Question fron Niki Scevak: What Defines Success?

Q: Chris, how do you determine failure and success? Judy’s Book was a failure but why? Because Yelp had more traffic and momentum? Because it won’t return VC’s capital? What would have defined success?
Posted by nikiscevak

A: Hi Niki – great questions (and welcome to Askablogr!). In my little universe of ‘for-profit Web business’ success has at least two (and ideally three) phases:

  • First is success with customers: they find your app in increasing numbers, share it with friends, and derive enough value (whether that’s fun, utility or some combination of the two) to come back often. This is the foundation of the other types of success, but it doesn’t necessarily follow that the other phases will come (that requires not just great product design + implementation, but great business design + implementation as well).
  • Phase two is cashflow breakeven, which means that the team behind the product has started to figure out what works and can really dig in and run with the idea without the specter of shutdown hanging over their heads. This is often the beginning of what Marc Andreesen calls “Product-Market Fit“, and it can mark the inflection point between steady growth and rapid acceleration in customer adoption and profitability.
  • The third phase is the one that everyone says they don’t really care about, but that somehow still occupies a lot of brainspace among early-stage employees and founders: the liquidity event. There are lots of reasons to start or join an early-stage company, but it’s rare to find risk-seeking behavior that doesn’t bring with it an expectation of risk-weighted rewards. In our consumer-capitalist economy money is how people keep score, and competitive people prefer to win.

In the case of Judy’s Book, our Phase One was pretty successful, but the flaws in our business design and implementation kept us from turning that into a successful Phase Two. As for Yelp, they’ve had an even more successful Phase One, but (knowing what I do about local), I’m not confident their Phase Two will be much easier sledding. However, there are many examples of companies whose outsized success at Phase One allowed them to skip Phase Two entirely and jump straight into the arms of an acquirer without ever making a dime. If they don’t wait too long or start to believe their own PR, Yelp is a good candidate for this scenario.

It took us too long to figure it out, but your insight about local was the right one: lead generation in a handful of verticals is where the business is now, and if you want to make it to Phase Two (not to mention Phase Three), that’s the place to start. Our most recent bet, Cooler Planet, is a direct reflection of that (painfully derived) conclusion.