David asks:
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.
Eduardo Sasso
on 14 Nov 08I think this is the 100th post about Getting Real and it’s always inspiring to read that.
It has been almost an year since a dropped my day job to go after my dreams mostly because i read this book.
So thank you guys!
Alex Hardy
on 14 Nov 08Paragraph 2: “Another key tenant of Getting Real”
... I think you mean “tenet”.
Love the book, it’s been very influential on my current projects.
Bill
on 14 Nov 08Jason, How often do you look at the income/expenses/latest $ information for your company and when does that lead you to adjust course?
What’s most important for being profitable yet running the company in a way you all enjoy? For instance: our most important measurement is customer retention, or we each make $X but we all only have to work about 30 hours/week.
thanks, Bill
Alex Hardy
on 14 Nov 08Uh, paragraph 4 that is :*)
Bram Van Oost
on 14 Nov 08Love this book. The style of writing reflects the philosophies that are shared.
A big must for anyone doing projects of all kinds, not just web-apps!
Thanks a lot, guys, very appreciated.
Mandy
on 14 Nov 08I agree that being small, efficient, and value-driven is important these days. Building real products would seem like good sense in any day and age, and I feel that many startups that are basically great ideas without a business model may find themselves in strife.
Keep on!
Don Schenck
on 14 Nov 08Dayum … I gotta get me a copy of this book! :)
Seth Werkheiser
on 14 Nov 08In the ‘Marketing without spending’ paragraph you could easily replace the ‘spending’ and ‘budget’ points with ‘Digg’ and ‘link bait.’
GeoffB
on 14 Nov 08This reminds me a little bit of a Joel on Software post about a small scale product he decided to produce – one that might lead to revenues of a couple hundred thousand a year. He mentioned that at microsoft, this project would never get launched, because 200K is too low a number to matter.
This seems to be at the core of businesses that work on the “getting real” principle. A few good programmers and designers who get together and produce a few good applications can create a company with revenues that produce a wonderful income. This income, of course, wouldn’t cover the monthly interest on the retirement package of a failed CEO at a bigcorp. But maybe that’s why the opportunities are there?
Mac
on 14 Nov 08So how a blogging business like “Daring Fireball” which 37 Signals touts fit into the Getting Real business model? He sells advertising and occasionally t-shirts.
steven Wagner
on 14 Nov 08It didn’t hit home, until I heard Jon Doerr speak at Web 2.0. The single biggest fixed expense for most companies is rent. (You mostly work from home right?) Cutting expense and make your people happy.
Here is his interview:
http://web20summit.blip.tv/#1456377
He preaches most of what 37 signals has advocated for a long time.
Plus, I think that any business can benefit from Bezo’s/37 Signals philosophy: focus on what never changes in your business.
Shane Vitarana
on 14 Nov 08Mac- Daring Fireball has a members-only feed and you pay for membership. And what’s wrong with selling t-shirts? That’s a real business model.
Grant
on 15 Nov 08Thanks for this reminder. I’ve been in business for two years. I’ve kept my business small. I’ve resisted quick growth that didn’t seem sustainable. Sometimes it’s easy to wish you’d get big quick because we so often equate size and busyness to money, but that’s often not true. Right now I feel like I’m in a much better place than many of my competitors to serve the needs of companies that are looking to cut budgets and put an emphasis on value.
Taylor Davidson
on 15 Nov 08“Getting Real” works in any economy.
Really, the best part of your business is your control: you control what you say “yes” to, whereas so many businesses with many outside constituents don’t have the same ability, at the same scale, with the same opportunities… and your control comes not by luck, but by dedication and delivered excellence.
MohawkDonkey
on 15 Nov 08I guess whether or not you should charge for your product really depends on what exactly your product is.
djd
on 15 Nov 08Thanks for the response Jason. Always interesting to see your insights. ‘Too big to fail’ is quickly becoming an extremely laughable (but scary) notion.
Thijs Weenk
on 15 Nov 08I think getting real with a webapp also means you can adjust to trends easily. In stead of long requirements studies, a big design process and an enormous development phase, well.. y’know… I have no clue what the world looks like 10 months from now. A website/-app has more chance for succes if it has the ability to adjust to difficult times like now with the financial crisis.
By the way, if you’re interested in this topic, really check out this talk by Tim Bray. It is by far one of the most inspiring talks at FOWA in London last october about “Bad times are good times to be agile.”
tarot readers
on 17 Nov 08wow, nice post. thank you very much
CJ Curtis
on 17 Nov 08Just a side note…your comment post form seems to be having a lot of trouble.
Was it built on a PC or a Mac? :)
CJ Curtis
on 18 Nov 08All things being equal, it’s still mostly a function of what your business does. Advertising agencies can “get real” all they want, but they’re going to get their asses kicked all the same. It just depends on how big they are and how far they fall.
Certain consumer businesses might see a decent upswing. People don’t want to go out and buy a new car, for example, so they spend the money they do have on smaller, cheaper things or better investments.
Your basic principles of “Getting Real” are principles that should be held by any quality company, large or small. Otherwise, any economic downturn is going to affect them moreso than others.
Mike Larkin
on 19 Nov 08My business partner and I read your book when we were merging our companies, and it’s driven how we do business ever since.
We’re actually transitioning out of doing huge development projects for others and instead focusing on expanding our own hosted services - http://fetchapp.com and http://synctobase.com - to reach wider audiences.
We’ve actually seen an increase in business, especially in graphic design work, since the economy started to fall. It seems like people are trying to bring in extra revenue and are turning to the web to do it.
I used to work for a large consulting company, Keane, and I remember listening to them talking about getting contracts to build a website or some piece of software that were worth hundreds of thousands of dollars, if not millions. The “envisioning” process alone took several months and involved 10+ staff members. I was always amazed that they could pull it off, since the methodology they were using was about as bloated as the code that ended up getting produced.
Long story short, projects never made deadlines, budgets, or much of anything else. Offices started closing, bids were lost to smaller more agile companies, etc….and this was a few years ago! Last I heard they cut the majority of their staff in a desparate effort to “cut losses”.
The ironic thing is that I first learned Ruby on Rails on on a one-month, agile methodology, “test” project we did during a slump in work. 4 of us built an entire site to the specs of the client, under budget, on time, and with more features than were originally promised. We talked directly with the client each week, reviewed the project, and kept everyone on the same page. The client was thrilled, everyone got pumped up about Rails, and our bosses were happy.
However, senior management wasn’t happy enough: though the costs were extremely low for us and the margins relatively high, the overall budget wasn’t high enough, the sales / planning teams weren’t involved, yada yada. In short, the project wasn’t “high profile” enough and didn’t have that 6 figure price tag that looks good to investors.
How sad to be shown an alternative and fun path, and to obstinately stay the course and sink the ship.
Saverio Mondelli
on 19 Nov 08One thing that I’ve always stood by was that the “internet companies” were always the least affected by the economic down turns. I think it has to do with the global economy and the fact that much of the internet is driven by the revenue brought on by its traffic (the advertising revenue). While I can agree that it’s better to charge for your product and make that customer -> product connection very clear, its hard to argue the success of Google and companies just like them.
I’d imagine that the health of an internet company may also rely on the target market segment for the particular product. For example, if I had a membership to NYTimes.com and money was getting tight, it’d be the first to go; however, my Backpack account might be the core to my life, so that would be the last to go.
In times like these, prioritization begins to set in big time. Is the TiVo worth it? Is the sports package worth it?...yada yada yada. It’s actually times like these that people REALLY begin to analyze the value of a product relative to it’s cost. When the economy is great and everything is dandy, people might not mind blowing $9.99/month on some nifty RSS-Enabled-Whatamacallit, but when people begin getting laid off, that product might not be worth jack.
All that being said, as mentioned by Jason, Getting Real is all about operating your company how companies operate when the economy begins to crumble, ALL the time and not only when you’re in trouble. Does “Getting Real” work in this economy? Yes. Will it work for everyone? No, but it’ll probably increase your chances for survival when times get tough.
In any case, I really look forward to the next couple of years to see how this shaky economy will change the positioning of venture capital and internet entrepreneurs.
That’s just my two cents. By the way, great post Jason.
J
on 19 Nov 08its hard to argue the success of Google and companies just like them.
...and companies just like them? Name 3 “just like google.”
jojo
on 20 Nov 08Outstanding, inspiring post. I’m a self-employed web developer. Working without a net since 1995. The last month has been my best all year. It’s as if small business owners woke up after the meltdown and said, “Hey, the world didn’t end after all. We better do some work.”
My advice: stay small, stay lean, be fast, live right, be happy, don’t be a glutton, try to make the world a little better, one customer at a time.
Michael
on 20 Nov 08Great post. You repeated twice that you were debt free. If you don’t mind me asking but has this always been the case? If this is one of your philosophies or strongly held business objectives? I’d love to hear more on staying out of debt as a small business in a future post.
Bob
on 20 Nov 08why do the principals of 37signals talk about ‘principals’ when they mean ‘principles’?
This discussion is closed.