How to Start a Startup – A Practical Guide

startup guide

A Practical Guide for How to Start a Startup

iDoneThis is our first startup and the only thing we’ve ever built that anyone’s ever used. When we started, we had no cash, no paying customers, no knowledge on how to acquire customers, and no idea how to run a business.  We had to learn all of the lessons packed into this startup guide the hard way, through experience.

What you won’t find in this guide is a bunch of theoretical talk about startups in the abstract. Whether you’re contemplating starting a startup or you’ve just begun to take the plunge, you’ll find useful, hear-earned lessons and case studies in this guide to start you on your way.

This guide includes absolutely everything we’ve learned about how to start a startup.  It’s all of the lessons we learned going from zero to having a million-dollar business. We’d love to hear what you think on Twitter at @idonethis.

Table of Contents

  1. Why You Shouldn’t Build a Billion-Dollar Startup
    1. Three Vital Lessons Learned from Starting Small
    2. Sell Before You Build
    3. Case Study: A Stupid Idea, One Year Later
  2. How to Get Early Traction
    1. The Only Thing That Matters
    2. Case Study: How iDoneThis Got its First 5,000 Users
    3. Case Study: How iDoneThis Got to $1,000 in Recurring Revenue
    4. Case Study: How Share as Image Got to $1,000 in Recurring Revenue
  3. Innovate Ways to Make Your Customers Happy
    1. Visit Your Musers
    2. Case Study: Crowdsourcing Product Positioning
    3. Case Study: Scale Customer Service through Copywriting
  4. A Behind-the-Scenes Look at Startup Finance
    1. Case Study: One Month’s Startup Expenses
    2. Case Study: How to Raise Money from Your Customers
    3. Case Study: 400 emails
    4. Case Study: How Dan Pink Invested in iDoneThis
  5. Manage Your Psychology to Avoid Startup Suicide
    1. 8 Myths Startup Founders Hate
    2. How to Build a Lucky Startup
    3. 3 Psychological Traps that Keep Your Startup in the Trough of Sorrow
  6. Don’t Just Build Product, Build the Machine that Builds the Product
    1. What Will Fast Company Write about Your Startup’s Culture?
    2. Case Study: The Extreme Productivity Philosophy that Created Facebook and PayPal
    3. Case Study: How Tony Hsieh Inspired Long-Term Motivation to Grow Zappos Culture

1. Why You Shouldn’t Build a Billion-Dollar Startup

billion (3)

Entrepreneurs dream about building the next big billion-dollar company. But the Apple, Google, and Facebook-shaped stars in their eyes end up clouding their vision. It’s easy to get caught up imagining your company going viral and getting to millions of users — all before your business has made a single dollar.

All the hopes and visions in the world won’t get you any closer to your billion-dollar exit. In fact, setting out to build a billion-dollar startup is one of the biggest mistakes you can make.

Gary Chou, an instructor at the School of Visual Arts in New York City, teaches his students how to launch a startup by taking a completely divergent approach. His course in Entrepreneurial Design has an unexpected syllabus for a business class: forget about creating a business plan or making a pitch deck for a fictitious billion-dollar unicorn company. Instead, get out there and do it — create a real $1,000-dollar company.

1.1. Three Vital Lessons Learned from Starting Small

Chou’s assignment is to create a business that will produce $1,000 in monthly profit in a way that’s repeatable and sustainable. What has emerged from this exercise includes real profitable, ongoing businesses and funded Kickstarter projects. But beyond the money that’s been made and the companies created, what’s most important is the experience and knowledge you take away — for if you take on the challenge of building a $1,000 startup, you’ll learn three invaluable lessons.

You’ll Create Self-Sufficiency and Independence

Getting your project to ramen profitability is a vital and game-changing milestone because individuals and startups need to be self-sufficient. Dependence and relying on others holds back your creativity and autonomyIf you have to worry about surviving based on a salary to make a living or investor money for your company to keep alive, you severely limit your capabilities.

Deciding to raise investor funding and swing for the fences often means chasing someone else’s dream, not your own. When you set out to build a billion-dollar startup, you’re often implicitly following another’s path to success rather than thinking independently.

For Zingerman’s, a Michigan deli that was doing $5 million in annual revenue, going big meant taking their local operation national and becoming a chain restaurant, replicating the same formula in city after city. But instead of chasing more revenue and growth, they decided to choose their own definition of success. They stayed small and local — rather than replicate the deli over and over by racking up franchises, they created the opportunity for their employees to start distinct local businesses, like a bakery and a creamery and more, based on the Zingerman’s culture and brand.

They multiplied their annual revenue by 10x to $50 million by blazing their own path.

Get your company to make $1,000 per month, and you start being able to cover rent. Your self-sufficiency slowly grows into a dawning sense of possibility because you’ve created a sense of self-reliance and control. When you feel more in charge of your fate, you have the means, the autonomy and the creativity to do something totally original.

You’ll Actually Learn How to Build a Business

Following the well-trodden road of building a startup by bouncing from idea to accelerator to funding to operating often results in a rude awakening. I’ve seen many founders who went through top accelerator programs, raised impressive-sounding million-dollar seed rounds, and then fell short when it came time to actually build the business. They had never made a single dollar so they never learned how to do it.

Basically, building a business is not fundraising.

By the time iDoneThis hit $1,000 in recurring revenue, I had gone through setting up the groundwork and learned how to grow — from how to build a product, to how bring it to market, to how to get people to pay for it.

When you focus on building a $1,000 startup rather than a billion-dollar one, you’ll get the order of operations right without putting millions of dollars of investor cash at stake as a funded company: validate and learn first, then scale.

Your $1,000 company might be bigger than you think

Building something big by building something small is actually one of the best, most counterintuitive ways to build at all.

The paradox is you limit yourself to “big” ideas, narrowing your scope and most likely coming up with bad big ideas. According to Paul Graham, the best ideas are often what he calls “toys,” or ideas you wouldn’t recognize as touching on a billion-dollar opportunity.

ZeroCater, a Y Combinator-funded company started by founder Arram Sabbeti, was born from the humble ambition Arram had when he wanted to quit his job. He just needed enough money to pay for his rent and ramen. He started by helping his own employer cater company lunches and began to expand to other local area startups.

What started as a $1,000 startup soon became a much bigger opportunity and then a full-fledged business, as Arram added more and more paying clients. Within a year, Arram had turned his rent and ramen side project into a startup backed by the best investors in Silicon Valley.

The big mistake is to focus on opportunities that seem like big ideas but result in products no one would pay for or use. To Graham, it’s far better to build a product that has customers who “really need what [you’re] making.” This will be a small number of people at first, and that’s okay. When your product has $1,000-worth of passionate customers, you have concrete evidence that you’re on to something good, with the potential to be huge.

The $1,000 startup is a powerful frame to put on your ideas, because it strips the distorting force of market opportunity out of the idea equation. Rather, it properly focuses you on the question of whether you’re building something that some significant number of people want enough that they’re willing to pay you for it.

Meanwhile, you get out there with a kernel, a seed, you do the work and grow from it, and you learn how to put one foot in front of the other.

1.2. Sell Before You Build

I’ve observed so many talented people fall into the same trap. In fact, they fall into the trap because of their copious talents. Creators like to create. They often stay in their comfort zones, doing what they’re good at, and they never venture out to sell until it’s too late. What happens is that a creator will build and build, and then when the product is ready to go, it will launch to a few press hits – and then crickets.

Eventually, you start reaching out to people to start selling your product. And here’s the worst part: when you finally get your potential customer on the phone, you find out that you’ve built the wrong product.

The Correct Order of Operations

Paul Buchheit, creator of Gmail and partner at premiere Silicon Valley startup incubator Y Combinator, advises his startups on the opposite order of operations, one that might feel extremely unnatural: sell before you build.

For us, this meant going out and getting customers to pay us for a product based on an idea that we hadn’t fully built yet. We’d put effort into building interest through our freemium product for individuals to track their progress, so we knew we were onto something. When we announced a beta for the product, we got 1,000 people for the wait list. We added some of those customers to the beta, and they helped us refine the product.

When it came time to launch iDoneThis for teams, we had something that we knew people wanted. Plus, we also had built an audience of thousands of people who were open to our product announcement. What was important to us was that these weren’t just random tech enthusiasts, like you might find on TechCrunch; they were individuals with a genuine, qualified interest in what we ended up building.

With that, we got to $1,000 in recurring revenue our first month after launch, and we didn’t have to do any customer acquisition post-launch to make it happen. We’d already done the work up front.

Undoubtedly, it’s terrifying to step outside of your comfort zone and sell before you build. But as renowned startup investor Paul Graham put it in a seminal article on how to start a company from scratch, “It would be a little frightening to be solving users’ problems in a way that wasn’t yet automatic, but less frightening than the far more common case of having something automatic that doesn’t yet solve anyone’s problems.”

Be brave and avoid the biggest pitfall of all: building something that no one wants and having to start over. Sell before you build to create a $1,000 startup, and who knows? That could be your first thousand on the way to a billion.

1.3. Case Study: A Stupid Idea, One Year Later

iDoneThis had the humblest of beginnings, and in a year’s time, we went from a stupid idea to having helped people get over 500,000 things done.

On December 17, 2010, Rodrigo wrote me the following email.  The title of the email was “stupid idea”.

A daily “what did you achieve today?” email. We send the email and expect a response.

Y’know there is this:

http://lifehacker.com/281626/jerry-seinfelds-productivity-secret  (he gets a big calendar and marks an  X on every day that he’s written jokes, the long chains of Xs get him to write more jokes)

Based on the emails that people send, we’d have some kind of graph/calendar like Seinfeld’s.

When we don’t hear from people we send them an angry email and show them their calendar with their string of Xs broken the next day.

I can likely put some rudimentary version of this together in a couple of days.

We called it “Attain Chain”.  And then we changed it because that’s a horrible name. Here’s one of the lists we kicked around.

dobait

rappio

donelick

donefuse

rappnag

donedrone

iDoneThis looks pretty good in comparison, huh?

Rodrigo, Peng (the site’s genius designer), and I started hacking on iDoneThis around Christmas time.  We made a push the weekend of the New Year to get a minimal viable product out by Monday.

And minimal it was.  We only sent email once a day, we only processed email once a day, we didn’t work with non-English characters, and we had to do unsubscribes by hand.  But we got it done.

On January 3, the first Monday of the new year, we put iDoneThis up on Hacker News, and it was glorious — 152 signups!

Barely anything worked right.  Rodrigo and I chatted at 1am at the end of a long day.

Rodrigo: i think we survived day 1

me: i need to go to sleep

Rodrigo: me too

good night

me: goodnight

made you a ton of tickets

Everything built slowly from there.  We kept working on iDoneThis as a side project here and there and soon we went from 1,000 daily dones to over 30,000 daily dones.

We initially hesitated to turn iDoneThis into our full-time gig because of how simple the site is.  A major deterrent was the incredulousness of friends and family that iDoneThis could become anything serious.

But we talked to our users who told us that they loved the service because it was so easy to use.  Our main learning from 2011 is that simplicity is power.

For one, simple services have a variety of use-cases which overlap with “legitimate” businesses and have an inherent advantage over those services merely for being simple.

We made up our minds to go at it full-time, got into AngelPad, and got things really rolling.

Now iDoneThis has helped people get over 500,000 things done and we have big things in store for 2012.

To everyone who works with us and to everyone who loves to use iDoneThis — I think we survived year 1.  Thanks for all the tickets.

2. How to Get Early Traction

The journey of the entrepreneur is to figure out what matters. We know that starting a company requires extreme focus and prioritization.

But figuring that out is no easy matter because of the jumble of possibilities and complexities of running a business, on top of the cottage industry of abundant, contradictory, and just plain bad business advice.

These 6 pieces are the thoughtful reflection of industry leaders on what matters, above all else, in building a successful company from scratch.

2.1. The Only Thing That Matters

The only thing that matters – Marc Andreessen

marc andreessen the only thing that matters

“The #1 company-killer is lack of market.” When there isn’t a market, the quality of the team and product don’t matter; conversely, when your market is booming and customers are banging down your door, it’s really hard to screw things up.

Andreessen articulates this observation (citing Andy Rachleff, formerly of Benchmark Capital) concisely, as the following law to startup success:

When a great team meets a lousy market, market wins.

When a lousy team meets a great market, market wins.

When a great team meets a great market, something special happens.

What that means for the founder — and should be her singular focus —is that the only thing that matters is getting to product/market fit. Product/market fit means that you’re “in a good market with a product that can satisfy that market.” You can tell by how that feels: customers are snatching up your product just as fast as you can make it, and the wind’s not in your face anymore — it’s at your back.

Founder/Market Fit – Chris Dixon

chris dixon the only thing that matters

Before attaining product/market fit though, there’s the long slog to get there. Whether you have the tenacity to stick it out and the insight to make it there will hinge on founder/market fit.

Founder/market fit requires that you as the founder (1) understand the market with “a deep understanding of the market [you] are entering” to the point that you “personify [your] product, business and ultimately [your] company” and (2) love the market enough that you’ll stick with the journey over many years, even as your product and the market evolve.

Without founder/market fit, there’s little chance that you’ll make it to product/market fit.

Startup = Growth – Paul Graham

paul graham the only thing that matters

Graham takes an abstract concept like product/market fit — that you know when you feel it — and quantifies it as 5-7% week-over-week growth in your key metric, the growth rate that successful startups tend to have.

The twist is that focusing on hitting your target week-over-week growth rate gives you the focus you need to be successful. It turns the “bewilderingly multifarious problem of starting a startup to a single problem” by “turning starting a startup into an optimization problem.”

If they decide to grow at 7% a week and they hit that number, they’re successful for that week. There’s nothing more they need to do. But if they don’t hit it, they’ve failed in the only thing that mattered, and should be correspondingly alarmed.

The only metric that matters – Josh Elman

josh elman the only thing that matters

It’s absolutely vital that you define the right metric for tracking your business’s growth. The key is to identify a metric that demonstrates that people “are using the product in the way you expected and that they use it enough so that you believe they will come back to use it more and more.”

In other words, the only metric that matters answers the question, “How many people are really using your product?

That has two components (1) people and (2) really using. For example, because pageviews aren’t people-centric, they’re too abstract. Focus on the people taking an action, not the action itself. DAU/MAU can be misleading depending on how “active” is defined and may not indicate deep engagement with and love for the product.

At Twitter, we found that if you visited Twitter at least 7 times in a month, then it was likely you were going to be visiting Twitter in the next month, and the next month, and the next month. And we decided this was enough initially to be “really using it.”

The beauty of this is that you’re forced to reflect on the unique metric and lodestar for your product, not adapt a generic, abstract, and ultimately unhelpful number that’s the product of someone else’s thinking. Then, it’s all about making that number grow.

Pick Your Compass Metric – Tobi Lutke

tobi lutke the only thing that matters

The power of the compass metric is that it guides and aligns the whole team and gets everyone moving in the same direction, which is the extremely powerful force that’s the engine driving Shopify, a multi-million dollar e-commerce juggernaut.

Once the metric has been defined, getting everyone to be guided by it is a UI problem. “You implicitly tell your team that if someone moves this metric in the right direction they are doing a good job” by making your compass metric the singular topic of recurring reminders.

Our internal goal is to reach 3% weekly growth, a very ambitious number given our size. The user interface is simple. Monday mornings, our system sends an email to the team:

compass metric tobi lutke the only thing that matters

 

Red ✘ if we fell short, green ✔ if we made it. Everyone gets it.

That’s supplemented by a quick weekly meeting attended by people who have a direct impact on the compass metric in which everyone in attendances shares two things:

What have we learned this week

What we are going to do differently next week

The “the motor of a fast-growing multi-million dollar venture-backed business” is picking the right metric and making its growth rate the subject of focus on a recurring basis (email and meeting) according to the appropriately chosen time frame (1 week).

How Will You Measure Your Life? – Clayton Christensen

clayton christensen the only thing that matters

The startup lifecycle can go by as quickly as a fruit fly’s. When you’re amidst the thick of things, it’s easy to confuse time and perspective, zooming in too much on the short-term. Don’t get caught up in marginal thinking or on local maxima.

Christensen reminds us to “[t]hink about the metric by which your life will be judged, and make a resolution to live every day so that in the end, your life will be judged a success.” In that way, both our startup and our lives strive to reach their global maxima.

For Christensen, his metric is “the individual people whose lives he’s touched.”  Choose your key business metric as a subset of the metric by which you measure your life.

2.2. Case Study: How iDoneThis Got its First 5,000 Users

Celebrate—we got our 5,000th user!

This is the most users either of us (Rodrigo and I) have ever had for any web project of ours.  In the past, we’ve taken the “build it and they will come” attitude towards web development … and they never came!  Here’s the story of how we got our first 5,000 users by constructing custom narratives for influential communities.

The Communities that Seeded Our First 5,000 Users

The major insight we had early on was that our first 5,000 users already existed, they were just part of other communities. We decided that we would go to those communities, tell them a custom narrative (not a generic story), and see if they were interested in our product.  It turns out that they were.

Hacker News.  At 9am PST on January 3rd, we posted a “Show HN” article on Hacker News with the hook that we built the site to keep our New Year’s Resolutions.

Note that our Show HN post was made as an external link to idonethis.com and we made a comment on that post that described the project.  We decided to do that instead of submitting a text story to HN with the first comment as a clickable link.  We had anecdotally observed that posts without external links were not making the front page too often after HN added “Ask”, and some of our friends had observed this also.

The Next Web.  That afternoon, Courtney Boyd Myers at The Next Web picked up the story from Hacker News and wrote a short blurb about us.

Throughout this process I began to notice just how deeply enmeshed Hacker News is in the startup and tech media network.  I didn’t realize that journalists lurk HN for stories, and in fact, now, HN is so big that there’s entire media built on top of it like The Startup Foundry and Hacker Monthly.  @hackernewsbot tweets out top stories from HN and has almost 9,000 followers, including influencers like Chris Dixon.  Early adopters write short blog posts about discovering your product and taking it out for a test spin.

Our simple post on HN reached the bottom of the front page for only three to four hours, but resulted in approximately 2,300 visitors over the next month and a half.  The majority of traffic directly from HN and TNW, some 1,400 visitors, came on the first day and dried up within a few days, but visitors continued to trickle in from other sources such as Twitter for over a month.  Our launch day saw 150 signups, but our user count continued to increase by over 50% over the next month and a half.

Reddit.  At the end of February, we cross-posted the article to three relevant subreddits, /r/GetMotivated/r/Productivity, and /r/StopSmoking.  We made sure to address Reddit in the title of the submission with “Hey [Subreddit]” and include in the title a statement of purpose for iDoneThis relevant to the subreddit.  And we engaged the Redditors who checked out the site in the comments to the submission.

How to get on the Reddit homepage (The Oatmeal)

How to get on the Reddit Homepage — The Oatmeal

Those three subreddits were possibly the optimal size — about 16,000 subscribers in total, so that we got a good number of eyeballs on our site, but the subreddits weren’t so huge that all we got was a traffic spike that came and went.  Our posts remained at the top of those subreddits for two to three days and generated over 50 comments worth of discussion.

Around this time, someone happened to post the Jerry Seinfeld Productivity Secret article from Lifehacker on HN.  That article was actually a source of inspiration for iDoneThis, and I happened to catch the news item before it floated to the very top of HN.  I wrote a short narrative relating concepts in the article to iDoneThis and the community at HN. 

Coincidentally, fellow HNers rguzman, peng and I recently built a simple web app which was inspired by this article.

It’s called http://idonethis.com.

We email you on a daily basis asking you what you got done today. We put your email response into a calendar and check off the day. Look at your calendar to see your streak from yesterday to motivate you today.

We posted the site on HN back in January and got some great feedback which we incorporated (http://news.ycombinator.com/item?id=2064038) along with some nice press coverage (http://thenextweb.com/lifehacks/2011/01/03/idonethis-have-yo…). We’re at a few hundred users, a good proportion of whom email us on a daily basis and tell us that that the site is helping their productivity, helping them quit smoking, reminding them to exercise & diet, etc.

My comment on that article stayed near the top during the article’s run at #1 on HN and drove considerable traffic to our site.  To my surprise, our high-karma comment on a top news item fared better than a news item that makes it onto the front page (albeit only for a few hours).  We got about 25% more traffic from our comment versus our submission.

In total, we got about 400 signups from 3,000 new visitors which tripled our user base.  Characteristic of Redditors and HN’ers, the folks that joined up with us were engaged and savvy.  They blogged and tweeted about us, and even offered to make screencasts and build web applications on top of our service.

Lifehacker – This was the big one

first 5,000 users

Is that a hockey stick in your pocket?

A month prior to getting written up by Lifehacker, I had cold-emailed them along with other life-hacking sites to pitch iDoneThis and nothing came of it.

Hi lifehacker,

I’ve built iDoneThis which is an email-based productivity log.  Our users include a few prominent startup founders.  One user called our service a “subtle yet powerful motivator.”

We email you everyday and ask, “What’d you get done today?”  Your email responses go into a calendar.  Look at your previous days’ accomplishments to motivate you today.

Unlike other tools whose usefulness is counterbalanced by their obtrusiveness, iDoneThis is email-based which adds zero overhead.

Please feel free to contact me with any questions here or by phone at XXX-XXX-XXXX.

iDoneThis had begun to stagnate and we were staying just about even in terms users trickling in and heading out.  Rodrigo and I weren’t dedicating much time to building the site more or promoting it, but then we talked to our users by sending out a little survey and the feedback was overwhelming.  A bunch of people expressed a deep appreciation for the product, and that convinced us that many more people might benefit from the site.  We decided to make another push for users.

In trying to pitch iDoneThis to bloggers the second time around, I went after a smaller fish.  I came across the perfect news item: a Lifehacker article that described the same process the author implemented by hand that iDoneThis automated.  The article had actually played a prominent role in the conception of iDoneThis along with the Seinfeld Productivity Secret article, and it was syndicated from How-To Geek, a smaller site.  I wove a short narrative more prominently around the former article and sent an email out to How-To Geek.

Hi there, How-To Geek, I came across your daily productivity log post on Lifehacker awhile back (http://lifehacker.com/#!5582372/use-a-daily-log-to-keep-yourself-focused-on-productivity).  I started to use the system and it worked great for me.  I was inspired to create a web application to make this process work best for me.

What I ended up with is iDoneThis.com, an email-based daily productivity log.  At the end of every day, the site emails you and asks, “What’d you get done today?”  All you have to do is write an email back in response.  Your response will go into a calendar for that day with a check mark.  Look over your previous accomplishments to inspire you today.

Our users include techies, lawyers, and female bodybuilders, among others.  This is what they’ve said:

“One of my favorite apps.”  – Naveen Selvadurai, co-founder of Foursquare.
“I love iDoneThis. It’s probably my favorite webapp that I regularly use.”
“I really like it — simple and easy… . It’s great!”
“Loving the service. I’m surprised by this, but it’s actually a pretty subtle, yet powerful motivator.”

It’s a dead simple way to implement your productivity method, and I’d love it if you shared it with your readers.

Please let me know if you have any questions.

On March 30th, our article made it on to How-To Geek and it featured the storyline that I presented to them.  The next day, Lowell Heddings of How-To Geek emailed us, unsolicited, to say that iDoneThis might appear on Lifehacker the following day.  We hadn’t asked How-To Geek to push our story to Lifehacker, so this was a pleasant surprise.  Sure enough, on April 1st, iDoneThis was on Lifehacker.

All told, we got 25,000 new visitors and around 4,500 signups.  The higher conversion rate was surprising but it speaks to the value in getting promoted by sites whose audience is co-extensive with the one you’re trying to reach.

Lifehacker traffic is still coming in as the iDoneThis article was serially released in Australia and then Japan.  Also, the users that have come in through Lifehacker have stuck around.  Out of the first 5,000 users we have, 4,000 of them are active.  About one-fifth of our users email us just about every single day.

Our experience speaks to the power of constructing tailored narratives for influential audiences, the value in talking with your users for encouragement and to evangelize your product, and the benefits of having some good luck.

2.3. Case Study: How iDoneThis Got to $1,000 in Recurring Revenue

When we launched a paid version of iDoneThis, we held our breath — we didn’t know if a single person would sign up.

The waiting, the sweat, the nerves.

Finally, the whoosh of a collective sigh of relief. One trailblazer of a person signed up for iDoneThis and put their credit card down.

Amidst all that “will they pay?” jitters though, we figured that if just one person signed up, there had to be at least 1,000 more people out there who hadn’t yet heard of us that would be willing to do the same. And that first month, we got $1,000 recurring revenue signups for our service.

How We Did It

1.   A simple product with a straightforward value proposition.

From the beginning, iDoneThis has been simple to explain and understand:

We send your team a daily email asking, “What’d you get done today?” You reply. The next morning, your team gets an email digest with what your team got done yesterday — to kickstart another productive day.

It’s an incredibly simple way to sync up at work.

For almost every team, syncing up is a pain point, and we provide a simple solution: instead of having meetings or interrupting people who are trying to get things done, sync up asynchronously over email.

The reason that it can be harder to build a simple product is that you will always have people laughing at you, asking incredulously, “People pay for that?” This happened non-stop in the early days of iDoneThis and continues to happen today.

Developer mentality re getting your first $1,000 in recurring revenue

In fact, the developer mentality is that the simpler a product is, the less willing people are to pay. Why? Because if a product is simple, developers will build it themselves instead of paying for it.

But it turns out that what people really think when considering a purchase decision is, “Does this solve my pain point and is it not outrageously expensive?” rather than “Can I build this myself?” Most people — and this includes developers — want to focus on doing their actual work, not building and maintaining a piece of technological scaffolding.

Purchase decision matrix re first $1,000 in recurring revenue

If you address a straightforward pain point in a simple way, people are more likely to understand that you solve their problem, and are thus more likely to buy.

2.   Avoid the cold start problem.

During the month that we got to $1,000 in recurring revenue, we actually did very little in the way of customer acquisition.

We could’ve gotten to $1,000 in recurring revenue by sitting around and doing nothing all day, because we’d already done the work up front to build an audience.

By that point, iDoneThis for personal, self-tracking use had grown to some 40,000 members, so there was considerable inbound traffic to the site. While the conversion rate was low because people arrived expecting to see the personal product, we nevertheless knew that people were coming to our page in the first place with a willingness to check out our wares.

Plus, we’d previously had individual members request that we build a team product, so we had a list of people to contact about the new paid version.

As Paul Buchheit, creator of Gmail and partner at Y Combinator, says, the correct order of operations is to “sell before you build.” When you launch, you want a whole list of people that you can tell to buy it. But more than that, you want to ensure that you’re investing all that time building something that people want to buy.

If you can’t build that list of interested people, it’s a pretty good sign that you shouldn’t build the product you have in mind at all.

3.   Minimum viable monetization.

Before launching the paid version of iDoneThis, we had endless conversations about how the pricing plan would work. Would we have tiered plans, price per user, price per usage, etc.? It felt like we’d never launch the paid version because we’d never figure out pricing.

It’s easy to get caught up in the anxiety of selling a product for money because you never fully believe that someone is willing to pay for it — that is, until someone does. That means that the most important thing you can do with pricing is to get going with the minimum scheme you need to charge people and make money.

We chose a very simple plan of monetization of $3 per person per month, then later changed that price and grandfathered in all the old teams.

We also decided to take peoples’ credit card up front. The idea was to test the question of whether people were willing to pay in the harshest way. We felt like people must really want the product if they were willing to put their credit cards down for a free 30-day trial period. And we’d know within the first month whether people were willing to pay instead of having to wait the 30-day conversion period.

By requiring a credit card up front, we also didn’t have to build all of the infrastructure for pinging people to put down their cards during the conversion period, which was just another barrier to getting the paid product out.

Despite the overwhelming uncertainty that we felt about convincing people to get out their credit cards, we’d actually prepared for much of the guessing game by doing a lot of legwork, cultivating engagement and paying attention to feedback, and testing for customer enthusiasm.

When you know you have a simple solution to an existing pain point, have put in work on selling before building, and go ahead with pricing structures and processes that also uncover information about your market — the sweat and the nerves will probably not go away — but you’ll have a sense of underpinning and foundation to get the ball rolling.

2.4. Case Study: How Share as Image Got to $1,000 in Recurring Revenue

image

Adam Rotman didn’t go into creating Share As Image, a bookmarklet that allows people to turn quotes into custom images, with billion-dollar signs in his eyes. It was just going to be “a cool little app” that he and a partner hacked together after noticing the profusion of quote images on Pinterest.

His a-ha! moment arrived when he began to hear from users. He realized that what had started out as a casual side project actually meant something. When people told him, “Wow, this is so awesome. I wasn’t able to do this before,” it hit him that  “wow! It’s actually a useful application…. So then you get that kind of intrinsic good feeling out of it.”

There was a similar a-ha! moment with iDoneThis for our CEO and co-founder Walter Chen, who recounts, “[A]fter we put it out there, I knew it was something that was super simple. People started saying it was like the greatest thing they’d ever used. That feeling is not only awesome … It gives you the sense of the dawning possibilities of what you might be able to create that might make people even happier.”

Ideally, a business presents a win-win for everyone. If you provide something that people value, they will be willing to pay you for it. But entrepreneurs and businesses often fall into a trap of expending tons of effort into making something “big!” without investing that magnitude of energy into finding out how, or even if, people connect with what’s being built.

Adam grew his side project into a thriving source of reliable income by keeping that conversation with his customers going to figure out what would make them even happier. Shooting for the mutual win also guided Adam’s strategy regarding partnerships, PR, and pricing.

Here’s what worked for him:

1.   Look for opportunities to partner for mutual benefit.

One major boost for Share As Image is a publisher partnership with BrainyQuote.com, the world’s largest quotation site, according to its About page. When you highlight a quote on BrainyQuote, a Share As Image option pops up alongside social share buttons.

For BrainyQuote, embedding the Share As Image tool directly onto the site was “a great value add”, allowing those users to gain a unique functionality that no other quote website had. That functionality was valuable enough for BrainyQuote to forgo a typical revenue-sharing model.

In building the embed code and eventual publisher version of the product, Adam was sure to maintain wins other than his own. While the bookmarklet links back to Share As Image, the publisher version links to the page you just came from. Adam explains, “That’s a big incentive for the publishers. It’s a way for them to get more traffic to their websites.”

2.   When you pitch your side project, go big and offer a useful hook.

Adam pitched the person who ran BrainyQuote with a cold email. “For some reason, I went straight to the big guy,” Adam recalls. “I spoke to many quote sites after him, but he replied.”

He took a similar approach when he was looking to gain some press coverage, going straight for the larger tech sites such as The Next Web. “It was go big or go home. I was concerned that if one of the smaller blogs wrote about it first, the bigger blogs would be less interested in it. I guess they fight over who gets the first story on something that’s new and unique.”

That wasn’t all though. Adam also pitched with purpose, targeting authors on tech and social media blogs who’d already written about Pinterest.  He describes the process, “I’d search for the tag “Pinterest” or would manually look for authors who were talking about Pinterest. Basically we tried to find their email or find them on a social network … telling them, ‘Hey, check out this cool thing I hacked together. What do you think?’ I think your readers would really enjoy this.’ Right away, a bunch of the good tech blogs picked it up.”

By approaching people with something they could find valuable and starting at the top with the heavier hitters, Adam managed to gain valuable partnerships and coverage while expending less energy and time.

image

3.   Get feedback from users to figure out what they’ll pay for.

The first version of Share As Image was completely free and didn’t offer any customization options. “It was literally just dark gray on white background, centered text. So it was pretty bare bones, but it did that fundamental core feature of just turning text into a .png.”

It was only when Adam saw that people were getting value out of the tool as hundreds of images start to appear and requests for font, color, and other options started rolling in that he began thinking about an advanced version — one for which he could charge.  “It was just a matter of listening to the users and seeing what they wanted it to do, and then finding out pretty quickly that people were willing to pay to get those features.”

In first deciding how to monetize the pro version, Adam simply accounted for how much he had to pay his developer to build the new features. Originally, he decided on a fixed, one-time fee of $1.99, thinking of it as a “fixed development cost,” but eventually saw a longer view for the product that would require recurring revenue that could support iterations over time.

Recently, Share as Image came out with a new version and a revamped pricing structure. The free version offers full-featured use of the tool for up to 3 images and then it’s $5/month for unlimited use. Adam explains, “This way the user gets the full experience on a trial basis, but if they’re going to be using it for business” — such as life coaches, social media marketers, and bloggers, who can use such images to help generate revenue, “it’s a no-brainer to upgrade.”

3. Innovate Ways to Make Your Customers Happy

3.1. Visit Your Musers

It’s hard to build great technology products without a muser. The muser not only adds emotional motivation to the developer’s work ethic; she serves a cognitive function of focusing his mind on the one thing that truly matters: what using the thing is like. Without her, projects disintegrate into scattered bundles of individual features, appealing to the intellect but not the heart.

– Jakob Lodwick, Elepath.

Hands down the most inspired we’ve felt as a company has been our excursions to visit our musers, see first-hand how they get down with iDoneThis, and chat about the vision and direction of the company.

From San Francisco to Ottawa to Learn How to Startup

It started serendipitously.  In February, we’d started corresponding with a guy named Tobi at Shopify about a support matter who turned out to be the CEO.  The more we talked to Tobi and read about Shopify, the more enamored we grew with them — they do things their own way and on their own terms, and they’ve been wildly successful.

our muser shopify

When the iDoneThis crew was sitting around chatting one night about Shopify, we were struck with a brilliant idea!  We should get to know them, see how they use iDoneThis, and learn how they’ve built an amazing company.  It was a bit forward, but that night we invited ourselves up to Ottawa, Canada, to hang out with them at work for a week.

The next day, Tobi wrote back:

That sounds really cool. Cody Fauser ( our CTO ) agrees that iDoneThis is working really well at Shopify. There are a few things that we definitely have on our wishlist  but once there is an umbrella company account type all the really important things are there.

Send over some dates and also Laura from our office can help set this up.

– tobi

CEO Shopify

A month later, we flew into a frigid Ottawa winter from San Francisco and New York, and we arrived to incredibly warm and hospitable company. They gave us office space to work for an entire week, and the exec team, developers, and all staff took a ridiculous amount of time out to give us feedback and talk excitedly about what iDoneThis could be.

Tobi later told us that he was thrilled by our visit, and he wished that when he first started Shopify (over 6 years ago) that he’d spent more time getting out of the building and talking to customers.  He shared his vision for not only disrupting e-commerce software, but for re-imagining software development around creativity and craft, not hours and grind.  Everything became more meaningful because they believed in what we believed in.

We’re eternally grateful to Shopify.  Their enthusiasm for iDoneThis made us feel as if we deserved to exist, even though we still haven’t justified it based on profit.  We continue talk on a regular basis with the Shopify team and they’ve remained our customers and friends.  (Walter now plays Starcraft with Shopify data analyst Jesse Lung nearly every day.)

Waking Up in Vegas

A few months later, we started corresponding with a fellow named Will who’d recently started using iDoneThis with his team at Zappos.  It turned out that Will was Will Young, director of engineering at Zappos Labs in San Francisco and partner in the Vegas Tech Fund, a $50 million fund to bring startups to downtown Las Vegas (part of Tony Hsieh’s Downtown Project, a $350 million project to revitalize downtown Las Vegas).

Will loved the product and told all of the Downtown Project team about it, including Zappos CEO Tony Hsieh.  Before long, Tony and the Downtown Project crew were on iDoneThis, and we found ourselves in Las Vegas getting feedback first-hand from the Downtown Project cohort and in Tony’s apartment watching him play around with iDoneThis on his email client of choice, Pine.

our muser tony hsieh

Zappos is amazing company because they look at seemingly everything through the frame of culture and that thought process pervades the entire company.  To Zappos, culture is everything — it’s product, customer service, PR, etc.  We were humbled that they chose to use us to positively affect their culture of collaboration and feedback, because that’s something we hoped would be possible.

To Shopify, Zappos, and All of Our Musers

We were our own muser to start and that was effective but lonely.  Visiting Ottawa and Las Vegas to meet our musers tapped a deep source of motivation that imbued us with the sense that we weren’t alone and that we might be on to something.

Connecting to the people in those companies re-sensitized us to the feeling of using the product — a sense that can get numbed after using the product so many times.  Chief Design Officer at Shopify Daniel Weinand spent over an hour walking through everything about our onboarding process that sucked, and it physically hurt us.

Before we heard back from Tobi after inviting ourselves over, we were terrified that he’d laugh in our faces.  It turned out to be one of the most rewarding experiences of working on iDoneThis that gave us motivation, empathy, and food for thought.

3.2. Case Study: Crowdsourcing Product Positioning

We have a broad-based, loosely constrained web application.  Our users engage with the site in a variety of different ways for a number of reasons.  That makes it difficult to take a bunch of usage information and turn it into actionable data about how to position our product.

In searching for data to form the basis for a concise statement on our site’s value proposition, we ended up in an unexpected place.  We had built an invite system which was super simplistic.  A user could type in an email address and include an optional message.  We would email that person with an invitation to sign up to use iDoneThis (no special referral URL, just a link to http://iDoneThis.com).

It turns out that when a user invited her friend to use iDoneThis, she used the optional message, not merely to say hello, but as an opportunity to pitch her friend on using iDoneThis.  Our invite system ended up containing concise statements of how users use iDoneThis, how it works for that use case, and the value they derive from it — and gives us the language to express all of that.

Turning those words into a word cloud gives macro-level view on the key concepts used by the crowd to pitch iDoneThis.  Day, done, email, and track are the most commonly used words.  After that, simple, send, see, work and every stand out.  Finally, journal, calendar, sends, diary, and free have a good number of mentions.

  • “Every” and “day” describe the temporal context of the “done” and the “email.”
  • “Email” is the medium within which we work — everyone knows how to use it, so it’s “simple.” We “send” a daily email, which describes the difference between push versus pull.
  • What got “done” is what’s being “track[ed]” — it’s the question for which we’re prompting a response.
  • “Track[ing]” daily “done[s]” creates an object of value, a “journal”, “diary”, or “calendar” which could be used personally or for “work” that you can look back on and “see” your progress.

The prominence of words such as “really”, “like” and “love” to express the concepts above suggests that, whether for personal or professional use, iDoneThis is valuable because it’s a friendlier way to do status updates because a nagging boss isn’t involved.

Ultimately, the taglines to use are the ones that convert the best.  Implementing a dead simple invite system is one of the easiest ways to seed that iterative process.  Let your own customers pitch on your behalf, and see what they say.

3.3. Case Study: Scale Customer Service through Copywriting

Technology provides the basis for this two-man team to run a web service that has handled nearly 30,000 email entries. But going from about 600 registered users in late March to over 5,000 in mid-April not only required us to scale our technology, it forced us to scale customer service as we saw our support emails explode from 23 total requests between January and late March to about 300 over a two-week stretch at the beginning of April.

Great customer service is a highly personal process, but, of course, nothing says great customer service like a fantastic product.  In the words of 37signals, “Copywriting is interface design” and “good writing is good design”.  Here are 4 lessons that we learned as we learned how to scale customer support and knock our support email volume down from as high as 16 per 100 new users to zero by becoming better writers.

Explain your service using the fewest possible words — every piece of detail is an opportunity for confusion.

iDoneThis is an email-based productivity log.  At the end of every day, we email our users and ask them what they did that day.  To make an entry, they just respond to our email.

From the start, we included a line in our email which we used to split the original message from the user’s input.  Our daily emails used to look like this.

————————————i done this—————————————

Howdy!  Take 30 seconds to write out what you got done today.

Today is day zero.  Clean slate.

But remember the ancient wisdom — a journey of a thousand miles begins with a single email.

Don’t forget.

Put each thing you did on its own line

like
this.

Everything you write above the dotted line gets saved.

We kept a calendar for you.

http://idonethis.com/cal/user/

To unsubscribe from the daily email reminder, please email us at unsubscribe@idonethis.com

To our surprise, the dotted line instruction confused our users.  Many of them didn’t know what the dotted line was, especially because email clients insert dashed lines into reply text.  Other users didn’t know what to do with the dotted line.  A few copied the dotted line, deleted the reply text, pasted the dotted line, and wrote above it.  Others wrote their entries directly above the dotted line but below the envelope information for the original message.  That worked, but resulted in a far bulkier UI than we’d intended.

It became clear to us that reference to the dotted line alone confused users because it led them to believe that they should do something other than simply reply to our email.  On April 5, we got rid of reference to the line completely, but we wanted to make sure that users wrote their replies above the dotted line, lest they check their calendars later and find empty entries.  We instructed users to “[w]rite [their] reply above our message.”  The judgment on our new language came back swift and hard.

From: xxxxx@comcast.net

Hi  I did get an e-mail but,  but could not type in the———————-space  help!

From: xxxxx@hotmail.com

Hey guys,

I can’t figure out where to enter my what I did info. You say above your message,but that’s not working.And I guess ya can’t write in the calendar square. Help,please.

From: xxxxx@verizon.net

I am unable to write in you e-mail.

I wuill have to unsubscribe from your service.

Good luck to you.

From: xxxxx@gmail.com

I like this idea…just don’t know how to see what I’m typing.  Please, help!

From: xxxxx@sbcglobal.net

I am a new subscriber. I use Firefox 4.0 for my mail.  I am unable to get a cursor to appear above the ——i did this—-line.  I’ve tried the arrows, select all, tried to erase the  ——i did this——- line, etc.  What should I try now?

From: xxxxx@gmail.com

no where on/above your message am i allowed to type anything.  what gives?

The next day, we changed the language to read: “Just reply to our email to make an entry.”  We’ve had 0 support emails since.

Use help documentation to handle corner cases.

In early April, one user wrote to us, “[L]ove the interface you have.  Simple, uncluttered, and just what’s needed.  Heck, you don’t even have a FAQ [iDoneThis] is so easy [to use]!”  A day later we had to write a Help section to stave off early-onset carpal tunnel.

Explaining your service in the fewest possible words means handling the corner cases with copywriting outside of the main user interface flow.  For instance, it’s a corner case that a user will write his reply below the original message — the vast majority of people write their replies above the original message — so it should be left out of the primary set of instructions.  But if you don’t handle corner cases somewhere, you’ll either continue to receive support queries or lose users for unknown reasons.

After we changed our copy to instruct the user to just reply to our email, we did see a small uptick in queries about entries appearing blank.  We handled that issue in our Help documentation and that issue disappeared.

Users won’t read most of the words you write—understand how context shapes meaning.

We had a major usability issue in onboarding our users: after the user signs up, there’s nothing for the user to do until the evening when she receives the first daily email. Initially, after signing up, the user went straight to her calendar with a message at the top that said to wait until the evening.

Unused to having nothing to do after signing up for a website, users told us that the site was broken because they didn’t have a way to input their entries directly into the calendar or by email.  “I don’t understand how this site works,” two users echoed.

We unabashedly looked to OhLife to solve the problem.  OhLife is an email-based diary with a gorgeous and simple interface which had a similar usability pattern.  (Users get a daily email asking them to write a diary entry for that day.)  They have a welcome page that explained how to use the product and sent the new user their first email soliciting the first diary entry immediately upon signup.

We split the baby in the worst possible way — we welcomed the user with a welcome email which instructed him NOT to respond but wait until the evening for the first email to which he could respond, and in the browser, the user was taken to his blank calendar page which again included the directions to wait until tonight to do anything.

Our new users told us this was dumb — by emailing welcome@idonethis.com with what they had done that day.  My own mother did this.  We failed to onboard 6 out of every 100 new users in this way.  The flow didn’t make sense: Sign up -> empty calendar page with the instruction to respond to the evening email -> and then an email from us shows up in the inbox.

This showed us the power of context in circumscribing the effectiveness of copywriting.  We changed around the words in the welcome email to make it more clear that the user should not respond to that email.  But while the words in the welcome email were clear, their context strongly suggested a different action.  We repeatedly told our users to expect an email from us to which they should respond, and then an email showed in up their inbox.

The support emails continued to flow in until we nixed the welcome email and replaced it with a welcome web page.  The semantics made sense — web pages said that they weren’t editable, and they weren’t editable; emails said to respond, and they were respond-able.

Include help text on every single page.

Users don’t read most of the copy, so it’s a good rule of thumb to repeat yourself and include help text on every single page.  On our main page and our welcome page, we tell the user that iDoneThis is email based, but we still received 6 emails per 100 new users asking us how to make entries via the browser.  We added a paragraph to our Help section again explaining that entries could not be made through the browser and we still received support emails.

Finally, we added help text to the calendar page itself — an obvious solution, really, but one we initially perceived as inelegant — and the support queries went from 6 per 100 new users to zero.

Today

The number of support emails we receive per 100 new users has dropped to nearly zero.  We’ve been successfully able to scale customer service using copywriting alone.

The lower volume means that we can give great customer service to those that do request it.  The support emails that arrive in our inbox these days are for known and unknown bug fixes, not usability questions.  That frees us to focus on the most important aspect of customer service —  building a great product.

4. A Behind-the-Scenes Look at Startup Finance

4.1. Case Study: One Month’s Startup Expenses

image

Don’t tell me what you value, show me your budget, and I’ll tell you what you value.

 Joe Biden

When Everpix shut down and open-sourced their financials, one of the most fascinating and hotly debated points was the company’s expenses.

I thought that adding another data point to the conversation could be interesting to fellow startup folks. Here’s one month of expenses here at iDoneThis, for July 2014. What you see below is taken straight from our bank statement.

People

Payroll $19,610.45
Payroll Taxes $5,025.65
Blue Shield $2,093.00
Paychex Fees $122.36
Total $26,851.46

Paying people is by far our biggest expense. This is how much it costs to support our small company of 4 people. This month our people costs only accounted for 58% of our startup expenses, but it regularly accounts for closer to 85%.

We have health, vision, and dental for everyone on the team. We’ve already seen how investing in the health and well-being of the team has paid off.  Earlier, we didn’t have dental and one of our employees had a dental emergency. The company chipped in to cover the cost of the procedure, which cost over $1,000. Afterwards, we got dental and vision for everyone, and it gives peace of mind and protection against another similar incident happening. Ultimately, on a team comprised of people all over 30+ in age, this is a must-have.

(Note that we pay dental and vision annually, so it’s not in any of the amounts above.)

SaaS

Heroku $1,387.00
MailChimp $652.50
SendGrid $589.27
Intercom $248.00
Baremetrics $79.00
Baremetrics $79.00
iDoneThis $51.00
Customer.io $50.00
Litmus $49.00
HelpScout $45.00
Embedly $44.02
Buffer $40.00
Dyn $30.00
iDoneThis $30.00
WP Engine $29.00
Embedly $28.00
Wistia $25.00
GitHub $25.00
GetSentry $24.00
Wufoo $14.95
Buffer $10.00
Total $3,529.74

And we not only use our own product, we pay for it too, so that we are literally our own customers.

We’re big believers in the power of SaaS. Defaulting to using SaaS over building things in-house means that we can focus on what we do that’s valuable.  For example, last month, we ripped out our homemade drip email system and replaced it with Customer.io. This frees us from the trouble of maintaining our homebrew when bugs pop up and it goes down. Plus, Customer.io is building features and improvements to drip emails that we’d never have time to do.

To us, paying for SaaS is like a better version of hiring someone to do the job.

Office

Office Rent $10,599.71
Furniture – Chairs, lamps, couch $2,500.00
Amazon Marketplace – Aeron Chair $899.00
Amazon Marketplace – Aeron Chair $899.00
Amazon Marketplace – standing desk $300.48
Amazon Marketplace – Dell Monitor $198.00
Amazon – office chair $170.25
Amazon – speakerphone $95.80
Total $15,662.24

The amount spent on the office this month was anomalous but I thought that it might be interesting, so I left it in.

We moved into our first office this month.  (It’s at 47 Great Jones near Bowery if you’re in NYC — come by!)  To negotiate away the good-guy guarantee, we offered to pay 3 months’ rent up front in addition to 1 month’s security deposit. Ongoing, our rent is $2,625 per month.

Considering how much time we spend at our desks, we did think it was worthwhile to invest in ergonomics. We initially bought a bunch of furniture off of Amazon, but we came across a Craigslist listing for a startup that was downsizing. We bought 9 Aeron chairs, 3 lamps, a couch, a filing cabinet, and a plant from them for $2,500 and returned the 3 chairs we purchased from Amazon.

Moving into an office is expensive!

Miscellaneous

Twitter Ads $222.20
Job Board Listing $200.00
DANNYVANKOOTEN.COM $59.00
Odesk $11.11
Odesk $10.00
Jonathan Quach $2.72
Total $505.03

Here’s where we have some experiments.

We’ve only played around with paid acquisition — it’s something we’ll likely dedicate more time to later on. We tried finding writing freelancers on oDesk, but none of them produced high enough quality writing. We put a job board listing on WeWorkRemotely.com, and we got some fantastic candidates from them.

Total – $46,548.47

This is our highest month ever for expenditures because of the office move-in. We’re not bootstrapped, but we operate close to profitability, so we try to keep expenses down and only spend money on things that are truly important.

4.2. Case Study: How to Raise Money from Your Customers

In January 2013, our company was in a situation that many companies now find themselves in. The seed funding we’d raised in December 2011 was running out. We had decent traction, hitting $10,000 monthly recurring revenue with a respectable growth rate, but we were far short of Series A-ready and not yet profitable. Our seed investors decided not to put in more money.

We saddled up and went out to talk with investors anyway, but stirred little interest. “A second seed without support of your current investors? No thanks!” We had tough conversations with the team about the potential for layoffs. We emailed our investors and stakeholders and told them that either an acquihire or shutdown were likely.

Faced with this dire scenario, many companies have either sold or shut down, and we nearly did too. Before we did, however, we decided to get desperate, which is how we found our path to escaping the Series A crunch and lived to fight another day.

Our inspiration came from another company. In October 2008, before the billion-dollar valuation and public proclamations of becoming a 100-year company, Evernote was one night from shutting down. The company had three weeks of runway left, and founder/CEO Phil Libin had gone to bed resigned to wake up the next morning and let all twenty employees know that they were out of a job.

It was 3:10 am. In front of him was an email from a man in Sweden whose life had been changed by using Evernote. At the end of the email was the line, “If you are ever looking for any investments, just let me know.”

Less than 40 minutes later, Libin was on a Skype call with the mysterious man and, just two weeks later, was on the receiving end of a $500,000 wire transfer.

The story of a user, so in love with Evernote that he put in $500,000 nearly sight unseen, drove me to reflect on whether any of our customers would do the same. That lead me to the question that’s at the heart of the Series A crunch: Do we even deserve to exist? Does it matter if we die or is it better that we be culled from the startup herd for the greater good?

I found this question to be incredibly empowering because it turned fundraising on its head and made our company’s survival more of an issue of customer development, à la Sean Ellis’s preferred question, “How would you feel if you could no longer use the product?” For Ellis, if 40 percent of users reported that they would be “very disappointed,” you have product-market fit. For us, we felt that if our customers loved the product enough — that they not only would pay for the product, they’d invest their own money in it — that we deserved to exist.

It’s amazing to get validation from your customers, but it feels worse to get rejected by them than it does an ordinary investor for the same reason. That’s because they actually know you. That’s why the number one question I get from people I tell about customerstrapping is, “Aren’t you afraid of ruining customer relationships?”

But we figured that if we shut down the product, if our customers cared, they would be disappointed that we didn’t fight on their behalf for our own survival.

We started by emailing a few key customers who we knew had done some investing and who we’d gotten to know pretty well. Will Young, head of Zappos in San Francisco, had used iDoneThis with his team for over 6 months. He is also a partner in Tony Hsieh’s Vegas Tech Fund. Luc Levesque, VP of SEO at TripAdvisor, was another longtime customerwho had done some angel investing. Jamie Lin, founder of appWorks Ventures, had used iDoneThis with a number of his investments and his most successful investment to date, EZTABLE, is one of our most engaged companies.

Right off the bat, I noticed that the questions that our customers asked were different. Unlike VCs’ questions, our customers’ questions were less focused on the size of the opportunity and they were more focused on the product and the soul behind it, and that’s how we got to know each other better.

Ultimately, when these folks decided to invest, I actually felt tremendously moved because I felt like we had a deep alignment and shared obsession–that made me feel as if we were really finding our tribe–not an intellectual agreement on a market opportunity based on a detached scientific analysis.

When we decided to focus 100 percent on fundraising from our customers, our fortunes turned 360 degrees and we went from having nothing committed to filling out a $500,000 round from people we were proud to call customers like Tobi Lutke (co-founder/CEO of Shopify), Dan Pink (bestselling author), Teresa Amabile (Harvard Business School professor), and Kai Huang (co-creator of Guitar Hero) longtime customers of and investors.

As we began to work our customer network for fundraising, we not only found that our customers were our best prospects, they also gave us the best introductions. Founders like Chris Savage (co-founder/CEO of Wistia), Leo Widrich (co-founder/CMO of Buffer) and Julie Uhrman (founder/CEO of OUYA) went to bat for us and recommended us to their own investors with the message that they used iDoneThis in their own companies and found it invaluable.

That process actually helped us find investors who we turned into new customers and then into investors in iDoneThis. People like Eric Kim, founder/CEO of Twylah, and Dave Balter, founder/Chairman of BzzAgent (acquired by dunnhumby), were introduced to us as investors. They tried the product, became customers and believers, and then decided to invest.

AngelList and LinkedIn helped us with the grind of finding which of our customers also invested in startups and how to connect and backchannel with them via other customers. AngelList fortuitously launched a new feature during our fundraising which let us list our customers. This gave us an excuse to reach out to our customers for fundraising help that sometimes turned into a fundraising conversation. It let us build our network on AngelList in an area of strength, which resulted in serendipity like Roy Bahat, head of Bloomberg Beta, learning that we were fundraising and offering tremendous help.

While acknowledging the downside risk of a party round and the lack of inclusion of a VC who is ready to put in more money in case the company needs a capital infusion, this financing has played out well so far.

Customerstrapping bridges the divide between VC versus bootstrapped nicely by giving the entrepreneur a bit of capital as a cushion and to push growth at the same time as it helps bring people on board whose interests are aligned with customers and the company. We’ve deepened our relationships with people we admire, and we go to them for product feedback and for advice on how to build an early-stage company.

While raising this round, like all fundraising, was exhausting, it also grew in the company a wellspring of deeply personal inspiration and motivation. Successful tech entrepreneurs that we know and that believe in us put their own money into our company.

Now, we gotta make them proud.

4.3. Case Study: 400 Emails a Day

There was a point a few months in to our fundrising where I had hit rock bottom. We’d raised only 2/3 of our round and we were running out of time and money. I sat down with another entrepreneur who’d looked death in the face and lived to tell the story–he’d raised millions of dollars under arduous circumstances.

He looked me in the eye and in a few words, he got his message across. “400 emails a day,” he said.

I didn’t take it literally, but the message he conveyed in spirit was powerful. If you want to raise, it’s not about being the best salesman in the world and having the slickest tongue, it’s about persistence and dogged determination. I never sent 400 emails in a single day, but that attitude is what it takes.

I got back into my email and Pipedrive and ground it out. A few weeks later, we’d not only raised the remainder of our round and hit our fundraising target, we’d nearly doubled it.

Every day, I would have 4 websites open at all times: Gmail, AngelList, LinkedIn, and Pipedrive. I used AngelList and LinkedIn to find investors and figure out how best to contact them. I used Gmail to contact connections for introductions, follow up with investors, and email with fellow entrepreneurs for help and advice. I used Pipedrive to manage this whole process. Pipedrive told me who I’d contacted, who I should reach out to or follow up with, and how I was doing overall.

To me, it’s all about 400 emails a day. Follow up relentlessly and without worry of getting rejected.

Leo Widrich, co-founder at Buffer, has a great article on this topic which he calls “ratio thinking.” As Leo puts it, in “whatever you do, try and find the percentage rate you need to succeed, instead of trying to succeed with each individual attempt.” Once you figure out the ratio you need to succeed, then the only thing you need to do is send 400 emails a day.

4.4. Case Study: How Dan Pink Invested in iDoneThis

Email Dan Pink.

That task sat on my to-do list, undone for weeks. I somehow managed to move everything else around it to my done list while that one task languished. I was too scared to reach out.

If you don’t know who Dan Pink is, he’s a five-time bestselling author and thought leader on the changing world of work. His latest, To Sell is Human: The Surprising Truth About Moving Others, which gives a definitive look at modern sales, is a #1 New York Times business bestseller.

I had to sell to the guy who had literally written the book on selling.

I finally worked up the courage to send Dan an email, and we set up a call. Then, I gave him a horrible pitch — I fumbled my words and my nerves paved the way to tangents that made no sense. When we were done, I hung up, dejected and I felt sure that I’d blown it.

Even nerds like me have to sell in this new world of selling

No longer is selling the province of a specialized sales department. (Imagine if a startup had a team dedicated solely to fundraising!) We’re all selling now, and this is a point that Dan drives home in his book To Sell is Human.

image

It’s absolutely vital that our skill sets are “elastic,” that is, flexible and stretchable across functional boundaries and disciplines, because our jobs are neither as segmented nor discrete as they were in the past. Dan writes that “[a] world of flat organizations and tumultuous business conditions — and that’s our world —punishes fixed skills and prizes elastic ones.” Because business conditions are constantly shifting, companies need to be organized in nimble and agile ways, and they need to be comprised of people who can make adjustments on the fly.

Dan points to business software company Atlassian whose entire company is organized around this notion of elasticity, from the way the company is organized internally to the way that it interacts with customers.

Atlassian is totally different from other enterprise software companies in how their product is bought and sold. At your typical enterprise software vendor, the relationship begins with a visit from the vendor to the potential customer, prospecting for new business. But at Atlassian, they don’t even employ a single salesperson to source customers or pay those kind of house calls.

The customer relationship begins when they learn about Atlassian, visit the website, and are immediately able to sign up for a trial. Afterward, the customer might have questions or reach out for help, and Atlassian’s support team is there to answer questions and their engineers are there to fix bugs. What they don’t have is a sales team that badgers you to commit.

As Dan puts it, at Atlassian, sales “isn’t anyone’s job. It’s everyone’s job.” And that transformation goes hand-in-hand with the inversion of the sales process: don’t sell, serve.

How We Sold to Dan Through service

As happens with Atlassian, our relationship with Dan began two years ago, when something simple and amazing happened — Dan signed up for iDoneThis, tried it, and loved it.

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He became the kind of supporter young startups dream about. He blogged about us, talked about us at conferences, and recommended us to his loyal following. He even took time out to talk with us on the phone a couple of times, and it turns out that he’s not only a tremendous writer, he’s also a keen product guy.

But there’s a huge gap between loving a free product and paying for a product, much less investing money in the product. That’s what had me daunted, and after the pitch on the phone, I thought I’d blown an incredible opportunity to get Dan on board.

But then, Dan started following up with questions.

He wanted to take a deeper dive into the terms of the convertible note, because he had never angel invested before. I knew this was important because Dan was trained as a lawyer — at Yale Law School, no less — and his wife is also a DC lawyer, and for lawyers, legalities can be a major hesitation point.

Fortunately, in our corner, we have probably the best early-stage lawyer in Silicon Valley, Yokum Taku at Wilson Sonsini. Yokum kindly offered to get on the phone and discuss the terms of the investment until they felt comfortable with it. After their conversation, I could tell that the legal question had receded as a hesitation point, thanks to Yokum.

I didn’t hear from Dan for a few weeks. Then, he emailed me. He was in. Dan wrote, “I figure a product I’ve used every day for 2 years has something going for it!”

A Modern Sell

Every fundraising announcement contains a list of famous investors who’ve come on board, but I’ve never seen a fundraising announcement that lists the people behind the scenes who helped make the round happen. I thought I had to be that kind of polished, untouchable fundraising magnet of a founder I could never even hope to be.

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Yet it wasn’t me, the pitchman, that was the focal point of this deal. In fact, Dan invested in spite of my ability to sell and instead, because our engineers Rodrigo and Tony built the product, our support guru Ginni offered support, and our lawyer Yokum explained the legal issues.

From the beginning, we’d set out to move people through service and to put people first — from our customers to our own employees, and we saw the kind of modern selling that Dan writes about in action. It wasn’t me, the silver-tongued salesman who persuaded Dan. Rather, it was empowering and gratifying to feel that it was the force of the whole organization working together that convinced Dan to join us.

5. Manage Your Psychology to Avoid Startup Suicide

The difference between success and failure often means mastering what goes on inside of your own head.

As Justin.tv and Twitch.tv founder Justin Kan has said, “Startups don’t die, they commit suicide.” That’s why managing your startup psychology is as important as managing your product and metrics.  Take heed of your startup psychology in your persistent, plodding march through the trough of sorrow onward to the promised land.

1. 8 Myths Startup Founders Hate

The entrepreneur’s journey can be a bumpy one, with thrilling peaks and stressful valleys. It doesn’t help that the startup world is aswarm with hype and misconceptions, which can worm their way into rookies’ heads and lead them down a wrong road or two. Take, for example, the misperception that scaling is imperative in the early stages, which leads 70% of startups to fail.

We decided it was high time to do some startup mythbusting, so we asked founders and leaders this one question:

What startup myths do you hate the most and why?

With a wide range of wise words from hard-earned experience, on aspects from accountability to how you grow to what really matters, here are their responses:

Aihui Ong Startup Myths

MYTH:  Most people relate success to fundraising.

Many think that once a startup is able to raise funds, it’s considered successful. It’s definitely not true. Raising money is just a means to an end. It simply gives the startup a shot at building a company. Period.

Aihui Ong
Founder & CEO, Love With Food

Kathryn Minshew Startup Myths

MYTH:  Being a founder means you don’t have a boss and you’re only accountable to yourself.

Part of being a founder is being accountable to everyone, from your newest hires to your partners and investors. I haven’t found a greater responsibility than convincing someone to leave their stable job to join your early venture, and needing to make sure you pay them (and give them opportunities that justify the risk) every month.

Once you start seeing that incredible, out-of-control growth, you’re accountable to your team and investors in a different way — taking advantage of the momentum and doing everything in your power to keep the business accelerating. I wouldn’t trade it for the world, but people who pretend it’s a free pass from accountability are kidding themselves.

Kathryn Minshew
Founder & CEO, The Muse

Michelle Lee Startup Myths

MYTH: Startup life is coding and playing ping pong at midnight.

That’s easy. The hardest thing to do — and what makes the biggest impact on Textizen — is looking outward to talk with or learn from other people:  customers, advisors, mentors.

Michelle Lee
Co-founder & CEO, Textizen

Mariano Suarez Battan Startup Myths

MYTH:  You need to work 80 hours per week to succeed.

That might be true when you are 20 and inexperienced, but the reality is that if you work those many hours, you’ll either lose your hair, have a heart attack or get a divorce. Exercise, playtime and socialization are all important to maximize your brain power and imagination.

Truth is, if you are passionate about your startup, you’ll be “working” regardless because that great idea or relationship can come up at any time.

Mariano Suarez Battan
Founder & CEO, Mural.ly

Elizabeth Yin Startup Myths

MYTH: It’s bad to run ads.

Running advertising may or may not be the scalable way for you to grow your business. But as a startup, it’s actually really important to get feedback on your product right away so that you can iterate quickly. When you have no traffic initially going to your site, running ads is a great way to get your first users in the door for that feedback.

Elizabeth Yin
Co-founder & CEO, LaunchBit.

Gretchen DeKnikker Startup Myths

MYTH:  If you build a great product, a great company (and business) will follow.

You have to build it all simultaneously. You can build the most elegant, powerful product ever, but if no one ever uses it or it can’t be monetized in a sustainable way, does it really matter? If you don’t focus on building a company people want to work for, who is going to execute your vision?

I’ve seen companies with far inferior products with a better go-to-market strategy and strong company culture win again and again. Building a sustainable business should not be an afterthought.

Gretchen DeKnikker
Co-founder & CMO, SocialPandas

Phoebe Espiritu Startup Myths

MYTH:  All it takes is a good idea and a deck to attract investors.

I’m often astonished that many tend to overvalue their idea. Paraphrasing Steve Case/Thomas Edison, vision without execution is hallucination. Execution is the hard part. Shipping the right product at the right time to the right customers — even harder still.

Phoebe Espiritu
Manager of TechStars NY Hackstars

MYTH:  A startup needs to have a unique idea for a product that doesn’t yet exist.

I’ve been involved in startups that have created new markets. It’s incredibly difficult and it takes a very long time. Find some segment that’s not being well-served. Many of the best startups are based on a meaningful tweak to how business as usual is conducted rather than on a unique idea.

Amazon didn’t invent the bookstore, they simply changed what it meant for a book to be “in-stock”. In the early days, Amazon was much less likely than your corner bookstore to truly have physical possession of a given book, but they were able to create the world’s biggest inventory of books by making their definition of in-stock match everyone else’s definition of out-of-stock. If they knew they could get a book from the distributor, it was in-stock. That idea led to the creation of one of the most successful startups of the last 20 years, but Jeff Bezos didn’t have a unique idea for a product that didn’t exist; he started a bookstore.

Sean Johnson
Founder of SnootyMonkey

2. How to Build a Lucky Startup

luck be a startup

Luck is a critical component of startup success, but it’s misunderstood. While the unlucky blame fate, the lucky act as if their success happened by accident.

It turns out that some of the luckiest and most successful companies don’t leave luck to chance. They intentionally engineer and build lucky companies.

At Zappos, They Hire for Luck

Billion-dollar online shoe retailer Zappos considers luck so key to its success that it will only hire lucky employees. In the words of Zappos CEO Tony Hsieh: “We want to hire the lucky people that bring more good luck to Zappos.”

At every interview at Zappos, candidates rate themselves, “On a scale of one to ten, how lucky are you?” One is for “I don’t know why bad things always seem to happen to me” while ten is for “I don’t know why good things always seem to happen to me.”

The question was inspired by a research study by Richard Wiseman that showed that people who perceive themselves to be more lucky actually are more lucky. The twist is that “it’s not so much that people are inherently lucky or unlucky in life, but luck is really more about being open to opportunity beyond just how the task or situation presents itself.”

Grow Your Luck Surface Area

Brian Wang, founder and CEO of Fitocracy, thinks of it as your startup’s “luck surface area,” which you grow by hustling and surviving.

In late 2011, the digital marketing manager at Red Bull happened to tweet about Fitocracy. When you’re a tiny company that no one cares about, that’s huge. At first, Brian thought, “Oh that’s cool — I feel good for the day.” And he was just going to leave it at that.

As an entrepreneur, self-doubt always seeps into your head and builds a mental case for inaction. There are a million reasons not to do something competing against what seems like a million priorities — “You’re going to think, I need to get more customers, I need to get in front of someone, I need to make something work differently.” The logical conclusion you come to is not to do anything.

But Brian changed his mind and ended up tweeting back at the Red Bull digital marketing manager. They quickly took their conversation to DM on Twitter and, three months later, Fitocracy launched a partnership with Red Bull that netted them a $75,000 check and 100,000 new users.

Brian got lucky.

Or, he engineered his own luck. He increased his luck surface area by casting doubt aside and pursuing opportunities beyond how the situation presented itself.

Unlucky startups leave luck solely to chance. They believe that luck is merely random, capricious, and so, brutal. In doing so, they fail to turn tasks and situations into opportunities.

Build a lucky startup by first believing in your own luck, and then, engineer your luck surface area. As entrepreneur Kenshi Arasaki puts it: “Aggressively pursue exposure to serendipity” in all things.

3.  3 Psychological Traps that Keep Your Startup in the Trough of Sorrow

startup-curve

You’re stuck in the trough of sorrow. No matter what you do, nothing in your company is improving.

You look around you, and everyone you know is crushing it. Their companies are getting acquired, they’re raising huge funding rounds, and they’re announcing new product features that people love.

But not you. You’re stuck in the trough of sorrow, and it feels like you’ll never get out. It’s emotionally trying and tough to handle psychologically, and you’ll want to quit. That’s why famed startup investor Paul Graham has said that the number one underlying cause of startup death is that “the [founders] become demoralized.”

How you handle those plateaus, psychologically, will determine whether you remain stalled there forever and your company ends up in the startup graveyard. You’ll face these three psychological traps — avoid them, and you’ll have a chance of making it out alive on the other side.

Don’t give in to despair

When you hit the trough of sorrow and realize that overnight successes actually take years and years, it’s a blow to the ego. Trust me, I know.

When you’re hungry for hits of progress, the lack of constant short-term gratification becomes a test. University of Pennsylvania psychology professor Angela Duckworth explains in The Plateau Effect that “if you’re myopic and only look at the next moment in time and you base your decisions on ‘what am I going to get out of this in the next nanosecond?’ . . . then when you hit a plateau, your natural conclusion is to quit and move on to the next thing.”

Duckworth’s research shows it’s grit and persistence rather than talent that matters most when it comes to success. Duckworth defines grit as “perseverance and passion for long-term goals. Grit entails working strenuously toward challenges, maintaining effort and interest over years despite failure, adversity, and plateaus in progress. The gritty individual approaches achievement as a marathon; his or her advantage is stamina.”

Duckworth developed a “Grit Scale” based on a twelve-item questionnaire, which she used to measure 1,200 cadets as they started training at West Point. She discovered that grittier candidates were 60% more likely to last through a demanding course of training, and the Grit Scale turned out to be even more accurate than predictions based on military evaluations.

That’s why it’s absolutely vital that you don’t give in to despair. It’s too easy to give up as soon as progress isn’t coming easily. When you hit the trough, be gritty.

Don’t obsess

When your company hits a wall, it’s all too easy to decide that you and your team just needs to work longer and harder. You obsess more and more, and before you know it, your whole team is burned out. You’re putting in long hours, but you’re just staring at your screen and checking your email all day.

It’s strange to say, but working too hard is actually the easy way out. For entrepreneurs, it’s often easier to keep working than to take a break, even when you know you should.

If you’ve ever crammed for tests as a student, you know how easily efforts can dissipate. German psychologist Hermann Ebbinghaus knew better even back in 1885 when he identified what’s now known as the “spacing effect.” When Ebbinghaus studied lists of nonsense words to test the workings of his memory, he found that you can dramatically improve your learning ability by spacing your sessions out over time.

Yet the spacing effect is really tough to put into practice because taking pauses and stretching timelines out feels like idleness, like you’re not being productive. Why relax when you could be doing something, anything, to improve the business? It feels more logical to keep pushing yourself even though you don’t feel like you’re moving forward anymore.

This is the psychological trap that’s absolutely essential for you to avoid, where the patience and perseverance to rest comes in. Without rest, you not only risk decreased productivity, you’re increasing your vulnerability to long-term burnout. This is why during the intensive, 3-month acceleration period of each Y Combinator class, Paul Graham instructs his startups to do only three things:

  1. Build product
  2. Talk to customers
  3. Exercise

Don’t trick yourself into pushing too hard, no matter how tempting it might be. Space out your work, and slog through the trough of sorrow out with patience and grit.

Don’t become fearful

The trough may eventually become your new normal, and then you get scared of failing and falling even lower. The result is that you actually choose to plug away in mediocrity.

Improvement requires change and experimentation, moving away from the very tactics and efforts that got you at least to where you are right now. And that’s a terrifying thought when your startup is already hanging on for dear life and has very little to brag about. This feeling of being stuck between a rock and a hard place is especially tricky to escape given our cognitive bias of “loss aversion,” where we’d rather protect ourselves against losing what we already have over acquiring gains.

For example, psychologists Daniel Kahneman and Amos Tversky found that when facing the 50/50 odds of a coin toss and a $10 loss for landing on tails, people demanded a $20 prize to accept the gamble. “So the function for gains and losses is sort of kinked,” Kahneman explained to The New York Times. “People really discriminate sharply between gaining and losing and they don’t like losing.”

Again, continuing to push forward by doing more of the same thing looks like you’re being productive. It’s hard to see the kinked odds of loss aversion in the gamble of startups. You look like you’re working hard when you’re not working smart because you’re letting irrational fear determine your course.

According to Jeff Bezos, you have to reject that fear and go pioneering. “Failure comes part and parcel with invention,” Bezos has said, and invention and breaking new ground is what you’ll need to get out of the trough of sorrow.

Try new things, and be willing to get worse. After all, the crash of ineptitude comes right before the wiggles of false hope.

6.  Don’t Just Build Product, Build the Machine that Builds the Product

First-time entrepreneurs often think building a product is the same as building a company, but experienced entrepreneurs know better.

To 3 seasoned entrepreneurs, building product is just the first step in a long journey, and it’s not even the hard part.  Building product is hard, but building the machine that builds the product is even harder.

Dennis Crowley, Foursquare, on how to build product

“The hard part is building the machine that builds the product.”

Dennis Crowley, Co-Founder/CEO of Foursquare

When founders start companies, they often have a strong sense of what problem they want to solve and the product they’re going to build to solve it—so that comes easy.

The next, harder step is building the machine that builds the product which turns improvement and progress into a repeatable process.

That’s the challenge of scaling that will make or break your company.  For Foursquare, that meant the near-impossible problem of scaling the office, backend infrastructure, process and culture to from 2 to 50 employees and 100,000 to 6,000,000 users in a single year.

Ray Dalio, Bridgewater Associates, on how to build product

“Those who are most successful are capable of ‘higher level thinking’ —i.e., they are able to step back and design a ‘machine’ consisting of the right people doing the right things to get what they want.”

Ray Dalio, Founder of Bridgewater Associates

To Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund, what’s required is “higher level thinking” on the process of building a company.

Screenshot 2014-10-07 10.15.36

It’s the ability to step back, zoom out from looking at the product by itself, and take the perspective of someone who’s looking down at your whole company from an objective standpoint, as if the company were a machine, that’ll make your company successful.

In Dalio’s experience, the biggest mistake most people make is to not see themselves and others objectively. And it turns out that it’s tough to evaluate your company’s situation objectively when you’re actively involved and invested in being a “doer”, someone who’s executing on the plans.

Bill Aulet, on how to build product

“Culture eats strategy for breakfast, technology for lunch, and products for dinner, and soon thereafter everything else too.”

Bill Aulet, Managing Director of the Martin Trust Center for MIT Entrepreneurship

Inexperienced founders often think of their companies in very small time slices, but the remarkable companies are those that last years, across a wide variety of products, unforeseen events and market disruptions.

Although employees and even founders may eventually leave the company, what ties the company together is its culture.

As IBM CEO Lou Gerstner put it: “I came to see in my time at IBM that culture isn’t just one aspect of the game – it is the game. In the end an organization is nothing more than the collective capacity of its people to create value.”

6.1.  What Will Fast Company Write about Your Startup’s Culture?

zappos startup culture values

Successful entrepreneurs like Tony Hsieh, CEO of Zappos, exhort startups to write down their core values on Day 1 and make company culture a first-order concern from the very beginning.

Have you tried it? The problem is that after you look at what you wrote, you’ll probably see a bunch of boring clichés. Many of your company values might sound suspiciously similar to Zappos’s and Netflix’s. Your company couldn’t sound less exciting.

Molly Graham, former Head of Mobile at Facebook, who worked with Mark Zuckerberg to define Facebook’s company culture in 2008, recognized this common pitfall. She came up with an ingenious solution to the problem, rooted in a simple trick that Amazon uses to build its products, that helped Facebook own the Hacker brand that defined the company through its IPO.

How Amazon Ensures Products that Excite Customers

At Amazon, before the product has been built or even spec’d, the product manager has a vital task that will shape the entire product development process. The product manager must write a press release that announces the finished product.

They “are centered around the customer problem, how current solutions (internal or external) fail, and how the new product will blow away existing solutions.” Written from the customer perspective, they’re short — just a few of paragraphs long.

What makes the press releases so powerful is that the product manager is forced to distill to the essence why customers will get excited about the new product: “the product manager should keep iterating on the press release until they’ve come up with [customer] benefits that actually sound like benefits.”

As Ian McAllister, General Manager at Amazon puts it, “If the benefits listed don’t sound very interesting or exciting to customers, then perhaps they’re not (and shouldn’t be built).”

Your Startup Culture Press Release

When you’re trying to define your culture, you have a bunch of adjectives and phrases that describe you and your company. What Graham realized at Facebook was that you need to turn those adjectives into a story that leaves the boring bits out and cuts to the heart of why the company is different and compelling.

For Amazon, the pre-product press release is the story that answers the fundamental question of why the product is interesting to customers. Graham had an insight — why not apply the same idea to company culture? Her solution was powerful but simple: put down on paper what you want Fast Company to write about your culture in two years.

Like the Amazon press release, if it’s boring, do another draft. Keep going until you have something that your customers (current and potential), your employees, and your supporters recognize as unique and distinctive. Graham goes as far as to say “you should only write down your story if you are willing to stick your neck out and make it controversial.” Why? Because company culture should not only sound appealing to the people you want, it should also sound unappealing to the people you don’t want.

If you’re not willing to take a stand with your company culture, you shouldn’t bother. It’ll be dull and antiseptic, unable to guide decision-making on tough questions, and no one will care.

Amazon calls its philosophy “working backwards” and at its core, it’s about “driv[ing] simplicity through a continuous, explicit customer focus,” describes CTO Werner Vogels. “[Y]ou start with your customer and work your way backwards until you get to the minimum set of … requirements to satisfy what you try to achieve.”

The press release bridges that critical perspective gap between inside and outside, nailing “how the world will see the product — not just how we think about it internally.” Do you want Fast Company to write two years down the line about how your company’s amazing customer service starts and ends with its company culture around delivering WOW (Zappos)? Or do you want it to write about the Hacker Way, your philosophy on breaking rules to make rapid progress (Facebook)?

Start at the end. Think about that compelling, specific, and controversial company story that you want Fast Company to tell, and work backwards to figure out your company values and what you need to do to get there.

6.2.  Case Study: The Extreme Productivity Philosophy that Created Facebook and PayPal

mark zuckerberg growth

Back in 2005, long before they began approaching $10 billion in annual revenue, everyone thought that Facebook was a cool app, but no one thought that it would ever make any money.  Observers laughed at the idea that Facebook could be a real business.

With that backdrop of doubters and detractors, Noah Kagan, employee #30 at Facebook, pitched Mark Zuckerberg with what he thought was a genius idea: prove the Facebook skeptics wrong and show them that the fledgling startup could make real money.

As Kagan recounts the story, Mark listened to the pitch and then wrote out one word on a whiteboard: “GROWTH.” Then he “proclaimed he would not entertain ANY idea unless it helped Facebook grow by total number of ‘users.'”

To Zuckerberg and other Silicon Valley luminaries like PayPal billionaire Peter Thiel, the secret to productivity is this: focus is singular. You don’t get three or four or five. You only get one.

Peter Thiel’s “One Thing” Philosophy of Extreme Focus

Peter Thiel, the first outside investor in Facebook, shares a similar philosophy on productivity and management that he developed while turning PayPal into a billion-dollar company.

In the words of former PayPal executive Keith Rabois, Thiel “would refuse to discuss virtually anything else with you except what was currently assigned as your #1 initiative.” If Kagan had tried to have a meeting with Thiel to pitch a new a new idea, they wouldn’t have even gotten to the whiteboard. Thiel wouldn’t discuss anything but your top initiative.

PayPal’s annual review forms reflected this ruthless focus. You don’t get to brainstorm and make a top 10 list to show off all your accomplishments. All employees got to do was write down their “single most valuable contribution to the company.”

Thiel’s tactics might sound extreme but his insistence on focus as a leader gave the drastic principle real teeth. The counterintuitive thing is that this apparent constraint actually empowered Thiel’s employees. Rabois, one of Thiel’s lieutenants at PayPal, explains:

The most important benefit of this approach is that it impels the organization to solve the challenges with the highest impact. Without this discipline, there is a consistent tendency of employees to address the easier to conquer, albeit less valuable, imperatives. As a specific example, if you have 3 priorities and the most difficult one lacks a clear solution, most people will gravitate towards the 2d order task with a clearer path to an answer.

As a result, the organization collectively performs at a B+ or A- level, but misses many of the opportunities for a step-function in value creation.

(via Is Peter Thiel’s “one thing” management philosophy a good model for startups?)

With distractions cleared away, Thiel allowed every person in the company to seriously pursue their only priority “with extreme dispatch and vigor.” Granting employees a singular focus encourages a clarity of thought and mission that can drive people to perform at A+ levels.

Multitaskers Fail, Those with Focus Succeed

It turns out that for personal productivity, multitasking is one of the worst things that you can do. 

Stanford researcher Clifford Nass conducted a study where he gave participants different tasks to do in order to figure out how the brain works — and he was shocked by what he found.

[M]ultitaskers are terrible at every aspect of multitasking. They’re terrible at ignoring irrelevant information; they’re terrible at keeping information in their head nicely and neatly organized; and they’re terrible at switching from one task to another.

On the other hand, researchers have shown having the ability to direct your focus to disregard impulses and distraction — maintaining “cognitive control” in psychological terms — has been shown to be a more powerful long-term predictor of future financial success than IQ and wealth.

In a thirty-year study, psychologists followed the trajectory of over 1,000 New Zealand children to find that those who became the most successful weren’t the smartest or the most well-heeled. They were the children who had shown the greatest self-control. And it’s focus, or control over the mind, that holds the key to self-control.

Focusing on a single, high-impact priority can be the critical advantage for getting things done — whether it’s for yourself or with your team.There are a lot of smart people out there, and a lot of people who have money to spend to make things happen. Your ability to focus and manage yourself amidst the rising tides of tasks, distractions, and ideas is what will set you apart.

To Zuckerberg and Thiel, if you allow yourself to have more than one focus, you’ve already accepted the probability of mediocrity. By its very definition, focus doesn’t function when you’re diffracting your attention.

Make your focus ruthless. Focus on just one thing, and you’ll put your organization and your own personal productivity on the path to doing your best work and achieving excellence.

6.3.  Case Study: How Tony Hsieh Inspired Long-Term Motivation to Grow Zappos Culture

In 2005, Zappos was on track to beat its yearly sales goal of $300 million.

But that was just the beginning. Before Zappos became the household name it is today, CEO Tony Hsieh held a long-term vision for the company that went beyond the gross merchandise numbers. His ambitious goal to hit $1 billion in sales by 2010 was part of a larger plan.

In a remarkable email update Hsieh wrote in 2005 to Zappos investors, employees, and partners, he explained:

Rather than maximizing short-term profits, we’re taking a long-term view and focusing on building the business for the long haul. We’ve grown quickly over the past 5 years, but we are just scratching the surface of what’s possible.

But it’s not the numbers that are the most exciting… It’s the opportunity to build a company culture and consumer brand that is centered around the service, not the shoes or the handbags.

One of the most captivating things about this email is to actually see the seeds of Zappos’s distinctive culture germinating — especially knowing that the vision that Hsieh lays out in this decade-old email has come to pass, and then some.

So how did Hsieh actually translate his vision for Zappos into reality and resist the siren song of those short-term profits? How did he corral his employees to stick with him for the long haul? The elements are all there in that email.

What Sustains Your Psychology Over the Long-Term

The workplace is a complex, dynamic environment where you interact with other people while performing a variety of tasks, hold multiple goals and types of motivation, and receive a mixture of feedback that affects your enthusiasm and drive. There’s a lot going on there.

Researchers Bruce Barry & Thomas Bateman wanted to find out how people stick with long-term professional goals to identify the motivating factors of long-term persistence that endure through these shifting, interactive work conditions. They performed a small study of knowledge workers in a variety of fields, with a concentration of scientists, researchers, and engineers, who all had long-term goals where success could take years and chances for failure were high.

After analyzing their data, Barry and Bateman came up with eight sources of motivation that provided the “psychological sustenance” necessary to keep people going in their pursuits: allegory, futurity, self, singularity, knowledge, the work, embeddedness, and progress.

long term motivator chartThe takeaway, according to the researchers, is that you can be proactive about identifying, generating, and emphasizing these motivational factors while limiting the short-term pressures that can distort your long-term view.

Whether you’re a manager working to maintain a team’s motivation over years or an individual working towards an ambitious dream or a leader of a company working to build a successful company — you can take charge to engineer and design work around these nourishing factors to inspire and sustain the kind of motivation to help you persist.

How Tony Hsieh Fueled Motivation to Nurture Zappos Culture in One Email

The fascinating thing about Hsieh’s early stages email is that he promoted every element of long-term motivation that Bateman and Barry identified. Let’s take a closer look at the motivating factors he prompts while sharing his thoughts on building an enduring company (head here for the full text of his email):

  1. Allegorytony-hsieh-zappos
    In 2004, Zappos published its first culture book, a collection of thoughts and reflections from employees about what Zappos means to them. Every year since then, the company has produced a culture book, an ongoing representation of a collective history and spirit. Hsieh comments on the importance of recording and telling this story:

    “The culture book showed that no one person owns or dictates the Zappos culture. It is a collective effort, and it’s exciting to be part of a company that has accomplished so much by sheer willpower.”

  2. Futurity
    While he marks out goals for the next five years, Hsieh’s email is all about the long-term, highlighting his focus on “building the business for the long haul.” Despite all the success Zappos had seen by 2005, they were “just scratching the surface of what’s possible.”
  3. Self
    One of the remarkable things about Hsieh’s update is how you can see how Zappos was still in the formative stages of its brand, and that while the company’s famous core values hadn’t been officially established yet, they were present in his thinking. Zappos’s company identity combines mission and brand, expressing what had previously been an internal motto:

    [W[e see our long term plan of building a service brand slowly coming into place. Internally, we have a saying: “We are a service company that happens to sell shoes.” (And now handbags.)

  4. Singularity
    In 2005, Zappos was just starting to stand out amidst a landscape of disappointing customer experiences. Hsieh urges that this is how Zappos will shine — so much so that he wanted the brand to become synonymous with the idea of service.

    If we constantly focus on improving the customer experience and cause people to think about service everytime they think about Zappos, then in the long term, we believe that we will succeed as a company. However, our service can’t just be “good enough”… We need to go above and beyond people’s expectations.

  5. Knowledge
    The one thing that’s inevitable about taking the long-term approach is that you will encounter setbacks, failures, and mistakes — but with the right mindset, you gain strength and motivation from the knowledge you acquire through these experiences. Hsieh knows that mistakes are part of the plan and sets up the expectation for his employees to face them head on:

    [W]e won’t do everything right the first time. But that’s okay, because that’s also what we want our culture to be about. We’re not afraid of making mistakes, but we’re also quick to turn them into learning experiences and fix the mistakes when they happen. Part of the Zappos culture is having faith that in the end, we will figure things out, and we will grow stronger through the experience. It’s how we got to where we are today.

  6. Work
    The nature of the work that Hsieh lays out is exciting and engaging, transforming a mission from merely selling consumer goods to delivering and maintaining an experience of happiness.

    Only with your feedback can we improve, and build something that has never existed before: a well-known brand, accessible to everyone, that promises nothing less than a WOW experience.

  7. Embeddedness
    Hsieh extends Zappos’s WOW philosophy of delightful service beyond customers to just about everyone involved in the Zappos ecosystem, with a call to cultivate community and relationships:

    [B]uilding a service organization is much easier said than done. It starts with extending the WOW philosophy beyond just our customers. We also need to extend it to our vendors, our employees, and our other business partners.

  8. Progress
    Hsieh’s email update begins by creating a sense of momentum, reporting an impressive upward-trending sales history and sharing the many wins that took place over the past year. Hsieh shows his readers that the path forward has been paved, they have a map, and they’ve already made important strides.

The way Hsieh concludes his email, saying there’s a long, exciting road ahead and expressing thanks for everyone’s support over the year, sounds like they could be the words of many a CEO on many a yearly memo. But it’s easy to see how special the rest of the missive is — from a leader who took the time to communicate and make transparent his long-term dream for Zappos in an incredibly powerful way that inspired and energized the Zappos community, not just for a month or two but over years and years.

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  • http://goforlaunch.io BrandonUttley

    Walter, this is fantastic information…I especially appreciate the idea of starting small and profitably.

    • Walter Chen

      I’m really glad that you found it useful, Brandon!

  • http://joshuadance.com/ Joshua Dance

    Finally read this all the way through. Nice work. Awesome to see knowledge blended with personal experiences. Thanks.

  • http://www.webnu.org ‘t Is Tim

    Loved it. Thanks for sharing Walter!

  • sriharsha pudi

    Really very helpful and inspirational stuff. Keep going. You guys are best !!!

  • Debbie Discovers

    Wow I think I’m going to have to read this another 5 times – packed with gems, love the quotes and the case studies..j.. thanks!