November 9, 2007
Startups: ‘More Bootstrappy This Time’
NEW YORK -- There are a few hurdles between Landy Ung and her dream of growing her startup into a household name. One is the fact that her only outside funding comes from her mom's fried chicken restaurant, another is that her only full-time programmer is her boyfriend, who has a day job.
She and her boyfriend, Wan Hsi Yuan, 27, run the business, 8coupons.com, from their 500-square-foot studio apartment, meaning headquarters is, effectively, their couch. The business, which text messages discounts to users' mobile phones, keeps Yuan and Ung, who is 28, up until 3 a.m. most nights. Then, Ung said, she sometimes finds herself lying awake, worrying."I need to watch a little National Geographic special on the rain forest or something before I go to sleep," she said.
Welcome startup life in 2007.
While their Internet bubble predecessors dreamed of stock offerings, spoke blithely about burn rate and talked about selling everything online, these startups are focusing on interactivity, services for mobile gadgets and getting bought by a bigger company.
This time, the cost of everything from laptops to programmers is lower and no one is splashing for fancy office space, so starting up a company is cheaper, said Chris Shipley, executive producer of the DEMO Conference, a new-technology showcase.
"The Aeron chair is out, the Starbucks latte is in," Shipley said.
"If your team includes some engineers, you've got a laptop, you've got an Internet connection, you code like hell and see what you can come up with," she said. "It costs your time, it costs a lot of sleepless nights."
Venture funding for all industries has fallen by more than half since 1999, dropping from $54.1 billion then to $26.5 billion in 2006, according to the National Venture Capital Association. Funding for Internet startups is running at roughly $1 billion a quarter in 2007, down from a high of $14.27 billion in the first quarter of 2000.
At an October startup camp in Manhattan, Ung, in a ponytail and puffy vest, and Yuan, in an "8coupons.com, One Free Hug" T-shirt, exchanged cards with other startup founders, led a talk about marketing on Facebook and flew through e-mails on their laptops during breaks.
"We don't go out anymore," Yuan said. "For the past two years, all we do is work." When a founder of another Web site asked Yuan to name a restaurant he likes, he was stumped. He thought for a minute, then named Cafe Fuego, an 8coupons advertiser.
Ung said, "He develops and creates. I do everything else. People look at the site and say, 'How many people do you have working on it? I think, 'Umm. What should I say?'"
There's a lot to keep her up nights.
Like the Internet bubble, startups are clumping in a few areas and wireless services is one. Some companies do text coupons exclusively, such as San Jose-based Cellfire.com, which has venture funding and national advertisers such as Hardee's. Others send coupons as an add-on to other services, such as GoMobo.com, which lets users order coffee or meals by text message.
Mobile coupons "could work if done in association with a service the user opted in for, but as a stand-alone service, it has many challenges," said Jed Katz, managing director at DJF Gotham Ventures.
Ung and Yuan have put $30,000 into the business. They figure they have enough money to last a year, but they're hoping to get venture funding by March. According to their projections, 8coupons should be profitable by the first quarter of 2010, but one lesson of the Internet bubble is that profitability projections often prove overly optimistic.
To expand, Ung would love to find a business development person, another programmer and a traditional media partner whose ad sales force can bundle 8coupons.com text-message coupons into its ad sales.
She did get a lead on a programmer at the camp, which was held not at a ritzy hotel or a swank downtown loft, a la Web. 1.0, but at low-budget conference center in a Masonic Lodge. The food was served from plastic takeout containers and the coffee was cheap. Reps from sponsor Sun Microsystems Inc. (JAVA), which itself imploded during the dot-com bubble, were there to talk about how Sun could support startups (with advice, not cash) and what it wanted from them: Customers. Sun sent two speakers, both from its marketing department.
Scott Medintz, the editor of a planned magazine about startups, surveyed a crowd split between khakis and T-shirts, and said, "It's a lot more bootstrappy now."
That suits Ung and Yuan perfectly.
At home, they sleep in a queen bed and their workspace/living area is roughly the size of a king bed. They have Internet-only cable; their flat-screen TV shows their Web site, and Yuan works from the couch on an arrangement of pillows they call "his shrine," typing braces on both wrists, a serving tray with a wireless keyboard on a pillow on his lap.
When Yuan was 16, his mother sent him from Taiwan to live with an aunt in Athens, Ga. "There were no Asian people there!" he said. He knew no English, but he learned it and went on to get a master's degree in information systems from the University of Maryland at Baltimore County.
Asked if the risks of starting a company make Ung nervous, she answers, "My parents came to this country from Cambodia when they were 40 with three kids, no money and no English. What's the worst that can happen?"
While working at American Express Co. (AXP) in New York, Ung started thinking about starting a neighborhood Web site. One day, coming home from work and bombarded by people handing out flyers and coupons, she thought, "Why not take all this and put it online?"
Eighteen months later, the site was launched.
Growing it requires everything from algorithms to cold calls. 8coupon's 150 advertisers, most in New York City's East Village, start with free trials, then pay $250 a month. Two part-time employees help with sales, another works on the math needed to keep the site running.
The hardest task is converting new advertisers, Ung said. Since most users don't print their coupons, she makes sure everyone at a participating company is ready to honor coupons that exist only on a customer's cell phone screen.
The site has 1,700 users and depends on flyers and word of mouth for more. Users pick a coupon on the Web site, then enter their cell number to get a text-message coupon.
At the startup camp, a partner at a venture capital firm ran through a PowerPoint slideshow on what VCs are looking for: Companies doing things competitors can't with technology that's either patented or incredibly challenging to create.
As he went on, it was clear 8coupons lacked nearly every attribute he listed, but Ung and Yuan shrugged that off.
"VCs are all looking for the same thing," Ung said.
When The Twisted Burger in New York's East Village ran an 8-cent burger, $1 beer promotion, the restaurant was overrun with 500 customers and an hour-and-a-half line. Ung and Yuan ended up waiting tables and busing dishes.
"Our goal was to do whatever it took to make the event successful," Ung said.
Asked what success for her business will look like, Ung answered without a second's hesitation. "When a consumer thinks about local coupons, they'll think about 8coupons."