Online Extra: 37 Signals, 1 Clear Message

CEO Jason Fried's startup philosophy can be summed up in three short words: Keep it simple

At the recent Web 2.0 conference in San Francisco, Jason Fried created something of a stir with a talk that advised startups to do less than their competition: Spend less money, hire fewer people, work fewer hours, and -- most surprising of all -- offer fewer features. It's a philosophy his company, 37signals, has taken to heart in its dead-simple Web offerings, which range from project-management service Basecamp to a group task list called Ta-da List to the Writeboard collaborative-document service.

Although 37signals started out as a Web design firm in 1999, Fried and his team quickly found they needed a way to manage projects. But they couldn't find software to their liking. So they wrote their own. Soon, clients and colleagues asked if they could use it, and the company turned it into a Web service starting at $12 a month for managing multiple projects. Basecamp is now used by more than 100,000 people.

Fried spoke recently with BusinessWeek Silicon Valley Bureau Chief Robert D. Hof about his minimalist philosophy. Here are edited excerpts from their conversation:

Can you explain your thinking behind doing less?

We're trying to underdo the competition, and do less than they're doing to beat them. It's a very Cold War mentality to keep trying to one-up everybody. We're trying to "one-down" people.

What do you mean?

We're a small company, and we don't have a lot of resources. If we try to beat someone big, they're always going to have more resources than we have. To try to one-up them constantly looks like a bad idea. So we decided to stay small and be simple.

Ever since we launched in 1999, we've always been about simple. There are too many options out there, there are too many features out there, there are too many products that try to do too many things. The fact that we couldn't do a lot more really helped us focus on doing less. Software is way too complex and way too bloated.

What's the advantage of offering software with fewer features, given that rivals might be able to convince customers their software is better because it does more?

No one can really beat us on the low end. It's just what you need, and nothing you don't. You're always going to have more people on the low end who just need a few things. Every additional thing you add to a product, you're reducing your market size, not increasing it. The more stuff you add to a product, the more people you end up upsetting, and the more people you end up alienating.

You've added some features to Basecamp over time, and I hear more are coming. How do you decide what to add to avoid those problems?

We get a lot of feedback from customers, and we have our own vision of what the product should be. We take a combination of those and then just make decisions. Every decision we make is temporary. Things can always be changed. When you make simple, small decisions and you have simple products, you can change quickly. We can change things in a week or a day.

You can do that partly because you're not selling software on disks. You're on the Web, so you can change faster, right?

That's so important. You have to embrace the medium. Microsoft (MSFT ) can't change Word every week. Any decision they make can last a year. So they make easy decisions that try not to offend anyone.

We like to call our software "opinionated software." If you don't like our opinions, then our products probably aren't for you. That's fine. We're not trying to write software that everybody in the world uses. We're trying to write software that a few people use. The good news is that "a few" these days is potentially millions [on the Web].

Doesn't somebody need to do the hard, complex software?

There are a million simple problems to solve first, before we should spend any time solving the complex problems. I mean, to think that all the simple problems have been solved and all we have time for now are complex problems, that's just naive. We're happy to work on the simple ones. We'll let our competitors work on the complex ones and let them rip their hair out and fail.

How do you see these new collaboration tools evolving? I wonder if customers will get weary of having to use 10 different tools, however simple they are.

Craftspeople who really know their trade, like carpenters or metalworkers, have very specific tools for each job. In fact, they may have five different types of hammers and 15 types of nails. If you really want to do a good job, you need to use very specific tools for the job. You're not going to see a carpenter using a Swiss Army knife very often. I think people who really care about doing a good job will always use specialized tools.

You also apply the idea of doing less to forming and running companies as well as creating software. What kind of response have you gotten to that?

It's a disruptive idea to say you don't need a lot of money to start a company. That pisses off the whole venture-capital industry. To say you don't need a lot of people pisses off a lot of people who work somewhere where they may be a little bit defensive about their job. To say you don't need more time pisses off the bosses whose employees say, "37signals says I only need to work 30 hours a week and I'll work better."

Times are clearly changing, thanks to the Internet and other technology. Why don't business structures change with the times? It's important that people reconsider how they build businesses too these days.

Given that it's so much easier to release software online, there are a lot of new startups now, and more coming. Can they all make it?

I don't know. Probably only a few are going to survive. I don't know if some will get acquired or some will just fizzle out. It's never been easier to start a company, but it's still a very hard thing to do successfully. To find and service customers, maintain the product, and deal with all the technical issues, it's still not easy.

It's great that there are so many people building things these days. But there's a rude awakening down the road for companies that just throw stuff out there and then try to figure out how to make money off it. That's a big problem. This is the lesson of the '90s -- you've got to have a business plan before you throw something out there. It's very hard to give something away and then say, hey, you need to start paying for this now.

A lot of these new Web startups that are putting out software or services for free are making money through Google's (GOOG ) ad programs. Is that sustainable in the longer-term?

You've got to have a lot of traffic in order to make any money with an ad-supported service. If you're John Doe making a little tool and you think you're going to be able to support it with AdWords, forget it. You're just not.

So what's with the company name?

When we started the company back in 1999, one of my partners was watching Nova on the search for extraterrestrial intelligence...and out of the billions and billions of signals they've listened to from space, there were only 37 signals that were unexplained, and signs of potential intelligent life.

We could spin it and say we just wanted to create a few good Web sites out of the millions of bad Web sites. But really, it's just that the domain was available.

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