SpotHero is a company started in 2011. 10 years later, SpotHero has turned out to be a major VC-backed company! Here’s a guest post from the founder.
I had no idea what I wanted to do in the future. I only knew that I didn’t want to continue working at the bank. I needed some way to support myself, and it would have been foolish to just quit such a well paying job.
I needed to figure out a few things first. I needed to figure out how much money I spent each month so I could comfortably build a sizable savings in order to figure out what I wanted to do with it later. I detail this process here: How I Was Able to Retire at 24
I threw around a lot of possible scenarios including starting businesses and biking across Africa, or moving to France to study French. I didn’t know what I wanted to do, but I knew in time an idea would come and then I would strike.
How much do you need to leave your job and start your own business?
It’s different for everyone, but depends on a few things. First you need to find your “sustainability” rate or how much you spend each month (your upkeep costs). If this is $2,000 a month, you need to save $24,000 in order to live for a year without any income. Multiply this number by 150% to take into account any unforeseen expenses and taxes. This is $36,000.
Now, if you need $5,000 or $10,000 to start your business add this to your number. The numbers are going to be different for everyone depending on what your “sustainability rate” is, and the estimated costs for starting your own business.
Finding the idea
Living in Chicago, parking has always been a huge pain. Parking in Chicago is expensive. Chicago also has a private army of parking ticket enforcers that ticket and tow cars mercilessly. Parking at sports venues is the worst.
My friend Jeremy Smith lived in Wrigleyville right next to the stadium where parking is so sparse that parking space owners will rent out their space for games by holding up a sign, waving a car into the space, and taking cash.
The SpotHero idea was formed to implement this through an online parking reservation system. This guaranteed spaces for buyers, and easy listing and peace of mind for sellers. SpotHero was spawned. We decided to go into business together and Co-Founded SpotHero.
How we started SpotHero
We set up an S Corporation, and each put in $5,000 from our savings for a total of $10,000 we would invest in the business. That was the easy part. Finding people we trust to work with to develop the application that were also cost effective and got things done was another thing.
We used 99 designs and Crowdspring for a logo and some design work. These websites are a great way to get work done in a cost effective manner while being able to have an idea of how much it’s going to cost beforehand. People bid for your project or you can set how much you’re willing to pay. However, the drawback is you’re only doing a project and once you pay, it’s over.
We were looking for people we could trust and have more of an ongoing relationship with. There are so many ways to do things. The amount of choice can be overwhelming. Especially without a technical background, you are at the will of whatever they say. I’ve never coded anything in Python before.
How am I supposed to know if the task was supposed to take 2 hours or 10 hours? There’s a wide range of hourly rates for work. If someone’s rate is $100 and they take 2 hours to do a task that someone with a $50 rate takes 10 hours to do that’s a big difference. There’s no way to know until it’s too late. T
hen there are the technical decisions. Do we use a CMS? Code in php or python? Which database to use? These are things I had not been familiar with at all. With all these things to think about, what were we to do?
We looked to our personal network of friends and family.
I reached out to bloggers I had interacted with over the past year with my blog Lifestyle Ignition. My Uncle made the introduction to someone who became our programmer. We were able to work out an agreement where we would pay some money up front, and then more later on, once SpotHero started taking in revenue. This allowed us to save on development costs in addition to forging a long term relationship with someone who had a vested interest in the entire project’s success.
For a design team, we wanted someone local where we could talk to and interact with instead of over the phone outsourced far away. SpotHero’s other Co-Founder Jeremy had a close friend who owned a design company. We had a meeting and were able to work out an agreement. It can be overwhelming to get everything together, but finding people you can trust and get along with makes things much easier.
Ideas are just ideas. Execution is everything
There are tons of good ideas out there. I come across good ideas every day. Though it’s not every day you find someone you believe in, get along with, and trust who is motivated to put those ideas into action. Because without action, ideas are just ideas and nothing more.
We are both financing the startup with our own money and currently living as cheap as possible while we bootstrap this startup to launch. Since SpotHero has a revenue generation model from the start, we hope to grow and become profitable from the earnings from commissions we will take by facilitating parking transactions. However, we are not opposed to raising capital under the right circumstances.
Capital expenditures have three major areas. Design, programming, and marketing. We made estimates based on research for each item, but the estimates are hardly ever correct. The most recent purchases we had never even heard of a few months ago. (Github, Balsamiq Mockups, etc.). If something goes over budget, we try and scale back the scope of the idea.
We want to get a working product up and running as soon as possible. We have foregone many features we once thought were critical in the name of getting the product out there sooner while saving time and money. We also try and use other services in the framework of our application where possible to save on capital expenditure. For example we plan to use Amazon FPS for our payments processor because we can use their framework, instead of building our own. This saves time and money, in addition to lessening complexity and increasing security of the site.
To be an entrepreneur is to turn ideas into action.
There are a million aspects involved in turning the ideas into action that I have never encountered before. It takes a willingness to adapt and to constantly work hard in the midst of an uncertain far off future pay off. It feels great though to be working on something I am passionate about while creating something of value.
Now, the first thing that comes to mind is, well what happens when that money runs out? I am hoping that my start up becomes profitable before that happens. This might sound scary to some, but I am willing to take the risks if there is a chance I can do something I am passionate about and live the life I want to live. Will I succeed or fail, I have no idea, but I’m willing to take the risks to try.
Would you rather make $15-000-$30,000 a month and “work” only 2-4 hours a day? Or, would you rather make minimum wage working 12-18 hours a day for two years with a 25% chance of selling your business for $100 million dollars and netting yourself a cool $25 million? If you don’t, all you are left with are your experiences.
To me the general tone is not so much about specifics regarding money, but a mentality. Do you complacently accept something that is comfortable, or do you take the risks for greatness? I go for taking those risks. Complacency is evil.
Don’t Join A Startup If You Want To Get Rich: Baremetrics Case Study
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Starting A Website Like SpotHero Today
It’s been over 12 years since I started Financial Samurai and I’m actually earning a good passive income stream online. The top 1% of all posts on Financial Samurai generates 31% of all traffic. The average age of the top 1% posts is 2.3 years old. In other words, after putting in the hours to write some very meaty content over two years ago, 10 posts consistently generate a monthly recurring income stream that’s completely passive.
I never thought I’d be able to quit my job in 2012 just three years after starting Financial Samurai. But by starting one financial crisis day in 2009, Financial Samurai actually makes more than my entire passive income total that took 15 years to build. If you enjoy writing, connecting with people online, and enjoying more freedom, see how you can set up a WordPress blog in 15 minutes with Bluehost. It’s cheap and easy to start! You never know where your adventure will take you.
Hi Jeff, just saw that you asked about submissions to gain funding. We have applied to Y Combinator, Excelerate Labs, and Captial Factory programs.
Financial Samurai says
How much money do you nee Mark? One of my ideas is to create a Yakezie Venture Fund as part of my business. Thx
Randy Addison says
Starting your own business is the best way to earn more, with lesser of your time for an early retirement. This is the best retirement plan there is. Put up your business and manage it well.
Jeff, we’re still developing the application, but have a budget for the entire project of $10,000. So far we are on target. Building software and a website is an iterative and ongoing process. It’s too simple of a question to ask how much an entire project costs with so many levels of functionality and complexity. I will have more specifics as the project progresses.
Right on JT! Totally it’s better to take that risk, than to wonder what “coulda, shoulda, and woulda happened”. Would be nice is SpotHero became as successful as McDonalds :)
I’m definitely not a big risk taker. It just isn’t in my personality but I’m trying to change that little by little. I think it’s fantastic there are so many entrepreneurs out there. I’m always impressed with how people run their own businesses.
Sandy @ yesiamcheap says
My comment is less about the entrepreneurial mindset but about the product. Why hasn’t spot hero been rolled out to cities that are also notorious for bad parking like New York!
Financial Samurai says
I have to think it’s due to a constraint of resources & capital, but I’ll let Mark answer that one!
ps Who drives in NYC anyway? Taxis are super plentiful and cheap, and subways are everywhere!
Sandy @ yesiamcheap says
I’m sure there’s some VC that wants to toss money at Spot Hero for an equity stake…or maybe a deep pocketed Angel who happens to drive in New York and suffer the apartment rental equivalent price for private parking. Alas, non-cabbie New York drivers are a dying breed, but I will not go gentle into that good night.
Financial Samurai says
Perhaps. There is tons of liquidity sloshing around, so you never know!
We’ll see what happens with VC or angel funding. As for NYC, that’s definitely a city high on the list we want to target. As it stands our software we are building is flexible and will allow it to support NYC without constraint. It can grow organically in NYC or any other city. However, in the beginning, we are only starting with Chicago with our focus and our marketing. Once we get things down in Chicago we’ll move on to another city.
JEFF LANE says
100 MILLION is the goal. PERIOD.
A billion would be nice.
But I plan on retiring while I am still young enough to enjoy my money (I’m 24).
You can work as much or as little as you want.
I’ve recently added an intense workout program and diet into my business and the results are stunning.
I am now able to work much longer hours with much less stress.
Leverage is the key to making that 100 million dollar money.
Everyday I try to increase my leverage just a little bit more.
At the end of the day execution is king.
Set a goal and don’t stop until you have reached it, then set a higher goal.
Mark and Jeremy are well on their way to building an empire of their own.
I’m enjoying my court side seats. It’s been a great game so far.
Let’s continue making 2011 a year for the history books.
For me, I have to like what I am doing. If I enjoy it, I will be willing to put in the time to succeed. I went into blogging because I enjoy writing about personal finance. The earnings potential is my scorecard. My goal is to be good at it, the money will follow.
Eric Poulin says
Only after experience being an entrepreneur and financial education would I also choose the monthly income rather than the potential big sell out. For a business to survive and thrive, its all about cash flow.
Eric, we’re hoping that we can grow our business through cash generated by the business. However, we are amenable to funding under the right terms.
Financial Samurai says
Thanks for sharing your story. Perhaps some follow up questions, yes?
1) With regards to marketing expenses, where would the biggest dollar sink occur? Is using Social media, trying to get interviews in the media etc not an effective enough way to spread your message? Are you thinking about putting out advertising using Google or FB for example?
2) Why did you decide to go with an S Corp instead of just a plain LLC? What are the advantages in your mind of an S Corp over an LLC?
3) Does the company just have two owners, you and Jeremy? Is SpotHero Jeremy’s full-time venture as well?
4) You talk about complacency. Is being complacent not one of the keys to happiness? If we are constantly striving for more, how can we ever be happy?
5) How do you know whether you have succeeded or failed? What are the metrics you use to determine success? When will you know whether it’s time to wrap it up?
Thanks for sharing some follow up thoughts!
Would love to answer some follow up questions.
1) Biggest expenses for marketing would be sponsorship of local driving events, PPC, and online advertising. Social media and interviews, PR, media, etc are effective but are “pops” and “spikes” in traffic that are unpredictable. They are invaluable, but we’re not relying solely on that type of avenue.
2) We went with an S corp because of the initial cost of the filing fee $600 vs. $175 and because of ownership flexibilities.
3) There are currently only two owners. Jeremy and I are both working on SpotHero full time.
4) 100% disagree that being complacent is one of the keys to happiness. Being complacent means being satisfied, but doesn’t necessarily mean being happy. Being complacent also means you’re unaware of potential dangers to your current state of being or of opportunities that will make you happy. I think a lot of happiness is that striving. It’s the journey, not the destination. I’m so happy right now striving to achieve success with SpotHero. While success will make me happy, a large part of that happiness is the ride there.
5) It’s difficult to define the metrics for success or failure because it’s a bit early. There are too many unknown variables. It depends on how much money we’ve put in, do we have financing, are we hitting certain goals. Do we have enough money to keep going and still be able to eat fund the company and live and eat? It’s too early to tell, but we’ll have more specifics once we officially launch.
Thanks so much Sam for allowing me to post about my entrepreneurial journey here. Please let me know if there are any follow up questions. Also, hope you had an awesome vacation!
Financial Samurai says
Hi Mark, thx for your thoughts. I also love reading about entrepreneurial stories at whatever stage they are. When is the official launch?
Our current target for launch is mid April. We’ll see how it goes!
Barb Friedberg says
As the daughter of a successful serial entrepreneur, wife of a (side business) entrepreneur, and an entrepreneur myself; the biggest misconception about being in business for oneself is that you can work a little and make a lot. Being your own boss means working harder than you have ever worked before and continuing to tweak your ideas. With no disrespect to Tim Ferris, there is no “4 hour work week.”
Personally, I would categorize making $15,000 to $30,000 per month as “greatness”. Why would I need $100 million if I already had that kind of income rolling in by only working 2-4 hours per day? I could quickly save up millions on that type of income, and have essentially a 100% chance of fully retiring in less than 10 to 5 years.
I am not even sure what I would do with $100 million dollars. That’s a whole different daydream. But I do know that with $30,000 per month, I could buy a new income property every 2 months. I could very quickly build a huge real estate portfolio, which is what I am currently working toward doing, albeit at a much slower pace.
Financial Samurai says
Ahh, then you would be the outlier in our poker game Bogey where I brought up the question. Everybody chose the latter, to go for the $100 million bucks because they don’t want to have any regrets not going for it just in case things went crazy well.
$15-30K/month gross is nice, and you can pretty much live a great life with you and your spouse and perhaps even a couple kids. But, there are limitations.
We currently bring home about $7,300 per month and only spend 60% of that, saving the other 40%. So if we had $15k to $30k per month, we could do anyhting we wanted really. that would free up several thousand per month for other investments which would in turn begin to throw off more cash.
If i could do anything in the world full time, it would be investing/managing real estate. I do that on the side currently, because building a portfolio of RE large enough to live off would take more capital than I currently have.
Financial Samurai says
$7,300 is net after taxes right? That’s great you save 40% of it ever month.
I used to be very into real estate, but I’ve come to realize everything gets old and maintenance is a pain. Also, do to the ability to make money on the Internet with little capital, I’m spending more of my time thinking about online businesses that having more properties.
Yep, that’s net of taxes, health insurance, and also 401k contributions.
I agree that you can make money on the internet with much less capital (really, almost no capital required). But to be honest, even though I am 26 years old, I really don’t know all that much about making money on the internet. I just started my blog about a month ago, but I really have no idea what I am doing!
Really estate has always been a passion, and that’s my #1 reason for pursuing it.