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In this episode of Startups For The Rest Of Us, Rob and Mike revisit their predictions from 2017 and score how they did. They also make new predictions for 2018.
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Mike: In this episode of Startups For The Rest Of Us, Rob and I are gonna be talking about predictions for 2018. This is Startups For The Rest Of Us Episode 370.
Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And, I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: I was reflecting on the past couple of months and I feel like I’m coming out of kind of a rough patch. If you go over and listen to Zen Founder which I believe came out last Friday, Sherrie and I talked through some personal stuff that is going on, you already know about this, I talked a little bit about it at MicroConf Europe.
I realized that kind of stuff like, you can become the frog in a pot of boiling water, where just slowly you descend into stress and chaos and, as I’ve come out of that, I was just looking back and thinking how thankful I am for so many things right now, and how, I guess, thankful I am that I am not where I was a month ago. Coming out of dark times, it was both personal stuff and even at work — I don’t know.
You hit a certain point, some months, some weeks are just hard and it’s hard to wanna show up everyday, and it’s hard to deal with whatever it is. The cues haven’t backed up for a while but there’s just stress building a software company, and running a big team, and hiring people. I don’t know. Other than that, that’s what’s been going on with me. I was just thinking about it today I’m like I really feel positive and excited and I’m like really happy right now and it’s such a contrast to what I was feeling even three or four short weeks ago, and part of that was getting away. Was going to Europe, even running MicroConf Europe wasn’t stressful. It was super. I had a great time there, I was there with my kids, and Sherrie joined us. When I came back, the reentry week was tough. But aside from that, I feel like things are on the upswing. Hopefully, heading into the end of the year and beginning the next, it can continue to feel that way.
Mike: I have to laugh at myself every time I hear that analogy of the frog and the pot of boiling water because I’ve used it myself but if you look into it, that’s actually not true. If you put a frog in a pot of hot water and you slowly turn up the temperature, it will jump out. It’s not that it doesn’t realize it, but it’s a great analogy because it makes sense to everybody.
I think that’s kind of, I’ll say, par for the course, like everybody goes through that on occasion. It sucks to be there. The contrast between where you hopefully end up eventually is quite striking I’ll say. It’s nice to be able to kind of move past that.
Rob: I think move past it and then be better equipped to recognize it early and deal with it as best you can because these are always going to happen. Whether it’s one week every couple of months, whether it’s one month every couple of quarters. You’re just gonna have these down times. If it’s high-stress time, like you’re negotiating the sale of your company, or you’re in a super high growth, or there’s a competitor that’s pissing you off and trolling you, this can be constant for months. It’s trying to figure out how do I go on this journey and deal with hard things and not let it poison the rest of my life, or negatively impact the rest of my relationships, and just go and have fun?
Mike: That can be hard, especially if your income is tied so much to your business and your business is the cause of your stress. There’s almost no getting away from it at that point. It’s not like its a 9:00 to 5:00 job where you can just go and clock in and at the end of the day you can just walk away and all the problems are not yours to deal with it. It intrudes on your life to some extent.
Rob: Absolutely. This relates back to the listener question we had last week, where he says, “My emotions are tied to my business. How do I get away from that?” And our answer was kinda like, “Well, you do the best you can but it’ll probably always will be.” That’s my short answer to that. How about you, what’s going on?
Mike: My oldest is playing basketball right now and they had to do a fundraiser. It was interesting because as part of the fundraiser, they’re basically just standing outside the store and asking people for donations. I took him aside at one point, after he kind of gotten the hang of it and basically asking people for money, and I was like, “Here, let me teach you the art of the upsell here.” Kind of worked with him for a couple of minutes and I was, unfortunately, not paying attention because I was working with one of the other kids at the time when he actually did it but he upsold some woman on a hug to get some extra money for a donation.
Rob: That’s cool. That’s awesome. Bravo!
Mike: I was told by the coach, she’s like, “He did it flawlessly.” Perfect execution and everything. He listened. Followed all the advice and everything, and he only did it three times. It wasn’t like we were there for an hour and a half, and he didn’t do it all the time. He only did it three times but everytime it worked. It was really good.
Rob: Like father, like son. I’ve seen you.
Mike: I sold lots of hugs…
Rob: I know you did. “Buy this software product and I will give you a hug.” Cool.
For me, I also had this interesting experience in the past week, I often talk about we’re always hiring because the app is growing quickly so the team’s growing slowly which is good, that’s how we like to do it. We found a candidate who came highly recommended and we met with him and he was the right fit, good personality and everything. But as we move forward in the actual kind of hiring and negotiation process, it quickly became apparent that yellow flags started creeping out and there were little things. He’s asking for more money than he should get because he was transitioning careers, transitioning from this role to that role. He’s asking for the same salary that he had at this other thing that had five years of experience in and is basically coming entry-level junior for us.
Then, he wanted a title that was actually quite a bit above, that implied he had years of experience and he actually has three months or something. That’s a really interesting one. Then there were two more things but it just kept unfolding. He went from being this amazing candidate to being, I use the word I’m disenchanted as these things keep coming. To his credit, he has two other companies that are interested in him so he’s probably gonna wind up getting everything he asked for and that’s great. But it showed me, there was particularly the specific way he handled a few things showed me that he was, it wasn’t just a negotiation, there was a bit of high-maintenance, demanding or entitlement I think is probably the right word. It struck me that that alone is a deal breaker, even though he checked all the other boxes. He’s either a “hell yes” or he’s “no.” He quickly became not a “hell yes” as these things unfolded.
Mike: Yeah, that’s kind of disappointing. I guess I’d say the process isn’t complete yet or I don’t know fully whether you kind of went through and offered him the job or passed that point. It’s easier or better to find those things out in advance as opposed to after they’ve started working or even a week or two down the road. Sometimes, you don’t find out for six months but those problems can come up at any time.
I remember somebody who I had interviewed at Pedestal Software and there was another team that had actually interviewed him and they’re like, “We think he knows his stuff but we’re not sure. Can you come help us out?” I went in and basically grilled him on all this UNIX stuff because the other team didn’t have as much experience with it. I grilled him, I remember going back to the management team and I was just like he knows his stuff but he is kind of a jerk. you don’t want to hire him. That was the bottom line and they’re like, “Okay, let’s hire him.” I’m like, “Wait a second, he’s gonna be a pain the in ass to work with.” And he was, it sucked.
Rob: I’ve had that happen before. At high growth startups where they’re like, “Does he have technical chops?” “Yes, but I don’t want to work with him” “That’s okay, we can manage that.” They didn’t put me with him but the engineers who worked with him didn’t like it at all. I was like, “This is interesting.” This is 14 years ago. I remember being like, “I don’t think this whole funded thing is for me,” because if that’s what we’re doing, I’m not gonna like my job here.
Mike: Right.
Rob: In my opinion, you need to like the people who you work with because you spend too much of your life at your job so whether you’re hiring them yourself or they’re just people, if you work at a big company and other people are hiring, if you don’t like your coworkers, I think you need to get out of there.
What are we talking about today?
Mike: Today, we are gonna be going through our predictions for 2018. To kick us off, we probably should take a look back at our 2017 predictions and see how we did before we start making other wild ass guesses.
Rob: Indeed. And that’s just what these are, wild ass guesses. Every December, and we’ve done this for many years, I’d say five or six at this point, I went back and listened to a few of our old predictions and it’s pretty funny. Pretty funny how the world changes. Keep in mind that when we can, we make predictions in the startups space or in the tech space but these are not limited to just startups. We like to have fun with this episode. It’s more about entertainment than it is about these are areas to start a business in.
Next week or in the next couple weeks, we’re gonna be doing our goals episode where it is truly your and my goals that we set for 2017. We’ll review those and then we’ll look ahead at our goals for 2018. Those will be obviously, there’s some personal ones but there’s also startup business specific ones. But, for these, you know, again, there are some tech related and then others that are just kind of fun ones to think about, talk about.
Mike: With that in mind, let’s dive right in. My first prediction for 2017 was that health insurance rates are going to become a much bigger issue for self funded companies and I would say, what are we doing with our scale of like is it 1-100 or 0-1 or 50/50?
Rob: One to five?
Mike: One to five, I guess.
Rob: Yeah. Five is like “nailed it” and then one is “completely missed.”
Mike: Alright, one to five then. I would say on this one, I got a five.
Rob: In the US, specifically.
Mike: Right.
Rob: Because the US’ healthcare system is so messed-up, especially for small companies. Well, just for everybody, it’s messed up.
Mike: Yup. I’ve been hearing people over the past three or four months where at the beginning of the year it wasn’t so bad, I don’t think, and then as the year has kind of progressed, as people start to renew their insurance, I’m hearing people say that in some cases it’s double or triple what the rates were previously, the previous year. It’s kind of gotten out of control. I don’t know what people are doing about it. I’m glad that I renewed back in April, but at the same time, I’m going to have to renew next April and I’m kind of afraid of what is going to end up happening.
Rob: Yeah, I agree. I’m happy. It sounds weird to say I’m happy that I’m working for someone else, that I don’t have to deal with this. Essentially, Drip/Leadpages handles this for me now. I don’t have to administer it. They, like a typical employer with good funds, they cover most of the expense. I know it’s gotta be super expensive for them to maintain that. My first prediction for 2017 was there will be another high-profile acquisition in the bootstrapped space. My idea was that it wasn’t going to be someone that sold their app for 3-4X multiple of net profit but that it was gonna be another kind of Drip-esque acquisition where someone that we know in the MicroConf spaces that acquired by a big startup.
Mike: How did you do?
Rob: As far as I know, this is a one. I don’t know of an… Do you know of anybody in our space that got acquired?
Mike: I know of some but nothing at that level.
Rob: Yeah. Maybe a two or something. I was on the lower end of being right. I had the impression that, or I was thinking that there would be a kind of a bare acquisition in that but it really did not happen.
Mike: If I remember correctly, you did say on the episode last year that you didn’t have any inside knowledge, it’s just what you thought was going to happen.
Rob: Yep, that’s right.
Mike: My second prediction was that the SaaS bar is going to continue to be hard to reach which is obviously very generic but I kind of couched it by saying that startups are gonna start offering a service as a first base approach followed by implementing the SaaS once they figure out the process in order to be able to offer those services at scale.
Rob: It’s the product as consulting first and then turning into SaaS. I think when you said this prediction, I said, “Isn’t this already happening?” This was Brian Casel’s talk in October of 2106, was about productize service moving to SaaS.
Mike: Craig Hewitt went on this road with Castos as well. The idea there is to really make it easier for people to host their own podcast and they do a lot of this stuff internally with PodcastMotor where they do all the editing and everything else but they basically turned that productized service into more of a SaaS product and offer additional things which is more of a self serve model then the productized services which is done for you. I would say those two are the things that I would say come to mind, but I don’t see too many others. I probably have to give myself a two, possibly a three, but I wouldn’t say that this was as accurate as I thought it would have been.
Rob: I’m sure more people are doing it. I know Brain Casel has his productized course and I’m sure he knows other people doing it through that but you and I just haven’t necessarily heard about them or been around them.
My second prediction for 2017 was that start up crowdfunding will fizzle out. Lower end startups will use it but the best startups will continue to use their networks, AngelList, and that kind of stuff. I’m going to give myself a four on this because I don’t know if it fizzled out as much, it just has not really taken hold very well. It just hasn’t had the impact that I thought it would of people being able to buy small chunks of equity on accredited investor, non-accredited investors being able to buy small chunks of equity. I thought that it would have this big kick early on and then like I sad fizzle out. It kind of didn’t. I think that there have been several platforms that have launched to facilitate it. It’s kinda shoulder-shrug right now, like wait and see. Mostly if I removed the fizzle out, I was probably a five. “Crowdfunding won’t really do much,” if I had phrased it that way, it would be much more accurate. Was that your sense as well or you think I’m misreading it?
Mike: I feel like that there was an initial inclination that was going to happen, that people were going to do it a lot. Non-accredited investors were gonna be able to throw money in and start funding these companies. I don’t think that the types of businesses that were maybe brought before them were attractive enough for them to say, “Yes, I’m gonna throw my money in.”
Rob: Cool. That makes sense.
Mike: My third prediction was that more small scale entrepreneurial meetups are going to be starting around the world, and that the entrepreneurship for small-scale businesses is going to pick up steam. I probably don’t have a lot of data to back this up. I would say that I’d give myself a four out of five on this. I heard recently that FemtoConf over in Germany just recently sold out. Congratulations to those guys.
Rob: Wait, what?
Mike: Did you not hear that?
Rob: Oh, sold out. That was interesting. I took sold out as not selling all their tickets but selling the conference to someone else. I was like, “What?!”
Mike: Oh, no. No.
Rob: Did you hear that shock in my voice? Okay, sorry. Keep going.
Mike: No. Sold out as in sold all of their tickets. I feel like that’s going to become not really the model but more prevalent over time as people, like start these really small meetups and then grow it. I think last year’s FemtoConf was only about 10 or 15 people and then they went from 10 or 15 to I think around 30 this year. I just think that there’s gonna be a trend in that where you get these really small meetups that start out tiny and then they start to grow just because of the audience that they build and they’re growing off their success as opposed to trying to build something where they get like 100, 200, or 500 people to it the very first year that they start. It’s really just stair stepping their way up.
Rob: Congrats to you guys. My third prediction for 2017 was that there would be a 20% or more correction in the US stock market. On a scale of one to five, I give myself a zero. Have you heard this expression, “I’ve predicted five of the last two bear markets.” That’s essentially what I’ve done here. I think like all of us, things seem overvalued, but everyone’s been saying this. I know someone who pulled all their money out of the stock market in 2013 or 2014 and they have missed tremendous amounts of gains. Timing the market is so, so hard. We all think we can and it’s always a little bit later, you can’t quite outlast the market in terms of the irrationality of it going up or going down. I would probably say this will happen in 2018 but I’m not going to cheat and use that prediction again. I was dead wrong.
Mike: I thought you were going to say the 20% market correction was going to be upwards instead of downwards. I thought you were gonna…
Rob: I should have. It corrected from it’s low. It corrected upwards. My fourth and final prediction for 2017 was that the first consumer purchase package would be legally delivered with a man drone somewhere in the world and I believe, if I recall, that I made this prediction it was late November, early December, and it was within a couple of weeks that this happened. It was even before 2017. Is that your memory?
Mike: I think that’s correct. I think that happened before the year started. I think we were debating about whether or not you got credit for it because it was not in 2017.
Rob: I would give myself a five on this one even though maybe technically it should have happened two weeks later for it to be in 2017. We should call this our predictions from between right now and the end of the following year.
Mike: You’re just trying to get credit for that one.
Rob: Alright, let’s dive into our predictions between now and the end of 2018.
Mike: What’s your first prediction, Rob?
Rob: Hey, wait! I didn’t even type this one. Let me read this one. Rob will buy a bunker in the Swiss Alps, establish a micronation with his 11-year old son as the benevolent dictator. How did this show up in our outline, Mike?
Mike: I don’t know, I have no idea.
Rob: I think that’s a really good prediction.
Mike: Must have been the elves.
Rob: Messing with my predictions. That was a joke prediction. Please don’t hold me to it. What’s your first one?
Mike: Mine is there’s going to be an economic downturn. I think that it’s probably going to be, I don’t wanna say that it’s gonna be major. But I think that it’s gonna be substantial enough that people will notice. It’s not gonna be like 2008 where the entire economy crashed but I do think that there is going to be that, you kind of called it for last year, the 20% stock market correction, I feel like that’s gonna be this year. I think that it’s going to be driven kind of by a lot of the factors around healthcare, at least in the United States, and various policies that are kind of going into effect. I don’t see like a sustained economy is going to be moving forward this coming year. There is bad stuff on the horizon.
Rob: I want to get more specific with this because when I think of the phrase “economic downturn,” I think of the economy as multiple factors. You could say is that a stock market correction, is that a recession which implies a lack of growth of businesses which don’t necessarily, it often causes a stock market correction, but the two can be non-correlated. That typically also leads to unemployment. And then there’s the housing market which I see as a separate thing.
There’s three or four different things; unemployment, GEP growth, stock market, and housing. In 2008-2009, they all plummeted, but in 2000, the housing market took a little hit but it wasn’t that bad. What do you mean when you say economic downturn? Let’s define it and then let’s update, so we know next year, whether you are accurate. If it’s any one of those four, it’s a pretty broad prediction. But if you’re saying its like three out of four or something…
Mike: I think it’s going to be a couple of them. One, I think there’s going to be a lot of small services businesses that end up going out of business partly because of regulation but partly because they’re just not going to be able to make ends meet. They’ve got other things to adhere to in terms of tax laws, health insurance, and things like that. I think that’s going to have a pretty big impact on them, along with all the legislation tied to the healthcare industry. I think that’s going to have a pretty bad impact on them as well, just in general, you will see a lot of small-services companies end up going out of business.
Then that’s going to lead to unemployment which impacts a lot of other things. I don’t think that the housing market is really gonna go down very much. It probably will stay relatively the same. It’s certainly is not going to be a big growth area. Then what was the last one that you said? Oh, the stock market. I think that it will level off a little bit but I don’t think that it’s going to go down.
Rob: I’ve updated your prediction with a few bullets that kind of captures that so when we come back next year, we can measure it correctly.
Mike: What’s your next prediction?
Rob: My first prediction, the Swiss Alps bunker one, is not going to come true. I think 2018 will be the year of non-institutional startup funding. I think this has already begun. We’ve seen more and more angel investments coming out. The more I get involved with this, the more I realize the power of money that comes from angels, rather than going the traditional institutional route. Jason Calacanis’ book, Angel which came out a few months ago, it was really good. I think some people will probably dive into it from there.
Crowdfunding, this is maybe my opposite of my prediction for 2017, but I do think that crowdfunding will continue to build some steam. The ICOs are a bit dubious as to whether they’ll stick around. But I know that’s a big push right now, people are trying to fund startups using ICOs. Through those three avenues, I think it’s gonna be easier, and even more prevalent, and become a more common thing for people to invest in early stage startups. I think it will become easier as a startup to raise non-institutional funding. This is kind of tied to fund strapping a little bit. It will be easier to fund strap because of that. Fund strapping being raising a small round of funding without the intention of the implied series A, of having to then go to institutional money in 18 months but to actually become profitable with that initial round.
Mike: My next prediction kind of revolves around in app purchases. One thing that I’ve heard talk off is about legislating that. Mainly because when Star Wars Battlefront 2 came out, there was complains about how much the game costs, and then the fact that inside the game, you could go in and you could purchase basically, a loot crate and you had a chance to get certain items but you are not guaranteed to get something specific. The rationale people were putting forward is well, that’s actually gambling because you’re buying a chance to get something that may or may not be valuable and it is being presented in such a way that that fits the definition of gambling.
I don’t think that we’re going to see legislation around this. I think that there’s a lot of talk about it. The companies that are behind these types of games are smart enough to be able to avoid that kind of stuff because they’ve got the legal teams to both defend them and point them in the right direction and say, “You should or shouldn’t be doing this. Here’s what we can get you out of and here’s what we can’t.” I don’t think that there’s going to be any actual legislation around it but I do think that you’re going to see gaming companies come to better definitions and I would say be a little bit more careful about how they’re putting those offerings together for those in app purchases.
Rob: My second prediction for the year is that artificial intelligence/machine learning will continue to be marketed as the next big thing in terms of enterprise SaaS and even small and medium size SaaS and software, but once again, it will not deliver in 2018. By not deliver, what I mean is it’s being touted before it can really provide value for most people and most businesses.
One of the big issues is especially with machine learning, you need such large datasets to actually train the algorithms. I see these SMB tools saying, “We’ll use our machine learning to help you do…” That’s over promising and I think it’s gonna burn people out on it. I’ve already had conversations with a guy who used to run a big ecommerce store and he’s like, “We’ve been sold artificial intelligence for 15 years and it’s still not as smart as me sitting down and whatever, building out a funnel or a campaign.”
I think there’s danger of it becoming a complete marketing fad. I do think that eventually, this stuff’s gonna work and it’s gonna be genius. There’s examples of it. We use what I call artificial intelligence to detect spammers when they come into Drip based on behaviors. We have all these signals we look at and we auto-flag and our accuracy is really high. We’ve developed that algorithm over the last several years and I know that there are other startups that do this internally. This stuff can work. There’s just certain approaches that you need to take to it. We have stuff that we’re already thinking about inside Drip like, “How could we automate this? How could we make this smarter?” People have been saying it for many years, it’s not there yet, and some people will actually do some intelligent things this year. Hopefully, we will release something, but it’s not going to be the promise of everything’s done for you, and you just sit back and press one button and all your marketing is essentially automated, which is what so many of people in the mar-tech space are claiming.
Mike: I think that’s a difference in the bounds of the problem too. For example, detecting that somebody is coming in and going to be sending spam, or is a fake account that signed up, and their intent is to do that. There are certain patterns that you can recognize very easily because there’s only so many things that you can do or that can be done in the app. You can do time-ins around when one request happens versus when another. It makes it easier to scour that and kind of detect whether or not somebody’s doing that. Versus in an ecommerce, how do you predict whether somebody’s gonna come back and buy something else, or how do you predict the best thing to upsell them to. That’s a lot more of an open-ended problem with no real bounds versus, “Is this person going to be a spammer? Yes or No?” Does that make sense?
Rob: Yup, totally does.
Mike: I think that the two things are very different. I totally agree that enterprise companies are being sold to this type of stuff and it just doesn’t work.
Rob: Yep. How about you? What is your last prediction?
Mike: My last prediction is actually about Uber and it is that Uber is not going to regain the ground that they have lost. Lyft is a lot smaller than they are, but I think that because of all of the, I’ll say, political fallout and loss of goodwill towards them – not that they probably had a ton of it to begin with, but I think that they have really lost a lot of the leverage points that they probably had. They’re going to have to work harder to do the same things that they were able to do last year, and the year before. Just because of the fall out from the allegations of misconduct and all of the internal stories that have come out of how badly they’re treating people. I just don’t think that they’re going to recover as well as they probably think that they are. Like I said, the big problem is it’s going to take them a lot more effort to do the same things that they were able to do last year with substantially less effort.
Rob: When you say not regain the ground they’ve lost, do you mean in the valuation? Because, as of this writing or as of this recording, their valuation is like 30% lower based on a round that they have to raise from SoftBank. I think Uber’s burning $1 billion a month. It’s a lot of money. Is that much money?
Mike: I don’t know.
Rob: It’s a lot of money. Yeah. They’re in a place of having to raise capital and with this kind of tarnish on them, and they’ve lost their CEO, SoftBank offered them 30% less than the previous round. Are you thinking that in terms of evaluation or you’re thinking in terms of market share? I know we don’t know their market share for sure but there are estimates and such and they have taken a big time hit with people deleting their app altogether.
Mike: Yeah, that’s more what I’m thinking. Market share, because we don’t have the actual numbers, it’s gonna be a little bit difficult to, I’ll say, measure that in a year. When I say that they’re not going to regain the ground they’ve lost, as in the people who have deleted their app will probably not reinstall it unless they have no other option. I don’t think that they’re going to win those people back even if the company changes its tune and goes out of its way, I’ll say, to overhaul their culture. I don’t think that they’re going to win those people back which will have an impact on their market share and their ability to grow as a company.
Rob: Sounds good. My third prediction is that there will be an enormous crash in Bitcoin’s valuation. Right now it’s on a huge rise, but long term I am still bullish.
Mike: Wait, didn’t it crash three days ago?
Rob: It crashes every few days but it comes back. I’m saying more of, I don’t wanna say sustained crash, but if you look back over its history a couple years ago, it built up into the 400, 500, 600 range and it crashed and it was down for a year, just fumbling around. Maybe even more, it might have been 18, 24 months. It’s kind of bumping around and around a few hundred and then there’s this more recent rise. I’m a person, I’m long Bitcoin. I own several Cryptocurrencies and not in small quantity either. It’s not like I bought one. I’m kind of keeping my eye on it and it’s tough, this is similar to my prediction of the stock market correction.
I think the way Bitcoin is going up right now is like no mania that we’ve ever seen, the volatility is just crazy. I do think that the next 12 months, that is likely to end. I of all people would be ecstatic if it didn’t, if it kept going up, doubling, tripling. Bitcoin has had a 2100% return in the last year. That’s kind of tough not only to sustain but even sustain the current valuation. With that said, long term, even as I sell some of the Bitcoin as it gets really high and my assets get way out of allocation, or out of the percentages that I like. I’m certainly not exiting those positions at all because I think I’m long Bitcoin and I’m long cryptocurrencies in general.
As you look out 5 and 10 years, it’s kind of like being here at the advent of the personal computer, the advent of the internet, the advent of smartphones. Bitcoin and crypto in general is this movement and long-term is going to stick around even after a crash. If we think about the 2000 Dotcom crash, there was all this hype around it from ‘94 from the IPO of Netscape, ‘94-’95, all the way to 2000, and then everything crashed, and people said, “Boy, Dotcom, those internet sites, they’ll never amount to anything.” Now, here we are. The biggest companies in the world essentially either came out of that or have something to do with that. If you had just been long the whole time, you’d have to wait through that decade-long trough, essentially, when it all bottom-dropped out of it. I guess I see there could be a similar frenzy around Bitcoin and other Cryptocurrencies, where there will be a big crash, but long term it will be a viable store value or a way to move money around.
Mike: I think the volatility of it is kind of a big turn off to me. I saw a tweet earlier today from somebody who said, “I bought a USB cable from Newegg with some Bitcoin ones. Feel free to ask me sometime and I’ll show you a $3500 USB cable.”
Rob: So funny. That’s the thing, I don’t think Bitcoin is a currency. I think cryptocurrency is a misnomer and I view it much more as a store value in a way to get money out of a situation… I view it more as gold. I wouldn’t go buy bread with gold. I wouldn’t go buy USB cable with gold and I won’t do it with Bitcoin either. I do believe it’s a great way if your currency is going crazy and this happens every several months to just get money out of my currency because the government won’t allow me to exchange it for US dollars, that’s much more stable, and I don’t want to see this hyperinflation. People are dumping their money into Bitcoin or into other cryptos. It’s a great way to, I shouldn’t say great, but it is a way people are using to not lose all the value of their money during this currency crisis.
And then you look at when Brexit happened and there was this uncertainty. When there is economic uncertainty, obviously, there’s a lot of volatility in Bitcoin. It’s been lucky enough to keep going up. It’s a way that if you had a hundred thousand dollars in the bank, or I should say a hundred thousand Argentinian pesos or whatever, hyperinflation hits and it’s 100% a weak inflation, you can’t go buy $100,000 worth of gold because everybody goes and buys it and they’re trying to get stable assets. But you can go buy $100,000, in theory, of Bitcoin quickly. That’s been one of the ways that people have seen these big rises.
Mike: Do you think that long term digital currencies will replace gold as the asset to go put your money in for stability?
Rob: No. I think they will both co-exist because gold has just been around too long, it does have a small amount of value in manufacturing, some amount of value in jewelry, but more than that, it’s just that we’ve all agreed that it’s worth something. I don’t think any time soon everyone’s gonna agree that it’s not and agree that crypto is. I don’t think that it’s realistic but I do see that it’s just another asset to hold. That’s how I did asset allocation or I do asset allocation. That’s how I have money in all of these things, all amounts divided between them, although my cryptocurrency is no longer a small amount. I kind of laugh because it’s a good problem to have when it goes up, but it also completely jacks your plans when you’re like, “Oh, I don’t actually want to own. I don’t want that much of my networth to be tied up in something that’s this volatile.”
With that, my fourth and final prediction is that cryptocurrencies will be regulated by several large governments. There’s already been statements from the US government about what Bitcoin is but there is no SEC oversight of Bitcoin exchanges. There’s a bunch of regulation that could be in place. I don’t know that it will happen in the US government, I know it’s happening in smaller governments. I think that this will be the year where government really starts stepping up and putting legislation or more regulation in place to get involved with cryptocurrency and get out ahead of it to make sure that for whatever reason, they pass regulation, they’ll be doing that. They probably would have done it this year but large governments move slowly and I think they’re all waiting to see what happens. I don’t think that it’s going away anytime soon, this will be the year that things will really ramp up.
Mike: I wonder if any of that legislation is gonna be based around security standards. Banks have security standards that they have to comply to. There’s been no shortage of stories of these cryptocurrency sites that have gotten hacked and they lose millions or tens of millions of dollars. I can totally see some government agency coming out and saying, “Hey, in order to be able to trade in whatever the digital currency is, you have to follow certain security standards in order to be able to do it.” I think it’s gonna take them a few years in order to be able to nail down exactly what those are. They’ll sit in their committee for like a year or two at least before they get to any sort of concrete implementation guidelines.
Rob: When they’re first announced, it might be a big negative hit to Bitcoin and the crypto valuations, “Oh no, government’s gonna get involved.” Then long term, it could feasibly make it more stable or it could make it less likely to get stolen from marketplaces. It’s hard to predict what it will do. I think there will be mixed reaction to it.
Mike: Yeah. It depends on whether they legislate it or decide to back it as they do bank transactions. Because with banks, it’s federally insured versus Bitcoin it’s not. If it’s a digital currency and it all gets stolen, it’s the government going to step in and say, “We will back this up to $250,000,” or whatever, but my suspicion is no, they’re not going to go down that path.
Rob: That wraps us up for today. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
Welcome to Startups For the Rest of Us, the podcast that helps developers, designers, and entrepreneurs be awesome at building, launching, and growing software products, whether you’ve built your first product or you’re just thinking about it. I’m Mike.
Rob: And, I’m Rob.
Mike: We’re here to share our experiences to help you avoid the same mistakes we’ve made. What’s going on this week, Rob?
Rob: I was reflecting on the past couple of months and I feel like I’m coming out of kind of a rough patch. If you go over and listen to Zen Founder which I believe came out last Friday, Sherrie and I talked through some personal stuff that is going on, you already know about this, I talked a little bit about it at MicroConf Europe.
I realized that kind of stuff like, you can become the frog in a pot of boiling water, where just slowly you descend into stress and chaos and, as I’ve come out of that, I was just looking back and thinking how thankful I am for so many things right now, and how, I guess, thankful I am that I am not where I was a month ago. Coming out of dark times, it was both personal stuff and even at work — I don’t know.
You hit a certain point, some months, some weeks are just hard and it’s hard to wanna show up everyday, and it’s hard to deal with whatever it is. The cues haven’t backed up for a while but there’s just stress building a software company, and running a big team, and hiring people. I don’t know. Other than that, that’s what’s been going on with me. I was just thinking about it today I’m like I really feel positive and excited and I’m like really happy right now and it’s such a contrast to what I was feeling even three or four short weeks ago, and part of that was getting away. Was going to Europe, even running MicroConf Europe wasn’t stressful. It was super. I had a great time there, I was there with my kids, and Sherrie joined us. When I came back, the reentry week was tough. But aside from that, I feel like things are on the upswing. Hopefully, heading into the end of the year and beginning the next, it can continue to feel that way.
Mike: I have to laugh at myself every time I hear that analogy of the frog and the pot of boiling water because I’ve used it myself but if you look into it, that’s actually not true. If you put a frog in a pot of hot water and you slowly turn up the temperature, it will jump out. It’s not that it doesn’t realize it, but it’s a great analogy because it makes sense to everybody.
I think that’s kind of, I’ll say, par for the course, like everybody goes through that on occasion. It sucks to be there. The contrast between where you hopefully end up eventually is quite striking I’ll say. It’s nice to be able to kind of move past that.
Rob: I think move past it and then be better equipped to recognize it early and deal with it as best you can because these are always going to happen. Whether it’s one week every couple of months, whether it’s one month every couple of quarters. You’re just gonna have these down times. If it’s high-stress time, like you’re negotiating the sale of your company, or you’re in a super high growth, or there’s a competitor that’s pissing you off and trolling you, this can be constant for months. It’s trying to figure out how do I go on this journey and deal with hard things and not let it poison the rest of my life, or negatively impact the rest of my relationships, and just go and have fun?
Mike: That can be hard, especially if your income is tied so much to your business and your business is the cause of your stress. There’s almost no getting away from it at that point. It’s not like its a 9:00 to 5:00 job where you can just go and clock in and at the end of the day you can just walk away and all the problems are not yours to deal with it. It intrudes on your life to some extent.
Rob: Absolutely. This relates back to the listener question we had last week, where he says, “My emotions are tied to my business. How do I get away from that?” And our answer was kinda like, “Well, you do the best you can but it’ll probably always will be.” That’s my short answer to that. How about you, what’s going on?
Mike: My oldest is playing basketball right now and they had to do a fundraiser. It was interesting because as part of the fundraiser, they’re basically just standing outside the store and asking people for donations. I took him aside at one point, after he kind of gotten the hang of it and basically asking people for money, and I was like, “Here, let me teach you the art of the upsell here.” Kind of worked with him for a couple of minutes and I was, unfortunately, not paying attention because I was working with one of the other kids at the time when he actually did it but he upsold some woman on a hug to get some extra money for a donation.
Rob: That’s cool. That’s awesome. Bravo!
Mike: I was told by the coach, she’s like, “He did it flawlessly.” Perfect execution and everything. He listened. Followed all the advice and everything, and he only did it three times. It wasn’t like we were there for an hour and a half, and he didn’t do it all the time. He only did it three times but everytime it worked. It was really good.
Rob: Like father, like son. I’ve seen you.
Mike: I sold lots of hugs…
Rob: I know you did. “Buy this software product and I will give you a hug.” Cool.
For me, I also had this interesting experience in the past week, I often talk about we’re always hiring because the app is growing quickly so the team’s growing slowly which is good, that’s how we like to do it. We found a candidate who came highly recommended and we met with him and he was the right fit, good personality and everything. But as we move forward in the actual kind of hiring and negotiation process, it quickly became apparent that yellow flags started creeping out and there were little things. He’s asking for more money than he should get because he was transitioning careers, transitioning from this role to that role. He’s asking for the same salary that he had at this other thing that had five years of experience in and is basically coming entry-level junior for us.
Then, he wanted a title that was actually quite a bit above, that implied he had years of experience and he actually has three months or something. That’s a really interesting one. Then there were two more things but it just kept unfolding. He went from being this amazing candidate to being, I use the word I’m disenchanted as these things keep coming. To his credit, he has two other companies that are interested in him so he’s probably gonna wind up getting everything he asked for and that’s great. But it showed me, there was particularly the specific way he handled a few things showed me that he was, it wasn’t just a negotiation, there was a bit of high-maintenance, demanding or entitlement I think is probably the right word. It struck me that that alone is a deal breaker, even though he checked all the other boxes. He’s either a “hell yes” or he’s “no.” He quickly became not a “hell yes” as these things unfolded.
Mike: Yeah, that’s kind of disappointing. I guess I’d say the process isn’t complete yet or I don’t know fully whether you kind of went through and offered him the job or passed that point. It’s easier or better to find those things out in advance as opposed to after they’ve started working or even a week or two down the road. Sometimes, you don’t find out for six months but those problems can come up at any time.
I remember somebody who I had interviewed at Pedestal Software and there was another team that had actually interviewed him and they’re like, “We think he knows his stuff but we’re not sure. Can you come help us out?” I went in and basically grilled him on all this UNIX stuff because the other team didn’t have as much experience with it. I grilled him, I remember going back to the management team and I was just like he knows his stuff but he is kind of a jerk. you don’t want to hire him. That was the bottom line and they’re like, “Okay, let’s hire him.” I’m like, “Wait a second, he’s gonna be a pain the in ass to work with.” And he was, it sucked.
Rob: I’ve had that happen before. At high growth startups where they’re like, “Does he have technical chops?” “Yes, but I don’t want to work with him” “That’s okay, we can manage that.” They didn’t put me with him but the engineers who worked with him didn’t like it at all. I was like, “This is interesting.” This is 14 years ago. I remember being like, “I don’t think this whole funded thing is for me,” because if that’s what we’re doing, I’m not gonna like my job here.
Mike: Right.
Rob: In my opinion, you need to like the people who you work with because you spend too much of your life at your job so whether you’re hiring them yourself or they’re just people, if you work at a big company and other people are hiring, if you don’t like your coworkers, I think you need to get out of there.
What are we talking about today?
Mike: Today, we are gonna be going through our predictions for 2018. To kick us off, we probably should take a look back at our 2017 predictions and see how we did before we start making other wild ass guesses.
Rob: Indeed. And that’s just what these are, wild ass guesses. Every December, and we’ve done this for many years, I’d say five or six at this point, I went back and listened to a few of our old predictions and it’s pretty funny. Pretty funny how the world changes. Keep in mind that when we can, we make predictions in the startups space or in the tech space but these are not limited to just startups. We like to have fun with this episode. It’s more about entertainment than it is about these are areas to start a business in.
Next week or in the next couple weeks, we’re gonna be doing our goals episode where it is truly your and my goals that we set for 2017. We’ll review those and then we’ll look ahead at our goals for 2018. Those will be obviously, there’s some personal ones but there’s also startup business specific ones. But, for these, you know, again, there are some tech related and then others that are just kind of fun ones to think about, talk about.
Mike: With that in mind, let’s dive right in. My first prediction for 2017 was that health insurance rates are going to become a much bigger issue for self funded companies and I would say, what are we doing with our scale of like is it 1-100 or 0-1 or 50/50?
Rob: One to five?
Mike: One to five, I guess.
Rob: Yeah. Five is like “nailed it” and then one is “completely missed.”
Mike: Alright, one to five then. I would say on this one, I got a five.
Rob: In the US, specifically.
Mike: Right.
Rob: Because the US’ healthcare system is so messed-up, especially for small companies. Well, just for everybody, it’s messed up.
Mike: Yup. I’ve been hearing people over the past three or four months where at the beginning of the year it wasn’t so bad, I don’t think, and then as the year has kind of progressed, as people start to renew their insurance, I’m hearing people say that in some cases it’s double or triple what the rates were previously, the previous year. It’s kind of gotten out of control. I don’t know what people are doing about it. I’m glad that I renewed back in April, but at the same time, I’m going to have to renew next April and I’m kind of afraid of what is going to end up happening.
Rob: Yeah, I agree. I’m happy. It sounds weird to say I’m happy that I’m working for someone else, that I don’t have to deal with this. Essentially, Drip/Leadpages handles this for me now. I don’t have to administer it. They, like a typical employer with good funds, they cover most of the expense. I know it’s gotta be super expensive for them to maintain that. My first prediction for 2017 was there will be another high-profile acquisition in the bootstrapped space. My idea was that it wasn’t going to be someone that sold their app for 3-4X multiple of net profit but that it was gonna be another kind of Drip-esque acquisition where someone that we know in the MicroConf spaces that acquired by a big startup.
Mike: How did you do?
Rob: As far as I know, this is a one. I don’t know of an… Do you know of anybody in our space that got acquired?
Mike: I know of some but nothing at that level.
Rob: Yeah. Maybe a two or something. I was on the lower end of being right. I had the impression that, or I was thinking that there would be a kind of a bare acquisition in that but it really did not happen.
Mike: If I remember correctly, you did say on the episode last year that you didn’t have any inside knowledge, it’s just what you thought was going to happen.
Rob: Yep, that’s right.
Mike: My second prediction was that the SaaS bar is going to continue to be hard to reach which is obviously very generic but I kind of couched it by saying that startups are gonna start offering a service as a first base approach followed by implementing the SaaS once they figure out the process in order to be able to offer those services at scale.
Rob: It’s the product as consulting first and then turning into SaaS. I think when you said this prediction, I said, “Isn’t this already happening?” This was Brian Casel’s talk in October of 2106, was about productize service moving to SaaS.
Mike: Craig Hewitt went on this road with Castos as well. The idea there is to really make it easier for people to host their own podcast and they do a lot of this stuff internally with PodcastMotor where they do all the editing and everything else but they basically turned that productized service into more of a SaaS product and offer additional things which is more of a self serve model then the productized services which is done for you. I would say those two are the things that I would say come to mind, but I don’t see too many others. I probably have to give myself a two, possibly a three, but I wouldn’t say that this was as accurate as I thought it would have been.
Rob: I’m sure more people are doing it. I know Brain Casel has his productized course and I’m sure he knows other people doing it through that but you and I just haven’t necessarily heard about them or been around them.
My second prediction for 2017 was that start up crowdfunding will fizzle out. Lower end startups will use it but the best startups will continue to use their networks, AngelList, and that kind of stuff. I’m going to give myself a four on this because I don’t know if it fizzled out as much, it just has not really taken hold very well. It just hasn’t had the impact that I thought it would of people being able to buy small chunks of equity on accredited investor, non-accredited investors being able to buy small chunks of equity. I thought that it would have this big kick early on and then like I sad fizzle out. It kind of didn’t. I think that there have been several platforms that have launched to facilitate it. It’s kinda shoulder-shrug right now, like wait and see. Mostly if I removed the fizzle out, I was probably a five. “Crowdfunding won’t really do much,” if I had phrased it that way, it would be much more accurate. Was that your sense as well or you think I’m misreading it?
Mike: I feel like that there was an initial inclination that was going to happen, that people were going to do it a lot. Non-accredited investors were gonna be able to throw money in and start funding these companies. I don’t think that the types of businesses that were maybe brought before them were attractive enough for them to say, “Yes, I’m gonna throw my money in.”
Rob: Cool. That makes sense.
Mike: My third prediction was that more small scale entrepreneurial meetups are going to be starting around the world, and that the entrepreneurship for small-scale businesses is going to pick up steam. I probably don’t have a lot of data to back this up. I would say that I’d give myself a four out of five on this. I heard recently that FemtoConf over in Germany just recently sold out. Congratulations to those guys.
Rob: Wait, what?
Mike: Did you not hear that?
Rob: Oh, sold out. That was interesting. I took sold out as not selling all their tickets but selling the conference to someone else. I was like, “What?!”
Mike: Oh, no. No.
Rob: Did you hear that shock in my voice? Okay, sorry. Keep going.
Mike: No. Sold out as in sold all of their tickets. I feel like that’s going to become not really the model but more prevalent over time as people, like start these really small meetups and then grow it. I think last year’s FemtoConf was only about 10 or 15 people and then they went from 10 or 15 to I think around 30 this year. I just think that there’s gonna be a trend in that where you get these really small meetups that start out tiny and then they start to grow just because of the audience that they build and they’re growing off their success as opposed to trying to build something where they get like 100, 200, or 500 people to it the very first year that they start. It’s really just stair stepping their way up.
Rob: Congrats to you guys. My third prediction for 2017 was that there would be a 20% or more correction in the US stock market. On a scale of one to five, I give myself a zero. Have you heard this expression, “I’ve predicted five of the last two bear markets.” That’s essentially what I’ve done here. I think like all of us, things seem overvalued, but everyone’s been saying this. I know someone who pulled all their money out of the stock market in 2013 or 2014 and they have missed tremendous amounts of gains. Timing the market is so, so hard. We all think we can and it’s always a little bit later, you can’t quite outlast the market in terms of the irrationality of it going up or going down. I would probably say this will happen in 2018 but I’m not going to cheat and use that prediction again. I was dead wrong.
Mike: I thought you were going to say the 20% market correction was going to be upwards instead of downwards. I thought you were gonna…
Rob: I should have. It corrected from it’s low. It corrected upwards. My fourth and final prediction for 2017 was that the first consumer purchase package would be legally delivered with a man drone somewhere in the world and I believe, if I recall, that I made this prediction it was late November, early December, and it was within a couple of weeks that this happened. It was even before 2017. Is that your memory?
Mike: I think that’s correct. I think that happened before the year started. I think we were debating about whether or not you got credit for it because it was not in 2017.
Rob: I would give myself a five on this one even though maybe technically it should have happened two weeks later for it to be in 2017. We should call this our predictions from between right now and the end of the following year.
Mike: You’re just trying to get credit for that one.
Rob: Alright, let’s dive into our predictions between now and the end of 2018.
Mike: What’s your first prediction, Rob?
Rob: Hey, wait! I didn’t even type this one. Let me read this one. Rob will buy a bunker in the Swiss Alps, establish a micronation with his 11-year old son as the benevolent dictator. How did this show up in our outline, Mike?
Mike: I don’t know, I have no idea.
Rob: I think that’s a really good prediction.
Mike: Must have been the elves.
Rob: Messing with my predictions. That was a joke prediction. Please don’t hold me to it. What’s your first one?
Mike: Mine is there’s going to be an economic downturn. I think that it’s probably going to be, I don’t wanna say that it’s gonna be major. But I think that it’s gonna be substantial enough that people will notice. It’s not gonna be like 2008 where the entire economy crashed but I do think that there is going to be that, you kind of called it for last year, the 20% stock market correction, I feel like that’s gonna be this year. I think that it’s going to be driven kind of by a lot of the factors around healthcare, at least in the United States, and various policies that are kind of going into effect. I don’t see like a sustained economy is going to be moving forward this coming year. There is bad stuff on the horizon.
Rob: I want to get more specific with this because when I think of the phrase “economic downturn,” I think of the economy as multiple factors. You could say is that a stock market correction, is that a recession which implies a lack of growth of businesses which don’t necessarily, it often causes a stock market correction, but the two can be non-correlated. That typically also leads to unemployment. And then there’s the housing market which I see as a separate thing.
There’s three or four different things; unemployment, GEP growth, stock market, and housing. In 2008-2009, they all plummeted, but in 2000, the housing market took a little hit but it wasn’t that bad. What do you mean when you say economic downturn? Let’s define it and then let’s update, so we know next year, whether you are accurate. If it’s any one of those four, it’s a pretty broad prediction. But if you’re saying its like three out of four or something…
Mike: I think it’s going to be a couple of them. One, I think there’s going to be a lot of small services businesses that end up going out of business partly because of regulation but partly because they’re just not going to be able to make ends meet. They’ve got other things to adhere to in terms of tax laws, health insurance, and things like that. I think that’s going to have a pretty big impact on them, along with all the legislation tied to the healthcare industry. I think that’s going to have a pretty bad impact on them as well, just in general, you will see a lot of small-services companies end up going out of business.
Then that’s going to lead to unemployment which impacts a lot of other things. I don’t think that the housing market is really gonna go down very much. It probably will stay relatively the same. It’s certainly is not going to be a big growth area. Then what was the last one that you said? Oh, the stock market. I think that it will level off a little bit but I don’t think that it’s going to go down.
Rob: I’ve updated your prediction with a few bullets that kind of captures that so when we come back next year, we can measure it correctly.
Mike: What’s your next prediction?
Rob: My first prediction, the Swiss Alps bunker one, is not going to come true. I think 2018 will be the year of non-institutional startup funding. I think this has already begun. We’ve seen more and more angel investments coming out. The more I get involved with this, the more I realize the power of money that comes from angels, rather than going the traditional institutional route. Jason Calacanis’ book, Angel which came out a few months ago, it was really good. I think some people will probably dive into it from there.
Crowdfunding, this is maybe my opposite of my prediction for 2017, but I do think that crowdfunding will continue to build some steam. The ICOs are a bit dubious as to whether they’ll stick around. But I know that’s a big push right now, people are trying to fund startups using ICOs. Through those three avenues, I think it’s gonna be easier, and even more prevalent, and become a more common thing for people to invest in early stage startups. I think it will become easier as a startup to raise non-institutional funding. This is kind of tied to fund strapping a little bit. It will be easier to fund strap because of that. Fund strapping being raising a small round of funding without the intention of the implied series A, of having to then go to institutional money in 18 months but to actually become profitable with that initial round.
Mike: My next prediction kind of revolves around in app purchases. One thing that I’ve heard talk off is about legislating that. Mainly because when Star Wars Battlefront 2 came out, there was complains about how much the game costs, and then the fact that inside the game, you could go in and you could purchase basically, a loot crate and you had a chance to get certain items but you are not guaranteed to get something specific. The rationale people were putting forward is well, that’s actually gambling because you’re buying a chance to get something that may or may not be valuable and it is being presented in such a way that that fits the definition of gambling.
I don’t think that we’re going to see legislation around this. I think that there’s a lot of talk about it. The companies that are behind these types of games are smart enough to be able to avoid that kind of stuff because they’ve got the legal teams to both defend them and point them in the right direction and say, “You should or shouldn’t be doing this. Here’s what we can get you out of and here’s what we can’t.” I don’t think that there’s going to be any actual legislation around it but I do think that you’re going to see gaming companies come to better definitions and I would say be a little bit more careful about how they’re putting those offerings together for those in app purchases.
Rob: My second prediction for the year is that artificial intelligence/machine learning will continue to be marketed as the next big thing in terms of enterprise SaaS and even small and medium size SaaS and software, but once again, it will not deliver in 2018. By not deliver, what I mean is it’s being touted before it can really provide value for most people and most businesses.
One of the big issues is especially with machine learning, you need such large datasets to actually train the algorithms. I see these SMB tools saying, “We’ll use our machine learning to help you do…” That’s over promising and I think it’s gonna burn people out on it. I’ve already had conversations with a guy who used to run a big ecommerce store and he’s like, “We’ve been sold artificial intelligence for 15 years and it’s still not as smart as me sitting down and whatever, building out a funnel or a campaign.”
I think there’s danger of it becoming a complete marketing fad. I do think that eventually, this stuff’s gonna work and it’s gonna be genius. There’s examples of it. We use what I call artificial intelligence to detect spammers when they come into Drip based on behaviors. We have all these signals we look at and we auto-flag and our accuracy is really high. We’ve developed that algorithm over the last several years and I know that there are other startups that do this internally. This stuff can work. There’s just certain approaches that you need to take to it. We have stuff that we’re already thinking about inside Drip like, “How could we automate this? How could we make this smarter?” People have been saying it for many years, it’s not there yet, and some people will actually do some intelligent things this year. Hopefully, we will release something, but it’s not going to be the promise of everything’s done for you, and you just sit back and press one button and all your marketing is essentially automated, which is what so many of people in the mar-tech space are claiming.
Mike: I think that’s a difference in the bounds of the problem too. For example, detecting that somebody is coming in and going to be sending spam, or is a fake account that signed up, and their intent is to do that. There are certain patterns that you can recognize very easily because there’s only so many things that you can do or that can be done in the app. You can do time-ins around when one request happens versus when another. It makes it easier to scour that and kind of detect whether or not somebody’s doing that. Versus in an ecommerce, how do you predict whether somebody’s gonna come back and buy something else, or how do you predict the best thing to upsell them to. That’s a lot more of an open-ended problem with no real bounds versus, “Is this person going to be a spammer? Yes or No?” Does that make sense?
Rob: Yup, totally does.
Mike: I think that the two things are very different. I totally agree that enterprise companies are being sold to this type of stuff and it just doesn’t work.
Rob: Yep. How about you? What is your last prediction?
Mike: My last prediction is actually about Uber and it is that Uber is not going to regain the ground that they have lost. Lyft is a lot smaller than they are, but I think that because of all of the, I’ll say, political fallout and loss of goodwill towards them – not that they probably had a ton of it to begin with, but I think that they have really lost a lot of the leverage points that they probably had. They’re going to have to work harder to do the same things that they were able to do last year, and the year before. Just because of the fall out from the allegations of misconduct and all of the internal stories that have come out of how badly they’re treating people. I just don’t think that they’re going to recover as well as they probably think that they are. Like I said, the big problem is it’s going to take them a lot more effort to do the same things that they were able to do last year with substantially less effort.
Rob: When you say not regain the ground they’ve lost, do you mean in the valuation? Because, as of this writing or as of this recording, their valuation is like 30% lower based on a round that they have to raise from SoftBank. I think Uber’s burning $1 billion a month. It’s a lot of money. Is that much money?
Mike: I don’t know.
Rob: It’s a lot of money. Yeah. They’re in a place of having to raise capital and with this kind of tarnish on them, and they’ve lost their CEO, SoftBank offered them 30% less than the previous round. Are you thinking that in terms of evaluation or you’re thinking in terms of market share? I know we don’t know their market share for sure but there are estimates and such and they have taken a big time hit with people deleting their app altogether.
Mike: Yeah, that’s more what I’m thinking. Market share, because we don’t have the actual numbers, it’s gonna be a little bit difficult to, I’ll say, measure that in a year. When I say that they’re not going to regain the ground they’ve lost, as in the people who have deleted their app will probably not reinstall it unless they have no other option. I don’t think that they’re going to win those people back even if the company changes its tune and goes out of its way, I’ll say, to overhaul their culture. I don’t think that they’re going to win those people back which will have an impact on their market share and their ability to grow as a company.
Rob: Sounds good. My third prediction is that there will be an enormous crash in Bitcoin’s valuation. Right now it’s on a huge rise, but long term I am still bullish.
Mike: Wait, didn’t it crash three days ago?
Rob: It crashes every few days but it comes back. I’m saying more of, I don’t wanna say sustained crash, but if you look back over its history a couple years ago, it built up into the 400, 500, 600 range and it crashed and it was down for a year, just fumbling around. Maybe even more, it might have been 18, 24 months. It’s kind of bumping around and around a few hundred and then there’s this more recent rise. I’m a person, I’m long Bitcoin. I own several Cryptocurrencies and not in small quantity either. It’s not like I bought one. I’m kind of keeping my eye on it and it’s tough, this is similar to my prediction of the stock market correction.
I think the way Bitcoin is going up right now is like no mania that we’ve ever seen, the volatility is just crazy. I do think that the next 12 months, that is likely to end. I of all people would be ecstatic if it didn’t, if it kept going up, doubling, tripling. Bitcoin has had a 2100% return in the last year. That’s kind of tough not only to sustain but even sustain the current valuation. With that said, long term, even as I sell some of the Bitcoin as it gets really high and my assets get way out of allocation, or out of the percentages that I like. I’m certainly not exiting those positions at all because I think I’m long Bitcoin and I’m long cryptocurrencies in general.
As you look out 5 and 10 years, it’s kind of like being here at the advent of the personal computer, the advent of the internet, the advent of smartphones. Bitcoin and crypto in general is this movement and long-term is going to stick around even after a crash. If we think about the 2000 Dotcom crash, there was all this hype around it from ‘94 from the IPO of Netscape, ‘94-’95, all the way to 2000, and then everything crashed, and people said, “Boy, Dotcom, those internet sites, they’ll never amount to anything.” Now, here we are. The biggest companies in the world essentially either came out of that or have something to do with that. If you had just been long the whole time, you’d have to wait through that decade-long trough, essentially, when it all bottom-dropped out of it. I guess I see there could be a similar frenzy around Bitcoin and other Cryptocurrencies, where there will be a big crash, but long term it will be a viable store value or a way to move money around.
Mike: I think the volatility of it is kind of a big turn off to me. I saw a tweet earlier today from somebody who said, “I bought a USB cable from Newegg with some Bitcoin ones. Feel free to ask me sometime and I’ll show you a $3500 USB cable.”
Rob: So funny. That’s the thing, I don’t think Bitcoin is a currency. I think cryptocurrency is a misnomer and I view it much more as a store value in a way to get money out of a situation… I view it more as gold. I wouldn’t go buy bread with gold. I wouldn’t go buy USB cable with gold and I won’t do it with Bitcoin either. I do believe it’s a great way if your currency is going crazy and this happens every several months to just get money out of my currency because the government won’t allow me to exchange it for US dollars, that’s much more stable, and I don’t want to see this hyperinflation. People are dumping their money into Bitcoin or into other cryptos. It’s a great way to, I shouldn’t say great, but it is a way people are using to not lose all the value of their money during this currency crisis.
And then you look at when Brexit happened and there was this uncertainty. When there is economic uncertainty, obviously, there’s a lot of volatility in Bitcoin. It’s been lucky enough to keep going up. It’s a way that if you had a hundred thousand dollars in the bank, or I should say a hundred thousand Argentinian pesos or whatever, hyperinflation hits and it’s 100% a weak inflation, you can’t go buy $100,000 worth of gold because everybody goes and buys it and they’re trying to get stable assets. But you can go buy $100,000, in theory, of Bitcoin quickly. That’s been one of the ways that people have seen these big rises.
Mike: Do you think that long term digital currencies will replace gold as the asset to go put your money in for stability?
Rob: No. I think they will both co-exist because gold has just been around too long, it does have a small amount of value in manufacturing, some amount of value in jewelry, but more than that, it’s just that we’ve all agreed that it’s worth something. I don’t think any time soon everyone’s gonna agree that it’s not and agree that crypto is. I don’t think that it’s realistic but I do see that it’s just another asset to hold. That’s how I did asset allocation or I do asset allocation. That’s how I have money in all of these things, all amounts divided between them, although my cryptocurrency is no longer a small amount. I kind of laugh because it’s a good problem to have when it goes up, but it also completely jacks your plans when you’re like, “Oh, I don’t actually want to own. I don’t want that much of my networth to be tied up in something that’s this volatile.”
With that, my fourth and final prediction is that cryptocurrencies will be regulated by several large governments. There’s already been statements from the US government about what Bitcoin is but there is no SEC oversight of Bitcoin exchanges. There’s a bunch of regulation that could be in place. I don’t know that it will happen in the US government, I know it’s happening in smaller governments. I think that this will be the year where government really starts stepping up and putting legislation or more regulation in place to get involved with cryptocurrency and get out ahead of it to make sure that for whatever reason, they pass regulation, they’ll be doing that. They probably would have done it this year but large governments move slowly and I think they’re all waiting to see what happens. I don’t think that it’s going away anytime soon, this will be the year that things will really ramp up.
Mike: I wonder if any of that legislation is gonna be based around security standards. Banks have security standards that they have to comply to. There’s been no shortage of stories of these cryptocurrency sites that have gotten hacked and they lose millions or tens of millions of dollars. I can totally see some government agency coming out and saying, “Hey, in order to be able to trade in whatever the digital currency is, you have to follow certain security standards in order to be able to do it.” I think it’s gonna take them a few years in order to be able to nail down exactly what those are. They’ll sit in their committee for like a year or two at least before they get to any sort of concrete implementation guidelines.
Rob: When they’re first announced, it might be a big negative hit to Bitcoin and the crypto valuations, “Oh no, government’s gonna get involved.” Then long term, it could feasibly make it more stable or it could make it less likely to get stolen from marketplaces. It’s hard to predict what it will do. I think there will be mixed reaction to it.
Mike: Yeah. It depends on whether they legislate it or decide to back it as they do bank transactions. Because with banks, it’s federally insured versus Bitcoin it’s not. If it’s a digital currency and it all gets stolen, it’s the government going to step in and say, “We will back this up to $250,000,” or whatever, but my suspicion is no, they’re not going to go down that path.
Rob: That wraps us up for today. If you have a question for us, call our voicemail number at 888-801-9690 or email us at questions@startupsfortherestofus.com. Our theme music is an excerpt from We’re Outta Control by MoOt used under Creative Commons. Subscribe to us in iTunes by searching for Startups and visit startupsfortherestofus.com for a full transcript of each episode. Thanks for listening, we’ll see you next time.
