This year marks the tenth anniversary of Wattpad. It’s amazing to think that a decade has passed since I frenetically hashed out the details for the business with my co-founder Ivan Yuen in the Vancouver International Airport.
We founded Wattpad because we wanted people to discover, share and connect through stories. We wanted to remove the traditional barriers between readers and writers, and build social communities around stories worldwide.
If 10 years in business has taught me anything, it’s that you really don’t know where a venture will take you. As our community has evolved, so has our business. Wattpad has transformed into a global entertainment company for original stories. It is striking deals with global entertainment players and working with some of the biggest brands to pair them with the best creative storytellers in the world. We’ve come a long way from providing a couple lines of text on a mobile screen – but growth hasn’t always been linear, and we had our fair share of setbacks along the way.
So for all the startup founders who are just embarking on their first venture (or facing year two or three in the trenches), here are some of the lessons I learned – and some of the things you can expect – in your first 10 years in business.
1You won’t find customers overnight
When we first launched our storytelling platform, we didn’t have any writers. Without writers, we didn’t have content, and without content, we couldn’t attract readers. It was your classic chicken and egg conundrum. So we spent our first year in business importing novels that were already in the public domain – Pride and Prejudice, David Copperfield – whatever was available that could help us attract book lovers.
It wasn’t until year two that we saw the first piece of original content land on Wattpad. It attracted 50 to 100 people to the platform, and soon, one piece of content became two, then three, then four. Like any business, it takes time to build up your customer base.
People won’t flock to you just because you’re there. You’ll likely have to find ways to fan the flame until you reach critical mass.
2Your timing might be off
Establishing a solid customer base is additionally complicated by the fact that your timing might be off. How many startups exist today with ideas that are just too advanced to be successful? For many entrepreneurs, it’s a matter of waiting for the industry to catch up with you. At least, that was the case for me.
Related: 21 Steps To Start-Up
Ten years ago, mobile reading was a very different space. There were no iPhones or Kindles – just feature phones that could display a couple lines of text at a time. Sharing content on the internet was also a bit unusual, and there was a smaller percentage of people actively doing it. But today, 90 percent of all Wattpad activity is on mobile, and sharing content online is common – you don’t even need to think about it.
Bottom line: Don’t lose hope if the industry’s not there yet, and continue to preserve. Eventually, technology will catch up with what you’re trying to do and pave a way for your success.
3There will be “lows”
When you first launch your business, there’s a natural sense of exuberance and expectation. But, let’s be real, that feeling won’t last.
I remember sitting in a coffee shop with my cofounder, sharing a coffee I had bought using the total revenue we had earned from the past month. That was a low point for us and a time when we seriously questioned whether we had the emotional strength to keep going, but we did.
You will also face these “lows.” You’ll have to re-examine what you’re doing and decide what is the best path forward. These are the moments that force founders to grow and businesses to either shutter or flourish. In this moment, you’ll ask yourself whether your idea is worth the struggle.
Just remember: A great vision won’t fade with a setback. If you give up when you reach the first, second or third low, your mission may not be energised enough to endure. The personal weight of your vision is what will get you through these low points.
4You’ll need to switch gears
We made it out of our dark pit by taking on consulting jobs and using those funds to support our business. For many founders, such a move can feel like failure, but for us it was literally the only path forward.
When you find yourself challenged, don’t be afraid to switch gears, and don’t be so wed to a plan that you make impractical decisions. It’s ok to deviate a little from the grand scheme of things. Or to put things on hold until you figure it out.
5You’ll get your big break
Eventually – if you’re creating something truly different – you will make it through the hard times and catch your big break. For us, it was getting our initial round of funding.
We received our Series A in 2011 from Union Square Ventures, the same company that invested in Twitter, Etsy, foursquare, Kickstarter and others.
Having such a huge industry player pay attention to us and see our worth validated the work we were doing. It gave us the jolt we needed to keep going and stay committed to building something great.
Related: Stop Whining And Start Hustling
6Working on yourself is as important as working on the product
I’ve yet to meet a single entrepreneur that, when he or she started their company, could do everything all by themselves. You can’t write all the code, design the product, balance the budget, find funding and market the product on your own.
Part of growing as a start-up founder is realising that you need other people to help you and, more importantly, that you have to motivate this team as a leader. At the end of the day, the best product you build isn’t necessarily the product – but yourself.
7Culture is critical to growth
As you grow your business, you’ll realise that it is only as strong as the people in it. Your employees need to share your vision and values if you want to take your business to the next level.
When we look at hiring, we put a lot of focus not just on technical skill but also a cultural fit. Does this employee care about creating a lasting entertainment experience through stories? Is he or she motivated by our users’ success?
Our employees aren’t culturally identical either. We want to hire people with different perspectives and ideas, but who ultimately will work with their team to reach a common goal. This also allows us to create a more global community utilising the perspectives of a diverse team.
8You’ll learn from your users
When I first met Ben Ling of Khosla Ventures I asked him how YouTube had expanded into so many different categories. His answer? “We didn’t start these new categories. These categories emerged organically and we spotted them early. Then we poured fuel on the fire.” In other words, YouTube didn’t create how-to videos; its users did. Then YouTube oriented their product to support it.
Likewise, your users or customers will influence the direction of your product or business, but only if you learn to listen. For Wattpad, user feedback has contributed to developments such as in-line commenting and multimedia. We’ve taken the time to assess what is happening naturally on the platform and have made changes to our product so that it’s easier for them to do what they’re already doing.
Related: How To Know What Passions To Pursue
9Your business will evolve
As I mentioned before, you won’t stick to the grand plan you had when you first started your business. Wattpad started as a storytelling app – and it still is – but we realised that storytelling is the foundation for entertainment content. Stories themselves can not only entertain, but they can also inspire people. So as our community has grown, we have been able to grow with them, leveraging our strong community of readers and writers to shape their content into TV shows, web series, movies and books.
This is not a deviation from our original mission, but it is a change. Change is perfectly fine (and necessary) in order to help you survive from year to year.
10You’ll change people’s lives
When we first started Wattpad, I was solely focused on solving a problem that I faced myself. Over time, I realised the true impact that my company had on other people’s lives.
There are people in Africa thanking me for helping spread the written word in their country. We have parents telling us that their children are improving their writing. Not to mention writers who have thanked us for helping them find an audience.
It’s hard to see it now, but your company will also impact lives beyond what you can imagine. Whether it’s your employees, your customers, or your partners – knowing you have made a change in someone else’s life is the sweetest thing you’ll experience in your first decade of business. This feeling will not only fulfill, but it will propel you further yourself as an entrepreneur and motivate you for decades to come.
This article was originally posted here on Entrepreneur.com.
Alan Knott-Craig Answers Your Questions On Money And Partners
From starting the right business, to managing business partners and finding your magic number, there is a secret to happiness.
If I get rich will I be happy? — JC Lately
Does money equal happiness? Mostly, yes. Research in the US shows that your happiness is proportionate to your earnings up until you earn $80 000 per annum. Thereafter, incremental income gains have a negligible effect on your happiness.
In other words: More money will make you happy as long as you’re poor. Once you break out of poverty and enter a comfortable middle-class existence, more money will not make you happier.
These are the top three for old folks:
- I wish I’d spent more time with family.
- I wish I’d taken more risks.
- I wish I’d travelled more.
Therein lies the secret to happiness. Spend time with your family. Take risks. Travel.
But first, make money. Don’t do any of the above until you’re making enough money not be stressed about money.
What is the magic number? — Mushti
The magic number is the amount of money you need to not worry about money ever again. If you don’t need toys like Ferraris, yachts and jets, the magic number is R130 million. Here’s the math: R130 million will earn R9,1 million in interest annually (assuming 7% interest). After tax that is R5,46 million.
Assuming you need 50% to maintain a good lifestyle, that leaves approximately R2,7 million for reinvestment, which is enough to keep your capital amount in touch with inflation for 50 years. The balance of R2,7 million (after tax) is for your living costs. In South Africa, R2,7 million will afford you a lifestyle that allows you to send your kids to a great school and university, to travel overseas a couple of times a year, and to live in a comfortable house.
Over time your living costs (and inflation) will eat into your capital amount. After 50 years you should be down to nil, assuming you earn zero other income in that time.
In 50 years, you will probably be dead. If you’re not dead, your kids will be able to support you (because they love you and they have a great university education).
I am the sole director of a company (the others still have full-time jobs and don’t want to be conflicted) and there is pro-rata shareholding based on our initial shareholder loans. However, I am putting in most of the hard work, together with one of the other actuaries. How best do I manage the director/shareholder dynamic? I obviously want to make as much progress as possible but there are times when I need the input from the others (and their responses aren’t always as quick as I would like). — Mike
If you have any perception of unfairness regarding effort/risk vs reward, deal with it NOW! You can’t do so later. The best approach is honesty. Call your partners together. Explain your thinking. Perhaps argue for 25% ‘sweat equity’ for yourself. Everyone dilutes accordingly. Ideally cut a deal whereby you have an option to pay back all their loans, plus interest, within six months, and you get 100% of equity (unless they quit their jobs and join full-time).
Equity dissent must be resolved long before the business makes money, otherwise it will never be resolved.
What do you think of WiFi in taxis?— Ntembeko
It’s a good idea, but not original. Before embarking on a start-up, you should survey the landscape for competitors. Just because there are none doesn’t mean no one has tried your idea.
It just means that everyone that tried has failed. You need to be 100% sure that you have some ‘edge’ that makes you different from everyone who came before you (and failed). Otherwise you will fail. What is your advantage that is different to everyone who came before?
Read ‘Be A Hero’ today
What You Need To Know About The Lean Start-up Model
The Lean Start-up philosophy was developed by Eric Ries, a Silicon Valley-based entrepreneur who also sat on venture capital advisory boards. He published The Lean Startup in 2011, igniting a movement around a new way of doing business.
The model follows key precepts that include:
Taking untested products to market
The fact that too many start-ups begin with an idea for a product that they think people want, spending months (or even years) perfecting that product without ever testing it in the market with prospective customers.
When they fail to reach broad uptake from customers, it’s often because they never spoke to prospective customers and determined whether or not the product was interesting. The earlier you can determine customer feedback, the quicker you can adjust your model to suit market needs.
The ‘build-measure-learn’ feedback loop is a core component of lean start-up methodology
The first step is figuring out the problem that needs to be solved and then developing a minimum viable product (MVP) to begin the process of learning as quickly as possible. Once the MVP is established, a start-up can work on tuning the engine. This will involve measurement and learning and must include actionable metrics that can demonstrate cause and effect.
Utilising an investigative development method called the ‘Five Whys’
This involves asking simple questions to study and solve problems across the business journey. When this process of measuring and learning is done correctly, it will be clear that a company is either moving the drivers of the business model or not. If not, it is a sign that it is time to pivot or make a structural course correction to test a new fundamental hypothesis about the product, strategy and engine of growth.
Lean isn’t only about spending less money
It’s also not only about failing fast and as cheaply as possible. It’s about putting a process in place, and following a methodology around product development that allows the business to course correct.
Progress in manufacturing is measured by the production of high quality goods
The unit of progress for lean start-ups is validated learning. This is a rigorous method for demonstrating progress when an entrepreneur is embedded in the soil of extreme uncertainty. Once entrepreneurs embrace validated learning, the development process can shrink substantially. When you focus on figuring the right thing to build — the thing customers want and will pay for, rather than an idea you think is good — you need not spend months waiting for a product beta launch to change the company’s direction. Instead, entrepreneurs can adapt their plans incrementally, inch by inch, minute by minute.
Start-Up Law: I’m A Start-up Founder. Can I Pay Employees With Shares?
Bulking up employee salaries with equity is a common method to attract, retain and incentivise top talent.
Every early stage start-up company battles with restricted cash flow and not being able to pay market related salaries to their employees. Bulking up employee salaries with equity is a common method to attract, retain and incentivise top talent.
Can I pay salaries with shares?
South African labour laws require that employees be paid certain minimum wages, and “remuneration”, as defined within the Basic Conditions of Employment Amendment Act, either means in ‘money or in kind’. ’In kind’ does not include shares or participation in share incentive schemes, as determined by the Minister of Labour. As such, there is no room for start-ups to completely substitute paying salaries with shares or share options. However, there is no restriction in topping up below market related salaries with equity via an employee share ownership plan (‘ESOP‘).
Employee Share Ownership Plans
There are a variety of ways in which employees can be incentivised, and it will always be important for the start-up founders to consider what goal they wish to achieve by incentivising their employees.
ESOPs can be structured in several ways, for example: employees may be offered direct shareholding in the company, options for the acquisition of shares in the future; or alternatively, a phantom / notional share scheme can be set up.
ESOPs permit employees to share in the company’s success without requiring a start-up business to spend precious cash. In fact, ESOPs can contribute capital to a company where employees need to pay an exercise price for their share options or shares.
The primary disadvantage of ESOPs is the possible dilution of the Founder’s equity. For employees, the main disadvantage of an ESOP compared to cash bonuses or bigger salaries, is the lack of liquidity. If the company does not grow bigger and its shares does not become more valuable, the shares may ultimately prove to be worthless.
Some key features to consider when setting up an ESOP are:
- ELIGIBILITY – who will be allowed to participate? Full time employees? Part-time employees? Advisors?
- POOL SIZE – what percentage of shares will be allocated to incentivise employees?
- RESTRICTIONS – will employees be able to sell their shares immediately?
- VESTING – will there be a minimum period that service employees will have to serve with the start-up to receive the economic benefit of his or her shares?
Employee share ownership plans are great corporate structuring mechanisms for attracting and retaining employees, as well as fostering an understanding of the company ethos and encouraging loyalty and productivity. It is essential when implementing an ESOP that all the tax implications are considered and that the correct structure and legal documentation are in place.
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