Jason Fried of 37Signals has taken the stage at Y-Combinator’s Startup School this morning at UC Berkeley. I’m taking my notes below on his talk.
Fried has started off by talking about bootstrapping startups. Startups that bootstrap are more “money hungry” then companies that are funded. If you are a funded company, you generally have money to spend that investors encourage you to spend as well. If you’re a bootstrapped company, you’re hungry to make money.
Fried also talked about the art of making money. He mentioned that making money is like playing the piano. If you started playing piano at 5, you have a lot of time to practice playing piano to get better. If you want to be a good piano player, you start young, and you practice. Same goes with making money. It’s a skill and a talent. The more practice you have making money, the more successful you’ll be.
Fried also used an interested analogy to crack cocaine, comparing crack to funding. Crack is like funding, because it’s addictive. Investors want you to come back for money — they want you to be addicted to the money.
One of the major points Fried mentioned is picking the right price. You have to find the right price to sell your products to consumers. Customers will pay if it’s worth it. Don’t make products that aren’t useful for others — you have to have people using your product, and if they use it, charge for it.
Thing will go wrong as well. Be real and honest about your mistakes. Also, you don’t have to be in Silicon Valley to be successful. Fried mentioned that 37Signals is based in Chicago, but they have employees all over the world. Location doesn’t matter to build great products. You’ll know if you have a great product if people use it.
Q: How do you know if your product is useful for a lot of people?
A:Build something you would use yourself. When you put stuff out for free everyone goes “ah, that’s cool.” Put a price on it, then you figure out if it’s really useful.
Q: Regarding virtual offices.
A: Need to find a good team. People who can work from their home a lot. We’re in touch all day using our tools, but you can put that away if you need to. You can’t put a ‘real’ office away like that. But some face time is essential sometimes. Should be the exception not the rule.
Q: Pricing?
A: First question is ‘would I pay for it?’ It’s a science. You have to worry about margins. Walmart doesn’t use 9s for their prices. They do 8. But for me, is it worth paying for. We have multiple tiers. Every price point is double, but you get more than twice as much in each tier.
Q: I’m a scientist, skeptical about luck.
A: I think luck plays a part somewhere. BUt I think for the most part make your own success. You can’t wait for something lucky to happen. Maybe timing/meeting right person is luck. I think it’s the kind thing to say, PC to say. But I think if you ask people honestly they won’t say that.
Q: How long did it take you from having idea to launching paid project?
A: We launched basecamp as a side project. We were a web design company at the time. We made it in a few months, then we put a price on it. Built it for ourselves, we needed it for ourselves. Hit $5k a month in about six weeks, has since increased. We don’t share exact rev numbers. Job wars made 1.5 mi. book material about a million. Advance from new book is handsome. We make millions in rev and profits. We did take one investment in 2006. We bootstrapped. We didn’t need the money (from Jeff Bezos). We did it for liquidity and someone like Jeff available, he’s built a business from scratch.
Yeah, don’t do drugs… OR get funded. I prefer to beg borrow or steal to get it then give a piece of me away like a whore.
twitter needs rehab
+1
I like the piano analogy. As a hockey fan, I cannot resist but to mimic it with my favorite sport…. Money is like hockey. Each goal you score is a phat payment. And to score goals, you have to be good. It takes practice. Above all, to score goals you must take shots at the net. Nobody has ever scored without “taking a shot.”
I’m sure there are several that don’t come to mind at the moment but….. Just wondering if Jason (anyone) could give examples of companies that gained significant traction/market share that did NOT take outside funding?
Microsoft. I think they only took a very small bridge financing right before going public.
Thanks Hmm. Maybe I should have narrowed it a bit. Who in the post bubble era, say 2001 – current?
Jason is quick to recite all of the possible bad things can/will happen when taking outside funding. But he frequently (if not always) fails to mention the positives (in most cases) that come with funding including mentorship, strategic relationships, etc.
I’m all for bootstrapping and agree with Jason that that lessons learned and experiences gained are invaluable. But sometimes you have to scale rapidly, build out your team, whatever…. you have to put the pedal down. And in those cases you need $$ far in excess of what you can raise internally. That’s why I find this repeated mantra of his somewhat hollow.
I smell a crack addict
Craiglist
^ I meant Craigslist
Plentyoffish, ranked #196 on quantcast and the biggest free dating site. Was run by one person for a long time and is still run today with a very small team.
Well deserved kudos to the noble, bootstrapping, organic-growth gurus at ZOHO, 37 Signals and the like. But your exceptional performance still does more to prove the rule than break it. I have huge respect for Jason and his team, but lumping all startups into one class of low-overhead, sweat-equity powered, bootstrapped businesses that should view VCs as the pusher man…please. There are 10s of 1000s of startups out there in 100s of “flavors” — to advise them all based on the lessons / experience from one niche segment of the web services space is entrepreneurial egotism on par with the hyperbolic “we build great companies” pablum Fried maligns VCs for.
if someone can talk about “How To” bootstrapp it’s only the guy’s from 37signals
Someone’s been watching too much of The Wire.
I can’t tell if he meant “virtual offices” should be an exception or the rule? In other words, does he recommend a real office or virtual office?
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Q: Regarding virtual offices.
A: Need to find a good team. People who can work from their home a lot. We’re in touch all day using our tools, but you can put that away if you need to. You can’t put a ‘real’ office away like that. But some face time is essential sometimes. Should be the exception not the rule.
Daniel, then => than.
Get back to the high school, this is cute and all, but you’re missing the truely invaluable things that you need to learn.
Good article and advise for startups. The general tendency is to ask for money and that may not be the ideal way to go in many situations.