How Do I Get Revenue?

Dear Lucas…

My co-founder and I created a startup almost a year ago now. We put together a friends and family round, but it is running dry and neither of us have paid ourselves anything for months now.

I have about 60 people signed up for my service right now. They are not paying yet, but they know they will have to pay soon. We have been following lean methodology, so we haven’t yet built the billing system yet. 🙂 When we start charging, some of our users are going to get billed $20 per month and one in particular is going to get billed $300 every two or three days.

Can you give me any guidance for what to do next?

—Seeking Benjamin

Hi Seeking Benjamin,

I hope you don’t mind me being brutally honest with you, but you need to hear this.

You are acting like a charity, not a startup. Don’t build a billing system. Ask for checks. Be scrapy. Stop acting like your code is your business. You are donating $5k/month in free service to these users, that could easily keep you and your co-founders lights on.

“You don’t get paid without trying to get paid. Assuming users will pay for something that you know give them for free is the ‘secret crackhead millionaire’ business model (let a whole bunch of crackheads live in your gorgeous mansion for free because you are confident one is a secrete millionaire). It’s the new ‘build it and they will come’ delusion.” — Chris Tacy

But there is a bigger problem here. If you have been at this for almost a year and you don’t have revenue or 10,000 users (AND doubling monthly), it is usually an indication that something deeper is rotten. You are probably not solving a Hair-on-Fire problem, a problem that people will happily hand you cash for.

As a point of reference, when I started AppFog, it was just a landing page with an email capture form, no product or code yet. In one day I had 800 people signed up. When I finished the early prototype a few weeks later, I had 2,000 people waiting for accounts, but I only let in a couple dozen. Two weeks after that, I had some people paying for the service and over 4,000 people waiting for accounts.

Before I even started building AppFog, I knew without a doubt I was solving a Hair-on-Fire problem. It is very rare to find a product-market fit on the same day you come up with an idea, I was very blessed, and it only happened after years of false-starts (as my loving wife can tell you).

When you do build a solution to a Hair-on-Fire problem, you will know without any doubt. You won’t be able to stop people from finding you, because people will tell each other about it. They will start asking you to take their money. Not just one guy or a couple, but many people will beg you to take their money.

So how do you find a Hair-on-Fire problem? Talk to your customers.

Not talking to your customers is the #1 most common mistake I see with first time CEOs. If you don’t have enough time, you don’t need to talk to every single one of them. But certainly you should work hard to talk to the most promising ones. The guy spending $300 every few days for example. How is he using your product? Are there other people like him that have his pain? Is this something people are looking for? Are there other solutions already? Why isn’t he using those solutions? How did he find you?

You don’t ask your customers directly what their Hair-on-Fire problem is—it is your job to figure that part out. Imagine if someone called you and asked you what your Hair-on-Fire problem was. You would probably tell them: “I have no idea what you are talking about”. But you have to have conversations and understand other people’s pains deeply. Pains people are willing to pay for. Pains that people are pro-actively looking for solutions for.

Without these conversations, you are blindly throwing darts. You are investing a lot of time, a lot of money, and a lot of code on a pure hunch or a whim.

Three very important finesses

1. Don’t forget to get to know your customers personally. Never treat them as means to an end. Learn from them, but also learn about them. Take interest in them.
2. Don’t deceive yourself into thinking that you found a Hair-on-Fire problem just because you have talked to your customers. At the early stages of your company, if your revenue or user-base isn’t doubling every month or two with little effort, your ambitions are very likely too small—the problem you are solving is too little. You are probably asking the wrong questions. It doesn’t matter if you have launched your product or not, even a decent teaser page about Hair-on-Fire problems can easily go viral.
3. Don’t “pitch” your customers, listen to them. Many first time founders think that when they talk to customers, they should be trying to sell them on their product. Wrong. Usually, the founder ends up talking so much during the conversation that there is not enough time to listen to the problems of the customer. Spend more time listening than talking. Ask good questions.

You do not need to start from scratch. I have seen your website and I think you have built a really beautiful product and you have a strong talent for building good products. You just don’t yet have a nose for solving Hair-on-Fire problems yet. That’s ok, you can work on improving that. But first you have to accept that you need to work on that part of yourself. It won’t be easy, it will stretch you in ways you won’t be comfortable with. It is not supposed to be easy. But you can do it, I believe in you.

—Lucas