Everpix, Snapchat, and the Startup Lie (opens in new tab)

Yes it is fun to hate on VCs as there is a lot wrong with the model, but this article is misguided. If you want to run a business growing linearly which makes a profit, don't take VC. There is nothing wrong with that, but it doesn't fit their model.

But if you take VC, go in knowing how they measure success. And it's based on mega-wins - not on profitable, dividend-paying companies.

Everpix might have been a great co. They just weren't a great VC- backable biz.

what's 6800 paying users of everpix to millions of non paying users of snapchat? snapchat has the sporadic but consistent attention of millions that has considerable value and should not be written off because it hasn't been monetized... yet

There is a very good reason why investors and a lot of entrepreneurs in the consumer space tend to support free or freemium products and that is because building a paid for consumer service is extremely difficult.

Reaching users is incredibly expensive (once you have the audience, you can charge others to access it - see how it works), conversion rates are low and consumers are reticent to spend.

By being free your product becomes your marketing. You either have a paid product and start paying $50-500 to acquire each user, or you have a free product and pay $0.05-10 to acquire each user.

You can't just cut out the free product part and magically retain the paid part, as this example does with Everpix.

There is also an element of network effects in a lot of consumer business models, with a winner-takes-all (or most) landgrab.

Things are entirely different in the enterprise sector, or selling to people at work.

> 1 - PAY OUT LOWER SALARIES

No self-respecting engineer should or would take $50/60k a year in the Bay Area (heck, most of the country). It's fine for founders to pay themselves that (and, indeed, they probably should) but asking employees to take that tiny salary for your dream is never going to fly.

This wouldn't have been enough to save them, but if your AWS bill is $35,000/month, it's likely much cheaper to buy (or even lease) hardware and co-locate -- even if you factor in making 1-2 new hires to support the hardware.

i'm getting tired of all these people that don't understand how the startup world works and feel like they need to write whinny blog posts about it.

For what it's worth, I emailed with the CEO of Everpix a couple of days ago to tell him that my organization may be interested in buying the app so that they wouldn't have to shut it down.

All I was asking for was a telephone call to discuss the possibility, but I was denied even that opportunity. I wish I knew what was going on behind the scenes at this point that would lead to the decision not to field last-minute offers.

I'm not sure that Everpix is the case study some are making it out to be.

Yes, there were obviously things the company could have done differently, but at the end of the day, you still have a business that, according to the original Verge article, only generated ~$250,000 in subscription revenue against spend of more than $2 million.

Forget headcount and payroll (both of which are arguably "modest" by Bay Area standards today): operating expenses alone exceeded revenue by $100,000. Everpix could have halved salaries and even if you mistakenly assume that the company could have attracted and retained employees talented and motivated enough to continue building a great product, it wouldn't have made a difference.

If Everpix transitioned from a freemium to paid model, it wouldn't have made a difference either. Operating expenses would decrease, but user acquisition costs would almost certainly skyrocket (as nikcub points out above).

Venture capital can help build great companies, and it can lead companies to pursue a high-risk growth strategy that ends in failure. But in this case, based on the numbers and story as told, it appears that we simply have a very good product that was never likely to be the foundation of a sustainable business, with or without venture capital.

How on earth does one spend $35,000 on hosting/storage a month? It simply baffles me that people would even consider this an option.

There are so many better ways than just blindly throwing money away like this. Heck, you could buy your own servers and have a dedicated guy for it and still be off cheaper. Geez...

The article's main point seems to be that Everpix could have done well by paying employees well under (half?) market rates and succeeded. Maybe by handing over a lot of equity to employees (probably most of it), it may have even worked. But I think the author is missing the opportunity cost here. All of these Everpix employees could likely have easily found employment in other startups with more VC money and received twice the pay Everpix could give them. This is the market in action - we have enough of these photo sharing gimmicks already. Those employees are better used in other startups who can actually make enough money (read: fulfilling market needs better) to pay them properly, and so I think it was the right move to shut down and move on.

So what's the link between charging money and growth?

P/M-fit is easier to achieve when price is $0.00, but that isn't a sustainable business model.

Perhaps the ideal is achieving P/M-fit in a large market at price that moves the needle for the business (i.e. demonstrates revenue traction) but does not appear to hinder growth.

So, I'm trying to wrap my head around this. In order to be like Snapchat[Facebook|Twitter|and the like], you must defer monetization. But when you're starting up, cash is scarce and you need money ASAP. Since you can't always depend on getting external funding, you need to charge customers early.

How do you start a business if you can't convince investor to put money in, and not allowed to receive money from customers?

Unfortunately this line of thinking is pretty infectious and affects more than just the Valley's pre-IPO startups.

I work for a large-ish company (will be approx 3000. employees by YE 2014) that has been public since the last tech bubble. We've run in the red for the last six years pivoting into an entirely new line of business -- essentially new investors bought an already public company and sold off the existing business to avoid having to IPO. Their exit strategy for the business is to eventually have one of our client companies buy us out. All of our contracts are structured to make such an acquisition a (from our management's perspective) sweetheart deal.

Only the way we've been going about it is all wrong. Basically these "very large companies" that we work hard to land contracts with we allow to give us very unfavorable terms and to pay us below cost. This is in a market where we have only one competitor and they can't come close to providing our level of service. It's blatantly obvious that they're getting better deals at the price for service they have now while we take all of the risk/loss.

We had our very first break-even quarter sometime this year (even by GAAP principles!) and the board cut everyone very big checks that put us back in the red (even by our non-GAAP principles!). Our executives are not tech executives, they're MBA-types from the retail and call center industries, but they drink the exact same Kool Aid.

I think their line of thinking goes something like this:

1) We have a really awesome product.

2) We lose tons of money providing that product. (Aside: Holy shit, employees that actually are our product are expensive! We couldn't possibly afford to hire developers to make our large staff more efficient! No way! We're a technology company!)

3) ???

4) Our customer base that we're totally supplicant to will buy us out because fairies.

Eventually this is going to end in tears and 3000 very overworked people are suddenly going to be much less so.

Everpix got beaten by Google, Apple and Yahoo who offered free personal photo libraries. Sure the big companies don't have all of the features of Everpix, but they have the ability to instantly advertise to their 100 million user+ networks. This is why VC's always ask you what you're going to do when Google does "your idea."

The thing about ephemeral messaging is that no one would trust Apple, Google, Facebook or Yahoo to actually delete your content because their business models are based on collecting and mining your data. Snapchat is in a position that could only have been achieved by being the "little guy" and no other little guys are contesting them right now.

Eric Ries sum it up already in the Lean Startup:

Zero invites imagination, but small numbers invite questions about whether large numbers will ever materialize.

What really scares me about the US economy is that truly innovative and sustainable companies like Tesla are only possible because there's a single huge investor, and the unwashed masses of investors throw money at handwaving feel-good agencies like Facebook and Twitter.

I am really starting to dislike this approach to building tech companies. I have been speaking out about it too. There are too many startups that have no real value besides the fact that someone has invested in them. The cycle is: fund a company, make it appear successful so others invest in it, cash out and let it fail. 99% of startups will never be as big as facebook and it's ridiculous to treat them the same. Silicon Valley is really strewing shit up for the rest of us. I want a long term, viable career and all venture capitalists seem to be interested in is mining wealth from the industry until it's dead. Essentially every company that is propped up by investment is a small bubble ready to burst. There should be a law against investing so much money in otherwise worthless ventures. It's not a level playing field and it's barely a free market. I have to go with crappy companies because the good ones were put out of business by bloated subpar startups. I don't always want something new. I want things with long term value and use ability. Don't get me wrong. I apply for funding in ycombinator an others but it's not because I believe in what you do, it's because I want your money. Money equals power and I want to change some stuff.

Although, Everpix was great as a product it was market that killed their chances. Today, for every photo I take from iPhone it is backed to Google+ and iCloud. And then there are other platforms like Flickr etc. However, I believe Everpix had superior organization technology. But did that matter to masses?

Institutional investors and VCs don't take market risks. They are willing to take risks associated with product, technology and even the team. But they never take risks with the market opportunity.

In the verge article, what did they get in terms of feedback when investors passed their opportunity -

"The reaction was positive for you as a team but weak in terms of whether a $B business could be built."

Also, I'm surprised why didn't team focus on any other revenue streams?

While the first part covers my feelings very well about the current 'state of the nation', I'm more concerned that newly minted millionaires (not just from a recent IPO, but others too) see this as status quo as they join the Angel/VC group.

This is not the trend, and making it so is very dangerous.

Silicon Valley has a great opportunity to become an integral part of the resuscitation of the US economy. This is a bad time for a bubble burst.

If the bubble is about to burst, smart money will start making safe bets.

Interesting that this story is popular the same day Twitter goes public. Twitter didn't focus on revenues or profits early. Twitter didn't take months and months to get to market and agonize over every product look and feel decision. Twitter made it's early investors billions of dollars. Twitter is a household name. Twitter may or may not end up generating billions from mobile. FB certainly showed it can once that became critical.

I think it is a good idea when founders are able to always project what is going to happen with money and adapt earlier, instead of waiting to be out of money or hoping in the next round. This mindset not only saves you from early failing, also is very valuable once you turn your startup into a profitable stage.

I wonder if Facebook though of becoming the next MySpace when they built their platform.

I would wager not. The goal was to build something useful and they were never looking to be acquired if they were we would probably never have heard of Facebook but good look recreating the great successes with a failed paradigm.

There was a comment on this page that just disappeared when I tried to reply to it - not [deleted], just gone. id=6695365. And nothing obviously trollish about it to merit deleting. Database problem?

Path is another interesting example. They seem to be circling the drain right now, but they might still be able to raise funding at a flat valuation (same valuation as last time).

The crux is that this blog post compares Everpix with 55,000 users to Snapchat with 26M users and them having been around for the same amount of time.

See the crux?

I'm wondering what was the reasoning behind not raising the price when they saw that their costs were over what they were spending.

I'm so sad about this. I really, really love Everpix. It's one of the best photo-related startups out there.

All these heavily-funded companies just waste too much money on unnecessary bureaucracy.