With millions out of work and many companies at a loss for revenue, now might seem like an inauspicious time to start a business. Twilio co-founder and CEO Jeff Lawson has been there and disagrees.
In September 2008, on the eve of Twilio's final meeting with its first would-be investors--the one where they normally cut a check--financial services firm Lehman Brothers collapsed. The ensuing financial crash left in shambles the deal Lawson and his co-founders had spent months trying to close for their San Francisco-based communications platform for software developers. "After a whole summer of fundraising, we literally had nothing to show for it," says Lawson.
The founder now says that while the experience was difficult, it didn't deter him. "If you have conviction and you're solving problems for customers, that's all you need no matter what the market is [doing]," Lawson says.
He adds that while the coronavirus pandemic is light years different from the financial crisis--the U.S. government's stimulus efforts then measured in the billions, not in the trillions, as it does today, for instance--the climate may actually serve some companies just getting started now.
Despite its fundraising difficulties, Twilio launched in November 2008 with just $30,000 in the bank. Lawson says that after getting married a month later, he returned every wedding present for cash to give the company some runway.
Twilio's communication platform lets software developers add voice, video, or texting features to desktop, web, or mobile programs. For months, Twilio pulled in only small sales from early adopters.
However, those months of sales and steadily increasing traction in the software developer community were enough to convince investors that the model had potential--Twilio closed a $600,000 seed round in April 2009. It also helped that one early adopter was a Sony employee who created a Twilio account to build a hotline for a metal band, called Lamb of God, Lawson says.
The company says word of mouth increased after the company closed its seed round and really took off that June. In 2009, after its first full year of business, Twilio booked about $100,000 in revenue, says Lawson.
"Follow your customers, because that's where the truth of the business is," Lawson says, adding that even if consumers are cutting some of their spending, they will pay for a valuable service upfront. "That's a way to get customers to pay to get the company going."
Twilio went on to attract $263.8 million in funding from venture capital firms such as Bessemer Venture Partners, Redpoint Ventures, and Salesforce Ventures. Last year, the now-public company booked $1.1 billion and now has a market cap of $17.1 billion.
Birchbox co-founder and CEO Katia Beauchamp says her company experienced similar ups and downs--but ultimately benefited from what seemed to be unfortunate launch timing. A month after she and co-founder Hayley Barna launched the New York City-based subscription beauty sample box startup in September 2010, the unemployment rate peaked at 10 percent.
While they were able to raise a small friends-and-family round of about $100,000, the inability to raise more made marketing the nascent business difficult. The founders ended up persuading potential customers to sign up for a waiting list during the company's testing phase.
"Obviously we knew that there's not a 100 percent conversion from expressing interest to actually giving your credit card," says Beauchamp, who declined to share current revenue figures. In 2017, she told Inc. that Birchbox booked $200 million in 2016 revenue. Still, the wait list data was one of "those kinds of scrappy proof points [that] help investors."
Hiring employees without money in the bank is also challenging, but the economic downturn made it easier for Beauchamp to hire typically expensive and highly-sought-after engineering talent, she says. She was able to hire someone to work part-time, but if that option isn't available, Beauchamp advises trying to bring on engineers as advisers to the company or offer them equity in the business.
For founders now weighing the decision to launch, Lawson suggests finding a North Star--that is, identify your core mission and your prospective customers. Then, determine whether or not you'll be able to serve them. If your product is uniquely positioned to fill a need in the marketplace right now--regardless of the circumstances--not even a serious health crisis should stop you, says Lawson.
In late March, as Americans began sheltering in place, co-founders Jimmy Wu and Lambert Wang questioned whether or not to go ahead with the launch of their cat care products startup, Cat Person. The duo spent the past few years building the New York City-based brand and secured an undisclosed seed round from Harry's Labs, an innovation group run by Harry's, the razor company. After seeing an uptick in cat fostering and adoptions as people searched for companionship, they decided the timing wasn't as bad as they initially thought. The company launched on March 24.
They pivoted Cat Person's marketing away from in-person events to ones focused on social media, where their target consumers were spending the majority of their time. Days after launching, Cat Person was shipping out orders.
"We never expected to be launching a new business in a time like this," says Wu, who leads the 10-person company. "But this was, maybe now more than ever, a time when people need cats."