How 3 College Friends Created The 'OpenTable' For Nightlife [$1M/Year]
Hello! Who are you and what business did you start?
Hello! My name is Ian Chen and I am the Co-Founder and CEO of Discotech, we are essentially OpenTable for Nightlife.
Our company Discotech operates a free mobile app on iPhone/Android and a website (https://app.discotech.me ) which makes it easier for our users to discover events, reserve VIP tables, purchase tickets, and sign up for free guest lists to nightlife events, music festivals, and live shows in different cities.
To date, we are partnered with over 1,200 nightlife venues and music festivals across 50+ cities. Our partners include the biggest names in the industry, such as Tao Group, Wynn Nightlife, and Insomniac.
Since surviving the Covid pandemic which ravaged our industry, we have been generating over $1M a month in gross sales, and netting between 10-15% of that as our net revenue.
What's your backstory and how did you come up with the idea?
I was born and raised in Potomac, Maryland by two Taiwanese immigrant parents. After graduating from high school, I moved to California to attend UC Berkeley for college. It was at Berkeley that I would meet my two future Co-Founders, Mark Wu and Ian Bushong.
After college, I worked as a consultant at Bain & Company out of their San Francisco office. After 2 years at Bain, I moved to Los Angeles to work as an Associate at a mid-sized Private Equity firm called The Gores Group. During my mid-twenties, my friends and I were getting really into the Electronic Dance Music scene and started venturing out to different clubs and music festivals to catch our favorite acts.
The idea for Discotech came to my Co-Founder and me from the customer’s perspective. As the guys in our party who were normally responsible for making plans and getting reservations at different club venues, we found it very challenging to identify reliable promoters in different cities and to work with them. Promoters were always quoting different prices to different people, and they were not always very responsive or professional to deal with.
Our customers love us because we took an inefficient and broken process, and made it a lot easier and more transparent.
We tried to find a mobile app or “legit” company that could help us with event discovery and reservations but were shocked to find that nothing existed. We then realized that this was an opportunity for us to start something that could blend work and passion/fun, and Discotech was born from that idea.
Interestingly enough, none of the founders of the company had any professional experience in the nightlife space. To get smarter about the industry, we spoke to venue operators and owners, as well as promoters in different cities to see if the business could be feasible. We received positive feedback from professionals in the space and learned about the business economics of being a “promoter”.
Once we received verbal commitments from venue owners that they would partner with us once we launched our mobile app, we decided to commit ourselves to Discotech. My Co-Founders and I quit our full-time jobs back in 2013 and went all-in on building Discotech from the ground up.
Take us through the process of designing your first product.
The original inspiration for our early designs came from studying other more established mobile app companies that also functioned as marketplaces. We were bootstrapping the business at the time and didn’t have the funds to hire a designer. Since we didn’t want to reinvent the wheel, we started by looking at apps such as OpenTable, Hotels Tonight (we really liked their layout), amongst others and we “borrowed” designs and UI/UX that made sense for what we were building.
We also were very “frugal” with our legal and corporate setup. We used Legal Zoom to get started as an LLC (we eventually would switch to become a C corp), and I downloaded and edited most of our legal documents from established VCs or legal firms that we're giving away documents on their website. These companies included Y-Combinator, Techstars, as well as big-name law firms that have standard document templates online.
Describe the process of launching the business.
Discotech started as a bootstrapped project. Our team of Founders worked on Discotech without any salary and were covering our own expenses for most of our first year. After we had signed up some venue partners and had a working demo of our app, we were able to go and raise a $450K Friends and Family round. That round was used to cover our business expenses and to hire some early employees to help with software development and operations. The founders did not draw any salary from the $450K round and continued to work on sweat equity.
Be patient and take your time when forming your initial team, it is arguably the most important step in the entire process.
My memory isn’t perfect, but I believe it took around 9 months before we were able to get our first working version of Discotech out on the iOS app store. Getting users, in the beginning, was very slow, as our app was only capable of servicing VIP table reservations, which is not a huge market. A few of the major changes that we made to our product along our journey that helped us gain traction were:
- Adding free guest list sign-ups - This allowed us to target the larger segment of the nightlife market that was more price sensitive compared to VIP table customers. Once we added these features we started to see our organic downloads grow significantly.
- Adding Pre-sale ticket purchasing - Similar to the guest list, we started to see a good amount of traction with ticket sales as more potential customers are willing to buy tickets compared to more expensive VIP tables and bottle service.
- We created a website - We decided to go Mobile App first for Discotech because mobile apps were super hot in 2013 and companies were raising lots of money with app ideas. As we now know, a lot of customers prefer to use web browsers compared to downloading new apps. Having a website made it easier for us to serve customers who weren’t keen on adding another app to their phones.
Hindsight is 20/20, but if we could go back in time and do this project again, we definitely would have gone web first (before developing the mobile app), and we would have targeted guest list customers first before layering on VIP table reservations last.
Since launch, what has worked to attract and retain customers?
For Discotech, our primary source of User Acquisition has been from organic word of mouth, and from having strong SEO for keywords related to the nightlife industry (see examples below). We had some moderate success with paid advertising on social media and Google in the first year or two after we launched, but the cost per download increased dramatically over time and it became NPV negative for us to use that channel.
Growing from organic channels such as customer referrals and word of mouth is much easier said than done. It took us multiple years before our product and service found a decent market fit. As mentioned in a previous segment, it wasn’t until we added features supporting free guest list sign-ups and ticket purchases that we started to see organic downloads take off. In hindsight, it seems fairly obvious to us that customers would gravitate to free/discounted forms of admission. Even though the commissions we make on guest lists are low, having the feature serves as one of the main drivers for attracting new customers and retaining them. Many of these customers end up “graduating” to higher value ticket and table purchases in the future.
Once we get customers onto our platform, much stick around because the product is easy to use and reliable. We definitely had some operational hick-ups in the past, but we were able to learn from our mistakes and improve our service over time. Our mobile app has a 4.9/5 star review on both iOS and Android, with over 10K reviews combined. Our customers love us because we took an inefficient and broken process, and made it a lot easier and more transparent.
How are you doing today and what does the future look like?
While the short to medium-term future is still fairly uncertain, I can say that we are doing MUCH better today than we were one year ago. As you can imagine, the COVID pandemic was disproportionately devastating to the nightlife and live entertainment industry. After seeing very strong signs of growth from 2019 and early 2020, we quickly saw our entire business go to 0 in March of 2020. We had to make a lot of tough layoffs and gutted it out for over a year. After Covid restrictions were lifted and venues started to open up for business, we saw our numbers pick up dramatically. We are already near/surpassing many of our all-time metrics from Pre-covid times, despite a number of our venue partners still being closed. If things continue to progress, we should see dramatic growth in our sales once we hit our operational “full potential”.
My major concern for the short to medium term is the rising Covid rates across the country. We have 0 control over government restrictions and shutdowns, and going into lockdown again would certainly be a huge blow to our business and recovery.
As of July 2021, we are currently operating right around breakeven, with the expectation that we will be slightly cash flow positive in August and September as nightlife continues to recover. Of course, any government restrictions or lockdowns could put a significant damper on our forecast. In June and July of 2021, we surpassed over $1M in gross sales (GMV).
One of the greatest challenges/hurdles in our business is that we have low gross margins. Our business typically runs at around a 12-13% gross margin, which makes it very hard to do paid marketing or affiliate marketing and come out on top. However, as an online marketplace, we have very low fixed costs (we don’t need to take on any inventory), and our costs do not scale linearly with revenue.
In terms of our sales distribution, it is roughly 45% iOS mobile app, 45% web, and 10% Android mobile app.
Through starting the business, have you learned anything particularly helpful or advantageous?
One of the biggest “hacks” that I recently learned that I wish we had taken advantage of years ago is leveraging off-shore labor for virtual assistant and customer success. We have found great success and cost savings working with Filipino and Eastern European contractors that we have found from UpWork. The quality of their work is very high, and the cost savings are dramatic.
As mentioned earlier, we missed a lot of opportunities early on by being very narrow in our vision, which was to disrupt the bottle service/VIP table reservation process. We would have grown much faster if we had tried to tackle the broader nightlife market from the beginning.
In terms of being blindsided, we were sued by a “Men’s Rights Activist” for offering a free guestlist for ladies for one of our nightclub partners in San Diego without offering the same benefit for men. We ended up settling this but it was a painful and extremely stressful process for us.
In terms of luck and forces out of our control, the most obvious thing that comes to mind was the Covid pandemic. We definitely could not have prepared ourselves for it and definitely hit our business very hard. It certainly felt like we lost an entire year or more because of how hard it set us back. In time though, it may turn out that having to survive the pandemic could be a turning point for our business. The pandemic wiped out a lot of our competition, and as a result, we could end up thriving due to it.
Without a doubt, I would credit our entire team for having a ton of grit and flexibility. There were numerous other challenges and disheartening events in our history, such as funding rounds falling through, other key employees and co-founders leaving our business, that almost broke us but we fought through it. For that, I am most proud of myself and my team.
What platform/tools do you use for your business?
I am a huge advocate for Front, which we use as our email and communications management platform. It is a great solution that our team uses to manage all of our communication with our partners and customers in one platform - it covers e-mail, text, integrates with our phone, WhatsApp, Social Media, etc. The front also has a lot of features which allow us to be a lot more efficient in our communication.
Our team uses Asana for project management and to manage our existing tasks.
As mentioned before, we are also a fan of using UpWork to find offshore contractors which have been a huge benefit to our company. I would highly recommend checking it out.
What have been the most influential books, podcasts, or other resources?
Definitely a lot here. Off the top of my head, I have read books by Tony Robbins, and I am a big fan of Tim Ferris’ podcast.
Every entrepreneur should also have trusted and experienced advisors/mentors from who they can bounce ideas and receive coaching.
Advice for other entrepreneurs who want to get started or are just starting?
- Have a very good vision/model for how you will make money and scale your business. I mentioned it earlier but having weak unit economics and low margins have made it much harder and slower for us to scale our business. Look for an idea in a large market with solid margins.
- Make sure your partner(s) are truly motivated in the mission (not just in making money) and are in it for the long haul. Fickle partners who leave early on will hurt more than they help. Be patient and take your time when forming your initial team, it is arguably the most important step in the entire process.
- Have at least a plan B and plan C if plan A doesn’t work out.
Are you looking to hire for certain positions right now?
We are actively hiring for:
1) backend software developers. Someone who is experienced at Python
2) Native iOS developer
3) Native Android Developer
4) Front end web developer
Where can we go to learn more?
- Our website
- Our free mobile app, Discotech, is available on iOS and Android
If you have any questions or comments, drop a comment below!
Discotech has provided an update on their business!
7 months ago, we followed up with Discotech to see how they've been doing since we published this article.
Hey! 👋 I'm Pat Walls, the founder of Starter Story.
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