Financing and Web Apps

Just spent some time with a young first time entrepreneur *full* of potential. He’s talking to VCs trying to get financing to build his idea. It’s a web app, so here’s the deal. IF you are building a web app DO NOT GO TO VCs…at least for a while. First you need to:

1) Build the app and release it live
2) Get some users
3) Interview and understand those users intimately

After you have done these three things, maybe you have a case to speak to a VC about what you are up to. Different rules apply to serial entrepreneurs who have established credibility to stand on, but first-time entrepreneurs need to prove themselves – keep in mind VCs are being flooded with business plans for websites…they are a dime a dozen like it’s 1999. And if it makes you feel any better, no one believed in FreshBooks when we started talking to people about financing in 2004…so don’t let the bastards grind you down.

Rules I Like

Behind successes there are usually cultures.  Cultures are often based on unwritten rules.  Here are a few I like:
Hat tip to Venture Beat:

Sequoia Capital’s $100 rule — If partners at the big-name venture capital firm arrive late to a meeting with an entrepreneur, even by a minute, they have to donate $100 to charity. Entrepreneur Noah Kagan confirms this with partner Michael Moritz.

I hear that the Tampa Bay Lightning have a their team logo printed on the floor of their dressing room. Anyone who walks on it has to pay $150 (or thereabouts)…I’m not sure where the money goes and I don’t really care.  It’s about respect.

I like these rules.

Bottom Up Financing

Last year I spent a lot of time talking about bottom up marketing.  Looks like we are starting to see a lot of bottom up financing too.  Consider my mesh partner Rob Hyndman – a technology lawyer who sees a lot of companies and ideas well before any VC.  So now he’s put out a call to Toronto angels, and with the fallout from the disintegration of the Toronto venture group, his timing couldn’t be better.

You know a smart VC really ought to partner with Rob.  In the meantime, bottom’s up.

Hey Entrepreneur, Reach Out for Help

I’ve talked about it before, but recognizing when you need guidance is vital – in my opinion this is especially true for entrepreneurs who frequently bear the responsibility of making decisions that affect the rest of the team.

Every few months I find myself wrestling with an important business decision – on what will have impacts long into the future. At times like these I find I am rarely standing on solid ground with respect to making an informed decision. When you think about it, this is not surprising. FreshBooks exists in a fast moving space…relatively speaking, technologies and markets turn on a dime on the web. I like that about what we do, but it also means that I find myself trying to solve problems that have either never been solved before, or have only been solved by a small number of people. Gaining access to those people so you can ask them questions about their experiences is priceless, but not always possible – that’s why I collect advisors and try to cultivate long standing relationships with other entrepreneurs.

If you surround yourself with great people, the trick then becomes swallowing your pride and laying yourself bare and revealing that you don’t know the answer. You may have some ideas, but really what you have are questions. If you have the courage to ask those questions, you’ll find that your advisors can steer you in the right direction. It’s been my experience that the best advisors won’t tell you where to go, but they will keep you from going in the wrong direction, and that’s at least half the battle.

So swallow that pride, and turn to someone you think might help – it might even be your competitor. I’m betting you’ll be amazed at how you will be received.

mesh update: Schedule Release and Call-Out For Start-Ups

We just released the mesh conference schedule. Mathew, Stuart, Rob Mark and I are really really excited about it and we hope you will be too. Great local talent mixed with many of the web’s foremost thought leaders on Media, Society and Politics, Marketing and Business will be on hand to engage and converse with. Jim Buckmaster CEO of Craig’s list, Garth Turner of the Liberal Party of Canada, Nora Young from CBC’s Defintely Not the Opera and Rachel Sklar of the Huffington Post give you an indication of the breadth and depth of the minds who will be on hand.

Also, yesterday mesh began to solicit invitations to internet start-ups to participate in 15 minutes of fame. Basically we will be turning the stage over to handful of promising start-ups so they can tell us what’s next online. If you are running a company, or know someone who is, please be sure to get your submission in before the middle of May. You can find more details here.

Finally, if you have not already, get your ticket…they’re going very quickly now and we don’t expect to make it to the end of the month before they sell out. You can register for mesh 2007 here.

Product Reinvention

As posted on the FreshBooks blog:

Something I have taken an interest in over the last couple of years is product reinvention. I’ve been thinking about this lately because of something Triscuits has done. I grew up in a Triscuits household. Two things we ALWAYS had in stock when I was growing up were granola and Triscuits. Don’t ask…my friends used to tease me about this because it was something that never failed. Anyway…take a look at Triscuits. All they have done over the last ten years is change the amount of salt and sodium in their product – that’s incredible boring if you ask me. But look at Triscuits now…

Just recently I have come across two new ingenious variations of their crackers: Rosemary and Olive Oil (which is awesome), and Cracked Pepper and Olive Oil (which is even better…I can’t believe how good these taste).

These new offerings have totally reinvigorated how Triscuits are positioned in my mind. Sadly I went to their website to learn more and find links to point to in this post and was utterly disappointed by the uselessness of their marketing collateral…no dedicated pages for each new product, links that are confusing, hard to find and, in some cases, barely work. Classic flash driven advertising agency approach to usability…no wonder ad agencies are in trouble these days. And to top it off, Nabisco has not domain-proofed their brand by buying Triscuits.com. But I digress…

Despite all that, if you are a Triscuits fan, it’s time to go shopping. And may I recommend some Brie cheese with the Cracked Pepper and Olive Oil for your delight? Happy snacking.

Joe Kraus On How Things Are His Second Time Around

As posted on the FreshBooks blog: 

Here’s some more food for thought from “Founders at Work” for those of you who are tracking Web 2.0. While it’s a little out of context because Joe Kraus – founder of Excite and Jotspot (a wiki service recently sold to Google) – was answering the question, “What important lessons did you learn at Excite that you carried over to Jotspot?”, I think it’s also a good indication of how much different this boom is than the first internet bubble:

“Get the legs of the business underneath it before you run terribly fast. We were always playing catch-up at Excite and I never liked the feeling.”

He also said:

“The hardest part in a start-up is you wake up one morning and you feel great about the day, and you think, “We’re kicking ass.” And then you wake up the next morning , and you think, “We’re dead.” And literally nothing has changed.

If you’ve ever been there you know that’s funny because it’s true.

Let's mesh Booze and Politics

Posts have been few and far between these past few weeks…things are very busy at FreshBooks and I’ve been away for three of the last four weeks then down with the flu.  Anyway, I wanted to let you know that we’re doing another mesh meet-up geared at the politics stream of mesh content.  Here’s what Rob had to say on the mesh blog:

Come out with the mesh guys and get your political blog on, Toronto!

We had a great time at the first mesh meetup, but there are still a few weeks left to mesh ‘07 and we’d like to get together again. And this time, it’s political.

Blogger and National Post columnist Andrew Coyne, blogging M.P. Garth Turner, former Paul Martin speechwriter (and of late writer, humourist and blogger) Scott Feschuk and Phil de Vellis, the creator of the “Vote Different” Hillary ‘08 YouTube sensation, will be doing a panel at mesh ‘07 on what’s happening now with Politics and the Web, but let’s get the conversation started early!

Whether you’re a political blogger, party stalwart, consultant or media observer, or like us just plain fascinated by the impact that the Web is having on the way we discuss, organize and create political change, come on out and join us and folks from the Toronto Web 2.0 community on May 9 for snacks and libations at The Charlotte Room – details and signup at the Upcoming site, and please help to get the word out by forwarding this post to someone you can beat at eight-ball. Worst case, you can settle your political differences the way we were meant to – over libations and pool tables.

I love the fact that mesh brings such a well rounded ecosystem of participants together…people interested in the impact the web is having on media, politics and society, marketing and business.  The mix of people is one of the truly special aspects of the event.  So come on out and join us for drinks on May the 9th and get a taste of how things will be at mesh this May 30/31.

Patience and Persistence Can Pay Off

From the FreshBooks Blog:

usergrowth33months2.gif

In our Barenaked Apps Panel at SXSW, Ryan Carson advised anyone starting a web app to plan for 3 potential outcomes: success, limited success and failure. He’s right – you need to think those outcomes through and determine how you will respond to each scenario. I’d like to add something to this though. There are many people out there with big dreams that are building web apps in their spare time these days – it’s exciting. Unfortunately I think a lot of them are building with false expectations (a post on false expectations to follow soon). They think if their app does not take right off, they should pack it in. My thinking is – don’t.

If you have a measure of success when you launch, I bet you’ve got something. What’s the measure of success? It could be almost anything, like how many visitors from to your site or how many people trial your service. How about getting someone you don’t know to pay for your service? If a person you don’t know signs up and pays out of no where – even one person – then there is a good chance you are on to something.

If you’re on to something it’s time to hunker down and get to work. Launching does not mean you’ve arrived at easy street and you can sit back and relax – it’s your introduction to the grind. The beauty is that web businesses are a ton of fun to run, so the grind can be really enjoyable.

Not buying any of this? Maybe you will find this inspiring. When FreshBooks launched, we were called 2ndSite (we’ve since rebranded) and we did not have our first paying user until month two, but we believed in what we were doing – that fuelled us – and saw trials everyday which was exciting. So we hunkered down and that graph at the top of this post is what our growth has looked like over the past 30 months (we’ve been at it for 33, but I could not get info for the first three months).

Work hard, take care of your customers, innovate and the rest will take care of itself.

This is the second in a series of posts (here is the first) I’ll be doing over the next few days about starting a web business. If you liked this one, subscribe to our feed and stick around.