It was a beautiful feeling.
We had just raised our first after-seed round of investment, bumping my salary as cofounder and CTO from a voluntary $24k a year to a healthy six figures, while simultaneously driving up the value of my stock equity. The rest of the team, my comrades in arms, were similarly bumped and positively impacted.
Flash back to around 2011 at my previous company.
We had a great team, a solid product, and even some paying users. We’d all been slaving away at sub-market wages for quite some time, putting in sweat equity to build something real. To reward ourselves for our wisdom and hard work, we went on a well-deserved shopping spree at the Apple store and bought ourselves the latest Macbook Pros, with bells and whistles.
I would have thought you insane if you suggested to me, back in that day, that we were at the top of a rollercoaster. And yet approximately two years later, we were at the bottom, broke, with no real shot at getting back up. What the hell happened?
Rather than doing a full on post-mortem, I’d like to talk about what we did wrong (I’ll discuss what we did right in my next post), in hopes that it could benefit someone else. Or, if nothing else, serve as demented form of entertainment.
For starters, don’t build a product for people who can’t afford to buy it.
We had built a pretty nifty offline engagement platform that allowed anyone to scan a QR code or type in a short URL and land on a mobile optimized site designed by our customers. From there they’d engage with various forms of media, sign up for things, buy stuff and so on.
Only problem was that our initial target customers were, I shit you not, musicians. It wasn’t until about six months into it that we realized we could not have picked a more broke demographic to sell to. We ditched that idea by pivoting to target Enterprise customers in the music industry and landed a whale. And by landed I mean we spent 3+ months in a sales cycle convincing them to take our product. That’s right, free of charge. We were willing to give it away in exchange for their traffic, a vague semblance of network effects, and future business.
Which brings me to another point — don’t give away your product. We did negotiate a 5-figure annual contract over a year later with that same company, but it was almost an afterthought that I had to champion, and we were lucky they didn’t just laugh us out of the room.
Speaking of not giving away the product, if you’re going to price it at $9/mo per user and actually want to sell upgrades, then don’t throw in the kitchen sink of features with a base subscription. Because that’s exactly what we did. As a result, our users had no incentive to upgrade since the $9/mo subscription had 90% of what they needed.
We experimented a lot with pricing, starting with triple tiers of $9, $29, $79, then $29, $79, $199 and even an enterprise plan of $499/mo. Most people who paid $9/mo were willing to pay $29/mo, but obviously this depends on the elasticity of your market.
Do you know how many enterprise customers we’ve landed at $499/mo? Zero. When we did land enterprise customers, it was after months of grueling sales work and for significantly more money. Which is why enterprise plans cost so damn much — they’re not worth the time unless you’re recouping all your sales and support costs.
We started our business attempting to ride a particular technology wave. QR codes had exploded in Asia and were being used more and more in the US for marketing purposes. The advantages were obvious: immediate offline engagement, customer metrics and tracking, etc. For a number of reasons I won’t get into — like the fragmented nature of mobile devices in the US — QR codes never really took off in America. And while that didn’t kill our company it did require a fairly major shift in focus.
Unfortunately, we shifted focus to a product that was on its way to being obsolete.
Since we already built a mobile site platform that created mobile-optimized landing pages, we shifted focus to powering the mobile experience of existing websites that didn’t want to waste their mobile traffic. It was great in principle, but technology was working against us as responsive design was gaining traction. This meant our solution was effectively a band aid that would inevitably require another pivot.
Now I’m not discouraging making technology bets or market bets. That would be silly, since startups are effectively groups of people gambling together on precisely such bets. It’s only natural, then, that some of these will be losers. What I am saying is that you should a) make sure your bets are calculated and b) understand that your survival depends on your ability to handle losing some of your bets without losing your entire bankroll.
While our general hiring strategy was excellent (and I’ll cover that in my next post), we did shoot ourselves in the ass along the way. In fact, a single hiring mistake cost us a significant amount of time, money and frustration.
In order to break into enterprise sales and give our CEO time to actually focus on product and strategy, we had hired a seasoned sales / marketing guy from a big company and made him the highest paid member of our entire team (at ~$150k/yr) before we even had any definitive idea who we’d be selling to and what it was, exactly, that we’d be selling. After all, hiring good people takes a long time and we didn’t want to waste any.
It’s easy to test an engineer’s skill set: just ask him to solve some problems and build something. I’ve found that hiring good business people is significantly harder, especially when your sales cycle is months long. In the end, we had a cultural fit problem and a “lack of sales” problem, which took us months to discover. We wound up firing our hire about 5 months down the road— significantly later than necessary — and spending about $60k on the ordeal, not counting the time invested.
When I was younger and more naive, I used to believe that all you needed to succeed where others fail is skill and perseverance. Today I think that could only be true if perseverance means a lifetime of relentlessly spitting in the face of failure. Because, as it turns out, you could assemble a great team, build a well-designed product, raise money and still fuck it all up.
Yes, we’ve all heard that most startups fail, but it’s one thing to hear it and another to experience it first hand. Reality is a bit different from a Disney movie, a Forbes writeup, or an Aaron Sorkin flick. It’s less glitter and more grind. Less champagne and more profanity. And yet here I am again, swinging for the fences with Digsy. This time I know we’re building something people want, but the truth is that it took us over a year of chewing glass and staring into the abyss just to get there.
In my next post I’ll write about all the stuff we actually got right at my last startup and the effect it had on the company’s trajectory. If this kinda stuff tickles your pickle, then go ahead and subscribe. There’s a box right below. And at the top. And all around.
Have your own experience to share? Let’s hear it, comments below.