#musings

Assert all the things

Wim • @wcools • • Part of Day 41

In programming, we use assertions all the time to make sure our assumptions about what the code should do are (still) valid. Whenever the resulting state is not what we expect it to be, the program stops and we receive some sort of error notification.

We’ve set up our systems to email us about it, so in the below example we would get an email if some_function no longer works as we expect it to:

offset = some_function()
assert offset % 4096 == 0, "The resulting value should be a multiple of 4096"

We use this concept of assertions everywhere in our business. Some of those are in code, but many others run as periodic scripts (cronscripts). They’re small bots if you will, constantly checking if all kinds of “business state” is still what we expect it to be. Those checks can be about all kinds of things: from accounting, to hardware, to invoices and security.

Rather than having to manually check if everything works as expected, we have our systems tell us when something is wrong. Push vs pull. It’s like the concept of a dark cockpit in modern planes. Rather than staring at dozens of lights and graphs and make sure they have the right color and right value, we keep working without distractions and get notified when a potential problem arises.

The checks don’t do anything other than informing us through an (email) notification. We don’t add “smart” logic to automatically try and correct the problem. The entire point of these checks is that the state doesn’t match our expectations, so those events will be rare and require investigation. At best it’s premature optimization to worry about a solution before, and worst case automatically correcting it based on assumptions which no longer hold cause even more problems.

Over the years we’ve added plenty of these checks in our existing systems, and we will definitely use them again this time. They’ve saved us a lot of headaches by catching issues early on, and quite often the fix was trivial. Some examples:

A loose network cable

We run several scripts on the server where we expect the output to be empty. For example, we run a command like the one below to check the status of the network.

$ ethtool eth0 | egrep 'Speed|Duplex' | egrep -v '(10000Mb/s|Full)'

When the output is empty everything is as it should be. When there’s output, we get an email about it. At one point we got the following email message:

Speed: 1000Mb/s

Because we found out right away it was easy to trace the problem down to a bad cable which was causing network errors in our data center.

Server configuration

Just like the example above, we have many more of these little bots checking all kinds of configuration. Sometimes we hash the entire output to make it easy to check if the output still matches. For example, this command checks if all services are running with the exact status we expect them to have:

$ systemctl -a | md5sum | grep -v 36adc2b4e6a5798c9a8348cfbfcd00e0

When there’s output, something’s off. We do the same for all kinds of other configuration (maximum number of open files, kernel modules, IPv6 support, firewall rules etc). This has especially saved us time when updating packages or the OS itself. Even when you read the changelog, some subtle changes in defaults or configuration file locations might break your assumptions.

We also have scripts checking configuration files against typos or security issues (such as constantly checking our web server config for common misconfigurations). If we would ever edit the config and make a mistake, we’ll get an email a minute later.

Stripe webhooks

Many APIs have a tendency to change over time. Of course you try to keep everything updated, but there’s no guarantee you’ll catch all unexpected behavior or that you have time to look into every new change.

We use Stripe to process our credit card charges. Obviously it’s important this works correctly. To make sure we’re not missing any important billing state or changes we didn’t even know existed, we automatically send ourselves an error message whenever we receive a webhook we didn’t know about at the time we wrote the code.

Manual invoices

Although we process most invoices automatically using Stripe, many larger B2B accounts often pay using wire transfers. Automating every last bit isn’t always the right trade off, but we’re also not going to have staff to waste time on making sure invoices get paid. So we have a simple bot which notifies us every week if an unpaid invoice has a due date in the past. It keeps emailing us every week so we can’t forget.

Accounting

In 2020, some EU countries temporarily lowered their VAT rates for a few months because of the pandemic. Who knew? We certainly didn’t. Luckily, we didn’t have to, because our VAT-rates-bot told us on the 1st of the month that something was off.

All our other accounting is code, too. We can calculate down to the cent that the balance of our accounts should be equal to the sum of the opening balance and all transactions and invoices we’ve recorded since. The strangest error we’ve discovered this way is that someone on the other side of the world accidentally paid their speeding ticket to our account instead of the traffic authorities. You can’t make this stuff up, but luckily our bots told us about it.

Feature limits

Sometimes you introduce a feature where you have to make assumtions on how it’s going to be used. For example, we allow users to create workspaces when they work in multiple teams. For the first version, the UI won’t be very advanced. Will it work well with 5 teams? Sure. Will it work with 100 teams? Maybe not. But why worry about something that might never happen. We put in a “soft assert” (which warns us but lets the user continue), and investigate what to do about it when we start seeing people go over limits.

~~~

And of course the list goes on. Sometimes new problems come up, or we read about issues which might be relevant for us too, and we add a little check. Set and forget. Assert all the things.

Randomness is a perspective

Diederik • @jdvhouten • • Part of Day 40

For many founders the whole process of building a product and bringing it to market is stressful and anxiety-inducing. Founders want confirmation that they’re on the right track. But is this a reasonable thing to want? And does it matter?

Startups are an unusual environment where you’ll succeed if you focus on the things that truly matter at the expense of everything else. Not many things in life are like that. In college, for instance, you can “cheat” by picking easy courses or by studying for the test instead of for comprehension. College is artificial and all the metrics can easily be gamed.

It’s not just college that’s artificial. Consider these occupations that never leave the make-believe world:

  • Tax advisors game metrics for a living. Government makes the tax laws and the tax industry figures out ways to skirt them. It’s an endless game of cat-and-mouse that provides no particular value to society. It’s basically a boring competitive video game where you get points according to some byzantine rule system and also the points are money.
  • Many, but not all, charities fall into this artificial category. They raise funds for causes that deserve our attention, but then what happens? Being good at fundraising and being good at making the world better are two entirely different skillsets. It shouldn’t surprise anybody that when charities optimize for their ability to tug on our heartstrings they get good at that, and only that. Charities don’t need to be good at improving outcomes in order to be considered successful, they just need to look like charities and play the part.
  • An employee in IT that works hard to keep everything running smoothly might get no credit because all the value provided is invisible. Another employee that works weekends to put out fires of his own creation gets lauded for his work ethic. You’d think that businesses, because they want to make money, actually get really good at making something people want to pay for. But you’d be wrong because a businesses isn’t a person and it doesn’t have a singular will. It’s an organization first and foremost, made up from individuals who have personal goals often at odds with the goals of the business. An established business can survive on momentum for decades, churning out low quality products with poor customer service.

Disconnects like these are the default everywhere, not the exception. I’m not making a point here about misaligned incentives. The point is that these artificial environments provide simple benchmarks for success for the people in them. At work and at school your boss/teacher will tell you what to do and whether you’re doing a good job. You might still be working on pointless projects (see Graeber’s bullshit jobs), but it doesn’t really matter, because you don’t get judged on efficacy.

From this perspective it makes total sense that people feel scared and anxious when they start a startup. They need to transition from an artificial environment to one where they have to sink or swim. The complete freedom and apparent randomness of startup life feels scary and unstructured. Nobody tells you what to do or if you’re doing a good job, and the outside feedback you get feels totally random.

Some weeks you’ll get many thank you messages. Other weeks people say mean things about you or your startup on twitter. You’ll never know what triggered the positive and negative reactions, but you can easily lose your mind trying to figure it out. We assume these fluctuations are just noise, unless we see clear contrary evidence. You want to focus on the things that matter at the expense of everything else, which means you can’t let outside forces hijack your day.

If you work every day to make your app better and if you work every day to get the word out there, what do you have to be anxious about? Traffic goes up, traffic goes down. Customers come, customers go. Competitors come and competitors go. Much of this is completely beyond your control. The process is what matters and the process is extremely simple:

Work on the product in chunks until you believe it’s good. First make the most basic solution that works. Then refine it until it’s good enough to ship. Start with the hard parts and work your way back to the easy stuff (registration, login, documentation, etc.). Work on marketing with an “all of the above strategy”. Finetuning is for later, after you have established your startup is viable.

What is under your control is the work you do, and there is nothing random about it. Luck still plays a major factor of course. You can’t know in advance how many people want the thing you’re making. Sometimes you swing and you miss. And if we keep swinging we’ll hit a homerun sooner or later. But hopefully sooner :).

PS: It’s day 40. We’re half way through! And we have 20% of an app! Oh boy.

Calculating SaaS pricing in reverse

Diederik • @jdvhouten • • Part of Day 38

Instead of asking what kind of revenue you can expect with your product, we like to turn the question around. Start with the kind of revenue you need to consider the product viable, and then work backwards.

These are the kind of exercises we do when noodling with possible pricing models for Thymer.com. 

Let’s keep it simple and pick a round number: one million in annual recurring revenue. What does it take to get to that revenue with different business models?

Option 1: free with pro upgrade

With consumer software you want people to try your product before asking for money, and the easiest way to accomplish that is by offering a generous free version. We can then sell a Pro upgrade for $50 (one-time fee).

1 million divided by $50 = 20.000 customers per year. 20 thousand. That sounds like a lot.

But not every user buys your software.

Maybe 10% of trial users do.

Trial users = customers * 10 = 200.000 trial users.

How many website visits do you need for that? Maybe another 5x, if the signup process is good.

Unique visits = trial users * 5 = 1 million visitors.

One million unique visitors per year, or 20k per week. Not an impossibly high amount, but it’s not peanuts either. Where is all that traffic going to come from?

Ads? That’s hard to pull off when you’re bootstrapping. Funded competitors will outbid you the moment you get traction. Besides, when you already have the expense of many free users you can’t afford to throw money at opaque ad systems.

Organic search traffic? Maybe, but it takes a long time to build traffic like that with articles and other content.

Twitter? Interviews? Youtube? Magazines?

You’ll need a massive marketing effort to get that kind of traffic going. And you need to do this every year, just to keep your revenue from collapsing. Let’s see if we have better options.

Option 2: prosumer subscription

Okay, let’s see what happens if instead of charging $50 once we use a subscription model.

The big challenge for consumer subscriptions is churn. Also, repeatedly charging a credit card will lead to a much higher customer support burden, plus you only get maybe 24 months of revenue on average from each customer. Maybe your product will have best in class net retention, but 5% monthly churn is typical for consumer subscriptions and at that rate you lose about half your customers every year.

That means you can charge $50 once or $25 per year for two years. The rest of the math will be the same as in scenario #1 which shows that subscriptions are no panacea. You still need a ton of traffic to get new trial users to get new customers to replace the ones that have churned.

Option 3: subscription for teams

The problem with scenario #1 is that you need a ton of traffic and awareness that we don’t know we’ll be able to get. The problem with scenario #2 is you add a bunch of complexity (subscriptions, renewals, cancelations, unpaid/overdue subs) but the LTV (lifetime value: the total amount paid by a customer for the duration of the subscription) of a customer won’t be much higher because of churn. The entire point of running a subscription service is that your customer base can accumulate over the years, but you won’t be able to do that when your customers leave in droves to chase the next cool thing. The harder you work at growing your business the more relentless churn will be in dragging you back down. 

We can kill two birds with one stone by introducing a subscription for teams: churn and volume. Team subscriptions are automatically more sticky than individual licenses because moving everybody to a different product is a hassle. This means dramatically lower churn. If your product is for small businesses or teams within larger businesses your churn will be maybe 2% per month (= 20% annually). And when you sell to a team you’re selling multiple licenses at once. That’s much faster than selling individual licenses!

If you charge $50 per month for a Teams subscription with 2% churn your LTV is 20x-30x that of individual prosumer subscriptions. That’s a huge difference!

Now, you only need find 400 customers for 1m in annual revenue. That’s 2 new customers a day and you’re golden. That sounds way easier than the 20.000 customers demanded by scenario 1.

You might have noticed that 400 customers @ 50 a month is only 200k and not 1m. That’s true, but you only need to compensate for churn, here. If you have 2000 customers at 50/mo and you lose 20% of those each year, then you need to find only 400 new customers to retain revenue. Any sales beyond that will grow your business. The math checks out!

—

Unless Thymer becomes a smash hit, our revenue will have to come from team subscriptions. Right now, I don’t see any other way. The bright side is that we should be able to keep the single user version of Thymer free or cheap because it won’t bring in much revenue anyway. The downside is that we might end up serving two different audiences, and that features that make sense for a Thymer Team make no sense for a single user version of Thymer (and the other way around). I’m sure this will turn into a careful balancing act. 

Work on what you need to

Wim • @wcools • • Part of Day 31

Starting a business is always a gamble. I still think the odds are better than many assume (not starting one is a gamble too, in a way), but in the end you just won’t know for certain if it will work until you try.

To reduce the “risk”, a lot of advice focuses on making smaller bets and getting quick wins.

It seems a lot of this advice is taken to mean you should always try a “safe idea” to maximize the odds. Try to interview people and see what their problems are. Maybe do some consulting or freelancing instead (vs building a product). Perhaps start an info-product, something easy to make, make sure it doesn’t take too much effort to build. Instead of thinking about a problem, think the other way around: what could get you “rich quick”?

I think this narrow focus on these “safe ideas” is a mistake.

It’s totally okay to have a small scope for your initial idea. It’s very important to be able to launch relatively quickly, because you have no idea whether your product will really work. But that’s always the case, “safe idea” or not.

The biggest problem with reducing the space of ideas people think they can work on is that you stop working on what you feel you have to. It’s great if you really love one of those “safe ideas” of course, but if it feels uninspired or it becomes so much about the quick win, then we we stop dreaming about what we actually want to build. And I believe it’s working on what you feel you have to that really increases your chances of success, even if that’s a harder problem than the “safe bet” easy-win get-rick-quick idea.

You’ll automatically know when you’re working on something and your heart isn’t really in it. In fact, your customers will know it too. Your product won’t stand out, it will feel bland, look the same as the rest, uninspired.

You know that problem that you just have to work on, because it’s where your mind drifts when thinking about solving problems during a walk/shower. It’s the thing you can still work on even if you’re tired (not that you should, but you could!). That means you’ll be able to keep working on it, which is important if you want to succeed. Especially because in every startup there will be many dull and boring tasks which need doing, and it’s hard to stay motivated enough to do all the parts which are boring to you if you don’t really want to work on this problem.

Another advantage of working on your dream idea is that will want it for yourself, so you know exactly what to build. Or maybe it describes yourself. Or it’s a trend you’re part of which is starting to emerge and you think more will follow. It’s hard to time the market anyway, and just coloring within the lines and building similar things to what’s out there is not going to make it easier. Might as well work on your dream and make it stand out enough.

Another important reason to work on your dream idea rather than a “safe idea” you don’t really care about, is that if it actually succeeds, it will become a relatively big part of your life. We can only work on so many ideas after all.

Many of these ideas are discarded because they might feel too unrealistic (or the complete opposite, they might feel like a “hobby”). But those are actually the most interesting. Yes they can completely fail (the advice of finding out quickly is still very important!), but they can also really push things forward. A lot of really interesting and successful things wouldn’t have existed if their creators would have stopped dreaming and just stuck to something “safe” instead.

Work on something you have to, get a V1 out to customers as soon as possible for the type of product, and see if they love it. Worst case you’ve worked on something you had to anyway, no regrets, and move on. Best case they’ll love it and you’ve really added something new to the world.

Single miracle startup

Diederik • @jdvhouten • • Part of Day 30

A common piece of startup wisdom is that you should go for a “single miracle startup”. If your startup requires no miracle at all to happen you’re probably aiming too low. If your startup requires multiple miracles to happen then failure is almost certain. A single miracle startup hits the sweet spot.

Why is it a bad idea to start a zero miracle startup? Suppose you decide to clone a simple but moderately successful B2B web product. This doesn’t require any miracles to happen. If the product is basic then cloning it shouldn’t even be difficult. Then it’s just a matter of finding customers and improving your product. As your product gets better you’ll get more customers, and as your marketing gets better you’ll get more leads. You can grind it out this way. It takes a long time, but you’ll get there eventually. A market that has a number of profitable businesses can always support one more, after all.

A big problem is that if your product and your business model are entirely derivative that any kind of runaway success is unlikely. It’s hard to get good press if your product is uninspired. Word of mouth can be one of your strongest assets, but the enthusiastic early adopters have already tried the original. They’ll pass on your clone. Those are pretty serious headwinds.

The odds that your clone will be more popular and more successful than the original are not good. Which means that your success has a ceiling. A pretty low one. You could clone a very successful product, but that’s way harder. If your product is just like Slack, but substantially worse and unfinished, who in their right mind will buy it?

You want to make your product different and therefore better at least in one dimension. You can make your product way faster, and distinguish yourself that way. Or you can make your product super easy to use. Or very pretty. Or integrate heavily with a popular platform and then your product will be the best X for users on platform Y. Any of these are better than straight-up cloning a product, but it’s still not optimal. You want to be so different that there’s a pretty good chance your product flops completely.

If you take some big product risks and it turns out there is an audience for it, then your product could create a new niche overnight. Your product will be the only one that meets a formerly unmet need, and that’s a big tailwind. This requires a miracle, but only a small one. It means that you don’t have to fight as hard to win unhappy customers from competitors. You’ll still need to do marketing, of course. People have to know your product exists.

We live in a huge and diverse world. Even wacky products end up with many devoted fans. By taking a seemingly riskier route, by making a product that is a little bit “out there”, you actually get better odds of success.

You need a moat

Diederik • @jdvhouten • • Part of Day 24

With Thymer, our planning IDE for makers, we’re entering an enormous and established market of productivity software. We’re fully aware it’s a crowded space where most newcomers fail. Consequently, we need to make a good product and we need a moat. This post is about the second part, building a moat.

Before we get to that, let’s see why the conventional wisdom of building a really small MVP works for other startups but not for us. The conventional wisdom is straightforward: You have an idea, but you don’t know if the idea is any good. What do you do? You contact a bunch of people who you imagine to be prospective customers and you talk to them and ask them if your idea makes sense to them. If they seem receptive you slap together a minimal product with various nocode tools. A form builder puts rows into a google sheet, which in turn sends an email to a remote assistant that executes steps to be automated later. Use a site builder to pitch your idea. Collect some credit card numbers and you’re off to the races.

The assumptions here are (1) you can figure out what the market wants by talking to people and (2) you can demonstrate viability by duct-taping some tools together. If customers aren’t biting then no harm done. Fail fast; try again.

There are three major downsides to this approach from my perspective. First, if you simply build what people ask for then you can never create a revolutionary product. If Henry Ford had asked what people wanted they would answer “faster horses”.

Silent Sunday Nights GIF by Turner Classic Movies

The second downside is that the only products you can build are those that lend themselves to quick prototyping. You can build a MVP for, let’s say, an Invoice Scanning service. You advertise it as powered by an AI-based Deep Learning Neural Network. In reality you just outsource the data entry work. You focus on growing your customer base and when you’re confident you’ve got that part figured out you start on your AI wizardry to make the product real. Aside from the ethics of this approach, the strategy works[1].

Now consider a product that can’t be faked as easily. For instance, a new high-performance database. You could talk to tech companies and ask them if they need a better database (they’ll say yes) and if they’re willing to pay (also yes) but this doesn’t tell you anything you don’t already know. This is a product-first startup and if you don’t have a product to show people you don’t have anything.

The third downside to the nocode approach is that even if you can get your startup off the ground this way, what you end up with isn’t going to be a tech startup. And if there is no tech, where does your moat come from? If your product can get cloned easily it will get cloned the moment other people figure out you’re doing well. Sure, competition is inevitable for any startup and you can try to out-execute everybody. Still, there are always people who are as smart as you are but more ruthless and willing to work harder. If at all possible, you want to avoid an attack by clones.

roger roger GIF by Star Wars

If you have to solve some schleppy technical problem in order to make your product stand out the equation changes. The downside is that it requires a much bigger upfront investment to get a first version out. This implies a much bigger opportunity cost in case you build the wrong thing. In addition there is execution risk of having to do substantial rework as you learn more about the market. Small prototypes are much easier to change.

The upside is that having to do a lot of work up front discourages the competition. Anybody who successfully clones Figma will do very well. Daunted by the work it would take, the aspiring cloner will look for easier opportunities. Figma’s technical excellence makes their users happy and keeps their competitors at bay. Win-win. If your product requires hard technical work you eliminate a large chunk of the competition. Most startups are started by business-minded people who have only a secondary interest in tech. They’ll avoid hairy tech problems because that’s not where their strengths are. Good software engineers want to work on their own ideas and don’t want to lazily copy somebody else’s. If you create a product that requires some real technical skill to pull off you take a slightly bigger risk but you get a moat in exchange. That’s a good deal, if you ask me!

All good businesses have a moat. Without a moat market participants are forced to compete on cost which results in a race to the bottom. In this scenario everybody loses, including the customer. You can’t offer decent customer support or deliver a good product when you’re forced to cut every corner just to survive. You don’t want to struggle to survive. Where is the fun in that?

When you’re good at tech but not great at marketing or sales it makes sense to lean as much on your tech skills as possible to give your startup an unfair advantage. It’s never a big mistake to lean into your strengths. In some circles the approach where you do months of coding before talking to any customers is considered lunacy. I don’t think this is justified.

Sometimes building a better product requires solving some hard technical problems. You risk building the wrong product by solving problems nobody cares about. That’s just the price you pay for entering a market with something new.

[1] One of the poorly kept secrets in the valley is that many of the AI startups fake their product like this.

Your app still has to be good

Diederik • @jdvhouten • • Part of Day 19

In this post I want to stress the importance of having an app that is really good. As good as you can possibly make it. Ideally your app blows the competition out of the water in a side-by-side comparison. This isn’t just about UI/UX design and features. It’s about whether your app solves a key problem much better than anybody else. Your prototypes and MVP won’t be that great, and that’s to be expected. You make those first versions to gauge potential. You have to work towards making a truly great app though, and in this post I’ll explain why I believe this is so important.

There are some businesses that do well without having great software, just by being great at marketing and sales. So why not just do that? You can hustle. You can buy ads, build a big following on social media, do cold outreach and email 10.000 people, write SEO pages, plug your app on youtube and do podcasts. That all works[1]. You can get many people to try your app with persistent marketing. Despite all that, if your app doesn’t provide enough value to people your startup will struggle and not really take off, no matter how hard you hustle. This is because the world is huge and the fast way to reach many people is by word-of-mouth. Your users have to be so thrilled about your app that they’ll tell their friends about it. Your app should have an R0 above 1, if you catch my drift :). That’s how you get explosive growth.

You can ignore what the market is telling you. You can just power through and hustle. Even with a mediocre app you’ll still find customers with persistence. You can even create a profitable business that does well year after year. This works best in markets where competition is weak and nobody has made a great product that users love. Those are markets just waiting to be disrupted. Just a matter of time until that happens.

For B2B startups having a great product is less important than for B2C. There are two reasons for this: 1) business software is more expensive which means you can just hire sales staff and 2) people don’t get as enthusiastic about business software which means your competitors are likely to struggle with word-of-mouth growth just like you. But even B2B markets get turned upside down by upstarts with wildly passionate users. Companies like Stripe and Zoom are unstoppable because of it. Business chat apps like HipChat and Campfire stood no chance against Slack. I don’t even remember the names of the businesses Zoom bulldozed. Webex meeting, maybe?

The necessity of making a great app applies to us as well. Every day we write code, design and redesign the UI. We try to figure out which features work and which ones just don’t. But we don’t know yet if our app will turn out good enough. Sometimes you swing and you miss. Occasionally you can pivot an app and turn it into something great, but that’s the exception to the rule. If reception to your app is lackluster it means your app is bad and you should go back to the drawing board. It could happen to us. Fingers crossed.

[1] To be clear, every business needs to do marketing. My point isn’t that marketing is unnecessary, but that it’s not wise to compensate for bad product/market fit by doubling down on marketing.

Everything is Power Law

Wim • @wcools • • Part of Day 16

How and where do you begin? If you’re justing getting started, the very beginning of the entrepreneurial journey seems the hardest. Those who have success have revenue numbers which seem out of reach, a follower count you can only dream of, and they seem to be everywhere.

The way I like to look at this is by acknowledging that Power Law is all around us. Probably 99/100 people reading this already heard it all before, but basically a power law describes a relationship between two quantities y and x such that y(x) = x ^ some power. When you plot a power law distribution it looks like this:

Another example of a power law relationship is the Pareto principle, or 80/20 rule, where 80% of the result is caused by 20% of cases. That’s the head of the graph. All the rest is in the long tail. You could put it even more bluntly and call it “winner takes all”.

It’s everywhere, in nature, life and business. From the distribution of crater sizes, the amount of food animals of a certain size need, the distribution of wealth across a society, pandemics.

Although you might want to call it the 99/1 rule instead. Inflation, a sign of the times.

So back to the beginning. What does this have to do with starting a business? Because so much in business follows this power law, looking at it in terms of power laws makes it simpler to understand why it seems difficult to start, and why success is in fact possible, and why certain routes are harder.

Audience, followers and marketing

For example, when looking at an existing large audience an established company has, it seems impossible to get there. You start out with 0 followers. Then finally you get your first follower or signup for your newsletter. Then finally another one, maybe 4 more. This will take forever! You’re at the end of the tail, and everything looks flat from here.

But. Power law! We see the same relationship in network effects, such as building communities, an audience or a following [1]. The value of a network goes up with the number of participants squared. So next time you send something to your followers, some in the network might notice it. Before you know it, people start sharing your content with some of their followers or friends. Slow at first, but the pace of new followers will pick up.

The important lesson here is to keep going. You shouldn’t look at the slow growth as it not working out, rather you are in the tail. This is the part where you shout in the void, and need to trust that it’s working. The network effect and power law are real. Similarly, you shouldn’t look at some other products following of 100K as unattainable, but rather see it as doubling only 16 times (of course it takes work, but that’s not impossible at all).

Content and thought leadership

The same applies to writing content and sharing ideas.

  • 99% of all content is created by 1% of people
  • 99% of the public debate is determined by 1% of the people (because they publish).

It looks like there is a lot of content out there, but related to the enormous size of the internet, there is almost none. That makes it way easier to have an impact on opinions, debates and establish yourself as a brand in a field you’re interested in.

  • 99% of all traffic will come from 1% of your posts
  • only 1% of all total views for your content will occur at the beginning

Almost nobody reads any of your content at the beginning, and that’s normal and expected. It’s important to keep publishing because you need the numbers to get to that 1% post which will do well (and make the rest of the content work you did compound).

Launches, internet points and product-market fit

Just to name some well-known examples to many startup founders: 1% of launches on ProductHunt will get 99% of votes, only 1% posts of Hacker News will get any traction at all. When a submission to one of those sites gets traction, the long tail of upvotes will just be a handful. You need to get to the 20/80 inflection point of the graph where suddenly it takes off and starts collecting all the other votes.

Having a great post or product is completely necessary to do that, of course. But the difference between 1000 upvotes and 1 upvote is not 1000x. It’s a few votes at the beginning, after which you’ll get the 99% of other votes. Again, good to realize this and not get discouraged and take one launch of a feature or product which failed to get traction as evidence that the entire concept is flawed.

The same goes for product-market fit. It’s a lot of long tail small changes which can suddenly bring you to the 80/20 inflection point where things really take off. Once things grow really quickly, you haven’t put in 1000x times the work, but a few doublings in the tail (which are just small numbers) brought you to this moment. From there on, everything goes quickly (feedback, revenue, press, and so on).

Competition

You will only have heard of a few big players (1%) in the market. They seem to be everywhere, but in fact there’s an entire long tail of businesses which have customers! Depending on the market, that long tail can be very lucrative. If you want to build a nice lifestyle business, don’t overlook big markets because there are a few large players. Build in the niches of the long tail.

Looking to become a big player in the field yourself, but see a lot of players? Only 1% of those will become really big, so if you’re willing to go for it, there’s less competition than you think.

Customers, support, reviews and pricing

Let’s end with a few more:

  • 1% of your customers will be your biggest fans and spread the word. That’s why your MVP needs to focus on getting those!
  • 99% of support is going to come from 1% customers. Don’t be afraid to “fire” them if it becomes unreasonable.
  • Likewise, most revenue is going to come from a few customers and few price plans. Make sure your pricing plans follow the power law, and allow customers who see a lot of value to subscribe to a high pricing plan!
  • There will be features which are only used by 1% of customers. Likewise, the vast majority of customers will only use a few core features. The long tail of customers which those extra features bring in will be relevant over time, but no need to launch with those.

[1] Slightly related to the topic of audiences, I like this TED talk by Derek Sivers about starting a movement (https://www.youtube.com/watch?v=V74AxCqOTvg). I just watched it again, and without measuring the exact seconds, I’m pretty sure the number of people dancing along follows a power law.

A paradox of course correction

Diederik • @jdvhouten • • Part of Day 16

The perfectionist needs to be told to ship faster. Because not shipping or having exhausted yourself by the time you launch is fatal. There is a critical difference between polish and wasteful perfectionism. Polished is an app that looks good and works well. Perfectionism is refusing to launch until every single bug is fixed, rewriting and refactoring backend and frontend code just to make it look nicer or cleaner. It’s wasteful work because large parts of your app and infrastructure will get rewritten anyway. Why seek perfection in something you’ll inevitably tear down?

The hustler needs to be told that making a really good product takes time so just sit down and do the work. Because you can’t grow a product startup if you don’t have a good product[1]. The engineer needs to accept that if nobody knows your product exists you won’t have any customers. If nobody knows what you’re building you won’t get any feedback. Having to face zero signups after spending a year on your beta is so demoralizing you’ll likely give up.

The spendthrift needs to stop squandering money. It’s the runway[2] you spend. Everything takes longer than you think and many startups fail simply because they run out of money. The miser should try to be less cheap. Sometimes you have to spend money to push your startup forward[3].

These are just some examples, but I think you get the idea.

In order to survive you want to embrace conventional and boring choices in some areas, because conventional choices aren’t terminal mistakes by definition. That leaves you with unconventional bold choices in those areas where you want your startup to stand out. Founders tend to be unconventional people, but it’s hard to be only moderately and selectively contrarian. That’s a problem because being contrarian and wrong can easily kill your startup.

People who are at one extreme need to shoot for the other extreme in order adjust their behavior enough and end up somewhere in the middle. 10% adjustments don’t cut it when your initial position is completely wrong. Your position is wrong because you are predisposed to believe facts that reaffirm your beliefs. To counteract your blind spots try to overshoot your goal and you’ll end up closer to the middle, where you want to be. This is counter-intuitive!

When you already have a reasonable middle position on any of these issues the advice you read and act on doesn’t affect you much. After all, it’s the big mistakes in startups that kill you. If you can survive until you reach product/market fit (= awesome product and accelerating growth) you’ll be fine even if you get all the small stuff wrong. You just need to avoid the terminal mistakes. Tautological, I know, but still easy to forget.

That’s the paradox of course correction[4]: when you at the one extreme aim for the opposite extreme to end up in a moderate position. If you’re an engineer with an inclination to do zero marketing, try to overdo your marketing and maybe you’ll do barely enough.

[1] You can build a different kind of business, e.g. where you provide some kind of B2B service manually that you’ll automate later, after establishing a market need.

[2] Your runway is the time you have before you run out of money. The sooner you can cover your living expenses the better.

[3] We’re pretty bad at this, admittedly, and have a tendency to reinvent the wheel..

[4] If this is a known concept I don’t what it’s called.

Where are all the software startups?

Diederik • @jdvhouten • • Part of Day 13

Where are the software startups? Where are they?[1] It’s a question that’s been on my mind for years. I don’t get it. Clearly many people want to work on their own software. The abundance of open source software is evidence for that. Clearly people want the independence you get from doing your own thing. Clearly people want to be in charge of their own destiny. Clearly there is a market for software that doesn’t suck. Technology is still in its infancy. Most software hasn’t been written yet.

How can it be that this market mismatch continues to exist. People with money to spend are clamoring for better software and there is an abundance of skilled software engineers and designers who want to make high quality products. Where does the software market break down? What’s going on here?

I can’t blame the potential customers. They can’t buy software that doesn’t exist. Nor can they buy software they have never heard of. My best answer is that people who really should be doing a software startup overwhelmingly don’t.

Are the incentives wrong? Doesn’t look like it from my vantage point. What do startups offer? Unparalleled freedom to pursue an idea you’re passionate about. Financial rewards when you make something people want. The satisfaction of bootstrapping something from nothing. A sense of independence and self-reliance. The absence of office politics and other nonsense.

And yet, we’re stuck in a place where most software kind of sucks[2] and software hasn’t gotten any better in the last 20 years from my vantage point. This is not just me being cranky. I’m trying to figure out why more people don’t get out there and make better software and enjoy the spoils.

[1] In Europe there are very few software startups. If you live in SF you might not agree with the premise there are few startups.

[2] You can’t even copy-paste rich content between a word processor and gmail. Apple Notes spins at 100% cpu unless I switch to “card layout”. My receiver crashes and loses its wifi connection. Nothing just works. Computers are fast but software is agonizingly slow. No software is truly cross-platform.