How We Doubled Our Conversion Rate – Bombfell Co-Founder Bernie Yoo

Bombfell is a 500 Startups-backed company, and completed the 500 Startups Accelerator program in 2012. This post from Bombfell co-founder Bernie Yoo is part of our Distribution series, presenting actionable material your startup can use today. 

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We recently 2x’d the conversion rate for Bombfell

 

Oddly, we did this by making things more complicated.

Some context: the first question people want to know if you position yourself as a monthly subscription is how much will it cost every month? You have to answer that question for a potential customer clearly.

But for a service like ours, which sources an extensive variety of products (Button-down shirts! Jeans! Coats! Wallets! Oh, and bags! And much more..) from third-party designers at a wide range of price points, communicating pricing expectations clearly can be challenging.

So, we outsmarted ourselves. To be clear we had to make it simple, right? For much of 2013 we simplified our pricing explanation as much as possible — down to just three options. Below is the “three-tier” budget system we came up with:

Essentially, you set a maximum $ ceiling that you’re willing to pay each month for clothes — a monthly clothing budget. Easy peasy.

But something gnawed at us for months after we rolled it out. Prospective users kept asking for clarification on how pricing works. Not all the time, mind you, but it was common. So if I’m on the premium tier, will everything I’m sent cost $129? Am I committing to spend at least $129 every month? 

No, we’d patiently explain, that’s not how we do things. We’d tell them it’s just a budget ceiling, further explain how that budget works, then they’d understand and either they’d sign up or they wouldn’t. Silly customers, we’d chuckle to ourselves, it’s laid out right there on the website!

NO! BAD DOG. Stop telling them how you do things, and start listening.

Here’s the problem we were encountering: most people don’t pencil out a general “clothing” budget for the year. It’s just not how they think about buying clothes. Forcing them to pick an overarching, general budget creates uncertainty and confusion: how much will I spend, and what exactly will I get? These feelings aren’t conducive to trying something new.

So how do people think about buying clothes?

Well, look all around — clothing is a huge, established market so there’s a precedent for pricing that everyone’s comfortable with. Prices vary across categories, they vary according to quality, they vary depending on the brand, they just vary, period. And we all understand and accept that, no explanation necessary.

As a result, what you’re willing to pay for a pair of jeans? For most guys that’s very different from what you’re willing to pay for a polo shirt, for a pair of shorts, for a winter coat, and on and on.

We started A/B testing a new variant on pricing, one that was more complicated and required more work from the user. But, we thought it might be more intuitive as well. It threw out the idea of setting a single overall clothing budget, which might look cleaner and more like a typical web app, but was actually confusing and stalling users.

Instead, we tested the idea that your budget varies depending on the type of clothing:

And well, it destroyed the old pricing model in a split-test. We rolled it out sitewide on December 25, and the graph at the top shows what’s happened since.

So let me be the first to say: I’m sorry, potential customers we turned away in 2013. We were too busy telling you how things are to allow us to hear how things should be. We’ll try hard to listen better going forward.

(But why don’t you understand what type of clothes we send? I mean, it’s right there on the website…)

Bernie Yoo is co-founder of Bombfell, the subscription clothing startup that’s been blowing up guy’s closets since completing the 500 Startups Accelerator program in 2012. 

What’s Next?

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Series A is a Moving Target

This post is brought to you by the combined forces of Elizabeth Yin and Tim Chae.

As the year wraps, many of our Batch 11 Accelerator companies have expressed interest in fundraising in 2015.

We fund a lot of early stage companies here at 500 (850 and counting), most of them before their seed rounds via our Accelerator.

Image Source: CB Insights

We naturally get to see many of these startups’ seed fundraising process from start to finish. Many of the companies we observe approach seed fundraising thinking they want to raise $1M or $1.5M…but a $1M raise is an arbitrary number that most founders think they want to raise.

Raising an arbitrary amount of money for their seed is one of the most common mistakes a founder can make — it also happens to be one of the deadliest.

The LaunchBit Story

Elizabeth Yin:

At my company LaunchBit, we raised $1M on a note in very unstrategic way.

When I went out to raise again, investors had a lot of skepticism:

You’re not at a series A level.  But yet you’ve raised a large-ish seed round and are now out raising another seed round after a couple years?

We had a lot of cash in the bank and mild growth, so we weren’t in dire straits. However, ours wasn’t a compelling story.

Ultimately, we raised too much to be seriously considered for another seed round, but we raised too little to make it to the Series A level. On top of this, we didn’t have sufficiently phenomenal growth to overcome these obstacles.

If I were to do this over again, I would’ve raised in two tranches: one to get to product/market fit, and another to scale to a series A milestone.

The Seed Round in Two Stages

Seed rounds can be classified into two stages. The first stage is to get to product/market fit (the true “Seed”). The next stage is to scale to a Series A milestone (let’s call this the “Growth Seed”).

Today’s average seed round amounts are always much bigger than what it takes to get to product/market fit, but the remaining amount after achieving PMF is not enough fuel to get to competitive Series A-caliber metrics.

This is why there are several companies today who raised $750K-$1.5M seed rounds one to two years ago, who are now seeking to raise what’s currently called a variation of Seed Extension/Seed Plus/Second Seed.

These companies are in the tough position of trying to refuel themselves to hit their Series A milestone — like a rocket running out of fuel just before reaching space. Inconvenient — perhaps deadly — timing.

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If you don’t have product/market fit, now’s the time to think about how much runway you might need to get to PMF.

How do you know you have PMF?

4 Indicators You Have Product-Market Fit

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You have:

  1. Customers that love you as evident from repeat sales or intent to repeat (hard to measure but worth trying)
  2. A market that’s big enough to get more of that same type of customer
  3. A strong understanding of your unit economics (cost of customer acquisition, sales cycle, growth rate, CAC payback period, retention, etc.)
  4. Diversified customer acquisition channels that give you a sense of what will scale if you are currently relying on non-scalable customer acquisition channel(s) for all of your sales. For example, if you’re getting all your conversions from a total of 5 Google keywords, this will undoubtedly have a ceiling in the near-term, or if you’re not even experimenting with paid acquisition channels.

(For LOTS MORE on #s 3 and 4, please see Juan Martitegui’s post on 23 Campaigns Every Startup Should Run to Gain Immediate Traction – and Unit Economics).

If you have not reached PMF, you’ll want about 12-24 months of runway to get to PMF with as little burn and headcount as possible. If you’re close, you may need less runway before raising your next seed round.

In either case, the number you’re raising at this stage is probably $250K-600K. Keep in mind throwing more bodies towards getting to PMF doesn’t necessarily make the cake bake faster.

If you’re at or very close to PMF, this means you have a solid idea of your unit economics. You know that $1 into the business means in X months, you’ll get $1.01 out (for pre-Series A companies, you should look for your payback period to be ~6 months to be considered healthy. Otherwise, you’ll find yourself having to raise a lot of capital and give up a lot of equity).

You also know your rough growth rate.

Based on this knowledge, you can calculate how many months it will take for you to get to the series A level and, factoring in customer acquisition spend and increased head count, how much money you’ll need. Be sure to add in 50-100% buffer as well in case things don’t go as planned.

Series A Is a Moving Target

Over the last 3-5 years, Series A level has become a fast-moving target.

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For context, in 2011 when Elizabeth raised for LaunchBit and I, Tim raised for PostRocket, $1M ARR (assuming other decently healthy metrics) was the magic mark for a competitive Series A deal, but now that target is $1.5M-2M. It may be smart to assume an even higher milestone needed by the time you are ready to raise your A round.

Additionally, since every company is different, when you calculate run rate for these purposes, use your net income. Marketplace / Ad Tech / margin-based businesses will therefore have to push more overall sales than a SaaS business, for example, to get to the Series A level.

For your Seed Growth round, you will most likely need to raise at least $1.5M maybe even up to $2.5M. Seed rounds are getting much larger now, because the bar for the A round is higher.

But, if you’re not at P/M fit, it’ll not only be difficult to raise this large of a round, it also won’t make much sense because you won’t have a great idea of how to use the money productively.

As you’re thinking about goals for 2015, prioritize raising the appropriate amount for your startup’s stage. Know where you’re at, and remember: a pre-product/market fit seed is different than a growth seed.

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We’re more than a pretty face and a bagful of GIFs. Learn more about the 500 Accelerator, our family of startups, and get our free daily email of growth advice here.

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COMMERCISM Comrade Q&A: Part 3 With Bonobos, BrainTree & Zappos Labs

500 Startups has always been bullish about online commerce, despite economic fluctuations. The future of commerce is not in traditional brick & mortar stores, but in the innovative online plays from companies like Bonobos, BrainTree and Zappos Labs. We’ve asked leaders from these companies, who also happen to be speakers at our upcoming COMMERCISM conference, to share their thoughts on what they’ve learned as early-stage founders/leaders + the future of commerce.

Q. What is the biggest lesson you’ve learned since founding your startup or starting your career in the eCommerce space?

A. There is nothing wrong with building a $1, $10 or $100 million e-commerce company.  You should be proud of that, pay you and your team very well, treat your customers right, etc.  But if you are a $100 million company, do not raise money like a $1 billion company.   You’ll lose your job and soul.

— WILL YOUNG, Director, Zappos Labs

Q. Who else in the industry should be on our watch list, in terms of innovation & growth?

A. Five companies to watch: Pinrose, Tuft & Needle, Tictail, Spree Commerce, and Delighted.

—ANDY DUNN, Co-Founder & CEO, Bonobos

Q.  What is the the future of eCommerce & why?

A. The future of eCommerce is context driven.  We all know consumers are moving to mobile as primary computing devices – the data is overwhelming. However, there’s also a quiet, but more profound shift to context-driven experiences. As it becomes more difficult to do data entry on devices, consumers are beginning to expect apps to know enough about them to serve them well without having to do data entry. This goes way beyond geo-location and past choices to interests, preferences and desires. Five years from now, we’ll just expect all of our apps to know what we want without us having to tell them.

— BILL READY, CEO, Braintree

Want more e-commerce insights? Check out COMMERCISM Comrade Q&A post #1 with Wanelo CEO Deena Varshavskaya and post #2 with Shopify’s Chief Platform Officer, Harley Finkelstein.

Who else is leading the charge at COMMERCISM? Check out our complete speaker lineup, and join the revolution on 3-21-2014. Can’t make the conference? Be sure to tune into the Livestream here at 500.co.

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5 Distribution Experiments You Can Do For $10 Or Less

This is part of our Distribution series, presenting actionable material your startup can use today. Get more marketing tips by following @500Distribution on Twitter and subscribing to Distrosnack, our daily email with bite-sized tips to grow your startup’s reach.

Last week, we wrote about about the Whatsapp Fallacy, and why zero distribution will not work for 99.9% of companies out there, including yours.

One of the common reasons / excuses I hear from companies as to why they’re not focused on distribution experiments has to do with the fact that founders think they need a large budget to have meaningful results.

We get it. It’s understandable not to want to blow through precious seed dollars with haphazard distro experiments. Don’t do that!

But just because you’re on a budget (who isn’t) doesn’t mean you should put off distro experiments until you raise a lot of funds. If you wait that long, you might not be able to raise.

Successful experiments can net you results that you can use as a stepping stone to run more segmented experiments, and/or funnel back into product development. The point is to start gathering data immediately.

Just like the lean startup methodology, we’re going to launch our ads early (build), read results (measure), and focus on expanding the signals of success (learn).

“We don’t know what we’re doing and don’t want to waste money.”

This is valid. Most companies starting out don’t have a distribution hacker on demand, and could very well be shooting dollars in the dark.

Here’s what happens when you throw out paid acquisition altogether:

a) you handicap your product by cutting out a potentially valuable acquisition strategy

b) your company misses out on a valuable mine of ongoing feedback and data that could be going towards product development and improved messaging

c) you miss out on learning about your messaging, value propositions, and landing pages.

At 500 Startups, we believe in starting distribution from day 1.

To get you started, here are 4 distro experiments & hacks that the 500 Distribution Team has used to help our 1:1 clients and accelerator companies run distribution experiments and improvements on $10 a day — or less.

#1 Test your conversion funnel

We recommend Mixpanel to a lot of our companies because it gives you free events / people in exchange for you simply putting their logo on your site.

HOW TO DO IT

  1. Set up events at each step of your funnel and find the weak points in your funnel. Work to improve the weak points first.
  2. Reduce registration friction by only requiring completely necessary fields. This will increase the amount of users entering your product but be aware this will reduce the overall quality of incoming users. The hope is the increase in volume will offset the decrease in quality.

 

COST: Free

Wait, you don’t have an email funnel? You should really get on that. But don’t worry, it’s easy to get started with something simple, and still get results right away. (Read about how to suck less at email marketing here.)

#2 Capture / recapture abandoning users with funnel abandonment emails

This can be also done through Mixpanel.

HOW TO DO IT

  1. Set up a people property for the “last step in funnel” that the user takes and email them a customized message when they drop out of the funnel.
  2. You can also set up people properties for your best customers to reward them for hitting certain retention goals.

COST: Free

#3 Test FB ads at minimal spend

If you don’t know what you’re doing, spending on FB ads can be scary like a runaway train. Luckily, there are a few techniques to mitigate risk and limit spend while still getting most of the key benefits of advertising on Facebook.

HOW TO DO IT

  1. When you don’t have a large budget to spend it is best to start with broad targeting. It may seem like starting very targeted is the best path to take with a low budget, but there’s a needle-in-the-haystack problem with this approach. If you have 100 factors you can test and you are only testing 1 at a time, you’ll need get lucky with picking the one that is successful first. With broad targeting, your highs won’t be as high, but you’ll be able to test more general assumptions — which is how you need to start. You can also look for signals of potential success.
  2. Always test male/females separately. Gender segments will typically perform differently.
  3. Always test different age ranges separately. Different age segments will also usually perform differently.
  4. Test different value propositions, copy, and images.

COST: You can get valuable results with a spending cap of $10 a day.

#4 User Interview

One cheap method that garners valuable insight is the in-person interview. Aaahh! Talking to real people! We know, we know, but for $5, the insights you’ll learn are worth any potential awkwardness. And it’s never awkward to WIN, at UX and distribution that is.

HOW TO DO IT

  1. Go to a coffee shop, buy people a cup of coffee, and watch them use your product. You can observe people’s natural interaction with your product, or suggest specific goals / actions for them to achieve.
  2. Focus on your onboarding flow. It will be painful to watch because things that are obvious to you as the creator are sometimes not obvious to users. But good-painful.

COST: $5 or less

BONUS: Learning The Tools

One final important reason to get started with distribution early is so you can learn the tools now (before you go big time)! This will save you time when you’re ready to scale your distribution strategies.

Conclusion

Even if you’re not Whatsapp (and you’re not), or an amply funded startup, you don’t have to sit on your hands and wait for distribution to come to you. There are LOTS more experiments beyond what we’ve briefly outlined here, all at varying levels of spend.

The most important thing to keep in mind is that distribution should be a core focus for your company, now. Start early, start small, but START.

What’s Next?

If you enjoyed this post, then check out these additional resources for how you can up your game from the 500 Distribution team:

 

 

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COMMERCISM Comrade Q&A: Part 1 With Wanelo’s Chief Executive Officer

500 Startups has always been bullish about online commerce, despite economic fluctuations. The future of commerce is not in traditional brick & mortar stores, but in the innovative online plays from companies like Bonobos, Warby Parker, and Wanelo.

Wanelo founder and CEO Deena Varshavskaya is speaking at our upcoming COMMERCISM conference, so we asked her to share some lessons she has learned as an early-stage founder + her thoughts on the future of commerce.

 

Q. What is the biggest lesson you’ve learned since founding your startup or starting your career in the eCommerce space?

 

A. Startups are a series of black boxes. Examples of black boxes are building your product, hiring a team, raising money, public speaking – basically any new area of the company life in which you don’t have expertise. Think of these as black boxes because you don’t really know what’s inside (even though you’ve likely read about it, received advice on it, etc).

 

Black boxes can be scary and overwhelming, but a common trap is attempting to be perfect about something unknown. Due to all the available advice out there, there may be a perception that you can read all the advice and figure out the perfect path. The problem is that perfection is paralyzing.

 

I realized this when I was raising my seed round. At some point, I simply got overwhelmed with the pressure to figure out the perfect way to talk to investors and to structure my round. I essentially said, ‘Screw it, I’m just going to do it and I’ll accept the fact that I’ll make mistakes and won’t be perfect about it.’

 

Since then, I’ve seen this play out many times. If I allow myself to open each black box, get inside and take action, I have some successes and some mistakes, but I learn really fast. The key is to take action above everything else and not be afraid of mistakes.

 

Q. Who else in the industry should be on our watch list, in terms of innovation & growth?

 

A. There are three main drivers in commerce: value, convenience and self expression. There are companies that are innovating with each of these drivers in mind.

 

For example, Amazon continues to operate with what appears to be a 50-year vision in value and convenience. Fast fashion represents innovation in value and self expression, with ASOS and Nasty Gal being good examples.  I’m also intrigued by the way Bonobos and Birchbox are questioning and reinventing the world of physical retail.

 

Q.  What is the the future of eCommerce & why?

 

A. The future of eCommerce is social.  As consumers are moving online, they are faced with an explosion of choices. The challenge is that they need a way to make sense of these endless choices and they are doing that through social networks. Social connections are incredibly powerful for filtering and finding relevance and we already use social networks for almost everything we do online, from music to images to news.

 

Shopping is no exception, but people need to recognize that shopping has a unique set of needs which platforms like Facebook or Twitter cannot address. The future of ecommerce is a social network that is dedicated to shopping 100%.

 

Ultimately, shopping will follow the path of the publishing industry. Publishing has evolved from major media outlets to separate blogs to RSS readers and finally Twitter.

For retailers, this means that in order to succeed they need to not only be online, but also be where consumers are now making buying decisions. They need to actively participate in social platforms.

Who else is leading the charge at COMMERCISM? Check out our complete speaker lineup, and join the revolution on 3-21-2014. Can’t make the conference? Be sure to tune into the Livestream here at 500.co.

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The WhatsApp Effect: Don’t Base Your Acquisition Strategy on Outliers

“There may be no greater testament to the viral nature of WhatsApp than the fact that the company has accomplished all this without investing a penny in marketing. Unlike their smaller competitors, it hasn’t spent anything on user acquisition. The company doesn’t even employ a marketer or PR person.” –http://www.businessinsider.com/facebook-is-buying-whatsapp-2014-2

 

whatlberg

“We haven’t done any paid marketing!”

Stop It

 

There’s that statement again. Every time I hear someone say this, especially when they’re a founder trying to raise money, I cringe. Yes, there are those rare products that grow like wildfire without spending a dime, but those are few and far between. For most startups, paid marketing and distribution are critical to success. If you’re boasting about the fact that you haven’t spent anything on marketing or distribution, that tells me you’re completely neglecting the biggest user acquisition channels – adwords, SEO, Facebook mobile installs, etc. Basically, you’re telling me that you don’t have the expertise or foresight necessary to acquire users via paid channels. Not good.

 

Outliers aren’t the norm

 

Putting a company like WhatsApp on a “no marketing” pedestal sets a bad example for other companies. Based on what people are saying about WhatsApp’s amazing growth, you’d think not understanding how to acquire users profitably with paid marketing was a good thing. This couldn’t be further from the truth. For the 99% of companies out there are at *not* WhatsApp, paid marketing is a crucial tool for growth.

 

Paid Acquisition is Not For Us

 

Here are some reasons I’ve heard why startups don’t focus on paid distribution:

 

 

    • We don’t have product market fit.

 

    • We’re focused on improving our product.

 

    • We don’t have a marketing budget.

 

    • We don’t have the expertise.

 

    • We don’t have time.

 

 

The last one is definitely the worst, but all of those excuses are pretty bad. There’s only one valid reason to neglect distribution, and that’s if you don’t have analytics/tracking properly installed. However, this can be solved by simply adding a pixel to your page! Here’s why the other reasons are BS, too:

 

 

    • We don’t have product market fit. If you don’t have product market fit, you probably don’t have a lot of people using your product. And for the people who do use your product, you’re probably losing them quickly. With paid ads, you can test different value propositions and messaging. Most importantly, you can get to product market fit much faster because you’re bringing in new people all the time and testing your assumptions.

 

    • We’re focused on improving our product. If testing your product with actual customers is not part of your improvement process, something is very wrong.

 

    • We don’t have marketing budget. Do you have $5/day to spend? If not, you might have bigger problems. The point is that even a very small budget is enough to get started. The fact that you’re collecting data and learning to use the different ad platforms is hugely valuable. Keep in mind there are also plenty of retention tricks you can do for nearly $0, such as funnel abandonment emails.

 

    • We don’t have the expertise. The only way to learn is to get started. You can read about distribution, watch videos on distribution, but the best way to learn distribution is by getting your hands dirty and trying it out.

 

    • We don’t have time. Yes, you do. Getting more traction for your product should be priority number 1.

 

 

Conclusion

You’re probably not WhatsApp, so your app probably won’t grow to 350 million daily active users without any marketing. Get started with paid distribution today and TEST, TEST, TEST.

What’s Next?

 

If you enjoyed this post, first check out these additional resources for how you can up your game from the 500 Distribution team:

 

 

 

 

 

 

 

Then, sign up to get a daily bite-sized distro hack (and one awesome GIF) delivered to your inbox:

>> Subscribe to Distrosnack here <<

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