Your Only Competition Is Your Costs

`0:03:07`

— You put it in a very interesting way. You said your real competition is your costs. — Yeah. — Is that the line that you have? — Yeah. It's your only competition. — Explain that. — Well, a business is very simple. You've got to make more than you spend. That's a business, basically. I mean, you can keep borrowing money, and then you can borrow more than you spend, and eventually, you got to make more than you spend. So, if you're making more than you spend, then your competition is your cost. And that's what you're really in business against, is how much it costs you to stay in business. It's not all the other alternatives that are on the market. Of course they exist, and they're real, but you can't do anything about them. They're going to do what they're going to do. You're going to do what you're going to do. You can't control what they're going to put out there, what they're going to price it at, all the things they're going to do. They're going to do what they're going to do. What I can control is how much it costs me to run my business,

`0:03:53`

how much I sell my product for, and as long as I make more than I spend, I get to stay in business. And isn't that what this is all about, staying in business? Like, that's what it's all about, because I like this. We like this. I want to keep doing this. I can't keep doing it if I don't stay in business. I can't keep doing it if I make less than it costs me to make the things that I make. So, I'm always thinking about the only competition I really have on an annual basis, is to make sure that we make more as a company than it costs us to run the company. That's my real competition. — And this is something I talk about over and over again with my other podcast, Founders, where it's just like, it is kind of weird how every single one of history's greatest entrepreneurs, they were obsessed about watching their costs, from Sam Walton to even Steve Jobs when he first started Apple. — Yeah. — Andrew Carnegie, Rockefeller. Like, this theme reappears over and over and over again.

`0:04:39`

It's one of the reasons why my main partner is Ramp, because they want to help companies control their costs. — For sure. — It was like the perfect alignment for the audience and what these history's greatest entrepreneurs are saying. But we were talking the other day, where it seems very fascinating how you can have a software company that has insane margins and still lose money. — Yeah. — And when I talk to these young founders, I'm like, "Just go study the early days of Microsoft." — Yeah. — It's like Bill Gates. One of the most interesting stories was that the first 30... it's probably the most successful, arguably the most successful software company of all time, the first software company to get to a billion dollars in sales of just pure software in a year. — Mm-hmm. — Yep. — But the first 30 employees of Microsoft were Bill Gates, his secretary, and 28 programmers. — Yeah, amazing. No fat. — There was no fat at all.

`0:05:24`

— No fat. — Yeah. — All product. — That's something you talk about a lot. — Yeah. Yeah. — Can you talk about the importance of keeping costs low, small teams, and then you want essentially no fat anywhere? — We have 62 people at 37signals, and we've gotten as high as, I think, 80 at some point, and then we're about 63 or 62 right now, which feels really good. But we also built a lot of things when we were much smaller. We had 12 people way back in the day, or four people way back in the way, way, way days when we started out. So I've always been comfortable with small teams. I think that small teams work better, are better. There's less room for miscommunication, because I don't think companies really have communication problems. They have miscommunication problems. Like, when you have too many people and too many layers, and someone misses this, and someone has to repeat something that happened... I want to avoid all of that