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Rework is coming back this fall! But first, Jason Fried and David Heinemeier Hansson share stories about their history with venture-backed startups.

Show Notes

Rework is coming back for season 2 this September! In the meantime here's a little bonus to tide you over. Back in the late 90s and early 2000s, during the dot com bubble, Basecamp cofounders, Jason Fried and David Heinemeier Hansson both had run-ins with venture-backed tech startups. These experiences would form many of the ideas later published in Rework.

Show Notes

What is Rework?

A podcast by Basecamp about the better way to work and run your business. In Season 2, we're going through Rework (the book) chapter by chapter and talking with authors, Jason Fried and David Heinemeier Hansson, about what's changed in the world of business over the last eleven years since the book was published.

Shaun: [00:00:00] Howdy, it's Shaun, here to let you know that Rework is coming back this fall. Now the show is going to be a little bit different going forward. I'm breaking it up into seasons and in this first season of the new format, I'm going to be sitting down with Basecamp co-founders Jason Fried and David Heinemeier Hansson to talk about Rework the book.

[00:00:16] Each week, we're going to dive deep into a single essay and discuss what's changed and what stayed the same in the broader business environment over the last 11 years since the book was published. I'm working on new episodes right now and we're looking at early September for Rework’s triumphant return.

[00:00:33] In the meantime, I'd like to share this conversation with Jason and David I recorded a couple months ago. Long before they wrote Rework, long before 37signals, and certainly long before Basecamp and HEY, both Jason and David had had brief stints at venture-backed startups during the dot-com boom of the late ‘90s and early 2000s. These experiences helped form a lot of the ideas that would later make it into Rework, and that we'll be discussing in this upcoming season of this podcast.

[00:00:57] So, let's start with David, who got into this scene, like a lot of young men, by writing about video games on the internet.

David: [00:01:06] The first gaming website I worked on was maybe ’94, ‘95. That was just me doing it on my own, for the fun of it. I continued to do that through high school and then after high school, I worked partly on that and partly at a web design shop, where I did such fun things as cold calling for a while.

Shaun: [00:01:24] Oh, shit.

David: [00:01:24] Which was quite the experience, trying to sell companies on getting a website. This is back in, whatever, ’97, ’98, or something like that. Just calling people up. Hey, sir, would you like a website? The wildest thing was that we actually sold a couple like that. Imagine just picking up the phone one day, and some dude out of nowhere is calling you asking if you want a website and you go like, “Oh, yeah, I should, we should get a website from this stranger on the phone.” But I was clearly not cut out to do that.

[00:01:58] Anyway, I continued to work on the gaming website stuff as well and then I landed a job at a portal, which was basically like the one stop destination for everything. Like it's the one place you go. It's your start page. It's all these other things. Anyway, this portal had a gaming section. So I essentially rolled in all the work I’d been doing for years in advance into a paid gig.

[00:02:21] It was actually funny. I had a dual mandate. One, I was going to do the gaming website. Two, I was responsible for the jokes section.

Shaun: [00:02:30] Oh, David.

David: [00:02:33] Literally taking submissions from their customers sending in jokes, and putting them into this huge database where someone could look up a joke. At one point I probably knew like 2,000 jokes. Anyway, that kind of brings us all the way up until about 2000 when this web development shop sees what’s going on in the US, sees what’s going on with the dot-com boom. And like things, oh, do you know what? Incubators, that's the thing. Essentially these startup factories, right? Let's put together a shop that has a bunch of people. They can just start a bunch of startups really quickly. And then we'll share some infrastructure and we'll all get rich. The incubator was called Prey4. This incubator was started by the people who were running this web development shop, which ended up getting sold to one of the largest, I don't know, international, European advertisement companies called Leo Burnett.

Shaun: [00:03:25] Uh-huh, yeah.

David: [00:03:26] They bought it for like, I don't know, 40 million kroners or something right. $5 million. Not exactly, by modern standards, this huge windfall, but the founders of that shop that did well enough. That was the atmosphere. Right at the same time, as this incubator was going, I'd had my stint with the jokes, and I was like, alright—

Shaun: [00:03:44] You were done.

David: [00:03:45] Let's do something else. And then I jumped over to this other thing. The Prey4 incubator worked on this new gaming site, called

Shaun: [00:03:54] This brings us to about 1999, which is the year that Jason Fried and two partners started a little web design firm called 37signals, but we're getting ahead of ourselves. While David was managing a database of jokes, Jason was doing a short but memorable stint at a startup called Quokka Sports. That’s Q-U-O-K-K-A. It's sort of a cute little Australian marsupial that has an adorable permanent smile. In fact, pause this show right now and go look it up. You won't be disappointed.

[00:04:22] Okay, now to Jason Fried.

Jason: [00:04:25] This was in the late ‘90s. This is before I started 37signals. This is, I think, ’98. I was a freelance web designer and knew some people at this company called Quokka Sports in San Francisco. Quokka was a company that made its name designing really interesting progressive sports related sites.

[00:04:48] So the main thing they were known for was a site called Around Alone, which is a sailing race where people race literally around the world on a sailboat alone. So what they did was they outfitted some of the people who were sailing with, I think it was satellite phones at the time. And they could transmit the data back via satellite phone. And they would include, I think, pictures, perhaps, and some audio, if I remember correctly. But it was pretty extraordinary. And they plotted them on a map around the world. And you could see their journal entries and hear their stories. It was groundbreaking and the designers who were working on it were just amazing people. They were looking to hire more designers. So, it was like a contract thing. I think it was something like three months or four months.

Shaun: [00:05:31] Were you living down there or were you still in Chicago?

Jason: [00:05:32] No, they brought me out there and they put me up in a hotel, which was not cheap. Paid me, I want to say it was something ridiculous, like $10,000 a week or something. It was just a ridiculous amount of money. When I started there, I think I was like the 70th or some odd employee there. And by the time I was gone there was hundreds of people there. I literally had my own card table when I started. And then like a few weeks in I had a buddy sitting next to me and then a buddy on the other side of me, and then people I didn't know, packing in. It was like this sense of feeling claustrophobic, like everything was closing in on me physically, because everything was actually closing in on the company as well. Even though, in many ways it seemed like it was it was more expansive because more money was coming in, more people were being hired, more gigs were being won. And then you had athletes coming through and you had like big wigs from NBC coming through. And you were sort of in this place where this was the center of the sports world online. But on the inside, it actually felt very claustrophobic. And in my head, financially, the walls were closing in as well.

Shaun: [00:06:42] At the time, and well, this part hasn't really changed. Startups like Quokka Sports seem to be more interested in growing as fast as possible, and not as interested in worrying about things like making enough money to stay in business. Financial projections were basically company executives writing fanfiction about their own startups. Over at David's video game site, they were also falling right into this trap.

David: [00:07:03] I remember us sitting down. We hadn't even started the fucking thing. We hadn't built anything. And we sat down in front of a spreadsheet and started extrapolating how much of money we were going to make in year four of our international expansion.

Shaun: [00:07:17] Literally counting chickens before hatching.

David: [00:07:19] It was almost like one of those hiring tests where you go like how many golf balls could fit in New York City or something stupid like that, right? You just start extrapolating out from these bananas, bonkers numbers you're pulling out of your ass, right? I remember sitting in that Excel spreadsheet, thinking like, we're just making shit up, aren't we? Like this has no basis in anything at all. But I guess that's what we're supposed to do. And then it kind of just became clear later on. Oh, it's because those are the spreadsheets you'll use in your presentation with investors to get them to lend you a bunch of money. And it didn't really matter whether it was real or it wasn't real. The point was simply just to come up with something that was vaguely credible, such that you could dupe others into giving you money.

[00:08:07] And we made this nice curve that had this international expansion that was going to start in Scandinavia, and then it was going to take over Europe. None of that shit ever happened of course. What did happen was I worked on this project for about nine months or something like that. I built it. It was actually one of the first projects where I really dug into code, myself. It was probably the project where I kind of transitioned from just having this vague understanding of programming to, okay, I sort of have a journeyman’s understanding of programming now with PHP.

[00:08:38] At the end of it, we launched this thing. I think we launched it in like, spring of 2000, or something like that. I hired one additional person at our little company. We weren't really making any money. Even though in retrospect, it wasn't exactly a bullshit business, right? Like, hey, you write about video games, and you run advertisement, like that's a thing. One of the big campaigns we landed at the time was the launch of Quake III in Denmark, we came up with essentially an Esports tournament. Let’s get the best players together, and they'll win prizes and all this other stuff. So that was kind of fun, to be part of Esports like, whatever, 10, 15 years before it actually sort of turned into something.

[00:09:20] But we just so ignorant of the whole setup, like how do you even do that? And it was all wrapped in this like, we're not just doing a magazine online, right? We're doing a startup.

Shaun: [00:09:30] And that was also VC backed.

David: [00:09:32] It was actually not VC backed. It was fucking worse than that. One of the two people who started this, who was this former McKinsey guy, total straight shooter, got seduced into the startup world, took out a fucking loan, personally guaranteeing it. Everything went bust, didn't make a thing. And he, for, I don't know, next 10, 15 years were paying off that money while working as a senior executive at other companies. It was just like, who the fuck signs as a personal guarantee for a fucking incubator. That was how crazy those times were.

Shaun: [00:10:10] Back at Quokka Sports where Jason was working as a contract web designer, they had some real revenue, but they were also swimming in $37 million of outside funding.

Jason: [00:10:19] They landed some of these contracts. Fox would pay the money, and NBC for the Olympics would pay them money. And so they got paid, but they didn't get paid enough to support hundreds of employees.

Shaun: [00:10:31] Putting your contractors in a hotel for three months.

Jason: [00:10:32] Right. And, just anything you wanted, you got, basically. And then they raised a bunch of money. At the end of the day, it all blew up because dot-com crash kind of happened. They’d grown too fast, too quickly. The economics simply weren't there. It's not like the Olympics happened every year. He had to land a lot of work to pay for this and it just didn't happen. And I just saw so many decisions being made on the inside that made no sense at all.

[00:10:59] Now, if you lived in that world, and you had a reality distortion field around you, you'd be like, no, no, this is just the new way things are. But I didn't come from that world. And to me, it was just silly. They're paying me silly money, putting me up in a silly place, giving me silly responsibilities. It felt like a parade, actually. Like a parade is temporary. It's exciting. Everyone's cheering, but it's moving. And it ends. It starts and it ends. And that's kind of how it felt, actually, the whole time—

Shaun: [00:11:26] Leaving a whole trail of trash in its wake.

Jason: [00:11:28] Yeah, exactly. It's like, you don't wanna have to clean up after that.

Shaun: [00:11:31] So Jason returned to Chicago after his short stint at Quokka and co-founded the company that would become Basecamp. David eventually left his gaming website and landed at another startup called Caput.

David: [00:11:43] Ultimately, I ran out of passion for games. At one point, I was just like building this site, building this CMS system to write about… that’s fun. The game part? I don't know. I don't want to I don't want to sell advertisement. That is what this is, as a business at least, right? I worked for another startup that was also funded in 2001, that did community software. Like, the forums and chat systems. Funnily enough, much the same as what we would end up selling with Basecamp. And I worked there for about seven months, too. Which was also just wonderful experience and I draw many of the anecdotes on poor managerial decisions from those seven months as well.

Shaun: [00:12:31] But it was VC funded.

David: [00:12:32] Yeah, it was VC funded. What was interesting about that was it wasn't actually apparent to me, until several months into my employment, that this was the case.

Shaun: [00:12:41] Where did you think the money was coming from?

David: [00:12:42] My understanding of all that was so shallow at the time, in part, perhaps, because my understanding of where the money came from with Prey4 was always very fuzzy. But then on the other side, thankfully, for Caput and the founders there, that money all came from investors. Which then became sort of clear in the final stages of that company, when the dot-com bust was happening, and investors were getting really antsy. And all of a sudden, there was this extreme pressure to close these big deals, and no one wanted to close big deals at the time. And the thing was, I mean, maybe it doesn't sound stupid now given enterprise software prices, but to me, it seemed very stupid. And we were selling essentially, like a shitty chat system, and a shitty forum system for like, a million dollars.

[00:13:28] I don't even understand how this works. And the way it works was of course, it was all enterprise sales. I did get a sweet trip to London for a week trying to implement the chat for a UK television station, I want to say. There was all these interesting fascinating experiences but most of them were just these startling cases of how not to run a company, how not to treat employees, how not to base your business it was all just this educational material in the negative space right? All the shit not to do which turned out to leave really deep important marks on both the way I saw the world and the way I wanted to be in business if I was going to be in business.

Shaun: [00:14:17] Did you ever, as an employee, ever feel that pressure, maybe from your bosses, to raise money. That we need to get the next round of funding or else Caput is… I hate to make this joke… is kaput.

David: [00:14:31] Not so much at Caput. But I had these other experiences where I kind of knew what the game was and what they wanted. Overwork is a great example. So I was working at the portal there for a while, right, and I wanted a bigger monitor. Just because I did. I don't think there was any particular reason. It was probably because I wanted a bigger screen to play Quake on, right. But I had already understood at this point like how to speak to management in the language that they would understand.

[00:15:00] So I went to the manager of the firm and said, I forget the exact bullshit reason I came up with, but it was a total bullshit reason that essentially amounted out to like, I would stay longer at work if you bought me a bigger monitor, right?

Shaun: [00:15:13] Sure.

David: [00:15:13] And it was just like, that was the unlocking… you could see I was just trying to lock with all the arguments. And he was like, it's not really registering. It's not really registering, he's not going to give me any money. He’s not going to give me any money. And then I say, I'll stay later at work and then click! The lock moves.

Shaun: [00:15:26] Ooh, productivity.

David: [00:15:26] Right, exactly. Productivity, right?

Shaun: [00:15:29] These are the kinds of things we hear about a lot with companies that are under constant pressure from investors. Overwork is a huge one and Jason definitely could feel that at Quokka Sports.

Jason: [00:15:39] People were just burning themselves out working extraordinary hours, like Tuesday and Saturday, were no different. It was just the days. Just days to fill time. Yes, extraordinary things were built. It wasn't easy work. But it didn't need to be 100-hour week kind of work. It was frenetic. And like any collection of frenetic, crazy energy, it burned itself out. It's a short lived, high impact environment, and then it just sort of can't last.

Shaun: [00:16:07] How did that manifest sort of on your level?

Jason: [00:16:09] It manifested physically, it was the sense of not having any private space to work in. At Quokka, when I first started, I had, like I said, a card table, basically, which wasn't really that much space because it was backed up against a hallway. And everyone was kind of walking behind me, which means everyone was looking over my shoulder while I'm working. It was very uncomfortable. Work in progress is not always pretty work.

[00:16:34] When we built the Basecamp office, the last one, we had way too much room, but that was actually partially intentionally. The way we built the desks, no one looked at someone else's back. We butted them up face to face, but had dividers, and then no one was looking at your back. So like you were backed up with, was it? Michael?

Shaun: [00:16:52] My back was to Jonas's back. And then Wailin was to my front.

Jason: [00:16:56] Right? So you and Wailin were looking at each other, but you couldn't see each other.

Shaun: [00:16:58] Facing each other, but there's a divider, right.

Jason: [00:17:01] Yeah. And then Jonas was facing the other way. And as we added more desks, as we added more people, we never put them side by side. And we never changed that orientation. We just did squeeze the space. But the space we squeezed was back-to-back space. So you still never saw anybody. Or no one's ever looking over your shoulder, you know. So I did think about that. That was important to me. Because that feeling that I had Quokka was extremely uncomfortable. And some people might be might not be bothered by working in close quarters. But I am.

Shaun: [00:17:29] If you hadn't have worked at Quokka. And you started a web design firm, let's call it 37signals. Without that Quokka experience, would you have taken venture capital funding?

Jason: [00:17:40] It's easy to say yes or no now, of course.

Shaun: [00:17:43] Right, of course.

Jason: [00:17:43] But no, I mean, no, I wasn't interested in that, especially at that point. My mind was already made up. That just wasn't the direction I was going to go in anyway, it wasn't sort of for me. Chicago is not the center of that kind of world so I wasn't exposed to it all the time. I was never kind of raised that way. I don't know. It's like, just be frugal, don't spend more than you have, if you can't afford it, don't buy it. That's just how I've always been. And so I would attribute that to my parents. They probably just instilled that in me and that's kind of how I've always built things.

[00:18:14] And when I met up with Ernest and Carlos, my first two partners in 37signals, they had no interest in raising money either. For Carlos, who'd run his own graphic design business for 20 years, or whatever it was at that point. He'd done it himself, too. Venture capital wasn't even like a thing he thought of. It wasn't even an option. Ernest, though, had come from a big website company called Organic Online, which is venture funded, I'm pretty sure. But we never even for a second contemplated what it would look like to take money or why we would even need to it just wasn't even a thing we considered.

David: [00:18:47] In many ways, those two, let's say, three experiences working at the portal, working at the incubator, and then working at this Caput company, which really only in total time was like, what, two years or something like that? I learned more in those two years, by very far and away than I would learn in going to Copenhagen Business School for three years and getting a bachelor's degree.

[00:19:10] It's funny, because that's the way memory works, right? Like, that's a very short amount of time in sort of absolute sense. But it looms incredibly large in formative experience for me. It was just such a compressed experience. I'm eternally grateful for it because I would then go to Copenhagen Business School and I would learn a lot of things that were sort of intellectual. And I remember I was having these discussions about like, oh, what do you do if you have an underperforming product in your portfolio of products? You would look up in your Michael Porter book, who was this famous business book author, and you'd like oh, here's the answer. If you have an underperforming product, you should cut it and reinvest your resources. And it was just like, it was almost like a game-like thing. And I had the good fortune of being able to square that game-like environment against actually having lived through it. Like, why were they acting like this? Right? It was, oh, okay, I see. Because we didn't fucking have a business because it was all Castle in the Sky, because it was all hockey stick made on an Excel spreadsheet. Before we'd even written a fucking line of code, we’d plotted out our entire invasion of the European market. I mean, what the fuck?

Shaun: [00:20:19] Has startup culture changed? What do you see as the differences now? Or do you see people making the exact same mistakes?

David: [00:20:26] I think the value system is very much the same as it was, how do we get rich by dominating everything as quickly as possible. The language and the euphemism has evolved to be more palatable, the tactics have gotten much more refined. So much of what was going on at that time, was sort of figuring how do you even do this? How do you create the website? What are the strategies you use? In some ways, all that has been established into patterns, and the price of computing has fallen dramatically, and all these other things.

Jason: [00:20:56] Everybody at the time, and this is even more so the case today was just like, this is the coolest thing in the world. I mean, getting a tech job, or working in web design was just the thing to do flat-out, period, there was no other thing if you want to do something cool. This was it to do. And in San Francisco, that's all anyone ever talked about. Now it's even worse. Back then, there was a sense of excitement. There was a handful of companies that were really on to something, that it was the beginning of something big. And that was exciting to be part of. And there's no question about it. Now all of that euphoria seems to be like, you know, should I buy Bitcoin? Should I buy Ethereum? Should I, what's this NFT thing? Should I get one? And that's not to say that they are the same, but that's the same feeling.

[00:21:37] The other thing that's similar, though, is the fundamental drive of venture capital, which is to create only one kind of company, which is a big, massive, fast growing, almost unsustainable company. Kind of like the earth is sort of like we're on an unsustainable path, we can't keep doing what we're doing, it's going to crash at some point or it already is. It’s the same kind of thing. It's like, as long as there's just enough fuel, we're gonna keep burning it. And that's kind of what venture capital it does to a lot of companies. Now, in some cases, it works. Obviously. There's some companies that only exist today because of that, but so many more that don't, and would have made great smaller companies or mid-sized companies that couldn't be allowed to stop there. Venture capital back then, and today, are still building the same kinds of companies.

Shaun: [00:22:20] Do you still keep in touch with anyone from those days?

David: [00:22:23] It's such a small community in Denmark, everyone who were around at that time went on to do other things. Some people went on to work at Skype in the early days. The founder of Caput went on to found Zendesk which we've used at Basecamp and uses Ruby on Rails, and it caught the rocket, it made it through the needle’s eye and became one of the whatever the odds are one in the 1000 that someone who takes seed funding ends up being a publicly traded billion dollar company, but they did.

[00:22:51] The main programmer I built dailyrush with, which then went on to, I mean, I worked on dailyrush for maybe nine months. That website just closed earlier this year, actually, after a 20-year run.

Shaun: [00:23:04] Oh, wow.

David: [00:23:04] So—

Shaun: [00:23:05] That's not bad.

David: [00:23:06] No, it's not bad at all. I mean—

Shaun: [00:23:07] Especially for a gaming journalism site.

David: [00:23:10] Exactly. It was running the original database from like, 2000. You could go back there and find news about games that I had written like 20 years earlier. But it was finally shut down. Sort of tragicly so because the guy I had hired at the time to help me ended up taking over the site and he died of cancer. He was sort of the incarnation of the opposite of that bullshit spreadsheet. Like he just ran it as a one-man business. Right? Like, I'm gonna sell the ads, I'm gonna pay for the servers. And he ended up running it for 20 years.

[00:23:40] And there's some of the other people too, I mean, I've talked to the people who worked at Caput over the years. There's like a time capsule that people came out of that came out, I think, in many ways with some really interesting, strong skills that were forged in that environment, even though so much of it was such bullshit. There was still a depth of talent on the building side.

Jason: [00:24:00] No one really, since I think has done anything as interesting, actually, as Quokka had done. Even to this day, really. I mean, there's new stuff that exists today, but it doesn't feel like it's that far away from what Quokka was doing 20 years ago. And that's what was such a bummer that it had to die this way.

[00:24:19] There's two people who I do sort of occasionally keep in touch with. Ammon Haggerty was a designer who I found always to be just a fascinating guy. He lived in a houseboat in Sausalito. Like he's so much better than me. But he was so humble and kind of took me under his wing to certain degree. I really appreciate that. And then Josh Ulm, who also gave me a lot of confidence early on, and like someone who I've always admired as well, he worked there. Yeah. So there's two people there that I sorta kind of keep in touch with. And if I saw, I would say hi to for sure. And we would catch up on old times.

[00:24:54] There's a number of people who I remember, there's one guy named John Johnson, this Australian guy who was just a load of laughs just the most positive fun. One of the most entertaining, exciting, warm people I've ever I've ever known. I wish I'd kept in touch with him. I don't know what ever happened to him. I don't know where he is and where he went.

Shaun: [00:25:15] John Johnson, if you're listening, please write in.

Jason: [00:25:18] I'll ask Josh or Ammon if they know where he is. And the owners were nice. They were wonderful people, too. I had really great conversations with them. Everyone there was quite special, actually. There was a great article written up about this because there's some really good background there and probably some slightly more accurate details and I think I’m mentioned in it too, so I'm in the oral history or it's now the written history. I think Basecamp's mentioned in the article, if I remember correctly.

[00:25:45] Check it out, though. It's a cool piece.

Shaun: [00:25:47] Will do.

Jason: [00:25:47] It’s a cool piece, yea.

[00:25:47] Broken By Design by Clip Art plays.

Shaun: [00:25:52] Rework is a production of Basecamp. Our theme music is by Clipart. We are on Twitter at @reworkpodcast and please stay dialed into this frequency for brand new episodes coming this September. You can also find all of our previous episodes