Matthew Ramirez of Rephrase Media: Five Things You Need To Create A Highly Successful Startup

A Flywheel to Build Your Moat Over Time — If you are working in a space with high demand and low customer acquisition costs, you likely have a lot of competition. To get an edge over that competition, you need to develop a moat around your business. Many companies seek to build barriers to entry around their brand, hoping branded searches will persist indefinitely. This may work for a time, but building a moat within the product itself is more robust, as you use the information you get from users to personalize your products to them, making it less enticing to switch to another service.

Startups have such a glamorous reputation. Companies like Facebook, Instagram, Youtube, Uber, and Airbnb once started as scrappy startups with huge dreams and huge obstacles.

Yet we of course know that most startups don’t end up as success stories. What does a founder or a founding team need to know to create a highly successful startup?

In this series, called “Five Things You Need To Create A Highly Successful Startup” we are talking to experienced and successful founders and business leaders who can share stories from their experience about what it takes to create a highly successful startup.

I had the pleasure of interviewing Matthew Ramirez.

Matthew Ramirez is a serial entrepreneur and investor, as well as Forbes 30 under 30 alumni. He grew and sold his first company, WriteLab, to Chegg (NYSE: CHGG) in 2018, where he worked for three years as Director of Product Management. His new company, Rephrase Media, develops cutting edge AI applications for creators, such as a paraphrase tool that helps authors create compelling and varied content for their audiences.

Thank you so much for joining us in this interview series! Before we dive in, our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?

For the last eight years, I’ve worked on free and low-cost AI products to improve literacy in minority communities. The first product I developed, called WriteLab, gave automatic writing feedback to students, particularly in community colleges, where most do not have access to extensive tutoring or mentorship to help them develop into clear and effective communicators. My most recent product provides writers with an opportunity to see multiple versions of their own thoughts, so they can optimize for clear, simple, diplomatic, or academic writing, to give a few examples of the fifteen free writing modes we offer. The question I’ve repeatedly gotten is why try to enact change through industry rather than through teaching, since I started as a writing instructor at UC Berkeley. My answer is very simple: the need to improve literacy at scale is urgent and complex, and the fastest way to iterate through complexity is to proceed in a bottoms-up fashion, listening to feedback to users, making changes, and working to better serve them.

What was the “Aha Moment” that led to the idea for your current company? Can you share that story with us?

The hardest part of writing is crafting variations of your thoughts. When technology became available to do this, it was clear that this would be of great value to writers. The opportunity to help people improve the quality of their thinking in writing is just too attractive to pass up, as writers stand to gain so much from reflecting more carefully, articulating themselves more thoughtfully, and sharing their writing much more confidently.

Was there somebody in your life who inspired or helped you to start your journey with your business? Can you share a story with us?

Don McQuade, my first co-founder and a Professor at UC Berkeley, helped me to think more expansively about the value of writing as an enabling function in people’s lives. He helped me to see that there’s still so much to be done for global literacy, and we can fill much of that gap with technology.

What do you think makes your company stand out? Can you share a story?

We’re completely focused on providing value to communities that tend to be underserved: those that do not write in English and have very few free and low cost productivity tools available to them.

How have you used your success to bring goodness to the world?

I’m advising ed tech companies around how to expand their impact, and I’m continuing to build free and low cost products to help improve global literacy.

You are a successful business leader. Which three character traits do you think were most instrumental to your success? Can you please share a story or example for each?

I’ve been told I’m very resourceful, especially in making use of seemingly disparate or unrelated components to produce something useful. I think this resourcefulness comes from assuming there is value in everything and being able to quickly assess what the value of a particular asset, technology, or tactic might be given current needs.

Another characteristic that has gotten me far is composure under stress, also called being low-neurotic. We often encountered tight situations, such as trying to close a funding round with one week of capital left in the bank. I stayed calm and focused on the main objective: closing that round.

Lastly, I’ve benefited a lot from having deep optimism. Without optimism, it wouldn’t make much sense to start a company; you have to believe there’s a reasonable probability of success and that you have what it takes to realize that success. We struggled early on with our sales process at WriteLab, but we remained optimistic that if we provided the right information to the right people, they would see the value in what we were offering.

Often leaders are asked to share the best advice they received. But let’s reverse the question. Can you share a story about advice you’ve received that you now wish you never followed?

No one piece of advice took me down a dead end that I wasn’t able to quickly veer out of. My team was able to avoid wasting excessive time with such advice by treating every testable opinion as a hypothesis and, if we ran an experiment to test it, we would time-box it, so that we could only lose so much in exploring it.

Can you tell us a story about the hard times that you faced when you first started your journey?

I entered the tech world from the humanities, not a computer science background, so I really didn’t know anyone in technology. Once I was able to make some connections, I still encountered a lot of bias, both because of my educational pedigree and because I am Latino. I just didn’t fit the formula that investors had come to see as successful, but gradually we found people that believed in us and helped us achieve the success we did.

Where did you get the drive to continue even though things were so hard? What strategies or techniques did you use to help overcome those challenges?

Several things helped me stay composed and retain confidence in what I was doing during hard times. First I was a writing domain expert, having done graduate work in the area and knowing what would make a superb learning product. Another thing is that I’ve always had a ‘ride or die’ attitude, which suits the startup environment very well, enabling me to operate without fear of loss. When stress became very high, however, so high in fact that one year I got shingles at the ripe old age of 27, I took to a more serious mindfulness and meditation practice, closing each day in focused stillness. This helped me tremendously, particularly while we were being acquired.

The journey of an entrepreneur is never easy, and is filled with challenges, failures, setbacks, as well as joys, thrills and celebrations. Can you share a few ideas or stories from your experience about how to successfully ride the emotional highs & lows of being a founder”?

There are at least two things I needed to retain my composure under extremely turbulent times in a startup: 1) a clear sense of my goal and 2) an inner scorecard. Keeping my goal top of mind helps me to stay focused and makes me resilient to minor setbacks; it also keeps me from euphoria in celebrating minor achievements. An inner scorecard is a harder thing to develop and retain, since it means keeping track of your own progress using your own principles, logic, and beliefs, as opposed to judging yourself by the standards of others. It is especially difficult to retain your inner scorecard when you see others enjoying a lucrative exit or your team feeling demoralized by a failed contract or a financing round that has fallen through. But it is at these times when you must hold to your scorecard more tightly than ever.

Let’s imagine that a young founder comes to you and asks for your advice about whether venture capital or bootstrapping is best for them? What would you advise them? Can you kindly share a few things a founder should look at to determine if fundraising or bootstrapping is the right choice?

Whether to bootstrap your company all depends on your financial circumstances, your tolerance for short-term paper losses, and your willingness and ability to lose some of your own money. You can start a company with very little capital, and if you do raise venture capital funds, there will be pressure to spend the money you raise and grow the business quickly. Given that, keep in mind that the business you are starting may not have a massive addressable market, but it could still provide a very worthwhile return to a small handful of founders/owners. These kinds of businesses, and there are many such businesses, should first seek alternative funds, whether from friends, family, nonprofits, or impact funds as they figure out how big this business can get. And if it can get big and get big fast, then start talking to VC.

Ok super. Here is the main question of our interview. Many startups are not successful, and some are very successful. From your experience or perspective, what are the main factors that distinguish successful startups from unsuccessful ones? What are your “Five Things You Need To Create A Highly Successful Startup”? If you can, please share a story or an example for each.

1. Meaningful Demand — No startup can survive for long without a meaningful demand for its products or services. But how we define “meaningful” will vary based on the burn rate of the company and the price charged per user. If the price per user is high and the burn rate of the company is very low, the business may only need a small number of customers to achieve probability. On the other hand, if the price per user is low and the burn rate is high, the business may need thousands of monthly subscribers to stay afloat. To assess meaningful demand, you can look at search traffic, mentions across social media, and communities devoted to this area on platforms like Reddit, Discord, and Craigslist. If there is discussion about the problems your product can solve, you can build around this language in your messaging and marketing.
2. A Simple, Stable Product — Most successful companies have simple products and simple business models, but founders can often forget this as they pursue innovative solutions, which often end up complex and overengineered. To secure a simple, stable product, founders need to develop the minimum solution that is both easy to maintain and more valuable to customers than what competitors offer. This is easier said than done, but once the first version is complete and suits the market, you can focus on the larger work of scaling the business.
3. Low Customer Acquisition Costs — To build a sustainable business, the cost of acquiring customers must be lower than the value they bring, either in subscription fees or ad revenue. Many startups with a “growth-at-all-cost” mentality sometimes neglect this, paying huge amounts to advertise to attract users to a free product or low-conversion funnel. To stay on top of this, founders should calculate a paid customer acquisition cost and lifetime value, and if the lifetime value of that customer is lower than it costs to convert them, the startup needs to find another channel to acquire customers or increase its conversion rates.
4. Low Operating Costs — Although it may seem that to grow faster you need to burn substantially more cash, this is often not the case, and you can achieve surprisingly robust growth with low operating costs. Committing to keep operating costs low instills discipline and encourages creative approaches to building a business. To enact this, founders should think about ways to do a lot themselves or through contractors, seek out credits for web services, and try to grow as organically as possible. Achieving profitability early provides you with leverage and credibility and helps you retain precious equity that you would have otherwise have had to sell to investors.
5. A Flywheel to Build Your Moat Over Time — If you are working in a space with high demand and low customer acquisition costs, you likely have a lot of competition. To get an edge over that competition, you need to develop a moat around your business. Many companies seek to build barriers to entry around their brand, hoping branded searches will persist indefinitely. This may work for a time, but building a moat within the product itself is more robust, as you use the information you get from users to personalize your products to them, making it less enticing to switch to another service.

What are the most common mistakes you have seen CEOs & founders make when they start a business? What can be done to avoid those errors?

1. Growing the company before growing the business — this happens when a company staffs for roles that may not yet be needed, such as a VP of Sales, Head of Marketing, etc. When this happens, the startup’s burn rate can rise quickly, draining precious capital without the returns these core roles were supposed to furnish. It can then be expensive to lay people off, expensive in terms of both money and company morale. To avoid this, founders should aim to do the basic work of these important functions (sales, marketing, etc.) themselves before hiring someone else. If they find they lack the core competencies or business has grown such that they can’t handle it all themselves, they should start with advisors and contractors respectively to help design the right process and manage the load.
2. Raising capital without a plan for deploying that capital — Many founders think of completing a round of financing as a huge success, and although raising money can open a lot of doors to PR and other connections, getting money in your account is really just one step in a complex process. It is almost better to treat the capital as though it were coming out of your own pocket. How would you spend it? You would likely spend only on what you needed, cut off failing experiments quickly, and act fast to control ballooning expenses.
3. Poorly managing investor expectations — One of the mistakes that founders make in presenting growth targets to investors is that they fail to specify a confidence level in each target, leaving investors to wonder whether the targets were serious forecasts, somewhat intelligent guesswork, or simply wishful thinking. To avoid this, founders should be clear about what they know and don’t know and how this confidence in their knowledge affects their confidence in their targets. Doing so will help build trust with investors that may become nervous when their expectations are not met.

Startup founders often work extremely long hours and it’s easy to burn the candle at both ends. What would you recommend to founders about how to best take care of their physical and mental wellness when starting a company?

To take care of yourself, you need to establish time for breaks and non-work activities that do not include any technology, such as hiking, biking, dancing, or other physical activities that will make it hard to think about work while you are doing them. You should plan your day the night before and focus only on the needs of each day, better known as living in day-tight compartments. Additionally make worst-case scenario mitigation part of managing every stressful situation, identifying what the worst outcome is, accepting it as a possibility, and then working to lower the probability of that event. Finally, get lots of sleep, which will work like nothing else to heal your anxious mind.

You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

I would institute later school start times. If we want and expect people to perform at their cognitive best and as their most attentive selves, we need to let them get full nights of rest. Part of making this happen is displacing time spent doing a thing as the central proxy for productivity.

We are blessed that some very prominent names in Business, VC funding, Sports, and Entertainment read this column. Is there a person in the world, or in the US with whom you would love to have a private breakfast or lunch, and why? He or she might just see this if we tag them.

Steven Pinker has done more than anyone else, in my view, to publicize the social consequences of unclear, bureaucratic writing. There is so much to be gained socially and intellectually from refining how we articulate ourselves, and Professor Pinker’s book Sense of Style has helped many realize this.

This was very inspiring. Thank you so much for the time you spent with this. We wish you continued success and good health!