\nthat David actually has a great business background. So  David’s a \r\ndeveloper with a business background so we make a lot of business \r\ndecisions together and that’s a really valuable asset.  To have somebody\r\n who’s leading developers who also understands business.  So it’s not \r\njust about technology, it’s not just about code. It’s about; we’re \r\nbuilding this because it has to do this, because we have customers that \r\npay us and that sort of thing.  So, I would just recommend anyone that \r\nis going into business as a developer, for example, have some business \r\nbackground or team up with somebody who understand business

Question: How do you balance the business side with the technical side? 

Jason Fried:  I’m\r\n not technical myself.  I do design and I do business stuff.  But it’s \r\nimportant that I have someone like David or some other partner, some \r\nother person on the team who is making those technology decisions \r\nbecause I don’t know anything about that.  And so if I try to know \r\nthings... if I tried to guide people who are doing the work like that, \r\nI’d probably upset them, they wouldn’t be happy and they wouldn’t do \r\ngood work.  So I think it’s important to know your limits.  Know what \r\nyou're good at and what you're not, and what you’re not you should find \r\nsomeone that can help with that because it seems like a lot of \r\ntechnology decisions made by people who don’t understand technology are \r\ntypically bad decisions.  Now when we built Base Camp, this is actually \r\nsort of a little quick story I will tell you.  When we built Base Camp, I\r\n was learning how to code something called PHP, which is a language a \r\nlot of people use.  And we hired David to build Base Camp, and David was\r\n a PHP programmer.  But he learned about this new language called Ruby. \r\n And it was out of Japan, it was relatively new, I think. And he said we\r\n should build Base Camp in Ruby. And I’d never heard of Ruby.  I’d heard\r\n of PHP.  And so if I was so stuck in my ways, I don’t know technology, \r\nbut if I’m like "I know PHP and so PHP’s got to be the way because \r\nthat’s what Yahoo uses, or that’s"—and forced David to use PHP, Base \r\nCamp wouldn’t have been as good because he wouldn’t have been as happy \r\nwriting it.  And so I trusted David because he’s the one who knows \r\ntechnology to say, if you think Ruby is the right language, then you \r\nshould use Ruby.  And that turned out to be a great thing.  Ruby on \r\nRails came out of that and all that stuff, but the point there is that I\r\n was familiar with something and unfamiliar with something else, but I \r\nsaid, "Let’s go with the unfamiliar thing because the person that’s \r\nreally familiar with it picked that one."  And that’s where it’s \r\nimportant to know what you’re really good at.  And I wasn’t really good \r\nat making that technology choice, David was and that really worked out \r\nfor the better.

Recorded on July 22, 2010
Interviewed by Peter Hopkins

Competition doesn't put start-ups out of business. Rather the businesses tend to put themselves out of business by hiring the wrong people, being afraid of making money, and spending too much early on.

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