Here’s the number of merchants where we’ve collected at least one purchase:

So the users are coming, the software is working, and we’re firing on all cylinders, growing fastest in our space by 10x and close in size to companies who have raised $10M in external money.  Feels good.  We even had final docs for a financing with a Sand Hill VC to give us some runway.  But we turned it down at the 11th hour to join ShopRunner.  WTF?  Here’s why:

1.  We really like ShopRunner.  We like that the team has been together for awhile, they have some great traction, and most of all, that they share our intense ambition to build something huge.  They want to build the software layer that brings the wonderful Amazon experience to all the retailers on the web.  That’s a big mission, and a huge company when we get there.  It will have millions of members who spend billions of dollars online.  This is the fourth software company Leo and I have sold successfully – two VC-backed and two on our own dime – and at this point, the ambition to build something cool and huge drives us the most.  We’re excited that the whole ShopRunner team feels the same way.  We’re going big or going home, and we believe we can go bigger together than we can separately.  In addition to the great team, ShopRunner has all the assets in place to achieve the mission.  It’s quite well financed through its spinout from GSI/Ebay, it’s extremely well connected personally to all the players in commerce and media, and it already has deep partnerships and integration with about 100 retailers.  So both ambitious and capable.  We like that.

2.  ShopRunner and ShopSanity are a great strategic fit.  The data layer that ShopSanity brings to the table is a key piece of the overall mission.  We like to build cool, huge stuff, and at ShopRunner, what we were already building is an important piece of the puzzle.  Likewise, ShopRunner dramatically enhances our consumer value proposition, so they add at least as much value to our original mission as we do to theirs.  Receipt organization and management is an interesting value proposition, but by itself, is compelling only for a niche customer group.  But fast, free shipping from the best merchants on the web is hugely compelling to everyone.  In the words of every cliched VC on Sand Hill – now we’re a drug, not just a vitamin.

3. We believe there’s something slightly off in the startup world, and we feel like we’ve seen bits of this movie before.  Since our first company got acquired in 2000, a lot has improved for software startups – cloud infrastructure makes launching and scaling much cheaper, social infrastructure makes spreading the word virally much easier, fast and mobile connections mean more people spend a lot more time online, and the startups that are doing well are making serious money instead of just driving page views.  There are some huge successes these days which rightly deserve the monster financings and valuations they’re getting.  All that said, there’s a crazy echo chamber and hype cycle right now that feels very counterproductive.  Being a startup founder is about grinding as hard as you can on a small chance at a really big outcome.  Or it should be, in my opinion.  But right now, some people seem as excited about being covered by Techcrunch or its progeny, going to cool parties, and becoming celebrities as they are about building good products and efficient businesses.  That doesn’t feel right.  Startup culture is great, and the environment is exciting – but it’s not the endpoint.  We should be building real businesses or meaningful products (sometimes those two overlap, but not always), and our view is that too many people are building neither and are just happy to be shouting into the media/investor echo chamber.  Separately, a lot of angels and VCs seem too mesmerized by the latest buzzwords – so much so that a pitch that says “Big Data” does better than the identical pitch using different words.  That’s a bad sign.  We also think it’s a bad sign when Maslow’s hierarchy of needs is cited as justification for every investment decision (pro or con) as if every startup success or failure is naturally preordained by psychological theory.  Finally, we think it’s a bad sign when too many investment decisions are made as a function of other people’s investment decisions – groupthink usually ends badly.  We worry that when you combine buzzword-smitten investing with a culture that celebrates media coverage more than customer service and consumer value, the outcome can be troubling.

We could say, so what?  We had money raised and ready to go, we’ve navigated the echo chamber successfully before, so let’s do it again.  If we didn’t like ShopRunner so much and fit with them so well, that’s exactly what we would have said.  Tactically, though, we believe that overfunding and overhyping in our segment will cause competitors to do silly things – like overpay for customers – that would make the whole space worse off.  We’re too focused on building something huge, and we knew the sideshow would waste our time and distract us from the mission.  So we joined ShopRunner, which has quietly built a business with great things on the horizon, the ambition to build much more, and the assets to get there.  A ShopSanity competitor recently told the echo chamber they had the most money, most distribution, and most customers, so they weren’t worried about anyone else.  In point of fact, with ShopRunner, we have the most of all of those things. What matters, though, is that we’re going to run as hard as we can to build cool stuff and huge businesses with people we like – at ShopRunner, we’ll do all of that, only faster than we did on our own.  We can’t wait.

At ShopSanity, we spend a lot of time researching shopper behavior.  We organize receipts for people and track the prices of items they buy – so that when a retailer cuts its price within a certain time after purchase, we can send our users alerts that they use to get money back via a retailer price adjustment.  We do all of this anonymously and securely (and for free), and the byproduct is that we develop some insight about what people buy.

Here’s some data we have about Amazon Prime users:

We love the free 2 day shipping experience.  We even love it so much that for a limited time, we’re giving out free 1 year ShopRunner memberships at ShopSanity.  ShopRunner is like Amazon Prime, but it works at about 100 stores – Toysrus, Sports Authority, American Eagle, etc.  If you like Amazon Prime, or just hate paying for shipping, it’s worth checking out.

All these transactions show two things strongly – inflation in household items is going bonkers and everyone loves Apple.

Books, batteries, coffee, and kids stuff are all getting more expensive fast:

Apple has a clean sweep of the most popular items:

ShopSanity is in private testing – if you’d like an invite, send us a tweet (@Shop_Sanity) or let us know on Facebook.

(Privacy note: Shopsanity takes privacy very seriously.  We anonymize and aggregate data before preparing posts – please see our privacy policy for details.)

(2011 is down because the big holiday season is still ahead of us.  Lots of shopping around during the holidays!  Our data start in 2004 with the launch of Gmail and Yahoo Mail’s increase in storage at the same time.)

ShopSanity users are not only shopping around more. E-receipts have doubled every year since 2004.

We can already help users get organized, save money, and save time.  The opportunity is only getting bigger.

ShopSanity is in private testing – if you’d like an invite, send us a tweet (@Shop_Sanity) or let us know on Facebook.

(Privacy note: Shopsanity takes privacy very seriously.  We anonymize and aggregate data before preparing posts – please see our privacy policy for details.)

First, the facts: we used crowdSPRING to get a name for our company with available URL – it took us a week and cost $1500.  We liked the experience, so we tried to use the same site to get a logo.  Another $1500.  $3,000 all in for name, logo, and URL.  The lowest quote we had from an agency for name and logo was $50K plus buying URL (not even the whole agency, just people at the agency offering to work on the side – the agency itself was more).  So when we got through those two steps for ~$3K, we were pleased, and blogged about it.  (The $200K number in our title came from adding in the fees we got quoted from the same places for website creation, which we ended up doing on our own.)

Then we went down the rabbit hole.

A commenter correctly pointed out that the logo was stolen.  So we were immediately less pleased.  We contacted crowdSPRING, they responded immediately with an apology and a refund in its entirety.  They also offered to let us post again without paying their fees, although we’d still pay the designer award.  But the fiasco made me check my records, where I discovered they had sent me a notice that our winning designer had been banned from their site on August 11th.  It was one of many emails I got about users being banned, and there was no special callout that the user banned was the winner from my project.  Given there were about 400 entries, I wouldn’t have connected the banned username with our winning award without the brouhaha that followed.  So crowdSPRING banned the user (no mention of why, although probably caught for IP theft somewhere else) two weeks after my project ended, didn’t let me know my logo was potentially at risk, and would have let me just launch my business with it if I hadn’t written a blog post that crowdsourced the original source.  Ouch.  So no, I’m not going to spend more money there, even though they waived their fees.  They pointed out that they gave me a full refund of everything related to the logo – that’s true, but I think they’d have to in order to avoid profiting from selling me stolen property.

We started hearing from designers not long after the post went live.  With varying degrees of politeness, the comments went generally into four buckets: (1) ShopSanity is naive/incompetent/[insert pejorative] to think they crowdsourced the same quality work they’d get from a professional agency, (2) crowdsourcing through a contest site like crowdSPRING devalues design and is inhumane because potentially hundreds of design hours are spent on spec, all but one of those designers gets paid zero for the effort, and no other profession does spec work like that, (3) there are many freelancers available to do good design work at lower cost than big agencies, and ShopSanity should have put in enough effort to find one of those, and (4) brand and design are the most important investments a company can make, and trying to save money there dooms the company to failure.

I think (1) and (4) are related.  Brand is absolutely an important investment, and when you’re ready to invest, you should invest the right way and get the best possible team on it.  I completely agree with that.  However, as a startup software company, investing in brand isn’t our priority.  Building software is.  If we have a great brand and our software crashes your computer, we’re still toast.  Brand won’t save us.  So we have to get the software right.  If we do that and our brand is sucky, some people will be turned off.  True.  But we won’t be dead.  We’ll go invest in the brand at that time so that everyone loves it.  It all starts with (for us, as a software company) getting the software right.  That’s why we prioritize spending on engineering and UX design, not on a corporate brand.  When the money for the business comes, quite literally, out of your pocket, you make pretty clear priority decisions.  Do I wish I could spend $200K on a premiere brand?  Would that lead to something better than the crowdSPRING result (even assuming it hadn’t been stolen)?  Yes and yes.  But that’s not where the company is yet.  It’s not where most startups are, and it’s not where many small local businesses near you are either.  Think about it – how many designers invest $200K (equates to probably over a man year of effort) in marketing themselves before they have clients?

I also completely agree with the freelancer comment.  There are lots of great freelancers.  We’ve worked with some at this company and at previous companies.  Finding them is extraordinarily difficult, even though it seems easy when you’re a designer inside the industry.  As Imprint points out in a comment, “there’s no way to tell how well-made the work will actually be. not from coroflot, creative hotlist, or AIGA. all you see from thsoe places is that they’ve been paid to show the work (and that includes AIGA, in terms of membership dues). nobody has sat with the work on those companies’ ends and qualified it.”  We did put in time looking for freelancers – they were generally a little more expensive, a little less available, and required a little more faith on our part than a site like crowdSPRING.  With a company in between us and the designer, we knew we could get a refund if it doesn’t work out – with a freelancer, if it doesn’t work out, the buyer is stuck, so it takes a little more faith.  (Sure we could sue, but who has time for that?)  Obviously, when the situation comes out like this one, it’s easy to say that we should have put our faith elsewhere, in a freelancer, and maybe that would have worked out better – but we would have had to risk more to get there, both in time and in money.

Finally, I have to admit that I just don’t understand  the “crowdsourcing is evil” #AntiSpec bucket of comments we got.  I replied to one of them by email [made some minor edits] – “I’ve done startups in Silicon Valley since 1997.  I and other entrepreneurs like me usually work without pay for long periods, sometimes years, developing products, hiring other people, making pitch decks for venture capitalists, pitching clients.  If I don’t beat everyone else at the game, all of my effort ends up worth zero.  There’s not even a guarantee anyone gets a payout in the end.  We might all get zero because we’re betting on the wrong market or because some big company enters the market instead.  But I wouldn’t trade what I do for anything.  Betting on myself to walk the high wire with no safety net is what makes me feel alive.  Sometimes the bets pay off, and sometimes they don’t, but even when I get zero out of a solid year of hard work, I don’t feel like my work is worth nothing or that my year doing something I enjoy was a waste.  Why do designers feel differently?”

In the end, after all of this, I still support crowdsourcing stuff for companies at our stage, where brand isn’t going to make or break them.  I’d love to be able to spend more, and if I did, I’d probably get more.  A Ferrari is great, but I can’t afford one, so I drive a Subaru that meets my needs.  That doesn’t mean I think a Subaru is the same as a Ferrari.  If I had something to crowdsource again, I’d want to use a site with better policing of IP theft, or one that at least notifies buyers proactively when they find problems.  I don’t know if Brandstack or 99Designs do better in that regard.

Our updated post is here - crowdSPRING sold us stolen property! On crowdsourcing and entrepreneurship.

Original post below:

As we move closer to the official launch date of Shopsanity, we’ve been working hard to set up our website and tell the world what we do.  Of course, even before that, we needed to know what we were going to call ourselves and what our logo would be.  I initially approached three different branding firms for help with naming the company, positioning us, and coming up with various branding elements.  All of the quotes were $200-$300K.  Yikes.  We could build a lot of stuff for our users on $300K!  Our name and logo are important, but I think our consumer experience is more so.  A great name won’t bring you back if the product is no good, and if you like what we do, you’ll probably come back even if the colors in our logo are a bit off.

The branding firm quotes made our company look seriously into crowd sourcing our brand.  I investigated brandstack, 99designs, and crowdSPRING.  I liked brandstack because I could pick a URL and logo at the same time, pay a fixed price, and be done.  Unfortunately, there weren’t any available that excited me, so I had to move on to custom crowd sourcing.  99Designs and crowdSPRING seemed pretty similar, but I ended up choosing crowdSPRING because the signup and listing process felt a little easier.  Actually, I chose crowdSPRING to launch a naming process and intended to try 99Designs for the logo, but the experience at crowdSPRING was nice enough on the name that I just did the logo there too.  For the name, I spent an hour writing out a description of what we do and filling in a few other things, offered $1000 for the winning name, and paid crowdSPRING about $500 in various fees.  Once I pushed go, names started coming in (with URLs available – that was a key requirement for us) almost immediately.  Shopsanity was the second name submitted, about 5 minutes after we launched the project, but there were another 700 names that came in over the next week.  I spent a lot of time offering feedback on each name along the way.  In the end, we chose shopsanity, and our total cost was about $1500 plus several hours of my time.  (I would have had to spend at least that much time with a big branding firm.)  I think we had entries come in from all over the world.

The logo went the same way.  Once we had a name, we launched a new project at crowdSPRING.  We had about 400 logo entries in 2 weeks.  Any of the top 20 would have been fine, but we chose the Zen-feeling tree you see above.  About another $1500.  So all in, about $3000 for a name and logo.  I think they work well.  Let me know in the comments if you disagree.

Once we had name and logo, we bought a theme for $40, set up an EC2 instance using aBitnami image with WordPress included, added some plugins, and built the website with a non-technical person in a weekend.  All in, $3,040 plus some effort for name, logo, and website layout.  Is it as good as spending $300,000?  Probably not, but it’s certainly not 1,000 times worse!  Now we can spend a heck of a lot more money making products that delight our users.  That’s a trade we’ll take every time.

Hopefully I’ll get enough of the site done to fill in our Techcrunch Disrupt application.  Due at midnight.

At the same time, though, I’m an entrepreneur. Entrepreneurship is about jumping off the cliff into the unknown. Every investor meeting I go to is filled with all the reasons why the company won’t make it. Statistics show the investors are probably right, since most companies fail. There is always more chance of failing than succeeding and no matter what we do, we can’t accurately predict the future from the past – but I take the leap of faith anyway. I’m even enjoying it a lot more these days while working on far and away the riskiest company I’ve ever tried. WTF?

As I get ready for my entrepreneurship class, I’ve been thinking about whether entrepreneurs are crazy idiots. Is there a way to be Taleb-loving rational, skeptical empiricist (a perspective I think you need to have to be a good entrepreneur, even if luck ends up as a major determinant of “success”), and then still jump off the cliffs anyway? Should we all go be dentists or lawyers or accountants and earn a nice living without all the risk? Being crazy or ignorant is certainly one path – it’s easier to jump off the cliff and in some cases, you’d get lucky enough after jumping that everything would work out. You’d be “successful” even though you’re really just crazy or stupid (or both) and lucky. I think that’s the pessimistic view of entrepreneurship, that only the crazy or ignorant people jump and then it’s all luck. Not even Taleb goes that far. No question luck plays a big role in any outcome, but that’s a bit unsettling for someone who makes a career in entrepreneurship. We’d like to think that we can do something to influence the company trajectory along the way. We want to be entrepreneurs, not just gamblers.

At a high level, gambling for a living is much less crazy than entrepreneurship. You can calculate the odds in cards and get your money in the pot when you have the best expected value. Especially after reading Taleb, it seems impossible to be even remotely accurate in assessing your chances of success as an entrepreneur. You have to jump, and the risk adjusted right choice on your first attempt will almost always be not to jump. (If you’ve been successful, whether by luck or otherwise on the first attempt, it can make sense to do it again – your financing options and odds of success are very different your second time around.)

In a few cases, jumping off the cliff can be the rational choice. As a student, for instance, you can take big risks, and if they don’t pan out, you just finish your degree (even if you dropped out of school to start the company) and have a normal career. Students can jump for free. So can some people with cushy jobs who can start companies in their spare time. You can also plan to jump more than once (unless your first one is a wild success and you end up on a beach somewhere). Chances are, any individual jump into entrepreneurship will fail. But the payoff can be quite large for the jumps that don’t. So like a venture capitalist who makes a bunch of bets, where some go to zero and some generate fund-making returns, a sensible entrepreneur needs to plan to make a portfolio out of his or her career. Instead of thinking to yourself as you step off the cliff “if this one fails, I’ll get a real job”, think “if this one fails, I’ll take what I learned and swing for the fences again.” If you’re only willing to try it once, you’re just buying lottery tickets. That can be fun, but it’s not rational.

You don’t have to be a crazy idiot to be an entrepreneur, but if you’re focused only on the outcomes, it rarely makes sense to take the leap. Do it because you love it and because you enjoy the process. As Taleb says about irrational things, do it for the aesthetics. Don’t do it for the returns.

Scott Adams says it best.

I’m too excited about my new company. Huge risk of complete failure, but huge upside if it works. I’ll get paid less, work harder, travel more, my business cards won’t get as much attention – and I’ll be happier anyway. If it doesn’t work out, there will be other great opportunities.

I had a call last week with a Chicago law student contemplating leaving school to do a startup. I did that and it worked out, so the dean sent him to me. He was asking “how do I decide whether to go for it?” There’s no analytical way (as much as I hate to admit that) – it’s a deeply personal, emotional choice.

If my choice to take the harder road makes sense to you, you’re an entrepreneur. Otherwise, you’re not. No shame in that, but if you do a cost/benefit on startup life before launching your own company (as opposed to on the company idea itself), you’ll have a hard time being successful as an entrepreneur.

Apologies to Gatorade.