Ello Cofounder: ‘We Have NO Exit Strategy’

Everyone is obsessed with why Ello will inevitably sell out, against the promises of its investors, founders and developers.

(Photo via Zé Carlos Barretta, with obvious alterations)
(Photo via Zé Carlos Barretta, with obvious alterations)

It’s been about 48 hours since interest in Ello flew off the damn charts, and the number of think pieces about its inevitable downfall is … well, expectedly enormous. Outside of the Medium.com designer circle-jerk about how unintuitive the interface is or complaints that a product in beta testings feels incomplete, most of the focus has been on Ello’s promise that they’ll never sell user data or put ads on the site. Mainly the claim is they’re either lying or just wrong, with headlines like “Ello Says You’re Not a Product, But You Are.”

The first piece of the why-Ello-is-doomed puzzle is their proposed freemium model, which many think just plainly won’t work. Instead of selling ads, data or putting up a paywall, Ello will eventually offer on-site purchases like multi-user logins, layout adjustments, or new ways of organizing your follows beyond Ello’s current Friends/Noise system.

“This model works across some of the most successful companies in the history of the Internet,” Ello co-founder Todd Berger told Betabeat. “Why is that such a stretch in the social networking environment?”

It’s not. LinkedIn and OkCupid both offer premium membership services, and Tumblr—perhaps the closest thing we have to an Ello-style incumbent—has run a marketplace for pay-for-play design upgrades for a while. Then again, no one has ever tried it as a central business model, at least not in social.

But it’s been incredibly profitable for tangential sectors. Profitable messaging apps sell just these kinds of cosmetic extras in the form of custom stickers and emojis, and one look at Kim Kardashion: Hollywood can show how in-app purchases can drive success in the gaming space. How did that work out long-term? WhatsApp was acquired by Facebook (META) for $19 billion, and Gluu Mobile, Zynga and King Digital are all publicly traded companies.

The difference is, Ello isn’t concerned about an exit. The most brutal, well-circulated criticisms of Ello come from people saying that since they took a small investment from Vermont-based FreshTracks Capital, their only option in the long run is to go back on everything they believe in and sell to a buyer or go public—a concern that founder Paul Budnitz told us is “silly.” Ind.ie founder Aral Balken, who boasts that he consulted with Ello briefly before they launched, wrote an impassioned screed against Ello’s future called “Ello, goodbye,” encouraging everyone to swear off Ello because of their investment:

Here’s how venture capital works: you go to an investor, before you’ve even built the thing you’re building and you tell them how you’re going to exit. It’s called an exit plan or exit strategy[…] So here’s what I’m doing: I’m leaving Ello. Before it can grow. Before it can exit. And I suggest that you do the same.

“I’ll be frank,” Mr. Berger told us earlier today, “We do not have an exit strategy.”

Is it naive not to have some kind of exit plan? Yes. But it’s not like they don’t have a business model, and their VC is willing to play the long game. Cairn Cross, the investor in question, has doubled-down on Ello’s promises of privacy, telling Gigaom that he practices “small-town venture” and has no intentions of pressuring Ello to change their values.

“We’re talking about 400 grand we took from super-lefty, forward-thinking Vermont guys,” Mr. Berger said. “Our investors are just about the least evil people you’ve ever met.”

Wired’s think piece focused on the idea that unlike Mark Zuckerberg, who has always been an ad-selling business monster, the Ello co-founders (based on the manifesto) don’t seem to be concerned with running a business, saying that their high-minded ideals are “unrealistic, and will cause the project to fail.” But it’s fallacious to say that the founders aren’t businessmen.

The seven founders, who hold a majority stake of around 82 to 84 percent of Ello, all come from successful entrepreneurial backgrounds. Paul Budnitz created Budnitz Bicycles and Kidrobot, Mr. Berger and his partner Lucian Föhr have a design studio, and the other four founders come from Mode Set, a coding collective with a client-based model.

“We are a business,” Mr. Berger said. “We have shareholders and a board, but how better to keep your founders in check than a fucking manifesto?”

Ah, but there’s always that manifesto. It’s the document that grabbed everyone’s attention to begin with, and now is haunting them, not because they’ve betrayed its values, but because…

“It might be a big leap in the tech world to make claims you intend to uphold, but that might be the difference between our team and every other tech company,” he said.

Mr. Berger blames the fear-mongering on the venture-obsessed, exit-focused mindset of tech media, laying hate down on a start-up that wants nothing to do with the typical start-up story and culture. Yes, they may be designer turtleneckers, techies and upper-middle-class white men, but they despise the scale-obsessed narrative of the early stage start-up.

“We may want to make a sustainable business,” Mr. Berger said. “But we don’t want to be billionaires.”

Ello Cofounder: ‘We Have NO Exit Strategy’