Steve Hoffman (Captain Hoff) is the CEO of Founders Space, one of the world’s leading startup accelerators. We talk about the platform mentality in business, the process of venture capital financing, and define “Growth Hacking”.
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Hack Growth for Your Business with Captain Hoff
Our guest is Stephen Hoffman, or Captain Hoff, as he is called in Silicon Valley, was the CEO of a leading startup accelerator Founder Space in the Valley. Captain Hoff has founded two venture backed startups of his own. And he authored three professionally published books, including Make Elephants Fly, Surviving a Startup, and The Five Forces, most recently The Five Forces. Welcome to the show. Steve.
It’s great to be here, Steve.
Okay, that’s awesome to have you here. So you had a classic career, still entrepreneurship, and then leveraging it further into an accelerator. So tell us a little bit about how does one become a serial entrepreneur in the valley and then an accelerator founder?
Well, I’ll tell you. First of all, I did two bootstrap companies and three venture-funded companies. So when I began my career, I began it with a bootstrap company. So my first venture I funded entirely myself. And it was a venture in this gaming and entertainment space. So I was really passionate about creating non-violent games that would teach people something. And ironically, the games that I made are still relevant today in what I’m doing and they are games to teach people to be entrepreneurs.
So my first game was called Gazillionaire and it turned out to be a huge hit and this was back a few decades ago, so it was a while ago, but I basically funded that entire startup, launched it, did all the deals, we did a series of these business simulation games and that got me in to entrepreneurship. And then for my second startup, I actually partnered with several other people who had amazing technology. And we went out to raise venture capital.
Hey, that’s that sounds very, very cool. And then what happened? How did the accelerator come about?
So, after I’d done my third venture funded startup, I was taking a break and all my friends started to come to me and they were saying, Captain Off, which is my nickname, Captain, help me with my business plan, help me with my project. You know, how do I raise capital? How do I go to market? You know, what do I, how do I speak to investors when I engage them? So all these things they needed to know. And I actually found myself giving similar advice to all these different friends I had.
So I started to post that advice on my blog and I called it Founders Space. And then more and more entrepreneurs started to come to me. And this was in the early days of startup incubators in Silicon Valley. So we were one of the first ones and we just started to get lots of entrepreneurs coming. So we opened up our own space and then from all over the world, different governments, different accelerators, different corporations and entrepreneurs started to converge on Silicon Valley. They wanted the Silicon Valley magic. And today we’ve expanded globally. So we’re in 22 countries.
Wow, that’s amazing. So which countries are the most productive in terms of churning out good startup entrepreneur material?
Well, US has always been in the lead. You know, Silicon Valley in the US is number one, but there’s a lot of activity in Asia now. So China, especially huge number of entrepreneurs just because the population is so big, people are very driven there. For its size, South Korea and Taiwan, very productive. You, Japan, not so much. So Japan, despite its economic muscle, has really lagged behind in startups and entrepreneurship. It’s still dominated by these big corporations. However, in Europe, has picked up pace a lot. So, we’ve seen a lot of activity in Europe, especially recently, as well as South America.
I learned that in France, there are a couple of accelerators. Is France kind of a leading country? So what I know that UK has been very entrepreneurial, the Netherlands, I mean, what is your perspective on Europe? Which are the front runners? Which countries are the front runners in Europe?
You know, across Europe, there’s a lot going on, but definitely France is one of the leaders, UK, Germany, naturally, those are the economic engines of Europe. Scandinavian countries, quite active. You know, they have a disproportionate number of entrepreneurs. So that region there, very active, but we see it all throughout. I work with entrepreneurs from Italy, I run programs, we work with a lot from Spain, Greece, other countries. But yes, the bigger economies do tend to produce more entrepreneurs.
Interesting, interesting. And Japan seems to be still in the mindset that the ultimate career is to be a salaryman with a big corporation rather than an entrepreneur?
People just aren’t taking the risk. So for the size of Japan, for the population and for the economic muscle they have, they are really underutilized in terms of promoting entrepreneurship. And I’ve gone there. So I speak some Japanese. I used to live there. I lived there for a year. I’ve engaged with Japanese entrepreneurs, but they are just slower and more cautious. And you really have to have the mindset of Silicon Valley that I’m gonna take a chance. This is a risk and it’s a risk worth taking.
Okay, so that’s fascinating. Let’s switch gears and let’s talk a little bit about management blueprints. So business frameworks, you know that I’m always gonna look out for learning about inspirations for entrepreneurs that maybe they find in a book or in a system that they implemented in their business or in your accelerator? Is there something you can tell us about, which is not, which you didn’t try it, but which inspired you along the journey?
So for entrepreneurs in their business, it’s really important to understand the core value you’re offering your customer and to build your entire system and process around enhancing that. So you know, I write about this in my books and everything, but really customers tend to come to you when they come to you for one reason. They usually like whatever product or service you’re offering, they usually have one reason in their mind why they are choosing you.
And that’s because in that one area, you spike so much higher than everybody else they’re talking to. And they really need that one thing. So you as a business need to know what’s in your customer’s head. You need to know when they walk in the door, why are they coming to you? And then using that as the entry point, you can build a very efficient process around serving the customer’s needs. So first and foremost, you want to make sure that the one area that you really spike on, that you are not incrementally better than everybody else.Being incrementally better than others is never enough to win; you have to add significantly more value to stand out and be recommended. Click To Tweet
That’s never enough to really win. You have to add significantly more value. These are the companies, service providers, whatever you are, these are the companies that stand out. These are the ones that people recommend. These are the ones that they come back to over and over and over again. So when you engage with customers, and I found this myself in my businesses and with all the, you know, I work with hundreds of entrepreneurs, you know, helping them overcome these challenges, you know, whether it’s on social media or some other platform, that’s, you know, very light touch.
What is the impression they get? So everything about your company needs to be like an arrow pointing to that core value, your branding, your messaging. If you put up content, a lot of providers put up content, you know, around what they do. It all has to be an arrow towards that core value, pointing people there, focusing their attention on that. When they enter the door for you, right? You need to do really smart companies. I do. They basically, they qualify the leads because you get a lot of people. You don’t want to waste your time.Everything about your company should be like an arrow pointing to that core value – from branding to messaging, guiding people's attention. Click To Tweet
So the process is who walking through my door is the most important. You know, not all customers are created equal. Some people like to say that, but it’s really your time is valuable. And there are a certain amount of customers that fit your profile precisely where you can add an enormous value to them. And there are other customers who may gain a little from you, but they’re not going to gain as much. And maybe they could be your customer. Maybe they could be somebody else’s customer.
You really need to hone in on the ones that you offer the most value to. to and then the next step of the process is how do you create, how do you translate that value you’re actually going to offer into something that’s in their head so that they truly understand. I believe with startups in general, you never win on pricing. So if your biggest competitive edge to be what you do for your customer and how they think about that.
You need them to understand what everything your company offers, like everything, you know, not just the end result because they can always find a cheaper solution. And this is like, I was on the phone the other night to my friend, we were talking about this and we were like, look, they can always go out there and find a cheaper solution. Why are they coming to you? What can you give them? What matters to them? So if your thing is we provide the most reliable, like the most reliable service ever of anybody else, you know, our stuff, you know, you will not have any headaches if you work with us, then you need to make that clear.Customers need to understand everything your company offers, not just the end result, because they can always find a cheaper solution. Click To Tweet
That is your message. That’s why they’re going to you. That’s why they’re paying you what you’re worth. You have the track record to prove it. You have all those things. So when you design your system, you designed it in a way that it’s introducing them to this value that you’re providing, reliability. They’re not gonna have headaches. The system isn’t gonna go down. This works, it’s been proven. You are the experts at this. Nobody does it like you. You take them through this process.
So you’re basically, what you’re advocating is to put all your eggs in one basket, pick the one core value, as you call it, that is your competitive advantage where you are way ahead of the rest, and then put all your eggs in one basket, focus all your energy on proving that MVP or whatever you wanna call it, and then you go from there. But not try to be multiple things to multiple types of people.
If you try to be all things to all people, if you spread your, then they don’t believe anything you say, right? We’re the best of it. You know, it gets diluted. So what you want to figure out is which customers really value what you do best, right? That thing that you do. And then those are the ones in your filter that you focus on and you can command a premium where other people might not, they might be competing on price because they value it so much.
So, I would like to dig deeper into these ideas of how do you do that? Not just the core value, obviously, that’s great. But also, in general, you have this book, Surviving a Startup, which I found fascinating. And there are so many insights and great thoughts in there and great approaches. One of the things that really struck me when reading this book was when you talk about the different business models, and there’s a lot of confusion around business models. I want to ask you, how does an entrepreneur choose a business model? How does that work?
There are different types of business models that work for different businesses, first of all. So you have to know your business. It has to match with your business. But ultimately, if you can structure your business around a model that when you get a customer, when you get them, you never let them go. These are the best businesses. Because the best businesses, people don’t come to them once for something and then they go away and they never see them again. That’s a really tough business.
The hardest thing a company ever does and the most expensive thing, both in times, in time and money, is acquiring customers. So when you get the right customer in the door, you basically want to lock them in. You want to lock them in in several ways. And the second thing you do when you lock them in is you want to deeply monetize them. So they don’t just give you money once for whatever you do. They are giving you money over and over and over again. Let’s talk about how you do that.
So the first way is they’re coming to you for some specific value. Now, if you can get that customer to contribute on their end into, you know, you might have a platform set up or a unique process set up, technologies that you deploy. If you can get them to invest their time and resources in integrating with yours. And that the more they contribute to this, the more value they gain. And that they gain so much value that there isn’t just a one-time fee to get this done, but they buy into a plan where they are paying you on an ongoing basis for not just the initial product or service, but ongoing services and extra features of the product that you will be adding.
So you want to create a roadmap for them where they feel like, wow, I’m investing in this, it’s crucial to my business, and then the more we collaborate and the more we work together, the more money they’re giving you, the more value you’re giving them, and also most importantly, it’s the more value you’re creating together. Other really amazing companies out there actually have multiple partners contributing. So it’s not just a one-on-one relationship, but they have many other parties contributing to this ecosystem that they set up.
All of them are benefiting from that. So everybody is benefiting from their contributions, but it’s very easy for them to – for a customer to leave one product or one service provider and jump to another. It’s very difficult for them to leave an ecosystem where there’s this whole group of providers creating the value in there for them. And if they leave, they can’t bring that to somebody else. That other competitor can’t replicate that.
So is there a way to take information, knowledge, the productivity from all the different customers you service and actually put that to work in your ecosystem, creating value for everybody else. This is the lock-in. This is where you get customers that won’t just walk away because there’s so much, you know, it’s not something that it’s defensible. You can’t, no people, it’s very hard to replicate and they don’t mind paying more for it.
So I get it. If you can build this community where people are connected and they are contributing and they feel emotionally also invested, maybe the content-wise and the relationships, that’s going to be very powerful. Now, I get it. I mean, you look at Facebook and you see this is exactly how they do it. But is there kind of a conceptual framework that allows you to build it out intentionally, not reverse engineer what someone else did and how it was genius, but actually to use a framework to intentionally build that thing to your product, whatever product you have, is there something like that that people can tap into?
Yes. I mean, there’s a lot of different flexible frameworks out there that you can use, but I always start with conceptually what do you want to do? So they’re coming to you for one reason, you want to provide that core value. Once you get them in and committed to that, what are the other values that you can bring to them? And you don’t, the key here is it’s not just a community, like a social community where they exchange ideas and knowledge and stuff like that. But what it really is, is they’re trying to get their business done.
There are a lot of moving parts to their business. How can you make that easier for them? So are there other providers out there that you can bring into your ecosystem that work hand in hand in this structure you set up to service them through you? So they don’t do it independently, they all go through you. So the more different pieces you can bring in and experts in other domains that can actually create value for them, then it’s you plus these other providers. And then the more customers you get, the more intelligence and understanding you have of the overall problems they’re trying to solve so that, again, you can layer on top of this other services and products that that core customer needs.
So I’m thinking about the flywheel concept and Amazon’s flywheel.
You know, you have the low prices and then they attract all these third-party sellers who sell a million other things to their customers, but it’s something goes through the Amazon platform and that increases the economies of scale and they can draw prices further or have higher margins, whichever and then that’s going to affect more third-party sellers this kind of flywheel effect. I’m also thinking about Microsoft who had incorporated first the browser, and then a messaging, and, you know, maybe the Lotus 123 the spreadsheet.
They basically said, okay, this operating system, we turn it into a platform and everything is going to be part of our ecosystem and we’re going to, you know, make the life of the customer easier by universalizing. Or Apple with the App Store, same kind of idea that everything goes through the Apple platform and we guarantee that it’s going to be easy to use and easy to access and safe and whatever. So, is this kind of the idea that this platform mentality? It is a platform mentality.
It’s really important, but it doesn’t have to be so technical. So you don’t have to have like the technical sophistication of an Amazon, of a Microsoft, of all those things. What you can do is you can have experts in your ecosystem that help the companies with these technical problems. So using other people’s platforms, like using AWS, using Microsoft Cloud, using Google services, all of these things that are already built by other people, you can integrate into your offering by having other experts in there that can take care of these pieces of the puzzle that every company needs for them.
So if you bring in a customer and your job, let’s say is, you provide the best online marketing services possible, but these customers also need cloud services, they need all these other things, and they’re not technical, you can combine those in an ecosystem where you can offer them that, where nobody else can touch it. So when they come to you, it’s basically, look, we’re going to get the best marketing, and you’re not going to have to think about anything. All these other technical pieces that you would normally have to worry about, we just take care of it all. And once they’re embedded with you that way, it becomes very hard for them to leave you because you’re managing that whole process for them through yourself and the other parties you bring in.
But is it something that an entrepreneur designs the business around, or it’s more like an expansion of the core business. So they have a successful business which has a good reception in the market, and they are gaining customers. And then they think as a next step, okay, what else can I sell to this customer? How else can I bind this customer? How else can I monetize this customer? Is it that way, or is it that, okay, I’m going to have a platform, and then what elements should I have in the platform? So which way do we do that? Is it bottom up or is it top down?
I think you, and I tell entrepreneurs to do is start with the core and build out. Always start with the core because it’s too much to tackle. First of all, all these other things, and you don’t know at the beginning what other things they really need. If you can identify that one thing that will get them into the door, really make that exceptional, then you start prioritizing.
What’s the next thing that they need to make this even better experience for them? Out of all the things you could do, what is the one thing my customers who have come to me for this one thing are asking for? You add that, then you add another, and then you add another, and you basically layer these on and gradually you build out to that whole ecosystem I’m talking about.
So when we are talking about business models, and we are we just talking about the ecosystems or there are actually business models from the ground up for companies that only have one niche core offering and this is where they start either different business models at that level, or the business models come in when you already have grown and you are making your business more, I don’t know, bigger pie and more complex. So simple business models from the ground up.
Simple business models from the ground up. I would always start with a business model that involves recurring revenue. So is there a way to structure my business so instead of getting one-time fees, can I get a consistent, predictable So I’m looking at the predictable revenue flow from my customers. How do I structure this? You know, and there can be an initial fee for, you know, setting up or some, some project you work on, but ongoing, what is the recurring revenue and really focus on that?
So let’s say I started my entrepreneur. I found my core value, my, my core offering, which resonates with my market, and I’m gaining customers and they are paying me money, how do I know that I need to raise capital? So how do I know whether it’s the bootstrap direction, which is the right for me, or raising capital, provided that my services is recurring and it is financeable. So I’m not talking about the consulting company where it’s just the, every project is different kind of stuff, which is not scalable. So it’s a scalable thing, but still I still have the option perhaps that to not go and raise money. What’s the tipping point when I have to make the decision because I’m actually better off giving away part of my business for money?
For entrepreneurs, the most important thing when you are out there raising capital is to understand what scalable is. Now, in what venture capitalists want, I’m a venture capitalist so I know, I wear this hat when I analyze businesses. So the first thing is, if your business is going to grow linearly, it’s not going to be interesting to venture capital. That does not fit their model. Venture capital needs exponential growth because it’s really only those companies that are growing at an exponential rate that exit in a reasonable time frame.For entrepreneurs, understanding scalability is key when raising capital. Venture capital seeks exponential growth, not linear, for timely exits. Click To Tweet
And venture capital’s time horizons are usually 6 to 12 years that they really need their money back because a lot of them aren’t just investing their own money, they’re investing money from their partners and they have an obligation to actually return the investment within the life of that fund. So in order for them to get an exit, that means the company needs to be acquired or it needs to go public and they need huge multiples on the original investment to make it pay off because a lot of these ventures just don’t pan out.
So it’s a numbers game, they’re playing a portfolio game. So when they look at you, they are gonna look for a company that has this type of growth. Now, most services businesses honestly don’t have it. They don’t ever get there because they just grow too slowly. A lot of them also hit a plateau where they can’t grow beyond because they’re not really differentiating themselves from other people in a serious way. So usually a technology that’s gonna grow exponentially, there’s really only two ways to get a technology, a startup that explodes in its growth.
And those two ways are number one, you do something exponentially better than your competitors. Not incrementally better, not extra features, but something that is so far above and beyond that literally everybody starts coming to you. Or number two, you do something different. You create value in an area that is different than your competitors. And I can give you an example of this. Like we all use Gmail today, like most people use Gmail.
If another company comes out with a product with a few extra email features, are we gonna switch from Gmail to that new email? No, we would only switch from Gmail if the other email provider was just so much better. Like it like solved all the problems that we have with email, all the headaches. And we were like, oh my God, this is an order of magnitude better than Gmail. Or if they offered a different value, a different core value. So they do something with their communications, email messaging platform that Gmail just doesn’t do.
And we might use both of those platforms, but for different things to get different results. So those are the ways that startups break through. And then the last one always comes back to, how are you gonna scale the revenue? And in a way, in order to scale revenue, what venture capitalists really like is that you figured out something, a flywheel, a repeatable process, and that you, when you bring a customer in, they can actually predict that over the lifetime of this customer, they will make significantly more than you have to spend to acquire that customer.
As soon as that math balances out, you know, that look, in three years, we can not only make back the cost of customer acquisition, but we can make a substantial profit off this customer. Boom, venture capitalists eyes light up and they want to hand you the money. Basically, they’re handing you the money in advance to go out there and acquire as many customers as you can now and build the team to support that because they know they’re getting their money back in the future. This is going to be a good business.
So, my feeling is, I get it, but my feeling is that this is kind of the no brainer scenario for a venture capital. And you know, there’s got to be competition before that stage because by that stage, you know, the company is going to have so many suitors that the price is going to be exorbitant. So isn’t there kind of a step before that where a good venture capitalist will actually realize that this company has the potential to be exponentially better or totally different? They haven’t quite figured it, they’re flying it out, but they are on the cusp or they have the potential because the entrepreneur is so good. And then they give them the money.
Yeah, now this is where a lot of investors make mistakes because it’s really hard at the early stages before what we have, what we call traction, right? Before they have some demonstrable proof that this business model works, that the customers are there, everything. Before this, you come in as a venture capitalist, and usually it’s a seed investor, an angel investor, early stage, they haven’t proven out. Sometimes series A, they still haven’t proven it out. You come in there, and when you look at these companies, what you’re looking at are a few things.
So number one, you’re looking at that CEO. Like, is this CEO amazing? Like, what have they done in the past? What are they doing now? How are they approaching the market? Are they the type of person who’s a super deep thinker? Are they going beyond where everybody else in their industry is thinking? Do they have ideas that are really pushing the edge of their industry? You look at the team, because you can’t judge the CEO alone.
The CEO’s biggest, the biggest proof you have that the CEO is great is that they have attracted other team members at an early stage before they have a lot of money, before they have a lot of traction, they’ve attracted team members who are just incredible. Like these people could be working at Google or Microsoft or Facebook, earning huge amounts of money, but they’re in this startup because first of all, they believe in that CEO and they believe in the project that they’re working on.
So a lot of times, really important to have a great technical CEO, somebody who is a master at that. And not just a master, but is actually using the latest technology in new ways to create new value. So you want a great technical person, a great design person, because design and design thinking is so critical. Design innovation plays as big a role as technical innovation these days and when you’re launching a new product or service. It really can revolutionize a business because how people use a product, their interface, their user experience is integral to their buying decision and which products they stick with and which ones just take off.
So you need those people there. And then what I like to see and the other really important thing is that this entrepreneurial team, not just the CEO, but the team has gone into the marketplace and they are not just coming up with ideas because lots of ideas sound great, but they don’t pan out, but they are really hunting for demand. They are out there looking for pockets of demand that haven’t been tapped yet. It’s like you’re an oil wildcatter and you’re going out and these pockets of demand are waiting there because markets are always shifting, technology’s changing.
The world is always changing. So there are always new pockets of demand forming that nobody has really tapped into and met. And when they meet those and you can see, wow, they’ve met all these customers there. They haven’t maybe built out their product yet. Maybe they just have a prototype, but they’ve engaged with customers. And these customers are like, they aren’t like, oh, that’s a nice product. You know, I really like that. Come back when you build it. You say, if you get that from your customers, it’s the kiss of death.
Everybody says what you have is nice, come back later. It’s a blow off. They will not spend money. You need to get a certain reaction. So as a venture capital, I’ll wanna talk to their customers. And when I go to their customers and I hear from their customers, not, oh, that’s a nice product. When I hear from them, “Oh my God, this is amazing.” I have to have it. How can I get it? Tell me, can I sign up now? Is there something I can do to get this? Can I be a beta tester? Can I advance the money? When you hear that type of reaction, you have something.
And it doesn’t have to be from a lot of people, but it has to be a representative sample that you can extrapolate from and say, wow, there’s a big market here. There’s a big demand for this that nobody has met in the way this company has conceptualized. If they do that at an early stage, boom, that’s when me as an early stage investor would come in.
I love it, that’s really exciting. So it makes it more tangible for me to understand how this works and what an entrepreneur needs to achieve, which is a lot, you know, having the idea, attracting people who believe in it and then attracting customers who are Revit fans and want to give you their money. That’s awesome. So another concept I want to kind of move on to here is growth hacking. So it sounds like a fashionable term, growth hacking. You know, you see YouTubers talk about that kind of stuff and you talk about it in your book. So what is growth hacking really? What does it look like? Give me a couple of examples.
So, growth hacking is really where you run experiments. So it is you’re putting your product out there into the marketplace and you are going to try all sorts of things. So first of all, I tell every entrepreneur, every entrepreneur and most entrepreneurs don’t do this, honestly. Have you spent a lot of time with your competitors products? Like, have you? Like, how much time have you? Are you power users of your competitors’ products?
If you aren’t a power user of what your competitor does, I am sorry. You are missing out on a huge opportunity because each of your competitors is experimenting right now. They are trying different things. And some of them may have figured out something that you don’t know. And you should know that. Like if they’ve hit on a new way to do the funnel, to acquire customers, to engage customers, you better know that and you better have that in your product.
Number two, don’t stop there. Do growth hacking of your own, right? It’s easy to copy somebody and you should do that. That’s always the first thing you should do. If somebody has something better, has figured out a better process or a better way, you should be aware of it. And you can’t incorporate it if you aren’t aware of it. Number two, can you run experiments on whatever you’re doing? And the answer is absolutely yes.
It doesn’t matter what business you’re in, services, products, anything, you can run experiments and you can gather data using, you know, analytics, online analytics engines. If it’s online, there’s a lot of offline ways to gather the same data, you know, just even just engaging your customers at critical junctures throughout their life with your product or service. You can get a lot of feedback if you systematize how you ask those questions, what you ask, what you do.
Then you have to figure out what are the parameters? What can I tweak? Maybe it’s your onboarding process, how you onboard customers. Can we A, B test it? Can we try it a dozen different ways? I know we’ve always done it this way. I know most people in the industry do it this way, but are there other things we could do that might change that experience, that might allow us some insight into our customers and what they’re thinking and acting on every step of the way? That’s what you want to know.
If you can get the core of growth hacking is getting inside your customer’s head often, as often as possible, every time they engage with your product or service. Like, what are they thinking? You need to know. Is there something frustrating them, you know, about your product? Is there something that you could be doing better that you’re just unaware of? And it’s a simple change. It could be like the UI, you know, you just move one button over and it totally changes the experience because they’re missing that. They’re not seeing it. They’re not getting it.The core of growth hacking is getting inside your customer's head. Systematize feedback to understand frustrations, preferences, and hidden opportunities. Click To Tweet
You’re, you might have too many features, maybe actually hiding some of those features or entirely removing them will create a far better experience for your customers. You think, you know, a lot of people think the more features, the better. Well, they might only be using 10% of your features and having all those other features there actually just makes the product much harder to use. So you’re actually killing one of the best features you can ever offer a customer, which is simplicity. Like, so remember, simplicity is a feature.
All these other things are features, and they may be killing simplicity. And maybe only a small percentage of your customers are ever actually using those other things. And maybe they don’t even matter that much to them. So all these little things. Can you get more virality in your product? Can you get your customers to actually reach out to other people? What are the different levers you can put in there? Look not just at your competitors’ products. If you’re really a great growth hacker, you look across industries.
You look at what other people are doing in other domains to actually achieve the effect you want. How are they getting customers to recommend them? How are they getting customers to engage more deeply? A great area for growth hackers, a really brilliant area is games. Games, a great place to look for growth hacking is in games because games are highly experimental. Game designers are always experimenting with new ways to engage their customers and monetize their customers. How do they get in customers to buy these virtual goods, to exchange virtual currency, to play longer. So a lot of people just overlook games entirely.
But I will tell you, the gaming ecosystem is huge. Like and people are just there are so many different games out there and they are all trying different ways to monetize and engage customers. So if you can borrow some of the techniques and the different processes that they use and put them to work in a more traditional business, it can make all the difference. It could allow you to actually totally leapfrog competitors and actually much more deeply engage and monetize your users or your customers.
So, is there a resource that someone, so other than spending days on becoming a gamer and watching games, is there a resource where someone can go to borrow stuff from gamers? Is there someone who’s already kind of studied that and wrote a book on this? Or that’s by definition is going to be old, yesterday’s news and not useful anymore?
So, there are. So I actually wrote a book on this because I was in the games business. So I know all about this. And I wrote a book called Game Design Workshop, the first edition. And then my partner, Tracy Fullerton, has published the latter edition, so you can go on Amazon and get Game Design Workshop. So with Tracy Fullerton as the author, and it is a great book on how to think like a game designer, and all the different things you can use to actually put to work in your product.
Now, games are one thing, so what I’m really saying is just go outside your domain, outside your little world. If you wanna beat out your competitors, you first look at everything they’re doing. But the next thing do is go into parallel domains out there, other businesses, and look at how they’re engaging, monetizing, the environments they’re creating, the whole funnel for their customers. This is fodder for growth hacking. This will give you ideas. It’s really hard to come up with ideas on your own, but when you see them in use in other places, that light bulb can go off.
I love that. Okay, so it reminds me of Jay Abraham that you’re probably familiar with him and he had this big concept in the 90s that you travel to other industries and look at what they do and then bring it back to your industry. And I used to run this pitch groups, which are peer groups and we tried to do that there as well because you had entrepreneurs from different businesses come together and exchanging ideas and often this the easiest way way of growth hacking I guess. So that’s that’s that’s fantastic. Thanks for bringing this up.
So, yes, so let’s go back to this idea of bootstrapping and venture-backed companies. If someone doesn’t want to be a venture-backed company because they are perhaps afraid of the venture capitalists meddling in the business or taking the business away if some things don’t go well for a while, and they really would prefer to bootstrap, can they even compete? So can bootstrap businesses compete with venture-backed business? And again, let’s not talk about businesses that cannot be scaled because obviously, it’s very hard to compete because they are in a different domain, but companies that could go either way, like MailChimp, MailChimp and Bootstrap. You may have wrote up this in your book. I think that’s where I read it. So MailChimp, Bootstrap themselves, even though it seems like a scalable business. So how does this work? How can a bootstrap business compete with venture-backed?
In general, if a bootstrap business offers the same level of products and services as a venture-backed business, the venture-backed business ultimately will crush them. Like it’s really hard. It’s really, really difficult because of a few things. So first of all, bootstrap you’re going to grow much more slowly. Bootstrap, it’s going to be much harder for you to build your brand at a big level. So what the venture-backed company is doing is they’re essentially accelerating the process to the point where, as we all know, why do we use Google? Why do we use Microsoft?
Because everybody else does, right? So there’s, you know, once a product gains dominance, once it becomes the market leader, people just, you know, we don’t wanna think, we don’t know really how to evaluate all these products. What we know is what we hear everybody’s using. So we assume it’s good. So they win by default. Like you could be just as good a product as Google out there. You could have a great search engine. You’re just not going to get many people use it. It’s really hard.
You know, you come up with the, people still use Google because that’s what everybody’s using and you’ll be totally ignored. If a business is highly scalable, meaning, you know, a lot of times software is the most scalable of all businesses, right? You can just replicate it at very low cost, put it out there and scale it up. If it’s highly scalable and you’re competing with another product, you’re going to either just remain really niche or if you manage to get big by bootstrapping but not big enough and they just overtake you, then you’re just going to be squashed back down. Like you’re going to lose market share over time. I’ve seen this happen. You know, I had a friend, he was competing, he bootstrapped it. He wanted to control the whole thing.
He had basically LinkedIn before LinkedIn. He had a massive amount of traffic on this. He was one of the guys, early investors in Napster and all these other things, but he basically started this social network for business people. It totally took off and he was making a lot of money and he was pretty big. He decided not, he didn’t go the venture capital route. Literally, LinkedIn came in, ate his lunch. That company doesn’t exist anymore. I think it was called Ryze or something like that, R-Y-Z-E, I think it was that. But that company no longer exists. And this happens over and over and over again.
So how did Merchant do it? Because it sounds like it could have been a venture-backed business.
Well, they started off in a space where you could easily monetize. Like they had a, you know, it’s very easily to easy to monetize mailing lists. So they had that going to for them. They had real technical expertise, really good at integrating with other platforms, really top level service. And they did get venture funding. So they just got it later than most companies. They did get it though. So they bootstrapped for a long way, a lot longer than most companies. And this was because venture capital wasn’t really focused on these mailing list providers at the time.
There were a lot of different providers, Constant Contact, a whole bunch of others out there. And venture capital wasn’t focused on that. They weren’t really looking at it and they had the time to grow. So they managed to grow enough. And there are other bootstrap companies that have been successful and grown really big. Pluralsight, if you’ve heard of them, they went public and did a lot for training, online training. They basically bootstrapped it. Bootstrapping is not impossible. It is possible to do, especially when you have a really good business model.
Where bootstrapping can get killed really easily is if you don’t have enough revenue coming in and you require capital to grow because you don’t have enough revenue, then it makes it much, much, much harder. So because the company, you know, they’re being advanced the money by other people, so they don’t have to have that revenue in the beginning. Like Amazon was losing money forever, right? We remember the days, yet they had venture capital, they could keep scaling. So there are a lot of factors that come into it. It isn’t just like black or white, but what I’m telling you are rules of thumb, what generally happens over a long period of time.
Okay, well, definitely keep that in mind when you’re bootstrapping your company. If you’re making high margins and a lot of money that as much as you need to scale, then perhaps you can hang on for a while, but there comes a tipping point where you’re better off going to the big boys or big girls and get them to give the money to attract all the customers in the market. Awesome. Very exciting information. And definitely I’m going to have to read your other two books as well.
So, make elephants fly, surviving a startup and the new one, five forces. I begin to read this, but it actually got me scared because when you talk about chips being implanted in people’s brains and this being an inevitability, that really scared me. So I kind of put it down and went back to be surviving a startup, which felt like a more optimistic title.
I will tell you, Five Forces, I point out, I actually tried to write a very balanced book. So I write a book about the possibilities for brain chips, for nanotechnology, for gene editing, for all AI in the future. How are these technologies going to be used in the future? How will they transform society? How will they impact us? And yes, all of those technologies can be extremely scary. So I point out the things that we have to talk about as a society right now, but I also point out the benefits. And then it’s up to us. I think my goal of writing that book was to get you to think, to get you people to think about how we’re gonna use these technologies before they roll out in the way that that’s coming, like in these new forms of AI, new forms of computers that we’re gonna be integrating into our bodies, into our biology, really changing us.
I get it, but I’m still scared.
Yeah, I was scared writing it, I’ll tell you. Some of this technology is really frightening, like brain chips that Elon Musk is working on, Facebook’s working on. There are a lot of people out there. And I tell you, it’s one thing to hack your computer, your cell phone, it’s another thing to hack your brain.
And you read your thoughts. That’s really 1984, on steroids
So, I come from Eastern Europe. I’m oversensitive to this topic.
So anyway, our listeners, I’m sure that this conversation has really picked, will have picked interest most of our listeners and they want to go to the source and learn more. So where should they go?
So if you want to find me, super simple, founderspace.com. So just go to Founderspace. And for your listeners, I have a special section of the site that they can access with a URL I’ll give you, where they can get the 10 commandments of raising venture capital. So going a little deeper on what we’ve talked about today, all they have to do is go to founderspace10.com. And yeah, so it’s free, they can go there, they can put in the password, they can use it. And if you want my book, Surviving a Startup, it’s just survivingastartup.com. And if you wanna reach out to me personally, LinkedIn. I’m on all the social networks, but LinkedIn is a great platform.
Yes, certainly I found you there as well. So definitely check it out. Check out Stephen’s books, very informative and sometimes scary, but most often very inspiring books. So please, check them out on Amazon, Make Elephants Fly, Survivalist Startups, the Fly Forces, and stay tuned because next week we’ll have another fantastic entrepreneur coming to the show. So, Stephen, thanks again for coming. I had lots of fun talking to you and have a great rest of the week.
Thank you Steve.
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- Make Elephants Fly: The Process of Radical Innovation by Steven Hoffman
- The Five Forces That Change Everything by Steven Hoffman
- Surviving a Startup by Steven Hoffman
- Game Design Workshop by Tracy Fullerton
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