Data Addict

Startups, Self Quantification, and Internet Culture

Flower

Hypothetical Number Inflation

I read a lot of Hacker News and it always strikes how big the numbers are in other people’s blog posts. When people write about a big exit on HN, they talk about $100M not $500,000.

When I was in college, and especially when I was running my first startup, reading those articles made me feel like a failure. From what I could tell, the world was populated exclusively by companies “struggling” to break $10M in yearly sales, and founders learning how to manage similarly “modest” liquidity events.

Now that I’ve been blogging for a few years, I can say from experience that most of those numbers are bogus. Survivorship bias aside, bloggers suffer from what I like to call Hypothetical Number Inflation.

When I write about a topic, I want to make a point, and the point is very rarely to be realistic about ordinary business metrics. I might want to prove that the relationship between effort and reward is correlative not causative, or that bootstrapping your first business makes sense. These are opinions that I’ve thought through and believe, but it helps to rally some ballpark numbers to make the case.

And therein lies the problem: in the course of arguing a point, it behooves me as a writer to push my numbers to the logical extreme to avoid losing my readers to unrelated quantitative niggling.

If I want to provide an example of a successful business in a blog post, I want the example to be unequivocal. If I choose a number that’s too low, the effect is like Dr. Evil asking for 1 MILLION dollars, readers stop and think “wait a minute, $1,000,000 isn’t successful to me.” When that happens, I lose that reader before they hear the entirety of my argument. This is especially necessary when making a complex or contentious point.

Since the HN crowd is so affluent (or at least says that it’s affluent), writers that want to be taken seriously need to choose hypothetical numbers that boggle the mind and leave no doubt as to as to the writer’s intent.

So, if you get frustrated when you read authors talking about “small” exists in the mid-8 figures or “low” executive compensation in the high 7 figures, remember that these numbers don’t represent the median, but the extreme. Better yet, decide for yourself how many zeros constitute success or failure and ignore writers like me.

Effort and Reward: Correlation, Not Causation

The Queen Herself

A few weeks back I was watching The Queen of Versailles, which is an independent documentary about billionaire timeshare mogul David Siegel and his quest to build the largest house in America. At the beginning of the movie, the director interviews Siegel about how Westgate Resorts got it’s start. He talked about how he founded the company when he was young and naive, worked like hell, and managed to grow the company to billions in sales. What struck me about his description was how similar it is to the way I describe working on my first startup, with one critical difference: Skritter is a tiny bit less less profitable.

This got me thinking about the nature of effort vs reward. I think it’s a very common misconception among entrepreneurs that the harder you work, the more successful you become. This workaholic mentality causes people to sideline important aspects of their lives to maximize a perceived chance to make it big. I firmly believe that effort and reward are correlated. If your goal is to become a millionaire, you are far more likely to reach your goal working very hard on a bunch of ventures than if you stay at a job that allows you to relax and coast. The age old motto “God helps those that help themselves,” seems true.

But the the amount of reward you enjoy for your effort is randomly distributed. If it weren’t, David Siegel of Westgate fame would have had to work a thousand times harder/longer than someone whose startup makes $1M/yr. Since that clearly isn’t possible in a normal human lifespan, I’m forced to conclude that there is a big component of luck involved in the rewards anyone reaps from their efforts. Having a deep understanding of that fact is important because it helps workaholics like me from over-investing in work. The truth is that I probably stand about the same chance of retiring early from my new startup whether I pace myself or work 100 hour weeks. Effort is important for success, but marginal effort is just that, and it seems a horrible waste to labor under the delusion that another few hours of work will be the difference between a decent living and early retirement.

Your Startup Need an Intractable Design Problem

For the last 5 years, I have been tasked with designing and UX testing the entire website for my first startup. From the outside, Skritter is pretty simple, it’s a website that teaches students of Chinese and Japanese to better learn and remember their characters. Basically a flashcard program for Chinese and Japanese.

Seems pretty simple, right?

Well, not at all, actually. The problem is that Skritter uses a spaced repetition algorithm that makes it non-obvious to add and manage vocabulary. Unlike a standard flashcard program, you don’t just add words to your library, the application does that for you gradually, as you learn and remember more content. So on Skritter, you can’t “study” a list, you have to “start adding from” a list. The difference creates all sorts of problems for users. Where are you in the list? What haven’t you learned yet? When you stop adding from a list, should we remove all the material you’ve already added? Spaced repetition makes Skritter powerful and useful, but at the cost of simplicity.

For years I railed against this unintuive aspect of our product. Apple, Dropbox, and a hundred other companies were making it big by making it simple. Although Skritter eventually became a big success, it took a while for people to “get it” and it was an exercise in frustration for me as the product designer.

So I was thrilled to start work on a new startup 4 months ago. CodeCombat offered me the opportunity to build upon the design lessons learned at Skritter, but in a different arena: game design. We are making a game that teaches users to write JavaScript.

Sounds pretty simple, right?

Not at all. Although there are hundreds of educational games teaching everything from typing to math, surprisingly few teach users to code. And those that do serve more as antipatterns than examples of successful design. For CodeCombat, we can’t just rely on typical game mechanics, because we are supposed to be teaching users how to code those behaviors. As a result, simple things like unit selection, setting waypoints, choosing actions, and resource allocation turn into non-obvious design conundrums.

When I was working on Skritter, I used to think, “Someday I’ll be able to work on a product that’s simple and obvious, boy that’ll be sweet.” But what this new startup has taught me is that if you aren’t running into seemingly intractable design problems, that’s a strong indicator the product isn’t solving real problems.

There are products out there that won by simplifying a complex problem; perhaps it’s file uploads, or listening to music, or sharing photos with friends. But it’s a mistake to assume that because the end result is simple that it was simple to design. As Apple has proven time and time again, making things simple is extremely difficult.

So, if you’re startup isn’t solving an intractable design problem, find one.

Games: The Anti-MVP

“Can you build a prototype in a week?”

My cofounders and I were sitting in the Mission on a sunny morning, eating crepes and talking with a survey and testing guru about testing business assumptions for our new startup.

“I would be hesitant to sink more than a week or two into the idea without data from customers.”

My cofounders and I traded sideways glances. The truth was that we had been working on our new startup for 4 months already. We had been play testing our game for more than a month, but  it would be a while before it was ready from a beta launch [1].

Our meeting left us feeling uncertain, our previous startup was MVP ready inside a month, why was this taking so long? It didn’t hit us until later on when we were speaking with more experienced game devs.

“You have something ready to play in 4 months? That’s great.”

We had been operating on the assumption that like a B2B startup website, we could throw something down in a week or two, go to customers, test it, and begin iterating. But games defy MVP release schedules. Nowhere is this better illustrated than in 2D Boy’s illuminating blog series about developing World of Goo. It’s true that they churned out their first version in a week, but their first game tests (which occurred several months into development) were a mess. At CodeCombat we understand that all too well, unfortunately.

Games must be fun. The primary business assumption of any game is “users will like playing it.” It’s almost guaranteed that users won’t be satisfied playing a two week old MVP. In fact, that’s sort of the definition of a minimum viable product: it’s rough, unpolished, and easy to change. If you’re doing it right, the MVP is difficult to take seriously. By contrast, the quality standard for games has been raised so high that it’s often not enough to slap something together to gauge user interest.

The takeaway we’ve learned is that startups with experience building websites need to step back and redefine their MVP expectations when building a game. It takes longer to make something fun rather than just functional, and unfortunately games are defined by the first term, not the second.

 

[1] If you’d like to see what our game looks like 4 months in, you can check out www.codecombat.com. We are just launching the Beta and respond to all feedback personally, so shoot us a line!

Why You Should Bootstrap Your First Startup

A month or two back I read Daniel Tenner’s excellent article entitled “Taking the Leap.” Having run my own modestly successful startup for going on 5 years now, I can say with some authority that he makes excellent points. But one thing about the post bothered me: his advice is most applicable to your first startup. That distinction is critical.

Hacker News idolizes people like Steve Jobs, Elon Musk, and other visionaries who take incredible risks in the face of absurd odds. Their stories are dramatic, and it’s delicious to read stories of people who buck the system and succeed. But it is a disservice to the less experienced to omit the beginning to every success story: the small successes they had early in life.

The men who mine asteroids and build electric sports cars don’t start with those ventures. To illustrate my point, I’d like to tell a quick story.

Back in 2008, my business partners and I were going door to door trying to raise a minuscule amount of funding. One of our business advisers gave us an introduction to a successful founder turned angel investor who had just sold his company. Everyone was talking about how successful he was, but over the course of developing a mentorship relationship, we heard about how he  got his humble entrepreneurial start. He did it by selling asbestos file folders to legal consultancies at a time when everyone was going digital. The business model was in it’s death throes, but he was able to generate enough profit to reinvest it on his next company.

Read that again if you missed it: our visionary angel investor got started selling fireproof file protectors to lawyers who wouldn’t need them in a few years.

This sort of story is far from isolated. Success begets success. Elon Musk didn’t start with Tesla, he started by selling a $500 computer game called Blastar at the age of 12.

Don’t try and shoot the moon on your first startup. Bootstrapping reduces the upside of your ventures, but it also reduces the risk that you’ll fail. Daniel Tenner has it right: keep your head down, reduce your burn rate, and if you succeed doing that a few times, Mars, cold fusion, and hover bikes will still be waiting.

How to Choose A Name For Your Startup

Naming a product is tough. It’s thankless, there’s no objective criteria for success, and when you’re first starting out, it can seem unproductive. But none of these are legitimate excuses for not spending a tremendous amount of time and energy picking that name. Later on, when you have paying customers, the name that shows up on their credit card statements will be a soothing reminder of your consistent and trustworthy brand. Changing it requires far more effort than most founders imagine, so do it right the first time. Here’s a concrete step-by-step guide to finding a great name for your startup’s product.

Create a list of possible names

There are dozens of excellent articles that can get you started with the process of brainstorming possible names. Most of these articles do an excellent job of summarizing the most common guidelines, so I will only briefly mention them here:

  1. The shorter the name, the better.
  2. Choose something that can be verbed. “I’m going to Twitter this” works much better than “I’m going to ShortMessagesWithFriends” this.
  3. Choose a relevant name, if you are starting an invoicing company, bikemanufacturers.com probably isn’t appropriate.
  4. Choose names with greater phonetic clarity. The word “phonetic,” for example is terrible because it isn’t clear when spoken whether it should be spelled “fonetic,” “phonetic,” “fonetik,” or “phonetik.” The proliferation of mis-spelled domains and product names have exacerbated this problem.
  5. For products that create new markets (AirBnB for instance), it won’t be important to have a name with high SEO value like “bestbnb.com.” If search discoverability is important, however, consider shelling out cash for a name that will rank for your keywords. You can think of this as money well spent compared to the Adwords, conference attendance, and content marketing you would need to do later to drum up traffic for a less discoverable domain.
  6. If you are struggling to come up with ideas, I recommend using Impossibility, which has the added benefit of only showing you available, non-parked domains.

Check availability and Price

For my second startup, we generated about 150 possible names to start. My cofounders and I checked their availability using InstantDomainSearch, and weeded out names that both didn’t excite us and were unavailable. Since we are creating a product that is unlikely to benefit a great deal from organic SEO, we disqualified quite a few domains that were selling for more than a few thousand dollars. [1]

Gather data

Next, my founders and I rated each name on a scale of 1-10. Using this data, we created an average score for each name that equally represented our preferences. We sorted the names using our aggregate scores and chose the top 15.

We then create a Google form, and sent the top 15 names to 30 people who were either potential customers, close friends, or both. The form asked recipients to rate the names using the same 1-10 scale.

Using the data from real potential customers and those who were heavily invested in our success, we created a final index of each each name’s overall goodness.

Steve Blank says that products rarely survive first contact with customers, and the same is true of names. In our case, we had an internal favorite which was disliked by our friends and potential customers. If we hadn’t sought feedback, we would have chosen a terrible name!

Contacting Domain Owners

Domain names can be shockingly expensive [2], but for most product-based companies, it doesn’t make sense to spend very much on the domain. Quality products take thousands of hours to build, brand, and market. Invest your time in a new name rather than fighting the baggage left by the domain’s previous owner.

After getting feedback about our choices, we disqualified the lowest five options and focused on getting one of the top ten names. Of those, only one was not registered, two were unwilling to sell, two did not return our inquiry email, and the remainder quoted prices ranging from $32,000 to $700. The audience favorite, however, was listed for $788, which we ended up purchasing.

Conclusion

Considering the costs associated with re-branding, it makes monetary sense to invest heavily in choosing the best available name. It took us 20-30 hours to make our decision, and among the tasks associated with getting a new business started, I count those hours as some of the most valuable.

 

[1] Interestingly, the most expensive domain we discovered had a “suggested retail price” of $80,000.

[2] For kicks, you might enjoy checking out the list of the most expensive domain names ever sold. The current king is $16M for insure.com.

Quit Your Job Now, Before It’s Too Late

Six weeks ago I handed my employer my formal resignation. Two weeks ago I waved goodbye and left the office to begin work on my second startup.

At this stage in my life I have no children, no mortgage, a small passive income from my first startup, two rock solid technical c0founders, a working prototype for our idea, a monetization strategy, and enough cash saved up to bankroll some small business expenses. In short, there was very little risk to quitting. Yet I still struggled with the decision and on that Thursday as I walked into the chilly North Carolina air, couldn’t help but wonder if I was making the right decision.

Quitting is hard for social reasons. I worked at a small Django consultancy with an excellent group of folks who I respect and admire. But even there, among independent-minded, intelligent, professional, driven peers, most were confused why I would want to quit an excellent job. One coworker was frustrated that I was helping perpetuate the Silicon Valley brain drain, “don’t move out there and be one of those guys,” he told me during my last week. But by far the most common reaction to my news was “why?” accompanied by what I perceived to be quiet pity. “Oh dear, he thinks he’s going to start the next Facebook.”

To everyone yearning to quit their job and pursue their startup dreams, do your homework, then quit now. I’m not sure I would be capable of quitting my job with $100k in a home loan, 2 children, and a car payment. Quitting gets more difficult the longer you wait, so brace yourself and jump soon.

Update HN seems to have picked this up, comments can be found over here: https://news.ycombinator.com/item?id=5508878 For those interested, we’re working a game to teach people how to program. It’s not even in the alpha stages yet, but can be previewed here: http://www.codecombat.com

Save Time, Cash, and Carbon with Amazon Prime

prime

I have been a heavy user of Amazon prime for more than a year, and it baffles me why anyone shops offline for anything but perishable grocery items. If shopping is something you enjoy as a recreational pastime, you can stop reading now, but for all the rest of us, read on to see why Amazon Prime is not just good for your budget, but for your time and carbon footprint.

Assumptions

Let’s start by making some assumptions. First, I will assume that you earn exactly the national median for a fully employed person in the US: $39,336 which is approximately $19/hour [1].  I assume you spend money like a typical American as well, meaning that you spend approximately $5,595 per year on personal care, misc, alcohol and tobacco, apparel, and entertain [2]. I assume you have access to a car [3] that gets the national average of 21mpg [4]. Further, I’m going to assume that you are like 90% of Americans and live within 15 minutes of a Wal-Mart [5] which represents an 8 mile distance [6]. I will make the further simplifying assumption that you purchase all your goods at Wal-Mart. You value your free time at $10/hr or a little more than half of your working wage. Your primary shopping objective is to save money on the goods you want and need.

I will assume that most of your shopping is done for relatively common goods, which is just to say that you are not trying to find a new Tiffany diamond necklace, you’re shopping for things like shoe laces, t-shirts, and garbage bags. I will assume you shop about as much as the average American, or .72 hours/day [7], and that a typical shopping trip requires 2.16 hours (or three daily units of time) for a total of approximately 121 shopping trips per year.

The Cost of Offline Shopping

Let’s start by calculating the costs associated with your current shopping habits. 121 shopping trips per year means your car is being driven 121 * 8 = 968 miles per year getting you to and from the store. The IRS mileage rate is $.56/mi [8], which means you are spending $542 in car depreciation every year to shop. Further, at 21mpg, and an expected fuel cost in 2013 of $3.36/gal [9], you’re spending $154 on gas for those trips. The total cost to you in terms of automotive expenses is therefore $696/year.

Then there’s the time cost. Shopping takes time away from doing other enjoyable things, like watching movies, taking walks, and eating with friends. In the above assumptions, we put the cost of your time at approximately half of your working wage, $10/hr, which means that you are paying yourself 121 hours * 10 = $1,210 to go shopping. So far, the total cost of shopping offline is $1,906 per year and that doesn’t count any of the unpleasantness of fighting through weekend traffic, having to visit multiple stores (because remember, in this hypothetical example you only ever have to shop at one store), and finding a parking spot at an already overcrowded mall.

The Cost of Shopping on Amazon Prime

Save Time

With Prime, goods are delivered right to your door and the actual finding and purchasing of goods requires significantly less of your time. Consider a simple example to demonstrate the point: it would likely take you less than 15 minutes to find a common item like a serving spoon (not an affiliate link) on Amazon which is less than the one-way time required to get to a store. If you were able to avoid only 25% of your shopping runs over the course of the year, that would be 30 hours of your life back. We’re talking about a day’s worth of time you can could spend playing fetch with your dog, socializing with friends, or reading interesting blog posts like this one. That’s almost 4 days of vacation time from work. If you are aggressive about shopping online, you could easily avoid far more than 25% of your shopping trips.

Save Money

Prime costs $79/year, restricts buyer choice, and recent studies have shown that Amazon can cost as much as 20% more than Wal-Mart [10]. But it’s still a money saver. The average American is only spending $5,595 on non-grocery non-medical purchases per year (see the CNN money link in the footnotes below). $5,595 * 1.2 = $1,119, add the $79 subscription fee, and it costs $1,198  more on average to shop on Amazon. Compared to the cost of offline shopping calculated above ($1,906), however, Amazon will save you approximately $708 per year in automotive upkeep, gas, and time.

In addition, the estimated 20% premium is an estimate based upon a relatively small sample size for non-Prime customers. So the above estimate is likely understates the actual savings.

Shrink Your Carbon Footprint

Finally, shopping online is better for the planet in that it significantly reduces the energy cost of shipping goods to consumers [11]. The most efficient way to deliver goods to end users is on big trucks, planes, and delivery vehicles like that UPS truck with all the Amazon packages in it. True, such trucks get poor mileage per gallon, but they deliver dozens of packages per run, and unlike your personal vehicle, UPS and other shippers are spending big money on reducing their fleet mpg [12].

Conclusion

Amazon Prime saves time, money, and helps me be a better world citizen. The $79 might sound like a lot, but it’s a drop in the bucket compared to the improvements in quality of life. And if you are like me and dislike shopping in the first place, all of these calculations are meaningless. I would actually be willing to pay more to avoid the mall, but Prime has conveniently given me a better option. You can check it out here (non-affiliate link): http://www.amazon.com/gp/prime

 

[1] Personal income in the US: http://en.wikipedia.org/wiki/Personal_income_in_the_United_States

[2] This comes from the CNN money breakdown of American expenses: http://money.cnn.com/interactive/news/economy/us-spending/

[3] For every car in the US, there is 1.3 people, so this seems pretty reasonable. http://en.wikipedia.org/wiki/Motor_vehicle

[4] Presumably if it is newer, you’d be more likely to get good gas mileage, but I’m working with averages here. http://en.wikipedia.org/wiki/Fuel_efficiency

[5] It’s actually pretty shocking that we all live so close to Wal-Marts, http://www.statisticbrain.com/wal-mart-company-statistics/

[6] This is an extrapolation from the statistic about living 15 minutes from a Wal-Mart and I do not have a statistical source to back up the conversion from 15 minutes to 8 miles.

[7] Yes, that means that the average American spends 262.8 hours shopping every year: http://www.bls.gov/news.release/pdf/atus.pdf

[8] 2013 IRS mileage compensation rate: http://www.irs.gov/uac/2013-Standard-Mileage-Rates-Up-1-Cent-per-Mile-for-Business,-Medical-and-Moving

[9] Expected cost of gasoline: http://www.eia.gov/tools/faqs/faq.cfm?id=287&t=5

[10] The study was conducted by Kantar Retail. Their sample size is pitifully small (36 goods) and doesn’t take into account the fact that Amazon doesn’t cover all goods with Prime shipping: http://www.bloomberg.com/news/2012-06-22/wal-mart-beats-amazon-prices-including-glee-dvd-set.html

[11] The study is actually focused on Buy.com, which presumably has a less efficient distribution network than Amazon: http://campustechnology.com/articles/2009/03/16/shopping-online-more-energy-efficient-say-carnegie-mellon-researchers.aspx

[12] http://blog.ups.com/2012/06/26/ups-lightens-up-150-new-plastic-trucks-to-save-40-fuel-infographic/

It’s Sad to See Your Startup Turn into a Business

When I founded Skritter in 2008 with Nick and Scott, we called it a startup. We raised three rounds of funding, hired developers to help scale our team, and attended startup summits, venture capital panels, and meetups filled with aspiring entrepreneurs working on the next big thing. As with all young startups seeking capital, our business plan growth model had us making 30M in profit in 3-5 years as we took the language learning world by force.

Four and a half years later, Skritter has become a viable, successful, growing company. We have three employees in addition to the founding team, and have provided employment for twice that many along the way. We’ve proven that our business model generates profit, that it adds value to customer’s lives, and that we can achieve product-market fit.

But somewhere along the line, Skritter stopped being a startup and became a business. And while I am deeply proud of our achievements, the change makes me sad.

When you run a startup, you dream big, you think in terms of conquering entire new markets, challenging entrenched competitors, and changing the world in a big way. You work hard, play harder, and forge lifelong relationships with your co-founders.

Businesses, by comparison, are more modest and mundane. Businesses tend to know whom their customers are, they have a good sense of what makes money and what doesn’t, and they don’t make a habit of re-investing every penny to try and shoot the moon with a new product. Businesses are like middle aged fathers who just want things to run smoothly without too much fuss. Startups are their star-struck sons spouting poetry to their lovers in moonlit gardens.

Startups are just more exciting, vibrant, and entertaining.

Bu they also have this frustrating tendency to fizzle out, fail, or explode catastrophically. Founders lose their shirts, relationships are ruined, investors are burned, and once stable, gainfully employed founders end up in their parent’s basements applying for jobs to cover their credit card debt.

I’m proud of what Nick, Scott, and I have built at Skritter. I’m proud we achieved the dream of building a profitable company. But if you’ve ever been there for the startup part, the irrational giddiness you get from building something new, you’ll know instinctively what I mean when I say it’s sad to see your startup turn into a business.

My Radio Interview and an Interesting Link

Back in November I was asked to speak on Pysch Talk radio about the Quantified Self movement and the triangle chapter I founded in particular. I enjoyed it quite a bit, and the recording is now available on the Pysch Talk website. You can listen to it on the PyschTalk website.

And although I’m not really in the habit of posting links to this blog, I found this website about the higher education bubble extremely interesting. I did some research of my own and wrote a post a while back that largely agrees with the points made in the infographics. I found it curious, however, that it doesn’t carry through and discuss the potential fallout from the bursting of the bubble. I strongly believe a mass abandonment of 4 year college educations will have traumatic effects on the US economy, but I’ve never delved into that aspect of the problem to make some predictions about what might happen. If anyone comes across a blog post like that, I would definitely read it!