The most common reason we end up rejecting a startup @HustleFundVC is our gut feeling around the unit economics and competition of the business and the space. We may end up being wrong but this is probably the most important thing to think about.
Some thoughts on this here:
Some thoughts on this here:
1) First - a quick recap: unit economics are basically about getting your costs and your revenues correct per unit. Ie is the worth of a customer / users more than the cost of acquiring that customer?
2) between 2008-2010 I had a lot of failed side projects. They all failed due to not understanding all of this. Let’s dig into this a bit.
3) One such project was a one stop “shop” for all things wedding. We aggregated bridesmaid dress and wedding dresses and other wedding stuff and made money on affiliate.
4) On perfunctory glance, this was differentiated (at the time) and solving a need. But the costs to get customers were too high relative to the 5-10% we could make on each sale. The costs were high because we were competing against our own suppliers for traffic.
5) Macys who makes 50% on a dress could afford to spend more than we could - we would make 10% on the same dress.
6) ok well what about non-ad channels? partnerships/ sales / pr / etc also all cost more money than we could spend.
7) We also had to be profitable on that first spend because repeat purchases in this industry are far and few (though one customer got a divorce 4 mo later and bought again when she eloped w someone else 2 mo after that).
8) That basically meant we were relying on product vitality that we needed to build into this or SEO. Let’s talk about SEO first. First off, SEO also costs money. There’s a cost to link building.
9) Secondly, SEO requires a lot of patience. This isn’t a bad thing but early stage VCs don’t have that patience so you need to prepare to bootstrap for many years.
10) If you have this patience, you can certainly build a big business off SEO. Highly recommend listening to this talk by my friend @timchen82 on building @NerdWallet:
11) Note in this video, he talks about bootstrapping for a couple of years and then after getting into LifeHacker, they finally make $5k! Waiting out yrs to get to a few thousand dollars in revenue is what I mean by patience.
12) The flip side is that over a decade later, NW is a huge company that is profitable and owns its own destiny. The pt is that if you go down the SEO route - slow and methodical - early stage VCs won’t be able to invest but you may end up winning big 10+ yrs later.
13) The last channel we tried at our wedding site project was product-based vitality. It turned out, we could create features to get ppl to drive their wedding parties (brides side) to our site but not enough ppl to spur enough conversions.
14) Tying this back to what I see in companies we look at. We see a lot of companies in competitive spaces. A good was to assess is if the ads in your space are pricey, you’re in a competitive space.
15) For example: Group buying, niche groups in travel all compete w Expedia and airlines and hotels directly. Especially if you are offering a product that could be bought in any number of channels. Even if your product is better, it’s still hard to rise above the noise.
16) It’s not to say that you shouldn’t compete in a competitive space, but it means either slower growth OR offer a highly differentiated product that you cannot get elsewhere OR have a clever wedge. Ie sell something that isn’t competitive first and upsell the competitive prod.
17) Last though - the best entrepreneurs think about customer acquisition and unit economics FIRST before building product.
