The Netflix price increase, the “Startup Playbook”, and my own hypocrisy

Last week Netflix announced that they were increasing their prices in September. A very vocal customer base took to the internet to share its displeasure with the news. Some revolting customers even threatened to cancel their subscription unless the price increase was reversed. People were simply furious at Netflix.

“It’s ridiculous” I half-heartedly complained to a friend over lunch. “Netflix is essentially removing features and then making me pay to get them back. This whole pricing fiasco feels like they are just running an experiment on us”.

Read moreThe Netflix price increase, the “Startup Playbook”, and my own hypocrisy

Location with brains: LocalMind

LocalMind isn’t just another local check-in app. LocalMind is going to change the way you discover information around you. Trying to figure out if there is a long wait at a restaurant? Use LocalMind. Want to know what beer is on tap at a pub? Use LocalMind. If LocalMind can gain mass market appeal, it will be an app I use at least once a day.

I sat down with a co-founder of LocalMind, Lenny Rachitsky for a quick 20 minute interview. We talk about what LocalMind is, why they aren’t just another location based checkin-service, and how they hustled an interview with Robert Scoble at SXSW.

Lenny’s blog post that he mentioned. Be sure to checkout LocalMind.

For more startup news, follow us on Twitter @startupfoundry or on Facebook.

Leaving a Million Bucks on the Table: Why Flotype Pivoted in Y Combinator

When entrepreneurs talk about pivoting, it’s most often because they’ve failed to see a future for their idea. This wasn’t the case with the Y Combinator backed company, Flotype. Flotype’s original idea was to change the way we shop online. Their MVP was an iPad app that greatly improved the shopping experience. Early user feedback was fantastic, and they received an invest offer of one million dollars.

They were ready to go full steam a head with their shopping idea until Paul Graham talked them out of it. Don’t miss this 12 minute interview with Darshan Shankar (a co-founder of Flotype) where he explains why they took Paul Graham’s advice and decided to pivot.

For more startup news, follow us on Twitter @startupfoundry or on Facebook.

The Worst Case Scenario is that No One Cares About Your Startup

“Can a product be built?” is now an irrelevant question for the majority of startups. Services like AWS, EC2, and Rackspace, let you build scalable services that would have been impossible to build a few years ago (unless you raised millions of dollars). Now any decent programer can feasibly build a product that can scale to tens of thousands of users (or more) from their garage. The game has completely changed in a few short years. The playing field has been leveled.

The most pressing question a startup now must answer is “Should this be built?”.

It’s much easier to be concerned about the “good problems” (how is this going to scale to millions of users) than the real problem – “What if no one cares?”.

I learned this lesson the hard way:

Should I build this product?

Do you have any customers?
When I was in college, I worked in the Admissions Office to help pay my way though school. I learned the ins and the outs of the Admissions department. I studied our marketing materials and would often ask potential students what they thought of our advertising efforts. I did this for about a year. I believed I knew exactly where my schools strengths and weaknesses were in promotional materials.

Fast forward a few months to when I had my own company that was working on mobile applications. I decided it would be a great idea to leverage my experience working in an Admissions office to build an iPad app that solved all of their pain points. After all, I did believe I had a good grip on the industry.

I sunk a good month and a half into the project. I mapped out an elegant custom infrastructure that would scale effortlessly. I polished it up and I got a meeting with the head of an Admissions office.

That’s when the bombshell hit. With all of my customer infrastructure, the finished product was going to cost 5 times what a college was willing to pay. I had to completely retool, move to a generic infrastructure, and simplify some of features to make it financially viable for schools.

Lesson learned: Infrastructure doesn’t make you special. If it works and is reasonably responsive, it’s going to be fine for the vast majority of people. As a nerd, this broke my heart but as an entrepreneur, it was a joyful discovery.

Is it the right time for this product?
It’s possible that you can have a fantastic idea, but the market might not be ready for it. One thought exercise I use is this: “If I had the product finished right now, could I call around and get a paying customer today?” If you believe the answer is “yes”, call them immediately and those lines of communication for when you’re ready to launch.

The worst case scenario is that no one cares about what you’ve built, and you’ve saved yourself some serious time. Figure out if your startup should be built before you worry about infrastructure.

Technical scalability has essentially been solved for most startups. These problems have been solved well, and are cheap to use. Don’t waste a lot of time on re-inventing the wheel. Focus on your app and the things that set you apart, not the commodities.

For more startup news, follow us on Twitter @startupfoundry or on Facebook.

How GiftRocket (YC W11) is changing the way we think about gift cards

I hate getting giftcards. Rather, I hate that I have to carry a giftcard around in my already bulky wallet (unless I want to risk losing it in a random drawer at home). GiftRocket (a Y Combinator backed startup) is looking to take some of the pain out of giving, receiving, and redeeming gift cards.

I caught up with a co-founder of GiftRocket, Kapil Kale for a quick chat. In this interview we give TSF readers an inside look at what GiftRocket does, the biggest challenges they had to overcome, and their experience with Y Combinator. Don’t miss this interview!

What is GiftRocket? Who would use it, and why?

GiftRocket is the easiest way to send a gift. It’s a new type of online gift card. The way it works is that recipient of the GiftRocket checks in at a specified gift location, and receives an instant credit via PayPal.

There are two huge advantages to our service. The first is that you can pick any business on Yelp as the place to gift. It’s easier than ordering a gift certificate. The second is that delivery is instant & electronic, so it works great for friends in other cities. Want to buy your friend a gift to a cool cafe in New York? Use GiftRocket.

For example, I just sent my sister a GiftRocket one for her high school graduation to an ice cream shop across the country. I wouldn’t have been able to do that without our service.

What other sorts of challenges does your startup face

Product definition was fairly critical for us. I think that a lot of people who tried to do stuff with gifting struggled because their product was very complicated. We spent a lot of time figuring out how to simplify our product. For example, one decision we made early on was to eliminate apps and accounts from the redemption process. Yet another difficult part was explaining this entirely new service to users. We spent an immense amount of time figuring out the right language on our site.

We were defining a new space ourselves, and that was cool and fun, but made our brains hurt.

Tell us a little bit about GiftRocket’s creation story.

Nick and I quit our jobs and moved back into Nick’s family’s house in Berkeley. They were very gracious and let me stay in the guest room for four months. They kept us well fed. We converted a workbench into our office and Jonathan would come over whenever he was back visiting from grad school. Anyway, GiftRocket was born at 3am or something like that around a kitchen island.

Did GiftRocket have a smooth launch?

We had a frantic but successful launch. We launched on Demo Day. We had literally rebuilt the site’s front-end at 2am the night before TechCrunch. We also had no idea when the article would go live, so before going to bed we set Jonathan’s computer to play a sound when we got a new visitor. Then we plugged it into Nick’s speaker system, put the volume on full blast, and went to bed. At about 9am, we started hearing people sign on. Just a few drops at first and then it picked up rapidly. For large chunks of the day we weren’t even at a computer, but fortunately nothing broke. We got lots of feedback, which made launching worth doing despite the fact that we were distracted with other stuff.

How have you gained users?

The easiest way to get lots of users is to solve some sort of earth shattering-problem. That way your users just flock to you. We don’t solve an earth-shattering problem. Our challenges have largely been around marketing. Our main goal is to cut through the noise. It’s similar to some of the problems Airbnb faced early on.

You were asked to interview with Y Combinator, and when you met with PG you pitched a completely different idea. How did they handle the last minute change?

YC is pretty cool with last minute changes. They operate under the assumption that a third of the companies that they *accept* will change their ideas at some point. We were advised by Harj and YC alums to just pitch the new idea cleanly.

So the interview went something like this. PG: “So, you guys are doing local business referrals?”

Nick (my co-founder): “No, erase that from your mind. We’re doing a gift card startup.”

At one point in the interview, PG said to Paul Buchheit something like “Marketing? These guys don’t know how they’re going to market this, they’ve been working on it for what, 8 hours now?” He said it with a dash of excitement, like he thought what we were doing was just a little ballsy. We really didn’t think of it that way– we just knew we wanted to work on this idea.

Knowing what you know now, would you do YC again?

YC is a great shop. I’d say we all had a really good experience. Nick and I were both new to Silicon Valley so for us it was an instant stamp of approval on our startup, and made it really easy to connect with different companies and build out our product. The product and user acqusition feedback alone was invaluable.

We rented a “vacation home” in Mountain View maybe 1 mile away from the YC headquarters. We had a pretty absurd culture– we basically worked all day, with the exception of runs, trips to the gym, and the occassional game of Settlers. Nick’s dad would come down and drop off rations from our favorite sandwich shops in Berkeley. It seems really intense but the time flew by pretty quickly.

I’d still probably do it again for a new startup, because I believe it takes a period of super-intense work to get a startup off the ground. YC made what we did somewhat socially acceptable. I told my friends that I’d be busy for a while “hibernating” through the Winter.

For more startup news, follow us on Twitter @startupfoundry or on Facebook.

An inside look at one of our sponsors: The Grasshopper Group

I want TSF Sponsors to be a part of the community. Readers and advertisers should have a healthy relationship. We decided one of the ways we could make this happen is to provide a behind the scenes look at Grasshopper. I asked Jonathan Kay from Grasshopper to sit down with me and have a quick 5 minute interview .

Contact Jonathan Kay – Grasshopper Group

When I was looking for a solution for my small business I started using Google Voice. It was a huge mistake. Google Voice was fine for my personal use, but things started to fall apart when I tried to shoehorn it into my business needs.

Grasshopper has been around for the past 8 years and has a fantastic grasp on the challenges entrepreneurs face while setting up their phones. You can think of them as “Google Voice” of the business world. In addition of covering their basic features, Grasshopper provides: Unlimited Extensions (or just extensions period), Unlimited voicemail boxes, dial by name directory.

• After hours greetings, vacation / holiday greetings…do you really want to receive calls at 9pm on a Tuesday?

• Grasshopper gives you simple number portability. This was one of the biggest issues I had with Google Voice, and Grasshopper solves the problem flawlessly.

• On hold music (some customers actually record a commercial or a joke instead of music…people get real creative)

• Multiple number’s which all forward / connect to one account. Say for instance you want a local and toll free number. With Google voice you can only forward 1 number to 1 cell phone…not multiple extensions or numbers.

• Grasshopper also has 24/7 / 365 US based support.

Be sure to check Grasshopper out!

Your startup needs to sell experiences, not features

Entrepreneurs often want to highlight every single feature on their landing page. I’ve seen landing pages filled to the brim with cliches, buzz words, and jargon that simply don’t convert visitors into customers. A lot of consumer facing landing pages are focused on the wrong things.

I’ve discovered that’s it not your products features that sell people on your software, it’s their perceived experience with your app. Users are more concerned with “How will buying this app make my life better?”, than “Our new version benchmarks 6% faster”. Giving people an emotional connection with your app is paramount in gaining users.

Give your customers an emotional hook that they can latch on to and own. People are much more passionate about emotions than they are numbers.

Jargon vs. Experiences

It’s tempting to throw in as many buzzwords as you can on your landing page. This might work for a small segment of your users, but it won’t let you build mass market appeal.

Let’s look at a real world example. Shall I Buy It is a fantastic app that helps you decided if you should buy something. They do a great job highlighting the experience of their app without getting bogged down with features. This is what their landing page looks like:

Their landing page wouldn’t have been nearly as effective if they were writing buzzword filled copy. For example it might have said something like “Leverage your social graph to influence purchasing decisions.” Although it’s technically correct, it’s emotionally sterile, and totally forgettable.

How to write great copy: Work backwards

This might seem counter-intuitive, but the easiest way to write great copy is to work backwards. Start with the end goal in mind. After a potential customer sees my site, I want them to have “response x”. Once I know my end destination (“response x”), it makes plotting the course substantially easier. Leave the buzzwords out, and focus on getting “response x”. If my startup was in the SaaS business, my goal might be to have a potential customer visit our pricing page and collect their email (with the ultimate goal being to sell them your service). Once you know what you’re working towards, it gives you tunnel vision (a good thing), and lets you focus on your goals.

Emotion is far more memorable than stats. If you can hook a customer on a feeling (backed by a solid product), you will score a very faithful and passionate user.

Remove as much jargon as possible from your landing pages and sell emotion.

For more startup news, follow us on Twitter @startupfoundry or on Facebook.

TSF is looking for funded startups to cover. Will you tell me about yours?

I’m constantly looking to improve TSF. One piece of feedback I’ve received is to cover more startups. I’m taking this to heart and I’m going to make it happen. I would love to feature some TSF readers startups.

What I’m specifically looking for:

• Funded startups (I’m going to ask for bootstrapped startups in the next few weeks).
• A sentence description of what you do
• Your story (how you got started, how you met your cofounder, etc…)
• How are you measuring traction?
• Give me a hook to work from.

Bonus points if you “Make your Startup ridiculously easy to write about. Put Together a Great Press Pack”

To submit your startup, email me at

For more startup news, follow us on Twitter @startupfoundry or on Facebook.

Win $150 worth Google AdWords credit for your startup from LaunchBit

LaunchBit is one of TSF’s fantastic sponsors (as seen in our sidebar). LaunchBit helps entrepreneurs get started by walking them through the process of building a startup.

I recently received an email from one of my contacts at LaunchBit, Elizabeth Yin, and she mentioned she’d like to giveaway $150 worth of Google AdWords to TSF readers. I’ve included the email below so check it out for your chance to win!

We’re rolling out a new tool to help entrepreneurs get traffic to their landing page super easy. We’re offering 2 lucky readers $150 in free Google AdWords credit using our tool.  

To win, a reader must:

• Have a LaunchBit Guide account (Normally $20, but TSF readers can get one for free be using coupon code: “STARTUPFOUNDRY”)
• Tweet by 6/14/2011 11:59pm PDT “I want $150 ad credit from @launchbit cuz…” [and add their own compelling reason] 

We’ll pick the 2 winners shortly after the deadline based on the most memorable truthful reason.  

It sucks to build a startup with the “Google Method”

“We’re not making any money yet, but once we hit 100,000 users, we’ll be able to break even with ads!” an entrepreneur enthusiastically told me. As I listened to the entrepreneur passionately explain his plan to make his startup profitable, I realized that I’ve heard the same strategy repeated ad nauseum. I’ve started to call this misguided strategy the “Google Method” of profitability.

What is the “Google Method”?

The “Google Method” breaks down into a simple equation:
Free + Lots of users + ads= The Google Method.

There is nothing inherently wrong with this formula, but it’s a terrible model to try and shoehorn onto a bootstrapped business. One of the worst things your startup can do (for its bottom line), is to try and emulate Google’s methodology for revenue. You might gain a lot of users, but monetizing them will be incredibly hard. You’re essentially cannibalizing your own business.

Why does this suck for startups, but work for Google?

This is a classic example of knowing what type of business you’re actually in. For example, Google isn’t a search based company. They used search as an engine to break into the market, but they are actually an advertising company. Did you know that 97% of it’s revenue in 2009 came from advertising?

Since Google is an advertising company, they have different goals then most startups. Google has to play a different game. For an advertising company to stay afloat, they need as many eyeballs as possible. This is why the “Google Method” is so effective for them. Free gets a new Google service a lot of attention, while allowing their actual product (advertising) to flourish.

For a bootstrapped startup to keep its doors open, it needs cash. Giving away your main product and hoping to “make it up on volume” is incredibly dangerous. You’re giving away your main product without any sort of (financial) benefit to yourself. The metrics that Google uses will be fundamentally different than what your startup needs. Don’t blindly implement the Google Method. It’s most likely the wrong model for your startup.

Side note: Even though your startup may receive money from ads, you’re probably not an advertising company.

Is there a better way to build a startup?

Absolutely. I’ve realized that I hate to leave money on the table. If someone sees enough value in my product to pay me for it, I will gladly take their money. This is slightly unpopular in some entrepeunership circles, but have the audacity to charge from day one.

It’s a painfully simple method, but it’s something that’s hard to have the guts to do. If you believe you startup has real world value, let people pay you. Don’t chicken out by giving it away for free.

For more startup news, follow us on Twitter @startupfoundry or on Facebook.