A Product Market Fit Show | Startup Podcast for Founders
00:28:52 · Rand Fishkin
[00:28:52] S1: Mean, this is, this is what's great. I remember , um, with Moz, like over the years, we'd look at competitors who got venture funding and we'd be like, oh no. Oh no. And then of course the venture odds came into play and it was like, oh, oh no. They, they all, they all die, right? Until one of 'em , SEMrush had success, but even they raised money very late, sort of after they had built a nearly Moz size business. Bootstrapping Ahrefs is entirely bootstrap, never fundraised . They're, they're well over a hundred million in revenue as well, right? So, I mean, the frustrating part of that, you know, that whole journey is like, oh my God, that ecosystem could support multiple hundred million dollar plus businesses and Moz just for , took its eye off the ball at the worst possible time. And , um, the , uh, but the reality I think with, with SparkToro is I don't even see anyone enter our field. And I think that's because everyone believes it's too small. No venture capitalist looks at Mo , uh, you know , looks at SparkToro and says, oh, that nice little $2 million a year business, let's go disrupt that field. Mm-Hmm . <affirmative> , they don't care. And that's the beautiful thing. This is the amazing part about businesses where you think you could, you know, very reasonably build a two to 20 or even $50 million a year business venture capital is gonna stay far away from them if they don't think there's a billion dollar opportunity, a hundred million dollar a year opportunity for, for hopefully a few companies in that sector, they're not gonna invest. And so those small markets are absolutely beautiful for entrepreneurs who are looking to build something that is great instead of big. And I , I would encourage founders who are looking at SparkToro style , you know , businesses or snack bar style businesses to, to pursue those sort of <inaudible> markets, right? Small to medium sized markets are absolutely outstanding. There's a hundred times more of them than there are in markets .
00:30:44 · Pablo Srugo
[00:30:44] S0: That's what I was gonna ask. You think there's a lot of these opportunities.
00:30:45 · Rand Fishkin
[00:30:45] S1: Oh my god . I mean, there's probably , the number is probably literally tens to hundreds of thousands of times more, you know, $20 million a year opportunities than there are $200 million a year opportunities. It's not a linear scale at all. I, I don't think anyone in economics would argue that it is, and this is, you know, this is true because of geography. It's true because of of field size. It's true because of, you know, hey, interior designers in Los Angeles really need a this, and one's in New York needed that. And there's only a few things that they both need, or, you know, that every interior designer around the country needs. And so if you can build a business that targets these fields, right? There's a lot of spend, there's a lot of rich people in New York and LA want their houses designed, right? And so you , I just think the, the quantity of business opportunities there is completely overlooked. And that also makes competition way easier. Hmm . Right? Entering those markets, serving that small group of people really well. Hyper targeting marketing to those people is far cheaper. Cost of customer acquisition is gonna be cheaper. Networking in that field is gonna be easier. Advertising to that field is gonna be less expensive. Onboarding those people and keeping them because there's less competition, all those things are just made simpler. Building a small team is easier than building a big team because you don't have to hire and manage as many people , uh, contracting and outsourcing is easier. What about
00:32:06 · Pablo Srugo, Rand Fishkin
[00:32:06] S0: The zero to one of it? Because, you know, the one thing about the venture world is, and, and obviously it's, it's hard to raise and all that stuff, but at least there's a chance that if you can tell a sharp enough story, get into YC or whatever, maybe you raise half a million or a million dollars and you get to pay yourself a salary, you know, whatever. And [00:32:23] S1: That's , you know , try , [00:32:23] S0: You do this, nobody's gonna fund you. So like how hard is it to just go those first few years? [00:32:29] S1: Yeah, you have , you've exactly hit on a Pablo. I think the, the biggest problem in the, whatever you want to call these, like small giants or indie companies , um, a lot of venture capitalists like to use the pejorative term lifestyle business. [00:32:41] S0: Yeah . <laugh>, it's a good lifestyle, by the way. It's a great lifestyle. <laugh>. [00:32:45] S1: Yeah, right? It's meant to be demeaning, right? It's meant to be like, oh, you are adorable. Like run along with your little lifestyle business when you wanna play with the big kids, like, come talk to me , um, and, and do something serious. And I, but it's [00:32:56] S0: Funny that it's demeaning because like, I'll tell you, like just even the word , it's like, yeah, I want, like, you are actually doing it for the lifestyle. Like you actually want that lifestyle <laugh> . So it's like, wait a second. Uh , anyways, I'll,
00:33:07 · Rand Fishkin
[00:33:07] S1: I'll tell you the way SparkToro did it and , and Snack Bar is doing it, and then, you know, you can tell me what you think, but I, I think it's fairly functional, which is in 2018 , uh, we raised , we spark Toro , right? Casey and I, with essentially an idea and a piece of paper raised $1.3 million from 35 angel investors. Uh, they put in between 25 and a hundred thousand dollars each last year. We repaid them , uh, their $1.3 million. And now every couple of years we hope to make a dividend payment to them of between, let's say 10 and 30% of the amount that they put in. And at the end of the company , you know, at some point in the company, we'll probably sell it, maybe for some reason it'll go out of business or whatever. But by, by that time, I hope they've gotten three to four times their money and they've gotten that in dividend payments. So we basically are using the profits of the business to , because the only way that Casey and I can get paid more than our salary is to make a dividend payment. When we get paid, they get paid. And it's a really, really nice low risk kind of way to run a business, you know, even even at our, you know, sort of scariest months . So for , for folks who don't know , the previous version of SparkToro was, was very dependent on Twitter data. We had a relationship with Twitter's API team and all this kinda stuff. Anyway, when Elon bought it, obviously, you know, everything fell apart. We had to rebuild the product. She entirely based on new data sources, very expensive, very time consuming, whatever. But even in our worst , uh, months, we were still adding tens of thousands of dollars to the balance sheet , um, in terms of profit, right? So it , it's like a, it's a low risk kind of business. It's not a high growth kind of business. Sure. We're growing like, you know, 20% year over year
00:34:41 · Pablo Srugo, Rand Fishkin
[00:34:41] S0: Investment perspective. You're think, okay, like the upside's lower, but there has to be materially less risk. Like the odds that you fail in a year have to be not zero, but let's say close to zero <laugh> , you know, [00:34:51] S1: If I were building a portfolio approach to this, seven outta 10 companies have to get to profitability, right? May maybe even eight. And I think the, the venture mindset is like, well, no , startups will never have those odds. And my view is, well that is because the culture of startups is grow fast or die trying and enter huge markets where there's lots of other people who are gonna enter those markets. There's gonna be one winner for a bunch of losers. Uh, you're gonna basically spend in order to try and get growth fast. [00:35:20] S0: For sure. I think if you take Tam outta the equation, a lot of , uh, optionality opens up and , and risk, you know, goes down dramatically that you won't get one to 10 million in, in revenue. It's because you're unwilling to go after markets unless you see a possibility of them being billion dollar markets. And even then, when you're in one and you think it's one, you gotta double, triple, quadruple down to make sure you're the winner. Yeah. All that stuff dials up risk