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Web 2.0 Review: Don't forget there's another kind of scaling

09 Oct 2004 by Jason Fried

I really enjoyed presenting and learning at Web 2.0. If they put on an event like this again next year you really need to be there. This was a good week for everyone involved (especially for our pals at Flickr who seem to be the deserved darlings of the internet these days).

Thanks to Jeffrey Veen, Jason Kottke and Marc Canter for allowing me to be part of their panels (although Marc certainly did most of the talking, as he usually does ;). And, special thanks to John Battelle for inviting me to speak.

Now, the hot themes at Web 2.0 were open APIs, RSS, and Wikis (and to some extent “the power of the tail,” which is what I believe Web 2.0 is really all about). Some cool tools were announced including Rojo and Jot. I suspect there will be a lot more coming around the bend. Our fellow Chicagoans at Feedburner got some high profile shoutouts as well. Bill Gurley’s presentation blew me away.

But, I’ve gotta say, it felt a lot like 1999 again (and the only people who benefitted from that near future were the short sellers). Tons of VCs floating around. Tons of talk about Round A and Round B funding. The word “millions” was overheard in more conversations than was comfortable. Looks like the overhang is eager to spread itself. Too many smiles and not enough skepticism. “Revolutionary” and “next generation” were tossed around carelessly (as Jason alluded to). But, it is exciting seeing the industry regain some footing and start innovating again. Innovation is alive and that is a great thing.

This all brings me to the point of my post.

I keep hearing about “scaling” issues. Will this scale? Will that scale? Our software is scalable. Etc. But there’s another kind of scaling — human scaling. And that’s the expensive kind. A lot of these new companies that are springing up already have 10, 15, 20 people on board (or are headed there soon). Those are big payrolls for companies generating little to no revenue. And when you have little to no revenue and you have 10, 15, 20 people on board, you have to start borrowing. And when you start borrowing you start going into debt. And when you start going into debt, you can’t continue to innovate or take chances. And then decisions are made that aren’t in the best interest of your customers. It’s a slippery slope. A slippery downward slope.

Aren’t big payrolls and large head counts Web 1.0? Nothing is worse for a start-up than big fat fixed costs. They are like trying to sprint with 50 lb ankle weights. Isn’t Web 2.0 in a large part about agility and flexibility?

So, my advice to these new companies with their new products and fresh-faced enthusiasm… Keep it small. Start small and stay small. Borrow from yourself before you borrow from someone else. You can have an impact with just a few people. You can build great products with a small team. You can do it on your own. You can.

I know you can because we are (and we’re not special). We built Basecamp in four months with 2.5 full timers (and our .5 is 7 time zones away). Our customers don’t seem to mind our small team (and isn’t Web 2.0 about making sure they’re happy?). We’ve been pretty tight lipped about sharing numbers, but in half a year we’ve seen tens of thousands people in over 40 countries make Basecamp a part of their day. And while the product continues to grow, we haven’t had to add a single person to our team. I don’t need to tell you how that affects profit margins. And all this is on top of running our consulting business. That was one of the goals from day one: Build a product that doesn’t require organizational scaling. And so far so good. If you want to learn more about how we did it, attend the next Building of Basecamp Workshop (San Francisco, Hotel Monaco, November 9, 2004).

It requires steady discipline, but it can be done. It is being done. And I believe you’ll make better decisions and build a better product if you drape yourself with a few constraints — a small team and your own money being two of them.

Good luck to everyone in Web 2.0.

14 comments so far (Post a Comment)

10 Oct 2004 | Ryan Mahoney said...

Wow. I totally agree on the human scaling issues. Wish I realized that before I scaled up and scaled back! One person or a small team can accomplish so much. Reminds me of the "surgical" approach to programming mentioned in The Mythical Man Month.

10 Oct 2004 | Brian Andersen said...

More than 3 people in anything fells like clutter to me. In bed as in designing and programming :-)

All jokes aside, it's a scary road to walk down, as anyone who even somewhat remembers the boom and burst just those few years back. It's scary that some people will still throw money after the Step 3: Profit ideas.

10 Oct 2004 | Derek said...

The company I work for started in 2000, in the depths of the dot-com bust, and has grown to 20 people through just such an approach: build what your customers want, and pay for what you do with the money they spend on you. That was necessary in a time when there was essentially no funding available, but it's also made the company very lean. Sort of the way companies used to have to be. You know, actually selling things and stuff.

10 Oct 2004 | paul said...

Cynics would have been shunned at Web 2.0, thankfully we have blogs.

I appreciated your contribution to Web 2.0, good luck with Basecamp.

10 Oct 2004 | ~bc said...

Let's not forget... when you don't borrow others, you also don't cede the steering decisions. Your company remains your company. And if you're confident in your products that means you reap the benefits of what you sow, instead of shipping that out the door, too.

10 Oct 2004 | JF said...

Let me just be clear... I'm not opposed to taking investment or selling your creation outright, but I do think that you should only take money when you absolutely need to. And even then you need to ask yourself why you need it -- do you have more people than you need? Do you have more hardware that you need? Are you trying to plan too far out before you know what is going to happen? If your software or service too confusing so you need more people to answer support questions? Etc...

11 Oct 2004 | Todd W. said...

One of the keys to keeping the team small is maintaining focus on a tightly defined goal. In the startups I've experienced, the headcount starts ballooning when the initial project hits some difficulties and the leader (and/or team) starts looking around to diversify the risk with new projects and/or goal. The original team stays busy keeping the project on life support while new hires are brought in to expand the scope of the endeavor.

Bottom line: focus and discipline are necessary to keep the team small.

11 Oct 2004 | Adam Gautsch said...

Because the potential market for an internet product is world wide there is a strong temptation to want to build a world wide product with a world wide staff. This temptation, like most is bad. It will have you waking up in five years in a strangers bed wondering how you got there and why you have a strange itch. (or that could just have been me) Either way, I believe that most successful web companies of the future would be better off to grow like brick and mortar business. Starting locally or regionally and growing from there. Not knowing of specific numbers or examples I would think CraigsList is a good example of that model. The other way is to go the Basecamp route and find a specific niche and hit it hard. Either way, take advantage of the positives of web businesses (ie increased margins) just don't get drunk with the power the internet can provide.

11 Oct 2004 | Don Schenck said...

I'm pouring through the newest book by Guy Kawasaki, The Art Of The Start. He comes across with the same message.

Great book; Highly recommended.

11 Nov 2004 | Payday Loans said...

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30 Jan 2005 | compatelius said...

bocigalingus must be something funny.

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