Welcome to the Eventual Millionaire Podcast. I?m Jaime Tardy and today I?m excited to have David Heinemeier Hansson on the show. If you haven?t heard of him, I?m sure you?ve probably heard of his creations like Ruby on Rails framework or Base Camp. He?s a partner at 37signals and co-author of the book Rework, which actually quite a few of the other millionaires I?ve interviewed have highly recommended and so do I. Thanks so much for coming on today, David.

DAVID HEINEMEIER
 

HANSSON: Sure, my pleasure.

JAIME TARDY: So first I want to get started by saying I know you went to business school. What was sort of the very first business you started and how old were you?

DHH: Let?s see, I started actually selling pirated CDs when I was I think 14. So that was sort of the beginning I think, which is not necessarily a very glorious career but it got me started to thinking just about moving a product and getting people to buy it.

JT: So you were looking for income even at that young age. That?s awesome. So did you always know that you?d be an entrepreneur?

DHH: I think it pretty much just came about that I?m not very good at working for other people. So, if you?re not very good at working for other people, the easiest thing is usually just to work for yourself. So it wasn?t necessarily so much that I want to build a business as it was I want to do the best work that I possibly can and when I used to work for other people I found that I often wasn?t able to do the best work that I could because they were for one reason or another not allowing that. Like they had other ideas of how the business was supposed to work or what I was supposed to do than I what I thought was the best way to go.

JT: So then I?m going to sort of back up. What made you decide to join 37signals because you were an employee there, right?

DHH: I was actually a contractor. I started working for Jason on a personal project of his back in I think 2001. I was working from Copenhagen, Denmark making $15 an hour that was actually being paid out in Apple hardware at the time because getting money back and forth was a little bit of a challenge. She he would just send me like an iPod or like a Mac book for computers, something like that. So that?s how I got started working with Jason and with the company.

JT: That?s awesome. So is that why you came over and moved to Chicago?

DHH: Yes. In 2004, we released Base Camp which was sort of a turning point for the company where 37signals went from being a consultancy, a web consultancy to being a product company and as part of that, I did all the original programming for Base Camp and about a year later Base Camp was doing well enough that it could pay all the bills for the company. So I was just done with school at the time and sort of thinking should I go pursue a masters? degree or should I give this Base Camp business more of a real try. Thankfully I decided to do the later.

JT: It?s funny too. I want to know how did he find you, if you were over in Denmark and he is based out of Chicago, how did he actually find you?

DHH: Jason wrote a blog post on the company blog Signal vs. Noise where he was asking something about how to do pagination PHP. Jason was teaching himself how to program in PHP in order to create this product he had in mind and I wrote him back on email, sort of a long post about different ways to do this and we started trading emails back and forth and by the end of it, Jason decided that it was easier to hire me than it was to learn how to program.

JT: Smart man, right?

DHH: Yes, I am thankful that he did.

JT: Yeah, no kidding because I mean and that?s sort of a good question. Where do you think you would be right now? Would you still be in Denmark and what would you be doing right now if you didn?t join 37signals?

DHH: There?s definitely a good chance that I would still be in Denmark. I still think I would have ended up working for myself just from the frustration of working for other people pushing me there. But whatever I have been doing, good question.

JT: So do you consider yourself more of a business guy? I mean you went to school for business, right, but you?re also a programmer or do you figure I?m a hacker. I know you were hacker of the year back in 2005. Are you a programmer or a business guy? Which one do you side with best?

DHH: My degree was actually a joint degree in computer science and business administration so I think that?s a good set up for where I ended up. I care deeply both about the craft of building programs, writing beautiful code and I also care deeply about having an impact with that code. To me, creating beautiful code in a vacuum has no appeal. I need to know that the work I?m doing has an impact on people or businesses somewhere. That it?s making a dent in the universe for somebody and that combination of creating a craft that you care about, that you?re passionate about and then pushing it out to a marketplace is the perfect combination for me.

JT: So what advice would you have because I know a lot of people that are programmers? I?m a big geek myself and have a degree in computers too. What do you say to people who sort of have the programming background but know they want to do something more and sort of break into the business side of things?

DHH: That you?re in the absolute best position that anybody could be in. When you have the power to create your own product and the intention and motivation to bring that product to market, it?s absolutely wonderful and liberating. There are very few industries in this world where somebody can have both the power to create a product from scratch with virtually no capital and then market that to the whole world through the internet. It?s just such a magical time and magical business to be in that it allows us to do this kind of stuff and I think that that?s what is just so appealing.

I think the key thing, if you want to use your programming skills to create a business is to find a domain that you care about because it?s not just enough to care about programming. Lots of people care about programming and they don?t necessarily end up creating interesting businesses. What you need to do is pair that ability to an interesting domain that you care about and you think you can make a difference with. I generally try to look for things that personally annoy me. When we started building Base Camp I was annoyed as was Jason about the prospects of doing project management over email because that?s how we did all of the project management for the consulting business.

Just sending tons of emails back and forth and things would get lost or slip through the cracks and so forth and we were thus passionate about coming up with a solution to that problem. First just to satisfy our own frustration and then secondly realizing that there are tons of people just like us who would have the same frustrations just like us and would be willing to pay for a solution to that.

JT: It?s funny. I?ve been using Base Camp for years and years and years and have been absolutely loving it too because I know we used to use email before we had Base Camp and it was a big pain in the butt. So number one, thank you. I?m glad you saw the frustration and it helped a bazillion other people too. But what if you don?t find those frustrations? What if you?re just, like you said, a programmer that?s sort of just getting into it and don?t already have a business to start? What sort of opportunities or how do they find the opportunities that they can use?

DHH: I?d say the next best thing, if you don?t have a set of frustrations personally that you can turn into products, then you surely have people in your life who have those frustrations. There are so many small businesses or large businesses everywhere that have employees bitching about how either the technology they?re currently using just sucks or that they wish that somebody would come up with a product to do X. There?s so many niches that you could fill in so many different products that could make people more productive or efficient or just their working life bearable if you came up with technology to solve that problem.

I think that software is the new great frontier. There?s no industry that?s going to be left untouched by software and I think as you look at that, there?s just so many opportunities left. There?s so little, we?ve solved with software already, even though we?ve written bazillions of lines of codes over the last what ? 30, 40, 50 years. There?s still so many areas left that could be so much more efficient if software was there to help them.

So you can try to talk to people in your just personal network or you can also just try to start with consulting and see if you could build something through that. See if there are clients that you can find that might hire you to do a specific solution just for them. Maybe there is a more general abstract version of that that you?re building that you could sell as a product that many other people could use as well.

JT: So are there anything that you see right now? I mean you?re really deep in this. Do you see any opportunities that you guys, 37signals, aren?t doing and moving forward with that somebody can think about doing?

DHH: I don?t know if I have a buffet ready of solutions.

JT: Come on, really good business ideas for everyone!

DHH: To set off to pursue. I generally just find that we tend to work on the things that we find annoying. That?s how we built a suite of four different products. It wasn?t just sitting down and thinking oh what are the four different products that we can build? We started out building Base Camp and that solved the problem of project management for us. Then High Rise, for example, solved the problem of following up with all the contacts that we have. Me knowing when Jason had talked to the landlord or when I had talked to the accountant. So we kind of tend to just solve the problems as we encounter them.

I don?t really have any turnkey solutions ready to go and in general I would also say that that doesn?t really do anything for you. Just getting a one-line idea or paragraph and an idea, you should build this out. It doesn?t do anything for you. You need much more context than that. Either you need that personal involvement in the problem domain because you really care about seeing this solved in a perfect way or you need a proxy that allows you to mind his or hers frustrations in order for you to build great software.

JT: Because you don?t know what they?re actually going through. You?ll just be planning and planning and doing what you think is right and it might not be right at all.

DHH: Exactly. That?s the number one problem with trying to write software for other people. You don?t necessarily know whether you?ve solved the problem or now. So that?s why I always say to people, if you can work on your own problems, you have it so much easier than if you?re trying to work on other people?s problems. But obviously not everybody has a list of issues or frustrations that they want to deal with themselves or they figure out that their frustrations just aren?t general enough that there will be a marketplace for it. Then you have to go to the next best thing which is trying to solve other people?s problem.

JT: That sort of leads me though to, because you guys have a great philosophy and I really like it, but what I also see is people interpret it, I don?t know if I?d say wrong but I see a lot of entrepreneurs that try a new idea, they see a need, maybe it?s their own frustration and they just hope that it?ll go viral. That they won?t need to market it because it?s a need that everybody needs and I don?t really have to worry about the marketing and sales aspect because this is going to be great. What do you have for advice on that? What do you guys do?

DHH: Sure. I totally agree. The marketplace is littered with supposedly great products that never found the people who were looking for that solution because they didn?t know about. So you absolutely have to take the marketing of your business extremely serious. For us, our approach was to, as Cathy Sierra used to say, out teach instead of outspend. Try to share as much of what we knew about a certain domain, project management in particular, with our readers and try to build an audience that way.

So we would share on the blog things that we would do to make us more effective. Rework, the book, is basically the product of that. It?s a collection of all the essays that we wrote in Signal vs. Noise and all the things we talked about at conferences that usually they center around some aspect of project management, just because we really care about that domain. Every domain has interesting stories to the people who care about them. There is always something to be taught. There?s always something to be explored and if you can build up an audience that sees you as an expert in that domain, then it?s a very natural next step for them to buy a product from you.

It?s not a guarantee. It?s certainly not an overnight thing to do. When we started or when we launched Base Camp, Signal vs. Noise had just I think 4,000 daily readers which, in the age of people having tens of thousands of followers on Twitter, was a puny amount but it was still plenty to get the product off the ground. And then yes, it took a long time. Good things usually do. Base Camp wasn?t a runaway success after 12 months. It wasn?t a runaway success after 24 or 36 months. It only just paid the bills at a tiny company of four people with basically no costs after one year.

So I think sometimes probably here too is the people have unrealistic expectations as to how quickly they can build a business and I don?t blame them because most of the mainstream media is all about how this 20-year-old kid built a billion dollar business in six months, right? All you hear about is these spectacular shake and bake instant success businesses and the fact is that?s just not how the real world works. Most of the time, building something great takes a long time.

JT: See that?s really important. I think everybody needs to hear that. I?m going to quote you for everything on that because a lot of people just, at least the people that I talk to, want those instant successes. I think we?ve sort of been enamored with start a blog and you?ll be a millionaire and it?s not that way at all. So knowing that you guys, people who are seen as hugely successful took a long time to try and get it up and going is really important too.

So let?s talk about focus then. So were you guys solely focused on Base Camp when you started it for those 24 months or were you still doing web consulting? Were you doing other stuff too to try and see if anything worked? What?s your plan on focus?

DHH: Absolutely. We were not focused exclusively on Base Camp at all. One of the big things that we believe in is to bootstrap a business. Do it in a way where you rely on yourself. We don?t rely on other people giving you money, especially not venture capitalists. That is a whole rabbit hole on its one. So what we wanted to do was build a business where we would own it when we were done and where we would have a chance to base a company that could last for the next 10, 20, 30 years off that, which is just not the case generally when you go the venture capital route.

So what we did is we funded the development of Base Camp by being consultants. So Base Camp was basically a part-time endeavor for us. While we were developing it, I was doing some other consultant work on the side and I was finishing my degree in school. So on the programming side of things for about six calendar months that we worked on Base Camp, I spent ten hours per week. That?s it. And I know this because I was building Base Camp at the time or I was building 37signals at the time.

So I would basically send them an invoice every week or every two weeks for those ten hours per week and I know that Jason and Ryan were also working on Base Camp at the time. They had all these other obligations of actually paying the bills by doing assigned work for hire at 37signals. So that?s the other thing or the myth that we often try to shoot down is the notion that entrepreneurs need to risk everything. They need to quit their job, they need to put in their life savings and they need to take other people?s money to create a business when that?s absolutely false.

It has never been easier to create something with no capital on hand in software as it is today. If you can do it self-funded, you can do it on your schedule, on your own time and with you being in control of the entire process the entire way. I do. I talk to a lot of entrepreneurs who have been through the traditional funded cycle and a lot of them do not have positive things to say about that cycle once they?ve been through it.

JT: So how do you deal with, because I heard that you guys are Type A. I know I?m Type A. I work only 20 hours a week right now. What are some of the benefits of slow going and how do you take that where I?m the type of person who wants something right now, I mean as far as I want to work and then I want to see not necessarily instant gratification but progress. So how do you deal with both things of knowing that you want to go slow and you?re really working on it slowly but not seeing all that progress really soon?

DHH: Yes. I think the first thing you do is you build less. If you?re working on the side, if you?re just working with a small team and if you want a life on top of it, you can?t build as much software as somebody who has 100 people working for them could. But that is actually your advantage. That is exactly what will guarantee that you will build something simpler than the competition. We used to say that what we do at 37signals is that we under do the competition instead of trying to overdo them or outdo them.

We just build less software. I think it?s one of those weird things when you?re forced to make pretty stark choices between which features should stay and which features should go, then that?s when brilliance comes out. When you?re being forced to embrace those constraints that you initially thought were negative and you are like I can?t create a breakthrough product or whatever because I only have so and so many resources. Bullshit. You have all the time you need and that goes for anybody who wants to create something in software.

There?s always a simpler version of the idea you have in mind that probably captures the bulk of the value that you are trying to reach. So it?s really all about just getting started and then just being happy with the constraints that you have. You have to accept the world as it is and just deal with it. I think that that?s perhaps where it helps and that?s what we?ve tried to do in telling our story of building Base Camp and other products that we lived through the same thing and there?s a very similar story behind lots of very successful businesses and not just software businesses that people who started small, started on the side didn?t necessarily risk their life savings to get going and they ended up with something great.

JT: So when you?re going through this, how long do you work on a project? I mean with Base Camp it?s kind of hard because it was a big success but how long would you work on a project before you know whether or not it?s going to work?

DHH: Sure. I think what you need to see is you need to see some level of traction. With Base Camp we had incredibly modest expectations when we first launched it. So it was easy for us to declare Base Camp ?a success? because we had such modest expectations. I think our expectations were that we wanted Base Camp to generate $4,000 a month in revenue after a year and it only took us about three weeks to get to that point. At that point we thought wow this is amazing, right?

But if you tell that story to a lot of other companies they would say what, $4,000 a month? That?s not worth anything. That?s not worth our time. That?s not worth our attention. This is a tiny micro business. So they would have written Base Camp off as a big failure after 12 months because it was only generating just enough money to pay all the bills for a company of our four people, right? That?s not a blockbuster success to somebody like Microsoft, right? That?s not going to impress anybody at the board meeting.

So it?s just about setting your sites at a realistic goal and it?s so much easier to set a realistic goal if you don?t have all sorts of expectation baggage coming with you. If you already took $5 million from somebody, no, you cannot just create a business that creates a million dollars a year in revenue. That?s not a success. They?re not going to get their multiple back if that?s all you create. But if you started it from scratch just on the side, I think a lot of people would be very happy to have a business that created a million dollars a year.

But, as I said, in that startup school talk I did a couple years back, somehow a million dollars sort of lost its appeal. All you hear about is people being billionaires but I think the world at large would be much better off if we had more entrepreneurs just trying to solve all sorts of small to medium size problems that could net them a million dollars a year rather than having a whole lot of people thing that they?re going to play in the tech version of the NBA and then realizing that oh only 20 people make the team out of thousands or hundreds of thousands who try.

JT: Yeah, so instead of just shooting for grandiose visions of Groupon or billion dollar IPOs, really do something a little more attainable. What I loved about startup school and I?m definitely going to link to it in the post too is that you say it?s just a million bucks and the listeners that are listening right now have that as a goal. They?re not like yes I want to be a billionaire. It?s that I want to build something really cool. A lot of the people that are listening want to create something awesome and help some people and I love how nice and easy you make it seem. I know you did some numbers in startup school and everybody should check that out too.

The other thing you said, actually I think in an interview, you said, ?I love money,? and I want to bring that up for just a second because I have actually questioned a lot of people on that phrase ? I love money ? and everybody doesn?t like that phrase. They?re really uncomfortable saying that they love money and they?ll say I love what the money does for me. I love the freedom and the option it gives me but I don?t love money. So what are your thoughts on that?

DHH: First of all, I?m as capitalist as they come in that sense. To me, money is a way of keeping score as a business, of whether you?re doing anything useful for society or not and whether you?re doing it in a energy efficient way. When I say I love money that?s actually not true. I love profits. There are lots of companies out there who make a lot of money in revenue and don?t make any profits. That to me is terribly uninteresting. That is energy inefficient. It?s kind of like all these attempts we have at coming up with alternative fuels, right?

So you have ethanol for example which is an energy inefficient way of creating fuel. It takes more energy to create this than you get out of it in the end which is why are you even bothering and I feel the same way about business. If it?s taking you $2 to earn $1 than what are you doing? This is not working. Something is not right. But somehow we ended up with a system that rewards that. That rewards somebody like say Groupon who is able to create a billion dollars in revenue even though they are losing more than $100 million a quarter. That?s not an interesting business to me. That?s just not something that I aspire to.

So when I say I love money, I say I love to create efficient businesses. I love to create something that has basically leverage in the sense that when I invest my time, my money into something, I want more out of it at the end. I don?t just want the same out of it and I certainly don?t want less than what I put in out of it. And then I think, to me, there?s nothing wrong with wanting that. As long as you?re in a free capitalist system, presumably you?re making profits because people enjoy your products and feel good about paying whatever they cost for them. I?m not talking about monopolies or other market distorting sort of setups but if your small business or a big business selling product that people want, then you should be making profit and people should be happy that you are.

That?s one of the reasons why I am so proud of what Apple is doing. They?re not just creating phenomenal products, they?re also creating phenomenal profits and in a way, it seems like nobody else in their industry seem to understand, especially when it comes to consumer electronics where you have huge giants like HTC and Sony that all they care about presumably is revenue and market share and Apple says well that?s all good and fine. We?re just going to create fantastic products and then we?re going to reap fantastic profits from it too and I think that that?s the mindset that you really need.

So that?s sort of the thinking on just the creating side of it and then on the other side of it I know that a lot of people sort of feel uneasy about reaping the rewards of their work. I don?t. I don?t have any guilt about being a successful participant in the capitalistic system. I think that?s how it works and why the system works. I don?t think there?s any reason to feel sad or sorry about that.

JT: That sort of brings me to the point that I want to mention towards the end is you always seem and I?ve listened to tons of interviews and everything, you seem so freaking sure of yourself. Do you ever have any fear or do you sort of feel like you always know what you?re doing and you just push forward anyway?

DHH: I don?t know what I?m doing most of the time and I?m just happy with that. I don?t need to know what I?m doing all the time. I need to feel like we?re moving in the right direction and that we are taking or making bets with good odds. I hate making bets that I consider have poor odds. That?s why I never gamble. Like I know that the house in Vegas has an edge over me. Why the hell would I participate in a game where I know that I?m outmatched from the time I sit down at the table? So I try to sit down at tables where I have great odds. That doesn?t mean I?m guaranteed of success. Certainly not.

There is all parts of whether you want to call it luck or timing or whatever you want to call it. There?s all these other tons of variables that you can?t control that have a bearing on whether the thing you?re doing turns out to be a success or not and certainly not all your ideas will turn out to be good but again, if you?re generally betting on ideas and businesses, when you feel like the odds are in your favor, then sooner or later you?re going to win. It is exactly the same thing with the Vegas metaphor again.

The house in Vegas is just fine giving you a 40 percent chance of winning. They know over just enough games they?re still going to end up ahead and that?s how you need to treat the time that you have. Invest your time in ideas and businesses that have a reasonable chance of success and reasonable odds. So it might be all good and well to chase that billion dollar idea but if you have a 1 in 10,000 chance of getting there, well you might as well play the lotto.

JT: Definitely. So do you ever worry or anything like that? Is there anything that you guys do that makes you scared or worried? What I try and do is find out if you?re real, right? If you?re like a real person that has issues too and that?s sort of why I interview millionaires because I want people to know that yeah, they?re just same people. They don?t know what they?re doing all the time like you said. But I?m also just wondering do you ever, are you ever scared of anything?

DHH: What I try to do is I try to put myself in situations where I don?t need to take those big gambles. I would be just as scared as anybody else if I was risking my life savings or my retirement fund or remortgaging my house for the third time. That is a scary proposition. What I try to do is just avoid situations like that. There are so many other options where you don?t have to put yourself in basically fight or flight mode, right? It doesn?t have to get that primal. So I think that that?s perhaps also what leads to perhaps some people would call it a slow boring growth that Base Camp wasn?t a Groupon after 12 months.

We weren?t creating a billion dollars of revenue because we weren?t taking these massive chances. So I don?t think scared is a good way of phrasing it. I think actually if you?re scared when you?re making a big jump like this then it?s at least worth looking at. Are you making a jump here where the odds aren?t in your favor? Because then okay there?s probably a good reason to be scared or are you risking everything when it?s really not necessary? Could you try to do this with less? Could you try to not remortgage your house? Could you try, what happened if you didn?t quit your job? If all of these things that make you scared, revisit them and okay maybe sometimes it is necessary.

Maybe the idea that you are pursuing does require a significant amount of capital. Nobody else believes in you and you sort of feel like you do want to gamble on it and that can be a little scary and I totally respect that too. But I think it?s a little too ingrained in the entrepreneurial myth that we have to be scared, that we have to take on this extreme risk. I want to push back against that and say that?s not necessarily so.

JT: I love that. Excellent. So are there any resources that you turn to when you were learning and are there any really great books that you?d recommend to anyone?

DHH: Sure. I usually recommend a book called Maverick by Ricardo Semler. I absolutely love this book. If you thought that Rework had some daring ideas in it, then Maverick is that on steroids in some sense. This guy runs a huge industrial company in I think Brazil, somewhere in South America and the managerial and operational techniques that he attempts at his company are far more daring than most of the things that we promote in Rework. So that was just sort of a good confidence booster when we were thinking about something that other people might think of as daring.

We?re like we?re going to try that and we can always look back at Ricardo?s book and say well this guy tried far more outlandish or extravagant things and he had a far bigger company in a much more staunchy industry and somehow he made it work. So that was a good confidence booster. I also like Christian, what?s his name, I keep forgetting. You know, Innovative Dilemma and Innovative Solution? That?s a really good set of books about how to look for the next big thing in things. Skating where the puck is going to be and not where it is right now as he puts in one of the books.

I?ve also recently been reading Red Ocean Blue Ocean which is another great way of looking at business and seeing established industries and how you can come up with what will appear as revolutionary new products by focusing on different things to care about. So all those three are good.

JT: Perfect. See I love how you, it seems like the way you look at things is like a game and so what you?re looking on is that next thing that maybe you can get an edge above everybody else too. I think that?s really, really cool. So what?s one action, for the last question, that everyone can take this week to move them forward towards their goal of a million?

DHH: Find out what your best idea is and work on that. I think a lot of people have sort of a portfolio of ideas of things they would like to pursue and that is where paralysis lays. When you have a ton of things that you could pursue then there?s a good chance you won?t end up pursuing any of them with sufficient vigor. You need to pick one good idea, your best idea and then give that all you have within the constraints that are available to you. So figure out how you?re going to make your best idea work and figure out what your best idea is and then give it all.

Don?t try to put a little money on 31, a little money on 24 and a little money on 5. Nope. Go all in, within your constraints, all in again doesn?t mean selling your house. Doesn?t mean even quitting your job. Doesn?t even mean giving up all weekends with your family, but at least just focus on that one thing and then give it a fair shake. Do not give up after three months of nothing. Most great businesses would never have been if people had given up after three months of nothing.

JT: Solid advice. Thank you so much. So where can we find more about you? I know you?re doing racecar driving, you?ve got pictures online, you?ve got tons of stuff going on. So where?s the best place that we can find you online?

DHH: Sure. Twitter is actually the main one used these days. I am DHH on Twitter and I also have a website at HeinemeierHansson.com and I blog at 37signals.com/SVN.

JT: Great. I?ll definitely link to everything. I know the Signal vs. Noise blog and your podcast on 37signals is awesome so I highly recommend that to everybody too. Thank you so much for coming on today, David.

DHH: My pleasure. Thanks.

Just to note, you can download the Top 10 tips from these millionaire interviews on the blog.

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