I have noticed that startups with the fastest growing revenue actively ”find money” for their customers. I think this is something people vaguely understand, but as far as I can tell, nobody’s really named it or defined it. Strange, for something so important and lucrative.
I’ve come to call them ”Found-Money Startups“.
- Found-Money startups only make money if they directly increase the profit of their customers. This can be through cost saving, but more often than not this comes through increasing revenue.
- Found-Money startups should be plug and play. I should not have to significantly change the way I work or rewrite anything in order to benefit from them. Literally
npm install free-moneyis the ideal.
- Found-Money startups should offer scalable money. It’s great if I get back $10 when I spend $1 on you, but if it’s only a onetime deal then it’s not much of a startup. When I can ramp it up to $100,000 with good, definitive return month after month, then you can have all my money.
The directness is important. Many startups only indirectly make their customers money - they provide a service, and it is up to customers to figure out how to make money with that service, or to attribute how much revenue was made or how much cost was saved with the service. Is your tool a painkiller or a vitamin? Does adopting Notion or Slack make our company more productive? There’s B2B software to track social media mentions, or employee engagement. Maybe that helps us make money?
With found money startups, the cause-effect relationship is so tight that there is no question. Incentives are also extremely aligned. The offer can be risk-free - if they don’t make you money, there’s no cost. Sign up now!
Because the revenue source is so simple, the marketing is simple too. “What’s in it for them?” More money. Spend more, make more. Done.
Pricing is simple. You can charge whatever you like as long as your customer makes a multiple of what you make.
Growth also comes incredibly fast (though it may not be sustainable). Most companies struggle to double their revenue each year. Found Money Startups are the only ones where customers might try you out for $10,000 one month and then ramp up to $100,000 the next because you made them money. (This is often the case with Pay-Per-Click/SEO consultants too)
I first had this insight when hearing about a Chicago(?) entrepreneur who got his start by offering to sell ads for building owners. This kid had no credentials and no assets, but he managed to convince building owners to let him lease out the sides of their buildings for banner ads. They would get free money, and he’d get a cut of what he brought in. The proposition for advertisers was clear too - this was eyecatching outdoor advertising for cheaper than billboards.
Most business require invested capital to get off the ground. Property, Plants, Equipment in classical accounting. Modern startups might invest heavily in engineering expenses (classed as R&D) before starting to make millions. This kid had neither. Yet in a matter of months he had a multimillion dollar business selling ads on other people’s property.
What’s more, once his customers saw initial success in a few test properties, they immediately offered up their other properties, and word virally spread, ensuring subsequent triple digit growth.
That’s what happens when you find people money. They throw even more money at you right away. Growth is effortless. You don’t even try to be viral.
The kid went on to do even more notable things as an adult. I’ve forgotten the exact podcast (probably one of the early How I Built This episodes) where I first heard this story, or I’d be able to name the guy. But for sure the lesson I took away was that there was good money in finding money for people. (Sounds silly when you write it out like that, right?)
Here’s a growing list I have of “Found Money” startups:
- Groupon found money for local businesses by offering group buy discounts and aggregating an audience willing to try new things. It hit a $1b valuation in 17 months.
- Stripe found money for developers by making it easier to take money online. It also finds money by offering fraud and chargeback risk protection with ML. (all payments companies eventually become anti-fraud companies - Max Levchin once noted how this was an existential risk for Paypal - another “found money” startup)
- Rocketrip solved the principal-agent problem in business travel, giving employees half the money they save for their own companies and taking 2%. Casualty of the pandemic, though.
- Service: thanks to Johan
- Mainstreet files for government tax credits on behalf of startups - hit $3m ARR in 6 months.
- Coupons: Honey finds money by automatically applying coupons for you. 4 Billion Dollar Chrome Extension! (thanks Hassan)
- Cart Abandonment: Carthook finds money by reviving abandoned ecommerce shopping carts. Numbers not public but case study here. LiveRecover does this with texting (thanks Mitchell).
- ML-enabled ecommerce: Jika finds money by doing A/B testing for Shopify stores. It charges a flat fee now but could in future take a % of increased revenue. Depict.ai does this for product recommendations.
- Salary Negotiation: Candor, Josh Doody, and Levels.fyi help developers negotiate higher salaries, and take a cut.
- Procurement Negotiation: Buyer offers negotiation as a service
- AWS Spend: Corey Quinn made a career out of reducing AWS bills. Usage.ai automates this. Spot (formerly SpotInst) arguably does this too, but probably takes more retooling than the other solutions.
- Underutilized Fixed Assets: per Kevin Kwok
- Please suggest more to me and I’ll add them here with credit!
Some companies may not actually be “Found Money” businesses, but they may market their side projects or growth channels as “Found Money” - e.g. Geico’s famous ads asking for 15 minutes of your time to save 15% on your insurance. They don’t actually know if they’re gonna save 15% for you, and they cannot magically save you more money if you spend more on them.
Regardless, the ad works because it promises “Found Money”. So perhaps the “Found Money Hypothesis” is good for more than just startup business models.
To drive this point to an inevitable conclusion, found money marketing may also be good for fraud as long as no one looks too closely (and many don’t).