Funded? All your soul belong to us.

I spent the better part of the last 3 years building our 3rd business from revenues and sweat. We went from an idea to sustainable, growing, and profitable business. It was not easy, nothing ever is. At times we flirted with taking funding, had offers on the table, and sought out a few commitments. Even had 2 larger companies approach for us for an early acquisition. Ultimately though we chose to stay independent.

During this same time a close friend of mine left a huge internet company, founded a new startup, raised 10’s of millions in VC, folded that startup in what they call a ‘soft landing’, and started another one. He was convinced he needed funding for the new project. I doubt my words made any real difference but I tried to steer him away from it. He did the math and ultimately decided to tell some of the biggest names in the angel and VC world he would forgo their cash for few months to see if this idea had legs.. and was met with utter contempt.

With VC  you gain cash, and the ability to spend it. You do not gain the assurance of success. And all along you have to deal with other people telling you how you should conduct your business. Meh.

As bootstrapper you have earned the freedom and independence to make your own mistakes, revel in your own success, and work you ass off. The success or failure is 100% yours.

Why is this important to me? It allows me to build the company I want to see. One that does not push useless upsells on their customers to maximize profit, one that can operate from a mindset other then win at all costs, one that has integrity and character. Sure a few extra 0’s in the bank would come in handy from time to time. But I also like knowing that every 0 in there was a result of choices that were made with our values in mind. The soul of a business runs through every aspect of it. Your customers, your employees, and the public at large sees it for what it is. Good and bad, motivated by greed or passion, acting like asshats or elegant problem solvers.

When did “funding” become a mark of success? The argument could be made it is the direct opposite. Yes, we all see the big IPO’s, those 1 in 1000 that make it. The other 999 would likely have been so much better off either flaming out early, or working through to a real solution to a real problem and making real revenue. We live in the age of the zombie startup. It should be dead, but instead just pivots with every dilution.

 

Someone make this infographic

I have a hunch that the majority of startup centers in the nation lean left.

SF, Austin, NYC, Boston, Boulder.. predominantly vote blue in presidential elections.

Infrographic: Graph the last 5 presidential elections and the number of startups, or successful startup exits, or successful startup IPO’s by city. We know tech is an easy one, but what about finance, energy, or bio tech. Are certain types of startups more red or blue?  Is it based on geography or industry?

I have a feeling liberals are better  (high paid knowledge economy) job creators over the last 20 years.

Be dangerous

This came thru the GangPlank backchannel today.

 

We interrupt your regularly scheduled programming to remind you that it’s okay to “Be Dangerous’.

The warning signs of defending the status quo

When confronted with a new idea, do you:

  • Consider the cost of switching before you consider the benefits?
  • Highlight the pain to a few instead of the benefits for the many?
  • Exaggerate how good things are now in order to reduce your fear of change?
  • Undercut the credibility, authority or experience of people behind the change?
  • Grab onto the rare thing that could go wrong instead of amplifying the likely thing that will go right?
  • Focus on short-term costs instead of long-term benefits, because the short-term is more vivid for you?
  • Fight to retain benefits and status earned only through tenure and longevity?
  • Embrace an instinct to accept consistent ongoing costs instead of swallowing a one-time expense?
  • Slow implementation and decision making down instead of speeding it up?
  • Embrace sunk costs?
  • Imagine that your competition is going to be as afraid of change as you are? Even the competition that hasn’t entered the market yet and has nothing to lose…
  • Emphasize emergency preparation at the expense of a chronic and degenerative condition?
  • Compare the best of what you have now with the possible worst of what a change might bring?
  • Calling it out when you see it might give your team the strength to make a leap.

http://sethgodin.typepad.com/seths_blog/2011/08/the-warning-signs-of-defending-the-status-quo.html

Product/Market fit

“But it takes time to reach product/market fit. Founders have to choose a market long before they have any idea whether they will reach product/market fit. In my opinion, the best predictor of whether a startup will achieve product/market fit is whether there is what David Lee calls “founder/market fit”. Founder/market fit means the founders have a deep understanding of the market they are entering, and are people who “personify their product, business and ultimately their company.”

source

not to toot my own horn too much, but this has worked well for Sally and I

How not to get accepted to YCom or Techstars

To get accepted to these programs you have to apply.

Our company page.ly was not accepted to either Ycom or Techstars this year, because we did not apply. This goes for last year and every year prior. 

I was introduced to David Cohen of techstars through a close friend and was able to engage David in a conversation which led to him suggesting we apply to techstars, and why wouldn’t we. Techstars has a great reputation and seems to be a solid-gold hit machine for churning out hot and ‘successful’ tech startups. Ycom shares this reputation as well.

Why didn’t we apply to what seems like a necessary program to launch a startup these days?

I replied to David that I felt we were a little too far along for the program. We are post revenue, re-investing with monthly cashflow w/ comfortable margins, just hired a 6 figure DevOps guy from revenue, and growing 60-70% by quarter. This does not seem to be in line with the ‘typical’ early-stage startup applying to these programs.

Moving to Boulder,CO for 13 weeks to couch surf or live in a studio apartment while I ‘work on my idea’ in trade of advisement and mentorship, seed funds per founder less then a weeks current earnings and signing over 6% of my company just didn’t sound like a good idea. I’m 33 not 22, married not single, an extroverted tinkerer not a red bull fueled ruby hacker.

When I shared this POV with David he mentioned it was a common objection he hears and pointed me in the direction of 2 blog posts of others in a similar (no longer a startup with a MVP, but not a 10 person funded company either). Here they are.

After reading those it seems that the value of the ‘connections’ you make at these programs is worth it the price of admission. That is a fair argument.

Is it really necessary for a startup to go through a program like these to be successful?

In our case and those of further along startups it seems the primary benefit of programs like this becomes less about the seed capital, or time to flesh out your business and becomes primarily about Access and Valuation.

Access is something hard to quantify. Washington politics it is ALL about access.. the revolving door between lobbyists and political staffers is a well known flaw in our system but that is how it is done. So in this context, does access to investors and the who’s who of the tech industry carry the same benefit? Tech investors are typically tech users and are in order of magnitude easier to communicate with over twitter, facebook, email, their own blog, than it is to say get a 10 minute meeting with a Senator. Tech investors talk about deal flow, and having access to the best deal flow, Startup accelerators like Techstars and Ycom could be seen as an instrument of vetting deals and ensuring quality deal flow to those on the other end. Access to tech writers who gush over hot YC/TS companies as well is valuable unto itself.

People are lazy, if YC and Techstars are vetting deals, investors don’t have to think about/perform their own due diligence investing in them, they just do. Why would an investor take the time to learn about your no name company if they have vetted and certified “graduates” deal flow at the ready. So to this point, startup programs seem to certainly gain you access to these pools of investment funds, making introductions and meetings easier.

Some investor recently wrote that a college education is overvalued. From outside looking in it seems the accelerator programs are essentially doing the same thing. Startup X is a YC09 graduate. Letters after a name is a mark of expertise in some field. How is that any different from being Yale MBA class of 08, or University of Arizona CIS PHD class of 09? So in essence it appears that on one hand they say a college education is not worth what it used to be, but they use a diploma from startup accelerator (YC10) as a way of judging a startup. This is perpetuating the same cycle.. that you have to go to the best ‘school’ to get the best job.

Valuation of a company seeking funding seems to be affected by this phenomena as well and David mentioned it as a selling point of Techstars.

…both [recent graduates] will raise significant series A on much higher valuations than they might have otherwise been able to achieve, due to TechStars.

If you goal is to raise an A, and future B & C money, a higher valuation is likely a good thing. What if your goal though is not to raise after a seed round? David told me that another raise is not always the best outcome and they don’t push companies in that direction should it not make sense. Can startups now expect a 5% 10% even 20% on valuation for adding YC10 to their about page? Is this a good thing overall? Personally it does not sit well with me as it seems to discount the hard work and effort of startups not in the program.

So what?

Could you get meetings through other means? Yes. Could you still get a good founder-friendly valuation, Yes. Could you still build a network of smart influential people, Yes. Will it be harder and more difficult, probably. Are Techstars and YC acting as gatekeepers? No. From all apparent sources they have seemed be similarly aligned with founders after the same things, successful companies. If this trend continues of more accelerators, and more startups applying to them, and the primary benefit becomes out of reach of non participating companies, then it would likely have the opposite effect.

It appears though that it is becoming more and more necessary to participate in these programs and pay the price of admission to gain entrance to the club. The cycle is starting to feed off itself with more accelerator programs popping up, and more startups adding Class09 to their about page as a marketing angle. The tech press is enabling as well washing these new graduates in press, and last I checked they were not expanding coverage of their “bootstrapped and not based in SF, Boston, or NYC tech startup” news beat.

After further conversation with David, I agree with him that the network effect of these programs is real and I am likely underestimating the value of it. I have over time built my own network and value all the connections within it. Certainly adding to it would be a good thing. It is evident by our conversation that he is still accessible and approachable irregardless of whether or not we apply. Kudos.

So we were not accepted to any of these programs because we did not apply. I fully get though it has worked and is working for others and wish them all the greatest amount of success.

Feeling like we have to ‘move to SF’ or ‘apply to YCom’ to be successful by the current measure of the industry just goes against my non-conformist nature. These programs can help, but hopefully remain an option and not become ‘the way’.

Oh wait, we will be in SF this summer.

From this article in Vanity Fair

With youth unemployment in America at around 20 percent (and in some locations, and among some socio-demographic groups, at twice that); with one out of six Americans desiring a full-time job not able to get one; with one out of seven Americans on food stamps (and about the same number suffering from “food insecurity”)—given all this, there is ample evidence that something has blocked the vaunted “trickling down” from the top 1 percent to everyone else.

Profit by confusion and an economy based on intangible goods

When you start driving any sort of volume with a company they are generally agreeable to discounting your price a bit. As an example last month I asked for a price review from our credit card processor whom complied and shaved a few 10ths off our transaction fees since we are driving higher and higher volume each month.

Today I reached out to another service provider of ours to ask for a review of our account to see if we can get better pricing. Sadly this companies sales guy countered with a pitch on how a new “technique” could boost our margins. I replied I was not interested in any “techniques” and just wanted to know if we qualified for better wholesale pricing. Again he dodges the question and says this technique is “guaranteed” to make us more money than a discount in pricing would.

I relented and agreed to at least hear the guy out so he could at least tell his boss he “tried” before relenting and giving me what I asked for. Load the gun, spin the barrel… and kill me please. His “strategy” was essentially forcing our customer to opt-out on a upgrade. He would gladly give me preferred pricing on this upgrade.. and boasted about 40-50% uptake on this opt-out.. in other words 40-50% of the people declined the annoying upsell, but the rest were too gullible to know better = higher margins for me.

WHAT THE FUCK!? Who the hell would run a business like this? Confusing your customers and forcing them to opt-out of your high margin product is a recipe for higher margins for you.. but also a whole bunch of�annoyed customers. Ask GoDaddy how that strategy is working for their brand equity. Sure they are printing money.. but come on. Have you no soul, no integrity, no sense of common decency? PROFIT BY CONFUSION is a long term lose for your brand and your customers in favor of short term financial gain.

I’ll give the service provider and the sales guy a break and not call them out. But I will send this note to their COO as food for thought.

Disclaimer: Yes we have a few addons at page.ly. However they are very minimal, and very secondary. They are also directly inline with our core product. Premium themes go hand in hand with premium WordPress hosting, but we don’t push it in your face buy it.

This brings me to my second point. We are moving into an economy based on intangible goods. Like the term Vapor-ware from the boxed software days many companies cannot point a tangible asset they sell. Banks sell this thing called credit, SSL providers sell an emotion called “trust”, marketing people sell whatever it is their customer is buying.. currently “likes” and “followers”.

When a business cant point to a tangible good like say a dishwasher or a car they seem to be more likely to fall into this profit by confusion model. Cable companies sell you service contracts and free installation: Sorry Cox it’s your job to put a guy in the truck and send him to my house to connect the cable as by law I am not allowed to tamper with your wires outside my house. If the box breaks you gave me.. why should I pay for you to replace it?

It’s a fine line out there. Page.ly sells security and automation of technical tasks dealing with server configuration and software installation. And we do so with a sense of responsibility that it is our civic duty not to bend our customers over and sell them useless stuff because they do not know any better. This is industry is some of the worst offenders as we deal in the black arts of technology that 98% of those over 30 are still scared of. You tell them they need to buy ID protect so that big bad spammers don’t get them they will. You tell them they need to buy credit monitoring services because people are going through their mail, they will.

If you cant point to a physical good that you sell, your customer has to buy based on faith you are not misleading them. STOP MISLEADING them people. Happy customers that can genuinely trust you are worth far more than those you duped. Sooner or later the gullible will figure it out and the backlash wont be pretty.

Thanks Lee, for the conversation today about “trust” from SSL providers. Thanks Ward for the thoughts on Profit by confusion.

Prove the model and others will follow #wordpress

Last April when we announced we were rebranding and relaunching the Managed WordPress hosting system we developed in 2006 as Page.ly we did a survey of the market and found that while there were traditional hosting companies offering plans for WordPress users, no one else was offering the unique set of tools and security benefits we had developed specifically for WordPress.

The market was wide open for our unique and specialized WordPress hosting solution.

Traditional hosts at the time were advertising a “1 click WordPress install” was using a piece of software called Fantastico that is essentially a library of web applications a cpanel user could install into their hosting account. While the concept was cool, Fantastico was notorious for lagging behind in updates and tying the hands of the user to some degree as the WP instance was managed by Fantastico and they had little control over updates and security. Even today this is the system that powers the vast majority of “1 click” installers you see advertised.

This summer has proven to be the Summer of Security meltdowns (Sucuri has been tracking it) at the big traditional hosting outfits. Everyone from NetSol, GoDaddy, and MT where hammered with security breaches affecting hundreds of thousands of customers. The big hosts tried to blame the malware outbreak on outdated versions of WordPress running on their systems. Question: Why were they outdated? Because again many hosts were using Fantastico which was lagging behind current releases. Ultimately most of the big hosts admitted faulty server configuration as the reason for the outbreak after trying to blame it on WordPress when called out by Ma.tt himself.

While the term “1-click WordPress Hosting” that referred to Fantasico powered installs by the economy hosting companies has been around for many years, the term we use and coined “Managed WordPress Hosting” is how we refer to our unique system of fast setup, automated backups and upgrades, and uber secure environment.

Our Managed WordPress Hosting system has been custom built from the ground up to specifically focus on 1 single application, WordPress. We understood the common frustrations users had installing the application, and the common problems users face keeping their sites updated and secure. Page.ly was designed to address these pain points, yet allow near total freedom of the user to customize their site. We took a very holistic and unique approach to manage the technical details for the user without interfering with their ability to customize, and it has paid off with the success we have seen with our product.

Prove the model, and others will follow

When we opened for business and began accepting customers in August of 2009 we had more than our fair share of people thinking we were crazy. Why specialize in one platform they said; You are too expensive they said; Along with all the other bits naysayers like to say. Over a year later we have an ample and growing customer base, strategic partnerships with others vendors in the WordPress space, plans to fit all types of sites, and recently booked our best month to date with 55% growth for September over August. (A sweet 3x since May)

So it did not take long after we started gaining some traction and success to see the wake behind our boat beginning to fill with other companies trying to make a go at their own take of WordPress hosting service. Some have put their own novel spin on the idea, others have sadly thought a bad attempt at cloning was the way to go. Even worse many have chosen to use Security as a positioning point with little or no track record of security or explanation of how their leased servers are any more secure than the other servers by that hosting outfit that was just in the news for massive security exploits.  For Page.ly we have chosen to hire the most secure datacenter around to manage our server infrastructure and have a perfect record of zero successful malware or hacking attempts; ever.

The moral of the story is though that as any company proves the existence of a viable market, others are going to follow. Ask Groupon about the 500 or more clones of their very successful product. People are going to like the idea, think they can do it better than you, and it is inevitable that your new company will soon have a plethora of eager competitors.

Competition is healthy for business. Personally I stress cooperation over competition even speaking on the topic often about reducing duplication of efforts within communities. But good old competitive capitalism is vital and essential for your company. It helps you position you product in space and helps educate the market as a whole to the available options they have.  The arrival of competitors in our space did more to validate our business model than we could have done with a year of marketing and education. We no longer look crazy when someone else is crazy enough to agree with us.

Those companies that enter your space may choose from a variety of means to distinguish or call attention to themselves. Some may offer a legitimate unique spin or improvement over your service, some play Walmart and undercut you on price, some go negative and trash you, while others consolidate offerings going for the super store approach.

One such newcomer to the WordPress hosting space has taken the “go negative” approach vocally trashing us as a company and as persons at community events. We have not even met this person yet they somehow feel compelled to impugn our character. Unfortunately par for the course for many in business that think that is the way to get ahead. Maybe if they had a novel idea they did not get from us, they could compete on their own track record instead of this tired approach.

The recent announcement of the StudioPress-Copyblogger merger is a good example of the super-store approach. The new mega company is pooling their WordPress resources and expertise together to make a play at the “everything you need under 1 roof” type business. What they have also eluded to is a distribution channel to get this bundle into the hands of their customers. StudioPress is a theme vendor of ours and we have spoken to them and with Clark (when he was with Thesis; but shelved due to the Thesis GPL issues) about a hosting vertical in the past. However we are not involved in their future plans, so in essence they will join the ranks of those coming into our space in the near future.

Page.ly specializes in and will continue to focus on the Managed Hosting aspect of WordPress. We have no plans to move into the plugin or theme space as there are so many solid offerings there already that our model is much better suited to partner with and promote these companies then to attempt to duplicate their efforts.

The first to market moniker is a coveted one and also one that paints a large target on your back. This article explains nicely some of the pitfalls of being the first mover. How you use the opportunity, timing, and luck all play into the success or failure of your business if you are the first to define and enter a space. We have had our share of luck, and the timing this go around has been been near ideal, and thankfully we have been able to innovate and push the momentum at such a pace that being first to market has been a blessing for us. It’s up to us to keep it. 😉

Image courtesy: http://jfcbookstore.org/

work ethic

I will out play you
I will out run you
I will out smart you
I will out hustle you
I will out work you.

I will never give up
I will never rest
I will never settle
I will never stop.

I built the stadium
I planted the grass
I painted the lines
I recruited the players
I filled the stands
I invented the game.

I am the champion of haste
I am the unstoppable force
I am the disciple of diligence
I am more powerful than pain
I am the will to succeed.

I am the of triumph intention.

Just something in case you folks needed a rally cry to hustle. Go get it, no one can stop you.