Basecamp: From a Web Design Company to a Successful Tech Startup Without External Funding
Over the past 12 years, Basecamp has become one of the most popular softwares of its kind.
Why? Because they solved a problem!
Like many other startup stories, this one too begins with a personal frustration.
What do you get when the trigger for your frustration is bad workflow and inefficient team management?
Read the full story at:
Like many other startup stories, this one too begins with a tiny, personal frustration that needed a resolution. In this case, the frustration was a bad workflow and inefficient team management, as well the unavailability of necessary tools on the market. Over the past 12 years, this tech startup has become one of the most popular softwares of its kind.
Why? Because they solved a problem!
Here's the full story of Basecamp.
Communication is the Key
Let's go back to 1999.
Jason Fried was the CEO of 37Signals, a design company he co-founded with Carlos Segura and Ernest Kim. Their main job was helping other companies streamline or redesign their websites to make them easier to use.
The business was going very well. Month after month and year after year, they were getting more recommendations, and their client base was slowly piling up. They were doing a good job and receiving good money, but their workflow organization was becoming a disaster.
The only 'tool' they were using to manage the tasks and the team was email. Needless to say, email's not a management tool. Why? Because losing information in email threads is too easy, and so is leaving someone out of a group conversation, or forgetting to click 'reply to all'.
What they actually needed was a virtual space. A place where they could pin posts, write announcements, initiate public discussions and private chats, split tasks into steps, and then assign and complete them. It was time to tidy up the communication space, and their only requirements were simplicity and a strong focus on communication.
They began searching for the proper tool to resolve this problem, but they ran into old-fashioned programs bombarding them with charts, graphs, and stats they didn't want or need. None of them were adequate for communication moderation, so they decided to build their own in-house platform. It wasn't a startup idea yet - just a tool to improve internal workflows.
The first step into building a workflow management platform was focusing on their own needs, and so, the first bundle of tools was born:
- A message board for updates, work, and feedback;
- A to-do list for tracking work progress;
- Milestones for tracking the 'big picture' - long-term goals progress;
Not only were they among the first people to build workflow and communication management tools from scratch, they did it in the just-emerging programming language framework, Ruby on Rails.
Ruby on Rails was created by David Heinemeier Hansson, who later became a partner at Basecamp. So practically, this famous framework was developed right there, in their offices! David created it specifically for the first 37Signals product, but in 2004 they made it open source as well.
When the platform was up and running, they immediately started using it with their clients.
What they expected was a pat on the head for the improved communication flow. What they got was great curiosity about the platform! In fact, many of their clients showed interest and wanted to try it out themselves.
So of course, the team thought that maybe they were onto something!
That's why their first customers were actually their old customers! After the initially-positive response, they knew they weren't the only ones struggling with project management, and that their idea could become a product worth investing in. They spent a few more months polishing it, and by 2004 they were ready to release the first version of what we today call - Basecamp!
Challenge Accepted: No VC Funding
Instead of investing hundreds, or even thousands of dollars into marketing campaigns for their new product, all they did was blog about it on their website. They also put a subscription link on the 37Signals home page saying: NEW! Manage your projects with Basecamp!
Everyone was offered a free first month, after which they could choose one out of three paid plans. The prices were more than reasonable: between $12 and $149 - perfect for small teams!
They also made one super-fair move: charging a flat rate rather than by a number of users, since day 1. This way, they were focused on all of their customers' needs, no matter how few members there were per team.
The plan was to keep working on this product only if they'd reach $5,000 in monthly revenue within a year. Otherwise, it wouldn't make sense to keep pushing it, right?
You know how long it took them to reach these numbers?
It seemed like this kind of platform was everything businesses were waiting for, especially design agencies and client serving firms highly-dependent on high-quality project management tools.
One year later, Basecamp was generating more revenue than their design business. In 2005, they were ready to drop design, and focus solely on the platform.
Developing the Product and Getting Cozy
Although the company had no plans of asking for VC funds, they sold a minor, no-control stake of the company to today's wealthiest man on Earth, back in 2006 - yes, Jeff Bezos. He acquired it through his personal investment company Bezos Expeditions.
That year, they launched an online business chat service, later integrated into Basecamp 3 - the most advanced version of the product, released in 2015. In 2007, they launched Highrise, a simple and powerful CRM tool, focused solely on managing online contacts and integrating ESPs such as Outlook. They grew to over 1 million users the same year.
This brought them a doubled revenue in 2008, so they started experimenting with unconventional workplace boons, such as a four-day workweek, company credit cards, or even free flying lessons!
In 2009, they released a new tool, called Sortfolio. A place where companies could find designers to do what 37Signals was doing until then. They knew working as a designer was hard, so they gave back a little something to the world, based on their experiences.
At this moment, they were crossing 3 million users between all the apps th ey've built. Although Sortfolio was generating $200,000 yearly profit, it wasn't merely as profitable as their other apps, so they sold it in 2012.
They also worked tirelessly on improving both the back-end and the looks of the product, resulting in thousands of major and minor updates over the past 16 years. Tools were coming and going, splitting and integrating, but the product never lost its popularity. In 2013, they finally changed the name of the product from 37Signals to Basecamp. By then, they were already generating millions in revenue, and it was like putting a cherry on top of the best cake you've ever made yourself!
Basecamp's Recipe for Success
- Prioritize steady, not fast growth.
- Build what you like - other people will like it too.
- Keep it simple!
Many startups, especially those that borrow money from VCs, want to see the fastest growth possible. When someone's holding a hand in your wallet, you want to become independent and successful ASAP, but running at a slower pace is what differentiates a sprinter and a marathon runner. The Basecamp team was obviously the latter.
In a way, Basecamp was cultivating an anti-growth mindset. They weren't making compromises just to earn more money. It was all about their philosophy and business ethics. For instance, they refused one angry user's request to integrate Gantt charts to the product, as this was simply not in line with their idea of what project management should look like.
They also didn't want to stretch their team further than 36 just to be able to cover more and more tools and products. The profit they made was used to make their team comfortable at work: less than forty-hour workweeks, and only as much work as they were comfortable with.
Basecamp was known to the public, but many had heard about it from the news, years before: some organizations had bought the keyword 'Basecamp', so the real Basecamp ended up below them in Google search results, paying for their own name on Google Ads.
This turned into a giant scandal, which ended with Google forbidding competitors from using Basecamp's trademark. That brought Basecamp even more into the public eye, and since 2017, their annual revenue has grown to over $25 million.
Let's get one thing straight: their profitability was never in question. Not one single year. They have more than 120,000 active customers, but millions of individuals have used their platform at least once in their life.
So what brought Basecamp where they are today?
Being contrary to popular beliefs: simplicity, straightforwardness, and an anti-growth mindset!