If at first you don’t succeed, try, try again.
Jordan Gal and his younger brother built a politics site to 50,000 visitors a month. The Gal brothers made some money advertising on their site. And their hopes climbed higher as a friend introduced them to Robin Richards.
As an experienced serial entrepreneur and CEO, Richards has an enviable track record. His highlights include:
But after meeting with Richards, they only felt the blow of reality.
“He said, you don’t have anything unique. You got no technology. You have no business model. You don’t have experience in advertising. He blew us out of the water, and it was a good thing. We came back from that trip, and we looked at each other and said, ‘Maybe it’s time to think about something else.’”
It was the summer of 2008. Their older brother, Jonathan Gal, had launched an e-commerce business. Jonathan had lost motivation as growth stagnated at $1,000 a month.
With a little convincing, Jonathan shared the reigns of his store with his two brothers. A month later, the drop-ship solar lighting business grew to $2,000. Then $4,000. Revenue climbed to 8, 15, 30, 45, and finally $65,000 a month.
A year later, the Gal brothers had a suite of niche stores generating over $500,000 a year, selling everything from hammocks to electric fireplaces.
But as the brothers projected their business out to $5,000,000 a year, the fire began to wane. With an increase in orders came an increase in customer service needs. Hiring employees meant extra overhead costs.
Soon after their decision to sell, Jordan hopped on the phone with a business broker. A week later, Gal was talking to a potential buyer. Another week went by, and a letter of intent sat on his desk. After wheeling-and-dealing, the businesses sold for $200,000.
$200,000 is a cool chunk of change. But Gal knew his share of the money wasn’t enough to retire on. So he reflected on his experience to decide what was next.
“After selling the site, I realized recurring revenue is a better model. If we didn’t spend $20,000 on ads, our revenue was close to $0 for the month. I felt like we had built an advertising machine.”
Gal’s desire for a healthier revenue model drove him toward the classic SaaS recurring subscription model. This made him think about the tools the Gals used in their business.
“We used to use a review app. It gave us a high ROI, but it was a terrible product. And I told myself I would never stop paying $100 a month for this product.”
To Gal, the math was simple. He could look on the screen and see the tool brought him 81 new reviews. This alone increased sales while decreasing chat support. But even better, after someone wrote a review, they often bought new products. $100 was a drop-in-the-bucket compared to $1,400 in new revenue.
There was another part of the product that fascinated Gal: the product had an abandoned cart feature. Like the review app, this also was easy to tie revenue to the increase in sales.
“The tool was already validated in my eyes. I understood the needs and pain points because I knew the pain.”
Gal was a year into his idea and he began validating his business while searching for a developer.
Using BuiltWith, Gal found a list of stores using Volusion, the e-commerce platform his brothers and he used before. He then hired a virtual assistant (VA) to research, qualify, and reach out to every store owner. Between these contacts and others he met in Facebook groups, Gal felt there was enough demand for his idea.
Related: This Dastardly Email Outreach Program Put Us in the Top 25th Percentile of All Marketers
As a non-technical co-founder, Gal found his search for a developer frustrating. He had the demand to build CartHook. But he kept coming up empty-handed when looking for a technical co-founder.
“Even if you have money to burn, the search is a difficult process. I looked at agencies, overseas developers...anything."
“I was willing to invest $15,000 or more. But I knew the first MVP would be a guess what people wanted and would require a lot of work to get it to where it needed to be. Even if I paid $15-to-$25,000, it would cost me a lot more money until we got it right. "
“I wanted someone who would be in it for the long haul, not someone I’d pay $85,000 once. Their skills are highly sought after in this market. So my job was to [sell the idea by] showing my credentials, show I know the space, and emailed dozens of customers who had a lot of interest.”
Finding a technical co-founder wasn’t easy. But God provided Gal a chance encounter with an old family friend at a laundromat in San Francisco, of all places. After meeting for coffee and sharing his outlook and philosophy of business, his friend was hooked.
“Charlie was willing to put freelancing on pause for this, which worked out very well for him. He was looking for an opportunity to get into a business, I was looking for a developer.”
As fortunate as his partnership was, all good things come to an end.
“We worked for a year, then Charlie got a dream job offer. [At the time,] I was doing Carthook 50% of the time and it was doing $1,500 a month. Charlie was offered a position as the Head of Product at a well-known startup that raised $40 million from Sequoia Capital. I wanted him to go with this dream job, so he did.”
After Charlie finished his agreement, Gal began working by himself again. He noticed his motivation was slipping until he got a surprise offer in his inbox.
“I got an acquisition offer out of the blue from someone known in the e-commerce space. It was so early [for CartHook], so it didn’t make sense to sell. But it made me think, ‘Maybe I have something here.’ This sparked the idea to raise funds from friends and family.”
Soon after receiving this offer, Gal restarted his quest for a new technical co-founder.
“I met Ben online who signed up for CartHook. He had a cool email address and I wanted to connect with him. He ended up being my co-founder and with our networks, we raised $500,000 in a friends-and-family round.”
Gal never considered raising money through venture capitalists. To him, the risk wasn’t worth the reward.
“I come from a bootstrap background. We’re an immigrant household from Israel. My dad did the entrepreneur thing, and it’s always been a family business. "
“To me, venture capital isn’t the ideal route. I wasn’t averse to VC money, but to institutional money that needs you to be a big hit, or it doesn’t work. I have a wife and three kids, so I don’t like the risk.”
But raising money with friends and family is not without its challenges either. Money can put a strain on relationships. And Gal had to educate his friends and family on what most investors already know.
“I pitched friends from college, mentors, and classic non-internet entrepreneurs. I had to get them familiar with concepts that are common to software startups. For example, I had to explain what a convertible note was."
“You need to educate yourself to simplify the message and not say something that wasn’t correct. There is also a tension between wanting the best deal as the entrepreneur, but not providing enough upside for the friends and family who invest.”
One of the great debates of early-stage startups is when to launch your product.
Launch too soon and customers will leave with a bad after-taste. But if you launch too late, you miss your window of opportunity or run out of money.
“Along with the bootstrap mindset was a laser-focus on revenue. I knew raising money was temporary, not 2-3 years of runway doing ‘brand work.’ As soon as it made sense, I launched. After the free trial, I took 40 cards over the phone because I did not have a form. At that time, I only focused on sales.”
Gal’s launch wasn’t big or fancy. There was no Product Hunt, BetaList, or Reddit push.
“I always felt like the product wasn’t ready and I didn’t have the connections in my network.”
But because he found something that worked, he kept at it.
“I was grinding it out with cold email. I found out cold email worked well for the lower end of the e-commerce market. My process was to send a cold email, get on a call, offer a free trial, then get on the phone and close the sale.”
After reaching out to Volusion stores, Gal began to reach out to bigger Magento and Shopify stores. To his dismay, he found out it didn’t work.
The next scalable growth channel that worked was creating integrations between platforms. This is known as business development.
“We said to ourselves, ‘Hey, these guys are wanting cart abandonment. Let’s do an integration, point their merchants to us and we’ll work together.’ So the platforms we integrated with did the marketing for us. From that point forward, we got a continuous stream of customers."
“There are different levels of partnerships. Those who promoted us were ideal relationships. It was less than ideal creating an integration and only telling people we now work with [a certain platform]. But this allowed us to hire our first engineer and build out the product more.”
Integrations and cold email brought CartHook to making $240,000 a year. But as a four-person startup, there wasn’t much money for each person. Finances were tight. As strange as it may sound, Gal was already considering another product idea.
“The thing that allowed us to [create a new product] in a relatively risk-neutral place was the partnerships. Aside from bug fixes, this allowed us to stop working on our product and revenue still went up."
“I went deep into research in e-commerce Facebook Groups. ClickFunnels was blowing up as they went from $0 to $50,000,000 in three years. I was intrigued because ClickFunnels was solving a problem I had with my e-commerce store, which I felt everyone had. Specifically, I wanted a funnel apart from my store. "
“Funnels are difficult to do in e-commerce because it isn’t connected to your system. ClickFunnels allowed you to do a great funnel on the front-end.”
It’s not uncommon for founders to scratch their own itch and solves a problem they once had. But many of these entrepreneurs take the time to talk to potential customers.
“I began to talk with other business owners. They loved the drag-and-drop sales funnels, but they ran into a hurdle because ClickFunnels wasn’t built to sell physical products, so it did not integrate with your inventory or fulfillment. Shopify does this."
“E-commerce owners wanted ClickFunnels on the front-end and Shopify on the back-end. Our checkout tool would bridge the two platforms together.”
Integration products are risky. Every time one of the tools changes, your developers need to make adjustments quick or risk creating frustrated customers. But if the pain is severe and the demand high, these tools pay off by charging a premium price-point.
“At first we copied ClickFunnels pricing. They’re $97 a month, we were $100 a month.”
Related: Pricing Strategy: How to Precisely Price Your Product
Gal was relentless to understand the customer needs.
“Shopify did not allow you to customize the checkout. People were asking for this in Facebook groups. I friended them, asked to get on the phone, and they confirmed our hypothesis. Many were saying thousands of owners would need this product."
“Once we launched, we were overwhelmed with new sign-ups. With this launch, there was a lot more word of mouth because the need was so high. People who saw the demo told their friends, who asked for a demo. This created a bunch of buzz around the launch.”
Gal’s new product struck a chord with the market. The market hungered for CartHook’s checkout integration. So much so, the product was on the verge of disaster.
“We held on for dear life 12 months after the launch. The product wasn’t ready for the demand. It’s dangerous because hundreds of people were coming, but they were unsatisfied because it did not meet their expectations. Checkout is highly sensitive. For some tools, it doesn’t matter if something goes wrong. This costs money immediately when things mess up."
“We tried to slow everything down with no automatic sign up and forcing a demo process. Demand was still high, so we tripled the price, which did not cut demand. Our product processed over $100 million on behalf of our customers that first year. It was tough to nail what the market wanted.”
But the CartHook team persevered and made it their mission to find out what the customer needed. This soon led to Gal’s third pricing breakthrough:
“We realized the leverage [and value] CartHook provides is in the transaction. Our business model now captures a transaction fee to pay us more.”
Related: Customer Discovery Interviews: A Secret of Successful Startups
Because demand was so fierce, Gal did not market his product for a year. After the tidal wave started to subside, Gal went back to his integration playbook.
While his team executed on this plan, Gal continued to develop new tactics. Case studies became his next scalable growth channel.
“We would find a successful customer, have Case Study Buddy turn their story into a PDF, which we used in our advertising. The first time someone came across CartHook, it wasn’t selling. Instead, it was a subtle way to show them the value they would get from CartHook. "
“We originally promoted the case study through Facebook ads. If someone clicked the ad, they were tagged for retargeting. Only then did we showed them a free trial ad. We later used case studies in our onboarding, exit-intent pop-ups, and all over the place.”
One of the great challenges entrepreneurs face is feeling like they no longer need to “fake it until you make it.” Gal shared about his path to feeling like he now runs a legitimate company:
“There were four original folks who got equity after Charlie: Ben and two early engineers."
“As we added employees, it no longer made sense that this was all about money. Back with four, it was ‘Let’s make X.’ But employees don’t care as much about the money. They care about the product, customers, and want to feel fulfilled. "
“I wanted to authentically turn this into being something more. But I didn’t want to be like the San Francisco ‘Change the World’ nonsense. Once I figured this out, it started to enrich our employees’ experience. This is now a legitimate company I enjoy working at and could do for 10 years.”
Gal was quick to admit he doesn’t have all the answers. But he recognizes he’s found some success.
“In hindsight, I know I don’t know everything I was doing. I would advise you to be sensitive to what the market wants. What I mean is this: if the market doesn’t want your product, it sucks! It is hard to spend a year or two building what the market doesn’t absolutely love."
“One of Noah Kagan’s friends asked him how everything he does turns to gold. His advice: ‘It’s not that everything is a hit. But once he sees something isn’t a hit, he drops it after a few weeks. So what makes it to the atmosphere are the products he’s sure of will work. I’ve done things that wasted a year or two. That was a disaster. "
“If the market doesn’t want it, move on.”
For more interviews like this, check out the series 1,000 True Fans.