April 7, 2025 • 41 mins
In this episode, Ryan and Will discuss the common misconception that startups need funding before generating revenue. They emphasize that the actual business isn't just the product but the revenue it generates. The discussion covers various strategies to bootstrap and generate cash flow, including building a minimal viable product, offering related services, and even taking on side gigs or unconventional methods to bring in money. By doing so, startups can extend their runway and better validate their business model before seeking significant investment. The episode includes examples from famous startups like Zappos and Airbnb to illustrate these points.
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Wil Schroter
https://www.linkedin.com/in/wilschroter/
Ryan Rutan
https://www.linkedin.com/in/ryan-rutan/
What to listen for:|
00:51 The Broken Assumption About Funding
01:29 Generating Revenue Before the Product
02:39 Examples of Early Revenue Generation
03:07 The Zappos Story: Validating Demand
08:06 Personal Anecdotes on Testing Demand
10:27 The Importance of a Minimum Viable Product
18:39 Service-Based Proxies for Products
21:21 The Unexpected Success of Pitch Deck Services
22:04 Assumptions About Entrepreneurs and Investors
23:48 The Role of Services in Startup Success
25:33 The Importance of Revenue and Profitability
28:53 Creative Ways to Fund Your Startup
34:10 The Value of Bootstrapping and Hustle
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
After the episode of theStartup Therapy Podcast,
(00:01):
this is Ryan Rutan joined.
As always by Will Schroeder,my friend, the founder, and
CEO of startups.com, willoftentimes early stages, we
get super, super obsessed withbuilding our product, right?
We, we forget that theproduct isn't actually the
business that the revenue wegenerate from that product
is actually the business.
(00:22):
There's this other piece ofnarrative out there that says
like, well, I need the fundingso I can go build the product
so I can go make the money.
I think we wanna breakthat down today and expose
the, the level of bullshitthat'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 haveto get all the way to your
dream product before youstart to make revenue.
(00:43):
So today, let's beat thehell outta that notion.
Uh, the moneyalways comes first.
Yeah.
Like how you make it isthe broken assumption.
So to build on what you said,obviously the assumption is
going to be, I need investorsto be able to build my product,
go make money for my product.
Yeah.
So I can't do anythinguntil I get investors.
That is a very broken assumptionbecause it assumes that the
(01:03):
only way to generate money.
Is from that particular productat that particular stage.
Correct.
Which, if you talk to enoughfounders, ourselves included,
and, we'll, you know, todaywe'll talk about a lot of
other really famous, successfulfounders that, um, you know,
thought otherwise you'llstart to realize that the
early stages aren't reallyabout just building the
product and getting to market.
It's about generating cash.
(01:24):
Yeah.
And, and having enough to stayalive to ship that product.
Exactly.
Exactly.
And so whenever I walkthrough, you know, with a
founder who's going throughthis like crisis, this chicken
and egg thing, I always walkthem through a series of like
tiers of how you can generaterevenue now ahead of product
and then eventually get to it.
And it's progressive.
It's like things that are veryspecific to what the product is,
(01:47):
to a little bit less specificto has nothing to do with
it, but it still makes sense.
Yeah,
agreed.
And so I thought it'd becool to walk through those
tiers and maybe like.
Talk about some of thecompanies that have done this,
you know, at each of thosetiers, at, at some level of
scale, ourselves included.
Yeah.
So
there's gonna be somesurprising examples in there,
I would imagine, uh, in termsof like, I think a lot of
people think, oh yeah, ifyou're building something
small, you can do that.
(02:08):
I. Right.
You can put something reallybig starting exactly like this.
That's the point, right.
It's that again, the, the,the broken assumption is
that in order for us tobuild this business, it has
to be exactly the productwe're thinking about.
And there's nowhere in between.
And that's just a junioramateur assumption.
Yeah.
Right.
And I know some folks that arelistening like, you know, screw
you that I'm not an immature,I know what I'm talking about.
(02:29):
It's you're usingthe wrong framing.
Yeah.
And, and it applies tonearly every business.
I'm sure someone listeningthis won't apply to.
I, I, I get it.
Sure.
Short of that.
It applies to morepeople than you think.
So let's open up, uh, withone of my favorite examples
in what I call option one,which is basically just
saying, what's the smallestpossible version Yep.
That even could remotelylook like this product
(02:51):
that you could sell today.
Yep.
Right?
And so we call it theMVP 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 ridiculouslyminimum viable product.
And so, uh, uh, tell,tell you guys a story.
I'm always fascinatedabout Zappos as a company.
Yeah.
They're not like a really a,like a big name anymore, but
(03:13):
back in the day they werelike, they were it, right?
Like Tony Shea was runningaround and, and, uh,
you know, rest in peace.
And, and he, um, and hewas running around talking
about this story of havinggrown this thing to a
billion dollars, right?
What a lot of peopledon't know is Tony Sha did
not start this company.
That's right.
Right.
That's, there's some reallyinteresting backstory here.
He, he, Elon Muskett, right?
Yeah.
He went, he a little revisionhistory about how that
(03:34):
thing actually got started.
There's a, a, another guy,uh, that was the actual
founder, Nick, I cannever pronounce his name.
It's like Swin.
Swinburn.
I think the fact thatI 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 beimpossible to pronounce.
If you hadn't heard Tony,she's name 10,000 times 10.
(03:57):
So, so here's what he does,Nick, in the early days
before his AOS is evenlike barely a concept.
Concept, and this is likeback in 99, a long time
ago, Nick decides that hewants to sell shoes online.
Why?
I have no idea.
Right?
But he decides likethat's his thing.
What he does is he goes toshoe stores and he takes
like really good picturesof the shoes in the stores.
(04:19):
Yeah.
Because back then youcouldn't Google it.
Google didn't exist yet.
Also, you didn't have cameraphones, by the way, mobile
phones wouldn't come outin a meaningful way for
like five, six more years.
Right.
So he's, he's bringinglike old school, digital,
you know, camera.
And he's shooting pictures.
This is, this is bananas to me.
He's shooting pictures ofshoes in stores that are
not his, like his inventory.
(04:39):
Yep.
And then posting them online.
To sell them.
Why not as hisinventory, 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 heardthat phrase, assume the sale.
In this case, he was not onlyassuming the sale, he was
also assuming the inventory.
I love it, man.
It gets as scrappy as it gets.
But I mean if you thinkabout it, like every
(05:00):
drop shipper does that.
Yeah, exactly right.
It's exactly what a drop.
Yeah.
Probably half the companieson Amazon do that.
Yeah, yeah.
Right.
They, they're listing a bunchof inventory that smartly,
they don't purchase untilthey actually get the sale.
They don't buy until they'vegot a customer drop ship.
Yep.
Yeah.
What's interesting to me.
Is he goes on to do thisand a couple things happen.
One, he starts provingwhether the demand is there.
(05:20):
Remember this is like longlike e-commerce wasn't a thing.
No.
Nowhere near like, especiallynot for things like this, right?
Not for things thatwere like where size and
fit were important andreturns are complicated.
The nothing likethis was going on.
Totally.
And so like huge pioneer in thatspace, which is incidentally
why Amazon bought them.
But beyond that, the secondthing that he did is that
(05:40):
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, 'causeyou could go and just build
the platform, build thewebsite, you know, try to
run around it and raisemoney to build the product.
Only to find out that, yeah,people still aren't ready
to buy shoes online, right?
(06:00):
So he started byvalidating these really
important assumptions.
Before having to throwany real money at it.
My favorite thing to tell aninvestor when they pull their
in in inevitable know-it-allmoment in the pitch when they're
like, yeah, but people are nevergonna do that, is like, yeah.
Except they are.
Yeah.
Here's the, here's a list of athousand people that already did
exactly that, so let's move on.
(06:22):
Yeah.
And, and that shuts down theconversation very quickly
because it's easy to sayno 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 literallymade that up, right?
So yes, you're the investorand it's your choice to believe
whether that's true, but youalso don't know that it's true.
You just made it up, right?
(06:43):
So when I can politelybut defiantly fire back.
Yeah, except thatwe've already done it.
Then all of a suddenconversation completely
changes and I think.
That move by, by Nick thefounder, is what would've
drawn in a guy like TonyShea and Alfred Lin, like
you know, the the earlyinvestors who put in 500 K,
somebody who's not only showingthat level of hustle that we
(07:03):
love to see, but somebody whoalso went out and validated
a really important part ofthis, which is that people
will buy the inventory of itexists, returns and all of
this other stuff that everybodywas really worried about at
that time aren't as much ofa problem, said differently.
There's ways around it.
We found ways to do this.
And so he, he took a lotof risk off the table.
You know, I don't remember ifit was you or Elliot who first
(07:24):
broke this down for me thisway, but we were talking about
just like a general thesis ofinvesting and it going from like
being pure demand to, to purecapacity 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 gottago prove demand, there's a
lot of risk in that money.
At the minute, you can say,no, we've already found
(07:45):
that people wanna do this.
Now we just needa better system.
A, a, our own inventory,all these other things that
will come along with it.
But you've eliminatedsome of those really early
analytical barriers, uh, andemotional 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 andyears ago, this is such
I, this bizarre, I'mgoing back this far.
(08:06):
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 ofparties and events at my house.
My, yeah.
I'm in my twentiesat the time, right.
And eventually thesethings got so big that
like, I just couldn't host'em at my house anymore.
(08:27):
And, uh, at one of theseevents, a guy who had a space
downtown that actually usedto be a nightclub, Uhhuh, uh.
Approached me and he said, well,there's a ton of liability here.
This is actually like, youknow, not a great idea.
Right.
Um, he was not wrong.
He's like, here'sanother not great idea.
Yeah.
He's like, I've got aspace where you can host
this and do it there.
So I did, but, but here'swhy I bring that up.
(08:47):
I bring that up becauseI tested demand.
I already had a list of5,000 people, which back
then, this is like thenineties, like it was, yeah.
Insane to havelike a local list.
And when you saylist, you mean it was
actually probablywritten on paper.
Yeah, exactly.
Exactly.
And like this is longbefore social media, right?
And so Ider hadalready proven to band.
So when I went to go openup said nightclub, I just
(09:09):
invited all the people thatI'd already been bringing,
you know, to my house.
So, uh, side note, it wasa 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 validatedthat I don't wanna be in the
nightclub business anyway.
Point is when people talkabout, I can't possibly
move forward because I don'thave the final product.
(09:29):
Yep.
Rewind that back.
Let's assume Ryan, you andI decided that we wanted to
open up a nightclub, but wehave to have investors in
order to pay for the spaceand do the bill, et cetera.
And that would be true.
What we're saying is, butthat's not the first version
of the product, right?
First version of the productis party or a cocktail.
Yeah.
Or something.
Anything.
Exactly.
Getting togetherto do something.
(09:50):
Yep, exactly.
It's, it's creating events.
It's, again, if we were openingup like a bakery, something
less douchy, if we were openingup 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 needto do events where we're, we're
baking the product at our house.
We're bringing to theevents, and we're getting
customers, we're buildingsocial media around that.
We're, we're going topopups, things like that.
(10:12):
That's the earlyversion of the product.
Before it's the full product.
In both cases, we're sellingwhatever we're baking.
Yeah.
We're not waiting for the, thecapital intensive part to begin.
Right.
We don't need to buildthe Wonder Bread factory.
We can just openit with an oven.
Yeah.
It's so rare.
Will I, I'd love to hear yourtake on this, but it's so
rare that I run into somebodywho's working on that MVP
where I look at the MVP and Idon't go, that's three x what
(10:34):
you actually need to build.
Right.
They, it's almost alwaysoverwrought and, and overbuilt
and there's just such a simplerversion that will actually
in, here's the other thing.
When you build a reallysimple version of things,
you get to test a lot fasteronce you have some answers.
But I've always foundthere's always more clarity
in those experiments.
'cause you're notlooking at as much stuff.
You're like, if I bake andthen go to sell, do people
(10:57):
buy this stuff that I bake?
That's what we haveto 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 'causeyou're a terrible baker.
This is why I started jokinglysaying, you know, the, the mm
VP, the mm mm MVPA much moreminimum, minimum viable product.
Yeah, yeah.
Right.
And it's, it's so importantto do this because it saves
(11:20):
you so much time, so muchheartache, and it gives you
clarity again, like just becauseyou simplify that experiment,
it's easier to understandwhat's actually happening.
But I, we talk to founders allday, every day Will, and so
I'm sure you're seeing the samething I am, but at the getting
customers level, there's somany folks where they're like,
okay, and I'll be, you shouldbe able to get customers the
next six months when I do this.
And I'm like.
You realize if you justrethink what you're looking
at right now, you could startgetting customers next week.
(11:42):
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 buyingthe 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 tonof people, you can match people
on social media right now.
Yeah.
Right.
You can callwhatever service you.
I, I can match people.
I want them if I need to.
Right.
A hundred percent.
Right.
(12:02):
There's always a, a more manualway to create the product.
And, and you know, I, I've,I've mentioned one other
example in the past whenwe did unsubscribe.com.
Yeah.
That's a great one.
You know, it's like when Iexplained it to my co-founders,
I was like, Hey, it's thisidea for a tool to allow you
to get off of, um, any email.
This was like back in the uhhuhmid two thousands when that
was actually really hard to do.
(12:23):
Yep.
Can SPAM hadn'tbeen written yet.
Yeah.
Unsubscribe wasn't a policy.
Yeah.
Yeah.
And then you didn't have itin your Gmail because a lot of
people didn't have Gmail yet.
Right, right.
Um, yeah.
Oh look, so like my co-founderswere like, and they're super
smart guys, but they'relike, um, dude, that would
take like a year to build.
Yeah, yeah.
Right.
Um, because it is likereally complex business
rules and all this stuff.
Funny as it is, AIwould've been a perfect
(12:44):
use case here, but Yeah.
But I was like, yeah, we'renot gonna do any of that.
We're gonna spend six weeks,we're just gonna throw up
a, um, a page where you candownload the button and put it
in your Gmail or put it in yourOutlook or, you know, whatever
was current at the time.
And when someone clicksto unsubscribe, we're just
gonna forward that email toa, um, to a, a general box.
Yep.
And we'll have a team ofpeople that'll just go in
(13:06):
there and unsubscribe foryou, which used to mean like
picking up the phone andactually 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 thingwas it worked a hundred
percent of the time.
Yeah.
'cause there was always someoneto like make sure that Lyrica,
like it was like sending it toyour virtual assistant, right?
Yeah.
But from what the usercould see, they just assumed
(13:26):
it was amazing software.
And they don't care, by the way.
That's the thing.
People get allcaught up in that.
Yeah.
But like, you know, it, it needsto be a software for who, right.
If the outcome is the same.
Sure you can't scale it, allthat stuff, but it doesn't
matter because again, likeif nobody wants to pay to
unsubscribe from email and nowants to pay to install that
thing, or no other companywants to buy that technology,
uh, to put into their emailclient, it doesn't matter.
(13:49):
Yeah.
Right.
And that's the
thing, ultimately they,they want the outcome.
Yeah.
I always, I always findit funny whenever I order
something on Amazon, it'snot from Amazon directly.
I always scratch my head.
I'm like, I wonderwhere that order goes.
Yeah.
Right.
And how it gets fulfilled.
It goes back to, um, the, thefounder of Zappos, you know,
driving to the shoe store andbuying shoes for me and sending
'em to me, um, or eBay, youknow, being a much more obvious
(14:10):
culprit, but I don't care.
I get the product and it'swhat 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'smoving the ball forward.
It's allowing you tooperate in the business.
Right?
Yeah.
Immediately.
And learn right away.
(14:31):
So as soon as we launchedon unsubscribe, we told like
some friends about it, wehad some investor friends.
We sent it to them,they went nuts.
It turns out this is, we didn'tsee this coming, but investors
were actually like our biggestcustomers because they're on
every email list, every startupthat's ever like, you know,
whatever has just added them.
And so, uh, theinvestors saw it.
A guy named Sar Ger from,uh, Charles River Ventures,
(14:52):
Uhhuh saw it Uhhuh.
He flew down the next day.
We were in SantaMonica at the time.
He flew down to Santa Monicathe next day and gave us a term
sheet and because we didn't haveto convince him that it would
work, he is like, I used it.
It worked in five seconds.
He'd find out later that it waslike an intern from USC that did
the work, but he didn't care.
I mean, the point he islike, I don't care, like
as long as it works.
What's our tech stack?
Uh, mostly, uh, uh,four pizzas a day.
(15:16):
Keep the intern sped, likethat's the tech stack.
So let's take that astep further though.
Sure.
So ideally the, the firstphase would be you could build
some version of your actualproduct that would, that would
generate, uh, revenue and orvalidation, ideally revenue.
And again, when you saysome version of that.
We mean it can be themost watered down or even
non-technological version,but we want basically
(15:38):
provide a proxy to getinto that same outcome.
Right.
So we're, we're basically,the outcomes are exactly
the same in, in this phaseone, which is the closest.
And this is so I think,important to say like,
'cause I, I, I see whereyou'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'topen-minded enough to realize
(16:00):
like how much they could openthe aperture of the product,
and ideally it makes money.
Before we opened that nightclub,like between the time that,
uh, I had thrown like thelast event at my house and the
time we opened a nightclub, ithappened to be New Year's Eve.
I. In between.
And so we basically wentto a venue, uh, in downtown
and we said, Hey, we wannabasically, uh, invite all
(16:21):
of our people to this, youknow, to your, to your event.
Uh, we want $20 for everyperson that we bring in.
And I was nightclubpromoter, right?
Uh, this is really my job, but Iwas 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 paidfor it, right?
Yeah.
Right.
And so, uh, anyway, uh,it was new year, so a
lot of people were out.
So a thousand ofour friends came.
And we got paid $20,000 in cash.
(16:42):
Yeah.
Right.
And I was like, huh,what the, why haven't
I been doing this all?
Yeah.
I've been doingright 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, hewas throwing all these events
that were more like, uh, uh.
Targeted toward super high networth individuals, like, uh,
a hundred million dollar plus.
And he's been throwingthese events for years.
(17:03):
He's a great guy and he is likereally like the center of of
gravity for all these folks.
Sure.
And a year ago we'resitting down and I'm like.
Like, why aren't yougetting paid for this uhhuh?
He's like, I don't reallyknow how to get paid for it.
I was like, a lot ofpeople would pay to be in
the room with people withthat kind of portfolio.
Right.
So we did and we sat down,uh, recently and he is like,
will I took your advice?
(17:24):
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 aboutbuilding, 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.
(17:44):
Right.
That's the thing.
He's already, he's already founda way to deliver that value to
at least $50,000 worth of peoplethat 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 otherthing that people get caught
up in is like, well then whenwill I build the product?
When you can or whenyou absolutely need to.
Sometimes, like I, I've seenthis happen multiple times where
(18:05):
you start with some sort of aservice proxy or just the early
version, you actually go a lotfurther on that than you, you
might think, because it turnsout it solves people's problem
and that's what they care about.
You said it, they careabout the outcome, right.
How it's packaged, all of that.
Sure.
You know, if it's, ifit's easier to use or,
or you know, faster,cheaper, whatever, great.
But at some point, if you'reproviding an outcome that
(18:27):
they care about within a pricethat they're willing to pay,
you've got what you need.
So let's go tothe second option.
Sure.
Which, if, if for some reason wecan'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 firstoption, and this we'll
talk about can you build aservice around the product.
Sure.
In other words, is therekinda like we were saying,
(18:47):
is there a way you canmanually deliver this?
Yeah.
Yeah.
Or, or, um, and an ad hoc basis.
So, Ryan, we went throughthis when we launched
fundable in 2012.
Do, do you rememberhow that went?
Yeah, I mean,
gee, so, you know, with the,with the launch, you know,
where there was, there wasa bit of fervor around the
whole crowdfunding space.
We opened up the platform, letpeople in, and uh, it looked
(19:09):
as though we had just openeda gym and let in people who'd
never worked out before, right?
They didn't know whether tohold thing over their head, you
know, how to put the clotheson or to these sweatbands,
armbands, waistbands.
We don't know what we're doing.
And so there was just a lotof folks trying to raise
funding that had never donethis before, had no idea.
And why would they.
Right.
And so, by the way,Ron, that was a big
(19:29):
assumption on our part.
It was a huge assumption.
A big assumption.
Were like, let's, let'sspend all this time
building a platform.
Yeah.
Without ever really findingout whether our customers
could be our customers.
You know, somethingthat's really funny about
everything we talk abouthere is that none of it.
Is new.
Everything you're dealingwith right now has been done a
thousand times before you, whichmeans the answer already exists.
(19:51):
You may just not knowit, but that's okay.
That's kind of whatwe're here to do.
We talk about this stuff onthe show, but we actually
solve these problems alldayLong@groups.startups.com.
So if any of this soundsfamiliar, stop guessing
about what to do, let us justgive you the answers to the
test and be done with it.
What we realized was thatyes, in fact they could be
(20:13):
our customers, but not withsome significant, without some
significant additional help.
Right?
And if you recall, we, I, I shotthe 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 pickup a client or two.
Picked up 15.
And it was a greatproblem to have.
(20:34):
But it was a problem becausewe were not suited to deliver
to that many people, so wehad to hurry and catch up.
But we all of a suddenrealized we can get paid
quite well to do this workand we can scale that part.
That's easy.
'cause that was justadding some people and then
building some process around.
But that completely changed theface of that business overnight
because we went back to, Hey,let's just simplify this.
(20:54):
Let's make it a service.
Let's get in and do the thingsthat people dunno how to do and
help them to get to the pointthat they actually care about,
which is having a live fundraiseand starting to raise funding.
Yeah, because E iflike 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 thatpeople need know they needed
money, but what they didn't knowis what it took to raise it.
(21:15):
Yeah.
Right.
They didn't know that youhad to have a pitch deck or
what a pitch deck is actuallysupposed to look like.
Oh, buddy.
Um, nobody, we saw some at all.
Right.
We saw some, we sawsome sweet pitch decks
back in the, still do.
Still do.
Right.
That's where it's sofascinating to me.
So, so we launched thisservice, which essentially,
uh, allowed us to, um, buildpitch decks for people.
Yeah.
Build their fundableprofiles, um, help identify
(21:35):
investors that might makesense for them, et cetera.
And that business goeson in like within a year
to become like a sevenfigure business for us.
Like a main revenuedriver for Right.
Totally unexpected.
Totally unexpected.
And, and, and we lookedat that and we were like,
well, that's clearly not.
What our actual businesswas supposed to be, but
it's informing what ourproduct is supposed to do.
(21:57):
And actually it helpedus understand that equity
crowdfunding wasn't gonna work.
Yeah.
Yep.
Right.
And there were two assumptionsthat we made going in that
proved to be relatively false,especially back in 2012.
Assumption number one was thatentrepreneurs would want money.
Sure.
But would they beprepared to get it?
Again, pitch deck, whatever.
(22:18):
Right.
We missed on that one.
Missed on that one.
Right.
The second was that investorsdidn't have enough deal flow.
Yeah.
That, that, that they didn'thave enough things to invest in.
They did.
They needed portalsto go find more deals.
Right.
Yeah.
It turns out that if you raiseyour hand and say, I have money,
you will never be lonely again.
Yeah.
You have no, no, noshortages that'll be
(22:38):
standing outside your door.
Right.
They did not have aninventory problem.
Now, to be fair, yes.
Investors did come on theplatform and they did find deals
to invest in and stuff likethat, so, but it wasn't like
investors were like, oh, finallysomeone will take my money.
No, it was a, I would say itwas a subtle democratization.
Of where fundinggot distributed.
We definitely did see some, somemoney get distributed to places
(23:01):
that otherwise probably wouldn'thave because of where they
were geographically located.
But it wasn't like a wholebunch of new checks are.
Are you gonnacover that one too?
'cause I think that'san interesting third
assumption that thatactually didn't come true.
The, the fact that a bunch ofnew investors would be minted
the minute they were allowed to.
Right.
Because that was part of thewhole dream of crowdfunding
was now anybody who selfaccredits can now start to
invest in startup companies.
(23:23):
And that was absolutely true.
They can can and Will, will.
Were two verydifferent positions.
Yeah.
It, it, it turns out wealready have a system
for investing extra cash.
If you have $5,000, it'scalled the public stock market.
Yeah, true.
And, and it's liquid.
And it's, yeah.
And, and look, you gottaunderstand, Ryan and I
are saying all this andwe run that business.
Budgetable isstill around today.
Right?
So this isn't us being criticalabout somebody else's business.
(23:43):
This is our owngoddamn business.
Yeah.
Ours we're saying.
But what was interesting was.
The services component, Iwould say did two really
critical things for us.
Yeah.
That would, that would, wouldallow us to become startups.com.
The first thing it did isgave us a revenue source.
Sure.
So while fundable was stilltrying to find its footing,
like, you know, paid it tolist and stuff like that, the
(24:03):
services business just wentto seven figures immediately.
Yep.
Right?
And, and it, it wasn't hard toscale, which wasn't complicated.
Right.
No people, and all of uscame from services, so
it also wasn't new to us.
But the second thingit did is it allowed us
to look at our product.
As maybe it's not the product.
See, when it's youronly product, you're
not allowed to do that.
Right.
(24:24):
When it's your onlyproduct, you're not allowed
to go, you know, maybethis 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 thisand if it's not this, it
can't be anything else.
Right.
Having this other revenuestream allowed us to say,
when a lot of other peoplewho had made the same bet
we did, were all in on it.
We were like, let'stry another bet.
So what we started to realizewas the value in the market
(24:46):
or what was missing, if youwill, wasn't just people
trying to, um, to raise money.
It was trying to builda startup at all.
And, and that's when we expandedthe, the thesis quickly.
And I credit that to ourservices business, giving us
the ability to kind, like, standon another limb, if you will.
Yeah.
Um, and say, okay, we'llbe okay on this side too.
And that helped us get tothe point where we were
(25:07):
like, oh, we wanna help withmarketing, we wanna help
with, you know, um, yeah.
All, all kinds of stuffand, and you know, we went
on, you know, a bit of anacquisition spree and acquired
six more companies over the,over the next few years.
Yeah.
And it completely changedour game, but we launched
the services
business.
Yeah.
Right.
It's something I harp on a lotand it's, it's the, the service
(25:28):
proxy brings so much value.
I think the, the one thatyou're talking about now is
the one that represents thebiggest piece of value to me.
Yeah.
The getting to revenue fast.
Yes.
'cause that, that's justlike, 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 gonnachange up one of my models.
I use this model a lot.
I tell people it's myfour Ps of product.
(25:50):
I'm gonna have tochange it to five now.
Um, because we justadded another one.
Profitability.
Right.
So we can, we can go,we can go a profitable,
proven, proprietary process.
These are the things that youneed to build a product, right?
Right.
To build a good product,you need profitable,
proven proprietary process.
I'm just adding profitabletoday 'cause we just
covered off on it.
It makes a lot of sense now.
So you can build somethingthat actually makes money.
(26:10):
This helps you avoid thefifth P, which you don't want,
which is pivot, which as youand I both know, is a really
nice turn of phrase on Webuilt the wrong shit first.
Yeah, no.
You know what happensall the time, right?
Yeah.
It happens all the time.
What's interesting aboutservices businesses is
they pay right away.
Right.
I don't care if you're alandscaping company or McKinsey.
Yep.
Like they pay right away.
And so you almost never, everhear of companies raising
(26:33):
money for a traditionalprofessional services business.
The first business I started,I think maybe the first
business you started was,was professional services.
We just, we soldhumans for time.
Right.
And the reason it, itworks so well in parallel
with startups is becauseyou can just go go, right?
You just start selling andyou get paid immediately.
(26:55):
And a lot of folks are anxiousabout that and they'll say,
well, yeah, but I don't wannabe doing services because
it'll take time away from Yeah.
You know, building the actualproduct and, and like you
said earlier, what it'll do isit'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'sa foregone conclusion.
They're like, well, ifI start with services,
(27:15):
then it'll slow me downfrom building my product.
You know what else will slowyou down from building your
product, not having enoughmoney, and you will just
stop building your product.
Right.
It's not a foregoneconclusion that you just,
oh, if I go services orI 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 thinkis really important.
(27:36):
The services will, and wetouched on this a little bit,
but let me cover it again.
The services will help youbuild a better product.
You will build a better productbecause you are in the mix
with the clients, doing thework, seeing the reactions.
The minute you're over on theproduct side and what you have
are some, you know, even ifyou've got a really well set
up analytics system, you'relooking at behavioral analytics.
Where did they click?
(27:56):
Where did they not click?
What did they do?
You're, you're learningthrough 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 getfrustrated, you can't see when
they lean back or lean in.
Uh, yep.
Or, or roll their eyes.
Right?
You gotta have all of thatdata in the beginning so
you can actually buildthe thing that they want.
Right?
Because a hundred percentthe stuff that we design
on, on a whiteboard is atbest, like a 20% guess.
(28:17):
And
it works every timeon the whiteboard.
Sure does.
Right.
Uh, what I say is, if optionone, build a a, a smaller
version of the productdoesn't work or doesn't fit.
Yep.
Option two, buildservices around it.
Option three is a catchall.
Yeah.
And option three, Iaffectionately call, fuck it, do
whatever takes money, whatever.
Whatever makes money.
Whatever makes money.
(28:37):
Right.
Whatever, whatevertakes to make money.
Yeah.
Yeah.
When I see founders, and I knowyou 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 mybills right now.
Often that's their job,you know, like literally
their day job, what theywere doing, uh, previously.
But certainly, you know, my, my,my favorite story of all time,
uh, and we had this amazinginterview with him years ago,
(28:58):
like what, a long time ago, longbefore they were public, was
with, um, Brian Chesky of um.
Of Airbnb, and some of you haveheard this story, and, and I
always think these founder likeorigin stories aren't always
entirely true and I don't care.
Right.
I just love thestory either way.
Right, right.
Um, it's like I loveAvengers Endgame.
I'm fairly sure it's nottrue, but I love the story.
(29:20):
I still like the story.
Yeah, yeah.
And, and by the way, I haveno 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 storygoes like this.
Uh, Brian Chesky and uh, uh,had some other folks on the
team at the time were in theearly, early, early, early
stages of Airbnb when like,kind of nobody really thought
it was going to work, which iskinda what the early stages are.
(29:42):
You see Airbnb now and,and like, it's easy to say,
oh, he must have alwaysknown it was gonna work.
Sure.
And I remember Brian said atthe time, uh, in the interview,
and it, it's on, if you gostartups.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 Paltrowyesterday, like quoting him.
Yeah.
Uh, like he's kindof in, in that air.
(30:02):
But this is before then.
Uh, I remember he said, Hey,I graduated from risd, Rhode
Island School of Design and Iwas 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 wasliving in my parents' basement.
So he is like, not astratosphere, kind of
like launch into thebusiness world, right?
And, uh, so, so they getthe business starting.
(30:22):
It's putting people upin strangers houses.
Like you can't come up witha more high risk model,
right?
I mean, thinkabout that earlier.
It's like, okay, soI just graduated.
I'm gonna be a designer.
I'm living in myparents' basement.
You know what would makethis better is if I invited
more people to live in myparents' basement alongside me.
It doesn't sound like a
genius idea atthat level, right?
(30:43):
Okay, so this is just toset the stage that like
Brian wasn't cruisingthrough 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 doingthe primaries and, uh, he and
his folks came up with this ideato create Obama owes Serial.
Okay.
Serial and Captain McCain's.
(31:06):
Okay.
Captain McCain's.
Oh my god.
Captain McCain's.
And and he would, he wouldtake 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 thisin the most respectful way
possible, but if I were doingthat right now, if I were
rolling up in my van Yeah.
To a frigging democraticnational convention.
(31:27):
Right.
With a van full of cereal.
Right.
I'd be like, my life isnot going well right now.
Right.
I would not be thinking,this is, this is going great.
Now I wanna, I wanna pausethere to say that's the point
I. These people were doingthese extraordinary things Yes.
In order to keep theirstartup alive in ways that
(31:48):
you would never think.
Yeah.
Now he, he, there were novels.
He had him, he was selling himfor $40 a pop, and he made like
$30,000, which relative to whatthey needed in, in their stage
in life was a ton of money.
Yeah.
Yeah.
And it kept them alive.
And then it literallykept him alive.
'cause he is like, all Iate were the leftover boxes
of Captain McCain's forlike the next three years.
Right.
And I think to myself, I'm like.
(32:09):
That's what saved Airbnb toallow to live long enough.
This is the case, right?
To live long enoughto become Airbnb.
And it's the part that wealways overlook is that
like, oh, it's supposed tobecome Airbnb right away.
No, it isn't.
No great company becomeswhat it is right away.
There's always thisperiod and you gotta do
whatever it takes to makemoney during that period.
Yeah, and it's,it's so critical.
(32:30):
We talk about this a lot.
I mean, the thing that separatesthese startups that make it
from those that don't, of courseyou have to have a good idea,
good execution, but you gottahave time to keep executing.
Right.
We have seen so many companiesend before their day simply
because they weren't aroundlong enough, because a hundred
percent, they, they mayhave aimed too big too soon.
Right?
And they were like, well,let's, we're just gonna
go chase funding with notraction, with no proof
(32:51):
of customers with nothing.
And, and then they end upstomping around, uh, you know,
pitching their PowerPoint.
Nobody invests andso they're just gone.
Right.
You know, where you look at thatInstead 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 bulkcereal in cleverly printed
boxes during a, I mean,that would, people could
(33:11):
taken advantage of that.
There was a pretty contentiouselection 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 cerealswould'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 craziestthings, uh, folks have done?
Mm-hmm.
Uh, folks on there.
Um, 'cause it, it's funny totalk like the Airbnb story,
(33:33):
but I feel like when wetell those stories, people
don't believe they're true.
You know, or notbelieve it's true.
They're like, oh,well that's Airbnb.
That's not me.
It doesn't feel like, soto speak, but it was cool.
Like a ton of peopleresponded, right?
And their, their storieswere all over the map.
I had one guy that said hefunded his startup by competing
in, um, video game conventions.
I. Like, like he made a hundredthousand dollars through
(33:55):
the course of his startup.
That's amazing.
Competing in video gameconventions had nothing
to do with his startup.
Right.
Sure.
Which, which Ithought was great.
Another guy said that he had, hebrokered 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 kindof doesn't matter what
it is, so long, it's
money, it doesn't matter, right?
(34:15):
Because the cash that comes outthe other side spends exactly
the same way no matter what.
Doesn't matter.
I usually like keep namesoutta, so I'm gonna do it.
But there's a guy thatworked for us, uh, you
know who I'm talking about?
Yeah.
Um, went on to go start hisown company and sold it for
like $800 million, right?
Yes.
Around that time when hewas building that company,
I remember I was at an OhioState game and uh, and I'm
(34:36):
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, ata football game.
A college football game,right on the weekend, Uhhuh
to generate extra cash, extracash, keep his startup going.
What I love aboutthat, it's hustle.
It's also humility, right?
It's
saying that it doesn'tmatter how I'll do
(34:56):
whatever it takes, right?
Yeah.
I will do what I need to doand take my ego off the table.
Um, startups will killan ego real quick.
Um, they can also reinflateit very quickly, but.
Yeah.
And then just do what hasto be done and, and again,
do what has to be done.
I think this is where itgets really confusing.
People are like, I can'tpossibly go sling sausages
and make the million dollarsI need to build my product.
(35:18):
No.
'cause you don't actually needa million dollars to build the
early version of the product.
Right.
You're aiming Right.
Right.
Too big.
Right?
You're like, well, it'sdreamhouse 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 tojust start to occupy that space.
Um, and to your point, makesome money while you're
doing it, and then thingsstart to roll from there.
(35:40):
You know, I kinda saylike I've built that gear
personally where I'm willingto do whatever it takes.
Yeah.
In any capacity.
Right.
Like, if you rememberwhen we opened our,
our last office, right?
It's a long time ago.
Yeah.
You know, 2012, whatever.
Like I was in there on theweekends, like setting stuff up,
building stuff out, like Yeah.
Yeah.
By myself, right?
Yeah.
Like, like I didn't care.
(36:01):
I wasn't like, this is below me.
Right.
Yeah.
I'd sold threecompanies by that point.
Right?
Yeah.
I was like, nothing's,the stone is below.
Mark is not below me.
Monitor arms don't, don'tattach themselves to desks.
Right?
Yep.
I, oh my God, I remember thismight've been the end of me.
So not only like, likeforget this was below me.
This actually might,might've ended me.
I remember I tried to care,I did carry, I had this
(36:22):
giant, giant monitor, ifyou 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 ahundred pounds that weigh
700
pounds was becauseit was classic.
Oh my God.
And, and, and Ineeded to hang it.
Way up on the wall.
So the way I got it upthere is I created, this
is like, this is hilarious.
I created a series of steps,made it out of chairs, and
(36:44):
then then desks, and thenchairs on top of desks.
Yeah, that I would climbup while I'm carrying
a hundred pound TV andhang it on the wall.
Now, by the way, don't do that.
That's stupid.
Right.
My point is, we saywhatever it takes,
stay within osha.
Okay.
Yeah,
yeah, yeah.
Exactly.
Within the OSHA guideline.
Yeah.
Don't do that.
And, and as I'm carryingthis, like I don't want
to go out like this.
I don't wanna be like, I don'twanna be the guy that like that,
(37:05):
this is my obituary, right?
Yeah.
But I got the damn TV hung up.
But, but point is when youlook at whatever it takes, you
have to have the humility thatcomes with whatever it takes.
Like to me, it doesn'toccur to me that you
wouldn't just do the work.
Yeah.
But that doesn't applyto everybody else.
You know, a lot of peoplewere like, well, that just
seems like a lot of hard work.
(37:27):
Yeah,
yeah.
Welcome, welcome to startups.
You know, though, I do, Irun into folks with that.
I do run into founderswith that, but I think more
often it's that they've justmissed on the bite size.
They just haven't leanedback far enough to go.
I actually don't have tobuild all of that just to
get started, and that's whyit's, it's not the humility.
It's not that they wouldn'tbe willing to do that.
They're not looking at it going,oh, if I make 2,500 a month
(37:50):
drive an Uber in my spare time.
Maybe that's not possible.
I, I don't, I don't knowwhat, I don't know how
Uber works at this point.
Make 25, whatever it is.
Yeah.
I can then pay an offshoredeveloper to start building
my app little by little,by little by little.
Instead of saying, well, Ineed to go raise a million
bucks to build it all at once.
You don't, and I think theyjust don't have to do that.
When we use this amorphousterm called, um, bootstrapping,
(38:11):
I think a lot of people likehear about it, but they don't
really understand what it means.
Everything we just described.
That is bootstrapping.
That's bootstrapping.
Bootstrapping is basically somevariant of whatever it takes
to generate cash now in orderto be around long enough to
to, to build anything at all.
Yeah.
You know, Ryan, you andI talk about this all the
time, A big part of it isjust feeding yourself so you
(38:31):
can wake up every day andstill work on this business.
Right.
I mean, that's ahuge 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 insolvency and so I think
that whatever you need todo to make sure that that's
happening and, and thinkabout yourself first, right?
You've said this 20years ago, probably the
(38:53):
first time I heard it.
Startups don't run outta money.
Founders run outta money.
Your startup can siton 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 itwill, the minute you as a
founder are making ends meet,it becomes really problematic.
So self solvency asa first step, right?
(39:14):
And then that's a platformthat you can build from
and you can start to slowlycompile your startup company.
Or not slowly.
I think that's kinda thepoint of today is that
like, this is where peopleget really confused.
'cause it, it, it is hardwhen you, when you've set
your sights on this particularthing and you're like, no,
no, gotta have the dreamhouse that's gonna take us,
you know, 24 months to build.
We gotta have this much money.
It can be, I. It can feelproblematic to set that back
(39:35):
and say, no, actually what we'regonna do is start really small.
The misconception isthat somehow that slows
things down, right?
What I have seen time andtime and time again is
this accelerates thingsbecause now you've built
something much smallerthat 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 momentumthat you build up at that
early stage can then actuallysurpass what you would've
(39:57):
gone and done with the fundingroute, and then taken time to
go and stop absolutely aroundpitch, get your cash, whatnot.
Absolutely.
And so, uh, like whatwe're talking about is
money equals runway.
That's it.
Right?
Money equals lifespan.
Yeah.
So all we should be focused onas founders is getting cash in
the door, how we get it, whetherwe're throwing parties that
opens up a nightclub, or whetherwe're we're selling shoes,
(40:18):
you know, uh, that we don'tactually 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 themoney 'cause we need that
cash in order to survive.
If we can't survive,there's no business.
So our only focus, our onlyfocus at any given point is
to bring the cash in the door.
Overthinking your startupbecause you're going it alone.
(40:40):
You don't have to, and honestly,you shouldn't because instead,
you can learn directly frompeers who've been in your shoes.
Connect with bootstrapfounders and the advisors
helping them win in thestartups.com community.
Check out the startups.comcommunity@www.startups.com
to see if it's for you.
Could be just thething you need.
I hope to see you inside.
After the episode of theStartup Therapy Podcast,
(00:01):
this is Ryan Rutan joined.
As always by Will Schroeder,my friend, the founder, and
CEO of startups.com, willoftentimes early stages, we
get super, super obsessed withbuilding our product, right?
We, we forget that theproduct isn't actually the
business that the revenue wegenerate from that product
is actually the business.
(00:22):
There's this other piece ofnarrative out there that says
like, well, I need the fundingso I can go build the product
so I can go make the money.
I think we wanna breakthat down today and expose
the, the level of bullshitthat'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 haveto get all the way to your
dream product before youstart to make revenue.
(00:43):
So today, let's beat thehell outta that notion.
Uh, the moneyalways comes first.
Yeah.
Like how you make it isthe broken assumption.
So to build on what you said,obviously the assumption is
going to be, I need investorsto be able to build my product,
go make money for my product.
Yeah.
So I can't do anythinguntil I get investors.
That is a very broken assumptionbecause it assumes that the
(01:03):
only way to generate money.
Is from that particular productat that particular stage.
Correct.
Which, if you talk to enoughfounders, ourselves included,
and, we'll, you know, todaywe'll talk about a lot of
other really famous, successfulfounders that, um, you know,
thought otherwise you'llstart to realize that the
early stages aren't reallyabout just building the
product and getting to market.
It's about generating cash.
(01:24):
Yeah.
And, and having enough to stayalive to ship that product.
Exactly.
Exactly.
And so whenever I walkthrough, you know, with a
founder who's going throughthis like crisis, this chicken
and egg thing, I always walkthem through a series of like
tiers of how you can generaterevenue now ahead of product
and then eventually get to it.
And it's progressive.
It's like things that are veryspecific to what the product is,
(01:47):
to a little bit less specificto has nothing to do with
it, but it still makes sense.
Yeah,
agreed.
And so I thought it'd becool to walk through those
tiers and maybe like.
Talk about some of thecompanies that have done this,
you know, at each of thosetiers, at, at some level of
scale, ourselves included.
Yeah.
So
there's gonna be somesurprising examples in there,
I would imagine, uh, in termsof like, I think a lot of
people think, oh yeah, ifyou're building something
small, you can do that.
(02:08):
I. Right.
You can put something reallybig starting exactly like this.
That's the point, right.
It's that again, the, the,the broken assumption is
that in order for us tobuild this business, it has
to be exactly the productwe're thinking about.
And there's nowhere in between.
And that's just a junioramateur assumption.
Yeah.
Right.
And I know some folks that arelistening like, you know, screw
you that I'm not an immature,I know what I'm talking about.
(02:29):
It's you're usingthe wrong framing.
Yeah.
And, and it applies tonearly every business.
I'm sure someone listeningthis won't apply to.
I, I, I get it.
Sure.
Short of that.
It applies to morepeople than you think.
So let's open up, uh, withone of my favorite examples
in what I call option one,which is basically just
saying, what's the smallestpossible version Yep.
That even could remotelylook like this product
(02:51):
that you could sell today.
Yep.
Right?
And so we call it theMVP 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 ridiculouslyminimum viable product.
And so, uh, uh, tell,tell you guys a story.
I'm always fascinatedabout Zappos as a company.
Yeah.
They're not like a really a,like a big name anymore, but
(03:13):
back in the day they werelike, they were it, right?
Like Tony Shea was runningaround and, and, uh,
you know, rest in peace.
And, and he, um, and hewas running around talking
about this story of havinggrown this thing to a
billion dollars, right?
What a lot of peopledon't know is Tony Sha did
not start this company.
That's right.
Right.
That's, there's some reallyinteresting backstory here.
He, he, Elon Muskett, right?
Yeah.
He went, he a little revisionhistory about how that
(03:34):
thing actually got started.
There's a, a, another guy,uh, that was the actual
founder, Nick, I cannever pronounce his name.
It's like Swin.
Swinburn.
I think the fact thatI 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 beimpossible to pronounce.
If you hadn't heard Tony,she's name 10,000 times 10.
(03:57):
So, so here's what he does,Nick, in the early days
before his AOS is evenlike barely a concept.
Concept, and this is likeback in 99, a long time
ago, Nick decides that hewants to sell shoes online.
Why?
I have no idea.
Right?
But he decides likethat's his thing.
What he does is he goes toshoe stores and he takes
like really good picturesof the shoes in the stores.
(04:19):
Yeah.
Because back then youcouldn't Google it.
Google didn't exist yet.
Also, you didn't have cameraphones, by the way, mobile
phones wouldn't come outin a meaningful way for
like five, six more years.
Right.
So he's, he's bringinglike old school, digital,
you know, camera.
And he's shooting pictures.
This is, this is bananas to me.
He's shooting pictures ofshoes in stores that are
not his, like his inventory.
(04:39):
Yep.
And then posting them online.
To sell them.
Why not as hisinventory, 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 heardthat phrase, assume the sale.
In this case, he was not onlyassuming the sale, he was
also assuming the inventory.
I love it, man.
It gets as scrappy as it gets.
But I mean if you thinkabout it, like every
(05:00):
drop shipper does that.
Yeah, exactly right.
It's exactly what a drop.
Yeah.
Probably half the companieson Amazon do that.
Yeah, yeah.
Right.
They, they're listing a bunchof inventory that smartly,
they don't purchase untilthey actually get the sale.
They don't buy until they'vegot a customer drop ship.
Yep.
Yeah.
What's interesting to me.
Is he goes on to do thisand a couple things happen.
One, he starts provingwhether the demand is there.
(05:20):
Remember this is like longlike e-commerce wasn't a thing.
No.
Nowhere near like, especiallynot for things like this, right?
Not for things thatwere like where size and
fit were important andreturns are complicated.
The nothing likethis was going on.
Totally.
And so like huge pioneer in thatspace, which is incidentally
why Amazon bought them.
But beyond that, the secondthing that he did is that
(05:40):
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, 'causeyou could go and just build
the platform, build thewebsite, you know, try to
run around it and raisemoney to build the product.
Only to find out that, yeah,people still aren't ready
to buy shoes online, right?
(06:00):
So he started byvalidating these really
important assumptions.
Before having to throwany real money at it.
My favorite thing to tell aninvestor when they pull their
in in inevitable know-it-allmoment in the pitch when they're
like, yeah, but people are nevergonna do that, is like, yeah.
Except they are.
Yeah.
Here's the, here's a list of athousand people that already did
exactly that, so let's move on.
(06:22):
Yeah.
And, and that shuts down theconversation very quickly
because it's easy to sayno 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 literallymade that up, right?
So yes, you're the investorand it's your choice to believe
whether that's true, but youalso don't know that it's true.
You just made it up, right?
(06:43):
So when I can politelybut defiantly fire back.
Yeah, except thatwe've already done it.
Then all of a suddenconversation completely
changes and I think.
That move by, by Nick thefounder, is what would've
drawn in a guy like TonyShea and Alfred Lin, like
you know, the the earlyinvestors who put in 500 K,
somebody who's not only showingthat level of hustle that we
(07:03):
love to see, but somebody whoalso went out and validated
a really important part ofthis, which is that people
will buy the inventory of itexists, returns and all of
this other stuff that everybodywas really worried about at
that time aren't as much ofa problem, said differently.
There's ways around it.
We found ways to do this.
And so he, he took a lotof risk off the table.
You know, I don't remember ifit was you or Elliot who first
(07:24):
broke this down for me thisway, but we were talking about
just like a general thesis ofinvesting and it going from like
being pure demand to, to purecapacity 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 gottago prove demand, there's a
lot of risk in that money.
At the minute, you can say,no, we've already found
(07:45):
that people wanna do this.
Now we just needa better system.
A, a, our own inventory,all these other things that
will come along with it.
But you've eliminatedsome of those really early
analytical barriers, uh, andemotional 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 andyears ago, this is such
I, this bizarre, I'mgoing back this far.
(08:06):
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 ofparties and events at my house.
My, yeah.
I'm in my twentiesat the time, right.
And eventually thesethings got so big that
like, I just couldn't host'em at my house anymore.
(08:27):
And, uh, at one of theseevents, a guy who had a space
downtown that actually usedto be a nightclub, Uhhuh, uh.
Approached me and he said, well,there's a ton of liability here.
This is actually like, youknow, not a great idea.
Right.
Um, he was not wrong.
He's like, here'sanother not great idea.
Yeah.
He's like, I've got aspace where you can host
this and do it there.
So I did, but, but here'swhy I bring that up.
(08:47):
I bring that up becauseI tested demand.
I already had a list of5,000 people, which back
then, this is like thenineties, like it was, yeah.
Insane to havelike a local list.
And when you saylist, you mean it was
actually probablywritten on paper.
Yeah, exactly.
Exactly.
And like this is longbefore social media, right?
And so Ider hadalready proven to band.
So when I went to go openup said nightclub, I just
(09:09):
invited all the people thatI'd already been bringing,
you know, to my house.
So, uh, side note, it wasa 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 validatedthat I don't wanna be in the
nightclub business anyway.
Point is when people talkabout, I can't possibly
move forward because I don'thave the final product.
(09:29):
Yep.
Rewind that back.
Let's assume Ryan, you andI decided that we wanted to
open up a nightclub, but wehave to have investors in
order to pay for the spaceand do the bill, et cetera.
And that would be true.
What we're saying is, butthat's not the first version
of the product, right?
First version of the productis party or a cocktail.
Yeah.
Or something.
Anything.
Exactly.
Getting togetherto do something.
(09:50):
Yep, exactly.
It's, it's creating events.
It's, again, if we were openingup like a bakery, something
less douchy, if we were openingup 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 needto do events where we're, we're
baking the product at our house.
We're bringing to theevents, and we're getting
customers, we're buildingsocial media around that.
We're, we're going topopups, things like that.
(10:12):
That's the earlyversion of the product.
Before it's the full product.
In both cases, we're sellingwhatever we're baking.
Yeah.
We're not waiting for the, thecapital intensive part to begin.
Right.
We don't need to buildthe Wonder Bread factory.
We can just openit with an oven.
Yeah.
It's so rare.
Will I, I'd love to hear yourtake on this, but it's so
rare that I run into somebodywho's working on that MVP
where I look at the MVP and Idon't go, that's three x what
(10:34):
you actually need to build.
Right.
They, it's almost alwaysoverwrought and, and overbuilt
and there's just such a simplerversion that will actually
in, here's the other thing.
When you build a reallysimple version of things,
you get to test a lot fasteronce you have some answers.
But I've always foundthere's always more clarity
in those experiments.
'cause you're notlooking at as much stuff.
You're like, if I bake andthen go to sell, do people
(10:57):
buy this stuff that I bake?
That's what we haveto 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 'causeyou're a terrible baker.
This is why I started jokinglysaying, you know, the, the mm
VP, the mm mm MVPA much moreminimum, minimum viable product.
Yeah, yeah.
Right.
And it's, it's so importantto do this because it saves
(11:20):
you so much time, so muchheartache, and it gives you
clarity again, like just becauseyou simplify that experiment,
it's easier to understandwhat's actually happening.
But I, we talk to founders allday, every day Will, and so
I'm sure you're seeing the samething I am, but at the getting
customers level, there's somany folks where they're like,
okay, and I'll be, you shouldbe able to get customers the
next six months when I do this.
And I'm like.
You realize if you justrethink what you're looking
at right now, you could startgetting customers next week.
(11:42):
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 buyingthe 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 tonof people, you can match people
on social media right now.
Yeah.
Right.
You can callwhatever service you.
I, I can match people.
I want them if I need to.
Right.
A hundred percent.
Right.
(12:02):
There's always a, a more manualway to create the product.
And, and you know, I, I've,I've mentioned one other
example in the past whenwe did unsubscribe.com.
Yeah.
That's a great one.
You know, it's like when Iexplained it to my co-founders,
I was like, Hey, it's thisidea for a tool to allow you
to get off of, um, any email.
This was like back in the uhhuhmid two thousands when that
was actually really hard to do.
(12:23):
Yep.
Can SPAM hadn'tbeen written yet.
Yeah.
Unsubscribe wasn't a policy.
Yeah.
Yeah.
And then you didn't have itin your Gmail because a lot of
people didn't have Gmail yet.
Right, right.
Um, yeah.
Oh look, so like my co-founderswere like, and they're super
smart guys, but they'relike, um, dude, that would
take like a year to build.
Yeah, yeah.
Right.
Um, because it is likereally complex business
rules and all this stuff.
Funny as it is, AIwould've been a perfect
(12:44):
use case here, but Yeah.
But I was like, yeah, we'renot gonna do any of that.
We're gonna spend six weeks,we're just gonna throw up
a, um, a page where you candownload the button and put it
in your Gmail or put it in yourOutlook or, you know, whatever
was current at the time.
And when someone clicksto unsubscribe, we're just
gonna forward that email toa, um, to a, a general box.
Yep.
And we'll have a team ofpeople that'll just go in
(13:06):
there and unsubscribe foryou, which used to mean like
picking up the phone andactually 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 thingwas it worked a hundred
percent of the time.
Yeah.
'cause there was always someoneto like make sure that Lyrica,
like it was like sending it toyour virtual assistant, right?
Yeah.
But from what the usercould see, they just assumed
(13:26):
it was amazing software.
And they don't care, by the way.
That's the thing.
People get allcaught up in that.
Yeah.
But like, you know, it, it needsto be a software for who, right.
If the outcome is the same.
Sure you can't scale it, allthat stuff, but it doesn't
matter because again, likeif nobody wants to pay to
unsubscribe from email and nowants to pay to install that
thing, or no other companywants to buy that technology,
uh, to put into their emailclient, it doesn't matter.
(13:49):
Yeah.
Right.
And that's the
thing, ultimately they,they want the outcome.
Yeah.
I always, I always findit funny whenever I order
something on Amazon, it'snot from Amazon directly.
I always scratch my head.
I'm like, I wonderwhere that order goes.
Yeah.
Right.
And how it gets fulfilled.
It goes back to, um, the, thefounder of Zappos, you know,
driving to the shoe store andbuying shoes for me and sending
'em to me, um, or eBay, youknow, being a much more obvious
(14:10):
culprit, but I don't care.
I get the product and it'swhat 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'smoving the ball forward.
It's allowing you tooperate in the business.
Right?
Yeah.
Immediately.
And learn right away.
(14:31):
So as soon as we launchedon unsubscribe, we told like
some friends about it, wehad some investor friends.
We sent it to them,they went nuts.
It turns out this is, we didn'tsee this coming, but investors
were actually like our biggestcustomers because they're on
every email list, every startupthat's ever like, you know,
whatever has just added them.
And so, uh, theinvestors saw it.
A guy named Sar Ger from,uh, Charles River Ventures,
(14:52):
Uhhuh saw it Uhhuh.
He flew down the next day.
We were in SantaMonica at the time.
He flew down to Santa Monicathe next day and gave us a term
sheet and because we didn't haveto convince him that it would
work, he is like, I used it.
It worked in five seconds.
He'd find out later that it waslike an intern from USC that did
the work, but he didn't care.
I mean, the point he islike, I don't care, like
as long as it works.
What's our tech stack?
Uh, mostly, uh, uh,four pizzas a day.
(15:16):
Keep the intern sped, likethat's the tech stack.
So let's take that astep further though.
Sure.
So ideally the, the firstphase would be you could build
some version of your actualproduct that would, that would
generate, uh, revenue and orvalidation, ideally revenue.
And again, when you saysome version of that.
We mean it can be themost watered down or even
non-technological version,but we want basically
(15:38):
provide a proxy to getinto that same outcome.
Right.
So we're, we're basically,the outcomes are exactly
the same in, in this phaseone, which is the closest.
And this is so I think,important to say like,
'cause I, I, I see whereyou'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'topen-minded enough to realize
(16:00):
like how much they could openthe aperture of the product,
and ideally it makes money.
Before we opened that nightclub,like between the time that,
uh, I had thrown like thelast event at my house and the
time we opened a nightclub, ithappened to be New Year's Eve.
I. In between.
And so we basically wentto a venue, uh, in downtown
and we said, Hey, we wannabasically, uh, invite all
(16:21):
of our people to this, youknow, to your, to your event.
Uh, we want $20 for everyperson that we bring in.
And I was nightclubpromoter, right?
Uh, this is really my job, but Iwas 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 paidfor it, right?
Yeah.
Right.
And so, uh, anyway, uh,it was new year, so a
lot of people were out.
So a thousand ofour friends came.
And we got paid $20,000 in cash.
(16:42):
Yeah.
Right.
And I was like, huh,what the, why haven't
I been doing this all?
Yeah.
I've been doingright 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, hewas throwing all these events
that were more like, uh, uh.
Targeted toward super high networth individuals, like, uh,
a hundred million dollar plus.
And he's been throwingthese events for years.
(17:03):
He's a great guy and he is likereally like the center of of
gravity for all these folks.
Sure.
And a year ago we'resitting down and I'm like.
Like, why aren't yougetting paid for this uhhuh?
He's like, I don't reallyknow how to get paid for it.
I was like, a lot ofpeople would pay to be in
the room with people withthat kind of portfolio.
Right.
So we did and we sat down,uh, recently and he is like,
will I took your advice?
(17:24):
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 aboutbuilding, 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.
(17:44):
Right.
That's the thing.
He's already, he's already founda way to deliver that value to
at least $50,000 worth of peoplethat 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 otherthing that people get caught
up in is like, well then whenwill I build the product?
When you can or whenyou absolutely need to.
Sometimes, like I, I've seenthis happen multiple times where
(18:05):
you start with some sort of aservice proxy or just the early
version, you actually go a lotfurther on that than you, you
might think, because it turnsout it solves people's problem
and that's what they care about.
You said it, they careabout the outcome, right.
How it's packaged, all of that.
Sure.
You know, if it's, ifit's easier to use or,
or you know, faster,cheaper, whatever, great.
But at some point, if you'reproviding an outcome that
(18:27):
they care about within a pricethat they're willing to pay,
you've got what you need.
So let's go tothe second option.
Sure.
Which, if, if for some reason wecan'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 firstoption, and this we'll
talk about can you build aservice around the product.
Sure.
In other words, is therekinda like we were saying,
(18:47):
is there a way you canmanually deliver this?
Yeah.
Yeah.
Or, or, um, and an ad hoc basis.
So, Ryan, we went throughthis when we launched
fundable in 2012.
Do, do you rememberhow that went?
Yeah, I mean,
gee, so, you know, with the,with the launch, you know,
where there was, there wasa bit of fervor around the
whole crowdfunding space.
We opened up the platform, letpeople in, and uh, it looked
(19:09):
as though we had just openeda gym and let in people who'd
never worked out before, right?
They didn't know whether tohold thing over their head, you
know, how to put the clotheson or to these sweatbands,
armbands, waistbands.
We don't know what we're doing.
And so there was just a lotof folks trying to raise
funding that had never donethis before, had no idea.
And why would they.
Right.
And so, by the way,Ron, that was a big
(19:29):
assumption on our part.
It was a huge assumption.
A big assumption.
Were like, let's, let'sspend all this time
building a platform.
Yeah.
Without ever really findingout whether our customers
could be our customers.
You know, somethingthat's really funny about
everything we talk abouthere is that none of it.
Is new.
Everything you're dealingwith right now has been done a
thousand times before you, whichmeans the answer already exists.
(19:51):
You may just not knowit, but that's okay.
That's kind of whatwe're here to do.
We talk about this stuff onthe show, but we actually
solve these problems alldayLong@groups.startups.com.
So if any of this soundsfamiliar, stop guessing
about what to do, let us justgive you the answers to the
test and be done with it.
What we realized was thatyes, in fact they could be
(20:13):
our customers, but not withsome significant, without some
significant additional help.
Right?
And if you recall, we, I, I shotthe 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 pickup a client or two.
Picked up 15.
And it was a greatproblem to have.
(20:34):
But it was a problem becausewe were not suited to deliver
to that many people, so wehad to hurry and catch up.
But we all of a suddenrealized we can get paid
quite well to do this workand we can scale that part.
That's easy.
'cause that was justadding some people and then
building some process around.
But that completely changed theface of that business overnight
because we went back to, Hey,let's just simplify this.
(20:54):
Let's make it a service.
Let's get in and do the thingsthat people dunno how to do and
help them to get to the pointthat they actually care about,
which is having a live fundraiseand starting to raise funding.
Yeah, because E iflike 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 thatpeople need know they needed
money, but what they didn't knowis what it took to raise it.
(21:15):
Yeah.
Right.
They didn't know that youhad to have a pitch deck or
what a pitch deck is actuallysupposed to look like.
Oh, buddy.
Um, nobody, we saw some at all.
Right.
We saw some, we sawsome sweet pitch decks
back in the, still do.
Still do.
Right.
That's where it's sofascinating to me.
So, so we launched thisservice, which essentially,
uh, allowed us to, um, buildpitch decks for people.
Yeah.
Build their fundableprofiles, um, help identify
(21:35):
investors that might makesense for them, et cetera.
And that business goeson in like within a year
to become like a sevenfigure business for us.
Like a main revenuedriver for Right.
Totally unexpected.
Totally unexpected.
And, and, and we lookedat that and we were like,
well, that's clearly not.
What our actual businesswas supposed to be, but
it's informing what ourproduct is supposed to do.
(21:57):
And actually it helpedus understand that equity
crowdfunding wasn't gonna work.
Yeah.
Yep.
Right.
And there were two assumptionsthat we made going in that
proved to be relatively false,especially back in 2012.
Assumption number one was thatentrepreneurs would want money.
Sure.
But would they beprepared to get it?
Again, pitch deck, whatever.
(22:18):
Right.
We missed on that one.
Missed on that one.
Right.
The second was that investorsdidn't have enough deal flow.
Yeah.
That, that, that they didn'thave enough things to invest in.
They did.
They needed portalsto go find more deals.
Right.
Yeah.
It turns out that if you raiseyour hand and say, I have money,
you will never be lonely again.
Yeah.
You have no, no, noshortages that'll be
(22:38):
standing outside your door.
Right.
They did not have aninventory problem.
Now, to be fair, yes.
Investors did come on theplatform and they did find deals
to invest in and stuff likethat, so, but it wasn't like
investors were like, oh, finallysomeone will take my money.
No, it was a, I would say itwas a subtle democratization.
Of where fundinggot distributed.
We definitely did see some, somemoney get distributed to places
(23:01):
that otherwise probably wouldn'thave because of where they
were geographically located.
But it wasn't like a wholebunch of new checks are.
Are you gonnacover that one too?
'cause I think that'san interesting third
assumption that thatactually didn't come true.
The, the fact that a bunch ofnew investors would be minted
the minute they were allowed to.
Right.
Because that was part of thewhole dream of crowdfunding
was now anybody who selfaccredits can now start to
invest in startup companies.
(23:23):
And that was absolutely true.
They can can and Will, will.
Were two verydifferent positions.
Yeah.
It, it, it turns out wealready have a system
for investing extra cash.
If you have $5,000, it'scalled the public stock market.
Yeah, true.
And, and it's liquid.
And it's, yeah.
And, and look, you gottaunderstand, Ryan and I
are saying all this andwe run that business.
Budgetable isstill around today.
Right?
So this isn't us being criticalabout somebody else's business.
(23:43):
This is our owngoddamn business.
Yeah.
Ours we're saying.
But what was interesting was.
The services component, Iwould say did two really
critical things for us.
Yeah.
That would, that would, wouldallow us to become startups.com.
The first thing it did isgave us a revenue source.
Sure.
So while fundable was stilltrying to find its footing,
like, you know, paid it tolist and stuff like that, the
(24:03):
services business just wentto seven figures immediately.
Yep.
Right?
And, and it, it wasn't hard toscale, which wasn't complicated.
Right.
No people, and all of uscame from services, so
it also wasn't new to us.
But the second thingit did is it allowed us
to look at our product.
As maybe it's not the product.
See, when it's youronly product, you're
not allowed to do that.
Right.
(24:24):
When it's your onlyproduct, you're not allowed
to go, you know, maybethis 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 thisand if it's not this, it
can't be anything else.
Right.
Having this other revenuestream allowed us to say,
when a lot of other peoplewho had made the same bet
we did, were all in on it.
We were like, let'stry another bet.
So what we started to realizewas the value in the market
(24:46):
or what was missing, if youwill, wasn't just people
trying to, um, to raise money.
It was trying to builda startup at all.
And, and that's when we expandedthe, the thesis quickly.
And I credit that to ourservices business, giving us
the ability to kind, like, standon another limb, if you will.
Yeah.
Um, and say, okay, we'llbe okay on this side too.
And that helped us get tothe point where we were
(25:07):
like, oh, we wanna help withmarketing, we wanna help
with, you know, um, yeah.
All, all kinds of stuffand, and you know, we went
on, you know, a bit of anacquisition spree and acquired
six more companies over the,over the next few years.
Yeah.
And it completely changedour game, but we launched
the services
business.
Yeah.
Right.
It's something I harp on a lotand it's, it's the, the service
(25:28):
proxy brings so much value.
I think the, the one thatyou're talking about now is
the one that represents thebiggest piece of value to me.
Yeah.
The getting to revenue fast.
Yes.
'cause that, that's justlike, 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 gonnachange up one of my models.
I use this model a lot.
I tell people it's myfour Ps of product.
(25:50):
I'm gonna have tochange it to five now.
Um, because we justadded another one.
Profitability.
Right.
So we can, we can go,we can go a profitable,
proven, proprietary process.
These are the things that youneed to build a product, right?
Right.
To build a good product,you need profitable,
proven proprietary process.
I'm just adding profitabletoday 'cause we just
covered off on it.
It makes a lot of sense now.
So you can build somethingthat actually makes money.
(26:10):
This helps you avoid thefifth P, which you don't want,
which is pivot, which as youand I both know, is a really
nice turn of phrase on Webuilt the wrong shit first.
Yeah, no.
You know what happensall the time, right?
Yeah.
It happens all the time.
What's interesting aboutservices businesses is
they pay right away.
Right.
I don't care if you're alandscaping company or McKinsey.
Yep.
Like they pay right away.
And so you almost never, everhear of companies raising
(26:33):
money for a traditionalprofessional services business.
The first business I started,I think maybe the first
business you started was,was professional services.
We just, we soldhumans for time.
Right.
And the reason it, itworks so well in parallel
with startups is becauseyou can just go go, right?
You just start selling andyou get paid immediately.
(26:55):
And a lot of folks are anxiousabout that and they'll say,
well, yeah, but I don't wannabe doing services because
it'll take time away from Yeah.
You know, building the actualproduct and, and like you
said earlier, what it'll do isit'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'sa foregone conclusion.
They're like, well, ifI start with services,
(27:15):
then it'll slow me downfrom building my product.
You know what else will slowyou down from building your
product, not having enoughmoney, and you will just
stop building your product.
Right.
It's not a foregoneconclusion that you just,
oh, if I go services orI 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 thinkis really important.
(27:36):
The services will, and wetouched on this a little bit,
but let me cover it again.
The services will help youbuild a better product.
You will build a better productbecause you are in the mix
with the clients, doing thework, seeing the reactions.
The minute you're over on theproduct side and what you have
are some, you know, even ifyou've got a really well set
up analytics system, you'relooking at behavioral analytics.
Where did they click?
(27:56):
Where did they not click?
What did they do?
You're, you're learningthrough 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 getfrustrated, you can't see when
they lean back or lean in.
Uh, yep.
Or, or roll their eyes.
Right?
You gotta have all of thatdata in the beginning so
you can actually buildthe thing that they want.
Right?
Because a hundred percentthe stuff that we design
on, on a whiteboard is atbest, like a 20% guess.
(28:17):
And
it works every timeon the whiteboard.
Sure does.
Right.
Uh, what I say is, if optionone, build a a, a smaller
version of the productdoesn't work or doesn't fit.
Yep.
Option two, buildservices around it.
Option three is a catchall.
Yeah.
And option three, Iaffectionately call, fuck it, do
whatever takes money, whatever.
Whatever makes money.
Whatever makes money.
(28:37):
Right.
Whatever, whatevertakes to make money.
Yeah.
Yeah.
When I see founders, and I knowyou 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 mybills right now.
Often that's their job,you know, like literally
their day job, what theywere doing, uh, previously.
But certainly, you know, my, my,my favorite story of all time,
uh, and we had this amazinginterview with him years ago,
(28:58):
like what, a long time ago, longbefore they were public, was
with, um, Brian Chesky of um.
Of Airbnb, and some of you haveheard this story, and, and I
always think these founder likeorigin stories aren't always
entirely true and I don't care.
Right.
I just love thestory either way.
Right, right.
Um, it's like I loveAvengers Endgame.
I'm fairly sure it's nottrue, but I love the story.
(29:20):
I still like the story.
Yeah, yeah.
And, and by the way, I haveno 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 storygoes like this.
Uh, Brian Chesky and uh, uh,had some other folks on the
team at the time were in theearly, early, early, early
stages of Airbnb when like,kind of nobody really thought
it was going to work, which iskinda what the early stages are.
(29:42):
You see Airbnb now and,and like, it's easy to say,
oh, he must have alwaysknown it was gonna work.
Sure.
And I remember Brian said atthe time, uh, in the interview,
and it, it's on, if you gostartups.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 Paltrowyesterday, like quoting him.
Yeah.
Uh, like he's kindof in, in that air.
(30:02):
But this is before then.
Uh, I remember he said, Hey,I graduated from risd, Rhode
Island School of Design and Iwas 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 wasliving in my parents' basement.
So he is like, not astratosphere, kind of
like launch into thebusiness world, right?
And, uh, so, so they getthe business starting.
(30:22):
It's putting people upin strangers houses.
Like you can't come up witha more high risk model,
right?
I mean, thinkabout that earlier.
It's like, okay, soI just graduated.
I'm gonna be a designer.
I'm living in myparents' basement.
You know what would makethis better is if I invited
more people to live in myparents' basement alongside me.
It doesn't sound like a
genius idea atthat level, right?
(30:43):
Okay, so this is just toset the stage that like
Brian wasn't cruisingthrough 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 doingthe primaries and, uh, he and
his folks came up with this ideato create Obama owes Serial.
Okay.
Serial and Captain McCain's.
(31:06):
Okay.
Captain McCain's.
Oh my god.
Captain McCain's.
And and he would, he wouldtake 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 thisin the most respectful way
possible, but if I were doingthat right now, if I were
rolling up in my van Yeah.
To a frigging democraticnational convention.
(31:27):
Right.
With a van full of cereal.
Right.
I'd be like, my life isnot going well right now.
Right.
I would not be thinking,this is, this is going great.
Now I wanna, I wanna pausethere to say that's the point
I. These people were doingthese extraordinary things Yes.
In order to keep theirstartup alive in ways that
(31:48):
you would never think.
Yeah.
Now he, he, there were novels.
He had him, he was selling himfor $40 a pop, and he made like
$30,000, which relative to whatthey needed in, in their stage
in life was a ton of money.
Yeah.
Yeah.
And it kept them alive.
And then it literallykept him alive.
'cause he is like, all Iate were the leftover boxes
of Captain McCain's forlike the next three years.
Right.
And I think to myself, I'm like.
(32:09):
That's what saved Airbnb toallow to live long enough.
This is the case, right?
To live long enoughto become Airbnb.
And it's the part that wealways overlook is that
like, oh, it's supposed tobecome Airbnb right away.
No, it isn't.
No great company becomeswhat it is right away.
There's always thisperiod and you gotta do
whatever it takes to makemoney during that period.
Yeah, and it's,it's so critical.
(32:30):
We talk about this a lot.
I mean, the thing that separatesthese startups that make it
from those that don't, of courseyou have to have a good idea,
good execution, but you gottahave time to keep executing.
Right.
We have seen so many companiesend before their day simply
because they weren't aroundlong enough, because a hundred
percent, they, they mayhave aimed too big too soon.
Right?
And they were like, well,let's, we're just gonna
go chase funding with notraction, with no proof
(32:51):
of customers with nothing.
And, and then they end upstomping around, uh, you know,
pitching their PowerPoint.
Nobody invests andso they're just gone.
Right.
You know, where you look at thatInstead 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 bulkcereal in cleverly printed
boxes during a, I mean,that would, people could
(33:11):
taken advantage of that.
There was a pretty contentiouselection 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 cerealswould'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 craziestthings, uh, folks have done?
Mm-hmm.
Uh, folks on there.
Um, 'cause it, it's funny totalk like the Airbnb story,
(33:33):
but I feel like when wetell those stories, people
don't believe they're true.
You know, or notbelieve it's true.
They're like, oh,well that's Airbnb.
That's not me.
It doesn't feel like, soto speak, but it was cool.
Like a ton of peopleresponded, right?
And their, their storieswere all over the map.
I had one guy that said hefunded his startup by competing
in, um, video game conventions.
I. Like, like he made a hundredthousand dollars through
(33:55):
the course of his startup.
That's amazing.
Competing in video gameconventions had nothing
to do with his startup.
Right.
Sure.
Which, which Ithought was great.
Another guy said that he had, hebrokered 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 kindof doesn't matter what
it is, so long, it's
money, it doesn't matter, right?
(34:15):
Because the cash that comes outthe other side spends exactly
the same way no matter what.
Doesn't matter.
I usually like keep namesoutta, so I'm gonna do it.
But there's a guy thatworked for us, uh, you
know who I'm talking about?
Yeah.
Um, went on to go start hisown company and sold it for
like $800 million, right?
Yes.
Around that time when hewas building that company,
I remember I was at an OhioState game and uh, and I'm
(34:36):
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, ata football game.
A college football game,right on the weekend, Uhhuh
to generate extra cash, extracash, keep his startup going.
What I love aboutthat, it's hustle.
It's also humility, right?
It's
saying that it doesn'tmatter how I'll do
(34:56):
whatever it takes, right?
Yeah.
I will do what I need to doand take my ego off the table.
Um, startups will killan ego real quick.
Um, they can also reinflateit very quickly, but.
Yeah.
And then just do what hasto be done and, and again,
do what has to be done.
I think this is where itgets really confusing.
People are like, I can'tpossibly go sling sausages
and make the million dollarsI need to build my product.
(35:18):
No.
'cause you don't actually needa million dollars to build the
early version of the product.
Right.
You're aiming Right.
Right.
Too big.
Right?
You're like, well, it'sdreamhouse 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 tojust start to occupy that space.
Um, and to your point, makesome money while you're
doing it, and then thingsstart to roll from there.
(35:40):
You know, I kinda saylike I've built that gear
personally where I'm willingto do whatever it takes.
Yeah.
In any capacity.
Right.
Like, if you rememberwhen we opened our,
our last office, right?
It's a long time ago.
Yeah.
You know, 2012, whatever.
Like I was in there on theweekends, like setting stuff up,
building stuff out, like Yeah.
Yeah.
By myself, right?
Yeah.
Like, like I didn't care.
(36:01):
I wasn't like, this is below me.
Right.
Yeah.
I'd sold threecompanies by that point.
Right?
Yeah.
I was like, nothing's,the stone is below.
Mark is not below me.
Monitor arms don't, don'tattach themselves to desks.
Right?
Yep.
I, oh my God, I remember thismight've been the end of me.
So not only like, likeforget this was below me.
This actually might,might've ended me.
I remember I tried to care,I did carry, I had this
(36:22):
giant, giant monitor, ifyou 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 ahundred pounds that weigh
700
pounds was becauseit was classic.
Oh my God.
And, and, and Ineeded to hang it.
Way up on the wall.
So the way I got it upthere is I created, this
is like, this is hilarious.
I created a series of steps,made it out of chairs, and
(36:44):
then then desks, and thenchairs on top of desks.
Yeah, that I would climbup while I'm carrying
a hundred pound TV andhang it on the wall.
Now, by the way, don't do that.
That's stupid.
Right.
My point is, we saywhatever it takes,
stay within osha.
Okay.
Yeah,
yeah, yeah.
Exactly.
Within the OSHA guideline.
Yeah.
Don't do that.
And, and as I'm carryingthis, like I don't want
to go out like this.
I don't wanna be like, I don'twanna be the guy that like that,
(37:05):
this is my obituary, right?
Yeah.
But I got the damn TV hung up.
But, but point is when youlook at whatever it takes, you
have to have the humility thatcomes with whatever it takes.
Like to me, it doesn'toccur to me that you
wouldn't just do the work.
Yeah.
But that doesn't applyto everybody else.
You know, a lot of peoplewere like, well, that just
seems like a lot of hard work.
(37:27):
Yeah,
yeah.
Welcome, welcome to startups.
You know, though, I do, Irun into folks with that.
I do run into founderswith that, but I think more
often it's that they've justmissed on the bite size.
They just haven't leanedback far enough to go.
I actually don't have tobuild all of that just to
get started, and that's whyit's, it's not the humility.
It's not that they wouldn'tbe willing to do that.
They're not looking at it going,oh, if I make 2,500 a month
(37:50):
drive an Uber in my spare time.
Maybe that's not possible.
I, I don't, I don't knowwhat, I don't know how
Uber works at this point.
Make 25, whatever it is.
Yeah.
I can then pay an offshoredeveloper to start building
my app little by little,by little by little.
Instead of saying, well, Ineed to go raise a million
bucks to build it all at once.
You don't, and I think theyjust don't have to do that.
When we use this amorphousterm called, um, bootstrapping,
(38:11):
I think a lot of people likehear about it, but they don't
really understand what it means.
Everything we just described.
That is bootstrapping.
That's bootstrapping.
Bootstrapping is basically somevariant of whatever it takes
to generate cash now in orderto be around long enough to
to, to build anything at all.
Yeah.
You know, Ryan, you andI talk about this all the
time, A big part of it isjust feeding yourself so you
(38:31):
can wake up every day andstill work on this business.
Right.
I mean, that's ahuge 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 insolvency and so I think
that whatever you need todo to make sure that that's
happening and, and thinkabout yourself first, right?
You've said this 20years ago, probably the
(38:53):
first time I heard it.
Startups don't run outta money.
Founders run outta money.
Your startup can siton 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 itwill, the minute you as a
founder are making ends meet,it becomes really problematic.
So self solvency asa first step, right?
(39:14):
And then that's a platformthat you can build from
and you can start to slowlycompile your startup company.
Or not slowly.
I think that's kinda thepoint of today is that
like, this is where peopleget really confused.
'cause it, it, it is hardwhen you, when you've set
your sights on this particularthing and you're like, no,
no, gotta have the dreamhouse that's gonna take us,
you know, 24 months to build.
We gotta have this much money.
It can be, I. It can feelproblematic to set that back
(39:35):
and say, no, actually what we'regonna do is start really small.
The misconception isthat somehow that slows
things down, right?
What I have seen time andtime and time again is
this accelerates thingsbecause now you've built
something much smallerthat 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 momentumthat you build up at that
early stage can then actuallysurpass what you would've
(39:57):
gone and done with the fundingroute, and then taken time to
go and stop absolutely aroundpitch, get your cash, whatnot.
Absolutely.
And so, uh, like whatwe're talking about is
money equals runway.
That's it.
Right?
Money equals lifespan.
Yeah.
So all we should be focused onas founders is getting cash in
the door, how we get it, whetherwe're throwing parties that
opens up a nightclub, or whetherwe're we're selling shoes,
(40:18):
you know, uh, that we don'tactually 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 themoney 'cause we need that
cash in order to survive.
If we can't survive,there's no business.
So our only focus, our onlyfocus at any given point is
to bring the cash in the door.
Overthinking your startupbecause you're going it alone.
(40:40):
You don't have to, and honestly,you shouldn't because instead,
you can learn directly frompeers who've been in your shoes.
Connect with bootstrapfounders and the advisors
helping them win in thestartups.com community.
Check out the startups.comcommunity@www.startups.com
to see if it's for you.
Could be just thething you need.
I hope to see you inside.
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