Sad. The thing about "ramen" profitability is there's another level to be achieved after that, which I refer to as "opportunity cost" profitability. It's often much more challenging, and I sense it being an issue in this article.
We were advised (in retrospect incorrectly) to be ambiguous and say "raised under $1M" when the amount we raised was actually much less. Our burn rate was slightly higher than most poor grad students, but not _that_ high.
You should never play for 'perception', after all, everybody that it matters to will have full disclosure anyway and you set yourself up for being called out at some point in the future.
Just say it like it is. I notice that you're still not coming clean about how much you in fact did raise. You're under no obligation to say it but the way it stands right now it could be $100K or it could be $999,999.
If somebody misquotes you that is not your problem, if the press embellishes your story, well, that's what the press does more often than not. But if you purposefully engage in the spreading of false (or suggestive) information then that does not really help.
Compete measures iframe includes or javascript widgets - meaning our widgets on 3rd party sites. That traffic is roughly correct in direction, but totally wrong for the volume to tipjoy.com itself. But that doesn't really matter, because it is a service - one usable almost entirely without visiting tipjoy.com.
The twitter integration, for example, is completely unmeasured by compete.
Finally, traffic is a poor metric for a payments site. Transaction volume is what matters.
Ohh, and I'm not being that open. If we were profitable, we wouldn't be shutting down.
Thanks for being so open and honest about the whole thing.
You said, if you were profitable, you wouldn't be shutting down. But if you think there should be a way to make social payments work then don't you think its just a matter of time when you would be profitable.
I mean minimum profitability also doesn't really justify what is called in other posts the 'opportunity cost', but if you are working on something big and still believe there is customer value then profitability will come eventually.
And if that belief is still there then maybe just buckle down for sometime in a paying gig and then go back again. It might take your mind of it for sometime which might actually give you some good insights on how to take it ahead.
I though, still understand that there could be other personal reasons for you to do this, in which case please feel free to not respond.
Thanks again for the post and best of luck for the future.
We didn't want to do Tipjoy as a side project. Like I mentioned in other threads, payments isn't something to do lightly. Any contracting that would pay the bills wouldn't leave enough time to work on Tipjoy.
I didnt really mean it as a side project. I understand it won't work that way. Just keep it on the side till you are able to raise more funds, or organize from other sources (job,consulting etc.) to give you a decent runway.
If sounds like they would need new funds now though, not way off into the future where they could hit profitability. The interest in another round of funding would probably be low for a company that has chewed through a sizable chunk of funding and so far not produced the results they were hoping for.
Is the problem that very few of your visitors convert to tippers?
Assume, for the sake of argument, that the highest number on that graph is accurate and sustainable. Even if it were, it is well below the level the business needs, because you need truly massive scale to make a living solely on transaction costs.
350k visitors * 1% conversion (+) * < $1 in transaction fees = < $3,500 in gross revenue. Now, deduct the cut of the CC interchange fees. Uh oh.
+ Where a conversion actually means cash money exchanged hands. I remember there being some notion of promises/pledges which could be swapped around without actually generating an exchange of cash money. Promises are lovely things but they demonstrate interest a lot less readily than observable flows of cash money (since they're cheap and ephemeral, presumably why the system was instituted) and it is difficult to spend your 1% cut of the value of a promise.
We took 3% on top of any fees. The business model is pretty easy. If you need $N K per month, you need N/0.03 monthly transaction volume to break even.
I wish we had more time to make things like http://tatatweet.com, but better. We'd take 100% of the transaction volume, and help the twitter app market grow. I'll certainly build things in my spare time for that market.
Give, or sell, shares? I am just wondering if you consider YC involvement so valuable that you would actually hand over shares just to have them on board in a venture.
That's exactly what I'm saying. I haven't asked pg or jl if they'd be willing to do it like this. The paperwork is certainly cheaper, but their stock would have fewer rights. I don't plan on needing the money.
It's surprising isn't it? that's the same amount you'd give an early engineer. Makes it sound like advisory board positions add an equal amount of value.
Yep, I think my big trouble is 'can' and 'will'. An engineer, being a full-time employee will come in and kick all sorts of ass, while an advisor may or may not help you make the right decision, make the right connections, etc.
Not saying that it isn't good to give your advisors equity but just wondering if you might be better of hiring great engineers and giving them more equity. Probably need personal experience to figure out the right answer (if there is one).
Actually that's an excellent point that I don't see mentioned enough. Profitability enough to offset opportunity cost - ie, how much you'd be making if you were working in a "real job" - is indeed very hard to reach.
Anyone can be "ramen profitable", defining that as say, under $1k a month. In fact, in actual good countries, you don't need to do anything at all to be able to eat. Australia will pay you $1k/month just to not be a criminal; in other countries it's higher. People can and do live off that their whole lives!
Your average HN reader/startup founder is generally highly capable, multi-skilled, and, probably, a very valuable employee. To start a business capable of matching or exceeding their likely "normal" salary is indeed a far harder proposition than just making enough to eat.
>Australia will pay you $1k/month just to not be a criminal
FWIW, this isn't strictly true, at least not in the last 10 years. Provided you are not disabled or retired, Australia will only really pay you ~$1k/month while you demonstrably look for work, or while you are an undergraduate student doing your first degree.
There's a program called NEIS which would pay you that amount for a year while you try to start up a business. You had to submit a pretty serious application and attend a fair few weeks of some business course. They do have a few BS rules but you really just have to structure things the way they want. Did it about 13 years ago and helped me and a friend get a successful startup going. Come to think it of it it was a bit like a govt version of YC.
Well .. in theory yes. But in practise, people stay on it for years and years, just putting up with the hoops they make you jump through. Apparently they stop even pretending to care after a couple of years. I know this because a couple of friends of my brother have been on the dole for literally 10 years. There is nothing wrong with them, they just don't want to work and are apparently happy to live within the constraints of their $450/fortnight. Places like Broome and Byron Bay are full of such people.
I used to resent people living off the system like this but now having lived in countries without it, I don't mind it anymore. In fact I now support a Norway-style basic income program. They're never going to work, that is completely obvious, just give them the damn money...
I just burst into raucous laughter, mostly from my own shock at realizing that that the idea is potentially practical.
I've always thought of government assistance on a large scale as the kind of thing that will seriously damage a country if allowed to continue indefinitely -- by creating economic incentives not to work. [See: Sweden]
I'm not sure it has to work that way. Between food technology and plateaus in first-world population growth, sustenance and covering could probably become as cheap as we are motivated to make them, for some definition of "sustenance" and "covering."
I think it's obvious that society is better off if people work. But society is also better off if the people who work work harder, and only Ayn Rand fans walk around the office glaring at the dullards dragging society down. ;)
In a way, those who really don't want to work are holding a gun to their head and demanding money. If we don't give it to them, then we'll have to get the blood out of our carpet, which will cost more than the few dollars they are asking for. If there were no risk of this, there would be no blood to clean up and thus no reason for social programs to exist. (Those who can't work are already bleeding, and the assistance is intended to keep their situation from worsening expensively).
The people that don't want to work are doing something that I would find morally wrong. But I'm doing something that others doubtless would be troubled by: I work three months out of the year, saving my money, and then live off of that money for the rest of the year in a third-world country. I've had people angry at me for not spending all of my money in the US; others feel it's short-changing society to minimize the amount of work you do for money. Nonetheless, I'm at least paying with my own money, and society is net richer.
From the standpoint of a person, I think that being a parasite is morally questionable.
From the standpoint of society, however, maybe it makes sense to subsidize some level of determined laziness. I can vaguely imagine that under certain circumstances and with sufficient disincentives, such a thing could be a net win for a society.
It seems societally risky, though. ;) Better to "officially" not support such a policy, so you can jettison it if its effects get out of hand.
I use some different terms (as a business coach, with my team's frameworks etc) but the point is valid.
Getting "ramen profitable" helps give a business owner confidence, which we call "the first brick wall of business". The only way out of this in a positive, growth direction is to invest in the right things and get profitable - and that means genuinely profitable, not just paying yourself $12K/yr and ignoring the opportunity income.
Failure to do so will eventually mean you run out of energy, even if you don't run out of money. Tipjoy, alas, seems to have done the latter before the former.
That IS an interesting point-- but if you're being rationale/calculating about this, I think you'd throw in the towel most of the time. As PG says, "Bad shit is coming". There is almost always a time where you say, "I think we're screwed," and a rationale person who rationally say that there was more opportunity elsewhere.
The point of ramen profitable isn't to eat, of course; it's to extend your runway indefinitely such that your odds of getting rich significantly increase.
Their efforts might have borne more fruit if I could have actually paid for the tips I owed. Every time I clicked on a link to pay them, I'd get an unhelpful error message along the lines of "The cash-out feature is temporarily down for maintenance." This situation either lasted for a couple of weeks, or was broken all three times I tried over that period.
I thought Tipjoy was great in concept, but ultimately they didn't seem to have either the technical or marketing chops to go up against other systems like Amazon's.
Having launched a few ventures, I've learned that smarts and hard work are not most of the story - having the right venture is.
Tipjoy struck me, from the very first time I heard of it, as the entirely wrong idea. It "solved" a problem that didn't really exist, competed with multiple existing solutions, and I couldn't figure out who the customers were supposed to be.
I will say that ivankirigin came to his senses and abandoned his bad idea far faster than I came to my senses and abandoned various of my bad ideas, so hats off for that.
Sorry to hear, my friend. I had a hunch it was coming; why move back to SF unless you were soon to be in need of a job (or fresh investors for TipJoy 2 ;)?
I'm, impressed though. You stuck with it for a long time and handled the shutdown right and without a ton of fanfare. If only you hadn't lost all that money to me in Poker, you might have been able to keep running... ;)
Best of luck to Abby & Ivan in their future endeavors
It's refreshing to see this communal response to the closing of a startup rather than the typical icy headlines with droves of disconnected commentary...
For sure; it's always sad when these things happen because this community especially knows how hard all these people have worked whether their ideas ultimately panned out in the end or not. A complete 180 from Techcrunch comments where assholes seem to rule.
I don't think you understand the direction we were going in. We would largely agree with the assessment on purely voluntary donations - and we were evolving to be a general purpose payments system. You could mandate payment.
Oh? I'm interested in hearing your logic. I see no point to Loopt and think it looks cheap, but it's expanded to the point where it's mentioned in TV commercials, and its founder is Paul Graham's golden boy.
I'm asking because your logic re:Tipjoy was sound, and I'd like to see a similar argument for Loopt.
Loopt is supposedly profitable in 2009, which means they've had profitable quarters so far. Unless they do something that significantly causes money drain, they'll be able to continue for a long time. Hard to compare to TipJoy when the founders have said they were never pulling profit.
The learning experience has been astounding. I have a bunch of things I will do differently next time. Karma on new.yc doesn't translate to usage unfortunately. And twitter as a marketplace is about as mature as @ev's kid.
Was the shutdown at all related to the need to get licensed as a money transfer agent? I know that's a very expensive process (since you have to go state by state) and I know you guys were thinking about doing it. How did that end up playing out?
With your attitude, it's just a matter of time before you succeed.
BTW: I appreciate your analysis. It reminds me of how hard EDI is to get started without a dominant trading partner who mandates it, such as a dept. store or supermarket chain.
This is a little meta, but to what extent does the fact that companies die like this prevent adoption of new services? If I had a business, I'd hesitate to make it dependent on or spend a lot of time integrating with some small startup that stands a fair chance of going belly up next year, and as a user I'm not about to do something like, say, spend a lot of time picking my favorite music for some music recommendation site when they might die at any time.
This is really sad news...we had the pleasure of working with them to integrate the TipJoy API on an experimental project called MightyTweets. Even though our project didn't go anywhere, they were fantastic to work with.
I wish them the best of luck in whatever they do next!
That's a pretty bold statement, and on the face of it incorrect.
Our messages was first and foremost to assure users that their money is still there. And then we made a comment on the market that we failed to succeed in.
Well, of course customers' money is the most important thing, no doubt about it.
But it struck me that you mentioned several times in the article that you know what and how to do, you just don't have the leverage of being the main body. Why would you deny it? Is it something bad? I don't think so. Would you refuse if Twitter or Facebook approached you with a decent offer?
Writing a blog post like this would be a lame way to get the attention of any future employer - that's why I'm complaining. You're questioning my motivations, which you have no insight into.
Whether I would choose one thing or another is irrelevant.
If I wanted to get the company bought, or get a job, I'd just have a conversation with any of our awesome advisers to get directly in touch with pretty much anyone.
Alan (of Cloudant) is tryng to take the reigns but we haven't had lot of interest (granted, only a couple days notice this week). Subscribe to boston-startup-poker@googlegroups.com for more info.
I know hindsight is 20/20, but would you be willing to be completely forthright and tell us what your business plan was at the beginning stages, when you were raising money? I would find that sort of insight very valuable, and appreciate it greatly.
how did the math work out, taking a cut of tips (presumably small, and even smaller after payment processing fees?) how many users would you have needed to reach profitability? i actually tried doing the back-of-envelope math for your site a while back, and was perplexed. i'm curious as to your answer..
Tips don't really work. You need to sell stuff. Branding in the name sucked when we were pushing long and hard* to become a general purpose payments company. Our twitter API could power a full freemium model, subscriptions, etc. - but not enough apps on twitter used it.
For musicians, what if there was a way to offer downloads or a virtual chatroom where musicans could interact with tippers only. Artists could keep log of all their fans.
The problem may have been a tip niche wasn't honed in upon.
It is a stupid comment, without much content. Like the other reply, even if I agree, this is no way to say it. Our announcement is essentially saying the same thing, but elaborating to add information.
See Chagora (dot) com and CulturalEngineer.blogspot (dot) com (why chagora, live debate function and other related posts) for the role of the Pooled-User-Determined Account and the microtransaction as essential in politics and a catalyst for enabling the practical micro (and other)transaction in charity and commercial areas.
The political microtransaction is a fundamental of speech. I believe this could have made Tipjoy workable. Sorry I couldn't reach you. I tried.
I understand... and will consider it. But could you give a clearer evaluation since I've put a great deal into this and would appreciate more helpful feedback.
Thanks!
