Blog

  • Revenue and Runway – Why every cent matters

    A month ago on Techcrunch, Michael Arrington wrote about “Twitter’s Revenue Dilemma”: “Your valuation can actually go down once you turn on revenue.”.

    “Turning on revenue” frames it as a binary thing. You’re either making money or you’re not. It completely disregards the most important variable in finance: Time.

    With the tiniest trickle of revenue you can extend your runway infinitely. That means you never have to raise another cent and you even have money to fund your growth. Let’s take an example:

    Say you’re a consumer web business. You have some growth and some traction. You close an angel round for $400k in Month 1. In month 2 you start spending it and your burn rate is $25k for salaries, office and hosting. It takes you 4 months to get the product into shape and launch.

    In your first month of launch you make a meagre $500 bucks. And lets say you suck at marketing and your revenue increases by $1000 per month so that a year after you launch your product (17 months after getting funded) you’re making $12,500 per month in revenue.

    Even two years after getting funded you’re still only making $19,500 which is far from breaking even.

    But what this does it it slows your burn rate enough and buys you enough time so that you never run out of money. That means you can keep paying yourself a full salary and growing your business and you never run out of cash. In month 29 your bank balance drops down to $12,500, but then it starts increasing again because in Month 30 you break even.

    If you didn’t generate any revenue in the first 18 months you run out of money in month 17.

    You might argue this approach stifles growth. So be more aggressive, increase your burn rate to $200k and raise $3 Million. The same logic applies. Early cash-flow that is far from break-even can extend your runway to infinity (and beyond).

    This matters for founders more than anyone else because it means you can raise a single round and never have to give away any of your equity ever again.

    The sheet below shows the two scenarios – with and without revenue. [I’ve reoriented the flows vertically for readability]

  • Possible leads in the shooting of officer Brenton

    The memorial procession is happening right now for Officer Tim Brenton. Details on the West Seattle Blog. More importantly, please read this entry on the same blog. It contains a detailed description from SPD on how you can help catch the shooter(s). The comment thread has some great data.

    “TK” has increased the size of SPD’s photos of the suspected vehicle which is a 1980-83 Datsun 210 according to SPD.

    A few commenters have suggested it may be a Toyota Celica. I’m not sure I agree.

    Someone found this B210 with Washington plates online.

    From SPD: “It is important that if anyone has recently sold a vehicle of this type or had one stolen that they call Seattle Police at 206 233-5000.”

    The full SPD blog entry is here. Please read and distribute widely among your fellow Seattleites.

  • How much traffic do the biggest typo domains get?

    There’s an article on searchengineland today about domaining and how Google and Yahoo “make money off a twitter typo domain”. I’m not sure I’m as excited about exposing this travesty of justice as SEL is, but I was curious how much traffic typo domains get:

    Alexa domain typo traffic

    In my brief research I found facebok.com was by far the biggest winner with twiter.com running a distant second. But their traffic dropped off to a trickle middle of this year. I wonder if facebook themselves or a popular app mistyped a URL somewhere and then fixed it.

    Other variations of facebook, twitter, google and myspace didn’t yield much. I entered a high traffic site who’s exact numbers I have access to for comparison and by my estimates facebok.com was getting just under half a million uniques per month. Nothing compared to the real FB, but slapping remnant advertising on there would yield $1000 to $5000 per month. Twiter.com gets around a quarter million uniques per month netting around $500 to $2500 on remnant ads.

  • Chrysler's new logo: A trademark lawsuit about to happen

    My education in trademark law a few years ago taught me this: The test of whether a case is winnable or not is that the plaintiff has to prove actual instances of customer confusion. TM law is not there to protect your trademark. It’s goal is to protect the consumer – hence this test.

    Here’s Chrysler’s new logo. What do you think? [Rest assured that when the suit is filed, attorney’s from both sides will be taking your comments into account]

    989678915

    Aston Martin logo 01

  • WTF is up with Dell?

    Screen shot 2009-11-05 at 11.01.06 AM[Update at end of post] I love Dell servers. In fact I even love their network hardware. I’ve spent 0000’s (yeah that’s four zeros) with them during the last 2 years and Mick my old sales guy rocked! As did his hardware team.

    I’m ready to spend more money. Yup, I’m going to take my hard earned dollars and hand it over for more of that great hardware they have. Unfortunately Mick got laid off. So now I’m dealing with a team of 5 people.

    I get almost daily emails from someone called Loree Brown reminding me of how much Dell rocks and telling me about the great deals they have. I even have this cute guy with his cute chin fluff, silk tie and his cutsie pie little smile appearing in my emails. He’s really been a huge influence on my buying decision. He looks like he just got laid and I’d like to look like that right after I buy my servers.

    But I’ve been emailing “Loree Brown” @ Dell with requests for quotes and I get nada response. Nothing. Hell I even put the $4000 server that I want to buy in my shopping cart ready for him or her or it to turn into a quote.

    I’ve sent reminder emails. Follow up emails. To multiple addresses. Nothing.

    So really what’s happened is that they fired Mick and “streamlined” operations and I’m going to end up buying my machines somewhere else. Which means getting rid of Mick cost them probably several 0000’s (four zero’s again) over the next 2 years from me alone.

    Get your shit together guys, I want my quote!!

    Update: Got a call from Loree’s manager Reed West apologizing profusely for the confusion. Apparently the problem is that Dell’s marketing emails come from username@midmarket.dell.com and the reps don’t actually receive emails at those addresses. I had sent several emails to Lori at the ‘midmarket’ address instead of her real address. Their real email addresses are username@dell.com. So Reed has undertaken to fix that issue – their marketing emails will now come from real email addresses.  Nice to know Dell reads the blogosphere and twittersphere and responds – they got back to me less than 3 hours after I posted this. As I mentioned in the original post, their servers are unbeatable – looking forward to a better relationship with the new sales team.

  • Reminding me why I need to travel more…

    My brother sent this to me. I’m not sure who the source is – the original is here. It’s Mt Hua in China.

    X5vhD

  • Have me at Hello – Site Home Page Comparison

    Derek Perez posted a great site comparison comparing Earth Class Mail vs Zumbox. Unfortunately ECM comes off second best. But I have to say I absolutely love Zumbox’s home page. I’m sure the video actor and production cost a fortune, but I’m guessing they’re getting some serious ROI from it. The first time I saw this integrated video pitch was on brand guru Martin Lindstrom’s website, the author of Buyology. He’s changed the site around a little but he’s still pitching you in person when you arrive. Here’s Derek’s comparison.

  • Invictus – Poem

    For the warriors out there who are still awake and working at 1:45am on Monday morning, here’s some inspiration to keep you going. This is a spectacular poem by William Ernest Henley written in 1875. The title means “Unconquered” in Latin. When I read this poem I get chills, the hair on my arms stands up and I feel the need to either kill something or create something.

    OUT of the night that covers me,
    Black as the Pit from pole to pole,
    I thank whatever gods may be
    For my unconquerable soul.

    In the fell clutch of circumstance
    I have not winced nor cried aloud.
    Under the bludgeonings of chance
    My head is bloody, but unbowed.

    Beyond this place of wrath and tears
    Looms but the Horror of the shade,
    And yet the menace of the years
    Finds and shall find me unafraid.

    It matters not how strait the gate,
    How charged with punishments the scroll
    I am the master of my fate:
    I am the captain of my soul.

  • Costs and Startups – Advice for your CFO

    In any company if you save $1 it goes straight to your bottom line. Meaning it’s as if you just earned another $1. The company that my wife and I have been running for about 2 years now serves over 30 Million page requests per day. We’ve invested a lot of time in getting more performance out of our hardware but about 6 months ago we started hitting pesky issues like limits on the speed of light and electrons.

    So we’ve had to keep growing without going out and buying a Google-size web cluster. A lot of the wins we’ve had have been simply using every spare drop of capacity we can find. I’ve noticed a pattern during the last 6 months. It goes something like this:

    Kerry (My wife, our CFO, and keeper of the graphs): Server 12 is hitting 10. [Meaning it has a load average of 10 on an 8 CPU machine which is 125% load]

    Me: OK Dell has this great special on these new R410 servers that are about twice as fast as the previous generation.

    Kerry: What about the other machines in the cluster?

    Me: They’re already at 80%.

    Kerry: OK what else do we have?

    Me: Well the crawlers are maxed, the mail server’s maxed, the proxy’s maxed out, the load balancer is maxed….

    Kerry: What about 25 and 26? They’re sitting at 2.

    Me: Well we’d have to [technical and managerial speak explaining how complicated it’s going to be to implement]

    Kerry: OK so lets do that.

    Me: [More bullcrap this time rolling out the big guns desperately trying to get money for new toys]

    Kerry: …[waits it out]

    Me: OK so lets do that.

    If you’re a CFO approving purchase decisions in your company, take it from me: Geeks and CEO’s alike love buying new stuff. I assure you there isn’t a web cluster or database cluster on this planet that you can’t squeeze a little more capacity out of without breaking things. So before you take the [technical and managerial bullcrap from your geeks and CEO] at face value, sit down with your team and have them explain all the data to you and go through all your resources with a fine tooth comb. Then, if you absolutely have to, spend some money.

    And if you don’t have a CFO, nominate someone immediately!! It doesn’t matter how small you are, someone had better be the keeper of the cash-flow plan or you’re going to run out of money and wonder why.

    Incidentally, this is the load decrease on one of the busiest servers in our cluster when we brought online some ‘found’ capacity earlier today.

    Screen shot 2009-11-01 at 2.29.56 PM

    Posted on Hacker News.

  • Monetization or Cannibalization – The State of Social Gaming Marketing

    Mike Arrington is a genius. Main-stream journalists sit up, knees together, back straight and start taking notes because this is a master at work. His recent blog entry titled Scamville calls out the most focused on and buzz-worthy companies in the valley for making money from advertising scams and accuses Facebook of encouraging a vile cycle of revenue and crappy marketing. The effect for Techcrunch is that it forces a number of high profile companies to respond and creates a giant political suck-hole that draws you in and spits you out on techcrunch.com. Cha-ching! [It’s cynical Sunday – didn’t you know?]

    There’s a great show-down video at the Virtual Goods Summit where Mike confronts Offerpal CEO Anu Shukla about this and she delivers a rather colorful response. Video below.

    Buried in the comments on TC are a few experienced words from HotOrNot founder James Hong. Love the hotel pay-per-view analogy:

    We ran offers like this back in 2005 for a very short period of time at HOTorNOT, that is until we realized what was going on. In a nutshell, the offers that monetize the best are the ones that scam/trick users. Sure we had netflix ads show up, and clearly those do convert to some degree, but i’m pretty sure most of the money ended up getting our users hooked into auto-recurring SMS subscriptions for horoscopes and stuff. When I hear people defending their directory of deals by saying Netflix is in there, i am reminded of how hotel pay-per-view has non-pornographic movies. Sure it gives them good cover, but we all know where the money is made.

    In the end, we decided to turn the offers off. Quite frankly, the offers made us feel dirty, and pretty much on the same level as spammers. For us, the money just wasn’t worth it. On top of that, we relied on our goodwill with users and focused on growing by having a product and company that our users liked. Our sense was that using scammy offers would make good money in the short run, but would destroy our userbase in the end. Perhaps apps on facebook don’t feel this pressure because facebook is so huge, and there are always new people to burn.

    I’d like to point out that there are some game companies out there who are holding out on using offers to monetize their users. Personally, that makes me 10 times more likely to pull my credit card out for them.

    PS. I don’t think the concept of letting people fulfill offers to get credits is structurally a bad one. I for one would like to see the offer networks work together to create some set of public agreement on what types of practices are banned from their network, and perhaps they can evan have some sort of certification logo. These practices will only stop when companies are not competitively crippled by NOT doing them. In effect, we need a nuclear non-proliferation treaty among the offer networks.

    For soap opera fans here’s the war of words at the Virtual Goods Summit between Mike and Anu. [YouTube is currently down – so check back in a few if it doesn’t show up.]