I would love to see a similar analysis that was greenlit because CPC looked so profitable. (Maybe it exists, I don’t know.)
https://www.amazon.com/Will-Fly-Business-Waste-Money-ebook/d...
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.
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.
By this analysis you guys would have likely killed AirBnb and Dropbox.
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.
What is that? Bass guitar or bass fishing? If this were a real business, not only would you be overpaying due to poorly phrased, non-specific ad title, you'd also be hit with Quality Score penalties by Google if you had too many users clicking through in search of bass fishing lessons and exited the page when they realized it was bass guitar.
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.
1. How much data did you gather before extrapolating to the numbers in your post?
2. What tooling did you use to estimate traffic?
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.
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).
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!
How did matchmaking for music lessons get into the discussion as a billion dollar idea?
Referrals for tutoring in any subject (math, reading, music, etc.) would be a bigger market, but even then it might not be a $1B company.
Would Facebook have passed this "test"? There was Myspace and Friendster dominating. How about Instagram? Why would anyone want to share photos elsewhere when everyone posted their lives on Facebook?
We all know how those stories ended.
Your firm's method only addresses the current market in current conditions. Having the foresight to see the currently unseen before anyone else is what yields amazing results. And if this is the main reason for killing something like this off... let's just say I'm glad I don't have my funds there. :)
The expected value of this project is probably only $5-10 million once you factor probability of success into account and thus not worth the time and effort at trying in the first place. A $5-10 million E.V. project is very much worthwhile for two founders who wanted to bootstrap though!
One reason VCs target billion dollar ideas is that you'll probably fail. But in the unlikely scenario that you succeed, it more than makes up for the 10-20 other projects in their portfolio that DID fail.
Millions of incremental profit... unwanted. Of course it's logical given shareholders, but remains strange all the same.
Consulting can be a great way to bootstrap but you need to know when the tail is at risk of wagging the dog.
It's not as high quality as 1 on 1 instruction, but the benefits of scale cannot be understated. Offer lessons at 1/3 price but make double the revenue.
Small niches that have proved themselves are often more attractive from an investment standpoint.
VCs look at this and are like "We can't do that with run-off-the-mill webdevs and marketers". And they have a formula to express what to expect from this reasonable effort model.
Comes a founder with awesome experience in pedagogy, a reputation in, say, Montessori teaching, and publishing records. She knows 10 musicians who could potentially teach, 100 potential students to bootstrap the idea.
VCs re-reun the numbers with these new assumption and discover a potentially ten times higher return after Q1.
VCs and bootstrapers and founders make different assumptions in efforts and time and need each other, fit different niches.
I only go niche if the larger addressable market is big enough. It might be okay if the initial niche offering only makes $5k its first year, but I should see some path to expand to $500k+ per year or the opportunity cost is too high.
> 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?
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.
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.
But in my experience your characterization of crowdfunding is mostly wrong. While projects tend to describe their product as they intend for it to be in final ready form, the whole concept of crowdfunding makes it clear enough that backers help fund something that isn’t yet a reality, and that there is risk involved.
"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.
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.
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.
Maybe because investors throw money to many stupid things.
("we never know" "you miss 100% of the shots you don't take").
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.
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.
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.
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.
> 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.
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.
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.
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.
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)
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?
https://developers.google.com/adwords/api/docs/guides/traffi...
Disclosure: I work in Google DevRel on this API
> 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.
"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.
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...
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.
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.
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.
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...
What's your strategy to get users?
My only hope is to rebrand the website as a carbon comparison engine, which will make it easier to sell it to the mainstream media. Surfing trends is often the best solution.
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.
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.
Which is the goal, because these guys aren't looking to build 50-man companies.
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.
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.
Trust is an element people always look for above all else.
You could also charge a fee for doing a credit check on the other side.
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.
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.
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.
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.)
What specific structural things are important?
- Ansel from PSL
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.
First, a lot of home repair (not all, but a lot) is small, simple, and fairly commoditized. I used Homeadvisor last week, for example, to repair a broken window, and I wanted it fixed basically as soon as possible. I really just needed a guy with the tools to come in and do the job fast, and Homeadvisor found me that guy quickly.
Second, it's hard to find a good contractor. I'm on my third or fourth plumbing change right now, and have used different plumbers each time. They were all fine, but I haven't yet found someone who I'd absolutely call first. Homeadvisor gets my business until that person comes along.
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-...
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".
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
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?
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.
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-iphon...
2. https://www.nytimes.com/2002/08/19/business/apple-s-chief-in...
- Ansel from PSL
That's the value they provide and the stick. It works because trusting third world developers is hard. It fails for more local developers.
It works since Airbnb is mostly there to hook you up and protect from crazy people's wanton destruction, so once you know you're dealing with safe people and you've gotten the review, eh.
Wouldn't really be worth the penny-pinching, except people tend to forget about the long-term booking discounts and actually end up paying more than they would've just using airbnb.
For a tens of millions pitch go to Earnest Capital who will be perfectly happy to invest.
This means that if your business is the right shape, VC is a fast way to raise a tremendous about of money.
But that's NOT to say that every company can or should raise a tremendous about of money. There are less traditional VCs, angel investors, debt, and other financial vehicles that can help businesses succeed. There are tons of examples of companies worth hundreds of millions of dollars who raised little or no money to get there (Webflow and Atlassian are two top-of-mind examples).
- Ansel from PSL
The 2.5mm jack used on pre-iPhone wireless phones wasn't non-standard, it was a pre-existing, widely adopted standard for hands-free phone headsets established initially for cordless phones (the short-range ones with landline base stations) that was adopted by wireless phones because it was what every wired phone headsets on the market used.
why would anyone bother to A/B test ad copy or landing page CTAs if this were true?
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.
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?
Airbnb did this beautifully: they set up insurance for all their hosts, and so were able to frame "stay on our platform" as a safety directive.
You can also go the opposite way, but that usually leads to user-hostile antipatterns. E.g., Freelancer tries to detect all the ways folks might send each other phone numbers on their messaging service. This is both annoying and easy to circumvent.
If your rate of defection is high enough, no amount of tactical tricks will save you. Incentive and ingenuity together are too much.
When you're small and still have structural degrees of freedom, target the incentive by adding value to your offering if you can. If the problem only appears when you're big, you may have the resources to play whack-a-mole.
If you're small, have high defection rates, and also can't economically add value to your offering - it's time to move into another line of business.
I sell a lot of expensive stuff on the web, and I'd say 80% of my buyers are repeat buyers that started contacting me through mail after a couple of deals.
It's counter intuitive but in downturns consulting can tick up. The first place companies go to look to reduce cost is headcount but the work still has to get done. In come the consultants to implement a new system to increase efficiency and reduce headcount (it rarely turns out that way though). Also, I think it's easier to finance money for consultants than FTEs because of where the expense falls on the accounting books.
In that aspect, I don't see how it's different than pairing with a maid.
But my main point was; on dating sites the middle man is almost always cut out instantly. Usually you try to immediately exchange numbers, and then proceed from there.
There was a comment some days ago along the lines of somebody being ordered to switch off a matching algorithm because it was too good.
100,000 music instructors, $60 per hour, at 365 days per year is roughly: $2.19 billion gross revenue per year-hour in the segment. Assuming, the average hours per day are like 3.5 (I can't imagine folks doing this are giving lessons for a full 8 hours per day, 5 days a week), that gives a total market of like: ~$7.65bn. Assuming they could earn a 20% stake in 100% of the market, that's like $1.53bn.
Looking at the numbers, I think there is likely more potential than they realized[1]. I would suspect that by and large, digital advertising is capturing almost none of the market as kinda proven by their analysis. Looking at how low the frequency of searches were compared to the sheer number of employed individuals tells me something is off as a whole with the analysis.
That is to say, digital advertising isn't showing the volume of or demand for musical teaching service because it's highly likely everyone believes it's incapable of doing so or adding value... That (driving the market online) is the problem to be solved in the space, because it sounds _hard_, and solving hard problems tends to be the way to make a lot of money. The other opportunity I would look at is, sort of from the other side: how to fix (what I assume to be likely) most music instructor's "underemployment" problems (i.e. inconsistent, few, or not enough hours). I imagine this angle would probably net more gross sign-ups as well since users (instructors) would be advertising the platform for you.
With all that said, you'd have to assume there is latent under-served demand (25-35%) in the market too to bother with anything I've said... that 25% is essentially what would be left over for others after you've captured the niche.
One last thought, for the VC since it looks like they're reading HN. Have you thought about doing retroactive market analysis where unicorns now exist to see what the market looked like then (e.g. short-term vacation rentals in ~2006)?
Might give you some strong signals for where there is potential...
[1] They are indeed a VC so it may not be in their best interest (time value of money, opportunity costs, etc)...
Edit: Adjust some bad arithmetic.
$60 / hr is not awfully high, lots of private tutors in the western world charge that, but note, that's it the west. There are also hordes of tutors charging as low as $5-$10 / hr in the west. It is unfortunately a business that is absolutely overrun with undercutting.
I think in reality, the only tutors you'll find that can charge that much, consistently, are professional musicians (i.e doing it for a living), and those with a degree.
Neither does it help that free alternatives like youtube and IG vids are in great abundance, which again can help to bring down the perceived value of lessons ("Why should I pay $60 when this great musician with 100k followers is putting out lessons for free? / on patreon for $10 a month")
There's probably some kind of market, but I'm not sure it's a billion $ market.
I'm a member of various FB musicians groups: buy/sell, discussions, theory, etc. and you see small businesses and startups like these come by all the time.
That makes no sense. Why would/should instructors+students continue to give them 20% commission for follow-up classes beyond the first one? It seems like just wishful thinking. The app store situation is very unusual (monopoly/monopsony), and does not apply in this context.
These market place ideas don't work nearly as well for businesses where there are long term, repeated, interactions between seller and purchaser. They work best when there is a one time exchange, because a market is really getting paid to make an introduction.
edit: I see now that many people made this argument much more eloquently in other comments on this thread.
That's $76k/year. My guess is that only the top 1% of music tutors are making that much per year.
And only 100k tutors in the US is an incredibly small market.
This is basically a hyperlocal seo play not sure why PSL seems obsessed with PPC only paid is not the only channel - go talk to some one Like Norm at DAC group
An ad for online one-to-one art lessons has been popping up in my Wechat moments. Judging by the ad copy, they feel they have two strengths:
1. No need to transport your kid to and from the lesson.
2. Your kid will like this more than classroom-based lessons.
I conclude that the market they're trying to serve is parents who would like their children to learn to draw. But there are a lot of those, and their selling points seem pretty reasonable.
This is a near perfect example of how "big business" can kill the spirit of entrepreneurship.
The idea (or VC cocaine induced fever dream) that every idea should be a billion dollar idea is exactly whats wrong with the current tech climate.
- Ansel from PSL
Though you'd probably find that most were happy with Google Calendar, Xero and PayPal / Square.
I spent several years off and on with online dating (went on a lot of first dates, fewer several week relationships, and a few multi-month relationships) -- dating sites tend to give a steep discount for longer term (6mo, 12mo) subscriptions, so I was a subscriber for most of that time.
Ending up finding my wife offline though.
On the other hand, I found a housekeeper on Craigslist, called some of references (one was a neighbor), hired her, used her for a year, then when she moved out of the area, she referred me to someone else.
Turns out it's a lot easier to find a housekeeper than a romantic partner.
My experience with online dating has been the same, however mostly it's; match with a person, exchange a few words, exchange numbers, move on to WhatsApp. Yes, I do need to go back, but the middleman is almost always cut out instantly.
That said, my experience with finding a housekeeper has been the opposite of yours. I've had 4 different ones, and I ended up hiring none of them. This is not necessarily due to their professional skills, but mostly due to availability and trust. Just like finding a romantic partner. It's easier, but definitely not like you described for me. Hence why I saw them both as the same thing.
But don't they already have your money by then? They don't care if you stop chatting within their platform since you've already paid
Whereas when you're looking for a maid, you probably only need to exchange number once, and that maid will probably suit your need just fine for a really long time.
The 20% cut also does sound rather extreme, but if you build a very good product where you can end up charging even more than the usual price, the 20% isn't taken away completely from the supplier, and might end up more like a 10% actual cut.
Once the platform has a significant number of suppliers, sure. If the platform is new then attracting suppliers is the number one problem to solve, and that's really hard if it's too expensive.
I suppose so, if you pay for it, most of them are free. But that's besides the point, I just had a different experience from most people here, after 4-5 different housekeepers, I gave up and ended doing the work myself. So in that aspect, my experience has been the same as online dating.