How to build a company

I spotted ReWork on my bookshelf yesterday and it reminded me how much I had enjoyed reading this thought-provoking account of 37 Signals’ business philosophy. That inspired me to see if I could find Jason Fried, the founder, talking about his approach and I found it here.

Here are some of the main points:

Don’t lose control of your growth. The key decision the company took was to limit the maximum price on customer could pay (initially $99 a month). This means the company has hundreds of thousands of customers, but none of them are so big that losing them would cause a ripple. Key to this is not to customise – one product, one code base.

Hire late not early. Many companies hire ahead of when they think they will need resources, especially if they have received funds from investors. This is a big mistake, Fried argues. Hiring early means there’s often not real work yet for the newcomer to do. That leads the company to make up work which is not important – a cardinal sin, in Fried’s philosophy. A related point: never hire for new type of position before you’ve had someone in the company try it first and fail. That way you know exactly what you need to get done and can hire appropriately.

Develop an audience. This is different from developing a fan base. An audience comes back to you time and time again. It takes time to build up, but once there is the most powerful way to get products out. Spend money on teaching and sharing, not marketing. 37 Signals has no salespeople: “We only want to have people who are building the product.”

Focus on the things which will stay the same. Most companies spend most time focussed on new things, innovations. But this piece of advice, from Jeff Bezos, the only investor in 37 Signals, was key. In Amazon’s case the things which will always stay the same are low price, good selection and great logistics. No matter what else changes, these fundamentals will hold true. In 37 Signals’ case the core unchanging things are simplicity, clarity and speed.


Old and new automative – a re-run of old and new media?

Tesla S

The battle between electric cars and traditional cars will follow the same lines as the battle between new and old media – here’s how.

The first reaction of old media to the arrival of the internet was to dismiss it as irrelevant.

Then, as the internet became more accepted traditional media companies dabbled, setting up websites but with the same content as you could get in old media – and often with real obstacles (like having to log in with the subscription number which was on the polythene wrapper you threw away).

Then, as the march of new media became ever-more serious they started buying internet companies so they could own some of the magic – think News International’s disastrous purchase of MySpace.

Only after many years, as the relentless economic logic continued to bite, did they start divesting the old titles and investing (buying or launching) in new online and mobile brands.

This was a very painful cycle and affected many well-know giants of old media  – think EMAP, for instance.

My belief is that this same cycle will happen with electric cars. I’d say we are just out of the first stage where the traditional car companies dismiss electric cars as irrelevant, niche and unlikely to catch on. Tesla, however, has challenged that view and we are moving into the second stage where traditional car companies are building and marketing their own electric cars.

First, they focussed on hybrids. These are like the old/new media bundles which traditional media companies were so keen to foist on their customers. Hybrids are cheaper to fill up than conventional cars, but they are more expensive to buy and being more complex than conventional cars will probably work out more expensive to service. Thus the car companies have something which they hope looks green but which doesn’t challenge the economic status quo – servicing is where the money is made in the car cycle.

But, as Tesla has shown, there is a future which is entirely electric – and it’s much simpler, much cheaper to run and doesn’t require anything like the same level of servicing – as there are many fewer moving parts.

Of course, currently the achilles heel of the electric car is the cost. But this is almost entirely driven by the cost of the batteries (which also provide less range than consumers would like). And battery technology is undergoing a surge of investment and there will be dramatic developments both in the efficiency and cost of batteries.

In media the economic differences between old and new were in production costs. Paper, ink and distribution were really significant costs which new media avoided entirely thus the cost disparity was startling. The revenue model, though, which was solid for old media (advertising and subscriptions) was much more problematic in new media – proliferation mean subscriptions were hard to establish and advertising rates were very, very low indeed, at least compared to paper.

So new media’s challenge was to innovate around the revenue model and once the innovation started to pay off effects on old media competitors could be profound. In the world of cars the revenue models are going to be pretty similar and at parity (at least until truly self-driving cars arrive). The cost model is where the battle is going to be fought – and won by the electric car industry.

At that stage the traditional car companies will be propelled into the next stage: they will start buying innovative  start-ups in order to own the magic. This is likely to be doomed to failure (again, think MySpace) because of the dynamic famously described by Clayton Christiansen in the Innovator’s Dilemma. Traditional car companies will continue to think like traditional car companies for years to come and they will kill the very innovation they seek to acquire.

Only after the snowball really starts rolling down the hill and the economic pain really starts piling up will we see the kind of changes we are finally starting to see in media. By then it may well be too late for some of the well-known brands which have been with us through the halcyon days of motoring.

At least, that was the likely scenario before Volkswagen was caught in a massive fraud aimed at skirting environmental controls. It seems pollution ceilings in the US (and maybe the EU) are now high enough that it’s making it hard to produce the performance without cheating. The legally-enforced remedy, when it comes, could well end up pushing conventional cars back just when advancements in electric cars continue pushing impressively forward.

It could be that when we look back at the history of the migration of the world to electric cars the Volkswagen moment is seen as the turning point.