Spencer H Fry

Startups: Stress and Depression

2011-12-07T10:00:00-06:00

I don't think there's a more difficult or stressful job than being an entrepreneur. Doctors, scientists, and engineers are all highly skilled professions involving a lot of pressure, but as to stress level the difference is that for the most part emotions don't enter to what those specialists do because they're trained in a systematic process that keeps surprises to a minimum. Being an entrepreneur, though, has an emotional component to it that no professor, instructor, mentor or amount of reading can prepare you for. Even if they tried to teach you, they couldn't. You have to live through the emotional roller coaster to experience it and learn to handle it. Remember that if it proves too hard to get through it's okay to pack your bags, pat yourself on the back for giving it a shot, and do something else. We're not all entrepreneurs.

There's a Massive Stress Pendulum

I can try and put into words the highs and lows you experience when running a startup, but I'll hardly be able to do it justice. One day you're on the top of the world — you've hired the person you dreamed about, you received your first term sheet, you pocketed your first revenue, etc. — and the next moment the world feels like it's crumbling down around you — traction is slowing, you have to fire an employee, revenue is slowing, employees are losing morale, your shipping deadlines are not being met, etc.

You'd think that if things are going well, the highs and lows would at least balance out, but, sadly, even the highs themselves are lows because of the way our industry judges success. You haven't made it until you've been acquired or IPO. Creating a private ten-person company consistently generating revenue is "not successful enough" in the eyes of most people. (Kudos to Dennis Crowley for accurately measuring success.)

Because of this you then question yourself as an entrepreneur: "Things are great now, but for how long?" Entrepreneurs constantly second-guess themselves while projecting a façade that they're doing just fine. It's a scary thought, because obviously the entrepreneur who feels that way is not doing fine and needs emotional support from their friends, family, and loved ones. We all do.

You NEED a Co-Founder to Offload Stress

I use to think that after having co-founded two successful startups I wouldn't need a co-founder for my next one. I was wrong. You can be the most seasoned operator, but at the end of the day you need another shoulder to lean on.

When you're a founder, everything is on your shoulders. The responsibility is on you and the founding team alone. Without a co-founder to share the emotional side of running the startup, then, you're left to bottle things up inside yourself. That's not healthy and will negatively affect you as a person, which in turn will carry over to negatively affect your startup. You'll take your stress out on your employees, the product, your loved ones, and your friends, all because you didn't have a co-founder who could relate 100% with you about what's going on. Don't do this alone.

Side note: When picking a co-founder, you want someone emotionally stable who is generally more of an optimist that a pessimist. If you, however, are an extreme optimist like I am, you may want someone that's a bit more even-keeled to bring you back down to earth when necessary. And this works both ways. If they're feeling in a rut, you can pull them out.

Why Investors Back Second Time Entrepreneurs

It's well known that investors back second time entrepreneurs because they've done it before and know the ins and outs of running a business. I think that while knowing the process is great, and obviously second time entrepreneurs do have this down, investors should account likewise for the mental and emotional toughness that second time entrepreneurs now have. As in sports, a team with playoff experience is in a greater position to beat a team who's seeing playoff action for the first time. Sports commentators call these teams "mentally and emotionally tough" because they can handle the stress better and don't get stage fright.

That being said, just being a second and third time entrepreneur doesn't mean that you won't go through the same same highs and lows as the first time entrepreneurs. It just means that you're slightly better equipped at handling them. Often times being slightly better is all that's needed for an entrepreneur.

If I was an investor — and in ten to twenty years I hope to be — I'd look at the emotional toughness of the entrepreneurs I was investing together with their ability to execute, the market for the product, and the idea. How do they perform under pressure when the world is coming down around their ears?

Get Back to the Basics

An investor friend that will remain anonymous once told me that when the going gets tough, you have to get back to the basics: "Eat. Sleep. Drink. Fuck."

He's right. As entrepreneurs, we get caught up in the dailiness of our startup and think that if we can just squeeze one more hour into the day, this'll somehow increase our success. After having done this for what seems like forever, I can tell you that one more hour a day will do more harm than good.

What matters is that you get back to the basics — as my friend so eloquently stated — and focus on relieving stress. The hour away from work can greatly increase your productivity when you come back to the office more relaxed and fresh.

Use that hour to escape. For me, the only time I can disconnect my mind from my startup is when I go to the gym to play squash and to relax after the match in the steam room. Even when I'm sleeping, I dream of my startup, but thankfully I was able to find my escape, and know that I can go there when I need to.

Another thing you can do is to take time off — something that I struggle to do. Go some place without Internet and without cell phone reception. Being away from it all may take a day to sink in, but when there's no way for you to connect then you'll mentally loosen up and be able to fully relax.

Get a grip on your emotions. It'll pay off in the end.

Show. Don't Tell.

2011-11-16T10:00:00-06:00

With the emergence of more and more people wanting to be entrepreneurs, there are naturally more people pitching their ideas. There's nothing wrong with that when those pitches come with a prototype or something one can look at, but often they're accompanied by nothing but words. When I moved to New York and got into the startup scene in 2006, everything was a demo. Now everything is verbal and that can be a real problem when it comes to developing a workable idea.

Talking Builds Up Your Idea in Your Head

If a lot of what you're doing early on is spending time talking about your idea to others, you're going to end up convincing yourself that your idea is the next big thing. You will have built your own groupthink because the people you talk to will rarely (if ever) give you honest feedback. They'll just smile at you and nod. They'll tell you how good your idea is and that they can't wait to use it and know plenty of folks that would want to use it too. Nobody wants to be the mean guy taking the wind out of a new entrepreneur's sails.

What comes of this is that after you've gone out and told a few dozen people about your idea, you'll come away with a "can't lose" attitude. Then when you finally get around to building it, you won't objectively critique what's good and what's bad about it. You'll think everything is bound to work and you won't look at it closely enough. This can lead to a badly flawed product that has failed to anticipate rational objections.

Little is Learned From Talking

I strongly believe that early on — say between the inception of an idea and an initial prototype — nothing should get between you and the idea. Any influence from outside is a distraction and can be counterproductive. It's similar to doing A/B testing when your product doesn't have enough users to warrant it. There's just not enough data.

That doesn't mean that you shouldn't talk about process with people who are more experienced than you, but whatever a light bulb has lit up, you need to remain as uninfluenced as possible early on. The best thinking about your product will come from actually building it.

You’ll Get Better Feedback with a Prototype

You'll get a lot more useful advice from others when they can sit down with you for thirty minutes and discuss the prototype you've built than when they're just hearing about the idea. That's why most investors prefer a working demo to a slide deck. They want something they can play around with. Something tangible. They want to get a complete picture and nothing short of a demo provides this.

The other advantage to showing someone a prototype for the first time is that for you might have just gained yourself a new user! They couldn't have been a user if you were only talking about it. But now if they like what you've built, you've just added one more person to your user count. They can even tell a friend! Now you've got two users. Amassing passionate users early on is nothing to scoff at.

Talking Delays Building

This is the most obvious point, but it's true nonetheless. Every minute spent having coffee or lunch pitching your idea to someone adds up to hours taken away from building your idea. Not only are the hours away from your computer lost, but also there's the time spent getting back into the zone when you're back at the computer. Careful development requires painstaking thought, so time away from your desk shouldn't be taken lightly.

A side note to that: Some of my best thinking happens away from my computer and desk, so not all building needs to take place there. It's very effective to vary your surroundings early on (coffee shops, friends' apartments, friends' offices, etc.), because changing your mood and your environment can trigger new thoughts.

It’s Not About People Stealing Your Idea

Too often the only reason new entrepreneurs won't share their idea early on is that they're worried that people will steal it. Get it straight: nobody is going to steal your idea. I don't think I've ever heard a case of someone's idea being stolen pre-prototype. We're actually so bad at explaining ourselves at this stage — "you know it's like X hot startup + Y hot startup," we say — that it's never clear what there is to steal anyway.

Now That You’ve Built a Prototype...

Talk it up! But, still do that selectively. You want to confine the circle of your initial users (friends and family) so that you can squash any bugs and make tweaks while getting initial feedback. You only have so many chances — usually only one — to grab peoples' attention and if you go out and make a lot of noise too early, you may lose those people six months from now when you actually have something good built.

Furthermore, now that you've got a prototype built, your thirty-minute meetings with people will be exponentially more effective than just chatting with them. You can get real feedback on a real product — none of this "I think I'd use that" bs. You'll have a much better idea of what they think, and most importantly, you'll understand why they think that way.

Leaving Carbonmade

2011-10-19T10:00:00-05:00

Some of you know this already, but most of you probably don't. I've left the day-to-day operations of Carbonmade after four unbelievable years. It's bittersweet. I don't regret my decision — it was my time — but I certainly miss Dave, Jason, Mike, Kyle, and the rest of the folks at Carbonmade.

A Little Background Story

I "met" Dave and Jason while I was wrapping up the sale of my previous company TypeFrag in late 2006. They were running a two person design and development shop called nterface at the time. I got word from my friend Matt Brett that Dave would be the right person to design business cards for me. Boy, was I wrong. Dave, for one thing, doesn't do business cards.

In the course of our conversation, he upsold me from business cards to $50,000 worth of design and development work for a new startup idea I was pondering called Uncover. Being upsold from a $500 business card design job to $50,000 worth of work was the best thing that ever happened to me, because I met Dave and Jason, which led to my involvement with Carbonmade.

TypeFrag was sold in January 2007 and by late spring, most of the work on Uncover was complete. We launched it, iterated on it, and got just under five hundred users in the first month. Not so good. As I was slowly chugging away on promoting and iterating Uncover, Dave reached out to me in early August while I was on vacation about whether I'd be interested in joining nterface as a one-third partner and the Business Guy — the title I'd later carry over to Carbonmade.

Carbonmade was a functioning product that Dave and Jason had created in their spare time, but wasn't getting much tender loving care, as they had to continually push out client work to pay their bills. Soon after joining nterface, I started working on Carbonmade full-time while they banged out client work for the rest of 2007. It wasn't until early 2008 that we were all able to focus our full attention on it.

As stressful as those early years were — we were ramen profitable, but split three ways there wasn't much to go around — they were some of the happiest years of my life. The three of us had very distinct roles and together we could handle everything as a team. We kicked ass.

I don't want this article to be about the history of Carbonmade or too sappy, but I do want to say that there's nothing quite like working with truly great people. Dave is the best designer I know. Period. He doesn't get the fanfare that comes from hanging in celebrity designer circles, but the guy is a genius. Often times I wish I could see inside his brain to know how he looks at the world and design. I've taken a lot of what I think about product, marketing, branding, and design from spending four years with Dave – one year when we were roommates.

Jason is equally smart. His developer skill lies in the fact that he can build anything. If the three of us can conceive it then Dave can design it and Jason can build it. Anything Jason puts his mind to he can accomplish with near perfection.

What's Next?

I'm not sure what's next for me, but one thing is for sure, I will miss working with Dave and Jason. They impacted my life in so many ways, building Carbonmade together being only one of them. For now, I remain on the board and continue to be a part owner. I'm excited about some of the recent hires and the direction the product is taking. Carbonmade will be around for a long time, and I'm so excited to have been a big part of how it got to where it is today.

Ways to Acquire Users for Free

2011-06-29T10:00:00-05:00

At the end of the day, you have to build a service that people want to use or no amount of marketing or advertising will help. But if you are successful in building something people want — if you have traction and positive feedback — you will still need to make a serious effort to acquire users. Simply relying on the idea of "build it and they will come" won't fly in the oversaturated world of startups we live in.

Track the Source of Your Traffic

Before knowing where or how to acquire new users for free, you need to understand where your best conversions are taking place. The way to do this is by adding tracking code to your site: (1) what website a visitor is arriving from; (2) the click on the signup form; and (3) the completed registration.

The last piece of the puzzle is calculating the lifetime value (LTV) of each registered user. You may see a lot of signups by a certain type of user, but that cohort may bring in only half the revenue of another cohort that may provide fewer total signups.

This kind of data is especially valuable. You want to trace back to the web environments of your most lucrative cohorts, figuring out who they are and why they're converting better than other users. You can then start to target these users specifically. For example, if Carbonmade knows that wedding photographers in Europe convert higher than any other users, we can target where they like to hang out (forums, blogs, newsletters, offline, etc.).

The Viral Strategy

We're all familiar with the idea of viral user acquisition: Your current users invite other users to use your service. Foursquare and similar viral success stories (Instagram, etc.) do a great job at this by tapping into your Facebook, Twitter, and phone's contact list to get friends to join you through their "Invite Friends" tab.

You want to be able to track how new viral users are coming into your system. Specifically, you want to be able to measure conversion and measure the average number of invites users are sending out. If these numbers are high, you're likely to have a viral service and your chances of huge growth are imminent.

The viral strategy isn't without its problems, though. You'll have little control over your demographics, which could overburden your support. For example, Tumblr found itself exploding in the Philippines very early on — Tumblr is among the top ten most visited sites in the Philippines — and they had to hire a huge team to support them there. Another issue is server growing pains. Twitter and Tumblr were knocked offline for long periods during their early viral growth days.

There are worse problems than exploding growth — who doesn't want it? — but imagine not having the money or manpower to support it, leading to a decline in the quality of your service that causes people to jump ship, possibly to a competitor.

Create Micro Sites

A micro site is a landing page designed around a specific demographic and type of user. After you've tracked the source of your traffic (see above), you can develop these landing pages for users with the highest conversion rates. In my example above, we'd create a micro site for wedding photographers in Europe if they were our most robust cohort of converting users. Then we'd work our way down our list of LTV users and make landing sites for them.

The advantages of creating micro sites are: better SEO (you can target specific keywords for search engines); they're great for A/B testing; the page is more targeted so you're speaking specifically to a user group; and, if you do buy advertisements, you can funnel those ads directly to a specific page.

Give Away Something People Want

The most notorious practice of giving away something people want to encourage signups is found on gambling sites. Gambling sites all offer a "free poker bonus" for signing up and playing on their site. People see free money and they can't resist. This doesn't even end up costing the gambling sites much money either, as the "free poker bonus" isn't unlocked until you've added $50 or more of your own money to your account and played a certain number of hands. By then, the poker site is banking that you've become hooked and plan on adding lots more money, and they've made money in any case from the rake they take on every hand played.

Of course giving away money can hardly be a strategy for "acquiring users for free," but there are other things you can give away to attract them. Everyone loves free stuff. You can give away free paid accounts (see: Bootstrap Marketing), offer limited edition virtual goods such as icons, and special early adopter features. People love the feeling that they've received something exclusive that people after them won't be able to get.

What Are Your Competitors Doing to Acquire Users?

One very effective way to acquire new users is to monitor how your competitors do it. Take note of where they're receiving press from and what marketing they're doing. This just happened recently to us at Carbonmade. A competitor reached out to a prominent Canadian photography website that wrote a detailed article about us and asked if the site would cover them next. Touché! I have to give them credit for trying.

While this photography website didn't end up writing a piece about them, just as often a writer will want to paint a complete picture of what they're covering and include your service in a follow-up or future article. You know they're interested in your space if they've already written about a competitor of yours.

You also want to see where your competitors are spending their money. If you see that they're pumping money into a particular means of acquiring users, then it's likely that they've found a sweet spot. You'll want to get a piece of the action too before it's too late.

Transitioning to Paying For Users

Acquiring users for free is great when you're just starting out and strapped for cash, but as soon as you've got the metrics worked out to support paying to acquire users, you should. You'll still need to have optimized your service with free user acquisition before paying to acquire them.

Even knowing that every dollar you put in makes you two back, you'll need revenue or financing to fund acquisition. This is often a Catch 22 for bootstrapped startups, as you have to decide whether spending money on a new hire to improve your product will net you a greater gain than paying to acquire users. When you're first starting out, I think it's better to hire.

The reasons to pay to acquire users are fairly simple. For starters, you'll make money, but more importantly you'll prevent competitors from entering the market by increasing your market share. Free users are still the best to generate a positive ROI, but don't neglect what money can buy you.

Bootstrap Marketing

2011-05-11T10:00:00-05:00

A quick Google search for "bootstrap marketing" brings up a bunch of useless nonsense. The results are either in the form of "Top 10 Bootstrap Marketing Tips" or "Bootstrap Marketing 101" guides. They're outdated and uninformative — full of obvious suggestions such as: "you should blog" and "use Twitter to get the word out." Not to mention that all the ads are hurting my eyes. So here are some things you can do that won't cost you a penny and will hopefully give you an "aha" moment.

Let Your Users Market For You

Search Engine Optimization (SEO) is unquestionably a first step. I'll agree with anyone on that. If you rank well you'll bring in great leads on the right keywords. SEO is not dead and SEO should not be avoided; but given how competitive most search terms are these days, I'm seeing more of an emphasis on having your users to market your site for you rather than rely on SEO.

I'm not talking about the "email your friends" pop up or referral programs. You should aim to create a service that users will benefit from sharing a page of — their page. An example of this would be showing off a user's activity on the site in a way that benefits them the more often it's seen. This is an everyday occurrence for social network services such as Twitter, Facebook, About.me, Flickr, and LinkedIn, but what about sites without social networking components?

What we realized early on with Carbonmade is that one reason to have an online portfolio, among others, is to show off your work to your friends. (We had thought the main reason would be to get work.) Friends of artists tend to be artists, so placing a Carbonmade logo at the bottom of the page that redirects back to our homepage gets us signups. For example, a friend of Dave Gorum sees his portfolio and thinks: "How'd Dave Gorum get such an amazing online portfolio?" The friend sees the Carbonmade logo at the bottom, clicks, and signs up.

We don't have to plaster a garish advertisement on their portfolio alerting the viewer to our services. We only have to leave a logo at the bottom of the page. We now see more referrals from portfolios in our system than we do through all search engines combined.

Not only that, but search engine referrals don't even rank second for us, even though we rank first in Google for "online portfolio" and "free online portfolio." Facebook ranks second. Our users link to their Carbonmade portfolio as their website in Facebook, their friends see it, and their friends sign up.

One of my favorite examples of this approach to finding new sign-ups is Kickstarter. People who create projects on Kickstarter are extremely motivated to share their Kickstarter page with as many people as they can to get backers. Kickstarter needs to do very little to help fund these projects, because the creators of the projects will do the majority of this work on their own. I've backed nearly ten projects on Kickstarter, but never once from using their Discover Projects feature; in every case my backing came from seeing tweets and receiving emails about new Kickstarter projects.

This idea of creating a page — portfolio in our case, project in Kickstarter's case — that's worth sharing is all about motivating the user to derive benefit from sharing the page. Think about how you can create this benefit for users. Having them share the page with this in mind will be far more effective for you than a typical Twitter or Facebook button on the page.

Give Paid Accounts Away for Free

Something we've always done is given away VIP accounts — a paid account for free — to anyone we feature on our Examples page, to friends, friends of friends, or to anyone who uses our system in a really neat way. Since launching in December 2005, we've given away just under 500 of these.

We've even gone so far as to switch paying users to VIP accounts — I can think of at least a few dozen cases off the top of my head that we've done this for. Why? At the end of the day, we work on Carbonmade to make people's day rather than make a buck.

People might argue that this is cheapening the paid plan. We don't think so. It's strengthening our brand. When you put a smile on people's faces by treating them in an unexpected way, you've not only made someone's day, but you've also got someone who will sing your praises for years to come.

Sometimes you have to Issue Refunds

Having a relaxed refund policy is a bit of a double-edged sword, but it is important. In our Terms of Use, we have a strict no refund policy — and you should too — but sometimes you find yourself backed in a corner about issuing a refund. That's okay.

There will be situations when a user emails demanding a refund. You could play hardball, but at the end of the day, is it really worth the headache of fighting them for their $12/month (in our case)? With everyone in Twitter, Facebook, and blogging, is it really worth risking negative feedback? You can even skillfully turn the person into a fan by not hassling them over a few extra bucks.

You don't want to let people walk all over you, and there have been times when we've denied refunds, but for the most part you want to be liberal about giving people their money back. At the end of the day, if people are going to walk away from your business, you want them walking away on a positive note.

Customer Service That's Not Simply Lip Service

Excellent customer service goes without saying, almost. People confuse responding quickly and succinctly with having great customer service. That's a start, but it's not enough. Great customer service — something Zappos termed "delivering happiness" — is achieved only when you've not only answered someone's question, but also put a smile on that person's face.

How do you do that? Mike, Carbonmade's customer service guy — although we've dubbed him more appropriately "Morale Specialist" — answers all incoming Carbonmade email. The difference between reading Mike's responses and email responses from other companies is the Mike has this knack of being able to relate to anyone emailing in. I don't know how he does it, but he's genuinely moved by every email that comes in and knows how to respond sympathetically. Everyone loves Mike.

If you treat customer service as a chore and responding to email as something you simply have to check off your list every day, then you'll fail to capture the hearts and minds of your customers. And that's marketing. Mike leaves everyone who has emailed in happy that he was there for them and helped them through their problem; and — on more than one occasion — the person has asked to hang out with Mike. Find yourself a Mike.

Streamline Your Marketing Site

Companies love to tell you everything about their service, product or website on their marketing site. Do you think prospective users care about every single feature? No! You need only highlight a few things you do really well. It's a lot more powerful this way. Remember your high school English teacher telling you "less is more"? The same goes for a marketing pitch.

Carbonmade is a perfect example of this. If you visit our marketing site, all you see is "Your online portfolio." in big letters. Why? Because the vast majority of people landing on Carbonmade only want to know that we do what they're looking for.

For the minority of visitors to your marketing site who want a bit more of a taste, give them two things: (1) a live demo where they can play around with what they're getting and (2) some examples. You don't need to detail every feature. Your users can see them for themselves.

Showing Off That Your Website is Active

People want to know that the website or service they're joining is active and that the people making it are involved. Twitter does this by showing examples of people who are using it when you first sign up. We do this by posting real-time numbers of our statistics on the front page of our site.

Another way we do this is by featuring Carbonmade users on our Examples page. We pick great users in our system who make great work and/or use the features of Carbonmade well. We post those users and their work on our Examples page, and then send our notices on Twitter, Tumblr, and Facebook about new features. This shows both that we are active and that we are taking the time to look through peoples' portfolios.

Figure out a way to highlight the activity of people on your website and show it off to your community. There's little that's more off-putting than having a stale marketing site with infrequently updated content.

Building Your Founder Reputation

One of the things I pride myself on is being approachable. Being approachable doesn't only mean showing up at as many events as you can fit in — related: How to Network — rather it's in the vibe you give off. When I go to an event, of course I talk to as many people as I can to help spread our brand and get the word out, but more importantly I'm not pushy and I don't lead with it.

Both at offline events and online, I want people to know that they can talk to me about anything. I'll listen and I'll respond. I'm happy to talk about startups, your startup, my startup, or nothing at all about startups. I just love meeting new people and having great conversations. Not everyone has the patience for this, but it's led to many connections and new friends that have benefited Carbonmade.

As you begin to build up your reputation, more people will talk about you and your startup when you're not even in the room: "Oh, did you hear what Carbonmade did?" You want to be on the tip of peoples' tongues, whether they're other startup founders, press, or people in the street.

Startup vs. Company

2011-03-23T10:00:00-05:00

Wesley Verhoeve and I got into an hour-long debate at SXSW with two guys from San Francisco about the meaning of the word "startup." Their position was confusing. They tried to claim that they were currently working on a half dozen startups (what I'd term "projects"; a startup needs focused development), and as the dispute developed they also insisted that Facebook and Twitter were still startups and not companies. "You can't use the term for everything," I said, "just because it's an online product." Maybe it's a New York vs. San Francisco thing, but in New York we're building companies, not startups. Maybe it's because it costs more to live here, but we're trying to put food on the table, not be on the cover of Business Week.

Startups are Easy

Anyone with an idea can create a startup. I see this from email, my mentorship programs at Tech@NYU and TechStars, people I follow on Twitter, running into people at SXSW, and just around town at different NY tech events. I worked with two friends this past month to help them launch their startup — all in all about forty hours of work.

Startups are easy to conceive and launch, and oftentimes they attract a few hundred or a thousand users. Everyone's friends and families are on the Internet. We have large networks of friends on Facebook, LinkedIn, and Twitter. Friends are often supportive and won't think twice about trying out your startup. Getting them to stick around and invite their friends, well, that's another matter, and fuel for another article.

Not only is it easy to get your startup off the ground, it's also the cool thing to do these days, so we've got a hell of a lot of them. We Internet geeks are being profiled as "cool" in the mainstream press, girls are more interested in us than Wall St. people or lawyers (at least in New York), and our friends in normal jobs are jealous of our lifestyle. What happened to the days when I got made fun of for being on a computer all day?

These social intangibles are all contributing to more and more people creating startups. Not companies, though, that's too boring. That's too much like the day job we just quit. Let's just hack away on cool side projects, grab a bunch of funding, and see what happens. Umm… what can come from that, exactly?

Companies are Not Easy

My co-founders and I did not start Carbonmade to be cool, get girls, or make our friends jealous. Instead, our long-term vision for Carbonmade was to build a company. We wouldn't be pushing ahead in this way if we didn't have a commitment to steadily increase the size of our paychecks — and our employees' paychecks — as we grow.

What makes creating a company so difficult is that it's no longer a couple of people sitting around their apartment fine-tuning an idea. Those were the days! It's a team, all working together to solve a complex problem. Then if you're lucky enough to solve it, you have to sell, market, and support it. It starts to get scary.

Building a business is mind numbing when you think about it. You have to be a little insane to venture down this path. Your chances of succeeding are slim, and even if you do succeed you have to continue to innovate or you'll be obsolete in eighteen months.

I'm not writing this to crush the hopes and dreams of people looking to start companies, but a dose of reality never hurt anyone. Your startup will eventually need to make the jump into company land and then, damn, things do get tough. If you're not ready to face that reality from the beginning, it may be too daunting when the time comes.

Startup No Longer Means Startup

The word startup has taken on a new meaning. It once meant an early stage enterprise in the research and planning phases, but now it has come to be defined as the way one builds a company online. Even companies that have been around for five years, generate millions in revenue, and have fifty employees are continuing to use this word to describe themselves.

Well, I want the word "startup" back! You build a startup to test an idea and then you build a company to execute that idea. Let's get back to that distinction. No more romanticizing about how cool it is to be an entrepreneur. It's a struggle to save your company's life — and your own skin — every day of the week. When this bubble blows up — and it will — only the people who have been prepared all along to make a business out of their startup will survive.

Hiring for a Boostrapped Company

2011-02-16T10:00:00-06:00

Creating jobs is my second favorite thing about startups, next to having customers using the service. What makes me qualified to write about the hiring process for bootstrapped companies? I hired three full-time people in my first company, TypeFrag (sold in 2007), and four and growing in my current company, Carbonmade. Throughout the past eight years, I've also assisted in hiring a dozen contractors, including web designers, developers, copywriters, and illustrators. Hiring for a bootstrapped company is an entirely different process from hiring for an angel or VC backed startup that's flush with cash.

Why's a Bootstrapped Company So Different?

Before I get into how I hire, let's think about why it's so different to hire for a bootstrapped company like Carbonmade than it is for a VC backed company like Foursquare, Quora, Asana, and the like. The difference is cash flow. While they have fat bank accounts filled with investors' money, we are only able to spend money as it trickles in from customers.

We work with the equivalent of $12/month investor checks, financed by our users, deposited to our bank account not at one time but across the month. Fortunately, we're getting a lot of those checks; but this approach calls for a ramp-up process that prevents you from filling all the positions you need at the start of your company. For example, we couldn't hire a "complete" team just to be in closed development for two years, as Asana was able to do. We have to do our best with what we have, and grow our team in proportion as our company grows with earned assets.

Hire for the Moment

Fortunately, Carbonmade started with a very well-rounded team of three: designer, developer, and an everything else guy. (See Three's Company and why I think three co-founders are better than two.) This meant we were able to get by with the minimum we needed to build a product throughout the initial phase of our development, but work began to get out of hand as we grew beyond a certain point.

When you're involved with the day-to-day in a startup, you'll know when it's time to hire your first person and for what role — hopefully around the same time the money lines up. You're running the equivalent of a machine and you can feel when a component in your machine is lagging behind the others. For us, the first pieces of our machine to start making those ominous overstressed noises were handling customer service and design.

Sure, we could have hired a customer service person from the start of our company if money hadn't been a factor — it was — but what would we have put them to work on? And, yes, we could have had a second designer helping us plow through user interface design, illustrations, layout, etc., but when you're first designing a product, a single mind making decisions gets the work out the door faster.

You shouldn't — and can't when bootstrapping — go out and hire for all the positions you'll need in the future. Do you really need that Community Manager when you have no users? What about that Head of Sales? Are you selling a product that's not ready? Is that System Administrator really needed when your service is only used by a few thousand users? My point is that there's a lot you can get by with working as a small team — there are even advantages in having one — and efficiency trumps everything early on. You'll know when your efficiency breaks down and when it's the moment to hire someone to keep your machine humming.

Hire Friends of Friends

Don't hire friends, but hire friends of friends. I've broken this rule with two of the seven people I've hired over the past two companies, but as a general rule I think it stands up well. While you can get away with hiring friends at a VC backed startup — the larger team will help the person blend in — a smaller, bootstrapped team ideally has one level of separation. Friends have a tendency to be distracting and to be more difficult to direct. Also, hiring a friend makes for a tricky situation if you have to fire them.

Hiring through your network is, and always will be, the best way to find people to work for you. Your friends, while they probably shouldn't be hired, will know and recommend people that you should hire. That's how we got Michael Sigler (via Pasquale D'Silva), Alex Penny (via Wesley Verhoeve), and others. You can assume that your friends are referring talented, good people — who are available. Being friends of your friends, they should prove to be folks that you can not only work well with, but also get along with.

Often a Contractor Will Do

There are plenty of jobs that you can get away with hiring a contractor for. Specifically, at Carbonmade, we've hired contractors to write copy for us, to help us prototype projects, design internal tools, to help code components of our video player, and other things. Contractors can be hit or miss, but they're far less of a commitment, and if things don't work out, it's a lot less money, time, and effort down the drain. They limit the damage if it's a failed experiment.

The only drawback to working with a contractor is if you're expecting to work on more than a small project. Larger projects require a contractor to be fully invested in the idea and to be able to see things through from start to finish. Not all contractors are built that way mentally.

Bringing contractors up to speed on long-term projects can also lead to problems. That's why, since we hired Michael Sigler, Mike Minnick, Kyle Fox, and Alex Penny, we ask our contractors only to work on one to four week projects. Still, early on in your bootstrapped company, contractors can be life saving.

Where's Your Jobs Page?

Carbonmade doesn't have a Jobs page. That doesn't mean we're not hiring. It's a combination of not having exhausted our Friends of Friends network and continuing to hire for the moment. We'll see if that shifts when we get larger, but for now it's been working just fine, and limits the number of incoming resumes that could slow us down.

Carbonmade: 2010 in Review

2011-01-26T10:00:00-06:00

Last January, I wrote a piece entitled Carbonmade: A Year in Review covering some of the things we did in 2009. While 2009 was mainly getting our ducks in a row as a company, 2010 was far more interesting: we added our first employees, moved into our own office, released a new marketing site, an update to our app, and a lot more. Read on for details.

First Quarter

At the start of 2010, we had a tad under 190,000 members and by the end of the year we had just over 306,000 — a 62% growth. Not shabby when you consider that 2010 was our fifth year of being in business, so in one year we nearly doubled our existing userbase. This growth was led by two major projects. The first was our new marketing site re-design that we released in March.

As Dave's roommate at the time, I never saw a man pull more all-nighters than he did during the first three months of 2010. He was determined to refresh the look and feel of Carbonmade if it killed him. It nearly did. To be clear: This was a re-design of our marketing site: homepage, examples, about, sign up process, etc., and not a re-design of the app itself.

It launched in early March and led to our biggest single sign up month ever: 13,232. We haven't surpassed that since, although we've been damn close on a few occasions and will certainly pass it during 2011. A few press articles coinciding with the redesign helped propel this number up as well. The biggest one was the first major piece on us entitled The Startup Story of Carbonmade, written by Chrissie Brodigan for Think Vitamin.

Along with the update, we launched a Progress page, which we've since replaced with a Why? page. The Progress page was a failed experiment Dave and I came up with late one night to allow folks to follow along with the progress of updating our app. Although it flopped, I still think the idea had some merit if executed correctly. We were just too small a company to follow through on it, as it was only Dave, Jason and myself at the time.

Second Quarter

While our new marketing site was a huge hit around the Web, we didn't have the luxury of getting to sit back, relax and drink margaritas on the beach, as we still needed to push through on an update to the app side of Carbonmade. Most of the second quarter of 2010 was dedicated to brainstorming, designing, and developing this update as well as looking for the right people to help us complete the update and move Carbonmade forward. We experimented with different contractors, but quickly came to the realization that we needed people in-house. Thankfully, we found them just as quickly last summer.

Third Quarter

In July things began to gather speed. Working nearly four and a half years as three people without any additional help had taken its toll. We needed fresh blood. Our first relief came when we hired Mike Minnick to handle all customer service emails and phone calls together with much of the community stuff. This released me from having to deal with nearly every email in our inbox. At 200,000+ customers at the time Mike joined, we were getting an email volume that you can well imagine. Hiring Mike was a life changer for me.

Next, we needed to give Dave some relief from designing every pixel of Carbonmade all by himself. We'd been looking for a full-time designer to work under Dave since 2009, but never came across the type of person we needed, one who could handle multiple design disciplines: UI, UX, marketing, and illustrating. It's a tough skill-set, and not many folks other than Dave possess it.

We found Michael Sigler this past August through an introduction by Pasquale D'Silva, an illustrator who had been hanging out with us in New York City and crashing on my couch. Sig fit right in, and by September he finished relocating his wife, his baby daughter, and himself from Portland, Oregon to Brooklyn.

Sig began working immediately with Dave on wrapping up our update to the app side of Carbonmade. Without Sig's help, I don't believe we would have been able to get our update out in 2010, let alone at the very end of September. The first 1,000 emails announcing the update went out on September 24, 2010.

Fourth Quarter

By far the busiest quarter in Carbonmade's history was the fourth quarter of 2010. Most of October was spent bug fixing — what a pain! — and managing our migration, which I wrote about in an article entitled Case Study: Carbonmade's Migration. Think Vitamin covered that in a piece entitled Incremental Rollouts: Lessons from Carbonmade's Migration.

Along with handling our new update, we did a few cosmetic tweaks to our site. We launched a feedback page designed for people who close their account, and replaced the Progress page — a failed experiment in that we never updated it — with a Why? page that did a better job explaining why people should sign up for Carbonmade.

On top of all the craziness, we moved into our new office by the beginning of October. Never having had our own office before, we didn't know the work that would go into outfitting one. We spent thousands and thousands of dollars to get things set up. I think we placed upwards of 100 orders on Amazon and Alice during October alone — many containing multiple items — for miscellaneous office supplies, from toilet paper to a crow bar.

Our rollout went really smoothly despite the hectic nature of it all, and everyone had access to the new Carbonmade by mid-November. The rest of that month and December — when we turned five years old! — was spent on beginning our next big plans for Carbonmade, which unfortunately I cannot let you in on just yet. Look out for the news in 2011.

On Focus

2011-01-19T10:00:00-06:00

My friend Vinicius Vacanti wrote an article back in August entitled How New Ideas Almost Killed Our Startup. I missed reading it back then, but it had a resurgence on Hacker News in late December, which brought it to my attention. His central point is that new ideas lead to "uninformed optimism," which in turn lead to "informed pessimism" and only the most persistent people will get to a "crisis of meaning" and break through. Those people who lack persistence and focus will keep reverting back to a new idea and "uninformed optimism" all over again. I wrote about this briefly in a article entitled Idea Shaping that urges entrepreneurs to focus on one idea at a time, preferably one you love. His idea, and mine, can be boiled down together to one word: focus.

What Causes Loss of Focus

Sometimes I find myself so focused that I forget to eat or drink. Often that same focus leads me to forego sleep or toss and turn because I can't shut my brain off. Other times, I find myself losing focus. I've tried to figure out why I lose focus, and after much thought and discussion I think it all boils down to: (1) not setting enough clear and achievable short-term goals, (2) letting my mind wander too often into long-term future goals, and (3) distractions.

Setting Clear Short-Term Achievable Goals

You can easily solve the problem of not setting enough clear and achievable short-term goals. All you have to do is look at your company and your product and outline "things I want to achieve within the next three months." This exercise should be simple for anyone. Next, take your list of achievable goals and rank them according to what has to follow from what. Some things clearly need to be done first before you can do others. Then take the goal at the top of your list and make that your single to-do item. Once it's done, cross it off and make the next item your only focus. Rinse and repeat.

Mind Wandering Too Often into Long-Term Goals

Long-term goals are a mixed bag: we need something big to build toward, but they can easily be distracting. Ideas like that are best brainstormed and then only revisited in detail every three months. As the year wrapped up, Dave, Jason, myself, and the rest of the Carbonmade team did a lot of thinking and strategizing about what we're doing in 2011. While this is a must-do exercise, we've done it, and now we've got to get back to work on the short-term goals. You can literally feel in your gut the distracting pull of planning too far ahead. It's 2011, so I don't even want to hear the word 2012 enter our discussions. Even anything other than a casual reference to the end of 2011 is a distraction.

Agonizing too much about long-term plans is the biggest cause of loss of focus. When you start prioritizing the future rather than focusing on building the best damn product you can, you'll start slipping. It's really why there's no room for an "Idea Guy" in a startup. Not only is it distracting to the production side of things, it's a role that has no place in a business that's still focused on building a particular product. Whatever he or she might be later, the Idea Guy in a startup should be an "Operations Guy" who should be mainly focused on adding and supporting production of your product.

Distractions!

My co-founder, Jason Nelson, hates distractions. He can't work with them. He doesn't even like programming any heavy-duty code at the office when others are around. That's why he usually checks in to the office around 4 o'clock and checks out early in the morning. Distractions are the immediate cause of lack of focus — the in-the-moment disruption that can pull you out of whatever tunnel-vision, Zen-like moment you find yourself in that gets your best work done.

I respect Jason not only for his work ethic, but also for the way he zones in on whatever he's working on by eliminating distractions around him. He knows he's susceptible to overhearing banter around the office — we all are — so he chooses to do what he needs to do to limit distractions in his life. We could all learn from him.

Building the Trunk, First

2011-01-05T10:00:00-06:00

When you think of Carbonmade, it goes something like this: "An online portfolio system for creative people to show off their work." That's fitting, as we do purposefully shove "Your online portfolio." under your nose on our landing page. That's what we want you to think of us as, and that's what we are today. At Carbonmade we think of our online portfolio as the trunk of the tree we hope to grow. As our trunk grows, it'll sprout branches (different Building Blocks), but you can't have healthy branches without a strong trunk. Without a strong trunk, you won't be able to build an ecosystem and have a shot at being a billion dollar company. Focus on the trunk.

Examples of Leveraging the Trunk

Think Apple and Facebook — both launched with a single stripped down product — Apple's operating system (their hardware was just a delivery system) and Facebook's simple social networking: messaging and, more importantly, photo sharing. Both focused all their attention on building their trunk and then leveraged their core product to branch out.

Apple's iPod, iPhone, iPad, iTunes, etc., are all successful because of iOS, which was built effectively on top of the knowledge they gained from developing Mac OS X (and earlier generations). Everything Apple develops today is tied back into their operating system — the trunk. I have a friend who worked as a developer on Apple's operating system team for over twenty years. Steve gave these guys more love than everyone else, and he believes in the trunk.

Facebook is an even better example, as when I first started using it during my sophomore year at Yale (2003) it was only a fragment of the product it is today. No Groups, no Events, no API, no News Feed, no Local, etc. They had a very limited userbase: college students, more specifically those at Ivy League universities, when I first signed up. They got an active core group of users before rolling it out to other colleges, then high schools, then mom and dad. It was only after they began to scale that they started to explore growing branches.

Keeping Everything Under One Umbrella

Mark Zuckerberg really believes in building a strong trunk before sprouting new branches. Without it, Facebook wouldn't be what it is today. You might argue that scale is what made Facebook's branches successful — not a strong trunk — but I'd argue that while scale is important, building out branches before you build out a strong trunk will lead you, and your users, toward getting lost in your ecosystem. Facebook will always first and foremost be a place to connect with friends, share photos, and read about what your friend is doing through status updates. The trunk is what's keeping Facebook together: Facebook's quest is to "connect the people of the world". Without that you've got a mixed message, which negatively affects your marketing and branding. You've got MySpace.

On the model of Apple or Facebook, Carbonmade's online portfolio system will always be the trunk of our ecosystem. How we play with it, what user groups we market to, and what branches we create will always tie back in with the basic idea: showing off your work.

Another example is 37signals. While 37signals is not using the same trunk approach that Facebook and Carbonmade use — everything under one umbrella — they still have a trunk: it's their brand, the design standards they've created to release features across products more easily, and their unified architecture (universal logins, etc.). This is another way of building an ecosystem, but I think one that'll never lead to a billion dollar business — something Jason Fried and DHH aren't interested in building anyway, so they say.

What's really interesting now at 37signals — and the reason why I've thrown them into this discussion — is that they just launched their new 37signals Suite. Likely it's something they've been planning since launching their second product. This is a way of re-unifying their products, with an emphasis on leveraging their success of Basecamp, their original focus. It'll be interesting to see where they go with this: Will they go a step farther and create an all-in-one product?

How Do You Build a Strong Trunk?

Building a strong trunk requires serious patience. Apple may have had its low points, but in its 35-year history (founded in 1976), they've never been as successful as they are today. It took a lot of patience, but they're finally in a position to change the world.

Too many entrepreneurs think that they need to rush to become overnight successes or they'll never get there. They think it's a sprint and not a marathon. Carbonmade has been around for five years as of December, 2010. It took us three years to be able to work on it full-time, and then another year and a half before we were able to hire our first two employees. Carbonmade is only at 1% of what it'll be in five years. Patience, my friends.

Other than having patience, you need to build a stripped down, functional product that is focused on a special type of user, but at the same time something that can still be used by a more general audience. That way you aren't discouraging anyone from using it.

For example, Carbonmade doesn't work all that well for writers, as our focus is on more visual work, but writers can still upload screenshots of their work with us, making our product usable for them. We're not discouraging writers from using Carbonmade, but we're not built for them. We can go back later and build out a template specifically for writers.

Focus on being patient while building a product that's specific but general at the same time — contradiction, I know, but you get what I mean — and you'll build up a successful base. Don't grow your branches too quickly, but perfect your trunk first, and always have this in the back of your mind: "Does this branch interfere with or enhance the trunk of my tree?"

What's A Non-Programmer To Do? (Advanced)

2010-12-08T10:00:00-06:00

Responsibilities change as the size of your organization grows. During the past few months, we've hired another web designer and a customer service guy. With these hires, and with Carbonmade's ambitions, my role has changed dramatically. I still do a lot of the stuff I outlined in What's a Non-Programmer To Do? but as our company as shifted out of the startup phase and into the small business phase, I've taken on new tasks that I wasn't familiar with before. Good thing learning on the job is the best teacher.

Hiring

One of the biggest responsibilities of any CEO is to recruit talent to work for you. Now that Carbonmade is large enough to start doing so, it has become a significant part of my role to find and talk to folks. Along with Dave Gorum, who has a great eye for spotting young, hungry, and talented designers, I've been having phone and in person meetings with people we're looking to hire.

The story of how we hired Michael Sigler is actually an interesting one. A friend of Carbonmade, Pasquale D'Silva, pointed me to Michael's work one day at our office. Immediately I liked the work a lot. I asked Pasquale for Sig's AIM (yes, we all still use it). Minutes later I was talking to Sig over AIM for well over three hours. We then chatted on the phone for another hour. Then Dave and he had a phone call for another hour or more that same day.

Later that evening I called him up again and booked him a flight to New York for the following itinerary: Jason, Dave, Sig, and I went out for lunch and dinner, he stayed in Jason's apartment, and I took him on a few-hour walking tour of Park Slope (where he'd eventually end up getting an apartment).

During the second day of his stay, we offered him a contract to come and work with us full-time. That evening everything was signed and about a month later his move to his new apartment in Brooklyn was completed.

Contracts

Everyone hates dealing with paperwork. That's a given. Part of my job has always been dealing with our law firm and handling all the paperwork that comes in and out of Carbonmade. Recently, with the addition of our new people, dealing with employee contracts, salary, and raises have come into play.

I worked with our law firm to tailor a non-form letter contract for our employees. We didn't want to work with a standard contract, but rather one that corresponds to what we stand for at Carbonmade. For example, we encourage side projects at Carbonmade, which goes against most employee contracts, which stipulate that anything you work on is owned by the company. That's bollocks.

Payroll

Although we hired one guy back in July (Mike Minnick) and one guy back in August (Michael Sigler), we signed them on as full-time contractors to begin the process of making sure that we meshed.

I also needed time to set up payroll, which the United States government doesn't exactly make it easy to do. I first looked at an all-in-one solution called Ambrose that was recommended to me by a friend. It looked appealing in that they would handle the payroll, healthcare, 401k, etc., but they charged a $3,500 set-up fee and $200/month per employee. Those aren't insignificant fees.

After nearly completing the process with Ambrose, I decided to look elsewhere. There are payroll services out there that charge a lot less and during my search I found Bank of America's payroll service. BoA is where our company banks. It turns out that payroll is free through BoA if you're a small business customer.

Setting up payroll through BoA is a pain in the ass, but after getting everything set up it's as easy as a click of a button to run payroll and then another click of a button to pay the taxes on that payroll. The hardest bit was filling out all the government forms that were prerequisites to setting up payroll.

A lot of accountants can handle setting up payroll for your company, but they typically charge $25-50/month per employee. It's just not the best use of your funds when filling out a handful of forms can get you where you need to be for free.

Investors

We're becoming more and more of an investor's darling: private profitable company with swanky new SoHo loft office and five full-time folks. We've got Private Equity and Venture Capitalists knocking on our doors. I love meeting with these folks — for the most part. They've got a lot of experience working with companies that are similar to ours and often even in thirty-minute meetings they are able to pass on a useful bit of advice.

Just the other day, I was given a great piece of insight about a better way to bill customers to reduce churn. It's a little something we're going to be applying to our new billing system that's coming out shortly.

You never want to close doors. While Carbonmade runs successfully without having ever raised a dime — whether from friends, family, or otherwise — keeping options open is as much in our best interest as in anyone else's.

Speaking Engagements

I've been fortunate to land a few speaking gigs this past year. I've given two guest lectures at NYU, been on a panel at Parson's, and another panel through Ultra Light Startups. I love speaking and engaging with the startup community. Maybe it's because both of my parents are professors at Yale that it's in my blood to share knowledge and teach other people, but I can't get enough of it.

Through my talks, people in New York have found out about Carbonmade and that's helped to spread the name of our company to potential hires, investors, and drive signups. I have to admit that I secretly hand out a lot of VIP accounts if you come and talk to me after the lecture, so maybe in the end of I'm actually hurting our bottom line. ;) Spreading good will, though!

Insurance

I've always been naïve about insurance. I'm the guy who doesn't get protection plans on his iPhone or his rental car. I like taking the position that if I screw up I'll be responsible for my own actions rather than paying someone to clean up my mess. Like I said, it's a very naïve point of view.

However, in our office lease, there is a clause that we need General Liability and Renter's insurance. That led me to reaching out to a bunch of different insurance agencies to grab quotes and vet. The first one I found was recommended by Harvest, but the broker there and I just couldn't get on the same page. He kept thinking Carbonmade was a social network and getting General Liability insurance for social networks I guess is a big hassle. "You are too risky!" he said. "But we're not a social network, sir." Oh well. On to the next one.

I looked around a bit and found three respectable outfits. I sent them all an email and played the "whoever gets back to me first with a reasonable quote" wins. I was surprised that it took a couple days for everyone to get back to me — I thought brokers would be faster to respond. Either way, I had two of the three folks find quotes for us. One came back more quickly than the other and offered us a great quote through Traveler's insurance so we went with that.

Now getting into a skateboarding accident in our office won't be such a big deal.

Office

Back in September 2009 we began subleasing an office with Harvest. At their and our growth rates, I knew that we would need to move to a new office sometime during 2010. I began looking for our own office to rent out as early as December 2009. You need to give yourselves a fair amount of time, as office rentals are much longer leases than apartment leases — ours is four years — and good spaces are harder to come by.

I love our building in SoHo, so when I heard a rumor from Anthony and Dane of Squarespace that they were moving offices sometime in 2010, I went to them to discuss the possibility of taking over their old space (on the fourth floor of the same building). Both of them were happy to pass it on to us with the condition that we'd take it over no sooner than when construction was done in their new place.

Not a problem. We were still only three people full-time during the first half of 2010, so moving into our own 2,400 sqft loft wasn't a priority for us… yet. However, as the year went by and Harvest's office filled up with new folks, we felt serious internal and external pressure to move into our new space.

Although Squarespace was moving as quickly as they could — contractors in New York sure take their sweet time building out office spaces — it was definitely a stressful time for me. We initially thought we were moving into the space on May 1st, only to be delayed all the way until the end of September.

I met with the landlord several dozen times to go over the terms of our lease, negotiate the costs, and generally ask him questions about renting in his building. Our landlords are great folks — a rarity in New York — so working with them has been an absolute pleasure.

Finishing all the moving arrangements and signing the lease felt like a gigantic burden lifted off my back. About six months worth of stress — would we actually move? — left my body and mind when I was handed the keys.

Office Supplies

I think we all take for granted the stuff that goes into outfitting an office, but we shouldn't. Jason and I tasked ourselves with outfitting our office with everything we needed. Just to rattle off a few of the over 75 orders we placed through Amazon (thank God for Prime): trash baskets, pens, coffee maker, tea maker, plants, phones, refrigerator, microwave, Bucky balls for our steel wall, a tool set, etc., etc.

I wanted to get beautiful desks for our new office, and I found a shop in Germany that made custom steel, wood, and linoleum desks that I just had to have. I spent countless hours dealing with their production and shipping, not to mention customs (the biggest pain of all: I think they thought I was reselling the desks), and delivery. If I had to do it all again, I probably wouldn't. I don't think it was worth the headache and (literally) hundreds of hours and dozens of emails to get the desks here, but I'm still happy that they're finally here and awesome.

Services

Signing the lease was only the first step in moving into a new office. Now I know why people hire office managers. Since we don't have one of those, I handled setting up our Internet service through Time Warner, our electricity through ConEd, our landline phone service through Verizon, our water service through Poland Spring, our office cleaning service through Four Star Cleaners, and monthly new shipments of supplies through Alice.

Financials

As we grow, we gather more and more useful information that we can start to act on. Information gathering is both useful and frustrating. On the one hand it's great and gives you insight into your business, but on the other hand you may not have enough of it to be statistically informative early on and/or you don't have the bodies to work on the results.

With new people we are finally able to start acting on a lot of the information that Jason and I have been gathering over the years. At nearly 300,000 users, we have a lot of rich information to work through. I've been working with a friend formerly at Goldman Sachs and now at the private equity firm Silver Lake who's helping us look at and analyze our data.

Just last week we ran a cohort analysis and put together phenomenal projections on what our company can achieve during the next three years — all based on a mixture of historical data and our roadmap.

Accounting

We have an accounting firm, but what they do really only sees us through the end-of-the-year work, with quarterly phone calls sprinkled throughout the year. The heavy lifting is done by me at the end of every month. I have to be sure from month to month that we don't overspend and can better plan out our hiring.

Things have only become more complicated as we've added new people, paid for new services, and acquired a lease with people subleasing from us. More money coming in means more money going out and more money to account for. It may sound funny, but watching and tracking our finances on a daily basis has caused me to develop a sixth sense about how much money we have, what our growth rate is, and how and when we can spend it.

Planning for the Future

Something I like more than anything is thinking about the future. It's one of the things I have the luxury of thinking about, as Dave and Jason are both heavily focused on the day-to-day product stuff. I like to come up with ideas for laying out our roadmap.

My particular excitement in this business is setting out projections and employee charts, worrying about long-term churn reduction, increasing life-time value, planning new features, thinking about big marketing pushes, and anything and everything that's three-plus months down the road.

Motivation

Leading by example is the best motivation, but oftentimes knowing when to chime in with something encouraging is just as good. Keeping up morale even through long and tough development cycles is a job in itself. Both designers and developers can get disheartened and lose sight of the big picture.

Even though you may not be the person who can actually jump-start Photoshop or TextMate to help them tweak the product, being there with them and cheering on their work can help a lot. Don't be too proud to order delivery food for your team at the end of a late night or pick up drinks and snacks at your local convenience store.

Case Study: Carbonmade's Migration

2010-12-01T10:00:00-06:00

One topic that's often overlooked — and certainly not much discussed — is what goes on behind the scenes when you launch a new update of your existing web app. While the bulk of the work is done in the months, or years, of development, the final weeks before launch — and the weeks following — are more hectic and draining than anything at the development stage. You've got to deal with testing, marketing, customer service, system administration, design touchups, and last minute bugs that only show their head after you've flipped the switch. A sloppy migration can really set you back — à la Digg — and a smooth rollout — à la Twitter — can gain you a lot more loyal customers. Don't expect to sleep.

How We Marketed Our New Update

An update is different than a spankin' new full bells and whistles upgrade. There's a lot of new stuff, but it's not of the same magnitude as when you're introducing, say, the iPhone for the first time. Steve Jobs presents a new update to i0S differently from the way he presents a new device, and we for our part don't want to overplay the significance of the update. Yes, there's a lot that's new, but still, an update has to be presented in a different light from introducing a whole new concept or else you're going to underwhelm your users.

With that said, there's still plenty to do. One thing we really wanted to do was to send a newsletter to our users. Before that we had never sent out a single newsletter or announcement, but this update was significant enough to warrant one. Together we worked out the gist of what we wanted to say in the newsletter and then hired one of our close friends, Angela Black, to craft the copy. She and Dave designed out and wrote up two newsletters: one to our Whoo! users (paying) and one to our meh users (free).

If we had had more people and time, we would have created a "What's New" page similar to what Twitter launched to preview their new update. A "What's New" page is great for existing users to get a sense of things that are coming in the new version. We tossed the idea around the office, but couldn't justify the time in relation to this update.

The Rolling Release: Generating Hype

As a tactic in marketing, and something that worked very successfully for us during the release of our new update, we slowly leaked the migration bar to users over time. This builds hype by generating the idea of scarcity. People want what they can't have — especially if their peers have it. That's part of what Dribbble, FFFFOUND!, Forrst and other invite-only communities bank on.

We first release the migration bars — with newsletter — to our VIP users. Our VIP users are people to whom we give all the privileges of a paid account without the cost. They're generally some of the more talented creatives on our website — folks we show off on our Examples page. This gets our new update into the hands of some of the more heavily trafficked portfolios on Carbonmade, which instantly gets us emails and tweets to the effect of: "I saw Nirrimi's portfolio. How'd she get it to look like that?" We haven't told anyone other than our VIPs that there's an update yet, so buzz begins to build.

Following the release to our VIPs — with a dozen or more bug fixes — we began releasing the update to our paying users at 1,000 person intervals. Your paying users deserve the update in advance of your free users, but only after things are working smoothly. The gap between the release to our VIPs and our paying users was a good four to five days, so that we could make sure we had time to deal with any critical bugs.

By the time you've rolled out your update to your VIPs and paying users, the free users are chomping at the bit. Many of them are so desperate for the update that they email in asking whether they will get access to the new features if they upgrade. But of course, we say. Then as we began to roll out the new update to our free users at about 60,000 newsletters and migration bars a day, we saw almost double our typical upgrade increase even though more and more of the free users now knew they could get the update anyway. This was certainly owing in part to the great new feature set in the update, but also to the build-up that preceded the expanding release. Steve Jobs knows he's going to sell more iPhones if they're not immediately ready for release when he announces them. Hype is the best marketing money can't buy.

Migration by stages also helps to fight any downtime or slowness that your web app might experience if you release to all of your users at once — 280,000 in our case. This was especially important for us, as we had introduced a brand new video encoder and image generator which re-built every video and image when someone migrated over.

Technical Bits and Bobs

I'm a non-technical guy, but I talked with Jason Nelson (our developer) over greasy diner food about the technical bits of Carbonmade's migration. Jason's approach to migrating old apps to new apps — as he states it — is fairly simple. Jason uses the concept known as MVC ("Model View Controller"). What MVC does is keep things loosely coupled by separating your UI from code and isolating the changes with versions. Here's how they work:

At the action level (within the controller) we do this by breaking out our code into versioned blocks. For example, when updating a project, we might have:

ProjectController->Update

if v1: old logic (it works - don't break it!)

but if v2: brand new awesome logic!

From our UI (the views), we specify what version of the update method we'd like to use.

For instance:

Taking this a level further, we scope entire view sets out by directory. Each directory specifies the versions of the code they're dependent on. When it comes time to migrate folks over, we just bind their website address to a different view directory with the new version of the app.

Example:

carbonmade/v1

carbonmade/v2

Cake (not just a piece of it).

Morale Specialist

When we asked Mike, our recently appointed "customer service and community manager," what he wanted his title to be, he chose Morale Specialist. Perfectly fitting. We knew we'd have a lot of people contacting us when we rolled out the update, so we had to be ready to receive everyone's requests. We didn't really change our customer service routine during the release of our new update apart from adding a 1-800 number for people to call.

We got about two to three times more emails during this time than we did before the update. Up from about 50-75 taps of the send button a day to anywhere between 150 and 200. Tweets and Facebook wall posts were also way up during this period as we leaked tidbits on the new features.

Gathering Feedback

As mentioned in "Technical Bits and Bobs," when everyone logged into their accounts, they were presented with a message bar at the top of their screen saying: "Thanks for trying out the new Carbonmade. Let us know if anything looks amiss. Or go back to the old version."

The "Let us know" text linked off to a feedback form where people could let us know what they thought or if they had any technical issues. We wanted to make sure they felt comfortable migrating over to the new update and that they could get in touch with us with any questions while making the switch.

We were also constantly checking Twitter and Facebook for feedback. As much as I like to talk about the drawbacks of social media, they can be a really powerful tool for gauging people's reactions when tied into customer service.

Gather up all the feedback (emails, tweets, and Facebook messages), compile them in Google Docs for everyone you work with to see and begin to sort through the messages. If you spot a bug, throw it in Basecamp, as we do in a "To Do" list, and alert your programmers. Otherwise, don't overload them with criticisms of the update. Keep their spirits up by sharing only the positive feedback.

Don't Have Downtime

If Digg had had fewer broken axles during their recent re-launch, the community backlash they received would have been far less severe. Those same users would have been just as upset with the individual feature changes, but they'd at least have had a website to play around with. They'd have explored and seen what Kevin Rose and the other product people at Digg had in mind for them. Instead, all they got was a broken website, which further compounded their frustration. "Not only is Digg broken, but I can't even access the new version," they screamed, further compounding their distrust and frustrations with the re-launch. Don't make this mistake.

Don't Rush

It can take a hell of a lot of restraint — something I'm not always the best at — to keep you from throwing up your hands and sending out the update early to all of your users. There's a big difference here between releasing early and often and releasing foolishly. You may be able to get away with a premature update when you have a few hundred or a thousand users, but when you've got people paying you good money for their portfolios to work, you have to be thorough when testing and not jump the gun a few days or weeks early just so you can breathe again.

If you do, you'll end up with twice as much work. You'll be more panicked and run into far more problems if you rush things. At a certain point we were "ready" to release our new update to our paying users, but chose to sit back and wait five days, during which we re-encoded everyone's video so that when the time came our video encoding machine wouldn't get swamped as everyone moved over, causing it to build up a long queue and be unviewable until all the re-encoding was done. A little foresight of this kind can save you face, time, and headaches. An extra five days after over a year in development is going to help you, not hurt you.

Don't Move Your Office Then

Since September of last year, we've been sharing office space with the crew over at Harvest — a New York City startup. Its been a great arrangement, but the size of both of our companies has doubled in the past twelve months and in the early part of this year we knew we'd have to look for a new home.

Having been friends with Anthony and the folks at Squarespace for a while now, we heard that they were moving to new offices around June 1st, 2010. They're also in our same building in SoHo, and as we love the area an easy transition into their old space seemed too good to be true.

Construction delays are inevitable, and as we were waiting for them to vacate their old space, we had our hands tied. We were in office limbo, just waiting for them to move out so that we could move in. June went by, July, August, and then finally in early September we got the news that Squarespace's old space was ours for late September.

At the same time we were going to be inaugurating an update to our portfolio app. Egads! While we were putting the final tests and debugs on our update, we had to deal with all the things entailed in an office move: furnishing the raw loft space, hiring a cleaning service, setting up Internet, getting the energy bill transferred over, a million Amazon orders, and so on.

This is not something that we could have avoided, but still, planning a move into a new office space is not something you want sloshing around the back of your brain when you're hunting down Internet Explorer bugs and pushing around last minute pixels. Thankfully, the move went okay and we were about to begin the rollout a few days before move day.

Don't Move Apartments

Carbonmade is made up of five full-time folks: Spencer, Dave, Jason, Michael, and Mike. In what can only be described as a freakish act of bad timing, Spencer, Dave, and Michael all had to move apartments during the month of September — Spencer and Dave only from one New York City apartment to another, but Michael from Portland, Oregon with his wife and daughter and all his belongings to NYC.

Michael, along with his friend Jim, took the first week of September to pack his stuff into a large Penske truck and then proceeded to drive across the country to his new place in Park Slope, Brooklyn. On his arrival, Spencer and Jason both went to meet Michael and spent the entire day unloading the truck. A productivity loss of about 10 days for Michael and 1 day for Spencer and Jason — all occurring within the final month before releasing our update.

Don't Hire New People

Having made the major move East, Michael only began working with us on September 15 — within 45 days of our update. Even though we couldn't have released it on time without Michael's help, there was the inevitable process of getting him up to speed that might not have been worth it if our team had been bigger already. However, in our actual circumstances having Michael's help was indispensable.

If you can possibly do so, you should put a moratorium on hiring new people during the few weeks leading up to a release and the few weeks after. It's not a great environment to bring a new employee into, and the time it takes to get him and her up-to-date is time taken away from focusing on a smooth release.

So Long, Carbonmade

2010-10-20T10:08:00-05:00

As the Business Guy at Carbonmade, I'm always thinking about business metrics, and particularly last week I was thinking about ways to reduce churn. Without taking metrics into consideration, you're building blindly, but with too much emphasis on data, you end up building a watered-down product. It's a fine line. However, at scale — Carbonmade's over 275,000 members — even a .1% reduction in churn can mean thousands of dollars, so it's worth exploring. The thing about reducing churn is that you first have to identify why people are leaving your service.

Start of the Day: Laying out the Spec

We're five people now, all working on different things, so one of the most difficult things these days is organizing the priority of our project queue. When it was only Jason, Dave and myself, we'd only be able to work on one project at time, but with the addition of Sigler, we're able to have two or more projects going at the same time. Juggling priority in our never-ending project queue is a new responsibility that comes from scaling your team.

Since our queue of projects is ginormous, adding yet another can throw people off — especially if you move it to the top. Therefore, I've taken to fully spelling out new Projects in mini Project Briefs — not as official as it sounds — usually only a few paragraphs long: an introduction to the feature, why it's important, and the scope. Actually writing it out helps prevent you from just shouting out every new idea that enters your head.

Here's the introduction I wrote for my Churn brief:

"Now that we have our new update out, we can eliminate poor video quality and other miscellaneous feature requests (for custom logos, big images, updated templates, etc.) from the churn discussion because now we offer everything they wanted. All those new features are working great and getting awesome customer feedback. However, we still need a better understanding of why our users cancel our service so that we can fight more effectively to reduce Carbonmade's churn rate."

That was followed by a full summary of what I wanted to build. The scope included the suggestion of a short survey asking our users — both free and paid — why they were canceling Carbonmade at the point of cancellation (very important). Was it because they were building their own website or did we not offer them enough space? Or was there a feature that we were still missing? People would answer the survey by clicking on the radio button that best corresponded to why they were canceling. They could then leave a few sentences in a form to go along with their selection. Not too complicated, but not overly simple — something we strive for.

All written up, I sent the email off to Dave and Jason to check out.

Middle of the Day: Chat over Coffee

Our conference room in our new office is still under construction, so Dave, Jason and I decided to walk down the street to Oro to grab some coffee and chat about what to work on next. It'd been a month or more since we last brainstormed because we've been heads down rolling out our new update.

They'd read my email earlier in the afternoon, so we began the discussion about whether we wanted to push this project to the top of our queue and how we wanted to implement it. We all agreed that we wanted to gather this data and that gathering data sooner rather than later was a good idea.

We discussed just how we wanted to implement the survey. Both Dave and Jason — to their credit — were not entirely stoked by the radio button survey approach. Both wanted to boil it down to a simple form field that the user would be presented with after clicking the cancellation button. Directing the user to type out their thoughts means that we'll get better data than simply letting them select an option, they argued. We may have to do more interpretation of the data, which means more work on our end, but the data will be better. We've all randomly clicked radio buttons on surveys just to get through the thing and this new approach would eliminate that problem as well.

We then argued a bit about whether we should present the form to both our free and paid users or just the paid users. Should we also ask users at the point of downgrade from the paid to free plan as well? We decided to take the Carbonmade approach of building the simplest solution first and iterating on it over time. We decided to roll it out for both free and paid users, but only at the point of cancellation — not the point of downgrading (for now). We could then expand on it if we were getting good data that we could act on.

End of the Day: Implementing our New Feature

A few hours later, we headed back to the office after discussing what we wanted to work on during the rest of 2010 — implementing our new comment form was only a small piece of our overall conversation. We filled Sigler in on what we had talked about, got his opinion on things, and then moved forward on knocking out the form by the end of the night.

Sigler got to work laying out and coding the HTML and CSS behind our Goodbye page. When he was done, Jason tied it in and we were live by that evening. We've already begun to sort through the data and it's really neat. Nearly everyone who cancels takes the time to write a sentence or two about why they've done so.

Here are a few of the more colorful ones:

"Just playing with your rear end. I don't need a portfolio."
"Had to remove portfolio images due to copyright issue... couldn't figure out how to change my profile to remove them...."
"No longer need carbonmade. but it was a great start for me and helped me get a few jobs. thanks so much!!"
"I'll create a new account with another e-mail and new portfolio, tks"

We're already able to take action based on these responses. Each response is tied to the person's former account, so we can look up their email address. We're able to email people — for example the person with the second comment — and explain to them how they could have removed their images. They may sign back up if we reach out to them and their problem is now resolved.

A good day at the office.

Down With Social

2010-08-25T10:00:00-05:00

I admit to having ridden the social media bandwagon from the start — mainly because I had to see how things would play out — but I've always been skeptical about its impact. Is anyone reading what you have to say? Do they even care? With so much information flowing, how can anything be absorbed? The same goes for social features accompanying products. Does friending and following add value to your product or is it a distraction? Value to me is measured in dollar signs — not pageviews and certainly not friend requests or follow count.

Don't Hire Social Media People

I'm going to offend a lot of people with this statement, but I don't think there's a place for a "social media" person (what some people refer to as a "community manager") in your company. Tweeting, Tumblring, Facebooking, blogging, etc., are all routine tasks that can be performed by any person out there with basic English skills and a friendly personality. The person doing this can also be the founder, a developer, a marketing person or the person that answers email. It's just not a full-time job.

The benefits of having someone dedicated to these tasks, whatever they may be, don't add up to a wise use of resources. As Leo Laporte wrote last week after he discovered that nobody was listening despite his tens of thousands of followers: "I was shouting into a vast echo chamber where no one could hear me because they were too busy shouting themselves. All this time I've been pumping content into the void like some chatterbox Onan."

At Carbonmade, we just announced our fifth full-time person, Mike Minnick, who has been handling emails and what nowadays constitutes social media stuff for us during the past few months part-time. Mike is great at his job. The impact Mike has had since he started working with us has been amazing, but it primarily comes in the form of quick and thorough email responses — something measurable — rather than in numbers of new followers.

Mike is atypical. He didn't go to college. Instead he toured the world as the lead singer of a Hardcore band called Curl Up and Die — it had a large cult following — and worked most of the past few years at a comic book store. He's covered in tattoos, but one of the nicest guys I know with a personality so charming that everyone (man or woman) who meets him falls in love.

But Mike wasn't hired to tweet for us. We hired him around a measurable need (responding to customers' emails) rather than a fantasy. That's what the concept that drives "social media" is. It's a fantasy that having 100 or 1,000 more friends or followers will bring you more business even though social networks are nothing more than echo chambers in which nobody is listening.

Not Every Product Needs to Be Social!

There's an obvious difference between social media and having social features on your website. The former is a marketing technique and the latter is a product feature. Social features certainly make sense on some sites, but, as with gaming mechanics, they are way overused, often incorrectly.

Carbonmade is evidence that every website doesn't need to launch with social features to be popular and successful. We're the largest online portfolio website with over 250,000 portfolios and counting — all without a single social feature. Madness?

We're not Facebook. We're not a social network and probably your company isn't either. We don't necessarily need or want our users talking and friending each other. Instead of spending valuable development hours on hooking in social networking features, we'd rather spend them on our unique product. You can only force-feed people the same features on every site before they'll all revolt: "Boring! I've seen that before."

Now with some products it makes sense: Foursquare, for example, because it is a social platform, with game mechanics their bread and butter. It makes sense for them because they are building toward exactly what they want to be: a social platform. They're not just tacking social features onto a product that doesn't require them. Please stop doing that.

On the flip side, I'm scared for Foursquare because their product really is only social, and with the launch of Facebook Places, there's little to differentiate them. However, they're very smart folks at Foursquare, and I'm confident they'll survive by figuring out how to reinvent themselves.

Measuring Matters

I'm happy to see more and more companies being built around the idea of analytics. Analytics have been around for a while — mainly analytics that measure web traffic, like Google Analytics — but now we're seeing another group of companies looking at measuring in a different way. Those companies include KISSmetrics, Chartbeat, StatsMix, Chart.io and others. I think these forms of quantifying are important.

Social media marketing can't be measured, at least not effectively. Spending money on social media marketing reminds me of the early 2000s, when you couldn't measure the effectiveness of banner ads. Everyone was spending on it without knowing what the outcome was. This trend ended up dying out when a more measurable and effective advertisement system came in: Google's AdWords. Companies began to be focused on click-through ratio and conversions rather than pageviews (the modern day equivalent of pageviews being followers/friends).

If I weren't working on Carbonmade, I'd be working on better ways to analyze and measure data effectively. Numbers don't lie, and there's a lot of incoming data that needs making sense of. I anticipate huge fallout for companies over the next 12 to 24 months because they were built around too many assumptions about the vitality of the social space and not enough concrete, measurable facts. Social media marketing, social features and game mechanics will prove to have been the culprits.

Idea Shaping

2010-08-04T10:00:00-05:00

"Good ideas are a dime a dozen" or "execution is everything" are popular phrases entrepreneurs roll off their tongues when asked, "Do ideas matter?" While I provisionally agree with both statements, it's just not so black and white. Both phrases are rather misleading. Ideas don't simply materialize out of thin air, and not every idea is worth your time. As popular as it is to dismiss the thought of coming up with a good idea — you know, because it requires sitting around, thinking and suspending activity — it's critical to focus on one idea at a time, preferably your "I'm in Love Idea".

One Idea at a Time

You should start by reading The Top Idea In Your Mind (July, 2010), written by Paul Graham just a few weeks ago. In it, PG writes: "I think most people have one top idea in their mind at any given time. That's the idea their thoughts will drift toward when they're allowed to drift freely. And this idea will thus tend to get all the benefit of that type of thinking, while others are starved of it. Which means it's a disaster to let the wrong idea become the top one in your mind."

I'll add my take from my experience. I know far too many entrepreneurs who try to take hold of too many projects at once. When you spread yourself too thin, your mind wanders to and fro, resulting in a bunch of half-assed projects. These people often hit the "reset" button when they've finally reached exhaustion — selling off their domain names and the remains of their half finished projects — only to do it all over again. These people have what I like to call "Entrepreneur's A.D.D." and it's really hard to shake. It was something I battled with early on. Thankfully, there is a cure for "Entrepreneur's A.D.D." and that's to fall in love with a single idea, what I like to call an "I'm in Love Idea". You'll know it when it happens.

"I'm in Love Idea"

In my social life, I've only been in love once and it didn't work out in the end due to long distance and bad timing. In business, I've been in love twice. Once with TypeFrag and now a second time with Carbonmade. Just as in your social life, when you meet someone great you get this gut feeling and your stomach fills up with butterflies, the same is true when an idea clicks with you. You fall in love. Your stomach churns and you can't sleep at night, all because you want to work on the idea so much — the equivalent being wanting to be with someone all the time.

If you're thinking "I'm not really into you", then you should pack away your thoughts and wait for the next idea. If you're at all successful developing your idea then you'll be fully involved with it for at least five to seven years. You don't want to be invested in something that you don't care about enough to commit to for that long. And most importantly, you won't be able to give an idea your best work and attention if you're not in love. Your relationship will suffer and, ultimately, die out.

Execution is Everything?

"Execution is Everything" is a common phrase among entrepreneurs, and I've even touted it in a lecture entitled Ready, FIRE! Aim that I gave at NYU this past Spring. However, there's a difference between executing on an awful idea and executing on an "I'm in Love Idea". Even though I'm not an active angel investor, I get pitched a lot of ideas by entrepreneurs — both readers of these essays and people I meet at events. I hear a lot of great ideas, but I also hear a lot of awful ones.

Awful ideas are usually imagined by someone who has been flailing around for some time looking for an "I'm in Love Idea" and doesn't have the patience to wait any longer. They just want to fool around. As with dating, that's fine for practice and you may improve your skills a bit, but no amount of perfect execution can turn an awful idea into an "I'm in Love Idea".

You might say: Well, the good thing is that web development is so inexpensive that the path you set down on with your awful idea may change a dozen times and several months (or years) later you'll come out the other end with an "I'm in Love Idea." False.

The scary bit is that any person working on an awful idea doesn't know it's awful or they wouldn't continue to work on it. Really, the only hope for them is that they luck into an "I'm in Love Idea" while they think they're already working on The One. They need an epiphany of sorts. Or maybe reading this essay will help wake them from their stupor?

While execution is far from everything — despite the nice ring to the slogan — a better way to phrase it would be that an "I'm in Love Idea" isn't going to do the work for you. You still need to get out there and make it work. On the other hand, an awful idea won't necessarily set you entirely back, but don't expect to get much more than some practice and experience out of it while you search for your "I'm in Love Idea".

On Writing

2010-07-14T10:00:00-05:00

People ask me why I spend the time to write essays. What's the value I'm getting out of formulating and sharing my thoughts? I don't have advertisements, so it's not collecting a paycheck at the end of the month — so why do it? Why do I think you should do it? I think as entrepreneurs getting your thoughts down in words can help you think through your ideas, help promote yourself and your product and lead to good networking opportunities. But first a refute of this newsletter hubbub...

On Newsletters

As Mathew Ingram of GigaOM writes in an article entitled "Is It Time to Stop Blogging and Start an Email Newsletter?" a group of folks — mainly in the NYC entrepreneur community — have moved away from blogging and into writing newsletters. Jason Calacanis was the first to do this back in 2008 in what he said was a way to combat abusive comments he was receiving. Through newsletters, people could comment directly to him, but not to everyone reading his posts. Problem solved.

Nobody followed his charge until recently when Sam Lessin shutdown his blog and launched Letter.ly as a newsletter service where you can charge for your content although at a modest price. "So, yes - the old is new again," Sam writes.

I just don't buy it.

Information is meant to be consumed. It's meant to be free. It's meant to reach as many people as humanly possible, shared, and discussed. A wall around content — paid or otherwise — is destined to crumble. You need look no further than Jason Calacanis who when he really wants to get his voice out there re-posts his newsletter to his blog.

This newsletter "movement" if you can really call it that — only a few folks are really doing it — and I'm guessing even fewer are subscribing, has all the makeup of a passing phase. I have lots of respect for Sam, Michael, David, Andrew, and others that have switched to writing newsletters — they're all friends — but I'd be surprised to see them stick to their guns on this. If they truly value what it means to write then they'll be back to publicly sharing their content once again.

Is Blogging Dead? Not Exactly

I think that in a way blogging is dead. I don't consider spencerfry.com to be a blog. It's a collection of essays. Blogging in the traditional sense — snippets of your thoughts on X, Y, and Z — has been replaced by Twitter, Facebook, and Tumblr. Almost anything paragraph size can be squeezed down to 140 characters.

If people are going to sit down and read what you have to say then you have to formulate something worth reading. With so much content floating around these days, if you want your writing to be read then you've got to take up an interesting topic, thoughtfully formulate your thoughts, and back up your argument. All that takes more than 140 characters and, if done well, is worth reading.

Thinking Through Ideas

Most of the time when I sit down to write an essay, I don't have a clear picture in my mind of what I'm going to say. I've got a topic I want to talk about and a stance, but there's always wiggle room for me to formulate my thoughts. Writing everything down assists me through my thinking process and gets me to make strong calls on a topic. If it's in writing then when I click "submit," I have to be 100% behind it.

The process of thinking through my ideas usually starts with a basic outline of what I'm going to be writing about. It begins with a title (although this normally changes), headings for the various sections, and a few scribbled thoughts under each heading. I then begin with a basic introduction (what appears below the topic) and then flush out the paragraphs under each section.

By the time I'm done writing an essay, I've thoroughly looked at all angles of the topic, done my research, pulled in outside sources, and exhausted my Google search bar looking for relative material on the topic. This process helps cement my thinking and I think fleshing out your thoughts systematically like this will help you too.

Educating Your Readers

Not only does writing down your thoughts help you formulate your ideas, educating the readers of your writing is extremely worthwhile. 37signals in the chapter Promoting Through Education of their Getting Real book notes that "You can give something back to the community that supports you and score some nice promotional exposure at the same time."

Sharing is caring as the expression goes. And caring is rewarded through getting your product and your name out there, the comments that further the discussion of your piece, the emails you'll receive from readers, and the people you meet who have read your writing and just want to introduce themselves as readers. I blush every time.

Networking (Online)

An essay I wrote back in April, 2010 entitled "How to Network" gives some basic tips about how to successfully network yourself offline, but networking online is just as important for an entrepreneur looking to make a name for themselves and their product.

Writing well-thought out essays means that you have something to say outside of 140 characters, earns you respect, and puts you in contact with interesting people. A lot of fans of my writing have since become fans of Carbonmade. We've even been pitched partnerships, made friends and been written up because of it.

Tweeting, Facebooking, Tumblring, etc., are all well worth your time, but I've found that nothing garners quite a following like a well-thought out collection of essays. Just read Paul Graham if you don't believe me. If you want to stand out from the crowd you first have to set yourself apart by drawing a line in the sand about where you stand on what issues.

Freemium Model

2010-06-16T10:13:00-05:00

Because the idea of a freemium business model is fairly new, not too much has been written about how to approach it. We know what it is: You give your service away for free, acquire as many customers as you can, and then charge for premium features. Sounds simple. But the freemium business model is far from simple, and there's a lot to think about. I've compiled my thoughts about how you might go about implementing the freemium model for your startup.

What Is Freemium?

Before I go any further, for those of you who don't know what the freemium business model is, let me explain. The more traditional profit generating business model for the Web is through advertising, but with advertising payouts being smaller than they once were, freemium has come along as a solid alternative.

Fred Wilson first articulated the idea of freemium on March 23rd, 2006 in a blog post entitled My Favorite Business Model. Here's a snippet: "Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc., then offer premium priced value added services or an enhanced version of your service to your customer base."

A good example of that is Carbonmade. It is free to sign up for our "Meh" account, which comes with 5 projects and 35 images, but you can choose to pay $12/month for our "Whoo!" account, which gets you up to 50 projects, 500 images, and the ability to display video. Our free plan brings in the customers, and when they run out of space or find that they need video, they'll upgrade.

Freemium is different from the Software as a Service (SaaS) business model of free trials, which is also popular. Free trials are different in that you give away the fully featured product for a limited time (usually 30 days) and hope that by the end of the trial the customer is committed enough to pay from then on. Companies like 37signals and Squarespace are big proponents of this model over freemium. (Squarespace actually ditched the freemium model a few years back in favor of the free trial.)

Why Freemium?

There are three main reasons why using the freemium business model is good: (1) giving your product away for free indefinitely will give users time to think about upgrading; (2) there's a viral benefit; and (3) there's a network benefit because the more people you have using the product the more added value.

First, the added time that you wouldn't otherwise get with the free trial business model can give users time to decide whether or not they want to upgrade. They may be perfectly satisfied with the free plan for several months, or years, until one day they find themselves needing the extra space or expanded features. Carbonmade has been around for nearly five years, and every so often we find users upgrading to a payment schedule after having spent more than 1,000 days on the free plan. That's an upgrade — not to mention those after shorter extended periods — that we'd never have had if we'd followed the free trial model. We would have scared off the user who wasn't ready to commit to $12/month.

Second, the viral benefit stemming from a person using your free service can be substantial. They may not be interested in upgrading, but the friends they tell about your service may be. We track referrals that our current users bring in, and that category amounts to a large portion of our new users. On the bottom of every portfolio there's a Carbonmade button that can be clicked on by viewers. These people in turn may sign up.

Third, whereas the benefit of giving users extra time to decide and viral benefits are the most directly visible perks of freemium, the added network benefits are less obvious. Many people fail to realize the other verticals you can bring into your product when you have a large network of users. I wrote about this in an article back in December, 2009 entitled Building Blocks. New verticals can open as you bring more people into your network.

Can you Build a Significant Business?

Critics of the freemium business model say that you cannot build a significantly large business (think IPO or billion dollar acquisition) by employing it. That's clearly not the case if you look at successful companies such as Skype, Pandora, Dropbox, LinkedIn, and Flickr. All of these businesses use the freemium model and have hundreds of millions of dollars in revenue, with Skype rumored to be going IPO shortly.

It's true that these are all consumer-based businesses, which is important to note, because only consumer-based businesses can attract the millions of users needed for a 2-5% conversion rate to pay off. There just aren't enough businesses out there to sell your product to if you use the freemium model with the expectation of converting only 2-5% of them to a payment schedule.

Segmenting Free from Paid

The most difficult issue when setting up a freemium business is in figuring out the product segmentation. First, if you give too much away, there won't be any reason for your users to upgrade. An example of this is Feedburner, who only had two thousand paying customers out of 500,000 when they were sold to Google – far lower than the average 2-5% most freemium companies see. The standalone free product was good enough for most users, because all they cared about was how many subscribers they had and were gaining over time. Feedburner gave away too much.

Second, if you don't create compelling features that are aligned with how free users are using the product, then nobody will care to upgrade. Offering better support and expanded analytics are not compelling enough features for upgrading. At Carbonmade we give away more space (very compelling), but also video and domain binding support (everyone wants their own URL) with more paid-only features in the works. Running out of space is the most compelling of our motives to pay, and the easiest to segment. Dropbox is also very successful employing this model (2 GB for free and $9.99 for 50 GB). It's natural that users are going to run out of space and find themselves needing to upgrade.

Third, and one of the most important features to keep on the free side, is anything viral that will spread growth. You do not want to confine sharing or promotion of your product by your users to the paid plan. An example of this from Carbonmade is that everyone who signs up – free or paid – is given their own URL to promote their portfolio. Our competitors charge for a clean portfolio display, but our facilitation of personal URLs encourages our users to share their portfolio links with their friends, who in turn see a beautifully displayed portfolio and sign up by clicking the Carbonmade button at the bottom of every free portfolio.

Startup Metrics

At the launch of your startup, you want to be measuring all of your users' activity insofar as it's possible. Dave McClure, in a widely discussed series of slides entitled Startup Metrics for Pirates, goes into some good details on what to measure. If you're not tracking what your users are doing, then you're basically building blindly. You won't know where to take the product and how to price things going forward.

The most important number for you is your conversion rate. The vast majority of freemium products have a 2-5% conversion rate. You'll want to tweak what you offer until you're comfortably over 2%. The only way to successfully reach that rate is to track what's being used in your app, how long customers are on the free plan before upgrading, how long they then stay on the paid plan, what the churn rate is, where users are coming from, and so forth.

One thing to keep in mind when figuring out your conversion rate is to compare your overall paid users to a cohort consisting only of your active users. Taking every user that's ever signed up for your product is not a good indicator. A user who hasn't used your product in two years shouldn't factor into the equation. I like to compute conversion rates within cohorts of 30 day active users, 60 day active users, 90 day active users, and 180 day active users.

Freemium Business Pricing

Figuring out pricing is one of the issues entrepreneurs worry about most when employing the freemium business model. It doesn't have to be so worrisome. First of all, I suggest launching with a premium plan from the beginning. This establishes the understanding of your users from the beginning that you're segmenting the product. It'd cause a revolt if a year down the line you strip features away from the free plan to implement a paid plan.

When thinking up your pricing point, you should think about what you would pay for your own service. Most products are built by entrepreneurs who looked for a comparable product and didn't find anything good on the Web, so they built it themselves. What would you be willing to pay if you had been able to find the product?

Once you've arrived at a number, make sure that it's on the low end of what you'd be willing to pay, as it's much easier to raise prices than lower prices. The reason for this is that when you raise the price and protect all of your current customers from the new price by grandfathering, they feel as if they got a deal for being early adopters and will be really happy. If you were to lower prices on them, they'd feel as if you somehow cheated them. This may go against common sense, but it is the prevailing thinking when it comes to lowering or raising prices.

So you should start low and see how many people you can convert. If you are seeing a good conversion rate then you can begin to inch up prices and test to see how these new prices fare against the old ones. You want to really push the envelope as high as you can. Keep in mind that you need to factor in your competitors' price points and whether or not your users know they exist, but with all that said, don't be afraid to raise prices according to what the market will bear.

Platforms are for Suckers

2010-06-02T10:00:00-05:00

Twitter last week announced they'd stop allowing 3rd party developers to embed advertisements in their streams. Bummer. First they released native mobile clients, now this. Facebook isn't any different. They're forcing developers to use their payment system and taking a larger slice of the pie. Then there's Apple's closed iPhone/iPad system. Who wants to deal with these headaches? No doubt it's easier to get off the ground, but I'd rather put my weight behind a standalone product and not rest the fate of my business on a platform.

Story: The Pains of Building on a Platform

I had my first taste of building on top of someone else's platform when I started TypeFrag back in December, 2003. TypeFrag was built on the back of Ventrilo, a piece of software that we licensed, resold, and built an entire web app around. It was a waking nightmare, as we had no control over the technology. Ventrilo was coded and run by a single individual who was as slow with his updates as he was in responding to the development community's requests. We were the largest Ventrilo host, but we didn't have any leverage.

About a year into TypeFrag, as Ventrilo began to become really popular, they raised rates on us and everyone else. That sucked. We had no control over its development and little to no influence on new features, and that left us with very few options. When a new version did come out, we were not given any advance notice and had to quickly re-write our control panel code and re-deploy the new server code to our dozens of remote servers around the world.

The constant awareness that you're relying on someone else is enough to drive you bonkers. We were left with no option but to build our own software as a fail safe. We hired full-time developers and began building GameComm — voice software we could fall back on if Ventrilo was to bite the dust.

Eventually, back in 2006 we failed at building that software, and shortly after that, in early 2007, I exited TypeFrag and GameComm. I just couldn't deal with the idea of not having control over our product. Until you have your employees and your own welfare riding on the whims of another company, you cannot know how terrible this feels.

The Why

The granddaddy of all reasons, and the only one strong enough in itself to refute any contrary opinion, is that at any time Twitter, Facebook, etc., can make any change to their Terms of Service that their heart desires, leaving you high and dry. It's worth repeating: At any time the API developer can change their Terms of Service, leaving you with no leg to stand on. None.

In any developer's agreement you ever sign on for, there's a little clause hidden in unreadable English saying that the company can change its Terms at any time for any reason whatsoever. If you don't like it, that's tough. Twitter laid that out clearly enough: "Twitter may update or modify the Twitter API, Rules, and other terms and conditions, including the Display Guidelines, from time to time at its sole discretion by posting the changes on this site or by otherwise notifying you (such notice may be via email)." Twitter is not alone. All API developers include a clause like that.

You cannot rest the fate of your business and your personal livelihood on top of another person's platform. Do not be in denial about this. Ad.ly's Business as Usual blog post is a perfect example of this. They got completely screwed by Twitter's change of Terms of Service, but are acting as if things are all fine and dandy. They're not. Simply walk away if your business is threatened by any signed agreement.

But a Web Browser is a Platform!

Every web application is built on top of a web browser. We're all at the whim of Firefox, Safari, Chrome on the browser side and Windows, Linux and Mac OS X on the operating side. That's a given. There's nothing we can do about that. But as platforms they're much more stable and continuous than API's like Twitter. As web entrepreneurs, we have to adapt to the new technologies, specifications, and so forth, but these are not going to changing overnight, and the market dictates what changes a lot more.

Let's table the discussion that it's as dangerous to build on a web browser than it is to build on the back of Twitter, Facebook, Foursquare, and others. That argument is irrelevant. I got chided on Hacker News for neglecting to say that our businesses are built on "ever-changing" web browsers and operating systems, but really that's simply diverting the issue away from the more worrisome platforms.

But VCs are Investing in Platforms

Plenty of VCs are putting money aside in their funds to invest in platforms like the iPhone, iPad, Facebook, Twitter, and others. fbFund, for example, is a $10 million fund set up by Facebook and Accel Platforms to invest in startups building on the Facebook Platform. This is a win-win for Facebook, because even if they don't make back any of their money, these startups directly add benefit to Facebook as a whole by producing quality apps. But who else wins if these apps can't trust Facebook not to change its Terms?

Another example of a fund gambling on platforms is Kleiner Perkins and their $100 million iFund for iPhone applications. Back in 2008, Kleiner Perkins bet that the iPhone would sell so many devices that there would be a lot of money to be made in the Apple marketplace. When this investment was announced in March, 2008, it struck me as odd. Venture capitalists are looking for exits: either acquisitions or IPOs. How the heck is an iPhone app going to realize either of these outcomes? Maybe as a talent grab acquisition (see Twitter's acquisition of Tweetie), but certainly not as an IPO.

Just because VCs are betting on there being money in building on top of platforms, that doesn't mean that it's a smart move for you. Some of these are hot technologies, and VCs are willing to take the risk with a small portion of their fund, but I wouldn't bet my shirt that this is a winning strategy in the long-run. Investment is going to start slowing down for platforms if it hasn't already. Chris Dixon's comment after Twitter's announcement really sums up my feelings: "Twitter is like a drunk guy with an Uzi killing partners left and right. Expect investment in ecosystem to drop significantly."

Get People To Build on You

While I hope I made it clear why you shouldn't build a company on top of another platform — no control, no assurances, no input, your fate is in their hands, it's limiting, and so on — you should make it possible for others to build on top of you. You should have an API. You should encourage developers to integrate pieces of your app inside theirs. This'll create new exposure to your product and increase your stickiness (the more services relying on you, the larger your reach). No qualms here on that score. Just don't be the sucker trying to build a profitable and sustainable business on a single platform.

As a Hobby

There's nothing wrong with building on top of another platform for a hobby project. You want to build something quickly, you want to take advantage of a large pool of users, and you want make something fun. If you're successful, you'll gain some reputation, make people happy, and have something neat to share. Just don't do it at a business.

Under the Radar

2010-05-19T10:00:00-05:00

My friend Anthony Volodkin of Hype Machine once said to me: "Tech coverage is nice for showing your mother." I couldn't agree more. Anthony's Hype Machine is a bootstrapped company, like Carbonmade, with little coverage from tech publications or mainstream press. We were having dinner and the topic of why we like it like that came up. Then last week it came up again with another set of entrepreneurs. I want to expand on those two conversations here.

Tech Coverage Can Help, Sometimes

Tech coverage is almost impossible to say no to. And why would you? Human beings are programmed to (1) want external feedback and (2) be talked about. If TechCrunch, GigaOM, etc., want to cover your startup, then you're going to be thrilled and sure as hell going to provide them with answers to any questions they may have — within reason.

Tech coverage alone, however, has little to do with your success — almost nothing in most cases. There is the occasional company that it can truly make a difference for. An obvious example today is Foursquare, which has been the media's darling the past year, appearing in every tech publication and most offline publications too — like the New York Times, Wall St. Journal, and others.

Arguably, Foursquare would probably have gotten to where they are today through the quality of their product and their team alone, but still, hundreds of thousands of their 1.2 million reported users must have come from these write-ups. For them, without a doubt, tech coverage has played a huge role in their growth. Foursquare's success relies on huge numbers of people — it's useless if none of your friends use it — so every one of those new eyeballs is a potential customer. That's just not the case for most startups.

Other companies like Carbonmade and Hype Machine rely very little on social networking. These products work as well with one user as they do with ten million. Not only do we not need a large network of users to be successful, it's also the case that the tech audience has little reason to use our products. Coverage may lead to a few hundred signups from interested entrepreneurs wanting to know how our product works, but they'll be in and out by the end of the day.

Carbonmade, Hype Machine, and ninety-nine out of a hundred startups out there should instead be going after press inside their market. For example, Carsonified — one of the leading design blogs — wrote about Carbonmade a few months ago and the signups from that article drove returning users. Publications in which the readership is made up of the same people who would use your startup is where you need to be focused. Don't go out of your way in search of anything else.

Overhype Can Be Deadly

It's like being the popular kid in high school. The spotlight is both good and bad. You'll get the pretty girls, invited to all the right parties, and looked up to as the cool guy. But with that special attention you end up spending more time maintaining your superfluous rep than studying and improving your future self.

When you're running a startup you can easily slip into caring more about the image of your company than its inner workings. An example of this is when a company announces a round of financing and everyone applauds their "success." What success?

Last week when this topic came up over dinner, we talked about one company in particular that raised money riding the hype of the hottest new thing: location based services (LBS). While their product wasn't even near ready yet, on all the tech blogs their name was being lumped together with the other companies in that sector. This was partly due to the sector they're in and partly because of the list of investors they'd attracted.

When their product was finally released, they had a flood of new users trying it out. Sadly, the product needed a lot more work, and all these excited new users were disappointed and turned off. It's just like going to see an overhyped movie and being disappointed that it didn't deliver. You're more upset now, because you'd played it up so much in your head. If you had simply gone and seen the movie with no expectations, then you'd be focusing on the good rather than the bad.

This company is now struggling to stay afloat under all the extra pressure of the hype. They have to constantly innovate to try and shake off the stigma of an under-whelming product, which puts a lot of stress on the team.

Staying "Stealth"

Besides the struggle to live up to overhype, there is the constant threat of copycats if you get too much tech press. Just look at what's happening to Groupon and Gilt. Their hype (well deserved) has led to hundreds of copycats in the United States and overseas. These copycats are little threat to Groupon and Gilt these days, but there are plenty of smaller startups that may not fare so well with added competitors.

It's now considered best by many startups not to disclose that they've received funding. They want to attract less attention. Given how quickly you can build a product and raise money these days, it's better to keep things low key for as long as possible.

People come up to me all the time thinking that Carbonmade is a little side project or just a part-time thing. "You make money on that?" they ask. "Just enough to get by." I respond. Why invite more people into your space? Check your ego at the door. You don't need to talk about the 1.5 million you raised, the 10 employees you have, or the swanky new downtown loft you're renting.

How to Bootstrap

2010-05-05T10:00:00-05:00

In my 10+ years of running Internet companies, I've never raised a single dime, yet I've still gone on to sell three profitable companies and am currently on my fourth, Carbonmade. Bootstrapping is something I'm very familiar with, so I've gathered together some thoughts that should provide you a step-by-step process of going from idea to product to profitability. I have nothing against raising money — angel or venture capital — it's just not the process I'm most familiar with. How to bootstrap goes hand-in-hand with how to run a lean startup, so expect some crossover below.

Idea Generating

Idea generating is only slightly different when you're bootstrapping than when you're looking to raise money. The only important difference is: if you're planning to bootstrap your idea must have built-in revenue generating functionality from the get go. Building Twitter is off the table. You can't wait to hit scale before turning on the revenue features. That's why ideas around Software as a Service (SaaS) are so effective for bootstrapped companies, because you only need one customer to reach revenue — and, with inexpensive hosting costs, probably only a dozen or two to reach profitability.

Bootstrapped companies can't afford to wait around to reach a network effect. You need to start generating dollars as early as possible so that you can quit your day job or put a stop to the draining of your bank account as soon as possible. Bootstrapping startups don't have the luxury to wait around. So when generating an idea for your startup, toss out everything that doesn't involve charging a fee for at least some of your clients. Leave the ad revenue and crazy business model revenue streams to the startups with venture funding. That's just not your game to play.

Team Building

You can either come up with the idea first or the team first. I think it's fine to do it in either order, but it's probably best to come up with the idea before the team. Then you can build a team around the idea. When bootstrapping, you need to find a team that's willing to work for nothing and spend their off hours with you, so finding these types of people can take some searching. You're far more limited in your choices.

The worst thing you can do is work with people who can't comprehend the idea of bootstrapping. You need to work with people who understand that their nights and weekends are going to be fully dedicated to building a product. They'll be working two jobs, not one. You need to explain to everyone you depend on how a bootstrapped company works: Revenue generation is slow at first, though steady, and it could take a year or more of hard work before they can quit their other job and work full-time on the company. But the advantage here is that after a few months off the ground you'll have a clear sense of how soon that day can come. Another advantage of a bootstrapped company on the SaaS model is that it's really easy to calculate your cash flow.

It goes without saying that the people you work with should have complementary skills to your own, but the bootstrapper's "slow but steady" mindset is just as important to the health of your company. You'll find a lot of people may not be comfortable with this approach. Weed those people out as co-founders when you're bootstrapping a company. A one and done approach won't work here.

Off Hours

Almost every bootstrapped company begins as an off-hours tinkering project. That's true of Carbonmade, which Dave built for himself first; that's true of TypeFrag, which I built over the course of a week during my sophomore year in college; that's true of 37signals' Basecamp, true of Anthony's Hype Machine and lots of other companies.

The good thing about bootstrapping is that you don't need to spend a single penny outside of server costs and you can even do most things locally before having to pay any money on a server. Your biggest expense is time, and that's why off hours are so important.

Consult on the Side

The way we started Carbonmade, the way 37signals started, the way Harvest started, and many other startups too, was by first running a consulting shop. We ran a design consulting company called nterface that Carbonmade grew out of. It's great, because the money you're bringing in through client work tides you over while you're waiting for your startup to grow.

Carbonmade was live for nearly 18 months before we started working on it full-time. During those first 18 months, we were taking on lots of client work to pay our bills. The great thing about consulting through the early months is that you can take on fewer and fewer jobs as your revenue builds up. For example, you may need a dozen large projects during the first year and only two or three during the second year. That was the case for us.

I know of other successful bootstrapped companies that during the first year would take on a single client project for a month or two, charging an appropriate amount, and that would give them just enough leeway to work on their startup for two or three months. Then they'd rinse and repeat. They did this for the first year and a half before making enough money to work on their startup full-time.

There's No Need to Rush

When you're bootstrapping there's no rush to get things out the door, even though that's all you hear these days. I know people talk about iterating quickly, and that's all well and good, but when you're bootstrapping and not meeting anyone's deadlines but your own you can take your time to better perfect your product before every release. In my opinion, you should strive to be more Apple-like and really think things through. If you don't take money from an investor who will demand quick new product releases, you can take the time it needs to perfect things.

The first few iterations of your product are everything, and bootstrapping through this beginning phase can allow you to take your time and think through everything. If you're too worried about getting off the ground quickly, then you're bound to make a mistake.

Building Organically

Bootstrapping a company allows you to grow it organically. We at Carbonmade always refer to this as incubating your project. We like to release something, let it sit, feel and gauge the reaction, and then move on from there. You don't have this kind of freedom when you're not bootstrapping, because you're desperately trying to ramp up as quickly as possible.

I've heard stories of companies acting too quickly on initial feedback only to undermine themselves going forward because the feedback was from the wrong user group. For example, if only web designers had given us feedback in the early days of Carbonmade, demanding more precise tools for editing the look and feel for their site, we would have never realized that our market is far more broad: the masses of creative people who don't have a build-it-yourself skill set. We would have limited Carbonmade to a smaller group of people and never have gotten as big as we are today.

Making That First Dollar

Bootstrapping is all about making that first dollar. When I launched TypeFrag we didn't get any sign-ups for the first week and this got us very worried — my partner and I almost threw in the towel — but about five days into it we got our first bite. Then another. Then three the next day. And more and more. Sign-ups began to pile up well beyond what we had anticipated.

All this money coming in meant we could begin to lay out our plans. If no money had come in, we would have had to drastically change directions. Revenue validated our idea, and as every dollar came in we got a better sense of our cash flow and could plan the future development of TypeFrag more accurately. We were able to quickly figure out that people wanted PayPal, so we add that and saw even more money come in. Your first dollar validates your product, your business model, and everything else.

When Investors Come A Calling

As soon as you make that first dollar, investors are going to start making inquiries. That's a good sign! It means you're doing something right. They're not scary guys and most of them are really nice and great people to meet with! Even Jason Fried, the man who is well known for scorning investors, says in 37signals' 13th podcast that it may even make sense for your bootstrapped company to take investment after you've gotten off the ground. I completely agree, as long as you know exactly how you're going to put that money to use. Furthermore, the outcome you anticipate you'll get from taking money needs to be well beyond what you anticipate doing without it.

My advice: Consult with a select few people you really trust who aren't tied too closely to your company and see what they have to say. Try and find someone who has raised money before and had a successful outcome or two. Share everything with them and see if taking that $2.5 at a $10m valuation makes sense. Can you put that $2.5m to use to make your company worth at least 10x more than it's worth today in three to five years?

How to Network

2010-04-21T10:00:00-05:00

A substantial part of my job — and the job of any CEO and face of the company — is to be out there and get to know as many of the right people as possible. You do have to worry about the fine line between attending to networking and spending too much time away from production, but if you're in it for the long haul the networking you put in will help you immeasurably in the later years of your company. Here are some basic tips about how I've successfully gone about networking in New York.

How to Introduce Yourself

When I first arrived in New York in Fall, 2006, I spent a lot of my time going to as many "meetups" as I could — like the New York Tech Meetup. After working up the courage to approach people who were mostly a lot older than me — I was 22 — I'd open with the terrible line of "Hello, I'm Spencer. What do you do?"

I actually thought that this was a perfectly acceptable opener until one time I asked two women slightly older than myself, and got scoffed at for asking that question. I was taken aback. "What? That's not an acceptable question at a networking event?" Of course I knew it wouldn't be a good opener in a bar, but here? Their point was that I should get to know them first and what they do would come out in good time. And really what people do isn't the most interesting thing about them — only a part. I thought it would be different from a social event, but it really wasn't. Point taken.

Since then I've always approached anyone I've ever met at a networking event or just in life by trying to get to know the person first. If the two of us get along and the conversation is good, what they and I do will naturally come out. It's the single best piece of networking advice I can give you: Get to know the person.

Find Shared Interests

After you've gotten to know the person and you've fallen into an easy rapport and take an interest in each other, the conversation will naturally lead to what you're both working on. (You are at a networking event.) After the small talk, you'll want to find shared interests.

Any kind of overlap between your company and the other person's always makes for better conversation. It's hard for me to fake interest in a biomedical company — and you shouldn't ever fake interest. However, I have to overcome my lack of knowledge in the field and recognize that a small biomedical company could and probably does share interests with Carbonmade. Find those common threads and chat about them.

Ask Questions and Listen

You should lead with questions. However, being the person leading with questions can sometimes backfire because the person you're asking may not understand conversation etiquette enough to realize that at a certain point they should return those questions back to you. I've been caught numerous times nodding and saying "uh huh" to someone who wouldn't shut up. That's the drawback of this approach, but you'll learn something along the way and figure out soon enough if this is someone that you want to spend time getting to know. Sounds harsh, but someone rambling on about what they do and not caring about you is a strong indicator of a failed potential friendship.

Be Well Read and Add to the Conversation

If the person or group gives you time to talk, make sure you're up to speed on current tech happenings. You can be up on everything you need to know by reading Hacker News, Daring Fireball, ReadWriteWeb, GigaOM, and TechCrunch. The day's or week's news always gets into the conversation, and not knowing what's happening will give the impression — not undeserved — that you're not involved in the everyday life of the culture you're hoping to become a player in.

It only takes a half hour to an hour a day to skim the headlines and pick out the important stories, and over time you'll get even faster. You work in technology, so you should be interested in this material anyway. Not knowing during the course of last week, for instance, that Apple banned the Flash-to-iPhone compiler is evidence that you've been on another planet.

It Matters What You Do

I'll be blunt: If you're working on a successful company, people will want to hear more, but if you're working on a silly idea that nobody cares about then you're going to have a much harder time networking with people. Most people will be turned off if your company is "currently in stealth" and you can't talk about it or if you're not doing anything and just here to meet people. At least work up an idea that you can share with people.

There's an interface between the success of your company and your personal success as a networker hoping among other things to promote your company: they grow each other. The more interesting your idea and story, the more people will be interested in hearing about it. That's how we got the Carsonified story. This should go without saying, but I've met too many people who failed to understand this basic concept because it seems too circular to be meaningful.

Get to Know the Right People

I'll be blunt, again: There are lots of people who attend networking events all over the city and you can't meet them all, so you'll need to spend your time getting to know the right people and not just anyone. If you don't make some sort of selection and target the people you find most interesting, or the ones who could help you out the most, then you could keep going to events with the constant feeling that you'd been in the wrong place at the wrong time.

Be proactive and go up to the people you want to meet. It may be nerve-wracking at first, but the more you do it the easier it gets. More often than not you'll find that these people are happy to meet you and chat. After all, no matter how successful they are already, they'd just stay home if they weren't interested in meeting people like you. When people approach me, I'm always excited to meet them — it always feels great that someone wants to talk with you, and I'm sure it will be in my case for a long time to come. You shouldn't be shy about it. Just make sure you're not spending all your time talking to people who can't help you along — unless of course you're talking for reasons unrelated to business!

You've Got Your Base!

Here's the best part about putting in your time networking during the first few years: Once you've established a solid base, you no longer have to spend a lot of time going to networking events! (Though for reasons I've explained it's sociable to keep involved to a certain extent.) Why? Because your network of friends will introduce you to people over beers, coffee and dinner. These meetings will be a lot more intimate and they'll involve people you know you'll want to spend time getting to know.

These days almost everyone I meet is a friend of a friend, which makes it a lot easier and means I have to spend a lot less time going to networking events. It's a lot more self-selecting and the hit rate of making new friends and a good networking contact is a lot higher. But, as with anything else, you need to spend your time establishing your base!

Ready, FIRE! Aim Guest Lecture

2010-03-31T10:00:00-05:00

Professor and CEO/Managing Director of FirstMark Capital, Lawrence D. Lenihan, invited Danny Wen and me to guest lecture this past Wednesday at his NYU class "Entrepreneurship For The New Economy" aka Ready, FIRE! Aim. Other guest lecturers include Seth Besmertnik (Conductor), Alexis Maybank (Gilt Groupe), David S. Kidder (Clickable), Marc Cenedella (TheLadders), and others. We were in esteemed company to say the least. Embedded below are the slides I prepared, graciously designed my business partner Dave, with explanations following.

Hi, I'm...

The least interesting of all presentations — the opening "Who am I?" slide — but also necessary when talking to any group that doesn't already know the answer to the question. Here I briefly touched on having recently graduated from college, how I was always interested in entrepreneurship and started my first major company when I was a sophomore, called TypeFrag, and won first place and $75,000 in a business plan competition during my senior year. Basically, that's everything you can find on my CrunchBase profile.

TypeFrag, Uncover, Carbonmade

Leading into this slide I give a bit more background on the three larger companies I started. Beginning with TypeFrag, I mentioned how during 2001 I noticed a need in online video gaming when people were beginning to shift from typing to their teammates to using voice communication. To address that need, TypeFrag was built and marketed.

It's all about finding needs and building out products around that need. Having sold TypeFrag in 2007 and having just moved to New York City, I found it difficult to find and share good restaurants, bars, and clubs with your friends, so I built Uncover. This was before Yelp really made it big. But in the process of building Uncover, I met Dave and Jason — who were also designing and developing Uncover for me — we clicked, and I joined them to take Carbonmade from a side project to our sole focus.

Carbonmade

I talked about the story of Carbonmade here. Most of that can be found in my 100,000 Users and So Can You article, our About page, and the recent coverage we received from Carsonified. The story in a nutshell: Dave built a basic custom CMS for himself, his friends bugged him to let them use it, we added user registration, and then started building up the product slowly and thoughtfully. We then started making enough money through Carbonmade to stop taking on new consulting gigs.

The Numbers

This was a simple run-through of Carbonmade's numbers.

The Trifecta

This slide is an abstraction of an earlier article I wrote entitled Three's Company, where I talk about why I think three co-founders is the best group. The simple reasons are: (1) with three people it's easier to mediate situations, (2) you have three people who are masters of their own domain (design, code, and business) and take leadership in it, (3) and you delay hiring, which is the hardest thing any successful company can do, but obviously a good thing as long as it's possible.

DHH's Quote

I pulled the quote: "If you're not working on your best idea right now, you're doing it wrong" from a recent debate between DHH and Jason Calacanis on This Week in Startups. DHH argued that 37signals is the best idea he has, and he'd only sell and move on to something else if he came up with a better idea. I think it's less about the idea and more about how you execute on the idea, so I go to discuss:

EXECUTION

You can have a great idea, but if you execute poorly on it then you won't get anywhere. There are plenty of people that come up with great ideas, but can't get past that. It's far better to have a decent idea and execute really well on it. You can then branch out from there and turn a decent idea into a great one.

Be Human!

Being human, friendly, and genuine are all easy things to do and often overlooked. Somehow people have it in their heads that they need to be "professional" and speak to their users like a robot to launch a real business. Customers these days want to feel as if you could be their friend. Simply look at Zappos' success in branding and marketing if you need an example of why this is true.

KABOOM!

If you do make a mistake, you need to own up to it. We made a mistake in January, 2008, when we lost 5,000 user accounts because of a faulty database writing to a corrupt backup. Egads! We created a specific page documenting exactly what had happened, apologized profusely, and gave the affected users extra space to compensate for their loss. We didn't try to sugar coat anything. We fucked up and we admitted it.

Cash Flow

I love Alan Shugart's quote "Cash flow is more important than your mother." It's beyond true. Cash is the lifeblood of any company and if you run out of cash then you're simply forced to shut down your company and move on. Running out of cash is the last thing you want to do. But revenue is not the only thing, you need to turn your revenue into profits, and have reserves in the bank for rainy days.

OOPS

Like any other startup out there, we've made mistakes that weren't just the kind of customer turn-off I mentioned before. Our biggest mistake was that we lost an entire year on Carbonmade because we spent it working on a second product in 2008. It was only at the end of 2008 that we realized we should be focusing on Carbonmade full-time. Also, we were too overreaching in our goals for the new version of our app and since have had to drastically reduce its scope. Both of those factors together have led us to being too slow to get new things out.

Simplify.

Always distill your product, copy, and marketing down to the barebones. Your product should never be muddled with features, your marketing message should be clear, and less is always more. We've severely limited our users' features, because although we may lose a few people who want more customization, we've gained far more who just want something that gets their work online quickly, with no quirks and complications.

Uncover's Silver Lining

You should never be afraid of failing, because out of most failures there's a silver lining. Be it lessons learned, mistakes you won't repeat, or, in my case, people you meet along the way. I met Dave and Jason through working on Uncover, and although I lost nearly $100,000 in its development, Carbonmade would not be around today if I hadn't started Uncover.

Attracting Normals

2010-03-24T10:00:00-05:00

To the best of my knowledge, it was investor and entrepreneur Chris Dixon who popularized the term Normals (Caterina Fake suggested “muggles”) to signify your everyday person. His theory (paraphrased) is that your business will never be a huge success unless your userbase includes a vast majority of Normals. Early adopters are good for initial traction and launch buzz, but until you attract Normals, you'll never get past that first reaction. Early adopters are also fickle and will quickly jump ship when something "hotter" comes along.

What exactly is a Normal?

A Normal is maybe not an everyday person in every way, but has limited Internet knowledge. They certainly don't read TechCrunch, they haven't heard of RSS feeds, they probably don't have a smart phone or at least don't have many apps installed, and although they surf the Web a lot, they have little clue what a web browser really is. Another telltale sign is that instead of going directly to web pages, they use the search bar. You know these people if you're reading this blog.

What is an early adopter or techie?

If you read this blog, you're probably a techie, with the exception of my mom and dad (they're Normals). I'd define techies and early adopters as people with smartphones, readers of tech blogs, anyone on Hacker News, people in the startup scene, users of Foursquare, Gowalla, HotPotato, Plancast, and many other "hot" startups that haven't yet reached the Normals.

Why is it more important to reach Normals?

The simplest reason is that Normals make up far more than 99% of Internet users. If you fail to reach the masses then you'll simply fail. You can be the hottest startup on the block with 100,000 active early adopters, but I'd trade every one of those users for Normals in all cases.

Another reason, often overlooked, is that Normals stick around a lot longer and are far more loyal than early adopters. When they've settled on a service choice — and it's usually one of the first they come upon — they're less likely to shop around as long as everything is going okay. This isn't the case for early adopters, who by definition are always looking for the best big thing.

Besides positioning yourself to attract a larger part of the market by going after Normals, who are loyal in themselves, their friends are Normals too, and that propagates the cycle of adoption. While early adopters are great at getting the word out to their friends, those friends are other early adopters in most cases, so the circle remains closed.

Focus on Normals!

At Carbonmade, we've focused all of our efforts on attracting everyday people who may not be the most adept Internet users. That's why we don't support HTML editing or too many advanced features — our product is designed for easy on-boarding — easy in that we boil all of our features down to simple-to-use components.

But beyond keeping your product easy to use, your startup won't be capable of attracting Normals if it's not in a space that you can imagine they or their circle would be interested in. A great litmus test for this is asking a Normal if they'd use your product and getting a "no" answer followed by "but my niece, nephew, friend, etc." would. You don't have to be able to attract every soul on earth, but if everyone you talk to knows at least one person who would use your service, then you're on your way to reaching Normals.

This has proven true with Carbonmade. Everyone I've talked to about Carbonmade knows at least one person who would use it themselves: everyone has creative friends or family members eager to use an online portfolio. A good exercise is to put your startup to this test and see how you fare.

Now there are certainly plenty of cases of reaching early adopters first before the Normals follow in their path, e.g., Twitter, but I'd argue that this is a more difficult and time-consuming approach. It's also more likely to require outside capital. When you have to force your way into the Normal scene, this often requires marketing dollars that lean startups can't afford to spend.

Carbonmade's Progress Page

2010-03-10T15:44:00-06:00

Dave, Jason and I have released our new Carbonmade marketing site. You can take a look at it here. On it you'll see a Progress page that we've created for people to follow our journey creating the new version of Carbonmade. Here's how we came up with the original idea and some thoughts on it.

What is it?

Before I get into how we came up with it. Here's little brief bit about what exactly it is. The idea is that we're a team of brave explorers traveling up a mountain face (i.e. the new version of our app). During our journey to the top, we'll be documenting our trip by providing everyone following along with journal entries on the new features of Carbonmade. You can subscribe to our journey by four different means: Twitter, Facebook, RSS, and through a Progress specific newsletter. It'll be light-hearted and fun to follow along to.

How'd you come up with it?

While Jason has been working on the new version of our app with Grant during the past few months, Dave and I have been spending time working on planning and redesigning our marketing site. For those of you not familiar with that term, we use "marketing site" to refer to everything outside of our portfolio app. Meaning, the Homepage, Examples page, Progress page, Sign Up page, etc.

The main reason we wanted to spend some time redesigning our marketing site is that it's been a while since we refreshed our brand — over fifty months to be exact — and we thought a little spring-cleaning was in order. Dave and I brainstormed a bunch on what we wanted to do and Dave began designing some beautiful mockups beginning in December.

However, January went by and while a lot of progress had been made, we came to an agreement that we weren't thrilled with the idea of just refreshing our brand. It's necessary, but it's not something we felt would really excite our current Carbonmade members and we wanted to do something for them too. Yes, we now accept yearly billing — an often-requested feature — but we wanted to give them a little taste of what's to come.

About three Wednesdays ago at around 2 AM, Dave and I were on the phone talking about how to market this thing. What exactly was our new marketing site? Just a brand refresh? Ugh. Let's try and come up with something a bit better we thought. I was even struggling to write the newsletter that we were going to send out, because there just weren't any guts to it. We also concluded that if we were to get an email from a company to check out their new marketing website and all it did was look different then we'd shrug our shoulders and say "cool, but who really cares?" We didn't want this to happen with Carbonmade.

It was at this point at around 2 AM that in the midst of things I came up with the idea of creating an Advent calendar like system for Carbonmade to show off what's coming in our new version. I described something to Dave that was a cross between these holiday calendars I use to receive as a child and the popular MacHeist system. Although we'd later scrap the MacHeist elements of the Progress page, we ran with the Advent calendar idea and a twist on that is what you see today.

To my knowledge, no other web app has ever used a Progress page to trickle out upcoming features to their members as a way to promote their new app. Will it be successful and generate buzz around our new app by continually attracting people every new update? I hope so, but only time will tell. I'll certainly write a follow up post when the Progress page is complete and your explorers have reached the top of the mountain.

Do you think this'll work? Can it backfire?

It's too early to tell if our Progress page will be successful in drumming up buzz around our new version, but I have to believe that it'll do more help than harm. From the moment the idea was hatched, the one thing that we've been wary of is to not confuse new users to Carbonmade who hit the Progress page before the Sign Up page.

Dave spent a lot of time designing our new marketing site to funnel new visitors to the Sign Up page rather than the Progress page. We don't want these new people to see the Progress page and think "I'll just wait to sign up when the new Carbonmade app is out." That'd be bad. Really bad.

We're currently running Crazy Egg on our marketing site, so this should give us a sense of things as we collect more data. As long as our new marketing site brings in the same amount of new sign ups as the old site (hopefully more) then I'll deem it a success. Again, as we just released it, it's still too early to tell.

The other worry is that our competitors will now be fully aware that we're working on something new and will have a heads up on all of the new features. While this may be a small cause for concern, I've always felt that it's in the execution and not the ideas themselves.

Passive Income

2010-02-24T10:00:00-06:00

I had lunch last week with Dave, Danny, Shawn, and Andrew (who was graciously visiting us from Canada) and the topic of passive income came up. All of our startups grew out of running consulting companies — Andrew is still in the midst of one — and all agreed that passive income beats the ad sales and consulting world a hundred times over. Below are a few of the topics we talked about.

What are the advantages?

Although running a subscription based startup has its own share of stress — and it doesn't necessarily get any easier as the business reaches profitability — it's a different kind of stress from the worry about where the next dollar is coming from and whether or not you can make payroll. Ad firms and consulting companies are constantly fighting for rich contracts to keep them in operation. It's a real stomach churner.

The financial crisis of 2008 and 2009 led to a lot of consulting and ad revenue based companies having to cut their employees, because they wouldn't be able to make payroll otherwise. I have personal ties to a few consulting firms that dropped nearly 75% of their staff. They're all in the midst of re-hiring now, but 2009 was a real scare to their business model. When the financial times are good, they're great, but when they're not, they're a little sketchy for anybody depending on them.

The advantage of passive income from a subscription model is clear: Once you've been in operation for a while, you can accurately predict where you're going to be over the next six months, year, two years, etc. You don't want to rest on your laurels, but it's likely that you're never going to take in less revenue next month than you did the previous one. There's typically an upward trend, no matter how slight, as long as you calculated correctly in the first place and your market is out there.

The knowledge that, say, you made $50,000 in subscription revenue last month lets you sleep at night. As long as you keep your server infrastructure up and your product alive and kicking, you'll hit new revenue highs every subsequent month. That's totally unlike the consulting business or ad sales business where every month is a gamble. Talk about being Stressed Out.

What are the disadvantages?

The only disadvantage I can really see in creating a subscription-based model that brings in passive income is when you want to scale to something huge like Google. Recently Aviary, for example, did away with their paid subscription plan in order to reach more people.

It's true that putting in a pay wall means that fewer people will use your product, because there are a lot of cheapskates out there who won't pay for Internet goods. I'll refer you to David McClure's article The Internet does NOT want to be FREE... It wants to GET PAID on Fucking Friday. A brilliant piece by the former Director of Marketing at PayPal.

But there are other ways to reach scale. You can have a free version that brings in the masses and just upsell the unique features to paying customers. You can explore other verticals, as I suggested in Building Blocks. Whatever you do, as long as you have passive income you can buy time to build out the scalable pieces of your business and live with fewer stress related "where's the revenue going to come from?" nightmares.

How can you start getting passive income?

To get passive income, you need to build a subscription-based business or sell some type of Internet good — maybe it would be themes, like WooThemes, or virtual goods, like Zynga. Something that's tangible, something you can create once and then perpetually sell. You need to create a product that doesn't require you to feed it resources (e.g., written articles) or increase your pageviews to make more money. It's as simple as that.