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On this episode, Rob talks through profit sharing, stock options, and equity and makes a comparison between these various approaches.
If you are thinking of ways to incentivize team members as a bootstrapper, this episode is for you.
The topics we cover
[04:34] Bonuses
[07:52] Equity Grants
[11:47] Stock Options
[20:09] Profit Sharing
[26:09] Which is best for your SaaS?
Links from the show
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Turns out, the rumors are true. This is Startups For the Rest of Us episode 519. Thanks for joining me again this week. I’m going to be running a solo adventure today, talking through profit sharing, stock options, and equity, and doing a comparison of those various with the thought of incentivizing employees and team members in mind. This is the conversation I have had at least five times and maybe six in the past three months, so I figured it was time to put some thoughts to tape so it’s a resource I can use to point people in the future.
If you’re thinking about whether as a bootstrapped or mostly bootstrap startup founder, whether to set up a profit-sharing plan to offer stock options to do equity grants or to just pay bonuses or other ways to incentivize your team members, that’s what I’ll really be working through today.
First, I got a couple of the best podcast reviews I think we’ve ever had. The first one is from BrettxKelly via Apple Podcast, and he said, “Rob is the Chuck Norris of bootstrap founders. Thanks for all you do, Rob.” I really appreciate that, Bret. I appreciate the sentiment and the creativity of it.
The other one, the subject line is, “The podcast that changed my life. This podcast was instrumental in my journey from a blah day job to a successful tech founder. Rob and Mike for the first 450 episodes (or so) bring useful, actionable advice every week. I also really appreciate the honest delivery with none of the radio DJ sliminess that so many podcasts seem to embrace.”
Thank you so much for those reviews, and if you haven’t left us a five-star review in Apple podcast, Stitcher, Spotify, or wherever you partake of this show, I would really appreciate it because it definitely helps keep us motivated and it helps bring more listeners to the show.
Next, I wanted to mention hey.com. I’ve mentioned in the past that Basecamp is a headline partner with MicroConf and in partnership with MicroConf, I have had a few Basecamp ads on the show. We are switching those up, and are now for hey.com. If you’re listening to this podcast, you may have heard of it.
If you go to hey.com, you’ll essentially see that the folks at Basecamp have created an entirely new email service, and they say it’s “email’s new heyday. Email sucked for years. Not anymore — we fixed it. HEY’s fresh approach transforms email into something you want to use, not something you’re forced to deal with.”
Hey allows you to screen your emails like you screen calls. You can fix bad subject lines without busting threads, easily find your most important emails every time you log in. They have a built-in reply later workflow that was built from the ground up, and they block email tracking pixels among many, many other things.
I know many of you listeners are already using hey.com, but if you have not checked it out, head over to hey.com and you can try it free. Thanks to Basecamp and Hey for supporting independent startups, MicroConf, and Startups For The Rest of Us.
Let’s dive into our topic for today. As I said at the top of the show, I’m going to be talking through profit sharing, stock options, and equity. I touched on bonuses real quick just as a side note because it occurred to me as I was writing this outline that I should probably address that.
I had this conversation a bunch of times in the past three, four months, and have sent out a bunch of thoughts via email to folks. And I realized, if I just gathered those thoughts, put the bullets on paper, and talked it through that I can probably create, hopefully, an evergreen resource for folks who are thinking about motivating their team members.
I should be really clear that I’m not a lawyer, I’m not an accountant. Do not consider this legal tax advice or any kind of tax advice other than things I have learned from my own experience dealing with these types of incentive programs.
I’d also like to point out that I actually had a conversation with Dru from Trends.vc. If you haven’t checked out Trends.vc, Dru is putting out two reports a month on different trends he’s seeing in the startup space, the bootstrapping space, and he’s creating insightful reports and thoroughly thought out reports. I believe the reports are $20 each if you want to buy the paid version. Each one has a free version, or you can just subscribe for a nominal fee per year. I’m a premium subscriber.
He and I had a conversation a couple of weeks ago when he was preparing his report on profit sharing. If you haven’t checked that out, head to Trends.vc and you can pay a one-off $20 to read his report that’s focused on profit sharing. But today I’m going to be talking about profit sharing, stock options, equity, and touch a little bit on bonuses.
Let’s start with this first question of, I have one, five, ten team members. Why should I give them anything beyond just a salary or their hourly rate anyway? The idea is to align incentives. It’s to motivate people, not just by giving them amazing work to do every day, but to give them a financial incentive to really stick around.
Some people look at it as a retention incentive to not go elsewhere if they can do the same work and make more money. Others look at it as a way to make people just enjoy their jobs more or want to work a little harder and put in some extra hours because they feel like they can make a difference.
There’s a lot of different ways to do it, and of course, this is not a requirement. Giving bonuses or profit-sharing isn’t a requirement, but I personally feel like if your team is cohesive and is working hard to get the same end goal and you are creating profit, creating value, creating wealth. To me, it does feel right (in some way) to share that with your team members.
The first question of why not just give bonuses? Well, you can, and maybe in the early days, that’s something to think about. The big downside to that is oftentimes, bonus programs are pretty arbitrary. You’ve really just had to make a call and say you get a few thousand, here you get $5000, you get two weeks of pay at the end of the year or whatever.
It can feel a little squishy if you try to do this overtime for many years. People can feel like they get left out or they play favorites. Or if they talk among one another, they can feel like perhaps you’re giving more money to someone who doesn’t deserve it. You also don’t want to reinvent the wheel every year. You don’t want to have to reevaluate every year who gets how much bonus and why. As I said, it can feel or even be arbitrary.
In addition, there have been lawsuits from employees of companies where they’re given bonuses every year and they come to count on those bonuses as part of their income and the employees won. I believe this was in California many years ago, so even using the word bonus can be dangerous if you do it year in, year out.
If I were a brand new startup, I had one or two employees, and I wasn’t able to give a bonus one year or maybe two before I got something really structured in place, that’s probably okay. It’s a risk tolerance thing, but it can be dangerous long-term in terms of people to become reliant on it. And if there’s no formula (so to speak) of how to calculate that, which is what profit sharing and the others give you a formula or it’s a set thing that you don’t have to keep rethinking about and reinventing.
Lastly, bonuses are tough because incentives aren’t exactly aligned, are they? Something about profit sharing that’s nice is if the company doesn’t churn a profit that year, people don’t get the profit sharing. Whereas if a company doesn’t turn a profit and you don’t give bonuses, people can be really angry, and they can blame management or their owners. Or they can say it’s mismanagement, and you spent too much money on whatever thing that they don’t like. Therefore, we didn’t get bonuses because we didn’t get a profit.
Bonuses, I think, have a time and place. I think these days, profit sharing or stock options are actually probably better ways to go.
The second thing I want to touch on is equity, and I’m going through this almost in a reverse order of which I think you shouldn’t do. The reason equity is tough, meaning if you just give 1% of your company to the first employee or 3% to the CEO you bring in. Equity grants are not stock options. These are equity grants where you are literally giving a portion of the company. They are taxable on the current value of the company.
While that can be arbitrary, if you have a company—SaaS companies that are doing millions in revenue and you’re trying to give someone 1% of it, the IRS is not going to believe you when they file that the value of that 1% is $1000. You can have serious taxable events if you are given a substantial amount of equity or even an insubstantial amount (to be honest) if the company is large enough.
Now, I will say, if you run a services business, oftentimes—if you run an accounting firm or a legal firm—those can tend to have buy-ins, whereas you come up to become a partner, they value the business. They say, okay, you need to buy 5% or 10% of this business, and you have to buy-in that amount over the course of years. The partners are (in essence) taking that money out.
That’s not a taxable event for the person buying in, that’s different. It’s not an equity grant, that’s just buying into a business, and that is a model. Professional services usually use that model. I’m not talking about that, I’m talking about you’re running a SaaS company and you’re considering just granting equity to someone.
Aside from it being a taxable event based on the current value of the company. Assuming you are running a pass-through entity like an LLC in the United States, if you give someone equity, they now get a K-1 at the end of each year, which makes their taxes more complicated. And if they have never dealt with a K-1, they’re maybe going to want to hire an accountant to do it.
You can imagine this isn’t a big deal if it’s two founders of a company, but what if it’s 20 or 30 employees that you want to incentivize? You’ve suddenly complicated everyone’s taxes. That’s not an ideal outcome.
Another thing to think about is whether you are an LLC or a Corp, you need to have restricted units that vest over time. This would be, even with an equity grant, I wouldn’t tend to just give someone 1% or 3% right at the start. Typically, you have a four-year vesting period, and there’s an initial one-year cliff where they have to work for a year before they get any of the equity. And at that point, they get 25% and then vest it over the three years. That’s the most common approach. Obviously, talk to a lawyer to get specifics.
The interesting part about equity is it does make profit-sharing easy because if someone owns 5% equity and you take out a distribution, then they get 5% of that distribution. It’s simple. It’s tried and true. Equity has been around for hundreds and hundreds of years. It is simple in that respect, but honestly, there can be a danger too.
Let’s say you have an LLC. It makes $500,000 in profit that year, and you’ve given 1% equity to a key employee. Even if you haven’t’ pulled money out, it’s still in the LLC bank account. They get a K-1 for 1% of that $500,000, which will only be $500,000. But in essence, they would then have an income tax bill of $5,000 even though no money came out of it.
Equity makes things complicated. I’ll just put it that way. Know what you’re getting into. To me, equity is for founding employee type folks. If you have co-founders, you know what you are getting into. Straight equity with some vesting is something that a lot of us do. That’s how it’s normally done. But for employee incentives and aligning incentives, I don’t think personally it’s the best way to go.
One last note, if you hold equity for less than a year, it’s short term capital gains. And if you hold it longer for a year, then it’s long term capital gains. That’s one of the best parts of it is if you do have an exit, whether you sell your shares or whether the whole company gets acquired, you do get that nice capital gains treatment. Instead of essentially paying income tax levels on it, you pay 15% or 20%. There’s a much nicer basis there or there’s a much nicer tax outcome. Those are my thoughts on equity incentives.
Let’s move on to stock options, which are the standard Silicon Valley way to motivate folks above and beyond their salary. A stock option is just an option to purchase stock in the company. It’s a specific amount. You’ll say you have 10,000 options. It means you have an option to purchase 10,000 shares at a particular price called the strike price, and that’s set each year by a company’s filing with the IRS.
That strike price is usually quite a bit less than their last funding round. It doesn’t always wind up being that way, but what they say is, okay, you’re starting with us today. Here’s 10,000 options. You have to work for a year. […] Work a year, then you get $2500. And then each month after that, you get essentially 1/36 of the remaining amount up to four years. They typically give you another big chunk of options to keep you retained so you’re always working to just build that up.
A lot of folks don’t exercise their options. They just keep them around, and as long as you’re working at the company, you can just wait until there’s a liquidity event. Of course, the downside of that is paying short-term capital gains on it.
The good news about stock options is there are no capital gains to worry about. If you grant someone options, there’s no real value to them because essentially there’s an option to purchase at the price the company was worth when you’re given the option, so that’s not a taxable event. And they don’t receive a K-1 that complements their taxes, since they’re just an option to buy a share in the future.
It’s actually not owning equity, and there’s no profit sharing unless you would execute the option. They’re designed to payout if you have a liquidity event like going public or being acquired. I guess if you had options in an LLC, it wouldn’t be called stock because there’s no stock in an LLC but unit options, and then you exercise holding those. In theory, if the LLC took a dividend or distribution, you could get that. It’s a very uncommon scenario, and I don’t think people would typically go for that.
The other interesting thing about options is there’s usually this exercise window where if you leave the company and you haven’t exercised any of your options, you usually have about three months. And if you don’t buy the options, they just revert back to the company and you get nothing. I don’t really like that. I actually disagree with that. I don’t think it’s super ethical. I feel like that window should be much, much longer—one, two, three years—and there is a push for that to get longer because it kind of screws employees.
You think about an employee who comes in and they’re going to get 10,000 shares at a $2 strike price. That’s $20,000 worth of options. They work for the company for the full four years, and then they leave. They have this $20,000 that they could purchase. Maybe they don’t have that much in cash, or maybe it’s not a gamble that they can make at that time. But maybe the company sells or goes public a year or two later at $10 a share.
It’s a big gamble for some people to make, and I feel like having a longer time to evaluate that and a longer time to be able to purchase options feels to me like a better way to do it, a more fair way to do it.
The last thing before I tell you my own story about an experience with stock options is that if you exercise your options, you pay the money, then you own the stock in essence. Usually, it’s restricted stock, but it depends on if the company is private. It often has restrictions that you can’t sell it for a certain time.
But if the company is private, then you are typically just holding stock that you can’t sell. If they’re public, you can typically execute and then sell the same day or the same week. You then pay short-term capital gains on any gains that you get. You pay income tax. What I have heard about are folks who have enough money that they’ll exercise them. Hold them for a year, hope that the stock is still higher than when they exercise, and then you get long-term capital gains treatment on that.
My own story with stock options is back in probably about 15 years ago, I was a lead developer and a technical lead for an early prepaid credit card company in LA. We got options and I worked there—I got X thousand options granted, and I only stayed there for 2 years before I went out on my own.
I got half the options that were granted, and when I left, I had to make the decision within 60 or 90 days. Do I buy these? I did, I bought them all. I wound up spending under about $10,000, which is quite a bit of money for me at the time. I figured, hey, it’s a gamble. Maybe it’ll turn out.
Within a year or two of leaving, they raised another round of funding. They didn’t go public, but they allowed people who owned stock to sell a certain percentage of it. I don’t believe I sold any in that offering, but I did sell a little later for about half of it for 10X gain, and then another half for between 10X and 20X gain. It was several hundred thousand dollars, which was obviously really nice at that point in my life. We used a big chunk of it as a down payment on a house, then a chunk of it to fix the roof on the said house, and fix a bunch of other stuff that was broken. Don’t get me started on homeownership. But all in all, it was a good outcome.
If I had stuck around another 2 years I could have made double the money. But I’ve always thought, those were the years that I really cranked up on entrepreneurship. I started writing my book. I built the Micropreneur Academy. It was some early-day stuff. There were a lot of opportunity costs that probably wouldn’t have been worth it.
But my experience with stock options is that one experience. They did later go public, and I actually sold the last of my shares after they went public. My experience, of course, was positive. The reality is in almost all cases, there is no liquidity […]. Most startups fail. Most venture-funded startups fail, and so most venture-funded stock options really aren’t worth it. They just aren’t worth the money, aren’t worth the paper they’re printed on (so to speak).
That’s the reality of gambling on startups. We know that as founders. That it’s dangerous and that it comes with risk. I think it’s harder as an employee when you have so much less control over the company and over the success of it. But these are your choices that you have to make as an employee.
Now, as a founder, as a CEO, if you’re going the Silicon Valley route, you’re raising a big round of venture funding, and you’re doing the Delaware C-corp, stock options are the standard way. If you did anything else, people would look at you funny. I think with bootstrap startups, you can do this.
I think a big question is stock options typically aren’t worth much unless you plan to have a liquidity event, and that doesn’t mean sell or go public necessarily. You can sell shares on a secondary market. Future employees can buy them back. Founders can buy them. There can be some type of liquidity events that can happen. You could take just a minority investment even at some point if you wanted to provide liquidity for employees with a stock option pool.
The bottom line is most startups and most SaaS apps do sell at some point. The vast majority, they do sell within whatever timeframe we could define, 7-10 years. There are very few bootstrappers who are still running the same SaaS product that they were running 10 years ago. That is a reality to think about is there may likely be a liquidity event even if you don’t particularly plan on it today.
I think stock options are a reasonable choice. I hate to even make a recommendation for or against. I think they’re a longer-term play for sure because they do require that liquidity to be worth anything versus profit-sharing, which is more short-term cash out of the business type approach.
But frankly, if you’re not going to pull cash out of the business, if you’re in a high growth market—I think about when we were growing Drip—we weren’t pulling cash out of the business. If we had implemented profit sharing, people would have wanted us to become profitable. The goal at that point was not to be profitable yet, it was to keep growing. In that sense, I think a better motivating or incentive alignment would have been through the use of stock options, even though that can feel weird.
I think about an LLC having stock options, and it’s totally possible to set up a structure like that, but it can feel a little different than the typical C-corp setup. Again, I want to reiterate that not only am I not a lawyer or an accountant, but there are just a lot of pros and cons to these things. If there were one right answer, then everyone would choose to do that. It just depends on the situation and the specifics of the type of company you’re trying to build and how you’re building it. If it’s going to be profitable in the short-term versus long-term, and how you want to structure things for yourself.
Lastly, let’s talk about profit sharing. What’s nice about profit sharing is if you don’t ever plan on selling or having liquidity events, then money and profit distribution make sense. It’s what real businesses are built on. Real businesses sell real products to real customers. To me, again, it makes sense to share those in some form or fashion that the employees and the team members who are building that company with you get to share in some form or fashion.
One drawback to profit-sharing that you don’t see with the other approaches is that if an employee leaves, they don’t take the profit-sharing with them. It ends when their tenure with your company ends. It’s not like having equity or stock options where you can hold onto these things for a future gain. I left that credit card company two, three years before it went public. But I had that lasting piece of equity that I had exercised. It’s maybe not as ideal for employees who want to leave, which works as an incentive to keep them there but can also be a bummer for folks when they leave.
One thing I would think about if I were structuring profit sharing is to make it a pool, not a committed percentage to an individual. That’s a mistake you can make with an early employee is to say, oh, you get 1%, 2%, or 3% of profits. I would think more about, hey, let’s have a 10% profit sharing pool, and all key employees share in that, or all employees share in that.
Such that as you add more people, obviously, that first employee’s percentage of the whole chunk will go down. But ideally, the company should be growing, and these individuals should be contributing to that. If you’re going to do profit sharing, you probably want to stay away from being a C-corp because that’s going to give you double taxation, so you’re going to want to be in a pass-through entity.
Again, I mentioned Trends.vc at the top of the show, but there’s a really good report that Dru put together over there talking about the ins and outs of profit sharing. The best article I’ve ever seen written on profit sharing is from Peldi Guilizzoni. He wrote about the profit-sharing that he designed for Balsamiq. We’ll link that up in the show notes. But he basically said, they started off with a 10% pool—10% of the profits. I believe each quarter was distributed, and then he moved that to 15% at a certain point, years into the company. Now he’s up to 20%. I love that range right there. That feels really solid to me. To be honest, that 10%-15% stock option pool is also the standard size that a Silicon Valley startup would have.
That number does ring in that zone that I feel personally comfortable with. From Peldi’s article, one thing he talks about is they do quarterly distributions, which is probably what I would do if I was going to do it because if you do monthly, it’s too often. It’s just too much paperwork. If you do yearly, then people wait around and it’s bonus season. People will stay past that mark.
If they’re unhappy, they collect the profit sharing for the year, and then they take off. I don’t like that gap. It should be 3 or 6 months tops. But Peldi says, “Our quarterly bonus program allocates 20% of profits to full-time employees: 25% is split equally and 75% is split based on seniority, then it’s all weighed by the cost of living in each location.”
That’s how he structures it, and I do like that there’s a part split equally. There’s a part split by seniority. I have also heard of folks doing it based on the amount of salary people make, and then not having that cost of living of your location factor in because that’s already factored in.
One thing I would stay away from personally is using performance evaluations as some type of thing that affects profit sharing. That can be dangerous as different managers across a company might rate people differently. Basically, you should have A-players on your team, and if not, then they need to be let go in essence. If someone is performing at a subpar rate, then you need to be addressing that rather than essentially docking a bonus because there’s a lot of ways that this can backfire. Personally, I would not be including employee performance as a part of the criteria.
One drawback of profit sharing is that it’s really always taxed as income. It’s a big hit. If you’re talking about, you’re in the 33%, 35%, or 40% tax bracket, and you get a chunk every 3 months in essence, that’s a big difference versus if you were drawing out dividends. I guess through a C-corp, you’d pay double tax on it anyway. Or if you had a stock that you were able to sell, that long-term cap gains is a really big difference, and it can make a really big difference in the tax bill. But that is what it is.
Profit-sharing is cash. It’s a short-term motivator. I shouldn’t say short-term because it can motivate people over the long-term, but it really does allow employees to focus on not only growing the top line but potentially looking at reducing expenses, which the profit is obviously the revenue minus expenses.
I do think that a lot of folks in your company can impact the net profit that it has. If they’re thinking about their share of that, it does a pretty good job of aligning those incentives in a way that perhaps stock options are pretty nebulous.
Why is the stock worth more? Well, it’s typically worth more when someone buys the company or when you raise that next funding round. Is me saving $2000 a month on our AWS bill going to really impact the value of my stock options? It’s very unlikely versus profit sharing. You can see the money hit the Excel spreadsheet, the Google Doc, and you could see how it could literally trickle down to not only the company’s bottom line, but then to your own.
Some companies have folks vest into profit sharing or not be eligible for the first 6 or 12 months. I don’t think that’s unreasonable much in the same way that many companies have a waiting period to get on health insurance or to start a 401(k). This is another perk that makes sure the person’s a fit for the team, that the team is a fit for the person, and then evaluate getting them set up with all of the benefits.
These days, if I was going to evaluate these approaches for my own SaaS startup, I would think about whether I was going to be able to run it profitably. Obviously, profit sharing might be the choice then. Think about whether I was going to grow this and sell it, or have a liquidity event at some point. Then obviously, stock options might be a better opportunity.
Again, I think bonuses can be useful in the early days, but personally, they’re a little too arbitrary and can create a little bit too much chaos or just reinventing the wheel syndrome every year to personally be my favorite for having to run it long-term. And then equity, obviously, I mentioned, if it’s founder-level folks, then you can talk about that. But there are a lot of complexities there—taxable events, K-1s, and all that—that I don’t think scales to a full workforce.
Thanks again for joining me this week as I talked through different ways to incentivize your team members. If you have thoughts or comments on this episode, please give me a shout out on Twitter, @robwalling and @startupspod. I will talk to you again in your earbuds next Tuesday morning.
If you’re thinking about whether as a bootstrapped or mostly bootstrap startup founder, whether to set up a profit-sharing plan to offer stock options to do equity grants or to just pay bonuses or other ways to incentivize your team members, that’s what I’ll really be working through today.
First, I got a couple of the best podcast reviews I think we’ve ever had. The first one is from BrettxKelly via Apple Podcast, and he said, “Rob is the Chuck Norris of bootstrap founders. Thanks for all you do, Rob.” I really appreciate that, Bret. I appreciate the sentiment and the creativity of it.
The other one, the subject line is, “The podcast that changed my life. This podcast was instrumental in my journey from a blah day job to a successful tech founder. Rob and Mike for the first 450 episodes (or so) bring useful, actionable advice every week. I also really appreciate the honest delivery with none of the radio DJ sliminess that so many podcasts seem to embrace.”
Thank you so much for those reviews, and if you haven’t left us a five-star review in Apple podcast, Stitcher, Spotify, or wherever you partake of this show, I would really appreciate it because it definitely helps keep us motivated and it helps bring more listeners to the show.
Next, I wanted to mention hey.com. I’ve mentioned in the past that Basecamp is a headline partner with MicroConf and in partnership with MicroConf, I have had a few Basecamp ads on the show. We are switching those up, and are now for hey.com. If you’re listening to this podcast, you may have heard of it.
If you go to hey.com, you’ll essentially see that the folks at Basecamp have created an entirely new email service, and they say it’s “email’s new heyday. Email sucked for years. Not anymore — we fixed it. HEY’s fresh approach transforms email into something you want to use, not something you’re forced to deal with.”
Hey allows you to screen your emails like you screen calls. You can fix bad subject lines without busting threads, easily find your most important emails every time you log in. They have a built-in reply later workflow that was built from the ground up, and they block email tracking pixels among many, many other things.
I know many of you listeners are already using hey.com, but if you have not checked it out, head over to hey.com and you can try it free. Thanks to Basecamp and Hey for supporting independent startups, MicroConf, and Startups For The Rest of Us.
Let’s dive into our topic for today. As I said at the top of the show, I’m going to be talking through profit sharing, stock options, and equity. I touched on bonuses real quick just as a side note because it occurred to me as I was writing this outline that I should probably address that.
I had this conversation a bunch of times in the past three, four months, and have sent out a bunch of thoughts via email to folks. And I realized, if I just gathered those thoughts, put the bullets on paper, and talked it through that I can probably create, hopefully, an evergreen resource for folks who are thinking about motivating their team members.
I should be really clear that I’m not a lawyer, I’m not an accountant. Do not consider this legal tax advice or any kind of tax advice other than things I have learned from my own experience dealing with these types of incentive programs.
I’d also like to point out that I actually had a conversation with Dru from Trends.vc. If you haven’t checked out Trends.vc, Dru is putting out two reports a month on different trends he’s seeing in the startup space, the bootstrapping space, and he’s creating insightful reports and thoroughly thought out reports. I believe the reports are $20 each if you want to buy the paid version. Each one has a free version, or you can just subscribe for a nominal fee per year. I’m a premium subscriber.
He and I had a conversation a couple of weeks ago when he was preparing his report on profit sharing. If you haven’t checked that out, head to Trends.vc and you can pay a one-off $20 to read his report that’s focused on profit sharing. But today I’m going to be talking about profit sharing, stock options, equity, and touch a little bit on bonuses.
Let’s start with this first question of, I have one, five, ten team members. Why should I give them anything beyond just a salary or their hourly rate anyway? The idea is to align incentives. It’s to motivate people, not just by giving them amazing work to do every day, but to give them a financial incentive to really stick around.
Some people look at it as a retention incentive to not go elsewhere if they can do the same work and make more money. Others look at it as a way to make people just enjoy their jobs more or want to work a little harder and put in some extra hours because they feel like they can make a difference.
There’s a lot of different ways to do it, and of course, this is not a requirement. Giving bonuses or profit-sharing isn’t a requirement, but I personally feel like if your team is cohesive and is working hard to get the same end goal and you are creating profit, creating value, creating wealth. To me, it does feel right (in some way) to share that with your team members.
The first question of why not just give bonuses? Well, you can, and maybe in the early days, that’s something to think about. The big downside to that is oftentimes, bonus programs are pretty arbitrary. You’ve really just had to make a call and say you get a few thousand, here you get $5000, you get two weeks of pay at the end of the year or whatever.
It can feel a little squishy if you try to do this overtime for many years. People can feel like they get left out or they play favorites. Or if they talk among one another, they can feel like perhaps you’re giving more money to someone who doesn’t deserve it. You also don’t want to reinvent the wheel every year. You don’t want to have to reevaluate every year who gets how much bonus and why. As I said, it can feel or even be arbitrary.
In addition, there have been lawsuits from employees of companies where they’re given bonuses every year and they come to count on those bonuses as part of their income and the employees won. I believe this was in California many years ago, so even using the word bonus can be dangerous if you do it year in, year out.
If I were a brand new startup, I had one or two employees, and I wasn’t able to give a bonus one year or maybe two before I got something really structured in place, that’s probably okay. It’s a risk tolerance thing, but it can be dangerous long-term in terms of people to become reliant on it. And if there’s no formula (so to speak) of how to calculate that, which is what profit sharing and the others give you a formula or it’s a set thing that you don’t have to keep rethinking about and reinventing.
Lastly, bonuses are tough because incentives aren’t exactly aligned, are they? Something about profit sharing that’s nice is if the company doesn’t churn a profit that year, people don’t get the profit sharing. Whereas if a company doesn’t turn a profit and you don’t give bonuses, people can be really angry, and they can blame management or their owners. Or they can say it’s mismanagement, and you spent too much money on whatever thing that they don’t like. Therefore, we didn’t get bonuses because we didn’t get a profit.
Bonuses, I think, have a time and place. I think these days, profit sharing or stock options are actually probably better ways to go.
The second thing I want to touch on is equity, and I’m going through this almost in a reverse order of which I think you shouldn’t do. The reason equity is tough, meaning if you just give 1% of your company to the first employee or 3% to the CEO you bring in. Equity grants are not stock options. These are equity grants where you are literally giving a portion of the company. They are taxable on the current value of the company.
While that can be arbitrary, if you have a company—SaaS companies that are doing millions in revenue and you’re trying to give someone 1% of it, the IRS is not going to believe you when they file that the value of that 1% is $1000. You can have serious taxable events if you are given a substantial amount of equity or even an insubstantial amount (to be honest) if the company is large enough.
Now, I will say, if you run a services business, oftentimes—if you run an accounting firm or a legal firm—those can tend to have buy-ins, whereas you come up to become a partner, they value the business. They say, okay, you need to buy 5% or 10% of this business, and you have to buy-in that amount over the course of years. The partners are (in essence) taking that money out.
That’s not a taxable event for the person buying in, that’s different. It’s not an equity grant, that’s just buying into a business, and that is a model. Professional services usually use that model. I’m not talking about that, I’m talking about you’re running a SaaS company and you’re considering just granting equity to someone.
Aside from it being a taxable event based on the current value of the company. Assuming you are running a pass-through entity like an LLC in the United States, if you give someone equity, they now get a K-1 at the end of each year, which makes their taxes more complicated. And if they have never dealt with a K-1, they’re maybe going to want to hire an accountant to do it.
You can imagine this isn’t a big deal if it’s two founders of a company, but what if it’s 20 or 30 employees that you want to incentivize? You’ve suddenly complicated everyone’s taxes. That’s not an ideal outcome.
Another thing to think about is whether you are an LLC or a Corp, you need to have restricted units that vest over time. This would be, even with an equity grant, I wouldn’t tend to just give someone 1% or 3% right at the start. Typically, you have a four-year vesting period, and there’s an initial one-year cliff where they have to work for a year before they get any of the equity. And at that point, they get 25% and then vest it over the three years. That’s the most common approach. Obviously, talk to a lawyer to get specifics.
The interesting part about equity is it does make profit-sharing easy because if someone owns 5% equity and you take out a distribution, then they get 5% of that distribution. It’s simple. It’s tried and true. Equity has been around for hundreds and hundreds of years. It is simple in that respect, but honestly, there can be a danger too.
Let’s say you have an LLC. It makes $500,000 in profit that year, and you’ve given 1% equity to a key employee. Even if you haven’t’ pulled money out, it’s still in the LLC bank account. They get a K-1 for 1% of that $500,000, which will only be $500,000. But in essence, they would then have an income tax bill of $5,000 even though no money came out of it.
Equity makes things complicated. I’ll just put it that way. Know what you’re getting into. To me, equity is for founding employee type folks. If you have co-founders, you know what you are getting into. Straight equity with some vesting is something that a lot of us do. That’s how it’s normally done. But for employee incentives and aligning incentives, I don’t think personally it’s the best way to go.
One last note, if you hold equity for less than a year, it’s short term capital gains. And if you hold it longer for a year, then it’s long term capital gains. That’s one of the best parts of it is if you do have an exit, whether you sell your shares or whether the whole company gets acquired, you do get that nice capital gains treatment. Instead of essentially paying income tax levels on it, you pay 15% or 20%. There’s a much nicer basis there or there’s a much nicer tax outcome. Those are my thoughts on equity incentives.
Let’s move on to stock options, which are the standard Silicon Valley way to motivate folks above and beyond their salary. A stock option is just an option to purchase stock in the company. It’s a specific amount. You’ll say you have 10,000 options. It means you have an option to purchase 10,000 shares at a particular price called the strike price, and that’s set each year by a company’s filing with the IRS.
That strike price is usually quite a bit less than their last funding round. It doesn’t always wind up being that way, but what they say is, okay, you’re starting with us today. Here’s 10,000 options. You have to work for a year. […] Work a year, then you get $2500. And then each month after that, you get essentially 1/36 of the remaining amount up to four years. They typically give you another big chunk of options to keep you retained so you’re always working to just build that up.
A lot of folks don’t exercise their options. They just keep them around, and as long as you’re working at the company, you can just wait until there’s a liquidity event. Of course, the downside of that is paying short-term capital gains on it.
The good news about stock options is there are no capital gains to worry about. If you grant someone options, there’s no real value to them because essentially there’s an option to purchase at the price the company was worth when you’re given the option, so that’s not a taxable event. And they don’t receive a K-1 that complements their taxes, since they’re just an option to buy a share in the future.
It’s actually not owning equity, and there’s no profit sharing unless you would execute the option. They’re designed to payout if you have a liquidity event like going public or being acquired. I guess if you had options in an LLC, it wouldn’t be called stock because there’s no stock in an LLC but unit options, and then you exercise holding those. In theory, if the LLC took a dividend or distribution, you could get that. It’s a very uncommon scenario, and I don’t think people would typically go for that.
The other interesting thing about options is there’s usually this exercise window where if you leave the company and you haven’t exercised any of your options, you usually have about three months. And if you don’t buy the options, they just revert back to the company and you get nothing. I don’t really like that. I actually disagree with that. I don’t think it’s super ethical. I feel like that window should be much, much longer—one, two, three years—and there is a push for that to get longer because it kind of screws employees.
You think about an employee who comes in and they’re going to get 10,000 shares at a $2 strike price. That’s $20,000 worth of options. They work for the company for the full four years, and then they leave. They have this $20,000 that they could purchase. Maybe they don’t have that much in cash, or maybe it’s not a gamble that they can make at that time. But maybe the company sells or goes public a year or two later at $10 a share.
It’s a big gamble for some people to make, and I feel like having a longer time to evaluate that and a longer time to be able to purchase options feels to me like a better way to do it, a more fair way to do it.
The last thing before I tell you my own story about an experience with stock options is that if you exercise your options, you pay the money, then you own the stock in essence. Usually, it’s restricted stock, but it depends on if the company is private. It often has restrictions that you can’t sell it for a certain time.
But if the company is private, then you are typically just holding stock that you can’t sell. If they’re public, you can typically execute and then sell the same day or the same week. You then pay short-term capital gains on any gains that you get. You pay income tax. What I have heard about are folks who have enough money that they’ll exercise them. Hold them for a year, hope that the stock is still higher than when they exercise, and then you get long-term capital gains treatment on that.
My own story with stock options is back in probably about 15 years ago, I was a lead developer and a technical lead for an early prepaid credit card company in LA. We got options and I worked there—I got X thousand options granted, and I only stayed there for 2 years before I went out on my own.
I got half the options that were granted, and when I left, I had to make the decision within 60 or 90 days. Do I buy these? I did, I bought them all. I wound up spending under about $10,000, which is quite a bit of money for me at the time. I figured, hey, it’s a gamble. Maybe it’ll turn out.
Within a year or two of leaving, they raised another round of funding. They didn’t go public, but they allowed people who owned stock to sell a certain percentage of it. I don’t believe I sold any in that offering, but I did sell a little later for about half of it for 10X gain, and then another half for between 10X and 20X gain. It was several hundred thousand dollars, which was obviously really nice at that point in my life. We used a big chunk of it as a down payment on a house, then a chunk of it to fix the roof on the said house, and fix a bunch of other stuff that was broken. Don’t get me started on homeownership. But all in all, it was a good outcome.
If I had stuck around another 2 years I could have made double the money. But I’ve always thought, those were the years that I really cranked up on entrepreneurship. I started writing my book. I built the Micropreneur Academy. It was some early-day stuff. There were a lot of opportunity costs that probably wouldn’t have been worth it.
But my experience with stock options is that one experience. They did later go public, and I actually sold the last of my shares after they went public. My experience, of course, was positive. The reality is in almost all cases, there is no liquidity […]. Most startups fail. Most venture-funded startups fail, and so most venture-funded stock options really aren’t worth it. They just aren’t worth the money, aren’t worth the paper they’re printed on (so to speak).
That’s the reality of gambling on startups. We know that as founders. That it’s dangerous and that it comes with risk. I think it’s harder as an employee when you have so much less control over the company and over the success of it. But these are your choices that you have to make as an employee.
Now, as a founder, as a CEO, if you’re going the Silicon Valley route, you’re raising a big round of venture funding, and you’re doing the Delaware C-corp, stock options are the standard way. If you did anything else, people would look at you funny. I think with bootstrap startups, you can do this.
I think a big question is stock options typically aren’t worth much unless you plan to have a liquidity event, and that doesn’t mean sell or go public necessarily. You can sell shares on a secondary market. Future employees can buy them back. Founders can buy them. There can be some type of liquidity events that can happen. You could take just a minority investment even at some point if you wanted to provide liquidity for employees with a stock option pool.
The bottom line is most startups and most SaaS apps do sell at some point. The vast majority, they do sell within whatever timeframe we could define, 7-10 years. There are very few bootstrappers who are still running the same SaaS product that they were running 10 years ago. That is a reality to think about is there may likely be a liquidity event even if you don’t particularly plan on it today.
I think stock options are a reasonable choice. I hate to even make a recommendation for or against. I think they’re a longer-term play for sure because they do require that liquidity to be worth anything versus profit-sharing, which is more short-term cash out of the business type approach.
But frankly, if you’re not going to pull cash out of the business, if you’re in a high growth market—I think about when we were growing Drip—we weren’t pulling cash out of the business. If we had implemented profit sharing, people would have wanted us to become profitable. The goal at that point was not to be profitable yet, it was to keep growing. In that sense, I think a better motivating or incentive alignment would have been through the use of stock options, even though that can feel weird.
I think about an LLC having stock options, and it’s totally possible to set up a structure like that, but it can feel a little different than the typical C-corp setup. Again, I want to reiterate that not only am I not a lawyer or an accountant, but there are just a lot of pros and cons to these things. If there were one right answer, then everyone would choose to do that. It just depends on the situation and the specifics of the type of company you’re trying to build and how you’re building it. If it’s going to be profitable in the short-term versus long-term, and how you want to structure things for yourself.
Lastly, let’s talk about profit sharing. What’s nice about profit sharing is if you don’t ever plan on selling or having liquidity events, then money and profit distribution make sense. It’s what real businesses are built on. Real businesses sell real products to real customers. To me, again, it makes sense to share those in some form or fashion that the employees and the team members who are building that company with you get to share in some form or fashion.
One drawback to profit-sharing that you don’t see with the other approaches is that if an employee leaves, they don’t take the profit-sharing with them. It ends when their tenure with your company ends. It’s not like having equity or stock options where you can hold onto these things for a future gain. I left that credit card company two, three years before it went public. But I had that lasting piece of equity that I had exercised. It’s maybe not as ideal for employees who want to leave, which works as an incentive to keep them there but can also be a bummer for folks when they leave.
One thing I would think about if I were structuring profit sharing is to make it a pool, not a committed percentage to an individual. That’s a mistake you can make with an early employee is to say, oh, you get 1%, 2%, or 3% of profits. I would think more about, hey, let’s have a 10% profit sharing pool, and all key employees share in that, or all employees share in that.
Such that as you add more people, obviously, that first employee’s percentage of the whole chunk will go down. But ideally, the company should be growing, and these individuals should be contributing to that. If you’re going to do profit sharing, you probably want to stay away from being a C-corp because that’s going to give you double taxation, so you’re going to want to be in a pass-through entity.
Again, I mentioned Trends.vc at the top of the show, but there’s a really good report that Dru put together over there talking about the ins and outs of profit sharing. The best article I’ve ever seen written on profit sharing is from Peldi Guilizzoni. He wrote about the profit-sharing that he designed for Balsamiq. We’ll link that up in the show notes. But he basically said, they started off with a 10% pool—10% of the profits. I believe each quarter was distributed, and then he moved that to 15% at a certain point, years into the company. Now he’s up to 20%. I love that range right there. That feels really solid to me. To be honest, that 10%-15% stock option pool is also the standard size that a Silicon Valley startup would have.
That number does ring in that zone that I feel personally comfortable with. From Peldi’s article, one thing he talks about is they do quarterly distributions, which is probably what I would do if I was going to do it because if you do monthly, it’s too often. It’s just too much paperwork. If you do yearly, then people wait around and it’s bonus season. People will stay past that mark.
If they’re unhappy, they collect the profit sharing for the year, and then they take off. I don’t like that gap. It should be 3 or 6 months tops. But Peldi says, “Our quarterly bonus program allocates 20% of profits to full-time employees: 25% is split equally and 75% is split based on seniority, then it’s all weighed by the cost of living in each location.”
That’s how he structures it, and I do like that there’s a part split equally. There’s a part split by seniority. I have also heard of folks doing it based on the amount of salary people make, and then not having that cost of living of your location factor in because that’s already factored in.
One thing I would stay away from personally is using performance evaluations as some type of thing that affects profit sharing. That can be dangerous as different managers across a company might rate people differently. Basically, you should have A-players on your team, and if not, then they need to be let go in essence. If someone is performing at a subpar rate, then you need to be addressing that rather than essentially docking a bonus because there’s a lot of ways that this can backfire. Personally, I would not be including employee performance as a part of the criteria.
One drawback of profit sharing is that it’s really always taxed as income. It’s a big hit. If you’re talking about, you’re in the 33%, 35%, or 40% tax bracket, and you get a chunk every 3 months in essence, that’s a big difference versus if you were drawing out dividends. I guess through a C-corp, you’d pay double tax on it anyway. Or if you had a stock that you were able to sell, that long-term cap gains is a really big difference, and it can make a really big difference in the tax bill. But that is what it is.
Profit-sharing is cash. It’s a short-term motivator. I shouldn’t say short-term because it can motivate people over the long-term, but it really does allow employees to focus on not only growing the top line but potentially looking at reducing expenses, which the profit is obviously the revenue minus expenses.
I do think that a lot of folks in your company can impact the net profit that it has. If they’re thinking about their share of that, it does a pretty good job of aligning those incentives in a way that perhaps stock options are pretty nebulous.
Why is the stock worth more? Well, it’s typically worth more when someone buys the company or when you raise that next funding round. Is me saving $2000 a month on our AWS bill going to really impact the value of my stock options? It’s very unlikely versus profit sharing. You can see the money hit the Excel spreadsheet, the Google Doc, and you could see how it could literally trickle down to not only the company’s bottom line, but then to your own.
Some companies have folks vest into profit sharing or not be eligible for the first 6 or 12 months. I don’t think that’s unreasonable much in the same way that many companies have a waiting period to get on health insurance or to start a 401(k). This is another perk that makes sure the person’s a fit for the team, that the team is a fit for the person, and then evaluate getting them set up with all of the benefits.
These days, if I was going to evaluate these approaches for my own SaaS startup, I would think about whether I was going to be able to run it profitably. Obviously, profit sharing might be the choice then. Think about whether I was going to grow this and sell it, or have a liquidity event at some point. Then obviously, stock options might be a better opportunity.
Again, I think bonuses can be useful in the early days, but personally, they’re a little too arbitrary and can create a little bit too much chaos or just reinventing the wheel syndrome every year to personally be my favorite for having to run it long-term. And then equity, obviously, I mentioned, if it’s founder-level folks, then you can talk about that. But there are a lot of complexities there—taxable events, K-1s, and all that—that I don’t think scales to a full workforce.
Thanks again for joining me this week as I talked through different ways to incentivize your team members. If you have thoughts or comments on this episode, please give me a shout out on Twitter, @robwalling and @startupspod. I will talk to you again in your earbuds next Tuesday morning.
Episode 518 | A Live LinkedIn Ads Consult with Anthony Blatner and Scatterspoke
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Episode 518 of Startups For the Rest of Us is an experimental format where Anthony Blatner, a LinkedIn expert, live consults with John Samuelson, a B2B SaaS founder on advertising a SaaS business on LinkedIn.
There’s a wealth of knowledge in today’s episode so if you are considering or have thought about LinkedIn ads, this episode is worth a listen. We’d love your feedback on this new format. Was it helpful? Let us know in the comments or on Twitter (@startupspod)!
[BONUS] Download a LinkedIn campaign brief PDF developed during this episode
The topics we cover
[04:29] Should a B2B SaaS founder consider LinkedIn?
[07:33] Scatterspoke’s ideal customer profile
[13:12] Ideal company size for Scatterspoke
[21:16] Looking at adds other companies are running
[24:43] Putting this together into a campaign
[30:36] Audience size and example ads
[36:19] Setting a budget for ads
[22:59] Free trials on LinkedIn
Links from the show
- Episode 517 | Married Co-founders Who Turned a Free Tool Into a Fast-Growing SaaS Product
- 2021 State of Independent SaaS Survey
- Modern Media
- Scatterspoke
- Scatterspoke,Modern Media | Twitter
- Scatterspoke,Modern Media | Website
- Anthony Blatner | Twitter
If you enjoyed this episode, let us know by clicking the link and sharing what you learned.
Click here to share your number one takeaway from the episode.
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: Welcome to this week’s episode of Startups for the Rest of Us. I am your host, Rob Walling. As you all know, each week on the show we cover topics related to building and growing startups using an ambitious yet sustainable approach. This is episode 518 and today is an experimental format. It’s a format I don’t believe—if I recall—we’ve never done but it’s more than 10 years, so you can’t quote me on that.
In essence, we get about 20 cold emails and pitches a week for guests and potential guests wanting to come on the show. In my memory is that we have had exactly zero of those cold pitches on this podcast. It’s just too overwhelming to go through them and frankly, most of them are so far off-topic that it’s just a sea of conversations that would not be relevant to the Startups for the Rest of Us audience.
This week may mark the first time that I’ve ever had someone on who has cold emailed. This is a LinkedIn ads expert named Anthony Blatner. In fact, he didn’t cold email. He called, LinkedIn outreached me, and the reason I was intrigued is, I like talking to specialists in their areas, so Facebook ad experts, Google ad experts, LinkedIn ad experts. Someone who really knows their space, knows how to engineer it, and do it well. I’m always intrigued by their knowledge. I started talking with Anthony a little bit. I actually listened to a couple of other podcasts that he was on and realized he knows what he’s talking about. He actually runs an agency called ModernMedia, it’s at modernmedia.io.
As I started thinking about it, I thought I could bring him on and have the same general conversation that he might have on any other podcast where I say, who do LinkedIn ads work for and how should you target them. General question number three. We could run through it and that would be a fine interview. But I started thinking, what if I brought a startup founder on the show who might be considering doing LinkedIn ads or is going to be doing LinkedIn ads soon? And had Anthony basically do a live back-and-forth conversation, almost like a real client consultation. That’s what I did.
I reached out to a few founders I know and as luck would have it, John Samuelson, a co-founder of ScatterSpoke, which is the company that I interviewed last week. I interviewed John and his wife, Colleen, about them starting ScatterSpoke, which is an online agile retrospective tool. We got to talk through their story last week and then he was available to do this. He had considered LinkedIn ads and it just seemed like it made a ton of sense to just piggyback this week’s episode with last week’s.
Today, we’re going to hear from Anthony Blatner and John Samuelson. Anthony is going to give John advice on LinkedIn ads. Not just advice, he goes through the step-by-step process that he uses to onboard clients and ask him about the roles that you want to target, to get an idea of audience size, and to get an idea what you should give them because sending them to a free trial, as Anthony says, is not usually the way to go. There’s a wealth of knowledge in today’s episode.
If you are considering or have thought about LinkedIn ads, I do think it’s well worth listening to hear Anthony’s process. This is someone who does this day in and day out with clients. He obviously lives and breathes this ecosystem and he’s focused on it. There’s just a lot of knowledge being shared on the show today.
Before we dive in, the second annual State of Independent SaaS Survey went live last week. You can head to stateofindiesaas.com to take the survey if you are a SaaS founder with at least $1 in monthly recurring revenue. We would love to hear from you. Filling out the survey not only gives back to the community because we create the 70+ page glossy report that we passed out last year, but you get the marketing bonus chapter if you complete the survey.
The survey is taking between six and eight minutes this year. We’ve streamlined it just a bit. I would really appreciate you checking it out. We already have hundreds and hundreds of responses and we’re looking to beat last year, which I believe is just shy of about 1600 responses. So, stateofindiesaas.com. With that, let’s dive into my conversation about LinkedIn ads with Anthony Blatner and John Samuelson.
Gentlemen, thank you so much for joining me on the show today.
Anthony: Hey, thanks for having me. Glad to be here.
John: Likewise.
Rob: Listeners, who tuned into last week’s episode, they already have quite a bit of background on ScatterSpoke. I think we’ll update them on that in just a second. I think I wanted to start off Anthony with a question for you for a B2B SaaS founder who might be listening to this. Who really has that high-level question of should I even consider LinkedIn? What needs to be in place for LinkedIn to potentially be a viable channel for a B2B SaaS founder?
Anthony: A couple of pieces that you want to have before you go use LinkedIn. LinkedIn’s a great channel for professional targeting, to be able to get in front of B2B companies. LinkedIn does tend to be a more expensive channel to use. You want to make sure you have your different pieces online before you go use LinkedIn and you pay those higher prices for their advertising.
A couple of things that we usually look for or recommend to use LinkedIn is, first of all, having your LTV be around 10,000 or above to start. LinkedIn’s a more expensive channel, so when your LTVs are above 10,000, then the math gets easier. If it’s below 10,000, it can still work but you’ll need to have to gather pieces of your sales process really tuned in to make sure you’re maximizing that.
The second thing you want to have is a specific target market, a specific target customer profile that you can target. Some companies out there might serve every professional or they might be for every business owner. When you have an extremely broad audience, then honestly, other channels might be cheaper and better for you. LinkedIn is awesome when you need to target a niche decision-maker at scale because that’s what LinkedIn has. It’s like those job titles, those industries, those company sizes. They just can’t get anywhere else. Having a niche ideal customer profile is important.
Thirdly, is having your sales process dialed in. Like I said, LinkedIn’s at the more expensive channel to use, it’s a great place for starting a conversation, and for a lot of people, it’s the only place you’re going to be able to go find your target customer. Because it is more expensive, you want to have your sales process tuned in. As we generate leads for you, you can then go work those leads and turn those leads into customers.
Ben: The way I thought about it is Google searches, and frankly, whatever being searched is good […] they’re about intent. It’s about someone needing to do something now. They’re searching for red Nike shoes or they’re searching for how to make a pumpkin pie. Whereas Facebook tends to be about interests. It’s more about who they are and what they’re interested in. I had thought and I have not really run LinkedIn ads before, but I had assumed that LinkedIn would be based on company type, employer size, and role, most focused on the role of the individual. Does that sound relatively accurate?
Anthony: Yeah, that is accurate. Most of our campaigns do use that company and professional targeting—what’s the role somebody has and then what type of company or industry are they in. That’s the data that nobody else has that LinkedIn does have. We always say, LinkedIn’s one of the first places people update when they change roles or change jobs. It’s usually pretty up-to-date, pretty accurate info.
There are some other targeting options outside of those that we do use that are useful to say, who do we want to target but then also what does this person interested in so that we can find those people that are a good fit and are interested in our offering.
Rob: Sounds good. Let’s dig in. John, you haven’t had much of a chance yet to speak. But folks who listened to last week’s episode already know something about ScatterSpoke. Do you want to just give the 30-second rundown of what ScatterSpoke is? Then, we’ll hand it off to Anthony to run with this
John: Absolutely. ScatterSpoke is an online agile retrospective tool. It was born out of playing around. You can get that story from last week’s episode. Essentially, it allows you to have remote distribution, or you can use in the same room, agile retrospective in some analytics and tools around it.
Anthony: Got you. I listened to a little bit of the episode and took a look at the site and all that. The one thing that I remember that you’re talking about in the last episode was your different customer segments and that you have three different tiers of those customer segments. Let’s start with that. Let’s start with talking about who your ideal target customers are, and then tell me about those three different segments that you have.
John: The baseline is the people that are in there using it, like on a team of engineers, developers, Scrum Masters, maybe product managers to some degree. Those would be on the team level of people using it. As you run up the gamut, you have engineering managers and directors of an engineer might use it.
One of our things that separates us as a tool is we have this feature called scaled retrospectives. If you’re a big company and you have 10 different teams, we can break those into, we call them programs. It’s a safe term. We’ll actually talk about that (I hope) in a few minutes. It’s a way you can roll up information from teams into a next block and then maybe the director only has to look at this program level retrospective. Those are our segments at the moment.
Anthony: Those are two good segments. One is engineers. You mentioned developers, people participating in these retrospectives, the Scrum Masters were probably running them, and then the product managers who are also involved with maybe running those meetings as well. That’s number one. And then number two would be more of the leadership around the engineering capacity. Is that right?
John: Yeah, that’s exactly right.
Anthony: Those are two good segments. Let’s start by breaking down different aspects of this audience. I’ll take some notes as we go and I’ll try to help size up the audience. One big thing when we approach LinkedIn is looking at what’s the size of the adjustable target market out there. Maybe some different things I’ll help advise on is how much to break down the audience into different segments so that we can split-test things when you launch a campaign, then at what points do we want to put together different audiences or how to mix and match those.
To start, are you guys starting in the US primarily or are you guys involved in other countries?
John: I’d say 70% of our traffic is US-based. We do have a pretty strong usage in Europe as well. I don’t know if we’re calling England in Europe anymore but a lot of people in England. I won’t really focus on them as much. The US is the bread and butter for sure. Not much for Asian countries.
Anthony: Sounds good. Knowing what I know about retrospectives and you mentioned engineering and developers, talking about industries that you commonly serve, is it largely the software development industry?
John: Almost entirely. Although one of our bigger clients is actually in oil and gas. Oil and gas company of that size, like a worldwide company. They obviously have dev teams too. I would say the majority of them are some very tech-heavy focused company, yes.
Anthony: On LinkedIn, a lot of companies in the tech, in the software space, a lot of them will categorize themselves as software companies, but then also, a lot of them categorize themselves as the industry that they serve. Just a random example, maybe there are some that are software companies, but they serve the oil and gas industry. They probably categorize themselves as that.
My follow-up question is, oil and gas can be one. Are there any other trends of industries that you see a lot of?
John: Honestly, no. It’s all over the place. From top Silicon Valley household names you would recognize, to healthcare, education. Universities have looked at us. If you have a development team—a lot of companies do now—you’re fair game. I know that’s very wide, but we haven’t really seen a very strong niche.
Anthony: Okay. Commonly, when we have an industry like this, what we’ll do is we’ll do one campaign or one split test that targets just the computer software industry, and then we’ll have one that targets everybody but the computer software industry. We can see those metrics side by side and how it’s performing.
Also wondering—just I think about it—do you ever partner or do you think it’s a possibility or good option to partner with another agile training organization out there? A lot like consulting companies that do stuff like this? Do you ever partner with those companies?
John: We’ve gone down that road a couple of times. Nothing’s really stuck. My wife who co-founded this with me, that’s how we got in the door almost everywhere. She’d be on training assignments at whatever company and be like, oh, by the way, we have this retro tool. It’s definitely a very good way for us to get in. But we haven’t had that much look at getting other consultants to do it.
Anthony: We’ll put that down as an idea, but my hunch for you guys, probably going to start with a split test of one targeting the computer software industry and then the other targeting all the other industry people so you can see those metrics side by side.
Next is talking about the size of the companies that are the best fit. I know you have different plans based on the number of users and stuff. Where do you see your sweet spot being?
John: In terms of the size of the company, this is actually something that I was hoping to pick your brain about. There’s a thing in the agile space, like a framework called SAFe. It stands for Scaled Agile Framework. It’s a very niche part of the agile industry and it’s designed for really large companies. It’s a way for you to scale your agile process from 100 dev teams or 50 dev teams, and it’s very methodical in how it all rolls up. Some of our best enterprise clients implement SAFe.
To do SAFe costs a boatload of money. But obviously, these companies are invested in agile and they’re invested in scaling their agile. One of our sweet spots for tools is this scaled concept. Most companies (I think) that are doing SAFe, they’re literally like Fortune 500 companies. They’re really big. They have 50 dev teams or something.
Anthony: Got it. That’s good to know. Somebody who’s using SAFe means that they’re probably a good prospect for you guys.
John: Absolutely, yeah.
Anthony: I’m taking a quick look here. Doesn’t look like there’s a lot of groups on LinkedIn that are about SAFe and scaled agile.
John: You would search for SAFe program consultant would be a title or role, or agile program manager. Those are key roles. If somebody has that role at a company, you know they’re deep in SAFe.
Anthony: Okay. People using scaled agile, I see there’s a lot of groups around that. That could be a good targeting to layer on top. Back to the company size factor, LinkedIn has different levels of companies you can target. As far as the number of employees that are there. What do you see as your sweet spot being is the best company size to target?
John: I think that most of our customers are probably between 50 and 200 employees. They’re not going to have huge engineering organizations at that size. They would probably be on our cheaper plans. If we’re just talking about where the most for our customers fall, it’s probably there. Our most profitable customers, though, are in thousands of employees.
Anthony: I remember in the last episode, you were talking about enterprise companies. One of those, like Fortune 500 size companies with thousands or even tens of thousands of employees?
John: Yeah. Those guys, when they buy licenses, they’re buying between 1000 and 3000 user licenses.
Anthony: We’ll break down both of those in a second. Next is getting into some of the job titles that we could target. On LinkedIn, we can either do job functions or we could do job titles. Under functions, for example, we have project management functions. The two that I think would be good for you are program and project management and then product management. Those people probably have people who are running projects, probably managing this process. But as far as specific job titles go, you mentioned the SAFe consultant as one. What would be some other job titles that’d be a good fit?
John: In the SAFe role, there’s (I will say) a release train engineer. That’s a very SAFe-specific thing. I had mentioned agile program managers. Those are the really SAFe-heavy things within SAFe or within any of this industry though, I mean software engineer. On the product side, I’m not sure as much. Oftentimes, smaller companies’ product managers often double as a Scrum Master. That could work, but I won’t favor that side. If you’re a company and you have someone that’s a dedicated Scrum Master, you probably care about agile, so you probably would care about us.
Anthony: Yes. I do see, there’s a Scrum Master title on LinkedIn. We can definitely target that. Product, people are likely good, but they might not always be the ones managing this process?
John: Yeah. In general, they might not be inside of engineering. I would do an engineering manager over a product manager just because I think they’re closer to the team that’s actually using our tool.
Anthony: Okay. There is an engineering function on LinkedIn. That could be another broad category to use. How about what are some other titles that are maybe specific to this process or to agile that you commonly see?
John: Agile coach, again, Scrum Master, you could be Kanban, insert something afterward. I don’t know if you can look for certifications on LinkedIn. Is that something you can target?
Anthony: There are skills, which often do match up as certifications.
John: Even developers oftentimes will take a Scrum class or some kind of agile training class and they put it on there. That’s the little gamut there. I’d say, software engineers, engineering managers, Scrum masters, agile coaches, those are definitely the bread and butter of the people that are actually using it often.
Anthony: Okay. As far as the two segments here, it sounds like one is like the engineers themselves. They are a good candidate because they’re in the process, and then the other would be like the managers of that process. About how far up the chain would you want to go?
John: This is a question I would have for you. In terms of purchasing power, most software engineers are not the person that can swipe the credit card. Engineering managers can, but we see it sometimes usually goes up to directors of engineering that are usually like, yup, I approve because they’re usually on a budget. Up above that, I don’t think it makes sense. I don’t think I would target anything with a C in front of it. But vice president of engineering, director of engineering, that’s probably as high as I go in the engineering segment.
Anthony: Next is talking about maybe more of those certifications and those different skills that people could have. I did find a number of them on LinkedIn beforehand. Before I dive into what I already found, tell me a little bit about what are some of those certifications?
John: Scrum Master is the big one, there’s a Kanban certification, there’s a SAFe certification. Those are very targeted types of skills that you can get certified and a lot of companies will pay for their employees to get them.
Anthony: Got it. I do see the scaled agile skill there. Some other ones I see that I found are related to agile, sprint planning as one, Scrum, there is one for retros and retrospectives. People who are doing that at their jobs are probably listing down in their profile. Another question is the different software that you guys integrate with. I think I saw a couple of project management systems. What tools do you guys work alongside?
John: We have integrations, Atlassian, Jira, Trello. Those are the currently active project management tools. If you’re using something like Asana or Rally is really big at big companies. If you’re doing that using those tools, likely you’re doing agile, likely you care about retrospectives.
Anthony: Got it. Those tools are also good candidates if you are using Asana and Rally.
John: Honestly, anything that’s a developer toolchain set as well. That’s actually on our road map to add some of the integrations with GitHub, GitLab. I would rank those slightly lower than the project management stuff, but those definitely work as well.
Anthony: We can even add different groupings of these together. We can do people who have these agile skills, maybe it’s the SAFe framework certification and they have agile skills. Then also, we end that with the tools that they’re using—Jira, Slack, or Trello. And then we’re getting closer to the people who are the best fit for you guys. People who are experienced in agile, who are doing agile, and also using the tools you integrate with, those are probably the best ones to target.
John: Yup, that makes sense.
Anthony: One thing that we can do out there is look out what ads other people are running. Here’s a little tip. If you go to any LinkedIn page—they actually just moved this button—go to the home section and you scroll down just a little bit to see their newsfeed. There’s a little button that says posts and like different things that they could be posting, and then there’s an ads button next to it. If you click on that, you can see the ads being run by any page.
One thing that we do a lot is go look at competitors in any market and see what ads that their competitors are running, it’s usually a good place to get inspiration to see if there are any trends that you see in their ads, what’s the offer, what are they promoting, what’s the angles that they’re taking, and then what’s the imagery that they’re using. And some of these tools you integrate with could be good prospects to just go check other ads too.
Who would you say are some competitors or similar offerings out there in the market?
John: The big one that comes to mind is a company called Retrium. They do a lot of ad spend marketing on Google. I’ve never seen them on LinkedIn, but they could be on there. Another one would be Parable. To be honest with you, there’s not really a lot of other ones. Those are probably the two bigger ones. That’s not true. Things like Miro, which are huge, have tried to do little niche side products off their main product. I don’t think they would be spending money on advertising for retros. That’s what comes to mind.
Anthony: I’m looking at Retrium right now. It looks like they have a webinar about anti-patterns and then a lot of their ads are also around as a free trial to sign up to get started. It’s also a good sign when you see your competitors using ads on LinkedIn. That could be an indicator that they’re having success with it.
One thing, general LinkedIn recommendation, is you do see a lot of people out there that will advertise directly for a free trial, schedule now, or sign up now. On LinkedIn, you’re usually paying for every click. As soon as somebody clicks on your ad, you’ve paid for that click whether they sign up or not. We generally see that those are lower converting offers because they’re very direct. Someone needs to know enough about you to be willing to sign up. We see that those offers can be a lot more expensive to get people to sign up for.
Usually, what we do is use a content-focused offer to get somebody to sign up. That starts the conversation, then they’re in your sales or marketing funnel, and then you continue to nurture them from there. Maybe you reach out to them afterward and schedule a meeting. Most of our campaigns on LinkedIn tend to be content-focused, but there’s a lot of strategy around what that piece of content is. You want to (in a way) qualify your prospect a little bit. If they’re signing up for this piece of content, then they’re interested in what it is that you do.
Different things that work well are stuff like blogs, turning them into PDFs, white papers, checklists, stuff like that. I saw you have a good amount of content on your website. I’m wondering, what are the best pieces of content that you guys have and if any of those blog posts are getting a lot of traffic. Wondering about the content that you guys have.
John: Narrowing back to the SAFe thing, SAFe is all about scaling agile. If we can show them content around how we can scale your retrospectives, I think that’s awesome synergy for them. We’re about to release all-new marketing material. When we have a page dedicated to scaling retrospectives and also scaled analytics, that’s what comes to my mind right away.
Anthony: We’re getting a lot of the pieces here. Now, we’re going to start putting this together into what a campaign can look like. Next is thinking about what the funnel is. There’s somebody that’s going to go on to become a customer of yours. I’ve seen your website and it looks like they can sign up right there. What else I see is there’s a schedule a demo button. When somebody signs up on your website or if you ever have somebody reach out to you and say they’re interested, tell me a little bit about what your sales process looks like.
John: To be honest with you, we are just starting to really come up with our marketing and sales process. Traditionally, it looks like they come to our site, they may be play around with it, they have questions, they book a demo or they chat with us through Intercom or write on our support tickets. We handle it from there. When we release all these new marketing stuff, it’s going to be maybe more traditional. If we already use the scaled stuff content as an example, we’d have a special landing page for scaled. You can put in an email address to learn more about scaled agile retrospectives.
Honestly, hopefully, they’ll sign up. Actually, I think Rob might kill me because we talked about this a long time ago. Our schedule a demo button still goes directly to us without qualifying them, really. It hasn’t been that crazy of a problem. I would either want their email address or for them to schedule a demo as a goal (I guess) from an ad, but I don’t have enough experience with these types of marketing ad funnels to really speak beyond that. That’s what I think would be a goal.
Anthony: Right now, if somebody hits schedule a demo, then they get in touch with you. You guys get on that call, have a quick demo. If they’re interested they sign up from there?
John: Yeah. That’s exactly right.
Anthony: Okay. Sounds good. Next is starting to put some of these pieces together. As I said, if you go direct without scheduling a demo on LinkedIn, most people out there haven’t heard about you. Most companies in general out there, if you’re not a mainstream company or a well-known brand, people haven’t heard about you. If you put schedule a demo in that first ad, people just don’t know enough to be qualified to sign up. Someone might submit that form but might not really know exactly what you do, could be a little confused, or they think of something else.
We see that people that sign up for that usually, it’s a much lower conversion rate. You’re paying a lot more for each lead. The leads that you get usually aren’t great because they just don’t know enough yet. Going content-focused, content first, the more educational route, using these lead magnets is a good way to get people to sign up and positioning it so it qualifies the person as they sign up.
When you use LinkedIn’s targeting so that these are good leads that are coming through because they are only targeting companies up to a certain size, people with these specific job titles, and then positioning the content as something for SAFe would be a great piece of content to have.
There are different levels of content and usually, we see that white papers, guides, and checklists often do the best. Quick and easy downloadables, something that someone can learn something about you. We see that quick and easy downloadables get the highest conversion rate because somebody can download it quickly, read it, and learn a little bit about you. You started the conversation with them and then you can reach out to them afterward via email to set up that follow-up call.
Not everyone will take that step, not right away, but part of the sales process that I mentioned having honed in is you want to have some kind of follow-up email sequence out there, some Drip campaign that when somebody signs up and says they’re interested, and they’ve downloaded the piece of content. Maybe you have a weekly email or a monthly email that goes out, maybe with more content about SAFe, you can alternate videos of your platform or information about your platform, and then you can include little offers in there, too. Like here’s the next step, schedule a demo, or start for free—I see you have here—so having that follow-up sales process is important. Thinking about what that content offer is going to be, yeah, I think something like SAFe could be a good piece of content.
John: I have actually another question around that. If we have an ad and we say, here’s this great piece of content, come and download it. That takes them to a landing page of ours where they can do that. Is the entire goal for them to download or do whatever that content thing is, should we not even put a sign-up now button somewhere on there that’s like a different call to action? Or do you focus to just get them the content right then and then nurture them through email?
Anthony: Good question. Yes. In the funnel, you do want to offer them that next step or at least show them what that next step is going to be. The first goal is yes, get them to that landing page, that they can download the content and read it. Them reading that content is what warms them up to your brand. They see your logo, but more importantly, they learn about ScatterSpoke and they learn what it is you do. At the end of your PDF, you might have a little blurb about ScatterSpoke and click here to learn more. But on that landing page, you want them to learn a little bit, you want them to read that lead magnet, and then usually, maybe lower on the page, maybe on the side there, we’ll have a little button and then indicate like, hey, if you’re interested in getting ScatterSpoke to help you with this problem, to help you with scaled agile, then click here to schedule that demo.
Oftentimes in our funnels, there’s a lot of tools out there that are like scheduling widgets you can use and you can embed those right in your landing pages. Maybe somebody clicks that button and they said, okay, I am interested to learn more, or I want to try this tool out. I’m going to sign up for this scaled agile stuff and they click that button, it can go on to book a call with you.
John: Got you. That makes sense. You can do both, but the primary focus should probably be on the content, that you can still try to lure them further down the funnel.
Anthony: Yeah. Them consuming that content is what is going to educate them and warm them up to your brand. You do have a competitor out there. If they didn’t read that PDF, then they don’t know what makes you different from Retrium. Them reading your scaled agile piece of content in your lead magnet, you’ll want to teach them something, but then also weave in how ScatterSpoke helps you achieve that goal. Through them reading that, they’ve learned more and they know more about ScatterSpoke.
John: Makes sense.
Anthony: Next is talking about what some of the ads could look like. I have a couple of audience sizes here based on the different titles and stuff you’ve given me. If we were targeting the computer software industry and if we were targeting engineering and project management type of roles—C or the VP levels—and using these different skills, it looks like that’s about 20,000–30,000 people in that audience, maybe bigger, maybe smaller if we add or remove some of these piece of skills that we talked about. But that’s what we want to see is we want to see at least 20,000 people in that audience. That might not sound huge, but that’s still a lot of people out there.
If you use an audience that’s smaller than that on LinkedIn, you might just have some deliverability issues, trouble getting in front of people, but having a 20,000–30,000 audience is a good size. If you go on LinkedIn and you have a massive audience of a million people, then you want to start segmenting that down into different sub-audiences that you can split test.
For the other side of things, if we were to target other industries outside of computer software, that’s a lot of industries out there. Looks like that audience is about 60,000–80,000 people. This one is taking all those agile skills and then also ending that with a different tool that it could be using. This is probably a pretty good audience for you, too.
That’s the first thing we want to look at is what’s the size of the audience that we can be targeting on LinkedIn. Our usual target is somewhere between 20,000–80,000 people. If it’s under 20,000 that might be a little small. If it’s over 80,000 people, then usually we have the opportunity to get more targeted in it.
Next is talking about what some of these ads could look like. If we were doing a scaled agile framework PDF, the question for you is what are some of the main pain points that one of these Scrum Masters has approaching scaled agile.
John: What we’re trying to do in our tool is oftentimes teams will complain about the same thing for months and months and months, and it doesn’t really ever leave the team. One of the things we’re trying to solve with this scaled idea is to elevate them to more leaders in the company. What we’re trying to solve and the pain point specifically is to get things off the team level and into a leadership level in a formal process or […] way so that they know what’s happening on the teams. Otherwise, they’d often get lost and it just remains as the problem for long periods of time.
Anthony: Got it. The problem there is that things are getting lost?
John: Yeah, or they’re just never solving the problem. They’re just like, oh, it’s out of our control. We can’t change some fundamental company things so we should just never tell anybody about it. But I think leaders often do want to know about that stuff still. If they don’t feel like there’s a way to talk to the senior leaders in a company, then they’re never going to tell them. We’re offering in a way to make a tidy inbox of problems and concerns from teams up to higher-up leaders at a company.
Anthony: Okay. The last piece here is what some of your ad copy could look like. Maybe, you’d say for your scaled agile PDF here, your ad copy to the engineers, maybe you’d say, having trouble submitting your retrospective feedback? Download this scaled agile guide to learn how to better manage your retrospectives for your company.
We also find like throwing stats in there can also be really powerful. I saw in your website, there’s mentioning about wasting time, stuff like that. Different angles you could take is are you wasting time in retrospectives and not getting anything done? Are you having trouble getting in touch with higher leadership? And then throwing in the stat saying, the average sprint team wasted 30 hours. Download this ultimate guide to scaled agile to learn more.
Somebody who signs up for that using our LinkedIn targeting, we can know that these are engineers using these tools […] agile and likely having this problem or interested in the solution that you have. That’s probably a good candidate for you. Just an example of some plausible ad copy.
Maybe another cool thing I could probably do after is send this over to you, maybe package it all up, send it over, maybe put together an image or two, what it could look like along with some of the audience targeting stuff that we talked about, put it on a package and then send it over. That might be a good wrap up of everything that we talked about.
John: Yeah. The examples you just gave are spot on and would totally work. We pretty much narrowed it down to what would get these SAFe guys moving, honestly. They’ll love all this stuff. I’m actually curious, though. Two things that we’re talking about along the way. We have one audience size of 20,000 or 30,000 people. One audience size that was much bigger, like 80,000 people. Who should I spend money on first?
Anthony: That question I’ll turn back to you. I would turn back to you and ask who’s the more important prospect for you?
John: I think it’s hard to know who’s going to pull out the credit card at the end of the day. I guess, is there a way to say, I want to spend 60% of the budget on that group and 40% of the budget on that group on LinkedIn?
Anthony: Yup. What we would do is set up separate campaigns to split test them and then each campaign is its own audience. We’d basically split test your audiences and then you allocate a specific budget to each campaign so we could do it. Yeah, we can do 60% to one audience and then 40% to another. Usually, when we launch campaigns, we always have at least two audiences. We have a measuring stick so that we can compare them. The different levels of split test we usually set up are at least two audiences, at least two lead magnets, and then several ads for them.
John: Probably a lot of companies in my position would want to know this. Everything we just talked about, what’s the right size budget to think about? If you go to an ad company (and I have) then you’re like, what should we start with? Well, you should do a $5000 minimum. Other people have said, you can probably get early results for $500–$1000. How should we think about setting a budget for something like this?
Anthony: LinkedIn is a more expensive channel. I usually recommend the minimum for each campaign is about $2000, and then the minimum amount per campaign level is about $1000. Then you can be sure you’re getting at least enough clicks in that you’re getting enough data to make a decision based off of. For here, if we were doing these two audiences for you, I’d recommend $1000 over a month period for each audience and then $2000 total.
John: Okay, got you. We’re a small, mostly bootstrap company. Obviously, these things are really important to us. What’s a normal clickthrough rate, just to put in perspective?
Anthony: Normal clickthrough rate, the LinkedIn average is about 0.4. Anything above that and your ads will actually benefit going in the auction. You’ll get cheaper ad costs. 0.4 is actually relatively low. We like to say you want to shoot for usually around like a 0.75 or so. That’s a good CTR that we look for.
At the end of the day, we don’t look at CTR a ton because on LinkedIn you’re usually paying for every click. Whether or not something clicks, you only pay when somebody clicks. Having a little CTR rate doesn’t usually hurt you unless you’re below that 0.4 level. We don’t look at CTR a ton, but we look at what’s the CPC that you’re paying.
John: Right, but it just helps me ballpark. I can take the number of people that might view it, just start to do basic math, and maybe estimate what CPC would look like. Okay, that’s all really, really handy. This has been awesome.
Rob: Anthony, if you do want to package that up and send it over, I might love to pull maybe just a couple of pieces out of it, put it in either our show notes directly, or maybe as a PDF people can download. Just hearing it all on the show is super informative, but then being able to even see what you’re talking about could be helpful for listeners too.
Anthony: Yeah, definitely. I’ve been trying to do my best to articulate the different job titles and copy and stuff, but it’s totally different seeing it done in writing.
Rob: I know. To call out for the listeners, you would ask, can we do a screen share. I know that would be ideal, but it’s just so many of our listeners are going to be audio-only that I felt like it would leave a lot of people out. If they need that visual element, we’ll be sure to include that in the show notes.
If you would like to keep up with Anthony, you can head to modernmedia.io, or head to LinkedIn where he has a prominent profile—more than 500 connections. I was going to make a joke and say, and Anthony has no LinkedIn profile.
Anthony: That would be funny, though.
Rob: I don’t know if people might have a dry sense of humor, maybe. Wouldn’t have worked. John as well, you are @scatterspoke on Twitter. Gentlemen, thank you so much for joining me today.
Anthony: It was fun. Thanks for having me.
John: That’s right.
Rob: Thanks again to Anthony and John for joining me on the show today. Again, check out stateofindiesaas.com if you are a SaaS founder and are willing to provide anonymized data to really help educate us all on this whole independent SaaS movement. The non-venture track bootstrap or mostly bootstrapped SaaS founders the more data we can get, the more knowledge that we have and can share with one another. Thanks so much for listening and I will see you again next Tuesday morning.
In essence, we get about 20 cold emails and pitches a week for guests and potential guests wanting to come on the show. In my memory is that we have had exactly zero of those cold pitches on this podcast. It’s just too overwhelming to go through them and frankly, most of them are so far off-topic that it’s just a sea of conversations that would not be relevant to the Startups for the Rest of Us audience.
This week may mark the first time that I’ve ever had someone on who has cold emailed. This is a LinkedIn ads expert named Anthony Blatner. In fact, he didn’t cold email. He called, LinkedIn outreached me, and the reason I was intrigued is, I like talking to specialists in their areas, so Facebook ad experts, Google ad experts, LinkedIn ad experts. Someone who really knows their space, knows how to engineer it, and do it well. I’m always intrigued by their knowledge. I started talking with Anthony a little bit. I actually listened to a couple of other podcasts that he was on and realized he knows what he’s talking about. He actually runs an agency called ModernMedia, it’s at modernmedia.io.
As I started thinking about it, I thought I could bring him on and have the same general conversation that he might have on any other podcast where I say, who do LinkedIn ads work for and how should you target them. General question number three. We could run through it and that would be a fine interview. But I started thinking, what if I brought a startup founder on the show who might be considering doing LinkedIn ads or is going to be doing LinkedIn ads soon? And had Anthony basically do a live back-and-forth conversation, almost like a real client consultation. That’s what I did.
I reached out to a few founders I know and as luck would have it, John Samuelson, a co-founder of ScatterSpoke, which is the company that I interviewed last week. I interviewed John and his wife, Colleen, about them starting ScatterSpoke, which is an online agile retrospective tool. We got to talk through their story last week and then he was available to do this. He had considered LinkedIn ads and it just seemed like it made a ton of sense to just piggyback this week’s episode with last week’s.
Today, we’re going to hear from Anthony Blatner and John Samuelson. Anthony is going to give John advice on LinkedIn ads. Not just advice, he goes through the step-by-step process that he uses to onboard clients and ask him about the roles that you want to target, to get an idea of audience size, and to get an idea what you should give them because sending them to a free trial, as Anthony says, is not usually the way to go. There’s a wealth of knowledge in today’s episode.
If you are considering or have thought about LinkedIn ads, I do think it’s well worth listening to hear Anthony’s process. This is someone who does this day in and day out with clients. He obviously lives and breathes this ecosystem and he’s focused on it. There’s just a lot of knowledge being shared on the show today.
Before we dive in, the second annual State of Independent SaaS Survey went live last week. You can head to stateofindiesaas.com to take the survey if you are a SaaS founder with at least $1 in monthly recurring revenue. We would love to hear from you. Filling out the survey not only gives back to the community because we create the 70+ page glossy report that we passed out last year, but you get the marketing bonus chapter if you complete the survey.
The survey is taking between six and eight minutes this year. We’ve streamlined it just a bit. I would really appreciate you checking it out. We already have hundreds and hundreds of responses and we’re looking to beat last year, which I believe is just shy of about 1600 responses. So, stateofindiesaas.com. With that, let’s dive into my conversation about LinkedIn ads with Anthony Blatner and John Samuelson.
Gentlemen, thank you so much for joining me on the show today.
Anthony: Hey, thanks for having me. Glad to be here.
John: Likewise.
Rob: Listeners, who tuned into last week’s episode, they already have quite a bit of background on ScatterSpoke. I think we’ll update them on that in just a second. I think I wanted to start off Anthony with a question for you for a B2B SaaS founder who might be listening to this. Who really has that high-level question of should I even consider LinkedIn? What needs to be in place for LinkedIn to potentially be a viable channel for a B2B SaaS founder?
Anthony: A couple of pieces that you want to have before you go use LinkedIn. LinkedIn’s a great channel for professional targeting, to be able to get in front of B2B companies. LinkedIn does tend to be a more expensive channel to use. You want to make sure you have your different pieces online before you go use LinkedIn and you pay those higher prices for their advertising.
A couple of things that we usually look for or recommend to use LinkedIn is, first of all, having your LTV be around 10,000 or above to start. LinkedIn’s a more expensive channel, so when your LTVs are above 10,000, then the math gets easier. If it’s below 10,000, it can still work but you’ll need to have to gather pieces of your sales process really tuned in to make sure you’re maximizing that.
The second thing you want to have is a specific target market, a specific target customer profile that you can target. Some companies out there might serve every professional or they might be for every business owner. When you have an extremely broad audience, then honestly, other channels might be cheaper and better for you. LinkedIn is awesome when you need to target a niche decision-maker at scale because that’s what LinkedIn has. It’s like those job titles, those industries, those company sizes. They just can’t get anywhere else. Having a niche ideal customer profile is important.
Thirdly, is having your sales process dialed in. Like I said, LinkedIn’s at the more expensive channel to use, it’s a great place for starting a conversation, and for a lot of people, it’s the only place you’re going to be able to go find your target customer. Because it is more expensive, you want to have your sales process tuned in. As we generate leads for you, you can then go work those leads and turn those leads into customers.
Ben: The way I thought about it is Google searches, and frankly, whatever being searched is good […] they’re about intent. It’s about someone needing to do something now. They’re searching for red Nike shoes or they’re searching for how to make a pumpkin pie. Whereas Facebook tends to be about interests. It’s more about who they are and what they’re interested in. I had thought and I have not really run LinkedIn ads before, but I had assumed that LinkedIn would be based on company type, employer size, and role, most focused on the role of the individual. Does that sound relatively accurate?
Anthony: Yeah, that is accurate. Most of our campaigns do use that company and professional targeting—what’s the role somebody has and then what type of company or industry are they in. That’s the data that nobody else has that LinkedIn does have. We always say, LinkedIn’s one of the first places people update when they change roles or change jobs. It’s usually pretty up-to-date, pretty accurate info.
There are some other targeting options outside of those that we do use that are useful to say, who do we want to target but then also what does this person interested in so that we can find those people that are a good fit and are interested in our offering.
Rob: Sounds good. Let’s dig in. John, you haven’t had much of a chance yet to speak. But folks who listened to last week’s episode already know something about ScatterSpoke. Do you want to just give the 30-second rundown of what ScatterSpoke is? Then, we’ll hand it off to Anthony to run with this
John: Absolutely. ScatterSpoke is an online agile retrospective tool. It was born out of playing around. You can get that story from last week’s episode. Essentially, it allows you to have remote distribution, or you can use in the same room, agile retrospective in some analytics and tools around it.
Anthony: Got you. I listened to a little bit of the episode and took a look at the site and all that. The one thing that I remember that you’re talking about in the last episode was your different customer segments and that you have three different tiers of those customer segments. Let’s start with that. Let’s start with talking about who your ideal target customers are, and then tell me about those three different segments that you have.
John: The baseline is the people that are in there using it, like on a team of engineers, developers, Scrum Masters, maybe product managers to some degree. Those would be on the team level of people using it. As you run up the gamut, you have engineering managers and directors of an engineer might use it.
One of our things that separates us as a tool is we have this feature called scaled retrospectives. If you’re a big company and you have 10 different teams, we can break those into, we call them programs. It’s a safe term. We’ll actually talk about that (I hope) in a few minutes. It’s a way you can roll up information from teams into a next block and then maybe the director only has to look at this program level retrospective. Those are our segments at the moment.
Anthony: Those are two good segments. One is engineers. You mentioned developers, people participating in these retrospectives, the Scrum Masters were probably running them, and then the product managers who are also involved with maybe running those meetings as well. That’s number one. And then number two would be more of the leadership around the engineering capacity. Is that right?
John: Yeah, that’s exactly right.
Anthony: Those are two good segments. Let’s start by breaking down different aspects of this audience. I’ll take some notes as we go and I’ll try to help size up the audience. One big thing when we approach LinkedIn is looking at what’s the size of the adjustable target market out there. Maybe some different things I’ll help advise on is how much to break down the audience into different segments so that we can split-test things when you launch a campaign, then at what points do we want to put together different audiences or how to mix and match those.
To start, are you guys starting in the US primarily or are you guys involved in other countries?
John: I’d say 70% of our traffic is US-based. We do have a pretty strong usage in Europe as well. I don’t know if we’re calling England in Europe anymore but a lot of people in England. I won’t really focus on them as much. The US is the bread and butter for sure. Not much for Asian countries.
Anthony: Sounds good. Knowing what I know about retrospectives and you mentioned engineering and developers, talking about industries that you commonly serve, is it largely the software development industry?
John: Almost entirely. Although one of our bigger clients is actually in oil and gas. Oil and gas company of that size, like a worldwide company. They obviously have dev teams too. I would say the majority of them are some very tech-heavy focused company, yes.
Anthony: On LinkedIn, a lot of companies in the tech, in the software space, a lot of them will categorize themselves as software companies, but then also, a lot of them categorize themselves as the industry that they serve. Just a random example, maybe there are some that are software companies, but they serve the oil and gas industry. They probably categorize themselves as that.
My follow-up question is, oil and gas can be one. Are there any other trends of industries that you see a lot of?
John: Honestly, no. It’s all over the place. From top Silicon Valley household names you would recognize, to healthcare, education. Universities have looked at us. If you have a development team—a lot of companies do now—you’re fair game. I know that’s very wide, but we haven’t really seen a very strong niche.
Anthony: Okay. Commonly, when we have an industry like this, what we’ll do is we’ll do one campaign or one split test that targets just the computer software industry, and then we’ll have one that targets everybody but the computer software industry. We can see those metrics side by side and how it’s performing.
Also wondering—just I think about it—do you ever partner or do you think it’s a possibility or good option to partner with another agile training organization out there? A lot like consulting companies that do stuff like this? Do you ever partner with those companies?
John: We’ve gone down that road a couple of times. Nothing’s really stuck. My wife who co-founded this with me, that’s how we got in the door almost everywhere. She’d be on training assignments at whatever company and be like, oh, by the way, we have this retro tool. It’s definitely a very good way for us to get in. But we haven’t had that much look at getting other consultants to do it.
Anthony: We’ll put that down as an idea, but my hunch for you guys, probably going to start with a split test of one targeting the computer software industry and then the other targeting all the other industry people so you can see those metrics side by side.
Next is talking about the size of the companies that are the best fit. I know you have different plans based on the number of users and stuff. Where do you see your sweet spot being?
John: In terms of the size of the company, this is actually something that I was hoping to pick your brain about. There’s a thing in the agile space, like a framework called SAFe. It stands for Scaled Agile Framework. It’s a very niche part of the agile industry and it’s designed for really large companies. It’s a way for you to scale your agile process from 100 dev teams or 50 dev teams, and it’s very methodical in how it all rolls up. Some of our best enterprise clients implement SAFe.
To do SAFe costs a boatload of money. But obviously, these companies are invested in agile and they’re invested in scaling their agile. One of our sweet spots for tools is this scaled concept. Most companies (I think) that are doing SAFe, they’re literally like Fortune 500 companies. They’re really big. They have 50 dev teams or something.
Anthony: Got it. That’s good to know. Somebody who’s using SAFe means that they’re probably a good prospect for you guys.
John: Absolutely, yeah.
Anthony: I’m taking a quick look here. Doesn’t look like there’s a lot of groups on LinkedIn that are about SAFe and scaled agile.
John: You would search for SAFe program consultant would be a title or role, or agile program manager. Those are key roles. If somebody has that role at a company, you know they’re deep in SAFe.
Anthony: Okay. People using scaled agile, I see there’s a lot of groups around that. That could be a good targeting to layer on top. Back to the company size factor, LinkedIn has different levels of companies you can target. As far as the number of employees that are there. What do you see as your sweet spot being is the best company size to target?
John: I think that most of our customers are probably between 50 and 200 employees. They’re not going to have huge engineering organizations at that size. They would probably be on our cheaper plans. If we’re just talking about where the most for our customers fall, it’s probably there. Our most profitable customers, though, are in thousands of employees.
Anthony: I remember in the last episode, you were talking about enterprise companies. One of those, like Fortune 500 size companies with thousands or even tens of thousands of employees?
John: Yeah. Those guys, when they buy licenses, they’re buying between 1000 and 3000 user licenses.
Anthony: We’ll break down both of those in a second. Next is getting into some of the job titles that we could target. On LinkedIn, we can either do job functions or we could do job titles. Under functions, for example, we have project management functions. The two that I think would be good for you are program and project management and then product management. Those people probably have people who are running projects, probably managing this process. But as far as specific job titles go, you mentioned the SAFe consultant as one. What would be some other job titles that’d be a good fit?
John: In the SAFe role, there’s (I will say) a release train engineer. That’s a very SAFe-specific thing. I had mentioned agile program managers. Those are the really SAFe-heavy things within SAFe or within any of this industry though, I mean software engineer. On the product side, I’m not sure as much. Oftentimes, smaller companies’ product managers often double as a Scrum Master. That could work, but I won’t favor that side. If you’re a company and you have someone that’s a dedicated Scrum Master, you probably care about agile, so you probably would care about us.
Anthony: Yes. I do see, there’s a Scrum Master title on LinkedIn. We can definitely target that. Product, people are likely good, but they might not always be the ones managing this process?
John: Yeah. In general, they might not be inside of engineering. I would do an engineering manager over a product manager just because I think they’re closer to the team that’s actually using our tool.
Anthony: Okay. There is an engineering function on LinkedIn. That could be another broad category to use. How about what are some other titles that are maybe specific to this process or to agile that you commonly see?
John: Agile coach, again, Scrum Master, you could be Kanban, insert something afterward. I don’t know if you can look for certifications on LinkedIn. Is that something you can target?
Anthony: There are skills, which often do match up as certifications.
John: Even developers oftentimes will take a Scrum class or some kind of agile training class and they put it on there. That’s the little gamut there. I’d say, software engineers, engineering managers, Scrum masters, agile coaches, those are definitely the bread and butter of the people that are actually using it often.
Anthony: Okay. As far as the two segments here, it sounds like one is like the engineers themselves. They are a good candidate because they’re in the process, and then the other would be like the managers of that process. About how far up the chain would you want to go?
John: This is a question I would have for you. In terms of purchasing power, most software engineers are not the person that can swipe the credit card. Engineering managers can, but we see it sometimes usually goes up to directors of engineering that are usually like, yup, I approve because they’re usually on a budget. Up above that, I don’t think it makes sense. I don’t think I would target anything with a C in front of it. But vice president of engineering, director of engineering, that’s probably as high as I go in the engineering segment.
Anthony: Next is talking about maybe more of those certifications and those different skills that people could have. I did find a number of them on LinkedIn beforehand. Before I dive into what I already found, tell me a little bit about what are some of those certifications?
John: Scrum Master is the big one, there’s a Kanban certification, there’s a SAFe certification. Those are very targeted types of skills that you can get certified and a lot of companies will pay for their employees to get them.
Anthony: Got it. I do see the scaled agile skill there. Some other ones I see that I found are related to agile, sprint planning as one, Scrum, there is one for retros and retrospectives. People who are doing that at their jobs are probably listing down in their profile. Another question is the different software that you guys integrate with. I think I saw a couple of project management systems. What tools do you guys work alongside?
John: We have integrations, Atlassian, Jira, Trello. Those are the currently active project management tools. If you’re using something like Asana or Rally is really big at big companies. If you’re doing that using those tools, likely you’re doing agile, likely you care about retrospectives.
Anthony: Got it. Those tools are also good candidates if you are using Asana and Rally.
John: Honestly, anything that’s a developer toolchain set as well. That’s actually on our road map to add some of the integrations with GitHub, GitLab. I would rank those slightly lower than the project management stuff, but those definitely work as well.
Anthony: We can even add different groupings of these together. We can do people who have these agile skills, maybe it’s the SAFe framework certification and they have agile skills. Then also, we end that with the tools that they’re using—Jira, Slack, or Trello. And then we’re getting closer to the people who are the best fit for you guys. People who are experienced in agile, who are doing agile, and also using the tools you integrate with, those are probably the best ones to target.
John: Yup, that makes sense.
Anthony: One thing that we can do out there is look out what ads other people are running. Here’s a little tip. If you go to any LinkedIn page—they actually just moved this button—go to the home section and you scroll down just a little bit to see their newsfeed. There’s a little button that says posts and like different things that they could be posting, and then there’s an ads button next to it. If you click on that, you can see the ads being run by any page.
One thing that we do a lot is go look at competitors in any market and see what ads that their competitors are running, it’s usually a good place to get inspiration to see if there are any trends that you see in their ads, what’s the offer, what are they promoting, what’s the angles that they’re taking, and then what’s the imagery that they’re using. And some of these tools you integrate with could be good prospects to just go check other ads too.
Who would you say are some competitors or similar offerings out there in the market?
John: The big one that comes to mind is a company called Retrium. They do a lot of ad spend marketing on Google. I’ve never seen them on LinkedIn, but they could be on there. Another one would be Parable. To be honest with you, there’s not really a lot of other ones. Those are probably the two bigger ones. That’s not true. Things like Miro, which are huge, have tried to do little niche side products off their main product. I don’t think they would be spending money on advertising for retros. That’s what comes to mind.
Anthony: I’m looking at Retrium right now. It looks like they have a webinar about anti-patterns and then a lot of their ads are also around as a free trial to sign up to get started. It’s also a good sign when you see your competitors using ads on LinkedIn. That could be an indicator that they’re having success with it.
One thing, general LinkedIn recommendation, is you do see a lot of people out there that will advertise directly for a free trial, schedule now, or sign up now. On LinkedIn, you’re usually paying for every click. As soon as somebody clicks on your ad, you’ve paid for that click whether they sign up or not. We generally see that those are lower converting offers because they’re very direct. Someone needs to know enough about you to be willing to sign up. We see that those offers can be a lot more expensive to get people to sign up for.
Usually, what we do is use a content-focused offer to get somebody to sign up. That starts the conversation, then they’re in your sales or marketing funnel, and then you continue to nurture them from there. Maybe you reach out to them afterward and schedule a meeting. Most of our campaigns on LinkedIn tend to be content-focused, but there’s a lot of strategy around what that piece of content is. You want to (in a way) qualify your prospect a little bit. If they’re signing up for this piece of content, then they’re interested in what it is that you do.
Different things that work well are stuff like blogs, turning them into PDFs, white papers, checklists, stuff like that. I saw you have a good amount of content on your website. I’m wondering, what are the best pieces of content that you guys have and if any of those blog posts are getting a lot of traffic. Wondering about the content that you guys have.
John: Narrowing back to the SAFe thing, SAFe is all about scaling agile. If we can show them content around how we can scale your retrospectives, I think that’s awesome synergy for them. We’re about to release all-new marketing material. When we have a page dedicated to scaling retrospectives and also scaled analytics, that’s what comes to my mind right away.
Anthony: We’re getting a lot of the pieces here. Now, we’re going to start putting this together into what a campaign can look like. Next is thinking about what the funnel is. There’s somebody that’s going to go on to become a customer of yours. I’ve seen your website and it looks like they can sign up right there. What else I see is there’s a schedule a demo button. When somebody signs up on your website or if you ever have somebody reach out to you and say they’re interested, tell me a little bit about what your sales process looks like.
John: To be honest with you, we are just starting to really come up with our marketing and sales process. Traditionally, it looks like they come to our site, they may be play around with it, they have questions, they book a demo or they chat with us through Intercom or write on our support tickets. We handle it from there. When we release all these new marketing stuff, it’s going to be maybe more traditional. If we already use the scaled stuff content as an example, we’d have a special landing page for scaled. You can put in an email address to learn more about scaled agile retrospectives.
Honestly, hopefully, they’ll sign up. Actually, I think Rob might kill me because we talked about this a long time ago. Our schedule a demo button still goes directly to us without qualifying them, really. It hasn’t been that crazy of a problem. I would either want their email address or for them to schedule a demo as a goal (I guess) from an ad, but I don’t have enough experience with these types of marketing ad funnels to really speak beyond that. That’s what I think would be a goal.
Anthony: Right now, if somebody hits schedule a demo, then they get in touch with you. You guys get on that call, have a quick demo. If they’re interested they sign up from there?
John: Yeah. That’s exactly right.
Anthony: Okay. Sounds good. Next is starting to put some of these pieces together. As I said, if you go direct without scheduling a demo on LinkedIn, most people out there haven’t heard about you. Most companies in general out there, if you’re not a mainstream company or a well-known brand, people haven’t heard about you. If you put schedule a demo in that first ad, people just don’t know enough to be qualified to sign up. Someone might submit that form but might not really know exactly what you do, could be a little confused, or they think of something else.
We see that people that sign up for that usually, it’s a much lower conversion rate. You’re paying a lot more for each lead. The leads that you get usually aren’t great because they just don’t know enough yet. Going content-focused, content first, the more educational route, using these lead magnets is a good way to get people to sign up and positioning it so it qualifies the person as they sign up.
When you use LinkedIn’s targeting so that these are good leads that are coming through because they are only targeting companies up to a certain size, people with these specific job titles, and then positioning the content as something for SAFe would be a great piece of content to have.
There are different levels of content and usually, we see that white papers, guides, and checklists often do the best. Quick and easy downloadables, something that someone can learn something about you. We see that quick and easy downloadables get the highest conversion rate because somebody can download it quickly, read it, and learn a little bit about you. You started the conversation with them and then you can reach out to them afterward via email to set up that follow-up call.
Not everyone will take that step, not right away, but part of the sales process that I mentioned having honed in is you want to have some kind of follow-up email sequence out there, some Drip campaign that when somebody signs up and says they’re interested, and they’ve downloaded the piece of content. Maybe you have a weekly email or a monthly email that goes out, maybe with more content about SAFe, you can alternate videos of your platform or information about your platform, and then you can include little offers in there, too. Like here’s the next step, schedule a demo, or start for free—I see you have here—so having that follow-up sales process is important. Thinking about what that content offer is going to be, yeah, I think something like SAFe could be a good piece of content.
John: I have actually another question around that. If we have an ad and we say, here’s this great piece of content, come and download it. That takes them to a landing page of ours where they can do that. Is the entire goal for them to download or do whatever that content thing is, should we not even put a sign-up now button somewhere on there that’s like a different call to action? Or do you focus to just get them the content right then and then nurture them through email?
Anthony: Good question. Yes. In the funnel, you do want to offer them that next step or at least show them what that next step is going to be. The first goal is yes, get them to that landing page, that they can download the content and read it. Them reading that content is what warms them up to your brand. They see your logo, but more importantly, they learn about ScatterSpoke and they learn what it is you do. At the end of your PDF, you might have a little blurb about ScatterSpoke and click here to learn more. But on that landing page, you want them to learn a little bit, you want them to read that lead magnet, and then usually, maybe lower on the page, maybe on the side there, we’ll have a little button and then indicate like, hey, if you’re interested in getting ScatterSpoke to help you with this problem, to help you with scaled agile, then click here to schedule that demo.
Oftentimes in our funnels, there’s a lot of tools out there that are like scheduling widgets you can use and you can embed those right in your landing pages. Maybe somebody clicks that button and they said, okay, I am interested to learn more, or I want to try this tool out. I’m going to sign up for this scaled agile stuff and they click that button, it can go on to book a call with you.
John: Got you. That makes sense. You can do both, but the primary focus should probably be on the content, that you can still try to lure them further down the funnel.
Anthony: Yeah. Them consuming that content is what is going to educate them and warm them up to your brand. You do have a competitor out there. If they didn’t read that PDF, then they don’t know what makes you different from Retrium. Them reading your scaled agile piece of content in your lead magnet, you’ll want to teach them something, but then also weave in how ScatterSpoke helps you achieve that goal. Through them reading that, they’ve learned more and they know more about ScatterSpoke.
John: Makes sense.
Anthony: Next is talking about what some of the ads could look like. I have a couple of audience sizes here based on the different titles and stuff you’ve given me. If we were targeting the computer software industry and if we were targeting engineering and project management type of roles—C or the VP levels—and using these different skills, it looks like that’s about 20,000–30,000 people in that audience, maybe bigger, maybe smaller if we add or remove some of these piece of skills that we talked about. But that’s what we want to see is we want to see at least 20,000 people in that audience. That might not sound huge, but that’s still a lot of people out there.
If you use an audience that’s smaller than that on LinkedIn, you might just have some deliverability issues, trouble getting in front of people, but having a 20,000–30,000 audience is a good size. If you go on LinkedIn and you have a massive audience of a million people, then you want to start segmenting that down into different sub-audiences that you can split test.
For the other side of things, if we were to target other industries outside of computer software, that’s a lot of industries out there. Looks like that audience is about 60,000–80,000 people. This one is taking all those agile skills and then also ending that with a different tool that it could be using. This is probably a pretty good audience for you, too.
That’s the first thing we want to look at is what’s the size of the audience that we can be targeting on LinkedIn. Our usual target is somewhere between 20,000–80,000 people. If it’s under 20,000 that might be a little small. If it’s over 80,000 people, then usually we have the opportunity to get more targeted in it.
Next is talking about what some of these ads could look like. If we were doing a scaled agile framework PDF, the question for you is what are some of the main pain points that one of these Scrum Masters has approaching scaled agile.
John: What we’re trying to do in our tool is oftentimes teams will complain about the same thing for months and months and months, and it doesn’t really ever leave the team. One of the things we’re trying to solve with this scaled idea is to elevate them to more leaders in the company. What we’re trying to solve and the pain point specifically is to get things off the team level and into a leadership level in a formal process or […] way so that they know what’s happening on the teams. Otherwise, they’d often get lost and it just remains as the problem for long periods of time.
Anthony: Got it. The problem there is that things are getting lost?
John: Yeah, or they’re just never solving the problem. They’re just like, oh, it’s out of our control. We can’t change some fundamental company things so we should just never tell anybody about it. But I think leaders often do want to know about that stuff still. If they don’t feel like there’s a way to talk to the senior leaders in a company, then they’re never going to tell them. We’re offering in a way to make a tidy inbox of problems and concerns from teams up to higher-up leaders at a company.
Anthony: Okay. The last piece here is what some of your ad copy could look like. Maybe, you’d say for your scaled agile PDF here, your ad copy to the engineers, maybe you’d say, having trouble submitting your retrospective feedback? Download this scaled agile guide to learn how to better manage your retrospectives for your company.
We also find like throwing stats in there can also be really powerful. I saw in your website, there’s mentioning about wasting time, stuff like that. Different angles you could take is are you wasting time in retrospectives and not getting anything done? Are you having trouble getting in touch with higher leadership? And then throwing in the stat saying, the average sprint team wasted 30 hours. Download this ultimate guide to scaled agile to learn more.
Somebody who signs up for that using our LinkedIn targeting, we can know that these are engineers using these tools […] agile and likely having this problem or interested in the solution that you have. That’s probably a good candidate for you. Just an example of some plausible ad copy.
Maybe another cool thing I could probably do after is send this over to you, maybe package it all up, send it over, maybe put together an image or two, what it could look like along with some of the audience targeting stuff that we talked about, put it on a package and then send it over. That might be a good wrap up of everything that we talked about.
John: Yeah. The examples you just gave are spot on and would totally work. We pretty much narrowed it down to what would get these SAFe guys moving, honestly. They’ll love all this stuff. I’m actually curious, though. Two things that we’re talking about along the way. We have one audience size of 20,000 or 30,000 people. One audience size that was much bigger, like 80,000 people. Who should I spend money on first?
Anthony: That question I’ll turn back to you. I would turn back to you and ask who’s the more important prospect for you?
John: I think it’s hard to know who’s going to pull out the credit card at the end of the day. I guess, is there a way to say, I want to spend 60% of the budget on that group and 40% of the budget on that group on LinkedIn?
Anthony: Yup. What we would do is set up separate campaigns to split test them and then each campaign is its own audience. We’d basically split test your audiences and then you allocate a specific budget to each campaign so we could do it. Yeah, we can do 60% to one audience and then 40% to another. Usually, when we launch campaigns, we always have at least two audiences. We have a measuring stick so that we can compare them. The different levels of split test we usually set up are at least two audiences, at least two lead magnets, and then several ads for them.
John: Probably a lot of companies in my position would want to know this. Everything we just talked about, what’s the right size budget to think about? If you go to an ad company (and I have) then you’re like, what should we start with? Well, you should do a $5000 minimum. Other people have said, you can probably get early results for $500–$1000. How should we think about setting a budget for something like this?
Anthony: LinkedIn is a more expensive channel. I usually recommend the minimum for each campaign is about $2000, and then the minimum amount per campaign level is about $1000. Then you can be sure you’re getting at least enough clicks in that you’re getting enough data to make a decision based off of. For here, if we were doing these two audiences for you, I’d recommend $1000 over a month period for each audience and then $2000 total.
John: Okay, got you. We’re a small, mostly bootstrap company. Obviously, these things are really important to us. What’s a normal clickthrough rate, just to put in perspective?
Anthony: Normal clickthrough rate, the LinkedIn average is about 0.4. Anything above that and your ads will actually benefit going in the auction. You’ll get cheaper ad costs. 0.4 is actually relatively low. We like to say you want to shoot for usually around like a 0.75 or so. That’s a good CTR that we look for.
At the end of the day, we don’t look at CTR a ton because on LinkedIn you’re usually paying for every click. Whether or not something clicks, you only pay when somebody clicks. Having a little CTR rate doesn’t usually hurt you unless you’re below that 0.4 level. We don’t look at CTR a ton, but we look at what’s the CPC that you’re paying.
John: Right, but it just helps me ballpark. I can take the number of people that might view it, just start to do basic math, and maybe estimate what CPC would look like. Okay, that’s all really, really handy. This has been awesome.
Rob: Anthony, if you do want to package that up and send it over, I might love to pull maybe just a couple of pieces out of it, put it in either our show notes directly, or maybe as a PDF people can download. Just hearing it all on the show is super informative, but then being able to even see what you’re talking about could be helpful for listeners too.
Anthony: Yeah, definitely. I’ve been trying to do my best to articulate the different job titles and copy and stuff, but it’s totally different seeing it done in writing.
Rob: I know. To call out for the listeners, you would ask, can we do a screen share. I know that would be ideal, but it’s just so many of our listeners are going to be audio-only that I felt like it would leave a lot of people out. If they need that visual element, we’ll be sure to include that in the show notes.
If you would like to keep up with Anthony, you can head to modernmedia.io, or head to LinkedIn where he has a prominent profile—more than 500 connections. I was going to make a joke and say, and Anthony has no LinkedIn profile.
Anthony: That would be funny, though.
Rob: I don’t know if people might have a dry sense of humor, maybe. Wouldn’t have worked. John as well, you are @scatterspoke on Twitter. Gentlemen, thank you so much for joining me today.
Anthony: It was fun. Thanks for having me.
John: That’s right.
Rob: Thanks again to Anthony and John for joining me on the show today. Again, check out stateofindiesaas.com if you are a SaaS founder and are willing to provide anonymized data to really help educate us all on this whole independent SaaS movement. The non-venture track bootstrap or mostly bootstrapped SaaS founders the more data we can get, the more knowledge that we have and can share with one another. Thanks so much for listening and I will see you again next Tuesday morning.
Episode 517 | Married Co-founders Who Turned a Free Tool Into a Fast-Growing SaaS Product
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We’re joined in this episode by the founding team of Scatterspoke, John Samuelson and Colleen Johnson.
What started as a lark to learn new technology has now turned into a successful business with more than $12k MRR. In this episode, we learn how they turned a side project into a successful fulltime business.
The topics we cover
[02:09] The launch story behind Scatterspoke
[10:02] Shifting to enterprise customers
[16:17] The toll of working fulltime while trying to bootstrap Scatterspoke
[18:01] Hiring out for development
[26:00] Free plan and raising prices
Links from the show
- Scatterspoke | Twitter
- Scatterspoke | Website
- Colleen Johnson | Twitter
Rob: Welcome to this week’s episode of Startups For the Rest of Us. I’m your host, Rob Walling. This week, I sat down with the founding team of ScatterSpoke, John and Colleen. I like their story of how it started almost as a lark—something to learn some new technology, and it’s a hobby that turned into a business. Now, a pretty successful business.
By the time this goes live, they should be at or above $12,000 a month in MRR—to give you some type of scope of where they’re at—and they’re growing pretty quickly, in the 10% per month range. From my observation, they’ve hit product-market fit, and they are getting towards that point of escape velocity working diligently towards it.
I hope you enjoy my conversation today with John Samuelson and Colleen Johnson, the co-founders of ScatterSpoke. John and Colleen, thank you so much for joining me on the show.
Colleen: Thanks for having us, Rob.
Rob: Yeah. It’s great to chat with you again. I know we did a MicroConf On Air a few weeks back, but for folks who didn’t see that, they certainly heard about ScatterSpoke in the intro of this episode. Or they may have also heard that you are in TinySeed batch two. ScatterSpoke, your h1 on your website is, it’s time to have a smarter retrospective. We are improving the way teams improve, and you’re focused on helping people have better retros.
This is an Agile software development methodology. You guys have been working on this for several years now. It’s 3 or 3 ½ years ago, by now.
Colleen: Yeah. It’s definitely ebbed and flowed for us. I think we actually bought the domain name in 2015, and then really threw some stuff together and didn’t do anything with it for probably two years. It’s been around for a while, but not in the shape and form that it is today. That was a big relaunch effort that we did in 2018 to really build it into the tool than it is today. Where you register, invite your team members, and can buy an upgraded plan with more features. None of that was there for the first three years of us just squatting on the domain name basically.
Rob: Right. I have a few notes from your TinySeed application, and also for memory was that the first year, year and a half, it was a tool that was up there for free. There were no accounts. It was just a really super basic thing, but then you added the analytics to it and noticed that, hey, people are actually using this thing. Maybe we could launch a business around it.
John: Yeah, that’s exactly right. I built it to learn new technologies. I’ve always been a Java developer, and I wanted to learn this new thing called Node.js. That’s what started it all. We just put it online. You could go to it and basically press a button, share a link, and a million people could use it. That would probably crash our server, but that’s exactly how it started.
Rob: You built this tool because Colleen is well-known in the space, right? She has this personal brand in Agile space, and you’ve done a lot of speaking, writing, and are considered an influencer.
Colleen: Yeah. I’ve been in the software industry for about 20 years and in the Agile space for about half of that. It really helped me fill an immediate need I had in consulting when teams would either cancel a retro because somebody was out or not be able to have the retro because not everybody was in the same location.
We combined John’s interest in learning some new technology with an immediate need I had. It was great because I was able to really take it with me. Not just to clients, but also in the training sessions, large conferences. We were able to run retros after conferences or public speaking events. We were starting to get a lot of traction really organically without ever spending any money on marketing, and then also getting lots of feedback organically.
Rob: Was that essentially how you got early customers and did early customer development was just by going to these events speaking and having people use it, try it out, and give you feedback?
Colleen: Definitely. It was probably—for the first two years—how we were getting customers and users, and it was how we were getting feedback. And then when we added the ability to register an account, once John dug into our Google Analytics and was like, holy […]. There’s a lot of people using this.
We set up the ability to have a user account and then added Drift to the site. That was another chained point for us where we started to get real-time feedback on where people were getting stuck, where they had questions about the tool or were requesting features that we didn’t have yet.
Rob: Yeah, that’s cool. It’s always fun to hear. It truly is like a maker story where John wants to learn new technology. Colleen has experienced in this space or in this niche and is a bit of an influencer there. You sound like you maybe build it on a whim a little bit or like, hey, this is going to be a fun lark, a fun little project. You put it up for a year, year and a half, and really don’t even have the ability to register for an account. But then there’s just so much usage.
It’s that free tool. Some people go open source to the business route, but you just went literally like the free tool to the business path.
Colleen: I think, in some ways, being a maker project hurt us early on. John was excited to try out the new technology, and I was so close to the teams using it that every time we heard feedback about the simplest thing, we tried to go implement that or change something pretty dramatic in the tool.
We were almost being, in some ways, maybe too reactive or too close to what we were building. I think it took us a while to start to take a step back and say, how do these things help drive business and help us look at this more as a business instead of just a hobby or a pet project?
Rob: Yeah. There’s something I wrote about in my first book and I called it project/product confusion where developers do this especially. I did this in the early days where I would have this great idea for this project. It’s a web app that organizes my audible library, or it keeps me in touch with any author who I enter into the system, I suddenly get an update when they publish a new book, or just whatever.
It’s an interesting idea for a project, but turning that into a product that actually makes money and enough money that it’s worth spending time on is a huge, huge difference, and the maker in me always wanted to make cool stuff. In fact, I made a bunch of cool stuff, but I always thought they would become revenue-generating products, and that was a big mistake.
I was a little bit delusional, I think, in thinking those could be that. I could totally see how building this, it sounds like you almost erred on the other side where you built this free tool to learn new technology and because you happen to be in the space, and then didn’t necessarily think of it as much of a business as perhaps you could have.
Judging by your progress to date, it’s obvious that this can be a successful revenue-generating profitable business. If you’re going into that with that maker creator mindset, it’s not that you can’t do that. Have I seen many 6-figure SaaS businesses built with that? absolutely.
Have I seen many 7-figure SaaS businesses built with that mindset? A lot fewer, and probably 0 8-figure businesses that I think about. If you truly want to make stuff, awesome. That’s how when I started out, it was just like, I want to build cool […], I want people to use it, and I want to be able to live off the revenue. If that’s all you need, that’s great. I got up to about $120,000, $150,000 a year in revenue, and that was amazing.
But when I wanted to shift gears and get up to take that next step and be like, hey, I want to build a 7-figure or multiple 7-figure business, I do think you have to start maybe shifting the mindset a little bit.
You told me before we hit record that you were focused on the small Agile teams. But then enterprises would come and they would ask for features that you weren’t necessarily thinking about or that interested in building. But you did make the shift and decide to build those things for those larger teams.
You want to talk me a little bit through how that process went and why you decided to go down that road instead of just keeping it as a true, hey, I’m a maker and this is my vision and I’m going to build the product that I want, even if it does hurt our growth (in essence).
John: After that first year of launch, when we decided to make it a business, and we weren’t certainly focused on smaller teams, it was a brutal year. People had never given us that much authentic feedback about what sucks or what wasn’t working. It was hard. There were a lot of bugs to get through, and that was one thing. But people can be ruthless, and it cuts you deep.
Actually, we were getting to the point where we were like, you know what? Let’s go back to the maker mindset because this is just not fun or have it be more of a passive business. Out of nowhere, a giant enterprise deal showed up, and they were very interested in some contingencies of we want these 10 features. If you build these 10 features, we’ll sign a deal.
We looked at them, and we’re like, we’ll make these our own, and these wouldn’t be our first choice of what to do, but we did it. That’s when the light bulb went off. I think big enterprises are where all the money is at for us, and most of these come with some custom features. We got to get good with wanting to build those, and it’s been a game-changer ever since.
Rob: Yeah. This was about a year and a half ago in early-2019. You mentioned that you had been grinding it out for so long on the side and that you were considering, should we even do this? It’s not making enough money to make it worth it. And then this enterprise comes along and it’s that realization.
I think so many entrepreneurs—especially developers—see the model of the Basecamps and the Mailchimps where it’s like, hey, I can build the product for $10 a month or $30 a month. I can do the SMB—the Small Business thing, the self-service, and that’s the business that I want to build because I’ve seen that model. It sounds like fun. I don’t have to do high touch sales and deal with these big enterprises with the six months sales cycles, the security reviews, and all of that.
While that is totally possible., it is not actually the optimal way—in my experience—to build a big business quickly. Really, if you look at more of the SaaSter model, which is going after the big-ticket Fortune 1000 or the Fortune 5000, it’s the high touch sales, and it’s big contract values. That tends to get you there faster.
Even I would propose—as good as or better than that—is this model that I think several folks in the TinySeed batches have, and you guys have it as well. This dual funnel is what I’ve been calling it where you do have that high-end enterprise funnel. You do have folks coming in paying (let’s say) tens of thousands a year is how I think about an enterprise sale.
But you also have this nice influx of folks on the lower end, small teams. Maybe it’s a free plan. Maybe it’s the $10, $50, or $100 a month plan that you get a lot of volumes through and that tends to be a lot lower touch, but you get a lot of users and therefore you get that brand momentum. Because the more users you have there, oftentimes, there’s more word of mouth that then can lead to the enterprise funnel.
Have you guys ever thought about this in terms of that like, hey, we have two really different funnels? Do you handle those differently in terms of how much touch, how much onboarding, and perhaps how much support do you offer the two types of customers?
Colleen: Yeah. I think the concept, in general, has been pretty new for us in the last year, but definitely eye-opening in the sense that there’s value in both. Like you said, the overhead to get those small teams in the system and onboard is really low. It’s self sign up. they pick their subscription, invite their team, and there’s usually not a whole lot of overhead for us. Versus, like you said, those big enterprises can take up to six months to go through a security review, legal back and forth on contracts, and then add-in.
John said those custom feature requests and our time to get them in is quite a bit longer. But usually, once we have them, their contracts are anywhere from a year to three years, or maybe longer. There’s value in both of those channels for us because the one that requires more time obviously pulls us away from doing a lot of other stuff.
I think the other thing is, in some ways, that the middle tier like you described is a little bit of a gateway drug for some of these other organizations where they want to test it out, maybe in a pocket of an organization that’s a huge company. They might use the team subscription plan or a business subscription plan to try some of the features out before going to the enterprise.
That’s also been a nice funnel for us of people coming in and trying some of the stuff out before jumping all the way to enterprise. I think we found a couple of different channels or combinations of good paths through those different offerings.
John: I’ll just add to that too. Something that surprised me a bit, like I mentioned, we built a bunch of custom features for that big enterprise client. Those features now work for all of our small teams just as well. We built these enterprise-grade features for these guys and a lot of them, and it’s actually helped the smaller end funnel a lot.
Rob: How has it helped them?
John: A good example, in our tool, we have something called facilitators control. In the beginning, we were just like, this should be a democracy. Everybody should just be able to do whatever. Everybody can have controls to take over the retro. This big enterprise said, no, no. We want somebody to be in charge.
They run the meeting, and we don’t force that to happen. You can do either or, but it turns out these smaller teams also like that to have a facilitator to take charge of a meeting. We were of the opinion that it should be a democracy, not have a hierarchical role set. It’s actually a blessing that we made that because it’s definitely helped us out on both ends of the funnel.
Colleen: Yeah. I think we figured out a way to do it to still support that model. Like John said, to make it optional so that the functionality is there if you want to use it, but it’s not a requirement. That’s a path we did with a lot of what we offer in the tool. The functionality is there if you want it, but also, if you don’t want to use it, you don’t have to.
None of it is forced, and I think that’s something we learned throughout this process too that the more we could make self-service inside the tool, the more we’d be able to serve both of those different client paths.
Rob: That’s an elegant balance to strike because, oftentimes, enterprises want large, clunky things. They want a ton of settings. They want checkboxes everywhere. If you want an easy to use self-service tool, you don’t want 50 checkboxes in your settings. You tend to want to be a little more opinionated in your software.
If you’ve been able to strike a balance with that and be able to have the enterprise features help the smaller teams and potentially vice versa, that’s a really nice way to go. Because the fear is always that you’re almost like building two products in one and it becomes Frankenstein. It’s like our enterprise customers want all this crap, and our small teams want all this stuff. We have to build them into the same product, but it should maybe be two different products really. If you’re able to strike that balance, that’s a really nice way to go.
Colleen: I think the only thing we’ve ever really said no to, from a large enterprise request, is our tool is completely anonymous. We did that by design to create safety in your answers and being able to be really honest with your feedback that you’re providing to your team. If you want to put your name on it, great, but we’ve had requests from small businesses and large businesses to go back and either toggle that on and off.
We even had one request one time where somebody was like, I need you to tell me who wrote this exact card. We were like, no. I’d say that’s the only thing that we’ve really pushed back on from a feature perspective just because it was so core to how we wanted the tool to function that we weren’t willing to bake that in for any contract.
Rob: Yeah. That makes a lot of sense. I’m thinking back to your timeline, you think early-2019, you’re questioning, was this the right thing to do to double down on this business? You get this enterprise customer or prospect who says, hey, build these 10 things and we’ll pay you a lot of money (in essence).
You said yes to it, you built it, and you got them onboarded. But at that point, you’re still not making enough to quit the day job. I’m curious, John, during that year, because you applied to TinySeed in November 2019. Somewhere between early 2019 and getting funded from TinySeed, which I guess was just about a year.
I think we funded in February or March of this year. So it’s been about a year that you’re toiling away. You guys are married. You have small kids. You were basically working all nights and weekends, right? How did that take its toll on you, your mental health, and your marriage? However, you want to describe it. I’m just going to make the assumption that this was not an easy time for you, and I’m curious. There’s got to be folks in the audience who that resonates with.
John: The biggest thing for me is I can work long hours. I can work hard. That’s just part of who I am, but it’s more of a guilt problem to me. What I mean by that is if I’m not at my W-2 job, I’m at home, it’s a Saturday, and I take four hours to go to the park with the kids. I mean, that’s four hours that I should or could be working, and then it’s the opposite is true too.
If I spent those four hours on a Saturday working instead of being with my family, I feel guilty the other way. I feel like the deck stacked against you. You feel guilty no matter what you do. It’s like I have to make this business happen, and I also need to be a good father and husband. That’s by far, in my opinion, the worst part of it. It’s not working long hours. We can get through that. It’s guilt.
Rob: Yeah. Colleen, do you have any additional thoughts on that?
Colleen: Yeah. I mean, I would totally agree. I think the hard part is finding that balance. We’re always trying to teach our kids to work hard, play hard mentality too, but it’s that making space for the play hard. It’s easy when you have the day job or the W-2 job, and this becomes a night and weekend project to feel like there’s never time to enjoy it or never time to play.
I think taking the TinySeed investment and being able to go full-time on this really changed the course of that for us. Although, COVID definitely threw a little bump in the road.
Rob: For real. I was going to ask about that later, but let’s talk about it now. You mentioned offline to me, one of the most painful parts of the recent couple of years is you finally get to the point you’re having enough success, you applied to TinySeed, you get the funding, you’re able to quit the day job, and then really focus on ScatterSpoke, and then COVID hits.
All this happened. Now all your kids are at home, so you don’t actually have all the time, or perhaps all the mental bandwidth. Maybe like me, because I have three kids that are here at home, I’m working at home during the day and I’m feeling a little guilty that I’m not with my kids, which isn’t okay. I should have some time to work and feel okay about it.
I just love to hear more of your thoughts on that whole experience and on how that felt and how you guys have dealt with that.
John: I quit my day job in early-February 2019. I love the company I was at, so it was a hard departure in general. But the day I quit, the next few weeks—I think I said something like this to you before. I felt like the king. I was getting all this time to do all of this work every day, and it was awesome. It felt like the needle moved very quickly from where we had been. And then all of a sudden COVID hit, and all of the kids are at home. I don’t want to equate this to having a job, but it’s a job. Well, all the kids are at home, you’re making lunches, and chasing a two-year-old everywhere.
It was very quickly like that flame, that spark that I had from finally getting there, which in a lot of ways was like the first big goal to quit your day job. It’s like I made it. A month goes by and then it just gets ripped away by COVID. I’m not mad. In a lot of ways, this is the best time of our lives where we spend so much time with our kids, but it sucked. It’s like going back to having a job again. It was very rough.
Rob: Yeah, it sounds like. Just to clarify, you said you quit your job in February of 2019 but it was 2020? Within a month the lockdown started.
John: Exactly.
Rob: Something that we had also talked about. I know that at a certain point—this is before quitting your job—you had tried to hire out some of the development because you just couldn’t keep up with feature requests as often happens. You guys started with a free tool, and then even once you started charging—had a free plan. So you have a lot of users in there asking for features.
I think you made a mistake that I made as well. I think a lot of us do is hiring friends. Instead of going to Upwork or going whatever we’re going to do outsourcing to maybe it’s offshore, maybe it’s not, but it’s finding people where you can have a single relationship with them. Hey, I’m the employer, in essence, and you’re the contractor. When you hire friends, you have a dual-relationship, and that makes things complicated. You want to talk to people through your experience with that.
John: Yeah. I think as engineers, over the years, not even our project, but I’ve been in other people’s projects where it’s like, hey, we should totally build a thing. You do that, and they usually don’t go anywhere. When I had ScatterSpoke going on—this happened a few times. I tried paying my friends. I tried just like let’s do a trial period and if this works out, maybe we can talk about equity.
Really what happens is that you get all excited, you sit down, and you have like one great meeting where you’re like, all right, you’re going to do this. I’m going to do that. And then the week starts piling up and they slowly are not doing anything. There’s just not a lot of accountability because they’re your friends. Often friends in professional settings, like at your day job.
It’s hard to really come down on them because of that. At the end of it, I usually would just cut ties with them and say, look, this just isn’t working out. It’s not a big deal. Let’s just move on. I’ve changed that to hiring people I don’t know, and specifically hiring people, not in the US. I have a whole rant about that, but I’ve found developers in Europe especially just seemed to not be so whiny just to put it bluntly. I’m a US developer. I can say these things.
Rob: I was whining when I was a US developer too. I’ll admit it.
John: We all are. We all get so used to these tech startups. Everybody in the company treats you differently because you’re the tech guy, you know how to do all this. It’s a whole other thing, but anyway, our business changed. This was actually one of the good things about COVID.
When I started slowing down, not having more time, that’s when I found an offshore developer that really worked. You could give them your requirements, and they just were pretty self-sufficient, get the stuff done. You tell him when you want it done, and it was done by then.
Rob: That’s cool. It doesn’t always work out that way, of course, but it’s nice that you either got lucky, interviewed well, or whatever, and were able to turn that corner. Because I think, as a developer, outsourcing development can be a real challenge because I’m going to put this in quotes, “No one can ever write code as good as I can.”
This is the internal monologue of every developer ever. It is nice that you’re able to essentially get parts of that off your plate. Do you still write much code in the product, or are you just doing more technical direction at this point?
John: I do both, but I do the stuff that’s hard or tricky. We’re working on some more pricing stuff right now. I do all that stuff. I just don’t trust yet somebody else to do that. But in general, like, hey, go build these screens to do this other thing. It’s fine. They can go do that, and honestly, you got to let go at some point.
You cannot hold everybody to your standards. At the end of the day and after being an engineer for many years, it doesn’t matter. If the buttons work, there are so many big systems built with duct tape, and they work. You got to get over that as a technical founder.
Rob: Yeah, I agree. That was when I started becoming much more effective as a business owner when I learned that too, and it took me many years. It took me too long. It took me five, six years of running software projects and products. And I was still mingling in the code, still making tweaks, and eventually, I became more valuable to the companies once I outsourced my own development.
As we move towards wrapping up, I wanted to get into your free plan and raising prices once you got into TinySeed. I’m curious, Colleen, do you remember when the two of you—for folks, TinySeed, obviously, a startup accelerator for SaaS companies. You apply and then you do Zoom calls with myself, Einar, Tracy, and sometimes other folks to find out more about you and your company. We ask questions and all this stuff.
I remember, I think Einar may have talked to John, and one of the things Einar said is ScatterSpoke is awesome. They have a free plan. I’m not sure that’s a good idea. I think the pricing is messed up in essence—isn’t accurate, which is very, very common. I think most of us, probably, 70% of founders who haven’t given a lot of thought to the pricing, have screwed it up in some way or another in their product.
But then, when I was on a call with the two of you and I started digging into the numbers of like, whether the free plan converts? What’s your pricing? Do you remember one of the early things I said about the free plan? Do you remember what my general sentiment was?
Colleen: I don’t remember.
John: No.
Rob: Okay. Which is fine, it was like nine months ago. I don’t expect you to. My first thought was you need to kill the free plan. It just didn’t make sense. The numbers didn’t make sense to me. That’s not a blanket statement of free plans don’t work because that’s not true. We see free plans work, and it wasn’t a blanket statement of this will never work, but it was a first instinct of like, wow, you have that many people using it. So few are converting, and maybe it’s too permissive, which I think you guys actually knew that as we were talking.
That was something that you have since done. At this point, you have a free trial, but you can’t sign up for a free plan anymore.
Colleen: Yeah. We’re in the process right now of killing that, actually. We redid our pricing tiers first and gave everybody some grandfathered users and options with those new pricing tiers. We’re about to roll out what will essentially kill the free tier, and it was hard. I mean, it’s still a little hard for me to let go of it, and I think it’s back to being, in some ways, too close to our user base.
I feel like we built this off of people getting to try it, people who knew me, and attended my classes, workshops, or whatever being that user base. I feel like I lured them in and then now I’m like, no, you can’t use it anymore. But I think we have reached maturity as a business that it isn’t a hobby and it isn’t a free tool. We know the value is there, and that people are willing to pay for it. It’s time to grow up.
Rob: Yeah. I like that you said that it’s hard because it is. I think there is a common conversation in the MicroConf community of, hey, charge more, raise prices, and everybody’s undercharging. Most of the time, that’s honestly true, especially if you’ve never really raised prices or never looked at your pricing. That discounts the emotional side of things, both the relationship you have with your users and also the fear.
Raising prices is really scary. Killing free plans is really scary. Adding or removing a credit card before a free trial is really scary. I’ve done all of those things. Every time I’m like, I don’t know if this is going to work. If it doesn’t, maybe I’m going to make a bunch of people mad, and am I going to kill my business with this?
That is something we’ve done pretty intentionally in the first month or two of TinySeed of the batch is to say, hey, who here thinks they have a pricing issue? Again, it’s typically 70% of batch two raised their hand in the Zoom call, but then it’s to help folks think through, not only how they can actually change it mechanically and logistically, but how to deal with the emotion of that. How to convince people, hey, if this doesn’t work, it’s pretty easy to roll back. This is not an undoable decision.
Given how large of a lever—I keep saying pricing is the number one lever in any business. Especially in SaaS, where it’s recurring, pricing is your number one lever. It’s the easiest thing to change and to double growth overnight. Everything else requires more customers, requires more features, or requires something else. But just to change a number on a page and in your Stripe account and have it suddenly change it is a big deal. It deserves a lot more thought I think than most founders think.
All of that is to say how did you deal with, get through, or push through that emotional resistance? Whether it’s the fear or whether it’s just a nagging doubt of like, maybe we shouldn’t be doing this. I’m curious how you pushed through that in order to make such a drastic change.
Colleen: Honestly, once you see that Stripe account number go up and up and you see those trails convert, it’s pretty easy to support it. I think that was proof for me. I think you’re still offering. To me, we built this tool to help teams and to make this easier. I felt like I was taking that away from them by removing the free tier, but I think what you see, as you go down this path, is the value is still there. You’re just asking them to pay to get that value.
Once we start to see all the conversions, and honestly, like new enterprise contracts coming in now, I think it really just supports that the value is something worth paying for.
Rob: Awesome. We’re out of time. Thank you so much, John and Colleen, for joining me today. If folks want to keep up with you on Twitter, you’re @ScatterSpoke, and Colleen, you are @scrumhive. I like that. That’s a cool Agile Twitter handle. And then, of course, scatterspoke.com. If folks want to check out what you’ve been working on and potentially check out for doing their retrospectives. Thank you guys so much for joining me on Startups For the Rest of Us.
John: Thanks, Rob.
Rob: Thanks again to John and Colleen for joining me on the show today. If you’re interested in potentially joining TinySeed batch three, head over to tinyseed.com and get your name on our email list. I believe we’ll be opening applications again here in the next four or five months.
In addition, if you are an accredited investor and you’re interested in investing in early-stage B2B SaaS companies like ScatterSpoke and other TinySeed companies that you’ve heard on this podcast, head to tinyseed.com/thesis. You can see our unique investment thesis that we have at TinySeed, why we believe that B2B SaaS is an amazing investment, and to be able to basically index across hundreds of these SaaS companies and diversify investment is a solid way to go. You can learn more about that, tinyseed.com/thesis. Thank you so much for joining me this week. I’ll see you again next Tuesday morning.
By the time this goes live, they should be at or above $12,000 a month in MRR—to give you some type of scope of where they’re at—and they’re growing pretty quickly, in the 10% per month range. From my observation, they’ve hit product-market fit, and they are getting towards that point of escape velocity working diligently towards it.
I hope you enjoy my conversation today with John Samuelson and Colleen Johnson, the co-founders of ScatterSpoke. John and Colleen, thank you so much for joining me on the show.
Colleen: Thanks for having us, Rob.
Rob: Yeah. It’s great to chat with you again. I know we did a MicroConf On Air a few weeks back, but for folks who didn’t see that, they certainly heard about ScatterSpoke in the intro of this episode. Or they may have also heard that you are in TinySeed batch two. ScatterSpoke, your h1 on your website is, it’s time to have a smarter retrospective. We are improving the way teams improve, and you’re focused on helping people have better retros.
This is an Agile software development methodology. You guys have been working on this for several years now. It’s 3 or 3 ½ years ago, by now.
Colleen: Yeah. It’s definitely ebbed and flowed for us. I think we actually bought the domain name in 2015, and then really threw some stuff together and didn’t do anything with it for probably two years. It’s been around for a while, but not in the shape and form that it is today. That was a big relaunch effort that we did in 2018 to really build it into the tool than it is today. Where you register, invite your team members, and can buy an upgraded plan with more features. None of that was there for the first three years of us just squatting on the domain name basically.
Rob: Right. I have a few notes from your TinySeed application, and also for memory was that the first year, year and a half, it was a tool that was up there for free. There were no accounts. It was just a really super basic thing, but then you added the analytics to it and noticed that, hey, people are actually using this thing. Maybe we could launch a business around it.
John: Yeah, that’s exactly right. I built it to learn new technologies. I’ve always been a Java developer, and I wanted to learn this new thing called Node.js. That’s what started it all. We just put it online. You could go to it and basically press a button, share a link, and a million people could use it. That would probably crash our server, but that’s exactly how it started.
Rob: You built this tool because Colleen is well-known in the space, right? She has this personal brand in Agile space, and you’ve done a lot of speaking, writing, and are considered an influencer.
Colleen: Yeah. I’ve been in the software industry for about 20 years and in the Agile space for about half of that. It really helped me fill an immediate need I had in consulting when teams would either cancel a retro because somebody was out or not be able to have the retro because not everybody was in the same location.
We combined John’s interest in learning some new technology with an immediate need I had. It was great because I was able to really take it with me. Not just to clients, but also in the training sessions, large conferences. We were able to run retros after conferences or public speaking events. We were starting to get a lot of traction really organically without ever spending any money on marketing, and then also getting lots of feedback organically.
Rob: Was that essentially how you got early customers and did early customer development was just by going to these events speaking and having people use it, try it out, and give you feedback?
Colleen: Definitely. It was probably—for the first two years—how we were getting customers and users, and it was how we were getting feedback. And then when we added the ability to register an account, once John dug into our Google Analytics and was like, holy […]. There’s a lot of people using this.
We set up the ability to have a user account and then added Drift to the site. That was another chained point for us where we started to get real-time feedback on where people were getting stuck, where they had questions about the tool or were requesting features that we didn’t have yet.
Rob: Yeah, that’s cool. It’s always fun to hear. It truly is like a maker story where John wants to learn new technology. Colleen has experienced in this space or in this niche and is a bit of an influencer there. You sound like you maybe build it on a whim a little bit or like, hey, this is going to be a fun lark, a fun little project. You put it up for a year, year and a half, and really don’t even have the ability to register for an account. But then there’s just so much usage.
It’s that free tool. Some people go open source to the business route, but you just went literally like the free tool to the business path.
Colleen: I think, in some ways, being a maker project hurt us early on. John was excited to try out the new technology, and I was so close to the teams using it that every time we heard feedback about the simplest thing, we tried to go implement that or change something pretty dramatic in the tool.
We were almost being, in some ways, maybe too reactive or too close to what we were building. I think it took us a while to start to take a step back and say, how do these things help drive business and help us look at this more as a business instead of just a hobby or a pet project?
Rob: Yeah. There’s something I wrote about in my first book and I called it project/product confusion where developers do this especially. I did this in the early days where I would have this great idea for this project. It’s a web app that organizes my audible library, or it keeps me in touch with any author who I enter into the system, I suddenly get an update when they publish a new book, or just whatever.
It’s an interesting idea for a project, but turning that into a product that actually makes money and enough money that it’s worth spending time on is a huge, huge difference, and the maker in me always wanted to make cool stuff. In fact, I made a bunch of cool stuff, but I always thought they would become revenue-generating products, and that was a big mistake.
I was a little bit delusional, I think, in thinking those could be that. I could totally see how building this, it sounds like you almost erred on the other side where you built this free tool to learn new technology and because you happen to be in the space, and then didn’t necessarily think of it as much of a business as perhaps you could have.
Judging by your progress to date, it’s obvious that this can be a successful revenue-generating profitable business. If you’re going into that with that maker creator mindset, it’s not that you can’t do that. Have I seen many 6-figure SaaS businesses built with that? absolutely.
Have I seen many 7-figure SaaS businesses built with that mindset? A lot fewer, and probably 0 8-figure businesses that I think about. If you truly want to make stuff, awesome. That’s how when I started out, it was just like, I want to build cool […], I want people to use it, and I want to be able to live off the revenue. If that’s all you need, that’s great. I got up to about $120,000, $150,000 a year in revenue, and that was amazing.
But when I wanted to shift gears and get up to take that next step and be like, hey, I want to build a 7-figure or multiple 7-figure business, I do think you have to start maybe shifting the mindset a little bit.
You told me before we hit record that you were focused on the small Agile teams. But then enterprises would come and they would ask for features that you weren’t necessarily thinking about or that interested in building. But you did make the shift and decide to build those things for those larger teams.
You want to talk me a little bit through how that process went and why you decided to go down that road instead of just keeping it as a true, hey, I’m a maker and this is my vision and I’m going to build the product that I want, even if it does hurt our growth (in essence).
John: After that first year of launch, when we decided to make it a business, and we weren’t certainly focused on smaller teams, it was a brutal year. People had never given us that much authentic feedback about what sucks or what wasn’t working. It was hard. There were a lot of bugs to get through, and that was one thing. But people can be ruthless, and it cuts you deep.
Actually, we were getting to the point where we were like, you know what? Let’s go back to the maker mindset because this is just not fun or have it be more of a passive business. Out of nowhere, a giant enterprise deal showed up, and they were very interested in some contingencies of we want these 10 features. If you build these 10 features, we’ll sign a deal.
We looked at them, and we’re like, we’ll make these our own, and these wouldn’t be our first choice of what to do, but we did it. That’s when the light bulb went off. I think big enterprises are where all the money is at for us, and most of these come with some custom features. We got to get good with wanting to build those, and it’s been a game-changer ever since.
Rob: Yeah. This was about a year and a half ago in early-2019. You mentioned that you had been grinding it out for so long on the side and that you were considering, should we even do this? It’s not making enough money to make it worth it. And then this enterprise comes along and it’s that realization.
I think so many entrepreneurs—especially developers—see the model of the Basecamps and the Mailchimps where it’s like, hey, I can build the product for $10 a month or $30 a month. I can do the SMB—the Small Business thing, the self-service, and that’s the business that I want to build because I’ve seen that model. It sounds like fun. I don’t have to do high touch sales and deal with these big enterprises with the six months sales cycles, the security reviews, and all of that.
While that is totally possible., it is not actually the optimal way—in my experience—to build a big business quickly. Really, if you look at more of the SaaSter model, which is going after the big-ticket Fortune 1000 or the Fortune 5000, it’s the high touch sales, and it’s big contract values. That tends to get you there faster.
Even I would propose—as good as or better than that—is this model that I think several folks in the TinySeed batches have, and you guys have it as well. This dual funnel is what I’ve been calling it where you do have that high-end enterprise funnel. You do have folks coming in paying (let’s say) tens of thousands a year is how I think about an enterprise sale.
But you also have this nice influx of folks on the lower end, small teams. Maybe it’s a free plan. Maybe it’s the $10, $50, or $100 a month plan that you get a lot of volumes through and that tends to be a lot lower touch, but you get a lot of users and therefore you get that brand momentum. Because the more users you have there, oftentimes, there’s more word of mouth that then can lead to the enterprise funnel.
Have you guys ever thought about this in terms of that like, hey, we have two really different funnels? Do you handle those differently in terms of how much touch, how much onboarding, and perhaps how much support do you offer the two types of customers?
Colleen: Yeah. I think the concept, in general, has been pretty new for us in the last year, but definitely eye-opening in the sense that there’s value in both. Like you said, the overhead to get those small teams in the system and onboard is really low. It’s self sign up. they pick their subscription, invite their team, and there’s usually not a whole lot of overhead for us. Versus, like you said, those big enterprises can take up to six months to go through a security review, legal back and forth on contracts, and then add-in.
John said those custom feature requests and our time to get them in is quite a bit longer. But usually, once we have them, their contracts are anywhere from a year to three years, or maybe longer. There’s value in both of those channels for us because the one that requires more time obviously pulls us away from doing a lot of other stuff.
I think the other thing is, in some ways, that the middle tier like you described is a little bit of a gateway drug for some of these other organizations where they want to test it out, maybe in a pocket of an organization that’s a huge company. They might use the team subscription plan or a business subscription plan to try some of the features out before going to the enterprise.
That’s also been a nice funnel for us of people coming in and trying some of the stuff out before jumping all the way to enterprise. I think we found a couple of different channels or combinations of good paths through those different offerings.
John: I’ll just add to that too. Something that surprised me a bit, like I mentioned, we built a bunch of custom features for that big enterprise client. Those features now work for all of our small teams just as well. We built these enterprise-grade features for these guys and a lot of them, and it’s actually helped the smaller end funnel a lot.
Rob: How has it helped them?
John: A good example, in our tool, we have something called facilitators control. In the beginning, we were just like, this should be a democracy. Everybody should just be able to do whatever. Everybody can have controls to take over the retro. This big enterprise said, no, no. We want somebody to be in charge.
They run the meeting, and we don’t force that to happen. You can do either or, but it turns out these smaller teams also like that to have a facilitator to take charge of a meeting. We were of the opinion that it should be a democracy, not have a hierarchical role set. It’s actually a blessing that we made that because it’s definitely helped us out on both ends of the funnel.
Colleen: Yeah. I think we figured out a way to do it to still support that model. Like John said, to make it optional so that the functionality is there if you want to use it, but it’s not a requirement. That’s a path we did with a lot of what we offer in the tool. The functionality is there if you want it, but also, if you don’t want to use it, you don’t have to.
None of it is forced, and I think that’s something we learned throughout this process too that the more we could make self-service inside the tool, the more we’d be able to serve both of those different client paths.
Rob: That’s an elegant balance to strike because, oftentimes, enterprises want large, clunky things. They want a ton of settings. They want checkboxes everywhere. If you want an easy to use self-service tool, you don’t want 50 checkboxes in your settings. You tend to want to be a little more opinionated in your software.
If you’ve been able to strike a balance with that and be able to have the enterprise features help the smaller teams and potentially vice versa, that’s a really nice way to go. Because the fear is always that you’re almost like building two products in one and it becomes Frankenstein. It’s like our enterprise customers want all this crap, and our small teams want all this stuff. We have to build them into the same product, but it should maybe be two different products really. If you’re able to strike that balance, that’s a really nice way to go.
Colleen: I think the only thing we’ve ever really said no to, from a large enterprise request, is our tool is completely anonymous. We did that by design to create safety in your answers and being able to be really honest with your feedback that you’re providing to your team. If you want to put your name on it, great, but we’ve had requests from small businesses and large businesses to go back and either toggle that on and off.
We even had one request one time where somebody was like, I need you to tell me who wrote this exact card. We were like, no. I’d say that’s the only thing that we’ve really pushed back on from a feature perspective just because it was so core to how we wanted the tool to function that we weren’t willing to bake that in for any contract.
Rob: Yeah. That makes a lot of sense. I’m thinking back to your timeline, you think early-2019, you’re questioning, was this the right thing to do to double down on this business? You get this enterprise customer or prospect who says, hey, build these 10 things and we’ll pay you a lot of money (in essence).
You said yes to it, you built it, and you got them onboarded. But at that point, you’re still not making enough to quit the day job. I’m curious, John, during that year, because you applied to TinySeed in November 2019. Somewhere between early 2019 and getting funded from TinySeed, which I guess was just about a year.
I think we funded in February or March of this year. So it’s been about a year that you’re toiling away. You guys are married. You have small kids. You were basically working all nights and weekends, right? How did that take its toll on you, your mental health, and your marriage? However, you want to describe it. I’m just going to make the assumption that this was not an easy time for you, and I’m curious. There’s got to be folks in the audience who that resonates with.
John: The biggest thing for me is I can work long hours. I can work hard. That’s just part of who I am, but it’s more of a guilt problem to me. What I mean by that is if I’m not at my W-2 job, I’m at home, it’s a Saturday, and I take four hours to go to the park with the kids. I mean, that’s four hours that I should or could be working, and then it’s the opposite is true too.
If I spent those four hours on a Saturday working instead of being with my family, I feel guilty the other way. I feel like the deck stacked against you. You feel guilty no matter what you do. It’s like I have to make this business happen, and I also need to be a good father and husband. That’s by far, in my opinion, the worst part of it. It’s not working long hours. We can get through that. It’s guilt.
Rob: Yeah. Colleen, do you have any additional thoughts on that?
Colleen: Yeah. I mean, I would totally agree. I think the hard part is finding that balance. We’re always trying to teach our kids to work hard, play hard mentality too, but it’s that making space for the play hard. It’s easy when you have the day job or the W-2 job, and this becomes a night and weekend project to feel like there’s never time to enjoy it or never time to play.
I think taking the TinySeed investment and being able to go full-time on this really changed the course of that for us. Although, COVID definitely threw a little bump in the road.
Rob: For real. I was going to ask about that later, but let’s talk about it now. You mentioned offline to me, one of the most painful parts of the recent couple of years is you finally get to the point you’re having enough success, you applied to TinySeed, you get the funding, you’re able to quit the day job, and then really focus on ScatterSpoke, and then COVID hits.
All this happened. Now all your kids are at home, so you don’t actually have all the time, or perhaps all the mental bandwidth. Maybe like me, because I have three kids that are here at home, I’m working at home during the day and I’m feeling a little guilty that I’m not with my kids, which isn’t okay. I should have some time to work and feel okay about it.
I just love to hear more of your thoughts on that whole experience and on how that felt and how you guys have dealt with that.
John: I quit my day job in early-February 2019. I love the company I was at, so it was a hard departure in general. But the day I quit, the next few weeks—I think I said something like this to you before. I felt like the king. I was getting all this time to do all of this work every day, and it was awesome. It felt like the needle moved very quickly from where we had been. And then all of a sudden COVID hit, and all of the kids are at home. I don’t want to equate this to having a job, but it’s a job. Well, all the kids are at home, you’re making lunches, and chasing a two-year-old everywhere.
It was very quickly like that flame, that spark that I had from finally getting there, which in a lot of ways was like the first big goal to quit your day job. It’s like I made it. A month goes by and then it just gets ripped away by COVID. I’m not mad. In a lot of ways, this is the best time of our lives where we spend so much time with our kids, but it sucked. It’s like going back to having a job again. It was very rough.
Rob: Yeah, it sounds like. Just to clarify, you said you quit your job in February of 2019 but it was 2020? Within a month the lockdown started.
John: Exactly.
Rob: Something that we had also talked about. I know that at a certain point—this is before quitting your job—you had tried to hire out some of the development because you just couldn’t keep up with feature requests as often happens. You guys started with a free tool, and then even once you started charging—had a free plan. So you have a lot of users in there asking for features.
I think you made a mistake that I made as well. I think a lot of us do is hiring friends. Instead of going to Upwork or going whatever we’re going to do outsourcing to maybe it’s offshore, maybe it’s not, but it’s finding people where you can have a single relationship with them. Hey, I’m the employer, in essence, and you’re the contractor. When you hire friends, you have a dual-relationship, and that makes things complicated. You want to talk to people through your experience with that.
John: Yeah. I think as engineers, over the years, not even our project, but I’ve been in other people’s projects where it’s like, hey, we should totally build a thing. You do that, and they usually don’t go anywhere. When I had ScatterSpoke going on—this happened a few times. I tried paying my friends. I tried just like let’s do a trial period and if this works out, maybe we can talk about equity.
Really what happens is that you get all excited, you sit down, and you have like one great meeting where you’re like, all right, you’re going to do this. I’m going to do that. And then the week starts piling up and they slowly are not doing anything. There’s just not a lot of accountability because they’re your friends. Often friends in professional settings, like at your day job.
It’s hard to really come down on them because of that. At the end of it, I usually would just cut ties with them and say, look, this just isn’t working out. It’s not a big deal. Let’s just move on. I’ve changed that to hiring people I don’t know, and specifically hiring people, not in the US. I have a whole rant about that, but I’ve found developers in Europe especially just seemed to not be so whiny just to put it bluntly. I’m a US developer. I can say these things.
Rob: I was whining when I was a US developer too. I’ll admit it.
John: We all are. We all get so used to these tech startups. Everybody in the company treats you differently because you’re the tech guy, you know how to do all this. It’s a whole other thing, but anyway, our business changed. This was actually one of the good things about COVID.
When I started slowing down, not having more time, that’s when I found an offshore developer that really worked. You could give them your requirements, and they just were pretty self-sufficient, get the stuff done. You tell him when you want it done, and it was done by then.
Rob: That’s cool. It doesn’t always work out that way, of course, but it’s nice that you either got lucky, interviewed well, or whatever, and were able to turn that corner. Because I think, as a developer, outsourcing development can be a real challenge because I’m going to put this in quotes, “No one can ever write code as good as I can.”
This is the internal monologue of every developer ever. It is nice that you’re able to essentially get parts of that off your plate. Do you still write much code in the product, or are you just doing more technical direction at this point?
John: I do both, but I do the stuff that’s hard or tricky. We’re working on some more pricing stuff right now. I do all that stuff. I just don’t trust yet somebody else to do that. But in general, like, hey, go build these screens to do this other thing. It’s fine. They can go do that, and honestly, you got to let go at some point.
You cannot hold everybody to your standards. At the end of the day and after being an engineer for many years, it doesn’t matter. If the buttons work, there are so many big systems built with duct tape, and they work. You got to get over that as a technical founder.
Rob: Yeah, I agree. That was when I started becoming much more effective as a business owner when I learned that too, and it took me many years. It took me too long. It took me five, six years of running software projects and products. And I was still mingling in the code, still making tweaks, and eventually, I became more valuable to the companies once I outsourced my own development.
As we move towards wrapping up, I wanted to get into your free plan and raising prices once you got into TinySeed. I’m curious, Colleen, do you remember when the two of you—for folks, TinySeed, obviously, a startup accelerator for SaaS companies. You apply and then you do Zoom calls with myself, Einar, Tracy, and sometimes other folks to find out more about you and your company. We ask questions and all this stuff.
I remember, I think Einar may have talked to John, and one of the things Einar said is ScatterSpoke is awesome. They have a free plan. I’m not sure that’s a good idea. I think the pricing is messed up in essence—isn’t accurate, which is very, very common. I think most of us, probably, 70% of founders who haven’t given a lot of thought to the pricing, have screwed it up in some way or another in their product.
But then, when I was on a call with the two of you and I started digging into the numbers of like, whether the free plan converts? What’s your pricing? Do you remember one of the early things I said about the free plan? Do you remember what my general sentiment was?
Colleen: I don’t remember.
John: No.
Rob: Okay. Which is fine, it was like nine months ago. I don’t expect you to. My first thought was you need to kill the free plan. It just didn’t make sense. The numbers didn’t make sense to me. That’s not a blanket statement of free plans don’t work because that’s not true. We see free plans work, and it wasn’t a blanket statement of this will never work, but it was a first instinct of like, wow, you have that many people using it. So few are converting, and maybe it’s too permissive, which I think you guys actually knew that as we were talking.
That was something that you have since done. At this point, you have a free trial, but you can’t sign up for a free plan anymore.
Colleen: Yeah. We’re in the process right now of killing that, actually. We redid our pricing tiers first and gave everybody some grandfathered users and options with those new pricing tiers. We’re about to roll out what will essentially kill the free tier, and it was hard. I mean, it’s still a little hard for me to let go of it, and I think it’s back to being, in some ways, too close to our user base.
I feel like we built this off of people getting to try it, people who knew me, and attended my classes, workshops, or whatever being that user base. I feel like I lured them in and then now I’m like, no, you can’t use it anymore. But I think we have reached maturity as a business that it isn’t a hobby and it isn’t a free tool. We know the value is there, and that people are willing to pay for it. It’s time to grow up.
Rob: Yeah. I like that you said that it’s hard because it is. I think there is a common conversation in the MicroConf community of, hey, charge more, raise prices, and everybody’s undercharging. Most of the time, that’s honestly true, especially if you’ve never really raised prices or never looked at your pricing. That discounts the emotional side of things, both the relationship you have with your users and also the fear.
Raising prices is really scary. Killing free plans is really scary. Adding or removing a credit card before a free trial is really scary. I’ve done all of those things. Every time I’m like, I don’t know if this is going to work. If it doesn’t, maybe I’m going to make a bunch of people mad, and am I going to kill my business with this?
That is something we’ve done pretty intentionally in the first month or two of TinySeed of the batch is to say, hey, who here thinks they have a pricing issue? Again, it’s typically 70% of batch two raised their hand in the Zoom call, but then it’s to help folks think through, not only how they can actually change it mechanically and logistically, but how to deal with the emotion of that. How to convince people, hey, if this doesn’t work, it’s pretty easy to roll back. This is not an undoable decision.
Given how large of a lever—I keep saying pricing is the number one lever in any business. Especially in SaaS, where it’s recurring, pricing is your number one lever. It’s the easiest thing to change and to double growth overnight. Everything else requires more customers, requires more features, or requires something else. But just to change a number on a page and in your Stripe account and have it suddenly change it is a big deal. It deserves a lot more thought I think than most founders think.
All of that is to say how did you deal with, get through, or push through that emotional resistance? Whether it’s the fear or whether it’s just a nagging doubt of like, maybe we shouldn’t be doing this. I’m curious how you pushed through that in order to make such a drastic change.
Colleen: Honestly, once you see that Stripe account number go up and up and you see those trails convert, it’s pretty easy to support it. I think that was proof for me. I think you’re still offering. To me, we built this tool to help teams and to make this easier. I felt like I was taking that away from them by removing the free tier, but I think what you see, as you go down this path, is the value is still there. You’re just asking them to pay to get that value.
Once we start to see all the conversions, and honestly, like new enterprise contracts coming in now, I think it really just supports that the value is something worth paying for.
Rob: Awesome. We’re out of time. Thank you so much, John and Colleen, for joining me today. If folks want to keep up with you on Twitter, you’re @ScatterSpoke, and Colleen, you are @scrumhive. I like that. That’s a cool Agile Twitter handle. And then, of course, scatterspoke.com. If folks want to check out what you’ve been working on and potentially check out for doing their retrospectives. Thank you guys so much for joining me on Startups For the Rest of Us.
John: Thanks, Rob.
Rob: Thanks again to John and Colleen for joining me on the show today. If you’re interested in potentially joining TinySeed batch three, head over to tinyseed.com and get your name on our email list. I believe we’ll be opening applications again here in the next four or five months.
In addition, if you are an accredited investor and you’re interested in investing in early-stage B2B SaaS companies like ScatterSpoke and other TinySeed companies that you’ve heard on this podcast, head to tinyseed.com/thesis. You can see our unique investment thesis that we have at TinySeed, why we believe that B2B SaaS is an amazing investment, and to be able to basically index across hundreds of these SaaS companies and diversify investment is a solid way to go. You can learn more about that, tinyseed.com/thesis. Thank you so much for joining me this week. I’ll see you again next Tuesday morning.
Episode 516 | When to Re-write Your SaaS Codebase
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Matt Wensing returns for his third appearance on the podcast. He is the founder of Summit and was in TinySeed Batch 1.
We dive into Matt’s decision-making process for re-writing the entire codebase. We talk about choosing the right features to build, talking to your customers, starting with a blank slate vs templates, and much more.
The topics we cover
[06:48] How to handle customers that are not engaging
[11:35] Figuring out the right features to build
[19:24] Making the decision to re-write the codebase
[31:27] The value of forecasting
[33:18] Designing a sparse SaaS homepage
Links from the show
- Out of Beta
- Things You Should Never Do, Part I
- Episode 450 | Founder Hotseat: Matt Wensing of SimSaaS on Making Consistent, Needle-Moving Progress
- Episode 491 | Hard Lessons Learned, Reaching High-Touch Prospects, Finding Advisors, and More Listener Questions
- Episode 489 | 15 Years to a SaaS Exit (Plus Why Forecasting is Crucial)
- Summit | Twitter
- Summit | Website
- Matt Wensing | Twitter
If you enjoyed this episode, let us know by clicking the link and sharing what you learned.
Click here to share your number one takeaway from the episode.
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: This is Startups For The Rest Of Us episode 516. Thanks for joining me this week. As you know, every week on this show, we cover topics related to building and growing ambitious startups. But they’re ambitious yet sustainable. They’re startups that live within our life and help us help our employees, our customers, and other people who are involved. These are obviously not nonprofits, but they’re not the typical Silicon Valley startups where people are sacrificing their freedom, purpose, and relationships in order to build these companies and where fundraising can be a goal in itself.
We want to build real businesses with real customers who pay us real money. And we want to do it in a meticulous and disciplined way, in a repeatable fashion to where we could build many, many businesses in the same fashion. We don’t want to rely so much on luck like a lot of the big venture fund companies do.
This week, I’m talking with a returning guest, Matt Wensing, about when to rewrite your SaaS codebase. It’s something that he has just spent the last three or four months doing. But before we dive into that, I want to cover two talking points.
First is, you might be noticing that my co-host Emeritus Mike Taber has not been on the show in quite some time. I believe it’s been about three months. Mike and I have been chatting via email and text, and we even did a phone call today. He has stuff that’s going on that he really isn’t able to talk about in public. He has things going on that are interesting and are very likely to push his business forward in interesting ways. But when you can’t talk about it in public, it doesn’t make for an interesting podcast.
He’s still working on Bluetick. I do want to get an update from him on that and everything else that’s going on. But we both agreed that for now, he should hang tight and he’s going to let me know when the things that he is working on can essentially be discussed on the show. Then I’ll have Mike back on the show like we’ve been doing for the past year or so.
The other thing I wanted to mention is that a couple of weeks ago with TinySeed, we launched our investment pieces moving forward. It’s for fun too and beyond. But the idea is that we believe investing broadly into the earliest stages of B2B SaaS companies, and specifically, it’s the B2B SaaS companies who are not necessarily reliant on traditional venture capital racket. It’s the Startups For The Rest Of Us, the MicroConf type companies. But we believe this can provide amazing returns for investors and thus allows us to raise more money and help more campiness.
There’s this huge gap in the funding market that’s why we launched TinySeed back in 2018. That’s why we’re continuing to double down in this space, as I have been for 15 years with the blog, more than a decade with the podcast, and 9 years (almost going on 10) here with MicroConf. But it’s to help more founders get there faster. Some founders get tremendous value out of a free podcast. Some get value out of a $20 book or $10 ebook. And some get value out of attending in-person events, meeting people, hearing tactics and tips, and building relationships. Others do want to take that other step of hey, here’s some funding; here’s a batch approach; and here’s a network, mentorship, and all that.
There are many different paths for folks to get there. I think about it as being bootstrapped, almost bootstrapped, or mostly bootstrapped as I’ve heard Craig Hewitt throughout on his podcast a few times. But the idea is there’s this huge gap between raising millions or tens of millions in funding and going after that unicorn exit. The companies that we talk about on this podcast and that are part of the MicroConf community of building these ambitious yet sane startups.
If you are an investor, if you’re credited, or you fit the definition of a US accredited investor—you do not have to live in the US—I encourage you to check out tinyseed.com/thesis. Because we have a bunch of data that we have crunched and spent weeks and weeks writing this massive report. It’s an investment memo that has become our investment thesis. We have essentially been proving that out with our first two batches, and we’re in the process of raising Fund 2, so that we can continue to help, support, mentor, guide, and fund hundreds and hundreds more independent SaaS companies. Again, that’s tinyseed.com/thesis.
If you decide to invest, you’ll be joining folks like Dharmesh Shah—co-founder of HubSpot, Rand Fishkin—founder of SparkToro, Steli Efti—co-founder of close.com, and Patrick McKenzie—who many of you know as patio11 on the internet.
As I mentioned earlier, today, I’m talking with Matt Wensing. He’s the founder of Summit. He’s been on the show a couple of times. I believe this is his third appearance. He is the co-host of the Out of Beta podcast. Man, I talk about a bunch of stuff about what he’s been up to in the past six, seven months since he was last on the show.
One of the topics we do dig into is why he decided to rewrite his entire codebase—whether that was worth it, things he might do differently in the future, and how he made that decision. We also cover how he’s getting growth, how he has been doing customer development. Just all kinds of stuff. It’s a great conversation. I hope you enjoy it. Let’s dive in.
Matt Wensing, thank you so much for joining me on the show again.
Matt: Mr. Walling, thanks for having me.
Rob: Absolutely, man. It’s good to have you back. As some folks may remember, you were on the podcast back in March, episode 489—15 Years to a SaaS Exit (Plus Why Forecasting is Crucial). In that episode, we talked through the building and growing Riskpulse and then selling it back in 2019 for a very nice exit. And then we talked—towards the end of that episode—about Summit, which is the SaaS app—the startup that you’ve been working on now for a year and a half?
Matt: Yeah. That’s about right.
Rob: You’re part of TinySeed Batch 1. Your h1 is tell your forecasting spreadsheet you’re never getting back together. Design your business with someone instead. You’re about forecasting. We talked in the last episode about how if you go into a Baremetrics, ChartMogul, or ProfitWell it is everything up until today. It’s your backward-looking metrics. Those are obviously very important to be looking at. Summit takes it from there, and then you’re going to extrapolate ahead using—we talked about Monte Carlo very lightly. But it’s just simulations and things like, hey, this is where you’re headed based on where you’ve come from.
Is that a pretty good assessment so far?
Matt: That is excellent.
Rob: Awesome. Folks may recognize your voice—co-host of the Out of Beta podcast with our mutual friend Peter, Suhm. I guess you’re @mattwensing on Twitter.
Matt: That’s right. You can find me there. I tweet way too much. But you can help me do that even more.
Rob: Indeed. Go follow Matt to encourage him to spend more time on Twitter and less time working on his company. Several interesting things I want to dig into today. I think we’re going to talk some point about your homepage at Summit. It’s at usesummit.com, and folks can check it out. It’s very sparse. It’s a headline, a tagline, and then buttons and that’s it. It’s not the typical SaaS homepage.
But before we dive into that, I want to go from where we left off back in March in the sense that you were in early access. You had a few customers paying you something. You did not have the traction that you wanted, but you were moving in that direction. You had people coming in, signing up for trials, and connecting their metrics. It didn’t seem like things were working in the sense that you weren’t growing month over month the way that you might expect.
People were trying it out and again, wiring up metrics, but they weren’t sticking around. Most people weren’t paying. The majority of people were not getting the value out of it. Talk to me about where you were because a lot of folks listening to this episode have been in that position or are in that position now. Where they’ve built something, and they know there is something there. It’s not just a complete failure. People are intrigued by it and they try it out, but they don’t stick around. They don’t pay. I just want to hear mentally where you were and what that looked like from your perspective as a founder.
Matt: Yeah. We can definitely relive that. It’s funny, it didn’t feel like a pain when I was there because some things were good. I was getting feedback from people that really, frankly, loved the app, but they just weren’t enough of them. Just to jump ahead to what I learned and then we could talk about how I missed it and then how I finally realized it. Maybe I got the target persona wrong. I didn’t know that I got it wrong. Actually, the target persona was actually the later stage. It’s a bit of concrete terms.
I launched the Summit as an app called SimSaaS. I was thinking, let me help the very, very early stage founder figure out how to do a forecast without the use of something like Google Sheets. I’m going to bring a load of technology to bear on it and make it just a killer app where you could just enter 20 numbers and hit a big button (literally) and get an answer. It did that. It delivered on that promise. For the users, the earliest stage founders that had nothing, nothing at all—no spreadsheet—just thoughts and ideas. It worked.
The problem was something happens as time goes by. Those founders grow up, their businesses mature, and their needs evolve—that’s one part. The other part is they get used to the app as it is, and then just like with every other app, they want more. The app as it was yesterday—even for those happy users—once they are happy, that’s great. Jeff Bezos calls it that wonderful human discontent or something. People are always coming back for what’s the new thing, how can I do more stuff with this, or can it also do that.
I was building up two things. One was this eroding usage that wasn’t going away. Even my free retention—because it was a premium product—wasn’t good. I didn’t like the direction it was going. People would have these experiences, but then they weren’t engaging frequently enough to turn them into a paying customer. But the other part was even the people that loved it had a wish list of things that would really get them excited and really push them over the line. Maybe even turn them into a paying customer.
I’m a one man team—I shouldn’t say that actually anymore. I’m a one man team currently with a handful of contractors. That just put me at a crossroads of I’ve got this codebase that I’ve been working on for a year. It’s a core and then there’s a front-end and a back-end (let’s call it that). The back-end is really unique, really hard to build, the kind of thing you hope you never have to do again. The front-end was like bootstrap and pretty basic components and tools. I tried to pick colors, but it wasn’t amazing. It was good enough.
I just hit this crossroads though. To your question, where have I gone wrong in terms of why can’t I keep these people around, and why can’t I fully satisfy their wish list? Maybe not 100% because I think that’s almost impossible. Why is it increasingly hard to build the next thing that somebody asks me for, and what does that mean for my business? Those were the questions I was facing in February and March.
Rob: It was pretty obvious to you just that people were not engaging and not paying. It’s never obvious what you do then. It’s never obvious what you build. How did you get to that point? I guess that end of the story is that you have a lot more traction now, growth has started kicking up, and people are getting value out of it. Here we are in August six months later. We know that you made a good decision. You changed the product enough that you do have traction now. How did you figure out what to build? Was it conversations with the customers or something else?
Matt: Yeah. I was thinking about this. We’re always looking, as founders, for validation. I know I am. I think most of us are. When people say things that are complementary, they just tend to really put wind in our sails (pick your metaphor). It feels great and you remember those things. There’s a bit of a bias towards the evidence that you’re on the right track. But then, as I said, there was this mounting evidence that I wasn’t on the right track like something was wrong.
I really said I’ve got to start piecing together the consistent story that I’m hearing from the users that I really want to have. Whether it’s people that are on the verge, but the app just isn’t good enough, or maybe they’re people who love the app and then fell out of love with it because it wasn’t good enough. A deep look or maybe a scary look at that evidence and that feedback and saying, what product do these people actually need?
A little bit of context is helpful, and this sounds a little counter-intuitive. I was able to raise another round of funding right around the same timeframe—February. It was based on the traction that I had with the first version of the product. Again, what investors were seeing, what I was seeing was there is clearly a demand for this. People are paying. You are getting users. They’re coming in. Something’s not quite right, but at least the kindling is there.
I think you and Einar, when you invested through TinySeed, were really betting on me as a person and a proof of concept. I think these people were saying, proof of concept has proven out, hasn’t quite figured out the customer yet—the monetization yet, but were willing to bet that Matt’s on to something. I think it’s important to say that that way in March frankly as the world was shutting down to say, wow, I’ve got 12 months plus of runway suddenly where I don’t have to worry about revenue. I’ve got a bunch of data from customers. Now is not the time to do incremental stuff. Or better said, now is an opportunity to do something big.
If I’m going to do something big now, making big changes now, and then seeing how that goes over the next 12 months is better than, oh, I’ll make incremental changes the next 9 months. Burn through a bunch of this new runway, and then find out that I needed to make big changes. I chose to flip it around and say, let me really go back to basics and build against the feedback that I’m getting from this user, this user, and these users because that’s the market I want. Those are the people I want to satisfy.
It’s just being deliberate about who I wanted to please and then being honest that it wasn’t good enough for them. The third factor—which I think is the most important in deciding to do the rewrite—was I’ve got the time. I potentially have the focus because suddenly the world shut down. If I can figure out how to work at home with four kids and a family all stuffed into this house together, then maybe I can basically chain myself to my desk for the next 60 days and do something big. Take a big risk.
Rob: It sounds like you were listening to customers. Would you say it was a job to be done? That in your head, the job of Summit is to do X. That you found that you had built it to do the wrong job? Does that metaphor work?
Matt: Yeah. Actually, I like it. I can use that as a start. I thought my hypothesis was that the job of Summit was to create a forecast for people. If you don’t have a forecast, you’re going to hit that button after putting in a few numbers and you’re going to get a forecast. In terms of a vending machine approach where you punch the Coke button and out comes a Coke. It worked.
The problem was, it would come out and people were like, oh, well, I really like Diet, I like Cherry, or I want mine with a splash of orange. I took a step back and I said, what are these people actually saying? Because you can go a little crazy as a founder when you get feedback of okay, I need to build a citrus flavor dispenser feature onto this. And then these people could be happy.
But what I found was that the things they wanted have nothing in common. What they had in common was they all wanted something else. If you think about that, the North Star became flexible. Like, oh, oh my. I have built a very inflexible vending machine. You come here, if you want A4, A5, you’re good. I can’t do anything else for you. These are your only two choices. The reason that I had to go so deep in terms of rewriting the product was I realized that I was competing against Microsoft Excel—and many of us are.
The difficult thing about competing against a spreadsheet—and probably other products like that—is that a spreadsheet is just endlessly flexible. There’s nothing you can’t do in a spreadsheet. They were coming to me with that same mentality of I’m not used to being constrained like this. I need to be able to copy this thing, add this thing, and do this thing. That need for flexibility, the job to be done was to provide them with a flexible canvas (if you will) or flexible blank space. That’s what I had to do for people.
Once I realized that. I was like, okay, the current version of Summit is not that. I started by ripping the front off the vending machine and saying, grab whatever you need. It’s all open season. And then I just kept going. It’s like a house remodeling project. Sometimes you don’t know when to stop. You just keep going and going and going.
I remember I got to the point where I had rewritten the front-end. I live-tweeted this. I worked in public to do this piece. I rewrote the front-end, but the back-end wasn’t different. I remember pausing and asking myself, okay, the front-end is a lot more flexible. You can click a lot more things and rearrange things. It’s a dashboard tool that’s a lot more modern. Is that all that they needed?
Kind of had this moment where you’re standing at that river and I just went for it. I said, no, actually, I think they need the back-end calculations to also be much more flexible. I basically open that up as well now. With the current version of Summit, not only is the front-end a more flexible, adjustable kind of workspace. The back-end also is just endlessly customizable. That was it. That was the breakthrough that I needed, not to say it wasn’t scary.
Rob: That was the thing. I’ll say there is a rule of thumb of perhaps it’s a yellow or red flag when a developer says we need to rewrite the whole codebase. It’s always, well, of course, we always want to rewrite the whole codebase because either someone else wrote it and it’s not as good as the code that I’m going to write. Or I wrote it a year or two ago. I was learning this stuff. It’s pretty crappy. I think I feel like that about most projects that I code. I want to rewrite them. It’s like, oh, there’s all these hacks and stuff.
Even going back to probably 15, 20 years, there was an essay by Joel Spolsky on the Joel on Software blog. It’s like never rewrite your codebase and this and that. It’s not never, but I always push back. I’m 35 Angel and TinySeed investments in, and I’ve had at least 4 or 5 of the startups that I advise or interact with, say, we need to rewrite our codebase. Every time I really push on it. How do you know? Why? Oh, you got a new CTO. Yeah, not a surprise. He wants to rewrite the codebase. Oh, he wants to change frameworks too, keep the same language? Yeah, of course he does because that’s his favorite framework. It’s this and that.
Sometimes it is the right decision, but it really needs to be thought through carefully. You and I may have had that conversation. I don’t even recall, to be honest. Did you put a ton of time into thinking of do I really want to do this? Because if I recall, it was about 60 days, 70 days of effort. Did you just say, you know what, I have the time. I’m just not going to think that much about it. I’m just going to crank through and do this.
Matt: Yeah. I’ve got good friends and mentors and definitely heard that feedback. I think you might have sent me an email saying, just in general, that’s not a good idea, but I trust you. There was definitely that voice on my shoulder. What was hard for me to communicate—because I’m a 1.75 person crew, let’s just say 1 man crew—at the time is we all wear many hats as founders. Especially in the early days, you wear all the hats.
The hat I was wearing when I said I wanted to do the rewrite, I’ve got a geek in me. Don’t get me wrong, but it wasn’t the inner geek saying, oh man, I want this to be faster, better, or a new framework. It wasn’t the shiny object syndrome developer in me. It really was the business strategist, the founder that said, I want a product that I can be proud of. That when I do a demo, I’m looking forward to those demos. I know people are going to be happy instead of knowing that they’re going to say, oh, well, I need these six things. I need to satisfy this need in the market that’s being expressed by these people.
It was really a lot more of—it sounds weird, but it was—the sales and marketing-driven decision to say I’m not doing this for performance’s sake to eke out another 10%. I’m not even doing this for the framework’s sake. I’m doing this so that when I do a demo with somebody, it blows them away, and they buy the thing. I’ve lived in that situation before—doing sales of things where there’s just all these shortcomings. You don’t always have to go back and rewrite things. Sometimes you just need to tell the customer, hey, sorry. It’s just not a good fit for you right now. It’s on the road map. We’ll let you know when we get to it.
But I made the executive decision—as you have the luxury of doing in the early days—to say, no, I’m the CEO and founder. There’s enough evidence here coming from my inner salesperson to say, this is not just the right product. We need to rewrite it. It was my inner CEO going, hey, developer Matt. Guess what you’re going to do. You’ve got a job to do. You better roll up your sleeves and learn Vue.js, Hasura, and a whole bunch of new tech because you’re going to want to do all these things.
Of course, I let myself have fun. Don’t get me wrong. It was a blast. I really felt like I was hiring my developer self to do a job. Not my developer was like, oh, I have an idea. We should do this. I think that just comes through experience. Not to say I’m perfect, but you got to be really honest with yourself about where your motivation is coming from to do something like that.
Rob: That’s a really good point for folks to think about. If you’re a single founder, a two-founder team and you are thinking about rewriting, put on your sales and marketing hat, put on your CEO hat, not your CTO or developer hat. Not that there’s never a reason. You can have a code that is so bad that you can’t add features and it takes you a month to do a day’s worth of work or whatever. Of course, that happens, but it’s a lot less frequent than developers tend to make it out to be. Knowing that it came from that sales and marketing perspective. It truly was almost needed to be a different product. Summit 2.0 is really, really different from Summit 1.0.
Matt: Yeah, completely. You can actually build Summit 1.0 using Summit 2.0. If that doesn’t bend people’s minds. Summit 1.0 was just one template now in the new world. One other thing is that the CTO did speak up a little bit in that time. The one thing I told Peter this on the podcast was, I want to build this in a way where if it is successful, I can hire developers to help me get it on the next level and the next level. Because the first version was one of those things where I got to build this thing by hook or crook. It doesn’t matter what the code looks like. Just get the date on the screen, try to sell some subscriptions, and test the interest.
With this one, I said, I have a pretty good feeling this is going to be well-received. Let me take a little bit longer, maybe two, three, four, five weeks longer. Which is, again, doubling the timeframe but I’ve got the time. Let me make sure that what I come out with is something where I can at least turn to a skilled dev and say, hey, the market likes this. Can you take over these parts now? Because this is the foundation. This is not a throwaway, basically. That was maybe a concise way to say. My inner CTO was like, don’t have it be thrown away. If we’re going to do this, at least do it in a way where we don’t have to scrap it again because we don’t want to do this again.
I did follow that. I think that’s worked out pretty well, fortunately. I’ve had other developers contribute since then. It’s moving faster now because of that.
Rob: That’s really nice. How long did the rewrite take you?
Matt: I think 70 days of coding. Essentially with the commit and push every day.
Rob: Oh wow. That’s a great way to do it.
Matt: Yeah. It was very consistent. Actually, that was fun. You can look at my GitHub or I can at least look at my GitHub repost. You can see where my consistent deployments or pushes died off and I became very sporadic in terms of my product progress with the first version. Because I was hitting these walls to do the next feature. It just required a bigger effort, a bigger effort, and a bigger effort.
I was like, okay, time to brew the coffee and crank out this feature. It’s going to be super hard to do, and I would get these bursts of productivity. With the new one, it’s actually nice to see a quantitative self. You can see, hey, look at that. Every day, something new—a little bit better, a little bit better. That also helped me know that I was on the right track. It wasn’t halfway across, but still, nothing delivered that kind of project.
Rob: I’m looking at your revenue graph. As I mentioned earlier, you’re a TinySeed batch one company, so I have access to that kind of stuff. There is a really noticeable uptick in your MRR. Of course, I’m trying to scroll through it now. It looks like from June to July, your revenue ticked up. You’re still early stage (so folks know). But there was a doubling or something of MRR, and then it went up another whatever. Is that because of V2? Is this rewrite instantly resonated with people that noticeably?
Matt: Yeah. I think the short answer is yes, but I’ll qualify that by saying, I took it then to the customers that I was essentially targeting with this rewrite. I took it to them basically as soon as it was ready and I said, aha. Here is the flexibility you’ve been asking for. Here is the tool. I know it’s not done yet, it’s not 100%, so I want your list. But if you agree this is on the right track, I would love your support. I would love you to buy into it because I think this is what you’ve been looking for. I was successful in those sales, which felt great. Obviously, that was a huge validation.
It wasn’t really the numbers, so much as saying, wow, out of these three or four companies or founders that are in my sweet spot—the ones I really want to please—they bought. That was huge. Who knows? With the old version, I’m sure I would’ve sold some subscriptions as well. But again, back to the personas, it would have been to these people. It would have been to those other people. That was not what I ultimately wanted to do.
Rob: Right. Now, I logged into a brand-new Summit account. The first thing that pops up, it says, welcome to Summit, the software to replace your financial spreadsheet. And then you have three different pre-built models. You have self-service SaaS, early-stage SaaS, sales-driven SaaS, and then you have upload your own model.
I’m guessing that in Summit V1, one of these models was the default and you were limited with assumptions in there versus this is a meta-level where it’s a much more of an Excel. I can build whatever I want.
Matt: Yeah. It really is. It’s more like maybe a Lego bucket at this point where you can build a model, build your house. Here are all the pieces. Here’re the building blocks. The first version was more like, here’s a Lego kit. It only builds this kind of house. I hope that you live in a ranch home, and you can adjust a few things about it. How big is your garage, and how big is this. You can make some changes, but it wasn’t the kind of thing like, here’s a bucket of parts. That bucket of parts approach is where what the screen you’re looking at right now is essentially saying, here are five kits. You can pick one or three kits and you can pick one.
That’s nice too because you gave me some really good feedback. That wasn’t always there. That wasn’t actually there at the very beginning of the relaunch. What you said, and I think it ran through is, oh man, a blank slate is just really tough. This is interesting to go through. I pushed back on that at first. I remembered getting your email and thinking, I don’t know if he gets it yet. There’s all this flexibility now. I don’t want to preload stuff. That takes it away.
A lot of people face this blank slate problem with the SaaS app is what do I fill it with? I was worried that if I automatically put in a bunch of building blocks, you would come to that same conclusion of like, oh, look at that. This isn’t for me because this is assuming that I’ve got a sales team, or this is assuming that I’m self-service or whatever.
It’s really silly. But I just remembered back to Microsoft Excel, for example, or Microsoft Word, and what happens when you load up those applications? You get hit with this screen and it says, are you trying to do an invoice? Are you trying to do a short story or an essay? It has all these templates.
I just had this mental breakthrough of like, oh yeah, duh. I can just show them a list of options and they can pick one. That then gives me the best of both worlds. If you want a blank slate, man, you can have it. But if you’re an early-stage founder, and you see early-stage SaaS in there, you can just click it. Then, hopefully, that gets you started faster.
Rob: The beauty of that is not even that you have to use it as is, but when you click it, it prepopulates a bunch of stuff and I then I can go tweak it. That’s what we learned when we’re building Drip was you have this workflow builder. Which is this visual designer and you can do if then else statements. It’s […] complete language in this visual builder for email. People were the experts, the power users, the Bren and Duns loved it.
Everyone below that level—even mid-level marketers—were like, I don’t know what to do first. What should I do? It wasn’t until we got the blueprints built and you could just one-click import a blueprint that we really started getting the mid-level and lower end marketers. I think that’s probably where my feedback came from is having built a similar engine that Derrick and I knew the workflow builder is incredibly powerful. So cool when we launched it. Quickly, all those questions of oh, what should I do? It was like, I guess we got to show you some guidance.
Matt: Yeah, absolutely. That’s my job now. This is kind of a retrospective. There is a group of users of the first product that I essentially alienated. They came to the new one and basically said, what have you done? You took away the one I liked, and you replaced it with this power tool. I don’t know what to do. It was pretty painful to hear. It’s nothing more satisfying as a product person and to hear that somebody loved the thing you made. But I wasn’t going to keep that around.
What I’m trying to do now is through Looms, education, those templates, and blueprints, I’m just building up a community. I really do want to work backward now and say, you can still use this. There’s going to be some learning. This is now more like a Drip or that kind of power tool. You have to decide that you want to be good at this and learn a new skill to an extent, but it’s still better than Excel. You’re going to like it more than Excel, but there is a learning curve. That’s fine. That appeals to me. Frankly, I really enjoy the subject so much that I enjoy teaching people how to use it.
Rob: That makes a lot of sense. We talked last time about the value of forecasting in SaaS in terms of when to use cases, fundraising, to see when your money’s going to run out. But if you’re a bootstrapper—which you most likely are listening to this—show hiring is a big one. Ad budgets, like, hey, ads are starting to work. Can I throw $5,000, $10,000 a month at it? Or will I run out of cash just because of my LTV pans out? If it takes me six months to get paid back, I need X amount of cash.
Yeah, you could model that in Excel, but this is going to take everything into account. There’s ad spend, there’s any of those big decisions around spending money in a way that is complicated and can put you in a cash crunch.
Matt: Yeah. What’s nice about a model approach instead of a spreadsheet is you set a founder in front of a spreadsheet and you say, put your business in here. There’s an immediate thought of okay, I need a revenue row, I guess, and I also need an expenses row. And then I need this, I need that. They start to fill out that classic spreadsheet template view of the month over a month like what you see in QuickBooks.
What’s interesting about this, and I’m still flushing this out, but I’m really just asking you to tell me about your business. Tell me what your revenue plans are, what your acquisitions channels are, and what your team looks like. Founders are really good at that. You can just ask a founder like, how do you acquire your customers? Oh, we have Google Ads spent. Cool, let me capture that real quick, done.
The hope is that it’s really a more natural way to capture business is this model. Where to sketch your home on a piece of paper on a napkin is easier than necessarily going through and saying what are all the dimensions and all these different things. Which people can seize up. That’s the test right now is to see how many folks can come to this and essentially describe their businesses and get out something that is really useful in making decisions.
Rob: As we move towards wrapping up, we got to talk about this homepage because it is one of the most compact, sparse. I think there is a total of 15, 16 words on it, not including your copyright at the bottom. It’s your logo. It’s a picture of a hummingbird, which is pretty cool. Then it’s, tell your forecasting spreadsheet you’re never getting back together. Design your business with Summit instead. There’s a button to create a free account. There’s a button to sign in.
I have seen creative SaaS homepages. Obviously, the standard one with pricing on it, or maybe that’s another link. There’s a top nav, which you don’t have. You have no footer. I once did a long-form sales page. The Drip homepage was a long-form sales page for quite some time, but I’m not sure that I have seen one like this. I’m curious if you have inspiration, or if you just did it on a whim. The real question is, is it working, or do you know yet?
Matt: Yeah. That was definitely done because I needed a homepage. I was launching a new thing. It was a complete rewriting, including the marketing site. I just needed to get something out there that had those buttons. To be perfectly honest, what’s the minimum? It’s probably an h1, h2, login, and sign up buttons. That’s what it is. I have not prioritized adding to that for a couple of reasons.
One is, I’m still figuring out what Summit is. Not to be totally metaphysical, but what is this thing? I have a little bit of a concern that if I flush that out with a lot of words, first of all, that’s changing. I’m still figuring it out. Second of all, I got to update and maintain that stuff. There’s a bit of a liability that goes along with adding more words to that homepage.
The second part of it, which I will defend for different reasons. Maybe I’m just defending past actions because I have convenient data. But it’s working well enough. Through that homepage, it depends on the day, but I’m getting anywhere from—on a very, very slow day, maybe it’s a Sunday holiday or something like that—2-3 sign-ups. On a busy day, 10, 12, 15, 20 sign-ups through that page. That tells me something. It tells me that those are high intent people. They just wanted to get in and check it out.
I think, for now, honestly, I don’t feel ready to convince more people—people that are on the fence where they’re like, I don’t know if I need to tell my forecasting spreadsheet goodbye. I’m pretty happy with it, I don’t have a forecasting spreadsheet, or I don’t have any context. Those people, I’ll lure them in, I’ll bring them in, and tractor beam them in eventually. But for now, I like knowing that the people that get into the product are there because they’re motivated, what they did see resonated with them, or they heard about it some other way. That’s good enough for now because the feedback I get from those 5, 6, or 10 sign-ups per day is a good signal.
For what it’s worth, I actually think that’s about to end. I’m not hearing a lot of new things these days from these sign-ups. I think it’s really natural to go back to that homepage and say, jeez, Matt. You could probably widen your funnel here if you just helped a few more people realize that oh, that’s what this does. I see this as an opportunity. I haven’t prioritized widening the top of the funnel yet. But I will. I definitely will.
I’m actually investing a pretty good amount of time in business development and partnerships for Q3 and Q4 to give a lot more people to that homepage. I fully intend to give them a little bit more insight into what it is.
Rob: No. That makes sense. I think there is a certain benefit to simplicity, especially in the short term. That’s cool to hear that’s your thought process and that is what you’re experiencing. I certainly can attest to I had a tool. I ran a SaaS up before Drip called HitTail, and it’s a long tail SEO keyword tool that plugged into your Google webmaster tool or something. And it pulled out the search console—they kept changing the name of it. But it would pull out keywords that you should rank high for based on your content and based on how people are finding you. But you weren’t ranking high enough. You were on the second page of Google. It would suggest them as things to beef up to get to the first page.
The way that I sold it, and I found that it really resonated, was a curiosity headline of how the tool works. It’s analyzed over a billion keywords in its lifetime across thousands and thousands of websites. It will suggest the keywords that you should be ranking for but aren’t. It didn’t go into how it did it. Once you got in the tool, you can figure out what it was doing. But it was really a curiosity play of this is the job it does, these are the testimonials, and these people are saying it works.
When you first arrived at the site, people would have skepticism. Does this thing actually work? Is it worth the money? Is it going to waste my time and all that? But that curiosity play was enough to get a lot of sign-ups—really high trials to paid conversion rate. I can imagine with you this headline, like you said, if someone came here totally cold, and they don’t really know what this is, or they don’t have the context in, I’m not sure it’s enough to draw them in. As you said, if you’re into forecasting and you really don’t like the spreadsheet, the headline captures it, and that’s enough. That is an interesting approach in this early stage.
Matt: Yeah. I felt a little bit more justified when Hiten Shah, who’s a TinySeed mentor, came and shared with the group. He’s now running usefyi.com or FYI. That was my inspiration for this. If he can get away with it, and it’s literally just an h1 and then a button. I don’t know how that’s going for him, what his plans are, I’m not speaking to that. But I saw it and said, okay, here’s a guy who knows a thing or two about heatmaps, homepages, and actions.
The one thing that resonated with me or I took away from that was what’s the thing you want them to do when they’re here? With his, it’s sign in with Google. With mine, it’s I want you to create an account. It was just a great point of man, if you know the next action you want them to take, maybe it’s okay to just start by focusing on that.
Rob: All right. Before you launch an app, if you put up a landing page and drive traffic to where, or whatever, it’s very simple that landing page. Typically, it’s a headline, a short description, and an email caption format. That’s the standard format of it. You can get those to convert really high—10%, 20%, 30% of visitors. If they’re targeted, you have a good headline, and good curiosity created out of that, you can land a lot of folks.
I think there is something to that simplicity. My guess is with Hiten’s, he’s not doing something if it’s not working. I’m guessing that’s a pretty, pretty decent approach. Sir, thank you so much for coming back on Startups For The Rest Of Us. As I said at the top of the show, you are @mattwensing on Twitter and usesummit.com if folks want to check out what you’ve been up to and potentially forecast their SaaS with V2.
Matt: Awesome. Thanks for having me on, Rob.
Rob: Absolutely, man. Thanks. Thanks again to Matt for coming back on the show. If you enjoyed this episode, I really appreciate it if you would check the Startups pod Twitter feed, and you can @ reply because Matt and I both have been mentioned in the tweet that came out this morning or retweet, or whatever. Just let us know any piece of that conversation that you enjoyed or get value out of, and you feel like you’ll take with you as you go ahead in the coming weeks. Thank you so much for listening, and I’ll talk to you again next Tuesday morning.
We want to build real businesses with real customers who pay us real money. And we want to do it in a meticulous and disciplined way, in a repeatable fashion to where we could build many, many businesses in the same fashion. We don’t want to rely so much on luck like a lot of the big venture fund companies do.
This week, I’m talking with a returning guest, Matt Wensing, about when to rewrite your SaaS codebase. It’s something that he has just spent the last three or four months doing. But before we dive into that, I want to cover two talking points.
First is, you might be noticing that my co-host Emeritus Mike Taber has not been on the show in quite some time. I believe it’s been about three months. Mike and I have been chatting via email and text, and we even did a phone call today. He has stuff that’s going on that he really isn’t able to talk about in public. He has things going on that are interesting and are very likely to push his business forward in interesting ways. But when you can’t talk about it in public, it doesn’t make for an interesting podcast.
He’s still working on Bluetick. I do want to get an update from him on that and everything else that’s going on. But we both agreed that for now, he should hang tight and he’s going to let me know when the things that he is working on can essentially be discussed on the show. Then I’ll have Mike back on the show like we’ve been doing for the past year or so.
The other thing I wanted to mention is that a couple of weeks ago with TinySeed, we launched our investment pieces moving forward. It’s for fun too and beyond. But the idea is that we believe investing broadly into the earliest stages of B2B SaaS companies, and specifically, it’s the B2B SaaS companies who are not necessarily reliant on traditional venture capital racket. It’s the Startups For The Rest Of Us, the MicroConf type companies. But we believe this can provide amazing returns for investors and thus allows us to raise more money and help more campiness.
There’s this huge gap in the funding market that’s why we launched TinySeed back in 2018. That’s why we’re continuing to double down in this space, as I have been for 15 years with the blog, more than a decade with the podcast, and 9 years (almost going on 10) here with MicroConf. But it’s to help more founders get there faster. Some founders get tremendous value out of a free podcast. Some get value out of a $20 book or $10 ebook. And some get value out of attending in-person events, meeting people, hearing tactics and tips, and building relationships. Others do want to take that other step of hey, here’s some funding; here’s a batch approach; and here’s a network, mentorship, and all that.
There are many different paths for folks to get there. I think about it as being bootstrapped, almost bootstrapped, or mostly bootstrapped as I’ve heard Craig Hewitt throughout on his podcast a few times. But the idea is there’s this huge gap between raising millions or tens of millions in funding and going after that unicorn exit. The companies that we talk about on this podcast and that are part of the MicroConf community of building these ambitious yet sane startups.
If you are an investor, if you’re credited, or you fit the definition of a US accredited investor—you do not have to live in the US—I encourage you to check out tinyseed.com/thesis. Because we have a bunch of data that we have crunched and spent weeks and weeks writing this massive report. It’s an investment memo that has become our investment thesis. We have essentially been proving that out with our first two batches, and we’re in the process of raising Fund 2, so that we can continue to help, support, mentor, guide, and fund hundreds and hundreds more independent SaaS companies. Again, that’s tinyseed.com/thesis.
If you decide to invest, you’ll be joining folks like Dharmesh Shah—co-founder of HubSpot, Rand Fishkin—founder of SparkToro, Steli Efti—co-founder of close.com, and Patrick McKenzie—who many of you know as patio11 on the internet.
As I mentioned earlier, today, I’m talking with Matt Wensing. He’s the founder of Summit. He’s been on the show a couple of times. I believe this is his third appearance. He is the co-host of the Out of Beta podcast. Man, I talk about a bunch of stuff about what he’s been up to in the past six, seven months since he was last on the show.
One of the topics we do dig into is why he decided to rewrite his entire codebase—whether that was worth it, things he might do differently in the future, and how he made that decision. We also cover how he’s getting growth, how he has been doing customer development. Just all kinds of stuff. It’s a great conversation. I hope you enjoy it. Let’s dive in.
Matt Wensing, thank you so much for joining me on the show again.
Matt: Mr. Walling, thanks for having me.
Rob: Absolutely, man. It’s good to have you back. As some folks may remember, you were on the podcast back in March, episode 489—15 Years to a SaaS Exit (Plus Why Forecasting is Crucial). In that episode, we talked through the building and growing Riskpulse and then selling it back in 2019 for a very nice exit. And then we talked—towards the end of that episode—about Summit, which is the SaaS app—the startup that you’ve been working on now for a year and a half?
Matt: Yeah. That’s about right.
Rob: You’re part of TinySeed Batch 1. Your h1 is tell your forecasting spreadsheet you’re never getting back together. Design your business with someone instead. You’re about forecasting. We talked in the last episode about how if you go into a Baremetrics, ChartMogul, or ProfitWell it is everything up until today. It’s your backward-looking metrics. Those are obviously very important to be looking at. Summit takes it from there, and then you’re going to extrapolate ahead using—we talked about Monte Carlo very lightly. But it’s just simulations and things like, hey, this is where you’re headed based on where you’ve come from.
Is that a pretty good assessment so far?
Matt: That is excellent.
Rob: Awesome. Folks may recognize your voice—co-host of the Out of Beta podcast with our mutual friend Peter, Suhm. I guess you’re @mattwensing on Twitter.
Matt: That’s right. You can find me there. I tweet way too much. But you can help me do that even more.
Rob: Indeed. Go follow Matt to encourage him to spend more time on Twitter and less time working on his company. Several interesting things I want to dig into today. I think we’re going to talk some point about your homepage at Summit. It’s at usesummit.com, and folks can check it out. It’s very sparse. It’s a headline, a tagline, and then buttons and that’s it. It’s not the typical SaaS homepage.
But before we dive into that, I want to go from where we left off back in March in the sense that you were in early access. You had a few customers paying you something. You did not have the traction that you wanted, but you were moving in that direction. You had people coming in, signing up for trials, and connecting their metrics. It didn’t seem like things were working in the sense that you weren’t growing month over month the way that you might expect.
People were trying it out and again, wiring up metrics, but they weren’t sticking around. Most people weren’t paying. The majority of people were not getting the value out of it. Talk to me about where you were because a lot of folks listening to this episode have been in that position or are in that position now. Where they’ve built something, and they know there is something there. It’s not just a complete failure. People are intrigued by it and they try it out, but they don’t stick around. They don’t pay. I just want to hear mentally where you were and what that looked like from your perspective as a founder.
Matt: Yeah. We can definitely relive that. It’s funny, it didn’t feel like a pain when I was there because some things were good. I was getting feedback from people that really, frankly, loved the app, but they just weren’t enough of them. Just to jump ahead to what I learned and then we could talk about how I missed it and then how I finally realized it. Maybe I got the target persona wrong. I didn’t know that I got it wrong. Actually, the target persona was actually the later stage. It’s a bit of concrete terms.
I launched the Summit as an app called SimSaaS. I was thinking, let me help the very, very early stage founder figure out how to do a forecast without the use of something like Google Sheets. I’m going to bring a load of technology to bear on it and make it just a killer app where you could just enter 20 numbers and hit a big button (literally) and get an answer. It did that. It delivered on that promise. For the users, the earliest stage founders that had nothing, nothing at all—no spreadsheet—just thoughts and ideas. It worked.
The problem was something happens as time goes by. Those founders grow up, their businesses mature, and their needs evolve—that’s one part. The other part is they get used to the app as it is, and then just like with every other app, they want more. The app as it was yesterday—even for those happy users—once they are happy, that’s great. Jeff Bezos calls it that wonderful human discontent or something. People are always coming back for what’s the new thing, how can I do more stuff with this, or can it also do that.
I was building up two things. One was this eroding usage that wasn’t going away. Even my free retention—because it was a premium product—wasn’t good. I didn’t like the direction it was going. People would have these experiences, but then they weren’t engaging frequently enough to turn them into a paying customer. But the other part was even the people that loved it had a wish list of things that would really get them excited and really push them over the line. Maybe even turn them into a paying customer.
I’m a one man team—I shouldn’t say that actually anymore. I’m a one man team currently with a handful of contractors. That just put me at a crossroads of I’ve got this codebase that I’ve been working on for a year. It’s a core and then there’s a front-end and a back-end (let’s call it that). The back-end is really unique, really hard to build, the kind of thing you hope you never have to do again. The front-end was like bootstrap and pretty basic components and tools. I tried to pick colors, but it wasn’t amazing. It was good enough.
I just hit this crossroads though. To your question, where have I gone wrong in terms of why can’t I keep these people around, and why can’t I fully satisfy their wish list? Maybe not 100% because I think that’s almost impossible. Why is it increasingly hard to build the next thing that somebody asks me for, and what does that mean for my business? Those were the questions I was facing in February and March.
Rob: It was pretty obvious to you just that people were not engaging and not paying. It’s never obvious what you do then. It’s never obvious what you build. How did you get to that point? I guess that end of the story is that you have a lot more traction now, growth has started kicking up, and people are getting value out of it. Here we are in August six months later. We know that you made a good decision. You changed the product enough that you do have traction now. How did you figure out what to build? Was it conversations with the customers or something else?
Matt: Yeah. I was thinking about this. We’re always looking, as founders, for validation. I know I am. I think most of us are. When people say things that are complementary, they just tend to really put wind in our sails (pick your metaphor). It feels great and you remember those things. There’s a bit of a bias towards the evidence that you’re on the right track. But then, as I said, there was this mounting evidence that I wasn’t on the right track like something was wrong.
I really said I’ve got to start piecing together the consistent story that I’m hearing from the users that I really want to have. Whether it’s people that are on the verge, but the app just isn’t good enough, or maybe they’re people who love the app and then fell out of love with it because it wasn’t good enough. A deep look or maybe a scary look at that evidence and that feedback and saying, what product do these people actually need?
A little bit of context is helpful, and this sounds a little counter-intuitive. I was able to raise another round of funding right around the same timeframe—February. It was based on the traction that I had with the first version of the product. Again, what investors were seeing, what I was seeing was there is clearly a demand for this. People are paying. You are getting users. They’re coming in. Something’s not quite right, but at least the kindling is there.
I think you and Einar, when you invested through TinySeed, were really betting on me as a person and a proof of concept. I think these people were saying, proof of concept has proven out, hasn’t quite figured out the customer yet—the monetization yet, but were willing to bet that Matt’s on to something. I think it’s important to say that that way in March frankly as the world was shutting down to say, wow, I’ve got 12 months plus of runway suddenly where I don’t have to worry about revenue. I’ve got a bunch of data from customers. Now is not the time to do incremental stuff. Or better said, now is an opportunity to do something big.
If I’m going to do something big now, making big changes now, and then seeing how that goes over the next 12 months is better than, oh, I’ll make incremental changes the next 9 months. Burn through a bunch of this new runway, and then find out that I needed to make big changes. I chose to flip it around and say, let me really go back to basics and build against the feedback that I’m getting from this user, this user, and these users because that’s the market I want. Those are the people I want to satisfy.
It’s just being deliberate about who I wanted to please and then being honest that it wasn’t good enough for them. The third factor—which I think is the most important in deciding to do the rewrite—was I’ve got the time. I potentially have the focus because suddenly the world shut down. If I can figure out how to work at home with four kids and a family all stuffed into this house together, then maybe I can basically chain myself to my desk for the next 60 days and do something big. Take a big risk.
Rob: It sounds like you were listening to customers. Would you say it was a job to be done? That in your head, the job of Summit is to do X. That you found that you had built it to do the wrong job? Does that metaphor work?
Matt: Yeah. Actually, I like it. I can use that as a start. I thought my hypothesis was that the job of Summit was to create a forecast for people. If you don’t have a forecast, you’re going to hit that button after putting in a few numbers and you’re going to get a forecast. In terms of a vending machine approach where you punch the Coke button and out comes a Coke. It worked.
The problem was, it would come out and people were like, oh, well, I really like Diet, I like Cherry, or I want mine with a splash of orange. I took a step back and I said, what are these people actually saying? Because you can go a little crazy as a founder when you get feedback of okay, I need to build a citrus flavor dispenser feature onto this. And then these people could be happy.
But what I found was that the things they wanted have nothing in common. What they had in common was they all wanted something else. If you think about that, the North Star became flexible. Like, oh, oh my. I have built a very inflexible vending machine. You come here, if you want A4, A5, you’re good. I can’t do anything else for you. These are your only two choices. The reason that I had to go so deep in terms of rewriting the product was I realized that I was competing against Microsoft Excel—and many of us are.
The difficult thing about competing against a spreadsheet—and probably other products like that—is that a spreadsheet is just endlessly flexible. There’s nothing you can’t do in a spreadsheet. They were coming to me with that same mentality of I’m not used to being constrained like this. I need to be able to copy this thing, add this thing, and do this thing. That need for flexibility, the job to be done was to provide them with a flexible canvas (if you will) or flexible blank space. That’s what I had to do for people.
Once I realized that. I was like, okay, the current version of Summit is not that. I started by ripping the front off the vending machine and saying, grab whatever you need. It’s all open season. And then I just kept going. It’s like a house remodeling project. Sometimes you don’t know when to stop. You just keep going and going and going.
I remember I got to the point where I had rewritten the front-end. I live-tweeted this. I worked in public to do this piece. I rewrote the front-end, but the back-end wasn’t different. I remember pausing and asking myself, okay, the front-end is a lot more flexible. You can click a lot more things and rearrange things. It’s a dashboard tool that’s a lot more modern. Is that all that they needed?
Kind of had this moment where you’re standing at that river and I just went for it. I said, no, actually, I think they need the back-end calculations to also be much more flexible. I basically open that up as well now. With the current version of Summit, not only is the front-end a more flexible, adjustable kind of workspace. The back-end also is just endlessly customizable. That was it. That was the breakthrough that I needed, not to say it wasn’t scary.
Rob: That was the thing. I’ll say there is a rule of thumb of perhaps it’s a yellow or red flag when a developer says we need to rewrite the whole codebase. It’s always, well, of course, we always want to rewrite the whole codebase because either someone else wrote it and it’s not as good as the code that I’m going to write. Or I wrote it a year or two ago. I was learning this stuff. It’s pretty crappy. I think I feel like that about most projects that I code. I want to rewrite them. It’s like, oh, there’s all these hacks and stuff.
Even going back to probably 15, 20 years, there was an essay by Joel Spolsky on the Joel on Software blog. It’s like never rewrite your codebase and this and that. It’s not never, but I always push back. I’m 35 Angel and TinySeed investments in, and I’ve had at least 4 or 5 of the startups that I advise or interact with, say, we need to rewrite our codebase. Every time I really push on it. How do you know? Why? Oh, you got a new CTO. Yeah, not a surprise. He wants to rewrite the codebase. Oh, he wants to change frameworks too, keep the same language? Yeah, of course he does because that’s his favorite framework. It’s this and that.
Sometimes it is the right decision, but it really needs to be thought through carefully. You and I may have had that conversation. I don’t even recall, to be honest. Did you put a ton of time into thinking of do I really want to do this? Because if I recall, it was about 60 days, 70 days of effort. Did you just say, you know what, I have the time. I’m just not going to think that much about it. I’m just going to crank through and do this.
Matt: Yeah. I’ve got good friends and mentors and definitely heard that feedback. I think you might have sent me an email saying, just in general, that’s not a good idea, but I trust you. There was definitely that voice on my shoulder. What was hard for me to communicate—because I’m a 1.75 person crew, let’s just say 1 man crew—at the time is we all wear many hats as founders. Especially in the early days, you wear all the hats.
The hat I was wearing when I said I wanted to do the rewrite, I’ve got a geek in me. Don’t get me wrong, but it wasn’t the inner geek saying, oh man, I want this to be faster, better, or a new framework. It wasn’t the shiny object syndrome developer in me. It really was the business strategist, the founder that said, I want a product that I can be proud of. That when I do a demo, I’m looking forward to those demos. I know people are going to be happy instead of knowing that they’re going to say, oh, well, I need these six things. I need to satisfy this need in the market that’s being expressed by these people.
It was really a lot more of—it sounds weird, but it was—the sales and marketing-driven decision to say I’m not doing this for performance’s sake to eke out another 10%. I’m not even doing this for the framework’s sake. I’m doing this so that when I do a demo with somebody, it blows them away, and they buy the thing. I’ve lived in that situation before—doing sales of things where there’s just all these shortcomings. You don’t always have to go back and rewrite things. Sometimes you just need to tell the customer, hey, sorry. It’s just not a good fit for you right now. It’s on the road map. We’ll let you know when we get to it.
But I made the executive decision—as you have the luxury of doing in the early days—to say, no, I’m the CEO and founder. There’s enough evidence here coming from my inner salesperson to say, this is not just the right product. We need to rewrite it. It was my inner CEO going, hey, developer Matt. Guess what you’re going to do. You’ve got a job to do. You better roll up your sleeves and learn Vue.js, Hasura, and a whole bunch of new tech because you’re going to want to do all these things.
Of course, I let myself have fun. Don’t get me wrong. It was a blast. I really felt like I was hiring my developer self to do a job. Not my developer was like, oh, I have an idea. We should do this. I think that just comes through experience. Not to say I’m perfect, but you got to be really honest with yourself about where your motivation is coming from to do something like that.
Rob: That’s a really good point for folks to think about. If you’re a single founder, a two-founder team and you are thinking about rewriting, put on your sales and marketing hat, put on your CEO hat, not your CTO or developer hat. Not that there’s never a reason. You can have a code that is so bad that you can’t add features and it takes you a month to do a day’s worth of work or whatever. Of course, that happens, but it’s a lot less frequent than developers tend to make it out to be. Knowing that it came from that sales and marketing perspective. It truly was almost needed to be a different product. Summit 2.0 is really, really different from Summit 1.0.
Matt: Yeah, completely. You can actually build Summit 1.0 using Summit 2.0. If that doesn’t bend people’s minds. Summit 1.0 was just one template now in the new world. One other thing is that the CTO did speak up a little bit in that time. The one thing I told Peter this on the podcast was, I want to build this in a way where if it is successful, I can hire developers to help me get it on the next level and the next level. Because the first version was one of those things where I got to build this thing by hook or crook. It doesn’t matter what the code looks like. Just get the date on the screen, try to sell some subscriptions, and test the interest.
With this one, I said, I have a pretty good feeling this is going to be well-received. Let me take a little bit longer, maybe two, three, four, five weeks longer. Which is, again, doubling the timeframe but I’ve got the time. Let me make sure that what I come out with is something where I can at least turn to a skilled dev and say, hey, the market likes this. Can you take over these parts now? Because this is the foundation. This is not a throwaway, basically. That was maybe a concise way to say. My inner CTO was like, don’t have it be thrown away. If we’re going to do this, at least do it in a way where we don’t have to scrap it again because we don’t want to do this again.
I did follow that. I think that’s worked out pretty well, fortunately. I’ve had other developers contribute since then. It’s moving faster now because of that.
Rob: That’s really nice. How long did the rewrite take you?
Matt: I think 70 days of coding. Essentially with the commit and push every day.
Rob: Oh wow. That’s a great way to do it.
Matt: Yeah. It was very consistent. Actually, that was fun. You can look at my GitHub or I can at least look at my GitHub repost. You can see where my consistent deployments or pushes died off and I became very sporadic in terms of my product progress with the first version. Because I was hitting these walls to do the next feature. It just required a bigger effort, a bigger effort, and a bigger effort.
I was like, okay, time to brew the coffee and crank out this feature. It’s going to be super hard to do, and I would get these bursts of productivity. With the new one, it’s actually nice to see a quantitative self. You can see, hey, look at that. Every day, something new—a little bit better, a little bit better. That also helped me know that I was on the right track. It wasn’t halfway across, but still, nothing delivered that kind of project.
Rob: I’m looking at your revenue graph. As I mentioned earlier, you’re a TinySeed batch one company, so I have access to that kind of stuff. There is a really noticeable uptick in your MRR. Of course, I’m trying to scroll through it now. It looks like from June to July, your revenue ticked up. You’re still early stage (so folks know). But there was a doubling or something of MRR, and then it went up another whatever. Is that because of V2? Is this rewrite instantly resonated with people that noticeably?
Matt: Yeah. I think the short answer is yes, but I’ll qualify that by saying, I took it then to the customers that I was essentially targeting with this rewrite. I took it to them basically as soon as it was ready and I said, aha. Here is the flexibility you’ve been asking for. Here is the tool. I know it’s not done yet, it’s not 100%, so I want your list. But if you agree this is on the right track, I would love your support. I would love you to buy into it because I think this is what you’ve been looking for. I was successful in those sales, which felt great. Obviously, that was a huge validation.
It wasn’t really the numbers, so much as saying, wow, out of these three or four companies or founders that are in my sweet spot—the ones I really want to please—they bought. That was huge. Who knows? With the old version, I’m sure I would’ve sold some subscriptions as well. But again, back to the personas, it would have been to these people. It would have been to those other people. That was not what I ultimately wanted to do.
Rob: Right. Now, I logged into a brand-new Summit account. The first thing that pops up, it says, welcome to Summit, the software to replace your financial spreadsheet. And then you have three different pre-built models. You have self-service SaaS, early-stage SaaS, sales-driven SaaS, and then you have upload your own model.
I’m guessing that in Summit V1, one of these models was the default and you were limited with assumptions in there versus this is a meta-level where it’s a much more of an Excel. I can build whatever I want.
Matt: Yeah. It really is. It’s more like maybe a Lego bucket at this point where you can build a model, build your house. Here are all the pieces. Here’re the building blocks. The first version was more like, here’s a Lego kit. It only builds this kind of house. I hope that you live in a ranch home, and you can adjust a few things about it. How big is your garage, and how big is this. You can make some changes, but it wasn’t the kind of thing like, here’s a bucket of parts. That bucket of parts approach is where what the screen you’re looking at right now is essentially saying, here are five kits. You can pick one or three kits and you can pick one.
That’s nice too because you gave me some really good feedback. That wasn’t always there. That wasn’t actually there at the very beginning of the relaunch. What you said, and I think it ran through is, oh man, a blank slate is just really tough. This is interesting to go through. I pushed back on that at first. I remembered getting your email and thinking, I don’t know if he gets it yet. There’s all this flexibility now. I don’t want to preload stuff. That takes it away.
A lot of people face this blank slate problem with the SaaS app is what do I fill it with? I was worried that if I automatically put in a bunch of building blocks, you would come to that same conclusion of like, oh, look at that. This isn’t for me because this is assuming that I’ve got a sales team, or this is assuming that I’m self-service or whatever.
It’s really silly. But I just remembered back to Microsoft Excel, for example, or Microsoft Word, and what happens when you load up those applications? You get hit with this screen and it says, are you trying to do an invoice? Are you trying to do a short story or an essay? It has all these templates.
I just had this mental breakthrough of like, oh yeah, duh. I can just show them a list of options and they can pick one. That then gives me the best of both worlds. If you want a blank slate, man, you can have it. But if you’re an early-stage founder, and you see early-stage SaaS in there, you can just click it. Then, hopefully, that gets you started faster.
Rob: The beauty of that is not even that you have to use it as is, but when you click it, it prepopulates a bunch of stuff and I then I can go tweak it. That’s what we learned when we’re building Drip was you have this workflow builder. Which is this visual designer and you can do if then else statements. It’s […] complete language in this visual builder for email. People were the experts, the power users, the Bren and Duns loved it.
Everyone below that level—even mid-level marketers—were like, I don’t know what to do first. What should I do? It wasn’t until we got the blueprints built and you could just one-click import a blueprint that we really started getting the mid-level and lower end marketers. I think that’s probably where my feedback came from is having built a similar engine that Derrick and I knew the workflow builder is incredibly powerful. So cool when we launched it. Quickly, all those questions of oh, what should I do? It was like, I guess we got to show you some guidance.
Matt: Yeah, absolutely. That’s my job now. This is kind of a retrospective. There is a group of users of the first product that I essentially alienated. They came to the new one and basically said, what have you done? You took away the one I liked, and you replaced it with this power tool. I don’t know what to do. It was pretty painful to hear. It’s nothing more satisfying as a product person and to hear that somebody loved the thing you made. But I wasn’t going to keep that around.
What I’m trying to do now is through Looms, education, those templates, and blueprints, I’m just building up a community. I really do want to work backward now and say, you can still use this. There’s going to be some learning. This is now more like a Drip or that kind of power tool. You have to decide that you want to be good at this and learn a new skill to an extent, but it’s still better than Excel. You’re going to like it more than Excel, but there is a learning curve. That’s fine. That appeals to me. Frankly, I really enjoy the subject so much that I enjoy teaching people how to use it.
Rob: That makes a lot of sense. We talked last time about the value of forecasting in SaaS in terms of when to use cases, fundraising, to see when your money’s going to run out. But if you’re a bootstrapper—which you most likely are listening to this—show hiring is a big one. Ad budgets, like, hey, ads are starting to work. Can I throw $5,000, $10,000 a month at it? Or will I run out of cash just because of my LTV pans out? If it takes me six months to get paid back, I need X amount of cash.
Yeah, you could model that in Excel, but this is going to take everything into account. There’s ad spend, there’s any of those big decisions around spending money in a way that is complicated and can put you in a cash crunch.
Matt: Yeah. What’s nice about a model approach instead of a spreadsheet is you set a founder in front of a spreadsheet and you say, put your business in here. There’s an immediate thought of okay, I need a revenue row, I guess, and I also need an expenses row. And then I need this, I need that. They start to fill out that classic spreadsheet template view of the month over a month like what you see in QuickBooks.
What’s interesting about this, and I’m still flushing this out, but I’m really just asking you to tell me about your business. Tell me what your revenue plans are, what your acquisitions channels are, and what your team looks like. Founders are really good at that. You can just ask a founder like, how do you acquire your customers? Oh, we have Google Ads spent. Cool, let me capture that real quick, done.
The hope is that it’s really a more natural way to capture business is this model. Where to sketch your home on a piece of paper on a napkin is easier than necessarily going through and saying what are all the dimensions and all these different things. Which people can seize up. That’s the test right now is to see how many folks can come to this and essentially describe their businesses and get out something that is really useful in making decisions.
Rob: As we move towards wrapping up, we got to talk about this homepage because it is one of the most compact, sparse. I think there is a total of 15, 16 words on it, not including your copyright at the bottom. It’s your logo. It’s a picture of a hummingbird, which is pretty cool. Then it’s, tell your forecasting spreadsheet you’re never getting back together. Design your business with Summit instead. There’s a button to create a free account. There’s a button to sign in.
I have seen creative SaaS homepages. Obviously, the standard one with pricing on it, or maybe that’s another link. There’s a top nav, which you don’t have. You have no footer. I once did a long-form sales page. The Drip homepage was a long-form sales page for quite some time, but I’m not sure that I have seen one like this. I’m curious if you have inspiration, or if you just did it on a whim. The real question is, is it working, or do you know yet?
Matt: Yeah. That was definitely done because I needed a homepage. I was launching a new thing. It was a complete rewriting, including the marketing site. I just needed to get something out there that had those buttons. To be perfectly honest, what’s the minimum? It’s probably an h1, h2, login, and sign up buttons. That’s what it is. I have not prioritized adding to that for a couple of reasons.
One is, I’m still figuring out what Summit is. Not to be totally metaphysical, but what is this thing? I have a little bit of a concern that if I flush that out with a lot of words, first of all, that’s changing. I’m still figuring it out. Second of all, I got to update and maintain that stuff. There’s a bit of a liability that goes along with adding more words to that homepage.
The second part of it, which I will defend for different reasons. Maybe I’m just defending past actions because I have convenient data. But it’s working well enough. Through that homepage, it depends on the day, but I’m getting anywhere from—on a very, very slow day, maybe it’s a Sunday holiday or something like that—2-3 sign-ups. On a busy day, 10, 12, 15, 20 sign-ups through that page. That tells me something. It tells me that those are high intent people. They just wanted to get in and check it out.
I think, for now, honestly, I don’t feel ready to convince more people—people that are on the fence where they’re like, I don’t know if I need to tell my forecasting spreadsheet goodbye. I’m pretty happy with it, I don’t have a forecasting spreadsheet, or I don’t have any context. Those people, I’ll lure them in, I’ll bring them in, and tractor beam them in eventually. But for now, I like knowing that the people that get into the product are there because they’re motivated, what they did see resonated with them, or they heard about it some other way. That’s good enough for now because the feedback I get from those 5, 6, or 10 sign-ups per day is a good signal.
For what it’s worth, I actually think that’s about to end. I’m not hearing a lot of new things these days from these sign-ups. I think it’s really natural to go back to that homepage and say, jeez, Matt. You could probably widen your funnel here if you just helped a few more people realize that oh, that’s what this does. I see this as an opportunity. I haven’t prioritized widening the top of the funnel yet. But I will. I definitely will.
I’m actually investing a pretty good amount of time in business development and partnerships for Q3 and Q4 to give a lot more people to that homepage. I fully intend to give them a little bit more insight into what it is.
Rob: No. That makes sense. I think there is a certain benefit to simplicity, especially in the short term. That’s cool to hear that’s your thought process and that is what you’re experiencing. I certainly can attest to I had a tool. I ran a SaaS up before Drip called HitTail, and it’s a long tail SEO keyword tool that plugged into your Google webmaster tool or something. And it pulled out the search console—they kept changing the name of it. But it would pull out keywords that you should rank high for based on your content and based on how people are finding you. But you weren’t ranking high enough. You were on the second page of Google. It would suggest them as things to beef up to get to the first page.
The way that I sold it, and I found that it really resonated, was a curiosity headline of how the tool works. It’s analyzed over a billion keywords in its lifetime across thousands and thousands of websites. It will suggest the keywords that you should be ranking for but aren’t. It didn’t go into how it did it. Once you got in the tool, you can figure out what it was doing. But it was really a curiosity play of this is the job it does, these are the testimonials, and these people are saying it works.
When you first arrived at the site, people would have skepticism. Does this thing actually work? Is it worth the money? Is it going to waste my time and all that? But that curiosity play was enough to get a lot of sign-ups—really high trials to paid conversion rate. I can imagine with you this headline, like you said, if someone came here totally cold, and they don’t really know what this is, or they don’t have the context in, I’m not sure it’s enough to draw them in. As you said, if you’re into forecasting and you really don’t like the spreadsheet, the headline captures it, and that’s enough. That is an interesting approach in this early stage.
Matt: Yeah. I felt a little bit more justified when Hiten Shah, who’s a TinySeed mentor, came and shared with the group. He’s now running usefyi.com or FYI. That was my inspiration for this. If he can get away with it, and it’s literally just an h1 and then a button. I don’t know how that’s going for him, what his plans are, I’m not speaking to that. But I saw it and said, okay, here’s a guy who knows a thing or two about heatmaps, homepages, and actions.
The one thing that resonated with me or I took away from that was what’s the thing you want them to do when they’re here? With his, it’s sign in with Google. With mine, it’s I want you to create an account. It was just a great point of man, if you know the next action you want them to take, maybe it’s okay to just start by focusing on that.
Rob: All right. Before you launch an app, if you put up a landing page and drive traffic to where, or whatever, it’s very simple that landing page. Typically, it’s a headline, a short description, and an email caption format. That’s the standard format of it. You can get those to convert really high—10%, 20%, 30% of visitors. If they’re targeted, you have a good headline, and good curiosity created out of that, you can land a lot of folks.
I think there is something to that simplicity. My guess is with Hiten’s, he’s not doing something if it’s not working. I’m guessing that’s a pretty, pretty decent approach. Sir, thank you so much for coming back on Startups For The Rest Of Us. As I said at the top of the show, you are @mattwensing on Twitter and usesummit.com if folks want to check out what you’ve been up to and potentially forecast their SaaS with V2.
Matt: Awesome. Thanks for having me on, Rob.
Rob: Absolutely, man. Thanks. Thanks again to Matt for coming back on the show. If you enjoyed this episode, I really appreciate it if you would check the Startups pod Twitter feed, and you can @ reply because Matt and I both have been mentioned in the tweet that came out this morning or retweet, or whatever. Just let us know any piece of that conversation that you enjoyed or get value out of, and you feel like you’ll take with you as you go ahead in the coming weeks. Thank you so much for listening, and I’ll talk to you again next Tuesday morning.
Episode 515 | Finding a Co-Founder, Getting Better at Sales, and More Listener Questions
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Rob is joined by Anthony Eden from DNSimple as they answer your listener questions.
They cover topics ranging from tax liabilities with contractors, getting feedback on a prototype, and finding a technical cofounder.
If you have questions about starting or scaling a SaaS that you’d like for us to cover, please submit your question for the next episode. We’d love to hear from you!
The topics we cover
[01:26] Tax liabilities and managing international contractors
[10:45] Starting when stair stepping isn’t feasible
[16:38] Getting better at sales as a solo founder
[24:00] Finding a sales/marketing cofounder
[30:28] Getting feedback on a prototype, finding the right developer co-founder, and protecting your startup idea
[40:11] Considering a technical cofounder vs hiring a developer
Links from the show
- Episode 509 | Revisiting the Six Stages of SaaS Growth with DNSimple
- Intellectual Property Agreement
- W-8BEN
- Episode 498 | Selling During a Pandemic with Steli Efti
- The Startup Chat with Steli & Hiten
- Episode 507 | Making Cold Email Work in B2B SaaS
- Indie Hackers
- Activity Messenger
- Jobs to be Done
- DNSimple | Twitter
- DNSimple | Website
- Anthony Eden | Twitter
If you enjoyed this episode, let us know by clicking the link and sharing what you learned.
Click here to share your number one takeaway from the episode.
Subscribe & Review: iTunes | Spotify | Stitcher
Rob: Welcome to this week’s episode of Startups For The Rest of Us. This is Episode 515, and I’m your host, Rob Walling. Every week on this show, we cover topics related to building and growing startups using an ambitious but insane approach. We’re not willing to sacrifice our health or our relationships to grow our companies.
This week we answer listener questions, and I have founder of DNSimple, Anthony Eden, back on the show. We tackle a bunch of questions about stair stepping, about becoming better at sales, and about looking for and finding co-founders. With that, let’s dive right in.
Anthony Eden, sir, thanks so much for coming back on the show.
Anthony: Thanks for having me on again, Rob. Appreciate it.
Rob: As a reminder to folks, you were on episode 509 just about six weeks ago and you are the founder of DNSimple, a bootstrapped business for a decade, 15 employees, multiple millions in revenue, and you are a domain name registrar, and domain management. Is that a relatively accurate picture?
Anthony: Yeah, that’s a pretty good picture, that sums it up.
Rob: Awesome. Today we are going to dive into listener questions as I’ve been letting folks know and our first question is a voicemail from, I’m mispronouncing his name. I think it’s Ges, but it’s like hair. It’s one of those sounds that we don’t make in Western English. So I’ll let him say his name and we’ll roll into that voicemail right now.
Ger: Hi, Rob, this is Ger from Routine Factory again. A while ago, I sent you a question about going international with our SaaS for people with special needs. A few months ago, one of our U.S. customers left us a message that uses Routine Factory for his brother in law and loves the experience. We’ve had some great conversations online and ended up hiring him part time.
A few months later, he’s already helped us by making our international website sound more natural and our social media page is no longer dead in the water. This step does feel right. I’m just wondering if there might be some tax or liability issues that I’m not aware of right now. There’s no paperwork, only an NDA. He sends us weekly payment requests through PayPal.
I’m fully aware that you’re not a lawyer, but your insights are much appreciated. Okay Rob, thank you very much for considering my question and hope to see you in the future.
Rob: Thanks for the question and congrats on moving forward with that. This was just a couple of months ago. Ger had emailed in about expanding into the U.S. from, I believe it might have been the Netherlands or Sweden. It was somewhere where he was trying to figure out if he should go adjacent or try to come to the U.S. So it’s awesome that they were able to move forward.
I will obviously counter it again with this is not legal advice or tax advice and neither Anthony or I are attorneys or CPAs, but Anthony, did you hear the question as they now have one customer in the United States and he’s wondering if there’s tax or liability issues with having this single customer in the U.S.? Is that the question that you hear him asking?
Anthony: It sounds a little bit like that, although what’s interesting is that he was saying he was giving feedback and the person was asking if he’s making a payment request. It wasn’t clear to me whether this person on the other end is actually doing, they said they hired them part time, so in fact, it is somebody who’s working on the product with them a little bit, providing feedback, maybe actually doing some work for them.
I don’t think it’s necessarily just the customer. I think they actually have some sort of a business relationship with this person already.
Rob: Okay, let’s assume that’s the case and that this advisor or contractor, I guess we’ll call him, is a contractor that lives and resides in the US as an international company. What type of stuff should they be thinking about?
Anthony: The biggest thing that you have to start looking at, of course, is you have to consider your local laws and how those are impacted by the foreign laws from wherever this person lives.
For example, one of the big ones that my attorney generally talks a lot about is intellectual property. If you have a developer or a contributor who’s outside of your country or even inside of your country and they’re actually writing code for you, the thing you really need to do is make sure that you get an IP assignment.
That’s before they even start working, you have an agreement written up which states that the work that they’re doing for you is owned by your company, because if you don’t do that, you put yourself at risk in the future of somebody coming back to you and saying well, I did this work for you and I wasn’t compensated fairly so now I feel like you should compensate me and oh, look, you’re very successful, therefore, you should really compensate me heavily.
Essentially, you want to protect yourself by having clear agreements in advance for things like intellectual property. Clear agreements for the mechanism for payment, the number of hours they’re going to be working if it’s a contractor. Again, these are the kinds of things that are a staple of setting up an agreement with a contractor or an employee inside of your country or outside. These are the basics you should do for everyone.
I always recommend hiring a good attorney who’s in your area first, understand what the impacts are in your country, and then if you’re also hiring somebody outside of the country there are attorneys that specialize in this type of thing. Granted, they’re not cheap, but the value in the long run is that you protect yourself from much more significant risks down the line.
Rob: Yeah, I really like the way you’ve called that out. I think that a lot of early stage founders overlook having an IP agreement with every employee, every contractor, anyone who they work with. It’s something that I overlooked in the early days, too, because it’s kind of a pain in the butt.
You want to bring someone on for, let’s say it’s 10 hours a month of work. It’s like, I got to draft this thing up and I got to send it to him on Docsketch or DocuSign or whatever and get him to sign it.
Then what’s interesting is it doesn’t seem worth it in the early days. But here’s what happens if you ever want to sell your company, if you ever want to raise investment, when they get into due diligence, they’re going to ask you and they’re going to make you sign something that says every person who has touched this code or every person who has contributed to this IP I have an agreement with, and then you’re going to have to go back. I actually had to do this twice.
I had to go back to people who hadn’t worked for me in years and say hey, can we basically retroactively sign this? Lucky for me, I had maintained healthy relationships with these people. I have heard it go sideways where someone leaves disgruntled or you fire them. You don’t have the agreement and when you go back to them, they basically shake you down and they say I’ll do it for a price, and you wind up paying. I have multiple founder friends who have had to pay an ex employee to get them to sign an IP agreement so I think that’s a big one and to your point, this is not just for international. This is for local, and this is for contractors, and this is for full time employees.
To any place you’ve worked these days. If you’ve had a full time job in the last decade, you’ve signed an IP agreement because this has become such a big issue.
Anthony: When it comes to things like taxes, that’s a whole nother ball of wax and that’s, for example, if you hire somebody outside the country, you’re essentially going to have to pay them in a full amount and they’re going to be the ones that are going to have to ensure that they report their taxes properly, regardless of how they’re structured. Whether it’s an independent contractor or if they have a small company that they operate under, no matter what, essentially, the foreign entity has to basically do their own taxes.
Again, this should be spelled out clearly in any agreement that you have that essentially you’re paying them and they’re responsible to comply with all their local tax regulations, all of their local laws and things like that.
Rob: Yeah, and the general advice that I hear and see is if at all possible, don’t have international employees. Hire them as contractors.
Now, there are laws around that. That’s the ideal thing, but there are laws. So you have to adhere to those laws. But in general, the startups and the remote companies that I see working, if someone lives in another country, they hire them as a contractor or they hire their company, as you were saying, as a contractor and there’s that agreement that spells that out pretty clearly.
I will say that in the U.S, if I’m a U.S. entity and I have a contractor working in Europe, or Asia, or just any country outside, there is this form that the IRS makes you, or encourages you, wants you to fill out called the W-8BEN. You’re basically reporting on your international contractors and you’re saying it’s this person, and this is their name, and this is where they live, and this is how much I paid them last year. I don’t remember if it’s this how much I paid them or I’m going to pay them or whatever. I don’t know if other countries do that. It seems like a typical kind of US IRS thing.
Anthony: Yeah, we’ve done that. We’ve had to do the same type of thing for each one of our contractors outside the US and I think it’s a very good idea to ensure that you have that documentation in place if you’re a US entity. And then in your local country, you have to figure out what the tax reporting requirements are for basically any entity outside of your country who you’re paying and who’s doing work for you.
Rob: Yeah, these are always hard questions. To be honest, most founders I talked to, either they’re doing it as best they can, some ignore it just altogether, and they just figure they’re small enough to fly under the radar.
Others do the best they can and then there’s others who are super, super Type A about it, and they hire all the lawyers and hire all the CPAs and they know that they’re dialed in. I do think it comes back to risk tolerance and how much you want to walk the line and how far you’re willing to push it, because I do think there’s a lot here.
It’s like with GDPR or one of these other big regulations. If you live in the US, how much do you invest in being exactly letter of the law with GDPR. In a perfect world, you would do everything, dot every i, cross every t. Most small bootstraps in the US are not actually doing that right. They’re kind of doing as much as they need to to feel like they can say hey, I’m compliant and really not much more than that.
Anthony: I can understand that and then you have to ask yourself at what point does not doing this present a greater risk and cost in the long run than doing so? Sure, when you’re a single person and you’re just starting and you maybe have a few customers, okay, maybe it doesn’t make sense, but then maybe you should consider okay, I’m not going to hire somebody who’s outside of my country because the risk is significant enough and I can find somebody in my country who can do a similar job.
But if you can’t, then take a look at the risk. Hire somebody who understands how this works. If they cost you a thousand dollars, if your goal is to make your product work or your business grow, ultimately you’re going to have to decide to invest in some of these legal matters at some point. It’s just a question for you to decide how long you will wait before you do so.
Rob: Thanks for the question, Ger. I hope that was helpful.
Next question is from David. He says, “Hey, Rob loved the podcast. Really appreciate the work you do. I believe I have a very interesting SaaS product that I’m really interested in pursuing. But this is the very first business I’d be building and I’m concerned that I’m biting off more than I can chew. I’m currently employed full time and have taught myself how to program. I don’t feel confident that I have the technical skills to build something of this size.
I have two kids and a mortgage, so I’m not looking to take really big risks financially. This is a project I’m interested in and wanted to put the time and effort into, but I’m not sure how best to tackle it. I would be willing to consider a partner. Any thoughts?”
The subject line is, “When stair stepping is not feasible?” Anthony, what are your thoughts on this?
Anthony: Well, I mean, the first thing that I get struck by is I haven’t heard anything yet that says tair stepping isn’t feasible. In fact, just because you want to jump to a SaaS which is kind of one of the harder businesses to develop, doesn’t mean that the option isn’t there to stairstep your way to it.
For example, you might have things around your SaaS that are informational that you could start with by creating a product around that. In other words, you don’t have to have the full SaaS. You might be able to create something simple that says here’s these ideas around this SaaS that I built, and for $15, I’ll explain to you how it works with the tools that you have today.
A lot of ways the SaaS is taking some concept that is kind of manual today or maybe lots of different manual or semi automated processes and putting it together into something that works very smoothly for individuals and businesses who don’t want to take all this time to put everything together themselves. But it doesn’t mean there aren’t opportunities to stairstep.
Just taking the subject apart, my feeling is look closely and see, are there other ways to get there, especially if you’re risk averse? I understand that when I was first starting DNSimple, I had triplets. At the time, I think that they were maybe six or maybe seven, something like that, and I had a one year old. I was right there with you and the approach that I took being a technical founder, I was able to work on a lot of it myself. But I still avoided jumping into complete risk by working with a company that had hired me to do other work, and then I carved off the things that were DNSimple in our contract which allowed me to work on both things at the same time.
That was nice because it reduced the risk somewhat, but at the same time gave me the opportunity to focus on developing DNSimple. There are ways to do it where you don’t have to jump into it, feet first into it, and stop the work that you’re doing with your business and take all this financial risk. There are ways to do that, but really without more information on what the product is, without understanding what your background is, how the two are connected, it’s really tough for me to say that you cannot stair step to it.
Rob: Yeah, I’ve felt the same way when I read that. I think creating information around it, I think starting a product service around it, I think building some kind of audience around it, whether it’s through a podcast or a blog or whatever you want to do it, there are ways to do work that doesn’t carry a bunch of risk and kind of test the market a bit.
I think the big question, there’s a couple in my mind. Number one how can you validate this idea without writing any code? Again, without knowing the idea, it’s hard, but is this having to build a landing page, send some traffic to that type of thing? Is this I need to send 100 cold emails a week and start having conversations with HR managers, or construction firm managers, or whatever space that’s in to find out if this is even worth doing?
How can you get in conversations with people who would be potential buyers in order to validate or invalidate your hypothesis? Because all you have right now is an idea and a hypothesis and writing code doesn’t actually solve that or it won’t solve, disprove, or prove your hypothesis for 6, 12, 18 months. How can you prove or disprove it in the next 90 days? Is there a way to build so you can validate it with conversations?
Of course, that doesn’t get you 100%, but maybe that gets you to right now you’re at 10% or 20% based on gut feel. Can conversations get you to 50% or 60% thinking wow, this is pretty good. Can you build an MVP? That is the next step with Excel spreadsheets or with human automation using VAs, or with no code movement, or with just a crappy code MVP or something that maybe gets you to 60%, 70%, 75% that you think it’s going to be worthwhile.
The bottom line is all of this kind of removes risk one piece at a time. It gives you a little bit of confidence and it makes it easier for you to find a co-founder the more validation you have. Because if you go to a developer today and say I have an idea. Want to work for equity? Developers hear that all the time, why would they do that? But if you come and say I have an idea, I have built a no code prototype that I have ten people paying $50 a month for, and I have a waiting list. I’m in conversation with another 50 people.
Now you have something. That’s the way I would think about it, how can you get further down this process of launching this thing into the wild and validating it without spending hundreds of hours to actually code the thing up?
Anthony: Agree with you 100%, Rob. The key of any business is the processes that you’re going to end up building around it, technology or not. Those are the parts that are really interesting and if you can wire that up with something where you’re basically doing things manually in the beginning just to verify, are there customers out there? Do they see the value? How do they translate that value into actual dollars? That’s priceless and you don’t need to start developing a huge entire product in order to do so.
Rob: Yeah, and I do think if it’s SaaS, stair stepping, Anthony and I have named info-products and productized consulting and building an audience is different ways to kind of start the end. There’s also, is there a way to build a WordPress plugin version of this or Shopify plug in version that maybe isn’t SaaS that is dipping that toe in the water and could get you a little bit of exposure, a little bit of revenue, a little bit of experience?
Because, again, when I think of having two kids and a mortgage and trying to build and launch a SaaS on the side when I’m not a developer who I think I can build it, there’s just a lot of hurdles in your way. So I’d encourage you to think creatively about that. I hope that’s helpful for you, David.
Our next question is from Andy and his subject line is, “Becoming better at sales.” He says, “Hey, Rob, I love the show. As an early stage SaaS founder, I’m looking to learn outside of my given skills of product design and programming. I’ve got a newer B2B SaaS product that I’m looking to expand to a wider audience. To do that, I realize becoming better at sales is crucial. So my question is what can a solo founder do to increase their knowledge in the sales aspect of a business? It seems that the tactics of today are extremely different than any just a handful of years ago. Are there courses, books, mentors you would recommend? Is it more of a learning by doing type of skill? I imagine it’s a combination of all those seeking help from someone else. But I’m curious about your take. I should note that I’m also introverted and the art of sales sounds quite scary to me, but I know it’s necessary. So I’m ready to put up or shut up. Thanks for the advice, Andy.” Anthony, what do you think?
Anthony: Andy, I feel your pain. I’m not an introvert, but even I’m sort of afraid of the idea of trying to cold sell somebody, somebody I don’t know that has no knowledge of my product and trying to get out there and sell my product to them. It’s hard. It’s very hard, and frankly, I’m not sure, at least for me, it didn’t work. I’ve tried it before and the idea of pitching somebody who has no idea what I do or what the product does just never was really very useful for me.
On the other hand, building an audience, which is something you said, you want to bring to a wider audience, that’s less about getting out there and necessarily selling, cold selling. It’s more about how do you speak to that audience? How do you write for that audience? Where does that audience, where do they get together on the internet or in real life? And how can you become part of that community and give them the things that they need to get them into sort of into your lead pipe line so that then they get to learn about your product because there’s a genuine need there.
I think a lot of the key to sales is focusing on aligning somebody else’s needs. They need something now with the fact that you have a product that fulfills that need. The first thing I would suggest is there are books out there, there’s lots of courses you can read about sales, but I would say the real thing is to talk to people. You don’t have to go pitch them. You can just talk to them and say, hey, I built this thing and I know you’re in my space. I wonder if you’re interested in doing things like, just have conversations with them and that’s a good starting point from my point of view.
Then the other thing, like I said, is figure out how you can get into communities where multiple people that might be interested in your product congregate and ultimately, it is hard. It’s very hard. It takes a lot to sort of put yourself out there and sell your product, but if you really believe that what you have is going to help them, it’s a lot easier to sell them at that point.
Rob: Yeah, I think that’s a good point. I like to think of selling as the way like my co-founder with TinySeed, says if you’re selling B2B SaaS, especially to more higher priced customers, which if you’re having one-on-one conversations that you should be charging enough to make that worth your while, think of yourself as a high priced consultant who isn’t charging any money, but you’re actually giving people advice that is worth hundreds of dollars an hour because you are the expert in your space.
If you’re talking to a customer, you tend to know more about your competitors and about your own product than anyone else in the conversation as a rule. That mindset, because I’m also introverted. I don’t love selling like it’s just not my strong suit. But that shifted a lot for me and that these conversations are more about finding the right solution rather than forcing something on people.
Obviously there’s cold email where you could cold email someone and then you’re not that warm essentially when they come onto a call and you’re trying to convince them of things. That’s not really what I’m thinking about here. I am thinking more about like inbound lead gen and these are just sales conversations from people who are genuinely trying to educate themselves on your product, on the space and trying to find the best fit.
I remember having conversations with folks as we were growing Drip where I would literally recommend a different tool because they would tell me their use case would start digging in and I would get to the point where you know what? MailChimp is actually a better fit for you. It’s less expensive and you don’t need any automations. Drip is like a Ferrari, but you can totally go with the Nissan or a Toyota. MailChimp is a solid tool and it’s going to do what you want for less money.
That was where I remember feeling a little bit weird about that like, should I be doing that? Am I a bad salesperson? But it was like, no, as the high priced consultant, the high paid consultant who isn’t charging anything, that was the right recommendation.
I think that’s my mental model of it. I think if I were to look at mentors, I would look at two people coming off the top of my head. The first, of course, is Steli Efti. He’s a many time MicroConf speaker. He’s a TinySeed mentor. He’s been on this podcast for at least three times. If you just go to startupsfortherestofus.com and search for his name, and I think we’ll link a few of those up in the show notes and you can hear back.
He’s written a dozen books or ebooks on selling and it’s all focused on B2B SaaS. So that’s someone who I would start with. He also has a podcast called The Startup Chat, where he talks with Hiten Shah a couple of times a week about stuff.
Very good person to be mentored by and again mentored, you don’t ever even need to meet him in person because he has so much content out there, much like some folks who listen to this podcast and email me and be like you’re my favorite mentor. It’s like we’ve never met and I don’t know who you are, but you just talk on the mic enough and people have read the books and stuff. Steli Efti is one.
Then Damian Thompson who was on the show Episode 507, talking about cold email. He is a different style than Steli, but he’s been in B2B software sales for 20, 25 years, and he’s a coach now, a trainer in I think it’s vpsales.co. Again, his approach is a little different with Steli which is why I like it. You get kind of a variety of viewpoints, but he’s another guy that I would be following today. You have other thoughts on this, Anthony?
Anthony: Just the last thing was I want to double down on what you said about a lot of I think how you and I probably think about sales is more dealing with inbounds where people are already interested in what we’re doing and building up that inbound pipeline. The investment that you need to make is really writing good material that gets out there that you can publish and that potentially people will find on search engines or that other people from your customer base will link to in their blog posts or wherever they’re publishing, maybe doing videos and things.
Essentially, you need to think about giving them a hook that gets them inbound, because if they’re coming in, they’re already interested and it makes your job more about figuring out like Rob was saying are we the right tool for you?
And like Rob, I have told people from time to time, I really wish we were the company to help you, but we’re not. Go to this other company, and we have a very small number of companies in the domain space that I would recommend outside of our own company. But I’ve done it before and sometimes that’s the right thing to do because it’s not always a great fit.
I think at Basecamp, they talked about this as well about having sort of a sweet spot for their customers and sometimes customers are either too small or too big to hit that sweet spot, and they’re okay with that. Again, when you accept that, you know your space, that you know where you fit, that you know who your audience is, that you know what your product does, and you know when the fit is good, it makes the selling part a lot easier.
Rob: Thanks for the question, Andy. I hope our thoughts were helpful. Next couple questions are about finding a co-founder and it’s funny how these came in waves. But the first one is from Martin and he says, “Looking for a business co-founder.”
He says, “I discovered your podcast only recently. Indie startups really resonate with me. I’m a misfit and I don’t like playing by the rules set by authority. I’m driven by solving customer problems with code. I’m a technical founder building activitymessenger.com which is an SMS/email marketing platform for Sports and Leisure. Competing against Mailchimp’s constant contact in a niche with two advantages.
The first is I send SMS because millennials don’t read their email. Second is integrated to the registration system because that’s where all the contact information is. Six months in, I have around 10 customers giving me feedback to help me shape the product. It’s pretty sticky and seems to be generating anywhere from $50-$100 MRR per customer.” So he has a $25 monthly fee and then there’s variable bundles of SMS that you purchase. “I’m looking for a business co-founder, someone to take on sales and marketing. Where should I look?” What do you think sir?
Anthony: This one is interesting. I’ve tried to find people who I thought would be a good fit for the sales and marketing of my business and I tried to do this early on. It’s hard to take somebody, especially when you’re really passionate about your product and put them in that position, unless they, too, are very passionate about that product.
The first thing that if I was really going to try to go look for a co-founder, I would look for somebody who is interested in this space, but maybe who doesn’t have the technical depth that you have in it, but really is very interested and can see a future where this will be successful.
Now, since you’re in the center and the sports and leisure space, it may be somebody else who is involved with Sports and Leisure, but maybe who doesn’t have that deep technical knowledge that you do. But they really know sports and leisure. They know how to know that audience. They know how to market to the audience. They know the words that the audience understands, they know how to communicate with them, where they live and where they congregate and so that might be one way to do it.
My guess is there’s probably public bulletin boards for this type of community out there, maybe I’d start by looking through that. I’m going to also offer one other thought for you, which is I don’t know if you necessarily need somebody to be the business side of it. I think that if you’re early on in this, you probably have enough knowledge already of your product and of the space to be able to do a little bit of work to get out there and to make yourself known in those communities. It’s going to take some legwork and it’s going to probably make you uncomfortable, but the value of doing so in the long run, there’s a strong upside. You won’t be losing any value here, at least at the small scale.
Then if you continue to get traction, then you can start thinking okay, now I understand even more about my sales process because I’ve gone through it and now I know do I need somebody to do marketing first? In other words, getting those inbound leads because your product is going to be self-service or do I need somebody to get sales because my customer out there, the sales cycle requires a longer sales cycle. It requires more hands on work with potential customers, but ultimately results in a larger contract size. Well, then you can look for that type of person.
Rob: Yeah, I think that’s really good advice, that’s what I was going to say first off, is maybe check your assumptions on whether you need a co-founder right now and I would question that because the further along you get, the more traction you have, the better off you are to, as you said, figure out exactly what you do need.
The more traction you have, potentially the less of your company you have to to give up. Oftentimes, people will complain about investors investing and taking a portion of their equity. But really the most equity you’ll ever give up is to a co-founder or your other co-founders so I’m not saying not to do it because of that, but I do think that you should definitely ask yourself what exactly do I need from someone and what would that look like?
To answer the actual question, I’m looking for a kind of sales marketing cofounder. A, yes is going to be hard to find someone good who’s not already working on their own thing, but the way that I used to recommend it is to go to in-person events. Of course, that’s not that’s not working right now with COVId. But that will work again in the future so that would be MicroConf or your Indie Hackers meetup or whatever.
I think in your case, I’m curious if there are any of your customers that on the off chance, any of the 10 people already paying you, any of them potentially have time to work on something on the side with you or does their business would it be complementary to them and so strategically they might want to to team up? It’s a long shot, but I would certainly think about that.
Another thing I would look at is MicroConf Connect where we have like around 1500 founders and aspiring founders talking about this type of stuff. Some people I’ve seen post in there looking for co-founders on either side, the technical or the non technical side.
So microconfconnect.com, if you get in there, you can obviously ask around and start to feel out who’s there in the community.
I think participating in Indie Hackers, indiehackers.com, the amazing community run by Courtland Allen. You start to see patterns and figure out who’s doing what in these communities.
Finally, if you’re listening to this and you feel like you could potentially be the sales and marketing co-founder that Martin might be looking for, for data points, he’s in Montreal, Canada, and its activitymessenger.com. If you want to take a look at it, you’re just going to drop me a line at questions@startupsfortherestofus.com and I will forward along any interested parties to Martin.
Not a co-founder matchmaking service, but it would be kind of fun to have a success story. I actually think we’ve had a few of these work out where it’s either a co-founder or it’s like hey, I’m looking for a contractor to do this, and people email it and get them hooked up. So that’s cool.
Anthony: I’ll tell you what, finding the co-founders is, you said it before. I think I’ve heard it on your podcast numerous times which is like marriage, and it really is. It requires some dating in advance that requires getting to know the person, and it’s a very challenging thing. I have no doubt that anybody who’s trying to find especially like a 50/50 co-founder, that’s hard work. That’s hard work to find somebody you don’t know and to build up that level of trust that you can actually be willing to take on such a serious endeavor with them.
Rob: Yeah. I agree. Don’t jump into this lightly, make sure that there’s vesting in place and all of that stuff. I hope that was helpful. Our next question is also about finding a co-founder. This one is about finding a technical co-founder. Actually the subject line is finding the right CTO, Chief Technical Officer and validation.
I’m going to read it as he’s written it, but I would discourage you from thinking, I’m looking for a CTO and more think, hey, I’m looking for a developer, co-founder. There’s some nuance to that with the language but from Nicolas and he says, “Hey, Rob, I’m a huge fan of yours and really appreciate everything you’ve done to help out the startup community. I just graduated from college amid this pandemic, and I’ve been working on a mobile app startup idea with a friend.
We’ve talked to many potential customers to validate the idea, but we haven’t shown them the prototype yet. Do you think we should show each one of them our prototype and change it based on their feedback? How do we determine what we should change and what we shouldn’t?” There’s a whole lot of questions buried in here. I didn’t realize that. Do you have thoughts on that, Anthony?
Anthony: Yeah. Actually, I do have a lot of thoughts. It sounds like the two friends, when they say prototype, I’m assuming that it’s a mockup. They have this mockup that they put together or maybe a prototype with like a no-code tool, but really, there’s a huge difference between those two things.
A prototype is something that actually works to some extent, and that somebody could use it. Whereas a mockup is going to be a non-working just the images of what things are going to look like when that product is built. Given that, let’s just assume for a second when they say prototype, it’s actually something where you can click on things and it goes through and it’s usable.
Yeah, you should absolutely be showing this prototype and getting feedback on it, but at the same time, I don’t know how much you know about jobs to be done over there Rob, but the jobs to be done concept, I really love it. The truth is that every product is helping people do a job or multiple jobs.
You as the two friends who are working on this mobile app, you have to really say what is the job that needs to be done? Ultimately, if you can do that job with that app, and people go, Oh, yeah, I need that. I do this job and that will make my job easier. Even if that job is socializing with friends, taking photos, and whatever it is, there’s still a job to be done.
What I highly recommend is don’t get too wrapped up in showing that prototype, and then somebody says, oh, you should move this button here or this flow is a little wonky or whatever because it’s not really as productive as saying does this solve your problem? Does this help you accomplish the job that you want to be done? If that’s the question that you’re asking if you’re getting good feedback from that perspective, then by all means show it to people.
Rob: Jobs to be done, big fan. We’ve talked about it on the show before, and I make you dead on with that. Whenever I build an app, I always have a vision, and it’s the vision of what the app should do. It’s a job to be done on the app. Sometimes that vision has to wander a little bit like with Drip, where it was just an email capture widget, and then it did some autoresponders, and then suddenly, it’s an ESP, and then it’s marketing automation.
That vision had to change over time, and I think as founders, we have to do that, but I do think that in the early days, it’s really hard. It’s very fragile, that vision of yours. You have to, yes. I would be showing it to people, and if you show it to 10 people, you have to aggregate or average their feedback or figure out which of it is really in line with your ideal customer, or your ideal end-user.
There were times when I had conversations in the early days with very consumer-oriented folks, and they wanted me to launch a mobile app. They were like if you don’t have an iOS and an Android app, then I can’t use Drip and it was like, okay, so we weren’t going to go do that. It wasn’t just because it was a lot of work to do, but it was because they weren’t in our ideal customer wheelhouse.
I think that is one of the hard things as a first-time founder, trying to build something novel from scratch is a real challenge, because you just don’t know when to trust your gut, and when not to. Wish you the best of luck with that. The actual question about the co-founder, Nicholas says, “We’re also having trouble finding the right CTO.” Which again, I would just call the developer, co-founder, or technical co-founder to join us and build it out.
One concern I have is trusting a person without ever meeting them in person, which hey, I do all the time. We fund companies without ever meeting the founders in person and we hire employees and stuff without ever meeting in person. That’s something you’ll just have to get used to over time, but, “How should we approach finding the right CTO? How can we ensure that that person won’t simply build it and disappear with our idea? Thanks so much for everything.” What do you think?
Anthony: Yeah. There’s a lot to pull apart here. Like he said, I definitely think that they should be using the term first developer or whatever you want to say. The reason is CTOs do a very specific job, they run technical organizations, and the skills required to do that are very different than somebody that’s building out the first version of an app.
You want the person that’s going to be like I’m going to put together this first version of this app, I’m going to do it quickly, it’s going to be awesome, it’s just going to work, it’s going to be tested, and you guys are going to be so thrilled about it that you won’t think twice about giving me half of your company because we’re going to make so much together.
Finding that type of person comes down to looking for somebody that is interested in—in the case of developers—building something that aligns with your space. In the case of mobile, you probably want to find somebody who is really interested in building mobile apps, and maybe who has built a couple of them of their own and you maybe want to try to figure out a way you have an idea that you think is valuable.
You have a prototype that you’re working on to get there, coming to them with that, and showing them how that you’re going to be able to exchange this tool for money. That’s the incentive that you want to use to bring on a developer and then you’re going to have to pay them. You need to be ready in some way to say, okay, whether that payment is going to be with the actual exchange of cash, payment through that means if it’s going to be through equity, or whatever it might be.
You need to mentally put in your head what you are willing to pay this person. There are tons of developers out there that will work on contract. Consider also that maybe what you really need is you need to hire an independent, who can take your little prototype to a first real minimum viable product for you.
Again, if you do this like we talked about earlier, make sure you get an intellectual property assignment in place. Make sure that you are clear that you’re paying them for the work that they’re exchanged for and don’t necessarily go in and get that co-founder yet. It may be a little too early. Again, without knowing more, it’s hard for me to tell whether you’re at that stage yet, but there are plenty of options to build it out without necessarily doing it.
If you haven’t tried them yet, there are no code tools out there that you can try. That’s like all the rage now, and all that stands for is essentially, a way that you can put together an app or a website without having to actually write all the code behind it, and it may be good enough to get you to your first version.
Rob: I like it. It’s a big question. If you obviously read at a college, you probably don’t have a budget to pay somebody but that’s the ideal way to do it. It’s contract to hire is how I think about it, and maybe it’s a contract to hire a co-founder or founding engineer or contract to hire a founding engineer.
Where that’s the ideal path to take, because then you can take this really long term view of it, but if not, I mean, the people I know who found technical co-founders after they already have some type of validation or they have prototypes and stuff. They do take a long time, they take months and months to vet the person and they do try to meet them in person at least once, but if you can’t in this time of COVID spend a lot of time on Zoom talking.
They do happy hours in the evening, they get to know the person on a human basis because this isn’t just a work relationship really is, as we say, often it is as much like a marriage as most marriages are. It’s a very intertwined relationship, and once you own a company with someone, there’s a lot of complexity there.
In addition, I would definitely have a vesting of shares such that if you say, all right, come on as co-founder or founding engineer, you get 10%, 20% of this company. They don’t instantly get that so that they can walk away with ownership that is going to vest over several years. Of course, you sign IP agreements, and you sign all the things that the entity owns it.
That’s how you keep someone. You vet someone to try to ensure that they are an ethical human being but then also you sign paperwork that says that if they do take the code and go off, that legally wouldn’t be a good idea for them.
Anthony: Can I just add one more thing to the last question, how do we ensure that person will simply build it and disappear with our idea? If it’s that easy, so if there’s no moat, there’s nothing that you have that’s special about this. Then chances are somebody already has probably built that idea, and somebody probably is out there hustling to do this.
I caution you to think that you have something that is so unique and special, that it hasn’t already been done or isn’t being worked on. Because if you do, then there may be other paths that you want to take as well, and then I would definitely ensure that you have an attorney, that you get all the legal agreements in place, as Rob has said, and make sure that the company, the entity owns that.
That’s the key. If you really have something that is unique and special that has a business behind. Like you’re going to create a business for it then go ahead and take the steps to make that business and assign the IP to that business, including the IP of the things that you work on. That way, you have this entity that is all contained within and it becomes a lot easier to hire and whether that hire is contracting or bringing on a partner and doing equity. You have an entity around which you can do this, but I only suggest that you do that if you really vetted the idea, you have customers lined up, or already have customers that you’re to the point of where you have revenue coming in off of this thing.
Rob: Thanks for the question, Nicolas. I hope that was helpful. One more question for today also on finding a technical co-founder. This is from Alistair, and he says, “A few years ago, I put my own money and my parents’ money into getting my health and safety app developed. I’m not a developer, so to keep costs down, I designed the app myself and I got a developer to make it.
Since then, I’ve mothballed the app, but this year COVID-19 has put my job on thin ice, and it gave me a kick in the backside to get back on it. So I got feedback from some actual customers this time instead of just going out on his own, and he said, with a few tweaks and additions to the concept, I’ve secured 30 customers that want to transfer from the app they currently use to mine.
I vastly improved my UX designing skills and I’m more confident than ever in the idea. The developer built exactly what I told them the first time around, but I’m still not a developer. My question is where do I go from here? Am I being foolish without a technical co-founder with me on this? Making the same mistake twice would really hurt, but I have customers waiting at this time.
I don’t really know where to start with finding a co-founder and the time spent finding one might risk losing these customers. Thanks. I’m a huge fan and dream of the day when I’m in a position to apply for tiny seed funding. Much love, much appreciation for what you do, and thanks, again for your advice.”
I was summarizing his email, but in essence, he had a developer who did some work on it earlier, and it didn’t work out, and he basically feels like he wasted the money early on, so he doesn’t want to make that mistake twice. This feels similar to the prior two questions where someone has done some validation. I think his question is a little different. He’s saying, should I find a technical co-founder?
Anthony: Yeah. He definitely hasn’t jumped to the conclusion that he must find a co-founder, which I like, actually. Especially, since he’s already had enough business acumen and skills to get this developed and he has a product that he can bring customers into. He even said he’s already secured 30 customers that want to transfer from the app they currently use to mine.
Awesome, do that. If you have customers and your app is going to work for them, then help them do the transfer and get them starting to pay for it, and then you can start seeing, okay, now can I grow this? Are there more customers out there? The downside of course to doing this, the risk that you’re taking, is that you validated with these 30 customers, but that’s where it stops.
Now I have a feeling 30 people who are interested in something is a lot more than a lot of companies start with before going out to actually grow, so that’s pretty awesome. I really think that you ought to try to run with this a little bit, and if you had a developer or company that helped build the revised version of this app, and it’s working, then stick with them.
Get those 30 customers in and maybe try to add on 30 more, 60 more, 100 more, or whatever, and then use the money from that to fund further development with this company for a little while longer. It doesn’t seem like you need necessarily a technical co-founder yet, because you seem to have a pretty solid base of knowledge, and you’ve already made some mistakes on your own, so you start already understanding what mistakes not to make again, with regards to developing the product.
You’ll find new ones, don’t worry, but at least you have a starting point, and I think you have enough to go on for me at least. That’s my thought. What do you think, Rob?
Rob: Yeah. I don’t know that I have anything to add to that. Whether they’re the co-founder, and again, I shirk away a little bit from that title in this case, it’s like should they just be a founding engineer, or that you can give someone equity without them being a co-founder. That’s where you have to think about: is this app complicated and is going to need 24/7 support, and it has a lot of moving parts?
It’s going to be hard to scale, there’s going to be performance stuff, and there are a lot of things moving around. I think of like an analytics app or like Drip, which sucked in a bunch of analytics. It’s just a very complicated tool. I think not having a technical co-founder would have been a real challenge there. If it is just a CRUD app, where it’s just create, read, update, delete, and stuff going in and out of some database tables.
I’m not so sure that you necessarily need a co-founder, but having a developer who is reliable who maybe is getting paid a reduced rate and has 10% equity in the company that’s vesting or maybe they’re paid solely in equity, in which case, maybe they get a little more than that. I think you have options here, and again, based on what Anthony said, 30 people willing to switch is a lot.
That shows me that there’s some traction here, and there is an appetite for this. In true early-stage, bootstrap founder status, like I would beg, steal, borrow, scratch, and claw to get those people using your app, and then you take that revenue and you build on it. Use it to find the developer or pay the developer to get the next feature built.
Thanks for the question, Alistair. I hope that was helpful. Wrapping up our mostly co-founder episode, that was fun. If folks want to keep up with you, you are @aeden on Twitter and your anthonyeden.com, as well as obviously, dnsimple.com if folks want to see what you’re up to.
Anthony: Yeah, absolutely. They can reach out to me. I’m happy to answer any other questions if somebody has more. It’s true. This really was the I need a co-founder episode. Hopefully, we were able to help a little bit. I feel like for a lot of folks that if you have something that’s working and you have the confidence to go with it and keep it going, just because the media out there in the startup world says, oh, you need to have a technical founder with a non-technical founder. You don’t have to believe that. If you have enough knowledge to hire the right people to help you out as a contractor, you can get a lot done.
Rob: Indeed. Sir, with the DNSimple, you had mentioned that you guys are about to launch an API of some kind, is that right? You and I were chatting on MicroConf remote last week. Do you want to give people a 30-second rundown of what’s coming up?
Anthony: Okay. The idea is that we want people to be able to build integrations between the services they use in DNSimple and vice versa so that for example, connecting a domain to another service is literally a one-click thing. I don’t want to say too much about it, because it’s been a long time coming, and I have no idea when it’s going to come out, but we’re working really hard to make that one of the key things that we put out there within the next probably 6-12 months.
Honestly, what I want from this more than anything else is making it so that people connect a domain without having to think at all about DNS. That’s the vision that I keep pushing forward, and hopefully, this API will make the development of tools that allow that even easier.
Rob: You already have an API. You were an API first company. I’m looking at dnsimple.com/api, and you can use your API to manage domains and do all types of DNS stuff, but you’re taking it a step further.
Anthony: That’s they can do everything like all of this can essentially be done right now with the API that we have. What is missing from this is the experience where you actually get feedback from all this connectivity, not just when you first set it up, but all along with the life of having that thing connected, and to me, that’s the piece that’s missing.
It’s something I’ve been pushing the team to try to get us moving in that direction. The bottom line is we need to have feedback in the DNSimple application for these connections that we established with these different services, not just when they’re first connected, but throughout the life of it. I’ve been working with the team, and we’re pushing really hard to try to get that implemented, but we have the full API. You can do all kinds of stuff with it today. This just like you were saying takes it another step.
Rob: All right, sir. Well, thanks again for joining me.
Anthony: Thanks so much, Rob. Have a good one.
Rob: Thanks again to Anthony for weighing in and bringing his expertise to the show. I hope you got a lot of value out of that. If you enjoyed this show, feel free to reach out to me @robwalling on Twitter, and he is @aeden. If you have a question for the show for a future Q&A episode, I actually believe we’re running pretty low on questions at this point. Just email them the questions at startupsfortherestofus.com and of course voicemails always go to the top of the stack. Thanks for listening. I’ll see you next time.
This week we answer listener questions, and I have founder of DNSimple, Anthony Eden, back on the show. We tackle a bunch of questions about stair stepping, about becoming better at sales, and about looking for and finding co-founders. With that, let’s dive right in.
Anthony Eden, sir, thanks so much for coming back on the show.
Anthony: Thanks for having me on again, Rob. Appreciate it.
Rob: As a reminder to folks, you were on episode 509 just about six weeks ago and you are the founder of DNSimple, a bootstrapped business for a decade, 15 employees, multiple millions in revenue, and you are a domain name registrar, and domain management. Is that a relatively accurate picture?
Anthony: Yeah, that’s a pretty good picture, that sums it up.
Rob: Awesome. Today we are going to dive into listener questions as I’ve been letting folks know and our first question is a voicemail from, I’m mispronouncing his name. I think it’s Ges, but it’s like hair. It’s one of those sounds that we don’t make in Western English. So I’ll let him say his name and we’ll roll into that voicemail right now.
Ger: Hi, Rob, this is Ger from Routine Factory again. A while ago, I sent you a question about going international with our SaaS for people with special needs. A few months ago, one of our U.S. customers left us a message that uses Routine Factory for his brother in law and loves the experience. We’ve had some great conversations online and ended up hiring him part time.
A few months later, he’s already helped us by making our international website sound more natural and our social media page is no longer dead in the water. This step does feel right. I’m just wondering if there might be some tax or liability issues that I’m not aware of right now. There’s no paperwork, only an NDA. He sends us weekly payment requests through PayPal.
I’m fully aware that you’re not a lawyer, but your insights are much appreciated. Okay Rob, thank you very much for considering my question and hope to see you in the future.
Rob: Thanks for the question and congrats on moving forward with that. This was just a couple of months ago. Ger had emailed in about expanding into the U.S. from, I believe it might have been the Netherlands or Sweden. It was somewhere where he was trying to figure out if he should go adjacent or try to come to the U.S. So it’s awesome that they were able to move forward.
I will obviously counter it again with this is not legal advice or tax advice and neither Anthony or I are attorneys or CPAs, but Anthony, did you hear the question as they now have one customer in the United States and he’s wondering if there’s tax or liability issues with having this single customer in the U.S.? Is that the question that you hear him asking?
Anthony: It sounds a little bit like that, although what’s interesting is that he was saying he was giving feedback and the person was asking if he’s making a payment request. It wasn’t clear to me whether this person on the other end is actually doing, they said they hired them part time, so in fact, it is somebody who’s working on the product with them a little bit, providing feedback, maybe actually doing some work for them.
I don’t think it’s necessarily just the customer. I think they actually have some sort of a business relationship with this person already.
Rob: Okay, let’s assume that’s the case and that this advisor or contractor, I guess we’ll call him, is a contractor that lives and resides in the US as an international company. What type of stuff should they be thinking about?
Anthony: The biggest thing that you have to start looking at, of course, is you have to consider your local laws and how those are impacted by the foreign laws from wherever this person lives.
For example, one of the big ones that my attorney generally talks a lot about is intellectual property. If you have a developer or a contributor who’s outside of your country or even inside of your country and they’re actually writing code for you, the thing you really need to do is make sure that you get an IP assignment.
That’s before they even start working, you have an agreement written up which states that the work that they’re doing for you is owned by your company, because if you don’t do that, you put yourself at risk in the future of somebody coming back to you and saying well, I did this work for you and I wasn’t compensated fairly so now I feel like you should compensate me and oh, look, you’re very successful, therefore, you should really compensate me heavily.
Essentially, you want to protect yourself by having clear agreements in advance for things like intellectual property. Clear agreements for the mechanism for payment, the number of hours they’re going to be working if it’s a contractor. Again, these are the kinds of things that are a staple of setting up an agreement with a contractor or an employee inside of your country or outside. These are the basics you should do for everyone.
I always recommend hiring a good attorney who’s in your area first, understand what the impacts are in your country, and then if you’re also hiring somebody outside of the country there are attorneys that specialize in this type of thing. Granted, they’re not cheap, but the value in the long run is that you protect yourself from much more significant risks down the line.
Rob: Yeah, I really like the way you’ve called that out. I think that a lot of early stage founders overlook having an IP agreement with every employee, every contractor, anyone who they work with. It’s something that I overlooked in the early days, too, because it’s kind of a pain in the butt.
You want to bring someone on for, let’s say it’s 10 hours a month of work. It’s like, I got to draft this thing up and I got to send it to him on Docsketch or DocuSign or whatever and get him to sign it.
Then what’s interesting is it doesn’t seem worth it in the early days. But here’s what happens if you ever want to sell your company, if you ever want to raise investment, when they get into due diligence, they’re going to ask you and they’re going to make you sign something that says every person who has touched this code or every person who has contributed to this IP I have an agreement with, and then you’re going to have to go back. I actually had to do this twice.
I had to go back to people who hadn’t worked for me in years and say hey, can we basically retroactively sign this? Lucky for me, I had maintained healthy relationships with these people. I have heard it go sideways where someone leaves disgruntled or you fire them. You don’t have the agreement and when you go back to them, they basically shake you down and they say I’ll do it for a price, and you wind up paying. I have multiple founder friends who have had to pay an ex employee to get them to sign an IP agreement so I think that’s a big one and to your point, this is not just for international. This is for local, and this is for contractors, and this is for full time employees.
To any place you’ve worked these days. If you’ve had a full time job in the last decade, you’ve signed an IP agreement because this has become such a big issue.
Anthony: When it comes to things like taxes, that’s a whole nother ball of wax and that’s, for example, if you hire somebody outside the country, you’re essentially going to have to pay them in a full amount and they’re going to be the ones that are going to have to ensure that they report their taxes properly, regardless of how they’re structured. Whether it’s an independent contractor or if they have a small company that they operate under, no matter what, essentially, the foreign entity has to basically do their own taxes.
Again, this should be spelled out clearly in any agreement that you have that essentially you’re paying them and they’re responsible to comply with all their local tax regulations, all of their local laws and things like that.
Rob: Yeah, and the general advice that I hear and see is if at all possible, don’t have international employees. Hire them as contractors.
Now, there are laws around that. That’s the ideal thing, but there are laws. So you have to adhere to those laws. But in general, the startups and the remote companies that I see working, if someone lives in another country, they hire them as a contractor or they hire their company, as you were saying, as a contractor and there’s that agreement that spells that out pretty clearly.
I will say that in the U.S, if I’m a U.S. entity and I have a contractor working in Europe, or Asia, or just any country outside, there is this form that the IRS makes you, or encourages you, wants you to fill out called the W-8BEN. You’re basically reporting on your international contractors and you’re saying it’s this person, and this is their name, and this is where they live, and this is how much I paid them last year. I don’t remember if it’s this how much I paid them or I’m going to pay them or whatever. I don’t know if other countries do that. It seems like a typical kind of US IRS thing.
Anthony: Yeah, we’ve done that. We’ve had to do the same type of thing for each one of our contractors outside the US and I think it’s a very good idea to ensure that you have that documentation in place if you’re a US entity. And then in your local country, you have to figure out what the tax reporting requirements are for basically any entity outside of your country who you’re paying and who’s doing work for you.
Rob: Yeah, these are always hard questions. To be honest, most founders I talked to, either they’re doing it as best they can, some ignore it just altogether, and they just figure they’re small enough to fly under the radar.
Others do the best they can and then there’s others who are super, super Type A about it, and they hire all the lawyers and hire all the CPAs and they know that they’re dialed in. I do think it comes back to risk tolerance and how much you want to walk the line and how far you’re willing to push it, because I do think there’s a lot here.
It’s like with GDPR or one of these other big regulations. If you live in the US, how much do you invest in being exactly letter of the law with GDPR. In a perfect world, you would do everything, dot every i, cross every t. Most small bootstraps in the US are not actually doing that right. They’re kind of doing as much as they need to to feel like they can say hey, I’m compliant and really not much more than that.
Anthony: I can understand that and then you have to ask yourself at what point does not doing this present a greater risk and cost in the long run than doing so? Sure, when you’re a single person and you’re just starting and you maybe have a few customers, okay, maybe it doesn’t make sense, but then maybe you should consider okay, I’m not going to hire somebody who’s outside of my country because the risk is significant enough and I can find somebody in my country who can do a similar job.
But if you can’t, then take a look at the risk. Hire somebody who understands how this works. If they cost you a thousand dollars, if your goal is to make your product work or your business grow, ultimately you’re going to have to decide to invest in some of these legal matters at some point. It’s just a question for you to decide how long you will wait before you do so.
Rob: Thanks for the question, Ger. I hope that was helpful.
Next question is from David. He says, “Hey, Rob loved the podcast. Really appreciate the work you do. I believe I have a very interesting SaaS product that I’m really interested in pursuing. But this is the very first business I’d be building and I’m concerned that I’m biting off more than I can chew. I’m currently employed full time and have taught myself how to program. I don’t feel confident that I have the technical skills to build something of this size.
I have two kids and a mortgage, so I’m not looking to take really big risks financially. This is a project I’m interested in and wanted to put the time and effort into, but I’m not sure how best to tackle it. I would be willing to consider a partner. Any thoughts?”
The subject line is, “When stair stepping is not feasible?” Anthony, what are your thoughts on this?
Anthony: Well, I mean, the first thing that I get struck by is I haven’t heard anything yet that says tair stepping isn’t feasible. In fact, just because you want to jump to a SaaS which is kind of one of the harder businesses to develop, doesn’t mean that the option isn’t there to stairstep your way to it.
For example, you might have things around your SaaS that are informational that you could start with by creating a product around that. In other words, you don’t have to have the full SaaS. You might be able to create something simple that says here’s these ideas around this SaaS that I built, and for $15, I’ll explain to you how it works with the tools that you have today.
A lot of ways the SaaS is taking some concept that is kind of manual today or maybe lots of different manual or semi automated processes and putting it together into something that works very smoothly for individuals and businesses who don’t want to take all this time to put everything together themselves. But it doesn’t mean there aren’t opportunities to stairstep.
Just taking the subject apart, my feeling is look closely and see, are there other ways to get there, especially if you’re risk averse? I understand that when I was first starting DNSimple, I had triplets. At the time, I think that they were maybe six or maybe seven, something like that, and I had a one year old. I was right there with you and the approach that I took being a technical founder, I was able to work on a lot of it myself. But I still avoided jumping into complete risk by working with a company that had hired me to do other work, and then I carved off the things that were DNSimple in our contract which allowed me to work on both things at the same time.
That was nice because it reduced the risk somewhat, but at the same time gave me the opportunity to focus on developing DNSimple. There are ways to do it where you don’t have to jump into it, feet first into it, and stop the work that you’re doing with your business and take all this financial risk. There are ways to do that, but really without more information on what the product is, without understanding what your background is, how the two are connected, it’s really tough for me to say that you cannot stair step to it.
Rob: Yeah, I’ve felt the same way when I read that. I think creating information around it, I think starting a product service around it, I think building some kind of audience around it, whether it’s through a podcast or a blog or whatever you want to do it, there are ways to do work that doesn’t carry a bunch of risk and kind of test the market a bit.
I think the big question, there’s a couple in my mind. Number one how can you validate this idea without writing any code? Again, without knowing the idea, it’s hard, but is this having to build a landing page, send some traffic to that type of thing? Is this I need to send 100 cold emails a week and start having conversations with HR managers, or construction firm managers, or whatever space that’s in to find out if this is even worth doing?
How can you get in conversations with people who would be potential buyers in order to validate or invalidate your hypothesis? Because all you have right now is an idea and a hypothesis and writing code doesn’t actually solve that or it won’t solve, disprove, or prove your hypothesis for 6, 12, 18 months. How can you prove or disprove it in the next 90 days? Is there a way to build so you can validate it with conversations?
Of course, that doesn’t get you 100%, but maybe that gets you to right now you’re at 10% or 20% based on gut feel. Can conversations get you to 50% or 60% thinking wow, this is pretty good. Can you build an MVP? That is the next step with Excel spreadsheets or with human automation using VAs, or with no code movement, or with just a crappy code MVP or something that maybe gets you to 60%, 70%, 75% that you think it’s going to be worthwhile.
The bottom line is all of this kind of removes risk one piece at a time. It gives you a little bit of confidence and it makes it easier for you to find a co-founder the more validation you have. Because if you go to a developer today and say I have an idea. Want to work for equity? Developers hear that all the time, why would they do that? But if you come and say I have an idea, I have built a no code prototype that I have ten people paying $50 a month for, and I have a waiting list. I’m in conversation with another 50 people.
Now you have something. That’s the way I would think about it, how can you get further down this process of launching this thing into the wild and validating it without spending hundreds of hours to actually code the thing up?
Anthony: Agree with you 100%, Rob. The key of any business is the processes that you’re going to end up building around it, technology or not. Those are the parts that are really interesting and if you can wire that up with something where you’re basically doing things manually in the beginning just to verify, are there customers out there? Do they see the value? How do they translate that value into actual dollars? That’s priceless and you don’t need to start developing a huge entire product in order to do so.
Rob: Yeah, and I do think if it’s SaaS, stair stepping, Anthony and I have named info-products and productized consulting and building an audience is different ways to kind of start the end. There’s also, is there a way to build a WordPress plugin version of this or Shopify plug in version that maybe isn’t SaaS that is dipping that toe in the water and could get you a little bit of exposure, a little bit of revenue, a little bit of experience?
Because, again, when I think of having two kids and a mortgage and trying to build and launch a SaaS on the side when I’m not a developer who I think I can build it, there’s just a lot of hurdles in your way. So I’d encourage you to think creatively about that. I hope that’s helpful for you, David.
Our next question is from Andy and his subject line is, “Becoming better at sales.” He says, “Hey, Rob, I love the show. As an early stage SaaS founder, I’m looking to learn outside of my given skills of product design and programming. I’ve got a newer B2B SaaS product that I’m looking to expand to a wider audience. To do that, I realize becoming better at sales is crucial. So my question is what can a solo founder do to increase their knowledge in the sales aspect of a business? It seems that the tactics of today are extremely different than any just a handful of years ago. Are there courses, books, mentors you would recommend? Is it more of a learning by doing type of skill? I imagine it’s a combination of all those seeking help from someone else. But I’m curious about your take. I should note that I’m also introverted and the art of sales sounds quite scary to me, but I know it’s necessary. So I’m ready to put up or shut up. Thanks for the advice, Andy.” Anthony, what do you think?
Anthony: Andy, I feel your pain. I’m not an introvert, but even I’m sort of afraid of the idea of trying to cold sell somebody, somebody I don’t know that has no knowledge of my product and trying to get out there and sell my product to them. It’s hard. It’s very hard, and frankly, I’m not sure, at least for me, it didn’t work. I’ve tried it before and the idea of pitching somebody who has no idea what I do or what the product does just never was really very useful for me.
On the other hand, building an audience, which is something you said, you want to bring to a wider audience, that’s less about getting out there and necessarily selling, cold selling. It’s more about how do you speak to that audience? How do you write for that audience? Where does that audience, where do they get together on the internet or in real life? And how can you become part of that community and give them the things that they need to get them into sort of into your lead pipe line so that then they get to learn about your product because there’s a genuine need there.
I think a lot of the key to sales is focusing on aligning somebody else’s needs. They need something now with the fact that you have a product that fulfills that need. The first thing I would suggest is there are books out there, there’s lots of courses you can read about sales, but I would say the real thing is to talk to people. You don’t have to go pitch them. You can just talk to them and say, hey, I built this thing and I know you’re in my space. I wonder if you’re interested in doing things like, just have conversations with them and that’s a good starting point from my point of view.
Then the other thing, like I said, is figure out how you can get into communities where multiple people that might be interested in your product congregate and ultimately, it is hard. It’s very hard. It takes a lot to sort of put yourself out there and sell your product, but if you really believe that what you have is going to help them, it’s a lot easier to sell them at that point.
Rob: Yeah, I think that’s a good point. I like to think of selling as the way like my co-founder with TinySeed, says if you’re selling B2B SaaS, especially to more higher priced customers, which if you’re having one-on-one conversations that you should be charging enough to make that worth your while, think of yourself as a high priced consultant who isn’t charging any money, but you’re actually giving people advice that is worth hundreds of dollars an hour because you are the expert in your space.
If you’re talking to a customer, you tend to know more about your competitors and about your own product than anyone else in the conversation as a rule. That mindset, because I’m also introverted. I don’t love selling like it’s just not my strong suit. But that shifted a lot for me and that these conversations are more about finding the right solution rather than forcing something on people.
Obviously there’s cold email where you could cold email someone and then you’re not that warm essentially when they come onto a call and you’re trying to convince them of things. That’s not really what I’m thinking about here. I am thinking more about like inbound lead gen and these are just sales conversations from people who are genuinely trying to educate themselves on your product, on the space and trying to find the best fit.
I remember having conversations with folks as we were growing Drip where I would literally recommend a different tool because they would tell me their use case would start digging in and I would get to the point where you know what? MailChimp is actually a better fit for you. It’s less expensive and you don’t need any automations. Drip is like a Ferrari, but you can totally go with the Nissan or a Toyota. MailChimp is a solid tool and it’s going to do what you want for less money.
That was where I remember feeling a little bit weird about that like, should I be doing that? Am I a bad salesperson? But it was like, no, as the high priced consultant, the high paid consultant who isn’t charging anything, that was the right recommendation.
I think that’s my mental model of it. I think if I were to look at mentors, I would look at two people coming off the top of my head. The first, of course, is Steli Efti. He’s a many time MicroConf speaker. He’s a TinySeed mentor. He’s been on this podcast for at least three times. If you just go to startupsfortherestofus.com and search for his name, and I think we’ll link a few of those up in the show notes and you can hear back.
He’s written a dozen books or ebooks on selling and it’s all focused on B2B SaaS. So that’s someone who I would start with. He also has a podcast called The Startup Chat, where he talks with Hiten Shah a couple of times a week about stuff.
Very good person to be mentored by and again mentored, you don’t ever even need to meet him in person because he has so much content out there, much like some folks who listen to this podcast and email me and be like you’re my favorite mentor. It’s like we’ve never met and I don’t know who you are, but you just talk on the mic enough and people have read the books and stuff. Steli Efti is one.
Then Damian Thompson who was on the show Episode 507, talking about cold email. He is a different style than Steli, but he’s been in B2B software sales for 20, 25 years, and he’s a coach now, a trainer in I think it’s vpsales.co. Again, his approach is a little different with Steli which is why I like it. You get kind of a variety of viewpoints, but he’s another guy that I would be following today. You have other thoughts on this, Anthony?
Anthony: Just the last thing was I want to double down on what you said about a lot of I think how you and I probably think about sales is more dealing with inbounds where people are already interested in what we’re doing and building up that inbound pipeline. The investment that you need to make is really writing good material that gets out there that you can publish and that potentially people will find on search engines or that other people from your customer base will link to in their blog posts or wherever they’re publishing, maybe doing videos and things.
Essentially, you need to think about giving them a hook that gets them inbound, because if they’re coming in, they’re already interested and it makes your job more about figuring out like Rob was saying are we the right tool for you?
And like Rob, I have told people from time to time, I really wish we were the company to help you, but we’re not. Go to this other company, and we have a very small number of companies in the domain space that I would recommend outside of our own company. But I’ve done it before and sometimes that’s the right thing to do because it’s not always a great fit.
I think at Basecamp, they talked about this as well about having sort of a sweet spot for their customers and sometimes customers are either too small or too big to hit that sweet spot, and they’re okay with that. Again, when you accept that, you know your space, that you know where you fit, that you know who your audience is, that you know what your product does, and you know when the fit is good, it makes the selling part a lot easier.
Rob: Thanks for the question, Andy. I hope our thoughts were helpful. Next couple questions are about finding a co-founder and it’s funny how these came in waves. But the first one is from Martin and he says, “Looking for a business co-founder.”
He says, “I discovered your podcast only recently. Indie startups really resonate with me. I’m a misfit and I don’t like playing by the rules set by authority. I’m driven by solving customer problems with code. I’m a technical founder building activitymessenger.com which is an SMS/email marketing platform for Sports and Leisure. Competing against Mailchimp’s constant contact in a niche with two advantages.
The first is I send SMS because millennials don’t read their email. Second is integrated to the registration system because that’s where all the contact information is. Six months in, I have around 10 customers giving me feedback to help me shape the product. It’s pretty sticky and seems to be generating anywhere from $50-$100 MRR per customer.” So he has a $25 monthly fee and then there’s variable bundles of SMS that you purchase. “I’m looking for a business co-founder, someone to take on sales and marketing. Where should I look?” What do you think sir?
Anthony: This one is interesting. I’ve tried to find people who I thought would be a good fit for the sales and marketing of my business and I tried to do this early on. It’s hard to take somebody, especially when you’re really passionate about your product and put them in that position, unless they, too, are very passionate about that product.
The first thing that if I was really going to try to go look for a co-founder, I would look for somebody who is interested in this space, but maybe who doesn’t have the technical depth that you have in it, but really is very interested and can see a future where this will be successful.
Now, since you’re in the center and the sports and leisure space, it may be somebody else who is involved with Sports and Leisure, but maybe who doesn’t have that deep technical knowledge that you do. But they really know sports and leisure. They know how to know that audience. They know how to market to the audience. They know the words that the audience understands, they know how to communicate with them, where they live and where they congregate and so that might be one way to do it.
My guess is there’s probably public bulletin boards for this type of community out there, maybe I’d start by looking through that. I’m going to also offer one other thought for you, which is I don’t know if you necessarily need somebody to be the business side of it. I think that if you’re early on in this, you probably have enough knowledge already of your product and of the space to be able to do a little bit of work to get out there and to make yourself known in those communities. It’s going to take some legwork and it’s going to probably make you uncomfortable, but the value of doing so in the long run, there’s a strong upside. You won’t be losing any value here, at least at the small scale.
Then if you continue to get traction, then you can start thinking okay, now I understand even more about my sales process because I’ve gone through it and now I know do I need somebody to do marketing first? In other words, getting those inbound leads because your product is going to be self-service or do I need somebody to get sales because my customer out there, the sales cycle requires a longer sales cycle. It requires more hands on work with potential customers, but ultimately results in a larger contract size. Well, then you can look for that type of person.
Rob: Yeah, I think that’s really good advice, that’s what I was going to say first off, is maybe check your assumptions on whether you need a co-founder right now and I would question that because the further along you get, the more traction you have, the better off you are to, as you said, figure out exactly what you do need.
The more traction you have, potentially the less of your company you have to to give up. Oftentimes, people will complain about investors investing and taking a portion of their equity. But really the most equity you’ll ever give up is to a co-founder or your other co-founders so I’m not saying not to do it because of that, but I do think that you should definitely ask yourself what exactly do I need from someone and what would that look like?
To answer the actual question, I’m looking for a kind of sales marketing cofounder. A, yes is going to be hard to find someone good who’s not already working on their own thing, but the way that I used to recommend it is to go to in-person events. Of course, that’s not that’s not working right now with COVId. But that will work again in the future so that would be MicroConf or your Indie Hackers meetup or whatever.
I think in your case, I’m curious if there are any of your customers that on the off chance, any of the 10 people already paying you, any of them potentially have time to work on something on the side with you or does their business would it be complementary to them and so strategically they might want to to team up? It’s a long shot, but I would certainly think about that.
Another thing I would look at is MicroConf Connect where we have like around 1500 founders and aspiring founders talking about this type of stuff. Some people I’ve seen post in there looking for co-founders on either side, the technical or the non technical side.
So microconfconnect.com, if you get in there, you can obviously ask around and start to feel out who’s there in the community.
I think participating in Indie Hackers, indiehackers.com, the amazing community run by Courtland Allen. You start to see patterns and figure out who’s doing what in these communities.
Finally, if you’re listening to this and you feel like you could potentially be the sales and marketing co-founder that Martin might be looking for, for data points, he’s in Montreal, Canada, and its activitymessenger.com. If you want to take a look at it, you’re just going to drop me a line at questions@startupsfortherestofus.com and I will forward along any interested parties to Martin.
Not a co-founder matchmaking service, but it would be kind of fun to have a success story. I actually think we’ve had a few of these work out where it’s either a co-founder or it’s like hey, I’m looking for a contractor to do this, and people email it and get them hooked up. So that’s cool.
Anthony: I’ll tell you what, finding the co-founders is, you said it before. I think I’ve heard it on your podcast numerous times which is like marriage, and it really is. It requires some dating in advance that requires getting to know the person, and it’s a very challenging thing. I have no doubt that anybody who’s trying to find especially like a 50/50 co-founder, that’s hard work. That’s hard work to find somebody you don’t know and to build up that level of trust that you can actually be willing to take on such a serious endeavor with them.
Rob: Yeah. I agree. Don’t jump into this lightly, make sure that there’s vesting in place and all of that stuff. I hope that was helpful. Our next question is also about finding a co-founder. This one is about finding a technical co-founder. Actually the subject line is finding the right CTO, Chief Technical Officer and validation.
I’m going to read it as he’s written it, but I would discourage you from thinking, I’m looking for a CTO and more think, hey, I’m looking for a developer, co-founder. There’s some nuance to that with the language but from Nicolas and he says, “Hey, Rob, I’m a huge fan of yours and really appreciate everything you’ve done to help out the startup community. I just graduated from college amid this pandemic, and I’ve been working on a mobile app startup idea with a friend.
We’ve talked to many potential customers to validate the idea, but we haven’t shown them the prototype yet. Do you think we should show each one of them our prototype and change it based on their feedback? How do we determine what we should change and what we shouldn’t?” There’s a whole lot of questions buried in here. I didn’t realize that. Do you have thoughts on that, Anthony?
Anthony: Yeah. Actually, I do have a lot of thoughts. It sounds like the two friends, when they say prototype, I’m assuming that it’s a mockup. They have this mockup that they put together or maybe a prototype with like a no-code tool, but really, there’s a huge difference between those two things.
A prototype is something that actually works to some extent, and that somebody could use it. Whereas a mockup is going to be a non-working just the images of what things are going to look like when that product is built. Given that, let’s just assume for a second when they say prototype, it’s actually something where you can click on things and it goes through and it’s usable.
Yeah, you should absolutely be showing this prototype and getting feedback on it, but at the same time, I don’t know how much you know about jobs to be done over there Rob, but the jobs to be done concept, I really love it. The truth is that every product is helping people do a job or multiple jobs.
You as the two friends who are working on this mobile app, you have to really say what is the job that needs to be done? Ultimately, if you can do that job with that app, and people go, Oh, yeah, I need that. I do this job and that will make my job easier. Even if that job is socializing with friends, taking photos, and whatever it is, there’s still a job to be done.
What I highly recommend is don’t get too wrapped up in showing that prototype, and then somebody says, oh, you should move this button here or this flow is a little wonky or whatever because it’s not really as productive as saying does this solve your problem? Does this help you accomplish the job that you want to be done? If that’s the question that you’re asking if you’re getting good feedback from that perspective, then by all means show it to people.
Rob: Jobs to be done, big fan. We’ve talked about it on the show before, and I make you dead on with that. Whenever I build an app, I always have a vision, and it’s the vision of what the app should do. It’s a job to be done on the app. Sometimes that vision has to wander a little bit like with Drip, where it was just an email capture widget, and then it did some autoresponders, and then suddenly, it’s an ESP, and then it’s marketing automation.
That vision had to change over time, and I think as founders, we have to do that, but I do think that in the early days, it’s really hard. It’s very fragile, that vision of yours. You have to, yes. I would be showing it to people, and if you show it to 10 people, you have to aggregate or average their feedback or figure out which of it is really in line with your ideal customer, or your ideal end-user.
There were times when I had conversations in the early days with very consumer-oriented folks, and they wanted me to launch a mobile app. They were like if you don’t have an iOS and an Android app, then I can’t use Drip and it was like, okay, so we weren’t going to go do that. It wasn’t just because it was a lot of work to do, but it was because they weren’t in our ideal customer wheelhouse.
I think that is one of the hard things as a first-time founder, trying to build something novel from scratch is a real challenge, because you just don’t know when to trust your gut, and when not to. Wish you the best of luck with that. The actual question about the co-founder, Nicholas says, “We’re also having trouble finding the right CTO.” Which again, I would just call the developer, co-founder, or technical co-founder to join us and build it out.
One concern I have is trusting a person without ever meeting them in person, which hey, I do all the time. We fund companies without ever meeting the founders in person and we hire employees and stuff without ever meeting in person. That’s something you’ll just have to get used to over time, but, “How should we approach finding the right CTO? How can we ensure that that person won’t simply build it and disappear with our idea? Thanks so much for everything.” What do you think?
Anthony: Yeah. There’s a lot to pull apart here. Like he said, I definitely think that they should be using the term first developer or whatever you want to say. The reason is CTOs do a very specific job, they run technical organizations, and the skills required to do that are very different than somebody that’s building out the first version of an app.
You want the person that’s going to be like I’m going to put together this first version of this app, I’m going to do it quickly, it’s going to be awesome, it’s just going to work, it’s going to be tested, and you guys are going to be so thrilled about it that you won’t think twice about giving me half of your company because we’re going to make so much together.
Finding that type of person comes down to looking for somebody that is interested in—in the case of developers—building something that aligns with your space. In the case of mobile, you probably want to find somebody who is really interested in building mobile apps, and maybe who has built a couple of them of their own and you maybe want to try to figure out a way you have an idea that you think is valuable.
You have a prototype that you’re working on to get there, coming to them with that, and showing them how that you’re going to be able to exchange this tool for money. That’s the incentive that you want to use to bring on a developer and then you’re going to have to pay them. You need to be ready in some way to say, okay, whether that payment is going to be with the actual exchange of cash, payment through that means if it’s going to be through equity, or whatever it might be.
You need to mentally put in your head what you are willing to pay this person. There are tons of developers out there that will work on contract. Consider also that maybe what you really need is you need to hire an independent, who can take your little prototype to a first real minimum viable product for you.
Again, if you do this like we talked about earlier, make sure you get an intellectual property assignment in place. Make sure that you are clear that you’re paying them for the work that they’re exchanged for and don’t necessarily go in and get that co-founder yet. It may be a little too early. Again, without knowing more, it’s hard for me to tell whether you’re at that stage yet, but there are plenty of options to build it out without necessarily doing it.
If you haven’t tried them yet, there are no code tools out there that you can try. That’s like all the rage now, and all that stands for is essentially, a way that you can put together an app or a website without having to actually write all the code behind it, and it may be good enough to get you to your first version.
Rob: I like it. It’s a big question. If you obviously read at a college, you probably don’t have a budget to pay somebody but that’s the ideal way to do it. It’s contract to hire is how I think about it, and maybe it’s a contract to hire a co-founder or founding engineer or contract to hire a founding engineer.
Where that’s the ideal path to take, because then you can take this really long term view of it, but if not, I mean, the people I know who found technical co-founders after they already have some type of validation or they have prototypes and stuff. They do take a long time, they take months and months to vet the person and they do try to meet them in person at least once, but if you can’t in this time of COVID spend a lot of time on Zoom talking.
They do happy hours in the evening, they get to know the person on a human basis because this isn’t just a work relationship really is, as we say, often it is as much like a marriage as most marriages are. It’s a very intertwined relationship, and once you own a company with someone, there’s a lot of complexity there.
In addition, I would definitely have a vesting of shares such that if you say, all right, come on as co-founder or founding engineer, you get 10%, 20% of this company. They don’t instantly get that so that they can walk away with ownership that is going to vest over several years. Of course, you sign IP agreements, and you sign all the things that the entity owns it.
That’s how you keep someone. You vet someone to try to ensure that they are an ethical human being but then also you sign paperwork that says that if they do take the code and go off, that legally wouldn’t be a good idea for them.
Anthony: Can I just add one more thing to the last question, how do we ensure that person will simply build it and disappear with our idea? If it’s that easy, so if there’s no moat, there’s nothing that you have that’s special about this. Then chances are somebody already has probably built that idea, and somebody probably is out there hustling to do this.
I caution you to think that you have something that is so unique and special, that it hasn’t already been done or isn’t being worked on. Because if you do, then there may be other paths that you want to take as well, and then I would definitely ensure that you have an attorney, that you get all the legal agreements in place, as Rob has said, and make sure that the company, the entity owns that.
That’s the key. If you really have something that is unique and special that has a business behind. Like you’re going to create a business for it then go ahead and take the steps to make that business and assign the IP to that business, including the IP of the things that you work on. That way, you have this entity that is all contained within and it becomes a lot easier to hire and whether that hire is contracting or bringing on a partner and doing equity. You have an entity around which you can do this, but I only suggest that you do that if you really vetted the idea, you have customers lined up, or already have customers that you’re to the point of where you have revenue coming in off of this thing.
Rob: Thanks for the question, Nicolas. I hope that was helpful. One more question for today also on finding a technical co-founder. This is from Alistair, and he says, “A few years ago, I put my own money and my parents’ money into getting my health and safety app developed. I’m not a developer, so to keep costs down, I designed the app myself and I got a developer to make it.
Since then, I’ve mothballed the app, but this year COVID-19 has put my job on thin ice, and it gave me a kick in the backside to get back on it. So I got feedback from some actual customers this time instead of just going out on his own, and he said, with a few tweaks and additions to the concept, I’ve secured 30 customers that want to transfer from the app they currently use to mine.
I vastly improved my UX designing skills and I’m more confident than ever in the idea. The developer built exactly what I told them the first time around, but I’m still not a developer. My question is where do I go from here? Am I being foolish without a technical co-founder with me on this? Making the same mistake twice would really hurt, but I have customers waiting at this time.
I don’t really know where to start with finding a co-founder and the time spent finding one might risk losing these customers. Thanks. I’m a huge fan and dream of the day when I’m in a position to apply for tiny seed funding. Much love, much appreciation for what you do, and thanks, again for your advice.”
I was summarizing his email, but in essence, he had a developer who did some work on it earlier, and it didn’t work out, and he basically feels like he wasted the money early on, so he doesn’t want to make that mistake twice. This feels similar to the prior two questions where someone has done some validation. I think his question is a little different. He’s saying, should I find a technical co-founder?
Anthony: Yeah. He definitely hasn’t jumped to the conclusion that he must find a co-founder, which I like, actually. Especially, since he’s already had enough business acumen and skills to get this developed and he has a product that he can bring customers into. He even said he’s already secured 30 customers that want to transfer from the app they currently use to mine.
Awesome, do that. If you have customers and your app is going to work for them, then help them do the transfer and get them starting to pay for it, and then you can start seeing, okay, now can I grow this? Are there more customers out there? The downside of course to doing this, the risk that you’re taking, is that you validated with these 30 customers, but that’s where it stops.
Now I have a feeling 30 people who are interested in something is a lot more than a lot of companies start with before going out to actually grow, so that’s pretty awesome. I really think that you ought to try to run with this a little bit, and if you had a developer or company that helped build the revised version of this app, and it’s working, then stick with them.
Get those 30 customers in and maybe try to add on 30 more, 60 more, 100 more, or whatever, and then use the money from that to fund further development with this company for a little while longer. It doesn’t seem like you need necessarily a technical co-founder yet, because you seem to have a pretty solid base of knowledge, and you’ve already made some mistakes on your own, so you start already understanding what mistakes not to make again, with regards to developing the product.
You’ll find new ones, don’t worry, but at least you have a starting point, and I think you have enough to go on for me at least. That’s my thought. What do you think, Rob?
Rob: Yeah. I don’t know that I have anything to add to that. Whether they’re the co-founder, and again, I shirk away a little bit from that title in this case, it’s like should they just be a founding engineer, or that you can give someone equity without them being a co-founder. That’s where you have to think about: is this app complicated and is going to need 24/7 support, and it has a lot of moving parts?
It’s going to be hard to scale, there’s going to be performance stuff, and there are a lot of things moving around. I think of like an analytics app or like Drip, which sucked in a bunch of analytics. It’s just a very complicated tool. I think not having a technical co-founder would have been a real challenge there. If it is just a CRUD app, where it’s just create, read, update, delete, and stuff going in and out of some database tables.
I’m not so sure that you necessarily need a co-founder, but having a developer who is reliable who maybe is getting paid a reduced rate and has 10% equity in the company that’s vesting or maybe they’re paid solely in equity, in which case, maybe they get a little more than that. I think you have options here, and again, based on what Anthony said, 30 people willing to switch is a lot.
That shows me that there’s some traction here, and there is an appetite for this. In true early-stage, bootstrap founder status, like I would beg, steal, borrow, scratch, and claw to get those people using your app, and then you take that revenue and you build on it. Use it to find the developer or pay the developer to get the next feature built.
Thanks for the question, Alistair. I hope that was helpful. Wrapping up our mostly co-founder episode, that was fun. If folks want to keep up with you, you are @aeden on Twitter and your anthonyeden.com, as well as obviously, dnsimple.com if folks want to see what you’re up to.
Anthony: Yeah, absolutely. They can reach out to me. I’m happy to answer any other questions if somebody has more. It’s true. This really was the I need a co-founder episode. Hopefully, we were able to help a little bit. I feel like for a lot of folks that if you have something that’s working and you have the confidence to go with it and keep it going, just because the media out there in the startup world says, oh, you need to have a technical founder with a non-technical founder. You don’t have to believe that. If you have enough knowledge to hire the right people to help you out as a contractor, you can get a lot done.
Rob: Indeed. Sir, with the DNSimple, you had mentioned that you guys are about to launch an API of some kind, is that right? You and I were chatting on MicroConf remote last week. Do you want to give people a 30-second rundown of what’s coming up?
Anthony: Okay. The idea is that we want people to be able to build integrations between the services they use in DNSimple and vice versa so that for example, connecting a domain to another service is literally a one-click thing. I don’t want to say too much about it, because it’s been a long time coming, and I have no idea when it’s going to come out, but we’re working really hard to make that one of the key things that we put out there within the next probably 6-12 months.
Honestly, what I want from this more than anything else is making it so that people connect a domain without having to think at all about DNS. That’s the vision that I keep pushing forward, and hopefully, this API will make the development of tools that allow that even easier.
Rob: You already have an API. You were an API first company. I’m looking at dnsimple.com/api, and you can use your API to manage domains and do all types of DNS stuff, but you’re taking it a step further.
Anthony: That’s they can do everything like all of this can essentially be done right now with the API that we have. What is missing from this is the experience where you actually get feedback from all this connectivity, not just when you first set it up, but all along with the life of having that thing connected, and to me, that’s the piece that’s missing.
It’s something I’ve been pushing the team to try to get us moving in that direction. The bottom line is we need to have feedback in the DNSimple application for these connections that we established with these different services, not just when they’re first connected, but throughout the life of it. I’ve been working with the team, and we’re pushing really hard to try to get that implemented, but we have the full API. You can do all kinds of stuff with it today. This just like you were saying takes it another step.
Rob: All right, sir. Well, thanks again for joining me.
Anthony: Thanks so much, Rob. Have a good one.
Rob: Thanks again to Anthony for weighing in and bringing his expertise to the show. I hope you got a lot of value out of that. If you enjoyed this show, feel free to reach out to me @robwalling on Twitter, and he is @aeden. If you have a question for the show for a future Q&A episode, I actually believe we’re running pretty low on questions at this point. Just email them the questions at startupsfortherestofus.com and of course voicemails always go to the top of the stack. Thanks for listening. I’ll see you next time.
Episode 514 | An Inside Look at MicroConf Remote
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Producer Xander Castro has been working on MicroConf since 2014 and is a long-time listener of the show, but this is his first time on the podcast.
On this episode, we take an inside look at MicroConf Remote from a few weeks ago and discuss what worked well, what we’ll do differently next time and the difficulties of translating events from in-person to remote.
The topics we cover
[03:26] Turning to virtual events
[07:38] Stats & production technicalities for MicroConf Remote
[17:12] What worked well: pricing, timezones, and programming
[30:27] Things we learned from our first MicroConf Remote
Links from the show
- MicroConf Remote
- Xander Castro | Twitter
If you enjoyed this episode, let us know by clicking the link and sharing what you learned.
Click here to share your number one takeaway from the episode.
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: Welcome to this week’s episode of Startups For the Rest of Us. I’m your host Rob Walling. In this week’s episode, we take an inside look at MicroConf Remote which was the event that we threw two weeks ago, and I bring producer Xander on to the show for the first time ever. He’s a longtime listener of the show, of course, and he’s been working on MicroConf since 2014, but he’s been working full-time on it for about the last year.
Xander has a background in event production. He’s been on the venue side. He’s been involved in events for like a decade. It’s a pretty extensive experience he’s had running events, and he does some pretty amazing things for us. If you’ve ever been to a MicroConf, we often get the question, how big is your staff for running this event?
He’s always like, oh, it’s just me and the founders, and people are like, whoa, because most events when we used to do starter and growth back to back and they’re 450 people there over the course of 4 ½, 5 days. You just have a whole event staff doing things and we really haven’t.
We really are that scrappy. Still continue to be that scrappy bootstrapped MicroConf ethos event and producer Xander is a big part of why we’re able to pull that off. We have a great conversation about MicroConf Remote. There’s a lot of inside baseballs, so if you don’t care about it, that’s fine, too.
We’ll be back next Tuesday morning at the normal time, but we talked about the event, why we wanted to do it, some of the challenges and things we considered. We talked about what worked really well and some things that we would do differently next time. With that, let’s dive into my conversation with producer Xander Castro. Xander Castro, thank you so much for joining me on the show.
Xander: Hey, thanks for having me the first time.
Rob: Indeed, so if you go to startupsfortherestofus.com and you search for the phrase Xander, I believe you’ve been mentioned. You just keep scrolling and scrolling, and there’s the next page. Producer Xander has been mentioned many times on the show, but you have yet to be in a conversation here.
For folks who don’t know, they would have heard a little from your intro button. You’ve been working with us on MicroConf since 2014 if I recall so quite a few events, and then you came on full-time just over a year ago, congratulations. Happy anniversary.
Xander: Well, thank you. It was a fun anniversary, wasn’t it?
Rob: Yeah. You’ve been working with us full-time on MicroConf on the big expansion in 2020. On your one year anniversary, we put on MicroConf Remote, which is what we came to talk about today. I did want to take a step back, though, and comment like 2020, we planned for seven in-person events. We were going from three up to seven, and then we were going to go from zero remote events or virtual events to two, and really, we haven’t done any in-person events.
Xander: No, no. 2020 has really dealt us the hand, everybody has been dealt, pretty much anybody that is producing live events right now is seeing a pretty rough year. There’s a lot going on right now and there’s much more that isn’t going on right now as a result of social distancing, quarantine, and whatnot with COVID-19.
Rob: Yeah. It feels like such an absolute dumpster fire in terms of trying to get people together. I don’t know about you, I want a do over.
Xander: Tell me about it. The live events industry is one that brings in like $6 billion a year annually just in the US. You just imagine all of those different staff members that are not working right now, and it’s just pretty devastating. It’s a rough industry to be in, that’s for sure at this point.
Rob: Yeah. A lot of folks have turned to virtual events, and that’s one thing that I wanted to say right off the bat is like we planned over a year ago to do two virtual events this year. At least two because we did the State of Independent SaaS Livestream back in January, and then we had decided we named it MicroConf Remote. Remember, we’re trying to figure out a name MicroConf, virtual MicroConf digital, MicroConf online, and we just loved Remote because of the idea of remote work.
We announced all of this last December but literally just about a year ago had said we’re going to do this thing. The fact that COVID happened really didn’t change those plans.
Xander: No. Not for MicroConf Remote, that’s for sure. I think we had always had this idea in mind about there was time to create a virtual implementation of what is MicroConf to really create a more accessible event that anybody around the planet would be able to access as they were interested and there weren’t those barriers to entry such as travel, setting aside over three-day plan to get out to a destination to attend a live event.
I think we always knew that creating something that was definitely more accessible to a mass audience was the route that we wanted to take with the remote version of MicroConf, for sure.
Rob: Yeah. We had been talking. You, Mike, and I believe talked about it four or five years ago about trying to do it.
Xander: Like in Barcelona.
Rob: Yeah. It’s been on our mind, but I know that it wasn’t like the highest priority because if you can do in-person events, I mean, personally, I think they’re just, I don’t know, better. I like in-person events because you have to travel. They’re more expensive, there are all these things, but there’s just a value there I think that is pretty much impossible to replicate online, so we had never prioritized it.
With this expansion, we did want to dip our toe in the water and get a little better at it, and so really, as I said, decided to do it last fall. I think we had talked for a while about not making it a replacement for MicroConf because an in-person MicroConf is so unique, and there’s so much about the setup in the hallway track and this and that, that we weren’t trying to replicate it.
We’re trying to do something a little different, and I think that’s a challenge and I think honestly if it hadn’t been for COVID, I think MicroConf Remote would have been even more unique than it was because there wouldn’t have been a bunch of other virtual events around it. We were in essence competing with these other Zoom events, but a lot of other online events, so we had to stand out that much more.
Xander: Definitely. As we were going through the research phase of what it would look like to implement MicroConf Remote back in November or December of 2019, we had done a bunch of customer interviews that focused around what it meant to attend MicroConf and what were the things that were drawing you to our live events. That person to person interaction was one of the high and above elements that people were seeking out when it came to attending MicroConf.
Even as we were in the midst of planning MicroConf Remote, we spent a little bit of time talking about how it wasn’t going to be a live version of MicroConf. I joked around saying that we should just brand it as not MicroConf because it was a unique way to look at what our attendees are constantly seeking, which is that person to person connection.
It’s an industry that few people that are innocent bystanders on the side looking inward don’t really understand the mechanics of starting your own business, doing the daily grind at home, not really being able to get out. A lot of people are starting to understand that more of these days.
I think that one of the things that we consistently try to achieve at our live events is the connection that’s formed in the hallway track. Trying to replicate that in the digital setting, as we’ll talk about a little bit later, is a challenge. It’s not the same type of experience you would see in a live experience when you’re shaking hands with someone which we should talk about. This is probably not going to be something that we’re going to encourage during live events, even when we’re able to get back together, but I think that trying to replicate that was something that took a lot of consideration and something that we were hoping we could emulate for sure.
Rob: We weren’t trying to replicate, we were trying to translate from in-person to online.
Xander: Yeah, absolutely.
Rob: Just to give an overview. We sold just about almost 700 tickets, and so quite a few listeners will probably have bought tickets and may have attended or seen the video. In essence, we decided to do a 5-hour livestream. Parts and parts of it were pre-recorded. We had some people pipe in with quick fixes that were two, three, five minutes.
Sherry and I did founders and cars, not getting coffee, a segment that had to be pre-recorded because we couldn’t do live streaming from a car. But most of it was truly live and whether it was, I interviewed a few people. We had for keynote talks, a lot of Q&A, and live interaction, which again, is one of the benefits of live streaming.
You went all out. You flew into Minneapolis and rented a studio where we had (if I recall) three cameras on me at all times, which was fun, but also like, geez, I can’t even scratch my nose without it having six angles of it.
Xander: You’re going to be caught at every angle.
Rob: Every angle, and then were there like seven people working on it, six- or seven-person crew?
Xander: Four behind the scenes and then we had three that were upfront helping with the filming, lighting, teleprompt, and things like that plus me.
Rob: That’s eight people in just the technical production of it. Of course, I’m up on stage, and then Tracy was doing a bunch of live customer support because when you have that many people attending, at our peak, I believe we had 570 attending the event. That’s just a lot of people doing stuff, so it was a real baller setup.
We kept saying, hey, this is going to be a different event. This is not just a host sitting in his bedroom in front of you. I’m in my bedroom office right now for example, but we didn’t just want that to be people in front of webcams. It gives that live feel to it because I was on different sets.
I was between two different sets, and I was on a talk show. We had like a talk show format, and we had a bunch of different creative elements to try. We knew the content would be startup focused. It’s similar to the content we would have in MicroConf or on this podcast, but with more live interactivity, but you really double down on the creativity of the visual elements to make the experience different for people.
Xander: Yeah. The goal was to really create something that would be considered bingeable. Something that carries you from segment one to segment two, or to keynote speaker, to the Q&A elements. We really wanted to keep things pretty tight in terms of the timeline of presenters, nobody had more than 20 minutes to deliver their own individual element or talk.
We wanted to create that sense of forward momentum, that idea that you’re going to sit down and you’re going to take in five hours of essentially TV. How can we make it so that each element leads into the next but is entertaining enough to really feel like it’s worth spending that much time? When it comes to digital events, even with the 700 some tickets that we sold, seeing that we had 575-ish folks that were on at peak, that’s a pretty significant number of people that are not engaging.
The idea is that you see anywhere from 50%-60% fall off when people purchase tickets to when they actually attend the event when it comes to digital experiences. We wanted to give everyone who chose to tune in a reason to stay versus just presenting the content the way that we had set it up and then distributed.
We wanted to make sure that there were these engaging touchpoints. I will say we recorded almost everything in advance of the event as well, just in case there were catastrophic failures across some of the technology, so we had those backup elements so that we could auto throw to it so nobody would miss anything.
There were some issues with that we’ll talk about in a bit, but there was a lot of thought that went into creating a through-line and the streamline story from the opening of the shows through to the closing Q&A with Jason Fried. I think that there was a lot of thought that went into how to create that line, but we wanted to make sure that it was being presented in a way that copies of people’s attention in-between each of the keynote sessions per se, and that kept it moving forward.
Rob: There’s a point. I think translating an in-person event to an online event, we didn’t just want to put on a MicroConf and have a camera there live streaming it, because we could have done that. We could have either flown speakers in or we could have sent a camera crew to every speakers’ place and just have them sit on a stage and we just don’t think that’s going to work the way that it should. It’s not the optimal translation. As I said earlier, we’re not replicating, we’re translating. We’re trying to adjust it.
Xander: Exactly. As you think about like transcription. These services that are talking about hey, can we get up to 95% accuracy? The translation between a live event and a digital event is not 1:1. There is going to be a fall off in terms of the experience the guests are having.
In theory, the keynotes and the content should be pretty much lined up with the expectations that they have going into the event. But when you go to a live event, you have that interconnectedness to the crowd. You have that sense of energy and that moment where a speaker says one individual thing and everyone’s ears perk up, or there’s a laugh that comes across the crowd. That’s an intangible experience that you really cannot create in a remote or digital setting.
There are some challenges in putting forward content that in a live event, it would originally be meant to be experienced and mass. When you’re presenting into a webcam in front of essentially 1 person, you’re speaking to 1 person, despite the fact that there are 700 some people that have purchased tickets to attend, you really are only speaking to that one individual at any given moment. It is pretty difficult to translate from in-person to live, given that you’re missing that energizing element.
Rob: Yeah. Personally, I’ve had to really work on learning to talk to a camera because obviously I’ve talked to MicroConf for more than a decade now, and I’ve talked on stage to an audience for more than a decade now, and each of those things were terrifying at the start, and I learned to do them and now I feel fine doing them. I feel like I definitely got better over the years at it.
Talking to a camera with no audience or just with the camera people around is way different, and it is hard to bring the energy. It’s hard to not be self-conscious. It’s hard not to stumble. You’re so distracted staring into this lens. You don’t feel like people are there, and it has literally taken me a year.
I think the first decent video we recorded for MicroConf was last October or November and was rough. It took me a bunch of takes and it wasn’t very good, and each one I went back and watched a few of them the other day and it made me feel good. It was like, oh, I am actually better than I used to be.
You’ll feel like your own worst critic. Even when I watch footage of Remote, I’m like, oh, I shouldn’t have done that or I should have said that better. When I go back to 11 months, I’m like, oof, now, I’m doing okay. That’s it. It’s a learned skill and I think it’s tough for presenters if you don’t have a lot of experience with it. It just takes time to get better at that.
Xander: The difference between scripted and prerecorded elements versus the live conversational elements is acting. When you’re in front of a camera and you have a script and there are peaks and valleys in the direction that that script is taking, you have to provide that level of acting and impart a little bit of emotion to it that you normally wouldn’t experience if you’re just having a regular conversation.
The example that I pulled from this was, Rob, we had you recording on the green screen right at the day before the event, and I had asked you to do these like little Peppy, welcome to MicroConf. Let’s get the show started, and we ended up pulling each of those because it just didn’t feel perfect. It didn’t feel as natural as we would want it to. To do a scripted element like that without having it be just this solid piece of content that felt great, you get to edit those types of things out. That’s not to say your energy wasn’t awesome, Rob, but it just didn’t feel like it was that genuine emotional experience that we would be trying to convey. I just scrapped those pieces because it felt like it wasn’t needed in order to advance the show.
It is definitely different. There’s a lot of acting when it comes to presenting to a camera, especially in those pre recorded elements. You want to make sure that the tone that you’re bringing to the expression that you’re delivering is matching up with the words that you’re saying.
Rob: Yeah, it’s weird. You said you’re not saying my energy wasn’t good. I’m saying my energy wasn’t good. I remember being like, this sucks, and I’m trying to pump myself up but I am not to get myself pumped up type of person.
Xander: Welcome to MicroConf. That sounds awful. What’s being fun about that?
Rob: It’s so interesting because when I watch people… We got acquired by LeadPages, they had a full-time videographer and they just cranked out videos and that was it. I would see people be extremely natural in conversation much like you and I are being very natural in our conversation right now.
When we’d watch the video back, it wouldn’t be any good. Like it looked terrible, and then I would watch someone record and I’m like, this guy’s acting. He’s not even talking the way that we do when we normally are hanging around, having a cappuccino, and he’s sitting there. It felt weird in person but on the camera, it felt great, and that’s this weird translation thing until that clicked for me, like I hadn’t realized that that’s what you had to do. The camera just requires a different level of emotion or energy.
To move it along, some things that we considered in terms of remote, obviously, we had to translate it from an in-person event to an online event to figure out what was different. We thought a lot about time zones. We were going to do it at 9:00 AM Central and it wound up being 11:00 AM.
We moved it this way because of California and then we moved it that way because of Europe, and we realized that in Asia it was going to be 2:00 in the morning, Asia and Australia. At a certain point, you just can’t do it perfectly. We actually toyed around with the idea of trying to do 12 hours or trying to do like a 3:00, 3:00, and 3:00 at different times of the day for different things, and realistically, we’re like, look, it’s our first big event like this. Let’s bite off what we can chew and not get too crazy with it.
Xander: Totally, yeah. Choosing time zones as always is a challenge. We see this in MicroConf Connect all the time where we do have a majority of the members of Connect, and really the majority of our audience is US-based. There is an element of needing to cater to the primary source of your audience and produce content in program times that are going to be the most accessible to those folks.
We do want to recognize that our audience is pretty expansive, and so we try to do as much as we can to cater to those individual time zones as much as we possibly can. But when it came to the live implementation of this event, we knew that the core of the audience was going to be coming from the US, and that we could make the recordings of the events available afterward.
If nothing else, we were able to make MicroConf Remote available to anyone to consume at any time. It’s just a matter of when we work in choosing the timeframe for the actual live event, so we just had to keep in mind to who was going to be our largest source of audience, and then what could we do to make sure that they were getting the best out of their experience that we could possibly create.
Rob: Another thing was the ticket price. Five years ago, I remember we were really saying should a virtual MicroConf event, should it be premium, should it be $100 a pop, or should it be trying to get the most people into it, so make it like $5 or $10 a pop. We were back and forth, back and forth, and I was on the charge more camp if I recall.
Then I bounced and said, oh, it should be $10, and then when COVID started we’re like, do we just try to make it free? Well, we can’t really pay for that studio and all of that. There’s quite a bit of expense incurred with it, so then we went to $10, then we went to $99, and then went to $50.
What we wound up I think, it was a cool hybrid, and you basically made the call on this in the end and you were like, look $50, but easy opportunities to get discounts. There was like if you recorded a 60-second intro to you and your founder story, you can get half off. I think if you poked around on the website somewhere, you could get it for like $10. You get like 80% off, and that was a clever way of having options.
Xander: I will say this. I am a firm believer that remote events should not be charging the same ticket price as live events. I think that the experience is vastly different. I think that the expectations are so easily managed within a virtual event that you should be able to really hone back on some of the fluff that’s associated with your live events that can trim that ticket price down.
The ticket prices do margins on events in general, are so well, that it’s something that you really need to play around with what those ticket levels are going to be. The difference between a digital and a live event in terms of the expense and the overhead that’s connected to those events is so vastly different that there is almost a degree of disingenuousness when you’re choosing to charge the same amount for a digital event as you would for the live version.
It goes back to the idea that MicroConf Remote was never meant to be a replacement for MicroConf Growth, their starter, or one of our live events. It was always meant to be this standalone, lower cost, more easily accessible program. It’s why we didn’t just say, hey, we’re canceling MicroConf Growth Minneapolis and we’re going to turn it into a digital event.
Then a certain view we’re going to get the same value at a $999 ticket price as you are going to get from MicroConf Remote. It didn’t feel right. It doesn’t feel like there is that connection to live and digital events that allow you to charge the same amount of money for that experience.
That was always the plan was to have it be a super low-cost event. We talked about those $10 ranges. We talked about that $50 price point, which is where we ultimately settled on our core pricing. A vast majority of the attendees paid between $10-$25 for their tickets, whether it be through their stories, submissions, or them poking around the website and finding one of those Easter egg discounts that were available.
Those were present throughout the ticket buying experience, and so we wanted to make sure that people could purchase at the level that they felt most comfortable at, while we were still able to make at least the margin that we needed in order to be able to afford to host the event.
Rob: We’re going to now talk about what worked and then things we would improve or do differently next time. We have quite a few of them, so we might need to zip through them pretty quick based on time.
I think the idea of ticket prices and selling tickets kicks us into this first one of what worked is I think we did a good job generating interest in marketing the event. We sold just under 700 tickets, and I was pretty happy with that. I think that tells us that the pricing was probably within the realm of where people expected it to be, and certainly, the biggest MicroConf event prior to this is essentially growth every year, which runs about $275, I believe. Obviously, digital is very different than in-person but still to sell that many tickets and have close to that many showing up in the stream. I consider it a win.
Xander: Yeah. You have that opportunity to sell tickets up until the day before the event. Your ticket sales runway is so different from a live experience where you have to not only buy your tickets, but you have to buy your flights, you have to buy your hotel rooms, all this added expense, and added time that’s needed in order to prepare for those logistics.
We were able to sell those 700 tickets in less than a month and so it felt like it was definitely an interesting prospect when you consider the 6-8 months that you want to have in terms of runway to sell tickets to a live event. This just feels like it’s an easier outlet to be able to increase your event capacity, to be able to welcome more people into the experience. I think that is one of the more unique elements of digital and remote events that worked well for us.
Rob: Something else I think worked is the programming itself, like just the talks, the segues that you had set up, the quick tips, the interviews, and just the actual each of those things. There were like one or two segments, I think they weren’t great. Mike and I are doing the analysis of the slides and stuff. Whose slide is it any way, where we have to do improv? Let’s be honest, Mike and I maybe not the best improv comedians. I mean, but that was like 12 minutes long, and it’s like, okay, we punted on it, but I think overall in general, like the programming itself felt solid to me and the transitions and stuff.
I also felt like we just experimented with formats quite a bit. You had the quick tip, we had keynotes, we had live Q&A, and we had interviews, AMA style. We had Nate Grahek was actually more of a teaching session, we asked him one or two questions and he taught. We had Sherry and I in the car, not getting coffee, like that was just a fun little thing that people commented on. I felt like the experimentation there and the programming itself was a hit.
Xander: Yeah, TV. It goes back to that concept of bingeable TV, like a sketch show, interdimensional cable, or something like the small bits that have nuggets of information that you can pull from them primarily inspirational. I think that that was one of the things we were leaning into with MicroConf Remote is that during COVID, things have just not been exciting, not been great, and there have been a lot of people that have been going through some pretty significant hardships.
We wanted to lean into the inspiration that comes with building SaaS and building these events, and they’re building these products and companies is that there is a light at the midway through the tunnel of building these products, and hopefully, people were able to latch on to some of the more inspirational elements coming from the events to carry them through the end of this year which is going to be just as interesting to see as the next three months to how the rest of 2020 pans out. Hopefully, this event was able to give that level of inspiration that we were trying to achieve.
Rob: Audience engagement, I think was another one. You had both with Q&A where some folks are willing to come on and actually do video questions, which is cool, but there were ample typed questions that I can then read and engage with.
As well as surveys that you had going on during the event, which I think was cool. If you’re watching something and you got bored, there was a way, go and take a survey and then that poll would then appear later in the event.
Xander: Yeah. I think that one of the pieces of feedback we got a lot of, which personally is a really nice piece of feedback in my perspective, is that people weren’t expecting this to be an active engagement event. They were expecting to sit down and just watch or listen to people speaking and the fact that there were a few layers of engagement that they were actually able to participate in. If they were aware of it, it was pretty cool.
I think that is the goal of these types of digital events is you want to recreate some of those elements. You want to do that translation of that in-person event into a live event, and there are only limited opportunities for you to do that, and so I think that people being surprised by some of those elements that we did leverage whether it was the Q&A, the surveying tools, the attempted recreation at the hallway track. I think some things that people could get excited about and could lean into that were different from just a generic digital event experience.
Rob: Another thing I feel like you did a really good job with is more than any other time you headed up finding speakers for this event. One of the goals we always have with MicroConf is to make them as diverse as possible, both racially and just gender-wise just underrepresented people.
Well more in the audience and we want what we can control which is having more of them on stage. I feel like as challenging as it was, I know that you sent a lot of emails and asked a lot of folks and got a lot of nos or no responses. You did a pretty good job of filling out the docket with a relatively balanced stable of speakers.
Xander: Yeah. I will say that the diversity of our speakers and lineups is one of the most important things that I have my radar on as we’re programming this content. It’s something that we’ve talked about since the day that I started working on MicroConf. I know it’s something that was on your radar and something you were planning for since the inception of the event.
I will say that it is one of the most difficult things to ensure as you’re putting together a lineup. You want to make sure that the messaging and the actual content is in line with the expectations of the audience in terms of indie funded bootstrapped founders that have built up products that are primarily SaaS that are reaching a market that is generating XYZ, MRR.
We can find a ton of people within that sphere, but in the process of searching for those folks, I put out 40 different asks that were either rejected, or we just weren’t inlined with the timing of the event, or the goals that that person had when it comes to presenting to an audience.
While the diversity of the lineup I am pretty proud of, it’s never really enough. It’s never enough to just say, hey, here’s what we’ve done and what we’re going to try and continue to do. It’s that active work that goes into finding people that are going to be a match for your values and your mission statement that you’re putting out as an organization, but are also representative of the world at large.
I think it’s so important to make sure that that stage is representative of who we want to be in our audience, and we know that it will never be enough, but if anybody has suggestions for female speakers, speakers of color. Just really anybody that can contribute to the diversity of ideas that are being presented from the MicroConf stage, please send them over to xander@microconf.com.
I’m more than happy to fill those requests and have conversations with anybody that is looking to get into either speaking at events, or that has recommendations for speakers that fit within that sphere.
Rob: Yeah. It’s tough to be in technology because it is so imbalanced. Especially when you get into software, and then you get into SaaS specifically, and it’s something we’ve constantly been putting thought and time into. I love the progress we’ve made over the last decade of having zero underrepresented founders in the first year and then having one the second year and each year.
It’s just a little more and I think these are the types of things that change over the years or decades. Unfortunately, they don’t change overnight but it definitely, I appreciate all the work. I always appreciate all the work you put in. People don’t realize you do 40 asks in order to try to get the best and most diverse lineup and it takes a lot of hustle. It doesn’t just fall in your lap.
I think that rounds out what worked with the event. Obviously, there are more things, but just in the interest of time. We have a few things that I feel like we could improve in future events, given that this was our first time doing essentially, a big online remote event like this. I think the list is good. Like it’s a good amount of learning that we got from these events.
Xander: We learned a ton. That is so true.
Rob: That’s the thing. The first one is just Shindig, which is that the software platform used really didn’t live up to what we needed. It was both in the broadcasting of it. I think you were saying people were like not seeing audio, not seeing video, not seeing this part, and not seeing that part.
Then when people tried to connect in the hallway track where we were trying to connect individuals like that part weren’t necessarily functioning. Of course, you spent dozens of hours evaluating (I don’t know how many tools) six, eight tools across a wide range of technologies, a wide range of prices, and all that stuff.
Everybody promises the world and then you get in and the day off during a livestream, that thing doesn’t work. Someone suggested as well, we could try this on a more local event like try with only 100 people. If we had done that, it probably would have worked just fine, and then when we went to 570 at our peak, it wouldn’t work.
Having an in-between I don’t think actually helps. It fails at a certain point. It’s somewhere between 400 and 600, I think is where things started falling off the bus, and so unless we had that many people, I don’t think because it truly was a scale thing was my understanding.
Xander: I think that there was a bit of a balance there were the issues that we ran into seemed likely we were going to run into those same issues at 100 attendees. The platform itself, at one point, completely locked me out as an admin being able to run the show, being able to upload feeds, being able to manage changes to individual feeds as they were being streamed there.
I will say that the reason that we chose Shindig was the implementation of the networking element. It created this sentiment of being seated at a table with other guests that were in attendance. You can control the number of guests that were seated at each table. That was one of the parameters that we had set for them to only have 10 people per table there were seating up to 30 people at each individual table all the way without following the parameter that we set in the back end.
There were a lot of little bugs and glitches that were peppered throughout the back end of the software that didn’t follow the inputs that we had submitted. This is like any other SaaS product that has a robust back end that it could be adjusted to meet the expectations that you have as a user of that piece of software, but the glitches and the breaks that were happening were based around some of those particular inputs that you had.
There was really very little way to recreate that type of experience ahead of the event as an individual producer. These are things that I am sure that the technology has gotten feedback on prior to, that wasn’t the feedback that I have got when I had talked with them to really investigate whether the platform would be usable for us. It wasn’t in the end of the referral information that I had pulled from some of the industry folks that were using the tool.
The software itself, I can hope that it is moving in a direction that it’s going to solve the problems that it does have in place because if it does, then I think that the concept of the hallway tracker, the networking elements of the event experience would be amazing.
It said that it did the thing that we were looking for in a product. There are tons of them out there. We looked at some of the more enterprise-level like an expo. We looked at livestream. We were considering using just YouTube and Slack which is something we’ll get into a little bit later.
We had to explore to hop in… There were a number of tech products that were doing similar things to different varying degrees of success with their users themselves and Shindig was the platform that had ticked a number of the boxes that we were looking to maximize on, or it ticked a number of the boxes that we were seeking out in a platform. Ultimately, without having 500-700 test cases within an infrastructure, you’re only able to see what it can do under that mass of execution when you have that number of people in a space. It was daunting, I will say that.
Rob: Yeah. Another thing that I feel like we could improve is that we’ve commented on how this event was different or is different than an in-person MicroConf. I’m not sure how much that fully sunk in for me until we were doing it, but I was there. I was like, yeah, this is not a regular MicroConf. I don’t know that we communicated that in crystal clear terms to people.
We got, I believe it was like 70% first-timers who had never been to a MicroConf, which is great. I mean, that’s part of the beauty of remote, but the 30%, who had been to one may have expected this to be like a MicroConf event that was filmed in live stream and that isn’t what this was. We mixed it up. I think setting that expectation next time would probably be beneficial.
Xander: Yeah, I would tend to agree with that.
Rob: The last one you have your pivots, Slack and YouTube. What do you think in there?
Xander: Yeah. In the midst of the show, we ended up just leaning on some of the tools that we have been using for the last four months when some of the videos and audio feeds were going down for individual users. We were streaming our signal out including both the video and the audio streams, but there were points where the screen was blacking out for one of our presenters. There were elements where the audio would cut and it would just be the video.
What we ended up doing is taking the actual stream from that we were patching into Shindig, and we just sent it straight into YouTube. We had our MicroConf Connects channel that was running side by side with a YouTube stream for people that weren’t able to actually use Shindig as a platform.
To be able to make that pivot and to implement these alternative resources in the midst of an event, I think that’s something that you wouldn’t often see at a live event. Either you wouldn’t be able to make that quick switch and have a similar experience in a live event. If you have to change hotels, if you have to change rooms, meeting spaces, and things like that, you would find yourself in a bit of a struggle in order to execute that in a pretty quick turnaround sense. I think that that was something that was successful based on some of the challenges we ran into using Shindig.
Rob: Yeah. Kind of reminds me of a sprinkler going off and having to move for himself. Too soon.
Xander: Yeah. That stuff.
Rob: All right. Well, sir, thanks for coming on and reliving the victories and some of the struggles and things we would do differently next time. It was a heck of an event to mark your one year anniversary working full-time on MicroConf.
Xander: Yeah, it was a good time. It was a struggle. There were some significant pitfalls in that you have to get past those as a producer. Everything is moving so quickly, you’ve got to step past them and move on to the next thing as quickly as you can in order to keep the show running. As they say, the show must go on.
Rob: All right, sir, and if folks want to see what you’re working on, microconf.com, so much of what goes up there is you and if they email support@microconf.com, they can send feedback directly to you.
Xander: Totally.
Rob: All right. Thanks again for coming on the show.
Xander: Thank you so much. It was a pleasure being on for my first time after all these years.
Rob: Awesome. I hope it was interesting for you to hear some of the inside baseballs around MicroConf Remote. Thanks again to producer Xander for joining me on the show. That’s it for this week. Although there will be another episode of TinySeed tales in your earbuds this Thursday morning. I hope you’re enjoying season two so far, so thank you as always for listening to Startups For the Rest of Us, and I will be in your earbuds again next Tuesday morning.
Xander has a background in event production. He’s been on the venue side. He’s been involved in events for like a decade. It’s a pretty extensive experience he’s had running events, and he does some pretty amazing things for us. If you’ve ever been to a MicroConf, we often get the question, how big is your staff for running this event?
He’s always like, oh, it’s just me and the founders, and people are like, whoa, because most events when we used to do starter and growth back to back and they’re 450 people there over the course of 4 ½, 5 days. You just have a whole event staff doing things and we really haven’t.
We really are that scrappy. Still continue to be that scrappy bootstrapped MicroConf ethos event and producer Xander is a big part of why we’re able to pull that off. We have a great conversation about MicroConf Remote. There’s a lot of inside baseballs, so if you don’t care about it, that’s fine, too.
We’ll be back next Tuesday morning at the normal time, but we talked about the event, why we wanted to do it, some of the challenges and things we considered. We talked about what worked really well and some things that we would do differently next time. With that, let’s dive into my conversation with producer Xander Castro. Xander Castro, thank you so much for joining me on the show.
Xander: Hey, thanks for having me the first time.
Rob: Indeed, so if you go to startupsfortherestofus.com and you search for the phrase Xander, I believe you’ve been mentioned. You just keep scrolling and scrolling, and there’s the next page. Producer Xander has been mentioned many times on the show, but you have yet to be in a conversation here.
For folks who don’t know, they would have heard a little from your intro button. You’ve been working with us on MicroConf since 2014 if I recall so quite a few events, and then you came on full-time just over a year ago, congratulations. Happy anniversary.
Xander: Well, thank you. It was a fun anniversary, wasn’t it?
Rob: Yeah. You’ve been working with us full-time on MicroConf on the big expansion in 2020. On your one year anniversary, we put on MicroConf Remote, which is what we came to talk about today. I did want to take a step back, though, and comment like 2020, we planned for seven in-person events. We were going from three up to seven, and then we were going to go from zero remote events or virtual events to two, and really, we haven’t done any in-person events.
Xander: No, no. 2020 has really dealt us the hand, everybody has been dealt, pretty much anybody that is producing live events right now is seeing a pretty rough year. There’s a lot going on right now and there’s much more that isn’t going on right now as a result of social distancing, quarantine, and whatnot with COVID-19.
Rob: Yeah. It feels like such an absolute dumpster fire in terms of trying to get people together. I don’t know about you, I want a do over.
Xander: Tell me about it. The live events industry is one that brings in like $6 billion a year annually just in the US. You just imagine all of those different staff members that are not working right now, and it’s just pretty devastating. It’s a rough industry to be in, that’s for sure at this point.
Rob: Yeah. A lot of folks have turned to virtual events, and that’s one thing that I wanted to say right off the bat is like we planned over a year ago to do two virtual events this year. At least two because we did the State of Independent SaaS Livestream back in January, and then we had decided we named it MicroConf Remote. Remember, we’re trying to figure out a name MicroConf, virtual MicroConf digital, MicroConf online, and we just loved Remote because of the idea of remote work.
We announced all of this last December but literally just about a year ago had said we’re going to do this thing. The fact that COVID happened really didn’t change those plans.
Xander: No. Not for MicroConf Remote, that’s for sure. I think we had always had this idea in mind about there was time to create a virtual implementation of what is MicroConf to really create a more accessible event that anybody around the planet would be able to access as they were interested and there weren’t those barriers to entry such as travel, setting aside over three-day plan to get out to a destination to attend a live event.
I think we always knew that creating something that was definitely more accessible to a mass audience was the route that we wanted to take with the remote version of MicroConf, for sure.
Rob: Yeah. We had been talking. You, Mike, and I believe talked about it four or five years ago about trying to do it.
Xander: Like in Barcelona.
Rob: Yeah. It’s been on our mind, but I know that it wasn’t like the highest priority because if you can do in-person events, I mean, personally, I think they’re just, I don’t know, better. I like in-person events because you have to travel. They’re more expensive, there are all these things, but there’s just a value there I think that is pretty much impossible to replicate online, so we had never prioritized it.
With this expansion, we did want to dip our toe in the water and get a little better at it, and so really, as I said, decided to do it last fall. I think we had talked for a while about not making it a replacement for MicroConf because an in-person MicroConf is so unique, and there’s so much about the setup in the hallway track and this and that, that we weren’t trying to replicate it.
We’re trying to do something a little different, and I think that’s a challenge and I think honestly if it hadn’t been for COVID, I think MicroConf Remote would have been even more unique than it was because there wouldn’t have been a bunch of other virtual events around it. We were in essence competing with these other Zoom events, but a lot of other online events, so we had to stand out that much more.
Xander: Definitely. As we were going through the research phase of what it would look like to implement MicroConf Remote back in November or December of 2019, we had done a bunch of customer interviews that focused around what it meant to attend MicroConf and what were the things that were drawing you to our live events. That person to person interaction was one of the high and above elements that people were seeking out when it came to attending MicroConf.
Even as we were in the midst of planning MicroConf Remote, we spent a little bit of time talking about how it wasn’t going to be a live version of MicroConf. I joked around saying that we should just brand it as not MicroConf because it was a unique way to look at what our attendees are constantly seeking, which is that person to person connection.
It’s an industry that few people that are innocent bystanders on the side looking inward don’t really understand the mechanics of starting your own business, doing the daily grind at home, not really being able to get out. A lot of people are starting to understand that more of these days.
I think that one of the things that we consistently try to achieve at our live events is the connection that’s formed in the hallway track. Trying to replicate that in the digital setting, as we’ll talk about a little bit later, is a challenge. It’s not the same type of experience you would see in a live experience when you’re shaking hands with someone which we should talk about. This is probably not going to be something that we’re going to encourage during live events, even when we’re able to get back together, but I think that trying to replicate that was something that took a lot of consideration and something that we were hoping we could emulate for sure.
Rob: We weren’t trying to replicate, we were trying to translate from in-person to online.
Xander: Yeah, absolutely.
Rob: Just to give an overview. We sold just about almost 700 tickets, and so quite a few listeners will probably have bought tickets and may have attended or seen the video. In essence, we decided to do a 5-hour livestream. Parts and parts of it were pre-recorded. We had some people pipe in with quick fixes that were two, three, five minutes.
Sherry and I did founders and cars, not getting coffee, a segment that had to be pre-recorded because we couldn’t do live streaming from a car. But most of it was truly live and whether it was, I interviewed a few people. We had for keynote talks, a lot of Q&A, and live interaction, which again, is one of the benefits of live streaming.
You went all out. You flew into Minneapolis and rented a studio where we had (if I recall) three cameras on me at all times, which was fun, but also like, geez, I can’t even scratch my nose without it having six angles of it.
Xander: You’re going to be caught at every angle.
Rob: Every angle, and then were there like seven people working on it, six- or seven-person crew?
Xander: Four behind the scenes and then we had three that were upfront helping with the filming, lighting, teleprompt, and things like that plus me.
Rob: That’s eight people in just the technical production of it. Of course, I’m up on stage, and then Tracy was doing a bunch of live customer support because when you have that many people attending, at our peak, I believe we had 570 attending the event. That’s just a lot of people doing stuff, so it was a real baller setup.
We kept saying, hey, this is going to be a different event. This is not just a host sitting in his bedroom in front of you. I’m in my bedroom office right now for example, but we didn’t just want that to be people in front of webcams. It gives that live feel to it because I was on different sets.
I was between two different sets, and I was on a talk show. We had like a talk show format, and we had a bunch of different creative elements to try. We knew the content would be startup focused. It’s similar to the content we would have in MicroConf or on this podcast, but with more live interactivity, but you really double down on the creativity of the visual elements to make the experience different for people.
Xander: Yeah. The goal was to really create something that would be considered bingeable. Something that carries you from segment one to segment two, or to keynote speaker, to the Q&A elements. We really wanted to keep things pretty tight in terms of the timeline of presenters, nobody had more than 20 minutes to deliver their own individual element or talk.
We wanted to create that sense of forward momentum, that idea that you’re going to sit down and you’re going to take in five hours of essentially TV. How can we make it so that each element leads into the next but is entertaining enough to really feel like it’s worth spending that much time? When it comes to digital events, even with the 700 some tickets that we sold, seeing that we had 575-ish folks that were on at peak, that’s a pretty significant number of people that are not engaging.
The idea is that you see anywhere from 50%-60% fall off when people purchase tickets to when they actually attend the event when it comes to digital experiences. We wanted to give everyone who chose to tune in a reason to stay versus just presenting the content the way that we had set it up and then distributed.
We wanted to make sure that there were these engaging touchpoints. I will say we recorded almost everything in advance of the event as well, just in case there were catastrophic failures across some of the technology, so we had those backup elements so that we could auto throw to it so nobody would miss anything.
There were some issues with that we’ll talk about in a bit, but there was a lot of thought that went into creating a through-line and the streamline story from the opening of the shows through to the closing Q&A with Jason Fried. I think that there was a lot of thought that went into how to create that line, but we wanted to make sure that it was being presented in a way that copies of people’s attention in-between each of the keynote sessions per se, and that kept it moving forward.
Rob: There’s a point. I think translating an in-person event to an online event, we didn’t just want to put on a MicroConf and have a camera there live streaming it, because we could have done that. We could have either flown speakers in or we could have sent a camera crew to every speakers’ place and just have them sit on a stage and we just don’t think that’s going to work the way that it should. It’s not the optimal translation. As I said earlier, we’re not replicating, we’re translating. We’re trying to adjust it.
Xander: Exactly. As you think about like transcription. These services that are talking about hey, can we get up to 95% accuracy? The translation between a live event and a digital event is not 1:1. There is going to be a fall off in terms of the experience the guests are having.
In theory, the keynotes and the content should be pretty much lined up with the expectations that they have going into the event. But when you go to a live event, you have that interconnectedness to the crowd. You have that sense of energy and that moment where a speaker says one individual thing and everyone’s ears perk up, or there’s a laugh that comes across the crowd. That’s an intangible experience that you really cannot create in a remote or digital setting.
There are some challenges in putting forward content that in a live event, it would originally be meant to be experienced and mass. When you’re presenting into a webcam in front of essentially 1 person, you’re speaking to 1 person, despite the fact that there are 700 some people that have purchased tickets to attend, you really are only speaking to that one individual at any given moment. It is pretty difficult to translate from in-person to live, given that you’re missing that energizing element.
Rob: Yeah. Personally, I’ve had to really work on learning to talk to a camera because obviously I’ve talked to MicroConf for more than a decade now, and I’ve talked on stage to an audience for more than a decade now, and each of those things were terrifying at the start, and I learned to do them and now I feel fine doing them. I feel like I definitely got better over the years at it.
Talking to a camera with no audience or just with the camera people around is way different, and it is hard to bring the energy. It’s hard to not be self-conscious. It’s hard not to stumble. You’re so distracted staring into this lens. You don’t feel like people are there, and it has literally taken me a year.
I think the first decent video we recorded for MicroConf was last October or November and was rough. It took me a bunch of takes and it wasn’t very good, and each one I went back and watched a few of them the other day and it made me feel good. It was like, oh, I am actually better than I used to be.
You’ll feel like your own worst critic. Even when I watch footage of Remote, I’m like, oh, I shouldn’t have done that or I should have said that better. When I go back to 11 months, I’m like, oof, now, I’m doing okay. That’s it. It’s a learned skill and I think it’s tough for presenters if you don’t have a lot of experience with it. It just takes time to get better at that.
Xander: The difference between scripted and prerecorded elements versus the live conversational elements is acting. When you’re in front of a camera and you have a script and there are peaks and valleys in the direction that that script is taking, you have to provide that level of acting and impart a little bit of emotion to it that you normally wouldn’t experience if you’re just having a regular conversation.
The example that I pulled from this was, Rob, we had you recording on the green screen right at the day before the event, and I had asked you to do these like little Peppy, welcome to MicroConf. Let’s get the show started, and we ended up pulling each of those because it just didn’t feel perfect. It didn’t feel as natural as we would want it to. To do a scripted element like that without having it be just this solid piece of content that felt great, you get to edit those types of things out. That’s not to say your energy wasn’t awesome, Rob, but it just didn’t feel like it was that genuine emotional experience that we would be trying to convey. I just scrapped those pieces because it felt like it wasn’t needed in order to advance the show.
It is definitely different. There’s a lot of acting when it comes to presenting to a camera, especially in those pre recorded elements. You want to make sure that the tone that you’re bringing to the expression that you’re delivering is matching up with the words that you’re saying.
Rob: Yeah, it’s weird. You said you’re not saying my energy wasn’t good. I’m saying my energy wasn’t good. I remember being like, this sucks, and I’m trying to pump myself up but I am not to get myself pumped up type of person.
Xander: Welcome to MicroConf. That sounds awful. What’s being fun about that?
Rob: It’s so interesting because when I watch people… We got acquired by LeadPages, they had a full-time videographer and they just cranked out videos and that was it. I would see people be extremely natural in conversation much like you and I are being very natural in our conversation right now.
When we’d watch the video back, it wouldn’t be any good. Like it looked terrible, and then I would watch someone record and I’m like, this guy’s acting. He’s not even talking the way that we do when we normally are hanging around, having a cappuccino, and he’s sitting there. It felt weird in person but on the camera, it felt great, and that’s this weird translation thing until that clicked for me, like I hadn’t realized that that’s what you had to do. The camera just requires a different level of emotion or energy.
To move it along, some things that we considered in terms of remote, obviously, we had to translate it from an in-person event to an online event to figure out what was different. We thought a lot about time zones. We were going to do it at 9:00 AM Central and it wound up being 11:00 AM.
We moved it this way because of California and then we moved it that way because of Europe, and we realized that in Asia it was going to be 2:00 in the morning, Asia and Australia. At a certain point, you just can’t do it perfectly. We actually toyed around with the idea of trying to do 12 hours or trying to do like a 3:00, 3:00, and 3:00 at different times of the day for different things, and realistically, we’re like, look, it’s our first big event like this. Let’s bite off what we can chew and not get too crazy with it.
Xander: Totally, yeah. Choosing time zones as always is a challenge. We see this in MicroConf Connect all the time where we do have a majority of the members of Connect, and really the majority of our audience is US-based. There is an element of needing to cater to the primary source of your audience and produce content in program times that are going to be the most accessible to those folks.
We do want to recognize that our audience is pretty expansive, and so we try to do as much as we can to cater to those individual time zones as much as we possibly can. But when it came to the live implementation of this event, we knew that the core of the audience was going to be coming from the US, and that we could make the recordings of the events available afterward.
If nothing else, we were able to make MicroConf Remote available to anyone to consume at any time. It’s just a matter of when we work in choosing the timeframe for the actual live event, so we just had to keep in mind to who was going to be our largest source of audience, and then what could we do to make sure that they were getting the best out of their experience that we could possibly create.
Rob: Another thing was the ticket price. Five years ago, I remember we were really saying should a virtual MicroConf event, should it be premium, should it be $100 a pop, or should it be trying to get the most people into it, so make it like $5 or $10 a pop. We were back and forth, back and forth, and I was on the charge more camp if I recall.
Then I bounced and said, oh, it should be $10, and then when COVID started we’re like, do we just try to make it free? Well, we can’t really pay for that studio and all of that. There’s quite a bit of expense incurred with it, so then we went to $10, then we went to $99, and then went to $50.
What we wound up I think, it was a cool hybrid, and you basically made the call on this in the end and you were like, look $50, but easy opportunities to get discounts. There was like if you recorded a 60-second intro to you and your founder story, you can get half off. I think if you poked around on the website somewhere, you could get it for like $10. You get like 80% off, and that was a clever way of having options.
Xander: I will say this. I am a firm believer that remote events should not be charging the same ticket price as live events. I think that the experience is vastly different. I think that the expectations are so easily managed within a virtual event that you should be able to really hone back on some of the fluff that’s associated with your live events that can trim that ticket price down.
The ticket prices do margins on events in general, are so well, that it’s something that you really need to play around with what those ticket levels are going to be. The difference between a digital and a live event in terms of the expense and the overhead that’s connected to those events is so vastly different that there is almost a degree of disingenuousness when you’re choosing to charge the same amount for a digital event as you would for the live version.
It goes back to the idea that MicroConf Remote was never meant to be a replacement for MicroConf Growth, their starter, or one of our live events. It was always meant to be this standalone, lower cost, more easily accessible program. It’s why we didn’t just say, hey, we’re canceling MicroConf Growth Minneapolis and we’re going to turn it into a digital event.
Then a certain view we’re going to get the same value at a $999 ticket price as you are going to get from MicroConf Remote. It didn’t feel right. It doesn’t feel like there is that connection to live and digital events that allow you to charge the same amount of money for that experience.
That was always the plan was to have it be a super low-cost event. We talked about those $10 ranges. We talked about that $50 price point, which is where we ultimately settled on our core pricing. A vast majority of the attendees paid between $10-$25 for their tickets, whether it be through their stories, submissions, or them poking around the website and finding one of those Easter egg discounts that were available.
Those were present throughout the ticket buying experience, and so we wanted to make sure that people could purchase at the level that they felt most comfortable at, while we were still able to make at least the margin that we needed in order to be able to afford to host the event.
Rob: We’re going to now talk about what worked and then things we would improve or do differently next time. We have quite a few of them, so we might need to zip through them pretty quick based on time.
I think the idea of ticket prices and selling tickets kicks us into this first one of what worked is I think we did a good job generating interest in marketing the event. We sold just under 700 tickets, and I was pretty happy with that. I think that tells us that the pricing was probably within the realm of where people expected it to be, and certainly, the biggest MicroConf event prior to this is essentially growth every year, which runs about $275, I believe. Obviously, digital is very different than in-person but still to sell that many tickets and have close to that many showing up in the stream. I consider it a win.
Xander: Yeah. You have that opportunity to sell tickets up until the day before the event. Your ticket sales runway is so different from a live experience where you have to not only buy your tickets, but you have to buy your flights, you have to buy your hotel rooms, all this added expense, and added time that’s needed in order to prepare for those logistics.
We were able to sell those 700 tickets in less than a month and so it felt like it was definitely an interesting prospect when you consider the 6-8 months that you want to have in terms of runway to sell tickets to a live event. This just feels like it’s an easier outlet to be able to increase your event capacity, to be able to welcome more people into the experience. I think that is one of the more unique elements of digital and remote events that worked well for us.
Rob: Something else I think worked is the programming itself, like just the talks, the segues that you had set up, the quick tips, the interviews, and just the actual each of those things. There were like one or two segments, I think they weren’t great. Mike and I are doing the analysis of the slides and stuff. Whose slide is it any way, where we have to do improv? Let’s be honest, Mike and I maybe not the best improv comedians. I mean, but that was like 12 minutes long, and it’s like, okay, we punted on it, but I think overall in general, like the programming itself felt solid to me and the transitions and stuff.
I also felt like we just experimented with formats quite a bit. You had the quick tip, we had keynotes, we had live Q&A, and we had interviews, AMA style. We had Nate Grahek was actually more of a teaching session, we asked him one or two questions and he taught. We had Sherry and I in the car, not getting coffee, like that was just a fun little thing that people commented on. I felt like the experimentation there and the programming itself was a hit.
Xander: Yeah, TV. It goes back to that concept of bingeable TV, like a sketch show, interdimensional cable, or something like the small bits that have nuggets of information that you can pull from them primarily inspirational. I think that that was one of the things we were leaning into with MicroConf Remote is that during COVID, things have just not been exciting, not been great, and there have been a lot of people that have been going through some pretty significant hardships.
We wanted to lean into the inspiration that comes with building SaaS and building these events, and they’re building these products and companies is that there is a light at the midway through the tunnel of building these products, and hopefully, people were able to latch on to some of the more inspirational elements coming from the events to carry them through the end of this year which is going to be just as interesting to see as the next three months to how the rest of 2020 pans out. Hopefully, this event was able to give that level of inspiration that we were trying to achieve.
Rob: Audience engagement, I think was another one. You had both with Q&A where some folks are willing to come on and actually do video questions, which is cool, but there were ample typed questions that I can then read and engage with.
As well as surveys that you had going on during the event, which I think was cool. If you’re watching something and you got bored, there was a way, go and take a survey and then that poll would then appear later in the event.
Xander: Yeah. I think that one of the pieces of feedback we got a lot of, which personally is a really nice piece of feedback in my perspective, is that people weren’t expecting this to be an active engagement event. They were expecting to sit down and just watch or listen to people speaking and the fact that there were a few layers of engagement that they were actually able to participate in. If they were aware of it, it was pretty cool.
I think that is the goal of these types of digital events is you want to recreate some of those elements. You want to do that translation of that in-person event into a live event, and there are only limited opportunities for you to do that, and so I think that people being surprised by some of those elements that we did leverage whether it was the Q&A, the surveying tools, the attempted recreation at the hallway track. I think some things that people could get excited about and could lean into that were different from just a generic digital event experience.
Rob: Another thing I feel like you did a really good job with is more than any other time you headed up finding speakers for this event. One of the goals we always have with MicroConf is to make them as diverse as possible, both racially and just gender-wise just underrepresented people.
Well more in the audience and we want what we can control which is having more of them on stage. I feel like as challenging as it was, I know that you sent a lot of emails and asked a lot of folks and got a lot of nos or no responses. You did a pretty good job of filling out the docket with a relatively balanced stable of speakers.
Xander: Yeah. I will say that the diversity of our speakers and lineups is one of the most important things that I have my radar on as we’re programming this content. It’s something that we’ve talked about since the day that I started working on MicroConf. I know it’s something that was on your radar and something you were planning for since the inception of the event.
I will say that it is one of the most difficult things to ensure as you’re putting together a lineup. You want to make sure that the messaging and the actual content is in line with the expectations of the audience in terms of indie funded bootstrapped founders that have built up products that are primarily SaaS that are reaching a market that is generating XYZ, MRR.
We can find a ton of people within that sphere, but in the process of searching for those folks, I put out 40 different asks that were either rejected, or we just weren’t inlined with the timing of the event, or the goals that that person had when it comes to presenting to an audience.
While the diversity of the lineup I am pretty proud of, it’s never really enough. It’s never enough to just say, hey, here’s what we’ve done and what we’re going to try and continue to do. It’s that active work that goes into finding people that are going to be a match for your values and your mission statement that you’re putting out as an organization, but are also representative of the world at large.
I think it’s so important to make sure that that stage is representative of who we want to be in our audience, and we know that it will never be enough, but if anybody has suggestions for female speakers, speakers of color. Just really anybody that can contribute to the diversity of ideas that are being presented from the MicroConf stage, please send them over to xander@microconf.com.
I’m more than happy to fill those requests and have conversations with anybody that is looking to get into either speaking at events, or that has recommendations for speakers that fit within that sphere.
Rob: Yeah. It’s tough to be in technology because it is so imbalanced. Especially when you get into software, and then you get into SaaS specifically, and it’s something we’ve constantly been putting thought and time into. I love the progress we’ve made over the last decade of having zero underrepresented founders in the first year and then having one the second year and each year.
It’s just a little more and I think these are the types of things that change over the years or decades. Unfortunately, they don’t change overnight but it definitely, I appreciate all the work. I always appreciate all the work you put in. People don’t realize you do 40 asks in order to try to get the best and most diverse lineup and it takes a lot of hustle. It doesn’t just fall in your lap.
I think that rounds out what worked with the event. Obviously, there are more things, but just in the interest of time. We have a few things that I feel like we could improve in future events, given that this was our first time doing essentially, a big online remote event like this. I think the list is good. Like it’s a good amount of learning that we got from these events.
Xander: We learned a ton. That is so true.
Rob: That’s the thing. The first one is just Shindig, which is that the software platform used really didn’t live up to what we needed. It was both in the broadcasting of it. I think you were saying people were like not seeing audio, not seeing video, not seeing this part, and not seeing that part.
Then when people tried to connect in the hallway track where we were trying to connect individuals like that part weren’t necessarily functioning. Of course, you spent dozens of hours evaluating (I don’t know how many tools) six, eight tools across a wide range of technologies, a wide range of prices, and all that stuff.
Everybody promises the world and then you get in and the day off during a livestream, that thing doesn’t work. Someone suggested as well, we could try this on a more local event like try with only 100 people. If we had done that, it probably would have worked just fine, and then when we went to 570 at our peak, it wouldn’t work.
Having an in-between I don’t think actually helps. It fails at a certain point. It’s somewhere between 400 and 600, I think is where things started falling off the bus, and so unless we had that many people, I don’t think because it truly was a scale thing was my understanding.
Xander: I think that there was a bit of a balance there were the issues that we ran into seemed likely we were going to run into those same issues at 100 attendees. The platform itself, at one point, completely locked me out as an admin being able to run the show, being able to upload feeds, being able to manage changes to individual feeds as they were being streamed there.
I will say that the reason that we chose Shindig was the implementation of the networking element. It created this sentiment of being seated at a table with other guests that were in attendance. You can control the number of guests that were seated at each table. That was one of the parameters that we had set for them to only have 10 people per table there were seating up to 30 people at each individual table all the way without following the parameter that we set in the back end.
There were a lot of little bugs and glitches that were peppered throughout the back end of the software that didn’t follow the inputs that we had submitted. This is like any other SaaS product that has a robust back end that it could be adjusted to meet the expectations that you have as a user of that piece of software, but the glitches and the breaks that were happening were based around some of those particular inputs that you had.
There was really very little way to recreate that type of experience ahead of the event as an individual producer. These are things that I am sure that the technology has gotten feedback on prior to, that wasn’t the feedback that I have got when I had talked with them to really investigate whether the platform would be usable for us. It wasn’t in the end of the referral information that I had pulled from some of the industry folks that were using the tool.
The software itself, I can hope that it is moving in a direction that it’s going to solve the problems that it does have in place because if it does, then I think that the concept of the hallway tracker, the networking elements of the event experience would be amazing.
It said that it did the thing that we were looking for in a product. There are tons of them out there. We looked at some of the more enterprise-level like an expo. We looked at livestream. We were considering using just YouTube and Slack which is something we’ll get into a little bit later.
We had to explore to hop in… There were a number of tech products that were doing similar things to different varying degrees of success with their users themselves and Shindig was the platform that had ticked a number of the boxes that we were looking to maximize on, or it ticked a number of the boxes that we were seeking out in a platform. Ultimately, without having 500-700 test cases within an infrastructure, you’re only able to see what it can do under that mass of execution when you have that number of people in a space. It was daunting, I will say that.
Rob: Yeah. Another thing that I feel like we could improve is that we’ve commented on how this event was different or is different than an in-person MicroConf. I’m not sure how much that fully sunk in for me until we were doing it, but I was there. I was like, yeah, this is not a regular MicroConf. I don’t know that we communicated that in crystal clear terms to people.
We got, I believe it was like 70% first-timers who had never been to a MicroConf, which is great. I mean, that’s part of the beauty of remote, but the 30%, who had been to one may have expected this to be like a MicroConf event that was filmed in live stream and that isn’t what this was. We mixed it up. I think setting that expectation next time would probably be beneficial.
Xander: Yeah, I would tend to agree with that.
Rob: The last one you have your pivots, Slack and YouTube. What do you think in there?
Xander: Yeah. In the midst of the show, we ended up just leaning on some of the tools that we have been using for the last four months when some of the videos and audio feeds were going down for individual users. We were streaming our signal out including both the video and the audio streams, but there were points where the screen was blacking out for one of our presenters. There were elements where the audio would cut and it would just be the video.
What we ended up doing is taking the actual stream from that we were patching into Shindig, and we just sent it straight into YouTube. We had our MicroConf Connects channel that was running side by side with a YouTube stream for people that weren’t able to actually use Shindig as a platform.
To be able to make that pivot and to implement these alternative resources in the midst of an event, I think that’s something that you wouldn’t often see at a live event. Either you wouldn’t be able to make that quick switch and have a similar experience in a live event. If you have to change hotels, if you have to change rooms, meeting spaces, and things like that, you would find yourself in a bit of a struggle in order to execute that in a pretty quick turnaround sense. I think that that was something that was successful based on some of the challenges we ran into using Shindig.
Rob: Yeah. Kind of reminds me of a sprinkler going off and having to move for himself. Too soon.
Xander: Yeah. That stuff.
Rob: All right. Well, sir, thanks for coming on and reliving the victories and some of the struggles and things we would do differently next time. It was a heck of an event to mark your one year anniversary working full-time on MicroConf.
Xander: Yeah, it was a good time. It was a struggle. There were some significant pitfalls in that you have to get past those as a producer. Everything is moving so quickly, you’ve got to step past them and move on to the next thing as quickly as you can in order to keep the show running. As they say, the show must go on.
Rob: All right, sir, and if folks want to see what you’re working on, microconf.com, so much of what goes up there is you and if they email support@microconf.com, they can send feedback directly to you.
Xander: Totally.
Rob: All right. Thanks again for coming on the show.
Xander: Thank you so much. It was a pleasure being on for my first time after all these years.
Rob: Awesome. I hope it was interesting for you to hear some of the inside baseballs around MicroConf Remote. Thanks again to producer Xander for joining me on the show. That’s it for this week. Although there will be another episode of TinySeed tales in your earbuds this Thursday morning. I hope you’re enjoying season two so far, so thank you as always for listening to Startups For the Rest of Us, and I will be in your earbuds again next Tuesday morning.
Episode 513 | SaaS Valuations + Dos and Don’ts When Selling A SaaS
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On today’s episode of Startups For The Rest of Us, Rob Walling (@robwalling) talks with David Newell (@davidsnewell), a Senior Advisor at Quiet Light Brokerage, about the dos and dont’s of SaaS valuations.
The topics we cover
- 4:12 Running your business as if it were a sellable asset
- 5:15 Quiet Light deal count and other stats
- 8:53 SaaS valuations today and how SDE valuations work
- 17:50 How revenue valuations work
- 21:19 David Newell shares stories of dos and donts of valuations
- 29:52 What do the best buyers do?
Links from the show
- ProfitWell
- ChartMogul
- Baremetrics
- Quiet Light
- Summit
- Resources for Buying and Selling Online Businesses
How can I support the podcast?
If you enjoyed this episode, let us know by clicking the link and sharing what you learned.
Click here to share your number one takeaway from the episode.
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: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. This week, I have a conversation with an M&A advisor named David Newell. David is a Senior Advisor at Quiet Light. According to his bio, he’s an industry expert in evaluation and sale of SaaS businesses. He’s a former investment banker at Citi which he did for three years before moving into the online business space.
He’s advised on the sale of several well-known bootstrapped B2B apps including in the sale of Drip back when he worked for FE International. He also helped with sale of apps like LessAccounting, Sifter, Codetree, and HitTail as well, which is another one that I had sold through FE back when David worked with them.
I’ve known David for several years. I met him at a few conferences. I believe he was at Rhodium Weekend, Chris Yates’ event in Vegas years ago. David just has a lot of experience on the sales side and also working with buyers of SaaS apps.
In our conversation, we talk about what valuations look like today and it’s fun because I threw out my rules of thumb and he says, “I think they’re a little bit richer.” He said, “I think they’ve gone up. It’s a little hotter.” My valuations were probably from (let’s say) 2–3 years ago and that’s the beauty of SaaS. It just keeps going up into the right. You can hear us bat back and forth some rules of thumb valuations, both on if you’re going to sell for net profit versus I’m going to sell for revenue multiple, at what point that transitions and then what instances you can sell for profit versus revenue multiple.
We talk about things that sellers do really well and things that some sellers do very poorly. You can mentally evaluate where you, yourself might fall even if you never plan on selling or buying a SaaS company. Still a lot of good information here about how to have a business that is well-documented and that operates well.
Before we dive in, I’ve mentioned this in the past, but through MicroConf we’ve partnered with Basecamp. Basecamp has a 60-second sponsorship slot on this podcast and every once in a while, we’ll get to hear from them. I’m going to roll that right here.
“We ask founders and entrepreneurs why they switched to Basecamp when their company started to grow. Christina had just hired some more people. When it came to internal communication, everything was all over the place. There was more work and more people than before and no way to keep track of it all. Sometimes information was in an email, sometimes in the chat room. They spent too much time on conference calls to figure out what was going on. One day, they almost missed a deadline for an important customer because the information was in the wrong place. She knew they needed to get organized, but all the software she looked at seemed complicated and it would take too long to train everybody.
Then she found Basecamp. Basecamp was all of your internal communication in one place so nothing slips through the cracks. Unlike other tools, Basecamp has an incredibly simple structure organized around your teams and projects. Your team will immediately understand and start using it when they see the two-minute introduction video on our site. Go to basecamp.com to learn more and start a free trial.”
Thanks again to Basecamp and I hope you enjoy my conversation today with David Newell.
David Newell, thank you so much for joining me on the show today.
David: Thank you.
Rob: As I said in your intro, you’re a Senior Advisor at Quiet Light Brokerage and you specialize in SaaS. I wanted to have you on the show today because obviously, a huge chunk of our listenership are either SaaS founders, aspiring SaaS founders. I’ve been saying this for years and people don’t tend to believe me. I’ll say you may never sell your business, you may never sell your SaaS app, but my guess is you will. Most people do.
We can point out a few examples, like Yesmail, MailChimp, Basecamp, and Wildbit. There are a couple others, but the majority of people eventually either get tired, get bored, get old and want to retire. They do whatever and they want to get rid of their business. Even if you don’t and you want to run it forever, running it as if it was a saleable asset can make the business more efficient. Not only make it more valuable if you want to sell it, but it can just remove your day-to-day stress and how much you need to be an operator in your business. Just make it a more efficient asset.
David: 100%. It’s very funny, actually, when almost everything that you do to improve the business for sale actually makes the business better operationally. It’s been said to me at least a dozen times when we’ve gone through the prep process for going to market. Owners have said I actually decided that I really, really love my business. I’m not sure whether I want to sell it now, having gone through the kind of understanding that it’s needed to prep it for the market. It’s a philosophy and a mindset that if you build in from the get-go, you’re only going to improve your life operation in and of course when you come to market.
Rob: That’s the thing we’re talking about before we hit record, that whether you’re a seller or whether you’re going to operate your business, thinking like a buyer is just helpful to have that context and that it can improve your business, as you’re saying, operationally. I think a key piece to this is as a listener, if you’re listening to this you think, I never want to buy a business or I never planned to sell a business. I would reconsider that mentally because I thought that I wanted to, and now I’ve sold many. Also, even if you truly never do, still hearing how this works can improve the business you run day-to-day.
As we get into it, I want to set the stage for folks. They may have heard of Quiet Light Brokerage. Quiet Light’s been around for 13 years, you were telling me since 2007. I didn’t realize that they’d been around that long. I’m curious how many deals approximately or just some idea of how large the brokerage is, how many deals you guys do in a year?
David: There are 10 of us now internally working as advisors in the business. The deal count varies by year (I think), but it ranges usually between 75 and 100 close transactions a year. The average is about a million to 1.5. Say, it’s typically around the 75–100 million in close transactions a year.
It’s a lot of activity across a lot of people and a lot of business models around us. We do e-comm, SaaS, and content. We really get to see a lot of different digital business models and interact with a lot of different buyers and sellers.
Rob: Some people hear those numbers and they think that’s not a lot and other people think that’s a lot, depending on the perspective you come from. When I think of building a little business and selling it for a $250,000– $500,000 sale price, you have to do a lot of deals in a year to get to that $100 million mark. I’m curious. Let’s say I own a SaaS app today and I was going to sell through a broker like Quiet Light. What’s the bottom end? It’s seller discretionary earnings, but let’s define that in a minute. Let’s just call it net profit for now. We both know it’s SDE, but what’s the bottom end net profit that would be worth going through a process like this for a SaaS app?
David: I think the floor really for us varies by different advisors. For us, it’s about $100,000. We tend not to list anything below the $250,000–$300,000 mark. There are the more independent brokers or smaller and […] places that might do it. Once you hit that $100,000 threshold in SDE, then it’s very much worth stepping into working with one of the more established brokerages.
Rob: Right. Let’s define SDE. Let’s get into that. Seller Discretionary Earning, the way I’ve heard it described to me or the way I understand it is, it’s your EBITA, it’s your net profit that you would make from the business in a year, but you get to add things back to that.
For example, I always charge my laptop, my cell phone bill, my home internet bill because I work from the house. Some people charge their cars, I don’t know how they justify that if you’re earning a SaaS app, but people charge all types of stuff. I’ll charge trips to conferences. I just charge it all to my business. Even a salary that I take out. All of that, I can add back in because it is profit in essence and I’m just taking out and maybe using for expenses that are maybe on the edge that otherwise, I would just pay for it personally. Is that an accurate representation? Do you have anything to add?
David: Exactly. I think it’s operating profit plus three big categories of expenses. All of your owner compensation, and that could include your health insurance and anything basically attached to you and compensating yourself, dividends and so forth. And like you said, anything that’s personal expenses—travel, meals, accommodation. Just random things that people like to add in to reduce their end-of-year tax bill. The third piece is one-time sunk expenses. For example, you got a trademark that year or you did something like intellectual property work or some legal work that sunk. Anything that’s not going to be recurring or that a new owner taking over the business wouldn’t like routinely have to pay for, so you’ve taken that on, you can add that back. Those three categories of expenses you can add back and then you get to that magic SDE number.
Rob: And then if we were to roll from SDE right into valuations. Let’s talk about SaaS valuations these days. I have some rules of thumb, I’m curious to see if they’re still relatively accurate.
There’s this conversation around selling based on SDE or profit, in a sense, versus selling on revenue multiple. The way I try to describe it is if you have a strategic buyer where they’re going to acquire the company usually with the team and the technology, if I were selling my company and their strategy was buying, I would only sell for a revenue multiple if I were selling a SaaS app.
In addition, there are private equity firms that are paying revenue multiples. Once you get started getting to seven figures, they will pay revenue multiples. This is specifically SaaS because I’m not hearing about this in ecommerce and I’m not hearing about this in content sites, but SaaS is hot these days. Versus selling on the net profit multiple, the SDE multiple.
I’m throwing this out and I want you to counter or correct it. But those tend to be the smaller deals that I hear about. If you’re doing, like you said, $100,000 a year in SDE, then you get a multiple on that. You’re not going to get a multiple on top-line revenue. Where am I correct and incorrect with that analysis?
David: You’re absolutely right. SaaS is very interesting as a valuation landscape. As you said, it’s the only business model that straddles to different valuation approaches. Your earnings led multiple or your revenue led multiple. I guess some of the confusion that comes up with that—which one to use when—is really in thinking about where’s the life cycle of the app?
As a rough guide, I would say that the revenue multiple starts to kick in as a valuation approach app, like you said, $1 million in ARR. That’s not an absolutely hard and fast number, but the reason it’s chosen there is typically because the business has started to achieve a level of scale at which the buyers that are operating there, like PE and strategics, feel that its commencer to apply that kind of valuation approach.
There are some other caveats to it, which the business also needs to (at that point) have been really reducing its churn down to 4% or lower per month. It really needs to have a proper team in place, proper CTO, proper development customer support, onboarding, customer enrichment team. All of which would have done the work of reducing the churn component. The last piece is it really needs to be starting to grow very, very strongly, at least 40% year over year in revenue growth.
What you see basically is most apps—you know this, Rob, because you started several yourself—start as they often a single owner operated businesses. You build out the code base, you start getting your customer base, you start generating some earnings, and you can beget to $100,000, $200,000 or $300,000 in MRR. An app can actually get to be relatively profitable if you start adding back your owner compensation.
That’s the kind of early stage life cycle of an app. If you want to, you can exit for an SDE-type multiple. But there’s almost a decision point you need to make there, and I think you did this expertly with Drip, of course, where you just decide, I’m going to start reinvesting all of the profits of the app, everything I have into getting a team in place, into getting proper development, customer support, and start ramping as much as the marketing as possible. You then start to head up to that seven-figure ARR figure and then you’re really solving some of the bigger challenges in the business. You’re taking it from this smaller side project app, if you like, into what starts to look like a proper company.
When it comes to deciding, is my business earnings or revenue multiple based, what does it command, you really have to look at what’s the stage in the life cycle that it’s at, how fast is it growing, does it have a proper company operator surrounding it. That’s going to inform who’s going to be interested in buying the business, which to your point, informs what actual valuation approach it takes.
That’s how the dynamic works. It can vary a bit even around the size because you can still get a revenue multiple for a business that sets (say) $400,000 or $500,000 in ARR because you may have solved all of those problems very quickly and you may have a strategy that’s a great fit knocking on your door. But on average, it tends to be at the seven figure and up.
Rob: Yeah. I’ll keep some folks anonymous for obvious reasons, but through stuff we’ve worked on with TinySeed, I know of a founder who got an offer and accepted it. It was 10X revenue and his revenue was approaching six figures ARR. He’s still in five figures, but he had really good tech and he had just enough traction. It was worth it and he wasn’t going to sell for less. There are always exceptions to the rules, of course, but I like the way you’ve thought about it, the way you described it.
When I think then, let’s talk about selling for SDE multiple. Someone asked me the other day. They said, I have a SaaS app that’s doing a couple hundred grand a year in net profit. What type of valuation should I expect? I said it depends on how fast it’s growing and stages, that and stuff, but I would think 3–4 times your annual net profit or your SDE.
Often, when I run a loose rule of thumb, I’d go 3½ is a typical one I use today. And then I said if it’s flat or declining, it might be something a business that I sold, that you and I worked on several years back. If I recall it, it was like 2.7X because it was either flat or actively declining a few percent per month that time. Of course, I was willing to sell it because it was still a nice chunk of cash for me and I had so much else going on that I just wasn’t going to turn it around. With that range in mind, what do you think?
David: I think the markets probably got a little bit more buoyant since then, which is good for sellers. I would say that now, the typical range is between three and five. The median, I would say is probably 3.8, 3.9 or so. The big informing, there’s always multiple variables that really define where you fall in that range, but I think the big things are really age, growth, churn, and owner time. Obviously in the one that we worked on.
Typically, you probably wouldn’t try and list something like that. We felt that we like the underlying app and even with slight decline, we probably got away with it. And we did at the end. I think 3–5 is a solid range to think about. If I think of an app that’s doing 25% growth year over year, that (say) 20 hours of work a week and maybe they’re 2 or 3 years old, that’s probably going to come on to something around the kind of 3.7–3.8 level with relatively low churn.
Rob: Yeah. This is great. I was doing this buying and selling stuff before I knew about any of the brokers. Really before the brokerage ecosystem had evolved in our space. I was buying and selling on SitePoint, and then on Flippa when it came around. The multiples there were 12–18 months of net profit. It was really gnarly.
David: It was the Wild West back then.
Rob: It was and it was tough. I bought a few deals I just got completely screwed on and then I got several deals that allowed me to quit my job. But I, for one, like the fact that we do have this. As a seller of apps, as a builder, as a maker, I think the fact that we have raised that multiple for SaaS, that this 3X–5X range exists, and then we all know that because it was really helpful.
It was similar to buying and selling real estate. Yes, we have Comps, Zillow, and Redfin. You can get an idea of what something’s worth versus certain assets like art of really expensive silver-age comic books. It’s not as liquid a market and often it’s hard to really find out how much this thing is worth. Having these rules of thumb is helpful for us as an industry. It just allows there to be more of a liquid space because buyers don’t come and think, I want 1X, and sellers aren’t thinking, I want 10x. That’s an illiquid market. The closer we can narrow it down to where everybody’s on the same page you’re coming to a transaction, the more likely it is to go through.
David: Yeah. Not to pat myself too much on the back here, a lot of that actual improvement evaluation has come from professionalization at the secondary market and that has come from a lot of advisors working really hard to present deals better, get better metrics, do a lot of buyer and seller education and just make the whole ecosystem way more transparent and robust now. That’s why the numbers have gone to where they are.
Rob: Yeah, I would agree with that. Those are SDE (Seller Discretionary Earnings) which again, in my mind it translates to net profit valuations. If we’re going to talk about revenue valuations, I don’t think we spent too much time on it, but again, when I think of an app that’s growing (like you said) 40% a year more, hits that seven-figure ARR mark, again, as a seller I would always do forward-looking ARR especially if I was growing. Meaning you take the current month then multiply it by 12. You don’t look back at the last 12 months.
I would think if I got to that million-dollar mark, then I’d be looking at between maybe 2X and 4X of revenue. As they start to get up to $3, $4, $5 million, I’m thinking 3X–5X, 3X–6X revenue. It can go up and down from there. Obviously, a lot of factors, but is my mental model (you think) is accurate or what are you seeing in the market today?
David: I think it’s probably a little richer again. This is a difficult one because as you know and you’ve seen a lot in TinySeed, there’s a big distortion factor between where should […] can come in on specific deals, when the right stars align, and where private equity (I think) arguably set a more stable financial approach to valuing businesses. I tend to try and stick with the financial private equity model because you never know when the strategics are going to come in with the whacking multiple that makes sense specifically for them.
I look a lot at this concept of the rule of 40 when it comes to revenue businesses. That’s a revenue multiple in SaaS businesses. That’s basically if the businesses’ revenue growth plus its EBITDA margin for that year is at or above 40%. Let’s say it’s growing at 35% year over year and it’s got 5% in EBITDA margin, then it’s just to that threshold. It starts to command (probably at that point) around the 3½X–4X revenue, and then every kind of meaningful step-up is above that level. If it’s growing 50% year over year or 55% year over year and has a 5% EBITDA margin, add it together it gets to 60%. Then, it’s 20% north of that rule of 40 number, so it really starts to approach higher than that. All of that needs to be qualified with the quality of that revenue growth, which then feeds into what’s going on with the churn number.
The range that I think balances revenue multiple would stretch if we’re just talking about where PE guys land. Yes, anywhere between two at the bottom, where something that’s really, really flat, stretching up to eight times of seeing private equity guys comfortably go to, they tend to tap out a bit after that. Then, north of that is very much the realm of strategics. That’s very, very specific and unique to the deal in question.
Rob: And the higher the revenue, the multiple it tends to edge up to you. If you’re at $2 million ARR versus $8 million ARR, it’s a different conversation.
David: 100%. That’s the same across every business model. The reason for that is simple, which is that it’s much harder to grow faster in a scale and you have a much more valuable business oversee your scale than you do believe that. If you’re continuing to grow 40% year over year doing $10 million in ARR versus $1 million then yeah, it’s going to be a meaningful shift in multiple.
Rob: I want to mix it up a little bit. You’ve done a lot of deals in your career, but maybe if you can think back to an example in your head of a deal that you worked on in the past year where you’re representing a seller. First, I want to talk about—obviously, we’ll keep it anonymous because of NDAs and all of that—when was a deal where you felt like the seller just did everything right, had all their ducks in a row and as an advisor, it was just a really, really easy deal to present and it was obviously had all right information and stuff?
I love to hear some items on that list where you showed up and this thing is dialed in. Then, we’ll flip and point where someone did everything wrong or most things wrong and maybe hear about the most common pitfalls that people have in businesses that lower their valuations. I really hope the one who did everything wrong was not me. Let’s start with everything right.
David: I think if you want to get the best value in the market, you have to have transparency and you have to be able to display how good a business is. That really pours through into two deep components, which is the SaaS metrics, pertaining to all of your revenue churn, LTV, ARPU, everything. The more granular you can get into that, the better that […], the better. The second is (of course) the financial side of things.
Where I see the biggest challenge come up with SaaS businesses is that, in my experience working with a lot of SaaS businesses, they often have multiple projects on the go at any one point in time. They hold them all under one particular holding company and they share their resources across different apps. Some of which works out, some of which don’t. Which means that you then have this incredibly mixed expense base across all of these different apps. When you go to sell it, it becomes extremely impossible or extremely difficult to articulate to a buyer how much expense should be attributed to a particular app, the particular app in question.
Thinking about this contrast of one business that worked really and one that didn’t, […] six months or so. The biggest marker as a difference was that in the case of the one that was working very well. She turned up everything was incredibly well dialed-in in terms of […] well her metrics. Financials were completely crisp and clear in QuickBooks, isolated within one corporate entity, everything was measured up and tracked. She had IP assignments already in place with third party developers. Measures how to […] documentation, set and ready.
The biggest thing that she did right was she had taken a very, very structured approach to marketing in terms of contacting, lots of affiliates, lots of influences in her space, and put everything that she’d ever done into a spreadsheet in terms of contact information and communication. That was an example of incredible level of detail. But when you could display that to a buyer and say you can literally just pick this up, go, and run with it now, it was a slam dunk going to market. We had incredible success with that and put it under offer very quickly, a very high multiple.
Conversely, just recently, I had a listing where all of the customers have built essentially by wire. Nobody’s using Stripe or any of the classic merchant processes. There’s nothing to plug in in terms of SaaS metrics. There was no tracking of customer numbers, no tracking of any SaaS metrics whatsoever, you just got X dollars in the bank every single month. We like complete opacity into what’s actually going on inside the business.
We essentially had to go back three years and rebuild the customer waterfall chart that you would normally see in biometrics or something by hand, which is very time-consuming. I think he’d run into the same issue, again, with the number side of things. He had multiple app developers working across them all and then you just run into a real problem with buyers around how do they trust the numbers that you’re saying in terms of the expenses associated with it.
It’s a tricky one. To be really honest with you, that situation is not entirely cured through the multiple. I think a lot of the times sellers […] take a whole multiple, one or multiple off my price if I deal with that. Sometimes, actually, it becomes almost impossible to sell. You reduce the trust down because it’s just not enough transparency. I think really having metrics and financials dialed. I know it sounds incredibly basic, but it’s very, very important before coming to market.
Rob: I can imagine it sounds like documentation is a big part of it and just clean finances and clean metrics with SaaS would be the thing. As I think about it, when we go to invest in TinySeed or pre-TinySeed when I would go to invest with my own money, there were just a handful of things I asked for. That’s what it is. It’s like, what do your numbers look like? What’s your funnel look like? What are your conversion rates here and there? And I’d probably dig in more maybe than a buyer of a SaaS app would because growth is the end result of all of that stuff.
When we invest, I’m like, what is your trial-to-pay, what is your visitor-to-trial and all that stuff. It gives me a sense of the business. I’d have a mental model about how SaaS works and I can start fitting it into these buckets. It does make sense that that, to a buyer, especially a savvy buyer, can really describe the health of the business just by having clean finances, clean metrics, and having a reading document in a way that you can prove it out.
I remember when I sold HitTail, I’m trying to think if I had stuff split out and I don’t think I did. Certainly with Drip, by that point I had spun it out into its own S Corp (I think), whereas HitTail was mixed in and I did have to do some pulling apart of expenses. I remember it was a lot of work on my side. It was not an ideal situation. That would certainly be a mistake I wouldn’t make again in the future, is having shared bank accounts, having shared credit cards and all that. It just seemed easy at the time.
Again, it’s that thing of, I don’t think I’ll ever sell this. Then, you get to a point where I want to sell this. Now it’s a real pain in the ass to go back and reconstruct the stuff.
David: You can get away with that to a crazy degree on a smaller sale, which is a situation around HitTail. If you did try to do that with Drip, it would be almost a nonstarter. The challenge is that—this all Rob—when you’re building a business, it can be very easy to get stuck into the operation nuts and bolts and not really zoom out and have to think about that particularly on the finances side of things. I think most of the time people have got the metrics property data, still sit every now and again without paying a bit of a piece. If you start scaling the business, you end up in the situation where you are (I’m saying this) at a reasonable scale, but it looks like a car crash when you look at it from a reporting standpoint.
Rob: Speaking of reporting, there’s obviously these great metrics tools like Baremetrics, ProfitWell, ChatMogul are the three that I hear about most often and frankly a bunch of my investments I use them. If someone uses one of those, is it pretty much a slam dunk for you guys to pull stuff out?
David: Yeah. That stuff is de facto standard now. I think ProfitWell is free as well. It’s no excuse to not use it.
Rob: Yeah, no indeed. In fact, one of the TinySeed companies called Summit—usummit.com—integrates with all three of those and then pulls their data in and does forward-looking projections. If I was a buyer these days, of course I want to look back, but I almost would love to see different scenarios of like, hey, if I can improve this number to this or if I hire a salesperson, I think it’s going to do this, you can project it out. I think that could be a pretty interesting thing moving forward.
I think the founder’s headed where the puck is going in terms of this like SaaS tools, both metrics tools but just all the tools we have to build these apps as they get more and more sophisticated. They can make it just a little bit easier as it gets more competitive. I think we need better tools to be able to keep up.
As we start to wrap up, I want to ask you a little bit on the buy side. I tend to think on the seller side and I know you do, too. As an advisor, you deal with the seller first. You have to get their numbers together, put together a prospectus, and you’re essentially marketing that to buyers.
If there are so many audiences who’re thinking about maybe buying their first SaaS app and whether they have a couple of hundred thousand in cash, which most people don’t—I’m guessing—whether they do have some money to do it or whether they are going to be thinking about doing an SBA loan or come in a little bit of seller financing along with some cash, what are the best buyers have? What do the best buyers do that’s different than deals that are maybe more difficult or they don’t go through because of issues with the buyer?
David: The most intelligent buyers tend to understand that a really successful deal will come together if they go out in partnership with the seller that’s already there. I think they take an extremely collaborative operation even from the outside. As soon as they jump on the call, if they’re like the early call about discovering more about the business, they’ll send you to sign a bill of friendship and relationship right away.
Rather than looking at it as a closed-and-done transaction, where just going to pay the amount, do the due diligence, clays out, and leave it, they realize that the owner is still a massive storehouse of information within the business. That is going to give them, if they can keep them on site and maybe can keep them incentivized to help consult (for example) after the deal, that’s going to be massively conducive to their success in the business. Everyone that I’ve seen is a master operator when it comes to buying the business. That’s a kind of partnership vibe right away and they continue it through due diligence.
That intent to create that deep relationship per sale is incredibly important. Particularly the larger the deal, the more so. Then there’s just so much per sale and any deal that you don’t know fully about the asset that you’re buying, and obviously, you know this Rob to some extent, it was obviously moving over to Lead pages to help the first few months or the first year or so. The same principle applies even on smaller transactions. I think that really, really intelligent buyers get that.
I’d also say we respect their due diligence process as well. They get very deep into ensuring that they’re going to be able to run with the business per sale, so looking a lot into the quality of the codebase, looking how well annotated it is, looking at how documented it is, speaking a lot with the developers to really understand some of the critical components behind it so that you don’t end up in a situation, 3-6 months post sale, where you were tinkering around with the codebase that you don’t fully understand yet, and the seller’s not around and not particularly amenable to helping you.
Everyone that I’ve seen that does very successful by-side work, kind of sticks to those principles and plays them out from offer through due diligence and then to closing.
Rob: All right, David. Thanks so much again for taking some time with me today. Folks want to dig more into this stuff. You’ve done a lot of writing on this topic and one of the articles is like a damn book. It’s like an ebook length for sure. Will link it over the show notes, but it’s called How to Build, Value, and Sell a SaaS Business for Six, Seven or Eight Figures. There are eight different sections and you just talk more in-depth about all the stuff we’ve talked about today. Again, link that up into that show notes.
If folks want to keep up with you at Quiet Light, it’s quietlightbrokerage.com, and on Twitter it’s @quietlightinc.
Thanks again to David for coming on the show. I haven’t done a Q&A episode in a while, but I think in the next one or two episodes, I will be. If you have questions for me or a guest that I bring on the show about this ambitious yet sane SaaS companies, a lot of bootstrap, some self-funded, there’s a few that are raising their angel rounds and they’re indie funded, but just around this idea of building companies where it’s founder first, where founder maintains control, where we focus on building profitable, real companies, real businesses for real customers. Send those questions in questions@startupsfortherestofus.com. Voicemails always go to the top but always happy to accept text questions as well.
Thank you so much for listening and I will talk to you again next Tuesday morning.
He’s advised on the sale of several well-known bootstrapped B2B apps including in the sale of Drip back when he worked for FE International. He also helped with sale of apps like LessAccounting, Sifter, Codetree, and HitTail as well, which is another one that I had sold through FE back when David worked with them.
I’ve known David for several years. I met him at a few conferences. I believe he was at Rhodium Weekend, Chris Yates’ event in Vegas years ago. David just has a lot of experience on the sales side and also working with buyers of SaaS apps.
In our conversation, we talk about what valuations look like today and it’s fun because I threw out my rules of thumb and he says, “I think they’re a little bit richer.” He said, “I think they’ve gone up. It’s a little hotter.” My valuations were probably from (let’s say) 2–3 years ago and that’s the beauty of SaaS. It just keeps going up into the right. You can hear us bat back and forth some rules of thumb valuations, both on if you’re going to sell for net profit versus I’m going to sell for revenue multiple, at what point that transitions and then what instances you can sell for profit versus revenue multiple.
We talk about things that sellers do really well and things that some sellers do very poorly. You can mentally evaluate where you, yourself might fall even if you never plan on selling or buying a SaaS company. Still a lot of good information here about how to have a business that is well-documented and that operates well.
Before we dive in, I’ve mentioned this in the past, but through MicroConf we’ve partnered with Basecamp. Basecamp has a 60-second sponsorship slot on this podcast and every once in a while, we’ll get to hear from them. I’m going to roll that right here.
“We ask founders and entrepreneurs why they switched to Basecamp when their company started to grow. Christina had just hired some more people. When it came to internal communication, everything was all over the place. There was more work and more people than before and no way to keep track of it all. Sometimes information was in an email, sometimes in the chat room. They spent too much time on conference calls to figure out what was going on. One day, they almost missed a deadline for an important customer because the information was in the wrong place. She knew they needed to get organized, but all the software she looked at seemed complicated and it would take too long to train everybody.
Then she found Basecamp. Basecamp was all of your internal communication in one place so nothing slips through the cracks. Unlike other tools, Basecamp has an incredibly simple structure organized around your teams and projects. Your team will immediately understand and start using it when they see the two-minute introduction video on our site. Go to basecamp.com to learn more and start a free trial.”
Thanks again to Basecamp and I hope you enjoy my conversation today with David Newell.
David Newell, thank you so much for joining me on the show today.
David: Thank you.
Rob: As I said in your intro, you’re a Senior Advisor at Quiet Light Brokerage and you specialize in SaaS. I wanted to have you on the show today because obviously, a huge chunk of our listenership are either SaaS founders, aspiring SaaS founders. I’ve been saying this for years and people don’t tend to believe me. I’ll say you may never sell your business, you may never sell your SaaS app, but my guess is you will. Most people do.
We can point out a few examples, like Yesmail, MailChimp, Basecamp, and Wildbit. There are a couple others, but the majority of people eventually either get tired, get bored, get old and want to retire. They do whatever and they want to get rid of their business. Even if you don’t and you want to run it forever, running it as if it was a saleable asset can make the business more efficient. Not only make it more valuable if you want to sell it, but it can just remove your day-to-day stress and how much you need to be an operator in your business. Just make it a more efficient asset.
David: 100%. It’s very funny, actually, when almost everything that you do to improve the business for sale actually makes the business better operationally. It’s been said to me at least a dozen times when we’ve gone through the prep process for going to market. Owners have said I actually decided that I really, really love my business. I’m not sure whether I want to sell it now, having gone through the kind of understanding that it’s needed to prep it for the market. It’s a philosophy and a mindset that if you build in from the get-go, you’re only going to improve your life operation in and of course when you come to market.
Rob: That’s the thing we’re talking about before we hit record, that whether you’re a seller or whether you’re going to operate your business, thinking like a buyer is just helpful to have that context and that it can improve your business, as you’re saying, operationally. I think a key piece to this is as a listener, if you’re listening to this you think, I never want to buy a business or I never planned to sell a business. I would reconsider that mentally because I thought that I wanted to, and now I’ve sold many. Also, even if you truly never do, still hearing how this works can improve the business you run day-to-day.
As we get into it, I want to set the stage for folks. They may have heard of Quiet Light Brokerage. Quiet Light’s been around for 13 years, you were telling me since 2007. I didn’t realize that they’d been around that long. I’m curious how many deals approximately or just some idea of how large the brokerage is, how many deals you guys do in a year?
David: There are 10 of us now internally working as advisors in the business. The deal count varies by year (I think), but it ranges usually between 75 and 100 close transactions a year. The average is about a million to 1.5. Say, it’s typically around the 75–100 million in close transactions a year.
It’s a lot of activity across a lot of people and a lot of business models around us. We do e-comm, SaaS, and content. We really get to see a lot of different digital business models and interact with a lot of different buyers and sellers.
Rob: Some people hear those numbers and they think that’s not a lot and other people think that’s a lot, depending on the perspective you come from. When I think of building a little business and selling it for a $250,000– $500,000 sale price, you have to do a lot of deals in a year to get to that $100 million mark. I’m curious. Let’s say I own a SaaS app today and I was going to sell through a broker like Quiet Light. What’s the bottom end? It’s seller discretionary earnings, but let’s define that in a minute. Let’s just call it net profit for now. We both know it’s SDE, but what’s the bottom end net profit that would be worth going through a process like this for a SaaS app?
David: I think the floor really for us varies by different advisors. For us, it’s about $100,000. We tend not to list anything below the $250,000–$300,000 mark. There are the more independent brokers or smaller and […] places that might do it. Once you hit that $100,000 threshold in SDE, then it’s very much worth stepping into working with one of the more established brokerages.
Rob: Right. Let’s define SDE. Let’s get into that. Seller Discretionary Earning, the way I’ve heard it described to me or the way I understand it is, it’s your EBITA, it’s your net profit that you would make from the business in a year, but you get to add things back to that.
For example, I always charge my laptop, my cell phone bill, my home internet bill because I work from the house. Some people charge their cars, I don’t know how they justify that if you’re earning a SaaS app, but people charge all types of stuff. I’ll charge trips to conferences. I just charge it all to my business. Even a salary that I take out. All of that, I can add back in because it is profit in essence and I’m just taking out and maybe using for expenses that are maybe on the edge that otherwise, I would just pay for it personally. Is that an accurate representation? Do you have anything to add?
David: Exactly. I think it’s operating profit plus three big categories of expenses. All of your owner compensation, and that could include your health insurance and anything basically attached to you and compensating yourself, dividends and so forth. And like you said, anything that’s personal expenses—travel, meals, accommodation. Just random things that people like to add in to reduce their end-of-year tax bill. The third piece is one-time sunk expenses. For example, you got a trademark that year or you did something like intellectual property work or some legal work that sunk. Anything that’s not going to be recurring or that a new owner taking over the business wouldn’t like routinely have to pay for, so you’ve taken that on, you can add that back. Those three categories of expenses you can add back and then you get to that magic SDE number.
Rob: And then if we were to roll from SDE right into valuations. Let’s talk about SaaS valuations these days. I have some rules of thumb, I’m curious to see if they’re still relatively accurate.
There’s this conversation around selling based on SDE or profit, in a sense, versus selling on revenue multiple. The way I try to describe it is if you have a strategic buyer where they’re going to acquire the company usually with the team and the technology, if I were selling my company and their strategy was buying, I would only sell for a revenue multiple if I were selling a SaaS app.
In addition, there are private equity firms that are paying revenue multiples. Once you get started getting to seven figures, they will pay revenue multiples. This is specifically SaaS because I’m not hearing about this in ecommerce and I’m not hearing about this in content sites, but SaaS is hot these days. Versus selling on the net profit multiple, the SDE multiple.
I’m throwing this out and I want you to counter or correct it. But those tend to be the smaller deals that I hear about. If you’re doing, like you said, $100,000 a year in SDE, then you get a multiple on that. You’re not going to get a multiple on top-line revenue. Where am I correct and incorrect with that analysis?
David: You’re absolutely right. SaaS is very interesting as a valuation landscape. As you said, it’s the only business model that straddles to different valuation approaches. Your earnings led multiple or your revenue led multiple. I guess some of the confusion that comes up with that—which one to use when—is really in thinking about where’s the life cycle of the app?
As a rough guide, I would say that the revenue multiple starts to kick in as a valuation approach app, like you said, $1 million in ARR. That’s not an absolutely hard and fast number, but the reason it’s chosen there is typically because the business has started to achieve a level of scale at which the buyers that are operating there, like PE and strategics, feel that its commencer to apply that kind of valuation approach.
There are some other caveats to it, which the business also needs to (at that point) have been really reducing its churn down to 4% or lower per month. It really needs to have a proper team in place, proper CTO, proper development customer support, onboarding, customer enrichment team. All of which would have done the work of reducing the churn component. The last piece is it really needs to be starting to grow very, very strongly, at least 40% year over year in revenue growth.
What you see basically is most apps—you know this, Rob, because you started several yourself—start as they often a single owner operated businesses. You build out the code base, you start getting your customer base, you start generating some earnings, and you can beget to $100,000, $200,000 or $300,000 in MRR. An app can actually get to be relatively profitable if you start adding back your owner compensation.
That’s the kind of early stage life cycle of an app. If you want to, you can exit for an SDE-type multiple. But there’s almost a decision point you need to make there, and I think you did this expertly with Drip, of course, where you just decide, I’m going to start reinvesting all of the profits of the app, everything I have into getting a team in place, into getting proper development, customer support, and start ramping as much as the marketing as possible. You then start to head up to that seven-figure ARR figure and then you’re really solving some of the bigger challenges in the business. You’re taking it from this smaller side project app, if you like, into what starts to look like a proper company.
When it comes to deciding, is my business earnings or revenue multiple based, what does it command, you really have to look at what’s the stage in the life cycle that it’s at, how fast is it growing, does it have a proper company operator surrounding it. That’s going to inform who’s going to be interested in buying the business, which to your point, informs what actual valuation approach it takes.
That’s how the dynamic works. It can vary a bit even around the size because you can still get a revenue multiple for a business that sets (say) $400,000 or $500,000 in ARR because you may have solved all of those problems very quickly and you may have a strategy that’s a great fit knocking on your door. But on average, it tends to be at the seven figure and up.
Rob: Yeah. I’ll keep some folks anonymous for obvious reasons, but through stuff we’ve worked on with TinySeed, I know of a founder who got an offer and accepted it. It was 10X revenue and his revenue was approaching six figures ARR. He’s still in five figures, but he had really good tech and he had just enough traction. It was worth it and he wasn’t going to sell for less. There are always exceptions to the rules, of course, but I like the way you’ve thought about it, the way you described it.
When I think then, let’s talk about selling for SDE multiple. Someone asked me the other day. They said, I have a SaaS app that’s doing a couple hundred grand a year in net profit. What type of valuation should I expect? I said it depends on how fast it’s growing and stages, that and stuff, but I would think 3–4 times your annual net profit or your SDE.
Often, when I run a loose rule of thumb, I’d go 3½ is a typical one I use today. And then I said if it’s flat or declining, it might be something a business that I sold, that you and I worked on several years back. If I recall it, it was like 2.7X because it was either flat or actively declining a few percent per month that time. Of course, I was willing to sell it because it was still a nice chunk of cash for me and I had so much else going on that I just wasn’t going to turn it around. With that range in mind, what do you think?
David: I think the markets probably got a little bit more buoyant since then, which is good for sellers. I would say that now, the typical range is between three and five. The median, I would say is probably 3.8, 3.9 or so. The big informing, there’s always multiple variables that really define where you fall in that range, but I think the big things are really age, growth, churn, and owner time. Obviously in the one that we worked on.
Typically, you probably wouldn’t try and list something like that. We felt that we like the underlying app and even with slight decline, we probably got away with it. And we did at the end. I think 3–5 is a solid range to think about. If I think of an app that’s doing 25% growth year over year, that (say) 20 hours of work a week and maybe they’re 2 or 3 years old, that’s probably going to come on to something around the kind of 3.7–3.8 level with relatively low churn.
Rob: Yeah. This is great. I was doing this buying and selling stuff before I knew about any of the brokers. Really before the brokerage ecosystem had evolved in our space. I was buying and selling on SitePoint, and then on Flippa when it came around. The multiples there were 12–18 months of net profit. It was really gnarly.
David: It was the Wild West back then.
Rob: It was and it was tough. I bought a few deals I just got completely screwed on and then I got several deals that allowed me to quit my job. But I, for one, like the fact that we do have this. As a seller of apps, as a builder, as a maker, I think the fact that we have raised that multiple for SaaS, that this 3X–5X range exists, and then we all know that because it was really helpful.
It was similar to buying and selling real estate. Yes, we have Comps, Zillow, and Redfin. You can get an idea of what something’s worth versus certain assets like art of really expensive silver-age comic books. It’s not as liquid a market and often it’s hard to really find out how much this thing is worth. Having these rules of thumb is helpful for us as an industry. It just allows there to be more of a liquid space because buyers don’t come and think, I want 1X, and sellers aren’t thinking, I want 10x. That’s an illiquid market. The closer we can narrow it down to where everybody’s on the same page you’re coming to a transaction, the more likely it is to go through.
David: Yeah. Not to pat myself too much on the back here, a lot of that actual improvement evaluation has come from professionalization at the secondary market and that has come from a lot of advisors working really hard to present deals better, get better metrics, do a lot of buyer and seller education and just make the whole ecosystem way more transparent and robust now. That’s why the numbers have gone to where they are.
Rob: Yeah, I would agree with that. Those are SDE (Seller Discretionary Earnings) which again, in my mind it translates to net profit valuations. If we’re going to talk about revenue valuations, I don’t think we spent too much time on it, but again, when I think of an app that’s growing (like you said) 40% a year more, hits that seven-figure ARR mark, again, as a seller I would always do forward-looking ARR especially if I was growing. Meaning you take the current month then multiply it by 12. You don’t look back at the last 12 months.
I would think if I got to that million-dollar mark, then I’d be looking at between maybe 2X and 4X of revenue. As they start to get up to $3, $4, $5 million, I’m thinking 3X–5X, 3X–6X revenue. It can go up and down from there. Obviously, a lot of factors, but is my mental model (you think) is accurate or what are you seeing in the market today?
David: I think it’s probably a little richer again. This is a difficult one because as you know and you’ve seen a lot in TinySeed, there’s a big distortion factor between where should […] can come in on specific deals, when the right stars align, and where private equity (I think) arguably set a more stable financial approach to valuing businesses. I tend to try and stick with the financial private equity model because you never know when the strategics are going to come in with the whacking multiple that makes sense specifically for them.
I look a lot at this concept of the rule of 40 when it comes to revenue businesses. That’s a revenue multiple in SaaS businesses. That’s basically if the businesses’ revenue growth plus its EBITDA margin for that year is at or above 40%. Let’s say it’s growing at 35% year over year and it’s got 5% in EBITDA margin, then it’s just to that threshold. It starts to command (probably at that point) around the 3½X–4X revenue, and then every kind of meaningful step-up is above that level. If it’s growing 50% year over year or 55% year over year and has a 5% EBITDA margin, add it together it gets to 60%. Then, it’s 20% north of that rule of 40 number, so it really starts to approach higher than that. All of that needs to be qualified with the quality of that revenue growth, which then feeds into what’s going on with the churn number.
The range that I think balances revenue multiple would stretch if we’re just talking about where PE guys land. Yes, anywhere between two at the bottom, where something that’s really, really flat, stretching up to eight times of seeing private equity guys comfortably go to, they tend to tap out a bit after that. Then, north of that is very much the realm of strategics. That’s very, very specific and unique to the deal in question.
Rob: And the higher the revenue, the multiple it tends to edge up to you. If you’re at $2 million ARR versus $8 million ARR, it’s a different conversation.
David: 100%. That’s the same across every business model. The reason for that is simple, which is that it’s much harder to grow faster in a scale and you have a much more valuable business oversee your scale than you do believe that. If you’re continuing to grow 40% year over year doing $10 million in ARR versus $1 million then yeah, it’s going to be a meaningful shift in multiple.
Rob: I want to mix it up a little bit. You’ve done a lot of deals in your career, but maybe if you can think back to an example in your head of a deal that you worked on in the past year where you’re representing a seller. First, I want to talk about—obviously, we’ll keep it anonymous because of NDAs and all of that—when was a deal where you felt like the seller just did everything right, had all their ducks in a row and as an advisor, it was just a really, really easy deal to present and it was obviously had all right information and stuff?
I love to hear some items on that list where you showed up and this thing is dialed in. Then, we’ll flip and point where someone did everything wrong or most things wrong and maybe hear about the most common pitfalls that people have in businesses that lower their valuations. I really hope the one who did everything wrong was not me. Let’s start with everything right.
David: I think if you want to get the best value in the market, you have to have transparency and you have to be able to display how good a business is. That really pours through into two deep components, which is the SaaS metrics, pertaining to all of your revenue churn, LTV, ARPU, everything. The more granular you can get into that, the better that […], the better. The second is (of course) the financial side of things.
Where I see the biggest challenge come up with SaaS businesses is that, in my experience working with a lot of SaaS businesses, they often have multiple projects on the go at any one point in time. They hold them all under one particular holding company and they share their resources across different apps. Some of which works out, some of which don’t. Which means that you then have this incredibly mixed expense base across all of these different apps. When you go to sell it, it becomes extremely impossible or extremely difficult to articulate to a buyer how much expense should be attributed to a particular app, the particular app in question.
Thinking about this contrast of one business that worked really and one that didn’t, […] six months or so. The biggest marker as a difference was that in the case of the one that was working very well. She turned up everything was incredibly well dialed-in in terms of […] well her metrics. Financials were completely crisp and clear in QuickBooks, isolated within one corporate entity, everything was measured up and tracked. She had IP assignments already in place with third party developers. Measures how to […] documentation, set and ready.
The biggest thing that she did right was she had taken a very, very structured approach to marketing in terms of contacting, lots of affiliates, lots of influences in her space, and put everything that she’d ever done into a spreadsheet in terms of contact information and communication. That was an example of incredible level of detail. But when you could display that to a buyer and say you can literally just pick this up, go, and run with it now, it was a slam dunk going to market. We had incredible success with that and put it under offer very quickly, a very high multiple.
Conversely, just recently, I had a listing where all of the customers have built essentially by wire. Nobody’s using Stripe or any of the classic merchant processes. There’s nothing to plug in in terms of SaaS metrics. There was no tracking of customer numbers, no tracking of any SaaS metrics whatsoever, you just got X dollars in the bank every single month. We like complete opacity into what’s actually going on inside the business.
We essentially had to go back three years and rebuild the customer waterfall chart that you would normally see in biometrics or something by hand, which is very time-consuming. I think he’d run into the same issue, again, with the number side of things. He had multiple app developers working across them all and then you just run into a real problem with buyers around how do they trust the numbers that you’re saying in terms of the expenses associated with it.
It’s a tricky one. To be really honest with you, that situation is not entirely cured through the multiple. I think a lot of the times sellers […] take a whole multiple, one or multiple off my price if I deal with that. Sometimes, actually, it becomes almost impossible to sell. You reduce the trust down because it’s just not enough transparency. I think really having metrics and financials dialed. I know it sounds incredibly basic, but it’s very, very important before coming to market.
Rob: I can imagine it sounds like documentation is a big part of it and just clean finances and clean metrics with SaaS would be the thing. As I think about it, when we go to invest in TinySeed or pre-TinySeed when I would go to invest with my own money, there were just a handful of things I asked for. That’s what it is. It’s like, what do your numbers look like? What’s your funnel look like? What are your conversion rates here and there? And I’d probably dig in more maybe than a buyer of a SaaS app would because growth is the end result of all of that stuff.
When we invest, I’m like, what is your trial-to-pay, what is your visitor-to-trial and all that stuff. It gives me a sense of the business. I’d have a mental model about how SaaS works and I can start fitting it into these buckets. It does make sense that that, to a buyer, especially a savvy buyer, can really describe the health of the business just by having clean finances, clean metrics, and having a reading document in a way that you can prove it out.
I remember when I sold HitTail, I’m trying to think if I had stuff split out and I don’t think I did. Certainly with Drip, by that point I had spun it out into its own S Corp (I think), whereas HitTail was mixed in and I did have to do some pulling apart of expenses. I remember it was a lot of work on my side. It was not an ideal situation. That would certainly be a mistake I wouldn’t make again in the future, is having shared bank accounts, having shared credit cards and all that. It just seemed easy at the time.
Again, it’s that thing of, I don’t think I’ll ever sell this. Then, you get to a point where I want to sell this. Now it’s a real pain in the ass to go back and reconstruct the stuff.
David: You can get away with that to a crazy degree on a smaller sale, which is a situation around HitTail. If you did try to do that with Drip, it would be almost a nonstarter. The challenge is that—this all Rob—when you’re building a business, it can be very easy to get stuck into the operation nuts and bolts and not really zoom out and have to think about that particularly on the finances side of things. I think most of the time people have got the metrics property data, still sit every now and again without paying a bit of a piece. If you start scaling the business, you end up in the situation where you are (I’m saying this) at a reasonable scale, but it looks like a car crash when you look at it from a reporting standpoint.
Rob: Speaking of reporting, there’s obviously these great metrics tools like Baremetrics, ProfitWell, ChatMogul are the three that I hear about most often and frankly a bunch of my investments I use them. If someone uses one of those, is it pretty much a slam dunk for you guys to pull stuff out?
David: Yeah. That stuff is de facto standard now. I think ProfitWell is free as well. It’s no excuse to not use it.
Rob: Yeah, no indeed. In fact, one of the TinySeed companies called Summit—usummit.com—integrates with all three of those and then pulls their data in and does forward-looking projections. If I was a buyer these days, of course I want to look back, but I almost would love to see different scenarios of like, hey, if I can improve this number to this or if I hire a salesperson, I think it’s going to do this, you can project it out. I think that could be a pretty interesting thing moving forward.
I think the founder’s headed where the puck is going in terms of this like SaaS tools, both metrics tools but just all the tools we have to build these apps as they get more and more sophisticated. They can make it just a little bit easier as it gets more competitive. I think we need better tools to be able to keep up.
As we start to wrap up, I want to ask you a little bit on the buy side. I tend to think on the seller side and I know you do, too. As an advisor, you deal with the seller first. You have to get their numbers together, put together a prospectus, and you’re essentially marketing that to buyers.
If there are so many audiences who’re thinking about maybe buying their first SaaS app and whether they have a couple of hundred thousand in cash, which most people don’t—I’m guessing—whether they do have some money to do it or whether they are going to be thinking about doing an SBA loan or come in a little bit of seller financing along with some cash, what are the best buyers have? What do the best buyers do that’s different than deals that are maybe more difficult or they don’t go through because of issues with the buyer?
David: The most intelligent buyers tend to understand that a really successful deal will come together if they go out in partnership with the seller that’s already there. I think they take an extremely collaborative operation even from the outside. As soon as they jump on the call, if they’re like the early call about discovering more about the business, they’ll send you to sign a bill of friendship and relationship right away.
Rather than looking at it as a closed-and-done transaction, where just going to pay the amount, do the due diligence, clays out, and leave it, they realize that the owner is still a massive storehouse of information within the business. That is going to give them, if they can keep them on site and maybe can keep them incentivized to help consult (for example) after the deal, that’s going to be massively conducive to their success in the business. Everyone that I’ve seen is a master operator when it comes to buying the business. That’s a kind of partnership vibe right away and they continue it through due diligence.
That intent to create that deep relationship per sale is incredibly important. Particularly the larger the deal, the more so. Then there’s just so much per sale and any deal that you don’t know fully about the asset that you’re buying, and obviously, you know this Rob to some extent, it was obviously moving over to Lead pages to help the first few months or the first year or so. The same principle applies even on smaller transactions. I think that really, really intelligent buyers get that.
I’d also say we respect their due diligence process as well. They get very deep into ensuring that they’re going to be able to run with the business per sale, so looking a lot into the quality of the codebase, looking how well annotated it is, looking at how documented it is, speaking a lot with the developers to really understand some of the critical components behind it so that you don’t end up in a situation, 3-6 months post sale, where you were tinkering around with the codebase that you don’t fully understand yet, and the seller’s not around and not particularly amenable to helping you.
Everyone that I’ve seen that does very successful by-side work, kind of sticks to those principles and plays them out from offer through due diligence and then to closing.
Rob: All right, David. Thanks so much again for taking some time with me today. Folks want to dig more into this stuff. You’ve done a lot of writing on this topic and one of the articles is like a damn book. It’s like an ebook length for sure. Will link it over the show notes, but it’s called How to Build, Value, and Sell a SaaS Business for Six, Seven or Eight Figures. There are eight different sections and you just talk more in-depth about all the stuff we’ve talked about today. Again, link that up into that show notes.
If folks want to keep up with you at Quiet Light, it’s quietlightbrokerage.com, and on Twitter it’s @quietlightinc.
Thanks again to David for coming on the show. I haven’t done a Q&A episode in a while, but I think in the next one or two episodes, I will be. If you have questions for me or a guest that I bring on the show about this ambitious yet sane SaaS companies, a lot of bootstrap, some self-funded, there’s a few that are raising their angel rounds and they’re indie funded, but just around this idea of building companies where it’s founder first, where founder maintains control, where we focus on building profitable, real companies, real businesses for real customers. Send those questions in questions@startupsfortherestofus.com. Voicemails always go to the top but always happy to accept text questions as well.
Thank you so much for listening and I will talk to you again next Tuesday morning.
Episode 512 | The Power of Options (A Rob Solo Adventure)
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Join us for a Rob Solo Adventure version of Startups for The Rest of Us as Rob Walling talks about the power of optionality. He explores the importance of having different paths and avoiding backing yourself into a corner and being constrained when making important life decisions.
The topics we cover
- 1:27 The story of Gary Gygax and Tactical Studies Rules (TSR)
- 6:56 The Entrepreneurmobile
- 13:00 How to keep your options open
- 17:33 DotNetInvoice and fake reduction of options
Links from the show
- Tactical Studies Rules
- Gary Gygax
- Factoring
- The Entrepreneurmobile
- Episode 510 | The Story of Startups.com
- Episode 496 | The Press Covers Exceptions, Don’t Compare Yourself to Slack or Zoom
How can I support the podcast?
If you enjoyed this episode, let us know by clicking the link and sharing what you learned.
Click here to share your number one takeaway from the episode.
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 your host, Rob Walling. Each week on this show, we talk about ambitious startups, but startups that don’t necessarily need to raise buckets of venture capital. These are companies that build real products and sell them to real customers for real money. Sometimes that’s bootstrapped, sometimes it’s raising a small amount of funding, but it’s really founder controlled, founder focused, and profit-focused companies that provide enormous amounts of leverage due to the amazing software tools that we have to build these SaaS companies today.
If all is going well, as this episode goes live, just a few hours later, I will be doing a five-hour Livestream, microconfremote.com. If you want to get a ticket to that and check out all the amazingness that Producer Xander has put together. I’m going to be interviewing some guests live in a studio in Minneapolis as well as some remote Keynotes, remote conversations, and all kinds of wacky goodness. I hope you’re joining me on that today.
Today I’m flying solo, and I’ve had several interviews and conversations over the past few weeks. I like to mix it up and not just have this be an interview show. Today I want to talk to you about The Power of Options. The power of options is the ability to have a lot of different paths that you can take and then not back yourself into a corner in a way that you’re constrained, and you can’t make choices the way you want to make them because you have essentially painted yourself into a corner or made decisions that eliminate some of your options.
I want to start off with a quick story about a company called Tactical Studies Rules or TSR. TSR was a company formed by Gary Gygax to essentially house and publish Dungeons & Dragons. It’s a game that he co-invented, co-wrote in the ‘70s. He started this company, TSR, to publish the game, basically, because no one else would publish it back in 1974. We all know Dungeons & Dragons became extremely popular, much more popular than any of the other board games of its time. It became really the first role-playing game, the first fantasy RPG.
As TSR became more and more popular, and if we roll into the ‘80s and into the ‘90s—the first edition and the second edition were released—TSR started getting itself into a bit of financial trouble. The challenge with having a publishing company like that where you’re manufacturing things is you have this enormous upfront cost to develop and then to print a product. You print 10,000 or 50,000 books, you’re going to release them on a certain day, and they have to be in physical warehouses. There’s just an enormous amount of capital that has to be outlaid to make that happen.
If it works, then you make some profit, and then you can reinvest that back. But if any of those don’t work, you lose buckets of money. Even if they do work, you have this massive delay between when you invest the money and when you get the capital back. It’s not like software. That’s one of the luxuries that we have in the SaaS space is we don’t have to deal with managing inventory and having inventory sitting in a warehouse. And often, usually, with SaaS, we don’t have to deal with payment terms net 30, net 60, and net 90 where we’re providing a service or product and then not getting paid for it for a while. With TSR or any type of publishing like that, they have to have these massive cash reserves in order to be able to produce the product.
One thing TSR started doing and it was really one of the contributing factors to their demise because TSR sold to a company called Wizards of the Coast in the late ‘90s. TSR went bankrupt is what happened, and they were sold for parts. I believe they had $30 million in debt, and they sold $30 million or $35 million. It wasn’t public, but it was reported to be that much.
In essence, Wizards of the Coast just paid off their debt and I don’t think the shareholders got much (if any) out of that sale. Which is incredible because TSR was the intellectual property holder for an enormously valuable cache of games, characters, copyrights, trademarks, and just stuff that was really valuable, but the fact that they had gotten so far into debt really spelled their demise.
One of the contributing factors to this is they really reduced their options dramatically. The way they did this is to raise capital—I feel they could’ve raised some outside, some venture, some angel, or whatever. I guess they passed that point. But instead of doing that, what they would do is they’d say, okay, we’re going to figure out everything we’re going to launch over the next year. We’re going to go to the market to all the distributors and the retailers, and we’re going to ask them to pre-purchase, to pre-commit to all the purchasing they’re going to do over the next 12 months. Then we’re going to take all those purchase commitments, and we are going to sell those to—in essence, it was like Wall Street. I don’t think it was investment banks, but maybe it was, but they would package them up, and they’d sell them at a discount.
Obviously, Wall Street’s not going to pay 100% of the revenue or of the projected net profit. But maybe they’ll pay 90% or 80%. This is often called factoring where you sell accounts receivable at a discount to get the money now. To be honest, margins in publishing are not that great anyway because of all the physical products that you’re shipping, refunds, returns, and whatever happens there. But in addition, they’re also then factoring stuff, and they were locking themselves into a production schedule a year in advance. They couldn’t respond to competitors very well. They were really not flexible, or they had no dexterity in essence.
One year it went really far south. They got a bunch of returns, they couldn’t respond by reducing the number of products they were going to release, they laid off a bunch of people, and they couldn’t produce the products they had already committed to and presold. They had just reduced their options. They had reduced their options to the point where everything had to go right or else they were up […].
The reason I’m telling you this story is you may not care about this at all, but it’s such a parable of how reducing your options further and further and further can back you into a corner and cause you to have to make bad decisions. Whether those decisions are to have to sell your company for parts, to go bankrupt, to not be able to send your kid to college, or whatever that may be. You want to keep your options open.
In fact, one of the powers of running a startup, one of the powers of running small companies is we have enormous amounts of options. Think about competing against the 900-lbs gorilla, that slow-moving whoever it is—Salesforce or QuickBooks where you know it’s a big company, and they’re planning 6, 9, 12, or 24 months out. Whereas a startup, you can literally plan to do something today, and then tomorrow you get a feature question and you implement it by lunch.
That is one of the superpowers of us. That is one of the Jiu-Jitsu moves of using your competitor’s strengths against them. As a startup, we need to maintain as much optionality as we can. We need to realize the power of having options and keeping our options open.
I want to give you a couple of examples of this that I’ve experienced in my life both with myself, friends, colleagues, relatives, and such. And then I’ll talk a little bit about keeping your options open toward the end of just some guidelines and how I think about it in my life.
Also, there’s a danger of I want to keep all my options open all the time and I’m never going to commit to anything that might reduce optionality. That’s not good either. It can be too extreme and you can be too much of a Jack or Jill of all trades because you don’t want to narrow your focus. You don’t want to get great at any one thing because it removes options. I don’t think that’s a good way to go either.
The first example I want to bring up is this idea of the entrepreneur mobile, which is a concept that I learned about from Dan and Ian on the Tropical MBA. The entrepreneur mobile is the car that you drive as you’re starting your companies. It’s before you’ve made it (so to speak). It’s before you get rich in essence before you make buckets of money. Basically, you buy a cheap car. You buy a used car and you take the money that you didn’t spend on the $500 a month car payment that all your friends have. They did when they got out of college. You take all that money and you build a damn business. This is exactly what I did.
At one point, I’ll say it was around 2010, 2013 range. I had quite a bit of money in the bank. In my first job, I made a minimum wage. My dad was a construction worker. My first job out of college with an engineering degree, I made $17 an hour. I’m guessing it was around $100,000 maybe in the bank that I had just saved. I had sold products, I had worked consulting and just saved this money. It was a lot of money, it was a huge amount of money. The most I’d ever had at that point.
Instead of going out and leasing or buying a brand-new car, a friend of mine at that time already had a credit card debt. Literally had a negative net worth, had his rent payment and this credit card payment, then went and bought a BMW, and had a $500 a month car payment. I couldn’t see doing that. I didn’t want that to drag on my ability to grow businesses.
Sherry and I went to a guy who was referred by a good friend of ours, and I bought a salvage title, which means it had been in a wreck and it had been totaled. It was a salvage title, Buick Rendezvous. I paid right around $9000. I paid cash for it. Never had a car payment. That car lasted me about a decade. I almost never put any money into it.
When I think back about all the money that I saved not buying that BMW, paying the car payment, all the cash I could invest in growing my net worth, and invest in HitTail. There was a reason I had $30,000 to invest in HitTail. It’s because I didn’t go out.
Frankly, I would’ve loved to own a nice car. I actually do appreciate luxury things. But it’s that sacrifice of when you do that, you reduce your options. Because when you have that $500 or $1000 a month drag, it’s a depreciating asset, you reduce your options to go spend $1000 a month on Facebook ads to grow HitTail or to start your next app. As I took all the revenue from HitTail to start Drip. I had options because I kept my options open by not saddling myself to debt.
That’s a big thing. Debt reduces optionality. Debt is the consumption of your future earnings, but you’re consuming them now before you make them. Frankly, having any type of high monthly expense—yes, I’ve owned several homes, and I do still own a home today, but even that I would argue, is that a necessity? Having a large house payment, I’ve seen people be house poor is the term you hear where they buy a house, and then they don’t have any money to do anything else. It can hamper your options. It can hamper your ability to grow a company.
I’ll even take it a step further. One of my relatives owns a good chunk of a construction firm—an electrical contractor. He and I have conversations all the time about keeping options open. The standard model of having, if you’re an electrical contractor in a city, you have an office, you have staff there, and then you have a shop which is a warehouse-ish thing where you store some tools. That’s where the electricians come in to grab stuff. They have stuff shipped there and then you can put out to the job site this and that.
I ask him, “Do you really need an office? Could you go fully remote?” He’s like, “Yeah. I’ve been thinking about it. Nobody does that, but why do we need an office?” We started talking through. He’s like, “They need a little place to ship stuff and a place to store some tools, some assets, or trucks.”
We started looking into a storage facility or buying a warehouse out in a warehouse district where you don’t need an actual office. Because do any of us really need that physical space anymore? Or could you run a fully remote—I almost think of it as a bootstrapped-ish startup or a MicroConf startup, where like I say in the intro of this podcast, it’s an ambitious company. He’s just running an older school company. It’s a construction firm.
The thought there is if you don’t have that office, you just have more options. Could you even start doing work in another state pretty quickly because you don’t always need to open an office? Or could you do it in a different part of your state? You don’t have that rent payment, where does that go now? It could go to the bottom line, you could pull it out, or you could use it to be more efficient or to bid for more jobs. There’s just so much you can do when you have these options and you maintain them.
To be honest, this leads me right in. This is the reason we started TinySeed. I was writing angel checks to startup founders who didn’t want to take venture funding because it put them on a path and it reduced the options they had. They could no longer pull out dividends, they couldn’t have an LLC. There were just certain things that they weren’t able to do, and I was writing angel checks to these companies that can be wildly successful for us. And for us, wildly successful is maybe $5 million or maybe it’s $20 million in ARR, but that can change the founder’s life, and it can provide an amazing return for an investor.
TinySeed was really the way to make that more sustainable because I was frankly running out of allocation. I was so overweight startups at the time. I didn’t want to put more money into them. TinySeed allows us to invest in bootstrap SaaS in a way that really doesn’t reduce their options, in a way that a lot of other funding sources do.
Let me switch up and talk about keeping your options open. A few ways to do that, and I’ve already covered a couple of examples that I’ve said above. But if you think about one is, of course, just keeping your personal spending low. These days, my personal spending is not low. I will admit.
I saw a video of Noah Kagan the other day talking about what he spends in a month. He spends $20,000 a month on his Airbnb in Malibu. His spending is not as low as it used to be. But you know what, he makes a lot of money. He makes $1 million a year. He says it in the video, but it’s a lot. I am at the place now where my spending doesn’t need to be low. I’m willing and able to indulge in some luxuries that I really haven’t my entire entrepreneurial career, and I didn’t until I sold Drip in 2016.
That’s the thing. If you’re not there yet, you’ve got to be willing to do the things that no one else will so you can live like no one else can. Keep your spending low. It’s a big one that people make mistakes about often.
The other one that I think about is if I’m going to build an app on the side, I’m going to keep my day job. I was either working a full-time job, or I was consulting the entire time that I was building my startups. Now, if you have the luxury, if you’ve done really well, if you’ve saved up a year’s worth of salary, good for you. Then you don’t need to do that. If you just want to focus, you don’t need to do that.
We can think of counterexamples of people. If you recall, Colin from Customer.io was on the podcast while back, and he said he and his co-founder just quit their jobs with no customers. I wouldn’t have done that. That would’ve been too scary for me to do. Think about what the worst case was if they failed, they were two developers. This was 2012 or something. They could’ve gotten a job anywhere. The worst-case actually wasn’t that bad, they still had options.
The time when you don’t have options is when you’re like TSR who I mentioned at the top where you have backed yourselves into such a corner that you really don’t have a backup plan. What is the backup plan? It’s to go bankrupt. That’s not much of a backup plan.
Another thing that I’ll throw out to keep options open is until you have enough personal wealth to where you can tie some of it up, invest in a liquid investment. Invest in things that you can buy and sell quickly. Obviously, keeping the cash cushion between three and six months of living expenses is the rule. These days I actually keep a little more than that just given where the economy is, and the fact that I don’t think I want to sell stocks or cryptocurrencies to pay my expenses if there’s a long recession or a long dip in these assets.
If you have a bit of net worth, obviously you can invest in public securities, equities, and such. But I would not be investing in things that are illiquid, personally, until I could literally write that check and not worry about it. Illiquid investments are things like investing in startups where you don’t know if you’re going to get your money back for 5 years, 10 years, or maybe never.
The last thing I’ll throw out on keeping options open is if you are going to take funding, think to yourself, does this reduce optionality? Am I willing to live with the reduced options that I have? Funding is a bit of a random topic. I only bring it up because I had mentioned TinySeed earlier. But day to day, I actually think pretty heavily about which of my decisions are undoable. Being able to undo a decision is an option of sorts.
If I make the decision today to paint this room that I’m in, blue, it’s a pain to undo it, but it’s not actually that bad. I can either repaint it myself, or I can hire someone to do it. If I make the option to sell my startup today and to walk away, that is a very, very hard, near impossible decision to undo. Unless you try to buy it back. That’s just unlikely.
Similarly, in the situation I’m in today, if I buy a car, I want to be pretty sure that I like it. But frankly, if I don’t like it, it is undoable. I might lose a few thousand dollars if I sell and then buy it again, but it is undoable given my current financial situation. Twenty years ago, it would’ve been very difficult to undo because a few thousand dollars would’ve been a major swing. You have to know what is undoable at what time in your life. That’s where having more money makes things more undoable.
It’s pretty interesting. More money gives you more options. And that is one of the pieces of freedom. When I say startups can bring freedom, purpose, and help you maintain healthy relationships, part of that freedom is not just oh, I can work when I want to or I can pick who I work with. But it does just give you a lot of flexibility if you are able to increase your net worth to the point where you do have that life-changing money.
Like Wil Schroter said a few episodes ago, maybe that’s just $200,000, $250,000 in your bank account. You have a lot of options once you have that kind of a cushion. Lastly, and then I’ll wrap up. I also think it’s interesting, I’ve often told the story about when I bought this app called DotNetInvoice. It was one of my first successful apps that I paid $11,000 for. At its peak, I got it to between $3000 and $5000 a month in revenue. It was a one time sale. It really changed my perception on wow, I can do this.
As a solo founder back in 2005, 2006, I can make well more than my house payment just on the internet as a micropreneur, micro ISV. But the interesting thing was, one of the reasons that I really pushed into DotNetInvoice is there was a forcing function on me. My back was to the wall because I’d written this $11,000 check, I hadn’t done very good due diligence, the app was in pretty bad shape, and I was super stressed out. It felt to me like I had reduced my options because I dumped all this money into this thing. I wasn’t super happy with what I had gotten. But it forced me to basically make it work because I couldn’t let that $11,000 go to waste.
Since similarly with HitTail, I paid $30,000 for that. That app was in better shape and I knew more about it. I had done better due diligence. But I felt like my back was to the wall, and I have to make this work because I’ve just spent this much money. What’s interesting is it was a mental forcing function for me to really double down, and in both cases I spent 60 days, working 60 hours a week. These are one of the few seasons in my life where I have worked more than that full time mark in order to get these things done.
But realistically, my back wasn’t to the wall. I hadn’t actually reduced my options that much. I had spent a little bit of cash, but in both cases, it was almost all the cash I had in the bank account. If DotNetInvoice or HitTail had completely failed, we weren’t going to lose our house. We weren’t going to go bankrupt. I had not reduced our options to the point where I had to sell our assets for parts to Wizards of the Coast. It’s really an interesting thing to think about, is there a way to mentally force yourself into feeling like you have reduced options for the potential gain of doing that? Because I’ve done it to myself a few times. Sometimes it can stress you out, maybe it’s not always the ideal situation.
But in those two instances, that did work to motivate me, to push me, to go the extra mile, and to really build these apps up to something that became an amazing ROI for me. Both of which provided a lot of revenue for me to then grow subsequent apps. DotNetInvoice was a big reason I can then buy HitTail years later. And HitTail revenue, net profit was a huge reason that I could start Drip.
All that to say, I was giving a little thought to this fake reduction of options. Where mentally it feels like it’s a forcing function. It feels like I have reduced options, and the only way to go ahead is to press forward, do hard work, and get this done. But when I actually think about it, I still had quite a few options at my disposal.
That’s it for this episode on The Power of Options. Hope you enjoyed it, and I hope to see you at MicroConf Remote today if you wind up hearing this on Tuesday morning. As a heads up, keep your eyes peeled for the first episode of season two of TinySeed Tales. It will be live on this feed in just about 48 hours. Thursday morning, September 3, TinySeed Tales Season Two, Episode One will be live. Every Thursday after that for the next several weeks until this season is wrapped. I will talk to you again next Tuesday morning.
If all is going well, as this episode goes live, just a few hours later, I will be doing a five-hour Livestream, microconfremote.com. If you want to get a ticket to that and check out all the amazingness that Producer Xander has put together. I’m going to be interviewing some guests live in a studio in Minneapolis as well as some remote Keynotes, remote conversations, and all kinds of wacky goodness. I hope you’re joining me on that today.
Today I’m flying solo, and I’ve had several interviews and conversations over the past few weeks. I like to mix it up and not just have this be an interview show. Today I want to talk to you about The Power of Options. The power of options is the ability to have a lot of different paths that you can take and then not back yourself into a corner in a way that you’re constrained, and you can’t make choices the way you want to make them because you have essentially painted yourself into a corner or made decisions that eliminate some of your options.
I want to start off with a quick story about a company called Tactical Studies Rules or TSR. TSR was a company formed by Gary Gygax to essentially house and publish Dungeons & Dragons. It’s a game that he co-invented, co-wrote in the ‘70s. He started this company, TSR, to publish the game, basically, because no one else would publish it back in 1974. We all know Dungeons & Dragons became extremely popular, much more popular than any of the other board games of its time. It became really the first role-playing game, the first fantasy RPG.
As TSR became more and more popular, and if we roll into the ‘80s and into the ‘90s—the first edition and the second edition were released—TSR started getting itself into a bit of financial trouble. The challenge with having a publishing company like that where you’re manufacturing things is you have this enormous upfront cost to develop and then to print a product. You print 10,000 or 50,000 books, you’re going to release them on a certain day, and they have to be in physical warehouses. There’s just an enormous amount of capital that has to be outlaid to make that happen.
If it works, then you make some profit, and then you can reinvest that back. But if any of those don’t work, you lose buckets of money. Even if they do work, you have this massive delay between when you invest the money and when you get the capital back. It’s not like software. That’s one of the luxuries that we have in the SaaS space is we don’t have to deal with managing inventory and having inventory sitting in a warehouse. And often, usually, with SaaS, we don’t have to deal with payment terms net 30, net 60, and net 90 where we’re providing a service or product and then not getting paid for it for a while. With TSR or any type of publishing like that, they have to have these massive cash reserves in order to be able to produce the product.
One thing TSR started doing and it was really one of the contributing factors to their demise because TSR sold to a company called Wizards of the Coast in the late ‘90s. TSR went bankrupt is what happened, and they were sold for parts. I believe they had $30 million in debt, and they sold $30 million or $35 million. It wasn’t public, but it was reported to be that much.
In essence, Wizards of the Coast just paid off their debt and I don’t think the shareholders got much (if any) out of that sale. Which is incredible because TSR was the intellectual property holder for an enormously valuable cache of games, characters, copyrights, trademarks, and just stuff that was really valuable, but the fact that they had gotten so far into debt really spelled their demise.
One of the contributing factors to this is they really reduced their options dramatically. The way they did this is to raise capital—I feel they could’ve raised some outside, some venture, some angel, or whatever. I guess they passed that point. But instead of doing that, what they would do is they’d say, okay, we’re going to figure out everything we’re going to launch over the next year. We’re going to go to the market to all the distributors and the retailers, and we’re going to ask them to pre-purchase, to pre-commit to all the purchasing they’re going to do over the next 12 months. Then we’re going to take all those purchase commitments, and we are going to sell those to—in essence, it was like Wall Street. I don’t think it was investment banks, but maybe it was, but they would package them up, and they’d sell them at a discount.
Obviously, Wall Street’s not going to pay 100% of the revenue or of the projected net profit. But maybe they’ll pay 90% or 80%. This is often called factoring where you sell accounts receivable at a discount to get the money now. To be honest, margins in publishing are not that great anyway because of all the physical products that you’re shipping, refunds, returns, and whatever happens there. But in addition, they’re also then factoring stuff, and they were locking themselves into a production schedule a year in advance. They couldn’t respond to competitors very well. They were really not flexible, or they had no dexterity in essence.
One year it went really far south. They got a bunch of returns, they couldn’t respond by reducing the number of products they were going to release, they laid off a bunch of people, and they couldn’t produce the products they had already committed to and presold. They had just reduced their options. They had reduced their options to the point where everything had to go right or else they were up […].
The reason I’m telling you this story is you may not care about this at all, but it’s such a parable of how reducing your options further and further and further can back you into a corner and cause you to have to make bad decisions. Whether those decisions are to have to sell your company for parts, to go bankrupt, to not be able to send your kid to college, or whatever that may be. You want to keep your options open.
In fact, one of the powers of running a startup, one of the powers of running small companies is we have enormous amounts of options. Think about competing against the 900-lbs gorilla, that slow-moving whoever it is—Salesforce or QuickBooks where you know it’s a big company, and they’re planning 6, 9, 12, or 24 months out. Whereas a startup, you can literally plan to do something today, and then tomorrow you get a feature question and you implement it by lunch.
That is one of the superpowers of us. That is one of the Jiu-Jitsu moves of using your competitor’s strengths against them. As a startup, we need to maintain as much optionality as we can. We need to realize the power of having options and keeping our options open.
I want to give you a couple of examples of this that I’ve experienced in my life both with myself, friends, colleagues, relatives, and such. And then I’ll talk a little bit about keeping your options open toward the end of just some guidelines and how I think about it in my life.
Also, there’s a danger of I want to keep all my options open all the time and I’m never going to commit to anything that might reduce optionality. That’s not good either. It can be too extreme and you can be too much of a Jack or Jill of all trades because you don’t want to narrow your focus. You don’t want to get great at any one thing because it removes options. I don’t think that’s a good way to go either.
The first example I want to bring up is this idea of the entrepreneur mobile, which is a concept that I learned about from Dan and Ian on the Tropical MBA. The entrepreneur mobile is the car that you drive as you’re starting your companies. It’s before you’ve made it (so to speak). It’s before you get rich in essence before you make buckets of money. Basically, you buy a cheap car. You buy a used car and you take the money that you didn’t spend on the $500 a month car payment that all your friends have. They did when they got out of college. You take all that money and you build a damn business. This is exactly what I did.
At one point, I’ll say it was around 2010, 2013 range. I had quite a bit of money in the bank. In my first job, I made a minimum wage. My dad was a construction worker. My first job out of college with an engineering degree, I made $17 an hour. I’m guessing it was around $100,000 maybe in the bank that I had just saved. I had sold products, I had worked consulting and just saved this money. It was a lot of money, it was a huge amount of money. The most I’d ever had at that point.
Instead of going out and leasing or buying a brand-new car, a friend of mine at that time already had a credit card debt. Literally had a negative net worth, had his rent payment and this credit card payment, then went and bought a BMW, and had a $500 a month car payment. I couldn’t see doing that. I didn’t want that to drag on my ability to grow businesses.
Sherry and I went to a guy who was referred by a good friend of ours, and I bought a salvage title, which means it had been in a wreck and it had been totaled. It was a salvage title, Buick Rendezvous. I paid right around $9000. I paid cash for it. Never had a car payment. That car lasted me about a decade. I almost never put any money into it.
When I think back about all the money that I saved not buying that BMW, paying the car payment, all the cash I could invest in growing my net worth, and invest in HitTail. There was a reason I had $30,000 to invest in HitTail. It’s because I didn’t go out.
Frankly, I would’ve loved to own a nice car. I actually do appreciate luxury things. But it’s that sacrifice of when you do that, you reduce your options. Because when you have that $500 or $1000 a month drag, it’s a depreciating asset, you reduce your options to go spend $1000 a month on Facebook ads to grow HitTail or to start your next app. As I took all the revenue from HitTail to start Drip. I had options because I kept my options open by not saddling myself to debt.
That’s a big thing. Debt reduces optionality. Debt is the consumption of your future earnings, but you’re consuming them now before you make them. Frankly, having any type of high monthly expense—yes, I’ve owned several homes, and I do still own a home today, but even that I would argue, is that a necessity? Having a large house payment, I’ve seen people be house poor is the term you hear where they buy a house, and then they don’t have any money to do anything else. It can hamper your options. It can hamper your ability to grow a company.
I’ll even take it a step further. One of my relatives owns a good chunk of a construction firm—an electrical contractor. He and I have conversations all the time about keeping options open. The standard model of having, if you’re an electrical contractor in a city, you have an office, you have staff there, and then you have a shop which is a warehouse-ish thing where you store some tools. That’s where the electricians come in to grab stuff. They have stuff shipped there and then you can put out to the job site this and that.
I ask him, “Do you really need an office? Could you go fully remote?” He’s like, “Yeah. I’ve been thinking about it. Nobody does that, but why do we need an office?” We started talking through. He’s like, “They need a little place to ship stuff and a place to store some tools, some assets, or trucks.”
We started looking into a storage facility or buying a warehouse out in a warehouse district where you don’t need an actual office. Because do any of us really need that physical space anymore? Or could you run a fully remote—I almost think of it as a bootstrapped-ish startup or a MicroConf startup, where like I say in the intro of this podcast, it’s an ambitious company. He’s just running an older school company. It’s a construction firm.
The thought there is if you don’t have that office, you just have more options. Could you even start doing work in another state pretty quickly because you don’t always need to open an office? Or could you do it in a different part of your state? You don’t have that rent payment, where does that go now? It could go to the bottom line, you could pull it out, or you could use it to be more efficient or to bid for more jobs. There’s just so much you can do when you have these options and you maintain them.
To be honest, this leads me right in. This is the reason we started TinySeed. I was writing angel checks to startup founders who didn’t want to take venture funding because it put them on a path and it reduced the options they had. They could no longer pull out dividends, they couldn’t have an LLC. There were just certain things that they weren’t able to do, and I was writing angel checks to these companies that can be wildly successful for us. And for us, wildly successful is maybe $5 million or maybe it’s $20 million in ARR, but that can change the founder’s life, and it can provide an amazing return for an investor.
TinySeed was really the way to make that more sustainable because I was frankly running out of allocation. I was so overweight startups at the time. I didn’t want to put more money into them. TinySeed allows us to invest in bootstrap SaaS in a way that really doesn’t reduce their options, in a way that a lot of other funding sources do.
Let me switch up and talk about keeping your options open. A few ways to do that, and I’ve already covered a couple of examples that I’ve said above. But if you think about one is, of course, just keeping your personal spending low. These days, my personal spending is not low. I will admit.
I saw a video of Noah Kagan the other day talking about what he spends in a month. He spends $20,000 a month on his Airbnb in Malibu. His spending is not as low as it used to be. But you know what, he makes a lot of money. He makes $1 million a year. He says it in the video, but it’s a lot. I am at the place now where my spending doesn’t need to be low. I’m willing and able to indulge in some luxuries that I really haven’t my entire entrepreneurial career, and I didn’t until I sold Drip in 2016.
That’s the thing. If you’re not there yet, you’ve got to be willing to do the things that no one else will so you can live like no one else can. Keep your spending low. It’s a big one that people make mistakes about often.
The other one that I think about is if I’m going to build an app on the side, I’m going to keep my day job. I was either working a full-time job, or I was consulting the entire time that I was building my startups. Now, if you have the luxury, if you’ve done really well, if you’ve saved up a year’s worth of salary, good for you. Then you don’t need to do that. If you just want to focus, you don’t need to do that.
We can think of counterexamples of people. If you recall, Colin from Customer.io was on the podcast while back, and he said he and his co-founder just quit their jobs with no customers. I wouldn’t have done that. That would’ve been too scary for me to do. Think about what the worst case was if they failed, they were two developers. This was 2012 or something. They could’ve gotten a job anywhere. The worst-case actually wasn’t that bad, they still had options.
The time when you don’t have options is when you’re like TSR who I mentioned at the top where you have backed yourselves into such a corner that you really don’t have a backup plan. What is the backup plan? It’s to go bankrupt. That’s not much of a backup plan.
Another thing that I’ll throw out to keep options open is until you have enough personal wealth to where you can tie some of it up, invest in a liquid investment. Invest in things that you can buy and sell quickly. Obviously, keeping the cash cushion between three and six months of living expenses is the rule. These days I actually keep a little more than that just given where the economy is, and the fact that I don’t think I want to sell stocks or cryptocurrencies to pay my expenses if there’s a long recession or a long dip in these assets.
If you have a bit of net worth, obviously you can invest in public securities, equities, and such. But I would not be investing in things that are illiquid, personally, until I could literally write that check and not worry about it. Illiquid investments are things like investing in startups where you don’t know if you’re going to get your money back for 5 years, 10 years, or maybe never.
The last thing I’ll throw out on keeping options open is if you are going to take funding, think to yourself, does this reduce optionality? Am I willing to live with the reduced options that I have? Funding is a bit of a random topic. I only bring it up because I had mentioned TinySeed earlier. But day to day, I actually think pretty heavily about which of my decisions are undoable. Being able to undo a decision is an option of sorts.
If I make the decision today to paint this room that I’m in, blue, it’s a pain to undo it, but it’s not actually that bad. I can either repaint it myself, or I can hire someone to do it. If I make the option to sell my startup today and to walk away, that is a very, very hard, near impossible decision to undo. Unless you try to buy it back. That’s just unlikely.
Similarly, in the situation I’m in today, if I buy a car, I want to be pretty sure that I like it. But frankly, if I don’t like it, it is undoable. I might lose a few thousand dollars if I sell and then buy it again, but it is undoable given my current financial situation. Twenty years ago, it would’ve been very difficult to undo because a few thousand dollars would’ve been a major swing. You have to know what is undoable at what time in your life. That’s where having more money makes things more undoable.
It’s pretty interesting. More money gives you more options. And that is one of the pieces of freedom. When I say startups can bring freedom, purpose, and help you maintain healthy relationships, part of that freedom is not just oh, I can work when I want to or I can pick who I work with. But it does just give you a lot of flexibility if you are able to increase your net worth to the point where you do have that life-changing money.
Like Wil Schroter said a few episodes ago, maybe that’s just $200,000, $250,000 in your bank account. You have a lot of options once you have that kind of a cushion. Lastly, and then I’ll wrap up. I also think it’s interesting, I’ve often told the story about when I bought this app called DotNetInvoice. It was one of my first successful apps that I paid $11,000 for. At its peak, I got it to between $3000 and $5000 a month in revenue. It was a one time sale. It really changed my perception on wow, I can do this.
As a solo founder back in 2005, 2006, I can make well more than my house payment just on the internet as a micropreneur, micro ISV. But the interesting thing was, one of the reasons that I really pushed into DotNetInvoice is there was a forcing function on me. My back was to the wall because I’d written this $11,000 check, I hadn’t done very good due diligence, the app was in pretty bad shape, and I was super stressed out. It felt to me like I had reduced my options because I dumped all this money into this thing. I wasn’t super happy with what I had gotten. But it forced me to basically make it work because I couldn’t let that $11,000 go to waste.
Since similarly with HitTail, I paid $30,000 for that. That app was in better shape and I knew more about it. I had done better due diligence. But I felt like my back was to the wall, and I have to make this work because I’ve just spent this much money. What’s interesting is it was a mental forcing function for me to really double down, and in both cases I spent 60 days, working 60 hours a week. These are one of the few seasons in my life where I have worked more than that full time mark in order to get these things done.
But realistically, my back wasn’t to the wall. I hadn’t actually reduced my options that much. I had spent a little bit of cash, but in both cases, it was almost all the cash I had in the bank account. If DotNetInvoice or HitTail had completely failed, we weren’t going to lose our house. We weren’t going to go bankrupt. I had not reduced our options to the point where I had to sell our assets for parts to Wizards of the Coast. It’s really an interesting thing to think about, is there a way to mentally force yourself into feeling like you have reduced options for the potential gain of doing that? Because I’ve done it to myself a few times. Sometimes it can stress you out, maybe it’s not always the ideal situation.
But in those two instances, that did work to motivate me, to push me, to go the extra mile, and to really build these apps up to something that became an amazing ROI for me. Both of which provided a lot of revenue for me to then grow subsequent apps. DotNetInvoice was a big reason I can then buy HitTail years later. And HitTail revenue, net profit was a huge reason that I could start Drip.
All that to say, I was giving a little thought to this fake reduction of options. Where mentally it feels like it’s a forcing function. It feels like I have reduced options, and the only way to go ahead is to press forward, do hard work, and get this done. But when I actually think about it, I still had quite a few options at my disposal.
That’s it for this episode on The Power of Options. Hope you enjoyed it, and I hope to see you at MicroConf Remote today if you wind up hearing this on Tuesday morning. As a heads up, keep your eyes peeled for the first episode of season two of TinySeed Tales. It will be live on this feed in just about 48 hours. Thursday morning, September 3, TinySeed Tales Season Two, Episode One will be live. Every Thursday after that for the next several weeks until this season is wrapped. I will talk to you again next Tuesday morning.
Episode 511 | Raising Prices & Re-writing Your Codebase
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Show Notes
On today’s episode, Rob chats with Mike Ritchie about how they got their first paying customer in 30 days of launch, listening to your customers, and doing a massive pricing revamp.
SeekWell is looking for a freelance SEO marketer to help grow the top of their funnel. If you have experience in analytics and B2B SaaS marketing, please email Mike at mike@seekwell.io
The topics we cover
- 2:35 How Mike Ritchie and his co-founder, Thabo Fisher of Seekwell discovered the need for their product
- 5:57 Deciding to not go down the venture capital path
- 8:08 Seekwell’s typical customer profile
- 10:01 Getting the first paying customer within 30 days
- 14:26 Rewriting Seekwell’s codebase and doubling down on what customer’s love.
- 16:40 Applying for TinySeed
- 20:03 Raising prices and adjusting Seekwell’s value metric
- 25:53 Examples of creative use cases for Seekwell
- 29:02 Since Seekwell launched, have there been any low points?
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Rob: Welcome to this week’s episode of Startups For The Rest of Us. I’m your host, Rob Walling. This week I’m talking with Mike Ritchie from seekwell.io. They’re a TinySeed batch two company. We’re going to walk through their story, pull out the interesting tidbits, tactical, and inspirational—all the stuff you’re used to from this podcast.
Before we dive in, I want to let you know about a MicroConf Remote, which is our virtual summit coming here on September 1st. New announcement, Jason Fried is going to be answering questions about the process and the journey of building and launching hey.com, which you’ve probably heard about, needs no introduction. The theme behind MicroConf Remote is founder stories, all the keynotes, the advice, and the segments we have going. We have a bunch of creative stuff. I’m super excited about it. Each of them is a story of that app or that founder’s stories of launching and building. We’re going to pull out all the stuff you’ve come to expect from this podcast and from MicroConf. It’s the inspiration, the tactics, and the strategies that can help you continue growing your business.
If you’re interested in that, microconfremote.com. You can grab your ticket, and I’ll see you on September 1st for that live stream. I’m going to be broadcasting live from a studio here. We’re going to actually have a film crew, social distancing, of course. Have a few in-person guests here in Minneapolis as well as some remote folks like Jason Fried and others. Microconfremote.com for the full scoop. As we dive in with my conversation with Mike Ritchie, he is the co-founder of seekwell.io with his co-founder Thabo Fisher. As I’ve mentioned, they’re in TinySeed batch two. Some interesting things about SeekWell. They got their first paying customer within 30 days of launching the app. You’ll hear me ask him how they did that because it doesn’t always happen that way. And how they kept listening to their customers, both from motivation and to keep going, but also to realign the app.
There was a point where they were going to try to go to the venture path. Their thought process there and the experience is useful to founders who might be thinking about it or think it’s the only way to do it, and then have the realization of, we don’t actually need to do that. We don’t need to be a billion-dollar company. We can still build an amazing, life-changing business, even if it’s only a $5 million, $10 million, or $20 million company.
You’ll also get to hear about massive pricing revamp that they did just two or three months ago and hear the results of that. With that, let’s dive into my conversation with Mike Ritchie.
Mike Ritchie, thank you so much for joining me in the show today.
Mike: Hey, Rob. Honored to be here. Thanks for having me, man.
Rob: Absolutely. If folks want to go check out what you’re working on, it’s SeekWell. That’s seekwell.io. You were telling me that you were leading analytics in a FinTech startup, and you realized the need for this kind of tool. To give folks an idea, SeekWell SQL, it adds Structured Query Language to the apps your team already uses including Google Sheets, Excel, Slack, and email. I took that from your website. Do you want to give folks an idea of what are the two most common use cases that customers come to you to solve, and they get a lot of value out of SeekWell for?
Mike: Yeah, absolutely. The way I describe the product is in two ways. One, that we are the SQL app that I wished I had in my last startup. Two, that we’re really push-first analytics. Instead of having to remember the login to your monthly revenue dashboard or having to log in and check new users, we push data out of your team. If you’re a data junkie, you’re an SQL jockey, you can write a couple of SQL queries and get data pushed out to the rest of your team in the places that they’re already hanging out like Google Sheets, email, and Slack.
Rob: Cool. You started working on this in 2017, but you were able to go full time on it in July 2018, so about two years ago. Did you raise funding in order to do that? Or did you have enough money saved that you were able to focus full time?
Mike: Yeah. We actually raised a little bit of money, and that’s what convinced us to go full time. After that, we decided we wanted to raise a lot more money, so we can go really big with the product. We weren’t really able to convince people that it was a billion-dollar opportunity. We ended up wasting a lot of time iterating the product and trying to convince people that we fit that narrative of the billion-dollar story. What we realized when we took a step back was people really love what we had already built. We made a pivot to double down and really focus on things that we were afraid of and the things that differentiated us. That was our foray into raising funds.
Rob: That’s interesting. You go to raise funds, no one’s convinced that it’s a billion-dollar idea, but it’s working anyway. Is that right? People were signing up. People were getting value. You’re making money from this thing. Was there a realization of like, oh, maybe this doesn’t need to be a billion-dollar idea. We can turn it into a great business anyway.?
Mike: It was absolutely that. It was also our customers pulling us back in. We would release features that, again, we thought would pull us in that billion-dollar direction. Our customers say, hey, we don’t want this. We know there are already products that do these sorts of things—really fancy dashboards with maps and 1000 different features or 1000 different ways to look at charts. But what we realized is people really loved what we had built. Our intercom is completely filled with people saying, hey, I love this product. Thank you for building it. We’re thinking, why are we banging our heads against the wall trying to raise more money when we already have a product people love? Let’s just find more of those people.
Rob: Yeah. That’s really what MicroConf, Startups For The Rest of Us, and TinySeed are about. It’s like a billion-dollar opportunity is whatever. We can make up a number—it’s 1 in 1000 or 1 in 10,000. That means there are 999 or 9999 other businesses that can be amazing and life-changing for you as a founder, and frankly, solve a real pain point. Whether it becomes a $1 million, $10 million, or $50 million company, a lot of venture capitalists would look at $50 million in error as an abject failure. Whereas you can build a hell of a business with SeekWell if you get it into eight figures. Was there a mental shift then where you were like, okay, we’re not going to go the VC route. We are just going to focus on building a great product, serving customers, and essentially making it a profitable business?
Mike: Yeah, there was absolutely a shift towards laser-focus on profitability. There’s also a stress shift. We just became a lot less stressed out. I used to work extremely hard. We still all work extremely hard, but there was a lot less pressure of like, hey, you have to hit this one tiny home run of convincing 1 out of 1000 VCs to give you $1 million, give you $2 million. That went away, and we really just focused on making customers happy. That is a lot less stressful to me is one by one, making customers happy. They’re a lot easier to make happy, and that’s a lot more enjoyable.
Rob: Yeah. I often refer to that as asking permission to start a company. That’s how I have viewed venture capital for a decade or more. I see the same thing with filmmakers. If you’re a filmmaker, go make a […] film. Don’t wait around for a movie production company or studio to fund you. I believe it’s Robert Rodriguez, you look at Kevin Smith. There are these independent filmmakers that regrettably, put money on the credit cards, which is not something I would recommend. But Kevin Smith paid clerks for (I believe it was) $25,000 on his credit card. It’s a black and white movie. It’s kind of rough. It’s amateurish. But he went and made a film. He didn’t wait for permission. I think of writers as well. I need an agent. I need a publishing company to endorse me in order to publish a book. No, you don’t. If you’re a good writer, go write your book. Publish it on a blog like Andy Weir did. He wrote The Martian. He started publishing it, serializing it, and people we’re just like, this is amazing. Frankly, it’s a work of fiction, which is often hard to do. If you’re writing non-fiction, I’d say if you build an audience, it’s even easier. You don’t need permission to do this stuff. It sounds like you guys switched that up and said, hey, we don’t need permission if customers are banging at our door to use this tool.
Mike: Yeah. The Martian’s my favorite book, so that’s fitting, I guess.
Rob: Yeah, I love that book. My 14-year-old—who was probably 10 or 11 when we let him listen to it. I was like, It’s a really good book. There’s a lot of f-words in it. It’s funny. Did you see the movie as well?
Mike: Absolutely. I have the audiobook, I have the Kindle version. Kind of a Martian junkie, I guess.
Rob: We’re talking before I hit record. I was asking about your two customer avatars like who are your most common roles in a company that come to SeekWell and get value from it?
Mike: The first demographic we do extremely well with is technical product managers or just technical business people. They aren’t developers. They’re not planning to learn Python. They’re not planning to set up servers and web apps, but they do know SQL. They love it, and they like getting their hands dirty with it. That customer we do extremely well with, the product instantly clicks with them. The two things that click with them obviously is being able to push data out to the rest of their team. A lot of times, those technical product managers are the first data person at a company. They’re responsible for keeping the CEO informed, keeping the CFO informed, and everyone else. The second type of demographic we do really well with is the data person. Once you get into the 200-500 person company level, you generally have a heap of data and generally have a few data analysts. There, we also do really well. Especially those companies that don’t have really well-built out business intelligence. A company like Looker, they might come in and do a whole project to set up a pretty sophisticated data model and all of that type of work. The companies that haven’t done that yet, we also are extremely successful with. I mentioned too earlier, the third one we also do well with is even when that company goes past the point that they have really sophisticated data models. There’s a lot of edge cases that BI tools really do terribly with, especially some of the more traditional business intelligence platforms like Tableau. It’s really bad at pushing data out. It’s really bad at doing ad hoc analysis. It doesn’t have any ability at all to share SQL, with your team which is one of the core value props of SeekWell. You can store, tag, and search any SQL anyone in your team has ever written. It’s value props really resonate with those more scrappy data people.
Rob: I’m jumping around the timeline a bit, but I’d like you to take me back when you first launched. You told me you had your first paying customer within 30 days of launching, which is unusual (I will say). The first question I have is, you knew that you needed this tool at your previous job, did you do any validation? Did you have a conversation? Did you have a launch list? Did you have customers who said, yes, I want that? Or did you just go build it and launch it?
Mike: Yes. I think we did what was the best validation you can do is solve a problem you have yourself. I knew exactly what the solution needed to be. We built versions of it at my last company, but when we’ve really productized it and built it into an application, I already knew every single step that we needed to go through to build the product. I also knew exactly who the target user was and where they might find us. We launched on the G Suite Marketplace sometime in late 2017. From the time I pulled open Google Apps Script, which is what the original version of the product was written in, to the time we had our first paying customer was about 30 days.
Rob: Yeah, that’s crazy. There is a danger with just building for yourself because you can have a problem that is either so unique or maybe you can’t find any of your customers even though other people might need it. Did any of that enter your mind? Or was it, hey, I have this itch that needs scratching. I’m going to build it and I’m just going to expect that there are other people that I will find?
Mike: It definitely entered my mind. It also entered everyone we talked to when they were convinced it wasn’t a billion-dollar company because they just felt it was too small of a niche. I knew there were a lot of people and a lot of companies that were exactly like us out there. I did not know whether they would be interested in using a product like this, especially paying an amount that would make this profitable and great outcome for me and my co-founder. We did not know that going in. The validation was really like, hey, let’s throw this together, put it out there, and see what the response is. And the response was absolutely enough to keep us going.
Rob: Do you think that G Suite launch is still a viable approach today? It was almost three years ago. Because a lot of these things change and it gets too crowded. It becomes less viable over time. What’s your take on G Suite Marketplace?
Mike: Yeah. It was funny you said that. I was poking around in the Form’s marketplace—Google Forms—and there has been an explosion there. There are multiple applications that have millions of users. I think part of it is education. A lot of high schools, colleges, and even middle schools, use Google Sheets and Google Forms. It seemed like a lot of the products were tailored towards solving the problems that teachers, administrators, and schools might have. I think it’s absolutely still viable to build a business. We’ve had several copycats come on and launch similar products. I think we’ve been able to comfortably stay ahead of them. There are a lot of got yous when you’re building something, specifically in G Suite, and especially if you try to depend on Google’s architecture, sort of out of the box functionality of G Suite. The language is Google apps script. They let you pretty much build an entire application for free within the product, and it will run on its own. But the infrastructure has severe scalability and other limitations. There’s a lot of got yous in building one of those products. We’ve, again, been at this for a while and have found a way around all those issues.
Rob: You guys have been growing pretty well. Obviously, as a TinySeed company, I see your metrics. You guys have been growing pretty well over the past year or more. Is there a couple of lead sources or traffic sources? What’s working for you? Is it cold email? There are just so many ways to get new customers into B2B SaaS these days. I’m curious about what’s working for you guys.
Mike: It’s a little bit of everything. We’ve not tried cold emails, that’s on our to-do list. For anyone who hasn’t read it, the book Traction by […] founder is incredible. That’s the methodology we’re following is going through finding channels and running tests. Cold emails are tests we haven’t run yet. Honestly, most of the traffic to date just comes from either content of blog posts that we’ve put out there or just answers we’ve posted on places like Stack Overflow and Quora. It’s really just trying to be helpful on the internet and seeing who responds to that.
Rob: Yeah, overarching sounds like content marketing, but really you’ve focused some specific things on answering questions.
Mike: Absolutely.
Rob: At the end of 2019, which would’ve been around that time you applied for TinySeed, I believe our application was in the month of November 2019. You mentioned to me that you really double down on what customers love about SeekWell, and you completely rewrote your codebase, which is a big risk to do that. You want to walk me through what happened, how you made that decision to do it and did it go well? Was it worth it?
Mike: It goes back to what we’ve talked about before. We were adding features that our customer base, which was growing and happy, didn’t necessarily love. They weren’t things that they really wanted. We were adding those features to try to expand that base. We thought, hey, we might be too niche. What we’ve realized is that adding those features was making the application bloated. It was slowing things down. We weren’t getting those customers that we were going after with this new feature. At the end of 2019, we doubled down on what customers really loved about the application. Just made it blazing fast for the things they really cared about and made the app more stable, better performing, and really just focused on the features that they love.
Rob: Why did you have to rewrite your codebase? That’s something that I tend to discourage people unless something is really a nightmare because it often takes five times longer than you think, and it doesn’t solve as many problems as you think. But there, of course, are exceptions to these. I’m curious why you decided to do it and whether you thought in the end it was a worthwhile decision.
Mike: I’ll answer that last question first. It was absolutely worth it. I learned a lot on the job. I did not go to school for computer science. The first iteration of the application was a lot of googling, a lot of pasting things together, pasting things from Stack Overflow, and just trying to figure out—as we went along—how to build a web application. I learned a ton during that process and realized that there were some major flaws in the way application was designed that were ground level or base flow. We actually were able to launch that new version of the app extremely quickly because of everything that we had learned. We also finally implemented a front end framework that basically tripled, quadrupled the amount of time we’re able to launch the new features in.
Rob: It didn’t triple or quadrupled it, but you’re saying it dropped it dramatically—cut it down in half or more to launch features.
Mike: Absolutely, yeah.
Rob: Around that time—late 2019—you applied to TinySeed. I’m curious, you had already raised a small round, as you’ve mentioned before. You had some traction. You guys were rewriting the app, so I think you were doubling down on the bet. What motivated you to apply for TinySeed? What did you think you would get out of it?
Mike: The two biggest things were, one, we were really looking for a community. At the time, it was just me and my co-founder. Things get lonely as a founder, and there’s not a ton of great communities that are active. Since we were going into this direction of building a profitable company, that we wanted to really focus on profit, TinySeed popped on our radar. It felt like a great program to at least apply to. After talking to Einar, yourself, and Tracy, it just felt like a great place for us. Also, I spoke with a few founders from batch one, and after that conversation, it was already pretty obvious that if you were to accept those, we want to go in.
Rob: Cool. You said two things. You said you want a community, what was the other?
Mike: The cash obviously doesn’t hurt. When I said we raised a small round, it was a very, very, small round. We were digging into savings a bit to keep the company running. Obviously, financial stress was a distraction that we didn’t want. That bit of capital definitely helped alleviate that stress. With our trajectory, we felt pretty good that we wouldn’t need to dig into the cash too heavily. But it was just a good buffer and a good way for us to put some stress at ease.
Rob: Yeah, that makes sense. Folks listening may not know, but in the first month or two of the TinySeed program, we go to the TinySeed playbook where we’ve distilled a decade or more of SaaS knowledge. We start by looking really hard at funnels and different types of marketing funnels—high touch, low touch, and duo funnels (as I call them) that have a bit of both. We really dig in the pricing. We pound pricing into the ground pretty hard and bust everybody’s chops. Most SaaS are not priced correctly if you haven’t really dug into it. We talk about sales, lead generation, and hiring. We spend 5, 6 weeks going through pretty directive. We try to make it 101, but we also have pretty strong recommendations. Part of that is we find that most TinySeed companies adjust their pricing in some way. Maybe it’s a price increase, which is pretty common, but also, there’s the changing of value metric is another big one. For folks who aren’t familiar, if you run an email service provider where people add their subscribers to your system, then typically, you’re going to price based on how many subscribers they have. That’s what the Mailchimp model, the Drip model is. You call the number of subscribers the value metric. Oftentimes, that value metric, if you just take a guess at it, you’re wrong. You don’t know that until 6 or 12 months in. In fact, early Drip pricing, we didn’t charge based on subscriber count. We charged based on the number of new subscribers you received each month. That was a terrible way to go. People didn’t really understand it. We didn’t have expansion revenue. It was a mess. I had taken a guess. I was trying to zig, one other zagged, and it didn’t turn out correctly. Within six or eight months of launching, we switched the value metrics from a number of new subscribers to total subscriber count. That’s what made Drip a great business is the expansion revenue. All that said, there are a bunch of ways to tweak pricing. There are a bunch of ways to start to grow the business. I know that you guys adjusted your pricing value metric. You raised pricing. That was a pretty involved process. You want to talk us through your thought process there and the mental state of what that felt like to do something that could really accelerate growth or it can break your business.
Mike: You absolutely nailed it. We were completely misaligned—the value we were delivering with how we’re charging with pricing. We were pricing pretty much $49 or $99 a month based on a couple of different feature gates and then charging $19 more for each additional user. The fact was that people could get a tremendous amount of value out of the product but just having one user sign in. They might even sign in with a data@theirdomain.com, and then they can do an absolute ton of damage with the product. They can do a ton of automation, and we get a $49 monthly charge out of it. The strategy was to better align the value we’re delivering with the cost or the price of the product. The first thing we did was to try to base it on a sliding scale. In your example of an email provider, the analogy would be to charge based on the pure number of emails that you were sending and just factor it up by some cost per email.
After getting feedback both from our customers, some trusted advisors, TinySeed founders, yourself, and Einar as well, we’ve realized that was going to be way too confusing. Not enough people were going to understand how many (what we call) runs they were going to need coming into the product to really be able to pull the trigger and sign up for a trial with the product. We went back to the drawing board and decided to just make it tier, but based on that same metric so that if you have 10,000 runs, that feels like a lot. Customers were willing to at least try to start a trial there. What we really didn’t want to do is nickel and dime and have your price change for month-to-month and fluctuate every month. That strategy and that pricing model we launched in April. You said the emotional side of it, that was really stressful. We were really worried about whether or not existing customers would be confused like, hey, this is the way I paid today. Now you’re offering this pricing. Or whether or not we’re going to have a huge drop off in trial sign-ups. We don’t really have the volume that you can AB test something like this. We went ahead, launched it, and then tracked metrics closely.
The first thing that happened was that trials did drop. We had also, at the same time, removed our “free plan.” That was what we attributed most of the drop to. Relaunched with a continued free or basic plan, and saw trials tick back up to where we were before the pricing changed. Once we got to that point, we felt comfortable and confident to change. Two to three weeks later, when those trials started to invert, we felt great because we started seeing customers that would’ve been paying $49 a month were now in the $150 or higher plan, and they were all happy. They understood the pricing. They all got unlimited users, which I think used to cause angst. It’s that, should I go around the system? Create this data@mydomain.com to try to skirt the per-user pricing? Now that people have unlimited users, they sign up their entire team—so 12, 15. We have one company that has over 300 users now, and that never would’ve happened before without the unlimited pricing. We’re extremely happy with the results. We definitely have some work to do, but it honestly probably couldn’t have gone any better.
Rob: Yeah. That’s great to hear. It is always stressful to add or remove a credit card upfront, to launch your premium plan, to launch a lower-priced plan, to remove your lower price plan, to increase prices, to change value metrics, or any of these things. It’s terrifying as a founder because you know your numbers, and you know how many people should be converting at this rate. Suddenly, everything goes sideways. You really can damage your business, you can cut your business in half, or you can double it or triple it overnight. Obviously, the goal is to get to the point where you are doubling or tripling that with the same amount of effort. That’s the thing. I’ve been beating this drum. The number one, the biggest lever in SaaS—or in any business—is your pricing. Instead of having to build new features; instead of having to find more customers; instead of having to add more things, get them to invite more users, or whatever; you just change a number. You change numbers on a screen and then your stripe account. Obviously, there’s more to it than that. I’m exaggerating a little bit, but realistically, it’s the least amount of effort if you can optimize that price to accelerate growth. The other thing I want to touch on is you mentioned before you do per-user pricing or per-seat pricing—as I would typically talk about. For folks listening, the rule of thumb is if two people log into your app from the same team, and they see different things, then you can and probably should charge based on seats, based on user logins. But if people can log into Mailchimp—two people log in to Mailchimp—they see the same thing.
You don’t want to charge, as a rule, based on seats because people will do exactly what you said. They’ll just set up data at or support at. They share logins. At that point, they’re trying to work around it and it just doesn’t make sense. It makes a lot of sense that you’ve moved away from it.
So folks have an idea, you talked about your plans before. You do still have a free plan with some manual runs, but as soon as you start automating things, you have $50 a month, $150 a month, $300 a month, and $500 a month. When this works, it’s magical. It’s a massive lever. It’s been about two months since you changed pricing. Obviously, you said you still have work to do, but it sounds like that was a great choice for you.
Mike: Absolutely. Honestly, the only work is that $500 plan tapping it out or capping it there is where we might need to go next. We don’t really have that enterprise, call us type tier, and that’s probably where we need to add.
Rob: As we start to wrap up, I had this thought. Back before we sold Drip, there were certain things that we were trying to automate on a recurring basis. I remember always having to go to Derrick, my co-founder, to say, all right, I need our customer support person to have a button in our admin console that allows them to downgrade someone from this plan to that plan, or allows them to add… There were different add-ons that someone could do. I’m going to pay $30 a month then I get the Salesforce integration. Just little things like that. All it was was a SQL query. In essence, he would go to the Rails console. Before we had a button, he would have to type it in. Then that would get translated into an SQL query that would run against the Postgres database. Is that the kind of thing that you could plugin to SQL? Where hey, I’m going to write this SQL statement once, and then I could just come in and click it like a button. I could have my support person or customer success person come and click it once? This is a long question, but the second part of the question is there were also things that we want to run on a daily or weekly basis to notify our customer success person to be like, hey, we think that this big account might churn. Or here’s a list of accounts that are suddenly inactive and not logging in but pay as more than $300 or $400 a month. Are those use cases that a SaaS founder or a small SaaS team could integrate or could use?
Mike: Yeah, absolutely. I could give a concrete example of how we use it internally. We have a “DevOps” dashboard that just has, like you said, buttons. There are forms, buttons, and we even have a way to just edit an SQL table or the results of an SQL query as if it was a spreadsheet. We have this one dashboard that just has those items on it. Instead of a dashboard with a bunch of charts, it’s a dashboard with a bunch of actions that you can take.
For example, if you need to, on the fly, extend somebody trial or on the fly downgrade somebody for whatever reason, there’s a form that you can just enter the information. You can even have it pre-populate with the only values that are allowed to be entered for that field, and then submit the form or update the spreadsheet.
Again, it’s very much a spreadsheet fill where you just edit it and submit the edits. That’s sort of our solution or answer to that first problem. Again, that harkens back to the last company I was at. There were tons of operations things that we are constantly emailing our DevOps support for to just, like you said, write an SQL query. There might have been an hour-long or two hour-long turnarounds, whereas DevOps can write the query once and then expose it to the rest of their team. That’s kind of the first piece. The second piece is really exactly what the initial insight was around building SeekWell, which is push first. People want data and information pushed to them versus having to remember to go check it. Then, you can obviously schedule it to automate that. We have alerts for, hey, it looks like the usage for this really important account has dramatically dropped off the face of the Earth. We should possibly reach out to that customer, we should check if all of their automation is working, or check if the connection of their database is working. All of those types of alerts, we have to set up. They only send when you actually need to know about it. You can trust that it’s there if you need it, but you’re not distracted or bothered if you don’t need it.
Rob: Yeah, that makes a lot of sense. The last question for you is you’ve been working on this app now for three years (in essence), give or take. Has there been a moment where it just felt like a […] show? I’m basically asking for the low point. Over three years is a long time to ask. Has there been a time where you’ve been so discouraged that you didn’t want to do it or you didn’t think it was going to work? Or maybe when all the servers were done, you thought, we’ve had a good run?
Mike: Oh yeah, man. Every other day. Just kidding. Mid-2019, there were some times like that. We had, again, a product that wasn’t built by an engineer. It was built by someone that was learning as they went. We had issues with our server and scaling. We had issues financially—we’re running out of cash. That was probably the dark time in mid-2019. Again, what really saved us was just listening to customers. Like, hey, we love this thing. You have to fix these couple of items. This is something that will continue to pay for and we love paying for. That was both the low point, but also was when we came out of the trail. That was definitely the hardest point.
Rob: It’s so nice to have those voices because without those customers telling you that, it’s hard to keep going. It’s hard to convince yourself to keep pushing on something that feels like maybe it’s not working, or it’s really pushing against you. Customers that get that much value out of it and telling you to keep going, I have to imagine that was a big help for you.
Mike: Yeah. I had built things before that never got a customer. You can feel on top of the world before you get your first customer. We actually joked about this at my last company is everything runs smoothly until we had our first customers. It’s very easy to completely drop your database schema, make massive changes, and have your app down for hours or days. The other side of that was if you don’t have customers, you don’t know if you’re headed in the right direction. To me, now, that’s even scarier. If you’re building something, get it out there as quickly as you can to get feedback and make sure you’re headed in the right direction before you waste a ton of time.
Rob: Mike Ritchie, thank you so much for joining me on the show, sir. If folks want to check out what you’ve been working on, it’s seekwell.io, and on Twitter, you’re @seekwell_io. Thanks for joining me.
Mike: Thanks, Rob.
Rob: Thanks again to Mike for coming on the show. I haven’t done a listener question call in a while, and I think we’re going to have a listener question episode coming up soon. If you have a question for me or for a guest that I bring on my show, please email questions@startupsfortherestofus.com. The voicemails, if you attach an audio file or send me in Dropbox or Google Drive link, those go to the top of the stack but definitely running low on text questions as well. I would love any questions that you have about SaaS; about building, growing, and launching; and all of those things. Thanks again for joining me this week. I’ll be back in your earbuds next Tuesday morning.
Before we dive in, I want to let you know about a MicroConf Remote, which is our virtual summit coming here on September 1st. New announcement, Jason Fried is going to be answering questions about the process and the journey of building and launching hey.com, which you’ve probably heard about, needs no introduction. The theme behind MicroConf Remote is founder stories, all the keynotes, the advice, and the segments we have going. We have a bunch of creative stuff. I’m super excited about it. Each of them is a story of that app or that founder’s stories of launching and building. We’re going to pull out all the stuff you’ve come to expect from this podcast and from MicroConf. It’s the inspiration, the tactics, and the strategies that can help you continue growing your business.
If you’re interested in that, microconfremote.com. You can grab your ticket, and I’ll see you on September 1st for that live stream. I’m going to be broadcasting live from a studio here. We’re going to actually have a film crew, social distancing, of course. Have a few in-person guests here in Minneapolis as well as some remote folks like Jason Fried and others. Microconfremote.com for the full scoop. As we dive in with my conversation with Mike Ritchie, he is the co-founder of seekwell.io with his co-founder Thabo Fisher. As I’ve mentioned, they’re in TinySeed batch two. Some interesting things about SeekWell. They got their first paying customer within 30 days of launching the app. You’ll hear me ask him how they did that because it doesn’t always happen that way. And how they kept listening to their customers, both from motivation and to keep going, but also to realign the app.
There was a point where they were going to try to go to the venture path. Their thought process there and the experience is useful to founders who might be thinking about it or think it’s the only way to do it, and then have the realization of, we don’t actually need to do that. We don’t need to be a billion-dollar company. We can still build an amazing, life-changing business, even if it’s only a $5 million, $10 million, or $20 million company.
You’ll also get to hear about massive pricing revamp that they did just two or three months ago and hear the results of that. With that, let’s dive into my conversation with Mike Ritchie.
Mike Ritchie, thank you so much for joining me in the show today.
Mike: Hey, Rob. Honored to be here. Thanks for having me, man.
Rob: Absolutely. If folks want to go check out what you’re working on, it’s SeekWell. That’s seekwell.io. You were telling me that you were leading analytics in a FinTech startup, and you realized the need for this kind of tool. To give folks an idea, SeekWell SQL, it adds Structured Query Language to the apps your team already uses including Google Sheets, Excel, Slack, and email. I took that from your website. Do you want to give folks an idea of what are the two most common use cases that customers come to you to solve, and they get a lot of value out of SeekWell for?
Mike: Yeah, absolutely. The way I describe the product is in two ways. One, that we are the SQL app that I wished I had in my last startup. Two, that we’re really push-first analytics. Instead of having to remember the login to your monthly revenue dashboard or having to log in and check new users, we push data out of your team. If you’re a data junkie, you’re an SQL jockey, you can write a couple of SQL queries and get data pushed out to the rest of your team in the places that they’re already hanging out like Google Sheets, email, and Slack.
Rob: Cool. You started working on this in 2017, but you were able to go full time on it in July 2018, so about two years ago. Did you raise funding in order to do that? Or did you have enough money saved that you were able to focus full time?
Mike: Yeah. We actually raised a little bit of money, and that’s what convinced us to go full time. After that, we decided we wanted to raise a lot more money, so we can go really big with the product. We weren’t really able to convince people that it was a billion-dollar opportunity. We ended up wasting a lot of time iterating the product and trying to convince people that we fit that narrative of the billion-dollar story. What we realized when we took a step back was people really love what we had already built. We made a pivot to double down and really focus on things that we were afraid of and the things that differentiated us. That was our foray into raising funds.
Rob: That’s interesting. You go to raise funds, no one’s convinced that it’s a billion-dollar idea, but it’s working anyway. Is that right? People were signing up. People were getting value. You’re making money from this thing. Was there a realization of like, oh, maybe this doesn’t need to be a billion-dollar idea. We can turn it into a great business anyway.?
Mike: It was absolutely that. It was also our customers pulling us back in. We would release features that, again, we thought would pull us in that billion-dollar direction. Our customers say, hey, we don’t want this. We know there are already products that do these sorts of things—really fancy dashboards with maps and 1000 different features or 1000 different ways to look at charts. But what we realized is people really loved what we had built. Our intercom is completely filled with people saying, hey, I love this product. Thank you for building it. We’re thinking, why are we banging our heads against the wall trying to raise more money when we already have a product people love? Let’s just find more of those people.
Rob: Yeah. That’s really what MicroConf, Startups For The Rest of Us, and TinySeed are about. It’s like a billion-dollar opportunity is whatever. We can make up a number—it’s 1 in 1000 or 1 in 10,000. That means there are 999 or 9999 other businesses that can be amazing and life-changing for you as a founder, and frankly, solve a real pain point. Whether it becomes a $1 million, $10 million, or $50 million company, a lot of venture capitalists would look at $50 million in error as an abject failure. Whereas you can build a hell of a business with SeekWell if you get it into eight figures. Was there a mental shift then where you were like, okay, we’re not going to go the VC route. We are just going to focus on building a great product, serving customers, and essentially making it a profitable business?
Mike: Yeah, there was absolutely a shift towards laser-focus on profitability. There’s also a stress shift. We just became a lot less stressed out. I used to work extremely hard. We still all work extremely hard, but there was a lot less pressure of like, hey, you have to hit this one tiny home run of convincing 1 out of 1000 VCs to give you $1 million, give you $2 million. That went away, and we really just focused on making customers happy. That is a lot less stressful to me is one by one, making customers happy. They’re a lot easier to make happy, and that’s a lot more enjoyable.
Rob: Yeah. I often refer to that as asking permission to start a company. That’s how I have viewed venture capital for a decade or more. I see the same thing with filmmakers. If you’re a filmmaker, go make a […] film. Don’t wait around for a movie production company or studio to fund you. I believe it’s Robert Rodriguez, you look at Kevin Smith. There are these independent filmmakers that regrettably, put money on the credit cards, which is not something I would recommend. But Kevin Smith paid clerks for (I believe it was) $25,000 on his credit card. It’s a black and white movie. It’s kind of rough. It’s amateurish. But he went and made a film. He didn’t wait for permission. I think of writers as well. I need an agent. I need a publishing company to endorse me in order to publish a book. No, you don’t. If you’re a good writer, go write your book. Publish it on a blog like Andy Weir did. He wrote The Martian. He started publishing it, serializing it, and people we’re just like, this is amazing. Frankly, it’s a work of fiction, which is often hard to do. If you’re writing non-fiction, I’d say if you build an audience, it’s even easier. You don’t need permission to do this stuff. It sounds like you guys switched that up and said, hey, we don’t need permission if customers are banging at our door to use this tool.
Mike: Yeah. The Martian’s my favorite book, so that’s fitting, I guess.
Rob: Yeah, I love that book. My 14-year-old—who was probably 10 or 11 when we let him listen to it. I was like, It’s a really good book. There’s a lot of f-words in it. It’s funny. Did you see the movie as well?
Mike: Absolutely. I have the audiobook, I have the Kindle version. Kind of a Martian junkie, I guess.
Rob: We’re talking before I hit record. I was asking about your two customer avatars like who are your most common roles in a company that come to SeekWell and get value from it?
Mike: The first demographic we do extremely well with is technical product managers or just technical business people. They aren’t developers. They’re not planning to learn Python. They’re not planning to set up servers and web apps, but they do know SQL. They love it, and they like getting their hands dirty with it. That customer we do extremely well with, the product instantly clicks with them. The two things that click with them obviously is being able to push data out to the rest of their team. A lot of times, those technical product managers are the first data person at a company. They’re responsible for keeping the CEO informed, keeping the CFO informed, and everyone else. The second type of demographic we do really well with is the data person. Once you get into the 200-500 person company level, you generally have a heap of data and generally have a few data analysts. There, we also do really well. Especially those companies that don’t have really well-built out business intelligence. A company like Looker, they might come in and do a whole project to set up a pretty sophisticated data model and all of that type of work. The companies that haven’t done that yet, we also are extremely successful with. I mentioned too earlier, the third one we also do well with is even when that company goes past the point that they have really sophisticated data models. There’s a lot of edge cases that BI tools really do terribly with, especially some of the more traditional business intelligence platforms like Tableau. It’s really bad at pushing data out. It’s really bad at doing ad hoc analysis. It doesn’t have any ability at all to share SQL, with your team which is one of the core value props of SeekWell. You can store, tag, and search any SQL anyone in your team has ever written. It’s value props really resonate with those more scrappy data people.
Rob: I’m jumping around the timeline a bit, but I’d like you to take me back when you first launched. You told me you had your first paying customer within 30 days of launching, which is unusual (I will say). The first question I have is, you knew that you needed this tool at your previous job, did you do any validation? Did you have a conversation? Did you have a launch list? Did you have customers who said, yes, I want that? Or did you just go build it and launch it?
Mike: Yes. I think we did what was the best validation you can do is solve a problem you have yourself. I knew exactly what the solution needed to be. We built versions of it at my last company, but when we’ve really productized it and built it into an application, I already knew every single step that we needed to go through to build the product. I also knew exactly who the target user was and where they might find us. We launched on the G Suite Marketplace sometime in late 2017. From the time I pulled open Google Apps Script, which is what the original version of the product was written in, to the time we had our first paying customer was about 30 days.
Rob: Yeah, that’s crazy. There is a danger with just building for yourself because you can have a problem that is either so unique or maybe you can’t find any of your customers even though other people might need it. Did any of that enter your mind? Or was it, hey, I have this itch that needs scratching. I’m going to build it and I’m just going to expect that there are other people that I will find?
Mike: It definitely entered my mind. It also entered everyone we talked to when they were convinced it wasn’t a billion-dollar company because they just felt it was too small of a niche. I knew there were a lot of people and a lot of companies that were exactly like us out there. I did not know whether they would be interested in using a product like this, especially paying an amount that would make this profitable and great outcome for me and my co-founder. We did not know that going in. The validation was really like, hey, let’s throw this together, put it out there, and see what the response is. And the response was absolutely enough to keep us going.
Rob: Do you think that G Suite launch is still a viable approach today? It was almost three years ago. Because a lot of these things change and it gets too crowded. It becomes less viable over time. What’s your take on G Suite Marketplace?
Mike: Yeah. It was funny you said that. I was poking around in the Form’s marketplace—Google Forms—and there has been an explosion there. There are multiple applications that have millions of users. I think part of it is education. A lot of high schools, colleges, and even middle schools, use Google Sheets and Google Forms. It seemed like a lot of the products were tailored towards solving the problems that teachers, administrators, and schools might have. I think it’s absolutely still viable to build a business. We’ve had several copycats come on and launch similar products. I think we’ve been able to comfortably stay ahead of them. There are a lot of got yous when you’re building something, specifically in G Suite, and especially if you try to depend on Google’s architecture, sort of out of the box functionality of G Suite. The language is Google apps script. They let you pretty much build an entire application for free within the product, and it will run on its own. But the infrastructure has severe scalability and other limitations. There’s a lot of got yous in building one of those products. We’ve, again, been at this for a while and have found a way around all those issues.
Rob: You guys have been growing pretty well. Obviously, as a TinySeed company, I see your metrics. You guys have been growing pretty well over the past year or more. Is there a couple of lead sources or traffic sources? What’s working for you? Is it cold email? There are just so many ways to get new customers into B2B SaaS these days. I’m curious about what’s working for you guys.
Mike: It’s a little bit of everything. We’ve not tried cold emails, that’s on our to-do list. For anyone who hasn’t read it, the book Traction by […] founder is incredible. That’s the methodology we’re following is going through finding channels and running tests. Cold emails are tests we haven’t run yet. Honestly, most of the traffic to date just comes from either content of blog posts that we’ve put out there or just answers we’ve posted on places like Stack Overflow and Quora. It’s really just trying to be helpful on the internet and seeing who responds to that.
Rob: Yeah, overarching sounds like content marketing, but really you’ve focused some specific things on answering questions.
Mike: Absolutely.
Rob: At the end of 2019, which would’ve been around that time you applied for TinySeed, I believe our application was in the month of November 2019. You mentioned to me that you really double down on what customers love about SeekWell, and you completely rewrote your codebase, which is a big risk to do that. You want to walk me through what happened, how you made that decision to do it and did it go well? Was it worth it?
Mike: It goes back to what we’ve talked about before. We were adding features that our customer base, which was growing and happy, didn’t necessarily love. They weren’t things that they really wanted. We were adding those features to try to expand that base. We thought, hey, we might be too niche. What we’ve realized is that adding those features was making the application bloated. It was slowing things down. We weren’t getting those customers that we were going after with this new feature. At the end of 2019, we doubled down on what customers really loved about the application. Just made it blazing fast for the things they really cared about and made the app more stable, better performing, and really just focused on the features that they love.
Rob: Why did you have to rewrite your codebase? That’s something that I tend to discourage people unless something is really a nightmare because it often takes five times longer than you think, and it doesn’t solve as many problems as you think. But there, of course, are exceptions to these. I’m curious why you decided to do it and whether you thought in the end it was a worthwhile decision.
Mike: I’ll answer that last question first. It was absolutely worth it. I learned a lot on the job. I did not go to school for computer science. The first iteration of the application was a lot of googling, a lot of pasting things together, pasting things from Stack Overflow, and just trying to figure out—as we went along—how to build a web application. I learned a ton during that process and realized that there were some major flaws in the way application was designed that were ground level or base flow. We actually were able to launch that new version of the app extremely quickly because of everything that we had learned. We also finally implemented a front end framework that basically tripled, quadrupled the amount of time we’re able to launch the new features in.
Rob: It didn’t triple or quadrupled it, but you’re saying it dropped it dramatically—cut it down in half or more to launch features.
Mike: Absolutely, yeah.
Rob: Around that time—late 2019—you applied to TinySeed. I’m curious, you had already raised a small round, as you’ve mentioned before. You had some traction. You guys were rewriting the app, so I think you were doubling down on the bet. What motivated you to apply for TinySeed? What did you think you would get out of it?
Mike: The two biggest things were, one, we were really looking for a community. At the time, it was just me and my co-founder. Things get lonely as a founder, and there’s not a ton of great communities that are active. Since we were going into this direction of building a profitable company, that we wanted to really focus on profit, TinySeed popped on our radar. It felt like a great program to at least apply to. After talking to Einar, yourself, and Tracy, it just felt like a great place for us. Also, I spoke with a few founders from batch one, and after that conversation, it was already pretty obvious that if you were to accept those, we want to go in.
Rob: Cool. You said two things. You said you want a community, what was the other?
Mike: The cash obviously doesn’t hurt. When I said we raised a small round, it was a very, very, small round. We were digging into savings a bit to keep the company running. Obviously, financial stress was a distraction that we didn’t want. That bit of capital definitely helped alleviate that stress. With our trajectory, we felt pretty good that we wouldn’t need to dig into the cash too heavily. But it was just a good buffer and a good way for us to put some stress at ease.
Rob: Yeah, that makes sense. Folks listening may not know, but in the first month or two of the TinySeed program, we go to the TinySeed playbook where we’ve distilled a decade or more of SaaS knowledge. We start by looking really hard at funnels and different types of marketing funnels—high touch, low touch, and duo funnels (as I call them) that have a bit of both. We really dig in the pricing. We pound pricing into the ground pretty hard and bust everybody’s chops. Most SaaS are not priced correctly if you haven’t really dug into it. We talk about sales, lead generation, and hiring. We spend 5, 6 weeks going through pretty directive. We try to make it 101, but we also have pretty strong recommendations. Part of that is we find that most TinySeed companies adjust their pricing in some way. Maybe it’s a price increase, which is pretty common, but also, there’s the changing of value metric is another big one. For folks who aren’t familiar, if you run an email service provider where people add their subscribers to your system, then typically, you’re going to price based on how many subscribers they have. That’s what the Mailchimp model, the Drip model is. You call the number of subscribers the value metric. Oftentimes, that value metric, if you just take a guess at it, you’re wrong. You don’t know that until 6 or 12 months in. In fact, early Drip pricing, we didn’t charge based on subscriber count. We charged based on the number of new subscribers you received each month. That was a terrible way to go. People didn’t really understand it. We didn’t have expansion revenue. It was a mess. I had taken a guess. I was trying to zig, one other zagged, and it didn’t turn out correctly. Within six or eight months of launching, we switched the value metrics from a number of new subscribers to total subscriber count. That’s what made Drip a great business is the expansion revenue. All that said, there are a bunch of ways to tweak pricing. There are a bunch of ways to start to grow the business. I know that you guys adjusted your pricing value metric. You raised pricing. That was a pretty involved process. You want to talk us through your thought process there and the mental state of what that felt like to do something that could really accelerate growth or it can break your business.
Mike: You absolutely nailed it. We were completely misaligned—the value we were delivering with how we’re charging with pricing. We were pricing pretty much $49 or $99 a month based on a couple of different feature gates and then charging $19 more for each additional user. The fact was that people could get a tremendous amount of value out of the product but just having one user sign in. They might even sign in with a data@theirdomain.com, and then they can do an absolute ton of damage with the product. They can do a ton of automation, and we get a $49 monthly charge out of it. The strategy was to better align the value we’re delivering with the cost or the price of the product. The first thing we did was to try to base it on a sliding scale. In your example of an email provider, the analogy would be to charge based on the pure number of emails that you were sending and just factor it up by some cost per email.
After getting feedback both from our customers, some trusted advisors, TinySeed founders, yourself, and Einar as well, we’ve realized that was going to be way too confusing. Not enough people were going to understand how many (what we call) runs they were going to need coming into the product to really be able to pull the trigger and sign up for a trial with the product. We went back to the drawing board and decided to just make it tier, but based on that same metric so that if you have 10,000 runs, that feels like a lot. Customers were willing to at least try to start a trial there. What we really didn’t want to do is nickel and dime and have your price change for month-to-month and fluctuate every month. That strategy and that pricing model we launched in April. You said the emotional side of it, that was really stressful. We were really worried about whether or not existing customers would be confused like, hey, this is the way I paid today. Now you’re offering this pricing. Or whether or not we’re going to have a huge drop off in trial sign-ups. We don’t really have the volume that you can AB test something like this. We went ahead, launched it, and then tracked metrics closely.
The first thing that happened was that trials did drop. We had also, at the same time, removed our “free plan.” That was what we attributed most of the drop to. Relaunched with a continued free or basic plan, and saw trials tick back up to where we were before the pricing changed. Once we got to that point, we felt comfortable and confident to change. Two to three weeks later, when those trials started to invert, we felt great because we started seeing customers that would’ve been paying $49 a month were now in the $150 or higher plan, and they were all happy. They understood the pricing. They all got unlimited users, which I think used to cause angst. It’s that, should I go around the system? Create this data@mydomain.com to try to skirt the per-user pricing? Now that people have unlimited users, they sign up their entire team—so 12, 15. We have one company that has over 300 users now, and that never would’ve happened before without the unlimited pricing. We’re extremely happy with the results. We definitely have some work to do, but it honestly probably couldn’t have gone any better.
Rob: Yeah. That’s great to hear. It is always stressful to add or remove a credit card upfront, to launch your premium plan, to launch a lower-priced plan, to remove your lower price plan, to increase prices, to change value metrics, or any of these things. It’s terrifying as a founder because you know your numbers, and you know how many people should be converting at this rate. Suddenly, everything goes sideways. You really can damage your business, you can cut your business in half, or you can double it or triple it overnight. Obviously, the goal is to get to the point where you are doubling or tripling that with the same amount of effort. That’s the thing. I’ve been beating this drum. The number one, the biggest lever in SaaS—or in any business—is your pricing. Instead of having to build new features; instead of having to find more customers; instead of having to add more things, get them to invite more users, or whatever; you just change a number. You change numbers on a screen and then your stripe account. Obviously, there’s more to it than that. I’m exaggerating a little bit, but realistically, it’s the least amount of effort if you can optimize that price to accelerate growth. The other thing I want to touch on is you mentioned before you do per-user pricing or per-seat pricing—as I would typically talk about. For folks listening, the rule of thumb is if two people log into your app from the same team, and they see different things, then you can and probably should charge based on seats, based on user logins. But if people can log into Mailchimp—two people log in to Mailchimp—they see the same thing.
You don’t want to charge, as a rule, based on seats because people will do exactly what you said. They’ll just set up data at or support at. They share logins. At that point, they’re trying to work around it and it just doesn’t make sense. It makes a lot of sense that you’ve moved away from it.
So folks have an idea, you talked about your plans before. You do still have a free plan with some manual runs, but as soon as you start automating things, you have $50 a month, $150 a month, $300 a month, and $500 a month. When this works, it’s magical. It’s a massive lever. It’s been about two months since you changed pricing. Obviously, you said you still have work to do, but it sounds like that was a great choice for you.
Mike: Absolutely. Honestly, the only work is that $500 plan tapping it out or capping it there is where we might need to go next. We don’t really have that enterprise, call us type tier, and that’s probably where we need to add.
Rob: As we start to wrap up, I had this thought. Back before we sold Drip, there were certain things that we were trying to automate on a recurring basis. I remember always having to go to Derrick, my co-founder, to say, all right, I need our customer support person to have a button in our admin console that allows them to downgrade someone from this plan to that plan, or allows them to add… There were different add-ons that someone could do. I’m going to pay $30 a month then I get the Salesforce integration. Just little things like that. All it was was a SQL query. In essence, he would go to the Rails console. Before we had a button, he would have to type it in. Then that would get translated into an SQL query that would run against the Postgres database. Is that the kind of thing that you could plugin to SQL? Where hey, I’m going to write this SQL statement once, and then I could just come in and click it like a button. I could have my support person or customer success person come and click it once? This is a long question, but the second part of the question is there were also things that we want to run on a daily or weekly basis to notify our customer success person to be like, hey, we think that this big account might churn. Or here’s a list of accounts that are suddenly inactive and not logging in but pay as more than $300 or $400 a month. Are those use cases that a SaaS founder or a small SaaS team could integrate or could use?
Mike: Yeah, absolutely. I could give a concrete example of how we use it internally. We have a “DevOps” dashboard that just has, like you said, buttons. There are forms, buttons, and we even have a way to just edit an SQL table or the results of an SQL query as if it was a spreadsheet. We have this one dashboard that just has those items on it. Instead of a dashboard with a bunch of charts, it’s a dashboard with a bunch of actions that you can take.
For example, if you need to, on the fly, extend somebody trial or on the fly downgrade somebody for whatever reason, there’s a form that you can just enter the information. You can even have it pre-populate with the only values that are allowed to be entered for that field, and then submit the form or update the spreadsheet.
Again, it’s very much a spreadsheet fill where you just edit it and submit the edits. That’s sort of our solution or answer to that first problem. Again, that harkens back to the last company I was at. There were tons of operations things that we are constantly emailing our DevOps support for to just, like you said, write an SQL query. There might have been an hour-long or two hour-long turnarounds, whereas DevOps can write the query once and then expose it to the rest of their team. That’s kind of the first piece. The second piece is really exactly what the initial insight was around building SeekWell, which is push first. People want data and information pushed to them versus having to remember to go check it. Then, you can obviously schedule it to automate that. We have alerts for, hey, it looks like the usage for this really important account has dramatically dropped off the face of the Earth. We should possibly reach out to that customer, we should check if all of their automation is working, or check if the connection of their database is working. All of those types of alerts, we have to set up. They only send when you actually need to know about it. You can trust that it’s there if you need it, but you’re not distracted or bothered if you don’t need it.
Rob: Yeah, that makes a lot of sense. The last question for you is you’ve been working on this app now for three years (in essence), give or take. Has there been a moment where it just felt like a […] show? I’m basically asking for the low point. Over three years is a long time to ask. Has there been a time where you’ve been so discouraged that you didn’t want to do it or you didn’t think it was going to work? Or maybe when all the servers were done, you thought, we’ve had a good run?
Mike: Oh yeah, man. Every other day. Just kidding. Mid-2019, there were some times like that. We had, again, a product that wasn’t built by an engineer. It was built by someone that was learning as they went. We had issues with our server and scaling. We had issues financially—we’re running out of cash. That was probably the dark time in mid-2019. Again, what really saved us was just listening to customers. Like, hey, we love this thing. You have to fix these couple of items. This is something that will continue to pay for and we love paying for. That was both the low point, but also was when we came out of the trail. That was definitely the hardest point.
Rob: It’s so nice to have those voices because without those customers telling you that, it’s hard to keep going. It’s hard to convince yourself to keep pushing on something that feels like maybe it’s not working, or it’s really pushing against you. Customers that get that much value out of it and telling you to keep going, I have to imagine that was a big help for you.
Mike: Yeah. I had built things before that never got a customer. You can feel on top of the world before you get your first customer. We actually joked about this at my last company is everything runs smoothly until we had our first customers. It’s very easy to completely drop your database schema, make massive changes, and have your app down for hours or days. The other side of that was if you don’t have customers, you don’t know if you’re headed in the right direction. To me, now, that’s even scarier. If you’re building something, get it out there as quickly as you can to get feedback and make sure you’re headed in the right direction before you waste a ton of time.
Rob: Mike Ritchie, thank you so much for joining me on the show, sir. If folks want to check out what you’ve been working on, it’s seekwell.io, and on Twitter, you’re @seekwell_io. Thanks for joining me.
Mike: Thanks, Rob.
Rob: Thanks again to Mike for coming on the show. I haven’t done a listener question call in a while, and I think we’re going to have a listener question episode coming up soon. If you have a question for me or for a guest that I bring on my show, please email questions@startupsfortherestofus.com. The voicemails, if you attach an audio file or send me in Dropbox or Google Drive link, those go to the top of the stack but definitely running low on text questions as well. I would love any questions that you have about SaaS; about building, growing, and launching; and all of those things. Thanks again for joining me this week. I’ll be back in your earbuds next Tuesday morning.
Episode 510 | The Story of Startups.com
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On today’s episode, Rob chats Wil Schroter about the story behind Startups.com, the importance of output vs. hours, being specific about the kind of things you don’t want to do in life, choosing venture capital, and much more.
The topics we cover
- 2:43 How soon after first acquisition did Wil Schroter, CEO and founder of Startups.com, want to start the next thing?
- 5:42 Wil on building an incubator in the early days
- 8:55 History behind swapalease.com
- 11:22 On choosing if and when to take on venture funding and the origins for Startups.com
- 14:19 What is Startups.com and how much revenue does it generate?
- 19:41 Why Wil manages so many aspects of the business
- 23:41 The hardest part of building Startups.com
- 29:58 Wil’s thought process on acquiring companies
Links from the show
- Startups.com
- The Shocking Collapse of Zirtual and Maren Kate’s Next Act (plus How to Hire Well) | Episode 486
- Swapalease.com
- Virtucon Ventures
- Clarity.FM
- Launchrock.com
- Zirtual.com
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Rob: Welcome to this week’s episode of Startups For The Rest of Us. I’m your host, Rob Walling. Every week on this show, we cover topics relating to building and growing startups using an ambitious and sustainable approach. An approach where we’re not willing to sacrifice our health or our relationships to grow our company. This week, I spoke with Wil Schroter. He’s the founder of startups.com which you may have heard of. Startups.com has acquired a number of products that I’m familiar with.
He acquired clarity.fm from Dan Martell. He acquired Zirtual from Maren Kate, who I spoke with 12 or 18 months ago about the crashing and burning and then, the acquisition of that. Wil and his team were the acquirers. Wil’s story is incredible. He started his first company—it was an agency at age 19—while he was at Ohio State, and he went on to exit that in 2003. After that, he started an incubator. Again, this is the 2003-2005 timeframe. It was called Virtucon Ventures. He called it an idea-stage incubator for web startups where he helped conceived and launch companies including swapalease.com and unsubscribe.com.
He thinks venture capital is a poor use of capital. He has liked being the second buyer of a lot of companies. Fascinating story. In 2012, he started startups.com, which he calls the world’s largest startup launch platform based in Columbus, Ohio. Although they are 200 people strong, fully self-funded, and eight figures of revenue, Wil is still involved in doing UX copy work. He said he’s a CFO, the CEO, and he works on the products. Fascinating story from (I would say) kind of a Renaissance man who just has this massive skill set, who’s been doing this for 20 something years, and just has a deep well of knowledge.
Before we dive into our conversation, I want to remind you again of MicroConf remote, which is happening on September 1. It is a virtual event. If you head to microconfremote.com, you can get a ticket and reserve your spot. It is not going to be the typical virtual summit that you are seeing online. Producer Xander and I have put a lot of thought into making this creative, and it’s shaping up to be a great event. I hope you will join us, that’s in microconfremote.com. With that, let’s dive into my conversation with Wil Schroter. Will Schroter, thank you so much for joining me in the podcast today.
Will: Thanks for having me.
Rob: You started your first company at age 19 in college. It’s the story that we see in the films or we see glorified. But you built it into a massive agency—$700 million in revenue, and you exited in 2003. I don’t want to spend too much time diving into that because building an agency is not necessarily in line with what folks want to listen to here. But I’m curious, you sell your company and you obviously walk away with—I’m just going to assume at that revenue level—life-changing money, in a big way. Did you know at that point that you wanted to start the next one? Or did you take a time off, give it a thought, and check out your options?
Will: I was already starting the next thing long before it sold.
Rob: Wow.
Will: I mean you got to figure. I was 27. My career hadn’t even started yet. From my standpoint, life-changing for me was the first time I made over $100,000. I’m not trying to discount making more money, it’s wonderful, but I grew up in a really challenging childhood. I got to tell you, having enough money to know that I can pay my rent next month, it blew my mind the first time I had enough in my bank account. Just being able to pay my bills, it was such a huge departure from what I’ve been used to.
Rob: Yeah. I remember that moment for myself as well. There were a few stages. It was getting to $100,000 where I was like, oh, man, we’re pretty comfortable. Living in California with $100,000 is different than living in the Midwest where I live now. But then there was that moment when there was a next level up. The numbers are going to vary based on your lifestyle and stuff, but it was about $250,000 or $300,000 a year. I remember that being life-changing as well. I appreciate that.
Will: Yeah. People always think that the big cash outnumbers, I tend to tell people and I really, really, try to emphasize that if you can ever take a $250,000 check off the table, it may be the most life-changing money you’ll ever have. Because it’s all the money you need to do all the things that you haven’t been able to do for a very long time. For most people, it won’t be able to. Most people live paycheck to paycheck. Being able to have a little bit of cash can reset the baseline—it’s extraordinary. I don’t think a lot of people think about that.
Rob: Yeah, that’s the thing. It’s such a trip. I hear founders use the phrase life-changing money. Life-changing money, as we’re saying here, is different from what I call sunset money or a lot of people call FU money. FU money is where you don’t ever have to work again, don’t ever have to have a boss again. But life-changing money can literally be $250,000 as you’re saying.
Will: Here’s why. It’s because $250,000, again, let’s calibrate to what area in the world you’re in, not just part of the US you’re at. In most places, it will get you at least close to a down payment on a home. It will allow you to pay off debts you’ve assuredly racked up—your credit card debts, et cetera. It puts some extra cash in the bank. The first time something pops up—I don’t care if it’s a car repair or a doctor issue—you can cover it. If you think about it, most people spend most of their lives just trying to get through a handful of milestones that are massive cost milestones. The purchase of the car, paying off college debt, getting married, you name it. Those were often tens of thousands of dollars problems. Sometimes, $50,000-$100,000 problems, but they’re never million-dollar problems. Really, most of the things that we spend the first 20 years of our career trying to overcome all fall within $250,000.
Rob: Yeah, wise words, sir. You came off of this exit and you started an incubator, which is different than I think. People use incubators or accelerators these days interchangeably, but back then, it was more of folks heard of Idealab in Pasadena. It’s the prototypical one that I remember. Bill Gross started it. It’s where someone—in this case you—comes up with company ideas, startup ideas, and then, it brings people to build them and tries to launch a bunch of different ideas. Does that accurately describe what you were doing?
Will: Yeah. What happened was at the agency, we were one of the first web development agencies, and got paid lots of money to build websites on the internet. It was a combination of me walking in big companies like BMW and Best Buy saying, here’s how to use the internet. Here’s how to use the technology. After a while, I started thinking, I’m the one with the know-how to do this stuff, and I’m the one with the ideas that I’m pitching to these clients. Why keep going to clients? Why not just build this stuff for me, get my own output, and take clients out of the […] together? I started working on building web properties. It was right at the dawn of performance marketing—this was in the early 2000s. A lot of people came in their careers when this was all well-established, whether it’s SEO, PPC, affiliate marketing, et cetera. But right around the turn of the century, all of those things were just getting invented (ironically) from Bill Gross. If you’ve recalled, Bill Gross invented PPC. What was really interesting about all of that is for the first time in history, you could build a company on tens of thousands of dollars because you could pay for your customer acquisition as you did it. Whereas before, you have to dole up tons of money and hope that somebody might show up in non trackable media. I saw that trend—again, I was coming from the agency world—as a different way to be able to build a company. That’s where Virtucon and the companies we built out of that were spawned.
Rob: So many folks who are agencies or freelancers want to get into products. It sounds like—
Will: They should.
Rob: Yeah, exactly. That’s where I came from. I was a software developer, became a consultant, started a micro-agency where I had a few contractors. And I had a few full-time jobs there too, but I have a similar experience as you were. It’s like, I don’t want to build stuff for other people. I want to be creative and build equity. I never felt like I was building much long term value. I didn’t build an agency nearly as large as yours.
Will: By definition, you’re not building long term value. You know, what’s really interesting about all of these is if all you’re doing is charging for your time, you’re always going to be on a treadmill because the time is the treadmill. At some point, you got to be charging for your output, not your time. It’s such a tough transition to make. Client services, professional services, is always the easiest business to get into and the hardest business to get out of. For a lot of folks, we get into it, we get used to getting paid good money, and then like, wow, we want to take a portion of our time, and we want to go build something that will make money while we sleep. The challenge in the delta everybody has is trying to do both—trying to get that other thing off the ground. But it’s a worthy pursuit. Whenever I talk to folks and say, hey, I’m trying to figure out how to get into the product. I’m like that is always the […] evolution.
Rob: Yup. I have some notes here that you’ve launched out of Virtucon, which was the name of the incubator. You launched swapalease.com, which I’ve actually checked out. I browsed looking at people trying to get out of their leases and then like, wow, what would it be like to have a Maserati for four months?
Will: It was interesting. When I was first getting started with the incubator concept, the guys at Swapalease had already started the business. That was the first one. They had an idea of a prototype—in today’s terms, an MVP—but they hadn’t really scaled it. I said, look, I’ve got this model that I’m working at. Let me take that and grow it. That was the first client (if you will) of our incubator. We ended up scaling that pretty quickly. It was doing almost no revenue. And then within the first year or two, we’re doing about $3 million in revenue but on a $1.5 million EBITA. That was all through performance marketing. Remember, this is a long time ago. It’s funny because I haven’t […] the website in years. But I think the design that’s in there was the same one that we used back in 2003. It has not evolved much, but it’s a great business. I started to realize that you could build these small businesses that could start small and either succeed or fail small—which again, at that time, was not the case—and figure out which ones might have some legs. After that, I started five more companies. What was interesting about it is I wasn’t just starting them and saying, hey, let’s see how it goes and somebody else runs them like an angel investor does. I was actually running them, and I mean really running them. Talk about running payroll, doing marketing, and doing finance—you name it. Within five years, I basically had five full-time jobs. Just a side note, not the healthiest way to live.
Rob: It’s such a trip because you and I had traveled very similar paths, although, at that time, I guess you were there from about 2003, or not there. You have started it and worked on Virtucon and these companies from 2003 to about 2011-2012. In that 2000-2005 timeframe, I was launching super small, single founder software products. As pay-per-click, SEO, and affiliate stuff started, I had learned those spaces. That’s how I built these little, micro-companies. If you remove two zeros from a lot of your numbers, I had a collection of about eight or nine web properties. Some were websites, the […] revenue, others were actual downloadable software—people paid a few hundred dollars for it, and I cobbled together a fulltime in income. I was able to escape freelancing, in essence. You were doing it on a much larger scale at that time. It sounds like Virtucon—you self-funded that, correct? There was no venture capital involved.
Will: Correct.
Rob: Okay. You mentioned to me offline that some of the companies that you spawned out of there did wind up taking venture?
Will: Yeah. We just fell into it. We were running one company that was based in Los Angeles. I started spending more and more time in Los Angeles. That’s essentially what got me to move out to California for about 10 years. While I was there, I started to meet some of the local entrepreneurs. This was probably circa 2007, give or take. One of the entrepreneurs I’ve met, an investor, was the guy that just got their name, Mark Suster. Mark blogs a lot over at Upfront Ventures. Mark and Mike Jones, who runs Science, the incubator in Santa Monica as well as he used to be the CEO (for a minute) of Myspace, did a bunch of other things—great guy. Both of them in the same week offered to invest their personal money in one of the projects I was working on, and I hadn’t thought about taking on investors. It just didn’t occur to me. But then, I thought about it and I said, hey, for every one of these companies, as they grow, they’re just going to need exponentially more money, and every dollar I invest in growing one of them is another dollar I can invest in starting another, so sure. That’s a very small amount of money for quite a few people. In all those connections, I started to meet lots of investors. Investors said, hey, what are you going to do next? What are you going to do next? It got really interesting. The last company we did, a company called unsubscribe.com, we were able to raise money for that in about 24 hours. It was just easy. Compare that to the pain and heartache that I went through constantly topping off the bank accounts for all these different companies is hard to turn away. Even during a tough time—2007, 2008 financial crisis—not exactly the easiest time when you’re raising money.
Rob: Yeah. Have you raised money before this?
Will: Never. I was in Columbus, Ohio. At that time, we didn’t have any money. You do things the old fashion way. You just found revenue.
Rob: Right. This landscape is so different today.
Will: Yeah, so different. So different. Now, there’s a $500 million fund in Columbus. I wouldn’t say I necessarily had a bad experience, but I can say this, I had a lot of experience because I had three venture-funded companies at that point. I was running all of them all the same time. I just had this really unusual life experience where I was running five companies at exactly the same time. While one company was practically going bankrupt, the next company was getting an amazing term sheet. While one company was losing its biggest customer, the next company was winning its biggest customer. Five different staff, very different dynamics with each, and I just got all these incredible experiences. I also nearly killed myself, but that’s a separate issue. After a while, I started to spend a lot of time with a lot of founders, coaching them through the process. People would say, hey, I understand you know a lot about starting companies, can you help me understand funding or customer acquisition? I realized what I was particularly good at was teaching people how to build startups. I said, why don’t I figure out how to do that for a little bit? That’s where startups.com came from.
Rob: Right. In 2012, you founded it as startups.co, since you’ve obviously got the killer domain named startups.com. That is so cool.
Will: Very expensive consonant but yeah.
Rob: I’m sure. It’s a good way to put it, man. For folks who aren’t familiar with startups.com, how do you explain it? What’s the elevator pitch?
Will: We teach people how to get ideas out of their heads and into a launch mode. The average person watches Shark Tank, and they say, I want to do something just like what that person said they want to do. They go to start it and they realize they have no idea what they’re doing. There are so many different types of advice out there. There are so many different tools out there. It’s fairly confusing. Some of it is good. Some of it is bad. But what I wanted to do is to create a simple place where people could get the education they needed, a community of people that could actually help them—we’ve got over 20,000 mentors at the ready— and the tools they need to get through the hard parts like raising money, finding your first customer, or putting your plan together, things like that.
Rob: Nice. Yeah, we have a lot of overlap actually. With MicroConf, we do a chunk of that, and then we do in-person events. There’s a Venn diagram. We have education, community, and in-person events, but we don’t have actual software products versus you have actually built yourself up a nice little cache of businesses. You first came on my radar, I believe, when you bought clarity.fm, which I think is now clarity.com. You bought that from Dan Martell several years ago. Folks who listen to this podcast will remember that Maren Kate was on a few months back talking about Zirtual—raising funding, growing that, and unfortunately having it implode on her. You also acquired that from her as well as Launchrock, Fundable, which is a crowdfunding platform, and Bizplan. When you first came up with the idea of startups.com or as you were building it in the early days, were you just planning to do education and community? Or were you thinking from the start, No, I also want to buy other companies, build other products, and bring them under the umbrella?
Will: That was the trick if we want to help people through the startup process, through the launch process, where do you start and where do you end? I’m sure you deal with this exactly in your own business. Do you just give education and say go figure it out from there? Do you just connect them with mentors and say go figure it out from there? Do you just provide one dimension of the problem of the software, which is funding or customer acquisition and say, figure it out from there? We realized that we just couldn’t find a really logical start and a stop point to help people scale. To give you a sense of it, there are 1.2 million companies on the platform. Not everybody’s going through the whole process sequentially either. Not everybody wants to help the moment they have an idea. Just many people come to us and they’ve already got the idea. They’ve incorporated, they’ve got a team together, et cetera. They’re working on first customers. They’re working on funding. Where we fit best, where our sweet spot is—we’re at the point where you either had the idea or just about to launch and just barely launch. We do some things post-launch, but generally, that’s where we fit best. Once you’ve launched, once you’re in the market, it kind of becomes a different path, and it becomes highly segmented—depending on what business you’re in. But getting up to the launch point is pretty uniform. We figured we want to cover every aspect of that part of the journey.
Rob: You’ve acquired these products and built quite a team. You were mentioning you have 200 people. You’re still fully self-funded. Can you give folks an idea of the revenue you were doing here?
Will: Yeah. We don’t get specific. We say it’s eight figures, so you can figure. It’s at least that. But we’re debt-free and profitable. An interesting part of that, if you don’t mind me just jumping in as to why the debt-free and profitable thing is so important to us. Everybody understands the value but I just want to unpack that just a little bit more. Debt-free and profitable was our goal. A lot of people talk about growth goals. They say we want to hit $1 million, or we want to hit $10 million, $100 million, or whatever. Our only goal was to become debt-free and profitable because all we cared about when we formed the company were two very specific things. Number one is, don’t have a boss, which often comes from being in debt in some way. Whether you raised money or whether you take on a traditional debt, et cetera. The second was to be able to do this first as long as we need to make it work, which means give yourself an unlimited runway. We don’t want to be in a rush. Not that we don’t want to get things done quickly but that’s not the same thing. I like to move quickly, but I’m not in a rush. In a rush means there’s some artificial deadline that’s being imposed upon me that I have to hit, and I didn’t want that. I want things to take as long as they need to take to get them right. That goal has served us so incredibly well, and it’s the first time I’ve been able to operate under that after doing nine companies.
Rob: Yeah. Are debt-free and profitable a big part of that in essence the funding you brought to it from the exits and just prior companies?
Will: Not really. It didn’t hurt, but people tend to think of it as there was this big pot of cash that we use that we could just burn through without thinking about it. It’s worth noting I’m also our CFO, so the finances are incredibly important. I said let’s make every single decision based on will it get us to profitability faster? We did a lot of things that are nontraditional. In other words, when we’re building the first parts of the business, we built a professional services business. The part that we said let’s try to get out of. In the professional services business, it was helping people write business plans, or go through capital-raising processes, et cetera. We did that because that revenue would scale faster in order to get us to profitability so we can start to build a SaaS business faster. But not because that’s what we’ve wanted to get into, per se like we like providing service, but we did that as a means to an end. There are lots of decisions based on, will this get us to profitability faster?
Rob: You just mentioned that you are the CFO, I’m assuming you’re the CEO. You said you write most of the copy. You do UX work. In a 200-person team to have one person doing all of those roles is highly unusual. Do you want to talk a little about that?
Will: Yeah. I also manage our social media. I have a lot of jobs.
Rob: How many hours do you work in a week?
Will: Not that many. I would probably say I’m available for about 50 hours a week. I would say my core focus hours where I get productive things done are about three hours a day.
Rob: Fascinating.
Will: I can go on forever about this but to give you the TLDR version, what I learned early on is I spent most of my career working 80-100 hours weeks for decades. It had huge impacts on my health, but more importantly, I worked all those hours because I could, not because I should. Once I started to become more militant about my time because I have kids, and now it’s a one for one—time I was at work, I wasn’t with my kids. And I just wasn’t really willing to make that trade-off. I realized that I just had to make the fishbowl of my time smaller. Lo and behold, I actually got more done. A huge proponent of focusing more on output than hours, I’m just so thankful for it.
Rob: You and I have a lot in common because the same thing happened to me. I worked a day job, then I came home at night and I would work four, five, six, seven, hours. I would work 4-6 hours every night. My wife and I were married, but she knew I was building something bigger than us. We both grew up a pretty working class and our futures were just working jobs. I was like, no. I think I can do something bigger than that. Once we had kids, I have to have enough good fortune/hard work. I did have businesses on my own, and I have already backed off. There was a time where I was working 10-12 hours a week for almost 10 months with no full-time income. It was the 4-Hour Workweek. I read that in 2007 and I was like, that’s my goal. I achieved it in about 2010. I really enjoyed that time, but I got very bored. I realized I needed to challenge myself. I’ve never gone back to working long hours after that. It’s a level of efficiency, I believe, effectiveness, wisdom, and experience. There’s something that comes with this, and I love the idea you’ve talked about of time boxing. My wife had our second child in 2010. That was another change. Our first child was 2006, the second one was 2010. That was a big shift for me mentally. It allows me to be like you—more productive than I probably ever was in my 20s.
Will: Yeah. Again, I think you touched on a couple of interesting points. One is that if you have the experience, you can work a little bit less because you know what’s around the corner, whereas if you didn’t before. Another aspect of it is if you have the hour available—I don’t think we realized this when we’re younger—you’ll just use them because they don’t cost you anything. Later on in life, as you get older and as your priorities change, there’s a real cost to it. For almost 20 years, I never went home during daylight. It didn’t occur to me that you were allowed to. I just assumed when you go home, when you’re in your car, it’s always nighttime. When you leave and go to the parking lot, there’s never another car there. Twenty years is a long time to feel that way. Now, I look back thinking I was an idiot. I should have looked at that as a massive failure on my time management and output. But instead, I looked at it as a source of pride because I was “working hard.” There’s nothing wrong with working hard, but I got to tell you, anybody who’s working 80-100 hours and says they can’t work less, I would highly challenge that. Maybe it’s possible. I’m not saying there’s one-size that fits every schedule, but I got to tell you, as a guy who worked awfully hard for a long time, I look back now and realize I could have managed my time so much differently.
Rob: As you said, it takes a toll on your health and on your body.
Will: It does.
Rob: It’s not good. I’m curious on that note. I like to touch on with founders kind of high and low. Oftentimes, we time-box it. Because you’ve done so much it would be hard to go through highs and lows of all of it. But I’m curious, what’s been the hardest part of building startups.com?
Will: It was right before it started. The epilogue to me starting all those companies and doing the incubator is I mentioned it was taking a toll on me. In 2011, right around the time—2012 specifically—we started startups. We were getting married—my wife and I. We’re having our first child. All these things were happening—these life events. I was 37 years old, and I always point out the age because I’m going to tell you there’s just somebody who’s listening to this, there is a freak anomaly about the age of 37. I can’t tell you how many founders—at the age of 37 specifically—have hit this bizarre life-changing event. The life of events are all different, but it’s always at 37. I can’t figure out why. Anyway, I’m sitting with my friends at lunch. I just said to myself, boy, I don’t feel right. I can’t quite explain what it is, but I think I was going to head home after lunch. After lunch, I got back to the office, hopped in my car, and drove up the highway back to my house. I was actually living pretty close. I get on the phone with my wife and I’m like, hey, I don’t feel right. Just as I said that, my whole world goes black. Mind you, I’m in my car on the highway. My heart stopped. Just for a fraction of a second. But if your heart ever stops, it’s hard not to notice. It was the scariest moment of my life because you’re dead for a fraction of a second. I fortunately didn’t go off the road or anything. It was just a brief but terrifying moment. I didn’t know what was happening. I just assumed I was having a heart attack. I was only a minute from my house, and I ended up making it back to my house. I probably shouldn’t have but whatever. My friends come and get me. Take me to the hospital. I’m in the ER, and they said, “You had a massive anxiety attack.” I said, “I never had anxiety in my life.” Not according to your heart. It turned out that for 20 years, running myself nonstop, pretending that all the things I was doing to myself didn’t exist, doctors said, “Look, eventually your body’s going to tell you, enough is enough. Your body just shutdown on you.” I didn’t even see it coming. Now, in retrospect, I should’ve. All the signs were there. I had as much stress than you could possibly have. But at that moment, that was one of those life moments where you just have to rethink everything. At that point, I just stopped everything that I was doing. I did a hard stop and I said, look, everything I was involved with, I can’t do it, which was so out of the ordinary for me. I spent, what I thought was going to be a couple of days, wind up being a couple of months just figuring out what I was going to do next. There was a long story about it that I wouldn’t get into, but that was one of the toughest parts of my life because I had no idea what to do next. I just knew that the pace I was running and the things I was doing just couldn’t work anymore. It’s rare that you get that binary stop switch, especially at a fairly young age.
Rob: Yeah. It’s obviously terrifying and must’ve been extremely stressful. But it sounds like almost a blessing in disguise because it seems like you—
Will: Yeah. A whole bunch of things. The top ones that a lot of folks will appreciate. One of the things is you try to say, hey, if I’m going to focus all my time and energy on something, what’s the biggest thing that I can do? I found for myself that that was a bad question because it’s too ambitious. It’s too hard to ever come up with that answer. What I found was really helpful was I made a list of all the things that I don’t ever want to do again, which wound up being the most life-changing I ever did. I sat down and said, look, I’m 37. I’ve been doing this for 20 years. I said I’m not that old but I’m not that young. I know enough to know what I don’t want to do anymore. I started to make a list. I said, here are all the things I’m just never going to do no matter what. Number one, I’m never going to work for somebody else in any capacity. Up until that time, I’ve always been a founder. Depending on what you choose to do, you have bosses. You take on investors, you have bosses. You take on certain clients—in professional service work—you have bosses. I was like, I don’t ever want to have a boss. Another thing, I don’t want to work with people I don’t like. In any capacity for one second, I don’t ever want to be in a position where I have to. No matter how good the deal is, good the opportunity is, or this or that, I just don’t ever want to go home with my stomach turning and be forced to work with somebody. I just stopped. All the people I just didn’t want to work with—for whatever reason, I’m not that hard to get along with, by the way—I just didn’t ever again. The list goes on, I won’t bore you with it. The point is, I made a hard commitment to just avoid the things I never wanted to do. Lo and behold, my life became 100x better because it turns out, doing the things you don’t want to do is typically what people are trying to be successful for in the first place.
Rob: It’s shocking to me because I have a very similar list that I put together after I sold Drip. I’ve just pulled it up. I literally wrote this out. I don’t want to experience longstanding or ongoing stress that I can’t escape. I never want to negotiate a raise again. I shifted that one after I quit a job. Never want to have to commute again. Never want to ask permission to take a day off. Never want to only take two weeks of vacation a year. Never want to work with people I dislike. I’ve had a few of those, and the overlap is crazy.
Will: They’re also logical conclusions. We all hit a point in our life where enough is enough. What I tell founders—particularly young founders, it’s not specific to them, but the earlier you can get started on this list, the better—is make that list first. Over time, you’ll add to that list because some of the stuff that’s on your list or my list is there because we’ve been around long enough to know why that one is so important. For example, when I was younger, if somebody said, I don’t want to work with people I don’t like. I’m like, well, you really don’t have a choice. This client’s going to pay our bills. Yeah, they’re a jerk, but I need it. I need the money. Or hey, this investor’s a blowhard, but I need his money. I’d be willing to compromise those. Sometimes you just have to take it on the chin. After a while, as you get further in your career, you start to understand the cost of those compromises. By way of that, you start to truly understand the benefit of not compromising. For younger founders, maybe you don’t quite see it yet, but if you put that idea in folk’s head, they’ll start to develop that over time and start to say, okay, I get it now. People are jerks and I don’t want to work with them. Check.
Rob: I want to switch it up a little bit because I have this topic. You mentioned it offline and it resonated with something I have written about and talked about before. As I was coming up 2005-2010, say, I had previously—since I was a software developer—built a lot of products. I would start them and it would take me months of nights and weekends because I was working a fulltime job. At a certain point, I realized I could acquire products for not that much money. All I needed to do was add a feature to it and market them. It was a huge shortcut for me. Instead of spending six months of nights and weekends development time, I could spend $5000 or $10,000, which is not nothing, but I was making that as a consultant. I had stuff on this side going. I talked about how being the second buyer of something was super advantageous because oftentimes, someone would either spend their 500 hours building it. I guess in that case, I was the first buyer. In other instances, someone would acquire, couldn’t grow it, and then I would be the second buyer. I just wasn’t paying that much money for these things that I had previously thought were really valuable. I was billing $150 an hour. If I spent 400 hours, which is not an outrageous amount of time to build a full software product, that’s $60,000 of my time that I could’ve literally been billing. To me, that 400-hour product was worth, in my head, $60,000. Turns out, I bought a product that took about 400 hours to build for less than $10,000. To me, that was a deal. You mentioned that you have been to be the second founder or second buyer of some of these tools that were funded by venture capital. You want to talk through that top process and how it played out?
Will: Yeah. My thought process started when I was the company being funded by venture capital. I thought to myself, the first year to two years of spend with a VC money is so wildly inefficient by definition because you’re experimenting like crazy. You have this massive amount of inefficiency between validating the idea, getting the right team, trying all these different marketing channels, figuring out what works, et cetera. Most of that gets pissed away no matter how good you are. I’ve been doing this a long time and I can’t do it any more efficiently than you can. That said, I started to think about, boy, whoever gets to show up second on this idea—just like you did, just like I did—doesn’t have any of that cost. All of those things have been figured out. Remember, it’s not just dollars. It’s also time. When we bought a product called clarity.fm, which you mentioned Dan Martell had built, Dan had raised millions of dollars from great investors. But more importantly, Dan—who’s super smart—spent years and years and years trying every combination to see what worked and figured it out. He did all the customer acquisition, he did all the scaling, he tried all the pricing models, et cetera. We were fortunate—when we did the acquisition, Dan called us and asked if we were interested in it—to be able to stay cool. Dan’s got it all figured it out. We need to pick it up with all that stuff already done. Yeah, maybe we need to make some changes or additions or maybe we don’t. But the point is, it’s already been figured out. We don’t have to spend all that time to do it again. If I could spend $250,000 to build my own product or $250,000 to acquire somebody else’s product that probably spends, even more, trying to get into it, in most cases, I’d take the latter every single time. Because the one thing that money doesn’t account for is all the time and effort it took to get into that product.
Rob: Awesome, Wil. Thank you so much again for coming on the show. I feel like it’s been a really insightful conversation. You have tons of knowledge. I know we can talk for hours. If folks do want to hear you, think through this kind of stuff on a weekly basis, they can head to the Startup Therapy Podcast where you and someone you work with at startups.com, you guys chat through these kinds of stuff. How long ago did you say you started? About a year?
Will: About a year ago. We just recorded episode 60. We just sit and talk about stuff that we know is keeping founders up at night, and we walk through the issues detail by detail and show them how we get through.
Rob: Awesome. Obviously, if folks want to see what you’re up to on a day to day basis, startups.com. Pretty easy to remember.
Will: Yeah.
Rob: Thanks again, Wil.
Will: Thanks for having me.
Rob: Thanks again to Wil for coming on the show today. If you haven’t left a review for Startups For The Rest of Us, even if it’s just a five star. Click the five stars without having to type anything in. I would really appreciate that in whatever podcast catcher you use. If you’re not on our email list, you’re missing out on two exclusive episodes that have never appeared in this podcast feed. The first one is about things you should know when you launch a SaaS app. The second one is things you should know as you scale your SaaS app. I recorded those solo. Again, they’ve never been released. You will get it in our email, you get those episodes as well as the PDF guides that summarize them. Thanks for joining me this week. I’ll be back in your earbuds next Tuesday morning.
He acquired clarity.fm from Dan Martell. He acquired Zirtual from Maren Kate, who I spoke with 12 or 18 months ago about the crashing and burning and then, the acquisition of that. Wil and his team were the acquirers. Wil’s story is incredible. He started his first company—it was an agency at age 19—while he was at Ohio State, and he went on to exit that in 2003. After that, he started an incubator. Again, this is the 2003-2005 timeframe. It was called Virtucon Ventures. He called it an idea-stage incubator for web startups where he helped conceived and launch companies including swapalease.com and unsubscribe.com.
He thinks venture capital is a poor use of capital. He has liked being the second buyer of a lot of companies. Fascinating story. In 2012, he started startups.com, which he calls the world’s largest startup launch platform based in Columbus, Ohio. Although they are 200 people strong, fully self-funded, and eight figures of revenue, Wil is still involved in doing UX copy work. He said he’s a CFO, the CEO, and he works on the products. Fascinating story from (I would say) kind of a Renaissance man who just has this massive skill set, who’s been doing this for 20 something years, and just has a deep well of knowledge.
Before we dive into our conversation, I want to remind you again of MicroConf remote, which is happening on September 1. It is a virtual event. If you head to microconfremote.com, you can get a ticket and reserve your spot. It is not going to be the typical virtual summit that you are seeing online. Producer Xander and I have put a lot of thought into making this creative, and it’s shaping up to be a great event. I hope you will join us, that’s in microconfremote.com. With that, let’s dive into my conversation with Wil Schroter. Will Schroter, thank you so much for joining me in the podcast today.
Will: Thanks for having me.
Rob: You started your first company at age 19 in college. It’s the story that we see in the films or we see glorified. But you built it into a massive agency—$700 million in revenue, and you exited in 2003. I don’t want to spend too much time diving into that because building an agency is not necessarily in line with what folks want to listen to here. But I’m curious, you sell your company and you obviously walk away with—I’m just going to assume at that revenue level—life-changing money, in a big way. Did you know at that point that you wanted to start the next one? Or did you take a time off, give it a thought, and check out your options?
Will: I was already starting the next thing long before it sold.
Rob: Wow.
Will: I mean you got to figure. I was 27. My career hadn’t even started yet. From my standpoint, life-changing for me was the first time I made over $100,000. I’m not trying to discount making more money, it’s wonderful, but I grew up in a really challenging childhood. I got to tell you, having enough money to know that I can pay my rent next month, it blew my mind the first time I had enough in my bank account. Just being able to pay my bills, it was such a huge departure from what I’ve been used to.
Rob: Yeah. I remember that moment for myself as well. There were a few stages. It was getting to $100,000 where I was like, oh, man, we’re pretty comfortable. Living in California with $100,000 is different than living in the Midwest where I live now. But then there was that moment when there was a next level up. The numbers are going to vary based on your lifestyle and stuff, but it was about $250,000 or $300,000 a year. I remember that being life-changing as well. I appreciate that.
Will: Yeah. People always think that the big cash outnumbers, I tend to tell people and I really, really, try to emphasize that if you can ever take a $250,000 check off the table, it may be the most life-changing money you’ll ever have. Because it’s all the money you need to do all the things that you haven’t been able to do for a very long time. For most people, it won’t be able to. Most people live paycheck to paycheck. Being able to have a little bit of cash can reset the baseline—it’s extraordinary. I don’t think a lot of people think about that.
Rob: Yeah, that’s the thing. It’s such a trip. I hear founders use the phrase life-changing money. Life-changing money, as we’re saying here, is different from what I call sunset money or a lot of people call FU money. FU money is where you don’t ever have to work again, don’t ever have to have a boss again. But life-changing money can literally be $250,000 as you’re saying.
Will: Here’s why. It’s because $250,000, again, let’s calibrate to what area in the world you’re in, not just part of the US you’re at. In most places, it will get you at least close to a down payment on a home. It will allow you to pay off debts you’ve assuredly racked up—your credit card debts, et cetera. It puts some extra cash in the bank. The first time something pops up—I don’t care if it’s a car repair or a doctor issue—you can cover it. If you think about it, most people spend most of their lives just trying to get through a handful of milestones that are massive cost milestones. The purchase of the car, paying off college debt, getting married, you name it. Those were often tens of thousands of dollars problems. Sometimes, $50,000-$100,000 problems, but they’re never million-dollar problems. Really, most of the things that we spend the first 20 years of our career trying to overcome all fall within $250,000.
Rob: Yeah, wise words, sir. You came off of this exit and you started an incubator, which is different than I think. People use incubators or accelerators these days interchangeably, but back then, it was more of folks heard of Idealab in Pasadena. It’s the prototypical one that I remember. Bill Gross started it. It’s where someone—in this case you—comes up with company ideas, startup ideas, and then, it brings people to build them and tries to launch a bunch of different ideas. Does that accurately describe what you were doing?
Will: Yeah. What happened was at the agency, we were one of the first web development agencies, and got paid lots of money to build websites on the internet. It was a combination of me walking in big companies like BMW and Best Buy saying, here’s how to use the internet. Here’s how to use the technology. After a while, I started thinking, I’m the one with the know-how to do this stuff, and I’m the one with the ideas that I’m pitching to these clients. Why keep going to clients? Why not just build this stuff for me, get my own output, and take clients out of the […] together? I started working on building web properties. It was right at the dawn of performance marketing—this was in the early 2000s. A lot of people came in their careers when this was all well-established, whether it’s SEO, PPC, affiliate marketing, et cetera. But right around the turn of the century, all of those things were just getting invented (ironically) from Bill Gross. If you’ve recalled, Bill Gross invented PPC. What was really interesting about all of that is for the first time in history, you could build a company on tens of thousands of dollars because you could pay for your customer acquisition as you did it. Whereas before, you have to dole up tons of money and hope that somebody might show up in non trackable media. I saw that trend—again, I was coming from the agency world—as a different way to be able to build a company. That’s where Virtucon and the companies we built out of that were spawned.
Rob: So many folks who are agencies or freelancers want to get into products. It sounds like—
Will: They should.
Rob: Yeah, exactly. That’s where I came from. I was a software developer, became a consultant, started a micro-agency where I had a few contractors. And I had a few full-time jobs there too, but I have a similar experience as you were. It’s like, I don’t want to build stuff for other people. I want to be creative and build equity. I never felt like I was building much long term value. I didn’t build an agency nearly as large as yours.
Will: By definition, you’re not building long term value. You know, what’s really interesting about all of these is if all you’re doing is charging for your time, you’re always going to be on a treadmill because the time is the treadmill. At some point, you got to be charging for your output, not your time. It’s such a tough transition to make. Client services, professional services, is always the easiest business to get into and the hardest business to get out of. For a lot of folks, we get into it, we get used to getting paid good money, and then like, wow, we want to take a portion of our time, and we want to go build something that will make money while we sleep. The challenge in the delta everybody has is trying to do both—trying to get that other thing off the ground. But it’s a worthy pursuit. Whenever I talk to folks and say, hey, I’m trying to figure out how to get into the product. I’m like that is always the […] evolution.
Rob: Yup. I have some notes here that you’ve launched out of Virtucon, which was the name of the incubator. You launched swapalease.com, which I’ve actually checked out. I browsed looking at people trying to get out of their leases and then like, wow, what would it be like to have a Maserati for four months?
Will: It was interesting. When I was first getting started with the incubator concept, the guys at Swapalease had already started the business. That was the first one. They had an idea of a prototype—in today’s terms, an MVP—but they hadn’t really scaled it. I said, look, I’ve got this model that I’m working at. Let me take that and grow it. That was the first client (if you will) of our incubator. We ended up scaling that pretty quickly. It was doing almost no revenue. And then within the first year or two, we’re doing about $3 million in revenue but on a $1.5 million EBITA. That was all through performance marketing. Remember, this is a long time ago. It’s funny because I haven’t […] the website in years. But I think the design that’s in there was the same one that we used back in 2003. It has not evolved much, but it’s a great business. I started to realize that you could build these small businesses that could start small and either succeed or fail small—which again, at that time, was not the case—and figure out which ones might have some legs. After that, I started five more companies. What was interesting about it is I wasn’t just starting them and saying, hey, let’s see how it goes and somebody else runs them like an angel investor does. I was actually running them, and I mean really running them. Talk about running payroll, doing marketing, and doing finance—you name it. Within five years, I basically had five full-time jobs. Just a side note, not the healthiest way to live.
Rob: It’s such a trip because you and I had traveled very similar paths, although, at that time, I guess you were there from about 2003, or not there. You have started it and worked on Virtucon and these companies from 2003 to about 2011-2012. In that 2000-2005 timeframe, I was launching super small, single founder software products. As pay-per-click, SEO, and affiliate stuff started, I had learned those spaces. That’s how I built these little, micro-companies. If you remove two zeros from a lot of your numbers, I had a collection of about eight or nine web properties. Some were websites, the […] revenue, others were actual downloadable software—people paid a few hundred dollars for it, and I cobbled together a fulltime in income. I was able to escape freelancing, in essence. You were doing it on a much larger scale at that time. It sounds like Virtucon—you self-funded that, correct? There was no venture capital involved.
Will: Correct.
Rob: Okay. You mentioned to me offline that some of the companies that you spawned out of there did wind up taking venture?
Will: Yeah. We just fell into it. We were running one company that was based in Los Angeles. I started spending more and more time in Los Angeles. That’s essentially what got me to move out to California for about 10 years. While I was there, I started to meet some of the local entrepreneurs. This was probably circa 2007, give or take. One of the entrepreneurs I’ve met, an investor, was the guy that just got their name, Mark Suster. Mark blogs a lot over at Upfront Ventures. Mark and Mike Jones, who runs Science, the incubator in Santa Monica as well as he used to be the CEO (for a minute) of Myspace, did a bunch of other things—great guy. Both of them in the same week offered to invest their personal money in one of the projects I was working on, and I hadn’t thought about taking on investors. It just didn’t occur to me. But then, I thought about it and I said, hey, for every one of these companies, as they grow, they’re just going to need exponentially more money, and every dollar I invest in growing one of them is another dollar I can invest in starting another, so sure. That’s a very small amount of money for quite a few people. In all those connections, I started to meet lots of investors. Investors said, hey, what are you going to do next? What are you going to do next? It got really interesting. The last company we did, a company called unsubscribe.com, we were able to raise money for that in about 24 hours. It was just easy. Compare that to the pain and heartache that I went through constantly topping off the bank accounts for all these different companies is hard to turn away. Even during a tough time—2007, 2008 financial crisis—not exactly the easiest time when you’re raising money.
Rob: Yeah. Have you raised money before this?
Will: Never. I was in Columbus, Ohio. At that time, we didn’t have any money. You do things the old fashion way. You just found revenue.
Rob: Right. This landscape is so different today.
Will: Yeah, so different. So different. Now, there’s a $500 million fund in Columbus. I wouldn’t say I necessarily had a bad experience, but I can say this, I had a lot of experience because I had three venture-funded companies at that point. I was running all of them all the same time. I just had this really unusual life experience where I was running five companies at exactly the same time. While one company was practically going bankrupt, the next company was getting an amazing term sheet. While one company was losing its biggest customer, the next company was winning its biggest customer. Five different staff, very different dynamics with each, and I just got all these incredible experiences. I also nearly killed myself, but that’s a separate issue. After a while, I started to spend a lot of time with a lot of founders, coaching them through the process. People would say, hey, I understand you know a lot about starting companies, can you help me understand funding or customer acquisition? I realized what I was particularly good at was teaching people how to build startups. I said, why don’t I figure out how to do that for a little bit? That’s where startups.com came from.
Rob: Right. In 2012, you founded it as startups.co, since you’ve obviously got the killer domain named startups.com. That is so cool.
Will: Very expensive consonant but yeah.
Rob: I’m sure. It’s a good way to put it, man. For folks who aren’t familiar with startups.com, how do you explain it? What’s the elevator pitch?
Will: We teach people how to get ideas out of their heads and into a launch mode. The average person watches Shark Tank, and they say, I want to do something just like what that person said they want to do. They go to start it and they realize they have no idea what they’re doing. There are so many different types of advice out there. There are so many different tools out there. It’s fairly confusing. Some of it is good. Some of it is bad. But what I wanted to do is to create a simple place where people could get the education they needed, a community of people that could actually help them—we’ve got over 20,000 mentors at the ready— and the tools they need to get through the hard parts like raising money, finding your first customer, or putting your plan together, things like that.
Rob: Nice. Yeah, we have a lot of overlap actually. With MicroConf, we do a chunk of that, and then we do in-person events. There’s a Venn diagram. We have education, community, and in-person events, but we don’t have actual software products versus you have actually built yourself up a nice little cache of businesses. You first came on my radar, I believe, when you bought clarity.fm, which I think is now clarity.com. You bought that from Dan Martell several years ago. Folks who listen to this podcast will remember that Maren Kate was on a few months back talking about Zirtual—raising funding, growing that, and unfortunately having it implode on her. You also acquired that from her as well as Launchrock, Fundable, which is a crowdfunding platform, and Bizplan. When you first came up with the idea of startups.com or as you were building it in the early days, were you just planning to do education and community? Or were you thinking from the start, No, I also want to buy other companies, build other products, and bring them under the umbrella?
Will: That was the trick if we want to help people through the startup process, through the launch process, where do you start and where do you end? I’m sure you deal with this exactly in your own business. Do you just give education and say go figure it out from there? Do you just connect them with mentors and say go figure it out from there? Do you just provide one dimension of the problem of the software, which is funding or customer acquisition and say, figure it out from there? We realized that we just couldn’t find a really logical start and a stop point to help people scale. To give you a sense of it, there are 1.2 million companies on the platform. Not everybody’s going through the whole process sequentially either. Not everybody wants to help the moment they have an idea. Just many people come to us and they’ve already got the idea. They’ve incorporated, they’ve got a team together, et cetera. They’re working on first customers. They’re working on funding. Where we fit best, where our sweet spot is—we’re at the point where you either had the idea or just about to launch and just barely launch. We do some things post-launch, but generally, that’s where we fit best. Once you’ve launched, once you’re in the market, it kind of becomes a different path, and it becomes highly segmented—depending on what business you’re in. But getting up to the launch point is pretty uniform. We figured we want to cover every aspect of that part of the journey.
Rob: You’ve acquired these products and built quite a team. You were mentioning you have 200 people. You’re still fully self-funded. Can you give folks an idea of the revenue you were doing here?
Will: Yeah. We don’t get specific. We say it’s eight figures, so you can figure. It’s at least that. But we’re debt-free and profitable. An interesting part of that, if you don’t mind me just jumping in as to why the debt-free and profitable thing is so important to us. Everybody understands the value but I just want to unpack that just a little bit more. Debt-free and profitable was our goal. A lot of people talk about growth goals. They say we want to hit $1 million, or we want to hit $10 million, $100 million, or whatever. Our only goal was to become debt-free and profitable because all we cared about when we formed the company were two very specific things. Number one is, don’t have a boss, which often comes from being in debt in some way. Whether you raised money or whether you take on a traditional debt, et cetera. The second was to be able to do this first as long as we need to make it work, which means give yourself an unlimited runway. We don’t want to be in a rush. Not that we don’t want to get things done quickly but that’s not the same thing. I like to move quickly, but I’m not in a rush. In a rush means there’s some artificial deadline that’s being imposed upon me that I have to hit, and I didn’t want that. I want things to take as long as they need to take to get them right. That goal has served us so incredibly well, and it’s the first time I’ve been able to operate under that after doing nine companies.
Rob: Yeah. Are debt-free and profitable a big part of that in essence the funding you brought to it from the exits and just prior companies?
Will: Not really. It didn’t hurt, but people tend to think of it as there was this big pot of cash that we use that we could just burn through without thinking about it. It’s worth noting I’m also our CFO, so the finances are incredibly important. I said let’s make every single decision based on will it get us to profitability faster? We did a lot of things that are nontraditional. In other words, when we’re building the first parts of the business, we built a professional services business. The part that we said let’s try to get out of. In the professional services business, it was helping people write business plans, or go through capital-raising processes, et cetera. We did that because that revenue would scale faster in order to get us to profitability so we can start to build a SaaS business faster. But not because that’s what we’ve wanted to get into, per se like we like providing service, but we did that as a means to an end. There are lots of decisions based on, will this get us to profitability faster?
Rob: You just mentioned that you are the CFO, I’m assuming you’re the CEO. You said you write most of the copy. You do UX work. In a 200-person team to have one person doing all of those roles is highly unusual. Do you want to talk a little about that?
Will: Yeah. I also manage our social media. I have a lot of jobs.
Rob: How many hours do you work in a week?
Will: Not that many. I would probably say I’m available for about 50 hours a week. I would say my core focus hours where I get productive things done are about three hours a day.
Rob: Fascinating.
Will: I can go on forever about this but to give you the TLDR version, what I learned early on is I spent most of my career working 80-100 hours weeks for decades. It had huge impacts on my health, but more importantly, I worked all those hours because I could, not because I should. Once I started to become more militant about my time because I have kids, and now it’s a one for one—time I was at work, I wasn’t with my kids. And I just wasn’t really willing to make that trade-off. I realized that I just had to make the fishbowl of my time smaller. Lo and behold, I actually got more done. A huge proponent of focusing more on output than hours, I’m just so thankful for it.
Rob: You and I have a lot in common because the same thing happened to me. I worked a day job, then I came home at night and I would work four, five, six, seven, hours. I would work 4-6 hours every night. My wife and I were married, but she knew I was building something bigger than us. We both grew up a pretty working class and our futures were just working jobs. I was like, no. I think I can do something bigger than that. Once we had kids, I have to have enough good fortune/hard work. I did have businesses on my own, and I have already backed off. There was a time where I was working 10-12 hours a week for almost 10 months with no full-time income. It was the 4-Hour Workweek. I read that in 2007 and I was like, that’s my goal. I achieved it in about 2010. I really enjoyed that time, but I got very bored. I realized I needed to challenge myself. I’ve never gone back to working long hours after that. It’s a level of efficiency, I believe, effectiveness, wisdom, and experience. There’s something that comes with this, and I love the idea you’ve talked about of time boxing. My wife had our second child in 2010. That was another change. Our first child was 2006, the second one was 2010. That was a big shift for me mentally. It allows me to be like you—more productive than I probably ever was in my 20s.
Will: Yeah. Again, I think you touched on a couple of interesting points. One is that if you have the experience, you can work a little bit less because you know what’s around the corner, whereas if you didn’t before. Another aspect of it is if you have the hour available—I don’t think we realized this when we’re younger—you’ll just use them because they don’t cost you anything. Later on in life, as you get older and as your priorities change, there’s a real cost to it. For almost 20 years, I never went home during daylight. It didn’t occur to me that you were allowed to. I just assumed when you go home, when you’re in your car, it’s always nighttime. When you leave and go to the parking lot, there’s never another car there. Twenty years is a long time to feel that way. Now, I look back thinking I was an idiot. I should have looked at that as a massive failure on my time management and output. But instead, I looked at it as a source of pride because I was “working hard.” There’s nothing wrong with working hard, but I got to tell you, anybody who’s working 80-100 hours and says they can’t work less, I would highly challenge that. Maybe it’s possible. I’m not saying there’s one-size that fits every schedule, but I got to tell you, as a guy who worked awfully hard for a long time, I look back now and realize I could have managed my time so much differently.
Rob: As you said, it takes a toll on your health and on your body.
Will: It does.
Rob: It’s not good. I’m curious on that note. I like to touch on with founders kind of high and low. Oftentimes, we time-box it. Because you’ve done so much it would be hard to go through highs and lows of all of it. But I’m curious, what’s been the hardest part of building startups.com?
Will: It was right before it started. The epilogue to me starting all those companies and doing the incubator is I mentioned it was taking a toll on me. In 2011, right around the time—2012 specifically—we started startups. We were getting married—my wife and I. We’re having our first child. All these things were happening—these life events. I was 37 years old, and I always point out the age because I’m going to tell you there’s just somebody who’s listening to this, there is a freak anomaly about the age of 37. I can’t tell you how many founders—at the age of 37 specifically—have hit this bizarre life-changing event. The life of events are all different, but it’s always at 37. I can’t figure out why. Anyway, I’m sitting with my friends at lunch. I just said to myself, boy, I don’t feel right. I can’t quite explain what it is, but I think I was going to head home after lunch. After lunch, I got back to the office, hopped in my car, and drove up the highway back to my house. I was actually living pretty close. I get on the phone with my wife and I’m like, hey, I don’t feel right. Just as I said that, my whole world goes black. Mind you, I’m in my car on the highway. My heart stopped. Just for a fraction of a second. But if your heart ever stops, it’s hard not to notice. It was the scariest moment of my life because you’re dead for a fraction of a second. I fortunately didn’t go off the road or anything. It was just a brief but terrifying moment. I didn’t know what was happening. I just assumed I was having a heart attack. I was only a minute from my house, and I ended up making it back to my house. I probably shouldn’t have but whatever. My friends come and get me. Take me to the hospital. I’m in the ER, and they said, “You had a massive anxiety attack.” I said, “I never had anxiety in my life.” Not according to your heart. It turned out that for 20 years, running myself nonstop, pretending that all the things I was doing to myself didn’t exist, doctors said, “Look, eventually your body’s going to tell you, enough is enough. Your body just shutdown on you.” I didn’t even see it coming. Now, in retrospect, I should’ve. All the signs were there. I had as much stress than you could possibly have. But at that moment, that was one of those life moments where you just have to rethink everything. At that point, I just stopped everything that I was doing. I did a hard stop and I said, look, everything I was involved with, I can’t do it, which was so out of the ordinary for me. I spent, what I thought was going to be a couple of days, wind up being a couple of months just figuring out what I was going to do next. There was a long story about it that I wouldn’t get into, but that was one of the toughest parts of my life because I had no idea what to do next. I just knew that the pace I was running and the things I was doing just couldn’t work anymore. It’s rare that you get that binary stop switch, especially at a fairly young age.
Rob: Yeah. It’s obviously terrifying and must’ve been extremely stressful. But it sounds like almost a blessing in disguise because it seems like you—
Will: Yeah. A whole bunch of things. The top ones that a lot of folks will appreciate. One of the things is you try to say, hey, if I’m going to focus all my time and energy on something, what’s the biggest thing that I can do? I found for myself that that was a bad question because it’s too ambitious. It’s too hard to ever come up with that answer. What I found was really helpful was I made a list of all the things that I don’t ever want to do again, which wound up being the most life-changing I ever did. I sat down and said, look, I’m 37. I’ve been doing this for 20 years. I said I’m not that old but I’m not that young. I know enough to know what I don’t want to do anymore. I started to make a list. I said, here are all the things I’m just never going to do no matter what. Number one, I’m never going to work for somebody else in any capacity. Up until that time, I’ve always been a founder. Depending on what you choose to do, you have bosses. You take on investors, you have bosses. You take on certain clients—in professional service work—you have bosses. I was like, I don’t ever want to have a boss. Another thing, I don’t want to work with people I don’t like. In any capacity for one second, I don’t ever want to be in a position where I have to. No matter how good the deal is, good the opportunity is, or this or that, I just don’t ever want to go home with my stomach turning and be forced to work with somebody. I just stopped. All the people I just didn’t want to work with—for whatever reason, I’m not that hard to get along with, by the way—I just didn’t ever again. The list goes on, I won’t bore you with it. The point is, I made a hard commitment to just avoid the things I never wanted to do. Lo and behold, my life became 100x better because it turns out, doing the things you don’t want to do is typically what people are trying to be successful for in the first place.
Rob: It’s shocking to me because I have a very similar list that I put together after I sold Drip. I’ve just pulled it up. I literally wrote this out. I don’t want to experience longstanding or ongoing stress that I can’t escape. I never want to negotiate a raise again. I shifted that one after I quit a job. Never want to have to commute again. Never want to ask permission to take a day off. Never want to only take two weeks of vacation a year. Never want to work with people I dislike. I’ve had a few of those, and the overlap is crazy.
Will: They’re also logical conclusions. We all hit a point in our life where enough is enough. What I tell founders—particularly young founders, it’s not specific to them, but the earlier you can get started on this list, the better—is make that list first. Over time, you’ll add to that list because some of the stuff that’s on your list or my list is there because we’ve been around long enough to know why that one is so important. For example, when I was younger, if somebody said, I don’t want to work with people I don’t like. I’m like, well, you really don’t have a choice. This client’s going to pay our bills. Yeah, they’re a jerk, but I need it. I need the money. Or hey, this investor’s a blowhard, but I need his money. I’d be willing to compromise those. Sometimes you just have to take it on the chin. After a while, as you get further in your career, you start to understand the cost of those compromises. By way of that, you start to truly understand the benefit of not compromising. For younger founders, maybe you don’t quite see it yet, but if you put that idea in folk’s head, they’ll start to develop that over time and start to say, okay, I get it now. People are jerks and I don’t want to work with them. Check.
Rob: I want to switch it up a little bit because I have this topic. You mentioned it offline and it resonated with something I have written about and talked about before. As I was coming up 2005-2010, say, I had previously—since I was a software developer—built a lot of products. I would start them and it would take me months of nights and weekends because I was working a fulltime job. At a certain point, I realized I could acquire products for not that much money. All I needed to do was add a feature to it and market them. It was a huge shortcut for me. Instead of spending six months of nights and weekends development time, I could spend $5000 or $10,000, which is not nothing, but I was making that as a consultant. I had stuff on this side going. I talked about how being the second buyer of something was super advantageous because oftentimes, someone would either spend their 500 hours building it. I guess in that case, I was the first buyer. In other instances, someone would acquire, couldn’t grow it, and then I would be the second buyer. I just wasn’t paying that much money for these things that I had previously thought were really valuable. I was billing $150 an hour. If I spent 400 hours, which is not an outrageous amount of time to build a full software product, that’s $60,000 of my time that I could’ve literally been billing. To me, that 400-hour product was worth, in my head, $60,000. Turns out, I bought a product that took about 400 hours to build for less than $10,000. To me, that was a deal. You mentioned that you have been to be the second founder or second buyer of some of these tools that were funded by venture capital. You want to talk through that top process and how it played out?
Will: Yeah. My thought process started when I was the company being funded by venture capital. I thought to myself, the first year to two years of spend with a VC money is so wildly inefficient by definition because you’re experimenting like crazy. You have this massive amount of inefficiency between validating the idea, getting the right team, trying all these different marketing channels, figuring out what works, et cetera. Most of that gets pissed away no matter how good you are. I’ve been doing this a long time and I can’t do it any more efficiently than you can. That said, I started to think about, boy, whoever gets to show up second on this idea—just like you did, just like I did—doesn’t have any of that cost. All of those things have been figured out. Remember, it’s not just dollars. It’s also time. When we bought a product called clarity.fm, which you mentioned Dan Martell had built, Dan had raised millions of dollars from great investors. But more importantly, Dan—who’s super smart—spent years and years and years trying every combination to see what worked and figured it out. He did all the customer acquisition, he did all the scaling, he tried all the pricing models, et cetera. We were fortunate—when we did the acquisition, Dan called us and asked if we were interested in it—to be able to stay cool. Dan’s got it all figured it out. We need to pick it up with all that stuff already done. Yeah, maybe we need to make some changes or additions or maybe we don’t. But the point is, it’s already been figured out. We don’t have to spend all that time to do it again. If I could spend $250,000 to build my own product or $250,000 to acquire somebody else’s product that probably spends, even more, trying to get into it, in most cases, I’d take the latter every single time. Because the one thing that money doesn’t account for is all the time and effort it took to get into that product.
Rob: Awesome, Wil. Thank you so much again for coming on the show. I feel like it’s been a really insightful conversation. You have tons of knowledge. I know we can talk for hours. If folks do want to hear you, think through this kind of stuff on a weekly basis, they can head to the Startup Therapy Podcast where you and someone you work with at startups.com, you guys chat through these kinds of stuff. How long ago did you say you started? About a year?
Will: About a year ago. We just recorded episode 60. We just sit and talk about stuff that we know is keeping founders up at night, and we walk through the issues detail by detail and show them how we get through.
Rob: Awesome. Obviously, if folks want to see what you’re up to on a day to day basis, startups.com. Pretty easy to remember.
Will: Yeah.
Rob: Thanks again, Wil.
Will: Thanks for having me.
Rob: Thanks again to Wil for coming on the show today. If you haven’t left a review for Startups For The Rest of Us, even if it’s just a five star. Click the five stars without having to type anything in. I would really appreciate that in whatever podcast catcher you use. If you’re not on our email list, you’re missing out on two exclusive episodes that have never appeared in this podcast feed. The first one is about things you should know when you launch a SaaS app. The second one is things you should know as you scale your SaaS app. I recorded those solo. Again, they’ve never been released. You will get it in our email, you get those episodes as well as the PDF guides that summarize them. Thanks for joining me this week. I’ll be back in your earbuds next Tuesday morning.
