By Jim McCarthy Sep 21, 2010 2 comments

Everybody’s a Rock Star Somewhere, Part 2

(If you want, go back and catch up on what led into this story from yesterday.  If you don’t, it’s ok.  You’ll still get it.)

Here’s a little story I want to share from two start-ups that I’ve been a part of.  The first, which I won’t name, but those of you who know me will easily remember, put an emphasis on getting big as quickly as possible.  We hired 100 people in six months, before we even had a product.  We spent literally a million dollars a month for a long time casting about for a business model, spending big to be big.

The second one was Goldstar.  By contrast, we started with nothing at all.  I literally spent more on lunches than we spent on Goldstar as a business for the first few months.  We didn’t worry about being big.  We didn’t hire anybody or spend almost anything because we knew we didn’t know what to spend it on yet.

In the first start-up, we just assumed we’d be enormous and soon.  We raised millions of dollars from investors on little more than a powerpoint deck and began hiring, building, and working.  The idea wasn’t bad, and on paper, the team was made up of all-stars, at least at first.  The result is that we got a lot of attention, and frankly, there were a lot of people who, like us, wanted us to succeed because it would have made them good money.  Partly as a result of this, we got more coverage in the press than we probably deserved, considering how little we actually accomplished from a business point of view.  We were spending a million a month before the product was even launched, primarily because we had staffed up to more than 100 people in less than a year.

Then, our big break came along.  Well, not really, but some thought so.  It seemed that the Wall Street Journal was going to write a story about us coinciding with the launch of the product, which meant more back then than it does now, and that’s still a pretty big deal now.  This is great news!  But then came the realization that such a story may crash our servers and bring our as yet non-existent product down at its big debut.

The answer, of course, was six figures worth of new servers.  Of course it was! We had to be ready, and the answer was always to be bigger and badder.

As you might have already guessed, the WSJ never wrote that story, and in the two or three years before the company went out of business, it took about 20,000,000 investor dollars with it.  Some of that fancy equipment we bought to get ready for all the massive traffic that was coming our way had to be removed, at great cost, by specialists in the disposal of computer gear when the company shut down.  The company never got over 5% capacity on all that stuff.

After that, Rich, Robert and I started Goldstar.  We spent nothing on the business for a long time.  Well, that’s not true.  We bought a whiteboard and a folding table, and we paid to incorporate the business and get some cards printed.  We literally hosted the site in Robert’s closet for a couple months in early 2002, until it really did crash when we had our first popular event.  So we upgraded his DSL line to the premium plan, which held us for a while until we finally moved into a professional hosting facility later in the year.  Basically, we knew it was time to replace something (be it chair, hosting facility or business process) when it broke.  Then we got smart and realized that it was ok to replace something, invest more in something if we could see breakage in the visible future.

But what we didn’t compromise-ever-was doing the things that made the business fundamentally strong.  One of the things that the Goldstar system does is it reports sales to venues, and although for the first few weeks of our business, we did this manually, it was obvious that this task was a giant waste of time, a mistake waiting to happen, and could be automated.  So we automated it.  In other words, we made the business better so that it could grow.

Likewise, we always focused intensely on the results we were getting from our event emails to our customers and in our marketing campaigns to get new customers.  We needed to know what worked so we could get better at those critical functions.

Eventually, the Wall Street Journal did write about Goldstar, and today, we sell tens of millions of dollars worth of tickets each year and have well over 1,000,000 registered members, thousands of venue partners around the country, and about 50 terrific employees.

One day, I was thinking about this approach and sketched out the following little diagram:

Every company or organization starts small and weak, by definition.  It’s goal, presumably, is to be big (or at least bigger in most cases) and strong.  There are only three ways you can do this, and typically, only one of them works.

-You can get big, then figure out how to be strong.  This can be done, but it’s expensive, and frankly, stupid.  Who wants to be in or buy from or support a big weak organization?  Have you seen United Airlines’ stock price lately?

-You can go in one giant leap to both big and strong.  This is not only expensive, but it’s also damn near impossible.  Even “Get Big Fast” Amazon needed a couple years in a garage to find its stride.  Most companies that try this go under without kicking up enough wake to rock a rowboat.

-You can get strong, then get big.  In other words, get good at what you do, find a strong point in the marketplace and then exploit that by using resources wisely to grow.

Organizations, companies and artists can think of this as building a following or a fanbase, while simultaneously getting better at your “craft,” whatever that may be.  The easiest way (and it’s not easy…ugh) to get a million fans is to get 1,000 fans, do a great job for them, then get another 2,000 fans, do a great job for them, then get another 3,000 fans…you get the idea.  In the words of Homer Simpson “lather, rinse, repeat.  Always repeat.”

You may not get to drive a Rolls Royce into a swimming pool, but as an activity, that’s overrated.  Being beloved by a passionate group of supporters, on the other hand, is pretty sweet.

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    2 Comments

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