Business beyond profit

0:00Welcome to Rework, a podcast by 37signals about the better way to work and run your business. I'm Kimberly Rhodes, joined by the co-founders of 37signals, Jason Fried and David Heinemeier Hansson. If you have followed us on the podcast or Jason and David on their blog or Twitter, you've heard them talk about profit. And while we've always been a profitable company, we're not always after more, more, more. Thought we would talk about that. I think that's kind of an atypical philosophy for a founder. So let's dive into it. Jason, I've heard you say, even on this podcast, like, we have enough. Like, we're good.

0:33Tell me, like, where did that come from? Did you always feel like that? Or was there a point where you were like, no, we're going to build the biggest company possible?

0:40David Heinemeier Hansson:Aiming for a size has never really been a thing. I described it recently in this way that kind of came to me as I was describing it that I kind of like, which is there's a period in a company's life where I think you need to achieve some degree of escape velocity, kind of like a rocket. You got to get off the ground. You got to get up in the sky. You got to start moving. But you don't just keep going. There's a point where you reach that and then you can just orbit to some degree. And that's this idea of enough. It doesn't mean you shouldn't keep making new things or be excited about new things that work or be disappointed by things that don't work.

1:13David Heinemeier Hansson:But like generally, you're within some sort of a range. You're no longer trying to achieve escape velocity. You're not accelerating eternally. You've got to a place and now you can orbit and maintain. and you can maintain quality and you can maintain enjoyment and you can still again make new things and learn new stuff. All those things are possible without having to have your engines on full blast. I don't know when that happens. It's not like you should get there within three years. I don't know. It all depends on who you are, what your situation is. But this idea of finding an orbit, I think, is a good thought to keep in mind.

1:45David Heinemeier Hansson:When are you in orbit? When can you sort of turn the engines back a little bit and then enjoy from where you are. And maybe more will come, maybe less will come. Things don't always stay in orbit. Things eventually will spiral down. There's a point where things don't just stay there forever. But I think it's a good place to find at the very least and to know that that does exist and that it's not afterburners forever. Because I think you do that, you're probably going to be short-lived. It's very, very, very hard to always be at the same level you were when you were taking off. And hopefully you get a chance to take off.

2:21David Heinemeier Hansson:I think that's obviously the hardest part for everybody. And just personally, like from your trajectory, when in this 25-year history did you guys like orbit? I'm not really sure. And by the way, from an orbit, you could also like, I mean, if we're going to get all spacey about it, I guess you could like land on the moon. That could be a base for a while. Then you could take off again. I mean, things can happen. Things do happen. Like base camp was our hit for a long time. Then we had hay and for a while that was flying and that that's kind of settled into an orbit you know and base camp 5 is going to come out soon and maybe that'll be another accelerant right but the whole point is this idea of having to constantly find all the fuel and have the throttle all the way open all the time most things in nature don't do that you know you grow a lot until you're about 21 and then you kind of don't grow that way anymore you know there's growth spurts like I think the more we can echo the natural process, the better off it is.

3:16David Heinemeier Hansson:I think anytime you're trying to push against what the natural world kind of suggests, you're in a territory where it's a good chance it's not going to last. So I think in life, there's a lot of changes early on, and then you kind of eventually find your way and you settle in and then you get wiser and smarter and do other things and learn other things and continue to grow, but you don't feel like you're chasing anything quite as much anymore. I think that's what I'm trying to get at here. And I think part of the benefit of accepting that is managing your expectations. Because if your expectations are that you will just forever be accelerating and going faster and faster and getting bigger and bigger, just look up the stats.

3:57Look up the stats on how many companies go out of business, all these promising startups that explode. It is such a vanishingly small number of companies that fit that profile of more or less eternal acceleration. Yet they get virtually all of the admiration and all of the emulation from others who try to fall in their footstep. And on the one hand, I think that's good. I think it's great that we have a subset of the entrepreneurial workforce that's insatiable. and we have some Elons of the world that will not be satisfied until we are literally populating the stars. And I think that's great. And we should have some of that.

4:41And then we should also have an enormous amount of room for people who just go like, I'm just going to build a great business. And whatever great means, maybe that's seven folks just working in a wonderful niche that is satisfying everyone. And that's great. Or in our case, it's about 60 some people. We've been between 40 and 80. We're actually literally at the average point here, the median between the swings from probably 15 years. That feels like our natural size. And we've at times tried like, all right, what if we push a little more and we get a little bigger? And then realized quite early, like, ah, you know what?

5:19Maybe some of our initial instincts on staying relatively small or staying around this size were correct. Like that was the right shape, form for how we wanted to run the business and what felt not just comfortable because comfortable often can be taking us sort of halfway lazy. I don't think there's anything lazy about what's going on at this company, even though we're only 60 people and we're not trying to be 600, let alone 6 ,000. There's nothing lazy about that. But there is a comfort in it. There is a comfort in just knowing who you are and what you're good at and how you like to work and that you can find an audience and a customer base being that way versus this constant anxiety about like, I need to go faster, bigger, stronger, whatever.

6:07And again, I know I'm talking sort of out of my mouth on both sides, whatever the American axiom is there. I have this great aspiration for that class of people who are never satisfied. And I think there's great progress for mankind to have that be an important ingredient. But then I also just see so many who try to emulate that and they're not going to be there. And I just go like, dude, you could be happy. You could choose to be happy. You could wake up tomorrow and go like, holy shit, I built a company that's employing 25 people and we have this nice, steady business. Isn't that amazing? Or you could choose to wake up tomorrow and go like, damn it.

6:55We've stalled. We've plateaued. We're only 25 people. Like, look at that competitor or this competitor. They're going much faster. or that product was just launched? Or what if AI is going to eat everything tomorrow? You could just choose not to think like that. You could choose to be happy. You could choose to be content with what you probably envied once upon a time not having. This is one of those core stoic principles that everything that you have right now, if you've generally been progressing in the world, was once something you thought my life would be amazing if I got to this point. And then you got to that point.

7:32and you gave it literally five minutes and then you weren't happy again. Some of that is human nature and that's just sort of the instincts pulling in us. But you can also like maybe elevate like one step above just those base instincts and layer on some cognitive post-processing on top of that and arrive at something where you go like, yeah, do you know what? I really like what I do. And I think that is actually one of the great blessings of Jizz and I working together in this way is that for whatever reason, we arrived at a very similar shape company in our head as the ideal right and this as we are right now 60 people i'm not dreaming about more i'm not even really dreaming about less some days but most of the time i'm like this is great this is a great size for this kind of company may it last long and by the way it won't last forever nothing freaking does and then when it's over one way or another, on a slow decline, on a fast decline, or whatever the end comes, I'm going to sit back and I'm going to just smile about it.

8:39Holy shit. Can you imagine 25 years of working at your dream company in its ideal shape for so long? What an incredible gift and pleasure. And you can literally just choose to have that mindset about anything. Oh my God, we got 18 months working on this really exciting niche before it disappeared and AI ate it all. What a blessing. I do think the amount of time you guys have been in business in software is rare. And I think for most companies, they think success is getting bought out, getting acquired, getting this influx of unicorn type money. I know you guys don't think about that. Tell me, tell our audience, give me the blurb, why staying independent has been so important to you guys.

9:29When you could be quadruple trillionaires, whatever the number is, you know? I don't know.

9:33David Heinemeier Hansson:I mean, I don't know if that's even true. I think that's the other thing. It's like, I don't know what's possible here. What would have been possible? It's very likely, let's say we raised a bunch of money. We could have flamed out very quickly. We could have hated the investors. Dave and I could have been done a year and a half after that. I mean, who knows, right? So it's very easy to assume that there's actually another way that's better. And maybe there was no other way that was better. Maybe this is the only better way for us, who knows? But I think ultimately, we get to work on the kinds of things we wanna work on with the kind of people we wanna work with for as long as we want to until something else happens where we can't.

10:08David Heinemeier Hansson:That in itself is a pretty great way to spend 20 years of your life. Maybe 30 years, who knows, right? Maybe more, but to have the option to do that, to have the opportunity to do that and not be told that you can't because of some other bargain that you made early on that you have to be done with this in five years or seven years or you have to go IPO or you have to sell or whatever because of someone else's financial requirements to not have to have that over you and to know that the sky is blue and like we can do whatever we want until we can't and we have to live with the outcome there to me I won't speak for David like to me there's like it's hard to come up with a better way to spend a career.

10:48David Heinemeier Hansson:Broadly, I'm sure we both had moments like, oh man, it would be amazing to work on this or amazing to be over there to imagine what it must be like to work at Anthropic right now or something. There's other exciting businesses in the world and amazing things happening. What would it be like to work for Elon Musk? I mean, maybe I'd love it. Maybe I'd hate it. I don't know, but that's kind of exciting. It must be incredibly exciting. I definitely can admire people who choose that path and to see other things going on or wouldn't it have been cool to like try to revamp X, you know, there's all these things, right?

11:17David Heinemeier Hansson:But still, I love what we're doing. I love how we're doing it. It's fun to do it the way we want to do it. And all things considered, it's hard to imagine trading it for anything else because you can trade things for these short moments, but then you're like, I have to live with that too. And would I be able to sustain through that too? Or would I be out the door in three years and now what? So I have this feeling of just like somehow, some way we managed to set this thing in motion, find an orbit where we're able to, to maintain and sustain and do all sorts of new things without getting knocked out of orbit, try all sorts of different things without getting knocked out of orbit.

11:54David Heinemeier Hansson:And then eventually, you know, the end will come wherever that is. But it's nice to know that for the most part, we're in a place where we can do what we want the way we want to do it and do things no one would give us permission to do. I think ultimately that's the really exciting part. That to me really summarizes the prize. And the prize is independence, not having people tell you what to do. And I knew very early on in my career that I was just an incredibly bad employee from that perspective. Like I would do very poorly and I did very poorly in a number of situations working for other people when I thought I knew better or I had a better way of attacking a problem.

12:35And just I couldn't because someone told me, yeah, that's not what we're doing. We're doing something else, right? We all have different constitutions. I know, I mean, obviously we have a bunch of great employees at this company who I occasionally do tell sort of what to do because I have a direction in my head. I wanted to go in that direction and the world needs all of it, right? Like the world would be an awful place if it was full of just founders that couldn't work for anyone else. I mean, how the fuck were we going to get anything done if that was the only kind of character that inhabited the earth.

13:07Thankfully, that's not true. But coming to terms with who you are, and I mean, sometimes that takes a little bit of finding. It didn't take me very long finding. I knew at like 19. All right. Someone's telling me what to do. Don't fucking tell me what to do. Right? Like there was just like a punk rock rage whenever I would get even to almost most benign redirection from some authority figure. And I'm sure there's a wonderful psychological journey you could go on there. But I've just chosen to accept that. And she's like, all right, do you know what? That's me. I'm going to get the best out of that.

13:44Thankfully, I'm pairing that revulsion to being told what to do with a fairly burning, passionate instinct to doing things. And that is actually not a bad recipe for starting a company with someone who's like-minded enough that when you are setting the rules, you feel like you're in charge, even though you're sharing the charge here. And then you can end up at this place where you can lean back and go like, all right, I got the most important thing. I got the prize. I wake up most days, not every day, but most days where whatever fleeting thought, instinct, inspiration, however fleety it is, little butterflies sipping across like, oh, I have an idea.

14:28I just want to do that. I could just do it. I could just pursue anything that popped into my little head. And that's very satisfying. I mean, I think we've gotten a bunch of great things out of it. Sometimes it's products. Sometimes it's just experiments. sometimes it's attention grabbing takes sometimes it's software sometimes it's all these things but being in that flow that you know what that's okay i don't have quarterly earnings to report i don't have whatever boards to answer to and none of that and that's great to have as the main thing and then i've also been lucky enough to to see what the other side is because i think over those 25 years, Jason and I occasionally have peered over the fence and gone like, is it greener over there?

15:15Should we try something else? Peered over the VC fence? Is that the fence we're talking about? Yes. More resources, bigger company, more audacious, ambitious for whatever definition that is, products, all these, like, let's be something else. Let's try something else. And I think we've done a few of those things and, like, that's turned out. And then we've also done a few things where we've been like, ah, no, actually, we got the right idea from the beginning. on this topic or another. And therefore, we're happy with where we be. But you got to test that, right? Especially early on. This is why as much as I say, like, I'm not good at working for other people.

15:49I had to work for other people to find that out, right? What if I found out that like, I just loved working for other people. I just love narrowing in on sort of a thin slice and someone else could worry about wherever that's going to go or where we should go or whatever. I mean, I'd be wasting my time as a founder. So I had to work for a bunch of other people. And I did. And these are still some of the core memories I have of my career is working for other people, letting that inform my intuition about how I would want to build a company if I did. I actually pity founders who just go straight from school into now they're running their own empire and never having to pass through the rite of passage that is being incest that some fucking pointed hair boss is telling you some bullshit that you don't want to do.

16:36and you got to do it anyway, right? That's actually a really important experience. I'm not saying do it for 30 years. I'm like, I don't know, two, three. You can compress a lot of learning and a lot of actually productive animosity towards how things are done everywhere else in just a few couple of years. And I'm really glad that we did that. And I'm really glad we ended up in this rocking chair as we are now, right? Like slightly graying. What a great run. and being able to sit back with a little bit more relaxed gratitude towards the path than we probably had early on. Like, even though we were doing the independent things, even though we were trying to find the size of the company we were like working on, there was more of a like sort of like an intense burning flame that was kind of a little flickering in different directions.

17:24Didn't exactly know where it was going to go in the early days. I had joy having gone through that and joy like, ah, do you know what? And we have this nice simmer and we just sit in front of that fire and pursue whatever inspiration comes our way without this sort of like, oh, my God, this got to work. Or if we do this wrong, it's going to it's going to what? It's going to be another experience. Isn't that wonderful? Can we get some more of those? I also feel like you guys are looking at profit in a way where we're also like, if we want to be profitable or continue to be profitable or even be more profitable, we also need to be looking at our expenses.

17:59For me, that's, again, outside perspective. Seems like we go through these periods where we're like, we're going to knock things down. Cloud exit is a good example. But like, where are we spending money we don't need to spend? Because that is going to keep us on this trajectory, on this orbit, keep the fire burning, all of the metaphors we've used today.

18:20David Heinemeier Hansson:You know, at the end of the day, your only real competition are your costs. You've got to make more money than you spend. and we're well beyond that right now, but you don't want to get sloppy there. You want to get maybe a little bit sloppy is okay because you don't want to be so afraid of losing anything that you don't do anything, obviously. Every penny that comes in is our own money. We don't owe it to an investor. We're not paying back bank loans. We're spending our own money. We're also saving our own money and a penny saved is a penny earned, essentially, and it just makes for a good business to have a sharp point for the most part.

18:52David Heinemeier Hansson:Again, not always. We don't want to be pinching pennies in a way where it feels like we're afraid But uh, ultimately yeah, if you want to stay in business, you got to make more than you spend And the less you spend the more room you have to make mistakes. I like to think of it in this way We've done this for a while, which is you can buy marketing you can buy audience you can buy but you can also buy mistakes In a sense by having fat margins Do you have more room to make more mistakes you have more room to try things that don't work out? I think that's a good place to spend your money, actually, is on margin, essentially, and room to screw up and to eliminate some of that fear that a lot of companies have about getting something wrong.

19:28David Heinemeier Hansson:So it feels good. And the best way to do that is just to lower your costs as much as you possibly can within reason. So you have more room on the upside to screw around. And that's actually tied very much into independence, the ability to do what we want to do, make our own mistakes, do things no one gives us permission to do, because we have room to do those things. If we were a grocery store working on 1 % or 2 % margins, you can't do much. But we keep our margins high by keeping our costs low, and that's a wonderful thing. And I think having some respect for that maintenance burden that, you know what, when things are just like your vast growth rates, you're like, ah, who cares about expensive?

20:07Like, if we just keep growing like this for another five years, like, none of it's going to matter. None of the expenses is going to matter. Like, this is all just opportunity cost that we should be pursuing. yet, do you know what? You haven't been around long enough. Eventually, almost all companies in this world, bar a tiny handful of super behemoths, will arrive at the day like, do you know what? If you keep thinking like that, eventually your cost will catch up or exceed, or maybe they even started exceeding your income and it'll never settle up. You'll never be able to maintain the prize of independence.

20:41Afford all those mistakes, as Jason says. Afford not just even the mistakes, but also just the relaxed relationship with chasing wild juices of your imagination that just popped in and going like, do you know what? I'm just going to spend some time over here with my little seeds, planning some intellectual seeds, some experiments and so on. It's not even like mistake, not mistake. I don't even have to think about that. I don't even have to think about the outcome of it. I could just think about, I enjoy entertaining my ideas in this domain right now. That's enough. That freedom to live in that moment and only occasionally think about the longer term is truly special.

21:26And I think you will get a very similar answer for anyone who've sat in the opposite direction or opposite chair, where they, on a quarterly basic, for example, have to report earnings to the market. Anyone who's been a public company, And normally, the only way you get to be a public company is like you've been really successful. You look at companies that are at least on the major indexes, like they're all phenomenally successful companies. Lots of people, lots of revenue, lots of customers. You'd think they'd have it all, but they don't have this. They don't have the freedom for that quarterly clock.

22:00They don't have the freedom for telling a bunch of investors on an earnings call to go fuck off. They're actually really constrained in a lot of ways. Now, they get other things and they get different kinds of impact and maybe the monetary benefits are better and great, wonderful, awesome. But you don't have this. And I think this gets to the crux of enough is once you realize just how valuable, or at least once I realized and chasing realized how valuable that part of it is, that independence, that freedom, that relaxed relationship to your work. taking it seriously but not holding so tightly is just bliss in a way we like very few things i would sell this for very few things i would sell it for and then of course the other thing i think also being blessed with comparatively speaking modest ambitions for your financial rewards right like i don't need to be a billionaire to have a great time with basically every hobby i've ever match that I've been able to pursue, maybe short of owning like a Gulfstream.

23:06Like those are pretty nice. Okay. It's also good to have something that's slightly beyond your reach, right? Like something like that you didn't unlock all the secrets of the game. You don't have a infinite money glitch and whatever. And then if you have the constitution that allows you to do that, arrive at that place where you can be comfortable with what you're able to do financially, you just realized then what is more money going to do right i'm not saying i'd say no to 10 billion dollars 10 trillion dollars but like it wasn't going to change the nature of my reality and what i've enjoyed doing so why would i trade this thing i price so highly being able to show up at the computer every day and just go like yeah today i'm going to do this or today i'm going to do that and not have these impositions of which direction we have to take that seems just like a fool's Darren, regardless of whatever it is, and usually it's never that trade anyway, right?

23:57It's not like anyone who shows up, hey, if you follow my rigid schedule, I'm going to give you a trillion dollars. No, that wasn't a trade anyway. So fall in love with the things you have. That is a great place to wrap it up. Rework is a production of 37signals. You can find show notes and transcripts on our website at 37signals.com slash podcast. Full video episodes are on YouTube. And if you have a question for Jason or David about a better way to work and run your business, leave us a voicemail. You can do that at 37signals.com slash podcast question or send us an email to rework at 37signals.com.