Tell HN: My startup is making money and I don't know what to do
If you've been through the college system in the US, chances are you know how difficult it is to find a house to rent. Many landlords will simply hang up the phone the second you tell them that you're a college student. University Niche is a database of rental properties that are open to renting to college students, with information curated specifically toward helping students find the best places to live.
We launched April 2014, and are now at three universities. We've seen a lot of success (~40% w/w growth, 100%+ m/m growth).
For many students, this is their first time living on their own, so we wanted to sell ad space to small businesses that would help students with their move (storage, furniture, etc.) and then to small businesses that would help them once they're situated (grocery stores, gyms, etc.). I coded up a basic self-serve advertising platform, and my cofounders and I went and found a local moving company. Walked in the office, talked with the owner for about 15 minutes. Sale.
Went to a mattress store. Sale.
Small restaurant, same thing.
We've walked in to six random businesses, and only one said no.
So we're pretty excited it works, but we have bigger plans than this. We have projections and budgets to expand to 150 schools nationwide.
We know how we're gonna do it and we know how much it will cost, but we are all at a loss for how to take that next step.
We have a validated product and now a validated revenue model. We've got traction. But we don't have the funds to take this thing to the next level, and we don't know how to meet the people who can help.
Anyone have any advice or been in a similar situation?
[0]http://universityniche.com
133 comments
[ 2.0 ms ] story [ 191 ms ] threadWe're all new to this game. We went to a few "pitch nights" back in March when all we had was an idea and a barely functional MVP, but they're all really theatrical and honestly we'd rather just sit down and talk with someone. We just don't have a clue about how to find those people.
Some (traditional business) problems you might have.
- Sales. Looks like you need boots on the ground to get small businesses to advertise and owners to list property
- Acquisition. How are customers (ie renters) finding you.
- Advertising? Are you at the point where you need to spend money to advertise? Small scope might be useful here: local ads, flyers, etc...
My suggestion, target your next (physically close) market, apply and refine your existing strategy. Find a more remote market, and see what's required to replicate your local success.
Depending on where you're based, I would look at getting in touch with some of the angel investing syndicates. Also, be realistic about the runway you're giving yourselves. My personal philosophy is to meet with investors in my network right at launch (not for money, but to alert them that I might be coming to them at some point). These relationships take time, and even an angel investment can take a month or more for due diligence. Expect Series A to take months longer.
Given that you're not currently in touch with angels, I would start identifying 1-2 groups in wherever you're based (I hope the answer is a larger metro area). Find out if you have a mutual contact. If not, and I hesitate to say this, but make a cold call to the angel / angel group. You don't have anything to lose.
We're planning to expand to 150 campuses and bring on some people to man the phones/maintain our property listings, as well as hire campus reps/brand ambassadors at 20 key schools from that set of 150. Our 1y budget for all of this is <1M.
And yeah, we're based in LA, but we're all new to this and don't exactly have any connections with anyone in this industry, so we'll definitely start researching some groups and, I suppose, calling until someone wants to talk to us.
Thanks for the advice!
Based out of LA: https://www.techcoastangels.com/
http://www.maverickangels.com/
https://angel.co/los-angeles/investors
Also, you may want to check here: http://thefunded.com/
This offers reviews of investors / investment syndicates. I can't speak to its accuracy, but it will at least provide some context.
Good luck.
When you've proved you have a repeatable, scalable model, you can take on investors to accelerate the growth.
This is more or less what FB did.
But it's a lot of work for three people, in addition to the rest of the business development and sales and all that. As we add more campuses it's going to become impossible. It makes far more sense to hire a campus rep at a school to go around getting students to use the site, putting up posters, talking with administration, sharing on facebook, etc. than it does to have the CEO and CTO of the company driving down there once a week and spending the whole day doing that. And even though we have revenue it's still not enough to start doing that while simultaneously keeping the lights on.
We're looking to raise money to streamline this whole expansion process and keep our business alive long enough to see that expansion through. We've validated our product and revenue model, but we need some initial capital in order to, for lack of a better phrase, do things right.
Track record goes a long way. You've proven to be effective in a very small 'niche'. You may want to consider taking seed (if needed) from F&Fs and then prove it in another city. You may find that expansion step to be useful. It will also help answer the question of expansion for potential institutional investors.
This is not a new model. The issue is it's VERY hard to scale. Proving it as much as possible before walking into a pitch will change the dynamic drastically.
You may also find that it does not scale as well as you hopes... or that managing college kids and relying on them to grow your business is not always reliable (that's a tough one).
Edit: I would have killed to have this service when I was in college. Props for making it work.
It cost big dollars to grow.
And yeah, the 150-school roll-out is divided by region, they're all primarily west-coast schools, and we plan to launch at a large school and then follow with all the smaller schools in the surrounding areas, just because their markets will overlap and it'll make our work easier.
2) Search online for angel groups in the area and go talk to them. See if anyone in that group is a connection somehow to do a warm call instead of a cold call.
3) Tell your friends and family what you are up to and ask them if they know anyone that is an angel. If you find an angel that isn't interested in your industry, they probably know other angels, so you can ask them to reach out.
4) Ask the university for help finding people that are investors. They would probably love to help and have a success story come from their college.
Second, make sure your legal documents are in order. Incorporate, if you haven't already, and open up a business bank account. Make sure to use your business bank account for all business related expenses. This will make accounting much easier down the line.
Third, hire a great bookkeeper. Trust and loyalty is really important here, so best if you hire someone who is somehow connected to you.
Fourth, hire a great accountant. Some accounts will also do bookkeeping for you. I don't think this is a good idea, as you typically want someone "on your side" watching out for your day to day finances. Intelligence and industry expertise is really important for an accountant.
Fifth, if you're making real money, it's important to put some words on paper about how the company ownership is divided, and other "what if" scenarios. You typically also want some sort of Operating Agreement between the founders. Usually this document covers: 1) ownership division 2) provisions for terminating members 3) provisions in case of long term disability or death of a member (for example, do you all of a sudden want your cofounder's spouse or parents as your cofounder in case of death? Look into "key man" insurance.) 4) provisions for adding new members
Some people say get a lawyer for these documents, which isn't a bad idea, but most of these types of documents at this stage is pretty boilerplate. If you have some unique circumstance, like an international cofounder or something like that, then perhaps consulting a lawyer is best.
Form a C corp in Delaware and get the ownership figured out ASAP. I also generally think that all of the founders should vest (no cliffs or anything, but a four year vest for everyone will keep the company safe in the event one of you leave, even the CEO).
I agree with cglee's comment that you don't need capital right now, get more traction and build more product. Then in six months revisit the topic and determine if your organic growth is enough to sustain further growth or whether you'll need capital injection.
Raising money, btw, isn't always just about the money - if you pick your investors correctly they can help you and your business tremendously.
If you have $1k in revenue, congrats, that's a great accomplishment, but with all due respect, nobody is going to file suit against a group of college students with $1k in cash.
From my limited experience as a founder, forming a C corp early has made some things easier. The time we had to convert a California C corp to a Delaware C corp became messy and I imagine converting a {whatever state} LLC to a Delaware C corp also has the potential for being messy.
The conversion cost us a lot of money to have done right when instead taking boilerplate docs and simply forming in Delaware first would have been much easier.
Angels and incubators will generally want you to be a C corp first or convert ASAP, too (which is a valid option but I feel like there are other more important things to be spending cycles and money on). Raising money without worrying about converting your corporate structure is a pretty big reason to just do it as a C corp from the start.
Delaware is chosen by large corporations because it tends to be very business-friendly in the way its laws are written. However many other states are business-friendly too, and charge much lower filing and renewal fees.
What my advice boils down to is: talk to a respected small business attorney in your state and find out what your options are and what advice they offer.
We have plans to expand to 150 schools across the country, and if we do that we project to be cash-flow positive within 6 months. But right now we don't have enough resources to expand to even 10 schools and try and maintain that. And especially with how our demographic (college students) respond to word-of-mouth with services like these, we really want to be available to as many students at as many campuses as possible before we lose any "buzz" that we're cultivating (either organically or through marketing efforts).
With regard to legal documents and accounting and all that, we have an LLC right now, with Quickbooks and a boilerplate operating agreement that I found in a book at Barnes and Nobles. I definitely agree that it is incredibly important to be on top of the legal side of things, but we honestly don't even have the money for that right now.
Bootstrapped = your profits are able to grow as your company grows. It sounds like you have an expensive hobby at the moment. Either scale back your operations so you're profitable or grow your numbers.
"we really want to be available to as many students at as many campuses as possible before we lose any "buzz" that we're cultivating (either organically or through marketing efforts)"
Another fear can be competitors who may have more money and can grow faster than them, especially after posting his story here on HN.
From your comments, I don't think you should worry about trying to join an accelerator or get a largish amount of funding - that will just push you to make the Groupon mistake and spend too much money on local sales. My recommendation - see if you can raise money from friends, family, your university, or any local entrepreneurship groups (in Austin, for example, there are several organizations that exist nearly entirely to help students get through the part of founding a company you are in). From there, were I running the company, either you or your cofounder should shift entirely to onboarding schools (or hire someone to focus full time on this if you each are actually needed on other projects). Create a "college rep" program, and offer either a small stipend (college students will work for tiny amounts of money, especially if they can then put "worked at startup in school" on their resume) or in kind services from your advertisers (half off mattress, free move, whatever they'll offer to you). Build quickly from there, and keep promoting it. If you're business model is real, it will become apparent quickly, and you can think about raising real money then.
The main benefit of having shareholders and operating agreements is not in having a piece of paper, but having discussed and agreed on the principles with your co-founders. A boilerplate agreement is entirely useless, unless you all have thoroughly read and understood, and agreed with it.
Instead, I would recommend sitting down with everyone one evening, and coming to a mutual understanding about questions such as:
* How is ownership currently split between co-founders?
* How much do you pay yourselves salary? How should this change in the future depending on revenue or investments?
* Under which conditions would each of you consider selling the business, versus keeping on growing it?
* Who is allowed to purchase stuff with the company account, and when do they have to confirm it with the others?
* If one of the co-founders decides to quit (fantastic job offer, just tired of the startup, etc), what happens to their ownership? Do they keep all of it, lose all of it, or keep and lose some parts depending on time with the startup?
* If one of the co-founders doesn't quit, but just takes a side job, starts ignoring you, or becomes an asshole, are the others allowed to fire them? What are the share ownership outcomes of that?
* Are the owners allowed to sell their shares to outsiders?
* What happens if one of the co-founders dies or becomes disabled and incapable of working? Do their relatives inherit their ownership (this is probably the default!)?
One of the main causes of startup implosion are co-founder fights, and these in turn arise from not having discussed these issues beforehand. It's best to do it before the problems arise, and before there is serious money on the line.
If you have actually debated these questions, you are already ahead of many startup teams. You can also just write them down in plain English on a single sheet of paper with everyone's signatures - that will count as solid evidence if it ever goes to court.
And if you have plenty of cash later on, you can take that sheet to a lawyer to get a "proper" agreement. After all, a lawyer cannot and will not tell you the answers to these questions - they just write up what you have decided in more detail based on local laws.
This will give you a tangible and precise target for what it takes to make the next city profitable. (E.g. "70 apartments available, 4 ad sponsoring business for break even.")
Once you have that you can do like all franchise models do, reinvest your profits organically for company-owned cities and let franchisees come in to fuel growth beyond that, with the process manual based on the cities you did yourself.
You got to where you are by focusing on just the client. Think hard before spending time trying to play the venture capital game.
The CFO will help you organize your thoughts around how much money you make and need to make in order to maintain a level of profitability. Then take your net revenue and feed it back into the business, pick up your next campus. Work on the process for organizing a campus, what you need to know who you need to contact. You will be able to start hiring sales people. These people should be paid based on advertising sales delivered, not 'leads generated'.
Once you've got your next campus, quickly post mortem what went well and what didn't. Then move on to the next one.
As you add campuses your revenue stream will increase and you will be able to add additional engineers to help integrating the data. Every million dollars a year in revenue shines more light on what works and what doesn't in your business.
Have fun, enjoy the experience of all the things you are learning, (even the bad things teach something).
Our business model requires people actively maintaining property listings at each school, and then growing student traffic at that school and then, once we're established, securing advertisement deals.
Our rationale behind raising funding is that we can either cut corners and struggle and keep adding one or two schools a month until it's simply impossible for three people to maintain, or, with a little bit of money behind us to do our own advertising, have someone making cold-calls to collect properties, and have a student representative on the actual campus helping us brand locally, we can streamline the process and achieve the kind of wide-spread adoption we need in order to secure large advertising deals (right now we target our placements toward local businesses, but once we are established we'll be able to secure deals from places like banks or office supply retailers).
You know you need more than the three of you, but lets focus on one school for the moment.
You need a "listings manager", a "sales person", a "student rep" for a school. Lets say your "unloaded" salary pool is $100,000/year (that is salary but not benefits cost[1]). You'll need revenue from advertising at that school to exceed $100,000 annually. Since you're just proving this out you three can presumably "play the role" of the three people you would hire here to do this. So you need a minimum of $8,500 per month in advertising revenue. You should target double that or $17,000.
Once you have one campus working, where it is paying more than enough for your three "campus specific employees" then you can start to think about investment to go further. An investor is going to ask you questions about "What does it cost per campus? what can you make per campus? What are the limits on that?" you will need to have really good answers to those questions which you don't currently have.
[1] This is a 'swag' or scientific-wild-assed-guess on an number, I based in a student working part time during the year getting about $10K/year (1000 hrs @$10/hr) A sales person being paid mostly on commission ($30K/year + 10% commission for $10K out of the advertising sales, and your listings manager making $50K a year straight up) You should adjust those numbers based on your own experience/insight
The point I wanted to make with needing to hire people is that it becomes more cost-effective to have one "listings manager" maintaining 35 schools (we've budgeted for four "listings managers" total, once we're fully operational at the 150 campuses--the job mostly a lot of calling), and one sales person handling multiple schools, etc. The more schools we've onboarded, the more effective our HR spending is going to be.
We've calculated revenue per campus as well as cost per school/cost per student/revenue per student and all that, it's just not something we're really comfortable discussing publicly (if you want, feel free to shoot me an email at sean-at-universityniche.com).
Start here: "We've calculated revenue per campus as well as cost per school/cost per student/revenue per student and all that..."
There are some businesses where the economics get better with scale (search advertising for example) and some where scale doesn't have nearly the same level of impact (a lot of service businesses, grocery stores, etc) Yours would seem to be more of the latter.
As much as they dislike the characterization, many sales people are coin operated, specifically the profession attracts people who like an easy to use 'scoring' system for how good they are, and sales is great for that since the score is built into the job. Since you feel like a listings manager can handle 35 schools, and there is three of you, why don't two of you start in the role of 'listings manager' and the third hire a sales person and focus on getting student "reps" signed up. Plug into the student financial aid department, they love having part time work opportunities with flexible hours for students. The sales person is going to want to be "hands on" and talk to people directly. Ideally the person you hire here is going to eventually be your VP of sales and will train other sales people, so consider making a deal of equity for work early on.
Challenge yourself to take the people you have, add exactly one sales person, and make enough money to pay everyone salaries. If you can't do that, with 35 schools then you don't have a business yet. Don't be afraid to fire your sales person if they don't deliver. I isn't anything personal it's just a fit thing, either they can sell your product or they can't, either the product can be sold or it can't. If getting advertisers is "easy" then your sales guy will be very productive, make themselves and you a lot of money. Also don't be too surprised if you can't work a very large territory with a single sales person. Getting people to part with their money is an art and it takes skill just like writing code does, respect that.
Always keep in mind the 'big plans' and so when you make decisions make sure they don't cut off future plans (for example don't sign off advertising rights to a third party for the rest of the world or something) but get the core of the business running and tuned, then take it to the next level.
To throw in my 2c, you shouldn't have to land the huge advertising deals and spread to fifty campuses just to make enough money to pay the three of you guys. If you require a nationwide presence just to make enough money to pay three salaries, the business doesn't work. But it doesn't sound like that is the case, so it should be doable to reach a level of income where you can pay yourselves without expanding too much yet. Then grow.
I would map out 4-5 new areas for your business to expand to -- if possible, try and optimize for expected ad revenue (ie., ease of getting advertisers on board) and student base, housing availability, etc.
Then target businesses in those areas, emphasizing you are already highly successful in other areas and will be launching locally soon. Get some testimonials from your current advertisers to help convince new ones.
In short, get ads on the site (=> money in the bank) before you have accommodation listed. Launch new areas with a 'coming soon' page. Build up a buzz amongst students about your product. Register sign-ups to gague interest, and use these to attract advertisers and landlords ("Hey, look, we have 400 signed-up students, just waiting for us to launch here!"). Make people impatient for it. Then deliver the platform.
Rinse and repeat, as quickly as you can (but not so quickly you'll run out of money, or fail to deliver).
Offload as much work as possible onto your users. If you're currently curating or creating property listings, get landlords/estate agents to advertise their own properties instead. Show them how Niche will be a one-stop shop for the majority of students looking for accommodation.
Once even 1-2 estate agents in an area have tenants who 'found' them through Niche, you'll have enough credibility that business will come to you instead of you having to chase it. Encourage this local credibility to snowball nationally as you spread out further, through testimonials, blog posts, social media, well-timed interviews with local newspapers, etc.
I've met so many people over the years struggling so hard with products trying to get in on this market and never making a dent.
The product design is top notch too. No wonder its a hit. Congrats
Many large public institutions have launchpads and accelerators (they just don't always market it well). This could be a natural fit for them.
I think like most people are echoing, continue to fund it out of pocket (maybe with the help of family) to get it to be the best product possible. From there, slowly build out into other geographies. You can learn lessons from your early expansions so as to not repeat it. Given the product is still young, there is likely a good amount you can build on prior to scaling out.
Good luck and will def be monitoring University Niche
Many large public institutions have launchpads and accelerators (they just don't always market it well). This could be a natural fit for them.
I think like most people are echoing, continue to fund it out of pocket (maybe with the help of family) to get it to be the best product possible. From there, slowly build out into other geographies. You can learn lessons from your early expansions so as to not repeat it. Given the product is still young, there is likely a good amount you can build on prior to scaling out.
Good luck and will def be monitoring University Niche
I am based in Los Angeles and I currently work in the apartment industry. I can meet with you in person and provide you guidance and possibly help you raise seed money if you choose to go that route.
Send me an e-mail to my user name at Google's e-mail service.
- Incorporate. You want the legal protection of (at least) an LLC.
- Really think about if you need to raise money. If you do, it should be easy to raise $100k-$200k with real revenue and traction. But it sounds like you're in a position where you could actually bootstrap this. Equity is expensive. Think twice before raising money.
- Think in terms of milestones. What can you do to get to $XX,XXX in revenue per [week,month,year]. Then, what can you do to launch at an additional school while still staying cash-flow positive? This sort of thinking breaks the process into bit-sized chunks. Much easier to digest.
- Your biggest problem will likely be scaling the ad sales efforts. Walking into local businesses works great for 1, 2, 3 schools. But it will be hard to scale that to 100 universities.
I'd love to help out in any way I can. I started a company in grad school that I sold last year. I've been through many of these issues before. mkijewski at g mail.
This _might_ be, in large part, seasonality. Once the school starts in September, most of the target demographic would have already found _some_ place to live for the school year.
We plan to use the downtime in our cycles to promote and brand ourselves through our blog and things like that. We want students to know about us before they even need to use us, and we're doing that by selling the "off-campus lifestyle" and glamorizing the idea of getting out of the dorms and living on your own.
(Unfortunately this involves writing up a bunch of mindless top 10 buzzfeed style lists)
Enter your service.
Difficulty starts going down, business starts being less cyclical. Who knows how much less?
If you need funds to help that happen, try an Indiegogo / Kickstarter / etc. This is a serious problem so it could see some interest
http://www.slideshare.net/schlaf/raising-a-seed-round
What I would think about is recruiting commission-only sales persons in new markets rather than trying to go manage them yourselves. Likely, you'd use other college students. Start with another local school so you can jump in if necessary. Write up a 'how-to' guide with marketing materials for the prospects, and then look for self-starters who will go do the selling on commission only. Do some training. If they are empowered with testimonials from businesses who have seen a real return, they will find it as easy to sell as you did.
So the question is: can a single sales rep, likely a college student themselves, make enough money selling ads for you that it would be worth their while?
The goal is to get cash coming in without having to spend any to get it started.
If you do go the outside investor route, be careful with your pitch. Most startup investors are wary of near term cash flow & profits. That indicates a small return for them.