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How to Kill a Startup Idea with Google Keyword Planner and AdWords: A Case Study

568 points by treblig 7y ago

cabaalis 7y ago
This is very useful insight that I want to apply to my own planned side-projects (like 30-something domains registered as ideas...) Too often I've thought "that's a great idea" and then focused on the tech of implementation rather than the viability. At that point it's just a hobby, or skill-sharpening exercise. Regarding the example shown, I would think that "uber for" ideas (meaning facilitate a connection between service provider X with service need-er Y, take a commission on the transaction) sound as though possibilities are unlimited. However the reality may be that not everything can be disrupted in this way.
- netsharc 7y ago
  Reading this article and seeing these replies, I feel like a communist who accidentally walked into a Davos hotel lobby during WEF. What about just making a website to connect learners and providers? This commission-taking, the Uber model, such effing rent-seeking. I mean I also don't work for free, but things like "Uber-for-dog-walkers, but we'll fine you much money if you arrange dog walks outside of our service. Also we don't vet our walkers so they might kill your dog[1]."? Come back to reality please. 1) Top result when I google "dog walker kills dog" https://nypost.com/2019/12/01/embattled-dog-walking-app-wag-hit-with-new-dead-pooch-accusation/ https://nypost.com/2019/12/01/embattled-dog-walking-app-wag-...
  - throwawayjava 7y ago
    > such effing rent-seeking That was also my take-away regarding this idea. 20% cut? For match-making on private music lessons? Fuck that. Our local music store charges less than that for renting an hour in a soundproof room! And the discoverability/match-making "platform" is a free bulletin board next to the restroom... Also love how that email described the radical act of checking the local music store's bulletin board (or going and asking a friend/coworker/etc. for a recommendation) as "under-the-table neighborhood activity".
    - unlinked_dll 7y ago
      Plus you can get a referral for private lessons from virtually any public or private school music teacher. For free.
      - logifail 7y ago
        > Plus you can get a referral for [snip] for free Who actually thinks that a(ny) startup is going to be able to provide consistently higher-quality referrals than an actual word of mouth referral from someone you know?
    - CrazyStat 7y ago
      And the existing competitors are apparently charging a 40% cut! Even more depressingly, good music teachers, once they get established, will typically have as many students as they want through word of mouth alone. So the teachers you'll find who are desperate for students and willing to give up a 20-40% cut are probably mediocre.
  - cortesoft 7y ago
    I mean, there ARE services to provide in this space that aren't rent seeking and are worthy of being paid for... things like financial service (taking payments), escrow service (making sure each side provides the agreed upon service, and arbitrating any disputes), vetting services (could be ratings, background checks, etc), guarantees and insurance... i am sure we could think of many others I am totally fine with a company providing those services to independent contractors... I just wish they would do more of those things and less of the attempting to force you to keep using their service
- cortesoft 7y ago
  As others have said on this thread, this model is not very good for frequent, repeated services that are provided by the same person each time. When that happens, it becomes really easy to cut the middle man out and pay the service provider directly. These services are matchmakers, and the matchmaker can only really be expected to be paid to make the match... not in perpetuity. This is why services like Uber, where you only are matched with a particular driver for a single ride and are unlikely to be driven by the same driver again (at least not intentionally) work so well for a matchmaking service. If you hire a music teacher, you aren't going to have a different one every week. You don't need the match making services after that first lesson. So why are you going to keep paying the matchmaker?
  - jlokier 7y ago
    For one on one personal service yes. For something where people get some value out of using the intermediary over and over, even if it's the same teacher, see Peloton. I could see that idea working for remote music lessons if the teachers were great.
lowdose 7y ago
So these guys have to read up on some articles about multisided marketplaces which what they were testing. Starting a matching platform between consumers and teachers is not a feasible plan because this is a longer term relationship and a platform is easily cut out. A platform like uber works because nobody has a regular cab driver. Supply and demand matching is also terrible for dog walking platforms. Don't spend time testing all kind of startup ideas with complicated technique when you don't know what multisided marketplaces are and network effects.
- smallgovt 7y ago
  Can you clarify what you mean by "supply and demand matching is terrible" for dog walking platforms? It seems like if the primary qualifier on marketplace success is the ease at which two parties can cut out the platform, dog walking would not pass.
  - edouard-harris 7y ago
    Perhaps surprisingly, dog walking platforms like Rover do experience alarming levels of defection (when participants do a side deal and cut out the platform). The dynamic seems to be that you generally take your dog out for a walk at a similar time every day, and this regularity (and comfort with a specific dog walker that you've grown to trust) leads to more frequent defections.
- edouard-harris 7y ago
  Excellent point. This would have been reason enough to kill the idea irrespective of the CAC calculation. Speaking from extensive marketplace experience: A pattern of long term relationships will lead almost surely* to supply-side defection in your marketplace, which is when the supply leverages its relationship with the demand to set up a side deal that cuts out the platform. This can quickly take both supply-side and demand-side churn to levels that are an existential threat to the business. And of course, fraudulently inclined supply side firms may turn defection itself into an optimized business process if it's lucrative enough to do so. High defection rates ultimately killed Poppy (babysitting marketplace) and Tutorspree (tutoring marketplace), and they continue to plague even platforms like Rover and Airbnb despite (or because of?) their scale. * Despite what many folks believe, it's is possible to run a successful relationship marketplace without significant supply-side defection; you just need to structure it to leverage the relationship, rather than trying to break the relationship into a set of one-off transactions. (As an existence proof, I'm running such a marketplace right now.)
saadshamim 7y ago
@treblig any advice on usually how much percent increase you see once you move up funnel with fb advertising (optimize)? I'm guessing the cpc you got are based on bottom funnel and highly targeted hence the high cpc. I find really difficult to estimate costs with fb, because it takes me a fairly long time (1-month+) to build the content and ad strategy to lower costs. But I'm wondering at what point do you know if its a bad business idea vs bad ad strategy?
tempy_tempy 7y ago
A "startup studio" and a "venture capital fund" ??? no conflict there !! Like, great, please send us your detailed startup plan and then come pitch and answer our questions, and then.... well, its not a good match and we pass 99% of the time, but hey, look at this back office studio we got going here, trying out new ideas we have never heard of before.
- boffinism 7y ago
  I think you misunderstand how VCs work. If you come to them with a strong idea and evidence that you have built up that it will work and a plan for how to move forward and the right people and you try to get them to take equity they have really no incentive to to say no to you and try to build the thing themselves without you, when it would be so much easier just to help you build it.
  - tempy_tempy 7y ago
    A late reply. Your logic is true for an 8-figure VC fund. Its more nuanced for a technically-proficient group looking at 5-6-digit (pre)seed rounds.
- oblib 7y ago
  Sounded to me like they were paid for testing the idea for both the startup founders and investors because that's a specific service they offer.
justaguyhere 7y ago
Wow, didn't realize adwords and FB ads are so expensive. How do small businesses compete? are there any alternatives for those with smaller ad budgets?
- nscalf 7y ago
  From my experience with adwords/fb ads, this is not normal. The reason the cost is so high is because they're targeting ads to things like "bass" instead of "learn bass from scratch" in Sacramento, CA. The more specific you are, the less competition and the easier to target and win on keywords. The tough part is that being a strong force in the Sacramento, CA Bass market for new players from scratch is not a billion dollar idea.
  - GordonS 7y ago
    Sometimes, more specific actually means more cost - in B2B, I've seen roughly $15 and $7 CPC for heavily contested keyword phrases, and know of a competitor that bids over $30 CPC for a particular phrase. A slight aside, but although it's definitely market forces at work, I'm certain Google inflates CPC prices before those market forces take hold, forcing the hand of smaller players.
- jjn2009 7y ago
  You kill the idea because it is so expensive, if you cannot easily reach consumers for a small amount of money then the demand side is low. It's cheaper to reach consumers who are willing to click links because they actually need a service.
  - anstosa 7y ago
    Ansel from PSL here. That's not quite right. Ad pricing is a marketplace like any other. The "demand" in the marketplace is demand by advertisers to get in front of any particular set of eyeballs. The price will be high if many advertisers are interested in the same group of people (and low if not). Price is an important metric for determining customer acquisition cost but you can't use it to infer customer demand. You instead use impressions, click through rates, and conversions rates to do that.
arnaudsm 7y ago
It's crazy how markets saturate quickly online. You really need a large marketing budget and/or network effect to triumph nowadays, product quality is not differentiating enough. I am scared for the future, this will inevitably lead in harder-to-break monopolies. I worked for an entire year on a next-gen comparison engine (picked.cc if you want to check it out), and even with exciting user feedback and crazy conversion rates, it probably will never scale because of those reasons.
- virgilp 7y ago
  > even with exciting user feedback and crazy conversion rates, it probably will never scale How so? With crazy conversion rates, all you need is capital. Capital is readily available nowadays, if you need that marketing budget you can get it. Unless you do something inherently stupid like selling 1$ for 50 cents...
  - arnaudsm 7y ago
    I was a student in debt at the time. Fortunately this project caught the eye of a fellow HNer and helped me get my first job in the bay area.
- myth_drannon 7y ago
  You need initial capital or connections. Right now in Canada the well connected are flushed with free money from the government. Just say you are doing AI or add AI to the company name (nope, elasticsearch document scoring recommendation is not AI!) and you get millions from the government to push your way into the market.
  - tixocloud 7y ago
    I’d love to see some of that money. I’m Canadian and you’re right, the stuff that gets put out as AI is quite sad. They tried to pitch me as well to get my feedback on their platform.
- treebornfrog 7y ago
  Neat idea, I created something similar years ago but didn't know how to market it. What's your strategy to get users?
emrehan 7y ago
I really liked their methodology. How can I learn more of it?
- jjn2009 7y ago
  One Million Followers by Brendan Kane‎ although not directly related shows similar usage of ad platforms for content testing.
- Untit1ed 7y ago
  I wrote a blog post (https://blog.nichetester.com/the-assholes-guide-to-product-validation-1e5be4eb730e https://blog.nichetester.com/the-assholes-guide-to-product-v...) and eventually made a web app (https://nichetester.com https://nichetester.com) to step people through a pretty similar process for new ideas.
jtolmar 7y ago
Neat article. It's definitely a good idea to get actual numbers to estimate total addressable market, CTR, and CPC. However I want to call attention to this bit: > First off, there are a ton of enabled small businesses competing in this space and I'm not sure there needs to be a middle man. For example, I get 4 ads from businesses in Seattle offering lessons for guitar on Google. Thus, they know how to market and get customers, they are offering free first lessons, and have availability. So I am unsure/doubt there is any real consumer problem. If your idea doesn't solve real consumer problems, kill it. It doesn't matter if the total market, CPC, and LTV are all amazing, this is sufficient. Even if you succeed, all you'll have done is shuffle some money around. Go make things that actually help people.
- tmpz22 7y ago
  I agree but would add the caveat that many market niches have a surprising amount of depth that may warrant further discovery. For example TAKE one of these guitar lessons and if some creepy person comes up with a windowless van and gives an awful lesson there may be demand, just the demand is more hidden.
crikli 7y ago
So...to me this article illustrates the dramatic differences in objective and mentality between bootstrappers and VCs. This VC looks at this idea, figures out that in order to own the market and make $fuckton, they'd have to spend > $fuckton. Decides to bail. As a bootstrapper of businesses, I look at this case study and go "well yeah of course it'll take $fuckton because you're haven't focused on a narrow enough niche". Which of course they haven't because you can only make $shittons from niches, not $fucktons (where $fuckton is up to an order of magnitude larger than $shitton). It's a very different set of expectations. $idea might not be investable as a VC, but if you can really define a specific niche, get a toehold, and patiently build from there, $idea might have merit for a bootstrapper. (All that said I don't think this particular idea has legs based on the reasons identified in the "Regarding competition" section and also from my own limited experience in the music space).
- anstosa 7y ago
  Ansel from PSL here. Absolutely. Because we're venture-backed and are spinning out venture-backed companies, we are limited to billion dollar ideas. It's not uncommon for us to kill great ideas that could "only" make tens of millions of dollars. We're hoping through blog posts like this and other means to be able to share more of them because we want those companies to exist, we're just not set up to create them!
  - crikli 7y ago
    Hey Ansel, thanks for responding and for validating my train of thought...I don't have that much exposure to the VC world so the things I suspect far outweigh the things I know. :)
  - sprsimplestuff 7y ago
    feel free to start sharing those "small market" ideas haha
    - chiefalchemist 7y ago
      After they've been vetted of course ;)
bogdanu 7y ago
Doesn't promoting a single page template breaking Google Adwords ToS? A few years ago when I did something like this Google disabled my ads.
kbuchanan 7y ago
This may strike some as silly, but before the iPhone was invented, there were ZERO searches for the term "iPhone". (I assume, ha!) By all means, do market analysis, but remember that demand is not static—it can be shaped by what you offer. I co-founded a firm 13 years ago that now employees 50 people that most certainly would have been killed by this type of analysis.
- dragonwriter 7y ago
  > before the iPhone was invented, there were ZERO searches for the term "iPhone". Before the Apple iPhone was invented, there were probably some searches for “iPhone” because infogear had a product with that name in 1998, and Cisco (who has purchased infogear) started using it for Linksys products not long before the Apple iPhone launch.
  - triceratops 7y ago
    Rumors of an Apple iPhone have been around since at least 2002 (5 years before its release).[1] Apple trademarked the name in Singapore and the UK that year. Here's an NYT article from the same year using the name "iPhone"[2] 1. https://www.fiercewireless.com/wireless/timeline-apple-iphone-rumors-1999-present https://www.fiercewireless.com/wireless/timeline-apple-iphon... 2. https://www.nytimes.com/2002/08/19/business/apple-s-chief-in-the-risky-land-of-the-handhelds.html https://www.nytimes.com/2002/08/19/business/apple-s-chief-in...
  - rchaud 7y ago
    there was also the Moto ROKR, which was a Jobs-blessed product. But in any case, keyword research isn't just about punching the exact term into a search engine. It's about looking at all the different combinations of terms that would identify user interest in your product. For the iPhone that would have included search terms for "camera phone quality", "phone with web browsing", "phone with headphone jack" etc. At the time, the vast majority of phones came with a non-standard 2.5mm jack for a wired headset. The concept of listening to music on your phone was alien to all except maybe a couple of Blackberry and Nokia models.
eschulz 7y ago
This startup also faces a fatal problem when users find a great music teacher, and then they just cut out the startup for future dealings with the teacher. They lose both the parents and the best teachers. Similar to those startups that pair you with a maid.
- toohotatopic 7y ago
  ... or a soul mate, aka dating platforms.
  - deleted 7y ago
    [deleted]
  - Johnny555 7y ago
    Pairing people romantically is so hard to do that dating platforms can count on a long string of revenue from clients. It's going to take many meetups before I find the woman of my dreams, but chances are pretty good that the first maid I get paired with will meet my needs (worst case, maybe I'll need to try one or two more), after a few successful visits, then I can offer to pay direct and cut out the middleman.
    - woutr_be 7y ago
      Don't people usually cut out the middleman on dating apps straight away? From my experience, after the initial connection, and before the first meet, you usually exchange numbers, and continue through anything else but the dating app. In that aspect, I don't see how it's different than pairing with a maid.
      - jmull3n 7y ago
        You would only need to be paired with one maid though.
        woutr_be 7y ago
nikodunk 7y ago
One project I've been working on is a competing (or now no longer competing :P) platform called https://classalog.org https://classalog.org (marketplace of in-person classes). Found the same thing: buying paid ads does not make sense for a platform – you need to do this with free traffic and referrals. I think the kind of math above is useful, but it doesn't replace making something people want. Maybe to get a rough idea of the metrics, sure – but airbnb etc wouldn't have started either if they'd done the math above.
kareemm 7y ago
Fantastic. Thanks for sharing. Two questions: 1. How much data did you gather before extrapolating to the numbers in your post? 2. What tooling did you use to estimate traffic?
thorwasdfasdf 7y ago
I think this part is really key to their analysis: "First off, there are a ton of enabled small businesses competing in this space and I'm not sure there needs to be a middle man. For example, I get 4 ads from businesses in Seattle offering lessons for guitar on Google. Thus, they know how to market and get customers, they are offering free first lessons, and have availability. So I am unsure/doubt there is any real consumer problem." The realization that this is not a big enough problem consumers are having. I would guess that the musicians who want to sell their time would gladdly sign up to this platform. But the customers looking for these services, would most likely be very costly to reach.
- bagacrap 7y ago
  The musicians already have a platform on which to find customers. It's Google.
binklee 7y ago
I read one of the conclusion: "Lastly, I can't imagine that tech won't win here with non-human based teaching. It's affordable, convenient, and scalable to any genre, language, right from home on many platforms." I strongly disagree with that one. The pie is big enough for different type of teaching, including real-life classes. If what he predicts turn out true, and we all get plugged behind screens to learn new things... what a sad world it would be...
bhartzer 7y ago
I wouldn't use Keyword Planner for keyword research data. The keywords that appear there are only being actively bid on. So keywords that have more search volume and no ads won't be included.
- amoorthy 7y ago
  This is a great point. Can you please confirm with a source (or other commenters confirm)? Thank you.
  - davidwihl 7y ago
    You can use the Traffic Estimator Service https://developers.google.com/adwords/api/docs/guides/traffic-estimator-service https://developers.google.com/adwords/api/docs/guides/traffi... Disclosure: I work in Google DevRel on this API
- craze3 7y ago
  What are some good alternatives ?
crtlaltdel 7y ago
I think this is a solid assessment and a great data point for founders assessing their idea.
chiefalchemist 7y ago
This reminds me of the book "Will It Fly?" His approach wasn't targeted to SV startups, but the concepts are similar. https://www.amazon.com/Will-Fly-Business-Waste-Money-ebook/dp/B01BCLPPAK https://www.amazon.com/Will-Fly-Business-Waste-Money-ebook/d...
crsv 7y ago
This makes some strong assumptions about the validity of the google and Facebook data that underpins this theory. As the case for the prevalence of ad fraud and questionable practices by these platforms mounts, it’s hard to believe any data around CTR and purported conversion vs actual legit human traffic and cash in hand conversions.
mchristoff 7y ago
This model seems to ignore ideas that could be big if you could find a cheaper distribution strategy other than ads, ie social, virality, etc. It also ignores ideas that don't have demand yet. By this analysis you guys would have likely killed AirBnb and Dropbox.
ChicagoDave 7y ago
I’ve always been annoyed with the fail fast model. The only group that benefits from fail fast are VCs looking for a big score. They push entrepreneurs to invalidate instead of teaching/helping them how to build a business. It’s all ass backwards. But for the VC, if they see a hundred good ideas invalidated by bootstrapping founders, they save time and money. The founders are the suckers if they listen to this bull crap. You still need to validate. But do it by actually trying to make the vision work, not by giving up at the first sign of trouble.
- Johnny555 7y ago
  The only group that benefits from fail fast are VCs Doesn't the entrepreneur also benefit if it keeps him from pursuing a business that will never work? Otherwise they may become a victim of the Sunk Cost Fallacy -- after investing so much time and money into their business, they don't want to give up. The key, of course, is knowing if you really have a failing strategy, or if you just having devoted enough time/money into making it a success. And the VC can look at it more dispassionately than the inventor.
  - anstosa 7y ago
    Ansel from PSL here. You're exactly right. The entrepreneurs we work with want the best shot at a winning idea. Just because we decide to kill an idea doesn't mean we don't end up finding something else in the same area to work on together. It also doesn't mean they can't go do that idea by themselves if they disagree. PSL does not hang onto any rights whatsoever after killing an idea. It's also worth noting that only half the companies we end up spinning out were generated by entrepreneurs. The rest (including XYLO) are generated and validating in-house before we even seek an entrepreneur to partner with.
sabujp 7y ago
$60/hr is actually pretty good, even in the bay area. Currently paying $40/0.5hr for 1:1 violin and $20/hr for group piano for my kid
rmason 7y ago
This is a very dangerous idea. It seems logical until you go and try it. The potential market is too small so you pass. Only to see the market blow up into billions of dollars that gets harvested by someone else. Do you think electric cars were that big an idea in July 2003 when Martin Eberhard and Marc Tarpenning started Tesla? It also doesn't factor when you commit to an idea you become an expert. Often that knowledge forces you to pivot and become successful. Would the founders of Justin.tv ever have founded Twitch if they'd never started?
- lerchmo 7y ago
  Ignorance, motivated learning and money fantasies are a proven method of exploring the business problem space. Analysis and wisdom have limited utility when it comes to uncovering opportunities.
- rchaud 7y ago
  They're not inventing any brand new technology. They're evaluating the business case for being a middle man in an oversaturated industry where both the customer and service provider want to cut out said middleman as soon as possible.
rajacombinator 7y ago
Seems like some of this analysis could have been done before building anything. I also wouldn’t model it as ongoing CPC costs indefinitely. If the product is good it should develop word of mouth and use other marketing channels. I would love to see a similar analysis that was greenlit because CPC looked so profitable. (Maybe it exists, I don’t know.)
chrisfrantz 7y ago
I love this, I follow a similar method. One thing that immediately stood out is the Instagram ad creative is poor. The copy is overly technical and there’s no call to action. The image is a basic stock photo. Spending 5 minutes in Biteable [1] or a similar service would kick out much better ad creative that would likely have yielded substantially better results. Another point of contention is around the revenue model. Sure you could pay 4x to drive initial growth, but if you keep those customers longer than a month, the LTV could outpace the CAC. Finally, all those efforts work together. Spend $20K on google ads and referrals will go up, you can test conversion funnels since you have traffic, back links will appear that will help your organic SEO in the long term, audiences for retargeting on Facebook will fill up, etc. However, the conclusion of the author is one I agree with in the long term. Tech will solve for this. Hololens and Quest are close, the next generation will probably solve it across multiple platforms. [1] I work for Biteable.
- briandear 7y ago
  > that would likely have yielded substantially better results No. It would yield higher click through, but not necessarily a higher conversion rate. It would actually yield a lower conversion rate because a lot of creative ads get curiosity clicks rather than people dying for the product on offer. Let’s just pretend though in fantasy land that double the clicks meant double the conversion— the business would still be operating at a huge loss.
- shiftpgdn 7y ago
  Do you have any concrete proof animated or video ads perform any better? I got pitched a similar service a few years ago and the whole thing came off as super obnoxious for the end user.
dana321 7y ago
I think they missed the opportunity to add some value to the market, by doing some kind of background checks to ensure the teachers are safe to let into your kids home. Trust is an element people always look for above all else.
- briandear 7y ago
  It’s a value add for the first contact. But after you hire the teacher, why would you need the middleman? For continuing background checks?
  - dana321 7y ago
    It would be a one-off fee, but you would charge more. You could also charge a fee for doing a credit check on the other side.
- WilliamEdward 7y ago
  There are no music teachers. This product doesn't exist and giving them your info simply puts you on a mailing list waiting for an instructor that isn't real.
doctoboggan 7y ago
How was the data in the first table estimated (clicks, impressions, cost, etc)?
- sumoboy 7y ago
  Google ads keywords planner. So many variables with deploying a real campaign and not optimizing end to end, so actual results can vastly vary with CPC, CTR, and conversions. If you build great ad campaigns and landing pages, you should be beating these estimates nearly every time. Even with these keyword estimates you would never go full speed with ad spend until you optimized every step in the funnel on-going, then ramp up ad spend to scale in the following months. On top of that where are the display and youtube campaigns? Blaming these click estimates and ad platforms is not the reason of a failure, rather the value add, demand, and audience targeting. So many techniques to optimizing ad campaigns, I didn't get that was done.
throw_14JAS 7y ago
My major takeaway was how cheaply they tested this idea. Waiting for someone to sell this as a provider-as-a-service to VCs, so they can quickly get a real world estimate of TAM. For $1k in spend and a day's work, they had a nice data point that tested TAM assumptions. * Landing page is a template, figure 4-8 hours to put together the couple hundred words of content and configuring assets * FB Spend = $509.23 * Estimate Google spend around the same (numbers not specified)
johnwheeler 7y ago
What tool did they use to come up with that demand generation spreadsheet? Is that just keyword planner or is there something else?
tobr 7y ago
This might come off as awfully naive, but this doesn’t sit right with me: > XYLO's mobile music lesson technology is the easiest way to learn new music, right from the comfort of your home. Our platform can teach your child any instrument on any schedule, and let them replay lessons forever. As far as I understand, this is... a complete lie? You just made some crap up to see if you can make people click?
- _-o-_ 7y ago
  It's a lie, but only in a sense that they don't have a product yet. But that's something that they could have striven for if they were funded.
  - throwawayjava 7y ago
    Can't you say the same for financial fraud? "It's fraud, but only in the sense that we don't have the profits yet. With some investment we'll surely be able to make that much profit and more." Also, it's not just a landing page. They take PII. I'm honestly a bit surprised this is legal.
- deleted 7y ago
  [deleted]
- dhimes 7y ago
  It's understandably naive. As I commented in another thread, many many years ago there were discussions here on HN on doing just this. Most of us agreed it was immoral behavior. These guys are endorsing it. The argument from the other side was: Yes, you are making some people angry. You're going to piss off 300 potential customers so you can learn enough to get 300,000. You're not taking money and if you protect their email addresses (don't sell them, etc.) then it's worth it because you can save a lot of money and time.
- libertine 7y ago
  You have platforms that thrive on this : Kickstarter, Indiegogo. They are filled with concepts, prototypes, what ever that's sold as end products. Yet they ask for money, here it's offered the possibility to get more information.
vi-mode 7y ago
A wall of text intended as smart content marketing to get some awareness for a rather unknown investment firm or incubator--Crunchbase didn't show any raised funds, so I don't call them VC. The long, over-polite text, the fake landing, the ad test weren't required in the first place. Why: The immediate answer every experienced VC would give is a simple 'no, this isn't a VC case' without all this fuzz and waste of time. This market is useless for VCs because it's prone to disintermediation. Once people form a long-term business relationship, it's easy and reasonable to kick-out the middlemen (eg Homejoy). Marketplaces without long-term relationships don't face this problem (eg Airbnb, Uber). Disintermediation is a hard problem nobody solved. 101 of investing. Edit: Just saw another user posted the same. What is interesting, PSL didn't answer to that user's thread which could be interpreted as approval. So, PSL's post shows well that most investors are not per se smarter because they invest money. They're just humans like all of us trying to get free reach for a day with 'random' blog posts.
- Traster 7y ago
  Counterpoint: Wag raised $300m for an almost identical idea.
  - poutrathor 7y ago
    Maybe because Wag targets a market where workers are hoping in and off more than cleaners ? Or because people are emotional toward their pets' spendings ? Maybe because investors throw money to many stupid things. ("we never know" "you miss 100% of the shots you don't take").
  - Jasper_ 7y ago
    And how's that working out for them?
- anstosa 7y ago
  Ansel from PSL here. PSL Studio has raised $28.5M. PSL Ventures has raised $85M. We have spun out 20 companies over 4 years. 6 of which are in the 50 Seattle companies to watch in 2020 (https://www.builtinseattle.com/2020/01/21/50-seattle-startups-watch-2020 https://www.builtinseattle.com/2020/01/21/50-seattle-startup...) and of the early-stage venture backed companies who raised money in 2019, over 12% where PSL companies.
untangle 7y ago
There is no mention of Yelp or Craigslist as a means to find local help? And the analyst spent a week on this? Waste of time. Nothing here.
Negitivefrags 7y ago
Can someone explain to me how this is legal? False advertising laws exist and this is literally marketing a non-existent product. And even if it’s not illegal, I don’t understand how you can just be okay with lying to people. Everyone in this thread seems to just be totally okay with this and I’m super confused about it.
- WilliamEdward 7y ago
  I get the impression people here simply didn't catch that there was no actual product, since the authors were so nonchalant about it. I went to the site myself and filled in some checkboxes. Added my email and it simply says i'm on a list and nothing else happens. This is pretty disgusting.
- mritchie712 7y ago
  If someone wanted them "brought to justice", they'd need to: 1. Sue them 2. Prove they were harmed in some way 3. Either hire a lawyer or do a bunch of paperwork (not to mention learn what paperwork they need to do) That's why it's unlikely they'd face any repercussions from running the test.
- dhimes 7y ago
  I was scrolling the comments here to see if this was being discussed. It's my biggest takeaway from the article. We had a discussion many many years ago on HN (maybe more than one) and the feeling among the startup devs (not all, mind you, but the majority) was that such behavior was immoral. I think it came up once in a conversation about Steve Blanck (sp?) IIRC. One thing I learned a few years back, however: If you're in a game and you're the only one playing by the rules, you're going to lose.
- jlokier 7y ago
  It probably is illegal under the GDPR and perhaps a future US personal data law. Take a look at what WilliamEdward wrote in a child comment: > I went to the site myself and filled in some checkboxes. Added my email and it simply says i'm on a list and nothing else happens. Under GDPR, your email is personal data (PII) and taking it from you under false pretences, to use for a purpose you were not informed about and did not consent to, is against the law. Of course nobody is likely to sue over it.
Angostura 7y ago
Just a dumb question, but in the testing phase, what was actually happening here? Are the adverts for an effectively 'fake company'? What happens to users who sign up, do they get an e-mail saying 'thanks for your interest, but at this stage we are only gauging interest'?
luord 7y ago
> Lastly, I can't imagine that tech won't win here with non-human based teaching. It's affordable, convenient, and scalable to any genre, language, right from home on many platforms. That's just sad, even if probably true I'd still hope teachers remain. I'd rather have a human mentor when it comes to art.
- rchaud 7y ago
  They're assuming that because justin.tv exists and is popular, and that e-learning is now common in a number of fields, that this will apply to music as well. Not so in my experience. I quickly learned that I can't follow along with my virtual guitar tutor if I broke the strings while attempting to tune it and have no idea how to re-string it.
zwendkos 7y ago
FWIW, my company, TrueFire, is one of the industry leaders in music education. We were bootstrapped, focused on a niche of the market first (intermediate to advanced video lessons for blues, jazz, etc = older men with expendable income), and have grown steadily since then. We were just acquired by a private equity firm and merged with another big competitor in the space (JamPlay) to form a new company dedicated to dominating this space. So... it is possible to not go the VC route and be (very) successful, albeit not $Bs.
testingworks1 7y ago
As a musician myself, who has also been taught by music instructors over the years, I find this idea strange. Musicians are artists. They are also not beholden to market trends. Music instructors tend to be picky about who they accept when they choose their students. Music is also a person to person thing. Those who are truly serious about learning will choose a person to person connection. This is an interesting case of trying to quantify a subjective subject. Music is an art. It's hard to quantify. Musicians (mostly instructors in this case, then a bit later the students) will most likely shy away from this form of making a commodity of something that is inherently personal and expressive. This model is mostly likely going to fail not because of the numbers, but because of the subject at hand. This is an interesting case study. And it makes sense, the numbers prove that it's not viable. The fact that it's not viable isn't the numbers, however. It's something to consider.

568 points by treblig 7y ago

This is very useful insight that I want to apply to my own planned side-projects (like 30-something domains registered as ideas...) Too often I've thought "that's a great idea" and then focused on the tech of implementation rather than the viability. At that point it's just a hobby, or skill-sharpening exercise. Regarding the example shown, I would think that "uber for" ideas (meaning facilitate a connection between service provider X with service need-er Y, take a commission on the transaction) sound as though possibilities are unlimited. However the reality may be that not everything can be disrupted in this way.

netsharc 7y ago
Reading this article and seeing these replies, I feel like a communist who accidentally walked into a Davos hotel lobby during WEF. What about just making a website to connect learners and providers? This commission-taking, the Uber model, such effing rent-seeking. I mean I also don't work for free, but things like "Uber-for-dog-walkers, but we'll fine you much money if you arrange dog walks outside of our service. Also we don't vet our walkers so they might kill your dog[1]."? Come back to reality please. 1) Top result when I google "dog walker kills dog" https://nypost.com/2019/12/01/embattled-dog-walking-app-wag-hit-with-new-dead-pooch-accusation/ https://nypost.com/2019/12/01/embattled-dog-walking-app-wag-...
- throwawayjava 7y ago
  > such effing rent-seeking That was also my take-away regarding this idea. 20% cut? For match-making on private music lessons? Fuck that. Our local music store charges less than that for renting an hour in a soundproof room! And the discoverability/match-making "platform" is a free bulletin board next to the restroom... Also love how that email described the radical act of checking the local music store's bulletin board (or going and asking a friend/coworker/etc. for a recommendation) as "under-the-table neighborhood activity".
  - unlinked_dll 7y ago
    Plus you can get a referral for private lessons from virtually any public or private school music teacher. For free.
    - logifail 7y ago
      > Plus you can get a referral for [snip] for free Who actually thinks that a(ny) startup is going to be able to provide consistently higher-quality referrals than an actual word of mouth referral from someone you know?
  - CrazyStat 7y ago
    And the existing competitors are apparently charging a 40% cut! Even more depressingly, good music teachers, once they get established, will typically have as many students as they want through word of mouth alone. So the teachers you'll find who are desperate for students and willing to give up a 20-40% cut are probably mediocre.
- cortesoft 7y ago
  I mean, there ARE services to provide in this space that aren't rent seeking and are worthy of being paid for... things like financial service (taking payments), escrow service (making sure each side provides the agreed upon service, and arbitrating any disputes), vetting services (could be ratings, background checks, etc), guarantees and insurance... i am sure we could think of many others I am totally fine with a company providing those services to independent contractors... I just wish they would do more of those things and less of the attempting to force you to keep using their service
cortesoft 7y ago
As others have said on this thread, this model is not very good for frequent, repeated services that are provided by the same person each time. When that happens, it becomes really easy to cut the middle man out and pay the service provider directly. These services are matchmakers, and the matchmaker can only really be expected to be paid to make the match... not in perpetuity. This is why services like Uber, where you only are matched with a particular driver for a single ride and are unlikely to be driven by the same driver again (at least not intentionally) work so well for a matchmaking service. If you hire a music teacher, you aren't going to have a different one every week. You don't need the match making services after that first lesson. So why are you going to keep paying the matchmaker?
- jlokier 7y ago
  For one on one personal service yes. For something where people get some value out of using the intermediary over and over, even if it's the same teacher, see Peloton. I could see that idea working for remote music lessons if the teachers were great.

lowdose 7y ago

So these guys have to read up on some articles about multisided marketplaces which what they were testing. Starting a matching platform between consumers and teachers is not a feasible plan because this is a longer term relationship and a platform is easily cut out. A platform like uber works because nobody has a regular cab driver. Supply and demand matching is also terrible for dog walking platforms. Don't spend time testing all kind of startup ideas with complicated technique when you don't know what multisided marketplaces are and network effects.

smallgovt 7y ago
Can you clarify what you mean by "supply and demand matching is terrible" for dog walking platforms? It seems like if the primary qualifier on marketplace success is the ease at which two parties can cut out the platform, dog walking would not pass.
- edouard-harris 7y ago
  Perhaps surprisingly, dog walking platforms like Rover do experience alarming levels of defection (when participants do a side deal and cut out the platform). The dynamic seems to be that you generally take your dog out for a walk at a similar time every day, and this regularity (and comfort with a specific dog walker that you've grown to trust) leads to more frequent defections.
edouard-harris 7y ago
Excellent point. This would have been reason enough to kill the idea irrespective of the CAC calculation. Speaking from extensive marketplace experience: A pattern of long term relationships will lead almost surely* to supply-side defection in your marketplace, which is when the supply leverages its relationship with the demand to set up a side deal that cuts out the platform. This can quickly take both supply-side and demand-side churn to levels that are an existential threat to the business. And of course, fraudulently inclined supply side firms may turn defection itself into an optimized business process if it's lucrative enough to do so. High defection rates ultimately killed Poppy (babysitting marketplace) and Tutorspree (tutoring marketplace), and they continue to plague even platforms like Rover and Airbnb despite (or because of?) their scale. * Despite what many folks believe, it's is possible to run a successful relationship marketplace without significant supply-side defection; you just need to structure it to leverage the relationship, rather than trying to break the relationship into a set of one-off transactions. (As an existence proof, I'm running such a marketplace right now.)

saadshamim 7y ago

@treblig any advice on usually how much percent increase you see once you move up funnel with fb advertising (optimize)? I'm guessing the cpc you got are based on bottom funnel and highly targeted hence the high cpc. I find really difficult to estimate costs with fb, because it takes me a fairly long time (1-month+) to build the content and ad strategy to lower costs. But I'm wondering at what point do you know if its a bad business idea vs bad ad strategy?

tempy_tempy 7y ago

A "startup studio" and a "venture capital fund" ??? no conflict there !! Like, great, please send us your detailed startup plan and then come pitch and answer our questions, and then.... well, its not a good match and we pass 99% of the time, but hey, look at this back office studio we got going here, trying out new ideas we have never heard of before.

boffinism 7y ago
I think you misunderstand how VCs work. If you come to them with a strong idea and evidence that you have built up that it will work and a plan for how to move forward and the right people and you try to get them to take equity they have really no incentive to to say no to you and try to build the thing themselves without you, when it would be so much easier just to help you build it.
- tempy_tempy 7y ago
  A late reply. Your logic is true for an 8-figure VC fund. Its more nuanced for a technically-proficient group looking at 5-6-digit (pre)seed rounds.
oblib 7y ago
Sounded to me like they were paid for testing the idea for both the startup founders and investors because that's a specific service they offer.

justaguyhere 7y ago

Wow, didn't realize adwords and FB ads are so expensive. How do small businesses compete? are there any alternatives for those with smaller ad budgets?

nscalf 7y ago
From my experience with adwords/fb ads, this is not normal. The reason the cost is so high is because they're targeting ads to things like "bass" instead of "learn bass from scratch" in Sacramento, CA. The more specific you are, the less competition and the easier to target and win on keywords. The tough part is that being a strong force in the Sacramento, CA Bass market for new players from scratch is not a billion dollar idea.
- GordonS 7y ago
  Sometimes, more specific actually means more cost - in B2B, I've seen roughly $15 and $7 CPC for heavily contested keyword phrases, and know of a competitor that bids over $30 CPC for a particular phrase. A slight aside, but although it's definitely market forces at work, I'm certain Google inflates CPC prices before those market forces take hold, forcing the hand of smaller players.
jjn2009 7y ago
You kill the idea because it is so expensive, if you cannot easily reach consumers for a small amount of money then the demand side is low. It's cheaper to reach consumers who are willing to click links because they actually need a service.
- anstosa 7y ago
  Ansel from PSL here. That's not quite right. Ad pricing is a marketplace like any other. The "demand" in the marketplace is demand by advertisers to get in front of any particular set of eyeballs. The price will be high if many advertisers are interested in the same group of people (and low if not). Price is an important metric for determining customer acquisition cost but you can't use it to infer customer demand. You instead use impressions, click through rates, and conversions rates to do that.

arnaudsm 7y ago

It's crazy how markets saturate quickly online. You really need a large marketing budget and/or network effect to triumph nowadays, product quality is not differentiating enough. I am scared for the future, this will inevitably lead in harder-to-break monopolies. I worked for an entire year on a next-gen comparison engine (picked.cc if you want to check it out), and even with exciting user feedback and crazy conversion rates, it probably will never scale because of those reasons.

virgilp 7y ago
> even with exciting user feedback and crazy conversion rates, it probably will never scale How so? With crazy conversion rates, all you need is capital. Capital is readily available nowadays, if you need that marketing budget you can get it. Unless you do something inherently stupid like selling 1$ for 50 cents...
- arnaudsm 7y ago
  I was a student in debt at the time. Fortunately this project caught the eye of a fellow HNer and helped me get my first job in the bay area.
myth_drannon 7y ago
You need initial capital or connections. Right now in Canada the well connected are flushed with free money from the government. Just say you are doing AI or add AI to the company name (nope, elasticsearch document scoring recommendation is not AI!) and you get millions from the government to push your way into the market.
- tixocloud 7y ago
  I’d love to see some of that money. I’m Canadian and you’re right, the stuff that gets put out as AI is quite sad. They tried to pitch me as well to get my feedback on their platform.
treebornfrog 7y ago
Neat idea, I created something similar years ago but didn't know how to market it. What's your strategy to get users?

emrehan 7y ago

I really liked their methodology. How can I learn more of it?

jjn2009 7y ago
One Million Followers by Brendan Kane‎ although not directly related shows similar usage of ad platforms for content testing.
Untit1ed 7y ago
I wrote a blog post (https://blog.nichetester.com/the-assholes-guide-to-product-validation-1e5be4eb730e https://blog.nichetester.com/the-assholes-guide-to-product-v...) and eventually made a web app (https://nichetester.com https://nichetester.com) to step people through a pretty similar process for new ideas.

jtolmar 7y ago

Neat article. It's definitely a good idea to get actual numbers to estimate total addressable market, CTR, and CPC. However I want to call attention to this bit: > First off, there are a ton of enabled small businesses competing in this space and I'm not sure there needs to be a middle man. For example, I get 4 ads from businesses in Seattle offering lessons for guitar on Google. Thus, they know how to market and get customers, they are offering free first lessons, and have availability. So I am unsure/doubt there is any real consumer problem. If your idea doesn't solve real consumer problems, kill it. It doesn't matter if the total market, CPC, and LTV are all amazing, this is sufficient. Even if you succeed, all you'll have done is shuffle some money around. Go make things that actually help people.

tmpz22 7y ago
I agree but would add the caveat that many market niches have a surprising amount of depth that may warrant further discovery. For example TAKE one of these guitar lessons and if some creepy person comes up with a windowless van and gives an awful lesson there may be demand, just the demand is more hidden.

crikli 7y ago

So...to me this article illustrates the dramatic differences in objective and mentality between bootstrappers and VCs. This VC looks at this idea, figures out that in order to own the market and make $fuckton, they'd have to spend > $fuckton. Decides to bail. As a bootstrapper of businesses, I look at this case study and go "well yeah of course it'll take $fuckton because you're haven't focused on a narrow enough niche". Which of course they haven't because you can only make $shittons from niches, not $fucktons (where $fuckton is up to an order of magnitude larger than $shitton). It's a very different set of expectations. $idea might not be investable as a VC, but if you can really define a specific niche, get a toehold, and patiently build from there, $idea might have merit for a bootstrapper. (All that said I don't think this particular idea has legs based on the reasons identified in the "Regarding competition" section and also from my own limited experience in the music space).

anstosa 7y ago
Ansel from PSL here. Absolutely. Because we're venture-backed and are spinning out venture-backed companies, we are limited to billion dollar ideas. It's not uncommon for us to kill great ideas that could "only" make tens of millions of dollars. We're hoping through blog posts like this and other means to be able to share more of them because we want those companies to exist, we're just not set up to create them!
- crikli 7y ago
  Hey Ansel, thanks for responding and for validating my train of thought...I don't have that much exposure to the VC world so the things I suspect far outweigh the things I know. :)
- sprsimplestuff 7y ago
  feel free to start sharing those "small market" ideas haha
  - chiefalchemist 7y ago
    After they've been vetted of course ;)

bogdanu 7y ago

Doesn't promoting a single page template breaking Google Adwords ToS? A few years ago when I did something like this Google disabled my ads.

kbuchanan 7y ago

This may strike some as silly, but before the iPhone was invented, there were ZERO searches for the term "iPhone". (I assume, ha!) By all means, do market analysis, but remember that demand is not static—it can be shaped by what you offer. I co-founded a firm 13 years ago that now employees 50 people that most certainly would have been killed by this type of analysis.

dragonwriter 7y ago
> before the iPhone was invented, there were ZERO searches for the term "iPhone". Before the Apple iPhone was invented, there were probably some searches for “iPhone” because infogear had a product with that name in 1998, and Cisco (who has purchased infogear) started using it for Linksys products not long before the Apple iPhone launch.
- triceratops 7y ago
  Rumors of an Apple iPhone have been around since at least 2002 (5 years before its release).[1] Apple trademarked the name in Singapore and the UK that year. Here's an NYT article from the same year using the name "iPhone"[2] 1. https://www.fiercewireless.com/wireless/timeline-apple-iphone-rumors-1999-present https://www.fiercewireless.com/wireless/timeline-apple-iphon... 2. https://www.nytimes.com/2002/08/19/business/apple-s-chief-in-the-risky-land-of-the-handhelds.html https://www.nytimes.com/2002/08/19/business/apple-s-chief-in...
- rchaud 7y ago
  there was also the Moto ROKR, which was a Jobs-blessed product. But in any case, keyword research isn't just about punching the exact term into a search engine. It's about looking at all the different combinations of terms that would identify user interest in your product. For the iPhone that would have included search terms for "camera phone quality", "phone with web browsing", "phone with headphone jack" etc. At the time, the vast majority of phones came with a non-standard 2.5mm jack for a wired headset. The concept of listening to music on your phone was alien to all except maybe a couple of Blackberry and Nokia models.

eschulz 7y ago

This startup also faces a fatal problem when users find a great music teacher, and then they just cut out the startup for future dealings with the teacher. They lose both the parents and the best teachers. Similar to those startups that pair you with a maid.

toohotatopic 7y ago
... or a soul mate, aka dating platforms.
- deleted 7y ago
  [deleted]
- Johnny555 7y ago
  Pairing people romantically is so hard to do that dating platforms can count on a long string of revenue from clients. It's going to take many meetups before I find the woman of my dreams, but chances are pretty good that the first maid I get paired with will meet my needs (worst case, maybe I'll need to try one or two more), after a few successful visits, then I can offer to pay direct and cut out the middleman.
  - woutr_be 7y ago
    Don't people usually cut out the middleman on dating apps straight away? From my experience, after the initial connection, and before the first meet, you usually exchange numbers, and continue through anything else but the dating app. In that aspect, I don't see how it's different than pairing with a maid.
    - jmull3n 7y ago
      You would only need to be paired with one maid though.
      - woutr_be 7y ago

nikodunk 7y ago

One project I've been working on is a competing (or now no longer competing :P) platform called https://classalog.org https://classalog.org (marketplace of in-person classes). Found the same thing: buying paid ads does not make sense for a platform – you need to do this with free traffic and referrals. I think the kind of math above is useful, but it doesn't replace making something people want. Maybe to get a rough idea of the metrics, sure – but airbnb etc wouldn't have started either if they'd done the math above.

kareemm 7y ago

Fantastic. Thanks for sharing. Two questions: 1. How much data did you gather before extrapolating to the numbers in your post? 2. What tooling did you use to estimate traffic?

thorwasdfasdf 7y ago

I think this part is really key to their analysis: "First off, there are a ton of enabled small businesses competing in this space and I'm not sure there needs to be a middle man. For example, I get 4 ads from businesses in Seattle offering lessons for guitar on Google. Thus, they know how to market and get customers, they are offering free first lessons, and have availability. So I am unsure/doubt there is any real consumer problem." The realization that this is not a big enough problem consumers are having. I would guess that the musicians who want to sell their time would gladdly sign up to this platform. But the customers looking for these services, would most likely be very costly to reach.

bagacrap 7y ago
The musicians already have a platform on which to find customers. It's Google.

binklee 7y ago

I read one of the conclusion: "Lastly, I can't imagine that tech won't win here with non-human based teaching. It's affordable, convenient, and scalable to any genre, language, right from home on many platforms." I strongly disagree with that one. The pie is big enough for different type of teaching, including real-life classes. If what he predicts turn out true, and we all get plugged behind screens to learn new things... what a sad world it would be...

bhartzer 7y ago

I wouldn't use Keyword Planner for keyword research data. The keywords that appear there are only being actively bid on. So keywords that have more search volume and no ads won't be included.

amoorthy 7y ago
This is a great point. Can you please confirm with a source (or other commenters confirm)? Thank you.
- davidwihl 7y ago
  You can use the Traffic Estimator Service https://developers.google.com/adwords/api/docs/guides/traffic-estimator-service https://developers.google.com/adwords/api/docs/guides/traffi... Disclosure: I work in Google DevRel on this API
craze3 7y ago
What are some good alternatives ?

crtlaltdel 7y ago

I think this is a solid assessment and a great data point for founders assessing their idea.

chiefalchemist 7y ago

This reminds me of the book "Will It Fly?" His approach wasn't targeted to SV startups, but the concepts are similar. https://www.amazon.com/Will-Fly-Business-Waste-Money-ebook/dp/B01BCLPPAK https://www.amazon.com/Will-Fly-Business-Waste-Money-ebook/d...

crsv 7y ago

This makes some strong assumptions about the validity of the google and Facebook data that underpins this theory. As the case for the prevalence of ad fraud and questionable practices by these platforms mounts, it’s hard to believe any data around CTR and purported conversion vs actual legit human traffic and cash in hand conversions.

mchristoff 7y ago

This model seems to ignore ideas that could be big if you could find a cheaper distribution strategy other than ads, ie social, virality, etc. It also ignores ideas that don't have demand yet. By this analysis you guys would have likely killed AirBnb and Dropbox.

ChicagoDave 7y ago

I’ve always been annoyed with the fail fast model. The only group that benefits from fail fast are VCs looking for a big score. They push entrepreneurs to invalidate instead of teaching/helping them how to build a business. It’s all ass backwards. But for the VC, if they see a hundred good ideas invalidated by bootstrapping founders, they save time and money. The founders are the suckers if they listen to this bull crap. You still need to validate. But do it by actually trying to make the vision work, not by giving up at the first sign of trouble.

Johnny555 7y ago
The only group that benefits from fail fast are VCs Doesn't the entrepreneur also benefit if it keeps him from pursuing a business that will never work? Otherwise they may become a victim of the Sunk Cost Fallacy -- after investing so much time and money into their business, they don't want to give up. The key, of course, is knowing if you really have a failing strategy, or if you just having devoted enough time/money into making it a success. And the VC can look at it more dispassionately than the inventor.
- anstosa 7y ago
  Ansel from PSL here. You're exactly right. The entrepreneurs we work with want the best shot at a winning idea. Just because we decide to kill an idea doesn't mean we don't end up finding something else in the same area to work on together. It also doesn't mean they can't go do that idea by themselves if they disagree. PSL does not hang onto any rights whatsoever after killing an idea. It's also worth noting that only half the companies we end up spinning out were generated by entrepreneurs. The rest (including XYLO) are generated and validating in-house before we even seek an entrepreneur to partner with.

sabujp 7y ago

$60/hr is actually pretty good, even in the bay area. Currently paying $40/0.5hr for 1:1 violin and $20/hr for group piano for my kid

rmason 7y ago

This is a very dangerous idea. It seems logical until you go and try it. The potential market is too small so you pass. Only to see the market blow up into billions of dollars that gets harvested by someone else. Do you think electric cars were that big an idea in July 2003 when Martin Eberhard and Marc Tarpenning started Tesla? It also doesn't factor when you commit to an idea you become an expert. Often that knowledge forces you to pivot and become successful. Would the founders of Justin.tv ever have founded Twitch if they'd never started?

lerchmo 7y ago
Ignorance, motivated learning and money fantasies are a proven method of exploring the business problem space. Analysis and wisdom have limited utility when it comes to uncovering opportunities.
rchaud 7y ago
They're not inventing any brand new technology. They're evaluating the business case for being a middle man in an oversaturated industry where both the customer and service provider want to cut out said middleman as soon as possible.

rajacombinator 7y ago

Seems like some of this analysis could have been done before building anything. I also wouldn’t model it as ongoing CPC costs indefinitely. If the product is good it should develop word of mouth and use other marketing channels. I would love to see a similar analysis that was greenlit because CPC looked so profitable. (Maybe it exists, I don’t know.)

chrisfrantz 7y ago

I love this, I follow a similar method. One thing that immediately stood out is the Instagram ad creative is poor. The copy is overly technical and there’s no call to action. The image is a basic stock photo. Spending 5 minutes in Biteable [1] or a similar service would kick out much better ad creative that would likely have yielded substantially better results. Another point of contention is around the revenue model. Sure you could pay 4x to drive initial growth, but if you keep those customers longer than a month, the LTV could outpace the CAC. Finally, all those efforts work together. Spend $20K on google ads and referrals will go up, you can test conversion funnels since you have traffic, back links will appear that will help your organic SEO in the long term, audiences for retargeting on Facebook will fill up, etc. However, the conclusion of the author is one I agree with in the long term. Tech will solve for this. Hololens and Quest are close, the next generation will probably solve it across multiple platforms. [1] I work for Biteable.

briandear 7y ago
> that would likely have yielded substantially better results No. It would yield higher click through, but not necessarily a higher conversion rate. It would actually yield a lower conversion rate because a lot of creative ads get curiosity clicks rather than people dying for the product on offer. Let’s just pretend though in fantasy land that double the clicks meant double the conversion— the business would still be operating at a huge loss.
shiftpgdn 7y ago
Do you have any concrete proof animated or video ads perform any better? I got pitched a similar service a few years ago and the whole thing came off as super obnoxious for the end user.

dana321 7y ago

I think they missed the opportunity to add some value to the market, by doing some kind of background checks to ensure the teachers are safe to let into your kids home. Trust is an element people always look for above all else.

briandear 7y ago
It’s a value add for the first contact. But after you hire the teacher, why would you need the middleman? For continuing background checks?
- dana321 7y ago
  It would be a one-off fee, but you would charge more. You could also charge a fee for doing a credit check on the other side.
WilliamEdward 7y ago
There are no music teachers. This product doesn't exist and giving them your info simply puts you on a mailing list waiting for an instructor that isn't real.

doctoboggan 7y ago

How was the data in the first table estimated (clicks, impressions, cost, etc)?

sumoboy 7y ago
Google ads keywords planner. So many variables with deploying a real campaign and not optimizing end to end, so actual results can vastly vary with CPC, CTR, and conversions. If you build great ad campaigns and landing pages, you should be beating these estimates nearly every time. Even with these keyword estimates you would never go full speed with ad spend until you optimized every step in the funnel on-going, then ramp up ad spend to scale in the following months. On top of that where are the display and youtube campaigns? Blaming these click estimates and ad platforms is not the reason of a failure, rather the value add, demand, and audience targeting. So many techniques to optimizing ad campaigns, I didn't get that was done.

throw_14JAS 7y ago

My major takeaway was how cheaply they tested this idea. Waiting for someone to sell this as a provider-as-a-service to VCs, so they can quickly get a real world estimate of TAM. For $1k in spend and a day's work, they had a nice data point that tested TAM assumptions. * Landing page is a template, figure 4-8 hours to put together the couple hundred words of content and configuring assets * FB Spend = $509.23 * Estimate Google spend around the same (numbers not specified)

johnwheeler 7y ago

What tool did they use to come up with that demand generation spreadsheet? Is that just keyword planner or is there something else?

tobr 7y ago

This might come off as awfully naive, but this doesn’t sit right with me: > XYLO's mobile music lesson technology is the easiest way to learn new music, right from the comfort of your home. Our platform can teach your child any instrument on any schedule, and let them replay lessons forever. As far as I understand, this is... a complete lie? You just made some crap up to see if you can make people click?

_-o-_ 7y ago
It's a lie, but only in a sense that they don't have a product yet. But that's something that they could have striven for if they were funded.
- throwawayjava 7y ago
  Can't you say the same for financial fraud? "It's fraud, but only in the sense that we don't have the profits yet. With some investment we'll surely be able to make that much profit and more." Also, it's not just a landing page. They take PII. I'm honestly a bit surprised this is legal.
deleted 7y ago
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dhimes 7y ago
It's understandably naive. As I commented in another thread, many many years ago there were discussions here on HN on doing just this. Most of us agreed it was immoral behavior. These guys are endorsing it. The argument from the other side was: Yes, you are making some people angry. You're going to piss off 300 potential customers so you can learn enough to get 300,000. You're not taking money and if you protect their email addresses (don't sell them, etc.) then it's worth it because you can save a lot of money and time.
libertine 7y ago
You have platforms that thrive on this : Kickstarter, Indiegogo. They are filled with concepts, prototypes, what ever that's sold as end products. Yet they ask for money, here it's offered the possibility to get more information.

vi-mode 7y ago

A wall of text intended as smart content marketing to get some awareness for a rather unknown investment firm or incubator--Crunchbase didn't show any raised funds, so I don't call them VC. The long, over-polite text, the fake landing, the ad test weren't required in the first place. Why: The immediate answer every experienced VC would give is a simple 'no, this isn't a VC case' without all this fuzz and waste of time. This market is useless for VCs because it's prone to disintermediation. Once people form a long-term business relationship, it's easy and reasonable to kick-out the middlemen (eg Homejoy). Marketplaces without long-term relationships don't face this problem (eg Airbnb, Uber). Disintermediation is a hard problem nobody solved. 101 of investing. Edit: Just saw another user posted the same. What is interesting, PSL didn't answer to that user's thread which could be interpreted as approval. So, PSL's post shows well that most investors are not per se smarter because they invest money. They're just humans like all of us trying to get free reach for a day with 'random' blog posts.

Traster 7y ago
Counterpoint: Wag raised $300m for an almost identical idea.
- poutrathor 7y ago
  Maybe because Wag targets a market where workers are hoping in and off more than cleaners ? Or because people are emotional toward their pets' spendings ? Maybe because investors throw money to many stupid things. ("we never know" "you miss 100% of the shots you don't take").
- Jasper_ 7y ago
  And how's that working out for them?
anstosa 7y ago
Ansel from PSL here. PSL Studio has raised $28.5M. PSL Ventures has raised $85M. We have spun out 20 companies over 4 years. 6 of which are in the 50 Seattle companies to watch in 2020 (https://www.builtinseattle.com/2020/01/21/50-seattle-startups-watch-2020 https://www.builtinseattle.com/2020/01/21/50-seattle-startup...) and of the early-stage venture backed companies who raised money in 2019, over 12% where PSL companies.

untangle 7y ago

There is no mention of Yelp or Craigslist as a means to find local help? And the analyst spent a week on this? Waste of time. Nothing here.

Negitivefrags 7y ago

Can someone explain to me how this is legal? False advertising laws exist and this is literally marketing a non-existent product. And even if it’s not illegal, I don’t understand how you can just be okay with lying to people. Everyone in this thread seems to just be totally okay with this and I’m super confused about it.

WilliamEdward 7y ago
I get the impression people here simply didn't catch that there was no actual product, since the authors were so nonchalant about it. I went to the site myself and filled in some checkboxes. Added my email and it simply says i'm on a list and nothing else happens. This is pretty disgusting.
mritchie712 7y ago
If someone wanted them "brought to justice", they'd need to: 1. Sue them 2. Prove they were harmed in some way 3. Either hire a lawyer or do a bunch of paperwork (not to mention learn what paperwork they need to do) That's why it's unlikely they'd face any repercussions from running the test.
dhimes 7y ago
I was scrolling the comments here to see if this was being discussed. It's my biggest takeaway from the article. We had a discussion many many years ago on HN (maybe more than one) and the feeling among the startup devs (not all, mind you, but the majority) was that such behavior was immoral. I think it came up once in a conversation about Steve Blanck (sp?) IIRC. One thing I learned a few years back, however: If you're in a game and you're the only one playing by the rules, you're going to lose.
jlokier 7y ago
It probably is illegal under the GDPR and perhaps a future US personal data law. Take a look at what WilliamEdward wrote in a child comment: > I went to the site myself and filled in some checkboxes. Added my email and it simply says i'm on a list and nothing else happens. Under GDPR, your email is personal data (PII) and taking it from you under false pretences, to use for a purpose you were not informed about and did not consent to, is against the law. Of course nobody is likely to sue over it.

Angostura 7y ago

Just a dumb question, but in the testing phase, what was actually happening here? Are the adverts for an effectively 'fake company'? What happens to users who sign up, do they get an e-mail saying 'thanks for your interest, but at this stage we are only gauging interest'?

luord 7y ago

> Lastly, I can't imagine that tech won't win here with non-human based teaching. It's affordable, convenient, and scalable to any genre, language, right from home on many platforms. That's just sad, even if probably true I'd still hope teachers remain. I'd rather have a human mentor when it comes to art.

rchaud 7y ago
They're assuming that because justin.tv exists and is popular, and that e-learning is now common in a number of fields, that this will apply to music as well. Not so in my experience. I quickly learned that I can't follow along with my virtual guitar tutor if I broke the strings while attempting to tune it and have no idea how to re-string it.

zwendkos 7y ago

FWIW, my company, TrueFire, is one of the industry leaders in music education. We were bootstrapped, focused on a niche of the market first (intermediate to advanced video lessons for blues, jazz, etc = older men with expendable income), and have grown steadily since then. We were just acquired by a private equity firm and merged with another big competitor in the space (JamPlay) to form a new company dedicated to dominating this space. So... it is possible to not go the VC route and be (very) successful, albeit not $Bs.

testingworks1 7y ago

As a musician myself, who has also been taught by music instructors over the years, I find this idea strange. Musicians are artists. They are also not beholden to market trends. Music instructors tend to be picky about who they accept when they choose their students. Music is also a person to person thing. Those who are truly serious about learning will choose a person to person connection. This is an interesting case of trying to quantify a subjective subject. Music is an art. It's hard to quantify. Musicians (mostly instructors in this case, then a bit later the students) will most likely shy away from this form of making a commodity of something that is inherently personal and expressive. This model is mostly likely going to fail not because of the numbers, but because of the subject at hand. This is an interesting case study. And it makes sense, the numbers prove that it's not viable. The fact that it's not viable isn't the numbers, however. It's something to consider.