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This is a round table discussion with Craig Hewitt (founder of Castos), Einar Vollset (cofounder of TinySeed), and myself. We are in three different cities on two different continents, so we have plenty of different perspectives on the COVID-19 crisis. We are talking about our own businesses and the advice we give to other founders. We also talk about the payroll program, and whether we think it’s going to be helpful to small businesses and startups. We share our tips and experiences working from home, for founders who may be just now transitioning to a remote team, and we discuss Stewart Butterfield’s Twitter feed, talking about the human side of experiencing this pandemic.
Listen to get some insight, hope, and fresh ideas on being a startup during COVID-19.
The finer points of the episode:
- 8:09 – Advice we all have for startups during the COVID-19 crisis
- 12:51 – Common mistakes we see businesses make working from home
- 14:42 – The main things that change when your team goes remote
- 17:37 – The payroll protection program in the USA and what this could mean for your business
- 28:04 – Stewart Butterfield’s real-time experience of COVID-19 and how it resonated with each of us as founders
- 36:46 – Some reasons to feel hopeful about business right now
Items mentioned in this episode:
- RougueStartups
- Castos
- TinySeed
- How Apple Is Working From Home
- Bosses Panic-Buy Spy Software to Keep Tabs on Remote Workers
- MicroConf article on COVID-19 business relief
- Stewart Butterfield’s Twitter feed
- Craig Hewitt’s Twitter Account
- Einar Vollset’s Twitter Account
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. This is episode 493. It’s a Startup Roundtable with Craig Hewitt, Einar Vollset, and myself. Einar was able to fill in last minute, I had another guest who unfortunately had to cancel. Craig was willing to work with me to shift times around.
It’s an interesting discussion because we’re located in three different cities on two different contents, so we’re able to give each of our takes on how things are in our city, how they feel amid the coronavirus pandemic. We talk about how our businesses are looking and reacting as well as advice we’re giving to founders. We talk about the shift to work from home, look at the Payroll Protection Program, and talk about the fact that essentially, that money has run out as of today when we’re recording.
Then we dig into a tweet thread of a really interesting day-by-day account of Stewart Butterfield, who is the co-founder of Slack. He talked about how they’re reacting to it and all of that stuff. It’s a really interesting show today. I’m glad you’re here to check it out, and I hope you enjoy my conversation with Einar Vollset and Craig Hewitt.
Welcome back to another Startup Roundtable. We’re going to talk about a variety of topics today. I’m really excited to have my two guests on the line, Einar Vollset, co-founder of TinySeed. You and I talk quite a bit, but it will be fun today to get your opinion and thoughts on some stuff. How are you feeling today?
Einar: Doing pretty good all in all. Still locked down, but what can you do?
Rob: You’re calling to us from Santa Cruz, California.
Einar: That’s right.
Rob: My second guest is Craig Hewitt, founder of Castos. Podcast listeners have heard from you many times on this show as well as on your show Rogue Startups. How’s it going today, sir?
Craig: Doing well. Thanks, Rob.
Rob: Calling to us from France, so we’ve got a pretty good perspective. A lot of time zones on this call, and three different cities that are probably in three different phases of this global pandemic. I’m curious, Craig, from a personal perspective—and I want to walk through some personal stuff, and talk a little bit about business, and then we’ll get into some news stories. Personal perspective where you are in Annecy, France, I mean you’re relatively close to Italy, I believe. I guess you’re like a country over, but how is it there? Are you wearing masks when you go outside? What’s the state of affairs and the thinking, the mindset there?
Craig: We definitely wear masks when we go to the grocery, and that’s basically all we’re allowed to do. The country France only lets people leave for certain work-related jobs, to go to the grocery store, to run necessary errands, to go to the hospital, or to do some exercise outside. For us, where we live, it’s within a kilometer of our house. You have to carry this signed piece of paper stating why you’re leaving on that day at the time you leave. I go to the grocery store once a week, and that’s it really.
We’ve been like this for five weeks almost now, then we have another three weeks left. Mentally, the hardest part is just feeling sad for myself and for my family. My kids miss their friends, and they’re only talking to them on the phone, and that’s not how kids should be. At the same time, I feel really, really, really fortunate that work is relatively normal. I work from home most all the time—I miss my co-working space—but that’s a luxury, really. We have a lot of friends that are doing really bad financially and professionally. I feel really fortunate that at this point at least I’m not, so that’s the silver lining.
Rob: You said there’s three more weeks of self-quarantine—or quarantine in essence—do you feel like the gates will open up again and you’ll be less restricted, or do you think they’re going to extend it at this point?
Craig: I think that May 11th they’ll open some things back up, but it will be very, very, very slow. The analogy I heard is that it will be the opposite of how we got into this total confinement. First, it was don’t go out unless you have to, and then it was schools are closed, and then it’s restaurants are closed, and then everything is closed. I think it’ll just be the opposite roll out of that starting on the 11th, but I don’t expect our kids to go back to school properly for the rest of the year, which is the first week in July.
Rob: It’s a pretty common sentiment. Einar, your kids are confirmed here in California, and schools essentially—I was going to say canceled—but really, it’s home learning and distance learning. That’s through the rest of the year, through the rest of the school year?
Einar: Through the rest of the school year, yeah. They made that call two weeks ago. I thought it was borderline a little too early to make that call, but it’s what we’ve been expecting as well.
Rob: Einar, how about you guys? I know you live on a small farm in essence. You have land that you can walk around and be in your own property, but when you go to the grocery store, are you and your family wearing masks, or is it only you going out?
Einar: It’s usually just me going out just because I’m a complete extrovert, and so I need to see people even if it’s through a mask. It’s funny. It’s been gradually ramping up here in terms of how seriously people are taking it. I noticed a couple of days ago is the first time I went to Whole Foods, and I didn’t see anyone without a mask on, which was quite surprising. I mean, really the main thing here that we’ve noticed is that Santa Cruz is a big surfing spot obviously, and they actually closed the beaches here temporarily over Easter and actually banned surfing in all of Santa Cruz County, which some of the locals didn’t take too kindly to.
Rob: That’s very surprising. I know the culture down there, and we used to vacation there when I live in California. That is—as we say a lot these days—unprecedented. It has no precedent. It probably hasn’t been done since some pollution or something happened years ago. How about you for the prediction, when you will be out and about again with less restriction or things will start opening up again?
Einar: Early May is when things will start to get sort of normalish. We still don’t have the same kind of very strict lockdown. You’re still discouraged from going places, but there’s still a fair amount of people out and about social distancing, but still, they’re not staying within a mile of their house or whatever. I don’t know how they’re going to get back into it. The main question really is what are they going to do with the schools? Because everything pretty much hinges on schools like the economy.
You can say whatever you want about getting people back to work and things, but the fact of the matter is if there’s no school to put your kids in, the economies could not go anywhere near back to normal. I don’t know if anyone is actually looking at like—are people actually studying what’s going home with kids. Is it safe to put kids back in? Are they actually carriers, or are they just asymptomatic? I don’t know. That’s the main unknown for me really right now.
Rob: Here in Minneapolis, it’s similar to California in that we don’t have to carry papers like Craig said. We are discouraged from going out. I do go to the grocery store about once a week. We’re lucky to live across the street from a lake, and there’s walking trails, and paths, and bike trails, and stuff. We do get out and about and get our exercise. I was not—until maybe last week—thinking about wearing a mask until the CDC made that pronouncement. We don’t have masks here, so we’re going to have to make our own.
I haven’t been out aside from just going to the lake where I’m probably not going to wear one just to walk across the street, but Sherry said she went to the store the other day—I believe it was Whole Foods as well—and she said almost everyone there had a mask. It feels like a similar turn in there. In terms of my prediction, I think I’m on board with you guys as well. May 4th, I think that’s a Monday, and I believe that’s the day that Minneapolis is supposed to currently schedule. Right now, what is it? April 16, so that’s still two and a half weeks out, but we are scheduled to start having some things reopen.
I’m curious to turn it more to business and company stuff. Einar, with TinySeed, we have 20-something portfolio companies as well as we run TinySeed itself and have a small team there. Obviously, we’ve been impacted by the MicroConf postponement, and that’s been a big effort to figure out when the new dates are. We did, just recently, announce that it was moved to mid-November. We have to make adjustments because then MicroConf Europe is three weeks apart.
If you go to micfoconf.com, you can get all the details of that. Aside from that, how have you seen the companies—the startups that you advise, or that you’re involved in, or that you’re an investor in—how have you seen them acting? What advice have you been giving to those folks?
Einar: It’s very dependent on what industry you’re in pretty much like what industry you’re serving because it’s been all over the map. There’s been a small handful that have gone from doing great to a 95% drop in revenue pretty much overnight. Obviously, those guys are struggling and really scrambling to get whatever cash flow they can in the door. I spend a fair amount of time helping them think through and navigate the relief efforts that are available to them, whether that’s PPP, or EIDL, or really whatever there is in terms of bringing in private investment capital as well.
Then on the flip side, there are a small number of companies that are doing incredibly well. Like with Craig on here is doing well. It’s a good thing that more people want to start doing their own podcast if you’re a podcast hosting company. It’s been very bifurcated in the sense that there’s sort of middle because the companies that we invest in, there’s a middle that’s doing fine, and slightly nervous, and a little bit down perhaps, and probably saw the worst of it like cut all the expenses probably about a week or two ago. Then there are these two classes of other companies, one that’s doing really well, and one that’s doing really badly.
It’s been all over.
Rob: How about you, Craig? I guess we got a little glimpse in there. I have inside information and know what’s going on with Castos since you’re a TinySeed company, but how has this been impacting you, the business, and maybe even your team’s mindset?
Craig: I think starting with the team is apropos because it is the most important thing that we have. The most important asset is our team, and the people that are moving the platform forward, and serving customers, and helping spread the word about podcasting in general and our solution. We’ve always had a lot of focus on one-on-ones between me and the team and weekly team meetings, and those are just a lot more important now. The focus of those meetings is literally, “Hey, how is everyone doing? Is everyone healthy? Is everyone’s family healthy, and are they happy? Is there anything that you all need?”
Because it’s just important on a personal level, but then if we don’t have a good team moving the ball forward, then we’re sunk just like Einar was saying, these companies that are really struggling. That’s really solidified, the most important thing for us is the team. That’s been nice to be able to provide that structure and backdrop professionally for our team. I think that we’re just fortunate to be in an industry that’s growing, in general. Then right now, when people can’t go anywhere, they finally decided to start a podcast.
We’re in the same boat as webinar providers, and people like Zoom, and these other remote serving, remote tools, and purposes industries. The thing we take away from it is that it’s a trend that will continue for a long time. This will probably accelerate that and bring companies that weren’t going to be hybrid remote, or remote first, or whatever into that fray. We think this will continue going forward. There are companies that wanted to rip the Band-Aid off but were scared to, and now they had to. They won’t want to go back because their employees love working from home and doing podcasts instead of in-person meetings and things like that. I think that some degree of this will continue for a lot of companies.
Rob: It’s interesting to me. There are a couple of articles that we can actually dig into right now because I have a topic that I want to touch on about this whole working from home thing. This is my mindset and it’s probably to my detriment, but once I’ve come to a realization about something like, “Hey, working from home works.” I’ve been doing it for more than 15 years actually, maybe 18 years—on and off. I worked in a couple of office jobs in there.
Of course, working from home is a thing and works. It’s like when people discover bootstrapping and they’re like, “Wow, you can bootstrap a SaaS.” It’s like, “Yes. We’ve been talking about that for 10 years.” It’s just still so odd to me that the rest of the business world is just catching up to this. Jason Fried probably feels similar. It’s like, “Guys, we wrote a book on this years ago.”
I have a couple of articles I passed you guys—how Apple is working from home and it watches through their stuff. There’s another article about bosses—not Apple bosses but just bosses in general—panic buying spy software to keep tabs on remote workers. Einar, you’ve worked from home for a long time. What do you think about watching these big companies? Some of them seem to do it relatively well, but a lot of them seem to be fumbling the ball as they move towards working from home.
Einar: I was always surprised because, again, most of the companies that I surround myself with—they never really usually had offices anyway even if they had the inclination to eventually get there. They usually had to start out in someone’s house or whatever. I guess the DNA of doing work from home, or at least working remotely, or having a distributed team was always built into the companies that I dealt with day-to-day. It’s quite surprising to see these companies, like I said, scrambling to put things in places and being super nervous about it.
I see some of it for the work I do with discretion on the sell-side. I sometimes talk to potentially acquiring and they’re horrified when I tell them, “Yeah, there are 25 employees, and they’re distributed all over the world, or at least all over the United States.” Certainly, on that side, people are not used to it. It’s just a reflection of the environment that we, or at least I move in in the sense that I don’t get a lot of exposure to these companies that now seem to be scrambling.
Rob: Craig, you run multiple remote teams and have been remote for many years. Something that I think about this is I used to have an office, and I would hire people to be in the office. I had certain criteria in my head of like, “I’m hiring a worker or a co-worker who I’m going to work with on a day-to-day basis in person.” When I hire remote, I think about different things. I almost have different criteria in my head.
I can imagine if you had hired a bunch of folks to work in an office and suddenly are thrown into the chaos of having to move everyone remotely, that would be complicated. I believe that you hired folks at your prior job before you had started your companies, and I’m assuming they probably worked in offices because I know you were in sales. Did you feel like you have that similar dichotomy of hiring remote versus hiring someone to be at an in-person job?
Craig: Yeah, it’s interesting. My roles before we’re always in the field if you will like in field sales, in field research—I was in the medical field—so going to hospitals and doctor’s offices. It’s kind of similar—I never thought about this—but it’s kind of similar to a remote team in that the most important thing is accountability for me now. When we hire somebody, maybe the first thing is like, “Can you communicate well?” But then the second one is accountability and autonomy.
That was very much the same before because you’re a team of ten people before covering a large metropolitan area or something, and you all have to be able to take care of the things you said you’re going to take care of, and communicate back to the team, and organize. It’s the same thing here, right? With Castos, we’re five people in four continents. I can’t and don’t want to keep track of everybody all the time.
The most important thing is just, “Hey, this is the game plan. We have a meeting every Monday. This is the game plan for the week, everybody’s on the same page, and if you have any questions? Okay, cool. We’ll talk next week.” Hopefully, all those things got done. If not, we have Slack and all those kinds of stuff. That is the most important thing is people to be able to work independently.
Rob: Written communication becomes a huge deal when you’re remote versus if there’s ten of you sitting around a table much like we were in the drip offices. I’m here in Minneapolis, a development team of 10. We were in Slack, but you didn’t need to type stuff to communicate for the most part. You could just walk up and have a conversation off-the-cuff all the time, and switching to remote then it all becomes in Slack, and email. Therefore, having that ability—that written communication—I know that is such a value that I’ve always upheld.
When I hear people say, “Hey, you know what makes a great developer? The ability to write code and also the ability to communicate in writing.” I think that’s so true. In any role, the secondary factor that I like to evaluate is the ability to communicate well in writing and clearly, so it’s not going back and forth a lot. Do you find that, Craig, on your team? Is that a requirement that you have when you’re interviewing people? Do you feel like it’s a critical piece to be running a remote team?
Craig: Yeah, absolutely. I think the Automattic folks have written about this that they start a lot of their interviews over chat, and we do the same. It used to be Skype, but yeah, we would have a bit of a chat over email or on Skype in written form, and then start a call. That’s really powerful because if you can’t communicate cohesively in written form, there’s no chance especially to work asynch. If everybody’s in the same time zone give or take, it’s okay, but we’re over six time zones and that’s a mess.
Rob: Next story I want to talk about is the United States Payroll Protection Program as part of the big stimulus package. If you’ve been following this podcast, you’ve heard us talking about it. We did a live stream special, Einar, and Brennan Dunn, and I a couple weeks ago talking about the government stimulus. I’m curious, the Payroll Protection Program, the idea behind it—if you haven’t heard—is it gives US companies that qualify small businesses a loan for two and a half months of payroll. Then if they don’t lay anybody off for a certain amount of time, then they get that forgiven—essentially becomes like a grant or a gift, it’s a stimulus.
That’s the high level. You can go read about it. We actually have a link on microconf.com that Einar has been updating. It’s actually bringing a shocking amount of traffic to the site right now straight through Google—just organic results. Einar basically read hundreds and hundreds of pages of government regulations so you don’t have to. I’m curious, Craig, did you apply? Were you able to apply given that you have a US company, but you don’t live in the US?
Craig: No, I didn’t apply. My salary does not qualify, and the other two US-based folks that we have are 1099, so they don’t qualify either.
Rob: Got it. I believe they can apply on their own. I’m curious, your take on the stimulus overall. You can comment on the US stimulus, which was $2 trillion dollars, there’s a lot of countries doing stimulus. Do you feel like this stimulus is going to work? Do you feel like this kind of stimulus helps, that it’ll fix things, and it’ll help, that it won’t? What’s your take?
Craig: I’m glad we have Einar on the call because I know he knows a lot more about this than I do, but my take—as a relative layman to macroeconomics—is that the stimulus is designed to prop up companies for sure and more so Wall Street than the people that really need the money right now, which are the people that don’t have jobs. Because I think so many people have already gotten laid off.
These companies that are getting PPP, or EIDL, or whatever may not go rehire them. I know that’s the terms of some of the forgiveness and stuff, but a lot of these companies have a lot bigger things to worry about than paying back a 1% loan versus it being forgiven, and spending that money on things like rent, or paying salaries to founders, and keeping the lights on.
The other side of that is the $1200 that people get personally. We have kids, and so we got a little bit more for the direct stimulus, but no, I don’t. You see the stock market is up today when they announced five million people filed for unemployment.
Einar: Only five million, Craig. Come on.
Craig: It’s just crazy. I know in the TinySeed’s Slack there was a picture of the Titanic sinking, and the back end was all the way up in there. They’re like, “Wow, look. We’re going up, and we should be going down.” That’s exactly how I feel is everybody thinks this is okay, and we are on ground zero of this of having small businesses. I see it left and right with my friends and people that I work with that are just going through a ton of pain. No, I don’t think it’s enough.
Rob: How about you, Einar? You’re my resident expert that I go to for this kind of stuff.
Einar: Just because you didn’t want to be bothered to read all those hundreds of pages of legal mumbo-jumbo, and keep up with the treasury guidance, and whatnot.
Rob: I really did not. Not at all interested. I would go to you for stimulus, what are your thoughts on it? You’re just a very thoughtful person on this type of stuff. Do you feel like it helps? Do you feel like it works? What’s your take?
Einar: It’s important to understand there are two different classes almost of stimulus. There is this what Craig’s talking about—or at least a perception of—which is more like a bailout or what feels like a bailout of Wall Street to a lot of people. This is essentially quantitative easing. This is what the Fed is doing in terms of effectively buying—basically printing money and putting it into the market to keep liquidity going. The size of that is pretty incredible, in my view.
Just for context, they had quantitative easing during the financial crisis. They spent—however many billions of dollars it was—over about eight months. There was a lot of political hoo-ha around the time whether that was appropriate, or too much money, or all this stuff. For the last few weeks now, we’ve been pumping out that much money into the market every week. What we did during the financial crisis over eight months, we’ve been pumping out every week or so for the last several weeks.
On top of that, there’s some other stuff. The Federal Reserve isn’t actually allowed to legally buy corporate bonds—so high-yield bonds or whatever—but they somehow managed to engineer their way around that. We’re now in a situation where the Fed is buying corporate debt. Even in some cases high-yield or what’s sometimes called junk debt. In a lot of cases, a lot of people are saying, “Why should the Fed be doing this? This is bailing out an economy.” Most likely, it’ll get to the point where now the Fed’s buying equities of companies just to prop things up. That’s where you hear these several trillion dollars-worth of cash, all this stuff being spent.
The second part is the smaller business stimulus part of it, which is the PPP and the EIDL. I actually just heard this morning that PPP just ran out of money. They only designated $349 billion dollars to it. They don’t seem to have got their ducks in a row in order to actually refill that, which is devastating and a political failure. From what I was looking through the stimulus packages and what was going on, I always thought that this should have been in a grant just administered by the IRS.
The IRS has the data that these banks are asking for anyway. If you look at what the documentation required, they were asking for Form 941, which essentially the IRS already has, so why couldn’t the IRS have just looked at that already and just issued the grant? That would have been much more efficient. They need to get their act together, and obviously refill this program—even though it would have been better as a grant—but this is what we have right now, and they need to refill it.
In terms of how effective it is as a stimulus, I think it can be pretty effective, but it needs to just put more money into more pockets sooner. I see some of the zeitgeist out there like, “Only take the money if you’re about to run out of cash and you were in dire straits.” I’ve been screaming it on, “That’s not how it should work. You need as many companies as possible to grab this money, and that’s how you basically keep the economy from shedding six million unemployed every single week for weeks and weeks on end.”
That’s my view, but of course, that does require Congress to get their act together and actually refill the program.
Rob: Do you think the fact that the PPP ran out is a sign that it’s not going to help very much or what’s your thought there?
Einar: It obviously is helping a lot because it speaks to the demand, right? It speaks to how many companies are in distress and asking for assistance. That’s obviously helpful, but there are two ways you can screw that up in my mind. One is you discourage companies from actually applying either by making it very complicated or having situations where people can’t get a bank relationship that would allow them to apply in the first place, which is still true. I still know people who—as of today—their funds have run out, but they don’t have a bank that will allow them to apply. Then they can’t access the funds.
That’s one side of it, but I also think the other side of it is discouraging companies from applying—or somehow making this shame-base that you shouldn’t be doing it—has almost the same effect on the economy overall. It’s a mistake to discourage companies from applying because every day counts.
That’s the thing, the stimulus needs to be the right amount of money at the right amount of time. If it takes two weeks for Congress to get their act together, this will be devastating for small businesses. It just will be because people will then just lose faith. They’ll give up leases, they’ll fire people, and it’ll be much worse than it needs to be.
Rob: My experience applying was I’ve been a Bank of America customer for 30-something years. With my business, probably close to 20 years I’ve had an account. The day that PPP opens, I get the email, and I click on the link to apply, and it has me log in to online banking, and it says, “You do not have a loan relationship—a lending relationship—or a credit card with us, so you can’t apply.”
I was thinking to myself, “Are you kidding me?” I’ve been a customer for this long and then within—I don’t know—3-4 days, they turned that around. They updated their applications such that you could say, “Yes, I have a lending relationship, or no, I don’t.” Who knows? I’m guessing they’ll give priority to people who have that relationship with them, but then even yesterday or today, I got another email asking for more info. I don’t know.
I have no idea if I’ve missed the boat already by not getting because I didn’t have all the docs or whatever. It felt a lot tumultuous in the sense that every bank handled it differently. Some banks aren’t ready, and some banks aren’t hosting it so people are unavailable. To your point of was there just a better way to organize this if you’re going to try to forgive it anyway?
Einar: Definitely was. I definitely think there was. It’s like listen, the IRS already knows what your payroll was at whatever period. They could have looked at it because you have to report it quarterly—at least in the US. You have to report it quarterly what you’re paying your employees, what you’re paying yourself, what’s the sales, self-employment taxes. If you look at the applications that are going in, these are exactly the government documents that the banks are requiring.
Why did we put the banks in the middle of this? Some of them are just aren’t set up for it, and then we have to pay, obviously, fees to the banks. It’s like on the $349 billion dollars, they think $10 billion will go to banks just to manage the process, which that seems, I don’t know, inefficient to me.
Rob: Economy goes to hell in a handbasket and the banks maybe make out well like they did in 2008 with the bailout. It’s pretty interesting times these days. Did you guys check out the Stewart Butterfield? He had a long thread. It was his week leading up to the self-quarantine. I sent you guys a link in advance. I’m curious, Craig, as you read through this thread, he’s basically giving a day-by-day account of, “Hey, this end up being my last time in a restaurant,” and discussions with senior leadership and stressing about what’s going to happen.
Then also looking at Slack—obviously a remote chat tool—and their usage just up and to the right in an insane way much like we see Zoom doing. Which pieces of his story resonated with you as a founder?
Craig: It was a lot more of the personal things because we can’t do anything and haven’t been able to for a long time. It’s the personal stuff like last time I went to a restaurant, and then we went and bought some flowers, and all these kinds of things. We talked a lot about that like, “Hey, I’m glad we did these things when we could because we can’t now.” Even when things open back up—who knows when that’ll be officially—a lot of those places won’t open back up right away. Then talking about stimulus and how that rolls out and stuff, a lot of them will never come back.
On a personal level, I think that I’m not a big, “It will never be the same thing,” but I think some things will never be the same. Some of our favorite restaurants won’t have gotten stimulus, or not enough, or not quick enough, and just have to go do something else. It is worth taking some time now to reflect on the things we did, and enjoyed, and took advantage of because we might not be able to do some of them anymore. That’s just on a personal level.
Rob: Oh, man. Now I’m bummed out.
Einar: Don’t listen to Craig.
Rob: Probably pretty realistic. What’s your take, Einar? You have thoughts?
Einar: Yeah, I have the same stuff. I remember him—seeing this—putting this thread out—I guess it’s two or three weeks ago now. I’m reading it and feelings of déjà vu and some of the feelings that I had particularly on the personal side. As you know, Rob, I was shouting about this stuff for a long time, and just saying that, “This is going to be a problem. This is going to be a problem. This is going to be a problem.”
Just one of the things you noted is the night that it became real in America, this is a combination of the NBA season being suspended, and Tom Hanks reporting that he was testing positive. It’s odd to me because I see that in his thread, and I was like, “Oh, yeah I remember that night.” Because I remember it with relief. It was like March 11. Everyone finally was like, “Wait, this is a real thing.”
Craig: You’re not crazy.
Einar: Exactly. I was like, “Wait, is this just a big conspiracy theory on Twitter? Am I spending too much time on Twitter again?” I don’t know. That was the main stuff, just the sort of personal like, “Oh, this turned out to be the last time I was in a restaurant. This turned out to be the last time I did XYZ for several months.” On the point of things won’t be the same, obviously, some restaurants in main street are going under.
Some of the downsides, for example, to the stimulus package on the small business side, which I actually made this mistake initially. I thought you could get a loan and a grant to cover, not only your payroll, but actually, also rent during that time. That turns out not to be the case. Friends of mine, they just bought a cafe three months ago—four months ago now, I guess. Their rent is probably their main single expense line. How are they going to cover that? I don’t know.
Rob: That doesn’t make a ton of sense to me. This thread, I felt the same way about it as I read through, and I remember this specifically. One of the nights I was up at the North Shore with one of my sons, and you and I were on the phone, and that was when the president declared a state of emergency at that point. He touches on that in here. It is starting to feel—well, I guess I have a couple of thoughts. One is you remember where you were when certain things happen, right? When 9/11 happened, you remember how you felt, and what house you were, and how you heard about it.
Hopefully, there are great things that happen that we remember where we were, but oftentimes, it feels like it’s the traditional one like my parents would bring up is like everyone remembers where they were when they heard Kennedy got shot, or Martin Luther King was shot. I don’t want it to always be the negative things, but it certainly does seem that way. That’s how this will feel.
I’m curious, going forward, I wonder how our kids will remember this? It depends on their age, obviously, and depends on personality, but it’s such a trippy thing for them to be in this. Again, using that unprecedented word, it’s unprecedented and hopefully doesn’t happen again in our lifetime. I feel like the first couple of weeks of the quarantining, I was incredibly unproductive. I was trying to get 5-10 hours of work done a week.
I would sit in front of my computer for 7-8 hours a day, but I just wasn’t getting that much work done. Then a bit flipped for me. It was somewhere in the third week—late in the third week, early in the fourth. Now, I feel like I’m extremely focused. I’m sad at the tragedy. I still get the newspaper, and I read the headlines every day. I just feel so bad for what’s going on, but I also hit the point where it’s like, “Okay, I can’t sit and wallow in these feelings all the time. I have stuff to do here that is hopefully helping other people, running my business, supporting my founders.”
Doing this podcast. People have been emailing saying, “Thanks for continuing to put it out,” because it helps them get through the week. It helps them have a bright spot in the day to hear about what’s going on, as well as the MicroConf On Air live streams, and just all the stuff that I’m doing. I feel like I’ve found almost like a renewed sense of purpose, and a renewed sense of motivation just in the past couple of weeks. Because you guys, I believe—I’ve lost count—but it’s at either fifth week or it might be the sixth week, I genuinely don’t know of quarantining.
I’m curious, Craig, how are you mentally in terms of being able to focus on work? I guess this relates to the question I had asked earlier, but I asked it more about your team and the company.
Craig: Similarly at the first, surely, week or two I was just sad. I’ve heard it being compared to mourning—losing a loved one. That you’re just sad, and then you’re angry, and then you accept it, and learn how to live with things. At this point, I’m good on a spiritual level. I’m productive at work, I feel really happy and blessed that my family is happy and healthy.
It really is business as usual for me. I’m actually working more now than I normally would because there’s nothing else to do. I’m working 25% more than I normally do. I feel really happy about that because I do have a responsibility to our team, and to our customers, and I’m glad that we’re able to continue serving them.
Rob: Einar, you had told me early on that you were super distracted like I was—and I think most of us were. Has that settled out for you, or do you still feel like the running dread of stress and news is taking you away from work more than you’d like?
Einar: It’s gotten much better this week. I feel like I was productive the previous two weeks before that too, but mostly in diving into the PPP programs. That is, honestly, requires a lot of outrage a fair amount of the time. Also, because my contact detail was on those pages on MicroConf around, “Just reach out if you have any questions.” I would get 3, 4, 5, 6, 7, 8 emails a day with—in some cases—pretty heartbreaking situations where people were asking for advice. That started to die down a little.
I’ve been able to get back to more of doing what I was planning to do this time of year, but certainly, just because of what my main job is going forward, which is sort of on hold. That’s the thing. We were supposed to be in the market right now going for aggressively fundraising for a fund two, and certainly, that side of things is pretty much unlike in a while. I don’t know when we’re going to do that again.
It’s been better, but certainly, I don’t have the same level of productivity look for what you guys seem to be saying now.
Craig: Could I add one thing?
Rob: Yeah, I know. Do it.
Craig: I don’t want to leave with a down in the doldrums really pessimistic view of this because one thing that’s really interesting here compared to the financial crisis is this was like an external event that drove everything into the dumps that it is now, right? All these people have lost their jobs, or furloughed, or whatever because of an external event. That external event will go away, and things will come back much more quickly out of this than they did the financial crisis. That was years, this could be months. Sometime around the end of the year maybe.
I think that folks that have been impacted, if we can survive—say until the end of the year—I think there are going to be huge opportunities. Talking about this trend towards remote work, and things like podcasting, webinars, and digital products, and things like that. Folks that listen to this podcast, I think all are rightfully thinking like, “Okay, as the world comes out of this, what does it look like, and how can I—as a smart nimble bootstrap scrappy person—position myself and our brands to be ready for that?”
We all are very uniquely ready to lead that charge. That’s maybe something that gives me a little optimism in folks for this community.
Rob: I appreciate that. I appreciate us leaving it on a positive note. I was going to say that I have tended to be the optimist in the room in this situation and in a lot of situations. Einar and I have been a good balancing because he was saying, “Oh, it’s going to get really bad,” and I was like, “I don’t think it’ll get that bad.” Turns out, he was right. When I look back at even just four episodes ago, Einar and I were on here talking about. I was like, “This is a tragedy. It’s devastating. Things will get better.”
We need to acknowledge what’s happening with the reality of the current situation, but we also need to acknowledge that it will get better. Everything’s not going to change permanently. To me, there is a bright future to look ahead to. I say that with all respect to the current frontline workers. We have multiple friends who are physicians, and they’re going through crazy. We have an ER doc. It’s terrible, and it’s very hard, and it’s very stressful for them. I want to fully acknowledge that, but also there is another side. There is the other side that we will get to within months, hopefully, but I guess we’ll see how that all pans out.
Gentlemen, let’s wrap on that positive note. Thanks so much for agreeing to come on the show and for working with me to find a time that works. Einar, you were a last-minute substitute, and I do appreciate that. I had a guest who unfortunately had to cancel. I’ll try to get her booked on a future episode.
Craig Hewitt, if folks want to keep up with you on Twitter, you are @TheCraigHewitt. Of course, castos.com is your podcast hosting service that this podcast and TinySeed Tales, and MicroConf On Air are all hosted on, so check that out if you haven’t already.
Einar Vollset, you are @einarvollset on Twitter and tinyseed.com, if you want to see what he’s up to. Actually, if they really want to see what you’re up to, we’ll link up your MicroConf COVID-19 business relief overview article that I know you spent dozens of hours putting together.
Einar: The most productive I’ve been in the last few weeks.
Rob: Exactly, the most output. Thanks again gents for coming on the show. Hope to have you back again soon.
Craig: Thanks, Rob.
Einar: Thanks.
Rob: Stay tuned next week to hear another update from Mike Taber on how things are going with Bluetick. He and I haven’t spoken, especially not on the show, but we literally haven’t spoken since all the self-quarantine stuff happens. I’ll be interested to hear how he’s thinking. Then I’m looking to do a Q&A episode probably the week after, so if you have a question for me or for a guest that I decided to bring on, please, leave me a voicemail at 1-888-801-9690 or email questions@startupsfortherestofus.com.
If you send a Dropbox link to an audio file, that will go to the top of the queue. If you enter text, it will be in the queue of current questions we have. If you’re not subscribed to the show, you should search for startups in any podcatcher that you have. Of course, we have a full transcript of each episode on the website—typically within a few days after the episode is published. Thanks so much for listening this week. I’ll see you next time.
It’s an interesting discussion because we’re located in three different cities on two different contents, so we’re able to give each of our takes on how things are in our city, how they feel amid the coronavirus pandemic. We talk about how our businesses are looking and reacting as well as advice we’re giving to founders. We talk about the shift to work from home, look at the Payroll Protection Program, and talk about the fact that essentially, that money has run out as of today when we’re recording.
Then we dig into a tweet thread of a really interesting day-by-day account of Stewart Butterfield, who is the co-founder of Slack. He talked about how they’re reacting to it and all of that stuff. It’s a really interesting show today. I’m glad you’re here to check it out, and I hope you enjoy my conversation with Einar Vollset and Craig Hewitt.
Welcome back to another Startup Roundtable. We’re going to talk about a variety of topics today. I’m really excited to have my two guests on the line, Einar Vollset, co-founder of TinySeed. You and I talk quite a bit, but it will be fun today to get your opinion and thoughts on some stuff. How are you feeling today?
Einar: Doing pretty good all in all. Still locked down, but what can you do?
Rob: You’re calling to us from Santa Cruz, California.
Einar: That’s right.
Rob: My second guest is Craig Hewitt, founder of Castos. Podcast listeners have heard from you many times on this show as well as on your show Rogue Startups. How’s it going today, sir?
Craig: Doing well. Thanks, Rob.
Rob: Calling to us from France, so we’ve got a pretty good perspective. A lot of time zones on this call, and three different cities that are probably in three different phases of this global pandemic. I’m curious, Craig, from a personal perspective—and I want to walk through some personal stuff, and talk a little bit about business, and then we’ll get into some news stories. Personal perspective where you are in Annecy, France, I mean you’re relatively close to Italy, I believe. I guess you’re like a country over, but how is it there? Are you wearing masks when you go outside? What’s the state of affairs and the thinking, the mindset there?
Craig: We definitely wear masks when we go to the grocery, and that’s basically all we’re allowed to do. The country France only lets people leave for certain work-related jobs, to go to the grocery store, to run necessary errands, to go to the hospital, or to do some exercise outside. For us, where we live, it’s within a kilometer of our house. You have to carry this signed piece of paper stating why you’re leaving on that day at the time you leave. I go to the grocery store once a week, and that’s it really.
We’ve been like this for five weeks almost now, then we have another three weeks left. Mentally, the hardest part is just feeling sad for myself and for my family. My kids miss their friends, and they’re only talking to them on the phone, and that’s not how kids should be. At the same time, I feel really, really, really fortunate that work is relatively normal. I work from home most all the time—I miss my co-working space—but that’s a luxury, really. We have a lot of friends that are doing really bad financially and professionally. I feel really fortunate that at this point at least I’m not, so that’s the silver lining.
Rob: You said there’s three more weeks of self-quarantine—or quarantine in essence—do you feel like the gates will open up again and you’ll be less restricted, or do you think they’re going to extend it at this point?
Craig: I think that May 11th they’ll open some things back up, but it will be very, very, very slow. The analogy I heard is that it will be the opposite of how we got into this total confinement. First, it was don’t go out unless you have to, and then it was schools are closed, and then it’s restaurants are closed, and then everything is closed. I think it’ll just be the opposite roll out of that starting on the 11th, but I don’t expect our kids to go back to school properly for the rest of the year, which is the first week in July.
Rob: It’s a pretty common sentiment. Einar, your kids are confirmed here in California, and schools essentially—I was going to say canceled—but really, it’s home learning and distance learning. That’s through the rest of the year, through the rest of the school year?
Einar: Through the rest of the school year, yeah. They made that call two weeks ago. I thought it was borderline a little too early to make that call, but it’s what we’ve been expecting as well.
Rob: Einar, how about you guys? I know you live on a small farm in essence. You have land that you can walk around and be in your own property, but when you go to the grocery store, are you and your family wearing masks, or is it only you going out?
Einar: It’s usually just me going out just because I’m a complete extrovert, and so I need to see people even if it’s through a mask. It’s funny. It’s been gradually ramping up here in terms of how seriously people are taking it. I noticed a couple of days ago is the first time I went to Whole Foods, and I didn’t see anyone without a mask on, which was quite surprising. I mean, really the main thing here that we’ve noticed is that Santa Cruz is a big surfing spot obviously, and they actually closed the beaches here temporarily over Easter and actually banned surfing in all of Santa Cruz County, which some of the locals didn’t take too kindly to.
Rob: That’s very surprising. I know the culture down there, and we used to vacation there when I live in California. That is—as we say a lot these days—unprecedented. It has no precedent. It probably hasn’t been done since some pollution or something happened years ago. How about you for the prediction, when you will be out and about again with less restriction or things will start opening up again?
Einar: Early May is when things will start to get sort of normalish. We still don’t have the same kind of very strict lockdown. You’re still discouraged from going places, but there’s still a fair amount of people out and about social distancing, but still, they’re not staying within a mile of their house or whatever. I don’t know how they’re going to get back into it. The main question really is what are they going to do with the schools? Because everything pretty much hinges on schools like the economy.
You can say whatever you want about getting people back to work and things, but the fact of the matter is if there’s no school to put your kids in, the economies could not go anywhere near back to normal. I don’t know if anyone is actually looking at like—are people actually studying what’s going home with kids. Is it safe to put kids back in? Are they actually carriers, or are they just asymptomatic? I don’t know. That’s the main unknown for me really right now.
Rob: Here in Minneapolis, it’s similar to California in that we don’t have to carry papers like Craig said. We are discouraged from going out. I do go to the grocery store about once a week. We’re lucky to live across the street from a lake, and there’s walking trails, and paths, and bike trails, and stuff. We do get out and about and get our exercise. I was not—until maybe last week—thinking about wearing a mask until the CDC made that pronouncement. We don’t have masks here, so we’re going to have to make our own.
I haven’t been out aside from just going to the lake where I’m probably not going to wear one just to walk across the street, but Sherry said she went to the store the other day—I believe it was Whole Foods as well—and she said almost everyone there had a mask. It feels like a similar turn in there. In terms of my prediction, I think I’m on board with you guys as well. May 4th, I think that’s a Monday, and I believe that’s the day that Minneapolis is supposed to currently schedule. Right now, what is it? April 16, so that’s still two and a half weeks out, but we are scheduled to start having some things reopen.
I’m curious to turn it more to business and company stuff. Einar, with TinySeed, we have 20-something portfolio companies as well as we run TinySeed itself and have a small team there. Obviously, we’ve been impacted by the MicroConf postponement, and that’s been a big effort to figure out when the new dates are. We did, just recently, announce that it was moved to mid-November. We have to make adjustments because then MicroConf Europe is three weeks apart.
If you go to micfoconf.com, you can get all the details of that. Aside from that, how have you seen the companies—the startups that you advise, or that you’re involved in, or that you’re an investor in—how have you seen them acting? What advice have you been giving to those folks?
Einar: It’s very dependent on what industry you’re in pretty much like what industry you’re serving because it’s been all over the map. There’s been a small handful that have gone from doing great to a 95% drop in revenue pretty much overnight. Obviously, those guys are struggling and really scrambling to get whatever cash flow they can in the door. I spend a fair amount of time helping them think through and navigate the relief efforts that are available to them, whether that’s PPP, or EIDL, or really whatever there is in terms of bringing in private investment capital as well.
Then on the flip side, there are a small number of companies that are doing incredibly well. Like with Craig on here is doing well. It’s a good thing that more people want to start doing their own podcast if you’re a podcast hosting company. It’s been very bifurcated in the sense that there’s sort of middle because the companies that we invest in, there’s a middle that’s doing fine, and slightly nervous, and a little bit down perhaps, and probably saw the worst of it like cut all the expenses probably about a week or two ago. Then there are these two classes of other companies, one that’s doing really well, and one that’s doing really badly.
It’s been all over.
Rob: How about you, Craig? I guess we got a little glimpse in there. I have inside information and know what’s going on with Castos since you’re a TinySeed company, but how has this been impacting you, the business, and maybe even your team’s mindset?
Craig: I think starting with the team is apropos because it is the most important thing that we have. The most important asset is our team, and the people that are moving the platform forward, and serving customers, and helping spread the word about podcasting in general and our solution. We’ve always had a lot of focus on one-on-ones between me and the team and weekly team meetings, and those are just a lot more important now. The focus of those meetings is literally, “Hey, how is everyone doing? Is everyone healthy? Is everyone’s family healthy, and are they happy? Is there anything that you all need?”
Because it’s just important on a personal level, but then if we don’t have a good team moving the ball forward, then we’re sunk just like Einar was saying, these companies that are really struggling. That’s really solidified, the most important thing for us is the team. That’s been nice to be able to provide that structure and backdrop professionally for our team. I think that we’re just fortunate to be in an industry that’s growing, in general. Then right now, when people can’t go anywhere, they finally decided to start a podcast.
We’re in the same boat as webinar providers, and people like Zoom, and these other remote serving, remote tools, and purposes industries. The thing we take away from it is that it’s a trend that will continue for a long time. This will probably accelerate that and bring companies that weren’t going to be hybrid remote, or remote first, or whatever into that fray. We think this will continue going forward. There are companies that wanted to rip the Band-Aid off but were scared to, and now they had to. They won’t want to go back because their employees love working from home and doing podcasts instead of in-person meetings and things like that. I think that some degree of this will continue for a lot of companies.
Rob: It’s interesting to me. There are a couple of articles that we can actually dig into right now because I have a topic that I want to touch on about this whole working from home thing. This is my mindset and it’s probably to my detriment, but once I’ve come to a realization about something like, “Hey, working from home works.” I’ve been doing it for more than 15 years actually, maybe 18 years—on and off. I worked in a couple of office jobs in there.
Of course, working from home is a thing and works. It’s like when people discover bootstrapping and they’re like, “Wow, you can bootstrap a SaaS.” It’s like, “Yes. We’ve been talking about that for 10 years.” It’s just still so odd to me that the rest of the business world is just catching up to this. Jason Fried probably feels similar. It’s like, “Guys, we wrote a book on this years ago.”
I have a couple of articles I passed you guys—how Apple is working from home and it watches through their stuff. There’s another article about bosses—not Apple bosses but just bosses in general—panic buying spy software to keep tabs on remote workers. Einar, you’ve worked from home for a long time. What do you think about watching these big companies? Some of them seem to do it relatively well, but a lot of them seem to be fumbling the ball as they move towards working from home.
Einar: I was always surprised because, again, most of the companies that I surround myself with—they never really usually had offices anyway even if they had the inclination to eventually get there. They usually had to start out in someone’s house or whatever. I guess the DNA of doing work from home, or at least working remotely, or having a distributed team was always built into the companies that I dealt with day-to-day. It’s quite surprising to see these companies, like I said, scrambling to put things in places and being super nervous about it.
I see some of it for the work I do with discretion on the sell-side. I sometimes talk to potentially acquiring and they’re horrified when I tell them, “Yeah, there are 25 employees, and they’re distributed all over the world, or at least all over the United States.” Certainly, on that side, people are not used to it. It’s just a reflection of the environment that we, or at least I move in in the sense that I don’t get a lot of exposure to these companies that now seem to be scrambling.
Rob: Craig, you run multiple remote teams and have been remote for many years. Something that I think about this is I used to have an office, and I would hire people to be in the office. I had certain criteria in my head of like, “I’m hiring a worker or a co-worker who I’m going to work with on a day-to-day basis in person.” When I hire remote, I think about different things. I almost have different criteria in my head.
I can imagine if you had hired a bunch of folks to work in an office and suddenly are thrown into the chaos of having to move everyone remotely, that would be complicated. I believe that you hired folks at your prior job before you had started your companies, and I’m assuming they probably worked in offices because I know you were in sales. Did you feel like you have that similar dichotomy of hiring remote versus hiring someone to be at an in-person job?
Craig: Yeah, it’s interesting. My roles before we’re always in the field if you will like in field sales, in field research—I was in the medical field—so going to hospitals and doctor’s offices. It’s kind of similar—I never thought about this—but it’s kind of similar to a remote team in that the most important thing is accountability for me now. When we hire somebody, maybe the first thing is like, “Can you communicate well?” But then the second one is accountability and autonomy.
That was very much the same before because you’re a team of ten people before covering a large metropolitan area or something, and you all have to be able to take care of the things you said you’re going to take care of, and communicate back to the team, and organize. It’s the same thing here, right? With Castos, we’re five people in four continents. I can’t and don’t want to keep track of everybody all the time.
The most important thing is just, “Hey, this is the game plan. We have a meeting every Monday. This is the game plan for the week, everybody’s on the same page, and if you have any questions? Okay, cool. We’ll talk next week.” Hopefully, all those things got done. If not, we have Slack and all those kinds of stuff. That is the most important thing is people to be able to work independently.
Rob: Written communication becomes a huge deal when you’re remote versus if there’s ten of you sitting around a table much like we were in the drip offices. I’m here in Minneapolis, a development team of 10. We were in Slack, but you didn’t need to type stuff to communicate for the most part. You could just walk up and have a conversation off-the-cuff all the time, and switching to remote then it all becomes in Slack, and email. Therefore, having that ability—that written communication—I know that is such a value that I’ve always upheld.
When I hear people say, “Hey, you know what makes a great developer? The ability to write code and also the ability to communicate in writing.” I think that’s so true. In any role, the secondary factor that I like to evaluate is the ability to communicate well in writing and clearly, so it’s not going back and forth a lot. Do you find that, Craig, on your team? Is that a requirement that you have when you’re interviewing people? Do you feel like it’s a critical piece to be running a remote team?
Craig: Yeah, absolutely. I think the Automattic folks have written about this that they start a lot of their interviews over chat, and we do the same. It used to be Skype, but yeah, we would have a bit of a chat over email or on Skype in written form, and then start a call. That’s really powerful because if you can’t communicate cohesively in written form, there’s no chance especially to work asynch. If everybody’s in the same time zone give or take, it’s okay, but we’re over six time zones and that’s a mess.
Rob: Next story I want to talk about is the United States Payroll Protection Program as part of the big stimulus package. If you’ve been following this podcast, you’ve heard us talking about it. We did a live stream special, Einar, and Brennan Dunn, and I a couple weeks ago talking about the government stimulus. I’m curious, the Payroll Protection Program, the idea behind it—if you haven’t heard—is it gives US companies that qualify small businesses a loan for two and a half months of payroll. Then if they don’t lay anybody off for a certain amount of time, then they get that forgiven—essentially becomes like a grant or a gift, it’s a stimulus.
That’s the high level. You can go read about it. We actually have a link on microconf.com that Einar has been updating. It’s actually bringing a shocking amount of traffic to the site right now straight through Google—just organic results. Einar basically read hundreds and hundreds of pages of government regulations so you don’t have to. I’m curious, Craig, did you apply? Were you able to apply given that you have a US company, but you don’t live in the US?
Craig: No, I didn’t apply. My salary does not qualify, and the other two US-based folks that we have are 1099, so they don’t qualify either.
Rob: Got it. I believe they can apply on their own. I’m curious, your take on the stimulus overall. You can comment on the US stimulus, which was $2 trillion dollars, there’s a lot of countries doing stimulus. Do you feel like this stimulus is going to work? Do you feel like this kind of stimulus helps, that it’ll fix things, and it’ll help, that it won’t? What’s your take?
Craig: I’m glad we have Einar on the call because I know he knows a lot more about this than I do, but my take—as a relative layman to macroeconomics—is that the stimulus is designed to prop up companies for sure and more so Wall Street than the people that really need the money right now, which are the people that don’t have jobs. Because I think so many people have already gotten laid off.
These companies that are getting PPP, or EIDL, or whatever may not go rehire them. I know that’s the terms of some of the forgiveness and stuff, but a lot of these companies have a lot bigger things to worry about than paying back a 1% loan versus it being forgiven, and spending that money on things like rent, or paying salaries to founders, and keeping the lights on.
The other side of that is the $1200 that people get personally. We have kids, and so we got a little bit more for the direct stimulus, but no, I don’t. You see the stock market is up today when they announced five million people filed for unemployment.
Einar: Only five million, Craig. Come on.
Craig: It’s just crazy. I know in the TinySeed’s Slack there was a picture of the Titanic sinking, and the back end was all the way up in there. They’re like, “Wow, look. We’re going up, and we should be going down.” That’s exactly how I feel is everybody thinks this is okay, and we are on ground zero of this of having small businesses. I see it left and right with my friends and people that I work with that are just going through a ton of pain. No, I don’t think it’s enough.
Rob: How about you, Einar? You’re my resident expert that I go to for this kind of stuff.
Einar: Just because you didn’t want to be bothered to read all those hundreds of pages of legal mumbo-jumbo, and keep up with the treasury guidance, and whatnot.
Rob: I really did not. Not at all interested. I would go to you for stimulus, what are your thoughts on it? You’re just a very thoughtful person on this type of stuff. Do you feel like it helps? Do you feel like it works? What’s your take?
Einar: It’s important to understand there are two different classes almost of stimulus. There is this what Craig’s talking about—or at least a perception of—which is more like a bailout or what feels like a bailout of Wall Street to a lot of people. This is essentially quantitative easing. This is what the Fed is doing in terms of effectively buying—basically printing money and putting it into the market to keep liquidity going. The size of that is pretty incredible, in my view.
Just for context, they had quantitative easing during the financial crisis. They spent—however many billions of dollars it was—over about eight months. There was a lot of political hoo-ha around the time whether that was appropriate, or too much money, or all this stuff. For the last few weeks now, we’ve been pumping out that much money into the market every week. What we did during the financial crisis over eight months, we’ve been pumping out every week or so for the last several weeks.
On top of that, there’s some other stuff. The Federal Reserve isn’t actually allowed to legally buy corporate bonds—so high-yield bonds or whatever—but they somehow managed to engineer their way around that. We’re now in a situation where the Fed is buying corporate debt. Even in some cases high-yield or what’s sometimes called junk debt. In a lot of cases, a lot of people are saying, “Why should the Fed be doing this? This is bailing out an economy.” Most likely, it’ll get to the point where now the Fed’s buying equities of companies just to prop things up. That’s where you hear these several trillion dollars-worth of cash, all this stuff being spent.
The second part is the smaller business stimulus part of it, which is the PPP and the EIDL. I actually just heard this morning that PPP just ran out of money. They only designated $349 billion dollars to it. They don’t seem to have got their ducks in a row in order to actually refill that, which is devastating and a political failure. From what I was looking through the stimulus packages and what was going on, I always thought that this should have been in a grant just administered by the IRS.
The IRS has the data that these banks are asking for anyway. If you look at what the documentation required, they were asking for Form 941, which essentially the IRS already has, so why couldn’t the IRS have just looked at that already and just issued the grant? That would have been much more efficient. They need to get their act together, and obviously refill this program—even though it would have been better as a grant—but this is what we have right now, and they need to refill it.
In terms of how effective it is as a stimulus, I think it can be pretty effective, but it needs to just put more money into more pockets sooner. I see some of the zeitgeist out there like, “Only take the money if you’re about to run out of cash and you were in dire straits.” I’ve been screaming it on, “That’s not how it should work. You need as many companies as possible to grab this money, and that’s how you basically keep the economy from shedding six million unemployed every single week for weeks and weeks on end.”
That’s my view, but of course, that does require Congress to get their act together and actually refill the program.
Rob: Do you think the fact that the PPP ran out is a sign that it’s not going to help very much or what’s your thought there?
Einar: It obviously is helping a lot because it speaks to the demand, right? It speaks to how many companies are in distress and asking for assistance. That’s obviously helpful, but there are two ways you can screw that up in my mind. One is you discourage companies from actually applying either by making it very complicated or having situations where people can’t get a bank relationship that would allow them to apply in the first place, which is still true. I still know people who—as of today—their funds have run out, but they don’t have a bank that will allow them to apply. Then they can’t access the funds.
That’s one side of it, but I also think the other side of it is discouraging companies from applying—or somehow making this shame-base that you shouldn’t be doing it—has almost the same effect on the economy overall. It’s a mistake to discourage companies from applying because every day counts.
That’s the thing, the stimulus needs to be the right amount of money at the right amount of time. If it takes two weeks for Congress to get their act together, this will be devastating for small businesses. It just will be because people will then just lose faith. They’ll give up leases, they’ll fire people, and it’ll be much worse than it needs to be.
Rob: My experience applying was I’ve been a Bank of America customer for 30-something years. With my business, probably close to 20 years I’ve had an account. The day that PPP opens, I get the email, and I click on the link to apply, and it has me log in to online banking, and it says, “You do not have a loan relationship—a lending relationship—or a credit card with us, so you can’t apply.”
I was thinking to myself, “Are you kidding me?” I’ve been a customer for this long and then within—I don’t know—3-4 days, they turned that around. They updated their applications such that you could say, “Yes, I have a lending relationship, or no, I don’t.” Who knows? I’m guessing they’ll give priority to people who have that relationship with them, but then even yesterday or today, I got another email asking for more info. I don’t know.
I have no idea if I’ve missed the boat already by not getting because I didn’t have all the docs or whatever. It felt a lot tumultuous in the sense that every bank handled it differently. Some banks aren’t ready, and some banks aren’t hosting it so people are unavailable. To your point of was there just a better way to organize this if you’re going to try to forgive it anyway?
Einar: Definitely was. I definitely think there was. It’s like listen, the IRS already knows what your payroll was at whatever period. They could have looked at it because you have to report it quarterly—at least in the US. You have to report it quarterly what you’re paying your employees, what you’re paying yourself, what’s the sales, self-employment taxes. If you look at the applications that are going in, these are exactly the government documents that the banks are requiring.
Why did we put the banks in the middle of this? Some of them are just aren’t set up for it, and then we have to pay, obviously, fees to the banks. It’s like on the $349 billion dollars, they think $10 billion will go to banks just to manage the process, which that seems, I don’t know, inefficient to me.
Rob: Economy goes to hell in a handbasket and the banks maybe make out well like they did in 2008 with the bailout. It’s pretty interesting times these days. Did you guys check out the Stewart Butterfield? He had a long thread. It was his week leading up to the self-quarantine. I sent you guys a link in advance. I’m curious, Craig, as you read through this thread, he’s basically giving a day-by-day account of, “Hey, this end up being my last time in a restaurant,” and discussions with senior leadership and stressing about what’s going to happen.
Then also looking at Slack—obviously a remote chat tool—and their usage just up and to the right in an insane way much like we see Zoom doing. Which pieces of his story resonated with you as a founder?
Craig: It was a lot more of the personal things because we can’t do anything and haven’t been able to for a long time. It’s the personal stuff like last time I went to a restaurant, and then we went and bought some flowers, and all these kinds of things. We talked a lot about that like, “Hey, I’m glad we did these things when we could because we can’t now.” Even when things open back up—who knows when that’ll be officially—a lot of those places won’t open back up right away. Then talking about stimulus and how that rolls out and stuff, a lot of them will never come back.
On a personal level, I think that I’m not a big, “It will never be the same thing,” but I think some things will never be the same. Some of our favorite restaurants won’t have gotten stimulus, or not enough, or not quick enough, and just have to go do something else. It is worth taking some time now to reflect on the things we did, and enjoyed, and took advantage of because we might not be able to do some of them anymore. That’s just on a personal level.
Rob: Oh, man. Now I’m bummed out.
Einar: Don’t listen to Craig.
Rob: Probably pretty realistic. What’s your take, Einar? You have thoughts?
Einar: Yeah, I have the same stuff. I remember him—seeing this—putting this thread out—I guess it’s two or three weeks ago now. I’m reading it and feelings of déjà vu and some of the feelings that I had particularly on the personal side. As you know, Rob, I was shouting about this stuff for a long time, and just saying that, “This is going to be a problem. This is going to be a problem. This is going to be a problem.”
Just one of the things you noted is the night that it became real in America, this is a combination of the NBA season being suspended, and Tom Hanks reporting that he was testing positive. It’s odd to me because I see that in his thread, and I was like, “Oh, yeah I remember that night.” Because I remember it with relief. It was like March 11. Everyone finally was like, “Wait, this is a real thing.”
Craig: You’re not crazy.
Einar: Exactly. I was like, “Wait, is this just a big conspiracy theory on Twitter? Am I spending too much time on Twitter again?” I don’t know. That was the main stuff, just the sort of personal like, “Oh, this turned out to be the last time I was in a restaurant. This turned out to be the last time I did XYZ for several months.” On the point of things won’t be the same, obviously, some restaurants in main street are going under.
Some of the downsides, for example, to the stimulus package on the small business side, which I actually made this mistake initially. I thought you could get a loan and a grant to cover, not only your payroll, but actually, also rent during that time. That turns out not to be the case. Friends of mine, they just bought a cafe three months ago—four months ago now, I guess. Their rent is probably their main single expense line. How are they going to cover that? I don’t know.
Rob: That doesn’t make a ton of sense to me. This thread, I felt the same way about it as I read through, and I remember this specifically. One of the nights I was up at the North Shore with one of my sons, and you and I were on the phone, and that was when the president declared a state of emergency at that point. He touches on that in here. It is starting to feel—well, I guess I have a couple of thoughts. One is you remember where you were when certain things happen, right? When 9/11 happened, you remember how you felt, and what house you were, and how you heard about it.
Hopefully, there are great things that happen that we remember where we were, but oftentimes, it feels like it’s the traditional one like my parents would bring up is like everyone remembers where they were when they heard Kennedy got shot, or Martin Luther King was shot. I don’t want it to always be the negative things, but it certainly does seem that way. That’s how this will feel.
I’m curious, going forward, I wonder how our kids will remember this? It depends on their age, obviously, and depends on personality, but it’s such a trippy thing for them to be in this. Again, using that unprecedented word, it’s unprecedented and hopefully doesn’t happen again in our lifetime. I feel like the first couple of weeks of the quarantining, I was incredibly unproductive. I was trying to get 5-10 hours of work done a week.
I would sit in front of my computer for 7-8 hours a day, but I just wasn’t getting that much work done. Then a bit flipped for me. It was somewhere in the third week—late in the third week, early in the fourth. Now, I feel like I’m extremely focused. I’m sad at the tragedy. I still get the newspaper, and I read the headlines every day. I just feel so bad for what’s going on, but I also hit the point where it’s like, “Okay, I can’t sit and wallow in these feelings all the time. I have stuff to do here that is hopefully helping other people, running my business, supporting my founders.”
Doing this podcast. People have been emailing saying, “Thanks for continuing to put it out,” because it helps them get through the week. It helps them have a bright spot in the day to hear about what’s going on, as well as the MicroConf On Air live streams, and just all the stuff that I’m doing. I feel like I’ve found almost like a renewed sense of purpose, and a renewed sense of motivation just in the past couple of weeks. Because you guys, I believe—I’ve lost count—but it’s at either fifth week or it might be the sixth week, I genuinely don’t know of quarantining.
I’m curious, Craig, how are you mentally in terms of being able to focus on work? I guess this relates to the question I had asked earlier, but I asked it more about your team and the company.
Craig: Similarly at the first, surely, week or two I was just sad. I’ve heard it being compared to mourning—losing a loved one. That you’re just sad, and then you’re angry, and then you accept it, and learn how to live with things. At this point, I’m good on a spiritual level. I’m productive at work, I feel really happy and blessed that my family is happy and healthy.
It really is business as usual for me. I’m actually working more now than I normally would because there’s nothing else to do. I’m working 25% more than I normally do. I feel really happy about that because I do have a responsibility to our team, and to our customers, and I’m glad that we’re able to continue serving them.
Rob: Einar, you had told me early on that you were super distracted like I was—and I think most of us were. Has that settled out for you, or do you still feel like the running dread of stress and news is taking you away from work more than you’d like?
Einar: It’s gotten much better this week. I feel like I was productive the previous two weeks before that too, but mostly in diving into the PPP programs. That is, honestly, requires a lot of outrage a fair amount of the time. Also, because my contact detail was on those pages on MicroConf around, “Just reach out if you have any questions.” I would get 3, 4, 5, 6, 7, 8 emails a day with—in some cases—pretty heartbreaking situations where people were asking for advice. That started to die down a little.
I’ve been able to get back to more of doing what I was planning to do this time of year, but certainly, just because of what my main job is going forward, which is sort of on hold. That’s the thing. We were supposed to be in the market right now going for aggressively fundraising for a fund two, and certainly, that side of things is pretty much unlike in a while. I don’t know when we’re going to do that again.
It’s been better, but certainly, I don’t have the same level of productivity look for what you guys seem to be saying now.
Craig: Could I add one thing?
Rob: Yeah, I know. Do it.
Craig: I don’t want to leave with a down in the doldrums really pessimistic view of this because one thing that’s really interesting here compared to the financial crisis is this was like an external event that drove everything into the dumps that it is now, right? All these people have lost their jobs, or furloughed, or whatever because of an external event. That external event will go away, and things will come back much more quickly out of this than they did the financial crisis. That was years, this could be months. Sometime around the end of the year maybe.
I think that folks that have been impacted, if we can survive—say until the end of the year—I think there are going to be huge opportunities. Talking about this trend towards remote work, and things like podcasting, webinars, and digital products, and things like that. Folks that listen to this podcast, I think all are rightfully thinking like, “Okay, as the world comes out of this, what does it look like, and how can I—as a smart nimble bootstrap scrappy person—position myself and our brands to be ready for that?”
We all are very uniquely ready to lead that charge. That’s maybe something that gives me a little optimism in folks for this community.
Rob: I appreciate that. I appreciate us leaving it on a positive note. I was going to say that I have tended to be the optimist in the room in this situation and in a lot of situations. Einar and I have been a good balancing because he was saying, “Oh, it’s going to get really bad,” and I was like, “I don’t think it’ll get that bad.” Turns out, he was right. When I look back at even just four episodes ago, Einar and I were on here talking about. I was like, “This is a tragedy. It’s devastating. Things will get better.”
We need to acknowledge what’s happening with the reality of the current situation, but we also need to acknowledge that it will get better. Everything’s not going to change permanently. To me, there is a bright future to look ahead to. I say that with all respect to the current frontline workers. We have multiple friends who are physicians, and they’re going through crazy. We have an ER doc. It’s terrible, and it’s very hard, and it’s very stressful for them. I want to fully acknowledge that, but also there is another side. There is the other side that we will get to within months, hopefully, but I guess we’ll see how that all pans out.
Gentlemen, let’s wrap on that positive note. Thanks so much for agreeing to come on the show and for working with me to find a time that works. Einar, you were a last-minute substitute, and I do appreciate that. I had a guest who unfortunately had to cancel. I’ll try to get her booked on a future episode.
Craig Hewitt, if folks want to keep up with you on Twitter, you are @TheCraigHewitt. Of course, castos.com is your podcast hosting service that this podcast and TinySeed Tales, and MicroConf On Air are all hosted on, so check that out if you haven’t already.
Einar Vollset, you are @einarvollset on Twitter and tinyseed.com, if you want to see what he’s up to. Actually, if they really want to see what you’re up to, we’ll link up your MicroConf COVID-19 business relief overview article that I know you spent dozens of hours putting together.
Einar: The most productive I’ve been in the last few weeks.
Rob: Exactly, the most output. Thanks again gents for coming on the show. Hope to have you back again soon.
Craig: Thanks, Rob.
Einar: Thanks.
Rob: Stay tuned next week to hear another update from Mike Taber on how things are going with Bluetick. He and I haven’t spoken, especially not on the show, but we literally haven’t spoken since all the self-quarantine stuff happens. I’ll be interested to hear how he’s thinking. Then I’m looking to do a Q&A episode probably the week after, so if you have a question for me or for a guest that I decided to bring on, please, leave me a voicemail at 1-888-801-9690 or email questions@startupsfortherestofus.com.
If you send a Dropbox link to an audio file, that will go to the top of the queue. If you enter text, it will be in the queue of current questions we have. If you’re not subscribed to the show, you should search for startups in any podcatcher that you have. Of course, we have a full transcript of each episode on the website—typically within a few days after the episode is published. Thanks so much for listening this week. I’ll see you next time.
Episode 492 | From Zero to $55k MRR to Exit (in 2 Years) with Feedback Panda
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In this episode of Startups For The Rest Of Us, Rob interviews Danielle Simpson and Arvid Kahl, co-founders of FeedbackPanda, a SaaS business they bootstrapped to $55k MRR with no outside funding and no employees. They sold directly to teachers, a price-sensitive market, and they used referral programs and word of mouth to create rapid growth. You will hear about the struggles, victories, highs, and lows of their startup journey. Arvid and Danielle give honest, powerful insight into what it was really like to manage their company just the two of them, and what ultimately led to their decision to sell their company for a life-changing amount of money.
* We are in a slightly different headspace in this episode, because we recorded this before the COVID-19 crisis. But we still wanted to share this episode, because we want you to benefit from this powerful conversation.
The finer points of the episode:
- 2:12 – What it was like to sell FeedbackPanda for a lifechanging sum of money
- 6:40 – Why they ultimately made the decision to sell their business
- 12:40 – How the perfect combination of luck and skill led to their business’ huge success
- 14:38 – What it was like selling to teachers, a price-sensitive market
- 18:44 – Using referral programs and word-of-mouth to generate extremely rapid growth
- 24:20 – Can their approach to growth be replicated in other industries?
- 29:11 – More about their decision not to hire anyone
- 33:49 – The biggest low point of their startup journey and how they overcame them
- 38:25 – When did they start thinking about selling their company?
- 40:34 – What is next for Arvid and Danielle?
Items mentioned in this episode:
Rob: A quick note before we dive into this episode of Startups for the Rest of Us. I recorded this interview a couple of months ago, and then due to the coronavirus and a couple of other factors, it’s just been delayed longer than I thought it would. We make no mention of Corona. We are in a little bit of a different headspace than we might be today, but the story the founders tell, the conversation is still extremely compelling. I just wanted you to have that in mind as you listen to this episode.
Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on the show you hear from startup founders who are ambitious, but some of them bootstrap, some self-fund, and others raise small amounts of money. The uniting factor is that they want to build great companies, they want to build great lives for themselves, and they don’t want to go down the traditional venture track of go big, go home, I have to build a unicorn or bust.
This week, we hear from Arvid Kahl and Danielle Simpson, the co-founders of FeedbackPanda. Arvid and Danielle did an attendee talk at MicroConf in Croatia just a few months back, and I wanted to invite them to the show because of how interesting their story is. Over 2 years, they bootstrap FeedbackPanda to $55,000 MRR with no employees. FeedbackPanda is student feedback for teachers. They’re selling into the teacher market. They had rapid growth via word of mouth and a clever referral program. They really caught a nice wave in language learning.
We dive into all kinds of things today. They eventually sold the company for a life-changing sum of money after two years. In this conversation, you’ll hear about Arvid and Danielle’s struggles, their victories, their failures, the anxiety, the highs, and the lows. We dig into a lot of pretty fascinating things. I hope you enjoy this conversation, and with that, let’s dive into the conversation with Arvid and Danielle of FeedbackPanda.
Arvid and Danielle, thank you so much for joining me on the show today.
Danielle: Thanks so much for having us.
Arvid: Yeah, hi.
Rob: Welcome to Startups for the Rest of Us. I am just so fascinated with your story—growing in two years as bootstrappers from $0 to $55,000 MRR is just a fascinating story. I want to start off almost with the part of a typical hero’s journey at looking at the end of that journey. I’d love to hear, what did it feel like when you saw the money from selling FeedbackPanda into your bank account, when you refreshed that and you all those zeroes?
Danielle: Oh my gosh. It was such a mix of relief of never having seen that amount of money before, just shocked to have that amount on one bank account, total just happiness. How about you?
Arvid: It was pretty strange, it’s quite a weird feeling. The weird part about it to me was how nothing really changed. You have all these stories you hear about lives being changed and it does change in a numerical way, but we were still in our apartment that we’ve been in before for the two years prior to building the business every single day. We were still sitting on the same chairs and the same couch. The only thing we did was really get out two glasses and some affordable champagne.
Danielle: In the morning.
Arvid: Right, because that’s when we saw it due to the time difference between the States and Germany where we live. Just cheers and then that was it, right? Then we went right to the transition because that is also one of the bigger things we had to do at that point. It was a wonderful feeling. Also, I guess, just a couple hours later and a couple of days later, the feeling of dread and the feeling of, “What now?” came to the forefront of my mind at least because you just wonder, “Okay, now this is done,” and you have to shift your thinking. There was a lot of joy and a lot of slight- to medium-confusion.
Danielle: It kind of oscillated between all of those emotions for the next few months, I would say.
Rob: You had such a massive transition, and I hear this often from entrepreneurs who sell their companies, and I went through the same thing a couple of times. It makes sense that your response was elation followed by confusion followed by some day drinking, which is something I highly recommend. Once you sell your company, please, day drink a day or two. Just take a day off.
You know what’s fascinating is, Arvid, you just said, “Our lives didn’t change. We still were in this apartment sitting in the same chairs drinking affordable champagne.” What I find when I talk to makers is we don’t do it for the money, we do it for the freedom. We do it so that we can make and work on interesting projects, and build things that we want to build rather than buy a Maserati or buy a big house. I am curious. Did you guys buy anything interesting or cool with the money that maybe you had never indulged in before?
Danielle: We definitely took a very nice vacation. We spent ten days in South Africa, and it was amazing to be in the middle of the African bush and be in the middle of nature, and have something that we didn’t have for the past two years. The privilege of being fully present in those moments where we weren’t looking at Intercom while we’re also trying to look at an elephant or something like that. That was quite indulgent for us.
Arvid: That was the true luxury was having time to ourselves both as people who have been working 24/7 for two years and as a couple. Just to be able to be present with each other. No Maserati could buy us that kind of luxury as much as a vacation—just being away from it all. Material things, I don’t think so, and I think you’re absolutely right. Makers do it for the making, not for the raking. You don’t try to rake it and you just try to continue making stuff. That is what you want to do.
We were at an event, at a Berlin startup community just a couple of weeks prior to the whole due diligence phase, the negotiations, and all that stuff. There were people talking there about this post-economic state of mind, and that’s what you want to reach. You want to reach financial stability that allows you to make decisions that do not hinge on you being financially stable from the decisions you make in the business. It’s like you can make risky business choices because you know that personally, your finances are in order.
That’s one of the things that actually led us to consider selling the business is that all of our assets were bound in it. We had a great business, but it was also a lot to lose at the later point, later stage, in the second year of the business. That is one of those feelings that we had in addition to the normal dread of running a gigantic business with just two people.
Rob: Absolutely. Most entrepreneurs are just way under-diversified. Most entrepreneurs who are having success like you had literally had millions of dollars tied up into a small business, and they might have $100,000 in the public stock market. It’s completely under-diversified. I don’t think a lot of people think about that.
In the last episode, Ruben Gamez was on, and he brought up a really good point that I feel like we should hammer home is you can’t run a business like we run and expect it to be here in 10 or 20 years. A lot of these businesses just don’t make it because of the massive shifts in Google, APIs, and protocols. How many SaaS companies do we know that really last that long? It’s a lot more difficult than it seems. I’m curious, can you talk about how much you sold the company for?
Arvid: We cannot talk about how much we sold the company for, but what we can say is the fact that we sold it for a life-changing amount of money. That’s why we got out that champagne because it was actually something to celebrate, but we can’t be specific about the numbers.
Rob: Of course. Most acquisitions, especially at these types of sizes, are under NDA. I’m going to do some loose math, don’t confirm or deny this. When I think of a company selling to a financial buyer, $55,000 MRR mostly profit because you had no employees at $660,000 ARR, 3x–4x multiple puts it somewhere in the $1.5–$2.5 million dollar range in my head. If it was a strategic buyer, it would be a little more. Just so listeners have a context, I have zero inside information, and again, I don’t want you to confirm or deny. That’s probably the kind of range we’re talking about if this was a market rate sell.
Arvid: Interesting.
Rob: You like that?
Arvid: Yeah. Great. We won’t confirm or deny anything, but definitely an interesting insight. Interesting also into the math because that’s what most people are really interested in, we were also interested in trying to figure out how much our business might be worth. There were numbers—multipliers—from something below one to something above ten. People were talking about SaaS, content, e-commerce and all these different kinds of things.
There’s a lot of information in the market, there’s a lot of misinformation in the market, and every transaction seems to be extremely unique when it comes to the actual numbers that the multipliers—whichever ones are chosen—actually work on. As you said, we had essentially just two of us as employees and that’s founder-employees. It’s a different math than if we had four employees but the founders didn’t work in the company. All these kinds of things just go into a very complicated piece of mathematics. Ranges are usually the best you can do.
Rob: Yeah, and that’s the thing is you’re in a unique situation because most companies doing $55,000 MRR have multiple employees, have a team of three, four, five people, which would make it much less profitable than what I’m expecting FeedbackPanda was. Sales multiples also depend a lot so much on growth rate. A company that’s declining versus flat versus growing—5% month-over-month, 20% month-over-month. That’s where this gets very complicated and there is no one formula. It’s just negotiation at that point.
I am curious, if you had held out longer, if you waited another 6, 12, 18 months, do you feel like you could have sold for more? Were you continuing to grow and do you feel like you could have made more money having held out?
Danielle: Absolutely. There were channels that we hadn’t yet activated. FeedbackPanda is in a quite price-sensitive niche, but we regularly had customers proclaiming on Facebook that they would be willing to pay more. We just didn’t flip that switch. If you look at our previous members as well, we had a steady growth rate for our entire lifetime. We weren’t really slowing down.
Arvid: We were piggybacking on the growth of the Chinese education market, too. That one is still growing. FeedbackPanda’s customers being recruited by Chinese online English teaching schools, we were selling to mostly North American teachers that were hired by Chinese companies. There’s a lot going on in China when it comes to online teaching, which is the presence of the internet in even more rural areas and all these kinds of things.
That growth didn’t stall. There was no plateau in sight. There was a lot of competition on-site, which again if you look at Chinese businesses, it is a pretty good sign of a healthy industry because as long as there’s competition, there’s no clear winner and there’s growth. Our growth trajectory was very much aligned with the Chinese education system growth trajectory and that one was still and is still growing.
Rob: That’s great when you can catch a wave like that. Was that a bit of luck or did you guys see that that wave was coming and hop on it?
Danielle: It was both. We got lucky that we were in a position to see the wave coming and that we were in that position ready to build something. I saw the problem and we just hopped right in.
Arvid: Yeah, I think so. The lucky part was that Danielle injured her leg at some point. As lucky as this can be because that made you have to work from home, so we needed to find something to actually do. As an opera singer, you can’t really work from home that much. It’s not easy to sing in an apartment, but it is easy to teach. That worked. These Chinese companies just came up at that point. They’ve been around for (I would guess) three, four, or five months at that point, not much longer than that.
We were just at the beginning of that wave and we recognized it because people were there to see it. That’s an important point is we just fell into the industry and then we saw it for what it was. As much as most teachers are entrepreneurial, they’re not software tech kind of entrepreneurial. They’re entrepreneurial in their own ways at building content businesses and brands like influencer brands, but not necessarily a SaaS that could scale almost infinitely in the branch or in the niche itself.
Rob: I have this mental model. I like the way you said, “Well, there was some luck, but also some skill,” I will say. I have this mental model; I should probably write a blog post about it. It’s that success comes down to these three factors: luck, skill, and hard work. In the case of the two of you, you’ve already talked about the hard work. You said you work 24/7 in essence for two years. The skill that the two of you have built up over the years applies to that to a certain degree, as well as being able to forecast and notice the Chinese market taking off, and then that little bit of luck.
I’ve seen startups have varying degrees of this. You’ll see someone get extremely lucky that they happen to come across an idea, and then they really don’t need that much skill or hard work to get it done, but it’s very, very rare, and you can’t control luck. I like looking at these really meticulous, repeatable startups where most of us are willing to do the hard work, and it gets building up skills over time, and then hoping for that bit of luck that pushes you over the edge but not counting on 80%–90% of it to be luck.
Arvid: Yeah, you have a lot of overlap with opportunity surface theory at this point, because skills and hard work build the opportunity surface, then you just need something to actually strike it, and that would be the luck component.
Rob: The niche of selling to teachers, I’ve heard some horror stories about it, to be honest about price sensitivity, and needing a lot of support, is that correct? Was it a tough space to be in, in terms of just needing the volume of customers? Your price points—at least today—are $15 a month, so by MicroConf’s B2B SaaS standards, that it’s a pretty low price. I would expect high churn and price sensitivity. Is that accurate?
Danielle: Price sensitivity, 100%, but high churn, not at all. The teachers in this niche were already pre-selected, so they were somewhat technical. They knew how to integrate a SaaS into their workflow much more than had we gone to a brick-and-mortar school, tried to then convince the school board or the principal, had to go and train teachers how to use the software. The teachers already teaching in this niche were very self-directed. They were having a lot of trouble solving this problem that we ended up solving for them.
The high churn was not even an issue there, but the price point, we actually started lower. We started at $5 a month understanding that this audience might be price-sensitive. Then when they were converting so quickly, and seeing the value so quickly, then we doubled the price to $10 a month, got rid of the $5 a month plan altogether, and then we ran it at that price point.
Arvid: It was $10 for a year, and then we decided to increase it again by 50% to what is now $15 monthly. We released a referral system at the same time so that people could get the cheaper price, which was the actual price—$10 a month at the point—if they were referred or were referring, so people could go back to that price, so it didn’t cost them that much.
There were a couple of mistakes that we made there when it came to grandfathering the plans. We didn’t really ever set a horizon on that so it was an infinite or indefinite grandfathering of $10 a month plan if you had it before—I don’t know—December 31, 2018, then we would keep that forever, which also kept retention high (I guess) because people didn’t want to lose their plan, that kind of level.
Danielle: That goes back to what Arvid was talking about at the beginning with this post-economic state of mind. We felt we had to grandfather all of those teachers in because we were more worried about losing them as customers than the potential gain of having to pay 50% more.
Arvid: Yeah. We didn’t really want to experiment much with pricing because we really felt that if that is too much and we lose our customers, the whole business is going to implode. That’s the kind of fear that I had at that point, which is why referral system with this really, really high 30% coupon or something for life. Lots of the decisions we made came not from a place of optimism but of severe pessimism of potential future.
Rob: Do you think those decisions were correct? Would you make those again?
Arvid: No. They were correct for us and the business at the time, but if we were doing it again from a different financial security perspective or knowing that it wasn’t as crazy, sure.
Danielle: Can I just interject here, too? Had we been isolated in our different roles, if we weren’t the CTO, CEO, and the people talking directly to our customers on the support desk—hearing the sometimes quite sad stories about people who couldn’t make a $10 a month payment—we really empathized with our customers. I know Arvid has a huge heart and would often gift subscriptions to people. That was more of just feeling that was the right thing to do. For us, it wasn’t a business decision, it’s more of philanthropy.
Arvid: Yeah. There was a lot of emotion.
Rob: I can see that. I’m curious, I want to find out, why did this grow so quickly? Was it just the referral program? You’ve talked about word of mouth being the main driver.
Arvid: The referral system only came in a year after we actually already had all this growth.
Danielle: The Chinese schools that were hiring all of these teachers were doubling the teachers that they had contracted. It was like a gig. It was like Uber for online teaching. They hire these American teachers, and they had 10,000 teachers when I started in 2017. They doubled by December of 2018, so they had 20,000 teachers. When we sold in July of 2019, they were at 75,000 teachers. This was one company alone. We were really benefiting from this hiring rush of not only this one company that’s just one company that was the largest, but several other Chinese English companies coming up.
Arvid: We sold to the teachers directly. We were benefiting just from the sheer number of them being recruited because if we had tried to sell to the schools, it would have been a whole different thing. It would have been much more complicated, and there’s bureaucracy, and then there’s the whole thing with getting into the Chinese market, which is it is technically impossible without having somebody in there to do the work with you, so we just decided against that.
Partnering is also hard, so by selling directly in like a B2BC selling to the individual agents with a budget, which the teachers were, we could leverage the growth of that market without anything in the middle. The one great benefit of teachers is that teachers love sharing, and teachers organize in groups. Essentially, they organize as tribes even.
The teacher community around these English as a second language online schools, organize at Facebook groups. They are in Instagram communities. There is a lot of sharing, a lot of communicating going on. If you can get into these communities as a part of them—as Danielle did because she was a teacher at that point—then you see what people are talking about, what they were sharing with each other, and you can become part of the conversation, become part of the actual people trying to solve their problems.
That’s where we did our problem validation, that’s where we found all these problems that people had. We saw how many people of these teachers had the same problems, were they critical, were they just nuances or annoyances. That’s also where we started our marketing, and where we did all of our marketing, which wasn’t really too much. It boiled down to a number of comments on some Facebook posts, that’s what we did because the tribe was so strong that once we actually put our solution in there, and people recognized it as a product that they could really use, they started sharing it for us.
The referral system we put in place because we were just raising our prices and we want to make it still affordable to the people that were currently purchasing the subscription to our software. The actual growth comes from the tribal structure of the teacher community and from us finding the water cooler—finding the place where they were hanging out.
Danielle: I would say it was lucky that they even knew that they had a problem. Teachers are so used to doing the extra work for zero pay. We really did get lucky that they recognized that this shouldn’t be the case and that there could be options for them.
Arvid: When you think about it, there’s this whole thing about prospect awareness funnel by Eugene Schwartz when it comes to like I’m completely unaware, and problem-aware, solution-aware, product-aware until they are fully aware of your product. We were lucky that people were already at the problem-awareness and often solution-awareness stage because, while we didn’t have competition in the actual industry, there were competitive alternatives.
People were using Excel sheets and Word documents, or they were already starting to share their templates that they used for their feedback on Google Docs or in certain groups on Facebook. We already saw people solving the problem in a rickety way, everyone for themselves, and we just really consolidated this into a centralized system that also had the strong network effect, which mirrored the internal structure of the tribe that we had found on Facebook.
In FeedbackPanda, sharing was built into the process. People would write templates for their feedback, and allow them to generate it easily, and then they could share it to what we call the cloud. In the cloud, people could find templates by other teachers, use them, modify them, and share them back.
There was this whole community building that happened around the actual data in our product, which had this gigantic network effect pulling in even more people because once they signed up, there were literally hundreds of thousands of templates for them to pick to make their job much faster.
Rob: It’s fascinating to hear the whole tribal structure that you’re talking about because I have not heard of a bootstrap SaaS app that has grown as fast as you did by making some Facebook posts. Because you said, it’s a tribe, water cooler. That was the key, so this feels to me—at least looking across the apps that I know about that I have had fast growth—like a one-off. The uniqueness of the teachers and how it was like a confluence of events, (a) it’s a tribal structure, (b) you found the water cooler, and (c) it was growing so fast that people were just diving in. Do you agree with that or do you feel like your approach here could be reproduced in other spaces?
Danielle: I’m not sure if this makes it fall into the category of one-off or repeatable, but I think what we did once people actually got to FeedbackPanda, we talked directly to them, and we were selling them on our product. Arvid said there wasn’t much competition. There was another SaaS that tried to offer something similar to what we were offering and to my knowledge, they don’t have even a fraction of the teachers that signed up for FeedbackPanda.
I think that doing those things that don’t quite scale or you don’t see them scaling, talking to a teacher daily trying to get them to that moment of really understanding how the product works, and then turning those first conversations into knowledge base articles where teachers can find the information for themselves, or communicating in a way that is like a soundbite that they can take from that conversation, go back to the community, share the information, that communication style was actually how we activated the tribe for us. Those direct conversations using user-engage at the very beginning and then migrated to Intercom.
Arvid: We always try to be in direct contact with people. The tribe is one thing, but we did amplify it. We needed to amplify it, we needed to project a brand into the tribe that was both part of the tribe and solving something for them on a professional level. We were the teachers that helped other teachers. I think that’s the transferable component as well. It works in software development. If you sell a product to engineers as an engineer, and you’re part of their community, you have a reputation as being a good engineer—if you have that—that really helps because you sell it through your reputation, you sell it through some sense of authority, and having a following already.
You were talking about this in the episode with Ruben as well. If you don’t have an audience, if you don’t have a market, there is an audience somewhere, you just haven’t found it yet. I believe that there are tribal or at least community structures for every single thing, for every kind of thing we’re part of. I’ve been talking with a lot of consulting clients recently, and they are in specialty foods, they are in document processing for specific kinds of jobs, they are in many kinds of groups of people.
Whenever I talk to them, after a while, we figure out there is a niche community. There is a group congregating somewhere. There is a meet-up for this in this city. There are three people that go there at all times. There is this online bulletin board where people that look like it’s from the 80s, but that’s usually a good sign that shows that there’s a community that has been around for a long, long time hidden away in this one niche location. You just really have to find it, and become part of it, and not do the marketing way where you start trying to push your product from the beginning. You just become part of it because you want to be part of it.
You want to talk to these people, you want to help them out, and then eventually, you can put your product in there because it’s a natural progression from being a part of the community to wanting to help the community.
Danielle: There was a lot of integrity that we built through our brand. Something I didn’t expect to do was release a product that wasn’t quite perfect or finished. Anybody who knows me knows that I like to get things as close to perfect as possible before revealing it to anybody, but this would have been detrimental to FeedbackPanda. Arvid quite nicely balances me out in this regard.
We released the product, then we got a lot of great feedback from the teachers in the community. They thought that he was a wizard because they would give him their feedback, and then in a day or two, he would release the feature that they had wanted. I’m not saying that you should build every feature that somebody asks you for. We really looked through all of those examples, what really deserved to be a part of the product, but even that was just reinforcing this dependability on FeedbackPanda.
Rob: It’s great to be makers who can ship fast in a space where all the software sucks because you don’t have to be that good to be really, really impressive. That’s cool. I love anecdotes like that. We used to ship stuff in the early days of Drip the same day. Someone would send a supportive comment, “How come it doesn’t do this?” I would literally build it two hours later, send them an email. Those were some of the funnest ones.
I’m curious. You’re growing this company, it’s obviously moving very quickly, why did you not hire someone to help? Was there just not enough work that you needed help, or was there some other reason for that decision?
Arvid: There’s a short and a long answer. The short one is I’m an idiot, and Danielle could tell you why.
Danielle: I would say that be careful when you get advice from books and podcasts without really critically examining whether they apply to your situation. We were both guilty of taking this advice, “Hire late, hire late, hire late,” to heart. What we made now in retrospect can say, we should have built a roadmap that said, “Okay, when we get to this goal, when we reach this amount of support tickets, or whether it’s tied to MRR, or to the amount of work that you have, we could have said this is when we’re going to hire.” We didn’t do that because we didn’t expect to grow that quickly. We thought we had more time.
Arvid: We didn’t really set goals much. The one and only goal that I set for myself was, “I want to grow this business to the unimaginable number of $50,000 MRR,” and that’s going to be impossible so might just as well set it as a goal. Once we hit that, “Yeah, what now?” Even before, once we hit, $10,000, “Oh, this works,” or $20,000, “Okay, now we can pay ourselves.” Then $30,000, $40,000, “Oh, this is still growing.”
There was never a moment of scheduled reflection. I’ve been writing about this recently, I just remembered. The thing I called is continuous validation, but not just of a product but actually of your business. Are you still in it for the same reasons? Are you still fine with what you’re doing? These kinds of things, had we done this—and we did it sometimes, but by far not enough—we would have understood—at least a year in—that it would be fine to hire a customer service person.
You just alluded to it (I guess) that there wasn’t enough to do for a full 40-hour a week position. To me, in my complete absence of knowledge and experience, if you hire somebody, it has to be a full-time position. That was what I thought. Of course, you don’t. Of course, you can have somebody do this for the two hours a day that most people are asking questions, and then do the rest later, or early, or whatever. To me, in the middle of it and always being interrupted by conversations on Intercom at random hours, it felt like, “Might just as well do it myself until we have somebody to take it all away from me completely,” which meant that I blocked all of this.
I thought, “I could do it. I can take care of it.” Yeah, it caused me a lot of sanity, caused a lot of anxiety that I had to learn how to deal with. In retrospect, once we sold, we had to hire our replacement so there was no way around that. When we did that I figured out, “Oh, this is actually easy and enjoyable and I should have done this immediately.” That’s one of the big learnings for me.
Rob: It’s a good point, and you’ve touched on two problems really that a lot of founders face, especially in the bootstrap space. One, we have the savior complex where we feel like we need to do everything, and it is hard to delegate, or you have a mental roadblock that won’t let you hire someone part-time, you just don’t think about it, or you just push yourself to the brink of burnout and exhaustion.
The other thing that it brings up for me is the lack of goals, lack of planning thing, it’s a problem. There are reasons that larger startups and larger companies have all these planning meetings, forecasts, and have goals. I know that so many of us—myself included—we leave the corporate world because there’s so much […] that you have to deal with. Then we don’t want to go start our own startup and put a bunch of […] into it, but there’s a balance.
If you throw it all out, you can find yourself in that situation where you’re not taking care of yourself. Frankly, you’re not being a good steward of your own mental health, nor of your company. It can actually hurt the growth of your company. There’s a lot of negatives to come back. I’m glad we touched on that because folks should be aware that it’s not all the way on the left, all the way on the right. There’s a middle here where I do think even in smaller startups that we need to be mindful and do some thinking and planning about this stuff.
Piggybacking on that, I’m curious, during these two years of fast growth, you’ve already referenced a lot of ups and downs. The growth is amazing, it’s fun, it’s exhilarating, the pain and anxiety you’ve brought up can be debilitating, and it can take a toll on you. Can you take me to a moment or a series of moments that you remember that perhaps were a low point during the journey?
Arvid: I have a couple of good ones and most of them (funny enough) are technical. That’s what I was doing mostly. I was responsible for building the product, for maintaining the infrastructure. FeedbackPanda was built on essentially a cloud-native thing. We put our software into Docker containers, and they were running on Google cloud in the end, but we didn’t start there.
We started with a small, affordable, call it “local” cloud provider—some company in Germany. They were great until they weren’t. We ran into connectivity trouble, and they had issues providing the service. Our service would crash. That was already at a point where we had a couple of a hundred customers. Here I was having to deal with the maintenance that I had to do to actually get the service back up at random times because this other startup that was just the same size as we were had issues configuring the cluster, the infrastructure that they were providing for us to run our software on.
That stuff started to accelerate. First, it was a couple of minutes of downtime a day. Then it was half an hour, and then it turned into full downtime for a day. I was just sitting there. I think we were in Canada even at that point visiting Danielle’s family. I was just on my phone, trying to get their weird little JavaScript UI (that didn’t work) to restart the containers because they didn’t have a CLI yet or an API even where I could communicate with their system and then restart stuff automatically.
I was sitting in somebody’s home—that wasn’t my own—trying to fix the service that was running on infrastructure—that was also not my own—and that I had no control over because they also were like four dudes from Germany trying to build the next AWS. Big mistake, right? It was cheap, and I didn’t want to look into the Google Cloud documentation, so we chose that. Big, big mistake.
It took the knowledge of a very capable friend, and a couple of hours late at night to actually migrate this whole thing over—just a couple hours by the way. I just pushed it as far away from me as possible. I tried to believe that they could deal with the problem, get back actually solving it, and allow us to have our service running, but at some point just couldn’t, so we’ve migrated over to Google Cloud. It had zero seconds downtime for the next 400 days.
That was a big problem. I was just trying to stay focused on it because I couldn’t sleep. Our monitoring system was always essentially waking me up with a call. I had to go restart some containers and try to manage it. It was brutal. I did not sleep well, and I still have some sort of monitoring PTSD whenever a call comes in. Just one split-second, “Is it the server again?” even though I don’t even own the business anymore. I still have that to this day.
Rob: People ask founders why they sell their companies. It’s like these times. I’ve been there, so I know what that feels like. Danielle, do you have thoughts on this?
Danielle: Yeah, I was right there beside him, obviously, even more powerless when a service that you’re using just goes down.
Rob: Was that your low point as well?
Danielle: 100%. It happened more than once with this particular server before we moved over to a better solution. There’s one other point, though, just to add a different perspective. We’re co-founders and partners, so when something personal in life happens, it was really happening to both of us. For example, last winter, my grandmother was very sick, and she ended up passing away. Arvid really picked up the slack for me, but being a co-founder with your partner does mean that you’re experiencing those personal events together whether they’re good, celebrations, or are tragic. Just something to consider. It’s not a low-low.
Arvid: It is a low, just not a business low.
Rob: It definitely makes it a lot more complicated to have, that dual relationship of co-founder and partner. I get it. We’re running short on time but I have two more questions for you that I’d love your thoughts on. The first is when you started building the FeedbackPanda, did you intend to sell it from the start? Was that thought in your mind? If not, when did that thought first occur to you?
Arvid: Before we actually started building the business and before Danielle was even teaching English online, I was working as a software engineer in Hamburg in Germany. We live in Berlin, so that’s a two-hour commute there, and then two hours back. Three days of the week, I would commute for four hours, and I pretty much had nothing else to do (because it was on a train so I wouldn’t have to drive) reading or listening to podcasts.
I was reading a lot of books. A couple of the books that I read at that point were the E-myth by Michael E. Gerber and Built to Sell by John Warrillow. Built to Sell has really stuck with me from the beginning because I learned in that book (in particular) that building a sellable company is building a company you can run forever, and building a company that runs without you where you as the owner actually benefit from the company running, and other people, systems, or automation are doing the work.
We never really intended to sell the business, but we built it as a sellable business anyway because that was (to us) the optimal way to build a business. That when we actually got people that were interested in purchasing the company, then we thought about selling it. From the beginning, we just really wanted to build a cool, efficient, and mostly a highly-automated business because at least I am very lazy and I didn’t want to work too much. Turns out I had to work quite a bit, but we still made it highly automated, and hence sellable, which really helped when it came to actually sell the business.
Rob: That’s a good point that you make. I think founders get involved in this binary thinking about, “I am never going to sell my business,” or “I’m building it to sell.” Building it to sell from the start helps you no matter what. The idea of you said you’re lazy, that’s an adaptive trait for a founder because you’re lazy, but you’re willing to put in hard work is a thing. Lazy, I think about just means you’re highly efficient, and having a goal of having an automated business bringing in tens of thousands a month is something all of us would aspire to.
Wrapping up, I’m curious, are you going to do it again? Do the two of you have the desire?
Danielle: Coming 2020, no. Just kidding. I would love to hop back in. In fact, I co-founded a company while we still own FeedbackPanda with the hopes of building out this project. Absolutely, I would love to get back in. It’s quite interesting. I feel that our roles—since we’ve sold—have reversed. I was very focused on our brand image and nurturing the audience, and now, I’ve really been looking into the no-code movement and trying to build up this product, another SaaS essentially.
Arvid: Whereas I have started pretty much building an audience and writing. We really switched. When we sold the business, we both fell into this place where we didn’t know what to do. We’ve been making our way out of it, and I did this through writing. Started a blog, started a podcast, started a newsletter, and just committed to actually putting the information that I had in my mind, that I had learned over the last couple years both with FeedbackPanda and all the prior things that I’ve been part of, put that in writing, and then I started being on Twitter, talking to people, and building an audience.
I wrote a guide and wrote a book, eventually. All these things, that is where I’m going, but of course, I’m still a software engineer. I still want to build things. We’ll see where we really end up, but there’s a lot of projects that are already on the horizon. There’s always people coming knocking on our door with new ideas, suggestions, of course. I don’t think we’re done. We are now at a point where we can actually make much riskier and more interesting decisions in the projects that were involved in. Why not, right?
Rob: Yup. It’s a great place to be in. It’s something a lot of us—many, many of us—aspire to. Thank you guys so much for coming on the show. If folks want to keep up with you on Twitter, you’re @arvidkahl and @SimpsonDanniK. We will link both of those up in the show notes. Arvid, you’re doing a lot of writing at the bootstrappedfounder.com. If folks wanted to check out Danielle’s website, it’s simpsondanielle.com. Thanks again for joining me today.
Danielle: Thank you so much.
Arvid: Thanks a lot.
Rob: If you have a question for me or one of our guests, please, leave us a voicemail at 1-888-801-9690 or email questions@startupsfortherestofus.com. If you’re not subscribed, you should search for startups in any podcatcher, and we’re going to be in the top few. We do have full transcripts of each episode—even though they are a few weeks behind—at any given time. Thanks so much for hanging out again with me this week and I’ll see you next time.
Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on the show you hear from startup founders who are ambitious, but some of them bootstrap, some self-fund, and others raise small amounts of money. The uniting factor is that they want to build great companies, they want to build great lives for themselves, and they don’t want to go down the traditional venture track of go big, go home, I have to build a unicorn or bust.
This week, we hear from Arvid Kahl and Danielle Simpson, the co-founders of FeedbackPanda. Arvid and Danielle did an attendee talk at MicroConf in Croatia just a few months back, and I wanted to invite them to the show because of how interesting their story is. Over 2 years, they bootstrap FeedbackPanda to $55,000 MRR with no employees. FeedbackPanda is student feedback for teachers. They’re selling into the teacher market. They had rapid growth via word of mouth and a clever referral program. They really caught a nice wave in language learning.
We dive into all kinds of things today. They eventually sold the company for a life-changing sum of money after two years. In this conversation, you’ll hear about Arvid and Danielle’s struggles, their victories, their failures, the anxiety, the highs, and the lows. We dig into a lot of pretty fascinating things. I hope you enjoy this conversation, and with that, let’s dive into the conversation with Arvid and Danielle of FeedbackPanda.
Arvid and Danielle, thank you so much for joining me on the show today.
Danielle: Thanks so much for having us.
Arvid: Yeah, hi.
Rob: Welcome to Startups for the Rest of Us. I am just so fascinated with your story—growing in two years as bootstrappers from $0 to $55,000 MRR is just a fascinating story. I want to start off almost with the part of a typical hero’s journey at looking at the end of that journey. I’d love to hear, what did it feel like when you saw the money from selling FeedbackPanda into your bank account, when you refreshed that and you all those zeroes?
Danielle: Oh my gosh. It was such a mix of relief of never having seen that amount of money before, just shocked to have that amount on one bank account, total just happiness. How about you?
Arvid: It was pretty strange, it’s quite a weird feeling. The weird part about it to me was how nothing really changed. You have all these stories you hear about lives being changed and it does change in a numerical way, but we were still in our apartment that we’ve been in before for the two years prior to building the business every single day. We were still sitting on the same chairs and the same couch. The only thing we did was really get out two glasses and some affordable champagne.
Danielle: In the morning.
Arvid: Right, because that’s when we saw it due to the time difference between the States and Germany where we live. Just cheers and then that was it, right? Then we went right to the transition because that is also one of the bigger things we had to do at that point. It was a wonderful feeling. Also, I guess, just a couple hours later and a couple of days later, the feeling of dread and the feeling of, “What now?” came to the forefront of my mind at least because you just wonder, “Okay, now this is done,” and you have to shift your thinking. There was a lot of joy and a lot of slight- to medium-confusion.
Danielle: It kind of oscillated between all of those emotions for the next few months, I would say.
Rob: You had such a massive transition, and I hear this often from entrepreneurs who sell their companies, and I went through the same thing a couple of times. It makes sense that your response was elation followed by confusion followed by some day drinking, which is something I highly recommend. Once you sell your company, please, day drink a day or two. Just take a day off.
You know what’s fascinating is, Arvid, you just said, “Our lives didn’t change. We still were in this apartment sitting in the same chairs drinking affordable champagne.” What I find when I talk to makers is we don’t do it for the money, we do it for the freedom. We do it so that we can make and work on interesting projects, and build things that we want to build rather than buy a Maserati or buy a big house. I am curious. Did you guys buy anything interesting or cool with the money that maybe you had never indulged in before?
Danielle: We definitely took a very nice vacation. We spent ten days in South Africa, and it was amazing to be in the middle of the African bush and be in the middle of nature, and have something that we didn’t have for the past two years. The privilege of being fully present in those moments where we weren’t looking at Intercom while we’re also trying to look at an elephant or something like that. That was quite indulgent for us.
Arvid: That was the true luxury was having time to ourselves both as people who have been working 24/7 for two years and as a couple. Just to be able to be present with each other. No Maserati could buy us that kind of luxury as much as a vacation—just being away from it all. Material things, I don’t think so, and I think you’re absolutely right. Makers do it for the making, not for the raking. You don’t try to rake it and you just try to continue making stuff. That is what you want to do.
We were at an event, at a Berlin startup community just a couple of weeks prior to the whole due diligence phase, the negotiations, and all that stuff. There were people talking there about this post-economic state of mind, and that’s what you want to reach. You want to reach financial stability that allows you to make decisions that do not hinge on you being financially stable from the decisions you make in the business. It’s like you can make risky business choices because you know that personally, your finances are in order.
That’s one of the things that actually led us to consider selling the business is that all of our assets were bound in it. We had a great business, but it was also a lot to lose at the later point, later stage, in the second year of the business. That is one of those feelings that we had in addition to the normal dread of running a gigantic business with just two people.
Rob: Absolutely. Most entrepreneurs are just way under-diversified. Most entrepreneurs who are having success like you had literally had millions of dollars tied up into a small business, and they might have $100,000 in the public stock market. It’s completely under-diversified. I don’t think a lot of people think about that.
In the last episode, Ruben Gamez was on, and he brought up a really good point that I feel like we should hammer home is you can’t run a business like we run and expect it to be here in 10 or 20 years. A lot of these businesses just don’t make it because of the massive shifts in Google, APIs, and protocols. How many SaaS companies do we know that really last that long? It’s a lot more difficult than it seems. I’m curious, can you talk about how much you sold the company for?
Arvid: We cannot talk about how much we sold the company for, but what we can say is the fact that we sold it for a life-changing amount of money. That’s why we got out that champagne because it was actually something to celebrate, but we can’t be specific about the numbers.
Rob: Of course. Most acquisitions, especially at these types of sizes, are under NDA. I’m going to do some loose math, don’t confirm or deny this. When I think of a company selling to a financial buyer, $55,000 MRR mostly profit because you had no employees at $660,000 ARR, 3x–4x multiple puts it somewhere in the $1.5–$2.5 million dollar range in my head. If it was a strategic buyer, it would be a little more. Just so listeners have a context, I have zero inside information, and again, I don’t want you to confirm or deny. That’s probably the kind of range we’re talking about if this was a market rate sell.
Arvid: Interesting.
Rob: You like that?
Arvid: Yeah. Great. We won’t confirm or deny anything, but definitely an interesting insight. Interesting also into the math because that’s what most people are really interested in, we were also interested in trying to figure out how much our business might be worth. There were numbers—multipliers—from something below one to something above ten. People were talking about SaaS, content, e-commerce and all these different kinds of things.
There’s a lot of information in the market, there’s a lot of misinformation in the market, and every transaction seems to be extremely unique when it comes to the actual numbers that the multipliers—whichever ones are chosen—actually work on. As you said, we had essentially just two of us as employees and that’s founder-employees. It’s a different math than if we had four employees but the founders didn’t work in the company. All these kinds of things just go into a very complicated piece of mathematics. Ranges are usually the best you can do.
Rob: Yeah, and that’s the thing is you’re in a unique situation because most companies doing $55,000 MRR have multiple employees, have a team of three, four, five people, which would make it much less profitable than what I’m expecting FeedbackPanda was. Sales multiples also depend a lot so much on growth rate. A company that’s declining versus flat versus growing—5% month-over-month, 20% month-over-month. That’s where this gets very complicated and there is no one formula. It’s just negotiation at that point.
I am curious, if you had held out longer, if you waited another 6, 12, 18 months, do you feel like you could have sold for more? Were you continuing to grow and do you feel like you could have made more money having held out?
Danielle: Absolutely. There were channels that we hadn’t yet activated. FeedbackPanda is in a quite price-sensitive niche, but we regularly had customers proclaiming on Facebook that they would be willing to pay more. We just didn’t flip that switch. If you look at our previous members as well, we had a steady growth rate for our entire lifetime. We weren’t really slowing down.
Arvid: We were piggybacking on the growth of the Chinese education market, too. That one is still growing. FeedbackPanda’s customers being recruited by Chinese online English teaching schools, we were selling to mostly North American teachers that were hired by Chinese companies. There’s a lot going on in China when it comes to online teaching, which is the presence of the internet in even more rural areas and all these kinds of things.
That growth didn’t stall. There was no plateau in sight. There was a lot of competition on-site, which again if you look at Chinese businesses, it is a pretty good sign of a healthy industry because as long as there’s competition, there’s no clear winner and there’s growth. Our growth trajectory was very much aligned with the Chinese education system growth trajectory and that one was still and is still growing.
Rob: That’s great when you can catch a wave like that. Was that a bit of luck or did you guys see that that wave was coming and hop on it?
Danielle: It was both. We got lucky that we were in a position to see the wave coming and that we were in that position ready to build something. I saw the problem and we just hopped right in.
Arvid: Yeah, I think so. The lucky part was that Danielle injured her leg at some point. As lucky as this can be because that made you have to work from home, so we needed to find something to actually do. As an opera singer, you can’t really work from home that much. It’s not easy to sing in an apartment, but it is easy to teach. That worked. These Chinese companies just came up at that point. They’ve been around for (I would guess) three, four, or five months at that point, not much longer than that.
We were just at the beginning of that wave and we recognized it because people were there to see it. That’s an important point is we just fell into the industry and then we saw it for what it was. As much as most teachers are entrepreneurial, they’re not software tech kind of entrepreneurial. They’re entrepreneurial in their own ways at building content businesses and brands like influencer brands, but not necessarily a SaaS that could scale almost infinitely in the branch or in the niche itself.
Rob: I have this mental model. I like the way you said, “Well, there was some luck, but also some skill,” I will say. I have this mental model; I should probably write a blog post about it. It’s that success comes down to these three factors: luck, skill, and hard work. In the case of the two of you, you’ve already talked about the hard work. You said you work 24/7 in essence for two years. The skill that the two of you have built up over the years applies to that to a certain degree, as well as being able to forecast and notice the Chinese market taking off, and then that little bit of luck.
I’ve seen startups have varying degrees of this. You’ll see someone get extremely lucky that they happen to come across an idea, and then they really don’t need that much skill or hard work to get it done, but it’s very, very rare, and you can’t control luck. I like looking at these really meticulous, repeatable startups where most of us are willing to do the hard work, and it gets building up skills over time, and then hoping for that bit of luck that pushes you over the edge but not counting on 80%–90% of it to be luck.
Arvid: Yeah, you have a lot of overlap with opportunity surface theory at this point, because skills and hard work build the opportunity surface, then you just need something to actually strike it, and that would be the luck component.
Rob: The niche of selling to teachers, I’ve heard some horror stories about it, to be honest about price sensitivity, and needing a lot of support, is that correct? Was it a tough space to be in, in terms of just needing the volume of customers? Your price points—at least today—are $15 a month, so by MicroConf’s B2B SaaS standards, that it’s a pretty low price. I would expect high churn and price sensitivity. Is that accurate?
Danielle: Price sensitivity, 100%, but high churn, not at all. The teachers in this niche were already pre-selected, so they were somewhat technical. They knew how to integrate a SaaS into their workflow much more than had we gone to a brick-and-mortar school, tried to then convince the school board or the principal, had to go and train teachers how to use the software. The teachers already teaching in this niche were very self-directed. They were having a lot of trouble solving this problem that we ended up solving for them.
The high churn was not even an issue there, but the price point, we actually started lower. We started at $5 a month understanding that this audience might be price-sensitive. Then when they were converting so quickly, and seeing the value so quickly, then we doubled the price to $10 a month, got rid of the $5 a month plan altogether, and then we ran it at that price point.
Arvid: It was $10 for a year, and then we decided to increase it again by 50% to what is now $15 monthly. We released a referral system at the same time so that people could get the cheaper price, which was the actual price—$10 a month at the point—if they were referred or were referring, so people could go back to that price, so it didn’t cost them that much.
There were a couple of mistakes that we made there when it came to grandfathering the plans. We didn’t really ever set a horizon on that so it was an infinite or indefinite grandfathering of $10 a month plan if you had it before—I don’t know—December 31, 2018, then we would keep that forever, which also kept retention high (I guess) because people didn’t want to lose their plan, that kind of level.
Danielle: That goes back to what Arvid was talking about at the beginning with this post-economic state of mind. We felt we had to grandfather all of those teachers in because we were more worried about losing them as customers than the potential gain of having to pay 50% more.
Arvid: Yeah. We didn’t really want to experiment much with pricing because we really felt that if that is too much and we lose our customers, the whole business is going to implode. That’s the kind of fear that I had at that point, which is why referral system with this really, really high 30% coupon or something for life. Lots of the decisions we made came not from a place of optimism but of severe pessimism of potential future.
Rob: Do you think those decisions were correct? Would you make those again?
Arvid: No. They were correct for us and the business at the time, but if we were doing it again from a different financial security perspective or knowing that it wasn’t as crazy, sure.
Danielle: Can I just interject here, too? Had we been isolated in our different roles, if we weren’t the CTO, CEO, and the people talking directly to our customers on the support desk—hearing the sometimes quite sad stories about people who couldn’t make a $10 a month payment—we really empathized with our customers. I know Arvid has a huge heart and would often gift subscriptions to people. That was more of just feeling that was the right thing to do. For us, it wasn’t a business decision, it’s more of philanthropy.
Arvid: Yeah. There was a lot of emotion.
Rob: I can see that. I’m curious, I want to find out, why did this grow so quickly? Was it just the referral program? You’ve talked about word of mouth being the main driver.
Arvid: The referral system only came in a year after we actually already had all this growth.
Danielle: The Chinese schools that were hiring all of these teachers were doubling the teachers that they had contracted. It was like a gig. It was like Uber for online teaching. They hire these American teachers, and they had 10,000 teachers when I started in 2017. They doubled by December of 2018, so they had 20,000 teachers. When we sold in July of 2019, they were at 75,000 teachers. This was one company alone. We were really benefiting from this hiring rush of not only this one company that’s just one company that was the largest, but several other Chinese English companies coming up.
Arvid: We sold to the teachers directly. We were benefiting just from the sheer number of them being recruited because if we had tried to sell to the schools, it would have been a whole different thing. It would have been much more complicated, and there’s bureaucracy, and then there’s the whole thing with getting into the Chinese market, which is it is technically impossible without having somebody in there to do the work with you, so we just decided against that.
Partnering is also hard, so by selling directly in like a B2BC selling to the individual agents with a budget, which the teachers were, we could leverage the growth of that market without anything in the middle. The one great benefit of teachers is that teachers love sharing, and teachers organize in groups. Essentially, they organize as tribes even.
The teacher community around these English as a second language online schools, organize at Facebook groups. They are in Instagram communities. There is a lot of sharing, a lot of communicating going on. If you can get into these communities as a part of them—as Danielle did because she was a teacher at that point—then you see what people are talking about, what they were sharing with each other, and you can become part of the conversation, become part of the actual people trying to solve their problems.
That’s where we did our problem validation, that’s where we found all these problems that people had. We saw how many people of these teachers had the same problems, were they critical, were they just nuances or annoyances. That’s also where we started our marketing, and where we did all of our marketing, which wasn’t really too much. It boiled down to a number of comments on some Facebook posts, that’s what we did because the tribe was so strong that once we actually put our solution in there, and people recognized it as a product that they could really use, they started sharing it for us.
The referral system we put in place because we were just raising our prices and we want to make it still affordable to the people that were currently purchasing the subscription to our software. The actual growth comes from the tribal structure of the teacher community and from us finding the water cooler—finding the place where they were hanging out.
Danielle: I would say it was lucky that they even knew that they had a problem. Teachers are so used to doing the extra work for zero pay. We really did get lucky that they recognized that this shouldn’t be the case and that there could be options for them.
Arvid: When you think about it, there’s this whole thing about prospect awareness funnel by Eugene Schwartz when it comes to like I’m completely unaware, and problem-aware, solution-aware, product-aware until they are fully aware of your product. We were lucky that people were already at the problem-awareness and often solution-awareness stage because, while we didn’t have competition in the actual industry, there were competitive alternatives.
People were using Excel sheets and Word documents, or they were already starting to share their templates that they used for their feedback on Google Docs or in certain groups on Facebook. We already saw people solving the problem in a rickety way, everyone for themselves, and we just really consolidated this into a centralized system that also had the strong network effect, which mirrored the internal structure of the tribe that we had found on Facebook.
In FeedbackPanda, sharing was built into the process. People would write templates for their feedback, and allow them to generate it easily, and then they could share it to what we call the cloud. In the cloud, people could find templates by other teachers, use them, modify them, and share them back.
There was this whole community building that happened around the actual data in our product, which had this gigantic network effect pulling in even more people because once they signed up, there were literally hundreds of thousands of templates for them to pick to make their job much faster.
Rob: It’s fascinating to hear the whole tribal structure that you’re talking about because I have not heard of a bootstrap SaaS app that has grown as fast as you did by making some Facebook posts. Because you said, it’s a tribe, water cooler. That was the key, so this feels to me—at least looking across the apps that I know about that I have had fast growth—like a one-off. The uniqueness of the teachers and how it was like a confluence of events, (a) it’s a tribal structure, (b) you found the water cooler, and (c) it was growing so fast that people were just diving in. Do you agree with that or do you feel like your approach here could be reproduced in other spaces?
Danielle: I’m not sure if this makes it fall into the category of one-off or repeatable, but I think what we did once people actually got to FeedbackPanda, we talked directly to them, and we were selling them on our product. Arvid said there wasn’t much competition. There was another SaaS that tried to offer something similar to what we were offering and to my knowledge, they don’t have even a fraction of the teachers that signed up for FeedbackPanda.
I think that doing those things that don’t quite scale or you don’t see them scaling, talking to a teacher daily trying to get them to that moment of really understanding how the product works, and then turning those first conversations into knowledge base articles where teachers can find the information for themselves, or communicating in a way that is like a soundbite that they can take from that conversation, go back to the community, share the information, that communication style was actually how we activated the tribe for us. Those direct conversations using user-engage at the very beginning and then migrated to Intercom.
Arvid: We always try to be in direct contact with people. The tribe is one thing, but we did amplify it. We needed to amplify it, we needed to project a brand into the tribe that was both part of the tribe and solving something for them on a professional level. We were the teachers that helped other teachers. I think that’s the transferable component as well. It works in software development. If you sell a product to engineers as an engineer, and you’re part of their community, you have a reputation as being a good engineer—if you have that—that really helps because you sell it through your reputation, you sell it through some sense of authority, and having a following already.
You were talking about this in the episode with Ruben as well. If you don’t have an audience, if you don’t have a market, there is an audience somewhere, you just haven’t found it yet. I believe that there are tribal or at least community structures for every single thing, for every kind of thing we’re part of. I’ve been talking with a lot of consulting clients recently, and they are in specialty foods, they are in document processing for specific kinds of jobs, they are in many kinds of groups of people.
Whenever I talk to them, after a while, we figure out there is a niche community. There is a group congregating somewhere. There is a meet-up for this in this city. There are three people that go there at all times. There is this online bulletin board where people that look like it’s from the 80s, but that’s usually a good sign that shows that there’s a community that has been around for a long, long time hidden away in this one niche location. You just really have to find it, and become part of it, and not do the marketing way where you start trying to push your product from the beginning. You just become part of it because you want to be part of it.
You want to talk to these people, you want to help them out, and then eventually, you can put your product in there because it’s a natural progression from being a part of the community to wanting to help the community.
Danielle: There was a lot of integrity that we built through our brand. Something I didn’t expect to do was release a product that wasn’t quite perfect or finished. Anybody who knows me knows that I like to get things as close to perfect as possible before revealing it to anybody, but this would have been detrimental to FeedbackPanda. Arvid quite nicely balances me out in this regard.
We released the product, then we got a lot of great feedback from the teachers in the community. They thought that he was a wizard because they would give him their feedback, and then in a day or two, he would release the feature that they had wanted. I’m not saying that you should build every feature that somebody asks you for. We really looked through all of those examples, what really deserved to be a part of the product, but even that was just reinforcing this dependability on FeedbackPanda.
Rob: It’s great to be makers who can ship fast in a space where all the software sucks because you don’t have to be that good to be really, really impressive. That’s cool. I love anecdotes like that. We used to ship stuff in the early days of Drip the same day. Someone would send a supportive comment, “How come it doesn’t do this?” I would literally build it two hours later, send them an email. Those were some of the funnest ones.
I’m curious. You’re growing this company, it’s obviously moving very quickly, why did you not hire someone to help? Was there just not enough work that you needed help, or was there some other reason for that decision?
Arvid: There’s a short and a long answer. The short one is I’m an idiot, and Danielle could tell you why.
Danielle: I would say that be careful when you get advice from books and podcasts without really critically examining whether they apply to your situation. We were both guilty of taking this advice, “Hire late, hire late, hire late,” to heart. What we made now in retrospect can say, we should have built a roadmap that said, “Okay, when we get to this goal, when we reach this amount of support tickets, or whether it’s tied to MRR, or to the amount of work that you have, we could have said this is when we’re going to hire.” We didn’t do that because we didn’t expect to grow that quickly. We thought we had more time.
Arvid: We didn’t really set goals much. The one and only goal that I set for myself was, “I want to grow this business to the unimaginable number of $50,000 MRR,” and that’s going to be impossible so might just as well set it as a goal. Once we hit that, “Yeah, what now?” Even before, once we hit, $10,000, “Oh, this works,” or $20,000, “Okay, now we can pay ourselves.” Then $30,000, $40,000, “Oh, this is still growing.”
There was never a moment of scheduled reflection. I’ve been writing about this recently, I just remembered. The thing I called is continuous validation, but not just of a product but actually of your business. Are you still in it for the same reasons? Are you still fine with what you’re doing? These kinds of things, had we done this—and we did it sometimes, but by far not enough—we would have understood—at least a year in—that it would be fine to hire a customer service person.
You just alluded to it (I guess) that there wasn’t enough to do for a full 40-hour a week position. To me, in my complete absence of knowledge and experience, if you hire somebody, it has to be a full-time position. That was what I thought. Of course, you don’t. Of course, you can have somebody do this for the two hours a day that most people are asking questions, and then do the rest later, or early, or whatever. To me, in the middle of it and always being interrupted by conversations on Intercom at random hours, it felt like, “Might just as well do it myself until we have somebody to take it all away from me completely,” which meant that I blocked all of this.
I thought, “I could do it. I can take care of it.” Yeah, it caused me a lot of sanity, caused a lot of anxiety that I had to learn how to deal with. In retrospect, once we sold, we had to hire our replacement so there was no way around that. When we did that I figured out, “Oh, this is actually easy and enjoyable and I should have done this immediately.” That’s one of the big learnings for me.
Rob: It’s a good point, and you’ve touched on two problems really that a lot of founders face, especially in the bootstrap space. One, we have the savior complex where we feel like we need to do everything, and it is hard to delegate, or you have a mental roadblock that won’t let you hire someone part-time, you just don’t think about it, or you just push yourself to the brink of burnout and exhaustion.
The other thing that it brings up for me is the lack of goals, lack of planning thing, it’s a problem. There are reasons that larger startups and larger companies have all these planning meetings, forecasts, and have goals. I know that so many of us—myself included—we leave the corporate world because there’s so much […] that you have to deal with. Then we don’t want to go start our own startup and put a bunch of […] into it, but there’s a balance.
If you throw it all out, you can find yourself in that situation where you’re not taking care of yourself. Frankly, you’re not being a good steward of your own mental health, nor of your company. It can actually hurt the growth of your company. There’s a lot of negatives to come back. I’m glad we touched on that because folks should be aware that it’s not all the way on the left, all the way on the right. There’s a middle here where I do think even in smaller startups that we need to be mindful and do some thinking and planning about this stuff.
Piggybacking on that, I’m curious, during these two years of fast growth, you’ve already referenced a lot of ups and downs. The growth is amazing, it’s fun, it’s exhilarating, the pain and anxiety you’ve brought up can be debilitating, and it can take a toll on you. Can you take me to a moment or a series of moments that you remember that perhaps were a low point during the journey?
Arvid: I have a couple of good ones and most of them (funny enough) are technical. That’s what I was doing mostly. I was responsible for building the product, for maintaining the infrastructure. FeedbackPanda was built on essentially a cloud-native thing. We put our software into Docker containers, and they were running on Google cloud in the end, but we didn’t start there.
We started with a small, affordable, call it “local” cloud provider—some company in Germany. They were great until they weren’t. We ran into connectivity trouble, and they had issues providing the service. Our service would crash. That was already at a point where we had a couple of a hundred customers. Here I was having to deal with the maintenance that I had to do to actually get the service back up at random times because this other startup that was just the same size as we were had issues configuring the cluster, the infrastructure that they were providing for us to run our software on.
That stuff started to accelerate. First, it was a couple of minutes of downtime a day. Then it was half an hour, and then it turned into full downtime for a day. I was just sitting there. I think we were in Canada even at that point visiting Danielle’s family. I was just on my phone, trying to get their weird little JavaScript UI (that didn’t work) to restart the containers because they didn’t have a CLI yet or an API even where I could communicate with their system and then restart stuff automatically.
I was sitting in somebody’s home—that wasn’t my own—trying to fix the service that was running on infrastructure—that was also not my own—and that I had no control over because they also were like four dudes from Germany trying to build the next AWS. Big mistake, right? It was cheap, and I didn’t want to look into the Google Cloud documentation, so we chose that. Big, big mistake.
It took the knowledge of a very capable friend, and a couple of hours late at night to actually migrate this whole thing over—just a couple hours by the way. I just pushed it as far away from me as possible. I tried to believe that they could deal with the problem, get back actually solving it, and allow us to have our service running, but at some point just couldn’t, so we’ve migrated over to Google Cloud. It had zero seconds downtime for the next 400 days.
That was a big problem. I was just trying to stay focused on it because I couldn’t sleep. Our monitoring system was always essentially waking me up with a call. I had to go restart some containers and try to manage it. It was brutal. I did not sleep well, and I still have some sort of monitoring PTSD whenever a call comes in. Just one split-second, “Is it the server again?” even though I don’t even own the business anymore. I still have that to this day.
Rob: People ask founders why they sell their companies. It’s like these times. I’ve been there, so I know what that feels like. Danielle, do you have thoughts on this?
Danielle: Yeah, I was right there beside him, obviously, even more powerless when a service that you’re using just goes down.
Rob: Was that your low point as well?
Danielle: 100%. It happened more than once with this particular server before we moved over to a better solution. There’s one other point, though, just to add a different perspective. We’re co-founders and partners, so when something personal in life happens, it was really happening to both of us. For example, last winter, my grandmother was very sick, and she ended up passing away. Arvid really picked up the slack for me, but being a co-founder with your partner does mean that you’re experiencing those personal events together whether they’re good, celebrations, or are tragic. Just something to consider. It’s not a low-low.
Arvid: It is a low, just not a business low.
Rob: It definitely makes it a lot more complicated to have, that dual relationship of co-founder and partner. I get it. We’re running short on time but I have two more questions for you that I’d love your thoughts on. The first is when you started building the FeedbackPanda, did you intend to sell it from the start? Was that thought in your mind? If not, when did that thought first occur to you?
Arvid: Before we actually started building the business and before Danielle was even teaching English online, I was working as a software engineer in Hamburg in Germany. We live in Berlin, so that’s a two-hour commute there, and then two hours back. Three days of the week, I would commute for four hours, and I pretty much had nothing else to do (because it was on a train so I wouldn’t have to drive) reading or listening to podcasts.
I was reading a lot of books. A couple of the books that I read at that point were the E-myth by Michael E. Gerber and Built to Sell by John Warrillow. Built to Sell has really stuck with me from the beginning because I learned in that book (in particular) that building a sellable company is building a company you can run forever, and building a company that runs without you where you as the owner actually benefit from the company running, and other people, systems, or automation are doing the work.
We never really intended to sell the business, but we built it as a sellable business anyway because that was (to us) the optimal way to build a business. That when we actually got people that were interested in purchasing the company, then we thought about selling it. From the beginning, we just really wanted to build a cool, efficient, and mostly a highly-automated business because at least I am very lazy and I didn’t want to work too much. Turns out I had to work quite a bit, but we still made it highly automated, and hence sellable, which really helped when it came to actually sell the business.
Rob: That’s a good point that you make. I think founders get involved in this binary thinking about, “I am never going to sell my business,” or “I’m building it to sell.” Building it to sell from the start helps you no matter what. The idea of you said you’re lazy, that’s an adaptive trait for a founder because you’re lazy, but you’re willing to put in hard work is a thing. Lazy, I think about just means you’re highly efficient, and having a goal of having an automated business bringing in tens of thousands a month is something all of us would aspire to.
Wrapping up, I’m curious, are you going to do it again? Do the two of you have the desire?
Danielle: Coming 2020, no. Just kidding. I would love to hop back in. In fact, I co-founded a company while we still own FeedbackPanda with the hopes of building out this project. Absolutely, I would love to get back in. It’s quite interesting. I feel that our roles—since we’ve sold—have reversed. I was very focused on our brand image and nurturing the audience, and now, I’ve really been looking into the no-code movement and trying to build up this product, another SaaS essentially.
Arvid: Whereas I have started pretty much building an audience and writing. We really switched. When we sold the business, we both fell into this place where we didn’t know what to do. We’ve been making our way out of it, and I did this through writing. Started a blog, started a podcast, started a newsletter, and just committed to actually putting the information that I had in my mind, that I had learned over the last couple years both with FeedbackPanda and all the prior things that I’ve been part of, put that in writing, and then I started being on Twitter, talking to people, and building an audience.
I wrote a guide and wrote a book, eventually. All these things, that is where I’m going, but of course, I’m still a software engineer. I still want to build things. We’ll see where we really end up, but there’s a lot of projects that are already on the horizon. There’s always people coming knocking on our door with new ideas, suggestions, of course. I don’t think we’re done. We are now at a point where we can actually make much riskier and more interesting decisions in the projects that were involved in. Why not, right?
Rob: Yup. It’s a great place to be in. It’s something a lot of us—many, many of us—aspire to. Thank you guys so much for coming on the show. If folks want to keep up with you on Twitter, you’re @arvidkahl and @SimpsonDanniK. We will link both of those up in the show notes. Arvid, you’re doing a lot of writing at the bootstrappedfounder.com. If folks wanted to check out Danielle’s website, it’s simpsondanielle.com. Thanks again for joining me today.
Danielle: Thank you so much.
Arvid: Thanks a lot.
Rob: If you have a question for me or one of our guests, please, leave us a voicemail at 1-888-801-9690 or email questions@startupsfortherestofus.com. If you’re not subscribed, you should search for startups in any podcatcher, and we’re going to be in the top few. We do have full transcripts of each episode—even though they are a few weeks behind—at any given time. Thanks so much for hanging out again with me this week and I’ll see you next time.
Episode 491 | Hard Lessons Learned, Reaching High-Touch Prospects, Finding Advisors, and More Listener Questions
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Show Notes
In this episode of Startups For The Rest Of Us, Rob along with guest Matt Wensing, answer a number of listener questions on topics including reaching high-touch prospects, finding advisors and more.
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Today with Matt Wensing of Summit, we answer listener questions about Hard Lessons Learned as founders, questions about Reaching High-Touch Prospects, Finding advisors, and several others. I hope you enjoy the show. Matt Wensing, thank you so much for coming back on the show, man.
Matt: Hey, Rob. Thanks for having me.
Rob: Absolutely. For folks who listened to the episode, I guess it was 2 weeks ago now, you were on episode 489. It was titled 15 years to a SaaS exit, plus why forecasting is crucial. You and I talked through your prior startup Riskpulse that you had replaced yourself, you’d found a CEO to run it after growing it to a few million dollars in revenue, several million dollars somewhere in there, and then you actually exited earlier this year after 15 years running it.
Then, we dug into your current startup Summit, which is a tiny seed company. We talked about how it forecasts for SaaS. All that stuff, all your forecasting experience and what you’re up to, so super cool to have you back to take having an experienced founder, multi time founder now with an exit under your belt to weigh in on a few listener questions.
Matt: Yeah, I love it.
Rob: Stoked to have you here. Let’s just dive right in. Our first question came from Twitter and it was Matt de Cure and he said, “What are some of the hard things you’ve experienced as a founder that you were surprised by?”
Matt: I think most of us could go on this all day responding to this. Life as a founder is really about discovering these things. Slowly, but surely, but few things that came to mind, and these are all hard. I look at this bulleted list, it’s like it’s hard to articulate these because there’s so much context, everything that’s difficult, but to keep it short. One thing is I had a co-founder, and we were 50-50. I’ll just say that even though that’s the obvious thing that most people do, that has unique risks.
My co-founder and I are still friends and it’s all worked out, but it was surprising to me that going 50-50 didn’t just, oh, it’s fair, it’s down the middle, that solves everything and it’s like, no, there’s still surprising challenges to that. We could do a whole episode on that. I think another one for me was just how hard it is to let go of people, and that’s both terminating for, I’ll just say the right reasons, meaning reasons that you understand. I would say it was even harder, though, is layoffs, and I had to do that in that long period.
I would say layoffs are even harder. In some sense, you’d almost think it would be easier because you emotionally understand the decision. It’s unfortunate, but you have to do it. I would say it was even harder than letting someone go because of whatever, performance, et cetera. Actually, as I looked through this list, I realized one common theme is I think these all have to do with people.
The other one that was the really hard lesson was that your best people will sometimes leave your startup for the right reasons. That was one where you’re definitely not expecting it, like your best people are your best people for a reason, and you just expect that you’re going to have them for the entire journey. Sometimes, that’s not the way life goes. People have very good and valid reasons for moving, or for graduating. If you open your business, that’s how we chose to look at it, but that was also something hard.
Two more. One is that no deal is done until the ink is dry. Whether it’s a big contract you’re about to win, or it could even be for those that are fundraising and investment opportunities. It’s just not done until it’s dry, and like there’s that truism, the last little part of something is the greatest amount of effort. Man, I just found that to be true again and again, and that was always surprising because especially as an optimist, you’re like, yay, the hard part’s done, but it turns out the last yard is often the hardest, just again and again.
I think this goes for everything, but so much of people’s willingness to buy from you just has to do with your credibility as a founder and your experience in a way. I would say it’s really to the extent of being unfair, and I experienced this, starting out just thinking that the world is a more equitable place. I think without getting cynical, it’s like unfortunately the world has learned how to be efficient by just learning who to trust, and who they trust, and who they’re going to buy from, and this gets into the brand of everything else.
Basically, as a first time founder, I think a really hard lesson to learn was everything I was doing was secondary to who I was, and whether they knew me, and there are no shortcuts to building up that reputation. That was a hard thing to accept, especially early on just knowing that this is going to be a long haul, partly because people just don’t know who I am.
Rob: That holds both for big customers early on, and also investors if you’re raising funding.
Matt: Yeah, and especially there it can feel so unfair, and yet that’s the world we’re in, so there’s a few.
Rob: Those are good. I’m nodding along as you’re running through them. My perspective, I had to go through almost all the things you mentioned. As well as the first thing that came to mind when I read this was one of the hardest parts for me, especially when I was running a team was having to lead and motivate, and have the vision even on days or weeks when I didn’t feel like it.
There were entire, I wouldn’t say months because that would be very long. You just go through rough patches as a human being. Each of us has ups and downs. When you’re trying to lead a team and get everybody on the same page, people look to you for guidance. They look to you when the company is being flamed on Twitter, or when you get this super angry email, and some days you only slept five hours a night before because the kid was throwing up and you’re just for me super tired. When I’m tired, everything’s negative, and I would have these weeks where it was just really hard to be the backstop.
I think partially, that was a little bit of my inexperience as a leader, and thinking that I did need to have all the answers, and I think about things differently now. I also think there’s experience and I also think there’s, depending on how you build your team, and how you construct everything you can feel bad or not, but that was the most poignant. As you said, I bet you and I could literally brainstorm 20 of these right now off the top of my head.
It’s a broad question, but it’s such a good question because it’s like what weren’t hard things as a founder? It’s like, everything is new, everything that you’re doing for the first time and that’s almost always hard by definition.
Matt: When I read this question, I actually saved it for the end because I knew just coming up with this list was going to require a breather afterwards, because it’s a tough one.
Rob: It makes you relive trauma or at least for me, I’m like oh, boy. I remember the sequel in that way. Cash flow, my other one. I messed up cash flow back in 2014, and it was really stressful for about six months where I was like, am I going to cash out a 401(k) or take out money on a credit card, which are things I’m quite fiscally conservative in terms of my own personal finances, never done debt, never done loans, never had credit card debt. And yet, I was evaluating who I can borrow money from to keep things afloat. It’s very, very stressful.
That was a good question. Thank you so much for that, hope it was helpful. Our next question comes from Todd and his subject, his thoughts on reaching a target audience. He said, “I have been a longtime fan of yours. I really enjoy listening to the podcast. The podcast has been very motivating to me as I have a SaaS startup called nursereferralpro.com. NurseReferralPro is electronic case management software for public health agencies and nonprofits.
Our sales cycle is very long.” He has a lot of Es in vary, “it’s so long that we’re going after an additional market social worker and offering the ability to sign up for a service via credit card instead of a PO. Do you have any tips for the best ways to reach enterprise clients that are high-touch? We are so hyper niched that our web traffic is extremely low. Would Facebook ads be worthwhile? Have you come across any other people in a similar space that have had success in reaching these types of users? We’re in the process of rebranding, and once that’s done in March, I want to make a big marketing push to get the word out to social workers. Thanks for any insights you have.” What are your thoughts on this? Matt?
Matt: I took a look at the site by finding the link and it looks like the rebrand is done. It’s called Olive now, and it’s tasteful, it makes sense to me. I couldn’t quite tell if it was a pivot in the sense of saying we’re no longer… but it does say an additional market of social workers. I’m going to give an answer and I’m going to assume that they’re still pursuing the long cycles, while also spinning up this other ability. I actually wanted to key in on that, it says offering the ability to sign up for service via credit card, and instead of a PO. In my experience, you don’t do POs because you want to–and that’s a purchase order for those that don’t know.
A lot of times, companies will say I need an invoice or I need a quote, and then I’ll give you a purchase order number. Then, you can send me an invoice using that number. Make sure the number is written on there somewhere. It’s like the number that someone’s going to need to know they have permission to pay this invoice and what budget that comes out of, so it’s basically this enterprise handshake or API, if you will.
You don’t do that handshake if you don’t have to, nobody does that for fun. It’s great that you’re offering this by credit card instead, and if you’re responding to customer demand, I understand. But the point of all that is you need to support enterprise clients’ buying process, how they buy is how they buy. You’re not going to change that, especially as the independent bootstrap startup, unless you’re changing an industry. You’re probably not going to change how they buy software.
My tips are all generally understanding how they buy, and how they prefer to buy, and then not taking any unnecessarily long routes to get to what they need. If they need a PO make that faster, if they need to meet in person, be where they are. One other question was who’s the buyer? Social workers and nurses themselves, are they actually making purchases? I don’t know this space personally, but I asked because you actually need to go where the economic decision makers are, who may be managing these teams of social workers and nurses, and meet those people in person.
Those could be conferences. Those could be some just long cycles, and I don’t think you’d be able to change the industry. I think at best you can just be as efficient as others are, and so I think my last tip is who’s your competition and how do they sell. If there is an up and coming competitor that’s proving to the market there’s this new way to buy, it’s a lot faster, use your credit card. Skip this skip that, that’s great. Maybe you want to copy them.
If it turns out that everybody that’s selling to this market is sponsoring the lanyards at the annual convention center in St. Louis every year, that’s probably what you need to do as well. I think with the limited budget, the best thing you can do is go there, and you’re not going to able to buy the $15000 lanyard Platinum sponsorship package maybe, or $150,000 even have a booth, but you can be there 8 hours walking the floor and just meeting everybody that you can possibly meet. That’s just a lot of hustle, which is what I had to do in going enterprise with my business. I hope that’s helpful.
Rob: My interpretation of what they’re doing with, so they were called NurseReferralPro but they wanted to branch into social workers as well because I think Todd was implying that public health agencies and nonprofits are very long sales cycle and social workers will be a short sale cycle because they’re more individuals and they can use a credit card.
That’s where the rebrand comes in, which I actually think is pretty nice, the site looks pretty nice. It’s at oliveapp.co, and certainly more branded than NurseReferralPro. I definitely like this. I would throw something out, Todd, I went to the website, I clicked on pricing, and that link is broken. Your pricing link which is one of the most popular links on your site is broken as of today, when we’re recording. I’m guessing by the time this podcast goes live, that’ll likely be fixed, but it is interesting.
He’s basically asking if you have tips for the best ways to reach enterprise clients like public health agencies and nonprofits that are high-touch. The thing that I see working for companies that are trying to do that is related to what you talked about, like the lanyard thing is, trade shows are actually still working in these spaces. It’s something that is so far removed from a lot of bootstrappers who want to do that $20 a month app and build a time tracker and that.
That’s totally fine but this is such a different ballgame that yes, trade shows, although for the next three, four, five, six months, maybe that’s not a thing, but that will come back. The other thing is essentially cold or warm outreach. You have to figure out if that’s something that some people are totally against cold or warm outreach and other folks do it with much success.
That could be cold email, it could be cold calling, warm email, warm calling, never heard warm calling, but you get the idea. I wouldn’t expect your website to be getting a bunch of traffic because how many people are out there searching for this. Search volumes got to be low. I would guess Facebook ads would not be worthwhile but I bet you that there are Facebook groups, or forums, or something where these folks gather public health agencies and nonprofits, they hang out somewhere.
Can you hang out there, and be useful, and don’t sell? Hang out for three months, and listen, and offer insight and advice, and don’t even have your URL and your signature for the first month. Once people realize, oh, this Todd guy is pretty helpful. You can start easing a little bit of that in, but you truly are offering value. This is not something like, oh, sneak in and infiltrate. I’m not saying that, I’m saying like genuinely, go in and answer questions.
When we were first starting Drip 2012, 2013, I was in all these entrepreneur and creative forums, blogger forums. People were talking about open rates, average spam complaint rates, and what do you do, just basic ESP stuff that I knew because we were building one. I would just go in and answer all the questions. I did it on Quora as well. It’s not something that scales, but A, in his space, you don’t need that many people to trust you, to build that six or seven figure business because the price points are going to be so high. B, building a reputation like that, a brand is really more valuable than getting Facebook clicks.
Matt: That’s right. They’re going to ascribe his expertise to the products at that point and say I wonder what he’s made.
Rob: That’s why, Matt, you and I both have podcasts. I’m a listener and podcasts are part of our personal brands. Some people blog a lot, you’ve written a lot of essays on Medium. All of this is just content marketing, I mean, you wouldn’t think of it that way, I don’t think. I never call this podcast content marketing. It’s just stuff that I like talking about, that I’m interested in, and I like teaching and helping people. Hopefully, for Todd, he could do it the same way, and it’s whatever modality works for him. If answering a bunch of questions on stuff that is really obvious to him because he’s in it day to day, if that’s fun and exciting, and it drives business, that’s amazing, if it drives some leads.
Todd, I can see you have a nice blog as well as white papers. Someone on your team who is a good writer, content is always a decent avenue for it. I don’t think that a podcast in the space is necessarily going to work. Although I guess here’s the thing, it wouldn’t be for the referral part or the Case Management part, it would just be are there public health decision makers and nonprofit decision makers? What podcasts do they listen to? Are there any industry specific podcasts? It’s an interesting question.
If audio and talking on the mic is not your thing, don’t go down this road. But if that’s fun and interesting, then maybe something to consider.
Matt: Maybe sponsor one of those podcasts.
Rob: Yeah, as a start, just to see. There are a lot of avenues, and I think that’s a really good question, thanks so much for sending it over, Todd.
Our next question is about working in public, and it’s from Corrine Pope. She says, what are the best ways for founders to, “work in public.” “I know I should be doing it, but I’m a little overwhelmed at where to focus my efforts. Blog, Twitter, forums, YouTube,” what do you think?
Matt: I think the keyword there is overwhelmed, because you need to be consistent. I think people are getting to know you, and that needs to be a story, and all good stories need to have an arc; a beginning, a middle. A beginning, a middle, and maybe there’s no end. It’s just a continuing saga of Rob Walling, or Matt Wensing, or Corrine here. In order to generate consistent results, you need to do the medium, or like you said, modality that works for you that you can just consistently publish. It’s never effortless but it just needs to be the one that works for you.
I’ve seen founders that work in public just try different things out. I know that Derrick Rhymer at one point was doing some YouTube videos of him cranking on Elm because that’s unique, it’s different, and people want to maybe see that. But he’s got a very popular podcast, and it’s just easier for him to get on the mic, I suppose. For me, I love to write, therefore it’s really easy for me to send out a tweet, it’s easy for me to write an essay, and I also like podcasting, but the point is consistency.
I’ve got a co-host on our podcast, Peter Suhm. If I ever don’t feel like doing it, or if I ever say I’m really busy right now, he’s really good about saying no, we have to get an episode out because as soon as we don’t, I’m sure that the drop off is huge in terms of not to say listeners, but your consistency is lost.
This is a know thyself answer for what’s going to work for you, and hopefully there is a medium of expression that’s going to work. I think there’s so many of them right now. It’s not that you have to worry that there isn’t one, but I would just encourage experimentation with a bunch of different ones to start and see what sticks.
Rob: I think that’s good advice. I think it’s really knowing when I think of Steli Efti, sitting down to write a 5000 word blog post, I don’t think that is his zone of genius. But him getting in front of a camera for six minutes, I think he’s better than 99% of people I see doing it. There are certain folks who you’ll read their writing for years and the first time you hear him on a podcast, you’re like, wow, I prefer to read your writing.
It’s just different things, and that’s not to say you can’t get better at things. I will say, before this podcast, I was writing multiple essays per week for years. My writing started off okay, and it got pretty good in the end. I could crank stuff out quick, and I was really good at it, but I wanted to go to that next level. We started the podcast, and as folks may have heard a couple weeks ago, you can go back to episode one anytime, it’s on the website. I put in the first five minutes of the very first episode to celebrate our 10 year anniversary, and it’s awful. We’re really reading from a script, and we just don’t sound good, the sound quality is terrible.
It’s not to say that you have to be a great podcaster to start, because certainly we were not, you will get better over time. I feel like it’s the question of what are you good at and what perhaps do you want to be better at? Do you want to be better on the mic, or do you want to be better in front of a camera? When you look at the people who really do have success on Twitter, what are they doing differently, because they take a certain approach to it.
Whereas we can see people who are not on Twitter at all, Seth Godin, example. He is not on Twitter. He has this broadcast account that’s called The Success Blog, and his blog posts go out there, but he does not respond, does not interact. And yet, we read his books, and we read his blog, a lot of people do. Of course, he branched into podcasting a year or two ago.
I think it is starting there of like, do you want to do long form, opinionated content? Is that where your zone of genius is? Then think about Medium, or your own blog, depending on how you want to do it. To add the last piece, what is your end goal here? Is it to reach an end user who may be a customer of yours in the future? You can’t just say what is it I’m good at or want to be good at, but then it’s like where are they as well? Are they truly everywhere, or are more of them engaging daily on Twitter, or do a lot of them listen to podcasts?
Are they a lot in these founder Slack groups or on YouTube or whatever? I realized this is an it depends answer, but it kind of is. Really, me trying to do a Steli Efti video, or whoever else, we can just think of people who are probably going to be incompatible with certain formats and really accelerate others naturally. You got to find your wheelhouse a little bit, I think.
Matt: I’m laughing because the Steli Efti video, the six minutes of high energy, say it go, that’s my kryptonite. I try, and I’ve given pitches on stage in front of people. For me, it’s just a different context. There’s the energy of the live audience, there’s the sense of performance, like that’s okay, but if I’m just sitting down in front of a computer, or in front of a laptop camera, it just does not work for me. Don’t get discouraged in other words, you might just need to change one little variable, and there you go.
Rob: Thanks for the question, Corrine. I hope that was helpful and look forward to seeing you at the next MicroConf, she comes to a lot of MicroConfs.
Our next question is from Dylan Barry. He asks for advice about advisors. He says, “I’ve been a longtime listener, two time MicroConf attendee. I wanted to first of all thank you for the most recent episode with Andy Baldacci. This shows how far behind I am on questions because that was probably more than a month ago. He said this was one of the better interviews you’ve done, and I love how you were able to dive in more than usual into some tactics and thought processes that Andy has around growth. Bravo.
I’m a co-founder of an iPad based visitor management software company in Denver, Colorado. At the leadership level, we recently started talking about how we might need or could get a lot of value from having more advisors involved. I figured it might be worthwhile sending you a message to see if you had any suggestions for how we could best go about finding advisors. We aren’t really looking for formal business coaching engagements, we’re really just looking to find a few people who’ve been there and done that to occasionally look at what we’re doing. Ask thought provoking questions, provide feedback on how what we’re doing compares to situations they’ve seen in the past, and give us a heads up as to things we should be looking out for as we continue to grow our small software company. Thanks again for the wonderful episode, and for the time and energy you continue to put into helping the bootstrapping community, Dylan.” Thanks for the question, Dylan. Matt, what do you think about this?
Matt: Great question. Advisors can be super helpful, and it can be formal or informal. This is one where I would love to just ask a question right back so I’m gonna have to make some assumptions.
Being based in Denver, there’s obviously a decent startup scene there. I’m not sure if there’s anything preventing interactions there aside from the current social distancing efforts. I found most of my informal advisors through just people that I met at events and you’re giving them the elevator pitch of my business as far as, hey, what do you do? If it’s an event where there’s a lot of startups there, there’s also going to be startup experienced startup founders, some of them angel investors and some of them venture capitalists maybe.
If you can go to one of those mixer types of events and share your pitch, in some sense, a great pitch should draw advisors out of the woodwork. One out of how many of those you talk to will suddenly realize, hey, I think I could actually add some value to this guy and their business like, hey, what do you think about this? They’ll want to keep in touch with you. That’s just the on ramp that I end up having with a lot of folks that became interested in advice. Even if you’re not raising money so they don’t become an investor, you can thank them for their time. You could give them an advisory agreement that gives them either a little bit of ownership or some small customary percentage or payment for their time.
I will say, a lot of the best advice I got was not through those, like Dylan said, official management, consulting, or business arrangements where it’s like I’m going to be an advisor to you and here’s my $5,000 month charge or whatever. It was mostly through just friends of the company that I met through these kinds of events.
Again, I’m probably biased towards these in person types of meetings because I just went through a lot of them in my past, but Twitter might be a more virtual way to do that. I think it will probably take longer. I’m not sure if there’s something I don’t understand about why it’s difficult, but if I had to pinpoint something, it’s a little bit of a litmus test of you to go to one of those events, talk to 20 people, give the pitch, do that five or six times. I would expect that some people are going to lean forward and want to help you, but obviously, mileage is gonna vary.
Rob: I like that. I almost never heard this question from people who have raised funding because once you have investors, you tend to allow smart investors in. Angel investors tend to be former founders, not always, but a lot of them have been there and done that. That’s in an odd way, I never suggest people should or should not raise funding. It all depends on it, but that’s the easy way. That’s the shortcut. Someone has skin in the game really quickly because they own part of the company and you succeeding helps them in a roundabout way. That’s the shortcut way.
The other way that I really like I think the in person stuff is really what it is. We’ve had, through MicroConfs. We’ve had people connect and start mastermind groups, start co-founder relationships, and also start advising relationships. When I think of informal advising with no equity given, my biggest question is why? Why should they do that?
Advisors are probably busy people that have run companies or whatever they’re doing, they have families that every minute or every hour and a month they give you they’re taking away from something else in their lives. There has to be some motivation. For me, it’s either they want to do a pro bono because you’re a not for profit or a B Corp, and it’s truly donating time. That’s going to be a small subset I think.
Much more often, I do see advisor shares that wind up being between half a percent and 1% of the company depending on the stage it’s at. I don’t know if you’ve heard numbers that are different than that.
Matt: Yeah, same.
Rob: That’s what you do. If you find someone really good and knowledgeable, it really can be worth it. There’s a value out there where they can save you months of time. Some people completely bawk at not only owning 100% of their company, and that’s fine. In that case, maybe you should go to Clarity.fm or Clarity.com and you can get some advice. There are founders on there, they’re not just business coaches. In that case, I feel like you should pay them for their time or they should get paid in equity. I think those are the fair arrangements that you’re getting some value so they should also get some value.
Matt: Again, that goes back to do they believe that a half a percent or 1% stake in your business is worth something? That goes back to your pitch. Just to put in perspective too and a little advice, you never give that percentage upfront. They earn that over a two-year period. If you think about it, it’s like wow, they’re gonna get 1% for 24 months of giving me advice and help. You feel like you’re getting the good end of that deal if they’re good.
Rob: I like it. The in person stuff is exactly what I would be willing too as well. For the next three to four or five months or whatever, that might be tough, but that’s how you’re going to break through the noise because most of the advisors who are knowledgeable and experienced are really going to bring a lot of value, tend to be in demand, and they get a lot of emails in questions about can you be an advisor, so you do have to cut through the noise there.
Thanks so much for the question, Dylan. I hope our thoughts were helpful.
Our next question is from TJ Zastrow from crewbooks.app. He’s asking which niche to focus on. He says thank you for everything you do, Rob and crew. I need help narrowing down which niche I should focus on finding product market fit with. I have several niches which my product might serve but I’m a bit stuck in analysis paralysis deciding which of these, if any, could scale if I find traction. The product is crewbooks.app. The H1 tag on the homepage is generated by a book with friends just by sharing a link. How it works is each contributor fills in a form and gets a single page included in the resulting physical book or PDF.
TJ lists a bunch of different niches that you might focus on. First one is schools as a fundraising tool. I think poetry, anthology, and short stories. Second one is gyms or fitness studios as a skew that they can sell from their front desk. The third is craft breweries or other industries could benefit from a collaborative industry guide. The fourth is funeral homes as a package add-on that they could sell. I think friends and family are contributing. Five is SMBs looking to boost company culture where everybody collaborates on something. Six is churches or groups as a directory book. Seventh are conference organizers to have custom swag to give away. These are all interesting niches. What do you think about this, man?
Matt: I empathize with this completely because I had a weather data proposition for people back when StormPost was getting off the ground. It started out B to C but then we went B to B. When you go B to B, you’ve got to have messaging that isn’t just for every human on the planet. It needs to have some niche focus to it.
I went through this process for TJ. I would say start this way. You got all these niches and you could probably come up with 20 more if you just spent one more year looking for more. I don’t know how long he came up with these seven, but SMBs was one. If you double click on SMBs, there are probably 500 within that one. It’s an endless list.
My advice was just abstract away the niche for a second and just think about all of the assumptions that a successful implementation of this product requires since the product is generating books by sending a link to your friends. That was the H1 because that has to be totally generic. We’ll run with that for a second.
What I think has to be true for that to work as a business, and he said something that’s going to scale, is the readers of the book that gets created, they actually have to care what the contributors write. The contributor’s content has to be high quality or it has to be someone that’s special to me. If it’s my grandmother, quality doesn’t matter so much. She’s special to me. If she’s not my grandmother or I don’t have a personal connection, it needs to be really good. For example, there are a lot of conferences I go to where I necessarily think that every attendee has something valuable to contribute to a book. I’m not sure that the book is going to be super high quality necessarily. That’s one, the readers need to care what the contributors write.
Number two is your customer. Crewbooks customers, they have to have this need to create books on a monthly or better basis because you need to have this customer coming back to you again and again to create another book because if they have one conference or fundraiser per year, that’s just not enough average revenue for them for you. They’re gonna pay you that one time thing per year and that’s it. That’s not good enough.
The last one is that Crewbooks customers need to have an audience and that audience needs to be somebody where they have access to their pocketbooks. For example, social media influencers, they might have 59,000 followers. They have an audience but they’re just posting on Instagram and they don’t have access to the spending of their audience. They don’t have their credit card numbers. Your customer, whoever buys your software to create these books, I think it’s really important that their audience is already used to buying things from them and doesn’t just have an audience that listens and says, okay, now you’re going to buy something from me. It’s just not natural.
I don’t know if you agree with these or not TJ, but if you agree with those and maybe there’s more, you should be able to use that to filter out bad niches and not waste your time. I can’t tell you which one is the right one, but if you use that to filter that would be how I would approach it. Once you do pick that niche, man, you got to niche down the website significantly because once you pick, you need to go all in on that niche.
I looked at one example that came to mind, a cookbook for example that friends want to put together, you need to own them like cookbooks.app, myfriendscookbooks.app, or whatever it is. That’s where people land. It appears to people that all you do is that and all the language needs to be about that. Maybe at the bottom, it’s like powered by Crewbooks. I don’t know how much appetite you have for this, but if you find two or three niches, this might be a powered by situation where maybe you don’t find any one that scales.
This is really tough because I hate to split focus, but if you find two that are halfway there or three that are a third of the way there, and you combine all those, I don’t know how much bandwidth you have. Ideally, you find one but this could also be a powered by situation where you’ve got three or four landing pages or micro sites that in aggregate built a decent business for you. I would flip the script a little bit on this one.
Rob: I love it, sir. That was really good advice I think. I echo pretty much everything you’re saying. I feel like this is a solution in search of a problem, really what it is, and how do you find people that have this problem.
I see two avenues to go. If this is a stair step approach, I could see this as a step one business where it is just one time, maybe it’s B2C, and it’s all driven by Facebook ads, Instagram, or something. It really is going to grow to $2000, $3000, $4000 a month and that’s it. You use this to step to your next thing. That’s one avenue to go down. That can be fun and you can learn a lot but it’s not going to replace your income likely and it’s not going to grow into some seven figure business.
The other avenue is exactly what you were describing, where it’s like probably going to B2B because the consumer is not gonna be super price sensitive and need to do this on a recurring basis, so probably go B2B, go with people who are doing a recurring, make sure you charge enough. That’s a whole other avenue to go down. I don’t see a straight path on this one because until you find that group of businesses, whether it’s a vertical niche or whatever it is, who have this problem that you are the solution to, you don’t really have much. You have some software that does some stuff.
Matt: One last thought. The funeral homes for example resonated because it has this emotional appeal. They have to do this again and again, but how many funeral homes are going to go to where somebody says, oh, we’ve been so frustrated with the way we do this today, we’ve been looking for a better way to do it. They’re probably gonna say, oh, yeah, Nancy takes care of this. She has this thing, a catalog that she orders books from for people. It probably solves problems for a lot of these folks. There’s not enough pain in those niches to necessarily change how they do things.
Rob: Thanks again for the question, TJ. I hope that was helpful.
Our last question for today is from Tyler at createdwithlove.com. He says, “I’ve been listening to Startups for the Rest of Us for about three years. I currently own a physical subscription product.” Actually, Tyler has written into the show several times. He says, “I’m looking to launch a SaaS app this year. This podcast has been a huge inspiration for me. I have a lot of experience with the subscription model, as well as design, data analysis, and a little bit of sales. My co-founder for the app is very strong in digital advertising, SEO, and inbound and outbound email with basic knowledge of the code. However, together, we don’t have the technical skills required to build the app. We’re self-funding, we have an agency building a very low cost MVP so that we can start testing and gathering data, but we know this is not a feasible long term development solution.
What are a few tips or guidelines you’d give to non tech founders who are working on their first SaaS app, imagining the results of the MVP show the build is worth pursuing? Thanks again for all you do. I’m very excited for this idea because it means I can go back and re-listen to all the episodes.” I wouldn’t go do that but maybe go pick somewhere where we talked specifically about it.
This is a good question. I like it. For non-developer founders, I do think that there’s a tough process you can think about. What you got for us, Matt?
Matt: I look at this one saying what can you do before you code, because you basically said you have a lot of other skills. I think the answer is you can do everything that a great product person does before they code which should be a lot. Tyler is on the right track to be thinking MVP. They said they wanted to learn whether the app is worth pursuing. This is the right mindset. They’re doing the MVP to learn, but have you written down the things that you’re looking to learn?
Let’s say for example you’re hoping to learn that there’s going to be consistent engagement and willingness to pay because those are the things that are going to convince you that this is worth pursuing. I would list out explicitly users will use the MVP when they need to do blank. Users will use this MVP weekly. Customers will show interest in subscribing with the current feature set even if we don’t have a mobile app. You need to list out the assertions about the MVP. By having that, you can disprove those things.
I’m just talking about maximizing the value you get from this MVP because you said collect data. I just want to make sure that the data you’re collecting has been thought through enough to falsify or prove wrong the things that you need to be true to bother investing more. You’re like, hey, these things are true. We’re gonna invest more. Let’s find out if they’re not true.
If you disprove one, then you celebrate, you write it down, you put on your product management hat, and you keep collecting these items. What you have is a very specific and well-defined set of requirements to give back to that agency and say, this MVP isn’t good enough but we think a 1.5 or 1.1 iteration is going to get us to where we need to go, and it’s just these things.
Remember not to let the agency get between you and your end users. Work really closely with your first 10 to 20 users, finding fit with them through these small controlled iterations so you don’t waste money or time. This is obviously the lean approach. When you’re talking about not having a technical co-founder, what I’m actually implying is in this scenario, I wouldn’t advise going out and finding a CTO or technical co-founder. I don’t think Tyler is saying that’s what they want to do. What you’re doing instead is you’re going to learn the product management skill and these lean techniques to a level where the technical role that you need to fill is really small.
The agency might even want to do more for you than you actually need at this point because all you’re really asking for at this point is you want an individual contributing developer, maybe somebody that you could bring on a contract to hire in the future. You’re just bringing engineering skill in house to execute on your product direction, but you need to get really good at product management and not wasting your engineering time because that’s a direct cost to you and the clock is ticking sort of way. That would be my approach.
Rob: I like the way you’ve pointed out product management and product ownership is a skill that most people don’t know exists. They think that to build a software product, you hire a developer. Yes, the developer writes code, but who decides what gets built and how it gets built? How is it architected on the back end? What it looks like on the front end? These are really detailed, technical, and also some artistic and design. There’s just so much that goes into all the decision-making.
Even if you don’t write code, I’ve never seen anyone hiring out product direct and product vision. I’ve seen people hire out the code because they say I know what needs to be built. I generally know how it’s gonna work. I’ve educated myself on product best practices, whether that’s following Basecamp 37Signals guys or whether that’s reading.
I think it’s Steve Krug who’s written several books on usability and how to think about that or listen to a product, focus podcasts, or hear people deciding how do you ingest 100 feature requests and figure out which two features to build and how to build them. That’s where the knowledge has to be with you. I think that’s my first tip or guideline. Have a vision for your product. If you don’t, find one, make one up, figure it out through conversations with the users, as well as educating yourself on what it means to be a product owner.
These are roles at SaaS companies. They’ll have an entire engineering org, 10, 15 engineers building features, then they’ll have an entire product org. When I say org, I just mean a department or just a group of people who work together. The engineers are scaling and building features. The product people, maybe three, four, five of them, are typically UI designers or UX focused people. There’s typically a product manager which is the word you used.
A lot of people think is a product manager just someone who is in Gantt charts? No, product manager is different than project manager. Those are two very different things. Project managers tend to look at dates and critical paths and get resources to do this and that. They’re communicating and they’re trying to get everybody on the same page. Product managers are doing all that but they’re doing it for a product. They have to be opinionated about what gets built and they have to get people on board with what’s going to get built next.
When you’re at an org of 100, 200, 300 people, that role looks a certain way. When you’re at an org of two or three people, it looks different but someone still needs to take that reigh. Someone needs to have those conversations with customers, decide what to build, and communicate to the engineers what to build, how to build it. Oftentimes, that’s a collaboration. If you’re not writing the code yourself, you do need to find one.
Let’s say the MVP shows up, people love it, they want to pay money for it. What are your next steps? Personally, if you’re truly self-funding this, I would probably not go with an agency because they’re very expensive. I have in the past gone and hired freelancers. It depends on your situation. You can hire a freelancer on a contract to hire a type of thing which is probably what you want to do, to have someone in house who owns that code base. Owns meaning they care about downtime, they’re keeping unit tests being written, and they really are guarding that code base. That’s what I’ve tended to do. If you’re really low on budget, then yes, sometimes you have to hire an engineer that’s not as good as you want. I do think that there are really good engineers especially over the next six months that are going to be coming more available, unfortunately, given the impending economic stuff.
Matt: The agency they have and the relationship they have right now has already been set. This might not apply but you do want to effectively bring product management in the house. You and your co-founder own that, the cost is controlled. You’re outsourcing that project management and engineering execution by giving them a very clear spec. What engineers love is a very clear spec of what you expect and what you want.
The last technique I’ll mention is Patrick Campbell gave a talk at MicroConf a couple years ago now on these techniques. It was an hour long talk. Part of it was a quilting example like building an MVP for a quilting company through talking with his mom. He used these couple techniques in there which are surveys and very good at helping you develop a clear spec on what features to build and not to build just by surveying your intended target audience. You could do all of that yourselves and then say we’re confident that this is the feature set that we need to go live with. I hope they’ve already done this but if you haven’t, do all of that before you spend more money on engineering.
Rob: Thanks for the question, Tyler. It does sound like you have your wits about you in terms of you didn’t go spend $50,000 with an agency to build some full-fledged product. It sounds like, since you’re self-funding, you’re going with a nice low budget to try to prove it out. Hopefully, our discussion today was helpful.
Wensing, thanks so much again for coming on the show. Folks want to keep up with you. They can head to the Out of Beta Podcast. You and Peter Suhm ship that almost every week. With our crowd, I often say, you ship most weeks because it winds up being three weeks a month, but you guys have been strikingly consistent.
Matt: Thank you, Peter.
Rob: Awesome. You are Matt Wensing on Twitter as well.
Matt: That’s right. Thanks, Rob. My pleasure.
Rob: Absolutely. Thanks again to Matt for joining me today. If you have a question for a future show for myself or a guest, you can email us at questions@startupsfortherestofus.com and send it as a text or send it as voicemail. If you send a voicemail, it goes to the top of the stack. Subscribe to us by searching for ‘startups’ in all the podcatchers. If you want a full transcript of these episodes or the links from the show notes, visit startupsfortherestofus.com. Thank you for listening. I’ll see you next time.
Matt: Hey, Rob. Thanks for having me.
Rob: Absolutely. For folks who listened to the episode, I guess it was 2 weeks ago now, you were on episode 489. It was titled 15 years to a SaaS exit, plus why forecasting is crucial. You and I talked through your prior startup Riskpulse that you had replaced yourself, you’d found a CEO to run it after growing it to a few million dollars in revenue, several million dollars somewhere in there, and then you actually exited earlier this year after 15 years running it.
Then, we dug into your current startup Summit, which is a tiny seed company. We talked about how it forecasts for SaaS. All that stuff, all your forecasting experience and what you’re up to, so super cool to have you back to take having an experienced founder, multi time founder now with an exit under your belt to weigh in on a few listener questions.
Matt: Yeah, I love it.
Rob: Stoked to have you here. Let’s just dive right in. Our first question came from Twitter and it was Matt de Cure and he said, “What are some of the hard things you’ve experienced as a founder that you were surprised by?”
Matt: I think most of us could go on this all day responding to this. Life as a founder is really about discovering these things. Slowly, but surely, but few things that came to mind, and these are all hard. I look at this bulleted list, it’s like it’s hard to articulate these because there’s so much context, everything that’s difficult, but to keep it short. One thing is I had a co-founder, and we were 50-50. I’ll just say that even though that’s the obvious thing that most people do, that has unique risks.
My co-founder and I are still friends and it’s all worked out, but it was surprising to me that going 50-50 didn’t just, oh, it’s fair, it’s down the middle, that solves everything and it’s like, no, there’s still surprising challenges to that. We could do a whole episode on that. I think another one for me was just how hard it is to let go of people, and that’s both terminating for, I’ll just say the right reasons, meaning reasons that you understand. I would say it was even harder, though, is layoffs, and I had to do that in that long period.
I would say layoffs are even harder. In some sense, you’d almost think it would be easier because you emotionally understand the decision. It’s unfortunate, but you have to do it. I would say it was even harder than letting someone go because of whatever, performance, et cetera. Actually, as I looked through this list, I realized one common theme is I think these all have to do with people.
The other one that was the really hard lesson was that your best people will sometimes leave your startup for the right reasons. That was one where you’re definitely not expecting it, like your best people are your best people for a reason, and you just expect that you’re going to have them for the entire journey. Sometimes, that’s not the way life goes. People have very good and valid reasons for moving, or for graduating. If you open your business, that’s how we chose to look at it, but that was also something hard.
Two more. One is that no deal is done until the ink is dry. Whether it’s a big contract you’re about to win, or it could even be for those that are fundraising and investment opportunities. It’s just not done until it’s dry, and like there’s that truism, the last little part of something is the greatest amount of effort. Man, I just found that to be true again and again, and that was always surprising because especially as an optimist, you’re like, yay, the hard part’s done, but it turns out the last yard is often the hardest, just again and again.
I think this goes for everything, but so much of people’s willingness to buy from you just has to do with your credibility as a founder and your experience in a way. I would say it’s really to the extent of being unfair, and I experienced this, starting out just thinking that the world is a more equitable place. I think without getting cynical, it’s like unfortunately the world has learned how to be efficient by just learning who to trust, and who they trust, and who they’re going to buy from, and this gets into the brand of everything else.
Basically, as a first time founder, I think a really hard lesson to learn was everything I was doing was secondary to who I was, and whether they knew me, and there are no shortcuts to building up that reputation. That was a hard thing to accept, especially early on just knowing that this is going to be a long haul, partly because people just don’t know who I am.
Rob: That holds both for big customers early on, and also investors if you’re raising funding.
Matt: Yeah, and especially there it can feel so unfair, and yet that’s the world we’re in, so there’s a few.
Rob: Those are good. I’m nodding along as you’re running through them. My perspective, I had to go through almost all the things you mentioned. As well as the first thing that came to mind when I read this was one of the hardest parts for me, especially when I was running a team was having to lead and motivate, and have the vision even on days or weeks when I didn’t feel like it.
There were entire, I wouldn’t say months because that would be very long. You just go through rough patches as a human being. Each of us has ups and downs. When you’re trying to lead a team and get everybody on the same page, people look to you for guidance. They look to you when the company is being flamed on Twitter, or when you get this super angry email, and some days you only slept five hours a night before because the kid was throwing up and you’re just for me super tired. When I’m tired, everything’s negative, and I would have these weeks where it was just really hard to be the backstop.
I think partially, that was a little bit of my inexperience as a leader, and thinking that I did need to have all the answers, and I think about things differently now. I also think there’s experience and I also think there’s, depending on how you build your team, and how you construct everything you can feel bad or not, but that was the most poignant. As you said, I bet you and I could literally brainstorm 20 of these right now off the top of my head.
It’s a broad question, but it’s such a good question because it’s like what weren’t hard things as a founder? It’s like, everything is new, everything that you’re doing for the first time and that’s almost always hard by definition.
Matt: When I read this question, I actually saved it for the end because I knew just coming up with this list was going to require a breather afterwards, because it’s a tough one.
Rob: It makes you relive trauma or at least for me, I’m like oh, boy. I remember the sequel in that way. Cash flow, my other one. I messed up cash flow back in 2014, and it was really stressful for about six months where I was like, am I going to cash out a 401(k) or take out money on a credit card, which are things I’m quite fiscally conservative in terms of my own personal finances, never done debt, never done loans, never had credit card debt. And yet, I was evaluating who I can borrow money from to keep things afloat. It’s very, very stressful.
That was a good question. Thank you so much for that, hope it was helpful. Our next question comes from Todd and his subject, his thoughts on reaching a target audience. He said, “I have been a longtime fan of yours. I really enjoy listening to the podcast. The podcast has been very motivating to me as I have a SaaS startup called nursereferralpro.com. NurseReferralPro is electronic case management software for public health agencies and nonprofits.
Our sales cycle is very long.” He has a lot of Es in vary, “it’s so long that we’re going after an additional market social worker and offering the ability to sign up for a service via credit card instead of a PO. Do you have any tips for the best ways to reach enterprise clients that are high-touch? We are so hyper niched that our web traffic is extremely low. Would Facebook ads be worthwhile? Have you come across any other people in a similar space that have had success in reaching these types of users? We’re in the process of rebranding, and once that’s done in March, I want to make a big marketing push to get the word out to social workers. Thanks for any insights you have.” What are your thoughts on this? Matt?
Matt: I took a look at the site by finding the link and it looks like the rebrand is done. It’s called Olive now, and it’s tasteful, it makes sense to me. I couldn’t quite tell if it was a pivot in the sense of saying we’re no longer… but it does say an additional market of social workers. I’m going to give an answer and I’m going to assume that they’re still pursuing the long cycles, while also spinning up this other ability. I actually wanted to key in on that, it says offering the ability to sign up for service via credit card, and instead of a PO. In my experience, you don’t do POs because you want to–and that’s a purchase order for those that don’t know.
A lot of times, companies will say I need an invoice or I need a quote, and then I’ll give you a purchase order number. Then, you can send me an invoice using that number. Make sure the number is written on there somewhere. It’s like the number that someone’s going to need to know they have permission to pay this invoice and what budget that comes out of, so it’s basically this enterprise handshake or API, if you will.
You don’t do that handshake if you don’t have to, nobody does that for fun. It’s great that you’re offering this by credit card instead, and if you’re responding to customer demand, I understand. But the point of all that is you need to support enterprise clients’ buying process, how they buy is how they buy. You’re not going to change that, especially as the independent bootstrap startup, unless you’re changing an industry. You’re probably not going to change how they buy software.
My tips are all generally understanding how they buy, and how they prefer to buy, and then not taking any unnecessarily long routes to get to what they need. If they need a PO make that faster, if they need to meet in person, be where they are. One other question was who’s the buyer? Social workers and nurses themselves, are they actually making purchases? I don’t know this space personally, but I asked because you actually need to go where the economic decision makers are, who may be managing these teams of social workers and nurses, and meet those people in person.
Those could be conferences. Those could be some just long cycles, and I don’t think you’d be able to change the industry. I think at best you can just be as efficient as others are, and so I think my last tip is who’s your competition and how do they sell. If there is an up and coming competitor that’s proving to the market there’s this new way to buy, it’s a lot faster, use your credit card. Skip this skip that, that’s great. Maybe you want to copy them.
If it turns out that everybody that’s selling to this market is sponsoring the lanyards at the annual convention center in St. Louis every year, that’s probably what you need to do as well. I think with the limited budget, the best thing you can do is go there, and you’re not going to able to buy the $15000 lanyard Platinum sponsorship package maybe, or $150,000 even have a booth, but you can be there 8 hours walking the floor and just meeting everybody that you can possibly meet. That’s just a lot of hustle, which is what I had to do in going enterprise with my business. I hope that’s helpful.
Rob: My interpretation of what they’re doing with, so they were called NurseReferralPro but they wanted to branch into social workers as well because I think Todd was implying that public health agencies and nonprofits are very long sales cycle and social workers will be a short sale cycle because they’re more individuals and they can use a credit card.
That’s where the rebrand comes in, which I actually think is pretty nice, the site looks pretty nice. It’s at oliveapp.co, and certainly more branded than NurseReferralPro. I definitely like this. I would throw something out, Todd, I went to the website, I clicked on pricing, and that link is broken. Your pricing link which is one of the most popular links on your site is broken as of today, when we’re recording. I’m guessing by the time this podcast goes live, that’ll likely be fixed, but it is interesting.
He’s basically asking if you have tips for the best ways to reach enterprise clients like public health agencies and nonprofits that are high-touch. The thing that I see working for companies that are trying to do that is related to what you talked about, like the lanyard thing is, trade shows are actually still working in these spaces. It’s something that is so far removed from a lot of bootstrappers who want to do that $20 a month app and build a time tracker and that.
That’s totally fine but this is such a different ballgame that yes, trade shows, although for the next three, four, five, six months, maybe that’s not a thing, but that will come back. The other thing is essentially cold or warm outreach. You have to figure out if that’s something that some people are totally against cold or warm outreach and other folks do it with much success.
That could be cold email, it could be cold calling, warm email, warm calling, never heard warm calling, but you get the idea. I wouldn’t expect your website to be getting a bunch of traffic because how many people are out there searching for this. Search volumes got to be low. I would guess Facebook ads would not be worthwhile but I bet you that there are Facebook groups, or forums, or something where these folks gather public health agencies and nonprofits, they hang out somewhere.
Can you hang out there, and be useful, and don’t sell? Hang out for three months, and listen, and offer insight and advice, and don’t even have your URL and your signature for the first month. Once people realize, oh, this Todd guy is pretty helpful. You can start easing a little bit of that in, but you truly are offering value. This is not something like, oh, sneak in and infiltrate. I’m not saying that, I’m saying like genuinely, go in and answer questions.
When we were first starting Drip 2012, 2013, I was in all these entrepreneur and creative forums, blogger forums. People were talking about open rates, average spam complaint rates, and what do you do, just basic ESP stuff that I knew because we were building one. I would just go in and answer all the questions. I did it on Quora as well. It’s not something that scales, but A, in his space, you don’t need that many people to trust you, to build that six or seven figure business because the price points are going to be so high. B, building a reputation like that, a brand is really more valuable than getting Facebook clicks.
Matt: That’s right. They’re going to ascribe his expertise to the products at that point and say I wonder what he’s made.
Rob: That’s why, Matt, you and I both have podcasts. I’m a listener and podcasts are part of our personal brands. Some people blog a lot, you’ve written a lot of essays on Medium. All of this is just content marketing, I mean, you wouldn’t think of it that way, I don’t think. I never call this podcast content marketing. It’s just stuff that I like talking about, that I’m interested in, and I like teaching and helping people. Hopefully, for Todd, he could do it the same way, and it’s whatever modality works for him. If answering a bunch of questions on stuff that is really obvious to him because he’s in it day to day, if that’s fun and exciting, and it drives business, that’s amazing, if it drives some leads.
Todd, I can see you have a nice blog as well as white papers. Someone on your team who is a good writer, content is always a decent avenue for it. I don’t think that a podcast in the space is necessarily going to work. Although I guess here’s the thing, it wouldn’t be for the referral part or the Case Management part, it would just be are there public health decision makers and nonprofit decision makers? What podcasts do they listen to? Are there any industry specific podcasts? It’s an interesting question.
If audio and talking on the mic is not your thing, don’t go down this road. But if that’s fun and interesting, then maybe something to consider.
Matt: Maybe sponsor one of those podcasts.
Rob: Yeah, as a start, just to see. There are a lot of avenues, and I think that’s a really good question, thanks so much for sending it over, Todd.
Our next question is about working in public, and it’s from Corrine Pope. She says, what are the best ways for founders to, “work in public.” “I know I should be doing it, but I’m a little overwhelmed at where to focus my efforts. Blog, Twitter, forums, YouTube,” what do you think?
Matt: I think the keyword there is overwhelmed, because you need to be consistent. I think people are getting to know you, and that needs to be a story, and all good stories need to have an arc; a beginning, a middle. A beginning, a middle, and maybe there’s no end. It’s just a continuing saga of Rob Walling, or Matt Wensing, or Corrine here. In order to generate consistent results, you need to do the medium, or like you said, modality that works for you that you can just consistently publish. It’s never effortless but it just needs to be the one that works for you.
I’ve seen founders that work in public just try different things out. I know that Derrick Rhymer at one point was doing some YouTube videos of him cranking on Elm because that’s unique, it’s different, and people want to maybe see that. But he’s got a very popular podcast, and it’s just easier for him to get on the mic, I suppose. For me, I love to write, therefore it’s really easy for me to send out a tweet, it’s easy for me to write an essay, and I also like podcasting, but the point is consistency.
I’ve got a co-host on our podcast, Peter Suhm. If I ever don’t feel like doing it, or if I ever say I’m really busy right now, he’s really good about saying no, we have to get an episode out because as soon as we don’t, I’m sure that the drop off is huge in terms of not to say listeners, but your consistency is lost.
This is a know thyself answer for what’s going to work for you, and hopefully there is a medium of expression that’s going to work. I think there’s so many of them right now. It’s not that you have to worry that there isn’t one, but I would just encourage experimentation with a bunch of different ones to start and see what sticks.
Rob: I think that’s good advice. I think it’s really knowing when I think of Steli Efti, sitting down to write a 5000 word blog post, I don’t think that is his zone of genius. But him getting in front of a camera for six minutes, I think he’s better than 99% of people I see doing it. There are certain folks who you’ll read their writing for years and the first time you hear him on a podcast, you’re like, wow, I prefer to read your writing.
It’s just different things, and that’s not to say you can’t get better at things. I will say, before this podcast, I was writing multiple essays per week for years. My writing started off okay, and it got pretty good in the end. I could crank stuff out quick, and I was really good at it, but I wanted to go to that next level. We started the podcast, and as folks may have heard a couple weeks ago, you can go back to episode one anytime, it’s on the website. I put in the first five minutes of the very first episode to celebrate our 10 year anniversary, and it’s awful. We’re really reading from a script, and we just don’t sound good, the sound quality is terrible.
It’s not to say that you have to be a great podcaster to start, because certainly we were not, you will get better over time. I feel like it’s the question of what are you good at and what perhaps do you want to be better at? Do you want to be better on the mic, or do you want to be better in front of a camera? When you look at the people who really do have success on Twitter, what are they doing differently, because they take a certain approach to it.
Whereas we can see people who are not on Twitter at all, Seth Godin, example. He is not on Twitter. He has this broadcast account that’s called The Success Blog, and his blog posts go out there, but he does not respond, does not interact. And yet, we read his books, and we read his blog, a lot of people do. Of course, he branched into podcasting a year or two ago.
I think it is starting there of like, do you want to do long form, opinionated content? Is that where your zone of genius is? Then think about Medium, or your own blog, depending on how you want to do it. To add the last piece, what is your end goal here? Is it to reach an end user who may be a customer of yours in the future? You can’t just say what is it I’m good at or want to be good at, but then it’s like where are they as well? Are they truly everywhere, or are more of them engaging daily on Twitter, or do a lot of them listen to podcasts?
Are they a lot in these founder Slack groups or on YouTube or whatever? I realized this is an it depends answer, but it kind of is. Really, me trying to do a Steli Efti video, or whoever else, we can just think of people who are probably going to be incompatible with certain formats and really accelerate others naturally. You got to find your wheelhouse a little bit, I think.
Matt: I’m laughing because the Steli Efti video, the six minutes of high energy, say it go, that’s my kryptonite. I try, and I’ve given pitches on stage in front of people. For me, it’s just a different context. There’s the energy of the live audience, there’s the sense of performance, like that’s okay, but if I’m just sitting down in front of a computer, or in front of a laptop camera, it just does not work for me. Don’t get discouraged in other words, you might just need to change one little variable, and there you go.
Rob: Thanks for the question, Corrine. I hope that was helpful and look forward to seeing you at the next MicroConf, she comes to a lot of MicroConfs.
Our next question is from Dylan Barry. He asks for advice about advisors. He says, “I’ve been a longtime listener, two time MicroConf attendee. I wanted to first of all thank you for the most recent episode with Andy Baldacci. This shows how far behind I am on questions because that was probably more than a month ago. He said this was one of the better interviews you’ve done, and I love how you were able to dive in more than usual into some tactics and thought processes that Andy has around growth. Bravo.
I’m a co-founder of an iPad based visitor management software company in Denver, Colorado. At the leadership level, we recently started talking about how we might need or could get a lot of value from having more advisors involved. I figured it might be worthwhile sending you a message to see if you had any suggestions for how we could best go about finding advisors. We aren’t really looking for formal business coaching engagements, we’re really just looking to find a few people who’ve been there and done that to occasionally look at what we’re doing. Ask thought provoking questions, provide feedback on how what we’re doing compares to situations they’ve seen in the past, and give us a heads up as to things we should be looking out for as we continue to grow our small software company. Thanks again for the wonderful episode, and for the time and energy you continue to put into helping the bootstrapping community, Dylan.” Thanks for the question, Dylan. Matt, what do you think about this?
Matt: Great question. Advisors can be super helpful, and it can be formal or informal. This is one where I would love to just ask a question right back so I’m gonna have to make some assumptions.
Being based in Denver, there’s obviously a decent startup scene there. I’m not sure if there’s anything preventing interactions there aside from the current social distancing efforts. I found most of my informal advisors through just people that I met at events and you’re giving them the elevator pitch of my business as far as, hey, what do you do? If it’s an event where there’s a lot of startups there, there’s also going to be startup experienced startup founders, some of them angel investors and some of them venture capitalists maybe.
If you can go to one of those mixer types of events and share your pitch, in some sense, a great pitch should draw advisors out of the woodwork. One out of how many of those you talk to will suddenly realize, hey, I think I could actually add some value to this guy and their business like, hey, what do you think about this? They’ll want to keep in touch with you. That’s just the on ramp that I end up having with a lot of folks that became interested in advice. Even if you’re not raising money so they don’t become an investor, you can thank them for their time. You could give them an advisory agreement that gives them either a little bit of ownership or some small customary percentage or payment for their time.
I will say, a lot of the best advice I got was not through those, like Dylan said, official management, consulting, or business arrangements where it’s like I’m going to be an advisor to you and here’s my $5,000 month charge or whatever. It was mostly through just friends of the company that I met through these kinds of events.
Again, I’m probably biased towards these in person types of meetings because I just went through a lot of them in my past, but Twitter might be a more virtual way to do that. I think it will probably take longer. I’m not sure if there’s something I don’t understand about why it’s difficult, but if I had to pinpoint something, it’s a little bit of a litmus test of you to go to one of those events, talk to 20 people, give the pitch, do that five or six times. I would expect that some people are going to lean forward and want to help you, but obviously, mileage is gonna vary.
Rob: I like that. I almost never heard this question from people who have raised funding because once you have investors, you tend to allow smart investors in. Angel investors tend to be former founders, not always, but a lot of them have been there and done that. That’s in an odd way, I never suggest people should or should not raise funding. It all depends on it, but that’s the easy way. That’s the shortcut. Someone has skin in the game really quickly because they own part of the company and you succeeding helps them in a roundabout way. That’s the shortcut way.
The other way that I really like I think the in person stuff is really what it is. We’ve had, through MicroConfs. We’ve had people connect and start mastermind groups, start co-founder relationships, and also start advising relationships. When I think of informal advising with no equity given, my biggest question is why? Why should they do that?
Advisors are probably busy people that have run companies or whatever they’re doing, they have families that every minute or every hour and a month they give you they’re taking away from something else in their lives. There has to be some motivation. For me, it’s either they want to do a pro bono because you’re a not for profit or a B Corp, and it’s truly donating time. That’s going to be a small subset I think.
Much more often, I do see advisor shares that wind up being between half a percent and 1% of the company depending on the stage it’s at. I don’t know if you’ve heard numbers that are different than that.
Matt: Yeah, same.
Rob: That’s what you do. If you find someone really good and knowledgeable, it really can be worth it. There’s a value out there where they can save you months of time. Some people completely bawk at not only owning 100% of their company, and that’s fine. In that case, maybe you should go to Clarity.fm or Clarity.com and you can get some advice. There are founders on there, they’re not just business coaches. In that case, I feel like you should pay them for their time or they should get paid in equity. I think those are the fair arrangements that you’re getting some value so they should also get some value.
Matt: Again, that goes back to do they believe that a half a percent or 1% stake in your business is worth something? That goes back to your pitch. Just to put in perspective too and a little advice, you never give that percentage upfront. They earn that over a two-year period. If you think about it, it’s like wow, they’re gonna get 1% for 24 months of giving me advice and help. You feel like you’re getting the good end of that deal if they’re good.
Rob: I like it. The in person stuff is exactly what I would be willing too as well. For the next three to four or five months or whatever, that might be tough, but that’s how you’re going to break through the noise because most of the advisors who are knowledgeable and experienced are really going to bring a lot of value, tend to be in demand, and they get a lot of emails in questions about can you be an advisor, so you do have to cut through the noise there.
Thanks so much for the question, Dylan. I hope our thoughts were helpful.
Our next question is from TJ Zastrow from crewbooks.app. He’s asking which niche to focus on. He says thank you for everything you do, Rob and crew. I need help narrowing down which niche I should focus on finding product market fit with. I have several niches which my product might serve but I’m a bit stuck in analysis paralysis deciding which of these, if any, could scale if I find traction. The product is crewbooks.app. The H1 tag on the homepage is generated by a book with friends just by sharing a link. How it works is each contributor fills in a form and gets a single page included in the resulting physical book or PDF.
TJ lists a bunch of different niches that you might focus on. First one is schools as a fundraising tool. I think poetry, anthology, and short stories. Second one is gyms or fitness studios as a skew that they can sell from their front desk. The third is craft breweries or other industries could benefit from a collaborative industry guide. The fourth is funeral homes as a package add-on that they could sell. I think friends and family are contributing. Five is SMBs looking to boost company culture where everybody collaborates on something. Six is churches or groups as a directory book. Seventh are conference organizers to have custom swag to give away. These are all interesting niches. What do you think about this, man?
Matt: I empathize with this completely because I had a weather data proposition for people back when StormPost was getting off the ground. It started out B to C but then we went B to B. When you go B to B, you’ve got to have messaging that isn’t just for every human on the planet. It needs to have some niche focus to it.
I went through this process for TJ. I would say start this way. You got all these niches and you could probably come up with 20 more if you just spent one more year looking for more. I don’t know how long he came up with these seven, but SMBs was one. If you double click on SMBs, there are probably 500 within that one. It’s an endless list.
My advice was just abstract away the niche for a second and just think about all of the assumptions that a successful implementation of this product requires since the product is generating books by sending a link to your friends. That was the H1 because that has to be totally generic. We’ll run with that for a second.
What I think has to be true for that to work as a business, and he said something that’s going to scale, is the readers of the book that gets created, they actually have to care what the contributors write. The contributor’s content has to be high quality or it has to be someone that’s special to me. If it’s my grandmother, quality doesn’t matter so much. She’s special to me. If she’s not my grandmother or I don’t have a personal connection, it needs to be really good. For example, there are a lot of conferences I go to where I necessarily think that every attendee has something valuable to contribute to a book. I’m not sure that the book is going to be super high quality necessarily. That’s one, the readers need to care what the contributors write.
Number two is your customer. Crewbooks customers, they have to have this need to create books on a monthly or better basis because you need to have this customer coming back to you again and again to create another book because if they have one conference or fundraiser per year, that’s just not enough average revenue for them for you. They’re gonna pay you that one time thing per year and that’s it. That’s not good enough.
The last one is that Crewbooks customers need to have an audience and that audience needs to be somebody where they have access to their pocketbooks. For example, social media influencers, they might have 59,000 followers. They have an audience but they’re just posting on Instagram and they don’t have access to the spending of their audience. They don’t have their credit card numbers. Your customer, whoever buys your software to create these books, I think it’s really important that their audience is already used to buying things from them and doesn’t just have an audience that listens and says, okay, now you’re going to buy something from me. It’s just not natural.
I don’t know if you agree with these or not TJ, but if you agree with those and maybe there’s more, you should be able to use that to filter out bad niches and not waste your time. I can’t tell you which one is the right one, but if you use that to filter that would be how I would approach it. Once you do pick that niche, man, you got to niche down the website significantly because once you pick, you need to go all in on that niche.
I looked at one example that came to mind, a cookbook for example that friends want to put together, you need to own them like cookbooks.app, myfriendscookbooks.app, or whatever it is. That’s where people land. It appears to people that all you do is that and all the language needs to be about that. Maybe at the bottom, it’s like powered by Crewbooks. I don’t know how much appetite you have for this, but if you find two or three niches, this might be a powered by situation where maybe you don’t find any one that scales.
This is really tough because I hate to split focus, but if you find two that are halfway there or three that are a third of the way there, and you combine all those, I don’t know how much bandwidth you have. Ideally, you find one but this could also be a powered by situation where you’ve got three or four landing pages or micro sites that in aggregate built a decent business for you. I would flip the script a little bit on this one.
Rob: I love it, sir. That was really good advice I think. I echo pretty much everything you’re saying. I feel like this is a solution in search of a problem, really what it is, and how do you find people that have this problem.
I see two avenues to go. If this is a stair step approach, I could see this as a step one business where it is just one time, maybe it’s B2C, and it’s all driven by Facebook ads, Instagram, or something. It really is going to grow to $2000, $3000, $4000 a month and that’s it. You use this to step to your next thing. That’s one avenue to go down. That can be fun and you can learn a lot but it’s not going to replace your income likely and it’s not going to grow into some seven figure business.
The other avenue is exactly what you were describing, where it’s like probably going to B2B because the consumer is not gonna be super price sensitive and need to do this on a recurring basis, so probably go B2B, go with people who are doing a recurring, make sure you charge enough. That’s a whole other avenue to go down. I don’t see a straight path on this one because until you find that group of businesses, whether it’s a vertical niche or whatever it is, who have this problem that you are the solution to, you don’t really have much. You have some software that does some stuff.
Matt: One last thought. The funeral homes for example resonated because it has this emotional appeal. They have to do this again and again, but how many funeral homes are going to go to where somebody says, oh, we’ve been so frustrated with the way we do this today, we’ve been looking for a better way to do it. They’re probably gonna say, oh, yeah, Nancy takes care of this. She has this thing, a catalog that she orders books from for people. It probably solves problems for a lot of these folks. There’s not enough pain in those niches to necessarily change how they do things.
Rob: Thanks again for the question, TJ. I hope that was helpful.
Our last question for today is from Tyler at createdwithlove.com. He says, “I’ve been listening to Startups for the Rest of Us for about three years. I currently own a physical subscription product.” Actually, Tyler has written into the show several times. He says, “I’m looking to launch a SaaS app this year. This podcast has been a huge inspiration for me. I have a lot of experience with the subscription model, as well as design, data analysis, and a little bit of sales. My co-founder for the app is very strong in digital advertising, SEO, and inbound and outbound email with basic knowledge of the code. However, together, we don’t have the technical skills required to build the app. We’re self-funding, we have an agency building a very low cost MVP so that we can start testing and gathering data, but we know this is not a feasible long term development solution.
What are a few tips or guidelines you’d give to non tech founders who are working on their first SaaS app, imagining the results of the MVP show the build is worth pursuing? Thanks again for all you do. I’m very excited for this idea because it means I can go back and re-listen to all the episodes.” I wouldn’t go do that but maybe go pick somewhere where we talked specifically about it.
This is a good question. I like it. For non-developer founders, I do think that there’s a tough process you can think about. What you got for us, Matt?
Matt: I look at this one saying what can you do before you code, because you basically said you have a lot of other skills. I think the answer is you can do everything that a great product person does before they code which should be a lot. Tyler is on the right track to be thinking MVP. They said they wanted to learn whether the app is worth pursuing. This is the right mindset. They’re doing the MVP to learn, but have you written down the things that you’re looking to learn?
Let’s say for example you’re hoping to learn that there’s going to be consistent engagement and willingness to pay because those are the things that are going to convince you that this is worth pursuing. I would list out explicitly users will use the MVP when they need to do blank. Users will use this MVP weekly. Customers will show interest in subscribing with the current feature set even if we don’t have a mobile app. You need to list out the assertions about the MVP. By having that, you can disprove those things.
I’m just talking about maximizing the value you get from this MVP because you said collect data. I just want to make sure that the data you’re collecting has been thought through enough to falsify or prove wrong the things that you need to be true to bother investing more. You’re like, hey, these things are true. We’re gonna invest more. Let’s find out if they’re not true.
If you disprove one, then you celebrate, you write it down, you put on your product management hat, and you keep collecting these items. What you have is a very specific and well-defined set of requirements to give back to that agency and say, this MVP isn’t good enough but we think a 1.5 or 1.1 iteration is going to get us to where we need to go, and it’s just these things.
Remember not to let the agency get between you and your end users. Work really closely with your first 10 to 20 users, finding fit with them through these small controlled iterations so you don’t waste money or time. This is obviously the lean approach. When you’re talking about not having a technical co-founder, what I’m actually implying is in this scenario, I wouldn’t advise going out and finding a CTO or technical co-founder. I don’t think Tyler is saying that’s what they want to do. What you’re doing instead is you’re going to learn the product management skill and these lean techniques to a level where the technical role that you need to fill is really small.
The agency might even want to do more for you than you actually need at this point because all you’re really asking for at this point is you want an individual contributing developer, maybe somebody that you could bring on a contract to hire in the future. You’re just bringing engineering skill in house to execute on your product direction, but you need to get really good at product management and not wasting your engineering time because that’s a direct cost to you and the clock is ticking sort of way. That would be my approach.
Rob: I like the way you’ve pointed out product management and product ownership is a skill that most people don’t know exists. They think that to build a software product, you hire a developer. Yes, the developer writes code, but who decides what gets built and how it gets built? How is it architected on the back end? What it looks like on the front end? These are really detailed, technical, and also some artistic and design. There’s just so much that goes into all the decision-making.
Even if you don’t write code, I’ve never seen anyone hiring out product direct and product vision. I’ve seen people hire out the code because they say I know what needs to be built. I generally know how it’s gonna work. I’ve educated myself on product best practices, whether that’s following Basecamp 37Signals guys or whether that’s reading.
I think it’s Steve Krug who’s written several books on usability and how to think about that or listen to a product, focus podcasts, or hear people deciding how do you ingest 100 feature requests and figure out which two features to build and how to build them. That’s where the knowledge has to be with you. I think that’s my first tip or guideline. Have a vision for your product. If you don’t, find one, make one up, figure it out through conversations with the users, as well as educating yourself on what it means to be a product owner.
These are roles at SaaS companies. They’ll have an entire engineering org, 10, 15 engineers building features, then they’ll have an entire product org. When I say org, I just mean a department or just a group of people who work together. The engineers are scaling and building features. The product people, maybe three, four, five of them, are typically UI designers or UX focused people. There’s typically a product manager which is the word you used.
A lot of people think is a product manager just someone who is in Gantt charts? No, product manager is different than project manager. Those are two very different things. Project managers tend to look at dates and critical paths and get resources to do this and that. They’re communicating and they’re trying to get everybody on the same page. Product managers are doing all that but they’re doing it for a product. They have to be opinionated about what gets built and they have to get people on board with what’s going to get built next.
When you’re at an org of 100, 200, 300 people, that role looks a certain way. When you’re at an org of two or three people, it looks different but someone still needs to take that reigh. Someone needs to have those conversations with customers, decide what to build, and communicate to the engineers what to build, how to build it. Oftentimes, that’s a collaboration. If you’re not writing the code yourself, you do need to find one.
Let’s say the MVP shows up, people love it, they want to pay money for it. What are your next steps? Personally, if you’re truly self-funding this, I would probably not go with an agency because they’re very expensive. I have in the past gone and hired freelancers. It depends on your situation. You can hire a freelancer on a contract to hire a type of thing which is probably what you want to do, to have someone in house who owns that code base. Owns meaning they care about downtime, they’re keeping unit tests being written, and they really are guarding that code base. That’s what I’ve tended to do. If you’re really low on budget, then yes, sometimes you have to hire an engineer that’s not as good as you want. I do think that there are really good engineers especially over the next six months that are going to be coming more available, unfortunately, given the impending economic stuff.
Matt: The agency they have and the relationship they have right now has already been set. This might not apply but you do want to effectively bring product management in the house. You and your co-founder own that, the cost is controlled. You’re outsourcing that project management and engineering execution by giving them a very clear spec. What engineers love is a very clear spec of what you expect and what you want.
The last technique I’ll mention is Patrick Campbell gave a talk at MicroConf a couple years ago now on these techniques. It was an hour long talk. Part of it was a quilting example like building an MVP for a quilting company through talking with his mom. He used these couple techniques in there which are surveys and very good at helping you develop a clear spec on what features to build and not to build just by surveying your intended target audience. You could do all of that yourselves and then say we’re confident that this is the feature set that we need to go live with. I hope they’ve already done this but if you haven’t, do all of that before you spend more money on engineering.
Rob: Thanks for the question, Tyler. It does sound like you have your wits about you in terms of you didn’t go spend $50,000 with an agency to build some full-fledged product. It sounds like, since you’re self-funding, you’re going with a nice low budget to try to prove it out. Hopefully, our discussion today was helpful.
Wensing, thanks so much again for coming on the show. Folks want to keep up with you. They can head to the Out of Beta Podcast. You and Peter Suhm ship that almost every week. With our crowd, I often say, you ship most weeks because it winds up being three weeks a month, but you guys have been strikingly consistent.
Matt: Thank you, Peter.
Rob: Awesome. You are Matt Wensing on Twitter as well.
Matt: That’s right. Thanks, Rob. My pleasure.
Rob: Absolutely. Thanks again to Matt for joining me today. If you have a question for a future show for myself or a guest, you can email us at questions@startupsfortherestofus.com and send it as a text or send it as voicemail. If you send a voicemail, it goes to the top of the stack. Subscribe to us by searching for ‘startups’ in all the podcatchers. If you want a full transcript of these episodes or the links from the show notes, visit startupsfortherestofus.com. Thank you for listening. I’ll see you next time.
Episode 490 | How Founders Should Be Thinking About the Current Crisis
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Show Notes
In this episode of Startups For The Rest Of Us, Rob along with guest Einar Vollset, talk about the current crisis and as a founder what your mindset should be and what to do to be prepared.
#1: Don’t panic, clear heads will prevail
#2: No business is recession proof
#3: Be cautious
#4: Heavily scrutinize all marketing and sales efforts
#5: Take care of yourself and those around you
#6: At times like these, cash is king
#7: We’re going to make it through this
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. Each week on the show, we cover topics related to building and growing startups that are ambitious but use a sane approach. This week’s a little different. This is an episode I’ve been wanting to record for a few weeks, but I had recorded out several interviews that I wanted to get live. I wanted to talk about this current crisis that we’re facing. It’s multifaceted, there’s the COVID-19 health crisis. Essentially, we’re seeing a bear market in the stock market. We’re very likely, almost with certainty, are facing upcoming worldwide recession.
I wanted to record this episode, I was thinking about how to do it, and then I got an email from James Kennedy, who’s been a multi-time MicroConf speaker. You may know him from ProcurementExpress. He emailed and said, “My guess is that the community urgently needs a podcast on COVID-19. We haven’t seen much change yet, but I’m worried that this might be the calm before the storm.” I don’t care if you’re SaaS, marketplace, one-time sales, self-funded, indie-funded, bootstrap, or venture funded, as a founder, what should your mindset be? What should we all be doing to prepare?
I can tend to be a little optimistic, I will say. My wife doesn’t think so, but I can be a little optimistic. Today’s guest balances me out. I am not nearly as bearish as Einar Vollset, and I think that that’s a good thing. Einar, welcome back to the show. This is your third appearance on Startups for the Rest of Us.
Einar: Thanks for having me, Rob.
Rob: Absolutely. Honestly, Einar is up to speed on a lot of numbers. He has a PhD in Computer Science, does a ton of data crunching, and pays attention to all the news that’s coming through. I actually go to him when I’m trying to sanity check my assumptions about what’s going on today and where we’re headed. Weeks ago, he was saying, “Hey, this COVID thing is going to be a real thing.” A lot of people were saying that but there was a lot of chaos like, “Yeah, it’s going to be bad,” “It’s not going to be bad,” “It’s exponential,” and this and that. There was a lot of noise. There were a few folks that I felt like got this right, and Einar was on top of that stuff.
There’s a lot to cover today. It’s very likely going to be a longer than normal episode, but this is a case where I don’t feel like we should skip over things to try to make it a shorter episode, because it’s so important. I think everyone needs to be thinking about this in some form or fashion.
To start off, we’re going to talk a little bit about recessions, bear markets, where we’re at with that; and then I had six points that I wanted to walk through. Six things that I think will be helpful for thoughtful founders—both for themselves but also for their companies—to think about. Some actions that I think they need to be willing to take.
The good news is Einar and I may disagree on things because this is not clear cut. No one knows what next week, next month, and next year looks like, but we all have kind of our own reads on the situation. I think it’s going to be interesting, and hopefully, enlightening for all of us to wrap these things around.
To start, Einar, personally, I don’t see any reality where we don’t slip into a recession at least in the US and probably most of the developed world. Right now, the world economy is effectively contracting dramatically. Are you on the same boat with that?
Einar: Yeah, 100%. I think that’s pretty much the consensus view now, the question is just what kind of recession are we going to have? Is it going to be a long one or a short one? How bad is it going to be? We’re recording this on Wednesday or Thursday, the unemployment numbers are due to come out on Friday. For the US, they are usually around 200,000. I’ve seen estimates anywhere from 1.5 million to 6 million people unemployed. Almost, no matter what happens, it’s going to cause a recession. The question is just how long is it going to be and how bad is it going to be?
Genuinely, I think that has most to do with how bad the virus becomes. Are we able to respond to it properly? Are we able to get antivirals in place? Are we able to do surge capacity in hospitals? How soon can we get back to “normal”? I think that’s the determining factor. From where I’m sitting, it seems to me like, at least in the US, both the fiscal and the stimulus response… This would be both what the Fed has done in terms of unlimited quantitative easing, printing money, basically to keep the markets going, and these stimulus bills have been coming through Congress. I think the third one is about to be signed today. From my perspective, that’s it. They’re pretty much out of bullets at that point. And then, it just becomes a matter of can we get this Corona thing under control? Can we mitigate some of the worst outcomes? I think that’ll determine how bad it’ll be.
Rob: Yeah, and I think folks who remember the 2008-2009 Great Recession, that felt terrible at the time. It was different because it wasn’t directly threatening lives the way this is; but I, at one point, thought that the modern world was going to completely collapse. I think other folks did too. If you go back and watch The Big Short, which I watched two weeks ago with my 13-year-old son—him for the first time, me for like the 15th time, I love that movie—it does a decent job of portraying how panicked people were about it. This feels terrible now, but it felt really bad then too. I’m not even trying to compare the two of them, but it does bring me… I’ve lived personally through five recessions that I can remember since the ’80s.
Einar: It’s because you’re old, Rob.
Rob: It is because I’m old. These recessions are things that we’re going to get through. It feels terrible right now, but things will get better. We will make it through this even though this is terrible. That’s the thing, COVID is very serious and very tragic. It’s going to continue to be a tragic story, anytime people’s health and lives are on the line. At the same time, I feel like we have a responsibility as entrepreneurs, as founders, as human beings to think about how to keep our companies afloat, right? To think about how to take care of ourselves, our families, our employees, our communities, both health-wise and financially. That’s why we’re recording this today.
Let’s take this as a serious thing, but let’s not panic. Let’s think ahead. Let’s have some cash reserves, which we’ll talk about a little later. Frankly, start thinking about if you need to make cuts, make cuts early.
Just two things I wanted to say before getting into some nitty gritty is you hear a lot of talk about recessions and bear markets. Those two things are not necessarily the same, though they often correlate. Since the Great Depression in 1929, there have been a bunch of recessions, and almost all of them have been between 6 months and 18 months long. The Great Recession felt like an eternity because the recovery took long, but a recession is defined as GDP shrinking by certain… How is it defined?
Einar: Bear market and stock market going down 20% since peak. Recession is a contraction of the GDP for two quarters in a row.
Rob: Consecutive quarters, right? That’s what we’re going to see. That won’t officially be declared for five months or six months, but we already know that that’s coming. The recession is economic. A bear market is what you said, it’s a stock market, right? It’s when it drops 20% from a peak. There have been 16 bear markets since 1926. They lost on an average of 22 months, but that is 22 months total, it starts to recover somewhere in there. It’s like that 10- to 12-month timeframe, where it really does become a true bear market, and 22 months to make it back up and really start working.
The interesting thing is in the year after the trough of every bear market since 1929, the S&P has gained an average of 47%, according to Fidelity Investments. All that to say is don’t confuse these two things, recessions and bear markets. I do think that it’s important to know because you hear it in the news all day about “Oh my gosh, we’re entering this and that.” Having just a sane look at what this stuff is important. Given that the massive stimulus packages that are rolling out, like you’re talking about, this feels reminiscent of 2008-2009. Those packages while it still got bad, they did soften the blow quite a bit.
Einar: Probably, definite there. Whatever you think about crony capitalism, the fact of the matter is they had to do what they had to do. That’s pretty much what’s going to save the world economy. Just to give context for people here, as we’re talking today, I’m expecting the third Relief Bill to go through Congress today. It’s going to be $2 trillion, which is a fair amount of cash. It’s actually double the amount that they spent on the 2008 bailout package. That tells you how serious they’re taking it.
Rob: Yeah, I didn’t realize that. Again, James Kennedy was the original prompt for this. He and I went back and forth via email because I was saying, “Hey, what would you like to see? What are you hearing?” I’m going to quote him a few times during this episode because I had things in my head that I wanted to put in this episode, but I felt like it was helpful to hear from him. One thing he said is, “How did SaaS do in 2008 when the Great Recession hit?” I have a couple thoughts on this, and then I want to pass it over to you to see if you have any other thoughts.
First thing is SaaS was barely a thing in 2008. There were so few. MailChimp was just becoming a thing. 2007 to 2009 is when Basecamp was two, three years old. What I would say is SaaS did a lot better than one-time sale products. I had a one-time sale invoicing software and sales plummeted 80% one month to the next, because there was no recurring revenue. Your revenue craters when you have one-time sell products.
Now with SaaS, it’s much more likely that your growth is going to stall. Either your trajectory is going to flatten, or your revenue could completely flatten out, or even start declining; but it should be a more gradual decline, unless you’re in an industry that’s uniquely and deeply impacted by this. If you’re serving retail, if you’re serving in person events, software for schools, there’s a whole list of industries that are going to be pretty devastated by it. Other than that, you’re going to be impacted. It’s not going to be like a lot of the businesses in the world are going to be impacted.
Einar: I think that’s true. I saw that note come through, and I was like, “2008? I don’t really have any context for SaaS in 2008.” That was a year before I went to YC and we were building a mobile app for the consumer. I wasn’t that glued into the SaaS at the time, but it makes sense to me. I mean, that’s what we’re seeing in the people I’m talking to, is anything, which needs to go on a budget now is getting serious scrutiny versus something that’s already recurring. Yeah, you’re definitely going to see cuts. Well, there are some exceptions, but I don’t think there’s really any business that’s not going to see some sort of a damage in terms of revenue, top line, and profit, if we go through a recession that’s anywhere near as deep as what people are projecting.
To give you context, I think it was Goldman Sachs, who were saying that they think Q2 2020, the GDP is going to drop to a negative drop of 24%, which hasn’t ever happened before. I think it just makes sense that people are going to look very hard at pretty much their entire credit card bill, what are their accounts payable, and they’re going to be cutting across the board just as a defensive crouch. I think that’s inevitable.
Rob: Yeah. In the Great Recession, the GDP, at least in the US, fell 4.3% from its peak. What’s interesting is it’s not apples to apples because it’s just such a different thing. This COVID thing is an unnatural brake lever, I think of it like brakes on a car. It’s unlike anything we’ve ever seen. It truly is unprecedented. If it slows down super suddenly, what is the impact of that? There have been no experiments like this.
Einar: It’s clearly unprecedented. I’ve just looked at what the stock market’s doing. It’s never fallen this fast, this quickly. Even 1929 didn’t go down this quickly. Same thing with 2008, didn’t happen that quickly. Now, that could mean more than two things. We’re in for a much worse time, but it could equally mean it went down so quick, it’s going to bounce back up. Yesterday, the DOW was up 11% or something, completely bananas. It really is uncharted territory in terms of what we’re dealing with because it’s global. You can’t even say, “Oh, I’m going to focus on a different market.” There are hardly any markets left that aren’t going to be impacted by this.
Rob: Right. I think we don’t need to panic. We need to keep clear heads and we need to plan realizing things could get worse. We don’t know how worse but it’s keeping the level head. That’s my first point. I have six points that I want to cover today. Actually, it looks like I misnumbered them. I actually have seven points to cover today. The first is don’t panic, clear heads will prevail.
James Kennedy asked me, “How do you manage mental health at a time like this?” Frankly, I have been talking a lot and listening to my wife, Sherry Walling. She has more requests for webinars and podcast interviews in the last two weeks than in the past two months combined. She has been thinking and talking about how to keep people from being consumed by their anxiety and stress for decades. She was a trauma psychologist. She became in essence a founder and CEO—coach is not the right word—but advisor. Follow her for a couple months, I get nothing out of this. She is just an even keeled mind and a trained mind who…
Einar: She talks to you off the cliff a fair amount of time.
Rob: Exactly. She puts out a podcast every Friday. It’s called ZenFounder. She’s @zenfounder on Twitter. She and I just did some MicroConf on air last Thursday where we talked about this exact question for about 30 minutes. I just peppered her with questions, and we got a bunch of questions from Slack too. She was just giving strategies about what it’s like to be at home with the family or without the family; how things are different; why we’re stressed; how to give yourself some leeway; how to feel better about it. She will do a much better job than Einar and I will, to calm you down.
Einar: Amen.
Rob: Point number two is no business is recession proof. It depends on the cause and the unique complexities of the recession. One piece of information I have, don’t ask me how I got it, but there’s a major podcast app that its usage is down 25%. I was thinking, “Well, isn’t all the remote stuff going to explode?” The person said, “I think it’s down 25% because people are not commuting to work. They’re just not opening the app because they’re not in their car.” It never occurred to me that that would be a thing.
Obviously, we keep hearing about how Zoom and their competitors are going to be doing well. Remote pair programming tools to pull in their competitors, people dealing with podcasting, recording podcasting, video live streaming, et cetera. If you’re in that boat, consider yourself lucky. You didn’t do it on purpose, COVID is not your thing. Don’t feel guilty. I think I talked to a founder who said, “I actually feel guilty that my business is growing during this time.” Don’t feel guilty, take it as a blessing. I would say use that to take care of your family and your team, and hopefully, help others during this time.
Do you have thoughts on this, about the recession proof and about certain things getting hit harder versus easier?
Einar: Just previously, I fundamentally think there are some things that will do well, but I think that’s in the minority. Pretty much everything is going to see a hit across the board. That’s sort of almost the definition of recession, people are spending less money. Whether it’s because directly related to the virus risk or just the sort of fear and uncertainty.
I think one of the main things that people are struggling with right now is there are credible people that say “Actually, this is completely overblown and it’s nowhere near as bad,” and there are also equally credible people who said that “This is just the start. It’s going to get much worse.” That sort of aperture of uncertainty is really damaging to businesses, and to people’s willingness to spend money and invest in new stuff. Even though most likely, it won’t be either of those extremes and hopefully, serving on the downside, I think just that uncertainty is likely to stop people reconsider, downgrading, spending less money overall. I think that’s going to impact very broadly.
Rob: We’ve been thinking a lot about this because we have companies that we funded, we have companies in our portfolio. Frankly, I’ve had tons of friends and all this stuff in the SaaS space. I’ve been having a lot of conversations, but you and I sent a letter to our portfolio companies. A lot of it was this kind of stuff, “Don’t panic, be prepared for a downturn.” This number three point, I think I took directly from there. Be cautious and be prepared to make some cuts earlier rather than later.
I’m curious to hear your thoughts on this because James Kennedy said he had heard some folks talking and people giving advice, I assume, in Slack channel and stuff. He heard someone say, “Cut 20% of your overhead now and plan for a further 20% if it gets to that point. Know where the savings are going to come from before you need to make them.” What are your thoughts on that?
Einar: I have two thoughts. First of all, I think particularly for a US company, it’s very important to understand what’s in this Relief Bill that’s going to get passed, because there’s some specific provisions there that relate to payroll. I haven’t read the text yet, but I think it’s likely to be something like, “If you have people on payroll before March 1st and you have the same amount of people on payroll after April 15th, then the government’s basically going to give you either a grant or a loan potentially with forgiveness options if you don’t fire those people.” That’s sort of an unprecedented situation, although that’s what’s been happening in some of the other countries, like France and the UK.
Frankly, the government has said “Don’t fire anybody, we’ll get through this. We’ll pay their salaries for 80% of their salaries for however long.” That’s effectively what this Relief Bill tries to do. That’s the one caveat I would come with up front. Even if you let people go right now, as long as you put them back on payroll by April 15, you might still get this benefit. That is probably something worth… Making sure you don’t screw yourself, cut in a way, and that essentially the government will pay to keep your payroll the same. That’s one thing.
My other point is putting that aside—that’s not going to fit every business and not everyone’s in the US—cutting 20% and then plan for a further 20%, my one objection there is particularly if we’re talking about cutting people, then I think it can be extremely demoralizing to a company and to a company culture. This is like death by a thousand cuts. I feel like certainly in prior recessions, 2008, 2000, 2001, I think the companies that did the best are the ones that did a deep cut early, but then didn’t have to do anymore; versus the cut a little bit here and a little bit there, and then essentially just quickly see that sort of morale erode. I think that’s my one concern with the cut a bit here; the 20% doesn’t sound like a bit but a deep cut.
I was just talking to someone the other day. They remember in 2008, they basically cut 70% of their staff, overnight in the first cut. Everyone was saying, “What are you doing? You’re crazy, you’re overreacting,” but that turned out to be the right approach, because they never had to cut again. They got profitable and they started growing again. Versus the people who cut 5%, then 10%, then 10%, and then 5%, it completely eroded morale in the company. You have to have cash and cash is king; but particularly if you have employees, it’s not great to come to work and just wondering like, “I wonder who’s going to get cut this month?” That’s my one thing. If we’re just talking overheads—software packages or whatever it is—sure, that’s easier, then I can understand.
Rob: Yeah, that’s where it gets tough. Can you get 20% out of non-employees? It depends. Do you have a lot of contractors that you could cut back on and bring stuff in house? There’s a million ways to do this. I struggle with the pre-emptive cuts. I would run my companies at the leading edge of the present often. I think I have a tough time making cuts before I start to see revenue or leads. You have leading indicators of trials per month. I knew exactly, almost to the trial, how many we should have each day. If it was down, I was already starting to project the next month’s MRR is going to be this and that.
If you’re in touch with that and you feel like things aren’t dramatically shifting for you yet, certainly, I think, crimping the belt is worth it. If you can cut 5%, 10%, 15% of overhead, I think that’s great. I think I’m on the same page with you as soon as you start cutting people… If it’s letting a contractor go, or if it’s “Hey, we’re going to turn off these ads because they’re not really working that well right now,” or “There’s an agency running our ads, and we’re just going to back off of all that,” that kind of stuff makes sense to me. If you have a pretty tight knit team, and you start letting people go, as you said the death by a thousand cuts becomes a problem. I think you just want to be aware that as you go forward with this.
Einar: Yeah, I think that’s true. I wouldn’t start cutting in panic. I’m not saying that, but I think most businesses will start to see and be like, “Oh, yeah. This is bad.” You’re having conversations with people like “Yeah, we haven’t cut you yet, but following all my employees.” So, chances are they’ll cut you as well. There are ways to get indicators that you’re about to have a pretty severe downturn. If you need to cut, once you feel pretty confident that this is going to happen, then I think cut big and cut early. Probably err on the side of cutting too much, so you don’t have to do it again.
Rob: My point number four is to really dig into what’s working in the business still, and to cut and trim marketing and sales efforts that aren’t working today. This is kind of spurred on James said, “Is trying to continue doing sales in this environment suicide? We were about to start a new outbound sales campaign but now that doesn’t necessarily feel like a great idea.” What are your thoughts on that?
Einar: Again, I think this is entirely up to what kind of buyer you’re selling to and what you’re doing. Again, depends on how to get it, right? In some cases, if you have a kind of software, you’re doing enterprise sales to big organizations, okay, fair enough, everyone’s working from home; but maybe now they sort of have time on their hand to evaluate new options. If you’re up competing against some entrenched, very expensive on-prem software, and you are sort of the lean, slightly cheaper or even much cheaper—although not too cheap obviously—cloud provider, that might be a great time to be doing sales.
If you come along and you’re selling something that’s $15,000 a month and you’re cloud accessible, and you’re competing against a company that’s $50,000 a month, and everyone has to be in the office; then it’s a great time, let’s do it. In part because they’re probably still getting paid. They’ll be doing things, like looking at reducing their AP. In some cases, I’m sure that people have been thinking like, “We really hate this software. It’s too expensive. It’s cumbersome, but we don’t have time to replace it,” versus “Now might be the time.”
I’m sort of reluctant to give across the board advice about whether now’s a good or bad time to be selling, at least as it relates to B2B stuff. I think if you’re B2C, oh, that’s going to be hard. I would find it very hard to sell to the consumer right now.
Rob: Very distracted, yup. That’s the thing, if I were still running Drip today, I would take a long, deep, hard look at any type of marketing or sales efforts we were doing. I would be cutting earlier, rather than later. Oftentimes when everything’s in expansion, and we’re going up into the right, you can take the long that, and you can say, “Well, I think over the next 60 days, this is going to turn out. This ad campaign will convert,” or “We’re still working on things.” This is the point where I would be really dialing those down and easing away, especially things that are just straight spending money to get new leads because it’s uncertain right now how this is going to pan out.
There’s a lot of distraction. As you said the consumer side is terrible because all of us are sitting here looking at Twitter and the news feed all day. Aside from consuming grocery stores… The toilet paper manufacturers are making a lot of bandits. I just think there’s a lot of distraction. I’m personally not looking to sign up for a bunch… The only new software that we’ve been looking at or the new purchases we’ve been buying… Producers, Andrew and I, are looking at actually upgrading the Zoom account, so we can do webinars out of it and play around with this thing that does a live stream. It’s all remote stuff.
As we said earlier, there’s those edge cases—the exceptions that are going to thrive in this—but a lot of other folks back to your point. If you can offer a substantially less expensive thing, people are going to be looking to cut costs today. Other than that, it’s definitely time to really be thinking this through.
Point number five is, this is going to sound obvious, but take care of yourself and the people around you. I think that it’s our responsibility if you’re in a good position to help other people. I think you start with yourself and that’s your mental health and your physical health. Try not to get sick and just try to not stress so much about this, 24 hours a day. And then it’s your family, and then it’s your neighborhood, and your community, and your employees, your team as well.
To give an example, I contacted all my family members who I think may have been out of work—the folks who are working hourly jobs—a couple friends as well, just to make sure that they’re going to make rent. That they’re not too stressed. There’s probably going to be a bailout and a relief for them as well. I feel like those of us in a position to be able to do that should be doing that. I’ve been taking one for the team. We don’t tend to get a lot of takeout, but we’ve been doing it two or three nights a week, specifically from our favorite local restaurants who we know are just getting decimated by this. I’ve been given big ass tips to the drivers.
I feel like if you’re in this position, it’s time for generosity. Even better if you’re in a position to help doctors, first responders, they’re going to pay a price just with the stress and the trauma that they see. To be honest, I’m heartened by the efforts of large companies, like Tesla, who are basically refactoring the factories to make masks and ventilators. Who is it in Europe that’s going to start making hand sanitizer? It’s like Louis Vuitton or something.
Einar: Oh, Louis Vuitton and I think Anheuser-Busch just came out with it. Anheuser-Busch labeled a sanitizer product, which I thought was pretty funny. We’re doing the same stuff. One of our friends just bought a cafe three months ago.
Rob: Oh man.
Einar: It’s brutal. We’ve been getting lunch from them pretty much every day and tipping pretty heavily. He jokes that we’re basically up, keeping it alive for now, which I think is probably true. We’ve been doing the same stuff, like just ordering from our favorite restaurants, tipping heavily. I think all the weight that I’m going to put on I’m just going to attribute to personal growth during the coronavirus. That’s sort of my approach with the whole thing.
Rob: Yeah, for sure. If you’re not in that position and your business is completely crashing around you, obviously, it’s not responsibility for everyone. It’s a responsibility for folks who I think have the means to do it and are in that position. Certainly, your team members are going to need it but like your customers, too, right? You may have customers who come and if you know your customers well, you’re going to know the ones who are maybe trying to pull a fast one on you. You’re going to know the customers who come and say, “Look, I can’t afford it right now. My business is cratering.” Can you work with them to keep their data around? Whether you comp them or you give them a big discount, or you give them a “Here’s $10 a month, just to keep your data.”
This is the time to kind of be understanding and to help one another out, because we’re going to need that coming together. On that note, I think a lot about team members, your employees. Some people I’ve talked to are really, really stressed about COVID. I’m not. I’m, normally, a very anxious and stressed person, but for some reason, I’m just in a good position. For whatever reasons, I’m not freaking out about it; but I talked to folks who I respect and like, they’re extremely, extremely stressed about it. It’s just that different people react differently. It’s the bottom line and so really be aware of that as you’re talking to your teammates, your team members.
Rob: Yeah. I think people handle this thing differently. I’m not super stressed either, despite what you might see me screaming on Twitter. Actually, it just occurred to me the other day, this would be a very different scenario, if the hazard curve was more similar to a typical virus. If children were equally at risk as seniors, then I think it’s a blessing that we’re not in that boat, because then I think you would see mass exodus out of the cities by now. People definitely handle it differently, for sure. I’ve noticed that both in my professional and my personal life.
Einar: Yeah. Some people are just straight stressed by COVID. Most of us have our kids at home all day right now while we’re trying to get some work done. Some people aren’t used to working from home at all. Frankly, everyone needs a break right now, including you as a founder. You don’t have to be 40 or 50 hours a week productive right now. Give yourself the leeway to be 10 hours a week productive.
Einar: If you can be 10 hours a week productive, you’re doing amazingly well. That’s my view.
Rob: Yes, not only the physical distraction, but it’s the mental distraction, the ongoing burden, the stress level. Sherry keeps talking about this. She has a lot of clients, and everyone she talks to is just at a level of 8 out of 10 constantly. I think a lot of us are. Give yourself… It’s not the luxury, but it’s like…
Einar: Permission.
Rob: Yeah, the permission. That’s the word. Give yourself and your family permission to do it. This morning, I was down with the kids for an hour and a half. As they were on their laptops, I was doing some work in the background. They were interrupting me constantly, which I would hate because I’m a super focused person when I work; but I was just giving myself and the kids permission to not be stressed while we’re at home. It’s easier said than done, but I think it’s something that we need to realize. We can’t be as productive as we were, and we aren’t going to be under these circumstances.
Every night when I go to bed, I am seriously thankful that I don’t work in a restaurant, or a factory, or own a retail store, and that I can work from home. We are, a lot of us, in better situations than everyone else and I’m thankful for that. My brother owned a fish and chips restaurant until about a year ago. He and I were just talking about it. He sold it a year ago. Good Friday is one of the biggest days of the year for them. “It could be worse” is what I keep saying to all of us. I tell the kids that, and Sherry and I talked about that. It doesn’t necessarily make it easier, magically, make it go away; but it puts it into perspective, which I think is something we need right now. It’s just to keep things in perspective.
Point number six I wanted to make is at times like these, in terms of your business, cash is going to be king. Right now having some cash in the bank and having that cushion is going to be super important, both to make payroll to keep the business afloat for any emergencies. The more cash you have, honestly, the better off you’re going to be.
As I said, it feels terrible now, but we’ll get through it, things will get better. There will be opportunities as we exit the recession in the stock market. I think of all the companies that came out of the last couple recessions. MailChimp was like 2007 to 2009 when it really started taking off. Twitter came out of it. Blogger came out of the 2001. Google, I believe, was kind of 1999, 2000, 2001. They all went up and then kind of lived through it. I even think of our friend Ruben, with Bidsketch. He started that in 2008-2009, right in the midst of this, but recoveries bring opportunity.
While it’s hard to think about that right now, we will get there and there will be opportunities in the stock market. I think a lot of us are watching that. I certainly have, I have a little bit of dry powder on the side. There will be opportunities in SaaS, whether it’s acquiring a company or just markets that are going to reopen and go quickly. If you’re set up to take advantage of that, and in a decent position to do it and you’ve weathered the storm. That’s where the real growth happens, is on the recovery.
My dad worked in construction for 42 years and my brother is still. He’s a project manager. When recessions happen like this, a bunch of construction firms go out of business because they just don’t manage their finances very well in general. They go out of business. The ones who hang on and make it back always have amazing, amazing big years when things are growing.
Einar: Yeah, I think that’s true. A little bit of cash in the bank is super helpful. This is probably your point seven. We’re going to get through this. I think there’s a lot of doom and gloom right now, but realistically, it’s not like we’re going to be in lockdown for 18 months to 2 years. That just won’t happen. There are too many things that are likely to work out in one way, shape, or form. That means that it won’t be as bad as some of the worst do mongers out there are currently claiming.
Rob: One question James Kennedy had asked me when he emailed us. He said, “When should you sit on cash and when should you go hunting for opportunities?”
Einar: That’s a great question. It’s a similar question to “When do you think you can time the bottom of the market?” I was watching the stock market jump up 10% yesterday. I could feel the greed. I was like, “Oh, I want to be in this market right now,” but it comes back to like “Cash is king.” I was like okay, but if I lose out on a little bit of a gain on the stock market, how upset am I going to be by that? Versus if it continues down, and I lose a six month cash cushion for me and my family, that’s much worse.
I tend to be slightly conservative when it comes to deploying capital back into the markets, and I think you do, too. Certainly, I think a lot of businesses right now are just sort of like, “Yeah, we’re fine. We’ll wait and see how bad it goes.” Do I think that right now there are an awful lot of amazing opportunities to buy businesses? No, I don’t think so. I think typically they come later in the cycle, to be honest with you.
Rob: There’s a venture capitalist in the Midwest who I was talking with. He was saying that the conversations he’s having are the founders who started raising a few months ago who don’t have commits, they have a valuation in mind. That is no longer the fact. The valuations have already come down from the investor side, but the founders haven’t realized it yet. That’s what he said. That I think is what’s happening right there.
If you got to buy a business today, people will still hang on to the valuation they had mined for their business three weeks ago. If we get three to six months into this, depending on how everything shakes out, there will be more opportunities long term. This is all aside from COVID. This is purely the economic and the stock market aspects of it. How I think about it is when should you go and look for opportunities? Not yet, not anywhere close. I’m going to be sitting on cash for quite some time. I don’t tend to try to time the bottom of the stock market. I never make the bottom. I get it after it’s kind of bounced, and coming back up, and I see the economic signs change.
There’s a bunch of leading economic indicators. Much like in a SaaS app, when I look at unique visitors, I look at my trials, I look at trial conversion, there’s all these things that are ahead of MRR. There are leading indicators for all these things too. Before the recession is “over”—reports declared over—there will be some leading indicators. Those are the types of things I think you can look at. I don’t know if there’s an easy answer to go hunting, but I certainly think that there are always opportunities coming out of economic downturns like this. It’s unfortunate, but it is cyclical. That’s how economies work.
Last point, point seven is just reminding you that we are going to make it through this. It feels terrible right now and it is terrible. The health crisis is not something that any of us could even imagine, but things will get better. We will figure this out. While it’s serious and tragic, we need to keep a level head. We need to kind of keep pushing things forward to take care of ourselves, our families, our communities. Again, it comes back to staying mentally healthy and not stressing so much about it, not thinking about it all the time. With little new information or no real new information, it doesn’t help to just think about something all the time. Worrying doesn’t solve anything. That’s something that Sherry and other psychologists have kind of drilled into me over the years. Worry with no new information, there’s no value to it.
Anyways, I hope as a listener, you got some value out of this. Even just hearing a couple people think through how we’re thinking about it, and hopefully, you take away a piece of advice or two that helps you feel better as we look ahead.
Einar: Yeah, I agree. Like I said, I’ve been watching this probably for longer than most people in terms of the COVID thing themselves. I think in general things just will get better. It has a death rate of 5%. There’s just no way that 100% of people will get it, and there’s nothing we can do, and we just got to lock up in our houses for 18 months. That’s just not how these things work out. I’m not any virologist, we’re already seeing trends that suggest that this is bad certainly, but it’s not world civilization-ending. Spending all your time on Twitter is not necessarily all that helpful.
Rob: Yeah, so we hope you stay healthy. Thanks so much for joining us this week on the show. We will see you next week.
I wanted to record this episode, I was thinking about how to do it, and then I got an email from James Kennedy, who’s been a multi-time MicroConf speaker. You may know him from ProcurementExpress. He emailed and said, “My guess is that the community urgently needs a podcast on COVID-19. We haven’t seen much change yet, but I’m worried that this might be the calm before the storm.” I don’t care if you’re SaaS, marketplace, one-time sales, self-funded, indie-funded, bootstrap, or venture funded, as a founder, what should your mindset be? What should we all be doing to prepare?
I can tend to be a little optimistic, I will say. My wife doesn’t think so, but I can be a little optimistic. Today’s guest balances me out. I am not nearly as bearish as Einar Vollset, and I think that that’s a good thing. Einar, welcome back to the show. This is your third appearance on Startups for the Rest of Us.
Einar: Thanks for having me, Rob.
Rob: Absolutely. Honestly, Einar is up to speed on a lot of numbers. He has a PhD in Computer Science, does a ton of data crunching, and pays attention to all the news that’s coming through. I actually go to him when I’m trying to sanity check my assumptions about what’s going on today and where we’re headed. Weeks ago, he was saying, “Hey, this COVID thing is going to be a real thing.” A lot of people were saying that but there was a lot of chaos like, “Yeah, it’s going to be bad,” “It’s not going to be bad,” “It’s exponential,” and this and that. There was a lot of noise. There were a few folks that I felt like got this right, and Einar was on top of that stuff.
There’s a lot to cover today. It’s very likely going to be a longer than normal episode, but this is a case where I don’t feel like we should skip over things to try to make it a shorter episode, because it’s so important. I think everyone needs to be thinking about this in some form or fashion.
To start off, we’re going to talk a little bit about recessions, bear markets, where we’re at with that; and then I had six points that I wanted to walk through. Six things that I think will be helpful for thoughtful founders—both for themselves but also for their companies—to think about. Some actions that I think they need to be willing to take.
The good news is Einar and I may disagree on things because this is not clear cut. No one knows what next week, next month, and next year looks like, but we all have kind of our own reads on the situation. I think it’s going to be interesting, and hopefully, enlightening for all of us to wrap these things around.
To start, Einar, personally, I don’t see any reality where we don’t slip into a recession at least in the US and probably most of the developed world. Right now, the world economy is effectively contracting dramatically. Are you on the same boat with that?
Einar: Yeah, 100%. I think that’s pretty much the consensus view now, the question is just what kind of recession are we going to have? Is it going to be a long one or a short one? How bad is it going to be? We’re recording this on Wednesday or Thursday, the unemployment numbers are due to come out on Friday. For the US, they are usually around 200,000. I’ve seen estimates anywhere from 1.5 million to 6 million people unemployed. Almost, no matter what happens, it’s going to cause a recession. The question is just how long is it going to be and how bad is it going to be?
Genuinely, I think that has most to do with how bad the virus becomes. Are we able to respond to it properly? Are we able to get antivirals in place? Are we able to do surge capacity in hospitals? How soon can we get back to “normal”? I think that’s the determining factor. From where I’m sitting, it seems to me like, at least in the US, both the fiscal and the stimulus response… This would be both what the Fed has done in terms of unlimited quantitative easing, printing money, basically to keep the markets going, and these stimulus bills have been coming through Congress. I think the third one is about to be signed today. From my perspective, that’s it. They’re pretty much out of bullets at that point. And then, it just becomes a matter of can we get this Corona thing under control? Can we mitigate some of the worst outcomes? I think that’ll determine how bad it’ll be.
Rob: Yeah, and I think folks who remember the 2008-2009 Great Recession, that felt terrible at the time. It was different because it wasn’t directly threatening lives the way this is; but I, at one point, thought that the modern world was going to completely collapse. I think other folks did too. If you go back and watch The Big Short, which I watched two weeks ago with my 13-year-old son—him for the first time, me for like the 15th time, I love that movie—it does a decent job of portraying how panicked people were about it. This feels terrible now, but it felt really bad then too. I’m not even trying to compare the two of them, but it does bring me… I’ve lived personally through five recessions that I can remember since the ’80s.
Einar: It’s because you’re old, Rob.
Rob: It is because I’m old. These recessions are things that we’re going to get through. It feels terrible right now, but things will get better. We will make it through this even though this is terrible. That’s the thing, COVID is very serious and very tragic. It’s going to continue to be a tragic story, anytime people’s health and lives are on the line. At the same time, I feel like we have a responsibility as entrepreneurs, as founders, as human beings to think about how to keep our companies afloat, right? To think about how to take care of ourselves, our families, our employees, our communities, both health-wise and financially. That’s why we’re recording this today.
Let’s take this as a serious thing, but let’s not panic. Let’s think ahead. Let’s have some cash reserves, which we’ll talk about a little later. Frankly, start thinking about if you need to make cuts, make cuts early.
Just two things I wanted to say before getting into some nitty gritty is you hear a lot of talk about recessions and bear markets. Those two things are not necessarily the same, though they often correlate. Since the Great Depression in 1929, there have been a bunch of recessions, and almost all of them have been between 6 months and 18 months long. The Great Recession felt like an eternity because the recovery took long, but a recession is defined as GDP shrinking by certain… How is it defined?
Einar: Bear market and stock market going down 20% since peak. Recession is a contraction of the GDP for two quarters in a row.
Rob: Consecutive quarters, right? That’s what we’re going to see. That won’t officially be declared for five months or six months, but we already know that that’s coming. The recession is economic. A bear market is what you said, it’s a stock market, right? It’s when it drops 20% from a peak. There have been 16 bear markets since 1926. They lost on an average of 22 months, but that is 22 months total, it starts to recover somewhere in there. It’s like that 10- to 12-month timeframe, where it really does become a true bear market, and 22 months to make it back up and really start working.
The interesting thing is in the year after the trough of every bear market since 1929, the S&P has gained an average of 47%, according to Fidelity Investments. All that to say is don’t confuse these two things, recessions and bear markets. I do think that it’s important to know because you hear it in the news all day about “Oh my gosh, we’re entering this and that.” Having just a sane look at what this stuff is important. Given that the massive stimulus packages that are rolling out, like you’re talking about, this feels reminiscent of 2008-2009. Those packages while it still got bad, they did soften the blow quite a bit.
Einar: Probably, definite there. Whatever you think about crony capitalism, the fact of the matter is they had to do what they had to do. That’s pretty much what’s going to save the world economy. Just to give context for people here, as we’re talking today, I’m expecting the third Relief Bill to go through Congress today. It’s going to be $2 trillion, which is a fair amount of cash. It’s actually double the amount that they spent on the 2008 bailout package. That tells you how serious they’re taking it.
Rob: Yeah, I didn’t realize that. Again, James Kennedy was the original prompt for this. He and I went back and forth via email because I was saying, “Hey, what would you like to see? What are you hearing?” I’m going to quote him a few times during this episode because I had things in my head that I wanted to put in this episode, but I felt like it was helpful to hear from him. One thing he said is, “How did SaaS do in 2008 when the Great Recession hit?” I have a couple thoughts on this, and then I want to pass it over to you to see if you have any other thoughts.
First thing is SaaS was barely a thing in 2008. There were so few. MailChimp was just becoming a thing. 2007 to 2009 is when Basecamp was two, three years old. What I would say is SaaS did a lot better than one-time sale products. I had a one-time sale invoicing software and sales plummeted 80% one month to the next, because there was no recurring revenue. Your revenue craters when you have one-time sell products.
Now with SaaS, it’s much more likely that your growth is going to stall. Either your trajectory is going to flatten, or your revenue could completely flatten out, or even start declining; but it should be a more gradual decline, unless you’re in an industry that’s uniquely and deeply impacted by this. If you’re serving retail, if you’re serving in person events, software for schools, there’s a whole list of industries that are going to be pretty devastated by it. Other than that, you’re going to be impacted. It’s not going to be like a lot of the businesses in the world are going to be impacted.
Einar: I think that’s true. I saw that note come through, and I was like, “2008? I don’t really have any context for SaaS in 2008.” That was a year before I went to YC and we were building a mobile app for the consumer. I wasn’t that glued into the SaaS at the time, but it makes sense to me. I mean, that’s what we’re seeing in the people I’m talking to, is anything, which needs to go on a budget now is getting serious scrutiny versus something that’s already recurring. Yeah, you’re definitely going to see cuts. Well, there are some exceptions, but I don’t think there’s really any business that’s not going to see some sort of a damage in terms of revenue, top line, and profit, if we go through a recession that’s anywhere near as deep as what people are projecting.
To give you context, I think it was Goldman Sachs, who were saying that they think Q2 2020, the GDP is going to drop to a negative drop of 24%, which hasn’t ever happened before. I think it just makes sense that people are going to look very hard at pretty much their entire credit card bill, what are their accounts payable, and they’re going to be cutting across the board just as a defensive crouch. I think that’s inevitable.
Rob: Yeah. In the Great Recession, the GDP, at least in the US, fell 4.3% from its peak. What’s interesting is it’s not apples to apples because it’s just such a different thing. This COVID thing is an unnatural brake lever, I think of it like brakes on a car. It’s unlike anything we’ve ever seen. It truly is unprecedented. If it slows down super suddenly, what is the impact of that? There have been no experiments like this.
Einar: It’s clearly unprecedented. I’ve just looked at what the stock market’s doing. It’s never fallen this fast, this quickly. Even 1929 didn’t go down this quickly. Same thing with 2008, didn’t happen that quickly. Now, that could mean more than two things. We’re in for a much worse time, but it could equally mean it went down so quick, it’s going to bounce back up. Yesterday, the DOW was up 11% or something, completely bananas. It really is uncharted territory in terms of what we’re dealing with because it’s global. You can’t even say, “Oh, I’m going to focus on a different market.” There are hardly any markets left that aren’t going to be impacted by this.
Rob: Right. I think we don’t need to panic. We need to keep clear heads and we need to plan realizing things could get worse. We don’t know how worse but it’s keeping the level head. That’s my first point. I have six points that I want to cover today. Actually, it looks like I misnumbered them. I actually have seven points to cover today. The first is don’t panic, clear heads will prevail.
James Kennedy asked me, “How do you manage mental health at a time like this?” Frankly, I have been talking a lot and listening to my wife, Sherry Walling. She has more requests for webinars and podcast interviews in the last two weeks than in the past two months combined. She has been thinking and talking about how to keep people from being consumed by their anxiety and stress for decades. She was a trauma psychologist. She became in essence a founder and CEO—coach is not the right word—but advisor. Follow her for a couple months, I get nothing out of this. She is just an even keeled mind and a trained mind who…
Einar: She talks to you off the cliff a fair amount of time.
Rob: Exactly. She puts out a podcast every Friday. It’s called ZenFounder. She’s @zenfounder on Twitter. She and I just did some MicroConf on air last Thursday where we talked about this exact question for about 30 minutes. I just peppered her with questions, and we got a bunch of questions from Slack too. She was just giving strategies about what it’s like to be at home with the family or without the family; how things are different; why we’re stressed; how to give yourself some leeway; how to feel better about it. She will do a much better job than Einar and I will, to calm you down.
Einar: Amen.
Rob: Point number two is no business is recession proof. It depends on the cause and the unique complexities of the recession. One piece of information I have, don’t ask me how I got it, but there’s a major podcast app that its usage is down 25%. I was thinking, “Well, isn’t all the remote stuff going to explode?” The person said, “I think it’s down 25% because people are not commuting to work. They’re just not opening the app because they’re not in their car.” It never occurred to me that that would be a thing.
Obviously, we keep hearing about how Zoom and their competitors are going to be doing well. Remote pair programming tools to pull in their competitors, people dealing with podcasting, recording podcasting, video live streaming, et cetera. If you’re in that boat, consider yourself lucky. You didn’t do it on purpose, COVID is not your thing. Don’t feel guilty. I think I talked to a founder who said, “I actually feel guilty that my business is growing during this time.” Don’t feel guilty, take it as a blessing. I would say use that to take care of your family and your team, and hopefully, help others during this time.
Do you have thoughts on this, about the recession proof and about certain things getting hit harder versus easier?
Einar: Just previously, I fundamentally think there are some things that will do well, but I think that’s in the minority. Pretty much everything is going to see a hit across the board. That’s sort of almost the definition of recession, people are spending less money. Whether it’s because directly related to the virus risk or just the sort of fear and uncertainty.
I think one of the main things that people are struggling with right now is there are credible people that say “Actually, this is completely overblown and it’s nowhere near as bad,” and there are also equally credible people who said that “This is just the start. It’s going to get much worse.” That sort of aperture of uncertainty is really damaging to businesses, and to people’s willingness to spend money and invest in new stuff. Even though most likely, it won’t be either of those extremes and hopefully, serving on the downside, I think just that uncertainty is likely to stop people reconsider, downgrading, spending less money overall. I think that’s going to impact very broadly.
Rob: We’ve been thinking a lot about this because we have companies that we funded, we have companies in our portfolio. Frankly, I’ve had tons of friends and all this stuff in the SaaS space. I’ve been having a lot of conversations, but you and I sent a letter to our portfolio companies. A lot of it was this kind of stuff, “Don’t panic, be prepared for a downturn.” This number three point, I think I took directly from there. Be cautious and be prepared to make some cuts earlier rather than later.
I’m curious to hear your thoughts on this because James Kennedy said he had heard some folks talking and people giving advice, I assume, in Slack channel and stuff. He heard someone say, “Cut 20% of your overhead now and plan for a further 20% if it gets to that point. Know where the savings are going to come from before you need to make them.” What are your thoughts on that?
Einar: I have two thoughts. First of all, I think particularly for a US company, it’s very important to understand what’s in this Relief Bill that’s going to get passed, because there’s some specific provisions there that relate to payroll. I haven’t read the text yet, but I think it’s likely to be something like, “If you have people on payroll before March 1st and you have the same amount of people on payroll after April 15th, then the government’s basically going to give you either a grant or a loan potentially with forgiveness options if you don’t fire those people.” That’s sort of an unprecedented situation, although that’s what’s been happening in some of the other countries, like France and the UK.
Frankly, the government has said “Don’t fire anybody, we’ll get through this. We’ll pay their salaries for 80% of their salaries for however long.” That’s effectively what this Relief Bill tries to do. That’s the one caveat I would come with up front. Even if you let people go right now, as long as you put them back on payroll by April 15, you might still get this benefit. That is probably something worth… Making sure you don’t screw yourself, cut in a way, and that essentially the government will pay to keep your payroll the same. That’s one thing.
My other point is putting that aside—that’s not going to fit every business and not everyone’s in the US—cutting 20% and then plan for a further 20%, my one objection there is particularly if we’re talking about cutting people, then I think it can be extremely demoralizing to a company and to a company culture. This is like death by a thousand cuts. I feel like certainly in prior recessions, 2008, 2000, 2001, I think the companies that did the best are the ones that did a deep cut early, but then didn’t have to do anymore; versus the cut a little bit here and a little bit there, and then essentially just quickly see that sort of morale erode. I think that’s my one concern with the cut a bit here; the 20% doesn’t sound like a bit but a deep cut.
I was just talking to someone the other day. They remember in 2008, they basically cut 70% of their staff, overnight in the first cut. Everyone was saying, “What are you doing? You’re crazy, you’re overreacting,” but that turned out to be the right approach, because they never had to cut again. They got profitable and they started growing again. Versus the people who cut 5%, then 10%, then 10%, and then 5%, it completely eroded morale in the company. You have to have cash and cash is king; but particularly if you have employees, it’s not great to come to work and just wondering like, “I wonder who’s going to get cut this month?” That’s my one thing. If we’re just talking overheads—software packages or whatever it is—sure, that’s easier, then I can understand.
Rob: Yeah, that’s where it gets tough. Can you get 20% out of non-employees? It depends. Do you have a lot of contractors that you could cut back on and bring stuff in house? There’s a million ways to do this. I struggle with the pre-emptive cuts. I would run my companies at the leading edge of the present often. I think I have a tough time making cuts before I start to see revenue or leads. You have leading indicators of trials per month. I knew exactly, almost to the trial, how many we should have each day. If it was down, I was already starting to project the next month’s MRR is going to be this and that.
If you’re in touch with that and you feel like things aren’t dramatically shifting for you yet, certainly, I think, crimping the belt is worth it. If you can cut 5%, 10%, 15% of overhead, I think that’s great. I think I’m on the same page with you as soon as you start cutting people… If it’s letting a contractor go, or if it’s “Hey, we’re going to turn off these ads because they’re not really working that well right now,” or “There’s an agency running our ads, and we’re just going to back off of all that,” that kind of stuff makes sense to me. If you have a pretty tight knit team, and you start letting people go, as you said the death by a thousand cuts becomes a problem. I think you just want to be aware that as you go forward with this.
Einar: Yeah, I think that’s true. I wouldn’t start cutting in panic. I’m not saying that, but I think most businesses will start to see and be like, “Oh, yeah. This is bad.” You’re having conversations with people like “Yeah, we haven’t cut you yet, but following all my employees.” So, chances are they’ll cut you as well. There are ways to get indicators that you’re about to have a pretty severe downturn. If you need to cut, once you feel pretty confident that this is going to happen, then I think cut big and cut early. Probably err on the side of cutting too much, so you don’t have to do it again.
Rob: My point number four is to really dig into what’s working in the business still, and to cut and trim marketing and sales efforts that aren’t working today. This is kind of spurred on James said, “Is trying to continue doing sales in this environment suicide? We were about to start a new outbound sales campaign but now that doesn’t necessarily feel like a great idea.” What are your thoughts on that?
Einar: Again, I think this is entirely up to what kind of buyer you’re selling to and what you’re doing. Again, depends on how to get it, right? In some cases, if you have a kind of software, you’re doing enterprise sales to big organizations, okay, fair enough, everyone’s working from home; but maybe now they sort of have time on their hand to evaluate new options. If you’re up competing against some entrenched, very expensive on-prem software, and you are sort of the lean, slightly cheaper or even much cheaper—although not too cheap obviously—cloud provider, that might be a great time to be doing sales.
If you come along and you’re selling something that’s $15,000 a month and you’re cloud accessible, and you’re competing against a company that’s $50,000 a month, and everyone has to be in the office; then it’s a great time, let’s do it. In part because they’re probably still getting paid. They’ll be doing things, like looking at reducing their AP. In some cases, I’m sure that people have been thinking like, “We really hate this software. It’s too expensive. It’s cumbersome, but we don’t have time to replace it,” versus “Now might be the time.”
I’m sort of reluctant to give across the board advice about whether now’s a good or bad time to be selling, at least as it relates to B2B stuff. I think if you’re B2C, oh, that’s going to be hard. I would find it very hard to sell to the consumer right now.
Rob: Very distracted, yup. That’s the thing, if I were still running Drip today, I would take a long, deep, hard look at any type of marketing or sales efforts we were doing. I would be cutting earlier, rather than later. Oftentimes when everything’s in expansion, and we’re going up into the right, you can take the long that, and you can say, “Well, I think over the next 60 days, this is going to turn out. This ad campaign will convert,” or “We’re still working on things.” This is the point where I would be really dialing those down and easing away, especially things that are just straight spending money to get new leads because it’s uncertain right now how this is going to pan out.
There’s a lot of distraction. As you said the consumer side is terrible because all of us are sitting here looking at Twitter and the news feed all day. Aside from consuming grocery stores… The toilet paper manufacturers are making a lot of bandits. I just think there’s a lot of distraction. I’m personally not looking to sign up for a bunch… The only new software that we’ve been looking at or the new purchases we’ve been buying… Producers, Andrew and I, are looking at actually upgrading the Zoom account, so we can do webinars out of it and play around with this thing that does a live stream. It’s all remote stuff.
As we said earlier, there’s those edge cases—the exceptions that are going to thrive in this—but a lot of other folks back to your point. If you can offer a substantially less expensive thing, people are going to be looking to cut costs today. Other than that, it’s definitely time to really be thinking this through.
Point number five is, this is going to sound obvious, but take care of yourself and the people around you. I think that it’s our responsibility if you’re in a good position to help other people. I think you start with yourself and that’s your mental health and your physical health. Try not to get sick and just try to not stress so much about this, 24 hours a day. And then it’s your family, and then it’s your neighborhood, and your community, and your employees, your team as well.
To give an example, I contacted all my family members who I think may have been out of work—the folks who are working hourly jobs—a couple friends as well, just to make sure that they’re going to make rent. That they’re not too stressed. There’s probably going to be a bailout and a relief for them as well. I feel like those of us in a position to be able to do that should be doing that. I’ve been taking one for the team. We don’t tend to get a lot of takeout, but we’ve been doing it two or three nights a week, specifically from our favorite local restaurants who we know are just getting decimated by this. I’ve been given big ass tips to the drivers.
I feel like if you’re in this position, it’s time for generosity. Even better if you’re in a position to help doctors, first responders, they’re going to pay a price just with the stress and the trauma that they see. To be honest, I’m heartened by the efforts of large companies, like Tesla, who are basically refactoring the factories to make masks and ventilators. Who is it in Europe that’s going to start making hand sanitizer? It’s like Louis Vuitton or something.
Einar: Oh, Louis Vuitton and I think Anheuser-Busch just came out with it. Anheuser-Busch labeled a sanitizer product, which I thought was pretty funny. We’re doing the same stuff. One of our friends just bought a cafe three months ago.
Rob: Oh man.
Einar: It’s brutal. We’ve been getting lunch from them pretty much every day and tipping pretty heavily. He jokes that we’re basically up, keeping it alive for now, which I think is probably true. We’ve been doing the same stuff, like just ordering from our favorite restaurants, tipping heavily. I think all the weight that I’m going to put on I’m just going to attribute to personal growth during the coronavirus. That’s sort of my approach with the whole thing.
Rob: Yeah, for sure. If you’re not in that position and your business is completely crashing around you, obviously, it’s not responsibility for everyone. It’s a responsibility for folks who I think have the means to do it and are in that position. Certainly, your team members are going to need it but like your customers, too, right? You may have customers who come and if you know your customers well, you’re going to know the ones who are maybe trying to pull a fast one on you. You’re going to know the customers who come and say, “Look, I can’t afford it right now. My business is cratering.” Can you work with them to keep their data around? Whether you comp them or you give them a big discount, or you give them a “Here’s $10 a month, just to keep your data.”
This is the time to kind of be understanding and to help one another out, because we’re going to need that coming together. On that note, I think a lot about team members, your employees. Some people I’ve talked to are really, really stressed about COVID. I’m not. I’m, normally, a very anxious and stressed person, but for some reason, I’m just in a good position. For whatever reasons, I’m not freaking out about it; but I talked to folks who I respect and like, they’re extremely, extremely stressed about it. It’s just that different people react differently. It’s the bottom line and so really be aware of that as you’re talking to your teammates, your team members.
Rob: Yeah. I think people handle this thing differently. I’m not super stressed either, despite what you might see me screaming on Twitter. Actually, it just occurred to me the other day, this would be a very different scenario, if the hazard curve was more similar to a typical virus. If children were equally at risk as seniors, then I think it’s a blessing that we’re not in that boat, because then I think you would see mass exodus out of the cities by now. People definitely handle it differently, for sure. I’ve noticed that both in my professional and my personal life.
Einar: Yeah. Some people are just straight stressed by COVID. Most of us have our kids at home all day right now while we’re trying to get some work done. Some people aren’t used to working from home at all. Frankly, everyone needs a break right now, including you as a founder. You don’t have to be 40 or 50 hours a week productive right now. Give yourself the leeway to be 10 hours a week productive.
Einar: If you can be 10 hours a week productive, you’re doing amazingly well. That’s my view.
Rob: Yes, not only the physical distraction, but it’s the mental distraction, the ongoing burden, the stress level. Sherry keeps talking about this. She has a lot of clients, and everyone she talks to is just at a level of 8 out of 10 constantly. I think a lot of us are. Give yourself… It’s not the luxury, but it’s like…
Einar: Permission.
Rob: Yeah, the permission. That’s the word. Give yourself and your family permission to do it. This morning, I was down with the kids for an hour and a half. As they were on their laptops, I was doing some work in the background. They were interrupting me constantly, which I would hate because I’m a super focused person when I work; but I was just giving myself and the kids permission to not be stressed while we’re at home. It’s easier said than done, but I think it’s something that we need to realize. We can’t be as productive as we were, and we aren’t going to be under these circumstances.
Every night when I go to bed, I am seriously thankful that I don’t work in a restaurant, or a factory, or own a retail store, and that I can work from home. We are, a lot of us, in better situations than everyone else and I’m thankful for that. My brother owned a fish and chips restaurant until about a year ago. He and I were just talking about it. He sold it a year ago. Good Friday is one of the biggest days of the year for them. “It could be worse” is what I keep saying to all of us. I tell the kids that, and Sherry and I talked about that. It doesn’t necessarily make it easier, magically, make it go away; but it puts it into perspective, which I think is something we need right now. It’s just to keep things in perspective.
Point number six I wanted to make is at times like these, in terms of your business, cash is going to be king. Right now having some cash in the bank and having that cushion is going to be super important, both to make payroll to keep the business afloat for any emergencies. The more cash you have, honestly, the better off you’re going to be.
As I said, it feels terrible now, but we’ll get through it, things will get better. There will be opportunities as we exit the recession in the stock market. I think of all the companies that came out of the last couple recessions. MailChimp was like 2007 to 2009 when it really started taking off. Twitter came out of it. Blogger came out of the 2001. Google, I believe, was kind of 1999, 2000, 2001. They all went up and then kind of lived through it. I even think of our friend Ruben, with Bidsketch. He started that in 2008-2009, right in the midst of this, but recoveries bring opportunity.
While it’s hard to think about that right now, we will get there and there will be opportunities in the stock market. I think a lot of us are watching that. I certainly have, I have a little bit of dry powder on the side. There will be opportunities in SaaS, whether it’s acquiring a company or just markets that are going to reopen and go quickly. If you’re set up to take advantage of that, and in a decent position to do it and you’ve weathered the storm. That’s where the real growth happens, is on the recovery.
My dad worked in construction for 42 years and my brother is still. He’s a project manager. When recessions happen like this, a bunch of construction firms go out of business because they just don’t manage their finances very well in general. They go out of business. The ones who hang on and make it back always have amazing, amazing big years when things are growing.
Einar: Yeah, I think that’s true. A little bit of cash in the bank is super helpful. This is probably your point seven. We’re going to get through this. I think there’s a lot of doom and gloom right now, but realistically, it’s not like we’re going to be in lockdown for 18 months to 2 years. That just won’t happen. There are too many things that are likely to work out in one way, shape, or form. That means that it won’t be as bad as some of the worst do mongers out there are currently claiming.
Rob: One question James Kennedy had asked me when he emailed us. He said, “When should you sit on cash and when should you go hunting for opportunities?”
Einar: That’s a great question. It’s a similar question to “When do you think you can time the bottom of the market?” I was watching the stock market jump up 10% yesterday. I could feel the greed. I was like, “Oh, I want to be in this market right now,” but it comes back to like “Cash is king.” I was like okay, but if I lose out on a little bit of a gain on the stock market, how upset am I going to be by that? Versus if it continues down, and I lose a six month cash cushion for me and my family, that’s much worse.
I tend to be slightly conservative when it comes to deploying capital back into the markets, and I think you do, too. Certainly, I think a lot of businesses right now are just sort of like, “Yeah, we’re fine. We’ll wait and see how bad it goes.” Do I think that right now there are an awful lot of amazing opportunities to buy businesses? No, I don’t think so. I think typically they come later in the cycle, to be honest with you.
Rob: There’s a venture capitalist in the Midwest who I was talking with. He was saying that the conversations he’s having are the founders who started raising a few months ago who don’t have commits, they have a valuation in mind. That is no longer the fact. The valuations have already come down from the investor side, but the founders haven’t realized it yet. That’s what he said. That I think is what’s happening right there.
If you got to buy a business today, people will still hang on to the valuation they had mined for their business three weeks ago. If we get three to six months into this, depending on how everything shakes out, there will be more opportunities long term. This is all aside from COVID. This is purely the economic and the stock market aspects of it. How I think about it is when should you go and look for opportunities? Not yet, not anywhere close. I’m going to be sitting on cash for quite some time. I don’t tend to try to time the bottom of the stock market. I never make the bottom. I get it after it’s kind of bounced, and coming back up, and I see the economic signs change.
There’s a bunch of leading economic indicators. Much like in a SaaS app, when I look at unique visitors, I look at my trials, I look at trial conversion, there’s all these things that are ahead of MRR. There are leading indicators for all these things too. Before the recession is “over”—reports declared over—there will be some leading indicators. Those are the types of things I think you can look at. I don’t know if there’s an easy answer to go hunting, but I certainly think that there are always opportunities coming out of economic downturns like this. It’s unfortunate, but it is cyclical. That’s how economies work.
Last point, point seven is just reminding you that we are going to make it through this. It feels terrible right now and it is terrible. The health crisis is not something that any of us could even imagine, but things will get better. We will figure this out. While it’s serious and tragic, we need to keep a level head. We need to kind of keep pushing things forward to take care of ourselves, our families, our communities. Again, it comes back to staying mentally healthy and not stressing so much about it, not thinking about it all the time. With little new information or no real new information, it doesn’t help to just think about something all the time. Worrying doesn’t solve anything. That’s something that Sherry and other psychologists have kind of drilled into me over the years. Worry with no new information, there’s no value to it.
Anyways, I hope as a listener, you got some value out of this. Even just hearing a couple people think through how we’re thinking about it, and hopefully, you take away a piece of advice or two that helps you feel better as we look ahead.
Einar: Yeah, I agree. Like I said, I’ve been watching this probably for longer than most people in terms of the COVID thing themselves. I think in general things just will get better. It has a death rate of 5%. There’s just no way that 100% of people will get it, and there’s nothing we can do, and we just got to lock up in our houses for 18 months. That’s just not how these things work out. I’m not any virologist, we’re already seeing trends that suggest that this is bad certainly, but it’s not world civilization-ending. Spending all your time on Twitter is not necessarily all that helpful.
Rob: Yeah, so we hope you stay healthy. Thanks so much for joining us this week on the show. We will see you next week.
Episode 489.5 | It All Started 10 Years Ago Today
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10 years to the day….Startups For The Rest Of Us was born. In this episode Rob reflects back on he and Mike Taber starting the podcast all those years ago and the journey its been. This episode includes a 5 minute play of the very first episode of the podcast.
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Episode 489 | 15 Years to a SaaS Exit (Plus Why Forecasting is Crucial)
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In this episode of Startups For The Rest Of Us, Rob talks with Matt Wensing about his exit from his company Riskpulse, dealing with multiple investors, his new company Summt, and why forecasting is crucial.
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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 chat with Matt Wensing of Summit and of Riskpulse, a SaaS company he ran for 15 years before selling it earlier this year. We dig into his journey, building it to multiple seven figures, finding a CEO and replacing himself in 2019, and then selling Riskpulse in 2020 for a life changing sum of money, then moving on to Summit which is a tiny seed funded company.
We also dig into forecasting because Riskpulse and Summit are both forecasting engines. Riskpulse did it for logistics, and Summit does it for SaaS companies, and recurring revenue companies. Super interesting conversation, Matt is just sharp as a tack, and has a really deep insight into forecasting, and how it works, and why it works, and when it does, and all that stuff.
I enjoyed our conversation. I hope you do as well. Before I dig into that, I wanted to call your attention to MicroConf On Air. Go to microconfonair.com. It’s a daily live stream that I’ve started doing. It’s 30 minutes every day at noon Central Time, and it’s an idea that we came up with the MicroConf team to try to connect people together. Really, right now a lot of us are essentially in our homes 23 hours a day and a lot of us have kids at home as well.
Even though if you’re used to working from home, it’s still such a different situation now, you can’t go to coffee shops in a lot of places in the world. We just can’t do the normal things that we’re used to. I started doing this live stream. I’ve been really enjoying it, microconfonair.com if you just want to watch it, if you want to be involved with it you go to microconfconnect.com and apply to be part of our Slack group. Once you’re in the Slack group, then you can ask questions.
I’m hosting Q&As. I’m hosting happy hour typically on Thursday or Friday. We’re doing some video rundowns where we actually watch MicroConf talk videos from 2019 with different founders. This week as this episode comes out, we’re going to have Craig Hewitt from Castos, we are going to have Ben Orenstein from Tuple. The idea is that we release their videos, and you can watch them a day or two in advance, and then you can ask them questions about their talk videos or about anything about their story.
I’m pretty excited about it. It’s the first time we’ve ever embarked on something like this, so we pulled it together very, very quickly, over the course of about 24, 48 hours. The first live stream was supposed to be 30 minutes and wound up being about 9 minutes before the stream crashed, but since then, things have been going really well. I’d love to have you join us there at microconfonair.com. Let’s dive into my conversation with Matt Wensing. Matt Wensing, thanks so much for joining me on the show again.
Matt: Hey, thanks Rob for having me on again.
Rob: Absolutely, man. I talked in the intro about you growing Riskpulse, finding a CEO, and selling it. I always ask people who had these life changing exits what was it like when you looked at your bank balance, you hit refresh, and you see all those zeros for the first time in your life?
Matt: I think for me it was a huge relief just because the sheer number of years that I put into it, it was not a, hey let’s bet the summer on this. It wasn’t quite the farm. I didn’t go that far like if it hadn’t happened, things would have been okay but I was very invested in it. It was a huge relief to see that definitely, as you said life changing. Obviously, life improving, but really just that peace of mind that you don’t have for sometimes a very long time in startups.
Rob: Indeed. It was a really long journey for you, right?
Matt: It was.
Rob: Was it 15 years?
Matt: Yeah. I had the idea in 2004. I went from idea in 2004 drawing little notes and posted notes on my lunch hour while on break as a software developer thinking, hey, steps one to four of starting a startup let’s do this. 15 years later.
Rob: Congratulations, man. Did you buy anything? Did you buy a Porsche, did you buy a house?
Matt: Yes, I did. I did a couple things. We’ve been postponing a great ski vacation for a long time. It happened in December and guess what? It was time, so I took the kids. It’s something I’ve wanted to do for years, just take the kids on a ski vacation. We last minute booked all that, didn’t worry as much as we normally would about the last minute rates. Went up to Whistler, Canada and had a great time with family, inviting family to come join us.
That was great. I inherited a car from my parents a few years ago just because they didn’t need it anymore. I was like, okay, extra commuter cars are always helpful, especially when it’s paid off and was able to get rid of that and get a new vehicle which felt great.
Rob: Very nice. There’s a podcast called the Tropical MBA. Dan talks about the Entrepreneur Mobiles. It’s basically that cheap piece of […] that you drive while you’re trying to build your company because you’re not actually making much money. I drove a salvage title 2006 Buick Rendezvous that at one point had a bunch of duct tape, the mirror got hit. I drove that up until a year after I sold Drip.
I like that car. Then, the next car I bought was a nice car. It’s a Volvo. It’s the nicest car I’ve ever owned. In fact, I still bought it used though. I couldn’t bring myself to buy a new car.
Matt: That’s funny. We had the 2005 Toyota Sienna minivan which we put 215,000 miles on as a family. We replaced that with a modest, functional SUV, but then I had inherited a car from my parents, that was in 2004, and it worked. It was fine. It was exactly what you described. It paid off, and worked, and got me from place to place. I traded it, and I did get an off lease vehicle because again, I didn’t want to pay the depreciation, but it’s a lot more fun to drive.
Rob: Once a scrappy founder, always a scrappy founder. It’s hard to change it. I want to ask you about a couple things. One thing that you did that was super interesting with Riskpulse is you build the SaaS app to multiple seven figures, and then you replaced yourself with a CEO. You moved on to start Summit, which we’ll talk about towards the end of the interview.
It’s very unusual. Most people don’t go through that experience. Most people aren’t able to find a CEO. It’s not even on the radar of a lot of people. What was that process like and why did you take that step?
Matt: It was a process, I think it was the deciding that he was going to be CEO was definitely the last step in a mental journey that started when we needed an experienced enterprise sales executive to join the team. I had a recommendation from a board member, which is a great example of how board members can be value add, and is helping you find top talents.
In this case, he knew him professionally, they worked together before. It was somebody that had significant experience building companies from the few million in revenue to the next phase, the 10 employees to 100 employees phase, which is a great fit for where we were. I initially hired him to be Chief Strategy Officer, which is a fancy way of saying not quite sure what your title is going to be, but I know that you have a lot of experience and we want to just get you involved.
The first thing he did was really focused on sales and overhauling the sales process. It’s an enterprise sales process. Even though I had more experience in the business, of course, because I’ve been doing it for years, he brought in that outside experience and revamped our sales process, professionalized it. That was the word, he was really going through professionalizing each function in the company.
After sales, it was marketing, and customer success, and fin ops, and all down the list. Lastly, we just got to the point where it wasn’t that I didn’t want to manage him. It was more what’s in it for me? Why do I want to hold on, because it was clear at that point that he could be CEO, and that I didn’t need to be, so it was an either, or. Without any forcing from the board, this was completely my idea.
I said I never intended to run this company forever, that was not my identity. I think that was the key decoupling that was already true in my mind and heart was like who I am is not the CEO of Riskpulse. It’s the founder of Riskpulse, maybe a little bit more, but the CEO to me was always a title that could be changed at some points, and I always intended to change it at some point.
It just became a really natural transition to say he’s that person now. Announced it to the board. The board was a little surprised at my willingness. It was almost like what you said. This doesn’t usually happen, and it isn’t usually peaceful when it does happen. I think that should be the goal of maybe more of us, a peaceful transition of leadership and power. That’s an important tenet of a well functioning organization.
I was happy to do it. It just immediately freed me up to focus on just the things that I was world class at, and still wanting to focus on, and then ultimately wind myself out of the business.
Rob: When you work on a business like that for 15 years… In your shoes, I would have grown tired of it, probably quite a bit before that. I’m not putting words in my mouth saying you grew tired of it, but we as founders, as entrepreneurs, we like to build new interesting things. It’s sometimes hard to do that once a business is as mature as Riskpulse was.
Matt: There were some elements of that which was, I was functioning well, but the reality is my superpower if I have one is doing new things. Once a company gets to a growth phase where it’s about doing the things that are working more and more and less about creating new things that add risk and add new variables to the equation, I wasn’t getting to use that superpower as much as I even wanted to.
It made a lot of sense for me to either A, find a different role in the organization. For a while I was chief strategist, so I just gave myself a new title and said that gives me a little bit of freedom to figure out what I want to do and see where I can add value to the organization. But like I said, once you get in that growth phase of let’s do more of what’s working but faster. It’s not the same. It’s not the same job.
Rob: I think one of the really savvy benefits or one of the pros of doing it is that when you sold Riskpulse just a month or two ago, you weren’t forced to stay on and work for someone else for a year or two. The turnout wasn’t there because you were so unaffiliated, but you just weren’t actively working on the business day to day.
Matt: That was just a coincidence. I wasn’t attached, like you said. I wasn’t mission critical might be the right way to put it. I was there as an advisor and a board member and clearly had a lot of institutional knowledge, but at that point of vision and the leadership and everything had been transferred over to the team. I was just a just a shareholder at that point, obviously, a huge fan.
Rob: Before we talk about your next act, which is Summit. I just have a question or two about the exit itself, about selling Riskpulse. I’m going to assume what was the emotional high, and I’m just going to put words in your mouth that it closed. It was the relief of everything being done and 15 years of hard work paying off, is that accurate?
Matt: Yes.
Rob: What I want to hear now is there’s so many lows in these types of acquisitions and stuff goes sideways. Most of the time during the long process, a lot of stuff goes sideways in the last week. Every time that people think that buying a house is stressful or selling a house is stressful, this is 10 times or 100 times, nothing is standard.
There is no realtor document that everybody uses. It’s just a big argument fest is what it felt like to me. I’m curious if you could talk us through a point where you had your head in your hand and you were thinking this isn’t going to happen.
Matt: I carried that thought in my head. I would actually have to say until the wires were done. Almost to the point of absurdity, except I was not disappointed. What I mean is I always had that thought in my mind, this is so fragile. It’s always fragile until it’s finished, and I think that’s the way with all deals. Time is the enemy of all deals.
To make a more concrete, Riskpulse at that point like we said, we incorporated in 2007, but we had raised money in 2012 and 2013. Because of that, we had a number of shareholders on the cap table that was not your typical three investors, and that was it. There were a lot of stakeholders at that point. I definitely had my role in the transaction which was hey, Matt, you’re the one that raised money from all these people.
You have relationships with these folks, and we need somebody to be the spokesperson. Obviously, being a board member, that was my role was reaching out to all these folks that had some stake or some ownership in the business and let them know here’s what’s going on, and here’s what’s next, and here’s what we need you to sign.
When you need to get X number of signatures to have something go through, even if everything makes perfect sense to you. Just the simple act of needing to depend on the signatures of 10, 20, 30, 40, 50 other people, it just creates a lot of extrinsic risk of somebody could be sick right now, somebody could be on vacation for three months, somebody could be no longer in the mood to do this, who knows what. I’d like to say I had a close relationship with everybody at some point, but years go by and you’re not really sure where everybody’s at.
There was always this risk there in my mind of who knows what’s going to happen? I think for me, the worst was the week that the deal was supposed to be done was the worst because you’re landing the plane. Most accidents happen when the plane is either taking off or landing. Needing to see the green lights, if you will, light up one, two, three, like sequentially just see everything go through was very nerve wracking.
I kept telling my wife something’s going to happen, something’s going to happen and then I will get into detail like there were weeks where things did happen. Thank goodness, had a great team. We had reasonable acquirers, great lawyers, and everything worked out. It was not just smooth like you said, hey, check here and sign here and everything’s done. It was an orchestration. You’re just hoping everybody does what they’re supposed to do.
Rob: There’s that many parties involved. It does get complicated. Did you regret raising money or raising money from so many investors, because it brought that complexity on the exit?
Matt: Yes. I didn’t regret raising money for sure. That many though, yes. That’s not something I’m going to do again. A lot of it was just when you need money, and you’re first starting out your first company and somebody offers you small angel investments, you take it. When you’re looking for wins and need to pay the bills and all that, you take it. It’s not like something I could go back and just decide to do differently.
There are ways now to improve that. One of them obviously, is when you have a lot more credibility. You have the luxury of maybe doing things differently. The other part is now we have things like angel syndicates, and ways of bundling investments. There’s a lot more seed investors too who will just say you don’t need to raise $5000 from 10 people, I’ll just write you a check for 50 grand or 100 grand. That wasn’t as common in 2010, 2011 and 2012, as it is now.
I don’t think I could go back and actually do it differently, but the second time around, I definitely will be doing some things differently just to decrease that risk. That’s just inherent in having a lot of stakeholders. Not that any of them are controlling, but it’s simply just a matter of the more servers you have running, the more likely that one of them is going to go down. It’s that kind of thing.
Rob: Yeah. Like you’re saying, your first one you have to do what it takes to keep the servers on and to pay the bills. It’s an interesting thing. I’ve made some decisions like that that wound up coming back to bite me years later, but I never regretted them because they were the right decision at the time. I wished it was different but there’s oftentimes nothing you can do.
Matt: Exactly.
Rob: Let’s talk about your transition from Riskpulse to seed the idea of Summit. Summit’s at usesummit.com if folks want to check it out. Your headline is great teams forecast early and often, upgrade your gut feeling to forward looking metrics. Riskpulse was weather prediction and logistics prediction. I think you mentioned last time you were on the show that a friend of yours jokes with you that you’re a one trick pony that you take prediction and you just moved it from niche to niche.
There’s a lot of analytics providers. We can go to Baremetrics, ProfitWell, and ChartMogul, there’s a bunch of stuff. Even Google Analytics, although doesn’t have anything to do with revenue. There’s Stripe dashboards, there’s all this stuff. What made you come up with the idea for Summit, and why build another analytics provider?
Rob: Great question. I was running a SaaS business with Riskpulse and I had some metrics. I would say that some of the tools you just mentioned either weren’t there or we didn’t adopt them early. Our metrics were harder to put together than just looking at ProfitWell, or Stripe, or whatever dashboard. The problem I set out to solve wasn’t having analytics, per se. It was that I’m getting asked hard questions by investors and my team about how the business works, and how the business would behave if we changed something about it.
That’s something where, yes, you can look at a chart and you can definitely look at a history and it tells a story. If you’re good at interpreting the data, you can tell the story of why your MRR looks like it does or ARPU or whatever. But this was more of a what if question of not what happened, but what would happen if we did this or we did that, or what’s going to happen if we do nothing?
It was always about the future because I spent a lot of time fundraising with Riskpulse. Those questions are just really hard to answer. When I want to answer them, the metrics on hand were a great starting point, but they didn’t give the answer that people were looking for. We all know the tale of the hockey stick, a founder left alone in a room with a Google spreadsheet will exit with a hockey stick of some kind, if nobody’s checking and balancing that.
That’s not what I wanted. I wanted something that I could use. Ultimately, as a business, we did end up building a fin ops team. That was really a game changer in terms of now we’re managing the business through the lens of how we’re performing, and how we think we’re going to perform over the next 12 months. I said this is super valuable, but it’s something that most people can’t hire two or three headcount to focus on, or a CFO.
The challenge for me was how do I productize that value, which is really about forward looking for the sake of making decisions today that have an impact tomorrow. That was really the genesis of it.
Rob: It’s interesting that you’re catering both to investors and also to startups. How are you thinking about that?
Matt: Startups need forecasting and we can talk about the use cases for that and why, but one of them that comes up again and again, is when potential investors ask for these things. If there’s ire and some groaning about the realism, or the likelihood of these forecasts being true when startups make them, investors that receive these things, it’s easy to make fun of investors and a lot of people like to do that.
The reality is like good investors don’t want unrealistic or silly projections either. I know that everybody thinks we want that slide that has everything up into the right, but a good investor, especially one that’s thinking about sustainable, profitable businesses, which is an investor that’s more common these days, really wants something that is defensible and rigorous. The big thing is consistency.
I think for you, Rob, if you had to look at 10 different ways of presenting metrics and 10 different ways of presenting a forecast every month, it’s just way more overhead. For me, it’s a convenience service for the investor. I think in the future, it will become something more of an analytical engine for them, but for now they love the consistency of it.
I’ve had more investors say that they’d be willing to essentially tell startups, hey, when you send me your metrics, can you send me the Summit URL instead of a spreadsheet that you create today, because it’ll have everything I want to need. Frankly, it’ll be a little bit more professional than probably what you put together in a crunch.
Rob: That was a field we actually had in the tiny seed batch two applications. “Do you Summit?” Put your URL, your shared URL in here. When folks sign up for Summit, they just connect their Baremetrics, ProfitWell, ChartMogul, or Stripe accounts. Then it just pulls in all the stuff that the backwards looking data, and then Summit does forecasting based on that. Is that accurate?
Matt: Yeah, exactly. It generates a trend cast, as I like to call it, of all that data, which basically says you’re moving in this direction. This is how things are likely to keep going just based on almost thinking of it like inertia. That’s just helpful to see what direction the business is going. That’s the initial reality check of it is that as entrepreneurs, we can be incredibly biased towards what’s happened last month.
In other words if last month was great, we feel great and we think everything’s going to just keep skyrocketing. If last month was down we also sometimes think that the sky is falling. That piece there is really meant to do some just initial resetting or setting of expectations for everyone.
Rob: There are a lot of folks you mentioned if you’re going to raise investment, oftentimes investors will ask for forecasts. A lot of folks in the audience are not going to raise investment. They’re going to bootstrap. What’s the benefit there? Why should they think about looking ahead 3, 6, 12 months and trying to figure out where their business might be?
Matt: There definitely is also application there. I actually think of it in two ways. One is if you’re in the default dead stage, which if everything continues, like it is, essentially, this business is going to run out of money, then the clear one there is there’s nicer phrases, let’s just call it the drop dead date. What’s the date where this thing runs out of money? You can do that with a simple calculation that just says take the bank account balance today and withdraw a certain amount each month, if your business is that stable.
It can help with that. Cash forecasting and runway forecasting would be the primary use case for a default dead “startup” even if you don’t plan to raise money. You’re just trying to get to profitability. The next one is like, okay, when are we going to get to break even? That’s what so many bootstrappers are obviously striving for is, when am I finally going to get to that X k a month that makes this my full-time job or makes this my long term occupation.
Getting a sense of that, and really, with the forecast and the way it’s done in Summit, the benefit is you can run that calculation, and you can get a different number each time, depending on the assumptions that you make. If you assume that your close rate is 25%, maybe your breakeven date is seven months from now. But you probably don’t have that level of confidence in your close rate, like maybe what you want to say instead is I don’t know, my close rate is probably going to be somewhere between 15% of 30%. You look at the independent SaaS report and you just saw Rob, and you’re like at some point, it’s like, what’s the benchmark for these numbers?
Let me just assume a range. Well, what happens if your breakeven is maybe 7, but maybe it’s 12, just helping to get an understanding that the future is uncertain. We don’t forecast to be precise and certain about things. In some cases we forecast to accept, or maybe come to grips with the variability in some of these things.
It’s like a five month difference in breakeven. It could be huge. When do I actually want to quit my consulting gig, or when do I actually quit my job, or how much emergency savings do I really need? Those are all big decisions that you make, even if you’re not fundraising.
Rob: I was thinking I could have used this with Drip, we would grow by $5000 MRR and then I would be like, okay, now I have enough money to hire a customer success person or support person. Then we grow by $10,000 and it’s all right, now I have the money to hire a developer. It was always once that had happened, then I would start the process and then it would take two to three months to hire that person.
If I had some inkling, and like you said, it’s not an exact prediction. It’s hey, in the next 30 to 60 days or whatever, you’re going to be at this level where there’s that much more profit.
Matt: That’s the use case, definitely on the default to live, and maybe still living off of your revenues and not fundraising as we know that hiring takes time, knowing that you’re very likely to have the revenue that you need to support that person ahead of time. Absolutely, getting ahead of hiring is strategic.
Rob: As I think about prediction and forecasting, I have almost no exposure to it other than looking at the weather on my iPhone all the time because I live in Minneapolis. How accurate can you get with something like this, because I have to imagine there’s some skepticism. If you look at any random metrics provider, and the revenue is going up into the right gradually and then there’s today, and then it just keeps going up. It’s just a linear extrapolation on what’s going on. How is Summit different than that and how accurate can it actually be, crazy randomness of startups?
Matt: I think you’re right. If you just take a trendline, which is what we’ve been talking about so far. I think that numbers don’t really understand the business in the way that we do as entrepreneurs. We can look at that line and see it going up into the right. We have a lot of intuition that that’s not right. That’s wrong, for some reason, and is a straight line better than nothing like maybe.
A trend is probably better than nothing, but where it really gets interesting is when we use more than one method of coming to that conclusion. Folks can be scientific. If you think about a scientific theory for example, where you can start to have more confidence in something is when you make observations, and they both confirm or corroborate a theory that you have.
It’s like we measured this thing, we took the temperature, and we also looked at the rock formations, or whatever it is, so you take geology and meteorology, take a bunch of different scientific disciplines. You look at all the evidence and you say, wow, the evidence from all these different fields says that this probably happened. It’s like we’re used to other domains as scientists, but we don’t think of it in terms of startup. What the heck does it have to start up?
Think about it this way. Statistics is one thing like your revenue is growing at 5% month over month. Therefore, this is what your revenue is going to be in December. You need another method to check and balance that and say that’s what this method says. If you just use arithmetic and linear growth or compounding growth, you’re here.
What Summit also does is it brings in simulation, and simulation is different because it’s not machine learning in the sense of like looking at a bunch of data, and finding patterns and coming to a conclusion. It’s simulating the life of your business. I always like to give this example like revenue might go up into the right if you just do a statistical outlook like 5% every month. You’re going to be here by December. It’s like, yeah, that’s great.
What the statistics don’t know is that you don’t have the cash to keep hiring salespeople, or you don’t have the cash on hand to keep spending on paid acquisition, which is how you’ve been growing revenue so far. The simulation is very useful, because it will look at your cash balance, and you can almost think of it like reconciling things. Revenue can’t keep going up if we run out of money. At some point, your engineering team is going to be so busy with the current feature set that they’re not going to be able to roll out features as fast. Stuff just starts to change over time in a way that a purely mathematical view doesn’t understand.
What the simulation does is it actually does run through those different kinds of dependencies of saying your sales are dependent on hiring salespeople, your cash balance does not support you hiring another salesperson in three months. Therefore, you’re not going to keep adding revenue. However, if you want to keep adding revenue, you should go hire a salesperson. It’ll give you a recommendation to go hire a salesperson. That to me is where it gets a lot more realistic. The evidence of that is if you run through a bunch of forecasts in Summit, it’s actually hard to get the thing to draw a hockey stick. It’s like you need a lot of things working really well to do that. Whereas, if I left you alone with a spreadsheet, you could come up with a hockey stick in five minutes because it’s just wish casting.
Back to the point, I think your confidence can go up, the more different ways you have of forecasting and seeing those line up. I’ve seen some startups where it’s like the statistical trends are very consistent and high confidence levels. If you put all these assumptions in the simulation, you get a very similar result. That’s the business that has figured out its business model. I think you can put a lot more confidence in that than somebody who’s like I’m not certain about my pricing, I’m not certain about my close rates, I’m not certain about et cetera, et cetera. That’s where all this risk comes from in our forecasting is we ourselves don’t know what tomorrow is going to hold.
Rob: That makes sense. The simulation, is it a Monte Carlo simulation?
Matt: Yeah, it is a Monte Carlo simulation. It’s a Monte Carlo method. If we want to geek out for a second, and I’ll keep a high level, it’s a simulation in a way of stepping through time and making decisions, but the decisions that it makes do use Monte Carlo methods, which is really a dice roll. I like to use examples of D&D players will love this, but anybody that plays games. Basically, the simulator rolls dice many, many times every month to decide what happens next. The shape of those dice, if you will, depends on your business. I’ll just leave it at that.
It’s a bunch of randomness that gets inserted too, and the randomness is helpful because then the output is a range of possibilities, not just one possibility. You can see some cool stuff like, wow, there is a big spread in terms of where we’re going to be in 12 months. How do we tighten that up so that we can be confident that when we hire this person, we’re able to keep them hired into the future?
Rob: The fun part is all the TinySeed portfolio companies are using Summit. I’ve talked to a few of them who say that they go in and it’s like a little toy. You’re like, I’m going to change this assumption and see what happens. I’m going to change that assumption and see what happens. If you do like to nerd out on your own SaaS metrics, which I will raise my hand and admit. I’ll be the first one to admit that I would check revenue constantly, and MRR growth and all that stuff when I was back in the day. It’s something you can really geek out with.
I really like that you pointed out that trying to get a hockey stick is really hard, like a ton of things have to come together because that’s reality. That’s why so few businesses hockey stick, and when they do, it’s because this creates hard work, and market timing, and then a little bit of luck, and you did some things right. It’s all this stuff has to come together for that to work.
You talk to any founder who’s done it, I believe if they’re being honest with themselves, it’s a lot of factors. It’s never like, oh, I was really smart. It’s always this, this, that, and this, and I happen to time right as this technology took off, and SaaS was becoming a thing. Or, the iPhone had just come out, et cetera, etcetera, et cetera. It just goes on. I think that’s cool.
Matt: I think that the challenge I might have for folks is the thing you’re working on right now, like the feature you’re about to launch, the marketing campaign you’re doing, have you had the time, or giving yourself the time to really predict I’ll say or decide what the impact is going to be to your business? You’re working on that feature because you think it’s going to improve retention. Let’s run with that for a second.
How much? Maybe you don’t know, maybe it’s just a little bit, maybe it’s a lot. Have you run the numbers against your business and said if this works, and then improves retention by X percent, where are we 12 months from now? Compared to maybe not doing it at all, or doing something different.
My dream scenario is when people get together to decide what they’re going to work on next. Imagine running a unit test, if you will, of your financials, your business, and saying wait a minute, if we work on this for a month and it only improves retention by 6%, that’s not going to help us hit our annual revenue target. Imagine deciding that that’s not the right thing to work on right now because it just doesn’t move the needle. Even if it goes exactly as you want to, and customers receive it the way that you expect them to. If it doesn’t move the needle, should you be working on it next? I don’t think most of us have the luxury of doing that analysis, but I’d love to make that really easy for folks.
Rob: As we wrap up, I want to call out one of the reports you have is a survivor curve, and it’s like the opposite of a cohort churn grid. If you’re listening to this and you run a SaaS app and you’ve never seen a survivor curve for your app, I would really encourage you to check this out. You can go to usesummit.com, and you have a free plan so people can log in, and you just connect your Stripe analytics. The survivor curve shows, I believe it’s by cohort, how many people stick around after X months. It’s this long line, it’s like after one month you have this many left, after six months this many left. If that curve doesn’t flatten out somewhere, you have a problem. Would you agree with that sentiment? I would hand build these for Drip until we can get the code to do it. It was quite complicated, actually. I would sit there and stare at that thing, and you want it to flatten because going down in essence, because it’s how many users you have remaining from that cohort.
You want it to be as shallow as possible, meaning it goes down just a little bit and it flattens, but most startups it’s not that. It just winds up being this gradual, gradual, gradual, and if it ends up going asymptotic to zero, and it really never flattens out, then you can grow a decent sized business but trying to get into many millions of dollars, you’re going to have a really, really wide funnel at the top to get there.
Matt: Yeah, that’s your foundation. The way I think of it is if that curve stretches out to zero or 2% sometimes, maybe they stick around. You’re building on quicksand and you’re just trying to build that sandcastle if you will, as the base is eroding, is almost impossible. Seeing something where 30%, 40% of your customers stick around almost “indefinitely,” that is the foundation you need. I agree, it actually is all of your customers from all your cohorts, so you can look at these in Baremetrics or Stripe. I know and see like out of last month’s sign ups etcetera, how many stick around. This is actually looking at, in aggregate, across all subscriptions for all time, how long does the average signup stick around? It’s foundational.
Rob: Sounds good, sir. Thanks again for coming on the show. If folks want to hear you talk for about 45 minutes every week about what you’re up to from the maker and manager side with our good friend, Peter, they can head over to the Out of Beta Podcast. You’re @mattwensing on Twitter, where you’re pretty active, and you have some good thoughts you’re sharing on there. I encourage folks to check out all the stuff Matt is up to.
Matt: Thanks so much.
Rob: If you have a question for me, for Matt Wensing, really for any guests that we’ve had on, you can email questions@startupsfortherestofus.com, attach an audio file, it’ll go to the top of the stack. If you send it in text, obviously, I will read that as well. You can also leave us a voicemail at 888-801-9690. Subscribe to us by searching for Startups in really any of the pod catchers.
It’s crazy on Spotify right now. I’m seeing new users being added constantly. I don’t listen to podcasts on Spotify but they’re obviously getting some traction, pretty interesting. If you’re a podcaster and you’re not already submitted to Spotify, it’s something I’d recommend. Of course, visit startupsfortherestofus.com for full show notes, a full transcript of each episode, and to lend us your thoughts. If you want to tweet me, I’m @robwalling. This podcast is @startupspod. Thank you so much for listening, and I’ll see you next week.
We also dig into forecasting because Riskpulse and Summit are both forecasting engines. Riskpulse did it for logistics, and Summit does it for SaaS companies, and recurring revenue companies. Super interesting conversation, Matt is just sharp as a tack, and has a really deep insight into forecasting, and how it works, and why it works, and when it does, and all that stuff.
I enjoyed our conversation. I hope you do as well. Before I dig into that, I wanted to call your attention to MicroConf On Air. Go to microconfonair.com. It’s a daily live stream that I’ve started doing. It’s 30 minutes every day at noon Central Time, and it’s an idea that we came up with the MicroConf team to try to connect people together. Really, right now a lot of us are essentially in our homes 23 hours a day and a lot of us have kids at home as well.
Even though if you’re used to working from home, it’s still such a different situation now, you can’t go to coffee shops in a lot of places in the world. We just can’t do the normal things that we’re used to. I started doing this live stream. I’ve been really enjoying it, microconfonair.com if you just want to watch it, if you want to be involved with it you go to microconfconnect.com and apply to be part of our Slack group. Once you’re in the Slack group, then you can ask questions.
I’m hosting Q&As. I’m hosting happy hour typically on Thursday or Friday. We’re doing some video rundowns where we actually watch MicroConf talk videos from 2019 with different founders. This week as this episode comes out, we’re going to have Craig Hewitt from Castos, we are going to have Ben Orenstein from Tuple. The idea is that we release their videos, and you can watch them a day or two in advance, and then you can ask them questions about their talk videos or about anything about their story.
I’m pretty excited about it. It’s the first time we’ve ever embarked on something like this, so we pulled it together very, very quickly, over the course of about 24, 48 hours. The first live stream was supposed to be 30 minutes and wound up being about 9 minutes before the stream crashed, but since then, things have been going really well. I’d love to have you join us there at microconfonair.com. Let’s dive into my conversation with Matt Wensing. Matt Wensing, thanks so much for joining me on the show again.
Matt: Hey, thanks Rob for having me on again.
Rob: Absolutely, man. I talked in the intro about you growing Riskpulse, finding a CEO, and selling it. I always ask people who had these life changing exits what was it like when you looked at your bank balance, you hit refresh, and you see all those zeros for the first time in your life?
Matt: I think for me it was a huge relief just because the sheer number of years that I put into it, it was not a, hey let’s bet the summer on this. It wasn’t quite the farm. I didn’t go that far like if it hadn’t happened, things would have been okay but I was very invested in it. It was a huge relief to see that definitely, as you said life changing. Obviously, life improving, but really just that peace of mind that you don’t have for sometimes a very long time in startups.
Rob: Indeed. It was a really long journey for you, right?
Matt: It was.
Rob: Was it 15 years?
Matt: Yeah. I had the idea in 2004. I went from idea in 2004 drawing little notes and posted notes on my lunch hour while on break as a software developer thinking, hey, steps one to four of starting a startup let’s do this. 15 years later.
Rob: Congratulations, man. Did you buy anything? Did you buy a Porsche, did you buy a house?
Matt: Yes, I did. I did a couple things. We’ve been postponing a great ski vacation for a long time. It happened in December and guess what? It was time, so I took the kids. It’s something I’ve wanted to do for years, just take the kids on a ski vacation. We last minute booked all that, didn’t worry as much as we normally would about the last minute rates. Went up to Whistler, Canada and had a great time with family, inviting family to come join us.
That was great. I inherited a car from my parents a few years ago just because they didn’t need it anymore. I was like, okay, extra commuter cars are always helpful, especially when it’s paid off and was able to get rid of that and get a new vehicle which felt great.
Rob: Very nice. There’s a podcast called the Tropical MBA. Dan talks about the Entrepreneur Mobiles. It’s basically that cheap piece of […] that you drive while you’re trying to build your company because you’re not actually making much money. I drove a salvage title 2006 Buick Rendezvous that at one point had a bunch of duct tape, the mirror got hit. I drove that up until a year after I sold Drip.
I like that car. Then, the next car I bought was a nice car. It’s a Volvo. It’s the nicest car I’ve ever owned. In fact, I still bought it used though. I couldn’t bring myself to buy a new car.
Matt: That’s funny. We had the 2005 Toyota Sienna minivan which we put 215,000 miles on as a family. We replaced that with a modest, functional SUV, but then I had inherited a car from my parents, that was in 2004, and it worked. It was fine. It was exactly what you described. It paid off, and worked, and got me from place to place. I traded it, and I did get an off lease vehicle because again, I didn’t want to pay the depreciation, but it’s a lot more fun to drive.
Rob: Once a scrappy founder, always a scrappy founder. It’s hard to change it. I want to ask you about a couple things. One thing that you did that was super interesting with Riskpulse is you build the SaaS app to multiple seven figures, and then you replaced yourself with a CEO. You moved on to start Summit, which we’ll talk about towards the end of the interview.
It’s very unusual. Most people don’t go through that experience. Most people aren’t able to find a CEO. It’s not even on the radar of a lot of people. What was that process like and why did you take that step?
Matt: It was a process, I think it was the deciding that he was going to be CEO was definitely the last step in a mental journey that started when we needed an experienced enterprise sales executive to join the team. I had a recommendation from a board member, which is a great example of how board members can be value add, and is helping you find top talents.
In this case, he knew him professionally, they worked together before. It was somebody that had significant experience building companies from the few million in revenue to the next phase, the 10 employees to 100 employees phase, which is a great fit for where we were. I initially hired him to be Chief Strategy Officer, which is a fancy way of saying not quite sure what your title is going to be, but I know that you have a lot of experience and we want to just get you involved.
The first thing he did was really focused on sales and overhauling the sales process. It’s an enterprise sales process. Even though I had more experience in the business, of course, because I’ve been doing it for years, he brought in that outside experience and revamped our sales process, professionalized it. That was the word, he was really going through professionalizing each function in the company.
After sales, it was marketing, and customer success, and fin ops, and all down the list. Lastly, we just got to the point where it wasn’t that I didn’t want to manage him. It was more what’s in it for me? Why do I want to hold on, because it was clear at that point that he could be CEO, and that I didn’t need to be, so it was an either, or. Without any forcing from the board, this was completely my idea.
I said I never intended to run this company forever, that was not my identity. I think that was the key decoupling that was already true in my mind and heart was like who I am is not the CEO of Riskpulse. It’s the founder of Riskpulse, maybe a little bit more, but the CEO to me was always a title that could be changed at some points, and I always intended to change it at some point.
It just became a really natural transition to say he’s that person now. Announced it to the board. The board was a little surprised at my willingness. It was almost like what you said. This doesn’t usually happen, and it isn’t usually peaceful when it does happen. I think that should be the goal of maybe more of us, a peaceful transition of leadership and power. That’s an important tenet of a well functioning organization.
I was happy to do it. It just immediately freed me up to focus on just the things that I was world class at, and still wanting to focus on, and then ultimately wind myself out of the business.
Rob: When you work on a business like that for 15 years… In your shoes, I would have grown tired of it, probably quite a bit before that. I’m not putting words in my mouth saying you grew tired of it, but we as founders, as entrepreneurs, we like to build new interesting things. It’s sometimes hard to do that once a business is as mature as Riskpulse was.
Matt: There were some elements of that which was, I was functioning well, but the reality is my superpower if I have one is doing new things. Once a company gets to a growth phase where it’s about doing the things that are working more and more and less about creating new things that add risk and add new variables to the equation, I wasn’t getting to use that superpower as much as I even wanted to.
It made a lot of sense for me to either A, find a different role in the organization. For a while I was chief strategist, so I just gave myself a new title and said that gives me a little bit of freedom to figure out what I want to do and see where I can add value to the organization. But like I said, once you get in that growth phase of let’s do more of what’s working but faster. It’s not the same. It’s not the same job.
Rob: I think one of the really savvy benefits or one of the pros of doing it is that when you sold Riskpulse just a month or two ago, you weren’t forced to stay on and work for someone else for a year or two. The turnout wasn’t there because you were so unaffiliated, but you just weren’t actively working on the business day to day.
Matt: That was just a coincidence. I wasn’t attached, like you said. I wasn’t mission critical might be the right way to put it. I was there as an advisor and a board member and clearly had a lot of institutional knowledge, but at that point of vision and the leadership and everything had been transferred over to the team. I was just a just a shareholder at that point, obviously, a huge fan.
Rob: Before we talk about your next act, which is Summit. I just have a question or two about the exit itself, about selling Riskpulse. I’m going to assume what was the emotional high, and I’m just going to put words in your mouth that it closed. It was the relief of everything being done and 15 years of hard work paying off, is that accurate?
Matt: Yes.
Rob: What I want to hear now is there’s so many lows in these types of acquisitions and stuff goes sideways. Most of the time during the long process, a lot of stuff goes sideways in the last week. Every time that people think that buying a house is stressful or selling a house is stressful, this is 10 times or 100 times, nothing is standard.
There is no realtor document that everybody uses. It’s just a big argument fest is what it felt like to me. I’m curious if you could talk us through a point where you had your head in your hand and you were thinking this isn’t going to happen.
Matt: I carried that thought in my head. I would actually have to say until the wires were done. Almost to the point of absurdity, except I was not disappointed. What I mean is I always had that thought in my mind, this is so fragile. It’s always fragile until it’s finished, and I think that’s the way with all deals. Time is the enemy of all deals.
To make a more concrete, Riskpulse at that point like we said, we incorporated in 2007, but we had raised money in 2012 and 2013. Because of that, we had a number of shareholders on the cap table that was not your typical three investors, and that was it. There were a lot of stakeholders at that point. I definitely had my role in the transaction which was hey, Matt, you’re the one that raised money from all these people.
You have relationships with these folks, and we need somebody to be the spokesperson. Obviously, being a board member, that was my role was reaching out to all these folks that had some stake or some ownership in the business and let them know here’s what’s going on, and here’s what’s next, and here’s what we need you to sign.
When you need to get X number of signatures to have something go through, even if everything makes perfect sense to you. Just the simple act of needing to depend on the signatures of 10, 20, 30, 40, 50 other people, it just creates a lot of extrinsic risk of somebody could be sick right now, somebody could be on vacation for three months, somebody could be no longer in the mood to do this, who knows what. I’d like to say I had a close relationship with everybody at some point, but years go by and you’re not really sure where everybody’s at.
There was always this risk there in my mind of who knows what’s going to happen? I think for me, the worst was the week that the deal was supposed to be done was the worst because you’re landing the plane. Most accidents happen when the plane is either taking off or landing. Needing to see the green lights, if you will, light up one, two, three, like sequentially just see everything go through was very nerve wracking.
I kept telling my wife something’s going to happen, something’s going to happen and then I will get into detail like there were weeks where things did happen. Thank goodness, had a great team. We had reasonable acquirers, great lawyers, and everything worked out. It was not just smooth like you said, hey, check here and sign here and everything’s done. It was an orchestration. You’re just hoping everybody does what they’re supposed to do.
Rob: There’s that many parties involved. It does get complicated. Did you regret raising money or raising money from so many investors, because it brought that complexity on the exit?
Matt: Yes. I didn’t regret raising money for sure. That many though, yes. That’s not something I’m going to do again. A lot of it was just when you need money, and you’re first starting out your first company and somebody offers you small angel investments, you take it. When you’re looking for wins and need to pay the bills and all that, you take it. It’s not like something I could go back and just decide to do differently.
There are ways now to improve that. One of them obviously, is when you have a lot more credibility. You have the luxury of maybe doing things differently. The other part is now we have things like angel syndicates, and ways of bundling investments. There’s a lot more seed investors too who will just say you don’t need to raise $5000 from 10 people, I’ll just write you a check for 50 grand or 100 grand. That wasn’t as common in 2010, 2011 and 2012, as it is now.
I don’t think I could go back and actually do it differently, but the second time around, I definitely will be doing some things differently just to decrease that risk. That’s just inherent in having a lot of stakeholders. Not that any of them are controlling, but it’s simply just a matter of the more servers you have running, the more likely that one of them is going to go down. It’s that kind of thing.
Rob: Yeah. Like you’re saying, your first one you have to do what it takes to keep the servers on and to pay the bills. It’s an interesting thing. I’ve made some decisions like that that wound up coming back to bite me years later, but I never regretted them because they were the right decision at the time. I wished it was different but there’s oftentimes nothing you can do.
Matt: Exactly.
Rob: Let’s talk about your transition from Riskpulse to seed the idea of Summit. Summit’s at usesummit.com if folks want to check it out. Your headline is great teams forecast early and often, upgrade your gut feeling to forward looking metrics. Riskpulse was weather prediction and logistics prediction. I think you mentioned last time you were on the show that a friend of yours jokes with you that you’re a one trick pony that you take prediction and you just moved it from niche to niche.
There’s a lot of analytics providers. We can go to Baremetrics, ProfitWell, and ChartMogul, there’s a bunch of stuff. Even Google Analytics, although doesn’t have anything to do with revenue. There’s Stripe dashboards, there’s all this stuff. What made you come up with the idea for Summit, and why build another analytics provider?
Rob: Great question. I was running a SaaS business with Riskpulse and I had some metrics. I would say that some of the tools you just mentioned either weren’t there or we didn’t adopt them early. Our metrics were harder to put together than just looking at ProfitWell, or Stripe, or whatever dashboard. The problem I set out to solve wasn’t having analytics, per se. It was that I’m getting asked hard questions by investors and my team about how the business works, and how the business would behave if we changed something about it.
That’s something where, yes, you can look at a chart and you can definitely look at a history and it tells a story. If you’re good at interpreting the data, you can tell the story of why your MRR looks like it does or ARPU or whatever. But this was more of a what if question of not what happened, but what would happen if we did this or we did that, or what’s going to happen if we do nothing?
It was always about the future because I spent a lot of time fundraising with Riskpulse. Those questions are just really hard to answer. When I want to answer them, the metrics on hand were a great starting point, but they didn’t give the answer that people were looking for. We all know the tale of the hockey stick, a founder left alone in a room with a Google spreadsheet will exit with a hockey stick of some kind, if nobody’s checking and balancing that.
That’s not what I wanted. I wanted something that I could use. Ultimately, as a business, we did end up building a fin ops team. That was really a game changer in terms of now we’re managing the business through the lens of how we’re performing, and how we think we’re going to perform over the next 12 months. I said this is super valuable, but it’s something that most people can’t hire two or three headcount to focus on, or a CFO.
The challenge for me was how do I productize that value, which is really about forward looking for the sake of making decisions today that have an impact tomorrow. That was really the genesis of it.
Rob: It’s interesting that you’re catering both to investors and also to startups. How are you thinking about that?
Matt: Startups need forecasting and we can talk about the use cases for that and why, but one of them that comes up again and again, is when potential investors ask for these things. If there’s ire and some groaning about the realism, or the likelihood of these forecasts being true when startups make them, investors that receive these things, it’s easy to make fun of investors and a lot of people like to do that.
The reality is like good investors don’t want unrealistic or silly projections either. I know that everybody thinks we want that slide that has everything up into the right, but a good investor, especially one that’s thinking about sustainable, profitable businesses, which is an investor that’s more common these days, really wants something that is defensible and rigorous. The big thing is consistency.
I think for you, Rob, if you had to look at 10 different ways of presenting metrics and 10 different ways of presenting a forecast every month, it’s just way more overhead. For me, it’s a convenience service for the investor. I think in the future, it will become something more of an analytical engine for them, but for now they love the consistency of it.
I’ve had more investors say that they’d be willing to essentially tell startups, hey, when you send me your metrics, can you send me the Summit URL instead of a spreadsheet that you create today, because it’ll have everything I want to need. Frankly, it’ll be a little bit more professional than probably what you put together in a crunch.
Rob: That was a field we actually had in the tiny seed batch two applications. “Do you Summit?” Put your URL, your shared URL in here. When folks sign up for Summit, they just connect their Baremetrics, ProfitWell, ChartMogul, or Stripe accounts. Then it just pulls in all the stuff that the backwards looking data, and then Summit does forecasting based on that. Is that accurate?
Matt: Yeah, exactly. It generates a trend cast, as I like to call it, of all that data, which basically says you’re moving in this direction. This is how things are likely to keep going just based on almost thinking of it like inertia. That’s just helpful to see what direction the business is going. That’s the initial reality check of it is that as entrepreneurs, we can be incredibly biased towards what’s happened last month.
In other words if last month was great, we feel great and we think everything’s going to just keep skyrocketing. If last month was down we also sometimes think that the sky is falling. That piece there is really meant to do some just initial resetting or setting of expectations for everyone.
Rob: There are a lot of folks you mentioned if you’re going to raise investment, oftentimes investors will ask for forecasts. A lot of folks in the audience are not going to raise investment. They’re going to bootstrap. What’s the benefit there? Why should they think about looking ahead 3, 6, 12 months and trying to figure out where their business might be?
Matt: There definitely is also application there. I actually think of it in two ways. One is if you’re in the default dead stage, which if everything continues, like it is, essentially, this business is going to run out of money, then the clear one there is there’s nicer phrases, let’s just call it the drop dead date. What’s the date where this thing runs out of money? You can do that with a simple calculation that just says take the bank account balance today and withdraw a certain amount each month, if your business is that stable.
It can help with that. Cash forecasting and runway forecasting would be the primary use case for a default dead “startup” even if you don’t plan to raise money. You’re just trying to get to profitability. The next one is like, okay, when are we going to get to break even? That’s what so many bootstrappers are obviously striving for is, when am I finally going to get to that X k a month that makes this my full-time job or makes this my long term occupation.
Getting a sense of that, and really, with the forecast and the way it’s done in Summit, the benefit is you can run that calculation, and you can get a different number each time, depending on the assumptions that you make. If you assume that your close rate is 25%, maybe your breakeven date is seven months from now. But you probably don’t have that level of confidence in your close rate, like maybe what you want to say instead is I don’t know, my close rate is probably going to be somewhere between 15% of 30%. You look at the independent SaaS report and you just saw Rob, and you’re like at some point, it’s like, what’s the benchmark for these numbers?
Let me just assume a range. Well, what happens if your breakeven is maybe 7, but maybe it’s 12, just helping to get an understanding that the future is uncertain. We don’t forecast to be precise and certain about things. In some cases we forecast to accept, or maybe come to grips with the variability in some of these things.
It’s like a five month difference in breakeven. It could be huge. When do I actually want to quit my consulting gig, or when do I actually quit my job, or how much emergency savings do I really need? Those are all big decisions that you make, even if you’re not fundraising.
Rob: I was thinking I could have used this with Drip, we would grow by $5000 MRR and then I would be like, okay, now I have enough money to hire a customer success person or support person. Then we grow by $10,000 and it’s all right, now I have the money to hire a developer. It was always once that had happened, then I would start the process and then it would take two to three months to hire that person.
If I had some inkling, and like you said, it’s not an exact prediction. It’s hey, in the next 30 to 60 days or whatever, you’re going to be at this level where there’s that much more profit.
Matt: That’s the use case, definitely on the default to live, and maybe still living off of your revenues and not fundraising as we know that hiring takes time, knowing that you’re very likely to have the revenue that you need to support that person ahead of time. Absolutely, getting ahead of hiring is strategic.
Rob: As I think about prediction and forecasting, I have almost no exposure to it other than looking at the weather on my iPhone all the time because I live in Minneapolis. How accurate can you get with something like this, because I have to imagine there’s some skepticism. If you look at any random metrics provider, and the revenue is going up into the right gradually and then there’s today, and then it just keeps going up. It’s just a linear extrapolation on what’s going on. How is Summit different than that and how accurate can it actually be, crazy randomness of startups?
Matt: I think you’re right. If you just take a trendline, which is what we’ve been talking about so far. I think that numbers don’t really understand the business in the way that we do as entrepreneurs. We can look at that line and see it going up into the right. We have a lot of intuition that that’s not right. That’s wrong, for some reason, and is a straight line better than nothing like maybe.
A trend is probably better than nothing, but where it really gets interesting is when we use more than one method of coming to that conclusion. Folks can be scientific. If you think about a scientific theory for example, where you can start to have more confidence in something is when you make observations, and they both confirm or corroborate a theory that you have.
It’s like we measured this thing, we took the temperature, and we also looked at the rock formations, or whatever it is, so you take geology and meteorology, take a bunch of different scientific disciplines. You look at all the evidence and you say, wow, the evidence from all these different fields says that this probably happened. It’s like we’re used to other domains as scientists, but we don’t think of it in terms of startup. What the heck does it have to start up?
Think about it this way. Statistics is one thing like your revenue is growing at 5% month over month. Therefore, this is what your revenue is going to be in December. You need another method to check and balance that and say that’s what this method says. If you just use arithmetic and linear growth or compounding growth, you’re here.
What Summit also does is it brings in simulation, and simulation is different because it’s not machine learning in the sense of like looking at a bunch of data, and finding patterns and coming to a conclusion. It’s simulating the life of your business. I always like to give this example like revenue might go up into the right if you just do a statistical outlook like 5% every month. You’re going to be here by December. It’s like, yeah, that’s great.
What the statistics don’t know is that you don’t have the cash to keep hiring salespeople, or you don’t have the cash on hand to keep spending on paid acquisition, which is how you’ve been growing revenue so far. The simulation is very useful, because it will look at your cash balance, and you can almost think of it like reconciling things. Revenue can’t keep going up if we run out of money. At some point, your engineering team is going to be so busy with the current feature set that they’re not going to be able to roll out features as fast. Stuff just starts to change over time in a way that a purely mathematical view doesn’t understand.
What the simulation does is it actually does run through those different kinds of dependencies of saying your sales are dependent on hiring salespeople, your cash balance does not support you hiring another salesperson in three months. Therefore, you’re not going to keep adding revenue. However, if you want to keep adding revenue, you should go hire a salesperson. It’ll give you a recommendation to go hire a salesperson. That to me is where it gets a lot more realistic. The evidence of that is if you run through a bunch of forecasts in Summit, it’s actually hard to get the thing to draw a hockey stick. It’s like you need a lot of things working really well to do that. Whereas, if I left you alone with a spreadsheet, you could come up with a hockey stick in five minutes because it’s just wish casting.
Back to the point, I think your confidence can go up, the more different ways you have of forecasting and seeing those line up. I’ve seen some startups where it’s like the statistical trends are very consistent and high confidence levels. If you put all these assumptions in the simulation, you get a very similar result. That’s the business that has figured out its business model. I think you can put a lot more confidence in that than somebody who’s like I’m not certain about my pricing, I’m not certain about my close rates, I’m not certain about et cetera, et cetera. That’s where all this risk comes from in our forecasting is we ourselves don’t know what tomorrow is going to hold.
Rob: That makes sense. The simulation, is it a Monte Carlo simulation?
Matt: Yeah, it is a Monte Carlo simulation. It’s a Monte Carlo method. If we want to geek out for a second, and I’ll keep a high level, it’s a simulation in a way of stepping through time and making decisions, but the decisions that it makes do use Monte Carlo methods, which is really a dice roll. I like to use examples of D&D players will love this, but anybody that plays games. Basically, the simulator rolls dice many, many times every month to decide what happens next. The shape of those dice, if you will, depends on your business. I’ll just leave it at that.
It’s a bunch of randomness that gets inserted too, and the randomness is helpful because then the output is a range of possibilities, not just one possibility. You can see some cool stuff like, wow, there is a big spread in terms of where we’re going to be in 12 months. How do we tighten that up so that we can be confident that when we hire this person, we’re able to keep them hired into the future?
Rob: The fun part is all the TinySeed portfolio companies are using Summit. I’ve talked to a few of them who say that they go in and it’s like a little toy. You’re like, I’m going to change this assumption and see what happens. I’m going to change that assumption and see what happens. If you do like to nerd out on your own SaaS metrics, which I will raise my hand and admit. I’ll be the first one to admit that I would check revenue constantly, and MRR growth and all that stuff when I was back in the day. It’s something you can really geek out with.
I really like that you pointed out that trying to get a hockey stick is really hard, like a ton of things have to come together because that’s reality. That’s why so few businesses hockey stick, and when they do, it’s because this creates hard work, and market timing, and then a little bit of luck, and you did some things right. It’s all this stuff has to come together for that to work.
You talk to any founder who’s done it, I believe if they’re being honest with themselves, it’s a lot of factors. It’s never like, oh, I was really smart. It’s always this, this, that, and this, and I happen to time right as this technology took off, and SaaS was becoming a thing. Or, the iPhone had just come out, et cetera, etcetera, et cetera. It just goes on. I think that’s cool.
Matt: I think that the challenge I might have for folks is the thing you’re working on right now, like the feature you’re about to launch, the marketing campaign you’re doing, have you had the time, or giving yourself the time to really predict I’ll say or decide what the impact is going to be to your business? You’re working on that feature because you think it’s going to improve retention. Let’s run with that for a second.
How much? Maybe you don’t know, maybe it’s just a little bit, maybe it’s a lot. Have you run the numbers against your business and said if this works, and then improves retention by X percent, where are we 12 months from now? Compared to maybe not doing it at all, or doing something different.
My dream scenario is when people get together to decide what they’re going to work on next. Imagine running a unit test, if you will, of your financials, your business, and saying wait a minute, if we work on this for a month and it only improves retention by 6%, that’s not going to help us hit our annual revenue target. Imagine deciding that that’s not the right thing to work on right now because it just doesn’t move the needle. Even if it goes exactly as you want to, and customers receive it the way that you expect them to. If it doesn’t move the needle, should you be working on it next? I don’t think most of us have the luxury of doing that analysis, but I’d love to make that really easy for folks.
Rob: As we wrap up, I want to call out one of the reports you have is a survivor curve, and it’s like the opposite of a cohort churn grid. If you’re listening to this and you run a SaaS app and you’ve never seen a survivor curve for your app, I would really encourage you to check this out. You can go to usesummit.com, and you have a free plan so people can log in, and you just connect your Stripe analytics. The survivor curve shows, I believe it’s by cohort, how many people stick around after X months. It’s this long line, it’s like after one month you have this many left, after six months this many left. If that curve doesn’t flatten out somewhere, you have a problem. Would you agree with that sentiment? I would hand build these for Drip until we can get the code to do it. It was quite complicated, actually. I would sit there and stare at that thing, and you want it to flatten because going down in essence, because it’s how many users you have remaining from that cohort.
You want it to be as shallow as possible, meaning it goes down just a little bit and it flattens, but most startups it’s not that. It just winds up being this gradual, gradual, gradual, and if it ends up going asymptotic to zero, and it really never flattens out, then you can grow a decent sized business but trying to get into many millions of dollars, you’re going to have a really, really wide funnel at the top to get there.
Matt: Yeah, that’s your foundation. The way I think of it is if that curve stretches out to zero or 2% sometimes, maybe they stick around. You’re building on quicksand and you’re just trying to build that sandcastle if you will, as the base is eroding, is almost impossible. Seeing something where 30%, 40% of your customers stick around almost “indefinitely,” that is the foundation you need. I agree, it actually is all of your customers from all your cohorts, so you can look at these in Baremetrics or Stripe. I know and see like out of last month’s sign ups etcetera, how many stick around. This is actually looking at, in aggregate, across all subscriptions for all time, how long does the average signup stick around? It’s foundational.
Rob: Sounds good, sir. Thanks again for coming on the show. If folks want to hear you talk for about 45 minutes every week about what you’re up to from the maker and manager side with our good friend, Peter, they can head over to the Out of Beta Podcast. You’re @mattwensing on Twitter, where you’re pretty active, and you have some good thoughts you’re sharing on there. I encourage folks to check out all the stuff Matt is up to.
Matt: Thanks so much.
Rob: If you have a question for me, for Matt Wensing, really for any guests that we’ve had on, you can email questions@startupsfortherestofus.com, attach an audio file, it’ll go to the top of the stack. If you send it in text, obviously, I will read that as well. You can also leave us a voicemail at 888-801-9690. Subscribe to us by searching for Startups in really any of the pod catchers.
It’s crazy on Spotify right now. I’m seeing new users being added constantly. I don’t listen to podcasts on Spotify but they’re obviously getting some traction, pretty interesting. If you’re a podcaster and you’re not already submitted to Spotify, it’s something I’d recommend. Of course, visit startupsfortherestofus.com for full show notes, a full transcript of each episode, and to lend us your thoughts. If you want to tweet me, I’m @robwalling. This podcast is @startupspod. Thank you so much for listening, and I’ll see you next week.
Episode 488 | A Bluetick Progress Update from Mike Taber
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Show Notes
In this episode of Startups For The Rest Of Us, Rob checks in with Mike Taber about his progress with Bluetick. They talk about new growth, where that growth is coming from, theories on why customers are choosing Bluetick over competitors, and more.
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host Rob Walling. This week, we catch up with Mike Taber. I get an update on his progress with Bluetick. Mike was my co-host for the first 448 episodes of this podcast. Now he’s a host emeritus. He comes on every couple of months and updates us on his story and his progress with his software product bluetick.io. It’s a good update this week. I don’t want to spoil it for you, but needless to say, things are going up and to the right for Mike.
Before we dive into that, I want to give you two things. Number one is invitations for Microconf Connect, which is our online community. The first invitations have been sent out. If you haven’t checked out microconfconnect.com and you are interested in being in a community of, well, there’s more than 1100 applicants at this point, so depending on how many actually come through and sign up, let’s say it’s going to be many hundreds, if not close to a thousand, of indie-funded and self-funded startup founders from around the world. If you’re interested in that, head to microconfconnect.com.
Number two, if you haven’t shared this podcast with someone that you think could get value out of it, it would mean a ton to me. If you feel like you’ve gotten value out of episodes over the past three months you’ve been listening, three years you’ve been listening, the biggest thing that I look at when I look at the success of the podcast, there’s a couple of things.
One, I look at the feedback from listeners and the comments that we receive and the growth of the subscriber base. Really been focusing on that over the past 6–9 months to try to get the message out to more people. The message that we can be ambitious, and we can build life-changing businesses without sacrificing our life or health or family or our relationships in order to do that.
We’d really appreciate it even if that’s just a tweet that says, “Startups for the Rest of Us is a podcast that I enjoy,” or if you do a one-on-one email or text to someone, I would really appreciate it. With that, let’s dive in to my conversation with Mike Taber.
Mike, it’s been a while. How are you doing?
Mike: I’m doing good. How are you doing?
Rob: I’m doing okay. It’s been six weeks to the day since our last conversation. Actually, we ran a Twitter poll a few weeks back because I got a couple of comments on the last episode. Let’s say I got 10 or 12 comments through Twitter, email. and posted to the website. One of them said, “Oh, it’s uncomfortable when you and Mike talk because I feel like you’re putting a lot of pressure on him.” Then someone said, “You should be easier. You should go easier on Mike.” I thought, “Wow. I don’t feel like I’m being hard on you.” Do you feel that way?
Mike: I don’t think so. The questions that you’re asking are pretty valid questions. I feel like it’s easier to answer them. I’ve commented on this before, it feels easier for me to answer them now because there’s more time in between each episode when we talk. It’s like I have more time to work on stuff and I’m not distracted by other things that are going on. I don’t really think so. I don’t know. Maybe I would have felt differently right after an episode is recorded. You can ask me again right after this episode if they were tough questions.
Rob: Totally. That’s the thing that people should know is like you and I were very deliberate, in advance, offline, before we started this whole series of following your story. That I said, “Look, I’m going to ask you questions that I think are helpful to the audience. I want to ask you questions that I think are helpful to hopefully keep you motivated and accountable. Is that okay?” I got your permission to bust your chops a little bit. I’ve never felt like I’m over-the-top, up in your face, sell, sell, sell, buy, buy, buy. I’m not being outrageous. I’m genuinely just asking. I know I am asking some tough questions, but I don’t know.
Anyway, after that, I ran a Twitter poll and I got 114 responses. The results were 8% thought I should go easier on you, 31% said I could push you harder, which I was surprised by, and 61% said they felt like I’m striking a good balance. Overall, 31% Mike, a third of the people want me to bust your chops more. It’s funny.
Mike: It’s all right. If you want to bust my chops a little bit more to appease that 31%, I’m fine with it.
Rob: I don’t. This is very natural. The thing is these conversations, at least from my perspective, are not forced at all. I’m not doing anything that doesn’t feel very natural in the conversation. I’m genuinely just curious about what’s there. When I ask, “Why didn’t you do that?” I’m genuinely curious why you didn’t do something. Anyway, let’s start talking about stuff because I did go back and listen to the last few episodes. It’s been a while. It’s been six weeks since the last one and three months since the one before that. I almost forget the story sometimes of exactly what was happening.
Our last episode was actually really positive. You were upbeat and things seemed to be working well. You had grown the revenue of 50% in two months. You’re still early-stage so folks know—percentages can be deceiving. That’s where we last left you. I’m curious to hear about your high point over the past six weeks. What was your biggest win or the moment where you felt the best? Then conversely, the biggest setback or where you were feeling the worst.
Mike: I think that in terms of the biggest win is I had a customer, and I know that this is on your outline already, so I’m going to totally blow it out of the water. Your question was about the big customer that I had to sign on a couple of months ago for $500 a month and are they still around. The answer is yes, they are still around, but they also asked to upgrade to an annual plan. That just came through yesterday so that’s all set. I’d say that’s probably the biggest one.
In terms of a low point, I can’t really point to anything specific where it’s like, “Oh, I wish this had gone very, very differently.” I’ve got a bunch of things that are up in the air right now. I’m optimistic that some of them will come through and then there are other things where I have to play things by ear for a little while to see how it goes. I don’t know how they’re going to play out yet.
Rob: Congratulations on that; that’s big to get. For them to request to go annual implies that they’re using the tool, they’re enjoying the tool, and they want to use it for the coming foreseeable future. The challenge that I always see with, especially early-stage products, that are really finding their footing is that you can get a big customer, but they’ll stick around for two weeks or a month or two. Then they realize, “Well, this just doesn’t fit what we need.” That is why I kept circling back on that topic is like, “Hey, you have this customer paying you a chunk of money. Are they still around?” That’s great. That’s really a good sign in my opinion. Congratulations on that.
Mike: Another thing that I would say that is, I wouldn’t say there was a particular point where it was a high point as well, but you have mentioned that I had grown revenue by about 50% over the course of two months. Then over the most recent two months, I’ve grown it by roughly another 50%. Basically, double where I was about four months ago. Maybe it’s 4½ months, maybe close to 5, but it’s still pretty close to that. It depends more on how things shake out through this month, which it’s still very early on in the month, but from the looks of it, I would expect that I will eclipse that point.
Rob: Is a big part of this your warm/cold email campaign? Because the last time we spoke, your report was it was working very well, you were getting upwards of 50% response rates, you had so many learnings that you actually had to back off of it so you could get other work done, you were saying some calls were running 1½-2, you had a bunch of notes, and that some were turning into customers. Is that a big part of this? Because to double in four months even at early stages is still traction. That shows that something has happened that wasn’t happening in the prior 18 months frankly.
Mike: Yeah. I look back at the outreach campaign that I was doing. It’s interesting because only one of those conversations has turned into an actual customer. There are maybe three others that are still prospects. One of them is in a trial but I have to implement some additional things before he’ll actually start paying for it. The trial itself right now is like I’ve extended his trial because literally, certain things don’t work for him. I’m trying to go through. I basically just have to implement a couple of extra features before he can start using it. At that point, I’ll restart his trial more or less.
I don’t see any direct correlation between the conversations that I’m having and the revenue, which is weird. Because I look back at it now and I just went through and counted. I’ve had over 30 calls with people in the past 5-6 weeks. Those are just the ones from my outreach campaign, but only one of those turned into a customer.
Rob: That’s crazy. Where’s the growth coming from?
Mike: I’m still working on it.
Rob: Oh, no. You don’t know.
Mike: It’s from a variety of sources. Some of its recommendations are from other people. I onboarded somebody over the past two weeks. They’re a real estate attorney in New York City, and they heard about it from a Facebook group. Somebody else had recommended to him. I’m like, “Well, who was it and what organization was it?” They said it was from the EO group which I think is Entrepreneurs’ Organization or something like that. You have to have a business that’s doing a million dollars in revenue in order to even be eligible to join, and they have to verify it.
Somebody in there said, “Hey, you should check out Bluetick.” I don’t know who that person was, but I don’t necessarily care either. The person signed on and I helped him get everything set up through Zapier. They asked me already about upgrading to an annual plan. I said, “Well, we could do that now but why don’t you wait a month or two and see how things go and then if everything is working well we’ll upgrade you.” It’s very casual and conversational about that.
I think that that’s a good opportunity to try and potentially get either additional recommendations or more revenue what have you. I’m sure these people know other people. I definitely think there are opportunities there that are coming about just from having these conversations.
Rob: Right. That’s the idea is if they do end up being happy, and they sign up for annual, right after they pay for annual, a great ask is, “I know you heard about me through an EO group, would you mind posting back to that group and saying, ‘Hey, I’ve just signed up. It’s been a really good experience.’” At this stage, it’s doing things that don’t scale. At this stage, all of this just helps get you to where you want to go.
Mike: Exactly.
Rob: I’m curious then. Customers are signing up and you obviously have some growth going on, something that I’ve asked you multiple times is why Bluetick? Why did they sign up with Bluetick and not go to one of your probably dozens of competitors, I’m guessing? Last time you had said you had some theories but you hadn’t really figured that out yet.
We tossed around some things like Bluetick checks the mailbox every 10 minutes whereas a lot of your competitors check it every four hours so your data is more up-to-date. You’re more thorough in terms of seeing I think it was like trash and spam and some other folders. Is that it or has there something else that you’ve figured out why these folks come, sign up, and convert to annual with you and not one of your competitors? That key differentiator.
Mike: I don’t think there’s a specific key differentiator in the products, but the recommendations certainly help. As part of those 30-plus calls that I have gone through, one person said, “Hey, I have this customer over here, these couple of customers, and I think that you should go talk to them. For this one, feel free to use my name and say that I said that you should reach out to them.”
I reached out, talked to them. I don’t think that this came up in our last call because it was since then, but I basically had a conversation with them. They said, “Yeah. Actually, your software sounds like it would be really helpful for us. Send me a proposal,” which you wouldn’t think most of the time you’d need to send a proposal to somebody. It’s over $1000 a month for this particular customer. They said, “Send me the proposal.” I sent them a proposal and then without even me asking or following up on the proposal, they didn’t have any questions at all. “This is great. This looks good. I’m going to introduce you to our technical team. Let’s set up a call with them.”
Did that, went through the technical call. At the end of the call, I said, “Are there any objections or questions you have or any problems you see in switching from what you’re using now into this?” They said, “No.” Now I’m at the point where they said, “Okay. Next week’s bad for us, but touch base with us the following week. We’ll see how things shake out from there.” I’m optimistic that that will come in. That’s over $1000 a month in MRR from just that one customer, but I definitely know there are certain things that they’re going to need. The point I’m going after though is the reason that that person took the call was that they got a recommendation from this other person they knew and trusted.
Rob: That makes sense. Your title tag on your website, bluetick.io, is, “Cold and Warm Email Follow-up Software.” Then the headline is, “Personal outreach at scale for all of your follow-up emails.” There’s cold and there’s warm and you’ve tended to be in the warm area of getting things you need from other people. If an accountant needs a tax return, he can put it in here. I’m just giving an example. I guess you don’t have any accountants.
Mike: I do, actually.
Rob: Oh, you do? Okay. Or a conference organizer needs to bother sponsors until they pay, you put them in Bluetick and they would do that. Which of these new sign-ups over the past four months are they using? Are they doing it more for the cold or more for the warm?
Mike: Most of them are warm, to be honest. As I’m thinking about it, most of them are warm. They’ve done business in some way shape or form but it’s not a tight relationship, it’s very loose. Maybe there was a transaction of some kind. Maybe there was a trial that was downloaded. Maybe there was an introduction or something along those lines. There was at least some touch-point and then they go in to use Bluetick to help move them to the next step and strengthen the relationship.
Rob: It’s less about sales. It’s part of the sales process but it’s not usually the first step in the sales process. There’s at least some relationship then it’s how do we keep moving it down, which is what you wanted to do. Remember, we talked about it a year ago. You said, “I feel like a lot of the cold outreach is spammy. I have a struggle with how some of these folks are doing it.” This feels better to you?
Mike: Yeah. What’s interesting, though, is that those that I’ve had come on so far, those tend to be like they want to do the warm outreach, but then the demo for the customer who the price quote I gave them (I think) was $1200 a month. They’re going to have upwards of 20–30 mailboxes and their growth anticipation is going to get up to between 50 and 60 by the end of the year. What they do is they do lead gen for other companies. They basically work with marketing agencies who are trying to do market analysis and market research, and they get people on the phone to talk to those companies.
I’ve actually started going down the road of looking out there to see what marketing agencies that are out there that are currently doing lead gen and see if I can get conversations going with them to ask how they’re doing that now. My suspicion is most of them are running a bunch of different campaigns in parallel.
They probably have anywhere between 20 and 50 or 100 mailboxes, which I would basically be charging them for each one of those, but let’s say that it’s 50 mailboxes at my current price in which I’d probably cut them a bulk discount at some point. I don’t know what that would look like. Let’s say it’s just raw numbers alone right now, fifty mailboxes at $50 a month is $2500 a month. That’s huge.
One of those customers could substantially start moving the needle for Bluetick, especially if they go and sign up for an annual plan. Not that I think that they would do that on day one, but fast forward a month or two if it’s working better for them than their current solution then it would make sense for them to go to an annual plan to get a little bit more of a discount.
I do think that there are opportunities there are for Bluetick to go in and do some competitive displacements for people who are using things like SalesLoft, Outreach, or Reply because it does have that more in-depth hooks into the mailbox and it can do more in-depth checks to make sure that it’s identically identifying, was this a reply? Was that a reply? Did I get a reply from a different email address or was it forwarded? All those kinds of things. I just have the capability to do a more in-depth analysis that I don’t think that those other products have nor do I think that they care about. Their pricing has started going through the roof like they’re really going upmarket in terms of the pricing.
Rob: Which leaves a nice opportunity for you because even having these several hundred dollars a month/low four-figure per month clients is such a different business than a $40 or $50 a month app. You need so many fewer clients. Bravo to that. High ARPU (Average Revenue Per Customer) is just one of the Holy Grails. That’s awesome.
Mike: I’m working those angles to try and see how that works out. I just don’t know how it’s going to play out yet.
Rob: You never do. It’s pipeline stuff. Listeners should realize you’re not saying, “I’m counting on all of these deals to close.” You’ve done sales enough to realize that only a certain percentage of your pipeline closes. But the fact that you’re even sitting at the table with someone who could feasibly pay you $1000, $2000 a month is so far removed from where you were a year ago or 18 months ago.
That’s the part I’m excited about because you don’t need all of these to pan out. You just need a certain percentage. You’re growing, you’re off to the races, and you’re profitable, supporting yourself. You get to the point where you can hire someone to handle your audits and rewrite that sealed .NET component.
Mike: What’s motivating about it is that I feel like I’m winning a disproportionately large number of them, too.
Rob: Why is that?
Mike: Honestly, I think it’s me. It’s the conversations that I have with people. Even in the demo that I did with the customer that I did a custom proposal for, when I was talking to them they were asking questions about the software and how it worked. They had some very specific requirements as well, which I was shocked by because most people are like, “Oh, I just want to be able to detect replies and be able to send out emails and make sure that those are going out to people who didn’t reply.”
One of the specific requirements they had was they’re like, “This has to be able to send an email out as a reply to a previous email and it has to include the contents of the other one.” I said, “Yes. It can do that. This is exactly how it looks.” and I showed them an example. They’re like, “That’s perfect. That’s exactly what we need.”
It’s just being able to have that discussion and then also explain this is how it was built and this is why it was built this way. Fascinated is not the right word for it, but they really liked hearing that the person on the phone giving them the demo was the person they would also talk to for support if they needed help, or the person who built it. If there’s something wrong and it doesn’t work, they can talk to me and I can get it fixed for them. Whereas with the current vendor they have, it’s got to go through three layers of support, there was a project manager and put out a roadmap. You don’t have to do that with me. You’re going to talk to me. I can get things done.
Rob: That’s the thing when you’re small and you’re competing with venture-backed startups or even just larger companies, founders will often say, “Well, I’m outgunned.” How can I possibly compete with them? You can. You just have to use your advantages.
Mike: Didn’t you call this—I think it was in Microconf Europe—the founder advantage?
Rob: Maybe I did. Thank you for reminding. I’ll have to go back.
Mike: I think that was you.
Rob: I don’t recall but we should find out. Anyway, in Judo, you’re supposed to—even if you have a larger opponent—use their force against them. Let’s say they swing at you or whatever, it’s more about dodging and pulling them in the direction that they swung to flip them over or whatever.
I’ve only done Judo a couple of times, so it’s not something I’m an expert at, but when you are a small company you are super agile. You can get stuff done super-fast. They can talk directly to the founder. These are the advantages that you can just use against larger companies over and over and over. There are others as well. All that to say, that’s cool to be able to do that. Obviously, it doesn’t last forever, but while you have it, this should absolutely be something that you’re taking advantage of.
Mike: I totally am for the time being.
Rob: Cool. Curious, some of these other questions I’m not even sure are worth going into since things are working. You’re doing demos, you’re talking to customers, you’re selling, and they’re writing you checks. It’s like, “Should you even be bothering with these other things?” I come back to the podcast tour where (I guess) you put it into Bluetick. You were doing cold outreach to try to get on podcasts. Scaled it back a bit because you got busy with calls. Then you ramped it up again. Curious for an update on that.
Mike: I had scaled it down and I’d planned on ramping it up again, but I started sending out a couple of emails and I haven’t gone back to start sending out more of them. I was basically doing it individually. It’s like approving them one at a time. I got busy with all the phone calls and everything. I haven’t gone back to that.
I basically have stopped learning things from the conversations that I’ve been having with the people I was reaching out to. I’m going to put some of that stuff on autopilot and try to involve myself a little bit less. Instead of pitching it as, “Hey, I’d like to get on a phone and talk to you because I’d like to learn,” now I’m going to present it as, “These are the things that I’ve learned. Are there ways that you can help me or other people that you could refer to this particular product because I think I have a better story or position around that?”
I’m going to do that instead. Now that my learning process there I think it is a little bit more complete. I’m going to go back and start doing the podcast outreach again. I just haven’t done it yet.
Rob: Yeah. You’re trying to balance four things. Development of features is one thing; sales and learning, which is what a lot of LinkedIn and that warm outreach; and then marketing. You haven’t been doing much marketing because sales and learning are taking so much at the time. It sounds like you’ve learned. I think what you’re saying to summarize is you’ve learned about as much as you need for now and you can really dial that down and then switch some focus to marketing to then generate leads for you to continue with sales, right?
Mike: Yeah. I don’t want to not correct you, but to narrow it down exactly on the learning side of it. The reason I’m backing off on that is because I’m starting to hear the same things over and over. It’s not that I don’t think that I have anything left to learn because I certainly think there’s lots more, but the people that I’m talking to it’s getting repetitive now. I’m hearing the same things over and over. Going through the rest of the list of people that I was reaching out to, I don’t think that that’s going to be fruitful in terms of learning stuff. I do still think that there’s a lot of value in continuing to reach out to those people and seeing if there are people that they could introduce me to or put the product in front of.
Rob: Right. You’re switching from learning to sales. In essence, you’re switching that campaign, which is exactly what I think you should be doing based on what you’re saying. It’s funny for these episodes that we do every month or two, it’s typically been a roller coaster; one where you’re up and one where you’re down. We now have two back-to-back where you’re up. You got it, so it’s going to get boring for people after a while, Mike. If your #winning every episode, people will stop listening. Next episode, bring some low points.
Mike: I’ll say I got a hangnail.
Rob: Exactly.
Mike: They’re terrible.
Rob: I’m joking, obviously.
Mike: I can barely type with my finger. Do you want to see that finger, Rob?
Rob: Not really. Good thing this is an audio podcast. I’m happy for you and I’m happy the way things are going. Again, it’s like we’ve talked about this sealed .NET component for so long. The last episode I finally said, “You know what, if sales are working I wouldn’t replace it right now unless it’s causing you the inability to close sales,” because right now, number one is getting revenue up. It was my thinking at the time. We were both agreeing on it. You were saying, “Yeah. I know I need to replace it at some point.” Given where you’ve been, have you ever given it a thought over the past six weeks?
Mike: I have. It’s more, I would say, over the past 1½–2 weeks where I’ve started to look at that a lot more. The main reason for looking at that is that I mentioned it earlier but I didn’t go into the details of a customer where I basically extended their trial because certain things weren’t working for them. To drill into that is they have an exchange server.
Rob: That’s their first mistake?
Mike: Yeah.
Rob: Oh, snap. No, I’m just kidding. Send hate mail to mike@mike—
Mike: I didn’t say it. It wasn’t me.
Rob: I know.
Mike: Anyway, the issue is that yes you can enable IMAP on an exchange server, but the default is to not have it enabled. There are tons of sales organizations out there where they have exchange server. Unless you have a device that directly goes into the exchange server to use these exchange web services, basically, it doesn’t work. And Bluetick relies on that IMAP component.
What I’ve been doing is this person tried to sign up. They went in, try to add a mailbox, it didn’t work. I went through all these things trying to figure out how to make it work. The only way to do it is through exchange web services, which I have a component that can do that, the one that I have now can do it, but it’s got to be rewritten. The underlying storage system has got to be changed in order to help support that.
I knew that all that stuff needs to be done anyway in order to basically replace how that sealed .NET component is currently used. It was never a priority before because stuff works, but now it’s at a point where I have to replace this. I have to rewrite some of that code otherwise I can’t get this customer onboarded.
Now it’s a barrier to revenue. I can justify it now especially since, I think he said there’s 70 sales reps in the organization and if I can get it working for him, its land and expand because he’s more than willing to introduce me to these two managers of all the sales reps, but I have to get it working for him first.
Now, I’m in a position where I have to do this now. Technically, I don’t have to. I can say, “Screw it. I’m just going to go find other customers.” But the combination of this particular person needing that and this customer where there’s $1200 of MRR is initially on the table, where I know that their mailboxes are going to be coming from their customers.
My suspicion is at least some of those customers are going to be using an exchange server. It did come up in the call when they asked, “Can you integrate with an exchange server?” and I said, “Yes,” thinking that I can do it through IMAP. Then, I onboarded this other customer and realized that’s not going to work if you have to go through the IT department and the IT department has to justify why they’re going to turn that capability on for a particular mailbox. Now I’m like, “I have to fix that at this point.” That’s why I’m looking at it now.
I’ve spent the last week or so looking at redesigning it, doing a bunch of different prototyping and testing and figuring out how it’s going to work. I’m pretty close to being able to move forward with it. I just haven’t written any production code to screw with it.
Rob: Good for you. That’s cool. That’s actually good news because that’s exactly the time that you should be doing it. It’s when it impacts revenue. You’d mentioned last time you can flip in the database to do it for one mailbox at a time, which also is a nice luxury to maybe not have to deal with all of the data migration that will take a week or more all at once. That’s cool.
Something else that we talked about a few times is that Enneagram test, it’s a personality test. The reason that we started talking about it was we’re talking about you know what motivates you deep down as a human being and also what are your blind spots? We all have these blind spots in our personalities that perhaps behaviors that aren’t helpful to us getting stuff done. I’m a fan of these personality tests because they just help (in most cases), give me insight about who I am, what my blind spots are, what motivates me, all that kind of stuff.
When we were last talking, you had taken the Enneagram but you said you hadn’t really dug into it to suss out actionable bits of things that you should think about on a day-to-day basis. It’s fun to read through the whole doc, but if you’re not going to then somehow implement that in your life then it is all just a waste of time. I’m curious if you had time to go through and highlight and maybe a couple of key takeaways you might be able to take action on or at least be aware of in your day-to-day.
Mike: Yeah, I did. I started going through, and I was going to highlight a bunch of stuff. Then, I said, “I’ll just underline it instead,” which is close enough. It’s one of those things where the different personality types that it has for me printed out it, comes out (I think) 16 or 18 pages; it’s about six pages for each one.
There is a lot of stuff underlined. Some of it is just notes for me, but there’s also stuff in here where I like the fact that they put together things and they say, “These are ways that you can make things work better.” Some of them are things I’m already doing. For example, one of them was like, “Oh, if you’re this particular personality type then it can very much help you to either get in a room with other people and just talk about these types of issues or do journaling and write that stuff down.”
It was interesting that I discovered the journaling aspect on my own because I’ve been doing that for a couple of years. I do find it extremely helpful because I can sit there and basically do a brain dump at the end of the day. I’ve found that by doing that, it helps me clear my thoughts and helps me sleep at night. Then, there are a few other things that I went through. I still have to go back through it again just because there’s so much here. I definitely think there’s a lot more in here that I could probably pull out. A few, I wouldn’t call them productivity hacks but life hacks, so to speak, is like, “Oh, do this, and this other piece of your life will be made easier.” If that makes sense.
Rob: It does.
Mike: Some of it is just managing negative emotions. Some of it is being able to express feelings about certain things or be more assertive about what you want or what you need. Generally, I’m a low-key person, low-maintenance, but it doesn’t mean that I don’t have needs that somehow need to be met. I just don’t really talk about it. I’m much better at advocating for other people than I am for myself.
Rob: Yeah. That’s something good to know about yourself, right?
Mike: Yeah. I intuitively know that but seeing it written down on papers is like, “Hey, this is a part of your personality profile. Here are some ways to deal with that.” Some of it is you read through some of this text that’s in here and some of it is just coaching. It says, “Hey, you may believe this, but has anything ever really gone that badly? The answer is probably not.” It’s just a good reminder.
Rob: Indeed. How about your sleep? How’s it been in general?
Mike: Generally, pretty good. The past week or so has been pretty stressful. It’s funny because in the Enneagram there are specific sections in there that call out and say, “When you are under stress, if this is your personality profile then you switch over to this other thing. These are the types of behaviors you exhibit.” For the most part, they’re pretty dead-on. It’s nice to go through and read those and see that those things can impact my stress levels, which then turn around and impact my sleep. Last week or so has been pretty stressful, but I think there’s definitely some strategy and takeaways in there that I can leverage to help clear that up.
Rob: And that’s something that was game-changing for me (it’s gone up and down but let’s say) about 8 or 10 years ago. I realized that I would just wake up in the morning or I would just be walking around and I would feel this enormous amount of stress. I would just feel it, live it, and let it consume me.
Over time, I learned through stuff like this, this self-awareness and these tests, why do I feel that way? I think there’s a biological component. When I look at my family history on both sides there’s all these anxiety disorders and all this stuff we don’t need to go into here. I’m naturally prone to just have constant mid-level, I won’t say high-grade anxiety because I don’t have panic attacks, but I do have low- to mid-level stress all the time.
What I learned to do was I would say, “Why am I feeling that way? Literally, why am I feeling that way?” I would say, “Well, it’s because someone said this,” or, “It’s because I’m worried about this revenue thing,” whatever. But then, I could actually look at it and say, “Well, how likely is that to happen and how bad would it be if that happened?”
Then, I can just try to left-brain myself out of it. It works for me to really look at it and say, “Look, there’s no new information. You can’t fix this. It actually isn’t going to be that big of a deal if it happens. If it is, there’s contingency A, B, and C that I could use to get around it. So put it to bed for now and if it comes back up then deal with it.” You know what, 90% of the time none of them come back up. It’s just wasted. It’s just wasted worry. It doesn’t help anybody to worry about it.
I’m not saying you or anyone else should do that, but it works for me. The only way that I came across these types of coping mechanisms is, (1) is being married to Sherry, (2) listening to the Zen Founder podcast, and (3) learning this about myself to know, “Wow. This isn’t normal and other people don’t feel this way all the time.”
All right. As we’re wrapping up, I’m curious what, between now and our next chat, what are you most looking forward to?
Mike: I’m going to be diving back into the technical side of things to rewrite that email synchronization mechanism and get it working so that the exchange server can just be connected without having to worry about IMAP or enabling certain things. It should just work at that point. I’m hoping that by the time the next time we get on a call, that stuff will be taken care of and at least started onboarding this customer that I quoted the $1200 to.
Those are the things that I’m looking at the most, and then trying to go through and see if I can have some more conversations with other marketing agencies that do lead gen or do market analysis and outreach; because they’re doing it at scale with small numbers of people, and it’s not as if they’ve got 80 people that need to be trained to use Bluetick. It’s a handful of people that are using it on behalf of a much larger group of people. I do think that that could potentially be an area of growth, but I don’t know yet. I want to explore that quite a bit more.
Rob: Sounds good. As always, thanks for coming on the show again, having a conversation. I always enjoy chatting with you and the listeners benefit from it as well.
Mike: Awesome. Thanks for having me back and I will definitely keep you guys posted.
Rob: Awesome. Talk to you soon.
Mike: All right. Bye.
Outro: I always enjoy my conversations with Mike and it’s good to hear him you know feeling well and feeling motivated. If you’ve been a listener for any length of time, you know that he’s definitely had some entrepreneurial ups and downs. To get to two positive updates in a row, I’m thankful for that.
If you have a question for me, for a guest, or for Mike, you should either email us questions@startupsfortherestofus.com. You can attach an audio file to that; it will go straight to the top of the Q&A stack. Or you can leave us a voicemail at (888) 801-9690. Of course, you can just write a text or email to that address.
If you haven’t checked out startupsfortherestofus.com, every episode has a full transcript within a week or two of being published. We have show notes, we have links to everything that is in these episodes. If you’re not subscribed, we have links there, too. You can head to iTunes, Spotify, Stitcher, and all those to get every episode dropped into your inbox.
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Before we dive into that, I want to give you two things. Number one is invitations for Microconf Connect, which is our online community. The first invitations have been sent out. If you haven’t checked out microconfconnect.com and you are interested in being in a community of, well, there’s more than 1100 applicants at this point, so depending on how many actually come through and sign up, let’s say it’s going to be many hundreds, if not close to a thousand, of indie-funded and self-funded startup founders from around the world. If you’re interested in that, head to microconfconnect.com.
Number two, if you haven’t shared this podcast with someone that you think could get value out of it, it would mean a ton to me. If you feel like you’ve gotten value out of episodes over the past three months you’ve been listening, three years you’ve been listening, the biggest thing that I look at when I look at the success of the podcast, there’s a couple of things.
One, I look at the feedback from listeners and the comments that we receive and the growth of the subscriber base. Really been focusing on that over the past 6–9 months to try to get the message out to more people. The message that we can be ambitious, and we can build life-changing businesses without sacrificing our life or health or family or our relationships in order to do that.
We’d really appreciate it even if that’s just a tweet that says, “Startups for the Rest of Us is a podcast that I enjoy,” or if you do a one-on-one email or text to someone, I would really appreciate it. With that, let’s dive in to my conversation with Mike Taber.
Mike, it’s been a while. How are you doing?
Mike: I’m doing good. How are you doing?
Rob: I’m doing okay. It’s been six weeks to the day since our last conversation. Actually, we ran a Twitter poll a few weeks back because I got a couple of comments on the last episode. Let’s say I got 10 or 12 comments through Twitter, email. and posted to the website. One of them said, “Oh, it’s uncomfortable when you and Mike talk because I feel like you’re putting a lot of pressure on him.” Then someone said, “You should be easier. You should go easier on Mike.” I thought, “Wow. I don’t feel like I’m being hard on you.” Do you feel that way?
Mike: I don’t think so. The questions that you’re asking are pretty valid questions. I feel like it’s easier to answer them. I’ve commented on this before, it feels easier for me to answer them now because there’s more time in between each episode when we talk. It’s like I have more time to work on stuff and I’m not distracted by other things that are going on. I don’t really think so. I don’t know. Maybe I would have felt differently right after an episode is recorded. You can ask me again right after this episode if they were tough questions.
Rob: Totally. That’s the thing that people should know is like you and I were very deliberate, in advance, offline, before we started this whole series of following your story. That I said, “Look, I’m going to ask you questions that I think are helpful to the audience. I want to ask you questions that I think are helpful to hopefully keep you motivated and accountable. Is that okay?” I got your permission to bust your chops a little bit. I’ve never felt like I’m over-the-top, up in your face, sell, sell, sell, buy, buy, buy. I’m not being outrageous. I’m genuinely just asking. I know I am asking some tough questions, but I don’t know.
Anyway, after that, I ran a Twitter poll and I got 114 responses. The results were 8% thought I should go easier on you, 31% said I could push you harder, which I was surprised by, and 61% said they felt like I’m striking a good balance. Overall, 31% Mike, a third of the people want me to bust your chops more. It’s funny.
Mike: It’s all right. If you want to bust my chops a little bit more to appease that 31%, I’m fine with it.
Rob: I don’t. This is very natural. The thing is these conversations, at least from my perspective, are not forced at all. I’m not doing anything that doesn’t feel very natural in the conversation. I’m genuinely just curious about what’s there. When I ask, “Why didn’t you do that?” I’m genuinely curious why you didn’t do something. Anyway, let’s start talking about stuff because I did go back and listen to the last few episodes. It’s been a while. It’s been six weeks since the last one and three months since the one before that. I almost forget the story sometimes of exactly what was happening.
Our last episode was actually really positive. You were upbeat and things seemed to be working well. You had grown the revenue of 50% in two months. You’re still early-stage so folks know—percentages can be deceiving. That’s where we last left you. I’m curious to hear about your high point over the past six weeks. What was your biggest win or the moment where you felt the best? Then conversely, the biggest setback or where you were feeling the worst.
Mike: I think that in terms of the biggest win is I had a customer, and I know that this is on your outline already, so I’m going to totally blow it out of the water. Your question was about the big customer that I had to sign on a couple of months ago for $500 a month and are they still around. The answer is yes, they are still around, but they also asked to upgrade to an annual plan. That just came through yesterday so that’s all set. I’d say that’s probably the biggest one.
In terms of a low point, I can’t really point to anything specific where it’s like, “Oh, I wish this had gone very, very differently.” I’ve got a bunch of things that are up in the air right now. I’m optimistic that some of them will come through and then there are other things where I have to play things by ear for a little while to see how it goes. I don’t know how they’re going to play out yet.
Rob: Congratulations on that; that’s big to get. For them to request to go annual implies that they’re using the tool, they’re enjoying the tool, and they want to use it for the coming foreseeable future. The challenge that I always see with, especially early-stage products, that are really finding their footing is that you can get a big customer, but they’ll stick around for two weeks or a month or two. Then they realize, “Well, this just doesn’t fit what we need.” That is why I kept circling back on that topic is like, “Hey, you have this customer paying you a chunk of money. Are they still around?” That’s great. That’s really a good sign in my opinion. Congratulations on that.
Mike: Another thing that I would say that is, I wouldn’t say there was a particular point where it was a high point as well, but you have mentioned that I had grown revenue by about 50% over the course of two months. Then over the most recent two months, I’ve grown it by roughly another 50%. Basically, double where I was about four months ago. Maybe it’s 4½ months, maybe close to 5, but it’s still pretty close to that. It depends more on how things shake out through this month, which it’s still very early on in the month, but from the looks of it, I would expect that I will eclipse that point.
Rob: Is a big part of this your warm/cold email campaign? Because the last time we spoke, your report was it was working very well, you were getting upwards of 50% response rates, you had so many learnings that you actually had to back off of it so you could get other work done, you were saying some calls were running 1½-2, you had a bunch of notes, and that some were turning into customers. Is that a big part of this? Because to double in four months even at early stages is still traction. That shows that something has happened that wasn’t happening in the prior 18 months frankly.
Mike: Yeah. I look back at the outreach campaign that I was doing. It’s interesting because only one of those conversations has turned into an actual customer. There are maybe three others that are still prospects. One of them is in a trial but I have to implement some additional things before he’ll actually start paying for it. The trial itself right now is like I’ve extended his trial because literally, certain things don’t work for him. I’m trying to go through. I basically just have to implement a couple of extra features before he can start using it. At that point, I’ll restart his trial more or less.
I don’t see any direct correlation between the conversations that I’m having and the revenue, which is weird. Because I look back at it now and I just went through and counted. I’ve had over 30 calls with people in the past 5-6 weeks. Those are just the ones from my outreach campaign, but only one of those turned into a customer.
Rob: That’s crazy. Where’s the growth coming from?
Mike: I’m still working on it.
Rob: Oh, no. You don’t know.
Mike: It’s from a variety of sources. Some of its recommendations are from other people. I onboarded somebody over the past two weeks. They’re a real estate attorney in New York City, and they heard about it from a Facebook group. Somebody else had recommended to him. I’m like, “Well, who was it and what organization was it?” They said it was from the EO group which I think is Entrepreneurs’ Organization or something like that. You have to have a business that’s doing a million dollars in revenue in order to even be eligible to join, and they have to verify it.
Somebody in there said, “Hey, you should check out Bluetick.” I don’t know who that person was, but I don’t necessarily care either. The person signed on and I helped him get everything set up through Zapier. They asked me already about upgrading to an annual plan. I said, “Well, we could do that now but why don’t you wait a month or two and see how things go and then if everything is working well we’ll upgrade you.” It’s very casual and conversational about that.
I think that that’s a good opportunity to try and potentially get either additional recommendations or more revenue what have you. I’m sure these people know other people. I definitely think there are opportunities there that are coming about just from having these conversations.
Rob: Right. That’s the idea is if they do end up being happy, and they sign up for annual, right after they pay for annual, a great ask is, “I know you heard about me through an EO group, would you mind posting back to that group and saying, ‘Hey, I’ve just signed up. It’s been a really good experience.’” At this stage, it’s doing things that don’t scale. At this stage, all of this just helps get you to where you want to go.
Mike: Exactly.
Rob: I’m curious then. Customers are signing up and you obviously have some growth going on, something that I’ve asked you multiple times is why Bluetick? Why did they sign up with Bluetick and not go to one of your probably dozens of competitors, I’m guessing? Last time you had said you had some theories but you hadn’t really figured that out yet.
We tossed around some things like Bluetick checks the mailbox every 10 minutes whereas a lot of your competitors check it every four hours so your data is more up-to-date. You’re more thorough in terms of seeing I think it was like trash and spam and some other folders. Is that it or has there something else that you’ve figured out why these folks come, sign up, and convert to annual with you and not one of your competitors? That key differentiator.
Mike: I don’t think there’s a specific key differentiator in the products, but the recommendations certainly help. As part of those 30-plus calls that I have gone through, one person said, “Hey, I have this customer over here, these couple of customers, and I think that you should go talk to them. For this one, feel free to use my name and say that I said that you should reach out to them.”
I reached out, talked to them. I don’t think that this came up in our last call because it was since then, but I basically had a conversation with them. They said, “Yeah. Actually, your software sounds like it would be really helpful for us. Send me a proposal,” which you wouldn’t think most of the time you’d need to send a proposal to somebody. It’s over $1000 a month for this particular customer. They said, “Send me the proposal.” I sent them a proposal and then without even me asking or following up on the proposal, they didn’t have any questions at all. “This is great. This looks good. I’m going to introduce you to our technical team. Let’s set up a call with them.”
Did that, went through the technical call. At the end of the call, I said, “Are there any objections or questions you have or any problems you see in switching from what you’re using now into this?” They said, “No.” Now I’m at the point where they said, “Okay. Next week’s bad for us, but touch base with us the following week. We’ll see how things shake out from there.” I’m optimistic that that will come in. That’s over $1000 a month in MRR from just that one customer, but I definitely know there are certain things that they’re going to need. The point I’m going after though is the reason that that person took the call was that they got a recommendation from this other person they knew and trusted.
Rob: That makes sense. Your title tag on your website, bluetick.io, is, “Cold and Warm Email Follow-up Software.” Then the headline is, “Personal outreach at scale for all of your follow-up emails.” There’s cold and there’s warm and you’ve tended to be in the warm area of getting things you need from other people. If an accountant needs a tax return, he can put it in here. I’m just giving an example. I guess you don’t have any accountants.
Mike: I do, actually.
Rob: Oh, you do? Okay. Or a conference organizer needs to bother sponsors until they pay, you put them in Bluetick and they would do that. Which of these new sign-ups over the past four months are they using? Are they doing it more for the cold or more for the warm?
Mike: Most of them are warm, to be honest. As I’m thinking about it, most of them are warm. They’ve done business in some way shape or form but it’s not a tight relationship, it’s very loose. Maybe there was a transaction of some kind. Maybe there was a trial that was downloaded. Maybe there was an introduction or something along those lines. There was at least some touch-point and then they go in to use Bluetick to help move them to the next step and strengthen the relationship.
Rob: It’s less about sales. It’s part of the sales process but it’s not usually the first step in the sales process. There’s at least some relationship then it’s how do we keep moving it down, which is what you wanted to do. Remember, we talked about it a year ago. You said, “I feel like a lot of the cold outreach is spammy. I have a struggle with how some of these folks are doing it.” This feels better to you?
Mike: Yeah. What’s interesting, though, is that those that I’ve had come on so far, those tend to be like they want to do the warm outreach, but then the demo for the customer who the price quote I gave them (I think) was $1200 a month. They’re going to have upwards of 20–30 mailboxes and their growth anticipation is going to get up to between 50 and 60 by the end of the year. What they do is they do lead gen for other companies. They basically work with marketing agencies who are trying to do market analysis and market research, and they get people on the phone to talk to those companies.
I’ve actually started going down the road of looking out there to see what marketing agencies that are out there that are currently doing lead gen and see if I can get conversations going with them to ask how they’re doing that now. My suspicion is most of them are running a bunch of different campaigns in parallel.
They probably have anywhere between 20 and 50 or 100 mailboxes, which I would basically be charging them for each one of those, but let’s say that it’s 50 mailboxes at my current price in which I’d probably cut them a bulk discount at some point. I don’t know what that would look like. Let’s say it’s just raw numbers alone right now, fifty mailboxes at $50 a month is $2500 a month. That’s huge.
One of those customers could substantially start moving the needle for Bluetick, especially if they go and sign up for an annual plan. Not that I think that they would do that on day one, but fast forward a month or two if it’s working better for them than their current solution then it would make sense for them to go to an annual plan to get a little bit more of a discount.
I do think that there are opportunities there are for Bluetick to go in and do some competitive displacements for people who are using things like SalesLoft, Outreach, or Reply because it does have that more in-depth hooks into the mailbox and it can do more in-depth checks to make sure that it’s identically identifying, was this a reply? Was that a reply? Did I get a reply from a different email address or was it forwarded? All those kinds of things. I just have the capability to do a more in-depth analysis that I don’t think that those other products have nor do I think that they care about. Their pricing has started going through the roof like they’re really going upmarket in terms of the pricing.
Rob: Which leaves a nice opportunity for you because even having these several hundred dollars a month/low four-figure per month clients is such a different business than a $40 or $50 a month app. You need so many fewer clients. Bravo to that. High ARPU (Average Revenue Per Customer) is just one of the Holy Grails. That’s awesome.
Mike: I’m working those angles to try and see how that works out. I just don’t know how it’s going to play out yet.
Rob: You never do. It’s pipeline stuff. Listeners should realize you’re not saying, “I’m counting on all of these deals to close.” You’ve done sales enough to realize that only a certain percentage of your pipeline closes. But the fact that you’re even sitting at the table with someone who could feasibly pay you $1000, $2000 a month is so far removed from where you were a year ago or 18 months ago.
That’s the part I’m excited about because you don’t need all of these to pan out. You just need a certain percentage. You’re growing, you’re off to the races, and you’re profitable, supporting yourself. You get to the point where you can hire someone to handle your audits and rewrite that sealed .NET component.
Mike: What’s motivating about it is that I feel like I’m winning a disproportionately large number of them, too.
Rob: Why is that?
Mike: Honestly, I think it’s me. It’s the conversations that I have with people. Even in the demo that I did with the customer that I did a custom proposal for, when I was talking to them they were asking questions about the software and how it worked. They had some very specific requirements as well, which I was shocked by because most people are like, “Oh, I just want to be able to detect replies and be able to send out emails and make sure that those are going out to people who didn’t reply.”
One of the specific requirements they had was they’re like, “This has to be able to send an email out as a reply to a previous email and it has to include the contents of the other one.” I said, “Yes. It can do that. This is exactly how it looks.” and I showed them an example. They’re like, “That’s perfect. That’s exactly what we need.”
It’s just being able to have that discussion and then also explain this is how it was built and this is why it was built this way. Fascinated is not the right word for it, but they really liked hearing that the person on the phone giving them the demo was the person they would also talk to for support if they needed help, or the person who built it. If there’s something wrong and it doesn’t work, they can talk to me and I can get it fixed for them. Whereas with the current vendor they have, it’s got to go through three layers of support, there was a project manager and put out a roadmap. You don’t have to do that with me. You’re going to talk to me. I can get things done.
Rob: That’s the thing when you’re small and you’re competing with venture-backed startups or even just larger companies, founders will often say, “Well, I’m outgunned.” How can I possibly compete with them? You can. You just have to use your advantages.
Mike: Didn’t you call this—I think it was in Microconf Europe—the founder advantage?
Rob: Maybe I did. Thank you for reminding. I’ll have to go back.
Mike: I think that was you.
Rob: I don’t recall but we should find out. Anyway, in Judo, you’re supposed to—even if you have a larger opponent—use their force against them. Let’s say they swing at you or whatever, it’s more about dodging and pulling them in the direction that they swung to flip them over or whatever.
I’ve only done Judo a couple of times, so it’s not something I’m an expert at, but when you are a small company you are super agile. You can get stuff done super-fast. They can talk directly to the founder. These are the advantages that you can just use against larger companies over and over and over. There are others as well. All that to say, that’s cool to be able to do that. Obviously, it doesn’t last forever, but while you have it, this should absolutely be something that you’re taking advantage of.
Mike: I totally am for the time being.
Rob: Cool. Curious, some of these other questions I’m not even sure are worth going into since things are working. You’re doing demos, you’re talking to customers, you’re selling, and they’re writing you checks. It’s like, “Should you even be bothering with these other things?” I come back to the podcast tour where (I guess) you put it into Bluetick. You were doing cold outreach to try to get on podcasts. Scaled it back a bit because you got busy with calls. Then you ramped it up again. Curious for an update on that.
Mike: I had scaled it down and I’d planned on ramping it up again, but I started sending out a couple of emails and I haven’t gone back to start sending out more of them. I was basically doing it individually. It’s like approving them one at a time. I got busy with all the phone calls and everything. I haven’t gone back to that.
I basically have stopped learning things from the conversations that I’ve been having with the people I was reaching out to. I’m going to put some of that stuff on autopilot and try to involve myself a little bit less. Instead of pitching it as, “Hey, I’d like to get on a phone and talk to you because I’d like to learn,” now I’m going to present it as, “These are the things that I’ve learned. Are there ways that you can help me or other people that you could refer to this particular product because I think I have a better story or position around that?”
I’m going to do that instead. Now that my learning process there I think it is a little bit more complete. I’m going to go back and start doing the podcast outreach again. I just haven’t done it yet.
Rob: Yeah. You’re trying to balance four things. Development of features is one thing; sales and learning, which is what a lot of LinkedIn and that warm outreach; and then marketing. You haven’t been doing much marketing because sales and learning are taking so much at the time. It sounds like you’ve learned. I think what you’re saying to summarize is you’ve learned about as much as you need for now and you can really dial that down and then switch some focus to marketing to then generate leads for you to continue with sales, right?
Mike: Yeah. I don’t want to not correct you, but to narrow it down exactly on the learning side of it. The reason I’m backing off on that is because I’m starting to hear the same things over and over. It’s not that I don’t think that I have anything left to learn because I certainly think there’s lots more, but the people that I’m talking to it’s getting repetitive now. I’m hearing the same things over and over. Going through the rest of the list of people that I was reaching out to, I don’t think that that’s going to be fruitful in terms of learning stuff. I do still think that there’s a lot of value in continuing to reach out to those people and seeing if there are people that they could introduce me to or put the product in front of.
Rob: Right. You’re switching from learning to sales. In essence, you’re switching that campaign, which is exactly what I think you should be doing based on what you’re saying. It’s funny for these episodes that we do every month or two, it’s typically been a roller coaster; one where you’re up and one where you’re down. We now have two back-to-back where you’re up. You got it, so it’s going to get boring for people after a while, Mike. If your #winning every episode, people will stop listening. Next episode, bring some low points.
Mike: I’ll say I got a hangnail.
Rob: Exactly.
Mike: They’re terrible.
Rob: I’m joking, obviously.
Mike: I can barely type with my finger. Do you want to see that finger, Rob?
Rob: Not really. Good thing this is an audio podcast. I’m happy for you and I’m happy the way things are going. Again, it’s like we’ve talked about this sealed .NET component for so long. The last episode I finally said, “You know what, if sales are working I wouldn’t replace it right now unless it’s causing you the inability to close sales,” because right now, number one is getting revenue up. It was my thinking at the time. We were both agreeing on it. You were saying, “Yeah. I know I need to replace it at some point.” Given where you’ve been, have you ever given it a thought over the past six weeks?
Mike: I have. It’s more, I would say, over the past 1½–2 weeks where I’ve started to look at that a lot more. The main reason for looking at that is that I mentioned it earlier but I didn’t go into the details of a customer where I basically extended their trial because certain things weren’t working for them. To drill into that is they have an exchange server.
Rob: That’s their first mistake?
Mike: Yeah.
Rob: Oh, snap. No, I’m just kidding. Send hate mail to mike@mike—
Mike: I didn’t say it. It wasn’t me.
Rob: I know.
Mike: Anyway, the issue is that yes you can enable IMAP on an exchange server, but the default is to not have it enabled. There are tons of sales organizations out there where they have exchange server. Unless you have a device that directly goes into the exchange server to use these exchange web services, basically, it doesn’t work. And Bluetick relies on that IMAP component.
What I’ve been doing is this person tried to sign up. They went in, try to add a mailbox, it didn’t work. I went through all these things trying to figure out how to make it work. The only way to do it is through exchange web services, which I have a component that can do that, the one that I have now can do it, but it’s got to be rewritten. The underlying storage system has got to be changed in order to help support that.
I knew that all that stuff needs to be done anyway in order to basically replace how that sealed .NET component is currently used. It was never a priority before because stuff works, but now it’s at a point where I have to replace this. I have to rewrite some of that code otherwise I can’t get this customer onboarded.
Now it’s a barrier to revenue. I can justify it now especially since, I think he said there’s 70 sales reps in the organization and if I can get it working for him, its land and expand because he’s more than willing to introduce me to these two managers of all the sales reps, but I have to get it working for him first.
Now, I’m in a position where I have to do this now. Technically, I don’t have to. I can say, “Screw it. I’m just going to go find other customers.” But the combination of this particular person needing that and this customer where there’s $1200 of MRR is initially on the table, where I know that their mailboxes are going to be coming from their customers.
My suspicion is at least some of those customers are going to be using an exchange server. It did come up in the call when they asked, “Can you integrate with an exchange server?” and I said, “Yes,” thinking that I can do it through IMAP. Then, I onboarded this other customer and realized that’s not going to work if you have to go through the IT department and the IT department has to justify why they’re going to turn that capability on for a particular mailbox. Now I’m like, “I have to fix that at this point.” That’s why I’m looking at it now.
I’ve spent the last week or so looking at redesigning it, doing a bunch of different prototyping and testing and figuring out how it’s going to work. I’m pretty close to being able to move forward with it. I just haven’t written any production code to screw with it.
Rob: Good for you. That’s cool. That’s actually good news because that’s exactly the time that you should be doing it. It’s when it impacts revenue. You’d mentioned last time you can flip in the database to do it for one mailbox at a time, which also is a nice luxury to maybe not have to deal with all of the data migration that will take a week or more all at once. That’s cool.
Something else that we talked about a few times is that Enneagram test, it’s a personality test. The reason that we started talking about it was we’re talking about you know what motivates you deep down as a human being and also what are your blind spots? We all have these blind spots in our personalities that perhaps behaviors that aren’t helpful to us getting stuff done. I’m a fan of these personality tests because they just help (in most cases), give me insight about who I am, what my blind spots are, what motivates me, all that kind of stuff.
When we were last talking, you had taken the Enneagram but you said you hadn’t really dug into it to suss out actionable bits of things that you should think about on a day-to-day basis. It’s fun to read through the whole doc, but if you’re not going to then somehow implement that in your life then it is all just a waste of time. I’m curious if you had time to go through and highlight and maybe a couple of key takeaways you might be able to take action on or at least be aware of in your day-to-day.
Mike: Yeah, I did. I started going through, and I was going to highlight a bunch of stuff. Then, I said, “I’ll just underline it instead,” which is close enough. It’s one of those things where the different personality types that it has for me printed out it, comes out (I think) 16 or 18 pages; it’s about six pages for each one.
There is a lot of stuff underlined. Some of it is just notes for me, but there’s also stuff in here where I like the fact that they put together things and they say, “These are ways that you can make things work better.” Some of them are things I’m already doing. For example, one of them was like, “Oh, if you’re this particular personality type then it can very much help you to either get in a room with other people and just talk about these types of issues or do journaling and write that stuff down.”
It was interesting that I discovered the journaling aspect on my own because I’ve been doing that for a couple of years. I do find it extremely helpful because I can sit there and basically do a brain dump at the end of the day. I’ve found that by doing that, it helps me clear my thoughts and helps me sleep at night. Then, there are a few other things that I went through. I still have to go back through it again just because there’s so much here. I definitely think there’s a lot more in here that I could probably pull out. A few, I wouldn’t call them productivity hacks but life hacks, so to speak, is like, “Oh, do this, and this other piece of your life will be made easier.” If that makes sense.
Rob: It does.
Mike: Some of it is just managing negative emotions. Some of it is being able to express feelings about certain things or be more assertive about what you want or what you need. Generally, I’m a low-key person, low-maintenance, but it doesn’t mean that I don’t have needs that somehow need to be met. I just don’t really talk about it. I’m much better at advocating for other people than I am for myself.
Rob: Yeah. That’s something good to know about yourself, right?
Mike: Yeah. I intuitively know that but seeing it written down on papers is like, “Hey, this is a part of your personality profile. Here are some ways to deal with that.” Some of it is you read through some of this text that’s in here and some of it is just coaching. It says, “Hey, you may believe this, but has anything ever really gone that badly? The answer is probably not.” It’s just a good reminder.
Rob: Indeed. How about your sleep? How’s it been in general?
Mike: Generally, pretty good. The past week or so has been pretty stressful. It’s funny because in the Enneagram there are specific sections in there that call out and say, “When you are under stress, if this is your personality profile then you switch over to this other thing. These are the types of behaviors you exhibit.” For the most part, they’re pretty dead-on. It’s nice to go through and read those and see that those things can impact my stress levels, which then turn around and impact my sleep. Last week or so has been pretty stressful, but I think there’s definitely some strategy and takeaways in there that I can leverage to help clear that up.
Rob: And that’s something that was game-changing for me (it’s gone up and down but let’s say) about 8 or 10 years ago. I realized that I would just wake up in the morning or I would just be walking around and I would feel this enormous amount of stress. I would just feel it, live it, and let it consume me.
Over time, I learned through stuff like this, this self-awareness and these tests, why do I feel that way? I think there’s a biological component. When I look at my family history on both sides there’s all these anxiety disorders and all this stuff we don’t need to go into here. I’m naturally prone to just have constant mid-level, I won’t say high-grade anxiety because I don’t have panic attacks, but I do have low- to mid-level stress all the time.
What I learned to do was I would say, “Why am I feeling that way? Literally, why am I feeling that way?” I would say, “Well, it’s because someone said this,” or, “It’s because I’m worried about this revenue thing,” whatever. But then, I could actually look at it and say, “Well, how likely is that to happen and how bad would it be if that happened?”
Then, I can just try to left-brain myself out of it. It works for me to really look at it and say, “Look, there’s no new information. You can’t fix this. It actually isn’t going to be that big of a deal if it happens. If it is, there’s contingency A, B, and C that I could use to get around it. So put it to bed for now and if it comes back up then deal with it.” You know what, 90% of the time none of them come back up. It’s just wasted. It’s just wasted worry. It doesn’t help anybody to worry about it.
I’m not saying you or anyone else should do that, but it works for me. The only way that I came across these types of coping mechanisms is, (1) is being married to Sherry, (2) listening to the Zen Founder podcast, and (3) learning this about myself to know, “Wow. This isn’t normal and other people don’t feel this way all the time.”
All right. As we’re wrapping up, I’m curious what, between now and our next chat, what are you most looking forward to?
Mike: I’m going to be diving back into the technical side of things to rewrite that email synchronization mechanism and get it working so that the exchange server can just be connected without having to worry about IMAP or enabling certain things. It should just work at that point. I’m hoping that by the time the next time we get on a call, that stuff will be taken care of and at least started onboarding this customer that I quoted the $1200 to.
Those are the things that I’m looking at the most, and then trying to go through and see if I can have some more conversations with other marketing agencies that do lead gen or do market analysis and outreach; because they’re doing it at scale with small numbers of people, and it’s not as if they’ve got 80 people that need to be trained to use Bluetick. It’s a handful of people that are using it on behalf of a much larger group of people. I do think that that could potentially be an area of growth, but I don’t know yet. I want to explore that quite a bit more.
Rob: Sounds good. As always, thanks for coming on the show again, having a conversation. I always enjoy chatting with you and the listeners benefit from it as well.
Mike: Awesome. Thanks for having me back and I will definitely keep you guys posted.
Rob: Awesome. Talk to you soon.
Mike: All right. Bye.
Outro: I always enjoy my conversations with Mike and it’s good to hear him you know feeling well and feeling motivated. If you’ve been a listener for any length of time, you know that he’s definitely had some entrepreneurial ups and downs. To get to two positive updates in a row, I’m thankful for that.
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Episode 487 | Startup Roundtable Discussing Hey.com, Leadpages’ Acquisition, and More Hot Topics
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In this episode of Startups For The Rest Of Us, Rob is joined by Jordan Gal and Tracy Osborn for a roundtable discussion. Some of the topics in this episode including Basecamp reinventing email with Hey.com, Leadpages being acquired by Redbrick, the growing popularity of subscription based pricing and how many active subscriptions a person or business has nowadays.
Items mentioned in this episode:
- Bootstrapped Web Podcast
- CartHook
- Hey.com
- Leadpages acquired by Redbrick
- How a 2 person startup already uses 28 other tools
- Tracy Osborn
Intro: 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 cover topics relating to building and growing startups using an ambitious yet a sane approach. We’re not willing to sacrifice our health or our relationships to grow our company.
I’m excited about this week. I’m diving into this idea of a startup roundtable or a news discussion show. I discussed a few topics with Derek Rhymer a couple weeks ago, but going a little deeper, this is the first essentially roundtable where I invite two guests on and we talk through topics that are relevant to us in the MicroConf, the Startups for the Rest of Us, the self-funded, the indie funded community. I hope you enjoy the show and without further ado let’s dive right in.
Rob: Here we are at Startups for the Rest of Us inaugural startup roundtable discussion. I have some pretty interesting stories to discuss today. Before that, I have two interesting guests I’d like to introduce. First on my right, as no one can see, but we’re in a camera is Jordan Gal, he’s hosted the Bootstrapped Web podcast, as well as founder and CEO of CartHook.
Jordan: Thanks for having me on, Rob. I’m excited for this interesting new format. Let’s see where it goes.
Rob: I’m excited too. Above Jordan in my view is Tracy Osborn, founder of WeddingMarketplace, WeddingLovely that she shut down about a year or two ago, now the TinySeed Program Manager. How are you doing today, Tracy?
Tracy: Doing well, happy to be back. Always excited to join the podcast when I can.
Rob: That’s the cool part is each of you have been on the show now several times: interviews, Q&A episodes, all that kind of stuff. Hopefully, folks are familiar enough with where you come from. That’s what I wanted to do with the show is get different perspectives from different people coming from different directions. I’m pretty stoked to talk through a few of these things.
As you listen to this episode, if you have thoughts on whether I should do it again in a couple of months—what was interesting is I went back to a month’s worth of startup news and tried to pick out stuff that I think is interesting to our little space, kind of the MicroConf Startups for the Rest of Us community. There just aren’t that many stories that are interesting to talk about, and I think we can get going on.
Every month or two, or even two or three months, is what I consider doing. If you like the show, if you don’t like the show, please contact us at questions@startupsfortherestofus.com.
Our first story is about Basecamp watching Hey, it’s at hey.com. They’re essentially reinventing email, they are saying they’re not going to allow tracking pixels so people can track opens. I’m curious, Jordan, have you been following this? Is Basecamp basically potentially taking it too far by blocking tracking pixels? D and J said they’re going to shame people who send with tracking pixels.
Jordan: I have been following it. I think it’s very interesting. We saw Superhuman come out of the gate on fire. Everyone’s talking about how they’re going to be the biggest thing ever. I think that excitement has waned a little bit, they’re not that obsessed with it anymore. Then Basecamp taking on emails is super interesting, but like most things with Basecamp it’s very difficult to separate the people, and Basecamp, and the controversy they create from the actual product. They’re really close to the edge of making themselves too much of the story right now.
These guys are very clever. It’s starting to feel a touch manipulative on what they’re doing with Twitter to get attention. I love their ideological approach. I love that they are unique in their opinions. They take it strongly and they’re not afraid to say it. That’s all awesome, but I think they almost need to chill a little bit and then let the product speak for itself because there’s a lot of talk and it’s constant controversy. It’s a little bit grating.
The latest tweet that Jason put out, I forgot exactly what the context was, but he kind of felt that it went a little too far. I think he was making a comment on another company. People are starting to push back on it where they really have a huge halo effect to their products, but I think they’re right on the edge. Now it’s time to let the products start to speak for itself. I’m definitely interested, I want to see what they do. Because my email, that landing page and the copy that they wrote resonated. My email is an unhappy place. It didn’t used to be, but it’s been so long you forgot that it used to be this cool thing that you communicated with people on and it’s no longer that. They definitely nailed that part of it for me.
Rob: If you go to hey.com, you can read their manifesto where they say exactly that. I’m a big fan of their products, they’re genius product builders, they’re great content marketers. They wouldn’t call themselves that but they are exceptional, some of the best there are. They have this massive audience. It’s been fascinating to watch. What are your thoughts on this, Tracy?
Tracy: I find it funny that you mentioned the Twitter stuff. I feel like they’re using Twitter effectively. It’s how Twitter is meant to be used nowadays, which is annoying. It’s one of the reasons why I’m not on Twitter very often, but I feel like I can’t hate on them for doing this kind of launch because that’s marketing. That’s the way that they’re going to differentiate themselves from say Superhuman or these other ones that are very email marketer focused where Superhuman’s like, “Oh, you’re going to see the location. You’re going to see the tracking pixel. You’re going to track the people that open and close it. We’re giving you all those rates and data and whatnot.” They’re at the opposite end of the spectrum to Superhuman.
I’m personally very excited for it because I think that we do need to have more privacy-focused email clients. Gmail was the king for so long. The average user would use Gmail at a default. We’ve had, as email marketers, this superpower that we were able to see when people open their emails, we were able to see those open rates. I want to say it’s great for email marketers, but for the average person and privacy and whatnot, I want to give people more choice. I think that Basecamp is doing that.
It’s funny to think about email and the superpower and all this data that we had and how it’s hard to give up that data. If you look back to just paper marketing, pay per mail marketing, you didn’t know how many people opened up that envelope that you sent or how many people threw it right into the recycling. I agree that it’s going to hurt email marketers, but for the average user or at least the privacy focusing technologists who need those privacy features, I think it’s something that’s necessary. Basecamp is simply using Twitter the way it’s meant to be used.
Rob: I signed up when I first heard about hey.com. I am curious to use it. They have a list of 25 things that they are saying is wrong with email. I don’t understand how they could possibly fix all those things, but that would tend to be—it’s all these problems with email. You screen your calls, you can’t screen your emails. Some emails are worth your immediate attention, most are not. Files are attached to email rather than the other way around. You don’t need to be told to check your email. I don’t even know, that’s like 5 of the 25. I don’t even know how you go about fixing that. Like you said, Jordan, that’s when it’s time to think about getting into the product and watching it speak for itself.
My take on it, I built Drip. I like the idea and I’m going to be a user of the product, I assume, if it works and has unified inbox and has all the stuff I need, but I feel like railing against the open tracking is taking it a little too far. I like open rates, I think having aggregated open rates of an email is something that is just fine for a marketer to have. Knowing when and where and how many times people open an email could be taking it a little too far, I would admit.
Here’s the thing, they can come out and say, “We don’t use any tracking. We don’t use Google Analytics. We don’t track open rates.” If you have $100 million business throwing off tens of million a year in net profit with 50 employees you can do that too, but if you’re a bootstrap startup and you’re trying to get to $10,000 or $50,000 or just trying to pay the bills, like you’re in such a different position that I would caution against taking that as advice or as something you should do as a business person because I think it can be dangerous.
You’ve heard the mentality of like, “Hey, you build a great product. That’s what we did.” and everyone uses it. I’m not saying Basecamp has said that but there are people who come out and say, “Look, I just built a great product and never marketed it and magic.” Everyone wants that to be the case and it almost never is, it’s the exception. That’s potential danger with coming out against that kind of stuff.
Jordan: We may be looking at it backwards because we are business people, and we build technology products, and we are looking at it from that point of view. In reality, it matters a lot less what is right for a business, and it matters a lot more to give the choice to the actual consumer, to the user. That’s really their perspective on it. I have an Amazon Alexa in my house, I have three of them. I have made the choice. I know what’s happening and I have made the decision that in the balance between privacy and convenience, that’s where I land on that product.
What they’re looking at in email is taking it back to the user’s control and saying, “If I don’t want tracking pixels, this is my inbox, not yours marketer. If I choose to degrade the experience of email with your company by blocking pixels, that’s my choice.” What Basecamp is kind of yelling about is it’s not okay that you don’t have the choice. It’s not okay that someone else decides what happens in your inbox because that’s not normally what happens other places in your life. In your home, you get to decide if you want an Alexa or not. People can make that choice once their right journalist do that work to uncover what was happening there. If looked at that perspective and it’s not a black and white tracking no tracking, it’s simply giving people the option, that’s tough to argue with.
Rob: That’s a good perspective. Tracy, do you feel like this blocking of tracking pixels will become a trend? Do you think it should become a trend?
Tracy: I think privacy, in general, is becoming a trend. I find it interesting you brought up Alexa because I feel like that was the start when people started realizing that this really great convenience in their homes could potentially be used for other reasons. I feel like those stories happened and then it evolved and some other internet communities are very privacy focused, almost to the extreme side of railing against all the things that are happening.
I personally had an Alexa and I ended up removing them from my house. That tells you a little bit about my own perspective. I want one, I want to have all these privacy tools but I personally have decided that the convenience is not worth it for me. I’m happy to see that it’s becoming a trend.
As the Internet has grown, I’m going to refer back to that word I used before, we have these superpowers. We start adding all these superpowers, all this technology, and all these things we could do. Now it’s like okay cool, we’ve reached this point where we need a lot of people to draw back a little bit and decide if it’s convenient for them.
Rob: Like a pendulum swinging different directions. That’s a good perspective.
Jordan: I was going to say you can see the email market has been around a long time and it’s mature. It’s gotten to the point that it’s so mature that this type of option makes sense. The in-home robot assistant isn’t very mature, but you can see how if someone came out with an Alexa-like device that you had more control over the privacy, that would be attractive.
It’s the same thing with the iPhone. People started freaking out where I just had a conversation in person about this topic and now I’m seeing ads on it, that’s creepy. The pendulum swung all the way toward maximum freedom and then we all realized, “Oh, I guess we’re the business model.” Now it’s coming back and that’s a healthy thing.
Rob: For the record, I have five Alexas in my house, maybe six. I think it’s hilarious that if you go to thisishey.com, it’s a business I presume has been around for a while. It’s an influencer marketplace, which is something I’m sure Basecamp would hate. What are the folks at This is Hey thinking right now? Where it’s like, “They just took our name and they have the dot-com.”
Let’s swing into our second story. Leadpages was acquired by Redbrick. By the way, all of these stories we will link up in the show notes. To clarify, because I actually had some people asking this, Leadpages was sold to Redbrick, which is like a software—it’s a holding company. I would almost phrase it as private equity, I don’t think they said that in the news story. You know with these private equity funds, they get together then they buy software companies and manage them. Leadpages was sold, Drip was not. In fact, to say that Leadpages acquired Drip is actually not technically accurate.
Leadpages and Drip are two products: Leadpages Landing Pages, and Drip is an ESP marketing automation. They were owned by a single holding company called The Avenue 81. Avenue 81, that’s the company that raised funding and stuff. It was synonymous with Leadpages but then it is what acquired Drip. Essentially, they’ve sold Leadpages. A quote from the CEO of Drip, John Tedesco, who I know personally, I actually worked for him before I left Drip a couple of years ago. He said, “The acquisition is allowing us to now ruthlessly focus on pursuing our markets. We have a clear capital base in which to execute. We’re flush with capital, so we’re going to use it with discretion. Use it intelligently.”
Obviously, the play here was to put dry powder in the coffers. If you have an asset, you can sell it in lieu of say raising a round of funding. It gives you not only the focus—I am conjecturing here, I will admit. I have not worked at Drip for two years and I have very, very little inside information at this point. If I were in Drip’s shoes, and I really see this marketing automation as a multi, many, many billion-dollar opportunity in the landing page market, it’s not; it’s a very small market.
That just kind of gives folks background. The first question I’d have for Tracy is MailChimp has launched free landing pages, in essence, with your email account. I know a few other providers that are making them very free or very cheap. Does it seem to you the landing page space is becoming commoditized?
Tracy: That’s an excellent question. The more options the better. I’m happy to hear that MailChimp is doing this. MailChimp has a really, really huge reach. Happy to hear that they’re making this stride because they also did—I can’t remember what happened with MailChimp but they had a controversy where they raised the prices or they took away their free tier. Do you recall what happened about a few months ago, six months ago?
Rob: I think it was if you unsubscribed, you were still charged for those subscribers because they’re moving a little more towards commerce.
Tracy: That came out and I think that kind of have hurt a lot of people’s usage of MailChimp. Now they have these free landing pages. You see that in ConvertKit as well. They have a whole landing page system and whatnot. It’s kind of a silly thing to say but I’m like, “I’m a fan.” Would love to hear what you guys say.
Rob: What do you think about this, Jordan?
Jordan: I think they’re commoditized. I think they’re lead gen. The business model is subscribers, so if landing pages help you get more subscribers, then the company whose pricing is based on the number of subscribers you have has a very vested interest in giving you the ability to add more subscribers. It makes sense with the business model, it’s also been commoditized. Just to clarify, the statement that you just quoted from the CEO, that’s the CEO of Avenue 81, the company that’s still-
Rob: Correct.
Jordan: Okay, cool. Just want to make sure of that.
I love this corporate-level strategy stuff. It’s my favorite. A lot of people are going to look at it and say, “Oh, Leadpages failed,” or, “It wasn’t able to do what it wanted to.” I think this is brilliant. This is an asset that will only decrease in value moving forward. They’re able to effectively raise money for their email marketing product, which is Drip. They don’t need to sell equity in it because they had this other asset. It’s great.
They basically just raised, I don’t know how much they’ve sold it for but my assumption is they raised tens of millions of dollars in non-dilutive capital to go after a much bigger email marketing. It’ll be interesting to see what they do and which playbook they run. Are they going to run upmarket and hire salespeople and go after the Marketo version of things, or are they going to go with quantity and long tail and go after MailChimp?
I’m going to assume they’re going to go high-end with an enterprise sales team and run that playbook. They have the money to do it. They didn’t need to sell any equity in it. It’s great. Acquiring Drip was a very smart move, it worked out nicely for you. It looks like it might work out really nicely for them also. Especially if they thought this through over the past few years, then it was brilliantly executed. Let’s bring in a product, let’s make it the focus of the company, let’s sell-off this asset then we have our coffers ready. Now we can go after a much bigger market. That’s an optimistic view of it, but that’s an exciting version of things.
Tracy: The CEO that gave that quote, that’s the new CEO because the one that was around when Drip was acquired, that was a different person, right?
Rob: Yeah. Clay Collins was around when we were acquired. About a year after we were acquired, he stepped down and John Tedesco, who was the COO at the time, took over as CEO.
Jordan: I was going to ask if we’d look at John Tedesco’s history and what playbook he has been able to run successfully in the past, that’s going to tell us a lot about the future. Because it was an internal hire, it’s less clear.
Rob: He’s been part of multiple startups. I would say they are in line with the enterprise approach that you’re talking about, very much sales folks and that type of stuff.
Tracy: When I was looking at this announcement and the change in CEO, it seems like they had a certain strategy when they had Leadpages and they acquired Drip. From what I was reading into it, it sounded like things would work a little more together, but the strategy changed. The new CEO came on and they’re making this change because the strategy changed. It seems like it all makes sense in terms of the direction of Avenue 81.
Rob: I’m curious, Tracy, when you hear about a SaaS app like this being sold, so the original owner doesn’t have it, it’s now a holding company. Would you be more or less likely to use a product that’s been sold like that or does it matter to you? Do you even care?
Tracy: Interesting. Do you even hear about it too?
Rob: We’ve heard about this now. If you were looking for landing pages, there’s obviously a bunch of competitors to Leadpages. I’m curious if that would impact your decision to sign up as a customer or not?
Tracy: I’m thinking of the average user of how much they follow acquisition news. I’m assuming that Leadpages is going to continue to grow under the company that acquired it. If I was thinking as an average user I would suspect a) they wouldn’t know about it, b) if they did know about it, it sounds like instead of Leadpages being sold, it sounds like Leadpages was acquired. It could be spun in that way. Leadpages is acquired by someone who is going to spend more time and effort or more focus on it, both of those things are positive to me.
Rob: I want to wrap this up with just a funny little story that involves Best Buy and Geek Squad. I don’t know if you guys recall but Best Buy acquired Geek Squad, which is the tech support people who run around in the cars to fix stuff at your home. Geek Squad is now the vast majority of their revenue and profit. They are one of the big drivers that has kept them in business. When Circuit City and everybody else went under, they had this thing.
The CEO of Geek Squad, the founder who sold it, when he does stand up in front and does talks now, he’ll say things like, “When Geek Squad acquired Best Buy,” and everyone laughs. That’s the first thing I thought of with this is like did Leadpages acquire Drip five years or four years ago or did Drip acquire Leadpages? It kind of struck me as funny.
Jordan: Sounds like Avenue 81 is making the best of their situation.
Tracy: Leadpages wasn’t shut down. They spun it out and it still continues to live. It sounds like a win-win situation for everybody.
Rob: Yeah, for sure.
Our next story is about how a two-person start-up already uses 28 other tools. This is from acrossapp.com, it’s from their blog. They’re basically a tiny little two-person startup and they have 28 different subscriptions. I’m curious, ten years ago we may have had one or two subscriptions. You paid for Photoshop as a big package, everything was you buy it once and then you get the upgrades every couple of years. Now, most of us have 20, 30, 40 subscriptions. Tracy, do you feel like this whole movement towards the SaaS subscription economy is a good thing or do you feel like it’s cumbersome and we’re potentially paying more now but than we would have 10 years ago?
Tracy: I have to laugh because this is kind of a Tiny Seeds thesis, right? We’re betting on these business-to-business SaaS apps. We love to see people building things for other businesses to use. We’re part of this trend that’s happening right now. There are lots of little apps that are doing lots of little things for you that you can pay for individually.
Overall, I love it. I love it. I love anything that helps me save time. Ideally, that subscription cost is going to save me as much time and hopefully money that it makes it totally worth it. I love that there’s people out there that are building lots of little things to support themselves as they can create their startup and maybe get into Tiny Seed and all that. Huge fan of the system. I have no problem paying for subscriptions. I just want to make sure I don’t forget which ones I’m paying for because that’s the problem.
Rob: Something you pointed out there is that there are so many tools that could not exist in a non-subscription economy. These tiny little utilities you pay $10 a month for, I just think it’s changed the game. You can’t look at it as, “Oh, I have too many subscriptions or I don’t,” or “I wish there weren’t subscriptions that we just paid one time,” because it’s a completely different system now. All these apps that we use and that we build wouldn’t exist under a non-subscription economy. What are your thoughts, Jordan?
Jordan: I see an analogy to what happened with television. We don’t pay less for television now. Between all the different streaming services: Netflix, YouTube, Hulu, Amazon, everything; I’m paying about the same but the service is far better because I’m in control and I get to choose. I don’t think it’s any cheaper to pay for all these different pieces of software, but you do get a lot better service overall because you’re getting very specific needs for your business addressed.
I have the Google Doc open right now that we just went through a pruning exercise. Every two-three months I ask my assistant, “Okay, give me all the recurring subscriptions that we have in the business.” My CTO and I look at them. I have it in front of me, it is 61 rows long and maybe 10 or 15 of those are not traditional SaaS. It’s a good 40-50 services, if you’ll just excuse me for a minute if I read through a few of them. They’re all very specific and very necessary.
Adobe Creative Cloud, AWS, Atlassian, Atlassian Statuspage, BrowserStack, Calendly, Canva, ClickFunnels, Cloudflare, DigitalOcean, Docker, Drip, Dropbox, Figma. That’s alphabetic order. I could just keep going down to Z. It’s a Frankenstein but it’s a beautiful one. It does ebb and flow in frustration depending on where the market is and where your business is.
At some point last year we said, “Okay, that’s enough of these different systems, let’s go to HubSpot. Let’s go all-in-one.” But in other areas, that doesn’t make sense. For bootstrappers, for people building businesses, it’s a great thing to be able to address one specific need, but you may be caught in that ebb and flow of a larger all-in-one or you might need to go there. I love it as long as the individual services are good. The nice thing about the subscription version of things is if they’re not good, you just leave them.
Rob: That’s a big difference. It’s not like you drop $300 on a piece of software and then you get two months and you stop using it. You still paid the $300 versus the monthly. I’ve also found that the all-in-ones tend to be, it’s like you said, it combines, everything works together. I don’t know if it’s a little more expensive but the tools aren’t as good, the individual pieces aren’t as good. It is what it is. I’m obviously a big fan of this world. Having been around long enough to have several of my early software products were not subscription, they were one-time download. I remember the struggles of the first day of each month, I had zero dollars in revenue for that month. It wasn’t like I had that baseline that I had last time. That’s the big difference that you forget if you’ve never run a non-subscription business is you’re just grinding it out.
In fact, during the financial crisis of 2008/2009, I had one product. It was doing maybe $4000 a month but it was part of my income, it was a chunk of it. Sales dropped 80% overnight, one month to the next. That’s the kind of business that’s going to be—I mean imagine if we were doing $4 million a month and had a bunch of employees and it dropped 80%. That’s where you start laying people off. It’s just such a big difference that the subscription is from our perspective as the business I think they are a safety net. I’m like you two, I don’t mind paying for subscriptions because I like not having to install software and maintain it and do all that. That’s the benefit we get from it.
Jordan: I want to add something. If this is a bit of a news show about things that are relevant right now, I just saw last week a company launched named pipe.com. I jumped on a call with the founder. The reason for bringing it up is because the downside of the subscription economy, and being a developer, and running a company based on subscriptions is that that lifetime value is stretched out. We’re all familiar with Gail Goodman’s Slow SaaS Ramp of Death and the math behind paying to acquire and then collecting over a longer period of time.
This company pipe.com that just launched, what they do is they take MRR, they take your monthly payments, and they will pay you annually. If I have a customer that pays us $500 a month, Pipe will look at that and say, “Okay, we understand your churn rate. We think this is a good bet. You can choose to sell us this customer, we will give you the whole annual amount of money upfront, then you just continue collecting monthly from them.”
The subscription economy is great in a lot of these ways but one of the tricky parts is cash flow, especially for younger companies that aren’t in the only annual, you must pay as an annual contract or you could do business with us. That strength comes later. It is tricky on cash flow but there are additional financing options like pipe.com that are starting to address that. We’ve seen revenue-based finance, we’ve seen other things. Pipe.com is not debt. It’s kind of like factoring but for SaaS. They charge you 15%, which is basically what you would charge people anyway because you would give them two months free. That’s kind of the default.
Rob: If the customer cancels in six months, they eat it, so they have a risk model.
Jordan: No. You pay back the remaining portion.
Rob: Got it. Okay.
Jordan: There’s literally an online portal and you can choose an individual customer. “I know that customer. They’ve been around for two years. They’re not going anywhere. I’ll sell that to you because I’m very confident that they’ll stick around.”
Rob: Fascinating.
Jordan: It’s fascinating. Or you can sign an annual contract, which is something that we do. Our annual contracts are paid monthly. We have annual contracts but we don’t have this big, large chunk so they sign it. That is even less risk. This is an annual contract, they’re paying monthly, and I’ll just choose. I’ll click that and hit sell. I’ll get the money for that entire thing upfront, minus the 15%.
Rob: I love the innovation, all the innovation that’s happening in the financial models around SaaS. You’re right, that is the biggest Achilles heel is the long slow ramp of death.
Jordan: It’s awesome. It’s just the relationship with you and your billing software.
Tracy: When you say sell the customer, is that they’re acquiring the customers’ information for use?
Jordan: They’re still in your Stripe account, you’re collecting money, and you’re charging their card every month like normal. But then they will see, “Oh, that customer paid in Stripe. Cool. We’ll take that much amount from your bank account.”
Rob: Pretty interesting if you need money in the short term. I know folks looking at raising around or doing debt kind of financing their SaaS revenue.
Jordan: I’m looking at the same thing. I looked at them and I’m like, “Oh, that’s basically just taking your MRR and creating a line of revenue off of the MRR, and then not actually putting any debt on the balance sheet and also not selling like equity.” I was like, “What is the catch here because that’s very attractive.”
Rob: I think the catch is like when you think about—
Jordan: Risk.
Rob: There is some risk but I also think you’re basically spending future earnings. It’s almost like when you put money on a credit card now that’s technically debt and this is not. When you put money on a credit card, you basically are spending future earnings before you have them. That’s what this is in essence. There is some danger. If you’re prudent at managing cash and you know where that cash is going to go or you’re in a spot where you do think you need some dry powder in the coffers, I think it’s certainly an interesting avenue to look at.
Wrapping us up for today, I’m curious from each of you what is your favorite podcast right now? I mean right now because sometimes I have a favorite podcast for two months and I binge them all and then I move on. Tracy, you want to go first?
Tracy: Gosh. Don’t go pick me first. I’m the worst at podcasts because I have a hard time with podcasts. I know some people are able to play something at 2x speed and then go through all their backlog. Then for me, it’s like, “Oh my gosh, I only have a certain amount of time. I can only do 1X.”
That said and it’s a dorky one, I’m still a big fan of Adventure Zone. It’s by My Brother, My Brother and Me. It’s their D&D podcast. Also, My Brother, My Brother and Me is another one I listen to. It’s just because I need to turn my brain off from work. I listen to a lot of work when I podcast, Startups for the Rest of Us, Out of Beta, a lot of other ones. It’s really nice to have something that’s just a bunch of people just in a room together having fun. I would say that my answer is the Adventure Zone and by extension My Brother, My Brother and Me.
Rob: How about you, Jordan?
Jordan: I’m just going to reject your premise entirely and mention several of my favorite podcasts.
Rob: I’m not picking five favorites, that’s cool.
Jordan: I need to be generic. I absolutely love the Joe Rogan podcast. It’s interesting, it is just really interesting. It challenges a lot of your thoughts, and assumptions, and is entertaining, it’s funny. There’s so much of it. You don’t have to listen to everyone and you’re fully entertained.
I also love the Dave Chang Show. Chef Dave Chang from Momofuku has a great podcast that is about food but also about creativity. He brings people on from his network in the Bill Simmons world. That’s a very interesting one. I like Brian Koppelman, The Moment. I absolutely love The Story Pirates. That podcast is so good, it’s for kids.
Rob: My kid knows about that.
Jordan: Oh my God. Look, I drive my four-year-old to school every day and it’s about a 20-minute ride. That’s what she wants to listen to and we just laugh our butt off about it. It is these extremely talented actors that take stories that were written by kids and dramatize them and turn them into a story and song and so on. It’s so brilliant and so entertaining. The kids all love it. You don’t mind listening to it. I don’t know how many more times I listen to the Descendants 3 soundtrack before I bang my head up against the wall. Story Pirates, big thumbs up.
Rob: Me as well. They’ve written books that my kids have. We actually saw them live. They came to Minneapolis and performed at the Parkway Theater. We went and saw them in there. They do a bunch of improv. They’re really talented improv actors.
Jordan: You saw Lee, Nimene, and Rachel?
Rob: Oh my gosh, we totally did.
For me, I listen to 40 podcasts so I’m not going to read through them. The one that I’m really digging right now is Reply All from Gimlet Media. You know you have a good podcast when every time I look at the title, typically I’m like, “That sounds totally not interesting. I don’t care about that.” I’ll read the description and by the time I’m three minutes in I’m like, “I care so much about this.” I’m sitting in my driveway waiting for it to finish before I walk in the house type thing. That’s been a big one. I’ve actually been listening—there’s an old D&D podcast that’s been around for 10 years. It’s not actual play. I can’t listen to people playing D&D. I can play it and I like it, but I cannot listen. I can’t do Adventure Zone. I tried and I just, I can’t get into.
There’s one where they talk about the lore and the history and they talk about the books and they talk about rules and how to be a better DM. Just all the stuff around at the meadow, which of course I’m always interested in the meadow. You can’t just start a company, you have to talk about starting companies. I can’t just play guitar I have to learn how they’re made. I can’t play D&D, I have to learn how to create it. Save or Die and Save for Half are the two that I’m really into. One has been around 10 years.
That’s going to wrap us up for today. If folks want to catch up with you, Jordan, you are @JordanGal on Twitter. Hey, do I pronounce your last name right? Is it Gal?
Jordan: It is Gal. Yes.
Rob: I used to call you Jordan Gal, but that’s not. That’s how it’s spelled, right?
Jordan: That’s right.
Rob: I heard you pronounce it differently. @JordanGal on Twitter and Tracy is @tracymakes on Twitter. Her website is tracyosborn.com.
Tracy: If I could get @tracyosborn on Twitter I would, but I did not. Some people might know my old Twitter username and that was a terrible idea and @tracymakes is better than what I had before. That’s what I have.
Rob: It’s all there. If you’re interested in podcasts, check out Jordan on Bootstrapped Web. Thanks so much for joining us today.
Jordan: Thank you, Rob.
Tracy: Thanks.
Rob: I have to be honest, it was a fun show to prep for and record. I hope you enjoyed it. Certainly feel free to reach out. You can reach out privately: questions@startupsfortherestofus.com. If you have constructive feedback, if you want to give some accolades, a thumbs up, hit me up on Twitter, @robwalling. I look forward to hearing from you.
If you have a question for us, you can leave a voicemail at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Visit startupsfortherestofus.com for full show notes, transcripts of each episode, all the links that we mentioned in each show. Of course, if you’re not subscribed, go into your podcatcher, search for startups. We should be in the top three or four. Thank you so much for listening. I’ll see you next week.
I’m excited about this week. I’m diving into this idea of a startup roundtable or a news discussion show. I discussed a few topics with Derek Rhymer a couple weeks ago, but going a little deeper, this is the first essentially roundtable where I invite two guests on and we talk through topics that are relevant to us in the MicroConf, the Startups for the Rest of Us, the self-funded, the indie funded community. I hope you enjoy the show and without further ado let’s dive right in.
Rob: Here we are at Startups for the Rest of Us inaugural startup roundtable discussion. I have some pretty interesting stories to discuss today. Before that, I have two interesting guests I’d like to introduce. First on my right, as no one can see, but we’re in a camera is Jordan Gal, he’s hosted the Bootstrapped Web podcast, as well as founder and CEO of CartHook.
Jordan: Thanks for having me on, Rob. I’m excited for this interesting new format. Let’s see where it goes.
Rob: I’m excited too. Above Jordan in my view is Tracy Osborn, founder of WeddingMarketplace, WeddingLovely that she shut down about a year or two ago, now the TinySeed Program Manager. How are you doing today, Tracy?
Tracy: Doing well, happy to be back. Always excited to join the podcast when I can.
Rob: That’s the cool part is each of you have been on the show now several times: interviews, Q&A episodes, all that kind of stuff. Hopefully, folks are familiar enough with where you come from. That’s what I wanted to do with the show is get different perspectives from different people coming from different directions. I’m pretty stoked to talk through a few of these things.
As you listen to this episode, if you have thoughts on whether I should do it again in a couple of months—what was interesting is I went back to a month’s worth of startup news and tried to pick out stuff that I think is interesting to our little space, kind of the MicroConf Startups for the Rest of Us community. There just aren’t that many stories that are interesting to talk about, and I think we can get going on.
Every month or two, or even two or three months, is what I consider doing. If you like the show, if you don’t like the show, please contact us at questions@startupsfortherestofus.com.
Our first story is about Basecamp watching Hey, it’s at hey.com. They’re essentially reinventing email, they are saying they’re not going to allow tracking pixels so people can track opens. I’m curious, Jordan, have you been following this? Is Basecamp basically potentially taking it too far by blocking tracking pixels? D and J said they’re going to shame people who send with tracking pixels.
Jordan: I have been following it. I think it’s very interesting. We saw Superhuman come out of the gate on fire. Everyone’s talking about how they’re going to be the biggest thing ever. I think that excitement has waned a little bit, they’re not that obsessed with it anymore. Then Basecamp taking on emails is super interesting, but like most things with Basecamp it’s very difficult to separate the people, and Basecamp, and the controversy they create from the actual product. They’re really close to the edge of making themselves too much of the story right now.
These guys are very clever. It’s starting to feel a touch manipulative on what they’re doing with Twitter to get attention. I love their ideological approach. I love that they are unique in their opinions. They take it strongly and they’re not afraid to say it. That’s all awesome, but I think they almost need to chill a little bit and then let the product speak for itself because there’s a lot of talk and it’s constant controversy. It’s a little bit grating.
The latest tweet that Jason put out, I forgot exactly what the context was, but he kind of felt that it went a little too far. I think he was making a comment on another company. People are starting to push back on it where they really have a huge halo effect to their products, but I think they’re right on the edge. Now it’s time to let the products start to speak for itself. I’m definitely interested, I want to see what they do. Because my email, that landing page and the copy that they wrote resonated. My email is an unhappy place. It didn’t used to be, but it’s been so long you forgot that it used to be this cool thing that you communicated with people on and it’s no longer that. They definitely nailed that part of it for me.
Rob: If you go to hey.com, you can read their manifesto where they say exactly that. I’m a big fan of their products, they’re genius product builders, they’re great content marketers. They wouldn’t call themselves that but they are exceptional, some of the best there are. They have this massive audience. It’s been fascinating to watch. What are your thoughts on this, Tracy?
Tracy: I find it funny that you mentioned the Twitter stuff. I feel like they’re using Twitter effectively. It’s how Twitter is meant to be used nowadays, which is annoying. It’s one of the reasons why I’m not on Twitter very often, but I feel like I can’t hate on them for doing this kind of launch because that’s marketing. That’s the way that they’re going to differentiate themselves from say Superhuman or these other ones that are very email marketer focused where Superhuman’s like, “Oh, you’re going to see the location. You’re going to see the tracking pixel. You’re going to track the people that open and close it. We’re giving you all those rates and data and whatnot.” They’re at the opposite end of the spectrum to Superhuman.
I’m personally very excited for it because I think that we do need to have more privacy-focused email clients. Gmail was the king for so long. The average user would use Gmail at a default. We’ve had, as email marketers, this superpower that we were able to see when people open their emails, we were able to see those open rates. I want to say it’s great for email marketers, but for the average person and privacy and whatnot, I want to give people more choice. I think that Basecamp is doing that.
It’s funny to think about email and the superpower and all this data that we had and how it’s hard to give up that data. If you look back to just paper marketing, pay per mail marketing, you didn’t know how many people opened up that envelope that you sent or how many people threw it right into the recycling. I agree that it’s going to hurt email marketers, but for the average user or at least the privacy focusing technologists who need those privacy features, I think it’s something that’s necessary. Basecamp is simply using Twitter the way it’s meant to be used.
Rob: I signed up when I first heard about hey.com. I am curious to use it. They have a list of 25 things that they are saying is wrong with email. I don’t understand how they could possibly fix all those things, but that would tend to be—it’s all these problems with email. You screen your calls, you can’t screen your emails. Some emails are worth your immediate attention, most are not. Files are attached to email rather than the other way around. You don’t need to be told to check your email. I don’t even know, that’s like 5 of the 25. I don’t even know how you go about fixing that. Like you said, Jordan, that’s when it’s time to think about getting into the product and watching it speak for itself.
My take on it, I built Drip. I like the idea and I’m going to be a user of the product, I assume, if it works and has unified inbox and has all the stuff I need, but I feel like railing against the open tracking is taking it a little too far. I like open rates, I think having aggregated open rates of an email is something that is just fine for a marketer to have. Knowing when and where and how many times people open an email could be taking it a little too far, I would admit.
Here’s the thing, they can come out and say, “We don’t use any tracking. We don’t use Google Analytics. We don’t track open rates.” If you have $100 million business throwing off tens of million a year in net profit with 50 employees you can do that too, but if you’re a bootstrap startup and you’re trying to get to $10,000 or $50,000 or just trying to pay the bills, like you’re in such a different position that I would caution against taking that as advice or as something you should do as a business person because I think it can be dangerous.
You’ve heard the mentality of like, “Hey, you build a great product. That’s what we did.” and everyone uses it. I’m not saying Basecamp has said that but there are people who come out and say, “Look, I just built a great product and never marketed it and magic.” Everyone wants that to be the case and it almost never is, it’s the exception. That’s potential danger with coming out against that kind of stuff.
Jordan: We may be looking at it backwards because we are business people, and we build technology products, and we are looking at it from that point of view. In reality, it matters a lot less what is right for a business, and it matters a lot more to give the choice to the actual consumer, to the user. That’s really their perspective on it. I have an Amazon Alexa in my house, I have three of them. I have made the choice. I know what’s happening and I have made the decision that in the balance between privacy and convenience, that’s where I land on that product.
What they’re looking at in email is taking it back to the user’s control and saying, “If I don’t want tracking pixels, this is my inbox, not yours marketer. If I choose to degrade the experience of email with your company by blocking pixels, that’s my choice.” What Basecamp is kind of yelling about is it’s not okay that you don’t have the choice. It’s not okay that someone else decides what happens in your inbox because that’s not normally what happens other places in your life. In your home, you get to decide if you want an Alexa or not. People can make that choice once their right journalist do that work to uncover what was happening there. If looked at that perspective and it’s not a black and white tracking no tracking, it’s simply giving people the option, that’s tough to argue with.
Rob: That’s a good perspective. Tracy, do you feel like this blocking of tracking pixels will become a trend? Do you think it should become a trend?
Tracy: I think privacy, in general, is becoming a trend. I find it interesting you brought up Alexa because I feel like that was the start when people started realizing that this really great convenience in their homes could potentially be used for other reasons. I feel like those stories happened and then it evolved and some other internet communities are very privacy focused, almost to the extreme side of railing against all the things that are happening.
I personally had an Alexa and I ended up removing them from my house. That tells you a little bit about my own perspective. I want one, I want to have all these privacy tools but I personally have decided that the convenience is not worth it for me. I’m happy to see that it’s becoming a trend.
As the Internet has grown, I’m going to refer back to that word I used before, we have these superpowers. We start adding all these superpowers, all this technology, and all these things we could do. Now it’s like okay cool, we’ve reached this point where we need a lot of people to draw back a little bit and decide if it’s convenient for them.
Rob: Like a pendulum swinging different directions. That’s a good perspective.
Jordan: I was going to say you can see the email market has been around a long time and it’s mature. It’s gotten to the point that it’s so mature that this type of option makes sense. The in-home robot assistant isn’t very mature, but you can see how if someone came out with an Alexa-like device that you had more control over the privacy, that would be attractive.
It’s the same thing with the iPhone. People started freaking out where I just had a conversation in person about this topic and now I’m seeing ads on it, that’s creepy. The pendulum swung all the way toward maximum freedom and then we all realized, “Oh, I guess we’re the business model.” Now it’s coming back and that’s a healthy thing.
Rob: For the record, I have five Alexas in my house, maybe six. I think it’s hilarious that if you go to thisishey.com, it’s a business I presume has been around for a while. It’s an influencer marketplace, which is something I’m sure Basecamp would hate. What are the folks at This is Hey thinking right now? Where it’s like, “They just took our name and they have the dot-com.”
Let’s swing into our second story. Leadpages was acquired by Redbrick. By the way, all of these stories we will link up in the show notes. To clarify, because I actually had some people asking this, Leadpages was sold to Redbrick, which is like a software—it’s a holding company. I would almost phrase it as private equity, I don’t think they said that in the news story. You know with these private equity funds, they get together then they buy software companies and manage them. Leadpages was sold, Drip was not. In fact, to say that Leadpages acquired Drip is actually not technically accurate.
Leadpages and Drip are two products: Leadpages Landing Pages, and Drip is an ESP marketing automation. They were owned by a single holding company called The Avenue 81. Avenue 81, that’s the company that raised funding and stuff. It was synonymous with Leadpages but then it is what acquired Drip. Essentially, they’ve sold Leadpages. A quote from the CEO of Drip, John Tedesco, who I know personally, I actually worked for him before I left Drip a couple of years ago. He said, “The acquisition is allowing us to now ruthlessly focus on pursuing our markets. We have a clear capital base in which to execute. We’re flush with capital, so we’re going to use it with discretion. Use it intelligently.”
Obviously, the play here was to put dry powder in the coffers. If you have an asset, you can sell it in lieu of say raising a round of funding. It gives you not only the focus—I am conjecturing here, I will admit. I have not worked at Drip for two years and I have very, very little inside information at this point. If I were in Drip’s shoes, and I really see this marketing automation as a multi, many, many billion-dollar opportunity in the landing page market, it’s not; it’s a very small market.
That just kind of gives folks background. The first question I’d have for Tracy is MailChimp has launched free landing pages, in essence, with your email account. I know a few other providers that are making them very free or very cheap. Does it seem to you the landing page space is becoming commoditized?
Tracy: That’s an excellent question. The more options the better. I’m happy to hear that MailChimp is doing this. MailChimp has a really, really huge reach. Happy to hear that they’re making this stride because they also did—I can’t remember what happened with MailChimp but they had a controversy where they raised the prices or they took away their free tier. Do you recall what happened about a few months ago, six months ago?
Rob: I think it was if you unsubscribed, you were still charged for those subscribers because they’re moving a little more towards commerce.
Tracy: That came out and I think that kind of have hurt a lot of people’s usage of MailChimp. Now they have these free landing pages. You see that in ConvertKit as well. They have a whole landing page system and whatnot. It’s kind of a silly thing to say but I’m like, “I’m a fan.” Would love to hear what you guys say.
Rob: What do you think about this, Jordan?
Jordan: I think they’re commoditized. I think they’re lead gen. The business model is subscribers, so if landing pages help you get more subscribers, then the company whose pricing is based on the number of subscribers you have has a very vested interest in giving you the ability to add more subscribers. It makes sense with the business model, it’s also been commoditized. Just to clarify, the statement that you just quoted from the CEO, that’s the CEO of Avenue 81, the company that’s still-
Rob: Correct.
Jordan: Okay, cool. Just want to make sure of that.
I love this corporate-level strategy stuff. It’s my favorite. A lot of people are going to look at it and say, “Oh, Leadpages failed,” or, “It wasn’t able to do what it wanted to.” I think this is brilliant. This is an asset that will only decrease in value moving forward. They’re able to effectively raise money for their email marketing product, which is Drip. They don’t need to sell equity in it because they had this other asset. It’s great.
They basically just raised, I don’t know how much they’ve sold it for but my assumption is they raised tens of millions of dollars in non-dilutive capital to go after a much bigger email marketing. It’ll be interesting to see what they do and which playbook they run. Are they going to run upmarket and hire salespeople and go after the Marketo version of things, or are they going to go with quantity and long tail and go after MailChimp?
I’m going to assume they’re going to go high-end with an enterprise sales team and run that playbook. They have the money to do it. They didn’t need to sell any equity in it. It’s great. Acquiring Drip was a very smart move, it worked out nicely for you. It looks like it might work out really nicely for them also. Especially if they thought this through over the past few years, then it was brilliantly executed. Let’s bring in a product, let’s make it the focus of the company, let’s sell-off this asset then we have our coffers ready. Now we can go after a much bigger market. That’s an optimistic view of it, but that’s an exciting version of things.
Tracy: The CEO that gave that quote, that’s the new CEO because the one that was around when Drip was acquired, that was a different person, right?
Rob: Yeah. Clay Collins was around when we were acquired. About a year after we were acquired, he stepped down and John Tedesco, who was the COO at the time, took over as CEO.
Jordan: I was going to ask if we’d look at John Tedesco’s history and what playbook he has been able to run successfully in the past, that’s going to tell us a lot about the future. Because it was an internal hire, it’s less clear.
Rob: He’s been part of multiple startups. I would say they are in line with the enterprise approach that you’re talking about, very much sales folks and that type of stuff.
Tracy: When I was looking at this announcement and the change in CEO, it seems like they had a certain strategy when they had Leadpages and they acquired Drip. From what I was reading into it, it sounded like things would work a little more together, but the strategy changed. The new CEO came on and they’re making this change because the strategy changed. It seems like it all makes sense in terms of the direction of Avenue 81.
Rob: I’m curious, Tracy, when you hear about a SaaS app like this being sold, so the original owner doesn’t have it, it’s now a holding company. Would you be more or less likely to use a product that’s been sold like that or does it matter to you? Do you even care?
Tracy: Interesting. Do you even hear about it too?
Rob: We’ve heard about this now. If you were looking for landing pages, there’s obviously a bunch of competitors to Leadpages. I’m curious if that would impact your decision to sign up as a customer or not?
Tracy: I’m thinking of the average user of how much they follow acquisition news. I’m assuming that Leadpages is going to continue to grow under the company that acquired it. If I was thinking as an average user I would suspect a) they wouldn’t know about it, b) if they did know about it, it sounds like instead of Leadpages being sold, it sounds like Leadpages was acquired. It could be spun in that way. Leadpages is acquired by someone who is going to spend more time and effort or more focus on it, both of those things are positive to me.
Rob: I want to wrap this up with just a funny little story that involves Best Buy and Geek Squad. I don’t know if you guys recall but Best Buy acquired Geek Squad, which is the tech support people who run around in the cars to fix stuff at your home. Geek Squad is now the vast majority of their revenue and profit. They are one of the big drivers that has kept them in business. When Circuit City and everybody else went under, they had this thing.
The CEO of Geek Squad, the founder who sold it, when he does stand up in front and does talks now, he’ll say things like, “When Geek Squad acquired Best Buy,” and everyone laughs. That’s the first thing I thought of with this is like did Leadpages acquire Drip five years or four years ago or did Drip acquire Leadpages? It kind of struck me as funny.
Jordan: Sounds like Avenue 81 is making the best of their situation.
Tracy: Leadpages wasn’t shut down. They spun it out and it still continues to live. It sounds like a win-win situation for everybody.
Rob: Yeah, for sure.
Our next story is about how a two-person start-up already uses 28 other tools. This is from acrossapp.com, it’s from their blog. They’re basically a tiny little two-person startup and they have 28 different subscriptions. I’m curious, ten years ago we may have had one or two subscriptions. You paid for Photoshop as a big package, everything was you buy it once and then you get the upgrades every couple of years. Now, most of us have 20, 30, 40 subscriptions. Tracy, do you feel like this whole movement towards the SaaS subscription economy is a good thing or do you feel like it’s cumbersome and we’re potentially paying more now but than we would have 10 years ago?
Tracy: I have to laugh because this is kind of a Tiny Seeds thesis, right? We’re betting on these business-to-business SaaS apps. We love to see people building things for other businesses to use. We’re part of this trend that’s happening right now. There are lots of little apps that are doing lots of little things for you that you can pay for individually.
Overall, I love it. I love it. I love anything that helps me save time. Ideally, that subscription cost is going to save me as much time and hopefully money that it makes it totally worth it. I love that there’s people out there that are building lots of little things to support themselves as they can create their startup and maybe get into Tiny Seed and all that. Huge fan of the system. I have no problem paying for subscriptions. I just want to make sure I don’t forget which ones I’m paying for because that’s the problem.
Rob: Something you pointed out there is that there are so many tools that could not exist in a non-subscription economy. These tiny little utilities you pay $10 a month for, I just think it’s changed the game. You can’t look at it as, “Oh, I have too many subscriptions or I don’t,” or “I wish there weren’t subscriptions that we just paid one time,” because it’s a completely different system now. All these apps that we use and that we build wouldn’t exist under a non-subscription economy. What are your thoughts, Jordan?
Jordan: I see an analogy to what happened with television. We don’t pay less for television now. Between all the different streaming services: Netflix, YouTube, Hulu, Amazon, everything; I’m paying about the same but the service is far better because I’m in control and I get to choose. I don’t think it’s any cheaper to pay for all these different pieces of software, but you do get a lot better service overall because you’re getting very specific needs for your business addressed.
I have the Google Doc open right now that we just went through a pruning exercise. Every two-three months I ask my assistant, “Okay, give me all the recurring subscriptions that we have in the business.” My CTO and I look at them. I have it in front of me, it is 61 rows long and maybe 10 or 15 of those are not traditional SaaS. It’s a good 40-50 services, if you’ll just excuse me for a minute if I read through a few of them. They’re all very specific and very necessary.
Adobe Creative Cloud, AWS, Atlassian, Atlassian Statuspage, BrowserStack, Calendly, Canva, ClickFunnels, Cloudflare, DigitalOcean, Docker, Drip, Dropbox, Figma. That’s alphabetic order. I could just keep going down to Z. It’s a Frankenstein but it’s a beautiful one. It does ebb and flow in frustration depending on where the market is and where your business is.
At some point last year we said, “Okay, that’s enough of these different systems, let’s go to HubSpot. Let’s go all-in-one.” But in other areas, that doesn’t make sense. For bootstrappers, for people building businesses, it’s a great thing to be able to address one specific need, but you may be caught in that ebb and flow of a larger all-in-one or you might need to go there. I love it as long as the individual services are good. The nice thing about the subscription version of things is if they’re not good, you just leave them.
Rob: That’s a big difference. It’s not like you drop $300 on a piece of software and then you get two months and you stop using it. You still paid the $300 versus the monthly. I’ve also found that the all-in-ones tend to be, it’s like you said, it combines, everything works together. I don’t know if it’s a little more expensive but the tools aren’t as good, the individual pieces aren’t as good. It is what it is. I’m obviously a big fan of this world. Having been around long enough to have several of my early software products were not subscription, they were one-time download. I remember the struggles of the first day of each month, I had zero dollars in revenue for that month. It wasn’t like I had that baseline that I had last time. That’s the big difference that you forget if you’ve never run a non-subscription business is you’re just grinding it out.
In fact, during the financial crisis of 2008/2009, I had one product. It was doing maybe $4000 a month but it was part of my income, it was a chunk of it. Sales dropped 80% overnight, one month to the next. That’s the kind of business that’s going to be—I mean imagine if we were doing $4 million a month and had a bunch of employees and it dropped 80%. That’s where you start laying people off. It’s just such a big difference that the subscription is from our perspective as the business I think they are a safety net. I’m like you two, I don’t mind paying for subscriptions because I like not having to install software and maintain it and do all that. That’s the benefit we get from it.
Jordan: I want to add something. If this is a bit of a news show about things that are relevant right now, I just saw last week a company launched named pipe.com. I jumped on a call with the founder. The reason for bringing it up is because the downside of the subscription economy, and being a developer, and running a company based on subscriptions is that that lifetime value is stretched out. We’re all familiar with Gail Goodman’s Slow SaaS Ramp of Death and the math behind paying to acquire and then collecting over a longer period of time.
This company pipe.com that just launched, what they do is they take MRR, they take your monthly payments, and they will pay you annually. If I have a customer that pays us $500 a month, Pipe will look at that and say, “Okay, we understand your churn rate. We think this is a good bet. You can choose to sell us this customer, we will give you the whole annual amount of money upfront, then you just continue collecting monthly from them.”
The subscription economy is great in a lot of these ways but one of the tricky parts is cash flow, especially for younger companies that aren’t in the only annual, you must pay as an annual contract or you could do business with us. That strength comes later. It is tricky on cash flow but there are additional financing options like pipe.com that are starting to address that. We’ve seen revenue-based finance, we’ve seen other things. Pipe.com is not debt. It’s kind of like factoring but for SaaS. They charge you 15%, which is basically what you would charge people anyway because you would give them two months free. That’s kind of the default.
Rob: If the customer cancels in six months, they eat it, so they have a risk model.
Jordan: No. You pay back the remaining portion.
Rob: Got it. Okay.
Jordan: There’s literally an online portal and you can choose an individual customer. “I know that customer. They’ve been around for two years. They’re not going anywhere. I’ll sell that to you because I’m very confident that they’ll stick around.”
Rob: Fascinating.
Jordan: It’s fascinating. Or you can sign an annual contract, which is something that we do. Our annual contracts are paid monthly. We have annual contracts but we don’t have this big, large chunk so they sign it. That is even less risk. This is an annual contract, they’re paying monthly, and I’ll just choose. I’ll click that and hit sell. I’ll get the money for that entire thing upfront, minus the 15%.
Rob: I love the innovation, all the innovation that’s happening in the financial models around SaaS. You’re right, that is the biggest Achilles heel is the long slow ramp of death.
Jordan: It’s awesome. It’s just the relationship with you and your billing software.
Tracy: When you say sell the customer, is that they’re acquiring the customers’ information for use?
Jordan: They’re still in your Stripe account, you’re collecting money, and you’re charging their card every month like normal. But then they will see, “Oh, that customer paid in Stripe. Cool. We’ll take that much amount from your bank account.”
Rob: Pretty interesting if you need money in the short term. I know folks looking at raising around or doing debt kind of financing their SaaS revenue.
Jordan: I’m looking at the same thing. I looked at them and I’m like, “Oh, that’s basically just taking your MRR and creating a line of revenue off of the MRR, and then not actually putting any debt on the balance sheet and also not selling like equity.” I was like, “What is the catch here because that’s very attractive.”
Rob: I think the catch is like when you think about—
Jordan: Risk.
Rob: There is some risk but I also think you’re basically spending future earnings. It’s almost like when you put money on a credit card now that’s technically debt and this is not. When you put money on a credit card, you basically are spending future earnings before you have them. That’s what this is in essence. There is some danger. If you’re prudent at managing cash and you know where that cash is going to go or you’re in a spot where you do think you need some dry powder in the coffers, I think it’s certainly an interesting avenue to look at.
Wrapping us up for today, I’m curious from each of you what is your favorite podcast right now? I mean right now because sometimes I have a favorite podcast for two months and I binge them all and then I move on. Tracy, you want to go first?
Tracy: Gosh. Don’t go pick me first. I’m the worst at podcasts because I have a hard time with podcasts. I know some people are able to play something at 2x speed and then go through all their backlog. Then for me, it’s like, “Oh my gosh, I only have a certain amount of time. I can only do 1X.”
That said and it’s a dorky one, I’m still a big fan of Adventure Zone. It’s by My Brother, My Brother and Me. It’s their D&D podcast. Also, My Brother, My Brother and Me is another one I listen to. It’s just because I need to turn my brain off from work. I listen to a lot of work when I podcast, Startups for the Rest of Us, Out of Beta, a lot of other ones. It’s really nice to have something that’s just a bunch of people just in a room together having fun. I would say that my answer is the Adventure Zone and by extension My Brother, My Brother and Me.
Rob: How about you, Jordan?
Jordan: I’m just going to reject your premise entirely and mention several of my favorite podcasts.
Rob: I’m not picking five favorites, that’s cool.
Jordan: I need to be generic. I absolutely love the Joe Rogan podcast. It’s interesting, it is just really interesting. It challenges a lot of your thoughts, and assumptions, and is entertaining, it’s funny. There’s so much of it. You don’t have to listen to everyone and you’re fully entertained.
I also love the Dave Chang Show. Chef Dave Chang from Momofuku has a great podcast that is about food but also about creativity. He brings people on from his network in the Bill Simmons world. That’s a very interesting one. I like Brian Koppelman, The Moment. I absolutely love The Story Pirates. That podcast is so good, it’s for kids.
Rob: My kid knows about that.
Jordan: Oh my God. Look, I drive my four-year-old to school every day and it’s about a 20-minute ride. That’s what she wants to listen to and we just laugh our butt off about it. It is these extremely talented actors that take stories that were written by kids and dramatize them and turn them into a story and song and so on. It’s so brilliant and so entertaining. The kids all love it. You don’t mind listening to it. I don’t know how many more times I listen to the Descendants 3 soundtrack before I bang my head up against the wall. Story Pirates, big thumbs up.
Rob: Me as well. They’ve written books that my kids have. We actually saw them live. They came to Minneapolis and performed at the Parkway Theater. We went and saw them in there. They do a bunch of improv. They’re really talented improv actors.
Jordan: You saw Lee, Nimene, and Rachel?
Rob: Oh my gosh, we totally did.
For me, I listen to 40 podcasts so I’m not going to read through them. The one that I’m really digging right now is Reply All from Gimlet Media. You know you have a good podcast when every time I look at the title, typically I’m like, “That sounds totally not interesting. I don’t care about that.” I’ll read the description and by the time I’m three minutes in I’m like, “I care so much about this.” I’m sitting in my driveway waiting for it to finish before I walk in the house type thing. That’s been a big one. I’ve actually been listening—there’s an old D&D podcast that’s been around for 10 years. It’s not actual play. I can’t listen to people playing D&D. I can play it and I like it, but I cannot listen. I can’t do Adventure Zone. I tried and I just, I can’t get into.
There’s one where they talk about the lore and the history and they talk about the books and they talk about rules and how to be a better DM. Just all the stuff around at the meadow, which of course I’m always interested in the meadow. You can’t just start a company, you have to talk about starting companies. I can’t just play guitar I have to learn how they’re made. I can’t play D&D, I have to learn how to create it. Save or Die and Save for Half are the two that I’m really into. One has been around 10 years.
That’s going to wrap us up for today. If folks want to catch up with you, Jordan, you are @JordanGal on Twitter. Hey, do I pronounce your last name right? Is it Gal?
Jordan: It is Gal. Yes.
Rob: I used to call you Jordan Gal, but that’s not. That’s how it’s spelled, right?
Jordan: That’s right.
Rob: I heard you pronounce it differently. @JordanGal on Twitter and Tracy is @tracymakes on Twitter. Her website is tracyosborn.com.
Tracy: If I could get @tracyosborn on Twitter I would, but I did not. Some people might know my old Twitter username and that was a terrible idea and @tracymakes is better than what I had before. That’s what I have.
Rob: It’s all there. If you’re interested in podcasts, check out Jordan on Bootstrapped Web. Thanks so much for joining us today.
Jordan: Thank you, Rob.
Tracy: Thanks.
Rob: I have to be honest, it was a fun show to prep for and record. I hope you enjoyed it. Certainly feel free to reach out. You can reach out privately: questions@startupsfortherestofus.com. If you have constructive feedback, if you want to give some accolades, a thumbs up, hit me up on Twitter, @robwalling. I look forward to hearing from you.
If you have a question for us, you can leave a voicemail at 1-888-801-9690 or you can email it to us at questions@startupsfortherestofus.com. Visit startupsfortherestofus.com for full show notes, transcripts of each episode, all the links that we mentioned in each show. Of course, if you’re not subscribed, go into your podcatcher, search for startups. We should be in the top three or four. Thank you so much for listening. I’ll see you next week.
Episode 486 | The Shocking Collapse of Zirtual and Maren Kate’s Next Act (plus How to Hire Well)
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Show Notes
In this episode Startups For The Rest Of Us Rob interviews Maren Kate of Avra Talent about her entrepreneurial journey. She talks about her first company that raised 5.5 million in funding, hit $1mil in MRR, had over 400 employees, but ultimately failed. She talks about how she recovered both mentally and professionally, and gives her system of hiring/vetting people for your company.
Items mentioned in this episode:
Rob: Welcome to Startups for the Rest of Us, I’m your host, Rob Walling. In this week’s show, we look at someone who bootstrapped her company for two years before raising $5.5 million over the next couple years, growing to 400 employees, and then having the company implode before her eyes. Maren Kate is an entrepreneur who’s been starting companies since she was 19 years old and she started her company Zirtual in the 2010-2011 time frame. Zirtual is essentially virtual assistants on a monthly retainer, so you pay a monthly price for a set number of dedicated hours from a virtual assistant. The company became quite successful.
She got to about $1 million monthly run rate, so almost $12 million a year. In 2015, they were burning a couple hundred thousand dollars a month. At a certain point, they weren’t able to raise that next round of funding and finances were screwed up. You’ll hear us talk about it in this interview but it’s a fascinating and frankly it’s a devastating story to hear how Zirtual did implode and to hear Maren recount what that felt like, but she bounced back and we hear how she then went out to start her next company AVRA Talent just a year later.
We dig into Maren’s expertise and experience in hiring people. She’s had so much experience doing this. You can imagine having 400 employees, although you don’t hire everyone yourself, as a CEO, you certainly have a lot of influence on that process. Now, AVRA Talent is a recruiting agency in essence. They have a really refined system of how to do this and how to vet candidates. We dig into that towards the latter half of the interview. Without further ado, let’s dive into my conversation with Maren Kate.
Maren Kate, thanks so much for joining me on the show.
Maren Kate: Hi, thanks for having me.
Rob: Absolutely. You folks have heard in the intro about this amazing growth story of Zirtual, but I want to go back to when you decided to raise money, because you bootstrapped Zirtual for two years and then made the choice to raise money. A lot of listeners to this podcast, if I were to break it down, I’d say 90% want to bootstrap or self fund and there’s around 10% in this MicroConf, Startups For The Rest Of Us community that do raise funding and they don’t tend to want to go on the VC track, but they do raise $500,000, $250,000 from Angels or from TinySeed. It’s not binary in our space. The funding is good and not funding is bad or anything like that, but I’m curious how that decision came about for you and why you decided to go that route.
Maren Kate: Yeah, I wish I had a more thoughtful answer but the honest answer is I decided to go that route because we were in a place where we were growing, we were profitable but by a slim margin just because we were supporting our team, we had bootstrapped from day one, we didn’t take on any external funding. I didn’t self fund because I didn’t have any money, so every dollar in was all we had.
We were in Silicon Valley in San Francisco, me and my co-founders Collin and Eric. Especially at the time, I think it was and in 2012, it was just a really frothy time. Everyone that we knew raised money instead of asking what your business is. You tell them instead of saying, “What do you do you?” or “Blah, blah, blah,” they would say, “How much will you raise and from who?” It was the kind of ecosystem we were in.
We got really lucky. I got connected to someone through a client of Zirtual who really liked our culture and kind of the vision of the company, and pretty quickly offered to lead our series A. That happens once in a million. I didn’t realize that because it was my first time fundraising, so it was epic. That really made the rest of the deal really easy to close out because in fundraising, if you have a well known need, everybody else would just be like, “Awesome, sounds good.”
The reason we fundraised is because we could, it wasn’t super difficult. At the moment, it seemed like it would solve all our problems because going from kind of hand-to-mouth bootstrapping, all of a sudden we had $2 million in the bank.
Rob: And then you went on to raise a total of $5.5 million over a few years. Did you later regret that given that venture capital often makes us want to grow faster and makes us burn money, because it’s there and that’s what it’s used for. But given how things turned out, did you or do you have regrets? Did you think it was the right call?
Maren Kate: It’s hard. All of the mistakes that I’ve made have been incredible learning experiences. They’ve been incredibly hard learning experiences, but I wouldn’t trade the learning I have now for anything. That being said, if I could keep that learning and make better choices, obviously I would, but that’s not how the world works. I’d say if I was and I hopped on this, I talk to people that are starting similar businesses and they always want to know about raising money. What I’ve said is we were not a venture backable business. We got venture backing, which happens often, but we are a services business. We had no technology component. Even over the three-and-a-half years after raising money, we built very little technology.
We grew really fast because part of the raising money and we had a really awesome product and we had pretty good word of mouth and if we had not raised money, we would’ve had to really restrict that growth. In the short term, that would have been hard, but in the long term it would’ve made for a much more sustainable company.
Zirtual is still around, it’s run by startups.com. They kind of bought the assets and restarted it, it’s doing well and I think they have re-birthed it in the way that we originally did with, “Hey, we’re going to make this profitable. We’re going to make this focused on a service to the customer.” For that type of business, I think that is the right way to go.
If you’re building new technology, if you have to raise money because that’s the only way it’s going to get built, that makes total sense. But if you have a services business and people are paying you money for it, often you don’t need to raise money. It seems nice in the short term, but it has a lot of long term ramifications that people who are raising money for the first time often don’t realize.
Rob: You grew from essentially zero employees to 400 in the span of three or four years depending on how you count. What was that like being, because you’re pretty young at the time, were you like early to mid-20s?
Maren Kate: Yeah, I was super young and I was very green.
Rob: What was that like basically having a company with that many employees at that age?
Maren Kate: It felt exciting in vanity metric terms but it was exhausting, it was super overwhelming being the CEO of a fast growing company when you don’t have the experience. Also, I think just emotional maturity. I would say it was both really fun and gratifying and awesome experience in some ways and it was very overwhelming in other ways.
Rob: Yeah. Could you talk about, was there a time you can think of where you were overwhelmed as it was growing?
Maren Kate: It goes back to impostor syndrome, so we didn’t grow up in a family that had a lot of money, didn’t go to a fancy school, I wasn’t raised around businessmen where I learned all these things. When I came to San Francisco and especially as we raised money, and started growing, and started getting a lot of press, and kind of tech-darling status, I felt like a giant impostor. I say I have a blue collared chip on my shoulder that has lessened over the years, but at that time, when I was 25 was very intact. Instead of asking for help and being vulnerable and open and saying, “Hey, what’s going on here?” I felt like I had to figure everything out on my own.
I think that was because I felt like if I asked for help, people would be like, “Ha, we knew you didn’t know what you are doing,” like, “Get out of here, heck.” But that actually made for a very lonely experience, where as a 25 year old who didn’t have a lot of practical real world experience, I made a bunch of mistakes and so many of the mistakes, when I look back, were things that now more seasoned, it’s not reinventing the wheel, there are solutions for that. I think that’s kind of one of the biggest pain points, at least, that I experienced.
Rob: Yeah, I feel you. I resonate with that phrase, blue-collar chip on your shoulder, because I’m also—what’s funny is I grew up in the East Bay area, but I had nothing to do with the start up scene. My dad worked construction, my mom raised us with four kids and I like to say, solidly working class. I had no ins with people in Silicon Valley. When I started doing start ups, it really is a thing that that kind of weighs on you.
I’m curious, part of the story that’s come up, I have an assistant producer now and she did some research and read some articles and listened to interviews that you’ve done. It sounds like there was a turning point with Zirtual when you switched from contractors to employees and that things started turning there, can you talk us through that? Was that a decision you made? Did you have to make it and what were the ramifications of that?
Maren Kate: We thought we had to make it. This was during that time where a lot of the on demand gig work companies were starting to get fined or have lawsuits from the Department of Labor. We talked to some lawyers, and at this point we maybe 100 contractors and the fear was that someone was going to say, “Hey, you’re misclassifying your workers.” We didn’t think we were but there’s a 20-point test that you can do on the IRS website and it’s incredibly strict. We were like, “Maybe we should rethink the way we classify our workers and go from contractors to employees.”
Another driving thing behind this was we had amazing people on our team and they loved our mission, they loved the vision. They used to say they bleed Zirtual blue and they wanted to be part of the “team”. They wanted to have the option to get stock, they wanted to be employees, they wanted to have the option to get benefits. We made a call that was based a lot more on what we thought was the “right” thing to do. We did that without thoroughly thinking through the financial ramifications over the next few years.
We were using an outsourced CFO firm that one of our investors recommended to us, and I think that was one of the biggest mistakes we made at Zirtual. They were really, really bad, and again when you go to this impostor syndrome, I was working with a partner who was a CFO and had his MBA and yada-yada and I was an English literature drop out. He was like 27 at the time.
He would send over the P&L’s and I would go through them in my apartment and I’ll be like, “These don’t make sense. I’m no genius but…” and so again, same things like that. I would be like, “Well, he must know what he’s doing.” he has this firm, this fancy investor suggested him, but finally at some point, I went to our board, I was like, “These don’t make sense. These don’t add up.”
They looked at them and they were like, “Oh, yeah.” Literally, he’s doing math wrong. I’m like, “****. Well, what do I do?” They’re like, “Well, you should get rid of him.” Here’s another interim CMO firm. That was a huge mistake and I mean, at the end of the day, I’ll tell you one thing, it taught me a lot about finance. It also taught me just because I can balance my checkbook, I kind of thought, “Well, it’s cool. I’ll be able to keep all the numbers,” deal with them myself, and that is tragically untrue.
We wanted to do the right thing and make people employees and we didn’t really think through those repercussions. In retrospect, if I had to do it again, I would have changed our business model so we could keep people as contractors. It would have allowed us to actually pay them more as contractors and it would have made us be able to keep that kind of 50% margin we originally had.
Rob: Yeah, that’s really tough. I’ve been talking to startup founders for years as I was starting my own stuff and I always say, “If you’re going to start a tech company, you don’t have to learn to code, but learn just enough that you know when someone’s bullshitting you.” I feel the exact same way about finance. Finance is the same thing. I never took a finance class in college, but I’ve read enough books that I can hopefully spot something, just like you’re saying, you knew you had a Spidey sense that something was off. It’s like, “I got to trust that founder instinct on that.”
Maren Kate: Absolutely. I think in terms of those core competencies, I think the way our education system sets us up is woefully inadequate. Instead of taking calculus, you should be understanding how to manage a household budget, how to manage a business budget. I think the amazing part is now no matter what your income level is, if you can get online, you have access to all the knowledge in the world.
As founders or would be founders, it’s really important to educate ourselves on the building blocks of whatever business we’re in. If you’re going into the construction business, you should know the bolts, understand what’s going on there. If you’re going to be in tech, you should get a working understanding of exactly knowing someone’s bullshitting you. No matter what kind of business you’re in, you always need to keep an eye on that bottom line.
Rob: Unfortunately, we know how this story ends, ritualistically, you went under and you sold the assets to startups.com, but can you take me to that moment when you realize that you had run out of money and you needed to lay everyone off and shut the company down.
Maren Kate: Yeah, it was pretty horrible. We realized when we kicked out the one firm, finally brought in a director of finance internally, she was amazing. Within three weeks, she came back to me and she was like, “We’re running out of money.” I was like, “Oh no.” I went to my board, I went to all of our investors, told them and they were like, “Okay, well you guys need to raise the bridge,” I was like, alright.
Got that all set up, did the back of the napkin figuring out once we brought in the director of finance, she kind of was like, “Listen, 70% of the plans will never really make enough money to justify them,” but 30% of them will be calling Zirtual for business. They are the winners. We need to do a massive restructuring. We need to get rid of all the personal plans, we need to focus on business. We had everything built out.
We went to the board, we’re like, “Alright, we need $1.5 million to do this. Here’s the timeline.” Everybody said okay and then one of the VC’s, the same one that recommended the fantastic CFO firm, they said, “Actually, instead of giving you the $750,000 we said, we’re going to tranche it in three segments and we’re going to wait till everybody else’s money hits the bank before we put it in.” One thing about investors, and actually I’m realizing this as a lot of life that people tend to—they’re signaling, you are less likely to go in a restaurant if there’s no one there. If there’s a line, you’re more likely to stand in it.
Investors are very similar, if not even more, than the way we see that in the rest of the world. The moment someone kind of got cold feet, some other investors are like, “Well, we’re not going to put our money until this firm’s money is in first.” It was a catch 22 and I talked to one of our biggest shareholders, the person that was the representative on the board who had no business being there and later actually kind of came to me and apologized. He said, “Yeah, you know what, we have just enough in the bank to pay out this final payroll, pay off the taxes. I think you should just shut everything down.”
At this point, I was so kind of shell shocked and just absolutely emotionally, mentally, spiritually exhausted. I was like, “Okay, well, again, he knows more than me, so this is what we’ll do,” and trying to do right by the people by making sure that we didn’t keep open any longer because if we did, we might not be able to pay them everything. That’s when I know we spent four days trying to figure something out, nothing came through and that’s when I had to send the layoff email at 11:00 PM Sunday or 01:00 AM, I forgot when it was. I remember being in the office.
We look back and if I had it to do over, I would tell the guy who gave me that suggestion that that was the stupidest thing I’ve ever heard. I probably still would have to lay most people off, but I want to spend that week actually going around to a bunch of different firms saying, “Here’s our number. Here’s our business, let’s do a down round and we’re going to fix the company and focus on business.”
Rob: Wow, that sounds devastating. It sounds like one of the low points of your life perhaps.
Maren Kate: Yeah, absolutely.
Rob: That sounds incredible and you had to lay off, you mentioned it somewhere, that you had to lay off your mom and brother? Is that true?
Maren Kate: Yeah, they worked with me. Luckily, we are a close knit family and got through that but it was super bad..
Rob: There was obviously a lot of negativity coming at you after that. I’m sure from employees and I even think more direct articles on TechCrunch and other places that were talking about the big flame out. How did you handle that? Obviously, that sucks, and it’s people dragging you through the mud or whatever, but did you just black out, go offline for months, did you fight it? What was that like?
Maren Kate: No. I definitely went offline, because my whole thing was it doesn’t benefit me to hear a bunch of people tell me I’m ******, I already feel that so I’m covered there. I think honestly, probably, it was just like self preservation kicked in. I went offline for several months after we laid everybody off. Me, my co founders, and my brother wasn’t getting paid, and a few other awesome OGs in the company spent the next few months trying to make the transference to startups.com as simple as possible.
We kept working, cleaning things up and doing the best we could, and that was how I handled it. After the three months were up, I laid on the floor of my house at the time and just didn’t do much. After a few months of that, I didn’t have any money and I was like, “Crap, I really have to get back to work,” so I peeled myself up and got back on the saddle so to speak, but it was very devastating. It was absolutely hands down one of the low points of my life.
I think the reason was because I knew how many people it impacted and that’s what just crushed me, the investors, everybody else. We were such a tight knit group, and the people that were part of Zirtual were like an extension of our family, that was the hardest part.
Rob: I can only imagine. I’m speechless because like I’ve gone through hard things, but I’ve never had to do that. So many people will never have to in their entire entrepreneurial career. You go offline, how do you even recover from that? Mentally, it sounds like you were just, even before it was happening, there were just loads and loads of stress, because you’re growing this company, loads of stress as it’s kind of going down, and then this whole big thing happens, you go offline, but there has to be a healing process of taking a year off. In off, I mean I know you’re working and stuff, but what did you do to try to heal yourself to be able to get back on that horse and start what you’re working on now which is AVRA?
Maren Kate: I did kind of a deep dive. I started reading a lot which is kind of how I approach most things. I knew that this was either going to break me or I was going to figure out a way through it. I didn’t want it to break me. I think one of the things that actually kept me going was the sense of I have to make this right at some point in the future, in my life, and I still actually feel that very strongly.
There were definitely times where I would be in the shower and I was just like I can just slit my wrist and then not have to deal with this anymore, but that good old Presbyterian guilt I was like, “Yeah, but then that would really hurt my family, and my friends, and some employees, so that wouldn’t be fair to do it to them. Let’s try to get through this, let’s try to figure out a way to make this up to people at some point.” It sounds very morbid, but I actually think it was helpful. I always tell myself, I’ve never lived abroad and I was like, “Just figure out how to pay the bills, figure out how to maybe make this up to some people, and then you never lived abroad, so you’ve got it going,” at least try those three things.
Worst case scenario, if you can’t do either of those, then you can always kill yourself after you lived abroad. That actually got me through the first few months. After the really dark part passes, then you start to see through the mist. After the news cycle passed, after whatever else happened, I don’t know who the next target was in Silicon Valley, I was super lucky. I went through a really bad break up a few months later which was amazing especially since we live together. I was like, “Awesome,” that point was almost funny. I literally laughed. I said, “This could not be any…” I kind of took it as a sign. I was like, “Alright, I don’t have a house anymore.”
San Francisco has been really good to me in some ways and also been terrible. I was like, “Well, I want to live abroad,” and I got super lucky. I randomly got an offer from this company called Roam to head up their operations and they had co living locations all over the country. They’re like, “Part of this, Maren, is you’ll have to go and live with these different co living places and improve their operational efficiency,” I was like, “Literally, I’m on the next flight.”
I paired all my belongings down to suitcases, flip San Francisco off as I was flying out, and went and lived abroad for about a year which was wonderful. I also think just getting to see that the world is a lot bigger than the place you’re in was pretty ground breaking to me. I didn’t travel a lot as a kid outside of the states. To actually see how big the world is, and see how different people are, and to see what real struggle looks like, I was like, “Oh my gosh, you snooty bee, how dare you complain about this stuff. Don’t feel sorry for yourself, you’ve got nothing to complain about.”
I think that was one of the most transformational parts of my life. It was actually shaking myself out a bit by being able to see how big the world is, and how much opportunity, and then also how much suffering, and it really puts your own drama into a contrast.
Rob: It sounds like a really powerful way to reset. I think that travel can be such a therapeutic thing in that respect.
Maren Kate: Absolutely.
Rob: You took this time to recover, and then you got back on the horse, and you started AVRA Talent. Folks can check it out avratalent.com. Hire the best talent, regardless of geography. We connect employers with the top 5% of remote professionals tested and vetted for your specific needs. When I read that, I think of it as a contingency recruiting service. I’ve used those at previous places that I’ve worked. Can you talk to me about how you’re different?
Maren Kate: Yes. After I kind of did a post mortem on what happened at Zirtual, one of the biggest things that came back was that we had, and I had made some poor hiring choices along the way. When I think of hiring or recruiting, I actually think it has to do with anyone that is on the bus with you. That includes investors, that includes advisors, that includes employees. Just out of greenness, we had brought on some people that weren’t working great.
One of the biggest reasons I went back thinking that was, we didn’t want a thorough process. We were really good at recruiting our virtual assistants with this incredibly thorough process I think only half a percent got through and were hired, but when it came to our COO, or the outsourced CFO firm, or some people in our tech team, the process I ran was nonexistent. After Zirtual, I talked to some people, some founders while I was traveling abroad. I did a head of operations stint at Calm, the meditation app. I talked to the guys there. I was like, “Yeah, I just must be an idiot. I don’t know how to hire,” and they were like, “No, everybody actually has the same problem, we did a bunch of bad hires too.”
I was like, “I wonder if I could take the process, the structure that we did with recruiting our virtual assistants and apply that across different rules.” I started doing that as a consultant and then I decided to spin up an agency which is AVRA Talent. The way we differ I would say from the contingency recruiter is kind of 2-fold. We’re very focused on alignment, we only work with startups and companies whose culture and mission we can get behind. We charge a percentage of a placement fee, but we also charge an upfront $5000 retainer.
I started this from day one because one of the biggest problems I’ve realized in contingency recruiting is incentives are misaligned. Contingent recruiters incentive is to get you someone who’s the highest paid as fast as possible, because if they don’t get you that person before you hire them somewhere else, then they don’t make any money. That’s kind of one of the reasons that industry was so fractured and can have such a negative connotation, versus the way I talked to when I talk to founders.
I was like, “Listen, we’re going to do the work. We’re going to act kind of like your internal recruiting team. Each search we put several hundred human hours into. We’re going to put this retainer down. If we need to find you the person that you hire, then you’re going to pay us let’s say 15% of their base, and that $5000 will roll into that. If we don’t, if you bump into the next hire on the subway, that’s amazing. We want you to find the right person. It doesn’t matter how you come about them, but you’re still going to pay us for the time we spent,” and that model has worked really well for us.
We have four core values and alignment being the first one. In the last three years as AVRA has grown, we’ve actually gotten more and more focused on helping companies recruit fully remote talent. These are fully remote employees from engineering, to digital marketing, to operations, to product, to customer support. I think that is where we are the best in the world. That’s really where our focus is.
Rob: You’ve talked a lot about hiring and you obviously had to hire a lot of people. You mentioned somewhere that you kind of have this system and way of thinking about building a great company and it’s to bring on the best people, connect them to something bigger than themselves, empower them to do their thing, hire and fire according to company values. I wanted to get into that first piece which is bring on the best people. How do you do that? People listening to this podcast, there’s a lot of founders out there who maybe are hiring their first ever salesperson, their first customer support rep, or maybe they’re hiring their 10th or 20th employee, what’s that the CliffsNotes version of how do you bring on the best people.
Maren Kate: This is one of the reasons that I love remote recruiting so much, because if you’re trying to bring on the best person in say, San Francisco, you are competing with some of the well best funded, highest paying companies in the world, you’re kind of fighting a war. Versus if you are hiring in Boise, it’s a little bit easier, but there’s not as much talent that you’re looking for maybe with specific skills, and obviously technology companies and startups.
With remote recruiting, and this goes with anything, you can run this whether you’re hiring in an office in San Francisco or remote. At the end of the day, you just have to think of it the exact same way you think of a sales funnel. You need to get enough at the top of the funnel, and you need to filter them effectively through several steps to get down to the 5-7 candidates who really matter, who then you run through a more detailed process which would include test projects, references, cultural interviews, yada-yada. My favorite way of hiring is casting a really, really wide net and then setting up 5-7 steps in that funnel, so that the best people can shine through.
An example would be in my new startup that I’m spinning out, I’ve been recruiting for a founding product person, and a founding growth person. I would say at the top of the funnel, we’ve probably gotten 5-600 applicants on both sides. We’ve set different tests so to speak at different parts of the funnel and these cover the core values that we hold important. They cover the skills both soft and hard skills that are important for this role. As people go through different stages, and the funnel gets smaller and smaller, the best people start to really shine through.
Rob: Can you give an example of one or two of those stages? Is it like a 90-second video of yourself taking that exam or something?
Maren Kate: The way I like to think about it is just thinking what hiring normally is and then doing the exact opposite. Most companies approach hiring, they post a role and people submit their resume, and then it’s up to the hiring manager to go through all these resumes, and resumes are literally a terrible way of assessing fit. It goes back a stage. You want to figure out what is the role, what matters the most. You don’t say, “I want to hire a digital marketing manager,” you say, “This is the job or jobs I want this person to do. I want them to own our ad spend, I want them to be able to write great copy. I want them to be able to hire and manage designers, and I want them to be very analytical and be able to create reports.”
You can actually test that in different stages of the funnel. One example would be we have people submit resumes, but we don’t even look at them until maybe stage five. Instead, we would have three paragraph style questions that would be the first stage of the recruitment process. The very first one which we include in all hiring is, “What are you looking for in a role and what honestly draws you to this company and this role?” If people don’t fill that out in a meaningful way, in an honest way, we immediately disqualify them. Because if you want people that actually care about your product and your vision, then they should be able to articulate that.
We also ask them a few other questions and then we actually look at their writing and their communication which is incredibly important for most roles, especially ones that are remote. But going back to the digital marketing example, you want someone who can write well. It doesn’t matter if I look at their resume and they used to work for Apple, or Postmates, or one of these darlings, I’m not like, “Oh, they worked at Airbnb, they must be good,” that is not an indicator of success.
Instead, I actually look at the work they do. After that, we would yay or nay then someone on interview, or just glance and push through the top 20%, and then they would go on to another question, and we test the responsiveness as a really big one, and then we’ll get them into a phone screen where we’re talking about specific examples to understand, do they actually understand the role? How have they performed in their previous roles? A lot of those open ended like, “Tell me about a time,” questions. After that, there’s another longer test project.
We always suggest to clients to do this themselves. Setup a paid test project, something that you actually need done. Be sure to pay for a person’s time, that’s really important. Nothing is more powerful than seeing how people work with you and how they engage with you. If they do well through that, we usually do a second layer of interviews which have to do with your team, with who would be their supervisor. After that, we always highly recommend references. Checking references both given references and back channel references. That’s the one thing I tell founders. “If you do anything, just check references,” that’s the only take away.
Some of the worst hires I ever made, years later talking to people who maybe have worked with them, there’s always a pattern where it was like, maybe they’ve gotten lucky and gotten some good jobs that had high name worth at the company, and they had floated on other people’s success, or maybe didn’t have the skills but they were great talkers.
If I haven’t just spoken to a few references, and the way we do references as we think of are people you worked for, people you worked with, and people who worked for you, because somebody can trick one of those subsets. Maybe your boss thinks you’re great, but the people who work with you and work under you think you’re terrible, and vice versa. It’s really important to get all three of those categories. From there, we usually start to get our preview of a good holistic view of a candidate.
Rob: Very cool. That’s kind of a mini clinic in the hiring process. I really like that. I like most of the stuff you said there, but the write well piece is something that I really focus on. Even when hiring developers, that was the thing I was super picky about.
Maren Kate: And following instructions, that’s a huge one too. It’s amazing how few people follow instructions. Also just somebody who really vibes with your company and your culture. This is why I say when you’re writing your job description, let your company, let your culture, let your flavor of weird shine through. The right job description, it will scare most people off, but it will really attract the people that are like minds, and that’s what you want, versus a generic, bland job description.
Rob: Awesome. You’re talking about this topic in a couple months in MicroConf Minneapolis. If you’re listening to this and you’re not coming to MicroConf Growth yet, you should think about getting a ticket to hear a 40-minute talk for Maren on this topic. If folks want to keep up with you in the meantime over the next couple of months, you’re MarenKate on Twitter, and AVRA Talent everywhere, avratalent.com.
Maren Kate: Yeah, absolutely.
Rob: Sounds great. Thanks again Maren. Thanks so much for joining me on the show.
Maren Kate: Absolutely.
Rob: If after listening to that you have a question for me, or you have a question for Maren Kate, I could invite her back on the show if you wanted to learn more about how she hires, thinks about hiring, really anything from her experience, you can email questions at startupsfortherestofus.com. We also have a voicemail line 888-801-9690, subscribe to us by searching for Startups in any Podcatcher, and of course, we have a full transcript of each episode available within a few weeks of the episode going live. Thanks so much for listening again this week. It’s great to have you here, see you next time.
She got to about $1 million monthly run rate, so almost $12 million a year. In 2015, they were burning a couple hundred thousand dollars a month. At a certain point, they weren’t able to raise that next round of funding and finances were screwed up. You’ll hear us talk about it in this interview but it’s a fascinating and frankly it’s a devastating story to hear how Zirtual did implode and to hear Maren recount what that felt like, but she bounced back and we hear how she then went out to start her next company AVRA Talent just a year later.
We dig into Maren’s expertise and experience in hiring people. She’s had so much experience doing this. You can imagine having 400 employees, although you don’t hire everyone yourself, as a CEO, you certainly have a lot of influence on that process. Now, AVRA Talent is a recruiting agency in essence. They have a really refined system of how to do this and how to vet candidates. We dig into that towards the latter half of the interview. Without further ado, let’s dive into my conversation with Maren Kate.
Maren Kate, thanks so much for joining me on the show.
Maren Kate: Hi, thanks for having me.
Rob: Absolutely. You folks have heard in the intro about this amazing growth story of Zirtual, but I want to go back to when you decided to raise money, because you bootstrapped Zirtual for two years and then made the choice to raise money. A lot of listeners to this podcast, if I were to break it down, I’d say 90% want to bootstrap or self fund and there’s around 10% in this MicroConf, Startups For The Rest Of Us community that do raise funding and they don’t tend to want to go on the VC track, but they do raise $500,000, $250,000 from Angels or from TinySeed. It’s not binary in our space. The funding is good and not funding is bad or anything like that, but I’m curious how that decision came about for you and why you decided to go that route.
Maren Kate: Yeah, I wish I had a more thoughtful answer but the honest answer is I decided to go that route because we were in a place where we were growing, we were profitable but by a slim margin just because we were supporting our team, we had bootstrapped from day one, we didn’t take on any external funding. I didn’t self fund because I didn’t have any money, so every dollar in was all we had.
We were in Silicon Valley in San Francisco, me and my co-founders Collin and Eric. Especially at the time, I think it was and in 2012, it was just a really frothy time. Everyone that we knew raised money instead of asking what your business is. You tell them instead of saying, “What do you do you?” or “Blah, blah, blah,” they would say, “How much will you raise and from who?” It was the kind of ecosystem we were in.
We got really lucky. I got connected to someone through a client of Zirtual who really liked our culture and kind of the vision of the company, and pretty quickly offered to lead our series A. That happens once in a million. I didn’t realize that because it was my first time fundraising, so it was epic. That really made the rest of the deal really easy to close out because in fundraising, if you have a well known need, everybody else would just be like, “Awesome, sounds good.”
The reason we fundraised is because we could, it wasn’t super difficult. At the moment, it seemed like it would solve all our problems because going from kind of hand-to-mouth bootstrapping, all of a sudden we had $2 million in the bank.
Rob: And then you went on to raise a total of $5.5 million over a few years. Did you later regret that given that venture capital often makes us want to grow faster and makes us burn money, because it’s there and that’s what it’s used for. But given how things turned out, did you or do you have regrets? Did you think it was the right call?
Maren Kate: It’s hard. All of the mistakes that I’ve made have been incredible learning experiences. They’ve been incredibly hard learning experiences, but I wouldn’t trade the learning I have now for anything. That being said, if I could keep that learning and make better choices, obviously I would, but that’s not how the world works. I’d say if I was and I hopped on this, I talk to people that are starting similar businesses and they always want to know about raising money. What I’ve said is we were not a venture backable business. We got venture backing, which happens often, but we are a services business. We had no technology component. Even over the three-and-a-half years after raising money, we built very little technology.
We grew really fast because part of the raising money and we had a really awesome product and we had pretty good word of mouth and if we had not raised money, we would’ve had to really restrict that growth. In the short term, that would have been hard, but in the long term it would’ve made for a much more sustainable company.
Zirtual is still around, it’s run by startups.com. They kind of bought the assets and restarted it, it’s doing well and I think they have re-birthed it in the way that we originally did with, “Hey, we’re going to make this profitable. We’re going to make this focused on a service to the customer.” For that type of business, I think that is the right way to go.
If you’re building new technology, if you have to raise money because that’s the only way it’s going to get built, that makes total sense. But if you have a services business and people are paying you money for it, often you don’t need to raise money. It seems nice in the short term, but it has a lot of long term ramifications that people who are raising money for the first time often don’t realize.
Rob: You grew from essentially zero employees to 400 in the span of three or four years depending on how you count. What was that like being, because you’re pretty young at the time, were you like early to mid-20s?
Maren Kate: Yeah, I was super young and I was very green.
Rob: What was that like basically having a company with that many employees at that age?
Maren Kate: It felt exciting in vanity metric terms but it was exhausting, it was super overwhelming being the CEO of a fast growing company when you don’t have the experience. Also, I think just emotional maturity. I would say it was both really fun and gratifying and awesome experience in some ways and it was very overwhelming in other ways.
Rob: Yeah. Could you talk about, was there a time you can think of where you were overwhelmed as it was growing?
Maren Kate: It goes back to impostor syndrome, so we didn’t grow up in a family that had a lot of money, didn’t go to a fancy school, I wasn’t raised around businessmen where I learned all these things. When I came to San Francisco and especially as we raised money, and started growing, and started getting a lot of press, and kind of tech-darling status, I felt like a giant impostor. I say I have a blue collared chip on my shoulder that has lessened over the years, but at that time, when I was 25 was very intact. Instead of asking for help and being vulnerable and open and saying, “Hey, what’s going on here?” I felt like I had to figure everything out on my own.
I think that was because I felt like if I asked for help, people would be like, “Ha, we knew you didn’t know what you are doing,” like, “Get out of here, heck.” But that actually made for a very lonely experience, where as a 25 year old who didn’t have a lot of practical real world experience, I made a bunch of mistakes and so many of the mistakes, when I look back, were things that now more seasoned, it’s not reinventing the wheel, there are solutions for that. I think that’s kind of one of the biggest pain points, at least, that I experienced.
Rob: Yeah, I feel you. I resonate with that phrase, blue-collar chip on your shoulder, because I’m also—what’s funny is I grew up in the East Bay area, but I had nothing to do with the start up scene. My dad worked construction, my mom raised us with four kids and I like to say, solidly working class. I had no ins with people in Silicon Valley. When I started doing start ups, it really is a thing that that kind of weighs on you.
I’m curious, part of the story that’s come up, I have an assistant producer now and she did some research and read some articles and listened to interviews that you’ve done. It sounds like there was a turning point with Zirtual when you switched from contractors to employees and that things started turning there, can you talk us through that? Was that a decision you made? Did you have to make it and what were the ramifications of that?
Maren Kate: We thought we had to make it. This was during that time where a lot of the on demand gig work companies were starting to get fined or have lawsuits from the Department of Labor. We talked to some lawyers, and at this point we maybe 100 contractors and the fear was that someone was going to say, “Hey, you’re misclassifying your workers.” We didn’t think we were but there’s a 20-point test that you can do on the IRS website and it’s incredibly strict. We were like, “Maybe we should rethink the way we classify our workers and go from contractors to employees.”
Another driving thing behind this was we had amazing people on our team and they loved our mission, they loved the vision. They used to say they bleed Zirtual blue and they wanted to be part of the “team”. They wanted to have the option to get stock, they wanted to be employees, they wanted to have the option to get benefits. We made a call that was based a lot more on what we thought was the “right” thing to do. We did that without thoroughly thinking through the financial ramifications over the next few years.
We were using an outsourced CFO firm that one of our investors recommended to us, and I think that was one of the biggest mistakes we made at Zirtual. They were really, really bad, and again when you go to this impostor syndrome, I was working with a partner who was a CFO and had his MBA and yada-yada and I was an English literature drop out. He was like 27 at the time.
He would send over the P&L’s and I would go through them in my apartment and I’ll be like, “These don’t make sense. I’m no genius but…” and so again, same things like that. I would be like, “Well, he must know what he’s doing.” he has this firm, this fancy investor suggested him, but finally at some point, I went to our board, I was like, “These don’t make sense. These don’t add up.”
They looked at them and they were like, “Oh, yeah.” Literally, he’s doing math wrong. I’m like, “****. Well, what do I do?” They’re like, “Well, you should get rid of him.” Here’s another interim CMO firm. That was a huge mistake and I mean, at the end of the day, I’ll tell you one thing, it taught me a lot about finance. It also taught me just because I can balance my checkbook, I kind of thought, “Well, it’s cool. I’ll be able to keep all the numbers,” deal with them myself, and that is tragically untrue.
We wanted to do the right thing and make people employees and we didn’t really think through those repercussions. In retrospect, if I had to do it again, I would have changed our business model so we could keep people as contractors. It would have allowed us to actually pay them more as contractors and it would have made us be able to keep that kind of 50% margin we originally had.
Rob: Yeah, that’s really tough. I’ve been talking to startup founders for years as I was starting my own stuff and I always say, “If you’re going to start a tech company, you don’t have to learn to code, but learn just enough that you know when someone’s bullshitting you.” I feel the exact same way about finance. Finance is the same thing. I never took a finance class in college, but I’ve read enough books that I can hopefully spot something, just like you’re saying, you knew you had a Spidey sense that something was off. It’s like, “I got to trust that founder instinct on that.”
Maren Kate: Absolutely. I think in terms of those core competencies, I think the way our education system sets us up is woefully inadequate. Instead of taking calculus, you should be understanding how to manage a household budget, how to manage a business budget. I think the amazing part is now no matter what your income level is, if you can get online, you have access to all the knowledge in the world.
As founders or would be founders, it’s really important to educate ourselves on the building blocks of whatever business we’re in. If you’re going into the construction business, you should know the bolts, understand what’s going on there. If you’re going to be in tech, you should get a working understanding of exactly knowing someone’s bullshitting you. No matter what kind of business you’re in, you always need to keep an eye on that bottom line.
Rob: Unfortunately, we know how this story ends, ritualistically, you went under and you sold the assets to startups.com, but can you take me to that moment when you realize that you had run out of money and you needed to lay everyone off and shut the company down.
Maren Kate: Yeah, it was pretty horrible. We realized when we kicked out the one firm, finally brought in a director of finance internally, she was amazing. Within three weeks, she came back to me and she was like, “We’re running out of money.” I was like, “Oh no.” I went to my board, I went to all of our investors, told them and they were like, “Okay, well you guys need to raise the bridge,” I was like, alright.
Got that all set up, did the back of the napkin figuring out once we brought in the director of finance, she kind of was like, “Listen, 70% of the plans will never really make enough money to justify them,” but 30% of them will be calling Zirtual for business. They are the winners. We need to do a massive restructuring. We need to get rid of all the personal plans, we need to focus on business. We had everything built out.
We went to the board, we’re like, “Alright, we need $1.5 million to do this. Here’s the timeline.” Everybody said okay and then one of the VC’s, the same one that recommended the fantastic CFO firm, they said, “Actually, instead of giving you the $750,000 we said, we’re going to tranche it in three segments and we’re going to wait till everybody else’s money hits the bank before we put it in.” One thing about investors, and actually I’m realizing this as a lot of life that people tend to—they’re signaling, you are less likely to go in a restaurant if there’s no one there. If there’s a line, you’re more likely to stand in it.
Investors are very similar, if not even more, than the way we see that in the rest of the world. The moment someone kind of got cold feet, some other investors are like, “Well, we’re not going to put our money until this firm’s money is in first.” It was a catch 22 and I talked to one of our biggest shareholders, the person that was the representative on the board who had no business being there and later actually kind of came to me and apologized. He said, “Yeah, you know what, we have just enough in the bank to pay out this final payroll, pay off the taxes. I think you should just shut everything down.”
At this point, I was so kind of shell shocked and just absolutely emotionally, mentally, spiritually exhausted. I was like, “Okay, well, again, he knows more than me, so this is what we’ll do,” and trying to do right by the people by making sure that we didn’t keep open any longer because if we did, we might not be able to pay them everything. That’s when I know we spent four days trying to figure something out, nothing came through and that’s when I had to send the layoff email at 11:00 PM Sunday or 01:00 AM, I forgot when it was. I remember being in the office.
We look back and if I had it to do over, I would tell the guy who gave me that suggestion that that was the stupidest thing I’ve ever heard. I probably still would have to lay most people off, but I want to spend that week actually going around to a bunch of different firms saying, “Here’s our number. Here’s our business, let’s do a down round and we’re going to fix the company and focus on business.”
Rob: Wow, that sounds devastating. It sounds like one of the low points of your life perhaps.
Maren Kate: Yeah, absolutely.
Rob: That sounds incredible and you had to lay off, you mentioned it somewhere, that you had to lay off your mom and brother? Is that true?
Maren Kate: Yeah, they worked with me. Luckily, we are a close knit family and got through that but it was super bad..
Rob: There was obviously a lot of negativity coming at you after that. I’m sure from employees and I even think more direct articles on TechCrunch and other places that were talking about the big flame out. How did you handle that? Obviously, that sucks, and it’s people dragging you through the mud or whatever, but did you just black out, go offline for months, did you fight it? What was that like?
Maren Kate: No. I definitely went offline, because my whole thing was it doesn’t benefit me to hear a bunch of people tell me I’m ******, I already feel that so I’m covered there. I think honestly, probably, it was just like self preservation kicked in. I went offline for several months after we laid everybody off. Me, my co founders, and my brother wasn’t getting paid, and a few other awesome OGs in the company spent the next few months trying to make the transference to startups.com as simple as possible.
We kept working, cleaning things up and doing the best we could, and that was how I handled it. After the three months were up, I laid on the floor of my house at the time and just didn’t do much. After a few months of that, I didn’t have any money and I was like, “Crap, I really have to get back to work,” so I peeled myself up and got back on the saddle so to speak, but it was very devastating. It was absolutely hands down one of the low points of my life.
I think the reason was because I knew how many people it impacted and that’s what just crushed me, the investors, everybody else. We were such a tight knit group, and the people that were part of Zirtual were like an extension of our family, that was the hardest part.
Rob: I can only imagine. I’m speechless because like I’ve gone through hard things, but I’ve never had to do that. So many people will never have to in their entire entrepreneurial career. You go offline, how do you even recover from that? Mentally, it sounds like you were just, even before it was happening, there were just loads and loads of stress, because you’re growing this company, loads of stress as it’s kind of going down, and then this whole big thing happens, you go offline, but there has to be a healing process of taking a year off. In off, I mean I know you’re working and stuff, but what did you do to try to heal yourself to be able to get back on that horse and start what you’re working on now which is AVRA?
Maren Kate: I did kind of a deep dive. I started reading a lot which is kind of how I approach most things. I knew that this was either going to break me or I was going to figure out a way through it. I didn’t want it to break me. I think one of the things that actually kept me going was the sense of I have to make this right at some point in the future, in my life, and I still actually feel that very strongly.
There were definitely times where I would be in the shower and I was just like I can just slit my wrist and then not have to deal with this anymore, but that good old Presbyterian guilt I was like, “Yeah, but then that would really hurt my family, and my friends, and some employees, so that wouldn’t be fair to do it to them. Let’s try to get through this, let’s try to figure out a way to make this up to people at some point.” It sounds very morbid, but I actually think it was helpful. I always tell myself, I’ve never lived abroad and I was like, “Just figure out how to pay the bills, figure out how to maybe make this up to some people, and then you never lived abroad, so you’ve got it going,” at least try those three things.
Worst case scenario, if you can’t do either of those, then you can always kill yourself after you lived abroad. That actually got me through the first few months. After the really dark part passes, then you start to see through the mist. After the news cycle passed, after whatever else happened, I don’t know who the next target was in Silicon Valley, I was super lucky. I went through a really bad break up a few months later which was amazing especially since we live together. I was like, “Awesome,” that point was almost funny. I literally laughed. I said, “This could not be any…” I kind of took it as a sign. I was like, “Alright, I don’t have a house anymore.”
San Francisco has been really good to me in some ways and also been terrible. I was like, “Well, I want to live abroad,” and I got super lucky. I randomly got an offer from this company called Roam to head up their operations and they had co living locations all over the country. They’re like, “Part of this, Maren, is you’ll have to go and live with these different co living places and improve their operational efficiency,” I was like, “Literally, I’m on the next flight.”
I paired all my belongings down to suitcases, flip San Francisco off as I was flying out, and went and lived abroad for about a year which was wonderful. I also think just getting to see that the world is a lot bigger than the place you’re in was pretty ground breaking to me. I didn’t travel a lot as a kid outside of the states. To actually see how big the world is, and see how different people are, and to see what real struggle looks like, I was like, “Oh my gosh, you snooty bee, how dare you complain about this stuff. Don’t feel sorry for yourself, you’ve got nothing to complain about.”
I think that was one of the most transformational parts of my life. It was actually shaking myself out a bit by being able to see how big the world is, and how much opportunity, and then also how much suffering, and it really puts your own drama into a contrast.
Rob: It sounds like a really powerful way to reset. I think that travel can be such a therapeutic thing in that respect.
Maren Kate: Absolutely.
Rob: You took this time to recover, and then you got back on the horse, and you started AVRA Talent. Folks can check it out avratalent.com. Hire the best talent, regardless of geography. We connect employers with the top 5% of remote professionals tested and vetted for your specific needs. When I read that, I think of it as a contingency recruiting service. I’ve used those at previous places that I’ve worked. Can you talk to me about how you’re different?
Maren Kate: Yes. After I kind of did a post mortem on what happened at Zirtual, one of the biggest things that came back was that we had, and I had made some poor hiring choices along the way. When I think of hiring or recruiting, I actually think it has to do with anyone that is on the bus with you. That includes investors, that includes advisors, that includes employees. Just out of greenness, we had brought on some people that weren’t working great.
One of the biggest reasons I went back thinking that was, we didn’t want a thorough process. We were really good at recruiting our virtual assistants with this incredibly thorough process I think only half a percent got through and were hired, but when it came to our COO, or the outsourced CFO firm, or some people in our tech team, the process I ran was nonexistent. After Zirtual, I talked to some people, some founders while I was traveling abroad. I did a head of operations stint at Calm, the meditation app. I talked to the guys there. I was like, “Yeah, I just must be an idiot. I don’t know how to hire,” and they were like, “No, everybody actually has the same problem, we did a bunch of bad hires too.”
I was like, “I wonder if I could take the process, the structure that we did with recruiting our virtual assistants and apply that across different rules.” I started doing that as a consultant and then I decided to spin up an agency which is AVRA Talent. The way we differ I would say from the contingency recruiter is kind of 2-fold. We’re very focused on alignment, we only work with startups and companies whose culture and mission we can get behind. We charge a percentage of a placement fee, but we also charge an upfront $5000 retainer.
I started this from day one because one of the biggest problems I’ve realized in contingency recruiting is incentives are misaligned. Contingent recruiters incentive is to get you someone who’s the highest paid as fast as possible, because if they don’t get you that person before you hire them somewhere else, then they don’t make any money. That’s kind of one of the reasons that industry was so fractured and can have such a negative connotation, versus the way I talked to when I talk to founders.
I was like, “Listen, we’re going to do the work. We’re going to act kind of like your internal recruiting team. Each search we put several hundred human hours into. We’re going to put this retainer down. If we need to find you the person that you hire, then you’re going to pay us let’s say 15% of their base, and that $5000 will roll into that. If we don’t, if you bump into the next hire on the subway, that’s amazing. We want you to find the right person. It doesn’t matter how you come about them, but you’re still going to pay us for the time we spent,” and that model has worked really well for us.
We have four core values and alignment being the first one. In the last three years as AVRA has grown, we’ve actually gotten more and more focused on helping companies recruit fully remote talent. These are fully remote employees from engineering, to digital marketing, to operations, to product, to customer support. I think that is where we are the best in the world. That’s really where our focus is.
Rob: You’ve talked a lot about hiring and you obviously had to hire a lot of people. You mentioned somewhere that you kind of have this system and way of thinking about building a great company and it’s to bring on the best people, connect them to something bigger than themselves, empower them to do their thing, hire and fire according to company values. I wanted to get into that first piece which is bring on the best people. How do you do that? People listening to this podcast, there’s a lot of founders out there who maybe are hiring their first ever salesperson, their first customer support rep, or maybe they’re hiring their 10th or 20th employee, what’s that the CliffsNotes version of how do you bring on the best people.
Maren Kate: This is one of the reasons that I love remote recruiting so much, because if you’re trying to bring on the best person in say, San Francisco, you are competing with some of the well best funded, highest paying companies in the world, you’re kind of fighting a war. Versus if you are hiring in Boise, it’s a little bit easier, but there’s not as much talent that you’re looking for maybe with specific skills, and obviously technology companies and startups.
With remote recruiting, and this goes with anything, you can run this whether you’re hiring in an office in San Francisco or remote. At the end of the day, you just have to think of it the exact same way you think of a sales funnel. You need to get enough at the top of the funnel, and you need to filter them effectively through several steps to get down to the 5-7 candidates who really matter, who then you run through a more detailed process which would include test projects, references, cultural interviews, yada-yada. My favorite way of hiring is casting a really, really wide net and then setting up 5-7 steps in that funnel, so that the best people can shine through.
An example would be in my new startup that I’m spinning out, I’ve been recruiting for a founding product person, and a founding growth person. I would say at the top of the funnel, we’ve probably gotten 5-600 applicants on both sides. We’ve set different tests so to speak at different parts of the funnel and these cover the core values that we hold important. They cover the skills both soft and hard skills that are important for this role. As people go through different stages, and the funnel gets smaller and smaller, the best people start to really shine through.
Rob: Can you give an example of one or two of those stages? Is it like a 90-second video of yourself taking that exam or something?
Maren Kate: The way I like to think about it is just thinking what hiring normally is and then doing the exact opposite. Most companies approach hiring, they post a role and people submit their resume, and then it’s up to the hiring manager to go through all these resumes, and resumes are literally a terrible way of assessing fit. It goes back a stage. You want to figure out what is the role, what matters the most. You don’t say, “I want to hire a digital marketing manager,” you say, “This is the job or jobs I want this person to do. I want them to own our ad spend, I want them to be able to write great copy. I want them to be able to hire and manage designers, and I want them to be very analytical and be able to create reports.”
You can actually test that in different stages of the funnel. One example would be we have people submit resumes, but we don’t even look at them until maybe stage five. Instead, we would have three paragraph style questions that would be the first stage of the recruitment process. The very first one which we include in all hiring is, “What are you looking for in a role and what honestly draws you to this company and this role?” If people don’t fill that out in a meaningful way, in an honest way, we immediately disqualify them. Because if you want people that actually care about your product and your vision, then they should be able to articulate that.
We also ask them a few other questions and then we actually look at their writing and their communication which is incredibly important for most roles, especially ones that are remote. But going back to the digital marketing example, you want someone who can write well. It doesn’t matter if I look at their resume and they used to work for Apple, or Postmates, or one of these darlings, I’m not like, “Oh, they worked at Airbnb, they must be good,” that is not an indicator of success.
Instead, I actually look at the work they do. After that, we would yay or nay then someone on interview, or just glance and push through the top 20%, and then they would go on to another question, and we test the responsiveness as a really big one, and then we’ll get them into a phone screen where we’re talking about specific examples to understand, do they actually understand the role? How have they performed in their previous roles? A lot of those open ended like, “Tell me about a time,” questions. After that, there’s another longer test project.
We always suggest to clients to do this themselves. Setup a paid test project, something that you actually need done. Be sure to pay for a person’s time, that’s really important. Nothing is more powerful than seeing how people work with you and how they engage with you. If they do well through that, we usually do a second layer of interviews which have to do with your team, with who would be their supervisor. After that, we always highly recommend references. Checking references both given references and back channel references. That’s the one thing I tell founders. “If you do anything, just check references,” that’s the only take away.
Some of the worst hires I ever made, years later talking to people who maybe have worked with them, there’s always a pattern where it was like, maybe they’ve gotten lucky and gotten some good jobs that had high name worth at the company, and they had floated on other people’s success, or maybe didn’t have the skills but they were great talkers.
If I haven’t just spoken to a few references, and the way we do references as we think of are people you worked for, people you worked with, and people who worked for you, because somebody can trick one of those subsets. Maybe your boss thinks you’re great, but the people who work with you and work under you think you’re terrible, and vice versa. It’s really important to get all three of those categories. From there, we usually start to get our preview of a good holistic view of a candidate.
Rob: Very cool. That’s kind of a mini clinic in the hiring process. I really like that. I like most of the stuff you said there, but the write well piece is something that I really focus on. Even when hiring developers, that was the thing I was super picky about.
Maren Kate: And following instructions, that’s a huge one too. It’s amazing how few people follow instructions. Also just somebody who really vibes with your company and your culture. This is why I say when you’re writing your job description, let your company, let your culture, let your flavor of weird shine through. The right job description, it will scare most people off, but it will really attract the people that are like minds, and that’s what you want, versus a generic, bland job description.
Rob: Awesome. You’re talking about this topic in a couple months in MicroConf Minneapolis. If you’re listening to this and you’re not coming to MicroConf Growth yet, you should think about getting a ticket to hear a 40-minute talk for Maren on this topic. If folks want to keep up with you in the meantime over the next couple of months, you’re MarenKate on Twitter, and AVRA Talent everywhere, avratalent.com.
Maren Kate: Yeah, absolutely.
Rob: Sounds great. Thanks again Maren. Thanks so much for joining me on the show.
Maren Kate: Absolutely.
Rob: If after listening to that you have a question for me, or you have a question for Maren Kate, I could invite her back on the show if you wanted to learn more about how she hires, thinks about hiring, really anything from her experience, you can email questions at startupsfortherestofus.com. We also have a voicemail line 888-801-9690, subscribe to us by searching for Startups in any Podcatcher, and of course, we have a full transcript of each episode available within a few weeks of the episode going live. Thanks so much for listening again this week. It’s great to have you here, see you next time.
Episode 485 | Catching Up with Rob (An Interview by Dr. Sherry Walling)
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In this episode of Startups For The Rest Of Us, the tables have turned as Rob is interviewed by Dr. Sherry Walling. They talk MicroConf, the podcast, state of independent SaaS report and TinySeed but also explore bigger themes like what Rob wants to accomplish with all of his businesses and a unifying theme he’s established across the board.
Items mentioned in this episode:
Rob: Welcome to this week’s episode of Startups for the Rest of Us. I’m your host, Rob Walling. This week is a show we do about every three months. It’s a catch-up with me, my wife, Dr. Sherry Walling. She’s a clinical psychologist, a founder, and an executive coach. She comes on the show and interviews me about what I’ve been up to since the last interview. Tracy Osborn interviewed about three months ago. I hope you enjoy this episode as it continues to follow my story.
Sherry is (as I said) a clinical psychologist. She’s also built up a really nice personal brand in the space of helping founders succeed, and helping them stay the same while starting up. You can check her out at sherrywalling.com or @zenfounder on Twitter. With that, let’s dive in.
Sherry: All right. You feel ready?
Rob: Yup. I’m all good.
Sherry: You’re good to go? You’re focused? You’re here? You’re in the game?
Rob: Yup, I think so.
Sherry: It’s so much harder to talk about your own stuff than it is to interview other people.
Rob: I don’t know. Sometimes. I am on the interviewee side probably as much as I’m on the interviewer side. Maybe that’s not still true today, but I’m on it quite a bit, so I’m cool to chat.
Sherry: Do you tend to get the same questions over and over when people are interviewing you?
Rob: Yeah. If it’s a new audience, a new podcast, or someone’s who’s just doing a bunch of interviews with people that he or she doesn’t know. They kind of go with the surface stuff, and they have the same set of questions. They’re all pretty similar. But every once in a while, I go on a one called, What Works, I think it’s what it’s called, and she asked questions about values, imbuing things that you do with your values, and how you do it. It’s just a very different, whole different tact. Those can be interesting, or they catch off guard, frankly. They look at things from a different lens.
Sherry: What’s one of the most interesting questions that you’ve been asked recently?
Rob: That would probably be in that interview. She basically was saying, “How do you pass along your values?” or, “Which of your values do you want to be in the companies that you start and be delivered to the teams that you worked with?” and then, “How do you do that?” It was just a whole path of thinking about that. The reason it was interesting was because I had really not done a lot of thinking about it. I had to think on the spot what those things are and how I do those.
I listened to it today. It came out good. That’s actually the beauty of being asked the same questions over and over. You learn how you think about them. You learn how to answer them eloquently and in a way that’s succinct, not just you thinking out loud and trying to find your way to an answer.
Sherry: Okay. One of the things that I think is interesting about you is that you are working on three interrelated but separate businesses at the same time. The way in which those businesses are growing, they’re all growing and shifting right now. I’m curious how you direct that growth. Of course, we’ll talk about each of them separately. We’ll talk about MicroConf, we’ll talk about Startups for the Rest of Us, and of course, TinySeed. What’s the unifying thread? What are you trying to accomplish? What do you want out of these three businesses as they grow?
Rob: I realized this over the past two years after I left Drip. I was saying, “What should I do next?” I was looking at buying a tabletop gaming website. Just going completely off into a different direction, down a different path I had gone previously. But the more I looked at what I have done all these years for free (in essence), compared to the software products, the startups, and all that stuff that I had started, blogging, podcasting, and starting a conference are either completely revenue-neutral or rounding errors of revenue. But I did them, anyway.
That was a big sign to me that it should be the direction that I had. I realized that the things those had in common and that the three things you’re talking about—MicroConf, TinySeed, and the podcast—have in common is they help entrepreneurs. They help founders, they help us bring us strategies and tactics, but they also bring us together, and they inspire us to keep going.
Startups for the Rest of Us are free. It’s every week. There’s a little bit of community around it because you can tweet about it or be in the comments. You can hear other people answering questions and sending their questions in. But really, it’s a low level of engagement, and the cost is zero. If you take that up one notch, probably my first book Start Small, Stay Small is between $10-$25 depending on which version you buy. There’s no community there but there’s a lot of strategies, tactics, and some inspiration.
If you take it up another notch, then there’s MicroConf, which is our local events will be $99, and our growth is $1000 or $1100. There’s way more engagement. It’s super intense in terms of strategies, tactics, and inspiration, but they all do the same thing. They’re purely to help startup founders. One does it for free, one does it for cheap, and one does it for less cheap. Then there’s TinySeed. You can see the path, the thread that binds all those together. That’s really what I found of everything I’ve done in my life as a professional. That’s the most fun, and that’s the one that I’m most excited about. You can tell because I’ve been doing it for 15 years now. The same thing.
Sherry: But you’re a teacher. You’ve always been someone who learns something thoroughly, and then wants to explain it to someone else.
Rob: Yeah, there’s that element. That’s how it started with the blogging, the podcast, and the book (I guess). The interesting thing is it did not occur to me until a couple of years ago when it really hit me. I saw myself as a facilitator, getting people together to learn, and in the early days it was all about the tactics and the strategies. Then about (I’d say) seven years ago, we realized, “Boy, it’s much more about the relationships in the community,” and then a couple of years ago, I realized I really am bringing people together, like that’s the most important piece.
Sherry: It’s interesting to hear you say that as something that came to you later because in my life with you (which began 20 years ago), we identified ourselves as gatherers when we were in our early 20s. People would be at our house.
Rob: Yeah. That was always something we did, but you and I did that together. I didn’t know if I could do it on my own, if I should, or if I’m good at it. Then you looked at the track record of it. The interesting thing is when I actually looked at what I’ve done. There’s a certain amount of being successful, whether it’s as an entrepreneur or not, and it’s knowing myself. The more that I’ve learned about myself and removed those blind spots, the more I feel like I’m able to manage my own psychology, manage my own pros and cons, and strengths and weaknesses.
When I look back, I’ve had this blind spot of, I didn’t realize how much I wanted to get people together. You and I did it naturally (again) 20 years ago. One of my favorite parts of the podcast—which is a very unidirectional medium, is basically one or two people talking in the mic while everyone else was listening—are these Q&A episodes, where we get all the listener questions, feedback, and the voicemails. We can rally around that and feel like if you listened to five or six listener questions, you know, “Wow, it’s not just the two hosts that are answering this. It’s five or six other people.” Every month we do an episode. You hear they’re being people, even in the medium that is designed to not to be.
In my first book, I was going back and reading that, and I used a bunch of examples of Ruben Gomez, Ted and Harry from Moraware Software. I don’t remember who else, but even at that time when I didn’t need to do that, I realized that bringing other folks into the mix only benefits all of us. We are all smarter than me.
Then of course, MicroConf. Is that and TinySeed much more intense and much smaller scale? Having the batch of 10 founders is this super in-depth and intimate community.
Sherry: Let’s do a little bit of a deep dive into the podcast. There’s been some significant shifts lately. Mike is not on every week anymore, still part of the podcast but is not the weekly co-host. And you’ve made some other personnel changes by hiring an assistant producer. How’s that going?
Rob: It was touch and go at first. It’s just kind of scary to be on a show that has had a certain format for 450 episodes. Then there’s suddenly turned that over and say, “Can I do this? Can I really keep this going at a level that it deserves (given the audience), and just giving all the stuff we put out there?” Right now, it feels like since then, there were some touch and go moments, but pretty much everything feels up and to the right. I feel really positive about it.
I have a renewed energy around it, and I think people can feel that. I’m also, every week, thinking, what can I do differently this week? What can I mix up? The novelty of that, of even trying different formats, I’ve tried some that just don’t work out well, but people were like, “That was an interesting experiment. Have you thought about doing it this way?” It’s almost like customer development. Try something new and try something new, and just keep the variety going.
The interesting thing is when you do that, it takes a lot of time. You just don’t show up every week and talk for 30 minutes like we used to. That’s where the assistant producer comes in. I find myself spending more and more time each week just going guest research, writing questions, trying to find folks, and just doing all the stuff—calendaring, moving MP3 files from here to there, et cetera. It’s just all stuff someone else can be doing, so that’s really where I started looking for someone to help out and take that burden off because I wanted to keep doing it.
This is why podcasts stop. People can come up with great ideas and want to do them, but real life gets in the way. Running MicroConf and TinySeed, then having this podcast as well, there’s a lot going on in doing day-to-day stuff.
Sherry: Just a lot of admin, too. Moving files around is not that fun. You tried this discussion format. Did you enjoy that? Was it fun? What were the pros and cons of that?
Rob: Yeah. It was a news discussion show-type thing. It kind of worked. It mostly worked. It was super fun to record, but I think I want to put some tighter reins on the couple of the topics, and try to make them more current events. I also think that having three of us on the mic or even four at once and doing round-table on topics, I think it could be really interesting. I know a couple of other shows that do that. They focus on news topics like startup news or tech news. You hear a variety of voices from a variety of perspectives. It’s really interesting.
Again, that’s logistically a lot of work, to find those people, to find the time that works for everybody, then get all that audio files. Just get everything together. Writing the show notes, finding the topics, on and on and on. The shows I’m talking about are either the people who literally do them full time or they have full time staff doing them. That’s what I’m looking at. I’m expanding into that one because there’s no one doing that in our space. They do it more in the Silicon Valley or in the tech news space.
Sherry: Did you try a show format that you weren’t such a fan of? That you didn’t like? Or you didn’t feel like working well?
Rob: I don’t know. I did a couple of hot seats. I got mixed reviews or really I would ask people, “What’d you think of the hot seat?” They’re like, “Oh, you did a hot seat?” I was like, “Yeah. I went through this, this, and that.” Someone’s like, “Yeah, I don’t remember that episode,” which tells me it probably wasn’t memorable.
Sherry: It felt like an interview, maybe?
Rob: Yeah, I don’t know. I’ve also heard people say, “The ones where you go through with an entrepreneur, your troubleshooting things, and trying to think through, those are the most interesting ones,” which essentially are the ones with Mike and the ones that are hotseats. That’s always the issue. You only have a handful of data points in any of these things.
Even when I call for feedback and say, “I’m going to try this interview, call everybody back for a Q&A, and try this thing out. Give me your feedback.” I will get 5 or 6 people who sent me an email or tweet me out, or maybe it’s 10 or 12. But it’s not so many data points, that it’s not an end of 100 or 1000. I will often get two that say, “Yeah. That was really good.” And two that say, “I was kind of bored.” What do you do with that, at that point?
Sherry: You keep going.
Rob: Yeah, no doubt.
Sherry: Which is what you’ve done for 10 years now. The 10-year anniversary of the podcast is next month. Is that true? Is it really 10 years? That’s crazy long!
Rob: Yeah. March of 2010 was our first episode.
Sherry: Wow. Almost 500 episodes.
Rob: Yeah, that’ll be in June, that 500th episode.
Sherry: Dude, you’re an old podcaster.
Rob: It’s just really ancient in podcast years, yeah.
Sherry: In podcast years, that’s OG for sure.
Rob: Yeah. It’s a trip. To me, the 500th episode is a big milestone. 10 years and still super interesting. I don’t know if I’ll do anything fancy for that but 500th episode, I’m trying to wrap my brain of like, what do you do to celebrate that? What do you do that’s different not just the same episode that hasn’t been done before?
Sherry: What are you going to do?
Rob: I don’t know yet. I’m still thinking about it. I have some ideas.
Sherry: If you could live podcast while skydiving.
Rob: I could do that. I think the audio quality would probably not be great. Imagine that. “I’m your host Rob Walling.”
Sherry: It’s just like a long scream.
Rob: That’s the thing. A bunch of the formats that I do here, Mike and I did a live podcast recording at MicroConf Europe for our 300th episode. It’s okay. As a podcast, live podcasts are not that interesting. They’re always my least favorite. If I’m listening to a series and I do a live show, I’m sure they’re great fun to be there in person. There’s that energy, but it’s not as interesting. People are either… I don’t know. I don’t even want to conjecture why that is. I just know that I’ve listened to 10–15 live episodes from different podcasts that normally record in a studio. They’re just off their game. I can’t think of a single one that was better than just the normal episode that I normally record.
Sherry: I’m curious what the audience would recommend or would want to do with the 500th episode.
Rob: Yeah. I’d be happy to take suggestions either at Twitter @robwalling or questions@startupsfortherestofus.com. Definitely open to ideas and ask a few close friends of mine who listen to a lot of podcasts, what are the best episodes you’ve heard. Again, I have some ideas. I’m just trying to whittle it down and figure out what. I can come up with ideas that are really, really, a lot of work, and I’m trying to figure out how to either pair that down or make it happen or whatever.
Sherry: If work, money, time, and resources were no option, what would you do?
Rob: No limit, I would have 500 startups experts, founders, or people we respect answer a question, ask me a question, or something outrageous.
Sherry: That’s a really long podcast.
Rob: Well, that’s the problem. I can’t do that.
Sherry: 24 hours of Startups for the Rest of Us.
Rob: Right. Wouldn’t that be a stunt? Wouldn’t that be crazy?
Sherry: It would be a stunt, that’s for sure.
Rob: A three to four hour podcast. Maybe don’t do 500. Maybe just do 10. You can just see where it goes. I have to arrange that and figure out who to ask, get the files back, and all of that. And it has been done. I kind of have enjoyed some of those episodes we’ve done it ourselves. Our 100th episode was basically asking a bunch of people a question. We’ve got, I don’t remember, it was like Shawn Ellison, Andrew Warner, and a bunch of people answering questions that we tied in. That was a fun one. But, do that again for 500?
Sherry: I don’t know. I just know that the need to do something novel or new with that big pizzazz is maybe the best way to celebrate 500 episodes. I mean, 500 episodes is just relentless execution which is the Rob Walling theme. I don’t know about this pressure to do something new.
Rob: It’s possible. We did it for 400. We have a lot of these out. Four hundred was just an episode Mike and I recorded about being consistent. That was the whole thing. We looked back, and we talked about our metrics changes, audience listenership, and how we have shown up every week, why we show up every week, just all that stuff. We have done that, I’ll say, but I certainly could revisit that theme for sure.
Sherry: Well, that would be consistent.
Rob: Indeed.
Sherry: Right alongside this monster anniversary for Startups for the Rest of Us, you also have a new little baby podcast, the TinySeed Tales. I have to tell you, every time I see that title, I think about the DuckTales, a Disney show that existed when I was a kid.
Rob: That was an awesome show. That show holds up.
Sherry: It had this really cool song. So TinySeed Tales. How’s that going? You launched season one.
Rob: Yeah, season one went out. It was a podcast I wanted to do for years, but it took a lot of time and a lot of money because we have to pay a producer who’s producing it at a pretty high level, voiceovers, scriptwriting, and all that stuff. That was a cool experience to see how that’s done. You haven’t heard any episodes right?
Sherry: No. Confessions of the wife.
Rob: I know you don’t listen to my podcast and I listen to yours. Let’s put that for the record. If you listen to nothing else, you should listen to TinySeed Tales. It’s 8 episodes, they’re 20 minutes each.
Sherry: Why should I listen to it, Rob?
Rob: Because it’s good radio. It’s really good.
Sherry: What makes it good radio. I know it’s not just the production value, the money, and the time. Why is it good?
Rob: One part is you talk for 40 minutes then you take the best 15 minutes of all that audio. You pack it together, write five minutes of voice-overs. That is inherently going to be more interesting than a 40 minutes interview. You just get better tape. In addition, I really started doubling down in my interviewing skills right before that because I didn’t want it to suck. You know me when I’m new to something or feel like I’m not good at something, I dive in pretty deep.
Probably some of my best interviews I’ve given are in TinySeed Tales. The first season was with Craig from Castos. He’s also very thoughtful, he’s really good on the mic, it was a very natural fit for him to do. He wasn’t nervous. I could imagine doing it with somebody who hasn’t podcasted before, and I think it would have been a lot more challenging. Then there’s cool music, too.
Sherry: Oh, as long as there’s cool music. Is it the Tiny Tales theme song like DuckTales?
Rob: No, but we should’ve done that now that you said that. Dude, you’re mocking it. DuckTales holds up. It’s one of the cartoons from the 80s that’s considered to be very good.
Sherry: I’m not mocking it. I am singing along. You misunderstand me, sir. I’m not mocking it.
Rob: They’re redone it; Disney just redid it. The new one has Chucks, too.
Sherry: Have you been watching Disney Plus at night while I’m sleeping?
Rob: No. Maybe Finn has.
Sherry: Okay. One last question about the podcast. I know there’s lots of other things that you’ve been working on that I want to ask you about. What is your growth area in podcasting?
Rob: What do you mean? What growth area?
Sherry: You’ve been doing this for 10 years. What are you working on getting better at? What are you continuing to learn about and press into as someone who is guiding Startups for the Rest of Us?
Rob: Two things, you’ve heard me do intros and outros or solo episodes. I want to be able to do those almost without editing. When you and I are here talking, I’m not starting and stopping 20 times for five minutes of response. It’s just a natural conversation that flows. When I sit down to intro and outro this episode, Josh, our editor, is cringing right now thinking of how much he has to edit those two minute or three minute intros. Something about it when someone else’s not in the mic, I get stuck. It’s weird. I’m trying to work through that.
The other thing that’s more visible to the listeners is every interview I do, I’m trying to become a better interviewer. I’m trying to get better asking the right questions, asking them in a way that brings out the interesting answers, that touches on the emotions, but also brings out tactics and learnings. There’s a lot to be learned there. That’s what’s still exciting for me about the podcast. I think once I peek at anything, most of us, once you peak and you’re like, “That’s it. I’m the best there is,” it’s only downhill from there. That still feels like I can see a lot of mountains up ahead of me that I haven’t climbed here with podcasting. I think I can only get better in a lot of ways.
Sherry: Are you going to be doing this in 10 years?
Rob: I don’t know. I would say yes because that’s my personality, to just do things forever. I said that on purpose. I said it on purpose because I knew you’d laugh. Every software company I ever started I have not done forever.
Sherry: I know. That is absolutely not true, Rob Walling.
Rob: That’s the opposite, yeah. The Interesting thing is with books, blogs, podcasts, conferences, that stuff, I have done for a very long time. That was the signal a couple of years ago where I was, “I keep coming back to these things,” and podcasting is one. TinySeed Tales, while it’s been on this feed, I’m setting up another feed for it, and it’s going to be in seasons. But really, I have two podcasts now, and I could see having another. I enjoy it that much. I enjoy consuming podcasts that much, and I enjoy creating them a lot.
Do I think I will be podcasting in 10 years? I do. I think it might be Startups for the Rest of Us, but who knows? So much can change. If you think back 10 years ago, I hadn’t started Drip. I hadn’t bought HitTail. I hadn’t started this podcast. So much was different, so when I think 10 years ahead from now, where could that lead?
Sherry: Speaking of things leading places, let’s shift gears, move down the funnel a little bit, and talk about MicroConf. It has been a huge year for MicroConf already. You did this big announcement talking about reorganizing the schedule and structure of MicroConf. We are getting ready for MicroConf here in Minneapolis in just a few months, which I’m very excited about. So, 2020 compared to 2019, what are the significant changes that you’re implementing with MicroConf?
Rob: As you said, it’s a huge change. In 2019, we did three in-person events.
Sherry: Which was Growth Starter in Europe. Now, what’s 2020 looking like?
Rob: We’re doing seven in-person events. It’s Growth Starter in Europe, and then four were local events.
Sherry: You just sent me all the calendar invites in these events yesterday, and I was like, “Holy crap, you’re basically gone most of the month of October traveling around doing the MicroConf Roadshow.” It’s what I’m going to affectionately call it.
Rob: Yup. That’s exactly a good name for it. We went to seven of those, then we were doing the State of Independent SaaS reports. I’ll say we’re doing it. We did the survey, issued the report, did a live stream, which is I’ve talked about was quite an endeavor and a little bit nerve-wracking.
Sherry: A little bit nerve-wracking? Are you kidding me? You were sweating that for weeks. I haven’t seen you that stressed about something. Maybe the Drip sale or the decision to leave Drip, but you were like, “Which outfit should I wear?” It was really occupying a lot of space. Why do you think it was so challenging?
Rob: Probably because I wrote this blog post here years ago called Terror of First. I said that the first time you do anything, it terrifies you. Then, you just do it until you get numb to it. Pretty soon you’ll get better at it, and you’ll get more comfortable with it. First time I ever published a blog post, I was freaking out. First time I ever published a podcast episode, I was freaking out. First time I ever did a talk in front of people, I was freaking out. On and on and on. Each of those I have become more comfortable with. I think most of us do, and that this was one.
Doing a 30-minute live stream where you are standing, looking at a camera and nothing else, is not the same as standing on a stage at a conference and talking to 500 or 1000 people. It’s crazy how different it is. The energy is different. It’s a skill and it’s something that, if you’d ask me what’s my personal development this year, a lot of it is that it’s getting better in front of a camera. I’m not nervous. I don’t get the sweaty palms, hair standing up at the back of my neck, and throat closing. I don’t get that. You just get awkward naturally. The camera just doesn’t feel like a natural conversation because you’re talking to no one. You’re […] an abyss and trying to have a personality, and I don’t think it’s a natural thing for us to do, at least for me. I’ll speak for myself.
Sherry: Oh, no. It goes against every part of our brains that’s geared towards interactive communication.
Rob: Yeah. No one’s nodding. No one’s saying, “Uh-huh.” You’re not getting any positive feedback, which in an event, I can be nervous, get up, start doing a talk, I start talking about things, I see people in the audience are going with it, they’re smiling, and I’m like, “Yeah, yeah.” You feed off that energy. You know that feeling.
Sherry: Oh, yeah.
Rob: And you don’t get that with the thing. That’s where, standing for 30 minutes with no script, no cue cards, talking, and knowing that there’s really no cutaways, even to get a drink, there was not enough time for me to stop and get a drink of water in the middle of that. I could have, but people would literally be waiting on a live stream while you do that. That’s a new experience for me. I’m sure over time, it will become more comfortable just like now on stage. If I need to stop and get a drink, the deafening silence that you hear…
Remember the first time you did a talk whenever you were quiet? It sounded deafening like you should be feeling the silence. Everyone was waiting for you to say the next word. Then, the 10th or the 20th talk you do, you’re like, “The silence helps.” It gives people space.
Sherry: Yeah, the silence is fine.
Rob: Yup. That’s where doing a live stream like that, I was like, “Which rules apply? Which don’t? What do I have to adjust here? How do I get in front of this many people?” It got recorded and now it’s on YouTube. I think it’s 2500 or 3000 views. I’m going to be seen by 3000 people on the camera. How do I make that interesting for them? How do I make it provide that value of 3000 people giving me 30 minutes of their time?
Sherry: Why was it so important for you to do this State of Independence SaaS? To do the report, to do the study, then to do a live stream? Why is that significant?
Rob: The report for me is like a passion project that I’ve been wanting to do for years because there just hasn’t been data in our space. We see all these reports about venture capital raising companies, their stats, and their benchmarks. I’ve just been so curious because people asked me, “How many people go to MicroConf have raised some kind of funding?” I was like, “I think about 10% but I don’t know.” I was super curious to hear that. I have all these rules of thumb like what your churn should be, what’s good, bad, and great churn, trial-to-paid conversion ratio, just all these metrics that I have developed the rules of thumb over the years, but it’s just from seeing a bunch of apps. It’s beyond anecdotal. It’s not that I had an end of one, but I had an end of dozens, I’ll say, that I’ve combined, and I wanted to see how those held up.
It wasn’t just a personal thing. I want this whole space. I think this is the future. I believe that this space is the future because venture capital can only be invested. It’s like 1 in every 100 startups or something; it’s a really small number. We’re “for the rest of us.” We’re startups for the rest of us. We’re the other 99%. I believed as we move forward (and had believed this for a long time), we are the long tail of startups, so where’s the data on us? Where’s the stuff to help us? Where’s the stuff to give us some type of benchmarks?
Sherry: How do you see the information in this report and in the live stream impacting an individual founder?
Rob: The live stream was 22 minutes, plus Q&A of me just walking through some high-level findings, and it was to get people interested enough in it to read the report. The report itself is 65-80 pages, depending on which version you get. There’s a lot more in the report. You can think of the live stream almost as an advertisement to download the report. Just to be like, “Hey, look at this thing. This is interesting and these are my thoughts about it.”
Sherry: It’s an abstract.
Rob: It is, that’s a good point. An abstract, like an academic paper. Whereas the report, if I was the founder, I would be looking, “Oh, where am I? What percentile am I at with my churn, with my trial-to-paid, and with my hours worked per week? With how many years I’ve been in the business versus growth?” There were just all types of findings in there that I think it depends on your situation that we can benchmark ourselves to. In addition, there were some interesting findings with which marketing approaches, which advertising approaches, are working best for you right now.
We now have a ranking on that in our space. We have payback periods for Facebook and Google Ads. You can see it. My gut was always, “1–3 or 1–4 months is where we want to be as bootstrappers, indie-funded, self-funded, founders.” That was the majority (I think) or maybe it was 40% or 50%. Again, it reinforces some stuff that I already knew. If I hadn’t already known that or if you’re just coming new to the space, you’re just trying to figure stuff out, you can just look through, and be like, “Okay. This is the sanity check range of where most people are.”
Sherry: And on some really, really, concrete things that affect choices that founders make every day. What’s this MicroConf Connect? More Slack channels for me to deal with? Oh my God, why would I do that?
Rob: Yay. I’m totally going to invite you. That’s another thing. It’s the State of Independence SaaS live stream. We’re doing a MicroConf Remote, which is a remote event here in (I think it’s) July or August. I don’t know if we have the date nailed down yet. Then, we have long been asked like, “I want to stay in touch with folks from MicroConf year round; there’s no way to do that,” because would set up a Slack channel for an event, use that as a communication method, then we shut it down 30 days later. The reason we did it is because managing a Slack channel is a lot of work. You need to moderate it, keep it healthy, and there’s all kind of stuff to be done.
We now have the resources to do that. So, that’s what it is. It’s connecting founders, it’s an online home for the MicroConf community, founders and aspiring founders who want to build these ambitious startups, as I often say in the intro of this podcast.
Sherry: All of this stuff and change that’s going on with MicroConf in it, it is all rebranded and packaged in a great website now. You have that all redesigned and redone.
Rob: That feels really good.
Sherry: It looks so much better.
Rob: It was a side project. That’s the thing. The podcast and the MicroConf were literally side projects of Mike and I. We both felt like these should get more do. These are good things that should be treated better, look better. It feels good to finally have a logo that (I think) will last us a long time on a website and all that stuff. That’s been the big push since we brought Sander on full- time here about six months ago. It’s just getting your ducks in a row, how these all fit together, and how do we expand this in a way that helps more founders.
It comes back to that whole thing, why am I doing this? Because it excites me. I want to be in the space. I want to help founders. So, how do you help more founders? You do stuff that’s hopefully cheaper because a lot of people are bootstrapping, and you try to reach more people. That’s where you get the remote and local events where we roadshow out to folks, so they don’t have to travel.
It’s been a fun experience to try to brainstorm how to do that, how to accomplish that.
Sherry: What founders need.
Rob: Yeah, and how to do it in a way that’s economically viable. If you think about MicroConf being three in-person events per year, you can’t just expand that infinitely. It doesn’t scale. You can’t do 100 events per year. You can’t easily switch to that. How do you do that and expand it in a way that’s intelligent? Intelligent but somewhat scalable. That’s a balance we’re trying to strike. Some online stuff, some in-person.
Sherry: You just need to see it grow up. I think Startups for the Rest of Us, MicroConf, as you said, they were side projects. They were things that you did on the evenings and weekends when you were running your real company. Now that you have more time and energy to devote to them, they really are starting to look like that, and reflect that this is some of the core of what you’re doing, what you’re working on, and the ways that you’re serving the founder community. I love how they look. Both the Startups for the Rest of Us and the MicroConf websites are looking good.
Let’s talk a little bit about TinySeed. Since that is (I guess) your “real business” now.
Rob: Yeah, for sure.
Sherry: You’ve closed the batch two, right?
Rob: Almost there. We’ve made offers. We’ve had verbal yeses if everything goes through. You never know what’s going to happen when you get due diligence and paperwork, and we’ve basically in the midst of that right now, so sending docs, getting some stuff signed.
Sherry: Is that the least fun part?
Rob: For me, yes. The due diligence. I think for everybody, probably. It’s the due diligence, trying to get docs signed, and just all the questions.
Sherry: Paperwork.
Rob: Totally. Papers and paychecks. It’s been really nice to have Tracy around because she’s spending a lot of time that I spent last batch. She’s focusing on that and then Einar’s, working with her on that. Given the podcast expansion and the MicroConf expansion. It was like, “I can’t do that again.” You can only do so many things at once. That’s been the reason I haven’t been able to focus more on these other things.
Sherry: Is it the hope to bring batch one and batch two together in Minneapolis right around MicroConf time? Just everything converges?
Rob: Yeah, it does, which is kind of cool. That was by design and it will be by design. Since we are remote, there’s not a ton of overlap between the batches. It’s neat to be able to have the batch two meet batch one, and hang out. There’s the alumni association, so to speak. That’s a big factor in a lot of these accelerators. It will be in TinySeed, where the alumni help the next batch get acclimated, and can offer some mentorship or some guidance on a number of fronts. I think that’s the value.
Sherry: Yeah. They become mentors of sorts.
Rob: Exactly. That’s such a big part of the value of being an accelerator and not just being a fund. When you have a fund, you write checks to companies. Oftentimes, they never meet. They don’t really know each other. They’ll know of each other but they won’t hang out together. The batch part brings people together in such a tight community, and even across batches, being able to propagate that, and to have—by the time you get to batch three, four, or five—them reaching back to batch one who (a lot of those companies) will be wildly successful at that point. I’m willing to wager and have been willing to wager. They’re able to then continue to learn from them and also get introductions and work on the networks. The network of TinySeed founders will expand naturally each year.
Sherry: What changes have you made between batch one and batch two?
Rob: The process for batch two, the application process was more streamlined. It was just a better process. Of course, we tweak the application questions a lot. It was good to have three people who weren’t just myself. Actually, you were involved more on the first one because I have someone off questions. This time, Tracy took a lot of the third person role to weigh in on things. That was helpful.
We did change the funding amounts. We tweaked them very minorly. The version two terms, I believe, are the same. I don’t think we changed that term at all. Then batch two, we’ll tweak some stuff with the calls. We’re going to do fewer retreats. We did four retreats this year and our feedback was…
Sherry: Too much time in Florida?
Rob: One, too many retreats. Yeah. We’re going to move to three in-person gatherings which feels good.
Sherry: It’s nice to have some space to implement all of that retreat content between time.
Rob: Yeah, that’s the idea. What we found is you learn a ton in the first couple of months, let’s say, 3–5 months, 3–6 months. Then you really know where you’re headed after that. You have some small questions beyond that but it’s not the huge directional shift. Like in the first two months, we had multiple people that needed to completely redo pieces of their business. You’re charging three times too little or your on-boarding is no good. Your entire pricing structure is off. Let’s help you figure out how to tweak that or your copy is this. There’s some major changes. While those continue to happen in some former fashion, it’s not to the extent of the first few months of a program like this. There’s actually less of a need as you get through the program.
There’s a reason why a lot of accelerators are three months. You can provide a lot of value in that time. Of course, their goals to raise around haven’t really raised funding. That’s not our goal. We do think that SaaS, we know that takes a lot longer. We do want it to be longer than 3 months, but we also think that a call every week for 12 months is probably the initial hypothesis. It starts to feel a little heavy as you get further and further in. It’s like, “Do we really need two mentor calls a month still?” Even if there were 8, 9, 10, months into this. Or, am I just focusing on needing to implement right now? It’s almost accountability mode. I need someone to keep me accountable to sanity checks and stuff, to just keep me accountable to continue to implement these plans that I’m trying to get done by month 12.
We really have seen a shift in a lot of the thought process and the stages these companies are at, which is good. It shows there are emotions. A lot of folks came in relatively early stage and you hit a point where you don’t need all that anymore. You’re just plowing forward, blocking, and tackling, as they say. Just implementing.
Sherry: What are you most excited about a new batch, another round?
Rob: I think that with any startup founder (which I still consider myself), we’re implementing some things differently. I’m excited to see how that works out and don’t work out. I’m excited to get to know everyone. The relationships that I’ve had with batch 1 founders are truly valuable to me. And I don’t mean monetarily. I mean, I would call so many of these folk friends. Certainly, deep acquaintances but people that I enjoy hanging out with that I truly wish a lot of success on. I truly wish that they have a lot of success, purely because I think they’ve worked hard. Building new relationships is probably the best way to say it. That feels exciting. It’s exciting to me to be able to help people. It’s another group of folks.
Sherry: Yeah. It’s a deep investment in humans.
Rob: That’s what it is. That’s the part that excited me the most. Just in general, investing deeply.
Sherry: Well, you have a big year. Has it been two years since you left Drip? Almost two years?
Rob: Yeah, almost two years.
Sherry: There’s been phenomenal change in growth, the development, the inception of TinySeed, all the way to now, your second batch. It’s amazing to see the pace which you’ve moved, but also, you’ve been executing on these ideas and these materials for many years, at least 10 with the podcast. Again, we have that dichotomy of 20 years to overnight success.
Rob: Yeah, that’s how it feels. It’s that thing of showing up every day. It’s relentless execution, but what’s funny is that it makes it sound like you work to the bone constantly and work 60 hours a week. That’s not what I do. Not really what I’ve ever done for any stretch of time. You can build it up, as you’re saying, but you do anything consistently for 10 years. You’re going to make some progress. You’re going to get better at it. You’re going to build something.
Sherry: Thanks for letting me take over your podcast today.
Rob: Yeah, it was great. I enjoyed the conversation. It’s cool to be interviewed by different people because they think about things along different axes, lands in different questions, and looks at progress along different axes, I guess, to say again. Yeah, I really appreciate you taking the time to come on the show.
If the folks want to keep up with you, you have your own podcast called ZenFounder. You are @zenfounder on Twitter and sherrywalling.com on the Interwebs. Thanks again to Sherry for coming in the show and look for another Rob catch-up episode here in about three months.
In the meantime, if you have questions for me or other guests who appeared on the show, please send me an email at questions@startupsfortherestofus.com. We also have a voicemail line people use from time to time, (888) 801-9690. As always, voicemails and audio files go to the top of the stack. If you’re not already subscribed to Startups for the Rest of Us, head to your podcatcher, search for startups. We’re typically in the top five. Thanks for listening. I’ll see you next week.
Sherry is (as I said) a clinical psychologist. She’s also built up a really nice personal brand in the space of helping founders succeed, and helping them stay the same while starting up. You can check her out at sherrywalling.com or @zenfounder on Twitter. With that, let’s dive in.
Sherry: All right. You feel ready?
Rob: Yup. I’m all good.
Sherry: You’re good to go? You’re focused? You’re here? You’re in the game?
Rob: Yup, I think so.
Sherry: It’s so much harder to talk about your own stuff than it is to interview other people.
Rob: I don’t know. Sometimes. I am on the interviewee side probably as much as I’m on the interviewer side. Maybe that’s not still true today, but I’m on it quite a bit, so I’m cool to chat.
Sherry: Do you tend to get the same questions over and over when people are interviewing you?
Rob: Yeah. If it’s a new audience, a new podcast, or someone’s who’s just doing a bunch of interviews with people that he or she doesn’t know. They kind of go with the surface stuff, and they have the same set of questions. They’re all pretty similar. But every once in a while, I go on a one called, What Works, I think it’s what it’s called, and she asked questions about values, imbuing things that you do with your values, and how you do it. It’s just a very different, whole different tact. Those can be interesting, or they catch off guard, frankly. They look at things from a different lens.
Sherry: What’s one of the most interesting questions that you’ve been asked recently?
Rob: That would probably be in that interview. She basically was saying, “How do you pass along your values?” or, “Which of your values do you want to be in the companies that you start and be delivered to the teams that you worked with?” and then, “How do you do that?” It was just a whole path of thinking about that. The reason it was interesting was because I had really not done a lot of thinking about it. I had to think on the spot what those things are and how I do those.
I listened to it today. It came out good. That’s actually the beauty of being asked the same questions over and over. You learn how you think about them. You learn how to answer them eloquently and in a way that’s succinct, not just you thinking out loud and trying to find your way to an answer.
Sherry: Okay. One of the things that I think is interesting about you is that you are working on three interrelated but separate businesses at the same time. The way in which those businesses are growing, they’re all growing and shifting right now. I’m curious how you direct that growth. Of course, we’ll talk about each of them separately. We’ll talk about MicroConf, we’ll talk about Startups for the Rest of Us, and of course, TinySeed. What’s the unifying thread? What are you trying to accomplish? What do you want out of these three businesses as they grow?
Rob: I realized this over the past two years after I left Drip. I was saying, “What should I do next?” I was looking at buying a tabletop gaming website. Just going completely off into a different direction, down a different path I had gone previously. But the more I looked at what I have done all these years for free (in essence), compared to the software products, the startups, and all that stuff that I had started, blogging, podcasting, and starting a conference are either completely revenue-neutral or rounding errors of revenue. But I did them, anyway.
That was a big sign to me that it should be the direction that I had. I realized that the things those had in common and that the three things you’re talking about—MicroConf, TinySeed, and the podcast—have in common is they help entrepreneurs. They help founders, they help us bring us strategies and tactics, but they also bring us together, and they inspire us to keep going.
Startups for the Rest of Us are free. It’s every week. There’s a little bit of community around it because you can tweet about it or be in the comments. You can hear other people answering questions and sending their questions in. But really, it’s a low level of engagement, and the cost is zero. If you take that up one notch, probably my first book Start Small, Stay Small is between $10-$25 depending on which version you buy. There’s no community there but there’s a lot of strategies, tactics, and some inspiration.
If you take it up another notch, then there’s MicroConf, which is our local events will be $99, and our growth is $1000 or $1100. There’s way more engagement. It’s super intense in terms of strategies, tactics, and inspiration, but they all do the same thing. They’re purely to help startup founders. One does it for free, one does it for cheap, and one does it for less cheap. Then there’s TinySeed. You can see the path, the thread that binds all those together. That’s really what I found of everything I’ve done in my life as a professional. That’s the most fun, and that’s the one that I’m most excited about. You can tell because I’ve been doing it for 15 years now. The same thing.
Sherry: But you’re a teacher. You’ve always been someone who learns something thoroughly, and then wants to explain it to someone else.
Rob: Yeah, there’s that element. That’s how it started with the blogging, the podcast, and the book (I guess). The interesting thing is it did not occur to me until a couple of years ago when it really hit me. I saw myself as a facilitator, getting people together to learn, and in the early days it was all about the tactics and the strategies. Then about (I’d say) seven years ago, we realized, “Boy, it’s much more about the relationships in the community,” and then a couple of years ago, I realized I really am bringing people together, like that’s the most important piece.
Sherry: It’s interesting to hear you say that as something that came to you later because in my life with you (which began 20 years ago), we identified ourselves as gatherers when we were in our early 20s. People would be at our house.
Rob: Yeah. That was always something we did, but you and I did that together. I didn’t know if I could do it on my own, if I should, or if I’m good at it. Then you looked at the track record of it. The interesting thing is when I actually looked at what I’ve done. There’s a certain amount of being successful, whether it’s as an entrepreneur or not, and it’s knowing myself. The more that I’ve learned about myself and removed those blind spots, the more I feel like I’m able to manage my own psychology, manage my own pros and cons, and strengths and weaknesses.
When I look back, I’ve had this blind spot of, I didn’t realize how much I wanted to get people together. You and I did it naturally (again) 20 years ago. One of my favorite parts of the podcast—which is a very unidirectional medium, is basically one or two people talking in the mic while everyone else was listening—are these Q&A episodes, where we get all the listener questions, feedback, and the voicemails. We can rally around that and feel like if you listened to five or six listener questions, you know, “Wow, it’s not just the two hosts that are answering this. It’s five or six other people.” Every month we do an episode. You hear they’re being people, even in the medium that is designed to not to be.
In my first book, I was going back and reading that, and I used a bunch of examples of Ruben Gomez, Ted and Harry from Moraware Software. I don’t remember who else, but even at that time when I didn’t need to do that, I realized that bringing other folks into the mix only benefits all of us. We are all smarter than me.
Then of course, MicroConf. Is that and TinySeed much more intense and much smaller scale? Having the batch of 10 founders is this super in-depth and intimate community.
Sherry: Let’s do a little bit of a deep dive into the podcast. There’s been some significant shifts lately. Mike is not on every week anymore, still part of the podcast but is not the weekly co-host. And you’ve made some other personnel changes by hiring an assistant producer. How’s that going?
Rob: It was touch and go at first. It’s just kind of scary to be on a show that has had a certain format for 450 episodes. Then there’s suddenly turned that over and say, “Can I do this? Can I really keep this going at a level that it deserves (given the audience), and just giving all the stuff we put out there?” Right now, it feels like since then, there were some touch and go moments, but pretty much everything feels up and to the right. I feel really positive about it.
I have a renewed energy around it, and I think people can feel that. I’m also, every week, thinking, what can I do differently this week? What can I mix up? The novelty of that, of even trying different formats, I’ve tried some that just don’t work out well, but people were like, “That was an interesting experiment. Have you thought about doing it this way?” It’s almost like customer development. Try something new and try something new, and just keep the variety going.
The interesting thing is when you do that, it takes a lot of time. You just don’t show up every week and talk for 30 minutes like we used to. That’s where the assistant producer comes in. I find myself spending more and more time each week just going guest research, writing questions, trying to find folks, and just doing all the stuff—calendaring, moving MP3 files from here to there, et cetera. It’s just all stuff someone else can be doing, so that’s really where I started looking for someone to help out and take that burden off because I wanted to keep doing it.
This is why podcasts stop. People can come up with great ideas and want to do them, but real life gets in the way. Running MicroConf and TinySeed, then having this podcast as well, there’s a lot going on in doing day-to-day stuff.
Sherry: Just a lot of admin, too. Moving files around is not that fun. You tried this discussion format. Did you enjoy that? Was it fun? What were the pros and cons of that?
Rob: Yeah. It was a news discussion show-type thing. It kind of worked. It mostly worked. It was super fun to record, but I think I want to put some tighter reins on the couple of the topics, and try to make them more current events. I also think that having three of us on the mic or even four at once and doing round-table on topics, I think it could be really interesting. I know a couple of other shows that do that. They focus on news topics like startup news or tech news. You hear a variety of voices from a variety of perspectives. It’s really interesting.
Again, that’s logistically a lot of work, to find those people, to find the time that works for everybody, then get all that audio files. Just get everything together. Writing the show notes, finding the topics, on and on and on. The shows I’m talking about are either the people who literally do them full time or they have full time staff doing them. That’s what I’m looking at. I’m expanding into that one because there’s no one doing that in our space. They do it more in the Silicon Valley or in the tech news space.
Sherry: Did you try a show format that you weren’t such a fan of? That you didn’t like? Or you didn’t feel like working well?
Rob: I don’t know. I did a couple of hot seats. I got mixed reviews or really I would ask people, “What’d you think of the hot seat?” They’re like, “Oh, you did a hot seat?” I was like, “Yeah. I went through this, this, and that.” Someone’s like, “Yeah, I don’t remember that episode,” which tells me it probably wasn’t memorable.
Sherry: It felt like an interview, maybe?
Rob: Yeah, I don’t know. I’ve also heard people say, “The ones where you go through with an entrepreneur, your troubleshooting things, and trying to think through, those are the most interesting ones,” which essentially are the ones with Mike and the ones that are hotseats. That’s always the issue. You only have a handful of data points in any of these things.
Even when I call for feedback and say, “I’m going to try this interview, call everybody back for a Q&A, and try this thing out. Give me your feedback.” I will get 5 or 6 people who sent me an email or tweet me out, or maybe it’s 10 or 12. But it’s not so many data points, that it’s not an end of 100 or 1000. I will often get two that say, “Yeah. That was really good.” And two that say, “I was kind of bored.” What do you do with that, at that point?
Sherry: You keep going.
Rob: Yeah, no doubt.
Sherry: Which is what you’ve done for 10 years now. The 10-year anniversary of the podcast is next month. Is that true? Is it really 10 years? That’s crazy long!
Rob: Yeah. March of 2010 was our first episode.
Sherry: Wow. Almost 500 episodes.
Rob: Yeah, that’ll be in June, that 500th episode.
Sherry: Dude, you’re an old podcaster.
Rob: It’s just really ancient in podcast years, yeah.
Sherry: In podcast years, that’s OG for sure.
Rob: Yeah. It’s a trip. To me, the 500th episode is a big milestone. 10 years and still super interesting. I don’t know if I’ll do anything fancy for that but 500th episode, I’m trying to wrap my brain of like, what do you do to celebrate that? What do you do that’s different not just the same episode that hasn’t been done before?
Sherry: What are you going to do?
Rob: I don’t know yet. I’m still thinking about it. I have some ideas.
Sherry: If you could live podcast while skydiving.
Rob: I could do that. I think the audio quality would probably not be great. Imagine that. “I’m your host Rob Walling.”
Sherry: It’s just like a long scream.
Rob: That’s the thing. A bunch of the formats that I do here, Mike and I did a live podcast recording at MicroConf Europe for our 300th episode. It’s okay. As a podcast, live podcasts are not that interesting. They’re always my least favorite. If I’m listening to a series and I do a live show, I’m sure they’re great fun to be there in person. There’s that energy, but it’s not as interesting. People are either… I don’t know. I don’t even want to conjecture why that is. I just know that I’ve listened to 10–15 live episodes from different podcasts that normally record in a studio. They’re just off their game. I can’t think of a single one that was better than just the normal episode that I normally record.
Sherry: I’m curious what the audience would recommend or would want to do with the 500th episode.
Rob: Yeah. I’d be happy to take suggestions either at Twitter @robwalling or questions@startupsfortherestofus.com. Definitely open to ideas and ask a few close friends of mine who listen to a lot of podcasts, what are the best episodes you’ve heard. Again, I have some ideas. I’m just trying to whittle it down and figure out what. I can come up with ideas that are really, really, a lot of work, and I’m trying to figure out how to either pair that down or make it happen or whatever.
Sherry: If work, money, time, and resources were no option, what would you do?
Rob: No limit, I would have 500 startups experts, founders, or people we respect answer a question, ask me a question, or something outrageous.
Sherry: That’s a really long podcast.
Rob: Well, that’s the problem. I can’t do that.
Sherry: 24 hours of Startups for the Rest of Us.
Rob: Right. Wouldn’t that be a stunt? Wouldn’t that be crazy?
Sherry: It would be a stunt, that’s for sure.
Rob: A three to four hour podcast. Maybe don’t do 500. Maybe just do 10. You can just see where it goes. I have to arrange that and figure out who to ask, get the files back, and all of that. And it has been done. I kind of have enjoyed some of those episodes we’ve done it ourselves. Our 100th episode was basically asking a bunch of people a question. We’ve got, I don’t remember, it was like Shawn Ellison, Andrew Warner, and a bunch of people answering questions that we tied in. That was a fun one. But, do that again for 500?
Sherry: I don’t know. I just know that the need to do something novel or new with that big pizzazz is maybe the best way to celebrate 500 episodes. I mean, 500 episodes is just relentless execution which is the Rob Walling theme. I don’t know about this pressure to do something new.
Rob: It’s possible. We did it for 400. We have a lot of these out. Four hundred was just an episode Mike and I recorded about being consistent. That was the whole thing. We looked back, and we talked about our metrics changes, audience listenership, and how we have shown up every week, why we show up every week, just all that stuff. We have done that, I’ll say, but I certainly could revisit that theme for sure.
Sherry: Well, that would be consistent.
Rob: Indeed.
Sherry: Right alongside this monster anniversary for Startups for the Rest of Us, you also have a new little baby podcast, the TinySeed Tales. I have to tell you, every time I see that title, I think about the DuckTales, a Disney show that existed when I was a kid.
Rob: That was an awesome show. That show holds up.
Sherry: It had this really cool song. So TinySeed Tales. How’s that going? You launched season one.
Rob: Yeah, season one went out. It was a podcast I wanted to do for years, but it took a lot of time and a lot of money because we have to pay a producer who’s producing it at a pretty high level, voiceovers, scriptwriting, and all that stuff. That was a cool experience to see how that’s done. You haven’t heard any episodes right?
Sherry: No. Confessions of the wife.
Rob: I know you don’t listen to my podcast and I listen to yours. Let’s put that for the record. If you listen to nothing else, you should listen to TinySeed Tales. It’s 8 episodes, they’re 20 minutes each.
Sherry: Why should I listen to it, Rob?
Rob: Because it’s good radio. It’s really good.
Sherry: What makes it good radio. I know it’s not just the production value, the money, and the time. Why is it good?
Rob: One part is you talk for 40 minutes then you take the best 15 minutes of all that audio. You pack it together, write five minutes of voice-overs. That is inherently going to be more interesting than a 40 minutes interview. You just get better tape. In addition, I really started doubling down in my interviewing skills right before that because I didn’t want it to suck. You know me when I’m new to something or feel like I’m not good at something, I dive in pretty deep.
Probably some of my best interviews I’ve given are in TinySeed Tales. The first season was with Craig from Castos. He’s also very thoughtful, he’s really good on the mic, it was a very natural fit for him to do. He wasn’t nervous. I could imagine doing it with somebody who hasn’t podcasted before, and I think it would have been a lot more challenging. Then there’s cool music, too.
Sherry: Oh, as long as there’s cool music. Is it the Tiny Tales theme song like DuckTales?
Rob: No, but we should’ve done that now that you said that. Dude, you’re mocking it. DuckTales holds up. It’s one of the cartoons from the 80s that’s considered to be very good.
Sherry: I’m not mocking it. I am singing along. You misunderstand me, sir. I’m not mocking it.
Rob: They’re redone it; Disney just redid it. The new one has Chucks, too.
Sherry: Have you been watching Disney Plus at night while I’m sleeping?
Rob: No. Maybe Finn has.
Sherry: Okay. One last question about the podcast. I know there’s lots of other things that you’ve been working on that I want to ask you about. What is your growth area in podcasting?
Rob: What do you mean? What growth area?
Sherry: You’ve been doing this for 10 years. What are you working on getting better at? What are you continuing to learn about and press into as someone who is guiding Startups for the Rest of Us?
Rob: Two things, you’ve heard me do intros and outros or solo episodes. I want to be able to do those almost without editing. When you and I are here talking, I’m not starting and stopping 20 times for five minutes of response. It’s just a natural conversation that flows. When I sit down to intro and outro this episode, Josh, our editor, is cringing right now thinking of how much he has to edit those two minute or three minute intros. Something about it when someone else’s not in the mic, I get stuck. It’s weird. I’m trying to work through that.
The other thing that’s more visible to the listeners is every interview I do, I’m trying to become a better interviewer. I’m trying to get better asking the right questions, asking them in a way that brings out the interesting answers, that touches on the emotions, but also brings out tactics and learnings. There’s a lot to be learned there. That’s what’s still exciting for me about the podcast. I think once I peek at anything, most of us, once you peak and you’re like, “That’s it. I’m the best there is,” it’s only downhill from there. That still feels like I can see a lot of mountains up ahead of me that I haven’t climbed here with podcasting. I think I can only get better in a lot of ways.
Sherry: Are you going to be doing this in 10 years?
Rob: I don’t know. I would say yes because that’s my personality, to just do things forever. I said that on purpose. I said it on purpose because I knew you’d laugh. Every software company I ever started I have not done forever.
Sherry: I know. That is absolutely not true, Rob Walling.
Rob: That’s the opposite, yeah. The Interesting thing is with books, blogs, podcasts, conferences, that stuff, I have done for a very long time. That was the signal a couple of years ago where I was, “I keep coming back to these things,” and podcasting is one. TinySeed Tales, while it’s been on this feed, I’m setting up another feed for it, and it’s going to be in seasons. But really, I have two podcasts now, and I could see having another. I enjoy it that much. I enjoy consuming podcasts that much, and I enjoy creating them a lot.
Do I think I will be podcasting in 10 years? I do. I think it might be Startups for the Rest of Us, but who knows? So much can change. If you think back 10 years ago, I hadn’t started Drip. I hadn’t bought HitTail. I hadn’t started this podcast. So much was different, so when I think 10 years ahead from now, where could that lead?
Sherry: Speaking of things leading places, let’s shift gears, move down the funnel a little bit, and talk about MicroConf. It has been a huge year for MicroConf already. You did this big announcement talking about reorganizing the schedule and structure of MicroConf. We are getting ready for MicroConf here in Minneapolis in just a few months, which I’m very excited about. So, 2020 compared to 2019, what are the significant changes that you’re implementing with MicroConf?
Rob: As you said, it’s a huge change. In 2019, we did three in-person events.
Sherry: Which was Growth Starter in Europe. Now, what’s 2020 looking like?
Rob: We’re doing seven in-person events. It’s Growth Starter in Europe, and then four were local events.
Sherry: You just sent me all the calendar invites in these events yesterday, and I was like, “Holy crap, you’re basically gone most of the month of October traveling around doing the MicroConf Roadshow.” It’s what I’m going to affectionately call it.
Rob: Yup. That’s exactly a good name for it. We went to seven of those, then we were doing the State of Independent SaaS reports. I’ll say we’re doing it. We did the survey, issued the report, did a live stream, which is I’ve talked about was quite an endeavor and a little bit nerve-wracking.
Sherry: A little bit nerve-wracking? Are you kidding me? You were sweating that for weeks. I haven’t seen you that stressed about something. Maybe the Drip sale or the decision to leave Drip, but you were like, “Which outfit should I wear?” It was really occupying a lot of space. Why do you think it was so challenging?
Rob: Probably because I wrote this blog post here years ago called Terror of First. I said that the first time you do anything, it terrifies you. Then, you just do it until you get numb to it. Pretty soon you’ll get better at it, and you’ll get more comfortable with it. First time I ever published a blog post, I was freaking out. First time I ever published a podcast episode, I was freaking out. First time I ever did a talk in front of people, I was freaking out. On and on and on. Each of those I have become more comfortable with. I think most of us do, and that this was one.
Doing a 30-minute live stream where you are standing, looking at a camera and nothing else, is not the same as standing on a stage at a conference and talking to 500 or 1000 people. It’s crazy how different it is. The energy is different. It’s a skill and it’s something that, if you’d ask me what’s my personal development this year, a lot of it is that it’s getting better in front of a camera. I’m not nervous. I don’t get the sweaty palms, hair standing up at the back of my neck, and throat closing. I don’t get that. You just get awkward naturally. The camera just doesn’t feel like a natural conversation because you’re talking to no one. You’re […] an abyss and trying to have a personality, and I don’t think it’s a natural thing for us to do, at least for me. I’ll speak for myself.
Sherry: Oh, no. It goes against every part of our brains that’s geared towards interactive communication.
Rob: Yeah. No one’s nodding. No one’s saying, “Uh-huh.” You’re not getting any positive feedback, which in an event, I can be nervous, get up, start doing a talk, I start talking about things, I see people in the audience are going with it, they’re smiling, and I’m like, “Yeah, yeah.” You feed off that energy. You know that feeling.
Sherry: Oh, yeah.
Rob: And you don’t get that with the thing. That’s where, standing for 30 minutes with no script, no cue cards, talking, and knowing that there’s really no cutaways, even to get a drink, there was not enough time for me to stop and get a drink of water in the middle of that. I could have, but people would literally be waiting on a live stream while you do that. That’s a new experience for me. I’m sure over time, it will become more comfortable just like now on stage. If I need to stop and get a drink, the deafening silence that you hear…
Remember the first time you did a talk whenever you were quiet? It sounded deafening like you should be feeling the silence. Everyone was waiting for you to say the next word. Then, the 10th or the 20th talk you do, you’re like, “The silence helps.” It gives people space.
Sherry: Yeah, the silence is fine.
Rob: Yup. That’s where doing a live stream like that, I was like, “Which rules apply? Which don’t? What do I have to adjust here? How do I get in front of this many people?” It got recorded and now it’s on YouTube. I think it’s 2500 or 3000 views. I’m going to be seen by 3000 people on the camera. How do I make that interesting for them? How do I make it provide that value of 3000 people giving me 30 minutes of their time?
Sherry: Why was it so important for you to do this State of Independence SaaS? To do the report, to do the study, then to do a live stream? Why is that significant?
Rob: The report for me is like a passion project that I’ve been wanting to do for years because there just hasn’t been data in our space. We see all these reports about venture capital raising companies, their stats, and their benchmarks. I’ve just been so curious because people asked me, “How many people go to MicroConf have raised some kind of funding?” I was like, “I think about 10% but I don’t know.” I was super curious to hear that. I have all these rules of thumb like what your churn should be, what’s good, bad, and great churn, trial-to-paid conversion ratio, just all these metrics that I have developed the rules of thumb over the years, but it’s just from seeing a bunch of apps. It’s beyond anecdotal. It’s not that I had an end of one, but I had an end of dozens, I’ll say, that I’ve combined, and I wanted to see how those held up.
It wasn’t just a personal thing. I want this whole space. I think this is the future. I believe that this space is the future because venture capital can only be invested. It’s like 1 in every 100 startups or something; it’s a really small number. We’re “for the rest of us.” We’re startups for the rest of us. We’re the other 99%. I believed as we move forward (and had believed this for a long time), we are the long tail of startups, so where’s the data on us? Where’s the stuff to help us? Where’s the stuff to give us some type of benchmarks?
Sherry: How do you see the information in this report and in the live stream impacting an individual founder?
Rob: The live stream was 22 minutes, plus Q&A of me just walking through some high-level findings, and it was to get people interested enough in it to read the report. The report itself is 65-80 pages, depending on which version you get. There’s a lot more in the report. You can think of the live stream almost as an advertisement to download the report. Just to be like, “Hey, look at this thing. This is interesting and these are my thoughts about it.”
Sherry: It’s an abstract.
Rob: It is, that’s a good point. An abstract, like an academic paper. Whereas the report, if I was the founder, I would be looking, “Oh, where am I? What percentile am I at with my churn, with my trial-to-paid, and with my hours worked per week? With how many years I’ve been in the business versus growth?” There were just all types of findings in there that I think it depends on your situation that we can benchmark ourselves to. In addition, there were some interesting findings with which marketing approaches, which advertising approaches, are working best for you right now.
We now have a ranking on that in our space. We have payback periods for Facebook and Google Ads. You can see it. My gut was always, “1–3 or 1–4 months is where we want to be as bootstrappers, indie-funded, self-funded, founders.” That was the majority (I think) or maybe it was 40% or 50%. Again, it reinforces some stuff that I already knew. If I hadn’t already known that or if you’re just coming new to the space, you’re just trying to figure stuff out, you can just look through, and be like, “Okay. This is the sanity check range of where most people are.”
Sherry: And on some really, really, concrete things that affect choices that founders make every day. What’s this MicroConf Connect? More Slack channels for me to deal with? Oh my God, why would I do that?
Rob: Yay. I’m totally going to invite you. That’s another thing. It’s the State of Independence SaaS live stream. We’re doing a MicroConf Remote, which is a remote event here in (I think it’s) July or August. I don’t know if we have the date nailed down yet. Then, we have long been asked like, “I want to stay in touch with folks from MicroConf year round; there’s no way to do that,” because would set up a Slack channel for an event, use that as a communication method, then we shut it down 30 days later. The reason we did it is because managing a Slack channel is a lot of work. You need to moderate it, keep it healthy, and there’s all kind of stuff to be done.
We now have the resources to do that. So, that’s what it is. It’s connecting founders, it’s an online home for the MicroConf community, founders and aspiring founders who want to build these ambitious startups, as I often say in the intro of this podcast.
Sherry: All of this stuff and change that’s going on with MicroConf in it, it is all rebranded and packaged in a great website now. You have that all redesigned and redone.
Rob: That feels really good.
Sherry: It looks so much better.
Rob: It was a side project. That’s the thing. The podcast and the MicroConf were literally side projects of Mike and I. We both felt like these should get more do. These are good things that should be treated better, look better. It feels good to finally have a logo that (I think) will last us a long time on a website and all that stuff. That’s been the big push since we brought Sander on full- time here about six months ago. It’s just getting your ducks in a row, how these all fit together, and how do we expand this in a way that helps more founders.
It comes back to that whole thing, why am I doing this? Because it excites me. I want to be in the space. I want to help founders. So, how do you help more founders? You do stuff that’s hopefully cheaper because a lot of people are bootstrapping, and you try to reach more people. That’s where you get the remote and local events where we roadshow out to folks, so they don’t have to travel.
It’s been a fun experience to try to brainstorm how to do that, how to accomplish that.
Sherry: What founders need.
Rob: Yeah, and how to do it in a way that’s economically viable. If you think about MicroConf being three in-person events per year, you can’t just expand that infinitely. It doesn’t scale. You can’t do 100 events per year. You can’t easily switch to that. How do you do that and expand it in a way that’s intelligent? Intelligent but somewhat scalable. That’s a balance we’re trying to strike. Some online stuff, some in-person.
Sherry: You just need to see it grow up. I think Startups for the Rest of Us, MicroConf, as you said, they were side projects. They were things that you did on the evenings and weekends when you were running your real company. Now that you have more time and energy to devote to them, they really are starting to look like that, and reflect that this is some of the core of what you’re doing, what you’re working on, and the ways that you’re serving the founder community. I love how they look. Both the Startups for the Rest of Us and the MicroConf websites are looking good.
Let’s talk a little bit about TinySeed. Since that is (I guess) your “real business” now.
Rob: Yeah, for sure.
Sherry: You’ve closed the batch two, right?
Rob: Almost there. We’ve made offers. We’ve had verbal yeses if everything goes through. You never know what’s going to happen when you get due diligence and paperwork, and we’ve basically in the midst of that right now, so sending docs, getting some stuff signed.
Sherry: Is that the least fun part?
Rob: For me, yes. The due diligence. I think for everybody, probably. It’s the due diligence, trying to get docs signed, and just all the questions.
Sherry: Paperwork.
Rob: Totally. Papers and paychecks. It’s been really nice to have Tracy around because she’s spending a lot of time that I spent last batch. She’s focusing on that and then Einar’s, working with her on that. Given the podcast expansion and the MicroConf expansion. It was like, “I can’t do that again.” You can only do so many things at once. That’s been the reason I haven’t been able to focus more on these other things.
Sherry: Is it the hope to bring batch one and batch two together in Minneapolis right around MicroConf time? Just everything converges?
Rob: Yeah, it does, which is kind of cool. That was by design and it will be by design. Since we are remote, there’s not a ton of overlap between the batches. It’s neat to be able to have the batch two meet batch one, and hang out. There’s the alumni association, so to speak. That’s a big factor in a lot of these accelerators. It will be in TinySeed, where the alumni help the next batch get acclimated, and can offer some mentorship or some guidance on a number of fronts. I think that’s the value.
Sherry: Yeah. They become mentors of sorts.
Rob: Exactly. That’s such a big part of the value of being an accelerator and not just being a fund. When you have a fund, you write checks to companies. Oftentimes, they never meet. They don’t really know each other. They’ll know of each other but they won’t hang out together. The batch part brings people together in such a tight community, and even across batches, being able to propagate that, and to have—by the time you get to batch three, four, or five—them reaching back to batch one who (a lot of those companies) will be wildly successful at that point. I’m willing to wager and have been willing to wager. They’re able to then continue to learn from them and also get introductions and work on the networks. The network of TinySeed founders will expand naturally each year.
Sherry: What changes have you made between batch one and batch two?
Rob: The process for batch two, the application process was more streamlined. It was just a better process. Of course, we tweak the application questions a lot. It was good to have three people who weren’t just myself. Actually, you were involved more on the first one because I have someone off questions. This time, Tracy took a lot of the third person role to weigh in on things. That was helpful.
We did change the funding amounts. We tweaked them very minorly. The version two terms, I believe, are the same. I don’t think we changed that term at all. Then batch two, we’ll tweak some stuff with the calls. We’re going to do fewer retreats. We did four retreats this year and our feedback was…
Sherry: Too much time in Florida?
Rob: One, too many retreats. Yeah. We’re going to move to three in-person gatherings which feels good.
Sherry: It’s nice to have some space to implement all of that retreat content between time.
Rob: Yeah, that’s the idea. What we found is you learn a ton in the first couple of months, let’s say, 3–5 months, 3–6 months. Then you really know where you’re headed after that. You have some small questions beyond that but it’s not the huge directional shift. Like in the first two months, we had multiple people that needed to completely redo pieces of their business. You’re charging three times too little or your on-boarding is no good. Your entire pricing structure is off. Let’s help you figure out how to tweak that or your copy is this. There’s some major changes. While those continue to happen in some former fashion, it’s not to the extent of the first few months of a program like this. There’s actually less of a need as you get through the program.
There’s a reason why a lot of accelerators are three months. You can provide a lot of value in that time. Of course, their goals to raise around haven’t really raised funding. That’s not our goal. We do think that SaaS, we know that takes a lot longer. We do want it to be longer than 3 months, but we also think that a call every week for 12 months is probably the initial hypothesis. It starts to feel a little heavy as you get further and further in. It’s like, “Do we really need two mentor calls a month still?” Even if there were 8, 9, 10, months into this. Or, am I just focusing on needing to implement right now? It’s almost accountability mode. I need someone to keep me accountable to sanity checks and stuff, to just keep me accountable to continue to implement these plans that I’m trying to get done by month 12.
We really have seen a shift in a lot of the thought process and the stages these companies are at, which is good. It shows there are emotions. A lot of folks came in relatively early stage and you hit a point where you don’t need all that anymore. You’re just plowing forward, blocking, and tackling, as they say. Just implementing.
Sherry: What are you most excited about a new batch, another round?
Rob: I think that with any startup founder (which I still consider myself), we’re implementing some things differently. I’m excited to see how that works out and don’t work out. I’m excited to get to know everyone. The relationships that I’ve had with batch 1 founders are truly valuable to me. And I don’t mean monetarily. I mean, I would call so many of these folk friends. Certainly, deep acquaintances but people that I enjoy hanging out with that I truly wish a lot of success on. I truly wish that they have a lot of success, purely because I think they’ve worked hard. Building new relationships is probably the best way to say it. That feels exciting. It’s exciting to me to be able to help people. It’s another group of folks.
Sherry: Yeah. It’s a deep investment in humans.
Rob: That’s what it is. That’s the part that excited me the most. Just in general, investing deeply.
Sherry: Well, you have a big year. Has it been two years since you left Drip? Almost two years?
Rob: Yeah, almost two years.
Sherry: There’s been phenomenal change in growth, the development, the inception of TinySeed, all the way to now, your second batch. It’s amazing to see the pace which you’ve moved, but also, you’ve been executing on these ideas and these materials for many years, at least 10 with the podcast. Again, we have that dichotomy of 20 years to overnight success.
Rob: Yeah, that’s how it feels. It’s that thing of showing up every day. It’s relentless execution, but what’s funny is that it makes it sound like you work to the bone constantly and work 60 hours a week. That’s not what I do. Not really what I’ve ever done for any stretch of time. You can build it up, as you’re saying, but you do anything consistently for 10 years. You’re going to make some progress. You’re going to get better at it. You’re going to build something.
Sherry: Thanks for letting me take over your podcast today.
Rob: Yeah, it was great. I enjoyed the conversation. It’s cool to be interviewed by different people because they think about things along different axes, lands in different questions, and looks at progress along different axes, I guess, to say again. Yeah, I really appreciate you taking the time to come on the show.
If the folks want to keep up with you, you have your own podcast called ZenFounder. You are @zenfounder on Twitter and sherrywalling.com on the Interwebs. Thanks again to Sherry for coming in the show and look for another Rob catch-up episode here in about three months.
In the meantime, if you have questions for me or other guests who appeared on the show, please send me an email at questions@startupsfortherestofus.com. We also have a voicemail line people use from time to time, (888) 801-9690. As always, voicemails and audio files go to the top of the stack. If you’re not already subscribed to Startups for the Rest of Us, head to your podcatcher, search for startups. We’re typically in the top five. Thanks for listening. I’ll see you next week.
