6 ms·

because there are six hundred million people worldwide in your target audience, you have convinced 10,000 of them to pay you, and all told you need to spend $5

because there are six hundred million people worldwide in your target audience, you have convinced 10,000 of them to pay you, and all told you need to spend $5 on a new customer, and make $10 from a customer in a year. What, do you expect to grow organically from 10k users one year to 40k, then 160k, then 640k, and so on, hoping the market stays EXACTLY THE SAME FOR THE NEXT 8 YEARS? (Oh and you can't spend anything on development because you're rolling all the gross profit into reaching new customers.) Or, you know, do you want to speed up the process and try to get as much of the six hundred million this year as you can, while the iron is hot - and stay ahead of your competition, who will be vc-backed?

joshuahedlund 14y ago
You may have a general point, but there's a couple orders of magnitude difference between 10,000 (your example) and 8 million (the company we're discussing).
- its_so_on 14y ago
  Fair enough. Though I do think that 10k is less of a sure thing than 8 million customers. The latter proves the model a lot more efficiently, and probably gives enough data for a better overview of the market. In my example, you're actually asking the VC to speculate on what you say is the size of the market. Sure you can grow from 10k to 30k easily. The question is the size of the market you're trying to get them to invest into. Whereas, at 8 million, the question is, do you really have a model that you've proven? Or, have you been spending more on getting the customers than you can ever hope to get from them? (wihout mentioning any names!) If you're doing a good job being competitive and ensuring high customer satisfaction, it's hard to see how you can quickly grow organically from 8m to a size of market of 700m (say), if that is the size of your market, in just a couple of years. I mean, you have to be providing these customers something, and at a competitive rate. that has to cost you money. no business just explodes without any marketing or other costs to a size of 700m (say). This is where VC money comes in. in the concrete example of an 8million user organization, it would be impressive of them to get to 9m, 11m, 12.1m, 13.1m year-over-year all organically. It would be impressive of them to, profitably, get to 20m from 8m in 10 years, all organically. If, however, the size of the market is more like 200m, this is a good place for VC money instead of that 10-year plan!! Especially if competition might end up better-funded. (also see my cousin comment here - http://news.ycombinator.com/item?id=4085660 http://news.ycombinator.com/item?id=4085660)
SonicSoul 14y ago
i'm trying to follow your example, but still not sure about: " and all told you need to spend $5 on a new customer, and make $10 from a customer in a year" who is making this demand? if you're lean enough you should be able to keep growing at a more organic rate.
- its_so_on 14y ago
  sorry, I was not putting as much thought into the specific numbers as you are - or into my particular phrasing - I just tried to make the numbers round, specific, and illustrative. Use different numbers by all means. I think it's fair to say you must spend something on customer acquisition and infrastructure to service them: it's impossible to spend $50,000, get to 10k customers, and not spend another nickel but three months later you have two hundred million of them. There are a lot of variable costs and acquisition costs, even though they get factored into your total expenditure. I mean, what fixed costs does a 3-person startup actually have? 3 times 160 hours @ $0.00 per hour, i.e. the founders' time, sure, and then what? If you get to two hundred million customers, every item in your budget is much greater. I can't think of a single service that can get those customers for free, and on a paying-for-conversions rate a few bucks seemed realistic (rounded to factor in all your variable costs broken down to customers). I think though that pretty much any numbers you pick you will see that if a startup is 'taking off' it needs more money to address the money left on the table (from the rest of its proven, addressable market) if they want to do it fast. (Whiile the iron is hot, while they have momentum and maybe press coverage, while they're young and hip and new, while market conditions don't change due to unforeseen external changes, and finally before well-funded competition arrives on the scene, including from big companies who will enter if the growth holds out. Big companies don't just enter any market that has 10k customers, they might not even do market research yet, which you already have. Etc etc etc.) What startup can you think of in which if you bootstrap to $100,000 in revenue from 10k customers, and let's say miraculously have the complete $100,000 to spend, you can magically address the whole 600million person market your 10k customers are in by the end of the following year? I think that's what I meant by the word 'all told' - factor in every cost into those 10k customers. (Except your fixed costs of 3 x 160 hours @ $0, of course! And a $10 domain name.)
mappu 14y ago
Attempt at humor: 640k users should be enough for anyone.

joshuahedlund 14y ago

You may have a general point, but there's a couple orders of magnitude difference between 10,000 (your example) and 8 million (the company we're discussing).

its_so_on 14y ago
Fair enough. Though I do think that 10k is less of a sure thing than 8 million customers. The latter proves the model a lot more efficiently, and probably gives enough data for a better overview of the market. In my example, you're actually asking the VC to speculate on what you say is the size of the market. Sure you can grow from 10k to 30k easily. The question is the size of the market you're trying to get them to invest into. Whereas, at 8 million, the question is, do you really have a model that you've proven? Or, have you been spending more on getting the customers than you can ever hope to get from them? (wihout mentioning any names!) If you're doing a good job being competitive and ensuring high customer satisfaction, it's hard to see how you can quickly grow organically from 8m to a size of market of 700m (say), if that is the size of your market, in just a couple of years. I mean, you have to be providing these customers something, and at a competitive rate. that has to cost you money. no business just explodes without any marketing or other costs to a size of 700m (say). This is where VC money comes in. in the concrete example of an 8million user organization, it would be impressive of them to get to 9m, 11m, 12.1m, 13.1m year-over-year all organically. It would be impressive of them to, profitably, get to 20m from 8m in 10 years, all organically. If, however, the size of the market is more like 200m, this is a good place for VC money instead of that 10-year plan!! Especially if competition might end up better-funded. (also see my cousin comment here - http://news.ycombinator.com/item?id=4085660 http://news.ycombinator.com/item?id=4085660)

SonicSoul 14y ago

i'm trying to follow your example, but still not sure about: " and all told you need to spend $5 on a new customer, and make $10 from a customer in a year" who is making this demand? if you're lean enough you should be able to keep growing at a more organic rate.

its_so_on 14y ago
sorry, I was not putting as much thought into the specific numbers as you are - or into my particular phrasing - I just tried to make the numbers round, specific, and illustrative. Use different numbers by all means. I think it's fair to say you must spend something on customer acquisition and infrastructure to service them: it's impossible to spend $50,000, get to 10k customers, and not spend another nickel but three months later you have two hundred million of them. There are a lot of variable costs and acquisition costs, even though they get factored into your total expenditure. I mean, what fixed costs does a 3-person startup actually have? 3 times 160 hours @ $0.00 per hour, i.e. the founders' time, sure, and then what? If you get to two hundred million customers, every item in your budget is much greater. I can't think of a single service that can get those customers for free, and on a paying-for-conversions rate a few bucks seemed realistic (rounded to factor in all your variable costs broken down to customers). I think though that pretty much any numbers you pick you will see that if a startup is 'taking off' it needs more money to address the money left on the table (from the rest of its proven, addressable market) if they want to do it fast. (Whiile the iron is hot, while they have momentum and maybe press coverage, while they're young and hip and new, while market conditions don't change due to unforeseen external changes, and finally before well-funded competition arrives on the scene, including from big companies who will enter if the growth holds out. Big companies don't just enter any market that has 10k customers, they might not even do market research yet, which you already have. Etc etc etc.) What startup can you think of in which if you bootstrap to $100,000 in revenue from 10k customers, and let's say miraculously have the complete $100,000 to spend, you can magically address the whole 600million person market your 10k customers are in by the end of the following year? I think that's what I meant by the word 'all told' - factor in every cost into those 10k customers. (Except your fixed costs of 3 x 160 hours @ $0, of course! And a $10 domain name.)

mappu 14y ago

Attempt at humor: 640k users should be enough for anyone.