March 2017
Startup is a buzz word. A startup is a business that just got started and has not achieved sustainable profit. A startup is by default a failing business until you make it profitable.
A unicorn startup is one that has been valued at more than 1 billion dollars by investors. A unicorn startup doesn’t have to make money. A unicorn startup doesn’t have to show healthy business fundamentals. A unicorn startup only needs growth and to be priced by investors.
I proposed that, perhaps, there is another kind of startups — Cockroach Startups. Cockroach startups are ones that aim at profitability and focus on making money. To succeed in creating a profitable startup, you have to focus on the actual business. I propose that there are a few rules we can follow, some of which are highly controversial.
No matter what you are going to make, you should charge money from Day 1. Somehow, there’s a notion that as long as you make your product free, and a lot of people use it, you can worry about monetization later. For many businesses, this is flawed.
When your product is free, you have no way to test the true value of your product. As a user, when you see something free, you have nothing to lose, so you will say yes most of the time. When you see something that costs $1.99, now you have something to lose. If you don’t truly value the product, you are not going to pay for it. For business owners, this is a disaster because you can’t directly measure how others value your products.
McDonald’s charges money. Apple charges money. Airbnb charges money. Somehow, a lot of people think their startups don’t need to charge customers money.
As a cockroach startup, you discover your business through charging money. You discover your pricing, positioning and cost structure through charging money.
As a startup founder, your job is to experiment. Einstein didn’t come up with the special theory of relativity on Day 1, so you shouldn’t expect yourself to land the perfect business idea on Day 1.
Ideas are also worthless until you execute them. When you are implementing your business, every detail matters. You will have 10 ideas for a small detail, which sums up to 1,000 tiny ideas for the entire business. The faster you try out these ideas, the quicker you will learn and reach profitability. To be clear, I am not asking you to try 1,000 different businesses. I am asking you to try 1,000 different tiny ideas for the same business.
Thomas Edison experimented on different filaments to invent light bulbs. No one can judge your ideas. In fact, no one knows anything. Your ideas will prove themselves successful if they help you make more money.
As a cockroach startup, you need to keep trying tiny ideas to improve your business. A cockroach can survive a nuclear explosion, and so should your business.
To my surprise, people don’t care about their users as much as I thought they would. I have been consistently tweeting different bugs to products I’ve used, and less than 50% of them reply me at all. Big and small, these products are used by many other users who would see the same bugs as I do with frustrations.
It’s a competitive advantage if you just really care about your users. When users report bugs, you can fix them immediately and thank them. If they email you, email them back within an hour. If users give you advice, try to incorporate them into your product. Users are not always right, but you shouldn’t ignore them. Mark Zuckerberg once said Facebook is successful partly because “We just cared more”.
Paul Graham repeatedly said that founders should do things that are not scalable in the beginning. I struggled to understand the meaning behind it for a long time. Does he mean automations are useless? Does he mean all scalable ideas are bad? No. I believe what he meant is that you should care about your customers. To truly care about your customers, you need to take care of each and every customer. To do that, you have to personalize your services and make each customer happy, which is unscalable in the beginning.
As a cockroach startup, you need to care about every single user. If you can’t provide good values and services to 1 user, how can you do well with 1 million users?