The recent economic downturn has me wondering… Are small ‘Getting Real’ businesses like 37signals more resistant to the declining economy or is it just that any downside is much less dramatic than multi billion dollar failures and job cuts in the thousands? Have you been impacted directly in reduced growth or increased cancellations as far as you can tell?
How do most companies handle economic downturns? They keep a closer eye on spending, they cut back on hiring (or lay people off), they waste less time, they focus on their core competencies, they push to eliminate complexities, they cut back on long tedious projects and instead focus on quicker wins that have a more immediate impact on the bottom line, and they consolidate roles and trim fat.
This is what Getting Real is all about. Staying small, being frugal, focusing on just a few core things at a time, quick wins, eliminating abstractions that lead to miscommunication and complexity, only doing what you need to do instead of everything you could possibly do, etc. We believe companies that live these ideas are better off all the time — but especially when times get rough.
Charging for your product is safer
Another key tenet of Getting Real is charging for your product. You make something and your customers pay for it. Connecting your revenues to your customers helps you stay focused on the things that really matter to the people who pay your bills. It’s a healthy alignment that helps during tough times.
This isn’t the case when advertisers are the ones funding your operation. When the people using your product aren’t the ones paying for your product you’re at a strategic disadvantage. Your improvements can’t just be targeted at users, they also have to be targeted at advertisers. So now some of your energy is split into pleasing two different groups. It’s possible advertisers and users have the same goals, but it’s less likely. You’ll notice I’m calling people users now. That’s what people become when they don’t pay for your product—they are users, not customers. That changes the entire dynamic.
One more point on advertising-funding businesses: They’re at greater risk in economic downturns. Advertising budgets are among the first to get cut when things go bad. If your business is based on someone else’s advertising budget, you’re in for an especially difficult time in a down market.
Cutbacks and morale
Here’s another thing: When bigger, looser companies find themselves going through hard times, the cutbacks tend to be deep. They don’t lay off 1% — they lay off 10% or 20% or more. That breeds fear and uncertainty which hangs over everything else they do. While in some cases it can be a positive, the usual negative impact on morale can’t be underestimated. Workmates are gone, teams broken up, projects are put on hold. People start looking for other jobs and their loyalty cracks. It’s hard for people to put their best work in when they’re looking for other work.
Marketing without spending
Getting Real is also about out-sharing, out-teaching, and out-contributing the competition. We don’t recommend getting locked in a advertising and marketing spending battle. That’s a cold war you don’t want to fight. And what happens when your ad budget gets cut? How else are you going to get the word out? You probably won’t have a plan.
Instead you want to continue to build an audience through teaching, sharing, and contributing back to the community. Write, tweet, and speak wherever you can. An audience you’ve taught is far more loyal than a group of people whom you’ve only been able to reach by spending.
How are we doing?
Our growth has slowed a bit this year, but business is better than ever. We’ve been doubling revenues every year since 2004, so even a little slowdown still means big growth. We’re still profitable, still debt free, have no need to make any staff cuts, have no need to make any development cuts, and have no need to cancel any new projects.
Each one of our products has grown nicely since last year. Backpack’s monthly revenues have doubled this year thanks to the multi-user version launch in February. The newly launched Deals feature in Highrise has had a real positive impact on sales as well. Campfire continues to grow modestly and Basecamp continues its healthy climb towards its fifth birthday on February 4, 2009.
So, all and all, we’re doing pretty well given everything that’s going on. That’s not to say we’re not paying attention to what’s going on out there. It’s nasty out there. And it’s likely to get nastier. But we’ve also set ourselves to be able to weather the storm better than most companies. We have a small staff, low overhead, and no debt. And we’re running on revenues generated from a happy, diversified customer base that continues to grow.
These tough times are perfect times to stick to the Getting Real principals of responsible spending, low overhead, core focus, no waste, less abstraction, reduced complexity, clear thinking and open communication.