David Heinemeier Hansson - 37Signals

Our super guest today is David Heinemeier Hannsson known in the tech world as DHH.

He is the Creator of Ruby on Rails the popular web development framework used by companies like Twitter, Github, Shopify, Airbnb, Square, Twitch, and Zendesk to name a few.

He is also a co-owner and the CTO of 37signals the company responsible for developing basecamp and hey email service.

David has many talents, besides being a top programer, he is a bestselling author and a Le Mans class-winnning racing driver.

During this episode we discuss about his anti VC philosophy, why rubby on rails became so popular and his learnings from building a company and working remote for the last 20 years.

Calin: David, thank you very much for taking the time. How are you?

DHH: Good. My pleasure.

Calin: Are you in Denmark? I know that you are traveling quite a bit back and forth between the US and Europe.

DHH: Yes. Um, still I'm doing that too, but absolutely spending a lot more time in Europe these days and in Copenhagen. I still have a foot in the US as well, so kind of living a bit split, but much more of a focus has been on Europe in the past two years or so.

Calin: In the past two years because the majority of the team it's much more in Europe Or how did you decide to split your time?

DHH: That was more of a personal decision. I mean, when the pandemic hit, I have three kids going to school in the US with lockdowns and all the other stuff they had going on over there. We thought that was a good time to try something else. And Denmark obviously stood out to me because I am Danish. I lived in Denmark until 2005 and coming back here was just a wonderful way to spend some time away from the pandemic lockdown situation that they had in the US.

After staying here longer, we just realized, hey, do you know what? This is pretty good. But the company has also evolved, 37 signals used to be almost predominantly US and now we're half in the US, half outside, and the majority of that half that's outside the US is in Europe.

Calin: Let's start with the story of how you met your partner, Jason, The creation of Ruby on Rails and the philosophy of 37 Signals as a company.

DHH: Yeah, it started on, uh, on an accident, if you will, back in 2001, I was just a big fan of this company called 37 Signals, which was this very odd company that had a homepage full of text. At that time in 2001 everyone was bragging about their splash screens and animations and all these other things.

And 37 signals.com had just a manifesto that was purely text. I thought this is fascinating. This is interesting. So I was following the company at the time and when one of the founders, Jason Fried, posted on the Signal versus Noise blog about learning how to program and questions about those programs, I thought like, Hey, I know the answer.

Let me reach out. So I reached out to him from Copenhagen, Denmark. He was sitting in Chicago, Illinois, and we started working together shortly thereafter. Spent a couple of years working together. I was gonna say remotely, we've worked remotely the entire time, but across continents, let's say. And in 2003, we then started working on Basecamp, our project management system that we launched in 2004 and have been working on ever since 18 years and going strong. We're still working on Basecamp, still together, and now the company is called 37Signals again.

So it's been a kind of a full circle of commitment. To a business, to a technology, to a piece of software. And as you say, also to a philosophy of work that we have refined and promoted and shared over those many years. We have one of our thesis at the company that you should Out-teach the competition, not outspend it. And that has certainly been true for our approach to business because we don't have the money to outspend anyone. We have not raised hundreds of millions of dollars in venture capital or any millions of dollars in venture capital. We are bootstrapped and have been profitable for 23 years, which in itself is a total misnomer in software, certainly software from the US and that has been our philosophy.

So what we do instead to create awareness about what we do is that we share, we share a lot about our philosophy, how we work, how we build software, how we design, how we run software teams. Our software methodology is something we recently shared. It's called Shape Up that you can find  at basecamp.com/shapeup.

It talks specifically about how we work and then we've written a bunch of books. The biggest of which was Rework from 2010 that sold more than half a million copies and it's been translated to like 18 different languages and we continue to hear from people, because it's a collection of evergreen ideas that we've been not just building our company but continued to treat it as the foundation of what we do and how we do it. So we continue to hear from people who discover that book from the first time or just like blown away by, oh, there's a different way to start a business.

There's a different way to run a business and you don't have to take venture capital. You can actually build a bootstrapped company. Or maybe meetings are not the first thing you should reach for in the toolbox when you're trying to collaborate. So, That whole approach to business, to out-teaching the competition is something that's near and dear to our heart. We love writing, we love sharing. During that whole time, I've obviously also been involved on the technology side as the CTO and originally just the only programmer at the company when we built Base Camp back in the day. And as part of that process, I built something called Ruby on Rails, which is a toolkit that's been used by all sorts of companies.

Twitter was started on it, GitHub and Shopify, Airbnb, and many others continue to run their business on Ruby and Rails, and I am still involved in driving that forward, and having an absolute blast doing it.

Calin: What made Ruby on Rails so powerful that you have these great companies that have been built with it?

DHH: I think in part because it was a complete answer to a question that a lot of people were interested in solving, which was, how do I build a web application, connected to a database, accessible over the internet where all the batteries are in the box.

Everything that I need is there, and that's what Ruby on Rails brought to the scene in 2004. Before that, there were tons of different approaches on how you could build a web application, and most of them were sort of construction kits. It was sort of like, um, the days before the personal computer was sold in a box where everything was being put together, where you just got like, Hey, here's a circuit board. Here's a bunch of wires. You figure that stuff out, put your own damn computer together, and that means you're a real serious computer programmer. I created a framework for people who weren't interested in putting a whole box of the separate parts together, or even finding those parts in the first place who were simply interested in building compelling web applications and in many ways compelling businesses.

It wasn't even the web application that was the purpose. It was the business that was the purpose. And I went in directly and said, I'm gonna tackle that problem because we have that problem. We're trying to build a real business based on a web application. And I have found the programming language of my life in Ruby and I'm really excited about it and more people should know about it.

It's an incredible productivity jump over the alternatives. Here's a box that is not just complete, as in everything you need to build, it's also nicely wrapped. It's nicely presented. It feels, in some ways, like a consumer product to some degree. At that time in 2004, marketing for open source software was almost a misnomer. That was something Sun did, that was something Microsoft did for their commercial tooling. It wasn't something a whole lot of open source construction kits did. So coming in with that productized mindset as to creating awareness is not a bad thing. Persuading people to try something is not a bad thing.

Presenting a piece of technology you have in the best possible light is not a bad thing. This is how you actually get people excited and onboard. And so it went, and lots of companies obviously adopted it. More than a million different web applications have been created with Ruby on Rails. Hundreds of thousands of programmers have used it, and today we have this whole deep bench of incredibly powerful, valuable companies that are built on Ruby and rails and continue to contribute to it. So it's very satisfying to see that.

Calin: How did Ruby on rails evolve?

DHH: It evolved by, um, attracting people who were solving their own problems and sharing them with each other. That Ruby on Rails was never a commercial or even an incorporated approach where we were doing work predominantly on behalf of other people. No, Ruby Rails was a toolkit. For people who had faced real problems themselves in the execution of their business or their work, and found solutions to those things and shared them together. And that's the approach that I took from day one. Ruby on Rails is, as I like to say, an extracted framework. Not an invented framework. I didn't sit down and went like, Oh, I wonder what you would need if you were going to build a web application. No, I sat down, built a web application, built Basecamp, have been running it for 18 years, ran hundreds of millions of dollars of revenue through that operation and thought like, what are the best parts of it. Technology wise, what are the best things that are generic enough that it'll work for anyone, that I can share and put in this toolbox, and then we can all collaborate on it? So that approach is that we are solving real problems and we're sharing the solutions to those real problems.

We're not inventing things. We're not coming up with toy examples. We're not, imagining what someone somewhere might need. No, we're taking the things that actually work, that we have proven to work, and then we're sharing them.

Calin: And also you mentioned in the beginning that you've been a remote company from day one. What are some of the learnings that you guys got from being remote for such a long time and what are some of the processes that actually a company needs to have in place to be able to run a remote team?

DHH: It's really funny. We've been remote obviously since we started. I started working with Jason when I was in Copenhagen back in 2001, and he was in Chicago. So remote has simply been part of our foundation from the get-go. In 2013, we wrote a book called “Remote - Office Not Required”, and I thought at that moment that we're stating the obvious. Everyone knows that remote is such a wonderful power move that you can do as a company. Attract talent from wherever it lives. You're not constrained to whoever's in, within a commute distance of your office. This is amazing. People who work for us can work wherever they want to if they move from one city to another, one country to another, one continent to another, that can continue to work for our company, and I did all of that stuff myself. I moved around a bunch over the 20 years that I've worked at 37 Signals. So it was really just ingrained. We wrote this book in 2013 and thought, this is obvious. Everyone's gonna switch to remote and then boom, what happened? Um, not a lot. Like not much happened.

It was a slow growth, and I think in time we would've gotten to perhaps the same place we are now, maybe 10, 20 years in the future. Then 2020 hits and boom, everyone figures out what remote is and how to do it. Well, actually that's a lie. Everyone figures out that remote is something they have to do. They don't know how to do it. And a lot of people weigh in the remote with the idea that we could just replicate the office. Everything we were doing in the office, we could just do that from home. So if my calendar was packed with meetings in the office, we would just do a bunch of Zoom calls and that would be wonderful, right?

Like modern technology. And that honeymoon phase lasted about like five seconds, and then everyone went “This sucks”

Fatigue is not just a buzzword, it's an absolute, buzz kill and it's a kill of meaning and satisfaction and all these other things that we'd like to get out of work. It's absolutely awful.

Are there different ways to do remote work? And we were like, Hey, Yeah, yeah. We've been doing it 20 years before any of these other things. The number one transition that I think is critical for a company to make the jump from not just doing remote to embracing it is to give up on a meetings first culture on a real-time culture.

This idea that we have to line up the calendar Tetris of everyone on our team to get anything done, to make any kinds of decisions, and move forward is absolutely bust, its dinosaur thinking. It's based around the idea that we're all in the office together. It does not work in a remote world. What does work is asynchronous collaboration. A form of decision-making and status updating and communication, in general, that's based on writing. Writing that you can read at your leisure when it makes sense and fits within your schedule. A calendar that's not punctured and cut into tiny little work moments, but I actually have entire work days because you get hours and hours of uninterrupted time to solve the real critical, difficult problems that you were excited to solve in the first place.

Not excited to be in meetings all day and certainly not in Zoom meetings all day. So making that transition from meetings first, synchronous, real-time to asynchronous, writing first is a huge leap, the single most important leap that you can take when you're doing the transition to becoming a remote native company. Is really the distinction. Plenty of companies are doing remote. They're not remote native. To become remote native, you really have to embrace asynchronous working, which as it happens is the problem we've been trying to solve for 20 years. And not just trying to solve for 20 years that we've been living and breathing for 20 years that we've been perfecting for 20 years.

That's what Basecamp.com is. It's a toolkit for helping companies work the way we have already been working for a very long time. We've been through all of it.

We've been through, for example, the excitement about chat. That was what was so funny to me when I saw the rise of Slack. First of all, we had built a slack alternative, 10 years in advance, which in itself just points out that, in business so much is about timing, right? We built Campfire, our Slack tool back in 2005 and Slack really came to prominence about 10 years later. And some of that is just that the market is ready. And also of course, they built a wonderful product that people were excited to use. But it was so funny to see people go through that honeymoon phase where they go like, Oh yes, chat. This is the great thing if we just put everything into chat, like we'll be so much more agile. We'll be modern and dynamic. And you're just like, That also lasted about five minutes. And then people went like, Where's that thing we talked about?

Where did you guys just make that decision? I can't find that. And everything just scrolls away from underneath you unless you have half your attention parked on a scrolling chat stream. You miss the important moments, you miss your opportunity to weigh in on the decisions that matter to you, and you just realize, Oh, actually this is a horrible way of working. In fact, this is not a step forward at all if you simply convert your in-office collaboration style to a chat only, a slack only style of working. You're actually moving backwards, not forwards. Even though it seems as though you're embracing new technologies and modern ways of working. It's quite a big mirage and I think that's one of the things that has been so exciting about building Basecamp.

The chat is one of the answers to a subset. A minority of the problems that you're faced with when you're trying to collaborate and ensure that things don't fall through the cracks, when you're working together. But you need so much more. And this notion of asynchronous communication in which chat is not right.

Chat is real time communication, bringing it in online, bringing thinking into per line thinking, which is not really conducive to, in my opinion, great insights. Great insights come when we actually have time to sit back and think about what we're doing. Think in whole sentences, complete paragraphs, encapsulated thoughts, and that's what we do at Basecamp.

This is how we use Basecamp, so much of the collaboration in Basecamp revolves around someone actually sitting down and writing a paper on some idea, some challenge. We're facing a pitch for something we should solve. An illumination of a problem that we're facing or an update on the status of where the business is, and I can then read that either five minutes after it's posted. Three hours after it's posted or the next day and let it actually percolate in my brain for a bit before I just knee-jerk my reaction out and I find that not only do we get much better thinking that way, much better decision making. It's also a calmer way of working.

I don't have this partial attention syndrome that you very quickly develop if you work in a chat first organization where you constantly have this sense of keeping up with the conveyor belt of decisions, just scrolling by, Right?

I can know that if something really matters, someone's gonna write it up and I'm gonna have the time to digest that, to think about that and respond in due time and have my say so it's just a much healthier way of working. It's a way that we've been developing, as I said, over 20 years because we've been through all of it.

We've been excited about chat. Yeah, that was 17 years ago, and again, it's not that these things don't have a place, it's not that these things don't have value. In fact, they totally do. But the proportionality of it, that's what we always get wrong when we're at the peak of excitement, right? We discover something new, soon we discover slack and we go like, this is the answer to all my prayers.

This is the silver bullet that's gonna make everything so easy. And then you way overuse it, right? And then you go after a while, Hmm, this isn't right. Then you step back and then that's when the learning really sets in.

And for a lot of organizations, they still haven't been through that process because it's really only been a couple years since they've started working remotely.

They're still in the infancy stage of that transition to a native remote company.

Calin: When you look back, what do you think were the biggest hurdles for companies, even though they see all the advantages of going remote? Why didn't they transform from 2013, 2014 when that was obvious?

DHH: I think the number one thing is simply inertia. It is very hard to change the habits and patterns of work, particularly for executives who grew up in the olden days when the office was simply a premise for the company that this was what you did, this was how you started a company. Well, you got a lease and then you got a fax machine, and then you got some office chairs, and that was, now we're a real company, right? they didn't grow up in this remote native way, and it is hard to teach, an old dog new tricks. That's just the fact of humanity. This is why having new generations is absolutely crucial to our continued evolution as a species. Even though as you grow old, you often go like an old man shaking at the sky.

All young people these days, right? And I'm sure. That there are plenty of executives who are still shaking at the sky, going like, remote can never work. This was the argument we were making back in ‘13 when we wrote “Remote- office not required” that there were so many shallow oppositions to remote work based around such other bullshit. As in you can't build a culture unless you have a water cooler that people accidentally gather around. Are you kidding me? Like that is just such a shallow analysis of how cultures actually are built and how strong companies emerge from the habits and the actions that they take. So I think a lot of it simply was inertia, and that was the gift, if you will, of the pandemic.

It just utterly obliterated this inertia because you had no choice. Every single company in the world was forced to run a remote experiment at the same time. And what happened? Did all these companies go out of business because there was no longer a water cooler they could gather around? Of course not utter nonsense.

That was now being empirically disproven. No one can today come out and say you can't build a proper culture, unless you have a water cooler. You can't, um, get any creativity out of your team unless you're standing in front of a whiteboard. Everyone would just laugh you out of the room because we have empirically proven that that's nonsense.

Now, that's not the same as saying you can't have preferences for those things. It's not the same as saying that the water cooler can't have benefits. It's not the same as saying that creativity can't happen in front of a whiteboard. Those things are totally true. Are they prerequisites to creating successful companies?

Absolutely not. What are you on about? Have you paid any attention whatsoever since we all ran this grand remote experiment? No, you have not. If that's the conclusion you're still left with, Again, different people can arrive at different conclusions about what they prefer. Now that's a subjective judgment. Like it so happens that Elon Musk seems to think that remote work is nonsense and we should all be in the office.

That's great for him, I suppose. I hope and I also know there are employees who absolutely do enjoy that, right? They enjoy whatever social connections that come from being in the office. We should have different constellations of companies that work in different ways, but we should just stop with the bullshit about whether it's possible to build a strong culture remotely.

Of course it is. I mean, that was already painfully obvious to me 20 years ago. and I kind of felt like at 37Signals, we lived in the future for about 17 years, and then boom, that future finally got widely distributed.

Calin: In 2009, Jason wrote a satirical post about the company's valuation. The title reads something like this “37signals valuation tops 100 billion after bold VC investment” And I know you talk often about not growing at all cost. What do you think is wrong with that model of growing at all costs?

DHH: Oh, we're seeing right now exactly what's wrong. We're seeing company after company who have sacrificed everything on the altar of growth, absolutely crater. If you look at the companies in our industry, for example, around project management, Asana, down 87% this year. 87% after losing damn near a billion dollars over the last four years. Creating what, to-do lists?!

This is obscene. This is absurd. And in good times, that obscenity turns into great returns because there is a bigger fool that you can unload your shit onto. That it doesn't matter whether you're profitable, it doesn't matter whether there's some business fundamentals that actually add up and make sense because you'll just sell it to someone else.

Just wait five minutes and the stock price would go up. And that works. And it works until it fucking doesn't, and the music stops and the music stopped in the spring of this year, and we're not even close to seeing what happens to these companies when, um, the music is stopps? Right?

And it's not just Asana, Monday.com is down, like, I think 70%. Smartsheets is down 68%, 70%, and you have all these companies who've raised money on those terms, right? Like on those comps, the comps of those three companies I just mentioned, fourth quarter last year, which was the top of the top of the top, right? It was basically our Dot com boom reboot. Um, here's the top moment, and now we're at the dot com bust. We have not seen these kinds of implosions, certainly not in public companies since the dot com bust. And why are we seeing that? Because investors suddenly go like, Oh, they've been wasting a billion dollars or half a billion dollars over the last four years building to-do list and collaboration software. Like, eh, do you know what, maybe we're not gonna make our money back and maybe we can't sell our shares any longer to a bigger fool. We're stuck with this shit. So now we have to actually evaluate the company as though it was a company, not just a financial instrument, not just a token that you're hoping to pass on to someone else.

But as I said, it's also affecting the private. Click up, for example, just to stay in the same industry. They've raised 537 million, including 400 million in a Series C. When? Oh, at the top of the market last year. What do you think that valuation was? Uh, $4 billion. What do you think that company's worth today compared to the comps?

Those investors have just gotten annihilated. That company has just gotten absolutely crushed in terms of its valuation. Whether it's chosen to actually realize that, of course, you can keep your fantasy bubble alive for as long as you want, as long as you don't take any more money and force everyone to take that haircut. AirTable, another example. Raised 1.4 billion a series F, by the way, I wasn't even aware that we got that far into the alphabet for most companies, but a series F of 735 million when? Oh, at the top of the market, December 13, last year. Holy shit. At a valuation of 12 billion again.

Notion. Another example, right? Raised 343 million at a valuation of 10 billion in a series C in October of last year. This is not gonna end well.

The real red wave is not whatever's going on in the political system in the US The red wave is what's going on with unprofitable software companies in the markets, both public and private, right fucking now.

And that is the counter to essentially everyone who for a very long time. And certainly when the music is playing, it's like, Oh, you guys are so unambitious. Why don't you just raise a bunch of money and go for the big game? Um, and we go like, you know what, uh, we don't need the money. We think we can build great software. Um, certainly software that's very competitive with everything I just mentioned and more without having thousands of employees, without losing hundreds of millions of dollars every year but you don't get to see the reality of that until the water goes out and then suddenly you can see who's been swimming.

Calin: What would be your advice for entrepreneurs listening and they want to Bootstrap. On the other side, you have companies like Apple and Amazon and, and Facebook. They are all venture capital backed. I do agree with you that quite often you see a lot of excesses and then when a music stops it, it crashes. For the founders listening that would like to bootstrap their company, what is your advice?

DHH: First of all, figure out why you are starting this company in the first place, right? Are you interested in working for someone else? Yeah, you should take some venture capital. Then you'll get a lot of bosses who will very quickly tell you which way to walk. As soon as the slightest, array of trouble shows up. You think you're working for yourself? What a joke. No, you're not. if you want that independence, bootstrapping or something akin to it, taking just a little bit of money to get started. I mean, I know not everyone can do the bootstrap. We did our bootstrap, as kind of using a consulting business to get going and pay the bills so that we weren't risking our house or all the money in the bank that we had. That's an option. I still think that's a great option. It's not an option for everyone. Some people do need to raise some amount of money, but you can raise money from other people than just venture capitalists. Um, in fact, I've invested in five startups in the past year in Denmark on very different terms with very different outlook.

I've invested essentially on the same terms and the same outlook that Jeff Bezos went into our company in 2006. Now, that was a little different because he didn't actually invest in the company. He bought secondaries from Jason and I. We never put a single dollar into the company from investments because we were profitable all along.

But he went in on the terms of like, I just want to get along for the ride. And that ride being one that eventually turns into a profitable company where you make your returns through profits, the olden way. As in the way every piece of, um, company has worked the last 5,000 years until we came up with this, uh, token game where companies were just chips that we were playing with.

They were financial instruments, and they didn't actually need to make any money, or they didn't need to make any money for perhaps even decades. So, Having that focus on simply building a profitable business. If you get to profitability, you control your own destiny. This is the magic moment when you don't need other people's money, you get to call your own shots.

Isn't that why you were interested in becoming an entrepreneur in the first place, to call your own shots, to build a business the way you saw fit, to create something that you really truly care about. So much of the ways people build their companies are built on the back of twisted morals. Morals that did not start out being twisted, but got twisted in the process from the pressure because the logic of venture capital is a pressure cooker. That is how it's set up. 90% of everyone who makes it to a serious A are gonna hit the fucking wall. That's the math. That's what we all openly go in with, although we don't say it. We say like one out of 10 is gonna land on the moon. Right? Which sounds great. Oh, one outta 10. Wow. One lands on the moons. That's great. If you flip it 90%, nine outta 10 are gonna hit the fucking wall. And when they do, they will look back upon their life with regret because they will have wasted the past 5, 7, 10 years on something that did not turn into a pot that got twisted and bent along the way.

And they have nothing to show when it's fucking over. That's just in an existential sense of the word, you just ended up wasting your twenties, wasting your thirties being what? One of the 10 eggs in the basket that the venture capital threw at the wall. Fuck that.

Calin: Love the passion! You are by any measure a very successful person. What keeps you motivated? Because it is clearly not the valuation or a magical creature for your company valuation.

DHH: No, it's not. I don't give a shit about unicorn status. I don't really care about what others see in the valuation that we have. It has no influence on what drives me every day. I'm driven by making good stuff with people I care about and learning more. It's really that simple. And you know what? That is a wonderful set of objectives because you can continue to fulfill them year after year, decade after decade.

I've been working on this now for 20 years, two decades, and it's still the same. We've ended up designing a company and an existence that is happy and fulfilled being where it is. I don't have to get somewhere else. I don't believe in deferred living. I don't believe in this shit that you should spend seven years being miserable, working 80 hours or a hundred hours a week, Absolutely letting go of your body, um, neglecting your family. Forgoing friends, hobbies are a joke because everything is just on this one thing, right? why, why? The results that I wanted out of entrepreneurship was I wanted to be economically successful. I did want to become rich in the sense that it would allow some freedom and independence, but that richness arrived at having a few million dollars in the bank.

That's the big jump. That's the big difference between being, I was gonna say broke, but it doesn't even have to be that, but between worrying about rent and groceries or energy bills or whatever and not having to worry about those things. That's the leap. 97% of the satisfaction of financial success lies right there.

Then there's another 3% left that are still fun to chase, but there's not that much that would chase for it. What would I give up to become a billionaire? Like what would I sacrifice? I'm like, uh, nothing. How about?

Um, you don't need to, to give all these things up, but what do, what kind of satisfaction do I get from running a company where I actually still get to program? I love programming. Ruby. Could I do that? If we were running this unicorn sprint where we were just trying to build and grow and grow and grow as fast, no, of course I couldn't. How could I take the time out of, uh, a completely packed calendar to focus on something as inconsequential, apparently, as enjoying myself at it