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were giving it a third of their time at most. And we realized through this process that those constraints which sound negative were actually the greatest gift to the development of Basecamp. That whole constrained development model really focused our view on what we needed, and it forced us to make tough decisions about making less software all the time. And we keep getting feedback from customers that say, I love this, it s just so simple to use. It s got just the features I need and not all the other stuff. There wasn t time for us to say, Wouldn t it be cool to do this and that It turns out that when you build only software that you absolutely need, you don t get more software than you ll actually use. And that s why we didn t fear competition from the big guys. If Microsoft decided to go after Basecamp, they d say, Get a team of 20 people to do this and we ll give them 6 months to come up with something. Because when you re in a big corporate environment, you throw a lot of resources at projects. You just could never arrive at the type of product that Basecamp is when you don t work under constraints like we did. It s just too tempting to try to do it all, or at least do too much. It wasn t necessarily that we were great programmers and designers, but because we embraced the constraints that forced that upon us. If we took the same people and put them in an environment where we had all the money and time we wanted, we couldn t even make Basecamp again.
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Livingston: Did you worry about any competitive products Heinemeier Hansson: There have been a few businesses that have tried to do
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similar things, but most of them try to do the full management of projects: billing, time tracking, and other things that we ve never tried to solve. We picked a few simple things: a project weblog, milestones tracking, file and to-do list sharing. And we haven t really expanded beyond that; we ve just tried to refine those few simple elements. The funny thing is that another reason Basecamp is a success is because it s not more focused. We started out wanting to make a tool for creative services businesses, like us. But we never actually wound up including things that were specific to creative services, like billing, time tracking, etc. So people use Basecamp for all kinds of projects, like managing weddings, home improvement projects, and student collaboration. The only reason that we re attracting all those people who just need help with project management is because we re not trying to be more specific. And that s why I think that if we had had more money and time to add features specific to creative services businesses, we would have shut off our entire market to all these other people who are using Basecamp for types of projects that we didn t even imagine.
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Livingston: So you built this new project and didn t have a marketing budget. What happened next Heinemeier Hansson: We didn t spend a dollar on advertising when it
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launched. Though Basecamp is a monthly service, you don t need to pay
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anything when you first sign up. If you just need to manage a single project, the product is free for life. So a lot of people got in just testing it out for a certain project. As soon as they realize that they d like to use it again on another project, there s an upgrade path for them to go down. They can buy the first paid version that gives them three projects and gives them file uploading for $9 a month. So we have a shallow upgrading curve where you can go from paying nothing to paying very little. The most expensive version is only $99 a month. And because we charge on a monthly basis, customers get the advantages of low risk. People can sign up for two months, and if it s not what they want, they can cancel easily. And that s been one of the most powerful marketing tools. Also, Signal vs. Noise had a fairly large following in the web development community. The first big market for Basecamp was these creative services firms. Since they were already reading about what 37signals was doing, we went the other way around: first we built the audience and then we figured out a product. We blogged about Basecamp even before its launch, making previews, and it was viral from there. So it helped that 37signals had a big audience and had an easy way of selling into that audience. The majority of our new customers have heard about it from someone else or read something about it on the blog. They sign up for the free version and then, that s the best lead you could ever get. It doesn t cost us anything in the first place and doesn t cost us that much to keep the lead, because, though they get one project for life, we have a large group of people who are now friendly to the product we re selling because we just gave them something for free that they re actually using. And we re not yanking it away in 30 days. So this builds a lot of goodwill in the early phases of the relationship with the customer. It s a really powerful way of selling.
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Livingston: Did anything go wrong Heinemeier Hansson: We made a bunch of mistakes. We got the launch
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pushed back by almost a month. Initially, we thought that we were going to bill people once a year, $99, $299, and $499 for the different plans. We built this entire billing system, which was a sizable amount of the development time. We didn t figure out that the bank wouldn t let us bill this way until about 3 days before we were ready to launch. The bank wouldn t let us sell a service that we were going to promise for an entire year, because they d be on the hook for the money if we went out of business a few months into a $500 agreement. They wouldn t allow that because we didn t have a long history with them. So now we had this extensive billing system focused on billing once a year and we couldn t use it. We had to go back and make it monthly instead. But this turned out also to be a blessing. So we pushed back the launch about a month, and now we charged monthly, but we charged twice as much. The plan that was before $99 a year is now $19 a month, $224 a year instead. So we actually got to raise the prices and at the same time create a less risky offer for small companies since they didn t have to buy a whole year.
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