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Choose your own adventure: 1) You currently have approximately $500 to $2k in revenue. That's great, because it is $500 to $2k in revenue more than the vast

by patio11 12y ago

Choose your own adventure: 1) You currently have approximately $500 to $2k in revenue. That's great, because it is $500 to $2k in revenue more than the vast majority of people will ever achieve. You need to work the numbers on whether the founding team can solo-close $100k in revenue in the next twelve months. If that appears achievable, you tighten your belts, perhaps run up larger balances on your credit cards than usual, and start solo-closing every business you can find locally. You'll spend approximately 95% of your effort in the short term on ad sales and 5% on everything else. After you can consistently keep the lights on, you're going to hire a bunch of folks who will do that job to your script on the telephone all day, every day. They will be the heart of your business. They will always be the heart of your business, for values of "always" which map to "as long as you primarily keep the lights on by convincing local businesses to buy advertising." There is a reasonably achievable path to you having a business here which closely resembles a well-run local newspaper (except you'll potentially have nationwide reach): millions of revenue, ~20% margins, etc. Much like local newspapers, it may be a not-quite-straightforward proposition to confidently say "The people who pay us get great value for their advertising spend." If your team cannot reasonably solo-close $100k in revenue by repeating your current model, which I allocate a very non-trivial percentage of the probability space to, you do not actually have a revenue model yet. I'd have a hard look at my bank account and say "Can we figure out a revenue model before I get thrown out of my apartment for non-payment of rent?" If not, you may consider winding down the business. There is no shame in this and, while you may think your current level of success is a once-in-a-lifetime opportunity, if you hypothetically believe that I would take the other side of that bet. 2) You have a very compelling pitch for getting into YC, 500 Startups, or another incubator. You have actually shipped a software product. You won't believe me when I tell you, but many, many people who you might think are better fits for incubators cannot actually ship a software product. You have also successfully demonstrated hustle, by being able to walk into a furniture store and ask them for money, which is something which is lamentably rare among people who are capable of actually shipping software products. The combination of shipping and hustle is pretty much exactly what incubators look for. This is a straightforward pathway into Door #3, in case executing on Door #3 doesn't sound straightforward to you. 3) You have all the elements necessary for raising a small seed round. You make an AngelList profile and curate it diligently. You approach a few investors privately, show them your stats and paint a rosy picture of the future ("We've potentially got Groupon's growth trajectory ahead of us! [+]"), and secure, say, three to four commitments of $25k each. You start to trend on AngelList and fill out the rest of the round, probably for $250 to $500k. (I'm unaware of what the Going Rate is for valuations at the moment -- probably mid single digit millions but ask someone who does this professionally to fill you in there.) You bump yourself up to greater-than-subsistence salaries, hire three or four people who are young and hungry, and aim to sustain those growth rates for the next 8 to 12 months. If you do, you will sail easily to Series A, on your way to creating an rather large business which may or may not resemble the one you are presently running. If you don't, your company implodes. [+] "Patrick, is that a good thing?" None of the seed stage investors in Groupon are cursing their name right now. To put it mildly.

larrys 12y ago
"you're going to hire a bunch of folks who will do that job to your script on the telephone all day, every day" Cracking this particular market without a super motivated and nicely paid phone force is really difficult. SMB are hard to get on the phone and to pitch. Over the long term of course. Anything short term is possible. I've been in this market and even purchased a company that did this where the previous owner moved out of town [1] and specifically said "you can't do this type of selling remote you have to be physically in their face". Others have done this of course but iirc they tended to be well funded and able to lose a ton of money gaining sales. (Groupon). [1] My point being he wouldn't have sold the company if it could be operated remote and that had in fact been tried by previous owners. (This was advertising to reiterate in a printed publication).
- pbreit 12y ago
  I would think 1 student-employee per school could do it. You're only going to get 20-100 advertisers per school.
  - hkmurakami 12y ago
    Lots of programs/companies have "student advocates" on their payroll for their very role. :)
    - late2part 12y ago
      This. Build students as channels. Find regional sales managers - Junior Business Majors will love this. Have the regional sales managers bring on part time sales executives in college who go to landlords, apartments, businesses, using your marketing tools and methods. You have a good chance of succeeding!
sthielen 12y ago
Hi Patrick, Thanks for the advice! I'm an avid reader of your blog, so it's cool to get feedback from someone I admire in this industry. A lot of the comments here are bringing up the question of if and _why_ we need to raise funding, which has been something we've asked ourselves (and are asking ourselves even more in light of these comments). Essentially it's a combination of necessity and validation. We're college students ourselves and we realized early on that the only way we're going to be able to make this business successful is if we treat it as a full-time job and throw everything we have at it. We all quit our actual jobs because the website needed the focus, and that isn't a sustainable path for much longer, even if we do have a couple thousand dollars revenue in the business bank account. However, I definitely have to disagree with you that this should lead us to consider closing up shop, just because we personally don't have enough funds to continue running this out of pocket until it can run itself doesn't mean the business doesn't have potential and should be abandoned. Choosing Door #1 while continuing to knock on Door #3 has always pretty much been the plan, we just don't know where to find the investors for Door #3 and that was what led me to posting here. I didn't really expect it to get so much attention, haha. And a lot of people are critiquing our business plan/strategies--which I am grateful for and do actually appreciate--but I didn't really intend for this to be an elaboration of our business and I didn't really write my OP in order to explain how everything works and what all our financials/projections are, rather I wanted advice about moving forward from here. Yes we can keep doing the same thing we're doing and slowly build (and that's what we're going to be doing), but we don't think it's unreasonable, as a tech startup, to be seeking some sort of funding in order to grow faster and more efficiently. We're actually using some of the money we've made to hire someone to come over to our house for 15 hours a week and sit on Skype and find/maintain the property listings in our database, as that's the most menial and time-consuming bottleneck we've identified. That way we can continue to focus on product dev and sales instead of having to devote a good chunk of every day to making sure the website is up to date. This should free up enough time for the three of us to take on another school, and just keep doing what we're doing. Thanks again for the advice! Sean

by patio11 12y ago

larrys 12y ago

"you're going to hire a bunch of folks who will do that job to your script on the telephone all day, every day" Cracking this particular market without a super motivated and nicely paid phone force is really difficult. SMB are hard to get on the phone and to pitch. Over the long term of course. Anything short term is possible. I've been in this market and even purchased a company that did this where the previous owner moved out of town [1] and specifically said "you can't do this type of selling remote you have to be physically in their face". Others have done this of course but iirc they tended to be well funded and able to lose a ton of money gaining sales. (Groupon). [1] My point being he wouldn't have sold the company if it could be operated remote and that had in fact been tried by previous owners. (This was advertising to reiterate in a printed publication).

pbreit 12y ago
I would think 1 student-employee per school could do it. You're only going to get 20-100 advertisers per school.
- hkmurakami 12y ago
  Lots of programs/companies have "student advocates" on their payroll for their very role. :)
  - late2part 12y ago
    This. Build students as channels. Find regional sales managers - Junior Business Majors will love this. Have the regional sales managers bring on part time sales executives in college who go to landlords, apartments, businesses, using your marketing tools and methods. You have a good chance of succeeding!

sthielen 12y ago

Hi Patrick, Thanks for the advice! I'm an avid reader of your blog, so it's cool to get feedback from someone I admire in this industry. A lot of the comments here are bringing up the question of if and _why_ we need to raise funding, which has been something we've asked ourselves (and are asking ourselves even more in light of these comments). Essentially it's a combination of necessity and validation. We're college students ourselves and we realized early on that the only way we're going to be able to make this business successful is if we treat it as a full-time job and throw everything we have at it. We all quit our actual jobs because the website needed the focus, and that isn't a sustainable path for much longer, even if we do have a couple thousand dollars revenue in the business bank account. However, I definitely have to disagree with you that this should lead us to consider closing up shop, just because we personally don't have enough funds to continue running this out of pocket until it can run itself doesn't mean the business doesn't have potential and should be abandoned. Choosing Door #1 while continuing to knock on Door #3 has always pretty much been the plan, we just don't know where to find the investors for Door #3 and that was what led me to posting here. I didn't really expect it to get so much attention, haha. And a lot of people are critiquing our business plan/strategies--which I am grateful for and do actually appreciate--but I didn't really intend for this to be an elaboration of our business and I didn't really write my OP in order to explain how everything works and what all our financials/projections are, rather I wanted advice about moving forward from here. Yes we can keep doing the same thing we're doing and slowly build (and that's what we're going to be doing), but we don't think it's unreasonable, as a tech startup, to be seeking some sort of funding in order to grow faster and more efficiently. We're actually using some of the money we've made to hire someone to come over to our house for 15 hours a week and sit on Skype and find/maintain the property listings in our database, as that's the most menial and time-consuming bottleneck we've identified. That way we can continue to focus on product dev and sales instead of having to devote a good chunk of every day to making sure the website is up to date. This should free up enough time for the three of us to take on another school, and just keep doing what we're doing. Thanks again for the advice! Sean