Music biz guru Bob Lefsetz has been publishing “The Lefsetz Letter,” an industry newsletter, for over 25 years. After reading this Newsweek article about 37signals, he offered some great commentary about similar lessons he’s learned in the music business.

Here he talks about how all the marketing in the world can’t replace a product that sells itself:

As Ahmet Ertegun once said, a hit is a record that gets a listener to jump out of bed, put on his clothes and go to the all night record store to buy it after hearing it on the radio. I listen to the radio in my car all day long. But it’s rare that I have to write down the title of a song and rush to my computer to download the track. Happened with Gnarls Barkley’s “Crazy”. And, in the CD era, with Alanis Morissette’s “Hand In Pocket”, I had to go home and rifle through hundreds of CDs to find “Jagged Little Pill”. And then there’s Walt Wilkins/Pat Green’s “Wrapped”… Point is, hit records sell themselves, like drugs. If your record is not selling itself, you’re never going to make it. In other words, if you’re working me, you’re in trouble. Your track should be so great I hear about it from someone else!

And then he explains why he loves picking fights:

I was listening to Richard Roeper on Howard Stern, he lamented the guest hosts from Hollywood who co-starred with him on “At The Movies” would say nothing negative, for fear of alienating some potential business contact. But it’s when you say something negative that you endear yourself to a group! And if you’re offering a better product…

Are you willing to state your truth and own it? Elton John talks shit about other people. But most acts demur. I’d like Jon Bon Jovi if he just said SOMETHING or SOMEONE sucked. But he’s so busy sucking the public’s dick I miss no chance to beat him up, point out his band’s foibles, because he’s not real…and I know many people agree with me. Then again, most people are indifferent! And only by taking a side can you get them to care!

The whole thing is full of gems. Check it out.

A couple months back, we took a look at how tech companies stack up when measured by revenue per employee. Here are some other links (some recent, some older) that discuss payroll and efficiency:

Royal Pingdom reports Google had $209,624 in profit per employee in 2008, beating out Microsoft, Apple, Intel and IBM.

According to an ‘08 article from The Financial Times, Nintendo produced more than $1.6 million per employee—more than investment bank Goldman Sachs’ $1.24 million per employee during 2007.

CNBC looked at how much revenue S&P 500 companies generated per employee over a fiscal year.

Automobiles & Components
Industry Leader: Harley Davidson (HOG)
Annual revenue per employee: $641,612
Annual profit per employee: $62,848
Employees: 9,300

Industry Leader: Amazon.com (AMZN)
Annual revenue per employee: $962,319
Annual profit per employee: $33,237
Employees: 20,600

Business Insider illustrates the value of a unique visitor for several different types of web properties.

“The Craigslist Anomaly” is Michael Slater’s search for lessons from the site’s success.

Replicating this success is not, of course, something that any new site could rationally aspire to do. Perhaps the central reason for craigslist’s great success is that they took a function that was being done offline (classified ads) but could be better done online, and translated it quite simply to to online world. Their goals were modest, and they weren’t trying to build a huge franchise—they were simply trying to solve a problem. Ironically, this led to a huge and powerful franchise.

SI.com looks at the baseball teams that got the most bang for their buck over the last decade.

Florida took advantage of the system over the past decade. The Marlins found a way to spend as little as possible and win just enough—well, maybe. They did win one world championship in the decade but gave their fans only one other pennant race. Here’s a good question for fans: would you take one world championship every decade if it meant punting eight of the other nine years?

Another baseball piece: In “MLB Payroll Efficiency,” Purple Row attempts to correlate number of wins with year-end payroll over a three-year period.

Mark Hurst fills my email inbox each week with a lesson on customer experience. He’s been echoing the same message for over a decade. For people who have followed him that entire time, it may seem like old hat. But every day, there’s a new person out there who’s just discovering the notion of the customer experience and why it’s important and what they can do about it.

Thomas Friedman keeps has written column after column (and a book) about the need for a “Green Revolution.” Are some readers tired of it? Sure. But others are just coming to the message now.

Warren Buffett doesn’t worry about delivering shiny, new, exciting ideas in his annual letters to shareholders. He just keeps hammering away at the same themes that have guided him throughout his investment life.

Reaching the new class
In REWORK, we talk about how you need to be willing to let your customers outgrow you. There are more people who are not using your product than people who are; You need to make sure you make it easy for these people to get on board. That’s where your continued growth potential lies.

It’s the same for your marketing message. There may be .0001% who have read everything you’ve ever written and who want you to deliver something brand new. Follow their wishes and you’ll wind up with a tiny audience of experts while excluding the 99.9999% of people who have no idea who you are or what you think.

There’s a new batch of freshmen every year. Every day, there’s a new person discovering you for the first time. If your message is simple and accessible, they can become fans. If it’s geared exclusively to PhD candidates, these freshmen will never latch onto you.

A drop in the bucket
It’s also wise to keep in mind that it takes multiple mentions for an idea to really sink in. For most of those who follow you, your ideas are just a drop in the information overload bucket. That’s why you need to keep plugging away.

Marketing something is akin to being Andy Dufresne in The Shawshank Redemption chipping away at his cell wall. Like Andy, you’re not gonna dig a tunnel overnight. It’s going to take years. You need to hammer away at the same point in the wall to get anywhere. If you keep changing spots every week, you’re never going to break out.

Honing your message
Plus, you keep getting better at making your point(s). You can’t just expect to say it perfectly out of the gate and then never have to repeat it again. The first time you say something, you get to guage its impact. If you hit on something, you can start refining it. It’ll keep getting better. A blog post can lead to a conference presentation which can lead to an interview which can lead to a magazine article which can lead to a book. And each step of the way, the message will get tighter and clearer.

Your foundation is your foundation
Doubling down on a message is how you take a stand. Of course, you don’t want to sound like a broken record. You should find new angles and new ways to present those ideas. But remember it’s ok to keep plugging away at the same themes when you really believe them because, well, they’re what you really believe. The way you get to be the Buffett of your message is by sticking to it.

I’m not going to lie. I was never a Microsoft fan. Not even when I was using Windows (that I begrudgingly moved to after the Amiga). But at least you used to have some awe and respect for the gorilla that was Microsoft. Bill Gates might have been an evil genius, but at least he was a genius.

Now contrast this to Steve Ballmer. Who’s certainly no genius and calling him evil is to belittle evil. He has turned the gorilla into a buffoon. And frankly, it’s sad. Gone are the feelings of rage (except when they patent troll people for being web apps) and left is pity.

None of this is new, of course. Ballmer has be running Microsoft for more than a decade now, but when you don’t hear from the guy directly for a while, it’s easy to get lulled into the belief that he’s probably running alright. Not.

See this video from D8 of Ballmer babbling about “productivity is going to be important, consumption is going to be important”.

Now contrast this with Steve Jobs speaking about a much, much tougher issue at the same conference:

Jobs is lucid and reasoned. Ballmer is… Hell, I don’t even know how to describe it. He’s all over the place. No clear definitions, just randomly running his mouth. Compared to Jobs, I think it’s charitable to call him pathetic.

Jobs needs worthy opponents and Ballmer isn’t it. Look at this chart of Microsoft’s market value from the Gates to Ballmer hand-over:

Chart by Erik Pukinskis of Sprout Robot

Now look at this picture of Apple stock since Jobs returned:

It matters who’s at the top. It sets the company tone. Microsoft is undoubtedly full of very smart people, but as long as they are being run by Steve Ballmer, they’re going to be shackled by his ineptitude.

I wish Microsoft had their evil genius back.

Update: This was originally posted as part of our “Profitable & Proud” series but commenters rightly pointed out that Shopify’s angel investor broke the “no funding” rule that is part of the series. We’ll leave the interview up but we’re removing it from the P&P series. We’re sorry about confusing our readers and Shopify (we are the ones who originally approached them about participating). Thanks to all who pointed out the error and stay tuned for another P&P profile that fits the bill.

Q&A with Tobias Lütke of Shopify:

What does Shopify do?

The short version is that Shopify allows people with great products to create awesome online stores that do those products justice.

The long version is that Shopify is our idea of how an online store should be run. We originally started the company not to create an online store system, but rather to sell snowboards. Back in the day, we hoped we would find software that would allow us to run our store on the Internet; we never found anything close to what we wanted, so we built it ourselves.

How successful is your business?

Certainly, we’ve always been pretty transparent with our numbers. We have about 6000 active merchants ( selling products this week ) from over 60 different countries. Collectively, they have sold over $100m in products in the last year.

In terms of our own business; I can’t really share our actual revenues but it’s in the multiple millions. We recently won some recognition as Ottawa’s fastest growing company. We have been profitable since 2008.

Cody Fauser, Tobi Lütke, Daniel Weinand.

You originally started a snowboard business called Snowdevil. How did you decide to start that? How did that lead to Shopify?

To tell you the truth, the main reason I wanted to start a retail store was because of programming burnout. I had just moved to Canada a year before and was still working for a startup company in Germany. I disliked remote work and found the job isolating, not to mention we did a lot of software development in Java. We mainly worked on financial backend software – the driest of the dry kind of stuff. What I was drawn to was retail and the margins that could be had in the right niches. I also thought that online retail had been implemented poorly thus far. This was in 2004.

So the idea was to use my technical expertise to give me some leverage in creating an online store. The idea at the time was that this would eventually let me earn my money, without having to do any programming. I loved programming, but I decided back then that I wanted to recover it as a hobby, instead of a day job.

I set up our online store based on a variety of different systems such as Miva, OsCommerce and Yahoo stores. Truth be told, all those systems made my skin crawl because of how bad they were. The final straw was when I got a custom design made for my snowboard store and I couldn’t get it to work in Yahoo stores. We had this great CSS based layout done with all these new fanged “web standards” and the customizability of Yahoo Stores barely allowed me to change the background color of the top frame (!!!).

In a moment of utter disgust, I got an IM from a friend who told me about this Ruby on Rails thing that David just released. I downloaded it, fell in love with it, and decided it wasn’t programming that I was burned out on; it was programming in uninspired programming languages. With my newfound enthusiasm and tools, I spent 2 months building our own Snowdevil store software.

We had a great season of sales in 2004 and turned a profit, but at this point we had the itch to fix the broken e-commerce industry and create a software that merchants and designers would truly love. I’d say we spent slightly too long working on Shopify before its first release, but ecommerce is complicated, so it took about 1 1/2 years from this point until Shopify’s release in 2006.

In the end, Shopify is the software that I hoped to find in 2004 for Snowdevil.

How did you fund yourself at first? Did you ever consider taking on any investors?

We had a tiny bit of money from the profit of the Snowboard sales. Other than that we essentially funded it by ignoring money. My co-founder Scott and I didn’t take salaries until well after the launch. My wife and I moved in with her parents and kept costs down. I also had some savings from my job in Germany, and friends & family chipped in a bit in exchange for some equity.

We ended up taking an investment from an angel investor, who just called us up one day because he heard about our company. This is certainly an outlier, but taking this investment from John H. Phillips was probably the best decision we ever made. Apart from allowing us to meet payroll for the first year, he has spent countless hours teaching me all the things I needed to know about running a company. Without him, we simply could not have survived the years and would not be around today.

We use Ruby on Rails, we are in the ecommerce space, and we are profitable. That seems to make us a Perfect 10 in the VC world. I’ve spent a lot of time talking to potential investors and meeting with them in person. Contrary to their reputation, I’ve found VCs to be some of the nicest, insightful and kindest people I’ve met. Many of them made introductions that have lead to lasting business advantages, even without any immediate benefit to themselves.

That said, at the end of the day, our company has been built and bootstrapped. We won this battle. This is the battle that VCs usually help you win. I see private equity as a tool – probably one of the most sophisticated and effective tools if you happen to have the particular problem it solves – but still only one among many options. Luckily, we are at the point where we can self-finance our ambitions. I don’t rule out that we might take an investment in the future, especially if we are up to something particularly costly, but I have no immediate plans.

Continued…

37signals can trace its roots back to the dot-bom tech recession of the early 2000s. The party was over, the mega budgets were gone, and you had to hunker down and make money in exceed money out. Back to basics.

This might have seemed like exactly the wrong time to start a business, but I believe the opposite is true. The skills and the culture you pick up at formation will stick with you forever. The corporate mind of 37signals became imprinted with frugality and efficiency that still is at the core of who we are today.

That’s why it brings me extra joy to read in the New York Times that 2009 was a record year for new businesses started. It’s at a 14 year high! As the article muses:

Maybe this is a good thing. A deep recession can be the mother of invention. These Americans are now liberated from the bureaucratic straitjackets they thought they had to wear. They can now fulfill their creative dreams and find their inner entrepreneurs. All they needed was a good kick in the pants.

A whole class of companies forced into existence, forced to be lean, forced to be profitable. Nothing is so bad it’s not good for something.

(Yes, some of these starters will not be successful or they’ll make less than they did in their former job. Just starting a business is no guarantee for success.)

One topic consistently comes up when people ask me how we do things at 37signals: working remotely. Talking with a friend about how his team manages a widely distributed team it occurred to me that the key to really making working outside the office effective for your team is equality.

What I mean is that at 37signals there isn’t any distinction between our remote team members and those who work in the office. Of our team, 9 live in Chicago near our physical office and 11 live outside Chicago — a few even outside the US. All of us have the same freedom to work where we feel most comfortable. Even those of us that live in Chicago work outside the office much of the time.

What that does is create parity and a culture of work where location doesn’t matter. There are no advantages for people who come into the office, no disadvantages to staying home to get your work done. I’ve worked with companies where remote team members were an afterthought. They had to sit through meetings on the other end of a speaker phone while the rest of the team met in-person. The team members who weren’t permitted to work remotely resented those who were, despite the remote team’s obvious second-class status. These days, I live over 500 miles from my nearest coworker but I don’t feel like I’m missing a thing.

My friend’s team learned a similar lesson. They found that making even their team members in the main office work from home leveled the playing field. The local team benefitted from the productivity of working in isolation and learned to embrace the same constraints as the remote team. That taught everyone how to communicate in a location independent way, making the entire team more effective.

Lack of parity for remote employees is certainly a big factor when a company tries and fails to integrate remote team members. Most any team can benefit from some time to work outside the office. Let your local team reap the benefits and open your company to a vast pool of talent by hiring the best no matter where they live.

We’re on a simplification kick at 37signals. As we grow, we’re trying to simplify our business even more. Growth generally brings complexity, but we want to see if we can go in the other direction.

Questioning assumptions

Simplification usually starts with questioning assumptions. Why do we do this? Why do we need this? Is this really necessary? Is it just inertia? Are we doing it because that’s how we’ve always done it or are we doing it because it’s better? Are we just following conventional wisdom or is there newer wisdom we should be considering?

Why do we need employment contracts?

One of the things we’re beginning to question are employment contracts. When a new employee starts at 37signals we make them sign an employment contract. The contract was drawn up by our lawyers a few years back, so there are no incremental costs each time we bring on a new employee, but is that good enough reason to keep this inertia going?

The contract is about five pages. It outlines some basic responsibilities we have to the employee and the employee has to the company. Starting salary, an overview of benefits, vacation time, confidentiality, and general expectations on both sides. But that’s really only a paragraph or two. Everything else is legal-cover-your-ass-speak. Like most contracts, it’s basically a big “I don’t trust you and you don’t trust me” document. What a terrible way to welcome someone to the team.

How often are these things actually enforced in a business like ours? And if people aren’t really enforcing them, why are we writing/signing them? “Just in case” feels like a pretty weak argument to go through all the cost, trouble, and rigamarole. Is “Imagine if someone…” enough reason to have the first step we take with a new team member covered in legal mud?

What if we became a handshake company?

So we’ve been thinking… What if we did away with these employment contracts entirely? What if we became a handshake company? Plenty of small companies work this way, why can’t we? Aside from each person’s salary, we could post all our responsibilities and their responsibilities on the web.

We could make a ”/workinghere” page at 37signals.com that clearly lays out what employees can expect from the company and what the company expects from the employees. It could be a living document too. Things change, benefits change, rules change. That’s just how it goes. You read it, we shake hands, and we start working together. In the event that it doesn’t work out, we ask you to leave or you quit. That’s how it is anyway – employment in the United States is at-will. Every employment contract I’ve seen includes a line about at-will employment. So what are the dozens of other paragraphs really for?

In this day and age it seems crazy to even consider ditching employment contracts, but why? Why have we become so dependent on lawyers to control every relationship inside our companies? Why is “just in case” the default answer when asking questions about contracts? It sounds more like insurance than legal counsel. And the premiums are sky high.

What’s your experience?

What are your experiences with employment contracts? If you own a business, do you require employment contracts? If you are an employee somewhere, have you signed a contract? Has anyone here ever had to actually sue or litigate an issue specifically related to an employment contract? If you’re an employee, do you feel more or less comfortable joining a company that makes you sign a legal contract? Does anyone feel good about signing these things?

Would love to hear everyone’s thoughts.

Back in early January I posted about our new way of working in 2010. Instead of working individually in isolation as we had in the past, we’re breaking into small teams of three (two programmers, one designer). We’re keeping the teams intact for two months at a time. During those two months, the teams will work on four separate iterations, two weeks each. The goal is to drastically cut down scope, set short fixed deadlines, and focus on improving our products.

How’d it go?

Now that January and February are behind us, and March is upon us, we can reflect on the first two month term. So how’d it go?

It went incredibly well. It was the most productive two month period we’ve had in a long time. It wasn’t all perfect, and some adjustments were required, but all in all we definitely feel like we made the right call switching to this new way of working.

The results

Here’s some of what we accomplished:

• HIGHRISE: A major redesign of the “stream” in Highrise.
• HIGHRISE: Jump to a case or deal from the sidebar search.
• HIGHRISE: Merge companies to help deal with duplicates.
• HIGHRISE: Email notifications, daily digests, and vCards for your Highrise Dropboxes.
• BASECAMP: Stylized HTML email notifications for messages, comments, to-dos, files, and milestones.
• BASECAMP: Post new messages via email.
• BASECAMP: Redesigned message section with active threads highlighted.
• BASECAMP: Replies to assignment emails are posted as comments.
• CAMPFIRE: Formatted tweets in Campfire chats.
• CAMPFIRE: Image thumbnails in chat transcripts, redesigned transcript view, starring chat highlights for easy future access.
• LAUNCHPAD: Jump deep inside an app right from the Launchpad.
• 37id: New help section.
• ANSWERS: Launched 37signals Answers.

Plus a variety of bug fixes, minor updates, infrastructure improvements, and design and language tweaks.

What did we learn?

Continued…