Now the provider is either looking at generating $240,000 for the next 12 months or losing everything from your account. He/she is probably doing the deal with you because much of their costs are fixed. But I don't know if/how you have that conversation with Amazon.
EDIT: Oh and fantastic that they shared.
I do. I've had a conversation like that with Amazon. What I found is the Amazon hosting team is excellent: they moved mountains for my account to get us to success.
The Amazon account exec arranged immediate discounts and bridge services, even working through the holidays, then brought in multiple engineers for phone calls with me to teach me how to optimize our project to cost less to run. Every one of the Amazon people who helped me was 100% on board with finding ways to make the project successful.
That conversation is always worth having with vendors in my experience. They may be able to come up with ideas, or offer rebates, or promotions, or even convertible note financing toward the next fundraising round.
It's always good to approach any of your business-critical vendors and service providers to discuss pricing. You might find that they are more than willing to negotiate.
Everpix was a great product and I still can't believe there is no one who sees value in it.
However it's important to keep in mind in a situation like this, and at this scale of burn rate, you're not looking for a solution to shave off a few thousands $ left and right, which is kicking the can down the road (if even), but for a long term solution.
The key problem here is that I don't think you can realistically switch a business built on the VC funding track to the bootstrap track without the collateral damage of killing your company's essence i.e. the product.
For instance: when suggesting to have fewer employees, that is implying you have room for that or that your employees are interchangeable, which is far from the truth. It's not like we had 5 tech support people, and we could have downscaled to 3. We had hired quite slowly and were already as lean as it gets i.e. 1 person per project: iOS, Web, Infrastructure, Science, Design, Imaging / QA. All these folks were working at full capacity managing a multi-platform service managing hundreds of millions of full-res photos with ~100 servers, displaying photo collections of 10,000+ photos in very responsive apps, and running cutting edge computer vision science at a scale no other consumer photo startup was doing (the closest was the semantic search in Google+ Photos). You can certainly cut salaries (which we did and only works up to a certain point in the very competitive SV hiring market), but you can't remove positions which would be akin to extending a bridge to nowhere.
Regarding the infrastructure expense, I shared some thoughts here: https://news.ycombinator.com/item?id=7041640
If you make as much in ad revenue as Facebook, each of your 7000 paying customers would have to foot a yearly bill of $171 to keep the service going (but that number would go down as you grow).
So I think you're right. Bootstrapping it at this point is probably unrealistic. You may need like 10 times the number of users for it to be a viable business.
Thanks for sharing your data!
I know when I was doing my music start up it would cost is many many times more to be on amazon than the two high power dedicated servers.
I don't know the story in their case but I find it shocking how many high bandwidth start ups have never even explored the option of not using AWS. I mostly blame this problem to the easy availability of funding which encourages you to throw money at problems. The issue though is that the more you build out your infrastructure around AWS exclusively, the harder it will be to explore other options later.
A counter example would be a start-up I worked with that started out on a smaller provider. When we launched a beta of the application, we unexpectedly got invitations for national TV coverage with less than 24 hours notice. We asked the provider for everything they could give us, but they only had a limited amount of unused capacity themselves so there was little they could do. Of course we couldn't come near to soaking up the traffic spike, and lost a huge potential number of positive user experiences.
That sort of thing doesn't happen to you on Amazon or the other largest on demand providers.
Something else I think people fail to consider is what I would call a hybrid approach.
For example, even if you mostly operate on your own infrastructure, keep a replica of your data tier going on EC2, along with freshly configured images for the rest of your moving pieces. This way you have an instant pop up B site for disaster scenarios.
There are a lot of other possible concepts. Keeping a dataset at amazon to use for map reduce jobs is convenient. Or even if you want to keep your infrastructure virtual, being able to price arbitrage across a couple providers could be a powerful cost reduction. The price of entry for all this is devops automation, but I think people are now mostly convinced that's worth it.
It strikes me every time how much money people sink down on Amazon(AWS) when they can do it themselves for a lot less. The usual counter-argument is "but we didn't have money for a sysop", well yeah - your devs/devops needs to manage the AWS system as well, it's not much harder to manage real hardware / servers and network.
Another post that striked me was $300k in consultants, thats more than 3 years of full-time employees - what did they do? Was it worth it?
What I'm saying is that if you pay a cold $30k to AWS it is probably time to look at other solutions - or your COGS will keep growing out of hand.
I understand the greatness of AWS and Cloud systems when starting up, especially to keep CapEx down, but only to a certain point, you still have to manage systems (servers), security and storage/mount-points etc, so why not take the time to learn how to do it yourself and save a lot of money? Why not get an experienced DevOps instead of pure Developer?
And this company was already paying $300k to consultants, why not use a consultant or outside company to setup/manage their own hardware and service contracts as well? It would still be less than $30k and would still scale a lot better.
Sure, if you're just running EC2 nodes, there's some sysop requirement there. But if you run those on ElasticBeanstalk instead, you don't even have to manage that!
It's very hard for server and hardware-focused folks to 'get' the dramatic difference of running with AWS or GCE or other large cloud ecosystems. It's trivial for a, say, Java developer, to have a large, scalable system and have 0 access to each try to manage the actual machines and software that everything is running on.
You CANNOT replicate that in a private environment today, for anything less than a large infrastructure management cost.
The lesson I see from this: AWS hurts bad if you are using it heavily, but salaries... salaries kill. Automate, outsource and self-build as much and as long as you can possibly stand it, and then push on a lot longer than that.
Going off on a tangent here, but if (a) "software is eating everything" and (b) "salaries kill", wouldn't that mean a society of mass (30%+) unemployment in the future?
I wonder who would have the money to pay for stuff like Everpix or any other offering at that point...
The crazy thing is that when people are suffering, there is work to be done. If the 30%+ unemployed in that scenario could reorganize themselves into servicing each others needs, they would surely want to do that.
I also worry about centralization (of both government and corporate power) which get at the primary political problem to be dealt with in my opinion: how to mitigate the sociopathic element.
My best answer, at this point, is to break large states up into lots of small states, spreading the sociopathic ruling classes broadly and making it difficult for corporate interests to completely dominate a given political unit.
Within a given smaller and sovereign political unit, I hope that decisions will be made that encourage full, useful employment (since there is less room for both social services shenanigans as well as corporate indifference in a compressed society.)
Even better is if you can plan your infrastructure on AWS around using spot instances. They can be really cheap (we're talking a 5x times cheaper then on-demand and 3-4x than reserved). If your instances are used in a stateless fashion with all persistent state saved externally (DB, S3, etc) then you can do some pretty cheap scaling with spot instances.
One setup I've played with is a core set of non-spot instances phalanxed by a number of spot instances (at a couple different price points) for stateless web traffic. As long as the spot price stays below your bid you have significantly more instances available (which should give your users better response times). When the spot price rises your spot instances die and things slow down, but your app would still be alive thanks to the non spot instances. Again it takes quite a bit more engineering to get a setup like this but this is the kind of thing you need to do to take advantage of elastic computing.
In our experience with CPU or IO intensive workloads, Spots are still 2-5x slower than what you can get at decent dedicated provider..
Actually I ran the numbers for some of our (higher end ec2 instances). And some of them you break even in 6 weeks
However, on the database side of things, there was a lot of room for optimization (and we only got to some of it).
- AWS reserved instances (doesn't help with storage costs though)
- dedicated servers at e.g. SoftLayer
Over the years, I've had good experience with WebNX which has good connectivity to Asia. They've been supposed to open a NY location for a while now...Speaking of NY, there's reliablesite.net which is ok. You have Hivelocity in Florida (which I didn't use specifically for South America, but I imagine they'd be good for that).
There's a handful of companies which I've never used but that I've been hearing good things about for years. NetDepot, SingleHop and LimeLight Networks for example.
I have used 100TB in both Singapore and Washington. They are a Softlayer reseller. The extra level of indirection sucks when something goes bad, but they are much cheaper (what you can get from 100TB for $400 might cost $1200 at Softlayer). A few of the locations they actually have staff at, so I imagine that's much better.
I recommend you spend some time on webhostingtalk.com. It's great. There's a forum specifically for deals which can be useful to pick something up.
For anyone who's only familiar with AWS/clouds: most of these take 1-2 days to set up machines, their control panels are horrible, they don't have an API and you might not even get a dedicated KVM switch.
Wow, I feel like a huge advertising billboard this morning!
Many of these are older than OpenStack by a wide margin. OVH in particular is huge, they own many data centers, thousands of employees...you just don't make that sort of switch overnight. The cost and risk might not be justifiable.
In Everpix's case, it appears they were growing unsustainably.
Their data shows that all the way up until February 2013, they were spending $3 on AWS for every $1 of MRR. That's scary, because it means that a new customer bringing $1 MRR was actually increasing their monthly losses due to usage costs!
Things got better though. In March and April 2013, a surge in premium users seems to have shifted the balance in the right direction. But still, for May 2013 until the shutdown they were spending $1.20-1.40 on AWS to service every $1 MRR.
So growth in their userbase was actually increasing their total burn rate, which makes growth unsustainable.
You can see the spreadsheet analysis here:
The reason we were getting closer and closer to being positive on variable costs (looking at revenues on a sales recognition basis, since from the sales volume perspective, things were already positive in the last few months) is, yes, improved monetization, but more importantly AWS optimizations. We had squeezed a lot out of S3, then EC2 and our last step, the one we were working on before shutting down, was RDS where there was a ton of room. Looking at our trajectory, I'm pretty confident we would have been positive even on AWS (but unlikely much). You can even compound that with AWS discounts which apparently even startups can get looking at other comments in this thread.
To re-iterate, you would not build a freemium business like Everpix, with intense computing and storage requirements, at scale on AWS. Large photo platforms have their own storage and servers. Everpix was never intended to grow out of AWS either and you know you can cut your infrastructure costs to at least half. That was the plan post Series A. Most CTO / CEOs of large established photo companies I talked to said they were doing much better than this 1/2X, so that's conservative (I've been told ranges of 3-8X in savings vs S3 for instance).
Anyway, Everpix was bringing about $6 revenue / user / year IIRC, which is the part that really matters considering the denominator, infrastructure costs, is something you know you can really bring down. One relevant reference point is 500px for instance which is doing about $1 revenue / user / year . I would be surprised if they were growing "sustainably" too ;)
My attempted point was just that during the lifetime of the company, growing the userbase was increasing burn rather than decreasing it. That's a normal VC-funded approach to things, and occasionally works dramatic wonders like Facebook. But in the case of Everpix, the negative operating margin helps explain why an exponentially growing, paying(!) userbase can still fall apart without additional funding.
Btw, I really appreciate you guys being willing to share all these numbers. Very brave, and extremely fascinating. Best of luck in your next endeavors!
And here it is - the side effects of the talent war in full effect:
HR - $1,374,695.06 - or 52% of total costs
And the real winners of the whole thing (the pick axe industry):
AWS - $394,588.35 - or 14% of total costs
Why would it be unusual for the majority of costs to be salaries for a company that sells services and develops products? This has nothing to do with the "talent war." That's just the way things work. What else would they be spending money on?
> AWS - $394,588.35 - or 14% of total costs
How much higher would that number have been had Everpix built out their own infrastructure?
> company that sells services and develops products
Here is my criticism now - not all products and services are equal, yet the costs to develop them (in SV) are. FB/Google/etc.'s high revenues dictate that their products and services constitute a developer that costs $foo - they set the market rates. Talented developers are fungible, but their salaries are not - thus the disconnect.
> How much higher would that number have been had Everpix built out their own infrastructure?
I don't have the answer to that question, and probably very few people do. There are two points to be addressed there - (1) could they save money by building their own? mature companies deal with that question all of the time (2) this is a real life indication of how much a software services money can make on one client by "selling pick axes in a gold rush" - thereby singalling a reinforcement to that sentiment.
*(note - I'm in SV)
Also, the imputed salaries being paid here are very much not Google/Facebook numbers. The payroll for a team of five Goolgers is plus or minus $100k a month, almost double what it was for Everpix. Everybody was likely taking far below-market salaries.
I would ballpark the average package at Everpix as what Americans would understand as "$90k plus healthcare plus equity." This is not straight-line comparable to "$90k plus healthcare" at other US-based software firms, even those with baseline perks packages for working professionals rather than those competing in the Valley perks arms-race with Google and Facebook. For example, if one were to take "$90k plus healthcare" at an insurance company doing Java EE XL mappings every day, it is virtually beyond question that there'd be 401Ks with employer matching and whatnot in the picture as well.
If you were to do a straight-line comparison with e.g. Google or Facebook, this is substantially below their pure-cash offers for fresh graduates with no professional experience, and both would add both substantial cash bonuses and incentives plus equity grants plus perks with non-trivial cash value. The compensation packages employees capable of solo-shipping e.g. iOS applications or non-trivial image recognition software would be offered are substantially north of that. $140k cash-on-the-barrel plus industry standard perks isn't even an eyeraising number for intermediate engineers with no skill more specialized than shipping working software.
I'm mostly doing this math to say that "Lavish expenditures on employees were not a contributing factor here. They paid substantially below-market wages for employees doing similar jobs locally." I know that this might cause people who are not located in the Valley to feel a bit of heartburn given the absolute numbers, but that's another discussion entirely. (It should be noted that I live in an area where $90k cash packages would be unusual for engineers with 20+ years of professional experience.)
I was involved in the Web startup community in St. Louis, Missouri for years before moving to SF. It was the same for those companies: salary costs dwarfed all other costs.
What was the salary per person, for example?
The idea is not terrible, it's definitely better than doing everything the right way (tm) for 5 years, just to find out there is no way to fit the market.
It is sad that the industry is so anti-intellectual that we're actually afraid of computers now. Giving dell a CC# and giving them your hosting providers shipping address is not a complex or difficult task. There is no need for "custom infrastructure" to run a trivial web app. You buy servers, you plug them in.
Couple the cost of establishing the relationship (especially with startup credit) with the NRC and MRC of hosting services, smart hands rates, reserved cabinet or cage space for those surprise boxes on the dock, and incremental pricing models, and it's very difficult to build out and manage poorly predicted growth in a financially constrained environment.
Saving money on this means you're allocating additional engineer hours to dealing with this yourself.
The 'middle road' is probably an operator in a decent NAP or superNAP that manages the big lease and then carves out a margin by offering smaller space, possibly even colocating your hardware in the same rack as someone else's (and maybe not in the same rack with your other gear), and charging more than a macminicolo but offering significantly improved and variable services.
There are a number of walls you can hit that will present themselves as an almost insurmountable obstacle when you own your own gear. There are mandatory professional services when setting up some gear (SAN vendors have been notorious for this) and it's just a bunch of attention you have to devote to something for which there is generally a good enough solution for a company that may not exist long enough to depreciate the servers that ate a huge amount of their startup capital.
It's not that we're 'afraid' of computers. It's like saying we were afraid of electricity or telephone lines 40 years ago. We can manage it, but it's almost irresponsible and risky to do so.
Everyone? I don't understand how you can imagine a problem like this. "Who in your company knows how to tie their shoes?"
>What software is going to run on it? who picks that software? How do you get data onto it? How do you get data off of it? What happens when it goes down? How do you monitor it? How do you scale it to two servers? Or more? Who is going to do that? Who is going to know all that? Who else is going to know that so your company doesn't fail when the first person isn't around?
AWS solves precisely zero of those problems. It isn't magic pixie dust, it is renting Xen VMs.
>> Giving dell a CC# and giving them your hosting providers shipping address is not a complex or difficult task
Financially, cloud servers have properties that might make them attractive relative to this. Also -- buying and managing colo is a fairly specialized discipline. There are a ton of business reasons to not take on a risk in this part of your business when you can outsource it at nominal cost. A COGS of 14% is quite nominal.
And you can buy a single server for $5k that will outperform $5k/month of EC2 VMs.
>Also -- buying and managing colo is a fairly specialized discipline
What? That is like saying "buying and managing phones is a fairly specialized discipline". No, it isn't. You give money, you get service. Not complicated. People have been able to handle this just fine for longer than you've been alive.
Personally I used my cofounder's existing array, but that's not an option for most companies, particularly starting out, and cutting out server purchasing costs pays in the short term. However, if you have the initial funding, as in this instance, it pays to buy the servers you need.
Plus, it's an asset that, should your company fail in 6 months, can be sold to at least salvage some of the initial investment.
In the last boom, though, people bought millions of dollars worth of servers and equipment that are now less than worthless; in many cases you have to pay to get rid of them. So, I guess there can be a significant downside.
It's not unusual at all for payroll to be the vast majority of a company's expenses. Normal profitable business usually expect payroll to be 30~40% of gross revenue (and that's for companies actually earning money, not during bootstrapping), and 50% exists although it's usually considered dangerous for profitability.
And of course that depends on the domain, a hairdresser and a refinery will have very different payroll rates and structures. Pretty much all of software and saas company activity and value comes from the people working there, in fact I'd expect payroll %-age to be higher (not lower) outside of SV: lower rent and likely lower utilities.
For example, many US companies are created by immigrants (18% of Fortune 500, or 40% if you include children of immigrants). Steve Jobs was the child of an immigrant. Hiring a guy who is so enthusiastic about getting a job that he wants to live in a rural area and live on a pittance, vs hiring someone who's ambitious and hungry - who's going to create the most value?
That said, it's prone to abuse and I have seen some H1s with really poor compensation due to a weak negotiating position (the difficulty of switching jobs while in-country, sponsored adjustment of status, etc.).
This is pretty dense stuff. We're working on putting together a more extensive and user-friendly site to make sense of this heap of data. Stay tuned. :-)
Just one of the many important costs of a freemium business model.
6800 subscribers. 2,665,192.34 in expenses.
$395 per subscriber per year. $35/mo.
Convert 10% more of users.... 5000 and it's still $20/mo.
Was this really $5/mo or $40/yr?
There had to be a story about HR plateauing and subscribers increasing an order of magnitude in 12 mo. - and it's still under water for another 2 years.
Who saw the writing on the wall and when did they start raising the warning flags? What happened from then on? What warning signs (talent leaving, investors glaring) showed up? When? How did they take form?
I went through an exercise to recast the numbers as a bootstrapped company here in New Zealand. we don't, for example, have any healthcare costs, and items like legal fees, rent and salaries (including taxes) are substantially lower.
I have 3 Questions for the founders, if possible:
How much did you play with pricing to try to drive revenue per customer up? e.g. Did you consider/test no free customers, higher pricing and gold tiers?
The consultants cost of $272k seems very high - what sort of consultants was this spent on?
If you did it again as a bootstrap (i.e. founders are in control), what are the to 3 things that you would you do differently that would impact on costs and revenue?
I'm founder @ Trovebox and recently posted this which anyone doing a subscription consumer photo service should read.
"Hello 2014, Goodbye Consumer Photo Service" - https://medium.com/p/b1234eaf75b
I'd really like to know the two that were so standup, that they wouldn't fund a competitor or someone who could, eventually, be a competitor. In all honesty, those are the types of funds you want backing you. They've bought your vision and they're not going to do anything to undercut you.
If a VC has funded two competitors it means the startups become reluctant to share information with the VC, the founders of the first startup become unhappy with the VC and follow-on rounds become very messy and cause bad politics.
Certainly it happens (in some cases due to pivots, etc.) but I imagine it's something that most funds would prefer to avoid.
Also, wouldn't it have been possible - with the understood pain points - to substantially reduce costs by moving off of AWS? Trading the ease of AWS for the critical cash for operations.
The minute I get the opportunity to put my money my mouth is, I will invest solely in lifestyle businesses: one to two guys/gals wanting to build a profitable business with a yearly dividend, one where if the team makes $500,000/year we are all extremely happy.
Funding rounds that want to raise millions in VC are for companies that aim to eventually be a $100M business.
A smaller business wouldn’t involve venture capital. And the bank is still a viable option if capital is needed to scale, as long as there is a realistic repayment plan.
We need to give these lifestyle business more spotlight, so that people who are aiming for such won't get embarrassed that they are not aiming for $B.
I realize managing at Fortune-5 is different than 100% oursourcing but the cost constraints, I have to imagine, are very similar. For example, I have to imagine Amazon gets similar price breaks from Cisco as my company - I know Amazon has custom built servers and all so there may be some advantages but at $30K/month, I think any hosting company would happily take 1/2 or 1/4 of that.
I'd be curious to know what kind of bandwidth loads you were pushing through AWS and how much of the AWS cloud can be made redundant per client.
Could anyone please clarify for me following things? I have just started to learn about startup capital.
1. Since company is now closed down what happens to Investor's money ? Do they just loose all or do owners have to return it ? ( sorry if this seems pretty noob but I would like to know it )
2. What does 1 year maturity mean in convertible notes ?
3. Shouldn't the Net Operating Income be negative ? Since they had income of $280696 and Expense were $2,665,192.34 ?
Did they count investor's money as income ? or how did they arrive at $2,384,224.67 ?
Thank you for the reply.
> 1. Since company is now closed down what happens to Investor's money ? Do they just loose all or do owners have to return it ?
They lose it. http://en.wikipedia.org/wiki/Venture_capital
This Techcrunch article is about convertible notes but covers some of this stuff and has some good links in it (2012):
And a more lawyerly perspective (2010):
Also I don't get why it disappeared from one day to the next... Couldn't they massively restrict free usage? Or have some form of donation/fund raising à la Reddit Gold? people were attached to the product and it was disappointing to see it just go away /rant
Well, the lack of investors was surely a big symptom of their failure but the cause it was not.
When you burn > $2 million in funding ($200k alone in PR and "Promotional Expenses" as their spreadsheet shows) and still can't get through the timid mark of 50 thousand users, then maybe there is something very wrong with your business model that you should think about.
I'm confident that's something that crossed all the investors minds during the series A conversations. They didn't mention that fact directly because it could sound too harsh or rude and they wanted to keep the relationship in good spirits, obviously.
The startup game is tuff, no doubt about it. I hope the Everpix guys learn their lesson and to better next time, they look like cool and competent people.
The PR expenses (109,552.34) seem pretty high and I wonder what that line item entails. Did you guys use a PR firm or run any expensive marketing campaigns?
It makes me think of bad pre-optimizations ;)
The technical costs are not damning. Where is the concern about the other costs, which aren't being picked apart? If AWS was 0, it's still unsustainable growth until someone (swisspol?) dispels our concern there.
Another big void is who was pulling the plug and how/what are the founders and direct employees feeling? I'd like to know if there were ship-abandoners, etc.
What is the turning point and what were they decision makers watching that caused the shift?
This doesn't look like a technical learning here. This looks like a business learning. So, while they're being transparent and it's still fresh :) share.
We can A/B test buttons. How do you A/B test business decisions?
It looks like a bunch of people can armchair this thing, technically, to the point where it makes me wonder if someone could NOT take on nearly the funding and make the $100M company on this idea with just some bootstrapping.
Also... how was there not a pricing model that scaled with use?
(BTW, would you consider publishing more of your email metrics on GitHub? For example, SendGrid reports the type of email clients that read the mail you sent (e.g. desktop, mobile, webmail), and the mailbox providers that you sent the most mail to (e.g. Gmail, Yahoo, Hotmail, etc.) Here's where to find and download those reports: http://www.screencast.com/t/5mW9bm4Ueq)
Best wishes for your next gig!
The overall problem they were attacking is real, so maybe if they were more focused and had distilled better their solution, with a smaller and lest costy team, they could have made it.
Just my opinion from a totally outsider perspective. Take it for what it's worth. I want to congratulate the team for trying and wish better luck next time.
If they kept an eye on of all this on a monthly or weekly basis while they were still running would they have been doing too much or too little?
I've worked with some organisations that are reluctant to invest in this level of analysis. Some of them might even now say "It didn't help Everpix to spend time on that stuff."
Do startups at a similar stage usually measure things as diligently as Everpix seem to have done?
Frequently, no. There exist companies with revenue in the $X0 million range who have less numbers floating around the company. You'd be surprised.
I'm going to respectfully decline to answer counterfactuals about someone else's business. In general, software businesses have two tasks: Make software. Sell software. Analytics is a very useful thing to have if it lets you accomplish one of those two tasks. There are many software businesses at which it does. There are some at which it does not.
What I'm wondering now is whether you plan on open-sourcing the technology built so people can potentially plug it into their own storage providers and take up the cost of storage, or adapt the photo analysis tech. You've built a wonderful base here, will it be put to some use?
On the one hand, paid subscriptions "make more sense economically", on the other hand, as long as we are talking about high risk capital anyway, a free service model might have made more sense "financially".
Bertrand is the former SVP of software at Apple, where the founder of Everpix worked.
Looks like the largest expenses were payroll and hosting. I wonder if tbis is the reason they shut down even as the number of subscriptions was rising.
It's really hard to believe because I bet the end user didn't really give a damn about whether it was hosted on amazon or elsewhere. It's also hard to believe why not just outsource the generic stuff. I really don't see anything unique about everpix that a North American can only do and not some guy across the ocean. Was it absolutely necessary to have in-house talent for everything when it was a threat to the continued operation of the company?
I wonder if they were simply bootstrapped and grew as a small business focusing on net profit, would they have made a better decision.
I can assure you that without the facilities of AWS, which saved us a ton of time and development overhead early on, there would have been no Everpix. Period. Actually, the very first Everpix was on Google App Engine, but that's a different story.
As an early stage startup, whose core business is not building infrastructure, do you really want to be in the business of managing for instance your own S3 type storage with the same performance and reliability at 200+ TB scale? We never lost a single user photo or account. Never lost a database server either. When your users trust you with their life photo collection, that does matter.
Then of course, if your company starts gaining traction, your bills increase so things change. As a matter of fact, post Series-A, our plan was to switch out of AWS, concurrently to our infrastructure's redesign to go from managing 100s of million of photos to billions.
Doing the switch earlier would have been premature IMO: there was no one the team with such experience, even less bandwidth. The opportunity cost would have been significant on all the other aspect of the company. Let's not forget the required upfront capital which takes some time to recoup so savings would not kick in from day 1. Finally there's also the fact our infrastructure was still rapidly evolving (type of EC2 machines used, database architecture, etc...), so even buying reserved instances was very difficult as there was a good chance of buying machines we would not need anymore 6 months down the road ultimately wasting money (it did happen).
So what we did instead what focusing on driving continuously driving down AWS costs through various optimizations - if you were to look at our dashboard graphs, you would notice AWS costs were growing slower than users / photos, which reflected that work.
Long story short, the infrastructure was paying for itself through subscription revenues. The real "killer" was payroll. I use quotes because in this type of business, it's expected to have payroll your largest expense - there was no surprise. BTW note that the team was already 1 person = 1 entire product component like iOS or infrastructure so quite lean and highly productive. For a VC backed consumer business, you pretty much need the VC money to cover these fixed costs until you reach profitability.
Only when you are small haven't marketed the service and your subscriber numbers are still small. You could probably support 10x the subscribers with only 2x (or less) of an increase in staff.
I'm kind of impressed looking at the landing video, it's a neat idea, it's sophisticated using CV to organize photos. However, the market just didn't respond enough to cover the payroll costs.
Did having a VC funding in anyway impact your decision making to grow faster than you should?
I guess it starts with an idea, does it fit? if you have VC money you can see the answer faster but I fear that it puts an expiry date on your product if the answer is still no by the time you can't find another investor. Shame because investors are not always rational. Maybe the next investor could've seen the vision behind your product and pushed. Sad to see a seemingly great product disappear from the market and reducing consumer choice because they had to 'go big or go home'.
I also wonder what it would've been like if you started in a market where tech salary was on the low side, such as Vancouver, BC, where there are laws set in place so that you can work your developers and designers to death out of fear of losing their job in the scarce market and not having to pay any bonuses or overtime.
I wonder what the outcome would've been if you weren't funded, and grew customer by customer. Doing this would've fine tuned the margin between cost and profit and forcing you to grow at a rate that is right for your size at the right price at the right time (where supply and demand curves intersect) just like mom and pop's business.
Thanks for sharing this boatload of information on how a company works for those that never ventured out to startupdom. It really is in the spirit of hackernews. Brutal honesty.