A Product Market Fit Show | Startup Podcast for Founders
00:00:00 · Dan Novaes, Pablo Srugo, S2
[00:00:00] S0: We had made over a million bucks, right, in two months. [00:00:02] S1: Wow. And you're what, like 23 and your co-founder's like 18? [00:00:05] S0: 18, yeah, he's in his freshman week. So I was like, hey, I think you should drop out and move to the US and we should do this like full time. Basically, in my mind, I was like, this is not a sustainable business because I had gotten the cease and desist from Facebook that was like, hey, we're going to sue you. You're violating our terms because we did have to use their API. Eventually, the app was taken down. It was out there. We made a good amount of money on it, but it was something that wasn't one of these sustainable, like long-term businesses. I think we did about just under $100,000 that year, about $100,000. And by 2022, we had done $25 million, right? So we had this like 32,481% growth in revenue over that three-year period, which ultimately ranked us the number one fastest-growing software company on the Deloitte Fast 500. [00:00:47] S2: That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean, the name of the show is product market fit.
00:00:47 · S2, Pablo Srugo
[00:00:47] S2: That's product market fit. Product market fit. Product market fit. I called it the product market fit question. Product market fit. Product market fit. Product market fit. Product market fit. I mean, the name of the show is product market fit. [00:00:59] S1: Do you think the product market fit show has product market fit? Because if you do, then there's something you just have to do. You have to take out your phone. You have to leave the show five stars. It lets us reach more founders. It lets us get better guests. Think of a very different business than really. I mean, everybody's business is unique, but a lot of them, frankly, especially in BC land, they start sounding the same. And yours is not one of those. I mean, you pay people to use their phone. I mean, fundamentally, that's what you do. Sometimes it's games. Maybe it's news. Maybe it's music. A bunch of different things. We're going to get into all that and how that works because on the face level, people might have a hard time understanding how you make a business, paying people to use their phone. But you do fundamentally. And you've raised $100 million, not through VC, not through angels, but all through crowdfunding, which is an absurd number for crowdfunding. And you've grown a business into the tens of millions in revenue doing that. So we're going to touch on all of that. But let's start at the place that we always start, which is product market fit. When did you feel like you'd found true product market fit?
00:01:57 · Dan Novaes, Pablo Srugo
[00:01:57] S0: Yeah, so to set the context for this, so my confinder and I have been working with each other for 14 years. I actually met him when he was 17 on Fiverr. He was on Fiverr, and then I was actually 23 and just graduated college the year prior. So he built me an app for $85. And long story short, he built that app. They had like $10K. [00:02:15] S1: Sounds like he was underpricing himself. That was not, there's no AI at that point. That was his work. [00:02:20] S0: Definitely. That was his first ever project. He went from like reading Objective-C books to essentially building this app. I used to own this website called fratstars.com. So to give you context, it was like a music website before like Spotify. Anyway, it's like that's not our product market fit moment. I mean, somewhat it was product market fit. I was like, wow, like we made $10K off of this app. And then I was like, hey, you should take a gap year and move to Chicago. And he was from the UK at the time. And he did. It's wild. Like he actually, his parents let him do that. And so we kind of just like tried to bang out a bunch of different apps. We were building an app builder at the time. Then we were using our own app builder to essentially build apps. And didn't really hit product market fit for any of those like significantly. The week that he was supposed to go back to school because effectively it was like, okay, we tried, didn't really work out. [00:03:08] S1: And this was when, by the way, what year?
00:03:09 · Dan Novaes
[00:03:09] S0: This is 2013. And he's like, I got to go back to school, but I'm down to work on this part-time. And I'm like, okay, cool. That week I was like, hey, I come up with this other app idea. And maybe like six months earlier or so, Facebook had just acquired Instagram, right? And Instagram was starting to get big, like beyond just the photos and stuff like that. But like everyone was downloading Instagram and posting their Insta, this and that. Anyways, I had this idea that I was like, what do people care about on Instagram? At the time it was like likes. Like they just want to get on likes. They want to get up to the explore page. And as a growth hacker, like mindset, I was like, what if you created an exchange system where you can post a picture? And then if you essentially like that person's picture, you would get a coin. And if you follow that person, you would get two coins. And then if you didn't want to do any of that, you could just pay for coins. And we called it InstaLiker. And he basically built this entire app in a week. We launched it into the store. And we had this great viral loop where if you posted on your Instagram, and this is when the algorithm was like undisturbed. And no one was doing this, right? You would get like extra coins. Dude, we posted this. And I remember, I'll never forget because like we, it ended up going live, I think at like 11 p.m. Eastern, which was like 8 p.m. Pacific. And then the app store closes at like, you know, midnight, right? And I remember waking up in New York the next day because I was there for like a trip. And I remember seeing like 700 bucks in in-app purchase revenue. And I was like, that seems like an error because this app just came out. And then that whole day, I'm like looking at the charts. And we've went from like literally no man's land to sixth, like the sixth highest downloaded app. And at the time, this is before subscriptions even was introduced in the store. And so we actually had it as a paid app initially. And then we moved it to free. But yeah, we went all the way to the sixth in the store. And then I started looking at the grossing charts. And the grossing, we were like 150. And then by the second day, when I woke up the next morning, which I'll don't tell you the number, we were 67. I'll never forget because it was like us, Wall Street Journal.
00:05:10 · Dan Novaes, Pablo Srugo
And I think it was like Plenty of Fish, right? Which was a big dating app at the time. [00:05:15] S1: Yeah, huge. [00:05:16] S0: After Apple fees, it was 13 grand. So I had 30% to that. So it was 18K, right? And I was like, what the hell happened, right? And then it just kept doing that over and over again for days, like in weeks. [00:05:28] S1: Who is the funder here? Somebody would come in and say, I want people to like my picture. And they would put money down or? [00:05:34] S0: Yeah. So basically, again, going back to, it's actually, if you actually think about the current business model of Mode. [00:05:40] S1: Yeah, you can see the origin for sure in there.
00:05:40 · Pablo Srugo, Dan Novaes
[00:05:40] S1: Yeah, you can see the origin for sure in there. [00:05:42] S0: You see the connection, the five. So some people don't have money or they just don't want to spend for whatever reason. But they're willing to do it and take an action and willing to do something for this incentive. And so the incentive was, if you don't want to pay, you can just like someone else's photo and or you can follow them, right? And at the time, the Instagram algorithm wasn't that smart. It was good with bots, like fake accounts, but these were real accounts. So real people were liking other real people's photos. So all the bot filters didn't work. And so it basically, we were able to get to anyone to the explore page. And once you get to the explore page, then there's this organic uplift that you get. And you could basically gain tens of thousands, hundreds of thousands of likes. And then, you know, that translates to tens of thousands of followers. And so people were just spending hundreds of dollars a day. I didn't even know what RLTV was because this was before like RevenueCat and Mixpanel. I mean, maybe it wasn't, but at least it was before we had the insight to even think about things. [00:06:34] S1: And if you liked or followed, you got coins and then you could use those coins to get people to like your own pictures. [00:06:38] S0: To promote your photos. Exactly. Just an exchange system. This is going on for like two months, right? They'd like, we had made over a million bucks, right? In two months. [00:06:47] S1: Wow. You and you're what? Like 23 and your co-founder's like 18?