Explosive Growth: A Few Things I Learned Growing My Startup to 100M Users and Losing $78M: Awesome summary by ebookhike

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Author: Cliff Lerner

Explosive Growth: A Few Things I Learned While Growing To 100 Million Users – And Losing $78 Million Cliff Lerner 2017

Explosive Growth
Explosive Growth

How to get rich on online dating, and then lose everything? (Explosive Growth)

Explosive Growth: Explosive Growth is a book about the American dream. At first sight. Yesterday’s student Cliff Lerner gets a position in a large corporation, works hard for five years, then quits, goes on a trip, and starts his own business – SNAP Interactive. First, he creates a dating site, and then applications on Facebook, iOS, and Android. Another five years pass, and the company is experiencing explosive growth. Its capitalization reaches $100 million, major publications write about it, and investors line up. 

And suddenly the fairy tale ends. Trouble sets in competitor’s advance, corporate culture suffers, growth slows, and then stops. Attempts to save the company by launching a new product are not successful. 

As a result, our hero sells his share in the company, attends a master class with Tony Robbins, and leaves on a trip. And then he comes back and writes a book. Cliff Lerner analyzes his path in business and comes to the conclusion: that everything that happened was not accidental and useful. 

He has worked with many outstanding and talented people.
He made $78 million in a week.
He lost them within a few years.
His company was on the news.
He was nominated for the Entrepreneur of the Year award.
He read many books.
He learned many valuable lessons in business and in life.

These are the lessons Cliff Lerner shares with readers. He calls them “explosive tips” and illustrates them with examples from his entrepreneurial history and other business cases. Lerner himself is going to listen to them when he builds the next business. In the meantime, he is thinking about a new idea, traveling the world, and giving lectures.

Starting a business

The hardest thing to start, especially if this is your first business. Business plans often remain on paper, and projects are launched for too long because the creators of new products are afraid to show them to people and try to bring them to perfection. In this way, newcomers lose time and money, and as a result, their ideal product is often unclaimed. 

To get rid of fear, it is worth orchestrating the worst-case scenario and objectively assessing whether it is so terrible. Even if it comes true, you will be ready for it.

There are many questions for a new entrepreneur. What product will be in demand? What start-up capital is needed? What happens if…? Read the answers to these questions and take action, because the ideal is the enemy of the produced. While you are thinking, planning an incredible product, and creating and honing super features, competitors are launching simpler products, making money, and releasing new versions based on feedback.

Product

Find what people need, but they do not do it or do it inefficiently. Then come up with a solution that will make getting results much easier (faster, cheaper, more convenient).

Cliff Lerner’s colleagues, two pretty young women, worked hard. In the evenings they met with clients, but sometimes meetings were canceled at the last moment. Then the ladies tried to “save the evening” and go on a date. However, the dating site on which they were registered is arranged in such a way that visitors cannot quickly get to know each other and arrange a meeting – it takes several days. Observing the problems of colleagues, Cliff Lerner decided to create an online resource for quick dating of busy people who have no time to correspond for a long time.

The product should not only be better than competitors’ products, but 10 times better. Sometimes the solution that will give this tenfold effect is outside the industry.

Darrell Lerner, Cliff’s brother and co-founder of SNAP Interactive, has always loved animals, and in 2013 created the All Paws online platform where you can choose a pet. Competing companies offered users to flip through endless photos until they found a cute animal. Darrell, on the other hand, made the site and application many times more effective by applying their experience in the dating industry. He created about 30 filters to make it easy for customers to search for a friend. Among the criteria that shelters indicated in the profile of the animal were hypoallergenicity, compatibility with children and other animals, and health status. The business quickly became successful, and a few years later Darrell successfully sold it to the multi-billion dollar company PetSmart.

The product needs to be constantly improved and adjusted. To do this, you need to test both new features and subtle characteristics. 

Even such an insignificant detail as the background color in the application affects the behavior of users. Analysts at SNAP Interactive found that a pink background increases the activity of the female part of the audience. Constant experimentation and powerful real-time analytics have become part of the company’s corporate culture. They made it possible to get to know the user better and make the product meet their needs as much as possible.

Finance

The product was invented. It is important to understand how much money it will take to produce and launch it. Carefully calculate all costs and multiply by two.

Try to test the product as quickly as possible with minimal investment.

Cliff Lerner lost $50,000 trying to get users to the site with original ads that he was advised by a successful nightclub promoter. Helicopters flew over New York and wrote the name of IAmFreeTonight.com in the sky, while girls in bikinis handed out flyers. Despite the originality, this campaign did not attract a single client to the site.

Losses like this with zero ROI are not easy to survive, especially when the budget is tight. 

The SNAP Interactive team wasted no time brainstorming about customer acquisition. We decided to try newsjacking, which helps to attract users almost for free. 

Newsjacking, or the method of news interception, is the use of current events to promote a product.

The recipe for newsjacking is simple: you need to choose a popular event, combine it with information that is relevant to your industry, put forward a hypothesis (maybe even completely unrealistic and funny), and get massive popularity.

When the local basketball team lost, Cliff and his colleagues issued a press release that fans were being treated for depression from the team’s poor performance on dating sites. The university newspaper then ran a story about the subject, which went viral and brought new users to IAmFreeTonight.com.

purple cow

An interesting, useful, high-quality product is important. But these properties are useless if no one knows about it. The more visible the product, the better. It is important to find a “purple cow” that will make the product stand out from the competition and make people talk about it.

The purple cow is something different, bright, and exciting, which distinguishes the product from competitors. The term was introduced by Seth Godin, the author of the book of the same name, the summary of which is in the Smart Reading library.

The client base of IAmFreeTonight.com grew, but very slowly – by about 1,000 people a month, and at least 100,000 users were needed for the normal activity of the site. Quickly finding someone to go on a date with that same evening is a unique feature, but it was not conspicuous. People knew that this site was much faster than Match.com, but that knowledge didn’t attract crowds of customers. In addition, the site did not have a community. He was visited by singles, who, as a rule, did not advertise that they were trying to meet on the Internet.

The turning point came when Facebook stepped out of the university walls into the big world. In May 2007, an open app platform was launched, and the AYI (Are You Interested) app was one of the early ones. It attracted more users on its first day than IAmFreeTonight.com has ever had. The offer to host applications for free on the platform had nothing to do with altruism and charity. It’s just that Facebook discovered that it is possible to “hook” a new client on a social network if he added 7 or more contacts within 10 days. And the more time a person spends online, the more likely he is to add new friends. Entertaining applications and games contributed to a long stay in the social network and new acquaintances.

Right time

One of the elements of a successful business is luck. It can be different: a meeting with the right person who has become a partner or a major client, a winning idea that you accidentally heard about. The greatest luck is to launch a project at the right time, even if your idea is not the most innovative.

The most famous example is Steve Jobs and Bill Gates, who were lucky enough to be born in the mid-1950s and spend their childhood and youth in Silicon Valley. Jobs was lucky enough to be on a tour of Xerox PARK in time, where he saw a computer with a graphical interface. Then Jobs used this idea to create the Lisa and Macintosh computers.

Facebook is far from the first social network, but the most famous and expensive. In 1997, entrepreneur Andrew Weinreich launched the Sixdegrees website. However, this social network did not become popular for two reasons:

• The Internet was not yet as widespread as it was 10 years later.
• There were no photos in Sixdegrees – digital cameras had just appeared on the market and were not readily available.

A new wave of social networking began in 2003 with Friendster, MySpace, Facebook, and many other sites. Users were already ready to communicate online: they had wireless Internet and phones with digital cameras. Weinreich was ten years ahead of his time. He sold his social network in 1999 for $125 million. Not bad at all, but this amount is not comparable to the value of Facebook, which may become the first trillion-dollar company.

Cliff Lerner was lucky too. His AYI app became the first in the dating niche on the Facebook platform and taught hundreds of thousands of interested users for free.

Virality

How to attract the maximum number of customers with minimal costs? This question worries all entrepreneurs. The best solution is to get customers to tell friends and acquaintances about your product so that they then also share information with their circle, and it spreads like a virus. 

One person learns about the product, buys it, tells friends, and they also buy. A so-called “viral loop” is formed. This concept originated in the early 1900s when entrepreneurs began sending out a series of sales letters to potential customers. However, with the advent of the Internet, information began to spread at lightning speed. Here are the most common types of viral loops:

• Organic invitation

The user shares a folder in DropBox with a colleague, as a result, he also registers on this resource.

• Random contact

A friend sends a letter from Hotmail, in which, under the signature, you see an invitation to get a free mailing address on Hotmail. “Why not?” – you think and subscribe.

• Motivated referral

An Uber user gives a friend a $10 ride credit. He registers in the application.

In social networks, the optimal conditions for viral user acquisition. People come there to have fun and get to know each other, so they willingly accept invitations and test new applications.

On one lucky day, over 100 thousand new users registered in the AYI application.

Viral loops also occur on their own, but they are many times more effective when they are stimulated. Active users need to offer something that is important in your application and test different options. Of great importance is the language in which you speak with the user. Everything is essential: sentence length, word order, and intonation.

Here is an example of changing one phrase in the Facebook app during testing:
Invite your friends.
Invite 5 friends and get a higher ranking in search results.
Invite 20 friends and get a higher ranking in search results.
Invite 5 friends and get more matches. 
Invite 20 friends and get more matches.
Invite 5 friends and find out which friend likes you the most.

Team

The first employees always determine the corporate culture, so hiring should be treated with caution. The whole team is important, but 1, 2, or 3 talented employees will lead the company to success. And these key players need to be protected.

The Chicago Bulls would not have been the undisputed leader of the NBA in the 1995-1996 season if Michael Jordan and Scottie Pippen had not played in it.

Cliff and his brother were co-founders of the company, but no less important roles in its formation were played by financier Jim, who not only knew how to count and save money, but also did not refuse to move furniture and paint walls, and programmer Mike, who independently created the first website and application for Facebook. 

mature company

After explosive growth, slowdown and stagnation often occur. This is a sign that something needs to change. 

After launching the app on Facebook, SNAP Interactive’s annual revenue increased by more than 600% during the year (from $425K to $3.012M), the app had several million users and consistently ranked in the top five on Facebook, and the company became a major player. in its niche — its market value at the end of 2009 was about $10 million. However, the company did not generate interest from investors, while other entertainment applications attracted tens of millions of dollars from venture capital funds. It was also alarming that income growth slowed down after the explosive growth in 2007-2008. and at the end of 2009 amounted to only 5% (from 3.012 million dollars to 3.171 million dollars).

At this stage, new questions arise. How do increase profits and scale activities? What can be done to become a leader in the industry?

Money isn’t everything

At the initial stage, when you need to attract customers and gain popularity, certain methods of making a profit are relevant, but they are no longer so relevant for a mature, profitable company.

SNAP Interactive profited from the advertising model – the application was free, and the money came to the account only from the sale of advertising. However, this model was quite unstable, because it depended on the purchasing power of customers, the popularity of partner companies’ offers, and their financial situation – sometimes they delayed payments due to business problems. The subscription model, quite popular in the online dating niche, provided more stability, independence, and opportunities for growth. But getting there was not easy. How do you tell customers that they will have to pay regularly for a service that used to be free?

Major changes, such as changing the monetization model, cannot be made spontaneously, without prior testing.

The management of SNAP Interactive decided to test the performance of the new model in the British market – the second largest consumer of their services. As expected, customers were outraged that they wanted money from them. The application’s attendance by the British audience decreased by about 50%, negative reviews rained down. However, the turnover has multiplied. Encouraged by the success, Cliff Lerner and the team introduced a subscription model for all users. Profits grew by leaps and bounds. In 2010, the company earned 110% more than in 2009 ($6.669 million VS $3.171 million), and in 2011 – 187% more than in 2010 ($19.156 million VS $6.669 million). The company became famous, a lot was written about it and its founders, and they were invited to TV shows where they shared their secrets of success. Behind the scenes, however, things weren’t so rosy. like on the Business Insider pages. Customers wondered why they were being forced to pay $10 a month for something that used to be free. They wrote angry comments on Facebook and in the Apple Store, where the application had appeared by that time and went to competitors. In some regions, the company lost up to 90% of its customers. 

Sometimes wrong decisions in business have a delayed effect. “Thunder may strike” in a year, two, or five years. This happened to SNAP Interactive because the company’s leaders got carried away with increasing turnover and forgot that money is not the only indicator of business performance. Explosive growth due to loss of customer confidence is a time bomb. In the world of online apps, customer reviews are a major asset. Based on them, people make a purchase decision. 

In 2012, SNAP Interactive earned the same amount as in the previous year, and then the company’s revenues began to decline. 

Here are some tips on what to do and what not to do to increase profits in a mature company:

• If you are planning to change the way the company works, especially with regard to money, take your time. Tests should go long and be as detailed as possible.

SNAP Interactive has been testing the subscription model in the UK market for three months. During this time, it is impossible to objectively assess the outflow of users and the number of negative reviews provoked by the introduction of a monthly fee for using the application. The test period was supposed to last from 6 to 9 months.

• Avoid the temptation to charge for what used to be free. So you ruin your relationship with users and get negative reviews and a low rating.

• Think about new options that you can charge for.

Gifts are one of the most popular earning opportunities in apps and social networks. Cliff Lerner says that one user from the Middle East spent several thousand dollars a month on gifts, mostly virtual gold bars.

Networking and partnership

Often entrepreneurs become hostages of their business. For years they maniacally develop it, not noticing what is happening around, and refusing the offered opportunities, projects, and investments. They justify their behavior by not wanting to lose focus but thereby limiting business growth and personal growth.

A person is the arithmetic average of the five people with whom he communicates the most. Spend time with rich friends – your income grows. If you prefer the company of losers, you should not dream of a successful life. If famous people offer you cooperation, do not refuse.

Cliff Lerner, reflecting on unrealized opportunities, especially regrets that he did not use the chance to work with such business legends as Mark Cuban (American entrepreneur, billionaire), Tim Ferris (American entrepreneur, motivational speaker, bestselling author of How to Work 4 Hours a week” ) and Gary Vaynerchuk (American serial entrepreneur, author of several business books). Mark suggested that Cliff co-develop non-dating mobile apps and Gary and Tim were ready to join the board of directors of SNAP Interactive.

Investments

Investments are needed to grow and maintain a high market value. When the business goes uphill, investors become active. If you are offered money, take it, without money you will not be able to develop a business.

Cliff Lerner has always been wary of investors who will “bend their own line” and interfere with the company’s development. In the end, he turned down an investment from a venture capitalist who offered to invest $10 million in SNAP, an amount that could quickly propel the company to the number one spot in the world in the online dating niche. The only condition he put forward was that the team had to move from New York to Silicon Valley. Cliff knew the potential investor was right. Silicon Valley is a forge of talent that provides real growth. However, he refused because he believed that his brother and father, who stood at the origins of the company and took an active part in its work, would not want to leave New York, as well as other key employees. Cliff did not say anything to his colleagues, although he was supposed to discuss the investor’s proposal with them. 

At parting, the investor said that he had a check for $10 million in his pocket, and he would give it to another company, which would probably become a competitor to SNAP Interactive. And so it happened. Soon, one of the main competitors, Zoosk, announced that it had received $20 million in investments that were invested in scaling the business. Within months, Zoosk was already worth hundreds of millions of dollars.

However, not all investments are equally good. Discuss the terms of investment in detail, read the contract carefully, and do not give in to pressure.

Relations between SNAP Interactive and investors did not develop. For several years, Cliff Lerner approached them, but to no avail. However, when the company’s shares began to skyrocket and its market value reached $100 million, those who said “no” lined up. It was decided to entrust the search for investors to the bank. A few days later, an investor who was ready to purchase 10% of the shares was found, the contract was ready, but the bank employee began to insist on a quick deal. Cliff looked through the papers and found that they contained too many obscure foreign terms. The bank pressed, and threats began. And then Cliff Lerner simply backed out of the deal. During the negotiations, the value of the shares became even higher, and other investors agreed to invest $8.5 million on acceptable terms.

The optimal time to attract investments is when the company’s position is stable, and the money is not urgently needed. In addition, investors show more interest in a company when someone else is interested in it.

Growth costs

Having received the amount with six zeros, the first thing to do is to increase the turnover, and for this – to attract new users and increase the team. However, it is difficult to maintain the corporate culture.

The company was worth more than $100 million, but it only employed 12 people. It was a flexible company. If a new idea arose in the morning, it was immediately discussed, brought to life during the day, and the next day it was already presented to users. But as the staff grew, SNAP Interactive became sluggish. Experienced, highly paid managers are used to preparing new options for launch within a month or even a quarter so that users get them in perfect condition. This approach was contrary to the company’s credo – “Learn fast, act fast and fail quickly.” There were more employees, turnover increased, but profits declined, and corporate culture suffered.

Don’t hire people you don’t like having a beer with after work. If you don’t like the way an employee works and behaves, answer sincerely the question: “If he came to work again now, would I take him or not?”. If the answer is no, try to break up with the employee as quickly as possible.

Mission, values, traditions

As long as the company is small and has family, friends, and people who initially share your vision, corporate culture is something that goes without saying. In order to maintain it during the period of growth and increase in staff, it is necessary to formulate the mission of the company and its basic values. It will also help when you write job requirements.

Cliff Lerner invited colleagues to formulate the mission of SNAP Interactive. It sounded like this: “Eliminate loneliness. We create innovative solutions to make meeting new people easy and fun and make life better.”

The team then came up with five key values ​​for the company, which were posted throughout the premises, including the restroom:
• Experiment!
• Seize the moment! If you need to improve something in your work or in yourself, improve immediately.
• Act fast! Learn, do, fail. Automate everything you can.
• Plan and do. Did not work out? Make a new plan and act again.
• Interact! Be open to any ideas.

10 best thoughts on one page

1. Looking for a business idea? Think about what people need. Come up with a solution that will help you get what you want easier and better than it was offered before you.

2. When planning a budget, calculate the estimated costs and multiply the amount by two.

3. It is not an interesting, useful, and high-quality product that sells well, but a product that is talked about.

4. The leader is not the author of the idea, not the one who first implemented it, but the one who implemented it at the right time.

5. The most effective way to attract customers without investment is to create viral loops when the customer talks about the positive experience of using the product to his friends, and they tell their friends.

6. All employees are important, but the success of the company is determined by talent. They must be sought and protected.

7. You can’t charge customers for something that used to be free. You will lose both customers and reputation.

8. Your closest social circle determines your success. 

9. Best Time to Raise Investment – When the company is doing well, you don’t need the money too much and you can insist on your terms.

10. If you are not satisfied with an employee, ask yourself the question: “Would I hire him now or not?”. If the answer is no, fire him as soon as possible.

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