Episode 33
· 25:21
Hey,
Speaker 2:it's time for part two with Jason Kallikanis. In this episode, we explore the question every product person needs to answer. Should I bootstrap or should I get investors? Just a little break to tell you about Shopify. If you're trying to set up an online store, then you really should try Shopify.
Speaker 2:I've tried setting up dozens of online stores for clients in the past, and there are always so many headaches handling payment gateways, multiple currencies, taxes, shipping rates. And I always had this feeling like if someone else could just solve that problem for me, I would I would pay for that. And that's exactly what Shopify does. I want you to go to productpeople.tv/shopify, sh0pify, and get a free fourteen day free trial. That's productpeople.tv/shopify.
Speaker 2:Just wanted to tell you about my friends at sprint.ly. They've been with our show since the beginning, and they actually have a new coupon code for you to use, product people TV 2,013. We'll give you 10% off your first three months. Basically, their web app is the best way to manage the software development process. It's agile project management that works.
Speaker 2:You can start by trying sprint.ly for free by going to www.sprint.ly. And then once you're ready to sign up for an actual account, you can use the code product people TV 2,013, all one word, lowercase, and get 10% off your first three months. That's an incredible deal. I use this software every day at work and love it. I think you and your team, especially if you're working with three or more people, are gonna love it too.
Speaker 2:So www.sprint.ly, and then use the code product people TV 2,013. I just discovered this company called Knowads. It's k n o w a d s as in I know ads. The hardest part about online advertising that I found is is figuring out what works. And what Knowads does is it reveals your competitors campaigns and it shows you exactly what's working for them.
Speaker 2:So you get to see their most successful ad copy and ad placement. It looks really good. Go to productpeople.tv/ads and sign up for an account at no ads. Thank you so much for sponsoring the show.
Speaker 1:Let's
Speaker 2:get right into the show with mister Kalakanis. Well, then this is a good time to talk because, like I mentioned, we've covered a lot of mostly bootstrapped founders, people that have started their companies with their own money or not taking outside investment. Why do you think someone would want to get funded as opposed to bootstrapping?
Speaker 3:So there's been a lot of debate about that. If you can bootstrap, great, and most people do that for a period of time. Some people, have to hire developers, to hire designers, some projects, maybe can't be bootstrapped, not all products, you know, if you're making, if you're doing something in biotech or medical devices, there's no bootstrapping that. Bootstrapping can take you so far. So I think the balance between bootstrapping and doing a large venture capital round is AngelList and the Lean Startup Movement by Eric Reiss.
Speaker 3:So if you look at Eric Reiss and the Lean Startup Movement, and you look at AngelList, that's like the perfect balance. Taking those two disciplines, raising a little bit of angel funding, and then use second market now to do micro funding amongst accredited investors. So raising $200,000 $500,000 to build the proof of concept out, get market feedback, and prove out that there's product market fit. Then, once you have product market fit, then you can ram and jam and increase it. So it's not one or the other.
Speaker 3:It's in what order. Because anything that does get traction, you're gonna need money. Because if it's got traction, there's no reason not to capture that and take it to the nth degree. Because if you don't, somebody else will. So if you're Pinterest, and you realize, hey, we figured something out here, or Uber.
Speaker 3:Well, if Uber doesn't go into every market, somebody else will. And in fact, Uber now is in whatever, thirty, forty, 50 markets. It's incredible. But they still have people popping up in markets before they get there, in some cases. So they're in a race.
Speaker 3:Well, you can't do that race without capital. And if you wanna hire the best people, that requires capital. So I think what we're seeing is the trend is raise less money in the beginning, raise more money, when you have product market fit. And investors are really comfortable with that. Okay, yeah, sure.
Speaker 3:Airbnb, that's a crazy idea, goes to Y Combinator, gets a little bit of traction, gets a little bit of money, then the traction becomes real, and it's like, okay, let's ram and jam. Let's raise hundreds of millions of dollars. Dropbox, clearly the model works, let's ram and jam. Let's go hard. Like,
Speaker 2:ram and jam, you mean like, the purpose of raising the money is to like acquire as many customers as you can? Is that the idea?
Speaker 3:Take market share and scale. Yes, those two things. Take market share and scale. Scale like a mofo.
Speaker 2:Yeah. On the other side, there are some great products that have grown really fast and have stayed private and have stayed bootstrapped. Mailchimp, SurveyMonkey, Valve is worth 2,500,000,000 and has 30,000,000 users. So it looks like Mailchimp probably has about 2,500,000 users. Do you think those are anomalies?
Speaker 2:Is the or could they have benefited from funding if they'd taken funding at some point?
Speaker 3:You'll have some like Mailchimp that doesn't take funding. Can be built off of you know, services revenue. People do that all the time. You know, it does happen, and it's a great thing when it does, because you preserve your equity. But, you know, lot of the things you mentioned might be ten year overnight successes.
Speaker 3:You know, you're like, my God, it's an overnight success. So, it may have taken ten years. They could have taken five years out of that process. But, there's not one way to do this. And so, I think, the bias people bring to the table is like, they think, Oh, it has to be venture capital or nothing.
Speaker 3:It's like, the vast majority businesses are not venture capital funding. Vast minority are funded by venture capital. Most don't need it. And there's gonna be more and more options. Crowdfunding, getting your customers to fund your company, and you see that with the Pebble Watch and movies.
Speaker 3:But what you'll also see is Ouya and Pebble have record setting Kickstarters, and then they go raise venture capital on top of that. And so they've proven that there's a market. They've proven that their product matches that market. And then they said, Okay, we're going get these units out there. We might as well have enough money to take it to the next level.
Speaker 3:And they have a $100,000,000 valuation. And so, raising $10,000,000 only dilutes you 10%. That sounds like a pretty good deal. If I told you I'll give you $1,000,000 for 10% of your podcast right now, you'd be Yeah, I'll take it. Sure.
Speaker 3:I'll figure out a way to put that to work. So, you know, that's and I think a lot of times, people who there's for people who haven't been able to raise money, and I was that guy for half my career. I wasn't a bankable guy. Kind of lean towards self funding. And then once you become bankable, you might over lean towards funding.
Speaker 3:And the truth is, there's a time for both. And
Speaker 2:do you think there's a change now? I'm thinking about guys like Ryan Carson with Treehouse. Started Bootstrapped and I don't know if he quite made it to profitability, but he seems to have a very different way of doing things. He's thinking he wants to run this company for the long haul. He's not looking for an exit.
Speaker 2:He wants to build a profitable company, but he has a bunch of investors. And are you seeing
Speaker 3:I that think that's a fad right now is to say like, I am going to build this company for the rest of my life and this is the last company I ever build. But investors need liquidity. Reason why you can pull this off today is and why it's actually smart, you have like meetup.com, where Scott Heiferman says, This is my last company. Which is fine, but he raised money, right? So, what happens is, there is a secondary market for shares today, with second market, and other places, private transactions.
Speaker 3:And then there's, big technology firms that will go buy. Like, WordPress did a big $50,000,000 secondary offering when the original investors got bought out. So this really didn't exist as much as people weren't as bullish on internet companies. But now that it's pretty clear that they're going to be great investments in some cases, especially when they hit scale, you have the secondary market. So the secondary market has changed that approach, whereas you used to be forced into a sale, forced into an IPO.
Speaker 3:Now, not so much, right? I mean, lot of, Dell's trying to go private. I mean, a lot of people are less enamored with this IPO or the sale. Completely possible, there's a concept, perhaps even that venture capitalists would take dividends. But the truth is, they'll just trade their shares to somebody else.
Speaker 3:I mean, if Dropbox started throwing off a billion dollars a year in profit, and they just said, Hey, we looked at the cap table, and this VC firm owns 20%, Sequoia owns 20%, I don't know if they do or not, but let's say Sequoia owns 20%, and they pay $3,000,000 for that. If they said to Sequoia, we're going to give you $200,000,000 a year, every year for the next ten years, and it's going to be like, okay, sure, we'll take a billion dollars. Yeah. You know, five years, 2,000,000,000 over the next decade for our $3,000,000 return. So, I do think that's possible, but the LPs in those funds like to have a little bit of closure.
Speaker 3:More likely scenario is, those shares get sold to Fidelity or somebody who will just be long them. They might actually take the, just, disbursement. But it's certainly not how it works.
Speaker 2:Yeah. Really the way for both the investors and the founder to make money in a venture funded startup is an exit. Still the
Speaker 3:Yeah, but there are different types of exits now, right? Because there could be a secondary, which is an exit, which just means you're sort of swapping out one investment for another. There's an IPO. There's all kinds of different ways for that to happen. And if you take venture money and you're not expecting that inevitability seven, ten years down the road, then you shouldn't take venture capital money.
Speaker 3:You should take a bank loan. Or you should invest your own money. Yeah. Yeah. So you have to pick, right?
Speaker 3:Like if you take the studio's money to make a movie, then you have to understand that they're going to release that film with a happy ending. That's the way it works. There's a happy ending. They're not going to release your film when everybody dies at the end, unless it's Game of Thrones or something. The point is, they're gonna have a happy ending in Hollywood, and you signed up for that.
Speaker 3:So, you know, if you wanna make the French independent film, where everybody dies and nobody understands the ending, then you go get independent money. Yeah. You have a lower budget. Now And everybody signs on for less money. But if you wanna do the Avengers and everybody wants to get $10.20, $30,000,000, $50,000,000, know, for their Iron Man appearance, then they're gonna sell the shit out of that.
Speaker 2:Now, you're starting a funded company, are you thinking that there's two customers? Like you have your customers of the app or whatever and then like the acquirer is a customer? Like, you always thinking like we've got to set this company up so that it would be attractive to a Google or a Facebook or
Speaker 3:That's a terrible idea. Yeah, trying to trying to build for the sale is a bad idea. What you want to build for is a growing market, customer base that loves you, build for a team that loves to build the product. Like when I did inside.com, I was just pleasantly surprised that a lot of developers are really into the space that we're going to be in. It was very easy to find talent, because they're like, oh, I love that idea.
Speaker 3:Oh, I like similar products to what your idea is. Oh, I'm really into that concept. So you want to have a great concept that resonates with the market and that resonates with your team. And if you do that, it will resonate with investors and an acquirer. But building to sell is very dangerous.
Speaker 3:I've heard that many times. When somebody comes to me for an angel investment, this is a perfect acquisition target. It's like, that's not what you lead with. That's a nice thing, like, you know, this is something where you could absolutely, if you made a really great app in the map space, like Waze, there are a number of natural buyers for that. Anybody who owns a mobile phone platform or operating system or company, Samsung, HTC, Blackberry, Microsoft, even Facebook, who has mobile aspirations, Apple and Google, all will want to buy Waze.
Speaker 3:That's great, but that's not why you build it. You build it because users need to get through traffic more efficiently and there's a better solution that you have.
Speaker 2:Yeah, but it sounds like you're looking for a growth market. Like that's something that's going to go really fast and anything that grows fast is going to be attractive to one of those big guys.
Speaker 3:You've never raised venture capital? No. And so you're fascinated by it, right? And you're fascinated by the exit. Have you ever exited and sold the company to Google or Yahoo or anybody like that?
Speaker 3:No. Right. So it's naturally fascinating to people, right? Mhmm. If you were amongst the people who has raised venture capital or sold one, it would just seem very transactional and natural to you.
Speaker 3:It's understandable that people when they see Tumblr get bought for a billion dollars, or people invest a $100,000,000 in Tumblr or whatever, they're just such big numbers that it's hard for people to comprehend. And what I encourage people to do is just drop off three zeros, or two or three zeros, and then just think about it like a restaurant. If I told you, so we drop off three zeros, that this restaurant got sold for a million dollars, and that the restaurant was making, you know, dollars 50,000 a month, you'd be like, Okay, it's probably a good deal. Or, these people invested $500,000 in this restaurant and they sold it for $2,000,000 You'd be like, that's great. That sounds good.
Speaker 3:It's just the numbers are so large that even when I came in as a kid out of Brooklyn, I was absolutely like you. Like, oh my god, it's big numbers and how do you go that big, whatever. And it turns out, there's a lot of money in the world. There's trillions of dollars just sitting around, and people are bored, and rich people are getting richer and richer. Every month, you know, these billionaires, you know, have 50,000,000 or a $100,000,000 in profits on their investments, and they just sitting there like, okay, do do with this month's $50,000,000?
Speaker 3:Oh, let's buy a big house, that's worth $50,000,000. None of us can understand it, but that's the truth. When the stock market is roaring and their investments are roaring and the polarization, it's like, oh yeah, I'll put a $10,000,000 into this, I'll put $5,000,000 into this, why not? They're bored. The money is bored.
Speaker 3:Money wants to burn, money wants to be spent. Money does not want to sit in a safe. Yeah. Money is intended to be gambled. Put it on black, spin the wheel, let's see what happens.
Speaker 2:Interesting. That's a, I've never heard anyone say it like that. Because I think what people think is they think Yahoo bought Tumblr for $1,000,000,000 It wasn't long ago that Yahoo bought GeoCities for $3,800,000,000 and GeoCities is effectively worth zero now. Now you're
Speaker 3:Yeah, so if somebody opened a pizzeria and it failed because it didn't have enough foot traffic, not everybody would be sitting there like, my God, that pizzeria, they spent a million dollars building a pizzeria and it went out of business? They're like, Yeah, but there's 20 other pizzerias you know that that person opened that are doing great. So listen, McDonald's is opening and closing and Starbucks is opening and closing, little outposts everywhere. They're big numbers, yes, but these are big businesses and they're big swings. What if you bought YouTube for 1,600,000,000.0 and now it's worth 50?
Speaker 3:That's the truth. YouTube's a $50,000,000,000 value business right now. So don't get too caught up in the big numbers.
Speaker 2:Yeah. Let's talking about we'll close off with this I think. Talking about, last product you'll ever build. You've said that inside.com is the last product you'll ever build.
Speaker 3:I think it's going to be the last one. Think because it will carry me for decades because it's such an all encompassing concept that, I don't need to do anything else.\
Speaker 2:And what's it about? What is inside.com?
Speaker 3:October 1.
Speaker 2:October 1. Yeah, come back
Speaker 3:in October, I'll tell you. You'll know in October. I'll have you in the beta in September and people will start to know in September, October.\ Okay.
Speaker 2:Says you've
Speaker 3:Part of launching a great product is not tipping your cards.
Speaker 2:Okay. It says it puts together everything you've done. Is this a media product?
Speaker 3:It is a product that's coming out October 1, and it will be the last product ever built.
Speaker 2:Interesting. Yeah. Interesting. Okay. Well, Jake
Speaker 3:And if you wanna be in the beta, go to inside.com and put your email in. Then we're gonna email that list and tell them, hey, fill out this survey, and if you fill out the survey, then you'll get to the beta. So, but sign up at insight.com if you're interested.
Speaker 2:Interesting.
Speaker 1:Okay.
Speaker 3:I think we have five or 10,000 people have signed up already for the beta. When we get to 50,000, we're going to start letting a couple 100 people in each time.
Speaker 2:Already. Wow. Well, Jason, thanks so much for being on the show. I really appreciate it. My pleasure.
Speaker 2:Where can people find
Speaker 3:How long have been doing this show?
Speaker 1:This is our
Speaker 2:What is this? Our thirtieth episode?
Speaker 3:Hey, everybody. This is Jason Kallikanis, and you are listening to Product People. Beautiful. I just caught a promo for you.
Speaker 2:I love it, Jason. I
Speaker 3:love love it.
Speaker 2:I really appreciate it. Where can people find you online?
Speaker 3:Jason on Twitter. Jason. That's my email.
Speaker 2:Jasoninside dot com.
Speaker 3:If you ever want to know, like, a famous person's email, it's like, if you want to know Evan Williams' email, you know, and he started a company called twitteronmedium.com, generally speaking, first name at domain name, it tends to work.
Speaker 2:Yeah. And you
Speaker 3:know if it doesn't because it bounces. Yeah. Don't ask me for Elon Musk's email or Mark Cuban's email, figure it out for yourself.
Speaker 2:You're telling people to go figure out their emails right now.
Speaker 3:Well, mean, is that such a revolutionary idea? I mean, people can just delete an email. That's true. People are all upset about their email addresses. That's true.
Speaker 2:I appreciate you answering, Ma. I'll talk to you soon.
Speaker 3:This has been great, and thanks for having me.
Speaker 2:Yeah. When was the last Canadian podcast you were on?
Speaker 3:This podcast is out of Canada?
Speaker 2:Yeah. Beautiful British I can't
Speaker 3:be seen my right. I don't wanna be on any Canadian podcast. No. I'm coming I'll be I'm gonna be in Ottawa next week. Perfect.
Speaker 2:Awesome. Yeah.
Speaker 3:Awesome. I love Canada. I love Canada. Alright. Talk to soon.
Speaker 3:Cheers. Bye.
Speaker 2:Thanks, Jason. I just finished editing the show, and I realized that this part two is a lot shorter than I thought it was. We're just under twenty minutes normally. We like our shows to be about thirty minutes, but no fear. Next week, I interview Noel Tock of Happy Tables and building your app on top of WordPress fame, And that episode will be a full thirty to forty minutes.
Speaker 2:Come back next week. If you haven't subscribed already, you can subscribe on iTunes, on stitcher.com, using your favorite pod catcher like InstaCast. You can follow me on Twitter m I Justin. You can follow the show on Twitter as well at product people TV. Now if you like the show, please give us a review in iTunes.
Speaker 2:It's as easy as clicking five stars. I will see you next week with Noel Tock. Hey. I couldn't leave you with such a short episode and not give you something a little extra. And so I dug into the embarrassing archives of songs I've written after I've been drunk.
Speaker 2:And this is what I found.
Speaker 1:Don't have the patience to deal with you. I tell him it's gonna make us a million dollars. He just says Shut up. Shut up and get back to your desk. Okay.
Speaker 1:I'm going. And do some real work. Okay. My girl doesn't understand Twitter. My girl doesn't understand Twitter.
Speaker 1:She says, let's go on a date. I said, baby, you gotta wait. I've got to tweet that you want to go on a date with me.
Speaker 2:So there you go, a drunken song written on a cold Canadian night with my friend Darryl Woodward. If you want to see the animation, the cartoon animation that we made to go along with that drunken song, you can go to productpeople.tvsong. Have a
Speaker 3:great week.
Listen to Product People using one of many popular podcasting apps or directories.