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.
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.
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.
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.
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.
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.
Right.
Whatever, whatever takes to make money.
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.
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.
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.
And it, it was an ancient tv, like a, like a flat screen
tv and weighed a bit of a hundred pounds that weigh
700
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,
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Connect with bootstrap founders and the advisors
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