My talk from YC startup school
/Hi I’m Ian Hogarth and I’m one of the co-founders of Songkick along with Michelle You and Pete Smith.
We started Songkick back in 2007 and were part of the summer ‘07 YC batch.
Songkick is the easiest way to find out when your favourite artists come to town and get tickets. If you’ve ever experienced the frustration of finding out that your favourite band was playing the day after the show then we’re for you. We’re the second most used concert service in the world after TicketMaster with about 10m unique fans/mo. We’re backed by Index and Sequoia. Given that the average artist makes 70% of their income from concerts we hope we will make a big difference to artists as well as fans.
One thing that comes from building the same company for 7 years is you get to watch waves of start-ups succeed and fail around you and your intuition about start-ups gets rewired. It’s kind of like rewatching the first series of 24 after seeing the final episode of season 8.
I remember being terrified by a competitor to Songkick that launched while we were only just getting started. They rapidly grew to millions of users. However over the next few years the foundation they’d built their growth on moved underneath them and they disappeared. That resets your sense of what to be scared by.
Similarly you will see startups that seem to have it all figured out, and when they become the talk of the town, it doesn’t surprise you. What may surprise you is what exponential growth looks like. That start-up that was doing well and just a bit better than you goes from 1m users to 10m in a year. And you’re still like ok we have a big year coming. But then you see them go from 10m to 100m the next year. And that resets your sense of how things can grow.
To put this in perspective, if I go back to that summer of 2007 only a few of the 22 start-ups in our YC batch are still in existence. I believe most of the others ended up being shut down or acquired in relatively small deals. Watching that play out really teaches you how hard it is. I remember being intimidated by everyone in our batch when we got to YC. So many people who were better technically, better product thinkers, and more experienced at building web products than Pete, Michelle and me.
One of the other start-ups in our batch that is still around is Disqus. If I massively oversimplify for a second, it’s plausible that Songkick and Disqus may end up being worth 100X more than start-ups in our batch that were sold early, so there may be something to be learned from what was different about our markets and our path.
But the more radical example is that other start-up that endured from our batch, Dropbox. Which is likely worth 100X more than us at this point.
What’s even more remarkable is that Drew and Arash remain two of the most humble and down to earth founders I know.
There is plausibly someone in this room who will go on to create something 10X bigger than Dropbox.
So hopefully you’ll take this as a bit of a disclaimer for all the advice that follows - if you really want to know the mysteries of the startup universe go talk to Drew and Arash! Also I am most interested in consumer products, so most of this talk applies to them.
So having appropriately caveated that I have at least 100X less insight to share about what goes into building the next Google than most other speakers who have spoken at startup school, I thought about what I would most like to have had someone explain to me in retrospect.
Firstly, on online music as an excellent way to take a beat down. Here are some exceptionally talented founders/builders who have, to a greater and lesser extent taken a beat down by doing a music start-up:
Dalton Caldwell now a YC partner and the former CEO of Imeem; Sean Parker; Geoff Ralston the creator of what became Yahoo Mail & former head of product of Yahoo; Ali Partovi founder of LinkExchange & iLike, Dave Goldberg CEO of SurveyMonkey and Launch Media, David Pakman Venrock partner & former CEO of eMusic - all drawn to the flame! I thought I could put a useful talk together summarising what I’ve learned from talking with some of these great people who have built music start-ups. I then realised that Dalton already did that talk.
Dalton’s YC talk is an excellent primer on the music industry so I’m not going to rehash his advice here. What I will offer you is a slightly more reductive view on the art and entertainment industry - film, TV, music, visual art - if you’re thinking about building a company in one of those domains here is what I think you need to understand:
1. everyone thinks they are more into music/film/art than their actual consumption reflects. it’s like that study you may have read about around the sub-prime crisis where most homeowners felt that average house prices would decline during the next 6 months, but also that their home would stay the same or increase in value
2. actually most people are into a much narrower set of things than they realise. And so a small number of creators drive the majority of activity and revenue for these industries
3. 99.99999% of artists struggle their whole lives without financial success, so when they break out they are often willing to trade future rights to their music or touring or merchandise in exchange for financial stability. Having artist friends who are still sleeping on friends’ couches after 10 years this isn’t selling out, it’s about getting stable and finally paying off your debts. Unlike tech where you can be a talented engineer at a start-up that fails & still go get a great job at Google, if you’re a great musician that fails to make it you can’t just go join Radiohead
4. this transference of rights from artists->middlemen leads to a small number of companies controlling a huge amount of the rights that are needed to innovate on behalf of the artist or consumer. In addition as the entertainment industry lurches from one model to another (for example CDs to downloads to streaming) the perceived threat to their survival means regulators allow even more radical consolidation - for example in the last 10 years the world’s largest record label Universal acquired EMI, who combined now represent something like 40% of popular music rights. The same thing happened in the live industry with the merger of the biggest global concert promoter, LiveNation with the biggest ticketing company, TicketMaster. And don’t be fooled into thinking that other parts of the music industry aren’t rights oriented markets, both merchandise and ticketing both have similar rights systems in place comparable to copyright in recorded music
5. that level of rights consolidation means that it’s almost impossible for a start-up to transform the entertainment industry without some permission from one or more powerful content owners, which means waiting till they are ready to embrace you. That in my opinion is one of the differences between Spotify’s success now and the nightmare that Dalton went through. The one caveat is that much much larger technology companies can force things to move faster - for example the way that Google protected YouTube from potential label annihilation and 8 years later owns the largest free streaming music service on the planet - or the way that Apple created a digital download market in one big move
6. So I think the biggest question to ask yourself as someone aiming to build a technology company serving fans and artists in the entertainment industry is why will the labels/promoters/agencies/studios/galleries be ready for this now? If pg said Kill Hollywood, I guess I’d say Grow Hollywood or fail
The broader point here is that the level of supply-side consolidation in your industry massively changes how you build your start-up. If the industry is heavily consolidated you are more likely to have to partner with the supply-side middlemen. Consider for example the work that Stripe did with the banks early on. If the supply side of the industry is more fragmented (e.g. vacation rentals or private hire vehicles) you are probably best off competing directly with the existing incumbents.
The flip side of this is that it’s incredibly rewarding to work on a product that helps fans & creators in an area of culture you love. I’m proud of what we’ve done so far to improve concert-going and I’m inspired by what Netflix, Spotify and others have done for their respective industries. You just need to make sure that your timing is right for the middlemen, as well as fans/artists.
The second thing I want to share today is the importance of understanding the start-up game before you try and play it.
Start-ups aren’t a straightforward path to financial success. Particularly in consumer start-ups the level of randomness means that as someone who is good at building things you’re more likely to make money from joining a great company as it starts to take off (the first first 100 employees @ FB probably made more money than the founders of most successful start-ups).
So I think the reason to found a company is actually a less financially oriented one - you are really motivated to try and solve a particular problem and the satisfaction of building something to solve that problem is enough to balance out 5-10 years of high stress and a good likelihood of failure.
So if I haven’t deterred you yet, then here are the rules of the game as I see them. Hopefully internalising these challenges early on will help you be more successful. There are 3 engines that determine a start-up’s success:
A gratification engine, a growth engine and an economic engine. This insight came to us via the legend Sean Ellis about 3 years into Songkick’s life.
If I define a new variable ‘Unicornness™’, your level of unicorness will be roughly:
Unicorness = gratification^growth^revenue
You become full unicorn aka Airbnb, Dropbox, Google if you get all 3 right. Every engine that fails to start will reduce your unicornness an order of magnitude.
Let’s take the gratification engine, expressed in much less nerdy terms by YC as “make something people want”. In Songkick’s case figuring this out was a pretty brutal experience. We launched Songkick to solve the problem of knowing when your favourite artists were coming to town. Our first release combined a few different scrapers of ticket sites that generated an incomplete dataset of concerts in the US and UK and a mac plugin for iTunes that you had to download and install that would scan your itunes library. It was a pretty crappy first time use.
The return on the 5 minutes of your life that it took to sign up and install the plug-in was a list of upcoming concerts, personalised to your music taste. Some people were willing to do this and they liked it. But the amount of friction involved was too high for most regular fans. And Songkick ends up being most powerful for regular fans who at present go to ~1 show / year, but after getting Songkick might end up going to 4 or 5.
For a long time we felt that the reason that more people didn’t use our product was that it didn’t do enough and we added a massive array of additional features that resulted in very little additional usage.
The turning point came when my co-founder Michelle, inspired by Sean Ellis, started running surveys that really dug deep into why the users who loved our product loved it. And why the users who were kind of ‘meh’ found it lacking. The bottom line was that our simple idea of personalised listings and not missing another great gig was actually a gratifying enough experience for all types of music fans - people found shows they wouldn’t have gone to and had life changing experiences! but too few users were getting to it. We needed to make it radically easier for you to give us your music taste (which became possible with new APIs on mobile devices) and we needed to have better underlying data. That was a really big lesson for me. Engineers and start-up people cherish the idea of 80:20, or the idea of an MVP. But once you find something that works, the key is to do the 20:80, the grindingly incremental work that adds the final 20% of the value, but takes 80% of the time.
For us this has ended up being around data - getting more and more high quality, timely, more comprehensive concert data so we became the trusted authority for a fan. Your gratification engine will have many levels of refinement that compound on each other - onboarding flows, core experience, messaging etc and you should probably never stop trying to increase it.
The next engine is the growth engine - how new users discover your product. The first big point here is that your growth engine has no real chance of starting without a great product. I’ll talk more about that in a minute, but I think there are 4 main ways to drive substantial growth in consumer products:
These aren’t mutually exclusive. For example Yelp has a killer mobile app so they grow through both world of mouth and SEO. Airbnb also has strong WOM which means they can amplify a referral program with paid acquisition. They’ve also grown through M&A, PR & more creative growth hacking e.g. the alleged craigslist thing. So many different growth channels can combine effectively.
For us there were a number of different drivers of growth. The first was realising that there was no canonical page on the internet for a tour or concert - similar to what Yelp does for restaurants or IMDB for films. And when you build enough value to be the canonical page for something you see lots of different sources of growth, from social referrals to API/platform opportunities to SEO. That core insight lead to a flurry of things that caused us to grow from the BD partnerships we did with YouTube, Spotify, SoundCloud and others to our artist facing products. The second big growth factor came from mobile and WOM - in my opinion, mobile app stores reward a gratifying product more than any distribution platform in history and so much of the growth we saw there came just from making the product easier to use so more people would recommend it to friends. So we’ve benefited from 3 of these channels.
Finally the economic engine, how you make money from your users. I can’t say as much about this because it’s still a work in progress and one reason that we’re not (yet!) in the pantheon of unicorns. Initially we bootstrapped revenue by setting up affiliate partnerships with ticket vendors who pay us when we generate a ticket sale - similar to the model for Kayak or TripAdvisor. That has taken us to millions of dollars in revenue on gross ticket sales of over $100m. However it is unlikely to take us hundreds of millions in revenue. Our goal is to enable fans to buy tickets in the Songkick app as well as getting linked out to 3rd party sites. Per my earlier discussion on music start-ups this depends on being able to scalably access inventory in partnership with artists, promoters & venues, which is still a work in progress. It’s exciting though - in London you can now buy tickets to a huge number of gigs through our app (over 25% of all shows in London & growing fast), and we’re rolling out other geographies soon.
Finally there is the team you build and retain to solve all these problems. This is the Songkick team en route to a festival when our bus broke down!
Each of these are dependent on each other. If I had to express it mathematically it would be something like:
Firstly, gratification is a function of your team, your economic engine and your growth engine.
That’s because you need a great team to build a great product. And a powerful economic engine can be a big part of your gratified experience (e.g. saving users money). Finally in many instances a consumer product gets better with more users (e.g. a marketplace or social network), so you may also need growth to deliver a gratifying user experience.
So the gratification engine depends on the other two engines and your team.
Secondly growth is a function of your gratification engine, your economic engine and your team.
That’s because great execution on growth requires hiring great growth people, so growth is dependent on team. If you have a revenue engine you are also able to pay to acquire users and access a powerful source of growth. One key point to make here is that it requires more expertise to grow through free channels than by spending money on paid channels - compare the number of start-ups that figure out how to grow virally on Facebook with the number of start-ups who figure out how to buy FB ads. Most importantly without a great gratification engine you won’t get the most powerful and fundamental growth driver, word of mouth. As yet another example of this interdependence - our partnership with YouTube didn’t start via VC connections, or epic biz dev. It started from a product manager at YouTube reaching out because he loved our product as a regular user.
So the growth engine depends on the other two engines and your team.
You can make similar arguments for the interdependence of the team you can hire and retain and your economic engine on everything else.
So:
unicornness = product*revenue*growth
growth = f(product, revenue, team)
team = f(product, revenue, growth)
product = f(team, revenue, growth)
revenue = f(growth, product, team)
AKA everything is connected and you’re watching the first season of True Detective.
I’ve laboured this point because it seems like the most important thing to understand about start-ups is that it’s all connected and you need to get all of these key pieces working in concert to build an exceptional business. The earlier you figure out the whole system, the earlier you get on the path to becoming the next Dropbox.
Finally, all of this takes time and is very hard and you can’t give up. So some thoughts on resilience and how to develop it.
Firstly - it does usually get better if you keep going. I remember the bleakest point in Songkick’s life was around december 2010. Nothing felt like it was working. We went into Christmas after a pretty brutal board meeting with a plan for some things we’d try in the new year.
When things get hard I go back to our growth graph since then and look at that same spot.
It usually does get better if you keep moving and trying new things. As pg says be “relentlessly resourceful”. As the founder of a great company told me once - survival can be a growth strategy. The best thing about surviving is that you get to see new platform shifts for example the shift to mobile that Songkick has grown through. Everyone likes to talk about how new start-ups get built when new platforms emerge. But things that are already working can suddenly work a lot better. For example Shazam and Pandora are two companies that were 8 and 7 years old at the time of the iPhone launch and had been great, but not total breakouts. The iPhone played a big role in changing that. I remember hearing from the Pandora team that the iPhone launch doubled growth for them overnight.
Platform shifts expand the set of start-up visions that can finally be fully realised. So let that be another reason to push through the hard times.
I would recommend trying to articulate why you believe you are doing important work. I think a good way to do that is to keep asking why until you get to the root. We wrote those down a few years back and here’s what we came up with:
Then when you are low you have something to remind you why you’re going to work through whatever todays flavour of crisis is.
When you’re having a bad week, spend some time with your users. The happy ones will remind you of why you started. And the unhappy, disengaged ones should help you transform an abstract sense of impending doom into a practical feeling of something to fix. Our product team ended up knocking through a wall in one of our meeting rooms and creating a makeshift user research lab. That helps to set a regular tempo for having our whole team watch our users use your product as individuals, not in an aggregate Google Analyticsy way.
Start your company with people you can count on when shit is going sideways. I think it’s pretty hard to know that about someone without a real foundation of friendship so I thoroughly endorse YC’s thing about building on top of a long standing and trusted relationship. I have been very fortunate to have two amazing co-founders in Michelle and Pete and an amazing team, many of whom have been with us from very early on. I can’t imagine how I would have weathered some of the tougher moments without them.
So in summary:
- if you’re going to do a start-up in the entertainment industry or any industry where the supply side is highly consolidated, you’ll probably need to work with the existing middlemen. So start trying to understand how you can help them in addition to fans & creators.
- consumer start-up success seems to depend on getting 3 key fundamentals right: gratification; growth; economics. Understand how you’re going to do that as early as possible.
- even once you find something that people want, there will still be days when it feels hopeless. I’ve suggested a few ways to nurture your resilience when that happens. If you keep moving, you’ll find a way through!
Thanks.
