Since going fulltime on my startup inDinero.com, things have been crazy to say the least. Many of you probably noticed that we just launched on TechCrunch, Mashable, ReadWriteWeb, VentureBeat, WebWorkerDaily, and various other blogs on Friday July 2nd. And since launch, business has been even more exciting! I haven't talked much about inDinero in the past because I didn't think I had much valuable information to share with others. But I learned a lot from the launching experience, and it made me better understand lean startup principles: how to build a startup with very little money, and with very little time to experiment with ideas. Room for failure is super low because there's only so much time you have before running out of cash. Here are some things we did and why they worked for us: 1) We built vaporware, and lots of it. I recently wrote that advertising a feature before actually building it should be highly encouraged while building a startup. For example, on inDinero, we would supposedly allow people to integrate data from web applications such as Freshbooks and Shoeboxed. (screenshots below) - but if they wanted to use the functionality, we would instead send them to a page that told them the feature was coming soon. As a result of that, we quickly figured out what our users wanted us to build. And dozens of people would email me asking for Freshbooks and Shoeboxed integration, and others would even suggest Quickbooks Online integration. Nobody was upset that we advertised vaporware. :) 2) Making real money. I'll admit that I was scared that introducing a free plan would divert attention away from the paid plans, but people continue to upgrade everyday. I was also scared that our pricing structure wouldn't be right out of the gate, but ends up that it doesn't matter too much - it's a continuously iterative process, and we're still trying to figure out what fair and ideal pricing looks like. One thing that's definitely helped us was publishing a phone number on the plans pages. When people are uncertain, they want to know that humans are around - so we've answered peoples' questions on pricing, learned about our users' needs, and even got customer testimonials just from offering a phone number. As Tony Hsieh from Zappos.com says, great customer support (and especially great phone support) is a fantastic way to get users to evangelize and love you. 3) Continuous Iteration. This is just the start of inDinero. I have no clue where we'll be in a few months from now, and it's hard for me to even know what the product will look like in four weeks from now. But I'd highly stress launching sooner rather than later, even if your bugs aren't fully fleshed out, because you'll realize what the actual top priorities should be. At inDinero, we hesitated launching on the basis that our screws weren't bolted in tight enough. But it ended up that after launching, none of our users cared about the problems we would have spent our time working on. If you're asking yourself the question "are we ready to launch yet or should we continue solidifying product?", I'd probably lean towards launching. You'll know exactly what's wrong with the product, you'll get emails from hundreds of people excited to use your product, and it'll give you enough adrenaline to continue during times good and bad. Curious with where inDinero is going in the next few weeks? Read my blog post called "inDinero's Vision for August".

Disclaimer: I've never raised VC money before. Back when I was just playing around with the idea for my startup, I decided to put together a quick executive summary and apply to the UC Berkeley Business Plan competition. And we got rejected from round one not only because our ideas were terrible, but one of the judges commented "you're only looking to raise 30k?" Yes. Only $30k. I actually felt a little insulted that the tiny amount we wanted was a critique of my executive summary. For the stage we were at (two weekends before my co-founder Andy and I built a prototype), $30k was far more than we needed to get something running. Fast forward two months, and we won a $35k grant after building a prototype for $0. Who needs to enter a business plan competition anyway! (I now advise the business plan competition) Throughout the summer, we were burning through cash. Not going to college meant paying for our food and rent, so the $35k grant wouldn't last long. We started talking to angel investors, and ultimately met this guy named Steve Blank. He's best known for his writings on customer development, and wrote "The Four Steps to the Epiphany" - a book that I'd recommend to anyone and everyone who aspires to create a meaningful business. I told him about the problem we had raising money while still in school, and without that mystical hockey stick curve. He basically told me to not to raise money until I saw a hockey stick curve. "... but Steve, if we had a hockey stick curve, we probably wouldn't have trouble raising money!" And that was the key lesson: To be in a position where we would never have to raise money. He essentially told us what every angel investor who said "no" told us: go back to the drawing board, get more traction. But instead of just saying that we should do all of the above, he told me why: If we were to raise money now, we'd burn through it no matter what. The important thing is to spend that money wisely, and without a scalable sales model, we'd be spending money on the wrong things. We'd be scaling an ineffective sales and marketing strategy, we'd be prematurely growing out the engineering team, and we'd basically be burning through money as ineffectively as Paris Hilton. It wasn't what I wanted to hear, but after thinking about it more, I realized that he was right. Just this week, I was talking to some well-known venture capitalists about my company, told them about the idea, talked about the market, and one of the first questions they asked was "do you have a website yet?" Well... not only do we have a website up, but we have a product AND paying customers! And they were stunned because the majority of entrepreneurs who pitch them have nothing to show for but a nice powerpoint presentation. Not to mention, these "entrepreneurs" actually work full-time on their companies unlike Andy and I. And this got me thinking even more about the state of VC... people look at investment money as a means to an end, whereas people like Steve Blank see it as an accelerator for growing something that already functions. Remember back in your college days, when you flunked a test and thought "that test was stupid! I studied so hard, but I studied the wrong things!" Well, same thing applies to raising VC money too soon. You don't have the kinks to your product settled, you don't understand your market well enough to be marketing to them efficiently enough, and raising money buys you the time you want to scale an ineffective operation. So why bother? Now the worst situation would be if you're a "hot" startup that's raised a few million dollars, you have no revenue, no hockey stick curve, and you're trying to raise more money now that your first round is almost dried up. Not even Steve Blank could tell you to give your first VCs their money back and to get things right, because it's too late. You just wasted $X million dollars building a scrappy product, you don't have any revenue, so you're practically at the mercy of your next VCs. Crappier valuation, more dilution for the team. Last time I checked, the vast majority of web startups do this. So this is the second thing I've learned from my summer of entrepreneurship: plan that every round of financing is your last. With only $50k from grants, we'll be fine. This means 100% ramen profitable for a 5 person team, and we'll never have to raise VC money if we don't want to, or if VCs don't like us. And this is psychologically very good for us, because we know we won't be any rush to appease the VC world, and because we can focus all of our time on the product. There's nothing worse than spending time to raise money, because it effectively shuts down your company for the weeks (or months) that you go through the process. So I figured, if we're ramen profitable, wouldn't any smart investor want to come to us? And instead of it taking a few months to pitch a whole string of investors, we could focus on building a great business over the course of our senior year in college, then upon graduation it shouldn't be too difficult to raise money. Yet again, we won't need VC money since we're already profitable... see how powerful this mental exercise is? Being still a senior in college, I might just be overly idealistic. Everything I write is how I think the world should work rather than how things actually function. But I think there's a lot to be said about Paul Graham's view of college-aged entrepreneurs:

"Someone ignorant but smart will come along and reinvent everything, and in the process simply fail to reproduce certain existing ideas"

My translation of this is to trust your ignorant instincts, and do what seems to be ideal because many people don't understand why they do things in the way that they do. This directly relates to the argument of why it's not good to copy the work of others: because you don't understand how and why people did things in the way they did. How do you know that they aren't copying the work of someone else too? By looking at things from a fresh and original perspective, you have a complete grasp over your decision making power, and you significantly decrease your risk of making stupid and uninformed decisions. I think of raising money in the same way that I think about getting married. It's something I naturally feel inclined to do (since it's something everyone seems to be doing these days), but I want to be honest with myself: why in the world would I want to get raise money (or get married) other than to be part of the norm? At the time of my writing this, I don't have very good answers to either questions. My business isn't operating at the level of efficiency needed to make good use of VC money, and I'm in no mood to give up my career for bearing children. Until I can directly and honestly answer the questions to my own life pursuits, I won't be raising money or getting married. But who knows, my views are likely to change over the next few months. :)

Over the past few days, a lot of people have asked: "Why doesn't Indinero.com follow the freemium model?" I wrote about my understanding of freemium a few months ago here on my blog, but ultimately chose not to go that route for several reasons:

1) When users pay, they're more serious about using your product. Instead of just going in to take a look, they'll take a more proactive stance on applying your product to everyday life. As a paying customer, they're also more likely to offer you valuable feedback that will change the way they use your product.

2) The cost per user is high - it costs us money to download data from bank accounts and credit cards. Charging our users immediately addresses this problem.

3) When you charge money upfront, people are more likely to convert and pay for your service. We talked to a few companies that switched from "no credit card upfront" to requiring that you enter your credit card from day 1. They recommend that we charge upfront to increase our conversion rate.

4) We're not sure if freemium is the right way to go. By charging money now, we can always implement a free plan later. If we started off as being a free service, it would turn people off if we ultimately changed our minds and went back to the premium-only model.

5) When raising angel/VC money, it helps to say that our company is earning money. Not having a freemium model got us closer to being able to make that claim. :)

But to be clear, these are just our preliminary thoughts. We may eventually have a freemium offering, but we'll be focused on building our paying user base for the time being. Many businesses prosper on the freemium model, and we're just not convinced that it's fit for what Indinero wants to achieve.

It's almost sad that I'm proud of this, but my internet company Indinero.com is finally post-revenue. In other words, people are using the product, people are paying to use it, and this marks the beginning of a long and beautiful relationship between me and the company I helped start. I've been rather discreet about my entrepreneurial progress, but I'll bring you up to date with my progress:

For a little background, I founded Indinero back in March with co-founder Andy Su. In a nutshell, it's software that helps entrepreneurs manage their finances easily. (Indinero is the Mint.com for Businesses) Our original mission was to make it easy for entrepreneurs to not only keep tabs on their expenses, but also to help them intuitively understand their finances. We got our first big break in April, when Lightspeed Venture Partners wrote us our first check. Getting the money wasn't as "lucky" as I enjoy making it seem... it was a planned process, and we spent many hours trying to convince Lightspeed Venture Partners that we were worth funding for the summer. This included building a product, sending them our first screenshots, and having my connections reach out to lightspeed partners to give recommendations. I'll repeat the most important thing again - they gave us money because we had built a functional prototype.

Fast forward a few months. In July, Indinero was chugging along with many alpha testers and promising feedback. Building a product for small businesses isn't easy, and we knew that raising more money would help us grow. With the goal of more funding in mind, we decided that the smartest thing we could do to convince people of our worth was to sign up of our first paying users, with the goal of relaunching a paid product on August 1st. We missed the deadline by a few days (programming's a bitch), but today we finally signed up several paying customers.

Having paid customers does way more than just prove investors that you're onto something: It forces you to think about building a product that people will actually pay for. As a programmer, you're forced to leave the confines of your comfy office to talk to prospective customers. You figure out what they want, what their pain points are, and you make it work. Something else changed, too: When we told people that we were planning on charging for our service (and that "free" wasn't on the menu), we were taken more seriously. People treated us like a legitimate business, and it further pushed us to make something useful.

Working towards building an internet service with revenue is like an endless spiral of goodness: it makes you build a good product, which makes you money, which makes people treat you more seriously, which makes you want to work harder, which makes you build a better product. I highly recommend that more people try it.

In my selfish ploy to get your feedback on Indinero, I'm giving out 50% discounts to the first 100 entrepreneurs who are willing to be guinea pigs for new ideas and features. More info here.

In building my latest company, many people have asked me "how will this make money?" And even when it was still in its idea stage, I'd quickly say "with a freemium business model, of course." I needed an easy, efficient, and trustworthy way to attract users into paying for a service, and most people assume that a freemium business model works best.

But I think there's a lot more to this thing called "freemium" than meets the eye. It's distinctly different from offering a free trial or a free sample. The biggest problem with freemium is that the conversion rate from free to premium is utterly low -- some say that the average conversion rate is 3%. But in the companies that implement freemium business models well, I see that they attack one thing that customers can't argue with: an actual, urgent need. By doing this, they'll assuredly increase their conversion rate and customer satisfaction. In case you forget, here's a checklist that you can post on your wall:

The key is in acquiring users who are looking for a potential solution to a problem, and may or may not pay depending on what they need. But when they have that urgent need for your upsell, they'll gladly pay. Here are two examples of companies that understand freemium:

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VistaPrint.com is best known for "selling" free business cards. I first heard about them when someone gave me a business card that said "Made by VistaPrint.com" on the back of it. I ordered my first batch of free cards, paid for $5 shipping, and I was a happy camper. The poor souls from VistaPrint made practically nothing off my purchase.

Two years later, and the week before my first TED Conference, I knew that I had an urgent need for business cards. So surely enough, I went back to VistaPrint to get my "free" cards. But fortunately for them (and unfortunately for me), they understood that freemium models work best when the customer has an urgent need, and they showed that in their shipping prices. I got free cards from them before, so I knew they were good. But I needed a new batch within 72 hours, and VistaPrint made a nice profit from the rushed shipping costs that I paid them. Take a look at their pricing breakdown for free business cards:

I think the key here is that VistaPrint spent less time worrying about features that would be "nice to have", and more time on selling me something that I absolutely needed to have, and something I'd obviously be willing to pay for. Props to them!

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Another company that's done a great job at freemium is PBworks.com. (formerly known as PBwiki). I worked there last summer, so I had a lot of time to think about why their model works so well. Firstly, the company targets so many different demographics: individuals, students, teachers, companies, conferences, engaged couples, people trying to lose weight, among others. But most of these users will never pay for PBworks, because they don't have a need to. And even if there were "cooler" features that PBworks could offer, these users probably wouldn't pay. As a student using the product for personal use, I remember ignoring the upgrade button on the top right of the screen, and using PBworks as far as free would take me. In fact, I still have a personal wiki I use for taking notes in class, and I see myself as the type of user who'd never want to pay for premium features.

But now I run a company, and we love our PBworkspace. In fact, I think I'm addicted. But my colleagues and interns are too. And while I'd still do anything possible not to pay for "cool-to-have" premium features, PBworks is smart enough to make me pay for its service because I need it. There were two things that they could do: cut me off after I made too many edits to my wiki, or heavily encourage me to pay when I'd have a clear need. They chose the latter route.

This is precisely why the "per user" model is so powerful. You get the benefits of a full-fledged product, but you only pay for what you need. For the first 3 users, PBworks is free, but when I bring in more people, I have to pay $8/user. Which is a relatively small cost to pay for something that I'll probably need to have. Take a look at their pricing structure. Note that I omitted the free plan.

What's interesting about this is that the difference between the "Professional" and "Professional Plus" plans is trivial. We normally expect the most expensive plan to have 20 baller features that the others don't have, just to convince you to pay for the more expensive plan. But PBworks isn't that naive: they realize that as long as you have a need for more than 3 people to collaborate on a wiki, (which is pretty much every organization out there), you'll pay for the product out of sheer need. And the difference between their "Professional" and "Professional Plus" plans shows their understanding of this too: Some organizations need to have 24/7 live support, and they're willing to pay for that.

But at the end of the day, when the organization's decision maker needs to figure out which PBworks plan to purchase, it isn't comparing featuresets between plans. It's about selecting the one plan that solves the needs you have, and PBworks and other enterprise software companies such as Freshbooks and Salesforce do this well.

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So ask yourself, "where is the actual need?" With VistaPrint, the need comes down to getting business cards in a timely manner. With PBworks, the need is when an organization has more than 3 users on a wiki. For Indinero, my current company, the need is when a company has more than 2 bank/credit card accounts that they need to keep track of. By thinking about "what the user needs" rather than thinking about "what a user sees as cool features to have", you'll be taking full-advantage of the beautiful thing called freemium.

Speaking of smart marketing, VistaPrint decided to give you guys a 25% discount on all products, and an 80% discount on premium business cards. For a product that I've actually paid full-price for, I highly recommend them. If you run into another company with a unique business model, please send me a tip at jessicamah (at) jessicamah.com.