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Scaling the Pitfalls of Silicon Valley
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,' "Getting Real: The Smarter, Faster, Easier Way to Build a Successful Web Application" He also helps to maintain the company's popular blog, Signal vs. Noise, and is regularly invited to speak around the world on entrepreneurship, design, management, and software.
Question: Why has Silicon Valley drifted so far from the fundamental tenets of business?\r\n
Jason Fried: I don’t know how it happens, but I think fundamentally, it’s all about venture capital. The more money that’s available and the more the culture is about going out and raising money, and the more it just happens and it just feeds on itself. If the venture capitalists weren’t there, there would be a lot of empty companies that wouldn’t be there. And that probably would be better. Not in every case, but in most cases. I think it’s better when you are forced as an entrepreneur to bootstrap. And here’s the fundamental reason why. You have two companies, one that’s bootstrapped, one that is self-funded, and one that’s got venture capital money in the bank. The primary difference is this, on day one, a bootstrap company has to make money. On day one, a funded company has to spend money. They have money in the bank to spend. That’s their first task is to spend. To hire, to get a great beautiful office, to do all that stuff. That’s what they have to do, they have to spend money.\r\n
Unlike a bootstrap company that doesn’t have money to spend, they have to make money first. And I think that’s the right instinct for an entrepreneur to start out with is the idea that, “I’ve got to make money.” That’s the right thing. And I think what happens is, especially in Silicon Valley where there’s a lot of spare money around, people are handing it out essentially, that you don’t have the instinct. The instinct isn’t built to make money; the instinct is built to spend money. And then that kind of just perpetuates itself, and people don’t have to make money because other people are paying for things. Until the money runs out and then you’re kind of screwed and then it’s too late because you don’t have the skills to make money. So, that I think is the problem with Silicon Valley.\r\n
Question: What distinguishes well-funded start-ups from “bootstrapped companies?\r\n
Jason Fried: Well, I think the thing is, is that not having money, or having to make your own forces you to make really smart decisions and good decisions and makes you think about stuff. For example, if you win the lottery, you’re probably not going to make good decisions about how to spend your money. You’ve got a lot of it, so yeah, I’ll buy a house, I’ll buy a boat, I’ll buy this stuff. You’re not actually making decisions, you’re just spending money. But when you have very limited resources, you’re forced into making decisions that make sense. Does it make sense for us to spend this money on marketing? We have it, should we just blow it. Or, are we not going to get a return on it. And you start to think about these things and you start to find yourself wondering, does it make sense to hire 20 people, or should we hire two. We can afford to hire two, so let’s hire two really good people, that’s all we can do. And when you’re forced into those constraints, you just make better decisions.\r\n
I always look at, this is probably a weird analogy, but I tend to look at prisoners in jail, how they make these weapons where they’ll take like a pen and a piece of tape and a comb and they make, they can like break out of prison with that. But if someone had all the money in the world to break out of prison and they would buy a jackhammer and they would buy chisels and stuff, they’d make too much noise, they’d attract too much attention and it wouldn’t work. They’d have all the resources, but they’d spend them and wouldn’t spend them wisely. But the person who has no resources has to make something that’s very, very simple and that is just as effective. And that’s sort of the mentality I think that you see in bootstrap companies. We don’t have the resources, we’ve got to make something that makes sense and we only have one shot at it. So, we’re going to do a good job. And just do exactly what we need and not all the things that we could do.\r\n
Question: What mistakes might you have made had you been better funded?\r\n
Jason Fried: Yeah. I think we would have probably hired a lot of people if we had a lot of money. That’s just something you tended to do in the late ‘90’s. I heard of so many companies say, we’re going to staff up. And it’s the stupidest, fucking thing to say. Staff up? We’re going to staff – well how about we’re going to hire somebody that we need? What’s this idea of staffing up?\r\n
There was this thing going on in the ‘90’s. I remember people saying we’re going to staff up to 100. Where people are saying, “Our company is this big,” when they’re talking about “this big” they’re talking about employees. And it is very easy to get carried away with that. And thinking that you’re inferior unless you have a lot of employees. So, I think that’s something we probably would have done. We probably wouldn’t have put money into marketing that would have been a waste of money, we probably wouldn’t have put a ton of money into PR; it would have been a waste of money. And it wouldn’t have forced us to be creative about how to get the word out, which is something that we’ve learned how to do over the past ten years without having to spend money.\r\n
So, maybe done some things, but I think the real thing is we would have missed learning the important lessons. That’s what I think we would have suffered most over.\r\n
Question: Can any company grow in the way 37signals has?\r\n
Jason Fried: Yeah, well my feeling is like, stuff that I like to talk about is really about my business, my industry. So, my ideas don’t necessarily make sense for a restaurant, or for bowling, for example. But their ideas don’t make sense for me either. So, they shouldn’t be giving me advice and I shouldn’t be giving them advice.\r\n
What I think though, in the software business, which is the business we’re in, or a service business, which a business a lot of people are in outside of the technology world where you don’t have to have a factory, you don’t have to have raw materials, you don’t have to have machinery, you don’t have all these upfront costs which would typically require you to raise capital. You don’t have those costs, they you shouldn’t get the money that you might need to spend to buy those things. In the software business, you need a computer and an internet connection. It’s like, a couple of grand to get started.\r\n
But if I’m building a factory and I’m making widgets, I might need to raise hundreds of thousands, or a few million bucks to make that big capital expenditure. So, I think if you don’t have the raw capital expenditure requirements, then you should not be raising money up front.
The tech-capital of the US is gushing with venture capital money. The problem? Many start-ups develop too strong a penchant for "free" and never actually become businesses. Jason Fried explains why not having money is the best way to create profit.
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- The company's protein powder, "Solein," is similar in form and taste to wheat flour.
- Based on a concept developed by NASA, the product has wide potential as a carbon-neutral source of protein.
- The man-made "meat" industry just got even more interesting.
Seriously sustainable<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8xOTk0MDIzNS9vcmlnaW4ucG5nIiwiZXhwaXJlc19hdCI6MTYyMjM4NTMzMX0.BCEfYnn6C3z1zUHIS38xOWjXktgamNBi5iyqklSMYK8/img.png?width=980" id="ea524" class="rm-shortcode" data-rm-shortcode-id="50533380eeb18eb5833b6b6aa3abec38" data-rm-shortcode-name="rebelmouse-image" />
Image source: Solar Foods<p>Solar Foods makes Solein by extracting CO₂ from air using <a href="https://www.fastcompany.com/90356326/we-have-the-tech-to-suck-co2-from-the-air-but-can-it-suck-enough-to-make-a-difference" target="_blank">carbon-capture technology</a>, and then combines it with water, nutrients and vitamins, using 100 percent renewable solar energy from partner <a href="https://www.fortum.com" target="_blank">Fortum</a> to promote a natural fermentation process similar to the one that produces yeast and lactic acid bacteria.</p><p>When the company claims its single-celled protein is "free from agricultural limitations," they're not kidding. Being produced indoors means Solar Foods is not dependent on arable land, water (i.e., rain), or favorable weather.</p><p>The company is already working with the European Space Agency to develop foods for off-planet production and consumption. (The idea for Solein actually began at NASA.) They also see potential in bringing protein production to areas whose climate or ground conditions make conventional agriculture impossible.</p><p>And let's not forget all those <a href="https://www.bk.com/menu-item/impossible-whopper" target="_blank">beef-free burgers</a> based on pea and soy proteins currently gaining popularity. The environmental challenge of scaling up the supply of those plants to meet their high demand may provide an opening for the completely renewable Solein — the company could provide companies that produce animal-free "meats," such as <a href="https://www.beyondmeat.com/products/" target="_blank">Beyond Meat</a> and <a href="https://impossiblefoods.com" target="_blank">Impossible Foods</a>, a way to further reduce their environmental impact.</p>
The larger promise<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8xOTk0MDI0MS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTY1NjU4MTg2OX0.7dZZYT5WEV_EupBuLVFwHynarTiz8RYR9aJtC6Ts2C4/img.jpg?width=980" id="3415d" class="rm-shortcode" data-rm-shortcode-id="2e6eebe06d795f844752f9e9d30040d7" data-rm-shortcode-name="rebelmouse-image" />
Image source: Solar Foods<p>The impact of the beef — and for that matter, poultry, pork, and fish — industries on our planet is widely recognized as one of the main drivers behind climate change, pollution, habitat loss, and antibiotic-resistant illness. From the cutting down of rainforests for cattle-grazing land, to runoff from factory farming of livestock and plants, to the disruption of the marine food chain, to the overuse of antibiotics in food animals, it's been disastrous.</p><p>The advent of a promising source of protein derived from two of the most renewable things we have, CO₂ and sunlight, <a href="https://solarfoods.fi/environmental-impact/" target="_blank">gets us out of the planet-destruction business</a> at the same time as it offers the promise of a stable, long-term solution to one of the world's most fundamental nutritional needs.</p>
Solar Foods' timetable<img type="lazy-image" data-runner-src="https://assets.rebelmouse.io/eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJpbWFnZSI6Imh0dHBzOi8vYXNzZXRzLnJibC5tcy8xOTk0MTEzMS9vcmlnaW4uanBnIiwiZXhwaXJlc19hdCI6MTU5OTU1OTMwMn0.wnXh56iO_77x2XKV2uIPf78BKw4AJLUpmiyq_JBVGvo/img.jpg?width=1245&coordinates=172%2C146%2C62%2C135&height=700" id="0297c" class="rm-shortcode" data-rm-shortcode-id="125c9a98ec818f5c241fa28ef1423e67" data-rm-shortcode-name="rebelmouse-image" />
Image source: Lubsan / Shutterstock / Big Think<p>While company plans are always moderated by unforeseen events — including the availability of sufficient funding — Solar Foods plans a global commercial rollout for Solein in 2021 and to be producing two million meals annually, with a revenue of $800 million to $1.2 billion by 2023. By 2050, they hope to be providing sustenance to 9 billion people as part of a $500 billion protein market.</p><p>The project began in 2018, and this year, they anticipate achieving three things: Launching Solein (check), beginning the approval process certifying its safety as a Novel Food in the EU, and publishing plans for a 1,000-metric ton-per-year factory capable of producing 500 million meals annually.</p>
The protein powder Solein. Image source: SOLAR FOODS
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