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The "No BS" version of how startups are really built, taught by actual startup Founders who have lived through all of it. Hosts Wil Schroter and Ryan Rutan talk candidly about the intense struggles Founders face both personally and professionally as they try to turn their idea into something that will change the world.
After the episode of the
Startup Therapy Podcast,
this is Ryan Rutan joined.
As always by Will Schroeder,
my friend, the founder, and
CEO of startups.com, will
oftentimes early stages, we
get super, super obsessed with
building our product, right?
We, we forget that the
product isn't actually the
business that the revenue we
generate from that product
is actually the business.
There's this other piece of
narrative out there that says
like, well, I need the funding
so I can go build the product
so I can go make the money.
I think we wanna break
that down today and expose
the, the level of bullshit
that's involved in, in that
particular line of logic,
which, yeah, you might need
money to go build the product.
But you don't always have
to get all the way to your
dream product before you
start to make revenue.
So today, let's beat the
hell outta that notion.
Uh, the money
always comes first.
Yeah.
Like how you make it is
the broken assumption.
So to build on what you said,
obviously the assumption is
going to be, I need investors
to be able to build my product,
go make money for my product.
Yeah.
So I can't do anything
until I get investors.
That is a very broken assumption
because it assumes that the
only way to generate money.
Is from that particular product
at that particular stage.
Correct.
Which, if you talk to enough
founders, ourselves included,
and, we'll, you know, today
we'll talk about a lot of
other really famous, successful
founders that, um, you know,
thought otherwise you'll
start to realize that the
early stages aren't really
about just building the
product and getting to market.
It's about generating cash.
Yeah.
And, and having enough to stay
alive to ship that product.
Exactly.
Exactly.
And so whenever I walk
through, you know, with a
founder who's going through
this like crisis, this chicken
and egg thing, I always walk
them through a series of like
tiers of how you can generate
revenue now ahead of product
and then eventually get to it.
And it's progressive.
It's like things that are very
specific to what the product is,
to a little bit less specific
to has nothing to do with
it, but it still makes sense.
Yeah,
agreed.
And so I thought it'd be
cool to walk through those
tiers and maybe like.
Talk about some of the
companies that have done this,
you know, at each of those
tiers, at, at some level of
scale, ourselves included.
Yeah.
So
there's gonna be some
surprising examples in there,
I would imagine, uh, in terms
of like, I think a lot of
people think, oh yeah, if
you're building something
small, you can do that.
I. Right.
You can put something really
big starting exactly like this.
That's the point, right.
It's that again, the, the,
the broken assumption is
that in order for us to
build this business, it has
to be exactly the product
we're thinking about.
And there's nowhere in between.
And that's just a junior
amateur assumption.
Yeah.
Right.
And I know some folks that are
listening like, you know, screw
you that I'm not an immature,
I know what I'm talking about.
It's you're using
the wrong framing.
Yeah.
And, and it applies to
nearly every business.
I'm sure someone listening
this won't apply to.
I, I, I get it.
Sure.
Short of that.
It applies to more
people than you think.
So let's open up, uh, with
one of my favorite examples
in what I call option one,
which is basically just
saying, what's the smallest
possible version Yep.
That even could remotely
look like this product
that you could sell today.
Yep.
Right?
And so we call it the
MVP and things like that.
I'm saying in some cases,
even before the MVP.
Sure.
The minimum viable product,
the, the least minimum
viable product, right?
The ridiculously
minimum viable product.
And so, uh, uh, tell,
tell you guys a story.
I'm always fascinated
about Zappos as a company.
Yeah.
They're not like a really a,
like a big name anymore, but
back in the day they were
like, they were it, right?
Like Tony Shea was running
around and, and, uh,
you know, rest in peace.
And, and he, um, and he
was running around talking
about this story of having
grown this thing to a
billion dollars, right?
What a lot of people
don't know is Tony Sha did
not start this company.
That's right.
Right.
That's, there's some really
interesting backstory here.
He, he, Elon Muskett, right?
Yeah.
He went, he a little revision
history about how that
thing actually got started.
There's a, a, another guy,
uh, that was the actual
founder, Nick, I can
never pronounce his name.
It's like Swin.
Swinburn.
I think the fact that
I don't know tells you
everything you need to know.
Yeah,
exactly right.
Yeah.
And the fact that Tony,
she's last name s uh,
H-S-I-E-H, is, would be
impossible to pronounce.
If you hadn't heard Tony,
she's name 10,000 times 10.
So, so here's what he does,
Nick, in the early days
before his AOS is even
like barely a concept.
Concept, and this is like
back in 99, a long time
ago, Nick decides that he
wants to sell shoes online.
Why?
I have no idea.
Right?
But he decides like
that's his thing.
What he does is he goes to
shoe stores and he takes
like really good pictures
of the shoes in the stores.
Yeah.
Because back then you
couldn't Google it.
Google didn't exist yet.
Also, you didn't have camera
phones, by the way, mobile
phones wouldn't come out
in a meaningful way for
like five, six more years.
Right.
So he's, he's bringing
like old school, digital,
you know, camera.
And he's shooting pictures.
This is, this is bananas to me.
He's shooting pictures of
shoes in stores that are
not his, like his inventory.
Yep.
And then posting them online.
To sell them.
Why not as his
inventory, which is fine.
I mean, so long as you,
the shoe gets shipped to
who it's supposed to go to.
Sort of Who
cares?
Who cares, man, we've all heard
that phrase, assume the sale.
In this case, he was not only
assuming the sale, he was
also assuming the inventory.
I love it, man.
It gets as scrappy as it gets.
But I mean if you think
about it, like every
drop shipper does that.
Yeah, exactly right.
It's exactly what a drop.
Yeah.
Probably half the companies
on Amazon do that.
Yeah, yeah.
Right.
They, they're listing a bunch
of inventory that smartly,
they don't purchase until
they actually get the sale.
They don't buy until they've
got a customer drop ship.
Yep.
Yeah.
What's interesting to me.
Is he goes on to do this
and a couple things happen.
One, he starts proving
whether the demand is there.
Remember this is like long
like e-commerce wasn't a thing.
No.
Nowhere near like, especially
not for things like this, right?
Not for things that
were like where size and
fit were important and
returns are complicated.
The nothing like
this was going on.
Totally.
And so like huge pioneer in that
space, which is incidentally
why Amazon bought them.
But beyond that, the second
thing that he did is that
he took that activity.
Yeah.
And he brought it to investors.
Yeah.
That's where Tony Shea came in.
He, Tony, Shea, and Alfred.
He valued
the
value, right?
They
validated
Exactly.
Would actually do, 'cause
you could go and just build
the platform, build the
website, you know, try to
run around it and raise
money to build the product.
Only to find out that, yeah,
people still aren't ready
to buy shoes online, right?
So he started by
validating these really
important assumptions.
Before having to throw
any real money at it.
My favorite thing to tell an
investor when they pull their
in in inevitable know-it-all
moment in the pitch when they're
like, yeah, but people are never
gonna do that, is like, yeah.
Except they are.
Yeah.
Here's the, here's a list of a
thousand people that already did
exactly that, so let's move on.
Yeah.
And, and that shuts down the
conversation very quickly
because it's easy to say
no one will ever do that
if it's never been done.
Yeah.
Really hard to, to to back up.
And by the way,
you made that up.
Like you literally
made that up, right?
So yes, you're the investor
and it's your choice to believe
whether that's true, but you
also don't know that it's true.
You just made it up, right?
So when I can politely
but defiantly fire back.
Yeah, except that
we've already done it.
Then all of a sudden
conversation completely
changes and I think.
That move by, by Nick the
founder, is what would've
drawn in a guy like Tony
Shea and Alfred Lin, like
you know, the the early
investors who put in 500 K,
somebody who's not only showing
that level of hustle that we
love to see, but somebody who
also went out and validated
a really important part of
this, which is that people
will buy the inventory of it
exists, returns and all of
this other stuff that everybody
was really worried about at
that time aren't as much of
a problem, said differently.
There's ways around it.
We found ways to do this.
And so he, he took a lot
of risk off the table.
You know, I don't remember if
it was you or Elliot who first
broke this down for me this
way, but we were talking about
just like a general thesis of
investing and it going from like
being pure demand to, to pure
capacity and that, you know,
investors love to invest on the,
the capacity side and, sorry,
capacity side, I guess right?
With capacity is my left hand,
uh, rather than demand side.
Because if you've gotta
go prove demand, there's a
lot of risk in that money.
At the minute, you can say,
no, we've already found
that people wanna do this.
Now we just need
a better system.
A, a, our own inventory,
all these other things that
will come along with it.
But you've eliminated
some of those really early
analytical barriers, uh, and
emotional barriers for the
investors and for yourself.
Right?
At this point.
You don't have to go.
I wonder if they'll do it.
We know.
I'll give you an example.
Uh, years and years and
years ago, this is such
I, this bizarre, I'm
going back this far.
I used to own a nightclub.
Right.
Um, very long time.
Been to that nightclub.
Yeah.
Very long time ago.
And what happened?
The reason I opened a nightclub,
easily, one of the dumbest
decisions I ever made was,
because prior to that I was
hosting lots and lots of
parties and events at my house.
My, yeah.
I'm in my twenties
at the time, right.
And eventually these
things got so big that
like, I just couldn't host
'em at my house anymore.
And, uh, at one of these
events, a guy who had a space
downtown that actually used
to be a nightclub, Uhhuh, uh.
Approached me and he said, well,
there's a ton of liability here.
This is actually like, you
know, not a great idea.
Right.
Um, he was not wrong.
He's like, here's
another not great idea.
Yeah.
He's like, I've got a
space where you can host
this and do it there.
So I did, but, but here's
why I bring that up.
I bring that up because
I tested demand.
I already had a list of
5,000 people, which back
then, this is like the
nineties, like it was, yeah.
Insane to have
like a local list.
And when you say
list, you mean it was
actually probably
written on paper.
Yeah, exactly.
Exactly.
And like this is long
before social media, right?
And so Ider had
already proven to band.
So when I went to go open
up said nightclub, I just
invited all the people that
I'd already been bringing,
you know, to my house.
So, uh, side note, it was
a terrible idea, but, but
not 'cause it didn't work.
What, what?
It was a validated,
terrible idea.
It was validated.
It was, it was validated
that I don't wanna be in the
nightclub business anyway.
Point is when people talk
about, I can't possibly
move forward because I don't
have the final product.
Yep.
Rewind that back.
Let's assume Ryan, you and
I decided that we wanted to
open up a nightclub, but we
have to have investors in
order to pay for the space
and do the bill, et cetera.
And that would be true.
What we're saying is, but
that's not the first version
of the product, right?
First version of the product
is party or a cocktail.
Yeah.
Or something.
Anything.
Exactly.
Getting together
to do something.
Yep, exactly.
It's, it's creating events.
It's, again, if we were opening
up like a bakery, something
less douchy, if we were opening
up a bakery, I. I was like,
I, you know, we need like
$250,000 to open up this bakery.
My first thing is, no, we need
to do events where we're, we're
baking the product at our house.
We're bringing to the
events, and we're getting
customers, we're building
social media around that.
We're, we're going to
popups, things like that.
That's the early
version of the product.
Before it's the full product.
In both cases, we're selling
whatever we're baking.
Yeah.
We're not waiting for the, the
capital intensive part to begin.
Right.
We don't need to build
the Wonder Bread factory.
We can just open
it with an oven.
Yeah.
It's so rare.
Will I, I'd love to hear your
take on this, but it's so
rare that I run into somebody
who's working on that MVP
where I look at the MVP and I
don't go, that's three x what
you actually need to build.
Right.
They, it's almost always
overwrought and, and overbuilt
and there's just such a simpler
version that will actually
in, here's the other thing.
When you build a really
simple version of things,
you get to test a lot faster
once you have some answers.
But I've always found
there's always more clarity
in those experiments.
'cause you're not
looking at as much stuff.
You're like, if I bake and
then go to sell, do people
buy this stuff that I bake?
That's what we have
to answer first.
Because if that doesn't happen,
then it's like, well, should
we get a blot oven or a Vulcan?
I don't care.
It doesn't matter.
Nobody buys your stuff 'cause
you're a terrible baker.
This is why I started jokingly
saying, you know, the, the mm
VP, the mm mm MVPA much more
minimum, minimum viable product.
Yeah, yeah.
Right.
And it's, it's so important
to do this because it saves
you so much time, so much
heartache, and it gives you
clarity again, like just because
you simplify that experiment,
it's easier to understand
what's actually happening.
But I, we talk to founders all
day, every day Will, and so
I'm sure you're seeing the same
thing I am, but at the getting
customers level, there's so
many folks where they're like,
okay, and I'll be, you should
be able to get customers the
next six months when I do this.
And I'm like.
You realize if you just
rethink what you're looking
at right now, you could start
getting customers next week.
Really,
really?
Right.
And then, and part of it, like,
you know, we see a lot of mobile
apps and people are like, well,
I have to have the mobile app
in order for this to work.
I'm like, are they buying
the mobile app or what
the, the mobile app does?
Yep.
They're like, well,
it's a matchmaking app.
You can match, you match a ton
of people, you can match people
on social media right now.
Yeah.
Right.
You can call
whatever service you.
I, I can match people.
I want them if I need to.
Right.
A hundred percent.
Right.
There's always a, a more manual
way to create the product.
And, and you know, I, I've,
I've mentioned one other
example in the past when
we did unsubscribe.com.
Yeah.
That's a great one.
You know, it's like when I
explained it to my co-founders,
I was like, Hey, it's this
idea for a tool to allow you
to get off of, um, any email.
This was like back in the uhhuh
mid two thousands when that
was actually really hard to do.
Yep.
Can SPAM hadn't
been written yet.
Yeah.
Unsubscribe wasn't a policy.
Yeah.
Yeah.
And then you didn't have it
in your Gmail because a lot of
people didn't have Gmail yet.
Right, right.
Um, yeah.
Oh look, so like my co-founders
were like, and they're super
smart guys, but they're
like, um, dude, that would
take like a year to build.
Yeah, yeah.
Right.
Um, because it is like
really complex business
rules and all this stuff.
Funny as it is, AI
would've been a perfect
use case here, but Yeah.
But I was like, yeah, we're
not gonna do any of that.
We're gonna spend six weeks,
we're just gonna throw up
a, um, a page where you can
download the button and put it
in your Gmail or put it in your
Outlook or, you know, whatever
was current at the time.
And when someone clicks
to unsubscribe, we're just
gonna forward that email to
a, um, to a, a general box.
Yep.
And we'll have a team of
people that'll just go in
there and unsubscribe for
you, which used to mean like
picking up the phone and
actually calling people.
Do you remember that?
Get a call saying like,
Hey, can you take me off
your email list please?
Yeah, exactly.
Right.
And, and so the cool thing
was it worked a hundred
percent of the time.
Yeah.
'cause there was always someone
to like make sure that Lyrica,
like it was like sending it to
your virtual assistant, right?
Yeah.
But from what the user
could see, they just assumed
it was amazing software.
And they don't care, by the way.
That's the thing.
People get all
caught up in that.
Yeah.
But like, you know, it, it needs
to be a software for who, right.
If the outcome is the same.
Sure you can't scale it, all
that stuff, but it doesn't
matter because again, like
if nobody wants to pay to
unsubscribe from email and no
wants to pay to install that
thing, or no other company
wants to buy that technology,
uh, to put into their email
client, it doesn't matter.
Yeah.
Right.
And that's the
thing, ultimately they,
they want the outcome.
Yeah.
I always, I always find
it funny whenever I order
something on Amazon, it's
not from Amazon directly.
I always scratch my head.
I'm like, I wonder
where that order goes.
Yeah.
Right.
And how it gets fulfilled.
It goes back to, um, the, the
founder of Zappos, you know,
driving to the shoe store and
buying shoes for me and sending
'em to me, um, or eBay, you
know, being a much more obvious
culprit, but I don't care.
I get the product and it's
what I paid for it, I'm good.
Right?
And I think people vastly, um,
underestimate how powerful that
is, but really what it's doing,
in some cases it might actually
generate revenue, by the way.
But what it's doing is it's
moving the ball forward.
It's allowing you to
operate in the business.
Right?
Yeah.
Immediately.
And learn right away.
So as soon as we launched
on unsubscribe, we told like
some friends about it, we
had some investor friends.
We sent it to them,
they went nuts.
It turns out this is, we didn't
see this coming, but investors
were actually like our biggest
customers because they're on
every email list, every startup
that's ever like, you know,
whatever has just added them.
And so, uh, the
investors saw it.
A guy named Sar Ger from,
uh, Charles River Ventures,
Uhhuh saw it Uhhuh.
He flew down the next day.
We were in Santa
Monica at the time.
He flew down to Santa Monica
the next day and gave us a term
sheet and because we didn't have
to convince him that it would
work, he is like, I used it.
It worked in five seconds.
He'd find out later that it was
like an intern from USC that did
the work, but he didn't care.
I mean, the point he is
like, I don't care, like
as long as it works.
What's our tech stack?
Uh, mostly, uh, uh,
four pizzas a day.
Keep the intern sped, like
that's the tech stack.
So let's take that a
step further though.
Sure.
So ideally the, the first
phase would be you could build
some version of your actual
product that would, that would
generate, uh, revenue and or
validation, ideally revenue.
And again, when you say
some version of that.
We mean it can be the
most watered down or even
non-technological version,
but we want basically
provide a proxy to get
into that same outcome.
Right.
So we're, we're basically,
the outcomes are exactly
the same in, in this phase
one, which is the closest.
And this is so I think,
important to say like,
'cause I, I, I see where
you're going with this.
Will, we're working backwards.
We're starting to
kinda like best case,
we're saying this is the
most ideal you do this.
Yeah.
Yep.
And, and I think,
again, people get.
Even at that stage aren't
open-minded enough to realize
like how much they could open
the aperture of the product,
and ideally it makes money.
Before we opened that nightclub,
like between the time that,
uh, I had thrown like the
last event at my house and the
time we opened a nightclub, it
happened to be New Year's Eve.
I. In between.
And so we basically went
to a venue, uh, in downtown
and we said, Hey, we wanna
basically, uh, invite all
of our people to this, you
know, to your, to your event.
Uh, we want $20 for every
person that we bring in.
And I was nightclub
promoter, right?
Uh, this is really my job, but I
was like, what the hell, of'em?
I'm an entrepreneur.
If I'm gonna show up somewhere,
I'm gonna bring my friends.
I'm gonna get paid
for it, right?
Yeah.
Right.
And so, uh, anyway, uh,
it was new year, so a
lot of people were out.
So a thousand of
our friends came.
And we got paid $20,000 in cash.
Yeah.
Right.
And I was like, huh,
what the, why haven't
I been doing this all?
Yeah.
I've been doing
right night club.
I just need to fill this.
Right.
I have a, a, a buddy of mine,
I was, I was, uh, I was out
with him last night and, uh, he
was throwing all these events
that were more like, uh, uh.
Targeted toward super high net
worth individuals, like, uh,
a hundred million dollar plus.
And he's been throwing
these events for years.
He's a great guy and he is like
really like the center of of
gravity for all these folks.
Sure.
And a year ago we're
sitting down and I'm like.
Like, why aren't you
getting paid for this uhhuh?
He's like, I don't really
know how to get paid for it.
I was like, a lot of
people would pay to be in
the room with people with
that kind of portfolio.
Right.
So we did and we sat down,
uh, recently and he is like,
will I took your advice?
I made $50,000 last month.
There you go.
It's just him.
Right?
And now it was like, yes.
And so he wanted to talk about
building, like, you know, almost
like we have for founder groups.
Like, like, you know this Sure.
Um, network of folks and,
and do it on a paid basis.
And I was like, yes.
Do exactly that.
Yeah.
Yeah, exactly.
And
maybe someday
you build a website.
Probably not.
Who cares?
You're making money.
Don't need it.
Right.
That's the thing.
He's already, he's already found
a way to deliver that value to
at least $50,000 worth of people
that could have been one person.
I don't know what he's charging.
But you figured it out, right?
So keep doing that.
And I think that's the other
thing that people get caught
up in is like, well then when
will I build the product?
When you can or when
you absolutely need to.
Sometimes, like I, I've seen
this happen multiple times where
you start with some sort of a
service proxy or just the early
version, you actually go a lot
further on that than you, you
might think, because it turns
out it solves people's problem
and that's what they care about.
You said it, they care
about the outcome, right.
How it's packaged, all of that.
Sure.
You know, if it's, if
it's easier to use or,
or you know, faster,
cheaper, whatever, great.
But at some point, if you're
providing an outcome that
they care about within a price
that they're willing to pay,
you've got what you need.
So let's go to
the second option.
Sure.
Which, if, if for some reason we
can't build the, the version of
the product that we want, and,
and by the way, this doesn't
have to be one or the other.
This could be both.
Yeah.
You, you can do the first
option, and this we'll
talk about can you build a
service around the product.
Sure.
In other words, is there
kinda like we were saying,
is there a way you can
manually deliver this?
Yeah.
Yeah.
Or, or, um, and an ad hoc basis.
So, Ryan, we went through
this when we launched
fundable in 2012.
Do, do you remember
how that went?
Yeah, I mean,
gee, so, you know, with the,
with the launch, you know,
where there was, there was
a bit of fervor around the
whole crowdfunding space.
We opened up the platform, let
people in, and uh, it looked
as though we had just opened
a gym and let in people who'd
never worked out before, right?
They didn't know whether to
hold thing over their head, you
know, how to put the clothes
on or to these sweatbands,
armbands, waistbands.
We don't know what we're doing.
And so there was just a lot
of folks trying to raise
funding that had never done
this before, had no idea.
And why would they.
Right.
And so, by the way,
Ron, that was a big
assumption on our part.
It was a huge assumption.
A big assumption.
Were like, let's, let's
spend all this time
building a platform.
Yeah.
Without ever really finding
out whether our customers
could be our customers.
You know, something
that's really funny about
everything we talk about
here is that none of it.
Is new.
Everything you're dealing
with right now has been done a
thousand times before you, which
means the answer already exists.
You may just not know
it, but that's okay.
That's kind of what
we're here to do.
We talk about this stuff on
the show, but we actually
solve these problems all
dayLong@groups.startups.com.
So if any of this sounds
familiar, stop guessing
about what to do, let us just
give you the answers to the
test and be done with it.
What we realized was that
yes, in fact they could be
our customers, but not with
some significant, without some
significant additional help.
Right?
And if you recall, we, I, I shot
the first emails for that thing
out on, on December 7th, 2012.
We thought, let's try it.
Let's see what happens.
Maybe we'll pick
up a client or two.
Picked up 15.
And it was a great
problem to have.
But it was a problem because
we were not suited to deliver
to that many people, so we
had to hurry and catch up.
But we all of a sudden
realized we can get paid
quite well to do this work
and we can scale that part.
That's easy.
'cause that was just
adding some people and then
building some process around.
But that completely changed the
face of that business overnight
because we went back to, Hey,
let's just simplify this.
Let's make it a service.
Let's get in and do the things
that people dunno how to do and
help them to get to the point
that they actually care about,
which is having a live fundraise
and starting to raise funding.
Yeah, because E if
like everyone knew they
needed money like that.
Yep.
That
was, that was not a broken,
that wasn't in question.
Yeah.
There was no question that
people need know they needed
money, but what they didn't know
is what it took to raise it.
Yeah.
Right.
They didn't know that you
had to have a pitch deck or
what a pitch deck is actually
supposed to look like.
Oh, buddy.
Um, nobody, we saw some at all.
Right.
We saw some, we saw
some sweet pitch decks
back in the, still do.
Still do.
Right.
That's where it's so
fascinating to me.
So, so we launched this
service, which essentially,
uh, allowed us to, um, build
pitch decks for people.
Yeah.
Build their fundable
profiles, um, help identify
investors that might make
sense for them, et cetera.
And that business goes
on in like within a year
to become like a seven
figure business for us.
Like a main revenue
driver for Right.
Totally unexpected.
Totally unexpected.
And, and, and we looked
at that and we were like,
well, that's clearly not.
What our actual business
was supposed to be, but
it's informing what our
product is supposed to do.
And actually it helped
us understand that equity
crowdfunding wasn't gonna work.
Yeah.
Yep.
Right.
And there were two assumptions
that we made going in that
proved to be relatively false,
especially back in 2012.
Assumption number one was that
entrepreneurs would want money.
Sure.
But would they be
prepared to get it?
Again, pitch deck, whatever.
Right.
We missed on that one.
Missed on that one.
Right.
The second was that investors
didn't have enough deal flow.
Yeah.
That, that, that they didn't
have enough things to invest in.
They did.
They needed portals
to go find more deals.
Right.
Yeah.
It turns out that if you raise
your hand and say, I have money,
you will never be lonely again.
Yeah.
You have no, no, no
shortages that'll be
standing outside your door.
Right.
They did not have an
inventory problem.
Now, to be fair, yes.
Investors did come on the
platform and they did find deals
to invest in and stuff like
that, so, but it wasn't like
investors were like, oh, finally
someone will take my money.
No, it was a, I would say it
was a subtle democratization.
Of where funding
got distributed.
We definitely did see some, some
money get distributed to places
that otherwise probably wouldn't
have because of where they
were geographically located.
But it wasn't like a whole
bunch of new checks are.
Are you gonna
cover that one too?
'cause I think that's
an interesting third
assumption that that
actually didn't come true.
The, the fact that a bunch of
new investors would be minted
the minute they were allowed to.
Right.
Because that was part of the
whole dream of crowdfunding
was now anybody who self
accredits can now start to
invest in startup companies.
And that was absolutely true.
They can can and Will, will.
Were two very
different positions.
Yeah.
It, it, it turns out we
already have a system
for investing extra cash.
If you have $5,000, it's
called the public stock market.
Yeah, true.
And, and it's liquid.
And it's, yeah.
And, and look, you gotta
understand, Ryan and I
are saying all this and
we run that business.
Budgetable is
still around today.
Right?
So this isn't us being critical
about somebody else's business.
This is our own
goddamn business.
Yeah.
Ours we're saying.
But what was interesting was.
The services component, I
would say did two really
critical things for us.
Yeah.
That would, that would, would
allow us to become startups.com.
The first thing it did is
gave us a revenue source.
Sure.
So while fundable was still
trying to find its footing,
like, you know, paid it to
list and stuff like that, the
services business just went
to seven figures immediately.
Yep.
Right?
And, and it, it wasn't hard to
scale, which wasn't complicated.
Right.
No people, and all of us
came from services, so
it also wasn't new to us.
But the second thing
it did is it allowed us
to look at our product.
As maybe it's not the product.
See, when it's your
only product, you're
not allowed to do that.
Right.
When it's your only
product, you're not allowed
to go, you know, maybe
this isn't that good.
Yeah.
Maybe this isn't the thing.
Right.
Right.
It isn't the only thing.
It has to be the thing.
Correct.
We're all in on this
and if it's not this, it
can't be anything else.
Right.
Having this other revenue
stream allowed us to say,
when a lot of other people
who had made the same bet
we did, were all in on it.
We were like, let's
try another bet.
So what we started to realize
was the value in the market
or what was missing, if you
will, wasn't just people
trying to, um, to raise money.
It was trying to build
a startup at all.
And, and that's when we expanded
the, the thesis quickly.
And I credit that to our
services business, giving us
the ability to kind, like, stand
on another limb, if you will.
Yeah.
Um, and say, okay, we'll
be okay on this side too.
And that helped us get to
the point where we were
like, oh, we wanna help with
marketing, we wanna help
with, you know, um, yeah.
All, all kinds of stuff
and, and you know, we went
on, you know, a bit of an
acquisition spree and acquired
six more companies over the,
over the next few years.
Yeah.
And it completely changed
our game, but we launched
the services
business.
Yeah.
Right.
It's something I harp on a lot
and it's, it's the, the service
proxy brings so much value.
I think the, the one that
you're talking about now is
the one that represents the
biggest piece of value to me.
Yeah.
The getting to revenue fast.
Yes.
'cause that, that's just
like, take that off the table.
That has to happen.
Right?
We gotta get to revenue.
So that's great.
That happens, right?
Once we get beyond that,
it's these learnings that
become so, so super powerful.
In fact, I think I'm gonna
change up one of my models.
I use this model a lot.
I tell people it's my
four Ps of product.
I'm gonna have to
change it to five now.
Um, because we just
added another one.
Profitability.
Right.
So we can, we can go,
we can go a profitable,
proven, proprietary process.
These are the things that you
need to build a product, right?
Right.
To build a good product,
you need profitable,
proven proprietary process.
I'm just adding profitable
today 'cause we just
covered off on it.
It makes a lot of sense now.
So you can build something
that actually makes money.
This helps you avoid the
fifth P, which you don't want,
which is pivot, which as you
and I both know, is a really
nice turn of phrase on We
built the wrong shit first.
Yeah, no.
You know what happens
all the time, right?
Yeah.
It happens all the time.
What's interesting about
services businesses is
they pay right away.
Right.
I don't care if you're a
landscaping company or McKinsey.
Yep.
Like they pay right away.
And so you almost never, ever
hear of companies raising
money for a traditional
professional services business.
The first business I started,
I think maybe the first
business you started was,
was professional services.
We just, we sold
humans for time.
Right.
And the reason it, it
works so well in parallel
with startups is because
you can just go go, right?
You just start selling and
you get paid immediately.
And a lot of folks are anxious
about that and they'll say,
well, yeah, but I don't wanna
be doing services because
it'll take time away from Yeah.
You know, building the actual
product and, and like you
said earlier, what it'll do is
it'll allow you to have money.
Yeah.
So you can build the product.
That's the thing.
I think people.
Treat that as though it's
a foregone conclusion.
They're like, well, if
I start with services,
then it'll slow me down
from building my product.
You know what else will slow
you down from building your
product, not having enough
money, and you will just
stop building your product.
Right.
It's not a foregone
conclusion that you just,
oh, if I go services or
I could just go product.
You can't just go product,
because product usually
requires a lot of investment,
a lot of time, right?
Something It's a gamble.
Yeah, some, it's a big gamble.
Something else I think
is really important.
The services will, and we
touched on this a little bit,
but let me cover it again.
The services will help you
build a better product.
You will build a better product
because you are in the mix
with the clients, doing the
work, seeing the reactions.
The minute you're over on the
product side and what you have
are some, you know, even if
you've got a really well set
up analytics system, you're
looking at behavioral analytics.
Where did they click?
Where did they not click?
What did they do?
You're, you're learning
through out the window, right?
Yep.
Yes.
You'll pick up on some stuff,
but you don't understand
why it's not working.
You can't see when they get
frustrated, you can't see when
they lean back or lean in.
Uh, yep.
Or, or roll their eyes.
Right?
You gotta have all of that
data in the beginning so
you can actually build
the thing that they want.
Right?
Because a hundred percent
the stuff that we design
on, on a whiteboard is at
best, like a 20% guess.
And
it works every time
on the whiteboard.
Sure does.
Right.
Uh, what I say is, if option
one, build a a, a smaller
version of the product
doesn't work or doesn't fit.
Yep.
Option two, build
services around it.
Option three is a catchall.
Yeah.
And option three, I
affectionately call, fuck it, do
whatever takes money, whatever.
Whatever makes money.
Whatever makes money.
Right.
Whatever, whatever
takes to make money.
Yeah.
Yeah.
When I see founders, and I know
you do too, when I see founders
who are like, I'm doing X, Y,
Z, and honestly, it has nothing
to do with what the business is.
Yeah.
But it's paying my
bills right now.
Often that's their job,
you know, like literally
their day job, what they
were doing, uh, previously.
But certainly, you know, my, my,
my favorite story of all time,
uh, and we had this amazing
interview with him years ago,
like what, a long time ago, long
before they were public, was
with, um, Brian Chesky of um.
Of Airbnb, and some of you have
heard this story, and, and I
always think these founder like
origin stories aren't always
entirely true and I don't care.
Right.
I just love the
story either way.
Right, right.
Um, it's like I love
Avengers Endgame.
I'm fairly sure it's not
true, but I love the story.
I still like the story.
Yeah, yeah.
And, and by the way, I have
no idea, you know, whether
there, this isn't true.
I just always paint that,
that brush with, with
all these origin stories.
But the, the story
goes like this.
Uh, Brian Chesky and uh, uh,
had some other folks on the
team at the time were in the
early, early, early, early
stages of Airbnb when like,
kind of nobody really thought
it was going to work, which is
kinda what the early stages are.
You see Airbnb now and,
and like, it's easy to say,
oh, he must have always
known it was gonna work.
Sure.
And I remember Brian said at
the time, uh, in the interview,
and it, it's on, if you go
startups.com and you look
Brian Chesky, you'll see it.
It's an amazingly long,
detailed interview.
And it was before he, like,
he's kind of famous now.
Like I saw Gwyneth Paltrow
yesterday, like quoting him.
Yeah.
Uh, like he's kind
of in, in that air.
But this is before then.
Uh, I remember he said, Hey,
I graduated from risd, Rhode
Island School of Design and I
was just gonna be a designer.
And when I say just gonna be,
I mean, that's, that's all he
was thinking about at the time.
Yeah.
Yeah.
And, and he's like, and I was
living in my parents' basement.
So he is like, not a
stratosphere, kind of
like launch into the
business world, right?
And, uh, so, so they get
the business starting.
It's putting people up
in strangers houses.
Like you can't come up with
a more high risk model,
right?
I mean, think
about that earlier.
It's like, okay, so
I just graduated.
I'm gonna be a designer.
I'm living in my
parents' basement.
You know what would make
this better is if I invited
more people to live in my
parents' basement alongside me.
It doesn't sound like a
genius idea at
that level, right?
Okay, so this is just to
set the stage that like
Brian wasn't cruising
through life at that point.
Correct.
Okay.
And they were out of,
out of cash completely.
This is around the time of,
uh, the Obama McCain um, uh,
election and they were doing
the primaries and, uh, he and
his folks came up with this idea
to create Obama owes Serial.
Okay.
Serial and Captain McCain's.
Okay.
Captain McCain's.
Oh my god.
Captain McCain's.
And and he would, he would
take these boxes, you know
he printed these on spec.
Yeah.
Right.
A whole this goddamn serial.
And he went out and hustled.
I mean, I wanna say this
in the most respectful way
possible, but if I were doing
that right now, if I were
rolling up in my van Yeah.
To a frigging democratic
national convention.
Right.
With a van full of cereal.
Right.
I'd be like, my life is
not going well right now.
Right.
I would not be thinking,
this is, this is going great.
Now I wanna, I wanna pause
there to say that's the point
I. These people were doing
these extraordinary things Yes.
In order to keep their
startup alive in ways that
you would never think.
Yeah.
Now he, he, there were novels.
He had him, he was selling him
for $40 a pop, and he made like
$30,000, which relative to what
they needed in, in their stage
in life was a ton of money.
Yeah.
Yeah.
And it kept them alive.
And then it literally
kept him alive.
'cause he is like, all I
ate were the leftover boxes
of Captain McCain's for
like the next three years.
Right.
And I think to myself, I'm like.
That's what saved Airbnb to
allow to live long enough.
This is the case, right?
To live long enough
to become Airbnb.
And it's the part that we
always overlook is that
like, oh, it's supposed to
become Airbnb right away.
No, it isn't.
No great company becomes
what it is right away.
There's always this
period and you gotta do
whatever it takes to make
money during that period.
Yeah, and it's,
it's so critical.
We talk about this a lot.
I mean, the thing that separates
these startups that make it
from those that don't, of course
you have to have a good idea,
good execution, but you gotta
have time to keep executing.
Right.
We have seen so many companies
end before their day simply
because they weren't around
long enough, because a hundred
percent, they, they may
have aimed too big too soon.
Right?
And they were like, well,
let's, we're just gonna
go chase funding with no
traction, with no proof
of customers with nothing.
And, and then they end up
stomping around, uh, you know,
pitching their PowerPoint.
Nobody invests and
so they're just gone.
Right.
You know, where you look at that
Instead you say, if you just
paired that back and built a,
a, a lighter version of that,
built a service around that.
Were just gone and sold bulk
cereal in cleverly printed
boxes during a, I mean,
that would, people could
taken advantage of that.
There was a pretty contentious
election we just went through.
I feel like that Kamala,
I love trying to think
of what we would've sold,
you know?
Yeah, yeah.
Who knows?
Uh, one of the cereals
would've been orange though.
But like, uh, earlier this week,
a few days ago, I posted on the
Reddit startups, uh, subreddit.
What are some of the craziest
things, uh, folks have done?
Mm-hmm.
Uh, folks on there.
Um, 'cause it, it's funny to
talk like the Airbnb story,
but I feel like when we
tell those stories, people
don't believe they're true.
You know, or not
believe it's true.
They're like, oh,
well that's Airbnb.
That's not me.
It doesn't feel like, so
to speak, but it was cool.
Like a ton of people
responded, right?
And their, their stories
were all over the map.
I had one guy that said he
funded his startup by competing
in, um, video game conventions.
I. Like, like he made a hundred
thousand dollars through
the course of his startup.
That's amazing.
Competing in video game
conventions had nothing
to do with his startup.
Right.
Sure.
Which, which I
thought was great.
Another guy said that he had, he
brokered domains, he sold, uh,
domains in order to, you know,
basically pay for his, his,
his startup in its early days.
And the point is it kind
of doesn't matter what
it is, so long, it's
money, it doesn't matter, right?
Because the cash that comes out
the other side spends exactly
the same way no matter what.
Doesn't matter.
I usually like keep names
outta, so I'm gonna do it.
But there's a guy that
worked for us, uh, you
know who I'm talking about?
Yeah.
Um, went on to go start his
own company and sold it for
like $800 million, right?
Yes.
Around that time when he
was building that company,
I remember I was at an Ohio
State game and uh, and I'm
walking by and I'm like, I.
Huh?
He's at a sausage cart,
like slinging sausages,
slinging sausage, right?
Yep.
Yeah.
At, at, at a, at
a football game.
A college football game,
right on the weekend, Uhhuh
to generate extra cash, extra
cash, keep his startup going.
What I love about
that, it's hustle.
It's also humility, right?
It's
saying that it doesn't
matter how I'll do
whatever it takes, right?
Yeah.
I will do what I need to do
and take my ego off the table.
Um, startups will kill
an ego real quick.
Um, they can also reinflate
it very quickly, but.
Yeah.
And then just do what has
to be done and, and again,
do what has to be done.
I think this is where it
gets really confusing.
People are like, I can't
possibly go sling sausages
and make the million dollars
I need to build my product.
No.
'cause you don't actually need
a million dollars to build the
early version of the product.
Right.
You're aiming Right.
Right.
Too big.
Right?
You're like, well, it's
dreamhouse or bust.
No, it's not.
Get the land squat on the land.
Pitch a tent on the land.
Do whatever you have to do to
just start to occupy that space.
Um, and to your point, make
some money while you're
doing it, and then things
start to roll from there.
You know, I kinda say
like I've built that gear
personally where I'm willing
to do whatever it takes.
Yeah.
In any capacity.
Right.
Like, if you remember
when we opened our,
our last office, right?
It's a long time ago.
Yeah.
You know, 2012, whatever.
Like I was in there on the
weekends, like setting stuff up,
building stuff out, like Yeah.
Yeah.
By myself, right?
Yeah.
Like, like I didn't care.
I wasn't like, this is below me.
Right.
Yeah.
I'd sold three
companies by that point.
Right?
Yeah.
I was like, nothing's,
the stone is below.
Mark is not below me.
Monitor arms don't, don't
attach themselves to desks.
Right?
Yep.
I, oh my God, I remember this
might've been the end of me.
So not only like, like
forget this was below me.
This actually might,
might've ended me.
I remember I tried to care,
I did carry, I had this
giant, giant monitor, if
you remember that we had in
a sales room, that big tv.
Yes.
Yeah.
Yeah.
And it, it was an ancient tv,
like a, like a flat screen
tv and weighed a bit of a
hundred pounds that weigh
pounds was because
it was classic.
Oh my God.
And, and, and I
needed to hang it.
Way up on the wall.
So the way I got it up
there is I created, this
is like, this is hilarious.
I created a series of steps,
made it out of chairs, and
then then desks, and then
chairs on top of desks.
Yeah, that I would climb
up while I'm carrying
a hundred pound TV and
hang it on the wall.
Now, by the way, don't do that.
That's stupid.
Right.
My point is, we say
whatever it takes,
stay within osha.
Okay.
Yeah,
yeah, yeah.
Exactly.
Within the OSHA guideline.
Yeah.
Don't do that.
And, and as I'm carrying
this, like I don't want
to go out like this.
I don't wanna be like, I don't
wanna be the guy that like that,
this is my obituary, right?
Yeah.
But I got the damn TV hung up.
But, but point is when you
look at whatever it takes, you
have to have the humility that
comes with whatever it takes.
Like to me, it doesn't
occur to me that you
wouldn't just do the work.
Yeah.
But that doesn't apply
to everybody else.
You know, a lot of people
were like, well, that just
seems like a lot of hard work.
Yeah,
yeah.
Welcome, welcome to startups.
You know, though, I do, I
run into folks with that.
I do run into founders
with that, but I think more
often it's that they've just
missed on the bite size.
They just haven't leaned
back far enough to go.
I actually don't have to
build all of that just to
get started, and that's why
it's, it's not the humility.
It's not that they wouldn't
be willing to do that.
They're not looking at it going,
oh, if I make 2,500 a month
drive an Uber in my spare time.
Maybe that's not possible.
I, I don't, I don't know
what, I don't know how
Uber works at this point.
Make 25, whatever it is.
Yeah.
I can then pay an offshore
developer to start building
my app little by little,
by little by little.
Instead of saying, well, I
need to go raise a million
bucks to build it all at once.
You don't, and I think they
just don't have to do that.
When we use this amorphous
term called, um, bootstrapping,
I think a lot of people like
hear about it, but they don't
really understand what it means.
Everything we just described.
That is bootstrapping.
That's bootstrapping.
Bootstrapping is basically some
variant of whatever it takes
to generate cash now in order
to be around long enough to
to, to build anything at all.
Yeah.
You know, Ryan, you and
I talk about this all the
time, A big part of it is
just feeding yourself so you
can wake up every day and
still work on this business.
Right.
I mean, that's a
huge part of it.
Yeah.
And I think that like, look,
there, there is absolutely
no shame in solvency.
Like quite the opposite.
There's a lot of pride in
solvency and so I think
that whatever you need to
do to make sure that that's
happening and, and think
about yourself first, right?
You've said this 20
years ago, probably the
first time I heard it.
Startups don't run outta money.
Founders run outta money.
Your startup can sit
on mothballs and do
absolutely nothing.
Yep.
For as long as it needs to.
It's an idea.
Absolutely.
It doesn't need to eat, sleep,
drink, play, be married,
have kids, do anything.
Yep.
It just sits there and it
will, the minute you as a
founder are making ends meet,
it becomes really problematic.
So self solvency as
a first step, right?
And then that's a platform
that you can build from
and you can start to slowly
compile your startup company.
Or not slowly.
I think that's kinda the
point of today is that
like, this is where people
get really confused.
'cause it, it, it is hard
when you, when you've set
your sights on this particular
thing and you're like, no,
no, gotta have the dream
house that's gonna take us,
you know, 24 months to build.
We gotta have this much money.
It can be, I. It can feel
problematic to set that back
and say, no, actually what we're
gonna do is start really small.
The misconception is
that somehow that slows
things down, right?
What I have seen time and
time and time again is
this accelerates things
because now you've built
something much smaller
that can move a lot faster.
It can get to revenue faster,
get to profitability faster,
can start to hire team faster,
and that actually snowballs.
That little flywheel of momentum
that you build up at that
early stage can then actually
surpass what you would've
gone and done with the funding
route, and then taken time to
go and stop absolutely around
pitch, get your cash, whatnot.
Absolutely.
And so, uh, like what
we're talking about is
money equals runway.
That's it.
Right?
Money equals lifespan.
Yeah.
So all we should be focused on
as founders is getting cash in
the door, how we get it, whether
we're throwing parties that
opens up a nightclub, or whether
we're we're selling shoes,
you know, uh, that we don't
actually have or something.
Yeah.
Freaking captain, you know,
captain McCain's, it doesn't
matter how we get the money.
It matters that we get the
money 'cause we need that
cash in order to survive.
If we can't survive,
there's no business.
So our only focus, our only
focus at any given point is
to bring the cash in the door.
Overthinking your startup
because you're going it alone.
You don't have to, and honestly,
you shouldn't because instead,
you can learn directly from
peers who've been in your shoes.
Connect with bootstrap
founders and the advisors
helping them win in the
startups.com community.
Check out the startups.com
community@www.startups.com
to see if it's for you.
Could be just the
thing you need.
I hope to see you inside.