Deep Dive
Why should businesses focus more on controlling costs than worrying about competition?
Focusing on costs allows you to build a business that works for you, regardless of what competitors are doing. If your costs are under control, you can create a sustainable business model that doesn't rely on beating others but on making your own business profitable.
How does 37signals manage costs across its multiple products?
37signals generally looks at the overall business rather than breaking down costs by product. However, they do make adjustments where necessary, such as reducing support costs for Hay due to its lower price point. They prioritize overall profitability and healthy margins, allowing for flexibility and experimentation.
What are the key categories of products in a business portfolio according to 37signals?
The key categories are cash cows (stable, high-revenue products), dogs (low-growth, low-revenue products), and shooting stars (fast-growing, potentially high-revenue products). Basecamp is considered a cash cow, while Hay is a shooting star.
Why did 37signals decide to eliminate their physical office space?
The decision was driven by the high renewal cost of the lease and the low usage of the office. The office was primarily used for meetups, and the cost was disproportionate to its utility. This move allowed them to save on rent and explore hosting meetups in various cities around the world.
What are some common areas where entrepreneurs might overlook expenses?
Entrepreneurs often overlook the number of employees they have, potentially overhiring. Additionally, software companies may underestimate the cost of cloud computing and SaaS subscriptions, which can add up significantly over time.
How did 37signals reduce their cloud computing costs?
37signals realized that a significant portion of their revenue from Hay was going to AWS. They decided to exit the cloud to reduce these costs, bringing them down from around $30 per customer to about $10, making the expense more proportionate and sustainable.
Why is it important for businesses to maintain a balance between cost control and value creation?
While cost control is crucial, businesses must also ensure that they are not sacrificing value. For example, cutting too much from meetups could reduce their effectiveness, negating any cost savings. It's about finding the right balance where costs are proportionate to the value created.
- Focus on internal factors, not external competition.
- Controllable costs are more important than competitor analysis.
- Build a self-sustaining, functional business through cost control.
Shownotes Transcript