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On Starting a Software Business

stephaniehurlburt.com

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Re: On Starting a Software Business

#21

Post by quadcore »

I have a question regarding startup growth so I apologise in advance if its irrelevant here (haven't read the article to be honest).

1) I get that to get the first users, you have to go out and recruit them. That's the advertisement part. So yeah, I get how you get users by advertising.

2) I get that when you have a million customers, they become the advertisement and they are the ones who are bringing you new customers. Your product "ad surface" is way bigger than simple banners through them.

Now what I have a hard time to understand is how 300 users procures the same effect as 2) (or even 3000). I get that they gonna get you 30 more customers by talking about your product to their "friends" who, if everything goes fine, at their turn gonna bring you 3 more customers who gonna bring you 1 more customers, for a grand total of 34 more customers. And that's the end of it. That wont grow much bigger. So basically, you would have to go back to 1) to get new users.

What am I missing? Does a user have to bring you n more new customers, n > 1? How many customers do you need via advertising so that the compound growth effect kicks in?

edit: I can see actually 2 types of compound growth effects: a) a user explicitly recruit another user (ex: "hey my friend, come play to this game"), b) a non user "see" other people using the product and he tells himself that might be a good idea to try it. Anyway, so basically, what I see is that, early on, you can rely only on a) so, in average, your customers have to get you n more new customers, n > 1, by explicitly recruiting them for you. Which, if Im correct here, would give an idea how badass the product must be.

Re: On Starting a Software Business

#22

Post by floogtheunfound »

chii wrote: post #11
shubhamjain wrote: post #6

There is a bit of detail missing that I would like to understand. How to just 'talk' and give help? Do you approach people/businesses and ask if they are having any problems? Or, your aim is to just get the conversation ball rolling, hoping that it leads to the problem part without deliberation?

i have a friend who is a construction contractor, and one of the tasks they needed to do is inspection of a property, and take pictures of problematic areas with notes. Currently, this is a manual process, paper driven with digital photos, and after wards, somebody back in the office would transcribe the hand written notes into an excel spreadsheet along with pics. This process could be made easier with an automated…

It exists; was at a Founders pitch day for new Seattle startups recently and the winner was a company using drones and sensors along with chat features. I’m pretty sure it was called something like “Unearthed” or something. I’m not sure if they got inspired by a similar interaction with acquaintances or not but it seems reasonable

Re: On Starting a Software Business

#23

Post by katzgrau »

dahart wrote: post #17
westoque wrote: post #8

Interesting about the 50-50 split. If you talk to most people in the valley, they would probably tell you this is the worst thing you can do. That is, if you're looking from the perspective of a VC.

YCombinator advises equal splits. https://blog.ycombinator.com/splitting-equity-among-founders... I've also read a bunch of articles that suggest unequal splits, and the reasons they cite seem to boil down to the idea that the split should reflect the proportional risk taken, and not much else. There are times when founders truly take the same amount of risk, and an even split is justified under the common VC thinkin…

I've done both equal and non-equal, but I've yet to have or observe a business where both the risk, contribution, and effort put in by the founders is actually equal.

Sometimes it's just a conversation founders want to avoid having because it's uncomfortable, but that in itself is a bit of a red flag.

Re: On Starting a Software Business

#24

Post by rmah »

quadcore wrote: post #21

I have a question regarding startup growth so I apologise in advance if its irrelevant here (haven't read the article to be honest). 1) I get that to get the first users, you have to go out and recruit them. That's the advertisement part. So yeah, I get how you get users by advertising. 2) I get that when you have a million customers, they become the advertisement and they are the ones who are bringing you new custom…

The short answer is: it depends.

The long answer...

New customers come from two primary sources: 1) marketing and 2) referrals. Marketing is things like events (trade shows, media hits, advertising, reviews, etc). None of those things happen without outreach on your part. Referrals are when (as you described) existing customers tell other people and a few of them try your product. This will not be constant, right after a customer buys your product/service, they may be excited and tell some friends. Best to model referrals over time with cohort analysis.

At the same time, you will lose existing customers. Like referrals, this is best modeled as cohort analysis. After a customer signs up, after 1 month, x% will leave, next month, a different %, next month yet another %. Typically the churn rate declines for a given customer cohort over time (though there may be bumps along the way).

So, you have customer inflow and outflow. It would be nice if there was a simple formula, but the marketing efficiency, the referral rates and churn rates will all be constantly changing. So, there is no way to know in advance if or when compound growth kicks in until you have solid data. It will vary by market, company and product.

Re: On Starting a Software Business

#25

Post by draw_down »

I was fortunate to see the author speak at a conference not too long ago, I really enjoyed it. Like her, I have had several bad experiences at tech companies and would just like to not ever work in one again. So I am very envious of her story and it's really cool to see how it has worked out for her and partner. (Unlike her, I don't really have contacts and I don't think I would be very good at the sales side of being a contractor.) Anyway, very inspiring stuff!

Re: On Starting a Software Business

#26

Post by dahart »

katzgrau wrote: post #23
dahart wrote: post #17

Earlier quoted context omitted.

YCombinator advises equal splits. https://blog.ycombinator.com/splitting-equity-among-founders... I've also read a bunch of articles that suggest unequal splits, and the reasons they cite seem to boil down to the idea that the split should reflect the proportional risk taken, and not much else. There are times when founders truly take the same amount of risk, and an even split is justified under the common VC thinkin…

I've done both equal and non-equal, but I've yet to have or observe a business where both the risk, contribution, and effort put in by the founders is actually equal. Sometimes it's just a conversation founders want to avoid having because it's uncomfortable, but that in itself is a bit of a red flag.

I have no doubt you're right that it's frequently a red flag, and that founders often go equal to avoid ranking themselves.

I've also watched and been part of lots of partnerships where the expectation before hand was equal contribution, and the reality after the fact was lopsided. I feel fairly lucky that my most recent experience truly was equal risk and equal effort; my even split experience has been truly reflective of what's happened, and truly fair for both of us.

The big mistake I have made is giving people besides my co-founder too much equity. Nobody else who's contributed to my company so far other than my co-founder have lived up to what they said they'd do, and we gave out too much equity in advance of them doing it.

Considering that, and considering both the issue you brought up and the reasons YCombinator gives for pushing toward equality rather than away from it, I think the main thing founders need to do is have a mechanism for not committing equity in advance of the effort. It's important for founders to be on a vesting schedule so that when one stops contributing or contributes less for a long period of time, you can shut it off. And it's important to communicate that things are going off the rails, and then actually take the action to shut it off.

That's really basic and somewhat stating the obvious, but if you are diligent about cutting off people who don't contribute, then there's no reason to shy away from equal split plans in advance. My experience has been that people I've partnered with for equity aren't avoiding contribution maliciously, they simply and honestly didn't realize in advance that they don't have the time & energy they thought they did.

Re: On Starting a Software Business

#28

Post by tacostakohashi »

chii wrote: post #11
shubhamjain wrote: post #6

There is a bit of detail missing that I would like to understand. How to just 'talk' and give help? Do you approach people/businesses and ask if they are having any problems? Or, your aim is to just get the conversation ball rolling, hoping that it leads to the problem part without deliberation?

i have a friend who is a construction contractor, and one of the tasks they needed to do is inspection of a property, and take pictures of problematic areas with notes. Currently, this is a manual process, paper driven with digital photos, and after wards, somebody back in the office would transcribe the hand written notes into an excel spreadsheet along with pics. This process could be made easier with an automated…

That app is called Evernote / OneNote / Google Keep - incrementally improving their process using off the shelf software is likely to be more practical than a custom app.

Where is your contractor friend based? I am looking for a contractor, or some contacts, for a job now.

Re: On Starting a Software Business

#30

Post by quadcore »

rmah wrote: post #24
quadcore wrote: post #21

I have a question regarding startup growth so I apologise in advance if its irrelevant here (haven't read the article to be honest). 1) I get that to get the first users, you have to go out and recruit them. That's the advertisement part. So yeah, I get how you get users by advertising. 2) I get that when you have a million customers, they become the advertisement and they are the ones who are bringing you new custom…

The short answer is: it depends. The long answer... New customers come from two primary sources: 1) marketing and 2) referrals. Marketing is things like events (trade shows, media hits, advertising, reviews, etc). None of those things happen without outreach on your part. Referrals are when (as you described) existing customers tell other people and a few of them try your product. This will not be constant, right aft…

Thank you, that gives some meat.

Ultimately, I was focusing on the fact that if a customer brings you n new customers, n only via marketing. If n > 1, you get new customers with something else than marketing - so to speak.

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