Profit 101 #3: Year 1
May 15, 2023
Find Your Customers!
When do you quit to go all in?
And how do you know you're on the right track?
By asking for the No. In sales, you have to ask for the No in order to occasionally get a Yes. For most startups you've got to do a breadth-first search* in the early days. You have an idea, a hypothesis about a business. Approach this like a scientist - test your hypothesis! But testing a startup hypothesis does not occur in a lab, it occurs in sales conversations with prospects. And in most cases, valid product feedback is only derived from people paying real money - almost any non-zero monetary amount will do, so long as it's greater than zero.
Rather than wax poetic, let me lay out how this happened at HiddenLevers when we were starting out.
At HiddenLevers, we spent year 1 in a desperate search for customers:
First we pitched Wall Street firms we knew like Deutsche Bank. Response? "Looks interesting, but honestly you'll go bankrupt before a startup your size gets approved to do anything here, so go build a base and come back when you're ready." Translation: Nada
Second, we pitched online brokerage firms like E*Trade, Fidelity, Scottrade - any retail brokerage where we could get a meeting. We mostly got incredulity and disbelief, but Scottrade showed real interest. We realized how few major brokerages there are, so we priced in the 10's of thousands per month. Scottrade practically laughed at us - Nada
Third, we tried pitching tiny brokers like ChoiceTrade - and they actually agreed to use our content! We were desperate for business, any business - so we pitched them at $500/month for access for all of their users. After some consideration, they said no. Once again - Nada
Fourth, in total desperation we got a deal from ChoiceTrade to get paid an affiliate fee if we drove them traffic leading to signups. We failed to generate a single ChoiceTrade signup, never earned a dime this way. Nada
Fifth, we tried pitching retail traders, by generating traffic to our site through features like embeddable charts and landing pages (which were never a meaningful part of our real b2b business later). We tried to partner with retail investor sites like SeekingAlpha and even had a senior developer do some initial consulting work for a month or two, but it led nowhere and was thrown away. The dev work cost us $10k, which we paid later (our future CTO was the developer, and he extended us credit).
Fifth (part 2), we pitched and successfully got CNNMoney to use our embeddable charts - we worked on this deal all summer, did lots of free dev to get it right. We got traffic driven to our site, but when time came, they declined to pay us a dime. We also paid to have a designer help us build fancy widgets for CNNMoney, for which we got nothing.
Fifth (part 3): in the end we got 20 retail customers from the retail push, each paying $20/month. We realized that wasn't much of a business. We also lost all of those customers when we tried to switch card processors, and vowed to never let anyone hold cc numbers for us again. The retail struggle taught us a lot, but led to Nada
After all of that, we decided to go to a conference called Finovate to try to find a viable audience, as we still hadn't found it. We applied, were accepted, and paid several thousand for the opportunity to present. We got a solid reception from the few wealth management oriented attendees at Finovate. They didn't want our product as-is, but gave us valuable feedback and said they'd pay for it with a few more changes: Back to work on the product!
We ended that first year with around $900 dollars in revenue, and thousands in losses despite doing everything we could via cofounder sweat equity.
Quit to go all-in when you have a clear survival goal and timeline
We ended Year 1 with no meaningful revenue and no funding - so how did we survive all that time? I didn't quit my day job until the week before going on stage at Finovate - that's how! How did I know it was time to go all-in then? By then we knew that we were reaching the end of our search - we were giving ourselves until mid-2011 to sign 100 customers or close up shop. With that motivating goal in mind, I decided to go all-in.
For HiddenLevers, our first year was a desperate struggle, made easier only through having some backstop income along the way. But even with that, I think it's extremely important to set go / no-go deadlines in startup world, as time is your most valuable asset. There's no way to know whether you're going in the right direction, except that you clear the bar that you set. I'll cover that in more detail in future posts.
* A breadth-first search involves searching widely through all possible options before going deep into any of them. This stands in contrast to a depth-first search, where you deeply explore one option before moving on. Since most conversations will lead to a no, you just have to hit more prospects and more different types of customers to figure out who cares!
More Posts from the Profit 101 Series
Startup Costs Video Series
Pursuit of Profits