A Product Market Fit Show | Startup Podcast for Founders
00:12:04 · Dan Novaes, Pablo Srugo
Sometimes you think it's going to hit product market fit, you're for sure, and then it doesn't, and then you're like, [00:12:10] S1: sure. But I would assume, not having had an experience like that, but having talked to a lot of people, I've had like, once you have an experience that's that binary, you'll never settle for anything else. Like if you launch something and you don't get that, I'm not saying day one, maybe you tweak some things, but I'm curious, do you just shut it down like pretty quickly? You're like, that's the bar. I mean, if, why would I push a boulder up a hill if I know what true PMF looks like?
00:12:31 · Dan Novaes
[00:12:31] S0: I think that's a great question. I think that there's like, it's actually probably been probably one of the questions I've asked myself the most. I think there's levels to it. Actually, that's the best way I can describe it, right? Like that was like insane and it's so much velocity that everything's breaking and you're just trying to fix it and like that happens sometimes. But the problem on the other end is that sometimes these things are short-lived and that was my problem, right? Like that app was like, great, we probably could have made tens of millions of dollars instead of just single digit millions of dollars. But it did set a foundation to a bunch of other stuff. But I think that's the big difference of like a Telegram or a Facebook or something. I mean, that type of product market fit where it's self-sustaining forever. Product market fit is possible and there's many good million dollar apps out there, multi-million dollar apps, even like $10 million apps. They're kind of stuck at some point in time. Like, and I think there's aspects of even like when I think about our businesses and the apps that we buy, like I had this issue with our app, right? Because the Mode Earn app, basically, you know, paying people on their phone, it works really great. But at some point in time, the cost of user acquisition, the payback period goes too far into the future where the unit economics no longer makes sense for the core business. So you either have to develop really great channel partners that can distribute that product or secondly, be willing to basically grow at all costs. And that's, sometimes works. Like you look at Uber, look at Airbnb and stuff, but sometimes it doesn't work, right? And look at the companies that Benny Spoons is going out and buying right now, like Airtable or something like that. And so, I think like, you can build a great business, but there are limitations to a lot of businesses. And I think that that's actually kind of what actually got us into this business model, which is like, hey, there's a lot of product market fit out there. Effectively, the products that we're buying were outsourcing product market fit. There's no incentive structure. People want these apps. If you add an incentive structure, you can put like gas on the, on something that's already working. And then you can grow it to some degree, right?
00:14:23 · Dan Novaes
Maybe we can't grow it like 5x, but if you can grow it to some degree and extract more value, that's great. And we're excited about that. But yeah, I think that that's like a constant thing. Like, you know, it's rare though that you see that. I think the next time we saw that was for our crowd fund is where we saw product market fit and you just know, like you feel it and it happens and then you can dial it in and iterate. But it's, I think every founder should ask themselves, is this a self-sustainable thing that's going to be around forever? Or is this one of these like, take as much as you can and then invest in it into something else, which is also a problem. That was our other problem of why we only made a few million dollars as opposed to tens of millions of dollars. Because in my mind, I was having that constant battle internally, which is like, hey, this isn't sustainable and I need to find something else that is. But then I wouldn't focus on the thing that actually was making all that cash and I was focusing on the thing that, you know, maybe would make way more, but I wasn't proven. And we had a lot of flops. And so if I can go back, I probably would have like, tried to write it out to the absolute max degree that I possibly could. Because there are some things that we could have done, I think, to have the longevity of it a bit further and then use those funds accordingly, you know, at that size. So anyway, so that was a very long-winded answer, but it kind of gives you context of like the way we think about it.
00:15:36 · Pablo Srugo
[00:15:36] S1: Maybe a good place to segue. Tell me about the beginning of Mode.
00:15:39 · Dan Novaes
[00:15:39] S0: Yeah, so beginning of Mode also was a journey of so many pivots, dude. It's like the pivots of the pivots. And the thesis of Mode before it started as an incentive-based app of paying people was actually a music aggregation app. We had come to the thesis that after launching a ton of apps that people didn't want more apps. Like, it's like, there's too many apps. And at the time, it was like, can we aggregate and create a super app, right? And this is like when we started seeing the stuff that was happening in like WeChat in China. And I was like, hey, I think that's going to happen here. We should focus on an app that basically brings together all the media services into one place. And so we built an app that did that. One of the things that we realized is like one, and see, this is like a theme that like, unfortunately, it took me too long to realize it, but you know, it happens, is anytime you build on top of someone else's platform, you are unsafe. And so Instagram being the perfect example for the Instaliker, and then with this music app, we had integrated the APIs of like Spotify, SoundCloud, like all these music services, and SoundCloud one day shut us off. And then so basically, we didn't have enough product market fit from the users using that product. And on top of that, we don't even have the full service, potentially, because they could shut us off at any time. And the people that were using our service at the time, it was because the APIs didn't have ads. And it was super random. It was like a small time where audio ads didn't go through the YouTube, didn't go through SoundCloud, didn't go through those others. So you effectively could provide ad-free streaming across all services in a singular app. People like that, but the moment that that started changing, we saw the writing on the wall. So we started interviewing the users that were using this product. We're like, hey, why don't you pay for these services? And then what we found is like, these people just didn't have money, right, for whatever reason. Like, they didn't want to spend the money, but they did have time. And we had one feature that we actually owned, which was a radio service. It was kind of like tune-in style radio that we were aggregating. And we're like, would you listen to this if we paid you?
00:17:29 · Dan Novaes, Pablo Srugo
And they're like, yes, I would focus all of my energy on earning that if we paid you to listen to music. And then that was like, oh, that's really interesting. And then so we just put like, I don't know if you remember how like Robinhood and at the time there was an app called like Mailbox back in the day. And basically it was like a friend referral system and you could get early access. So we just created a referral system that was like, sign up to get paid to play music. And if you invited people, you would get earlier access. Within two weeks, we had 300,000 people that had organically signed up for that. And that's very similar to the InstaLiker funnel, right, of just telling people. And that stuff worked really well back then. You have to change the game every time because like these referral systems break sometimes. But that's how we got into that. And then we launched that and people were using it. It was going wild, like getting tens of thousands. [00:18:16] S1: Who would be paying on the other side? Like somebody who made a song would want to play or ads? You just play ads and they would pay for that?