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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Why compassion fades

A scientific look into a ubiquitous phenomenon.

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Sex & Relationships

One victim can break our hearts. Remember the image of the young Syrian boy discovered dead on a beach in Turkey in 2015? Donations to relief agencies soared after that image went viral. However, we feel less compassion as the number of victims grows. Are we incapable of feeling compassion for large groups of people who suffer a tragedy, such as an earthquake or the recent Sri Lanka Easter bombings? Of course not, but the truth is we aren't as compassionate as we'd like to believe, because of a paradox of large numbers. Why is this?

Compassion is a product of our sociality as primates. In his book, The Expanding Circle: Ethics, Evolution, and Moral Progress, Peter Singer states, "Human beings are social animals. We were social before we were human." Mr. Singer goes on to say, "We can be sure that we restrained our behavior toward our fellows before we were rational human beings. Social life requires some degree of restraint. A social grouping cannot stay together if its members make frequent and unrestrained attacks on one another."

Attacks on ingroups can come from forces of nature as well. In this light, compassion is a form of expressed empathy to demonstrate camaraderie.

Yet even after hundreds of centuries of evolution, when tragedy strikes beyond our community, our compassion wanes as the number of displaced, injured, and dead mounts.

The drop-off in commiseration has been termed the collapse of compassion. The term has also been defined in The Oxford Handbook of Compassion Science: ". . . people tend to feel and act less compassionately for multiple suffering victims than for a single suffering victim."

That the drop-off happens has been widely documented, but at what point this phenomenon happens remains unclear. One paper, written by Paul Slovic and Daniel Västfjäll, sets out a simple formula, ". . . where the emotion or affective feeling is greatest at N =1 but begins to fade at N = 2 and collapses at some higher value of N that becomes simply 'a statistic.'"

The ambiguity of "some higher value" is curious. That value may relate to Dunbar's Number, a theory developed by British anthropologist, Robin Dunbar. His research centers on communal groups of primates that evolved to support and care for larger and larger groups as their brains (our brains) expanded in capacity. Dunbar's is the number of people with whom we can maintain a stable relationship — approximately 150.

Some back story

Professor Robin Dunbar of the University of Oxford has published considerable research on anthropology and evolutionary psychology. His work is informed by anthropology, sociology and psychology. Dunbar's Number is a cognitive boundary, one we are likely incapable of breaching. The number is based around two notions; that brain size in primates correlates with the size of the social groups they live among and that these groups in human primates are relative to communal numbers set deep in our evolutionary past. In simpler terms, 150 is about the maximum number of people with whom we can identify with, interact with, care about, and work to protect. Dunbar's Number falls along a logorithmic continuum, beginning with the smallest, most emotionally connected group of five, then expanding outward in multiples of three: 5, 15, 50, 150. The numbers in these concentric circles are affected by multiple variables, including the closeness and size of immediate and extended families, along with the greater cognitive capacity of some individuals to maintain stable relationships with larger than normal group sizes. In other words, folks with more cerebral candlepower can engage with larger groups. Those with lesser cognitive powers, smaller groups.

The number that triggers "compassion collapse" might be different for individuals, but I think it may begin to unravel along the continuum of Dunbar's relatable 150. We can commiserate with 5 to 15 to 150 people because upon those numbers, we can overlay names and faces of people we know: our families, friends and coworkers, the members of our clan. In addition, from an evolutionary perspective, that number is important. We needed to care if bands of our clan were being harmed by raids, disaster, or disease, because our survival depended on the group staying intact. Our brains developed the capacity to care for the entirety of the group but not beyond it. Beyond our ingroup was an outgroup that may have competed with us for food and safety and it served us no practical purpose to feel sad that something awful had happened to them, only to learn the lessons so as to apply them for our own survival, e.g., don't swim with hippos.


Imagine losing 10 family members in a house fire. Now instead, lose 10 neighbors, 10 from a nearby town, 10 from Belgium, 10 from Vietnam 10 years ago. One could almost feel the emotion ebbing as the sentence drew to a close.

There are two other important factors which contribute to the softening of our compassion: proximity and time. While enjoying lunch in Santa Fe, we can discuss the death toll in the French revolution with no emotional response but might be nauseated to discuss three children lost in a recent car crash around the corner. Conflict journalists attempt to bridge these geotemporal lapses but have long struggled to ignite compassion in their home audience for far-flung tragedies, Being a witness to carnage is an immense stressor, but the impact diminishes across the airwaves as the kilometers pile up.

A Dunbar Correlation

Where is the inflection point at which people become statistics? Can we find that number? In what way might that inflection point be influenced by the Dunbar 150?

"Yes, the Dunbar number seems relevant here," said Gad Saad, PhD., the evolutionary behavioral scientist from the John Molson School of Business at Concordia University, Montreal, in an email correspondence. Saad also recommended Singer's work.

I also went to the wellspring. I asked Professor Dunbar by email if he thought 150 was a reasonable inflection point for moving from compassion into statistics. He graciously responded, lightly edited for space.

Professor Dunbar's response:

"The short answer is that I have no idea, but what you suggest is perfect sense. . . . One-hundred and fifty is the inflection point between the individuals we can empathize with because we have personal relationships with them and those with whom we don't have personalized relationships. There is, however, also another inflection point at 1,500 (the typical size of tribes in hunter-gatherer societies) which defines the limit set by the number of faces we can put names to. After 1,500, they are all completely anonymous."

I asked Dunbar if he knows of or suspects a neurophysiological aspect to the point where we simply lose the capacity to manage our compassion:

"These limits are underpinned by the size of key bits of the brain (mainly the frontal lobes, but not wholly). There are a number of studies showing this, both across primate species and within humans."

In his literature, Professor Dunbar presents two reasons why his number stands at 150, despite the ubiquity of social networking: the first is time — investing our time in a relationship is limited by the number of hours we have available to us in a given week. The second is our brain capacity measured in primates by our brain volume.

Friendship, kinship and limitations

"We devote around 40 percent of our available social time to our 5 most intimate friends and relations," Dunbar has written, "(the subset of individuals on whom we rely the most) and the remaining 60 percent in progressively decreasing amounts to the other 145."

These brain functions are costly, in terms of time, energy and emotion. Dunbar states, "There is extensive evidence, for example, to suggest that network size has significant effects on health and well-being, including morbidity and mortality, recovery from illness, cognitive function, and even willingness to adopt healthy lifestyles." This suggests that we devote so much energy to our own network that caring about a larger number may be too demanding.

"These differences in functionality may well reflect the role of mentalizing competencies. The optimal group size for a task may depend on the extent to which the group members have to be able to empathize with the beliefs and intentions of other members so as to coordinate closely…" This neocortical-to-community model carries over to compassion for others, whether in or out of our social network. Time constrains all human activity, including time to feel.

As Dunbar writes in The Anatomy of Friendship, "Friendship is the single most important factor influencing our health, well-being, and happiness. Creating and maintaining friendships is, however, extremely costly, in terms of both the time that has to be invested and the cognitive mechanisms that underpin them. Nonetheless, personal social networks exhibit many constancies, notably in their size and their hierarchical structuring." Our mental capacity may be the primary reason we feel less empathy and compassion for larger groups; we simply don't have the cerebral apparatus to manage their plights. "Part of friendship is the act of mentalizing, or mentally envisioning the landscape of another's mind. Cognitively, this process is extraordinarily taxing, and as such, intimate conversations seem to be capped at about four people before they break down and form smaller conversational groups. If the conversation involves speculating about an absent person's mental state (e.g., gossiping), then the cap is three — which is also a number that Shakespeare's plays respect."

We cannot mentalize what is going on in the minds of people in our groups much beyond our inner circle, so it stands to reason we cannot do it for large groups separated from us by geotemporal lapses.

Emotional regulation

In a paper, C. Daryl Cameron and Keith B. Payne state, "Some researchers have suggested that [compassion collapse] happens because emotions are not triggered by aggregates. We provide evidence for an alternative account. People expect the needs of large groups to be potentially overwhelming, and, as a result, they engage in emotion regulation to prevent themselves from experiencing overwhelming levels of emotion. Because groups are more likely than individuals to elicit emotion regulation, people feel less for groups than for individuals."

This argument seems to imply that we have more control over diminishing compassion than not. To say, "people expect the needs of large groups to be potentially overwhelming" suggests we consciously consider what that caring could entail and back away from it, or that we become aware that we are reaching and an endpoint of compassion and begin to purposely shift the framing of the incident from one that is personal to one that is statistical. The authors offer an alternative hypothesis to the notion that emotions are not triggered by aggregates, by attempting to show that we regulate our emotional response as the number of victims becomes perceived to be overwhelming. However, in the real world, for example, large death tolls are not brought to us one victim at a time. We are told, about a devastating event, then react viscerally.

If we don't begin to express our emotions consciously, then the process must be subconscious, and that number could have evolved to where it is now innate.

Gray matter matters

One of Dunbar's most salient points is that brain capacity influences social networks. In his paper, The Social Brain, he writes: "Path analysis suggests that there is a specific causal relationship in which the volume of a key prefrontal cortex subregion (or subregions) determines an individual's mentalizing skills, and these skills in turn determine the size of his or her social network."

It's not only the size of the brain but in fact, mentalizing recruits different regions for ingroup empathy. The Stanford Center for Compassion and Altruism Research and Education published a study of the brain regions activated when showing empathy for strangers in which the authors stated, "Interestingly, in brain imaging studies of mentalizing, participants recruit more dorsal portions of the medial prefrontal cortex (dMPFC; BA 8/9) when mentalizing about strangers, whereas they recruit more ventral regions of the medial prefrontal cortex (BA 10), similar to the MPFC activation reported in the current study, when mentalizing about close others with whom participants experience self-other overlap."⁷

It's possible the region of the brain that activates to help an ingroup member evolved for good reason, survival of the group. Other regions may have begun to expand as those smaller tribal groups expanded into larger societies.

Rabbit holes

There is an eclectic list of reasons why compassion may collapse, irrespective of sheer numbers:

(1) Manner: How the news is presented affects viewer framing. In her book, European Foreign Conflict Reporting: A Comparative Analysis of Public News, Emma Heywood explores how tragedies and war are offered to the viewers, which can elicit greater or lesser compassionate responses. "Techniques, which could raise compassion amongst the viewers, and which prevail on New at Ten, are disregarded, allowing the victims to remain unfamiliar and dissociated from the viewer. This approach does not encourage viewers to engage with the sufferers, rather releases them from any responsibility to participate emotionally. Instead compassion values are sidelined and potential opportunities to dwell on victim coverage are replaced by images of fighting and violence."

(2) Ethnicity. How relatable are the victims? Although it can be argued that people in western countries would feel a lesser degree of compassion for victims of a bombing in Karachi, that doesn't mean people in countries near Pakistan wouldn't feel compassion for the Karachi victims at a level comparable to what westerners might feel about a bombing in Toronto. Distance has a role to play in this dynamic as much as in the sound evolutionary data that demonstrate a need for us to both recognize and empathize with people who look like our communal entity. It's not racism; it's tribalism. We are simply not evolved from massive heterogeneous cultures. As evolving humans, we're still working it all out. It's a survival mechanism that developed over millennia that we now struggle with as we fine tune our trust for others.

In the end

Think of compassion collapse on a grid, with compassion represented in the Y axis and the number of victims running along the X. As the number of victims increases beyond one, our level of compassion is expected to rise. Setting aside other variables that may raise compassion (proximity, familiarity etc.), the level continues to rise until, for some reason, it begins to fall precipitously.

Is it because we've become aware of being overwhelmed or because we have reached max-capacity neuron load? Dunbar's Number seems a reasonable place to look for a tipping point.

Professor Dunbar has referred to the limits of friendship as a "budgeting problem." We simply don't have the time to manage a bigger group of friends. Our compassion for the plight of strangers may drop of at a number equivalent to the number of people with who we can be friends, a number to which we unconsciously relate. Whether or not we solve this intellectual question, it remains a curious fact that the larger a tragedy is, the more likely human faces are to become faceless numbers.