How Noah Kagan Started Appsumo Using His Customer-First Framework

In a world where a number of business models are being disrupted - AI, SaaS, advertising, etc. certain businesses tend to be a lot less stressful. (You’re not constantly worried about OpenAI eating your lunch.)

One of those is AppSumo’s - your marketplace of buyers and sellers aren’t going away the next day and churn your customers. And by hiring talent to create marketing content, run digital advertising, etc. you can skip out on a lot.

AppSumo now does over $80M in revenue, is highly profitable and is a market leader in their marketplace.

Below is Noah’s framework for building his business, going into detail about how he started Appsumo and how he got his initial customer base.

A bit about AppSumo

Appsumo is a lifetime deal marketplace where buyers go to these marketplaces to purchase cheap software. For the sellers - they get a cash injection and for the buyers they “invest” in software that they think might not be amazing today but will be amazing as they grow (e.g. Zapier and Intercom were early AppSumo deals that remain relevant to this day).

In his recent book, he detailed how he starts profitable businesses in 1 weekend. And for many - I believe this becomes the fastest validator of profitable ideas.

The key lesson? Make the ask. Here’s his approach.

Usually, entrepreneurs validate their ideas this way (I’m pretty guilty):

You get a lot of sign-ups (which is really people who want to be updated) but you still have a few questions that need to be answered:

• how are you going to get paid? (business model risk)

• what do people want to pay for? (business model risk)

• Is your product good enough to be paid for? (execution risk)

• did it reach your desired segment or have you misunderstood who your sign-ups are? (audience assumptions)

This is great - except you now have to spend months building software with the hope that it’ll pay off. But what if it doesn’t have to be this way?

Noah suggests a different approach for first-time entrepreneurs. Ask first, build second, distribute later.

From this - you learn 3 things:

• You cut through the bullshit and your idea gets validated instantly.

• You skip niceties with a lot of people - many people say they will buy but don’t often buy. It is what it is - so best to save time (most sales people/entrepreneurs should appreciate being told the truth)

• People might say “Oh I wouldn’t pay you for X but would pay you for Y”. You talk to 2-3 more people and all of a sudden - you have a business

Downside of this approach?

• You burn relationships if people get tired of you selling to them (don’t do this too much - if you have multiple things to offer 1 person, you’ll have to think carefully about what and why)

• You have to talk to people (every introvert’s nightmare - but something to get used to in business)

So below is his exact correspondence:

Noah’s MVP of AppSumo was selling Imgur Pro to early Reddit users who used it for ads for $8/year (a massive discount for Redditors and a massive cash injection for Imgur).

One of the risks he faced was would Imgur actually want this? He validated it by asking Imgur CEO. This was probably his biggest risk because if Imgur had high cash-flow and this would have avoided it, it would have been the biggest waste of time.

This was the email:

It worked. He booked a meeting. Why? He could get Imgur a shit tonne of customers at no cost for him.

Now the question was - how would he distribute? He did something different to a lot of first-time entrepreneurs. He didn’t just post on Reddit (the common thing Entrepreneurs did). Instead, he left cold-emailed their founding engineer.

Chris’ reply “Our users love Imgur. They’ll be thrilled to get a discount.” was just what he needed to distribute the deal and guarantee a success.

For many early entrepreneurs, distribution and market beat product. Here, Chris eliminated 3 points of failure just from the early asks themselves.

• Distribution failure - by ensuring the founding engineer supported it

• Product viability failure - by ensuring Imgur CEO was cool with the discount

• Execution failure - each email he wrote had an offer that was sort of irresistible to both parties. I would also guess he would have emailed every few days to make sure they received his actual email.