Small Is Essential

Thursday, May. 17, 2007 By JEREMY CAPLAN
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At 37signals, a company with just eight employees whose Web-based collaboration software is used by thousands of small businesses, there isn't time to sit around a conference room sipping latte and deconstructing memos. Come to think of it, there isn't even a company conference room. There are just a couple of cubicles, loads of brainpower and three simple goals: make useful business software, make it easy to run, make money selling it. Repeat.

Founder and president Jason Fried, 33, decided early on that he didn't need to be in the shiny valley of Silicon to make cool software. Half his team works out of a plain-vanilla Chicago office that 37signals shares with a design studio. The other four are scattered: Portland, Ore.; Chesapeake, Va.; Caldwell, Idaho; and New York City. This tiny crew, only three of whom graduated from college, has built software that many in the world of Web 2.0 consider the best for small-business collaboration. One of its development tools, Ruby on Rails, is the backbone for dozens of popular websites, such as Shopify, Twitter, 43 Things and Jobster.

Unconventional organization is proving to be one of 37signals' biggest assets. The company creates programs that facilitate teamwork, and it ends up relying on the very same tools it builds. "We are growing in the same way a lot of our customers are, so we build products that we need to run our own business," Fried says. "We just build stuff we want to use. If we need it, they need it."

At the heart of 37signals, named for an attempt to find signs of intelligent life in space, are four pieces of software that help business teams manage projects (see below). Subscribing to the Web-based software costs $12 to $149 a month, depending on the amount of disk space and the number of features you use. The thousands of paying users--Fried won't say exactly how many--provide 37signals with a steady revenue stream. The subscription model minimizes the up-front cost for small businesses and makes software spending more predictable for firms worried about cash flow. The monthly fees include ongoing service and updates.

The 37signals team manages its products remotely, so when a problem pops up, it can be fixed without having to recall software or ask customers to install a patch. And if a new product isn't quite what customers wanted, 37signals can respond immediately. When the company launched Highrise, a contact-management tool, in March, customers pleaded for a specific format for freelancers. Within 36 hours, 37signals expanded its offering. "They implement a mix of what's on their own road map and what people suggest," says subscriber Chris Busse, a Web developer.

Fried admits the 37signals team is stretched thin handling its users' demands. He insists that the bigger a staff gets, the slower it moves. "A lot of teams have problems with overcollaboration," he says. "Too much teamwork, too many cooks in the kitchen, too many people making decisions."

Simplicity is one of 37signals' guiding principles, in programming as well as management. For most technical issues that arise, simple work-arounds will address 95% of the need with 10% of the effort that would be required to cover everything. For example, when designing Writeboard, for collaborative writing, the team wanted to let people track how much a document had changed over time. They pored over Ph.D. theses and complex algorithms. Instead, ace programmer David Hansson worked out a "cheat": software to track the number of characters in each document. The evolving total could be conveyed visually using dots of different sizes. With that clever solution, 37signals reduced what could have been a months-long programming project to a day's work.

To help build Basecamp, Campfire and the company's other core applications, Hansson developed Ruby on Rails. It gives 37signals' software a consistent look: sleek, friendly and without the extraneous bells and whistles that plague much of the bloated software sold by larger companies.

Of course, there is another, somewhat larger company with a pretty good reputation for producing easy-to-use software. Google and its 9,000-plus employees have a growing suite of Web-based software tools called Google Apps that is attracting interest from companies of all sizes. And so far, all of it is free. But Fried is convinced that there is plenty of room in the market for smaller players like 37signals and that people should--and will--pay for tools that benefit their business. "Some people would rather pay $50 for something that works than get something for free that doesn't," says Fried. Critics, though, complain that the monthly costs quickly mount for tools available in more primitive form for free.

37signals isn't shy about dispensing one thing without charge: advice to small-business owners. On the company blog, Signal vs. Noise, Fried shares what he's learned about the art of streamlined teamwork with more than 65,000 readers. First, kill all your meetings; they waste employees' time. "Interruption is the biggest enemy of productivity," he says. "We stay away from each other as much as we can to get more stuff done." Use asynchronous communication and software instead to exchange information, ideas and solutions. Next, dump half your projects to focus on the core of your business. Too much time and effort are wasted on second-tier objectives. Third, let your employees decide when and where to work so they can be both efficient and happy. As long as their fingers are near a keyboard, they could as easily be in Caldwell, Idaho, as in Chicago.

In the eight years since 37signals launched, Fried says he has fended off more than 30 venture capitalists offering to fund his company. He turned them down, Fried says, because he wants to keep control instead of selling out to a larger player, as VC-funded start-ups often do. Last July, though, Jeff Bezos, founder of Amazon, bought a minority share of 37signals with his own money, setting 37signals alongside space travel in the Bezos portfolio. Fried says he was impressed with the Amazon chief's appreciation of 37signals' ethos and felt having Bezos on his team would be helpful if he ever faced obstacles running the company.

Next up for 37signals? Possibly financial software, Fried says. Like other small businesses, his firm now needs tools to manage its own financial success.