Those who know me, know I’m extremely goal orientated. In the past few years, I’ve been able to strike off a lot of personal goals including owning my dream car. However, lately I’ve been on edge and even agitated mostly because of goals I set with my 2nd startup, Compilr, over 2 years ago.
The assumptions made back in 2010 were, we would be doing over 44,000 visitors a month and have over 125,000 free users by September 2012. Amazingly, we’ve surpassed both these goals. So shouldn’t I be celebrating? The problem was our free to paid conversion ended up being lower and the ARPU was lower than anticipated.
Those two variables have dramatic effects on your bottom line. Since I have personally self-funded the company to date, those two variables had control over me. It felt like we were going to fail because we were not hitting industry standards. It was enough for me to consider shutting down the product and moving on to another product, which would have been stupid based on the fact our revenues and traffic were still increasing. I was angry, frustrated because they were not the targets we modeled the business on.
If you’ve ever considered shutting down a product, it can be extremely stressful times. You would validate to family and friends who said you should have never started it, past investors would say proudly “I really dodged a bullet there” and your team who have spent hours upon hours building the product would literally hate your guts for ever considering shutting down a product.
An experienced entrepreneur would have seen what I now see in the data months ago. Whereas I considered us a failure simply because we were not hitting industry standards. The data was clear as day, I had the baseline data. It was now up to us to continually to improve it. The patient still had a pulse.
This weekend I’ll be sharing more information about how we got out of this rut at Democamp Halifax.
I’ve been hearing over and over again to stop focusing on revenue, and to focus on user growth instead. Or, as Union Square Ventures famously puts it: “create large networks.” The core idea really makes a lot of sense.
Your biggest unfair advantage at this stage is you literally own the market.
Well, think about it. When you’re that big, nobody can touch you. Yet…
- Facebook overtook MySpace.
- Google overtook all the other search engines.
- Android overtook Symbian.
- And there are countless other examples.
So, what happened in all these cases? Speaking from a high-level, these “smaller” guys simply came in and created a more useful product while the “bigger” guys had their guard down. Facebook was much less spam-orientated then MySpace was. Google had much higher relevance than Yahoo. Symbian was just an awful mobile operating system to begin with.
The Internet makes it easy to scale your audience quickly. There are many available distribution channels that, with the right exposure, can explode your audience to 10 million users in a week. This doesn’t mean people aren’t going to compete with you. In fact, it may create much more competition as entrepreneurs see how large your audience is and how you’re sitting there with an unpolished product. This is basically what happened in all the examples above.
The core considerations for a tech startup (in my opinion) are:
- Usefulness of the product.This is number one! Don’t worry about blowing up to a million users right away. If your product isn’t useful enough, people will not pay you money for it or continue to use it. When you think of most of the products you consume, I bet you’d classify them all as useful. That cup of coffee in the morning increases your productivity. Tylenol gets rid of your headache. GitHub allows you to store your source code so you can add a new team member to a repository quickly and painlessly. Basecamp allows for organized team and project management. Yet, so many entrepreneurs build products that their audience could live without. Sean Ellis’s model of only scaling after 40% of your userbase say they cannot live without your product, is a great way to detect how useful your product is.
- Revenue. Obtaining revenue should never be of focus until you’ve built an extremely useful product and 40% say they can’t live without it. As entrepreneurs, it’s sometimes easy to delay revenue, because we’re worried we may alienate our users or we might just go raise a round of financing to give us more time or we might spend time adding more features that really add no value. But, revenue is extremely important. It lets you start re-investing into the business and it gives you a baseline number. If you don’t have revenue, you may be scrambling to raise money to keep the lights on. If you have revenue coming in, you don’t have to worry when you’re lead investor backs out when you’re trying to raise $24m. As soon as you start attempting to generate revenue, you can start extracting numbers like conversion rate, revenue per user, churn rate, and lifetime value. You have the baseline, so your team can start figuring out ways to manipulate these numbers.
- Organic Scale. This may be the least talked about area in startups, in fact I’m not sure I’ve ever heard anyone talk about it. There are some very big companies out there, which seemed to have worked really hard and just exploded over time. They can’t really articulate what happened other then they built a great product and kept improving it. Maybe it was some big change in their funnel that increased their conversion rate. Maybe it was some huge business deal that generated massive exposure. 37Signals, GitHub, and Facebook are prime examples. A lot of their growth falls under organic scale.Organic scale would be defined as:
- Recurring Revenue: requires some monthly or yearly fee for continued use
- Recurring Usage: a product that a user frequently uses and has great retention
- User-generated Marketing
Basically, if you have one of these systems in place, one of your core metrics should grow up and to the right, with very little effort. Contingent on that, your product remains useful over time. Innovation can be short lived sometimes. Implementing organic scale into all of our startups has been our prime focus in 2012.
So don’t think because you’ve grown to a million users that you’re going to be the next Instagram, when you might end up like MySpace…
A few months ago, I travelled around several tech hubs in Canada and the United States with Seedcamp. My objective on that trip was to learn about and evaluate the process of raising capital for a start-up company. I have to admit that I was hesitant to go, simply because our team is not looking to raise a round for Compilr for at least another 4-6 months.
As entrepreneurs, we are becoming increasingly better sales people. It’s easy to quickly identify the points of your business that make people say “wow” and to reinforce them to anyone you meet. Investors, on the other hand, are tough nuts to crack. It was interesting, to watch how investors interacted with our pitches. I was paying close attention to their tone, body language, and facial expressions. These investors have heard hundreds of identical stories . . . Entrepreneurs with big dreams and big numbers that mean nothing unless those numbers are compounding quickly and the product is showing signs of great usage.
During my trip, I found out a few things that you might find interesting:
- Most US investors don’t invest outside of their geographic location.
- It takes much more than a week to sit down with the Venture Capitalists (VCs) if you want to get anywhere.
- A number of VCs said the fundamentals of investing for them have changed in the last 12 months. There is a huge surplus of angels (all the recent IPOs) and startups (500 startups, Seedcamp, Y-Combinator), so now they expect a traditional startup to come to them with HUGE growth and HUGE traction.
- All you need is one investor to pull the trigger. Once one says yes, they’ll bring their friends in.
If I were to start a company today that required significant capital, my process would look something like this:
- Build a demo product, as cheaply as I could, and get a few users on board. Then I’d go out and find a technical co-founder to work on the product full time in exchange for vested equity. It works out better, in this case, for the original founder because he or she doesn’t need to give up so much equity since he already has a demo built.
- Try to raise $250K to $1m as an angel round from wealthy investors. This funding would take the rough demo and create a more polished product, moving towards a product that 40% of your userbase can’t live without. After this stage, work out the economics and optimizing my funnel as best as I could, before taking another round.
- Scale and get fat. By this point, I should have a product with a very apparent business model and clear idea of the target audience. My next step, would be to raise a much larger round to scale this business and acquire as many of that target audience as possible.
I’d only follow these steps if the market I was going after was big enough. If the market is small and the product really only has the potential of doing sub-$5m in annual revenue, I would try to hold off raising any capital for as long as I could, possibly indefinitely.
What do you think? Would you change that process at all?
Clones are laggards. They are always a few steps behind the leader. Kind of like your old elementary schoolmate, who used to copy your answers to at least achieve 80% of your grade.
Clones can only clone your product, which in reality is a very small portion of your business. They can’t clone:
- • Your marketing channels
- • Your business partners
- • Your stickiness
- • Your usage patterns
- • Your K-Factor
- • Your SEO
- • Your Loyal Customers
- • Your Conversion Rates
- • Your Sales Process
- • Your Personality
- • Your Team
Be grateful you have a clone to compare yourself against, to prove why you’re the obvious choice. If your clone ends up beating you, then you sucked at all the above and deserve to lose your title as leader.
In early 2011, I met an entrepreneur and angel investor from London, at a Starbucks in my small province. He literally just took the red-eye from London, I could tell by his blood shot eyes. He wanted to know what I was working on and I explained, an “online IDE for programmers”. I could tell immediately he didn’t know what an IDE was…
Talk about a pivotal experience. I was a programmer turned marketer, yet I still used very technical terms to describe what I was working on. The angel investor looked at me with a blank stare; he didn’t understand exactly what I was working on.
After another couple of minutes of questions, I explained and tweaked my value proposition. He finally understood what I was working, but exclaimed that I definitely need to work on my non-technical elevator pitch. Naively, I responded I’ll never need to pitch to non-technical people.
Now, I know that a non-technical pitch is critical. You may end up with non-technical investors like doctors, who will want to brag to their friends what they are investing in. You don’t want to put your doctor in a situation where they can’t explain exactly what you’re product does, killing viral potential. This is sometimes the case, because the investor is more in love with the team than the product.
After this, he explained an incubator from London was putting a session together in New York. The incubator was called Seedcamp. I’ve never heard of them before, I looked at them online, saw they had invested in a several companies and were considered a European Incubator. They definitely didn’t have any credentials like Y-Combinator or Techstars. In fact, the only acquisition that I saw, to date had been Mobclix.
I decided to apply to Seedcamp anyway since it New York was literally a 2 hour flight (I had never visited New York, gave me an excuse). Plus it was at Google’s office in New York. Our product, Compilr, was definitely potentially a product to someday be acquired by a company like Google, Microsoft, Salesforce, Facebook, and the list goes on. Any visibility I could get at this stage was definitely worth it.
Compilr was accepted to present in New York to the Seedcamp list of mentors. We presented at Google’s office in front of 100 mentors or so. Presenting in front of 100 people was definitely not on my bucket list, but I got through it. It actually has helped in a lot ways. I’m definitely not worried presenting in front of 100s of people as much as I thought.
The day after, Compilr was invited to pitch to some of Seedcamp’s core investors. The room had maybe 15 people but I was more nervous than the day before. In all honesty, I thought I blew it because I was being asked a ton of questions. I answered them all, but Carlos, one of the main guys from Seedcamp had asked a question and I got sidetracked with an answer, when someone basically said “Well, ok thanks for your time, we’ll be in touch.” I still feel like a total d-bag because I didn’t answer his question…
At this stage I became defensive in my mind, even though I hadn’t received a yes or no to their investment. In reality, I didn’t care if I received Seedcamp’s investment or not. Personally, I was funding the company out of my own pocket, almost $150,000 a year, their small investment would only really marginally accelerate my company. I was hoping to get visibility in front of the right potential acquirers.
A few weeks later, I was in total shock when Seedcamp told me they were willing to invest in Compilr. Even though, I personally felt like I blew the follow up meeting in New York. When I told several of my advisors, most of them were eager for me to take the funds. While some opposed to the idea, stating the same facts I alluded to earlier, only one successful exit, etc…
Our team decided to go ahead and take small investment from Seedcamp to use towards accelerating our business. Our end goal was that Seedcamp would present our company to potential acquirers like Facebook, Google to hopefully stimulate an exit, producing a positive ROI for them.
SIDE NOTE: When we originally pitched to Seedcamp we had 45,000 users. Today almost 5 months after we have over 75,000 users.
Here at Ninja Otter we’ve attended a number of startup conferences on a few continents, often invite other startup founders to come into the office and meet our team, and we keep a keen eye on the world’s top startup books and blogs. In doing this we’ve spotted a scary trend: some people in the startup world have begun to claim that design doesn’t matter. However, in our experience it does matter; sometimes a lot.
The “unimportance of design” seems to stem from some interpretations of the lean startup movement. These interpretations seem to take the stance that spending too much time on design unnecessarily delays product launch and iteration, which in turn delays the learning that is fundamental to building a great product. However, design can also be a driving force behind your startup’s growth, and a key factor in whether or not your startup is successful. Dave McClure, venture capitalist and founder of 500 Startups, has even gone so far to say that design (and marketing) and more important than engineering to your startup’s success.
Design and Your Conversion Rate
A few weeks ago we wrote a blog post on the importance of good logo design, and in this blog post, we want to share some of the early results this redesign has had on our conversions.
The graph above shows the number of times Wakeful has been downloaded in BlackBerry App World over the past month; the data drops to zero at the endpoints simply because there is no data selected for those dates. On the 15th of October we changed the icon that our Wakeful Talking Alarm application uses in BlackBerry App World to reflect our recently redesigned logo. Although we only have about a week’s worth of data, our downloads have increased by roughly 60% after changing the design of Wakeful’s icon.
Does this mean that a redesign will necessarily double your sales? Of course not. But…does this mean that you should be wary of startups saying design doesn’t matter? Absolutely.
When you do a redesign you might find that your conversion rate and other important metrics remain unaffected, but this doesn’t necessarily mean that your redesign was a waste of resources. Your design is the face of your startup, and integrally related to how the world’s perceives your startup, and even how your startup’s team perceives itself. When Jason Cohen tested a redesign for his company WP Engine, he didn’t see much change in his company’s key metrics. What he did see was a change in how his company was perceived both externally and internally; customers were no longer “embarrassed” to refer their friends to the website, and the company’s employees took pride in the redesign and its reflection on them.
Figure Out What Works For You
Design matters…well, most of the time. As with everything in startups you can’t take what has worked for one startup, apply it to your own, and expect to have the same results. Your startup is unique, and you always have to evaluate what may or may not be the best course of action in your own particular situation.
We just hope you’ll take a few moments to think about it the next time someone says to you “design doesn’t matter”.
A Good Logo Makes a Good First Impression
One area where Ninja Otter never cuts corners is when it comes to logo design. In many cases our logos are the first impression that our customers and partners have of our products. A good logo design may not be important to all of your customers, but these first impressions are certainly important to some.
If you’ve ever applied for a job, we’re sure you’ve heard that first impressions are often based on looks. If a highly qualified candidate arrived at her job interview wearing torn and dirty clothes, this first impression is likely to overshadow the fact that she may otherwise be well-suited for the job. In contrast if a relatively less qualified applicant arrives well dressed and well groomed, by making a positive first impression she may be selected for the job over her poorly dressed counterpart.
It’s not rocket science, but what many of today’s startups fail to take into account is that when you are asking a customer to hand over their money, you are in the exact same situation as any job applicant. You are applying for the customer’s money, and make no mistake, first impressions can be an important factor.
A beautiful logo will not convince any customer to pull out her checkbook; what’s will is communicating the value that your product has to offer. However, just as in a job interview a good first impression is an impetus to opening the channels of communication that allow you to express this value.
With this in mind, it is important to know if logo design is relevant in your specific situation.
Your Early Adopters Don’t Care
When you’re building a Minimum Viable Product, a good logo really isn’t that important. Your early adopters are more concerned with the value your product provides, and likely won’t judge you based on your logo (or website’s) design. If you need a great logo in order to convince your early adopters to try out your product, then your startup probably has a fundamental problem with its core value proposition. With early adopters, it is best to keep design considerations out of mind, and focus on opening a dialog to discuss the value your product seeks to provide.
When you move beyond early adopters, and into a more mainstream marketplace, logo and design become more important. This was the case recently with Wakeful, one of our own products. Wakeful is a smartphone alarm that wakes you up by reading aloud customized news and weather. We built a Minimum Viable Product and released it to early adopters on the BlackBerry platform, iterated on this product for several months, and released an Android version of the app last week with an iPhone version soon to follow. We have gotten to the point that we are moving beyond early adopters and into the mainstream market, and as a result, yesterday we launched a new and improved logo. It was time to shift to a mainstream market, and as a result, it was time to leverage design as a way to build a quality first impression and open the channels of communication with mainstream customers.
It May Not Be Important For You
Wakeful is a B2C product, and this was an important factor when considering the relevance of a new logo design. A logo may or may not be important in your own situation. When making the decision on whether or not you want to invest in a new logo, the important question to ask yourself is whether or not a good logo design will open relatively more channels of communication with your customers. In our case Wakeful is sold side-by-side with hundreds of thousands of other smartphone applications; a good logo helps us stand out from the crowd. Standing out from the crowd means more customers visit our product’s dedicated page in the application marketplace, opening these channels of communication, and resulting in more conversions.
In other scenarios a good logo design may not be important, and it is important to critically evaluate potential impacts in your own company’s context.
Know Your Limits
This post is being written by Ninja Otter’s in-house designer. I’m a good designer in general, but I have never designed a good logo and probably never will. Logos are my achilles heel, and many designers have told me that logos are theirs as well. If you are your team’s designer, be honest with yourself about your logo design skills. If you’re not capable of designing a great logo, outsource it to someone who is.
Above is a picture of the logo re-design that we recently released for Wakeful. We outsourced it, and the designer did a better job that I ever could.
Prove Us Wrong
If your company has seen great and/or poor results from a logo re-design, we’d like to hear about it; leave us a comment and let us know how logo design has affected your business.
Lately, I’ve noticed a scary trend with a large amount companies… If at some point I was paying for your services but recently decided to stop paying, you’re not following up to find out why!
Some of these companies we were paying $200+ a month for their services. One company we were spending six-figures a year on advertising… You’d think at least one of these companies would have immediately followed up with us to find out what happened! But most companies seem to think, oh well we lost one paying subscriber; let’s just find a new one.
This attitude needs to change! I would have loved to tell my pain points to the number of companies we’ve begun to cut out of our life in the past 6 months. However, I haven’t been given the opportunity to do so, and our team is moving on!
Follow up on your churned accounts – or die!
With A/B testing, startups map out the road to success. This is done by taking a few steps down each possible path of the company, and seeing which path produces the best results. But how many steps down that path are necessary to make that decision? In other words, how long do you need to run an A/B test before you can start to make decisions based on your results.
In our experience, if you answer that question with commonly held ideas you may very well head down the wrong path.
We’ve heard the benefits of testing completely different landing pages, so recently we ran an A/B test on the landing page of one of our products, Tether for BlackBerry & Android. We created eight unique landing pages, set up a campaign with VisualWebsiteOptimizer, and the employees placed bets on which landing page would emerge the victor and quadruple our conversion rate…well maybe not quadruple, but we certainly had high hopes.
Some of the Designs We Tested
A few days into the test Design #1 was well ahead of the game, with conversion rates more than 50% higher than our original site design, and we were almost ready to declare Design #1 the experiment’s stand-out winner. But we decided to continue running the test for a few more days in order to be absolutely sure that we wanted to implement the new design.
Within a few days the rankings had changed and Design #3 was now on top. A few days later, the rankings changed again. With the rankings varying so widely we decided to consult someone who knew their way around stats…they punched a few numbers, and it turned out that our test would have taken several months before it produced any reliable data. We decided to discontinue the test.
What We’ve Learned
Although the start-up community praises the benefits of A/B testing, almost as a religion, it is difficult to get a feel for what is involved in an A/B test before engaging in one yourself. Before beginning your test you need to understand how long a test is going to take to complete, and whether or not you are willing to hold all other variables on your site constant for that period of time. To do this you can use tools such as Visual Website Optimizer’s calculator, but keep in mind that these should be taken as guidelines and not rules.
The VisualWebsiteOptimizer Calculator
This year we are looking to hire a few new engineers to our team. As such, we need to upgrade our office space. Our current 150 square feet wasn’t cutting it. Our new office has over 500 square feet and has features such as our own conference room, blackboard wall and white board wall. On top of this, we wanted to create our own desks that will slide up and down the wall, to allow our team to stand for a few hours every day and stretch out that spine. We’ve even got a brand new Xbox 360. If you’re interested in joining our team, shoot us an email.
- Large Expectations
- Big Networks as an Unfair Advantage
- Raising Capital
- About Startup Clones
- How a Canadian Company Took an Investment From a European Incubator?
- Design Matters: And We’ve Got The Numbers to Prove It
- The Importance of a Good Logo
- Follow up on your churned accounts!
- Understanding How Long Your A/B Test Is Going To Take
- Our New Office
Ninja Otter Inc.
8 Oland Cr., Unit G2,
Bayers Lake, NS, Canada
Every piece of code we program, graphic we design, and copy we write is derived from marketing research papers from notable firms in our industry, optimizing results early on!view portfolio