Jason Fried – you can't control the market
Hey, everybody. Happy holidays, and welcome to build your your SaaS. This is the behind the scenes story of building web apps in 2020, soon to be 2021. I'm Justin Jackson, and I got into a little Twitter debate with Jason Fried of Basecamp. And I DM ed him and said, hey, let's let's have a Skype conversation about this.
Justin:And so we jumped on the mics and talked it out. And I found the whole thing. I think the whole thing is fascinating. I think you're going to like it a lot. Here it is.
Justin:Jason Fried and I kind of, not duking it out, having a good back and forth, a good discussion. And what, reveals itself is that a lot of our business philosophy is informed by our experience and our personal history. Give it a listen. I and I can't remember how you and I even got into this. I think I said, yeah, demand isn't just a function of do people want this, but also how many people want this, and how much will they pay?
Justin:And I can't tell if you and I are just, like, talking past each other in the sense that we have a different definition or, or what? So where do you think our disagreement is with when it comes to this idea of market or demand. Because it it seemed like you were saying you can control pricing, but that's it. Am I understanding?
Gavin:Yeah. Kind of. So alright. First of all, I think what's interesting about discussions about market is I think what people leave out, and not that you you left this out, not that you don't understand this because you do, because I I read your stuff and I know who you who you are and everything, is that market's also a function of your own economics. Like, you if your costs are low, your market might be considerably larger than if your costs are high or vice versa.
Gavin:Like, point is is that I might be able to exist. There might be a market, and company a cannot exist in that market because their costs are crazy. But company b could because they only have 4 people, and, like, they don't need much to get by to make a profitable, sustainable business. So it's not just about, like, the market size. It's about what are your costs.
Gavin:Because I might be able to live in a market with only a 1000 customers, because I have I'm just making up numbers because I have 10 employees, and my annual spend, let's call it a $1,000,000, whatever, versus a company that had that's built has 340 people. They can't exist in a in a market with only a 1000 customers that are willing pay them $200 a month or something like that. So that's kinda market's a tricky term because I think people think it's the numb that the addressable number of people or companies that wanna buy something. But that's not the whole
Justin:story.
Gavin:I mean, it's maybe the the big shape, but can your shape fit inside that shape is a function of your own costume Yes. And your own
Justin:Yeah. Yeah. So okay. This is perfect. I think this is why I like using surfing as a metaphor here.
Justin:Because surfers sit in the water, and they wait for waves. And, you know, if I'm sitting in the water with, is it Kelly Slater? No. I'm now I can't remember if that's the right guy. But
Gavin:Slater, I think, was it yeah. Or he's a skater. I don't know what he was.
Justin:Yeah. Kelly Slater. Yeah. Yeah. Kelly Slater.
Gavin:Okay.
Justin:So I'm sitting in the water with him, and I'm gonna be looking at small waves. Right? I'm gonna be like, I'm a beginner. I'm looking for the shape of waves that I can ride. And Slater is looking at massive waves.
Justin:He's like, I've got the skills, the expertise, the experience, everything to ride this wave. But the the I could also be sitting in the water, and Kelly's, like, trying to mentor me. And I say, hey. What about that wave? And he'll say, no.
Justin:That wave's too small. You can't ride that wave. And I think this is for people starting out. You could certainly go after a market that's too big. But the nice thing about going after a market that's too big, like the project management market, is that there's lots of opportunity there.
Justin:You can shave off a little bit of that market for yourself, and you've got something. Whereas, if you shave off a little bit of nothing off something that's smaller, you're left with just a lot less. And the the what I'm, I think, communicating is that if you're just starting out, one of the most important decisions you'll make is what wave are you gonna ride? And I think you can learn to observe the size and shape of waves and match that up with, again, your skills, your abilities. Can you ride it and win or compete?
Justin:And the the danger is that sometimes, especially in the beginning, is you get desperate and you go, well, any wave will do. Or, you know, I started a snowboard shop in my early twenties and did not consider what that wave would look like when I was actually riding it. What the market the market determines kind of everything. And we almost, in a lot of cases, treat that decision of what market are you gonna go after as just like, it doesn't matter. If you hustle hard enough, you can or even, like, if your costs are low enough, you can just go after anything.
Justin:But, really, that decision determines your trajectory. It determines how far you're gonna go. It determines how difficult it's gonna be. It determines the potential. And so I know, for example, the podcasting market has a ceiling.
Justin:It's only gonna get so big. The market's only so big. And I could steal all of my customers' competitors and everything, and I'd still probably only have a 100000 customers. Like, that's as big as it's gonna get. Whereas if I went into WordPress hosting like, Jason Cohen, well, he's like you know, he he could have 350,000,000 customers because there's, I don't know, there's probably 550 block 550,000,000 blogs.
Justin:So that's that's kind of the point is that the the market is the most important decision. It's where you're pointing your boat. And then everything after that, sure, you need to be the right surfer, have the skills, all that. But, in most cases, I see people choosing waves that are not right for them or too small, or they're not even in the right place. They're on a pond or something.
Gavin:I guess I guess, I yes. Those things are true, but I I feel like it's it's sort of, again, only really part of the story because, for example, some people might be really intimidated entering a large market because a large market is going to have massive competitors and probably entrenched powerful competitors. And so they might not do it at all because it's like, well, how am I gonna beat this is like, how am I gonna beat mic now it's not so much anymore. But we we had it, like, oh, Microsoft. Or how how am I gonna beat Apple?
Gavin:Or how am I gonna beat Google? Now some of these are are have may have monopoly powers and whatnot. But, you know or, like, let's take Spotify and podcasting. It's like, now with with Spotify buying all these other firms, it's like, why would I get in the podcast business? Like, they're gonna crush everybody.
Gavin:It's a huge market, but they're gonna crush everybody. So I'm not even gonna get into that. So I think people can get intimidate themselves out of it. But, really, like, if you're just it depends also what your definition of, like, enough is. If you need a 100000 customers because you made up that number and that's what you wanna get and that's your goal, you might not get that if you've got a bunch of other people playing in the in the same waters.
Gavin:You may not get the waves you want or get be able to jump on the waves you want. But, like, maybe if you're like, I just wanna have a nice sustainable business. I only need 6 or 7 people to do this. If we get 10,000 customers and they're gonna pay us x, like, we can't have a great business. That that's how I I mean, this is just where I'm coming from.
Gavin:That's how I've always thought about it, which is, for example, let's take email. Right? We just entered the email market, hey, which is one of the biggest markets in the world dominated by the biggest companies in the world, who all give it away for free. Okay? Now why in the hell do we enter that market, compete with those players, and charge for something that they gave away
Justin:for free?
Gavin:Well, because we don't need what they need. They need if they were if they had if that was their only business, because, of course, they subsidize it with everything else. But if that was their only business, they might need 40,000,000 customers to justify their expenses because they'd have a team of 100 on it and they, you know, they whatever. We have, in the 1st few months, over 30,000 paying customers. Now that's not gonna pay for all the effort we put into it yet, but it's a great start.
Gavin:If we can get 40 or 50 or 60 or a 100000, that's a great business we have there, which would be a terrible business for Google. In a if if Google if Gmail only ended up with a 100,000 paying customers, if they're they would shut the product down in 5 seconds. Me, I'd be like, my god. This is amazing. I can't believe that we have a 100,000 people paying us for email.
Gavin:So Yeah. If that's what that's where the economics part of it comes in. And my my general feeling is that these days, unless you're in something super esoteric and super narrow, I think the market's quite big for most small businesses to do pretty well if they do it well. That's kind of my feeling. I know that there's obviously, like, weird small super small niches that are really hard, obviously, you know, but but I think these days there's a lot of things that are big enough for a lot of small companies to do well in, but they're not gonna if their goal is to be the next Google, no.
Gavin:There's not enough headroom, which is kind of what we're talking about here. There's not enough headroom in the market to get to that size because the market isn't big enough, but it's big enough to build a sustainable business. So kinda what is your end? What are you looking for? What do you wanna do?
Gavin:What do you wanna get is I think a bigger bigger early question too.
Justin:Yeah. And I wonder if I'm more pessimistic than you.
Gavin:Okay. That's that'd be that'd be a first. I always you strike me as a very optimistic
Justin:I mean, I I am pretty optimistic, but the this is actually where I disagree with, Kevin Kelly a little bit, because he wrote this article called a 1,000 true fans. And the idea is that because the Internet is so big, you can almost choose any niche, and any niche will do because you'll be able to find enough people in that niche to make a living. But that rule just does not seem to follow regular laws of distribution. You know, most things that are sustainable actually have big markets. Like, a lot of bootstrap companies are in big markets.
Justin:They're not in tiny little niche markets. They're not, serving, you know, the 5 fans of Star Wars that really love that one Ewok. Like, that's not and there might be a 1,000 people that love that. But once you think about a business and especially a software business, it's really about volume. And so even a 2 person company like Transistor, we need hundreds of trials every month in order to convert enough people to paid, in order to grow, in order to outrun churn.
Justin:I think maybe part of this is based on my experience of,
Gavin:you
Justin:know, a lot of my business career was me treading water, like, making enough money, but sometimes my head falls underneath the water. Sometimes I'm above. But it wasn't it wasn't, it honestly wasn't better than being an employee. And then transistor, I had this experience of, again, not a massive market, but all of a sudden I have margin. And where's the margin coming from?
Justin:It's coming from the volume of people starting podcasts. There's just enough people every month that when I open my doors to my metaphorical coffee shop, there's people waiting in line to buy coffee. And I'll open that on Monday, and there'll be a lineup. And I'll open it on Tuesday, and there'll be a lineup. And that feeling has just been incredible for me to the point where, like, I think Transistor is a really good business for John and I, and the enjoyment has been so much greater partly because the money is there, partly because there's enough demand that it just outstrips what I was doing before.
Justin:And, yeah. So I I think that's we're part
Gavin:I think we both agree though on that. However, you use the word margin, so I'm gonna I'm gonna use
Helen:it again.
Gavin:So but but but in a good way. I mean, you have margin because you have 2 employees. Your costs are low. If you follow the typical, you know, Silicon Valley approach and raised some money, you might have 24 employees by now. I'm sure there's 24 employees worth of work if if you needed it.
Gavin:Always is. And then would there be any margin left, or would you be underwater again? So so what what you what you are is you've stepped into a a market that's been proven by maybe the big players, which is it opens it opens the doors, obviously, and and and they're the ones that are investing in, like, the awareness and, like, getting people comfortable. So you don't have to do that work, which is valuable. With 2 people, you I mean, I don't know I don't know what your I don't know if you've shared your numbers or what they are, and it whatever it is, but, like, sounds like you got a good thing going.
Gavin:Part of that's because you have 2 people, And that's why you're able to survive and thrive because you don't have or employ you have you have the headroom and you don't have a bunch of salaries eating up your margin. So you are able to exist in this small world in your small world, even though it's part of a much larger world, who cares how big the world really is as long as you have enough to cover your costs and to have some margin left over, which which you are in control of. If you hired more people, which would be something you would do, you could go right back, in the red. If you, or or, you might have to raise your prices and then you're pricing yourself out of the market. Like, there's all these other things that you actually have control of, which is price and and costs.
Gavin:You don't have control over the size of the market.
Justin:Yes. But you do have control over the size of the market you choose.
Gavin:What market have you chosen?
Justin:Well, we've chosen the podcast hosting market.
Gavin:Is that a market?
Justin:It's a market because it's a category that people like, these are just words. Like, sure. Categories are just things we assign arbitrarily that the market assigns. Like, am I, hey, Bill. Go buy some CRM software.
Justin:Well, that's now a category, and that becomes the market. How much do businesses spend on CRM every year? It's this. How much do small businesses spend on CRM? It's this.
Justin:And I'm not even that interested in, like, how that is actual quantitatively. I've always been more interested in, like, qualitatively. How does this feel? What is the how much pull is there here in this market? And there was touchstones while we were thinking about doing transistor.
Justin:There's touchstones along the way that made me feel like now is a good time, I think, to get into this market. And, you know, 4 years earlier, I would have said, this market's not right. Like, it's a lot of DIYers, a lot of hobbyists. People aren't spending that much money in here. But then things started to happen, and this is all environmental, mostly out of my control.
Justin:Right? All out of my control. But I can be in the water observing. And as this new podcasting wave started to crest, I had a decision of, like, okay. Am I gonna go after that, or am I gonna go after something else?
Justin:Right? That's the decision you make in the same way that you could have gone you could have started email, but you could have also gone into live chat. You could have gone into, you could have done all sorts of things. Maybe you should have started a competitor to Heroku. Like, we have all these decisions.
Justin:And I think
Gavin:Yeah. But let me let me if if I could, just for a second. I'm gonna step in because the reason we did hey and the reason you're doing this is because you like doing this. I wouldn't like building a Heroku alternate. I don't I don't care.
Gavin:We don't care about that. So I don't I'd and you can totally tell me if I'm wrong because you you know the answer and I don't. I don't think you sat around looking at markets and decided which market to get into. I think you said, there should be a easier I do this podcasting shit all the time. This is I I wanna record my podcast, and I want it to be on Spotify and Apple and whatever, whatever, whatever.
Gavin:Like, I'm looking at your site right now, which I think the copy is for great. It's like, record your audio, upload your transistor. We'll help distribute it to Apple, Spotify, Google Podcasts. Like, yep. That's what I want.
Gavin:You built something that you wanted to exist. You didn't sit there and analyze the market. I think you just said, I know that this needs to exist. I want it for myself. Let's see what happens.
Gavin:It wasn't like, okay. The market the addressable market is a 122,000 people, and let's see. If we get 3 percent like, no. And maybe I'm wrong.
Justin:Yeah. I think I think you are wrong. Because I think there's there's a few different factors for me. One is, do I like it? Like, yeah, there has to be a fit between me and the market.
Justin:Do I can I win, or can I at least compete? And, yeah, there has to be a fit there too.
Gavin:But you can make up those answers. Like, tell me how you sat down. Tell me how tell me like, let's get back to the origin story. Why'd you build this?
Justin:I was trying to think about my next move. Like, what am I gonna do next? And
Gavin:What were you doing?
Justin:I was doing mostly I created a course called marketing for developers. And I had it out for a while. And then I was doing, you know, I was doing some other things. I had a online community that was doing okay. But nothing had been like, those were all, like, line drives.
Justin:And I was like, I wanna do now it's time to do something bigger. That's not just me. And so I explored a few options. At one point, I was thinking about buying a software company. And so I was like, oh, maybe I could buy something.
Justin:You know, I have a online community. Maybe I should build an online community platform. And then John and I had been talking since 2014. And one day, he mentioned that he that Cards Against Humanity was looking to start a new podcast. And at the same time, like, I'd still stayed in the water.
Justin:Like, I was in podcasting forums. I was still, like, into it. I liked talking to other podcasters, and I'd noticed, you know, the New York Times is writing a piece on podcasting every week. We had serial. I noticed you guys hired Waylon and, like, there's just all this movement.
Justin:And, John says, well, I think I'm gonna build another hosting platform. He built one before. And for me at that time, everything kind of aligned. And I was like, John, we gotta do this together. Like, this is I'm this is perfect.
Justin:There's the opportunity. I feel like I'm built for this. You're built for this. Like, let's do it. And then we started working on it.
Justin:But I definitely had a sense that there was an opportunity there that I could address. Like, it wasn't
Gavin:I'm just curious. How was that different than when you opened a snowboarding shop? You realize at the end, maybe the snowboarding shop didn't work, but snowboarding is a big market. A lot of people snowboard. You're in a cold weather environment.
Gavin:The market should have been there. What what what was different you think?
Justin:In retrospect, all I was considering was it was something I wanted to do. But and in my head, I was like, there must be a lot of money here because there's, like, you know, dudes getting big sponsorship contracts and you know? But I think if I'd actually examined it, like, what is the actual size and shape of this market, It wouldn't have taken too long to realize before we launched, or I could have launched something smaller and learned this too. You know, I could have talked to 10 of my friends. Like, how often do you buy snowboards?
Justin:Well, I buy one every 3 years. It's like, okay. Well, that's not great. And then, you know, when's the last time you bought a snowboard? Well, I bought one on sale at the big, you know, wholesaler or retailer or whatever.
Justin:So I think you can know some things beforehand. And the to me, it is really, like, about looking at the size and shape of what this market is. And it wouldn't have and especially now with the Internet. Like, I listen to this podcast, effin' Rad Snowboard podcast. It's just all 4 industry guys going, man, fuck.
Justin:Like, there was no money in that industry, and we were pretending there was. And it's like, you could do the research beforehand. And, 20 something thinking about starting a snowboard shop now, you know, would be would be able to, I think, have a better sense of whether or not it was worth it. Is the opportunity really there?
Gavin:Sure. But you could talk to 10 people who record podcasts and ask them, like, how much money have you made after podcast? 0. How many listeners do you have? 7?
Gavin:This thing's going
Justin:nowhere, man. Yeah. But the the difference is that you could say because there is there is something about, what people have done. Like, I know that you famously say, the only time to ask for people's feedback is when they've just bought or canceled. But you can also apply that same, logic to people purchasing other things.
Justin:So I can go to my friends and go, do you have a podcast? Yeah. Do you pay for it? Yeah. How long have you paid for it?
Justin:5 years? Okay. Well and I can repeat that enough times, and then we can do a small little test. Do a early access, and I asked 20 people, and 10 people migrated over to us. I was like, okay.
Justin:Well, this is actually at this scale, I haven't proven everything yet. But at this scale, it seems like, there's something here. And, again, there just seemed to be a lot of interest in podcasting. Like, there's just you can kind of see the the wave of interest mounting. I don't think it's dissimilar from you noticing that there hadn't been anything new in email for
Helen:a while.
Justin:It's like, man, there's something here. Like, I think a lot of people have had like, they people were excited when Gmail came out. You're making an observation about past behavior. And the reason they were excited about Gmail is because all they've had before that was Hotmail. And then Gmail came out and had something new.
Justin:We haven't had that in a while. And you're kind of feeling the water. There's like, I think there's something here.
Gavin:But what what is the market for paid email? It is tiny. Right? I mean, like, compared to, like, the the number of people who get email for free, like, it's almost nonexistent. It's a rounding error, the number of people in the world who pay for email.
Gavin:If I'd raised a bunch of money and had a 195 people working on this, there's no way it would have worked. It's like it's but we don't have that. We have a bunch smaller crew. And I'm thinking, like, again, about your snowboarding thing. The other thing you had in that world, I'm guessing, was inventory.
Gavin:And and that's, you know, something we luckily you and I don't have to deal with. So that so there's that there's the the the thing that saddles you and makes you, like, have to be successful quickly because you have rent to pay and inventory sitting there, that shortens the your runway, essentially, and makes it like, wow. We gotta figure this out fast. Because even as from even if I was just working the shop myself, and I've got a $180 in boards or whatever you have, and fixtures and lights and insurance. It's like, I can't even survive 3 months on this.
Gavin:But with Transistor, you're you're where you are and John's where he is and and you work remotely, and you're in a little corner of your house or wherever you're in, and you're like, you you you can make this work in a way where you don't have cost to cover other than your living expenses. And if you just have a few of you, you can cover those quickly enough. Not like it's not easy. I know you guys have put a ton of work and your product's fantastic. I mean, we host our stuff with you, and it's great.
Gavin:And I know it's taken a while, and I've seen some of your tweets about, like, how long it took to get to 20,000 a month or whatever whatever it was. It's like it takes a while. But, now you're I'm guessing you guys are in the black now
Justin:or close
Gavin:or profitable. Yeah. So, like, in your margin? Yep. If you had 10 employees, maybe you wouldn't be there.
Gavin:So, like, that's kind of my point too. And maybe maybe we both kind of agree, but are, like, approaching it from different angles. I see so many people pricing themselves out of a out of a potential market by by ballooning their costs so early that the it reduces the odds of success because, like, the only way to cover those costs is to have an outsized success quickly. And that's just so hard. If you keep your costs low, you can survive longer.
Gavin:It's like if if you're in the desert and you have only, like, and you have, like, a little bit of food and you get lost, if you ration your food, you might have a better shot at survival than if you eat it all in the next 3 hours. Like, you know? And and I feel like companies that hire too many people are eating all their food in the first three hours, but they're not gonna be rescued for a week. It's like they're not gonna make it. I and maybe that's not the best analogy, but, hopefully, you're gonna make it.
Justin:I think we're emphasizing different sides of the coin. So you are emphasizing, one of the ways you can optimize a business is to keep your costs low. One of the ways you can optimize margins is to keep your costs low. It's also one way you can optimize which markets you can go into. Because, again, I mean, this has actually benefited email newsletters forever, is that it was just so messy and not quite big enough that Google and everyone else didn't wanna go in there.
Justin:And that left this big wide open play, field for Mailchimp to just be like, well, I guess guess it's just us here. Right? And, you know, that that was beneficial. But on the other side of that, there is still there has to be enough. It's like, Derek Sivers has this big thing of he's like, oh, if I only close 1% of the of the of the people in this advertising, you know, this this ad's gonna be seen by 10,000 people.
Justin:If I only close 1%. But there's also, a number smaller than 1%, and there's also a number smaller than 10,000 impressions. And those are both things that, when you're going into something, you wanna make sure that if I'm gonna go into this, there's gotta be enough potential, enough pull, enough, demand for what I have that it makes it worthwhile.
Gavin:Totally agree. I mean, yeah. Of course. Like, I think that that's yeah. Of course.
Gavin:I guess maybe I I keep thinking about is it Patrick McKenzie and his what, bingo card creator or whatever it was. Right? Like, you can make that business work if it's just you. I when I when I was getting started, I made software to organize my music collection. It was just me, and all I had to do was make enough money to have some money at college, and I did.
Gavin:And I don't know how big that market was, if it even existed really at all, if it was even a blip of people who wanna organize their music collection, but it was enough to make me, like, 20 grand or whatever it was that I needed.
Justin:And
Gavin:that was it. And, like so I don't care. It doesn't, like and I didn't think about again, I mean, maybe this is just how we approach it, but I didn't think about, like, will other people buy this? I'm like, I need this. Let me put it out there.
Gavin:See what happens. And I didn't put too much time upfront into it other than, like, I need to build it for myself, and then we'll see. But if I had hired 7 freelancers at the same time, like, no. It wouldn't have gotten off the ground because I would have run out of money immediately, and then I'd be dead. So part of it is, to me, it's like the lower your costs, the the the longer you the longer you give yourself to maneuver and find enough people to buy your thing because I do think they're kinda out there.
Gavin:Of course, not everything has enough people to get there, but and it is I'm not I also wanna be very clear. I'm not saying any of this is easy. I mean, none it's not easy. But, like, as long as you don't have a big hunk of inventory, as long as you don't have massive costs, as long as you have some income coming in some other way, you might be able to survive long enough to to get to the other side regardless of, like, how ultimately big the market is as long as you cover enough of of what you need covered. But but it may not be a long term living.
Gavin:It may be a few years. Who knows? I don't know.
Justin:I think most people who are bootstrapping these days in North America if you're a solo founder in North America, and, I mean, this is even not taking into consideration family and everything else. 20 k MRR is kind of like that's kind of like, I think, where most people wanna get to. And so certainly, you need to line up your objective with what's gonna get you there. And, certainly, like, database to organize your your cassettes is it's a good business if you're in high school. It's probably not a good business if you're somewhere else.
Justin:Now what what is the difference? The difference is in the size and shape of that demand. It's like how many people want that thing in the world?
Gavin:Yes. What you're saying, yes. Yes. I think we would both agree that you can't go into something that, like, has no customers.
Justin:And and and or even too little customers. Right?
Gavin:Too few customers, especially depending on the timing. Because, like, for me, it's like this actually these are these are good nuances. I like the I wanna get into the nuances because that's really what this is all about because broad language like the market, like, the market is affected by multiple things, by your costs, also, like, by your goals in terms of, like, not like fake goals, but, like, what do you need to live? And, like like you said, like, when I was in high school or college, I didn't need that much to live. Now that I've got 2 kids and a family and a house, I need more to live.
Gavin:So, like, the market to me is is very flexible and relative. It's a relative thing. It's not a fixed quantity that you can go out there and go, the market is this. It's like, well, what what are your inputs to that market? How do they push and pull the market in a way where you can make it work for you or not depending on your situation.
Gavin:That's kind of what I want to get to.
Justin:Yeah. That and that is interesting because you just said inputs to the market. And the way you think about market, which is fascinating, is how am I in relation to the market? So if I reduce my costs, well, all of a sudden, I can fit into this little niche here and carve out a living. The way I've been thinking about market, mostly is this how how it is formed by external things outside of our control, like government policy, bigger competitors, economics.
Justin:You know, there's all these other things that shape it. And, that I'm endlessly fascinated by. I just think it's fascinating. And you're like, well, wait. How do we dance around this and look for our way in?
Gavin:I think it's both. I think it's like the government or government and regulation and and and people and interest. Like, that creates the big shape, but it's like, okay. So there's a big shape. There's there's 422,000 people according to the latest census that's bought whatever or or homeowners in this region or something like that.
Gavin:Right? You can, like, look at that and go, okay. Well, that's, like, the the outer limit. That is the edge of the balloon or whatever. I don't know.
Gavin:Again, I'm using too many good metaphors here, but I'm just thinking it through on the fly. Okay. Yeah. That's true. I'm not gonna get them all, and there's enough, and it's whatever.
Gavin:But, like, what what are my circumstances? What do I need to to cover to, like, get to where I need to get? How many people do I have? What are what prices can I charge? How can I make this work given those inputs?
Gavin:Like, oh, turns out, like, I don't I don't need that many people. Our costs are pretty low. I can charge $30 a month. Like, let's see where that goes. Like, that's how I kinda think about it.
Gavin:It's all all to do with time. Like, maybe I have a maybe this is a side business for me. If it's a side business for me and I have most of my income coming in from a full time job, like, the number of people I need or customers I need goes down even further. Like, it's a sliding scale. It's all relative like time is.
Gavin:To me, that's kinda how I've always thought about it. Not about, like, what is the overall addressable market because that's something no one can ever hold anyway. Nobody has unless they're a true monopolist and they have the whole thing. Yeah. Otherwise, you can slice and dice, and it has a lot to do with who you are and what you need and what how you're set up and and that sort of thing.
Gavin:And, of course, if it's a geographical thing, like, where you're located, like, I probably would have a pretty hard time selling snowboards in Florida. So, you know, that's not really but it's not like the snowboard market is small. It might be small in that physical location Yeah. For obvious reasons. In so in Chicago, we've got a big huge lake.
Gavin:Great Yeah. One of the Great Lakes, Lake Michigan. And, sometimes you'll see, like but I don't think about it because I don't live near it. I mean, I live near it in Chicago, but I don't see it because I don't live, like, near the water. And every once in a while, I'll be driving down the street, and I'll see, like, a boat and tackle shop.
Gavin:I'm like, what the who is buying boat, like, tackles and or, like, you know, bait and boats and stuff? Like, what? And I go, oh, yeah. There actually is a lake over here. But I only see 1 or 2 of those stores because there aren't that many that are necessary in that market in that area, but they exist.
Gavin:If they were a superstore and the guy took out a rent and, like, bought an old Target and tried to use that for his bait and tackle shop, like, he would go out of business really quick. But he's got a tiny little thing in the strip mall because, like, that keeps his cost down and it allows him to to survive in a smaller market. So a lot of it has to do with how you position yourself. And what I see a lot of entrepreneurs doing is they they overspend, they hire too many people, they obsess over things that don't matter too early, and they put themselves out of the market because their costs are so high that they burn through their money before they've even figured it out. Yeah.
Gavin:I see that happen a lot. And it's not that there's not a market there. It's that they they they approached it, I think, too fast, the wrong way. They didn't achieve escape velocity. They burned their fuel, not didn't go or this is, again, the wrong metaphor because I'm not talking about going fast enough.
Gavin:But, like, they didn't get out of orbit. They they're not surviving now by by orbiting orbiting the market. They're they're they've were pulled pulled back to earth and they crashed because they they didn't have what it took to get there. Again, not the wrong not the right metaphor in in a lot of ways here, but I tend to hone my metaphors. Yeah.
Gavin:Is that when I write? But when I when I'm thinking, I'm, like, gonna go all over the place.
Justin:Yeah. No. That's fine. So if you're trying to go fast, you're in a car, you're trying to go fast, your costs are like you throwing out, things that are dragging behind the car. Like, it's it's what weights or claws that are digging into the road and, like, slowing you down.
Justin:That's Yes. That's the that's one side of the equation. The other side of the equation is in terms of what makes you go fast, especially in software, is volume. And the I think the other risk, depending again, on what kind of business you want to run. But I'm coming from the perspective of like, I know what it's like to not to have a business that doesn't have very good margin.
Justin:And after the snowboard shop, you know, 3 years later, I got hired by a software company. And immediately I was like, this is way better. They they had the same number of employees, but the margins the margins here
Gavin:are killer. Are amazing. We are so lucky to be in this world, in this industry that has can have huge margins. Although, it's so fascinating to me that venture capital tends to kill margins in software businesses. Like, a lot of these businesses that are funded, they're losing money.
Gavin:I don't know how you can lose money in software. I just I don't unless, of course, like, you don't have any customers. I get that. But to have, like, lots of customers and lose money in software, I I don't understand how that's I mean, it's clearly possible. I just don't understand it because the margins are so high.
Justin:It's so funny. You keep going back to the cost side, which is and and maybe it's just our collective experience. Because to me, what has been certainly, the cost side affects things. And my business partner is very frugal. So every there's a debate every time.
Justin:That that's the one. He's a good midwestern boy. You know, he he's does not like spending money. He's a great partner to have. He's he's the Roy Disney to my Walt Disney.
Justin:But the on the flip side, it is the fuel in your car when you're a software company is customers. It's people waking up every day and waiting outside your coffee shop for a cup of coffee. This is why coffee shops kill other types of restaurants. I might have pulled pork at my favorite barbecue place once a month. He's lucky if he gets me once a month.
Justin:And if I spent a $100, on pulled pork, that's a pretty good month for him. The coffee shop. I'll go there and easily drop 6 or $7 every day. It never feels like an expense. And I'm guaranteed.
Justin:Monday, I'm gonna show up Tuesday, Wednesday, Thursday, Friday. And I look in the lineup, and there's everybody else. They're they're only buying pulled pork once a month too. But Andrew, the coffee shop owner, gets them every single day. That the difference is the the type of demand.
Justin:It's these are how often do people buy? How often do they show up? How much do they spend when they show up? And of course, what are your costs associated with them showing up? But the front end of that is all the market.
Justin:It's all demand. It's a shape of the market. There's a coffee market, and then there's a pulled pork market. And it the the economics are different. I would rather be the coffee shop owner.
Gavin:Yeah. But if that first of all, coffee shops are not good businesses for the most part. So I know you go and spend 6, $7 a day, but, like, there aren't a lot of rich coffee shop owners around.
Justin:Yeah. Well, except for except for Starbucks.
Gavin:Yeah. Starbucks and, you know, blue bottle and and, whatever. But, like, yeah, it's not really a great great business. But if that coffee shop you go to, may have may have put their their restaurant or their their their their storefront, 2 miles down the road, in the real high rent district area. Same product Yeah.
Gavin:Same demand Yes. Out of business.
Justin:Yes. Yeah. But in software, I mean, arguably I think, actually, arguably, every mainstream business is not a good business. The more businesses I talk to on mainstream Yeah. The more I realize, there's a lot of them being run as hobbies.
Justin:There's a lot of them being rent like, a lot of them are, not don't don't
Gavin:Loan to loan. Like, paycheck to paycheck to loan
Justin:loan. Fundamentals.
Gavin:Revolving credit. Yeah. For sure.
Justin:Coffee's better margins than most. But the point though is that you do want the traffic. And this is why sometimes people pay for the traffic because sometimes it's worth it. It's better to have people interested and coming in the door than not interested. I wonder if, for example, for you, because I can tell that you really like making things that you enjoy.
Justin:Like, you like making things that you've seen the problem, and you're like, I can do this better. You're you're much more of a product person than I am in that sense. Because for me, I just look I'm looking way more at the weights. I'm I'm looking at, like, wow. This is interesting.
Justin:And I think what's most significant and I could be wrong. This could be total ego. But I think it is possible to be in the market and be in the water and learn to recognize the size and shape of good waves and to then make business decisions based on that. So as things are rolling in going, Oh, yeah, that I can feel the pull. I can feel the energy in that wave.
Justin:And and for me, it's just a little it's disconnected as from I'm not, like, purely going, oh, yeah. I could make a better whatever. Like, I Yeah.
Gavin:There's different ways to approach it, and that's absolutely one way for sure. Like, and there's plenty of entrepreneurs, primarily, like, serial entrepreneurs who who do something, and they kinda have a formula, and they look for the, like, certain demand in a certain area, and they jump in. You know? They're typically in it to get out of it from the beginning because they wanna jump into the next wave that's coming. You can't ride that wave that long.
Gavin:And they and they know that. But that that's kind of their that's their thing. That's how they do business, and there's nothing at all wrong with any of that. That that is one one approach to it. I've just always been my my my general perspective on all this stuff is just how do you increase your odds?
Gavin:And one of them, one way, one is, like, go into a market that's already proven where there's millions of people or whatever and, like, you don't have to, like, prove anything. Like, it exists. That's one way to do it. And that's that's yes. Certainly, that's one way to do it.
Gavin:I I feel like, in my opinion, you should try to get really good at things you can control because there aren't that many things you can control. You can't control new competitors coming into the market. You can't control what a competitor does in the market. You can't control their marketing. You can't con there's a whole bunch of things.
Gavin:You can control, hopefully, your costs. And if you keep your costs low and you keep your company small to start with especially, you give yourself more time. And what I've seen happen over the years is that if you give yourself enough time, other people who don't have good economics fall by the wayside, and you're kinda left over. And at some point, if you're if you're surviving, like, you start to get strength because everyone else is just dying Yes. Along the way.
Gavin:And part of it is because they're spending themselves out of the market. They're spending them they're they're not being responsible with how they're and I know that's not you. I know you guys are are really smart about this. I'm just saying I've seen this happen so many times. And I like, there's been a million along the way, like, Basecamp killer, Basecamp killer.
Gavin:Like, yeah, they're good products, but, like, I can promise you they're not gonna be here in 4 years. They just they can't be. They have too many people or, like, they don't care. This person did they're or they're one of those people who just look for the next wave. So, like, they're just in this because it's hot the moment, but they're gonna lose interest in it.
Gavin:And, you know, people come and go, but if you keep your cost low, you can survive for a longer period of time, and then you have more more optionality if you're alive. So, you know, you can you can do more alive than you can dead, basically. And and, so, you know, that's all part of it.
Justin:In this case, this is where even though I think you and I have different sensibilities when it comes to, especially I think what excites us at the beginning. That your sensibility about being in a business that's high margin, low cost, that has optionality really appeals to me. Because I do feel like I kinda wanna ride this transistor wave as long as I can because I have a great life. I have so much margin, like, financial margin. And it's partly why I I'm pushing on people to get into markets that at least give them that margin, have enough people spending enough money at appropriate margins to give you that life because it's just so much better.
Justin:It's been so like, at the beginning of the pandemic
Gavin:Totally.
Justin:John meets with me. We have a little financial meeting. He's like, well, this could be it. He's like, but you know what? If we lose 50% of our revenue, we'll be okay.
Justin:And just the calm that came from that was incredible. Spotify might come in. They might destroy us, but we could lose 50% of our revenue and still be okay. And so that part, I think I'm definitely on board with. The the resilience Yep.
Justin:That comes. And a lot of this is I mean, now Basecamp's one of Basecamp's, strengths is that you've just been around for so long. Anybody considering project management software is gonna find Basecamp. It you can't avoid it. You've just been around for too long.
Justin:Right?
Gavin:We've been around, yes, we've been around for a while, and that's helpful. And, also, you get you get things from that too, which is you get legitimacy, you get reputation, you get more word-of-mouth because more people have more time to talk about you and that whole thing. But but that's, again, like, that's that's that's beyond that that's what happens eventually. So, like, eventually is not what we're really talking about here. We're talking about, like we're really fundamentally talking about, is it viable to to launch a specific business?
Justin:Yeah.
Gavin:And I think we both are both have different points of view that are compatible. One is it's gotta be enough people there, obviously. The other one is, that that we agree. The other one is, like, you give yourself a better chance if you stay small because you have more options. And you you if your costs are lower, you have more options.
Gavin:You don't need to serve as many people. It's hard enough to get customers. You can have much far fewer customers if your costs are low. Like, the the addressable market becomes broader, if your costs are low because you don't have to get 30% of them or 20% of them. You can get 3%.
Gavin:Forget the whole even 1% thing. I hate that whole thing, but it doesn't matter. None of that matters. It's like you need y revenue to cover x costs and your your x costs are quite low. You can get to a sustainable place pretty quickly, which gives you time.
Gavin:Mhmm. And that gives you lifeblood, and it gives you air, and it gives you food, and it gives you water. And, like, now you are in business still. And then you have more time to work out how to get more customers. But if your costs are too high early on, I don't care how big the market is, you're you're not gonna stay in business.
Gavin:You can't stay in business regardless of how fruitful the market might be for someone else. That's kind of my other point. So maybe we maybe we both agree on that also. I don't know.
Justin:Yeah. No. I think this is good. I think I I but I think we should end it here. But I I I do definitely think as this turns the one thing I did appreciate was you really explaining how you think about like, oh, wait, I can maneuver my way around and fit myself into different markets depending on my costs.
Justin:And I think that's I think that's excellent. The the maybe the next time we'll, we, we talk, we can talk about how I think the market you're in actually determines your whole growth trajectory. And actually, after you've chosen that, it doesn't matter how much marketing you do and everything else. I think I think you're pretty much set. There's there is only so much you can get at that point.
Gavin:Yeah. Yeah. No. I I I I think there's some truth to that too. Yeah.
Gavin:We should actually talk about another topic another time, which is related, which is, we've we've basically stopped buying Last year, we we we we experimented buying a bunch of ads, podcast sponsorships, you know, and and and print print ads and physical billboard ads and text based ads. And it's like, I couldn't be more bored than doing that kind of stuff. And it's just not I mean, I don't think I don't think it really hardly works for hardly anybody. I think that's the big secret. I think it works for some people, but this again comes back to costs.
Gavin:Like, if you don't care what things cost and you have, like, unlimited money in the bank, people are losing money getting customers, and they're seeing that that's success. Like, you and I can't do that. Our businesses don't work that way. And so we've stopped doing that altogether, and we can talk about that. But but but, yeah, I agree that in some ways, people put too much too much emphasis on on marketing, and they end up probably spending a lot of money that they shouldn't spend and doing a lot of effort that they don't need to make had they been in a different on a different wave or or, you know, in a different place.
Gavin:You still have to be discovered. You still have to be found out. And to me, that's more about differentiation. It's not about marketing. It's about point of view.
Gavin:It's not about marketing. So that those are different things. But, anyway, that's another another topic for another time.
Justin:Yeah. I think that'd be great to to talk about it another time.
Gavin:I'll I'll have better metaphors next time. My metaphors are all over the place today, but we'll hopefully, it made sense.
Justin:I mean, as someone who loves metaphors
Gavin:Hopefully, it made no sense.
Justin:Thanks for your time, man. I appreciate it.
Gavin:Anytime, Justin. Good to talk to you.
Justin:Yeah. Good to talk to you too.
Gavin:See you.
Justin:Hope you enjoyed that one. If you did, reach out, say, hey. Just listen to Jason Fried and Mi Justin. And, share the episode on Twitter or Facebook or LinkedIn anywhere, that you're active. It'd be great for the episode to get some, you know, to to get some traction, to to go beyond our regular listenership.
Justin:Folks, we are so thankful for everyone who supports this podcast on a monthly basis on Patreon. We have the Take It EV podcast, Ethan Gunderson, Diogo, Chris Willow, Mason Hensley, Boria Solaire, Ward Sandler, Eric Lima, James Sowards, Travis Fisher, Matt Buckley, Russell Brown, and Vandross Sassy, Brad Yuma, Schembeccher, Noah Pral, Robert Simplicio, Colin Gray, Josh Smith, Ivan Kerkovic, Shane Smith, Austin Loveless, Simon Bennett, Michael Sitfer, Paul Jarvis and Jack Ellis, Dan Buddha, Darby Frey, Samori Augusto, Dave Young, Brad from Canada, Sammy Schubert, Mike Walker, Adam Duvander, who just reached out to me and said someone recognized his name on a Zoom call. And say it with me, Dave Junta. We also have call fox at get rewardful.com. Thanks everyone.
Justin:We will see you in 2021.
