nPost Blog

Tumblr Doesn’t Leave Posterous in the Dust (or “Why Facebook is scared of Twitter”)

People do a really crappy job of comparing the success and growth of competing early-stage companies. It’s generally WAY too early to call when companies are just a few years into the (endless) race. Take Richard McManus’ post “Tumblr Leaves Posterous in the Dust“. It’s an interesting post and fine piece of linkbait (I’ve been hooked!), but it’s a pretty simplistic argument.

Let’s ignore Compete entirely (Quantcast is based on real numbers and tends to be more trustworthy, IMO). Here’s the graph that Richard tossed up.

Is Tumblr winning the race? Absolutely. But they started running before Posterous even made it to the starting gates. So the big question is: What did Tumblr look like around 13 months ago? It looks like they were at around 7m global uniques (compared to Posterous’ 2.5m most recently). Certainly ahead, but hardly leaving them in the dust yet.

The big question is this– How powerful is the first-mover advantage? I’m not convinced that it’s that powerful in this particular market. Eventually Tumblr will plateau. The question (that can’t be answered now) is this: Will Posterous plateau at the same point in time or the same point in their product’s lifespan? If it’s the former, Posterous will indeed be eating dust. We’ve got a long distance race where one runner started off slow and is accelerating right now. We’ve got another runner who started the race WAY late but is showing solid acceleration. Either way, 2 years into either companies lifespan is a pretty silly time to call a winner. For a stark example, compare Twitter at year 2 to Twitter at year 6.

Incidentally, this is exactly why it’s silly for people to dismiss Twitter’s threat to Facebook (even though Facebook currently dwarfs Twitter’s traffic and signup rate). It’s not just about growth rate. It’s about acceleration and how much fuel you have in your tank. In other words, it’s about how close you are to the inevitable point where your growth plateaus. For Tumblr and Posterous (two awesome companies that I think have a bright future), it’s WAY too early to call.

Why You’re Going to Hire the Wrong Designer

“We are not UI experts but do know when we see a good design.”

I saw this on a mailing list I occasionally read, in a post where a company was looking to hire their first design employee/contractor. I think it’s a big part of why hiring designers is a process that often ends in failure: because most people who aren’t UI experts (heck, most UI experts fall into this camp as well), don’t know when they see a good design.

The challenge, of course, partially lies in the definition of “good design”. Let’s run through a few, in increasing order of importance.

Good Design = Beautiful/Cool Design

In this arena, we might actually know when we see a good design. We often have pretty good instincts on beauty and have a lifetime of training in understanding what other people find beautiful. Beautiful design can be important– but on the web it doesn’t seem to be a necessary element to success. Take the top 50 sites on the web. For a designer who primary considered themselves an artist, how many of those sites would be a source of pride if they were in their portfolio? Designers who primarily seek beauty/coolness often get lost in their own sense of beauty and engage in what I like to call “design guitar solos“– the visual equivalent of the talent-intensive squeeling that guitar pros engage in which only another guitar pro appreciates (or even understands). In the web design world this can range from a nuanced photoshop manifesto with dozens of layers to an incomprehensible JavaScript-powered UI. With great power comes great responsibility– and oftentimes a simple melody is the most effective song.


(note: grabbed from a 1994(!) article post by Peter Morville)

Good Design = Elicits the Desired “Feeling/Motivation”

This brings us closer to a good definition of effective visual design. While it’s not a web site, take a look at Apple’s FaceTime commercial. It’s simple. It doesn’t have the cyborg eyes and spinning globe of apps that Android’s recent commercials do. The design lead on that commercial didn’t get to do the metaphorical equivalent of playing a 12-minute solo behind his head in front of a sold out crowd. No epic visual effects. Just an emphasis on generating emotion– and pretty damn effective as Apple keeps trying to battle their way to the other side of the chasm. (Side note: I think Android’s robot craziness isn’t all that bad– they are currently aiming at early adopter geek-types. Remains to be seen if that’s brand they can pivot away from when the time comes to court “normals”. It wouldn’t be the path I’d choose, though!).

Good Design = Measurably Gets the Job Done

(note: Dave McClure is putting on the WarmGun Conference on October 8th that’s centered around conversion-centric design – Check it out)

THIS is the kind of design that very few people shop for– and indeed, don’t know how to shop for because they can’t “know it when they see it”. As I’d asked in a post WAY back in 2007 (“Do Designers Deserve a Seat at the Strategy Table“), when was the last time you saw a web portfolio that talked about metrics and goals? That talked about how the new design kicked the old design’s ass as far as the numbers were concerned? That talk about an X% SEO lift over Y months? On multiple occasions, I’ve seen uglier designs tromp prettier ones, and we can look at the aforementioned top sites on the web and see that it’s chock full of ugly.

One thing that’s important to note– the experts are wrong just about as often as they are right. As a self-proclaimed expert (!), this is hard for me to stomach, but it’s true. Check out this (somewhat murky) video of the head of Microsoft’s experimentation efforts. There’s plenty of gold here. First, he runs through a couple of design variations and asks the audience (chock full of startup geeks) to guess which performed better. By and large, the audience was wrong as often as they were right. Taking this further, Ronny tells is that the internal experts at Microsoft had similar luck. Said another way, the smartest people about UX and conversion made educated guesses, tested those guesses, and found that their efforts improved their target metric only SLIGHTLY more often than they made it worse.

Good Design = An unseemly mashup of Usability, Marketing, Credibility, and Usefulness

The problem gets worse, because “getting the job done” isn’t just about pure conversion mechanics and A/B testing.

  • There’s design STRATEGY (most of the above is about tactical design). Is your designer the type of person who wants to have stategy handed down to him? Or is he the kind of person who is going to agitate for a 2-sided referral program? Or something clever like UrbanSpoon’s Spoonback effort?
  • Are they thinking about marketing? Do they think like a user? Do they understand your market? Do they want to? Marketing isn’t just about outreach– there’s a whole discipline around understanding a market, getting their feedback (from user studies to poring through support/feedback email), etc.
  • How do you deal with the conflicts between what your business wants the user to do and what THEY want to do? In my opinion, the best businesses have those goals perfectly aligned– but any ad supported site knows that their job is to find exactly how aggressive they can be with ads and pumping page views.
  • What about SEO? Content sites need to optimize for SEO. Yes, the first rule of good SEO is quality and linkworthiness. But there are design/markup considerations, anchor text concessions to consider, and more.
  • Load time. There are breathtaking studies about the effects of page load time and conversion. How many designers obsess about speed? Not enough, given that adding 2 seconds to page load showed a 4.3% reduction in revenue/user.
  • Considerations vary wildly based on the type of offering. Sites that you use every day clearly need to be faster/leaner. Are there sites out there that can afford to be slower? Apple, for example, serves up enormous (and gorgeous) photography on their home page.
  • Does the designer love writing headlines? Writing is one of the biggest parts of design– if they’d rather you do all the writing and prefer to work with Lorem Ipsum text, they have a big hole in their skillset.
  • How much do they like saying no? At any company larger than a few people, designers meet the “too many cooks” problem fairly quickly. Good design is not only a bizarre blend of graphical, technical, marketing, strategic, and writing expertise– it also requires a healthy dose of political acumen and salesmanship. What are they going to say when Alice swings by their desk and says, “You know what? I think it’d be awesome if we had a block showing our twitter feed on the home page. Maybe with one of those cute blue birds at the top?”

The problem with hiring designers (and the reason that they so often don’t work out as contractors or employees) lies squarely on the shoulders of the people doing the hiring. They’re still looking at screenshots in portfolios and saying, “Beautiful! Wow! This must be our guy/gal,” when they should be looking deeper.

Anecdotal but interesting: NYC and London Up & Coming in the World of Startups?

Every month or two, someone tosses up a “Who’s Hiring in Startups?” post on Hacker News. In my current voluntary jobless state, I’m looking at new startup ideas as well as hopping on board with pre-funding or barely-post-funding startups, so I took a look. One thing that leapt out at me was how broad (geographically speaking), the posts were (data below).

While I’ll generally happily go on about how the influence of the valley is waning (a combination of cheaper-to-get-traction startups and investors who are happy to look outside of their fertile valley), I still agree with Paul Graham– if you’re doing a startup, you meaningfully increase your shot at success if you live/move there… For now. But it seems like there is something special happening in the NYC area. And London(?). Coincidentally, both financial centers that might have seen a rash of disillusioned geeks moving away from the world of finance, perhaps?

Anyhow, here’s a breakdown of the various locations of startup jobs as of 9:40am or so. I know it’s not REMOTELY scientific– it just stuck out to me.

Note: if you’re hiring, you should add to the thread.

No, You CAN’T retire rich at 30 if you sell your startup

I personally find the people who are in the software startup game just for the money to often be nearly delusional about their chances of success and the likely magnitude of it when it happens. Before I get into the details for founders, let me talk about options-hungry employees. If you are in it for the money and you aren’t a founder, you’re sticking your head in the sand. Full stop. Yes, you can point at your anecdotal evidence at once-per-generation companies like Google, Amazon, and Microsoft. But for the most part, employees never get “I never have to work again” rich doing startups. There are too many mechanics out there to make sure that the folks taking the real risks (investors and founders) make the real money. If you want to read more, read my intro to startup stock options. If you don’t want to start companies, focus on salary and how much you enjoy working at startups.

But even if you are a founder, don’t do it for the money. Do it because you love small teams. Do it because you love your product. Do it because you love playing the startup game (even if you don’t win it). But for the love of God, don’t do it because you think you’ll get rich and retire on a beach somewhere when you’re 30. Because, as crazy as it sounds, when you sell your first company it almost certainly isn’t going to happen.

Let’s run through a common exit scenario. You and 2 co-founders spin up a company (say you’re creating one of Mike Arrington’s “Dipshit Companies that wants to sell to Google for $20m“). You take a smallish seed round and a small-ish Series A round (yeah yeah, you can bootstrap– but the vast majority of 7 to 9-figure exits are funded companies). So after investors and options for employees, let’s say you each own 20% of your company (it can be a lot less or more, depending on what kind of leverage you have while fundraising, how big your options pool is, and how many of those options are exercised/accelerated upon exit). Now let’s say you exit for $20m 3 years into it. Congrats! Light up the cigars and start hunting for beach houses– you’ve now joined the new rich! Except you really haven’t. You see, you (like a lot of folks) aren’t really thinking what it means to retire at 30. You’re not alone. The fellas at AdGrok have the same mental math going on in their head in their “Fuck You, Money” post:

“Before anything else, let’s do the numbers: money market funds yield around 4%. That’s $400K interest on $10MM, which is certainly a living wage, leaving aside inflation. Of course, it doesn’t have to last forever: human life is sadly finite. Crunching more realistic numbers, ‘fuck-you money’ is about $4.2MM for a 30 year old guy who plans on dying at 70 and wants to make $200K/year. Well within the payout picture of a fortunate startup founder whose company is acquired.”

Of course, many of these numbers are strange. 4% for a money market? I’d love a link to that– the best I’ve been able to find is around 1.5% right now for a jumbo money market. Dying at 70? Chances are you’ll live to 90, at least. “Leaving aside inflation”? That’s disastrous (why would you leave aside a number that cuts your 4% by more than half?!). Let’s run through some REAL numbers, using my “Early Retirement Spreadsheet” (AKA “Fuck You Money Spreadsheet of DOOM” – feel free to save a copy and noodle with it).

In our above scenario, our happy founders are walking away with 20% of $20m, or $4m (might be a touch more due to unclaimed options, or a lot less if your investors are the double-dippin’). $4m– we could live on that forever, right? Let’s plug in some variables. 3% for average inflation (a touch higher than the average over the last decade to be conservative). Let’s assume you can get a 5% return (even though the last decade gave us -0.99% for the S&P and the outlook isn’t too rosy). And let’s assume you want to live in a major metro area in a nice house, a couple of kids in private school, and solid travel budget. You’re a millionaire, right? So let’s assume your annual family budget will be $200k. Upper middle class– certainly not in “butler country”, but real comfy, flying first class and living large. Here are our variables:

That’s not too crazy-conservative, is it? Heck, if you’re earning 5% on $4m, that’s $200k right there. No problem, right? You can coast forever with your fat nest egg largely untouched. You’re probably doing what I (and the AdGrok guys above) were doing: “Leaving aside inflation”. Let’s look at what you’ll have to spend to keep your $200k per year lifestyle with compounding annual inflation.

Wait a minute! I’m going to be spending nearly half a million dollars per year when I’m 60 to compensate for a 3% annual inflation? Don’t worry– you’ll be broke LONG before you 60th birthday. Let’s look at how your F@#$ You Money evolves over time with these variables.

You don’t even make it to 50. If you want to be optimistic about inflation and investment income (after all fees) and nudge them to 2.5% and 7% respectively, you don’t make it to 60.

There are a few morals to this story:

  • make sure you freakin’ LOVE what you do. Love the game, love your product, love your co-workers, love your market.
  • If you are going to be a mercenary, make sure to optimize not just for “f@#$ you money” but “f@#$ you influence”– make sure that as you sell your $20m company that you are well positioned to build another company, have a fat executive job, some great advisory roles, paid speaking engagements, and the like. Because you’re still going to want income.
  • DON’T love the idea of living rich AND being retired. You can live rich on $5m OR you can retire early with $5m– but you sure as hell aren’t going to do both… for long.

Note: If you’d like to see the spreadsheet, it’s here. You can make a copy of it if you’d like to noodle with the variable to find your personal “never have to work again” number.

Rethinking “F@#$ You Money”

Now that I’ve stepped down from RescueTime, I’m pondering my next thing (whether it’s a product role at a very early stage startup or spinning up my own for the 3rd time). I figure it’s a good time to be introspective and consider my motivations. Why do startups? For me, it’s more about having the choice to work on the stuff I want to work on, work with cool people on small low-friction teams, and wear a lot of hats. I definitely see the lure of the financial reward, but it’s never been a primary motivator for me. I’ve said in the past that stock options for startup employees are generally a sucker’s bet, but the argument extends to founders, too (especially when you’ve got 3+ founders and/or need multiple rounds of investment).

On a recent trip to Alaska, my ideas around “F@#$ You Money” changed pretty radically because of two conversations (which I’ll relate below). First, let’s start with a definition:

F@#$ You Money: any amount of money allowing infinite perpetuation of wealth necessary to maintain a desired lifestyle without needing employment or assistance from anyone. (via Urban Dictionary)

Retirement Plans

The first conversation I had on my Alaskan trip was with an older retired couple who was traveling around Alaska. We’d had a few drinks at a local bar and got to talking about retirement, risk-taking, and (eventually) f@#$ you money. He started talking to me about his finances and told me that he was really anxious about money despite having a “couple million bucks”. “It used to be absolutely true when people said ‘money makes more money’,” he told me. “Be relatively sharp about flipping real estate, have a solid and diverse stock portfolio, and you’re making 6-10% per year or more.” 8% of $2 million is 160,000. Add some Social Security money to that and the fact that older couples generally have a paid off house or a cheap mortgage, and that feels pretty close to permanent retirement. If you want to live more lavishly, you can chip away at the principal.

But this couple was shaken by the new reality. What, exactly, are they supposed to invest their money in that throws off 6-10%? Real estate in major metro areas are looking at a 5-20% drop in the next two years. The stock market is volatile but stagnant (more on that in a minute). Money markets are throwing off less than the rate of inflation. Top all that off with the potential that inflation accelerates, turning their couple of million bucks into dramatically less… Which means that even if they leave it in cash, there is a lot of downside risk.

The formula for a 2 million dollar retirement changes from:

$2,000,000 * 8% = $160k/yr + Social Security

to

$2,000,000 / # of years you expect to live after retirement (say 30) = $66k/yr + Social Security

If that all works out, you die nearly penniless on your 30th year.

The idea of a millionaire couple (surely the top 5% of retirees?) living on a combined wage that is dramatically less that what they were likely earning before they retired was pretty damn shocking to me.

The second conversation that I had on my Alaska trip was with a money manager at the Seattle airport. He was one of the top wealth managers at one of the big Wall Street firms. His belief was that it was likelier to get worse before it got better and that it could be 10 years or more before the economy bounced back. “I think we’ll see Dow 4,000 before we see Dow 12,000,” he told me. With the ratio of workers to retirees changing for the worse and with birth rates flattening, he wasn’t sure how much it COULD bounce back. Obviously, his opinion isn’t shared by everyone. But there’s a chance he’s right. Given that, where exactly do you put your f@#$ you money? A balanced portfolio isn’t enough protection against that kind of drop.

(Want to worry some more? Consider how much you have to save to retire if your savings don’t throw off interest.)

Want to be Mercenary? Time to give up on F@#$ You Money and Focus on Other “F@#$ You” Things

Pretend that you sold a startup tomorrow and walked away with a cool $5,000,000 at the age of 30 (well, $4m after taxes). Assuming you live 50 years, that gives you $80k/yr (non-inflation-adjusted dollars). Perfectly comfortable, but certainly not the image of wealth that a $5,000,000 windfall historically brought to mind. So if you’re young and angling for greatness, I think you’re better off aiming for “f@#$ you influence and credibility” (which has as much to do with your personal brand as it does your financial success). THAT is the investment that keeps giving. It allows you to charge $30k+ for a 1 hour speaking engagement. It gets you a feeding frenzy of investors when you start making noises about your next startups (reducing your financial risk to near-zero). It gets you fat advising gigs (where you trade advice and influence for ~1% of startups), seats on boards of directors (which can be compensated for in various ways). It gets you access to the best angel investment opportunities. Hell, it could allow you to raise a $30,000,000 seed fund (rock on, Dave!).

Better yet, in the mercenary vs. missionary debate, don’t think like a mercenary at all. Focus on creating value, being passionate about what you’re building every day and let the windfall (if it happens) be a happy surprise.

Guide to Evaluating Startup Ideas

A great developer I once worked with was kvetching at lunch one day. He’d been working at a well-funded startup for about a year and had come to terms with the fact that the startup was really a pretty dumb idea. He’d wasted a year of his life and had a pile of stock options that weren’t very interesting. His last two jobs had been similar. He asked me a question that, at the time, I didn’t have a good answer for. “How can you possibly know when joining a startup if it’s going to be successful?” In other words, how can you spot a good startup idea?

Since I’ve announced that I’m moving on in the coming weeks/months, I’ve been bombarded with cool offers at existing startups, larger companies, and, of course, I’ve been pondering some of my own startup ideas. So his question which I didn’t really consider very carefully at the time is now one that I’m thinking a LOT about.

So without further ado, here is my “checklist for good startup ideas”. No startup will do great on every aspect of the checklist, but this allows me to put startups/products to a sniff test that I think is pretty darn useful. Note, this list is in rough order of importance.

  1. How deeply do you think the startup will effect people’s lives? Can you imagine them using it every day? Can you imagine them being royally pissed if they couldn’t use it? This can range from utility (gmail) to emotion (twitter), but if a product isn’t in the “I’d rather chew off my own arm than lose it” category for a meaningful percentage of it’s users, it should be a non-starter.
  2. Are the hypotheses that form the basis of the startup tractable? In other words, can test the idea(s) in a short period of time? I’ve talked about the importance of tractability before (hat tip, Ev Williams). Bottom line is that most initial hypotheses are wrong to varying degrees. Twitter was very tractable. Tesla is not. I’ll re-use the money quote from Fred Wilson: “…Of the 26 companies that I consider realized or effectively realized in my personal track record, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold. That means there a 2/3 chance you’ll have to significantly reinvent your business between the time you take a venture capital investment and when you exit your business.”
  3. How does the cost-of-acquisition, cost-of-goods-sold (COGS) and revenue-per-customer stack up? Most software startup have a pretty low COGS, so this question generally comes down to, “How much does it cost to buy a customer and how much revenue does that customer represent over their life?” This obviously requires a lot of guesswork early on, but experience is a helluva teacher here. If you haven’t been on the wrong side of this ratio a few times, find a mentor who has. Any way you slice it, you need to fine a “scalable, cost-effective way to get your customer’s attention”. I can’t count the number of startups that aimed squarely at small businesses or “prosumers” with sub-$100 price point and have no idea on how they’re going to buy a customer (other than word of mouth, SEM/SEO, and PR).

    I love extremes here.
    Zynga, Twitter, and Facebook has nailed one extreme– their cost of acquisition is free and nearly infinitely scalable. If you can build a service that grows virally (free and growing customer acquisition), you can focus most of your attention on value creation and revenue-per-user. With a little success there and a little time to let the virus spread, and you can almost not help but succeed. I think it’s hard to overestimate the power of free marketing/customer acquisition.

    There are certainly extremes on the other side. What do you think Oracle’s revenue per customer is? How much can they afford to “buy” a customer for? What about Groupon?

    Pro Tip: If you’re raising angel or Series-A money and you say you’ll be using the proceeds for things like magazine ads and wrappers on busses, you’ve probably already lost.

  4. How MANY lives could you imagine touching in 5 years? This is different than asking about total addressable market (TAM). Craigslist started as a classified ads mailing list for San Francisco. Amazon started selling books. Have some imagination and consider what your company could morph into. Is it interesting enough to justify the opportunity cost and the fact that you’re looking at a drastically reduced salary for 2-5 years?
  5. Is it an invention or re-invention? Hats off to you inventors out there, but I strongly prefer an existing market to creating one from scratch. The companies whose equity I covet didn’t build anything NEW, they just built something BETTER (Google, Facebook, Apple, Amazon, Craigslist, eBay, Zynga etc). In short, the first mover advantage is a crock of shit (most of the time).
  6. Is it worth talking about? Can you tell a story about the product that would make a blogger say, “Holy crap– I could write a story around that that would get tons of links, tweets, and comments?” One of my favorite products is Visual Website Optimizer (it’s a brilliant A/B testing tool). The founder (a great product designer who I’ve had a few conversations with) sent out a barrage of emails to major tech bloggers and heard nothing but crickets (he appealed to Hacker News readers for advice– I think the discussion is interesting). His fundamental problem is that he doesn’t have a story that will drive links/tweets/comments/pageviews– all of the metrics that pro-bloggers care about. Oftentimes, clever PR people can create a story out of something that has nothing to do with the product (see: 37Signals & Zappos), but it certainly helps a lot if your product is funny, controversial, unusually useful, or inherently exhibitionist.
  7. Are you passionate about the end-game? This one is hard to rank. All of the points above assume you are a “mercenary” founder (maximizing for opportunity) rather than a “missionary” founder (passionate about a vision that keeps you awake at night). Great video on that point here. Regardless of whether your end game is a vision realized or a big pile of cash (or some combination thereof), you need to be passionate about it… You need to have something that powers you through the bumps in the road where a rational person would cut and run. Both motivations are dangerous, by the way. If you’re motivated by cash, you might have a hard time sticking through tough times when you realize what you’ve built might only be a single or a double. If you’re motivated by vision, you might not like the pivots your startup needs to take to survive/succeed.
  8. Is the market moving in the right direction? Can you imagine there being a LOT of growth and consolidation in the next 5-10 years? I just saw my first RedBox the other day (it’s a cool box outside of supermarkets that allow you to rent DVDs). They are currently on the wrong side of a market shift away from physical media– can you imagine people renting DVDs in 10 years? I think this one is particularly hard to get right (which is why it’s low on the list).

That’s my list. Am I missing something that’s on yours?

Stepping down as CEO of RescueTime

Wow, I’ve felt bad about neglecting my blog. Not guilty-bad (though there’s a bit of that too), but bad because I feel like I have a LOT of stuff I want to write about. I literally have 15 or so blog posts that are pretty much just titles and topic sentences that I’m eager to write.

This isn’t one of ‘em.

John Cook just wrote that I was leaving RescueTime, and I feel like it makes sense that I should talk about this a bit to clarify what’s going through my head. Though I have to admit that it’s tempting as hell to do what Alex Payne did– which is pretty much leave it at “I just quit Twitter and I’m doing something new“.

Leaving any job is a personal choice with a lot of factors. Leaving a company that you’ve founded and nurtured from idea to prototype to product to business can be downright agonizing. The product is your baby and the team and investors you built it with are your brothers-in-arms. You think about it so long and so constantly that it gets to be an addiction. Not in a BAD way, mind you. The years I’ve spent on RescueTime have been some of the best of my life.

So Why Leave a Good Thing?

This is the most common question I’m getting right now– “If things are going so well at RescueTime, why leave?”. I’ve asked myself that question a TON over the last few months as I’ve been considering this move. RescueTime is enjoying some pretty awesome growth (51% quarterly revenue growth on average over the last 4 quarters– solid!). Not to say that there aren’t daunting challenges ahead for RescueTime, but all of the graphs are moving up and to the right. So, why the heck would I leave on the cusp of profitability? My reasons are largely internal… I know, I know. “Seriously, Tony? The ‘it’s not you, it’s me’ breakup line?’”. Seriously. Leaving RescueTime is like breaking up with an awesome women who you know you could be happy with, but no longer believe is the right woman for you. I have a mess of specific thoughts, but they all boil down to the fact that I’m more excited about what could be next– and I’ve always been driven by the “Regret Minimization Framework”. Watch this short video below:

Jeff’s boss’s response? “This sounds like a good idea. But it sounds like a BETTER idea for someone who already doesn’t have a good job!” I clearly have a great job at a great/growing company. But there are new things that are happening in technology/business that I find too darn exciting to not dive in. I want to get uncomfortable again, and trade reliable growth for blue sky. Given the stage that RescueTime is in, I think this is a reasonable time to make that leap. We’ve got a growing company that’s providing a livelihood for a great team and that (eventually, I hope) will provide a great return for the investors who made their bet on RescueTime (including myself!).

What’s next for RescueTime?

RescueTime’s focus right now is to scale, get new customers, and grow. We’re pretty convinced the entire team could answer support requests and play checkers and we’d grow every month (a testement to the fact that we focused on scalable marketing). But the team is going to continue to rock on A/B testing, outreach to our growing collection of Fortune 500 customers, back-end scaling so the servers don’t melt (processing hundreds of thousands of man hours of attention data per day isn’t easy, folks!), and (of course) making the product a little bit better every day.

I’m going to keep working with RescueTime on a few initiatives, and I’ll always be a founder (and advisor for as long as the team thinks I’m useful). Don’t be surprised if I answer a support request from time to time or do some writing on the RescueTime blog.

What’s next for Me?

(second most popular question, behind the “Why?”) Short answer, I don’t know– and that’s exciting. Longer answer, I’m looking for early stage opportunities in a few markets that I find particularly interesting. I want an opportunity where I can be strategically involved (hacking on business models) and tactically involved (managing UX, doing PR/outreach, A/B testing, writing copy, slinging pixels and CSS). Upside is a must for me– I’m eager to have skin in the game as opposed to a steady paycheck (though some combination of both could be interesting). I’ve written a bit about how I think stock options for most employees are a bit of a sucker’s bet unless you’re getting in VERY early (it turns out the only way to get meaningful reward is to buy it with risk). But at the end of the day, I’m only partially motivated by upside. I’m more motivated by the opportunity to make a BIG impact, the autonomy to do stuff that I think is important, being in a “fast” environment, and being surrounded by people I respect and like. This seems theoretically possible at a larger company, but seems likelier the earlier stage you go on the spectrum. It might ultimately mean that I have to start something new.

High Five, RescueTeam

The team of hackers that work at RescueTime are breathtakingly good. With a small team, we’ve built and maintained a windows app, a mac app, a web app, and a monster data warehouse that processes hundreds of thousands of man hours of attention data per day, all with a hosting bill that any startup would envy. We’re adding 600-1000 new users and 15-30 new paying customers per day without a single marketing dollar and without any marketing effort. We’ve built a machine that we’re really damn proud of.

I read the other day that 85% of venture-backed companies are dead inside 3 years– I’m damn proud of the fact that our business and team are going to be in the 15% minority. High-five guys, and godspeed!

A Designer in Support of Design Contests

15 years ago, you couldn’t even BEGIN to look for a house without a real estate agent (who takes 6-7% of the purchase price from the buyer). Today, the internet has changed that. 10 years ago, someone starting a small business had to eat a cost of thousands of dollars to get a solid looking logo– often more if they didn’t want to roll the dice on just using a solo designer (of if their first designer didn’t create something that they loved). Today, a small business can get dozens of designers working in a public forum for $500. I think that’s AWESOME. But like real estate, there are casualties. And, like real estate, there is anger. But to me, “transactional design” (the kind of design that can take a few hours to net a good product and doesn’t require a lot of consultation) is an inevitable casualty of the global economy and the evolution of the internet (see 99Designs).

It’s a Global Village Now

I was in India for 3 weeks last year and was STUNNED at the cost of labor. We rode in taxis for the entire trip and spent less on them than the 1 way trip home from the airport in Seattle. Talented tailors would throw in manpower of tailoring a shirt if you just bought the cloth. If it’s unfair to pay $500 for a logo, was it unfair for me to pay Indian market rates for a taxi ride (usually less than a buck or two)?

The $300 bounty for a winning logo design is a kings ransom for a young designer in most of India (and the rest of the world). Guess what, Western world? You’ve got to compete– and Walmart has taught us over and over again that consumers aren’t going to pay 10% more (much less the 1000% more that an onshore hourly designer would cost) just so they can feel good. Some of them will- but most of them won’t. We can’t put the genie back in the bottle here. You’re better off trying to find creative ways to compete than bemoaning the unfairness of it all– it’s like a cottage seamstress complaining about the existence of the new textile factory down the road– technology changes markets.

For a rural Indian designer, entering 10 contests per week and winning one for $500 might be a huge win (and he doesn’t have to write a single proposal!). And that designer might be damned talented. How different is this than a services business investing $500k in sales effort on 10 different $10m RFPs and ultimately winning one? In fact, isn’t this just a different sales investment/risk than costly networking, proposal writing, advertising, etc., etc? Heck, the designer doesn’t even have to issue a Net-30 invoice– 99Designs drops the money to the winner pretty instantly.

So I’m assuming that the gripe with design contests isn’t that people are getting paid LESS than they used to, but rather that they could get paid NOTHING even after expending the time and effort of producing a logo. Which brings me to my next point:

Whether you are a Business or Freelancer – getting paid requires that you risk time and money.

If you want paying work without spending time/money or taking risks, you should go find a job with a paycheck.

My first business (a technology consultancy) was CONSTANTLY investing staggering amounts of money and time to get customers…. We had sales guys, who made healthy base salaries and some commissions. We went to networking events to establish relationships with people who could be customers someday. We took existing clients to lunch to chat about projects on the horizon. We sent out custom holiday cards to every client every year to keep us visible. We built and maintained a web site with a rich and updated portfolio. We had snazzy business cards that had to be kept up to date. We had really nice business clothes for the clients that cared about such things. We cooked up gorgeous custom proposal documents for customers– and these proposals required considerable analysis work and consultation with the customer (spec work!). We even responded to RFPs sometimes (rarely). All of these efforts can come up empty, of course. Many of them did, but in aggregate, my business grew like gangbusters. Software is no different. I heard that Salesforce.com spends 60-70% of their topline on sales/marketing. Much of that is probably wasted, but I’m sure they are in a constant state of making their marketing spend more efficient (just like 99Design entrants are probably in a constant state of gauging the kinds of contests that will net them the most bang for their effort).

In short, getting paying work cost TONS of time, money, and risks (how many freelancers do you know who average 100% billability in a 40 hour work week over a year?).

If you are a fresh-off-the-boat designer (or a rural one), you should expect your costs and risk here to be higher than if you’re not. You’ll have to invest more and get less as you build up relationships, your skills, and a portfolio. If there are too many designers eager for work (as I believe there are right now– the design world is NOT growing as fast as were churning out design grads), the market is going to make this harder for you. Don’t like markets? Get a paycheck-job or go learn Ruby on Rails (then you can fall out of bed and land on 2-3 lucrative freelance offers).

The nature of design

The best work general comes from seasoned professionals who engage in a deep discovery process, run through a lot of iterations, and work closely with the client. That being said, you can see flashes of brilliance without all of this, especially in the world of “transactional design”. Some of the stuff on 99Designs is GOOD. For a logo, book cover, or smallish web site design (especially for a smallish business) the difference in value received between a $30,000 engagement and a $500 contest is not worth $29,500. In fact, the contest might (on some occasions) yield better results faster. Even if it doesn’t, it’s CERTAINLY faster and can help with brainstorming. From a purely economic point of view, rolling the dice with a contest is a quick experiment to run that might yield exceptional results. I could design a good from-the-hip book cover in a few hours and it MIGHT be great… Design can be random and certain design tasks are 90% inspiration and 10% perspiration rather than the inverse. The bigger the design project, the less this is true, obviously. Again, I think logos (for small businesses) is the sweet spot.

Supply & Demand

As a business, we try to be as fair as possible with vendors, but we’re in business to be profitable. If I look at the winning designs on 99Designs and I generally like them more as much as any designer’s portfolio, is eschewing the cheaper option really the way to go? Paying bottom dollar prices CAN mean that someone somewhere is being exploited. I’ve seen no evidence that the 99Designs designers are exploited however, though it’s obvious that there are designers with higher costs of living in the US who simply can’t compete on transactional design services.

If you answered “yes, as a matter of principal” to the last question, how do you feel about internships (unpaid or crappy pay)? How do you feel about buying sneakers that were made in a Chinese factory with awful working conditions (check your feet, please)? How do you feel about the fact that the average Google employee generates over $1m per year in revenue but gets paid less than 10% of that #? Shopping for the best dollar-to-value ratio generally means that someone gets a disproportionate cut of the wealth in the transaction (even just a little bit)… Though are Google employees really getting screwed? Is an Indian designer getting screwed if she’s pulling down $20k year on 99Designs? And where is the outrage about things like iStockPhoto? Or 99Designs’ Logo Store? Is responding to a clear need in a design contests for a speculative chance at pay really that different from a photographer tossing up a speculative photo on iStockPhoto and hoping that someone might eventually buy it? The ones that have great photos make a ton of money. The ones that suck probably need to take photography classes. Heck, is it really that much different from my startup, where I spent a big (expensive) chunk of my live to launch something hoping that someone would want to buy it? Isn’t a startup in the “spec-work” category?

Design contests are a meritocracy in the extreme– good designers can probably make good money and (with a track record of winning and a great portfolio), eventually graduating to less-speculative lead generation if they so desire (though I bet GREAT designers could net thousands a day on 99Designs). Bad ones don’t and have to seek other marketing avenues or other lines of work. Again, welcome to business. Given the huge number of designers that enter contests OVER AND OVER again, clearly many have decided that they’d rather roll those dice than roll the dice associated with RFPs, Adwords, hiring salesfolks and other lead-generation efforts.

These are just some thoughts. As a designer, I’ve never done spec work (unless proposals count– they probably should). As a business, I’ve never asked for it… But from either side of the table, I’m not sure I have an ethical problem with it. So from one (admittedly kinda mediocre) designer to the rest of you– how are design contests “damaging” designers beyond the way that Google News is “damaging” newspapers?

How to Ask for an Introduction

I don’t know a ton of important people. But as a founder of a venture-backed startup with some amazing investors and advisors, I do know a few.

With Nivi and Naval preaching the gospel of social proof (can I get an “amen”?!) and with fundraising posts and articles espousing the importance of introductions, it’s no surprise that about once a week someone asks me to introduce them to someone else. It’s especially common around Y Combinator Demo Day, where YC groups shift from pure product mania to fundraising mode. I’m pretty sure that YC tells new crops of startups to ask for introductions from the funded companies from previous sessions.

What does surprise me is how people ask for these introductions. Here’s pretty much how they usually read:

“Hey Tony. I’m [insert name] from [company name]. We’re starting our fundraising effort and I was wondering if you’d introduce me to [insert RescueTime investor/advisor].”

I usually will make the introduction, but the person asking for it is certainly not making the most of the opportunity (and asking me to spend my social capital by doing so). So after making a mess of these introductions in varied ways, here is my suggested checklist for making an introduction (it’s pretty much my reply when I get a request like the one above):

  • Write the introduction for me. Seriously. You know more about your story than I do. You know the things to say that will make someone light up. I don’t. I might flub it. I can personalize it (“Hey [insert investor name]- hope your trip to [offensively exotic location] was fun. Welcome back! Listen, I wanted to introduce you to…”), but you should make the pitch. Bonus: this saves me a few minutes of writing, which is kind and thoughtful of you!
  • Don’t bury the lede. What’s the thing that will get an investor excited? Be concise, but talk about social proof, traction, growth, size of the market, how badass your team is, mainstream press coverage, other investors who are on board, and user passion/joy. Choose whatever distinguishes your startup from the sea of startups that investors read about every single day. Unless your product is revolutionary, spend more time talking about your market (“we’re helping companies in the billion dollar widget maker market sell doodads”) and your team than your product (“we’ve got an ajaxy shopping cart!”). If they investor blogs or has EVER talked about their investment strategy, hopefully you’ve read how they think and tune your pitch to match that.
  • Heap on the social proof, man! Getting an email intro from a near-stranger (me) is about the weakest social proof you can get (but it’s better than nothing). Tell us how many other investors you have soft-circled. Give us a link to a list of all of the blog posts praising you. Or all of the users tweeting about you. We’re herd animals. If the investor feels like the herd is leaving him behind, that’s a good thing.
  • Think about why it’s an opportunity for investors. If I’m writing to an investor about a company that looks like a credible opportunity, that’s me doing them a favor. If you don’t have any bullet points that many you look like a great opportunity, that’s me doing you a favor and adding noise to their already overflowing inbox.
  • Keep it short. All of the above stuff could mean a lot of content. You’ve got to pick and choose what to send and hope it’s enough bait for the investor to dig in and learn more.
  • Bonus points: track it. When we were talking to investors, we created custom (private) pages for each investor we were courting giving them a ton more to dig through and get excited about if they wanted. The emails were short and sweet with a “want to learn more” link at the end. We used Google analytics to track which people clicked through and which individual pages they clicked on so we could know what to focus our discussions on when we met them.

All that said, if you’ve got a great investment opportunity (with a launched product and some happy users), don’t be shy about dropping me a line if I can help (with introductions or advice).

(post scriptum: If you are in the market for introductions, you should check out VentureHacks’ StartupList!)

(post post scriptum: If you’d like to learn more about making good introductions, Chris Fralic just wrote an outstanding post for the “connector” – The Art of the Introduction)

PR for Startups

My startup (RescueTime) has enjoyed some pretty ridiculously good PR (online, print, and video). It’s not a surprise that the most common questions that we get from other founders are about PR. How do you get press and the blogosphere talking about your product?

When you research this topic, you’ll see lots of technical and how-to articles that talk about how to build relationships with writers, how to use services like PRweb, how to format a press release, and more. In a lot of ways, this reminds me of SEO (search engine optimization). Research SEO and you’ll find a bunch of articles about page markup, link sculpting, meta descriptions, and all sorts of other mechanical processes. But what you won’t find much of is information that teaches you how to write great content and how to build your startup and features (from the ground up) with “linkworthiness” in mind.

Just like fabulous content solves 75% of your SEO problems, fabulous storytelling solves 75% of your PR problems.

I think there’s a lot of built-in contempt for PR and marketing among entrepreneurs (especially hacker-flavored entrepreneurs). We’ve all been in companies with fat communications budgets wasted by blow-hard marketeers, so many of us have dismissed the profession altogether. We’re so entranced by the concept that just building something people want will win the day. I remember cheering the first time I read the quote, “marketing is a tax you pay for being unremarkable“. I remember reading a statement on Hacker News that said, “my code speaks for itself“. Two years ago, I would’ve said, “Right on, brother! Preach it!”

But my mindset has shifted about 180 degrees over the past few years. I now believe that how you say something is at least as important as what you’ve built. The A/B testing and design/copywriting iteration that we’ve done over the past year (which has, over time, resulted in a 400% increase in conversion rate on our site) really has driven home this belief. What’s A/B testing if not a bunch of microscopic marketing/PR tests?

What you need to send to reporters and bloggers

If you’re reaching out to reporters and bloggers, you put yourself in the shoes of that person. They are looking to write a headline that causes readers to buy a magazine/paper or click on a link. They are looking to write a story to support that headline that causes readers to consume that content and (ideally) find the content so provocative (note that “provocative” can be VERY different from “valuable”) that they send the link to their friends and relatives, post it to Twitter, and write a supportive (or critical) write-up on their blog.

If you can truly empathize with a writer, you fairly quickly realize why your new social bookmarking app, web annotation service, or small business accounting app isn’t particularly newsworthy. You aren’t click-bait. You aren’t link bait. You aren’t going to sell a paper.

Which is why your most important problem from a PR point of view is this: How can you make your uninteresting (to a broad audience) company interesting?

The good news is that it’s quite do-able. If at all possible, read Made to Stick by the Brothers’ Heath. If you can’t read it, read this summary. If you can’t do that, just try to craft a story that succeeds in as many of these areas as possible:

  • Surprising
  • Funny
  • Personal
  • Has a story arc
  • Useful

(notice how low “useful” is on the list? That’s not an accident. You have to be REALLY useful to be worth talking about.)

A boring company with good storytelling skills can do some amazing things on this front. Off hand, I can name a company that sells shoes online that did pretty well on the PR front, a personal finance app that a lot of people talked about, and a creator of small-business project management software that people can’t stop linking to. If you want to see smaller/earlier successes, check out Balsamiq or UntitledStartup (both are doing some clever things out of the gates).

So if you tell your product’s story at a party (which you should, over and over!), watch the listeners eyes. Do they glaze over? Or do they light up? Do they laugh? Do they argue with you? Do they ask questions? If a you’ve never had a listener at a party say, “wait a minute– John over there would LOVE to hear about this… Let me grab him!”, then you probably aren’t ready to work on the mechanics of outbound PR. If at the end of your story, the listener doesn’t often say, “Can you tell me that URL one more time?” as they reach for their smartphone, then you need to keep working on your story. Because charging forward on outbound PR with a shitty story is pretty much the equivelant of working on your SEO mechanics when you know you have crappy content. Your’e ignoring the most important part in favor of the least.

Post Scriptum – On the Value of PR

Having enjoyed pretty great PR success, I wanted to throw out a final thought. Like a lot of accelerants (marketing and funding being two other examples), PR can be like throwing gasoline onto a fire. Or it can be like throwing gasoline on a pile of wet wood. It can be especially exciting if your business is enjoying growth already. But PR (and, more broadly, your startup) is a marathon, not a sprint. The first couple times you get a PR hit, you’ll quite likely be flummoxed by the fact that your traffic and usage doesn’t really change that much as a result. TechCrunch might get you 5-10k uniques. Being in the print version of the New York Times might get you a few thousand uniques. PR is not going to result in a viral/word-of-mouth explosion, but it’ll speed things up nicely if you’ve already got one happening.

As Andrew Chen says in one of his many fabulous posts (why bloggers and press don’t matter for user acquisition), if you’re going to spent time on marketing and PR, spend it on things that will pay ongoing dividends rather than 1-time dividends. Andrew was talking about stuff like viral loops and SEO, but in my opinion he missed the most important marketing “gift that keeps on giving” – crafting and tweaking a story that makes you worth talking about.

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