It’s been awhile since former HopStop CEO Joe Meyer spoke after the transit navigation app was acquired by Apple in July, but he was certainly eager to talk about the key lessons he learned in a small meetup group just before Thanksgiving weekend at AlleyNYC.
In the startup world where it’s common to see megabuck deals, the no-nonsense CEO said HopStop only raised $2 million in five years, so how did HopStop succeeded? HopStop takes pride in its routing engine and routing algorithms on top of its licensed core IP plus tremendous amount of data, but in terms of sustaining success, Meyer outlined the following as the keys to its success:
Focus on building, not selling. People make the mistake of thinking of an exit strategy early. “Build a real company, and hopefully a great company, so you’re never interested in selling it. Don’t focus on the exit, because “distractions lead to bad decisions.” Keep building real value; if you sold your company tomorrow, what tangible “assets” would the acquirer be buying. Don’t start a startup because you think it’s going to get acquired. Entrepreneurship is not a “career path.”
If you get partnerships along the way, he suggests reaching out to them early on at the right level and to keep them informed along the way. Get clarity on their interest level upfront; make sure key decisions makers are involved. More important, engage them with statistics. Fish or cut bait quickly.
He points out a list of don’ts:
• Don’t get distracted by strategic partnership discussions, because they consume time and resources.
• Don’t begin working on a “potential” partner opportunity until a deal is signed. Don’t allocate resources to “maybes”
• Be careful not to license the core (no incentive to acquire)
• Big companies will tend to waste your time; they have all the time in the world whereas you don’t want to waste your time
Raising money vs. generating revenue. “Not all startups should be venture backed,” he said. “If you don’t have a real revenue model, then you a least need to have a massive user acquisition growth. You need at last one in order to raise real venture money.”
Meyer doesn’t believe ad-supported models are revenue models “We were one of top 10 apps. But it wasn’t enough to use ads as revenue model. Ad supported is really tough unless you have massive reach like Facebook,” he said.
However, HopStop did get geo-targeted ads, because it knew where people were going.
Ultimately, every good business needs recurring revenue. Keep trying to find a real revenue model.
Revenue model should “complement” the core product/service and seamlessly tie into the UI; avoid fighting on two fronts. “But if in year 5 and money is about to dry up, it’s too late.”
Extending the runway or how to sustain your business. Being profitable is the best way to be cash-flow positive, i.e., cash on-hand increasing month after month. If you aren’t profitable/cash flow positive, you’ll need to do the following:
• Go after every potential revenue opportunity
• Only spend on critical things
• Delay/postpone bills as long as possible (manage cash)
• Aggressively collect accounts receivable
• Be careful with venture debt
“Our revenue went up first 3 years up but only steady after,” he admitted.
Check your board and investor dynamics. Get a supportive, professional, component non-dictatorial board. Note that a board of one or two founders and one investor is not a board.
“You can control who’s on the board.“Having a board member who’s available is important. Hold board meetings bi-monthly, not quarterly or monthly,” he said, emphasizing how board members need to be in person. If they aren’t willing, they’re not worth it.
Venture capitalists are more actively involved compared to angel investors who like to spread their funds around. “We had 20 angels, didn’t see 17 of them,” he said.
Take note that advisors are good for valuation but if you are on your way to generating revenue, they’re less valuable. It’s window dressing in early stage.
How you present yourself to your board is just as important. “Most important before a meeting is your preparation. Hold it every other month, so you can focus on 4 weeks on your own work.”
Hiring and firing. The CEO-founder should interview every job candidate with less than 50 employees.
And remember that you don’t need a huge team. Bad seeds can kill the entire garden. It’s better to have a hole in your team than an asshole on your team.
A list of his don’ts:
• Don’t hire someone unless you know how you’re going to pay for that person’s salary one year from now. Think ahead
• Leverage part-time employees, contractors and interns; variable costs are better than fixed costs
• Get two interns at most and no more. Why? Those who manage them loses time, too
• Avoid headhunters
• Make sure your cost of labor is 20% of business
As for getting a tech founder to work with you, he said, “If you can show proof of concept to an engineer he will be inspired about that.”
As for managing engineers, he said it’s crucial to let them know your desired outcome, how you should check-in-along the way, and then get out of their way.
And to avoid friction, don’t take on big engineering projects without truly understanding what you are doing with it.
Marketing and customer acquisition. “You don’t always have to spend a lot on marketing to grow your business. We embraced traditional PR. We did newsletters, SEOs, cross-marketed across owned and operated platforms.”
HopStop made use of user listings, speaking engagements, keyword optimization for app discovery, tapped Out brain as a way to amplify earned media, and engaged in social media and with users.
He pointed to us and said, “Be scrappy. SEM and other paid advertising (methods) only make sense if the economics of your business justify it.”
User/customer feedback. Your end users/ customers are your best marketers and best source of new product ideas. Look at customer support as part of your R&D/product management efforts, not an inconvenience. Responding to user feedback creates loyalty and trust.
“If enough users are reporting the same issue, you either have an issue to fix (or opportunity to innovate). Users are way smarter than you think and there are far many more of them than there are of you,” he said.
Administrative. Keep the following in mind:
• Hire a good bookkeepers/office administrator
• Get annual audits, valuations, tax returns
• Only enter into contracts that are necessary and critical
• Patent your IP (example of an actual asset)
• Keep good records
Lessons learned as a CEO. Everybody wants to be the man (read: CEO) but no one knows what it truly means. The CEO needs to be highly ethical, highly moral. You need to be comfortable over-ruling people you disagree with. CEO/ founder should be the hardest working person in the company.
“Don’t drink your own cool-aid,” he stressed more than once.
Having worked in a venture capital firm before, he said you can be transparent in terms of financials but know also when not to reveal too much. “You can say revenue is going in the right direction and that you have sufficient capital in the bank.”
Everybody needs equity. Make sure you have contract /legalese on company ownership. And as is more commonly said these days, Meyer said finding an opportunity to innovate is more motivating than beer and pool.
And if you think your role as CEO will last a lifetime, think again: “Operational CEOs typically replace CEO founders,” he said, adding that you can be lucky to be one for 5 years.