David Heinemeier Hansson: The Unicorn Slayer

Web Summit 2015 is sizing up to stage some hardcore debate.

Basecamp CTO David Heinemeier Hansson, the man who gave the world Ruby on Rails, is coming to Dublin with a specific agenda.

He hasn’t been VC funded, he never wants to be VC funded, he thinks VCs suck. He believes in starting lean and staying lean.

He describes GitHub’s taking of VC funding as going to the “dark side”. He’s a Unicorn Slayer.

Even though Basecamp 3 is just out, David claims he’s not coming to Dublin to pitch it, “I’m not there to sell a product. I’m there to sell a different vision for how to build companies. Basecamp didn’t take venture capital. It never went public. It has no plans to. It’s an oddity, a company that’s stuck around for 12-plus years and never had the aspiration to become a unicorn.

“There’s the tiny minority of startups that end up fulfilling the VC destiny of becoming a unicorn, and then, there’s everyone else, who end up having a really shitty time building something that ends up getting killed off. I hope to come to Web Summit to inspire at least some people to look at an alternative. I think it’s time to reconsider and redefine what “startup” means, because the whole word has just been hijacked to fit this narrow category that serves the interests of financiers. Lots of the marketing material around Web Summit is all about paying homage and respect to this venture capitalist model of startup, which I think is complete bullshit.”

At a conference with thousands of companies pitching for funding, David’s stance singles out Basecamp as, well, weirdos. I ask him if that’s intentional. “I think we’ve always been weirdos”, David laughs. “Some people start calling us names. One of the names we’ve been called is a “lifestyle business”. I actually took it as a compliment. Yes, absolutely, I’m running a lifestyle business. I’m running a business that’s compatible with a lifestyle I desire.

With Basecamp, we decided that we were going to live our lives while we built the company. That meant real hobbies that are outside the world of computers. One of those hobbies is driving a racecar, which helps me stay focused on this notion that 40 hours a week is more than enough to create something great in business.”

Twelve years into the Basecamp story, David and his co-founder Jason Fried have baked this philosophy into their basic business tenets. Their fifty-strong team works from wherever they choose, and the most a customer can pay Basecamp is $249 a month. A limit they have set so no one customer becomes too important, influential or painful to lose.

Their worldview does not fit into the matrix of 88% profit margins and planned liquidity events. As David explains, “I would rather see more sustainable, slow-growing companies that sell products and services directly to end consumers for money. I believe that in the long-term, the stock market is a weighing machine. In the short run it’s a popularity contest. Right now, we’re in the popularity contest phase for a lot of companies. I’ve done a fair number of analysis pieces on companies where the chickens are all ready to come to roost. If you look at Groupon, they IPOed about 3 years ago to fanatical fanfare about how they were going to dominate the daily deals market, and today the company is a shell of its former self.”

In 2006, Basecamp took on their only investor, Amazon CEO Jeff Bezos. I asked David what Jeff thinks of Basecamp’s strategy and what makes taking money from him different from VC funding. “Jeff bought a small minority stake,” David explains, “That minority stake was not a venture capital investment. It was buying some shares to give us the money to believe in what we were going to do and stick with it. It gave him no rights to dictate what we were going to do, what we were going to say, which products to push out, or whether to have a liquidity event.

I think it’s time to reconsider and redefine what “startup” means, because the whole word has just been hijacked to fit this narrow category that serves the interests of financiers.

The investment that he made in Basecamp is a rounding error on his personal balance sheet of $13 billion. The terms of our deal didn’t give him any options of that kind. The option he got was to come along for the ride that we’re going to take, and that ride was probably going to take 30 years or 50 years. In that time, he would get paid out of the same profits that we’re getting paid out of, and that was the deal. Usually, when we talk to Jeff his advice is, ‘Keep shaking things up’. So we do.”

Basecamp happen to be in a space that’s very hot right now: some have even called B2B SaaS ‘sexy. Whether VC backed or not, Basecamp are benefitting from the heat that Unicorns like Slack are generating. Basecamp 3 features a renewed focus on chat that some would see as a direct reaction to Slack’s massive growth.

David contends that chat is a useful business tool, but that it’s not a total solution. “Right now,” he says, “there’s a mania going on in the industry, because there’s some great new tools that have come up that do a great job at pushing that chat agenda. There’s going to be a ‘slacklash’ against the concept that if you’re not paying attention 24/7, you’re going to miss out. Chat is a wonderful tool for a lot of things, and it’s a terrible tool for a lot of other things.

A lot of people, when they’re in the chat room, feel compelled to weigh in right there at the moment. Everything happens sort of snap, snap, snap. Sometimes there’s a dearth of considered thought. Basecamp combines this high-speed version of chat, which is great for a bunch of things, with this low-gear version of message boards, other forms of documentation, other forms of collaborations that take more of an asynchronous, slow gear approach to this work.”

VIP VOIP #2 – David Heinemeier Hansson from Rocket Labs on Vimeo.

The subtext of Basecamp’s anti-unicorn rhetoric is quite level-headed. Basecamp are smart marketeers. They are willing to use their opposition to the status quo as a way of getting publicity. Rather than attacking one way of doing business, they’re actually shining a light on their own longevity.

David agrees. “That is a big part of it, absolutely. We believe in the long-term. We started a publication dedicated solely to that (called ‘The Distance’) that profiles privately-held companies that stayed in business for more than 30 years. My goal is that in 30 years, we’re still operating the first version of Basecamp. In much the same way that if you bought a Leica N3 in 1957, you can write to the factory in Germany and still get a spare part.
I love those stories of longevity, of businesses that are around for the long term. I think we’ve lost some of that in the transition to digital, that I don’t think we need to lose.”

There you have it: lesson one from Basecamp’s guerrilla marketing playbook: Find an enemy.

Lesson two, when you’ve found an enemy, stick to your guns. Tell and retell a story that’s consistent with your proclaimed values. Making a great product is only the beginning.

‘Build It And They Will Come’ expired as a valid business concept a long time ago (along with Field of Dreams star Kevin Costner’s box-office clout). As David explains, ‘There are incredibly few cases where someone just built a good piece of software and never told a soul about it, and all of a sudden it just took off. For the vast majority of everyone else, you have to be the salesman. When I say the salesman, I don’t mean in terms of the annoying person that keeps spamming you about, ‘Buy! Buy! Buy!'”

“It’s that you have to build and cultivate your own audience. What we continue to believe is, the best strategy is to stand for something, believe in something, thereby building an audience of people who are interested in what we have to say, and by extension, some of them will also be interested in what you have to sell.”

Basecamp remains David’s only job. He started working on it before he finished college. In terms of success and work/life balance, he’s living the dream.

The only thing David seems to be missing, apart from those extra zeros at the end of his bank balance, is being lauded as a business superhero.

It’s going to be super-interesting to see how the unicorn fanciers react to him at the Web Summit.


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