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Case study · 37signals (Basecamp)

How 37signals turned a tool built for its own clients into Basecamp and outgrew its web design business

TL;DR

37signals was a Chicago web design firm that built a project management tool because its own work had become disorganized. Clients kept asking to use it, so the firm released it as Basecamp in February 2004, reached its first-year revenue target in about six weeks, and roughly a year later stopped taking web design clients. The lesson: when clients keep asking about your internal tool, you may already have a product. Note that 37signals was not purely bootstrapped, since Jeff Bezos’s investment company took a minority stake in 2006.

How it started

37signals was founded in 1999 by Jason Fried, Carlos Segura, and Ernest Kim as a web design company. By Fried’s own account, demand grew until the firm became disorganized. It was managing projects over email, dropping balls, and clients noticed.

The team looked for a tool and found nothing that fit, so it built its own: a message board for updates and feedback plus to-do lists. Fried says that first version did only that, which was all the firm needed and nothing more. Per Wikipedia, work on Basecamp began in 2003. Developer David Heinemeier Hansson created the Ruby on Rails framework for internal use on Basecamp.

The firm started using the system with its clients. Fried says they kept asking what it was and whether they could use it for their own projects, which is when the team decided it might be a product.

How they got the first customers

The first customers were the people who had already seen the tool: the web design firm’s clients. After hearing the same question enough times, the team spent a few more months tightening the product and released the first version of Basecamp in February 2004. It announced the release on its blog and then waited.

The launch offer was simple. Fried writes that everyone got one free project, and more projects required one of three paid plans. Basecamp became especially popular with design and client-services firms, the same kind of business that had been 37signals’ own customers.

What drove growth

Fried says the team set a modest goal at the start: about $5,000 a month after a year, or roughly $60,000 in annual revenue. The product reached that number in about six weeks. About a year later Basecamp was doing more business than the web design consulting side, so 37signals stopped taking new web design clients and focused on the product.

More products followed, including Backpack, Campfire, and Highrise. In 2006 Bezos Expeditions took a minority stake, according to Wikipedia. In 2014 the company narrowed to one product and renamed itself Basecamp. Fried told Built In Chicago the reason was that the company wanted to stay small, and that the easy-to-use product had spread through word of mouth without marketing spend.

Later milestones include the HEY email service in June 2020. The company later returned to the 37signals name; Wikipedia lists 34 employees as of 2021.

Lessons you can copy

  1. 1Start from your own painFried describes Basecamp as built out of desperate necessity. A problem you feel every week is easier to specify than one you have only imagined.
  2. 2Ask what customers keep askingThe decision to sell Basecamp came from clients asking to use it. You do not need a big survey if your clients are already telling you what they want.
  3. 3Ship a version one that does very littleThe first Basecamp was a message board and to-do lists. A tiny first release gets feedback sooner and costs less to change.
  4. 4Set a small, specific revenue targetA goal of about $5,000 a month after one year made success concrete. Hitting it in six weeks was a clear signal to commit.
  5. 5Let the product replace the services business, not the other way aroundThe consulting income funded the product, and the firm stopped taking web design clients only after Basecamp revenue passed it. A services business can be a safe runway for a product.

Frequently asked questions

Was 37signals bootstrapped?

Mostly. It was funded by its own design consulting income and then by Basecamp revenue. Wikipedia reports that Bezos Expeditions took a minority stake in 2006, so it is not purely bootstrapped.

How did Basecamp get its first customers?

Jason Fried says 37signals’ own clients asked to use the project tool the firm was running their projects with. The firm then released it publicly in February 2004.

What can a freelancer or agency copy from this?

Document the tools and processes you build for client work, show them to clients, and note which ones people ask about. If the same request repeats, build a simple version and offer a free tier or trial.

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