Tuesday, May 21, 2013

On Big Exits

Tumblr's exit is amazing and likely worth it for both parties. Tumblr has something like 300 million users. Yahoo's at 700 million. Now I don't know what constitutes a user, but let's assume "active users" are readers of tumblogs, and that it's likely something well shy of 300 million.

No matter.

But this isn't about Tumblr. It's about startup aspirations. Congratulations, though, to Karp, Tumblr, and the backers. Great stuff.

How much is enough? Can you build a model that leads you to a billion dollar exit? Is that what motivates you every day?

It's not a bad exercise. Assume you're a fast-growing startup and you have $50 million in break-even revenue. Can you sell for 20 times revenue?

It depends on the buyer. But let's walk that  back to $50 million. It's easy to throw out numbers like that.

The back-of-napkin calculation is pretty simple; let's say you're a consumer-facing site with decent daily engagement.

Use Mint.com's assumptions for model: $30/year/user based on a free service, with revenue sources from affiliate deals and other revenue-sharing arrangements.

You need 1.66 million engaged users to hit that revenue number.

So how to you get to 1.66 million engaged users? How do you get to 100,000? Most of us don't know how to get to 10,000 engaged users.

Why not? Why can't we all be "growth hackers" (ugh)?

It's hard to get people's attention. It's hard to attract their interest and maintain their engagement. Eileen at Kleiner Perkins said to me a few years ago "you have to make it a daily habit" for people. At HonestlyNow, we tried to make it a daily habit, but the general users just weren't that interested.

So how can you turn your app or service into an essential, daily habit? Or rather, is your app or service essential?

The answer for most apps is no, no it's not essential to most people. And that's why you don't see massive exits like Tumblr's every day. Or Instagram.

Which gets me to this: a massive exit shouldn't be your goal. Developing something you care about that can be successful whether you sell it or not should be your goal.

Yes, if you're getting great traction and growth (not 1,000, not 5,000, but say 100,000) maybe you can start thinking bigger. But focus on making your thing great for you and for your core users.

A billion dollars isn't really cool. It's just a number. What's really cool is building something meaningful, useful, and profitable.

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