A Product Market Fit Show | Startup Podcast for Founders
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?
00:06:51 · Dan Novaes
[00:06:51] S0: 18. Yeah, he's in his freshman week. Imagine being in freshman week of college. So I was like, hey, I think you should drop out and move to the US and we should do this like full time. And then he was like, if you, because what was our big problem? He didn't have a college degree. So he couldn't get the H-1B visa. At that time, it was easier to get that visa. But that was like kind of like the only way that we could get him into the US was like an O-1A visa, which is basically people with extraordinary ability. The problem is like bootstrap companies can't really apply for that. It's like, I mean, you can once you're like at scale, but not when you're just like you and your friend on an app, even if you're making good money. So he was like, if you could raise a venture around the attorneys, like, because we had looked into it, I'll drop out. And so that's what we did. I was like, okay, leave it with me. And I had this family office analyst reached out to me. It was like, hey, like we're looking, we just raised a fund. We're looking at investing in, you know, Chicago startups. At the time we were based in Chicago. And I was like, yeah, well, we're making like almost a million dollars a month. So, you know, the terms would have to make sense. But we ended up meeting with them. They were cool. And they effectively invested a million and a half dollars at the time at a $10 million, you know, pre-money valuation. We were able to get Mark Cuban as like an advisor at the time because I had gone to Indiana University and I had a couple, a few businesses that I started there. Well, in high school, then in college. And I got connected. And so then we had Cuban, we had this investment, and my co-founder dropped out, right? And we were able to get him a visa. And he moved to the US like a year later. And then we were like, about like four to five months in, right? We'd be making, I can't remember the exact number, but it's probably like two, three million bucks off of this app.
00:08:24 · Pablo Srugo, Dan Novaes
[00:08:24] S1: You had like no cost. [00:08:25] S0: Yeah, pretty much no cost because it was all organic. So one day we were like, I think we were trying to apply to Y Combinator for another idea, to be honest, because it basically, in my mind, I was like, this is not a sustainable business because I had gotten a cease and desist from Facebook that was like, hey, we're going to sue you because you're, you're violating our terms because we did have to use their API. And so it was kind of like the situation where it's like this catch 22, where I was like, okay, how do I do this without their API? You could use the web API, but you couldn't use that, but then they would block that. And it was game of cat and mouse, right? 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. And so we kind of went into this idea of like running other types of apps and just using that same type of methodology. But that app started everything, right? And we've been working together for 14 years, had like little kind of micro hits along the way. Ultimately until we started Mode almost was like seven years later. It's the first time we generated revenue with Mode. But yeah, it's like basically the startup that never died, you know, and it was a journey, but that was definitely our first. That's like when I knew true product market fit.