This blog post is both an entry into the Lean Startup Challenge & and the story behind the most expensive lesson I’ve learned (so far).

Part 1: A Lean Start

I’m not a Coder or a Designer. I didn’t even intend to create a startup, I just wanted to make a movie…

It’s awesome where I’m from, but we have the highest unemployment rate in Canada, and getting your first Employment Insurance check is as momentous an occasion as your first job.

In 2006, after graduating from Comedy School (no really), while living in my wife’s parents basement with maxed credit cards and student loan debt, I quit my minimum wage job as a delivery driver to try to find a way to make money on the internet so I could film a screenplay I wrote.

Over the next few years, I figured it out! I raised $50,000 to make The Legend of the Psychotic Forest Ranger…but I also went on to generate great revenue for my company from our basement operation internet ventures!

How’s that for a lean start =P 

All I kept thinking was “Holy shit, I just paid off my credit card!” and “How much longer is this going to last…”

If we could make good profits on our small scale operation, we figured that we could make a lot more as a Corporation with employees! Insert expensive lesson here.

Part 2: The Saturation

The first time I actually heard the term “Lean Startup” was last March when I was in the bowlspin of a Bloated Startup. My partner/mentor & I were attending GDC 2010 in San Fransisco.

Trying to make the most of the $3500 that the trip was costing us, we would attend different sessions and round up afterwards to give each other a briefing. I attended Building a Virtual World: Lean Startup Style while my partner attended something not as awesome.

Eric Ries talked about the failure of the perfectly executed ‘there.com’ in spite of Millions of dollars and many brilliant people backing it VS. the success of the buggy, skeleton crewed IMVU.com.

I was laughing a lot during his talk, partly because Eric gives entertaining speeches, partly because he had spinach in his teeth (I jk), and partly because I was relating to everything said.

What was most funny to me was that unbeknownst to us, we were already running a successful Lean Startup, and using the profits from that to feed our Monster.  

“Need Moar Money For Teh Load Balancers”

We were learning the lesson in reverse. 

At GDC 2010, we were in Month 11 of a Facebook Game Project that we initially thought would take 3 months and cost $20,000. (Remember that’s a lot of money for me, that’s more than I made in 2006 and 2007 combined!)

We were now burning $20,000 per month, including critical expenses like employee health benefits and $2500/mth in servers. (We didn’t have a launched product yet, but we had to be prepared an avalanche of users right?)

The 2 big Riesisms that really spoke to us were the concepts of pivoting, and continuous deployment. We were so fired up by those messages that we cut the trip short by 2 days to go home and JFDI.

When I got back to Canada, we leaned up our process a little bit, and finally launched our game. After some marketing and user testing, it was clear that the game was not going to be able to support a $20,000 per month burn rate.

It was a bloated failure. But it was a result. Now we knew. Thank you #leanstartup.

We iterated and made a new game from scratch in only 2.5 months with Lean Startup strategies, but the damage was done. The company culture that we had created & the year old advertising strategies we had were just not working.

We had to lay everyone off to stop the bleeding. I still miss those hilarious, sometimes sexist (you know who you are) company skype conversations. [I don’t miss the epic mac vs pc debates though.]

It was an expensive lesson, but at least we can say that we’re in the great company of folks like Hiten Shah who have learned expensive lessons from failed business ventures.

Part 3: Lean Again

We made a pivot from making games to helping other Facebook Developers get paying users for their games. 

That came about through Mixergy.com when I heard about Noah Kagan and AppSumo.

I <3

AppSumo inspired us to create CoinWhale.com, which is basically AppSumo for Facebook Games.

In Social Gaming, only 2% of players will ever crack their coinpurse and pony up.

To make money, Developers traditionally advertise to a broad group of players in hopes of reeling in these 2% types out of the giant net they are casting.

With CoinWhale, we are introducing another marketing strategy, where Developers can get paid to expose their game to a pool of these 2% players with guaranteed results by working with us.

Here’s how we leaned up and used AppSumo to start our new business.  I’ll also show how we got a nice lean 1000% ROI on the money we spent on AppSumo deals =)

The AppSumo Deals We Utilized:

1 ) First we needed a design, so we used the 99Designs coupon from the Lean Startup Bundle to get a hassle free attractive design and save some money.

2) Next we need a way to email the users (the money’s in the list), so we used the MailChimp coupon from the Startup Bundle. 

3) We wanted a toll free phone number to build user trust and confidence, so we used the GrassHopper.com coupon from the Lean Startup Bundle.

4) We wanted to involve the community in suggesting games to be in bundles, so we setup Voting with a UserVoice coupon from the Lean Startup Bundle.

5) Live Chat Support with SnapEngage was probably the most valuable coupon of them all - got this one from the User Love Bundle.

6) We setup Community Q&A Forums for our users to connect with us using GetSatisfaction, from the User Love Bundle.

7) After our first deal we used a CrazyEgg Coupon from the Web Optimization Bundle to analyze button placements. This was super fun, and valuable.

8) We used UserTesting.com from the Web Optimization Bundle to get audio and video of a first time customer going through our site. This was really valuable to expose bottlenecks!

9) SEO is not fun, we got an SEOMoz.org account from the Amazing Wordpress Bundle which exposed some gaping holes in our SEO, and lets us keep tabs on how we’re doing on the SERPS (yeah I said SERPS, wanna fight about it).

10) Duh, web hosting. Thanks Linode coupon from the Badass Developer Bundle!

11) Last but not least, we hired a virtual assistant from the Philippines, and to make sure she was browsing securely with our credit card numbers, we set her up with Panda Cloud Antivirus and Emsisoft Online Armor from the Windows Holiday Bundle!

Part 4: The Lean Launch

We built CoinWhale over 2 months, and had an investment offer of $20,000 before we even launched our first deal! However, the ask was for 30%, so we decided to wait for a better offer =P 

We launched it in December 2010, and our first deal did over $3000 in sales!

We spent about $180 on appsumo deals, and made about $1800 in profits - giving us a good 1000% ROI on our very first business transaction.

That didn’t even include the value of the free consultations we got with Hiten Shah, Noah Kagan & Dan Martell. Yeah, AppSumo also holds Free Action Classes with industry gurus to train you how to make more money with your business.

I know these numbers aren’t going to knock your socks off, but we’ve got some great numbers that show us the business can scale if we keep at it.

Here’s some data averaged from our last 3 deals:

• ~2900 unique visits per deal
• ~$3500 sales revenue per deal
• 14.2% conversion rate from unique visits to buyers
• 26.5% conversion rate from unique visits to registered members
• 18.1% conversion rate from unique visits to email subscribers
• 37.9% conversion rate from registration to purchase
• $1.20 in sales per unique visitor

We had a situation where we almost didn’t continue with CoinWhale in January. Facebook announced that Credits would be the only allowed method to accept payment for Facebook Game Currency.

We put development on hold for a month to assess whether we should keep putting our time into it, and the whole time I was getting hit left and right from our community with questions about when the next deal was going to be and what game was next?

Then developers started asking me when they could get in the next deal … the signs were obvious that we should just continue & stay lean.

Thanks to the Lean Startup Lessons I’ve picked up from experience, Mixergy.com interviews, Eric Ries & AppSumo, the prospectus is great.

• We are no longer burning 20k/mth (easier to sleep at night).
• We are helping fellow Facebook Developers make more money.
• We have awesome customers who love what we are doing.  
• This makes us feel squishy inside.

We’re currently looking for a technical partner, some interns & The Lean Startup Challenge grand prize to help us keep on growing =)

P.S. If you like cheesy 80s horror movies, keep your eyes peeled for The Legend of the Psychotic Forrest Ranger, due out this summer!