Imran’s blog

In Feb 2007 Paul Graham launched Hacker News with the following announcement:

Yesterday we launched Startup News, a new component of our site with a user-ranked list of startup-related links. We created this partly for our own use: we've now funded about a hundred people, so it doesn't work well anymore to send links around by email.

Another reason we created news.ycombinator is that there is currently nothing like it. Reddit used to have a good concentration of startup-related links, but that was because so many of Reddit's initial users were connected in some way to Y Combinator. Now that Reddit is so much more popular, the top links tend to be images, or videos, or political news.

...

But the most important goal of news.ycombinator was to create a place where founders and would-be founders can meet and talk. 

 

This is the front page of Hacker News at the moment:

There are three stories related to startups on the front page, by comparison there are five stories about Google, three about Microsoft and three mainstream news stories.

Now look at the Startup Reddit - it's much closer to what Hacker News used to be:

It's not that these links didn't apper on HN, a lot of them did, they were just drowned out quickly by other more mainstream stories.

To paraphrase PG:

Hacker News used to have a good concentration of startup-related links, but that was because so many of Hacker News's initial users were connected in some way to startups. Now that Hacker News is so much more popular, the top links tend to be general technology, or geek, or political news.

(this article was initially written but not published before Michael Arrington's resignation, as a result of MG Siegler's post suggesting Michael was pushed I've decided to publish it anyway. It was written prior to the announcement of CrunchFund, but the issues discussed apply to it as well as his other investments)

The History

Earlier this year Michael Arrington (editor of TechCrunch) announced a change to his investment policy, previously (since 2009) he hadn't made any angel investments due to the conflict-of-interest with his editorial role, but as of the start of this year he began angel investing again:

 

When these investments are complete, in a few months, there’s a very good chance that I’ll be a direct or indirect investor in a lot of the new startups in Silicon Valley, and that will mean that there will be financial conflicts of interests in a lot of my stories. Either because I write about those companies, or write about a competitor, or don’t write about a competitor.

...

 

The easiest way for me to handle this is to be up front about all of these investments and disclose it in posts, which I’ve done and will continue to do.

 

 

The Problems

Unfortunately there are a number of fundamental problem with this:

1. Techcrunch has run articles on startups without disclaiming Arrington's investment.
2. Arrington has invested is stealth startups and can't disclose their identities.
3. Full disclosure isn't done when TC makes an editioral decision not to cover a startup competing with one of Arrington's investments.
4. Full disclosure itself would result in giving an advantage to startups Arrington invests in.

 

Missing Disclaimers

In practice inserting disclaimers into coverage isn't happening. For example this post announcing Zaarly's launch which happened two months after Arrington invested in them (according to his Crunchbase profile), not only did it not disclose Arrington's investment, but it also listed the other seed investors while missing out Arrington's name. Furthermore of all the articles covering Zaarly's competitors such as TaskRabbit not a single one contains a disclaimer covering Arrington's investment in a competitor.

While I don't think this was done on purpose, I think it clearly shows that even in clear-cut cases it's hard to get disclosure right. But in complex cases it's probably close to impossible.

And unfortunately since Arrington became an a limited partner in SV Angels he's now likely to be an investor in all future Y-Combinator companies.

Techcrunch have recently been covering a large number of YC companies as they launch before demo day and not a single one of these posts has had a disclaimer about the conflict of interest. TC has regularly given favourable coverage to YC launches for a number of years, so again I don't think TC is giving YC favourable coverage as a result of that investment, but there's a huge difference between giving an incubator positive coverage purely because you like them and when you have an investment (indirectly in this case) in them.

 

Stealth Startups

There are likely to be cases where Arrington isn't legally able to disclose an investment. Many YC companies operate in stealth mode, meaning that investors can't disclose their existence. The obligation to keep the investment secret directly contradicts the principle of full disclosure.

 

Techcrunch Editorial

The nature of Techcrunch also creates difficulty. TC doesn't on the whole run op-ed articles (with a few notable exceptions) on startups, but rather focuses it's editorial judgement on choosing which startups to cover and give publicity to. Hence to follow the principles of full disclosure they would need to not only disclose investments in articles, but also make disclosures in cases where they decide not to write articles. Again this is something that doesn't happen in practice.

 

The Inherent Problem of Full Disclosure 

Imagine the scenario: Techcrunch runs a negative story about a competitor to one of Arrington's companies, because of full disclosure Arrington inserts a disclaimer about his investment. The disclaimer would essentially be a free advert for the company he invested in running against an article slating it's competitor. The principle of full disclosure would mean that his companies would get favourable coverage by getting mentioned whenever their competitors got coverage.

 

The Result

These four problems mean that it would be very difficult for Arrington to stay on in his position as Editor of Techcrunch without violating journalistic ethics of full disclosure and the stated editorial policy of both Techcrunch and their parent company AOL.

Michael Arrington has resigned since I wrote this article.

Even though I'd spent a long time following the startup scene and reading all the standard blogs and books before founding my first startup CoderStack (a job board for software developers) when it came to actually putting theory into practice I ran across a lot of gaps in my knowledge.

So I've decided to write a series of blog posts describing my experiences and sharing the advice that I wish someone had given me before I started.

I've tried to roughly break the blog posts into themes and the first (this one) is going to be about user acquisition.

User Acquisition in your Business Plan

If I look back at my own plans from before I started working on my startup I actually cringe a little at my user acquisition strategy, I made the same mistakes that I see many other startup founders making now. My strategy was made up of broad terms like "SEO" and "Advertising" without any serious attempt to model how much traffic each of these approaches would generate and what the cost of user acquisition would be.

Any form of user acquisition has a cost, it might be defined in terms of your time rather than money, but unless you sit down and create a model for analyzing the amount of traffic you can generate and what that will involve you have no idea if a particular form of user acquisition is worthwhile.

Any form of user acquisition can also be modelled whether it's viral growth, PR, SEO, etc. By sitting down and building a model in Excel it helps you evaluate the strategy and understand the hidden assumptions (for example for viral growth what percentage of your users will tell their friends about your product) you're basing your business on. If I'd done that to start with it would have saved me a huge amount of time down the line.

Once you launch and are actually implementing your strategy it's trivial to update your spreadsheet and replace your assumptions with the hard data and see how that impacts the end results. You might find that once the assumptions have to be modified to match reality that the strategy you're using no-longer works. And it's much much better to find that out up front rather than six months down the line when you're wondering why you haven't grown as fast as you expected.

SEO

SEO is hard, one prong of our growth strategy was getting decent rankings for focused keywords like "Python jobs". I went into this without really understanding SEO as well as I should. Even through I managed to get first page listing for many keywords (we were helped by getting links from sites like Techcrunch and Business Insider) getting into the top position for competitive keywords is much harder than I thought.

As a new startup you automatically get a penalty for not having an "aged" domain (older websites get higher ranking), but it's close to impossible to beat off sites which have hundreds of thousands of established links, even if those links aren't as focused.

I also didn't really analyse the numbers as I should have, the phrase "Python jobs" gets roughly 500 searches a month in the UK. The top ranked result for that search will probably only get 20% click-through (i.e a hundred visits). If you're 5th in the rankings, you'll probably get 15 visitors a month.

In many cases the SEO effort taken to improve rankings wasn't worth the resultant traffic.

If you plan to use SEO as strategy for your startup make sure you use Google Keyword tools to figure out how many searches are made on the keywords you're targeting and how many links, etc. you'll need to get in order to get a worthwhile ranking (I've found Seomoz and SEMRush can be good for this).

Advertising

I've talked about my experiences in advertising my startup extensively elsewhere, so I won't go into too much details but the key fact I discovered was that obtaining cheap traffic comes down to two things:

1. Increasing your click-through-rate (good ad copy, etc.)
2. Finding underpriced ad space (using demographic targeting, buying ads on smaller sites etc.)

On pretty much any ad platform you can reduce your costs by optimizing your ads (in some cases by as much as 100x), so it's definitely worth investing time and money to learn which optimization techniques work well on the ad platforms you're using.

Our original business plan was based around buying long-tail technical keywords (e.g. "concurrenthashmap") on Google cheaply, this strategy didn't work as it was based on the underlying assumption that long tail keywords with no other advertisers would be cheap. It turns out that due to the changes Google have made to the Quality Scoring algorithm part of their Adwords platform it's very hard to buy cheap adverts on non-"commercial intent" keywords.

We were however lucky that we managed to figure out an alternative strategy (extermely targeted ads on social networks) that turned out to give us the cost effective advertising we were after.

Social Media

Having a social media strategy is often equated with having a presence on social media websites, but there are actually lots of different types of presence.

Usage of social media by companies generally falls into one of these three categories:

1. Companies using it to broadcast company news 
2. Companies using it to interact with customers (support, etc.)
3. Companies using it as a promotional tool

The first two help you keep in touch with existing users and perhaps generate repeat business, but don't really help you gain new users.

If you want to use social media as a user acquisition vector you really need to make sure you fall into the last category, and that means focusing on generating content that your users want to promote to their friends.

If you're a content based startup it's definitely worth driving your content through your Facebook and Twitter content streams, because it's content far more than anything else that gets shared through the social networks. 

Direct Sales

Direct sales is one of the highest converting ways to get users. How effectively this scales obviously depends on how much each user is worth to you as it typically has a high cost per user acquired. Even if it's not a viable long term strategy for your business it can be good way to get your initial users.

I'm not a natural extrovert and I still cringe a little when making sales cold calls or sending sales emails, but it's much easier than you think and once you get started it gets easier. The first few cold sales are the hardest.

It also has the huge advantage that you're speaking on a one-to-one basis with many customers and getting invaluable feedback that can help you iterate on your product.

 

That's it from me on user acquisition, if you have any questions or have particular areas you'd like me to talk about in detail feel free to leave a comment. You can also follow me at @imranghory on twitter.

Since the launch of Y Combinator six years ago there have been countless competitors spring up all around the world, the primary competitive differentiator being that of location. YC's stellar reputation both in terms of expertise and connections to VC firms has been unrivalled and due to it's international nature,  accepting teams from all around the world, it has been difficult for other seed accelerators to compete in attracting the best early stage companies.   

However the last year has seen a new type of competitor to YC spring up: Specialist seed accelerators which differentiate themselves from YC not on the basis of location but rather on the basis of focusing on early-stage companies that serve a particular sector.

By focusing on particular sectors, especially those with unique challenges or difficulties in getting to market, these accelerators are providing a real challenge for traditional seed accelerators like Y Combinator and Techstars.

Indeed in reference to Imagine K12 an education-focused seed accelerator focused Paul Graham the founder of Y Combinator has commented:

If you want to start a startup building things for schools, we encourage you to apply to Imagine K12, because frankly, we couldn't help you the way they can.

--Paul Graham

 

So who are these specialist seed accelerators ?

Education

Imagine K12 (San Francisco)

Startl (New York)

Gaming

Joystick Labs (Durham, North Carolina)

Social Innovation

Emerge Venture Lab (Oxford, United Kingdom)

Bethnal Green Ventures (London, United Kingdom)

Unreasonable Institute (Colarado)

Health Care

RockHealth (San Francisco)

Healthbox (Chicago)

Blueprint Health (New York)

It's clearly only going to be a matter of time before we see a slew of seed accelerators covering a wide range of sectors, some obvious sectors for accelerators to cover include:

Finance

The financial sector probably produces more custom built software than anyone else in the world and it also produces a lot of startup founders (Wikipedia, Amazon, Delicious and PayPal were all [co-]founded by ex-finance people). The regulatory frameworks and the nature of selling to large financial firms makes it especially likely that a specialist seed accelerator would be able to add a lot of value.

Marketplaces

All marketplaces (or more generally any two-sided market business) tend to face similar problems when it comes to bootstrapping and getting around the chicken-and-egg problem. A seed accelerator with expertise in all the different approaches in tackling this problem could help a lot of marketplace startups get over the initial bootstrapping hurdle.

Recruitment

Recruitment is a huge business with companies regularly spending upto 50% of an employee's first year salary in recruitment costs across the whole sourcing and selection process. There's a huge amount of opportunity for innovation, yet the barrier for getting adopted by traditionally conservative HR departments can be high. Having the right connections can make a huge difference in this sector

What other sectors do people think could benefit from specialist seed accelerators ?

Whenever people talk about Facebook Ads (or even more generally "Can Facebook justify their $50bn valuation?") the conversation always tends to swing around to how poorly Facebook Ads perform.

That drives me crazy.

For the last four months Facebook Ads have been the single best source for paid traffic for my startup CoderStack - I pay less for better converting traffic. 

This wasn't always the case. When I started out running Facebook adverts I saw low click-through rates (CTRs) and expensive costs per click (CPCs). Initially I was left with the same impression as everyone else: this doesn't work.

But part of me didn't quite believe that, so I set out to read everything I could on Facebook Ad optimizations, and when I discovered that wasn't much, I started putting time (and money) into running experiments. After about two months worth of experiments my ad performance had increased dramatically (literally a hundred-fold). I'd discovered that with a little work Facebook Ads can be hugely profitable.

I gave a talk on this topic at the London ProductCamp in February and more than a few of the audience were surprised at how much difference tweaking ad copy and targeting can make. I think what convinced people at the talk more than anything was the hard-data, when I said "I'm paying 1p/click" that's when the audience really started paying attention.

Unfortunately there's very very little hard data out there to convince people about how effective Facebook Ads can be, while I was willing to share my real-world performance data at an unconference I'm hesitant to publish it in public where my competitors could use it to compete against me.

Given the inherent commercial nature of advertising everyone else seems to have the same opinion on secrecy so very little real hard data gets published, and most of the data that gets published tends to be from ad campaigns that haven't done well (as the information doesn't give competitors any advantage).

To rectify that (and also to test my optimization skills) I decided to run an ad campaign from scratch for one of my side projects (my webcomic Theory of Geek) and publish the data.

In the interest of openness I should declare at this point that I got approval from Facebook prior to publishing this data, but that they didn't see this data beforehand, they just knew I was writing an article about Facebook Ads and wanted to publish ad campaign data.

Here's the screenshot of the Facebook Ads Campaign five days after I started it (I've blurred out some of the ad names but none of the other details have been changed):

The important column to look at is CPC as that's how much we're paying per ad click, the worst performing advert was at £0.58 and the best performing was at £0.003. That's a difference of 200x. For those of you who aren't familiar with buying ads, a CPC of below £0.03 is practically unheard of on any other ad platforms, and what we're getting on Facebook is 10 times cheaper than that.

Of course you could argue that as I'm advertising a webcomic I'm going to get a much higher CTR (and thus lower CPC) than if I was advertising something more "serious".

For my software developer job board to target software developers I am paying more than in this ad campaign, my best ad for CoderStack was 3x more expensive than my best ad for Theory of Geek. But despite that I'm still paying an order of magnitude less on Facebook than I'm paying on any other ad networks.

I'd also like to comment on how this entire ad campaign and all the optimizations were done with a budget of under £20. Even if you're running a bootstrapped startup, you'd have to be crazy not to at least experiment with buying Facebook Ads given the low cost of experimenting and the high potential upside.

I plan to write some more articles on Facebook Ads, covering the practical side of doing ad optimizations and also what I think Facebook should be doing in order to make their ad platform better for advertisers, if you'd be interested in reading them then follow me on twitter @imranghory where I'll post links to my articles as I write them.

UPDATE: Just to clarify a couple of points that people have asked about:

1. My ad campaign targeted only the US and UK markets, CPC was slightly lower for the US than for the UK due to a higher CTR. 
2. Overall engagment seems to be fairly high, on par with organic search traffic. Bounce rate was 35%, and non-bounce visitors viewed an average of 4.5 pages. For CoderStack the figures are in the same sort of ballpark. 

This is my fourth blog in the last three years, but it's the first I'm publishing directly under my own name. My last three blogs all achieved reasonable success each managing to build readerships in the tens of thousands, but in part that's why I've decided to start this one.

When I meet people at conference or meetups it's getting to the point where many people recognize one of my blogs, but not me, which feels ... odd. So I figured it's time to start blogging under my own name to remove the cognitive disonnance.

For those interested in my previous articles, here's some of the highlights by topic:

(this is a partial list; I'll come back and fill it out some more later)

Startups

• Analyzing Y Combinator

Developer Recruitment 

• Using FizzBuzz to Find Developers Who Grok Coding
• Why logic puzzles make good interview questions
• The Myth of Female Software Developers

Politics

• Dear British Government: You've Screwed Up Visas Badly

• Did Bill Gates say the 640k line ? 
• The Origin of "Hacker"