Hometalk is not your first venture, in fact you launched Alfy, a company that did, in fact, raise tens of millions of dollars in VC money. What about that experience made you decide to bootstrap Hometalk rather than raise a round from an institutional investor?
As an inexperienced entrepreneur running Alfy, I equated the company's headcount and amount of capital raised with unequivocal success. The problem, however, was that we did not fully crack the product or business model before raising money and we scaled prematurely. Had we built a more solid infrastructure, I am confident that we would've had a more successful trajectory.
As such, in my subsequent startups, I deployed the lean startup model to test, iterate, and solve the product/market fit before I ever considered external capital.
Did you think you had achieved product/market fit with Alfy, or were you not even thinking in those terms? And, in order to avoid scaling too soon, do you think there is a more precise definition or metric/s start-ups can use to quantify product market fit?
Customers used and liked our product, but they were not consuming it in a way that could sustain the organization (revenue-wise). We had a burn rate of $1M per month and we couldn’t monetize in a way that would’ve enabled Alfy to grow organically into a sustainable organization.
I’m not aware of any studies on the matter, but I believe that companies that follow this model definitely increase their probability for success. Of course, a company will need to iterate, but, ultimately, if they can’t find a sustainable revenue-generating model, it’s a bubble. They’ll keep optimizing for the customer experience, but never for the business, and that's unsustainable. The results are often downturns and layoffs in hot pursuit of finding a last-minute model that works, which is really a shame. If you instead optimize for the business/market fit right away, with customer value at the center of it all, you increase the likelihood of a company’s viability for long-term success.
Venture capitalists often say otherwise. With Hometalk, investors have told me to forget the business model (in the early stages) and focus only on the customer, but, because of my experience, I did not heed their advice.
I have seen many entrepreneurs wasting years of their life focusing on only half of the target, only the consumer-level value, hoping to one day achieve business/market success, too. But they fail to recognize that an optimal business model, in many cases, is not just an incremental iteration to the existing product, but rather requires a significant change. And those changes so late in the game can cost the entire company.
Here’s the way I see it: The longer path to business/market fit is really the shorter path to long-term success.
· At the earliest stages, find a business/market fit that generates value and revenue before scaling (scaling prematurely will be a distraction that can make it harder for you to get the formula right) and stay focused on nothing but the customer and the business model.
· Keep costs painfully low. When we moved from Los Angeles to Casper, Wyoming, I rented a U-Haul and did it myself - because we didn’t have money for the move. On many other occasions, I took long road-trips and slept in $30 motels to avoid flight expenses. People now see our beautiful offices and look at our numbers...but they have no idea how much sweat I invested into these companies for the last 10 years.
· Be patient and don’t get caught up in vanity metrics. When I started Networx, for instance, I had only one employee for the first three years.
Having less resources forces you to focus on the core business and ensures that you’re dealing directly with the customer and the business model. Instead of worrying about the long-term prospects for the organization (i.e. investor relations and employee headcount), the bootstrapping model requires your involvement in the heart of the business.
And then finally -- and this is the probably the most important piece -- it really boils down to finding amazing people.
When we were based in West Hollywood, I used to pick up our first employee at 4:15 am, so that he would turn on his computer at 5 am to begin contacting East Coast contractors at 8:00 am EST. He didn’t have the resume, but he had crazy drive.
But the highs are unparalleled. To this date, I remember when I got my first credit card processed, for $75 (done by fax!). Someone had actually paid for our service. I was more excited by that transaction than I was closing any of the financing rounds for my first startup!
So the only way to create a platform that would give ideas, tools, and knowledge to everybody is by crowd-sourcing that information, by everyone sharing their own experience and insight for the benefit of the community. In essence, the need to build the community was always there.
Moreover, people are really quickly losing their material competence, their ability to use their hands. Our goal with Hometalk is to enable community members to empower each other to become more skillful.
My experience is that once we stop using an area of our brain, even for just a few months, we can lose that capability altogether. For instance, since I started using Waze I have totally lost my sense of direction. People are quickly losing the capabilities to work with their hands. We are passionate about empowering people to embrace DIY because we’ve seen them regain confidence and know-how, not to mention how it impacts their financial stability. And these benefits extend far beyond DIY.