Cubit’s Lean Startup Journey to Profitability

By SUSAN LAHEY
Reporter with Silicon Hills News

The founders of Cubit had a list of failures for each of their five years, but decided not to enumerate those for the crowd of 150 at Austin Lean Startup Circle at Capital Factory Tuesday night. It was too depressing. But Kristen Carney, co-founder of Cubit, said that as the five years progressed, the number of failures and successes evened out and eventually, the balance weighed in favor of success.
That was the story of Carney’s and Anthony Morales presentation: Cubit Case Study: Five Years of (Mostly) Failures and (a Few Successes) which they demonstrated with Paul Graham’s startup model.
Cubit packages demographic data for customers including small businesses, nonprofits and government agencies. In 2008, Carney was working for an environmental engineering firm studying the socioeconomic impacts of new roads. She would pull data, create drawings, discover that plan wouldn’t work, pull more data. She knew what a pain point data collection could be. So she and Morales, who worked in web design and programming, built a technology to pull together demographic reports with data that’s freely available on the census, but not easy to mine if you’re not a data expert. They founded Cubit at Capital Factory with $20,000 seed investment.
“We started off with the 37signals model of ‘I’m a customer, I know what the customer wants,” Carney said. As a result, they didn’t listen carefully enough to mentors. She and Morales created a very simple site with formulaic reports and instantly had customers. Since it was a “crappy” site, yet people were buying, they knew they were solving a problem. But the vision they had included maps, which was more involved. And that was one of their first mistakes, she said, clinging to a vision rather than selling what customers were buying.
By 2010, she said, they were in Graham’s downward slope of wearing off the novelty running out of money and heading for the trough of sorrow. They made 1,000 cold calls and sold nothing. They decided their first priority was “feed the family.” This slowed things down a bit because they alternated working on paying jobs and working on Cubit.
In 2011, they launched into another common mistake of startups. They started a different business.
“There’s this idea of my first business is failing. I should start a new business and do it right this time.”
They created a process to automate handwritten thank you notes. This was an eight-hour startup that slowed them down even more.
“We were a tiny company, we had no business trying to do both,” Carney said.
But 2011 was also when Carney started digging into the idea of lean startups. By 2012, they closed the thank you notes business and focused on Cubit. But this time, they put a ton of effort into finding out what it was customers really wanted.
They put a “buy now” button on the landing page with no specific offer, surrounded by space and no content, just to see if people would click on it. And they did. They started tracking the data to see who was clicking and what they were asking for. They hooked the button up to a Paypal account and Morales’ phone would go off at all hours of the day and night when customers bought a specific data set. He’d have to get up, pull a PDF and email it to them.
Then Carney and Morales really started digging into the existing pain points. They used Google Ad Words to drill down the terms people were searching for and they started reading Amazon reviews on books about census data or business marketing research to find what customers were complaining about. They created Wufoo forms that would collect data from users, used usertesting.com and purchased at least $100 worth of Google adwords, which noticeably improved their SEO traction.
They also tapped nonprofits who dealt with small businesses, offering to pull free data for any clients who would participate in an interview. Four non-profits turned them down in disgust. The last has become a valuable channel partner.
They then conducted interviews using the Spin Selling methodology written about by Neil Rackham and Bob Kalomeer. Carney, who considers herself a woefully bad saleswoman, had great success by asking potential customers if they would take 10 minutes to explain their project to her. Almost no one refused. When they told her of their data need, she’d also point out that all the data they provided was available for free. To that, customers would explain why getting the data themselves was too hard or time consuming, providing valuable information. Finally, she would ask how the data they sought would help their project.
All of it was rich with information. In addition, she added traditional “lean” interview questions like “What keeps you up at night?”
Another big issue was pricing. “Pricing is just hard. It just sucks. There’s no fun way to do it,” Carney said. “If we were in the interview we’d say hey, would you pay $200 for this report and they would lie to our faces and tell us, ‘Yes, we would pay $200 for this report.’” Ultimately they came up with pricing from $20 for standard reports to $12,000 for some custom reports, based on raising prices until some customers dropped out.
Their overhead is small, since they work from home and use data that’s free. And after five years, Carney said, they’re Whole Foods profitable, meaning they can afford to shop at Whole Foods. They’ve hit the better end of Graham’s curve.