7 ms·

Everpix, Snapchat, and the Startup Lie

195 points by wensing 13y ago

wensing 13y ago
So what's the link between charging money and growth? P/M-fit is easier to achieve when price is $0.00, but that isn't a sustainable business model. Perhaps the ideal is achieving P/M-fit in a large market at price that moves the needle for the business (i.e. demonstrates revenue traction) but does not appear to hinder growth.
- DanielRibeiro 13y ago
  Growing Virally (where virality coefficient and cycle are really important[1]) is different than growing with Paying Users (where Lifetime Value (LTV) and Cost to aqcuire customers (CAC) is really important[2]) that its different than growing through very high retention rates[3]. You can achieve P/M fit with any of them. You can argue that you don't need growth. Which investors won't particularly like (in particular, VCs have LPs to give a return on investment[4]). But ultimately, if your company is not growing in any way, is any of your work actually making a difference? Are the people working on the company getting a return on investment on their time investment? Growth also doesn't need to be about money (or eventual money, as it can be the case if you are growing virally). Think of Khan Academy (which is a Non Profit[5]): they can grow on more people using them, and on people using them more. They can also grow on impact they have on the students. [1] http://www.forentrepreneurs.com/lessons-learnt-viral-marketing/ http://www.forentrepreneurs.com/lessons-learnt-viral-marketi... [2] http://www.forentrepreneurs.com/startup-killer/ http://www.forentrepreneurs.com/startup-killer/ [3] http://larslofgren.com/marketingbasics/the-three-engines-of-growth-with-eric-ries http://larslofgren.com/marketingbasics/the-three-engines-of-... [4] http://www.danshapiro.com/blog/2010/08/vc-insanity-economics/ http://www.danshapiro.com/blog/2010/08/vc-insanity-economics... [5] http://en.wikipedia.org/wiki/Khan_Academy http://en.wikipedia.org/wiki/Khan_Academy
joyeuse6701 13y ago
what's 6800 paying users of everpix to millions of non paying users of snapchat? snapchat has the sporadic but consistent attention of millions that has considerable value and should not be written off because it hasn't been monetized... yet
- nwh 13y ago
  There's nothing about Snapchat that is valuable. It's an app that could be thrown together in a few days, and a userbase that is fairly fleeting. If they incorporate invasive advertising, then people will just move to a clone of it. How else would you make money with the retched thing?
  - wensing 13y ago
    I've never used it. Is there not a network effect, like Facebook, where leaving is costly "because all my friends use Snapchat"? This switching cost is what ultimately allows social networks to place ads without people jumping ship.
    - nwh 13y ago
      Possibly, but the ease of moving between networks with a common hub (Facebook integration, probably) seems to make the user base fairly fluid.
  - grinich 13y ago
    People said pretty much the exact same thing about Facebook. Look how that turned out.
    - tonyedgecombe 13y ago
      People said pretty much the exact same thing about MySpace. Look how that turned out.
      - RyanZAG 13y ago
        You're right and this is the actual measured risk taken by VC in this case. It's a straight forward bet: if the horse they are better on (snapchat) is given enough of an opportunity (money) to implement far better than any potential competitor without that opporunity, then Snapchat can become a Facebook. The key differentiator between Snapchat and other competitors is that Snapchat has millions of dollars to throw at problems which, if implemented well, will give them considerable product differentiation through access to the best talent and marketing. It's a high risk gamble - welcome to VC capital - but it's the business VC is in.
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pokoleo 13y ago
While the first part covers my feelings very well about the current 'state of the nation', I'm more concerned that newly minted millionaires (not just from a recent IPO, but others too) see this as status quo as they join the Angel/VC group. This is not the trend, and making it so is very dangerous. Silicon Valley has a great opportunity to become an integral part of the resuscitation of the US economy. This is a bad time for a bubble burst. If the bubble is about to burst, smart money will start making safe bets.
spamizbad 13y ago
This wouldn't have been enough to save them, but if your AWS bill is $35,000/month, it's likely much cheaper to buy (or even lease) hardware and co-locate -- even if you factor in making 1-2 new hires to support the hardware.
- wensing 13y ago
  I'm guessing the effort to switch to a different cloud wasn't something they wanted to invest in?
  - jbverschoor 13y ago
    I'm guessing they just didn't care, because they were VC backed, and didn't understand that 2M is not that much money if you have 6 people and a storage-based hosting service.
- eikenberry 13y ago
  You underestimate the costs associated with hardware. Multiple locations, redundant tier 1 pipes, 1-2 new hires per location, etc. While you can save some money, it isn't as much as you'd think.
- steveklabnik 13y ago
  They were making enough money to pay the AWS bill; it was the salaries that were too much. They were profitable per-user, they just didn't have enough users. (by 'much' I mean volume, not amount. Developers are expensive.)
hnriot 13y ago
i'm getting tired of all these people that don't understand how the startup world works and feel like they need to write whinny blog posts about it.
- subimage 13y ago
  Yeah, I don't understand it at all. I've only been involved with startups since 1999, and run one myself. I'm a huge fraud. You've exposed me!
  - elwell 13y ago
    I don't know. In this case, I disagree. You seem to have a pretty good understanding of startups.
  - the_cat_kittles 13y ago
    real experience? cmon man, everyone knows real experience is bullshit
  - eaurouge 13y ago
    I don't know what you do or don't understand, but your post isn't entirely accurate. VCs invest in early-stage companies with strong potential for high growth. That means companies like SnapChat, yes, as well as companies like Amaranth Medical [1]. Your post takes the example of two startups in the consumer photo industry and generalizes it to startups and VCs operating across an entire spectrum of industries. That alone suggests a limited understanding of VC funding. I won't suggest taking VC funding in all (or even most) cases. But it is the right thing to do when your company's interests are aligned with the VCs. [1] http://www.mddionline.com/article/bioresorbable-stent-startup-raises-20m-series-b-round http://www.mddionline.com/article/bioresorbable-stent-startu...
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asanwal 13y ago
Yes it is fun to hate on VCs as there is a lot wrong with the model, but this article is misguided. If you want to run a business growing linearly which makes a profit, don't take VC. There is nothing wrong with that, but it doesn't fit their model. But if you take VC, go in knowing how they measure success. And it's based on mega-wins - not on profitable, dividend-paying companies. Everpix might have been a great co. They just weren't a great VC- backable biz.
- noelwelsh 13y ago
  Agree so much. Everyone getting VC investment should know they're looking for 10x return. By aiming for a $5M Series A, Everpix indicated they were expecting an exit at least in the $60M+ range. Everpix had a great business that could have easily hit $1M/yr in revenue, giving everyone a good income and a great place to work. However this wasn't the business they were trying to get funded.
- 001sky 13y ago
  They just weren't a great VC- backable biz. Can someone explain why a fund cannot be structured to make wins at the $100m level as opposed to the $1b level? Its bizarre that free money creates funds so big they need insane 1,000x deals to return a net 15-20% portfolio premium over bonds trading at (yield-equivalnt) peanuts. The problem in going for $1B's (as an investment thesis) is that these companies are outliers so extreme you are beyond lucky to predict them, and even if they show up on your radar, and you can get some edge, they are so small in number that they cannot sustain N=Large number of VCs. Its just not a strategy 200 funds (20? maybe) can pursue rationally at the same time. Or am I missing something?
  - noelwelsh 13y ago
    Those funds exist. They're smaller funds. Everpix was going to the "best" (biggest) VC funds and asking for a relatively large amount of money for a Series A. VCs typically aim for 10x return (let's keep the hyperbole out of this discussion, please) so Everpix indicated they expect a return of at least (1.5M + 5M) x 10 = 65M. Add in later rounds of funding and the ~1B goal is not unrealistic. It takes a roughly constant amount of time to do a deal, so funds have a minimum deal size below which they aren't interested.
morgante 13y ago
> 1 - PAY OUT LOWER SALARIES No self-respecting engineer should or would take $50/60k a year in the Bay Area (heck, most of the country). It's fine for founders to pay themselves that (and, indeed, they probably should) but asking employees to take that tiny salary for your dream is never going to fly.
- robryan 13y ago
  Depends on the type of business, if they are going for the get big fast model that is probably true. If they are in it for the long haul something more sustainable will prevent founders from eventually loosing motivation due to finding it hard to make ends meet.
  - deleted 13y ago
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- Qworg 13y ago
  Starting salary for engineers on average is about that level. Imagine if you took out all the Valley and NYC salaries- you'd be far closer to the above number than you'd think. http://www.forbes.com/sites/susanadams/2013/09/20/the-college-degrees-with-the-highest-starting-salaries/ http://www.forbes.com/sites/susanadams/2013/09/20/the-colleg...
- nilkn 13y ago
  This is why the Bay Area is a horrible region for a lot of startups, especially ones that plan on pursing monetization early. Few startups can afford inflated Bay Area salaries with minimal VC funding. Unless you're really capitalizing big-time on the VC culture of the Valley, it's a bad place to be for a startup--and this is illustration of that. For comparison, a $60k/year starting salary is the norm in most American cities (and it provides exactly the same lifestyle that $100k does in Silicon Valley).
  - vinceguidry 13y ago
    I would argue that the intangibles of basing in SV are probably worth more than the inflated salaries are. After all, you really shouldn't be hiring anyway until you're funded.
dm8 13y ago
Although, Everpix was great as a product it was market that killed their chances. Today, for every photo I take from iPhone it is backed to Google+ and iCloud. And then there are other platforms like Flickr etc. However, I believe Everpix had superior organization technology. But did that matter to masses? Institutional investors and VCs don't take market risks. They are willing to take risks associated with product, technology and even the team. But they never take risks with the market opportunity. In the verge article, what did they get in terms of feedback when investors passed their opportunity - "The reaction was positive for you as a team but weak in terms of whether a $B business could be built." Also, I'm surprised why didn't team focus on any other revenue streams?
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RyanZAG 13y ago
The article's main point seems to be that Everpix could have done well by paying employees well under (half?) market rates and succeeded. Maybe by handing over a lot of equity to employees (probably most of it), it may have even worked. But I think the author is missing the opportunity cost here. All of these Everpix employees could likely have easily found employment in other startups with more VC money and received twice the pay Everpix could give them. This is the market in action - we have enough of these photo sharing gimmicks already. Those employees are better used in other startups who can actually make enough money (read: fulfilling market needs better) to pay them properly, and so I think it was the right move to shut down and move on.
- subimage 13y ago
  RE: "we have enough of these photo sharing gimmicks already" RE: "I think the author is missing the opportunity cost here" The fact that there's already entrenched photo sharing kings means that you don't have to be first to market, overspend, or rush. There's no time crunch here, meaning that a great product could have been built well - over time - on budget, and still have had success. Did you even read the article? The photo storage / sharing / librarian market is HUGE. Definitely large enough to support multiple players, even marginal ones that make $3-400k/yr.
  - RyanZAG 13y ago
    Instead of paying employees half market rates, those employees can go and work on creating a VR app that could be used by millions of people, or some other opportunity. And they could receive full pay. Why should these employees need to receive half pay when there is opportunity for them to receive full pay working on a different problem? I'm sure they could make great waiters at a local restaurant and receive a livable wage, but is it the best use of the opportunities they have? I'm going to go out on a limb and assume those 6 employees were excellent given how well Everpix was run.
    - subimage 13y ago
      Who says they had to work on Everpix full-time? Again, you miss what I'm saying.
busterarm 13y ago
Unfortunately this line of thinking is pretty infectious and affects more than just the Valley's pre-IPO startups. I work for a large-ish company (will be approx 3000. employees by YE 2014) that has been public since the last tech bubble. We've run in the red for the last six years pivoting into an entirely new line of business -- essentially new investors bought an already public company and sold off the existing business to avoid having to IPO. Their exit strategy for the business is to eventually have one of our client companies buy us out. All of our contracts are structured to make such an acquisition a (from our management's perspective) sweetheart deal. Only the way we've been going about it is all wrong. Basically these "very large companies" that we work hard to land contracts with we allow to give us very unfavorable terms and to pay us below cost. This is in a market where we have only one competitor and they can't come close to providing our level of service. It's blatantly obvious that they're getting better deals at the price for service they have now while we take all of the risk/loss. We had our very first break-even quarter sometime this year (even by GAAP principles!) and the board cut everyone very big checks that put us back in the red (even by our non-GAAP principles!). Our executives are not tech executives, they're MBA-types from the retail and call center industries, but they drink the exact same Kool Aid. I think their line of thinking goes something like this: 1) We have a really awesome product. 2) We lose tons of money providing that product. (Aside: Holy shit, employees that actually are our product are expensive! We couldn't possibly afford to hire developers to make our large staff more efficient! No way! We're a technology company!) 3) ??? 4) Our customer base that we're totally supplicant to will buy us out because fairies. Eventually this is going to end in tears and 3000 very overworked people are suddenly going to be much less so.
joeblau 13y ago
Everpix got beaten by Google, Apple and Yahoo who offered free personal photo libraries. Sure the big companies don't have all of the features of Everpix, but they have the ability to instantly advertise to their 100 million user+ networks. This is why VC's always ask you what you're going to do when Google does "your idea." The thing about ephemeral messaging is that no one would trust Apple, Google, Facebook or Yahoo to actually delete your content because their business models are based on collecting and mining your data. Snapchat is in a position that could only have been achieved by being the "little guy" and no other little guys are contesting them right now.
wiradikusuma 13y ago
So, I'm trying to wrap my head around this. In order to be like Snapchat[Facebook|Twitter|and the like], you must defer monetization. But when you're starting up, cash is scarce and you need money ASAP. Since you can't always depend on getting external funding, you need to charge customers early. How do you start a business if you can't convince investor to put money in, and not allowed to receive money from customers?
- wensing 13y ago
  If you can't convince an investor like Evan Williams could, then you need to either be extremely frugal and keep your day job for a while, or quit your job and bet your life savings, or don't bother. There isn't a "bootstrap to become the Next Facebook" path.
rabino 13y ago
I'm so sad about this. I really, really love Everpix. It's one of the best photo-related startups out there.
nikcub 13y ago
There is a very good reason why investors and a lot of entrepreneurs in the consumer space tend to support free or freemium products and that is because building a paid for consumer service is extremely difficult. Reaching users is incredibly expensive (once you have the audience, you can charge others to access it - see how it works), conversion rates are low and consumers are reticent to spend. By being free your product becomes your marketing. You either have a paid product and start paying $50-500 to acquire each user, or you have a free product and pay $0.05-10 to acquire each user. You can't just cut out the free product part and magically retain the paid part, as this example does with Everpix. There is also an element of network effects in a lot of consumer business models, with a winner-takes-all (or most) landgrab. Things are entirely different in the enterprise sector, or selling to people at work.
- jacalata 13y ago
  That doesn't explain why investors wouldn't support everpix, because they did have a free product.
  - nikcub 13y ago
    The article in The Verge and Andrew's post[0] do a good job of explaining that With the amount of money they had raised, the expectation from investors was that their flywheel would already be setup and working and new funding would accelerate it (Series A being the new Series B). Media coverage of startups is all at the pointy end - companies that have raised money and are successful, most startups don't raise continuing rounds and the "Series A crunch" is real. The question should be inverted, why should Everpix get funded. Despite having a product that was loved, was free, had good word of mouth and coverage etc. they still didn't get funded. Not a unique or unusual situation, and only covered in this case (as opposed to the startups that die out quietly) since the founder was willing to speak to a journalist about it. Could it have worked with no funding, a leaner startup and as a paid product? Who knows, but I wouldn't use their freemium numbers to make that case. [0] http://andrewchen.co/2013/11/05/when-a-great-product-hits-the-funding-crunch/ http://andrewchen.co/2013/11/05/when-a-great-product-hits-th...
Tehnix 13y ago
How on earth does one spend $35,000 on hosting/storage a month? It simply baffles me that people would even consider this an option. There are so many better ways than just blindly throwing money away like this. Heck, you could buy your own servers and have a dedicated guy for it and still be off cheaper. Geez...
- dinkumthinkum 13y ago
  The echo chamber has blinders on when it comes to AWS.
  - bolder88 13y ago
    AWS isn't the issue. It's poorly engineered software. Probably using some fashionable backend, instead of tried and tested battle worn efficient software. Another example would be Reddit's mammoth hosting bill.
- TheCondor 13y ago
  Buy amazon stock...
mahyarm 13y ago
I'm wondering what was the reasoning behind not raising the price when they saw that their costs were over what they were spending.
7Figures2Commas 13y ago
I'm not sure that Everpix is the case study some are making it out to be. Yes, there were obviously things the company could have done differently, but at the end of the day, you still have a business that, according to the original Verge article, only generated ~$250,000 in subscription revenue against spend of more than $2 million. Forget headcount and payroll (both of which are arguably "modest" by Bay Area standards today): operating expenses alone exceeded revenue by $100,000. Everpix could have halved salaries and even if you mistakenly assume that the company could have attracted and retained employees talented and motivated enough to continue building a great product, it wouldn't have made a difference. If Everpix transitioned from a freemium to paid model, it wouldn't have made a difference either. Operating expenses would decrease, but user acquisition costs would almost certainly skyrocket (as nikcub points out above). Venture capital can help build great companies, and it can lead companies to pursue a high-risk growth strategy that ends in failure. But in this case, based on the numbers and story as told, it appears that we simply have a very good product that was never likely to be the foundation of a sustainable business, with or without venture capital.
- mbesto 13y ago
  > (both of which are arguably "modest" by Bay Area standards today) Not all business models and great tech companies need to be created in the Bay. Does it reduce HR risk to do so - sure, but there is an ugly side effect to this, increased risk of operating expenses.
- ssharp 13y ago
  It seems like there are two paths to sustainability in a startup: 1) Become profitable early and stay profitable. This gives you the luxury of not relying on outside investment, though the option to take funding still exists. 2) Grow, grow, grow. If you take a million dollars today and come back for more money a year from now, you need to justify that the million dollars produced something. Everpix did neither. They weren't profitable and their growth did not justify the money the took.
plus- 13y ago
Eric Ries sum it up already in the Lean Startup: Zero invites imagination, but small numbers invite questions about whether large numbers will ever materialize.
_pmf_ 13y ago
What really scares me about the US economy is that truly innovative and sustainable companies like Tesla are only possible because there's a single huge investor, and the unwashed masses of investors throw money at handwaving feel-good agencies like Facebook and Twitter.
Fuxy 13y ago
I wonder if Facebook though of becoming the next MySpace when they built their platform. I would wager not. The goal was to build something useful and they were never looking to be acquired if they were we would probably never have heard of Facebook but good look recreating the great successes with a failed paradigm.
legutierr 13y ago
For what it's worth, I emailed with the CEO of Everpix a couple of days ago to tell him that my organization may be interested in buying the app so that they wouldn't have to shut it down. All I was asking for was a telephone call to discuss the possibility, but I was denied even that opportunity. I wish I knew what was going on behind the scenes at this point that would lead to the decision not to field last-minute offers.
- smackfu 13y ago
  One of the articles mentioned they already sold some of the tech (but not the branding) to fund the orderly shutdown. Not sure what that involved, maybe just someone wanted the source code.
  - legutierr 13y ago
    That makes sense. It's too bad that the existing service wasn't part of the package.
    - smackfu 13y ago
      Ah, too late to edit my previous comment but here's the tweet: https://twitter.com/sameersundresh/status/397791703391670273 https://twitter.com/sameersundresh/status/397791703391670273
- dabeeeenster 13y ago
  You probably weren't the first, and that's why they are not responding - I would expect they are already speaking to someone...
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lmm 13y ago
There was a comment on this page that just disappeared when I tried to reply to it - not [deleted], just gone. id=6695365. And nothing obviously trollish about it to merit deleting. Database problem?
antirez 13y ago
I think it is a good idea when founders are able to always project what is going to happen with money and adapt earlier, instead of waiting to be out of money or hoping in the next round. This mindset not only saves you from early failing, also is very valuable once you turn your startup into a profitable stage.
fiatjaf 13y ago
All these heavily-funded companies just waste too much money on unnecessary bureaucracy.
jusben1369 13y ago
Interesting that this story is popular the same day Twitter goes public. Twitter didn't focus on revenues or profits early. Twitter didn't take months and months to get to market and agonize over every product look and feel decision. Twitter made it's early investors billions of dollars. Twitter is a household name. Twitter may or may not end up generating billions from mobile. FB certainly showed it can once that became critical.
wellboy 13y ago
The crux is that this blog post compares Everpix with 55,000 users to Snapchat with 26M users and them having been around for the same amount of time. See the crux?
kmfrk 13y ago
Path is another interesting example. They seem to be circling the drain right now, but they might still be able to raise funding at a flat valuation (same valuation as last time).
websitescenes 13y ago
I am really starting to dislike this approach to building tech companies. I have been speaking out about it too. There are too many startups that have no real value besides the fact that someone has invested in them. The cycle is: fund a company, make it appear successful so others invest in it, cash out and let it fail. 99% of startups will never be as big as facebook and it's ridiculous to treat them the same. Silicon Valley is really strewing shit up for the rest of us. I want a long term, viable career and all venture capitalists seem to be interested in is mining wealth from the industry until it's dead. Essentially every company that is propped up by investment is a small bubble ready to burst. There should be a law against investing so much money in otherwise worthless ventures. It's not a level playing field and it's barely a free market. I have to go with crappy companies because the good ones were put out of business by bloated subpar startups. I don't always want something new. I want things with long term value and use ability. Don't get me wrong. I apply for funding in ycombinator an others but it's not because I believe in what you do, it's because I want your money. Money equals power and I want to change some stuff.

195 points by wensing 13y ago

So what's the link between charging money and growth? P/M-fit is easier to achieve when price is $0.00, but that isn't a sustainable business model. Perhaps the ideal is achieving P/M-fit in a large market at price that moves the needle for the business (i.e. demonstrates revenue traction) but does not appear to hinder growth.

DanielRibeiro 13y ago
Growing Virally (where virality coefficient and cycle are really important[1]) is different than growing with Paying Users (where Lifetime Value (LTV) and Cost to aqcuire customers (CAC) is really important[2]) that its different than growing through very high retention rates[3]. You can achieve P/M fit with any of them. You can argue that you don't need growth. Which investors won't particularly like (in particular, VCs have LPs to give a return on investment[4]). But ultimately, if your company is not growing in any way, is any of your work actually making a difference? Are the people working on the company getting a return on investment on their time investment? Growth also doesn't need to be about money (or eventual money, as it can be the case if you are growing virally). Think of Khan Academy (which is a Non Profit[5]): they can grow on more people using them, and on people using them more. They can also grow on impact they have on the students. [1] http://www.forentrepreneurs.com/lessons-learnt-viral-marketing/ http://www.forentrepreneurs.com/lessons-learnt-viral-marketi... [2] http://www.forentrepreneurs.com/startup-killer/ http://www.forentrepreneurs.com/startup-killer/ [3] http://larslofgren.com/marketingbasics/the-three-engines-of-growth-with-eric-ries http://larslofgren.com/marketingbasics/the-three-engines-of-... [4] http://www.danshapiro.com/blog/2010/08/vc-insanity-economics/ http://www.danshapiro.com/blog/2010/08/vc-insanity-economics... [5] http://en.wikipedia.org/wiki/Khan_Academy http://en.wikipedia.org/wiki/Khan_Academy

joyeuse6701 13y ago

what's 6800 paying users of everpix to millions of non paying users of snapchat? snapchat has the sporadic but consistent attention of millions that has considerable value and should not be written off because it hasn't been monetized... yet

nwh 13y ago
There's nothing about Snapchat that is valuable. It's an app that could be thrown together in a few days, and a userbase that is fairly fleeting. If they incorporate invasive advertising, then people will just move to a clone of it. How else would you make money with the retched thing?
- wensing 13y ago
  I've never used it. Is there not a network effect, like Facebook, where leaving is costly "because all my friends use Snapchat"? This switching cost is what ultimately allows social networks to place ads without people jumping ship.
  - nwh 13y ago
    Possibly, but the ease of moving between networks with a common hub (Facebook integration, probably) seems to make the user base fairly fluid.
- grinich 13y ago
  People said pretty much the exact same thing about Facebook. Look how that turned out.
  - tonyedgecombe 13y ago
    People said pretty much the exact same thing about MySpace. Look how that turned out.
    - RyanZAG 13y ago
      You're right and this is the actual measured risk taken by VC in this case. It's a straight forward bet: if the horse they are better on (snapchat) is given enough of an opportunity (money) to implement far better than any potential competitor without that opporunity, then Snapchat can become a Facebook. The key differentiator between Snapchat and other competitors is that Snapchat has millions of dollars to throw at problems which, if implemented well, will give them considerable product differentiation through access to the best talent and marketing. It's a high risk gamble - welcome to VC capital - but it's the business VC is in.

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pokoleo 13y ago

While the first part covers my feelings very well about the current 'state of the nation', I'm more concerned that newly minted millionaires (not just from a recent IPO, but others too) see this as status quo as they join the Angel/VC group. This is not the trend, and making it so is very dangerous. Silicon Valley has a great opportunity to become an integral part of the resuscitation of the US economy. This is a bad time for a bubble burst. If the bubble is about to burst, smart money will start making safe bets.

spamizbad 13y ago

This wouldn't have been enough to save them, but if your AWS bill is $35,000/month, it's likely much cheaper to buy (or even lease) hardware and co-locate -- even if you factor in making 1-2 new hires to support the hardware.

wensing 13y ago
I'm guessing the effort to switch to a different cloud wasn't something they wanted to invest in?
- jbverschoor 13y ago
  I'm guessing they just didn't care, because they were VC backed, and didn't understand that 2M is not that much money if you have 6 people and a storage-based hosting service.
eikenberry 13y ago
You underestimate the costs associated with hardware. Multiple locations, redundant tier 1 pipes, 1-2 new hires per location, etc. While you can save some money, it isn't as much as you'd think.
steveklabnik 13y ago
They were making enough money to pay the AWS bill; it was the salaries that were too much. They were profitable per-user, they just didn't have enough users. (by 'much' I mean volume, not amount. Developers are expensive.)

hnriot 13y ago

i'm getting tired of all these people that don't understand how the startup world works and feel like they need to write whinny blog posts about it.

subimage 13y ago
Yeah, I don't understand it at all. I've only been involved with startups since 1999, and run one myself. I'm a huge fraud. You've exposed me!
- elwell 13y ago
  I don't know. In this case, I disagree. You seem to have a pretty good understanding of startups.
- the_cat_kittles 13y ago
  real experience? cmon man, everyone knows real experience is bullshit
- eaurouge 13y ago
  I don't know what you do or don't understand, but your post isn't entirely accurate. VCs invest in early-stage companies with strong potential for high growth. That means companies like SnapChat, yes, as well as companies like Amaranth Medical [1]. Your post takes the example of two startups in the consumer photo industry and generalizes it to startups and VCs operating across an entire spectrum of industries. That alone suggests a limited understanding of VC funding. I won't suggest taking VC funding in all (or even most) cases. But it is the right thing to do when your company's interests are aligned with the VCs. [1] http://www.mddionline.com/article/bioresorbable-stent-startup-raises-20m-series-b-round http://www.mddionline.com/article/bioresorbable-stent-startu...

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asanwal 13y ago

Yes it is fun to hate on VCs as there is a lot wrong with the model, but this article is misguided. If you want to run a business growing linearly which makes a profit, don't take VC. There is nothing wrong with that, but it doesn't fit their model. But if you take VC, go in knowing how they measure success. And it's based on mega-wins - not on profitable, dividend-paying companies. Everpix might have been a great co. They just weren't a great VC- backable biz.

noelwelsh 13y ago
Agree so much. Everyone getting VC investment should know they're looking for 10x return. By aiming for a $5M Series A, Everpix indicated they were expecting an exit at least in the $60M+ range. Everpix had a great business that could have easily hit $1M/yr in revenue, giving everyone a good income and a great place to work. However this wasn't the business they were trying to get funded.
001sky 13y ago
They just weren't a great VC- backable biz. Can someone explain why a fund cannot be structured to make wins at the $100m level as opposed to the $1b level? Its bizarre that free money creates funds so big they need insane 1,000x deals to return a net 15-20% portfolio premium over bonds trading at (yield-equivalnt) peanuts. The problem in going for $1B's (as an investment thesis) is that these companies are outliers so extreme you are beyond lucky to predict them, and even if they show up on your radar, and you can get some edge, they are so small in number that they cannot sustain N=Large number of VCs. Its just not a strategy 200 funds (20? maybe) can pursue rationally at the same time. Or am I missing something?
- noelwelsh 13y ago
  Those funds exist. They're smaller funds. Everpix was going to the "best" (biggest) VC funds and asking for a relatively large amount of money for a Series A. VCs typically aim for 10x return (let's keep the hyperbole out of this discussion, please) so Everpix indicated they expect a return of at least (1.5M + 5M) x 10 = 65M. Add in later rounds of funding and the ~1B goal is not unrealistic. It takes a roughly constant amount of time to do a deal, so funds have a minimum deal size below which they aren't interested.

morgante 13y ago

> 1 - PAY OUT LOWER SALARIES No self-respecting engineer should or would take $50/60k a year in the Bay Area (heck, most of the country). It's fine for founders to pay themselves that (and, indeed, they probably should) but asking employees to take that tiny salary for your dream is never going to fly.

robryan 13y ago
Depends on the type of business, if they are going for the get big fast model that is probably true. If they are in it for the long haul something more sustainable will prevent founders from eventually loosing motivation due to finding it hard to make ends meet.
- deleted 13y ago
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Qworg 13y ago
Starting salary for engineers on average is about that level. Imagine if you took out all the Valley and NYC salaries- you'd be far closer to the above number than you'd think. http://www.forbes.com/sites/susanadams/2013/09/20/the-college-degrees-with-the-highest-starting-salaries/ http://www.forbes.com/sites/susanadams/2013/09/20/the-colleg...
nilkn 13y ago
This is why the Bay Area is a horrible region for a lot of startups, especially ones that plan on pursing monetization early. Few startups can afford inflated Bay Area salaries with minimal VC funding. Unless you're really capitalizing big-time on the VC culture of the Valley, it's a bad place to be for a startup--and this is illustration of that. For comparison, a $60k/year starting salary is the norm in most American cities (and it provides exactly the same lifestyle that $100k does in Silicon Valley).
- vinceguidry 13y ago
  I would argue that the intangibles of basing in SV are probably worth more than the inflated salaries are. After all, you really shouldn't be hiring anyway until you're funded.

dm8 13y ago

Although, Everpix was great as a product it was market that killed their chances. Today, for every photo I take from iPhone it is backed to Google+ and iCloud. And then there are other platforms like Flickr etc. However, I believe Everpix had superior organization technology. But did that matter to masses? Institutional investors and VCs don't take market risks. They are willing to take risks associated with product, technology and even the team. But they never take risks with the market opportunity. In the verge article, what did they get in terms of feedback when investors passed their opportunity - "The reaction was positive for you as a team but weak in terms of whether a $B business could be built." Also, I'm surprised why didn't team focus on any other revenue streams?

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RyanZAG 13y ago

The article's main point seems to be that Everpix could have done well by paying employees well under (half?) market rates and succeeded. Maybe by handing over a lot of equity to employees (probably most of it), it may have even worked. But I think the author is missing the opportunity cost here. All of these Everpix employees could likely have easily found employment in other startups with more VC money and received twice the pay Everpix could give them. This is the market in action - we have enough of these photo sharing gimmicks already. Those employees are better used in other startups who can actually make enough money (read: fulfilling market needs better) to pay them properly, and so I think it was the right move to shut down and move on.

subimage 13y ago
RE: "we have enough of these photo sharing gimmicks already" RE: "I think the author is missing the opportunity cost here" The fact that there's already entrenched photo sharing kings means that you don't have to be first to market, overspend, or rush. There's no time crunch here, meaning that a great product could have been built well - over time - on budget, and still have had success. Did you even read the article? The photo storage / sharing / librarian market is HUGE. Definitely large enough to support multiple players, even marginal ones that make $3-400k/yr.
- RyanZAG 13y ago
  Instead of paying employees half market rates, those employees can go and work on creating a VR app that could be used by millions of people, or some other opportunity. And they could receive full pay. Why should these employees need to receive half pay when there is opportunity for them to receive full pay working on a different problem? I'm sure they could make great waiters at a local restaurant and receive a livable wage, but is it the best use of the opportunities they have? I'm going to go out on a limb and assume those 6 employees were excellent given how well Everpix was run.
  - subimage 13y ago
    Who says they had to work on Everpix full-time? Again, you miss what I'm saying.

busterarm 13y ago

Unfortunately this line of thinking is pretty infectious and affects more than just the Valley's pre-IPO startups. I work for a large-ish company (will be approx 3000. employees by YE 2014) that has been public since the last tech bubble. We've run in the red for the last six years pivoting into an entirely new line of business -- essentially new investors bought an already public company and sold off the existing business to avoid having to IPO. Their exit strategy for the business is to eventually have one of our client companies buy us out. All of our contracts are structured to make such an acquisition a (from our management's perspective) sweetheart deal. Only the way we've been going about it is all wrong. Basically these "very large companies" that we work hard to land contracts with we allow to give us very unfavorable terms and to pay us below cost. This is in a market where we have only one competitor and they can't come close to providing our level of service. It's blatantly obvious that they're getting better deals at the price for service they have now while we take all of the risk/loss. We had our very first break-even quarter sometime this year (even by GAAP principles!) and the board cut everyone very big checks that put us back in the red (even by our non-GAAP principles!). Our executives are not tech executives, they're MBA-types from the retail and call center industries, but they drink the exact same Kool Aid. I think their line of thinking goes something like this: 1) We have a really awesome product. 2) We lose tons of money providing that product. (Aside: Holy shit, employees that actually are our product are expensive! We couldn't possibly afford to hire developers to make our large staff more efficient! No way! We're a technology company!) 3) ??? 4) Our customer base that we're totally supplicant to will buy us out because fairies. Eventually this is going to end in tears and 3000 very overworked people are suddenly going to be much less so.

joeblau 13y ago

Everpix got beaten by Google, Apple and Yahoo who offered free personal photo libraries. Sure the big companies don't have all of the features of Everpix, but they have the ability to instantly advertise to their 100 million user+ networks. This is why VC's always ask you what you're going to do when Google does "your idea." The thing about ephemeral messaging is that no one would trust Apple, Google, Facebook or Yahoo to actually delete your content because their business models are based on collecting and mining your data. Snapchat is in a position that could only have been achieved by being the "little guy" and no other little guys are contesting them right now.

wiradikusuma 13y ago

So, I'm trying to wrap my head around this. In order to be like Snapchat[Facebook|Twitter|and the like], you must defer monetization. But when you're starting up, cash is scarce and you need money ASAP. Since you can't always depend on getting external funding, you need to charge customers early. How do you start a business if you can't convince investor to put money in, and not allowed to receive money from customers?

wensing 13y ago
If you can't convince an investor like Evan Williams could, then you need to either be extremely frugal and keep your day job for a while, or quit your job and bet your life savings, or don't bother. There isn't a "bootstrap to become the Next Facebook" path.

rabino 13y ago

I'm so sad about this. I really, really love Everpix. It's one of the best photo-related startups out there.

nikcub 13y ago

There is a very good reason why investors and a lot of entrepreneurs in the consumer space tend to support free or freemium products and that is because building a paid for consumer service is extremely difficult. Reaching users is incredibly expensive (once you have the audience, you can charge others to access it - see how it works), conversion rates are low and consumers are reticent to spend. By being free your product becomes your marketing. You either have a paid product and start paying $50-500 to acquire each user, or you have a free product and pay $0.05-10 to acquire each user. You can't just cut out the free product part and magically retain the paid part, as this example does with Everpix. There is also an element of network effects in a lot of consumer business models, with a winner-takes-all (or most) landgrab. Things are entirely different in the enterprise sector, or selling to people at work.

jacalata 13y ago
That doesn't explain why investors wouldn't support everpix, because they did have a free product.
- nikcub 13y ago
  The article in The Verge and Andrew's post[0] do a good job of explaining that With the amount of money they had raised, the expectation from investors was that their flywheel would already be setup and working and new funding would accelerate it (Series A being the new Series B). Media coverage of startups is all at the pointy end - companies that have raised money and are successful, most startups don't raise continuing rounds and the "Series A crunch" is real. The question should be inverted, why should Everpix get funded. Despite having a product that was loved, was free, had good word of mouth and coverage etc. they still didn't get funded. Not a unique or unusual situation, and only covered in this case (as opposed to the startups that die out quietly) since the founder was willing to speak to a journalist about it. Could it have worked with no funding, a leaner startup and as a paid product? Who knows, but I wouldn't use their freemium numbers to make that case. [0] http://andrewchen.co/2013/11/05/when-a-great-product-hits-the-funding-crunch/ http://andrewchen.co/2013/11/05/when-a-great-product-hits-th...

Tehnix 13y ago

How on earth does one spend $35,000 on hosting/storage a month? It simply baffles me that people would even consider this an option. There are so many better ways than just blindly throwing money away like this. Heck, you could buy your own servers and have a dedicated guy for it and still be off cheaper. Geez...

dinkumthinkum 13y ago
The echo chamber has blinders on when it comes to AWS.
- bolder88 13y ago
  AWS isn't the issue. It's poorly engineered software. Probably using some fashionable backend, instead of tried and tested battle worn efficient software. Another example would be Reddit's mammoth hosting bill.
TheCondor 13y ago
Buy amazon stock...

mahyarm 13y ago

I'm wondering what was the reasoning behind not raising the price when they saw that their costs were over what they were spending.

7Figures2Commas 13y ago

I'm not sure that Everpix is the case study some are making it out to be. Yes, there were obviously things the company could have done differently, but at the end of the day, you still have a business that, according to the original Verge article, only generated ~$250,000 in subscription revenue against spend of more than $2 million. Forget headcount and payroll (both of which are arguably "modest" by Bay Area standards today): operating expenses alone exceeded revenue by $100,000. Everpix could have halved salaries and even if you mistakenly assume that the company could have attracted and retained employees talented and motivated enough to continue building a great product, it wouldn't have made a difference. If Everpix transitioned from a freemium to paid model, it wouldn't have made a difference either. Operating expenses would decrease, but user acquisition costs would almost certainly skyrocket (as nikcub points out above). Venture capital can help build great companies, and it can lead companies to pursue a high-risk growth strategy that ends in failure. But in this case, based on the numbers and story as told, it appears that we simply have a very good product that was never likely to be the foundation of a sustainable business, with or without venture capital.

mbesto 13y ago
> (both of which are arguably "modest" by Bay Area standards today) Not all business models and great tech companies need to be created in the Bay. Does it reduce HR risk to do so - sure, but there is an ugly side effect to this, increased risk of operating expenses.
ssharp 13y ago
It seems like there are two paths to sustainability in a startup: 1) Become profitable early and stay profitable. This gives you the luxury of not relying on outside investment, though the option to take funding still exists. 2) Grow, grow, grow. If you take a million dollars today and come back for more money a year from now, you need to justify that the million dollars produced something. Everpix did neither. They weren't profitable and their growth did not justify the money the took.

plus- 13y ago

Eric Ries sum it up already in the Lean Startup: Zero invites imagination, but small numbers invite questions about whether large numbers will ever materialize.

_pmf_ 13y ago

What really scares me about the US economy is that truly innovative and sustainable companies like Tesla are only possible because there's a single huge investor, and the unwashed masses of investors throw money at handwaving feel-good agencies like Facebook and Twitter.

Fuxy 13y ago

I wonder if Facebook though of becoming the next MySpace when they built their platform. I would wager not. The goal was to build something useful and they were never looking to be acquired if they were we would probably never have heard of Facebook but good look recreating the great successes with a failed paradigm.

legutierr 13y ago

For what it's worth, I emailed with the CEO of Everpix a couple of days ago to tell him that my organization may be interested in buying the app so that they wouldn't have to shut it down. All I was asking for was a telephone call to discuss the possibility, but I was denied even that opportunity. I wish I knew what was going on behind the scenes at this point that would lead to the decision not to field last-minute offers.

smackfu 13y ago
One of the articles mentioned they already sold some of the tech (but not the branding) to fund the orderly shutdown. Not sure what that involved, maybe just someone wanted the source code.
- legutierr 13y ago
  That makes sense. It's too bad that the existing service wasn't part of the package.
  - smackfu 13y ago
    Ah, too late to edit my previous comment but here's the tweet: https://twitter.com/sameersundresh/status/397791703391670273 https://twitter.com/sameersundresh/status/397791703391670273
dabeeeenster 13y ago
You probably weren't the first, and that's why they are not responding - I would expect they are already speaking to someone...

deleted 13y ago

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lmm 13y ago

There was a comment on this page that just disappeared when I tried to reply to it - not [deleted], just gone. id=6695365. And nothing obviously trollish about it to merit deleting. Database problem?

antirez 13y ago

I think it is a good idea when founders are able to always project what is going to happen with money and adapt earlier, instead of waiting to be out of money or hoping in the next round. This mindset not only saves you from early failing, also is very valuable once you turn your startup into a profitable stage.

fiatjaf 13y ago

All these heavily-funded companies just waste too much money on unnecessary bureaucracy.

jusben1369 13y ago

Interesting that this story is popular the same day Twitter goes public. Twitter didn't focus on revenues or profits early. Twitter didn't take months and months to get to market and agonize over every product look and feel decision. Twitter made it's early investors billions of dollars. Twitter is a household name. Twitter may or may not end up generating billions from mobile. FB certainly showed it can once that became critical.

wellboy 13y ago

The crux is that this blog post compares Everpix with 55,000 users to Snapchat with 26M users and them having been around for the same amount of time. See the crux?

kmfrk 13y ago

Path is another interesting example. They seem to be circling the drain right now, but they might still be able to raise funding at a flat valuation (same valuation as last time).

websitescenes 13y ago

I am really starting to dislike this approach to building tech companies. I have been speaking out about it too. There are too many startups that have no real value besides the fact that someone has invested in them. The cycle is: fund a company, make it appear successful so others invest in it, cash out and let it fail. 99% of startups will never be as big as facebook and it's ridiculous to treat them the same. Silicon Valley is really strewing shit up for the rest of us. I want a long term, viable career and all venture capitalists seem to be interested in is mining wealth from the industry until it's dead. Essentially every company that is propped up by investment is a small bubble ready to burst. There should be a law against investing so much money in otherwise worthless ventures. It's not a level playing field and it's barely a free market. I have to go with crappy companies because the good ones were put out of business by bloated subpar startups. I don't always want something new. I want things with long term value and use ability. Don't get me wrong. I apply for funding in ycombinator an others but it's not because I believe in what you do, it's because I want your money. Money equals power and I want to change some stuff.