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.

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.

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)

Design your Blog like You’d Design a Product

When I decided to take a weekend and focus on my blog I realized one big thing:

Most blogs are crappy products. And most of my favorite bloggers (the ones that espouse taking design, marketing, testing, and iteration have largely blown off the designs of their blogs To be clear, I think the quality of the blog is almost entirely measured by the quality of the content and not the theme. But blog success is a function of content quality and the ability to turn readers into people who retweet, comment, subscribe, or follow.

Success (whether it’s a blog or a product) is looks a lot like this:

Quality of Product * Success of Marketing * Conversion of visitors = Success

Certainly, outstanding bloggers (or outstanding products) can win on just quality of product. Some of my favorite bloggers (let’s single out Paul Graham (though I think he’d call himself an essayist), Dave McClure, Andrew Chen, and Eric Reis) have blog formulas that look like this:

(great writing = 10) * (great word of mouth marketing = 7) * (no clear call to action, no testing = 1) = 70 (pretty darn successful at expanding their influence)

(Note: McClure might get a -1 for too many font colors! :-) )

My hats off to all of ‘em. They are better (and more prolific) writers than I. But we all know that a little A/B testing can go a long way. We’ve seen that a quick/dirty redesign of an already effective looking page can pump conversion by more than 20%. Hell, we’ve seen that a few iterations of Twitter language (leading to “you should follow me on Twitter”) can boost clickthru by 173%. Could a weekend’s (largely outsource-able) work double a visitor’s chance to become a follower/subscriber, comment, or even read a second post? If you’re starting point is a stock blog theme, I think so.

Here’s what I think you should do on a blog to maximize the 3rd part of the forumula above (and, to a lesser degree, the second part):

  • Toss in some social proof. Assume people don’t know who you are and make it clear who you are and why you are important. You’re establishing credibility– why should anyone read what you have to say? Take a look at VentureHacks if you don’t know what I mean. Well played, sirs.
  • Figure out what you want your visitors to do. Clearly, you want them to read your posts, but scribble out a stack-ranked list of the actions you want your readers to do and make sure your design supports that. If there’s crap on your blog that doesn’t support that (badges, widgets, etc) pull ‘em. Here’s my list:
    1. Retweet! No way a blog is ever going to have a viral loop, but if a reader likes what they’re reading and wants to spread the word, that’s huge– so encourage it! 1 subscriber is 1 subscriber. A retweet means hundreds or thousands of potential new visitors/subscribers. If my conversion rate on other activities is meaningful, this is my post important user behavior.
    2. Follow me on Twitter. This was a hard call to prioritize over RSS subsription, but I think a lot of people are turning to Twitter to replace their RSS readers. Feels like the right trend. Also, clickthrus on my posts on Twitter results in pageviews– it’s trackable. RSS isn’t.
    3. Subscribe via RSS. Makes it an almost certainly that they’ll at least see my headlines henceforth
    4. Subscribe via email. I dropped this to fourth because I don’t think most of my readership rolls that way, but it’s still a fine way to get content.
    5. Comment. Other than the “game of blogging” (i.e. maximizing reach, influence, audience), the discussion is the big part of why I blog. Bonus points, discussion makes a post feel lived-in and heaps on some more social proof. I’ve ceded the UX of commenting to Disqus, who thankfully does a badass job of encouraging conversation. Further, a comment gives me a chance to talk to the commenter (I almost always try to reply– take a look at Neil Patel if you want an example of a fabulous blog post. He always replies).
    6. Read a second post. In this world, I think getting someone to read a whole FIRST post is a great achievement. If people want to read more, I want to help them do that. But, heck– if they like my stuff, subscription/following on Twitter seems much preferred for both parties as a primary call to action.

Now maybe you could argue that a blog shouldn’t be treated this way. Maybe we’re all blogging to express our feelings, hone our writing skills, and be part of the conversation. That’s fine if that’s true. But look at the degree to which blogging has been instrumental in the careers of folks like the ones I’ve mentioned (as well as Fred Wilson, who says much of his deal flow is because of his blog) and it’s pretty hard to argue against trying to make your blog an effective funnel. Hell, at least spend a few hours and pluck the low-hanging fruit.

At the end of the day, every web site is a funnel and most blogs are pretty damn leaky. Take a weekend and plug some holes.

Startups with Something to Believe In

I went to an informal Seattle startup CEO dinner a while back and it was an awesome opportunity to talk candidly about the problems that early stage products face. Someone remarked to me afterwards that a lot of people in that room had already “made it” (financially speaking). That’s one of the cool things about being a startup founder. There were plenty of folks in the room who put on their pants one leg at a time. There were some other folks who sip Pinot Noir while they have two pant-assistants dress them. But (with a few runaway exceptions) many of them were facing the same challenges.

I had a lot of takeaways from the dinner, but the biggest came from two comments by CEOs in two unrelated conversations (these are paraphrased with a bit of hyperbole tossed in).

Comment #1: “My biggest concern is that we’re on a long road. And it’s going to be a tough slog. We’re going to be dragging our asses uphill for years with a still uncertain future. With that to look forward to, how can I hold on to my best-and-brightest stars when they could take an offer from [insert megacorp] and double their salary overnight? Or they could hop onto another startup that isn’t at the ’slog’ stage yet?”

Comment #2: “Sure, the downturn has effected our startup. But we’re all working together on stuff that we want to work on and we’re working with people that we really want to work with. If we end up making less money, it really doesn’t matter much.”

The huge challenge is that we are constantly telling ourselves, our teams, and our customers that great stuff is in on the horizon. But the reality is, bad shit is coming. There are going to be huge and gutwrenching bumps in the road and times where the company feels like it’s going to auger in. The thing that can pull a team through these rough spots is belief in SOMETHING.

Something amazing happens, I think, if you can cross the chasm from people getting paid to work for you company and people getting paid SO THEY CAN work at your company (I think that concept came from Tandy way back when– can anyone confirm?). As founders, I think it’s easy to dismiss this possibility. “That might work for people who ooze charisma,” we say, “but it won’t work for me.” Or: “You can only pull off that kind of passion if you have a world-changing product with a runaway growth rate– not for something so mundane as what we’re working on.” Bullshit. Look at companies that actually inspire the founders, employees, and customers– there’s WAY more variety than you might suspect.

So here’s a stab at how startup founders can get creative and (hopefully) inspire.

  • a dragonslaying startup (killing inefficient incumbants, like Redfin is trying to do)
  • “business religion” startup (like Zappos, FogCreek software or 37signals– where the products isn’t something the team gets THAT excited about building, but the “business religion” and/or lifestyle of working there is magical)
  • The “we’re going to change the world” startup. Steve Jobs once said to John Scully (then CEO of PepsiCo), “Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?”
  • “we’re going to get filthy rich” startup (this feels scary to me– seems like people will jump once there’s a bump in the road… and there is almost always a bump in the road).
  • A “family” startup. My first company had this– just about everyone in the company was really close to everyone else. We had regular gaming night, fun social events (that everyone WANTED to come to), etc. Loyalty can definitely help folks through the aforementioned “bad shit”. This is the biggest reason why solo founders quit more often. It’s always easier to quit when the only person you’re letting down is yourself.
  • Succeed, loudly and publicly. Nothing inspires more than setting tangible business goals (that everyone buys into) and actually knocking them out of the park. Want to see a role model here? Check out Balsamiq’s Blog.

The math of working at a startup rarely works out– people get paid less to do more. You have merely adequate benefits and lousy job security. With VERY few exceptions, the journey to liquidity is long and is by no means a sure thing. So you have to offer piles of intangibles that make your best people say, “Yeah, I could get paid another $50k across the street– but it wouldn’t be worth it.”

Did I miss any motivations? Why do you work at a startup when you could be making way more money elsewhere? Or, if you work at BigCo, what would it take for you to take a 30% pay cut?

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