How much money should a startup have in the bank?

http://launch.is/blog/how-much-money-should-a-startup-have-in-the-bank.html

by jasonmcalacanis • 15 years ago

31 19 15 years ago

launch.is

dennisgorelik6• 15 years ago

Jason seems bitter about Google's Panda update.

jasonmcalacanis8• 15 years ago

Yes, I am. :-)

dennisgorelik6• 15 years ago

1) Your opinion about quality of Mahalo content is obviously biased, so we cannot really rely on that.

2) Isn't it too expensive "burning $500K a month" just to find out what idea works?

Discovery phase should be lean, right?

staunch3• 15 years ago

At first you want a small hard core team of dedicated people. They all have meaningful equity and are "the founding team". Maybe 2 co-founders and 2-5 employees that work really well together. They're like a special ops team that can quickly maneuver around a problem.

They can probably do just fine with 12 months runway and a low burn rate. If they do figure out a repeatable/scalable business, they can raise a lot more money and grow it. If they don't, they can shut the company down.

The problem with Mahalo is that they skipped the first stage completely. Calacanis was "hot" and (like everyone) he thought his idea was a sure thing. He raised $20M because he could.

Even so, if he had created a small team and spent a year or two iterating it might have worked very well. With no pressure of running out of money it might have been harder to keep the the team focused, but it would have probably been fine. Hell, the company could have been breakeven off the interest of $20M.

Instead, they started scaling the business from day one and never really had that hard core team to perfect the processes, product, and business model. Even if he had wanted to, the VCs would have never let him keep the company to 5-10 people for the year or two it might have taken.

Due to the perverse incentives of raising that much money so early he's actually "forced" to make a bluff bet of the whole company rather than build it methodically.

The first bet was made by scaling the company before they figured out the business. The second is an even more extreme version of the first. After it fails there will not be a third.

tl;dr: Mahalo will fail because it raised too much money too early.

jasonmcalacanis8• 15 years ago

Actually, we can't fail now.... we have a lot a revenue and 30M+ users a month.

I don't thin it was a lack of focus that caused problems for us. The main problem for us was that building a search results that is--sometimes--20% better than Google's does not incentivize people to switch.

This is a problem Wikia Search, Blekko, Bing, DuckDuckGo and countless others have faced or are facing.

Although it's easy to change your search engine technically, it's not necessary unless your search engine is failing. The problem is that innovators look at the times when Google fails (i.e. when you see 2-3 horrible results in a SERP), but not when it succeeds (the other 7-8 search results).

We took a really hard run at making better results and we proved we could make something incrementally better. In our business making something slightly better is, essentially, failure because it will not cause folks to switch.

Now, in terms of educating folks, that's a wide open space. Right now there is no wikipedia, google or facebook of learning. There's Lynda for software, Rossetta Stone for language, Khan Academy for math and bunch of individuals teaching one-off things on YouTube.

We are making a brand that runs from how to do your hair, to how to solve angry bird, to how to make a movie poster in photoshop to how to make a vegan shake.... and on and on and on.

We have 40k+ videos now and make over 1k a week (with 90 people). We'll get to 3k a week in the next year (with 150-200 people). Then 5-6k videos (with 300-500 people).

We're already, we think, the largest providers of orignal (non-UGC) content to YouTube. And we only pivoted a year ago to do learning videos.

our ipad apps/courses should really drive traffic too... and forget about it when every TV is internet connected (which really starts this christmas and goes forward for the next 7 years).

best j

zachcb• 15 years ago

One of the things you gotta admire about Jason is his optimism.

staunch3• 15 years ago

The truth is that you pivoted Mahalo years ago to being a "How To" site. It wasn't a real search engine for very long at all. You saw what Demand Media was doing and did exactly the same thing. You denied it the whole time and then finally admitted it only recently when Panda broke the model for you.

During those denials you would always point to a couple decent pages on Mahalo that were well done. Now you can point to a few videos that are well done.

The problem is that your product was, and is, 95% mass produced crap and 5% good stuff.

Look at the recently uploaded content on Mahalo's YouTube accounts. It's almost nothing but 1-5 minute clips of crap like

"How to say 'Knife' in Spanish"

"How to say 'Door' in Spanish"

"How to say 'Chocolate' in Spanish"

And the music/computer/gaming equivalents.

This isn't the kind of product that people are going to come to rely on or love. They'll only find this stuff when they SEO-stumble across it.

If YouTube decides to slap down video content farms you'll have the same problem all over again.

If you look at some of the best SEO-driven sites like StackOverflow, TripAdvisor, or Yelp you'll notice something entirely different from Mahalo. Those sites have massive followings of people that actually love them. They are reliant on SEO, but in a very different way from Mahalo.

People search Google for a programming question and scan the page for the stackoverflow.com link. They search Google for a restaurant and scan the page for the yelp.com link. Same with TripAdvisor.

No one is searching Google or YouTube then scanning the page for the Mahalo videos.

You have a head start on video content farming and Google seems to be pretty slow. Eventually the focus on quantity over quality will catch up to you and you'll suffer the same way you did with Panda.

The product just isn't good enough to stand the test of time.

tom100cities• 15 years ago

12 months of cash, if it gets less - cut burn or increase revenue

How much money should a startup have in the bank?

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