WE LIVE IN A PROBABILISTIC WORLD
Understanding the impact that luck plays in success
Ava with Milo in their van
Two founders doing the exact same thing, might end up with very different results. Starting up is a rollercoaster, and one of the things that has been on my mind lately is responsible capital allocation. How much money should I be spending in Marketing and Advertisement?
When am I being a visionary risk taker like Bezos, Buffett & Jobs; and when am I being an irresponsible gambler, a pathetic little man in a Casino? Oh, you've got to love — the sweet duality of entrepreneurship.
What if there is no line between genius and madness? Was Jobs any different than a gambler that has to deliver the bad news to his family after risking more than they were able to afford? Educated bets are still bets and billionaires play to win big or go home, it's called Risk Capital for a reason.
The reason we admire entrepreneurs is partially because they took a risk, but mostly, because they were right. Success is what happens when preparation meets opportunity. When the potential upside is higher than the downside (in most investments it is 😉 ), you should take the risk every single time.
Heroes have alphas, losers play roulette.
If we look back at my predictions for Q3, Tender Market should be at 10 customers now each paying 99-299 euros per month. That didn't happen. In fact, we had our 2 customers churn. At least they churned for reasons external to us. BUT, I am still incredibly optimistic about the business, now more than I was last quarter. One of my early calls with a prospect, made me realize we should charge per usage and that we could charge more.
Since we decided to increase our prices 10X, now we are also getting better leads. DHL signed up to our platform after we resumed our Google Ads campaign. We had another company mention that they wanted to build their own solution but found us instead. While we are still determining if we can be profitable and should double down on Google Ads, this is just the beginning.
I could attribute luck to a big part of missed predictions, and that I extrapolated what seemed to be a lucky roll when acquiring customers to equating a predictable system, but that would not make up for a good story. After all, just because we live in a probabilistic world, it doesn't mean that hard work, strategy and grit don't play a bigger role in success.
THE INTERVIEW
The reasons we missed our predictions:
We decided to stop cold outreach on email. It was spammy, had potential GDPR complaints and our email marketing platform was not trustworthy. Europe is hard, and while we figured out how to do this efficiently I decided not to pursue this channel further for the moments. We are replacing it with Linkedin Outreach and Cold Calling which has a better reply rate and is less spammy. Still, Inbound has been king for us.
Increased price probably turned off a few prospects which is expected.
Unexpected tech debt. The platform where we built our frontend decided to close down and only gave us 1 month notice. We had to rebuild our entire website and our efforts in marketing and advertisement were reduced.
The reasons I am optimistic:
Life time subscription length has been an average of 3 months. The right customer will use the platform for years. We are working on annual packages and subscriptions to reinvest profits in advertising faster.
We got another client at 300 euros per month in the Defence sector. Solidifying our positioning. Unfortunately, our champion left the company and they churned soon after that happened.
Google Ads is working and we are booking inbound meetings with decision makers at DHL and also smaller and significant companies.
The platform migration gave us an opportunity to integrate Stripe payment. Our freemium version is live. We can test product led growth vs sales led growth.
Unit economics after our price increase is making sense. Landing 20 users with only 2000 euros spent in marketing is a good number. If we land 20% of these prospects, we are talking about a potential of 400-8000 euros per month. Now this is where luck plays a role, but a 1:1 ratio would allow us to play the venture game without much dilution.
Our new business model allows us to charge up to 4K per month for tender finding and new capabilities like research. If we land customers for our bid writing services, we could charge up to 30K per month per client if somebody outsourced their entire tendering to us. Suddenly making 300K with 3K costs for acquiring a customer it's possible if we end up in the lucky end of that normal distribution. The next thing we have to develop is a system to make sure our bid writing is top notch.
We could be making a ROI of 5X for every dollar we invest in marketing if yearly subscriptions succeed with tender notifications. We could be making more with bid writing services.
I believe that one of our competitive advantages is going to be our counterpositioning to traditional tender sites. We can help companies 1.find, 2.qualify and 3,4,5win contracts as opposed to companies that only do one of these services. After all our conversations with customers, we have settled on the following capabilities:
Tender Notification Service
Match Score Add-on
Writing Copilot Offering
Market Insights
Tender Outsourcing
Finding tenders is a smaller problem, so paid traffic towards this medium is less competitive than tender outsourcing services. Basically the way we are setting up the business would allow us to upsell our clients if we can convince them to outsource. People that want to find tenders might at some point want to outsource their tenders. In practice, this is a sensitive process that requires a lot of trust and companies haven't been keen on that yet.
To lower the barrier of entry while still upselling, we created our premium drafter. They benefit from advances in AI while still
I'm confident in the playbook we are developing. With different offerings, now it's time to test the market.