Killing the dinosaur business model

Leading Wisely is a podcast series by Ricardo Semler about the search for wisdom in organizations. In discussions with business leaders such as Zappos' Tony Hsieh, Basecamp's Jason Friedman and David Heinemeier Hansson and with other experts on the topic such as Frederic Laloux, he challenges assumptions and explores how we can change the way we live and work.

You can subscribe to this free podcast, which is produced by Semco Style  Institute's sister company Leadwise, here. In order to give you a taste of what to expect, below is a written report of the first episode. This episode features Jason Friedman and David Heinemeier Hansson, co-founders of the popular collaboration platform Basecamp.

Ricardo Semler (RS): Leading Wisely is a show about the search for wisdom in organizations.There are no wise companies that I know of there and there are not any democratic companies that I know. We spend our lives in democratic cultures where we raise our kids, buy groceries, vote for our representatives - but none of that democratic ethic has made its way into the workplace and that’s a problem.

If you’re looking for people who are trying to make our workplaces less difficult and less boring, than Jason Fried and David Heinemeier Hansson are a great place to start. Jason and DHH started Basecamp back in 1999 and have spent much of the last 17 years challenging us to think differently about our work lives. They also wrote the New York Times Best-Selling book, Rework, and they’ve got a new book coming out titled The Quiet Company.

These are two really deep thinkers who, at a very young age, started talking about the dinosaur models of the past and how we can start to organize our businesses in new ways and provide employees with a tremendous amount of freedom. Luckily, they’re not the only ones out there with an eye towards the future of work.

Tell me a little bit about how Basecamp got started and what values guide it.

Don't obsess about the Fortune 500

Jason Fried (JF): David and I have both worked at companies that were run “the old way” and that inspired us to NOT do things like that. I remember working at a huge sporting goods company for a while and just despising the layers of management, red tape, and just how difficult things were. Basically, I remember working there and thinking that I wanted to start a business and I didn’t want it to work in a place like that - so I didn’t want to create a business like that.

What’s interesting about our business is that we don’t really want to sell to big companies. A lot of people in the software industry are obsessed with that idea, but that’s probably the least appealing way for us to spend our days. So, most of our interactions with big companies involve us saying, “No”. That’s sort of how we’ve approached it.

RS: It's a bit like being a third party candidate while Trump takes over, you know? How does one really influence these big companies to change? It seems like you need someone at the top who really wants to make substantial change - but, at the same time it takes a leap of faith most people don’t have. It takes a horizon which is beyond one or two quarters, but that’s how these leaders are measured. How does one create change in the status quo?

David Heinemeier Hansson (DHH): First of all, you should be humble against that mission of changing the status quo. I think both Jason and I approach this by saying that we're not going to convince any Fortune 500 CEOs to change who are not already predisposed to this way of thinking. It's much better to focus on the seeds. So, when people are starting a new company we have a much greater chance of influencing the way that they adapt their worldview, who they look to as role models, and which principles and practices that they bake into their foundation. Because, as you say, one of the reasons why it's so hard to change the “old dinosaurs” is because you have 20 to 40 years of experience running things a certain way. There's not a look there's not a slogan or a podcast interview that’s going to change that.

Why small is the new big

When you think about changing the business landscape over the next five years you have to realize that you can’t change the people who have already adopted a certain approach. But, you can absolutely change this whole new crop of people coming up and you haven't got a shot of that. And ultimately that's going to matter more. I'm a great believer in mortality - not just for people, but for companies too. The dinosaurs ended up dying out. And I think that will happen in business too and, when it does, there will be a new crop ready to take over. Our goal is to have done our part to educate them in better ways of thinking.

JF: I think the other thing I would like to add to that is that everyone is so obsessed with these 500 companies. But there's at least five million small businesses in the United States and, every year, there's way more than five hundred new small businesses starting. So, for us, we think there's one more impact to be had by influencing the millions of companies versus just trying to obsess over these five hundred that everyone seems to care about. I'm totally and completely comfortable deferring any of our influence over those five hundred. I don't care about them really. I'd much rather help the thousands of small companies that pop up every year.

How to avoid growing up

RS: There’s a period in a company’s life when it’s a startup and different, but as it grows all kinds of people in suits start showing up. Suddenly, a headquarters is really important. That building becomes an homage to the company. So, as a company grows, something starts setting in that makes them change from that original startup mindset and turn into something else. How do you see that business change as they start to outgrow that first phase?

DHH: I think it’s very similar to how people grow up - they get older, fall in love, get a regular job… and I think that most companies grow up and lose whatever rebellious streaks they might have had when they were young. Now they have thousands of employees that they have to take care of. There are responsibilities and obligations that inevitably force a sense of safety on them. I think we should just accept that that is the default path that most companies will go.

If you want to push back against that you actually have to get outside of these traditional pressures. First, I'd say going public adds huge pressure for how you're supposed to act and behave. So, staying private is one way to avoid those pressures. There's plenty of examples of large companies who choose not to go to the public markets and thus not subject themselves to those pressures. And whenever I talk to people who work at those places it's, generally speaking, a happier story than the story of people who work at public companies.

Secondly, don't grow. That has been the mantra that we've tried to live at Basecamp. By the time you get to have thousands of employees, there are organizational scales that pressure you into a certain way of being. It's funny - we've seen this at Basecamp and we have a laughably tiny crew of just 50 people. The pressures on the organizational structure of 50 people is a lot higher than it was at 15 people. And I can only imagine what it's like when you have 10000 people! It's crushing. So, instead of aspiring for your business to go public or grow into a large company, what if we didn’t do those things? What if we had a larger playing field of smaller companies that had a much greater chance to resist these pressures because they just weren't there?

At Basecamp, we had a product called Highrise. It’s a great product and it did really well, but we had neglected it because we wanted to stay a small company. Some say that we should have invested in it, but instead we just spun it off and it became another company. And I think that, personally speaking, more businesses in the world would be better if they didn't try to lasso all these different companies in under one roof. I think the benefits and advantages to scale are slipping away incredibly quickly. And I think our way of thinking of how companies should be structured and what opportunities they should pursue have not really caught up to those changes. Instead of thinking, “Here's an opportunity we could run inside our company,” why not just create a different company?

Disruption is unavoidable

RS: Sooner or later, most companies are broadsided by things that they didn't see at all. They didn't see it coming from another geography or they didn't see it coming from another business sector. When you look at Bell Labs and their history of patents, you find that only two percent of all the important patents came from people who were in that business. How do you protect your basic business which has a reason to exist from being broadsided completely by something that came from somewhere that you couldn’t have anticipated?

JF: Every company gets disrupted at some point. There's very little you can do to control the competition. You can only do your best and this is just how we've always looked at it personally. If someone else is going to come and invent something that we hadn't seen and destroy us at some point, then that's just going to happen or it's not going to happen. But it's not going to be because of me of us - it's unique because of them. And that's what happens with innovation. Someone comes out of nowhere and just does something you hadn't even considered. I don't think that there's much you can really do about that.

I think that you have to be focused and doing your best. Focus on treating your customers and employees well, and focus on keeping your costs relatively low so you can weather the storms. During our 17 years in business there's been a variety of bubbles and explosions in our industry and we've weathered it all. There’s been lots of competitions - lots of “Basecamp killers” - and there'll be many more down the road. And, at some point, someone may kill us. But what's been really good is that we’ve managed to maintain our profitability. We've maintained our cost structure so we can survive if we don't grow for four or five years or if we just stay stagnant.

So, I think there's different ways of handling this, but at the end of the day, I just don't think there's much you can do about the competition. You've got to keep your eyes open and do the best you can. And someone's going to hit you from the side that you didn't expect. Regardless of how hard you're working someone new is going to come along and get it.

The other thing I would say is that we've come up with new ideas in the last few years that we incubated internally, but then spun off into separate companies. We built a product called Know Your Company a few years ago and we just decided to spin that off. We still own the majority of the company but we found someone else to run it. So, if that turns into something great then we still stay in the upside and we still have the enjoyment and the excitement of starting something new and not have to maintain it.

Launching something and starting something is actually really, really easy. The hard part is staying in business. The hard part is maintaining something. People get all excited about the launch but the launch is the easy part. Once you have customers, you have to make sure the customers are taken care of. You have to make sure your product stays up.

Accepting the mortality of companies

DHH: Right now, Intel is in a world of hurt because desktop computers are going down. They were a company where the founders and the CEOs was so focused that this was going to happen - and it happened to them anyway! They could fret and stress and have sleepless nights about what the competition was going to do and then they still fell into this trap.

You can’t control what the competition or the destruction is going to be and you can’t prevent it. Accepting this is a very healthy thing to do if you want to live a full life. This also means accepting the mortality of companies. If Basecamp should get blindsided next year and something comes out and we go out of business because we're no longer relevant in any shape or form, I think that's actually good. I think it's actually good that there is some destruction in the world of companies - that there is this creative destruction where companies that are no longer relevant go out of business. And, if that happen to us, then we can start a new business.

Why is it that we are so obsessed with seeking immortality for this one company as though that means anything? Look at other companies that have had these transformations through time -  IBM, Nintendo or anything else that we were able to successfully reinvent itself. Why is that reinvention such a good thing? Well it would have mattered if Nintendo the playing card company had gone out of business and Nintendo the video game company had come into business as separate entities? I don’t think so at all.


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