Making Money (at a consumer-focused startup)

Last summer I had a conversation with someone who works at one of the big tech internet giants. I mentioned that we were worried at my startup about the profit margins for one of our new products. He paused and then said something to the effect of “why do you care about making money?”.

User Growth Rules

Now, this may sound ridiculous, but I knew exactly what he was talking about. For most consumer-focused startups in Silicon Valley use tractions is typically the primary focus. In fact, these startups actively try to avoid revenue because the moment they start actually making money, they know they will be judged on that. If they don’t make any money, however, they can just focus on user growth.

In some ways this works well because you can just worry about user experience and making users happy. If you focus on revenue too early, you may do things that limit your growth.

The downside, of course, is that without revenue you are just burning through cash and that (unfortunately) won’t last forever. This is seemingly accepted as a fact of life in the valley, however, and it becomes a race to hit crazy user growth goals so you can land your next round of financing or…go out of business.

In other words, go big or go home.

Revenue Growth Rules

But, what if you don’t want to go home?

Focusing only on user growth at a consumer-focused startup will maximize your chances of going out out business quickly. The alternative is to focus instead on revenue. The great thing about this approach is that even if you don’t hit your aggressive revenue targets, you will extend your runway as a side effect. The longer you stay alive, the greater chance you will figure out your own path to success.

For this reason, I think revenue growth is almost always a better option (even at a consumer-focused startup).

Focus

This is going to be one of those posts where I recommend doing things that I don’t necessarily do all the time. However, I really want to do these things. It’s just hard.

Focus at work sounds so easy. Just work on one thing at a time. Easy, right? Well…no.

First of all, we all have to deal with distractions. Life is full of distractions. Everything and everyone is vying for our attention. Trillions of dollars are spent marketing everything from video games to pizza to getaway vacations.

Second, for most people there are things that are more important than work (ex. family). Since work is not the single most important thing in your life, it will get pushed to the side from time to time.

Finally, even when we just talk about focus at work (i.e. not including external distractions or more important family matters), most people are hard pressed to truly stick to one thing. Sometimes this is a result of our desire to please others, but the really tricky situation is when there are multiple good options.

Most startups don’t die from starving (i.e. lack of opportunity). They die from drowning (i.e. trying to do too much).

In short, you don’t know focus until you have multiple really good opportunities and you figure out a way to ignore one so you can put 100% of your focus on the other. I struggle with this all the time, but at least I am somewhat self aware about this and try to take a step back to evaluate where I am at on a regular basis. Think about it this way:

What if you had two great options and you could succeed if you placed 100% of your focus in either one, but you will fail if you try to do both at the same time?

Product vs Commodity

I love building software products, but sometimes it makes sense to treat a certain resource more like a commodity.

The definition of a commodity is a raw material like copper or primary agricultural product that can be bought and sold. There are of course many other services and businesses built on top of any commodity. For example, a manufacturer may buy a commodity (iron ore) and then sells steel beams. A builder would then buy the steel beams and sell a building. A real estate mogul may buy the building and then rent out space in the building. And so on.

ArcelorMittal (a steel company) really only cares about one thing when it buys iron ore: price. A new startup, on the other hand may evaluate many different factors when it comes to office space including intangible things like “vibe” and “network effect”. Part of the reason why co-working space renter WeWork is doing so well despite extremely high price per square foot is that they have developed a full product that appeals to young startups.

So, the big question is if you had a commodity like iron ore, should you sell it largely as is (i.e. you are selling a commodity) or should you try to transform it into something else (i.e. you are selling a product)? I think that software developers are naturally inclined to make everything a product, but the key decision point is whether the extra value you get from a transformation is worth the cost.

For example, let’s say you bought a commodity for $5. You could either sell it for $7 with $1 in costs for marketing, operations, etc. OR you could spend an extra $5 to transform it into something else that you can sell for $20. It may seem like the obvious choice is to spend the extra money and create a product you can sell at a higher price point for more profit. However, this isn’t always the right solution. The subtle thing that is often ignored here is that transformations carry risk. Markets can change and if you put yourself in a situation with a lot more overhead you may not be able to move quickly enough to avoid going in the red when your costs jump from $5 to $50.

The point here is that if you can truly make a profit off a commodity without much of a transformation, you may want to consider doing it. I love building products as much as any developer, but sometimes it may make sense to not build something complex and just expose the raw information or downstream tool without much on top of it. The contact information on GetHuman (for example, the Comcast Phone Number page) is built around a commodity. Namely, phone numbers and cheat codes for companies. We have at various times tried to turn this into a product, but nothing has been as valuable as just exposing the raw info in a very clear way. No login, no extra clicks, no downloads, no popups. Just the info the user needs in one shot.

2018 Tech Predictions

I haven’t done this for a few years, but now is as good a time as any to throw out there some technology predictions for 2018.

  1. Voice-enabled App Explosion – 2017 was an amazing year for sales of Google Home, Amazon Echo/Dot and many other voice-based devices. The ecosystem for creating apps on these devices, however, is still pretty new. However, you are starting to see some super early adopters figure things out. For example, the KAYAK app for Google Assistant is really good. Expect many more like that in 2018 along with a lot of amazing innovation in the underlying platforms. It won’t be long before getting your business on these voice-based platforms will be as important as native mobile platforms.
  2. GraphQL Gets Real – The interest surrounding GraphQL is sky high. In the 2017 State of JavaScript Survey 60% of the responders said they have heard of GraphQL and are interested in learning it (compared to only 12% that actually know it and use it today). I am a huge fan of the technology, but also the general concept of having a standard framework for the back end. I think by next year’s survey, the percent of people that use GraphQL will double or even triple. Also, as a secondary part of this prediction, I think once more people fully understand the power of the underlying concepts behind GraphQL, there will be at least one similar competing backend framework that breaks out on the scene.
  3. Machine Learning Goes Mainstream – Similar to GraphQL, the interest among developers to learn ML currently far outweighs the actual legit production usage. However, even through this past year I saw I significant change in the quality and quantity of practitioners who attended my Boston AI Meetup. The knowledge base and tooling for ML is increasing and getting better every day. For example, if you haven’t already, you should check out MachineLabs which makes it really easy for newbies to get started and for anyone to share their ML models and code.
  4. Angular Finds Its (New) Groove – While I don’t think Angular will ever dominate mindshare like it did in 2013, I do think it will pick up steam for people in two specific situations: 1) when you want to have one team that builds one app that runs on multiple platforms 2) when you would rather buy into one end-to-end solution for all aspects of frontend development instead of piecing together your own custom stack of disparate technologies. There is a lot packed into this that I will have to expand on in a future blog post.
  5. SEO Gets Even Harder to Hack – I have spent the past month focusing a lot of energy on SEO for GetHuman (after taking a couple years off). At first I was really shocked at how bad Google has gotten (compared to 3+ years ago) at picking out obvious spammers (for certain search terms). Then I started reading about how Google is starting to rely more on Google RankBrain (an AI-driven system for processing search results). It typically takes a long time and a lot of data to fine tune large, complex Machine Learning (ML) models. When you see incorrect results with a ML model, it is not always easy to get rid of those results. You have to tweak the model in small ways so that you get rid of the bad results without adversely affecting the good results. Despite this challenge, I know many amazing engineers at Google like John Mu are hard at work on this problem. By the end of 2018, I predict there will be a major breakthrough and spam (i.e. low quality search results that are often trying to make a quick buck off you) will be eliminated from most search results once again.

Daily Planning

Work stress for me doesn’t come from the quantity of work. I’ve got plenty to do and most of it needs to be done yesterday. A fact of life these days.

No, bad work stress for me comes from when I don’t have a plan. I can handle when I have a bit ToDo list, but I get super anxious when I don’t have a list regardless of how many things I need to do.

 

For this reason, I usually try to make sure I spend at least 10 minutes in the morning or the night before coming up with my daily plan. I usually already have some sort of list, but I need to go through that and adjust as appropriate. Here is an example of what my list looks like:

Pending

  • 1/11 – Patent || Waiting on lawyers to respond to our questions
  • 1/12 – Boston AI Meetup location || Waiting on response from Facebook
  • 1/12 – Peter || Gave him criteria for query; waiting to get data

Current ToDo

  • (family) Book flight to Cancun
  • (family) Call Sprint to get refund
  • (swish) Publis education video
  • (swish) Create plan for Budgeting Survey

Work Backlog

  • Update certificate
  • Security research

Family Backlog

  • Paint family room
  • Clean basement

Yes, I could put all of this in some sort of task management tool, but this list is more flexible than most tools and is meant for only the most immediate tasks you are working on. The larger backlog of tasks can live in Trello, Jira or some other formal task management tool. During those 10 minutes every morning when I am working on my daily plan, here is what I do:

  1. First, check the “Pending” section to see if there are any items with a date of today which need action. If action is needed, do it. Otherwise, ignore all the rest. Add new pending reminders here as appropriate.
  2.  Then delete anything from “Current ToDo” or any of the backlogs that no longer apply.
  3. Finally update the “Current ToDo” list with items (in order of priority) that I will try to accomplish today. This list should be reasonable, but slightly more than what I likely could accomplish in one day.

Consistency

There is a natural tendency to overthink strategy.

The term “strategy” means a plan to achieve one or more goals. In many cases, coming up with goals is the easy part. We do it naturally on a daily basis with our never-ending stream of whims, desires, dreams and aspirations. The hard part for any non-trivial goal is coming up with a strategy that motivates us to immediate action and keeps pushing us along until the goal is achieved. All too often we make plans and may even start to take some actions, but then our progress stalls. Perhaps you may even try out a few alternate strategies, but they likewise stall and you don’t get any closer to your goals. Then you give up and/or stop trying.

The problem in most cases isn’t one of strategic skill but rather our inability to perceive certain types of progress. Painfully slow progress is still progress. Failure is still progress. Literally anything that keeps us moving and active engaged in good faith (i.e. we aren’t trying to make ourselves fail) IS PROGRESS regardless of the results.

The key is consistent action.

As long as your goal isn’t physically impossible and you don’t run out of time, consistent action in good faith will eventually lead to success.

I know it can be really discouraging when, for example, you go to the gym every day to lose weight but don’t see any results after a month of hard work. Or, you work yourself to the bone at a startup for a year only for it to fail. It can be really tempting in those situations to give up.

Don’t give up.

As long as your original goal remains a priority in your life, you need to just keep plugging away and working hard. That doesn’t mean to keep doing the same thing. Consistent action doesn’t mean the same exact action. It just means taking some sort of action. Learning from previous failures and making adjustments is part of the process.

To summarize:

  1. Stop overthinking strategy and just start doing something
  2. If your current strategy isn’t working, change it quickly and then keep going
  3. Don’t stop working toward your goal until either:
    • Your goal is achieved
    • The goal is no long relevant/important
    • You are dead

Consistency is power.

Back to Work

Most people need to work in some form or fashion. Love it or hate it, work is a staple of life.

On one extreme, life is work. Everything else comes secondary. 100 hour+ weeks, little sleep, broken relationships and poor health are common.

On the other extreme, work is a necessary evil but one to be avoided whenever possible. Life is more about fun and recreational activity.

As much as I try for balance, my tendency is toward the former. However, one thing I recognize is extremely valuable is time away from work. Every time I spend a week or more away from work, I come back even more fired up and energized. I constantly forget about this and feel guilty about taking time off when it is coming up on the schedule. After it is over, though, I can’t appreciate it enough.

So, it’s a new year and its time to get back to work! Let’s do this.