I was recently speaking to a class at a local university and the topic of valuations came up. One student asked me what our valuation was. I gave her the honest answer: I haven’t a clue.
How is it possible that a successful software company today doesn’t know its worth? A valuation is what other people think your business is worth. I’ve only ever been interested in what our company is worth to us.
Startups these days are bantered about as if they were in a fantasy football bracket. Did you hear Lyft raised another $150 million at a $2.5 billion valuation? But Uber got tossed another $2.8 billion at a $41.2 billion valuation! Then there are the companies barely off the ground getting VC backing with 25x valuations, despite having no product or business model.
Entrepreneurs by nature are competitive. But fundraising has become the sport in place of the nuts and bolts of building a sustainable business.
The last time I considered Basecamp’s valuation was nearly a decade ago. We’d been approached by dozens of VC firms looking to invest. But with a solid product, a growing consumer base, and increasing profitability, we didn’t entertain any offers.
Then, in 2006, I got an email from Jeff Bezos’s personal assistant. Jeff wanted to meet. I’d long admired him for what he was building at Amazon, and how he generally sees the world. I took the meeting.
After a visit to Seattle and a few more calls, Jeff bought a small piece of our company. I didn’t take the cash out of some fantastical desire to turn Basecamp into a rocket ship. Instead, his purchasing shares from me and my co-founder took a little risk off the table and gave us direct access to the brain of one of today’s greatest living entrepreneurs.
In the years since, we’ve been approached by nearly 100 private investors, VCs, and private equity firms. They want to put money into our company, but we don’t want it. It’s not hubris; it’s the cost that comes with the cash. I want to deliver a product that our customers want, not one that our investors want. I want to grow our company according to our timetable, not one dictated by a board. For many startups, funding has worked to their detriment—unnecessarily raised stakes, a path to unnaturally rapid growth. Venture capital is not free money.
Years ago, during the investment discussion with Jeff, we had to place a financial value on our company. The process of constructing a valuation was pretty silly, to be honest. We drew up charts, made some educated guesses, negotiated back and forth, and ultimately came up with a figure. We made it up, as everyone does. Let’s just admit it right now: Financial projections are big, fat guesses. They are best-case scenarios. Since they’re hypothetical, why not pull a number out of a hat?
Jeff knows this. All investors know this. Yes, you can look at revenue and profit and multiples, but so many tech company projections these days aren’t based on anything real. They’re based on fantasy. And too often, the more profit you have, the lower your valuation is. Because nothing pops the valuation bubble like reality.
My not knowing how much our company is worth doesn’t affect our business on a daily basis. I know our revenue and our profit. I know how fast we respond to customer service inquiries and how many people signed up for Basecamp last week. Those are real numbers to me. A valuation is an invented number that ebbs and flows on the basis of how much someone else thinks you’re worth. It’s nothing more than a distraction.
Want to see this in print? This article appears in the September 2015 issue of Inc. magazine.
I’m doing an AMA over at Designer News, and someone asked “How do seek out mentors/teachers?”
I’ve never sought out mentors or teachers, because I think they are plentiful and all around us. The person who you think has all the answers probably has far fewer than you think.
I observe. When I walk into a small retail store, I observe how they do business. What’s working, what isn’t? How do they treat employees? Customers? Their merchandise? What can I learn from them at this moment?
When I get my hair cut I observe the salon. Who’s there? Why? If I had an appointment at 3:30, but it’s still 3:50 and I’m waiting, what’s that feel like? How does it feel to be on time and then have someone else who’s not on time? How does it feel to pay for something? To tip? When? How?
When I go to a restaurant I observe. How is the food presented. How does the server communicate? How’s the menu written? How’s the lighting? Is it sufficient to read the menu? Do I have to ask twice for things, or do things just show up on time before I have to ask? What happens if I have a substitution request – how do they handle that? Is it a burden for them or a pleasure to serve? Are they pushy or comfortable? How do I feel about being there?
Every moment is a teaching moment. You don’t have to wait to be taught anything. Don’t delay learning because you haven’t found that magic teacher yet. Everyone, and everything, is a teacher.
First the idea hits.
Then I think about it some more and it takes a direction.
As I work through the direction, I’ll see another direction. Usually relatively similar, but different enough that it demands its own exploration.
As I dig in into the problem, more layers and possibilities reveal themselves. Sometimes they point in entirely different directions. Some seem like big possibilities, others seem smaller.
As I keep exploring, some more options emerge. Some independent of the ones I’ve already explored, but others branch off from an existing exploration.
As I keep sketching and thinking and mocking and working through variations and conditions in my head, on paper, or in code, a few strong possibilities take the lead. I begin to follow those.
One primary direction becomes the most obvious, but there are still variations on that idea.
As I dig into the variations, I realize they aren’t direct descendants of that primary direction. Instead they’re closely related offshoots, but smaller. They usually fade away.
And finally the solution becomes clear.
Then I check my thinking by going through the process again.
Where it goes from here depends on what it is, but hopefully at the end I’ve enjoyed figuring something out.
Designers often talk about the look and feel of a product, an app, an object, etc. These are good concepts to be talking about, but how the thing feels isn’t really the important feel. The important feel is how it makes you feel. That feeling isn’t usually covered by look and feel discussions.
This has recently come into focus for me. The trigger? Instagram.
I’ve been on Twitter (@jasonfried) for years. Since I don’t have a Facebook account, Twitter has been my only social networking outlet. I mostly use it for sharing novel or interesting things I’ve seen or read, the occasional quote, or a point of view, perspective, or epiphany about something business related.
I follow just under 200 people. Some of them I know personally, others I’ve never met, some are brands, some are individuals, some are because of hobbies or special interests, some are dead serious, others funny or silly. It’s a healthy mix, and I try to pay attention to everything that shows up in my feed.
Twitter’s an amazing thing, no question. I think it’s one of the most important products ever, and it’s absolutely changed the way ideas, news, insights, complaints, and casual communications happen.
A few months ago I signed up for Instagram (@jason.fried). I started following a few people – some of the same people I follow on Twitter. Almost immediately I felt something – I felt good! Instagram makes me feel good. I enjoy thumbing through Instagram.
Since then, every time I’ve gone back to Twitter, I’ve noticed I’ve felt anxious, unhappy, uncomfortable. I didn’t notice this before I started using Instagram, because I didn’t have anything to contrast it with. It was just the way it was, and I didn’t think much about how it made me feel.
Every scroll through Twitter puts at least one person’s bad day, shitty experience, or moment of snark in front of me. These are good happy people – I know many of them in real life – but for whatever reason, Twitter is the place they let their shit loose. And while it’s easy to do, it’s not comfortable to be around. I don’t enjoy it.
Every scroll through Instagram puts someone’s good day in front of me. A vacation picture, something new they got that they love, pictures of nature, pictures of people they love, places they’ve been, and stuff they want to cheer about. It’s just flat out harder to be negative when sharing a picture. This isn’t a small thing – it’s a very big deal. I feel good when I browse Instagram. That’s the feel that matters.
So now I have a choice… When I have a few minutes to kill, and my phone is in front of me, I almost always reach for Instagram. I never regret it. I come away feeling the same or better. When I occasionally reach for Twitter, I discover someone’s pissed about something. I often come away feeling worse, feeling anxious, or just generally not feeling great about the world. Twitter actually gives me a negative impression of my friends. I know it’s not Twitter doing it, but it’s happening on Twitter. that’s how Twitter feels to me.
None of this has anything to do with how the apps look or feel. It’s not the buttons, it’s not the animations, it’s not the interface or visual design. It’s not the colors, it’s not the font, it’s not the transitions. It’s how using the apps make me feel before, during, and after. The sense of anticipation (am I about to see something wonderful vs. am I about to get a dose of someone’s bad day?), the things I experience as I scroll through (a butterfly vs. an injustice), and how I feel once I’m done (that was nice vs. fuck that – ugh).
The Twitter vs. Instagram experience is really reinforcing what matters when designing a product. What kind of behavior can we encourage? What kind of moments can we create for people? What do people anticipate before they use something? How does it leave them feeling when they’re done? These are now some of the most important questions for me when working on a design.
Whenever I dive into something new, I try to find at least one “why the hell not?” moment. And when I can, I try to leave evidence of that moment in whatever it is that I’m building.
When we launched our company (37signals) back in 1999, we launched a black and white, text-only site without a single piece of portfolio work to be found. All the other agencies we were competing with had very flashy pages, loaded with pictures of their work. So why black and white and text only? Because why the hell not lead with ideas rather than compete on pictures? We thought it could be better that way. It worked out well for us.
One of my favorite why the hell not moments was when we were writing REWORK. One of the things that always bugs me about paper books is that you have to leaf through a dozen or so pages before you arrived at page one of the actual text. You’ve got the testimonials, the table of contents, the dedication/acknowledgement page, the copyright page, usually a blank page, a title page, etc… THEN you get to the book. This is also one of the reasons I really like cracking into a new book on the Kindle – you start right at the text.
So when we were talking to our publisher about how we wanted REWORK to be organized and designed, I asked them if we could put the copyright page at the end, rather than the beginning. It would be one fewer page to leaf through up front, and if any page was ignored more than the others, it had to be the copyright page. So why the hell not just put it at the back?
Initially our publisher didn’t know how to respond. No one had ever asked that before and they’d never seen an example of a copyright page in the back. But ultimately they said yes, so today if you pick up a copy of REWORK, and go to the last page, you’ll find the copyright page right there in the back of the book on page 280:
You’ll also find the acknowledgement page on page 279, rather than right up front:
Whenever I’m struggling with a decision that seems “unusual”, I’ll look back at these two pages in REWORK and remind myself that just because everyone else does something one way doesn’t mean you have to do it that way. Sometimes it’s just worth saying why the hell not and going for it.
Attend enough startup conferences or listen to enough motivational speakers and you’ll hear one piece of advice repeated over and over again: You’ve got to love what you do! If you don’t love what you do, you might as well stay home. No less a giant than Steve Jobs famously told Stanford’s 2005 graduating class, “The only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle.”
I don’t buy it.
There’s nothing wrong with loving what you do, of course – I just don’t think it’s a prerequisite for starting a business or building a fulfilling career, let alone doing great work. In fact, I think it’s disingenuous for really successful people to put so much of the focus on love, just as it’s disingenuous for really rich people to say money doesn’t matter. People tend to romanticize their own motivations and histories. They value what matters to them now, and forget what really mattered to them when they started. It’s human nature, so it’s an easy thing to do.
The way I see it, many great businesses and important innovations are actually born out of frustration or even hate. Travis Kalanick and Garrett Camp, the co-founders of Uber, didn’t start their ride-sharing service because they loved transportation or logistics. They started it because they were pissed off that they couldn’t get a cab in San Francisco. Kalanick may love running Uber today, but he really hated not having a way to get home. A random brainstorming session one night in Paris turned that frustration into the seed of a multibillion-dollar company.
I talk to other entrepreneurs all the time, and many of their companies sprang into existence for similar reasons—because the founder wanted something that didn’t exist or scoped out an opportunity to do something better than it had been done before. Love for their subject matter may or may not play a role in their stories, but hate for the existing options, along with strong opinions about how things could work, does and is a much better predictor of success.
My own career is no exception. Back in the mid-’90s, I was looking for a simple tool to keep track of my music collection, and all of the available programs seemed bloated and unnecessarily complex. Those are two things I hate, so I set out to make my own tool and eventually released it under the name Audiofile. I didn’t love music collecting. I didn’t even love software development. (I was just learning it at the time.) And I didn’t have any aspirations to run a software business – I just saw a need, and I filled it. Nothing wrong with that. A similar situation led me to start my current company, Basecamp.
Truth be told, even today I don’t always love what I do. The paperwork, the reporting, the day-to-day minutiae that come along with responsibility for a large and growing company – none of those things make me swoon. Yet I’d still rather be running Basecamp than doing anything else. I think I’m good at it, every day I get to do challenging, creative work, and I continue to find making better project-management tools a worthy and rewarding cause. It’s also a real pleasure to work with such amazing people as I do every day of the week.
If I were giving a motivational speech, I’d say that, if you want to be successful and make a real contribution to the world, you have to be intrinsically motivated by the work you do, and you have to feel good about spending your days on it. Love might grow – and it’s a wonderful thing if it does—but you don’t need it up front. You can succeed just by wanting something to exist that doesn’t already.
Printed in the February issue of Inc Magazine
Comparing warning labels on gym equipment. From the 80s on the left, from the 2000s on the right. The one from the 2000s says a lot more, but the one from the 80s means a lot more.