37 Signals : Digital Natives Leadership in action

(Version Française)

The question I’m always asked when I run out of my friends/colleagues/dog patience with the issue of Digital Natives integration within the enterprise is : how to convince the proponents of this culture to adhere to a common professional project, to an organization with rules and commitments ?

The answer is straight-forward : leadership. A leadership for a post-ideologic generation. A leadership whose core resides in simple and clear principles, to put in practise, rather than plastic values nobody believes in.

Enterprise 2.0 represents a gradual immersion of the XXth century organisations into the web culture. Digital Natives Companies are born from this culture : there is no change required to adopt these principles as they are the core foundations the companies were built on.

In order to illustrate this assertion (and as promised), an overview of 37Signals, a GenY company achieving incredible results, from both financial and reputation perspectives.

Anti-nonsense manifesto

37Signals initially is a Web Agency created in Chicago by Jason Fried at the end of the XXth Century. We are not talking here about just another web agency. They already display strong opinions and principles with their original manifesto : Ergonomics, Design, Simplicity, productivity, no-nonsense.

This is a small structure where employees are split all across the USA. To solve subsequent problems, 37Signals chose to develop a in-house project management application.

They recruit David Heinemeier Hansson who decide not to use any of the standard technologies (Java, PHP etc …) for the development. Invoked reason : these technologies are far too complex and not productive enough. Being a fan of the agility and flexibility offered by an obscure scripting language (Ruby), he develops his own web development framework : Ruby On Rails.

At the end of a quick build, 37signals proposes Basecamp service in SaaS mode and reaches the million user milestone in November 2006.

Start-up with an opinion

RoR framework is well received by the open source software development community, which leans heavily on the Java side of things back then.

Well respected figures such as Martin Fowler or Bruce Tate praise the great simplicity and the strong principles of the framework (convention over configuration etc …).

Getting Real

From Basecamp development experience and success, Jason Fried writes an essay : Getting Real.

This book enjoys a tremendous success for his strong anti-corporate stances and the radical principles it preaches : no functional specifications, no planning, no meeting. Also : do less features than the competitor but spend more time to design them properly; do not anticipate on problems you don’t already have (think scalability) and embrace constraints which can prove to be innovation opportunities.

As a kind of alternative business bible, this e-book contributes significantly to their reputation and the growing incoming traffic on their blog SignalVsNoise. This online business reputation allows Fried et Hansson to give conferences and raise them to well respected figures in the industry.

The next small thing

All start-ups dream of getting bigger and bigger in order to become global companies ?

37Signals insist they want to remain a small shop : there are only twelve of them today. This small size allows them to remain extremely agile and to progress with small changes while implementing small decisions. This especially allows them to focus on their core activity et to get rid of any other issue.

Key points are productivity and trust : I have no idea how many hours my employees work — I just know they get the work done (J. Fried).

Productivity, Trust but also simplicity, the ultimate sophistication according to Leonardo Di Vinci  : “Simple requires deep thought, discipline, and patience – things that many companies lack” (Matt Linderman a 37Signals employee)

Business Model Conundrum

In A Secret to making money online a presentation he gave in Startup Stanford conference in 2008, Hansson goes against standard start-up policies and introduce the thoughts that brought them to their business :

The classic conundrum : You have a

1. great application and then
   
2. ?????? (something magical happens and then)
   
3. You make profits.
   

We have been doing research, experiment etc … we found out that the best option for us was to 2 – put a price on the application to make profit. It’s too simple to be true but believe me it works.

Financial Independence

Each time you see a successful company, tell yourself it’s because someone in the company took a brave decision – P. Drucker

Once again on the opposite side of the other start-up financial approach, 37Signals made the brave choice to bill their customer on a monthly basis. This service is as easy to subscribe as it is to cancel.  The objective is to ensure the company is financially sound and independent.

So far, they only have accepted one investor : Jeff Bezos. Bezos, who knows a couple of things about online business, guarantees not  to interfere with their business strategy.

A cool, though very meaningful anecdote : when they launched their Basecamp service, they didn’t know how they would bill their customer at the end of the month. They implement their billing solution within that 30 days. This is hardcore just-in-time.

Working hard is overrated

All start-ups have the overtime culture ? DHH openly takes on à Jason Calcanis when the latter recommends in his start-up management principles to only recruit workaholics.

Their position : to design, develop and launch software services is a creative craft and it’s just not possible to be creative more than 4 or 5 hours per day. In order to preserve their creativity, 37Signals decide to switch to the 4 days week. Working hard is overrated indeed to quote the great Caterina Fake, flickr founder.

No meeting

For the Fried’s mob, evil in the organisation has a name : interruptions. And the embodiment of Evil is Meetings. Meetings should be exception not the rule (Fried). According to Fried, in order to be creative, one has to be in the zone, a sort of state of mind which requires deep focus : all these interruptions prevent people from reaching the zone. And from being creative.

In order for people to collaborate smoothly without interrupting each other, 37Signals create the Campfire service, a Business Group Chat.

Ban the four letter words

Leadership also is a sound and harnessed communication. 37Signals has banished a set of four-letter-words from the company vocabulary. These simple and common words which often prove to have bad consequences : must, need, just, can’t, easy, only, fast.

Reality is a terrible collaborator

According to Fried, planning is useless. These are just vague guesses who have no purpose other than reassuring control addicted managers.

What the point in losing time trying to predict the future when Reality is a terrible collaborator. Where will we be in 10 years ? In the business (Fried).

Do the right thing

Management is doing the things right, while Leadership is doing the right thing. (P. Drucker)

Offering simple enterprise SaaS solutions to  SMBs who praise their services, and focussing on simple principles they literally apply on a day-to-day basis, Fried and Hansson give a great leadership lesson to the online business.

Some people sometimes misinterpret this intransigence and confuse it with arrogance. As a result, they have quite a few detractors. But these, in turn, contribute to grow their fan base who admire more the company as they loudly voice their strong opinions.

They enter the HallOfFame-2.0 with Basecamp being mentioned in the mythic Meet Charlie presentation slideware, probably the best introduction to Entrerprise 2.0 ever designed.

Wrongfooted Enterprise

37Signals has shown with much panache that Digital Natives know how to run their business while completely integrating constraints and characteristics of the XXIst century connected world. With this amazing result : 12 people (working 4 day/week) in a company delivering services to million of customers. Most importantly, they achieve so doing the exact opposite of what last century companies recommend.

Peter Drucker, again, in Management Challenges of the XXIst Century :

The most important, and indeed the truly unique, contribution of management in the 20th century was the fifty-fold increase in the productivity of the manual worker in manufacturing. The most important contribution management needs to make in the 21st century is similarly to increase the productivity of knowledge worker.

This objective has been patently achieved at 37Signals.

Thinking about it, that’s probably one of the main blocker of Enterprise 2.0 adoption. For the first time since Taylorism age, Corporate world is facing a successful alternative business model that seasoned business leaders have trouble to apprehend.