From the moment Dan Shipper stepped foot on the University of Pennsylvania’s campus, he knew he wanted to learn how to build a real software business with paying customers and steady revenue. He passed with flying colors last month when he both graduated from school and sold his company Firefly (the first company backed by Dorm Room Fund) to Pegasystems for multiple millions.
Shipper’s success didn’t take anyone by surprise. Targeted early as a technology wunderkind, he was receiving multiple job offers by his sophomore year. He chose to stay in school, he says, because he wasn’t done learning. Now, having seen his first company through an exit, he has a degree and perspective on what makes a real difference for young companies and entrepreneurs.
In this exclusive First Round Review interview, Shipper shares the three tactics that moved the needle the most for him and Firefly, and how beginning founders can get a head start on success.
Give Yourself Enough Time to Fail (or Succeed)
In its first 10 months, Firefly brought in $11,000 in revenue — total. While Shipper and his co-founder Justin Meltzer (pictured above, right) were sure the company solved a concrete problem — allowing two people to collaboratively browse the same webpage without any special software — sales weren’t promising. It would have been a valid decision to throw in the towel at that point, he says.
“Because you have very limited information, it's easy to grab onto the data you have and spin a story about it,” Shipper says. “Like when you have a conversation with someone who really loves your product, you walk away thinking about how this is going to be the biggest thing ever. On the flipside, you see negative information, and you hit the lowest low, wondering why you’re even trying. Even though events like that make you feel very strong emotions, in both cases, the actual prospects for your company haven’t changed very much.”
The human brain is not well equipped to handle uncertainty, so you anchor to whatever evidence seems solid. And if you happen to have the track record Firefly did 10 months in, you’d be hard pressed to forge on. But according to Shipper, “Knowing this is really helpful. Once you know where your brain is going to go, you can begin to see a way around things.”
The other piece is to focus on what you’re learning — not just the numbers themselves. “Instead of looking at who said what or how many customers are signing up, think about all the data you’re gathering,” he says. “So maybe you have this goal of getting 1,000 new customers a month, instead of looking at the past data thinking it’s impossible, think about what those bad months told you about customers, how you might do better, and how (or whether) what you’re building actually fits in to people’s lives and jobs.”
For Firefly, Shipper and Meltzer made a big push to learn everything they could about the customer support industry — which they decided was the primary audience for their product. The key was to look at the last 10 months, and determine whether they needed to shift course based on the results. In their case, they stayed on the same path while making only small modifications to their approach. This allowed them to close big deals that paid off in the long run.
“When you shift gears toward learning, you start thinking about whether what you’re doing really fits into the lives of the people who are buying your product,” he says. “It’s a good tool to help you manage your psychology because learning about your customers is much more immediate than something like monthly recurring revenue, which typically lags far behind.”
A lot of entrepreneurs cite relentlessness as a good quality to have. You want to be relentless about finding product market fit. You want to be relentless about building your product. There’s this idea that to succeed you can’t let up — you have to be driving hard toward your goal at all times. While Shipper agrees that this energy can be productive, it’s easy to be relentless about the wrong things.
“Being relentless is not enough,” he says. “It’s so easy to get trapped in these operant conditioning cycles where you have one good experience at a networking event, so you think you should go to every single one that’s similar even if that doesn’t directly serve the overall goals of your company.”
“You have to pair relentlessness with something else, and I think the best thing is being scrappy.”
As a tiny, bootstrapped company, Firefly had to make very deliberate decisions about what it could afford in terms of time and money. It had no choice but to be scrappy in its approach, which Shipper says helped him and the team execute against the right goals. “We set our sights on finding customers and trying to sell the product, and we didn’t think about anything else for a while,” he says. “The best way to know if someone is going to buy a product is to actually try to sell it to them.”
Acting scrappy also makes you humble, and humility is sometimes the best sales tactic early on.
“A lot of entrepreneurs — especially young entrepreneurs — enter markets without really knowing that much about them. When we started, we didn’t have a great sense of the customer service industry, but we were in a situation where we had to. You have to invest the time and energy in information gathering before you’re every going to have a good sales strategy.” Rather than try to gather information and then implement a sales strategy, in the early days Shipper and Meltzer used sales calls to actively collect data. “A lot of what we were doing was unsuccessfully pitching a lot of prospective customers and then humbly examining what had gone wrong so that we could do better next time.”
“Going out there and selling is the best way to get the information you need.”
A lot of startups don’t give themselves enough time and runway to fail, so they never do find that coveted product-market fit. As Shipper has observed, this outcome usually coincides with the belief that successful companies should see consistent, promising growth. But in his experience, startups go through long plateaus punctuated by a step change in growth. You have to wait for the step change.
“Induction doesn’t work with early stage startups. You can’t look at what’s happened in the past and project that you’ll be doing exactly the same amount of business in the future, or even along the same trajectory,” says Shipper. “Surface-level pattern recognition works very for many things, but it tends not to work well for startups. Simplistic pattern recognition says something like, ‘This company only made $1,000 in its first three months, therefore the team should pack up and go home.’ You have to understand why they only made $1,000 during those months to be able to say whether it’s because their business isn’t viable or for another reason. The psychology of running an early-stage company is difficult to manage partly because the emotional part of our brains uses surface-level pattern recognition to judge how we’re doing.”
In evolutionary biology, there’s a theory called punctuated equilibrium, the idea that species evolve almost imperceptibly for thousands if not millions of years, and then suddenly massive changes occur when there is a global catastrophe or the environment shifts radically. Suddenly, the rate of evolutionary change spikes.
“Especially when you’re at the very early stages, startups behave a lot like this. One day you’re at the beginning level, and then you jump to the next, either when you get funding or land a huge customer or a big news story comes out that directly relates to your product. Something happens and you're dealing with a different situation right away. The thing is, it’s usually very hard to predict when or if that will happen to you, so you have to keep working. You can’t predict the future from the past. For example, take a look at DuckDuckGo’s daily search queries graph, which is publicly available on their site. DDG was founded in 2008 as a search engine that doesn't track users' activity. The NSA scandal hit around July of 2013. Since that time, they’ve pretty much tripled the number of searches they were seeing per day.”
In the case of Firefly, Shipper and Meltzer had a bunch of game-changing deals in the hopper for quite some time, with no clear sense of whether any would close. “If you’re trying to sell to larger organizations, they have a lot of priorities, a lot of people involved. You basically have to wait for the stars to align to get a green light on your product. Deals require very, very long leads," Shipper says.
“We’d have a full pipeline, but then one company would say they were going to push the deal back a quarter, others would just drop off, sometimes without us knowing why. In most cases, it was clear that larger businesses were hesitant to work with a startup, so they’d want to see how long they could keep us around, and how consistent we’d be in our service. The only thing to do was stick around and try to get people aligned around using this new technology.” Eventually Firefly’s pipeline started to produce.
This isn’t to say that every startup should hang on to the very last straw. You simply don’t want to quit too early. “The best thing to do is nail down why things are not going well. Is it really clear that no one wants to buy what you’re selling because they don’t have the problems you’re trying to solve? Or is there evidence that your product could be useful eventually with enough feedback and traction?” You have to be brutally honest when you answer these questions, Shipper says. A lot of times things could improve if you only gave yourself more time and tried more things.
Sell from the Very Beginning
Traditionally, companies build a product they feel good about and then try to sell it. Firefly started selling before its product was fully baked, and it turned out to be one of the best decisions they made. “We did a lot of outbound sales, cold calls, cold emails, and it was so much better from a learning perspective than using something like AdWords to sell the product,” Shipper says. “So many people say that to test an idea you should just throw up a landing page and buy some AdWords and see who you attract. Unless you have a lot of experience with AdWords that’s a bad idea. There’s this gigantic learning curve to doing online marketing right, so most likely you’re just going to buy ads that no one ever clicks on, or you’ll get people coming to your page who immediately leave when they see nothing real, and then they’ll never get converted. You could have the wrong keywords, bad ad copy, who knows?”
The Firefly team had a very different approach in mind — one that ended up paying off in big ways.
“We had the beginnings of the technology, and we knew which market would probably find it the most helpful — that was it. Then we started figuring out how to get it out there.”
Shipper and Meltzer started pitching customers who already had live customer service chat widgets that would pop up on their sites to help current visitors. They figured that being able to share a browser screen would be even better for companies to provide a higher level of service. They made a big list of those companies and emailed them to see if they were interested in what Firefly could do.
“The other thing we did was look for people within companies who had customer support or customer service roles and made appointments to talk to them. The tendency in these conversations is to do 100% of the talking, because you want to tell them everything your product can do — but you actually want the reverse. You want them to spend all the time talking. What do they not understand? Where do they keep getting stuck as you walk them through the demo? What do they ask the most questions about? That’s how you use your product as a catalyst to get information about how it should work.”
Even though Firefly was still a work in progress at the time, Shipper and Meltzer were able to convert some of these early customers. They made it clear to the people they were talking to that they were specifically trying to improve their lives and jobs, and made them feel like they had a stake in the result.
“You figure out what your product is only after selling it.”
Of course the tactic of selling from the beginning only works if you’re prepared to immediately funnel the feedback you get into product development. Shipper and Meltzer made it a high priority to capture all of the data they gleaned from email replies and conversations to enter it into a feedback loop that yielded real, noticeable changes in how Firefly operated as software and a company.
When asked how they managed to evolve both their product and sales process at the same time with a tiny team, Shipper says that it was critical for everyone involved to both understand the business and be able to ship code. This might sound like trying to build your own herd of unicorns, but it vastly accelerated their ability to land customers and deliver something to them on time. “Not only could everyone involved understand what was going on, but it was just easier to keep everyone in the know and on the same schedule. We’d all focus on sales during business hours and then switch to programming at night.” At an early stage, this is feasible.
Notably, Shipper says, not all of the feedback they got through selling was about improving the product. A lot of what they learned improved their approach to sales too. “We had this initial idea of going to companies that used live chat customer service systems, but in doing so we realized how small most of them were. It occurred to us that we could sign up all of them individually and probably still not make that much. It was only after talking to them that we decided to go straight to the chat companies themselves that sell to the smaller businesses. They were bigger, making more money, looking for a competitive edge.” In their research, the Firefly team had discovered that the customer service chat sector was deeply fragmented, with upwards of 60 companies offering nearly identical products. In this environment, Firefly’s co-browsing capabilities would be a huge differentiator.
This was the break the company needed to reach a much broader audience. It also led them down the path toward their current API model, allowing anyone to include their code on their platform for whatever purpose they wanted — not strictly customer support. “You can build any kind of collaborative app with our software," Shipper says. "Financial advisors can co-browse with their clients on an online portfolio, for example, without having to use straight screen sharing. We got there by seeing how we could sell to one company that would sell to many others.”
Stay Small and Scrappy for as Long as Possible
“There are a lot of good things about not needing or even wanting to be a huge business immediately,” Shipper says. “You have time to really learn your industry and your customers, and how your product should change. It gives you time to concentrate on building the skills you’ll need to be successful instead of having your head in the clouds removed from the business on the ground.”
While small and scrappy can sound a lot like cash-strapped and vulnerable, Shipper argues that holding onto both can actually give you more control over your business. When you’re a small fish in a big pond, you’re immune to a lot of the problems larger and even mid-stage startups face (security issues, HR challenges, external pressure from a large pool of investors). “You end up having more flexibility to work on what you want on your own terms — and you can always reserve the option to go raise money or try to do something bigger.”
Shipper knows this on a personal level, having fielded some outrageous offers to drop out of school and join other companies. He steered Firefly the same way he steered his personal life — keeping things simple until he had all the information in hand and a clear idea of what he wanted.
“It’s hard to turn down a lot of money, but I kept asking myself and the team this big question: If we did bring in all this money, what did we actually need it for? Money wasn’t really our bottleneck. Our bottleneck was figuring out a really good marketing strategy, how we could efficiently close customers, stuff like that," he says. "I think a lot of people get stuck in this mindset that if they have more employees then they’ll have more man hours and will be able to do more. They forget that more employees means more time spent hiring and more baggage. Not to mention all the time you spend raising money to pay these people.”
Getting blinded by early millions and promises of rapid growth can actually make it harder to go fast, Shipper says. “If you’re at this early stage of discovery, where you’re doing your research and hammering out your strategy, you want a small team that doesn’t have the pressure that comes with taking a check. Once I understood that, I didn’t think about the money.”
One of the biggest problems early-stage startups that do take venture funding face is that they've sold a vision they can’t deliver on fast enough. “I think there’s a point for every startup where you have to decide if you want to go for it, and you think you can be huge, or whether you want to grow more slowly on your own. A lot of people think this point is the day you start building your product. My opinion is that it comes far down the line when you really know a lot more about your business.”
“Funding can make you do things that you never would if you didn't feel like you had to.”
“The prevailing wisdom is that you should raise more money than you think you need, and I agree that’s probably true,” Shipper says. “It’s just that it should only happen when you’re confident in the fact that more money will allow you to grow much faster — when you’ve already found your trajectory and you just need to accelerate it. This isn’t always the case.” Until you feel this confidence, you should be building with as little money as possible. “Honestly, most products that get huge amounts of early funding could be built for something like $50,000," he says.
Staving off large rounds can also give you more time to think about the type of backers and advisors you want to work with eventually. For Shipper, it gave him the space to cultivate relationships with people over email or through occasional dinners. He had the benefit of seeing who would maintain a longstanding interest in Firefly. “You want to look for people who will take the time themselves to really understand what’s going on not just in your business but in your industry. You want people who are in it for the long-term, and who are more interested in helping you succeed than in looking good.”
Incidentally, emphasizing this stay-small strategy also helped Firefly attract the right type of employees. “When you’re not raising any money and you’re building this thing on your own, you don’t oversell to people. I think this type of honesty resonates. Sure, there might be a chance that we’ll get big, but we’re not going to tell you that just so we can hire you or get you to work harder. You have to be here because you want to be, and you like the idea of being part of something self-sustaining, not just a big exit.”
All of this combined made Firefly an attractive acquisition target, Shipper says. By selling from the beginning and not being deterred by initial failure, their product gained so much momentum that customer support organizations were starting to demand co-browsing functionality.
“More importantly, I think we gave ourselves a lot of options to choose what we wanted,” he says. “You can’t sell a company unless there’s a buyer first, and I think we found the right kind of buyer by running the company the way we wanted to for so long.”