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Battle of Flow and Asana

This is a story about how I lost $10,000,000 by doing something stupid.

The Beginning

The model they used for Basecamp was to build great software that scratched their own itch (project management,) and charge a monthly recurring amount to give them access (SaaS) assuming others had the same problem. Then, focus on organic growth via product improvement and public writing. Finally, spend less than they make!

When we turned on billing for our beta users, we jumped to 20k MRR in the first month. We started growing at 10% per month and were the new hotness. I got reach outs from all the top VCs and tons of tech luminaries started using the product. We'd made it…or so I thought. We consistently spending 2-3x our monthly revenue and losing money. Not venture capital. Out of my personal bank account, hopes in making much more.

Asana

Then, Asana. With a team a quarter of the size, and a fraction of the money, we had built what I felt was a superior product. Around this time, Dustin invited me for a coffee in San Francisco. He implied—in the nicest possible terms—that they were going to crush us. He walked me through who was backing them, how much cash they had, how they had hired top executives from huge companies, and that it was only a matter of time until they beat us on product and outspend us on marketing.

I laughed! I was on the bootstrapping train. He was drinking Silicon Valley KoolAid. Nice try! I told him let the games begin and we left with a friendly handshake. Flow kept growing quickly, but our customers were demanding.

Asana quickly released clients on all platforms. After all, they had a dev team 5x the size. Suddenly it was a key feature when people compared Asana and Flow side-by-side. Mobile was table stakes. We had to keep up. Almost overnight, our burn doubled. We lost the war, due to inexperience, product myopia, and a lack of capital in a highly capital intensive and competitive space.

Takeaways

  1. If you are in a competitive VC-funded space, it's foolish to compete without raising money. Don't bring a knife to a gun fight.
  2. The best product doesn't always win, and product is not a longterm competitive advantage.
  3. If a tree falls in the forest and nobody is around to hear it, it didn't fall.
  4. Every developer in the world wakes up thinking I should build a to-do list app and people love jumping between productivity apps and workflows. There is no moat in productivity—avoid it if you can.
  5. Running a SaaS business without deeply understanding churn, LTV, CAC etc, is like flying a plane without instrumentation—really stupid and dangerous.
  6. Failure sneaks up on you slowly, then all at once.
  7. R&D is EXPENSIVE. Especially when competing with venture.
  8. If you're competing on features, it never stops and is an ever-increasing line item.
  9. Good product with great marketing beats amazing product with no marketing.
  10. Bootstrapping works best in uncompetitive spaces/niches or if you have an unfair advantage (a personal brand, unique customer acquisition channel, etc).