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Jason Fried is the co-founder and President of 37signals, the Chicago-based web-application company. He has co-authored all of 37signals' books, including the upcoming, "Rework," as well as the 'minimalist manifesto,'[…]

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.

Question: What are the common mistakes new businesses make? 
Jason Fried: Whenrn you borrow money from somebody else, you’re on their schedule, you’re rnrenting time.  When you have your own money, or when you’re generating rnmoney through customers, you own your own time, you own your own rnschedule, and so you can take your time.  We can take 10 years to do rnsomething because we have revenue coming in and there’s not someone rnsaying your loan's due in three years, you know.  So I think a lot of rnpeople struggle because they start of by borrowing money and then rnthey’re sort of on someone else's schedule and they don’t have time to rnsort of get in the groove.  So there’s some of that.  I think people rnjust typically just try too hard, actually.  That’s weird because you rnhave to try hard to succeed, but I mean try hard on the wrong things. rn You focus on the wrong things too early.  And those can range, rndepending on the business you’re in.  But I don’t think it’s... I guess rnmy point is, I don’t think it’s competition that puts these businesses rnout of business, I think it’s the business themselves putting themselvesrn out of business by hiring the wrong people, being afraid of making rnmoney, spending too much money early on, maybe getting a storefront rnthat's too big if you’re a physical store.  You know.  Doing all that rnstuff when you really got to focus on the product first and keep it as rnsmall as you can and if you’re going to open a bakery, open it out of rnyour house first.  Just make – I mean, that’s probably technically rnillegal in some place, but make some... if you want to open a cupcake rnbakery, make some cupcakes and sell them at the Farmer’s market for six rnmonths, for a year first, on the weekends.  See if it works.  If it rnworks, okay, now you have some people who like your cupcakes, you’re rnselling out every weekend.  Now maybe you can move into something else. rn Instead of saying, "I’m going to open a bakery" and go buy a storefrontrn and some expensive machinery and stuff like that.  So I think people rnkind of start a little bit too quickly sometimes too and they should rnjust make their time and starts something on the side and see where it rngoes. 
Question: How did 37signals transition between business models? 
Jason Fried: Thern big thing for us was that, we started out as a web design firm.  And wern were doing client work for hire—web design work for hire.  And it was rngreat.  We were doing really well and things were going all right.  And rnthen we hit on this idea to make project management software.  Right? rn But we didn't stop our client work business to build software.  We rnstarted building software on the side.  So we treated the new product rnlike Base Camp, which was our first product, as a client.  So we still rnwere doing client work.  So there was an overlap.  So we kind of treatedrn Base Camp as a side project, as a side business and let’s see what rnhappens.  And it turned out in a year or a year and a half later, it wasrn making more money for us than our consulting business.  So then we rncould stop doing consulting—which was a great day—and sell software rninstead.  But we didn’t say, like we’re going to stop doing consulting rnand start doing software the next day because that’s very risky.  And rnI’m not a big fan of risk.  I know like the whole entrepreneurial myth rnis like you know, the risk, take on risk and the entrepreneur with the rnrisk.  I just don’t buy that.  So I think side businesses, trying rnsomething on the side, spending a few hours a week, seeing where things rngo first is the right way to do it.  And especially if you have a day rnjob.  People dream of starting their own business, I don’t recommend rnpeople quit their day job and start their business.  I think you should rnstart your business on the side a couple of hours a night, a couple of rnhours a week, see what happens.  You know, use your day job salary to rnpay the bills, to fund your new idea, and then maybe a year later you’llrn be all right and you can do that.  So, the business model shift for us rnwas a slow and gradual shift making sure we were able to sustain rnourselves on the new model before we give up the old model 
Question: What milestones should a start-up reach as it grows? 
Jason Fried: Ourrn new business model, the model we have today is a subscription model. rn So people pay us on a monthly basis to use our products.  And we had rnthis idea that if we can make $5,000 a month on Base Camp after the rnfirst year, so $60,000 a year, that would be good because as a side rnproject, we didn’t have this vision of changing the company. We hit thatrn in about six weeks, I think it was that we were making $5,000 a month. rn And so we realized at that point that something... there was something rnthere.  Didn’t know how big it was going to get.  It’s gotten much rnbetter than we ever imagined.  But that’s when we sort of knew that rnthings were going to be okay.  But at that point, we didn’t change.  Andrn so we didn’t say, oh my god, we got to quit this thing and start rnsomething... and change our business or we’re going to be successful so rnlet’s buy a bunch of servers and... We had one server the first year andrn when we needed two, we bought two, when we needed three, we bought rnthree.  You now, it wasn’t about, "Wow, I think this is going to work, rnwow let’s spend money and get crazy."  It was about, "Let’s slowly grow,rn just like everything in nature, slowly grows."  Things get stronger andrn better slowly over time.  And that’s how we try to run our business. rn So it’s not about the big plan, it’s about a day by day by day by day rnand seeing where things go and just kind of making decisions as we go. 
rnAnd the main reason why I think this is important is because people rnoften make decisions with the wrong information.  So they make decisionsrn far into the future, based on information they have today.  You’re rnbetter off making decisions today based on information you have today rnbecause that’s when you make your best decisions.  You make your best rndecisions when you have the best information.  That’s always right now. rnYou and I know more about this interview right now then we did three rnmonths ago.  So, you can ask me a new question right now.  If you had rnall your questions, you have some written now, but if you had all of rnthem written out and never changed your ideas on the questions you mightrn want to ask, the interview wouldn’t be as good as you can say, "Jason rnjust said something now I can ask something else."  So, that’s why... rnthat’s the agile side of it.  So there’s a little bit of planning, but rnthere’s the agile side of paying attention to the information you have rnright now.  And that’s why I don’t like the big long plans because rnyou’re saying in two years you’re going to be here and in three years rnyou’re going to be here.  Well you’re just saying that based on rninformation you have today.  It’s not really going to be any good in tworn years.  The best information today is the information you have today rnand 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: Irn think it is important if a developer is going to start a business that rnthey understand business at some level.  And I think business should be rntaught in design schools, it should be taught to engineers; it should bern taught at every level because a lot of people when moving into the rnfuture are going to be doing things on their own.  So I’ve seen a lot ofrn software built by developers and they put on the market and they don’t rnunderstand about pricing, they don’t understand anything about customer rnservice, they don’t like customers, you know, there’s all that stuff rnthat can happen.  So... and the lucky thing about David, especially is rnthat David actually has a great business background. So  David’s a rndeveloper with a business background so we make a lot of business rndecisions together and that’s a really valuable asset.  To have somebodyrn who’s leading developers who also understands business.  So it’s not rnjust about technology, it’s not just about code. It’s about; we’re rnbuilding this because it has to do this, because we have customers that rnpay us and that sort of thing.  So, I would just recommend anyone that rnis going into business as a developer, for example, have some business rnbackground or team up with somebody who understand business
Question: How do you balance the business side with the technical side? 
Jason Fried:  I’mrn not technical myself.  I do design and I do business stuff.  But it’s rnimportant that I have someone like David or some other partner, some rnother person on the team who is making those technology decisions rnbecause I don’t know anything about that.  And so if I try to know rnthings... if I tried to guide people who are doing the work like that, rnI’d probably upset them, they wouldn’t be happy and they wouldn’t do rngood work.  So I think it’s important to know your limits.  Know what rnyou're good at and what you're not, and what you’re not you should find rnsomeone that can help with that because it seems like a lot of rntechnology decisions made by people who don’t understand technology are rntypically bad decisions.  Now when we built Base Camp, this is actually rnsort of a little quick story I will tell you.  When we built Base Camp, Irn was learning how to code something called PHP, which is a language a rnlot of people use.  And we hired David to build Base Camp, and David wasrn a PHP programmer.  But he learned about this new language called Ruby. rn And it was out of Japan, it was relatively new, I think. And he said wern should build Base Camp in Ruby. And I’d never heard of Ruby.  I’d heardrn of PHP.  And so if I was so stuck in my ways, I don’t know technology, rnbut if I’m like "I know PHP and so PHP’s got to be the way because rnthat’s what Yahoo uses, or that’s"—and forced David to use PHP, Base rnCamp wouldn’t have been as good because he wouldn’t have been as happy rnwriting it.  And so I trusted David because he’s the one who knows rntechnology to say, if you think Ruby is the right language, then you rnshould use Ruby.  And that turned out to be a great thing.  Ruby on rnRails came out of that and all that stuff, but the point there is that Irn was familiar with something and unfamiliar with something else, but I rnsaid, "Let’s go with the unfamiliar thing because the person that’s rnreally familiar with it picked that one."  And that’s where it’s rnimportant to know what you’re really good at.  And I wasn’t really good rnat making that technology choice, David was and that really worked out rnfor the better.

Recorded on July 22, 2010
Interviewed by Peter Hopkins