This is the part 2 of the summary. If you haven’t finished the part 1, I highly encourage you do so, here. Otherwise, let’s begin.
Cheat Codes for Next Time: Branding
Last time, Rand started with “SEOmoz.org” and eventually bought “Moz.com” (for six figures) in order to give the company a more pronounceable, less restrictive name.
If he’s doing it again, Rand is choosing a brand name that:
- has no obvious associations with a specific product or space, and thus is open for expansion (like Amazon, Google, Uber, Zillow, etc.);
- has the .com domain extension available—outside of the tech world, branding a non-.com web address is still a huge barrier, and an available .com also makes it more likely that the brand’s social media profiles on places like Twitter, Facebook, Instagram, and the rest are capturable;
- is easy to say and hard to confuse once heard. Years of dealing with ess-ee-oh-moz and all its mispronounced variants taught me the importance of having a name that, once heard, can be recalled and transmitted. There’s even research showing that more pronounceable brands and ticker symbols tend to do better in the stock market than their less pronounceable peers (and they say stock markets are “efficient”); and
- has very few results in a Google search, so that tracking its progress on the web is easy and potential confusion between the brand and anything that already exists is minimal.
Cheat Codes for Next Time: Funding
Today, there are vastly more funding options to those building a new tech-enabled business. Venture capital comes in more variety than in the past, particularly with the rise of “micro-VCs,” who raise smaller funds, invest smaller amounts, and also require less massive exits to meet their LPs’ expectations
Nearly every region of the planet has some form of startup accelerator (like Techstars and Y Combinator), which offer networking connections, alongside mentorship, a small amount of funding, and (usually) the opportunity to present directly to angel, venture, and corporate investors upon the program’s completion. There’re angel investors, now easier to access than ever before through platforms like AngelList and angel collectives in many cities (e.g., Seattle’s Alliance of Angels). And last, but not least, there’s crowdfunding, available in equity and debt formats (via platforms like Crowdfunder and Wefunder) as well as rewards-based formats (like Kickstarter and IndieGoGo—the latter also offers equity crowdfunding for some business types)
Here’s how the options compare, situationally, for Rand’s next adventure:
- Venture capital is, for Rand, too restrictive, even at the micro-VC level. It forces that binary outcome—either succeed spectacularly (a true rarity) or collapse (far more common). It’s absolutely the right call for those seeking to go truly big, but I want the freedom to choose a path of slow, profitable growth, perhaps never selling at all and simply building a business that yields profits for employees and a reliable, high-quality product for customers.
- Angel investment is a tricky one. There’s the ideal outcome- investors are completely aligned with whatever path the business pursues and comfortable if we change direction from pursuing profitability to aiming for an exit or even choosing to raise VC.
- Debt has some benefits—namely, you can pay it back and be completely free of any external obligation. But that comes at a high monetary price. Debt offerings on crowdfunding platforms require a payback of 1.5 to 3 times the amount within a few years, and it’s even more expensive to use some of the debt-based startup funding sources that need 3 to 5 times payback. The ugly part is what could happen if you aren’t able to pay back your debt holders; namely, they could, like a bank, seize your assets or entire company. Despite these drawbacks, it’s definitely in my consideration set. The risk is offset by the chance to run the company exactly as I want, without outside interference or exit requirements.
- Crowdfunding is a truly interesting option. The money raised, especially in a rewards-based scenario, is essentially early revenue, and it can help expose the company to potential customers and gauge their level of interest. There’s equity-based and debt-based crowdfunding, too, which leverage some of my network-effect strengths but retain a bit of the drawbacks mentioned in number 3 (though, in an equity-funding scenario, crowdfunders may be more flexible than angel investors).
- One hundred percent bootstrapped is the last option. It’s fraught with personal financial risk and you don’t want to burn through it all and leave nothing for a rainy day. Sure, bootstrapping is massively compelling from a freedom and flexibility standpoint but you want to make sure you have something to fall back on.
- When choosing your own funding, think hard about what you want in the long run. Are you totally comfortable chasing a big exit and okay with the limitations on pay and control, and the high failure rates? If so, venture capital is exactly the model you’re seeking. Are you looking for complete control, profitability, and 100 percent ownership with slower growth? Bootstrapping on nights and weekends while you’re at a day job (or consulting, or living with a very supportive partner) may be the right match.
Cheat Codes for Next Time: Market Validation
To validate what you’re building is what people actually need, plan to:
- build a list of about one hundred people you strongly suspect will want the product you’re creating
- interview each of them about the problem and how they solve it now
- create a landing page that teases the product even before it’s available, and see how many are willing to enter their email for later access
- share that landing page broadly, buy some ads to it, get it ranking in search engines, and use your connections to help amplify it
One of the biggest causes of early-stage business failure is lack of real buyers hungry for your solution. Validating that the problem you’re trying to solve is real, the market exists, and customers are willing to take a chance on a new type of solution from a brand-new company is a huge weight lifted.