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37 Signals Says Screw Growth And Dumps Its Products

37 Signals, the Web design company that created Ruby on Rails, Ta-da list, Highrise and a bunch of bestselling technology business books, has changed its name and will drop all but one of its products. Fifteen years after its founding, the company will be known by the name of its most successful product: Basecamp. The project management tool, which is now ten years old, has over 15 million accounts and continues to grow at a rate of more than 6,600 business customers each week.

The fate of the company’s other products depends on finding the right financing and partners. They may be spun off under Basecamp’s partial ownership, sold off completely or left live but with no further development and no new customers. Basecamp expects that Campfire will sell in the “single digit millions” and Highrise will sell for “tens of millions.” All of Basecamp’s 43 staff will remain with the firm, even in the event of a complete sale. Staff now working on the offloaded products will be directed to work solely on the project management software.

It’s an unusual move for a technology firm. Successful Web companies tend to act more like Google, using their breakout product to finance moves into other more speculative areas. Sergei Brin and Larry Page might have started in search but the big interest in the company is now focused on its mobile operating system, its wearable hardware and even its self-driving cars. They’re all related to the company’s core product but they’ve moved a long way from retrieving Web pages and serving ads.

37 Signals’ move then could be seen as a major step backwards. Focusing on a single function limits the company’s growth. Employees with good ideas won’t be able to develop them in-house in the way that Googlers were able to give the search company Google News, Google Reader, Gmail and even AdSense. Basecamp’s 43 staff members might be able to stay with the company but they’ll only want to if their creativity is suitable for project management software and nothing else. The company plans to advertise for more graphic designers, but ambitious types who feel they might one day want to run their own projects inside a successful company might want to steer clear.

All Basecamp All The Time

Customers too are stuck with the single product that 37 Signals now offers whether they want the company to offer more or not. If Highrise is worth tens of millions of dollars, that’s a pretty good sign that it’s a good product. However diligent the company is in looking for partners, there’s no guarantee that it will remain a good product once it’s run and developed by a different management team. People who trust Basecamp, and want to use another product they trust just as much, will now have to gamble by using a different company.

And it’s debatable how much even users of Basecamp will benefit from the company’s shrinkage. Certainly, by focusing on one product and directing all its energy and finance to that project, the development cycle should be faster and improvements sharper.

“With this change,” founder and CEO Jason Fried writes at 37signals.com, “we renew our long-term commitment to all things Basecamp. Basecamp on the web, Basecamp on iOS, Basecamp on Android, Basecamp via email, and Basecamp wherever else it makes sense. Each one of us will be dedicated to improving Basecamp, extending Basecamp’s reach, expanding Basecamp’s capabilities, and making sure our Basecamp customers are treated like royalty.”

But there’s a limit to how much Basecamp can be developed and still retain its simplicity. It might look tempting to take many of the features now offered as single products and integrate at least some of them into Basecamp but that kind of growth will come at the expense of the ease-of-use that is now software’s main selling point. Nor is the number of platforms on which Basecamp can work endless. Once they’ve sorted the Web, iOS and Android, Basecamp will be hit by the law of diminishing returns.

Thickest is Best

The decision to shut down all but the biggest of 37 Signals’ products was taken on the tenth anniversary of Basecamp and fifteen years after the company was formed. The team felt that after releasing so many products they’d “become a bit scattered, a bit diluted” and that by spreading themselves so thin, they were unable to do their best work.

But there was something else too. Jason Fried stated that 37 Signals has always enjoyed being a small company and while it’s now bigger than it’s ever been it’s still relatively small at 43 people. It wants to stay that way:

“So while we could hire a bunch more people to do a bunch more things, that kind of rapid expansion is at odds with our culture. We want to maintain the kind of company where everyone knows everyone’s name. That’s one of the reasons why so many of the people who work at 37signals stay at 37signals.”

For entrepreneurs looking at Jason Fried and wondering what on earth he’s doing by shrinking his company, that’s a valuable lesson. Often when we start businesses, we think only a year or two down the road, perhaps five at the most. Jason Fried was looking twenty years down the road and he wasn’t happy with the way the company was moving. For him, creating a successful business hasn’t been about being as big as possible. (If it had been he wouldn’t have turned down the 100-plus VC and private equity offers made to the company over the years.) It’s about building a business where he was happy to work.

That’s not a bad long-term strategy for any entrepreneur.

Although before you get there you might want to first create a bunch of small products and sell them for tens of millions dollars each.

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