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The Political Bottomless Pit

An Update on my Time as Entrepreneur

Next week marks three years since I left Terrafugia, which was the last time I worked as an employee. Since then I’ve wandered through various entrepreneurial roles and projects. In January 2013 I started tracking how I spend my work time. I now have 32 months of data (critics take note: this graph doesn’t include laundry or non-work stuff):

Time utilization as of 2015 October 8.

Time utilization as of 2015 October 8.

In green at the bottom there’s the rental property (MTL 7). I did a lot of maintenance this summer, like painting, and I had two turnovers, so it was the most intensive house work in a while. The house has been the underlying, ever-dependable “first business”.

In blue, dark red, and orange there’s ArtistBomb, Ghost Bear, and the BagPack. These projects all came and went. The BagPack is still being sold at low volume. ArtistBomb is still moving forward, soon to rebrand, but I’m largely hands off at this point.

Purple is MassLandlords. In the last six months I have finally settled onto MassLandlords as “the thing.” It’s now paying the rest of bills (what the house didn’t cover).

“MassLandlords development” in light purple was the bucket allocated to website work. It hasn’t received as much focus as the first summer after launch. That’s mostly because the management piece has ballooned. I’ve tried to straighten out membership lists, event marketing, accounting, and partnerships. We’re up to over 900 members consistently, and I think any day now we’ll announce an average membership of over 1,000. (It’s hard when two thirds of members still don’t have a credit card on file.) We have five partner locations (Boston, Springfield, Southbridge, Marlborough, and Worcester).

The big change has been the growth of the salmon colored streak, my new focus on public policy advocacy (ppa). In particular, I was asked to sit on the Massachusetts Senate Special Commission on Housing. There was a good idea floating around about homelessness and it looked like a win-win-win. I put some time into advocating for it. There’s a program in Seattle that does exactly what we need. The Commonwealth, the homeless, and landlords could all be better off. The details are unimportant but you can read about them elsewhere.

I sat on the commission with representatives of quasi-governmental non-profits that administer social benefits and advocate for tenant rights. They receive tens of millions of dollars annually (in one case, over $100 million annually) and have become experts at getting their way. They took our win-win-win, something for which we had real data, and ran it through the steamroller of their ideology.  It hardly resembles what we had in mind.

The experience has chastened me. Without equivalent funds and back channel influence, landlords cannot hope to contribute to policy discussions on equal footing. Just as a poor person’s lone attorney can be buried by the opposing team’s paperwork, the relatively poor MassLandlords was buried by the big money advocates.

It was my first glimpse into the political bottomless pit.  There is apparently no amount of third party data that can overcome ideology. There is only money and time and the stamina to outshout each other. MassLandlords could easily fall into this bottomless pit. In fact, this is where the old landlord trade association ended up.

Maybe someday we’ll be in a better position to advocate for data-based policy decisions. For now, I think I’ll return to putting my time into management.

MassLandlords.net Outgrew WildApricot

In late 2013 we switched our membership management system from a Google spreadsheet to WildApricot. It was so good I got giddy. I could search specific fields across all members. It would send automatic renewal reminders. We could have members-only forms, event registration, and a directory. I was over the moon.

Alas, all good things… The same time we chose WildApricot as our back-end, we chose WordPress as our front-end. This, it turns out, meant WildApricot’s days were numbered.

Transition from Google Spreadsheet to WildApricot to WordPress

iFrames as Wild as an Apricot

WildApricot says it integrates with WordPress via iframes. There’s a little web page inside your main web page. They call this a widget. I’m fine with “widget.” But this is not an integration. There is no communication with WordPress whatsoever. And use of iframes causes problems for browsers that block third party cookies. This includes all iThingies and Macs. In our case, that’s 25% of our users. These folks couldn’t log in until they first visited a WildApricot site, received the cookie, and returned to the original page.

WildApricot’s help docs claim you can resize iframes to fit your site. But some developer at WildApricot didn’t get the memo and started using CSS floaters. These notify users about special messages. They are important to see. The one in the image below is trying to say that your membership is overdue for renewal, so “click here!” But the floater has ignored the iframe width and carved out space off-frame, beyond the iframe. It actually looked like this on our site:

WildApricot floater partially eclipsed by iframe.

WildApricot floater partially eclipsed by iframe.

We hacked their floater to wrangle it down into view the way you have to leap onto a stack of helium balloons to squeeze them into your car.

PayPal Integration Guarantees Lowest Possible Conversion Rate

Maybe I picked the wrong version of WildApricot’s plethora of payment options.  I don’t know. All I do know is that we switched to stripe. We used wpstripe without any back-end API connection. Even though we then had to manually add new members to WildApricot, we were FAR better off. Suddenly new members were converting left and right.

In November 2014 I made the following note in my log, “The PayPal integration is awful.”

In general, any time you have to leave a site to pay, or enter too much information, you’re giving your customers a bad experience. It’s like pushing your grocery cart next door to pay. You ask, “Am I in the right place?” And they reply, “Maybe, give me your social security number and I will check.”

Our members tend to be of the generation that’s somewhat distrusting of PayPal. They would rather pay via what they perceive to be a secure paper check. Our simple stripe checkout generated none of these complaints about perceived security.

A Forum for Quiet Meditation

WildApricot members can’t post to the forum via email. This is a huge barrier to adoption with less computer savvy members.

The forum experience for members who are admins is really difficult. They can’t view the forum when logged in as an admin. Not allowed.

We switched to Google Groups. This left us with a lack of connection between our forum and our membership database. But again, even though we had to have someone add people manually to Google Groups, we were far better off. Our Google Groups stayed in sync and participation was robust.

Meanwhile, in the WildApricot forum, I sat quietly and pondered the meaning of life all by myself.

Good Email Reminders

I like the way WildApricot sends email reminders for new members, lapsed members, and other things.

But I have more complaints

I don’t really like the way WildApricot does members-only documents, where the link is public but just hidden. That’s open to brute forcing and sharing.

Their HTML edit windows are awful.  If you paste in rich text from another editor they’ll say, “Cleaning html!” and then delete everything you’ve pasted in. (I wasn’t pasting anything crazy. WordPress handles the same text correctly.)

Their customer support is unfeeling.  The number one answer I received: “try a different browser.” (Okay, so I will email all my customers and tell them to use a different browser.)

Overall Summary

But here’s the thing about WildApricot: it took us three months and almost a dozen WordPress plugins to replace what they were offering.

Back in November 2014 I wrote, “We’re using WildApricot as an integration with a WordPress front-end, which I realize puts us in a class above your target user, in terms of sophistication. As we head down that road, I anticipate outgrowing WildApricot. But in the meantime, you’ve given us a lot of value and we’re not looking to leave just yet.”

Adieu, WildApricot.

Learning from an Early Flop

The BagPack, sold at HandsFreeGroceries.com, has been on sale for just about a year this month. It’s time to take stock, figuratively speaking, but also literally. I just withdrew BagPack inventory from Amazon’s distribution center. It’s not that I want to stop selling it, it’s just that I need to avoid Amazon’s long-term inventory charge. I’m getting charged because my inventory isn’t moving. So here at the one-year mark is the story of the BagPack and my analysis of it, seen through my increasingly seasoned lens.

The BagPack started as a serious endeavor. It’s a useful product with a potentially big impact. Ask yourself, how much carbon dioxide would we stop producing if we could carry our food from store to kitchen without a car, up stairs, with both hands free? It’s also a fun product. You’ve never carried 50 lbs of food with so little effort, enjoying the sunshine, holding an umbrella, talking on your phone. It’s really very good. As a matter of fact, I use mine every time I shop.

Doug wearing BagPack talking on phone.

Using the BagPack really is this much fun.

Enough of the sales pitch. From May through August 2013 it took about a quarter of my time, or 200 hours. I got it “patent pending”, with inventor Oliver Chadwick listed rightly as the primary inventor, built a website on SquareSpace, manufactured some inventory, learned how to ship from Amazon’s warehouses, and started digital marketing.

The manufacturing and shipping was the least problematic piece because it was the one with which I was most familiar. I was fortunate to get help from Jerry DeChristoforo.  Jerry may be an accidental entrepreneur, but the truth is his hands have played a key role in three different startups over the last three years: Terrafugia, the BagPack, and now Global Flight Systems. Jerry produced far more, far better than I could have.

Alas, my marketing skills and split attention let us down. My work at ArtistBomb was at that time ramping up sharply. There I learned from Brian Bahia the power of WordPress for search engine optimization. While working on ArtistBomb we traded services, and my end of the bargain was HandsFreeGroceries.com remade in WordPress. It looks identical to the old SquareSpace, but it works far differently behind the scenes. When I switched to WordPress, many of the mechanisms Google uses to index and rank a site became more obvious and accessible. But it was too late. All my content marketing and search engine efforts were by then being directed into ArtistBomb.

BagPack Analysis

In retrospect, the BagPack business model – sell online as a stand-alone product – is critically flawed. Manufacturing BagPacks at low volume in the US drives up the cost of goods sold (COGS, as they say) to the point where profit is too little to sustain the needed marketing. Our best source of referral traffic remains a blog we posted on, but it took posting on a dozen blogs and getting a couple of bloggers to review the BagPack before we happened across that one source of traffic.

In retrospect, I suspect this would have worked better:

  1. Use the prototype to create a compelling Kickstarter video;
  2. If the Kickstarter were successful, use the funds to open a BagPack supplier at much lower COGS; and
  3. Distribute through existing channels.

Existing channels means Whole Foods and other urban grocers.  Internet marketing had sex appeal for me (it still does), but it’s too expensive for this product. Think about this: lots of tech startups have a hard time making ends meet when their gross margin is 97% (the only thing it costs to sell another website subscription is the 3% credit card fee). So selling a BagPack with a gross margin of 3% is completely hopeless.

I tell you, though, it sure is fun when I get that email from Amazon saying they’ve shipped another BagPack.

If all this hindsight really is 20-20, then my marketing effort from this point on should go into a minimally acceptable website, a compelling Kickstarter video, and really nice consumer packaging. That traction and packaging could then be offered together to retailers.

Well, I don’t have the bandwidth to get this Kickstarted right now, but I may come back to it. I would also be ready to hand over the keys.  So if you’re interested in picking up a hand-me-down startup, contact me, we can figure it out.

What’s the difference between business and self-employment? Is what I’m doing a business or a job?

I found myself asking this question this morning. Here’s what I told myself.

The key difference must be whether future revenue is directly the result of future labor. If I can earn $100 next week only by working on my business that week, then I’m self-employed. But if I can reasonably expect to get that $100 regardless of how hard I work, whether I take a vacation or work overtime, then what I have is a business.

 

Unfunded startup businesses are brutally difficult, and feel like unsuccessful self-employment, because you work 60 hours a week to earn that measly $100. Some weeks 90% of what you do is recurring, mundane work, and only 10% of it actually builds the business into a better state. That 10% is what you live for those weeks. If you do it right, over time you create an infrastructure of revenue that comes without regard to your personal effort that week.

There’s an inflection point in entrepreneurship. If you never get past the inflection point, your business ventures will always be low-wage jobs. That point is break-even. Not for the business, but for you. If you can break even every month, pay your rent, buy your food, and see the occasional movie (or whatever it is you do when you’re not working), then you no longer need to keep every last dollar you earn.

800px-X_cubed_plot.svg

Here’s why that’s an inflection point:

Suppose you work 60 hours a week and earn $200 more than you need to live and be happy. 90% of that 60 hours may still be recurring, mundane work. It’s not building. But you’re supposed to be building, right? So don’t keep that $200. Take it and outsource the mundane work.

$200 goes a long way. If you hire someone at $20/hr, that’s an extra 8 hours you have to build your business each week (after taxes, overhead etc.). You’re still breaking even, so pretend the $200 wasn’t yours. And $200 can go even farther than that. Thanks to the Internet, you might find someone great to work for $4/hr, where $4 is a good wage. That’s a lot of time for you, and you’re providing needed employment.

This is why growth businesses don’t pay dividends.  They reinvest them.  So if you’re a bootstrapping entrepreneur, you shouldn’t dividend yourself, either. Break even and reinvest.  The same is not true for self-employment.  If you’re self-employed, you need to keep that extra $200 for a day when you can no longer work.

So, at the bootstrapping stage, that’s the difference between business and self-employment.

The Digital Gentrification of Facebook and the Internet

digital gentrification

One of my concerns the last month has been a change Facebook made to their algorithm.  They’re basically making it impossible to reach fans of business pages without paying to promote posts or get likes.  They call it “declining organic reach.”

If you decide to pay for likes, the results may surprise you.  I wrote in December about the problem of “promiscuous likers“.  This is now getting more serious attention.  One blogger created this viral anti-Facebook video in February.  I like his approach and his larger dataset better than the work I did last summer.  (Check it out if you’re thinking about advertising.)

Despite the twin pitfalls of declining organic reach and promiscuous likers, Facebook’s new algorithms still allow businesses with money to move into the neighborhood, set up shop, and get customers.  Meanwhile, poor companies and startups vacate their properties.  This process is nothing new.  It’s called gentrification.  Facebook is digitally gentrifying.

The same process is probably happening with Google AdWords.  Years ago cost per click ads were an order of magnitude cheaper.  Now you can easily pay $10 per click.  For some keywords, it makes no sense.  Then again, neither does overpaying for a brownstone in an up-and-coming neighborhood.  But rich people do it, and the poor folks leave when they can’t pay the new rent.

There’s a serious issue being discussed right now that threatens to gentrify the whole Internet: net neutrality.  In a nutshell, they’re talking about allowing Internet service providers to charge more for bandwidth needed to stream music and videos (mostly videos).  Netflix and other established players will be able to afford these higher prices.  Meanwhile, poor video startups may close up shop.  If the current ruling stands, ISP’s could charge any company and kill any startup they pleased.

I’m not pessimistic about this.  Facebook and Google aren’t the only ways startups can reach customers.  ISP throttling will inspire creative work-arounds.  But it does seem as if digital gentrification will take away the last of the low-hanging Internet fruit.  The amount of capital already at work online will throw up barriers to entry, and in desirable neighborhoods like Facebook, startups and small businesses will need to pony up or move out.

It seems there ought to be implications for investors in startups, as well.  If a company’s goal is just to “get eyeballs,” meanwhile deferring monetization and revenue in order to encourage fast growth, this strategy will probably require more capital than at any time in the past.

Fortunately, there are still two good ways to acquire customers for cheap: direct sales and search engine optimization.  Each of these costs you nothing but your time.  By working both in parallel, you can simultaneously interact with customers to find out what they want, and produce content that will attract future customers.  Now, even SEO is gentrifying a bit, as it’s already impossible to catch up to behemoth, highly ranked sites for certain topics.  But all you need to do is get started, and your niche is too tiny for the behemoths to fit into.

So if you’re upset that Facebook has undercut your online marketing, move to another neighborhood.  Once you’re moving at a faster speed, you can set your eyes on that Facebook property you’ve been wanting.

Angel Investors in Boston

ArtistBomb, Inc. has not pitched in front of any investor or group of angel investors in Boston.  We’ve had plenty of practice, and plenty of one-on-one conversations with mentors and gatekeepers.  Their questions and comments have surprised me.  These folks aren’t what I thought.

The Investor Spectrum

Investor Spectrum According to Doug

At the far “conservative” end you have Ben Graham, a conservative unsurpassed by anyone.  Ben Graham was Warren Buffett’s teacher.  He said, above all, you need to have a margin of safety.  Value a business assuming:

  1. egregious omissions or misdirection may exist in the information you have,
  2. growth will be no faster than at any time in the past, and probably much slower,
  3. the best picture of the business comes only from looking at many years of performance averaged together, especially down years, and
  4. if all else fails, you can sell the furniture.  

Consider all this when you value a business, and if the business securities still look cheap, you have a margin of safety.

Warren Buffett and Charlie Munger took the idea of margin of safety and combined it with the idea of economic moats.  Find a business with something truly unbeatable, like Coca Cola’s global recognition, and you can sleep easier at night knowing that no competitor can hold a candle to you.

At the extreme other end of the spectrum is Yosemite Sam, prospector and speculator.  His investment strategy is characterized by hope out of proportion to evidence.  

I thought all startup investors were like Yosemite Sam.  That was my limited experience, anyway.  In talking to angel investors in Boston about ArtistBomb, though, I’ve been surprised by how many of them care about margin of safety (like, revenue), economic moats (like unbeatable advantages), and track record (strong team).  These investors are, at best, only a distant cousin to Yosemite Sam.

But Yosemite Sam is out there.  Shouldn’t you just try to find him and be done with fundraising for a while?

Three Kinds of Funded Startups

I think you should probably forget about Yosemite Sam.  The crummy startups that I’ve seen him fund have been either

  • Digging in Fort Knox, OR
  • His personal friend.

The great startups that I’ve seen funded by others have what conservative investors want (at least, appropriate to their level of development).  They have margins and moats and track records.  And because they have these things, they’re most likely going to work out just fine.

Is your startup up to the task?  What do you think you’d do differently to get towards margins, moats, or track records?  Let me know in the comments below.

How I’m Spending My Time: Update

Back in September I wrote a short piece about how I was spending my time.  Since it’s about six months later I thought I’d update the graph.

Doug Quattrochi's Personal Time Tracking Data 2014_02_25

These are 40 day moving averages.  When I think about where my financial future lies, I think it’s mostly ArtistBomb and partly MassLandlords.net.  The way I spend my time backs that up.

The period in December where I focused less on ArtistBomb and more on the Worcester Property Owners Association (WPOA) coincides with the end of the restructuring effort at the WPOA.  This put in place a new Board of Directors and a new action team, and roles were changed for most folks.  Now WPOA is moving forward smoothly and the focus there is on MassLandlords.net, which I’ve spiked out separately.

MassLandlords.net has the potential to be a unified source of digital resources for landlords in Massachusetts.  I’m enormously proud of the work done by Stellar Web Studios and the WPOA Board of Directors to help get this project off the ground.

You can see that other projects, like the BagPack for Hands Free Groceries, and even this blog, are getting less attention now.  Partly this is because they’re getting less traction, partly it’s because they’re more clearly “lifestyle” activities.  Yes, I like selling little grocery carrying straps on the side.

ArtistBomb.com and MassLandlords.net have been improved by what I learned with Hands Free Groceries and dougjq.com.  So even if the latter properties aren’t as valuable, it’s not like the time spent there has been wasted.

Last month I commented on an article written by Rob Go that included the idea entrepreneurs should focus on “one company at a time”.  I think about that when this graph gets updated every couple of days.  Would either ArtistBomb or MassLandlords.net go faster if I wasn’t also actively landlording?  Yes.  Would they go faster if I were focusing on one and not both?  Yes.  Well, am I doing the wrong thing by splitting my attention so?

It seems like both businesses – ArtistBomb and MassLandlords.net — have the same kinds of challenges.  In particular, can you reach enough of your customers at a low enough cost to make it worthwhile?  The interesting thing about working both at the same time is that each has a different set of tools available.  So in theory I can work with two different teams trying different tactics.  What I learn at one can be brought to the aid of the other immediately.

From that point of view, I don’t think split focus is really so bad.  Not right now, anyway.

Thoughts?  Leave a comment.

 

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