Rand started the company Moz in the SEO software space. It grew rapidly from just a couple of employees into a million dollar a year venture-backed business.
Three years ago, Rand left Moz and started Sparktoro. At the same time, he wrote and published his book, Lost and Founder, which talks about both sides of the VC world.
Sparktoro is an LLC that pays dividends and is unique in the software space. They launched their product, the Sparktoro Audience Research Tool, in April of 2020. They have a little over 500 customers and about 30,000 people using the free version of their tool.
The success rate of VC companies is about five percent. That means that only one in every 2000 companies truly hits it when it comes to the VC model. Rand explains that the whole VC ecosystem is pretty messed up because much of it is prestige-focused and about marketing, with the idea that if you are a serious founder, you should be pursuing venture.
Rand points out that those with VC companies who are not building a venture-backed or hyper-growth-focused business pejoratively, use terms like “lifestyle business” to dismiss anyone building a company designed to have healthy, profitable, long-term growth, survive for a long period, and be successful for its founders, employees, and customers instead of its investors. Rand sees that as effective brainwashing media manipulation.
Rand sees that venture capitalists are no different from invested interests who want an environment to exist in a certain way, primarily for financial reasons. And if venture investors were to apply their model with ordinary income tax rates, that model would not work at all. It would never beat the market for stock market returns.
What you get is essentially a massive furthering of income inequality because few winners make billions and there are thousands of losers, and that is not good for a macro-environment, a political situation, or monopoly power in technology.
If you are a founder, or if you work for a company that is evaluating VC funds, the top three things to be careful of are:
- Be aware that it is an extremely high-risk model. The five-year survival rate of venture-backed technology businesses is a little under fifteen percent.
- The problem of getting stuck in the middle is not well-understood by people thinking about raising venture. They can see the next two to four years but they cannot see the next ten years.
- Most people who try to raise venture don’t consider that there are alternatives.
Before starting Sparktoro, Rand had difficulties understanding audiences and scale in terms of the attributes of potential future customers and the market as a whole, and what that meant for how he should have been creating their market content, describing his product, running his ad campaigns, how he should have been designing his product, or where he should have been doing all those things. He thinks many businesses do product design and development, positioning, marketing, and sales without that knowledge. That hobbles their opportunity. He sees two approaches to that:
- Seek to better understand your top few customers and what makes your product resonant for them, and then replicate that to find more people like them.
- The alternative is to target a big market to spread your revenue out amongst a large number of customers.
The key is the research and understanding element.
If a company wants to scale or understand a market, the best way to start with audience or market research or would be to have a core problem that you are trying to solve, in getting the answer, you will have strategic and tactical decisions that you could make in a better way, that would improve the business.
Something that has worked successfully for Rand has been using the practice of digital PR. That is going and talking to people who already have channels and audiences, and offering to add value to that. Sparktoro essentially helps people find those products and places to be able to do that.
The number one way that Rand would approach increasing the number of customers, based on your expertise and skill would be to go and find marketing channels that are interesting to you personally and provide unique value in those places.
Rand approaches increasing the amount that every customer spends with him is through:
- Pricing and positioning of pricing. To drive that up, you can focus on making yourself in the competitive set with the people who don’t provide public pricing.
- Once someone is a customer, keep providing them with more and more value.
Rand thinks that increasing the frequency with which customers buy gets driven by the need and the addictive property of your value solution.
Connect with Rand
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On his blog
