Down the Rabbit Hole and Back Again: The Story of Flowtown

Written By on June 8th, 2011 | Category: LeanStartup Startup Life | 49 Comments

The following story is about Flowtown – a startup I co-founded with Ethan 2 years ago. In it, I’ll go over; how we got started, raised a venture round, scaled to over 25,000 businesses, hit a wall and built it all back up again. Entrepreneurship is about crazy highs and intense lows and the ability to get through those tough moments.

I’ve been doing startups for over 10+ years now. One thing I’ve noticed is entrepreneur’s ability to tell stories after the fact, as if they predicted the future. It’s as if their journey was all part of an elaborate plan that just fit together flawlessly. But the truth is – it’s a bunch of crap. Sure, we all have big hairy audacious goals and detailed plans to achieve them, but the paths we actually take rarely match up with what we tell ourselves after the fact. With that perspective, I want to lay out how we got to our latest product and detail the bumps and hardship along the way.

In the Beginning, We Had a landingpag.es

Flowtown was conceived as a bootstrapped startup between Ethan and myself in mid 2009. We shipped our first product on July 3rd, 2009–it was a landing page application that we believed small businesses would use to capture leads. We talked to 30+ business owners and identified the need. What we missed was that no small business would self-service, and after launching and getting over 600 people to sign-up, we finally got to 1 monthly paying subscriber. On that day we went pro (cause we made $1 dollar) but we also realized this wasn’t going to work.

As a bootstrapped startup, we knew the microeconomics were not working out and we needed to solve the problem – essentially, profit or die. This is the point where we realized that we were doing customer development (CD) wrong and went back to the drawing board.

The next product idea came from a prototype we built called Hedwig. A simple app that let you enter in an email to see all the demographic and social data for that person. However, this time we were going to do it differently. We armed ourselves with 6 high fidelity mockups and hit the streets. Only after we pre-sold the app to 10 customers – at $20 bucks a piece – did we take things to the next level.

Traction and Raising $$$$

After spending 4 weeks validating and launching our minimum viable product (MVP) we launched to the public. On that first day of going live, we got our first upgrade! That was the beginning of a trend that brought us from $0 to ramen profitable in just under 2 months.

Starting the year in 2010 we knew we had a decision to make – either continue building the company organically or raise some capital and throw some gas on the fire. We decided to raise. 4 weeks later we closed a $750K round of financing by some amazing investors. We quickly increased our growth by building out an amazing team, starting a prolific blog, hosted weekly webinars and hiring customer coaches to help on-board new users. Month over month we grew users and revenue at 30+% until one day it all came to a stop.

Getting Shut Down

It all started when the Wall Street Journal published a front-page article attacking Facebook for leaking user data and how some companies – not us – were selling private data to 3rd parties that were using it for advertising solutions.

Although we weren’t directly mentioned, it did cause Facebook to take a hard stance against the data-brokering industry, and resulting in our sevice being shutdown.

It was at that point in time that we had to make a tough decision about the kind of company we wanted to create and the problems we wanted to solve. We never wanted to become a data provider, even though that’s what 70% of our customers were paying us for, but we did have a passion for our customers and the company we created. So we did what was right by our users.

We quickly turned off new registration and sent an announcement to current customers–giving them 2 months to continue using the service as is–and committed to maintaining the other features (mostly email and auto-responders) indefinitely. Deciding how to react was simple – do to our users what we would want done to us. Sounds easy, but it’s hard to do, especially when you’re a startup and you need to move quickly to finding the next thing.

Starting Over

The next steps were hard. We immediately cut our burn by 60% to extend our runway. That meant some tough decisions regarding salaries and overhead, but we knew we had to move quickly. We then went to the whiteboard and brainstormed ideas that would still be relevant to our customers–social media marketers–but that we would feel passionate about, too.

3 Prototypes Were Born

  • Spiderman
  • Timely
  • Ambassador

Spiderman was an idea to build a discovery engine to find content that marketers could easily share with their customers in a targeted way.

Timely was a Twitter app that automatically optimized when tweets got published based on historical engagement of your followers and their activity.

Ambassador was the idea that every company has “superfans” that might connect their social accounts for your business to leverage when promoting content (to help with distribution of content and news).

So, after building all 3 minimum valuable products (MVPs) in 4 weeks, we called a meeting with our investors to show them our solution to the problem with real data and present our decision. Spiderman wasn’t a good fit for our team’s DNA, and Timely was not a venture idea – so we decided to doubled down on Ambassador. The MVP showed promise, but we felt we needed to revise the core idea and open it up to be more than just an application for publishers to help promote their content.

As an aside, Timely still lives on today, being used by over 15,000 people.

1000 Accounts; Still No Traction

We spent the next two months validating the idea and adding new features to Ambassador. Some of these where:

  • A way to see who your most engaged users were on Twitter and Facebook
  • An invite system to allow Ambassador to connect to your company using Facebook connect.

We launched each feature separately and iterated on them as we learned, inviting over 1000 new business to sign-up and go through our invite flows. Towards the end, we discovered that everyone understood the concept of an “Ambassador” (aka Super Fan, Champion, Evangelist, etc), but they didn’t feel like they needed to formalize the relationship so much as it changed over time.

We continued to learn and present new ideas to customers–trying to understand their needs–until we added the following features:

  • Ask a question
  • Reshare request
  • Send swag

That’s when things clicked. No one cared about the “ask a question” (because it made the app feel like Facebook) or “Reshare Request” (cause it was very one-way for the Ambassadors) but they loved the “Send Swag” idea. However, they wanted the ability to give it to anyone – not only Ambassadors. And that was the a-ha moment; we decided to scrap everything again and focus on this simple core idea.

Gift Marketing

The solution came from our own need. As a company, we’ve always focused on engaging and building our online community. One habit we had from the beginning was giving out “swag.” We gave away free accounts, t-shirts, posters of our infographics, and even cool credit card covers (only for the ultimate “superfan,” however).

Our vision and belief is that giving free stuff, including product samples, will eventually be seen as a new way of marketing and to acquire customers. Much like freemium in online SaaS products has become a new way of marketing certain products, product-gifting will become a dominant channel for finding new customers. It’s still very early, but we’re committed to this vision and we’re super confident (and excited) in our early traction.

Revenue is starting to flow and we’ve got some amazing early customers helping us shape our product. The journey certainly hasn’t been without its ups and downs, but without that, what fun would it be?

I hope you’ll join me for the ride. Sign-up for early access.

Note: Over the next few weeks, Ethan’s going to be doing interviews around the product and our pivot, if you’re interested in talking to him, shoot him an email.

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Comments.

  • http://twitter.com/brianburridge Brian Burridge

    Thanks for sharing this Dan. There is a lot of interesting information about startup decision making packed into your story, regarding finding that particular area to focus on that your customers want to pay for. 

    Sorry to hear about the issues faced with the source data for Flowtown. I can partially relate with my own site PeepNote. It’s been challenging to deal with Twitter’s changes, and over time, their functionality growth that begins to overlap with your own apps’s features.I’m particularly curious about the statement, “Timely was not a venture idea”. As you know, Timely was similar to an idea I was preparing to pursue right about the time you released it. With 15,000 users and an app that is clearly beneficial, I would have thought it had great chance of making good money with a premium plan. What did you see, or not see, that led you to choose Ambassador over Timely as your core business direction?

    • http://twitter.com/jaymon Jay Marcyes

      When you take VC money you subscribe to the VC lifestyle which means you are expected to grow your business rather quickly and you make choices based on that expectation (eg, let’s add this feature because it will cause more users to sign-up than that feature which will help our current users).

      While 15,000 users would certainly be a great small business for 1 or 2 developers if you could convert enough of them into paying customers, you would need a magnitude of around 100x more users to excite most Venture Capitalists and I would guess, based on their growth rate and other internal metrics that they realized they were not going to reach that quick enough to satisfy their current investors.

      • http://www.flowtown.com Dan Martell

        Jay,

        Our tested monetization was 2% to paid at $10 a month with $0 cost to acquire.  I’m actually confident that we could’ve doubled down on the idea of automated time based optimization for marketing messages and raise more – but as I mentioned, it just wasn’t something I wanted to build for many reasons.

        The biggest lesson I learned in all of this is – hire the best people in the world. period.  Our team is stacked, we’re 3x more productive now then we were a year ago and we’re only 5 guys.

        But you’re right.
        It’s all about passion, market timing and growth opportunity.  We’re building a 100M dollar company.  We aren’t optimizing for an early exit.  Both Ethan and I would be more than happy to turn Flowtown into our legacy.

    • http://www.flowtown.com Dan Martell

      Brian,

      Great question re: Timely not being a venture idea.  Let me explain.

      It all came down to market opportunity, passion for the solution and our DNA as a company.

      Market:
      The market for a Twitter (even social media app) is very saturated.  

      Passion:
      I’m good friends with Ryan Holmes at Hootsuite and from a personal stand point – didn’t want to compete for his customers.  It just wasn’t for us.

      DNA:
      Building something more inline would of meant competing again SocialFlow.  That solution just wasn’t part of our DNA.

      It all comes down to right time, right action and your gut.

      We love what we’ve built with Timely (I use it everyday) and treat is as a lead source for our new product – so it’s an asset – but not something we wanted to build a huge meaningful company around.

      • http://twitter.com/brianburridge Brian Burridge

        Thanks for the reply Dan. To play devils advocate a bit here, you are essentially saying that you didn’t want to do an app because someone else was doing it. Is that your general philosophy? I ask, because that’s how my brain works by default, and I’m constantly being told that I should forget trying to be innovative and original, and follow the trends, because that’s where the money is.

        • http://www.flowtown.com Dan Martell

          It’s a market call on competitive landscape and differentiation.  I just didn’t feel like we could differentiate enough to gain a sizeable chunk compared to our other options – Ambassador.

          Do what feels right and you’re most passionate about – then do your due diligence. Entrepreneurship is an art .. giving you an answer is like trying to explain how to paint a Mona Lisa.  Not sure it can be done .. only discussed – then it’s up to you to choose the ideas that resonate with you and what you know.

  • http://startupcfo.ca startupcfo

    That’s quite the journey Dan. And you’re still at the beginning. One thing that struck me is that these pivots don’t share a common vision.  I think that nugget about gifting as a new marketing vehicle is cool.Good luck with this new direction.Mark

    • http://www.flowtown.com Dan Martell

      The common vision from day one and what was on our home page till we just changed it was “Social media marketing made simple”. 
      Now, that’s a very vague comment but it’s what drove us in our decision making.The core tenants that we used were:Social data:More and more social information about people is being created everyday.Making it simple:Simple value proposition.  Easy to use.  Focused on service providers and marketers.Marketing:Had to be a marketing solution.The landing page app was built because we thought small businesses weren’t capturing emails and wanted to solve that first.  Adding social discovery was always part of the roadmap – but thought of initially – as a secondary thing.Timely, Spiderman and Ambassador were all built leveraging social data as indicators of value and helped social marketers in a very focused and simple way.Our new Gift Marketing focus is all about simplifying the core of Ambassador and leveraging social to identify and justify the ROI of using our app.I would love to say it was all part of some elaborate plan, but as you read above, it wasn’t.  Steve Blank says it best – Startups are searching for a business model.  I certainly feel like we got pretty darn good at this part.  Now we’re excited to get back to growing – cause that’s what we’re really great at!Thanks for the great question Mark.  You’re ongoing support has always been more than appreciated.Can’t wait to show you where we’re at in July during http://www.startupfestival.com

  • http://www.migrationbox.com EduardoF

    I used the old Flowtown through SnapEngage and was surprised when I got a call from a Flowtown co-founder (don’t remember who) to tell me that the service was shutting down. That was a nice touch.

    • http://www.flowtown.com Dan Martell

      Eduardo,

      Thanks for the comment and appreciate the kind words.  As I mentioned – we did what we felt was right.  Hope some day soon to work together .. always loved SnapEngage for being an early integration partner.

  • http://benmetcalfe.com/blog/ Ben Metcalfe @dotBen

    Fascinating recap of the path of FlowTown. I remember the small part of it that was worked on in my old apartment of doom in the sky.

    The question I have for both of you… with so many pivots, I’m wondering why you guys didn’t give the money back to investors after the 2nd or 3rd pivot, work on a new MVP and then re-raise the money based on the fresh idea.

    I ask because I’m confident both of you could re-raise fresh money when you wanted to, but it would give your later pivots more run-way.

    Did you have any pressure from investors to do this?

    • http://www.flowtown.com Dan Martell

      Ben, 

      Great question.  This was the situation.

      We did have $$$ in the bank having just recently raised, revenue generating and always operated with a bootstrap mindset.

      However …
      Early stage investor invest in people.  We knew that and even though we started back over from scratch, we felt we owed it to our investors to give it all we had. 

      Both Ethan and I are committed to making them a lot of $$$.

      We have amazing investors have been super supportive, never once pressuring use in any direction, and truly trusted us to figure it out.  We’ll always do right be them for believing in us at such an early stage.

      There’s no doubt in my mind that we could’ve taken a small loss, self funded another idea and raise with a higher valuation – but that’s dirty and not how we operate.

      As an investor in other companies, I would hope they would do the same if they were in my situation.  

      It’s the right thing to do.

      FYI: In case you’re curious – these are our investors in no particular order.

      Travis Kalanick
      Steve Anderson
      Mark Goines
      Mitch Kapor
      Dave McClurre
      Dan Gould
      Brian Norgard
      Auren Hoffman
      Brian O’toole

  • http://www.facebook.com/people/Cory-Schop/521275497 Cory Schop

    Dan that was a great read. I admire the determination and focus to keep pushing on and trying new things. I am wondering though from a branding perspective the new idea doesn’t seem to fit the name FlowTown at all. Is this something you guys are going to address? I recently sold Tweepler (remember my twitter app) so I can relate to the finding it hard to make a buck depending on their platform. 

    Like Ben says I am interested as well to hear why you didn’t give the money back take the time to come up with a new idea and then re-raise. It almost feels like the idea for this new company was forced and not driven out of passion?

    • http://www.flowtown.com Dan Martell

      Cory,

      The issue with this post – and most for that matter – is it lacks the intense discussions, meetings to review data, internal debates as to the “right decision” but I will say, there was no lack of passion for each of the ideas above.  It’s why we focused on them.

      Ethan, the team and I all have a real focus for businesses getting ROI from their time & money invested.  Everyone on our team is an entrepreneur in their own right and realize how hard it is to make tales of social media marketing.

      Ask anyone close to the company – if there’s any thing we do have – it’s crazy passion for our ideas and customers.

      Here’s a quote from Ethan only a couple weeks ago when ask how passionate he was about a particular customer segment?

      “I would fucking die for these customers … ”

      We could never work on a product that we weren’t 110% committed to and passionate about.

  • http://codercofounder.wordpress.com/ Ilya

    Dan, I actually had no idea you were behind all of these. 

    You are one prolific entrepreneur, and I think that’s the key takeaway for anyone reading this. You looked at fundamentals of your businesses, and you didn’t drag your feet moving to the next one to survive. The undoing of many is getting fixated on one idea and refusing to see that it’s flawed as a business. Good luck with the latest idea!

    • http://www.flowtown.com Dan Martell

      Ilya, thanks ;)  

      I can’t tell you how excited I am to have a product in the market .. we’re in growth mode now – it’s what I do best and when I’m happiest. 

      More to come ..

  • http://aymeric.gaurat.net Aymeric

    To be honest, I find it hard to follow what the brand FlowTown is today, it is always changing. 
    Last time I looked it was helping me get more information from my users’ email addresses.

    Wouldn’t it be better to change the name altogether, these are not pivots, they are new ideas.

    • http://www.flowtown.com Dan Martell

      Aymeric,

      You’re totally right and that deserves it’s own post re: keeping the same brand.
      The reality is that our total customer base is millions of users and so far we have maybe 100,000 people who know Flowtown as the solution that converted emails to social data.

      We figured it was easier and faster (plus a bunch of other reasons) to keep the same name.

      We should have this problem (brand breakage) fixed very soon ;) #campaign 

  • http://twitter.com/tgurtzy terry goertz

    Great story and insights into FlowTown.It’s strangely comforting to hear other people go through the same highs and lows with their startup.  I think (almost) every startup has atleast one Oh Shit, day where everything falls apart. And the successful ones brush themselves off and keep going. Thanks for sharing your adventure.

    • http://www.flowtown.com Dan Martell

      Terry, glad you enjoyed and yes – every startup has Oh Shit days ;)

  • http://www.BeyondThePedway.com Tim Jahn

    Thanks so much for sharing the story behind it all.  I love when folks like yourself who try, try, and try again share the story, because it’s so valuable for the rest of us.

    Kudos to you for focusing on that one idea that makes sense!

  • http://www.columnfivemedia.com Jason Lankow

    Dan,

    It’s been great to see how you and Ethan have persevered through some trials and stayed optimistic. I’m really grateful that we have been able to work closely with you guys and see how Flowtown has evolved, and I’m really excited for the gifting to take off!

  • http://profiles.google.com/gian.corzo Giancarlo Corzo

    Why don’t you add a game aspect to the product, that way super fans would have a reason to be more engage to send information about their love companies. More points more rewards. More viral.
    Also I thing that would be nice to localize it a bit, for example you get more points if you evangelize your friends about a local business. Probably it’s not the same to tweet about “the new cool coca cola video” than “A new dish in your city.

    • http://www.flowtown.com Dan Martell

      The core needs to be solid or the game mechanics fade away and retention doesn’t last.  Just wasn’t something we wanted to build in that fashion.

  • http://profiles.google.com/gian.corzo Giancarlo Corzo

    Why don’t you add a game aspect to the product, that way super fans would have a reason to be more engage to send information about their love companies. More points more rewards. More viral.
    Also I thing that would be nice to localize it a bit, for example you get more points if you evangelize your friends about a local business. Probably it’s not the same to tweet about “the new cool coca cola video” than “A new dish in your city.

  • http://twitter.com/JanetAronica Janet Aronica

    Thank you so much for writing this. It really helped me. I wrote a post (http://janetaronica.com/2011/03/15/are-we-iterating-when-we-should-be-pivoting/) about our pivot a few months ago and I’m glad to say that my perspective is much much different now with our new focus. I’m more optimistic now. My God is this startup stuff tough, rewarding, heartbreaking, exciting… all of that… at the same time.

    Good luck with the new direction! :)

    • http://www.flowtown.com Dan Martell

      Janet, yep, startup stuff is tough .. that’s why it’s survival of the fittest.  The one thing I tell other entrepreneurs is that it’s o.k. to have setbacks and “failures” just don’t stop being an entrepreneur and giving up – getting a job, etc.

      Appreciate the comment and link.

  • http://giffconstable.com giffc

    Dan, love the honest sharing.  So many stories get revised to create a “story” packaged for the media (tends to be a necessity, but contributes to myths becoming false wisdom).  I’m glad you had investors with enough faith to support you taking multiple shots at goal.

    • http://www.flowtown.com Dan Martell

      Thanks – our investors said they trusted us to figure it out – and that’s what we did.  Flowtown will never fail – it can’t – we don’t need more money (on track to break even) and our team is committed.  I think our investors felt this from day one.

  • Pat East

    Why do you think that the landing page app didn’t get traction? Unbounce seems to be doing well in that space and they’re self-service too.

    • http://www.flowtown.com Dan Martell

      We were marketing small business owners as our customer type.  Unbounce markets to marketing professionals.  We screwed up who we went after and we also built a pretty shitty product (no domain experience).  

      The interesting story re: landing pages is how this came around full circle
      http://unbounce.com/what-is-unbounce/our-advisors/

  • http://twitter.com/paul__sullivan Paul Sullivan

    Dan, thanks for your willingness to share your experiences, as always.

    My gut say your idea of creating a channel for sampling could be a real winner. This has been a common marketing tool for consumer goods players historically, but limited by physical reach and the ability to measure downstream success. Extending the reach and tracking the results could be money!

    Look forward to seeing new iteration of Flowtown.

    • http://www.flowtown.com Dan Martell

      I think your gut is right ;) .  Thx for the kind words.

  • http://fbadsystem.com Nick Andrews

    Dan, thank you very much for this post.

    I’m a marketer (and aspiring Canadian entrepreneur!) that wants to help as many small businesses as possible and this was a great look into how to separate what businesses say they need and what they actually need (and would pay for). 

    Perhaps this is asking too much, but could you possibly elaborate on the limits of your target demo when it comes to “self servicing.” I ask because I thought your very first idea was rather useful (LP creator), but as you mentioned in another comment it would probably be far better catered to the marketing professionals out there (such as what Unbounce did). 

    How can we help the small business owner that is not tech savvy in a scalable manner?

    • http://www.flowtown.com Dan Martell

      Nick, the unfortunate and real answer is that there’s small business owners don’t know how to do marketing.  Their typically “technicians” that are amazing at their craft, but not marketing.  The best way to help them is to just do it for them.  http://www.reachlocal.com has done this very well for local.

      • http://fbadsystem.com Nick Andrews

        Ah.

        I looked into ReachLocal, very interesting operation. They are hyper aggressive about bringing local businesses on board – it seems they have convinced businesses that they should manage their PPC campaigns for them on a PER CLICK basis. Which means they can pump up the keywords and then extract 2x the click price from the business owner. As long as everyone is happy, I guess that’s ok. They also seem to have a system where business owners know which phone caller reached them through a PPC ad. Not sure if these visitors are actually converting, or if businesses are getting a good deal here. 

        Either way, that’s epic branding and aggressive canvassing. Now that’s hustle we can respect. 

        I would still prefer to be in a far more lean operations (like yours). From Fool:

        http://g.foolcdn.com/img/editorial/templates/RLOC_RevEarnChart_Q_2011-03-31.png

        Thanks for the advice, great blog post.

  • http://philgo20.com/ philgo20

    great story.

    Who does your design ? Nails it very time imho.

    • http://www.flowtown.com Dan Martell

      @jeromegn:twitter he’s one of the best.

  • Todd Murphy

    Dan ,

    Todd here…..Super phenomenal post. Love hearing your story and the pathway your experience has taken you and Flowtown. Keep doing what you’re doing as I keep learning from your experiences :) Love it…Cheers,

  • http://medrunner.ca Todd Murphy

    Dan, Love your story. Huge inspiration for myself and some of the huge problems we’re tackling and solving in the Canadian healthcare system. I read all the comments and super engagement and questions….One thing I really respect and think is key for entrepreneurs is to have the right investors backing a team, because investors don’t back companies, they back TEAMS and PEOPLE. You definitely have “smart money” invested and amazing investors that give you the trust and opportunities to figure it out (as you said). Keep doing what you’re doing my friend and from one hustler to another hustler – kick ass :)

    • http://www.flowtown.com Dan Martell

      Thx for the kind words Todd.

  • http://byJess.net Jess Bachman

    Dan is most definitely an alpha-entrepreneur.  Here’s hoping the latest pivot finds it’s mark.

  • http://twitter.com/paul_a_smith Paul Smith

    Hi Dan,

    Great article! As you mention in your introduction, so many start-ups are revisionists hellbent on retelling their stories as if their destiny was clear from the onset. It’s a shame because recounting the truth, warts and all, would be so much more beneficial to those listening. We tell stories for the sake of others, after all.

    Thanks for the honesty, best of luck in the future.

    Paul
    http://appysnap.com

    • http://www.flowtown.com Dan Martell

      Thx Paul.

  • http://twitter.com/sethstuff Seth Price

    Dan, Great post. Often it seems like a fairy tale the way some of the posts and interviews portray getting from point A to point B. You willingness to look for a problem that needed solving and the apply real customer development. That’s a lesson I should tatoo on my arm.

    • http://www.flowtown.com Dan Martell

      Seth, thanks for the kind words.  There was actually a lot of customer development processes that I left out to validate our riskiest assumptions
      - Facebook Ads
      - Landing Pages
      - Fake Cards
      - 100′s of cold calls
      - 100′s of customer interviews
      - Fake upgrades $

      At the end of the day it always comes down to gut and passion.  The process is all about getting you the right data to make your decisions upon.

  • Daniel Matalon

    Life is what happens to you when you’re busy making OTHER plans…”John Lennon”

  • http://www.thehockeyzen.com chrisnadeau

    You are on a wicked ride brotha!  Enjoy the journey!  Love what you guys have come up with!

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