Last week an article did the rounds in the Startup world about the failure of a popular photo-storage system called Everpix. I spent a bit of time reading and thinking about the article, and going through the numbers which the company made available (incomes, expenses, users etc) because this sort of information can be very useful to help give you perspective on your own startup.
When I saw this page in their stats which listed all of the press coverage they had received, I was frustrated at how much coverage they got, and just how easily they seemed to get it. I’ve found it quite difficult to get coverage of rbutr in the mainstream tech blogs, with the only success so far coming from an early Reddit post I made, being cross-posted to Hacker News, which then spawned a few minor articles in a couple of popular blogs – but these minor articles don’t really tell our story, or highlight what it is that rbutr can achieve. So it frustrates me when I see another “photo” startup (photos, social networks, recommendation systems… is it just me or are all startups all working on the same stuff?) go from a TechCrunch Disrupt talk to endless press coverage overnight when rbutr is an genuinely innovative startup which could change the way people use the internet to acquire knowledge. But of course, I don’t live in Silicon Valley, what we are doing is a bit weird, and definitely not ‘cool’ like sending photos to your friends is.
Anyway – I decided not to write that article, because it was really just a whine, and there is no point in doing that. Today I came across this article though, and it provided a great analysis of the Verge story and gives me something much more interesting to write about.
Context of the EverPix Failure and Our Approach
In his article, Andrew Chen talks about the difficulty faced by startups these days with regards to what is expected of them before they can seek funding. He says:
In 2013, these days, you are expected to have a product coded up and ready before you raise your first substantial angel round. Maybe the product won’t be launched, but people will want to play with a demo at least. Then you raise $1-2M to get traction on your product. Then if you have millions of signups, then you get to raise your Series A of $5-10M.
My question is, in 2016, will the bar be even higher? Maybe angel investors will expect a working product, reasonable traction, and product/market fit all before they put in the first $1M? How much can market-risk be proved out before any professional money is raised?
This was interesting to me because our approach here at rbutr has actually been closer to the hypothetical 2016 scenario Andrew is talking about. We’ve already built most of the core features to rbutr and found our first 8,000 users and we still aren’t actually looking for funding. It does mean we are moving slower than we perhaps otherwise could be, but it also gives us a really stable foundation to push forwards from. Unlike Everpix, there is virtually no chance rbutr will have to shutdown, because we have no significant expenses to cause bankruptcy.
Yes, we could use some more front end design and coding. We could use more content creation, social media interaction and press relationships – but spending money on those things increases our risk of abrupt failure significantly when we run out of capital, and rbutr is the sort of project which can chug along quite nicely without capital, slowly building towards critical mass while it solves its chicken-egg problems.
In fact, looking at all of the startups which have come before us in the closely related Web Annotation space, a good number of them have pitched, been funded, and then shut down when they couldn’t bring in enough income to sustain their costs – just like Everpix.
Our theory at rbutr, is that we only need to survive. If we can simply survive, and continue to slowly refine and improve our core product… then eventually it will ‘take off’. Not because we invested $1M in marketting, but because even slow exponential growth still has a tipping point, and every action which takes place in rbutr, multiplies every action taken after it.
And so we will only need to look for funding when we start to explode – and even then, who knows, maybe the server costs will have dropped by another factor of ten, as continues to happen relentlessly thanks to the law of accelerating returns.
Cost of Operation vs Monetization
Andrew spent a bit of time looking at how much money was required to fund the operation of Everpix, and the results were quite startling. He identified that something in the order of 80% of the expenses faced by Everpix were ‘people costs’. Employees, legal costs, contractors etc. In fact only about 15% of their expenses actually related to running the actual service.
The point Andrew makes in his article with this, is that it is very challenging to bring in enough new visitors, to convert them in to paying customers to cover the mere operating costs of a business which has the sorts of ‘personnel’ costs as Everpix had (which is pretty standard and small-time).
His advice sits perfectly with us already:
So if you are working on something that you’re really passionate about – or as they say, amazing founder/market fit – then you may want to delay the team buildout so that you don’t end up [being forced to choose between downsizing your team or shutting the business down].
We haven’t started even trying to monetize rbutr yet, and won’t until we have reached critical mass and there is demand for income to offset the necessary operating costs of running rbutr. At the moment, we can host rbutr very cheaply. When we have a million users – maybe it won’t be so cheap. But I’m sure that when we reach that stage, we will be able to monetize rbutr effectively enough to cover those costs and prove that rbutr is a genuinely viable business, even without investment.