This is a series of articles on the process and experience of building products and, ultimately, daughter companies from within a parent company. Our experiences building Kin (and DoneDone.com) from within our parent company, We Are Mammoth, have unfolded over the course of six years. We’re self-funded, and we build companies out of the products when the time is right. Our way isn’t the highway – we definitely slow roll because, in life as in business, it’s about the journey not the destination. Here’s the original article.
Who’s paying the real bill for your pet project?
You and your big idea may be shopping around for investors to foot your bill. I salute you. While we never have seriously pursued outside money for our product companies (Kin is our second company, DoneDone.com was the original), we have had a few conversations. Most of the pro investors we’ve spoken with are concerned about our ability to run a company while building a company and supporting another company. They want to see $, not ?’s. If you’re going that route, you need an answer for how you, the founder, are going to move away from your already-existing, already-profitable consultancy. They may think you’re dumb. Prove them wrong. If you’re thinking of self-funding, read on, and know that this has been our way and it’s not necessarily the highway.
For the brave souls choosing the self-funded route, the answer to the question “Who’s paying the real bill for your pet project, Mr./Mrs. Founder?”, is “You are, and so is she, and so is her three-legged dog.” The team doing maintenance on those four year old websites for a consulting client? They’re paying the bills. The administrative support team you have in house that helps your nascent product team with customer support and operations early on? They’re paying the bills. You, dear reader, are paying the bill. Everyone is paying the bills!
Regardless of the source of financial funding though, building a new product and company cuts time, morale, and resources from the fabric of an existing firm. Everyone pays the price. It’s taxing, so everyone deserves a piece of the pie – even if they never write a single line of code for the new product.
You all get gold nuggets and Teslas and patience!
My opinion is that everyone who helps fund the new company (including three-legged dog) should own some of the new company in the form of stock or whatever flavor of company you’re starting (we have LLC’s). It’s the right thing to do. But, it’s also more than likely that, for the near term at the very least, the equity you’re giving to folks isn’t worth the paper it’s written on. So they’ll respond with “Great, thanks, but how will I get something out of this?” The answer is simple.
Everyone’s near term profit is in the form of education. Make sure that the failures, skills, and business experiences are shared back with the parent company – it’ll help sell new business, expand everyone’s skill set, and instill a sense of entrepreneurial spirit and pride into everyone’s overloaded souls. That’s worth a lot and it’s entirely possible it’s the only pay back folks will ever get (again, startups aren’t for the faint of heart).
You will charge money for it, right?
So who else is paying for your new product? Customers, of course. What’s that? They aren’t? No positive advice for you here. If you are smart and charging money, there’s a good chance the pricing model and value proposition is going to be vastly different than what you’re used to at your current company.
In our case, moving from an enterprise software consultancy to a monthly per-user pricing model for small businesses was jarring. One is full of giant peaks and valleys and big fish, the other is a patience-draining graph toward profitability. Alas, you need to make ends meet at every level – you’re in your parent-company’s pockets, and a well-reasoned pricing model is integral to your new company becoming a self-sustaining business.
So, learn a little about pricing psychology, and be ready to admit you did it wrong and quickly move to a better model. Within the first couple of months of Kin being launched, we learned what we thought would be a great, fair pricing structure actually sucked. We changed it quickly. Likewise, we had a freemium plan for DoneDone.com early on thinking that, if freelancers did well, they’d surely upgrade to paid plans when they grew. That didn’t work out at all, so we removed it, and it had a great effect on revenue. To sum it up, charge for your product/service, and make sure you can charge more or less depending on real market inputs.
In it to win it.
Regardless of the ultimate financial success of your new company, there is wealth to be reaped – don’t squander the opportunity to share the wonderful, anxiety-ridden experience which most people never will be exposed to: the early days of a startup. It’s a treasure trove of skills, values, failures, and emotions that are very atypical of our all-too-mudane daily work lives.