Sometimes, the best way to improve something is to begin again from scratch. Even if it's your top-selling product.

In 2004, 37signals, the software company I co-founded, released a Web-based project-management and collaboration tool called Basecamp. At the time, we mostly did Web design; Basecamp was a side project that we developed in our spare time to make it easier for us to work together.

Back then, project-management software was mostly about charts, graphs, statistics, and one-way broadcasts. Basecamp was different. It provides team members with a consistent place to work on projects and tools to swap ideas, share feedback, make revisions, and deliver the final project online. Millions of people across nearly every industry have used Basecamp to manage more than eight million projects; 96 percent of users say they would recommend the software to others.

That can mean only one thing: It's time to start over.

Why mess with something that has proved so successful? There are a couple of reasons. For one, eight years is a long time. Consider the ways in which the world has changed over the past eight years. We've learned a lot about collaborating in that time. We've received tons of feedback from users, many of whom have shown us the ways in which they work. Plus, there are technologies available that didn't exist back then.

But that's only part of it. About a year ago, we began discussing how we might improve our best-selling product. The more we talked, the more it became clear that the only way to significantly improve Basecamp was to start over.

Think about a product's life span. When something new is released to the public—and this is especially true of software—it's hardly set in stone. You get feedback from customers and make modifications. You add features, refine existing ones, and make things better over time. If you really listen and do it right, the product earns its success.

But paradoxically, that success makes it harder to change. As time goes by, people get used to things the way they are. And the more someone is accustomed to doing something a certain way, the harder it is to ask him or her to change. When it comes to introducing ideas, the years have a way of boxing you in.

And that's where we found ourselves with Basecamp—a successful product that was tough to change in major ways. Of course, it has evolved; over the years, we've made thousands of incremental improvements to the software. But now we have ideas that are more revolutionary than incremental. We think these ideas will dramatically enhance Basecamp's speed, power, and flexibility.

The problem is that we cannot make these kinds of changes in the existing product. Over time, software builds up legacy. The old technology is baked in, and the roots of the product are so knotted that simply unwinding them becomes a massive undertaking. Think about trying to uproot a 250-year-old oak tree versus a two-year-old one.

The easy thing to do is nothing. But continuing on the current path is a time-tested formula for complacency.

Of course, customers have a way of building up legacy, too, and there's bound to be some grumbling. We'll deal with any such issues as they arise. But one thing is certain: Starting over doesn't have to mean forcing change on existing customers. We'll have two versions of Basecamp—the Classic version and the new version. Users will be able to switch to the new Basecamp or stick with the Basecamp they are already comfortable with.

After a year of hard work, this is all set to happen soon. How will our customers receive it? In an upcoming column, I'll let you know.

Every end-of-year gesture says something different. Last year, I chose to give a gift that honors the craft of tool building.

It's December, and that means it's bonus, gift, and holiday-party time. So what's a business owner to do?

Before answering that question, it helps to ponder another: What do you want to communicate? Every end-of-year gesture says something different. A cash bonus might say, "Job well done." A gift: "Here's something we think you might like." And the holiday party, it's always seemed to me, says, "Look at all the money we are wasting that could have been better spent elsewhere."

For most of our 11 years here at 37signals, we've given employees cash bonuses. And why not? Everyone likes cash. But the message that cash bonuses convey always felt a bit empty to me. What's more, because our company has been growing consistently each year, those bonuses came to be expected. They stopped feeling special.

Last year, I decided to give a gift instead of cash. I thought about the best presents I had ever received. They were always those that I'd never buy myself and/or didn't even know existed. Once, it was a biography of Nikola Tesla. Another year, a friend gave me tickets to the opera. Each of these gifts expanded my horizons and introduced me to something new.

When I was thinking of what to give employees last year, I decided I wanted it to be something that few people knew even existed; something beautifully crafted and handmade; a one-of-a-kind and fundamentally special object. And I wanted it to be a tool.

That's because at 37signals, we make tools. Basecamp is a tool to help people collaborate on projects. Highrise helps users keep track of their business contacts and relationships. We make software but like to think of ourselves as craftspeople. We are every bit as obsessed with details, beauty, utility, and integrity as a master Japanese bladesmith who crafts samurai swords.

That's when it hit me: a sword.

OK, maybe a sword wasn't practical. But how about the most beautiful kitchen knife in the world? I remembered a video I had seen earlier that year about a fellow named Bob Kramer, a knifemaker in Olympia, Washington. Kramer's knives are custom made, one knife at a time, and are absolutely gorgeous. (Check them out yourself at kramerknives.com.) I decided to ask Bob to make each of our 20 employees an 8-inch chef's knife.

I believe that the quality of the products and tools that you use every day, both professionally and personally, can have a big impact on the quality of your own work and creativity. In other words, if you want to get better, surround yourself with better.

Kramer's knives, crafted from Damascus steel and a variety of hardwoods (we chose ironwood), are beyond better, which is exactly what I wanted for my employees. So I e-mailed Kramer, told him how much I admired his work, and ordered 20 knives. It took Bob a few months to fill the order, because each of our knives took three days to make, and Bob and his assistant are the only ones who make them.

But finally, right around Christmas, we delivered the knives to everyone. We also watched a video Bob had sent along in which he thanked us for the order and expressed how much he enjoyed making this particular set of knives.

Employees were thrilled, and so was I. I like to think that every time they chop an onion or mince a clove of garlic, they'll appreciate the craft and affection that went into making the tool. And with any luck, that craft, dedication to quality, and attention to detail will seep into other areas of their lives—both in the workplace and beyond. And that's way cooler than any holiday party I've ever been to.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework.

We just hired a full-time filmmaker to document our every move. Perhaps you should too.

There's a new story at your business every day. Maybe you dreamed up a great idea or shot down a bad one. Maybe a customer surprised you with the way he or she uses your product. Perhaps a client or an employee came to you with a suggestion for something you'd never thought of before.

There are hidden opportunities in these everyday moments. They make great stories—and in today's business world, you're missing an opportunity if you ignore a good story. That's because great brands are the ones that tell the best stories. Sure, good products and service matter, but stories are what connect people with companies.

At 37signals, the Chicago software company I co-founded, we've always been big believers in storytelling. On our blog, Signal vs. Noise, you'll find explanations of our design philosophies, details of our business decisions, arguments about our approaches to technology, opinions about what's going on in our industry, new ideas that excite us, and more. We've written books and articles about most of these things, too.

But just about all of these things have been expressed with words, not images. We've probably written close to a million words over the past 10 years; in that same period, I'd guess that we've taped fewer than 10 hours of video. And that began to seem a bit off. Video is a great way to show off a company's personality, people, culture, and customers. It helps humanize a business.

So a few months ago, we decided it was time to change our approach to storytelling—and start recording on camera what happens here.

We're far from complete strangers to video. But when we have opted to record something, we've outsourced the work to our friends at Coudal Partners, a design and product development shop down the street. Steve Delahoyde, Coudal's resident filmmaker, has shot, edited, and produced a variety of videos for us—including customer testimonials, trailers for our book, and interviews with entrepreneurs.

Unfortunately, outsourcing isn't exactly compatible with spontaneity. If we have an idea right now, we want to get it on film right now. So we decided to hire a full-timer. We put a job ad up on our blog, describing the role and why we wanted to fill it. We listed the kinds of projects we had in mind (customer stories; documenting the way we work together; even showing our lives outside of work, because we have a lot of interesting people here). The key was that every video had to be interesting. (You can view the full ad here.)

The applications came rolling in. I was quickly surprised—as well as relieved—to see how many really good filmmakers there are in Chicago. We got more than 100 applications, narrowed those down to about a dozen, and then asked those finalists to produce a three-minute video about a person or business they found interesting. They were given just about a week to do it. The video was to be shot, edited, and produced entirely solo—no crew or assistants allowed. Their only direction was to tell us a good story.

One applicant made a video about a guy who ground prescription eyeglasses in his house. Others profiled a glass blower and a physicist in his lab at Northwestern University. All the videos were pretty great. We shared them around the office and asked Steve, our soon-to-be former contractor, what he thought. We wound up hiring Shaun Hildner, a Chicago-based filmmaker who worked at a digital media school. We liked his eye, his approach, and his ability to make people feel comfortable in front of the camera. Further, he had experience in motion graphics.

Shaun just started, so we don't have anything to share just yet. But we're really looking forward to telling our stories and sharing our ideas in an entirely new way. The plan is to produce at least 25 videos next year. So, as they say on the set: Action!

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework.

Consider staging a Comedy Central-style celebrity roast of your top-selling product.

Once a year or so, everyone at our company gets together for a week to hang out, work together, and socialize. Because 37signals consists of 28 people located in nearly 20 cities around the world, these get-togethers are rare—and important.

Before our most recent get-together, in the summer, I wanted to focus on improving our products. I felt we were getting a little complacent. Sales were rising, and customers seemed happy, but it seemed as if it had been a long time since any of our products had gotten materially better. We weren't adding as many killer features as we used to.

A couple of days before the crew arrived in Chicago, I found myself watching a celebrity roast on Comedy Central. The guest of honor was Joan Rivers. One at a time, comics like Carl Reiner, Gilbert Gottfried, and Tom Arnold took the stage and just ripped poor Joan to shreds. "When Joan was born, the doctors took a look at her and said, 'Holy shit. We're going to make a fortune on this one,'" quipped the show's host, Kathy Griffin. "And then they got on the Mayflower and set sail for America." The camera cut to Rivers, who was laughing just as raucously as her tormentors and the live audience.

That's when it hit me: What 37signals needed was a roast.

We wouldn't be ripping on any individuals. Instead, we would roast one of our products. I figured the best victim would be Basecamp, our project management and collaboration software. Basecamp has long been 37signals's most popular product—and as a result, it was also the most sacred. Of course, because every employee works on Basecamp in one way or another, we'd also be roasting ourselves. It wouldn't be as racy, or nearly as funny, as the filleting of Joan Rivers, but discussion would be no-holds-barred.

The crew gathered in the small theater at our headquarters. I announced the Basecamp roast. I saw some smiles, though I wasn't sure if they reflected anticipation or anxiety. To break the ice and set the tone, I went first.

I put an image from Basecamp's "people" page up on the screen and began discussing the process by which users invite others to join a particular project. It's pretty simple and seldom leads to complaints from customers. But there are some rough spots if users don't complete the process in exactly the right way. I tried to join a project and made some intentional mistakes. The ensuing error messages sparked some laughter in the crowd. I doubt an outsider would find it funny, but to those of us who really know Basecamp, seeing those messages was like an inside joke—at our own expense.

It turned out that a lot of us had been unhappy with the invitation process for a while, but no one had ever made an issue of it. The roast made it an issue. More people chimed in with their own gripes. We embarrassed ourselves. And it felt really great.

Once we had dispatched with the invitation process, we moved on to more features of Basecamp. Ryan, a senior product designer, attacked a form that was particularly confusing; Ann, from our support team, savaged a sentence that made no sense. Yes, Basecamp is a huge success, but it was full of flaws. The roast helped get this out into the open.

How was this different than the usual product meeting? For one thing, everyone was there. Designers, programmers, customer service folks—everyone had an opportunity to rip on something without worrying about hurt feelings. People understood the spirit of the roast and felt free to take a jab.

The next day, we started fixing some of the stuff that was brought up in the roast. And over the next few weeks, we began working on solving some deeper problems that emerged through the laughs. The roast even spawned some new ideas that will be making their way to our customers in 2012.

The roast hit all the right notes: It brought us together, generated some laughs, broke the ice on the first day of a long week together, highlighted a bunch of issues, and motivated us to dig in. I have a feeling 37signals has a new company tradition.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework.

Creativity can come out of nowhere. The trick is to sense itand ride it to the end.

A few weeks ago, I was on fire. I was working on some designs for a prototype of a new software product, and the ideas were flowing as they hadn't in months. Every day, I felt as if I were accomplishing two or three days' worth of work. I was in the zone, and it felt fantastic.

It lasted about three weeks. And then I found myself back at my old pace. Instead of being superproductive, I was sort-of productive. Some days, I felt as if I barely accomplished anything.

So what was wrong? Nothing at all.

I believe it's perfectly fine to spend some of your time, maybe even a lot of your time, not firing on all cylinders. Just like full employment isn't necessarily good for an economy, full capacity isn't always great for your mind.

This will be anathema to the multitudes who worship at the altars of Motivation and its close relation, Productivity. Indeed, when I meet with ambitious young entrepreneurs, I am invariably asked, "How can I get more done in fewer hours? What can I do to jump-start my creativity? How can I keep my edge?"

Here are the three answers I can offer: 1. You can't. 2. Stop trying so hard—if it feels like work, something's wrong. 3. Do less stuff.

Motivation, productivity, efficiency—these things are not constants. In my experience, they come in waves. They ebb and flow, and there's no sense in fighting it. The key is to recognize a productivity surge when it appears, so you can roll with it.

I think about work the same way I think about the weather. Sometimes it's snowy or rainy or foggy at work. When that happens, I stay "inside"—and take care of the busy work, the boring stuff, the small things that need to get done. But when things warm up, it's time to head "outside," to get creative, focus on the interesting problems, and ride the wave of creativity as long as it lasts. It may be days, weeks, even months.

This doesn't apply only to those who are in charge. If you manage people, it's important to remember that your employees and colleagues are human, too. They won't always be motivated to do what you'd like them to do when you want them to do it. Their creativity will ebb and flow, just like yours.

This, of course, is a source of frustration for many managers, who continue to believe that if they change this or tinker with that, they'll be able to squeeze more of the good stuff out of their people. But you can artificially motivate someone for only so long. It's nearly impossible to fight the natural rhythm of motivation and productivity. You're better off recognizing that than waging war against reality.

Of course, that does not mean you should simply sit back and do nothing. When I detect that an ordinarily creative employee hasn't been in the flow for a while, I will ask him or her about it, try to get the issue out in the open. In some cases, it turns out that he or she is simply not interested in his or her current project. Other times, there are external issues—such as a personal crisis—that cause motivation to flag.

If it's something I can help with, I often suggest shifting to another part of the project that's more in line with his or her motivations. If it's something beyond my control, I just let it work its way out of the employee's system. If it becomes a long-term issue, then there's a problem that needs to be addressed by other means. In fact, we recently instituted 30-day paid sabbaticals for every three years worked. This is in addition to standard vacation time. So far, one person has taken us up on it. No one was particularly surprised when he returned to work more motivated—and productive—than ever.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published last March.

Nearly every entrepreneur exaggerates his or her company's size to impress clients. Jason Fried says such behavior is sillyand unnecessary.

Before I co-founded my current company, 37signals, in 1999, I had a software and Web design business called Spinfree. The Internet was a fairly new and exotic phenomenon back then, and it was pretty easy to drum up clients willing to pay quite well to improve their nascent websites. Within a year or so, I had a nice client list, built entirely through word of mouth. I was just a year out of college and making a good living. While my friends were struggling with entry-level jobs they didn't like, I was doing exactly what I wanted to do.

But Spinfree had a dirty little secret: It wasn't really a "company." It was just me. My headquarters consisted of a small desk a few feet from my bed in a cramped, one-bedroom apartment.

I was pretty insecure about my solo status and went to great lengths to make things appear otherwise. When describing Spinfree, I always spoke in terms of we, us, the team, or our offices. I trained myself always to use the collective first person—on the phone while pitching to potential clients, on Spinfree's website, in the proposals I submitted.

And because I seldom met my clients face to face, it was easy to keep the ruse going. Many of them probably had the impression that Spinfree was an actual company, complete with teams of professionals ensconced in cubicles, hard at work on their projects.

Why the bluffing? I was young and inexperienced and felt like people would not take Spinfree seriously if they knew that it was just me. After all, what responsible businessperson would trust some young punk right out of college with a brand's online presence? As the saying goes, no one ever got fired for hiring IBM. But it seemed certain that someone could get fired for hiring me. I felt I had no choice but to act big.

I remember the relief I felt when I hired my first employee, in 1998. Suddenly, there really was a we and an us. An enormous weight had been lifted, and I wondered how and why I had spent the past couple of years acting—and flat-out lying. A harmless little lie, maybe, but a lie nonetheless. I didn't feel good about it.

Did the deception actually win me any business? Who knows? It may have helped me get a foot in a couple of doors. But in retrospect, I find the fronting pretty embarrassing. And dumb. Because all of my clients came from word-of-mouth referrals, I was playing a game of chicken with a lot of potential business. Being discovered not only would have been humiliating—no one likes to get caught in a lie, however well intended—it could have harmed my reputation.

When I helped launch my next business, 37signals, we decided from the outset that openness, honesty, and transparency would be core tenets. The plan was simply to be honest with customers and let the chips fall where they may. That's exactly what we have done for more than a decade—whether it's admitting when we mess up or making sure our prices are public, with no hidden fees. We sleep well at night knowing we have nothing to hide.

I like to tell this story to young entrepreneurs when I meet them, because I see so many of them following the same pattern I did. They're stretching the truth, acting, and misrepresenting themselves in the name of winning business. It's especially common among independent designers, programmers, copywriters, and consultants. Obviously, I understand why they're doing it. I just wish they understood why 1. it's a bad idea, and 2. it's completely unnecessary.

Fibbing about scale is only part of the problem. There's an awful lot of resumé enhancement going on as well. Think about what's really happening when you see, say, Hewlett-Packard on someone's client list. Do you think the person really worked for HP? Or perhaps it was just a small job for the HP reseller down the street?

I once met an entrepreneur who told me that Boeing was a client. I raised an eyebrow: "Really?" It turned out the company helped a Boeing executive set up a personal blog on the side. When I asked him why he felt it was worth citing Boeing as a client, he told me it would help him build trust with other potential big clients. If they knew he'd worked with Boeing, they'd be more likely to hire him. I don't think he even understood what he was saying. Building trust via deception? That "credibility" isn't going to take you very far. And if you get caught in your bluff, you've lost the client for sure.

What's more, the business culture has changed considerably since I was "running" Spinfree in the mid-1990s. There's a lot more respect for small outfits and even solo players than ever before. Who isn't fascinated by the story of the lone programmer creating a blockbuster iPhone app on a laptop in his kitchen? Who doesn't admire the entrepreneur with the guts to do her own thing? Small is really where it's at. Even the big guys act as though they wish they were smaller. The largest corporations in the world sell themselves using terms most often used to describe entrepreneurs: agile, flexible, customer-centric. They crow about the fact that employees are rewarded for acting like entrepreneurs. And think about all the executives who fantasize about running their own shows.

Does that mean they will award you the big contract? Maybe not. Even in the age of the entrepreneur, not everyone is eager to place a major project in the hands of a small shop. But clients who are impressed by scale aren't the kind of clients you want anyway. Lots of start-up founders dream of working for a big brand, but the truth is, it's usually pretty crummy work. Instead, find like-minded clients closer to your own size, and grow with them. I can guarantee that you'll wind up doing more interesting, more challenging work.

Another advantage to owning up to your slight stature: Your customers will always know whom they are dealing with. They'll know they'll get the most personal service possible. A lot of people have had the experience of working with a company only to see their key contact move on to another job. The relationship is lost. That's not possible when it's your business. You are your business. They'll have you from start to finish. That's a big advantage.

I wish I knew then what I know now: Being small is nothing to be insecure or ashamed about. Small is great. Small is independence. Small is opportunity. Celebrate it. Don't hide from it. Businesses always benefit from being straightforward and clear. So don't worry about it. Don't act. Be upfront and honest, and bask in your smallness. It's truly to your advantage.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published last March.

For the first time in 11 years, I needed an assistant. But was I really ready to let go?

My desk used to have a very large pile of envelopes stacked in the corner. It included notices from various agencies in the states in which our employees live, pitches from would-be business partners, personal correspondence, and too many other things to list. Under the desk was a box, which contained all of the stuff that had been crowded off my desk. At times, there have been multiple boxes.

I didn't ignore the stacks and boxes. But I didn't exactly deal with them, either. Well, I always took the first action: I opened the letters and took care of the urgent stuff, such as paying the bills. But the bulk of these papers required some measure of detailed follow-up or further thought or action. And that's generally where I dropped the ball.

Sometimes, I would stare at that stack of envelopes or the boxes under my desk. I wouldn't actually do anything about them; I would simply stare and think that they were symbolic of just how overwhelming the administrative side of my business had become. It wasn't just paperwork. It was phone calls: getting back to the landlord about some issue with the parking garage, contacting our payroll provider to settle some tax issues, searching out new health care plan options, making sure people who helped us out got thank-you notes. The list went on and on. 37signals, the Chicago software firm I co-founded, has been growing fast, but the administrative responsibilities have seemed to grow even faster.

I've always shared these responsibilities with my partner, David Heinemeier Hansson. Though we both take pride in being efficient and getting stuff done, we found ourselves being distracted from focusing on our products because so much time was being sucked away doing—or stressing about—administrative work. We needed help. It was time for us to find an executive assistant.

It sounds duh-obvious, but this was kind of a big deal for us. In the 11 years we've been in business, 37signals has never hired someone who didn't directly affect our products. We hire designers, programmers, system administrators, customer service people, data analysts—employees who have a direct impact on how our products look and work. But we haven't much bothered with administrators or managers.

What's more, delegating isn't easy for me. Even though the paperwork and other chores were piling up, I still had a hard time letting go. I have a feeling I'm not alone in this. It's tough for the person who started the business to begin to let go. For more than a decade, I've been involved in every decision at this company, from which hosting company to use to what brand of paper towel goes in the kitchen. When you're that used to having every decision run through you, it can be a bit unnerving to surrender control. I understand that it's silly to believe that every small decision needs to run through you. But it's such a primal instinct when your business is your baby.

So we set out to find an assistant: someone to assist me, David, and anyone else at the company who needed help with administrative tasks. Since we'd never hired for this kind of position, I went online and reviewed a bunch of assistant and office manager job postings. But the listings didn't really do much for me. This is a problem with job listings in general: They don't seem to describe an actual day's work. They're heavy on skills but not actions.

We decided to go in a different direction to locate our new assistant. Instead of a boring list of skills—this software, that many years of experience, "team player," etc.—we wrote a list of 26 things that this person would have done in a week had he or she been working here.

The list included things such as "Booked two hotel rooms and two flights for out-of-towners"; "Packed up and shipped out about five copies of Rework to various people"; "Coordinated with Abt Electronics to schedule installation of four flat-panel TVs"; and "Researched and recommended local floral arrangers for weekly flowers for the office." This way, whoever was applying would know exactly the kind of work he or she would be expected to do. (You can read the job posting here).

We posted the ad on our company blog, Signal vs. Noise, thinking that the unusual approach would help narrow the field of potential candidates. It didn't quite work out like that. Instead, we were bombarded by hundreds of applications. We were a bit overwhelmed by the response.

We sorted through them and began to interview a few folks who seemed most promising. We realized pretty quickly that either we left something out of the ad or this was an especially hard position to hire for—at least according to the way we usually hire people at 37signals. In the past, we've always looked for people who are in it for the long haul, people who are truly interested in developing and growing with the company. Though we've hired a bunch of new employees recently, most of our crew has been with us for years.

We interviewed some really good people. The problem: Most of the best candidates saw the job as a steppingstone. They wanted to start out as an assistant and end up somewhere else. That's completely fair, of course, but it didn't do us much good. We needed an assistant who wanted to be an assistant—someone who actually enjoyed sweating the details at a small but growing company, someone who would excel and grow but not grow out of the job itself.

Usually, we fill job openings pretty quickly. But in this case, we wound up interviewing dozens of candidates over several months. And then, finally, we found Andrea LaRowe. She'd been doing a similar job at a nonprofit organization here in Chicago, so she was perfectly qualified. She also emphasized how much she actually enjoys her work. She started on February 28.

I have to admit that in the week or two before Andrea started, I was nervous. I looked at the pile and the box and wondered if I really would be able to let go. But my worries were unwarranted. Once I was able to get a few things off my plate, it became easier and easier to let go of nearly all the administrative chores.

And it didn't take long for Andrea to have a big impact. Suddenly, everything is taken care of. There are no lingering issues with a question about our 401(k) or health care plan. Our catered events come off without a hitch. Travel arrangements have been spot on. Research projects have been researched. Applications and forms have been filled out and submitted.

You know how you can tell when you've made a good decision? If you feel like you waited too long to make it, then it's a good decision. That's how we feel now. We should have done this a long time ago.

And here's the real bonus: David and I have clearer minds. We know the administrative details are taken care of. We've refocused on the work, the ideas, and the important decisions that need to be made about our products. And my desk, finally, is clean.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published last March.

I've always kept hierarchy to a minimum. Then an employee said, "Promote me," and I was forced to reevaluate my organizational structure.

Something strange happened at work a couple of months ago: We parted ways with an employee. That doesn't happen too often at 37signals, the Chicago software company I co-founded. In 11 years, we've lost just five people—and one of them came back seven years later.

But the really strange thing was the reason this employee and I decided it was time to part ways. The issue was ambition—not a lack of it, but more of it than we could use.

She had been in our customer service department for about three years and had always done quality work. Her smarts, initiative, and productivity had never been in question. Now, she wanted that performance to be rewarded with managerial responsibilities and a new job title. It wasn't about the money.

You may be wondering how this possibly could be a problem. After all, what business owner doesn't crave an office staffed with motivated people looking to take on more work? In fact, companies often go out of their way to create positions, responsibilities, and job titles to hang on to their most ambitious employees.

At 37signals, however, we have a different position on ambition. We're not big fans of what I consider "vertical" ambition—that is, the usual career-path trajectory, in which a newbie moves up the ladder from associate to manager to vice president over a number of years of service. On the other hand, we revere "horizontal" ambition—in which employees who love what they do are encouraged to dig deeper, expand their knowledge, and become better at it. We always try to hire people who yearn to be master craftspeople, that is, designers who want to be great designers, not managers of designers; developers who want to master the art of programming, not management.

Instead of rewarding high performers with managerial responsibilities—which often drives people further away from the job they are actually good at—we reward with responsibilities closer to the work. We also throw in above-market salaries and generous benefits, including four-day workweeks in the summer, as much time off as they would like (within reason, of course), and plenty of freedom to make their own decisions about the projects they're working on.

This has served us well over the years. But recently, as we've brought on more people, that model has been showing signs of strain. We're now at 26 people. And, as many entrepreneurs have learned, once your business reaches a certain size, matters you didn't have to consider before become difficult to ignore. In our case, HR terms like departments, managers, and titles have begun to pop up more often.

Besides being small, 37signals has always been a flat organization. In fact, flatness is one of our core values. We have eight programmers, but we don't have a chief technical officer. We have five designers, but no creative director. We have five people on our customer support team, and no customer support manager. And because we don't have a marketing department, we don't have a chief marketing officer.

Even as we've grown, we've remained a lean organization. We do not have room for people who don't do the actual work. Nearly everyone at 37signals touches our products at one point or another. From writers writing and updating support documentation to designers designing the user interfaces to programmers writing the code to our operations people, who make sure the servers keep on serving, we don't have delegators who get paid to tell other people what to do.

We've experimented with promoting a few people to manager-level roles. In some cases, this has worked out; in others, it hasn't. But one thing we've found is that groups that manage themselves are often better off than groups that are managed by a single person. So when groups do require structure, we get them to manage themselves.

For example, back when we had three people working in customer service, we hired someone to manage the team. His responsibility was to review everyone's tickets, keep an eye on tone, make sure our customers were getting prompt and proper responses, interact with our developers to let them know what our customers were requesting, and measure our overall support performance. He might jump in and handle a few tickets here and there, but his main responsibility was to step back and improve the department.

It didn't work out. This isn't a knock on that particular manager (he was a great guy who knew how to run a department, and we helped him find another job). It wouldn't have mattered who was in the role; the role itself was unnecessary. But because we expected the department to grow, we thought it would be a good idea to get some structure in place. After all, everyone knows that as you add people, you add structure.

What we learned is that adding a dedicated manager and creating a hierarchy is not the only way to create structure. Instead, we decided to let the team be entirely self-managed. There's still a team leader, but that role rotates among the team every week. Each week, a new leader sketches out the agenda, writes up the notes about problems and performance, and steps up to handle any troubled customer interactions.

One of the things I like about the arrangement is that it frees us from the often toxic labor-versus-management dynamic, in which neither party truly understands what it's like to be on the other side. This is where you'll find a lot of conflict in companies. But because we rotate management duties weekly, everyone is more empathetic toward one another. When you'll be management soon, you respect management more. Same with labor. It reminds me of one of my favorite quotes, by the philosopher John Rawls: "The fairest rules are those to which everyone would agree if they did not know how much power they would have." Our support has gotten better, and our customers are happier. We've measured the difference, and we know it works.

Observing the performance of the customer service team reminds me that promoting horizontally instead of vertically can benefit everyone involved. Moving ambitious people upward tends to lock down other capable people on the team. If there are three or four people capable of managing (in a traditional sense) and we promote just one of them, the teammates might feel stuck. We would rather everyone work together in an environment in which everyone has a chance to move proudly and thoroughly sideways.

In the end, no one here is happy when an employee leaves. But as a business owner, I have to think about the long term. Moving someone up to a managerial position just because he or she outgrew his or her current position isn't reason enough. Adding managers to the mix sends a strong cultural statement about flatness giving way to hierarchy. We're definitely not ready for that now. I hope we never will be.

As it happens, this story has a happy ending. Our ex-employee didn't find another job—she launched her own business. She runs the show, and she's having a blast. We've even provided advice and helped her promote her new business. It definitely was the right move for everyone.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework.

When one of our products malfunctioned, thousands of stranded customers erupted in fury. Yet we came out of the crisis more credible than ever. Heres what we did.

It was a really lousy week.

One of 37signals's key products is Campfire, a real-time chat tool for small businesses. For about a week in mid-December, Campfire, which users access via the Web, kept bouncing on- and offline. This was the first major problem we have had with Campfire since it launched in 2006. For a product that needs to be as reliable as the dial tone on your phone, things couldn't have been worse.

Thousands of companies rely on Campfire. At 37signals, we use Campfire to run our business. Because we have employees in a dozen cities around the world, Campfire is our lifeline. It's how we communicate with one another in real time. Campfire is where we make decisions, share designs, debate ideas, broadcast companywide announcements, and keep up to date on what everyone's working on.

Campfire went down for highly technical reasons, so I won't go into detail about it. Essentially, three problems emerged at the same time, a combination of hardware and software failures that caused a lot of people a lot of problems. In some cases, we'd be down for only a minute or two. In others, outages would last as long as 45 minutes. For nearly a week, it was impossible to be sure if Campfire would work.

Downtime disgusts us. It's embarrassing. Knowing that our mistakes are disrupting thousands of people's lives weighs heavily on us. No one is happy around here when our customers aren't happy.

And believe me, they let us know when they're not happy. They flood our inbox with complaints. They broadcast their exasperation on Twitter. Here's a little bit of what we heard when Campfire crashed: "I wish @37signals could sort their sh*t out, causing me a lot of grief lately." "Come on guys. Killing my business over here..." "Up until a week ago, I'd suggest @37signals' Campfire to anyone. Now, I'm telling everyone I know to avoid it." People were upset, and they were right to be. When we mess up, we deserve to be the punching bag.

Of course, all companies experience episodes like this. How they handle the situation is what counts. I'm not talking about fixing the problem—you have to fix it; that's a given. I'm talking about how you communicate with your customers, how you accept responsibility, and how you make things right. That's what people remember.

I've been a customer of companies that don't know how to respond to a crisis. These outfits don't own up to the problem. They hedge, they tiptoe, they get their PR departments to issue abstract nonapology apologies.

Here's one of the worst: "We apologize for any inconvenience we may have caused." If ever there was a nonapology apology, this is it. And just about every company uses it. I Googled the phrase We apologize for any inconvenience. It came up 41 million times.

Let's break this statement down. We apologize… Come on—when you really mean it, you say, "I'm sorry." You don't say, "I apologize." If you spill hot coffee on someone, you say, "I am so, so sorry." "I apologize" is renting the problem. "I'm sorry" is owning it. Now, to the second part of the nonapology: …for any inconvenience we may have caused . What a cop-out. For any? How about for all of it? May have caused? Don't say maybe—say yes. Own it.

We're very careful about how we explain downtime and other glitches. We don't beat around the bush. We don't try to hedge. We don't pass the blame to a vendor or another party. When our customers are affected, it's on us.

And we've discovered that the more honest we are, the better our customers feel. They just want to know what's going on and what happened. They want to be informed. Wouldn't anyone? You don't win any prizes for confusing people—especially during a crisis. The clearer and more honest you can be, the better off you'll be. It's hard to admit mistakes, but you really don't have a choice.

So here's what we did when Campfire went down. First, we posted regular updates on the status page of our company's website. We let people know we were working on the problem. As we figured things out, we shared the results. And if we still didn't understand something, we admitted as much. That's OK with us. What isn't OK is leaving people in the dark. Everyone's afraid of the dark when their data are involved.

We also took to Twitter. My business partner David Heinemeier Hansson responded to more than 100 tweets from customers. "We're battling demons on all fronts and losing. It's pathetic, I know," David tweeted to one customer. "We're spending the goodwill we've built from years of reliable service like it's going out of style." "So sorry for the disruption," he wrote to another. "You can only say duh! so many times before people just think you're annoying. We're way past that," he wrote.

We responded to every complaint and took the blame every time—even when people went overboard and launched into personal attacks. There was no fighting back, no attempt to save face. We messed up, we knew it, and we let every customer know that we knew it.

And our customers responded with enormous goodwill. "37signals has been giving a free lesson in customer service and honesty the past few weeks," one customer tweeted. "Way to go on being awesome and communicative to your customers," said another. Such expressions of support were really heartwarming—and evidence of how honesty, openness, and personal attention to a difficult situation can turn the darkest moment into one of the brightest.

We decided to give every Campfire customer a free month of service. We were down for only a few hours, total, but the downtime was spread out over multiple days. Besides, we didn't earn our customers' trust in December, so we didn't earn their money, either. We have thousands of paying Campfire customers, so this wasn't a cheap or easy decision. But it was the right thing to do.

Finally, once we figured out what went wrong and took steps to make sure it wouldn't happen again, we wrote a full post on our product blog detailing exactly what had happened. We started with a general overview that could be understood by everyone. Being in the software business doesn't give you license to speak in code. Yes, some of our customers are technically gifted. But most of them aren't, so speaking in tech jargon can cause even more confusion.

That said, we also delved into the technical details for those who care about those kinds of things. And we added a link to the announcement inside Campfire, so all our customers would see it. You can read the product blog post at productblog.37signals.com/products/2010/12/campfire-outage-explanation-and-service-credits.html.

We learned a lot during that awful week. People don't judge you on the basis of your mistakes—they judge you on the manner in which you own up to them. In my experience, most companies do a terrible job of taking blame. They lob press releases. Or they apologize for the inconvenience. Resist that temptation and say you're sorry like you're apologizing to a friend. Be good—and your customers will be good right back to you.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published last March.

Jason Fried tells us why no is the most important word an entrepreneur can learn.

Are you in the software business? I bet most of you would answer no. So let me put it another way: Do you have a website? If the answer is yes, you're in the software business. A website is software. It has utility, and that utility is accessed via an interface on a computer or mobile device. That's software.

Given that today most businesses -- and plenty of individuals -- have websites, far more of you are in the software business than you probably realize. You may make widgets or furniture or run a restaurant or provide a service, but you're also responsible for software. Even if you outsource the development of your website, you're ultimately responsible for its presentation. In that way, you're little different from a restaurateur -- you probably don't grow or raise your own ingredients, but you serve them to your customers. The buck stops with you.

Being in the software business is a wonderful thing. It means you can create just about anything. A basic set of raw materials -- a server, some code, some graphics, some words -- can be configured into a billion billion combinations with relative ease. That is unique and wonderful and should be celebrated.

However, it's also a curse. Understanding why is the key to building great software -- or a great website.

Let's start by looking at a physical object -- say, a standard 16-ounce water bottle. Think Evian, Poland Spring, Fiji, or something like that. You don't have to be an expert in anything to know that those bottles are well designed. They are made of clear plastic, which means you can see the contents from far away; if they were opaque, you wouldn't be able to tell what was inside. The water inside the bottle is heavier than the packaging; if the bottle was heavier, you wouldn't be able to feel if it was empty or full without picking it up or pouring out its contents. The bottles are grippable, portable, and easy to use; if they were too tall or too fat or too slippery or too thin, you wouldn't be able to just grab and go.

You don't have to analyze the bottle like I just did to understand that it is well designed. You know it, because you can see the bottle, feel it, and use all of its features immediately. You can see where it starts and ends. It is not complicated. It is in balance with its purpose. Imagine a bottle without a spout or a bottle that was burning hot or a bottle that was as slippery as ice. Every reasonable person would know that wouldn't work.

Contrast that with software. What are the criteria for evaluating software? Software doesn't have mass. It doesn't have shape. It doesn't cast shadows. It has no edges. It has no size. You can't pick it up. You can't feel it. It doesn't obey the laws of physics. It's not really even there. Nothing is pushing back, saying, "That's a bad idea; that won't work; that's going to burn someone or hurt someone or make someone drop it or..." Almost none of the tools we've developed to evaluate physical objects apply to software.

This is why most software goes bad over time.

Software -- websites included -- usually starts out pretty good. The first version is pretty focused. Yes, there are horror stories of overstuffed websites or unwieldy software products being launched. But for the most part, the first version of something has the fewest features it ever will have.

As time goes on, customers send feedback, and the business evolves. Things get more complicated. More people, more opinions, more pressure to add stuff.

The software grows. Version 2.0 comes along. It does more than Version 1.0. More features, more options, more screens, more stuff. Or the website is redesigned with more pages, more words, more images, more departments, more tools. Nothing has gone wrong yet. In fact, Version Two is pretty good, too.

But over time, yet more stuff is added. Remember our water bottle? Imagine what would happen if more stuff was added to it. Pretty soon it wouldn't be functional. The physics would push back. Not so with software. You can just add more pages! Or you can just add more features or more settings or more preferences and hide them behind yet another button or menu. It's just one more button, right?

This is where it all begins to fall apart. Future versions are loaded with more and more stuff. Nothing pushes back; nothing says no. And eventually, the product or the site becomes unmanageable. It's too big, too slow, too confusing, but it's still all subjective. Unlike the water bottle, the software can just keep growing. Software can't overflow. It has no edges, so it can never be too big.

Guess what? It can.

The only way to stop this perpetual growth of an object without physical borders is for you to create your own borders. Those borders are discipline, self-control, an editor's eye for "enough." The ultimate border is one simple word: no. Someone in charge has to say no more than yes.

If the laws of physics govern the physical world, the word no governs the virtual world. "No, that's one feature too many." "No, that's just not worth it." "No, no, no."

I remember when our software company, 37signals, didn't know how to say no. We were building the first version of Highrise, our Web-based contact management tool. And we kept saying yes. "Wouldn't it be cool if..." Yes! "Oh, man, it should totally do this..." Yes! "How about we add the ability to..." Yes! It was always yes, yes, and more yes. Which meant that when it was finally complete, Highrise ended up sucking.

It wasn't easy, but eventually we looked back at what we had created and admitted, "This is just way too much. It doesn't make sense. It's not simple. It's not clear." So we scrapped it and started over. The new version was built with a heavy dose of no. It turned out wonderfully. Today, Highrise is our fastest-growing product.

It's still hard to say no when we're building a new product. I think it's because yes just sounds so much better. Yes is the thing of dreams. Yes, we can do this. Yes, we can do that. Yes feels really good.

The problem is that yes often results in massive costs that we don't consider when we're dreaming up all the things we want to do. Yes doesn't push back until it's too late. If you've already agreed to do all these things, then it's that much more difficult to say no later on.

And that's the key to it all. No is easy if you say it early. It's a lot harder to say it later, because it's usually in response to something you already said yes to. This is where things get hairy.

No means you have to make tough choices that aren't always obvious at the time. No can be hard, even painful; it can lead to imagining what could have been. But when you make software, it's almost always a good idea to say no more than you say yes. Over time, you'll regret saying yes more than saying no. No?

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published in March.

Sure, some customers will complain, and others might take their business elsewhere. But theres a good chance you dont want those kinds of customers, anyway.

"OMG."

"Are you guys nuts?"

"Is there a gas leak in the 37s offices?"

"You are on crack."

These are just a few of the comments that were posted on our company blog in late June.

What did we do to deserve such scorn? Did we release a lousy product with a system-destroying bug? Did we triple the price of our software? Did we force people to pay us for something they weren't interested in buying?

Nope. Here's what we did: We had the audacity to charge $9.99 for a piece of software. And we make no apologies for doing so.

Here's the backstory: A few months ago, our software company, 37signals, released Draft, our first application for the Apple iPad. Draft lets you draw with your finger and share those drawings via e-mail or through Campfire, our business group-chat tool.

Draft is dead simple -- the background is black, the "ink" is white or red, and your finger is the pen. There are no shape tools, text tools, brushes, textures, color fills, or anything else. It's just like you're sketching on paper.

If you search the App Store, you'll find dozens of similar drawing apps. Some, like Penultimate and Brushes, are fantastic; others, less so. But no matter what you're looking for in a drawing app for the iPad, you'll likely find it in the App Store.

You'll also find a mix of prices. From free to 99 cents to $9.99, there's a product and a price to satisfy nearly everyone. Like most apps in the App Store, many drawing apps tend to cost between free and $4.99.

Given that there are already so many drawing apps on the market and that many of them are available for less than a buck, you might wonder why 37signals would spend the time developing yet another one. We built Draft to solve our own problems -- the same reason we build all our software. The other drawing apps on the market solve different problems than the problems we were having.

Prior to Draft, when one of us wanted to sketch an idea and share it with other members of our team, he'd first sketch the idea on a piece of paper with a Sharpie. Then he'd scan the paper. Then he'd upload the scanned sketch to his computer. Then he'd upload that sketch to the Campfire chat room where his team was collaborating.

Draft cuts out a bunch of those steps and saves a pile of time. Now we can quickly sketch out an idea, tap a button, and automatically upload it directly to a Campfire chat room. No Sharpie, no paper, no scanner, no waste, no extra steps. Just draw, tap, done. Draft is the only drawing app for the iPad that works this way. Other apps let you share sketches by e-mail (Draft does that, too), but Draft is the only one with Campfire integration.

Some days, we may share dozens of sketches. Saving a few minutes on each one has a significant impact on our productivity. This is exactly what we needed. That's why we built it.

We were so pleased with Draft that we wondered: Why not turn it into a product and offer it to our customers? It wouldn't be the first time we decided to market something originally created for our own use. After all, if we're solving our own problem, we're likely solving other people's problems, too. Given the number of people who use our other products, we had a pretty good idea that there were thousands of folks who would be interested in Draft.

At the same time, we're a small company with just 20 employees. We don't have unlimited resources. Our four primary products -- Basecamp, Highrise, Backpack, and Campfire -- consume nearly all of our time and resources. From development to design to customer service, we're pretty maxed out. What would adding another product mean? Would supporting it be a burden to the existing team? Would it be worth it?

That's when we started thinking about price. We're a rare company in the Web-based software business -- we actually charge for things. We think free is a business cancer. Offering some stuff for free is fine as long as you have something else to sell. But "we'll give it all away for free and figure out how to make money later" isn't much of a business model in our minds. We provide our software like a restaurant provides its food, a cabby provides transportation, and a clothing store offers a shirt -- in exchange for money.

That's not the only thing that makes us different. Most companies seem to want as many customers as they can get. At 37signals, we don't want lots of customers. We want lots of the right customers. Our goal is to maximize profits, not market share. We also want to maximize happiness -- for the customers and for ourselves. The more people you have using your products, and the more people you have working at your company, the harder it becomes to keep everyone happy all the time.

So when we set out to put a price tag on Draft, we decided not to pay attention to what the other drawing apps sell for. We didn't look to compete on price.

As App Store consumers, we knew that most apps sell for 99 cents or thereabouts. I think the software industry is killing itself by trending toward a price of 99 cents. Software is more valuable than 99 cents, but as long as software developers say it's worth only 99 cents, then most customers are going to get used to paying only 99 cents.

We have no interest in participating in a race to the bottom. Ninety-nine cents is not for us.

What about $1.99? Or $2.99? We could have gone there, but we wanted to use price as a tool to reduce customer demand for Draft, not increase it. That's right: We wanted fewer customers to buy Draft.

With a price tag of a buck or two, I think we could have easily sold 10,000 copies of the software. On the surface, that sounds great. But not when you think about all the resources required to serve 10,000 customers.

A good number of those 10,000 people are going to need help. Some are going to complain. Some will request a lot of features. Some will ask a lot of questions. That's the software business, of course. And we love being in the software business and making our customers as happy as possible. We work really hard at it.

However, our main products sell for $24 to $149 a month. At those prices, we can afford to provide excellent service. Could we provide excellent service for many thousands of additional customers paying a one-time price of $1.99? Would that reduce our ability to service our $24-a-month or $149-a-month customers? We believed it would.

So instead of going for the land grab, we created a small island. We priced Draft at $9.99 -- significantly higher than most of the products out there. The people who buy Draft know exactly why Draft is valuable to them. And they think $9.99 is a fair price.

So far, we've sold nearly 2,000 copies of Draft. That's about $20,000 in revenue. We are much happier with $20,000 in revenue from 2,000 customers than $20,000 in revenue from 10,000 or 20,000 customers. Given our current resources and team, we can happily serve 2,000 Draft customers, plus all our other customers.

As the outcry over Draft's $9.99 price tag demonstrated, this has not made everyone happy. Plenty of people even think we're nuts. It's certainly not the first time we've been called crazy.

But giving away your products? That's what I call truly insane.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework.

Our new office cost a fortune, but I still think it is the best investment weve ever made.

My software company, 37signals, is nearly 11 years old. But until now, it's never really had a place to call its own. For much of that time, we've been positively nomadic.

Our first headquarters was in the office of one of our original partners, a Chicago-based graphic designer named Carlos Segura. Carlos's office also housed his design firm, as well as the T26 Digital Type Foundry and Thickface Records. 37signals lived on a corner of a big desk in a room upstairs. It wasn't glamorous, but we didn't need much space. It kept our costs down, too.

After we had been there a year, Carlos left the company, so it was time for us to move on as well. By this time, 37signals was three people -- Ernest Kim, Matt Linderman, and me. We were making money and doing well and didn't require much in the way of an office. So when some friends/clients at a company called Data Harbor invited us to sublease some of their extra space, we said, "Sure."

A year after that, Data Harbor moved, and we took over the remainder of its lease for a few months. Then we decided to finally get a place of our own. We found it across the street (we could see it from the window of the space we were still occupying). It was too big -- 3,500 square feet for just three Chicago-based employees -- but the location was good, the rent was fair, and the landlord was a nice guy. Still, it never really felt like home. Rather than investing in the space, we just put some cheap tables together and got DSL. We worked that way for three years. During this time, we brought on a couple more people, but they were working remotely from other cities.

I suppose we were thinking about office space the way most businesses do -- as a cost center. After all, between rent, furniture, technology, and the like, it adds up fast, especially for a young company. We were doing fairly well, so $2,500 a month wasn't much of a burden. At the same time, it was $30,000 a year out the door when we could all have just worked from home, which might have explained our ambivalence.

But over the course of three years in that Spartan space, we learned an important lesson: An office could make you money, not just cost you money. We had a lot of empty space. Our three desks, conference room, and personal space took up only about 25 percent of the office. Perhaps we could turn that empty space into a revenue stream. Not by subleasing it but by using it to host our own workshops and conferences.

For a few years, we'd been sharing our ideas on software design, marketing, and business on our blog, Signal vs. Noise. We'd begun to build a loyal and passionate following. So why not take advantage of that and hold a workshop about the things we were writing about on the blog? We could host it in the spare space in our empty office. And charge for it.

We put together a one-day agenda, charged about $300 a person, and sold about 30 seats. Suddenly, we found ourselves with $9,000 in additional revenue. Our monthly rent at the time was $2,500. In one day, we just paid more than three months' rent. That was a light-bulb moment. An office can be free -- and even a profit center -- if you start thinking about your company's byproducts.

What do I mean by byproducts? Just like the lumber industry can sell its sawdust (a byproduct of milling trees), we discovered that we could sell our knowledge (a byproduct of running a business). And we could sell it in our spare space. Eventually, we packaged this knowledge in book form. All told, the combination of the book and the workshops has brought in revenue of more than $1 million.

But back to our real estate saga. When our lease was up, we decided not to renew. But instead of getting another space of our own, we hooked up with another friendly company we knew: Coudal Partners. I knew Jim Coudal, owner of the advertising and design firm, through a mutual friend. Jim had some extra space, I mentioned that we were looking, and he offered it at a fair price. This was in 2003. For the past seven years, we've been working out of that office.

It's been a wonderful experience. The folks at Coudal Partners are wildly creative. We've hired them to shoot and produce some video for us, and we even started a side company together called The Deck, a targeted ad network that helps companies reach graphic designers, Web designers, and other creative professionals.

However, since we're sharing the space, it's not ours to do whatever we want with. Holding workshops there has been a logistical challenge, because those events mean that the people at Coudal Partners can't work at their own office for a day. That doesn't scale well. We'd like to be able to do a workshop every six weeks. Or maybe host a spontaneous gathering of all our nearby customers. We needed more flexibility.

What's more, since we've expanded from just a few people to 20 (nine of whom are in Chicago), we've outgrown the six desks we had been renting. Privacy is another thing you don't have much of when you share an office with another company. It wasn't an issue early on, but it is now. Our friends at Coudal Partners have been fair and accommodating, but we decided it was time to move on.

So last year, we began looking for a place of our own. From the outset, we decided to recall what we had learned years before: We weren't just going to spend money on the space; we were actually going to make money on it. That requirement became the driving force for finding the right space.

We looked at a bunch of places -- houses, lofts, offices that already had been built out, raw traditional office spaces. We almost had a lease done on a large factory that had been turned into a six-bedroom residence (we'd use the bedrooms for private offices). But the deal fell through because of zoning and parking issues.

Eventually, we found a beautiful raw space just six blocks from our current office. It's a corner space with two enormous walls of windows. Natural light pours in. We hired architects to review the space and draw up plans. We negotiated the lease, paid the lawyers, paid the lawyers some more, and signed the papers.

The design process took a few months, and the build-out took about four months. We finally moved in July. True to our vision, about a third of the 10,000 square feet is dedicated to teaching. We built a theater-style classroom, with 37 seats, in which we can give presentations, hold workshops, and offer training and support classes for our customers. We plan on holding the first of many regular workshops this fall.

For the past few years, we've rented out different venues for our workshops. It cost us a few grand for the space, another few grand for the overpriced catering (we had to use each facility's sanctioned caterer), and another few grand for audio-visual requirements and other logistical considerations. Though we were able to charge about $750 per seat for a one-day event and sell about 50 seats per workshop, renting still took a good chunk of profit out of the equation.

With our own space, we'll not only save money on the costs side; we can make more money on the profit side. We also believe we'll be able to charge closer to $1,000 a seat. At 37 seats, that's $37,000 in revenue. All we'll have to pay for is catering. All the AV requirements and Internet connectivity are built into the space. And it's much more attractive than the venues we were renting out before. Just a few of these workshops will cover our rent for the year.

The lesson here is less about real estate than it is about business itself. Whenever you make something, you make something else. Your byproducts may not be as obvious as sawdust, but they're there. Maybe it's the knowledge you've acquired by running a business. Maybe it's a piece of software you wound up making when you made another piece of software. It's there; you just have to look for it. You may even find a business you never knew you had.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework.

At a fast-growing company, arguing is inevitable. But it needn't be harmful.

Conflict is a lot like water -- it spills over; it flows downhill; and, if left unchecked, it erodes whatever it touches. And sometimes it's like red wine -- it stains.

We're an opinionated bunch at 37signals, the software company I co-founded. That is true whether we're dealing with the outside world (in our blog posts, conference talks, interviews, etc.) or with one another. And since we're a semivirtual company with people in 12 different cities, we don't have the benefit of body language to help inform the subtleties of discussion. Because we can't see one another, we can't serve up a smile or a "You know what I mean" glance to defuse a conflict in the making.

So we've learned a few things about managing conflict. Conflict, of course, can be a downer. But managed conflict is a good thing -- it's fertile ground for a great exchange of ideas. When people dig in and defend their positions, a deeper understanding of a problem is possible. As long as people are defending a genuine idea and not just their pride, much can be learned.

Making a case is one thing. Making a convincing case is something else entirely. Convincing yourself of something you sense is true isn't very hard, but convincing someone else is. It makes you think harder about what you believe and why you believe it. And sometimes that alone will help you see the other side -- and maybe even change your mind.

Of course, if you want to get stuff done, a decision eventually has to be made. Decisions are progress. But when decisions are important and complicated, the odds are that no matter how much you believe in your idea, someone else believes in his or hers just as strongly. Maybe you've convinced yourself, but the others aren't convinced. Or maybe they haven't convinced you. How do you break the stalemate and get to a decision?

First, it's worth taking a step back and considering if you're even disagreeing. Sometimes what looks like a disagreement is just an agreement cloaked in competing vocabularies.

I think of this as "faux conflict," and I see it happen a lot -- especially when people with different skills are involved. That's because programmers speak one language, designers another, managers yet another. Someone in marketing calls it this, while a customer calls it that. Basic misunderstandings cause a fair bit of conflict.

I remember when we were working on a new feature for Highrise, our contact-management tool. This particular feature was designed to keep track of conversations users have with their contacts. One designer called the logging of the conversation a "message." One programmer called it a "note." Another programmer called it a "recording." And I remember calling it a "post." We were all talking about the same thing, and we all fundamentally agreed about how it was supposed to work, yet we soon found ourselves arguing about it. Why? Because none of us were exactly sure what the others were talking about. If we had done a better job of defining our terms at the outset, there would have been a lot less argument, stress, and wasted time. Simple.

This is why we try to get real with things as quickly as possible. For us, real means something we can all look at -- a picture, a sketch, something visual. Until everyone's looking at the same thing, it can be hard to reach actual agreement. Five people may read the same paragraph, but they often interpret the words differently. But when you look at a picture, a mockup, people are more likely to reach agreement -- or valid disagreement. Whichever way they go, at least we know where they actually stand, not where we think they stand. Pointing at something real cuts through to the truth.

If you find you do have genuine disagreement, then you can move on to some techniques to help resolve the conflict. One tried-and-true method, of course, is brute force: The highest authority makes the call. That could be a founder, CEO, president, or manager. In some cases, this has to be done. But mostly I've found that it leads to lousy morale and bruised egos rather than genuine agreement. In fact, the person at the top doesn't always have the right idea. And the farther he or she is from the actual work being done, the less likely his or her idea will be the right one.

Nonetheless, almost all entrepreneurs would admit that it's tough not to play dictator. I certainly know the feeling. When it's your company, your vision, and your ultimate responsibility, it's easy to think you have to make all the calls, all the time. But if you really start behaving that way, you'll see the quality of work steadily decline. If your colleagues know that you're just going to come in and tear down whatever they've been working on, they're not going to give you their best work. Why would they? If it's never going to be good enough for you, then it doesn't matter how bad it is, either.

So here's how we turn conflict into something positive and get stuff done at 37signals.

We trade. This method is based on the highly nonscientific "I've got this one; you get the next one" model used by millions of people every day. You know how it goes: You grab lunch with a friend, and you pick up the tab. Next time, he gets it. You don't really keep track, because you know it'll all even out in the end. And even if it's not even in the end, it's even enough.

So sometimes, when we're battling over a detail in one of our products, someone will eventually cede the decision to someone else: "OK, we'll go with your idea this time. Next time, it's mine." It's not always that literal, but the intention is implied. It's simply not worth battling every last decision until one side is too beaten up to battle anymore. Sometimes, a friendly "You get this one; I get the next one" is all it takes to move on, egos intact.

A variation on this theme is to ask the question "Who really wants it more?" early in the process. It's pretty rare that two people (or groups of people) all share the same degree of passion about a particular problem. Someone almost always cares more. She has more invested or a stronger opinion or just needs to win this one more than the others. So sometimes, that's all that's required: Just ask. Find out who really cares more and then give it to her. One day you'll care more about something and you'll get it. I've found that it all tends to even out in the end.

Another great way to see who's really willing to stand behind an idea is to find out if he or she is willing to take responsibility for it should things go wrong.

Say we're battling over a new feature for our software. One faction is certain that the feature will cause problems for our customers, while the other insists that things will work out fine. In most cases, we'll let the optimists prevail, but with one key condition: They take responsibility for handling all the customer service and support issues that might arise.

So if it turns out that the customers are complaining or things go wrong in general, it's on their backs. They have to answer the e-mails and deal with the backlash. When someone is willing to shoulder that burden, there's a good chance he or she has the right idea.

Of course, you don't just give away decisions to people who aren't capable of making them. I'm not suggesting making crappy calls just to avoid long-term conflict. In all of this, I'm assuming that everyone is making valid points for the most part. If someone is uninformed or arguing for the sake of arguing, the worst thing you can do is hand it over.

At 37signals, we're all reasonable and competent people. I hope that's true of your company as well.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published in March.

37signals co-founder Jason Fried shares his tips for hiring great employees.

Hiring people is like making friends. Pick good ones, and they'll enrich your life. Make bad choices, and they'll bring you down. Who you work with is even more important than who you hang out with, because you spend a lot more time with your workmates than your friends.

Wait, why am I talking about hiring? Isn't unemployment stubbornly high? Aren't tons of folks unable to find new work? That's certainly the case for many industries, but not ours. In fact, our company's job board -- which lists positions for programmers and designers across our industry -- has more help-wanted postings than ever. We recently hired two new people. Something is going on.

I'd like to share a bit about how we go about hiring at 37signals. Hiring is something we rarely do -- we're intentionally small at 20 people -- but we've developed a method that has worked very well for us. It allows us to find the right people and keep them happy. In 11 years, only two people have left the company -- and one recently returned after working elsewhere for seven years. (Welcome back, Scott!)

So, what do we do? First, we hire late. We hire after it hurts. We hire to alleviate pain, not for pleasure. Who hires for pleasure? Any company that hires people before it needs them is hiring for pleasure. It's an indulgence we've never allowed ourselves.

We're happy to skip over the perfect catch if we don't have the perfect job for the person to do. Right now I know there are some great designers and programmers available, and I'd love to have them on our team. But we don't have any openings.

I've run into a lot of companies that invent positions for great people just so they don't get away. But hiring people when you don't have real work for them is insulting to them and hurtful to you. Great people want to work on things that matter. Inevitably, a great person working on imaginary work will turn into an unsatisfied person. Then he'll leave.

It's easy to say, "There's gotta be stuff you'd like to do if you had more people." And, of course, there is stuff I'd like to do. But I believe it's good to operate at the limits of your organization. Limits force you to come up with creative, elegant solutions. Being forced to get more done with fewer resources is the right kind of pressure.

A smaller team keeps you focused. It crowds out all the things you'd like to do and replaces them with the things you have to do. It forces you to prioritize and focus on the next most important thing instead of the next "wouldn't it be cool if…" thing. There are always plenty of those.

How do you know if you really need someone? A good rule of thumb is this: Have you already tried to do the job yourself? If you haven't done the job, you don't really understand the job. Without that fundamental understanding, it's hard to judge what constitutes a job well done.

For example, a few years back, we decided it would be a good idea to bring on a business-development person, someone who could follow up on partnership inquiries and other new business opportunities we were being pitched. Up to that point, we'd pretty much been ignoring those e-mails. We were just too busy doing other things.

So we began interviewing people. Some were very qualified and had great references. But because we hadn't actually followed up on these new business opportunities before, it was hard to know exactly how to proceed with a candidate. In the course of conducting job interviews, we quickly learned that because none of us had even tried to pursue unsolicited partnership requests, none of us could evaluate a candidate's skills appropriately. Would the candidate be good at doing something we know nothing about? How would we even know?

So after meeting with a variety of people, we stopped the search and began looking into these inquiries ourselves. It quickly became obvious that most of these deals weren't worth pursuing anyway. If we hadn't taken that extra step, we might havehired someone to spend time on something we didn't even want. That's definitely not good for us -- and it's not good for a biz-dev person's career, either.

We've learned this lesson with other positions, too. Before we hired our first customer service person (Sarah), I did all the customer service, about two years of answering e-mails. David, my business partner, and Jamis, one of our programmers, did all of our system administration before we hired our first system administrator (Mark). We found great people because we thoroughly understood the jobs.

Once we begin vetting candidates, we also behave a little differently. For one thing, we ignore resumés. In my experience, they're full of exaggerations, half-truths, embellishments -- and even outright lies. They're made of action verbs that don't really mean anything. Even when people aren't intentionally trying to trick you, they often stretch the truth. And what does "five years' experience" mean, anyway? Resumés reduce people to bullet points, and most people look pretty good as bullet points.

What we do look at are cover letters. Cover letters say it all. They immediately tell you if someone wants this job or just any job. And cover letters make something else very clear: They tell you who can and who can't write. Spell checkers can spell, but they can't write. Wordsmiths rise to the top quickly. Another rule of thumb: When in doubt, always hire the better writer.

We look for effort, too. How badly does this person want the job? Pestering is not the same as effort, though. We hired a designer named Jason Zimdars because: 1. He was good, and 2. He made more effort to get the job than anyone else. He built a special website pitching his skills just for us. So few people make the extra effort like Jason did. (Check it out to see what I mean: jasonzimdars.com/svn.)

During interviews, we love when potential hires ask questions. But all questions aren't equal. A red flag goes up when someone asks how. "How do I do that?" "How can I find out this or that?" You want people who ask why, not how. Why is good -- it's a sign of deep interest in a subject. It signals a healthy dose of curiosity. How is a sign that someone isn't used to figuring things out for him- or herself. How is a sign that this person is going to be a drain on others. Avoid hows.

We also try to test-drive people before hiring them full time. We give designers a one-week design project to see how they approach the problem. We pay them $1,500 for their work. Sometimes, we'll hire someone on a contract basis for a month to see how we feel about the person and how the person feels about us. Sometimes that project is just a few hours a week because the candidate already has a day job. But that's often enough to check out the person's work, how the person communicates, and how the person works under pressure. These real-work tests have saved us a few mismatched hires and confirmed a bunch of great people.

Finally, we never let geography get in the way. We hire the best we can no matter where they are. We're based in Chicago, but we have programmers in Idaho and California, system administrators in North Carolina and downstate Illinois, designers in Oklahoma and Colorado, a writer in New York City, and others in Europe. This obviously wouldn't work for customer-facing folks, but for most everyone else, it does. The best are everywhere. It's up to you to find them.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework.

What's bad, boring, and barely read all over? Business writing. If you could taste words, most corporate websites, brochures, and sales materials would remind you of stale, soggy rice cakes: nearly calorie free, devoid of nutrition, and completely unsatisfying.

One of my favorite phrases in the business world is full-service solutions provider. A quick search on Google finds at least 47,000 companies using that one. That's full-service generic. There's more. Cost effective end-to-end solutions brings you about 95,000 results. Provider of value-added services nets you more than 600,000 matches. Exactly which services are sold as not adding value?

Who writes this stuff? Worse, who reads it and approves it? What does it say when tens of thousands of companies are saying the same things about themselves?

When you write like everyone else and sound like everyone else and act like everyone else, you're saying, "Our products are like everyone else's, too." Or think of it this way: Would you go to a dinner party and just repeat what the person to the right of you is saying all night long? Would that be interesting to anybody? So why are so many businesses saying the same things at the biggest party on the planet -- the marketplace?

If you care about your product, you should care just as much about how you describe it. In nearly all cases, a company makes its first impression on would-be customers or partners with words -- whether they're on a website, in sales materials, or in e-mails or letters. A snappy design might catch their attention, but it's the words that make the real connection. Your company's story, product descriptions, history, personality -- these are the things that go to battle for you every day. Your words are your frontline. Are they strong enough?

Unfortunately, years of language dilution by lawyers, marketers, executives, and HR departments have turned the powerful, descriptive sentence into an empty vessel optimized for buzzwords, jargon, and vapid expressions. Words are treated as filler -- "stuff" that takes up space on a page. Words expand to occupy blank space in a business much as spray foam insulation fills up cracks in your house. Harsh? Maybe. True? Read around a bit, and I think you'll agree.

Luckily, there are exceptions. Wonderful exceptions. These are companies with a personality and a point of view. They care enough to have their own voice. They want to communicate, not just say something. They have a story to tell, and they want to tell it well. They write to be read.

Woot is one of those companies. Woot is a Dallas-based business that sells one item a day at a deep discount. Here is how the company describes itself on its website:

Woot.com is an online store and community that focuses on selling cool stuff cheap. It started as an employee-store slash market-testing type of place for an electronics distributor, but it's taken on a life of its own. We anticipate profitability by 2043 -- by then we should be retired; someone smarter might take over and jack up the prices. Until then, we're still the lovable scamps we've always been.

Don't you just love these people? Or maybe you hate them. Either way, I'm pretty sure you have an opinion about Woot based on this paragraph. With just a few sentences, Woot instantly set itself apart from the liquidation crowd.

Indeed, how the company communicates is a big part of how Woot built such a successful business. Woot's deal of the day sells out just about every day. I especially love the company's response to the "Will I receive customer support like I'm used to?" on its FAQ page:

No. Well, not really. If you buy something you don't end up liking or you have what marketing people call "buyer's remorse," sell it on eBay. It's likely you'll make money doing this and save everyone a hassle.

It's kind of kidding and kind of not. Some people may be offended, but big deal. Woot isn't trying to sell to every customer. It's trying to sell to the customers that can laugh along. Those are the people who understand what Woot is about. The company uses language as a filter.

Another favorite of mine is Saddleback Leather in San Antonio. Dave Munson, the company's founder, clearly loves his products and his words. Here's how he sets the scene when describing the quality of the company's bags:

You know how when a magician exposes to the world how other magicians trick people, all of the other magicians get mad at him for spilling the beans? Well, I'm about to spill the beans and ruin it for all of those companies trying to trick you into buying their not so high quality leather...You're about to learn what to look for and what to look out for as you shop for your next leather piece. By the way, if I soon die by a chopstick to the neck, you'll know why. I'm a marked man.

He then dives into great detail about what makes a great leather bag great. From the type of leather and where it comes from to how it's tanned to breakable versus nonbreakable parts ("How much is a billion dollar submarine with a plastic hatch worth?") to the number of seams, and so on. It's compelling and interesting. It holds your attention.

And check out how he explains his guarantee:

All of our products are fully warranted against all defects in materials and workmanship for 100 years. If you or one of your descendants should have a problem, send it back to me or one of my descendants and we'll repair or replace it for free or we'll give you a credit on the website (be sure to mention the warranty in your will).

Consider his choice of words. A 100-year warranty that his descendants will honor if one of your descendants needs a repair. And then he reminds you to include the warranty in your will. Who wouldn't want to do business with this guy? And it's all backed up with the Saddleback tag line: "They'll Fight Over It When You're Dead." Beauty.

When you're done reading this article, hit Google and search for leather bags. Then read through some of the sites you find. I bet you'll be bored to death pretty quickly. Then visit Saddleback's site. I bet you'll be smiling just as fast.

Here's one more example of writing done right: Polyface farm in Swoope, Virginia. Polyface is run by Joel Salatin, a pioneering farmer, author, and prophet of clarity. The Polyface Guiding Principles page is a study in straightforward language with a healthy hint of attitude:

Plants and animals should be provided a habitat that allows them to express their physiological distinctiveness. Respecting and honoring the pigness of the pig is a foundation for societal health....We do not ship food. We should all seek food closer to home...This means enjoying seasonality and reacquainting ourselves with our home kitchens.

I especially love his take on what it means to be a farmer:

We're really in the earthworm enhancement business. Stimulating soil biota is our first priority. Soil health creates healthy food.

Joel knows where he stands. When you read his site, you do, too. Even though Joel is a "full-service end-to-end" farmer, he'd never say it like that. He'd consider that description disrespectful to his customers, employees, plants, and animals.

The quality of the writing on sites like Woot's, Saddleback Leather's, and Polyface's gives me the chills. It's not how they look; it's how they read. These are businesses that care about what they say and how they say it. They don't write to fill up space on a page. They write to fill up your head. There is nothing inherently interesting about liquidators, leather, or farmers. They can make themselves boring, or they can make themselves interesting. Words do that job. Woot, Saddleback, and Polyface have all chosen to be interesting and engaging. They don't hide behind jargon. They aren't insecure. They aren't afraid to tell you who they are.

I can already hear some of you saying, "Sounds great. But I can't write." So hire a writer. But make sure that writer truly understands your business. Remember: It's not about telling a story. It's about telling a true story well.

Of course, words alone won't do it. Words are two dimensional. Your products and services provide the third dimension -- depth. But when it all comes together, you've got a package that's hard to ignore.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published in March.

Are your business problems making you insane? In his debut column, 37signals co-founder Jason Fried argues that one of the keys to success is to let your lazy side guide you.

I think of myself as wildly ambitious and unapologetically lazy. Though we've all heard about the good things that come from ambition, laziness gets a bad rap. That's unfortunate. I can attribute a healthy chunk of my success to the positive returns of laziness. Laziness has the best ROI in the business.

Let's start at the beginning. I launched my first real company, a Web design company called Spinfree, in 1996. It was a solo show: just me, a desk in my apartment, and some self-taught mediocre Web design skills. But it was all I needed. The jobs rolled in, and my clients were happy. I could pay the bills, stash away some savings, and work when and where I wanted.

But I wasn't happy. Rather than building confidence, I was accumulating doubt. As my business expanded, I grew nervous and self-conscious. I began to feel as if my accomplishments weren't enough, that I had to take things to "the next level." I thought if I didn't get there fast enough, I'd be bowled over by the competition.

When I bid on projects against larger design firms, I started saying "we" instead of "I" in an attempt to sound bigger. The proposals submitted by my rivals were long and shiny, so mine had to be longer and shinier. I even began badmouthing the competition -- people I'd never met. That's ugly.

The thing is, I didn't need to do any of these things. I thought I did, but I didn't. I was inventing problems. I was making things hard on myself.

How did I figure this out? Laziness. I got tired and let down my guard and wound up learning something important about myself: I love work, just not hard work. I think hard work is overrated. My goal is to do less hard work. And what's hard? Acting like someone else, writing elaborate proposals I don't believe in, and flinging mud at the competition. That's hard and horrible work.

So I put my laziness to work for me. Instead of long proposals, I wrote short ones. Instead of worrying about competitors, I ignored them. And here's what happened: My company got more work. I found better clients. I slept better. I woke up better. I was happier. And, most of all, running a business became a lot easier.

Fifteen years later, this continues to be the most important lesson I've learned as an entrepreneur: Most of the stuff you agonize about just doesn't matter. Truth is, things are pretty easy and straightforward -- until you make them hard and complicated.

This is the ethos that drives what we do at 37signals, the company I co-founded in 1999. We make simple Web-based collaboration software for small businesses and groups. We have millions of users -- and millions in profits -- but we're just 16 people. We don't act any bigger or smaller. We don't put on airs. We just are who we are.

We don't worry much about what the competition is doing. We don't worry about growing pains we don't have yet. We don't spend time on five-year plans and forecasts, because in my experience, they just don't matter.

We invent software, not problems. Real problems will find you; you don't need to invite fake ones to dinner.

Yet that's precisely what many business owners do. I spend a lot of my time speaking with entrepreneurs and entrepreneurs-to-be. They e-mail me, call me at the office, hit me up on Twitter, or introduce themselves at conferences and events. And for the most part, they have one thing in common: They're scared. Worried. Insecure. Just like I was.

It's easy to see why. Conventional business wisdom breeds paranoia. If you don't get big fast, you lose. If you don't obsess about the competition, you will be crushed. If you don't make long-term plans, you'll be staggering in the dark.

Come on. Conventional wisdom is tired, upset, groggy, scared, and a pain in the ass to work with. It doesn't have to be like this.

Instead of spending your time worrying about what could, might, or may happen, spend your time on what matters now. Are your customers thrilled with your service today? Is your inbox flooded with word-of-mouth referrals today? Do your employees love their jobs today? Can people find what they're looking for on your website today? Be honest with yourself. If the answers aren't satisfactory, then I'd suggest that you truly have something to worry about -- no matter how beautiful and comprehensive your business plan is.

Tomorrow. Eventually. Next quarter. Next year. Five years from now. Exit strategy. Throw these words away. They don't matter. Today is all you have in business. Tomorrow is just today again. Next week? Seven todays in a row. Amonth isn't 30 days. It's 30 todays.

I'm not suggesting you stop thinking about the future. I'm telling you to stop stressing about it. Go on, get lazy.

Jason Fried is co-founder of 37signals, a Chicago-based software firm, and co-author of the book Rework, which was published in March. This is his first column for Inc.