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Interview with Ian Chen, Co-founder and CEO, Discotech

Ian Chen is the co-founder and CEO of Discotech, a startup that offers up bottle service booking, discounted tickets and more to clubs and nightspots. Ian talked to us about the rewards and challenges of being an entrepreneur, plus how important it is to manage lifetime value (LTV) of a customer versus customer acquisition cost (CAC) in making a successful company. (We also recently posted a video version of this interview).

What is Discotech?

Ian Chen: We like to call ourselves the OpenTable for night life. We develop a mobile app and website, and a platform which makes it easier for customers to one, discover events, two, reserve VIP tables, and three purchase presale tickets, and lastly and most popular on our platform, sign up for free and discounted guests lists to go to clubs, pool parties, and concert venues,

How did you get started on this?

Ian Chen: In my previous life, I was working in private equity in LA. I worked a lot and didn't have a lot of free time, but my past time was going out. While I was doing that, I figured out it was really inefficient for a customer like myself, trying to spend money, to actually go out. I had to find different night club promoters, call them, text them, and a lot of them were not the most professional people in the world. I realized that there was the opportunity for technology to disrupt this space, in the same way that you saw Booking.com and Kayak.com disrupt travel agents, and OpenTable.com disrupting restaurant concierges, so really just applying the same model they did to the inefficient world of night life.

How are you funded?

Ian Chen: Initially we were very lean and bootstrapped with friends and family. We did another round with angels and early customers of Discotech. We have been very focused on burning a lot of cash. Because of that frugalness, we're still around today, where a lot of our competitors—including those who raised many more times funding that we did—are no longer in existence.

What has been the hardest part of a startup?

Ian Chen: There were so many challenges in the beginning. When we first started, we had the same idea many other startups had, including one that had raised money from Mark Cuban on Shark Tank. That was, let's disrupt bottle service and VIP tables. When we started the app about six years ago, that was the idea an vision. We started to get a little bit of traction, but we weren't getting the organic, hockey stick growth we needed to grow the business. So, we had to pivot a little bit. That pivot, around year two or three, was key for us. What we did, was add the ticketing component, which opened up the app to people who weren't the one or two percenters, the big spenders. The big driver for us was the guest list. We started partnering up with clubs getting exclusive guest lists on our platform. It's free or discounted admission to clubs early, as long as your name is on the list. People started talking about us, there was lots of word of mouth, because it really democratized night life to anyone who wanted to go out.

Why would a club say they want to work with Discotech to get people in the door?

Ian Chen: I would say there are some clubs, in their peak, who say they don't need more traffic. However, it's a very competitive market, and there are a lot of clubs and a lot of cities, and in every city we are in there are venues looking to drive more foot traffic through their doors. A couple of reasons why it is beneficial for them. One, is by having them show up early, that means guests order more drinks at the bar. That means they earn back what the pay to us for commission very quickly. Drinks are very expensive at a club, $15 to $20 a pop. Second, the VIP table customers make up a lot of the revenue at a club, but what you don't want to happen is have the big spenders show up at a club and it's empty and there's no party, because then they're not going to drop the big bucks. By working with them with a guest list, we fill up the club, we create a party, and everybody's happy.

How has it been as a startup founder? It's quite a difference between running a startup and private equity, we imagine?

Ian Chen: It's completely different. There are a lot of pros and cons. I'm definitely happier as an entrepreneur, which is why I made the leap. Certainly, you can get paid a lot more in private equity than as an entrepreneur by many factors. A lot of people gave me the feedback, “You're quitting a job in private equity to do a startup? What's wrong with you?” My mom was stunned, and was in disbelief, and she was not okay with it. But, I think, the vision, the mission, working with my friends and people I care about, and building a company I believe in, has a lot of intrinsic value and satisfaction. Now, I don't get what I call the “Sunday Scaries”. Before, Sunday night before going back to work in private equity—if I hadn't just been working all week anyways—I used to get this anxiety. I was so sad the weekend was ending. Now, I don't have that weekend when I wake up. I'm happy to tackle the day, and work every day.

So you feel a lot better now you are an entrepeneur?

Ian Chen: Absolutely! The first two and a half years at Discotech, we did not pay ourselves a salary. We were living off savings, and we were able to cover living expenses, but we figured out really it's not the more money the merrier, and definitely didn't need that to be happy. Finding something you're passionate about and working on it every morning is very rewarding. Doing a startup is definitely stressful, and when we weren't sure we were going to make it there were hard times, but now I'm definitely glad we did it.

What was the decision point for you to make your early pivot?

Ian Chen: We were looking back at our numbers over those two years, and just seeing that at our growth rate, and we modeled it out, and we figured out that we were just not getting enough users or revenue to justify what we were doing. We realized we needed to change plans and threw a Hail Mary, and it stuck.

What's next for you?

Ian Chen: Right now we're really focused on growth. We're expanding to new cities, and adding new venues. We started with night clubs, but we've since expanded our offerings to pool parties, concerts, and festivals. We're going to continue to do that, get more users, and see where that takes us.

What's the biggest advice of advice you've give another entrepreneur?

Ian Chen: Focusing on the business model and unit economics is extremely important. One of our biggest challenges was profitability. Our margins are fairly weak, just ten to fifteen percent margins. In an ideal world, we'd like that to be forty to fifty percent. If that was the case, the name of the game would be so different. The LTV versus CAC (Editor's note: life time value versus customer acquisition cost) would be so different. That changes so much depending on your margins and unit economics. So, pick an industry with high margins, or where cost of acquiring is very low. At the end of the day, it's all about balancing LTV versus CAC, and if you can make that equation work for you, you'll be very successful.

Thanks!