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This week we talk about business plans, language, and Jeff Bezos. I talk about Dungeons & Dragons and get absolutely zero response from the uninterested Jason and David.
A podcast by 37signals about the better way to work and run your business. Hosted by Kimberly Rhodes, the Rework podcast features the co-founders of 37signals (the makers of Basecamp and Hey), Jason Fried and David Heinemeier Hansson sharing their unique perspective on business and entrepreneurship.
[00:00:00] [Phone Chimes]
Shaun: [00:00:01] And my phone's going off. Total pro.
David: [00:00:04] I didn't know people used ringers anymore.
Shaun: [00:00:09] You know, I only have it on when like DoorDash is coming.
David: [00:00:10] I see. Do you have to go get your lunch right now?
[00:00:15] Broken By Design by Clipart plays.
Shaun: [00:00:15] Welcome to Rework, a podcast by Basecamp about the better way to work and run your business. I'm your host, Shaun Hildner. This week we're discussing the essay in Rework the book titled “Planning is Guessing.” And similar to last week's conversation, it's really about reframing an entrenched idea simply by changing the language around it. In this case, it's about thinking of long term plans for your business as simple guesses, and they should be treated as such.
[00:00:38] As always, I'm joined by Basecamp co founders and authors of Rework, Jason Fried, How are you?
Jason: [00:00:43] I’m good, how you doing Shaun?
Shaun: [00:00:45] Oh, can't complain, a little bit sick. And David Heinemeier Hansson, how are you?
David: [00:00:50] I am good. Can’t you then complain? I mean-
Jason: [00:00:52] Yeah, you deserve to complain.
David: [00:00:53] I think if you're sick, you're supposed to be able to complain, just a little bit.
Shaun: [00:00:56] All right, let's skip this. This is the kind of episode where I just get to complain about my sore throat.
[00:01:02] So rereading this essay reminded me a lot of playing Dungeons & Dragons. And I know this will mean very little to either of you or to many of our listeners for that matter. But stick with me. As a Dungeon Master, I spend hours upon hours meticulously planning, fantastic encounters with mind flayers, and mysterious dungeons filled with goblins and traps. And then when it comes time to sit at the table, my players will invariably choose to do something completely different that I haven't planned for. And I know this might be a far stretch from making plans for your business, but this essay really brought to mind just the futility of making plans. I mean, as well as the joy of improvising when it all goes to shit.
[00:01:42] Where do you find yourselves running into trouble when you are making plans for Basecamp?
Jason: [00:01:45] I think what it comes down to is, the longer, or the further out the plan is, probably the less accurate it's going to be. So we do plan. We do these six week plans basically for the work we're going to do over the next six weeks. And those aren't always 100% accurate either. But they're a lot more accurate than, let's say, what we plan on doing over six months, or nine months or 12 months, or three, two years.
[00:02:08] I'm trying to think of examples, probably like launch dates is something. Like that we wanted to launch something in a certain time and pushed it back. There's some stuff like that. But I don't know, I'm trying to think of anything else, since we don't plan very much, where there's been some, big picture things that haven't gone quite as planned.
David: [00:02:29] Well, I think actually, the launch of HEY-
Jason: [00:02:30] Sure.
David: [00:02:30] Our most recent product, was pushed because of a thing we could not control. What was that thing? Oh, a pandemic, right. Great example, actually. We had a launch date picked out. I think it was April something.
Jason: [00:02:44] Yeah.
David: [00:02:45] And then pandemic turns into high gear all the sudden, that plan is out the window. If we had our hearts set on that in the way that sometimes managers have their hearts set on certain dates, oh, no, we're gonna push through whatever the cost, then that would have been a bad time. And it would have been a bad time in the way that is so, just self inflicted. That all this planning is, this is something you sit down and do. You sit down and make these projections up. These are your guesses for the future. And you know what, not only are those guesses, guesses, not plans, so much as guesses. They're also subject to change. You can change them. You can simply guess something else. You can come up with something else, and just revise it in a bunch of different directions.
[00:03:38] And I think this is where planning is guessing is quite similar to this idea of deadlines. And sometimes people will pick a certain date.
Shaun: [00:03:47] Completely arbitrary.
David: [00:03:49] Arbitrary in many ways, or at least sort of just, like eh, this feels about right. And then they’ll think that sort of means something specific beyond the fact that they just picked it. And this is the fact with both the plans in general and the deadlines, specifically. You get to change your mind. It's not necessarily that these things don't have any value. As Jason just said, we plan out six weeks in advance. We have some ideas about what we should do six months from now. But you just approach that with the humility of, this is a guess, most guesses are at least partially wrong. And don't get too worked up about it.
Shaun: [00:04:32] We talked a little bit about this idea of language as a way to reframe some of these problems last week when we talked about the word failure. What is it about the power of just changing that word from planning to guessing as the title would suggest? That has so much power on the way to reframe this?
David: [00:04:52] I think it goes exactly to that point of how much are we describing reality? A plan sounds like a map of reality. This is going to happen, this is going to happen then and when. And a guess clearly does not. Right? It's conjecture. It's just an idea and a fuzzy one at that. And that's a much better framing for these ideas that this is heavily fuzzy. This is highly likely to not pan out. But it doesn't mean it doesn't have value. I think perhaps, if anything the essay, or at least the title of that overstates it to the point where it almost seems like what's the point at all?
Shaun: [00:05:37] Sure.
David: [00:05:37] If it's just guesses, why even do any of them? Just do nothing? And I don't think that's quite right, either. We guess on things all the time and that's okay.
[00:05:47] A related way of seeing the world and making decisions is bets. Which is, I don't know if we talked directly about that in Rework. But we've talked about it a lot since, inside the company, that we like to think in bets. That we're not going to have most of our decisions 100% pan out. But you know what? We can make a bunch of decisions where we just feel like you know what, eh, this is a pretty good bet. 70%? 80%? I don't know. And sometimes, we'll even take a bet that's a long shot knowingly, upfront, do you know what? I only think there's 20-30% chance this is going to pan out. But if it does, wow, wouldn't that be great? And if it doesn't, what's the cost? What's the price of taking this bet? And if the price is low, you can take bets that have low odds, it's not the end of the world.
[00:06:37] Again, I think we talked about this last time, too. As long as you don't bet the company, as long as you don't bet yourself at risk. Those bets should be very sure, I'd say this is perhaps the one area where we don't really think much in bets. We don't try to bet the whole company. Some companies have to, they have no other choice. They're backed up against the wall and unless they take a chance on something unlikely, they know for sure they're going to go out of business. And that's a different situation. We really haven't been in that situation. But I think this idea of thinking in bets, is perhaps even a better frame actually. If we were to write this book, again, I don't think we would have included the framing of guessing as much as the framing of bets.
Jason: [00:07:19] Yeah, the bet language came in with Shape Up, basically. But we were talking about that specifically around features, feature development. What features do you want to bet on this cycle, basically. But it really does extend to the whole company.
[00:07:33] I think the thing with plans is that a plan is sort of somehow inherently assumed to be like, the odds are 100%, basically. As long as we kind of come up with it, and extensively document it and extensively set up to do it, and commit to doing it, then it's going to happen. I think that's the real conflict with planning. When it's a guess or a bet, you eliminate that certainty. You can be pretty confident, but certainty is not in the picture. I think that just helps take the edge off, as well.
[00:08:07] And by the way, I mean, deadlines are interesting things, because deadlines actually are really helpful, too. Some people think we don't have deadlines, here. Publicly, people think that, because we're like, planning is guessing and we don't set up big plans. But we do use deadlines to set up an appetite for things, which is different than an estimate.
[00:08:26] This is, again, getting back into Shape Up language, but we don't really necessarily estimate how long something's gonna take, we set up an appetite for how comfortable or how much we want to spend on it, basically. It's like a budget more so than it is an estimate. And work sort of backwards from there.
[00:08:41] And then again, sometimes you’re a little bit hungrier. You’re done and then you’re like, we need a little bit more. So you add a little bit more, and you don't really feel bad about it. Because you're taking this one step at a time and it's not like so far out that you have to add. Sometimes the other problem with long plans is you set up a two year plan or something, you're going to be off by a significant degree, likely. Or the likelihood is going to be off by a significant degree, then you're going to have to sort of save face and put a lot more time into it because you've already invested so much time.
Shaun: [00:09:12] Yeah.
Jason: [00:09:12] That's when things get really late. Compared to if you're a week off on something that's a few weeks, it doesn't feel like a big deal if you have to extend things.
David: [00:09:20] I think that concept comes back to the idea of stakes. A plan, especially a big plan, an important plan, sets the stakes quite high. And there's perhaps something to that some of the time. Like, hey, this is an important thing. We really want to do that. It conveys a sense of urgency and importance. But it's a very coarsely grained way of putting it.
[00:09:51] And I think this is also why another saying is, “Plans are useless, but planning is indispensable.” I think it's something like that. Which, I think, gets to the point that this idea of a plan has some problems, but it's still too attached to the language to essentially get around it right. And I think this is why we try with a lot of things to play with the language. Is there another word that can capture the essence of what this is about minus some of the negative aspects of it.
[00:10:24] So, take the word plan. Ugh, it has all this baggage, it has all these high stakes. It has this certainty, it has all these other things. What are some of the other words for plans? Oh, guess, bet. They feel kind of different. They taste a little different. They have some of the same essence to it that we think about what we're going to do. We talk about what we're going to do. We evaluate it from a bunch of different angles. And then we commit to something or we take a chance on something.
[00:10:56] I think that's what's really interesting about so many of the words in business. There's a lot riding just on the word, right? There's an underlying idea that pops up with different words. And some of the words work better than others. And I think that's a key pursuit we've tried with this book, is to play with those words. See which one of them feel like this is taking us down the wrong path too often. How can we get down the right path more of the time?
Shaun: [00:11:27] You guys both went to business school? I'm assuming you were taught how to write business plans. I'm assuming investors still want people to be writing business plans. Was there ever in 37signals or Basecamp, was there ever a long term business plan? Like before you came to this conclusion?
Jason: [00:11:43] No, I didn't go to business school, either. I mean, I got a degree in finance. It's a bachelor's. I didn't go to like a dedicated Business School. Gosh, I didn't want you to brand me as a business school person. I want to be very clear about that.
Shaun: [00:11:54] Now I’m the asshole.
David: [00:11:56] I went to business school!
Jason: [00:11:56] Yeah, David went to business school. It’s his fault. No, we never had a business plan. When we started the business, it was three of us. This is like pre, this was 37signals days. A couple years before David had a couple different business partners. And we just like, so let's just start a web design company, and it's like, we each threw 10 grand in that we had saved and that was the plan. Like, let's not lose the money. That’s basically the plan. Let's get some customers and let's not lose the money. And where are we going to work? Well, I don't know. Carlos has a desk we can hang around at, he already has an office. If we need a space to go, we can go there. That was that was essentially it.
[00:12:32] And then you kind of, once things start to happen, then we kind of got a bit legal about it and put together like a literal operating agreement and some of that stuff. Actually, we were S Corp initially, so we had a different document. But we didn't get official until it was official, basically. And I think that's kind of the way to do it. Wait to see if anything even makes sense, first, before you invest all this time and money and thought in setting up the ideal situation, the optimal outcome. Just get to work, figure it out. And if you have something, then you can do the rest if you need to. And if you don't need to, you saved yourself a ton of time as well. For example, we didn't do a business plan later. We did incorporate the company properly, but we didn't do one of those later.
David: [00:13:16] I think this is one of those wonderful advantages of answering to yourself, as Jason said. The original partners threw in 10 grand of their own money, and so they were accountable to themselves.
[00:13:27] I've written a business plan that was full of bullshit and the purpose of that business plan was to convince other people to give you money. The business plans are usually for that purpose. They’re a way of argumentation that, hey, you should give me a large check, either that may be the bank. I think that's how perhaps a lot of smaller businesses have learned to do business plans, because if they want to go get a small business loan, they have to present a business plan.
Shaun: [00:13:57] Sure.
David: [00:13:57] Well, the business plan I wrote was one of those dotcom business plans, because this was back in the day before I joined up with Jason, working at a startup incubator that was trying to attract capital. And that was a great inoculation against what utter bullshit it is, because we just sat down, opened an empty Excel spreadsheet and just started fantasizing. We started putting in numbers like, I guess what could we make selling ads on this website? And then what can we make in year two, three, I think we went out five years and the five years is started all the way from like we had nothing. There was nothing built whatsoever. In year one, we're gonna capture this country, then year two, we're going to capture Scandinavia, year three, we're going to capture Europe, year four, we're going to capture the world essentially, right? Like it was almost literally a plan of world domination. And it was just filled with all this fantasy.
[00:14:57] And I had a really sour experience with that, because it just felt like such bullshit. I could barely get myself to put the keys to it and write this thing. So, very happy to have ended up in a situation where we don't have to impress other people, although, it's actually not entirely true. Actually that is true. I was gonna say that when we had the invest, or not even investment, when Jeff Bezos bought a slice of the company from Jason and I, we wrote up a one pager and I was just gonna call it a business plan, but really wasn't a business plan, because it was mostly retrospective. It was saying basically, how much money did we make, but it did have, I think, an extrapolation, if you just took the growth rate we had that year and charted it out. I think at least, I don't know how long we charted it out, but we charted it out somewhat to come up with essentially, hey, Jeff, you should give us like a lot of money for this thing.
Shaun: [00:15:47] Oh, for sure.
David: [00:15:47] That’s perhaps on other pieces of paper not worth very much. But on this piece of paper, this piece of paper says it's worth a lot. What was funny, though, was usually business plans, they have sort of rigor to them and you there's a bunch of books to teach you how to write them. And they are many pages long. This quote unquote, “business plan,” it wasn’t a business plan. But this business page was a one pager that just had, I think, six numbers in large type.
[00:16:19] I wonder if we still have that document. It was almost kind of funny. And what was so funny about it was the people who first received that piece of paper, were people who were trained in reviewing business plans, because that was the investment team that Jeff had. And they all went like, well, this is bullshit. Because first of all, it doesn't follow the form and whatever. And then Jeff just went like, yeah, it doesn't matter.
Jason: [00:16:45] I think that we extrapolated out that and like 14 years, we'd own a rocket company. I think that's what it was. We could eventually land on the moon ourselves. No, but yeah, I remember that. And the investment we got the multiple was, just the whole thing was ridiculous. Because think at the time, I feel comfortable sharing this. At the time, I think we had a million dollars in revenue. I think that’s-
Shaun: [00:17:05] When was this? Sorry?
David: [00:17:06] 2005.
Jason: [00:17:06] Is that right, David? Like about a million?
David: [00:17:08] Something like that. Million four, or something.
Jason: [00:17:11] Yeah.
David: [00:17:11] It was low.
Jason: [00:17:12] So it was, who knew where the company would go? But you just kind of go well, last year, we grew 70%. So we're always going to do that. And then that's what these things typically are. So yeah, it'd be fun to have a business plan graveyard. Would be kind of fun to actually have a site that compares the five year projections for companies, what they thought they were going to do and what they actually did. It’d just be just kind of a fun little thing to put together.
David: [00:17:35] I thought what was actually interesting about that, quote, unquote, “plan” or projection was that I think we almost hit it. And that was what was sort of wild about it is that when we wrote it down, we were like, this is clearly bullshit. And then it's sort of more or less, I think, actually happened.
Shaun: [00:17:52] Sure, planning is guessing, but sometimes you guess correctly.
David: [00:17:55] Exactly, exactly. Sometimes you throw a blind dart at the board and it hits. And I think that was what happened in that case.
Jason: [00:18:02] Yeah.
David: [00:18:02] It was certainly not based on any rigorous, financial wizardry, on our part, where we're like, oh, yeah, we did a lot of market research. And if we just captured 1% of the total addressable market, which is usually the bullshit that you put in these things. No, no, look, here, the market is 10. I was gonna say 10 billion, but that sounds too small these days, the market is $10 trillion. And if we just get 1% of that, we're going to be a unicorn.
Shaun: [00:18:30] Uh-huh. I want to go back a little bit. There's a fantastic phrase that you use in the essay, believe you say, “Plans let the past drive the future.” And it's not just that the plans create this assumption of what the future will look like. It's that they actually guide your actions in your business. And can you talk a little bit about the dangers of letting the past plans guide future business decisions?
Jason: [00:18:55] There's that great, I used this quote in this one post. I always get the quote wrong when I try to remember it. But Jim Coudal has this quote about goals. Jim Coudal is an old friend of ours. We used to share his office space for a number of years, he owns a Coudal Partners and Field Notes and whatnot. He says, “The problem with goals is that you set them for the person you are when you set them, not the person they're going to be when you achieve them.” Or something like that.
[00:19:21] And that's true with plans, basically. What do we want to be in five years? Well, I don't think I want my five year old younger self to decide where I'm going to be in five years.
Shaun: [00:19:31] Yeah, that guy was an asshole.
Jason: [00:19:33] Yeah, totally. That guy was, and still is. Not Jim, me. So yeah, I think that’s the big deal here. But at the same time sometimes that’s why all this stuff, it always depends, right? You want to commit to something. I think we actually have a bit of an issue where we don't really commit to some things. We want to do some things and we kind of do them a little bit half assed and we just kind of let them go. We don't have someone seeing some certain things through and so I think we fall short sometimes to where it's not the plans, it's the follow through. Really. Sometimes we could probably use a bit more of that, too. So you just got to find out what works for you. But I think the further out you go, the more mistakes you're probably going to make, in terms of where you're actually going to end up and where you think you're gonna end up. Which is why we just think the shorter the time horizon, the better because, look, if you're gonna make a five year plan, okay, you can also make a dozen, four month plans or something to get yourself there or something like that, and just kind of adjust as you go. And I think that's probably a better path.
David: [00:20:28] I think the other point here is that these plans are often about accountability. Financial plans are about you being accountable to the bank manager who gave you your loan or to your investors, perhaps. And then other companies, particularly larger companies, use that method of accountability to essentially have the reporting structure be accountable. Oh, you have a manager who owns a business unit, and they have to put a plan forward, because that's what they're going to be measured against. And there's all these plans of the KPIs and the OKRs and whatever, frameworks that larger companies use to do it, which I can totally see how that is. It's just we, up until this point, have kept the company so small as in, there are not a lot of layers of accountability.
Shaun: [00:21:17] Right.
David: [00:21:17] That Jason and I have sat with more or less all of the accountability on the business decision level. So what? Are we going to make plans to each other, that we can keep each other accountable for? That doesn't make even any sense, right. But where it does make sense is with the six week cycles, that is essentially sort of a plan. It's a very short term plan, which is why it's more useful, but does have some accountability, quote, unquote, in it. That this is where you check up with teams, what did we get done? What didn't we get done?
[00:21:52] So I can also see when a company gets larger, or has these outsiders that you have to be accountable to, that's where planning comes in. But that is also then the freedom you should have. If you have none of those things, if you haven't taken other people's money, and if you don't have a large reporting structure, don't just cargo cult it. Don't think like, oh, this is what large companies do, or this is, not even large companies. This is what companies do. This is what it means to be a company, to do these kinds of plans and extrapolate them out multiple years.
[00:22:23] There's so much of that in business. And this is one of the things that both in Rework and in general, we try to push back against. Act your size. And so much of acting small is all the things you don't have to do. And spending a lot of time on planning that you're using to hold yourself accountable to yourself. It's not worth a lot of your time and attention.
Shaun: [00:22:45] I think that is actually a perfect place to stop because next week we're going to be discussing the essay entitled, “Why Grow?” And I couldn't have asked for a better segue. So thank you, David Heinemeier Hansson.
David: [00:22:58] Always a pleasure.
Shaun: [00:23:00] And Jason Fried.
Jason: [00:23:01] Fun to be here.
Shaun: [00:23:03] We'll see you next week.
Jason: [00:23:04] All right, adios.
[00:23:06] Broken By Design by Clipart plays.
Shaun: [00:23:11] Rework is a production of Basecamp. Our theme music is by Clipart. You can find all of our past episodes at rework.fm. We are on Twitter at @reworkpodcast. If you'd like to follow along with our book club, grab your copy of Rework and next week, we'll be discussing the chapter titled, “Why grow?”