Traditional marketing doesn't work for us

0:00Welcome to Rework, a podcast by 37signals, about the better way to work and run your business. I'm Kimberly Rhodes from the 37 Signals team, joined by co-founders Jason Fried and David Heinemeier-Hansen. This week, we're talking a little bit about marketing and how we've come to the conclusion that traditional advertising, spending money on social media, on ads, on billboards, is hard for small businesses. And small businesses like us might find troubles with that. So where do you guys want to jump in? I know we recently kind of announced to the company that this kind of traditional marketing doesn't work for us.

0:34I think we're not the only ones. I feel like for a lot of small businesses, they're in the same boat. I think what's interesting about this attempt from our side is it's actually the third time we gave it a real serious go where we put substantial money behind a variety of campaigns. Because I think the reality is that this does work for a lot of companies. There are a bunch of companies who can find a profitable way to turn ads into revenue and into profits. Sometimes the margins are quite slim, and that's historically been one of the problems I've had with this kind of marketing is that 90, 95 % of that marketing budget just ends up as pure profit on Meta's balance sheet or Google's balance sheet.

1:20And the small businesses eke out perhaps a 5 % margin, perhaps a 10 % margin. But do you know what? We never got close to that in any of the three attempts that we have done. And I think a lot of it is just down to what are you selling? If you're selling impulse buy sneakers that advertise really well on Instagram, I could totally see how that would work, especially if you're a small niche brand and how else are you going to reach your customers. But when you sell the kind of software that we're selling, Basecamp in particular, where it's really something you got to use it with others, You got to, in most cases, convert your entire organization to using FaceCam.

2:02That's going to be your new operating system. It's not the same kind of impulse buy. And I think what we've seen over those three attempts is that our cost of acquisition at any reasonable scale was just astronomical. I mean, we've run campaigns where we've literally spent tens of thousands on buying a customer, Which can make sense also, by the way, at the other end If you run enterprise sales And you can quantify a customer as being worth perhaps$100 ,000 over their lifetime Then who cares if you're going to spend$20 ,000 acquiring that customer That's just not us again We have a pricing model where you're either paying per seat And then most of our accounts are relatively few seats Or you're paying an all-in price that's just a few hundred dollars not compatible with spending tens of thousands, or even if we're more efficient on some of the other channels, like many multiple thousands on customer acquisition.

3:03So I think the answer here is there is no answer. You have to test. You have to look at what kind of product you have, what kind of sales cycle do you have, what kind of lifetime value do you have. And then you also got to realize that so many of these numbers are total and other bullshit. This is something we've got trapped in several times because the easiest way to make these numbers work is to do something called branded advertisement. You buy your own keyword. So if you're buying Google ads, for example, we buy Basecamp. And then if someone searches for Basecamp, there'll be a little ad. And maybe our competitors also have an ad there.

3:42And that's usually what kind of hooks you in into thinking, I have to be there. I have to compete with my competitors. And now you look at that traffic and go like, oh, that actually converts quite well. We're able to buy our own branded keyword. It doesn't cost too much because we have this really nice traffic that's coming into it. They're very likely to click on it and therefore we get good rates from Google. And you can lull yourselves into thinking that like this is working. But the fundamental baseline of all internet marketing has to be, is this incremental? Is this adding more customers that we would not otherwise have had?

4:18And the problem with branded advertisement in general is it just cannibalizes your organic clicks. If someone had not clicked that ad up there that you paid for and you paid for that click that they made, in most cases, almost all of them, in fact, from our testing, did scroll down and did click the organic link. In fact, I was just noticing this myself a couple of days ago where I three times in a day, I think it was, I searched for something. I saw the branded ad up top and I was just about to click it. And I was like, do you know what? I shouldn't do that. I know how much that fucking click costs.

4:52I'm going to scroll down just a little bit and I'm going to click the organic link, which was, by the way, right under. And I think this is one of those major scams of the advertising industry online is that branded advertisement can show well. It can show well on the kind of accounting and auditing that people usually do when they look at these ads. And they look at like, how many clicks do I have? How well does it convert? What am I spending? And they do the incremental analysis. I think we actually talked about this on an episode maybe a very long time ago. But one of the anecdotes that stuck in my mind was when eBay were running branded ad buys on Google, I believe it was.

5:36and they were running this at the tune of literally tens of millions a year. I forget what the exact number was. I thought I remembered a hundred million, but that sounds crazy. Maybe it wasn't quite that much, but it was a huge amount. And you know what? They were like, this is all working. These things are working too. I can do the math. I can line it all up. And then by accident, someone turned it off for a month. Do you know what happened? Absolutely nothing happened, except that they didn't spend all that money on some branded search. And someone wrote up that case study as in like, oh, do you know what?

6:12You should probably do this with regularity. You should try to go dark. Now, that's an analysis of all the performance marketing, which is a lot of what this internet marketing is. There's also an entirely different genre, which is brand marketing, which is trying to get your brand out there and just lodge it in a customer's mind and then hope that by the time they're ready to buy, maybe they're not clicking your little ad, but they'll remember, oh yeah, Basecamp. I need project management now. I've seen Basecamp. There's some sort of recognition. There's some proof of work. There's some incentive then that they should remember your brand name and then you're going to get the benefit of that.

6:52And that's much harder to measure. And it's something we've also tried for quite a few years. But there, I think what we've tried to do is measure the bottom line, right? All right, so you run all this brand advertisement, you run it for a reasonable period of time, and then you look, is there overall lift? Like, are we moving in the right direction? Which trajectory are we on? And I think we've also had a hard time with that. And maybe some of it is that we already do a tremendous amount of brand advertisement through this, through the tweets, through the blog posts, through the open source, through Jason giving product demos, through a million other channels.

7:35Like as we write in Rework, everything is marketing. And maybe that's why it doesn't quite move the needle for us, but someone else doing exactly the same thing, minus all the organic stuff we're doing, would suddenly see that great lift. So I think that's just an antidote dump on, And do you know what? It really hasn't worked for us. We've tried it three times. We've spent millions and millions and millions trying to make this work. And we're willing to spend many millions more if we had been able to get it on a trajectory that worked, right? Because the magic of marketing when it does work is that it's sort of kind of like a money machine.

8:11You put in a dollar, you get$1.50 back in the idealized case. And maybe you don't get the$1.50 back immediately, right? You invest a dollar now and then over a year, a year and a half, then you get your$1.50 back. And then you also get a broader audience and all the other stuff. But the reality for us is it's really hard. It's really hard. I wish it wasn't. I wish it wasn't so hard. I wish we could just spend$5 million. And even if we just got five back, I'd go like, you know what? There's secondary effects here. Even if we got four back, you know what? Our problem has been putting in the five and not even getting millions back in it.

8:49And that's a difficult one to sustain. I actually think it's a really interesting point about the type of product that you have, because I think I'm one who's easily influenced. Like I buy shit I don't need all the time on Instagram because I'm easily influenced. But software is not one of those things. And when you put it in that perspective, like when you're buying a product that's just like, you know, click, easy to buy, software just feels different. It feels like a business expense that you put a little bit more thought into than I'm just like scrolling on the couch at midnight. I think that's a key part of our problem.

9:20And I also think it's one of the reasons why this kind of advertisement does work for some types of software. Games, for example, is a great example. There's an entire industry of funneling people towards app installs that then run ads and whatever. And those people are clearly able to make that part of the equation work. I have not heard from a lot of folks who are in our sort of small to medium business software tier who've been able to make this work. I've heard people make it work on the high end. Well, I don't want to high end. That's not right. On the enterprise end, right, where the account can be worth literally hundreds of thousands, if not millions of dollars in lifetime value.

10:04and I've heard it work with the games and other sorts of consumer apps like Facetune and some of those kinds of apps that are impulse apps I think we are a little bit in like the no man's land the death zone in the middle between those things but also maybe it's just because people who can't make it work like to talk about it and the people who can make it work go let's not tell anyone else in our industry how we crack this noodle this money machine Okay, so how does this make y 'all feel? Is it frustrating that you can't just like throw money at the problem? Is it disheartening? Is it just like it is what it is?

10:43Like, how does it like how do you feel about it? I don't feel bad about spending money on and with people that I want to support. So there's this sense of like there's kind of an altruistic piece of this too for me, which is like I like brand advertising idea, but I want to be able to spend the money with someone or on someone that I like to help them too at the same time. Like a podcast that we like, or we've advertised on Daring Fireball a few times. And that's actually done fairly well for us, but I don't really think we break even on it even. But like, I want to support John Gruber and what he does.

11:15And I like his audience and I don't feel bad at all writing him a check for 15 grand or 20 grand, whatever. I feel good about it. What I don't feel good about is putting stuff on social media that I'm not really that proud of. And to David's point, to pad Meta's bottom line or Google's bottom line, I don't want to spend my money there. So overall, it's a little frustrating. Why can't we make this work? But I also kind of, you just come to terms with it like we can't. So I don't really, I can't feel bad about something that could have worked. It just doesn't work for us. Our economics don't pan out.

11:45Overall, I don't feel like it means that I don't like to spend money in advertising. I just think it matters on the art form itself. I think advertising is a wonderful art form. If you can nail it in the right place with the right people, happy to write a check to those versus like running a check to clear channel or whoever owns the billboards on the side of the road like just care less about that even if it like worked i still wouldn't kind of almost feel good about it no matter what that's kind of my take on it that has been my impulse on a lot of this stuff that i kind of had to hold my nose on some of the experiments that we were doing and just go like do you know what i also can't just be the negative nancy on everything that just says No, no, no, no, no.

12:25We should try some things. And do you know what? It's funny how the math does change the stench. If we were somehow able to put a dollar into Google and get five back, do you know what? Maybe they don't look so bad. And if we got ten dollars back, I'm like, you know what? Take it easier. Lay off Google a little bit. Right. I think there is just some manner to which the results do influence your take on this. Of course there is, because that's just the human impulse. But I do think that, you know what, I don't want to put a dollar in and like get two cents back and see Meta or Google reap 98. That's a margin level where you're like, do you know what, even if we could make it work at a near break even but positive, I'd still feel like shit about it.

13:10Because there's just something loopsided about that transaction. In fact, there's a whole psychological study on this. I remember reading this case about two strangers and they're sitting in this experiment room. And I think the premise is one side gets to decide how much they want to take up a dollar. Right. And like the other side can then just either accept it like it is or say no deal. And then neither of them get anything. And if you look at it as just like the economically rational individual, you'd say, like, Even if I get one cent, wouldn't that be worth it? The other guy gets 99. But what skin is it off my back?

13:47If I get to keep that one cent, yeah, that's not how it pans out. Humans don't work like that. I think the cutoff line was something around 25 to 30. If it dipped below that, if the greedy party said, like, I'm going to take 80 cent on the dollar, I'm going to leave 20 to the other party, it was going to end in a no deal. Because even with strangers, we don't like loop-sided deals. Now, I do think there's an Italian industry that has convinced itself that human nature doesn't matter and you just need to go la la la la la la la la. And then you pay Zuckerberg 97 cents and you get to keep three and somehow that's OK.

14:24Right. I'm more like the normal human. I'm more like the average human in the experiment where, you know what, around 30, that's probably about right. I need to be able to keep a substantial share of this transaction for me to feel like it's worth it. But you know what? Again, that's a hypothetical because we didn't even get close to that. We did not in the overall budget we were spending get close to even break even because the economics of how we're selling things is just quite difficult. And I think as Jason says, I don't feel bad about that because you know what? What if it worked? What if it had worked?

15:00What if we were able to do this? and okay, so it didn't work the first time. We calibrated. We tried new things. We tried new people. We tried new channels. We tried a new approach. That also didn't work. You know what? Okay, two times. That's some evidence. But how many times have people tried something twice and got like, well, that doesn't work. And then someone fucking strolls along, tried for the third time, a ka-ching jackpot, right? It just goes out of the machine. So I feel like there's a lot of decisions like that, especially when you're a business like us that have been around for so long.

15:34Like there's literally 25 year history almost with Basecamp alone, where you just go like, we've learned a lot of things along the way. Some of that stuff's gotta be just outright wrong by now. So we have to test it with some regularity, with a new insight, with new people, with new tactics, and then realize we can get a different result. I think that's happened a lot in other parts of the business. We've reformed different things that we've done and our outlooks and things have changed and sometimes for the better. So do you know what? This is just the price of being in business. You have to reaffirm what you think you know.

16:11You got to put real budget behind it. And if it doesn't work out well, hopefully you at least gave some of that money to people you like. I would say the other thing is, is that marketing and advertising, like making products is hard. It's just hard to do well. It's easy to do poorly, hard to do well. And I'm not suggesting we did it poorly. I'm just saying it's hard to do well. It's just as saturated as everything else in this world today. So if you put stuff out there that's kind of like someone else's stuff or sort of in the same vein as someone else's stuff, like it's not going to catch anyone's attention.

16:39It's not going to work very well. And that's more frustrating to me than anything else is to do work that sort of doesn't differentiate itself in any way. We try not to put products out there in the world that look or work like other people's products. And if you so that's why we make the stuff that we make. If we put advertising and messaging out there that sort of sounds like someone else where you can replace the logo and put someone else's logo on there and you wouldn't know whose it was. Whenever I see us doing that, we've done that historically. And sometimes you do that to start and then you try to get better.

17:08You try some other things, but that's the kind of stuff in general that I don't like. And I don't like in products. I don't like it in writing. I don't like it in advertising. It's a universal dislike, which is doing things that everyone else is already doing. There's no reason for you to do those things. So it's not even about marketing advertising so much. It's about the principle of it. If you're going to put something out there in the world, make sure it deserves to be there. It should be there. It's differentiated. It's distinct. There's contrast behind it. Otherwise, it's just not worth doing.

17:34Okay. So we're saying the economics don't necessarily work for us. So tell me what we think does work for us. We've done several experiments over the years. Like, what do we think works? I think what's interesting is we don't really know what works specifically because you could say like, well, a blog post may have worked. A single blog post, while 300 others didn't work. We don't like track things that way. I think to me, it's about the aggregate message you put out, how you present yourself to the world, the things you make, how often you make these things, how often you share these things, how often you talk about these things, how much you teach versus for ask for something in return.

18:08My take is you don't really know. Occasionally you have a hit somewhere that works for some reason, but you didn't plan on it necessarily. It's just the things that you do collectively over a long period of time, I think need to add up in some way. That's my take on it. It's very non-scientific. I don't know what David's take is or other people's take is, but I think you just have to do the things that you believe in and that you want to do and you want to share and you want to put out there. And collectively, you don't really know what it is specifically, but collectively enough stuff has to move the needle.

18:38So that's kind of my general sense on it. I think what we've seen work is to cultivate an audience of people who give a shit about what you have to say because you've been saying interesting things. You've been saying things that resonate with them or you've been teaching them things. that audience building mechanism i think is what we credit a lot of the organic if you want to call that success that we've had with the products that whenever we launch something new we have an audience ready to at least give it a try lots of people if they start from scratching they don't have any audience they don't have anyone to go to i've seen countless examples of that they launch something and it's crickets or they launch something on product hunt and like next day it's over.

19:25We have a little bit more patience, I think, from our audience that they're willing to see what we're making and they're willing to follow it along and they're willing to then give it a try when that makes sense for them and it all lines up. So I do think that that part works. But what actually builds an audience? That's incredibly hard to sort of diagnose. It's also hard to know which part of the audience is actually the buying audience and who just likes your hot takes on whatever this thing or the other thing, but would never buy the product. That we've never been able to tease apart. But I do think there's an aggregate effect of just building up a solid audience who cares about what you have to say because you're saying it in a way that resonates with them.

20:07You're saying it in a way that's authentic. You're saying it in a way that they can't get a million other places that Jason says because you're offering something unique. And that angle, I think we need to credit some degree of success with. Now, there are also instances where you can literally see the spike. So Jason, I think it was just two years ago, worked with Ezra Klein for quite a long time on this story about hay that was then published in the New York Times. And like you saw the line before and then bam, just this huge spike. And that was quite a sustained spike. And it was actually so big that that kind of organic placement or whatever you want to call it, it wasn't even placement.

20:50It was just, hey, here's someone who's interested in trying our product. Oh, they have a platform. Let's help him. Let's show him around. Let's do all those other things. It was more of a home run than we probably ever had on anything we've ever tried on the marketing side. The other example of this was this summer. I went on the Lex Friedman show. He obviously has an enormous platform. That show alone has done like a million views on YouTube and millions more on X and whatever other platforms. And there, too, there was a measurable spike that lasted for some amount of time around that. And then what you always hope with these appearances or these spikes is that your baseline nudges up a bit.

21:32Because if it's just a single spike and then you go back to exactly where you were, that's not really going to sustain things, right? You're constantly looking to nudge that moving average in the positive direction in the upward trajectory. And I do think that sometimes these spikes, they're so measurable that you can kind of steer yourself blind on them a little bit. Like, oh, we got to find another spike. We got to find another viral hit. Okay. Yeah. If you're that good, you should just like, I don't know, make pop music or something. If you know exactly what it takes to come up with a hit, well, do that.

22:05If you know exactly what it takes to pick the winning stock, well, just do that. A far more reproducible method is just to say like, you know what? And these spikes are the product of a million base hits. This is one of the reasons we're doing this podcast, for example. Do you know what? This podcast is generally just a series of base hits. Occasionally, we'll have an episode that travels farther than our normal audience or we'll post a single clip that does really well. But it's sort of that baseline that nudges things forward. So you take that, you take the podcast, you take Jason and I's presence on social media and on LinkedIn and on X.

22:42You take all the writing that we do. We take all the open shows that we do. And you're like, little by little, you're stacking up these layers. What part of the cake is what? I don't know. As long as we're doing things we feel good about, we're actually interested in doing, we're excited about sharing it. It feels like it's all gravy. It's all bonus. But that's not true when it comes to the paid stuff, right? That's where those things diverge. When we have to spend hundreds of thousands, if not millions, with someone like Meta or someone like Google, Suddenly it really matters. You really want to thinly slice that cake and find out exactly, is this million like totally blown?

23:20Because if it is, let's try to spend it over here instead, or let's just keep it if we can't find a productive use for it in advertisement. The one thing I want to add too is I can imagine someone listening to this, where everything David said is right, but I can imagine someone listening to that and going, so you guys planned all this? Like you guys write these things and go on these appearances and you do the hot takes in service of promotion. And it's not that. Like there's no strategy here other than to do what we want to do and share what we want to share and talk about what we want to talk about.

23:50Those things happen to aggregate and add up and lead to building an audience and leading to exposure and opinions and all that stuff. But there is no sessions like, man, what should we talk about this week? Like there's an Apple controversy here. Let's jump on that because that's going to lead to so-and-so and so. That's not how it works. I just want to be clear that there's not like a plan here or a strategy other than to just share and talk and teach and do and give. And that it's never because of something else. It's because of that in itself. And that also has a side effect, which is to promote the company and the products that we make.

24:24And the problem is if you chase the side effect, if you're instrumental about it, I'm doing all this because I want that. Do you know what? In almost all cases, it comes off fake and it does not work. I'm allergic to that stuff. And we've talked about the word content in the past. And I think it really fits perfectly here because it is the encapsulation of this instrumentalism. That like, I'm not writing something because I have something to say. No, I'm producing content. Like you can almost hear the barf, right? Content. And you're like, get that shit away from me. It's disgusting. I fucking hate content.