This post, written in the spring of 2012, chronicles the second chapter of our struggle to bootstrap a weather startup. With the disappearance of Tumblr, I thought it had been lost forever — but thanks to the Internet Wayback Machine, it’s been resurrected for your encouragement.
When I finished my last bootstrapping Stormpulse post, I had a strong conviction that the difficult parts of starting up were largely behind us — that we were finally on the ascent from the trough of sorrows to the summit of startup success.
How wrong I was.
As Eric Ries has said, the key to the hockey stick curve is the long flat part at the beginning. This makes sense — if we think about a hockey stick in the literal, the long flat part is where all the leverage comes from.
But the most surprising part about being on the long flat part of the curve is you never really know when you’re about to make the turn. I thought Stormpulse was making that turn in early 2011. In truth, it would take us another 18 months to go through our real struggle and ultimately break free.
- It’s been 6 years and 2 months since I had the idea for a better weather website. After several years of total obscurity, we’ve finally secured the attention of millions of free visitors and a couple hundred customers using a freemium business model. Still, things are tight, and revenue growth is very linear below breaking even.
- To save money, I move my family of 6 (wife, daughter, son, and twin baby daughters) into a small 3 bedroom, 2 bath condo in West Palm Beach at the corner of a very busy intersection. The pool is nice, but the living quarters are extremely cramped. The third bedroom, originally meant to be my office, quickly becomes a guest room for a stream of relatives visiting to help us with the twins.
- I start working 5–6 hours per day out of the local Starbucks. Lots of Christmas music, hot drinks. Noisy. The roof of my ’95 Accord starts to rust through.
- To save more money, I buy a Chinese wok at the Target that is literally across the street and point it at the condo clubhouse to amplify their public wi-fi signal for my laptop.
- Sales calls with government agencies and Fortune 500’s are conducted on my balcony with my cellphone.
- We finally pay off our minivan, freeing up several hundred bucks per month.
- Financially, Stormpulse is surviving on day-to-day basis. Money that we need to have by Friday to pay server bills or my paycheck, is often not available on Monday, Tuesday, or Wednesday.
- To stay afloat, I decide to try selling Lifetime Memberships to our premium accounts for a one-time payment of $89. We quickly sell 100 of them, putting $8,900 of desperately-needed cash in our coffers.
- On Christmas Day, I get an email from a large, vertically-integrated cardboard manufacturer based in Austin, Texas. They want to know what we can offer in terms of weather alerts.
- Sales cycle with cardboard manufacturer begins.
- On a whim, I decide to apply to pitch at Startup Riot 2011 in Atlanta, GA. I put together a 5-minute video, taken inside the local Starbucks, and I’m selected to present. This would be the first domino to fall in our spiral towards full-time fundraising (boy that sounds great, doesn’t it?).
- Startup Riot. My first pitch to a roomful of investors. I didn’t ask for money, though, I asked for advisors. I was still confident that with our business traction, we’d monetize well in 2011 and wouldn’t need funding. Here’s me:
- Just before going on stage, I get a call from the cardboard manufacturer telling me that they have the green light to purchase an enterprise subscription, making them our largest customer at the time by a healthy multiple.
- Feedback from the professionals in the audience is so positive I’m actually disappointed when Stormpulse didn’t place 1st, 2nd, or 3rd at the event. After 6 years of effort, we’re beaten by a startup that was literally built in a weekend. After listening to my pitch, @lance writes: “Golly Matt Wensing talks fast … Someone should fund them.”
- I meet Davide Di Cillo and find out he’s also from South Florida. I also meet someone from IBM Venture Capital Group with a keen interest our business. This will come in handy later.
- The greatest compliment of the trip came from an Atlanta attorneywho told me all of his guys voted for us because they thought we “could be a 20-year company.” This comment imprinted itself pretty deeply on my thinking.
- After returning from Atlanta, I turn my attention to IBM and apply to present in Austin, TX at their SmartCamp event. Stormpulse becomes one of 5 finalists and is invited to come to Austin in May.
- We begin working hard on a total rewrite of our client-side map in a language called haXe, which will allow us to get on the iPad. Because of the pent-up anticipation, I think the iPad app will be the monetization silver bullet for us in 2011 (this turns out to be wrong).
- I practice my 5-minute pitch almost 100 times and give it twice. Based on feedback, Stormpulse looks and sounds like the audience favorite, with numerous employees of IBM telling us how impressed they are by what we’ve accomplished.
- Once again, Stormpulse does not win. The audience was genuinely disturbed. Even some of the IBM-ers thought it was inexplicable. Rumor has it the panelist from IBM didn’t think there was anything defensible or patentable about Stormpulse, or that they could quickly scale our business model to various cities they were looking to make ‘smarter.’ At least I got a picture with one of my heroes, Jeopardy! champion Watson.
- Stormpulse gets its first taste of Austin. IBM SmartCamp is an awesome introduction to the startup, business, and venture community in Austin. I meet an extremely energetic guy named Joshua Baer and a sagacious Bob Metcalfe, who opines about potentially-monetizable network effects.
- My co-founder ends up staying in Austin for a lot longer than expected. The tech tractor-beam begins to suck him (and me) into its hub.
June — August 2011
- Hurricane season begins. This year we decided to completely kill off our B2C premium offering and only sell subscriptions to businesses. Consumers get the free site, businesses can pay a minimum of $499 for one year of access to our premium features, including the still-to-come iPad app.
- Killing B2C premium accounts was tantamount to severing a limb of revenue, but in 2010 we had learned that B2B subscriptions were selling at 10x the price of B2C, and numerous businesses were still paying $49.95 for the consumer version. We made a bet that enough businesses would convert from $49.95 plans to $499 or in some case $690 plans.
- One of these customers ends up being the White House, which makes for a very memorable phone call.
- The bet was working. Paying consumers were miffed, but our support costs went way down and our revenue per paying customer went way up.
- Still, our conversion rate is abysmal. The free site was still good enough for 99.99% of all of our millions of visitors. Financially we were surviving, but barely, and still not profitable.
- Convinced that Stormpulse is undercapitalized, I email Joshua Baer and ask him who I should speak to in Austin about raising money. He tells me about the event he hosts called Capital Factory Demo Day. Another 3-minute pitch opportunity.
- I pitch Stormpulse to another roomful of investors at Capital Factory Demo Day in Austin. I learned a few things about pitching — investors care about markets first, products second. Here’s me walking in front of my logo graffiti slide:
- These logos got a lot of investor attention. I proceed to meet with or have phone calls with more than 75 investors (a mix of angels and VC’s) over the next several months. From Austin to DC to the Valley.
- Stacey Higginbotham publishes a well-timed GigaOm article called “How Stormpulse made more money on fewer customers.”
- Meetings with investors continue, but momentum begins to wane. Fundraising turns out to be an awful test of not only determination, but faith in my own beliefs about what the business can be. Because we have revenue, we can’t sell hopes and dreams. Instead, we’re left telling people why businesses are paying us such small amounts of money ($499 is nothing in the B2B/enterprise world) and why we aren’t profitable if we have 10,000+ businesses eating the product from our hands. I try answering these questions in many different ways, but never really succeed.
- I’ll never forget the expression of a super-angel in San Fran when he asked: “So, how much money do you have in the bank?” ’Right now?’ we asked. ”Yes.” he replied. ’Well …’ — he interjects “well, you have to have more than $20,000 if that’s how much it costs to run the business right? What are you going to do, shut down in 3 weeks?” He simply couldn’t fathom that we’d been running the company for over 3 years on a week-to-week basis. We didn’t really succeed at explaining how this was possible, either.
The Acquisition That Almost Was, Or So We Think
- While making rounds on AngelList, I met an investor who introduced us to the CEO of a company based in SF that he said would be interested in us. It became apparent within a few exchanges that this company might acquire us. They even said as much. This was incredible news. We hopped on planes and headed west.
- The meeting with the company went well. The personalities clicked, minds clicked, product visions clicked. The CEO remained very interested. And then we flew home.
- I proceeded to check my email once every couple of waking minutes for the next 2 weeks. It was awful. Have you ever sat around waiting for a phone call that could change your life? We waited. And waited. Every time the light on my Droid started flashing I thought: “This could be it.” And it wasn’t.
- Until eventually it was. And after a meeting or two with their Board of Directors, they had decided that they were not going to be able to “work with us.” They decided instead to stay the course and stay focused on growing their primary revenue stream through the channel they had already established, and not through our 6 million unique visitors. Hmph.
- Honey — we’re still broke.
- Our fundraising efforts, begun in September, culminate in a single term sheet from a little-known VC in Dallas, TX. I am vacationing in Tennessee at the time, so I fly from Nashville to Dallas for the all-day meeting.
- The VC office contains a lot of incredible Americana and antiques, including an original draft of the U.S. Constitution on rice paper. Wow, these guys are rich.
- The valuation should have seemed like a joke, but after all the effort to get to this point, and being on the verge of personal bankruptcy, I urge my co-founder to take the offer of $1.5 million. The VC’s play games with us, quietly changing terms from revision to revision of the sheet, and attempt bully us by telling us we have to make a decision within 24 hours. Yes, after 6 years of bootstrapping, we are told to make a fateful decision in less than a day.
- I fly back to Nashville, term sheet in backpack. Advisors and friends wait to hear what we’re going to do. We don’t know yet.
- On the hour-long drive back to the country home of a friend in Tennessee, I have to pull off to the side of the road to vomit in the front yard of some poor rural inhabitant. It wasn’t my nerves — I got food poisoning in the airport. But the irony wasn’t lost on me as I jumped back in the car just as the house lights flicked on.
- We tell the investors this is insane, that we need time to speak with other founders they’ve invested in. We’re granted a stay of execution, and I learn from other founders that these VC’s are indeed honey badgers. However, $1.5 million is still $1.5 million, and we are broke.
- We stand our ground and refuse to sign without the ability to call it off should we learn that they’re bad people. Negotiations end when we finally decide that these are not the kind of people we want to work with — sharks. Big smiles, nice handshakes, but sharks nonetheless.
- An angel we met on AngelList wires us $25k to take the pressure off. That’s a true angel, folks.
- Brad and I have several long discussions on the future of the company. We imagine ways to monetize, liquidate, or sell it as an asset. We assume more fundraising is not in our future.
- Then, one fateful day, we were introduced to a firm in Austin that just so happened to have deep experience in big data, commodities, and weather. And they wanted to give us money. Or at least, they knew people that they were certain would want to give us money.
- Hold everything right there.
- We begin extensive discussions with The Firm about ways to raise capital through their network. Extensive. Discussions.
- Weeks go by and money doesn’t appear, but the story gets more interesting. Rather than a straightforward investment, The Firm also wanted to set up a buyout provision. In less than 12 months, they would look to exercise a right to buy a controlling stake in Stormpulse for a 7-figure sum that would solve every financial concern in my near to medium-term future, but wouldn’t make me financially independent. In other words, I’d be very comfortable, but I’d have to start another startup if I wanted to achieve what had always been my goal.
- I’m left with The Blessed Man’s Dilemma: after almost 7 years of work, sell control in the startup for a sum that is enough to make most people excited but leaves me feeling like my soul’s been extracted, or continue to forge ahead. Forging ahead would allow us to retain control, but the motivation to forge ahead had seemingly been sucked out of me by this apparent inability to fundraise, which kept the company in a zombie state. Not enough capital to seize the market opportunity, but not enough revenue or hype to raise on fair terms.
- Recognizing my shortcomings at fundraising (made apparent by the fact that we had yet to receive an exciting term sheet), I considered allowing someone else to step in as CEO. Someone asked me how I was feeling, and my answer was that I knew that I had finally reached my limits. Like the man 500 meters from the summit of Mt Everest discovering he just didn’t have it in him, but ‘nice try anyway’.
- I realize that for me, this is my reason for being an entrepreneur: because it’s the hardest thing I can possibly do professionally, and I’m not satisfied unless I’m finding my limit.
- On top of this, I had been spending many days traveling, away from family. I flew from South Florida to Texas, DC, Texas, Dallas, San Fran … This whole period was incredibly hard on those that loved me most.
- In other words:
- In a moment of insanity, faced with selling out, giving up, or pressing on without any motivation, I choose to do something I had resisted doing for years: completely change our business model by killing the free product.
- This may not sound very dramatic or insane, but considering that every aspiration we had to become a greater success hinged on the incredible distribution we had amassed, sacrificing that distribution for “the sake of short-term cash” was always considered — at least by me — as an evil thing. Not only was it evil, but it was insane and stupid.
- The other element of evil is that it was slitting the throats of all the consumers that had spread the news of Stormpulse virally to literally millions of other people. I was now going to price them out of the product? If killing off the premium consumer plan was burning our boats (by committing to B2B), this was treason. If we fail, we won’t have a safe haven to fall back to.
- But insane and stupid and potentially short-sighted were all things I could live with. Selling out or forging ahead into personal bankruptcy were not.
- I sharpen a pencil, grab two pieces of blank paper, and stay up all night mocking up a total redesign of the Stormpulse.com home page — turning it from an app into a products page — and writing a blog post announcing the change, which I publish immediately. There will be no going back. I go to bed knowing that 6 million people will hit our paywall this year, and many of them will be very, very upset.
- I tell my co-founder and The Firm that I am now in a race to make the company profitable so we can turn down their investment offer with a straight face.
- I work 12–14 hour days for 3 weeks to build the paywall with my co-founder. I sleep an average of 2 hours per night. It’s a true case of the cornered animal gone mad.
- The announcement of the impending paywall begins to boost sales.
- By the end of April, it becomes clear that we’ve won the race with the alternatives.
- Brad and I tell The Firm we’re no longer interested, and we go on to have our first profitable April.
- And then our first profitable May.
- And then our first profitable June.
Clarity Through An Extended Poker Metaphor
In Texas Hold ’Em, players are dealt 2 cards, and then 5 community cards are flipped over in succession, with bets taking place before each of the last 2 cards. These are called “The Turn” and “The River.”
As a business, Stormpulse had already been dealt a number of cards. Metaphorically, it was as if we were dealt the first few cards of a straight, maybe even a straight flush. For those that don’t know, this is when you get an entire hand of 5 cards in sequence — for example, 3, 4, 5, 6, and 7. Or better yet, 10, Jack, Queen, King, Ace.
The problem with this hand is that until you get the 7 or the Ace, you have no idea if you’re going to end up with a massive win or a total failure.
Stormpulse was like this in many ways. A huge horizontal market, a product people loved, distribution solved, an audience with some willingness to pay … but the final missing piece had always been — but how many of those free users are willing to pay, and is it enough to be interesting?
During fundraising, we were punting on these questions and forcing the investor to answer. Because there was a great risk that this last card was going to turn up nothing, we weren’t getting good terms. Here we felt we had accomplished so much, but what we really had done was turn up the first 4 cards of the straight. And if investors were going to take the risk of turning over the last card (and be our safety net if it was lousy), they were also going to give us terms that reflected that risk.
What I ultimately decided was that we deserved the outcome of the final card flip. After taking on the extreme risk of table stakes and raising and re-raising in my own personal life to get to this last card, I wasn’t willing to let someone else come in and significantly discount (i.e. rob) my reward if the last card happened to be great. I couldn’t live with that. I’d rather lose everything.
The Next Frontier
Fortunately for us, we didn’t lose everything. What we did lose in the respect and admiration of hundreds of thousands of free users (with the emails to prove it), we are now recouping in the incredible investments being made by hundreds of new customers with problems our product solves. The clarity and focus we now have as a company makes this a frontier like none before.
Best of all, the inspiration to conquer this landscape has also returned with renewed vigor. Rather than chasing a dream of investment or delayed (but greater!) monetization, we are being quietly but powerfully fueled by our customers.
And that’s exactly where I want to be.
Now more than seven years after this article was written, Stormpulse.com, and its successor Riskpulse, continue to profitably serve tens of thousands of users.