A Product Market Fit Show | Startup Podcast for Founders
00:26:26 · Dan Novaes
[00:26:26] S0: So by making all those cuts and doing all that and trying to extract whatever type of revenue we could think of to do and kind of also re-stabilize the business, we had maybe like a year and a half like at best. So it wasn't like I have three months but I had like I think I had about 15 months. We had to rethink the business because revenue concentration is really what killed us, right? We had a lot of revenue concentration with certain key advertisers and that really hurt our business. So one of the things that we came out with or came up with an idea with was like, hey, how do we pay our users less without having them churn? Very difficult. The reason people are here is because they want our money. And so I had this idea. I was like, well, I wonder if we could give them shares just to like, you know, we'll still give them cash but maybe we can give them shares to kind of make it or sweeten the deal and, you know, we won't lose as many users. And the only way to do that legally was what I eventually found about was crowdfunding, right? And in order to do that, we'd have to get audited financials and we could launch like a reg CF which allows you to raise five million bucks. And I was like, I'm a good consumer marketer. I understand how user acquisition works. I know growth and this makes sense because I can get my community, you know, involved in this and let's try it out. And I highly underestimated how long and how much work it would be to get audited financials. It took me the better part of a year to get it all done. And at that point, you have like five months left of, you know, runway. We had found some revenues there so maybe I had extended it to like seven or something. Pulled back all UA, right? So to give you context, revenue went from 25 million, 22 down to eight in 23.
00:27:53 · Pablo Srugo, Dan Novaes
[00:27:53] S1: Painful, man. [00:27:55] S0: Yeah, it was painful. But we pulled back all UA. Effectively, you know, we were spending, like we were spending one, two million a month down to like 50K, right? At best. So we launched that crowdfund in 23, end of 23. And in three months, we raised $5 million, right? Yeah, mostly through newsletter marketing and things like that. And I was surprised. I was like, wow, like we crushed it. Like very few companies go out and like launch and then raise that fast. [00:28:19] S1: They're also usually like 100K, 200K. Like these crowdfundings tend to be small. So 5 million, you know, in three months is, you know, top 1%. I mean, I don't know the numbers, but it's probably around there.
00:28:30 · Dan Novaes
[00:28:30] S0: Yeah, I mean, probably there are a few companies that have raised like 50 million plus in crowdfunding. It's rare. It's very, Yeah, it's like the 0.1%, 0.01% probably, you know. It's usually like really big ideas that have a good marketer or a founder that's founder-led marketing. Or it's these little baby kind of startups that have, you know, raising a few 100K type stuff. And the middle doesn't really exist that well, right? So anyways, we did that, saw good product market fit and enough that basically now I was like, okay, we should do the bigger version of this, which is called a reg A, right? Which that lets you raise $75 million in capital. More work, you got to get qualified by the SEC. I mean, it's a whole other undertaking. And we launched that a year later. And nine months after that, we had raised another 75 million or sold that out for 75 million in capital. And so, you know, there's a pattern there, right? And then I remember thinking to myself, even before, right, even before, because it's been 24, we ended up doing 12 million in revenue. So we grew 50% of this good. And we cut our burn from like, I think the previous year was like 5 million or something down to like three. So we grew 50% and cut burn. So getting more efficient, but still not quite where I wanted to be. And I remember thinking, okay, if we ever had the opportunity to raise this larger amount of capital, I am not going to fall in the same pattern and problem that I felt in last time, which is extend, pay by period, everything at all costs. What we did was, I basically thought about my business model and I was like, okay, unless we can get, like we should move into like licensing our technology, kind of like what Roku does. Like, let's go to the big carriers. Let's go to the Samsungs of the world. Let's license them because we get their distribution and then we do a rupture. That's what Roku does, right? And they've been able to build a tens of billions of dollars business off of that business model in the smart TV space. It's very similar. And so we basically, we're like, we're going to play really intelligent on user acquisition costs.
00:30:20 · Dan Novaes
And then if we get capital, we are going to take a play out of like, if you think about what we're doing, we're sending consumers into other services and then an advertiser is paying us a certain amount because they have a bigger LTV on the other end. So I was like, can I just do that for myself? Like, can I go and acquire other apps and games and send my own consumers into those apps? But instead of be just collecting the CPA fee or the CPM or whatever, I can actually capture the entire LTV on the backside. I'm going to ask you
00:30:48 · Pablo Srugo
[00:30:48] S1: for a small favor, a tiny little favor. In fact, it's not even now that I think about it, it's not even really a favor for me. I'm actually trying to help you do a favor for you. Just hit the follow button. You won't miss out on the next episode. You'll see everything that we release. If you don't want to listen to an episode, you just skip it. But at least you don't miss out. Can we maybe pause here? Yeah, let's think about maybe like, just to make this all concrete, right? Take a game. Like, I have a mobile game, right? How do I earn money as somebody who makes a game? Like, realistically, people paying in-app and doing these things and ads. I mean, those are probably my two ways that I make money. I need to get people to play my game to begin with. You know, let's just imagine ad revenue is the main thing. People are paying me to show their ads in my game and I'm paying the App Store or Google or whatever to show my game, you know, to other people. and I might pay you. You know what? Why am I paying somebody to see something or paying somebody to click something to maybe then download and then have that funnel? I can just pay you and you guarantee they play the game for X amount of time? Like, is that how to think about it?
00:31:50 · Dan Novaes
[00:31:50] S0: Yeah, so basically, say a big game, let's just use Candy Crush as an example. Candy Crush will say, hey, I'm willing to pay $10 for a user to come into my product and it has to back out for them. Like, they have to see that their LTV is going to be higher than $10 or they're not going to pay that. And so what we'll do is we'll go to the consumer and it's like, hey, look, we'll pay you $5. We'll pay you per minute you play Candy Crush. So it's not like you're getting $5 on the download or else everyone's just going to download and stop right there and then you can create a habit off of that. If you get to these different milestones deeper and deeper in the funnel, so get to certain levels or in-app purchases, you may earn well beyond $10, right? Because you're a certain type of user. You're kind of like, you become like a more valuable user to that ecosystem. If they notice that you're not buying anything, then they're going to start showing you more advertising like most of these companies do. These users tend to be more ad tolerant, right? Because at the end of the day, they're getting some sort of reward for taking action. Those other advertisers could be other games. It could be CBG companies, whatever. I mean, at the end of the day, just because someone's budget conscious doesn't necessarily mean that they don't have any money. It just means that they're more thoughtful about how they have to spend. So anyways, that was the thesis of the model is like, we take a percentage of the revenue and then align incentives to a specific action that the user takes. So that was like how it all started, right? From an advertising standpoint.