In 2009, 37signals launched Sortfolio, a directory of designers that includes beautiful photos of their portfolios. A few days ago, the company put Sortfolio up for sale.
What happened? That’s what I invited Jason Fried, 37signals’ founder, to talk about.
Jason Fried, 37signals
Jason Fried is the co-founder and President of 37signals. Jason believes there’s real value and beauty in the basics. Jason co-wrote all of 37signals books, and is invited to speak around the world on entrepreneurship, design, management, and software.
Hey, before we get started and in light of what you’re going to hear at the very end of this interview, I’ll simply tell you that this interview is sponsored by Scott Edward Walker of Walker Corporate Law. I’ve known him for years, and he’s the start up lawyer, the entrepreneur’s lawyer. I highly recommend Scott Edward Walker of Walker Corporate Law.
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There it is. Let’s get started.
Andrew: Hey, everyone. My name is Andrew Warner. I’m the founder of Mixergy.com, home of the ambitious upstart. In 2009, 37signals launched Sortfolio, a directory of designers that includes beautiful photos of their portfolios. A few days ago the company put Sortfolio up for sale. I invited Jason Fried, 37signals founder, to discuss how the site was launched and why it’s being sold. Jason, welcome.
Jason: Hey, Andrew, how’s it going?
Andrew: Good. It’s good to have you back.
Jason: It’s good to be here.
Andrew: Thanks. So how big did Sortfolio get in revenues?
Jason: I think we hit around 200 or so customers, which would be around 20 grand a month. I think we might have topped it a little bit at one point, gotten a little bit above that when we first launched it. But it’s been holding anywhere from $17,000 to $20,000 a month, more to the $17,000 side lately since we haven’t been doing a lot with it.
Jason: And that’s monthly revenues. We’ve been questions about it. Is that gross? Is that net? And it’s pretty much the same because we’re not really putting any resources towards it. There’s no one dedicated to it. We’re not spending any money on advertising or anything right now, so it’s pretty much the same.
Andrew: I think the last time you and I talked it was March 31st or late March 2010, and I asked you about it, and you said it’s in hibernation. So essentially hibernation means what?
Jason: Well, we’ve done some advertising. We’ve messed around with it. We’ve sent out some newsletters about it. We’ve linked it up on our various sites and stuff, and we’ve had a steady stream of traffic, but we haven’t really had the time and the people to dedicate resources towards really improving the traffic.
So hibernation pretty much works, and there’s no problems with it. It’s just sort of pretty much running itself. It’s sort of in self-service mode right now which is fine. It’s generating lots of money, $17,000 a month is pretty good, but it’s not something that we’re . . .
I don’t really like sitting on something and having people pay us for it. It doesn’t seem fair. There’s something about the fairness about it that bothers me, so we want it to go to a good home.
Jason: Someone can spend the time, money, and resources to cater it and to improve it and to get people to find it real useful.
Andrew: What kind of things would you add to it if you were able to focus on it completely?
Jason: I think it has a lot of what it needs, actually. The only thing that I think it doesn’t have that would be handy is some categorization. For example, if you’re looking for a Rails program or a firm, this isn’t about individuals so much. It’s more about design firms. But I guess individuals, free lancers, are on there, but if you’re looking for someone who knows PHP or knows Rails or knows Python or something, there’s no way to currently search for those categories or to narrow down the categories.
That would probably be the first thing that we would do to actually change the service to make it a bit more useful, but as far as the fundamental core of it, I think it’s pretty solid.
Andrew: What about to grow revenues? What would you do?
Jason: I think it could grow pretty quickly if someone was dedicated to it frankly. I think the key thing right now is generating traffic for it, increasing awareness. That’s the big thing. We’ve made really no effort whatsoever to upsell people beyond what exists.
When you sign up, you can choose to go pro or stay on the free plan, and we haven’t been aggressive with that at all. I’m pretty sure that anybody who spends even a few hours a week because we’re spending no hours a week, trying to pitch people could definitely move the needle quite a bit.
Andrew: Going back to when you decided to launch it, what made you decide to create, I guess, it was called Haystack at the time? What made you decide to launch the business?
Jason: Well, similar to the Job Board story, we launched the Job Board because people were asking us, hey, do you know where I could find Rails programmer or designers, and we were looking for people as well. There was really no great resource for that, so we launched the Job Board for that.
And then, people started asking us, do you know where I could find a web designer, you guys must know some web designers, or hey, do you do web design work anymore. And the answer was no, we don’t, and we don’t really know anybody because we’re not really paying attention to that, but there should really be an easy way to find a web designer. There really isn’t. It’s very, very hard. If you are not in the know, it’s very difficult because you go to a site like Google or anything and you’re basically searching web designer Chicago, web designer New York or whatever. And you get text listings which don’t help you.
You’re presented with, maybe, dozens or hundreds of different firms that you have to click through individually, each one’s site. It’s very difficult to find. So it was scratching an itch a little bit for us, but it was mostly scratching an itch for people who kept asking us, and we didn’t have a good answer. So we kind of wanted to provide a good answer in the same model that we provide a good answer for people that are looking for jobs.
It turned out though in the end that the Job Board is something that we actually use quite a bit, and Sortfolio wasn’t something we were using as much. So it’s definitely one of the things that we’ve pushed over to the side for that reason.
Andrew: One of the things that you’re known for, and I hear your voice in my head whenever I go in the wrong direction her. You’re known for saying, “Don’t do everything that people ask you to. Don’t do more. Find a way to do less.”
I’m curious. How did you decide of all the things that you could have, why this one and not something else? There must have been other things that you needed.
Jason: Sure. That’s a good question. I don’t have a great answer for it, to be honest with you. I think at the time when we built it we had this big success with the Job Board, and the Job Board is a small project for us in terms of development. So we were able to put in a little bit of time into something, and it’s generating really great revenue and continues to keep growing. It’s better than it’s ever been.
And so, this is a similar model. And so, we said, we could probably put something into this. We wouldn’t be that much time, a couple months of development, maybe. And then, hopefully, it could generate the same kind of revenue. It never got to the Job Board levels, but it’s still very healthy and has been great for us. Over the past couple of years we’ve probably made close to half a million bucks on it or something like that when you add up the monthly revenue.
Andrew: What about the Job Board?
Jason: What’s that?
Andrew: What does the Job Board generate in revenue?
Jason: A lot more than that. Right now, we have about 100… I can take a quick look but about 180 jobs up there right now, and each person pays us $400 for 30 days, so you do the math, over $50,000 a month on that. So that’s pretty good, really good and maybe even more than that right now.
This was sort of the same model. It was helping people find something very specific, and we thought we could turn it out pretty quick and we did, and we did a good job, and I’m really proud of it. It looks great, and it works really well, but it’s just, again, it’s this thing where we’re not really able to sort of nurture any it more. I feel like neglecting something leaves a bad taste in my mouth. It’s not fair to the people who pay us.
Andrew: Okay. You had the idea. You wanted to come up with the first version. How did you decide what features to include in that first version and what to leave out?
Jason: The first version we actually scrapped. We started out with more of a… It almost looked like an old school Yahoo directory where it’s mostly text, actually, and people could pay for bigger text spots or highlight the background of it yellow or things like that. That’s sort of where we started.
Andrew: So very similar to Job Board.
Jason: Yeah, actually, very, very similar to the Job Board. I’m just trying to think back. We did a few variations on it, and we kept looking at it. We were like, this is really just marginally better than maybe going to Google because it’s still text. When I’m looking for a web designer, I’m not looking to read about a web designer. I want to look at their work. I want to see something visual. That’s how you start to pick designers.
If you’re looking to hire a photographer, you want to look at their work. You don’t want to look at them describing their photography. And so, we kind of stepped back from that. Actually, we had our whole company get together a couple of years ago, and we sat down and started working on a variation on this.
We ended up with these visual cards that made browsing very, very simple, and it was significantly better than the text experience. We didn’t feel like we could improve on the text experience. Text is text, and that’s that. It doesn’t really help you. It’s not solving the real problem. We got really excited about this card, this visual card idea and kept running with that.
As far as the functionality goes, it’s pretty much always been the same which is about visuals, budget, and location. Those are the three things that we felt people generally look at when they’re looking to hire a design firm. And so, that was always the core idea, but it was how we presented the stuff that was different.
Andrew: Were there any features that you wrestled with yourself when you decided not to include them or any discussion over features that got left out, or was it just that simple?
Jason: We did talk about, like I mentioned earlier, the things I would add would be these filters, or these sorts of category things. We talked about doing that at one point, and we just didn’t do it. That was kind of one of the things we thought would be nice to have but not critical.
Jason: And I don’t really believe it is critical, but I think it would help. So that was kind of the one thing we thought about. We debated back and forth about how many different tiers to have, pricing-wise, because all of our products have multiple tiers, $24 to $149 a month or whatever. Some products have five. Some products have six, some had four. So we were like, tiers. Tiers were the natural thing to do, but then we thought more about it, and we said, “Let’s just do one, free or pay.”
There was a little debate about price. Originally, I think we were thinking about charging a lot more. I’m trying to remember back when we had that conversation. I think it was more like $299 a month or something like that. We ended up settling on the magic number which is $99 a month which tends to be a magic number in pricing, and it seems to work out really well. I think it’s the right price for this.
So it was a little bit of pricing, a little bit of functionality, but for the most part it wasn’t really a debate heavy thing unlike some of our other features or apps that we worked on that we had a lot of heated debates about.
Andrew: Okay. So you launched it and, of course, the blog was a great way for you to get attention for it before you launched and generated enthusiasm for it on launch day and promoted it afterwards. But beyond that, what else did you do?
Jason: We did some ads on the Deck which is the network that we’re actually partners in. It’s a little ad network that’s on, I think maybe 40 or 50 different sites now or close to that. I might be off there a little bit, but people pay to put display ads on the Deck, and the Deck’s great because it’s the only ad on the page, unlike a lot of sites where there’s a lot of different ads competing. If you advertise on the Deck, you are the only advertiser on the page that’s served up.
Andrew: And you’re on a site that’s pretty clean, and it’s a pretty small ad so it doesn’t feel like it’s an invasive ad.
Jason: Totally. And it’s almost like a recommendation because the Deck only takes ads that we all agree on that we like, products we’ve tried or advertiser companies we like, things like that. So it’s a little but of a curated, which is the buzz word today that I’m trying to use less and less. But it is sort of like that. Anyway, that is not what this is about, but we did place ads on the Deck.
One of the things I thought was innovative about what we did, and I’m sure this would be available to anyone who wants to buy Sortfolio, is instead of advertising Sortfolio itself, although we did have an ad for that, we actually advertised the people who are advertising on Sortfolio. If you had a pro account on Sortfolio, your actual web design firm could be one of the ads that were being displayed on these sites, on millions of page views that are on the web.
Instead of just saying we’re going to advertise the Sortfolio brand, we say, hey, maybe if you’re a web design firm in Boston, you might actually get an ad that might appear to millions of people. That was actually pretty cool, so we did that, and I think that worked out pretty well.
Andrew: I get that. I was wondering though when I saw that, how is Sortfolio going to connect the ad cost back to the revenue that the ad generates if the ad is sending traffic away from the site, or if it’s not leading directly into a funnel?
Jason: The ad points back to Sortfolio.
Andrew: To the portfolio on Sortfolio.
Jason: Yes. Exactly. And then, you might be curious. You might check out some other people, but it was kind of, I thought, a really cool experiment to advertise the people who are advertising. So basically by spending a hundred bucks a month on Sortfolio, you had a chance to be in an ad that cost thousands of dollars a month on a variety of different sites, sort of a way to . . .
It’s kind of a little bit of a lottery ticket in some ways because not everybody made it into these ads, but it was kind of a cool experiment and we worked it up in a few days. We haven’t done it in a while, but I know the tech is still there, so that would be kind of a cool thing to continue if they wanted to.
Andrew: So $100 a month gives you a lot of room to play with marketing and to back into, at least what your lifetime value of a customer is, but to back into it, was it hard? Were you doing any advertising and trying to back into what it is that you are generating per user?
Jason: Well, what we were doing is we were advertising just on the Deck, and then we were sending out newsletters with Sortfolio in the footer. We have Sortfolio linked on our marketing sites, and currently about, I think it’s a little bit less than a quarter of the traffic to Sortfolio originates on a 37signals site today. So the vast majority of it comes from organic search results and from other people recommending it.
One of the things that’s been interesting about it actually is that whenever we send out a newsletter to any of our customers, we have a unified footer at the bottom which lists Base Camp, Backpack, Highrise Campfire, the Job Board, Sortfolio and Rework. The links to Sortfolio are always the most popular click-throughs. I don’t know if it’s because people don’t recognize it or curious about it or whether there’s really a need to find web designers or what. But it’s actually been very interesting how popular that link has been compared to all the other links in our newsletter.
So when we send out the newsletter, it goes out to tens of thousands of people, in some cases, I think, well over a hundred thousand, depending on the list. So we did a little bit of that. It’s also linked up on SVN and a few spots. It’s sort of linked up, but we haven’t really been aggressive about it.
Andrew: It was mostly . . .
Jason: If someone was aggressive, they could knock this thing out. It’s just we haven’t really done that, so it’s sort of been very, very passive, linked up in a few spots, did a few ads, sent a few newsletters out here and there. But it’s just been on the back burner for us, and it just doesn’t seem fair.
Andrew: Marketplace sites seem to have a lot of trouble. When I interview entrepreneurs who have built them, they say, I have to go after one group of people, but that group of people wants the other group to be there. And then, they both want each other to be there and no one is going to come unless there’s a lot of the other side.
Andrew: Tell me about some of those struggles in getting both sides into this marketplace.
Jason: Yeah. It is a struggle because you have to think about… The key is what’s more important. Is it the supply or the demand? This is sort of, if it’s eBay, it’s clearly the supply. The supply’s there, the demand is going to be there. And for us, is it about how many web design firms are there? Does it have to be a critical mass for people to come looking, or do we need the people looking first and then web design firms are like, I’ve got to be there.
Our take on it was that we definitely wanted a lot of web design firms to be there. We wanted the supply to be heavy. And so, that’s why we have the free version that everyone can use. Everyone can list. There’s about 10,000 or so listings in total. And so, there’s a pretty heavy selection for all major cities around the world, and that really, I think, helps when people hit the site to actually find something that’s useful.
I think if I was completely running this and I was going to dedicate time to it, I would definitely work on the demand side. I would definitely work on getting more people who are looking for web designers to find the site, more so than trying to sign up more web design firms. I think there’s enough web design firms on there right now. It’s more about getting the people that know that this resource exists so that they can check it out and find it useful.
Andrew: I remember the last time we talked I asked you about mistakes, and you said, I just don’t work that way. I don’t look back on them.
Jason: I’ve been waiting for this question.
Andrew: Tell me about some of the mistakes you made here. Do you still feel that way, by the way?
Jason: Well, give me the question again. Do I still feel . . .
Andrew: Do you still feel like… If I were to ask you about mistakes, would you still blow it off the way that you did back then?
Jason: I don’t like to really dwell on them is my point. It’s not that I don’t feel like we make some. We certainly make some. I think the question is failure is more of the thing. Mistakes, certainly we make them. Failures, like I was thinking before this interview, is Andrew going to ask me if this is a failure for us. I was thinking to myself, how could this possibly be a failure?
So we spent a few months on it. It’s making $17,000 a month in revenue right now. It’s been around since 1990. I’m sorry, 2009. We’ve got a few years behind us now. It’s generated hundreds of thousands of dollars in revenue, and we haven’t spent a whole lot of time on it. It’s been way cash flow positive, and it’s been a great net profit for us.
Is it as profitable as anything else we’ve done? No, there’s other things that we’ve done that are more profitable, but I could call anything that’s been profitable and pretty much hands off a failure. I think that there’s certainly some mistakes we made. One of them is simply just not paying enough attention to it because I do think it has enormous potential.
I think the model is really solid. I think this idea of visual browsing is a huge thing. A lot of people have cloned Sortfolio, by the way. A lot of people have taken the idea, and they’ve designed and pretty much ripped it off. And so, there’s wedding planner sites.
Andrew: With the same design.
Jason: There’s photographers. There’s interior designers. There’s caterers. I’ve seen a variety of these Sortfolio sort of rip off things. I think it’s a testament to the idea that visual browsing is a far better way to find something. It’s like, if you go to Google and search for cherry pie, if you click the images link, it’s a way better way to find out what a cherry pie looks like or all the variations of cherry pie instead of trying to read about them. It’s a very similar thing.
I think browsing for services in a visual manner is incredibly effective. If someone really cared about this, they could do exceptionally well with this idea.
Andrew: You know what? I would never say is this a failure, like, ha, ha, did we get the 37signals guys to admit it? No, but I’m always curious about what is there to learn from what works. What is there to learn from what doesn’t work?
Andrew: I remember from last time when I asked you about it. You said, I just don’t dwell on it. I was thinking about it for a long time and said, maybe, I’m making a mistake by focusing on it. And then, I thought about Eric Reis, and my first question to him was about his previous company, and he said, we had all this money from investors. We plowed it into the business. It was so much fun to develop it. It was like a heaven for developers, and then we launched it, and the whole thing failed. It just didn’t work.
He said, Andrew, would you please, before the interview he said if you’re going to ask me about the past company, please don’t even have me say the name because I don’t want to insult them when I say it. But clearly, he thought a lot about it, and when you look at the lean startup ideas that now he’s talking about and teaching, they came from that place of learning.
That’s why I ask you. For you, what kind of mistakes have you made, and what have you drawn from them?
Jason: Well, I think the biggest mistake you can make is thinking that you know everything.
Jason: I’ve never felt that way, but there’s definitely times when… And I don’t think anyone in our company feels that way. But there’s certainly times where we’ve shut down other ideas or dismissed them. Maybe, dismiss is probably a better word than shut them down, but we’ve dismissed other ideas because we felt like we had some things figured out. And so, I think that’s probably one of the mistakes we’ve learned from, which is that there’s a lot of way to succeed, and we’ve always felt that way.
I certainly think that we’ve been a bit too close minded about certain things, and so we’ve actually trying a variety of things now. We finally hired a guy to focus on data last year, and he’s been fantastic. We’ve learned a whole lot about a lot of things that we didn’t know before or that we assumed but now we know, or things that we thought we knew that aren’t true anymore.
We’re doing a lot of A/B testing in a variety of things like that, so I think there’s . . . to me, the mistakes aren’t the things that you do. They’re the things that you dismiss and the things that you think you already know. And that’s sort of the mistakes that I’d kind of like to clear out of the way, not dismissing things that we are comfortable with and familiar with. That’s my take on it.
Andrew: I wrote down data value. What else?
Jason: Say again? I’m sorry?
Andrew: What else did you dismiss that now when you think back you say, hey, we should be more open-minded to it?
Jason: Well, one of the things that I think we should be more open-minded about, and we’re experimenting with this soon, is improving our sign up process. I think we’ve sort of held onto the way that we do sign ups today for all of our products which is credit card up front, which is sort of a longer sign up form. If you look up a lot of the more modern web apps that are out there today, the sign up forms are very, very short. It’s like, email, password, done. Pay us later, the whole thing.
We’re not sure if that’s better or worse. It’s certainly easier to sign up for a product like that, and we’ve sort of held onto our way so actually, pretty soon try some other ways to get people to sign up. It’s not that we think we’re absolutely right. It’s that we just haven’t questioned ourselves in a variety of ways, and I think we’re starting to get more comfortable with that which is good, which is really good, in fact, and I think it’s going to be great for us.
Andrew: How are you identifying these things that you need to question yourself about?
Jason: There’s a variety of things that we’ve just sort of, like this sign up process. Simplifying the sign up process is something I’ve been trying to hammer on for quite a while. The way we work here is if someone has an idea, it doesn’t even matter who it is. We just don’t go off and do it. We discuss it. We debate it.
I want to have more people on board with something. I don’t want to ever shove things down people’s throats. So we had to get people on board, make a case and stuff like that. I think we’ve reached the point now where people are like, let’s try that. Let’s give that a shout. That makes a lot of sense. So there’s some things that we’ve been thinking about for a long time, and then there’s other things that you just get annoyed with over time.
One of the things that I’m currently annoyed with is that as simple as our products are, I still feel like they’re too complicated in certain ways, and we want to focus on improving some things there. That’s one of the things that we’re currently frustrated about. I actually think we did a fantastic job with this on Sortfolio and not so much on the other apps is what’s called the on ramp process.
When someone signs up, like how to move from one plan to another, how to get them going with something, we haven’t really revisited that for quite a while. So that’s something that we sort of run into occasionally when we sign up for our products from scratch. Here and there you kind of go, wow, this isn’t as good as it could be. So, there’s things like that.
And then, there’s things that customers ask for, so it’s a variety of different things that come at us. Some things that are longstanding that you just have to build up support for. Other things you run into that you’ve sort of taken for granted for a while, other things you just haven’t seen for a while.
I really like the show, Undercover Boss. It wouldn’t work at 37signals because we’re 27 people. Maybe, it would be hard for me to disguise, but what I like about that, in those scenarios is bosses running into things that he or she has not seen, either for a long time or before.
I think that sometimes when we sign up for our products or try and clear our minds and come at our products from a brand new customer’s standpoint, someone who doesn’t know who we are at all, it’s very eye opening to see and to feel what that process is like. And so, we’re doing that more often these days, more to learn things there, too.
Andrew: I talked to David Hauser of Grasshopper Group, and he says, “I keep telling Jason buy ads, don’t dismiss it. It really works.”
Andrew: Do you consider that? Is that one of the things you consider changing?
Jason: Actually, yeah. We’re pretty soon going to be looking for a . . . I don’t even know what this person’s called frankly, but like I’ve heard him described as inbound marketing guy or like ad guy. I don’t even know what his title is. I’ve never emailed it. There’s a lot of people out there who do things like this, but we’re going to start looking for someone like that pretty soon and just try it out.
We’ve actually been experimenting with AdWords again. We’ve done this over the years but were never very scientific about it. We’re experimenting with it now. It’s sort of, yeah, it’s all right. Our data guy, Noah, is working on this stuff, and it’s really fun, but we’re thinking about finding someone who really understands that world, the advertising world, a bit more and try that out and see how that goes.
I would like to throw as much money as possible at something that works. The thing is that we haven’t been able to figure out quite what works yet, and I feel like we’re throwing money into things which is good to experiment, but I want to turn the money machine on when we find that right formula. But I think we need to keep looking for it.
So I’m not opposed to advertising. It’s just that the advertising that we’ve seen, that we’ve tried so far, mostly text ad stuff, hasn’t worked that well so it’s time to take the next step. We want to work with somebody who really understands this stuff. That’s where we’re at.
Andrew: Were you opposed to it at one point?
Jason: I’m sorry?
Andrew: Were you opposed to it at one point?
Jason: I’ve never been opposed to advertising, like opposed to it. I love advertising. I’m a huge fan of advertising. I love great ads. I remember in college I wanted to go in advertising. I love David Ogilvy and I loved reading his book, “Ogilvy on Advertising” like it pumped me up. I love when I see a fantastic ad. I just don’t see many of them.
Jason: It’s very hard to make a great ad. There’s different types of ads. There’s small display ads. There’s commercials. There’s a variety of different angles here, but I still prefer traffic and customers to come from word of mouth and the organic methods because I just find them to be more honest ways to get customers. But just going back to the point of not being dismissive about things, we’re going to try it and see what happens.
Andrew: What happens if there’s something that you are dismissive of in public that you now discover in practice that you might have been wrong about?
Jason: I don’t care. I’m okay with that.
Andrew: You don’t care. You’ll be public and you’ll say, hey, guys, there’s a new way to do things.
Jason: Oh for sure, yeah. I think when you’re loyal to old ideas, just because they’re yours, you’ve got your head screwed on the wrong way. So I think it’s important to be loyal to the best ideas wherever they are. I’m trying to think of places we’ve changed our mind publicly. I know there’s a variety of places. I can’t really think of any right now, but I know that we have because I remember talking about this with people.
I’m totally fine with that, completely comfortable with it, and we’re happy to share it. I think it’s kind of cool to share. We’ve been in business for 11 years, so we’ve seen a variety of things change along the way. If we’re not able to change or we don’t want to change or we don’t want to change our outlook on things, then that’s our problem and that’s going to hurt us. So we’re totally open to try new things.
We’re very experimental. We try things all the time. We don’t talk about a lot of things we try just because they aren’t really relevant on the outside, but we’re trying things with the way we work internally, with how we compensate people, with how we look for people, how we hire people. One of the things I used to be really sort of skeptical about, is probably the right word, are these personality assessments when you hire people.
We’ve been starting to run them lately using a company called Caliper. They have these personality assessments that you can give somebody. It’s about 90 minutes. It’s about 100 questions, if I recall. It’s online, and we’ve been using that to try and figure, if we like somebody we’re interviewing, we kind of run that test with them as well and see how they do. It’s not a deal breaker, but it kind of exposes certain things that we can dig into more.
I used to be like, yeah, personality assessments, whatever, c’mon. But we found them to be extremely accurate and very, very handy and very helpful. So that’s another area where we’re . . .
Andrew: How did you discover that they were that helpful?
Jason: How did we discover them in the first place, or how did we know . . .
Andrew: How did you suddenly get into this? It’s not the kind of thing that you could experiment with easily, is it?
Jason: Yeah. So David’s girlfriend actually used to hire and fire people. I think that was sort of what her job was, sort of like the “Up in the Air” guy but not quite that bad. They used to use Caliper at their job, at her job, and she recommended it highly. And so, we gave it a try. I think it costs like $250 or $300 per test per person. And so, yeah, let’s try it. Let’s see what happens.
What we found is it does two things. Number one, it reinforces that sort of gut feeling, but you couldn’t really figure out what you really meant. Like, I don’t know about this person. I’m not sure why or what it is, so it kind of opens that up a bit.
And then, the other thing it does which is really nice is that it highlights certain things that you can’t really tell from an interview. One of the things that they can sort of get to is this idea of urgency, and there’s a few others. I’m trying to think of the others that are interesting. There’s like details and thoroughness.
Andrew: What does urgency mean?
Jason: Well, for example, when we’re hiring customer service or customer support people, urgency is really important. And by the way, they have great definitions of what all of these things mean, so it’s very cool. It basically means like, this person isn’t just going to take their time on certain things. It doesn’t mean to rush though. There’s differences which is what’s cool about this. It’s not incredibly nuanced. It’s incredibly specific. It’s not about being lazy or rushing. It’s just about knowing when something’s important, that you should get it done quickly, when it requires a quick response. So, there’s things like that.
What we’ve seen is that the people who score high in urgency and empathy and things like that are really great for customer support. If they’re very low on that scale, we have questions about them. What we found is that the people who have been scoring high on these certain criteria are really performing excellently. So it’s doing a great job. It really works. I think it’s totally worth doing and, at least, trying and see what happens.
Andrew: What does a data guy . . . I’m kind of going all over the place, but I’ll come back and focus. What does a data guy do?
Jason: Noah, who’s our data guy, he looks at everything. Here’s the thing. We’re overflowing with intuition at 37signals, but we haven’t had a lot of confirmation besides the fact that things are going exceptionally well for the company for a long time. So we’re doing something right. What is it that we’re doing right? Probably not everything. And there’s certain things that we could probably be doing better. Certain things that we think we’re doing right that we aren’t.
So Noah’s coming in early. He’s only been with us for a few months really, but we’re sort of trying to figure out a lot of things. First of all, just basic business stuff like we sort of look at long-term customer value and acquisition costs and stuff in the past that we looked at them occasionally, like once a year. We want to have someone who’s constantly looking at these things and seeing that when we do things that’s moving this needle or that needle or whatever.
There’s the general big business number stuff that we want to have an eye on, but also one of the things we’re most curious about are sort of patterns inside the apps and usage patterns and customer behavior that we don’t have a lot of insight into. For example, what are the things? What are the actions that would cause someone to stick around with Base Camp for 18 months versus six months? Like, what are those things? Are there certain patterns that all these customers have in common?
And so, he’s doing a lot of analysis there to figure those things out. What are the things that people do first? If they do this first, does it leave to a longer term customer? Are there certain things that people do, and if they don’t do them, it hurts or if they do them, it hurts? If they run into a problem, they get confused with commissions early. Does that mean like, they’re done? We have intuition about these things, but it’s really nice to have some concrete data behind it.
We’re looking at a variety of things, so focusing on certain things, looking at the big picture and other sorts of things. We’re really optimistic about all of the things. He’s also working on a variety of dashboards for us to keep an eye on things like
tickets, improvement over time. We’re looking on a time series data so we can see, are we getting better or worse over time? It’s really cool stuff. He’s a really cool guy and has a lot of really interesting skills that help us figure this stuff out
Andrew: I love data.
Jason: That’s initially where we’re a bit dismissive about it, but it’s mostly because I found this to be true about most things you’re dismissive about is because you don’t understand something. And so, it’s very easy to go, uh, that doesn’t matter. Well, it’s because you probably don’t understand it.
Data isn’t something we deeply understood. And so, you kind of tend to avoid things that you don’t understand because you don’t know if you can learn it or if you’re going to know the right things to look at. So it’s easy to kind of dismiss that stuff. It’s great to have someone who really dives into this and loves this stuff, and I’m finding it completely fascinating. There’s really a lot of interesting things to learn and that we can see.
Andrew: What have you learned? What have you done differently so far in the last few months since Noah came in and revealed some data?
Jason: One of the things, we just built a custom fields feature in High Rise which has been a really popular request. Noah has been doing some surveying of customers to find out what that really… People have been asking for custom fields, but what does that actually mean? How many custom fields would people have? What kind of custom fields are important to them, and things like that have helped us to determine what features are important.
For example, asking people about what custom fields they might want in High Rise, that led us to figure it out that, we had this initial idea that a custom field could be text. It could be a number. It could be a calculation. It could be a selection, a pull down, all these things it could be. We could have built that, and it could have taken a long time to do that.
We found out that most people just simply need a basic text field. That’s really what most people need, and we determined that by looking at these survey results and seeing what people were describing in their use patterns or their potential use patterns for how they would use it. Then, it comes down to strength of text for the most part.
We wouldn’t have known that. We could have assumed it. We could have guessed it, but now we felt really comfortable with rolling custom fields out with just a simple text field to start. We might add more stuff down the road.
We’ve been doing a lot of A/B testing with our sign up forms using certain language and figuring out some cool stuff there, what works and what doesn’t. Surprisingly, just saying thank you. Actually, not surprisingly. But saying thank you to somebody when they pay for something has a pretty big impact.
Andrew: What do you mean? Right after they pay, saying thank you?
Jason: No, actually while they’re paying. If you have a sign up form where there’s a credit card area, saying like, thanks for becoming a paying customer. Those aren’t the exact words, but instead of just saying, enter your credit card details, saying like, thanks for becoming a paying customer, enter your credit card details has, not an enormous effect but a measurable effect that… You’re talking about adding five or six words, totally worth it.
So things like that, we’re starting to learn. In your gut, you’re like, of course, that’s useful, but we just didn’t know it before. It’s cool just getting to know things about your business that you’re doing right or you’re doing wrong or there are things you don’t even pay attention to, don’t even notice. It’s been great.
Andrew: Lifetime value of customers is a topic that’s been coming up a lot in my interviews. I’ve got to find someone that can teach it and do a full hour on it. How are you able to figure out the lifetime value, and in a moment I’ll come back to an interview I did earlier today that ties into that. But how do you know what the lifetime value of your customers are?
Jason: Well, it’s doing some math basically. I don’t know the exact way to compute this beyond looking at revenues and then times here, when they signed up, when they canceled, when there’s cohorts and vintages and all that stuff you can do. There’s a lot of math there that I understand the basic of it but I don’t understand the whole methodology.
It’s an important number to keep an eye on because especially when you start getting into advertising it’s important because you can say, how much money is it worth spending on a click, on an ad, whatever it might be, 80 bucks, that’s crazy. Well, it’s not crazy if your customers are going to be worth $1,200 over two years or a year and a half. You’ve got to understand those basic fundamental numbers.
It’s easy not to have to worry about that stuff when you aren’t spending money acquiring customers. And if your margins are very high, you can sort of dodge all of that stuff. That’s sort of how we’ve been and continue to be, but we want to get better and know more.
It’s an important number to know, and there’s a variety of ways to calculate it, especially if you have different types of plans it can get very complicated from lifetime value of a customer who starts out on a certain plane and upgrades to a paying plan versus the customer who starts on a paying plan, stays there. Versus a customer who starts on a paying plan, upgrades to a different paying plan versus a customer who uses a coupon versus a customer who comes in from a Google ad versus organic searches. All of this stuff that you can look at if you really want to know it for sure.
I find that stuff fascinating. It’s really cool to see all the stuff, and there is a difference between people who come organically versus word of mouth versus an ad versus if they sign up with a credit card first or use the free trial. There’s all this different stuff. What you want ultimately to do is find . . . it depends on what your business is.
In our case we want to find what type of customer leads to the longest lifetime value? And then, direct your marketing and your ideas and your pitches and your promotions and all towards replicating more of those customers. That’s sort of the game.
Andrew: I wish that there was some software, web app that was available for that. If you wanted to do A/B testing, you can use Visual Website Optimizer or Google Solution or whatever you need. There’s lots of options.
Jason: Optimize Leads is a great product, too.
Andrew: Optimize Leads is a great product? That’s the one that you use, Optimize Leads? So I wish that there was that kind of web app for figuring out the lifetime value of your customer and then also not just generically knowing that number but knowing where they come from.
Jason: There’s a variety of apps. This is a product that we never built that we’d been talking about building for four or five years actually, these dashboard like products. We were going to call it Score Board actually which was this idea of really having a dashboard with all these metrics and whatever, and you’re seeing them pop up everywhere. There’s like Gecko Board. There’s KISSmetrics, and there’s, oh God, I just see them every day, and now I can’t remember them.
There’s a variety of these tools out there today, and a lot of them are getting pretty close to what you’re describing. So that’s coming, and it’s actually probably already here. It’s getting easier and easier and easier to know this stuff and to see it, and that’s great. That’s great for everybody.
Andrew: Just a couple of hours ago, I was talking to Tim O’Shaughnessy, the founder of Living Social. This is a stats guy right from birth. This guy is constantly statting everything out. I asked him, why did you raise $400 million, and why did you raise this? He says, listen, I know the lifetime value of my customer and, of course, he didn’t say it.
And, of course, I know what my costs are. I’ve got a system here where I could just press on the gas. I should because I’m paying less than I’m earning lifetime value of the customer. If you discover that through advertising, is it possible that you will change your mind on funding and start talking about big exceptions to the don’t get funding rule?
Jason: No. We would pour our own revenues into it. I would be spending millions and millions and millions on it if we knew what that lever was, like Tim does or like…
Andrew: Even if you knew that you were earning $190 lifetime value of each customer in High Rise and Google Ads were charging you, you would end up with $75 per customer?
Jason: Yeah, because there’s more to it than that. If you’re just looking to blow your company up as far as you possibly can, that’s one way of doing it. Go get as much money as you can and do that. That’s not what we’re trying to do here because there’s cultural ramifications to growth. There’s quality ramifications to growth. There’s a variety of that growth needs. You can’t look at growth in a single metric.
If we could get a billion dollars and throw it into advertising, we would be a very different company, and I don’t know if I would like that company that we would become. It would require us to have an enormous customer support team because if we’re pulling in like 10,000 new customers a day or something like that, we can’t support that with that company that we are which would mean we’d probably need to have a call center which would mean… There’s a variety of things that that would affect.
I’m still a big believer in growing like trees grow which is slowly and steadily. I’m just like, I like to take away a lot of lessons from the way that nature works. I think that businesses run in seasons. You can’t have your foot on the gas all the time. You’ve got to take time off and recoup. All of these things I believe exist in the natural world. I like to follow all of those things.
I’m a big believer in slow, steady growth. I think we can speed up our growth, our customer acquisition by doing advertising, but I don’t want to change the kind of company that we are. So I think we need to do it our way, and we have plenty of money to pour into advertising to make it grow as fast as we want it to grow. We don’t need other people’s money for that. Ideally, the money should be making its own money.
Andrew: It still would be making its own money.
Jason: I’m sorry?
Andrew: The advertising still would make its own money. It’s just it would take a few months or years, maybe, to get it back from the customer.
Jason: I’m all right with that. It wouldn’t take that long for us. We get our money back pretty quickly on customers. Anyway, we have plenty of money to spend, and I would love to find . . . and if there’s someone out there who’s watching who think they can do this for us, please get in touch with me, Jason@37signals.com.
I want to find that formula. I want to find that perpetual money machine formula basically and pour tons of money into it with the understanding that we still have a company that we have to respect and we have to know how we want to build the company. So, it’s not about bottomless growth. It’s about manageable growth, but it’s about finding more customers in a way that we can’t find them today. I’m just totally up for that, and I think it’s going to be a challenge.
Andrew: I get that.
Jason: Yeah. Like the Living Social guy, Groupon and these companies. They just want to get as big as they possibly can around the world. That’s their goal. It’s growth. Growth is not our goal. It’s something we’d like to do. It’s something we are doing. Maybe, we should be doing it faster, but growth is not the end goal of 37signals. And so, that’s why I don’t like to take the bunch of money model because it forces you to grow in ways that aren’t really compatible with the way we do things.
Andrew: You’re on the board of directors at Groupon. What have you learned from working with them?
Jason: Sure. Well, just a clarification. I’m not on the board of directors anymore.
Andrew: Board of advisors.
Jason: I’m on the advisory board now instead, and that was a smart move by them.
Jason: My main role there on the board was . . . the reason Andrew Mason asked me to be on the board was to help them with product ideas and work on product design and copyrighting and think about products because that’s what I think I’m good at.
The board of directors isn’t really a place for that, especially at the stage that Groupon is at right now. They need people with international business experience. Howard Schultz came on after I left, the CEO of Starbucks. He knows brand name. He knows big business. He knows that stuff. I don’t know that stuff. That’s not my role. They need more people like that than people like me.
By moving over to the advisory board, I’m working with Andrew. I was just working with him this morning on some stuff around their new Groupon Now product which is coming out short. Now, I’m doing really what I should be doing, which is working with Andrew and his team on product design and thinking about product copyrighting and that kind of stuff. It’s a better place for me, a better fit for me.
That whole process of being on the board was absolutely fascinating, and I really enjoyed it. I feel like it was a bit lopsided because I certainly learned a lot more from them than they learned from me.
Andrew: For example?
Jason: That’s a very different way of running a business. It’s just fascinating to see. They have the money machine down. They have that formula down, and so there’s a lot of interesting debates about how much money to spend now that they have the formula down which is interesting. Just seeing how people approach things, other people approach things is fascinating to me.
There’s nothing specific necessarily except to say that Andrew has surrounded himself with very smart people, and it was really a privilege to be able to be in that room, just to hear about people’s experiences and what they come away from it. And there’s a lot that other people can offer you. I found that fascinating.
I’m trying to think. There’s one lesson specifically that someone asked me this question recently, and I had a better answer for it. I’m sort of blanking right now, but maybe I’ll come up with it at the end of the interview and let you know.
Jason: It was a great experience. Being on a board is something that I never thought I would do. It wasn’t really something that I was interested in, but I would love to do it again somewhere. I do think though that one of the things that I think is important is that you’re not spread too thin. I know some people are on multiple boards, and I just don’t feel like it’s fair, to be honest with you.
I think it’s important for someone, if they’re going to be advising somebody or someone and they have their own business, they should stay pretty focused on that and not just sort of be on everything. I feel like it’s very hard to provide a lot of really thoughtful time when you’re doing a bunch of things or a bunch of people.
Andrew: Is that where you got the idea for this money machine? I hate to call it money machine because it sounds like such a get rich quick type of thing.
Jason: Right, right, right. Sure.
Andrew: The idea of lifetime value of customer. Spend a little here on advertising, end up with more money later because the user is with you. Is that where you got turned onto it?
Jason: Well, we’ve known about lifetime value for a long time. We’ve experimented with advertising way before the Groupon thing. Groupon thing was just in the last year basically. For certain, it inspired me. I was inspired by it, and David and I met with Eric Lefkofsky over at Groupon, who is an absolute financial genius.
This guy is wicked smart. I would not want to be up against him on anything. He’s great, great guy, really smart, really good with numbers, and he sat down with us and sort of helped us through some of the stuff, too. I had some questions about how we could do some of the stuff. He helped us with that a little bit.
I was definitely inspired by what Groupon’s done. I just found it interesting. It’s just something I didn’t know. Here’s actually something that I did learn that I hope no one will mind me saying which is that when you get to a certain level, when your company is so big and doing so well, it’s very easy to think that everything you are going to do is just going to work. And that people are going to think that whatever you do, or that there’s a bit of delusion that can slide in if you’re not careful.
Andrew is actually really good at pushing back on some of these things, but it’s very easy to sit around in a room with a bunch of people who are all supportive and all seeing these phenomenal financial results. And saying things that like… Someone comes up with an idea, and everyone’s saying, yeah, absolutely. That’s a great idea. It’s easy to see how that can happen, and that sort of happened a few times, and it was cool to see some things pushed back.
But it’s easy to see how that can happen, and I think it’s important that people stay very grounded and realize that the world does not revolve around them, no matter what, and does not revolve around your business. It doesn’t revolve around Groupon. The world doesn’t revolve around Groupon or 37signals or Mixergy or anything else.
Jason: People are very busy. They have a lot of things on their mind, and your world that you live in is pretty small. I think I learned something about that there, too which is cool.
Andrew: All right. Two more questions about Sortfolio before we end.
Andrew: The first is, you reached out to me to buy ads on Mixergy. I moved to Argentina. You were the first person to say, hey, are you going to run ads on this thing and you bought an ad. The ads that I did… Can I say openly how you criticized me?
Jason: Sure. I don’t even remember how I did it.
Andrew: I take it very positively. I wanted that. You basically said, Andrew, people are emailing me and telling me it’s like you’re an infomercial or a used car salesman pitching our Sortfolio site.
Andrew: Do you remember the way that I did it? I loved more feedback from you if you remember it.
Jason: I don’t, but I think, maybe, you were too effusive in your praise or something, and I think perhaps that was it. When you know it’s an ad, and the spokesman is so effusive in their praise, I think people start to think, well, okay, I don’t know if I’m going to buy that anymore.
Jason: I don’t know, not buy. I don’t mean buy, like buy the product. I don’t know if I trust this person. So I think it’s important to be a trustworthy spokesman, and I think that sometimes if you’re too ebullient about something, it’s like, you know, it comes off as salesmanship instead of saying, hey, there’s actually this cool product. I really like it a lot. This is an advertisement or whatever, but I love it. I use it. It’s great, and I hope you check it out. There’s something about that.
For example, I listen to Howard Stern. I’m a big Howard Stern fan. And Howard Stern, I think, does the best voiceover ads of any radio personality that I’ve seen because he’ll even say, like he doesn’t necessarily love the product sometimes. Other times, he will say he loves it if he likes it, but he seems very honest about his real take on the product.
I mean, he’s still selling. He’s still a salesman, but there’s something about the fact that he just sounds like he’s talking about it, instead of saying an ad about it which, to me, is more convincing than just clearly being an ad that you’re just praising. I don’t remember the ads that you did, but I think that was probably my first reaction.
Andrew: You know what? I see what you mean because what you’re saying there makes sense. From my point of view, I’m thinking I want to be more useful for Jason. The guy just took a shot with me with an ad. I want to be more useful for my audience because now they’re going to pay attention to see what I like and what this product is that I’m showing them. So I’m giving more and more and more, and that’s just a problem.
Jason: I just don’t think you have to is the point.
Jason: If you’re positive about it and you say why you like it, that’s enough instead of talking about how much . . . I don’t remember the details, but I’ve heard people talk about how much they love it and it’s the best thing ever. It’s not the best thing ever. Our products are not the best thing ever, okay? The best thing ever is life and health and all that stuff. You don’t need to go there. You can say like, it’s a great product. It’s really easy to use. I enjoy using it. I use it for my own business. I think you’ll get a lot out of it, too. That’s enough. It’s more believable.
Andrew: All right. That’s very useful feedback. Last question is, if anyone does want to buy Sortfolio and maybe hire me as a better spokesperson than I was for you guys, how do they buy it? Where do they go?
Jason: Right now, we put up a blog post with some details, financial details, why we’re selling it, some stuff like that on Signal versus Noise which is 37signals.com/SVN. And they can find the post there. They can email me directly Jason@37signals.com, and we’ve gotten about… I’m glad we’re doing this interview a few days after actually because we’ve gotten about 15 interested parties so far. Some are certainly more serious than others, and some of the offers just aren’t realistic which is fine.
It’s cool that people are excited about it, and they just want it somehow, but there’s definitely some serious offers that we’re going to be considering. We’re going to let a few more, probably a week or so more go by before we sort of get serious about figuring out which ones we think are the best. But you can just email me Jason@37signals.com, and if you have any questions about any metrics or numbers or analytics or whatever you want, just let me know and we’ll be happy to get back to you with that stuff.
Andrew: One day I’ve got to do an interview with you and find out how you can monitor that email and respond to everyone. You responded to me within a few minutes, and I appreciate that. Now, you’re handing out your email address in my interview.
Jason: Well, here’s the thing, to be honest about that. I declare email bankruptcy often. Every once in a while, I actually have a folder in my Inbox, and then I have a folder called Inbox Overflow which is just a way for me not to feel bad about deleting things. Basically, when my Inbox gets too big, I look back. I sort it by date, which it’s usually sort of by date and I say, anything that’s older than three days ago, I’m just going to throw them in this Inbox Overflow thing which means that sometimes I don’t get back to people which is bad.
I try and get back to everybody, but I don’t unfortunately anymore in a timely manner, but certain people . . . I’ll see your email and I like you, of course, so I’ll happily respond. I try to respond. Here’s the other thing. Honestly, this is an email tip, I think, for the ages. If you want someone to respond to you, write a very short email.
Jason: I get emails from people who are totally cool and looking for advice and whatever, but the email’s six or seven paragraphs long. I can appreciate the time someone spent into that which is why I have a hard time responding because I feel like if I respond with a line or two, it’s totally an insult. In my head, I’m like, okay, I have to find time to respond to this person in kind, and that’s very hard to do, to find the time when I have dozens of those that I have to get back to. So if you really want to ask someone a question or get back to someone, send them a very brief email.
By the way, one of the things that was really good about your email which was . . . and this is another lesson, I think. You said, hey, can we do an interview about Sortfolio? How about 3 p.m.? I don’t remember the time but like 3 p.m. tomorrow or something like that or today. It was not, hey, are you free to do an interview because then I have to respond saying, yeah, when? Then, you’d respond with the date. Instead, you just said, here’s the time and date. Can you do it?
And that is another tip that I think everyone should be thinking about. How can you reduce the number of round trip emails you have to make to get something done? And you’re good at that. So that’s another thing. So that’s one of the other reasons I responded because it was one line. It was completely clear and packed with information. I can get back to you with it.
Andrew: That’s for doing that.
Andrew: Thanks for doing this interview again.
Jason: Yeah, it was fun. I love talking with you any time.
Andrew: Cool. Thanks, Jason.
Jason: See you.
Andrew: Thank you all for watching. Sortfolio.com, check it out. Bye.
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