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Building Your First Profitable Startup (layeredthoughts.com)
187 points by dchuk on June 29, 2012 | hide | past | web | favorite | 49 comments

This article is not using a correct definition of "scalable".

A business that needs more staff to service more customers is still scalable, as long as each staff member generates more revenue than they cost. McDonalds is awesomely scalable.

If you insist on limiting yourself to zero-touch businesses, you'll find yourself competing with all the other geeks who are afraid to go out and sell and build business relationships. On the other hand, if you're willing to build high-touch relationships, you'll discover opportunities that you would have never otherwise found.

Agreed. We just started sending an email to anyone who signs up for a free trial for our software asking when they're free for a one-on-one phone demo. This has increased sales more than anything else we've ever done, and the amount of time it takes is easily worth it.

Sure, it's a bummer that we'll have to hire a few more customer service people as we grow, but it's much better than the alternative. You open up so many opportunities by being willing to do something as simple as talking to someone on the phone.

I think you're unjustly attacking solo businesses by saying that we're a bunch of geeks afraid to talk to people.

You can definitely scale in headcount and try to build a Freshbooks or Harvest and have millions a year in revenue, or build a business that requires touchy sales and commission payments. Or you can be like Amy and Thomas with Freckle and have a very minimal organization that nets a few hundred thousand.

It's a lifestyle choice, and neither approach is the "right" one.

I'm afraid to report that you have also abused the term "scalable". You have instead described something normally called the Marginal Product of Labour (MPL). I believe the claim in the OP is to the effect that Groupon's MPL is flat or even declining and have to concur with the assessment that a high-touch business model requires huge technological support to remain competitive.

Indeed your own example, McDonalds, is a prime example of this. They are not particularly notable as a human business, rather they represent a case study in very high efficiency supply chain management and process optimisation.

I don't disagree that a strong and skilled front line enables enduring customer relationships and opens many doors. But the recommendation - to do so with a clear eye for efficient processes & systems - is exceedingly sound.

I thought McDonalds was a real estate and leasing company? McDonalds only owns about 15% of its restaurants, it doesn't have as many employees as you think.

This simply highlights how efficient they are. The franchise operators are subject to the same systems & processes irrespective of ownership.

One thing I'd like to add to this from my own experience is: The trick is to Just do it.

Lately, I've seen this trend when guys are waay to concerned over which language, platform, etc to use. Will it be Coffeescript or Javascript, CSS or Less, Apache or nGinx, PHP or Python, Mysql or MemSQL, and on and on.

At least in my own experience it doesn't matter that much, but what matters most is that you pick something (if it's your first startup it has to be something fast + easy) and you stick with it with just one goal: you get the first version out of the door as soon as possible and start collecting leads.

Because funny thing is, your lead does not care how you're inserting him into the database as long as you do it okay. But if you waste a month deliberating the perfect tools the time you've lost has been lost forever. The same time you could have spend converting those leads into paying customers, getting your site in Google, marketing, etc are all a month behind (even worse sometimes due to analysis paralysis you get either too busy learning something or too bored with the idea that you may never finish).

And this is 100% correct. Nobody cares about technology while it works from the customer perspective and gives you enough momentum to evolve your product.

A great set of hints was also given by JHH in his widely known presentation: http://www.youtube.com/watch?v=0CDXJ6bMkMY (but still so valid!)

And as evidence, I present the current contents of the posted link:

Bandwidth Limit Exceeded

The server is temporarily unable to service your request due to the site owner reaching his/her bandwidth limit. Please try again later.

One thing I'm having trouble with (that I haven't seen mentioned anywhere) is getting alpha testers. I'm building extensible analytics software (www.instahero.com, not all ready yet), and I need people who could use something like that, but I haven't been able to find any.

You can't try marketing at this stage (people will expect something that works) and all the people I know are at least slightly out of the target market.

Maybe it all comes down to having a good network... If anyone would like to try Instahero (even for very custom stuff, like hardware sensor tracking), get in touch with me (info is in my profile) and I'll set you up.

Actually, you can market before you've written a line of code. Ideally you've figured out some pain point that Instahero will solve, so why not pitch that? "X sucks, and we're doing something about it"

Write a sales letter. A great example can be found here: http://charmhq.com/ Start collecting email addresses, and send a lot of mail keeping everyone abreast of your progress.

Blog a lot, either with product updates or educational posts about all things analytics. Check out http://greatemailcopy.tumblr.com/ and http://customer.io/blog, both of which are helping promote a non-released product.

My network is pitiful, yet I was able to get 300+ emails on my announcement list before launching. And when I flipped the switch, about 1/3rd of the list signed up within a day.

Can you please tell us about your product where you got 300 people on you pre-launch list? How you promoted it - simply through blogging? I"m doing pretty much the same thing right now and wondering how to attract people to my landing pages for my pre-launch product ideas.

These are amazing ideas, thanks. I was thinking that I could only do that after I've launched, but, as you say, there's really no reason to delay it. Especially with blogging, where I can still offer insight without having signups open.

Thanks again!

Just be sure to have a call to action encouraging people to join your mailing list at the end of each blog post. Cheers :-)

You NEED a free forever plan, especially if you're in alpha. Do something like MailChimp where you get a low number of monthly 'credits', and when websites gain traffic if they're getting value from your product they will upgrade. The other thing this does is gets you a lot of 'leads' -- people who are clearly interested in your product and already have it on their site. You can send a monthly newsletter reminding them of all the great features that come with the paid plan and stay in the back of their mind. (You can always kill the free plan if it's costing you a ton of money)

If you set a precedent that your product is free, no one who's signed up will ever pay for it.

Charge right away.

This is true, except when it's false. Stormpulse was free for years and is now collecting subscription revenues from customers that used to be free users. And they are not the slightest bit angry about paying.

OP here, I actually have another post with my opinions on freemium versus free trials: http://www.layeredthoughts.com/startups/the-psychological-di...

I would argue against a 'free forever' plan. Free customers end up costing you more time and energy and are far more fickle than paying ones.

If you've created something good that serves a valuable purpose, it's worth charging for it.

Yep, that's planned but it's not ready for the general public yet (otherwise I would be less reticent about advertising it). Right now it needs some users who will help guide development, lean-style.

You can use Amazon Mechanical Turk [1] or TryMyUI.com [2] (I even wrote a review about them [3]).

[1] - https://www.mturk.com/

[2] - http://www.trymyui.com/

[3] - http://www.dailywebapps.com/trymyui-com-remote-usability-tes...

Thanks for the resources, unfortunately I need people who will give me more hands-on feedback about using the product, how it fulfils their needs, what else they need, etc.

Those sites are great for what they do, but my case is a bit more involved...

Feel free to add me to the list -- email is in my profile.

Thanks! I've emailed you.

Really like the design of the landing page. looks clean and even works in IE7 :).

Thanks! Credit for that goes to twitter, as it's just customized Bootstrap.

Hey I'm the OP: Ran out of bandwidth in the middle of the night (blog is hosted on a very old hosting account) and am waiting for the host to get back to me so I can fix the situation. Will be moving to a Linode later today to prevent these issues in the future.

Here's the Google Cache for the time being: http://webcache.googleusercontent.com/search?q=cache:www.lay...

It's no coincidence that several of the companies which recently found themselves hurt by being locked out of APIs did not heed:

"Rule #1: Sell something" - several had no evident source of revenue and as the article says "if your company isn’t selling something, you have a project, not a product"

"Rule #7: Avoid products that rely on a community to exist". As these projects found, when the community (or truckload of data) is taken away from you, you no longer exist.

A good article with pragmatic tips.

My biggest fear has always been customer service. How does one launch a startup and still provide ample customer service without the humans there to serve? Having lots of docs isn't enough for some people, especially in a B2B setting. Do you have to build a customer base slowly because of this?

I've found that there is a lot less customer service work to do in a B2B setting than B2C.

What if you dont want to build a freaking SEO, ecommerce, fashion or other site but want to do something that really makes a difference?

Most of your rules only allow you to pick the lowest hanging fruit.

The rules are intended for "bootstrapping a reliably profitable company". So yes, they do restrict you to the lowest hanging fruit.

This post isn't directed at people who want to start a company that "really makes a difference", unless those people are trying to start a profitable prior company to fund the really big idea.

What if I want to bootstrap a game changing company? :) ... I understand the inherent risks but I'be been willing to try so far.

Strongly disagree with Rule #5: Have a “no-touch sales process”.

That's actually one of the biggest reasons why companies fail. Founders are afraid to talk to people, they just build something and wait until somebody comes and buys it. What happens next I guess all of us know.

You have to interact with your prospective customers and having a high-touch sales process is one way to do that.

I don't think he's saying to be afraid to talk to people. Often when I'm making purchases for my job though I'll run into a product that doesn't show any pricing and says to contact their sales staff if you are interested in making a purchase. I hate that and will pretty much always pass them over for a site that doesn't force me to contact them and doesn't restrict my purchase options.

If I can see pricing and purchase at any time but I still have questions, sure I'll contact them. But don't force me to.

In my previous company we had a solution that cost $1000/mo. When we advertised it on the website - we had virtually no signups at all. When we removed it - some people start contacting us and some of them were converted into customers.

When you don't see the price - in most cases that means that this solution is strictly B2B, so you're not their target market.

Can anyone post some examples of #3?

The biggest thing I'm struggling with is finding a product idea I can even test against the potential market.

OP here: I have an ambitious goal of expanding each rule into full posts with examples so I'll see what I can do for ya

Thanks! I'll keep an eye out for it.

Any reposts? Looks like HN crowd has exceeded his bandwidth...

For ctrl-F:ers: mirror

Would be interested in a followup article on how to find niches/markets. I like his About page - keeps it real.

Another name for "no touch sales process" is "self service".

I know it may be formulaic, but I love these lists of "rules" because I go down them one by one and say "yep, got that" or "nope, don't have that, now lets think about it."

I want to talk about rule #3. And lets use DuckDuckGo as an example. DDG is a competitor to google, and it is safe to say google is a "must have" because you can't find nothing on the web without it.

But is DDG a "must have" because it is providing the same service as google, and that service is a must have?

Or is DDG a "nice to have" because it is a slightly better version of the service Google is providing and thus I don't have to have DDG because if it disappeared I would switch to google and not feel much pain.

No criticism of DDG is meant here, I admire that business, and it was just the best example of the area where I'm not sure. For my personal business, there is an undisputed king of the hill, like google, but I know there is sufficient business for us to service niches. I just wonder if the king of the hill existing makes it impossible for your product to be a "must have", or if this is just a question of the nature of the product/service, and not the market dynamics of the space.

Well, if you look at the intent of the rule, it's put in because a "must have" product seems like a no brainer to buy, which gives almost guaranteed profit. If there already is a king of the hill, then it's no longer such a guarantee and thus no benefit to building something that would have been indispensable in isolation. This doesn't mean your product can't succeed though, it just means that you don't have that landslide advantage.

Some people have decided that DDG's privacy is a must-have while others have decided that (at least for now) it is a nice-to-have. And DDG is of course betting that more and more people will arrive at the conclusion that DDG's privacy "feature" is indeed a must-have. I know I'm on the verge.

I switched to DDG, and occasionally I go back to google when DDG doesn't get me the results I am looking for, or when I want to do an image search.

But you're right, for a segment of the market, the DDG privacy is a feature that would be a must have.

Good read. Nothing will make me happier than creating a profitable bootstrapped business that sells a product. Once and if I am through that, may be I will work on the next big viral idea which is not a bad thing to think about but not for my first shot at webpreneurship.

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