Tell me how a web startup like Pinterest or Kickstarter happens.

February 21, 2012 12:24 PM

Tell me how a web startup like Pinterest or Kickstarter happens. I'm most emphatically not starting a web company of my own, but I'm in the industry and am curious just what exactly goes into making a recognizable and successful site like that.

I work at a web development firm that has gotten a number of RFPs in the past couple of years from people who want to build sites like Facebook, but for people who... or like Pinterest, except.... They usually do not have the budget required to do it the right way - but then that made me think, "What is the right way?" This question is as much for my own curiosity as it is for my job.

Now, I am not really asking about Facebook... I've seen The Social Network. Their case study would not look like most web startups would, and the level of success they achieved is something that is reached by only a small handful of startups in a decade. I'm talking about something with a specific demographic (non-universal appeal), but widely recognized inside that demographic, like Pinterest, AirBNB or Kickstarter: How did they do it?

I name these sites because they are social in nature, and because they are not technologically complex in the same way that other web startups like Square or Dwolla are. That's not to say that they were a breeze to code, but just that it's all in the execution: another company could easily clone Kickstarter, but they wouldn't get anywhere because they're not Kickstarter. On the other hand, another company could not clone Square without a significant investment.

I guess I am more specifically interested in the process behind it. Maybe I and a couple of friends are talking one night and we have a crazy idea that just might work. One of us is technical, one of us is a communication/sales type, one is a designer. We develop a rough business plan over the next few weeks. This site is going to be awesome! ...What now?

How much time do we spend planning before we start engaging others?

Do we start by talking to web companies in town to get an idea of how much cash we'd need to raise? Or do we go straight to investors and try to get venture capital?

Do we contract with a development firm, or do we immediately hire staff to work in-house?

If we had, say, $30,000 pooled together between us to spend upfront, should we start with a solid branding initiative, or should we focus on technical proof of concept first, or should we hire a consultant?

Is there any hope in being successful if you do not live in California or New York?

What would be the minimum "entry fee" if you wanted a shot at real success? Could it get off the ground with $300k, or is even $1M too little?

Is it more important to launch a working product as soon as possible—even if it's missing some core components—or is it worth postponing the launch until the initial scope is fully realized?

posted by relucent to computers & internet (18 answers total)

Build a site. You mentioned that you have web development experience, but is this starting from a raw tomcat/RoR setup/etc or all frontend? I've seen many sites start out with Ruby on Rails because it is quick to get "something" up and then run smack into performance issues as soon as they have more than a few users.

Building a user base can be the most challenging part, though. If I knew the secret I would be building my own "next pintrest"- getting over the hump of a few hundred thousand users into mass adoption is NOT an easy thing.
posted by lyra4 at 12:59 PM on February 21, 2012

I would wager that for most small Web startups, stuff like "business plan" would wait until you actually have something and have validated it against actual users. If people want it, there is probably some way to make money from it, so figuring that out can come later. If people don't want it, on the other hand, then it's a waste of time writing a business plan for it. In particular I don't think anyone wants to spend a "few weeks" on that when they could actually be making the site.
posted by kindall at 12:59 PM on February 21, 2012

I suspect a lot of it is luck. How many other sites out there had something vaguely similar to what Pinterest has? For whatever reason--luck, primarily--Pinterest was able to acquire a small core of influential users, and it just snowballed from there.

We often attribute success to some factor other than luck, but, in a lot of cases, it's just a function of being in the right place at the right time--and then executing flawlessly or nearly so.
posted by dfriedman at 1:09 PM on February 21, 2012

What would be the minimum "entry fee" if you wanted a shot at real success? Could it get off the ground with $300k, or is even $1M too little?

Using your three examples:

• Airbnb, Inc. launched with approximately $20,000 in "seed capital" from Y Combinator (kind of a micro-venture fund).
• Kickstarter got its initial $200,000 in funding from a small number of angel investors.
• I'm not sure how much money Pinterest had at the start, but Paul Sciarra (one of Pinterest's co-founders) was formerly with Radius Ventures (a venture capital firm). I suspect their initial funding was quite large.

posted by RichardP at 1:23 PM on February 21, 2012 [1 favorite]

Succes take a lot longer than we think, even for succesful startup. The ability to execute and survive through the first few years is critical.

This video by Peldi from Balsamiq walks you through his startup creation. The part that really stick to me though is from 16:00 when he focus on the long view of things, it really gives you an idea of the actual time it takes to become succesful.

I was at the business of software conference this year, and one think that struck me is that the pattern was similar for many of the B2B companies I consider "succesful" (freshbooks, hubspot, etc) : they had to survive for 2-3 years, focusing exclusively on listening to their customer and rapidly iterating, before experiencing success.

Kickstarter is a bit different though - and I see it more in between flickr and kiva: I think kickstarter has a lot of feel good potential because it focused on creating a sense of community, and in making donors feel like patrons - I would never have had to opportunity to contribute to a documentary or a videogame, but with kickstarter, my 5$ make me feel like I am an executive producer.

All this to say that succesful startups don't just happen. It takes some time, effort and proximity to customers to even break-even : either you have to live on ramen, or be funded via venture capital during this time.
Also : most of the startup fail. Many of the succesful startup founders have failed several times before.

The Business of Software videos, and youtube channel have many interesting videos on the subject

not affiliated with BoS, but I had a great time there and learned a lot in 2011
posted by motdiem2 at 1:32 PM on February 21, 2012 [2 favorites]

Also
do we go straight to investors and try to get venture capital?

I would say no. If you need money at this stage, you'll need angel investors, or people who are ready to fund "an idea" - VC will ask for a lot of stuff, so it's better to have a site/product before spending time with them

Do we contract with a development firm
My opinion : everthing that is part of your "core business" : do in house, or with a local "embedded" contractor - you'll need the most agility there - everything else, outsource.

should we start with a solid branding initiative, or should we focus on technical proof of concept first

I guess it depends of your market and how expensive it is to build the proof of concept. I'd go with both (marketing and proof of concept that is, not necessarily branding)

Is there any hope in being successful if you do not live in California or New York ?

Sure. It's certainly harder to find VC money (I'm in France, where it's scarce), but I don't think it's harder to succeed. Minecraft is made in sweden, Angy Birds in Finland, Balsamiq is in Italy, I'm sure there are many more examples

Could it get off the ground with $300k, or is even $1M too little

How long can you stay without making any money ? if 300k$ buys you 2 years, then it should be enough. If not, maybe you can do some consulting on the side to bring some revenue ? (companies like fogcreek started like this iirc).

Is it more important to launch a working product as soon as possible

Launch as soon as possible - your prospects/customers will tell you if your idea is good or not, and it will be up to you to adjust then. It's not worth the effort spending a lot of time before launching something that turns out to be not sustainable.


Finally : HackerNews is an interesting community around these topics (but can be a major time sink too...)
posted by motdiem2 at 1:45 PM on February 21, 2012

I suspect their initial funding was quite large.

Pinterest has raised $37.5 million to date.
posted by dfriedman at 1:45 PM on February 21, 2012

You may be interested in this Planet Money interview with the guy behind Instapaper.
posted by purpleclover at 1:53 PM on February 21, 2012

purpleclover: You may be interested in this Planet Money interview with the guy behind Instapaper.

Note: Instapaper's financial success was due to 1) interest in the product, and 2) the service existing as an app, which people bought (vs a website, which are traditionally ad-supported).
posted by filthy light thief at 2:45 PM on February 21, 2012

Regarding the OP's question: I think a lot depends on what you're trying to pitch. If it's a simple idea that doesn't yet exist, or you're proposing something unique enough to stand on its own in a basic form, you can start out basic, and upgrade as you go, possibly shaped by public interests. But if you're trying to compete with an existing service, you need a polished product to launch.

Ditto how much funding, and what to fund: if you're trying to trump an existing product, you'll need a polished brand and image, as well as serious funding for an ad campaign. But if you're a fairly novel idea, or a novel approach, you can tell tech friends, get a few write-ups, and you're flying. Instapaper is a good example of something unique and new, but from someone who was known. "One of the founders of Tumblr" and similar credits can be a major eye-catcher for any product.
posted by filthy light thief at 2:51 PM on February 21, 2012

Metafilter is a successful web business. It started really small, grew by word of mouth, and now employs a tycoon, a developer, and a posse. The growth/history of MeFi is pretty well documented.

Read biographies of Bill Gates, Steve Jobs, Sergey & Larry, etc., That will help you understand the luck/perseverence/smart/ruthless balance that seems present in most really successful startups. Here's an article that has some good content, but I disagree with the premise. Solve a problem, or make something people want, do it well, and you are likely to make money. Not facebook money, but there's a limit to how many massively successful startups there can be. But there will continue to be really successful companies that do stuff well.
posted by theora55 at 3:38 PM on February 21, 2012

In most cases, the people who have the idea build the site. It's not unheard of for people to learn how to code specifically in order to start a company. I have a couple of friends who did it. Here's my impression of roughly how this works (i.e., you build the site yourself--if you don't, it actually doesn't change that much):

1. Talk to potential customers about the idea I have to see if they're interested in it, and what feedback they have. For this step, I would probably work as a team to create some mockups to show people. To find customers, talk to your friends, and friends of friends, or work your connections. If there are any meetups or clubs relevant to your idea, see if you can talk to any members of that club about the idea. Also, take the email addresses of interested people down so that you can update them as the product develops (obviously this should be optional.)
2. Work with your team to distill the feedback, and adapt to it and see where the product fits into the market. Summarize the product in a very short sentence, and plan to use that terseness to guide your development down the line. Consider your pricing model (is it free, with the intent to get advertising or affiliate revenue (pinterest, twitter)? Do you charge to use it (pinboard.in, some of the 37signals products), or do you make it free, but charge for premium features (flickr)? Do you take a percentage of money you collect on the behalf of others (ebay)? Do you sell it as a platform to other businesses (Heroku)? Also consider the size of your market and whether it's actually big enough to make a business out of at the scale you want to operate at.
3. Now you build the smallest possible thing that could be considered your product and get it launched. Narrow down the features as much as possible, and if you serve multiple niches, consider focusing on just one at first. While the engineering and design people work on this, your marketing person (or whatever) can focus on building buzz, making contacts, networking, and continued market research.
4. Now you launch! Your main focus now is getting people to use the software. This is the hard part, and frankly I don't really know how to do it. I guess you reach out to people in the niche you're serving (think prominent bloggers, local clubs, etc.) and try to get them to take an interest. As people begin to use it, continue iterating the product to respond to their feedback and fill in spots that are missing. This part can take a very long time (I think it took twitter a famously-long time, for example)
5. As you begin to have a whole bunch of users (I think tens of thousands is good, but I'm not positive), you can start considering getting angel investors, if you want to go the investor route. They idea with an angel investor is that they give you enough money to have maybe 6 months-1 year to keep developing the product and working on market fit. Generally, after this you'll continue to receive rounds of investment. The goal of getting investors is to allow you to focus on growing very quickly rather than focusing on profitability. Outside money enables you to hire faster, take bigger risks, etc., at the cost of losing some stake in the company. On the other hand, you could just continue working on the product yourself without getting investors, which would allow you to retain a lot more control. This is hard to do if your product doesn't involve directly charging money to use the service. I think the investment part can actually come at any stage of this (or not at all, of course!), but my understanding is that most reputable angels won't invest in a product they can't see. There are exceptions to this, like Y Combinator (a prestigious incubator), though. There's a ton of information about each of the steps I listed and more on the internet, or feel free to ask follow-up questions. Oh, answers to your specific questions:

   How much time do we spend planning before we start engaging others?

   As little as possible. You should all be on board about the product vision so that you can talk about it in similar ways, but after that you want to be interviewing would-be customers as soon as possible. After that, I would want to launch a product within 3-6 months, so you can start getting customer feedback on it.

   Do we start by talking to web companies in town to get an idea of how much cash we'd need to raise? Or do we go straight to investors and try to get venture capital?

   It would be very unusual to get investors (and it would be angel investors, not VCs at this stage) to invest in just an idea. That being said, you could look into tech incubators in your area, which allow you to apply and give you a small amount of money to build the product. Note that this assumes you will build the product yourself.

   Do we contract with a development firm, or do we immediately hire staff to work in-house?

   Assuming you're not going to build the product yourself, the best route would be to hire a development firm. Hiring qualified staff would be way more than you should spend, and most of them would be leery of working with you. Hiring unqualified staff is much cheaper, and very unlikely to work out well for you.

   If we had, say, $30,000 pooled together between us to spend upfront, should we start with a solid branding initiative, or should we focus on technical proof of concept first, or should we hire a consultant?

   I would talk to local development firms about building the product. From my view, branding isn't worth much if there's no product to use. The firm probably will have designers they work with or be able to recommend an agency. $30,000 is probably enough to launch a very simple but functional version of the product if it is very well-specified, and there are few revisions. That's a really big if. I think more like $50-60,000 would be a safer bet.

   Is there any hope in being successful if you do not live in California or New York?

   Absolutely! For one, you don't really have to have investors, and for two, you can always pitch remotely. I don't know how much of a disadvantage this would put you at, but I think it's not insignificant.

   What would be the minimum "entry fee" if you wanted a shot at real success? Could it get off the ground with $300k, or is even $1M too little?

   I think you could probably launch a simple but functional version of a product for anywhere from $50-100k. This puts you at step 4 in the list I had above.

posted by !Jim at 6:26 PM on February 21, 2012 [4 favorites]

filthy light thief: Note: Instapaper's financial success was due to 1) interest in the product, and 2) the service existing as an app, which people bought (vs a website, which are traditionally ad-supported).

Which is not to to say that the Instapaper story is not a good read for your question, but to note that you, as someone who isn't already well-connected already, have additional hurdles to overcome.
posted by filthy light thief at 7:37 PM on February 21, 2012

Y Combinator is a venture fund/boot camp/incubator. They agree with theora55: Your startup should solve a problem. This is an obvious idea, but having problem solving be your ethos will focus you on efficacy.

Here is a list of ideas T combinator would like to fund.
posted by benbenson at 7:37 PM on February 21, 2012

(That should be Y Combinator in the link of course.)
posted by benbenson at 7:38 PM on February 21, 2012

Do not underestimate the importance of luck and perseverance in any business success. It seems that everyone is talking about Pinterest now, and it may seem like an overnight success, but they started almost two and a half-years ago, and have had a growing public profile for almost two years, and kickstarter has been around about the same amount of time. Both had very solid starts, but took a good deal of time. When facebook was two or three years old, there were plenty of people who wondered if it had already lost to MySpace.

As for what you should do first: Read up on "lean startups" and "minimum viable product." Save your $30K and do as much of the early work as you can on your own.
posted by Good Brain at 8:14 PM on February 21, 2012

If you haven't already read the essays of Paul Graham, consider yourself due for a visit to the woodshed. He founded the company that later became Yahoo Shopping, then founded Y Combinator, which is fantastically effective per dollar at spawning startups. You might even apply to his school for startups.

To briefly answer your question, based on the advice in the aforementioned essays: Others? Three's a crowd when it comes to founding a web startup, build something and get some users now. Listen to them. Make something they want, and don't be afraid to do a complete 180 if they don't like what you have now but you get another great idea based on something they do like. How you get along and your ability to get things done are much more important that the specific idea. If you're going to succeed big time, you'll need a big advantage: first mover, more flexible technology, visionary leadership, investors who know how to help you, or preferably all of the above. A startup is like a good lottery ticket, 95% go bust but the 5% that succeed make 100x the initial investment. This is all totally conventional wisdom, seriously, go read the essays.
posted by wnissen at 9:28 PM on February 21, 2012

Pinterest founder Ben Silberman recently gave a keynote at a design blogging conference where he spoke a little about this process. Video here.
posted by ella_minnow at 9:49 AM on February 22, 2012