The First Million Is Always The Hardest

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A wise man once told me, “The first million is always the hardest.”

“I guess making more money is easy when you already have money?” I asked.

He leaned forward and said, “No, Khai Yin, you don’t get me. I am talking about REFUSING money, not making money.”

I didn’t comprehend this point entirely until about a couple of weeks ago when I was offered close to a million bucks for a chunk of my startup, GoodPlace.my.

The offer was from a seasoned entrepreneur who wanted a piece of the action of the Malaysia online property scene. I did a background check on him, and he was as legitimate as they would come.

In addition to the money, his experience of scaling online businesses rapidly would also be valuable to my startup. And equally important, we got along pretty well on a personal level too.

To cut a long story short, I had, however, turned down his offer. And it was indeed a tough decision which took me a good couple of days to make.

All his associates whom I spoke to were unanimous in one thing: if I was looking to scale my business to stratospheric levels at breakneck pace, then he would be the perfect investor.

This ultimately turned to be the deal breaker: GoodPlace was not ready to scale yet, and adapting a blitzkrieg (for lack of a better word) approach would probably emasculate it to premature death.

Is Hyper Growth Really Necessary?

To most investors and startup entrepreneurs, growing slow is as sacrilegious as it gets. “Slow growth” just doesn’t exist in the lexicon of the startup world.

I remembered reading iProperty’s founder (or one of its senior managers – can’t remember) describing the company’s business model as “getting as many listings as possible, and then getting as many eyeballs as possible for those listings.” In the online property vertical, rapid growth, was (and still is) the name of the game.

To whomever who wants to take on iProperty today, well, good luck following that model! Launching a property portal and immediately scaling it up nationwide is suicide – especially when the market is already consolidating into a one-two play between iProperty and Property Guru.

Sure, during the early days when there was no clear market leader, the “ready, fire, aim” approach was entirely appropriate. However, when you are playing a game of catch-up, launching a head-on blitzkrieg against the 900 pound market leader is like asking for a kick in the proverbial nuts (and getting it!).

How To Beat Goliath When You’re David

In a vertical which already has a dominant player, startups can try to break into the market by following these five steps:-

  1. Carve out a smaller piece of the market
  2. Win in that niche
  3. Move on to another small niche
  4. Repeat steps (1) to (3)
  5. Get big enough to take on the Big Guy

(I have written about this strategy previously here.)

In short, you “prove” you can mount a meaningful challenge to the market leader by first winning in a smaller niche. Often startups try to completely skip this process and immediately go huge – after all, there’s already money in the kitty that will fuel their ambitious plans. And many of these startups, unsurprisingly, get kicked to the curb.

Now don’t get me wrong – venture funds have their place. But it makes a lot more sense to me to use the money to grow a fully working business – i.e. only when the startup has a validated product and distribution model.

It became obvious to me that scaling a business without sufficient market validation is just a quick, wasteful race to the bottom of the pile of failed startups. That is a mistake that I hope I won’t ever make with GoodPlace.

The (Decidedly Un-Sexy) Slow Growth Approach

Following a similar strategy, GoodPlace.my currently chooses to play in the upmarket condominiums vertical – a small enough niche which will give us the learnings that we need to eventually scale up nationally.

With this “small test” approach we have been able to achieve the following:-

  1. We know what works with the search engines. One of our network sites, PropertyReviews.my now has a strong footprint on Google.com.my (try searching for Mont Kiara properties, like MK11 or Arcoris Mont Kiara – remember to use incognito mode if you do this). Correspondingly KLCCcondominiums.com.my (another GoodPlace network site) beats out most others when it comes to searches for KLCC condominiums on Google.
  2. We know what works with home buyers. Our “type-in” traffic (as a percentage of total visits) is way higher than other property sites according to SimilarWeb. We know how to create super sticky content that resonates with home buyers.
  3. We know what works with property agents. Our best agents are now converting 1 in 6 leads that we provide them. (Industry standard is 1 in 25, often worse).

We have done everything by bootstrapping our operations. And since we had no money, we had to be as “lean” as possible which turned out to be an advantage.

For example, I remembered running 20+ experiments concurrently when we were trying to nail down the optimal formula to rank for long tail keywords on Google. I’ll spare you the technical details, but we were able to quickly tweak our formula rapidly – at the rate of five times in 48 hours to good results.

That wouldn’t be possible if I had scaled up my SEO operations and hired people into the team – changing course for about five times in two days would have been a total organizational nightmare.

In short, we already know (in the luxury condominiums niche) how to win with home buyers, agents and Google. The final piece of the puzzle is a monetization platform which we are currently building. When this is done (tentatively by early 2015), we will be ready to ask for money to fund the logical next step of GoodPlace – rapidly growing into another niche and finally to the national level.

“Scaling With Soul”

I had known Duncan Horst (from Ruane, Cunniff & Goldfarb) through a series of long distance phone calls (he was from New York) where we would often talk about online businesses at length. Through his work, Duncan had developed a fairly extensive overview of eCommerce businesses in the region, and I personally had learnt heaps about the industry from him.

Two weeks ago Duncan was in Malaysia, and he had come over to my place at Setiawalk for a visit. Over lunch, we talked about the how businesses tended to lose their soul as they grew, and often the biggest challenge that a startup would face would be to “scale with soul“.

Reflecting this back to what I am doing with GoodPlace, I know that preserving our ideals will be a challenge when we are set on the path to grow rapidly, but that’s something that I am prepared to fight for, tooth and nail.

Come early 2015 (when our platform is finally launched and validated) I will be doing the usual round of song and dance in front of investors to raise funds for GoodPlace. However, I can’t afford NOT to be picky about my investors simply because I don’t have a choice. Prospective investors must be completely aligned with our raison d’etre, or there won’t be a deal.

In short, GoodPlace’s soul won’t simply go to the highest bidder.

About Khai Yin

When I am not writing for GoodPlace.my and helping my readers find properties though the DealMatcher service, I spend time doting on my three kids: Wenyi, Qinyi and Eian. My personal stuff, some published essays and contact details can be found at khaiyin.com

Comments

  1. True. The hardest is making your first million. Once you got the formula for it, rest will be just kinetic.

  2. interesting writeup .

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