This Week in Startups - Coinbase Q3 earnings breakdown + Startup Checklist: Crafting a brand & knowing your market | E1323

Episode Date: November 11, 2021

First, Jason breaks down Coinbase's Q3 earnings and takes a look at the broader trends in crypto trading (01:13). Then, Jason runs through 10 points of his "Startup Checklist" focused on crafting a brand & knowing your market (11:25). At the end, Jason answers a question from the live audience (43:16).

Okay, everybody, today I'm going to break down Coinbase's Q3 earnings. They had a huge drop off quarter over quarter, but a huge performance year over year. So we're going to get into all those details. What a great company. Then I'm going to go into the startup checklist. Episode 6, we'll cover markets and branding. A great episode. Stick with us. This week in startups is brought to you by LinkedIn Marketing.

To redeem a $100 LinkedIn ad credit and launch your first campaign, go to LinkedIn.com slash checklist. O-DU is a fully customizable and fully integrated suite of business apps that lets you build and scale your stack as you build and scale your business. Your first app is free forever, and right now O-D-O-D-L-S off your first implementation pack at O-D-com.com slash twist. That's O-D-O-O-O-O-com slash twist. And Vanta. Compliance and security shouldn't be a deal for startups to win new business. Vanta makes it easy for companies to get a SOC2 report fast. Twist listeners can get $1,000 off for a limited time at vanta.com slash twist. All right. First up, Coinbase has their earnings out. Their share price has dropped over 10% in after hours trading on Tuesday after they reported a 40% decrease in revenue from Q2 to Q3.

So on Wednesday, Coinbase's share price recovered from 322 to 3.41 is now only down 5% off of Tuesday's peak drop. It represents a $72 billion market cap for the company, which is extraordinary. In Q3, Coinbase saw large quarter over quarter drops in major categories like revenue users and profits, not dissimilar to Robin Hood's story, but in their year-over-year numbers, they were still up huge. So if you remember Robin Hood's earnings on episode 13, 13, two weeks ago, revenue is down 35% quarter of a quarter, but up 35% year over year. What that means, what that says to me is there was just a, you know, we had a big quarter people with stimmy checks, you know,

crypto booms, everybody in a mania to buy tulips or the next, you know, giant wave of consumer and technology innovation time will tell. transaction-based revenues will swing wildly depending on market conditions. That's the truth about these things. If things get really popular and there is a mania, whether it is AMC stock and stonks or Dogecoin or Bitcoin or NFTs, you know, things can go crazy, although I don't know if Coinbase is actually trading in NFTs yet.

So let's just get into the earnings real quick. Total revenue 1.3 billion. That's up four times year over year. 4x year over year. That is extraordinary. We've been talking about high growth companies being, 20, 30, 40, 50% growth. 4x, 400% growth.

It's down 40% quarter over quarter. There's going to be bumps in the road in these high growth companies. So I think that's to be expected. Transaction revenue, a billion. That's 83% of their total revenue. Again, that's up 4x year over year, down 45% quarter over quarter. Subscription revenue and services, uh, revenue 145 million. That's about 11%.

This is mostly made up of blockchain rewards from people staking Ethereum and custodial fees of $31.5 million. That's where they get paid to hold on to your crypto and make sure it doesn't get stolen. Subscription revenue grew from $600K in 2020 to $8.6 million in 2021. Those are small numbers compared to the transaction fees, the custodial fees, etc. However, it's 12x, right? 13X. That's a big multiple.

And so I do think that Robin Hood and Coinbase and all these financial services companies are going to have great subscription revenue. If people will pay for Com and Netflix and Spotify and Steesey, to learn how to dance, to learn how to, you know, get to bed easier, they're going to pay for financial subscriptions. It's still worth it, right? And so I'm paying for Twitter now. I did Twitter blue for $2.99 a month.

Other revenues, $77 million. They don't specify what this is. I'm thinking those are services revenues when they do big block transactions, i.e., you know, if somebody wants to buy a billion dollars in Bitcoin, maybe that's what it is. Last week, Crypto News outlet, The Block, reported Coinbase was testing a new subscription service called Coinbase 1, benefits would reportedly include no fee trading, which would put them head to head with Robin Hood,

which is going head to head with them in crypto now, and prioritize phone support on holidays and weekends. No word on the cost of the subscription yet. I think $5.10 bucks a month is a no-brainer. I would like to see these companies even go $15, $20 per month and have something really great for people. Coinbase is trying to diversify away from transaction-based revenue according to sources. Robin Hood offers something similar with Robin Hood gold. That's five bucks a month. and that lets you have bigger instant deposits,

professional research from Morningstar, level two market data from NASDAQ, access to margin investing, all kinds of like premium stuff. And when you have those kind of programs, it basically lets you segment who are your best customers. It's kind of the Amazon prime of this service. You also see that with ICloud.

I now pay for some ICloud. I pay like 30 or 40 bucks a month for an ICloud bundled subscription, which gives me Arcade News, two or four terabytes for my family. So now all three of my daughters, when they come to me for a game, I say, go to the arcade tab. You can have any game in arcade.

You cannot have the other games because they have all kinds of upselling and garbage in them that I hate. Thank you, shout out Tim Cook for making a nice clean arcade where I can have my kids and trust that the games are not trying to manipulate them so much. And then the news product is pretty good too

on Apple News. Shout out to Apple News because now I don't have to have a Wall Street Journal subscription. I can just see some stuff there. Okay, back to the news. to Coinbase, monthly transacting users, 7.4 million. Again, up massively 3.5x year over year, but down quarter of a quarter, that's a good number to look at, like, because you do have a lot of holders. You have people who created accounts, maybe bought one Bitcoin or a tenth of a Bitcoin.

Robin Hood has 17 million monthly users, so you're seeing the difference between the crypto and the trading of stocks. I think the crypto people, they may buy every couple of months, but they're holding it. They're not selling their Bitcoin. That's the whole point. to hold it forever. And so I think that's a great opportunity for Robin Hood to add users. And then adding stocks is something that Coinbase could do if people are trading stocks. They could get more trading going on. Net income, $406 million of 5x year over year. Pretty efficient company, down 75% quarter over quarter. For these companies, I really don't care about their profits. I care about their growth and the number of customers they have. I would rather see them not have

profits at this point and see growth. Public markets might feel differently. In related news, Bitcoin and Ethereum are now at all-time highs. Bitcoin $68,000, Ethereum, almost five. Coinbase went public via direct listing in April at $381 a share, popped up to $421. They had $100 billion. In July, the stock bottomed out at almost half, $221. So this has been a lot of swings. We saw that also with Uber, which I think during the pandemic went down to $15, $16 a share, up to $60, now at $45, with price targets of $70. Like these stocks, when they first come out, I think Wall Street has to understand the business and look for consistency, look for profits. And so that represents an opportunity. It also represents the danger of some of these companies because, you know, some retail investors

might not know the difference between Nikola and Tesla, even though they are the first and last names of a famous scientist. They're two radically different companies. And so people have to, you know, the markets, I think, retail investors have to learn the difference between them. They're getting pretty savvy, I think, and they have to understand what exactly they're buying and what the risks are. You're going to see a lot of speculative stuff come out. V-toles, electric trucks, anything that's a theme, quantum computing, space travel, all of these things are highly speculative synthetic biology. When these things spack and go out early pre-revenue or modest revenue, customer traction, be careful. You're making a venture-style investing. And if the

stock goes parabolic and goes nuts and the company doesn't have customers yet, man, just pump the brakes and you know, you can wait to buy it is my best advice. I don't want to give stock buying advice, but if my mom or my brother are asking me and they said, hey, you know, do I need to buy the stock? I was like, you know, it's got the same price as another company with real revenue, like Coinbase and Robin Hood have real customers in revenue and Nicola and maybe this veto company. maybe they don't have customers of revenue yet,

maybe put 80% into the company with the customers and 20% into the speculative one. There's some reasonable betting strategy here, and it is gambling. When you are investing in pre-product market fit companies, you are gambling. Coinbase and Robin Hood are not that. These are millions of customers loving and using these. So what I'll say about this pair of companies, I obviously have an interest in one and not the other, but I have accounts on both, is they're incredibly well-run companies. they have an incredibly large user base already

and passionate users who are not going anywhere in my estimation. So I am a huge fan of both Coinbase and Robin Hood. Also, if you look at Coinbase and Robin Hood, the founders are still running the companies, and that's always a great sign. And they're constantly, if you look at the product velocity, releasing new products. So Robin Hood with their crypto wallet and NFTs are coming to Coinbase

according to some announcements. So product velocity is really, really powerful. in a company led by a founder. You see that with Elon. Start it with Travis. She's constantly releasing new products. You start with Steve Jobs. There's just obsession with new groundbreaking investments in new products.

And so congratulations to the Coinbase team. Okay, next up is our 10 items for our startup checklist. We're going to go over markets and branding. Stick with us. Listen, right now, LinkedIn is going to give you a hundy, $100 towards your first ad campaign on LinkedIn by just going to LinkedIn.com slash checklist. And then you're going to get the $100 right in your account. Now, you know you need high quality leads.

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Well, with LinkedIn ads, you don't need to guess because when you advertise on LinkedIn, your message reaches people who are ready to engage. Over 30 million companies are active on LinkedIn and over 71% of professionals use LinkedIn to make business decisions. LinkedIn equals business, business equals LinkedIn. It's that simple. So here is your call to action. Do business. We're business is done. Startup marketers, don't wait to start achieving your brand and lead gen goals. Start today. LinkedIn is offering our listeners a $100 advertising credit. So just take that $100, get that credit, and start your first LinkedIn campaign at LinkedIn.com slash checklist. Terms and conditions, of course, apply. Okay, everybody, welcome to episode six of our startup checklist.

Why are we doing this? Because we get asked the same questions all the time by founders. and we have invested in over 300 companies. We invest in about 10 a month here at launch and my syndicate called the syndicate.com. Part of our jobs as investors is to let founders know, hey, you know, here's what's around that corner or here's a pothole. When you come around that corner, there's a pothole there.

Sometimes founders hit it, they blow out a tire. Hey, by the way, that turn is really fast. That exit ramp, it says you can go 35 miles an hour on that exit ramp. I might suggest doing 30, because you can get a little slick in the rain. Basically, we're not trying to tell founders how to run their companies as investors,

but we do want to let them know of things to think about. Increasingly, I find myself wanting to invest in startups earlier. And so we have something called Founder University, and we started this program to maybe help people who are considering starting companies. Now, if you've already started your company, this checklist is still a great thing because you'll go through it and out of every section of 10 or so,

every episode, we do 10, you're going to probably go six, like, of course I know that, Jake Al, seven, of course I know that. There might be two or three that become conversation starters because nobody can keep all of these items in their head at one time. I was inspired to do this by a book called the Checklist Manifesto, which I found out about from Jack Dorsey at Square and Twitter. And I make everybody who comes to work for me read the startup checklist because it turns out when you make a checklist, you know, less planes fall out of the sky and less people die in surgery. Those are like two examples in the book. And so checklists are important because they enforce discipline and increase performance

and you have less cars flipping and spinning out of control and pilots losing control of planes. I know it's kind of dark, but it's the truth. Checklists did start with pilots and with surgeons. And the book is a really great read. I highly recommend it. So you can view this checklist at this week and startups.com slash, you guessed it, checklist. This week and startups.com slash checklist.

You'll see the whole checklist. I'm hoping that some of you write blog posts about this or maybe talk about doing it at your company. You can remix this. Use it however you want noncom commercially and then just link back to the original. This week in startups.com slash checklists. Of course, if we miss something, tell us what we missed. And today we're going to do two topics that are somewhat related. One is market and one is branding.

So let's get started. First is item number 51 on the checklist. Are you creating a new market or servicing an existing one? and how to tell the difference. So I believe that some of the great brands induce a market to exist. They create a new behavior in the world. So if we look at something like Spotify and Com, just, you know, I'm an investor in com, obviously, but not an investor, but do love Spotify.

You know, people were listening to music before Spotify came along. In fact, you know, people had real networks or they had CD collections, Amazon music. There were a lot of different music providers out there. And people were using iTunes to buy by the track. Consumers love music. We know that. So was Spotify creating a new behavior listening to music? No.

Maybe you could argue creating playlists was a new behavior. But Spotify figured out the rights issues. They removed a lot of friction from an existing market. Music listening was an existing market. So they were going to compete with that existing market. That means they were going to go head to head. with people buying individual tracks on iTunes, which, of course, was competing against CDs before it.

So that was the way the market sort of played out in music. You had CDs, which were printing money for the industry. Then you had single tracks buying, you know, particular songs on iTunes for 99 cents. That was a bit of a disaster for the music industry because, you know, people went from spending 12 to 15 bucks on a CD to just, you know, sniping the top two tracks that they wanted to listen to over and over again. And artists hated it.

Now you go back to Spotify, massive consumption, you know, and arguably people are listening to more music than they ever had. Now, for Com, what was the market for a meditation app before Com existed? And Headspace, their competitor. There really was no market for it. Meditation was this weird thing you did if you lived in Santa Monica and like some churches in basements or rec centers or a yoga studio. on the weekends might have one or two meditation classes or there were, you know, $5,000, you know, courses you could take.

It wasn't something that was in the general perception of the public. And sure, you could find on YouTube or, you know, iTunes Education had some select MP3s here or there. You could go find. But there wasn't a Netflix, a subscription, Spotify of meditation. So they basically created the category. People didn't know they needed it. it. They got it. They had more equanimity, reduced anxiety, reduced depression, more focus, more joy in their life. And then they added sleep and people got to sleep better. You know,

all the great things that come and their contemporaries did. So they induced a new market. I would argue that if you look at Uber, Airbnb, they also induced markets. Airbnb, I remember in the early days, I've told the story before, I had one of the producers on the show say they were going to Japan. And I was like, oh, wow. I know what the producer was getting paid back then. It wasn't a lot of money. I was like, wow, Japan's super expensive. Like, I have to plan my trip there and think about what I'm going to spend. And she's like, yeah, I got a, you know, a room in Kyoto for 40 bucks a night and I'm going to go there for the first six nights. And then I was like, sorry, $40. Like, that's what you spend on lunch. And she's like, oh, no, it includes breakfast.

And I was like, okay, wow. Airbnb, I believe, yes, it competed with hotels, but hotels continue to do well. So I think what they did is induce people to take longer trips, more trips, more trips and maybe trips they wouldn't otherwise have taken. So I think it did both. And clearly the numbers show that. The only people who really I think lost out with Airbnb were the two-star, three-star hotels. In other words, the really cheap hotels that weren't a great experience. And you're like, I don't really want to stay at this hotel.

It's like $89 or $125. I remember staying at those with Brian Alvey back when I was broke and we're trying to get things going. And I was 20K debt with Weblogs. And we would literally get whatever the cheapest place was, you know, $99. bucks in a city and we get a double room and the two of us would stay in the room together because we couldn't afford two rooms. You know, it's 99 bucks. It's big money.

So Airbnb then became an option shortly after that. And obviously, Uber, people started taking more rides. They would go out more often. So in L.A., we saw this. People wouldn't go out to dinner or drinking because they didn't want to drive drunk. So there was a lot of, you know, stay-at-home culture. I think it did induce more people to go out during that time-free pandemic. Okay.

Item number 52 on the checklist. Let's see if you can check this one off. Do you understand the difference between what I call a lazy Tam and a bottom-up Tam? So Tam stands for total addressable market. And early stage investors are not generally making a decision on Tam. They're usually making a decision, you know, I'm talking about angel investors, based upon the product, the team, and maybe some early customer traction. However, when you get to later rounds of funding, yeah, Tam does come into play because

people want to know how big can this be because you're charging, you know, 10, 20, 30, $40 million for the valuation of a company, which means people are spending three to $10 million to own 20% of it. These VCs are going to want to understand the total addressable market. Well, there's a lazy way to do this, which you type in like, what is the market for IT? And, you know, you find some number from Gartner. It's $4.4 trillion in 2022. Well, what does that include? Well, that number is going to include everything, like buying computers, software, monitors, you know, consultants. It's a giant number.

didn't create that number. Now, what would be better is if you were going to make something very specific, you were making a new webcam. Is IT and the total addressable market for IT comparable to the market for webcams? No. And then if you include in webcams like everybody who has a webcam, which is every phone, and you're like, there's five billion webcams out there, that's not your market either. You're not, if you're making a fancy, you know, state-of-the-art, webcam that people would use as a replacement for the one built into their laptop, that's a different market. A very specific group of people like creators.

So then you might work on a bottom-up tam. You might say, hey, who are people who are professionally creating video? How many creators are there on YouTube with over 10,000 followers? How many creators on TikTok have over $25,000? Those might be the people who will be inclined to be in your bottom-up market. And so you really want to understand the tan. Let's take another look at a lazy tam example. You know, you have Acme Corporation.

They're selling SaaS software to dentist office. They charge $1,000 per month per office. Okay, great. Here's a lazy tam. According to the American Dental Association from June 2020, the total projected dental spending for 2021 was between $123 billion and $154 billion. Lazy Tam would you just take that number and put it in there? Oh, you know, this is what dentists spend on equipment.

That's not your Tam if you're making SaaS software for them to manage their office. you're not going to get 10% of that market and have a 15 billion revenue company in dentist office. You would want to know, well, who are you selling to? What type of dentist's office? So, well, it turns out in 2020, there were 201,000 working dentists in the US according to the ADA. Okay.

So now you got a more interesting number. Okay, if they each had their own office, your potential market would be 200,000. Or if they each had paid for their own seat in the software, there would be 200,000 seats if you did sell by dentists. So you can start to make some. approximation here about those dentists. Well, there are only 187,000 dental offices in the US, according to some market research research we saw online. So some office might have multiple dentists in them. So you're seeing how I'm making a much more interesting approximation of

what my total addressable market is by working from the bottom up. And that is so much more credible when you go into a VC. It means you understand your customers in market in a deep way, not a superficial way. Instead of being lazy, you're being thoughtful. With investors, thoughtful people who are of action are so much more attractive. Oh, you get stuff done, you take action, and in fact, doing a bottom-up tim puts you in the bucket of taking action. You didn't just take the easy way out and grab a number. When I see that, I just think, hmm, this person's lazy. They just spent the least amount of time on the slide or thinking about their market. Now, let's say you capture 10% of the market of the number of dentists,

dental offices out there, well, $1,000 a month times 18,000 or so dental offices, you know, $224 million a year in revenue, right? It's pretty great. You're making a real business. That's a great business. I mean, just thinking about it right now, somebody built, you know, SaaS software for dental offices or tell me, you know, what's the state of the art there? Seems like a pretty viable market, getting 10% of it equals $200 million a year.

Pretty great market. So doing a bottom-up, Tam, is just going to make you so much more credible. I think I've beaten that worse today. there. Let's go to checklist item number 53. If you listen to Twist often, you've heard me talk about O-Doo suite of business apps a lot. Well, they are going to give you your first app free forever. At $1,000 off, your first implementation pack at O-D-com slash Twist. That's O-D-O-O-O-com slash twist.

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implementation path. Just go to Odo.com slash twist for that $1,000 off again, ODO.O.com slash twist. Have investors had success or failure in your market before? This is the scar tissue issue. And so if you were in the grocery business and you lost your shirt and pants and car and everything, you know, backing Webvan or Cosmo in the 90s, these were two services that were very analogous to Instacart, Uber Eads, Postman.

Dordash. If you lost all of your money on those, one of two things can happen. One, you could say, never again. The market is too low margin, it's too operationally intensive, or you might say, I wonder what's happened since that time

when Webvan collapsed, and maybe I should make a bet here, and what have we learned, what new technologies are out there? If it turns out the reason Webvan did so poorly was because, I don't know, the trucks were always missing. And you could never track things

in real time. Well, GPS would have changed that, right? For 20 years later, everybody's got GPS on their phone and their cars. Okay, that could be a big change. Oh, we have real-time inventory systems and robotic factories that keep everything. Oh, okay, the inventory was a big problem. That's going to be 20% more efficient. And if you have that scar tissue, it could go one of two ways. Either it could attract you to the investment or it could make you absolutely have a bias against it. So you want to know, have your investors ever invested in that space? In the previous example, we talked about dental offices. If somebody had made client server architecture for dental offices, and it was just too expensive because you had to send somebody in and put a server

for $100,000 and network cards into the dental office, and there was a $100,000 onboarding fee, and dentists wouldn't do it because they would rather put that into an X-ray machine. Okay, now you say, hey, we have a SaaS solution. All it requires is a web browser, and you're like, they've got $500 computers now, $1,000 computers, and they have a web browser. So we've just eliminated that $100,000 onboarding cost. Maybe we should go after this again. And this is a way to find investors and target investors. Sometimes people will come to me and say, hey, we're blockable as one example, a company

we invested in. We are in housing. And it's like, okay, who might also be involved in an adjacency? Well, if somebody had done mods or homes or ADUs, they might be interested. Or if somebody had done a construction company and they just made foundations, or Windows or smart home technology. Or maybe they worked on a company that had factories like Tesla. Oh, and blockables like the Tesla of building homes.

Okay, that seems like an interesting analogy. Let's go to the Tesla investors. So you can find investors by doing this technique. And then you have to understand by asking them a probing question. How do you look at the space? Because here's what we've learned. I wonder, based on your learnings, what you think of our assumptions. Now, this is like just absolutely going to be.

going to light up all the neurons in an investor's brain. They're going to, when you say, what did you learn from Webvan, Bill Gurley, and how does that relate to Postmates? Man, Bill Gurley's going to talk for four hours. He's going to pull out some notes he has and some binder from back then. It is absolutely a way to engage investors deeply in your company. So just think that through. Item number 54 on the checklist, do you know who your competitors are?

One of the most frustrating things is founders who say we don't have any competitors. and then you type in the name of their company competitors and you find a landing page on one of those websites that puts all the competitors for SaaS software and you see 17 competitors. And then you ask them, hey, what about these competitors? You're like, oh, those aren't our competitors. Why not?

Well, they don't accept PayPal. And you're like, what? Or they come up with some reason of why, oh, they don't have AI. And it might be a valid reason in their mind, but you really have to have empathy and think about the customers. Do the customers actually see a difference between taking a lift and taking an Uber? Do they see a difference between using DoorDash and Uber Eats?

Maybe not. They may see some friction in putting their credit card in. Now, the restaurants might see a difference. Maybe there's a different pricing or, you know, different number of customers. So you can drill down on that and double click on it, but you've got to be honest about your competitors. And almost everybody creates like this XY, four quadrant, better, cheaper. And we're the better version.

We're cheaper. We're faster and cheaper. and everybody else is slow and expensive. I think those are good intellectual exercise if you do them with intellectual honesty. So don't be ridiculous, is what I would say. And I find people are often ridiculous in what they consider competitors and what they don't.

Often people will say our competitors are using Excel, right? So we're creating some SaaS software, but most people use Excel. That's valid. And then you have to ask yourself, well, why would people pay for it? If it's working in Excel, are they really going to pay for it. A lot of people have pitched me on a CRM system for, you know, tracking our startups. And I'm like, yeah, I don't feel the need to pay for that right now. I might at some point, but, you know, in the early days, I was like, I think I meet with 20 companies a month so I can

keep it in a Google sheet or I can manage it in my email box. Thanks, but not necessary. At a certain scale, you might. And so those are the things that you have to really take into account is the consumer and how do they look at it. And it really is a super tell when people leave out their competitors and then you find out about as an investor. It's just intellectually dishonest or shows a lack of rigor and your credibility goes down. When you're a founder, especially in a funding environment, you are trying to be more credible than there are other options to invest in. And you're in that credibility race and understanding your competitive landscape and being able to talk about it in an intellectually honest way is the sign of a mature founder and a backable founder. So keep that

in mind. Item 55 on our checklist. What are the barriers to entry in your market? It's critically important. If you think about a market like Uber again, what is the blocker? Well, you need drivers. And we've all seen how hard it is to get drivers and the competition for drivers. If you said, I want to compete with DoorDash, Uber eats, postmates, today? Well, they've got all the restaurants online. Does a restaurant want the seventh iPad, the eighth iPad that doesn't have a lot of customers, very hard to break in. So there is a network effect, you know, in some businesses. Other businesses, it's hard to rip out the technology. So you have to understand, are you the last people to come in or are you the first people to come in? What are the

barriers to entry in this market? Tether has been operating a stable coin. We've been talking about that here. Hashtag Tether investigation. What a disaster that company is, the fines, the malfeasance, you know, the rumors, everything is just crazy about that company. Who knows if they pull a rabbit out of the hat, but they are faced with a lot, a lot of competition and a lot of headwinds, regulations, circle, doing things, you know, in a much more transparent way with a lot more regulation. So what is the barrier to entry? It's high to make a stable going, I would say. It's not an easy thing to do. However, with enough money at stake, people will take that on. And so that is something to think about. I just saw yesterday, somebody is starting, I've seen

two of these now. Two people taking on Google search. One is called you.com and then there's another one. And I was like, wow, you know, I thought I was crazy doing it in year 10 of Google. These people are doing a year 20 something of Google. Pretty crazy. Okay. So putting the barriers to entry to mind, you do need to understand how defensible and what defense is. Branding is part of being defensible. So having a great brand is defensible. If you look at Airbnb, they have so much trust, forget about the network effects, just the fact that people trust Airbnb and they they've used it before. And the people who were a host, we had an Airbnb. We were running, we had a house we had moved out of unexpectedly and we were renting it. We had a party there.

There was six or $7,000 in damage. The person broke the agreement to not have more than eight people in the space. They had, you know, many more people. Yeah, they had a rager. And when I confronted the guy, he's like, I'm not going to lie. It was a great party. I was like, great, you did $6,000 in damage. But lo and behold, Airbnb was able to settle that. This is through some combination of insurance and charging the people for the damage. I don't know exactly how it got worked out, but it got worked out. And that made me say, you know what, I'll use Airbnb again. You might have that on the consumer experience.

You might have it in the host experience. Branding is part of defensibility. And so let's talk about branding a little bit. Okay, SOC2 compliance is critically important. Why? If you don't have SOC2 tight, you're going to lose major customers. You just can't close them. It's that simple.

And guess what? Vanta, V-A-N-T-A is going to give you $1,000 off your SOC2. compliance. Vantas compliant software makes it easy to get and to renew your SOC2. They continually test against technical and non-technical SOC2 requirements. They partner with over two dozen audit firms who have been trained to file SOC2 reports directly within Vanta. And on average Vanta customers are SOC2 compliant in just two to four weeks compared to three to five months without Vanta. Take it from Kitty Hawk CEO John Hegrines. He heard me read Vantas. add and email me about how much he loves Vanta. I'm kidding you not. John told me that Vanta was

essential in helping Kiti Hawk get Sock 2 compliant so they could target larger customers. If you haven't heard of SOC2, you will when you get to those big customers. So unlock the big sales and give your employees time to work on more business critical assignments, like your product, like sales. Vanta's giving Twist listeners a $1,000 discount on their subscription at vanta.com slash twist. Once again, vanta.com slash twist for $1,000 off B-A-N-T-A.com slash twist. Item 56 on our checklist. Does your company name passed the bad telephone test? In other words, is it easy to spell over the telephone? And I think it's critically important to make sure that happens. In Brad Stone's book, The Everything Story, Jeff Bezos originally wanted to call his name

Cadabra, as an abracadabra. You know, just how magical shopping was. One click, boom, you get something. Bezos's lawyer convinced him the name sounded too similar to cadaver, as in a dead body. And when he couldn't understand over the phone what Bezos had said. Bezos said, yeah, can you trademark Cadabra? The lawyer said, cadaver? That's a terrible name. Obviously, Bezos took his advice, went with Amazon.

Great moment in history. You have to ask yourself, when you leave vowels out or you misspell stuff, how much of a blocker is that going to be? I like really simple names like Uber and Com. But remember, Uber had didn't have the Uber.com domain. That was owned by a music record label. Eventually, they were able to buy it. And they were Uber taxi. And I remember saying to Travis, like, we got to drop the taxi.

And can I get credit for that in the movie? And he left. He said, what do you mean? I was like, you know, like, Sean Parker's getting credit for taking the the out of the Facebook. He's like, well, we're obviously going to take it out. I know you're obviously going to take it out. All I'm asking for is credit.

So when they make the movie and they do the HBO show, can I, shout out, Brian Coppulman, can I get credit for that? They eventually dropped it. Airbnb, you know, a really great brand. And if you can't get the domain name, it's okay to fake it till you make it, but you really want to have, you really want to pass the test. It's very important. Robin Hood, Spotify, Yelp, you can go down enterprise names, Shopify, Slack, Salesforce.

They're really easy to spell, right? Nobody's going to misspell sales force. Slack, Zoom. I mean, maybe you put an X in there, but generally speaking, people are going to get that right. Now, item 57, branding, do you own a great domain name? Now, it's hard to get a great domain name. Zoom was not Zoom.com. It was Zoom.

Dot something. I can't remember what the name of it was originally. And I think it's still Zoom. US. So it's still Zoom us, which is ridiculous. They did get Zoom.com, but I guess they never changed it. I don't know if that was a technical thing or just them shouting out to their existing. But you can get something like Zoom.

dot us or zoom.is or zoom.co for now. And if you ever get the domain name, great. If you don't, it's not going to be a disaster. When I saw com.com.com on this very podcast, I immediately was attracted to the founder because he could get the domain name. So getting the domain name is great. You're going to have more credibility. But if you couldn't get com dot com, get com, try com, be com, go com, com app, the com app. You can grab something like that. And what I suggest you do is that you flood the zone. So you get 30 different versions of it. Why is that important?

Well, let's say the person who owns com decides, like, they just have a blog, and they've been doing it for 20 years. They don't want to sell you atcom.com. You say, hey, we have com blog, the com blog, com blogging, com. Dot com, dot blog, get com, try com, bcom. Would any of these appeal to you in our collection to move your site to in exchange for a million dollars for the domain name?

Now you've basically given them an exit ramp. So this is one of my secret techniques, but the exit ramp technique is a great one. And then go get all the social media handles, the Twitter, Instagram, etc. So you can offer them the bundle of handles. Great way for you to get. Social media handles are important as well. You don't need to have the dot com, but it does impress people when you do. Italic was recent on the program and I was just like, that's cool they got Italic.com.

Is it necessary? They could have shop Italic. They probably do own shop Italic. I own Adelaic. which was going to be like, we're still planning on doing this at some point, like an email a day about a specific topic or an SMS every day about a specific topic.

And never got around to building it, but somebody made a clothing line a day, like, I don't know, underwear, a day, a t-shirt a day. I'm not sure exactly what that,

why they're using some other domain for it. And that's fine, right? Like, they don't need my domain name. They didn't want to pay me the price I paid for it. So I was like, okay, at some point maybe they go public.

And I'm like, hey, J-Cal, we'll give you a million dollars for it. And I'd be like, okay, most logos are so ugly. Classic example.

Look at the Uber Cab logo. I mean, it is terrible. I called it Uber Taxi before. It was Uber Cab, right? So if you check out the early designs of Uber Cab, the logo was like really bad. It looked like it was designed for 50 bucks and probably was. It looked like it was designed in Microsoft Paint.

I, when I did Mahalo, had a little bit of money. And I convinced John Hicks, who did the Mozilla and Thunderbird logos to do, the Mahalo logo came out beautiful. cost me a couple of thousand dollars. He wasn't available for like six months. I basically said, what do you charge for a logo? You know, like in the waiting list, it was like two grand. I said, hey, if you happen to have an opening, I'll pay you $4,000.

And I'm willing to put the $2,000 deposit right now. And if somebody cancels or they're behind and you know what, money talks. And there was some weekend, I guess somebody was behind in getting him collateral. And he just told them like, hey, listen, you didn't get me the deliverables. If I remember the story correctly, and he just did it for me in a week. And it was. Just absolutely fantastic. Thank you, John Hicks.

I never forget you did that for me. If your product is absolutely fantastic, the logo doesn't matter. You know, Craigslist, Uber Cab, you know, the product, if it's transcendent and awesome, people don't care about the logo. And you can iterate and your design team will want to iterate as time goes on. You'll want to do a logo design. I remember Uber did a gorgeous one at some point that was animated when Travis was running the company.

They spent a lot of money on it. They did a really thoughtful design. And it was basically news when they did a new logo. Famously, Steve Jobs with the next logo, spent a bunch of money on it. These branding exercises, I think, can be worth it later on in the early days. You know, spending 50 bucks on a logo and then spending 500, then spending $5,000, then someday spending $50. That's a fine way to do it.

I think it's wise to not burn all your money early for a logo. I happen to have raised millions of dollars and I was able to spend $4,000 on a logo early. Probably not the best use of capital, you know, early on, but I thought it was important. and, you know, I had raised a ton of money. So, okay, branding. Item number 59. Is your website beautiful? Is it designed cleanly?

Well, terrible websites really destroy your credibility with investors. It can be simple. It doesn't need to be a 10 out of 10, but it can't be a 4, 5, or 6 out of 10. If you use Squarespace, the site's going to be beautiful. Just use Squarespace when you start out. Use one of their templates. Boom.

They're not going to make this into an ad for Squarespace. They've been a supporter of the program. but when I think beautiful website, I just immediately think Squarespace. You can't have an ugly website. It has to be gorgeous. But does it have to be a 10 out of 10? No, it just can't be a 5 or 6.

To get to 7.5 to 8.5 is good enough. That's probably where you want to stop and get back to work on your company. You don't have to obsess. But you do need to trend towards having something that is high functioning and clean and understandable. So you don't want to have a bad impression.

We did Remote Demo Day. You can go to Remote Demo Day.com. And, you know, we were immediately had a gorgeous website, but then we had an interesting company pitch us for Remote Demo Day. Marine, who works on an investment team, is an associate. Shout out, Marine. She was getting the pressure from the company, hey, we got a bunch of VC circling.

That's not uncommon. Founders will, you know, play that card. Sometimes it's true. Most of the times it isn't. So be careful playing that card because you will lose credibility if you use high pressure tactics like that, oh my God, we're going to close, we're going to close. And then you don't close, credibility goes down. And then we looked at their website.

It was like literally out of 1999. And the founder of credibility goes way down. It's like, wait a second. How could it look this bad? And then if the traction doesn't match up, now the credibility and the story starts falling apart. That's what happens. Most people will not tell you this, but people do judge a book by its cover to not have a modern designed website that looks good on a mobile phone.

You know, in 2021 is just a bit of a deal killer. So don't lose credibility by having an ugly book cover. Okay, finally, item 60 on our list. Do you have a concise company mission? Can you say in a sentence and do people understand it? Robin Hood democratizes finance. Launch, we support founders and inspiring innovation. Jets and the Vitol startup I talked about earlier this week.

They make anyone a pilot. Airbnb, create a world where anyone can belong anywhere. That's a bit ambitious or I might go for a simpler one, but I think as companies get bigger, they kind of make the mission, you know, really ephemeral, create a world where anyone can belong anywhere. Create a world where anyone can stay anywhere affordably. You know, there might be another word for that. Uber, create opportunity by setting the world in motion.

It's a little bit corny. I'll be honest. So you see as companies get bigger, they can kind of get into this, like, corny zone. I like it when it's simpler. Make anyone a pilot. Uber's original mission, your private driver. I remember that, your private driver. support founders and inspire innovation,

make anyone a pilot. I'm into those. Amazon. We strive to offer our customers the lowest possible prices, the best available selection, and the utmost convenience. Love it.

Easy, cheaper, better is kind of what they're saying. Amazon is the ultimate and just being blunt when their value proposition, like AWS, it's cheaper and more stable. We've got more servers and we charge lower prices.

It's pretty great. I don't know what Costco's or like Sam's clubs line is, but it's probably like a lot of stuff for a cheap price. Unbelievably low prices for way too many calories. This week in startups.com slash checklist for the full list. This week in startups.com checklist for the full list. Stay tuned for episode seven. Okay, here's a great question from Violet IV2.

On the YouTube asks, a lot of baby boomers retired as a result of the pandemic and the U.S. needs people in various industries, including health care. What do you think the best way to address this is? Hmm. If only there was a way, get more people. to go to work. Hmm. What would we do?

Huh. Well, let's take a career. Nursing. Fumming. Well, why don't we make it free to get those degrees? Or make those degrees with an ISA, income sharing agreement, where we offer it for free,

or based on, you know, taking back one and a half times the educational cost over 10 years, over seven years, whatever it is. Like, let's really incentivize people. Another way to get people to go back to work is to raise the raise salaries. That's happening. Another way to get people to come back to work is to make them feel respected, to make them feel a sense of mission or purpose in their job.

Not easy to do, but also not impossible. So I think labor has the advantage right now because you have a combination of things happening. Obviously stimulus gave people more runway and the double unemployment situation, which is ending. All of that gave people a lot of runway. people's homes increased in value that gives people extra runway people re-evalued their wild lives and said

you know what I have enough money in the bank I want to take the next 10 years and go skiing no I'm not doing that to my team who's wondering what I'm going to just pull the roof cord I love coming to work every day I could enjoy some more skiing though putting that aside raise salaries

train more people and then here's a crazy idea hear me out if we have more jobs open, then people willing to take them, then maybe, call me crazy, we could allow some highly skilled people into the country since Americans don't want those jobs. We are so privileged in this company, I'm sorry, we're so privileged, it's a little frightened, stuff, we're so privileged in this country to have so many opportunities that people are so affluent that they can turn them down. that is something we should celebrate.

It's America's so great. A lot of people don't need to go to work. And they're happy not going to work. They've either made enough, lowered their burn, or some combination of the two, or become micro-entrepreneurs where they do projects and they make money for three months and then take six months off.

Congratulations. But let's be honest here. If we got 11 million job openings and under 5% unemployment, maybe it's time for us to talk about a point-based, system at the border. What does it mean? It means you just take the emotion out of and the polarization out of immigration. Immigration shouldn't be all or nothing. It shouldn't be about your evil or your your, you know, Mother Teresa. There's a lot of nuance here. Everybody coming into the country

provides some amount of value. Some people might be a drag when they first get here and then eventually become, you know, contributors, right? Somebody who comes here and uses social services, needs an education, they might actually be a drag for some period of time and you're making an investment with the hope, and I think it's a reasonable one, that they will pay off in their taxes and their contribution to society later. It kind of works for all of us and our parents, right, and our grandparents who came here. I don't see why it wouldn't work in the future, but since this country is very attractive

for people around the world, we might get a disproportionate amount of people want to come here. And since a disproportionate number of people want to come here, we do need to have some limits. Why don't we tie the number of jobs that are available to the number of people that we let in? So in other words, you take the last five years, you have a rolling average of the last 200 weeks, 250 weeks of unemployment data. You look at it and say, what jobs are open? Okay, teachers, doctors, lawyers, construction. Okay, great.

Let's take out construction. Great. where can we get incredibly trained construction people? Great. If you're applying and you say, I've got 12 years experience in construction, I'm a plumber, I'm an electrician, great, we need more of those. Looking back at these four gears, we need, we will give a preference to what we actually need in the country. Is that too cutthroat or is that logical? Because you do want to have product market fit here. You do want to have immigrant job fit.

It doesn't help anybody if we add, I don't know, if we, let's just suppose that we had, I don't know, too many nurses. It's not the case, but letting in a million nurses or 100,000 nurses and they can't find jobs, that doesn't help anybody. That hurts them. There's now they've got to take a job that they're not satisfied with, and it hurts the entire base of nurses because maybe salaries get lowered and that's not good either. So how about some logic? And then, oh, they want to invest in the country? Great. So we'll hold 20% of slots for people who are willing to invest in,

million dollars or a half million dollars. Yeah, they're buying their way in. Yeah, they're buying their way into great businesses. So other people get jobs. That's a good thing. You want to let some people buy the front first class seats. Those first class seats are what make the seats in the back so cheap. That's smart. Overcharge them. If I told you, we were going to put in the front of a plane, you know, two private bedrooms and they were going to cost $25,000 each to go to Italy. And that everybody who was in coach, instead of paying $800, got to pay $6.50. Who's not taking that deal?

We're all taking that deal. Yeah, go below 25 large on a bedroom in the front of the cabin. Mazel Tov, great. That's what we need to do. We need to look at this and say, let's have a sorting mechanism here. Okay, this person's going to go back to their country

and be murdered because of their race, religion, creed, color, whatever. Yeah, we need to keep 20% of the, 20% of the spots for people who are refugees who are going to face imminent harm, death, persecution if they go back to their country, right? So people come from Cuba or they come from Venezuela or they come from China or Russia and we know, hey, if they go back, they're just going to be put into gulag and tortured and murdered or worse.

Let's keep them here, you know, like we could have some sympathy. And the point-based system could also be how easy, how easily will you integrate into society? Well, what makes it easier to integrate into society? Speaking the language. A lot of other countries do this, by the way. Point-based system in the UK, point-based system in Canada, point-based system, I think, New Zealand and Australia. I'm pretty sure of Australia.

I'm pretty sure in New Zealand. So the point-based system is super, I think, fair. And it changes the discussion from, you're a horrible Republican who is a xenophob or you are a bleeding-heart liberal who just wants to create chaos at the border. That's not actually what's happening. in other countries. They're just saying, let's be thoughtful about it. Let's be thoughtful. If a person has a college degree and speaks English fluently, are they going to have an easier time coming to

America or Canada? Of course they are. Well, that's what the other countries do. That's what Canada does. If you have a degree or a master's degree or a PhD, you get points for each of those, and that gives you a greater chance of getting in. Does anybody argue with that? So anyway, that's a long-winded answer to, you know, what do we do about the job problem? I think, immigration, which I just want to a tangent on, is something I've been researching, because I'm an idiot. I didn't know how any of this works. And I kept asking during this whole back and forth with politicians fighting, hey, what's the actual number? And I couldn't find in any of the stories. New York Times, Wall Street Journal, Washington Post. Nobody ever mentioned

how many people came in last year, how many people came in this month, how many people, you know, got in because of H-1B versus this. They never talk about the actual numbers. I always start with the data. But these government officials, are polarized. They don't start with the data. They start with the emotion. Is that a good idea? If you're flying a plane, should you get into the cockpit and say, you know what? How am I feeling right now? Am I scared? Am I nervous? I'm angry? Am I happy? Or should you say, what's our altitude? What's our speed?

Okay. How's the plane flying? You know? Like maybe look at the, can we just look at the gauges and just make a decision to keep the plane flying, you know, smoothly? That's what we should be doing with our government. They should be keeping the plane flying smoothly. Less turbulence. All right. End of rent.