“I’ve seen peoples ego’s destroy lives," said Jason Fried of Basecamp, "this desire to be something they can’t be or someone they’re not, or acquire something they don’t have," in a conversation with Derek Andersen at the Startup Grind Conference, and in a follow-up interview.
In an environment where startups are being assessed not on the soundness of their business but on the amounts they've raised in venture capital or how quickly they liquidate their assets through an acquisition or IPO, Silicon Valley founders have grown equally egos proportionate to their inflated valuations, suggests Freid. “Very few companies actually need to raise venture funding," he insisted, especially when “a valuation has no effect on you or your company."
The co-founder and president of Basecamp, Freid's company boasts over 15 million users - all without accepting venture money - except for a "contribution" made by Amazon's Jeff Bezos, that is. Basecamp's pride and claim to fame is its culture: employees have created a work-life balance with perks like monthlong sabbaticals, four day work weeks and vacations that are completely paid for by the company.
Fried used his time on the Startup Grind stage to inject some reality into the Silicon Valley bubble, urging founders to let go of the ego-driven fundraising culture, and to build sustainable, profitable businesses instead. Fried believes that by not accepting any money from venture capitalists, he’s been able to preserve his companies culture and build a personal life worth living. It's that what it's all about?
Watch Basecamp's Jason Freid rip into Silicon Valley with Derek Andersen, and read out highlights below.
How Basecamp Grew to a $100 Billion Valuation
Fried made headlines a few months ago when his company was valued at $100B, all shared through a tongue-in-cheek Silicon Valley style press release, with a twist: Basecamp had sold 0.000000001% of the company in exchange for $1. The Signal v Noise piece is full of too-true jabs at Silicon Valley's funding models, including our favorite:
In order to increase the value of the company, 37signals has decided to stop generating revenues. “When it comes to valuation, making money is a real obstacle. Our profitability has been a real drag on our valuation,” said Mr. Fried. “Once you have profits, it’s impossible to just make stuff up. That’s why we’re switching to a ‘freeconomics’ model. We’ll give away everything for free and let the market speculate about how much money we could make if we wanted to make money. That way, the sky’s the limit!”
It was yet another attempt by Fried to paint the ludicrous nature of the valuations entrepreneurs are chasing after. Instead of focusing on the media hype about companies with high valuations, Fried instead tells entrepreneurs to focus on customers and getting revenue through the door.
Advice for Founders Dealing with Ego
Founder's Ego is a condition affecting a majority of entrepreneurs, especially first-timers - including, at one point, Freid himself. Freid went on to talk about the importance of founders to check their ego at the door, which includes not raising an absurd amount of money simply because everyone else is raising that much.
“The most important thing for me to get over my ego was to ask myself the question of why?”
Why do I feel that I need to raise money?
Why do I want to have to report to a board of directors?
Fried believes these are questions that many founders are simply glazing over, which he believes is the reason for so many overblown valuations. He strongly urges founders to consider the implications of taking venture money, and to disassociate their ego with the decision.
With investors watering at the mouth to get a piece of Basecamp, Freid has always been able to say no - because he knew taking venture money would dilute his vision for the company, and get in the way of his life outside of Basecamp - most notably, that of raising a family.
So next time you’re deciding on whether to raise money or not, ask yourself why? If its out of ego and status seeking, you may want to reconsider your decision.