From: myfirstmillionpod
37signals, led by entrepreneur Jason Freed, operates as a self-funded company, often described as a “cash cow” [00:00:00], [00:00:03]. The company has been in operation for approximately 25 years [00:00:21], generating tens of millions in annual profits [00:00:27], [00:00:28], [00:19:00]. Renowned investor Jason Lin has cited 37signals and Craigslist as the two greatest self-funded cash flow companies he has encountered [00:00:35]. This success is achieved by “kicking the traditional playbook to the curb” [00:00:46], including practices such as setting no goals, working four days a week in the summers, and spending minimal amounts on marketing [00:00:47], [00:00:50], [00:00:52].
Business Philosophy
Anti-Long-Term Planning
Jason Freed views long-term planning as a “fantasy” [00:03:26], preferring to “do what I think not what I thought” [00:03:32]. He believes that plans based on past thoughts can become restrictive [00:03:42]. Instead, 37signals operates by “making it up as you go” [00:09:09], focusing on six-week iterations [00:04:11] and constant adjustment [00:04:15], while paying attention to the present reality [00:04:22].
Rejecting Goals
The company generally avoids setting specific goals, with their “only goal” being to remain profitable each year [00:05:00], a streak they have maintained for 25 years [00:05:02]. They prioritize doing their “best work all the time” [00:05:17] rather than being driven by external targets [00:05:14]. Freed argues that goals can lead to disappointment if not met, even by a small margin, and that focus should instead be on the intrinsic value and enjoyment of the work itself [00:05:33].
Financial Management and Cash Flow
37signals focuses on maintaining a “high margin business” [00:07:15], keeping costs low [00:07:30] and revenue high [00:07:42]. They have a diverse customer base of over 100,000 monthly payers [00:07:34]. This approach allows for a “sloppy in a good way” [00:07:46] operation, reducing financial anxiety [00:07:19].
Regarding reinvestment strategy in business growth, as an LLC, 37signals distributes all profits to its owners annually [00:59:22]. This is partly due to personal income tax on business earnings [00:59:28], but also supported by predictable recurring revenue and low operational costs [00:59:35]. Freed believes that many companies hire too many people and overspend on customer acquisition, leading to low margins and a harder business to run [01:01:06].
Product Development
The company’s product development process involves:
- Identifying a point of view: What needs to change in the world, or what kind of product is desired [00:08:30].
- Exploration phase: Spending significant time (e.g., six months) “wandering around an idea” to see where it leads [00:09:09]. This phase is fluid; if motivation wanes or the idea doesn’t “feel good,” they stop [00:09:35].
- Commitment and Sprints: Once an idea gains “gravity” and feels right [00:13:43], they commit and work in six-week chunks [00:04:11], [00:13:50]. This is to avoid perfectionism and ensure features are delivered within reasonable timeframes [00:14:01].
The Power of “No”
Freed emphasizes that saying “no” is a “precise instrument” [00:14:41], allowing for focus and keeping other possibilities open [00:14:50]. In contrast, saying “yes” to one thing implicitly means saying “no to a lot of things” and can “damage a lot of things” by consuming resources and opportunities [00:14:56].
Prototyping and Novelty
When prototyping, 37signals advises trying “the wackier, quirkier stuff first” [00:52:51]. This is because teams tend to become more conservative deeper into a project [00:52:54]. Prioritizing novel, differentiated features early ensures they are not omitted due to time or patience constraints [00:54:25]. The public typically demands “normal stuff,” so it’s up to the developers to introduce “unusual things” that resonate as obvious improvements once seen [00:54:48].
Products & Marketing
37signals has developed products like Basecamp, Backpack, Campfire, Highrise [00:15:44], and Hey.com [00:06:23]. They don’t make new products often, doing so “once every handful of years” [00:15:59].
The “Once” Initiative
A current focus is “Once” (once.com) [00:35:34], an umbrella brand promoting products that are bought once, rather than rented as a service [00:35:43]. This model allows users to own the software, including the code for modification [00:36:20]. Campfire, their old chat tool, was revived as the first “Once” product [00:36:31]. It’s sold for a one-time fee of $299 for unlimited users [00:37:10]. Freed argues that many software products, now commodities, are still priced as luxuries [00:37:44].
Pre-Launch Marketing: Founder Letters
Jason Freed uses “founder letters” to generate interest in products pre-launch [00:21:23], [00:38:55]. These letters typically articulate a strong point of view, highlight a problem with the current state of affairs (e.g., the “church of recurring revenue” [00:44:48]), and explain the motivation behind the new product [00:39:50]. This contrasts with common modern approaches that simply announce funding rounds or use jargon without context [00:39:27]. Freed finds joy in crafting these letters, focusing on rhythm, message, and leaving some mystery to draw the reader in [00:41:42].
Marketing Spend
37signals spends “next to nothing on marketing” [00:00:52]. They attempted to invest $5 million in ads once but found it to be “vanity money” [01:01:42]. Their low price points make high customer acquisition costs impractical [01:02:11], so they rely on their established channels and reputation [01:02:40]. They prioritize sustainability and profits over aggressive growth, believing that focusing on margins and taking profits out is more beneficial than pursuing potential higher multiples through extensive marketing [01:03:06]. This approach contributes to their overall bootstrapping a SaaS company strategy.
Personal Wealth & Financial Freedom
Jason Freed has publicly purchased homes for significant amounts, though he attempted to keep these private [00:01:50]. He emphasizes a conservative approach to investments outside of his business, primarily focusing on index funds and select individual companies where he knows the CEO or has a strong understanding [00:56:03]. He avoids speculative investments like meme stocks [00:56:16].
Freed values being able to “sleep well at night” [00:57:01] and avoids risks that jeopardize his personal financial security or the business [00:56:51]. His approach to business is rooted in minimizing anxiety, unlike many entrepreneurs who are constantly worried about competition or payroll [00:57:11]. His focus is on excitement for future projects rather than fear [00:57:18].
He acknowledges the role of “timing and luck” [00:19:25] in their success and doesn’t believe he could replicate 37signals’ success today [00:19:30]. Selling the company would feel like a “loss” [00:20:27] because he enjoys the work and fears not finding something else he’d be good at [00:20:33]. This perspective highlights the impact of financial freedom on one’s identity and drive.
Investment from Jeff Bezos
In 2006 or 2007, Jeff Bezos invested in 37signals, but this was a secondary transaction where he bought shares directly from Jason Freed and his co-founder David [00:24:13]. No money from this investment went into the business; it was purely for the founders’ personal risk reduction [00:24:21], [00:24:22]. Bezos was a fan of their different approach [00:25:31]. The deal was structured to give Bezos no control or board seat, with a very weak “suggestions clause” regarding future actions like selling or going public [00:26:41]. As an LLC member, Bezos receives annual distributions and has made his money back “many times over” [00:29:56]. This is an example of special situations investments where external capital does not dictate internal operations.
Transparency & Openness
Jason Freed’s transparency regarding his personal spending, like home purchases, has led to public scrutiny [00:01:50]. He acknowledges that efforts to hide these purchases through LLCs or other means are often unsuccessful due to various information leaks [00:02:05]. This highlights the challenges of financial transparency in business for public figures.