There are many reasons why someone would want to start a company. There’s the pursuit of wealth, glory, and fame, but above all, I believe most founders are searching for freedom. Freedom to run things the way they see fit, freedom to be the masters of their own domain.
But until you have profits, until you’re self-sustainable, you won’t truly have that freedom. As long as you’re beholden to other people’s money, you’re ultimately beholden to their approval.
Because we’re profitable, Jason and I get the freedom to do all sorts of “crazy” things:
- 37signals runs entirely without debt, which is apparently so uncommon that we had trouble getting net-30 terms from a vendor recently, because we couldn’t give four trade references for credit. Running a company without debt is like paying off your mortgage—liberating.
- We actually trust our employees. No expense reports, no counting vacation or sick days, no required location or work hours. We give everyone a credit card for expenses and tell them to spend it wisely. What really matters is turning out good work.
- We speak our minds — even when it’s inconvenient, controversial, or risking offense to some of our customers or partners. There’s none of the traditional self-censorship that quickly creeps in when you have to worry about what the big man thinks about your opinions.
It’s these supposedly crazy things that make me not want to give up 37signals for anything.
Now, all this is technically possible without the freedom of profitability, but it certainly wouldn’t be natural or common. Once you start thinking about how your decisions and actions might displease the men with the money, you invariably shy away from the most controversial (and best) ideas.
Michael Olsen
on 22 Mar 10Whats not to love
Spencer Fry
on 22 Mar 10These are the things I love about you guys. Especially the bit about running entirely without debt. It’s a great feeling. Reminds me of the quote I read earlier today at AVC.com: “Cash is more important than your mother.”
Vinicius Manhaes Teles
on 22 Mar 10I just couldn’t possibly agree more.
I live the same reality and I wouldn’t change this for nothing.
Jon Moss
on 22 Mar 10I worked for a big corporate company for 11 years with the exact opposite to the three things you mention.
Never again.
Loving life working for myself, in a noded team of people I like, trust and respect, and making a difference in the region where I live.
A much better way to spend every day. Keep up the good work and never let fears get in the way of your dreams!
Frankerson P
on 22 Mar 10After reading Rework and watching David on TWiST, I just can’t get enough of the 37Signals philosophy. Only downside is that it makes me realize even more how much my current employment situation sucks. I don’t think I’ll find any work freedom until I can create my own business.
Nick Campbell
on 22 Mar 10Well put. Freedom is the best gift my business has brought me. Way more important that some dollars. Cheers!
Faramarz
on 22 Mar 10I think you guys are a rare example of something in between Small Business and Entrepreneurship.
It’s quite remarkable really. Thanks for sharing
Alex Le
on 22 Mar 10Your profits aren’t born purely from your efforts – they come from your customers. Your money still has a source, and you are just as beholden to that source as you are to a “man with the money”. Certainly working directly to please your customers can be more rewarding, but you aren’t any free-er than anyone else who relies on an income stream.
Everyone has a boss. There is no escape.
Ugur Gundogmus
on 22 Mar 10-Cash is almost always a problem for many companies -Most businesses don’t trust their employees -The business world is full of “Yes Men”.
This is so true. I want you to be more successful so that more people will learn about your philosophy.
Bill L
on 22 Mar 10I used to work for a company like this. I was a great place to work in general. They did what they wanted, how they wanted. On the other hand they had some issues with trust after their lead council ran off with $1m and it turned out he wasn’t even a lawyer, and he was trusted by the owner and others within the company. They were a pretty big company though and had a more big company issues than 37signals did, but still got to do what they wanted. It was there that I first started following 37signals and you have a big following there.
Sean McCann
on 22 Mar 10I was recently trying to get a merchant account for processing credit cards and they wouldn’t give it to use because we didn’t have credit under the company name. I don’t understand how we get punished for being profitable and not ever needing to go into any debt. It’s crazy!
Matt D. Smith
on 22 Mar 10Debt reeks. You guys run your business how Dave Ramsey recommends people running their lives, debt free! http://www.daveramsey.com/new/baby-steps/
The borrower is slave to the lender. Proverbs 22:7
Rework is awesome. Congrats on your success!
@alex le – profits are generated from somewhere whether it be your boss writing your paycheck or millions of ppl allowing you monthly access to their bank account. i think it’s quite obvious which one gives you freedom.
Tarus Balog
on 22 Mar 10We’re very similar, except we do use a credit line for leveling out cash flow.
The only bad part is that I do have to nag employees for receipts. It is unclear whether or not a credit card receipt is valid in an IRS audit, so it is important to keep the receipts around.
Devan
on 22 Mar 10Yes, I am lucky enough to be in a similar position with my company. Funny though, that sometimes I find my normally ‘outside the box’ thought processes, freedom and creativity stifled a bit by the fear of making a ‘not so optimum’ decision and jeopardising the applecart.
Freedom is the goal, but never, ever take your eye off the ball…
Curtis Cooley
on 22 Mar 10Trust your employees? FOOLS! It’s common knowledge that employees are self serving vicious little trolls who only seek to get the most money out of you for the least amount of work.
At least that’s how I’ve always been treated ;)
Great post and “Rework” is an even greater book. Taking it to heart and hoping to launch soon.
Kevin Milden
on 22 Mar 10Allow your customers be your only investors and you will succeed.
Amber Weinberg
on 22 Mar 10Couldn’t agree more! Everyone assumes profits are evil, but what they don’t realize is that’s how we stay in business and create jobs.
Peter Cooper
on 22 Mar 10We actually trust our employees. No expense reports, no counting vacation or sick days, no required location or work hours. We give everyone a credit card for expenses and tell them to spend it wisely.
I believe this works more because you put a lot of effort into picking good hires and because you’re high profile in the industry, rather than just being profitable (which, really, isn’t that hard). Being profitable merely helps you work on those two precursors.
On the trust – no business initially starts off wanting to distrust its employees – they just make bad hiring decisions and end up with bad apples who piss in the pool. The people you hire aren’t unknown quantities like the folks most companies hire.. you know of them for, what, at least a year or two first?
On 37signals’ profile – if you hire (and fire) someone who siphons off $50K on the company credit card, they’ll probably be outed to the 100,000+ people who know and respect 37signals and be almost impossible to hire in this industry. Your employees have a lot more to lose reputation-wise than at the average company.
Jesus Jaquez Rueda
on 22 Mar 10Totally agree, wondering why you are a rare example of how to run a company and not a common one?
Why do you thing only a few companies work as do you, even when it is a lot of proof that your philosophy actually works?
Matt
on 22 Mar 10I wish I could find an employer like this. I often feel like I am being punished for being productive since I have to remain at my desk for X hours per day regardless of how much I get done.
DHH
on 22 Mar 10Peter, it’s true that we pick good hires. That should be a baseline for any business, though. If you don’t feel like you can trust someone, you shouldn’t hire them.
But we certainly haven’t worked for 2 years with everyone we hire. Quite a few folks have been hired off their submissions to job postings.
And so what if you have one bad apple? If someone is stealing from you, it’s already criminal. Fire and prosecute them. Don’t make everyone else miserable because of it.
David Andersen
on 22 Mar 10@Alex Le -
There is an enormous distinction between having to please customers and having to please a financier, especially when you have a large enough customer base. The balance of power for 37s is decidedly in their favor and they are free to pursue their ideas without having to take any one customer too seriously. That almost never happens with a significant financial backer.
David Andersen
on 22 Mar 10“I believe most founders are searching for freedom. Freedom to run things the way they see fit, freedom to be the masters of their own domain.”
That’s how I see it.
brad
on 22 Mar 10I once worked for a publisher who offered similar working conditions: no keeping track of vacation or sick time, all that mattered was that you turned your work in on deadline and it was excellent quality. How you managed your time was up to you. Everyone rose to the occasion: when you treat people like adults, most of them act like adults.
WT
on 22 Mar 10If 37signals gets audited, you will need expense reports to prove that employee credit cards are ONLY used for ordinary and necessary business expenses. See IRS Publication 535 (2009), Business Expenses.
DHH
on 22 Mar 10WT, we’ll have the credit card statements from AMEX. And the company policy is exactly that. Use it for ordinary and necessary business expenses. It’s not a credit card to pay for your personal groceries.
Alex Apetrei
on 22 Mar 10You guys are just a little bit special , aren’t you :D .
Well done !
Business is supposed to be liberating, and most people don’t get it . It’s about producing value for your customers not about being in the office at 09:00 and leaving at 17:00 or worst 23:00.
Productivity is still a myth that eludes the factory manager, but I believe that 37signals is doing a hell of a job proving some sound business practices !
I for one salute you !
Spencer
on 22 Mar 10If you haven’t read “The Goal” by Eli Goldratt you are really missing out. He does such a good job explaining why the goal of any company should be to make money.
SMWEB
on 22 Mar 10Just a thought: You should not allow javascript: stuff in the href parameter.
Anyway, great post!
Anonymous Coward
on 22 Mar 10Amen
Mark Holton
on 22 Mar 10...I want to get there. For now have to enjoy the times I can do my own work on the side.
Ansgar
on 22 Mar 10I don’t really see the point why the “men with the money” always have to be bad per definition. If you (or the management board) can trust those men same as 37signals can trust every single employee, where is the problem?
The level of trust you have towards those men and the level of freedom they give you matters. If they are only giving you “bring me 15 percent return” that sucks. But if they actually give you freedom? Why agonize over non-internal funding then?
Anonymous Coward
on 22 Mar 10Ansgar, you must never have been through a VC-funded startup.
Beau
on 23 Mar 10Sales are vanity. Profits are sanity
James
on 23 Mar 10David, I think the link between “we’re profitable” and “We actually trust our employees” needs elaboration.
Parker Selbert
on 23 Mar 10Freedom can take many forms. The opportunity to enjoy weather when it is available and put that time in at night. The joy of actually living with your children rather than seeing them 30 minutes in the morning and right before bed. My wife and I are partners, in the life and business sense. Freedom isn’t just financial or scoped to business, it guides your family life and your sense of well being.
Jax
on 23 Mar 10All of 37signals employees collaborate on the RoR framework?
Do you have any “policy” with your employees?
Jay Cuthrell
on 23 Mar 10“trouble getting net-30 terms from a vendor”
That’s a great /problem/ to have.
Joe
on 23 Mar 10Are credit card statements enough for an IRS audit?
Bryson Moore
on 23 Mar 10”...no counting vacation or sick days, no required location or work hours.”
My former boss used to sit in his office and keep a running document of exactly when all 15 of his employees left and returned during the day.
Needless to say, I don’t work for him anymore.
Anonymous Coward
on 23 Mar 10@37signals
Are you still debt free even though Bezos is an investor?
Curious how the terms of that contract worked.
Did Bezos buy a portion of the business and in term, he receive a yearly dividend payout?
Ansgar
on 23 Mar 10@Anonymous Coward Of course I do not believe that funding from VC money or a bank might ever possibly bring you that level of freedom I was referring to. That might rather be a successful entrepreneur who made it with his baby, who knows you and whom you trust.
Berserk
on 23 Mar 10Sick days I can get, because those are (or at least should be) involuntary. But vacation, do you have any kind of guideline as to what is reasonable?
I think a minimum amount of used vacation time is a nice thing to have. I currently have 30 payed vacation days per year, but can only save a maximum of five days, that is if I take 20 days one year the next I have 35 days (instead of 40).
James Adam
on 23 Mar 10I’m mostly interested in “We speak our minds”.
Without asking you to rehash anything difficult or problematic, I wonder if you could elaborate on the kinds of situations where you have risked offense to partners or customers?
Kim Siever
on 23 Mar 10My former boss had an unrestricted spending ability. He used it to buy tens of thousands of dollars worth of personal items over a four-year period.
Mark L
on 23 Mar 10@37signals
I used to subscribe to the “go big, give it away and pray for advertising revenue” and honestly, I thought you guys were full of shit.
Seems like I drank the wrong koolaid…
Eventually I started focusing on profits, actually charging for my re-launched product (and the subsequent financial freedom that came with it) and now I’m currently looking for my first employee.
My business has never been in a better position as it actually has proper growth. Sure I’m servicing less customers, but at least its a much better feeling.
It’s definitely a great feeling to have that stress lifted and I think my code is better as a result.
Thanks!
(oh, and apologies!)
Chas Pettrone
on 23 Mar 10Just read rework – nicely done gents. Can anyone tell me what has been a good outlet to find employees? We are a small chicago design studio and are having trouble finding designers/partners who actually care about the work. We network on blogs, facebook, craigslist… no luck yet.
Paul Singh
on 23 Mar 10I just printed out a huge “Profits = Freedom” banner and hung it on the wall across from my desk.
I started MailFinch as a joke just over four months ago. We’re now sending >20K pieces of direct mail a month. No outside money, no debt, no headaches… and I love it.
The Real Josh
on 23 Mar 10This quote says a lot: “Allow your customers be your only investors and you will succeed.”
Debt free and only your customers as investors is such a great way to run a business.
Mother Teresa
on 23 Mar 10Claiming the profits equal freedom is insane. The moment you focus on profits, you are beholden to profits and it is at that moment that you become the profit’s bitch!
Believe me, there is no peace of mind in that arrangement. Your Master, the profit, will not leave you alone even for a single moment, so long as you pledge your allegiance to him. You are now the slave to the profit, and it’s a merciless little bastard, and a bully.
David Andersen
on 23 Mar 10@ Mother Teresa -
Not everyone is interested in being a communist. Quite a few of us believe that providing superior value should be rewarded financially.
Sparagi
on 24 Mar 10You should trust your employees.
I think a lot of employers fail to realize that they’re paying their employees to submit expense reports and other beaurocratic paperwork. I’m just saying, it gets expensive.
Mark
on 24 Mar 10Unless you are a doctor, run a health insurance company or are in the pharmaceutical industry, apparently.
Peter Copper
on 24 Mar 10@David Anderson:
The biggest profit mongers ever to walk the earth are communists. Don’t believe me? Just look at places like Russia and China. These are the places where the most hysterical cut-throat pursuit of profit is not only legally allowed, it is cherished as the highest imaginable good.
I think DHH, being a self-professed profit monger, should move to either Russia or China.
David Andersen
on 24 Mar 10Peter, they aren’t true communists (and even less so now than before) and that’s what I meant.
I’ll assume your comment about DHH’s value of profits is a joke.
cbmeeks
on 25 Mar 10“37signals runs entirely without debt” ...
”...We give everyone a credit card for expenses and tell them to spend it wisely….”
Er…so you’re not COMPLETELY without debt right? I know this is a nit-pick but as a person who also believes in no debt, credit cards count as debt.
Now, if you had a separate business expense account, say with $15,000 in CASH in it and gave your employees check cards on that account, well, that would be no debt. :-)
Granted, I realize that most corp credit cards are actually in the name of the card holder…the employee…but I had to chime in. lol
This discussion is closed.