Max Klein

The big man at the door glared at me for an uncomfortably long time. I stood there, the bright light shining in my face. He then moved to the side and motioned me in.  The club was dark and huge. Loud minimal house music boomed all around. People jumped up and down everywhere. At the windows, several people sat, looking dazed and drugged.

Somewhere in this berlin club was an American and I had to find him. All I knew about him was his name and how he looked, but from a 60×60 twitter icon.

So I wandered around for a bit, then walked up to the bar and got myself a drink. I looked around and tried to figure out which of the people here could be this guy. Some guy that looked similar caught my eye. I held his gaze and was about to wave when he gave a suggestive wink and did a thing with his tongue that made me realise he likely was not the person I was looking for.

I had waited for 30 minutes when someone tapped my shoulder. I turned around and saw him. Same face as on twitter, but with spiky red hair and two metal loops in his nose. He hugged me in that typically American manner, which I stiffly tried to respond to. He ordered more drinks and offered me a tablet of something I assumed was ecstasy, but I politely declined.

His eyes were red. His head jerked around a lot when he spoke, and he seemed overly excited about everything he said. He stated off with a long monologue about Berlin. Then he told me about his new startup, which apparently had already hit $20k/month in revenue 3 months after launching. I asked him how he did it so fast, and he tapped his nose, winked and said:

“This was not my first idea. This was about the 7th idea. I went through 6 ideas within a space of 6 weeks, and discarded all of them. Then I came across this one, which is not even a new idea. It’s something that already exists. I guess that’s why there is so little competition. Everybody thinks it’s already done 100s of times. That’s why nobody does it!

But you are probably curious, how did I go through 6 ideas in so a short period of time? I will tell you the secret right now! When I get back from the toilet”

He walked away and disappeared into the dark tunnel that led to the toilets. I sat waiting for him. After about 10 minutes, a tall muscular girl with spikes around her neck sat herself down beside me and draped her arm around my neck. She looked straight at me and informed me that she would be taking me home tonight. She then fished out a dog leash from her pocket and dangled it suggestively in front of me. I tried telling her that I was having a meeting, but she was very insistent. We then had a long discussion where she told me about her fashion line for Goth Brides. After about 45 minutes, she jumped up and disappeared. I sat there for another 15 minutes before deciding that the American was either dead or had gone home, so I better leave too.

As I was leaving, I saw the tall girl with some guy on her leash. I hurried out, and was struck by the bright sunlight. It was daytime on a sunday. I decided to walk home, following the river bank. People jogged across, mothers pushed their babies. I smelled of smoke and sweat.

Shortly before I arrived home, my iphone rang. It was the American.

“Meet me for lunch”.

We met at a noodle place. We sat at the round center table, picked from the menu that had only 3 items, and fresh Vietnamese noodles were served to us in huge round bowls. The American had a huge grin on his face as he told me what happened after he had left me. I’ll skip all that and jump straight to the secret he had forgotten to tell me.

“So, basically, to validate a startup idea, all you have to use is twitter. Create your brand name on twitter. In the description field, write your 1 or 2 sentence pitch. Spend time picking the brand name and then the pitch. Afterwards, find a famous person on twitter who belongs to your target group. For example, nerds or women, or mothers, or joke-lovers. Whatever you define as your target group. Start following the followers of this person. If you get a follow-back rate of 10% and above, then you have a good idea. If your follow-back rate is lower than that, then you have a bad idea.

This method allows you do several things:

- Pick a brand and logo that appeals to your market

- Simplify your idea down to 1 sentence

- Select who your target market is

- Find out if your target market is interested in your service at all

And all of this is completely free. You can do this in a single afternoon. Where you have high follow-back rates, you are likely to have a business. That’s it. That’s the big secret that led me to the idea that’s making me $20k a month and allowing me do all this”

He raised his arms and gestured out to the city, to Berlin, to Europe. We sat there and finished the noodles. He then jumped on his bicycle, waved to me and rode off. I resumed my trek home in the summer sun. Birds tweeted.

You often hear people say that you should make your product inherently viral. This is very dangerous and will most likely make your product fail. An inherently or fully viral product is a product like Skype. If only one person uses Skype, then Skype has no utility at all. A non-viral product is something like a Tax Calculating software. You basically use this all alone and by yourself.

Fully viral products are dangerous because they have the chicken and egg problem. If only one person uses it, it’s useless, so when people try it, they abandon it almost immediately. To make it take off, you need to have a mass of people who use it all at once, and for that, you need a strong and sustained external user source. If you don’t have user source, then making such a product is a complete waste of your time. It will never take off.

Non-viral products require a lot of sustained and constant expenditure on marketing. If you cannot afford to market, then do no make such a product. If your product is going to be free, but it’s non-viral, then your product will surely die. People will not discover your product.

So, enough about what you should not do, what should you do? Make your products half-viral. That means, your product should have utility when used alone, but when has functionality that only works when shared with others, and that enhances the product a lot. A prime example is dropbox: It works good as a backup tool when you use it on your own. When you use it to share files, it becomes a viral tool. Half viral tools do not have the chicken-and-egg problem, and they do not need sustained marketing, because once enough people are using it, it takes off on its own.

So, don’t be an idiot. Make your products half-viral.

Many newbie entrepreneurs think they know exactly what the market wants. I know this, because I used to be exactly like that. But time and bitter experience has taught me – I don’t know what the market wants. And you reading this, neither do you. Let me explain.

Your range of experience in this world is limited. Even if you are a master mountain climber and a ninja programmer, you don’t know very much about knitting. Okay, let’s say you take up knitting and get to know a lot about that. You probably don’t know very much about the mating habits of the fly-eating plant. Our world is huge and everyone is pursing different interests. Once you leave the basic stuff like food, shelter and mating, people are interested in a very diverse range of things.

If you were given a task such as “find 3 items that will sell best in a market”, there is no way you can simply guess what those 3 items could be. Even if you pick what 3 items you think may sell because they would appeal to you, people who are like you may not be visiting that market. Or maybe you are simply a bit odd, and there are very few people similar to you who will like that product.

The point I’m making is this: if you try to guess what will sell, that’s a bit like guessing what direction the wind is blowing when you are still in the room. The number of variables are huge, and that makes it really, really difficult.

The best way to figure out what will sell in a market is to look at what’s selling. Sounds basic, but so many people do not do that. Look at what people are buying, understand why they are buying it, and sell something that would do the same thing, but better or cheaper or faster. That’s a good way to find things that will sell.

It’s the same story when picking an idea for a technological product. Don’t try to guess an idea. Don’t pluck an idea out of the clear blue sky and assume you know what’s going to happen. First  figure out if there is an existing market for this idea that will move over to your variant. Otherwise, it’s all guesswork, and guesswork is really risky.

There is an open secret among iPhone app developers right now: compared to one year ago, there is less money being generated in the app store. I don’t mean for the long tail, I mean for apps in general – for example, an app that is at position 50 in the American App Store charts, in the Lifestyle category, is earning LESS now, than last year. The same trend is mirrored across most other categories.

So why is less money being made, even though there are a lot more iPhones out there? I have an explanation:

When are most iPhone apps sold? Answer: At Christmas. Every Christmas, most developers sell about 3 time as many apps as normal. Over the course of the year, the people who got new iPhones for Christmas are not throwing away their iPhones, they are simply buying less apps. What this means is that over time, the number of apps a user buys declines. This makes sense intuitively – as a user satisfies his needs for apps, the less he will go hunting for new apps.

Now, imagine a scenario where Apple stops selling any new iPhones. All the people who already own iPhones will buy less and less apps the longer they own the phone, and the number of apps being sold will decline.

What this implies logically, is that the total number of apps being sold is dependent on the number of NEW iPhones being sold. So for the same number of apps to be sold, growth in total number of iPhones has to be constant. If 7% more iPhones were sold in 2010 compared to 2009, then 7% more iPhones have to be sold in 2011 compared to 2010, for THE SAME number of apps to be sold. If growth drops to 6%, then less apps will be sold. And that is exactly what has happened.

Someone told me the other day that there are people in Silicon Valley who are starting companies that get funded. They then use these funds to buy other existing smaller companies. When they buy those new companies, they actually get kickbacks. I.e, the owners of the smaller companies that get bought pay them cash to buy the companies.

The expectation is that the bigger funded companies will eventually fold, losing the investors a bunch of money, but with no loss to the founders. The founders make a salary, they spend a lot of investor cash on themselves directly via this kickback scheme, and they pull as much as they possibly can from the companies.

The person who told me, who happens to be an angel investor, says that’s why a lot of old school angels have stopped investing in a category of company. But he said that there are investigations going on by the federal government.

I sat in the bar with my co-founder. We were laughing and discussing what the best way of summarizing our product in two sentences would be. That’s when we heard the crying.

I turned around and saw him standing there. He was tall, wide light blue jeans, a red t-shirt hanging over his drooped shoulders. He was crying, his palm covering his face. On the table sat two much younger guys, one was looking up at him while the other was looking out into the air and spinning a pen.

The noise level in the restaurant drifted off as people turned to look at the tall guy. He stood there silently crying, his face covered. Then he dropped his palm from his face, and said

“I don’t care. I’m going to continue. I’m going to make it work. It will work.”

Then he turned around and walked out quickly through the front door. I watched him walk out across the parking lot, his shoulders drooped but determined. His outline shrunk as he walked up to the road, and when he reached it, he stopped. He looked left and he looked right, he seemed unsure which way to go. Then he went left, but hesitantly, like he was not sure that was the correct way to go.

On the other table, the two had ordered two shots of tequila. They swallowed the shots, and the one guy said to the other: “Welcome to the team”.

I have come to a realisation as I hire programmers: when I pay them for each hour worked, their self-interest is exactly the opposite of MY self-interest.

For a programmer paid hourly , he:

• Writes code slowly so he gets to work more hours and make more money
• Puts errors in the code so he gets more follow up work fixing those errors
• Writes brand new components instead of reusing old components so he spends more time and he gets richer
• Makes the code as obscure as possible, so you cannot hire someone else to continue his work
• Uses your time to learn new technologies – you pay for his training

On the other hand, programmers paid on a project basis have a strong interest in:

• Getting the project completed as quickly as possible
• Making the software as error-free as possible, so they can move on to the next project and do not have to always support old projects
• Reusing as much code as they possibly can, so the project gets done quickly
• Stick within their expertise area, so they can accurately gauge quoted project price

A programmer working on time basis has no motivation to get your project done as quickly as possible. Every one of his motivations is exactly the opposite of what you as the project owner wants. It makes very little sense to hire programmers on an hourly basis – try to always hire them on a project basis. Their work will be far more honest.