5 things I knew (or should have) before my startup, but didn't learn until now
blog.wepay.com
blog.wepay.com
5.1. We'd read it before but hadn't quite internalized the cardinal rule: Cost of Customer Acquisition < Lifetime Value of customer (CCA < LV).
5.2. It's easy to think "hey my product costs me only $1, and the competition charges $100: I'll do great by just charging $10". But when you're charging $10 you won't be able to pay $30 per ad click, and so will (continue to) lose customers to your competition.
Additionally, if you're doing ads on Google, there are some weird interactions here that Econ 101 would not predict. For example, although Google describes AdWords as an auction, it is really "auction-like": the highest bid doesn't necessarily win. One factor which can cause lower bids to beat higher bids is if the lower bids have account history. You get account history by winning the auction lots of times.
If you're scratching your head thinking "How does that matter?", consider a software market where one vendor has a product priced at $30 and another has a competing product priced at $22. Their conversion rates and CPCs might very well be similar on day one, resulting in a cost-per-action of $25. One vendor might choose to participate in the auction while the other does not. As the participating vendor's campaign picks up positive history, Google may cause their CPC to decline due to improved account history, perhaps resulting in a CPA closer to $12 ~ $15. Vendor #2, seeing this, might think "Darn! I'd sure love to advertise if it cost $12 ~ $15", and then turn on their ad campaign... only to find that it still costs them $25. (In some cases, it could actually cost more as a result of their competitor's success.)
The above example is somewhat simplified. AdWords can get complex fractal-style.
Instead, I prefer using what I know to make money directly (not necessarily limited to increasing my share of the teaching bingo market, hopefully) and possibly doing some consulting. Folks working on their next bowl of ramen can read my blog for free. I get emails saying mostly positive things. Everybody is happy.
I can tell you from experience that if you can undercut the competition by half, you get a lot of slack when it comes to not having all the cool features the other guy has.
One of the things that I think many people miss about competing on price is that if you don't have the marketing muscle of the compititon, you need to be dramatic about your price. few will go with an unknown to save 10%; but if you can save 50%, well, that's a pretty good argument to go do some research on that unknown company, no?
(Overall, my position on the 'compete on price' / 'never compete on price' debate is "do what you are good at" - if you are good at selling to people with money, sure. charge a premium and take advantage of your connections and skillset. Rich people and large corporations need stuff, and there's nothing wrong with giving it to them. On the other hand, if you are good at being cheap and bad at selling, well, maybe you should think about attracting the attention of people willing to do research by lowering your price.)
I don't blame myself because my cofounder had so many great attributes that he seemed like a good partner at the time, but still, I urge all of you to assume nothing and tread carefully when choosing a cofounder. Those worst case scenarios? They happen sometimes. :(
No. It's "literally" around 20% to 30%. The rest were tech people looking for business types or other tech people. Here's the spreadsheet: http://spreadsheets.google.com/ccc?key=0AgCvDTyBjHdOdDFfMENq...
You were lazy (you didn't even bother to google that spreadsheet and look) and spoke in platitudes/over-generalizations and reiterated conventional wisdom. Shame on you. The truth is not only different but much more interesting.
Everyone knows that it's easy to have an idea.
No, it's not. So many of those entries are people who are technical but looking for a good idea to work on. "Business types are a dime a dozen." Not so. A good business development person will rock your project. How many great, but dead, sites are out there? Plenty.
Picking the right cofounder is important.
Fuck that nonsense. You're mouthing the words someone else gave you. If you have an organic cofounder -- great; go for it. I'm not against having cofounders. But if you think for one moment that a project needs more than one founder, and you have to pick one for the project to succeed, you simply don't know what you're talking about.
Not that I agree with you completely. But I think it is important to not take an influential person (like pg)'s words for granted without your own critical thinking and some healthy doubts.
Like PG said, a lot of startup fails because they're single founders (without emotional support and other reasons). However,If you pick a co-founder just because PG or other VCs/bloggers said so, a lot of times, your co-founder will be the source of your failure.
Every person's situation/problem is different and all roads lead to Rome. I am kind of disappointed that PG developed a "formula" and believes that everyone should fit into that formula. If you don't, you're out of the game.
A good hacker finds his ways to make the system works for him by breaking the rules (or by finding the hidden rules that seems to defy the written rules).
You ready to break PG's rules?
It's an old saw that wisdom cannot be taught, it must be experienced.
I have found this to be true.
I could not agree more with this. If you get traction everything else falls into place so really you should be spending all your time figuring out how to do this and then making it happen.
The problem is as you say, it is of course non-trivial. However, while all cases are different, I do think there are strategies and best practices that one can employ. Your next post should be about the ones you've picked up. For my part, I'm doing a book on the subject with the goal to demystify the whole process of getting traction from every angle, http://tractionbook.com
Just one extremely minor suggestion: use a better cover image for the book :) The existing one is fine but I think it can be improved a lot to give it a more professional and serious look.
Nobody in the world has Bill’s exact skill set, and looking back on it, that skill set is exactly what we needed
What skill set should I look for?
Like sales - the ability to sell is probably the most important non-technical skill for a startup founder. Startups need to sell all the time - to customers, partners, investors, journalists, etc. It doesn't hurt to have 2+ founders who can sell.
Additionally, having two founders familiar in tech and business allows you to become very productive when one needs work over the other. The ability to tag-team and push out work is fantastic, because there is often a lull in one or the other.
- Has tried a startup before and failed because he didn't have enough tech talent (check)
- Exposed to I.P. law at Stanford Law School (as undergrad)
- Experience cold-calling alumni for donations (for selling) (check)
- Studied economics (check), game theory
- Deep knowledge of fundraising process
- Design, typography, statistics, etc.
You want someone with passion. They should have a skin thick enough that they don't take rejection to heart, but thin enough that 'hear' those who would offer them constructive feedback. They need to be able to concisely articulate your vision to customers of all applicable types (investors, retail, industry), and deduce your next course of action (pivot) from many disparate and incomplete data points.
As for skills, these should complement your own such that the whole is significantly greater than the sum of its parts, and that the whole is just about right for the task at hand. Sorry to be so wishy-washy, but it really is one of those case by case things.
I don't have experience with big startups like Paypal or Youtube, but I'd imagine that if multi-founder teams were really a statistically significant determinant of success, there would be more active investment in (revenue-earning) single-founder businesses. The fact that investors seem to shy away from them suggests otherwise though.
So I'm not intending to be critical of your own or YC's activities. I just don't think it makes sense to convince people they need a co-founder just for the sake of having one. And especially not if they've already got some traction and revenue.
Now, I don't think this is necessarily a bad thing; For as long as I've been running my company, I've had excellent people helping me. If you can hire smart, you can get talent cheap. And let's be honest; no other sane person would have stuck with me for the four years I took bringing prgmr.com into profitability. If I had taken on a co-founder rather than just paying people, the company would have died a long time ago.
However, I think that investors might be on to something when they filter me out; I mean, I would have the exact same problems with investors as I'd have with co-founders. (this is causing some problems now that my bottleneck is capital rather than marketing or anything else.)
Back on point, I don't mean to claim investors are irrational. I just don't think the reflexive "get-a-cofounder" drumbeat that is amplified here is really useful. If it were that easy and such an important determiner of success, I'd expect more investors to back single-founder projects instead of shying away from them. It would be a no-brainer to try and grow projects with revenue and traction.
But it doesn't happen. Which suggests to me that finding a good cofounder is a difficult enough problem that telling someone to do it is not useful advice. Or no more useful than just telling them to get customers. That is what seems to help me more than anything.
But yeah, I agree, finding a good co-founder is very difficult, even before you start hitting the co-founder problems that aren't problems when you have employees.
So, if you have the technical things covered, I would just concentrate on someone who is completely dedicated to do whatever it takes to be successful. And someone that you trust!
You also need to be able to pay the bills, so save up or raise some money. Friends and family money is good here, because raising from professional investors is usually a full-time job in itself. Or you can consult at a high rate and use the margin to fund a startup. We did this for a few years, which was fine - it was our only option, really - but full-time work is so much better.
The good news: you'll be more motivated, since you see the dwindling bank account balance. You know that you need to move things along quickly so you can pay the bills.
Everyone close to me, including my co-founder, keeps telling me to stay fulltime until I have a replacement income from GridSpy. It sounds like there is contradiction on this from the HN crowd.
On the other hand, if you have responsibility to children, a partner, a mortgage payment etc then yeah, you need to know you won't let those things fall apart.
I personally am used to living off a small income because I've been going to school for the past many years. If I was used to $80k a year in earnings, it would take alot more to make the plunge to full-time.
When you are working any type of demanding full-time job, you are asked to problem solve, innovate, and provide meaningful contributions. Simply put, the more thought and inspiration you put into your full-time job, the less you have for your baby, your startup. That's not to say you have NONE, it just means you have less. Less energy, less brainpower, less time, just less.
Odd jobs, on the other hand, work more like a release for your brain. For Bill, tutoring math was easy, fun, and fulfilling. It re-filled his inspiration, rather than drained it.
Way to go Bill, and thanks for this post. jv
If there was a single founder instead of our team of three, we'd be at ramen profitability - a hazard of a larger bootstrapping team, however, it has huge benefits in ability to actually produce something.
We didn't last long, about a year, (long story) but next time I will make sure to have more savings in the bank and a clearer path to revenue, funding, or both. It's good to be hungry but too much of it is a distraction.
Doing it marked me, I think. I'm less patient with slow release cycles, timidity, and red tape.
Without my wife and my cofounder Romain, who are both much crazier than I am, I'd never have done it.
I'm a big believer in it, for similar reasons to the article. If the idea's so great, you should quit and do it all the time. It's not as if there's ever a lack of work.
I know people who try to work part-time. But part-time does not == 50%. From what I've seen, it looks more like 25%. Those part time jobs have a way of encroaching more and more into your life. PG has wise words on one of his essays about this.
Working full time on an idea, gives a great sense of fulfillment and you can make great progress on a day to day basis. The downside is that it's easy to fall into a vacuum where you're isolated from the world. If you take a day off and slack, there's no one who's going to fire you. The downside of that is that you really have to manage your time yourself and be good about it.
If you have experience managing yourself to a daily schedule and also managing yourself to a roadmap/sprint/plan then you can do well.
In terms of bills, really most people have more money than they think. At least that's my opinion. I think the average person who saves some and has worked for a few years has some money saved up. If you haven't been working for long then you're probably used to living on a shoestring budget. If you can deny yourself all the things you don't really need in life, your money will go a long way.
Lastly, get out! Don't just work from home all the time. Work from a cafe or the library. Meet up with friends.. esp any who may be in the same situation as you. Get out. Exercise. Take breaks!
Oh another last thing. Doing your company really takes much longer than you anticipate. It's a marathon, not a sprint. So make sure you take care of yourself in the process. It's too easy to become a workaholic and let everything else (health, relationships) go to waste.
Wasn't too worried about paying the bills as I was living in my parents' basement. However, the drawback of that is the same as having too much money--doesn't make you anxious enough to figure out how to get to ramen profitability.
It wasn't too hard to stay on track if you're use to seeing things to the end, or if you're into what you do, or you believe in it. What's difficult is deciding when to quit. Do you have little users because your product sucks? Or because you don't know where to find them? If not, how do you? Is there something here, but you're not doing it right, or is there really not anything there?
Having been through that as a single founder for a little less than two years was a lonely at times, but you just get use to it after a while. If anything, it's toughened me up a little.
Overall, I think quitting your job isn't quite as scary as one may think, especially if you use your time to learn and grow. Chances are, you'll learn a lot (what, people never say, but it's one of those experience things), and you won't end up in the gutter. If I've discovered anything, it's that the world is a bigger place than you can imagine. People do all sorts of things to make money, and you find opportunities and opportunities find you as long as you do something of meaning to yourself, can teach others, and can build something and get it out there for others to use.
If I had a regret these last four years, it's that I didn't learn faster, and that I didn't quit sooner. That said, don't quit willy-nilly. Have a plan and have goals. Those plans and goals might change, but as long as you know what you're going to be learning out of the experience, that's what counts.
I'm really enjoying my work. I have two part-time co-founders, who have quite busy jobs. So, sometimes things get hard to do on my own, but it was never going to be easy.
It is very satisfying to work on something that I really care about and want to build into something great over time. One thing I love about my new work life is the time I can take to pause and think through things. It's nice to just lighten things up sometimes, not take myself too seriously and just feel happy that I'm doing what I love in a city I love (London) with so much freedom.
Getting up in the morning has never been so easy and going to bed never so hard!
Customer acquisition is more expensive in some markets and cheaper in others. If you are building out a tool for a group of people who already have an internet presence (forums, news sites etc), acquisition is MUCH cheaper. In the beginning of the business you have time but no money, so use that time to talk on those forums, get those people helping you design your product. They will become fanatical users and spread the word about the cool new site THEY helped shape, not to mention provide you insight that you never would have gotten yourself.
We get a huge amount of comments/suggestions/feedback from our users (10-20 a day), and it is very very common to see ones like this, which came in today from one of our early acquisitions:
"BTW, I continue to 'pimp' the site ever chance I get. I post my rides on facebook, BF, and RBR, and share rides and routes with club members. Garmin Connect and TC are so weak, but thats what a lot of them use. Should be low hanging fruit!"
The best advice I can give (in my limited experience) is to engage with your users and build that sense of community and loyalty. It will payoff big, as we are starting to finally realize!
Raising money in silicon valley is hard to do without being part of the silicon valley in-crowd.
Raising money in Boston is hard to do in general, but I don't think it's impossible (although I wouldn't know). I don't think we were ready to raise money when we were still in Boston, and I certainly don't blame investors for not throwing money our way at the time. We were a very different company in Boston than we were after YCombinator.
Time and time again at work or on freelance projects, I find myself pulling other people's weight. Now this sounds conceited, but sometimes it's just the truth, and I'm sure you can't have any of that in a start-up, if you want to succeed!
Like PG said, a lot of startup fails because they're single founders (without emotional support and other reasons).
However,If you pick a co-founder just because PG or other VCs/bloggers said so, a lot of the times, your co-founder will be the source of your failure.
Every person's situation/problem is different and all roads lead to Rome. I am kind of disappointed that PG developed a "formula" and insists that everyone should fit into that formula. If you don't, you're out of the game.
A good hacker finds his ways to make a system work for him by breaking the rules (or by finding the hidden rules that seems to defy the written rules).
Are you ready to break PG's rules?
I think some one has to pitch in and add some perspective here. This, frankly is not helping. I appreciate the warnings and all - but the echo chamber is getting a bit too loud lately. The worst thing that will happen is I will fail. Miserably and in front of the whole world for everyone to see the weakling stupid naive ass that I am. Whats so bad about that? Relax people, stay calm. It will all work out just fine. Trust me! :)
I'm just saying that "knowing" something will be hard, and experiencing something that is hard are two very different things. And to the extent that you can prepare yourself for what's about to come, it will be much easier for you to resist the urge to quit.
> 1. If you are not full time, then you are at a huge disadvantage
There are pros and cons. If you are your own investor, then working full time on one project is also putting all your eggs in the same basket.
Also having multiple projects allows to make a better prioritization (ie: remove crap) in my experience.
> 2. ... Your cofounder should be somebody that refuses to quit
My opinion is quite the contrary: I'd never pick a cofounder that refuses to quit when it makes sense.
'The Dip' is the obvious recommended book on that topic.
> Unless you’re part of the Silicon Valley in-crowd AND you
> have traction, you’re not going to raise venture capital
This one is really an over-generalization... There are many places in the world with founded companies that didn't put a foot in the SV (Paris for what I know).