They are doing the right things. Too often we have a "view" of what a company should be, what it started as, etc., and forceably follow that. Crazy. The object should be to listen to your customers and "morph" to higher gross margins where ever your competency allows you to. Business is all about capitalizing on opportunity and less about structure. Eyes wide open will serve us well.
They are a great software company, brilliant indiviudals, but that's all - they have been elevated to celebrity status, which I think is a bit too much. Jason and co. are way too smart not to see that themselves, so they are skinning it every possible way while the good times last. The Job board is the most obvious proof to this.
I once worked for a major oil company that also sold petroleum bypoduct-based fetilizers, plant foods, and weed killers. While not eco-friendly, these products were sucessful and profitable, so to further flog their sales the company started a publishing arm that produced gardening and home improvement books and periodicals. With a Midas-like grasp of tastes, the company made this successful as well. Then a new CEO came onboard and asked a couple of simple questions: "Why is an oil company publishing gardening books?" "Wouldn't the capital that is being invested in this ancillary activity be better employed and provide a greater return if it were invested in our core business of exploring for and producing oil?" After a lot of hand wringing and agonizing among analytical staff -- because the publishing enterpriise was successful and publishing is more classy than oil -- the answers came back in the affirmative, and the oil company sold the publshing arm for a profit and reinvested the proceeds in more extensive overseas exploration. We all know what has happened to oil since then. The CEO was no dummy.
What I learned from this is: 1. Define a core business and stick with it; 2. If sidel deals are more attractive than the core, maybe you're in the wrong business or haven't properly defined the core business.
Releasing products is not 37signals' core business. They started as a service company, helping people build better websites.
Better websites is 37signals' core business. Look at the elements you identify again in that light:
Their products: These are examples of better websites. Arguably the 37signals look and feel is canonical Web 2.0. They are examples of what the company had been saying for years. They are what Rails evolved from.
Signal vs. Noise blog: I actually agree that right now there is more noise than signal. Used to be there was a lot of discussion of design and trends, and these days it's mostly chat logs and screenshots of pretty and ugly websites, but it still speaks to their core business of better websites.
Workshops: This directly relates to their actual core business. They explicilty demonstrate to other people how to build better websites.
"Getting Real" book: Again, instructing people how to build better websites.
Job board: Connect people who build better websites to people who need better websites.
In fact I think their core business is building better software, not just websites that's just what they know most.
It's even possible that their core business is building better _businesses_, but they're only just barely getting into that larger domain.
It's not their products that make them popular, its their marketing. They preach to the choir as it were. Ask 10 non-developers/non-web designers if they've heard of 37signals and you'll get a blank stare. Developers love to hear things like "you don't need a spec" and "tell the customer they don't need this and that". So they draw them in with their blog and it's cult-like following, and then every product they recommend gets tried by their readers.
The funny thing is after we are drawn in, we get annoyed by them because their products are simple enough for any of us to do on a weekend, yet they are making mega bucks and we arn't! Thus the flames roar.
37signals is a marketing company. RoR provides the publicity and credibility (the buzz) that allows them to run a bunch of commodity services. But RoR in itself is not a very valuable resource. There's just too much parity in the market for web platforms.
I have been reading your blog for quite a while. For once, I would disagree.
Having a core business is good for small/medium/big companies. It is important to identify a strategy, a vision and stick with it (and change it when needed).
With "really small" (<50) companies, it is false. You are more flexible since you have control on your organisation (simply less layer and you know better the people). This is one of the advantage of running a small company.
Having a vision is importance to manage medium and short term: who to hires, which customers to pick, how to invest, which organisation to build,...
When you are really small, most people in the team are polyvalent and need to be really good on a professional level. You simply don't need all this. You can live really well as a company being opportunistic for a really long time (I know I did it). You do need to identify your strong points and your weaknesses though, but you cannot correct them (in a bigger company you can), since you hire quite rarerly.
The only problem with this approach is you don't scale. In the case of 37signals, from what I read of them, they do not wish to get bigger and scale.
When creating a company, I deeply think you need to know who you are and what you want. Being big is not the only solution to make a good living out of it. Every way have its pro and cons. But it is one way or the other.
I agree with the above - 37Signals is a marketing company, and they are selling revolution, not software.
Which is actually an interesting phenomenon - a business more about a feeling than a product. 37S delivers a feeling of rebelllion through its various offerings, which is what separates them from the 9000 other simple web-apps, hundreds of books, and dozens of events.
I say this to praise and not bury or criticize - that kind of brand power is the envy of Procter & Gamble, secures their business from mere direct competition, and is an object lesson for the rest of us, even more than their explicit lessons in simplicity.
There is a fine line. Not many people can see where the vision ends and vision dilution begins.
The case of water vs. enahnced water is what I mention on my blog.
It's still "water" but it's enhanced.
p.s. A VERY fine line.
[I posted this inside the forum but I'll put it out here too just in case someone else may find it usel]
If you owned a bottled water company in the 80's and some kid from your marketing department came up to you and said that the company could carve a new profitable niche by introducing Vitamin Enhanced or Fruit Flavored water, then would you have listened or would you have said "Kid, that's the lousiest idea I've ever heard!"?This happens all the time. Great opportunities wasted. You can't blame the CEO or the kid from marketing.
But you may be able to stop it from happening to you by basing your vision on the following adaptive model (where all points should be processed in parallel):
1. Be ready to jump on opportunity when it opens up.
2. Don't go outside of the acceptable boundary of your target market (see #3)
[You may want to put your ubergeek hat on for the next two bullets]
3. Realize that the acceptable boundary of your target market is an ever-changing thin line that expands and contracts in different directions in opportunity space, and does so chaotically and unpredictably over time. So it's up to you to visualize it (based on your knowledge of the opportunity space for your industry) and it's up to you to make the bets. Having said that, I believe there is always a stable layer of enhanced value possibilities within your market's opportunity space, that is right around your core vision, and making your bets right there (when appropriately timed) is a good idea.
4. Make sure that your vision is on a stable, adaptive path, i.e. a path that takes into consideration the direction and magnitude of your vision (as vectors in space representing your vision from the past, in the present and for the future) so that you may adapt your path of vision in a stable way across time.
That did not come out very clear ... :P
A much better articulated version can be found inside the forum if anyone is interested.
I would like to pursue Nicolas' ideas a little more. I think what you are saying is that "the vision thing" doesn't apply to very small companies: that is. they are different in kind not just in size from medium and large companies. If true, this is a valuable insight for planning and organization. What is the alternative mechanism that can be used to apportion resources and focus activity? How is a market selected, a product designed, development initiated and sustained? Is the organizing principle the skill mix of the company's staff at any particular time? Or is there a larger, more stable principle that can be relied upon as a navigation marker?
What I meant is basically when you own your company. You are free to manage your life. This is the big advantage actually.
Small companies tend to be more flexible. At the extreme, a one guy company is easy to move: he does what he wants depending on the current market need. A two guys company is nearly the same. And so on.
But they have a skill set not really adaptable in a small amount of time. Suppose a DNA computer becomes better than silicon one and scripting languages become useless (total nonsense), then 37signals would have serious issues. IBM too but they should be able to overcome them (they have had already transitioned from mechanical to electronic).
You can also see this as a general isse in systemic. The more you optimize your system (an organisation), the bigger it got, the more you loose adaptability.
Small companies are opportunisitic because they can be. Big cannot if they want to grow.
I speak about those issues on my blog: http://www.deviant-abstraction.net
I have a little trouble with Mr. Toper's comment. While I agree that companies in general should be flexible to take on new opportunities I would add that these new opportunities should be closely related to what they are doing already or speak to the core strengths of company. Presumably even a small company started with a founders vision. They should be doing all they can to execute on that vision rather than jumping on new opportunities du jour. A dilution of effort is fatal to a smaller company than a larger one.
I was part of a new team brought in to help reinvent an existing small company and it scared the heck out of me when the CEO would jump at any new interesting idea. Most ended up in the trashbin having wasted valuable resources when he finally "discovered" that either his new or the existing team could not deliver or that there was way too much competition. While this company needed entrepreneurial leadership and new products it did not require a heart and lung transplant.
You are right. However, what I said was only meant for companies from 1 to 10 persons. It is the size of 37signals.
And not knowing your strength and the type of company you are creating/you want is a way to failure.
For instance, when I add my company (I founded my company at 20), I was from the first model (do anything, pursue any opportunity), then I tried to go to the second model. It failed and I had to take a job...
Funny you pick them as an example of what not to do.
If they weren't doing so well you wouldn't be talking about them would you?
Why not pick google ? They are doing lots of unrelated stuff too?
I would say they are doing the right thing because they know who their target audience is and everything they are doing is for that group of people. One thing brings in customers for the other things which is great.
Great point, bad example :)
I feel what they are doing conforms perfectly to their policy against feature-bloat.
They are a growing company. Focussing on their core area will lead to feature-bloat. They clearly do not wish to add any more features to their existing services. The only way to grow their business without doing that is increasing the number of offerings.
Thanks to everyone for their great comments. It would be inappropriate for me to try and comment on all of them here, so will take a select few that represent what some of the general points are and respond to them in a follow-up article.
Until then, a few quick points:
1. I respect that 37s has accomplished a lot and my hat's off to them for that. Some really sound unconventional thinking.
2. I can't accept the argument that simply because they are very successful, that all practices and decisions got them there and were good ones.
3. It's also hard to accept that everything they are doing is for the same target audience.
Stay tuned for more...
If you read out the book "The Culting of Brands" you quickly learn exactly what 37Signals and its followeers are collectively: a cult. Jason Friend and DHH use all the same techniques that cult leaders use to grow their followingd and hence their power, especially the demonization of those that are not "in the fold." It's sad that cults exist, but as with most cults, it will all come crashing down soon as more and more of their former believers become disenchanted and spread the word.