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In Episode 564, Rob Walling chats with Sol Orwell about growing his website, examine.com to millions of views per month, changing revenue models, and the importance of doing customer interviews.
The topics we cover
[2:14] Intro
[3:06] How Examine started
[7:21] Examine’s differentiated approach based on scientific research
[9:33] 10,000 paying subscribers
[10:59] Building trust through transparency
[15:26] Interviewing customers
[21:14] Getting hit by Google
[26:52] Sol’s stunt marketing pages
Links from the show
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
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Rob: You guessed it. It’s another episode of Startups For the Rest of Us. I’m Rob Walling, and this week I’m talking with Sol Orwell about growing his website, examine.com, to millions of views per month. He’s ten years into it. We talk about why he built it, talk about changing revenue models, and how today it’s a subscription business. While it’s not Software as a Service per se, it is Information as a Service, and he’s built up one of the most reputable nutrition information websites on the web. That’s examine.com.
I also asked him why when you google ‘who is the most attractive man in Toronto,’ his web page ranks first for that. He does some fun SEO stunts like that.
I just find Sol super interesting. I came across him because Sherry and he met at an event. Since then, obviously me being in the B2B SaaS world and solving in the online marketing/nutrition information world, he and I would not normally cross paths. But it does come down to digital entrepreneurship. It’s about being an online entrepreneur.
When I look at his path, working with domains and becoming essentially a digital nomad then a self-made digital entrepreneur, there are more commonalities between what he and I do than not.
Obviously, this episode is a little different in that it’s not straight SaaS, but we also touch on his subscription numbers, how he reduced churn, and some other things that I actually find pretty fascinating.
Before we dive into our conversation, there are just a couple more weeks left to get MicroConf local and MicroConf Europe Growth tickets. We’re hosting our locals in Portland Oregon, Boston Massachusetts, and Austin Texas, here in September—just a few weeks out—and then in Croatia for MicroConf Growth Europe.
Tickets are going quickly, and I believe we’re going to sell out at least a couple of those events here in the next week or two. So microconf.com, look for in-person events. If you’re interested in hanging out, I’ll be at all four of these events and I’d love to see you there. With that, let’s dive into my conversation with Sol Orwell.
Pleasure to have you on. We were talking offline a bit. You are the co-founder of examine.com, which, first of all is a kickass domain name. Your H1 is “Nutrition information you can trust. We have no conflicts of interest. Our team is composed of scientists, all we do all day every day is to analyze studies on nutrition and supplementation to answer your questions.”
Someone listening to the show—a lot of SaaS founders—software folks might be thinking, how is this relevant? How is someone who built a health information site useful to SaaS founders? We’re going to get into all that because you’ve done a huge amount of stuff.
I am really curious about Examine. It’s a huge site with a lot of reach. Can you give us an idea of how large it is? Maybe daily visits or monthly, or whatever you share publicly?
Sol: Yes. The content itself is, I think collectively now on the website, we have eight or nine million words that we’ve written. We’ve been around for 10½ years, so obviously, we’ve had a lot of time. I think our research team, which is just basically everyone who actually does the research, analyzes the research, and writes about it, itself is up to 14 people. I think we have four or five copy editors and a bunch of reviewers and whatnot.
Collectively, I think we’re at 2½–3 million visitors a month. I got to be honest. I don’t look at it too much, especially with the kerfuffles we’ve had with Google and whatnot. But one of the things (I think) that is relevant to the SaaS founders is we have roughly 10,000 paying subscribers for content. Even though we don’t offer a product or solution, we actually have a lot of health professionals that rely on us for analysis. There are a lot of analogous situations like decreasing churn, onboarding, and all that kind of stuff that we’ve learned that would be also relevant to other people in the SaaS industry.
Rob: That makes a lot of sense. I was going to ask you more about your revenue model. I had clicked around the site. I’m not super familiar with it. I just haven’t been a user of it, but I was clicking around seeing you have a $29 a month plan. You can prepay annually for $17 a month. Then there’s lifetime access for $800. That is very similar in cost to lower-end SaaS or a lot of WordPress plugins.
You’re 10½ years into building this. I do want to talk about subscriptions, pricing and stuff, but I first want to hear, what was the impetus for you starting this? Did you and your co-founder start at the same time, or did he join you later?
Sol: The impetus was actually that I used to be very overweight, like you don’t go to […] or that kind of stuff. When you’re starting to lose weight, we can’t help but—we’re humans—we always look for the shortcut. I think I literally bought 35 different supplements. There’s a picture of it where it’s just every single one imaginable.
Eventually, when you start actually getting into it, you realize the supplements don’t really do much. There are certain targeted specific situations, like a lot of us are deficient in vitamin D, or zinc, or magnesium. At this point in time, finally, as I started losing weight and figuring it out, I realized that a lot of supplement companies are ripping us off, and doing what most anyone else would do, I started complaining about it.
I was in a different position. I had already started online in 1999, so I’ve been building websites. I remember learning Perl and PHP3 way back in the day. I’ve been around for a while. I was in Colombia with two of my friends who were both postdocs. She’s Colombian. I was complaining about this. They’re scientists and just got fed up with me.
You know when you just keep hearing someone complain about somebody, just go do something about it. That’s what they said to me. That’s what I did. I emailed someone I’d known from Reddit. I’ve been on Reddit now for 15 years, way too long. I emailed someone there and that’s how we got started.
Eventually, it’s always been bootstrapped. I’ve never taken the external funding, but it was just meant to be something small. We’ll bring in some people who will answer some questions. We’ll talk about all the supplements and stuff like that.
Eventually, we realized there’s a real demand for information you can trust, especially when you can look at social media, the algorithms always trend towards extremism. Having someone that’s not as simple and there’s a lot of nuance, there’s a lot of context. We eventually realized there was a huge opportunity there for us. That’s when we properly incorporated, the co-founder fully came on board, and built out the team. That’s where we started, it was just a lark.
You’ll hear from a lot of entrepreneurs that are like this. They just did something for themselves. They realized there was an opportunity and ran with it. That was kind of the same for us.
Now, our vision has expanded. Originally, it was just fitness and bodybuilding supplements. Actually, we weren’t creating that kind of stuff. Now, we’re more in the nutrition space, but I think that’s just part of the smart evolution of any company, figure out what people want and go from there. That was our original random start.
Rob: It’s so interesting because when I first visited examine.com—I don’t remember when this was, but someone mentioned it to me and I came through—I thought, this is nutrition and health information. There are a bazillion sites in my uneducated mind. I’m not super into health or nutrition. I eat well, but I don’t do a lot of this stuff. I was thinking this is just like all the others. That’s what it felt like. So I can imagine you getting started thinking you want to be different. I guess it’s just a much less biased and a more scientific approach. Is that the idea?
Sol: Yeah. Originally, the idea was that the baseline was always that anything we will state will be based on research. If you ever really gone to the gym, or if you know anyone who has, there’s that broscience phrase which is just dudes will spot out things that make no sense. It’s like the gospel that’s been passed on, the 10 commandments from the last God knows how long.
The original idea was we’re just going to analyze and research, and we’re going to put it together. Part of what happens is you might see a headline like, this supplement does this for weight loss. But it turns out it’s for overweight women who are suffering from menopause. I don’t think you or I are suffering from it. We’re not experiencing menopause, so that stuff doesn’t really apply to us. That was the original genesis of making something that’s research-based.
That has been a huge challenge for us and a lot of other health sites. We might get into the entire YMYL update that Google did a few years ago, unless you are well, well-established (billion-dollar-companies) like Health Line, WebMD, Everyday Health.
It’s been a bit of a slog. How do we differentiate ourselves? A lot of the energy that we spent originally was on building up social trust, building relationships one-on-one, showing them that we’re very, very serious about what we do, because a lot happens with nutrition. There’s always a dogma, and it’s not even just nutrition. It’s now pretty much everything online. I’ve got this view, and everything I see will either agree with me or there’s some shoddy, they’re going to pick up the smallest nitpick details out.
We’ve always tried to also take a very Switzerland approach. To me that’s a very long-term thing. We’ve never made it about personality. It’s been like this. The research says like it or not, we don’t really care. Honestly, you can go away. It makes no difference to us. It’s been a slog, but eventually people recognize excellence here. They also recognize context and nuance, which unfortunately, is becoming a little bit more rare these days.
Rob: And to build something like that because you’re talking about trust, and trust is heavily related to brand. Your brand makes people trust or not trust you. In this case, I can imagine you had a tremendous amount of trust the first day you launched or the first month you launched, but 2, 5, 10 years in, now it’s a staple to have, you said 10,000 people including health professionals are subscribed?
Sol: Yeah. Health providers are subscribed, but trust is interesting. When we started off, we kind of spun off Reddit. What really happened was we were very active in Reddit fitness, which back in the day had 5000 people. I think it’s now at 5 million, so it’s grown just a little bit. We were well-known commodities, but prior to what happened was newbies would come—including me, originally, how I ran across Reddit fitness—and then ask the same questions again. Is creatine okay? So I take vitamin D?
Eventually, you just get tired. This is before Reddit introduced like Wikis and FAQ functionality. We just got so frustrated. We’re like, hey, we’re just going to build this website that answers these questions.
We had a bit of a leg up on Reddit, or at least in our little subreddit, we were known commodities. We were obviously irritable and […] because that’s the internet—you’re always just a jerk online—but we were known to be a little bit at least obsessive about this.
The hard part, of course, was how do you branch outside of Reddit. How do you break out of that? There are steps you can take. So we were inspired by a charity called GiveWell. They do a our mistakes report. I think they do it much more structured like every quarter or something like that.
So we introduced something like that where like, these are the mistakes we recognize internally, and now we’re talking about it publicly. These are the ones that we’ve taken steps for. These are the ones that we’re still failing.
It’s very cliche to talk about transparency. But I’ll be honest. Being transparent sucks. You’re basically saying like, this is everything I’ve screwed up and this is everything I’ve deprioritized. Other people will always disagree. That’s generally okay, but no matter what you do, people will come across like, hey, why are these jerks not doing this instead of focusing on this? This is obviously more important.
We went through this process. We had legitimate complaints that we didn’t have enough women’s health information, like PCOS, menstrual cups, all that kind of stuff. But partly, we didn’t have that because we didn’t have many female researchers. It’s not that male researchers can’t look at something. There’s also a level of experience and empathy, and being able to understand some of the nuances.
That was in our transparency report. We fail in being diverse enough for our team. Then people attack you, especially nowadays. What do you mean by diversity? Of course, it’s funny, because both my co-founder and I are ethnically South Asians. What happened was when people would actually read the description of why we said this is a failure. Every single person was like, oh, okay, that makes sense. Okay, I understand where you’re coming from.
It’s a slog, it sucks. People talk about being vulnerable online, like real vulnerability. It’s uncomfortable. But if you do it right, it builds so much trust that one of the things we […] internally a lot is responsibility. Like we can say MSG is the devil and tens of thousands of people would believe us. We can say MSG is the greatest thing in the world, and same thing. So there’s the downside.
We have to be very careful of what we talk about, but it took a while to get there. You can’t just maintain it easily. We have to constantly be on top of things. But I think it’s worth it because now for us, with our customer base, our subscriptions, and our trust that our users have with us, we get more leeway. If we make a mistake and we own up to which we do, people forgive us because these guys are being honest, they’re not being disingenuous.
So it’s a slog to get to it, but if you can achieve it you can empathize. You have trust with a lot of people and you can be honest about your mistakes. People are like, cool. Rob fessed up, he owned up. I’ll give him another chance. It wasn’t fun, but it was worth it in the long run.
Rob: Two things come to mind as you’re going through that, I think of it as a trust bank, or we’ve heard that phrase of, it’s like a credit score where it takes a long time to build up, and it’s pretty easy to drop quickly. You make a couple of mistakes that you don’t own up to where you’re trying to cover up or whatever, and suddenly that trust is gone. We see this with scandals at companies. There are all types of examples of people who we all love and trust, then they do some crappy stuff, and suddenly the trust is gone.
The other thing I think about is, you mentioned transparency. Transparency is something big enough to start up in the SaaS space, but I find that most of it is […] transparency. It’s fake transparency for marketing purposes. We’re being transparent, but they’re actually not. We’re being transparent by telling all the good things. Oh, it was so hard and look at how it turned out. I said, wait a minute. They’re not telling the real story.
I feel like you’re touching on more about telling the real story. I know that you have a blog, it’s at sjo.com, which I assume are your initials?
Sol: They’re not, actually.
Rob: They’re not?
Sol: No. I used to be in the domain industry. So that’s partly why we got examine.com because people remember it. I just got SJO because I thought it was very easy to remember and that was literally the only reason.
Rob: Wow, okay. Anyway, your blog is on hiatus because you’re busy focused on Examine, but folks can go back through and read. There’s a lot of stuff you talk about. You talked about, like you just said, your dramatic weight loss. You talked about some we’ll get into soon, just google ‘smacking the crap out of Examine in 2019.’ You talked about all types of stuff that I find refreshing and I feel it’s a pretty honest take on things.
I want to switch things up a little bit, dig into Examine, and talk about these 10,000 subscribers. That is a lot of paying subscribers, man. I mean, there are very few SaaS apps in the world that have that many. I want to find out what you said earlier. You had these subscribers and you have worked on onboarding, about churn, about reducing that and then I want to jump to the Google smackdown because I have to imagine that you get a ton of traffic from organic search, and that Google doing anything as they update their algorithms every few months, that’s going to hurt.
You have all these subscribers, which you’ve built up over 10½ years. Did you have a big learning or two that you learned about ‘our onboarding was crap and everyone was leaving,’ versus ‘we did a few things and this changed the game for us’?
Sol: I have two really good friends of mine that bootstrapped a company called Precision Nutrition. They started in 2001 and they sold 80% of it three years ago for $205 million, so a chunk of change. They both live in Toronto and we’re good friends. I would talk to them about this kind of stuff all the time.
They have three things they think are critical for their success, and one of them was something called Jobs To Be Done. Jobs To Be Done, you might have heard of, is also known as Appreciative Customer Inquiry.
Rob: Our audience will be familiar with it. We’re very familiar with it. That’s totally in our wheelhouse.
Sol: Perfect. I think honestly, that was one of the most fundamental things. What happened was 2017–2019 were the three roughest years of Examine. We were almost bankrupt. I had to put it in my own cash to keep it going. I’ve never been shy about admitting this. It’s also funny. People are like, aren’t you afraid people are going to think you’re a failure? I’m like, who? They’re not even in my life. I never see them, so who cares?
Anyway, it was bad times. What had happened was we started creating guides around popular topics. The ketogenic diet was very hot. We did a ketogenic diet and it’s a little spike in revenue. We launched and we got excited. But long-term, that’s not why people were coming to us. They were coming to us for research analysis.
I’m sure most of you have heard of the PMF (product/market fit) survey. The biggest thing that was important for us was doing these interviews properly. Far too many people when they do these interviews, they do them more like a UI/UX investigation, like how was this? Were you confused or excited over support? Which is important. But I don’t feel like enough people actually dig into what the hell are people actually trying to do.
Obviously, we have a lot of people with chronic health conditions who come to us, but there’s a lot of people who just like appearing smart to their friends and family. They’ll never admit it, they’ll never be like, yes, I just wish to feed my ego and seem so smart. No, they’re not going to say that. It took us a while to figure out they want to share this information and feel smart.
So really, they’re not coming to us for a guide. They do want nuance, they don’t want this long thing. They want, here’s all the research across all the categories. We have 25 Health categories and we do five to 10 new studies every month, we summarize them. So instead of you spending 10 hours learning about the latest cannabis research, anxiety research, immunology, or whatever, we analyze it and we summarize it for you. That was one of the most fundamental things that we really changed.
Just as a reminder, if someone hasn’t heard of Jobs To Be Done, really the quick 30-second version is you want to understand the timeline. Someone went from passively to actively, to deciding and then consuming. And everyone focused on the consuming part. That’s like the PMF survey. But most people ignore the first three parts. How do they actually decide? How do they figure out what matters? That would be my one little thing that I thought was fundamental.
I have a stack of 100 interviews I’ve done. We spend maybe 45 minutes, on average, talking to the person and there are usually four people listening. Then we spend maybe an hour-and-a-half afterwards breaking down everything we did.
Yesterday, actually, we had an hour-long session just breaking down eight studies or eight interviews. We had emotional energies. Was it a functional energy? Was it social? Or was it emotional? So function is the actual thing they want, emotional is how they feel, and social is how they see others perceive them as. We spent an hour-and-a-half just discussing eight interviews.
So I have a stack of 100. I’ve spent 100+ hours on this kind of stuff. I think that was fundamental. We bring everyone to the team. Random researchers join, customer research team, whoever they join in on these calls because now we really understand not only what the customers are looking for, but what is the language they use.
It’s important. Surveys are important. You get language from surveys, but getting to dig in and be like, what does that mean? What does successful mean? Or what does being a type of research mean to you? What does it look like? I think that would be the single most important thing that a lot of SaaS founders missed out on.
The nice thing about it is—again, we go to PMF surveys; all that you need is a large enough sample size—with interviews, just with five interviews, you will glean so much about what they’re looking for. Each interview generates (I would say) an average of 4–6 different things we can do better on the website. That would be my one major recommendation is talk to the customer, and don’t just talk to them in a perfunctory manner.
One of the side things (by the way) that’s super easy to do is you can sign up for a million other services. Even like Duolingo and whatever. Often, they will contact you because they want to talk to you. I love doing those interviews because you find out how other people are doing and you’re like, oh, that’s genius. Then half of the time, what the hell are these people doing? They’re not getting anything from me.
The other final story bit is people will try to help you. You have to remember that whenever you interview them, they’re going to try to give you the answers you want to hear, or they think you want to hear. Your job as an interviewer is to break that down and to really understand what’s driving them. What do you mean by that or can you explain that more? Can you elaborate on why use this word or whatever? I think that would be super important for any SaaS founder to really experience themselves.
Rob: We did a similar thing for MicroConf about 18 months, 2 years ago, and it was crazy enlightening. Just all the terms that we pulled out of that, we were trying to figure out really what our brand was about and what people thought about it. I had my own gut feeling as the co-founder of it, but it helped us realize some other adjectives, the way people talk about MicroConf from the trust and community. We’re these big things—belonging, relationship.
So yeah, Jobs To Be Done. Andrew did those. We went on Amazon for some books, we asked a couple of friends who had done them, then we had some recordings of some, and listened to how people push and push. Like you said, you dig and you dig and you dig, and you get there. I found them extremely valuable.
Sol: I was just going to recommend one guy, Bob Moesta. He’s OG and has been around since the 70s. He’s usually the go-to I refer to whenever someone wants to dig a little bit further into it.
Rob: Very cool. So I want to switch over to this article that you wrote on examine.com. It says Google and examine.com. It’s in your site news category. “Google is waging war on the peddling of magical pills and miracle cures by questionable health sites, and examine.com seems to have been caught in the crossfire.” This is July of 2019 and was last updated about a year ago.
It sounds to me and you have a graph of your Google Analytics chart that looks like over the past 2½ years, Google has decreased traffic to examine.com by roughly 90% which had to have just been excruciating and hit you pretty hard. Can you talk me through after building all of that? You’re 8–9 years into building this company with this huge flywheel of traffic, and then it starts doing that. What was the reaction? How did you pull out of it?
Sol: It was definitely a little bit shocking because it’s a cliff. It wasn’t even like a slow descent. We just got annihilated. The one thing I don’t think we mentioned was we basically hit our baseline because we were getting still 4000 or 5000 visitors a day from Google, and almost everyone was searching for Examine to find us. It wasn’t even that they were still sending us traffic. It was because our brand name was so damn strong that it’s like Examine protein, Examine actually done it, creatine what Examine says, blah-blah-blah. That was literally about as low as we can go.
I got to be honest. It kicked our ass. We never regained it. Funnily enough, I have a little support group of other—I’m going to call it mid-sized in terms of traffic—mid-sized health sites that have all been killed by Google. One of them, for example, has a podcast with NPR. One of them has won multiple non-profit awards for going after pharmaceutical companies. I get it. It sucks.
For people who don’t know, basically Google went after YMYL (Your Money or Your Life), so finance and health websites because of the insane amount of misinformation and disinformation, like vitamin D cures everything, and obviously financial, crypto, and all that kind of stuff caused a lot of pain for a lot of people. They basically were like, hey, unless we can really trust you, we’re going to not really trust you.
Health Line, which is a billion-dollar company, WebMD, which is a billion-dollar company and Everyday Health, which is a billion-dollar company, basically started dominating. What’s so genius about what they did (and mad respect to them) is they then started going out buying old, well-established health websites, and applying the same SEO they did on their main domain to others like Med News Today, Psychology Compass, and Psychology Today. All these other websites that are now owned by, WebMD haven’t really bought anything but Health Line and the other one.
This coincided with the ass kicking I talked about that we had in 2017–2019. So many people can vouch for this from other experiences, you kind of get addicted to the free traffic that Google is just shoveling down your throat, You’re like, hey, I don’t have to worry about my optimizations because we’re getting so much traffic. In some ways it was good because it made us do more stuff like JTBD interviews and understand what we’re trying to do, which pushed us heavily into the subscription area.
I will say we never really regained our rankings. Obviously, I’m biased. I still think we’re better than pretty much anyone above us. Not to specifically besmirch them, but like Health Line, we have 19 articles on creatine and kidney and it’s just the same regurgitated stuff.
This is simply the reality we have to work with. We doubled or maybe tripled the amount of traffic that Google was giving us from the ordeal we suffered from, but it’s the reality of life. We’ve talked to so many people from all facets of Google. They talk about E-A-T and all that kind of stuff, and we have E-A-T up the wazoo.
When COVID first hit last year, the New York Times came to us and asked us what supplements could possibly help? And we’re like, you know what? Nothing. But it’s the reality and you have to live with it. People can complain, and I don’t blame them if they do, but I understand we were effectively collateral damage and in a horrific way I understand because the harm that other companies were causing in health, I totally get it from an end-user perspective. I would rather they not see that and not see us, then see us in that kind of garbage.
This is the life of an entrepreneur. You need to keep a level of Zen Stoicism. We can’t change it. We can’t go, Google, why didn’t you listen? We’re doing better. Unfortunately, I never have a nice, clean answer. You just kind of got to deal with it. Thankfully, we actually weren’t that heavily on subscription before, like subscriptions will maybe be 5% of revenue, so we started heavily focusing on it. Long-term I think it’ll be fine, but definitely very unpleasant in the short-term.
Rob: I know a ton of SaaS founders who’ve experienced the exact same thing, who rely on SEO for a lot of their trials, a lot of their leads. Going all the way back to Panda and Penguin, or whether it’s just any update that comes out every quarter or every six months, it’s always a danger. SEO, like you said, is an amazing organic traffic. It’s such an amazing lever. But there’s a little bit of diversification that I always encourage people to embark on.
Sol: Absolutely. It’s all about the distribution. I’ll be honest, I started doing SEO in 2001 when Google was still relatively new. The monthly updates that will be named after a Google guy on WebmasterWorld. I’ve been around long enough to have seen the highs and the lows. I have a website that I started in 2003 that I haven’t really touched in 2009. In the last 11 years, it’s literally gone 10X up and 10X down, and I’ve done nothing. It’s just sitting there. Still it’s gone back up in the last couple of years, not nearly as high as it was, but that’s simply Google to me. I always tell everyone it’s extra. Never, ever, ever, ever rely on it. That’s what it is. It’s just a free bonus. It’s bonus traffic. That’s it.
Rob: I want to ask you before we wrap up, about these pages that you have on the internet that I call stunt pages, or just the stunts that you pull that I think are pretty cool. I say that with a bit of admiration because I want to find out your motivation behind them.
Basically, if people go to sjo.com and then go to your about page, you show that if you go to Google and you type in your name Sol Orwell, then Google autocomplete says, Sol Orwell net worth, Sol Orwell weight loss, Sol Orwell wife, all this stuff. It’s the same thing for my name.
I’ve never paid attention to it, but you went and built pages. Because since your site ranks so well, it ranks number one for your name anyway, you built out all those pages because they didn’t really exist, or they were on crap sites, Yahoo Answers or something. Each of them, you basically just make […] up. It’s like the net worth says, “By utilizing sources such as his multiple Forbes articles, his rugged beard, his odd love for cookies, and combining it with pixie dust, we can ascertain that Sol Orwell’s net worth is roughly $31.4159 million.” Which of course, as I saw that I’m like, 3.14159 as the first six digits of Pi. Then at the bottom, you’re like, nope, I’m just making it up. This is being cheeky, blah-blah-blah.
I just think it’s clever. It’s funny. I don’t know if I do it today, if it still works, but if I go to Google and type in ‘most handsome man in Toronto,’ I believe it links to you or at least a picture of it on your Facebook page. You’ve just ranked. You know how to rank. You’re an SEO and a domainer. You know how to rank for these things. So it’s funny, it’s cool, but why do that? What’s the motivation?
Sol: Honestly, I don’t even have a good answer. So I’ve always joked about internet fame. I mentioned this. I started off in 1999. Most people have no idea I exist. Most people think my co-founder is the only one who owns Examine. Even on our About page, I’m the 20th or 30th name mentioned way down. I’m below my EA, I’m down there.
I’ve never been about internet fame. Part of what happened was I would always make fun of e-fame. I’ve mentioned internet fame is a completely ephemeral thing. One of the things that we started making fun of is people would start googling me and be like, I was searching for your name. People are looking up your real name. What does that mean? I’m like, oh, yeah, I legally changed my name. Oh, what’s going on there? It’s not a serious thing to me.
Really what it was (I think) was a combination of you know you’re internet-famous, or D- internet celebrity, when people are searching for your net worth and your significant other. It’s always wife or husband, or net worth, which is absurd. How are you going to find out my net worth? I’m not in any listing. I’m not that rich, not even close. It goes back to entrepreneurs being very miserable. To me, it was just a funny joke.
I remember, I was throwing some stuff to a friend in Japan that I go see almost once a year, and I just wrote all this off WiFi. I just made these pages because I’ve got nothing better to do. I can’t go to sleep right now. Why don’t we have fun with it?
I got to be honest, you talk about meeting other entrepreneurs. Like one of my best friends, his business was every time there’ll be a national emergency, he would go there by Facebook ads and hook up local contractors with people looking for fire support or whatever. I’ve always loved these kinds of random edge cases, which make no sense. They’re not really meant to do anything other than explore the fringes.
One random last example I’ll give you. Back in the days of Google SEO, having a DMOZ listing was huge, being listed in the ODP (Open Directory Project). What I did one summer just in 2003, I bought a bunch of databases, put all this information online, and I had one high school kid who did nothing but submit every single page he could to DMOZ. We ended up with 300-some listings and we sold the website for $40,000 or $50,000.
It was just something to do. I feel like we get so lost and just doing the work that we lose, having fun, and basically fooling around. So the pages were just me having fun.
The entire ‘who’s the most handsome thing’ was I have another friend who lost more weight, who’s very attractive, so I always make fun of him. But I’m like, you know? In Toronto, you’re not as handsome as me. That’s what it was. It was just to poke him. I made this page if you google, it still says, “Research says that the most handsome guy in Toronto is Sol Orwell. There’s absolutely no doubt about it.”
It really was […] after the one box. The funny part of it is, most people don’t realize one box is just some random snippet. You can go to random strangers—not that I do this—like if I met a friend and they don’t google that internet site, it’s like hey, look at the Internet. Google says I’m the most handsome man in Toronto. They don’t understand it, literally says sjo.com underneath it. So really, it was just me trying to be like a muckraker or a dumb ass. Really that was it.
We spend so much time being serious online and Examine is a very serious endeavor. We’re relatively very uncheeky in it, because it’s science and research. This (I guess) was more just an outlet for me to have fun, so the cookies and all that. All of that is just like, hey man, we can have fun. And if not, it’s okay. I’m just trying to live my version of a best life.
Rob: Yeah, I think it’s funny. A similar story, my kids will troll people if they have an Amazon Echo, an Alexa. If you say, Alexa, tell me about (insert person’s name), she will usually say, I don’t know anything. But if you have a Wikipedia page, she will read the first two sentences while I’m on Wikipedia. So they’ll go […], Alexa, tell me about Rob Walling, and she’ll say Rob Walling is an investor, entrepreneur, and author, blah-blah-blah. And people are like, what? You’re famous? So it’s a similar thing. No, I’m not famous. It’s just people don’t know where Alexa is pulling from. Well, how does Alexa know about you? So I get it.
Sol: I got to be honest. I think 90% of what I do is to mess with my mom because she’s obviously very internet unsavvy, and she thinks I’m this huge deal online, when really, it’s just me being an idiot and like having the savvy to screw around with it.
Rob: Very nice, sir. Thanks so much again for joining me on the show today. If folks want to keep up with you, you are at @sol_orwell on Twitter. And of course, examine.com if they want to see what you’re focused on these days. Thanks again for joining me.
Sol: Thanks for having me, Rob. It was my pleasure.
Rob: Hope you enjoyed that conversation between Sol and I. Obviously a little bit different than some of the other episodes that we’ve released over the years but frankly, I like to expose myself and hopefully expose you to new thoughts, new ideas, and just different paths. The world is larger than mostly bootstrap B2B SaaS. I think there are a lot of disciplines that are orthogonal to ours that we can learn from. And I think there’s a lot of value in having conversations with folks who maybe aren’t in the same bubble and the same little ecosystem that we exist in. So thank you again for joining me this week, and I’ll be back in your earbuds again next Tuesday morning.
I also asked him why when you google ‘who is the most attractive man in Toronto,’ his web page ranks first for that. He does some fun SEO stunts like that.
I just find Sol super interesting. I came across him because Sherry and he met at an event. Since then, obviously me being in the B2B SaaS world and solving in the online marketing/nutrition information world, he and I would not normally cross paths. But it does come down to digital entrepreneurship. It’s about being an online entrepreneur.
When I look at his path, working with domains and becoming essentially a digital nomad then a self-made digital entrepreneur, there are more commonalities between what he and I do than not.
Obviously, this episode is a little different in that it’s not straight SaaS, but we also touch on his subscription numbers, how he reduced churn, and some other things that I actually find pretty fascinating.
Before we dive into our conversation, there are just a couple more weeks left to get MicroConf local and MicroConf Europe Growth tickets. We’re hosting our locals in Portland Oregon, Boston Massachusetts, and Austin Texas, here in September—just a few weeks out—and then in Croatia for MicroConf Growth Europe.
Tickets are going quickly, and I believe we’re going to sell out at least a couple of those events here in the next week or two. So microconf.com, look for in-person events. If you’re interested in hanging out, I’ll be at all four of these events and I’d love to see you there. With that, let’s dive into my conversation with Sol Orwell.
Pleasure to have you on. We were talking offline a bit. You are the co-founder of examine.com, which, first of all is a kickass domain name. Your H1 is “Nutrition information you can trust. We have no conflicts of interest. Our team is composed of scientists, all we do all day every day is to analyze studies on nutrition and supplementation to answer your questions.”
Someone listening to the show—a lot of SaaS founders—software folks might be thinking, how is this relevant? How is someone who built a health information site useful to SaaS founders? We’re going to get into all that because you’ve done a huge amount of stuff.
I am really curious about Examine. It’s a huge site with a lot of reach. Can you give us an idea of how large it is? Maybe daily visits or monthly, or whatever you share publicly?
Sol: Yes. The content itself is, I think collectively now on the website, we have eight or nine million words that we’ve written. We’ve been around for 10½ years, so obviously, we’ve had a lot of time. I think our research team, which is just basically everyone who actually does the research, analyzes the research, and writes about it, itself is up to 14 people. I think we have four or five copy editors and a bunch of reviewers and whatnot.
Collectively, I think we’re at 2½–3 million visitors a month. I got to be honest. I don’t look at it too much, especially with the kerfuffles we’ve had with Google and whatnot. But one of the things (I think) that is relevant to the SaaS founders is we have roughly 10,000 paying subscribers for content. Even though we don’t offer a product or solution, we actually have a lot of health professionals that rely on us for analysis. There are a lot of analogous situations like decreasing churn, onboarding, and all that kind of stuff that we’ve learned that would be also relevant to other people in the SaaS industry.
Rob: That makes a lot of sense. I was going to ask you more about your revenue model. I had clicked around the site. I’m not super familiar with it. I just haven’t been a user of it, but I was clicking around seeing you have a $29 a month plan. You can prepay annually for $17 a month. Then there’s lifetime access for $800. That is very similar in cost to lower-end SaaS or a lot of WordPress plugins.
You’re 10½ years into building this. I do want to talk about subscriptions, pricing and stuff, but I first want to hear, what was the impetus for you starting this? Did you and your co-founder start at the same time, or did he join you later?
Sol: The impetus was actually that I used to be very overweight, like you don’t go to […] or that kind of stuff. When you’re starting to lose weight, we can’t help but—we’re humans—we always look for the shortcut. I think I literally bought 35 different supplements. There’s a picture of it where it’s just every single one imaginable.
Eventually, when you start actually getting into it, you realize the supplements don’t really do much. There are certain targeted specific situations, like a lot of us are deficient in vitamin D, or zinc, or magnesium. At this point in time, finally, as I started losing weight and figuring it out, I realized that a lot of supplement companies are ripping us off, and doing what most anyone else would do, I started complaining about it.
I was in a different position. I had already started online in 1999, so I’ve been building websites. I remember learning Perl and PHP3 way back in the day. I’ve been around for a while. I was in Colombia with two of my friends who were both postdocs. She’s Colombian. I was complaining about this. They’re scientists and just got fed up with me.
You know when you just keep hearing someone complain about somebody, just go do something about it. That’s what they said to me. That’s what I did. I emailed someone I’d known from Reddit. I’ve been on Reddit now for 15 years, way too long. I emailed someone there and that’s how we got started.
Eventually, it’s always been bootstrapped. I’ve never taken the external funding, but it was just meant to be something small. We’ll bring in some people who will answer some questions. We’ll talk about all the supplements and stuff like that.
Eventually, we realized there’s a real demand for information you can trust, especially when you can look at social media, the algorithms always trend towards extremism. Having someone that’s not as simple and there’s a lot of nuance, there’s a lot of context. We eventually realized there was a huge opportunity there for us. That’s when we properly incorporated, the co-founder fully came on board, and built out the team. That’s where we started, it was just a lark.
You’ll hear from a lot of entrepreneurs that are like this. They just did something for themselves. They realized there was an opportunity and ran with it. That was kind of the same for us.
Now, our vision has expanded. Originally, it was just fitness and bodybuilding supplements. Actually, we weren’t creating that kind of stuff. Now, we’re more in the nutrition space, but I think that’s just part of the smart evolution of any company, figure out what people want and go from there. That was our original random start.
Rob: It’s so interesting because when I first visited examine.com—I don’t remember when this was, but someone mentioned it to me and I came through—I thought, this is nutrition and health information. There are a bazillion sites in my uneducated mind. I’m not super into health or nutrition. I eat well, but I don’t do a lot of this stuff. I was thinking this is just like all the others. That’s what it felt like. So I can imagine you getting started thinking you want to be different. I guess it’s just a much less biased and a more scientific approach. Is that the idea?
Sol: Yeah. Originally, the idea was that the baseline was always that anything we will state will be based on research. If you ever really gone to the gym, or if you know anyone who has, there’s that broscience phrase which is just dudes will spot out things that make no sense. It’s like the gospel that’s been passed on, the 10 commandments from the last God knows how long.
The original idea was we’re just going to analyze and research, and we’re going to put it together. Part of what happens is you might see a headline like, this supplement does this for weight loss. But it turns out it’s for overweight women who are suffering from menopause. I don’t think you or I are suffering from it. We’re not experiencing menopause, so that stuff doesn’t really apply to us. That was the original genesis of making something that’s research-based.
That has been a huge challenge for us and a lot of other health sites. We might get into the entire YMYL update that Google did a few years ago, unless you are well, well-established (billion-dollar-companies) like Health Line, WebMD, Everyday Health.
It’s been a bit of a slog. How do we differentiate ourselves? A lot of the energy that we spent originally was on building up social trust, building relationships one-on-one, showing them that we’re very, very serious about what we do, because a lot happens with nutrition. There’s always a dogma, and it’s not even just nutrition. It’s now pretty much everything online. I’ve got this view, and everything I see will either agree with me or there’s some shoddy, they’re going to pick up the smallest nitpick details out.
We’ve always tried to also take a very Switzerland approach. To me that’s a very long-term thing. We’ve never made it about personality. It’s been like this. The research says like it or not, we don’t really care. Honestly, you can go away. It makes no difference to us. It’s been a slog, but eventually people recognize excellence here. They also recognize context and nuance, which unfortunately, is becoming a little bit more rare these days.
Rob: And to build something like that because you’re talking about trust, and trust is heavily related to brand. Your brand makes people trust or not trust you. In this case, I can imagine you had a tremendous amount of trust the first day you launched or the first month you launched, but 2, 5, 10 years in, now it’s a staple to have, you said 10,000 people including health professionals are subscribed?
Sol: Yeah. Health providers are subscribed, but trust is interesting. When we started off, we kind of spun off Reddit. What really happened was we were very active in Reddit fitness, which back in the day had 5000 people. I think it’s now at 5 million, so it’s grown just a little bit. We were well-known commodities, but prior to what happened was newbies would come—including me, originally, how I ran across Reddit fitness—and then ask the same questions again. Is creatine okay? So I take vitamin D?
Eventually, you just get tired. This is before Reddit introduced like Wikis and FAQ functionality. We just got so frustrated. We’re like, hey, we’re just going to build this website that answers these questions.
We had a bit of a leg up on Reddit, or at least in our little subreddit, we were known commodities. We were obviously irritable and […] because that’s the internet—you’re always just a jerk online—but we were known to be a little bit at least obsessive about this.
The hard part, of course, was how do you branch outside of Reddit. How do you break out of that? There are steps you can take. So we were inspired by a charity called GiveWell. They do a our mistakes report. I think they do it much more structured like every quarter or something like that.
So we introduced something like that where like, these are the mistakes we recognize internally, and now we’re talking about it publicly. These are the ones that we’ve taken steps for. These are the ones that we’re still failing.
It’s very cliche to talk about transparency. But I’ll be honest. Being transparent sucks. You’re basically saying like, this is everything I’ve screwed up and this is everything I’ve deprioritized. Other people will always disagree. That’s generally okay, but no matter what you do, people will come across like, hey, why are these jerks not doing this instead of focusing on this? This is obviously more important.
We went through this process. We had legitimate complaints that we didn’t have enough women’s health information, like PCOS, menstrual cups, all that kind of stuff. But partly, we didn’t have that because we didn’t have many female researchers. It’s not that male researchers can’t look at something. There’s also a level of experience and empathy, and being able to understand some of the nuances.
That was in our transparency report. We fail in being diverse enough for our team. Then people attack you, especially nowadays. What do you mean by diversity? Of course, it’s funny, because both my co-founder and I are ethnically South Asians. What happened was when people would actually read the description of why we said this is a failure. Every single person was like, oh, okay, that makes sense. Okay, I understand where you’re coming from.
It’s a slog, it sucks. People talk about being vulnerable online, like real vulnerability. It’s uncomfortable. But if you do it right, it builds so much trust that one of the things we […] internally a lot is responsibility. Like we can say MSG is the devil and tens of thousands of people would believe us. We can say MSG is the greatest thing in the world, and same thing. So there’s the downside.
We have to be very careful of what we talk about, but it took a while to get there. You can’t just maintain it easily. We have to constantly be on top of things. But I think it’s worth it because now for us, with our customer base, our subscriptions, and our trust that our users have with us, we get more leeway. If we make a mistake and we own up to which we do, people forgive us because these guys are being honest, they’re not being disingenuous.
So it’s a slog to get to it, but if you can achieve it you can empathize. You have trust with a lot of people and you can be honest about your mistakes. People are like, cool. Rob fessed up, he owned up. I’ll give him another chance. It wasn’t fun, but it was worth it in the long run.
Rob: Two things come to mind as you’re going through that, I think of it as a trust bank, or we’ve heard that phrase of, it’s like a credit score where it takes a long time to build up, and it’s pretty easy to drop quickly. You make a couple of mistakes that you don’t own up to where you’re trying to cover up or whatever, and suddenly that trust is gone. We see this with scandals at companies. There are all types of examples of people who we all love and trust, then they do some crappy stuff, and suddenly the trust is gone.
The other thing I think about is, you mentioned transparency. Transparency is something big enough to start up in the SaaS space, but I find that most of it is […] transparency. It’s fake transparency for marketing purposes. We’re being transparent, but they’re actually not. We’re being transparent by telling all the good things. Oh, it was so hard and look at how it turned out. I said, wait a minute. They’re not telling the real story.
I feel like you’re touching on more about telling the real story. I know that you have a blog, it’s at sjo.com, which I assume are your initials?
Sol: They’re not, actually.
Rob: They’re not?
Sol: No. I used to be in the domain industry. So that’s partly why we got examine.com because people remember it. I just got SJO because I thought it was very easy to remember and that was literally the only reason.
Rob: Wow, okay. Anyway, your blog is on hiatus because you’re busy focused on Examine, but folks can go back through and read. There’s a lot of stuff you talk about. You talked about, like you just said, your dramatic weight loss. You talked about some we’ll get into soon, just google ‘smacking the crap out of Examine in 2019.’ You talked about all types of stuff that I find refreshing and I feel it’s a pretty honest take on things.
I want to switch things up a little bit, dig into Examine, and talk about these 10,000 subscribers. That is a lot of paying subscribers, man. I mean, there are very few SaaS apps in the world that have that many. I want to find out what you said earlier. You had these subscribers and you have worked on onboarding, about churn, about reducing that and then I want to jump to the Google smackdown because I have to imagine that you get a ton of traffic from organic search, and that Google doing anything as they update their algorithms every few months, that’s going to hurt.
You have all these subscribers, which you’ve built up over 10½ years. Did you have a big learning or two that you learned about ‘our onboarding was crap and everyone was leaving,’ versus ‘we did a few things and this changed the game for us’?
Sol: I have two really good friends of mine that bootstrapped a company called Precision Nutrition. They started in 2001 and they sold 80% of it three years ago for $205 million, so a chunk of change. They both live in Toronto and we’re good friends. I would talk to them about this kind of stuff all the time.
They have three things they think are critical for their success, and one of them was something called Jobs To Be Done. Jobs To Be Done, you might have heard of, is also known as Appreciative Customer Inquiry.
Rob: Our audience will be familiar with it. We’re very familiar with it. That’s totally in our wheelhouse.
Sol: Perfect. I think honestly, that was one of the most fundamental things. What happened was 2017–2019 were the three roughest years of Examine. We were almost bankrupt. I had to put it in my own cash to keep it going. I’ve never been shy about admitting this. It’s also funny. People are like, aren’t you afraid people are going to think you’re a failure? I’m like, who? They’re not even in my life. I never see them, so who cares?
Anyway, it was bad times. What had happened was we started creating guides around popular topics. The ketogenic diet was very hot. We did a ketogenic diet and it’s a little spike in revenue. We launched and we got excited. But long-term, that’s not why people were coming to us. They were coming to us for research analysis.
I’m sure most of you have heard of the PMF (product/market fit) survey. The biggest thing that was important for us was doing these interviews properly. Far too many people when they do these interviews, they do them more like a UI/UX investigation, like how was this? Were you confused or excited over support? Which is important. But I don’t feel like enough people actually dig into what the hell are people actually trying to do.
Obviously, we have a lot of people with chronic health conditions who come to us, but there’s a lot of people who just like appearing smart to their friends and family. They’ll never admit it, they’ll never be like, yes, I just wish to feed my ego and seem so smart. No, they’re not going to say that. It took us a while to figure out they want to share this information and feel smart.
So really, they’re not coming to us for a guide. They do want nuance, they don’t want this long thing. They want, here’s all the research across all the categories. We have 25 Health categories and we do five to 10 new studies every month, we summarize them. So instead of you spending 10 hours learning about the latest cannabis research, anxiety research, immunology, or whatever, we analyze it and we summarize it for you. That was one of the most fundamental things that we really changed.
Just as a reminder, if someone hasn’t heard of Jobs To Be Done, really the quick 30-second version is you want to understand the timeline. Someone went from passively to actively, to deciding and then consuming. And everyone focused on the consuming part. That’s like the PMF survey. But most people ignore the first three parts. How do they actually decide? How do they figure out what matters? That would be my one little thing that I thought was fundamental.
I have a stack of 100 interviews I’ve done. We spend maybe 45 minutes, on average, talking to the person and there are usually four people listening. Then we spend maybe an hour-and-a-half afterwards breaking down everything we did.
Yesterday, actually, we had an hour-long session just breaking down eight studies or eight interviews. We had emotional energies. Was it a functional energy? Was it social? Or was it emotional? So function is the actual thing they want, emotional is how they feel, and social is how they see others perceive them as. We spent an hour-and-a-half just discussing eight interviews.
So I have a stack of 100. I’ve spent 100+ hours on this kind of stuff. I think that was fundamental. We bring everyone to the team. Random researchers join, customer research team, whoever they join in on these calls because now we really understand not only what the customers are looking for, but what is the language they use.
It’s important. Surveys are important. You get language from surveys, but getting to dig in and be like, what does that mean? What does successful mean? Or what does being a type of research mean to you? What does it look like? I think that would be the single most important thing that a lot of SaaS founders missed out on.
The nice thing about it is—again, we go to PMF surveys; all that you need is a large enough sample size—with interviews, just with five interviews, you will glean so much about what they’re looking for. Each interview generates (I would say) an average of 4–6 different things we can do better on the website. That would be my one major recommendation is talk to the customer, and don’t just talk to them in a perfunctory manner.
One of the side things (by the way) that’s super easy to do is you can sign up for a million other services. Even like Duolingo and whatever. Often, they will contact you because they want to talk to you. I love doing those interviews because you find out how other people are doing and you’re like, oh, that’s genius. Then half of the time, what the hell are these people doing? They’re not getting anything from me.
The other final story bit is people will try to help you. You have to remember that whenever you interview them, they’re going to try to give you the answers you want to hear, or they think you want to hear. Your job as an interviewer is to break that down and to really understand what’s driving them. What do you mean by that or can you explain that more? Can you elaborate on why use this word or whatever? I think that would be super important for any SaaS founder to really experience themselves.
Rob: We did a similar thing for MicroConf about 18 months, 2 years ago, and it was crazy enlightening. Just all the terms that we pulled out of that, we were trying to figure out really what our brand was about and what people thought about it. I had my own gut feeling as the co-founder of it, but it helped us realize some other adjectives, the way people talk about MicroConf from the trust and community. We’re these big things—belonging, relationship.
So yeah, Jobs To Be Done. Andrew did those. We went on Amazon for some books, we asked a couple of friends who had done them, then we had some recordings of some, and listened to how people push and push. Like you said, you dig and you dig and you dig, and you get there. I found them extremely valuable.
Sol: I was just going to recommend one guy, Bob Moesta. He’s OG and has been around since the 70s. He’s usually the go-to I refer to whenever someone wants to dig a little bit further into it.
Rob: Very cool. So I want to switch over to this article that you wrote on examine.com. It says Google and examine.com. It’s in your site news category. “Google is waging war on the peddling of magical pills and miracle cures by questionable health sites, and examine.com seems to have been caught in the crossfire.” This is July of 2019 and was last updated about a year ago.
It sounds to me and you have a graph of your Google Analytics chart that looks like over the past 2½ years, Google has decreased traffic to examine.com by roughly 90% which had to have just been excruciating and hit you pretty hard. Can you talk me through after building all of that? You’re 8–9 years into building this company with this huge flywheel of traffic, and then it starts doing that. What was the reaction? How did you pull out of it?
Sol: It was definitely a little bit shocking because it’s a cliff. It wasn’t even like a slow descent. We just got annihilated. The one thing I don’t think we mentioned was we basically hit our baseline because we were getting still 4000 or 5000 visitors a day from Google, and almost everyone was searching for Examine to find us. It wasn’t even that they were still sending us traffic. It was because our brand name was so damn strong that it’s like Examine protein, Examine actually done it, creatine what Examine says, blah-blah-blah. That was literally about as low as we can go.
I got to be honest. It kicked our ass. We never regained it. Funnily enough, I have a little support group of other—I’m going to call it mid-sized in terms of traffic—mid-sized health sites that have all been killed by Google. One of them, for example, has a podcast with NPR. One of them has won multiple non-profit awards for going after pharmaceutical companies. I get it. It sucks.
For people who don’t know, basically Google went after YMYL (Your Money or Your Life), so finance and health websites because of the insane amount of misinformation and disinformation, like vitamin D cures everything, and obviously financial, crypto, and all that kind of stuff caused a lot of pain for a lot of people. They basically were like, hey, unless we can really trust you, we’re going to not really trust you.
Health Line, which is a billion-dollar company, WebMD, which is a billion-dollar company and Everyday Health, which is a billion-dollar company, basically started dominating. What’s so genius about what they did (and mad respect to them) is they then started going out buying old, well-established health websites, and applying the same SEO they did on their main domain to others like Med News Today, Psychology Compass, and Psychology Today. All these other websites that are now owned by, WebMD haven’t really bought anything but Health Line and the other one.
This coincided with the ass kicking I talked about that we had in 2017–2019. So many people can vouch for this from other experiences, you kind of get addicted to the free traffic that Google is just shoveling down your throat, You’re like, hey, I don’t have to worry about my optimizations because we’re getting so much traffic. In some ways it was good because it made us do more stuff like JTBD interviews and understand what we’re trying to do, which pushed us heavily into the subscription area.
I will say we never really regained our rankings. Obviously, I’m biased. I still think we’re better than pretty much anyone above us. Not to specifically besmirch them, but like Health Line, we have 19 articles on creatine and kidney and it’s just the same regurgitated stuff.
This is simply the reality we have to work with. We doubled or maybe tripled the amount of traffic that Google was giving us from the ordeal we suffered from, but it’s the reality of life. We’ve talked to so many people from all facets of Google. They talk about E-A-T and all that kind of stuff, and we have E-A-T up the wazoo.
When COVID first hit last year, the New York Times came to us and asked us what supplements could possibly help? And we’re like, you know what? Nothing. But it’s the reality and you have to live with it. People can complain, and I don’t blame them if they do, but I understand we were effectively collateral damage and in a horrific way I understand because the harm that other companies were causing in health, I totally get it from an end-user perspective. I would rather they not see that and not see us, then see us in that kind of garbage.
This is the life of an entrepreneur. You need to keep a level of Zen Stoicism. We can’t change it. We can’t go, Google, why didn’t you listen? We’re doing better. Unfortunately, I never have a nice, clean answer. You just kind of got to deal with it. Thankfully, we actually weren’t that heavily on subscription before, like subscriptions will maybe be 5% of revenue, so we started heavily focusing on it. Long-term I think it’ll be fine, but definitely very unpleasant in the short-term.
Rob: I know a ton of SaaS founders who’ve experienced the exact same thing, who rely on SEO for a lot of their trials, a lot of their leads. Going all the way back to Panda and Penguin, or whether it’s just any update that comes out every quarter or every six months, it’s always a danger. SEO, like you said, is an amazing organic traffic. It’s such an amazing lever. But there’s a little bit of diversification that I always encourage people to embark on.
Sol: Absolutely. It’s all about the distribution. I’ll be honest, I started doing SEO in 2001 when Google was still relatively new. The monthly updates that will be named after a Google guy on WebmasterWorld. I’ve been around long enough to have seen the highs and the lows. I have a website that I started in 2003 that I haven’t really touched in 2009. In the last 11 years, it’s literally gone 10X up and 10X down, and I’ve done nothing. It’s just sitting there. Still it’s gone back up in the last couple of years, not nearly as high as it was, but that’s simply Google to me. I always tell everyone it’s extra. Never, ever, ever, ever rely on it. That’s what it is. It’s just a free bonus. It’s bonus traffic. That’s it.
Rob: I want to ask you before we wrap up, about these pages that you have on the internet that I call stunt pages, or just the stunts that you pull that I think are pretty cool. I say that with a bit of admiration because I want to find out your motivation behind them.
Basically, if people go to sjo.com and then go to your about page, you show that if you go to Google and you type in your name Sol Orwell, then Google autocomplete says, Sol Orwell net worth, Sol Orwell weight loss, Sol Orwell wife, all this stuff. It’s the same thing for my name.
I’ve never paid attention to it, but you went and built pages. Because since your site ranks so well, it ranks number one for your name anyway, you built out all those pages because they didn’t really exist, or they were on crap sites, Yahoo Answers or something. Each of them, you basically just make […] up. It’s like the net worth says, “By utilizing sources such as his multiple Forbes articles, his rugged beard, his odd love for cookies, and combining it with pixie dust, we can ascertain that Sol Orwell’s net worth is roughly $31.4159 million.” Which of course, as I saw that I’m like, 3.14159 as the first six digits of Pi. Then at the bottom, you’re like, nope, I’m just making it up. This is being cheeky, blah-blah-blah.
I just think it’s clever. It’s funny. I don’t know if I do it today, if it still works, but if I go to Google and type in ‘most handsome man in Toronto,’ I believe it links to you or at least a picture of it on your Facebook page. You’ve just ranked. You know how to rank. You’re an SEO and a domainer. You know how to rank for these things. So it’s funny, it’s cool, but why do that? What’s the motivation?
Sol: Honestly, I don’t even have a good answer. So I’ve always joked about internet fame. I mentioned this. I started off in 1999. Most people have no idea I exist. Most people think my co-founder is the only one who owns Examine. Even on our About page, I’m the 20th or 30th name mentioned way down. I’m below my EA, I’m down there.
I’ve never been about internet fame. Part of what happened was I would always make fun of e-fame. I’ve mentioned internet fame is a completely ephemeral thing. One of the things that we started making fun of is people would start googling me and be like, I was searching for your name. People are looking up your real name. What does that mean? I’m like, oh, yeah, I legally changed my name. Oh, what’s going on there? It’s not a serious thing to me.
Really what it was (I think) was a combination of you know you’re internet-famous, or D- internet celebrity, when people are searching for your net worth and your significant other. It’s always wife or husband, or net worth, which is absurd. How are you going to find out my net worth? I’m not in any listing. I’m not that rich, not even close. It goes back to entrepreneurs being very miserable. To me, it was just a funny joke.
I remember, I was throwing some stuff to a friend in Japan that I go see almost once a year, and I just wrote all this off WiFi. I just made these pages because I’ve got nothing better to do. I can’t go to sleep right now. Why don’t we have fun with it?
I got to be honest, you talk about meeting other entrepreneurs. Like one of my best friends, his business was every time there’ll be a national emergency, he would go there by Facebook ads and hook up local contractors with people looking for fire support or whatever. I’ve always loved these kinds of random edge cases, which make no sense. They’re not really meant to do anything other than explore the fringes.
One random last example I’ll give you. Back in the days of Google SEO, having a DMOZ listing was huge, being listed in the ODP (Open Directory Project). What I did one summer just in 2003, I bought a bunch of databases, put all this information online, and I had one high school kid who did nothing but submit every single page he could to DMOZ. We ended up with 300-some listings and we sold the website for $40,000 or $50,000.
It was just something to do. I feel like we get so lost and just doing the work that we lose, having fun, and basically fooling around. So the pages were just me having fun.
The entire ‘who’s the most handsome thing’ was I have another friend who lost more weight, who’s very attractive, so I always make fun of him. But I’m like, you know? In Toronto, you’re not as handsome as me. That’s what it was. It was just to poke him. I made this page if you google, it still says, “Research says that the most handsome guy in Toronto is Sol Orwell. There’s absolutely no doubt about it.”
It really was […] after the one box. The funny part of it is, most people don’t realize one box is just some random snippet. You can go to random strangers—not that I do this—like if I met a friend and they don’t google that internet site, it’s like hey, look at the Internet. Google says I’m the most handsome man in Toronto. They don’t understand it, literally says sjo.com underneath it. So really, it was just me trying to be like a muckraker or a dumb ass. Really that was it.
We spend so much time being serious online and Examine is a very serious endeavor. We’re relatively very uncheeky in it, because it’s science and research. This (I guess) was more just an outlet for me to have fun, so the cookies and all that. All of that is just like, hey man, we can have fun. And if not, it’s okay. I’m just trying to live my version of a best life.
Rob: Yeah, I think it’s funny. A similar story, my kids will troll people if they have an Amazon Echo, an Alexa. If you say, Alexa, tell me about (insert person’s name), she will usually say, I don’t know anything. But if you have a Wikipedia page, she will read the first two sentences while I’m on Wikipedia. So they’ll go […], Alexa, tell me about Rob Walling, and she’ll say Rob Walling is an investor, entrepreneur, and author, blah-blah-blah. And people are like, what? You’re famous? So it’s a similar thing. No, I’m not famous. It’s just people don’t know where Alexa is pulling from. Well, how does Alexa know about you? So I get it.
Sol: I got to be honest. I think 90% of what I do is to mess with my mom because she’s obviously very internet unsavvy, and she thinks I’m this huge deal online, when really, it’s just me being an idiot and like having the savvy to screw around with it.
Rob: Very nice, sir. Thanks so much again for joining me on the show today. If folks want to keep up with you, you are at @sol_orwell on Twitter. And of course, examine.com if they want to see what you’re focused on these days. Thanks again for joining me.
Sol: Thanks for having me, Rob. It was my pleasure.
Rob: Hope you enjoyed that conversation between Sol and I. Obviously a little bit different than some of the other episodes that we’ve released over the years but frankly, I like to expose myself and hopefully expose you to new thoughts, new ideas, and just different paths. The world is larger than mostly bootstrap B2B SaaS. I think there are a lot of disciplines that are orthogonal to ours that we can learn from. And I think there’s a lot of value in having conversations with folks who maybe aren’t in the same bubble and the same little ecosystem that we exist in. So thank you again for joining me this week, and I’ll be back in your earbuds again next Tuesday morning.
Episode 563 | The Struggle, Calls to Action, Selling Above $1M ARR, and More Listener Questions
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In Episode 563, Rob Walling answers listener questions about startup operating agreements for co-founders, common cloud hosting solutions, struggling as a young entrepreneur, and selling your startup when you have over $1M in annual recurring revenue.
The topics we cover
[1:40] Operating agreements for startup co-founders
[5:50] How to do startup vesting when not working fulltime on a project
[9:41] Common cloud hosting solutions for startups
[11:04] Struggling as a young entrepreneur
[18:20] Call to action for info product
[20:54] Virtual assistance
[23:05] Selling above $1M ARR
Links from the show
- LegalZoom
- Rocket Laywer
- Upcounsel
- Start Small, Stay Small
- Upwork
- Best Jobs
- Virtual Staff Finder
- Rob Walling (@robwalling) | Twitter
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: Welcome back to another episode of Startups For the Rest of Us. I’m Rob Walling, this is episode 563 where I’m going to run through several listener questions. It’s actually been a bit too long since I’ve done one of these episodes. I believe we have north of 20 questions backed up. We won’t be able to get through all of them today.
If you hear a question today that sparks in you to ask your own question, send an email to questions@startupsfortherestofus.com and I’ll get that answered just as soon as I can. Hopefully the next Q&A episode I will have a guest on to answer with me. Of course, voice mails and video questions go to the top of the stack. If you want to record something on your phone and send me a Dropbox link or a Google Drive link to questions@startupsfortherestofus.com, that works.
You can also go to startupsfortherestofus.com, there’s an ask a question link and we have video ask in place so you can just click a button on your phone or from your laptop and just record right there in the browser and upload it.
With that, let’s dive into our first question from Victor Wang. “Hi Rob, it’s Victor here. Thank you very much for your podcast. Can you recommend any resources for drafting operating agreements for the startup co-founders so we know what to do when certain circumstances occur? I.e., one of the co-founders wants to exit the business. Thank you again for your and your guests for producing Startups For the Rest of Us.”
Great question, Victor, and a very common one. First of all, the pat answer and really the right answer if you have the resources is to hire an attorney. Usually, the best attorneys I get are through referrals from someone else who I know who has used himself. If you’re in a mastermind group, I would ask for referrals there. If you’re in MicroConf Connect, I would ask in there. I believe there is a legal channel or an operating channel, one of those.
If you’re not on MicroConf Connect, why not? Because it’s free for founders and aspiring founders. Go to microconfconnect.com, get in there, and ask for advice. Referrals are the way that I found the best folks.
If that’s not a route you can go, in the US, there are some inexpensive services that can work and they work on the short-term. In the long-term, they may cause problems because they are a discount. It’s discount legal. Rocket Lawyer and LegalZoom are those two and later on if and when you hire an attorney for your company, they will often roll their eyes at the operating agreement that you got from there because there are just no specifics to your situation is usually what you end up with.
But it is a discounted option. In my opinion, those are better than writing your own, which I did once. It did not come back to bite me, but frankly, it probably should have. Please don’t write this on your own. If anything, you can draft up the bullets and draft up the understanding between the two of you and then you hand that to a lawyer and allow them to integrate it into an operating agreement.
UpCounsel, they acquired and shut down and now I think they’re back because I’m on upcounsel.com and I can see that they are the modern way to get legal work done. That is another area that I would check out. That’s usually where you actually hire an attorney. That would be a way to go and look. It’s kind of an attorney marketplace.
If you’re in Latin America, lexgo.cl. They’re a TinySeed batch three company. They are ‘legal made simple’ for your business and they are not only a SaaS app, but they have vetted attorneys in all the Latin American countries. They’re great service. We wouldn’t have invested in them if they weren’t. Certainly in Latin America I would do that and then in the US, thinking about the other options I outlined.
I did want to address part of your questions that you were asking directly. It’s the idea of what happens if a founder leaves after a certain amount of time before we’re done with the products, in other words. The way you handle that is with vesting. Usually the most standard vesting is 4 years with a 1 year cliff meaning no one gets any equity for the first 12 months and then the last 3 years, you then vest the last 75% of your equity.
If there are two founders working on, then you have 50-50 each. You would get 0 equity until month 12. Then you get a quarter of your 50%. That will be 12.25% and then you vest monthly on the remaining, you can change that if you want. You can say, hey, maybe it’s four years and every month we get 1/48th of our equity. You can make however you want to. But that’s the safeguard against someone doing just that, which is working on a project for six months and then walking away with all of their equity.
It’s a huge mistake some startups make and to be honest, it can decimate the company. It can mean that you can’t raise future funding, that you can’t take on future co-founder level people. It really messes up your cap table. On that specific issue, I just wanted to call it out because any startup I see forming without founder vesting, that’s a big red flag.
I hope that helps, Victor, and thanks for the question. Victor just recently asked this question. In fact, after a lot of the folks who send in written questions. But since he was a video question, we did move him on the top of the stack.
My next question is a voicemail from Brian Kid. “Hi Rob. This is Brian with haulersoftware.com. This app is in the waste management industry. My co-founder owned a business in waste management and built version 1 in a no-code platform because he just couldn’t find a good solution out there. He’s currently doing about $1000 a month. He reached out through his network, needed a technical co-founder, and he and I connected. Part of my buy-in is just to build version 2 as a standard web application and just get it up to par with version 1 can do now.
We see this as a side project. It will be a 50-50 partnership. I just wanted to ask, is there anything we should be thinking about as partners that’s specific to a SaaS app? Types of things we’ve asked so far are, what if one of us wants to move on to something else? What if one of us doesn’t want to spend as much time on the project? And just wanted to know if there’s anything we should be thinking about co-founding this SaaS product as a 50-50 partnership? Really a big fan and appreciate you answering this question.”
Funny that we had two such highly-related questions. Basically it’s vesting. That’s how you have to think about it. If you’re not working full time on it, you still (I think) would have to put in a minimum amount of hours perhaps each week or each month that folks that should be working. It’s really just a matter of discussing it in concrete terms and getting it in writing to determine what the vesting looks like.
Other than that, in terms of a SaaS company, specifically, there aren’t really any founder operating agreement terms that I think that wouldn’t be applicable to most tech startups, in essence, most startups that are going to be doing any kind of software. Or even I talked to a founder the other day—he’s actually a friend of a friend—and he is starting essentially a company to manufacture guitars and he’s going to do it on his own at first. He has equipment, he’s been doing it, selling the guitars. Then he wants to move into his garage so he needs some capital for equipment there. Even the operating agreement of a company like that should be similar.
There’s a shocking amount of similarity between a company like that and the kinds of mostly bootstrap SaaS that we would be thinking about. Once you get into a venture, if you’re going to raise a lot of money, you’re going to have a board. Things will start looking a lot different there. There are a lot of terms that get put in by investors, et cetera.
My advice would be not to find a small-town local attorney to do this, though, even if they have written operating agreements for the dry cleaner down the street, the car wash, or whatever. I would always look for an attorney whether it is on Lexgo, UpCounsel, or through Rocket Lawyer. An attorney that has experience with tech startups, whether they be venture-funded or not.
I really struggled when I found an attorney in Fresno who had helped form a lot of businesses, but it was a lot of consulting firms and a lot of local mom and pop businesses. While the operating agreement was good and everything turned out well, the biggest issue was just convincing him of the terms that we were thinking about. I felt like an uphill battle educating him really on what we were and what we did. I don’t think he understood the business very well, which is fine. Again, the actual agreement turned out great and it’s the one we use all the way until we were acquired a few years later.
For some reason, I need to find a local attorney in my town. I don’t know why I thought of that because given the whole interwebs these days, and I said earlier, referrals would be the place I would go in MicroConf Connect or whatever mastermind or community you’re in. But beyond that, I would look for someone with high ratings who has a lot of experience working with tech or software companies.
Hope that helps Brian. Thanks for sending in that question. Feel free to follow up if you have any more.
My next question is from Permad Biligiri. He says, “Which cloud and hosting providers do bootstrap SaaS founders generally use? Are there any patterns you’ve noticed in the choice of hosting and cloud solutions among bootstrappers?”
Yeah, there’s really only a handful that I see most people using. If you just want to get started, nice and easy, Heroku is a really nice, multi-language hosting platform. It’s a Platform as a Service, in essence. While it’s more expensive than something like AWS or Google Cloud, it is a lot easier and simpler to get started on. And then when the cost gets too high, I see a lot of folks move from there to AWS or to Google Cloud.
Some people don’t start on Heroku and they do want the control of having their own servers. That’s great, too. You don’t have to use Heroku. It’s all a trade off of the amount of time that you want to put in versus if you have $100 a month or whatever to pay to make that problem go away is the idea. I’ve certainly heard of a lot of folks hosting on DigitalOcean. Microsoft Azure, of course, if you’re in the Microsoft ecosystem.
By far, I’d say the one in two that I’ve seen are AWS (Amazon Web Services) and Google Cloud. There’s Heroku, DigitalOcean and Azure that I see as a second tier. Of course, there are a bazillion offers out there, but you asked for which patterns I’m seeing and that’s what I tend to see. Thanks for the question.
In the subject line of the next question is Struggling. It’s from Julian and he says, “Good evening Mr. Walling. Please excuse the rant. I’m a 20-year-old from Washington trying to build a startup out of my bedroom. I’ve worked on a few things here and there, but never really stuck with one plan and made clear progress. A few months ago, an organic startup idea came to me and I’ve been obsessed ever since. I, for one, feel motivated to work on something and see it through to the end.
I’ve started learning more about startup culture and the overall process. I discovered your podcast, started browsing Crunchbase, following people on Twitter, reading books and watching talks, interviews, et cetera. But I have one major thing holding me back—my job. I work an unfulfilling job in IT for $15 an hour, no benefits, three-hour commute,” holy moly, “and I’m too poor to take a couple of days a month off work. I’d love to get home and grind away and be productive, but I’m so defeated and exhausted at the end of the day. I can’t muster up enough energy to get anything done.
Unfortunately, all my startup work is reserved for the weekend at the moment. I love to work for a startup. I’ve contacted a few. I had to drop out of college for various reasons a few years back, so finding a proper job somewhere is difficult, if not impossible.” I really question that assumption, actually. “I’m willing to relocate anywhere if I receive an offer. There’s just so much talent out there I feel like I can’t compete. Have you known someone who’s been in a situation like this? What tips do you have for someone like me? Thanks for the great content and the motivation.”
This is tough, Julian. I’m sorry to hear this. Have I known people in situations like this? Absolutely. Have I been in a situation like this? Absolutely. When I graduated from college, I went to work as an electrician. It was kind of the family path. My dad had worked it for 42 years, my brother is now our project manager and an electrical contractor, and he was a field electrician for a while. I did it for a couple of years. I had a two-hour commute. It was one hour each way. I was exhausted. I had to wake up at 5:00 AM every morning, which does not work with my body clock. I was tired all the time. I was really unhappy.
I remember thinking, how can I get myself out of this? I did start to think about startup ideas and that kind of stuff. But you know what I did instead is I realized that there was a quicker path out for me. It took years for me to learn, build, and get to the point where I was able to quit my day job and have my own products. The intermediate step I took was to go get a job, as you hinted at, working for companies who were doing interesting product things.
I went to the library. I checked out books on Pearl. This is 21 years ago. It was Pearl, HTML, ASP (Active Server Pages). I didn’t know any of those languages. I had written code as a kid, but I was not up-to-speed on any of the web languages. I learned that at night. I was tired, I was exhausted. I don’t remember what I was making, but it was something like $15 an hour. It was in that realm, $15–20 an hour. I didn’t have enough money.
It was in the Bay Area. That’s where rents at the time for a one-bedroom apartment were worth $2500. I literally could not afford it. I was living with my parents in the bedroom that I grew up in and I was asking myself, what the hell am I doing? What am I doing with my life because I sure am not having fun doing what I’m doing today.
I started teaching myself that and I applied for jobs and I wound up getting a job as a developer. It was in Sacramento. I moved from the Bay Area. Sherry and I had just gotten married. We moved out of town to a place where the rent was less than a third of the Bay Area. I was making more—because I was writing code—than I had as an electrician. That was a major shift for me. It was a major mental shift. It was a major happiness shift going from being tired all the time and working construction, which I didn’t particularly enjoy. It’s hard work and I’m able and willing to do that, but I didn’t feel like I was going anywhere. There was no upward mobility for me. And then once I started writing code, it was a huge shift.
That’s my story. Did I have to work nights and weekends, and make a big mental leap to relocate away from my family, my whole extended family had lived there? I moved away from them, basically, to make the shift. It was hard—I’m not going to lie—but that’s the decision I made.
I’m not trying to project on you and say you need to do everything that I did. I guess I’ll say: (a) there is certainly hope, and (b) there is not so much talent out there. We live in an incredible age, and in fact in an age that I didn’t live in 21 years ago where you can now go onto Codecademy, Coursera, and Udemy. You can go to Lambda school, which is a remote coding school in the Bay Area. You learn the code and you only have to pay them, if you get a job making more than $50,000 a year or $70,000 a year, coding for someone.
There are resources today that we couldn’t have dreamt of having to learn how to become a software developer back then. I’m not saying you have to become a software developer. I’m just saying if you’re already in IT, what are the avenues that you can explore that allow you to potentially work remotely? Because certainly remote work is a thing, that I like to say the bootstrappers found it 10–15 years ago and now the rest of the world is catching up. But remote work is more viable than ever.
There are just so many options. I really hope that you’re able to get around this thought that you don’t have the skills to go out and compete in the job space. It might feel like that but I would take an assessment of you’re in IT. You’re doing something, whether you’re a help desk. What are your skills and how can those be applied to a startup to where you can get out of this three hour commute, where you can get benefits, where you can work for a company and learn the ropes.
Hopefully, over time you’ll learn marketing, you’ll learn a little bit about sales, you’ll learn a little bit about product. Maybe you want to become a developer, maybe you can teach yourself that on the side, maybe you can learn and transition in the same company. There’s just so much opportunity if you’re working in the space.
If you want to build a SaaS app, get a job for a SaaS company. There are a lot of them and they’re hiring. There are entry levels and junior roles, apprenticeship roles, internships. It’s a matter of hustle. As I always say, it’s hard work, luck, and skill to have success as a founder, but it’s hard work, luck, and skill to create your next break for yourself.
I do think you’re going to have to work hard, I do think you’re going to have a little bit of luck. I guess build up your skills over time. As I said, I went to the library. That’s literally because there just weren’t that many resources. I think there was Code Monkey or something like that online. That was the place where I could learn Pearl and ASP. But now, you have so many more options. Whether it’s for free, whether it’s these three-month, six-month code bootcamps.
I know you can’t do those, the ones that happen during the day because obviously you’re working a full time job. You’re not trapped and there are absolutely opportunities out there for you. I appreciate you writing in, Julian. I hate to hear that you’re having a rough go of it, and I really hope you’re able to carve a way forward that provides you with not only some of the freedom you’re looking for, but with the purpose. The purpose that you’re looking for because it sounds like you’re missing out on both of those these days. Thanks again for writing in, Julian. Hope that helps.
My next question is from Nathan Brawn, and the subject is Call to Action for an Info Product Post Launch. “Hey Rob, I recently launched a niche info product, a book on learning Python and data science with baseball stats. The URL is codebaseball.com. Learn to Code with Baseball. Python. Pandas. Web Scraping. Databases. SQL. Machine Learning. APIs. All applied to Baseball Statistics.” Man, this is cool. I would’ve loved this 20 years ago when I was trying to learn how to code for the web.
“Pre-launch, I was collecting emails similar to how you describe in your blogpost, Why You Should Start Marketing the Day You Start Coding.” That’s with a landing page, obviously, that’s touting the value and touting what it’s going to bring. “Now that I’ve launched, I’m wondering whether my main goal should be selling the book right away—what I’ve done so far—or whether I should still be trying to collect people’s emails, perhaps I’m mailing them with a free chapter. Maybe I should be doing both.
I know in Start Small, Stay Small, you recommended not trying to sell customers right away. I turn browsers into prospects, but not sure whether that applies for relatively inexpensive information products like this. Looking at startupbook.net, which is now at startsmall.com,” which is our first Start Small, Stay Small, “I do see you just link to the sales page/offer a free sample of the content without trying to get emails. Perhaps that’s what you’d recommend. Cheers, Nate.”
Yeah, it’s an interesting question. Here is what I would do in your shoes, Nate. I would offer the ability to purchase from the site, of course, and I would do exactly what you’re doing, which is at the top, send me a free sample chapter. Someone enters their email and you’re basically offering them a chance to do both, to do either one. To get the free sample chapter, then you can ping them later, and ask them what they thought of the chapter. Obviously, there should be an offer at the end of that sample chapter to purchase the book and you can get in touch with them.
I would say what I’m doing at startsmall.com is actually sub-optimal. You’re right. I’m not asking for an email address before giving them the sample chapter. I do have a pitch in the end that says, “If you’re interested to read the remaining six chapters, I encourage you to go here and purchase the book.” But really to optimize, I should be asking for an email address, then they get to the download, then I follow up with them a week later, and then a few weeks later.
It’s a sales funnel, in essence. I would probably sell more books if I did that. When we put up this site—it was a couple of years ago—I was already wrapping up with TinySeed and frankly just didn’t carve out the time. Given that this book is 11 years old now—Start Small, Stay Small—it wasn’t a project for that one to take on and focus on at the time. In this instance, Nate, I think you got it dialed in and certainly wish you the best of luck with the book.
Our next question is from Fronz. His question is about virtual assistants. He says, “I’m a long time listener. One of my favorite episodes was The Wives episode.” That was, I believe, episode 200, where my wife, Sherry, came on the show with Mike’s wife, Alli, and they got to talk about us behind our backs. That was great. Anyway, back to the email.
“My friend’s career got hit hard by COVID this year. She’s a dancer and her gigs have been greatly diminished because of that. She now teaches online dance classes as well, but it’s hard. I told her to try to be a virtual assistant to supplement her needs. I remember you used to talk about VAs a lot. Where do you go to get your VAs? I want her to start looking for gigs there. Thanks, Fronz.”
If I were to be looking to get started as a VA, I would use UpWork. That’s the big place. You go there and you have a lower hourly rate to start to get some opportunities. Basically, you have to build out your ratings and your reliability, and to get that social proof, that people can think they can rely on you. There are several agencies that vet VAs. Maybe the struggle there is if she doesn’t have experience. they’re just going to send her away.
It used to be like bestjobs.ph. I found this email address, it’s in the Philippines. I’m assuming his friend is in the Philippines as well. Another one that hires in the Philippines is Virtual Staff Finder. But again, they vet pretty hard and if she had zero experience, she’s going to need to figure out a way to get some.
Here’s what I would do. I’d probably go to Virtual Staff Finder and apply and say, I am entry level, do you have a spot for me? I would also Google ‘entry-level VA staffing firms’ and see if there’s anybody who does. There are folks looking to train new VAs and then offer them as staff. And then on the side, I would definitely be applying to UpWork jobs and have my profile on there just to be […] out, to get the experience, and figure out if it’s actually a path that she wants to take.
It’s tough to be a VA in UpWork or really a VA anywhere because there are a lot of folks doing it and trying to do it. You kind of are a commodity until you prove otherwise. Frankly, proving otherwise usually involves doing really good work for people, surprising and impressing them, and then having them refer you out. Hope that helped, Fronz.
And my last question for the day, I believe came from Twitter. It’s funny. I have a screenshot of a conversation. I don’t remember who asked it and they asked, “Hey Rob. Currently listening to your podcast episode with Colin Gray. At the beginning of the episode, you mentioned getting a revenue multiple valuation rather than a profit multiple, if you were doing over $1 million in annual recurring revenue. We’re currently around $40,000 monthly, so $480,000 annual.
It’s just me and my co-founder, expenses are pretty low. Selling is something on our radar, but probably not for at least another year. Do you think it would make more sense to wait until hitting $83,000 MRR to maximize our valuation? I think we’ll hit that within two years at our current growth rate. Really appreciate all you do for the bootstrap SaaS community.”
Short answer is yes. It’s not like a light switch. It’s not at $83,333, suddenly it’s at revenue multiple. There’s a lot of different factors that come into play. In terms of growth, if you’re $75,000 and you’re growing, you can go to market with that and say we’re going to be at a million in the next month or whatever.
The further you get away from there, these days, if you’re at $2 million, your multiple is going to be even better than if you’re at $1 million. Not just the purchase price, but the actual exit multiple. Yes, in your shoes, I would absolutely be waiting to get north of a million. This is advice that I’ve given to other founders as well. It is just such a different game at that point because of the level of buyers and the number of buyers who have that bottom hand.
The bottom hand used to be no acquisitions below $50 million ARR. Then it was $25 million, and then it was $20 (million). By people, I mean private equity and the strategics really have that thirst to acquire SaaS companies because they’re such great businesses. $15 million, $10 million, $5 million, and it just has come down and down and down.
At a certain point, it’s not worth their time and effort to acquire businesses doing a couple hundred thousand a year. A lot of companies won’t do that. There are some micro private equity folks that will do it, but right around that $1 million mark is what I would be looking to do personally if I were in your shoes at a minimum.
If I were there and I were still growing, the longer you hold off, the higher your purchase price. No doubt. I say no doubt as long as your growth doesn’t plateau. There are things that can cause it not to do that, but as long as your growth is continuing you’re only going to get more. I do not see SaaS valuations and SaaS multiples going down any time soon. The bottom line is the level of the buyers that you’ll be able to talk with and run a process with changes north of a million.
If you read John Warrillow’s book, The Art of Selling Your Business—he came on back in January of this year—one of the big things that he talked about was getting multiple buyers. That is a big piece of advice that I give to founders as well. You’re going to get inbound interest, if you haven’t already, and selling to a single acquirer if you’re north of a million is not the way to go these days given the climate and the appetite for seven figure and higher SaaS apps.
If you’re going to do it, and I talked with John Warrillow about this, too, he and I both were saying, you need to get an advisor. Whether it’s a broker or an M&A advisor to represent you on that side. There are few folks out there, obviously, I’m familiar with Discretion Capital. Einar Vollset, my co-founder with TinySeed, was a founding partner there. They are a sell-side SaaS M&A advisors, where they don’t represent buyers, they only represent sellers of SaaS companies.
It’s a specialization, highly specialized, and it’s a million and up in ARR. They have the big list of all these private equity firms and strategics, depending on where you are. It’s a massive amount of effort. Hundreds and hundreds of person hours to look at your company and figure out who the most likely folks would be to put together the deck to get your financials in order, to get everything due diligence ready.
Basically, it’s like an enterprise sales process. There’s cold or warm outbound outreach of hey, this is happening, this process is happening, here’s the date, we want all the LOIs (letters of intent), which is when someone says hey, I want to try to acquire you and you try to get as many of those as possible and you get a new competitive bidding scenario. That’s the way. You run an auction for your company. That’s the way to maximize your multiple. You’ll hear it from John Warrillow, you’ll hear it from anyone who knows what they’re talking about when they talk about selling a company.
Anyway, that’s the long and short of it. There are certainly other advisors and I’d imagine investment banks. Most investment banks won’t come down below $100 or $50 million ARR. The deals are too small for them. I hope that helps, anonymous question asker. Sorry, I somewhat cut your name off of this conversation and I don’t even know what medium it happened, but I really do appreciate the question.
That wraps us up for this week. Thank you so much for joining me once again. I will be back in your earbuds again next Tuesday morning.
If you hear a question today that sparks in you to ask your own question, send an email to questions@startupsfortherestofus.com and I’ll get that answered just as soon as I can. Hopefully the next Q&A episode I will have a guest on to answer with me. Of course, voice mails and video questions go to the top of the stack. If you want to record something on your phone and send me a Dropbox link or a Google Drive link to questions@startupsfortherestofus.com, that works.
You can also go to startupsfortherestofus.com, there’s an ask a question link and we have video ask in place so you can just click a button on your phone or from your laptop and just record right there in the browser and upload it.
With that, let’s dive into our first question from Victor Wang. “Hi Rob, it’s Victor here. Thank you very much for your podcast. Can you recommend any resources for drafting operating agreements for the startup co-founders so we know what to do when certain circumstances occur? I.e., one of the co-founders wants to exit the business. Thank you again for your and your guests for producing Startups For the Rest of Us.”
Great question, Victor, and a very common one. First of all, the pat answer and really the right answer if you have the resources is to hire an attorney. Usually, the best attorneys I get are through referrals from someone else who I know who has used himself. If you’re in a mastermind group, I would ask for referrals there. If you’re in MicroConf Connect, I would ask in there. I believe there is a legal channel or an operating channel, one of those.
If you’re not on MicroConf Connect, why not? Because it’s free for founders and aspiring founders. Go to microconfconnect.com, get in there, and ask for advice. Referrals are the way that I found the best folks.
If that’s not a route you can go, in the US, there are some inexpensive services that can work and they work on the short-term. In the long-term, they may cause problems because they are a discount. It’s discount legal. Rocket Lawyer and LegalZoom are those two and later on if and when you hire an attorney for your company, they will often roll their eyes at the operating agreement that you got from there because there are just no specifics to your situation is usually what you end up with.
But it is a discounted option. In my opinion, those are better than writing your own, which I did once. It did not come back to bite me, but frankly, it probably should have. Please don’t write this on your own. If anything, you can draft up the bullets and draft up the understanding between the two of you and then you hand that to a lawyer and allow them to integrate it into an operating agreement.
UpCounsel, they acquired and shut down and now I think they’re back because I’m on upcounsel.com and I can see that they are the modern way to get legal work done. That is another area that I would check out. That’s usually where you actually hire an attorney. That would be a way to go and look. It’s kind of an attorney marketplace.
If you’re in Latin America, lexgo.cl. They’re a TinySeed batch three company. They are ‘legal made simple’ for your business and they are not only a SaaS app, but they have vetted attorneys in all the Latin American countries. They’re great service. We wouldn’t have invested in them if they weren’t. Certainly in Latin America I would do that and then in the US, thinking about the other options I outlined.
I did want to address part of your questions that you were asking directly. It’s the idea of what happens if a founder leaves after a certain amount of time before we’re done with the products, in other words. The way you handle that is with vesting. Usually the most standard vesting is 4 years with a 1 year cliff meaning no one gets any equity for the first 12 months and then the last 3 years, you then vest the last 75% of your equity.
If there are two founders working on, then you have 50-50 each. You would get 0 equity until month 12. Then you get a quarter of your 50%. That will be 12.25% and then you vest monthly on the remaining, you can change that if you want. You can say, hey, maybe it’s four years and every month we get 1/48th of our equity. You can make however you want to. But that’s the safeguard against someone doing just that, which is working on a project for six months and then walking away with all of their equity.
It’s a huge mistake some startups make and to be honest, it can decimate the company. It can mean that you can’t raise future funding, that you can’t take on future co-founder level people. It really messes up your cap table. On that specific issue, I just wanted to call it out because any startup I see forming without founder vesting, that’s a big red flag.
I hope that helps, Victor, and thanks for the question. Victor just recently asked this question. In fact, after a lot of the folks who send in written questions. But since he was a video question, we did move him on the top of the stack.
My next question is a voicemail from Brian Kid. “Hi Rob. This is Brian with haulersoftware.com. This app is in the waste management industry. My co-founder owned a business in waste management and built version 1 in a no-code platform because he just couldn’t find a good solution out there. He’s currently doing about $1000 a month. He reached out through his network, needed a technical co-founder, and he and I connected. Part of my buy-in is just to build version 2 as a standard web application and just get it up to par with version 1 can do now.
We see this as a side project. It will be a 50-50 partnership. I just wanted to ask, is there anything we should be thinking about as partners that’s specific to a SaaS app? Types of things we’ve asked so far are, what if one of us wants to move on to something else? What if one of us doesn’t want to spend as much time on the project? And just wanted to know if there’s anything we should be thinking about co-founding this SaaS product as a 50-50 partnership? Really a big fan and appreciate you answering this question.”
Funny that we had two such highly-related questions. Basically it’s vesting. That’s how you have to think about it. If you’re not working full time on it, you still (I think) would have to put in a minimum amount of hours perhaps each week or each month that folks that should be working. It’s really just a matter of discussing it in concrete terms and getting it in writing to determine what the vesting looks like.
Other than that, in terms of a SaaS company, specifically, there aren’t really any founder operating agreement terms that I think that wouldn’t be applicable to most tech startups, in essence, most startups that are going to be doing any kind of software. Or even I talked to a founder the other day—he’s actually a friend of a friend—and he is starting essentially a company to manufacture guitars and he’s going to do it on his own at first. He has equipment, he’s been doing it, selling the guitars. Then he wants to move into his garage so he needs some capital for equipment there. Even the operating agreement of a company like that should be similar.
There’s a shocking amount of similarity between a company like that and the kinds of mostly bootstrap SaaS that we would be thinking about. Once you get into a venture, if you’re going to raise a lot of money, you’re going to have a board. Things will start looking a lot different there. There are a lot of terms that get put in by investors, et cetera.
My advice would be not to find a small-town local attorney to do this, though, even if they have written operating agreements for the dry cleaner down the street, the car wash, or whatever. I would always look for an attorney whether it is on Lexgo, UpCounsel, or through Rocket Lawyer. An attorney that has experience with tech startups, whether they be venture-funded or not.
I really struggled when I found an attorney in Fresno who had helped form a lot of businesses, but it was a lot of consulting firms and a lot of local mom and pop businesses. While the operating agreement was good and everything turned out well, the biggest issue was just convincing him of the terms that we were thinking about. I felt like an uphill battle educating him really on what we were and what we did. I don’t think he understood the business very well, which is fine. Again, the actual agreement turned out great and it’s the one we use all the way until we were acquired a few years later.
For some reason, I need to find a local attorney in my town. I don’t know why I thought of that because given the whole interwebs these days, and I said earlier, referrals would be the place I would go in MicroConf Connect or whatever mastermind or community you’re in. But beyond that, I would look for someone with high ratings who has a lot of experience working with tech or software companies.
Hope that helps Brian. Thanks for sending in that question. Feel free to follow up if you have any more.
My next question is from Permad Biligiri. He says, “Which cloud and hosting providers do bootstrap SaaS founders generally use? Are there any patterns you’ve noticed in the choice of hosting and cloud solutions among bootstrappers?”
Yeah, there’s really only a handful that I see most people using. If you just want to get started, nice and easy, Heroku is a really nice, multi-language hosting platform. It’s a Platform as a Service, in essence. While it’s more expensive than something like AWS or Google Cloud, it is a lot easier and simpler to get started on. And then when the cost gets too high, I see a lot of folks move from there to AWS or to Google Cloud.
Some people don’t start on Heroku and they do want the control of having their own servers. That’s great, too. You don’t have to use Heroku. It’s all a trade off of the amount of time that you want to put in versus if you have $100 a month or whatever to pay to make that problem go away is the idea. I’ve certainly heard of a lot of folks hosting on DigitalOcean. Microsoft Azure, of course, if you’re in the Microsoft ecosystem.
By far, I’d say the one in two that I’ve seen are AWS (Amazon Web Services) and Google Cloud. There’s Heroku, DigitalOcean and Azure that I see as a second tier. Of course, there are a bazillion offers out there, but you asked for which patterns I’m seeing and that’s what I tend to see. Thanks for the question.
In the subject line of the next question is Struggling. It’s from Julian and he says, “Good evening Mr. Walling. Please excuse the rant. I’m a 20-year-old from Washington trying to build a startup out of my bedroom. I’ve worked on a few things here and there, but never really stuck with one plan and made clear progress. A few months ago, an organic startup idea came to me and I’ve been obsessed ever since. I, for one, feel motivated to work on something and see it through to the end.
I’ve started learning more about startup culture and the overall process. I discovered your podcast, started browsing Crunchbase, following people on Twitter, reading books and watching talks, interviews, et cetera. But I have one major thing holding me back—my job. I work an unfulfilling job in IT for $15 an hour, no benefits, three-hour commute,” holy moly, “and I’m too poor to take a couple of days a month off work. I’d love to get home and grind away and be productive, but I’m so defeated and exhausted at the end of the day. I can’t muster up enough energy to get anything done.
Unfortunately, all my startup work is reserved for the weekend at the moment. I love to work for a startup. I’ve contacted a few. I had to drop out of college for various reasons a few years back, so finding a proper job somewhere is difficult, if not impossible.” I really question that assumption, actually. “I’m willing to relocate anywhere if I receive an offer. There’s just so much talent out there I feel like I can’t compete. Have you known someone who’s been in a situation like this? What tips do you have for someone like me? Thanks for the great content and the motivation.”
This is tough, Julian. I’m sorry to hear this. Have I known people in situations like this? Absolutely. Have I been in a situation like this? Absolutely. When I graduated from college, I went to work as an electrician. It was kind of the family path. My dad had worked it for 42 years, my brother is now our project manager and an electrical contractor, and he was a field electrician for a while. I did it for a couple of years. I had a two-hour commute. It was one hour each way. I was exhausted. I had to wake up at 5:00 AM every morning, which does not work with my body clock. I was tired all the time. I was really unhappy.
I remember thinking, how can I get myself out of this? I did start to think about startup ideas and that kind of stuff. But you know what I did instead is I realized that there was a quicker path out for me. It took years for me to learn, build, and get to the point where I was able to quit my day job and have my own products. The intermediate step I took was to go get a job, as you hinted at, working for companies who were doing interesting product things.
I went to the library. I checked out books on Pearl. This is 21 years ago. It was Pearl, HTML, ASP (Active Server Pages). I didn’t know any of those languages. I had written code as a kid, but I was not up-to-speed on any of the web languages. I learned that at night. I was tired, I was exhausted. I don’t remember what I was making, but it was something like $15 an hour. It was in that realm, $15–20 an hour. I didn’t have enough money.
It was in the Bay Area. That’s where rents at the time for a one-bedroom apartment were worth $2500. I literally could not afford it. I was living with my parents in the bedroom that I grew up in and I was asking myself, what the hell am I doing? What am I doing with my life because I sure am not having fun doing what I’m doing today.
I started teaching myself that and I applied for jobs and I wound up getting a job as a developer. It was in Sacramento. I moved from the Bay Area. Sherry and I had just gotten married. We moved out of town to a place where the rent was less than a third of the Bay Area. I was making more—because I was writing code—than I had as an electrician. That was a major shift for me. It was a major mental shift. It was a major happiness shift going from being tired all the time and working construction, which I didn’t particularly enjoy. It’s hard work and I’m able and willing to do that, but I didn’t feel like I was going anywhere. There was no upward mobility for me. And then once I started writing code, it was a huge shift.
That’s my story. Did I have to work nights and weekends, and make a big mental leap to relocate away from my family, my whole extended family had lived there? I moved away from them, basically, to make the shift. It was hard—I’m not going to lie—but that’s the decision I made.
I’m not trying to project on you and say you need to do everything that I did. I guess I’ll say: (a) there is certainly hope, and (b) there is not so much talent out there. We live in an incredible age, and in fact in an age that I didn’t live in 21 years ago where you can now go onto Codecademy, Coursera, and Udemy. You can go to Lambda school, which is a remote coding school in the Bay Area. You learn the code and you only have to pay them, if you get a job making more than $50,000 a year or $70,000 a year, coding for someone.
There are resources today that we couldn’t have dreamt of having to learn how to become a software developer back then. I’m not saying you have to become a software developer. I’m just saying if you’re already in IT, what are the avenues that you can explore that allow you to potentially work remotely? Because certainly remote work is a thing, that I like to say the bootstrappers found it 10–15 years ago and now the rest of the world is catching up. But remote work is more viable than ever.
There are just so many options. I really hope that you’re able to get around this thought that you don’t have the skills to go out and compete in the job space. It might feel like that but I would take an assessment of you’re in IT. You’re doing something, whether you’re a help desk. What are your skills and how can those be applied to a startup to where you can get out of this three hour commute, where you can get benefits, where you can work for a company and learn the ropes.
Hopefully, over time you’ll learn marketing, you’ll learn a little bit about sales, you’ll learn a little bit about product. Maybe you want to become a developer, maybe you can teach yourself that on the side, maybe you can learn and transition in the same company. There’s just so much opportunity if you’re working in the space.
If you want to build a SaaS app, get a job for a SaaS company. There are a lot of them and they’re hiring. There are entry levels and junior roles, apprenticeship roles, internships. It’s a matter of hustle. As I always say, it’s hard work, luck, and skill to have success as a founder, but it’s hard work, luck, and skill to create your next break for yourself.
I do think you’re going to have to work hard, I do think you’re going to have a little bit of luck. I guess build up your skills over time. As I said, I went to the library. That’s literally because there just weren’t that many resources. I think there was Code Monkey or something like that online. That was the place where I could learn Pearl and ASP. But now, you have so many more options. Whether it’s for free, whether it’s these three-month, six-month code bootcamps.
I know you can’t do those, the ones that happen during the day because obviously you’re working a full time job. You’re not trapped and there are absolutely opportunities out there for you. I appreciate you writing in, Julian. I hate to hear that you’re having a rough go of it, and I really hope you’re able to carve a way forward that provides you with not only some of the freedom you’re looking for, but with the purpose. The purpose that you’re looking for because it sounds like you’re missing out on both of those these days. Thanks again for writing in, Julian. Hope that helps.
My next question is from Nathan Brawn, and the subject is Call to Action for an Info Product Post Launch. “Hey Rob, I recently launched a niche info product, a book on learning Python and data science with baseball stats. The URL is codebaseball.com. Learn to Code with Baseball. Python. Pandas. Web Scraping. Databases. SQL. Machine Learning. APIs. All applied to Baseball Statistics.” Man, this is cool. I would’ve loved this 20 years ago when I was trying to learn how to code for the web.
“Pre-launch, I was collecting emails similar to how you describe in your blogpost, Why You Should Start Marketing the Day You Start Coding.” That’s with a landing page, obviously, that’s touting the value and touting what it’s going to bring. “Now that I’ve launched, I’m wondering whether my main goal should be selling the book right away—what I’ve done so far—or whether I should still be trying to collect people’s emails, perhaps I’m mailing them with a free chapter. Maybe I should be doing both.
I know in Start Small, Stay Small, you recommended not trying to sell customers right away. I turn browsers into prospects, but not sure whether that applies for relatively inexpensive information products like this. Looking at startupbook.net, which is now at startsmall.com,” which is our first Start Small, Stay Small, “I do see you just link to the sales page/offer a free sample of the content without trying to get emails. Perhaps that’s what you’d recommend. Cheers, Nate.”
Yeah, it’s an interesting question. Here is what I would do in your shoes, Nate. I would offer the ability to purchase from the site, of course, and I would do exactly what you’re doing, which is at the top, send me a free sample chapter. Someone enters their email and you’re basically offering them a chance to do both, to do either one. To get the free sample chapter, then you can ping them later, and ask them what they thought of the chapter. Obviously, there should be an offer at the end of that sample chapter to purchase the book and you can get in touch with them.
I would say what I’m doing at startsmall.com is actually sub-optimal. You’re right. I’m not asking for an email address before giving them the sample chapter. I do have a pitch in the end that says, “If you’re interested to read the remaining six chapters, I encourage you to go here and purchase the book.” But really to optimize, I should be asking for an email address, then they get to the download, then I follow up with them a week later, and then a few weeks later.
It’s a sales funnel, in essence. I would probably sell more books if I did that. When we put up this site—it was a couple of years ago—I was already wrapping up with TinySeed and frankly just didn’t carve out the time. Given that this book is 11 years old now—Start Small, Stay Small—it wasn’t a project for that one to take on and focus on at the time. In this instance, Nate, I think you got it dialed in and certainly wish you the best of luck with the book.
Our next question is from Fronz. His question is about virtual assistants. He says, “I’m a long time listener. One of my favorite episodes was The Wives episode.” That was, I believe, episode 200, where my wife, Sherry, came on the show with Mike’s wife, Alli, and they got to talk about us behind our backs. That was great. Anyway, back to the email.
“My friend’s career got hit hard by COVID this year. She’s a dancer and her gigs have been greatly diminished because of that. She now teaches online dance classes as well, but it’s hard. I told her to try to be a virtual assistant to supplement her needs. I remember you used to talk about VAs a lot. Where do you go to get your VAs? I want her to start looking for gigs there. Thanks, Fronz.”
If I were to be looking to get started as a VA, I would use UpWork. That’s the big place. You go there and you have a lower hourly rate to start to get some opportunities. Basically, you have to build out your ratings and your reliability, and to get that social proof, that people can think they can rely on you. There are several agencies that vet VAs. Maybe the struggle there is if she doesn’t have experience. they’re just going to send her away.
It used to be like bestjobs.ph. I found this email address, it’s in the Philippines. I’m assuming his friend is in the Philippines as well. Another one that hires in the Philippines is Virtual Staff Finder. But again, they vet pretty hard and if she had zero experience, she’s going to need to figure out a way to get some.
Here’s what I would do. I’d probably go to Virtual Staff Finder and apply and say, I am entry level, do you have a spot for me? I would also Google ‘entry-level VA staffing firms’ and see if there’s anybody who does. There are folks looking to train new VAs and then offer them as staff. And then on the side, I would definitely be applying to UpWork jobs and have my profile on there just to be […] out, to get the experience, and figure out if it’s actually a path that she wants to take.
It’s tough to be a VA in UpWork or really a VA anywhere because there are a lot of folks doing it and trying to do it. You kind of are a commodity until you prove otherwise. Frankly, proving otherwise usually involves doing really good work for people, surprising and impressing them, and then having them refer you out. Hope that helped, Fronz.
And my last question for the day, I believe came from Twitter. It’s funny. I have a screenshot of a conversation. I don’t remember who asked it and they asked, “Hey Rob. Currently listening to your podcast episode with Colin Gray. At the beginning of the episode, you mentioned getting a revenue multiple valuation rather than a profit multiple, if you were doing over $1 million in annual recurring revenue. We’re currently around $40,000 monthly, so $480,000 annual.
It’s just me and my co-founder, expenses are pretty low. Selling is something on our radar, but probably not for at least another year. Do you think it would make more sense to wait until hitting $83,000 MRR to maximize our valuation? I think we’ll hit that within two years at our current growth rate. Really appreciate all you do for the bootstrap SaaS community.”
Short answer is yes. It’s not like a light switch. It’s not at $83,333, suddenly it’s at revenue multiple. There’s a lot of different factors that come into play. In terms of growth, if you’re $75,000 and you’re growing, you can go to market with that and say we’re going to be at a million in the next month or whatever.
The further you get away from there, these days, if you’re at $2 million, your multiple is going to be even better than if you’re at $1 million. Not just the purchase price, but the actual exit multiple. Yes, in your shoes, I would absolutely be waiting to get north of a million. This is advice that I’ve given to other founders as well. It is just such a different game at that point because of the level of buyers and the number of buyers who have that bottom hand.
The bottom hand used to be no acquisitions below $50 million ARR. Then it was $25 million, and then it was $20 (million). By people, I mean private equity and the strategics really have that thirst to acquire SaaS companies because they’re such great businesses. $15 million, $10 million, $5 million, and it just has come down and down and down.
At a certain point, it’s not worth their time and effort to acquire businesses doing a couple hundred thousand a year. A lot of companies won’t do that. There are some micro private equity folks that will do it, but right around that $1 million mark is what I would be looking to do personally if I were in your shoes at a minimum.
If I were there and I were still growing, the longer you hold off, the higher your purchase price. No doubt. I say no doubt as long as your growth doesn’t plateau. There are things that can cause it not to do that, but as long as your growth is continuing you’re only going to get more. I do not see SaaS valuations and SaaS multiples going down any time soon. The bottom line is the level of the buyers that you’ll be able to talk with and run a process with changes north of a million.
If you read John Warrillow’s book, The Art of Selling Your Business—he came on back in January of this year—one of the big things that he talked about was getting multiple buyers. That is a big piece of advice that I give to founders as well. You’re going to get inbound interest, if you haven’t already, and selling to a single acquirer if you’re north of a million is not the way to go these days given the climate and the appetite for seven figure and higher SaaS apps.
If you’re going to do it, and I talked with John Warrillow about this, too, he and I both were saying, you need to get an advisor. Whether it’s a broker or an M&A advisor to represent you on that side. There are few folks out there, obviously, I’m familiar with Discretion Capital. Einar Vollset, my co-founder with TinySeed, was a founding partner there. They are a sell-side SaaS M&A advisors, where they don’t represent buyers, they only represent sellers of SaaS companies.
It’s a specialization, highly specialized, and it’s a million and up in ARR. They have the big list of all these private equity firms and strategics, depending on where you are. It’s a massive amount of effort. Hundreds and hundreds of person hours to look at your company and figure out who the most likely folks would be to put together the deck to get your financials in order, to get everything due diligence ready.
Basically, it’s like an enterprise sales process. There’s cold or warm outbound outreach of hey, this is happening, this process is happening, here’s the date, we want all the LOIs (letters of intent), which is when someone says hey, I want to try to acquire you and you try to get as many of those as possible and you get a new competitive bidding scenario. That’s the way. You run an auction for your company. That’s the way to maximize your multiple. You’ll hear it from John Warrillow, you’ll hear it from anyone who knows what they’re talking about when they talk about selling a company.
Anyway, that’s the long and short of it. There are certainly other advisors and I’d imagine investment banks. Most investment banks won’t come down below $100 or $50 million ARR. The deals are too small for them. I hope that helps, anonymous question asker. Sorry, I somewhat cut your name off of this conversation and I don’t even know what medium it happened, but I really do appreciate the question.
That wraps us up for this week. Thank you so much for joining me once again. I will be back in your earbuds again next Tuesday morning.
Episode 562.5 | TinySeed Fall 2021 SaaS Accelerator Application Info Session
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The application for TinySeed’s Fall 2021 SaaS accelerator batch of startups will open for two weeks starting on August 9th, 2021.
Watch the video recording of the Fall 2021 Batch Info Session here: https://youtu.be/6dqTClonO2Y
Interested in applying? Join us for an info session with the TinySeed team to talk about the application process, what to expect as a member of TinySeed, and some of the things we are looking for in companies we welcome into the fold.
https://tinyseed.com
#tinyseed
We’ve written a few posts that might be helpful if you’re considering applying:
— Our Fall 2021 application announcement: https://tinyseed.com/latest/tinyseeds-fall-2021-application-announcement
— Preview our Fall 2021 application and requirements in this overview: https://tinyseed.com/latest/2021-application-preview
— Curious about what it’s like being a TinySeed founder?
Part 1 – https://tinyseed.com/latest/whats-it-like-being-a-tinyseed-founder
Part 2 – https://tinyseed.com/latest/part-2-tinyseed-founder
Episode 562 | “Measure Twice, Cut Once” + SaaS Holy Grails (A Rob Solo Adventure)
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In Episode 562, join Rob Walling for another solo adventure to talk about enterprise sales, mental frameworks for founders, undoable decisions, and how to handle being approached about an acquisition.
The topics we cover
[2:33] Enterprise sales advice
[5:48] Measure twice, cut once for SaaS
[10:56] Holy Grail of SaaS: Expansion Revenue
[13:12] Holy Grail of SaaS: Virality
[14:25] Holy Grail of SaaS: Big space with slow-moving incumbents
[15:46] Things to keep in mind when being approached about an acquisition
Links from the show
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: If you’ve raised $500,000 and you’re making decisions about $1000 here, $5000 there, you are able to throw that money around and basically move faster. You don’t get the decision fatigue or the nitpick fatigue that you get when you are truly bootstrapped.
This is Startups for the Rest of Us. I’m your host, Rob Walling. For more than 10 years on the show, we covered topics relating to building and growing startups using an ambitious but sustainable approach. We’re not willing to sacrifice our health or our relationships to grow a company. We want to build real businesses with real customers who pay us real money. Welcome back to the show. Thanks so much for joining me this week. It’s a Rob solo adventure
I’m going to be diving into a couple of things that I found on Twitter. It’s actually a tweet that I sent out a couple of weeks ago. As well as a really interesting thread on enterprise sales from Josh Ledgard of KickoffLabs, and talk about a couple of other mental frameworks and things that have been on my mind recently.
As I’ve said before, a lot of these topics that I talk about in these solo adventures 10 years ago would’ve been a blog post or a chapter of the book. These days given everything that I have going on with MicroConf, TinySeed, and this podcast, I don’t have as much time to write as I would like. But I’m still exposed to so many new ideas on a weekly basis as I look across 60 companies that I’m invested in.
A chunk of those is through TinySeed, and a chunk of our private angel investments that I made before starting TinySeed. I’m seeing a lot of patterns. I’m talking to a lot of founders who are facing things like massive growth, not enough growth, planning for an exit, getting an offer, or considering selling and wondering what they might sell for. Having to fire an employee. Having to break up with a co-founder. Having to deal with getting hacked. Having to deal with lawsuits. These stories are incredible.
As I walk through these with these founders, give them advice, and a lot of empathizing, I just realized that there are so many commonalities and so many mental frameworks I think that can be helpful. That’s what a lot of these solo adventures are.
I want to start by letting you know that yesterday, TinySeed applications for our Fall 2021 batch opened. It’s our fourth batch of companies. It’s going to start in November and this should bring us up to about 60 companies funded through TinySeed. If you’re a bootstrapped SaaS founder who is interested in potentially getting mentorship, advice, guidance, and just the right amount of funding, head to tinyseed.com and check it out.
My next topic for today is a tweet thread from Josh Ledgard about enterprise sales. It came out in March of this year. He says, “Here’s a thread with lessons learned for SaaS companies looking to sign “Enterprise” deals at higher price points for customers…” I will obviously link this thread up in the show notes. This is advice from Josh Ledgard having done enterprise sales with KickoffLabs, I believe.
“1. Get a lawyer to draft you a SaaS agreement. We interviewed a couple firms to find one that had a lot of SaaS experience. Typically they already have a good boilerplate agreement you can start from.”
The beauty is 10 years ago, to try to get a SaaS agreement, there were a handful of (if any) lawyers who really had experience with it. We are at a great time to be running a SaaS company because there are just more people with experience. Whether you’re looking for a customer success manager or a salesperson with SaaS experience, there is more every day. Again, 10 years ago, trying to find a SaaS sales expert or a SaaS customer success person, that world didn’t even exist back then. That phrase came about maybe five or six years ago, it was really hard.
Back to Josh’s tweet. “2. Define clear limits and have a way to monitor and enforce them. When something goes wrong bc a customer under bought you should be able to demonstrate “Here’s what you bought and here’s where we enforced the limit.”
Don’t list anything on your standard pricing as “unlimited”.” This is advice I often give the founders. “Even if you don’t call out every limit in bold text… always define limits in your TOS. You’ll find these limits are helpful when customers think they will want to go over them.
Default to saying no to legal changes. Every single company that looks at your standard enterprise agreement is going to send back their own agreement or 50 changes. All lawyers want to get paid and prove they add value.”
Yes, this is very common. The moment someone says they want to edit your TOS, they want a custom TOS, they want their own, your price skyrockets instantly into the enterprise. If you have a $100 or $200 a month plan and someone says, I need to run my terms of service by legal, that’s when you’re like that’s our enterprise plan. That’s $25,000 a year. That’s the minimum. It has to be that because you know that this procurement process is going to be painful. Back to Josh’s tweet.
“4.1 We’ve found a little bit of pushback saves a lot of money. Most of the time you’ll find out “ok, we’re good with only this one smaller change”.So it is a negotiation.
“4.2 Charge for changes. We default to a base charge to “Implement” an enterprise agreement on top of the monthly fee.” That’s what I was referring to, “and require a min 3 month commitment. This is to cover the cost of having our team and lawyers review even the small change and any signed agreement.”
I would take it further and say annual. If you’re going to be an enterprise and you’re going to go through this painful procurement process, I don’t want someone sticking around for three months. They should stick around for a year if they’re going to put you through this ringer.
I don’t want to read through his entire tweet thread. It goes all the way through another dozen points or more. Actually, his last point, if you take away one thing from this thread, it should probably be the classic advice from MicroConf of charge more than you think you should. Really nice tweetstorm from Josh Ledgard. He is @joshaledgard on Twitter. As I said, we will link that up in the show notes.
My dad worked construction. He was an electrician for 42 years. He became a project manager and a supervisor and all that, but really at heart, he is a person who builds things with his hands. My brother still works in construction as a project manager. I worked for an electrical contractor my summers and breaks. And then for a couple of years out of college, I was wiring up office buildings, basically. I was a guy with a tool belt and a drill. We’re doing office buildings and sometimes manufacturing facilities that made chips and all kinds of crazy stuff out in the Bay Area.
Something that folks would say—I heard it actually a lot from the carpenters—is a phrase, you may have heard it. It’s measure twice, cut once. The idea behind this advice is that once you’ve cut, you can’t go back and uncut. Before you cut that piece of wood, before you cut that piece of rebar, before you cut that piece of wire molding, you want to be sure that you have the right length. It’s easy to measure twice, but once you’ve cut it, you’ve wasted the material, in essence. This is especially important when it’s something that’s very expensive.
What I’ve realized is that in construction, that advice is good. It’s sensible to be a tradesperson who is being deliberate and being thoughtful about what they’re doing. What I’ve realized is that in startups, this advice applies really only to those more permanent decisions that you have to make. Most decisions you make are undoable. There are things you can undo.
Making a decision to hire someone, you can fire them. It may suck to undo some of these things, but they are undoable. If you signed an office lease for two or three years, it may be a bummer and you may have to pay some money, but usually, you can negotiate your way out of it later if you decide to move. You can find tenants to sublet it. I’ve seen all of these things happen to startups. If you build your infrastructure on Heroku, it’s a big decision to move away from it, but it’s possible to move them to AWS or Google Cloud.
A lot of this stuff is undoable. Again with pain, a lot of these are undoable. Then there are decisions that are mostly set in stone. Maybe a life decision like usually getting a divorce is done. In theory, yes, some divorced people get married again. But it’s unlikely. Once you make that decision and the pain of it, it’s going to be very hard to undo that decision.
Selling your company. In theory, could you buy it back years later? Yeah, that happens 1 in 10,000 times probably. Selling your company is another, and I would say taking investment is one that is hard to undo. You can always buy out investors later, but these big financial transactions and financial decisions are ones that I think are a lot more difficult to undo.
I think another one is spending money on things that basically don’t hold their value. In a personal context, that’s buying that expensive brand new SUV. In a professional context, that’s renting an office and buying a bunch of furniture that you’ll never be able to get the money out of. Those are undoable decisions.
You can sell the SUV and take a hit. You can sell the furniture and take a big hit because you’ll sell it used. It’s partially undoable, but those are decisions that I would think long and hard about before doing a big capital expenditure. Depending on, of course, how much money you have to invest in it. If you’ve raised $500,000 and you’re making decisions about $1000 here, $5000 there, you are able to throw that money around and basically move faster. You don’t get the decision fatigue or the nitpick fatigue that you get when you are truly bootstrapped.
I felt this when we were bootstrapped with Drip, then we were acquired by a company that had $38 million in venture capital and suddenly, I made a lot fewer decisions that involved $100 here, $1000 here. I remember sitting in a meeting in the first couple of months after the acquisition and I was agonizing to the CEO and the COO about whether we should do something with our AWS hosting. They asked me how much does this cost.
I spent time with Derek talking it through and figuring out some ways around it and workarounds that we’re going to take a weeks’ worth of engineering time and it was $1000 a month. What I realized as a bootstrapper, we had thought this is important and they laughed. They said, you’re wasting your time, just do this because we have the money. Just go ahead and spend the money, basically, instead of spending engineering time because that was the more precious commodity.
In summary, measure twice, cut once, but only in those undoable or more permanent decisions. It’s a learned skill in my experience to identify which decisions are undoable, and what you’ll find is 80% or 90% of them are. Usually, at some cost. It’s either a personal cost where you have to come back and negotiate, apologize, or undo something that may hurt your pride. Or there’s a financial cost where you don’t lose all the money but you’ll lose 20% or 30% on the resale of it.
But I think it’s easy to get stuck in basically indecision, perseverate, and overanalyze decisions that are not that important and are decisions that you can undo later. And those ones you should make quickly and then fix down the line once you have more information.
Someone asked me the other day if I was going to start another SaaS company, what my mental criteria would be around it. I realized there were three requirements that I would absolutely want in any SaaS app that I was going to start today. Now, take it for what it’s worth because I’m a serial entrepreneur with successes under my belt. I would be able to raise funding. I mean there’s a lot here. I’m not on step one of the stair-step approach.
But there are these things that I think are the holy grails of SaaS, and I don’t think they’re talked about enough, to be honest. I started harping on these a couple of years ago, but I still don’t see people trying to either implement them in their own SaaS apps or to consider going in the markets with these. Number one is the high potential for expansion revenue. That is where, for example, with an email service provider, if I’m charging based on the number of subscribers you have, people who are successful are going to get more subscribers over time. It’s just what happens. Your list just grows if you’re successful.
You charge per subscriber or per 1000 subscribers. That means that in any given month, even if you add zero customers, your revenue will go up. Your MRR will go up. This leads to this unbelievable holy grail called net negative churn. That is where you can literally add zero customers in a month and your MRR goes up.
As you add customers, we always think of it as like I have 3% churn, I have 8% churn. When we sold it, Drip had net negative churn more months than it didn’t. If it was minus -1%, -2%, -3%, these are the businesses like the Salesforces out there, like the MailChimps, maybe the Basecamps (they don’t talk about the financials), but those businesses mint money. They mint money because they grow when you do nothing. Therefore, when you do something they grow even faster.
In terms of Salesforce, I talked about ESP, having subscribers. Salesforce has seats. Over time, successful companies hire more salespeople. They hire more employees and so they need to buy more seats. Again, I would only enter a market where there are expansion revenue possibilities, which could then lead to a net negative trend because to me that is the number one. There is a reason it’s first when I’m talking about these three things because that is the most important.
The second one is I would want some element of virality. I don’t mean in the old school like refer a friend or viral like one of those old Facebook games that invite your friends or whatever. I’m thinking more about some type of link that is shared. Think about SavvyCal, which is a Calendly competitor. The more people who use SavvyCal, the more people are sending out links to other people. They start to think, this is interesting. I wonder how this is different from what I’m using today.
Docsketch which is now SignWell, signwell.com is e-signature. Every time we at TinySeed or MicroConf send out a document for signature, that person sees signwell.com. There’s a viral loop there. Even if you were starting, I’ll back ESP because I have so much experience there. If I had a free plan with my ESP, certainly, my company name and link would be in the footer of those emails. Even without a free plan, if you have any type of interface, a popup that appears on your customer’s websites, an email capture widget or what have you, I would want that powered by my company linked in there.
We definitely saw people click through. We had a power by Drip link back in the day and we saw people click through and become customers. Then the third component that I would want in a space is I would want to go into a big space with slow-moving incumbents so that I can get customers to switch versus educate. That’s not to say that you shouldn’t consider going into a smaller niche without big slow-moving incumbents. You can go to tinyseed.com and scroll down and see all 41, 42 companies that we funded and you click through and there’s construction management, software for home improvement contractors.
There are three apps in the security niche. There’s one that offers financial data to MSPs, which are managed service providers. There’s a news API. There’s affiliate software. A lot of these are niche, and so I’m not saying don’t go niche, never go niche. But I’m saying, myself, these days, if I was going to go, I would go after a big opportunity. I would want to be in a space with slow-moving/hated/despised competitors where I see people complaining on message boards or on Twitter, and I can see an angle to doing a better job than them.
To go back to earlier examples, I mean, that was one of the reasons that Drip was successful is we had that in the ESP and in the marketing automation space. That’s something that SavvyCal has. That’s something that SignWell has. Given how long SaaS has been around at this point, it’s not something that’s impossible to find.
Finally, it’s relatively frequent that I have conversations with a founder who is considering selling, who has been approached either by a competitor or a strategic acquirer, sometimes private equity, about a potential acquisition. I mean, it’s probably once a week. Again, across my investments, but also just people reaching out because I have advertised on this podcast that—talk about undoable decisions.
I said, I’m not willing to do consulting. I can’t advise founders open-ended, but I can absolutely have a conversation for founders who are at a critical, critical point where hundreds of thousands, if not millions of dollars are on the line. It’s important to me that founders have, I guess, someone to bounce at that off of. I have a lot of conversations around this and eventually a particular bulleted list. I think this was in an email, maybe it was a Slack thread in the TinySeed Slack.
These are just a couple of things to keep in mind when a competitor, strategic, or private equity approaches you about an acquisition. The first is, this is way more common than people think. Across our first two batches of TinySeed, I think it’s north of one-third of the companies that have been approached about an acquisition over the first 18 months of the accelerator. It’s common that people start this conversation, most don’t go through.
That’s my second point. Remember that the most likely outcome is that no deal happens for one reason or another. Often it’s valuation. Someone wants a really good deal. They want to buy you for 1X ARR. They want to do an acqui-hire where here’s $500,000 in company stock, invested over this many years for you to shut your company down and come work for us.
Point three and my usual advice to people is have the conversation but work really hard to avoid being distracted by it. That’s one of the biggest mistakes you can make is to sink a bunch of time or a bunch of mental headspace into a deal that again is unlikely to happen. For every 10 or 20 conversations that start, maybe one deal closes. It’s just not likely to happen.
The second most likely outcome is that someone’s trying to acqui-hire you. As I said before, they offer you a few hundred grand to come be an employee. Most of the offers that I see, I’d say the majority—it’s not 90%, but 50% or 60% that’s really what the companies are trying to do. Know upfront whether that’s interesting to you, my guess is it’s probably not but I suppose it depends on your situation.
My last piece of advice, I’m not a lawyer, this is not legal advice but I would always sign an NDA before disclosing financials. Before I start tossing out my MRR, my customer count, or anything else. You also need to be aware that they may be asking for information that they will use to compete against you later. I mean, that’s the risk you take with a conversation like this. You have to weigh that.
An NDA is just a contract. It doesn’t stop someone from being a jerk. It doesn’t stop someone from lying. You would have to prove and enforce that they took what you said and use that against you, and you would probably have to do it in court. An NDA is really just a piece of paper. It’s a backstop, but there still needs to be a level of care that you need to consider.
When we were considering selling Drip, we got inbound interest. I think we had five inbound over the course of about 18 months. Every time, I had to evaluate how much do I tell them and will they use us even though we signed NDAs? Will they use this to someday compete against me? I had to just say, I guess anything I tell them, I need to be able to out-compete them.
That’s it for today’s episode. Thanks so much for joining me again. As a reminder, TinySeed applications for our Fall 2021 batch have opened. Head to tinyseed.com if you’re interested. If you have left this podcast a five-star review, I would really appreciate it. That’s a wrap for this week and I’ll be back in your ear buds again next Tuesday morning.
This is Startups for the Rest of Us. I’m your host, Rob Walling. For more than 10 years on the show, we covered topics relating to building and growing startups using an ambitious but sustainable approach. We’re not willing to sacrifice our health or our relationships to grow a company. We want to build real businesses with real customers who pay us real money. Welcome back to the show. Thanks so much for joining me this week. It’s a Rob solo adventure
I’m going to be diving into a couple of things that I found on Twitter. It’s actually a tweet that I sent out a couple of weeks ago. As well as a really interesting thread on enterprise sales from Josh Ledgard of KickoffLabs, and talk about a couple of other mental frameworks and things that have been on my mind recently.
As I’ve said before, a lot of these topics that I talk about in these solo adventures 10 years ago would’ve been a blog post or a chapter of the book. These days given everything that I have going on with MicroConf, TinySeed, and this podcast, I don’t have as much time to write as I would like. But I’m still exposed to so many new ideas on a weekly basis as I look across 60 companies that I’m invested in.
A chunk of those is through TinySeed, and a chunk of our private angel investments that I made before starting TinySeed. I’m seeing a lot of patterns. I’m talking to a lot of founders who are facing things like massive growth, not enough growth, planning for an exit, getting an offer, or considering selling and wondering what they might sell for. Having to fire an employee. Having to break up with a co-founder. Having to deal with getting hacked. Having to deal with lawsuits. These stories are incredible.
As I walk through these with these founders, give them advice, and a lot of empathizing, I just realized that there are so many commonalities and so many mental frameworks I think that can be helpful. That’s what a lot of these solo adventures are.
I want to start by letting you know that yesterday, TinySeed applications for our Fall 2021 batch opened. It’s our fourth batch of companies. It’s going to start in November and this should bring us up to about 60 companies funded through TinySeed. If you’re a bootstrapped SaaS founder who is interested in potentially getting mentorship, advice, guidance, and just the right amount of funding, head to tinyseed.com and check it out.
My next topic for today is a tweet thread from Josh Ledgard about enterprise sales. It came out in March of this year. He says, “Here’s a thread with lessons learned for SaaS companies looking to sign “Enterprise” deals at higher price points for customers…” I will obviously link this thread up in the show notes. This is advice from Josh Ledgard having done enterprise sales with KickoffLabs, I believe.
“1. Get a lawyer to draft you a SaaS agreement. We interviewed a couple firms to find one that had a lot of SaaS experience. Typically they already have a good boilerplate agreement you can start from.”
The beauty is 10 years ago, to try to get a SaaS agreement, there were a handful of (if any) lawyers who really had experience with it. We are at a great time to be running a SaaS company because there are just more people with experience. Whether you’re looking for a customer success manager or a salesperson with SaaS experience, there is more every day. Again, 10 years ago, trying to find a SaaS sales expert or a SaaS customer success person, that world didn’t even exist back then. That phrase came about maybe five or six years ago, it was really hard.
Back to Josh’s tweet. “2. Define clear limits and have a way to monitor and enforce them. When something goes wrong bc a customer under bought you should be able to demonstrate “Here’s what you bought and here’s where we enforced the limit.”
Don’t list anything on your standard pricing as “unlimited”.” This is advice I often give the founders. “Even if you don’t call out every limit in bold text… always define limits in your TOS. You’ll find these limits are helpful when customers think they will want to go over them.
Default to saying no to legal changes. Every single company that looks at your standard enterprise agreement is going to send back their own agreement or 50 changes. All lawyers want to get paid and prove they add value.”
Yes, this is very common. The moment someone says they want to edit your TOS, they want a custom TOS, they want their own, your price skyrockets instantly into the enterprise. If you have a $100 or $200 a month plan and someone says, I need to run my terms of service by legal, that’s when you’re like that’s our enterprise plan. That’s $25,000 a year. That’s the minimum. It has to be that because you know that this procurement process is going to be painful. Back to Josh’s tweet.
“4.1 We’ve found a little bit of pushback saves a lot of money. Most of the time you’ll find out “ok, we’re good with only this one smaller change”.So it is a negotiation.
“4.2 Charge for changes. We default to a base charge to “Implement” an enterprise agreement on top of the monthly fee.” That’s what I was referring to, “and require a min 3 month commitment. This is to cover the cost of having our team and lawyers review even the small change and any signed agreement.”
I would take it further and say annual. If you’re going to be an enterprise and you’re going to go through this painful procurement process, I don’t want someone sticking around for three months. They should stick around for a year if they’re going to put you through this ringer.
I don’t want to read through his entire tweet thread. It goes all the way through another dozen points or more. Actually, his last point, if you take away one thing from this thread, it should probably be the classic advice from MicroConf of charge more than you think you should. Really nice tweetstorm from Josh Ledgard. He is @joshaledgard on Twitter. As I said, we will link that up in the show notes.
My dad worked construction. He was an electrician for 42 years. He became a project manager and a supervisor and all that, but really at heart, he is a person who builds things with his hands. My brother still works in construction as a project manager. I worked for an electrical contractor my summers and breaks. And then for a couple of years out of college, I was wiring up office buildings, basically. I was a guy with a tool belt and a drill. We’re doing office buildings and sometimes manufacturing facilities that made chips and all kinds of crazy stuff out in the Bay Area.
Something that folks would say—I heard it actually a lot from the carpenters—is a phrase, you may have heard it. It’s measure twice, cut once. The idea behind this advice is that once you’ve cut, you can’t go back and uncut. Before you cut that piece of wood, before you cut that piece of rebar, before you cut that piece of wire molding, you want to be sure that you have the right length. It’s easy to measure twice, but once you’ve cut it, you’ve wasted the material, in essence. This is especially important when it’s something that’s very expensive.
What I’ve realized is that in construction, that advice is good. It’s sensible to be a tradesperson who is being deliberate and being thoughtful about what they’re doing. What I’ve realized is that in startups, this advice applies really only to those more permanent decisions that you have to make. Most decisions you make are undoable. There are things you can undo.
Making a decision to hire someone, you can fire them. It may suck to undo some of these things, but they are undoable. If you signed an office lease for two or three years, it may be a bummer and you may have to pay some money, but usually, you can negotiate your way out of it later if you decide to move. You can find tenants to sublet it. I’ve seen all of these things happen to startups. If you build your infrastructure on Heroku, it’s a big decision to move away from it, but it’s possible to move them to AWS or Google Cloud.
A lot of this stuff is undoable. Again with pain, a lot of these are undoable. Then there are decisions that are mostly set in stone. Maybe a life decision like usually getting a divorce is done. In theory, yes, some divorced people get married again. But it’s unlikely. Once you make that decision and the pain of it, it’s going to be very hard to undo that decision.
Selling your company. In theory, could you buy it back years later? Yeah, that happens 1 in 10,000 times probably. Selling your company is another, and I would say taking investment is one that is hard to undo. You can always buy out investors later, but these big financial transactions and financial decisions are ones that I think are a lot more difficult to undo.
I think another one is spending money on things that basically don’t hold their value. In a personal context, that’s buying that expensive brand new SUV. In a professional context, that’s renting an office and buying a bunch of furniture that you’ll never be able to get the money out of. Those are undoable decisions.
You can sell the SUV and take a hit. You can sell the furniture and take a big hit because you’ll sell it used. It’s partially undoable, but those are decisions that I would think long and hard about before doing a big capital expenditure. Depending on, of course, how much money you have to invest in it. If you’ve raised $500,000 and you’re making decisions about $1000 here, $5000 there, you are able to throw that money around and basically move faster. You don’t get the decision fatigue or the nitpick fatigue that you get when you are truly bootstrapped.
I felt this when we were bootstrapped with Drip, then we were acquired by a company that had $38 million in venture capital and suddenly, I made a lot fewer decisions that involved $100 here, $1000 here. I remember sitting in a meeting in the first couple of months after the acquisition and I was agonizing to the CEO and the COO about whether we should do something with our AWS hosting. They asked me how much does this cost.
I spent time with Derek talking it through and figuring out some ways around it and workarounds that we’re going to take a weeks’ worth of engineering time and it was $1000 a month. What I realized as a bootstrapper, we had thought this is important and they laughed. They said, you’re wasting your time, just do this because we have the money. Just go ahead and spend the money, basically, instead of spending engineering time because that was the more precious commodity.
In summary, measure twice, cut once, but only in those undoable or more permanent decisions. It’s a learned skill in my experience to identify which decisions are undoable, and what you’ll find is 80% or 90% of them are. Usually, at some cost. It’s either a personal cost where you have to come back and negotiate, apologize, or undo something that may hurt your pride. Or there’s a financial cost where you don’t lose all the money but you’ll lose 20% or 30% on the resale of it.
But I think it’s easy to get stuck in basically indecision, perseverate, and overanalyze decisions that are not that important and are decisions that you can undo later. And those ones you should make quickly and then fix down the line once you have more information.
Someone asked me the other day if I was going to start another SaaS company, what my mental criteria would be around it. I realized there were three requirements that I would absolutely want in any SaaS app that I was going to start today. Now, take it for what it’s worth because I’m a serial entrepreneur with successes under my belt. I would be able to raise funding. I mean there’s a lot here. I’m not on step one of the stair-step approach.
But there are these things that I think are the holy grails of SaaS, and I don’t think they’re talked about enough, to be honest. I started harping on these a couple of years ago, but I still don’t see people trying to either implement them in their own SaaS apps or to consider going in the markets with these. Number one is the high potential for expansion revenue. That is where, for example, with an email service provider, if I’m charging based on the number of subscribers you have, people who are successful are going to get more subscribers over time. It’s just what happens. Your list just grows if you’re successful.
You charge per subscriber or per 1000 subscribers. That means that in any given month, even if you add zero customers, your revenue will go up. Your MRR will go up. This leads to this unbelievable holy grail called net negative churn. That is where you can literally add zero customers in a month and your MRR goes up.
As you add customers, we always think of it as like I have 3% churn, I have 8% churn. When we sold it, Drip had net negative churn more months than it didn’t. If it was minus -1%, -2%, -3%, these are the businesses like the Salesforces out there, like the MailChimps, maybe the Basecamps (they don’t talk about the financials), but those businesses mint money. They mint money because they grow when you do nothing. Therefore, when you do something they grow even faster.
In terms of Salesforce, I talked about ESP, having subscribers. Salesforce has seats. Over time, successful companies hire more salespeople. They hire more employees and so they need to buy more seats. Again, I would only enter a market where there are expansion revenue possibilities, which could then lead to a net negative trend because to me that is the number one. There is a reason it’s first when I’m talking about these three things because that is the most important.
The second one is I would want some element of virality. I don’t mean in the old school like refer a friend or viral like one of those old Facebook games that invite your friends or whatever. I’m thinking more about some type of link that is shared. Think about SavvyCal, which is a Calendly competitor. The more people who use SavvyCal, the more people are sending out links to other people. They start to think, this is interesting. I wonder how this is different from what I’m using today.
Docsketch which is now SignWell, signwell.com is e-signature. Every time we at TinySeed or MicroConf send out a document for signature, that person sees signwell.com. There’s a viral loop there. Even if you were starting, I’ll back ESP because I have so much experience there. If I had a free plan with my ESP, certainly, my company name and link would be in the footer of those emails. Even without a free plan, if you have any type of interface, a popup that appears on your customer’s websites, an email capture widget or what have you, I would want that powered by my company linked in there.
We definitely saw people click through. We had a power by Drip link back in the day and we saw people click through and become customers. Then the third component that I would want in a space is I would want to go into a big space with slow-moving incumbents so that I can get customers to switch versus educate. That’s not to say that you shouldn’t consider going into a smaller niche without big slow-moving incumbents. You can go to tinyseed.com and scroll down and see all 41, 42 companies that we funded and you click through and there’s construction management, software for home improvement contractors.
There are three apps in the security niche. There’s one that offers financial data to MSPs, which are managed service providers. There’s a news API. There’s affiliate software. A lot of these are niche, and so I’m not saying don’t go niche, never go niche. But I’m saying, myself, these days, if I was going to go, I would go after a big opportunity. I would want to be in a space with slow-moving/hated/despised competitors where I see people complaining on message boards or on Twitter, and I can see an angle to doing a better job than them.
To go back to earlier examples, I mean, that was one of the reasons that Drip was successful is we had that in the ESP and in the marketing automation space. That’s something that SavvyCal has. That’s something that SignWell has. Given how long SaaS has been around at this point, it’s not something that’s impossible to find.
Finally, it’s relatively frequent that I have conversations with a founder who is considering selling, who has been approached either by a competitor or a strategic acquirer, sometimes private equity, about a potential acquisition. I mean, it’s probably once a week. Again, across my investments, but also just people reaching out because I have advertised on this podcast that—talk about undoable decisions.
I said, I’m not willing to do consulting. I can’t advise founders open-ended, but I can absolutely have a conversation for founders who are at a critical, critical point where hundreds of thousands, if not millions of dollars are on the line. It’s important to me that founders have, I guess, someone to bounce at that off of. I have a lot of conversations around this and eventually a particular bulleted list. I think this was in an email, maybe it was a Slack thread in the TinySeed Slack.
These are just a couple of things to keep in mind when a competitor, strategic, or private equity approaches you about an acquisition. The first is, this is way more common than people think. Across our first two batches of TinySeed, I think it’s north of one-third of the companies that have been approached about an acquisition over the first 18 months of the accelerator. It’s common that people start this conversation, most don’t go through.
That’s my second point. Remember that the most likely outcome is that no deal happens for one reason or another. Often it’s valuation. Someone wants a really good deal. They want to buy you for 1X ARR. They want to do an acqui-hire where here’s $500,000 in company stock, invested over this many years for you to shut your company down and come work for us.
Point three and my usual advice to people is have the conversation but work really hard to avoid being distracted by it. That’s one of the biggest mistakes you can make is to sink a bunch of time or a bunch of mental headspace into a deal that again is unlikely to happen. For every 10 or 20 conversations that start, maybe one deal closes. It’s just not likely to happen.
The second most likely outcome is that someone’s trying to acqui-hire you. As I said before, they offer you a few hundred grand to come be an employee. Most of the offers that I see, I’d say the majority—it’s not 90%, but 50% or 60% that’s really what the companies are trying to do. Know upfront whether that’s interesting to you, my guess is it’s probably not but I suppose it depends on your situation.
My last piece of advice, I’m not a lawyer, this is not legal advice but I would always sign an NDA before disclosing financials. Before I start tossing out my MRR, my customer count, or anything else. You also need to be aware that they may be asking for information that they will use to compete against you later. I mean, that’s the risk you take with a conversation like this. You have to weigh that.
An NDA is just a contract. It doesn’t stop someone from being a jerk. It doesn’t stop someone from lying. You would have to prove and enforce that they took what you said and use that against you, and you would probably have to do it in court. An NDA is really just a piece of paper. It’s a backstop, but there still needs to be a level of care that you need to consider.
When we were considering selling Drip, we got inbound interest. I think we had five inbound over the course of about 18 months. Every time, I had to evaluate how much do I tell them and will they use us even though we signed NDAs? Will they use this to someday compete against me? I had to just say, I guess anything I tell them, I need to be able to out-compete them.
That’s it for today’s episode. Thanks so much for joining me again. As a reminder, TinySeed applications for our Fall 2021 batch have opened. Head to tinyseed.com if you’re interested. If you have left this podcast a five-star review, I would really appreciate it. That’s a wrap for this week and I’ll be back in your ear buds again next Tuesday morning.
Episode 561 | Launching on Product Hunt and DIY vs. DFY
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In Episode 561, Rob Walling chats with Andy Cabasso, co-founder of Postaga, about launching on Product Hunt, having a done-for-you service in addition to a DIY self-service SaaS app, growing to a team of six people, having a free plan, and doing a ton of customer development in the early days.
The topics we cover
[01:35] Selling an agency with retainers to start Postaga
[03:46] Explaining Postaga simply and succintly
[06:32] Size and stage of Postaga
[07:24] Using Postaga to market Postaga
[10:22] Learning from early users
[13:56] Launching on Product Hunt
[18:09] Was it worth it to launch on Product Hunt?
[20:30] Not charging at launch
[22:22] Conjecturing on a Product Hunt flop
[23:26] Postaga pricing plans
[25:58] A big month of growth
[32:13] A SaaS product with a service component
Links from the show
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: Welcome back to Startups for the Rest of Us. Today I talked with one of the co-founders of Postaga about launching on Product Hunt, having it done-for-you service in addition to a DIY self-service SaaS app, growing to a team of six people, having a free plan, and doing a ton of customer development in the early days. Postaga is an outreach tool that helps you build links, get on podcasts, and do all types of things. It’s a pretty interesting app. You should check it out, postaga.com.
But before we dive into that, I want to let you know that MicroConf tickets are on sale. You should head to microconf.com. Assuming we haven’t sold out by the time this goes live, we have five events in five weeks in September and early October, ranging in locations from Croatia to London, to Boston, to Portland and Austin, Texas. We’re super excited. I’m super excited to get back to these events in person. I hope to connect with you if you make it out to one, microconf.com to check that out.
With that, let’s dive into my conversation with Andy Cabasso of Postaga. Andy, thanks so much for joining me today.
Andy: Thanks, Rob.
Rob: Yeah, it’s great having you. Folks already heard in your intro a little bit about Postaga. There’s a lot of interesting parts to your story, so this is an easy story to tell. One of the interesting things is that you and your co-founder Sam were roommates—freshmen year in college—then you wind up starting an agency and he had done freelance work in the past. You started this agency really intelligently in the sense that you asked for a recurring revenue. You asked retainers and it made it a sellable asset. You sold that in 2016, you stuck around for a few years with an earn out but in essence, selling that agency gave you the revenue to live on as you guys started building Postaga in 2019.
Andy: That’s right. The recurring model for an agency came about because my co-founder Sam was doing freelancing. When we talked about working together and building an agency, one of the big challenges about growing an agency is the fact that for a lot of web design projects, you do them as one-offs. There’s no recurring revenue component to it, which means that every month you have to constantly look for new clients. If you take a vacation, take a break, you might not have cash flow, you may not have more revenue coming in.
Every client that we are taking on has to have a recurring revenue component to it for, at the very least, some support in hosting and maintenance, or having a marketing service like paid search or SEO to it. That allowed us, with every single client that we added to our book, that increase in our recurring revenue, so we could have a month (potentially) where we didn’t make any sales and we’d still be able to pay our bills, pay ourselves, pay our team, and help us grow. That helped us also have a business that was worth something that we could sell in the end.
Rob: That’s one of the downsides of consulting, usually. I ran a micro agency myself. I was both a freelancer and a consultant, and I had some other contractors helping me. On the first of the month, if I don’t have any projects, suddenly I have zero revenue. As I got into software and I built one time sale software, that was also the same thing. We made $5000 or $10,000 this month and in the next month your recurring revenue was zero, in essence, so you had to start over.
That’s actually a component of Postaga today. We’ll dive into that later, but you have both the do-it-yourself self-service SaaS aspect of Postaga and then you have the done-for-you aspect, which is in essence a productized service that you bundled up pretty ingeniously, I think. On your homepage, your H1 is ‘Postaga, A Better Way to Build Links.’ Then the H2 so to speak is, ‘Are you still doing manual outreach? Postaga’s AI Outreach Assistant will change the way you build traffic to your site.’
I remember the very first time I came across your site. It was when you applied for TinySeed. I clicked through and I was trying to figure out what this tool does? For folks who are trying to figure out how to explain a product that I think could go in a lot of different directions and explain something that’s relatively complicated, your features pages are pretty well done. You break it down into just a handful of things.
There’s opportunity finders, a content analyzer, contact finder, automatically personalized emails, outreach assistant. You drop it in and each of them is a little animated GIF of you actually scrolling through the product. It shows a lot in not a lot of time or space, frankly.
Talk to me, who’s behind this features page? Did you model it after something or did you just come up with it?
Andy: It was definitely an iterative process. I will give all the credit to Sam for that because in explaining Postaga, the best way to describe it is it’s an all-in-one platform that combines the concept of several different tools that people often use for doing link building or cold outreach. It helps you prospect to find relevant websites, bloggers, or podcasters to connect with, then it finds their contact information, their emails, and verifies those email addresses, then builds and sends personalized email sequences to them.
That’s a lot to convey but also not just conveying the feature aspect of it but the benefit of how this saves you time over your traditional process and other tools that you are using. I feel like six months from now, even a few months from now, our homepage and our website is going to look different from where it is today as we’re honing in more on what the most popular use cases are. Making sure that if you have no idea what we’re doing that in a few seconds you get it.
Rob: Yeah, that’s the idea of it. What SaaS stuff does change so quickly as you add features, that you can actually become a different product. I think back in the days of Drip where first we were an email capture widget and that was really it. We were autoresponders. And then it’s like we’re full blown ESP. Eight months later, we’re a full marketing automation provider. They weren’t pivots, it was just a progression as we added more functionality.
I was pretty bad at this in terms of revisiting what my positioning is. What does my headline say? What does my feature page say? Am I really communicating this properly? To give folks an idea of your stage or your size, some founders give MRR, some founders give team size. What can you share with us?
Andy: As of recently, we are six full-time team members. A few team members working on our service offering, a few team members working on marketing including myself, and my co-founder, Sam, is focusing on product.
Rob: Cool, so a team of six with a small amount of burn (I think) is how I’d phrase it. Obviously, you took funding from us at TinySeed during the current batch, spring 2021. Let’s roll back and talk about your beta. You start working on it in 2019 after you leave the agency. You went into what you called beta in January of 2020 right before Covid hit us, just about 18 months ago.
You started using your own software to reach out because part of Postaga is it’ll scan through your own content, figure out who you’ve mentioned, like you said pull up their emails, validate them and then you can use it to send these campaigns. It can look through RSS feeds. It’ll look through all kinds of stuff. You can go to the site if you want to see it, but there’s a bunch of ways to get people who are likely to link to you, and then it gets their information then it allows you to contact them through the tools basically.
Andy: What we were doing when we were testing out to make sure it worked but also to get us our earliest users is I was using it in a way that maybe that was not one of our original intentions. I was basically using one of the features of it, which is this more broad search functionality to search for marketing agencies and people in digital marketing all around the world, finding their info, and hitting them up with a cold email, more of a sales pitch than anything else saying, is your digital agency trying to build links to improve your rankings or do that for clients? I have a piece of software that could maybe help you out. We’re in beta and. We’re happy to let you use it for free if you can give us some feedback.
That got us our earliest users. We got a lot of feedback on our onboarding process, which in the beginning in hindsight was very cumbersome, but that early feedback in the interim really helped us improve our product, helped us figure out our direction. It helped to build our audience before we did our big launch on Product Hunt in May of that year.
Rob: I like it when a company can use its own product. I remember when Drip got enough functionality that we were able to move off of MailChimp and start using it. I have respect for MailChimp, but it was a super cool feeling to be like we have everything we need now and it’s our own product. I love the idea of not only that you’re able to use it in your beta but taking this idea. Especially, developer types don’t want to do cold outreach. They don’t want to do any type of outreach. They just want the product. They want to build a great product and have it sell itself, which just never happens. It’s just a pipe dream.
Andy: If you know anyone who that works for, please let me know. I have many questions, mainly just how? What is it that you’re doing that sets you apart from every other founder I know that’s constantly trying? Like, I built a product. I think it’s great. The people who are using it, who know about it, think it’s great. How do I find more people?
Rob: That’s a big thing. What did you learn? You launched on Product Hunt in May, between January and May, you’re doing cold outreach. You have this product. No one’s paying for it. You have zero revenue. Again, you had the agency, still had payouts coming from that sale to keep you guys afloat. What did you learn in those five months that then was like, now, we’re ready to launch.
Andy: We had a lot of assumptions going in that were tested from our earliest users, like what they are using Postaga for? What it’s most popular features were? Also just the workflow and the onboarding process in particular. A bunch of our earliest users’ feedback was getting signed up as a whole thing. Even though it’s free, there are a lot of hurdles to it. We had to get users to connect their email addresses and email accounts via either SMTP or via setting up DNS records. No one wants to set up DNS records to be able to use a product. We had to really handhold people to get them set up so they could see what the product could do.
We changed our onboarding tour and setup so that people could get a glimpse of what it could provide for the user to get them to move forward and sign up and activate their accounts basically. But beyond that, we did a lot of interviews with our earliest users to find out how they were using it. How their workflows before Postaga compared with Postaga.
We found that a lot of evangelists who loved us and would promote us to everyone they knew. But there were some agencies we were hoping would switch from whatever the process was to Postaga even if they had a more manual time and labor-intensive process. We realize some of these agencies, even though processes are inefficient, if you’re a larger agency—like for any enterprise company; there’s an early good lesson—there can be a lot of inertia. With enterprise companies, you have to get a lot of people’s buy-in to move it forward. That was a good lesson also in terms of helping us figure out our positioning.
Rob: That’s interesting. It sounds like amazing learning, especially around onboarding and realizing if you had not done that and you had instead just launched on Product Hunt or done a bunch of marketing, you would have just bled a bunch of people out and it would’ve been wasted effort. How did you know to do that? It sounds like you went about it pretty methodically and pretty intelligently, but why did you and Sam decide to do that five-month beta and do interviews with that many customers? Because a lot of people who are launching a SaaS company don’t do that.
Andy: Actually at first, we were planning this in hindsight and talking to you now, it sounds a lot more methodical than it was. The real story is that we were originally planning for a launch in January, but we encountered an issue where we realized if we did very well on Product Hunt, it would crash our entire platform. And that’s no good.
Sam was working on plugging that up and making sure that we would be able to scale the platform as we would have more and more simultaneous users. While he was working on that, I was focusing on getting more and more feedback from the beta users so that we could, in the meantime, figure out what else we can be improving upon before this launch.
At this point, I know that our lunch can be a few months away. What is the best use of our time and my time in the meantime? It turns out I think that was the right call.
Rob: And it sounds like a really good partnership between the two of you to have a developer, technical co-founder, and then it sounds like you’re doing marketing, sales, and everything else.
Andy: Everything else, yeah.
Rob: That’s it. It’s a great division of labor if you can swing it. Okay, so we flashed to May of 2020, you wound up being the number one product of the day and the number two product of that week. You got 1279 upvotes. Listeners have to be wondering how you pulled that off.
Andy: This was very intentional in terms of our approach. We knew that Product Hunt was going to be the platform that we launched on. I could focus on content marketing and other marketing channels to hopefully steadily grow our user base and our audience, but we want to have a really big kick-off to get us in front of as many people as possible in a very short amount of time to help us get this momentum.
We studied Product Hunt. I looked at what apps were the top ones of the day, top ones of the week. What was their approach and how did that differ from some of the other products? What did they do that help them stand out? For example, when you go to the Product Hunt home page, you’ll see a variety of different products and apps and things like that. They all have tag lines and a lot of them have GIFs.
We’re like, we need maybe an eye-catching gif, a good tagline hook, and on our actual interior page, really good sales-y copy that we workshopped and workshopped, share with people and get feedback on, but also having a video that is an explainer that’s less than a minute. Images and screenshots that are not screenshot, they’re annotated images so you can get a sense and really understand what the product does very quickly.
We also spoke with a bunch of people who had successful Product Hunt launches. I just cold reached out to a bunch of people and ask for introductions when I knew someone who knew someone to get their feedback and learn about what it was that they think that they did right. That gave us a whole lot of intel to figure out what we would need to do a successful launch.
Things like making sure that you launch at 12:01 AM Pacific Time when the new day on Product Hunt starts. Really trying to drive to your audience and people that you know to up-vote you as early on as possible because before things shake out and the leaderboard for the day is established, it’s a free-for-all, basically.
If you have one of the most up-votes or the most up-votes, you’ll show up on the leader board when it all sorts out a few hours into the day. But by virtue of you being on one of the top ones of the day, you’re going to be also more likely to get more up-votes because you’re going to be one of the first things that people see, they’re going to check you out, and maybe they’ll up-vou.
It was an all-hands-on-deck situation with me and Sam to make sure that this launch would be as successful as it could be. I know some people who don’t give that much attention are like, all right, I’ll launch at Product Hunt. I’ll see how it goes. I don’t care if it’s not successful. But being that it was going to be one of our core marketing endeavors for helping us launch, we spent a lot of time investing into it.
Rob: Yeah, and someone listening to this, I want you to realize you have to spend a ton of time. Once again, I’d use the word methodical and pretty disciplined about it. Not just expecting, build a great product and it’ll work. I’m going to go have all these conversations. I’m going to go study Product Hunt. I’m going to rally my friends and colleagues around it. Sometimes, it’ll work and just as easily you could have done this and not have the amazing success that you did of being the number one and number two for the week.
But the folks who I’ve seen make Product Hunt work like you did. They do the right things. They usually don’t stumble into it. It’s that hard work, luck, and skill thing I always say. There’s some luck involved, but it sounds like you built some skill up by asking people and then you put in the hard work to do it well.
Similarly, Derek Reimer with SavvyCal did a Product Hunt launch just about six or seven months ago now. He did a lot of the same tactics you did and also had success with it. I guess my question for you then is was it worth it? You did get all these up-votes, you obviously got a lot of eyes on your product, and you only had a free plan at the time. We should be specific. This was May. You didn’t start charging until August. You had a free plan. Was the Product Hunt launch from your perspective worth doing?
Andy: Absolutely. From that Product Hunt launch, it really helped us just build an audience right off the bat. People that were super interested in following our journey also gave us a bunch of feedback early on, to compound on the feedback that we already had and help us really figure out the direction of the product. We got a few people to reach out about investing in Postaga, which was cool. When we’re in beta mode and just having a lot of one-to-one conversations with people who are not paying for our product but giving us feedback, we’re at the stage of like I hope this works. We think there’s a market for it. We’ve done some research. We’ve done our market research and we think we have people who are going to be interested in paying for it.
But, as a startup founder, early stage, there’s always a little bit of doubt. I hope that I’m building something that people want to buy and are willing to pay for. That feedback that we got from Product Hunt was definitely a high point on the emotional roller coaster of running a startup. That really helped us get a bunch of feedback, gave us a push that we needed and helped us move towards some features that we were looking for. Also, got us to take the next time investment for me and my co-founder to monetize it.
Rob: I tweeted something a few weeks ago that venture-funded companies fail or shut down when they run out of money, but bootstrapped companies shut down when they run out of motivation. Managing your own motivation as a bootstrapped or mostly bootstrapped founder is a big thing. It’s your psychology. It’s keeping that interest and keeping the energy and just keeping the desire to move forward. It sounds like Product Hunt was a big moment for you guys to keep going which is interesting because if I were going to do it, if I could pick it, I would want to be able to charge by the time I did that. What was around that decision?
Andy: In hindsight, I absolutely wished we would have had our e-commerce functionality ready by then. It would have pushed our launch back further. It was from when we did our launch in mid-May to us having our paid tiers in mid-August, that was time that Sam had spent developing and adding that functionality. It took some time. Our thinking was let’s do this launch on Product Hunt. Let’s make sure that we are making the right call here, and this is something that we think can have some traction and can be worth our future, time and effort, and investment into.
In hindsight, though, knowing everything that we know now, I really wish we would have had e-commerce set up because we had this big interest in May. We kept everyone that signed up on our email list and on our newsletter and in our market automation software. By the time we hit people up to get them to upgrade to a paid plan in August, the numbers that we did were not as high as I was hoping they would be—in full transparency—probably because some of that enthusiasm slowed down in the months in between.
Rob: When you say e-commerce functionality, you mean billing, paid tier, having a paid tier that you can charge through Stripe, presumably. It took you a couple months. I was going to ask that by the time he got billing in place, did you convert as many as you’d hope? Did you convert a lot of people? It sounds like you did okay, but not great.
Andy: I think okay but definitely was less than I was hoping for. Another part of that founder emotional roller coaster there.
Rob: I’m curious what you think would have happened, pure conjecture? You spent this time building it. You spent this time researching Products Hunt. You did all “the right things.” What if the Product Hunt launch had flopped? What do you think you would have done next?
Andy: It would have probably been a tough conversation between me and my co-founder, like I can’t believe he invested all this time in this product and it’s just not getting the traction that we’re hoping for. Either something fundamentally has to change with how we’ve built this and how we’re marketing it. Maybe it’s time to roll it up and pivot and focus on something else. That would have definitely been a tough conversation to have.
Rob: You had the free plan then and you still have a free plan today, correct?
Andy: Yes.
Rob: Folks, today, you have a $99 pricing tier, you have an agency plan that’s $299 a month and then you have the done-for-you service with contact us. That’s where you’re actually doing outreach for people. What is the free plan doing for you these days that you keep around?
Andy: The free plan exists partly as a lead magnet so that people sign up, they have a free trial and there is a free plan so they can test out Postaga more at their pace, be able to build some outreach campaigns, get some results and hopefully see that it’s worth it that we’ve got some responses. Now we’ve gotten some good opportunities. We’ve got some either links or guest post opportunities or podcast guest spots. But I want to be able to do more of that. That’s where upgrading your paid plan comes in. When people sign up, we have email automation sequences designed to get people to upgrade.
One thing that we are looking into and testing and AB testing is that the best option, I don’t have the answer for you today, we’re testing out different things and seeing what works, and maybe in a future episode I can give you a full rundown of these different variants that we’ve tried and how they performed. There’s a credit card trial best. There’s a free trial with a freemium best. There’s no trial but like a money back guarantee best, we’re going to be really trying out all these things.
Rob: When I hear you talk about the free plan it makes a lot of sense with your tool because Ruben Gomez has his rules of when to have a free plan and when not. He said number one, if your product is a relatively low cost to support each customer, there’s no incremental cost of them sending emails or them doing whatever, low cost to support, easy onboarding, self-onboarding basically, and it’s quick to get value from, you think about some products. You sign up for SalesForce. You’re not going to get value the first few days. It’s going to take you months to integrate and do this and all that. Then a viral component can be a big part of that. Does Postaga have a viral loop?
Andy: Yes and you would know that because you have been on the receiving end.
Rob: That’s right, I have.
Andy: For everyone listening, in Postaga’s free plan, there is a footer in your email signature that says PS sent with Postaga. Some people have pitched Rob to be guests on this podcast using Postaga.
Rob: That’s true. It’s so cool to see it in a while. Once you apply it and the name sinks and we decide to find you, I started noticing that and it’s pretty cool.
Andy: Yeah. We’ve noticed that some people sign up clicking that email signature, so that’s a win. That’s another channel for us that helps spread the word more.
Rob: Last month, I won’t go into specifics but you had an amazing month of growth last month. What’s working for you? What caused that?
Andy: I’m going to put that entirely on the TinySeed program.
Rob: Wow. This was not a plan for ladies and gentlemen listening to the show. That’s super cool. What specifically?
Andy: TinySeed has been great so far. We’ve been speaking with a ton of mentors over the last few months. People who are much more experienced than I am in different facets of running a business and scaling it. For example, having spoken with Einar and yourself to get feedback on pricing and churn, we’ve been able to make tweaks to things that have helped us grow faster. There are a few levers, as you’ve told us, that help with growth. Increasing pricing, reducing churn, and finding more customers. We’ve been really honing in on each of these levers to optimize and improve them as much as possible.
Beyond that, I’ve been trying to speak to as many of the mentors in the TinySeed program as possible, getting feedback on everything from our copy, to our UX, to our onboarding flow. One thing that some other people in our cohort have suggested just speak with as many mentors as possible because you’re going to get a ton of value out of it, In the first month, I probably didn’t speak with so many mentors but in the last two months, in particular—we’re almost at the end of our third month here—I’ve just been trying to speak with as many mentors as possible because there’s been so much value that we’ve gotten out of it.
As anyone building their own startup and trying to grow it, you go through a lot of iterations, AB testing, and trying to figure out what are the right channels for us. To some extent, we’re doing that now. But we’re getting a lot of great feedback from people who have done these experiments before, who have been through these things, who can give us just straight up feedback telling us, don’t do this. This is a bad idea. Here’s what you should be focusing on. Here is the most important thing that you should be focusing on. Here’s how to execute on that. That’s been just so incredibly valuable.
Rib: That’s awesome. I mean, thanks for saying that. That’s how it’s supposed to work. That’s the point of having mentors. That’s point A for us because at one point, Einar and I said let’s just raise a fund and invest in early stage startups. We saw the value in having a batch that could interact with one another, have the community, and then have the mentor program and all the advice that we can get. If that’s what it’s doing for you, then it’s working like we wanted to and that’s great.
But I think someone listening to this who may not want to join an accelerator or whatever, they can still take value away from being in a mastermind or being in a community like MicroConf Connect, or in the Dynamite Circle, or part of IndieHackers where there are other people around you who are going to that same journey and you can learn from them. You’re going to make a lot of mistakes anyway. You have to make every mistake on your own. You can learn from other people’s mistakes which is a much less expensive way to do it, both monetarily and time wise.
Andy: Absolutely. Masterminds have been something that I’ve been involved with since maybe 2014 or so and I really saw the value of those because like you’re saying, I could talk to other founders that are either similarly situated or hopefully further along than I am to just give advice and help us avoid some of the pitfalls so we can get further along faster. Having masterminds has been just super helpful.
It’s an easy thing that you could do. I’ve had masterminds through MicroConf, other programs also in years past I was doing. But there’s been something really helpful about speaking with people who in particular are much further along than you, who can give you advice of here are the things that I would do if I were in your situation. You’ve got a problem, you have a problem with hiring, or you have a problem with employee retention, or with growth, here are the things that I would do and here are my suggestions for you. That’s been just so incredibly helpful over the years. Helping me get unstuck without having to try out different things and see how they fix things.
Rob: That’s something that I learned when I used to work a day job, 15 years ago-ish, I didn’t like a lot of my coworkers. I was trying to push things forward and there would be roadblocks and bureaucracy. I remember just saying like I don’t want to work with people ever again. I’m going to be a solo founder and micropreneur. I’m going to go be on my own and I’m going to do it on my own and I did
It was not as good as the later on when I realized I actually want people to be in a mastermind. I want colleagues. I want to work with other people. It’s not that I don’t like working with other people. I don’t like working with other people that I can’t hand pick and choose who I get to work with, who I get to be managed by, or who I get to manage. There’s so much value in community. That was the other thing, try to do it on your own.
I’m belaboring the point at this point but there is a reason MicroConf exists, MicroConf Connect exists, this podcast exists, and TinySeed exists. There’s a reason for all of them and it’s because they bring people together in one way, shape, or form that it just upstarts all of our games. It’s how I view it. It’s a rising tide that raises all of the boats involved. To me that’s just a win all around.
As we start to wrap up, I do have one more question for you. You are in a unique position because you’ve built a SaaS app, $100–$300 a month. It’s a great business. It’s growing and that’s the do-it-yourself side. It’s the people who can sign up and do the link outreach and make that all work. You also have a done-for-you service.
I can imagine someone listening thinking they might want to do that as well. Because obviously it has a much higher price point. You can grow MRR quicker. Or someone might be thinking I really don’t want to do that. I don’t want that service side of the business.
As someone who has not only run an agency with your recurring revenue, now runs a SaaS app with recurring revenue, and also a productized service essentially attached to it, talk to me about why the two of you have decided to have the done-for-you side, and maybe the pros and cons of that.
Andy: I guess it’s funny in a fatalistic way that I sell an agency, build a SaaS app because it’s going to be completely self-service—people can sign up—and we just increase our MRR by not speaking with people necessarily to adding a service component that is very handhold-y, where there is a bigger labor component to it that we’re providing. The reason that we offer it was because we were getting interest in it from our users.
Some of our users are saying to us, I very much like the idea of Postaga but I am the solo founder of this business. Even with all the time-saving that I’m getting from Postaga, I don’t have the time for it. Do you know anyone, a consultant or someone who could basically use Postaga for us, to help us get more opportunities and links for our business?
Besides that, we were having churn and one of our responses that we are getting in one of our cancellation questionnaire things was, I just don’t have the time to get into Postaga. We realized if this is one thing that’s contributing to our churn, what can we do to save that? We are contemplating whether to outsource completely, to just refer people to people that we knew that do link building, or either have an agency that was using Postaga that we could refer to, or bring it in-house.
I don’t know what the future holds if we’re going to be doing this done-for-you forever, but there were a few things that we saw as a benefit to it. One, we would get hands-on experience with doing outreach for a variety of business types with a variety of founders, and doing right outreach campaigns for other businesses to see what’s working well for them, what responses are we getting. Because mostly we’ve been doing outreach on behalf of Postaga. I’ve been doing outreach to help us build our own links, to get me guest spots on podcasts, and help us do press outreach.
But being able to do it for other clients would give us a bunch of insights to help us also improve the product further by having that variety of experience there. We thought there’s a plus there. If we add the service component, obviously we’re going to also get more revenue—that’s a win there—and having the service component also would help us internally get more feedback and see what improvements can be made to the product, and what we can do to help other people using the do-it-yourself option as well.
There was just a lot of upside that we saw to it. We ran a pilot program so that I can build out the processes. We started with one company who wanted to get more press coverage and visibility in their industry in their space. We did outreach for them to get them podcast guest spots and get other blogs to review their product. The campaigns that we did end up doing very well. It was something that I had no familiarity with that kind of product or space beforehand. But from that pilot program, I built out SOPs and documentations, so it could be a repeatable process that I could do with clients moving forward.
Then we built up an additional page on our website for the done-for-you service. Today, we really haven’t been advertising it heavily—that might change in the future—but people have been reaching out to us about it through that page, and also just reaching out to us just on their own to say I like the product, but do you have anyone you can recommend that I could either bring on or can help me do that. It was a great addition to our product.
Rob: As we wrap up, if folks want to keep up with you, you are Andy Cabasso on Twitter, and of course postaga.com is what you’re working on. Thanks again for joining me.
Andy: Thanks, Rob. It’s been fun.
Rob: Thank you for joining me once again this week. We’ll be back in your ear buds again next Tuesday morning.
But before we dive into that, I want to let you know that MicroConf tickets are on sale. You should head to microconf.com. Assuming we haven’t sold out by the time this goes live, we have five events in five weeks in September and early October, ranging in locations from Croatia to London, to Boston, to Portland and Austin, Texas. We’re super excited. I’m super excited to get back to these events in person. I hope to connect with you if you make it out to one, microconf.com to check that out.
With that, let’s dive into my conversation with Andy Cabasso of Postaga. Andy, thanks so much for joining me today.
Andy: Thanks, Rob.
Rob: Yeah, it’s great having you. Folks already heard in your intro a little bit about Postaga. There’s a lot of interesting parts to your story, so this is an easy story to tell. One of the interesting things is that you and your co-founder Sam were roommates—freshmen year in college—then you wind up starting an agency and he had done freelance work in the past. You started this agency really intelligently in the sense that you asked for a recurring revenue. You asked retainers and it made it a sellable asset. You sold that in 2016, you stuck around for a few years with an earn out but in essence, selling that agency gave you the revenue to live on as you guys started building Postaga in 2019.
Andy: That’s right. The recurring model for an agency came about because my co-founder Sam was doing freelancing. When we talked about working together and building an agency, one of the big challenges about growing an agency is the fact that for a lot of web design projects, you do them as one-offs. There’s no recurring revenue component to it, which means that every month you have to constantly look for new clients. If you take a vacation, take a break, you might not have cash flow, you may not have more revenue coming in.
Every client that we are taking on has to have a recurring revenue component to it for, at the very least, some support in hosting and maintenance, or having a marketing service like paid search or SEO to it. That allowed us, with every single client that we added to our book, that increase in our recurring revenue, so we could have a month (potentially) where we didn’t make any sales and we’d still be able to pay our bills, pay ourselves, pay our team, and help us grow. That helped us also have a business that was worth something that we could sell in the end.
Rob: That’s one of the downsides of consulting, usually. I ran a micro agency myself. I was both a freelancer and a consultant, and I had some other contractors helping me. On the first of the month, if I don’t have any projects, suddenly I have zero revenue. As I got into software and I built one time sale software, that was also the same thing. We made $5000 or $10,000 this month and in the next month your recurring revenue was zero, in essence, so you had to start over.
That’s actually a component of Postaga today. We’ll dive into that later, but you have both the do-it-yourself self-service SaaS aspect of Postaga and then you have the done-for-you aspect, which is in essence a productized service that you bundled up pretty ingeniously, I think. On your homepage, your H1 is ‘Postaga, A Better Way to Build Links.’ Then the H2 so to speak is, ‘Are you still doing manual outreach? Postaga’s AI Outreach Assistant will change the way you build traffic to your site.’
I remember the very first time I came across your site. It was when you applied for TinySeed. I clicked through and I was trying to figure out what this tool does? For folks who are trying to figure out how to explain a product that I think could go in a lot of different directions and explain something that’s relatively complicated, your features pages are pretty well done. You break it down into just a handful of things.
There’s opportunity finders, a content analyzer, contact finder, automatically personalized emails, outreach assistant. You drop it in and each of them is a little animated GIF of you actually scrolling through the product. It shows a lot in not a lot of time or space, frankly.
Talk to me, who’s behind this features page? Did you model it after something or did you just come up with it?
Andy: It was definitely an iterative process. I will give all the credit to Sam for that because in explaining Postaga, the best way to describe it is it’s an all-in-one platform that combines the concept of several different tools that people often use for doing link building or cold outreach. It helps you prospect to find relevant websites, bloggers, or podcasters to connect with, then it finds their contact information, their emails, and verifies those email addresses, then builds and sends personalized email sequences to them.
That’s a lot to convey but also not just conveying the feature aspect of it but the benefit of how this saves you time over your traditional process and other tools that you are using. I feel like six months from now, even a few months from now, our homepage and our website is going to look different from where it is today as we’re honing in more on what the most popular use cases are. Making sure that if you have no idea what we’re doing that in a few seconds you get it.
Rob: Yeah, that’s the idea of it. What SaaS stuff does change so quickly as you add features, that you can actually become a different product. I think back in the days of Drip where first we were an email capture widget and that was really it. We were autoresponders. And then it’s like we’re full blown ESP. Eight months later, we’re a full marketing automation provider. They weren’t pivots, it was just a progression as we added more functionality.
I was pretty bad at this in terms of revisiting what my positioning is. What does my headline say? What does my feature page say? Am I really communicating this properly? To give folks an idea of your stage or your size, some founders give MRR, some founders give team size. What can you share with us?
Andy: As of recently, we are six full-time team members. A few team members working on our service offering, a few team members working on marketing including myself, and my co-founder, Sam, is focusing on product.
Rob: Cool, so a team of six with a small amount of burn (I think) is how I’d phrase it. Obviously, you took funding from us at TinySeed during the current batch, spring 2021. Let’s roll back and talk about your beta. You start working on it in 2019 after you leave the agency. You went into what you called beta in January of 2020 right before Covid hit us, just about 18 months ago.
You started using your own software to reach out because part of Postaga is it’ll scan through your own content, figure out who you’ve mentioned, like you said pull up their emails, validate them and then you can use it to send these campaigns. It can look through RSS feeds. It’ll look through all kinds of stuff. You can go to the site if you want to see it, but there’s a bunch of ways to get people who are likely to link to you, and then it gets their information then it allows you to contact them through the tools basically.
Andy: What we were doing when we were testing out to make sure it worked but also to get us our earliest users is I was using it in a way that maybe that was not one of our original intentions. I was basically using one of the features of it, which is this more broad search functionality to search for marketing agencies and people in digital marketing all around the world, finding their info, and hitting them up with a cold email, more of a sales pitch than anything else saying, is your digital agency trying to build links to improve your rankings or do that for clients? I have a piece of software that could maybe help you out. We’re in beta and. We’re happy to let you use it for free if you can give us some feedback.
That got us our earliest users. We got a lot of feedback on our onboarding process, which in the beginning in hindsight was very cumbersome, but that early feedback in the interim really helped us improve our product, helped us figure out our direction. It helped to build our audience before we did our big launch on Product Hunt in May of that year.
Rob: I like it when a company can use its own product. I remember when Drip got enough functionality that we were able to move off of MailChimp and start using it. I have respect for MailChimp, but it was a super cool feeling to be like we have everything we need now and it’s our own product. I love the idea of not only that you’re able to use it in your beta but taking this idea. Especially, developer types don’t want to do cold outreach. They don’t want to do any type of outreach. They just want the product. They want to build a great product and have it sell itself, which just never happens. It’s just a pipe dream.
Andy: If you know anyone who that works for, please let me know. I have many questions, mainly just how? What is it that you’re doing that sets you apart from every other founder I know that’s constantly trying? Like, I built a product. I think it’s great. The people who are using it, who know about it, think it’s great. How do I find more people?
Rob: That’s a big thing. What did you learn? You launched on Product Hunt in May, between January and May, you’re doing cold outreach. You have this product. No one’s paying for it. You have zero revenue. Again, you had the agency, still had payouts coming from that sale to keep you guys afloat. What did you learn in those five months that then was like, now, we’re ready to launch.
Andy: We had a lot of assumptions going in that were tested from our earliest users, like what they are using Postaga for? What it’s most popular features were? Also just the workflow and the onboarding process in particular. A bunch of our earliest users’ feedback was getting signed up as a whole thing. Even though it’s free, there are a lot of hurdles to it. We had to get users to connect their email addresses and email accounts via either SMTP or via setting up DNS records. No one wants to set up DNS records to be able to use a product. We had to really handhold people to get them set up so they could see what the product could do.
We changed our onboarding tour and setup so that people could get a glimpse of what it could provide for the user to get them to move forward and sign up and activate their accounts basically. But beyond that, we did a lot of interviews with our earliest users to find out how they were using it. How their workflows before Postaga compared with Postaga.
We found that a lot of evangelists who loved us and would promote us to everyone they knew. But there were some agencies we were hoping would switch from whatever the process was to Postaga even if they had a more manual time and labor-intensive process. We realize some of these agencies, even though processes are inefficient, if you’re a larger agency—like for any enterprise company; there’s an early good lesson—there can be a lot of inertia. With enterprise companies, you have to get a lot of people’s buy-in to move it forward. That was a good lesson also in terms of helping us figure out our positioning.
Rob: That’s interesting. It sounds like amazing learning, especially around onboarding and realizing if you had not done that and you had instead just launched on Product Hunt or done a bunch of marketing, you would have just bled a bunch of people out and it would’ve been wasted effort. How did you know to do that? It sounds like you went about it pretty methodically and pretty intelligently, but why did you and Sam decide to do that five-month beta and do interviews with that many customers? Because a lot of people who are launching a SaaS company don’t do that.
Andy: Actually at first, we were planning this in hindsight and talking to you now, it sounds a lot more methodical than it was. The real story is that we were originally planning for a launch in January, but we encountered an issue where we realized if we did very well on Product Hunt, it would crash our entire platform. And that’s no good.
Sam was working on plugging that up and making sure that we would be able to scale the platform as we would have more and more simultaneous users. While he was working on that, I was focusing on getting more and more feedback from the beta users so that we could, in the meantime, figure out what else we can be improving upon before this launch.
At this point, I know that our lunch can be a few months away. What is the best use of our time and my time in the meantime? It turns out I think that was the right call.
Rob: And it sounds like a really good partnership between the two of you to have a developer, technical co-founder, and then it sounds like you’re doing marketing, sales, and everything else.
Andy: Everything else, yeah.
Rob: That’s it. It’s a great division of labor if you can swing it. Okay, so we flashed to May of 2020, you wound up being the number one product of the day and the number two product of that week. You got 1279 upvotes. Listeners have to be wondering how you pulled that off.
Andy: This was very intentional in terms of our approach. We knew that Product Hunt was going to be the platform that we launched on. I could focus on content marketing and other marketing channels to hopefully steadily grow our user base and our audience, but we want to have a really big kick-off to get us in front of as many people as possible in a very short amount of time to help us get this momentum.
We studied Product Hunt. I looked at what apps were the top ones of the day, top ones of the week. What was their approach and how did that differ from some of the other products? What did they do that help them stand out? For example, when you go to the Product Hunt home page, you’ll see a variety of different products and apps and things like that. They all have tag lines and a lot of them have GIFs.
We’re like, we need maybe an eye-catching gif, a good tagline hook, and on our actual interior page, really good sales-y copy that we workshopped and workshopped, share with people and get feedback on, but also having a video that is an explainer that’s less than a minute. Images and screenshots that are not screenshot, they’re annotated images so you can get a sense and really understand what the product does very quickly.
We also spoke with a bunch of people who had successful Product Hunt launches. I just cold reached out to a bunch of people and ask for introductions when I knew someone who knew someone to get their feedback and learn about what it was that they think that they did right. That gave us a whole lot of intel to figure out what we would need to do a successful launch.
Things like making sure that you launch at 12:01 AM Pacific Time when the new day on Product Hunt starts. Really trying to drive to your audience and people that you know to up-vote you as early on as possible because before things shake out and the leaderboard for the day is established, it’s a free-for-all, basically.
If you have one of the most up-votes or the most up-votes, you’ll show up on the leader board when it all sorts out a few hours into the day. But by virtue of you being on one of the top ones of the day, you’re going to be also more likely to get more up-votes because you’re going to be one of the first things that people see, they’re going to check you out, and maybe they’ll up-vou.
It was an all-hands-on-deck situation with me and Sam to make sure that this launch would be as successful as it could be. I know some people who don’t give that much attention are like, all right, I’ll launch at Product Hunt. I’ll see how it goes. I don’t care if it’s not successful. But being that it was going to be one of our core marketing endeavors for helping us launch, we spent a lot of time investing into it.
Rob: Yeah, and someone listening to this, I want you to realize you have to spend a ton of time. Once again, I’d use the word methodical and pretty disciplined about it. Not just expecting, build a great product and it’ll work. I’m going to go have all these conversations. I’m going to go study Product Hunt. I’m going to rally my friends and colleagues around it. Sometimes, it’ll work and just as easily you could have done this and not have the amazing success that you did of being the number one and number two for the week.
But the folks who I’ve seen make Product Hunt work like you did. They do the right things. They usually don’t stumble into it. It’s that hard work, luck, and skill thing I always say. There’s some luck involved, but it sounds like you built some skill up by asking people and then you put in the hard work to do it well.
Similarly, Derek Reimer with SavvyCal did a Product Hunt launch just about six or seven months ago now. He did a lot of the same tactics you did and also had success with it. I guess my question for you then is was it worth it? You did get all these up-votes, you obviously got a lot of eyes on your product, and you only had a free plan at the time. We should be specific. This was May. You didn’t start charging until August. You had a free plan. Was the Product Hunt launch from your perspective worth doing?
Andy: Absolutely. From that Product Hunt launch, it really helped us just build an audience right off the bat. People that were super interested in following our journey also gave us a bunch of feedback early on, to compound on the feedback that we already had and help us really figure out the direction of the product. We got a few people to reach out about investing in Postaga, which was cool. When we’re in beta mode and just having a lot of one-to-one conversations with people who are not paying for our product but giving us feedback, we’re at the stage of like I hope this works. We think there’s a market for it. We’ve done some research. We’ve done our market research and we think we have people who are going to be interested in paying for it.
But, as a startup founder, early stage, there’s always a little bit of doubt. I hope that I’m building something that people want to buy and are willing to pay for. That feedback that we got from Product Hunt was definitely a high point on the emotional roller coaster of running a startup. That really helped us get a bunch of feedback, gave us a push that we needed and helped us move towards some features that we were looking for. Also, got us to take the next time investment for me and my co-founder to monetize it.
Rob: I tweeted something a few weeks ago that venture-funded companies fail or shut down when they run out of money, but bootstrapped companies shut down when they run out of motivation. Managing your own motivation as a bootstrapped or mostly bootstrapped founder is a big thing. It’s your psychology. It’s keeping that interest and keeping the energy and just keeping the desire to move forward. It sounds like Product Hunt was a big moment for you guys to keep going which is interesting because if I were going to do it, if I could pick it, I would want to be able to charge by the time I did that. What was around that decision?
Andy: In hindsight, I absolutely wished we would have had our e-commerce functionality ready by then. It would have pushed our launch back further. It was from when we did our launch in mid-May to us having our paid tiers in mid-August, that was time that Sam had spent developing and adding that functionality. It took some time. Our thinking was let’s do this launch on Product Hunt. Let’s make sure that we are making the right call here, and this is something that we think can have some traction and can be worth our future, time and effort, and investment into.
In hindsight, though, knowing everything that we know now, I really wish we would have had e-commerce set up because we had this big interest in May. We kept everyone that signed up on our email list and on our newsletter and in our market automation software. By the time we hit people up to get them to upgrade to a paid plan in August, the numbers that we did were not as high as I was hoping they would be—in full transparency—probably because some of that enthusiasm slowed down in the months in between.
Rob: When you say e-commerce functionality, you mean billing, paid tier, having a paid tier that you can charge through Stripe, presumably. It took you a couple months. I was going to ask that by the time he got billing in place, did you convert as many as you’d hope? Did you convert a lot of people? It sounds like you did okay, but not great.
Andy: I think okay but definitely was less than I was hoping for. Another part of that founder emotional roller coaster there.
Rob: I’m curious what you think would have happened, pure conjecture? You spent this time building it. You spent this time researching Products Hunt. You did all “the right things.” What if the Product Hunt launch had flopped? What do you think you would have done next?
Andy: It would have probably been a tough conversation between me and my co-founder, like I can’t believe he invested all this time in this product and it’s just not getting the traction that we’re hoping for. Either something fundamentally has to change with how we’ve built this and how we’re marketing it. Maybe it’s time to roll it up and pivot and focus on something else. That would have definitely been a tough conversation to have.
Rob: You had the free plan then and you still have a free plan today, correct?
Andy: Yes.
Rob: Folks, today, you have a $99 pricing tier, you have an agency plan that’s $299 a month and then you have the done-for-you service with contact us. That’s where you’re actually doing outreach for people. What is the free plan doing for you these days that you keep around?
Andy: The free plan exists partly as a lead magnet so that people sign up, they have a free trial and there is a free plan so they can test out Postaga more at their pace, be able to build some outreach campaigns, get some results and hopefully see that it’s worth it that we’ve got some responses. Now we’ve gotten some good opportunities. We’ve got some either links or guest post opportunities or podcast guest spots. But I want to be able to do more of that. That’s where upgrading your paid plan comes in. When people sign up, we have email automation sequences designed to get people to upgrade.
One thing that we are looking into and testing and AB testing is that the best option, I don’t have the answer for you today, we’re testing out different things and seeing what works, and maybe in a future episode I can give you a full rundown of these different variants that we’ve tried and how they performed. There’s a credit card trial best. There’s a free trial with a freemium best. There’s no trial but like a money back guarantee best, we’re going to be really trying out all these things.
Rob: When I hear you talk about the free plan it makes a lot of sense with your tool because Ruben Gomez has his rules of when to have a free plan and when not. He said number one, if your product is a relatively low cost to support each customer, there’s no incremental cost of them sending emails or them doing whatever, low cost to support, easy onboarding, self-onboarding basically, and it’s quick to get value from, you think about some products. You sign up for SalesForce. You’re not going to get value the first few days. It’s going to take you months to integrate and do this and all that. Then a viral component can be a big part of that. Does Postaga have a viral loop?
Andy: Yes and you would know that because you have been on the receiving end.
Rob: That’s right, I have.
Andy: For everyone listening, in Postaga’s free plan, there is a footer in your email signature that says PS sent with Postaga. Some people have pitched Rob to be guests on this podcast using Postaga.
Rob: That’s true. It’s so cool to see it in a while. Once you apply it and the name sinks and we decide to find you, I started noticing that and it’s pretty cool.
Andy: Yeah. We’ve noticed that some people sign up clicking that email signature, so that’s a win. That’s another channel for us that helps spread the word more.
Rob: Last month, I won’t go into specifics but you had an amazing month of growth last month. What’s working for you? What caused that?
Andy: I’m going to put that entirely on the TinySeed program.
Rob: Wow. This was not a plan for ladies and gentlemen listening to the show. That’s super cool. What specifically?
Andy: TinySeed has been great so far. We’ve been speaking with a ton of mentors over the last few months. People who are much more experienced than I am in different facets of running a business and scaling it. For example, having spoken with Einar and yourself to get feedback on pricing and churn, we’ve been able to make tweaks to things that have helped us grow faster. There are a few levers, as you’ve told us, that help with growth. Increasing pricing, reducing churn, and finding more customers. We’ve been really honing in on each of these levers to optimize and improve them as much as possible.
Beyond that, I’ve been trying to speak to as many of the mentors in the TinySeed program as possible, getting feedback on everything from our copy, to our UX, to our onboarding flow. One thing that some other people in our cohort have suggested just speak with as many mentors as possible because you’re going to get a ton of value out of it, In the first month, I probably didn’t speak with so many mentors but in the last two months, in particular—we’re almost at the end of our third month here—I’ve just been trying to speak with as many mentors as possible because there’s been so much value that we’ve gotten out of it.
As anyone building their own startup and trying to grow it, you go through a lot of iterations, AB testing, and trying to figure out what are the right channels for us. To some extent, we’re doing that now. But we’re getting a lot of great feedback from people who have done these experiments before, who have been through these things, who can give us just straight up feedback telling us, don’t do this. This is a bad idea. Here’s what you should be focusing on. Here is the most important thing that you should be focusing on. Here’s how to execute on that. That’s been just so incredibly valuable.
Rib: That’s awesome. I mean, thanks for saying that. That’s how it’s supposed to work. That’s the point of having mentors. That’s point A for us because at one point, Einar and I said let’s just raise a fund and invest in early stage startups. We saw the value in having a batch that could interact with one another, have the community, and then have the mentor program and all the advice that we can get. If that’s what it’s doing for you, then it’s working like we wanted to and that’s great.
But I think someone listening to this who may not want to join an accelerator or whatever, they can still take value away from being in a mastermind or being in a community like MicroConf Connect, or in the Dynamite Circle, or part of IndieHackers where there are other people around you who are going to that same journey and you can learn from them. You’re going to make a lot of mistakes anyway. You have to make every mistake on your own. You can learn from other people’s mistakes which is a much less expensive way to do it, both monetarily and time wise.
Andy: Absolutely. Masterminds have been something that I’ve been involved with since maybe 2014 or so and I really saw the value of those because like you’re saying, I could talk to other founders that are either similarly situated or hopefully further along than I am to just give advice and help us avoid some of the pitfalls so we can get further along faster. Having masterminds has been just super helpful.
It’s an easy thing that you could do. I’ve had masterminds through MicroConf, other programs also in years past I was doing. But there’s been something really helpful about speaking with people who in particular are much further along than you, who can give you advice of here are the things that I would do if I were in your situation. You’ve got a problem, you have a problem with hiring, or you have a problem with employee retention, or with growth, here are the things that I would do and here are my suggestions for you. That’s been just so incredibly helpful over the years. Helping me get unstuck without having to try out different things and see how they fix things.
Rob: That’s something that I learned when I used to work a day job, 15 years ago-ish, I didn’t like a lot of my coworkers. I was trying to push things forward and there would be roadblocks and bureaucracy. I remember just saying like I don’t want to work with people ever again. I’m going to be a solo founder and micropreneur. I’m going to go be on my own and I’m going to do it on my own and I did
It was not as good as the later on when I realized I actually want people to be in a mastermind. I want colleagues. I want to work with other people. It’s not that I don’t like working with other people. I don’t like working with other people that I can’t hand pick and choose who I get to work with, who I get to be managed by, or who I get to manage. There’s so much value in community. That was the other thing, try to do it on your own.
I’m belaboring the point at this point but there is a reason MicroConf exists, MicroConf Connect exists, this podcast exists, and TinySeed exists. There’s a reason for all of them and it’s because they bring people together in one way, shape, or form that it just upstarts all of our games. It’s how I view it. It’s a rising tide that raises all of the boats involved. To me that’s just a win all around.
As we start to wrap up, I do have one more question for you. You are in a unique position because you’ve built a SaaS app, $100–$300 a month. It’s a great business. It’s growing and that’s the do-it-yourself side. It’s the people who can sign up and do the link outreach and make that all work. You also have a done-for-you service.
I can imagine someone listening thinking they might want to do that as well. Because obviously it has a much higher price point. You can grow MRR quicker. Or someone might be thinking I really don’t want to do that. I don’t want that service side of the business.
As someone who has not only run an agency with your recurring revenue, now runs a SaaS app with recurring revenue, and also a productized service essentially attached to it, talk to me about why the two of you have decided to have the done-for-you side, and maybe the pros and cons of that.
Andy: I guess it’s funny in a fatalistic way that I sell an agency, build a SaaS app because it’s going to be completely self-service—people can sign up—and we just increase our MRR by not speaking with people necessarily to adding a service component that is very handhold-y, where there is a bigger labor component to it that we’re providing. The reason that we offer it was because we were getting interest in it from our users.
Some of our users are saying to us, I very much like the idea of Postaga but I am the solo founder of this business. Even with all the time-saving that I’m getting from Postaga, I don’t have the time for it. Do you know anyone, a consultant or someone who could basically use Postaga for us, to help us get more opportunities and links for our business?
Besides that, we were having churn and one of our responses that we are getting in one of our cancellation questionnaire things was, I just don’t have the time to get into Postaga. We realized if this is one thing that’s contributing to our churn, what can we do to save that? We are contemplating whether to outsource completely, to just refer people to people that we knew that do link building, or either have an agency that was using Postaga that we could refer to, or bring it in-house.
I don’t know what the future holds if we’re going to be doing this done-for-you forever, but there were a few things that we saw as a benefit to it. One, we would get hands-on experience with doing outreach for a variety of business types with a variety of founders, and doing right outreach campaigns for other businesses to see what’s working well for them, what responses are we getting. Because mostly we’ve been doing outreach on behalf of Postaga. I’ve been doing outreach to help us build our own links, to get me guest spots on podcasts, and help us do press outreach.
But being able to do it for other clients would give us a bunch of insights to help us also improve the product further by having that variety of experience there. We thought there’s a plus there. If we add the service component, obviously we’re going to also get more revenue—that’s a win there—and having the service component also would help us internally get more feedback and see what improvements can be made to the product, and what we can do to help other people using the do-it-yourself option as well.
There was just a lot of upside that we saw to it. We ran a pilot program so that I can build out the processes. We started with one company who wanted to get more press coverage and visibility in their industry in their space. We did outreach for them to get them podcast guest spots and get other blogs to review their product. The campaigns that we did end up doing very well. It was something that I had no familiarity with that kind of product or space beforehand. But from that pilot program, I built out SOPs and documentations, so it could be a repeatable process that I could do with clients moving forward.
Then we built up an additional page on our website for the done-for-you service. Today, we really haven’t been advertising it heavily—that might change in the future—but people have been reaching out to us about it through that page, and also just reaching out to us just on their own to say I like the product, but do you have anyone you can recommend that I could either bring on or can help me do that. It was a great addition to our product.
Rob: As we wrap up, if folks want to keep up with you, you are Andy Cabasso on Twitter, and of course postaga.com is what you’re working on. Thanks again for joining me.
Andy: Thanks, Rob. It’s been fun.
Rob: Thank you for joining me once again this week. We’ll be back in your ear buds again next Tuesday morning.
Episode 560 | When to Hire, Square Business Banking, and More Bootstrapper News
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In Episode 560, Rob Walling is joined by Einar Vollset and Tracy Osborn to talk about deciding when it’s time to hire someone, how to think about which role to hire next, changing location to force productivity, and more.
The topics we cover
[2:52] Deciding to hire a community manager
[9:28] Location hacks for improved productivity
[14:52] Delta airline pilot suing Delta for stealing app
[20:35] Product → Business → Company
[27:18] Facebook Users say “No” and Advertisers are Panicking
[32:32] Tech-enabled modern banks
Links from the show
- MicroConf Remote Community Manager
- Tracy Osborn’s Tweet on Location Hacking
- Delta pilot sues the airline for allegedly stealing an app he designed | Engadget
- Rob Walling’s Tweet on Product → Business → Company
- FacebookUsers Said No to Tracking. Now Advertisers are Panicking
- Square Business Banking | Checking, Savings, & Loans
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: Welcome back to Startups for the Rest of Us. This is episode 560 where we’re going to dig in to bootstrapper news. It’s news that relates to you as a bootstrap founder, mostly bootstrap founder. We’re going to talk about things like deciding when it’s time to hire someone, how to think about which role to hire next, talking about location and how it can force productivity. I chuckle because this is just a long time hack of mine and one of my guests today, Tracy Osborn, had a tweet a couple of weeks ago talking about being on a plane and how productive it makes her.
Today, I’m welcoming Tracy Osborn, the Program Director of TinySeed and Einar Vollset, the General Partner of TinySeed and my cofounder in this amazing epic adventure, this journey that we are on. The two of you have been on so many of these episodes now. I almost wonder, how should I reintroduce any of you, what is new, what do the people need to know.
Einar: Or maybe you shouldn’t. Maybe you should just be like, yeah, I’m once again with Tracy and Einar, the end.
Tracy: Don’t call attention to it.
Rob: There it is. Einar is in the UK. He’s actually just an hour outside London. I think I mentioned this in the outro of last week’s episode, but we’re getting started on raising our European TinySeed fund. If you are an accredited investor and interested in potentially investing in EU companies that TinySeed would be investing in over the next couple of years, you should hit them up, tinyseed.com/invest.
Einar: Because it’s an EU fund, I actually don’t know if the same accreditation rules apply. You may be able to give us money without being an accredited investor.
Rob: We’re in the early stages, you can tell. This is still being researched. In other news, before we dive into the topics, I want to let you know that MicroConf is back in person. MicroConfs are starting in September. Right now we have five scheduled in five weeks. That was a bit of an effect of the pandemic that we had to condense that, but we have one day local events in Portland, Oregon, Austin, Texas, Boston, Massachusetts, and London,
Then we have a two and a half day growth event in Croatia. It’s our third and final year in Croatia, that will be the first week of October. I think they’re going to sell out fast based on pent up demand and what I’m hearing from folks. So microconf.com if you want to get on that list and have a chance at tickets. Who else is excited for in-person events?
Tracy: Oh my golly, so excited. Get me out of here. Get me travelling.
Einar: Super excited. I can’t wait. I need to go. I’m just sad that due to the capacity constraints on the places, there can only be so many people. I’m like, come one, let’s do more people.
Rob: Yup, I totally agree. That’s what we’re looking at right now. We’re at half capacity in Croatia, but we almost expect the way things are going, probably open up a bit more and we can sell more tickets later, but I’m excited to do it.
Let’s dive into our first story, which is really just TinySeed making our first hire in over a year and a half? Because the […] started in September. This is the first time. We’re a small team, we don’t grow very quickly on purpose. It’s like a forcing function to do great work and to figure out when it is we need to make that next hire. We’ll link the job posting up in the show notes.
We’re hiring a remote community manager who’s going to spend time in the MicroConf community and also in the TinySeed community. The reason I wanted to call this out is we went into a whole process to decide, should we hire someone now and which role we should hire? It’s not always obvious like, we need another developer right now, we need a project manager, or we need a customer success person.
Tracy, you are part of this process obviously, what were some of the things that we did along the way to figure out that this is the role we actually need to hire?
Tracy: We got a lot done as a small team being that we have just four people across MicroConf and TinySeed. That worked really well for a while, but I started feeling like balls are not being dropped but I knew that if I didn’t have as much capacity as I used to. Then it was like, why do I not have capacity? What are the things I’m doing? What task could potentially be offloaded or what I’d like to be offloaded in order to increase capacity? That’s where it started with me.
I wasn’t thinking about hiring per se, I just started creating a list. And as I was going through my daily, weekly activities, as things popped in, I was watching out for things, oh, that’s potentially outsourceable. That’s something I could teach someone else to do. I just basically built this whole list and then I talked to you. It’s like, hey, Rob. Guess what? I’m feeling a little overwhelmed right now, but I’ve already created this list. Take a look at it. I think Xander was kind of doing the same thing on his end, right?
Rob: Yeah, that was the thing. Xander came to me and said, hey, MicroConf is coming up, starting to plan them. I have a bunch of stuff I’m doing over and over. I think that was the commonality between you and Xander. There are some admin tasks so we can hire a VA to do, but there is also some higher-level stuff where it’s like we need someone who’s a step up form of VA in essence in terms of skills set and focus.
You are keeping a list, I asked Xander to keep a list, and when I compared the two, it wasn’t a one-to-one mapping but we can start to fit it together. There’s still a bunch of stuff that a community manager probably wouldn’t be able to do that’s on that list that we’ll have to keep doing for a while.
The way I think about it is as we started TinySeed and continue with MicroConf, you make a lot of it up as you’re going and just figure out the process. By the time that you do the process, second, third, fourth time, it’s like, wait a minute, someone else could be doing this and I could be working more on ambitious things, more creative things that kind of drive it forward.
Einar, do you have thoughts on obviously both in terms of this process, but also advising all the TinySeed companies? People come to us a lot and say, who should I hire next? How do you advise founders when they come to you?
Einar: I think very often, particularly bootstrap founders end up hiring too late. It ends up in a situation where they’re like, oh, I’m overwhelmed, and then only when they’re super overwhelmed do they realize they have no choice but to hire somebody. I think often people should hire sooner than that.
We were talking to one of the founders two, three months ago and finally, they were like, should I hire? I don’t know. I’ve become so busy. I was asking, what kind of thing were they doing? And in this case, they were doing customer support 40% of their time.
I’m sorry, but if you are the founder then it’s valuable for you to do customer support, sure. You want to be closer to your customers, but it’s not valuable to the point where you’re spending almost half of your time doing customer support when it’s something that’s super repetitive, something that you can definitely hire someone at a reasonable price to do.
I think it comes with that bootstrapper mindset that you want to be frugal and things, but I also think you only have so much time. If you’re spending your time on suboptimal stuff, that’s not a good thing to be doing.
Rob: I would agree with that and that’s usually the first thing I recommend people hire for. It’s usually not outsourced but hired for is that support role. Even though yes, as a founder you can probably give better support in the early days, but as it becomes repetitive, I find that founders don’t give better support than someone who’s really good at it because you get tired, you get bored, and it’s not as creative.
Still handling the exceptions, the one-offs that get escalated to you I think is the way to go there. The other thing I was talking to a company yesterday and they’ve hired two support people, they’re all dialed in there, and the next hire is a developer. Because right now, one founder is doing all the code. When they go on vacation he has to take a laptop because if the site goes down, it’s getting the buzz factor out of there.
Tracy: This also applies to design. I was talking to the founders yesterday as well and doing your own design and all of that work for front end, user experience, and getting your onboarding flows and whatnot is also something I find founders hold onto as long as possible. It’s good for them to have a good understanding of how things work, but that’s also something that’s very easily outsourced and probably should be outsourced to someone who has more of an eye or specialty in that area to work on those very important front end experiences that users have.
Einar: On the flip side, I think when somebody sometimes just wants to hire for too soon tends to be sales. There’s a lot of times founders (particularly technical founders) are like, I’m not good at sales. I know we should do more sales, I just want to hire salespeople. The flipside of that is until you have a founder driven, if the founder hasn’t already done some sales that they can then train people up on, then sometimes that’s too soon.
Rob: I like to think of it as the moment it becomes pretty repeatable and rote, and this is whether it’s sales, customer success, support, or product development. In the early days when you’re going commando on a product, it’s like all over the place. My code would be everywhere, and then eventually I’ll refactor it, I’ll get all the deployment in place. Then it’s like, wait a minute, I can bring another developer here.
That’s the point of each of those where I start to think about whether I want to help bring someone in and then it’s just a matter of budget. As a bootstrapper, mostly bootstrap, you don’t have the budget to hire on all of those roles, so it’s figuring out which is going to leave me doing the most high-value tasks.
All right. Obviously, if you’re interested in working with Einar, Tracy, Xander, and I, head over to the link. It’s at dynamitejobs.com and you can check out the role for a community manager. Love to hear from you.
The second topic today is one I alluded to in the intro. We have a tweet from @tracymakes on Twitter, that’s Tracy Osborn. This is about a week ago, she says, “Can I be thrown on a plane every time I need to be productive. Geez, I’m working at like 10x speed.” Do you want to expand on that first and then Einar and I will weigh in because I have so many thoughts on this?
Tracy: Yeah. This was my first trip outside of Canada. Obviously, due to the pandemic, I went over to California to go see (that’s where I grew up) my family and all that. It’s my first time on a plane in a year and a half. I’ve been on planes a lot and I think it’s such a good hack. It’s so nice.
My husband kind of disagrees with me. He’ll be the kind of person who wants to play games on the plane. For me, it’s all about paying for the really expensive wifi, but then I’m trapped in a tube where the wifi is kind of crappy. I can’t really do much with it other than go through all the emails that I’m backed up and do all the little tasks I have on my to-do list for so long. I can’t leave my seat, I can’t go get a snack, I can’t go play with my pets, and for some reason, the focus goes through the roof.
Also, having the limited time period knowing that I’m going to be on the plane, there’s going to be wifi availability for a max of three hours helps me timebox everything I need to do and get to be more efficient. As compared to when I’m home especially, I don’t have an office anymore and I’m working from home, it’s just like my time is free form. I can go get a snack whenever I want. I can take as much time as I want for a project unless there’s a deadline. I’m so happy to be back on planes, and it’s kind of a ridiculous way. But I think a lot of people agree with me and that productivity can vastly increase on a plane.
Rob: Einar, you have a tale of your own, whether it’s working on a plane or a location hack that you’ve used?
Einar: What I would not recommend to try to be productive is fly to London and be super jet-lagged as the heatwave hits where there’s no AC when your kids are not around in quarantine. That’s not particularly productive.
Rob: Hey, wait. That’s what you’re doing right now.
Einar: Exactly. This is the most productive I’ve been for a week. I think timeboxing things does make sense to me though. It depends on the kind of task, check on a bunch of different things I think works well. I still set aside (at least until very recently) two hours every Monday in the afternoon where just crappy things that need to get done just like checklist things like signing these things, finish this bit off, pay this bill, or respond to that email.
I do tend to feel super productive when I’m doing that because I’m not trying to do something super, super creative. I find that kind of thing sometimes, I can’t do it on planes. But just plowing through emails, paying a bunch of bills, just clearing the decks planning things tend to work pretty well for me too.
Rob: One hack I’ve used (and this is pre-pandemic, it was two or three days a week), I would spend half the day (usually the morning) somewhere that wasn’t my house or wasn’t my home office. Sometimes, if my kids were home, I would be in the basement at a standing desk. I didn’t have a coworking space, but I would go to a coffee shop and get super caffeinated.
A new environment actually for me causes a whole different mindset of creativity and thought. Again, I was doing that a couple of days a week, not super cheap because I was eating out, buying coffee, and stuff. I haven’t resumed that since the pandemic.
One of the biggest hacks that I’ve completely stumbled into accidentally is during the winter—so obviously in Minnesota, the very cold—we would sign our kids up for jujitsu at an indoor dojo. I hated it because it’s dark already—it’s dark by 4:00 PM or 5:00 PM. It’s sometimes 10 below, so it’s super cold. You’re loaded up with the kids and the face mask. It takes everybody 20 minutes to get ready.
You hop in the car, you drive in the dark, the roads are slippery, it’s twice a week. I would dread this thing, but I knew it was good for the kids. We got there, they got their energy out, it was a great thing.
I started bringing my iPad Pro with the keyboard. It doesn’t have Slack on it, it’s like a separate laptop that doesn’t have interruptions. This would be 6:00 MM 7:00 PM and I would open it up and the Gmail app, which is like the iOS Gmail app. I could get through a week’s worth of email. Something that would take me five days, I can do it in 55 minutes because it was forced—it was like Tracy said—it was timeboxed. I couldn’t do anything else, and I would just boom, boom, boom, hammer through it much like in an airplane.
This was cool because it was once or twice a week and I started looking forward to it secretly, even though I hated the drive and the cold. It was the worst posture. I was literally sitting on a linoleum floor with my back hunched over. You can’t do that for very long, but I could do it just long enough to get this work done.
Tracy: That’s one thing I wish we had in an office because of the experience of saying if you’re working with people in the office and everyone can grab their laptops, go into one of the rooms, just sit down, and work together on one task. Even if you’re not talking together or collaborating. Say going to a coffee shop, grabbing some friends. I’ll go into a coffee shop, sit around a table, and work together. You get these people around, everyone’s working, everyone’s being productive energy.
Rob: That’s awesome. Our next story is from Engadget. The headline is, Delta pilot sues the airline for allegedly stealing an app he designed. He’s suing for $1 billion accusing it of trade secrets theft. He basically paid $100,000 of his money to a software development crew to have a mobile app that would easily communicate disruptive fights, I think, to each other maybe, so some type of messaging tool. He contacted Delta CEO, or at least according to this article, he apparently contacted Delta CEO in 2016 after the computer system meltdown.
You remember this when all the flights were put on hold. It cost the company $150 million. He told the CEO, hey, I have a solution for that. He had several meetings with executives, and according to this, “who gave him verbal assurance that they were going to acquire his app.”
According to Alexander, the pilot’s complaint, Delta ended up telling him that his technology didn’t fit its need and ultimately launched its own Flight Family Communication app in 2018 and he called it a carbon copy knock-off of the role-based text messaging components of “his” proprietary QrewLive communication platform. Now he’s seeking a billion dollars, which feels like a lot. Anyway, I want to kick it over to you first, Einar. What are your thoughts on this situation?
Einar: My first thought is how does he even know? Depending on where he is, his contract might mean that if he was working for Delta at that time, Delta owns the app in the first place anyway. That was my number one thing. What are the IP assignments for all this stuff? Who actually even owned it in the first place, that’s probably my number one insight there.
The second thing is things change and it must feel sucky, but this I don’t think is super unusual. Who knows exactly why they decided to do it or not do it at that time. I have some sympathy but only limited sympathy. I don’t know if it’s worth a billion dollars. That seems like what he’s trying to do is to settle out of court for a reasonable amount rather than thinking he’ll actually get a billion dollars. A billion dollars seems a lot for an internal communications app.
Rob: Yeah, I agree. It’s interesting because when I read the story, I thought to myself, legally I don’t think he has much of a leg to stand on, unless he can prove they stole patented trades. He built software and you can replicate other people’s software, there’s no law against that. There’s the legal side of it.
Then there’s also the maker in me who feels like this sucks and that’s […] that they did that, but then also this only quotes from his complaint or his suit, so it’s his side of the story. I’m curious to see, I’ve seen some of these things that are written up on TechCrunch where I know both sides of it and I’m like, you didn’t represent this very well.
I wonder what was happening on Delta’s side. Maybe the app was […]. There are all kinds of reasons why they wouldn’t just want to use his version of it or not want to buy it, none of which are raised in this article.
Tracy: Yeah, and $100,000 of his own money is a really interesting number I think. For an app that would only work sounds like this piloting system, so he has to have Delta as a buyer in the first place, $100,000 of his own money before pitching the app over sucks. I feel like a lot of people in this industry kind of know that that’s not the way you’re supposed to do it, but I don’t think that’s widely known.
I can just see someone being very enthusiastic, getting his idea in their head, I can sell it to this company that I already have connections with. I’m going to put a bunch of money into it, but I will get a bunch of money back. Then not go through the diligence, spending too much money to develop an app.
On Delta’s side, they have a team of developers. They have their own app developers, they have their own app and what not. I don’t know if there’s an NDA or anything, or if that even matters. But to show this app that could or could not work very well, it’s very easy for Delta to be like, well, that is a good idea. We already have our developers in-house. Let’s just build this. It just sucks. This reads like someone who is really enthusiastic but didn’t do a lot of homework in terms of how these kinds of deals can go down.
Rob: Yeah, I think that’s a good point. As a founder listening to this who could potentially wind up in the same spot, I think it’s dotting your edge, crossing your T’s. Like you said, having NDAs, making sure your IP is locked down.
Tracy: Patents, that’s the whole reason why patents exist, I guess. I’m not sure if you can patent something like this.
Rob: Yeah, but it’s a messaging app. That’s the thing and that’s what I struggle with. It’s not the software, we always say that. It’s the marketing, it’s the brand. You either have to have something super unique or you need to have proprietary marketing channels that you can own, or sales channels because anyone can go replicate your software.
In fact, we did have people who basically copycat. I’ve had people who copycat pretty much most of the apps I’ve ever built, but at that point, it then became a question of brand and marketing. Could I secure the leads?
Tracy: Yeah, and he built something that he couldn’t market on his own because he built it for just one buyer and that one buyer said, no, we’re happy to do this on our own. I can imagine there’s another situation where he built something that he can sell to multiple airlines, drive competition, or something like that. Developing for just one buyer in mind feels like a mistake.
Rob: I don’t know that it was only developed for Delta. I wonder if it could work for any airline, but then it’s like, okay, cool. Go sell it to the other airlines then. That would be the next step to approve it.
The next story is a tweet that I sent out about a month ago and it seemed to resonate. It got a bunch of retweets, likes, and stuff so I just wanted to talk about it really quickly because it’s pretty founder-focused. The tweet is, “In the early days, you’re building a product. Once you’ve built something people are willing to pay for which is no easy task, you work on building a business. Once that flywheel is going, you move on to building a company. Very few founders excel at or even enjoy all three stages. It’s product, business, and company.”
I got some follow-up questions to that in the conversation, obviously, we’ll link it up, but I was defining the difference between a business and a company. A business is once you start looking at profit loss, you have enough revenue, you can start hiring, and it’s still early stages. A company is really when you’re starting to scale up. It’s like you’re starting to hit and escape velocity and really build out an org.
The reason I tweeted this is that it just continues to be a theme. I hear it on podcasts, I hear it in conversations with folks. I watch founders leave their companies. They grow it to $20 million and then they step down as CEO, and people say, why would you do that? It’s because I love building products, and frankly, I overstayed my welcome. Or I love building products and business which I’m defining as an earlier stage thing, but building out a company, building out an org is a different skillset. It really, really is.
That’s why 20 years ago, the venture capitalist would bring in “adult supervision”. The founder would go out and would bring in a seasoned CEO, COO, or whatever it is. Einar, what are your thoughts on this?
Einar: I agree with this. I think there are very few people who are very good at both of them. I think in some cases, you see data that says founder-driven companies are more valuable and grow faster than professional CEO-led companies. I do wonder if that’s just because founders of companies that are growing really fast are less likely to want to step away from it than companies that aren’t growing so fast.
I think in general it’s very true. I think once you get to a certain size, your job almost becomes HR. It becomes hiring. How do you source enough quality people to come on board, to work for you, and believe in the mission and all that stuff? I think a lot of people, particularly technical founders, don’t enjoy that. They don’t enjoy the organization building that you’ll need to do once you get past a certain size.
Tracy: I feel like you have to change where’s your dopamine rush? Is your dopamine rush from building that product and seeing people use the product that you built by hand or you had a large part in building? Then you have to switch that dopamine rush to watching other people do that process. Are you able to take that joy from seeing other people succeed and other people build a product and switch where your joy comes from the business? From enabling people and seeing the big picture thing. I feel like there’s a lot of people who are unable or unwilling to switch over where they get their joy.
There are people who make good managers and people who don’t make good managers. I think good managers—when they’re managing people—take the joy of just enabling people to do things. I feel like that broadly can be extended to building a company.
Rob: I really like that point. I think that’s accurate.
Einar: It’s true. At a certain size, it also becomes a question of instead of hiring a new professional CEO, that might be the point where you decide I’m going to sell this business because I don’t enjoy this stage anymore, and there are other people who can do better.
Rob: We’ve seen an example of that—Jason Cohen with WP Engine. He built it up and then I believe (I don’t know this for sure at this point) no one reports to him. He still works at the company full time, but he’s like an advisor and does pet projects (that probably diminishes what he’s doing), but he’s just doing projects he wants to do that he feels are valuable to the company.
Dharmesh Shah did the same thing at HubSpot. I remember asking him because he and I met 13 or 14 years ago. We were bloggers and then I moved into Boston. We were chatting at one point and I’m like, you’re going to go public someday soon, but you’re a maker. You’re a developer. He said, yeah, no one reports to me and I could work on what I want. I write company culture docs. I think what’s the next interesting problem that I need to solve for this company and I go do it. And I don’t have to manage people. It’s like at a certain scale you can do that.
I just named two massive multi-billion companies in essence. It’s harder to do that when you’re making $20,000 a month. But the point is that you hit a certain point in your company’s maturity where you do have to make that decision of am I the right person for this job anymore? Because in the early days, the CEO’s job is to make sales and make products, whether you’re doing it yourself, working with a cofounder, or you have an early hire. Then in the middle days, a lot of it is hiring, making sure there’s enough money in the bank, and it’s managing staff.
To Einar’s point, once you’re company building, it’s so much HR, maybe it’s fundraising, maybe you start getting into things where legal becomes a bigger issue. There are either incoming lawsuits or just managing GDPR. All the stuff that you don’t want to do when you just want to build a product to make $10,000 a month becomes a full-time job, plus, plus entire teams of people doing them.
Tracy: I want to go back to my point though. I think it’s funny because yesterday in TinySeed, we brought on your wife, Dr. Sherry Walling to talk to us about psychological issues. She made a point about—I forgot exactly how she phrased it, but it’s like being mindful of the joys and then finding things that you’re not taking joy in that you should be taking joy in.
I feel like if things like legal, those things aren’t really fun. But being mindful of this thing is not fun. I don’t like this part of the business, but I’m going to view it as a full ecosystem of the business. This legal work, this fundraising work, what is this enabling to do? And then thinking thoroughly about is this a good thing. Then if it’s a good thing, hopefully, it brings you some amount of joy, so therefore it becomes a little bit enjoyable.
If you don’t find some of these tasks enjoyable, maybe that practice will help you. It doesn’t mean that you have to then outsource it or hire someone or whatnot. I think there’s a little bit of balance there that people can do in order to make some of these lesser love tasks more fun.
Rob: Yeah, I agree. At the same time, you can get caught in a trap where you’re doing things that you don’t like for too long and that becomes burnout.
Tracy: Yeah, it’s a balance.
Rob: It’s like you can do it for three months, six months, and nine months and tell yourself I have to do this. Eventually like in my experience, you have to hire someone to do that. You have to hire it, you have to outsource it, you have to figure out a way not to do it if you really don’t enjoy doing it.
Tracy: You have to build a business and company, not just build a product.
Rob: And fire yourself. As a CEO you have to fire yourself from all the jobs over time, and it’s just picking what’s the next job I’m going to fire myself from.
The next story is about Facebook. It’s from bloomberg.com. Facebook Users Said No to Tracking. Now Advertisers are Panicking. IOS now asks for permission of whether you want Facebook or any app to be able to track you between apps. I’m opting out of all that, by the way. I get the prompt every time I open whatever, Instagram, or Facebook, and I say no. I only allow it in this app.
I guess only 25% of people are allowing themselves to be tracked across apps. How does this relate to the listeners of this podcast? I think that if you are making Facebook ads, Instagram ads, or really any ads that need cross-pollination. Obviously, this is mobile-only. So if you’re making web work, that’s less relevant. But I think the effectiveness of the tracking and basically the cost per click or cost per lead is inevitably going to go up because of this. Einar, do you have thoughts on that?
Einar: Yeah. I’m not surprised this was coming with the war between the business model that Apple has and the business model that Facebook and advertisers have. Apple doesn’t make a lot of its money from advertising, so they’re always going to err on the side of how can they sell more phones? And part of that is people are starting to get concerned about being tracked, people retargeting, and things like that. Apple is always going to be, I think, a company that errs on that side.
I think it ends up being tricky for advertisers in the end particularly when you’re trying to do things like retargeting, figuring out conversion, what adverts work, and where did this client come from. Even for a smaller bootstrapper, it’s going to start to become a problem if you have less and less data about what are your acquisition channels that actually are effective. If this becomes more and more of a trend, then I can see it really impacting people’s ability to optimize their marketing. You’ll end up spending more money, but less efficiently.
On the flip side, on the consumer too, you’ll end up in a situation where I know people who prefer targeted advertising because that means the stuff they see is more likely to be relevant as opposed to diapers for a 55-year-old man. I think there’s a balance there, but I can definitely see it being an issue.
Tracy: People have been saying for a long time that if you’re not paying for a product, then you are the product. This change through Apple is finally Apple saying, hey, you’re the product. They’re telling people directly you’re a product and I think that saying was well known between web-y people but wasn’t really known by the general public. Now that awareness is going out to the general public, oh yeah, Facebook is free.
Rob: “Free.”
Tracy: Yeah, exactly. They’re thinking, oh, that’s why it’s free. I do agree with Einar. It comes across so negatively, do you want to be tracked? And no one really wants to be tracked. I think that these ad networks, I think I’ve seen these on some places where it says, hey, we can give you more personalized ads. I think that those warnings, those better ways of spinning how things are going and why the tracking is there. Does Apple block it?
Rob: Apple did Facebook no favors on this because I believe it’s an Apple-generated message. You feel like they were digging it in.
Tracy: By the way, this is tracking you.
Rob: Yup, they stuck the knife and then twisted it on that one.
Tracy: You’re in the bathroom, it’s tracking you. You’re doing all these things and its’ tracking you. It’s very scary. Everyone is going to opt out of course. Instagram is a dumb thing. There’s an article recently talking about how Instagram is the new SkyMall and I totally agree with that.
The products on Instagram are nuts, but it’s kind of impressive when I’m on Instagram and how targeted those ads are to me. I would say that I wasn’t normally a person that would buy off of ads. Maybe I’m a little bit of a brat and I see ads on Facebook or Reddit, I deliberately don’t click on it because I’m being a butt.
For some reason, Instagram—because it is so targeted—actually has worked so many times. I have bought so many things off of Instagram ads. I can see overall, hopefully, this direction going towards more targeted ads in that way and these prompts maybe will have an evolution over time. But right now, I think we’re in a really weird period where people are realizing that they are the product finally.
Rob: The last story of the day is from Square. It’s not a story, it’s a release of their business banking, which is at squareup.com/banking. Square Banking, your payments, banking, and cash flow working as one. I love this. I don’t use Square, but I love the fact because banking is so last century. Everything I do with any bank is a disaster. The mobile apps are terrible, the process. Are you […] kidding me that we have a 2:00 PM wire cutoff to send money the next day in this day? Are you kidding me? That’s what we’re dealing with, right?
Given that we have crypto that I can send you in the next 15 seconds for pennies. That’s my banking rant. Given that we have Brex credit cards, which I really like using. I love their mobile app. Mercury Bank, Square Bank—these tech-enabled startup banks that are actually getting traction. I’m surprised Stripe hasn’t entered this. I can’t imagine they are not also entering this space given they wanted to increase the GDP of the internet. I’m super bullish on tech-enabled modern banks.
Remember when the web first came out, in the late ‘90s, they had these banks come out. It was like WebBank or bank.com and they didn’t have branches. You’d mail them a cheque to deposit because there were no mobile phones to deposit. It was a bit of a clunky experience.
I feel like the tech has caught up and that we are going to see actual really solid banking products that make our lives easier, much the way we used to use taxis and then Uber and Lyft came along. It’s a net win for us as consumers. I don’t want to go on the flipside of that, but I feel like banking is going to hit that, especially for business banking, which has historically sucked. Tracy, do you have thoughts?
Tracy: I wish I was as enthusiastic as you are. I’m very enthusiastic about these products. I feel very pessimistic about this because I feel like there have been such innovations in banking that I’ve been seeing pop up since the beginning of the internet. Is it because big banks have so much lobbying to change the regulations that are in the US? I can’t remember anyone that has popped up before.
I know there are several banking apps, credit cards, and things that popped up because it was like, oh, look at all the things we can do. It’s a new world. We can have all these fancy tech products, then they die and disappear because there are all these regulations, lobbyists, and everything that’s going on. I hope I’m wrong, but I look at these things kind of pessimistically.
I will continue to use them because I want them to succeed, but I’m also looking at them as there’s a very good real chance that these things are not going to need to payout. For example, Wealthsimple in Canada. They were launching a new savings account and investing thing, and they’re like, boom, we’re going to have debit cards you can use as a bank.
As soon as they announced it, I signed up for it. A year ago, I still didn’t have a debit card. I still can’t use those features, I finally moved my money out of that side of business because I don’t know […]. They’ve obviously run into problems trying to finish building out this whole banking platform. I will continue to use them, but I see so many problems happening that I’m looking at it being aware that it can just go away.
Rob: Einar, what do you think? Are you bullish or bearish?
Einar: I’m bullish. One of my good friends runs Mercury, so I can’t really be bearish.
Tracy: He’s going to call you up and be like.
Einar: I think banking has very low churn. Basically, people leave a bank when they die most of the time. I think there’s sort of inertia there with, well, it’s my money so I care a lot about my money. Do I really want to take the risk of going to some new fangle thing that hasn’t been around as long or I’m going to stick with the horrible mess that is the Bank of America, their 1992 websites, and all their stupid fees.
I think that’s the main challenge for some of these things. I actually think that’s why going into business banking first, at least, makes more sense because when you start a new business or a startup then you need a bank account, then that’s when you’re evaluating potential new things. It’s not exactly tied into your own personal flows of money that have been going on to the same places for years and years. I’m a bit more bullish than I think Tracy is.
Tracy: I usually pop up in here being the optimistic confident person and I feel like this is the one time I’ve disagreed with you both.
Rob: It’s all good. That’s why there are three of us on here to have that conversation. My take is that with Square behind it, they have more of a chance than a brand new startup. You see folks like Kickstart, a brand new credit card, blah, blah, blah. It’s like, yeah, I just don’t think you’re going to do it to your point Tracy.
Once there’s Square or Stripe, again I’ve got no knowledge that Stripe is doing this. If I were in their shoes I would certainly be thinking about this because of business banking. It’s like what you’re saying, Einar.
Einar: I think Stripe should buy Mercury, that’s what I think, not because I just don’t know the founder. I think that will be a good acquisition.
Rob: Yeah, to merge it in. Anyway, I’m excited about this. Again, not just because business banking sucks today, but I just think there’s so much more innovation to be had including transferring money without a 2:00 PM deadline. There’s so much that I think we’re going to see hopefully in the next 5–10 years as long as (to Tracy’s point) the lobbyists don’t get in the way here in the US.
That is our show for today. Tracy Osborn, you are @traceymakes on Twitter. And if folks want to see what you’re up to aside from that, tinyseed.com/latest. That’s our news feed.
Tracy: Yeah, our applications are opening on August 9th, making sure I had the right date there. Applications are opening. We’re doing two batches a year starting this year. This is for our fall 2021 batch. August 9th, we’ll be open for two weeks.
Rob: And Einar Vollset, @einarvollset on Twitter. You are in the UK. If folks want to reach you, of course, they should reach out to you, tinyseed.com/invest.
Einar: That’s right. We’re all sort of ramping up fundraising for our European fund. I’m going to talk to anyone who’s interested in investing in this space.
Rob: Awesome, thanks again for joining me.
Einar: Thank you.
Tracy: Hey, happy to be here.
Rob: Thank you for joining me again this week. It’s always great to have you back. Next week I have a pretty interesting interview, or maybe I’ll do a solo episode next week. I’m going to be in Cancun at the end of the month so I have to-pre record a couple of them. I hope you join me as those roll out. I’ll be back in your earbuds again next Tuesday morning.
Today, I’m welcoming Tracy Osborn, the Program Director of TinySeed and Einar Vollset, the General Partner of TinySeed and my cofounder in this amazing epic adventure, this journey that we are on. The two of you have been on so many of these episodes now. I almost wonder, how should I reintroduce any of you, what is new, what do the people need to know.
Einar: Or maybe you shouldn’t. Maybe you should just be like, yeah, I’m once again with Tracy and Einar, the end.
Tracy: Don’t call attention to it.
Rob: There it is. Einar is in the UK. He’s actually just an hour outside London. I think I mentioned this in the outro of last week’s episode, but we’re getting started on raising our European TinySeed fund. If you are an accredited investor and interested in potentially investing in EU companies that TinySeed would be investing in over the next couple of years, you should hit them up, tinyseed.com/invest.
Einar: Because it’s an EU fund, I actually don’t know if the same accreditation rules apply. You may be able to give us money without being an accredited investor.
Rob: We’re in the early stages, you can tell. This is still being researched. In other news, before we dive into the topics, I want to let you know that MicroConf is back in person. MicroConfs are starting in September. Right now we have five scheduled in five weeks. That was a bit of an effect of the pandemic that we had to condense that, but we have one day local events in Portland, Oregon, Austin, Texas, Boston, Massachusetts, and London,
Then we have a two and a half day growth event in Croatia. It’s our third and final year in Croatia, that will be the first week of October. I think they’re going to sell out fast based on pent up demand and what I’m hearing from folks. So microconf.com if you want to get on that list and have a chance at tickets. Who else is excited for in-person events?
Tracy: Oh my golly, so excited. Get me out of here. Get me travelling.
Einar: Super excited. I can’t wait. I need to go. I’m just sad that due to the capacity constraints on the places, there can only be so many people. I’m like, come one, let’s do more people.
Rob: Yup, I totally agree. That’s what we’re looking at right now. We’re at half capacity in Croatia, but we almost expect the way things are going, probably open up a bit more and we can sell more tickets later, but I’m excited to do it.
Let’s dive into our first story, which is really just TinySeed making our first hire in over a year and a half? Because the […] started in September. This is the first time. We’re a small team, we don’t grow very quickly on purpose. It’s like a forcing function to do great work and to figure out when it is we need to make that next hire. We’ll link the job posting up in the show notes.
We’re hiring a remote community manager who’s going to spend time in the MicroConf community and also in the TinySeed community. The reason I wanted to call this out is we went into a whole process to decide, should we hire someone now and which role we should hire? It’s not always obvious like, we need another developer right now, we need a project manager, or we need a customer success person.
Tracy, you are part of this process obviously, what were some of the things that we did along the way to figure out that this is the role we actually need to hire?
Tracy: We got a lot done as a small team being that we have just four people across MicroConf and TinySeed. That worked really well for a while, but I started feeling like balls are not being dropped but I knew that if I didn’t have as much capacity as I used to. Then it was like, why do I not have capacity? What are the things I’m doing? What task could potentially be offloaded or what I’d like to be offloaded in order to increase capacity? That’s where it started with me.
I wasn’t thinking about hiring per se, I just started creating a list. And as I was going through my daily, weekly activities, as things popped in, I was watching out for things, oh, that’s potentially outsourceable. That’s something I could teach someone else to do. I just basically built this whole list and then I talked to you. It’s like, hey, Rob. Guess what? I’m feeling a little overwhelmed right now, but I’ve already created this list. Take a look at it. I think Xander was kind of doing the same thing on his end, right?
Rob: Yeah, that was the thing. Xander came to me and said, hey, MicroConf is coming up, starting to plan them. I have a bunch of stuff I’m doing over and over. I think that was the commonality between you and Xander. There are some admin tasks so we can hire a VA to do, but there is also some higher-level stuff where it’s like we need someone who’s a step up form of VA in essence in terms of skills set and focus.
You are keeping a list, I asked Xander to keep a list, and when I compared the two, it wasn’t a one-to-one mapping but we can start to fit it together. There’s still a bunch of stuff that a community manager probably wouldn’t be able to do that’s on that list that we’ll have to keep doing for a while.
The way I think about it is as we started TinySeed and continue with MicroConf, you make a lot of it up as you’re going and just figure out the process. By the time that you do the process, second, third, fourth time, it’s like, wait a minute, someone else could be doing this and I could be working more on ambitious things, more creative things that kind of drive it forward.
Einar, do you have thoughts on obviously both in terms of this process, but also advising all the TinySeed companies? People come to us a lot and say, who should I hire next? How do you advise founders when they come to you?
Einar: I think very often, particularly bootstrap founders end up hiring too late. It ends up in a situation where they’re like, oh, I’m overwhelmed, and then only when they’re super overwhelmed do they realize they have no choice but to hire somebody. I think often people should hire sooner than that.
We were talking to one of the founders two, three months ago and finally, they were like, should I hire? I don’t know. I’ve become so busy. I was asking, what kind of thing were they doing? And in this case, they were doing customer support 40% of their time.
I’m sorry, but if you are the founder then it’s valuable for you to do customer support, sure. You want to be closer to your customers, but it’s not valuable to the point where you’re spending almost half of your time doing customer support when it’s something that’s super repetitive, something that you can definitely hire someone at a reasonable price to do.
I think it comes with that bootstrapper mindset that you want to be frugal and things, but I also think you only have so much time. If you’re spending your time on suboptimal stuff, that’s not a good thing to be doing.
Rob: I would agree with that and that’s usually the first thing I recommend people hire for. It’s usually not outsourced but hired for is that support role. Even though yes, as a founder you can probably give better support in the early days, but as it becomes repetitive, I find that founders don’t give better support than someone who’s really good at it because you get tired, you get bored, and it’s not as creative.
Still handling the exceptions, the one-offs that get escalated to you I think is the way to go there. The other thing I was talking to a company yesterday and they’ve hired two support people, they’re all dialed in there, and the next hire is a developer. Because right now, one founder is doing all the code. When they go on vacation he has to take a laptop because if the site goes down, it’s getting the buzz factor out of there.
Tracy: This also applies to design. I was talking to the founders yesterday as well and doing your own design and all of that work for front end, user experience, and getting your onboarding flows and whatnot is also something I find founders hold onto as long as possible. It’s good for them to have a good understanding of how things work, but that’s also something that’s very easily outsourced and probably should be outsourced to someone who has more of an eye or specialty in that area to work on those very important front end experiences that users have.
Einar: On the flip side, I think when somebody sometimes just wants to hire for too soon tends to be sales. There’s a lot of times founders (particularly technical founders) are like, I’m not good at sales. I know we should do more sales, I just want to hire salespeople. The flipside of that is until you have a founder driven, if the founder hasn’t already done some sales that they can then train people up on, then sometimes that’s too soon.
Rob: I like to think of it as the moment it becomes pretty repeatable and rote, and this is whether it’s sales, customer success, support, or product development. In the early days when you’re going commando on a product, it’s like all over the place. My code would be everywhere, and then eventually I’ll refactor it, I’ll get all the deployment in place. Then it’s like, wait a minute, I can bring another developer here.
That’s the point of each of those where I start to think about whether I want to help bring someone in and then it’s just a matter of budget. As a bootstrapper, mostly bootstrap, you don’t have the budget to hire on all of those roles, so it’s figuring out which is going to leave me doing the most high-value tasks.
All right. Obviously, if you’re interested in working with Einar, Tracy, Xander, and I, head over to the link. It’s at dynamitejobs.com and you can check out the role for a community manager. Love to hear from you.
The second topic today is one I alluded to in the intro. We have a tweet from @tracymakes on Twitter, that’s Tracy Osborn. This is about a week ago, she says, “Can I be thrown on a plane every time I need to be productive. Geez, I’m working at like 10x speed.” Do you want to expand on that first and then Einar and I will weigh in because I have so many thoughts on this?
Tracy: Yeah. This was my first trip outside of Canada. Obviously, due to the pandemic, I went over to California to go see (that’s where I grew up) my family and all that. It’s my first time on a plane in a year and a half. I’ve been on planes a lot and I think it’s such a good hack. It’s so nice.
My husband kind of disagrees with me. He’ll be the kind of person who wants to play games on the plane. For me, it’s all about paying for the really expensive wifi, but then I’m trapped in a tube where the wifi is kind of crappy. I can’t really do much with it other than go through all the emails that I’m backed up and do all the little tasks I have on my to-do list for so long. I can’t leave my seat, I can’t go get a snack, I can’t go play with my pets, and for some reason, the focus goes through the roof.
Also, having the limited time period knowing that I’m going to be on the plane, there’s going to be wifi availability for a max of three hours helps me timebox everything I need to do and get to be more efficient. As compared to when I’m home especially, I don’t have an office anymore and I’m working from home, it’s just like my time is free form. I can go get a snack whenever I want. I can take as much time as I want for a project unless there’s a deadline. I’m so happy to be back on planes, and it’s kind of a ridiculous way. But I think a lot of people agree with me and that productivity can vastly increase on a plane.
Rob: Einar, you have a tale of your own, whether it’s working on a plane or a location hack that you’ve used?
Einar: What I would not recommend to try to be productive is fly to London and be super jet-lagged as the heatwave hits where there’s no AC when your kids are not around in quarantine. That’s not particularly productive.
Rob: Hey, wait. That’s what you’re doing right now.
Einar: Exactly. This is the most productive I’ve been for a week. I think timeboxing things does make sense to me though. It depends on the kind of task, check on a bunch of different things I think works well. I still set aside (at least until very recently) two hours every Monday in the afternoon where just crappy things that need to get done just like checklist things like signing these things, finish this bit off, pay this bill, or respond to that email.
I do tend to feel super productive when I’m doing that because I’m not trying to do something super, super creative. I find that kind of thing sometimes, I can’t do it on planes. But just plowing through emails, paying a bunch of bills, just clearing the decks planning things tend to work pretty well for me too.
Rob: One hack I’ve used (and this is pre-pandemic, it was two or three days a week), I would spend half the day (usually the morning) somewhere that wasn’t my house or wasn’t my home office. Sometimes, if my kids were home, I would be in the basement at a standing desk. I didn’t have a coworking space, but I would go to a coffee shop and get super caffeinated.
A new environment actually for me causes a whole different mindset of creativity and thought. Again, I was doing that a couple of days a week, not super cheap because I was eating out, buying coffee, and stuff. I haven’t resumed that since the pandemic.
One of the biggest hacks that I’ve completely stumbled into accidentally is during the winter—so obviously in Minnesota, the very cold—we would sign our kids up for jujitsu at an indoor dojo. I hated it because it’s dark already—it’s dark by 4:00 PM or 5:00 PM. It’s sometimes 10 below, so it’s super cold. You’re loaded up with the kids and the face mask. It takes everybody 20 minutes to get ready.
You hop in the car, you drive in the dark, the roads are slippery, it’s twice a week. I would dread this thing, but I knew it was good for the kids. We got there, they got their energy out, it was a great thing.
I started bringing my iPad Pro with the keyboard. It doesn’t have Slack on it, it’s like a separate laptop that doesn’t have interruptions. This would be 6:00 MM 7:00 PM and I would open it up and the Gmail app, which is like the iOS Gmail app. I could get through a week’s worth of email. Something that would take me five days, I can do it in 55 minutes because it was forced—it was like Tracy said—it was timeboxed. I couldn’t do anything else, and I would just boom, boom, boom, hammer through it much like in an airplane.
This was cool because it was once or twice a week and I started looking forward to it secretly, even though I hated the drive and the cold. It was the worst posture. I was literally sitting on a linoleum floor with my back hunched over. You can’t do that for very long, but I could do it just long enough to get this work done.
Tracy: That’s one thing I wish we had in an office because of the experience of saying if you’re working with people in the office and everyone can grab their laptops, go into one of the rooms, just sit down, and work together on one task. Even if you’re not talking together or collaborating. Say going to a coffee shop, grabbing some friends. I’ll go into a coffee shop, sit around a table, and work together. You get these people around, everyone’s working, everyone’s being productive energy.
Rob: That’s awesome. Our next story is from Engadget. The headline is, Delta pilot sues the airline for allegedly stealing an app he designed. He’s suing for $1 billion accusing it of trade secrets theft. He basically paid $100,000 of his money to a software development crew to have a mobile app that would easily communicate disruptive fights, I think, to each other maybe, so some type of messaging tool. He contacted Delta CEO, or at least according to this article, he apparently contacted Delta CEO in 2016 after the computer system meltdown.
You remember this when all the flights were put on hold. It cost the company $150 million. He told the CEO, hey, I have a solution for that. He had several meetings with executives, and according to this, “who gave him verbal assurance that they were going to acquire his app.”
According to Alexander, the pilot’s complaint, Delta ended up telling him that his technology didn’t fit its need and ultimately launched its own Flight Family Communication app in 2018 and he called it a carbon copy knock-off of the role-based text messaging components of “his” proprietary QrewLive communication platform. Now he’s seeking a billion dollars, which feels like a lot. Anyway, I want to kick it over to you first, Einar. What are your thoughts on this situation?
Einar: My first thought is how does he even know? Depending on where he is, his contract might mean that if he was working for Delta at that time, Delta owns the app in the first place anyway. That was my number one thing. What are the IP assignments for all this stuff? Who actually even owned it in the first place, that’s probably my number one insight there.
The second thing is things change and it must feel sucky, but this I don’t think is super unusual. Who knows exactly why they decided to do it or not do it at that time. I have some sympathy but only limited sympathy. I don’t know if it’s worth a billion dollars. That seems like what he’s trying to do is to settle out of court for a reasonable amount rather than thinking he’ll actually get a billion dollars. A billion dollars seems a lot for an internal communications app.
Rob: Yeah, I agree. It’s interesting because when I read the story, I thought to myself, legally I don’t think he has much of a leg to stand on, unless he can prove they stole patented trades. He built software and you can replicate other people’s software, there’s no law against that. There’s the legal side of it.
Then there’s also the maker in me who feels like this sucks and that’s […] that they did that, but then also this only quotes from his complaint or his suit, so it’s his side of the story. I’m curious to see, I’ve seen some of these things that are written up on TechCrunch where I know both sides of it and I’m like, you didn’t represent this very well.
I wonder what was happening on Delta’s side. Maybe the app was […]. There are all kinds of reasons why they wouldn’t just want to use his version of it or not want to buy it, none of which are raised in this article.
Tracy: Yeah, and $100,000 of his own money is a really interesting number I think. For an app that would only work sounds like this piloting system, so he has to have Delta as a buyer in the first place, $100,000 of his own money before pitching the app over sucks. I feel like a lot of people in this industry kind of know that that’s not the way you’re supposed to do it, but I don’t think that’s widely known.
I can just see someone being very enthusiastic, getting his idea in their head, I can sell it to this company that I already have connections with. I’m going to put a bunch of money into it, but I will get a bunch of money back. Then not go through the diligence, spending too much money to develop an app.
On Delta’s side, they have a team of developers. They have their own app developers, they have their own app and what not. I don’t know if there’s an NDA or anything, or if that even matters. But to show this app that could or could not work very well, it’s very easy for Delta to be like, well, that is a good idea. We already have our developers in-house. Let’s just build this. It just sucks. This reads like someone who is really enthusiastic but didn’t do a lot of homework in terms of how these kinds of deals can go down.
Rob: Yeah, I think that’s a good point. As a founder listening to this who could potentially wind up in the same spot, I think it’s dotting your edge, crossing your T’s. Like you said, having NDAs, making sure your IP is locked down.
Tracy: Patents, that’s the whole reason why patents exist, I guess. I’m not sure if you can patent something like this.
Rob: Yeah, but it’s a messaging app. That’s the thing and that’s what I struggle with. It’s not the software, we always say that. It’s the marketing, it’s the brand. You either have to have something super unique or you need to have proprietary marketing channels that you can own, or sales channels because anyone can go replicate your software.
In fact, we did have people who basically copycat. I’ve had people who copycat pretty much most of the apps I’ve ever built, but at that point, it then became a question of brand and marketing. Could I secure the leads?
Tracy: Yeah, and he built something that he couldn’t market on his own because he built it for just one buyer and that one buyer said, no, we’re happy to do this on our own. I can imagine there’s another situation where he built something that he can sell to multiple airlines, drive competition, or something like that. Developing for just one buyer in mind feels like a mistake.
Rob: I don’t know that it was only developed for Delta. I wonder if it could work for any airline, but then it’s like, okay, cool. Go sell it to the other airlines then. That would be the next step to approve it.
The next story is a tweet that I sent out about a month ago and it seemed to resonate. It got a bunch of retweets, likes, and stuff so I just wanted to talk about it really quickly because it’s pretty founder-focused. The tweet is, “In the early days, you’re building a product. Once you’ve built something people are willing to pay for which is no easy task, you work on building a business. Once that flywheel is going, you move on to building a company. Very few founders excel at or even enjoy all three stages. It’s product, business, and company.”
I got some follow-up questions to that in the conversation, obviously, we’ll link it up, but I was defining the difference between a business and a company. A business is once you start looking at profit loss, you have enough revenue, you can start hiring, and it’s still early stages. A company is really when you’re starting to scale up. It’s like you’re starting to hit and escape velocity and really build out an org.
The reason I tweeted this is that it just continues to be a theme. I hear it on podcasts, I hear it in conversations with folks. I watch founders leave their companies. They grow it to $20 million and then they step down as CEO, and people say, why would you do that? It’s because I love building products, and frankly, I overstayed my welcome. Or I love building products and business which I’m defining as an earlier stage thing, but building out a company, building out an org is a different skillset. It really, really is.
That’s why 20 years ago, the venture capitalist would bring in “adult supervision”. The founder would go out and would bring in a seasoned CEO, COO, or whatever it is. Einar, what are your thoughts on this?
Einar: I agree with this. I think there are very few people who are very good at both of them. I think in some cases, you see data that says founder-driven companies are more valuable and grow faster than professional CEO-led companies. I do wonder if that’s just because founders of companies that are growing really fast are less likely to want to step away from it than companies that aren’t growing so fast.
I think in general it’s very true. I think once you get to a certain size, your job almost becomes HR. It becomes hiring. How do you source enough quality people to come on board, to work for you, and believe in the mission and all that stuff? I think a lot of people, particularly technical founders, don’t enjoy that. They don’t enjoy the organization building that you’ll need to do once you get past a certain size.
Tracy: I feel like you have to change where’s your dopamine rush? Is your dopamine rush from building that product and seeing people use the product that you built by hand or you had a large part in building? Then you have to switch that dopamine rush to watching other people do that process. Are you able to take that joy from seeing other people succeed and other people build a product and switch where your joy comes from the business? From enabling people and seeing the big picture thing. I feel like there’s a lot of people who are unable or unwilling to switch over where they get their joy.
There are people who make good managers and people who don’t make good managers. I think good managers—when they’re managing people—take the joy of just enabling people to do things. I feel like that broadly can be extended to building a company.
Rob: I really like that point. I think that’s accurate.
Einar: It’s true. At a certain size, it also becomes a question of instead of hiring a new professional CEO, that might be the point where you decide I’m going to sell this business because I don’t enjoy this stage anymore, and there are other people who can do better.
Rob: We’ve seen an example of that—Jason Cohen with WP Engine. He built it up and then I believe (I don’t know this for sure at this point) no one reports to him. He still works at the company full time, but he’s like an advisor and does pet projects (that probably diminishes what he’s doing), but he’s just doing projects he wants to do that he feels are valuable to the company.
Dharmesh Shah did the same thing at HubSpot. I remember asking him because he and I met 13 or 14 years ago. We were bloggers and then I moved into Boston. We were chatting at one point and I’m like, you’re going to go public someday soon, but you’re a maker. You’re a developer. He said, yeah, no one reports to me and I could work on what I want. I write company culture docs. I think what’s the next interesting problem that I need to solve for this company and I go do it. And I don’t have to manage people. It’s like at a certain scale you can do that.
I just named two massive multi-billion companies in essence. It’s harder to do that when you’re making $20,000 a month. But the point is that you hit a certain point in your company’s maturity where you do have to make that decision of am I the right person for this job anymore? Because in the early days, the CEO’s job is to make sales and make products, whether you’re doing it yourself, working with a cofounder, or you have an early hire. Then in the middle days, a lot of it is hiring, making sure there’s enough money in the bank, and it’s managing staff.
To Einar’s point, once you’re company building, it’s so much HR, maybe it’s fundraising, maybe you start getting into things where legal becomes a bigger issue. There are either incoming lawsuits or just managing GDPR. All the stuff that you don’t want to do when you just want to build a product to make $10,000 a month becomes a full-time job, plus, plus entire teams of people doing them.
Tracy: I want to go back to my point though. I think it’s funny because yesterday in TinySeed, we brought on your wife, Dr. Sherry Walling to talk to us about psychological issues. She made a point about—I forgot exactly how she phrased it, but it’s like being mindful of the joys and then finding things that you’re not taking joy in that you should be taking joy in.
I feel like if things like legal, those things aren’t really fun. But being mindful of this thing is not fun. I don’t like this part of the business, but I’m going to view it as a full ecosystem of the business. This legal work, this fundraising work, what is this enabling to do? And then thinking thoroughly about is this a good thing. Then if it’s a good thing, hopefully, it brings you some amount of joy, so therefore it becomes a little bit enjoyable.
If you don’t find some of these tasks enjoyable, maybe that practice will help you. It doesn’t mean that you have to then outsource it or hire someone or whatnot. I think there’s a little bit of balance there that people can do in order to make some of these lesser love tasks more fun.
Rob: Yeah, I agree. At the same time, you can get caught in a trap where you’re doing things that you don’t like for too long and that becomes burnout.
Tracy: Yeah, it’s a balance.
Rob: It’s like you can do it for three months, six months, and nine months and tell yourself I have to do this. Eventually like in my experience, you have to hire someone to do that. You have to hire it, you have to outsource it, you have to figure out a way not to do it if you really don’t enjoy doing it.
Tracy: You have to build a business and company, not just build a product.
Rob: And fire yourself. As a CEO you have to fire yourself from all the jobs over time, and it’s just picking what’s the next job I’m going to fire myself from.
The next story is about Facebook. It’s from bloomberg.com. Facebook Users Said No to Tracking. Now Advertisers are Panicking. IOS now asks for permission of whether you want Facebook or any app to be able to track you between apps. I’m opting out of all that, by the way. I get the prompt every time I open whatever, Instagram, or Facebook, and I say no. I only allow it in this app.
I guess only 25% of people are allowing themselves to be tracked across apps. How does this relate to the listeners of this podcast? I think that if you are making Facebook ads, Instagram ads, or really any ads that need cross-pollination. Obviously, this is mobile-only. So if you’re making web work, that’s less relevant. But I think the effectiveness of the tracking and basically the cost per click or cost per lead is inevitably going to go up because of this. Einar, do you have thoughts on that?
Einar: Yeah. I’m not surprised this was coming with the war between the business model that Apple has and the business model that Facebook and advertisers have. Apple doesn’t make a lot of its money from advertising, so they’re always going to err on the side of how can they sell more phones? And part of that is people are starting to get concerned about being tracked, people retargeting, and things like that. Apple is always going to be, I think, a company that errs on that side.
I think it ends up being tricky for advertisers in the end particularly when you’re trying to do things like retargeting, figuring out conversion, what adverts work, and where did this client come from. Even for a smaller bootstrapper, it’s going to start to become a problem if you have less and less data about what are your acquisition channels that actually are effective. If this becomes more and more of a trend, then I can see it really impacting people’s ability to optimize their marketing. You’ll end up spending more money, but less efficiently.
On the flip side, on the consumer too, you’ll end up in a situation where I know people who prefer targeted advertising because that means the stuff they see is more likely to be relevant as opposed to diapers for a 55-year-old man. I think there’s a balance there, but I can definitely see it being an issue.
Tracy: People have been saying for a long time that if you’re not paying for a product, then you are the product. This change through Apple is finally Apple saying, hey, you’re the product. They’re telling people directly you’re a product and I think that saying was well known between web-y people but wasn’t really known by the general public. Now that awareness is going out to the general public, oh yeah, Facebook is free.
Rob: “Free.”
Tracy: Yeah, exactly. They’re thinking, oh, that’s why it’s free. I do agree with Einar. It comes across so negatively, do you want to be tracked? And no one really wants to be tracked. I think that these ad networks, I think I’ve seen these on some places where it says, hey, we can give you more personalized ads. I think that those warnings, those better ways of spinning how things are going and why the tracking is there. Does Apple block it?
Rob: Apple did Facebook no favors on this because I believe it’s an Apple-generated message. You feel like they were digging it in.
Tracy: By the way, this is tracking you.
Rob: Yup, they stuck the knife and then twisted it on that one.
Tracy: You’re in the bathroom, it’s tracking you. You’re doing all these things and its’ tracking you. It’s very scary. Everyone is going to opt out of course. Instagram is a dumb thing. There’s an article recently talking about how Instagram is the new SkyMall and I totally agree with that.
The products on Instagram are nuts, but it’s kind of impressive when I’m on Instagram and how targeted those ads are to me. I would say that I wasn’t normally a person that would buy off of ads. Maybe I’m a little bit of a brat and I see ads on Facebook or Reddit, I deliberately don’t click on it because I’m being a butt.
For some reason, Instagram—because it is so targeted—actually has worked so many times. I have bought so many things off of Instagram ads. I can see overall, hopefully, this direction going towards more targeted ads in that way and these prompts maybe will have an evolution over time. But right now, I think we’re in a really weird period where people are realizing that they are the product finally.
Rob: The last story of the day is from Square. It’s not a story, it’s a release of their business banking, which is at squareup.com/banking. Square Banking, your payments, banking, and cash flow working as one. I love this. I don’t use Square, but I love the fact because banking is so last century. Everything I do with any bank is a disaster. The mobile apps are terrible, the process. Are you […] kidding me that we have a 2:00 PM wire cutoff to send money the next day in this day? Are you kidding me? That’s what we’re dealing with, right?
Given that we have crypto that I can send you in the next 15 seconds for pennies. That’s my banking rant. Given that we have Brex credit cards, which I really like using. I love their mobile app. Mercury Bank, Square Bank—these tech-enabled startup banks that are actually getting traction. I’m surprised Stripe hasn’t entered this. I can’t imagine they are not also entering this space given they wanted to increase the GDP of the internet. I’m super bullish on tech-enabled modern banks.
Remember when the web first came out, in the late ‘90s, they had these banks come out. It was like WebBank or bank.com and they didn’t have branches. You’d mail them a cheque to deposit because there were no mobile phones to deposit. It was a bit of a clunky experience.
I feel like the tech has caught up and that we are going to see actual really solid banking products that make our lives easier, much the way we used to use taxis and then Uber and Lyft came along. It’s a net win for us as consumers. I don’t want to go on the flipside of that, but I feel like banking is going to hit that, especially for business banking, which has historically sucked. Tracy, do you have thoughts?
Tracy: I wish I was as enthusiastic as you are. I’m very enthusiastic about these products. I feel very pessimistic about this because I feel like there have been such innovations in banking that I’ve been seeing pop up since the beginning of the internet. Is it because big banks have so much lobbying to change the regulations that are in the US? I can’t remember anyone that has popped up before.
I know there are several banking apps, credit cards, and things that popped up because it was like, oh, look at all the things we can do. It’s a new world. We can have all these fancy tech products, then they die and disappear because there are all these regulations, lobbyists, and everything that’s going on. I hope I’m wrong, but I look at these things kind of pessimistically.
I will continue to use them because I want them to succeed, but I’m also looking at them as there’s a very good real chance that these things are not going to need to payout. For example, Wealthsimple in Canada. They were launching a new savings account and investing thing, and they’re like, boom, we’re going to have debit cards you can use as a bank.
As soon as they announced it, I signed up for it. A year ago, I still didn’t have a debit card. I still can’t use those features, I finally moved my money out of that side of business because I don’t know […]. They’ve obviously run into problems trying to finish building out this whole banking platform. I will continue to use them, but I see so many problems happening that I’m looking at it being aware that it can just go away.
Rob: Einar, what do you think? Are you bullish or bearish?
Einar: I’m bullish. One of my good friends runs Mercury, so I can’t really be bearish.
Tracy: He’s going to call you up and be like.
Einar: I think banking has very low churn. Basically, people leave a bank when they die most of the time. I think there’s sort of inertia there with, well, it’s my money so I care a lot about my money. Do I really want to take the risk of going to some new fangle thing that hasn’t been around as long or I’m going to stick with the horrible mess that is the Bank of America, their 1992 websites, and all their stupid fees.
I think that’s the main challenge for some of these things. I actually think that’s why going into business banking first, at least, makes more sense because when you start a new business or a startup then you need a bank account, then that’s when you’re evaluating potential new things. It’s not exactly tied into your own personal flows of money that have been going on to the same places for years and years. I’m a bit more bullish than I think Tracy is.
Tracy: I usually pop up in here being the optimistic confident person and I feel like this is the one time I’ve disagreed with you both.
Rob: It’s all good. That’s why there are three of us on here to have that conversation. My take is that with Square behind it, they have more of a chance than a brand new startup. You see folks like Kickstart, a brand new credit card, blah, blah, blah. It’s like, yeah, I just don’t think you’re going to do it to your point Tracy.
Once there’s Square or Stripe, again I’ve got no knowledge that Stripe is doing this. If I were in their shoes I would certainly be thinking about this because of business banking. It’s like what you’re saying, Einar.
Einar: I think Stripe should buy Mercury, that’s what I think, not because I just don’t know the founder. I think that will be a good acquisition.
Rob: Yeah, to merge it in. Anyway, I’m excited about this. Again, not just because business banking sucks today, but I just think there’s so much more innovation to be had including transferring money without a 2:00 PM deadline. There’s so much that I think we’re going to see hopefully in the next 5–10 years as long as (to Tracy’s point) the lobbyists don’t get in the way here in the US.
That is our show for today. Tracy Osborn, you are @traceymakes on Twitter. And if folks want to see what you’re up to aside from that, tinyseed.com/latest. That’s our news feed.
Tracy: Yeah, our applications are opening on August 9th, making sure I had the right date there. Applications are opening. We’re doing two batches a year starting this year. This is for our fall 2021 batch. August 9th, we’ll be open for two weeks.
Rob: And Einar Vollset, @einarvollset on Twitter. You are in the UK. If folks want to reach you, of course, they should reach out to you, tinyseed.com/invest.
Einar: That’s right. We’re all sort of ramping up fundraising for our European fund. I’m going to talk to anyone who’s interested in investing in this space.
Rob: Awesome, thanks again for joining me.
Einar: Thank you.
Tracy: Hey, happy to be here.
Rob: Thank you for joining me again this week. It’s always great to have you back. Next week I have a pretty interesting interview, or maybe I’ll do a solo episode next week. I’m going to be in Cancun at the end of the month so I have to-pre record a couple of them. I hope you join me as those roll out. I’ll be back in your earbuds again next Tuesday morning.
Episode 559 | Bootstrapping a Two-Sided Marketplace with MicroAquire
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In Episode 559, Rob Walling chats with Andrew Gazdecki, the founder of MicroAcquire, about bootstrapping a two-sided marketplace in a competitive industry. They talk about Andrew’s previous successes, including growing Bizness Apps to $10 million in annual recurring revenue. They also unpack Andrew’s current business, MicroAcquire, and talk about how it was started, its current success, and the future plans for the business.
The topics we cover
[6:03] Why did Andrew decide to sell Bizness
[8:12] Background on MicroAcquire
[10:52] Ideal revenue for MicroAcquire
[13:29] Comparing MicroAcquire differs from similar broker websites
[16:59] The future of MicroAcquire
[20:50] Metrics since launching in January 2020
[23:08] Bootstrapping a two-sided marketplace
[26:33] Raising $22 million post-money valuation
[31:25] The hardest thing about bootstrapping a business
Links from the show
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
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Rob: It’s Startups for the Rest of Us, episode 559. Welcome back. I’m Rob Walling. This week, I speak with Andrew Gazdecki. He’s the founder of MicroAcquire. Talked a lot about bootstrapping a two-sided market place in a competitive industry. Andrew talks about the future plans for MicroAcquire.
I didn’t know much about Andrew before chatting with him today, but it turns out he grew a SaaS app—essentially bootstrap—that he raised only $100,000, and he grew it to $10 million in annual recurring revenue. It’s an app called BiznessApps, biznessapps.com. Started building it in College, sold it in 2018, and he described it to me as Weebly or Wix for mobile apps. It’s still operating and serving customers but pretty impressed with that as background. That gives some credibility for someone to be able to build an app to that level then exit.
We don’t spend too much time talking about that part of the story. We focus on MicroAcquire, which is a website that helps match buyers and sellers of smaller software and ecommerce startups. You’ll hear a little bit of that story of him thinking of then and launching MicroAcquire, then bootstrapping that two-sided marketplace, getting both sides of the marketplace and thinking about what is the value that he’s trying to offer that’s different than all of the other offerings already available in the markets, to help smaller, early-stage, mostly bootstrap founders exit their businesses.
Before we dive into our conversation, I just want to let you know that applications for our next batch of TinySeed open up on August 9th. If you’re interested in joining our Fall 2021 batch—it will be between 15 and 20 ambitious B2B SaaS companies—head over to tinyseed.com. Enter your email if you’re looking for a bit of funding, a lot of mentorship, a lot of guidance, and what has become an amazing community of SaaS founders helping one another out. tinyseed.com, enter your email to hear about that once applications are open.
One other topic to cover before we dive into the show, I got a really thoughtful email that I wanted to share on the show. It’s about two episodes ago—investing for founders—where I talked about how to save for retirement, thinking through index funds. This email is from Matt Paulson. He’s the founder of MarketBeat, which is a very large and successful financial tracking website. You can track stocks. You can do all types of stuff. You can check it out if you’re interested.
I take Matt’s recommendations and thoughts on financial stuff, especially the stock market very highly because he is knee-deep in it and has been for, I don’t know, the better part of a decade. I’m going to read just some brief excerpts from this, which again, I really appreciate and take with a lot of weight.
He says, “Hey, Rob, I just finished listening to the latest Startups for the Rest of Us podcast. I wanted to pass along a couple of notes that I’ve had good luck with that weren’t explicitly mentioned in the show. Maybe you’ve thought about these things already but I wanted to share them in case any of it is new information.
Number one, you mentioned you have some money sitting around in traditional IRAs. Have you considered paying taxes now and doing a conversion to a Roth? If you do the conversion, you have the ability to do a backdoor Roth IRA, which allows you to do annual contributions to an IRA even though you ensure you’re probably over the income limits.”
This is more advanced. This is next level stuff in investing for founders. I was trying to do just the 101 basics. But backdoor Roth IRAs, you should google them if you don’t know about it. If your CPA tells you you’re over income limits, absolutely talk to them about doing a backdoor Roth. It is something that I’ve been aware of for several years and it’s certainly beneficial to those people making more than the income limits for Roth IRA contributions.
“Number two, if you’re running payroll for yourself through an entity, you can contribute around $57,000 per year—tax deferred—through a 401(k) plan.” This is great, solo 401(k)s are amazing for getting a lot more money and then just whatever it is, $5000 or $6000 you can put into an IRA. This is all US, but there are simple IRAs, there are Sep IRAs which are business-oriented, and then there are 401(k)s which I believe allows you to maximize it.
As long as you have a provider who can take up the burden off of you of running and operating that. If you are running payroll for yourself, and you want to get more money tax-advantaged (or tax-sheltered in this case), which is a first world problem but it becomes a problem further into your career you get and you start getting returns on things whether you’ve done real estate investments, whether you’ve invested in your own startups, whether you’ve invested in other people’s startups, you get a big influx of cash and now you have something that it’s going to grow and you’re just going to be eaten up by the taxes on it. Getting it into these government-sanctioned, I mean this is all within the rules of everything is something to really be thinking about.
“Point number three, health savings accounts. You can stick to $7200 per year in an HSA for your family. You have to be on a specific type of health plan—it’s a high-deductible plan—that allows an HSA, but you have to look into that depending on your state, your plan, and all that stuff.” Yes, I actually know about all three of these things but I really am at more advanced next level approaches to getting more stuff tax advantage, and I appreciated Matt writing in.
To wrap up his email. He says, “I also wanted to let you know that you are right on: (a) most people doing Vanguard index funds for most people’s exposure to the market, (b) doing term life insurance, and (c) dollar cost averaging into crypto.” Great advice there. Thank you so much, Matt, for weighing in. This is what I love about this community of Startups to the Rest of Us, MicroConf. There are a lot of smart people, and a lot of smart people with very niche focus and very deep expertise in these different areas.
If you hear an episode of Startups for the Rest of Us, and you feel like this is an area that you’d want to weigh in on, please always feel free to reach out, questions@startupsfortherestofus.com. With that, let’s dive into my conversation with Andrew Gazdecki and his experience building and growing MicroAcquire over the last 18 months.
Andrew Gazdecki thanks so much for joining me.
Andrew: Thanks so much for having me on the show, Rob. I’m excited.
Rob: I am, too. Folks heard in your intro that you basically mostly bootstrapped business apps to $10 million ARR. You raised only $100,000. Why did you decide to sell it? Was it three years ago, 2018?
Andrew: Yeah, I get Facebook updates, and obviously I announced, so saw my friends on Facebook and family. It was three years ago in May. The reason is clear, I was tired. The story behind that startup, I started it in college, zero experience. I’m not technical, my previous job was at Sears, and I got fired from a graphic design job before that. I had just run the business for such a long period and candidly just got an offer that was hard to refuse.
When you raise capital, even those $100,000, you still have a fiduciary duty to your investors. It was a win for my team, a win for my investors, a win for me personally, and also the customers at BiznessApps. If you go to biznessapps.com it’s still up. You can still make apps, really like the firm.
Short version is I was exhausted. They say you’re in a startup is like cat years. I sold it when I was 29 and I wanted to move on to something new. I wanted to do another startup, but I was tired and I felt I took the startup as far as I could take it. I didn’t have any plans to hand it down to my children or anything like that. Candidly, the business was built with getting acquired in mind and when that opportunity came, that happened.
Rob: That’s great and that kind of gives you the luxury after having that first exit of being able to start crazy ambitious, not that Bizness Apps wasn’t ambitious, but crazy ambitious offerings like MicroAcquire, which is what I want to dig into a lot today. When did you launch MicroAcquire? Actually, before we do that, can you tell folks what it is in your words?
Andrew: MicroAcquire is a marketplace to help founders get acquired. If you’re a startup founder, you can list your company on MicroAcquire completely free. There are no commissions, there are no fees, there’s no exclusivity, and we allow founders to connect directly with buyers.
Really the idea behind it was based on my situation on Bizness Apps where there were times where I just wanted to potentially sell the company. I was exhausted. Meeting buyers, especially when you have a smaller business can be not as easy when you get to higher revenue marks PE firms and other strategic acquirers reach out. But for smaller businesses, that’s not the case. I saw a large opportunity to help entrepreneurs to get acquired and that’s what we do. Short version, it’s a marketplace to buy and sell startups.
Rob: What year did you start it?
Andrew: I had the idea for it, maybe like two years ago. I officially launched it in January 2020 on product time.
Rob: Right before COVID.
Andrew: Yeah, right before COVID. Actually, a lot of people don’t know this, but I hear a lot of excuses from people about how hard it is to start a company especially if you have a job, you have a family, blah-blah-blah. I became a dad in October. I have a wonderful son coming up on two years, so I just became a dad. He also has colic, too, so if you have a kid who has colic…
Rob: That’s tough.
Andrew: Yeah, so I wasn’t sleeping. I also share a company called Spiff where I was leading their sales and marketing team. I just sold my second company, Altcoin, and I was in the top 100 Madden players. I was like this is super unhealthy, I needed something to do. I wasn’t sure if I wanted to be a CEO again, so I was looking for a number two role.
Took over their sales and marketing team. They had raised about $6 million, revenue was around zero when I joined, and helped them grow to about $2 million in annual recurring revenue. Then they secured a $15 million Series A from Norwest Venture Partners. At that point, I was running MicroAcquire in the background the whole time. I just became a dad, was managing a sales team, also taking over marketing because no one was handling that, and running MicroAcquire completely on the side for free just because I loved it.
I love startups, I love helping entrepreneurs. Once the Series A was closed, I felt my job’s done, I hope they find a replacement for myself, and then I started focusing on my career full time.
Rob: Got it. I guess I’ll ask one question. You said you focus on helping smaller companies, founders, a smaller company. What do you think is your sweet spot? I’m presuming there’s a revenue range where MicroAcquire is perhaps ideal in your mind.
Andrew: The largest transaction to my knowledge is about over $5 million. There are definitely buyers in there that can transact in the hundreds of millions, for sure. It just depends on the business. We see a lot of businesses that range from low seven figures profitable, mid six figures profitable, that’s kind of the sweet spot. Over time, we want to move up to serve larger businesses with other third-party services that you kind of need when you’re selling a larger business.
Right now, the six- to seven-figure revenue mark is where our sweet spot is. Mostly bootstrap profitable companies. Lots of really cool niches, like marketing automation platforms for dentists that’s making a million a year; I love seeing those businesses. That’s where we are now. We’re going to be looking to be going up market to $2 million, $5 million, $10 million, potentially $20 million revenue companies.
Rob: That’s interesting. I would have thought the range would be lower because I feel like that six- to seven-figure, low seven-figure range is covered well by a lot of the brokers in this space. How do you see yourselves as being different from them?
Andrew: What we’re doing at MicroAcquire is we’re consolidating the industry. We want to work with brokers. There’s always going to be a free option to sell on MicroAcquire as a founder. You can list your startup, we’ll get it listed in minutes. That work that a broker does typically takes three months. We get you up and live on MicroAcquired and introduced to buyers within a day.
Think of it as like an Upwork sell directory, where you can hire proper legal counsel, you can hire a M&A advisor, you can hire a business broker. We’re going to be aggregating the entire industry into one single marketplace. Rather than just being a one boutique brokerage firm, we’re bringing in all the best M&A advisors, all the best business brokers that are specifically focused on SaaS, ecommerce, or direct-to-consumer mobile apps, crypto, or whatever your business may be.
That’s the plan, and that makes sense for businesses. If you’re going through (let’s say) a life-changing acquisition, or you have no idea how to sell, like you don’t want to sell, that’s really the main benefit of working with a broker is you don’t have to handle everything. They run the process for you. We’re going to have the ability for you to hire those people but at a much lower rate than you typically would at a regular brokerage firm.
Rob: That was going to be my question. You go up market, even in a multimillion dollar sale, oftentimes, the seller needs a substantial amount of hand-holding. Maybe their books are in bad shape, maybe they just need moral support, or they’re kind of freaking out and they don’t want to sell, or they don’t like the terms and they try to range-quit the thing.
Brokers aren’t just matching buyers and sellers. Brokers offer additional service beyond that, the hand-holding aspect. Is that what you’re saying? Is that longer term, you think that you will have (basically) a marketplace of brokers to help people? It’s a higher touch sale. As soon as you get into a few million, or if you do a $20 million sale, there’s definitely a high touch on both sides. I’ve seen and heard of MBAs sitting there taking weeks to put together financials and arguing with the consultant on the other side who says these financials are […] and you’re wrong, and they’re auditing them, and this and that. At the dollar amount, that becomes an issue.
Andrew: Yeah. When I sold Bizness Apps—this would probably be a good use case—I had light advice from a friend that was an investment banker. I’d asked him questions like is this normal for due diligence? He’d say no or yes. I’d say, should I send this email? He’d say, no, go to bed.
It’s an emotional process, especially if it’s going to potentially change your life. We’re going to be building a directory that not only provides services that an M&A adviser or a broker would provide, but also due diligence or even wealth planning after you sell your company.
For me at Bizness Apps, my law firm was referred to me by an angel investor. I just said, okay, cool, we use them. The guidance that I got from the investment banker, and he did it for free just as a friend, which was super helpful. You just address the mental emotional part of it because you want this deal to close. Sometimes, we had a couple false starts. We had circle closing dates, and then they needed a little bit more information. It can be a roller coaster. If you’re selling a business for more than $10 million or $5 million, it makes sense to get some help.
When you go to broker websites you typically see the same thing. It’s like, hey, we got a 95% success rate, blah-blah-blah, but we’re going to be providing almost a yoke-style directory where you can see real reviews from entrepreneurs. What were they really like to work with? What were the acquisitions that they closed? Statement law firms, like what was their process?
I’m really building this for entrepreneurs. Obviously, there are a lot of really, really great brokerages in the industry today, but we feel this market is much bigger than just two or three big players. There are a lot of really, really great boutique M&A firms. We want to work with them, involve them in the community, and really just build this for entrepreneurs.
If you want to sell your company using Bizness Apps, as an example, I can go on to MicroAcquire. I can connect all my metrics where if I don’t have a VP of Finance, I can connect Stripe or Chatr Mobile, or whatever I’m using for billing, my Google Analytics or traffic. If I need help with the valuations, I can get that. All the resources that you would possibly need, and then immediately start meeting buyers and then transact on the platform without ever leaving.
Rob: I’ve bought and sold businesses, websites, SaaS, all the way from Flippa to forums that don’t exist anymore. I’ve had investment bankers giving me advice. I’ve worked with the main brokers in the space. What I’ve seen is that the smaller purchase price, smaller transactions are the ones that tend to be simpler. Once you get into the millions, again, I’ve seen MBAs who have to go through the books to make sure that everything is intact, and that you can hook Stripe up, but there might be anomalies there or maybe you have invoices that were paid via cheque.
There are all these exceptions that come up in these complex transactions. What’s your sense of can that be automated? Or is that where you have to get someone involved, whether it’s through the marketplace or looking to build or whether it’s just bringing in outside help much like a realtor. I think of Redfin and Zillow. They’re these big marketplaces. Then I think of a realtor. Realtors can come in and help you say, this is what you need, like this is direct one-on-one advice to help you improve the value of the house. We’re going to stake it, you need to get rid of all this stuff. You need to put this coat of paint on here and there.
How do you see MicroAcquire fitting into that? Are you more like Redfin, Zillow? Where are you going to be, because we’re talking about the future now. We’re not talking about today.
Andrew: You nailed it. We’re building the Zillow of M&A. That’s kind of been what we’ve been saying internally where, what is your startup really worth? We’re going to have data-driven valuations based on what we’re seeing in the marketplace. You can connect your financials, give you a range based on what we’re really seeing in the market.
What you’re describing is due diligence. Lots of those parts really can’t be automated. Maybe they can, we’re going to try, but yeah, you need someone to really get books in order sometimes.
When I sold Bizness Apps, half of the conversations were with my CFO. Do you have these financial documents in order? How many support tickets are you taking per day and how fast do you answer them? Even just doing technical due diligence and that sort of stuff, so getting help on all fronts. More importantly, just educating entrepreneurs on this.
A big selling point of brokers is, we’re going to educate you on how to sell your business. With MicroAcquire, our customer is not the buyer. We appreciate buyers, but we’re not going to be the marketplace where, hey, come here and you can get SaaS companies, add profit times three to four week. We smashed down the price so we can sell as quickly.
We’re allowing founders to really empower themselves. So when they go to the table with buyers, they’re at an advantage because right now they’re at a disadvantage, both from an educational standpoint and experience standpoint. We really want to help entrepreneurs get the highest price for their company from the best possible pool of potential buyers. Then if they do need those additional resources, even just light advice, you’ll be able to hire M&A advisors for 10 hours of guidance. If you don’t want to pay a 15% commission, you can hire someone for 10 hours, $5000, just a few questions.
If you want someone to run your whole process, manage all your negotiations, depending on the size of the transaction, you’ll be able to do that too. I hear what you’re saying. When you get into due diligence, requests are made, and those things are hard to automate. You can’t just have like, hey, this company is absolutely perfect. Even if you do automate it, I would want to verify it. I would probably hire someone to help me with due diligence on that.
Other things we’re looking at is escrow. We think there’s room to improve that as well. We’re bringing legal counsel in-house just to provide legal counsel for entrepreneurs as well as looking to sell, looking for a bit of advice or just packaged services. Got a lot of work to do. I mean, that’s probably a short story.
Rob: Today, you launched in January 2020, which is about 18 months ago. What metrics or numbers can you share in terms of how many companies have sold through MicroAcquire, dollar amounts, just whatever it is you’re sharing in public?
Andrew: Over 300 acquisitions, over $100 million in closed deal volume. We have about 70,000 registered buyers, adding about 300 plus daily. We’re in the top 4000 and visited websites in the world. We surpass Flippa, I believe. Don’t quote me on that; it might change. I love Flippa, too. I think they’re a great marketplace and they serve millions of entrepreneurs.
Another thing I’d like to add, too, is we do have competitors in this industry, but really, we’re just building another option for entrepreneurs to sell their business. We see acquisitions almost every other day. I get emails saying like, hey, I bought a company for $100,000, $50,000, $1 million, $2 million. It’s been really rewarding just being able to help entrepreneurs in that way because when those acquisitions happen, that’s how weddings get paid, that’s how down payments on houses get paid, that’s how debt gets paid. The exit is such an important part of the founder’s journey. There’s never been a modern marketplace for M&A, and that’s where we’re looking to build at MicroAcquire.
Rob: Yeah, that’s a trip. I mean 300 is a lot in 18 months. I’m actually surprised that it’s that high. I’m going to take a step back. When I first heard about MicroAcquire, it was sometime last year. I don’t remember when it was, but I remember thinking this isn’t going to work—I’m a perpetual skeptic—this has already been done. Flippa is out there. There are all these other things that do this. How can he possibly get a two-sided marketplace to work in a space where there’s already a lot of competition?
How did you kickstart this? How did you get enough businesses on the site to make any buyers want to sign up? How did you then get buyers to come? You are to date, aside from the funding, we’re about to mention that you raised in the past couple weeks there, but you had effectively bootstrapped it or self-funded it yourself, as far as I know. How did you possibly get both sides of that marketplace to get to critical mass?
Andrew: The first thing I did was open a pretty large cold […] email campaign, just to seed the marketplace, just to educate both buyers and sellers. Then just go on the phone with a lot of seed investors, angel investors, VC funds to see the buyer side, and then also corporate dev teams just to get their feedback. Then also reach out to a ton of different startups seeing if they would be interested in potentially listing and selling.
That was the initial seed. Once we launched on MicroAcquire, it just exploded from there. We saw thousands of users based off of that and it’s kind of just been up into the right ever since. I’m sure we’ll go through some bad times. This isn’t my first startup so I understand, things are going well right now, but we still have so much work to do, so many things that we want to do, so many things that we want to innovate on, and so many problems that we want to solve.
I should also add everyone I hired for MicroAcquire was with me for the acquisition of Bizness App. My VP of product, my VP of engineering, my CFO, my VP of Marketing, my old creative designer starting next week, and she’s awesome. We’re basically building the platform we wish we had when we went to sell Bizness App. Initially, seeding the market, a short answer there was a ton of hustle just basically getting on the phone with people. This is something that I think a lot of founders are scared to do, actually talk to people, actually get feedback. In the early days, it’s the most critical thing you can do.
I’m still on live chat, not nearly as much. I only come in if it’s like a question, but I answered every single email. I took every single call. I answered every single live chat. I sat on that thing sometimes until 10 just to really figure out product/market fit, like what metrics do you need as a buyer to feel comfortable, potentially being interested in acquiring this business? How can we make this marketplace better? How can we build this for the startup community?
I would say that was probably the main thing, is just speaking with people who are already in the startup ecosystem and we’re already actively either looking to sell, or have previously acquired companies, or previously sold companies. I talked to them about all the current players in the market today. What do they like about them? What do they not like about them? I took all that in and built the marketplace around that.
Rob: What I want listeners to take away is I get emails, I get conversations, private emails, been public emails to the questions at Startups for the Rest of Us line here, about starting to set up marketplaces. What most people don’t realize is the sheer amount of hustle that it takes to get that kick started. That it’s not about, I’m going to do some SEO here, I’m going to launch on Product Hunt and Reddit, or Hacker News, or whatever and build that marketplace .
You have to have enough of both sides in place already that it makes sense to then launch on Product Hunt which is what you did. The cold emailing, the cold calling, the dozens if not hundreds of conversations is often what it takes to get a business that once you build that flywheel, as you said it sounds like it’s just started to spin. Product Hunt got it spinning, then more and more people hear about it. It becomes a virtuous cycle, but when you’re starting out there’s no cycle to it, there’s no movement.
Congratulations on your fundraising. This is completely coincidental, but I’ve been trying to get you on the show for a while and finally our schedules made up. Last week I saw MicroAcquire raise $2.8 million, $22 million post money valuation. You’re going big with this thing and I can tell by your vision, the way you’ve been talking about it.
My question here is, how is this a venture scale business if you’re not taking a percentage of the sale? Because when I think you’re at a $22 million post, so for investors to be happy, you’re selling for at least $100 million. I’m guessing at that point, they’re not going to be happy. It says only 5X return. I don’t know much about the firm that’s investing. Usually, they want at least a 10X and probably want to shoot for half a billion to a billion dollars. To get to that amount, you’re going to need to get to a 5th or a 10th of that in revenue.
You’re looking to get to $50–$100 million in revenue. I’m just ballparking. You have not told me this. I don’t know any insight, but this is just how the venture world works. Right now, I believe your only revenue stream is that you charge buyers $290 a year to be on the premium list? Where else is money going to come from? The buyer list pool in the world just isn’t big enough at $290 a year to get to $50 million or $100 million in revenue. Where else is that revenue going to come from as you scale?
Andrew: Great question. I completely agree we’re not going to build under their $500 million business off of premium buyer subscriptions. But the goal is, we have an M&A directory that we’re releasing. These M&A advisors are going to be charging for their services, whether that’s a 5% success fee, 7%, maybe it’s $500 an hour, whatever it may be. We’re going to take a commission off of their commission.
We’re going to be focusing on bringing in as much supply because most business brokers, again, I’m a big proponent of talking to customers before you build this out. What I learned was most business brokers spend half their time on sales marketing. We have thousands of startups on MicroAcquire right now that could potentially opt in and hire them for their services. For that referral, we’re going to take commission off of that. Once you add that up, especially as deal sizes increase, the numbers get pretty interesting.
Then we have other items that we’re lining up in terms of revenue streams. One is if you’re an M&A advisor or broker, you’re going to be able to list on MicroAcquire. We don’t know the fee structure on that yet. These are just ideas, but not only can we help, we want to help brokers succeed as well.
There are thousands of boutique M&A advisors, business brokers managing just a handful deals. They’re not a big firm where you just get a junior associate you’re working directly with, basically a badass who just handles deals very selectively. You’ll be able to hire that person and whatever their rate is, you’ll pay that and then we’ll take a referral commission based off of that.
On top of that, we’re looking to bring in as many brokers and M&A advisors as possible to allow them to list their deals on MicroAcquire to increase supply even further. Again, don’t know what that model looks like, but that’s the two new revenue streams that we’re going to be introducing, and that also applies to legal services as well.
All the additional third party services, all optional. Again, you could still sign up on MicroAcquire, serve your company completely free, never hire a broker, handle the process entirely yourself. We’re still going to innovate on things like valuations, escrow. Being able to transfer the assets is a huge headache. How can we improve upon that? We’re thinking big on all those items.
Another revenue stream is lending. I can’t say who, but we secured a partnership with a startup that’s recently raised (I think) $300 million and they’re looking to finance SaaS acquisitions with over a million in revenue. That’s another line item of potential revenue where we can help entrepreneurs expand the buyer pool. More buyers who now afford businesses because they have financing available and then we take a commission off of that referral as well.
Those are just three, but we’re going to be thinking of more, just how can we add so much value to entrepreneurs, when selling their company. They’ll happily pay for these services. They’re not released yet, but that’s kind of in the works. Short summary is third party services and by referring those third party services, we’re going to be taking a referral fee from those.
Rob: Got it. As we move towards wrapping up, I have one final question for you. You’ve been building this business now for 18 months through a pandemic, built a two-sided marketplace essentially from scratch. What’s been the hardest thing about doing that for you personally?
Andrew: Big fan of bootstrapping, big fan of really capital-efficient businesses, but it’s hard. I was working from 4:00 AM to 11:00 PM at night, family responsibilities included. I take out the trash and pick up dog poop every Thursday, do the dishes, those are my chores around the house. I believed in this and so that was probably the hardest part, was just this sheer amount of work to get this off the ground. I think that’s a lot of things.
That’s a big thing that I think a lot of entrepreneurs don’t understand. It takes a lot of work to get a startup going, so I put in that work and I’m fortunate to have a team to help me work more on the business rather than in the business, but the short answer is working in the business, blessing and a curse. That really allowed me to really figure out a model that allows us to move up market to really aggregate this industry, providing more value to entrepreneurs looking to sell their companies.
It was a ton of work. I would say just working in the business was definitely the hardest thing and I still do quite a bit. That’s my big goal. Literally, before this podcast, I was talking to my team, I was like, guys, I’m overwhelmed. I tweeted something out like a CEO should not be working more than 100 hours a week. Delegate, fire yourself from everything, enable your team to succeed. That’s been the hardest part. Probably within a month or two, that’ll be lessened but long story short, working in the business, doing everything for marketing, product management, customer support, sales, like everything, that was hard.
Rob: Yup, you got to wear a lot of hats in the early days. It’s a ton of hard work. Well, sir, thanks so much for coming on the show. If folks want to keep up with you, you are @agazdecki on Twitter, and of course microacquire.com if they want to see what you’re up to. Thanks again for joining me.
Andrew: Yeah, Rob. Thanks for having me. I appreciate it.
Rob: Thanks again for joining me today. If you want to connect on Twitter, I’m @robwalling and this podcast is @startupspod. Every week we actually tweet a cool little video clip of the guest and I, usually it’s 60–90 seconds taken from the episode. You can check that out. If you would like it or share it, I would always appreciate it. I’m definitely looking to get the word out about Startups for the Rest of Us and any help you can lend is always appreciated. Thanks again for joining me this week, and I’ll be back in your earbuds again next Tuesday morning.
I didn’t know much about Andrew before chatting with him today, but it turns out he grew a SaaS app—essentially bootstrap—that he raised only $100,000, and he grew it to $10 million in annual recurring revenue. It’s an app called BiznessApps, biznessapps.com. Started building it in College, sold it in 2018, and he described it to me as Weebly or Wix for mobile apps. It’s still operating and serving customers but pretty impressed with that as background. That gives some credibility for someone to be able to build an app to that level then exit.
We don’t spend too much time talking about that part of the story. We focus on MicroAcquire, which is a website that helps match buyers and sellers of smaller software and ecommerce startups. You’ll hear a little bit of that story of him thinking of then and launching MicroAcquire, then bootstrapping that two-sided marketplace, getting both sides of the marketplace and thinking about what is the value that he’s trying to offer that’s different than all of the other offerings already available in the markets, to help smaller, early-stage, mostly bootstrap founders exit their businesses.
Before we dive into our conversation, I just want to let you know that applications for our next batch of TinySeed open up on August 9th. If you’re interested in joining our Fall 2021 batch—it will be between 15 and 20 ambitious B2B SaaS companies—head over to tinyseed.com. Enter your email if you’re looking for a bit of funding, a lot of mentorship, a lot of guidance, and what has become an amazing community of SaaS founders helping one another out. tinyseed.com, enter your email to hear about that once applications are open.
One other topic to cover before we dive into the show, I got a really thoughtful email that I wanted to share on the show. It’s about two episodes ago—investing for founders—where I talked about how to save for retirement, thinking through index funds. This email is from Matt Paulson. He’s the founder of MarketBeat, which is a very large and successful financial tracking website. You can track stocks. You can do all types of stuff. You can check it out if you’re interested.
I take Matt’s recommendations and thoughts on financial stuff, especially the stock market very highly because he is knee-deep in it and has been for, I don’t know, the better part of a decade. I’m going to read just some brief excerpts from this, which again, I really appreciate and take with a lot of weight.
He says, “Hey, Rob, I just finished listening to the latest Startups for the Rest of Us podcast. I wanted to pass along a couple of notes that I’ve had good luck with that weren’t explicitly mentioned in the show. Maybe you’ve thought about these things already but I wanted to share them in case any of it is new information.
Number one, you mentioned you have some money sitting around in traditional IRAs. Have you considered paying taxes now and doing a conversion to a Roth? If you do the conversion, you have the ability to do a backdoor Roth IRA, which allows you to do annual contributions to an IRA even though you ensure you’re probably over the income limits.”
This is more advanced. This is next level stuff in investing for founders. I was trying to do just the 101 basics. But backdoor Roth IRAs, you should google them if you don’t know about it. If your CPA tells you you’re over income limits, absolutely talk to them about doing a backdoor Roth. It is something that I’ve been aware of for several years and it’s certainly beneficial to those people making more than the income limits for Roth IRA contributions.
“Number two, if you’re running payroll for yourself through an entity, you can contribute around $57,000 per year—tax deferred—through a 401(k) plan.” This is great, solo 401(k)s are amazing for getting a lot more money and then just whatever it is, $5000 or $6000 you can put into an IRA. This is all US, but there are simple IRAs, there are Sep IRAs which are business-oriented, and then there are 401(k)s which I believe allows you to maximize it.
As long as you have a provider who can take up the burden off of you of running and operating that. If you are running payroll for yourself, and you want to get more money tax-advantaged (or tax-sheltered in this case), which is a first world problem but it becomes a problem further into your career you get and you start getting returns on things whether you’ve done real estate investments, whether you’ve invested in your own startups, whether you’ve invested in other people’s startups, you get a big influx of cash and now you have something that it’s going to grow and you’re just going to be eaten up by the taxes on it. Getting it into these government-sanctioned, I mean this is all within the rules of everything is something to really be thinking about.
“Point number three, health savings accounts. You can stick to $7200 per year in an HSA for your family. You have to be on a specific type of health plan—it’s a high-deductible plan—that allows an HSA, but you have to look into that depending on your state, your plan, and all that stuff.” Yes, I actually know about all three of these things but I really am at more advanced next level approaches to getting more stuff tax advantage, and I appreciated Matt writing in.
To wrap up his email. He says, “I also wanted to let you know that you are right on: (a) most people doing Vanguard index funds for most people’s exposure to the market, (b) doing term life insurance, and (c) dollar cost averaging into crypto.” Great advice there. Thank you so much, Matt, for weighing in. This is what I love about this community of Startups to the Rest of Us, MicroConf. There are a lot of smart people, and a lot of smart people with very niche focus and very deep expertise in these different areas.
If you hear an episode of Startups for the Rest of Us, and you feel like this is an area that you’d want to weigh in on, please always feel free to reach out, questions@startupsfortherestofus.com. With that, let’s dive into my conversation with Andrew Gazdecki and his experience building and growing MicroAcquire over the last 18 months.
Andrew Gazdecki thanks so much for joining me.
Andrew: Thanks so much for having me on the show, Rob. I’m excited.
Rob: I am, too. Folks heard in your intro that you basically mostly bootstrapped business apps to $10 million ARR. You raised only $100,000. Why did you decide to sell it? Was it three years ago, 2018?
Andrew: Yeah, I get Facebook updates, and obviously I announced, so saw my friends on Facebook and family. It was three years ago in May. The reason is clear, I was tired. The story behind that startup, I started it in college, zero experience. I’m not technical, my previous job was at Sears, and I got fired from a graphic design job before that. I had just run the business for such a long period and candidly just got an offer that was hard to refuse.
When you raise capital, even those $100,000, you still have a fiduciary duty to your investors. It was a win for my team, a win for my investors, a win for me personally, and also the customers at BiznessApps. If you go to biznessapps.com it’s still up. You can still make apps, really like the firm.
Short version is I was exhausted. They say you’re in a startup is like cat years. I sold it when I was 29 and I wanted to move on to something new. I wanted to do another startup, but I was tired and I felt I took the startup as far as I could take it. I didn’t have any plans to hand it down to my children or anything like that. Candidly, the business was built with getting acquired in mind and when that opportunity came, that happened.
Rob: That’s great and that kind of gives you the luxury after having that first exit of being able to start crazy ambitious, not that Bizness Apps wasn’t ambitious, but crazy ambitious offerings like MicroAcquire, which is what I want to dig into a lot today. When did you launch MicroAcquire? Actually, before we do that, can you tell folks what it is in your words?
Andrew: MicroAcquire is a marketplace to help founders get acquired. If you’re a startup founder, you can list your company on MicroAcquire completely free. There are no commissions, there are no fees, there’s no exclusivity, and we allow founders to connect directly with buyers.
Really the idea behind it was based on my situation on Bizness Apps where there were times where I just wanted to potentially sell the company. I was exhausted. Meeting buyers, especially when you have a smaller business can be not as easy when you get to higher revenue marks PE firms and other strategic acquirers reach out. But for smaller businesses, that’s not the case. I saw a large opportunity to help entrepreneurs to get acquired and that’s what we do. Short version, it’s a marketplace to buy and sell startups.
Rob: What year did you start it?
Andrew: I had the idea for it, maybe like two years ago. I officially launched it in January 2020 on product time.
Rob: Right before COVID.
Andrew: Yeah, right before COVID. Actually, a lot of people don’t know this, but I hear a lot of excuses from people about how hard it is to start a company especially if you have a job, you have a family, blah-blah-blah. I became a dad in October. I have a wonderful son coming up on two years, so I just became a dad. He also has colic, too, so if you have a kid who has colic…
Rob: That’s tough.
Andrew: Yeah, so I wasn’t sleeping. I also share a company called Spiff where I was leading their sales and marketing team. I just sold my second company, Altcoin, and I was in the top 100 Madden players. I was like this is super unhealthy, I needed something to do. I wasn’t sure if I wanted to be a CEO again, so I was looking for a number two role.
Took over their sales and marketing team. They had raised about $6 million, revenue was around zero when I joined, and helped them grow to about $2 million in annual recurring revenue. Then they secured a $15 million Series A from Norwest Venture Partners. At that point, I was running MicroAcquire in the background the whole time. I just became a dad, was managing a sales team, also taking over marketing because no one was handling that, and running MicroAcquire completely on the side for free just because I loved it.
I love startups, I love helping entrepreneurs. Once the Series A was closed, I felt my job’s done, I hope they find a replacement for myself, and then I started focusing on my career full time.
Rob: Got it. I guess I’ll ask one question. You said you focus on helping smaller companies, founders, a smaller company. What do you think is your sweet spot? I’m presuming there’s a revenue range where MicroAcquire is perhaps ideal in your mind.
Andrew: The largest transaction to my knowledge is about over $5 million. There are definitely buyers in there that can transact in the hundreds of millions, for sure. It just depends on the business. We see a lot of businesses that range from low seven figures profitable, mid six figures profitable, that’s kind of the sweet spot. Over time, we want to move up to serve larger businesses with other third-party services that you kind of need when you’re selling a larger business.
Right now, the six- to seven-figure revenue mark is where our sweet spot is. Mostly bootstrap profitable companies. Lots of really cool niches, like marketing automation platforms for dentists that’s making a million a year; I love seeing those businesses. That’s where we are now. We’re going to be looking to be going up market to $2 million, $5 million, $10 million, potentially $20 million revenue companies.
Rob: That’s interesting. I would have thought the range would be lower because I feel like that six- to seven-figure, low seven-figure range is covered well by a lot of the brokers in this space. How do you see yourselves as being different from them?
Andrew: What we’re doing at MicroAcquire is we’re consolidating the industry. We want to work with brokers. There’s always going to be a free option to sell on MicroAcquire as a founder. You can list your startup, we’ll get it listed in minutes. That work that a broker does typically takes three months. We get you up and live on MicroAcquired and introduced to buyers within a day.
Think of it as like an Upwork sell directory, where you can hire proper legal counsel, you can hire a M&A advisor, you can hire a business broker. We’re going to be aggregating the entire industry into one single marketplace. Rather than just being a one boutique brokerage firm, we’re bringing in all the best M&A advisors, all the best business brokers that are specifically focused on SaaS, ecommerce, or direct-to-consumer mobile apps, crypto, or whatever your business may be.
That’s the plan, and that makes sense for businesses. If you’re going through (let’s say) a life-changing acquisition, or you have no idea how to sell, like you don’t want to sell, that’s really the main benefit of working with a broker is you don’t have to handle everything. They run the process for you. We’re going to have the ability for you to hire those people but at a much lower rate than you typically would at a regular brokerage firm.
Rob: That was going to be my question. You go up market, even in a multimillion dollar sale, oftentimes, the seller needs a substantial amount of hand-holding. Maybe their books are in bad shape, maybe they just need moral support, or they’re kind of freaking out and they don’t want to sell, or they don’t like the terms and they try to range-quit the thing.
Brokers aren’t just matching buyers and sellers. Brokers offer additional service beyond that, the hand-holding aspect. Is that what you’re saying? Is that longer term, you think that you will have (basically) a marketplace of brokers to help people? It’s a higher touch sale. As soon as you get into a few million, or if you do a $20 million sale, there’s definitely a high touch on both sides. I’ve seen and heard of MBAs sitting there taking weeks to put together financials and arguing with the consultant on the other side who says these financials are […] and you’re wrong, and they’re auditing them, and this and that. At the dollar amount, that becomes an issue.
Andrew: Yeah. When I sold Bizness Apps—this would probably be a good use case—I had light advice from a friend that was an investment banker. I’d asked him questions like is this normal for due diligence? He’d say no or yes. I’d say, should I send this email? He’d say, no, go to bed.
It’s an emotional process, especially if it’s going to potentially change your life. We’re going to be building a directory that not only provides services that an M&A adviser or a broker would provide, but also due diligence or even wealth planning after you sell your company.
For me at Bizness Apps, my law firm was referred to me by an angel investor. I just said, okay, cool, we use them. The guidance that I got from the investment banker, and he did it for free just as a friend, which was super helpful. You just address the mental emotional part of it because you want this deal to close. Sometimes, we had a couple false starts. We had circle closing dates, and then they needed a little bit more information. It can be a roller coaster. If you’re selling a business for more than $10 million or $5 million, it makes sense to get some help.
When you go to broker websites you typically see the same thing. It’s like, hey, we got a 95% success rate, blah-blah-blah, but we’re going to be providing almost a yoke-style directory where you can see real reviews from entrepreneurs. What were they really like to work with? What were the acquisitions that they closed? Statement law firms, like what was their process?
I’m really building this for entrepreneurs. Obviously, there are a lot of really, really great brokerages in the industry today, but we feel this market is much bigger than just two or three big players. There are a lot of really, really great boutique M&A firms. We want to work with them, involve them in the community, and really just build this for entrepreneurs.
If you want to sell your company using Bizness Apps, as an example, I can go on to MicroAcquire. I can connect all my metrics where if I don’t have a VP of Finance, I can connect Stripe or Chatr Mobile, or whatever I’m using for billing, my Google Analytics or traffic. If I need help with the valuations, I can get that. All the resources that you would possibly need, and then immediately start meeting buyers and then transact on the platform without ever leaving.
Rob: I’ve bought and sold businesses, websites, SaaS, all the way from Flippa to forums that don’t exist anymore. I’ve had investment bankers giving me advice. I’ve worked with the main brokers in the space. What I’ve seen is that the smaller purchase price, smaller transactions are the ones that tend to be simpler. Once you get into the millions, again, I’ve seen MBAs who have to go through the books to make sure that everything is intact, and that you can hook Stripe up, but there might be anomalies there or maybe you have invoices that were paid via cheque.
There are all these exceptions that come up in these complex transactions. What’s your sense of can that be automated? Or is that where you have to get someone involved, whether it’s through the marketplace or looking to build or whether it’s just bringing in outside help much like a realtor. I think of Redfin and Zillow. They’re these big marketplaces. Then I think of a realtor. Realtors can come in and help you say, this is what you need, like this is direct one-on-one advice to help you improve the value of the house. We’re going to stake it, you need to get rid of all this stuff. You need to put this coat of paint on here and there.
How do you see MicroAcquire fitting into that? Are you more like Redfin, Zillow? Where are you going to be, because we’re talking about the future now. We’re not talking about today.
Andrew: You nailed it. We’re building the Zillow of M&A. That’s kind of been what we’ve been saying internally where, what is your startup really worth? We’re going to have data-driven valuations based on what we’re seeing in the marketplace. You can connect your financials, give you a range based on what we’re really seeing in the market.
What you’re describing is due diligence. Lots of those parts really can’t be automated. Maybe they can, we’re going to try, but yeah, you need someone to really get books in order sometimes.
When I sold Bizness Apps, half of the conversations were with my CFO. Do you have these financial documents in order? How many support tickets are you taking per day and how fast do you answer them? Even just doing technical due diligence and that sort of stuff, so getting help on all fronts. More importantly, just educating entrepreneurs on this.
A big selling point of brokers is, we’re going to educate you on how to sell your business. With MicroAcquire, our customer is not the buyer. We appreciate buyers, but we’re not going to be the marketplace where, hey, come here and you can get SaaS companies, add profit times three to four week. We smashed down the price so we can sell as quickly.
We’re allowing founders to really empower themselves. So when they go to the table with buyers, they’re at an advantage because right now they’re at a disadvantage, both from an educational standpoint and experience standpoint. We really want to help entrepreneurs get the highest price for their company from the best possible pool of potential buyers. Then if they do need those additional resources, even just light advice, you’ll be able to hire M&A advisors for 10 hours of guidance. If you don’t want to pay a 15% commission, you can hire someone for 10 hours, $5000, just a few questions.
If you want someone to run your whole process, manage all your negotiations, depending on the size of the transaction, you’ll be able to do that too. I hear what you’re saying. When you get into due diligence, requests are made, and those things are hard to automate. You can’t just have like, hey, this company is absolutely perfect. Even if you do automate it, I would want to verify it. I would probably hire someone to help me with due diligence on that.
Other things we’re looking at is escrow. We think there’s room to improve that as well. We’re bringing legal counsel in-house just to provide legal counsel for entrepreneurs as well as looking to sell, looking for a bit of advice or just packaged services. Got a lot of work to do. I mean, that’s probably a short story.
Rob: Today, you launched in January 2020, which is about 18 months ago. What metrics or numbers can you share in terms of how many companies have sold through MicroAcquire, dollar amounts, just whatever it is you’re sharing in public?
Andrew: Over 300 acquisitions, over $100 million in closed deal volume. We have about 70,000 registered buyers, adding about 300 plus daily. We’re in the top 4000 and visited websites in the world. We surpass Flippa, I believe. Don’t quote me on that; it might change. I love Flippa, too. I think they’re a great marketplace and they serve millions of entrepreneurs.
Another thing I’d like to add, too, is we do have competitors in this industry, but really, we’re just building another option for entrepreneurs to sell their business. We see acquisitions almost every other day. I get emails saying like, hey, I bought a company for $100,000, $50,000, $1 million, $2 million. It’s been really rewarding just being able to help entrepreneurs in that way because when those acquisitions happen, that’s how weddings get paid, that’s how down payments on houses get paid, that’s how debt gets paid. The exit is such an important part of the founder’s journey. There’s never been a modern marketplace for M&A, and that’s where we’re looking to build at MicroAcquire.
Rob: Yeah, that’s a trip. I mean 300 is a lot in 18 months. I’m actually surprised that it’s that high. I’m going to take a step back. When I first heard about MicroAcquire, it was sometime last year. I don’t remember when it was, but I remember thinking this isn’t going to work—I’m a perpetual skeptic—this has already been done. Flippa is out there. There are all these other things that do this. How can he possibly get a two-sided marketplace to work in a space where there’s already a lot of competition?
How did you kickstart this? How did you get enough businesses on the site to make any buyers want to sign up? How did you then get buyers to come? You are to date, aside from the funding, we’re about to mention that you raised in the past couple weeks there, but you had effectively bootstrapped it or self-funded it yourself, as far as I know. How did you possibly get both sides of that marketplace to get to critical mass?
Andrew: The first thing I did was open a pretty large cold […] email campaign, just to seed the marketplace, just to educate both buyers and sellers. Then just go on the phone with a lot of seed investors, angel investors, VC funds to see the buyer side, and then also corporate dev teams just to get their feedback. Then also reach out to a ton of different startups seeing if they would be interested in potentially listing and selling.
That was the initial seed. Once we launched on MicroAcquire, it just exploded from there. We saw thousands of users based off of that and it’s kind of just been up into the right ever since. I’m sure we’ll go through some bad times. This isn’t my first startup so I understand, things are going well right now, but we still have so much work to do, so many things that we want to do, so many things that we want to innovate on, and so many problems that we want to solve.
I should also add everyone I hired for MicroAcquire was with me for the acquisition of Bizness App. My VP of product, my VP of engineering, my CFO, my VP of Marketing, my old creative designer starting next week, and she’s awesome. We’re basically building the platform we wish we had when we went to sell Bizness App. Initially, seeding the market, a short answer there was a ton of hustle just basically getting on the phone with people. This is something that I think a lot of founders are scared to do, actually talk to people, actually get feedback. In the early days, it’s the most critical thing you can do.
I’m still on live chat, not nearly as much. I only come in if it’s like a question, but I answered every single email. I took every single call. I answered every single live chat. I sat on that thing sometimes until 10 just to really figure out product/market fit, like what metrics do you need as a buyer to feel comfortable, potentially being interested in acquiring this business? How can we make this marketplace better? How can we build this for the startup community?
I would say that was probably the main thing, is just speaking with people who are already in the startup ecosystem and we’re already actively either looking to sell, or have previously acquired companies, or previously sold companies. I talked to them about all the current players in the market today. What do they like about them? What do they not like about them? I took all that in and built the marketplace around that.
Rob: What I want listeners to take away is I get emails, I get conversations, private emails, been public emails to the questions at Startups for the Rest of Us line here, about starting to set up marketplaces. What most people don’t realize is the sheer amount of hustle that it takes to get that kick started. That it’s not about, I’m going to do some SEO here, I’m going to launch on Product Hunt and Reddit, or Hacker News, or whatever and build that marketplace .
You have to have enough of both sides in place already that it makes sense to then launch on Product Hunt which is what you did. The cold emailing, the cold calling, the dozens if not hundreds of conversations is often what it takes to get a business that once you build that flywheel, as you said it sounds like it’s just started to spin. Product Hunt got it spinning, then more and more people hear about it. It becomes a virtuous cycle, but when you’re starting out there’s no cycle to it, there’s no movement.
Congratulations on your fundraising. This is completely coincidental, but I’ve been trying to get you on the show for a while and finally our schedules made up. Last week I saw MicroAcquire raise $2.8 million, $22 million post money valuation. You’re going big with this thing and I can tell by your vision, the way you’ve been talking about it.
My question here is, how is this a venture scale business if you’re not taking a percentage of the sale? Because when I think you’re at a $22 million post, so for investors to be happy, you’re selling for at least $100 million. I’m guessing at that point, they’re not going to be happy. It says only 5X return. I don’t know much about the firm that’s investing. Usually, they want at least a 10X and probably want to shoot for half a billion to a billion dollars. To get to that amount, you’re going to need to get to a 5th or a 10th of that in revenue.
You’re looking to get to $50–$100 million in revenue. I’m just ballparking. You have not told me this. I don’t know any insight, but this is just how the venture world works. Right now, I believe your only revenue stream is that you charge buyers $290 a year to be on the premium list? Where else is money going to come from? The buyer list pool in the world just isn’t big enough at $290 a year to get to $50 million or $100 million in revenue. Where else is that revenue going to come from as you scale?
Andrew: Great question. I completely agree we’re not going to build under their $500 million business off of premium buyer subscriptions. But the goal is, we have an M&A directory that we’re releasing. These M&A advisors are going to be charging for their services, whether that’s a 5% success fee, 7%, maybe it’s $500 an hour, whatever it may be. We’re going to take a commission off of their commission.
We’re going to be focusing on bringing in as much supply because most business brokers, again, I’m a big proponent of talking to customers before you build this out. What I learned was most business brokers spend half their time on sales marketing. We have thousands of startups on MicroAcquire right now that could potentially opt in and hire them for their services. For that referral, we’re going to take commission off of that. Once you add that up, especially as deal sizes increase, the numbers get pretty interesting.
Then we have other items that we’re lining up in terms of revenue streams. One is if you’re an M&A advisor or broker, you’re going to be able to list on MicroAcquire. We don’t know the fee structure on that yet. These are just ideas, but not only can we help, we want to help brokers succeed as well.
There are thousands of boutique M&A advisors, business brokers managing just a handful deals. They’re not a big firm where you just get a junior associate you’re working directly with, basically a badass who just handles deals very selectively. You’ll be able to hire that person and whatever their rate is, you’ll pay that and then we’ll take a referral commission based off of that.
On top of that, we’re looking to bring in as many brokers and M&A advisors as possible to allow them to list their deals on MicroAcquire to increase supply even further. Again, don’t know what that model looks like, but that’s the two new revenue streams that we’re going to be introducing, and that also applies to legal services as well.
All the additional third party services, all optional. Again, you could still sign up on MicroAcquire, serve your company completely free, never hire a broker, handle the process entirely yourself. We’re still going to innovate on things like valuations, escrow. Being able to transfer the assets is a huge headache. How can we improve upon that? We’re thinking big on all those items.
Another revenue stream is lending. I can’t say who, but we secured a partnership with a startup that’s recently raised (I think) $300 million and they’re looking to finance SaaS acquisitions with over a million in revenue. That’s another line item of potential revenue where we can help entrepreneurs expand the buyer pool. More buyers who now afford businesses because they have financing available and then we take a commission off of that referral as well.
Those are just three, but we’re going to be thinking of more, just how can we add so much value to entrepreneurs, when selling their company. They’ll happily pay for these services. They’re not released yet, but that’s kind of in the works. Short summary is third party services and by referring those third party services, we’re going to be taking a referral fee from those.
Rob: Got it. As we move towards wrapping up, I have one final question for you. You’ve been building this business now for 18 months through a pandemic, built a two-sided marketplace essentially from scratch. What’s been the hardest thing about doing that for you personally?
Andrew: Big fan of bootstrapping, big fan of really capital-efficient businesses, but it’s hard. I was working from 4:00 AM to 11:00 PM at night, family responsibilities included. I take out the trash and pick up dog poop every Thursday, do the dishes, those are my chores around the house. I believed in this and so that was probably the hardest part, was just this sheer amount of work to get this off the ground. I think that’s a lot of things.
That’s a big thing that I think a lot of entrepreneurs don’t understand. It takes a lot of work to get a startup going, so I put in that work and I’m fortunate to have a team to help me work more on the business rather than in the business, but the short answer is working in the business, blessing and a curse. That really allowed me to really figure out a model that allows us to move up market to really aggregate this industry, providing more value to entrepreneurs looking to sell their companies.
It was a ton of work. I would say just working in the business was definitely the hardest thing and I still do quite a bit. That’s my big goal. Literally, before this podcast, I was talking to my team, I was like, guys, I’m overwhelmed. I tweeted something out like a CEO should not be working more than 100 hours a week. Delegate, fire yourself from everything, enable your team to succeed. That’s been the hardest part. Probably within a month or two, that’ll be lessened but long story short, working in the business, doing everything for marketing, product management, customer support, sales, like everything, that was hard.
Rob: Yup, you got to wear a lot of hats in the early days. It’s a ton of hard work. Well, sir, thanks so much for coming on the show. If folks want to keep up with you, you are @agazdecki on Twitter, and of course microacquire.com if they want to see what you’re up to. Thanks again for joining me.
Andrew: Yeah, Rob. Thanks for having me. I appreciate it.
Rob: Thanks again for joining me today. If you want to connect on Twitter, I’m @robwalling and this podcast is @startupspod. Every week we actually tweet a cool little video clip of the guest and I, usually it’s 60–90 seconds taken from the episode. You can check that out. If you would like it or share it, I would always appreciate it. I’m definitely looking to get the word out about Startups for the Rest of Us and any help you can lend is always appreciated. Thanks again for joining me this week, and I’ll be back in your earbuds again next Tuesday morning.
Episode 558 | Thinking Through Funding as a Bootstrapper
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In Episode 558, Rob Walling chats with Einar Vollset about bootstrapping versus funding and the many options that exist in between. No longer is it a decision between a bootstrapped or venture path. With their unique perspectives, Rob and Einar talk about all of the funding options that exist. They also share some things to consider when deciding whether or not to take on funding and, if you do, how much you should plan on raising.
The topics we cover
[04:24] When funding makes sense for bootstrappers
[11:54] Raising pre-revenue vs raising with revenue
[15:29] Risks of raising as a platform (e.g. Shopify) business
[20:40] Funding options available to bootstrappers
[27:57] Convertible notes & SAFE’s
[29:16] How much should a bootstrapper raise?
Links from the show
- Episode 496 | “The Press Covers Exceptions, Don’t Compare Yourself to Slack or Zoom”
- Episode 411 | Bootstrapping vs. Funding: 19 Questions To Ask
- Einar Vollset (@einarvollset) | Twitter
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: Welcome to this week’s episode Startups for the Rest of Us. I’m Rob Walling. This week, I had a great conversation with Einar Vollset. If you don’t recall, Einar Vollset is my cofounder with TinySeed. He’s also the founding partner of Discretion Capital which is an advisory firm that advises SaaS founders who are in, let’s say, the $1–$2 million and up ARR range when they decide that they want to sell. You need people who know what they’re talking about and Einar’s one of them.
The fun part about our conversation today is we bat around funding for bootstrappers and really specifically, there’ve been a couple conversations I’ve had over the past couple of months that have got me thinking about talking about this on the show, because obviously this funding has become much more viable for bootstrappers. It’s not just bootstrap or venture paths. There’s this whole thing in the middle that we talk about. TinySeed is obviously part of that. I think there’s still confusion and misconceptions. It’s just amorphous and often hard to understand what’s going on and of some of the realities of it.
We spend this whole episode batting around when should a bootstrapper think about raising funding? When should they not? Why is it a good fit? We talk a little bit about terms and how much founders should think about raising, and just everything we’re seeing. The cool part is he and I have pretty different perspectives. I guess we share perspectives on a lot of things being the cofounders of TinySeed but I also have a lot of experience with other angel investments that I made before TinySeed that are still around, and I see different examples there. He has experience with his Discretion work and even the companies that he started before TinySeed. My hope is that it is helpful in just providing a little more of a level set and some more thoughts on this topic. With that, let’s dive into my conversation with Einar Vollset.
Einar, thanks for joining me once again on Startups for the Rest of Us.
Einar: Good to be on again, Rob.
Rob: We get to talk about funding and thinking through bootstrapping versus funding, or even these days it’s not just two options. It’s not just should I self-fund? Should I bootstrap? Should I raise a venture? There are all these avenues you can go down, whether it’s a TinySeed-like accelerator raising a small angel round for a couple of hundred thousand dollars. To me, my take is it’s gotten more robust and easier for founders who are in the MicroConf, Startups for the Rest of Us–type community and they’re in that situation to raise money on terms that make sense to them. Because 10 years ago, I didn’t know of a single company in our space that could raise money, not from essentially institutional folks who wanted them to become unicorns.
Einar: There’s equity and there are different types of investments too now that weren’t a thing five years ago. Things like non-dilutive revenue based financing, PIPE, that sort of thing.
Rob: Yeah, a lot of options. I know when I did my MicroConf talk in Vegas, it was US growth, maybe it was 2018. It might have been 2019. Who can keep track with Covid? Everything before Covid and everything after. I did a talk and I was talking about the state of bootstrapping and how I saw more companies raising funding not to go venture track but to raise one around maybe two, $200,000–$500,000.
I pointed out customer.io. I’m an angel investor in Churn Buster, WriteMessage, CartHook, LeadFuze, all these folks who are like, we’re not looking at IPO. We’re not going there full weight. As I saw it happening, obviously TinySeed came out of the need, where I only had so much of my own money to be able to put that in. We did TinySeed because there was a need on that side. It was pretty obvious to me that more bootstrap-ish capital-efficient founders want to raise money these days.
Einar: I think so. One of the missions for me, the reason why I love doing TinySeed is because I think that kind of investment and that kind of founder really enables them to quit their day job, and there can be many more founders like that if you have the capital going to these places.
Rob: I want to be clear. Obviously, Startups for the Rest of Us, we’re almost to 560 now. We’ve talked a lot about bootstrapping, but we also talk about funding. Even going back to 2013 or 2014, I talked about fund-strapping with Collin from customer.io. Mike Taber, the co-host emeritus of Startups for the Rest of Us, and I had several episodes on when to think about taking angel investment on funding versus bootstrapping, 19 questions to ask, that was episode 411 back in 2018. It’s not right for everyone. I think that’s one thing we want to talk through today is when does it make sense?
I’m going to be honest, I don’t know if you and I have ever talked about this, but I’ve seen founders who I just thought would just be bootstrappers forever and never raised rounds take funding. They have very good reasons for it and they don’t regret it. Folks like Craig Hewitt with Castos. He was in TinySeed batch one. I just thought he was going to bootstrap everything. Ruben Gamez with Bidsketch, and now Docsketch […] took money from us. He did it to move faster. He did it because it makes some things just a little easier. It hasn’t changed his business other than having more resources to work with.
Einar: I think you mentioned Collin, too. He’s doing incredibly well now. He’s open about his numbers. I think he’s doing $22 million ARR right now.
Rob: But when you talk to him, he’s totally along that line too, like I don’t want to be a unicorn. I want to build a real business, a $22 million ARR SaaS company in the email space. Now, I think they’re doing a crowd fund. I know they’re doing a crowd-funding thing right now to raise money. I believe they’ve raised two smaller rounds before that. The very first round was a couple of hundred thousand dollars. I don’t know if the second round was, but I think it’s probably all in Crunchbase.
But you’re right, it’s founders like that who see it. There’s bootstrapping, there’s VC, and then there’s this whole thing in the middle now. It’s still amorphous, I think. That’s what we’re leaning into obviously with TinySeed. We’re going to cover some topics, like why I raised if you want to.
And again, this podcast is not about raising funding. If you don’t raise funding, you’re not in the club. It’s nothing like that. It’s just another tool in the tool belt. It’s another option, revenue-based financing, this type of funding, whatever, to help you get there faster which has really been a mission of MicroConf, Startups for the Rest of Us, all my writings from day one. How can we help more entrepreneurs succeed, more founders become self-sustaining, and this is another option.
I may have mentioned a few of them already but when you see founders raising these small amounts of money, let’s say through TinySeed or through doing other angel rounds, when is that a good call? When should they think about that? How are they using the money to essentially accelerate their business in the best case?
Einar: I think when we first started, one of the main ways that I thought about it for TinySeed founders would be people who had enough, had some kind of revenue coming in but it wasn’t really enough to make it their main focus. I still think there’s a good chunk of the founders that we backed that are like that. They’re at $3000, $8000 MRR or something like that. Particularly, $8000 MRR or two founders are probably not self-sustaining at that point.
I think taking money in order to effectively pay yourself and say I’m not going to burn through all my life savings or remortgage my house to take this risk. I want basically to offload that risk to someone else who has a higher risk appetite than me. I think that’s one of the better reasons to do it.
I also think one of the most surprising things is how many people are at the point where probably they don’t use the money that we give them to pay themselves but they use it potentially to accelerate the channels that are already working or feel like this gives them the leeway to just be a little bit more experimental with the growth channels they can go after.
If you’re totally bootstrapped and you’re basically just about self-sustaining, how keen are you going to be, like I’m going to hire an STR service and run that for three months for $15,000 and then potentially hire a sales person and try that channel out. Or a re-up, start a Google Ad campaign to try out this new channel. I think it offloads some risk and it enables the founder to take more risks and potentially grow their business substantially faster.
Rob: I like that thing about offloading risk because there have been several founders who I know who have taken money, Derek Reimers is an example. After the Drip acquisition, he has enough money that he could basically angel fund himself. But he took TinySeed money back in batch one and when I talked about it like why did you do that, because you have that much money plus some in the bank. He said it takes some risk off the table. It’s more runway but it’s also less of my personal risk and I don’t give up control. It’s just not a huge loss except for a few points of equity, in essence, which I figure if it’s successful, that’s probably not going to matter in the end.
Einar: Absolutely.
Rob: I like that idea. That thought of taking some risk off the founder. True bootstrapping, as you said, there’s a ton of risk on you personally and it can be stressful.
Einar: It’s going to be stressful. I also think it is a certain level or privilege to be able to bootstrap a lot of the time. It means that you have a bunch of savings, you made a ton of money doing something else, or a lot of the time your spouse makes enough money so that they can cover the whole household. I think just enabling this kind of funding means that more people who necessarily aren’t already in that situation can take the risk that’s just inherent in starting something like a software business.
Rob: That makes sense. From my end, the folks that I see raising and doing well with the money, they want it to move faster, they want it to decrease risk as you’ve said. Usually, not every time, they want it to make a key hire that they can’t afford.
Actually, these days with a lot of big companies are remote now, talent is more expensive than it used to be. Correct me if you’ve seen other situations, but the main hires I’ve seen are to hire a marketer, somebody to have run DemandGen or an agency to do the marketing. The other one is more development talent, like a senior developer who can technically lead so that the founder can maybe step away, or if it’s a nontechnical founder that they have, that person now who’s running the show. I think those are the two big ones I’ve seen.
Einar: I think it’s telling how different our approach is, the founders that we talk to because that’s not what I see.
Rob: What do you see? That’s why you’re here, right?
Einar: Yeah. I see people mostly hiring a customer success–type person, just to take customer support load off either key engineers or the founders. Then I see people hiring sales. They’re trying to either just STRs in order to fill more of the funnel for the founder to do the close, or for the founder to say I’m ready for an account exec who can do demos so I don’t spend all my time doing demos.
I see a bunch of those things, too, where it’s like they would have gotten there to where they needed to hire (say) customer support or other sales people but maybe that would take another 18 months. Just the fact that they can hire now just means business moves faster.
Rob: I think to look at it from the opposite side, what are the scenarios or the situations where a bootstrap founder probably shouldn’t raise, probably should think about just continuing to bootstrap? I’ll throw it out right from the start. My sentiment is that if you don’t have or are pretty dang close to product/market fit, meaning that you’ve built something people want and are willing to pay for, I think you should keep grinding until you get really close to that.
Now, I’m not saying you have to have a sustainable marketing channel and a bunch of leads coming in and a whole built out funnel, that would be great. It gives you a better valuation. It makes for investors interested. But if you’re at $2000 MRR and you’re getting onesie-twosie people coming in, some people are churning, and it’s an early product still, my sentiment is that’s not something I’m personally interested in investing in and I don’t know a lot of investors who are willing to bet that early. Do you agree or disagree?
Einar: I think there are a lot of investors looking to bet that early. Your story has to be different. If anything, I actually think it’s easier to raise money when you have no revenue, if you have a good story.
Rob: In SaaS? I don’t think in B2B SaaS.
Einar: Well yeah, but even so. We’re going to do this thing. You’re six months in and you have a 20% monthly churn that people can look at. It’s hard to explain. The difference I think is if you’re going to go to market and try to raise with no revenue, just a plan or a vision and stuff, that plan or vision has to be much larger because the kind of investors who are interested in investing at (say) $12 million pre, without a product, and just two or three engineers, because the risk is now so high, it needs to be something that they believe can be a unicorn. You’re in unicorn territory.
If your story isn’t up into the right, they’re going to be like, meh. We see a lot of pitches for people who haven’t proven anything yet. They really have to believe and be excited about the story in a way that if you’re doing $8000 MRR and you’re growing 10%–15% month over month with no churn, it’s a very different thing for people to invest in.
Rob: I don’t know any investors and I’m friends with 12 or 15 angel investors. These are all former founders, so people I met at MicroConf. I don’t know anyone who invests in a SaaS app pre revenue. You know what, there’s a couple.
Einar: […] I know a lot of them.
Rob: See, I think that’s the difference.
Einar: You’re telling me like let’s talk. I know tons of people who will do that. But again it has to be a big vision.
Rob: It has to be a venture scale business.
Einar: Venture scale, IPO, take over the world, changed this. Those kinds of investors typically do well. If anything, I do think it’s sometimes easier to sell the dream rather than trying to explain the numbers in this regard.
Rob: I would agree with that and I will just say, and you and I by the way don’t agree on everything on this podcast. That’s why you’re here, otherwise I could monologue this whole thing and just do a Rob solo adventure.
Einar: We’re just talking about marketing hires and things like that. Nobody’s talking about marketing hires ever.
Rob: When I’m talking to them, it’s like don’t talk to Rob if you’re going to do sales hire. Talk to Einar. My take is with B2B SaaS, if you want to build a $10-, $20-, $30-million business, if you have a really good network—let’s say you’re a second time founder, you’re a Josh Pigford, you’re a Derek Reimer, whatever, anybody, Rand Fishkin—can you raise pre revenue? David Cancel right on his fifth one. I don’t remember how much he raised, but he was $5 million out of $15 million or $20 million valuation with just an idea because it’s David Cancel.
But most of us aren’t that person. Most of us are doing this for the first time. If you don’t have a strong network or some type of in and you’d want to build a B2B SaaS company $10-, $20-, $30-million, I have not seen someone be able to raise around at that point pre revenue.
Einar: Crucially, the thing to think about is I do think you can raise. Like I said, I know several investors who want to do this. You can raise with just an idea, a deck, just a team, or whatever, but then the vision has to be big, and that does usually excludes you or precludes you from actually doing the exit at $20 million or $50 million. Just the mechanics of the way that investments are being made in that case with liquidation preferences, valuations, and rights for investors to block things and things like that, means you’ll end up in a situation where you have to really go for $100 billion, $500 billion exit or nothing. There is very little middle ground there.
Rob: Another type of business that I think should probably not raise is step one business if we think about the stair step approach. Step one businesses are usually oftentimes built on a platform, like a Shopify add on, a Heroku add on, a WordPress plugin. Usually, they plateau at some point that is far below what any investor, even bootstrap-friendly investors want. And there’s platform risk to the, you built something big enough, Shopify comes knocking and bad things happen. You build something big enough, Heroku hasn’t done this as far as I know. But any platform can kill you or just say pay us 20% or 30% of your revenue all of a sudden.
Einar: I do see break up instances on both building platforms. That does happen, but I certainly think the risk is higher. I think investors will be more like what happens here if they build this in house or cut you off in some way, shape, or form.
Rob: We, being TinySeed, have invested at least one and I’d say a few businesses that have platform risk including Rails Autoscale—Adam was on the podcast just a few weeks ago, and that was a conversation we had early on. How does this scale? Because Rails Autoscale be a $5 million or $10 million ARR business as it stands now? Personally, I’m pretty sceptical and Adam is too that the space maybe just isn’t that large. Then we said, how do you reduce platform risk and how do you get to X million in revenue? As long as a founder is thinking about that then at least there’s room to grow there.
Someone asked me on Twitter—maybe it was eight or nine months ago—why is there no TinySeed for info products, or course creators, makers? It was an honest question. I appreciate it. I answered it and basically said, because they don’t scale like SaaS. Because they’re often reliant on a single individual, not all the time, but often rely on a personality or personal brand, and the exit multiples aren’t there. That’s a part of why this works, is that SaaS sells for such a crazy high multiple. Not that everyone has to sell, but that is one driver of returns.
I think another time when founders should probably not raise money is if they want that true four-hour work week lifestyle business, if they want to work part time. I did this. I did this for a couple years with HitTail. It was great. I worked 12 hours a week. Not that suddenly your investors are your boss, because that’s not how it is. I think bootstrappers think investors are probably a lot more involved than they think they are, or managing their time, or like send me your time clock and your timesheet. That’s not how it is.
But I do think if you want to work 10 or 15 hours a week, go bootstrap an amazing business and make it a lifestyle. I’ve had several of those. I think the moment you think about getting external funding from someone else, to me it’s a commitment to no, I’m going to grow this. I’m going to be committed to this business full time. I’m not going to go start other side projects during this time.
Not that you can’t do anything. You could set up a blog, a podcast or whatever. But if I invested in a founder personally and they were doing a SaaS app, and suddenly they started another little side project SaaS app, I would have a conversation about what’s the plan there? Do you plan to focus or do you plan to split time? What’s the deal? Do you agree with that or what do you think?
Einar: There’s always a pivot. I don’t know. Most investors come along, there will be IP assignments and stuff from the company. If you start a company and then you work on those products and then you start a side business, now is your investor part owner of the side business too? Is that a pivot? What is it? There are certain things to think about.
I think you’re right. Running a B2B SaaS business was most of the time we’re talking about. It’s a full time job if you’re planning most of the time. If you’re just planning to do a four-hour work week, then I probably would look at info products or some of the more smaller scale.
Rob: Step one plays are great. I did this with HitTail. But HitTail was like a single feature, almost. It had multiple streams but it was not the place that we’re talking about. It was SEO pure tool. I just had a couple channels that worked mostly on autopilot. It didn’t have to do sales. It was self-service. Churn was high because the price points were low but that didn’t matter. I got up to $25,000–$30,000 a month, a great lifestyle business.
But that would have been dumb for me to then go out and say I’m going to take investment for this. Unless I wanted to then double down to be like, look, I’m going to make this into an SEO suite or a rank track. There are things that can expand the market, but I personally wasn’t interested in doing that in that space.
Einar: In some cases it makes sense to go after the bigger thing after a while. I still remember when PagerDuty launched. I was like PagerDuty, what? Is this a business? What the hell? And now, they’re a publicly listed company. Okay, I was wrong. Sometimes there are things that are bigger than you think (I think) a lot of the time. Early stage investors, despite what some investors will tell you, I think it’s almost impossible to really, really have a good sense of what’s going to work. There’s just a lot more randomness and luck and things in there that accounts for a lot of it.
Rob: Yeah. When I think of funding options for bootstrappers these days, obviously there’s accelerators like TinySeed, there are other funds that do similar stuff. I’ve heard of the Weekend Fund which is from Ryan Hoover who’s the Product Hunt founder. I don’t know if they’re bootstrapper friendly or if they’re venture only. I think that’s a conversation to have with folks. If you’re going to take funding to be like I would sell if I got an offer for $20 million, to be up front about that.
If the investors want to invest then I don’t think you should take the money because you’re going to have this conflict now when you get that offer for $20 million that’s going to change your life, and you push back on it. The investors are going to say no, $100 million or $1 billion, or bust. You have to be on the same page. There are investors out there—I know angel investors—who are willing to take that 3X, 5X, 10X versus the unicorn play.
Einar: I think this boils down to the trade-off in terms of valuation that you take too. I think this is more traditional […]. The higher valuation you can raise the better. Look at us, we raise a $20 million pre or $12 million pre. You raised a $12 million pre and you sell for $20 million, even if you have the right to do so, and you do it, your investors are not going to be happy. That’s not what I wanted. That’s pretty much a failure for people. Just because of the economics of how the investors and their investors operate. That’s the trade-off, really, when it comes to what optionality are you taking off the table by taking a super high valuation and raising a ton of money.
Rob: That’s a really good point. Most of the more bootstrapper-friendly funding sources that I’m familiar with, the valuations are lower than if you went to Sand Hill Road at Silicon Valley and it’s two people in a garage with two laptops, they have a product, they can get whatever—$5 million or $10 million—then coming out of YC, everybody doesn’t get the $10 million thing, whether they’ve launched or not, which is just crazy.
Einar: Last I heard on a pre-product launch, on demo day, it’s like $12–$20 million pre.
Rob: That’s insane.
Einar: But here’s the thing. What has changed (I think) in the last 10 years up in the Valley is because the dark days of 2008 and 2009 and almost nobody was investing, which turned out to have been the best time to be investing in things like Airbnb, Dropbox, and things, fundamentally, I think what has changed is and I think this is debilitating for founders who are struggling with this because you read all these stories about there’s so much money in this space now. You should go out and raise money right now because there’s never been more money in the ecosystem.
If you look at the inflows into venture, that’s true. There’s a ton of money going in but they tend to go after fewer and fewer deals. You end up with a very binary outcome where it’s like I know you’re superhot to the point where venture capital associates are cold calling you on a Friday night or there’s crickets. There’s nothing. That’s very, very tricky to deal with. Particularly if you’re trying to raise a lot of money and you’re in the crickets camp, and then you read all these stories about it’s the easiest time ever to raise money. I’m like, it’s the easiest time to raise money for a particular kind of company, opportunity, and founder. If you don’t want to do that or it’s not what you’re after then it can be very hard.
Rob: I think that’s a really good point to think about. So let’s say today Einar, you had a B2B SaaS app doing $5000–$100,000 a month in MRR and you decided that you did want to raise that round. Obviously, I would love it if you’d come to tinyseed.com and your email address. We are now having open applications. We’re now running two batches per year, so every six months, we open applications. We’d love to chat. We even have a mid-batch application if you’re doing anything north of $5000 MRR. We have those coming through when we’re having conversations so we can fund people as it makes sense for their journey.
But let’s say you were doing $10,000–$20,000 MRR and you decided for whatever reason that you didn’t want to go through a program like TinySeed and you’re going to raise it on your own. You want to raise $200,000–$250,000. In my head you got to work your network. If you don’t have one I’m not sure what to do. When I thought about raising six or seven years ago, I was like, I don’t know who I will talk to or who will give me money.
But I would then look at using a convertible note or a safe. People can Google; we’re not going to define it here. There is a way you don’t have to do a price round now and get stuff on your cap table. That can take more time. There’s more due diligence in that, but a convertible note or a safe is a promise of essentially future equity to investors. Is that the approach you would take?
Einar: Probably so. I’m more pro selling equity, too. I think that’s fine. The problem with selling equity is a lot of the time it ends up. Most investors—people don’t know these either and this is not true for us—will make the founders pay for their legal fees. Part of the reason why safes and convertible notes took off in things is because it’s cheaper on the legal front and that is doubly valuable because most of the time, traditionally at least investors have been like I’m going to have you pay for my lawyer.
If you’re taking $250,000 and it becomes a protracted back and forth with legal views on either side, you could easily be in a position where like, you got $250,000 investment, but now $40,000 $50,000 of that is in legal fees for you and the investor that you both have to pay out of that $250,00. But if you can deal with someone who can very effectively and efficiently do a priced round, then I don’t think there’s a huge downside to that.
Rob: That’s what we do and we do it efficiently, right?
Einar: Yeah, it is. There’s some tax benefit and there is some clarity there (I think) a lot of the time, in terms of who owns what. It’s less of an issue with more of the TinySeed–type companies or bootstrap–type companies where you’re not doing fundraising every 18 months, but some of the challenges with the safe notes and the convertible notes is if you multiple rounds of this and one after the other and some bridge stuff in there, it actually comes quite difficult after a while to figure out how much your company’s left, because they convert at different caps at different times and different triggers and all that stuff.
There is something to be said […] I’m buying equity and valuing your company and if we think it’s worth $2–$3 million and we’ll buy 10% for whatever. I do think there’s a nice sense of that. The challenge, particularly, if you run into unsophisticated investors or maybe investors who are used to larger rounds or later-stage stuff, you can get stuck and blow easily $50,000 in legal fees, which is obviously counter-productive for a $250,000 round.
Rob: To untangle that and I guess my advice there is don’t raise a bunch of different caps and valuations. Keep it simple.
Einar: That’s the problem for people. This is the thing. If you’re going the more traditional venture route, then while you’re raising money, you erase money, so you burn hard. You burn hard, then you’re running out of money, and you have to raise more money, so you can keep burning hard. There are people with 13 safes and they’re like, is there someone with software that can help me figure out or an analyst that can help me figure out how much the company is left?
Rob: Yeah, don’t do that. If you’re a bootstrapper, you’re not going to be raising all the time. My advice would be not to do that. As a bootstrapper, you don’t need to be raising all the time and it’s a distraction. You’re not on a venture treadmill where you need to raise every 18 months. I would chill out a little bit, I’ll keep it simpler.
One last note on safes and convertible notes is that if you truly are thinking maybe this might be my only round, you’re essentially committing to giving equity in the future, usually at the next funding round or if there’s an acquisition. If you do plan to run the company, you want to run it for 10 or 20 years and take a profit, safe and convertible note.
That’s not legal advice. We’re not lawyers like that’s a disclosure. But it’s not the best. I mean it can screw investors. To be honest, it’s top […], I believe, where they raise the money on safes and convertible notes, they never raise another round, they haven’t sold, so all the investors don’t technically own the equity, and the founder can actually literally legally take money out of the company and put it in his own pocket. Him or the other founders, I guess, whoever owns the equity. It’s a weird situation.
I think if you are thinking about doing it longer term, then equity probably makes a bit more sense to think about that. The other thing is there was the pre TinySeed. I did angel investments; wound up working out very well, but the founder used convertible notes. At a certain point, he just said all right, we’re just converting to equity at this rate. We’re just converting this at the cap or something like that. He just decided he wanted everyone on the cap table. He wanted to clean it up and he didn’t want to keep his interest involved in this and that. It was just a decision as a founder he meant that to simplify everything.
Founder thinking about raising money, what do you think the dollar amounts? Where should they land? I guess should is a strong word, but there’s a minimum that makes sense. I don’t think you should go try to raise a $75,000 round because the time and the legal fees alone are not worth it. On the top end, what are your thoughts on small and large?
Einar: It’s a little different if you’re just taking a pre-specified money from us or YC or whatever, it’s like $120,000, $180,000, $200,000 whatever. In general, if you’re going to raise money, it’s probably worse to raise at least $150,000–$200,000 I would say. At least that’s true I think in the US. It becomes one of those things that if you can’t raise that much, is it really worth the pain going through and having investors at $75,000? As an example, just costs. If you were to do special-purpose vehicles, this is one of the ways that you can put a bunch of people on a single line item on your cap table.
AngelList will do that for the investor. On the investor side, it’s going to cost $8000 to do, which is actually reasonably cheap. But if you’re raising $75,000, that’s the material part of the actual investment that comes through. This is pretty significant dilution for the investors to take. I do think that it has become a stage where this doesn’t make any sense. I think that’s probably about $150,000–$200,000 or something like that.
Rob: We should point out that accelerators like TinySeed are different from that. Most founders who get funded by us, I’d say the vast majority is $120,000 to about $250,000 is the general range. But since our process we fund 20 companies at once and we fund the entire round, this is very different from you going and trying to find four investors at $25,000 each and then trying to close a round. There will be a bunch of costs on you and more complexity trying to wrangle them than dealing with a fund like TinySeed.
Einar: I think that’s true. It’s just much more efficient for us and we pay our own legal fees, so we’re incentivized to make it an efficient process instead of something that just drags on and on.
Rob: Then AngelList has an RUV or Roll Up Vehicle. I don’t know so much about it, but I think the idea is it’s a no fee RUV. It’s to help with convertible notes and safes. But I think it’s pretty new. Have you heard about this?
Einar: Yeah. It’s not entirely clear to me. I should probably look at how it’s different from an SPV. At AngelList, the SPV fees are about $8000. RUVs are similar to that. It’s certainly the same deal. The reason why you would have an SPV is because you want to be able to say there are 25 people who want to throw in $10,000 each, but I don’t want 25 people on my cap table for assorted reasons. You put together an SPV and then the SPV is the one that invests. I think a Roll Up Vehicle is the same. It’s entirely unclear to me how they’re technically different.
Rob: Here’s one thing about RUVs is they basically say you have to be a US C-Corp in order to do it. That’s going to cut a lot of folks, bootstrappers who want to stay LLCs want to be in corporate in different states. They basically say if you’re raising safe and equity round, you’re likely eligible for a no fee RUV with zero care for investors. But again, I haven’t dug into it to know how that all works and how AngelList makes the money, or if they’re just doing it out of the kindness of their heart. You think that’s the reason?
Einar: It could be.
Rob: No, I don’t think that. Not that AngelList is bad, It’s just their business, they have to make money on this stuff somewhere. In my head, I agree with you. I think $150,000–$500,000 is the most common. That’s the most common range that I’ve seen across. We have 41 TinySeed investments and between Sharon and I, 18 private angel investments pretty much made before TinySeed. That’s almost 60 companies and that has by far been the range, $150,000 up to $500,000. There are obviously exceptions. There are people who have a really great network, they’re a second time founder, and they can go out and raise $600,000 in their first round. But that has been pretty unusual in my experience.
Einar: Yeah, I think that’s true. There are people who do it. It’s just a matter of what are you trying to do with it? What are the trade-offs in terms of optionality? If you raise $2 million or $3 million, then investors are expecting you to spend it. It’s not like we don’t expect you to spend it. In some cases, we have to tell founders why are you not doing this? It seems expensive. I was like, we will give you money. You should spend it. It seems like a good use of the money. But that’s even more pronounced if you’re raising $2 million or $3 million.
If you’re raising $2 million or $3 million then investors will not be pleased if 12 months later there is $2 million or $3 million in your account. Unless that’s because it’s been growing crazy.
Rob: I think with that in mind the idea is the more you raise, the more of your company you have to sell. It all depends on valuation as well. Valuation is really set by the market, but the market looks at what’s your traction. Oftentimes, what’s your MRR? What’s the story you’re telling? What’s the certainty that people think that you are going to be able to provide a return? What is that return? We’ll get into it.
The second is, is an exit down the line or is it taking profit out of the business? If you say I’m going to be an LLC and I want to take profit out of the business and run this for 10 or 20 years, you will significantly reduce the pool of investors who are willing to invest in you. I’m not saying that’s a good or a bad thing, but just realize that there are far more investors who want you to exit.
Einar: I think fundamentally, one of the things there is if that’s your goal, if your goal is to keep it forever and then pull cash out and distribute cash over time, then honestly what you should be looking at is more likely things like revenue-based financing. The investors who are looking for more dependable cash flows are more likely to be putting their money into those kinds of vehicles. Equity-type investors typically are looking for higher potential upside than what comes from just profit distributions.
The fact that with revenue-based financing–type things, it’s a little bit more determined how this has to work and it’s a bit more predictable in terms of the cash flow that investors can expect versus if you’re taking an equity investment and you’re saying I’m just going to pull profit out and distribute it over time, effectively what you’re saying to the investors is trust me, I’ll do that. Don’t worry. I’ll do it.
But if you take more revenue-based financing, you’re entering into a legal contract to do it. The incentives are slightly different there. Now, the problem of course is the stage we invest, like super, super early, the earliest stage, it’s almost impossible to get revenue-based financing because your revenue is so low.
Rob: I think at this stage we invest which is early, a lot of founders don’t know. They don’t know who if longer term they want to run it and pull profits off. They don’t know if they will get an offer for $5 million or $10 million. When you see that number on a check or in an email, it changes your perspective. I’ll tell you what. You suddenly realize, wait a minute. Let me get this straight. I can pay my house off. I can fund all my kids’ college funds. I could feasibly never have to work again or never have to work in anything I don’t want to again.
That […] changes your whole outlook on life overnight. They may want to go raise a venture round later. That’s where something like TinySeed comes in. That’s one of the reasons we started this. We wanted folks to have that option. To be able to buy themselves some time to build the business to the point where it becomes maybe a little more obvious of where it should go in the direction the founder wants to take it.
Einar: That can work out different ways, too. We have founders who tell us that if I got $10 million, I’d sell it. Now, they’re doing very well and they’re like, no way will I sell for $10 million. It goes both ways. It’s just nice to have that optionality I think. We do have founders who are like, this is a big opportunity. I just want to go and raise a ton of money and go the venture track. I’m like, great. Do that.
Rob: That’s the fun part. That’s what I like about it. Anyone who’s known me, listened, read, or just been involved in any of the content I’ve been putting out for 15 or 16 years now, knows that the bottom line mission for me is to help more founders succeed faster and have a sustainable business of any kind. A sustainable business may mean that they’re able to sell it for millions or tens of millions or enough money. Maybe their life-changing money is $500,000 because that changes your life in the short term and they’re able to go start another business.
But that’s why I love doing this podcast. That’s why I love being part of MicroConf because our community is focused on helping each other. That’s why TinySeed is such a part of the mission, why it was so cool that you and I essentially agreed on that, that this needs to exist in the world.
In 2018, as we were talking about this and figuring out, should we start TinySeed? Does it work? I knew there was a desire on the founder side because of all the people that I had invested in. It was like, all right, I’m out of money in terms of writing more checks to startups. I need to keep my allocations between Bitcoin and Ether and public equities and all that reasonable. What I didn’t know is would investors, in essence, be willing to invest in this asset class? That other side of the market place came together pretty quickly, which has been nice.
Einar: We started seeing that on the buyout side, too, with Discretion Capital. We started seeing that 5 or 10 years ago, it was like, if you had $2 million or $3 million ARR B2B SaaS business growing reasonably well but clearly not going to be the next Airbnb, there weren’t a lot of interests on the buy side, versus that has really changed on the buy side as well.
That makes it more feasible to basically get money from investors who want to come in at the early stage there. Potential exit market and it’s just they see that people are selling for 4, 5, 6, 7, 8, 9, 10 times ARR at $1 million, $2 million, or $3 million. That becomes a viable thing to back at that point.
Rob: What’s good today is if you are building SaaS, it’s so capital-efficient. It can be extremely profitable if you decide to keep it. It can be extremely lucrative if you decide to sell it. If you gain traction, there is money out there. You and I’ve talked a lot about TinySeed here, but we’ve talked about pipe.com, revenue-based financing. There’s a whole world. Just type in RBF or revenue based financing into Google and you’ll see 20 or 30 players in. There are a lot of options out there. Then there are again other funds that are thinking about this stuff.
I just think we live at such an amazing time. If you want to bootstrap, awesome, do that. That’s what I did with all my SaaS apps. But you know what, one of the reasons I started TinySeed is I wanted just the fund to exist for me because during the Drip years, we needed money and we were doing all types of crazy stuff to cut costs and it was super stressful. I wanted to really quickly raise a couple of hundred thousand dollars. It would have been a big difference but I just don’t have the time to do it, and I don’t know if I have the network, which in retrospect I probably did. I don’t know there was all this indecision around it. I think almost de-stigmatizing it or perhaps normalizing it just a bit more I think is helpful in the space.
Einar: I just want to back more founders. I think more people should be doing their own thing—wherever they’re based in the world—rather than feeling like the pinnacle is to go work for Google or something.
Rob: I think that makes a lot of sense. Well sir, I think we’ve covered this pretty well. If folks want to keep up with you, you’re @einarvollset on Twitter. Of course, they can keep up with us at tinyseed.com if they want to hear more about it. You blog prodigiously on your dot-com, don’t you? Do you have one blog post in the past year?
Einar: einarvollset.com? Yeah. It’s a table that shows IRR versus multiple for the […].
Rob: Amazing. Says the guy. I’m not shaming you. I mean, the last time I blogged was probably two or three years ago.
Einar: At least, you put things out. I was thinking about this. I was like if you follow me on Twitter, you’re mostly going to see me complaining about the Giants. Like I said, I’m not the marketing guy side of things here. I’m more the background dude.
Rob: You are headed to the UK. You’re actually going to be in or around London for two or three weeks, four weeks here, sir?
Einar: Four weeks. I will be there through the end of the summer and then come back for the kids’ school to start here. Then I’m probably going to be in around Europe and London throughout the fall, really.
Rob: Part of the reason you’re there is personal, but part of the reason is because we are raising a European TinySeed fund. If you’re an investor, whether you live in Europe or whether you just want to have exposure to essentially assets of early stage B2B SaaS located somewhere in the EU, Europe area, they should reach out to you. They should go to tinyseed.com/invest. There are a few questions there that pings you directly, and you’ll be able to meet in person because you’re fully vaccinated. That is super cool. Awesome. Thanks again for joining me, man.
Einar: Thank you.
Rob: Thanks again for joining me this week. A lot of good ratings. Five-star ratings are rolling. It’s been super cool. I think we’re approaching 920 worldwide ratings. I want to get to four figures. If you haven’t given us a rating or review, I’d appreciate either or both.
We received this great review from Gilmore Golf from the UK. Five-star, refreshingly honest, and relevant. I’m a fairly new listener who’s now working their way to the back catalog of episodes. But I want to leave this review to thank Rob for all the value, insight, and education he shares for free. I now have a renewed energy and inspiration to pursue my entrepreneurial ideas without compromising on the most important things to me, in other words my family. Thank you, Rob. Please keep going.
Thanks again. This is the kind of stuff that makes me want to keep going in and makes the whole team behind Startups for the Rest of Us make us want to keep going. Thanks, Gilmore Golf. If you haven’t left a rating or review, I would really appreciate it. That wraps up for the week. We’ll be back in your ear buds again next Tuesday morning.
The fun part about our conversation today is we bat around funding for bootstrappers and really specifically, there’ve been a couple conversations I’ve had over the past couple of months that have got me thinking about talking about this on the show, because obviously this funding has become much more viable for bootstrappers. It’s not just bootstrap or venture paths. There’s this whole thing in the middle that we talk about. TinySeed is obviously part of that. I think there’s still confusion and misconceptions. It’s just amorphous and often hard to understand what’s going on and of some of the realities of it.
We spend this whole episode batting around when should a bootstrapper think about raising funding? When should they not? Why is it a good fit? We talk a little bit about terms and how much founders should think about raising, and just everything we’re seeing. The cool part is he and I have pretty different perspectives. I guess we share perspectives on a lot of things being the cofounders of TinySeed but I also have a lot of experience with other angel investments that I made before TinySeed that are still around, and I see different examples there. He has experience with his Discretion work and even the companies that he started before TinySeed. My hope is that it is helpful in just providing a little more of a level set and some more thoughts on this topic. With that, let’s dive into my conversation with Einar Vollset.
Einar, thanks for joining me once again on Startups for the Rest of Us.
Einar: Good to be on again, Rob.
Rob: We get to talk about funding and thinking through bootstrapping versus funding, or even these days it’s not just two options. It’s not just should I self-fund? Should I bootstrap? Should I raise a venture? There are all these avenues you can go down, whether it’s a TinySeed-like accelerator raising a small angel round for a couple of hundred thousand dollars. To me, my take is it’s gotten more robust and easier for founders who are in the MicroConf, Startups for the Rest of Us–type community and they’re in that situation to raise money on terms that make sense to them. Because 10 years ago, I didn’t know of a single company in our space that could raise money, not from essentially institutional folks who wanted them to become unicorns.
Einar: There’s equity and there are different types of investments too now that weren’t a thing five years ago. Things like non-dilutive revenue based financing, PIPE, that sort of thing.
Rob: Yeah, a lot of options. I know when I did my MicroConf talk in Vegas, it was US growth, maybe it was 2018. It might have been 2019. Who can keep track with Covid? Everything before Covid and everything after. I did a talk and I was talking about the state of bootstrapping and how I saw more companies raising funding not to go venture track but to raise one around maybe two, $200,000–$500,000.
I pointed out customer.io. I’m an angel investor in Churn Buster, WriteMessage, CartHook, LeadFuze, all these folks who are like, we’re not looking at IPO. We’re not going there full weight. As I saw it happening, obviously TinySeed came out of the need, where I only had so much of my own money to be able to put that in. We did TinySeed because there was a need on that side. It was pretty obvious to me that more bootstrap-ish capital-efficient founders want to raise money these days.
Einar: I think so. One of the missions for me, the reason why I love doing TinySeed is because I think that kind of investment and that kind of founder really enables them to quit their day job, and there can be many more founders like that if you have the capital going to these places.
Rob: I want to be clear. Obviously, Startups for the Rest of Us, we’re almost to 560 now. We’ve talked a lot about bootstrapping, but we also talk about funding. Even going back to 2013 or 2014, I talked about fund-strapping with Collin from customer.io. Mike Taber, the co-host emeritus of Startups for the Rest of Us, and I had several episodes on when to think about taking angel investment on funding versus bootstrapping, 19 questions to ask, that was episode 411 back in 2018. It’s not right for everyone. I think that’s one thing we want to talk through today is when does it make sense?
I’m going to be honest, I don’t know if you and I have ever talked about this, but I’ve seen founders who I just thought would just be bootstrappers forever and never raised rounds take funding. They have very good reasons for it and they don’t regret it. Folks like Craig Hewitt with Castos. He was in TinySeed batch one. I just thought he was going to bootstrap everything. Ruben Gamez with Bidsketch, and now Docsketch […] took money from us. He did it to move faster. He did it because it makes some things just a little easier. It hasn’t changed his business other than having more resources to work with.
Einar: I think you mentioned Collin, too. He’s doing incredibly well now. He’s open about his numbers. I think he’s doing $22 million ARR right now.
Rob: But when you talk to him, he’s totally along that line too, like I don’t want to be a unicorn. I want to build a real business, a $22 million ARR SaaS company in the email space. Now, I think they’re doing a crowd fund. I know they’re doing a crowd-funding thing right now to raise money. I believe they’ve raised two smaller rounds before that. The very first round was a couple of hundred thousand dollars. I don’t know if the second round was, but I think it’s probably all in Crunchbase.
But you’re right, it’s founders like that who see it. There’s bootstrapping, there’s VC, and then there’s this whole thing in the middle now. It’s still amorphous, I think. That’s what we’re leaning into obviously with TinySeed. We’re going to cover some topics, like why I raised if you want to.
And again, this podcast is not about raising funding. If you don’t raise funding, you’re not in the club. It’s nothing like that. It’s just another tool in the tool belt. It’s another option, revenue-based financing, this type of funding, whatever, to help you get there faster which has really been a mission of MicroConf, Startups for the Rest of Us, all my writings from day one. How can we help more entrepreneurs succeed, more founders become self-sustaining, and this is another option.
I may have mentioned a few of them already but when you see founders raising these small amounts of money, let’s say through TinySeed or through doing other angel rounds, when is that a good call? When should they think about that? How are they using the money to essentially accelerate their business in the best case?
Einar: I think when we first started, one of the main ways that I thought about it for TinySeed founders would be people who had enough, had some kind of revenue coming in but it wasn’t really enough to make it their main focus. I still think there’s a good chunk of the founders that we backed that are like that. They’re at $3000, $8000 MRR or something like that. Particularly, $8000 MRR or two founders are probably not self-sustaining at that point.
I think taking money in order to effectively pay yourself and say I’m not going to burn through all my life savings or remortgage my house to take this risk. I want basically to offload that risk to someone else who has a higher risk appetite than me. I think that’s one of the better reasons to do it.
I also think one of the most surprising things is how many people are at the point where probably they don’t use the money that we give them to pay themselves but they use it potentially to accelerate the channels that are already working or feel like this gives them the leeway to just be a little bit more experimental with the growth channels they can go after.
If you’re totally bootstrapped and you’re basically just about self-sustaining, how keen are you going to be, like I’m going to hire an STR service and run that for three months for $15,000 and then potentially hire a sales person and try that channel out. Or a re-up, start a Google Ad campaign to try out this new channel. I think it offloads some risk and it enables the founder to take more risks and potentially grow their business substantially faster.
Rob: I like that thing about offloading risk because there have been several founders who I know who have taken money, Derek Reimers is an example. After the Drip acquisition, he has enough money that he could basically angel fund himself. But he took TinySeed money back in batch one and when I talked about it like why did you do that, because you have that much money plus some in the bank. He said it takes some risk off the table. It’s more runway but it’s also less of my personal risk and I don’t give up control. It’s just not a huge loss except for a few points of equity, in essence, which I figure if it’s successful, that’s probably not going to matter in the end.
Einar: Absolutely.
Rob: I like that idea. That thought of taking some risk off the founder. True bootstrapping, as you said, there’s a ton of risk on you personally and it can be stressful.
Einar: It’s going to be stressful. I also think it is a certain level or privilege to be able to bootstrap a lot of the time. It means that you have a bunch of savings, you made a ton of money doing something else, or a lot of the time your spouse makes enough money so that they can cover the whole household. I think just enabling this kind of funding means that more people who necessarily aren’t already in that situation can take the risk that’s just inherent in starting something like a software business.
Rob: That makes sense. From my end, the folks that I see raising and doing well with the money, they want it to move faster, they want it to decrease risk as you’ve said. Usually, not every time, they want it to make a key hire that they can’t afford.
Actually, these days with a lot of big companies are remote now, talent is more expensive than it used to be. Correct me if you’ve seen other situations, but the main hires I’ve seen are to hire a marketer, somebody to have run DemandGen or an agency to do the marketing. The other one is more development talent, like a senior developer who can technically lead so that the founder can maybe step away, or if it’s a nontechnical founder that they have, that person now who’s running the show. I think those are the two big ones I’ve seen.
Einar: I think it’s telling how different our approach is, the founders that we talk to because that’s not what I see.
Rob: What do you see? That’s why you’re here, right?
Einar: Yeah. I see people mostly hiring a customer success–type person, just to take customer support load off either key engineers or the founders. Then I see people hiring sales. They’re trying to either just STRs in order to fill more of the funnel for the founder to do the close, or for the founder to say I’m ready for an account exec who can do demos so I don’t spend all my time doing demos.
I see a bunch of those things, too, where it’s like they would have gotten there to where they needed to hire (say) customer support or other sales people but maybe that would take another 18 months. Just the fact that they can hire now just means business moves faster.
Rob: I think to look at it from the opposite side, what are the scenarios or the situations where a bootstrap founder probably shouldn’t raise, probably should think about just continuing to bootstrap? I’ll throw it out right from the start. My sentiment is that if you don’t have or are pretty dang close to product/market fit, meaning that you’ve built something people want and are willing to pay for, I think you should keep grinding until you get really close to that.
Now, I’m not saying you have to have a sustainable marketing channel and a bunch of leads coming in and a whole built out funnel, that would be great. It gives you a better valuation. It makes for investors interested. But if you’re at $2000 MRR and you’re getting onesie-twosie people coming in, some people are churning, and it’s an early product still, my sentiment is that’s not something I’m personally interested in investing in and I don’t know a lot of investors who are willing to bet that early. Do you agree or disagree?
Einar: I think there are a lot of investors looking to bet that early. Your story has to be different. If anything, I actually think it’s easier to raise money when you have no revenue, if you have a good story.
Rob: In SaaS? I don’t think in B2B SaaS.
Einar: Well yeah, but even so. We’re going to do this thing. You’re six months in and you have a 20% monthly churn that people can look at. It’s hard to explain. The difference I think is if you’re going to go to market and try to raise with no revenue, just a plan or a vision and stuff, that plan or vision has to be much larger because the kind of investors who are interested in investing at (say) $12 million pre, without a product, and just two or three engineers, because the risk is now so high, it needs to be something that they believe can be a unicorn. You’re in unicorn territory.
If your story isn’t up into the right, they’re going to be like, meh. We see a lot of pitches for people who haven’t proven anything yet. They really have to believe and be excited about the story in a way that if you’re doing $8000 MRR and you’re growing 10%–15% month over month with no churn, it’s a very different thing for people to invest in.
Rob: I don’t know any investors and I’m friends with 12 or 15 angel investors. These are all former founders, so people I met at MicroConf. I don’t know anyone who invests in a SaaS app pre revenue. You know what, there’s a couple.
Einar: […] I know a lot of them.
Rob: See, I think that’s the difference.
Einar: You’re telling me like let’s talk. I know tons of people who will do that. But again it has to be a big vision.
Rob: It has to be a venture scale business.
Einar: Venture scale, IPO, take over the world, changed this. Those kinds of investors typically do well. If anything, I do think it’s sometimes easier to sell the dream rather than trying to explain the numbers in this regard.
Rob: I would agree with that and I will just say, and you and I by the way don’t agree on everything on this podcast. That’s why you’re here, otherwise I could monologue this whole thing and just do a Rob solo adventure.
Einar: We’re just talking about marketing hires and things like that. Nobody’s talking about marketing hires ever.
Rob: When I’m talking to them, it’s like don’t talk to Rob if you’re going to do sales hire. Talk to Einar. My take is with B2B SaaS, if you want to build a $10-, $20-, $30-million business, if you have a really good network—let’s say you’re a second time founder, you’re a Josh Pigford, you’re a Derek Reimer, whatever, anybody, Rand Fishkin—can you raise pre revenue? David Cancel right on his fifth one. I don’t remember how much he raised, but he was $5 million out of $15 million or $20 million valuation with just an idea because it’s David Cancel.
But most of us aren’t that person. Most of us are doing this for the first time. If you don’t have a strong network or some type of in and you’d want to build a B2B SaaS company $10-, $20-, $30-million, I have not seen someone be able to raise around at that point pre revenue.
Einar: Crucially, the thing to think about is I do think you can raise. Like I said, I know several investors who want to do this. You can raise with just an idea, a deck, just a team, or whatever, but then the vision has to be big, and that does usually excludes you or precludes you from actually doing the exit at $20 million or $50 million. Just the mechanics of the way that investments are being made in that case with liquidation preferences, valuations, and rights for investors to block things and things like that, means you’ll end up in a situation where you have to really go for $100 billion, $500 billion exit or nothing. There is very little middle ground there.
Rob: Another type of business that I think should probably not raise is step one business if we think about the stair step approach. Step one businesses are usually oftentimes built on a platform, like a Shopify add on, a Heroku add on, a WordPress plugin. Usually, they plateau at some point that is far below what any investor, even bootstrap-friendly investors want. And there’s platform risk to the, you built something big enough, Shopify comes knocking and bad things happen. You build something big enough, Heroku hasn’t done this as far as I know. But any platform can kill you or just say pay us 20% or 30% of your revenue all of a sudden.
Einar: I do see break up instances on both building platforms. That does happen, but I certainly think the risk is higher. I think investors will be more like what happens here if they build this in house or cut you off in some way, shape, or form.
Rob: We, being TinySeed, have invested at least one and I’d say a few businesses that have platform risk including Rails Autoscale—Adam was on the podcast just a few weeks ago, and that was a conversation we had early on. How does this scale? Because Rails Autoscale be a $5 million or $10 million ARR business as it stands now? Personally, I’m pretty sceptical and Adam is too that the space maybe just isn’t that large. Then we said, how do you reduce platform risk and how do you get to X million in revenue? As long as a founder is thinking about that then at least there’s room to grow there.
Someone asked me on Twitter—maybe it was eight or nine months ago—why is there no TinySeed for info products, or course creators, makers? It was an honest question. I appreciate it. I answered it and basically said, because they don’t scale like SaaS. Because they’re often reliant on a single individual, not all the time, but often rely on a personality or personal brand, and the exit multiples aren’t there. That’s a part of why this works, is that SaaS sells for such a crazy high multiple. Not that everyone has to sell, but that is one driver of returns.
I think another time when founders should probably not raise money is if they want that true four-hour work week lifestyle business, if they want to work part time. I did this. I did this for a couple years with HitTail. It was great. I worked 12 hours a week. Not that suddenly your investors are your boss, because that’s not how it is. I think bootstrappers think investors are probably a lot more involved than they think they are, or managing their time, or like send me your time clock and your timesheet. That’s not how it is.
But I do think if you want to work 10 or 15 hours a week, go bootstrap an amazing business and make it a lifestyle. I’ve had several of those. I think the moment you think about getting external funding from someone else, to me it’s a commitment to no, I’m going to grow this. I’m going to be committed to this business full time. I’m not going to go start other side projects during this time.
Not that you can’t do anything. You could set up a blog, a podcast or whatever. But if I invested in a founder personally and they were doing a SaaS app, and suddenly they started another little side project SaaS app, I would have a conversation about what’s the plan there? Do you plan to focus or do you plan to split time? What’s the deal? Do you agree with that or what do you think?
Einar: There’s always a pivot. I don’t know. Most investors come along, there will be IP assignments and stuff from the company. If you start a company and then you work on those products and then you start a side business, now is your investor part owner of the side business too? Is that a pivot? What is it? There are certain things to think about.
I think you’re right. Running a B2B SaaS business was most of the time we’re talking about. It’s a full time job if you’re planning most of the time. If you’re just planning to do a four-hour work week, then I probably would look at info products or some of the more smaller scale.
Rob: Step one plays are great. I did this with HitTail. But HitTail was like a single feature, almost. It had multiple streams but it was not the place that we’re talking about. It was SEO pure tool. I just had a couple channels that worked mostly on autopilot. It didn’t have to do sales. It was self-service. Churn was high because the price points were low but that didn’t matter. I got up to $25,000–$30,000 a month, a great lifestyle business.
But that would have been dumb for me to then go out and say I’m going to take investment for this. Unless I wanted to then double down to be like, look, I’m going to make this into an SEO suite or a rank track. There are things that can expand the market, but I personally wasn’t interested in doing that in that space.
Einar: In some cases it makes sense to go after the bigger thing after a while. I still remember when PagerDuty launched. I was like PagerDuty, what? Is this a business? What the hell? And now, they’re a publicly listed company. Okay, I was wrong. Sometimes there are things that are bigger than you think (I think) a lot of the time. Early stage investors, despite what some investors will tell you, I think it’s almost impossible to really, really have a good sense of what’s going to work. There’s just a lot more randomness and luck and things in there that accounts for a lot of it.
Rob: Yeah. When I think of funding options for bootstrappers these days, obviously there’s accelerators like TinySeed, there are other funds that do similar stuff. I’ve heard of the Weekend Fund which is from Ryan Hoover who’s the Product Hunt founder. I don’t know if they’re bootstrapper friendly or if they’re venture only. I think that’s a conversation to have with folks. If you’re going to take funding to be like I would sell if I got an offer for $20 million, to be up front about that.
If the investors want to invest then I don’t think you should take the money because you’re going to have this conflict now when you get that offer for $20 million that’s going to change your life, and you push back on it. The investors are going to say no, $100 million or $1 billion, or bust. You have to be on the same page. There are investors out there—I know angel investors—who are willing to take that 3X, 5X, 10X versus the unicorn play.
Einar: I think this boils down to the trade-off in terms of valuation that you take too. I think this is more traditional […]. The higher valuation you can raise the better. Look at us, we raise a $20 million pre or $12 million pre. You raised a $12 million pre and you sell for $20 million, even if you have the right to do so, and you do it, your investors are not going to be happy. That’s not what I wanted. That’s pretty much a failure for people. Just because of the economics of how the investors and their investors operate. That’s the trade-off, really, when it comes to what optionality are you taking off the table by taking a super high valuation and raising a ton of money.
Rob: That’s a really good point. Most of the more bootstrapper-friendly funding sources that I’m familiar with, the valuations are lower than if you went to Sand Hill Road at Silicon Valley and it’s two people in a garage with two laptops, they have a product, they can get whatever—$5 million or $10 million—then coming out of YC, everybody doesn’t get the $10 million thing, whether they’ve launched or not, which is just crazy.
Einar: Last I heard on a pre-product launch, on demo day, it’s like $12–$20 million pre.
Rob: That’s insane.
Einar: But here’s the thing. What has changed (I think) in the last 10 years up in the Valley is because the dark days of 2008 and 2009 and almost nobody was investing, which turned out to have been the best time to be investing in things like Airbnb, Dropbox, and things, fundamentally, I think what has changed is and I think this is debilitating for founders who are struggling with this because you read all these stories about there’s so much money in this space now. You should go out and raise money right now because there’s never been more money in the ecosystem.
If you look at the inflows into venture, that’s true. There’s a ton of money going in but they tend to go after fewer and fewer deals. You end up with a very binary outcome where it’s like I know you’re superhot to the point where venture capital associates are cold calling you on a Friday night or there’s crickets. There’s nothing. That’s very, very tricky to deal with. Particularly if you’re trying to raise a lot of money and you’re in the crickets camp, and then you read all these stories about it’s the easiest time ever to raise money. I’m like, it’s the easiest time to raise money for a particular kind of company, opportunity, and founder. If you don’t want to do that or it’s not what you’re after then it can be very hard.
Rob: I think that’s a really good point to think about. So let’s say today Einar, you had a B2B SaaS app doing $5000–$100,000 a month in MRR and you decided that you did want to raise that round. Obviously, I would love it if you’d come to tinyseed.com and your email address. We are now having open applications. We’re now running two batches per year, so every six months, we open applications. We’d love to chat. We even have a mid-batch application if you’re doing anything north of $5000 MRR. We have those coming through when we’re having conversations so we can fund people as it makes sense for their journey.
But let’s say you were doing $10,000–$20,000 MRR and you decided for whatever reason that you didn’t want to go through a program like TinySeed and you’re going to raise it on your own. You want to raise $200,000–$250,000. In my head you got to work your network. If you don’t have one I’m not sure what to do. When I thought about raising six or seven years ago, I was like, I don’t know who I will talk to or who will give me money.
But I would then look at using a convertible note or a safe. People can Google; we’re not going to define it here. There is a way you don’t have to do a price round now and get stuff on your cap table. That can take more time. There’s more due diligence in that, but a convertible note or a safe is a promise of essentially future equity to investors. Is that the approach you would take?
Einar: Probably so. I’m more pro selling equity, too. I think that’s fine. The problem with selling equity is a lot of the time it ends up. Most investors—people don’t know these either and this is not true for us—will make the founders pay for their legal fees. Part of the reason why safes and convertible notes took off in things is because it’s cheaper on the legal front and that is doubly valuable because most of the time, traditionally at least investors have been like I’m going to have you pay for my lawyer.
If you’re taking $250,000 and it becomes a protracted back and forth with legal views on either side, you could easily be in a position where like, you got $250,000 investment, but now $40,000 $50,000 of that is in legal fees for you and the investor that you both have to pay out of that $250,00. But if you can deal with someone who can very effectively and efficiently do a priced round, then I don’t think there’s a huge downside to that.
Rob: That’s what we do and we do it efficiently, right?
Einar: Yeah, it is. There’s some tax benefit and there is some clarity there (I think) a lot of the time, in terms of who owns what. It’s less of an issue with more of the TinySeed–type companies or bootstrap–type companies where you’re not doing fundraising every 18 months, but some of the challenges with the safe notes and the convertible notes is if you multiple rounds of this and one after the other and some bridge stuff in there, it actually comes quite difficult after a while to figure out how much your company’s left, because they convert at different caps at different times and different triggers and all that stuff.
There is something to be said […] I’m buying equity and valuing your company and if we think it’s worth $2–$3 million and we’ll buy 10% for whatever. I do think there’s a nice sense of that. The challenge, particularly, if you run into unsophisticated investors or maybe investors who are used to larger rounds or later-stage stuff, you can get stuck and blow easily $50,000 in legal fees, which is obviously counter-productive for a $250,000 round.
Rob: To untangle that and I guess my advice there is don’t raise a bunch of different caps and valuations. Keep it simple.
Einar: That’s the problem for people. This is the thing. If you’re going the more traditional venture route, then while you’re raising money, you erase money, so you burn hard. You burn hard, then you’re running out of money, and you have to raise more money, so you can keep burning hard. There are people with 13 safes and they’re like, is there someone with software that can help me figure out or an analyst that can help me figure out how much the company is left?
Rob: Yeah, don’t do that. If you’re a bootstrapper, you’re not going to be raising all the time. My advice would be not to do that. As a bootstrapper, you don’t need to be raising all the time and it’s a distraction. You’re not on a venture treadmill where you need to raise every 18 months. I would chill out a little bit, I’ll keep it simpler.
One last note on safes and convertible notes is that if you truly are thinking maybe this might be my only round, you’re essentially committing to giving equity in the future, usually at the next funding round or if there’s an acquisition. If you do plan to run the company, you want to run it for 10 or 20 years and take a profit, safe and convertible note.
That’s not legal advice. We’re not lawyers like that’s a disclosure. But it’s not the best. I mean it can screw investors. To be honest, it’s top […], I believe, where they raise the money on safes and convertible notes, they never raise another round, they haven’t sold, so all the investors don’t technically own the equity, and the founder can actually literally legally take money out of the company and put it in his own pocket. Him or the other founders, I guess, whoever owns the equity. It’s a weird situation.
I think if you are thinking about doing it longer term, then equity probably makes a bit more sense to think about that. The other thing is there was the pre TinySeed. I did angel investments; wound up working out very well, but the founder used convertible notes. At a certain point, he just said all right, we’re just converting to equity at this rate. We’re just converting this at the cap or something like that. He just decided he wanted everyone on the cap table. He wanted to clean it up and he didn’t want to keep his interest involved in this and that. It was just a decision as a founder he meant that to simplify everything.
Founder thinking about raising money, what do you think the dollar amounts? Where should they land? I guess should is a strong word, but there’s a minimum that makes sense. I don’t think you should go try to raise a $75,000 round because the time and the legal fees alone are not worth it. On the top end, what are your thoughts on small and large?
Einar: It’s a little different if you’re just taking a pre-specified money from us or YC or whatever, it’s like $120,000, $180,000, $200,000 whatever. In general, if you’re going to raise money, it’s probably worse to raise at least $150,000–$200,000 I would say. At least that’s true I think in the US. It becomes one of those things that if you can’t raise that much, is it really worth the pain going through and having investors at $75,000? As an example, just costs. If you were to do special-purpose vehicles, this is one of the ways that you can put a bunch of people on a single line item on your cap table.
AngelList will do that for the investor. On the investor side, it’s going to cost $8000 to do, which is actually reasonably cheap. But if you’re raising $75,000, that’s the material part of the actual investment that comes through. This is pretty significant dilution for the investors to take. I do think that it has become a stage where this doesn’t make any sense. I think that’s probably about $150,000–$200,000 or something like that.
Rob: We should point out that accelerators like TinySeed are different from that. Most founders who get funded by us, I’d say the vast majority is $120,000 to about $250,000 is the general range. But since our process we fund 20 companies at once and we fund the entire round, this is very different from you going and trying to find four investors at $25,000 each and then trying to close a round. There will be a bunch of costs on you and more complexity trying to wrangle them than dealing with a fund like TinySeed.
Einar: I think that’s true. It’s just much more efficient for us and we pay our own legal fees, so we’re incentivized to make it an efficient process instead of something that just drags on and on.
Rob: Then AngelList has an RUV or Roll Up Vehicle. I don’t know so much about it, but I think the idea is it’s a no fee RUV. It’s to help with convertible notes and safes. But I think it’s pretty new. Have you heard about this?
Einar: Yeah. It’s not entirely clear to me. I should probably look at how it’s different from an SPV. At AngelList, the SPV fees are about $8000. RUVs are similar to that. It’s certainly the same deal. The reason why you would have an SPV is because you want to be able to say there are 25 people who want to throw in $10,000 each, but I don’t want 25 people on my cap table for assorted reasons. You put together an SPV and then the SPV is the one that invests. I think a Roll Up Vehicle is the same. It’s entirely unclear to me how they’re technically different.
Rob: Here’s one thing about RUVs is they basically say you have to be a US C-Corp in order to do it. That’s going to cut a lot of folks, bootstrappers who want to stay LLCs want to be in corporate in different states. They basically say if you’re raising safe and equity round, you’re likely eligible for a no fee RUV with zero care for investors. But again, I haven’t dug into it to know how that all works and how AngelList makes the money, or if they’re just doing it out of the kindness of their heart. You think that’s the reason?
Einar: It could be.
Rob: No, I don’t think that. Not that AngelList is bad, It’s just their business, they have to make money on this stuff somewhere. In my head, I agree with you. I think $150,000–$500,000 is the most common. That’s the most common range that I’ve seen across. We have 41 TinySeed investments and between Sharon and I, 18 private angel investments pretty much made before TinySeed. That’s almost 60 companies and that has by far been the range, $150,000 up to $500,000. There are obviously exceptions. There are people who have a really great network, they’re a second time founder, and they can go out and raise $600,000 in their first round. But that has been pretty unusual in my experience.
Einar: Yeah, I think that’s true. There are people who do it. It’s just a matter of what are you trying to do with it? What are the trade-offs in terms of optionality? If you raise $2 million or $3 million, then investors are expecting you to spend it. It’s not like we don’t expect you to spend it. In some cases, we have to tell founders why are you not doing this? It seems expensive. I was like, we will give you money. You should spend it. It seems like a good use of the money. But that’s even more pronounced if you’re raising $2 million or $3 million.
If you’re raising $2 million or $3 million then investors will not be pleased if 12 months later there is $2 million or $3 million in your account. Unless that’s because it’s been growing crazy.
Rob: I think with that in mind the idea is the more you raise, the more of your company you have to sell. It all depends on valuation as well. Valuation is really set by the market, but the market looks at what’s your traction. Oftentimes, what’s your MRR? What’s the story you’re telling? What’s the certainty that people think that you are going to be able to provide a return? What is that return? We’ll get into it.
The second is, is an exit down the line or is it taking profit out of the business? If you say I’m going to be an LLC and I want to take profit out of the business and run this for 10 or 20 years, you will significantly reduce the pool of investors who are willing to invest in you. I’m not saying that’s a good or a bad thing, but just realize that there are far more investors who want you to exit.
Einar: I think fundamentally, one of the things there is if that’s your goal, if your goal is to keep it forever and then pull cash out and distribute cash over time, then honestly what you should be looking at is more likely things like revenue-based financing. The investors who are looking for more dependable cash flows are more likely to be putting their money into those kinds of vehicles. Equity-type investors typically are looking for higher potential upside than what comes from just profit distributions.
The fact that with revenue-based financing–type things, it’s a little bit more determined how this has to work and it’s a bit more predictable in terms of the cash flow that investors can expect versus if you’re taking an equity investment and you’re saying I’m just going to pull profit out and distribute it over time, effectively what you’re saying to the investors is trust me, I’ll do that. Don’t worry. I’ll do it.
But if you take more revenue-based financing, you’re entering into a legal contract to do it. The incentives are slightly different there. Now, the problem of course is the stage we invest, like super, super early, the earliest stage, it’s almost impossible to get revenue-based financing because your revenue is so low.
Rob: I think at this stage we invest which is early, a lot of founders don’t know. They don’t know who if longer term they want to run it and pull profits off. They don’t know if they will get an offer for $5 million or $10 million. When you see that number on a check or in an email, it changes your perspective. I’ll tell you what. You suddenly realize, wait a minute. Let me get this straight. I can pay my house off. I can fund all my kids’ college funds. I could feasibly never have to work again or never have to work in anything I don’t want to again.
That […] changes your whole outlook on life overnight. They may want to go raise a venture round later. That’s where something like TinySeed comes in. That’s one of the reasons we started this. We wanted folks to have that option. To be able to buy themselves some time to build the business to the point where it becomes maybe a little more obvious of where it should go in the direction the founder wants to take it.
Einar: That can work out different ways, too. We have founders who tell us that if I got $10 million, I’d sell it. Now, they’re doing very well and they’re like, no way will I sell for $10 million. It goes both ways. It’s just nice to have that optionality I think. We do have founders who are like, this is a big opportunity. I just want to go and raise a ton of money and go the venture track. I’m like, great. Do that.
Rob: That’s the fun part. That’s what I like about it. Anyone who’s known me, listened, read, or just been involved in any of the content I’ve been putting out for 15 or 16 years now, knows that the bottom line mission for me is to help more founders succeed faster and have a sustainable business of any kind. A sustainable business may mean that they’re able to sell it for millions or tens of millions or enough money. Maybe their life-changing money is $500,000 because that changes your life in the short term and they’re able to go start another business.
But that’s why I love doing this podcast. That’s why I love being part of MicroConf because our community is focused on helping each other. That’s why TinySeed is such a part of the mission, why it was so cool that you and I essentially agreed on that, that this needs to exist in the world.
In 2018, as we were talking about this and figuring out, should we start TinySeed? Does it work? I knew there was a desire on the founder side because of all the people that I had invested in. It was like, all right, I’m out of money in terms of writing more checks to startups. I need to keep my allocations between Bitcoin and Ether and public equities and all that reasonable. What I didn’t know is would investors, in essence, be willing to invest in this asset class? That other side of the market place came together pretty quickly, which has been nice.
Einar: We started seeing that on the buyout side, too, with Discretion Capital. We started seeing that 5 or 10 years ago, it was like, if you had $2 million or $3 million ARR B2B SaaS business growing reasonably well but clearly not going to be the next Airbnb, there weren’t a lot of interests on the buy side, versus that has really changed on the buy side as well.
That makes it more feasible to basically get money from investors who want to come in at the early stage there. Potential exit market and it’s just they see that people are selling for 4, 5, 6, 7, 8, 9, 10 times ARR at $1 million, $2 million, or $3 million. That becomes a viable thing to back at that point.
Rob: What’s good today is if you are building SaaS, it’s so capital-efficient. It can be extremely profitable if you decide to keep it. It can be extremely lucrative if you decide to sell it. If you gain traction, there is money out there. You and I’ve talked a lot about TinySeed here, but we’ve talked about pipe.com, revenue-based financing. There’s a whole world. Just type in RBF or revenue based financing into Google and you’ll see 20 or 30 players in. There are a lot of options out there. Then there are again other funds that are thinking about this stuff.
I just think we live at such an amazing time. If you want to bootstrap, awesome, do that. That’s what I did with all my SaaS apps. But you know what, one of the reasons I started TinySeed is I wanted just the fund to exist for me because during the Drip years, we needed money and we were doing all types of crazy stuff to cut costs and it was super stressful. I wanted to really quickly raise a couple of hundred thousand dollars. It would have been a big difference but I just don’t have the time to do it, and I don’t know if I have the network, which in retrospect I probably did. I don’t know there was all this indecision around it. I think almost de-stigmatizing it or perhaps normalizing it just a bit more I think is helpful in the space.
Einar: I just want to back more founders. I think more people should be doing their own thing—wherever they’re based in the world—rather than feeling like the pinnacle is to go work for Google or something.
Rob: I think that makes a lot of sense. Well sir, I think we’ve covered this pretty well. If folks want to keep up with you, you’re @einarvollset on Twitter. Of course, they can keep up with us at tinyseed.com if they want to hear more about it. You blog prodigiously on your dot-com, don’t you? Do you have one blog post in the past year?
Einar: einarvollset.com? Yeah. It’s a table that shows IRR versus multiple for the […].
Rob: Amazing. Says the guy. I’m not shaming you. I mean, the last time I blogged was probably two or three years ago.
Einar: At least, you put things out. I was thinking about this. I was like if you follow me on Twitter, you’re mostly going to see me complaining about the Giants. Like I said, I’m not the marketing guy side of things here. I’m more the background dude.
Rob: You are headed to the UK. You’re actually going to be in or around London for two or three weeks, four weeks here, sir?
Einar: Four weeks. I will be there through the end of the summer and then come back for the kids’ school to start here. Then I’m probably going to be in around Europe and London throughout the fall, really.
Rob: Part of the reason you’re there is personal, but part of the reason is because we are raising a European TinySeed fund. If you’re an investor, whether you live in Europe or whether you just want to have exposure to essentially assets of early stage B2B SaaS located somewhere in the EU, Europe area, they should reach out to you. They should go to tinyseed.com/invest. There are a few questions there that pings you directly, and you’ll be able to meet in person because you’re fully vaccinated. That is super cool. Awesome. Thanks again for joining me, man.
Einar: Thank you.
Rob: Thanks again for joining me this week. A lot of good ratings. Five-star ratings are rolling. It’s been super cool. I think we’re approaching 920 worldwide ratings. I want to get to four figures. If you haven’t given us a rating or review, I’d appreciate either or both.
We received this great review from Gilmore Golf from the UK. Five-star, refreshingly honest, and relevant. I’m a fairly new listener who’s now working their way to the back catalog of episodes. But I want to leave this review to thank Rob for all the value, insight, and education he shares for free. I now have a renewed energy and inspiration to pursue my entrepreneurial ideas without compromising on the most important things to me, in other words my family. Thank you, Rob. Please keep going.
Thanks again. This is the kind of stuff that makes me want to keep going in and makes the whole team behind Startups for the Rest of Us make us want to keep going. Thanks, Gilmore Golf. If you haven’t left a rating or review, I would really appreciate it. That wraps up for the week. We’ll be back in your ear buds again next Tuesday morning.
Episode 557 | Investing for Founders
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In Episode 557, Rob Walling flies solo to talk about investing for founders, with an emphasis on retirement. Rob views investing as a long-term game, not treating the stock market like a slot machine by buying and selling stocks. As founders, we’re busy with our work, our family, and our friends. We don’t want to spend a ton of time fiddling with investments. In this episode, Rob outlines an 80/20 approach to getting the most out of investing as a founder.
The topics we cover
[02:13] How Rob made most of his money
[04:07] The rule of 72
[07:30] Investing on autopilot while building startups
[07:46] Build an emergency fund
[09:53] Max out retirement plans
[12:08] Open a simple IRA or SEP IRA
[13:00] Life insurance
[14:35] Retirement account asset allocation
[18:32] Taking your investments to the next step
Links from the show
- Rule of 72
- Haven Life
- Lazy Portfolio
- Money For the Rest of Us
- The Stacking Benjamins Podcast
- Afford Anything
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
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Welcome to this week’s episode of Startups for the Rest of Us. I’m Rob Walling. This is episode 557 where I’m going to fly solo and I’m going to talk about investing for founders. There’s an emphasis on retirement investing, investing for the future. I view investing as a long-term game, not something that is playing the stock market and buying stocks. I don’t buy individual stocks.
We’ll talk about how I view it, how I’ve viewed this whole concept, and how I tried to simplify it for myself because as founders, we’re busy with our work, our family, and the balance, and friends. Oftentimes we don’t want to spend a ton of time, but there is an 80:20 or 90:10 approach to doing that.
Before we dive in, I have a new review and I just had to read it. I really appreciate it. It’s from BrianRhea in the US and he says, “Five stars. Your Bootstrapped Startup MBA. This is the definitive podcast for founders who dream of building a sustainable, profitable business without sacrificing their personal wellness or relationships. If you want to hear hard-fought wisdom from real-life stories with a long-term perspective, this is the show for you.”
That’s very well written, sir. I really appreciate it. Brian is co-host of the Slow & Steady podcast with Benedikt Deicke. I appreciate you summarizing it like that and I love that phrase, “Your bootstrapped startup MBA.” If you’ve been listening, getting value out of the podcast, and want to give a little favor back, five stars in any of the places you listen to this podcast would help. It helps us find more users and listeners.
We have actually been growing pretty well over the past 18 months to 2 years since I really put renewed focus on the podcast. We redesigned the website, up the games, up the audio quality, the investment in research, time, and guests. It was just about two years ago and the subscribers basically have gone up since then. I really do appreciate it. As always, welcome new and old listeners alike.
As we dive into this topic of investing for founders, obviously I have to start by giving a disclaimer. I’m not an investment advisor. This is not investment advice. This is for entertainment purposes only, I think I’m supposed to say, but this is what I did. This is what I’ve done throughout my life and I essentially was able to retire at 41 and that was from starting companies. That was from making both profitable companies of being able to pull money out of them as well as exiting companies.
I actually have an essay that’s unpublished that I may just turn into a Twitter thread later on. It’s about in order in my life the things that I’ve made the most money from. I don’t give exact dollar amounts, but the number one was selling companies—exiting Drip, exiting HitTail. The number two is angel investing because I was an early investor in WP Engine and several others that have done reasonably well or cryptocurrency.
People are going to smack themselves in the head and say no, not another podcast about crypto. But those are the two and three. Then beyond that, it’s actually investing. It’s having money that I can put into the stock market or whatever and get returns on. Back in the day, it was just W-2 earnings coming from what I was doing during the day as well as side projects.
For me, investing has always been a long-term game and I actually started when I had my first job right around 20 because I was just exiting college, maybe 22. I opened up, in the US it’s called an individual retirement account or an IRA, and I started putting a little bit of money in each month and putting that into index funds.
I had built up a few thousand dollars of that and as Warren Buffett says, it’s all about the compounding because if you put in several thousand dollars when you’re 20 versus several thousand dollars when you’re 40, by the time you do get to retirement age of 65, that first extra 20 years can be just a massive, massive difference in how much you wind up with.
There’s this thing called the rule of 72, some of you may be familiar with, but you take whatever interest rate, your yield, your earnings on something. Let’s say the stock market is going to return 8% a year, so you take 72% and you divide it by what you’re going to earn. So 72 divided by 8 is going to be 9. Every nine years, your money is going to double.
If you think about that $5000 that I put in when I’m 20 is going to double to $10,000 at 29, then it’s going to double to $20,000 at 38, and then we go to 47 and that’s going to be $40,000. Then we go to 56 and that’s going to be $80,000. Then we go to 65, I believe, and that’s going to be $160,000. That’s $5000 I put away when I was 20 versus if I put that away when I’m 40. It only doubles about 2 1/2 times.
The last couple of doubles are what makes the difference. Think about the last doubles from $40,000 to $80,000 to $160,000. The difference between $40,000 and $160,000 in future inflation-adjusted earnings is massively, massively different. When I view investing, and I don’t mean investing in our companies, I have to differentiate here.
When I was building SaaS companies, I was all in on them and my time, effort, and a lot of my money went into them, but I was always putting a little bit away on the side thinking this money is going to double, double, double over these next 30, 40 years until I actually retire.
The interesting thing about that rule of 72 is to think about if you can earn 10% or 12% on your money, at a certain point it becomes kind of ridiculous. Especially in today’s market, it’s really hard and really risky to try to earn 10% or 12%. Even though historically, the stock market has returned that, if you look over the next 10 years, it’s not set. It’s not likely to do that given how high valuations are.
If you could earn 12%, year after year, approximately, then it doubles every 6 years, and you get even more doubles, so starting early is even more important.
I’m going to dive into some very specific things here. I have a whole outline that I’m going to dive into a second. The bottom line is when I was building SaaS companies, I didn’t pay a ton of attention to this, but I still had this on autopilot. And then once I exited Drip and things got less complex in my life, then I actually did pay a lot more attention to it.
But then I also had enough money that it made sense to make things more complicated. By the time we sold Drip, between my wife and I, we had around $400,000 or $500,000 to our name that did not count Drip. That was all earned from work in the day job, squirreling money away, squirreling money into 401(k) which is a United States employer-provided retirement thing, squirreling into IRAs, building side software products, taking the profit from those, selling those, some very small angel investment. We just kind of […] that together. I had none of that.
When we got married, we had $2000 to our name literally and I was making $17 an hour as an electrician. To get to that point of wealth was pretty significant, but it wasn’t enough money that it made sense for me to spend a ton of time working and focusing on it because fiddling little bits with a few hundred dollars doesn’t move the needle. Fiddling little bits and optimizing with several million dollars does.
Again, this is my opinion. This is what I’ve done. That’s the mindset. While I’m in growth mode, while I’m building startups, I want autopilot, but I still want to be doing something. For me, since I’m interested in this because I’m a nerd and it’s personal finance and investing as a hobby, then I made it complex, but you don’t have to do that. It doesn’t have to be complex.
I’m going to cover four things then I’m going to talk about some additions, some of the ways you can allocate, and this and that.
The first thing is you want to get an emergency fund of 3–6 months of cash in a place that is not getting cut in half if the stock market plummets. Usually, that’s cash in a savings account, not in a CD, certificate of deposit where it’s tied up and you can’t get easy access to it. This depends on your risk tolerance. Do you think you can be employed next month if everything is going to crash and burn if your company collapses? Is it going to take you three months to get your feet under you, is it going to take you six months, that’s the general range.
As you get more money, I will say at this point, we have quite a bit more than six months of complete living expenses in cash, in accounts because we can. It doesn’t detract from earnings on investment. Again, early on, we started to build a nest egg of hey, we have three months, that’s great. Now let’s put a little more into retirement, and then over time, we’ll buy a house so we have to pull some money out of that for a downpayment, and then we’ll rebuild it back.
Somewhere between 3–6 months is the first thing to do. In case your car breaks down, in case a tree falls and hits your house, in case you need a desperate house repair, you need some cash so that you don’t have to sell stock, crypto, or gold, or whatever it is you’re going to own in order to pay these expenses that are going to come up. It’s an emergency fund.
In addition, I would say I heard someone who had like 18 months or two years of savings and it was all in cash. That’s a mistake on the other side because inflation destroys that cash. Not only does inflation make it worth less every year, let’s say 2%, 3%, 4% in today’s environment. Then you’re not also getting the stock market gains.
If you look at what the stock market—whether it’s the US or worldwide—has made in the past 12, 18, 24 months, it’s a lot of money you’re leaving on the table. I wouldn’t take all of that money. If I have two years saved up, I’d personally consider taking 18 months of that and putting that into the market. If you put it in the market, you need to be willing to have it cut in half at the next big drop and then build it back up over time. That’s number one, getting that emergency fund in.
Number two is to max out every retirement plan you can get your hands on. If you are working a day job and you have an employer sponsor your retirement program. Again, in the US they’re called 401(k). I know they have different names elsewhere in the world, but a 401(k) with matching is like free money.
I would always max mine out to the match. I’m going to talk in a second about what I then put that one into. It’s asset allocation. Where do you allocate the money to, but for now I would put in 401(k)s and then individual retirement plans if they’re available to you as well. We opened IRAs way back in the day, individual retirement accounts, when we were 22 and started putting money in there.
If you do have a choice, as a rule of thumb, this is what I did (not investment advice), but in the US there are Traditional IRAs which is where you take your money pretax. So before you pay taxes on it in your paycheck, it goes to your IRA, you have to write off for that. Then when you take the money out, years down the line when it has all these earnings and growth, then you pay income tax on it as you draw it out.
The other option is to do a Roth IRA. Roths have existed for I think 20 or 25 years maybe, not that long. When I get my paycheck today, taxes already come out of it, and then I put after-tax money into the IRA. Then it grows and I don’t pay taxes on it when I withdraw on the other end. I never have to pay taxes again.
If given the choice, Roth IRAs are usually the better decision because not only do you not pay tax on the other end, but the limits of how much you can contribute to a Roth and a Traditional are the same. Since you’re paying tax on the money already, you can get more money into a Roth. It’s the same amount, but it’s after-tax.
I’m not going to go further into that other than to say, also Traditional IRAs have a required minimum distribution at age 70 or 72 that Roths do not. There’s a bunch of pluses, so I think we only have Roth except for the times we have been required to have Traditionals for some reason. Most of my stuff is on Roths. That is number two, maxing out retirement plans.
The third one is once you start a company, if you start an LLC, C Corp, S Corp, and you have revenue and profit, you can then open potentially (depending on what country you’re in) things like SIMPLE IRAs or Spira that are company-related, or you can open 401(k)s and then you can funnel even more money on that.
That’s number three and something my accountant guided me early on in our investing because IRAs—if you’re on your own and you do not work for a company—you can only put in $5000 or $6000 a year. It’s not very much money compared to what you can potentially earn as an entrepreneur. SIMPLEs and SEPs have different formulas, but you can sometimes put $20,000, $30,000, or $40,000 in those. That allows you to actually tax shield your money because that’s the biggest problem you’re going to run into.
Taxes chew through a lot of your money, so anything you can tax shield by getting them into these retirement accounts—again, assuming you don’t need them for a really long time—that’s the way to do it.
The fourth thing is life insurance. Life insurance is the worst. I hate the topic, it’s boring. There’s term insurance and there is whole life insurance. I have been taught by people I respect and trust that whole life insurance is something to be avoided and when you’re young, you get a 30- or 40-year term life insurance, premiums are small, and that’s what you do.
You insure yourself for half a million bucks. Then as you get older, you have to renew that, the premiums go up, and at a certain point, hopefully, you have enough money that you can self insure and that you don’t need life insurance anymore. Again, if you have $10 million in the bank and you don’t really need half a million or a million dollars of life insurance because you have enough, everybody can live forever on that money.
I had a couple of life insurance providers. I have heard good things about and I actually had a good experience with Haven Life. I think they’re a little more expensive than a lot of the others, but I heard about them on the Stacking Benjamins podcast. There’s a code like stackingbenjamins, benjamins, or something that you can use. Haven Life, if you’re a healthy person, they have a really easy signup process.
I’ve done all this intense research about them, but going through the process myself, I felt like things looked good to me. It was much easier than the first time I got life insurance where they came to my house and did blood tests. It was crazy. I didn’t realize that they went to that length, but I guess if they are betting on your longevity, that’s something they’d do.
As we transition, just a couple of more topics. One is the asset allocation of I put all this money in these retirement accounts, but where should I actually consider putting it? That’s asset allocation. Then I have the if you want to make things a more complicated section, which I think is where most people will turn this off. In my opinion, index funds are the way to go.
Index funds have very low expense ratios. They’re not actively managed funds, and they’re not as volatile as individual stocks. You don’t have to manage them, watch them, and see if they earned this much. Their earnings are down so they go up, they go down, Apple and Facebook are in a lawsuit, blah blah blah. Index funds own a bunch of stocks, sometimes thousands and they just track an index. If I’m going to do it, it’s the whole stock market.
The two places I like the best are Vanguard and Charles Schwab. Again, these are US-based, so if you’re in Canada and Europe, it’s all different. But basically, the reason I like them is the expense ratios are ridiculously low because that’s the worst part of using funds—index funds or mutual funds—is that if you get an active manager, then they charge you a fee of half a percent or one percent a year. It’s just a bit of drag on your returns versus these index funds where there’s a VTSAX, which is a Vanguard total stock market fund. It’s US only.
The index, the charge on them are five basis points, like 0.05 or 0.1 basis point. It’s ridiculously low. It can be a fifth or a tenth of a lot of other providers. Again, Vanguard and Schwab I think are definitely the places that I would invest in.
VTSAX, some people just say put all your money in there. Personally, I don’t like being only US-based. It just doesn’t make sense to me because, in the rest of the world, there are a lot of companies that are doing a lot of interesting things, especially in the 2020s. This is not the 1960s or 1970s when things like Vanguard and Schwab are really coming up, but there is this thing, very simple.
It’s called the lazy portfolio. We’re going to put a link to it on the show notes. While there are variations of it and you’ll see it’s almost a crowdsourced thing, the variation that I like is the simplest and the laziest. I don’t even know if it’s in the article we’re going to link to.
The one I think is the simplest is a single fund lazy portfolio, and it’s basically to put all the money that you want in stocks into one fund, with Vanguard it’s called the Total World Stock Index Fund. I would do a 100% allocation. Obviously, you have cash on the side in your emergency fund, but that’s it. It’s just that simple.
Everything is in equities. As long as you’re not nearing retirement and you have a cash reserve, that emergency fund I said earlier. Personally, I am someone who has a higher risk tolerance and I don’t love the stock-bond. I’m not going to put a bunch of my money in bonds, especially as low as the yields are today. I think that maybe as I’m nearing retirement, I want to soften the blow. It makes the ride a little less bumpy, but I prefer just to have cash given that bond yields are so terrible.
Then there are ways to mix it up. You can do three-fund lazy portfolios, there’s a four-fund portfolio. You can get as fancy as you want with it. But again if I were in your shoes and this is the path that we took, I kept it simple. We did essentially a lazy portfolio and didn’t get any more complex than that and didn’t watch it very closely. Just had money auto deducted as much as we could into these IRAs or just into a straight brokerage account with Vanguard, Schwab, or whoever you chose.
It was just buying into these dollar-cost averaging over time. When the stock market would go down, we keep buying in every month, so we’d buy more. And when it would go up, we’d make money and then you’d be buying less, so you’re averaging the costs of your purchases over time.
That’s really it. That was a long time to say a few simple things, but that is to me the way as an entrepreneur who’s running a company, that’s how simple I want it to be. As I think about taking it to the next step, which once we sold Drip, okay, now we have more assets to manage. I can go to a personal financer or an investment advisor, or I can do this stuff myself, which you of course can if you decide you want to and it gets more complicated.
That’s if you want to go beyond index funds. This is where we started looking at diversifying into things like angel investment, which we had already been making anyway. Do I think it’s not bad to have some riskier bets if you do have a good amount of cash, if you do have a good chunk of money in equities and public stocks that are going to be up over time but they’re going to potentially have a bumpy ride over time?
Do I think it’s interesting to have some really risky bets like angel investment up to 3%–5% of your network if you’re able to do this through crowdfunding or through being a credit investor? I do. It’s not investment advice, but this is what I did. A couple of those bets have paid off and have made a substantial amount of money—much, much more than I’ve put into all the angel investments.
It won’t necessarily do that for everyone, but to me, it’s nice to have that. I don’t want all of my money in the public stock markets, I’ll put it that way. In fact, I was saying having it all in is not a big deal, and that’s why I had it for years.
Once we had enough money that I never had to work again, I wanted less and less of that money in public stock markets because I think there are other ways to make really interesting returns once you start going beyond the next funds and getting into fiddly bits. One of them is angel investment. Up to 5% of your network, sure, I think that’s reasonable.
I think some people might say up to 10%, that feels a lot to me. It’s a personal preference. Do I think you should probably maybe own some metals, whether that’s physical metals you want to own gold, platinum, or silver, or whether you can buy ETFs with metals in, I don’t think that’s a bad idea. The more diverse you get your portfolio, usually, the smoother the ride gets because some things are getting up as the other things are going down, that’s portfolio theory.
Owning 3%–5% metals, not a bad idea. Whether publicly traded, they are not really public stocks and they historically shouldn’t follow the stock market directly, and they’re a hedge against inflation. There are just reasons to own them.
This is going to be a controversial one. Did we start buying crypto back in 2016, dollars-cost averaging over the course of many, many months, even a year? Yes. Do I think owning 3% of your portfolio, 5% of your portfolio on crypto depending on your risk tolerance is not a bad idea, hey, I’ve viewed them as an angel investment. I will put it that way.
We figured these things are either going to 10x or 100x, or they’re going to go 0. We’re willing to risk 3%–5%. Again, we didn’t do this back in the day when we had a few thousand dollars in net worth. Let’s say you have $300,000 total in assets you can move around and you put 3%, that’s $9000. Do I think that’s an interesting bet? Yeah, if you dollar-cost average in.
I’m the kind of person to not have all my eggs in the public markets, so I’m always looking for other drives. Am I a crypto purist or someone who could really explain to you why crypto makes sense and all the things about whether it’s going to be adapted? No, but I bought a few cryptocurrencies, those have paid off. I think dollar-cost averaging over time was the way to go.
The next thing is something we’re invested in but I don’t necessarily recommend it unless it’s higher-end collectibles like art, sports cars, comics books, and those things. That’s been a hobby of mine. I think having up to 5% of that is interesting. Of course, some people dabble in real estate. I don’t like owning physical real estate that has to be managed, but of course, owning REITs, real estate investment trusts up to 5% or 10% is totally reasonable.
I’ve tried all the things. I’ve tried peer-to-peer lending, tried online real estate hard money lending. The taxes are really high. The returns are so so. I felt like it was time-consuming and wasn’t worth it, and these other ways were more of my style.
I guess one last point before I wrap up is actually, going against it, I think traditional wisdom is I try to keep as little cash in my home as possible. Some people want to pay their home off, but I view cash in a home as money that’s tied up and money that I can’t be using for all these other things. The money I can’t be investing into my business, investing into other companies, metals, crypto, collectibles, or the stock market.
There are two schools of thought on that obviously because if you borrow money against your house, then put it in other things, and that goes down, that’s a risk because you’re levered. That’s for each person to decide. My thinking has certainly changed over the years. I know that back in the day, we wanted to pay our house up and we’d make extra payments. Over the years I realized, boy, do I really want all this cash tied up here? Cash is king and queen. I prefer to have as little of that as possible tied up in an illiquid asset like my home.
Lastly, before I sign off, I hope this was helpful. This was fun for me to talk through and try to get all of my thinking on this into a 30-minute podcast episode. There are a couple of other podcasts. If you want to dive into more of this that I recommend it. One is my favorite podcast on personal finance and investing. It’s called Money for the Rest of Us. Pretty easy to remember if you listen to the show.
David Stein does a great job of even-keeled and not crazy. When things go up and down, he is just pretty even keel. I actually pay for his plus membership, which is a couple of hundred dollars a year where he gives even in-depth analysis of the markets and stuff. There’s a free podcast that comes out every week and it’s a really good resource.
Then there are two others that I used to listen to, and it depends on if I’m in the mood to nerd out, get into personal finance or back in investing, and hear about all the stuff I mentioned in this episode. week to week listen to these, but I go through long stints. I think it’s been a year since I’ve listened to them, but when I went through 20 personal finance podcasts, these are two in addition to Money for the Rest of Us.
I still listen to Money for the Rest of Us every week, but these other two have not been in my feed for a while, but I do revisit them now and again. One is called Stacking Benjamins and it’s just an entertaining podcast, kind of goofy with bad jokes. The other one is Afford Anything, which is solid.
I did feel it got a bit repetitive and it’s also a bit millennial for my taste. I don’t know if that makes sense, but a lot of the stuff, it’s more into the FIRE movement, financial independence, retire early where it’s like I’m going to save $400,000 in a bank account and then I’m going to live on $16,000 a year. I make the 4% rule work and that’s how I’m going to live.
I think, yeah, that’s great if I was 20 or 25, but it’s just a whole different mindset than where I am, but that’s not the sole focus of the show. This show is really well done and I think the host is amazing. Paula is wise and knows a lot of stuff.
With that, I think we will call this episode a wrap. Thanks so much for joining me again this week. We’ll be back next week with a regularly scheduled conversation with an interesting founder. Maybe we’ll do some listener questions, maybe we’ll do some bootstrapper news, but it’s been great chatting with you today. I’ll be back in your earbuds again next Tuesday morning.
We’ll talk about how I view it, how I’ve viewed this whole concept, and how I tried to simplify it for myself because as founders, we’re busy with our work, our family, and the balance, and friends. Oftentimes we don’t want to spend a ton of time, but there is an 80:20 or 90:10 approach to doing that.
Before we dive in, I have a new review and I just had to read it. I really appreciate it. It’s from BrianRhea in the US and he says, “Five stars. Your Bootstrapped Startup MBA. This is the definitive podcast for founders who dream of building a sustainable, profitable business without sacrificing their personal wellness or relationships. If you want to hear hard-fought wisdom from real-life stories with a long-term perspective, this is the show for you.”
That’s very well written, sir. I really appreciate it. Brian is co-host of the Slow & Steady podcast with Benedikt Deicke. I appreciate you summarizing it like that and I love that phrase, “Your bootstrapped startup MBA.” If you’ve been listening, getting value out of the podcast, and want to give a little favor back, five stars in any of the places you listen to this podcast would help. It helps us find more users and listeners.
We have actually been growing pretty well over the past 18 months to 2 years since I really put renewed focus on the podcast. We redesigned the website, up the games, up the audio quality, the investment in research, time, and guests. It was just about two years ago and the subscribers basically have gone up since then. I really do appreciate it. As always, welcome new and old listeners alike.
As we dive into this topic of investing for founders, obviously I have to start by giving a disclaimer. I’m not an investment advisor. This is not investment advice. This is for entertainment purposes only, I think I’m supposed to say, but this is what I did. This is what I’ve done throughout my life and I essentially was able to retire at 41 and that was from starting companies. That was from making both profitable companies of being able to pull money out of them as well as exiting companies.
I actually have an essay that’s unpublished that I may just turn into a Twitter thread later on. It’s about in order in my life the things that I’ve made the most money from. I don’t give exact dollar amounts, but the number one was selling companies—exiting Drip, exiting HitTail. The number two is angel investing because I was an early investor in WP Engine and several others that have done reasonably well or cryptocurrency.
People are going to smack themselves in the head and say no, not another podcast about crypto. But those are the two and three. Then beyond that, it’s actually investing. It’s having money that I can put into the stock market or whatever and get returns on. Back in the day, it was just W-2 earnings coming from what I was doing during the day as well as side projects.
For me, investing has always been a long-term game and I actually started when I had my first job right around 20 because I was just exiting college, maybe 22. I opened up, in the US it’s called an individual retirement account or an IRA, and I started putting a little bit of money in each month and putting that into index funds.
I had built up a few thousand dollars of that and as Warren Buffett says, it’s all about the compounding because if you put in several thousand dollars when you’re 20 versus several thousand dollars when you’re 40, by the time you do get to retirement age of 65, that first extra 20 years can be just a massive, massive difference in how much you wind up with.
There’s this thing called the rule of 72, some of you may be familiar with, but you take whatever interest rate, your yield, your earnings on something. Let’s say the stock market is going to return 8% a year, so you take 72% and you divide it by what you’re going to earn. So 72 divided by 8 is going to be 9. Every nine years, your money is going to double.
If you think about that $5000 that I put in when I’m 20 is going to double to $10,000 at 29, then it’s going to double to $20,000 at 38, and then we go to 47 and that’s going to be $40,000. Then we go to 56 and that’s going to be $80,000. Then we go to 65, I believe, and that’s going to be $160,000. That’s $5000 I put away when I was 20 versus if I put that away when I’m 40. It only doubles about 2 1/2 times.
The last couple of doubles are what makes the difference. Think about the last doubles from $40,000 to $80,000 to $160,000. The difference between $40,000 and $160,000 in future inflation-adjusted earnings is massively, massively different. When I view investing, and I don’t mean investing in our companies, I have to differentiate here.
When I was building SaaS companies, I was all in on them and my time, effort, and a lot of my money went into them, but I was always putting a little bit away on the side thinking this money is going to double, double, double over these next 30, 40 years until I actually retire.
The interesting thing about that rule of 72 is to think about if you can earn 10% or 12% on your money, at a certain point it becomes kind of ridiculous. Especially in today’s market, it’s really hard and really risky to try to earn 10% or 12%. Even though historically, the stock market has returned that, if you look over the next 10 years, it’s not set. It’s not likely to do that given how high valuations are.
If you could earn 12%, year after year, approximately, then it doubles every 6 years, and you get even more doubles, so starting early is even more important.
I’m going to dive into some very specific things here. I have a whole outline that I’m going to dive into a second. The bottom line is when I was building SaaS companies, I didn’t pay a ton of attention to this, but I still had this on autopilot. And then once I exited Drip and things got less complex in my life, then I actually did pay a lot more attention to it.
But then I also had enough money that it made sense to make things more complicated. By the time we sold Drip, between my wife and I, we had around $400,000 or $500,000 to our name that did not count Drip. That was all earned from work in the day job, squirreling money away, squirreling money into 401(k) which is a United States employer-provided retirement thing, squirreling into IRAs, building side software products, taking the profit from those, selling those, some very small angel investment. We just kind of […] that together. I had none of that.
When we got married, we had $2000 to our name literally and I was making $17 an hour as an electrician. To get to that point of wealth was pretty significant, but it wasn’t enough money that it made sense for me to spend a ton of time working and focusing on it because fiddling little bits with a few hundred dollars doesn’t move the needle. Fiddling little bits and optimizing with several million dollars does.
Again, this is my opinion. This is what I’ve done. That’s the mindset. While I’m in growth mode, while I’m building startups, I want autopilot, but I still want to be doing something. For me, since I’m interested in this because I’m a nerd and it’s personal finance and investing as a hobby, then I made it complex, but you don’t have to do that. It doesn’t have to be complex.
I’m going to cover four things then I’m going to talk about some additions, some of the ways you can allocate, and this and that.
The first thing is you want to get an emergency fund of 3–6 months of cash in a place that is not getting cut in half if the stock market plummets. Usually, that’s cash in a savings account, not in a CD, certificate of deposit where it’s tied up and you can’t get easy access to it. This depends on your risk tolerance. Do you think you can be employed next month if everything is going to crash and burn if your company collapses? Is it going to take you three months to get your feet under you, is it going to take you six months, that’s the general range.
As you get more money, I will say at this point, we have quite a bit more than six months of complete living expenses in cash, in accounts because we can. It doesn’t detract from earnings on investment. Again, early on, we started to build a nest egg of hey, we have three months, that’s great. Now let’s put a little more into retirement, and then over time, we’ll buy a house so we have to pull some money out of that for a downpayment, and then we’ll rebuild it back.
Somewhere between 3–6 months is the first thing to do. In case your car breaks down, in case a tree falls and hits your house, in case you need a desperate house repair, you need some cash so that you don’t have to sell stock, crypto, or gold, or whatever it is you’re going to own in order to pay these expenses that are going to come up. It’s an emergency fund.
In addition, I would say I heard someone who had like 18 months or two years of savings and it was all in cash. That’s a mistake on the other side because inflation destroys that cash. Not only does inflation make it worth less every year, let’s say 2%, 3%, 4% in today’s environment. Then you’re not also getting the stock market gains.
If you look at what the stock market—whether it’s the US or worldwide—has made in the past 12, 18, 24 months, it’s a lot of money you’re leaving on the table. I wouldn’t take all of that money. If I have two years saved up, I’d personally consider taking 18 months of that and putting that into the market. If you put it in the market, you need to be willing to have it cut in half at the next big drop and then build it back up over time. That’s number one, getting that emergency fund in.
Number two is to max out every retirement plan you can get your hands on. If you are working a day job and you have an employer sponsor your retirement program. Again, in the US they’re called 401(k). I know they have different names elsewhere in the world, but a 401(k) with matching is like free money.
I would always max mine out to the match. I’m going to talk in a second about what I then put that one into. It’s asset allocation. Where do you allocate the money to, but for now I would put in 401(k)s and then individual retirement plans if they’re available to you as well. We opened IRAs way back in the day, individual retirement accounts, when we were 22 and started putting money in there.
If you do have a choice, as a rule of thumb, this is what I did (not investment advice), but in the US there are Traditional IRAs which is where you take your money pretax. So before you pay taxes on it in your paycheck, it goes to your IRA, you have to write off for that. Then when you take the money out, years down the line when it has all these earnings and growth, then you pay income tax on it as you draw it out.
The other option is to do a Roth IRA. Roths have existed for I think 20 or 25 years maybe, not that long. When I get my paycheck today, taxes already come out of it, and then I put after-tax money into the IRA. Then it grows and I don’t pay taxes on it when I withdraw on the other end. I never have to pay taxes again.
If given the choice, Roth IRAs are usually the better decision because not only do you not pay tax on the other end, but the limits of how much you can contribute to a Roth and a Traditional are the same. Since you’re paying tax on the money already, you can get more money into a Roth. It’s the same amount, but it’s after-tax.
I’m not going to go further into that other than to say, also Traditional IRAs have a required minimum distribution at age 70 or 72 that Roths do not. There’s a bunch of pluses, so I think we only have Roth except for the times we have been required to have Traditionals for some reason. Most of my stuff is on Roths. That is number two, maxing out retirement plans.
The third one is once you start a company, if you start an LLC, C Corp, S Corp, and you have revenue and profit, you can then open potentially (depending on what country you’re in) things like SIMPLE IRAs or Spira that are company-related, or you can open 401(k)s and then you can funnel even more money on that.
That’s number three and something my accountant guided me early on in our investing because IRAs—if you’re on your own and you do not work for a company—you can only put in $5000 or $6000 a year. It’s not very much money compared to what you can potentially earn as an entrepreneur. SIMPLEs and SEPs have different formulas, but you can sometimes put $20,000, $30,000, or $40,000 in those. That allows you to actually tax shield your money because that’s the biggest problem you’re going to run into.
Taxes chew through a lot of your money, so anything you can tax shield by getting them into these retirement accounts—again, assuming you don’t need them for a really long time—that’s the way to do it.
The fourth thing is life insurance. Life insurance is the worst. I hate the topic, it’s boring. There’s term insurance and there is whole life insurance. I have been taught by people I respect and trust that whole life insurance is something to be avoided and when you’re young, you get a 30- or 40-year term life insurance, premiums are small, and that’s what you do.
You insure yourself for half a million bucks. Then as you get older, you have to renew that, the premiums go up, and at a certain point, hopefully, you have enough money that you can self insure and that you don’t need life insurance anymore. Again, if you have $10 million in the bank and you don’t really need half a million or a million dollars of life insurance because you have enough, everybody can live forever on that money.
I had a couple of life insurance providers. I have heard good things about and I actually had a good experience with Haven Life. I think they’re a little more expensive than a lot of the others, but I heard about them on the Stacking Benjamins podcast. There’s a code like stackingbenjamins, benjamins, or something that you can use. Haven Life, if you’re a healthy person, they have a really easy signup process.
I’ve done all this intense research about them, but going through the process myself, I felt like things looked good to me. It was much easier than the first time I got life insurance where they came to my house and did blood tests. It was crazy. I didn’t realize that they went to that length, but I guess if they are betting on your longevity, that’s something they’d do.
As we transition, just a couple of more topics. One is the asset allocation of I put all this money in these retirement accounts, but where should I actually consider putting it? That’s asset allocation. Then I have the if you want to make things a more complicated section, which I think is where most people will turn this off. In my opinion, index funds are the way to go.
Index funds have very low expense ratios. They’re not actively managed funds, and they’re not as volatile as individual stocks. You don’t have to manage them, watch them, and see if they earned this much. Their earnings are down so they go up, they go down, Apple and Facebook are in a lawsuit, blah blah blah. Index funds own a bunch of stocks, sometimes thousands and they just track an index. If I’m going to do it, it’s the whole stock market.
The two places I like the best are Vanguard and Charles Schwab. Again, these are US-based, so if you’re in Canada and Europe, it’s all different. But basically, the reason I like them is the expense ratios are ridiculously low because that’s the worst part of using funds—index funds or mutual funds—is that if you get an active manager, then they charge you a fee of half a percent or one percent a year. It’s just a bit of drag on your returns versus these index funds where there’s a VTSAX, which is a Vanguard total stock market fund. It’s US only.
The index, the charge on them are five basis points, like 0.05 or 0.1 basis point. It’s ridiculously low. It can be a fifth or a tenth of a lot of other providers. Again, Vanguard and Schwab I think are definitely the places that I would invest in.
VTSAX, some people just say put all your money in there. Personally, I don’t like being only US-based. It just doesn’t make sense to me because, in the rest of the world, there are a lot of companies that are doing a lot of interesting things, especially in the 2020s. This is not the 1960s or 1970s when things like Vanguard and Schwab are really coming up, but there is this thing, very simple.
It’s called the lazy portfolio. We’re going to put a link to it on the show notes. While there are variations of it and you’ll see it’s almost a crowdsourced thing, the variation that I like is the simplest and the laziest. I don’t even know if it’s in the article we’re going to link to.
The one I think is the simplest is a single fund lazy portfolio, and it’s basically to put all the money that you want in stocks into one fund, with Vanguard it’s called the Total World Stock Index Fund. I would do a 100% allocation. Obviously, you have cash on the side in your emergency fund, but that’s it. It’s just that simple.
Everything is in equities. As long as you’re not nearing retirement and you have a cash reserve, that emergency fund I said earlier. Personally, I am someone who has a higher risk tolerance and I don’t love the stock-bond. I’m not going to put a bunch of my money in bonds, especially as low as the yields are today. I think that maybe as I’m nearing retirement, I want to soften the blow. It makes the ride a little less bumpy, but I prefer just to have cash given that bond yields are so terrible.
Then there are ways to mix it up. You can do three-fund lazy portfolios, there’s a four-fund portfolio. You can get as fancy as you want with it. But again if I were in your shoes and this is the path that we took, I kept it simple. We did essentially a lazy portfolio and didn’t get any more complex than that and didn’t watch it very closely. Just had money auto deducted as much as we could into these IRAs or just into a straight brokerage account with Vanguard, Schwab, or whoever you chose.
It was just buying into these dollar-cost averaging over time. When the stock market would go down, we keep buying in every month, so we’d buy more. And when it would go up, we’d make money and then you’d be buying less, so you’re averaging the costs of your purchases over time.
That’s really it. That was a long time to say a few simple things, but that is to me the way as an entrepreneur who’s running a company, that’s how simple I want it to be. As I think about taking it to the next step, which once we sold Drip, okay, now we have more assets to manage. I can go to a personal financer or an investment advisor, or I can do this stuff myself, which you of course can if you decide you want to and it gets more complicated.
That’s if you want to go beyond index funds. This is where we started looking at diversifying into things like angel investment, which we had already been making anyway. Do I think it’s not bad to have some riskier bets if you do have a good amount of cash, if you do have a good chunk of money in equities and public stocks that are going to be up over time but they’re going to potentially have a bumpy ride over time?
Do I think it’s interesting to have some really risky bets like angel investment up to 3%–5% of your network if you’re able to do this through crowdfunding or through being a credit investor? I do. It’s not investment advice, but this is what I did. A couple of those bets have paid off and have made a substantial amount of money—much, much more than I’ve put into all the angel investments.
It won’t necessarily do that for everyone, but to me, it’s nice to have that. I don’t want all of my money in the public stock markets, I’ll put it that way. In fact, I was saying having it all in is not a big deal, and that’s why I had it for years.
Once we had enough money that I never had to work again, I wanted less and less of that money in public stock markets because I think there are other ways to make really interesting returns once you start going beyond the next funds and getting into fiddly bits. One of them is angel investment. Up to 5% of your network, sure, I think that’s reasonable.
I think some people might say up to 10%, that feels a lot to me. It’s a personal preference. Do I think you should probably maybe own some metals, whether that’s physical metals you want to own gold, platinum, or silver, or whether you can buy ETFs with metals in, I don’t think that’s a bad idea. The more diverse you get your portfolio, usually, the smoother the ride gets because some things are getting up as the other things are going down, that’s portfolio theory.
Owning 3%–5% metals, not a bad idea. Whether publicly traded, they are not really public stocks and they historically shouldn’t follow the stock market directly, and they’re a hedge against inflation. There are just reasons to own them.
This is going to be a controversial one. Did we start buying crypto back in 2016, dollars-cost averaging over the course of many, many months, even a year? Yes. Do I think owning 3% of your portfolio, 5% of your portfolio on crypto depending on your risk tolerance is not a bad idea, hey, I’ve viewed them as an angel investment. I will put it that way.
We figured these things are either going to 10x or 100x, or they’re going to go 0. We’re willing to risk 3%–5%. Again, we didn’t do this back in the day when we had a few thousand dollars in net worth. Let’s say you have $300,000 total in assets you can move around and you put 3%, that’s $9000. Do I think that’s an interesting bet? Yeah, if you dollar-cost average in.
I’m the kind of person to not have all my eggs in the public markets, so I’m always looking for other drives. Am I a crypto purist or someone who could really explain to you why crypto makes sense and all the things about whether it’s going to be adapted? No, but I bought a few cryptocurrencies, those have paid off. I think dollar-cost averaging over time was the way to go.
The next thing is something we’re invested in but I don’t necessarily recommend it unless it’s higher-end collectibles like art, sports cars, comics books, and those things. That’s been a hobby of mine. I think having up to 5% of that is interesting. Of course, some people dabble in real estate. I don’t like owning physical real estate that has to be managed, but of course, owning REITs, real estate investment trusts up to 5% or 10% is totally reasonable.
I’ve tried all the things. I’ve tried peer-to-peer lending, tried online real estate hard money lending. The taxes are really high. The returns are so so. I felt like it was time-consuming and wasn’t worth it, and these other ways were more of my style.
I guess one last point before I wrap up is actually, going against it, I think traditional wisdom is I try to keep as little cash in my home as possible. Some people want to pay their home off, but I view cash in a home as money that’s tied up and money that I can’t be using for all these other things. The money I can’t be investing into my business, investing into other companies, metals, crypto, collectibles, or the stock market.
There are two schools of thought on that obviously because if you borrow money against your house, then put it in other things, and that goes down, that’s a risk because you’re levered. That’s for each person to decide. My thinking has certainly changed over the years. I know that back in the day, we wanted to pay our house up and we’d make extra payments. Over the years I realized, boy, do I really want all this cash tied up here? Cash is king and queen. I prefer to have as little of that as possible tied up in an illiquid asset like my home.
Lastly, before I sign off, I hope this was helpful. This was fun for me to talk through and try to get all of my thinking on this into a 30-minute podcast episode. There are a couple of other podcasts. If you want to dive into more of this that I recommend it. One is my favorite podcast on personal finance and investing. It’s called Money for the Rest of Us. Pretty easy to remember if you listen to the show.
David Stein does a great job of even-keeled and not crazy. When things go up and down, he is just pretty even keel. I actually pay for his plus membership, which is a couple of hundred dollars a year where he gives even in-depth analysis of the markets and stuff. There’s a free podcast that comes out every week and it’s a really good resource.
Then there are two others that I used to listen to, and it depends on if I’m in the mood to nerd out, get into personal finance or back in investing, and hear about all the stuff I mentioned in this episode. week to week listen to these, but I go through long stints. I think it’s been a year since I’ve listened to them, but when I went through 20 personal finance podcasts, these are two in addition to Money for the Rest of Us.
I still listen to Money for the Rest of Us every week, but these other two have not been in my feed for a while, but I do revisit them now and again. One is called Stacking Benjamins and it’s just an entertaining podcast, kind of goofy with bad jokes. The other one is Afford Anything, which is solid.
I did feel it got a bit repetitive and it’s also a bit millennial for my taste. I don’t know if that makes sense, but a lot of the stuff, it’s more into the FIRE movement, financial independence, retire early where it’s like I’m going to save $400,000 in a bank account and then I’m going to live on $16,000 a year. I make the 4% rule work and that’s how I’m going to live.
I think, yeah, that’s great if I was 20 or 25, but it’s just a whole different mindset than where I am, but that’s not the sole focus of the show. This show is really well done and I think the host is amazing. Paula is wise and knows a lot of stuff.
With that, I think we will call this episode a wrap. Thanks so much for joining me again this week. We’ll be back next week with a regularly scheduled conversation with an interesting founder. Maybe we’ll do some listener questions, maybe we’ll do some bootstrapper news, but it’s been great chatting with you today. I’ll be back in your earbuds again next Tuesday morning.
Episode 556 | Zero to $26k MRR as the Solo Founder of Rails Autoscale
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In Episode 556, Rob Walling chats with Adam McCrea about growing from zero to $300,000 in ARR over the course of three years as a Heroku add-on. Adam is still a single founder with no employees and up until joining the TinySeed accelerator in their Spring 2021 batch, has fully bootstrapped Rails Autoscale. Now, he’s working to grow the app, deal with platform risk, and launch pricing experiments.
The topics we cover
[03:30] Background before starting Rails Autoscale
[07:04] Getting to 100 active users
[09:30] Platform risk
[14:59] Working on Rails Autoscale as a side project
[20:54] Rails Autoscale vs. Heroku’s Autoscaler
[24:13] Free-trial to freemium experiment
Links from the show
- Rails Autoscale
- Adam McCrea (@adamlogic) | Twitter
If you have questions about starting or scaling a software business that you’d like for us to cover, please submit your question for an upcoming episode. We’d love to hear from you!
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: Welcome back to Startups for the Rest of Us, this is Episode 556. I’m Rob Walling. This week, I talked with Adam McCrea, the founder of Rails Autoscale about growing from $0 to $300,000 in ARR over the course of three years as a Heroku add-on.
For context, Rails Autoscale is an add-on that manages your dynos or your servers for you if you run Rails. It removes the guesswork and the babysitting typically involved in scaling your production web app. Frankly, everyone I know who uses Heroku and has Rails running on it, uses Rails Autoscale.
He’s built himself a great single founder business and he applied to TinySeed for our Spring 2021 batch that just started a couple of months ago, and he’s now part of the 18 companies that are in that batch. This is a great conversation.
What I enjoy about it is Adam is still a single founder with no employees. He really is in that mostly bootstrap mindset. Even though he’s part of TinySeed. He’s still thinking through how do I continue to grow this app, how to deal with the platform risk of being on Heroku, and even launching a freemium plan that he just launched last week. We cover all that and more in our conversation.
Before we dive into that, I got an email from someone I’m going to keep anonymous and he said, “Hi, Rob. We haven’t met but I turned on your podcast early on in my bootstrap life. Startups for the Rest of Us was my go-to listen on my morning works with my dog. It helped encourage me when I wasn’t sure we were moving fast enough. It helped me learn about traction and growth stages and lots of things. I love the transparency and honesty in the interviews.
I recently sold my $80,000 ARR SaaS company. That’s $80,000 annual recurring revenue for $1.6 million, split between me and my cofounder. We’re also both making a great salary and the post-acquisition journey has been a lot of fun and we still have a lot of autonomy. This journey has been truly life-changing for someone who always wanted to be an entrepreneur, but wasn’t sure it would happen.”
Then he runs through his timeframe starting in 2018, it’s only three years. “Thanks for doing what you do. This journey was something that changed my life forever and set me up in a big way for the future.” I love hearing stories like this. Thanks so much for writing in.
You can tell why I kept him anonymous, but this is why we do what we do. That’s the bottom line. Through this podcast, MicroConf, and TinySeed, and whatever other efforts that I’ve been working on for the past 15 or 20 years and whatever I’ll do for the next 10 or 20 years, these are the moments that make this all worth it. Thanks so much for writing in and thanks so much for being a listener. Let’s dive into my conversation with Adam McCrea of Rails Autoscale.
Adam, welcome to the show.
Adam: Hey, Rob. Thanks for having me.
Rob: From what I understand, you’ve listened to Startups for the Rest of Us for a few years, is that right?
Adam: Yeah, several years. I can’t remember if it was before I started building Rails Autoscale or after, but it’s been several years.
Rob: You came to MicroConf as well? So folks may have run into you in 2019, our last one in Vegas.
Adam: Yeah, 2019.
Rob: That’s cool. Thanks for coming on the show today. Folks heard in your intro that you’re the founder of Rails Autoscale. Just to give folks an idea, can you give us an idea of your team size and your MRR?
Adam: Right now, the team size is one. It’s just me. As of today, I literally hit my 500th customer and I’m just over $26,000 MRR.
Rob: Congratulations, man.
Adam: Thanks.
Rob: How does that feel because you say that out loud and we take it for what it is. It’s a SaaS app, we know a lot of them get to $26,000. When you first launched this in 2017, which is about four years ago, did you imagine you would build it to more than $300,000 a year in revenue as a single founder?
Adam: I imagined I would build it to that within a year or two. I didn’t have a very realistic vision of the future at that point.
Rob: How is that? Let me do a little bit of a timeline. You’re a Rails developer. In 2016 you’re working at a small company, they needed to move hosting providers to Heroku, and they needed something to autoscale their servers. You were looking for a side project, so how did this happen that you now own this code that you wrote in essence to help that small company?
Adam: We were a really tiny team. I led the effort for us to move to Heroku because I was tired of babysitting servers on our other hosting provider, and we were paying a ton for it as well. The move to Heroku was great. Our primary app was mostly just used during business hours, so we were paying a whole lot for server power that we didn’t need in the evenings and weekends. We tried out some of the autoscalers that were on the market at that time and just couldn’t get consistent reliable behavior. It was frustrating and they were hard to use.
It felt like something—like most developers often feel—like I could build a better version of this. I had an itch for a side project, so I asked my team and my manager, if I play with building an autoscaler as a side project, would you be cool with us trying it out? We were a really small thing, really casual, really informal, so everybody was just like, yeah sure, go for it.
Rob: That’s great, and you were able to get something in writing that in essence means you own the code?
Adam: Honestly, I didn’t take the necessary steps at that time. I was pretty naive about the whole thing. It wasn’t until a couple of years later when that company was acquired by another company that I was able to get all of that in writing. Fortunately, there were no issues at that time because luckily for me, the same people were there. They were still friends of mine, and we were able to get it all in writing at that point.
If I had to do it all over again, I would have gotten it in writing from the beginning, but I was a little naive at that time.
Rob: It’s good you’re able to do that. I’ve heard of founders who have to go back to old contractors who worked on their app and they need to get IP agreements retroactively. Usually, that goes fun, but sometimes you can’t find that person or other times that contractor will ask for money.
Adam: That sounds terrifying.
Rob: Yeah, I’ve definitely heard stories of that. Usually, this doesn’t come up unless you’re going to raise some money or you’re going to sell your company. That’s when somebody does some due diligence because if you just run it for 10 or 20 years or you shut it down, no one really notices. That’s the danger of not having that IP locked in. I’m glad they were able to do that. I know during TinySeed due diligence, that would have come up.
Adam: Yeah, and definitely during TinySeed due diligence is when I went and dug out that agreement that was signed a couple of years ago. I was just holding my breath making sure that I had all the bases covered. It was a huge sigh of relief once I realized, okay it’s all there.
Rob: That’s cool. You start working on this as a side project for the company that you work for at the day job. You launch it into the Heroku app store in 2017. But for folks who don’t know, on Heroku, they require you to have 100 beta customers before you can charge. This will wound up taking you almost a year, and it wasn’t until December 2017 when you were able to charge.
Back to your prior comment of when I asked you, did you ever think you’d get to $300,000 ARR and you said I thought I would get there in a year or two, was that year of 2017 just agonizing and taking way longer than you thought it would?
Adam: Absolutely. On Heroku, there are basically three phases of being in their marketplace. There’s the alpha phase where you’re not even listed at all, but you can invite people individually. You have to get 10 customers there before you go to beta, which is when you’re in the marketplace, but you still can’t charge. You got a beta badge on your thing, and that’s when you have to get to 100 customers before you go to general availability and can actually charge customers.
I went into alpha in January of 2017 and I didn’t get to general availability until December of 2017. It was a painful year. I did not think that it would take that long. I had this vision of it just kind of the product was so good. In my eyes, people were just going to flock to it and it was going to be amazing.
The truth is, I didn’t do much to accelerate that. I didn’t do much at all. I don’t think I did anything to market it. I waited for customers to come, and fortunately, eventually, they did. Eventually, it got to general availability.
I know some folks who have launched Heroku add-ons since then and they’ve put a little more effort behind it and gotten to that point within a couple of months, so I know that can be done. If I had to do it over again, yeah I would have reached out a little bit more to try to promote the thing.
Rob: Done some marketing, gone on podcasts, been on Twitter, done whatever, even taking out some ads. You could have gone crazy with this thing.
Adam: Yeah. This is still the area of the business that I struggle with the most. I am a developer by trade, I’m not a marketer. Even though I’ve been running this business for over four years now, the marketing side of it still feels brand new to me and I’m still figuring that out. That’s one of the reasons I really want to join TinySeed is to have some community and mentorship, specifically around that weakness of mine.
Rob: Rails Autoscale is an amazing step one business. When I think of the stair-step approach, step one is a single marketing challenge, step two is you have one or more products that you can buy out your time, and then step three is actually that recurring SaaS app that is just in the open market.
I used to say that step one was a single marketing channel, a one-time sale, but that’s no longer the case with Shopify add-ons, Heroku add-ons, and several other sales. There’s a lot of app stores now that have recurring revenue. That’s where I think of Rails Autoscale as amazing.
Again, you’re one person. You’re running a business doing $300,000 ARR, your expenses are very low. This is just a bootstrapper’s dream, in my opinion. As you and I have talked about, there are some risks. There are platform risks because you’re all on Heroku.
Theoretically, Heroku could just disable your app. You violated our terms of service, for whatever reason, or they have their own free autoscaling that we’ll talk about in a bit and they could be fed up to compete with you. There are all these risks with a step one business. I think that’s something we’ve chatted quite a bit about is how do you get this to be a step three business, which is a business that has more options, is more marketable, and potentially reduces and eliminates a lot of that platform risks. What are you thinking about that these days?
Adam: Honestly, right now I’m targeted toward a very specific and narrow niche of Rails applications on Heroku, so there’s a couple of different ways. If I wanted to continue with the same type of product, I can stay on Heroku but expand beyond Rails. I could stay focused on Rails and expand beyond Heroku.
Those are definitely both things that I’m looking into right now. I’ve been having a lot of calls with customers who have actually left Rails Autoscale because they left Heroku and most of them went to AWS. I’ve been having some conversations with them to see what they’re using now and if there’s a possibility down that road. I’m simultaneously exploring folks who have asked me, can I use this with Node? Can I use this with Python? Up until now, my answer has been no.
Those are definitely things I’m exploring and we’ll see where that goes, I’m quite not sure yet.
Rob: You have a hypothesis and then you try to prove or disprove that before you write a bunch of code. There’s not an obvious answer. There are multiple paths, and I think each of them can get you away from that risk. It’s not just platform risk, you’re very concentrated. What if over the next five years, Ruby or Rails itself becomes just less popular. It’s possible.
Every language and every platform has an adoption curve and we’ve seen all these languages that come. They have their heyday, and then eventually they don’t last. Computer languages don’t last 50 years. They last 10, 15 years, especially on the web. That’s a thing.
I think for folks who are listening to this. If you built a great business like Rails Autoscale, if you’re thinking long term, you should be thinking about these kinds of things. It’s not to say, oh my gosh, this is a terrible business. I never should have built this, because that’s not true either.
It’s that none of these businesses that we build can just go on autopilot for 5, 10, 15 years and be fine. They all have some type of, whether it’s marketing risk, competitor risks, platform risks, obsolescence risk, adoption curve risks. There are all these things that if you really plan to sell it in a few years, then you don’t need to worry about this. But if you want to run a business like this for 10 or 20 years, a lot is going to change.
Think about how the web was 20 years ago, 2001, and how different it is today. What will it be in 2041? I’m not just talking about Rails Autoscale, I’m talking to any listener out there, will your app benefit from that? How will it need to change in the meantime to be viable?
You’re a bootstrapper or mostly bootstrapped, you’ve been making a full-time living for a year of business and suddenly it gets cut off from under you. What do you do? Do you want to go get a job? Because that doesn’t sound like fun.
Adam: Joining TinySeed caused a lot of introspection and a lot of thinking about what I want out of this business long-term because it was already making good money. It had hit the point where I hadn’t yet switched to doing it full time, but I hit the point where I probably could. You could call it a lifestyle business at that point. It was making enough money to provide a decent lifestyle.
I was thinking, I don’t have aspirations to be a billionaire or anything like that, I just want to live a good life and do work that I care about. I also don’t want to live every day with the anxiety that this thing is going to be yanked out from under me and I’m going to have to go get a job, especially after being out of the job market for so many years.
I think I’m at the point where I want to build a larger business not because I want to build a large business, just larger than what it is currently. Just to have confidence that a slight downturn isn’t going to make me go looking for a job or anything like that.
Rob: That’s the balance. I experienced a lot of that with HitTail and then even with Drip. It was always like looking over my shoulder thinking what is either going to cut my MRR or what’s going to put us out of business overnight accidentally. There are all types of stuff.
I feel like it got really depressing here for a minute. Let’s pull out of that. I’m curious, you applied to TinySeed last November now, it’s like six or seven months ago. You were already making plenty of MRR to quit your job, pretty much anyone anywhere in the world could live out of. I forgot what it was. It’s maybe $16,000 or something. It was a healthy dose, single founder, almost no expenses, but it was still a side project. You had a day job. Why was that? Why did you continue working at Rails Autoscale as a side project even with that much MRR?
Adam: There were several reasons. One is that the growth kind of took me by surprise. The growth of the business was slow and steady until 2020. I started the year 2020 with less than $5000 MRR, ended it with over $15,000 MRR. The business more than tripled just in 2020 and I don’t know why. I don’t know if that’s COVID-related in any way with more things going online.
2020 took me by surprise in terms of business growth, and we were risk-averse. Honestly, I’m the only income. My wife is back in school and we weren’t prepared for the idea of completely relying on this business as our sole income.
At the end of 2020, we realized this is going to happen. It’s just a matter of when I make this leap. That’s the point where I decided, well I could wait until later in 2021, or I could apply to TinySeed and see what happens there because that will definitely be sufficient cushion to make that leap with confidence even being pretty risk-averse.
Rob: Was it challenging for you to work the day job and have the nights and weekends side project? Because I know for some people that’s really hard. For me, it was very hard all those years I did it. For other people, it’s just not that big of a deal. How was it for you?
Adam: It was hard. Honestly, I think back to when I first built Rails Autoscale in 2016, 2017 and I’m not quite sure how I did it. If I think about 2018, 2019, and 2020, I don’t feel like I was putting much into Rails Autoscale by that point. It was a product that was working. It was growing slowly just through people finding it in the Heroku marketplace.
While I had time, I tended not to have a whole lot of mental energy or creative energy after the day job. I found myself not just putting as much into Rails Autoscale, and that made me want to go full-time on it even more because I just felt like if I want to accelerate this business at all, I can’t have a day job and do it at the same time.
Rob: It’s a tough place to be. I’ve heard some developers say, I just can’t do stuff on the side. If I’m going to do it, I need to be all in and I need to quit my day job. I would have loved to have that luxury because, by the time I was really getting stuff off the ground, I was married, I had a mortgage. I guess I was doing it before we had our first kid, but frankly, it was just a couple of years.
We live in an eight-bedroom apartment with roommates, I didn’t have that option. I didn’t have money in the bank. I didn’t have rich parents. I didn’t have rich relatives to do any type of friends and family, so I needed enough income. We didn’t live lavishly by any stretch, but even just to maintain my job at that time maybe was $60,000 a year. This is my job. I graduated from college, did construction, and my first programming job was $60,000. I couldn’t make much less than that and own a home in California with a family and such.
I really wished I didn’t have to do those nights. I would stay up till 1:00 AM and then I’d go to sleep, but then I wake up and do the day job. It sucked, but to me, it was just what you had to do. If I wanted to one day have freedom, I figured that was the price that I had to pay.
Other people have to pay different prices. I’m not saying because someone else didn’t, that they had it easier or they’re not as worthy of it, it’s nothing like that. Each of us has our own starting point. Did you have nights and weekends where you were crying it out like that until midnight or one, waking up tired and doing the day job, or did you have better balance around that?
Adam: I think I had better balance around that. I feel that one of the keys that have helped me get Rails Autoscale to where it is is patience. I’m really happy with where Rails Autoscale is today, but the reality is that I started building it. The first commit was in July of 2016. It’s almost five years old.
When I initially built it, I had aspirations of it becoming my full-time thing within a year and two, but reality pretty quickly smacked me in the face there. At that point, I realized it’s okay to take it slow. I was pretty happy building something that was growing slowly more or less on its own, and it didn’t cause a whole lot of upheaval in my life.
I was able to work on it some nights and weekends, but not to the point of exhausting and causing burnout. I feel good about the way I approach that. Could I have gotten to this point sooner if I had put more into it? I absolutely think I could have. Would I have enjoyed my life as much, probably not and I maybe would have ended up throwing in the towel because I would have gotten burned out.
Rob: That’s the beauty of being an indie founder is we’re independent and you were able to make that decision. You didn’t have any type of timeline other than your own. I admire that patience, to be honest. It sounds like whether you did it intentionally or not, you viewed it as a marathon because that’s kind of what this is.
We think in terms of years, not months. I often say that in the intro of this podcast. This is years and years. At this point for me, it’s a decade and a half journey. If you think you’re going to get to $300,000 in 12 months, you’re going to be disappointed or you’re going to burn out.
Adam: I like that metaphor. I think going into it, I had not accepted that metaphor yet, but once I did accept that, I think it’s a very good metaphor thinking of it as a marathon.
Rob: I hinted at this earlier, but Heroku has a free autoscaler and yet you went and built Rails Autoscale. What was your thinking around that?
Adam: Heroku’s free autoscaler did not exist when I initially built Rails Autoscale. It came in either 2017 or 2018, and that was a scary time. That’s that platform risk right there. You build something on a platform and then they build a native version, it’s free, and you’re completely screwed. That was what was playing around in my head when that was happening.
Fortunately, for me, Heroku’s autoscaler—for one thing, it’s only available on Heroku’s higher tier plans, but even so, I didn’t want to lose all those customers. The reality is it did not impact my business in a noticeable way, and I still get about a third of my customers using those higher tier Heroku dynos.
About a third of my customers could be using Heroku’s free autoscaler but they chose Rails Autoscale instead. What they tell me is it just works better. They’ve all tried Heroku’s autoscaler and it didn’t work reliably for them. Basically, they went to the same thing that we went through back in 2016 trying to autoscale. It was clunky, it was difficult. Then they went to Rails Autoscale and they’re happy paying for it.
Rob: That’s what I’ve heard as well, I’ve talked to a couple of folks. Everyone I know who’s on Heroku and has any type of infrastructure in Rails, they use Rails Autoscale. The sentiment I’ve heard is the same thing. It’s that Heroku’s autoscaling, the built-in, they did it as a check box feature basically and it isn’t actually that good.
I can imagine that moment when you heard that they were going to build it because this was when Mailchimp added automation for Drip because that was our big thing. It’s like, hey, we’re unlike Mailchimp, we have all this automation. Then they announced they’re adding automation and I was like, oh […], this is going to get ugly.
As it turns out, their automation wasn’t that good, and they’re pretty clunky and hard to use. It did muddy the water for us for a while though. Did they just launch it or they preannounced it? Were you thinking, I guess I had a good run. Here we go, I guess we’ll be shutting this down.
Adam: I don’t think there was a preannouncement. I think they just launched it. I thought I was pretty much done. I guess not done because I knew that only a subset of Heroku customers could use Heroku autoscaling, but I definitely thought my business was at least cut in half by that point.
It was scary and if it had existed in 2016, would I have built Rails Autoscale? Would I have had the confidence that people are going to choose a paid solution over something that is free, integrated, and native to Heroku? I don’t know if I would have had that confidence.
Rob: Timing. It’s such an element of timing that you just wouldn’t think about because I would be the same way. If there is a free built-in version built by the platform, why would I build Drip and think that anyone would pay for a paid version? Something about if you had started it a year, a year and a half later, it may have never happened. It’s such a trip to think about.
Since then, even in the last couple of weeks, you launched a freemium version. Before you had a free trial of Rails Autoscale, and now there’s a freemium version where people can get a certain amount. They can hook it up and it tells them they would autoscale up and down, and it gives them 20 a month or a certain amount of autoscale events.
Adam: Exactly, yeah. Twenty autoscale per month.
Rob: That’s cool. What were you thinking there? I want to move from a free trial to freemium. For those who aren’t familiar, freemium is a perpetual plan. It works every month, it doesn’t expire after seven days, but it’s limited. When people want to get the full feature set, they’re able to upgrade and start paying.
What was your thought process with this experiment? Because I view it as an experiment. Is it something that you may undo if it doesn’t turn out well?
Adam: I call it an experiment, but it would have to blow up in my face pretty hard for me to undo it, it’s the reality. So far, it’s going great. When I initially built Rails Autoscale, it was for me a cost-saving thing. I wanted to save our company resources by auto scaling down when we didn’t need it, and I sort of made the assumption that that’s what everybody was going to use Rails Autoscale for.
Since then, I’m finding through talking to my customers that for most of them, it’s not about cost savings, it’s about peace of mind, it’s about having a safety net in place knowing that their app is not going to fall down. It’s not going to slow to a crawl, that they can handle any type of traffic spike or anything that comes their way.
I launched the free version because I want every Rails app on Heroku to be able to have that by default. I really keep pushing this idea of a safety net. That’s how I see Rails Autoscale now. It’s the safety net for your Rails app and every Rails app can have it.
I didn’t want to limit that to just a seven-day trial anymore because then, Rails developers aren’t going to think about it until their app starts scaling or they start having trouble. I want it to be more that you just have there by default and then it’s there when you need it.
Rob: On the marketing side, that’s called owning the lead. If you have freemium that if someone’s already using—I think Patrick Campbell from ProfitWell may have coined that phrase, owning the lead. But I heard it as freemium, obviously not a pricing approach, it’s a marketing approach.
When you have a freemium and someone signs up for your account, even if they’re backgrounding it because they’re not paying for it, but then they remember in six months, oh yeah, I do need that, I do want that, or I’ve noticed this, then they already have a login. It’s just a little bit of comfort and a little bit less friction.
Adam: I haven’t heard the term, but that’s exactly the idea.
Rob: You’re only a week into it, are there any indications? Do you feel good about it so far? Is it completely unknown still as to whether it’s going to work? How are you feeling about it?
Adam: My fear going into it is that I had a subset of paying customers who could maybe potentially have downgraded to free. I was worried about losing revenue there potentially, that hasn’t happened. Basically, what has happened is I’ve had a lot more free instillations. The number of paid subscriptions, the trajectory of that hasn’t changed at all. It has been the same slow and steady growth.
Too early to tell if there’s much impact, but so far I’m at least happy that there’s no negative impact and that I am getting a lot more free signups.
Rob: That’s always the fear with pricing changes, with moving from credit card to no credit card or vice versa. Any of these things is like white knuckles for weeks while you look at the numbers. The worst case is not that it doesn’t accelerate your growth, it’s that it dramatically decelerates it or cannibalizes existing MRR. Glad to hear that.
Sir, thank you so much for joining me on Startups for the Rest of Us today. It’s been great having you.
Adam: This is fun. Thanks for having me.
Rob: Absolutely. Folks who want to keep up with you, you are @adamlogic on Twitter, and of course railsautoscale.com for all the info about what you’re up to. Thanks again.
Adam: Thanks.
Rob: Thanks again to Adam for coming on the show. If you’d like to join a batch of companies much like Rails Autoscale, want to be part of TinySeed and get some funding, mentorship, and continue to grow your business, we are opening applications again here in the next couple of months for our Fall 2021 batch. Head to tinyseed.com and sign up for the email list there to get notified. Thanks again for joining me on this journey, 556 episodes so far. I’ll be back in your earbuds again next Tuesday morning.
For context, Rails Autoscale is an add-on that manages your dynos or your servers for you if you run Rails. It removes the guesswork and the babysitting typically involved in scaling your production web app. Frankly, everyone I know who uses Heroku and has Rails running on it, uses Rails Autoscale.
He’s built himself a great single founder business and he applied to TinySeed for our Spring 2021 batch that just started a couple of months ago, and he’s now part of the 18 companies that are in that batch. This is a great conversation.
What I enjoy about it is Adam is still a single founder with no employees. He really is in that mostly bootstrap mindset. Even though he’s part of TinySeed. He’s still thinking through how do I continue to grow this app, how to deal with the platform risk of being on Heroku, and even launching a freemium plan that he just launched last week. We cover all that and more in our conversation.
Before we dive into that, I got an email from someone I’m going to keep anonymous and he said, “Hi, Rob. We haven’t met but I turned on your podcast early on in my bootstrap life. Startups for the Rest of Us was my go-to listen on my morning works with my dog. It helped encourage me when I wasn’t sure we were moving fast enough. It helped me learn about traction and growth stages and lots of things. I love the transparency and honesty in the interviews.
I recently sold my $80,000 ARR SaaS company. That’s $80,000 annual recurring revenue for $1.6 million, split between me and my cofounder. We’re also both making a great salary and the post-acquisition journey has been a lot of fun and we still have a lot of autonomy. This journey has been truly life-changing for someone who always wanted to be an entrepreneur, but wasn’t sure it would happen.”
Then he runs through his timeframe starting in 2018, it’s only three years. “Thanks for doing what you do. This journey was something that changed my life forever and set me up in a big way for the future.” I love hearing stories like this. Thanks so much for writing in.
You can tell why I kept him anonymous, but this is why we do what we do. That’s the bottom line. Through this podcast, MicroConf, and TinySeed, and whatever other efforts that I’ve been working on for the past 15 or 20 years and whatever I’ll do for the next 10 or 20 years, these are the moments that make this all worth it. Thanks so much for writing in and thanks so much for being a listener. Let’s dive into my conversation with Adam McCrea of Rails Autoscale.
Adam, welcome to the show.
Adam: Hey, Rob. Thanks for having me.
Rob: From what I understand, you’ve listened to Startups for the Rest of Us for a few years, is that right?
Adam: Yeah, several years. I can’t remember if it was before I started building Rails Autoscale or after, but it’s been several years.
Rob: You came to MicroConf as well? So folks may have run into you in 2019, our last one in Vegas.
Adam: Yeah, 2019.
Rob: That’s cool. Thanks for coming on the show today. Folks heard in your intro that you’re the founder of Rails Autoscale. Just to give folks an idea, can you give us an idea of your team size and your MRR?
Adam: Right now, the team size is one. It’s just me. As of today, I literally hit my 500th customer and I’m just over $26,000 MRR.
Rob: Congratulations, man.
Adam: Thanks.
Rob: How does that feel because you say that out loud and we take it for what it is. It’s a SaaS app, we know a lot of them get to $26,000. When you first launched this in 2017, which is about four years ago, did you imagine you would build it to more than $300,000 a year in revenue as a single founder?
Adam: I imagined I would build it to that within a year or two. I didn’t have a very realistic vision of the future at that point.
Rob: How is that? Let me do a little bit of a timeline. You’re a Rails developer. In 2016 you’re working at a small company, they needed to move hosting providers to Heroku, and they needed something to autoscale their servers. You were looking for a side project, so how did this happen that you now own this code that you wrote in essence to help that small company?
Adam: We were a really tiny team. I led the effort for us to move to Heroku because I was tired of babysitting servers on our other hosting provider, and we were paying a ton for it as well. The move to Heroku was great. Our primary app was mostly just used during business hours, so we were paying a whole lot for server power that we didn’t need in the evenings and weekends. We tried out some of the autoscalers that were on the market at that time and just couldn’t get consistent reliable behavior. It was frustrating and they were hard to use.
It felt like something—like most developers often feel—like I could build a better version of this. I had an itch for a side project, so I asked my team and my manager, if I play with building an autoscaler as a side project, would you be cool with us trying it out? We were a really small thing, really casual, really informal, so everybody was just like, yeah sure, go for it.
Rob: That’s great, and you were able to get something in writing that in essence means you own the code?
Adam: Honestly, I didn’t take the necessary steps at that time. I was pretty naive about the whole thing. It wasn’t until a couple of years later when that company was acquired by another company that I was able to get all of that in writing. Fortunately, there were no issues at that time because luckily for me, the same people were there. They were still friends of mine, and we were able to get it all in writing at that point.
If I had to do it all over again, I would have gotten it in writing from the beginning, but I was a little naive at that time.
Rob: It’s good you’re able to do that. I’ve heard of founders who have to go back to old contractors who worked on their app and they need to get IP agreements retroactively. Usually, that goes fun, but sometimes you can’t find that person or other times that contractor will ask for money.
Adam: That sounds terrifying.
Rob: Yeah, I’ve definitely heard stories of that. Usually, this doesn’t come up unless you’re going to raise some money or you’re going to sell your company. That’s when somebody does some due diligence because if you just run it for 10 or 20 years or you shut it down, no one really notices. That’s the danger of not having that IP locked in. I’m glad they were able to do that. I know during TinySeed due diligence, that would have come up.
Adam: Yeah, and definitely during TinySeed due diligence is when I went and dug out that agreement that was signed a couple of years ago. I was just holding my breath making sure that I had all the bases covered. It was a huge sigh of relief once I realized, okay it’s all there.
Rob: That’s cool. You start working on this as a side project for the company that you work for at the day job. You launch it into the Heroku app store in 2017. But for folks who don’t know, on Heroku, they require you to have 100 beta customers before you can charge. This will wound up taking you almost a year, and it wasn’t until December 2017 when you were able to charge.
Back to your prior comment of when I asked you, did you ever think you’d get to $300,000 ARR and you said I thought I would get there in a year or two, was that year of 2017 just agonizing and taking way longer than you thought it would?
Adam: Absolutely. On Heroku, there are basically three phases of being in their marketplace. There’s the alpha phase where you’re not even listed at all, but you can invite people individually. You have to get 10 customers there before you go to beta, which is when you’re in the marketplace, but you still can’t charge. You got a beta badge on your thing, and that’s when you have to get to 100 customers before you go to general availability and can actually charge customers.
I went into alpha in January of 2017 and I didn’t get to general availability until December of 2017. It was a painful year. I did not think that it would take that long. I had this vision of it just kind of the product was so good. In my eyes, people were just going to flock to it and it was going to be amazing.
The truth is, I didn’t do much to accelerate that. I didn’t do much at all. I don’t think I did anything to market it. I waited for customers to come, and fortunately, eventually, they did. Eventually, it got to general availability.
I know some folks who have launched Heroku add-ons since then and they’ve put a little more effort behind it and gotten to that point within a couple of months, so I know that can be done. If I had to do it over again, yeah I would have reached out a little bit more to try to promote the thing.
Rob: Done some marketing, gone on podcasts, been on Twitter, done whatever, even taking out some ads. You could have gone crazy with this thing.
Adam: Yeah. This is still the area of the business that I struggle with the most. I am a developer by trade, I’m not a marketer. Even though I’ve been running this business for over four years now, the marketing side of it still feels brand new to me and I’m still figuring that out. That’s one of the reasons I really want to join TinySeed is to have some community and mentorship, specifically around that weakness of mine.
Rob: Rails Autoscale is an amazing step one business. When I think of the stair-step approach, step one is a single marketing challenge, step two is you have one or more products that you can buy out your time, and then step three is actually that recurring SaaS app that is just in the open market.
I used to say that step one was a single marketing channel, a one-time sale, but that’s no longer the case with Shopify add-ons, Heroku add-ons, and several other sales. There’s a lot of app stores now that have recurring revenue. That’s where I think of Rails Autoscale as amazing.
Again, you’re one person. You’re running a business doing $300,000 ARR, your expenses are very low. This is just a bootstrapper’s dream, in my opinion. As you and I have talked about, there are some risks. There are platform risks because you’re all on Heroku.
Theoretically, Heroku could just disable your app. You violated our terms of service, for whatever reason, or they have their own free autoscaling that we’ll talk about in a bit and they could be fed up to compete with you. There are all these risks with a step one business. I think that’s something we’ve chatted quite a bit about is how do you get this to be a step three business, which is a business that has more options, is more marketable, and potentially reduces and eliminates a lot of that platform risks. What are you thinking about that these days?
Adam: Honestly, right now I’m targeted toward a very specific and narrow niche of Rails applications on Heroku, so there’s a couple of different ways. If I wanted to continue with the same type of product, I can stay on Heroku but expand beyond Rails. I could stay focused on Rails and expand beyond Heroku.
Those are definitely both things that I’m looking into right now. I’ve been having a lot of calls with customers who have actually left Rails Autoscale because they left Heroku and most of them went to AWS. I’ve been having some conversations with them to see what they’re using now and if there’s a possibility down that road. I’m simultaneously exploring folks who have asked me, can I use this with Node? Can I use this with Python? Up until now, my answer has been no.
Those are definitely things I’m exploring and we’ll see where that goes, I’m quite not sure yet.
Rob: You have a hypothesis and then you try to prove or disprove that before you write a bunch of code. There’s not an obvious answer. There are multiple paths, and I think each of them can get you away from that risk. It’s not just platform risk, you’re very concentrated. What if over the next five years, Ruby or Rails itself becomes just less popular. It’s possible.
Every language and every platform has an adoption curve and we’ve seen all these languages that come. They have their heyday, and then eventually they don’t last. Computer languages don’t last 50 years. They last 10, 15 years, especially on the web. That’s a thing.
I think for folks who are listening to this. If you built a great business like Rails Autoscale, if you’re thinking long term, you should be thinking about these kinds of things. It’s not to say, oh my gosh, this is a terrible business. I never should have built this, because that’s not true either.
It’s that none of these businesses that we build can just go on autopilot for 5, 10, 15 years and be fine. They all have some type of, whether it’s marketing risk, competitor risks, platform risks, obsolescence risk, adoption curve risks. There are all these things that if you really plan to sell it in a few years, then you don’t need to worry about this. But if you want to run a business like this for 10 or 20 years, a lot is going to change.
Think about how the web was 20 years ago, 2001, and how different it is today. What will it be in 2041? I’m not just talking about Rails Autoscale, I’m talking to any listener out there, will your app benefit from that? How will it need to change in the meantime to be viable?
You’re a bootstrapper or mostly bootstrapped, you’ve been making a full-time living for a year of business and suddenly it gets cut off from under you. What do you do? Do you want to go get a job? Because that doesn’t sound like fun.
Adam: Joining TinySeed caused a lot of introspection and a lot of thinking about what I want out of this business long-term because it was already making good money. It had hit the point where I hadn’t yet switched to doing it full time, but I hit the point where I probably could. You could call it a lifestyle business at that point. It was making enough money to provide a decent lifestyle.
I was thinking, I don’t have aspirations to be a billionaire or anything like that, I just want to live a good life and do work that I care about. I also don’t want to live every day with the anxiety that this thing is going to be yanked out from under me and I’m going to have to go get a job, especially after being out of the job market for so many years.
I think I’m at the point where I want to build a larger business not because I want to build a large business, just larger than what it is currently. Just to have confidence that a slight downturn isn’t going to make me go looking for a job or anything like that.
Rob: That’s the balance. I experienced a lot of that with HitTail and then even with Drip. It was always like looking over my shoulder thinking what is either going to cut my MRR or what’s going to put us out of business overnight accidentally. There are all types of stuff.
I feel like it got really depressing here for a minute. Let’s pull out of that. I’m curious, you applied to TinySeed last November now, it’s like six or seven months ago. You were already making plenty of MRR to quit your job, pretty much anyone anywhere in the world could live out of. I forgot what it was. It’s maybe $16,000 or something. It was a healthy dose, single founder, almost no expenses, but it was still a side project. You had a day job. Why was that? Why did you continue working at Rails Autoscale as a side project even with that much MRR?
Adam: There were several reasons. One is that the growth kind of took me by surprise. The growth of the business was slow and steady until 2020. I started the year 2020 with less than $5000 MRR, ended it with over $15,000 MRR. The business more than tripled just in 2020 and I don’t know why. I don’t know if that’s COVID-related in any way with more things going online.
2020 took me by surprise in terms of business growth, and we were risk-averse. Honestly, I’m the only income. My wife is back in school and we weren’t prepared for the idea of completely relying on this business as our sole income.
At the end of 2020, we realized this is going to happen. It’s just a matter of when I make this leap. That’s the point where I decided, well I could wait until later in 2021, or I could apply to TinySeed and see what happens there because that will definitely be sufficient cushion to make that leap with confidence even being pretty risk-averse.
Rob: Was it challenging for you to work the day job and have the nights and weekends side project? Because I know for some people that’s really hard. For me, it was very hard all those years I did it. For other people, it’s just not that big of a deal. How was it for you?
Adam: It was hard. Honestly, I think back to when I first built Rails Autoscale in 2016, 2017 and I’m not quite sure how I did it. If I think about 2018, 2019, and 2020, I don’t feel like I was putting much into Rails Autoscale by that point. It was a product that was working. It was growing slowly just through people finding it in the Heroku marketplace.
While I had time, I tended not to have a whole lot of mental energy or creative energy after the day job. I found myself not just putting as much into Rails Autoscale, and that made me want to go full-time on it even more because I just felt like if I want to accelerate this business at all, I can’t have a day job and do it at the same time.
Rob: It’s a tough place to be. I’ve heard some developers say, I just can’t do stuff on the side. If I’m going to do it, I need to be all in and I need to quit my day job. I would have loved to have that luxury because, by the time I was really getting stuff off the ground, I was married, I had a mortgage. I guess I was doing it before we had our first kid, but frankly, it was just a couple of years.
We live in an eight-bedroom apartment with roommates, I didn’t have that option. I didn’t have money in the bank. I didn’t have rich parents. I didn’t have rich relatives to do any type of friends and family, so I needed enough income. We didn’t live lavishly by any stretch, but even just to maintain my job at that time maybe was $60,000 a year. This is my job. I graduated from college, did construction, and my first programming job was $60,000. I couldn’t make much less than that and own a home in California with a family and such.
I really wished I didn’t have to do those nights. I would stay up till 1:00 AM and then I’d go to sleep, but then I wake up and do the day job. It sucked, but to me, it was just what you had to do. If I wanted to one day have freedom, I figured that was the price that I had to pay.
Other people have to pay different prices. I’m not saying because someone else didn’t, that they had it easier or they’re not as worthy of it, it’s nothing like that. Each of us has our own starting point. Did you have nights and weekends where you were crying it out like that until midnight or one, waking up tired and doing the day job, or did you have better balance around that?
Adam: I think I had better balance around that. I feel that one of the keys that have helped me get Rails Autoscale to where it is is patience. I’m really happy with where Rails Autoscale is today, but the reality is that I started building it. The first commit was in July of 2016. It’s almost five years old.
When I initially built it, I had aspirations of it becoming my full-time thing within a year and two, but reality pretty quickly smacked me in the face there. At that point, I realized it’s okay to take it slow. I was pretty happy building something that was growing slowly more or less on its own, and it didn’t cause a whole lot of upheaval in my life.
I was able to work on it some nights and weekends, but not to the point of exhausting and causing burnout. I feel good about the way I approach that. Could I have gotten to this point sooner if I had put more into it? I absolutely think I could have. Would I have enjoyed my life as much, probably not and I maybe would have ended up throwing in the towel because I would have gotten burned out.
Rob: That’s the beauty of being an indie founder is we’re independent and you were able to make that decision. You didn’t have any type of timeline other than your own. I admire that patience, to be honest. It sounds like whether you did it intentionally or not, you viewed it as a marathon because that’s kind of what this is.
We think in terms of years, not months. I often say that in the intro of this podcast. This is years and years. At this point for me, it’s a decade and a half journey. If you think you’re going to get to $300,000 in 12 months, you’re going to be disappointed or you’re going to burn out.
Adam: I like that metaphor. I think going into it, I had not accepted that metaphor yet, but once I did accept that, I think it’s a very good metaphor thinking of it as a marathon.
Rob: I hinted at this earlier, but Heroku has a free autoscaler and yet you went and built Rails Autoscale. What was your thinking around that?
Adam: Heroku’s free autoscaler did not exist when I initially built Rails Autoscale. It came in either 2017 or 2018, and that was a scary time. That’s that platform risk right there. You build something on a platform and then they build a native version, it’s free, and you’re completely screwed. That was what was playing around in my head when that was happening.
Fortunately, for me, Heroku’s autoscaler—for one thing, it’s only available on Heroku’s higher tier plans, but even so, I didn’t want to lose all those customers. The reality is it did not impact my business in a noticeable way, and I still get about a third of my customers using those higher tier Heroku dynos.
About a third of my customers could be using Heroku’s free autoscaler but they chose Rails Autoscale instead. What they tell me is it just works better. They’ve all tried Heroku’s autoscaler and it didn’t work reliably for them. Basically, they went to the same thing that we went through back in 2016 trying to autoscale. It was clunky, it was difficult. Then they went to Rails Autoscale and they’re happy paying for it.
Rob: That’s what I’ve heard as well, I’ve talked to a couple of folks. Everyone I know who’s on Heroku and has any type of infrastructure in Rails, they use Rails Autoscale. The sentiment I’ve heard is the same thing. It’s that Heroku’s autoscaling, the built-in, they did it as a check box feature basically and it isn’t actually that good.
I can imagine that moment when you heard that they were going to build it because this was when Mailchimp added automation for Drip because that was our big thing. It’s like, hey, we’re unlike Mailchimp, we have all this automation. Then they announced they’re adding automation and I was like, oh […], this is going to get ugly.
As it turns out, their automation wasn’t that good, and they’re pretty clunky and hard to use. It did muddy the water for us for a while though. Did they just launch it or they preannounced it? Were you thinking, I guess I had a good run. Here we go, I guess we’ll be shutting this down.
Adam: I don’t think there was a preannouncement. I think they just launched it. I thought I was pretty much done. I guess not done because I knew that only a subset of Heroku customers could use Heroku autoscaling, but I definitely thought my business was at least cut in half by that point.
It was scary and if it had existed in 2016, would I have built Rails Autoscale? Would I have had the confidence that people are going to choose a paid solution over something that is free, integrated, and native to Heroku? I don’t know if I would have had that confidence.
Rob: Timing. It’s such an element of timing that you just wouldn’t think about because I would be the same way. If there is a free built-in version built by the platform, why would I build Drip and think that anyone would pay for a paid version? Something about if you had started it a year, a year and a half later, it may have never happened. It’s such a trip to think about.
Since then, even in the last couple of weeks, you launched a freemium version. Before you had a free trial of Rails Autoscale, and now there’s a freemium version where people can get a certain amount. They can hook it up and it tells them they would autoscale up and down, and it gives them 20 a month or a certain amount of autoscale events.
Adam: Exactly, yeah. Twenty autoscale per month.
Rob: That’s cool. What were you thinking there? I want to move from a free trial to freemium. For those who aren’t familiar, freemium is a perpetual plan. It works every month, it doesn’t expire after seven days, but it’s limited. When people want to get the full feature set, they’re able to upgrade and start paying.
What was your thought process with this experiment? Because I view it as an experiment. Is it something that you may undo if it doesn’t turn out well?
Adam: I call it an experiment, but it would have to blow up in my face pretty hard for me to undo it, it’s the reality. So far, it’s going great. When I initially built Rails Autoscale, it was for me a cost-saving thing. I wanted to save our company resources by auto scaling down when we didn’t need it, and I sort of made the assumption that that’s what everybody was going to use Rails Autoscale for.
Since then, I’m finding through talking to my customers that for most of them, it’s not about cost savings, it’s about peace of mind, it’s about having a safety net in place knowing that their app is not going to fall down. It’s not going to slow to a crawl, that they can handle any type of traffic spike or anything that comes their way.
I launched the free version because I want every Rails app on Heroku to be able to have that by default. I really keep pushing this idea of a safety net. That’s how I see Rails Autoscale now. It’s the safety net for your Rails app and every Rails app can have it.
I didn’t want to limit that to just a seven-day trial anymore because then, Rails developers aren’t going to think about it until their app starts scaling or they start having trouble. I want it to be more that you just have there by default and then it’s there when you need it.
Rob: On the marketing side, that’s called owning the lead. If you have freemium that if someone’s already using—I think Patrick Campbell from ProfitWell may have coined that phrase, owning the lead. But I heard it as freemium, obviously not a pricing approach, it’s a marketing approach.
When you have a freemium and someone signs up for your account, even if they’re backgrounding it because they’re not paying for it, but then they remember in six months, oh yeah, I do need that, I do want that, or I’ve noticed this, then they already have a login. It’s just a little bit of comfort and a little bit less friction.
Adam: I haven’t heard the term, but that’s exactly the idea.
Rob: You’re only a week into it, are there any indications? Do you feel good about it so far? Is it completely unknown still as to whether it’s going to work? How are you feeling about it?
Adam: My fear going into it is that I had a subset of paying customers who could maybe potentially have downgraded to free. I was worried about losing revenue there potentially, that hasn’t happened. Basically, what has happened is I’ve had a lot more free instillations. The number of paid subscriptions, the trajectory of that hasn’t changed at all. It has been the same slow and steady growth.
Too early to tell if there’s much impact, but so far I’m at least happy that there’s no negative impact and that I am getting a lot more free signups.
Rob: That’s always the fear with pricing changes, with moving from credit card to no credit card or vice versa. Any of these things is like white knuckles for weeks while you look at the numbers. The worst case is not that it doesn’t accelerate your growth, it’s that it dramatically decelerates it or cannibalizes existing MRR. Glad to hear that.
Sir, thank you so much for joining me on Startups for the Rest of Us today. It’s been great having you.
Adam: This is fun. Thanks for having me.
Rob: Absolutely. Folks who want to keep up with you, you are @adamlogic on Twitter, and of course railsautoscale.com for all the info about what you’re up to. Thanks again.
Adam: Thanks.
Rob: Thanks again to Adam for coming on the show. If you’d like to join a batch of companies much like Rails Autoscale, want to be part of TinySeed and get some funding, mentorship, and continue to grow your business, we are opening applications again here in the next couple of months for our Fall 2021 batch. Head to tinyseed.com and sign up for the email list there to get notified. Thanks again for joining me on this journey, 556 episodes so far. I’ll be back in your earbuds again next Tuesday morning.
