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Eight Pivots to Profitability... From Idea to Growing Business

by Pablo Fuentes | Last Updated August 18, 2016

Startup Tips: Eight Pivots to Profitability

You can't always get what you want
But if you try sometimes well you just might find
You get what you need

The Rolling Stones

I started Proven with Sean Falconer and Joe Mellin when we were all graduate students at Stanford (MBA, Computer Science Post-Doc, Masters in Design).

The original idea development began in 2009, and we first received seed funding in 2010.

The soul of the idea has always been: How do you use mobile phones to help people hire and get hired? And, how do you build products for a demographic that has been historically overlooked by hiring software?

By traditional Silicon Valley standards, we have not been a smashing success. However, we have survived, adapted, iterated, and pivoted along the way to find our way (ninth time’s the charm!). 

Today we have seven figure revenues and are growing 50-60% per year. We are profitable, we are fully remote, and we are happy. Can’t ask for much more.

Reflecting on the Past

Looking back on the last seven years (and about $5.5 million raised in six rounds from 53 investors), we have learned a lot about the world of startups, HR technology and how to build a business. For better or worse, we have an intimate knowledge of why some ideas that seem great might not be as great as they look.

This is a double-edged sword... it can make you savvy, but it can also make you jaded. Just because we could not make it work, it doesn’t mean someone else can’t do it.

As a matter of fact, for every failed idea we have tried, there is at least one company currently trying to make it work. In some cases, there are multiple companies with a lot of funding. I wish them success... starting a business from scratch is a strange, colorful, psychedelic, schizophrenic way to make a living. Those of us who do it know deep down that we are doing it because we can’t really do anything else.

Why am I writing this?

I am writing this because it is cathartic to reflect on the journey. But I also want to give back in two ways.

The obvious one is to share the lessons and tips that could help someone else.

The second one is because I want to speak to aspiring minority entrepreneurs. Not metaphorically. I want to actually go speak to groups of people all over America that want to start a technology business.

There is a path.

I can help you find it. Let’s make it happen. Tweet to me @ProvenPablo.

No speaking fees, no catch.

Without further ado, here is a brief chronology of our pivots and what we learned along the way. Hindsight is 20/20, but looking back, these were mostly reasonable things to try... we just could not get them to work.

How does it feel, how does it feel?
To be without a home
Like a complete unknown, like a rolling stone

Bob Dylan

Eight Pivots to Profitability

From Idea to Profitable, Growing Business

BUSINESS MODELS

I

Business Model #1

TicTasks - Fall 2009

Business Model

Connecting day laborers outside of home depot with consumers who needed help with short-term labor projects.

Why we did it

We wanted to help people get jobs using their cell phones. In 2009, apps were just getting started, but most everyone had a phone with SMS capabilities. We focused on hard-working day laborers; we wanted to help good people get more work and we wanted the people hiring them to have trust in who they were bringing in for help.

What we learned

We learned a lot about how people interact with text messages. For example, SMS is all about handling fringe cases... people respond in very unpredictable ways, even if they have the best intentions. They may respond to a notification for a recent job near them and reply with “send me the place to go.”

Now use your imagination and add 100 more variations of that same request.

A lot of what we learned back then is still in our mobile product today. Mobile apps have a big user experience advantage over text in the sense that you can design to limit options and help make the user successful. But the big takeaway is simplicity.

Think you have cut enough features? Cut some more.

The hard thing about building a good, simple product is which nine out ten good ideas not to do.

Why we pivoted
  1. Very difficult to keep customers from going around the system once they found someone good
  2. Frequency of use was very low
  3. Difficult to keep the system up to date with an ever-evolving immigration legal framework

II

Business Model #2

WorkerExpress - Winter 2010

Business Model

Blue collar staffing. We worked with construction companies that needed temporary labor (carpenters, plumbers, masons, laborers).

Why we did it

We realized that contractors and other businesses were a much bigger market for temporary labor than consumers. When we dug in, we discovered the staffing industry.

Their processes and systems struck us as outdated. We thought we could do better with mobile phones, eliminating the need for multiple dispatch offices.

What we learned

Blue collar/industrial staffing is complicated. Relationships matter, and there is very little operational cost scale, as more revenue comes with corresponding higher servicing costs. Margins are thin and largely contingent upon running a very tight ship on the workers compensation side.

The blue chip 800 lb. gorilla in the industry took 25 years to grow to a good size, seizing leadership in the market. Ultimately their secret sauce is operational excellence and very skilled workers compensation underwriting.

Why we pivoted

We realized that building a business of the size our investors were expecting would take (A LOT) longer than we initially thought. We were not convinced that there would be attractive margins in this business, even at scale.

Notably, this is a business model that bubbles up with its siren song every year or two. The $300bn global staffing market size and the obvious inefficiencies of existing systems make this a popular startup idea.

I hope somebody nails it.

 

Fundraising & Acquisitions

  • May 2010: Raised $550k
  • Q1 2010: Failed $3-5 million raise
  • March 2011: Raised $1.3 million
  • Summer 2011: Early acquisition talks with large staffing firm

III

Business Model #3

MagicTimecard - Spring 2011

Business Model

Geo-fenced check-ins of workers at construction sites. Essentially an SMS-based time clock.

Why we did it

We developed the system as a part of the staffing platform. We had customers requesting to pay us for the clock-in system by itself. We thought there was a lot of potential to build a scalable time and attendance system based on mobile technology.

What we learned

This was probably one of our most unfocused/regrettable ideas. Not a lot of concrete features of learnings from this survive to this day.

The biggest learning was not to try to do more than one thing at a time (there was a period when we were doing MagicTimecard in conjunction with the staffing model). We also mistook verbal interest from customers for meaningful commitment to buy.

Why we pivoted

Not enough of a business there. There was a player that had done SMS-based time and attendance software and had flatlined their growth.

IV

Business Model #4

WorkersNow - Spring 2011

Business Model

Work with trade schools to help them place their students. They get good placement statistics and we get a trained, active candidate pool.

Why we did it

We were grasping at ideas, as staffing was not going to scale the way we wanted it to, and the geo-fencing idea was meh at best. We heard from trade schools that they wanted help placing people.

What we learned

We learned that meetings are not traction, and again, that verbal enthusiasm is not the same as buying something.

I zig-zagged the country meeting with school administrators to try to get deals with them. We also exhibited at a couple of trade shows in an effort to meet more potential partner schools.

In the words of the immortal R&B trio TLC: Don’t go chasing waterfalls.

Why we pivoted

We did not see enough evidence that a) schools would actually move forward past their initial enthusiastic interest, and b) that they would pay enough to make this a viable business.

V

Business Model #5

Proven v1.0 - Late summer 2011

Business Model

LinkedIn for the blue collar crowd + skills validation. If LinkedIn was “who you know,” the name Proven came about because we aspired to be the platform of “what you know.”

The idea of LinkedIn for Blue Collar Workers (or LinkedIn for X) is another very popular siren song that pops up often in Startuplandia.

Why we did it

This idea felt like a natural evolution for us, and our product design interviews seemed to back it up. We spoke to lots of students and administrators at trade schools. They expressed their frustration with a lack of transparency as to who had which skills. Employers hiring these workers expressed similar frustration with the lack of transparency.

What we learned

The lessons here are extensive and could be topic of an entire post. As I wrote here, the reality is that “LinkedIn for X” will sooner or later end up being … LinkedIn.

LinkedIn gained early traction because it got venture capitalists on board, and people wanted to be connected to them. That organic desire to connect with other people for reasons other than getting a job is not strong in a lot of the industries where people have tried to make the LinkedIn model work. Once LinkedIn reached a tipping point, network effects (and continued growth efforts by the company’s team) were able to carry it to where it is today.

Why we pivoted

We did not find a way to build enough traction on both sides of a blue collar skills validation platform. We also were unable to raise more money given our lack of traction.

 

The Debacle

At this point, it is worth noting that in November 2011, the company went from 15 people to two people in a very short period of time.

It came down to just my co-founder Sean Falconer and myself.

It was one of the hardest periods of my life.

We had to lay off everyone, including a couple we had just hired from Canada who moved to the U.S. for the company. We thought we would be able to raise more money and keep going.

We were wrong. I accept full responsibility.

Over the next month, the three co-founders either gave up our apartments to the couple, or hosted them in spare bedrooms. This is also when my co-founder Joe (whom I am still very close friends with) decided to move on to other projects.

We were eventually able to re-hire half of the couple (Eric is still with us), while the other half found a great job.

At this point, I am fairly certain that our investors wrote us off as a loss. I don’t blame them.

The next eight months would be dark, and very lean... we were able to stretch $130k for eight months with all expenses and zero revenues in San Francisco.

The big lesson here was that we changed the way we develop products.

I wrote more about this in a post titled "Seven dirty, gritty, real startup lessons that cost me $2 million".

VI

Business Model #6

Proven v2.0 - Winter 2012

Business Model

Small business hiring on Craigslist.

Why we did it

We got out of the building more than we ever had before, and developed a system for small businesses. Businesses loved it, and it started growing fast.

This traction helped us raise a round from top tier investors at the eleventh hour... and 59 minutes.

What we learned

We learned a lot about how small businesses hire and what matters to them. The lessons from this period are deeply embedded into our product today. It bears repeating, the hard part about building a good product is which nine out of ten good ideas not to do. This lesson is at the core of the success, simplicity, and usability of Proven today.

Why we pivoted

This was perhaps our most regrettable pivot. If for no other reason because our system today is a much-evolved version of this kernel.

We got distracted by the shiny object of a mobile app for candidates. We planned on tying it all together, but in hindsight, had we focused and doubled down back then, Proven would be doing even better today.

Beware the shiny object.

 

Fundraising & Acquisitions

  • June 2012: Raised $845k

VII

Business Model #7

Proven v3.0 - Fall 2012

Business Model

Mobile app for candidates to apply to jobs on any job board from their phones.

Why we did it

In developing our small business hiring tool, we spoke to a lot of candidates. Most of them looked for jobs on their mobile phones, and they were doing incredible acrobatics emailing themselves to later apply to a job on their computer (often never getting to it). We saw an opportunity to create a successful app to complement the hiring product.

If we could eventually tie both of them together, we would have a thriving marketplace! (nope... didn’t happen).

What we learned

We learned A LOT about mobile. I credit this period and our world-class engineering team with the caliber of our mobile product today. In my opinion, our app is hands-down the best native app for hiring. Our candidate app is also stellar.

Why we pivoted

The app was a success... we had almost 700k downloads and 150k monthly active users within the first six months. We ran into some legal challenges.

While most job platforms were paying us to send them mobile applicants, one particular platform did not like that we used the candidate’s mobile browser to access their jobs. Also, while we were growing, we did not have a predictable growth engine.

 

Fundraising & Acquisitions

  • Q1 2013: Failed $5-7m raise
  • April 2013: Early acquisition talks with a large HR technology company. No common ground.
  • June 2013: Came to agreement with SaaS company for a stock + cash acquisition. We walked away two weeks before closing the deal.
  • August 2013: Raised $1.1 million

VIII

Business Model #8

Proven v4.0 - Fall 2013

Business Model

San Francisco restaurant hiring marketplace.

Why we did it

We made the leap to tie our two products (small business hiring and mobile candidate app) in a bid to become a restaurant hiring platform. We made the call to shrink in order to become big.

We decided to really nail one geography before going wide. Our product was solid, and we took it door to door in San Francisco to gain adoption and feedback to make it even better.

What we learned

It works! Sort of. We found that most of our customers posted to multiple sources to get their job as much exposure as possible.

Why we pivoted

This one was a less dramatic pivot and more of an expansion of scope. See below.

IX

Business Model #9

Proven v5.0 - Fall 2014

Business Model

Small business hiring tool... simple... mobile... efficient... cost-effective.

Why we did it

We kept the product largely untouched, except for now we enabled customers to post to a wide range of job boards and organize all of their applicants in one place.

What we learned

We continue to learn every day. We have learned a lot about how to make this product even better. We have also learned about distribution.

This model only works if you can get people to discover you and sign up. We tried the direct sales model and could not make the economics work based on the cost of our product (that is a deep topic that can be better covered in its own post).

Today, 100% of our growth is through content marketing and organic traffic

 

Fundraising & Acquisitions

  • Spring 2015: Failed $5m raise
  • Summer 2015: Raised $530k

Proven Today

Today, Proven is profitable, growing, and fully remote. We are excited about what’s to come.

The fundraising environment in 2016 has been very tough. We saw this coming, and in mid-late 2015, Sean and I decided to focus on profitability and on controlling our own destiny. We allowed ourselves to reframe our own success, and we are much happier because of it.

Here is a quick recap of the lessons we learned along the way. They may not apply to everyone, and some of them are repeated so often that they may sound cliché. As the saying goes, the smart man learns from his own mistakes, and the wise man learns from the mistakes of others.

  • To build a great product, get out of the building to talk to customers... then do it again
  • Mind the unit economics. Your customers have to pay you more for the product than what it costs you to make it and sell it.
  • Always adapt. Be strong but flexible. Only you know when to change course, but once you know, just do it.
  • Be metrics-driven. We thought we were metrics driven until we started eating, breathing, and drinking metrics.
  • Focus on one thing at a time. If you succeed at only one of your ideas, it will be the hardest thing you have ever done. Success builds on success...start with one thing.
  • Get knocked down 10 times, get up 11. But... seek people to talk to... it’s a lonely job. This is dangerous advice if you keep all your struggles to yourself. Make physical and mental health a priority.

HR Software is Tough

We have outlived a couple of generations of companies trying to make innovative hiring ideas work. There have also been a few who have been much more successful than us. I am friends with many of the founders of those companies, and I have nothing but love and respect for (most of) them.

My philosophy has always been to buy people who are not my competitors a beer, and those who are my competitors two beers.

Ride on.

I fly a starship across the Universe divide
And when I reach the other side
I'll find a place to rest my spirit if I can
Perhaps I may become a highwayman again
Or I may simply be a single drop of rain
But I will remain
And I'll be back again, and again and again and again and again…

Johnny Cash, Highwayman

Acknowledgements

I would be remiss if I did not thank our 53 investors.

You have all been amazing and supportive along the way. For how bumpy our ride has been, very few of our pains have been related to trouble that our investors gave us.

Thanks for riding with us, and we look forward to making it worthwhile for you.

I wanted to give special mention to Mitch and Freada Kapor of Kapor Capital and board member Stephen DeBerry of Bronze Investments for believing in us and helping us save the company multiple times.

Jeff Jordan (A16Z), Simon Rothman (Greylock), Eric Paley (Founder Collective), Darren Bechtel (South Park Ventures), Ray Rothrock, Bob Zipp (Amicus Capital), Johan Schleier-Smith, Miriam Rivera and Clint Korver (Ulu Ventures), FundersClub and David Shen have been especially helpful and supportive in the toughest of times.

The one and only Bill Trenchard has been a spectacular CEO coach and sounding board over the years.

High five to the 500 Startups team for their support and advice throughout our journey. Thank you.

Thank you also to our more than 1,000 amazing customers, and to the many others who gave us a shot along the way. Thanks for believing in us and for helping us design a better way to hire and get hired.

Last but not least... our employees!

They have been diligent, patient, and forgiving of our missteps. There is no way we would be where we are without them.

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Topics: small business, startup

Pablo Fuentes

Written by Pablo Fuentes

Pablo Fuentes is the CEO of Proven. He is a graduate of the Stanford Graduate School of Business and UCLA. He is a Brazilian Jiu-Jitsu practitioner and a blues guitar player and builder.

 

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