Start-up Note #1

Do things don't scale

2017.04

Start-up note_Do things don't scale
Start-up Note #1
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Part 1 of Ringle’s series on startups: “Do Things That Don’t Scale”

One of the universal qualities of successful startups is the ability to provide a product or service that is five times better than what exists in the market, for 30% of the price.

I enjoy [1] hailing rides with Uber, not only because I pay a fraction of what I used to pay for taxis, but also because I never get denied a ride, the vehicles are relatively clean, the estimated arrival times are accurate, and I don’t have to carry around cash to tip the driver.

For similar reasons, I love shopping through Amazon. Amazon’s website is easy to use, offers a diversity of products, is affordable, delivers quickly, and processes payments efficiently.

Furthermore, when tech companies nearly monopolize the industry – as did Uber and Amazon – they gain exclusive access to valuable data on consumers, which can then be leveraged to provide services that meet customers’ needs and further exceed expectations. Thus, Silicon Valley startups have displayed a tendency to invade markets through high customer valuation, rather than through profit maximization.

(For this reason, those that invest in tech startups tend to set aside revenue and profit records to investigate the quality of their product and services, as well as their user attrition and retention rates.)

As the founder of an early-stage startup, I too have hopes about and think of ways to unify the world with my company, striving to provide quality services at an inexpensive price.

    Q: Am I doing the right thing when I lower the price of the basic service to attract more customers?
    A: Even if I attract more customers, if the quality of my business does not hold up, I will eventually lose them. Rapidly growing the number of users could also overwhelm our capacities, which could lead to complications, or worse, a huge accident that could be fatal to this business. Even if I hire the most talented people, offering our services at the current price will keep our profit margin slim, and it could lead us to go out of business in the long run.

    Q: What if I boost the quality of the basic service to as high as it will go and adjust the prices accordingly?
    A: Early-stage startups cannot do this easily because of the limited number of employees. Trying to improve the quality of the business would take too much time and raise our costs, and if the number of users is slow to rise, scaling up would become harder. Besides, how far can we improve upon a basic service?

The team here at Ringle has been working hard to maximize the quality of our services for the price that customers pay. Typically, a single lesson lasts about 40-minutes, and during this time, customers learn how to express themselves more eloquently in English. We also have an app that interacts with and enhances customers’ ability to listen, write, and speak in English. We often spend so much time recruiting new customers that I begin to believe that our attrition rate is the be-all and end-all of this startup, and I get overwhelmed with anxiety and doubt.

Every time I feel this way, I remember a [2] piece of advice that venture capitalist Paul Graham once gave to startups: “Do things that don’t scale.”

I also repeat to myself his words to "start small", "recruit users manually", "have an insanely great service", and "make users very happy."

Let’s start with, "start small". Don’t create a product that aims to [3] cater to a widespread audience or region. Perfect your product with a smaller customer base. You may feel the pressure to grow quickly right off the bat, but don’t succumb to this pressure, as it will cause you to waste money and time promoting something that has not yet been perfected.

If your first hundred customers perceive the quality of your product, then you can probably translate this to a thousand or even ten thousand customers. However, if your product fails to impress a smaller audience base, no amount of marketing will salvage your business. Do everything possible to ensure that your startup’s product is excellent.

Graham emphasizes the importance of recruiting customers individually. Rather than wasting seed money on marketing, founders need to make the effort to meet with each customer and persuade them of the utility of their products. This is especially relevant in the beginning stages of a startup, when the product may not yet be perfect (e.g. [4] creaky UI/UX). Founders will make much better use of their time communicating with customers, instructing them on how to use the service and receiving and implementing their feedback, rather than investing in fancy marketing campaigns. In terms of the product quality, Graham conveys how extreme your attention to users should be with this phrase: insanely great. Always work on improving your service, providing users with something that revolutionizes the way they live and work. Only this level of dedication will lead customers to fall in love with your product.

If you think about it, a loyal customer is your best marketing tool. The founders of Airbnb once said that 10 loyal customers are more valuable than 1,000 tepid customers. This is because the 10 customers spread the word about the company with no prompting, attracting even more users to the business. Let’s say one loyal customer tells one new person about Airbnb every day for 365 days. That means that 365 pairs of ears hear about Airbnb in a year and may decide to give the service a try. But the tepid customer will not necessarily speak of Airbnb. If you want loyal customers, make your product insanely great.

Reflecting on all that Graham has said, I pondered what seemed like the virtuous cycle of healthy startup growth. 

I would like my startup to be one that makes 100% of our small customer base happy. Theoretically, our clients would then voluntarily do the marketing on our behalf, spreading the word about Ringle on social media or in person. Ideally, we would simultaneously receive funding, and we would use this money to hire talented people who would help develop the quality of our service even further. If we can stay resolute to our mission and focus on fixing problems as soon as they arise, I believe that Ringle, as well as any entrepreneurial undertaking, can be successful.

I now ask myself the following questions:

  • How many customers am I communicating with?
  • Do I fully understand the needs and concerns of our users?
  • Are they completely satisfied with our service? If not, how can we improve?
  • If customers think our service is more expensive than desired, this implies that our quality lags behind compared to its cost. How can we do better?

In reality, the day I spent writing this note, my attention was diverted more towards attaining customers rather than improving the quality of Ringle. I want to shift my focus from here on out, and I will brainstorm ways to make our existing users happier.

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