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!)

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.

[Timely note! We're hosting a Y Combinator Meetup in Seattle on Thursday Feb 25... details here!]

March 3 is the deadline for YC’s Summer 2010 session. I figured that I ought to throw my thoughts out there on the decisions that lead up to the application, the app itself, and the interview process that follows (if your app makes the cut!).

Making the Decision to Apply

• First off, I think the most important thing to emphasize as an entrepreneur is that you should optimize for your chance of success a meaningful exit, NOT the magnitude of it, should it happen. It may seem like selling for millions to Google is a foregone conclusion given how brilliant you are, but it’s not. Startup success is a tough slog with lots of randomness outside of your control. If you can trade a little bit of equity to nudge up your shot at success by a few percentage points, you should do so. Thankfully, YC from this perspective is a no-brainer. No one can argue that it doesn’t improve your shot (with the amazing mentoring they provide, the investor introductions/credibility, and PR bump), and if you calculate YC’s take is if you sell for $100m (divided by the number of founders), it isn’t too painful.
• Think about what you’re building, what market you’re playing in, and whether it’s appropriate for venture financing. I think I recall reading about someone applying who was proposing to build an app to manage Dungeons and Dragons campaigns. While there’s probably a business there, it’s pretty unlikely that the pen-and-paper RPG market is going to be the next big thing to change the world. Pick a big market– or better yet, pick a small market that can eventually morph into a huge market (like classifieds for San Francisco, selling books online, or an online garage sale).
• Read everything here and make sure you agree with some of it, but don’t be afraid to disagree with some of it either!
• Do something bold. You aren’t going to be thinking to yourself on your deathbed that you really should’ve taken less risks. YC is a blast. You get to meet amazing mentors, other great startup founders, and a few fairly impressive robots.
• Consider how committed you are to your idea/market, your company, and your co-founders. YC has plenty of flips, but the majority of ‘em seem to be going concerns for years. Can you get excited about what you’re doing (and who you’re doing it with) for 7 years?
• Do a gut-check on your team. Do they have the rough ingredients necessary to kick ass? If the better mousetrap you propose to build is going to be better because of an amazing UI, make sure you have a great UI guy. If you’re doing a vertical search/UGC play, make sure someone is at least a little interested in SEO. If you’re going to sell software to businesses, make sure someone is willing to sell stuff. And, of course, if you’re tackling something with big technical challenges (like most of us are) make sure you have some great hackers.

The Application Process

• Read Paul’s essays. It provides good insight into what’s important to him (and YC). Reading Founders at Work is a good idea, too. It’s a great book and shows you some patterns for startup success.
• Remember that the app is a sales pitch and focus your answers on the things that are important to YC. The biggest risks to YC are:
  • That you don’t have the chops to build something good. The best way to deal with this concern is to show them something good that you’ve built. Preferably several things, and preferably things that you’ve built with your co-founders.
  • That you’ll get bored/discouraged and quit. So try to work in examples of times when you’ve persevered despite significant obstacles.
  • That you’ll fail to make something that people want. So do what you can to show that you’re in tune with the market you’re proposing to serve. You can be a badass hacker with unflagging dedication, but if you don’t/can’t understand your users, you’re probably not going to be a big win for YC.
• Don’t be too shy or too arrogant to sell. I remember reading a comment on Hacker News that said, “My code speaks for itself.” No, it doesn’t. At least, not to investors, customers, employees, reporters, and the zillions of other people out there you’re going to have to sell to.
• Get working on your software ASAP. If you apply with a functional product (or even a launched product that people love), you remove a lot of the risks listed above.
• Get working on the YC app ASAP. If you’re unsure, apply! The app takes a few hours and it’ll help focus your thinking if nothing else.
• If possible, make sure that your whole team is ready to dive in whole hog. Starting something up is a commitment to your founders and to your new investors. Having a team member who has other commitments can be a source of contention.
• Hack the system! Every session I get emails from people asking me to review their apps. I usually do. I can’t imagine why you wouldn’t do this… YC founders are people who wrote successful applications and spent at least 3 months getting repeatedly kicked in the junk by Paul Graham and friends. I’m sure we must know something about how YC thinks that might not be obvious. If you can’t bring yourself to ask a stranger for some time, how are you going to raise money after YC? How are you going to hire your first employee?

The Interview

I don’t recall the stats on how many applications make the cut, but if you get asked in for an interview, congratulations! Now get to work building something (hopefully you already have).

• Get started on a demo. If you walk in and start monologuing, you’ll fairly quickly get interrupted and asked to start showing stuff.
• The “demo” will be less like Steve Jobs and more like Guantanamo Bay. You’ll be derailed almost instantly and peppered with questions and objections.
• Have a backup idea that you’re comfortable talking about. I know several founders who were essentially told, “we don’t like that idea. Do you have any others?” This may be a test of how much you love your idea as much as anything else. Founders who refuse to pivot often die from it. It also might be a test of your ability to have good ideas. If they don’t like your idea OR your backup, they might los faith in your ability to grok what people want.
• Practice. Ask 10 smart people to name 10 things that will make your idea fail. Have good responses for those objections. Don’t practice a speech. Don’t practice a 10 minute demo, practice little 1-2 minute chunks of a demo that you can string together if they leave you alone. Practice individual talking points and responses.
• Be willing to be wrong but also be willing to disagree. YC doesn’t want lapdog PG fanboys(and girls!), but they also want people who are coachable and willing to learn. Don’t be afraid to say, “That’s one of the things we’re going to have to figure out, but we have a few ideas.”
• Be dynamic and energetic. You’re a storyteller here. Your job is to get YC excited about your business. Make them believe that it (and YOU) are an investment opportunity. Work on eye contact, not talking to too fast, and thinking on your feet. Have someone role-play an aggressive interviewer.

That’s about all the advice I have. I’d close with this point– very very very few YC founders wouldn’t do it again in a heartbeat. It’s a killer experience and it’s certainly a needle-mover during the most fragile part of your new company’s life. Applying is cheap in terms of time and rewarding even if you don’t get asked in for an interview. Do it!

I tend to disagree with 37Signals on a mess of things. Like a lot of successful internet pundits, they deal in absolutes and hyperbole. There’s no middle ground and there’s no “…well, it depends”. That’s just not as linkbaity. It’s probably not as fun, either.

But there’s one place where I wholeheartedly agree with ‘em– if you’re in the Freemium game, start charging for your software. Right now. Yesterday, in fact. Should you put a price tag on just any web service? Absolutely not. Kayak shouldn’t charge to find you a flight and (if the rumors about their success as a leadgen platform are true) Mint shouldn’t charge you to organize your personal finances. But if a big part of your revenue plan involves charging for premium services on top of a free product (freemium), you should start charging as soon as possible. Here’s why:

1. Price signals value. Where you set your price emotionally sets a value for your product. What that means is that amassing a gigantic pile of enthusiastic free users isn’t going to result in a big pile of paying users when you turn on your premium features (or worse, move some of the features behind the “pay wall”). In fact, it will likely piss off a lot of users who have grown accostomed to getting something for nothing. During the Y Combinator experience, I got a chance to hang out with Joe Kraus (founder of Excite and later Jotspot) and the fellas from Wufoo. Both had horrifying anecdotes about asking a bunch of free beta users to start paying for their software. The conversion rate was awful. When we first turned on our premium offering, we were struck by the same thing. We opened the floodgates for paying customers and found that almost none of our free users made the switch. So even with your pile of zealous free users, you’re starting from square 1 in the premium game– you’ve already convinced your current userbase that the fair price for your product is “free”.

   I mentioned this in the comments but I wanted to promote it up here as well. *”Take a minute and answer this two-part question:*

   “1. Is the percentage of African nations in the United Nations higher or lower than 65? 2. What is the percentage of African nations in the United Nations?

   This was one of the queries that Amos Tversky and Daniel Kahneman posed in their 1974 paper in Science called “Judgment Under Uncertainty: Heuristics and Biases.” It turns out that the answer you provide to the second question is heavily swayed by that first question. The average estimate for question two was above 45 percent. When question one was lowered from 65 percent to 10 percent, the average estimation of question two was dropped to 25 percent. ” Source (pdf)

   Your free beta anchors your perceived value at zero and it’s a bitch to climb out of that hole.

2. Speaking of Square one… You don’t know nothin’ about square one! Charging people money for software is a whole new set of skills that you quite likely don’t have. What do your paying customers REALLY want? What do you put behind the pay wall versus in front of it? What do you give your free users? What kind of free trial should you offer? Will a referral program work for your business? Does your value proposition resonate most with individuals or businesses? Big biz or small? Can you make adwords work for your business? What works on an adwords landing page? Will a salesperson be valuable for your business? Where do your leads come in? Telesales? Direct Mail? SEO? SEM? Viral/word-of-mouth? The problem with all of these questions is that the answers don’t transfer across markets very well. What might work great for my market/product might perform terribly for yours. The sooner you start investigating this stuff is the sooner you start being smart about your market.
3. Getting people to sign up for a free service doesn’t mean that you know they’ll spend money on it. There are lots of clever ways you can ascertain whether someone would REALLY buy your product. You can put up fake adwords ads, you can cold call people, you can throw up a permission marketing page and try to get attention for it, you can do a focus group, you can ask some pricing experts, and more. But nothing is a perfect substitute for having a buy button next to a price and seeing if anyone actually clicks on it. And they generally won’t. At first. So start learning!

We’ve been at this for almost two years and I have very few big regrets. But my biggest regret as an entrepreneur is not starting on the path of charging customers sooner. It’s taken us about a year to get pretty good at it, but we’re still learning new stuff about our customers every week (we’re pretty darn grateful to have customers who are generous with feedback).

Some additional fabulous reading on the topic of when to charge can be read on Sean Ellis’ blog here. Sean basically contends that you shouldn’t charge at all until you are certain you have product/market fit. In the comments, someone expressed concern that product/market fit isn’t real until there’s a price attached to it. Here’s Sean’s response:

I agree that price is part of the process of figuring out if you have product/market fit. I’m basically starting with the price of zero. If people aren’t that disappointed to see the product go at zero cost, then we already know that any cost above zero will very likely also result in people not being that disappointed to see the product go. Once enough people consider it a “must have” at zero cost, then the next step is to figure out a price that generates the most revenue for every thousand people that try the product.

This is an interesting thought, but I’m not convinced. I remember hearing that Wufoo and Jotspot both had pretty passionate free/beta users. I could be wrong, but I’d wager that they would’ve had a solid number of folks who would state that they’d be “very disappointed” if they had to give up the product. Nonetheless, they came up pretty empty when asking these users to start paying up. The difference between product/market fit for a free product and product/market fit for a $5 product could be a lot farther than you think. It might be a few iterations or it might be a whole new product.

But where I think Sean is absolutely right (to be fair, I think Sean is brilliant– you should subscribe to his blog!) is that you need enough customers to be able to measure and improve your product. If you can’t acquire/retain 100 paying customers, perhaps you should stick with a free/private beta.

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.

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?

One of my biggest frustrations with Twitter is that it’s a pretty clumsy mechanism for 2-way conversation (IM style) as well as “one and a half way” conversation (commenting on a tweet that may or may not elicit discussion). I posted a tweet the other day to see what other people think:

I quickly got two responses from two people whose opinion I really respect (@sacca and @andrewchen).

@Sacca’s Response: “@webwright Speaking for myself, it seems like that could induce some lame behavior in asymmetric networks.”

@andrewchen’s response “@webwright inline replies work best in 2-way friending environments. Otherwise ppl you don’t follow show up in your main feed”

I found myself vehemently disagreeing with them, so I figured I’d blog through it as an product design exercise. Disclaimer note: armchair quarterbacking is easy. The Twitter team (note: @sacca is an investor/advisor) has more brain cells and a helluva lot more time invested in designing Twitter than I do– I have no illusions that a little rumination over Christmas makes me smarter than they are. I also know that there are (were?) some technical hurdles. For a while, Twitter wasn’t TOO good at understanding when an @ tweet was actually a reply, and which tweet it was replying to. Still the case, or no?

So here are some ideas for your consideration. I’d love to hear what folks think in the (delightfully threaded) comments.

1. Twitter would do better to think about their site as a content/microblog network than as a social network.

This is my fundamental disagreement with Andrew and Chris’s response. They’re thinking of Twitter like a social network with asynchronous/2-way friending (maybe it’s because the media is constantly comparing them to Facebook?). It isn’t, IMO. In fact, I think Twitter would have more success if they acted more like Wordpress.com (or LiveJournal?) than like Facebook. Twitter followers aren’t friends. They are subscribers. The people you follow aren’t people you know– they are microblogs that you find interesting. Twitter is a fabulous distillation of blogs and an RSS reader all rolled into one. It’s 10x easier than blogging. Following is 10x easier than subscribing via RSS (and following is a lot more grok-able than RSS to begin with). But they’ve crippled/marginalized one of the key features that make blogging so damn sticky (for bloggers and readers)– comments and discussion.

2. The problems of Chris, Andrew and (to a hugely lesser degree!) me are not the problems that most Twitter users (or bloggers) have.

To many/most Twits/bloggers, they are doing it because they want to be heard. I remember when I first started blogging what an absolute rush it was to get a comment on my blog. Heck, it still is. Similarly, I confess to checking my @replies fairly often. Is anyone listening? Did my breathtakingly insightful/amusing tweets result in anyone replying or retweeting? I think this changes when you get to the follower count that some celebrities enjoy (Chris, who mentioned above that inline comments might result in too much noise, has ~1.3 million followers). Similarly, there are some pretty famous examples of prominent bloggers shutting OFF comments… They’ve transcended the “I just want to be heard” problem of most twits/bloggers and have graduated to the “holy crap, discussion is a nightmare to manage/moderate” problem. My guess is that the higher up you get at Twitter, the less the product managers empathize with people who have less than 100 followers, who often feel like they are talking to an empty room.

3. Regardless of whether you want Twitter to be a social network instead of a content/broadcast network, it’s more VALUABLE as a content network.

First of all, look at Twitter’s big pile of 4th quarter revenue (high five, Twitter!). That’s for content. That content would be more valuable if it was richer. Let’s take Paul Kredosky’s “Dishwasher” scenerio, discussed on Fred Wilson’s blog. He’s looking for a dishwasher and finds that Google’s organic search results are lousy. I empathize– after a 6 month home remodeling effort, I am aghast at how bad Google is once you move outside the realm of the “linkerati“). Paul searches for a dishwasher, and now that Twitter content is featured in Google results, he sees a tweet that says, “Just got a new Bosch ScrubGunner Dishwasher installed today. Amazing!” That tweet would be way more useful if it also had associated with it the three @replies that said stuff like “The ScrubGunner starts off strong, but has a record of exploding about 3 months after you buy it”. Added bonus– this would make Twitter’s permalink pages quite a bit richer in terms of indexable content, which would increase traffic dramatically. Permalink pages with lots of comments could actually be VALUABLE pages.

Even taking the search deals out of the equation, Twitter is a consumer web service and its stock and trade are things like pageviews, # of tweets, retention cohorts, return visits per day, etc. In short, it wants lots of addicted users using it a LOT. Nothing does this better than conversation and Twitter is lousy at conversation. There are very few emails I open more reliably than the Disqus comment notifications for my blog, the WordPress.com notifications for the RescueTime Blog, or Facebook telling me that someone has responded to one of my status updates. Further, nothing brings me BACK to a blog like a reply to my reply. Take a look at Fred Wilson and Neil Patel– they pretty religiously reply to every commenter on their site and it generates return visits, more (valuable) content, and happier “customers”.

In short, if Twitter made conversation easier and noisier, it’d help engagement, retention, and growth (or that’s my guess anyways). New users would graduate from the “empty room” feeling quicker.

4. To keep things simpler, they should consider punting retweets for replies/comments.

Retweets are interesting and certainly help Twitter and API-wranglers understand the value/popularity of a tweet. But they don’t feed the core need that Twitter is filling for most twits… To feel HEARD. Further, the retweet feature is simply too smart and assumes too much understanding of how Twitter works. I’d wager that if you took 10 “newborn” Twitter users and asked them to explain retweets, you’d get a fair bit of confusion (humble hat tip to Twitter though– I can’t imagine retweeting being implemented clearer than it is). Comments/conversations, on the other hand, are as old as the Internet. People grok that right out of the gates.

Beyond just “grokability”, retweets just aren’t as approachable as replies. While Facebook’s “like” feature is the lightest way to endorse a status update, the retweet FEELS heavier. It’s saying, “I like this– and I like it enough to broadcast it to others”. I personally @reply folks about 10x more than I retweet them (and I imagine I’m not alone). If this is true for most people, who not focus on enabling what most of your users are doing more often?

Discussion would also help with user discoverability. @replies are often a source of followers for me (replies to me as well as others when I bother to dive into the clickfest necessary to track a full conversation on Twitter).

5. How I’d implement inline discussion on Twitter.

Obviously, comments/discussion would accelerate the number of tweets dramatically, so I think slamming them all into the main feed might be bad. I’d:

- Add the text “11 replies to this Tweet” as a gray link at the bottom of any applicable Tweet (when shown in a stream) to i
- Add threaded replies on the tweet’s permalink page. So Tweets like THIS ONE would actually be rich/interesting/engaging conversation and clickthrus to tweets from search engines would actually have more meaningful content.
- present @replies that are actually replies to other tweets as part of a conversion. So the “in reply to…” text below reply tweets could be a bit richer/more enticing, like “reply to @username (13 other replies)”.
- Maybe present a “thumbs up” or “like” button (a la facebook) for light endorsements of a tweet (easier and less noisy than “I agree” or “this is awesome” comments). Would this be better than a retweet option?
- Allow people to turn off the above display of @replies if they want.

Twitter is obviously a public IM client/chatroom for some. For others, it’s a microblog broadcast platform. For still others, it may actually be a social network. But I’d contend that serving those first two audiences FIRST (by making conversation easier) would create happier users, gut-punch their early attrition problems, and create a more valuable business. What do you think?

(You should follow @sacca and @andrew_chen and maybe even me on Twitter!)

A friend/contrarian Tweeted the following that I though was worth a discussion (the 140 character limit of Twitter quickly got too painful for me).

“What’s wrong with this world: Twitter is making $4mil per year yet is valued at $1bil. #newmath”

I think this is an important thing to talk about– it’s certainly something that would have resonated with me before I raised money from investors, but now falls pretty flat. I have two quick points to make about it, then I’ll wait for Marina to attack me in the comments.

1. Valuation does NOT equal market value for the company. Founders don’t like to give away a lot of equity when raising money (nor should they!). So, to bring the #s back to earth, let’s pretend that I have a seed stage idea with a little promise/traction that I’d like to raise $1m for. During the fundraising process, there is NO discussion about what the company is WORTH. Instead, the discussion is about how much equity I want to sell (say 25%) and how much I think I can get for it ($1m). This establishes a post money VALUATION of $4m (i.e. 25% of the company is worth $1m, so 100% is worth $4m). No one is saying that anyone who buys companies would even DREAM of buying it at a price of $4m… We just need a mechanism to decide how much equity the founders get to keep if we want to raise $1m. We could fix this offensive math by either selling stock in a company based on the market value (what someone would buy it for), but I think you’d find that good entrepreneurs are not interested in working for free/cheap when they own a tiny percentage of their “fairly” valued company. This model scales all the way up to Twitter. The conversation is more about how much founders and previous investors own after they raise their big rounds than “So, whaddya think we’re worth if we put this puppy on the auction block?”

2. Supply and demand. There are two markets here. One is the scarce (and not always rational) market of GOOD entrepreneurs/startups. If an investor wants a stake in startup that’s growing, they have precious few opportunities to do so. This market has VERY little to do with the current cash value/revenue of the company (at the early stage), but instead is based on the size of the market/opportunity, the entrepreneurs involved, growth patterns, long-term market trends, and how much competition there is for the deal. If Ev Williams punted Twitter tomorrow to start a new startup, he’d get huge valuations if all he had was a sketch on a post-it note, just because there are very few opportunities to work with a guy who has made VCs rich in the past (i.e. had an exit). And because the upside of a successful exit/IPO is so high it makes sense to buy the opportunity at that cost even if Ev’s post-it note probably wouldn’t sell for much on the open market.

Whether you think Twitter is or ever will be worth $1B is immaterial (I think it will, for what it’s worth). The real question is, should an an early stage investor buy stock in a company with a valuation that doesn’t reflect current market value of the company? I think the answer is a resounding yes– if it wasn’t, you’d have a lot fewer startups in the world.

I think the solution for the disconnect is to stop equating the phrase “valuation” (especially when talking about early stage startups) with market-value in your head. We back into those numbers in funding negotiations to make sure that entrepreneurs have the cash resources they need and enough equity to be motivated by the upside at the end of the rainbow.

And, remember: don’t be held back by common sense. There’s a great quote about an insane idea being a necessary but not sufficient requirement for startup success. Early stage investors have been in the business of funding companies without revenue forever, and the smart ones seem to make a lot of money doing it. Monetizing Twitter on a grand scale right now seems insanely hard. But a LOT of smart pundits were saying that the search market was a dead end when Google started spinning up. Markets change, smart people innovate, and magical things happen…

I love games. While I did wear a letterman jacket through most of high school, I surreptitiously played Dungeons and Dragons every week with my brother’s gaming group. I’ve played a wide variety of games on every computer I’ve ever owned. I like board games like Settlers of Catan, and (god help me) I even futzed around with Magic: The Gathering.

Like a lot of software folks, I have a secret wish to punt everything, run into the hills, and make GAMES.

So it’s exciting to see this gaming renaissance. Casual games, social games– whatever you want to call them– there are new ways to make money making games and it’s no longer the big budget hit-driven madness that we’ve grown accustomed to.

But boom times like this can be messy and noisy, and this one is no exception. One of the key elements of this new gaming revolution is the potential to be VIRAL. As a developer, it’s fairly trivial to have your game automagically announce itself to a player’s Twitter followers, Facebook friends, whatever. “[friendname] just found a +11 Sword of Evisceration, but he needs your help to consecrate it in the blood of the Celestial Dragon – click here to join [gamename]“. Or, on Twitter, “I’m now the Mayor of Baskin Robbins. Bask in my benevolence! [insert bitly link here].”

The cost of shooting out these messages periodically as a user plays is trivial and there’s only upside, right? If 1,000 users play to that point and they each have 100 followers on Twitter, well– you just got 100,000 free ads for you game, packed with the kind of social proof that advertisers can only dream of.

But, at the end of the day, it’s SPAM. As a developer, they shouldn’t be asking themselves whether the cost/benefit analysis works. Heck, it costs me a billionth of a penny to send an unsolicited email and I’m sure I could craft an email that would convert more than a billionth of the time. WIN! Instead, they should be asking themselves the following questions:

• Does the player WANT to tweet about this? If they do, encourage them but let them opt-in every time and do it in their own words.
• How many of the players followers gives a rat’s ass? If a game auto-tweets on my account, 99.9% of the people are going to get no value. 99.9% aren’t going to find it interesting. I’m looking at you, Foursquare.
• What percentage of the players would, once they realized that they just blasted their friends with this promotional tweet would say, “Ooooh, I didn’t know it’d do that! That’s GREAT that I just told all 1500 of my followers that I’m the Mayor of Hooters!”

Yes, social game makers, your spammer math WORKS. 99.9% of my followers will consider it noise– if they read the tweet, they’ll want their 10 seconds back. But you’ll get your 0.1% clicking the link, and those clickers will convert (some of them). And THEY’LL make noise too and you’ll have your virus.

But because this works so well, we’re going to have more and more of it. If you’d told the first guy that sent an email that 95% of the world’s email would be spam in 2007, I think he’d be pretty horrified. While I tend to like federated models like Email more than walled gardens like Facebook and Twitter, in this case I’m glad there are some sensible folks at the helm who can shut this stuff down (or at least give users the tools to turn the noise down).

For what it’s worth, if I wasn’t in the weird and wonderful world of time management software, I’d be doing social games. Hell, maybe I’d suck at it because I took the high road. But I think I’d just focus on making really fun games, making it MORE fun if people invited friends, and giving them the tools to tell the world should they want to.

(note: this is modified from a talk I gave at Seattle Tech Startups on Wednesday)

The more I think about it, the more I’m impressed with software businesses that are great businesses (not just great software). There’s a class of entrepreneur that is product focused (like the folks at Twitter), there is a class of entrepreneur that is business focused (the white-toothed stereotypical biz guy), and there is a class of entrepreneur who is PR focused (I won’t name names, but we all know of startups that seem to thrive simply because of the attention they draw). I think good things happen when you create an outstanding product that has a clear path to monetization– add on someone who is also an attention magnet (like Steve Jobs, who is all three flavors rolled into one) and amazing stuff happens.

A couple of examples

• One you might have heard of– Google. Their outstanding product certainly earned them clear leadership in the world of search engines. But it was Adwords and Adsense that got them to the point where they could feed every employee gourmet meals and do their laundry for them.
• One you haven’t heard of– Autotegrity. This tiny company is finding leads for car dealerships via Google Adwords (among other things). They find people who are looking for very specific things (“blue honda accord”) and offer to get them three competing quotes. They take these leads and sell them to car dealerships (3 times, predictably). It’s a win for both sides and they are staggeringly successful.

One thing I increasingly believe is that the idea of just building something great is a game with much higher risks and rewards. Clearly if you build something that captures attention like Twitter and Facebook, you have the luxury of nearly infinite time to figure out how to monetize what you’ve built. But all of the people trying to build the NEXT Twitter end up in much more dire circumstances. A smallish audience of a few million early adopters a month– an audience which is neither big enough nor unique enough to monetize very effectively. This is no joke– I know lots of services out there that are getting tens of millions of page views and millions of uniques per month that can’t manage to get enough ad revenue to pay a single salary.

So step out of the gates with a strong idea of who’s going to be paying your paycheck and how many of those people you’re going to need to pull it off. If “targeted advertising” is your answer, find an audience that PAYS– that means creating a content site for an audience than some subset of marketeers would chew off their own arm to get in front of. That may mean creating software for weird-but-profitable niches like home remodeling (which commands $20 CPMs last I heard). And it certainly means serving audiences who actually SEE and CLICK on ads (which means that your blog about startups is not going to make you any money, natch).

The key here is that owning a business isn’t about building a product any more than owning a car repair shop is about fixing cars. You’ve got to broaden your vision and bring your passion to bear on stuff like marketing, business models, customer service, guerrilla PR, SEO, and more. It’s hard to name any companies that are admirable who don’t excel at things well beyond product development.

So if you’re supposed to work on everything, what do you work on FIRST?

You should look at your business as a funnel (which, incidentally, is how every salesguy on the planet looks at their sales pipeline). Here’s one that’s in my head all the time:

What’s at the top of this funnel varies on what type of business you have. Maybe it’s page views from organic SEO and SEM. Maybe it’s warm leads from a bank of cold-calling lead-gen folks. And maybe your conversion event is a software purchase (like ours is). Maybe it’s an ad-click. Maybe it’s an account signup. But trust me, you have a funnel.

So when trying to figure out what the hell to work on as an entrepreneur, go worship at the alter of the funnel. That means:

• Measure the hell out of everything. If you don’t know many many new visitors are coming to your site, what percentage of them do something, what percentage of THOSE people, click signup, what subset of THOSE people actually successfully signup, and what percentage of THOSE people are paying you a month later, the first thing you should do is work on metrics. Don’t go overboard, but know your funnel.
• Work your way UP the funnel, not down (if you have the financial luxury to do so). Most entrepreneurs ask “how do I get people to come to my site so it can grow?” The answer most often is down the funnel: the product isn’t providing enough value, communicating clearly enough, engendering enough passion, or causing people to want to tell their friends.
• Seek the low hanging fruit in the funnel. That means that you should seek out where people are escaping your funnel. If you get tons of visitors but no one clicks on anything (high bounce rate, low time on site), chances are your value prop is confusing or isn’t very compelling. You might need to improve the product, but chances are you just have to improve how you talk about it.
• Seek leverage. The lower you attack the funnel, the more it helps. If you do something to improve your retention that will help you forever. If you do something that gives you a boost in acquisition (like a SuperBowl ad), the value will be short-lived (unless you have a true viral loop). Two great retention stats (via Andrew Chen):

  “If each month you lose 8% of your existing users (92% retention) from the previous month, the average use will stay for 12 months. If you can hold just 4% more of your users (96% retention), then they will stick around for 2 years. If you can hold only 1.3% more than that (97.3% retention), they will be in for 3 years.”

  And, if you take a cohort of 1000 users from a month an 80% retention rate means that you’ll have 68 of them after 12 months. If you can get that to 90%, you’ll have 282 left. A 300% revenue boost for that single cohort (and every subsequent monthly cohort!).

• Don’t give up on making your product great. It’s easy to get sucked into data, A/B testing, form fields, etc. But at the end of the day, people don’t just abandon signup forms because they are hard and confusing, the abandon them because they don’t care enough about signing up.

Resources Referenced in the Presentation

Bokardo’s “Designing for Social Traction” Presentation
Josh Kopelman’s Cohort Analysis Spreadsheet

Hat Tip to:
Gladwell’s Blink (has the story about likable doctors getting sued less regardless of how good they are at healing)
The Heath Brother’s Made to Stick (best marketing book on the planet, they talk about the “Curse of Knowledge” and the “Tappers and Listeners” study)

Here’s the full presentation: