In this Mixergy interview titled “Blasphemy & Revelation,” David Heinemeier Hansson explains his distaste for the tech world’s “swing for the fences” approach to business and why he feels it’s important to speak up about it.
The problem with swinging for the fences
Some ideas are so large and such a big gamble that either they’re going to be a flop or they’re going to be an amazing success. It seems like the vast majority of the tech startup community is working on that side of the idea fence. But I think people should also work on low risk, practical ideas.
I don’t have a trader’s mentality: “We are huge one day. We are down. We are huge. We are down.” I’d rather just have nice, steady, predictable growth. I believe in the beauty of compound interest. We might not be growing 2000%, but if we can just keep our nice, solid growth for a couple of years, that’ll compound to have quite an impact.
The startup scene is too focused on “swing for the fences” type of ideas, either it’s going to go bust or it’s going to be this lavish, extreme success. I think we’d be better off with less of a focus on that and more of a focus on practical solutions to less grandiose problems.
The different kinds of risks
I think it’d be better if there was more “considered” risk taking. It’s not that you shouldn’t take any risks at all. Starting any company of any kind, even if you’re sure that it solves a problem for somebody, is going to be a risk. There’s a fair chance it won’t work.
But there are different kinds of risks. There’s the “1 in 10,000” or “1 in a 1,000,000 chance” of making something. And then there’s a “1 in 7 chance” or “1 in 14 chance.” I’m more in the “let’s take a 1 in 7 chance” rather than the “let’s take a 1 in 10,000 chance” category.
I get annoyed at the destruction of wealth, the creative inefficiencies. But it’s also deeper than that. It’s the corruption of youth. These “swing for the fences” kind of deals and companies have this intense spotlight on them. And it is brainwashing the next generation of starters to think that this is the way to go. That this is how you’re going to make it in startup land. And I think that’s absolutely horrible.
I don’t want the next generation of starters to think this sort of global approach is the only way they’re going to make it. I want them to see there are alternatives out there. That you can make it bootstrapped on your own. That you don’t have to rely on some sugar daddy giving you a big check.
The importance of being contrarian
I think it’s important that there are contrarian voices calling out things they see as unhealthy. I think the world would have been better off if the first dot-com bubble burst a couple of years earlier. The world would have been better off if the subprime bubble had burst earlier.
In all of these things, there are people who sit on perspectives or information or opinions that could, in however tiny a way, help sway public opinion. I certainly have no delusions of grandeur. A tweet on it is just a tiny drop in the ocean. But I also believe in compound impact. So enough tiny drops in the ocean and you can do something.
Note: Text above condensed and compiled from various answers. Watch the full interview below.
Tanner Christensen
on 18 Apr 11Great interview, and a really important thing for new entrepreneurs to take to heart.
Slow growth is almost always better than overnight success. Even sites like Facebook and Twitter took years to get where they are (and they’re still growing into their success). Even slower successes have been bigger, including 37signals.
You could shoot to be an overnight success, but remember that it can go away just as fast. Shooting for a slow, but steady, growth is almost a guarantee that you won’t just turn over and die one night.
Thanks for sharing.
Steve Benjamins
on 18 Apr 11The contentious and to my mind, least qualified point, is that you feel you need to speak up about other companies.
The best way to change an industry is to lead by example—which 37S does. But a good way to start alienating your audience is by getting overly prescriptive about others.
You can speak into your own company—but becoming outspoken about other companies strains your message considerably.
Chris
on 18 Apr 11@Steve Benjamins – becoming outspoken about other companies definitely DOES NOT strain your message. Where do you get that idea from? Apple has been wildly successful at mocking Microsoft. Verizon at ripping apart AT&T’s network. I would say in some cases—it will even strengthen the message you’re trying to deliver. One of the reasons Apple’s brand is so well known and liked is because they are not afraid to say F* you.
Jeff Putz
on 18 Apr 11This absolutely needs to be said, and I would add that the fascination with funding startups in the valley is holding us back more than it’s helping. Imagine if people were throwing more money at solving the practical problems instead of looking for the next Twitter/Facebook/Google killer.
And by the way, while not sexy to the press, or anyone else, big “old” companies like Microsoft are doing this today.
Dad
on 18 Apr 11I think this is a great post. The current startup “industry” is feeding on the lottery mentality to far too large a degree. This post isn’t proscriptive, just suggesting that hype and 1 in a million odds aren’t the only path to success.
If you read “the Millionaire Next Door” which summarizes research on wealth in America, you’ll find that most wealth in America at the time of the book’s research was created by small business owners building their business more in the fashion suggested by this post. That’s data, not just conjecture or hype.
James Strocel
on 18 Apr 11The “swing for the fences” approach made sense for companies in the last century, when economies of scale were all that mattered. It has left a whole swath of smaller problems unsolved because they weren’t going to be handled by the next youtube or facebook. There’s real money to be made by taking on these more specialized challenges.
Steve Benjamins
on 18 Apr 11@Chris – Apple has skin in the game w/ beefing against PC’s. Verizon has skin in the game w/ beefing against AT & T. Every example you listed is clear competitors—when you are in direct competition it makes sense to be outspoken.
But 37S is just generalizing an industry, they’re not picking a fight with a competitor. What does 37S care if other startups swing for the fences? 37S has no skin in that game.
Apple only says “f*ck you” when it effects they’re products. Which IMO is the only time 37S should be outspoken.
Jack Chou
on 18 Apr 11If the individual’s objective is making money and/or independence from working from others, then I agree with you.
If the individual’s objective is to build something unique, innovative, and hugely valuable (to users, not to bank accounts), then I personally disagree. I’m sure the Wright brothers, Steve Jobs, and the guys who invented this (http://en.wikipedia.org/wiki/Transistor) could have found higher probability ways to make money and gain personal independence from working for others. That wasn’t their objective in life and we as a society should be thankful that it wasn’t.
And while you can say that only 1 in 10,000 entrepreneurs will find that level of “success,” then what you’re really implying is that the other 9,999 are dumb to pursue something like that.
The problems are two-fold: 1) You might discourage that 1 guy from trying, and 2) You’re spending your time pooping on other people’s life goals and objectives as “unhealthy”.
We each have our own perspectives on what is important in life. Hopefully you can clarify that for your readers. And thanks for writing about this topic, because it is interesting.
Shubham Bansal
on 18 Apr 11I have heard a lot of successful people say that you have to love what you’re doing in order to be successful. I totally agree with that. However what I am curious about is that when you’re building something, you are bound to face some road blocks. For example some functionality you’re working on and its not working the way you would like it to. I have been in such situations a lot of times and even thought of giving up. How do you guys handle such situations? I know David touched the topic a little bit in the interview but I could not take anything from it.
sebastian
on 18 Apr 11David: fantastic. Andrew: great interview, great questions.
One thing, tough is that contexts will make things more or less difficult. As David said, his mindset thrived more in Chicago than Denmark. Lots of potential outliers are sort of exposed to a “misplaced mindset experience.”
Part of the job is to find the right place and people to get the most using your talents.
Again, this was fantastic.
LarryH
on 18 Apr 11A great read/video and a topic which should be discussed more often. The lottery-ticket mentality of the traditional VC model with the required large raises, etc. is so 1998.
The base-hit (instead of the grand-slam, series winning home run) start-up IS the norm. Sure, its not as sexy and you will not put $1B the bank but as a developer I used to work with often stated: “The first million makes me happy. The tenth million does not make my 10 times a happy.”
You tell someone you are bootstrapped and they look at you like have three heads and are an idiot. You tell them the founders own 100% of the venture, the revenues are paying the bills, you are growing and you don’t have someone on the board willing to sell YOUR soul to the devil…. gee…maybe you are not so stupid after all.
Thanks for beating this drum David.
CRC
on 18 Apr 11There’s a well-worn and heavily highlighted book on my shelf titled “Growing a Business” by Paul Hawken.
While not exactly related to this post’s subject, it is closely related.
In this book, Paul Hawken made a couple of observations about this idea of growth that I think were interesting. First was the observation that the fastest growing and multiplying cells in the human body are cancer cells. I’m not sure if this is 100% true or not…but…
...the second observation was about about plants/flowers (which is the business he was in)...he talked about annuals which tend to flower quickly and a big splash of color…but need to be replaced every year vs. perennials which demand more patience and care and don’t have the immediate “flash” of annuals…but provide something more satisfying over the long run.
I suspect that if you look hard and carefully you’ll find this principle that going for the slower, more patient approach tends to be a better solution in many areas of life (e.g., dieting, exercise, relationships, career development, business development, product development, process improvement, sales, gardening, child-rearing, etc.) that the rapid, flashy, “swing for the fences” approach.
JF
on 18 Apr 11CRC: Haven’t seen that book, but I love the ideas you presented. I’ve always thought about business like I think about trees, plants, nature… The strong ones glow slowly. The strong ones have very strong root systems – often spending the energy in their early years on the root foundation. I’m a believer in following nature’s natural patterns in business.
Scott
on 18 Apr 11Other gems from Paul Hawken’s “Growing a Business”. These snippets themselves are not that useful, but I place them here as a tease in the hopes that readers looking for a book recommendation will get “Growing a Business” (after Rework, of course :) ).
“Overnight successes make fabulous reading. The make us plodders wonder whether there wasn’t something we could have done to be so brilliant. Probably not. The vast majority of success stories are written by the plodders.”
“Entrepreneurs are risk-avoiders. Once an entrepreneur has seen how to create a product to meet demand, much of what the outsider sees as risk is erased. If you see risk instead of opportunity, walk away, because you just might be right.”
“I would love to have had the opportunity to gain an M.B.A, but if given the choice between the MBA education or going to work at age twelve in order to support myself, I would choose the work experience as more valuable to a business education.”
“There is no reason in the world to start a business that makes you overly anxious about money.” “Too much money is worse than too little” “A ready supply of too much money in start-ups tends to replace creativity.” “If you are offered cash, loans, or advice, accept only the latter.”
“The Plan is Not the Business” “Plan to Stay” “Start small and learn on your own nickel.”
“Hire the Person, not the Position.”
“There is simply no reason why any person, much less the founder, should not be in touch with all aspects of the business, learning from his own experience rather than by memo, email, or committee. You cannot delegate what you do not understand.”
Cleavon J. Blair
on 18 Apr 11This was a refreshing read because most people don’t realize that they either don’t want to become the next Microsoft or that they cannot become the next Microsoft (really speaking of size and growth).
Most people don’t realize that to get this kind of exponential growth, they have to give up a lot of control of their business, which means the direction of the company changes from solving a business problem to just making a lot of bank.
Money is good for a company because it keeps you moving, but real satisfaction, in my opinion, comes from providing value to users. We all know that if users are finding value in what you’re doing, they don’t mind paying for it.
Also, I know that it is harder to make a billion dollars than it is to make a million. So my choice to make a million dollars a year over the next 30 years vs. trying to make a billion dollars in 1-5 years and burning myself out and having to drop out of the race is easy for me to make.
There is nothing wrong with remaining a small profitable business. I truly believe (others may disagree) that small businesses, especially technical businesses, generally provide more value to their customers because they have to. If they don’t, then their customers will move on to the next company or product.
It’s like Phil Jackson and the triangle offense, neither are flashy, but they definitely produce results and provide serious value for customers and owners.
Stan
on 18 Apr 11@37signals
If you really believe in this mantra of not “swinging for the fences”, then why was Jason Fried on the Board of Directors for GroupOn?
GroupOn has raised $1.14 BILLION and has approximately 3,100 employees.
You can’t have it both ways and lecture the world on the evils of swinging big on this blog and then quitely behind the scenes participate it in yourself.
Marc Bitanga
on 18 Apr 11I agree that the trend that the startup space is currently on is probably affecting current & future startups. This whole, “let’s get a bunch of attention then figure out how to monetize later” is more like a lottery mentality than a business model.
Startups tend to be over-romanticized.
I blame investors. Bad ideas on their own have no legs. Bad ideas + money on the other hand get top billing on TechCrunch.
Cleavon J. Blair
on 19 Apr 11Did GroupOn actually swing for the fences or did they just have have the right product at the right time?
Dave
on 19 Apr 11What the guys at 37signals are advocating, in this post and in other talks, seems like an IT version of the Mittelstand here in the US. Small, independent firms distributed across the entire nation, built on relatively niche markets and executing like gangbusters. They focus on their market with laser-like intensity, crush their competition, and export like mad. I may be using a bit of hyperbole here, but these firms – private enterprise at its finest – are the backbone of Germany’s economic might and they’ve insulated Germany from the global recession.
We’d be much better off with more 37signals and less Color, although I guess the jury is still out on that one.
Anonymous Coward
on 19 Apr 11If having the “right product at the right time” means needing to raise over a billion dollars of VC money … I’ve obviously lost touch with what it means to have the right product
RJI
on 19 Apr 11Anyone know what system they use to create this interview? Sound quality was great.
Surely not Skype?
DHH
on 19 Apr 11RJI, yeah, it was Skype. I was using the Snowball mic on my end.
RJI
on 19 Apr 11Thanks David. Great interview as usual.
Snowball mic about to be ordered.
Robin Massart
on 19 Apr 11@Dave
I was just thinking the exact same thing these last few days. Silicon Valley is always touted as the startup capital of the world. And in the IT industry I guess it is. But Germany has been doing this for decades. Sure, their niches aren’t so high profile, but there’s probably not a production line in the world not using German technology at some point. And this in a country not exactly renowned for it’s startup friendly business laws…
DHH is spot on in wishing for more smaller, but safer startups. They are the ones who underpin the economy. They are also far less risky to the economy as a whole if they fail. If GM fail, that’s 100,000+ jobs at risk and hence the billions in bail outs. If 37 signals fail. That’s 10 (?) jobs risk.
Andrew
on 19 Apr 11@Stan does make a good point, which should probably be addressed to be honest.
Although, I will say that GroupOn is making buckets of money and didn’t go down the classic “we won’t even try to make money until we get a marketshare” route that DHH is speaking out against. So in that regards they’re a little different.
The fact that GroupOn keeps 50% of all purchases through their site means they’ve generated about a billion in revenue making them a heck of a profitable company.
JF
on 19 Apr 11Groupon asked me to be on their board to provide a unique perspective + product design advice. A good board is made up of people with different perspectives, not people who see everything the same way. Groupon saw it as an opportunity to learn from me, and I saw it as an opportunity to learn from them. I learned a lot from being on the board and I continue to provide product design and advice today.
Andrew Warner
on 19 Apr 11When I interviewed the founder of Groupon he told me how the previous iteration of his company took and used a lot of cash, but Groupon was launched in a more 37 Signals-like way.
The previous version of the company, called thepoint, raised a lot of money and spent money it on odd things like tarot cards with their company’s logo—the kind of things that funded company swinging for the fences might do.
Groupon, on the other hand, was launched as a WordPress blog with a widget that enabled group shopping. It was very simple and lacked features.
Jay Schumacher
on 19 Apr 11+1 for the snowball mic – great piece of recording equipment, and looks spiffy too ;)
Jude Ibe
on 20 Apr 11The cake is a lie.
It just felt timely since Portal 2 just came out.
GeeIWonder
on 22 Apr 11I have difficulty reconciling this with much of what is done and posted here (e.g. BB&P) but I whole heartedly agree with the gist of the OP and applaud you for speaking out to an audience that, I suspect, badly needs hearing it.
Sometimes there’s value in less simple narratives.
This discussion is closed.