You're not 37signals

Last week 37signals launched Haystack, a directory for finding web designers. I don't have a strong opinion about the site itself one way or the other, but upon it's launch I couldn't get this thought out of my mind: 37signals could start selling boxes of sh!t and people would buy them.

(By the way, if you're in the market for that kind of thing, a service for you already exists).

I'm not saying that 37signals products aren't great in their own right — I've used, purchased and recommended many of their products and services — I'm saying that they've built up an incredible platform that increases their odds for success hundredfold, almost regardless of the product. And that's what I admire the most about them.

Basecamp was making $5k/mo just six weeks after it's launch, something few startups will come anywhere close to replicating (considering it was their first product and probably had an average customer spend of about $30/mo). Subsequent product launches did even better, and they appear to see similar success with their book and job board.

Hundreds of companies launch better products and do "all the right things", yet hardly get off the ground, much less thrive. There's just an incredible advantage when you launch products targeted at the very people that are already listening to you, especially when there are hundreds of thousands of thousands of said people.

I believe they've had to work incredibly hard to build that audience — nobody's just given that kind of attention and respect. And they've also done a tremendous job of not disappointing their audience (as some have done).

So what does this mean for us mere mortals — those of us who measure our FeedBurner stats in units of tens or hundreds?  Once you realize that you're not 37signals, it's important to emulate the right things. Recognizing what makes companies like 37signals successful means that you don't emulate things they do that might be  wrong for you. You might need to offer phone support for your customers, accept checks, or focus on just one project instead of 7.

The corollary of this is that you shouldn't believe what 37signals tells you to do. Listen to them frequently, but put what they say into context. Much of what they say is probably good advice, but there's no good way to differentiate what works to make them successful from what works because they're successful.

Of course, this certainly holds true for anyone you're listening to. Listen to me least of all.

Freemium

The Town of Fishers has evidently been paying attention to the freemium model:

Sign up now for a completely free stop sign in your residential neighborhood.  If you would like to upgrade to the rolling stops package you can do so for only $155 per incident.

Call one of our friendly officers if you would like to take advantage of our fly-through-at-85mph-while-hammered-with-expired-plates package and get a complimentary one-night stay in the county jail.

Go Shake Some Hands

When I started my first business in 2000, we didn't have new-fangled tools like Facebook, Twitter and LinkedIn to make connections with potential clients and partners. We had to go to Chamber of Commerce networking events and shake hands with insurance salespeople and office supply reps. I hated going to those things.

By 2006, when I started Recursive Function, the landscape had changed and I revolted against traditional networking. It even took me several months before I bothered to get business cards made.

It's is in the blood for many entrepreneurs, but there are a great deal of us who cringe when thinking about going to networking events. We enthusiastically welcomed the advent of social networking because that meant we didn't have to go to boring events, eat stale hors d'oeuvres and shake hands with a bunch of strangers. And we welcomed it so much that it started to seem like an investment in Twitter and other online networking tools should be enough.

The beauty of the web is that you can be connected to people all over the world, but if you're starting a company and not well-connected to people in your city, it's going to be hard to be successful. You need good relationships with vendors in order to get things done — lawyers, accountants, web designers, IT consultants, and yes, even good insurance salespeople and office supply reps. You need to make connections with talent in the area when you start to hire employees (it's so much easier to convince someone to work for your startup when they know you or know of you). You also benefit from the advice of peers, and while you learn a lot from blogs and conference speakers, there's no substitute for listening to stories or getting advice over coffee.

And if you've worked Twitter to death but don't have good relationships with potential vendors, have someone that you'd hire in a second if the right position opened up, and have a credible peer or mentor who'll help you with a challenging problem in exchange for a Guinness or two ... well, then your networking strategy has fallen short. And no, "there's nobody doing anything interesting in this town" is not a valid excuse.

It took me a while to fully appreciate the importance of these business relationships, and the key ingredient for building these relationships: I have to get out there and shake hands. This is a no-brainer for some, but I don't think it's so clear for those of us who are more comfortable behind a computer screen than in a crowd of strangers. In theory, it seems like you can build your network through social media tools alone.

Despite a full list of online followers, friends and contacts, I have a hard time thinking of someone who's had a strong, positive impact on my business that I haven't yet met in person. I can also think of a handful of people that I met "cold" at a networking event and probably wouldn't have met otherwise.

Social networking sites are good tools for keeping connected and up-to-date with contacts, but not a great way to establish lasting relationships. It's not often that I'll friend or follow someone I haven't met or don't know of, and very rare that I'll actually be engaged enough to read their blog or tweets. Even though I can be a bit of a Twitter curmudgeon, I'm pretty sure this is the same for power users too — people won't pay attention to you on Twitter unless they're already familiar with your work or have met you in person.

You won't get the most out of your online networking if you don't occasionally attend the Tweetups, join a user group, or attend local conferences like Master of Business Online and TechPoint Innovation Summit. You don't have to turn into a power networker or even go to any of those dreaded Chamber of Commerce events. But you do need to force yourself every month or two to get out there, shake hands with old and new contacts, and buy a round of beers.

Indianapolis Needs More Critics

I saw a handful of negative comments toward Formstack pop up on Twitter last Friday from a critic. I was a bit startled at first, but welcomed the dialogue and was glad we had the opportunity to respond publicly. Even though I ultimately think most of what he wanted was impractical, we came away learning something, and there's a possibility that we'll be able to apply that towards improving our service down the road.

There are few things I want more for Indianapolis than for us to fulfill our dream of becoming a city known for its web-based software companies. Foremost, we need a solid cache of thriving companies to fit that bill, and we're well on our way to accomplishing that. But in addition to the cheerleaders, champions and evangelists, we need a healthy supply of vocal critics.

Cheerleading comes natural to most of us, especially when we want companies to succeed. Being a critic is a lot harder — we don't want to turn potential customers away from a company, and we don't want to offend owners and employees that we have relationships with. But we're not going to grow if we're all cheerleaders.

Criticism helps us build better businesses.

No company is without its faults, but in many cases owners and employees are way too close to the business to clearly see glaring issues. It's often that the only way these issues will ever come to light is through seeing public criticism. At the very least, public criticism gives companies an opportunity to respond and debunk criticisms that may have otherwise been silently turning away customers anyway. For example, Facebook changed their terms of use because of widespread criticisms about privacy issues, and Twitter has many times been able to calm outrage about repeated downtime by publicly responding with details about their architecture and plans for improvement.

Criticism creates more interesting dialogue.

Saccharine posts that do nothing but praise the virtues of a company hardly ever fully engage readers and spread virally. They're good to see from time-to-time, but the more people we have engaged in dialogue, the more customers we reach.

This is hardly scientific, but for giggles I culled a list of the most commented articles on the 37signals blog in the past year. In order, they are: Why the Drudge Report is one of the best designed sites on the web, Every Mac I've owned has failed, Get Satisfaction, Or Else..., Happy Birthday - Basecamp Turns Five!, and The next generation bends over. Even though the overwhelming majority of posts from 37signals are positive (yes, it's true — count them yourself), three critical ones made it into the top five. It's also interesting to note that one of the five was positive, but about something that most people are critical about. My point is just to show that readers tend to be more engaged in dialogue that involves criticism, even (especially?) if they don't always agree.

Criticism prepares us for a broader audience.

If we're not ready to hear from critics in our backyard, especially from friends, we won't be ready at all if someone with a big audience tears us a new one. If we're unprepared for dealing with broader criticism, it'll be harder for our companies to flourish outside of Indianapolis, and doesn't paint our city in a good light to outsiders.

The truth is that critics are already here, we just need to bring them to the forefront. There are scores of Indianapolis companies who are using online forms, an email marketing platform, blogging software, a content management system and a virtualized data center ... but aren't using Indianapolis companies for any of those things. I really take no issue with that (especially since I'm guilty of this to a big degree), but do take issue with those who silently vote with their wallets and refer others elsewhere without making their concerns known.

We have a lot of great software companies in Indianapolis, but each company has its problems that turn customers away — hard to use, too expensive, bad customer support, buggy software, etc. It seems polite, even helpful, to keep quiet, but in the end it helps us improve our companies by voicing criticism and bringing issues to the forefront for those who can make changes that matter.

[Updated references to Formstack to prevent confusion about the name change]

Is Business Success a Coin Flip?

Jason Cohen recently wrote a great post about Survivor Bias, the tendency to focus on learning only from successful companies. I think much of what he says is on the money, but I couldn't help but question the comparison of repeated business success to a series of coin flips:

"So I put 1000 people in a room and tell them to flip a coin ten times. Sure enough, a woman named Margaret makes "heads" ten times in a row! The chance of her getting heads ten times in a row is only 1-in-1024, so I conclude Margret has special abilities.

The chance that somebody in a crowd of a thousand would flip heads ten times is a whopping 62%! Because so many people are attempting the feat, some normally-unlikely events will happen. This isn't a test of Margaret's abilities at all!"

This is similar to the coin tossing experiment described by Warren Buffett when talking about investing. It's easy to see the comparison here — when picking stocks, the decisions are limited and creativity is minimal:

  • Pick a stock
  • Choose when to buy
  • Choose when to sell.

You can simplify the process enough to automate it or delegate to your 3-year old son. Sure, your 3-year old will probably lose all your money and resent you for the rest of his life, but the point is that somebody's 3-year old will make millions, grace the cover of Forbes, and become praised world-wide for his genius.

Starting and running a business is so much more complex, and there are many many ways you can screw it up: hire the wrong people, choose the wrong partners, build a bad product, choose the wrong market, undercapitalize, overcapitalize, set the wrong company culture, spend too much on launch parties, spend too little on legal counsel ... the list is near-infinite.

There are also varying degrees of execution. Putting together your marketing strategy or designing your product isn't a simple on/off switch like it is with a sell order on a stock. You can follow all the right steps, but execute poorly and results will be dramatically worse.

If you normalized all these decisions into coin flips, the number of flips in the lifetime of a business would be too many to count. You don't have to flip heads thousands of times in a row, but you have to get most of the important flips right.

By the way, I think the same can be said about successful career investors. I hardly think Warren Buffet's success just came from luck, whether or not any stock picks paid off because he flipped heads 10 times in a row.