How One Small Scrappy Startup Is Surviving (And Growing) During The Financial Crisis
By now, most of us have read numerous blog posts predicting doom and gloom in startup land. It's the end of web 2.0, they are saying.
By now, most of us have read the now famous "RIP: Good Times" powerpoint from legendary VC firm Sequoia.
We've read stories of startups taking immediate corrective actions:
As someone who has been through layoffs before (I reduced our staff by nearly 50% in one shot at Jobster at the end of 2006 to reduce expenses and provide the company with more runway to figure things out), I know how hard this can be for everyone involved. But it's also smart and neccessary. In this financial climate, many early stage startups who have raised VC need to plan for their current round of financing being their last round of financing for quite a while. That means cutting back to the core and focusing on extending the runway as long as possible. Startups take time to figure things out. In times like these, it's all about making sure you have the runway to figure it out.
"We cut everything that wasn't outsourceable, core or absolutely necessary for the company" says Seesmic CEO, Loic Le Meur. Smart move.
A number of socialmedian users recently asked me to provide some of my perspectives on socialmedian and the current financial crisis. What follows is not meant to be gloating in any way, shape or form. Trust me, socialmedian has its own set of challenges and no company is immune to the current financial crisis. We are fortunate however that we set up socialmedian quite differently from how most startups are run, and thankfully that has put us in a very different position than most startups find themselves in today.
Back in January I wrote a blog post on 12 Lessons (I) Learned As A First Time Startup CEO. Thankfully we have followed them fairly religiously this time around.
The biggest lesson was to keep it small and focus on product, product, product above all else early on. Lesson #8 on that list back in January was:
Our model in 2008 at socialmedian has been: (1) small, (2) fast, and (3) listen to users.
From February to June our team consisted of myself (the chief product manager, customer service rep, QA guy, dishwasher, and dog walker) + 5 software developers in Pune, India. The only other significant costs we incurred was my monthly travel to Pune and some t-shirts for our early alpha users. We don't have an office in NYC. I work from my kitchen table. We didn't raise any VC money. Instead we raised small amounts of money from angel investors and a strategic partner. We raised a little bit at a time vs. one big raise. The idea there was to always keep the company resource constrained, and keep me focused on the product at hand and working with our users to make it better for them vs. on growing the team. I knew from first hand experience that having money makes you want to spend it. There's no way around that. So we kept money away from this and focused on the product.
In June we saw that 1/3rd of our invite-only alpha users were regular repeat users with high engagement levels. We spent considerable time with them and they helped us roadmap a product plan for the next 6 months. As we took socialmedian from private alpha to public beta in July, we then made a big decision to grow our development team from 5 developers to 9 developers, still in Pune. We also hired two part-time customer service interns to assist me with customer communications here in the U.S. Even with these additions we still spend well less on our product development than most startups do for the fully loaded salaries of just 3 managers in Silicon Valley. And that's an incredible value when you look at the pace and quality of product we have developed in just a few months at socialmedian. We're small and scrappy -- and really fast. We take pride in doing in a week what often takes months. We throw stuff out there and try it. We live, no LIVE, for user feedback and I spend more time engaging with our users, getting to know them, and figuring out what to build for them, than anything else. And, I still work from my kitchen table.
Besides salaries, our only additional expenses remain for T-shirts for our users (we send t-shirts to thank our users for participating in product feedback surveys) and my monthly travel to Pune to spend hands-on time with the team. We've brought on some additional financing lately from more angels and some reinvestments from our initial investors. But, we're still keeping it small. One VC asked me a month ago what I would do with $2M. I said I'd take $500k of it, give you back $1.5M, and keep doing exactly what I'm doing.
So, that's the secret to socialmedian's survival. We've got small in our DNA and we're keeping it small and scrappy and moving really fast as we listen to our users.
And, we're growing. Last week we doubled our page views vs. the week prior. We have added more registered users in the past week than in the previous 4 weeks combined. The engagement levels on socialmedian are off the chart and only increasing -- regular repeate usage is the norm, and the level of comments, clips, and discussions is increases every week over week.
Sure, it doesn't hurt that we're a news site and the campaign and the financial crisis are fueling great interest in the news. But, I attribute our growth as much to our listening to our users and building the features they want and which engage them, than to any particular news topic.
So, what's our plan for riding out the financial crisis.
1. Keep it small and focus entirely on the product and delivering features which engage our users
2. Keep it small and focus entirely on the product and delivering features which engage our users
3. Keep it small and focus entirely on the product and delivering features which engage our users
Is there risk involved here? You betcha! It doesn't take a Joe SixPack or a Joe Plumber to realize that socialmedian is still a pre-revenue company. Every month -- while we spend very little -- we still are spending and not bringing in revenues to offset the costs. Which makes keeping it small all the more important.
In future posts I'll discuss how we plan to make money at socialmedian. But, I'll also be honest that priority #1 is product and users, not revenue. If we build a great service that people love and want to use and recommend, revenues will come in time. Great consumer services typically start with growth and engagement, then revenue, not vice versa. Which again, makes keeping it small all the more important.
You see, it is all about having the runway to get the product right.
UPDATE 10/16/08 5:23 P.M.
A reporter just asked me what socialmedian's chances of success are. I told her to ask our users. I really do believe that if we continue to deliver on what our users want, this company will last and thrive.
By now, most of us have read the now famous "RIP: Good Times" powerpoint from legendary VC firm Sequoia.
We've read stories of startups taking immediate corrective actions:
- Like Seesmic laying off 1/3 of its staff (smart move!)
- Like AdBrite laying off 40% of its staff (smart move!)
- Like Jive Software laying off 1/3 of its staff (smart move!)
As someone who has been through layoffs before (I reduced our staff by nearly 50% in one shot at Jobster at the end of 2006 to reduce expenses and provide the company with more runway to figure things out), I know how hard this can be for everyone involved. But it's also smart and neccessary. In this financial climate, many early stage startups who have raised VC need to plan for their current round of financing being their last round of financing for quite a while. That means cutting back to the core and focusing on extending the runway as long as possible. Startups take time to figure things out. In times like these, it's all about making sure you have the runway to figure it out.
"We cut everything that wasn't outsourceable, core or absolutely necessary for the company" says Seesmic CEO, Loic Le Meur. Smart move.
A number of socialmedian users recently asked me to provide some of my perspectives on socialmedian and the current financial crisis. What follows is not meant to be gloating in any way, shape or form. Trust me, socialmedian has its own set of challenges and no company is immune to the current financial crisis. We are fortunate however that we set up socialmedian quite differently from how most startups are run, and thankfully that has put us in a very different position than most startups find themselves in today.
Back in January I wrote a blog post on 12 Lessons (I) Learned As A First Time Startup CEO. Thankfully we have followed them fairly religiously this time around.
The biggest lesson was to keep it small and focus on product, product, product above all else early on. Lesson #8 on that list back in January was:
In the early days, I highly recommend that you force your startup to be resource constrained. Spend as little money as possible until you get some significant product traction.That's what we have done here at socialmedian and I'm so thankful today that we resisted the urges (and VC enticements) to go bigger faster.
Our model in 2008 at socialmedian has been: (1) small, (2) fast, and (3) listen to users.
From February to June our team consisted of myself (the chief product manager, customer service rep, QA guy, dishwasher, and dog walker) + 5 software developers in Pune, India. The only other significant costs we incurred was my monthly travel to Pune and some t-shirts for our early alpha users. We don't have an office in NYC. I work from my kitchen table. We didn't raise any VC money. Instead we raised small amounts of money from angel investors and a strategic partner. We raised a little bit at a time vs. one big raise. The idea there was to always keep the company resource constrained, and keep me focused on the product at hand and working with our users to make it better for them vs. on growing the team. I knew from first hand experience that having money makes you want to spend it. There's no way around that. So we kept money away from this and focused on the product.
In June we saw that 1/3rd of our invite-only alpha users were regular repeat users with high engagement levels. We spent considerable time with them and they helped us roadmap a product plan for the next 6 months. As we took socialmedian from private alpha to public beta in July, we then made a big decision to grow our development team from 5 developers to 9 developers, still in Pune. We also hired two part-time customer service interns to assist me with customer communications here in the U.S. Even with these additions we still spend well less on our product development than most startups do for the fully loaded salaries of just 3 managers in Silicon Valley. And that's an incredible value when you look at the pace and quality of product we have developed in just a few months at socialmedian. We're small and scrappy -- and really fast. We take pride in doing in a week what often takes months. We throw stuff out there and try it. We live, no LIVE, for user feedback and I spend more time engaging with our users, getting to know them, and figuring out what to build for them, than anything else. And, I still work from my kitchen table.
Besides salaries, our only additional expenses remain for T-shirts for our users (we send t-shirts to thank our users for participating in product feedback surveys) and my monthly travel to Pune to spend hands-on time with the team. We've brought on some additional financing lately from more angels and some reinvestments from our initial investors. But, we're still keeping it small. One VC asked me a month ago what I would do with $2M. I said I'd take $500k of it, give you back $1.5M, and keep doing exactly what I'm doing.
So, that's the secret to socialmedian's survival. We've got small in our DNA and we're keeping it small and scrappy and moving really fast as we listen to our users.
And, we're growing. Last week we doubled our page views vs. the week prior. We have added more registered users in the past week than in the previous 4 weeks combined. The engagement levels on socialmedian are off the chart and only increasing -- regular repeate usage is the norm, and the level of comments, clips, and discussions is increases every week over week.
Sure, it doesn't hurt that we're a news site and the campaign and the financial crisis are fueling great interest in the news. But, I attribute our growth as much to our listening to our users and building the features they want and which engage them, than to any particular news topic.
So, what's our plan for riding out the financial crisis.
1. Keep it small and focus entirely on the product and delivering features which engage our users
2. Keep it small and focus entirely on the product and delivering features which engage our users
3. Keep it small and focus entirely on the product and delivering features which engage our users
Is there risk involved here? You betcha! It doesn't take a Joe SixPack or a Joe Plumber to realize that socialmedian is still a pre-revenue company. Every month -- while we spend very little -- we still are spending and not bringing in revenues to offset the costs. Which makes keeping it small all the more important.
In future posts I'll discuss how we plan to make money at socialmedian. But, I'll also be honest that priority #1 is product and users, not revenue. If we build a great service that people love and want to use and recommend, revenues will come in time. Great consumer services typically start with growth and engagement, then revenue, not vice versa. Which again, makes keeping it small all the more important.
You see, it is all about having the runway to get the product right.
UPDATE 10/16/08 5:23 P.M.
A reporter just asked me what socialmedian's chances of success are. I told her to ask our users. I really do believe that if we continue to deliver on what our users want, this company will last and thrive.
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Posted by jgn
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October 17, 2008 7:50 AM | Score: 0
With all due respect, when you write this: "As someone who has been through layoffs before (I reduced our staff by nearly 50% in one shot at Jobster at the end of 2006 to reduce expenses and provide the company with more runway to figure things out), I know how hard this can be for everyone involved. But it's also smart and neccessary," could you lay off the self-praise ("it's also smart"). Really, one should acknowledge over-hiring in the first place. THAT is a prior start-up mistake that causes a huge amount of woe. I.e., destroying your runway before the plane is even on the tarmac.
Over-capitalization is a big problem, too; and one has to wonder about the success model in the VC mind in general.
Here's the blog entry everyone needs to be reading: http://www.37signals.com/svn/posts/1304-sequoia-capital-armchair-quarterbacks
Indeed, the rest of your post pretty much says that the entire Jobster model of market entry was flawed to begin with. To be sure, socialmedian is a different "play," but there are companies in the Jobster space who evolved from scratch more like s-m.
A good book to read is: Mistakes Were Made. Own up to your mistakes; don't paint the past to buff your current self-image.
Posted by Jason Goldberg
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October 17, 2008 8:31 AM | Score: 0
Great link.
Yes, we ABSOLUTELY over hired in the first place at Jobster. That's a very common mistake. Having capital makes you want to spend it. Another big mistake startups make is to think you're on to something before you really are (we made that mistake at Jobster). That causes you to ramp the sales/service team ahead of the product reality.
Posted by Jason Goldberg
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October 17, 2008 8:33 AM | Score: 0
@SNV: btw, I could do a post on 100+ mistakes we made at Jobster. I'd probably get to about 200+ actually. We did some very naive and not smart things there. All lessons to learn from. And that's the beauty of capialism -- it rewards trying, learning, and trying again.