8 Laws I’ve Learned While Getting My BS in Consumer Startups (Part 1)

This is a self-serving post.

The purpose is really to codify the bulk of what I’ve learned after spending 4+ years (the equivalent of a bachelor’s degree) working in consumer-mobile tech.

When I founded Offline in 2012, there was not a single established B2C, mobile-1st consumer startup in the Triangle to draw inspiration from. WedPics, now the largest, was just getting off the ground. There was a major void in consumer-mobile wisdom.

These are the 8 laws that I wish I had known back then. Ironically, I’m sure I did stumble across them all in some form or another, but “knowing” something isn’t the same as “reading” it.

Laws like this aren’t taught, they’re caught.

To grasp a law or a principle, you have to either experience it yourself in a visceral way or observe someone close to you and experience it in a vicarious way.

Now that I’ve “caught” them, here are the 8 laws as I see them today. I’ll cover the first 4 here in part I, and the second 4 in part II.

The First 4

Law #1: Examine Your Founding Team (Know Yourself)

“An engineer, a designer and a hustler.” That’s the formula—that’s the ideal founding team. Plenty of ink has been spilled on founding teams and on this formula. There’s a reason.

Every team who doesn’t fit the formula thinks they’re the exception. Two non-technical founders who are going to outsource to a dev shop. Four founders who have significant skill-set overlap.

Can they be successful?

Sometimes—but rarely. In the cases where survival occurs, it’s because those abnormal teams mold themselves to the truth, not because the truth bends for them. In the case of the two non-technical founders, one of them learns to code and the other learns product design and sales. In the case of the four, they live in the constant tension that they’re ultimately inefficient.

But even if/when they adapt, with all else being equal, these teams will trail a team with the ideal genetic makeup. It’s a bit like sports. Good fundamentals can get you through high-school and college ball, but pros have great ability and great genes.

When I first heard Rule #1, I thought Offline was fine—we were the exception. We weren’t. It took us nearly 2 full years to deal with the consequences and re-launch.

What’s the principal behind Rule #1?

One of the fundamental “metrics” of early-stage companies is product metabolism, i.e. the ability to ideate, prototype and ship new features and concepts quickly. How quickly can you digest (ship) what you want to eat (a feature idea)? If your product metabolism is slow, you’ll struggle in the world of consumer, which is brutally competitive from a user experience and product quality standpoint.

The ideal founding team has a rapid product metabolism. This alone won’t make them successful, but they’ll be able to learn faster and will be more cash-efficient with each learning cycle.

If you don’t have the ideal genetic makeup, act now.

Law #2: Know Your Customer

Products solve a customer problem. Period. Everyone takes about this ad nauseam. Again, there’s a reason why.

Almost every month I meet an entrepreneur with tons of passion and drive who has an interesting idea with no concept of who their customer is. They’ve created a cool idea in a vacuum. There are lots of reasons why this can happen. Sometimes it’s inexperience. Usually, it’s fear of rejection.

This dynamic is especially troublesome with consumer companies. When you want volume (as you inevitably need in consumer internet), you tend to ignore demographic specifics because of the feeling that specificity will throttle your growth.

Literally, the opposite is true. Instagram started by appealing to top-notch photographers and bloggers. Pinterest did the same. Facebook started with college. Deja Mi became WedPics by focusing only on weddings/brides.

We ignored Law #2 out of the gate. We listened to feedback from peer entrepreneurs and friends because we were in a co-working space, and their feedback came quickly and easily.

But those people weren’t in our target market. Feedback from your non-core users is literally useless for validating an idea.

Here are some of the mechanisms we eventually used to both discover our target customer (first) and engage with them (later):

1.) Early on, we boosted Facebook posts with our core content, then downloaded the raw click data, separated it by demographic cohort and zeroed in on the audience that had the lowest CPC.

2.) Once users registered with their Facebook accounts, I pulled their Facebook IDs out of our database and looked up their profiles. I took screenshots of users who were very engaged and users who weren’t. I turned those screenshots into a user-collage. Over time, patterns emerged.

3.) We emailed everyone who downloaded our app and offered them $50 to come talk to our team.

4.) We email every user once they have their 10th app session and ask them to list their favorite and least favorite thing about our app. We’ve accumulated over 1000 responses. Qualitative has quickly become quantitative.

5.) We email every user who hasn’t used the app in 3+ months and offer to Venmo them $1 in exchange for some details about why they left. We’ve accumulated over 1000 responses.

6.) We’ve invited our top users to a customer Slack channel that we rely on for feature testing, feedback and new ideas.

7.) Early on, while in The Startup Factory, we started an event called “feedback Fridays” at a local coffee shop, where we collected input on our concept from patrons in exchange for covering their tab (up to $5).

There are a million ways to engage your customers. If you’re not getting meaningful feedback from your customers daily, you’re doing something wrong. Act now.

Law #3: Measure Your Milestones

Every company has a set of metrics that prove they’ve made it beyond the idea stage and into the seed/traction stage. If you can’t achieve those numbers, you need to reevaluate the viability if your concept.

There are two corollaries to this rule.

First, you have to know what to measure. This can be surprisingly difficult, especially if you’re getting feedback from the wrong mentors/advisors/peers. For consumers mobile companies, your first milestone needs to answer/measure:

• Who is your target customer?
• Can you acquire steady cohorts (a few thousand/month, ideally) of these customers for ~$1.00 or less for testing?
• Can you generate a cohort retention curve parallel to the x-axis with >20% M1 retention?

The need for strong cohort retention and steady acquisition channels is common to all consumer-mobile companies, but there are almost always other core measurements that are specific to your business and that de-risk unique elements of your venture. For example, at Offline we wanted to prove that we could incentivize content creation from our users, so we worked to prove that we could get 1000 “reviews”/month from our members without any gamification.

One of my favorite analogies is the idea of data as a lighthouse. It can show you that you’re headed in the right direction, but it can’t build you a boat to get there. Focus and direction are hard out of the gate, but by erecting lighthouses along the journey, you can be sure you’re generally headed in the right direction.

The second corollary to Law #3 is that you need to define these milestones up front when you have the most clarity and perspective. Once you’re in the weeds, it can be tempting to move the milestones, change the metrics or make compromises. Be very weary about changing fundamental milestones that prove the viability of your business to yourself and to others. Find the smartest person in your network and tell them your metrics and milestones. When you’re tempted to change them, call that person and tell them why. See whether they agree or whether they think you’ve lost perspective.

Law #4: Retention is King

Contrary to popular wisdom and TechCrunch articles, “having a good product” is not measured in volume. It’s not measured by getting to the top of the app store rankings. It’s measured in quality. You will absolutely get yourself into a trap if you surround yourself with people (investors, advisors and peers) who don’t understand this.

Retention is king. Once you have a working product and an acquisition channel that comfortably ($1.00-$3.00/user) yields several thousand new users/month, you need to focus relentlessly on increasing retention and making sure your cohort retention curve is stable, parallel to the x-axis and leveling out at 20+%.

Remember the image of the leaky bucket. If you put water into a leaky bucket at a steady rate, the bucket will fill at first, but it will eventually level out. Eventually, the rate of water entering the bucket is the same as the rate leaking out of the bottom. The water level is stuck.

The same is true for your product. If you don’t have great retention (a bucket with few leaks), adding more users (more water) won’t help you. Facebook wasn’t successful early on because it was viral. Facebook was successful because it had one of the highest retention rates in the history of consumer products.

If the people you’re talking to don’t understand this or don’t agree with it, either help them see the light or take everything else they say with a grain of salt.

When I was fundraising in 2015, I pitched to Mathias Schilling, who was a board member at Angie’s List, an early investor in Groupon, and is a managing partner at e.ventures. We met on one of the top floors of the Transamerica Pyramid in downtown SF. Less than 10 minutes into my pitch, Mathias said something like “David, I like the concept. It makes sense to me. Can you open your MixPanel account and go to the Retention tab? If we can look at your data together, I can tell you in less than two minutes if I would do the deal.”

Retention is king.

Part II will be along soon!